<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-11535
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BURLINGTON NORTHERN SANTA FE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 41-1804964
(State of Incorporation) (I.R.S. Employer Identification No.)
2650 Lou Menk Drive
Second Floor
Fort Worth, Texas 76131-2830
(Address of principal executive offices, including zip code)
817/333-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -----------------------
<S> <C>
Common Stock, $0.01 par value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
</TABLE>
------------
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $12.98 billion on February 28, 1997. For purposes
of this calculation only, the registrant has excluded stock beneficially owned
by directors and officers. By doing so, the registrant does not admit that
such persons are affiliates within the meaning of Rule 405 under the
Securities Act of 1933 or for any other purpose.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Common Stock, $0.01 par value, 154,271,308 shares outstanding as of February
28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents from which parts thereof have been incorporated
by reference and the part of the Form 10-K into which such information is
incorporated:
<TABLE>
<S> <C>
Annual
Report to
Shareholders
for the
fiscal year
ended
December
31, 1996... PARTS I, II, AND IV
Proxy
Statement
dated March
5, 1997.... PART III
</TABLE>
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I
Items 1 and 2. Business and Properties.................................... 1
Rail.................................................................. 1
Pipeline Investment................................................... 10
Item 3. Legal Proceedings................................................. 11
Item 4. Submission of Matters to a Vote of Security Holders............... 16
EXECUTIVE OFFICERS OF THE REGISTRANT...................................... 17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.................................................................. 18
Item 6. Selected Financial Data........................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 18
Item 8. Financial Statements and Supplementary Data....................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................... 19
PART III
Item 10. Directors and Executive Officers of the Registrant............... 19
Item 11. Executive Compensation........................................... 19
Item 12. Security Ownership of Certain Beneficial Owners and Management... 19
Item 13. Certain Relationships and Related Transactions................... 19
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 20
SIGNATURES................................................................ S-1
REPORTS OF INDEPENDENT ACCOUNTANTS AND
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE............................ F-1
EXHIBITS.................................................................. E-1
</TABLE>
i
<PAGE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
Burlington Northern Santa Fe Corporation ("BNSF") was incorporated in the
State of Delaware on December 16, 1994. On September 22, 1995, the
stockholders of Burlington Northern Inc. ("BNI") and Santa Fe Pacific
Corporation ("SFP") became the stockholders of BNSF pursuant to a business
combination of the two companies. In order to effect the combination, BNSF was
formed to act as the parent holding company of BNI and SFP.
On October 13, 1994, BNI, Burlington Northern Railroad Company ("BNRR"),
SFP, and The Atchison, Topeka and Santa Fe Railway Company ("ATSF") filed a
railroad merger and control application with the Interstate Commerce
Commission ("ICC"). On August 23, 1995, the ICC issued its written decision
approving and authorizing BNI's acquisition of control of SFP and the business
combination by which BNI and SFP became subsidiaries of BNSF, the resulting
common control of BNRR and ATSF by BNSF, the consolidation of BNRR and ATSF by
BNSF, the consolidation of BNRR and ATSF operations, and the merger of BNRR
and ATSF. Pursuant to the ICC's permissive authority, the business combination
was effected on September 22, 1995.
On December 30, 1996, BNI merged with and into SFP. On December 31, 1996,
ATSF merged with and into BNRR, and BNRR changed its name to The Burlington
Northern and Santa Fe Railway Company ("BNSF Railway").
Through its subsidiaries, BNSF is engaged primarily in the rail
transportation business. BNSF also has an equity interest in Santa Fe Pacific
Pipeline Partners, L.P., which operates a refined petroleum products pipeline
system in six western and southwestern states.
At December 31, 1996, BNSF and its subsidiaries had approximately 43,000
employees.
RAIL
The rail operations of BNSF Railway, BNSF's principal operating subsidiary,
comprise one of the largest railroad systems in the United States.
TRACK CONFIGURATION
BNSF Railway operates over a railroad system of approximately 35,000 route
miles of track (excluding, among other things, second main track) at December
31, 1996, approximately 27,000 miles of which are owned route miles, including
easements, through 29 states and two Canadian provinces. Approximately 7,900
route miles of BNSF Railway's system consist of trackage rights which permit
BNSF Railway to operate its trains with its crews over another railroad's
tracks.
