<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
BURLINGTON NORTHERN SANTA FE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
LOGO
BURLINGTON NORTHERN SANTA FE CORPORATION
- -------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
- -------------------------------------------------------------------------------
The annual meeting of stockholders of Burlington Northern Santa Fe
Corporation will be held at the Radisson Plaza in the Grand Crystal Ballroom,
815 Main Street, Fort Worth, Texas 76102-5384 on Thursday, April 18, 1996, at
10:00 a.m., for the following purposes:
(1)To elect seventeen directors, each to hold office for a term of one
year;
(2) To approve the Burlington Northern Santa Fe Non-Employee Directors'
Stock Plan described in the accompanying proxy statement;
(3) To approve the Burlington Northern Santa Fe 1996 Stock Incentive Plan
described in the accompanying proxy statement; and
(4) To transact such other business as is properly brought before the
meeting and at any adjournment or postponement thereof.
Stockholders of record at the close of business on February 29, 1996, are
entitled to notice of the meeting and are entitled to vote at the meeting and
any adjournment thereof. A list of such stockholders will be kept at the
offices of the Company at 3800 Continental Plaza, 777 Main Street, Fort Worth,
Texas 76102-5384, for a period of ten days prior to the meeting.
By order of the Board of Directors.
MARSHA K. MORGAN
Vice President--Investor Relations
and
Corporate Secretary
3800 Continental Plaza
777 Main Street
Fort Worth, Texas 76102-5384
March 5, 1996
YOUR VOTE IS IMPORTANT
PLEASE MARK, SIGN, AND DATE YOUR PROXY AND RETURN
IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT
YOU INTEND TO ATTEND THE MEETING.
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION
3800 CONTINENTAL PLAZA
777 MAIN STREET
FORT WORTH, TEXAS 76102-5384
- -------------------------------------------------------------------------------
PROXY STATEMENT
MARCH 5, 1996
- -------------------------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS, APRIL 18, 1996
The first annual meeting of stockholders of Burlington Northern Santa Fe
Corporation (the "Company") will be held at 10:00 a.m. on April 18, 1996, in
Fort Worth, Texas. On September 22, 1995, the stockholders of Burlington
Northern Inc. ("BNI") and Santa Fe Pacific Corporation ("SFP") became the
stockholders of the Company, pursuant to a business combination of the two
companies which was approved at special meetings of their stockholders held on
February 7, 1995. The Interstate Commerce Commission approved the combination
in its written decision of August 23, 1995, which decision became effective
September 22, 1995. In connection with the combination, the Company was formed
to act as the parent holding company of BNI and SFP, both of which companies
are now subsidiaries of the Company. All numbers of shares and per share
information for periods prior to the business combination contained in this
proxy statement have been adjusted to give effect to the business combination.
The enclosed proxy card is solicited by the Board of Directors of the
Company, and your execution and prompt return of the card is requested. Every
stockholder, regardless of the number of shares held, should be represented at
the annual meeting. Whether or not you expect to be present at the meeting,
please mark, sign, and date the enclosed proxy card and return it in the
enclosed envelope. Any stockholder giving a proxy has the power to revoke it
at any time before it is voted at the meeting by delivering to the Company
written notification of revocation or a proxy bearing a later date, or by
attending the meeting in person and casting a ballot.
The shares represented by your proxy will be voted in accordance with the
specifications made on the proxy card. Unless otherwise directed, it is
intended that such shares will be voted:
(1) For the election as directors of the seventeen nominees named
below;
(2) For approval of the Burlington Northern Santa Fe Non-Employee
Directors' Stock Plan described in this proxy statement;
(3) For approval of the Burlington Northern Santa Fe 1996 Stock
Incentive Plan described in this proxy statement; and
(4) In accordance with the best judgment of the persons acting under
the proxy concerning other matters that are properly brought before
the meeting and at any adjournment or postponement thereof.
Stockholders of record at the close of business on February 29, 1996 are
entitled to notice of the meeting and are entitled to vote at the meeting in
person or by proxy. Each share of common stock of the Company is entitled to
one vote. The Company's common stock is the only issued and outstanding class
of stock. At the close of business on January 31, 1996, the Company had
147,503,141 shares of common stock outstanding and entitled to vote. The
Company anticipates first sending this proxy statement and the enclosed proxy
card to stockholders on or about March 5, 1996.
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
In accordance with the By-Laws of the Company, the Board of Directors has
fixed the number of Directors constituting the Board at seventeen. It is
proposed to elect seventeen Directors, each to hold office for a term of one
year and until his successor shall have been elected and qualified. Directors
are elected by a plurality of the votes cast in the election of directors at
the annual meeting of stockholders at which a quorum consisting of a majority
of the total number of the outstanding shares of common stock of the Company
entitled to vote is present in person or represented by proxy. Shares
represented at the meeting in person or by proxy but as to which a vote on
Directors is withheld or otherwise not cast for the election of directors,
such as broker non-votes, will have no effect on the outcome of the election.
Holders of the Company's common stock may not cumulate their votes in the
election of Directors.
Pursuant to the Agreement and Plan of Merger dated June 29, 1994, as
amended, among BNI, SFP, and the Company, the Board of Directors of the
Company following the combination of BNI and SFP initially was to be
constituted as follows: two-thirds of the directors as designated by BNI, and
one-third of the directors as designated by SFP. As a result, as of the
effective time of the combination, former BNI directors Jack S. Blanton,
Daniel P. Davison, Daniel J. Evans, Gerald Grinstein, Barbara C. Jordan, Ben
F. Love, Marc J. Shapiro, Arnold R. Weber, J. Steven Whisler, Edward E.
Whitacre, Jr., Ronald B. Woodard, and Michael B. Yanney became directors of
the Company, and former SFP directors Joseph F. Alibrandi, John J. Burns, Jr.,
George Deukmejian, Robert D. Krebs, Bill M. Lindig, Roy S. Roberts, and Robert
H. West became directors of the Company. Mr. Grinstein retired from the Board
as of December 31, 1995. Ms. Jordan passed away on January 17, 1996.
Subsequently, the Board voted to reduce the size of the Board to seventeen.
All incumbent Directors have been nominated for re-election at the annual
meeting of stockholders.
The nominees for whom the shares represented by the enclosed proxy are
intended to be voted, unless such authority is withheld, are set forth below.
It is not contemplated that any of these nominees will be unavailable for
election, but if such a situation should arise, the proxy will be voted in
accordance with the best judgment of the persons acting under it unless the
stockholder has directed otherwise. Unless otherwise indicated, each director
listed below has served in his present occupation for at least five years. The
indicated periods of service as a director of the Company include prior
service as directors of BNI, SFP and predecessor companies. No Director, other
than Mr. Krebs, is or has been employed by or served as an executive officer
of the Company or its affiliates or subsidiaries.
NAME, AGE, AND BUSINESS EXPERIENCE
OF NOMINEES FOR DIRECTORS
<TABLE>
<CAPTION>
Served as
Director Since
--------------
<S> <C>
JOSEPH F. ALIBRANDI, 67......................................... 1982
Chairman and a director of Whittaker Corporation, Los Angeles, California
(aerospace and communications) since December 1985, and Chairman and a director
of BioWhittaker, Inc. (biotechnology) since October 1991; also Chief Executive
Officer of Whittaker Corporation from November 1975 to December 1994 and Chief
Executive Officer of BioWhittaker, Inc. from October 1991 to September 1992.
Also a director of Catellus Development Corporation, BankAmerica Corporation,
and Jacobs Engineering Group Inc. Member of Executive Committee and
Compensation Committee.
</TABLE>
2
<PAGE>
NAME, AGE, AND BUSINESS EXPERIENCE
OF NOMINEES FOR DIRECTORS
<TABLE>
<CAPTION>
Served as
Director Since
--------------
<S> <C>
JACK S. BLANTON, 68............................................. 1989
Chairman and Chief Executive Officer of Houston Endowment, Inc., Houston, Texas
(private charitable foundation) since December 1990. From December 1986 to
present, President and Chief Executive Officer of Eddy Refining Company
(petroleum products). Also a director of Ashland, Inc., Baker Hughes
Incorporated, SBC Communications Inc. and Pogo Producing Company, and advisory
director of Texas Commerce Bank National Association. Member of Compensation
Committee and Directors and Corporate Governance Committee.
JOHN J. BURNS, JR., 64.......................................... 1995
President and Chief Executive Officer of Alleghany Corporation, New York, New
York (holding company with title insurance, investment management, reinsurance,
industrial minerals, and steel fastener operations) since July 1992. From May
1977 to July 1992, President and Chief Operating Officer of Alleghany
Corporation. Also a director of Alleghany Corporation and Armco Inc. Member of
Executive Committee and Compensation Committee.
DANIEL P. DAVISON, 71........................................... 1976
Chairman of the Board of the Company since January 1996. Chairman, Christie,
Manson and Woods International, Inc., New York, New York (auctions) from
February 1990 to December 1994. Chairman and Chief Executive Officer, U.S.
Trust Corporation, New York, New York (banking) from May 1979 to January 1990.
Also a director of U.S. Trust Corporation, U. S. Prime Properties Inc. and
Christie's International plc. Member of Executive Committee and Compensation
Committee.
GEORGE DEUKMEJIAN, 67........................................... 1991
Partner of Sidley & Austin, Los Angeles, California (law firm) since February
1991. Formerly, Governor of the State of California from January 1983 until
January 1991. Also a director of Health Systems International, Inc. Member of
Audit Committee and Directors and Corporate Governance Committee.
DANIEL J. EVANS, 70............................................. 1991
Chairman, Daniel J. Evans Associates, Seattle, Washington (consulting) since
1989. Also a director of Puget Sound Power & Light Company, Flow International,
Inc., Tera Computer Company, and Washington Mutual, Inc. Member of Executive
Committee and Compensation Committee.
ROBERT D. KREBS, 53............................................. 1983
President and Chief Executive Officer of the Company since September 1995. Also
Chairman, President and Chief Executive Officer of Santa Fe Pacific Corporation
since June 1988. Also a director of Phelps Dodge Corporation, Northern Trust
Corporation, Santa Fe Energy Resources, Inc. and Santa Fe Pacific Gold
Corporation.
BILL M. LINDIG, 59.............................................. 1993
President and Chief Executive Officer of SYSCO Corporation, Houston, Texas
(marketer and distributor of foodservice products) since January 1995. From
November 1985 to January 1995, President and Chief Operating Officer of SYSCO
Corporation. Also a director of SYSCO Corporation. Member of Executive
Committee and Directors and Corporate Governance Committee.
</TABLE>
3
<PAGE>
NAME, AGE, AND BUSINESS EXPERIENCE
OF NOMINEES FOR DIRECTORS
<TABLE>
<CAPTION>
Served as
Director Since
--------------
<S> <C>
BEN F. LOVE, 71................................................. 1990(1)
Investor. Chairman and Chief Executive Officer of Texas Commerce Bancshares,
Inc. (banking) from 1972 to 1989. Also a director of Cox Enterprises, Inc.,
Mitchell Energy & Development Corp., El Paso Natural Gas Company and advisory
director of Texas Commerce Bank National Association. Chairman of Executive
Committee and member of Directors and Corporate Governance Committee.
ROY S. ROBERTS, 56.............................................. 1993
Vice President of General Motors Corporation (manufacturer of motor vehicles)
and General Manager, Pontiac-GMC Division, Pontiac, Michigan since February
1996. From October 1992 to February 1996, General Manager, GMC Truck Division,
and from January 1990 to October 1992, Manufacturing Manager of General Motors
Corporation's North American Operations Flint Automotive Division. Also a
director of Volvo/GM Heavy Truck Co. U.S.A. Member of Audit Committee and
Directors and Corporate Governance Committee.
MARC J. SHAPIRO, 48............................................. 1995
Chairman and Chief Executive Officer, Texas Commerce Bank National Association,
Houston, Texas (banking) since 1989. Also a director of Browning-Ferris
Industries, Inc., Santa Fe Energy Resources, Inc., Texas Commerce Bank National
Association and Weingarten Realty Investors. Member of Audit Committee.
ARNOLD R. WEBER, 66............................................. 1986
Chancellor, Northwestern University, Evanston, Illinois (higher education)
since January 1995. From February 1985 to December 1994, President of
Northwestern University. Also a director of PepsiCo., Inc., Inland Steel
Industries, Inc., Tribune Co., Aon Corporation and John Deere & Company. Member
of Executive Committee and Audit Committee.
ROBERT H. WEST, 57.............................................. 1980
Chairman of the Board of Butler Manufacturing Company, Kansas City, Missouri
(manufacturer of pre-engineered building systems and specialty components)
since May 1986. Also a director of Butler Manufacturing Company, Commerce
Bancshares, Inc. and Kansas City Power & Light Company. Chairman of Audit
Committee and member of Compensation Committee.
J. STEVEN WHISLER, 41........................................... 1995
President, Phelps Dodge Mining Company, a division of Phelps Dodge Corporation,
and Senior Vice President, Phelps Dodge Corporation, Phoenix, Arizona (mining
and manufacturing) since November 1991. From October 1988 to November 1991,
Senior Vice President and General Counsel, Phelps Dodge Corporation. Also a
director of Unocal Corporation, Southern Peru Copper Corporation and Phelps
Dodge Corporation. Member of Audit Committee.
</TABLE>
- --------
(1) Mr. Love also served as a Director of Burlington Northern Inc. from 1986
through 1988.
4
<PAGE>
NAME, AGE, AND BUSINESS EXPERIENCE
OF NOMINEES FOR DIRECTORS
<TABLE>
<CAPTION>
Served as
Director Since
--------------
<S> <C>
EDWARD E. WHITACRE, JR., 54..................................... 1993
Chairman of the Board and Chief Executive Officer, SBC Communications Inc., San
Antonio, Texas (telecommunications) since January 1990. Also a director of
Anheuser-Busch Companies, Inc., Emerson Electric Co., The May Department Stores
Company, and SBC Communications Inc. Chairman of Directors and Corporate
Governance Committee and member of Executive Committee.
RONALD B. WOODARD, 52........................................... 1995
President of Boeing Commercial Airplane Group, a division of The Boeing Company
(aerospace) since December 1993. From March 1993 to December 1993, Executive
Vice President-Boeing Commercial Airplane Group; from April 1991 to March 1993,
Vice President-General Manager, Renton Division, Boeing Commercial Airplane
Group; and from January 1987 to April 1991, President, deHavilland of Canada, a
division of The Boeing Company. Member of Audit Committee.
MICHAEL B. YANNEY, 62........................................... 1989
Chairman and Chief Executive Officer, America First Companies, Omaha, Nebraska
(investments) since 1984. Also a director of Forest Oil Corporation, Mid
America Apartment Communities, Inc. and MFS Communications, Inc. Chairman of
Compensation Committee and member of Executive Committee.
</TABLE>
OTHER INFORMATION CONCERNING DIRECTORS
Mr. Krebs also serves as President and Chief Executive Officer and as a
director of BNI and Burlington Northern Railroad Company, and as Chairman,
President and Chief Executive Officer and as a director of SFP and The
Atchison, Topeka and Santa Fe Railway Company, all of which are subsidiaries
of the Company. Mr. Krebs also is a director of Santa Fe Pacific Pipelines,
Inc., which is a subsidiary of the Company and the general partner of Santa Fe
Pacific Pipeline Partners, L.P., a Delaware limited partnership. Santa Fe
Pacific Pipelines, Inc. owns a two percent general partner interest and a 42
percent limited partnership interest in Santa Fe Pacific Pipeline Partners,
L.P.
In 1995 prior to the combination of BNI and SFP, the Boards of BNI and SFP
met six times and seven times respectively; after the combination of BNI and
SFP, the Company's Board met three times. Each incumbent member of the Board
attended 75 percent or more of the aggregate of the total number of meetings
of the Boards and the total number of meetings held by all committees of the
Boards on which he served.
Board Committees. The Board has established Executive, Compensation,
Directors and Corporate Governance, and Audit Committees. No member of any
committee is an employee of the Company or its subsidiaries. Following are
brief descriptions of the functions of its standing committees.
The Executive Committee, which met once in 1995, may exercise the powers and
the authority of the Board in the management of the business and affairs of
the Company subject to certain limitations of Delaware law. The Committee also
monitors and recommends action with respect to the Company's capital
structure, sources of funds, and financial position; reviews delegations of
authority to management on financial commitments; reviews terms and conditions
of financing plans; and develops and recommends dividend policies.
5
<PAGE>
The Compensation Committee met once during 1995. The functions of the
committee are to review and make recommendations to the Board with respect to:
the compensation of the President and other officers of the Company;
performance of the trustee of the Company's pension trust fund; proposed
employee benefit and stock plans; Company compensation systems and practices;
and the evaluation of the performance of the Company's officers and the
selection of individuals for appointment or promotion as officers to ensure
the continuity of able, capable management. The Committee is also responsible
for grants of stock awards.
The Directors and Corporate Governance Committee held its first meeting in
January 1996. The functions of the committee are to review and make
recommendations to the Board with respect to: the size and composition of the
Board; nominees for election as directors; evaluation of the performance of
the Board; and compensation and benefits for directors. The Committee will
consider nominations of candidates for election as director recommended by
stockholders. Any such recommendation, together with the nominee's
qualifications and consent to being considered as a nominee, should be sent in
writing to the Corporate Secretary of the Company on or before November 30 of
the year preceding the annual meeting to permit adequate time for review by
the Committee.
The Audit Committee met once during 1995. The functions of the committee are
to assist the Board in overseeing the Company's accounting, auditing, and
financial policies and practices and its internal control policies and
procedures, including specifically to recommend to the Board the engagement of
an independent accounting firm and to review with management and the
independent accountants the Company's financial statements, basic accounting
and financial policies and practices, audit scope, and competence of control
personnel.
Directors' Compensation. Directors who are not employees of the Company or
its subsidiaries receive an annual retainer fee of $36,000 paid in quarterly
installments; for services as the non-executive Chairman of the Board and the
Chairman of the Executive Committee, a supplemental annual retainer fee of
$100,000 is paid; for services as a Committee Chairman (other than Chairman of
the Executive Commitee), a supplemental annual retainer fee of $5,000 is paid;
and for attendance at each Board or Committee meeting, a meeting fee of $1,000
is paid, plus expenses for each Board or Committee meeting attended. Mr. Weber
also receives $10,000 annually in payment for his services as an economic
advisor to the Board of Directors.
Under the Board's corporate governance standards, no individual may serve as
a director beyond the annual meeting of stockholders on or following his or
her seventy-second birthday; individual Directors who change the
responsibility they held when they were elected to the Board should volunteer
to resign from the Board to afford the Board the opportunity, via the
Directors and Corporate Governance Committee, to review the continued
appropriateness of Board membership under the circumstances. An individual who
is an employee shall cease to be a director upon his termination of
employment. On January 18, 1996, the Board of Directors adopted the Burlington
Northern Santa Fe Directors' Retirement Plan ("Directors' Retirement Plan").
An individual who is a member of the Board and who is not an employee of the
Company in the period immediately preceding termination of service on the
Board is eligible for benefits under the Directors' Retirement Plan if he or
she: (i) has served as a member of the Board for ten consecutive years; (ii)
has attained mandatory retirement age; or (iii) is designated by the Directors
and Corporate Governance Committee of the Board as eligible for benefits. The
annual benefit under the Directors' Retirement Plan is an amount equal to the
amount of the annual retainer fee for services as a Board member at the time
of termination of service and will cease upon the individual's death. For
purposes of the ten consecutive years of service requirement, service as a
member of the boards of BNI or SFP and their predecessor companies are taken
into account. The Directors' Retirement Plan supersedes the BNI Retirement
Income Plan and the SFP Retirement Policy for Directors which are similar
except that payments under the BNI Retirement Income Plan provided a 50%
survivor benefit and payments continued for a number of years equal to the
number of years of service as a Director.
6
<PAGE>
Directors Blanton, Davison, Evans, Love, Weber, Whitacre, and Yanney each
received a grant of 1,000 shares of restricted Company Common Stock pursuant
to The 1990 Burlington Northern Inc. Directors Restricted Stock Plan. Approval
of the business combination between BNI and SFP by stockholders of BNI
constituted a change in control and pursuant to the terms of the plan all
unvested restricted shares held by such Directors vested as of February 7,
1995.