As of December 31, 1996, the total BNSF Railway system--including first,
second, third and fourth main tracks, yard tracks, and sidings--consisted of
approximately 52,500 operated miles of track, all of which were owned by or
held under easement by BNSF Railway except for approximately 8,700 miles
operated under trackage rights agreements with other parties. At December 31,
1996, approximately 28,100 miles of BNSF Railway's track consisted of 112-
pound per yard or heavier rail, including approximately 18,200 track miles of
131-pound per yard or heavier rail.
EQUIPMENT CONFIGURATION
BNSF Railway owned or had under non-cancelable leases exceeding one year the
following units of railroad rolling stock (represents combined BNRR and ATSF
amounts):
1
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Diesel Locomotives...................................... 4,434 4,277 4,157
====== ====== ======
Freight Cars:
Box--general purpose................................... 1,082 1,204 1,529
Box--specially equipped................................ 10,719 10,985 10,971
Open Hopper............................................ 10,430 10,497 11,630
Covered Hopper......................................... 44,112 44,840 43,223
Gondola................................................ 11,714 11,467 10,665
Refrigerator........................................... 6,817 7,216 6,489
Autorack............................................... 3,597 3,600 3,567
Flat................................................... 5,508 5,774 5,517
Tank................................................... 493 505 552
Caboose................................................ 451 485 542
Other.................................................. 732 734 747
------ ------ ------
Total Freight Cars.................................... 95,655 97,307 95,432
====== ====== ======
Domestic Containers.................................... 15,595 16,230 16,793
Trailers............................................... 821 834 633
Domestic Chassis....................................... 5,273 5,274 7,365
Company Service Cars................................... 6,140 6,084 6,218
Commuter Passenger Cars................................ 141 141 141
</TABLE>
In addition to the containers, trailers, and chassis shown above, BNSF
Railway had under short-term leases 6,615 containers, 2,766 trailers, and
16,758 chassis, at December 31, 1996. In addition to the owned and leased
locomotives identified above, BNSF Railway operated 196 freight locomotives
under power-purchase agreements as of December 31, 1996. The average ages from
date of manufacture or remanufacture of the locomotive and freight car fleets
at December 31, 1996, were 12.24 years for locomotives, and 18.83 years for
freight cars. These averages are not weighted to reflect the greater
capacities of the newer equipment.
2
<PAGE>
CAPITAL EXPENDITURES AND MAINTENANCE
BNSF Railway capital expenditures for the periods indicated were as follows
(represents combined BNRR and ATSF amounts for all periods):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
(IN MILLIONS)
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Ties................................................... $ 225 $ 161 $ 136
Rail/Other Track Material.............................. 406 288 277
Ballast................................................ 184 138 131
Facilities and Other Roadway........................... 660 387 391
Locomotives............................................ 425 111 93
Freight Cars........................................... 55 25 42
Other.................................................. 279 105 90
------ ------ ------
Cash Capital Expenditures.......................... $2,234 $1,215 $1,160
====== ====== ======
</TABLE>
The above expenditures do not include non-cash expenditures of $48 million,
$140 million, and $178 million in 1996, 1995, and 1994, respectively,
primarily relating to directly financed equipment acquisitions, nor do they
include equipment financed through operating leases (principally, locomotives
and rolling stock). BNSF expects 1997 capital expenditures for BNSF Railway to
approximate $1.85 billion. Approximately $1.1 billion of these expenditures
will be for maintaining productive capacity of the existing route structures.
The remainder will be spent on acquisition of new equipment, including at
least 180 locomotives, and capacity expansion projects throughout the system
including the Powder River Basin and the Pacific Northwest.
General Electric Company ("GE") and the Electro-Motive Division of General
Motors Corporation ("EMD") perform locomotive maintenance for BNSF Railway
under various maintenance agreements that covered approximately 1,530
locomotives as of December 31, 1996. Additionally, BNSF Railway has a similar
agreement with Boise Locomotive Corporation ("Boise") that provides for the
overhaul of 277 locomotives and the maintenance for each of the locomotives
for a period of eight years following its overhaul. The agreements with GE,
EMD, and Boise require the work to be done at BNSF Railway's facilities with
BNSF Railway employees.