Directors Blanton, Davison, Love, Weber, and Yanney each have outstanding
options to purchase 5,000 shares of Company common stock, Director Evans has
options to purchase 4,000 shares of Company common stock, and Director
Whitacre has options to purchase 2,000 shares of Company common stock, all of
which options were granted pursuant to The 1990 Burlington Northern Inc.
Directors Stock Option Plan and are now vested. Each of the above Directors
also have additional options to purchase 1,000 shares which options will vest
within 60 days of February 29, 1996.
The Burlington Northern Santa Fe Non-Employee Directors' Stock Plan was
adopted on January 18, 1996, subject to stockholder approval, and provides for
stock option awards and restricted stock awards. See "PROPOSAL NO. 2, APPROVAL
OF BURLINGTON NORTHERN SANTA FE NON-EMPLOYEE DIRECTORS' STOCK PLAN" in this
proxy statement.
On January 18, 1996, the Company adopted the Deferred Compensation Plan for
Directors. Under the plan, Directors may voluntarily defer a portion or all of
the fees they would otherwise receive. Interest is earned on deferred amounts
at the Prime Rate or such other rates as may be established under the terms of
the plan. Distributions are made in either annual installments or as a lump
sum after service as a Director ceases. The Company has assumed all
obligations incurred by BNI through September 22, 1995, under the BNI Deferred
Compensation Plan for Directors, a predecessor plan.
Directors who are also officers or employees of the Company do not receive
any compensation for duties performed as a Director of the Company.
----------------
Certain Relationships and Related Transactions. Mr. Deukmejian is a partner
of the Sidley & Austin law firm, which firm provided legal services to the
Company in 1995 and is expected to provide legal services in 1996.
Chemical Bank and its affiliates, including Chemical Banking Corporation,
Chemical Securities Inc., Chemical Bank Agency Services Corp. and Texas
Commerce Bank National Association ("Texas Commerce"), provided financing,
banking, and investment banking services to the Company and its subsidiaries
in 1995 and is expected to provide such services in 1996. Mr. Shapiro is
Chairman and Chief Executive Officer of Texas Commerce and a member of the
Chemical Banking Corporation Management Committee. Mr. Blanton is an advisory
director of Texas Commerce, and Mr. Love is an advisory director of and
consultant to Texas Commerce. Mr. Burns is on Chemical Banking Corporation's
National Advisory Board. Messrs. Blanton, Burns, Love and Shapiro have no
direct or personal interest in these financing, banking, and investment
banking services; their interests arise only because of their positions with
affiliates of Chemical Bank, and as directors of the Company.
7
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the best of the Company's knowledge, the following are the only persons
who own beneficially five percent or more of its common stock outstanding:
<TABLE>
<CAPTION>
Shares Held
Name and Address and Nature of
of Beneficial Owner Beneficial Ownership Percentage(3)
------------------- -------------------- -------------
<S> <C> <C>
Alleghany Corporation..................... 7,431,414(1) 5.0%
Park Avenue Plaza
New York, NY 10055
FMR Corp. ................................ 13,103,363(2) 8.7%
82 Devonshire Street
Boston, MA 02109
</TABLE>
- --------
(1) Based on share holdings reported in Alleghany Corporation's Schedule 13D,
filed with the Securities and Exchange Commission dated September 22,
1995, indicating that of the total shares held, the reporting person had
sole voting power and sole dispositive power for 4,874,305 shares and had
shared voting power and shared dispositive power for 2,557,109 shares.
Mr. Burns is President and Chief Executive Officer of Alleghany
Corporation.
(2) Based on share holdings reported in Schedule 13G, dated February 14, 1996,
pursuant to the Securities Exchange Act of 1934 and provided to the
Company for holdings as of December 31, 1995. Schedule 13G indicates that
of the total shares held, the reporting person had sole voting power for
840,719 shares and shared voting power for no shares, and had sole
investment power for 13,103,363 shares.
(3) Based on 149,605,217 shares of common stock of the Company outstanding as
of December 31, 1995.
8
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows, as of February 29, 1996, unless indicated
otherwise, the number of shares of the Company's common stock beneficially
owned by directors, the executive officers named in the Summary Compensation
Table, and all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Shares Held
and Nature of
Beneficial
Name of Beneficial Owner Position Ownership(1)
------------------------ -------- -------------
<C> <S> <C>
Joseph F. Alibrandi.......................... Director 637
Jack S. Blanton.............................. Director 8,000(2)
John J. Burns, Jr. .......................... Director 411
Daniel P. Davison............................ Chairman of the Board,
Director 8,800(3)
George Deukmejian............................ Director 1,005
Daniel J. Evans.............................. Director 6,000(4)
Robert D. Krebs.............................. President and Chief
Executive Officer,
Director 627,315(5)
Bill M. Lindig............................... Director 411
Ben F. Love.................................. Director 11,000(6)
Roy S. Roberts............................... Director 498
Marc J. Shapiro.............................. Director 500
Arnold R. Weber.............................. Director 7,100(7)
Robert H. West............................... Director 1,111(8)
J. Steven Whisler............................ Director 1,411
Edward E. Whitacre, Jr. ..................... Director 5,000(9)
Ronald B. Woodard............................ Director 0
Michael B. Yanney............................ Director 7,000(10)
Gerald Grinstein............................. Retired Chairman of the
Board, retired Director 1,117,272(11)
Donald G. McInnes............................ Senior Vice President
and Chief Operations
Officer 126,805(12)
John Q. Anderson............................. Senior Vice President-
Coal, Metals and
Minerals Business Group 100,803(13)
Steven F. Marlier............................ Former Senior Vice
President-Consumer
Business Unit 121,586(14)
David C. Anderson............................ Former Executive Vice
President, Chief
Financial Officer,
Burlington Northern Inc. 176,310(15)
Ronald A. Rittenmeyer........................ Former Chief Operating
Officer, Burlington
Northern Railroad
Company 48,543(16)
Directors and Executive Officers as a Group.. 3,741,479(17)
</TABLE>
- --------
(1) The nature of beneficial ownership for shares listed is sole voting and
investment power, unless otherwise indicated in the following notes. As
of February 29, 1996, no current individual director or executive officer
owned more than one percent of the outstanding common stock of the
Company. No director or executive officer beneficially owned outstanding
units of Santa Fe Pacific Pipeline Partners, L.P.
(2) Includes 6,000 shares which may be acquired by Mr. Blanton within 60 days
upon the exercise of stock options granted under the 1990 Burlington
Northern Inc. Directors Stock Option Plan, which plan has been adopted
and assumed by the Company ("Directors Option Plan").
9
<PAGE>
(3) Includes 200 shares owned by Mrs. Davison of which Mr. Davison disclaims
beneficial ownership, and 6,000 shares which may be acquired by Mr.
Davison within 60 days upon the exercise of stock options granted under
the Directors Option Plan.
(4) Includes 5,000 shares which may be acquired by Mr. Evans within 60 days
upon the exercise of stock options granted under the Directors Option
Plan.
(5) Includes a grant of 30,990 restricted shares to Mr. Krebs pursuant to the
Burlington Northern Santa Fe 1996 Stock Incentive Plan, subject to
stockholder approval ("Stock Plan"), and 8,297 performance units that
will be converted into restricted shares subject to stockholder approval
of the Stock Plan. See "PROPOSAL NO. 3, APPROVAL OF BURLINGTON NORTHERN
SANTA FE 1996 STOCK INCENTIVE PLAN" in this proxy statement. Also
includes 9,212 shares through participation in the Santa Fe Pacific
Retirement and Savings Plan for Salaried Employees as of December 31,
1995 ("Retirement and Savings Plan"), which plan has been adopted and
assumed by the Company, 368,687 shares which may be acquired by Mr. Krebs
within 60 days upon the exercise of stock options, 3,615 restricted
shares, and 9,600 shares held in a family partnership as to which Mr.
Krebs disclaims beneficial ownership.
(6) Includes 6,000 shares which may be acquired by Mr. Love within 60 days
upon the exercise of stock options granted under the Directors Option
Plan.
(7) Includes 6,000 shares which may be acquired by Mr. Weber within 60 days
upon exercise of stock options granted under the Directors Option Plan.
(8) Includes 98 shares held in trust for two daughters as to which Mr. West
disclaims beneficial ownership.
(9) Includes 3,000 shares which may be acquired by Mr. Whitacre within 60
days upon the exercise of stock options granted under the Directors
Option Plan.
(10) Includes 6,000 shares which may be acquired by Mr. Yanney within 60 days
upon the exercise of stock options granted under the Directors Option
Plan.
(11) Includes 802,434 shares subject to stock options plus other shares held
by Mr. Grinstein, as of December 31, 1995.
(12) Includes 1,319 shares through participation in the Retirement and Savings
Plan as of December 31, 1995, 95,788 shares which may be acquired by Mr.
McInnes within 60 days upon the exercise of stock options, 578 restricted
shares, 2,045 performance units that will be converted to restricted
shares subject to stockholder approval of the Stock Plan, and 18,560
restricted shares subject to stockholder approval of the Stock Plan.
(13) Includes 50,975 shares which may be acquired by Mr. J. Anderson within 60
days upon the exercise of stock options, 4,000 restricted shares, and
10,800 restricted shares subject to stockholder approval of the Stock
Plan.
(14) Includes 1,409 shares from participation in Retirement and Savings Plan
as of December 31, 1995, and 111,881 shares subject to stock options plus
other shares held by Mr. Marlier, as of January 31, 1996.
(15) Includes 118,210 shares subject to stock options plus other shares held
by Mr. D. Anderson, as of September 22, 1995.
(16) Includes 193 shares through participation in the Burlington Northern Inc.
Thrift and Profit Sharing Plan I ("Thrift Plan"), and 31,700 shares
subject to stock options, plus other shares held by Mr. Rittenmeyer, as
of September 22, 1995.
(17) Includes 19,647 shares through participation in the Retirement and
Savings Plan or Thrift Plan as of December 31, 1995, 2,115,862 shares
which may be acquired within 60 days upon the exercise of stock options,
24,250 restricted shares, 17,814 performance units that will be converted
to restricted shares subject to stockholder approval of the Stock Plan,
and 92,760 restricted shares subject to stockholder approval of the Stock
Plan.
10
<PAGE>
REPORT ON EXECUTIVE COMPENSATION
BURLINGTON NORTHERN SANTA FE CORPORATION COMPENSATION COMMITTEE. The
following report is presented by the Compensation Committee of the Board (the
"Committee") which has responsibility for executive compensation for the
Company, beginning with the consummation of the business combination between
BNI and SFP on September 22, 1995.
Prior to this date, BNI's Compensation and Nominating Committee and SFP's
Compensation and Benefits Committee had responsibility for executive
compensation at the respective corporations. Sections of this report
describing compensation for BNI and SFP prior to the business combination have
been written based on information received from these committees by the
Company's Compensation Committee; decisions of those committees on executive
compensation have been noted, and the specific background and rationale for
such compensation has been described.
1996 EXECUTIVE COMPENSATION. The Committee has responsibility for reviewing
and making recommendations to the Board for executive compensation. This
includes establishing and reviewing executive base salaries, administering the
annual Incentive Compensation Plan ("ICP") as it relates to executive
officers, and administering equity-based compensation under the Stock Plan and
predecessor plans. The Committee consists of independent, non-employee
directors who have no interlocking relationships with the Company.
The Company has developed a new vision--to realize the tremendous potential
of the new company by providing services that consistently meet customers'
expectations. The Company has identified benchmarks against which it can
measure its success in meeting the needs of its primary constituencies--
customers, stockholders, employees and communities.
The Company is committed to providing an executive compensation program that
supports its vision and business strategies. During late 1995 and early 1996,
the Company, in conjunction with outside consultants, developed compensation
philosophies and set compensation objectives. A comprehensive review of the
current compensation plans was conducted relative to the Company's new
philosophies and objectives. Where current structures supported the new
objectives, they were retained. A number of new or modified plans also were
developed.
OVERALL COMPENSATION PHILOSOPHIES AND OBJECTIVES. The Committee determined
that compensation programs should reflect the Company's pay philosophy as well
as specific compensation objectives. The Committee also determined that
programs designed specifically for executives should adhere to these
principles to the greatest extent possible, reflecting executives' roles as
key decision-makers and allowing them to lead by example.
The philosophical principles and specific objectives are noted below:
PHILOSOPHICAL PRINCIPLES
. Compensation programs should encourage strong financial performance of
the Company.
. Compensation programs should help create a shared sense of direction,
ownership, and commitment.
. The Company should emphasize performance-based compensation ("pay at
risk") through both cash- and equity-based incentives.
SPECIFIC PROGRAM OBJECTIVES
. The compensation programs should attract and retain key employees and
managers by providing competitive opportunities.
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<PAGE>
. The programs should focus employees on operating performance that will
maximize the value of the Company's rail operations.
. The programs should focus employees on the Company's market performance
by encouraging large equity holdings thus enabling them to realize
significant gains if the Company attains its performance objectives.
. The programs should provide mechanisms to allow employees to exchange
cash compensation for stock-based awards.
COMPETITIVE (EXTERNAL) COMPENSATION OBJECTIVES. The Committee has
established external competitive benchmarks for each element of compensation.
The Committee believes these external guidelines support fully the principles
outlined above.
The market for assessing compensation will be defined as companies from
general industry with overall revenue sizes that are comparable to the
Company. The group of comparators used for these analyses will be broader than
that used for the peer group index reflected in the Performance Graph
following this report in this proxy statement. The Committee believes that the
Company's most direct competitors for executive talent will not be limited to
companies used as a peer group to compare stockholder returns. Rather, the
market reflects a broader group with which the Company competes to attract and
retain the most skilled and talented executives available.
The Committee's external compensation objectives are:
. BASE SALARIES. To manage fixed compensation at a conservative level,
market rates for base salary bands will be set at approximately the
25th-percentile level from the market (as defined above).
. ANNUAL INCENTIVES. Opportunities under the Incentive Compensation Plan
("ICP") are intended to provide COMPETITIVE TOTAL CASH COMPENSATION
(base salary plus annual incentives) if Company performance goals are
attained, with the ability to earn higher amounts if performance goals
are exceeded. Likewise, payments will provide total cash that is below
competitive levels if goals are not attained.
-- If the Company attains its targeted performance goals, the Company
will provide cash compensation levels that approximate the 50th
percentile of the Company's comparator group.
-- If the Company attains superior performance levels, cash
compensation will be provided at or near the 75th-percentile levels
of the Company's comparator group.
. LONG-TERM INCENTIVES. To place greater emphasis on pay that is tied to
the Company's stock performance over time, opportunities provided under
long-term incentive programs will be targeted at the 75th percentile of
the market.
. EMPLOYEE AND EXECUTIVE BENEFITS. Benefit levels will reflect moderately
competitive market levels (50th percentile).
STOCK OWNERSHIP GOALS FOR SENIOR EXECUTIVES AND MANAGERS. A commitment to
increased stock ownership on the part of Company management is an important
element of the compensation programs for the new company and influenced the
design of compensation plans. Accordingly, the Committee has established new
stock ownership guidelines to ensure that the interest of senior executives
and stockholders are closely aligned, and to strengthen the link between
Company performance and compensation. In setting the new guidelines, the
Committee took into account the current ownership levels of senior management
and the desire to encourage further ownership in the new organization.
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<PAGE>
The guidelines are as follows:
<TABLE>
<CAPTION>
Stock Ownership Goals
Executive Level (As a Multiple of Salary)
--------------- -------------------------
<S> <C>
President and Chief Executive Officer............. 7 x Base Salary
Senior Vice Presidents............................ 4 x Base Salary
Vice Presidents................................... 3 x Base Salary
Nonofficers in Salary Bands 34-36................. 2 x Base Salary
</TABLE>
Beginning with 1996 grants, each senior executive or manager covered by the
guidelines will be required to retain the net, after-tax shares obtained
through option exercises, or through vested restricted stock, until he or she
has accumulated the required ownership levels. The Committee will monitor
total share holdings on an annual basis. The guidelines are to be achieved by
January 1, 1999, or (for nonofficers) by January 1, 2000.
BASE SALARIES. Executive positions will be grouped by salary bands that are
part of the Company's total salary structure. The Company will consider
various factors in assigning executives to specific bands, including job
content, level of responsibility, and accountability. Executive salaries will
be reviewed and adjusted periodically within the bands to reflect individual
performance against goals and changes in job responsibility.
SALARY EXCHANGE OPTION PROGRAM. Under the Stock Plan, the Company has
implemented a program to further enhance the link between stock price
performance and executive compensation. Starting in 1996, senior executives
will have the opportunity to exchange up to 25 percent of their base salary
each year for a grant of nonqualified stock options with a ten year term. For
each $10,000 the executive exchanges, the executive will receive a grant of
options on 1,500 shares of the Company stock. Senior executives will be able
to elect salary exchanges for up to three consecutive years at one time,
provided that not more that 25 percent of salary in any given year is
exchanged for options.
INCENTIVE COMPENSATION PLAN ("ICP"). Executives will be eligible for annual,
performance-based awards under the Company's Incentive Compensation Plan
("ICP"). The ICP provides for the establishment of annual performance goals
that may include corporate, departmental, and individual goals. For 1996,
goals for executive officers will be weighted 80 percent upon achievement of
targeted levels of operating income, 10 percent upon achievement of safety and
on-time performance goals, and 10 percent upon individual productivity goals,
which will vary by executive officer and will reflect the Company's strategic
objectives.
The level of award opportunity under the ICP will vary by executive. The
maximum award for each position is based upon 100 percent of the market
reference point, reflecting compensation levels for comparable positions. As
noted above, opportunities generally are established to provide competitive
(50th-percentile) cash compensation relative to the market for performance
that meets the Company's targets, and 75th-percentile cash compensation for
superior performance that exceeds the Company's goals.
LONG-TERM INCENTIVES. To further encourage ownership in the Company and
alignment of employees' interests with those of stockholders, the Company will
implement the Stock Plan, subject to stockholder approval, as described under
"PROPOSAL NO. 3, APPROVAL OF BURLINGTON NORTHERN SANTA FE 1996 STOCK INCENTIVE
PLAN" in this proxy statement.
The plan supports the Company's compensation philosophy and objectives, and
will encourage employee focus on the types and levels of performance that lead
to increased stock prices and overall returns to stockholders. The specific
program to be used under the Plan also will support executive and employee
stock ownership.
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<PAGE>
INCENTIVE BONUS STOCK PLAN. To enhance individual stock ownership and
further tie compensation to Company stock price performance, executives and
other key employees will be given the opportunity to exchange up to 100
percent of their ICP awards for a grant of restricted stock.
Participants will receive a restricted share grant equal to 150 percent of
the ICP award foregone. Shares generally will vest three years after grant,
but may vest in two years upon attainment of certain prespecified performance
goals, or upon certain other events.
STOCK OPTION GRANTS. Under the Stock Plan, the Company intends to make
periodic grants of stock options to all salaried employees. Stock options
under the Stock Plan cannot be issued with an exercise price below the market
value of Company common stock on the date of grant. Thus, recipients will
realize benefit only when the price of the Company's stock appreciates. Stock
options for senior executives and others may also include a reload feature to
encourage the achievement of their stock ownership goals.
To reinforce the Company's goal of linking a substantial portion of total
compensation to stock value, the grant sizes for all eligible employees will
be targeted to provide long-term incentive opportunities at the 75th
percentile of the market. Actual stock options granted also will reflect each
recipient's individual performance and salary band.
PERFORMANCE SHARE PLAN. The Committee also decided that an additional
mechanism was appropriate to further emphasize teamwork, leadership, and focus
on stock price performance among top management. As such, the Committee
approved a special, one-time grant of performance shares to senior executives
and other selected employees beyond the annual option grant. The grant will be
in the form of performance-based restricted stock, with ultimate vesting of
the shares dependent upon attainment of prespecified stock price hurdles.
Senior executives received a grant on January 18, 1996, of an aggregate of
391,120 shares of restricted stock. Contingent upon stockholder approval,
these specific performance share awards are intended to be deductible pursuant
to Section 162(m) of the Internal Revenue Code.
The actual number of performance shares that ultimately vest will be based
on the Company's common stock price performance over a six-year measurement
period, relative to pre-established goals. The goals call for ratable vesting
in one-third increments, based upon a 12 percent compound annual growth rate
in price over three, four, and five years. At a grant price of $74.50, the
price goals would be $104.67, $117.23, and $131.29, respectively.
If the Company's stock price does not reach these performance goals by the
end of the full six-year performance period, the corresponding shares will not
vest and will be forfeited.
CEO COMPENSATION. The factors upon which Mr. Krebs' 1995 compensation was
based are the same as described for all executive officers pursuant to the
executive compensation strategy described in this report under "Report on
Compensation Prior to Merger: Burlington Northern Inc. and Santa Fe Pacific
Corporation." Mr. Krebs was eligible to participate in the same compensation
plans available to other executive officers of the Company and SFP.
During 1995, outside consultants reviewed compensation levels at BNI and SFP
relative to those of corporations of comparable size, revenues, and employee
base. For 1995, Mr. Krebs' base salary was increased to $525,000, reflecting
the analysis that indicated his salary was low compared with the targeted
market levels. The Company's Compensation Committee subsequently raised Mr.
Krebs' base salary to $725,000 effective January 1, 1996, to bring him closer
to 25th-percentile levels for an organization of the Company's size. Mr.
Krebs' base salary will be reduced to $544,000 in 1996 based upon his election
to trade salary for stock options under the Salary Exchange Option Program.
14
<PAGE>
Mr. Krebs' 1995 incentive opportunity under the SFP Incentive Compensation
Plan was weighted 80 percent upon the achievement of targeted growth in
operating income, 10 percent upon the achievement of safety and on-time
performance goals, and 10 percent upon the achievement of individual goals.
The actual incentive earned ($530,294) by Mr. Krebs reflected that SFP's
revenue from operating income exceeded goals by 4.2 percent, a reduction of
36.9 percent in the number of reportable personal injuries and a reduction of
26.3 percent in lost work time on the system as measured by the Federal
Railroad Administration, and achievement of a 93 percent system-wide, on-time
performance record for 1995. Mr. Krebs' award also reflected specific
strategic objectives, including successful completion of the business
combination between BNI and SFP.
In order to link compensation paid to Mr. Krebs to the Company's stock
performance and to provide him with an incentive for greater return to
stockholders, he was granted 175,000 options to purchase SFP stock in 1995
under the Santa Fe Pacific Long Term Incentive Stock Plan ("SFP Stock
Incentive Plan"), which were converted into 72,239 options to purchase Company
common stock. The size of the grants reflects the general grant criteria
outlined above, Mr. Krebs' total compensation levels (including shares
previously granted), and the Board's recognition of Mr. Krebs' superior
performance and leadership as Chairman, President and Chief Executive Officer
of SFP.
Mr. Grinstein was Chairman and Chief Executive Officer of BNI from October
1990 and Chairman of the Company subsequent to the business combination until
his retirement December 31, 1995. Mr. Grinstein's compensation package was
designed to reflect the goals of the BNI's executive compensation program.
After analyzing market data and his performance, BNI's Board increased Mr.
Grinstein's salary to $750,000, effective February 1, 1995. This decision
reflected BNI's targeted competitive position of 50th percentile for base
salaries. This increase brought Mr. Grinstein's salary within 5% of this
targeted level.
The BNI Incentive Compensation Plan award to Mr. Grinstein was based upon
BNI's performance against prespecified goals, including net income, operating
ratios, debt reduction, service performance, and safety.
For 1995, the Committee determined that BNI achieved Level One (outstanding)
performance for the year. In making this determination, the Committee reviewed
BNI's actual performance in each of the areas shown above, and the successful
completion of the business combination with SFP. The Committee also reviewed
Mr. Grinstein's personal contributions to the success of the Company in
providing him with a bonus award of $1,500,000. In addition, in light of Mr.
Grinstein's past contributions, as well as his continuing efforts on behalf of
the Company, a separation arrangement (as described under "Employment
Contracts and Change in Control Arrangements" in this proxy statement) was
approved.
Grants of stock options and restricted stock to Mr. Grinstein under the
long-term incentive program in 1995 reflected BNI's 75th-percentile
competitive target for these plans and Mr. Grinstein's personal performance in
his leadership role with BNI. Accordingly, in April 1995, Mr. Grinstein was
granted 59,800 stock options and 14,250 shares of restricted stock.
POLICY ON DEDUCTIBILITY OF COMPENSATION. Section 162(m) of the Internal
Revenue Code (the "Code") limits the tax deductibility by a company of
compensation in excess of $1 million paid to any of its most highly
compensated executive officers. However, performance-based compensation that
has been approved by stockholders is excluded from the $1 million limit if,
among other requirements, the compensation is payable only upon attainment of
preestablished objective performance goals and the board committee that
establishes such goals consists only of "outside directors" (as defined for
purposes of 162(m)). All members of the Committee qualify as "outside
directors."
15
<PAGE>
The Committee has considered these requirements and the regulations. The
proposed Stock Plan is intended to authorize grants that meet the new
requirements. See "PROPOSAL NO. 3, APPROVAL OF BURLINGTON NORTHERN SANTA FE
1996 STOCK INCENTIVE PLAN" in this proxy statement.
While the tax impact of any compensation arrangement is one factor to be
considered, such impact is evaluated by the Committee in light of the
Company's overall compensation philosophy and objectives. The Committee
intends to establish executive officer compensation programs that will
maximize the Company's federal income tax deductions for compensation expense,
if such actions are consistent with the Company's philosophy and objectives
and in the best interest of the Company and its stockholders. However, the
Committee believes there are circumstances in which the Company's and
stockholders' interests are best served by providing compensation that is not
fully deductible, and that its ability to exercise discretion outweighs the
advantages of qualifying compensation under Section 162(m).
REPORT ON COMPENSATION PRIOR TO MERGER: BURLINGTON NORTHERN INC. AND SANTA FE
PACIFIC CORPORATION
The following outlines the compensation philosophies and objectives used by
the compensation committees of BNI and SFP for compensation decisions made in
1995 before the business combination on September 22, 1995.
EXECUTIVE OFFICER COMPENSATION POLICIES. Both committees' executive
compensation policies reflected similar overall objectives:
. To align the interests of executive officers with those of the
corporation's stockholders;
. To link compensation to the performance of the corporation, as well as
to the individual contribution of each officer;
. To emphasize variable as opposed to fixed compensation;
. To attract, motivate, and retain executives with outstanding abilities
by targeted compensation levels that are competitive in the marketplace;
and
. To require executives to maintain a significant equity interest in the
corporation and to manage from the perspective of a business owner.
ANNUAL COMPENSATION. Both committees monitored total competitive pay data on
an annual basis to ensure appropriate alignment with the market for executive
talent. Base salaries for executives were based upon salary ranges established
for each position. Salary ranges were determined through annual competitive
analyses. Each employee's actual salary within the range reflected an annual
assessment of his or her performance.
Both companies encouraged optimal performance through the use of incentive
programs, thus furthering the goal of having "at risk" compensation as an
important component of the executive compensation program. Each corporation
had an incentive plan under which executives were eligible for annual awards
based on performance against preestablished corporate, departmental, and
individual goals. At BNI, 1995 goals included net income, operating ratio,
debt reduction, service performance, and safety. SFP's goals included growth
in operating income, achievement of safety and on-time performance goals, and
other individual goals aligned with SFP's strategic objectives. In determining
awards, the committees also reviewed individual performance of executives
based on individual or team goals, or both.
Annual incentive opportunities reflected total cash compensation targets set
by both corporations to provide competitive (50th-percentile) pay levels
relative to the external market if corporate performance goals were met. Cash
compensation levels above the market would be provided if performance goals
were exceeded.
16
<PAGE>
LONG-TERM INCENTIVE PLANS. Long-term incentives in the form of equity-based
compensation comprised a substantial portion of an executive's total
compensation at both companies. Each corporation made grants under long-term
incentive plans to encourage executive performance that would lead to enhanced
stock values. In determining grant sizes, each committee took into account
current total compensation levels as compared to competitive markets and
specific targeted levels of long-term opportunity. Previous awards and
achievement of stock ownership goals also were considered in determining stock
awards.
Executives were regularly considered for stock option grants consistent with
each corporation's goals to weight total compensation heavily toward long-term
equity interest. Actual option grants to each executive were based on
individual performance with respect to the accomplishment of goals, salary
grade level, and targeted competitive levels.
Executives at both corporations also were considered for restricted stock
grants on a regular basis. At BNI the number of shares granted to executives
each year was based on individual performance, contribution to overall company
performance results, the corporation's desire to retain the executive, salary
grade level, and the targeted competitive levels outlined above.
STOCK RETENTION. Both committees believed that stockholders benefit when the
corporation is managed by executives who are themselves stockholders. Both
corporations established specific stock ownership amounts based on executive
level or grade. In addition BNI required all executives to retain the net,
after-tax shares obtained through stock options or vested restricted stock
until the executives accumulated the specified guideline amounts.
COMPENSATION COMMITTEE:
Michael B. Yanney, Chairman
Joseph F. Alibrandi
Jack S. Blanton
John J. Burns, Jr.
Daniel P. Davison
Daniel J. Evans
Robert H. West
17
<PAGE>
PERFORMANCE GRAPH
The following graph depicts a five year comparison of cumulative total
stockholder returns, assuming reinvestment of dividends,(/1/) for the Company,
the Standard & Poor's 500 Stock Index ("S&P 500"), and the Standard & Poor's
Railroad Index ("S&P Rail"). The Company is included within both the S&P 500
and S&P Rail indices. The graph assumes that $100 was invested on December 31,
1990, in each of the common stock of Burlington Northern Inc.(/2/), the S&P
500, and the S&P Rail(/3/).
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
December 31 BNI S&P 500 S&P Rail
----------- --- ------- --------
<S> <C> <C> <C>
1990 $100 $100 $100
1991 $147 $130 $155
1992 $162 $140 $187
1993 $221 $154 $230
1994 $188 $156 $196
1995 $311 $215 $284
</TABLE>
- --------
(1) With respect to an investor in the Company's common stock (which trades on
the New York, Chicago and Pacific Stock Exchanges under the symbol "BNI"),
this analysis assumes that cash dividends were reinvested in additional
shares of BNI on the date the dividends were paid. With respect to S&P 500
and S&P Rail, dividends are assumed to be reinvested when reported.
(2) On September 22, 1995, BNI and SFP effected the business combination
pursuant to which each became subsidiaries of the Company. As a result,
each holder of one share of BNI common stock received one share of the
Company's common stock, and each holder of one share of SFP common stock
(excluding the shares of SFP common stock acquired by BNI in the tender
offer commenced December 23, 1994, which shares remained outstanding, and
excluding shares of SFP common stock held in treasury, which shares were
cancelled) received 0.41143945 shares of the Company's common stock.
(3) Stock price performance shown on this graph is not necessarily indicative
of future price performance. The initial point selected for comparison of
investment performance, which for this year is December 31, 1990, as
required by Securities and Exchange Commission rules, is also a factor
that will affect total stockholder return over any given period of time.
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<PAGE>
PROPOSAL NO. 2
APPROVAL OF BURLINGTON NORTHERN SANTA FE NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Board of Directors recommends the adoption of the Burlington Northern
Santa Fe Non-Employee Directors' Stock Plan ("Directors' Stock Plan") under
which a total of 300,000 shares of the Company's Common Stock will be made
available for grants. Any shares subject to an award that expires or
terminates shall again be available for grant under the Directors' Stock Plan.
The Board of Directors believes that the granting of awards under the
Directors' Stock Plan will work to increase the non-employee directors'
proprietary interest in the Company and to align their interests with those of
the stockholders. The Directors' Stock Plan will replace directors' stock-
based compensation plans maintained previously by BNI and no further awards
will be made under those plans.
Accordingly, the Board of Directors on January 18, 1996, approved and
adopted the Directors' Stock Plan, subject to approval by stockholders. An
affirmative vote of a majority of the shares of common stock of the Company
present in person or represented by proxy at the meeting and entitled to vote
on the subject matter will constitute stockholder approval of the Directors'
Stock Plan. Abstentions will have the effect of a vote against approval, while
broker non-votes will have no effect on the vote.
The following is a summary of the major provisions of the Directors' Stock
Plan and is qualified in its entirety by the full text of the Burlington
Northern Santa Fe Non-Employee Directors' Stock Plan attached to this proxy
statement as Appendix A.
If approved by the stockholders, the Directors' Stock Plan provides for
automatic annual grants of options to purchase the Company's common stock on
the date of the Company's annual meeting commencing in 1996 to each individual
who is elected to the Board of Directors at such meeting, and who is not an
employee of the Company. Each annual grant will permit the holder, for a
period of up to ten years from the date of grant, to purchase from the Company
1,000 shares of the Company's common stock (subject to adjustment as provided
in the Directors' Stock Plan) at 100% of the fair market value of such shares
on the date the option is granted. Each option shall become exercisable
commencing on the first anniversary date of grant.
In the event of the retirement, death, disability or upon a change in
control as defined in the Directors' Stock Plan, all options granted shall
become immediately exercisable and shall be available for exercise until the
later of (1) one year from the date service on the Board ceases, or (2) as
long as service on the Board continues, but not later than ten years from date
of grant. An option will be forfeited upon a director's resignation from or
refusal to serve on the Board, other than any resignation, termination, or not
standing for reelection at the retirement age or at the request or with the
consent of the Company. Each option and all rights shall be nonassignable and
non-transferrable other than by will or the laws of descent and distribution
unless, and to the extent legally permitted, an election is made prior to the
date of grant to receive an option tranferrable to an immediate family member
or trust for the benefit of a family member.
The options under the Directors' Stock Plan shall be non-qualified stock
options. The exercise of an option for stock will result in taxable ordinary
income to the non-employee director and a corresponding deduction to the
Company on the date of exercise, equal to the difference between the option
price and the fair market value on the date the option was exercised.
The Directors' Stock Plan also provides for Retainer Stock Awards in the
form of restricted stock. Immediately following the 1996 annual meeting of
stockholders, a one-time Retainer Stock Award of 1,000 restricted shares shall
be made to each director who is elected to serve on the Board, to vest ratably
upon the third, fourth and fifth anniversary of the award subject to the
attainment of a 12% compound annual growth rate in the fair market value of a
share of Common Stock (as defined in the Directors' Stock Plan) maintained for
a 30 consecutive-day period immediately prior to or following the respective
anniversary date. Thereafter, as of the date of each subsequent annual meeting
of
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<PAGE>
stockholders, each newly elected director who had not previously received such
an award, shall be granted a one-time Retainer Stock Award of 1,000 restricted
shares subject to the same vesting requirements. To the extent that an award
has not vested previously, it shall be forfeited six years from date of grant.
In addition, the directors may also agree by timely election to forego up to
25% of their annual retainer and receive a Retainer Stock Award in the form of
restricted stock of 125% of the amount foregone based upon the fair market
value of Company common stock on the date of grant, which will be December 31
of each calendar year, to vest three years from date of grant. A Director who
has been granted an award of restricted stock will not realize taxable income
at the time of the grant. When such restrictions lapse, the Director will
receive taxable income in an amount equal to the fair market value of the
shares at that time.
A participant who ceases to be a director prior to vesting will forfeit his
or her award except that in the event of retirement, death, disability, or a
change in control, all Retainer Stock Awards other than performance-based
awards become vested. A performance-based Retainer Stock Award will vest fully
upon a change in control and vest ratably upon retirement, death or disability
if certain performance criteria are attained.
The Directors' Stock Plan will be administered by the Directors and
Corporate Governance Committee which will be authorized to interpret the Plan
but have no authority with respect to the selection of directors to receive
stock awards, the number of shares subject to the plan or each grant
thereunder, or the option price for shares subject to options. The Board may
amend the Directors' Stock Plan as it shall deem advisable but may not amend
the Directors' Stock Plan without further approval of the stockholders if such
approval is required by law or if the amendment would increase materially the
benefits under the Directors' Stock Plan, and may not amend the provisions
relating to the amount, price, and timing of options more than once every six
months other than to comport with changes in the Code, the Employee Retirement
Income Security Act of 1974, or the rules thereunder. Adjustments shall be
made in the number and kind of shares subject to the Directors' Stock Plan and
the number and kind of shares subject to outstanding and subsequent option
grants and in the purchase price of outstanding options, in each such case to
reflect changes in the Company's common stock through changes in the Company's
corporate structure or capitalization, such as through a merger or stock
split.
On January 31, 1996, the Company's common stock closed at $81.875 on the New
York Stock Exchange.
NEW PLAN BENEFITS
The following table indicates the number of shares of common stock and the
value that could be received in 1996 under the Directors' Stock Plan:
<TABLE>
<CAPTION>
Number of Shares
Underlying Options or
Name and Position Retainer Stock Awards
----------------- ---------------------
<S> <C>
Non-Employee Directors Group (16 persons)
Stock Options....................................... 16,000
Retainer Stock Awards (subject to performance crite-
ria)............................................... 16,000
Retainer Stock Awards Election in Lieu of Fees...... 2,215(1)
Total (16 persons).................................. 34,215
</TABLE>
- --------
(1) Under the Directors' Stock Plan, up to 25% of the annual retainer fee may
be waived in exchange for restricted stock as described above. The number
of shares to be granted depends upon the fees waived by each Director.
This assumes each Director elected to waive the maximum amount permitted
and assumes a fair market value of $81.25 per share based upon the fair
market value of a share of common stock on January 31, 1996.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL NO. 2
20
<PAGE>
PROPOSAL NO. 3
APPROVAL OF THE BURLINGTON NORTHERN SANTA FE 1996 STOCK INCENTIVE PLAN
The Board of Directors recommends the adoption of the Burlington Northern
Santa Fe 1996 Stock Incentive Plan ("Stock Plan") under which a total of
10,000,000 shares of the Company's Common Stock will be made available for
grants. The Board of Directors believes that the granting of awards under the
Stock Plan will strengthen its ability to attract and retain officers, key
employees and other personnel of ability and experience in the employ of the
Company and its subsidiaries by furnishing suitable recognition of their
ability and industry. The Stock Plan provides for the grant of stock options,
stock appreciation rights, restricted stock, restricted stock units,
performance stock and performance units (the "Awards"). Accordingly, the Board
of Directors on December 14, 1995, approved and adopted the Stock Plan,
subject to approval by stockholders. An affirmative vote of a majority of the
shares of common stock of the Company present in person or represented by
proxy at the meeting and entitled to vote on the subject matter will
constitute stockholder approval of the Stock Plan. Abstentions will have the
effect of a vote against approval, while broker non-votes will have no effect
on the vote.
The full text of the Stock Plan is attached to this proxy statement as
Appendix B. The following is a summary of the major provisions of the Stock
Plan and is qualified in its entirety by the full text thereof.
ADMINISTRATION. The plan provides for administration by the Compensation
Committee of the Board of Directors (the "Committee"); provided, however, each
of the members of the Committee must be both a non-employee and a
"disinterested director" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934 ("Exchange Act") and an "outside director." No member of
the Committee is eligible to be selected to participate in the Stock Plan.
Among the powers granted to the Committee are the authority to interpret the
Stock Plan, establish rules and regulations for its operation, select
employees of the Company and its subsidiaries to receive Awards and determine
the form and amount and other terms and conditions of such Awards. The Plan
authorizes the Committee to delegate its authority and duties under the Plan,
in certain circumstances; provided, however, only the Committee may select and
grant Awards to participants who are subject to Section 16 of the Exchange
Act.
ELIGIBILITY FOR PARTICIPATION. All salaried employees of the Company or its
subsidiaries (the "Employees") are eligible to be selected to participate in
the Stock Plan. The selection of participants from among the Employees is
within the discretion of the Committee. The Company currently has
approximately 5,200 salaried employees.
AMENDMENT OF PLAN. The Board may suspend, amend or terminate the Stock Plan
at any time, with or without prior notice; provided, however, it may not,
without stockholder approval, adopt any amendment which would require the vote
of the stockholders pursuant to Section 16 of the Exchange Act.