The majority of maintenance of way expenditures for track have been for rail
and tie refurbishment and resurfacing. The extent of the BNSF Railway track
maintenance program (representing combined BNRR and ATSF amounts for all
periods) is depicted in the following chart:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Track miles of rail laid (1)............................ 1,139 945 1,010
Cross ties inserted (in thousands) (1).................. 3,768 2,974 2,879
Track resurfaced miles.................................. 12,033 11,088 11,055
</TABLE>
- --------
(1) Includes both maintenance of existing route system and expansion projects.
BNSF Railway anticipates that the 1997 track maintenance of way program,
together with expansion projects, will result in the installation of
approximately 1,000 track miles of rail, the replacement of about 3.5 million
ties, and the resurfacing of approximately 12,000 miles of track.
PROPERTY AND FACILITIES
BNSF Railway operates facilities and equipment for maintenance of track,
locomotives and freight cars. It also owns or leases other equipment to
support rail operations, such as highway trailers, containers and vehicles.
Support facilities for rail operations include yards and terminals throughout
its rail network, system
3
<PAGE>
locomotive shops to perform continuous locomotive servicing and maintenance,
centralized network operations centers for train dispatching and network
operations monitoring and management in Fort Worth, Texas, and Schaumburg,
Illinois, computers, telecommunications equipment, signal systems, and other
support systems. Transfer facilities are maintained for rail-to-rail as well
as intermodal transfer of containers, trailers and other freight traffic.
These include 39 major intermodal hubs located across the system and nine
intermodal hub centers off-line used in connection with haulage agreements
with other railroads. BNSF Railway's largest intermodal facilities in terms of
volume are Hobart Yard (Los Angeles), Corwith Yard (Chicago), Willow Springs
(Illinois), Chicago Hub Center (Cicero, Illinois), Alliance (Texas), Seattle
International Gateway (SIG), and Tacoma, with approximately 707,500, 535,900,
440,000, 436,000, 292,900, 220,500, and 192,300 lifts, respectively, in 1996.
BNSF Railway also owns 28 automotive distribution facilities where automobiles
are loaded or unloaded from multi-level rail cars and serves eight port
facilities. Argentine Yard in Kansas City, Kansas, Barstow Yard in Barstow,
California, Northtown Yard in Minneapolis, Minnesota and Murray Yard in Kansas
City, Missouri are the largest freight car classification yards.
In December 1996, BNSF acquired Washington Central Railroad Company, Inc.
for shares of BNSF common stock, and BNSF Railway now operates over Washington
Central's route between Kennewick, Washington, an interchange point on BNSF
Railway, and Cle Elum, Washington. This acquisition, and BNSF Railway's
rehabilitation of the 229-mile Stampede Pass line between Pasco and Auburn,
Washington, provides BNSF Railway with a third route linking Central
Washington with the Pacific Coast. During 1996, BNSF Railway also disposed of
approximately 2,000 route miles of secondary lines.
A substantial portion of all railroad property, real or personal, owned by
BNSF Railway is subject to liens securing, as of December 31, 1996,
approximately $544 million of mortgage bonds. On January 1, 1997,
approximately $77 million of this mortgage debt matured and was paid. Certain
locomotives and rolling stock of BNSF Railway are subject to equipment
obligations, as referred to in Note 10 to the consolidated financial
statements on page 30 of BNSF's 1996 Annual Report to Shareholders, which
information is hereby incorporated by reference.
EMPLOYEES AND LABOR RELATIONS
Productivity as measured by revenue ton miles per employee has risen steadily
in the last three years, while compensation and benefits expense per revenue
ton mile has declined, as shown in the table below (represents combined BNRR
and ATSF operating statistics for all periods):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Thousand revenue ton-miles/average number of employees.... 9,398 8,715 7,887
Compensation and benefits expense/thousand revenue ton-
miles.................................................... $6.23 $6.78 $7.27
</TABLE>
Labor unions represent approximately 88 percent of BNSF Railway employees
under collective bargaining agreements with 13 different labor organizations.