AVAILABLE SHARES. Ten million shares of common stock of the Company are
available for grant under the Stock Plan. Shares of common stock related to
Awards which terminate by expiration, forfeiture, cancellation or otherwise
without the issuance of shares, or are settled in cash in lieu of common
stock, and shares used to pay an option exercise price will be available for
grant under the Stock Plan. The maximum number of shares available for
issuance under the Stock Plan shall not be reduced to reflect any dividends or
dividend equivalents that are reinvested into additional shares of common
stock or credited as additional performance shares.
LIMITATION ON AWARDS. No participant shall receive any Award of a stock
option or a stock appreciation right to the extent that the sum of the number
of shares subject to the Award, and
21
<PAGE>
the number of shares subject to prior awards of options and stock appreciation
rights during a one year period ending on the date of grant, exceeds 1,000,000
shares.
STOCK OPTIONS. Under the Stock Plan, the Committee may grant Awards in the
form of incentive and non-qualified stock options to purchase shares of the
Company's common stock. This will include option grants to certain senior
executives in an amount equal to the number of shares tendered to pay an
option exercise price. The Committee will determine the number of shares
subject to each option, the manner and time of the option's exercise and the
exercise price per share of stock subject to the option. In no event, however,
may the exercise price of a stock option be less than the fair market value of
the Company's common stock on the date of grant. Upon exercise, the option
price may, at the discretion of the Committee, be paid by a participant in
cash, shares of common stock, a combination thereof, or such other
consideration as the Committee may deem appropriate. Any stock option granted
in the form of an incentive stock option will satisfy the applicable
requirements of Section 422 of the Code.
STOCK APPRECIATION RIGHTS. The Stock Plan authorizes the Committee to grant
Stock Appreciation Rights ("SARs") either in tandem with a stock option or
independent of a stock option (including SARs). A SAR is a right to receive a
payment equal to the appreciation in market value of a stated number of shares
of common stock from the SAR's exercise price to the market value on the date
of its exercise. The Committee will determine the number of shares subject to
the award, the manner and time of a SAR exercise and the exercise price, which
shall not be less than the fair market value of a share of Company common
stock.
A tandem SAR may be granted either at the time of the grant of the related
stock option or at any time thereafter during the term of the stock option. A
tandem SAR shall be exercisable to the extent its related stock option is
exercisable, and the exercise price of such a SAR shall be the same as the
option price under its related stock option. Upon the exercise of a stock
option as to some or all of the shares covered by the Award, the related
tandem SAR shall be cancelled automatically to the extent of the number of
shares covered by the stock option exercise.
An LSAR is the same as a tandem SAR but becomes exercisable only upon a
change in control as defined in the Stock Plan, and upon exercise, a
participant receives a payment equal to the difference between the fair market
value and the exercise price.
STOCK AWARDS. The Stock Plan authorizes the Committee to grant Awards in the
form of shares of restricted stock or restricted stock units. Such Awards will
be subject to such terms, conditions, restrictions or limitations, if any, as
the Committee deems appropriate including, but not by way of limitation,
restrictions on transferability and continued employment. The Plan gives the
Committee the discretion to accelerate the delivery of a stock Award.
PERFORMANCE SHARES. The Stock Plan allows for the grant of "performance
shares." For purposes of the Stock Plan, "performance shares" means either
restricted shares of common stock of the Company or units which are expressed
in terms of common stock of the Company. Such Awards will be contingent upon
the attainment of certain performance objectives over a period to be
determined by the Committee. The grant of performance shares in 1996 is
described in the "REPORT ON EXECUTIVE COMPENSATION" in this proxy statement
and requires a significant growth in stock price during the performance period
for vesting of this award.
PERFORMANCE UNITS. Awards may also be granted in the form of performance
units which are units valued by reference to criteria chosen by the Committee,
other than the Company's common stock. Performance units are similar to
performance shares in that they are awarded contingent upon the attainment of
certain performance objectives over a fixed period. The length of the period,
the
22
<PAGE>
performance objectives to be achieved during the period and the measure of
whether and to what degree the objectives have been achieved will be
determined by the Committee.
CHANGE IN CONTROL/CHANGE IN OWNERSHIP. In the event of a change in control
(as defined in the Stock Plan), (i) all of the terms, conditions, restrictions
and limitations in effect on any of an Employee's outstanding Awards would
immediately lapse, and (ii) all of the Employee's outstanding Awards would
automatically become one hundred percent vested.
The Plan defines a change in control as occurring if: (a) any "person"
becomes the beneficial owner of securities representing 25% or more of the
voting power of the Company's outstanding securities; or (b) during any period
of two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company cease to constitute at least
a majority of the Board; or (c) the Company's stockholders approve a merger or
consolidation of the Company with another company; or (d) the Company's
stockholders approve a plan of complete liquidation or an agreement for the
sale or disposition by the Company of all or substantially all of its assets;
except that a merger or business combination with a Class I railroad or
holding company of a Class I railroad shall not constitute a change in control
unless the Board so determines.
FEDERAL INCOME TAX CONSEQUENCES. An employee who has been granted an
incentive stock option will not realize taxable income and the Company will
not be entitled to a deduction at the time of the grant or exercise of such
option. If the employee makes no disposition of shares acquired pursuant to an
incentive stock option within two years from the date of grant of such option,
or within one year of the transfer of the shares to such employee, any gain or
loss realized on a subsequent disposition of such shares will be treated as a
long-term capital gain or loss. Under such circumstances, the Company will not
be entitled to any deduction for Federal income tax purposes. If the foregoing
holding period requirements are not satisfied, the employee will generally
realize ordinary income at the time of the disposition in an amount equal to
the lesser of (i) the excess of the fair market value of the shares on the
date of exercise over the option price or (ii) the excess of the amount
realized upon disposition of the shares, if any, over the option price, and
the Company will be entitled to a corresponding deduction.
An employee will not realize taxable income at the time of the grant of a
non-qualified option. Upon exercise, however, the employee will realize
ordinary income equal to the excess, if any, of the fair market value of the
shares on the date of exercise over the option price, and the Company will be
entitled to a corresponding deduction. Upon subsequent disposition of such
shares, the employee will realize short-term or long-term capital gain or
loss, with the basis for computing such gain or loss equal to the option price
plus the amount of ordinary income realized upon exercise.
An employee who has been granted a restricted stock award will not realize
taxable income at the time of grant, and the Company will not be entitled to a
deduction at that time, assuming that the restrictions constitute a
substantial risk of forfeiture for Federal income tax purposes. Upon the
vesting of shares subject to an award, the holder will realize ordinary income
in an amount equal to the fair market value of the shares at such time, and
the Company will be entitled to a corresponding deduction. Dividends paid to
the holder during the restriction period will also be compensation income to
the employee and deductible as such by the Company. The holder of a restricted
stock award may elect to be taxed at the time of grant of the award on the
then fair market value of the shares, in which case (i) the Company will be
entitled to a deduction at the same time and in the same amount,
(ii) dividends paid to such holder during the restriction period will be
taxable as dividends to such holder and not deductible by the Company, and
(iii) there will be no further tax consequences when the restrictions lapse.
If an employee who has made such an election subsequently forfeits the shares,
he will not be entitled to any deduction or loss. The Company, however, will
be required to include as ordinary income the lesser of the fair market value
of the forfeited shares or the amount of the deduction originally claimed with
respect to the shares.
23
<PAGE>
OTHER TERMS OF AWARDS. Awards may be paid in cash, common stock, a
combination of cash and common stock, or any other form of property, as the
Committee shall determine. If an Award is granted in the form of a stock
award, stock option, or performance share, or in the form of any other stock-
based grant, the Committee may include as part of such Award an entitlement to
receive dividends or dividend equivalents. At the discretion of the Committee,
payment of a stock award, performance share, performance unit, dividend, or
dividend equivalent may be deferred by a Participant.
The plan provides for the forfeiture of Awards in the event of termination
of employment for a reason other than death, disability, retirement, or
termination by the Company other than for cause.
In the event that termination occurs by reason of death, all Awards shall
vest. In the event that termination occurs by reason of disability or
retirement, all Awards shall vest ratably except that the proportion of such
Awards subject to performance criteria shall remain subject to the same terms
and conditions. In the event of termination by the Company other than for
cause, Awards shall vest ratably except that all performance-based awards
shall be forfeited. In the event of death, disability, or retirement, options
and stock appreciation rights shall be exercisable for three years and in the
event of termination by the Company other than for cause, options and stock
appreciation rights are exercisable for three months thereafter, but in no
event later than the scheduled expiration date.
Upon the grant of any Award, the Committee may, by way of an Award Notice or
otherwise, establish such other terms, conditions, restrictions and
limitations governing the grant of such Award as are not inconsistent with the
Plan.
NEW PLAN BENEFITS. The Awards that have been made to date under the Stock
Plan, subject to stockholder approval, are described in the table below.
Future awards are in the discretion of the Committee and cannot be determined
at this time.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
Performance- Salary
Based Exchange Incentive
Restricted Stock Compensation
Stock Options(1) Shares(2) Options(3) Bonus Stock
------------------ -------------- ---------------- ----------------
Number Number Grant Number Number Grant
Of Exercise Of Date Of Exercise Of Date
Name and Position Shares Price Shares Price Shares Price Shares Price
----------------- --------- -------- ------- ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert D. Krebs......... 100,000 $74.50 30,990 $74.50 70,650 $81.25 4,895(4) $81.25
President & Chief 8,297(5)
Executive Officer
Donald G. McInnes....... 30,000 $74.50 18,560 $74.50 19,800 $81.25 2,854(4) $81.25
Senior Vice President & 2,045(5)
Chief Operations
Officer
John Q. Anderson........ 15,000 $74.50 10,800 $74.50 10,500 $81.25 0 0
Senior Vice President-
Coal, Metals and
Minerals Business Unit
Executive Group......... 237,000 $74.50 134,550 $74.50 155,400 $81.25 14,290(4) $81.25
17,814(5)
Nonexecutive Officer
Employee Group......... 1,731,660 $74.50 256,650 $74.50 227,250 $81.25 67,283(4) $81.25
94,022(5)
</TABLE>
- --------
(1) Options are exercisable commencing after one year and for a term of up to
ten years. The ultimate value of the options will depend on the future
market value of the Company's stock, which cannot be forecast with
reasonable accuracy.
(2) Restrictions on performance shares may lapse over a six-year period, if
the Company's stock price attains preestablished hurdles based on annual
compound growth in stock price of 12% over
24
<PAGE>
three, four, and five years. The Company cannot predict the dollar value of
the shares that would vest if the performance goals are attained because it
cannot predict the Company's stock price in the last year of the
performance cycle. If the performance goals are not attained within six
years after grant, the shares are forfeited.
(3) These options were granted in lieu of preselected portions of the
executives' base salary over the next three years pursuant to the
Company's Salary Exchange Option Program. The exercise price of the
options on the date of grant was $81.25.
(4) These shares were granted in lieu of a preselected portion of each
designated employee's 1996 ICP Award. Restrictions on the stock lapse
three years after grant, or earlier if the Company attains certain pre-
established performance hurdles, or other events occur.
(5) These shares were granted in substitution for and in equal number to
performance units granted under the SFP Incentive Stock Plan and are
subject to the original terms and conditions for vesting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL NO. 3
25
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table summarizes, for the years indicated, the compensation
paid by the Company and its subsidiaries to the Chief Executive Officer and to
each of the four other most highly compensated executive officers who were
serving as executive officers of the Company at the end of 1995 and two former
executive officers of BNI.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------------------
Annual
Compensation Awards Payouts
----------------------------- ------------------------ -----------
Securities
Underlying
Options/
Name and Other Restricted SARs LTIP All Other
Principal Position Year Salary Bonus (1) Annual (2) Stock (1) (3) (Shares) Payouts (4) Compensation (5)
------------------ ---- -------- --------- ---------- ------------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald Grinstein........ 1995 $750,000 $1,500,00 $270,140 $846,094 59,800 $ 0 $ 83,863
Retired Chairman of 1994 $691,667 $ 790,860 $229,410 $783,750 59,800 $ 0 $ 40,024
the Company 1993 $600,000 $ 767,760 -- $956,250 71,000 $ 0 $ 4,950
Robert D. Krebs......... 1995 $525,000 $ 265,147 -- $397,721 124,199 $508,981 $ 20,375
President and Chief 1994 $475,000 $239,450 -- $359,175 95,907 $ 0 $ 24,246
Executive Officer 1993 $450,000 $143,500 -- $215,325 136,155 $ 0 $ 4,000
of the Company
Donald G. McInnes....... 1995 $260,000 $ 154,618 -- $231,927 32,806 $205,743 $ 10,209
Senior Vice President 1994 $225,000 $ 236,131 -- $88,534 8,256 $ 0 $ 13,903
and Chief Operations 1993 $181,900 $ 91,969 -- $34,488 33,024 $ 0 $ 4,000
Officer of the Company
John Q. Anderson........ 1995 $270,400 $ 351,670 -- $237,500 15,000 $ 0 $ 11,848
Senior Vice President-- 1994 $259,167 $225,000 -- $203,500 13,600 $ 0 $ 14,753
Coal, Metals and 1993 $250,000 $245,000 -- $230,625 16,000 $ 0 $ 7,884
Minerals Business Unit
of the Company
Steven F. Marlier....... 1995 $245,000 $ 307,976 -- $ 0 31,073 $198,051 $ 14,042
Former Senior Vice 1994 $215,000 $298,900 -- $0 8,256 $ 0 $ 13,950
President--Consumer 1993 $175,100 $109,107 -- $0 33,024 $ 0 $ 4,000
Business Unit of the
Company
Ronald A. Rittenmeyer... 1995 $212,916 $ 537,360 -- $712,500 20,000 $ 0 $3,828,268
Former Chief Operating 1994 $150,691 $ 225,000 -- $438,263 11,700 $ 0 $ 3,848
Officer, Burlington 1993 N/A N/A -- N/A N/A $ 0 N/A
Northern Railroad
Company
David C. Anderson....... 1995 $348,400 351,670 -- $593,750 20,000 $ 0 $3,039,277
Former Executive Vice 1994 $333,333 $225,000 -- $550,000 20,000 $ 0 $ 17,401
President, Chief 1993 $313,750 $250,000 -- $309,375 21,000 $ 0 $ 2,503
Financial Officer of
BNI
</TABLE>
- --------
(1) The bonus awards for the executive officers named in the table were paid
pursuant to the annual incentive compensation plans described in the
"REPORT ON EXECUTIVE COMPENSATION." Messrs. Krebs and McInnes elected to
forego a portion of their annual incentive pursuant to the SFP Incentive
Stock Bonus Plan in exchange for a grant of restricted stock (except that
performance units were granted in 1995 relating to the 1994 incentive that
was waived). The
26
<PAGE>
bonuses waived by Messrs. Krebs and McInnes have been excluded from the
Bonus column and the value of the restricted stock (and in 1994,
performance units) is included in the Restricted Stock column.
(2) Includes imputed interest of $251,040 and $179,168 for the years 1995 and
1994, respectively on the loan described under "Employment Contracts and
Change in Control Arrangements" in this proxy statement.
(3) Messrs. Grinstein, Krebs, McInnes, and J. Anderson owned 14,250, 3,615,
578, and 4,000 shares of restricted stock with a value of $1,111,500,
$281,970, $45,084, and $312,000, respectively based upon a per share value
of $78 as of December 31, 1995. Mr. Grinstein's 1995 restricted stock
vested on December 31, 1995. Messrs. Rittenmeyer's and D. Anderson's 1995
restricted stock grants vested upon their termination in 1995. Dividends
are paid on a restricted stock award.
(4) Approval of the business combination between BNI and SFP by stockholders
of SFP constituted a change in control and therefore 47,111 unvested
performance-based restricted shares held by Messrs. Krebs, McInnes and
Marlier vested under the terms of the plan as of February 7, 1995.
(5) Includes amounts and benefits provided as severance to Messrs. Rittenmeyer
and D. Anderson under the change in control agreements described under
"Employment Contracts and Change in Control Arrangements" in this proxy
statement of $3,822,134 and $3,014,193, respectively, and vested and
unvested matching contributions to the Burlington Northern Inc. Thrift and
Profit Sharing Plan I, the Burlington Northern Inc. Nonqualified 401(k)
Restoration Plan, the SFP Retirement and Savings Plan and the SFP
Supplemental Retirement and Savings Plan for Messrs. Grinstein, Krebs,
McInnes, J. Anderson, Marlier, Rittenmeyer and D. Anderson, of $83,863,
$20,375, $10,209, $11,848, $14,042, $6,134, and $25,084, respectively.
27
<PAGE>
STOCK OPTION/SAR GRANTS
The following table sets forth information with respect to the individuals
named in the Summary Compensation Table concerning the grant of options and
stock appreciation rights during 1995.
OPTION/SAR GRANTS IN 1995 FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term (4)
----------------------------------------------- ----------------------------
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price Exp.
Name Granted (Shares) Fiscal Year $/Share Date 5% 10%
---- ---------------- ------------ -------- -------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Gerald Grinstein(1)..... 59,800 2.35% $59.375 04/20/05 $ 2,232,969 $ 5,658,782
Robert D. Krebs(2)...... 3,955 .16% $ 50.58 05/25/03 $ 99,512 $ 228,768
72,239 2.84% $ 54.96 03/28/05 $ 2,496,872 $ 6,327,565
48,005 1.89% $ 67.22 05/25/03 $ 1,540,699 $ 3,690,242
Donald G. McInnes(3).... 2,961 .12% $ 49.66 05/25/03 $ 70,207 $ 68,157
28,895 1.14% $ 54.96 03/28/05 $ 998,728 $ 2,530,973
950 .04% $ 55.71 05/25/03 $ 25,269 $ 60,524
John Q. Anderson(4)..... 15,000 .59% $59.375 04/20/05 $ 560,109 $ 1,419,427
Steven F. Marlier(5).... 2,178 .09% $ 54.36 05/25/03 $ 56,529 $ 135,396
28,895 1.14% $ 54.96 03/28/05 $ 998,728 $ 2,530,973
Ronald A.
Rittenmeyer(6)......... 20,000 .79% $59.375 04/20/05 $ 746,812 $ 1,892,569
David C. Anderson(7).... 20,000 .79% $59.375 04/20/05 $ 746,812 $ 1,892,569
</TABLE>
- --------
(1) An option grant with a $59.375 exercise price was granted to Mr. Grinstein
on April 20, 1995 to be exercisable commencing in one year. Pursuant to a
Separation Agreement described below with respect to this option grant,
Mr. Grinstein may request a cash payment of the difference between the
fair market value and the exercise price on his date of exercise which
shall occur within three years from December 31, 1995, at which time the
option expires.
(2) The option grant with an exercise price of $54.96 was granted on March 28,
1995 with a reload option and becomes exercisable on March 28, 1996. Mr.
Krebs received two option grants with exercise prices of $50.58 and
$67.22, in connection with his use of shares to exercise options based
upon the fair market value of a share of SFP common stock on date of grant
and which became exercisable on August 16, 1995 and January 24, 1996,
respectively.
(3) The option grant with an exercise price of $54.96 was granted on March 28,
1995 with a reload option and becomes exercisable on March 28, 1996. Mr.
McInnes received two option grants with exercise prices of $49.66 and
$55.71 in connection with his use of shares to exercise options based upon
the fair market value of a share of SFP common stock on date of grant and
which became exercisable on August 15, 1995 and September 30, 1995,
respectively.
(4) An option grant with a $59.375 exercise price was granted to Mr. Anderson
on April 20, 1995 to be exercisable in one year.
(5) The option grant with an exercise price of $54.96 was granted on March 28,
1995 with a reload option and become exercisable on a pro rata basis on
January 31, 1996. Mr. Marlier received one option grant at $54.36 in
connection with his use of shares to exercise options based upon the fair
market value of a share of SFP common stock on date of grant and which
became exercisable on September 16, 1995.
28
<PAGE>
(6) An option grant with a $59.375 exercise price was granted to Mr.
Rittenmeyer on April 20, 1995 to be exercisable in one year. Such option
was vested upon his termination of employment.
(7) An option grant with a $59.375 exercise price was granted to Mr. Anderson
on April 20, 1995 to be exercisable in one year. Such option was vested
upon his termination of employment.
OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth information with respect to the individuals
named in the Summary Compensation Table concerning their exercise of stock
options or SARs during 1995 and unexercised stock options and SARs held as of
the end of 1995.
AGGREGATED 1995 STOCK OPTION/SAR EXERCISESAND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs In-the-Money Options/
at Year End (Shares) SARs at Year End (1)(2)
------------------------- -------------------------
Shares Aggregate
Acquired Value
Name On Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald Grinstein........ 0 $ 0 802,434 0 $35,404,944 $ 0
Robert D. Krebs......... 142,185 $6,021,256 262,203 120,244 $12,937,349 $2,061,636
Donald G. McInnes....... 23,932 $ 947,116 66,893 28,895 $ 3,286,454 $ 636,846
John Q. Anderson........ 0 $ 0 35,975 15,000 $ 925,928 $ 264,375
Steven F. Marlier....... 5,794 $ 176,284 82,986 28,895 $ 4,297,549 $ 636,846
Ronald A. Rittenmeyer... 0 $ 0 31,700 0 $ 598,931 $ 0
David C. Anderson....... 0 $ 0 118,210 0 $ 3,316,062 $ 0
</TABLE>
- --------
(1) Dollar values are calculated by determining the difference between the
fair market value of the securities underlying the options or SARs and the
exercise price of the options or SARs at exercise or at year-end, as
applicable.
(2) Options or SARs are in-the-money if the fair market value of the
underlying securities exceeds the exercise or base price of the option or
SAR.
PENSION PLANS
The following table shows the estimated pension benefits payable to a
covered participant at normal retirement age (age 65) under the Burlington
Northern Pension Plan and the Santa Fe Pacific Retirement Plan ("Pension
Plans"), as well as nonqualified supplemental pension plans that provide
benefits that would otherwise be denied participants by reason of certain
Internal Revenue Code limitations on qualified plan benefits, based generally
upon compensation that is covered under the plans and upon years of service
with the Company and its subsidiaries.
A participant's average yearly compensation under the SFP Pension Plans is
based upon his or her average base salary and cash bonus earned for the 60
consecutive months during the last 120 months of service for which such
average is the highest or, in the case of a participant who has been employed
for less than five years, the period of his or her employment with the Company
and its subsidiaries. The estimated years of service for Mr. Krebs, Mr.
McInnes, and Mr. Marlier, are 30, 26, and 4, respectively. Benefit figures
shown below are annual amounts payable based on a straight life annuity under
the SFP benefit formula without regard to any Railroad Retirement, Social
Security, or other offsets, assuming normal retirement by the participant
without a joint survivorship provision. The
29
<PAGE>
SFP Pension Plan alternatively provides for joint survivorship options. For
purposes of the SFP Pension Plan, covered compensation in 1995 for Mr. Krebs,
Mr. McInnes, and Mr. Marlier, $1,055,294, $569,236, $552,976, respectively.
SFP PENSION PLAN TABLE
<TABLE>
<CAPTION>
Average Years of Service
Yearly --------------------------------------------------------------
Compensation 10 15 20 25 30 35 40
- ---------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 250,000...... $ 40,000 $ 60,000 $ 80,000 $ 99,000 $119,000 $139,000 $159,000
$ 300,000...... $ 48,000 $ 72,000 $ 95,000 $119,000 $143,000 $167,000 $191,000
$ 400,000...... $ 64,000 $ 96,000 $128,000 $160,000 $191,000 $223,000 $255,000
$ 500,000...... $ 80,000 $120,000 $160,000 $200,000 $240,000 $279,000 $319,000
$ 600,000...... $ 96,000 $144,000 $191,000 $239,000 $287,000 $335,000 $383,000
$ 800,000...... $128,000 $192,000 $255,000 $319,000 $383,000 $447,000 $511,000
$1,200,000...... $192,000 $288,000 $383,000 $479,000 $575,000 $671,000 $767,000
</TABLE>
Benefit accruals under the BNI Pension Plans of the Company and its
subsidiaries are based on the annual salary and incentive bonuses as reflected
in columns (c) and (d) of the Summary Compensation Table. Any commissions and
other extra or added compensation or benefits of any kind or nature are not
included in earnings for pension plan purposes. Estimated annual benefit
levels under the BNI Pension Plans are not subject to any reduction for Social
Security, Railroad Retirement or other offset amounts. These estimated annual
benefits are computed in the form of a single life annuity and are based on
average earnings and years of service at retirement as follows:
BNI PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
-----------------------------------
Pension Earnings 15 20 25 30
- ---------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 250,000.................................. $ 56,686 $ 75,581 $ 94,476 $113,371
$ 300,000.................................. $ 69,061 $ 92,081 $115,101 $138,121
$ 350,000.................................. $ 81,436 $108,581 $135,726 $162,871
$ 400,000.................................. $ 93,811 $125,081 $156,351 $187,621
$ 450,000.................................. $106,186 $141,581 $176,976 $212,371
$ 500,000.................................. $118,561 $158,081 $197,601 $237,121
$ 700,000.................................. $168,061 $224,081 $280,101 $336,121
$ 900,000.................................. $217,561 $290,081 $362,601 $435,121
$1,100,000.................................. $267,061 $356,081 $445,101 $534,121
$1,300,000.................................. $316,561 $422,081 $527,601 $633,121
$1,500,000.................................. $366,061 $488,081 $610,101 $732,121
$2,000,000.................................. $489,811 $653,081 $816,351 $979,621
</TABLE>
The BNI Plans' formula for normal retirement at age 65 is .75% times final
average earnings plus .9% of final average earnings over the "Integration
Level," multiplied by years of service to a maximum of 30 years. The
Integration Level is defined as two-thirds of the Tier I Railroad Retirement
Wage Base (i.e., the maximum earnings subject to Social Security taxes) over
the sixty months immediately preceding the month in which the participant
retires. Mr. J. Anderson has six years service. Mr. Grinstein was deemed to
have thirty years of service in accordance with a fulfilled employment
agreement. In accordance with Mr. D. Anderson's employment agreement, service
with his prior employer is considered by the Company for pension plan purposes
resulting in 19 years of credited service and his pension benefit will be
reduced by the amount of pension benefits payable from his prior employer. Mr.
Rittenmeyer has two years of service.
30
<PAGE>
The Company has adopted the Burlington Northern Inc. Nonqualified 401(k)
Restoration Plan (the "Restoration Plan") pursuant to which certain matching
contributions, which are disallowed under the Burlington Northern Inc. Thrift
and Profit Sharing Plan I because of the limitations on qualified retirement
plans imposed by the Internal Revenue Code are restored to certain executive
officers of the Company by means of credits made to their accounts in the
Restoration Plan as deferred compensation. Such credited amounts earn interest
at a rate selected by a Management Committee. Messrs. Grinstein, J. Anderson,
Rittenmeyer, and D. Anderson are covered under the Restoration Plan.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
On December 15, 1995, the Company entered into an agreement with Mr.
Grinstein providing certain payments and rights to Mr. Grinstein upon his
retirement as an employee with the Company on December 30, 1995. These
payments are in addition to vested amounts to which Mr. Grinstein is entitled
pursuant to the Company's pension plan, thrift and profit sharing or deferred
compensation plans, or pursuant to restricted stock or stock option incentive
plans. The payments include: (a) consideration for earned and unused vacation
time in 1995 and 1996; (b) $1,500,000, reflecting a bonus payment for 1995;
and (c) the right to request and receive, at any time during a three-year
period commencing on his retirement date, a one-time cash payment as described
in note 1 to the "Option/SAR Grants in 1995 Fiscal Year" table for his 1995
option grant and certain home sale and relocation benefits within one year of
his retirement.
The Company also has entered into an agreement with Mr. Grinstein for
consulting services to be provided during a three-year period commencing on
January 1, 1996. For these services (and for his covenant not to compete) Mr.
Grinstein will be paid a retainer of $375,000 in 1996, $262,000 in 1997, and
$150,000 in 1998. Mr. Grinstein also will be provided with an office and
secretary and will be reimbursed for any reasonable business expenses incurred
in connection with the agreement. The Company will also provide financial
planning services for a one-year period. In addition, at the end of each year
of continued service under the agreement, the Company will forgive one-third
of the amount of an outstanding loan made to Mr. Grinstein during his tenure
as Chairman and Chief Executive Officer of BNI. Under the loan arrangement,
which is evidenced by a non-interest bearing demand note, a total of $4.28
million was outstanding in 1995 and to date, which was secured by company
common stock pledged by him.
The Company has assumed the severance agreements (the "SFP Severance
Agreements") of Messrs. McInnes and Marlier and certain other salaried
employees. Each SFP Severance Agreement provides following a "change in
control" for the payment of severance benefits if employment is terminated
during the term of the SFP Severance Agreement either by the Company other
than for "cause" or by the employee for "good reason," as those terms are
defined therein. The definition of a "change in control" is similar to the
definition in the Stock Plan, except that a merger with a Class I railroad is
not excluded from the definition of a "change in control." The approval of the
business combination between BNI and SFP by SFP stockholders on February 7,
1995, constituted a "change in control."
The Severance Agreements for Mr. McInnes and certain other salaried
employees which remain in effect, provide for: (a) lump sum payment equal to
two years' base salary, or if higher, the base salary paid in the last twenty-
four months, or in lieu thereof, the benefits provided under a subsidiary's
severance program (as described below), and two times the maximum bonus
payment as if all performance objectives have been met in full with an
additional sum so that such benefits are payable on an after-tax basis; (b) a
lapse of restrictions on any outstanding restricted stock grants and full
payout of related Performance Units; (c) a cash payment for each outstanding
option equal to the amount by which either (i) the fair market value of a
share of common stock on the date of termination or, in the case of Non-
Qualified Stock Options, the highest quoted per share price during the sixty-
day period commencing on the date of termination, or (ii) the price paid in
connection with any "change in control" of the Company, whichever is higher,
exceeds the fair market value of a share of common
31
<PAGE>
stock on the date of grant; (d) legal fees and expenses relating to claims
under the Severance Agreements; and (e) life, disability, and health benefits
for a period of up to twenty-four months. The after-tax payment provided in
clause (a) above is limited to the extent that the value thereof, when
aggregated with other benefits or payments, would exceed three times the "base
amount" as defined in Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), the base amount approximating the average of five years'
compensation preceding a "change in control" of the Company. Mr. Marlier
terminated employment on January 31, 1996 and received the benefits of the
above-described agreement of approximately $1,788,454.
The Company has assumed certain change in control severance agreements (the
"BNI Severance Agreements") for Messrs. J. Anderson, Rittenmeyer, and D.
Anderson and certain other salaried employees. These BNI Severance Agreements
with amendments provide for certain severance benefits if the individual's
employment with BNI is terminated for certain reasons subsequent to change in
control of BNI. A "change in control" takes place if (i) a person acquires 20%
voting power of BNI's stock, (ii) during any two-year period individuals who
constitute the Board of Directors at the beginning of such period cease to
constitute a majority thereof or (iii) stockholders approve a merger,
consolidation or sale of substantially all of BNI's assets or a plan of
liquidation or dissolution of BNI ("Merger"). If the employment of a person
covered by a BNI Severance Agreement is terminated during the period
commencing on the date of stockholders' approval of the Merger and ending on
the second anniversary of the Effective Time of the Merger, for reasons other
than death or permanent disability, cause or mandatory retirement or is
terminated by the employee for "good reason" (as defined therein), then the
employee shall be entitled to receive the following benefits: payments of base
compensation (annual salary rate and maximum bonus target) through the date of
termination and all amounts otherwise owed the executive under the terms of
any BNI compensation plan, three times the individual's base compensation, an
amount equal to the retirement benefits and BNI Thrift and Profit Sharing Plan
I employer contributions payable, including employer contributions to the
Burlington Northern Inc. Nonqualified 401(k) Restoration Plan (assuming the
individual remained an employee for three more years or until mandatory
retirement, both based on base compensation increasing 8% per year), certain
insurance benefits for 18 months after termination, waiver of any restricted
periods on, and the vesting of, any outstanding awards of restricted stock or
stock options, any legal fees incurred in enforcing the BNI Severance
Agreement and payment of any Federal excise taxes on certain amounts paid.
Messrs. Rittenmeyer and D. Anderson terminated employment and received the
benefits of BNI Severance Agreements as described in the Summary Compensation
Table.
The Company's subsidiaries maintain severance programs for all full-time
salaried employees, including the executive officers named in the Summary
Compensation Table, who are terminated by their respective companies other
than for cause as defined in the severance programs. A participant is
generally entitled to an amount up to one year's pay based upon a
participant's age, length of service, and current salary, or in certain
circumstances, supplemental payments provided that the aggregate does not
exceed two years' pay. The program further provides that in the event of a
change in control (which is similar to the definition used in the Severance
Agreements), the program will be maintained for a twenty-four month period.
Benefits under these programs will not be paid if a participant received
payments under a Severance Agreement.
BN Senior Executive Survivor Benefit Plan. The Company has a BN Senior
Executive Survivor Benefit Plan which is a supplemental plan under which
certain executive officers of the Company and its designated subsidiaries are
provided survivor benefit coverage in excess of the coverage generally
provided for employees of the Company under the Company's group life insurance
plan. Messrs. Grinstein, D. Anderson, J. Anderson, and R. Rittenmeyer are
covered under this plan.
The SFP Retirement Plan has a similar change in control provision that
restricts the use of excess plan assets for purposes other than the payment of
participant benefits.
32
<PAGE>
Trust Agreements. The Company maintains trust agreements ("Trust
Agreements") to set aside funds necessary to satisfy the Company's obligations
to present and former executives and directors under deferred compensation
programs and agreements, retirement commitments, certain consulting
agreements, and supplemental retirement plans. In 1988, one of the Trust
Agreements was amended to provide for permanent funding of benefits under the
supplemental retirement plans and the Retirement Policy for Directors of Santa
Fe Pacific Corporation on a present value basis, and to further provide for a
split-dollar life insurance plan ("Split-dollar Plan") for certain key
employees including Mr. Krebs. The Split-dollar Plan provides for the purchase
of life insurance policies covering key employees, and for the payment to each
covered employee's beneficiary of a portion of the death benefit payable under
such employee's life insurance policy, with the remaining value in each policy
to be used to fund the other obligations of the trust established under such
trust. The trust retains all rights to any cash values of the policies and the
executive officers pay the cost of term coverage. In the event of a "change in
control of the Corporation" as defined in the Severance Agreements, the Trust
Agreements provide for the payment of amounts which may become due, subject
only to the claims of general creditors of the Company in the event that the
Company became bankrupt or insolvent.
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P. served as the independent public accountant for the
Company and for BNI in 1995. The Company's independent public accountant for
1996 will be selected by the Board at a regular Board meeting to be held in
1996. Representatives of Coopers & Lybrand L.L.P. and of Price Waterhouse LLP,
who served as the independent public accountant for SFP in 1995, will be
present at the annual meeting with the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
OTHER BUSINESS
If any matters other than those set forth above are properly brought before
the meeting, it is intended that the persons acting under the proxy will vote
thereunder in accordance with their best judgment. The Board knows of no
business that may come before the meeting except that indicated above and
other than a stockholder proposal omitted from this proxy statement pursuant
to the rules of the Securities and Exchange Commission.
COST OF PROXY SOLICITATION
The cost of preparing, assembling, and mailing this proxy material will be
borne by the Company. In addition to solicitation by mail, solicitations may
be made by regular employees of the Company or by paid solicitors in person or
by telephone, telecopy, or telegraph. Arrangements may be made with brokerage
houses, custodians, nominees, and fiduciaries to send proxy material to their
principals and the Company will reimburse them for their expense in so doing.
In addition, Kissel-Blake, Inc. has been retained to aid in the solicitation
at an estimated fee of $ 10,000.
STOCKHOLDER PROPOSALS
In accordance with the proxy rules of the Securities and Exchange
Commission, proposals by stockholders to be considered for inclusion in the
proxy material solicited by the Company for the 1996 annual meeting must be
received at the Company's executive offices no later than November 5, 1996.
33
<PAGE>
To be eligible for inclusion, a proposal must also comply with all applicable
provisions of Regulation 14A under the Securities Exchange Act of 1934.
By order of the Board of Directors.
MARSHA K. MORGAN
Vice President-Investor Relations
and Corporate Secretary
March 5, 1996
34
<PAGE>
APPENDIX A
BURLINGTON NORTHERN SANTA FE
NON-EMPLOYEE DIRECTORS' STOCK PLAN
----------------
SECTION 1
GENERAL
1.1. PURPOSE. The Burlington Northern Santa Fe Non-Employee Directors' Stock
Plan (the "Plan") has been established by Burlington Northern Santa Fe
Corporation (the "Company") to promote the interests of the Company and its
stockholders by enhancing the Company's ability to attract and retain the
services of experienced and knowledgeable directors and by encouraging such
directors to acquire an increased proprietary interest in the Company.
1.2. OPERATION AND ADMINISTRATION. The operation and administration of the
Plan shall be subject to the provisions of Section 4. Capitalized terms in the
Plan shall be defined as set forth in Section 7 or elsewhere in the Plan.
SECTION 2
OPTION AWARDS
2.1. TERMS AND CONDITIONS
Each Option Award granted under the Plan shall be evidenced by an agreement
and shall comply with the following terms and conditions:
(a) Each year as of the Annual Meeting of Stockholders of the Company,
each Eligible Director who is a member of the Board as of the adjournment
of the meeting shall automatically receive an Option Award for 1,000 shares
of Stock.
(b) The option exercise price shall be the Fair Market Value of the Stock
subject to such an Option Award on the date of grant.
(c) The Option Award shall not be sold, assigned, transferred, pledged or
otherwise encumbered, other than by will or the laws of descent and
distribution, unless the Participant has made an irrevocable election to
receive a transferable option with the Secretary of the Company at least
six months prior to the date of grant. Such transferable Option Awards may
be transferred by a Participant for no consideration to or from the
Participant's Immediate Family (including, without limitation, to a trust
for the benefit of a Participant's Immediate Family or a Family Partnership
for members of the Immediate Family), and the transferee shall remain
subject to all of the terms and conditions applicable to such Option Award
prior to such transfer.
(d) If an individual becomes an Eligible Director during a Plan Year on a
date other than the first day of the Plan Year, he shall be granted an
Option Award for the year, with the number of shares of stock subject to
the Option Award reduced pro-rata to reflect the portion of the Plan Year
that has elapsed prior to the date on which he becomes an Eligible
Director. A Director's Option Award under this paragraph (d) shall be made
on the first business day on which he is an Eligible Director (the "Award
Date" for that Option Award), and the Fair Market Value of the Stock so
awarded shall be determined as of that date.
(e) The Option Awards under this subsection 2.1 shall be subject to the
vesting provision set forth in subsection 2.2.
A-1
<PAGE>
2.2. VESTING. Option Awards shall be exercisable commencing one (1) year
from the date of grant. A Participant who ceases to be a Director shall
forfeit the Option Award which is not vested on his Date of Termination;
provided, however, that (i) if a Participant ceases to be a Director by reason
of his Retirement, death or Disability, any portion of the Option Award that
is not then vested shall vest on his Date of Termination; and (ii) any portion
of the Option Award that is held by an individual serving as a Director on the
date of a Change in Control that is not then vested shall vest on the date of
the Change of Control.
2.3. EXERCISE. To the extent that an Option Award is exercisable, it may be
exercised in whole or in part by filing a written notice with the Secretary of
the Company at its corporate headquarters prior to the date the Option
expires. Such notice shall specify the number of shares of Stock which the
Participant elects to purchase, and shall be accompanied by payment of the
exercise price for such shares of Stock indicated by the Participant's
election. Payment shall be by cash or by check payable to the Company, except
that all or a portion of such required amount may be paid by delivery of
shares of Stock having an aggregate Fair Market Value (valued as of the date
of exercise) that is equal to the amount of cash which would otherwise be
required.
2.4. EXPIRATION. An Option Award granted to a Director shall expire on the
tenth anniversary of the Award Date; provided, however, that in no event shall
the Option Award be exercisable after the first anniversary of the Date of
Termination of the Director.