BNRR, ATSF and other major railroads were actively involved in industry-wide
labor contract negotiations beginning in late 1994. Through this process,
wages, health and welfare benefits, work rules and other issues have now been
negotiated for all BNSF Railway union-represented employees. On February 26,
1997, BNSF Railway reached an agreement with the approximately 425 employees
represented by the American Train Dispatchers Department of the Brotherhood of
Locomotive Engineers, to bring the 1995 round of labor contract negotiations
to a close.
The new collective bargaining agreements will remain in effect through at
least December 31, 1999 and until new agreements are reached or the Railway
Labor Act's procedures are exhausted. The new collective bargaining agreements
include provisions for retroactive and prospective wage increases, signing
bonuses and lump-sum payments. Throughout the negotiation process, BNSF
accrued for anticipated retroactive elements of the contract settlements, and
these agreements therefore did not have a material effect on BNSF's 1996
results of operations.
4
<PAGE>
Railroad industry personnel are covered by the Railroad Retirement System
instead of Social Security. BNSF Railway's contributions under the Railroad
Retirement System are approximately triple those in industries covered by
Social Security.
Railroad industry personnel are also covered by the Federal Employers'
Liability Act ("FELA") rather than by state workers' compensation systems.
FELA is a fault-based system, with compensation for injuries settled by
negotiation and litigation, not subject to specific statutory limitations on
the amount of recovery. By contrast, most other industries are covered under
state administered no-fault plans with standard compensation schedules. BNSF
Railway believes it has adequate reserves for its FELA claims. However, the
future costs of FELA claims are uncertain and such costs could be
significantly higher in the future.
BUSINESS MIX
In serving the Midwest, Pacific Northwest and the Western, Southwestern, and
Southeastern regions of the country, BNSF Railway transports a range of
commodities derived from manufacturing, agricultural, and natural resource
industries. Accordingly, its financial performance is influenced by, among
other things, general and industry economic conditions at the international,
national, and regional levels.
Major markets served directly by BNSF Railway include Albuquerque, Billings,
Birmingham, Cheyenne, Chicago, Corpus Christi, Dallas, Denver, Des Moines,
Duluth/Superior, Fargo/Moorhead, Fort Worth, Houston, Kansas City, Lincoln,
Little Rock, Los Angeles, Memphis, Mobile, New Orleans, Oklahoma City, Omaha,
Pensacola, Phoenix, Portland, Reno, Salt Lake City, San Antonio, the San
Francisco Bay area, St. Louis, St. Paul/Minneapolis, Seattle, Spokane,
Springfield (Missouri), Tacoma, Tulsa, Wichita, Vancouver (British Columbia),
and Winnipeg (Manitoba). Other major cities are served through 24 Intermodal
Market Extension ("IMX") terminals located at various off-line points. Major
ports served include Galveston, Houston, Long Beach, Los Angeles, New Orleans,
Mobile, Portland, Richmond (Oakland), San Diego, Seattle, Duluth/Superior,
Tacoma and Vancouver (British Columbia).
As a result of agreements and conditions stemming from the merger of the
Union Pacific and Southern Pacific railroads, BNSF Railway gained new access
to the growing Mexican market. Previously, BNSF reached the United
States/Mexico crossings of Eagle Pass and El Paso, Texas and San Diego,
California. As a result of the UP/SP merger, BNSF Railway now also reaches
Brownsville, Texas and, through connection with the Texas Mexican Railway
Company, the major border crossing point at Laredo, Texas.
In 1996, approximately one quarter of revenues were derived from Intermodal
traffic and another quarter were derived from the transportation of Coal.
About 14 percent of 1996 revenues reflected the transportation of Agricultural
Commodities. The transportation of commodities in the areas serviced by
Chemicals, Forest Products, Consumer and Food Products, Metals, Automotive,
and Minerals and Ores, accounted for the rest of 1996 revenues.
Intermodal. The Intermodal freight business consists of the hauling of
freight containers or truck trailers by combinations of water, rail, or motor
carriers. The intermodal business is highly service-driven, and in many cases
motor carriers and railroads jointly market intermodal service. The first such
joint intermodal arrangement was Quantum, through which BNSF Railway and J. B.
Hunt Transport provide customers full service, customized door-to-door
transportation (truck and rail), with a common communication system and
integrated billing at a single rate.