SECTION 3
RETAINER STOCK AWARDS
3.1. TERMS AND CONDITIONS. As of the date of the 1996 Annual Meeting of
Stockholders of the Company, each Director who is then an Eligible Director
shall be granted a Retainer Stock Award. Thereafter, as of the date of each
subsequent Annual Meeting of Stockholders of the Company, each Director who is
then an Eligible Director (excluding any Eligible Director who has previously
received a Retainer Stock Award) shall be granted a Retainer Stock Award. The
Retainer Stock Award shall be as follows:
(a) The Retainer Stock Award shall consist of the grant of 1,000 shares
of Stock, to vest as follows:
1) One-third of the Retainer Stock Award shall vest after three
years, but no later than six years, from the date of grant upon
attaining Fair Market Value equal to the Fair Market Value on date of
grant increased by 12% compound annual growth rate for a three year
period, provided such price has been maintained for thirty (30)
consecutive trading days either immediately prior to or any time after
the third year;
2) One-third of the Retainer Stock Award shall vest after four years,
but no later than six years, from the date of grant upon attaining Fair
Market Value equal to the Fair Market Value on date of grant increased
by 12% compound annual growth rate for a four year period, provided
such price has been maintained for thirty (30) consecutive trading days
either immediately prior to or any time after the fourth year;
3) One-third of the Retainer Stock Award shall vest after five years,
but no later than six years, from the date of grant upon attaining Fair
Market Value equal to the Fair Market Value on date of grant increased
by 12% compound annual growth rate for a five year period, provided
such price has been maintained for thirty (30) consecutive trading days
either immediately prior to or any time after the fifth year.
(b) As of December 31 for any year in which a Director has made a
Deferral Election as described in Supplement A, each Eligible Director who
has made a Deferral Election shall receive
A-2
<PAGE>
an additional Retainer Stock Award equal to 125 percent of Cancelled
Compensation, which shall vest three years from the date of grant.
(c) The Retainer Stock Awards granted under this subsection 3.1 shall be
subject to the vesting provision set forth in subsection 3.3.
3.2. FRACTIONAL SHARES. If the number of shares that may be vested under a
Retainer Stock Award for a Director would result in a fractional share, then
the number of shares otherwise available shall be reduced to the next lowest
number that would result in the allocation of no fractional shares.
3.3. VESTING. A Participant who ceases to be a Director prior to vesting of
a Retainer Stock Award shall forfeit a Retainer Stock Award which is not
vested on his Date of Termination; provided, however, that (i) if a
Participant ceases to be a Director by reason of his Retirement, death or
Disability, any portion of the Retainer Stock Award that is not then vested
shall vest on his Date of Termination, provided that in the event of
Retirement, any Retainer Stock Award granted under Section 3.1(a) shall be
vested upon a pro rata basis based upon the number of years which have elapsed
from the date of grant divided by the five year term of the grant if the Fair
Market Value of a share of Stock from the date of grant has increased by a 12%
compound annual growth rate and if such value has been maintained for thirty
(30) consecutive trading days within the six month period prior to date of
Retirement, or such Retainer Stock Award shall be forfeited; and (ii) any
portion of the Retainer Stock Award that is held by an individual serving as a
Director on the date of a Change in Control that is not then vested shall
become vested on the date of the Change of Control.
3.4. LIMIT ON STOCK. Stock granted as a Retainer Stock Award shall be
subject to the following:
(a) Such Stock may not be sold, assigned, transferred, pledged or
otherwise encumbered prior to the date it is vested.
(b) Each certificate issued in respect of such Stock shall be registered
in the name of the Participant and deposited, together with a stock power
endorsed in blank, with the Company.
(c) Except as otherwise provided by the Plan, the Participant as owner of
shares of Stock granted to him as a Retainer Stock Award shall have all the
rights of a stockholder, including but not limited to the right to vote
such shares and the right to receive all dividends paid on such shares;
provided, however, that no dividends shall be payable to or for the benefit
of a Participant with respect to record dates for such dividends occurring
on or after the date, if any, on which the Participant has forfeited the
Stock.
SECTION 4
OPERATION AND ADMINISTRATION
4.1. EFFECTIVE DATE. Subject to the approval of the stockholders of the
Company at the Company's 1996 annual meeting of its stockholders, the Plan
shall be effective as of the Effective Date. The Plan shall be unlimited in
duration and, in the event of Plan termination, shall remain in effect as long
as any shares of Stock awarded under it are outstanding and not fully vested.
4.2. SHARES SUBJECT TO PLAN. The shares of Stock with respect to which
Awards may be made under the Plan shall be shares currently authorized but
unissued or currently held or subsequently acquired by the Company as treasury
shares, including shares purchased in the open market or in private
transactions. Subject to the provisions of subsection 4.4, the number of
shares of Stock which may be issued with respect to Awards under the Plan
shall not exceed 300,000 shares in the aggregate. Except as otherwise provided
herein, any shares subject to an Award which for any reason expires or is
terminated without issuance of shares (whether or not cash or other
consideration is paid to a Participant in respect of such Award) shall again
be available under the Plan.
A-3
<PAGE>
4.3. ADJUSTMENTS TO SHARES.
(a) If the Company shall effect a reorganization, merger, or consolidation,
or similar event or effect any subdivision or consolidation of shares of Stock
or other capital readjustment, payment of stock dividend, stock split, spin-
off, combination of shares or recapitalization or other increase or reduction
of the number of shares of Stock outstanding without receiving compensation
therefor in money, services or property, then the Committee shall adjust (i)
the number of shares of Stock available under the Plan; (ii) the number of
shares available under any individual or other limits; (iii) the number of
shares of Stock subject to outstanding Awards; and (iv) the per-share price
under any outstanding Award to the extent that the Participant is required to
pay a purchase price per share with respect to the Award.
(b) If the Committee determines that the adjustments in accordance with the
foregoing provisions of this section would not be fully consistent with the
purposes of the Plan or the purposes of the outstanding Awards under the Plan,
the Committee may make such other adjustments to the Awards to the extent that
the Committee determines such adjustments are consistent with the purposes of
the Plan and of the affected Awards.
4.4. LIMIT ON DISTRIBUTION. Distribution of shares of Stock or other amounts
under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall
have no liability to issue any shares of Stock under the Plan or make any
other distribution of benefits under the Plan unless such delivery or
distribution would comply with all applicable laws and the applicable
requirements of any securities exchange or similar entity.
(b) The Committee shall add such conditions and limitations to any Award
to any Participant who is subject to Section 16(a) and 16(b) of the
Securities Exchange Act of 1934, as is necessary to comply with Section
16(a) or 16(b) and the rules and regulations thereunder or to obtain any
exemption therefrom.
(c) To the extent that the Plan provides for issuance of certificates to
reflect the transfer of shares of Stock, the transfer of such shares may,
at the direction of the Committee, be effected on a non-certificated basis,
to the extent not prohibited by the provisions of Rule 16b-3 or any other
applicable rules.
4.5. TAXES. All Awards and other payments under the Plan are subject to all
applicable taxes which shall be obligations of the Participant.
4.6. DISTRIBUTIONS TO DISABLED PERSONS. Notwithstanding any other provision
of the Plan, if, in the Committee's opinion, a Participant or other person
entitled to benefits under the Plan is under a legal disability or is in any
way incapacitated so as to be unable to manage his financial affairs, the
Committee may direct that payment be made to a relative or friend of such
person for his benefit until claim is made by a conservator or other person
legally charged with the care of his person or his estate, and such payment or
distribution shall be in lieu of any such payment to such Participant or other
person. Thereafter, any benefits under the Plan to which such Participant or
other person is entitled shall be paid to such conservator or other person
legally charged with the care of his person or his estate.
4.7. ADMINISTRATION. The authority to control and manage the operation and
administration of the Plan shall be vested in a committee (the "Committee") in
accordance with Section 5.
4.8. FORM AND TIME OF ELECTIONS. Any election required or permitted under
the Plan shall be in writing, and shall be deemed to be filed when delivered
to the Secretary of the Company. Any Deferral Election made under Supplement A
shall be irrevocable after it is filed.
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4.9. AGREEMENT WITH COMPANY. Each Award granted under Sections 2 and 3 shall
be evidenced by an Agreement (an "Agreement") duly executed on behalf of the
Company and by the Participant to whom such Award is granted and dated as of
the applicable date of grant. Each Agreement shall comply with and be subject
to the terms of the Plan.
4.10. EVIDENCE. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting
on it considers pertinent and reliable, and signed, made or presented by the
proper party or parties.
4.11. ACTION BY COMPANY. Any action required or permitted to be taken by the
Company shall be by resolution of the Board, or by action of one or more
members of the Board (including a committee of the Board) who are duly
authorized to act for the board, by a duly authorized officer of the Board, or
(except to the extent prohibited by the provisions of Rule 16b-3 or any other
applicable rules) by a duly authorized officer of the Company.
4.12. GENDER AND NUMBER. Where the context admits, words in any gender shall
include any other gender, words in the singular shall include the plural and
the plural shall include the singular.
SECTION 5
COMMITTEE
5.1. SELECTION OF COMMITTEE. The Committee shall be the Directors and
Corporate Governance Committee.
5.2. POWERS OF COMMITTEE. The authority to manage and control the operation
and administration of the Plan shall be vested in the Committee. The Committee
will have the authority to establish, amend, and rescind any rules and
regulations relating to the Plan, to determine the terms and provisions of any
agreements made pursuant to the Plan, and to make all other determinations
that may be necessary or advisable for the administration of the Plan.
5.3. INFORMATION TO BE FURNISHED TO COMMITTEE. The Company shall furnish the
Committee with such data and information as may be required for it to
discharge its duties. The records of the Company as to the period of a
Director's service shall be conclusive on all persons unless determined to be
incorrect. Participants and other persons entitled to benefits under the Plan
must furnish the Committee such evidence, data or information as the Committee
considers desirable to carry out the terms of the Plan.
5.4. LIABILITY AND INDEMNIFICATION OF COMMITTEE. No member or authorized
delegate of the Committee shall be liable to any person for any action taken
or omitted in connection with the administration of the Plan unless
attributable to his own fraud or willful misconduct; nor shall the Company be
liable to any person for any such action unless attributable to fraud or
willful misconduct on the part of a director or employee of the Company. The
Committee, the individual members thereof, and persons acting as the
authorized delegates of the Committee under the Plan, shall be indemnified by
the Company, to the fullest extent permitted by law, against any and all
liabilities, losses, costs and expenses (including legal fees and expenses) of
whatsoever kind and nature which may be imposed on, incurred by or asserted
against the Committee or its members or authorized delegates by reason of the
performance of a Committee function if the Committee or its members or
authorized delegates did not act dishonestly or in willful violation of the
law or regulation under which such liability, loss, cost or expense arises.
This indemnification shall not duplicate but may supplement any coverage
available under any applicable insurance.
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SECTION 6
AMENDMENT AND TERMINATION
The Board may, at any time, amend or terminate the Plan, provided that,
subject to subsection 4.3 (relating to certain adjustments to shares), no
amendment or termination may adversely affect the rights of any Participant or
beneficiary under any Award made under the Plan prior to the date such
amendment is adopted by the Board. Notwithstanding the provisions of this
Section 6, in no event shall the provisions of the Plan relating to Awards
under the Plan be amended more than once every six months, other than to
comport with changes in the Internal Revenue Code ("Code"), the Employee
Retirement Income Security Act, or the rules thereunder; provided, however,
that the limitation set forth in this sentence shall be applied only to the
extent required under SEC Rule 16b-3(c)(2)(ii)(B) or any successor provision
thereof.
SECTION 7
DEFINED TERMS
For purposes of the Plan, the terms listed below shall be defined as
follows:
(a) AWARD. The term "Award" shall mean an award of stock options or
restricted stock granted to any person under the Plan.
(b) BOARD. The term "Board" shall mean the Board of Directors of the
Company.
(c) CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred if:
(1) any "person" as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any
company owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company), is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities;
(2) during any period of two consecutive years (not including any
period prior to the effective date of this provision), individuals who
at the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in
clause (1), (3) or (4) of this definition) whose election by the Board
or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds ( 2/3) of the directors then still in
office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof;
(3) the stockholders of the Company approve a merger or consolidation
of the Company with any other company other than (i) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 80% of the combined
voting power of the voting securities of the Company (or such surviving
entity) outstanding immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no "person" (as
hereinabove defined) acquires more than 25% of the combined voting
power of the Company's then outstanding securities; or
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(4) the stockholders of the Company adopt a plan of complete
liquidation of the Company or approve an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets. For purposes of this clause (4), the term "the sale or
disposition by the Company of all or substantially all of the Company's
assets" shall mean a sale or other disposition transaction or series of
related transactions involving assets of the company or of any direct
or indirect subsidiary of the Company (including the stock of any
direct or indirect subsidiary of the Company) in which the value of the
assets or stock being sold or otherwise disposed of (as measured by the
purchase price being paid therefor or by such other method as the Board
of Directors of the Company determines is appropriate in a case where
there is no readily ascertainable purchase price) constitutes more than
two-thirds of the fair market value of the Company (as hereinafter
defined). For purposes of the preceding sentence, the "fair market
value of the Company" shall be the aggregate market value of the
outstanding shares of Stock (on a fully diluted basis) plus the
aggregate market value of the Company's other outstanding equity
securities. The aggregate market value of the shares of Stock (on a
fully diluted basis) outstanding on the date of the execution and
delivery of a definitive agreement with respect to the transaction or
series of related transactions (the "Transaction Date") shall be
determined by the average closing price of the shares of Stock for the
ten trading days immediately preceding the Transaction Date. The
aggregate market value of any other equity securities of the Company
shall be determined in a manner similar to that prescribed in the
immediately preceding sentence for determining the aggregate market
value of the shares of Stock or by such other method as the Board of
Directors of the Company shall determine is appropriate.
Notwithstanding the foregoing, a merger, consolidation, acquisition
of common control, or business combination of the Company and a Class I
Railroad or a holding company of a Class I Railroad shall not
constitute a "Change in Control" unless the Board makes a determination
that such transaction shall constitute a "Change in Control."
(d) DATE OF TERMINATION. A Participant's "Date of Termination" shall be
the day following the last day on which he serves as a Director.
(e) DIRECTOR. The term "Director" means a member of the Board.
(f) DISABILITY. A Participant shall be considered to have a "Disability"
during the period in which he is unable, by reason of a medically
determinable physical or mental impairment, to engage in any substantial
gainful activity, which condition, in the opinion of a physician selected
by the Committee, is expected to have a duration of not less than 120 days.
(g) EFFECTIVE DATE. The "Effective Date" means the date of the Company's
1996 annual stockholders meeting.
(h) ELIGIBLE DIRECTOR. Each Director who is not an employee of the
Company or any Related Company shall be an "Eligible Director".
(i) FAIR MARKET VALUE. The "Fair Market Value" of the Stock shall be the
mean between the highest and lowest quoted sales prices of a share of
Common Stock on the New York Stock Exchange Composite Transaction Report;
provided, that if there were no sales on the valuation date but there were
sales on dates within a reasonable period both before and after the
valuation date, the Fair Market Value is the weighted average of the means
between the highest and lowest sales on the nearest date before and the
nearest date after the valuation date. The average is to be weighed
inversely by the respective numbers of trading days between the selling
dates and the valuation date and shall be determined in good faith by the
Committee.
(j) IMMEDIATE FAMILY. With respect to a particular Participant, the term
"Immediate Family" shall mean the Participant's spouse, children,
stepchildren, adoptive relationships, sisters, brothers and grandchildren.
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(k) OPTION AWARD. The term "Option Award" shall mean a non-qualified
stock option granted under the Plan.
(l) PARTICIPANT. A "Participant" is any person who has received an Award
under the Plan.
(m) PLAN YEAR. The term "Plan Year" means the period (i) beginning on the
date of the Company's annual stockholders meeting and (ii) ending on the
day immediately prior the first day of the following Plan Year. The first
Plan Year shall begin on the Effective Date.
(n) RELATED COMPANIES. The term "Related Company" means any company
during any period in which it is a "subsidiary corporation" (as that term
is defined in Code section 424(f)) with respect to the Company.
(o) RETIREMENT. The term "Retirement" means termination of service as a
Director in accordance with and pursuant to the Retirement Policy for
Directors adopted by the Company.
(p) SEC. "SEC" shall mean the Securities and Exchange Commission.
(q) STOCK. The term "Stock" shall mean shares of common stock of the
Company.
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SUPPLEMENT A
DEFERRAL ELECTION
A-1.1. ELIGIBILITY. An individual who is otherwise entitled to receive a
Retainer Stock Award or who is otherwise eligible to receive cash payment for
services provided as a Director ("Cash Compensation") may elect to forego a
portion of the annual retainer fee exclusive of any fees or other amounts
payable for attendance at the meetings of the Board or for service on any
committee thereof, to receive a Retainer Stock Award as described in Section 3
hereof, subject to the following terms of this Supplement A.
A-1.2. DATE OF GRANT. The date of grant shall be as of December 31 for any
year in which a Director has made a Deferral Election as described in this
Supplement A.
A-1.3. AMOUNT OF ELECTIVE COMPENSATION. Each Participant may exchange up to
25% of the annual cash retainer fee, exclusive of any fees or other amounts
payable for attendance at the meetings of the Board or for service on any
committee thereof, payable in a calendar year in exchange for a Retainer Stock
Award equal to a number of shares of Stock determined by dividing 125% of the
amount of Cancelled Compensation by the Fair Market Value of Stock on the date
of grant; provided that such Retainer Stock Award shall be of substantially
equivalent value to the Cancelled Compensation to the extent required by SEC
Rule 16b-3(c)(2)(i)(C). The Cancelled Compensation shall be deducted from the
last quarterly payment of the annual retainer fee in a fiscal year.
A-1.4. METHOD OF ELECTION. A Participant who wishes to elect to receive a
Retainer Stock Award must deliver to the Secretary of the Company, a written
irrevocable election specifying the amount of Cash Compensation he wishes to
forego ("Cancelled Compensation"), by December 31 prior to the fiscal year in
which the Cash Compensation would be earned; provided however, that in the
first Plan Year, the election must be filed no later than April 1, 1996.
Notwithstanding the foregoing, any Director of the Company subject to Section
16(b) of the Securities Exchange Act of 1934 must make such election not less
than six months before the scheduled grant date.
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APPENDIX B
BURLINGTON NORTHERN SANTA FE 1996 STOCK INCENTIVE PLAN
SECTION 1
Statement of Purpose
1.1. The BURLINGTON NORTHERN SANTA FE CORPORATION 1996 STOCK INCENTIVE PLAN
(the "Plan") has been established by BURLINGTON NORTHERN SANTA FE CORPORATION
(the "Company") to:
(a) attract and retain executive, managerial and other salaried
employees;
(b) motivate participating employees, by means of appropriate incentives,
to achieve long-range goals;
(c) provide incentive compensation opportunities that are competitive
with those of other major corporations; and
(d) further identify a Participant's interests with those of the
Company's other stockholders through compensation that is based on the
Company's common stock;
and thereby promote long-term financial interest of the Company and the
Related Companies, including the growth in value of the Company's equity and
enhancement of long-term stockholder return.
SECTION 2
Definitions
2.1. Unless the context indicates otherwise, the following terms shall have
the meanings set forth below:
(a) Award. The term "Award" shall mean any award or benefit granted to
any Participant under the Plan, including, without limitation, the grant of
Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock
Units, Performance Stock, Stock acquired through purchase under Section 12,
or Performance Units.
(b) Board. The term "Board" shall mean the Board of Directors of the
Company.
(c) Cause. The term "Cause" shall mean (a) the willful and continued
failure by the Participant to substantially perform his duties with the
Company (other than any such failure resulting from his incapacity due to
physical or mental illness), or (b) the willful engaging by the Participant
in conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise. For purposes of this definition, no act, or
failure to act, shall be deemed "willful" unless done, or omitted to be
done, by the Participant not in good faith and without reasonable belief
that his action or omission was in the best interest of the Company.
(d) Change in Control. A "Change in Control" shall be deemed to have
occurred if
(1) any "person" as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any
company owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company), is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities;
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(2) during any period of two consecutive years (not including any
period prior to the effective date of this provision), individuals who
at the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in
clause (1), (3) or (4) of this definition) whose election by the Board
or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds ( 2/3) of the directors then still in
office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof;
(3) the stockholders of the Company approve a merger or consolidation
of the Company with any other company other than (i) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 80% of the combined
voting power of the voting securities of the Company (or such surviving
entity) outstanding immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no "person" (as
hereinabove defined) acquires more than 25% of the combined voting
power of the Company's then outstanding securities; or
(4) the stockholders of the Company adopt a plan of complete
liquidation of the Company or approve an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets. For purposes of this clause (4), the term "the sale or
disposition by the Company of all or substantially all of the Company's
assets" shall mean a sale or other disposition transaction or series of
related transactions involving assets of the company or of any direct
or indirect subsidiary of the Company (including the stock of any
direct or indirect subsidiary of the Company) in which the value of the
assets or stock being sold or otherwise disposed of (as measured by the
purchase price being paid therefor or by such other method as the Board
of Directors of the Company determines is appropriate in a case where
there is no readily ascertainable purchase price) constitutes more than
two-thirds of the fair market value of the Company (as hereinafter
defined). For purposes of the preceding sentence, the "fair market
value of the Company" shall be the aggregate market value of the
outstanding shares of Stock (on a fully diluted basis) plus the
aggregate market value of the Company's other outstanding equity
securities. The aggregate market value of the shares of Stock (on a
fully diluted basis) outstanding on the date of the execution and
delivery of a definitive agreement with respect to the transaction or
series of related transactions (the "Transaction Date") shall be
determined by the average closing price of the shares of Stock for the
ten trading days immediately preceding the Transaction Date. The
aggregate market value of any other equity securities of the Company
shall be determined in a manner similar to that prescribed in the
immediately preceding sentence for determining the aggregate market
value of the shares of Stock or by such other method as the Board of
Directors of the Company shall determine is appropriate.
Notwithstanding the foregoing, a merger, consolidation, acquisition of
common control, or business combination of the Company and a Class I
Railroad or a holding company of a Class I railroad that is approved by
the Board shall not constitute a "Change in Control" unless the Board
makes a determination that the transaction shall constitute a "Change
in Control".
(e) Code. The term "Code" means the Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include reference
to any successor provision of the Code.
(f) Date of Termination. A Participant's "Date of Termination" shall be
the date on which his employment with all Employers and Related Companies
terminates for any reason; provided that
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a Date of Termination shall not be deemed to occur by reason of a transfer
of the Participant between the Company and a Related Company (including
Employers) or between two Related Companies (including Employers); and
further provided that a Participant's employment shall not be considered
terminated while the Participant is on a leave of absence from an Employer
or a Related Company approved by the Participant's employer.
(g) Disability. Except as otherwise provided by the Committee, a
Participant shall be considered to have a "Disability" during the period in
which he is unable, by reason of a medically determinable physical or
mental impairment, to engage in any substantial gainful activity, which
condition, in the discretion of the Committee, is expected to have a
duration of not less than 120 days.
(h) Employee. The term "Employee" shall mean a person with an employment
relationship with the Company or a Related Company.
(i) Employer. The Company and each Related Company which, with the
consent of the Company, participates in the Plan for the benefit of its
eligible employees are referred to collectively as the "Employers" and
individually as an "Employer".
(j) Fair Market Value. The "Fair Market Value" of the Stock shall be the
mean between the highest and lowest quoted sales prices of a share of
Common Stock on the New York Stock Exchange Composite Transaction Report;
provided, that if there were no sales on the valuation date but there were
sales on dates within a reasonable period both before and after the
valuation date, the Fair Market Value is the weighted average of the means
between the highest and lowest sales on the nearest date before and the
nearest date after the valuation date. The average is to be weighed
inversely by the respective numbers of trading days between the selling
dates and the valuation date and shall be determined in good faith by the
Committee.
(k) Immediate Family. With respect to a particular Participant, the term
"Immediate Family" shall mean the Participant's spouse, children,
stepchildren, adoptive relationships, sisters, brothers and grandchildren.
(l) Option. The term "Option" shall mean any Incentive Stock Option or
Non-Qualified Stock Option granted under the Plan.
(m) Participant. The term "Participant" means an Employee who has been
granted an award under the Plan.
(n) Performance-Based Compensation. The term "Performance-Based
Compensation" shall have the meaning ascribed to it in section 162(m)(4)(C)
of the Code.
(o) Performance Period. The term "Performance Period" shall mean the
period over which applicable performance is to be measured.
(p) Qualified Retirement Plan. The term "Qualified Retirement Plan" means
any plan of the Company or a Related Company that is intended to be
qualified under section 401(a) of the Code.
(q) Related Companies. The term "Related Company" means any company
during any period in which it is a "subsidiary corporation" (as that term
is defined in Code section 424(f)) with respect to the Company.
(r) Restricted Period. The term "Restricted Period" shall mean the period
of time for which Restricted Stock is subject to forfeiture pursuant to the
Plan or during which Options and Stock Appreciation Rights are not
exercisable .
(s) Retirement. "Retirement" of a Participant shall mean the occurrence
of a Participant's Date of Termination under circumstances that constitute
a retirement at normal retirement age under the terms of the Qualified
Retirement Plan of an Employer or Related Company that is extended to the
Participant immediately prior to the Participant's Date of Termination or,
if no such plan is extended to the Participant on his Date of Termination,
under the terms of any applicable retirement policy of the Participant's
employer.
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(t) SEC. "SEC" shall mean the Securities and Exchange Commission.
(u) Stock. The term "Stock" shall mean shares of common stock of the
Company.
SECTION 3
Eligibility
3.1. Subject to the discretion of the Committee and the terms and conditions
of the Plan, the Committee shall determine and designate from time to time,
from among the salaried, full-time officers and employees of the Employers
those Employees who will be granted one or more awards under the Plan.
SECTION 4
Operation and Administration
4.1. Subject to the approval of the stockholders of the Company at the
Company's 1996 annual meeting of the stockholders, the Plan shall be effective
as of January 1, 1996 ("Effective Date"), provided however, that any awards
made under the Plan prior to approval by stockholders, shall be contingent on
approval of the Plan by stockholders of the Company and all dividends on
Awards shall be held by the Company and paid only upon such approval and all
other rights of a Participant in connection with an Award shall not be
effective until such approval is obtained. The Plan shall be unlimited and
remain in effect until termination by the Board, provided however, that no
Incentive Stock Options may be granted under the Plan on a date that is more
than ten years from the Effective Date or, if earlier, the date the Plan is
adopted by the Board.
4.2. The Plan shall be administered by the Compensation Committee of the
Board which shall be selected by the Board, shall consist of members of the
Board who are not employees of the Company and are not eligible to participate
in the Plan, and shall consist of not less than two members of the Board or
such greater number as may be required for compliance with SEC Rule 16b-3. The
authority to manage and control the operation and administration of the Plan
shall be vested in the Committee, subject to the following:
(a) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to select Employees to receive Awards, to
determine the time or times of receipt, to determine the types of Awards
and the number of shares covered by the Awards, to establish the terms,
conditions, performance criteria, restrictions, and other provisions of
such Awards, and to cancel or suspend Awards. In making such Award
determinations, the Committee may take into account the nature of services
rendered by the respective Employee, his present and potential contribution
to the Company's success and such other factors as the Committee deems
relevant.
(b) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to determine the extent to which Awards under the
Plan will be structured to conform to the requirements applicable to
Performance-Based Compensation as described in Code section 162(m), and to
take such action, establish such procedures, and impose such restrictions
at the time such awards are granted as the Committee determines to be
necessary or appropriate to conform to such requirements.
(c) The Committee will have the authority and discretion to interpret the
Plan, to establish, amend, and rescind any rules and regulations relating
to the Plan, to determine the terms and provisions of any agreements made
pursuant to the Plan, and to make all other determinations that may be
necessary or advisable for the administration of the Plan.
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(d) Any interpretation of the Plan by the Committee and any decision made
by it under the Plan is final and binding on all persons.
(e) Except as otherwise expressly provided in the Plan, where the
Committee is authorized to make a determination with respect to any Award,
such determination shall be made at the time the Award is made, except that
the Committee may reserve the authority to have such determination made by
the Committee in the future (but only if such reservation is made at the
time the Award is granted and is expressly stated in the Agreement
reflecting the Award).
(f) Except to the extent prohibited by applicable law or the rules of any
stock exchange, the Committee may allocate all or any portion of its
responsibilities and powers to any one or more of its members and other
than in respect to eligibility, times of Awards, and terms, conditions,
performance criteria, restrictions and other provisions of Awards, and
except as otherwise provided by the Committee from time to time, the
Committee delegates its responsibilities and powers to the Senior Vice
President-Employee Relations or his successor. Any such allocation or
delegation may be revoked by the Committee at any time.
(g) No member or authorized delegate of the Committee shall be liable to
any person for any action taken or omitted in connection with the
administration of the Plan unless attributable to his own fraud or willful
misconduct; nor shall the Employers be liable to any person for any such
action unless attributable to fraud or willful misconduct on the part of a
director or employee of the Employers. The Committee, the individual
members thereof, and persons acting as the authorized delegates of the
committee under the plan, shall be indemnified by the Employers against any
and all liabilities, losses, costs and expenses (including legal fees and
expenses) of whatsoever kind and nature which may be imposed on, incurred
by or asserted against the Committee or its members or authorized delegates
by reason of the performance of a Committee function if the Committee or
its members or authorized delegates did not act dishonestly or in willful
violation of the law or regulation under which such liability, loss, cost
or expense arises. This indemnification shall not duplicate but may
supplement any coverage available under any applicable insurance.
4.3. Notwithstanding any other provision of the Plan to the contrary, no
Participant shall receive any Award of an Option or a Stock Appreciation Right
under the Plan to the extent that the sum of:
(a) the number of shares of Stock subject to such Award;
(b) the number of shares of Stock subject to all other prior Awards of
Options and Stock Appreciation Rights under the Plan during the one-year
period ending on the date of the Award; and
(c) the number of shares of Stock subject to all other prior stock
options and stock appreciation rights granted to the Participant under
other plans or arrangements of the Employers and Related Companies during
the one-year period ending on the date of the Award;
would exceed the Participant's Individual Limit under the Plan. The
determination made under the foregoing provisions of this subsection 4.3 shall
be based on the shares subject to the awards at the time of grant, regardless
of when the awards become exercisable. Subject to the provisions of Section
14, a Participant's "Individual Limit" shall be 1,000,000 shares per calendar
year.
4.4. To the extent that the Committee determines that it is necessary or
desirable to conform any Awards under the Plan with the requirements
applicable to "Performance-Based Compensation", as that term is used in Code
section 162(m)(4)(C), it may, at or prior to the time an Award is granted,
take such steps and impose such restrictions with respect to such Award as it
determines to be necessary to satisfy such requirements. To the extent that it
is necessary to establish performance goals for a particular performance
period, those goals will be based on one or more of the following business
criteria: net income, earnings per share, debt reduction, safety, on-time
train performance, return on investment, operating ratio, cash flow, return on
assets, stockholders return, revenue,
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customer satisfaction, and return on equity. If the Committee establishes
performance goals for a performance period relating to one or more of these
business criteria, the Committee may determine to approve a payment for that
particular performance period upon attainment of the performance goal relating
to any one or more of such criteria.
SECTION 5
Shares Available Under the Plan
5.1 The shares of Stock with respect to which Awards may be made under the
Plan shall be shares currently authorized but unissued or treasury shares
acquired by the Company, including shares purchased in open market or in
private transactions. Subject to the provisions of Section 14, the total
number of shares of Stock available for grant of Awards shall not exceed ten
million (10,000,000) shares of Stock. Except as otherwise provided herein, any
shares subject to an Award which for any reason expires or is terminated
without issuance of shares (whether or not cash or other consideration is paid
to a Participant in respect to such Award) as well as shares used to pay an
Option Purchase Price under this Plan or a predecessor plan shall again be
available under the Plan.
SECTION 6
Options
6.1. The grant of an "Option" under this Section 6 entitles the Participant
to purchase shares of Stock at a price fixed at the time the Option is
granted, or at a price determined under a method established at the time the
Option is granted, subject to the terms of this Section 6. Options granted
under this section may be either Incentive Stock Options or Non-Qualified
Stock Options, and subject to Sections 13 and 18, shall not be exercisable for
six months from date of grant, as determined in the discretion of the
Committee. An "Incentive Stock Option" is an Option that is intended to
satisfy the requirements applicable to an "incentive stock option" described
in section 422(b) of the Code. A "Non-Qualified Option" is an Option that is
not intended to be an "incentive stock option" as that term is described in
section 422(b) of the Code.
6.2. The Committee shall designate the Participants to whom Options are to
be granted under this Section 6 and shall determine the number of shares of
Stock to be subject to each such Option. To the extent that the aggregate fair
market value of Stock with respect to which Incentive Stock Options are
exercisable for the first time by any individual during any calendar year
(under all plans of the Company and all Related Companies) exceeds $100,000,
such options shall be treated as Non-Qualified Stock Options, to the extent
required by section 422 of the Code.
6.3. The determination and payment of the purchase price of a share of Stock
under each Option granted under this section shall be subject to the
following:
(a) The purchase price shall be established by the Committee or shall be
determined by a method established by the Committee at the time the Option
is granted; provided, however, that in no event shall such price be less
than Fair Market Value on the date of the grant.
(b) Subject to the following provisions of this subsection 6.3, the full
purchase price of each share of Stock purchased upon the exercise of any
Option shall be paid at the time of such exercise and, as soon as
practicable thereafter, a certificate representing the shares so purchased
shall be delivered to the person entitled thereto.
(c) The purchase price shall be payable in cash or in shares of Stock
(valued at Fair Market Value as of the day of exercise).
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(d) A Participant may elect to pay the purchase price upon the exercise
of an Option through a cashless exercise arrangement as may be established
by the Company.
6.4. Except as otherwise expressly provided in the Plan, an Option granted
under this Section 6 shall be exercisable in accordance with the following
terms of this subsection 6.4:
(a) The terms and conditions relating to exercise of an Option shall be
established by the Committee, and may include, without limitation,
conditions relating to completion of a specified period of service,
achievement of performance standards prior to exercise of the Option, or
achievement of Stock ownership objectives by the Participant. No Option may
be exercised by a Participant after the expiration date applicable to that
Option.
(b) The exercise of an Option will result in the surrender of the
corresponding rights under a tandem Stock Appreciation Right, if any.
6.5. The exercise period of any Option shall be determined by the Committee
and shall not extend more than ten years after the Date of Grant.
6.6. In the event the Participant exercises an Option under this Plan or a
predecessor plan of the Company or a Related Company and pays all or a portion
of the purchase price in Common Stock, in the manner permitted by subsection
6.3, such Participant, pursuant to the exercise of Committee discretion at the
time the Option is exercised or to the extent previously authorized by the
Committee, may be issued a new Option to purchase additional shares of Stock
equal to the number of shares of Stock surrendered to the Company in such
payment. Such new Option shall have an exercise price equal to the Fair Market
Value per share on the date such new Option is granted, shall first be
exercisable six months from the date of grant of the new Option and shall have
an expiration date on the same date as the expiration date of the original
Option so exercised by payment of the purchase price in shares of Stock.
SECTION 7
Stock Appreciation Rights
7.1. Subject to the terms of this Section 7, a Stock Appreciation Right
granted under the Plan entitles the Participant to receive, in cash or Stock
(as determined in accordance with subsection 7.4), value equal to all or a
portion of the excess of: (a) the Fair Market Value of a specified number of
shares of Stock at the time of exercise; over (b) a specified price which
shall not be less than 100% of the Fair Market Value of the Stock at the time
the Stock Appreciation Right is granted, or, if granted in tandem with an
Option, the exercise price with respect to shares under the tandem Option.
7.2. Subject to the provisions of the Plan, the Committee shall designate
the Participants to whom Stock Appreciation Rights are to be granted under the
Plan, shall determine the exercise price or a method by which the price shall
be established with respect to each such Stock Appreciation Right, and shall
determine the number of shares of Stock on which each Stock Appreciation Right
is based. A Stock Appreciation Right may be granted in connection with all or
any portion of a previously or contemporaneously granted Option or not in
connection with an Option. If a Stock Appreciation Right is granted in
connection with an Option then, in the discretion of the Committee, the Stock
Appreciation Right may, but need not, be granted in tandem with the Option.
7.3. The exercise of Stock Appreciation Rights shall be subject to the
following:
(a) If a Stock Appreciation Right is not in tandem with an Option, then
the Stock Appreciation Right shall be exercisable in accordance with the
terms established by the Committee in connection with such rights but,
subject to Sections 13 and 18 shall not be exercisable for six
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months from the date of grant; and may include, without limitation,
conditions relating to completion of a specified period of service,
achievement of performance standards prior to exercise of the Stock
Appreciation Rights, or achievement of objectives relating to Stock
ownership by the Participant. However, except as otherwise expressly
provided in the Plan, no Stock Appreciation Right subject to this paragraph
(a) may be exercised by a Participant after the expiration date applicable
to that Stock Appreciation Right.
(b) If a Stock Appreciation Right is in tandem with an Option, then the
Stock Appreciation Right shall be exercisable at the time the tandem Option
is exercisable. The exercise of a Stock Appreciation Right will result in
the surrender of the corresponding rights under the tandem Option.
7.4. Upon the exercise of a Stock Appreciation Right, the value to be
distributed to the Participant, in accordance with subsection 7.1, shall be
distributed in shares of Stock (valued at their Fair Market Value at the time
of exercise), in cash, or in a combination thereof, in the discretion of the
Committee.
7.5. The Committee may grant Limited Stock Appreciation Rights.
Notwithstanding the foregoing provisions of this Section 7, a Limited Stock
Appreciation Right shall be subject to the following:
(a) A Limited Stock Appreciation Right may (but need not) be granted in
connection with all or any portion of a previously or contemporaneously
granted Option and shall not be exercisable for six months from the date of
grant. A Limited Stock Appreciation Right may be granted in tandem with an
Option regardless of whether the Option is in tandem with a Stock
Appreciation Right.
(b) A Limited Stock Appreciation Right entitles the Participant to
receive a cash payment in connection with a Change in Control. In the case
of a Limited Stock Appreciation Right that is in tandem with an Option, the
payment amount shall be equal to the difference between the exercise price
per share of the Stock covered by the tandem Option and the Fair Market
Value of a share of Stock upon the date of exercise.
(c) To the extent provided by the Committee, a Limited Stock Appreciation
Right may be automatically exercisable at a time determined by the
Committee, or it may be exercised by the Participant during the period
beginning not earlier than the date of a Change in Control, and ending not
later than ninety (90) days following the date of the Change in Control,
and may be exercisable regardless of whether the Participant is then
employed by an Employer or a Related Company.
(d) If the Limited Stock Appreciation Right is in tandem with an Option,
the exercise of the Limited Stock Appreciation Right shall result in the
cancellation of the tandem Option (and any Stock Appreciation Right in
tandem with such Option).
SECTION 8
Restricted Stock
8.1. Subject to the terms of this Section 8, Restricted Stock Awards under
the Plan are grants of Stock to Participants, the vesting of which is subject
to certain conditions established by the Committee, with some or all of those
conditions relating to events (such as performance or continued employment)
occurring after the date of grant, provided however that to the extent that
vesting of a Restricted Stock Award is contingent on continued employment, the
required employment period shall not generally be less than three years
following the grant of the Award unless such grant is in substitution for an
Award under this Plan or a predecessor plan of the Company or a Related
Company.
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8.2. The Committee shall designate the Participants to whom Restricted Stock
is to be granted, and the number of shares of Stock that are subject to each
such Award. The Award of shares under this Section 8 may, but need not, be
made in conjunction with a cash-based incentive compensation program
maintained by the Company, and may, but need not, be in lieu of cash otherwise
awardable under such program.
8.3. Shares of Restricted Stock granted to Participants under the Plan shall
be subject to the following terms and conditions:
(a) Except as otherwise hereinafter provided, Restricted Stock granted to
Participants may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Restricted Period. Except for such restrictions, the
Participant as owner of such shares shall have all the rights of a
stockholder, including but not limited to the right to vote such shares
and, except as otherwise provided by the Committee or as otherwise provided
by the Plan, the right to receive all dividends paid on such shares.
(b) Each certificate issued in respect of shares of Restricted Stock
granted under the Plan shall be registered in the name of the Participant
and, at the discretion of the Committee, each such certificate may be
deposited with the Company with a stock power endorsed in blank or in a
bank designated by the Committee.
(c) The Committee may award Performance-Based Restricted Stock, which
shall be Restricted Stock that becomes vested (or for which vesting is
accelerated) upon the achievement of performance goals established by the
Committee. The Committee may specify the number of shares that will vest
upon achievement of different levels of performance. Except as otherwise
provided by the Committee, achievement of maximum targets during the
Performance Period shall result in the Participant's receipt of the full
Performance-Based Restricted Stock Award. For achievement of the minimum
target but less than the maximum target the Committee may establish a
portion of the Award which the Participant is entitled to receive.
(d) Except as otherwise provided by the Committee, any Restricted Stock
which is not earned by the end of a Performance Period shall be forfeited.
If a Participant's Date of Termination occurs during a Performance Period
with respect to any Restricted Stock subject to a Performance Period
granted to him, the Committee may determine that the Participant will be
entitled to settlement of all or any portion of the Restricted Stock
subject to a Performance Period as to which he would otherwise be eligible,
and may accelerate the determination of the value and settlement of such
Restricted Stock subject to a Performance Period or make such other
adjustments as the Committee, in its sole discretion, deems desirable.
Subject to the limitations of the Plan and the Award of Restricted Stock,
upon the vesting of Restricted Stock, such Restricted Stock will be
transferred free of all restrictions to a Participant (or his or her legal
representative, beneficiary or heir).
8.4. A grant of Restricted Stock subject to a Performance Period shall be
made in 1996 and shall vest as follows:
(1) One-third of the Award shall vest after three years, but no later
than six years from the date of grant upon attaining Fair Market Value
equal to the Fair Market Value on date of grant increased by a 12% compound
annual growth rate for a three year period, provided such price has been
maintained for thirty (30) consecutive trading days either immediately
prior to or any time after the third year;
(2) One-third of the Award shall vest after four years, but no later than
six years from the date of grant upon attaining Fair Market Value equal to
the Fair Market Value on date of grant increased by a 12% compound annual
growth rate for a four year period, provided such price has been maintained
for thirty (30) consecutive trading days either immediately prior to or any
time after the fourth year;
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(3) One-third of the Award shall vest after five years, but no later than
six years from the date of grant upon attaining Fair Market Value equal to
the Fair Market Value on date of grant increased by a 12% compound annual
growth rate for a five year period, provided such price has been maintained
for thirty (30) consecutive trading days either immediately prior to or any
time after the fifth year.
SECTION 9
Restricted Stock Units
9.1. Subject to the terms of this Section 9, a Restricted Stock Unit
entitles a Participant to receive shares for the units at the end of a
Restricted Period to the extent provided by the Award with the vesting of such
units to be contingent upon such conditions as may be established by the
Committee (such as continued employment which, when required shall be not less
than three years or satisfaction of performance criteria). The Award of
Restricted Stock Units under this Section 9 may, but need not, be made in
conjunction with a cash-based incentive compensation program maintained by the
Company, and may, but need not, be in lieu of cash otherwise awardable under
such program.
9.2. The Committee shall designate the Participants to whom Restricted Stock
Units shall be granted and the number of units that are subject to each such
Award. During any period in which units are outstanding and have not been
settled in stock, the Participant shall not have the rights of a stockholder,
but shall have the right to receive a payment from the Company in lieu of a
dividend in an amount equal to such dividends and at such times as dividends
would otherwise be paid.
9.3. If a Participant's Date of Termination occurs during a Restricted
Period with respect to any Restricted Stock Units granted to him, the
Committee may determine that the Participant will be entitled to settlement of
all or any portion of the Restricted Stock Units as to which he would
otherwise be eligible, and may accelerate the determination of the value and
settlement of such Restricted Stock Units or make such other adjustments as
the Committee, in its sole discretion, deems desirable.
SECTION 10
Performance Stock
10.1. Subject to the terms of this Section 10, a Performance Stock Award
provides for the distribution of Stock to a Participant upon the achievement
of performance objectives established by the Committee. For purposes of the
Plan, the "Performance Period" with respect to any Award shall be the period
over which the applicable performance is to be measured.
10.2. The Committee shall designate the Participants to whom Performance
Stock Awards are to be granted, and the number of shares of Stock that are
subject to each such Award. The Award of shares under this Section 10 may, but
need not, be made in conjunction with a cash-based incentive compensation
program maintained by the Company, and may, but need not, be in lieu of cash
otherwise awardable under such program.
10.3. If a Participant's Date of Termination occurs during a Performance
Period with respect to any Performance Stock granted to him, the Committee may
determine that the Participant will be entitled to settlement of all or any
portion of the Performance Stock as to which he would otherwise be eligible,
and may accelerate the determination of the value and settlement of such
Performance Stock or make such other adjustments as the Committee, in its sole
discretion, deems desirable.
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SECTION 11
Performance Units
11.1. Subject to the terms of this Section 11, the Award of Performance
Units under the Plan entitles the Participant to receive value for the units
at the end of a Performance Period to the extent provided under the Award. The
number of units earned, and value received for them, will be contingent on the
degree to which the performance measures established at the time of grant of
the Award are met.
11.2. The Committee shall designate the Participants to whom Performance
Units are to be granted, and the number of units to be the subject to each
such Award.
11.3. For each Participant, the Committee will determine the value of units,
which may be stated either in cash or in units representing shares of Stock;
the performance measures used for determining whether the Performance Units
are earned; the Performance Period during which the performance measures will
apply; the relationship between the level of achievement of the performance
measures and the degree to which Performance Units are earned; whether, during
or after the Performance Period, any revision to the performance measures or
Performance Period should be made to reflect significant events or changes
that occur during the Performance Period; and the number of earned Performance
Units that will be settled in cash and/or shares of Stock.
11.4. Settlement of Performance Units shall be subject to the following:
(a) The Committee will compare the actual performance to the performance
measures established for the Performance Period and determine the number of
units as to which settlement is to be made, and the value of such units.
(b) Settlement of units earned shall be wholly in cash, wholly in Stock
or in a combination of the two, to be distributed in a lump sum or
installments, as determined by the Committee.
(c) Shares of Stock distributed in settlement of units shall be subject
to such vesting requirements and other conditions, if any, as the Committee
shall determine. Such vesting restrictions may include, without limitation,
restrictions of the type that may be imposed with respect to Restricted
Stock under Section 8.
11.5. If a Participant's Date of Termination occurs during a Performance
Period with respect to any Performance Units granted to him, the Committee may
determine that the Participant will be entitled to settlement of all or any
portion of the Performance Units as to which he would otherwise be eligible,
and may accelerate the determination of the value and settlement of such
Performance Units or make such other adjustments as the Committee, in its sole
discretion, deems desirable.
SECTION 12
Stock Purchase Program
12.1. The Committee may, from time to time, establish one or more programs
under which Participants will be permitted to purchase shares of Stock under
the Plan, and shall designate the Participants eligible to participate under
such Stock purchase programs. The purchase price for shares of Stock available
under such programs, and other terms and conditions of such programs, shall be
established by the Committee. The purchase price may not be less than 75% of
the Fair Market Value of the Stock at the time of purchase (or, in the
Committee's discretion, the average Stock value over a period determined by
the Committee), and further provided that the purchase price may not be less
than par value.
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12.2. The Committee may impose such restrictions with respect to shares
purchased under this section, as the Committee determines to be appropriate.
Such restrictions may include, without limitation, restrictions of the type
that may be imposed with respect to Restricted Stock under Section 8.
SECTION 13
Termination of Employment
13.1. If a Participant's Date of Termination occurs for any reason other
than death, Disability, Retirement, or by reason of the Participant's
employment being terminated by the Participant's employer for any reason other
than Cause, all Awards shall be forfeited.
13.2. If a Participant's Date of Termination occurs by reason of death, all
Options and Stock Appreciation Rights outstanding immediately prior to the
Participant's Date of Termination shall immediately become exercisable and all
restrictions on Restricted Stock, Restricted Stock Units, Performance Units,
Performance Stock and shares purchased under the Stock Purchase Program
outstanding immediately prior to the Participant's Date of Termination shall
lapse.
13.3. If a Participant's Date of Termination occurs by reason of Disability
or Retirement, the Restricted Period shall lapse on a proportion of any Awards
outstanding immediately prior to the Participant's Date of Termination (except
to the extent that an Award of Restricted Stock, Restricted Stock Units,
Performance Units and Performance Stock is subject to a Performance Period,
such proportion of the Award shall remain subject to the same terms and
conditions for vesting as were in effect prior to termination). The proportion
of an Award upon which the Restricted Period shall lapse shall be a fraction,
the denominator of which is the total number of months of any Restricted
Period applicable to an Award and the numerator of which is the number of
months of such Restricted Period which elapsed prior to the Date of
Termination.
13.4. If a Participant's Date of Termination occurs by reason of the
Participant's employment being terminated by the Participant's employer for
any reason other than for Cause, the Restricted Period shall lapse on a
proportion of any outstanding Awards (except Restricted Stock and Restricted
Stock Units subject only to a Performance Period, Performance Units and
Performance Stock which shall be forfeited). The proportion of an Award upon
which the Restricted Period shall lapse shall be a fraction, the denominator
of which is the total number of months of any Restricted Period applicable to
an Award and the numerator of which is the number of months of such Restricted
Period which elapsed prior to the Date of Termination.
13.5. Stock Appreciation Rights and Non-Qualified Stock Options which are or
become exercisable by reason of death, Disability or Retirement shall expire
on the expiration date set forth in the award or, if earlier:
(a) three years after the Date of Termination, if the Participant's
termination occurs because of death, Disability, or Retirement; and
(b) three months after the Date of Termination, if the Participant's
employment is terminated by the Participant's employer for reasons other
than Cause.
Incentive stock options which are or become exercisable by reason of death,
Disability or Retirement shall expire on the expiration date set forth in the
award or, if earlier, three months after the Date of Termination. Options and
Stock Appreciation Rights which are or become exercisable at the time of a
Participant's death may be exercised by the Participant's designated
beneficiary or, in the absence of such designation, by the person to whom the
Participant's rights will pass by will or the laws of descent and
distribution.
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13.6. If a Participant's employment is terminated by the Participant's
employer for reasons other than Cause in connection with a merger,
consolidation, acquisition of common control, or business combination of the
Company and a Class I Railroad or a holding company of a Class I Railroad:
(a) All outstanding options and Stock Appreciation Rights then held by
the Participant shall become exercisable on the Participant's Date of
Termination.
(b) Any restrictions on awards held by the Participant as of the
Participant's Date of Termination shall lapse and all Awards vested as if
all performance objectives have been attained.
13.7. Except to the extent the Committee shall otherwise determine, if as a
result of a sale or other transaction, a Participant's employer ceases to be a
Related Company (and the Participant's employer is or becomes an entity that
is separate from the Company), the occurrence of such transaction shall be
treated as the Participant's Date of Termination caused by the Participant
being discharged by the Employer.
13.8. Notwithstanding the foregoing provisions of this section, the
Committee may, with respect to any Awards of a Participant (or portion
thereof) that are outstanding immediately prior to the Participant's Date of
Termination, determine that a Participant's Date of Termination will not
result in forfeiture or other termination of the Award.
SECTION 14
Adjustments to Shares
14.1. If the Company shall effect a reorganization, merger, or
consolidation, or similar event or effect any subdivision or consolidation of
shares of Stock or other capital readjustment, payment of stock dividend,
stock split, spin-off, combination of shares or recapitalization or other
increase or reduction of the number of shares of Stock outstanding without
receiving compensation therefor in money, services or property, then the
Committee shall adjust (i) the number of shares of Stock available under the
Plan; (ii) the number of shares available under any individual or other
limits; (iii) the number of shares of Stock subject to outstanding Awards; and
(iv) the per-share price under any outstanding Award to the extent that the
Participant is required to pay a purchase price per share with respect to the
Award.
14.2. If the Committee determines that the adjustments in accordance with
the foregoing provisions of this section would not be fully consistent with
the purposes of the Plan or the purposes of the outstanding Awards under the
Plan, the Committee may make such other adjustments to the Awards to the
extent that the Committee determines such adjustments are consistent with the
purposes of the Plan and of the affected Awards.
SECTION 15
Transferability of Awards
15.1. Awards under the Plan are not transferable except as designated by the
Participant by will or by the laws of descent and distribution. To the extent
that the Participant who receives an Award under the Plan has the right to
exercise such Award, the Award may be exercised during the lifetime of the
Participant only by the Participant. Notwithstanding the foregoing provisions
of this Section 15, the Committee may permit Awards under the Plan (other than
an Incentive Stock Option) to be transferred by a Participant for no
consideration to or for the benefit of the Participant's Immediate Family
(including, without limitation, to a trust for the benefit of a Participant's
Immediate Family or to a Family Partnership for members of the Immediate
Family), subject to such limits as the Committee may establish and the
transferee shall remain subject to all of the terms and conditions applicable
to such Award prior to such transfer.
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SECTION 16
Award Agreement
16.1. Each employee granted an Award pursuant to the Plan shall sign an
Award Agreement which signifies the offer of the Award by the Company and the
acceptance of the Award by the employee in accordance with the terms of the
Award and the provisions of the Plan. Each Award Agreement shall reflect the
terms and conditions of the Award. Participation in the Plan shall confer no
rights to continued employment with the Company nor shall it restrict the
right of the Company to terminate a Participant's employment at any time.
SECTION 17
Tax Withholding
17.1. All Awards and other payments under the Plan are subject to
withholding of all applicable taxes, which withholding obligations shall be
satisfied (without regard to whether the Participant has transferred an Award
under the Plan) by a cash remittance, or with the consent of the Committee,
through the surrender of shares of Stock which the Participant owns or to
which the Participant is otherwise entitled under the Plan pursuant to an
irrevocable election submitted by the Participant to the Company at the office
designated for such purpose. The number of shares of Stock needed to be
submitted in payment of the taxes shall be determined using the Fair Market
Value as of the applicable tax date rounding down to the nearest whole share;
provided that no election to have shares of Stock withheld from an Award or
submission of shares shall be effective with respect to an Award which was
transferred by a Participant in accordance with the Plan.
SECTION 18
Change in Control
18.1. Subject to the provisions of Section 14 (relating to the adjustment of
shares), and except as otherwise provided in the Plan or the Agreement
reflecting the applicable Award, upon the occurrence of a Change in Control:
(a) All outstanding Options (regardless of whether in tandem with Stock
Appreciation Rights) shall become fully exercisable, except to the extent
that the right to exercise the Option is subject to any restrictions
established in connection with a Limited Stock Appreciation Right that is
in tandem with the Option.
(b) All outstanding Stock Appreciation Rights (regardless of whether in
tandem with Options) shall become fully exercisable, except that if Stock
Appreciation Rights are in tandem with an Option, and the Option is in
tandem with a Limited Stock Appreciation Right, the right to exercise the
Stock Appreciation Right shall be subject to any restrictions established
in connection with the Limited Stock Appreciation Right.
(c) All shares of Restricted Stock, Restricted Stock Units and
Performance Stock shall become fully vested.
(d) All vesting restrictions imposed under Section 12 (relating to
restrictions on shares purchased by the Participants) shall cease to apply,
and the Participant shall become fully vested in those shares.
(e) Performance Units may be paid out in such manner and amounts as
determined by the Committee.
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SECTION 19
Termination and Amendment
19.1. The Board may suspend, terminate, modify or amend the Plan, provided
that any amendment that would increase the aggregate number of shares which
may be issued under the Plan; materially increase the benefits accruing to
Participants under the Plan; or materially modify the requirements as to
eligibility for participation in the Plan, shall be subject to the approval of
BNSF's stockholders, except that any such increase or modification that may
result from adjustments authorized by Section 14 does not require such
approval. No suspension, termination, modification or amendment of the Plan
may terminate a Participant's existing Award or materially and adversely
affect a Participant's rights under such Award without the Participant's
consent.
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[MAP APPEARS HERE]
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________________________________________________________________________________
PROXY
BURLINGTON NORTHERN SANTA FE CORPORATION
3800 Continental Plaza, 777 Main Street
Fort Worth, Texas 76102-5384
This Proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Douglas J. Babb and Marsha K. Morgan, and
each of them, proxy for the undersigned, with power of substitution, to vote as
specified herein, all Common Stock held by undersigned, with the same force and
effect as the undersigned would be entitled to vote if personally present, at
the annual meeting of stockholders of the Company to be held at the Radisson
Plaza Hotel, 815 Main Street, Fort Worth, Texas 76102-5384, Thursday, April 18,
1996, at 10:00 A.M. and at any adjournment or postponement thereof. In their
discretion, the proxies are authorized to vote upon such other business as is
properly brought before the meeting.
You are encouraged to specify your choices by marking the appropriate box,
SEE REVERSE SIDE, but you need not mark any box if you wish to vote in
accordance with the Board of Directors' recommendation. The Proxy Committee
cannot vote your shares unless you sign and return this card.
If you are a participant in any of the following employee benefit plans of
the Company, this card also constitutes voting instructions for any shares held
for the stockholder in the Burlington Northern 401(k) Retirement Savings Plan,
Burlington Northern 401(k) Plan for TCU Employees, Burlington Northern Inc.
Thrift and Profit Sharing Plan I, Santa Fe Pacific Retirement and Savings Plan,
The Atchison, Topeka and Santa Fe Railway Company-Brotherhood of Locomotive
Engineers 401(k) Retirement Plan, and The Atchison, Topeka and Santa Fe Railway
Company-Brotherhood of Maintenance of Way Employees 401(k) Retirement Plan.
---------------
IMPORTANT--PLEASE SIGN AND DATE ON REVERSE SIDE SEE REVERSE
SIDE
---------------
- --------------------------------------------------------------------------------
. FOLD AND DETACH PROXY CARD HERE AND RETURN IN ENCLOSED ENVELOPE .
Burlington Northern Santa Fe Corporation
Annual Meeting of Stockholders
April 18, 1996, 10:00 A.M.
Radisson Plaza Hotel
815 Main Street
Fort Worth, Texas 76102-5384
PLEASE NOTE: If you plan to attend the 1996 Annual Meeting of Stockholders,
please mark the appropriate box on the reverse side of the Proxy Card.
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[X] PLEASE MARK YOUR 6677
VOTES AS IN THIS ----
EXAMPLE.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE NOMINEES FOR
DIRECTOR IN PROPOSAL NO. 1 AND "FOR" PROPOSAL NO. 2 AND "FOR" PROPOSAL NO. 3.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES AND FOR
PROPOSALS NOS. 2 AND 3.
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1. Election of Directors.
FOR [_] WITHHELD [_] If marked, vote is withheld from all nominees
listed.
For, except vote withheld from the following nominee(s):
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NOMINEES FOR DIRECTOR:
J.F. Alibrandi, J.S. Blanton, J. Burns, Jr., D.P. Davison, G. Deukmejian, D.J.
Evans, R.D. Krebs, B.M. Lindig, B.F. Love, R.S. Roberts, M.J. Shapiro, A.R.
Weber, R.H. West, J.S. Whisler, E.E. Whitacre, Jr., R.B. Woodard, M.B. Yanney.
2. Approval of Burlington Northern Santa Fe Non-Employee Directors' Stock Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
3. Approval of Burlington Northern Santa Fe 1996 Stock Incentive Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
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I plan to attend the Annual Meeting of Stockholders. [_]
Please sign EXACTLY as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
This proxy votes all shares held in all capacities.
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SIGNATURE(S) DATE
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. FOLD AND DETACH PROXY CARD HERE AND RETURN IN ENCLOSED ENVELOPE .
Burlington Northern Santa Fe Corporation
Annual Meeting of Stockholders
April 18, 1996, 10:00 A.M.
Radisson Plaza Hotel
815 Main Street
Fort Worth, Texas 76102-5384
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