In 1994, major national Less-Than-Truckload ("LTL") carriers and the
Teamsters union signed a new National Master Freight Agreement that allows the
LTL carriers to shift up to 28 percent of their total line-haul miles to
intermodal service. BNSF Railway is a major beneficiary of this service-
sensitive traffic, and it provides transportation services to major LTL
carriers including Yellow Freight, Roadway Express, and Consolidated
Freightways.
5
<PAGE>
Intermodal 1996 results include revenue from four types of business:
. Direct Marketing. Direct marketing efforts resulted in approximately 33
percent of total intermodal revenue. These center around traffic contracted
from United Parcel Service and the United States Postal Service, and service
for nationwide LTL carriers.
. Truckload. Truckload traffic represented approximately 14 percent of total
intermodal revenue. The joint service arrangement with J.B. Hunt, referred to
as Quantum, represented the largest truckload component, while Schneider
National was the next largest.
. Intermodal Marketing Companies. Approximately 25 percent of total
intermodal revenue was generated through intermodal marketing companies,
primarily shipper agents and consolidators.
. International. International business consists primarily of traffic from
steamship companies and accounted for approximately 28 percent of intermodal
revenues.
Coal. Based on carloadings and tons hauled, BNSF Railway is the largest
transporter of western low-sulfur coal in the United States. Over 90 percent
of BNSF Railway's coal traffic originated in the Powder River Basin of Wyoming
and Montana during the three years ended December 31, 1996. These coal
shipments were destined for coal-fired electric generating stations located
primarily in the North Central, South Central and Mountain regions of the
United States with smaller quantities exported.
BNSF Railway also handles increasing amounts of low-sulfur coal from the
Powder River Basin for delivery to markets in the eastern and southeastern
portion of the United States. The low-sulfur coal from the Powder River Basin
is abundant, inexpensive to mine and clean-burning. Because the Clean Air Act
of 1990 requires power plants to reduce harmful emissions either by burning
coal with a lower sulfur content or by installing expensive scrubbing units,
opportunities for increased shipments of this low-sulfur coal still exist.
Other coal shipments originate principally in Wyoming, Colorado, and New
Mexico on the lines of the former ATSF and other rail carriers. These
shipments are moved to electrical generating stations and industrial plants in
the Midwest and Southwest.
Agricultural Commodities. Agricultural Commodities include barley, corn,
wheat, soybeans, oils, feeds, flour and mill products, specialty grains,
malts, and milo. The BNSF Railway system is strategically located to serve the
Midwest and Great Plains grain-producing regions where BNSF Railway serves
most major terminal, storage, feeding and food-processing locations.
Additionally, BNSF Railway has access to major export markets in the Pacific
Northwest, western Great Lakes and Texas Gulf regions.
Chemicals. The Chemicals business is comprised of fertilizer, petroleum and
chemical commodities. Chemicals and plastics resins are transported for
industrial and agricultural use. Industrial chemicals and plastics resins are
used by the automotive, housing, and packaging industries, as well as for
feedstocks for other chemical and plastic products. Access to significant
additional chemicals producers along the Louisiana and Texas Gulf Coasts was
gained as a result of the agreement and conditions resulting from the merger
of the Union Pacific and Southern Pacific railroads. Agricultural minerals
include sulphur that generally moves to the Gulf Coast and from there via
vessels to Florida and overseas markets for use in making phosphatic
fertilizers. Potash is transported to domestic markets and to export points
for markets in Canada, Mexico, and overseas.
Forest Products. The primary commodities in Forest Products are lumber,
plywood, oriented strand board, paper products, pulpmill feedstock, and wood
pulp. Based on carloadings and tonnage hauled, BNSF Railway is the largest
rail transporter of forest products in the United States. Commodity origins
are primarily from the Pacific Northwest, upper Midwest, and the Southeast for
shipment mainly into domestic markets. Industries served include construction,
furniture, photography, publishing, newspaper, and industrial packaging.
6
<PAGE>
Consumer and Food Products. Beverages, canned goods, and perishables are the
principal food commodities moved by BNSF Railway. Other consumer products
handled include sugars and sweeteners, cotton, salt, rubber and tires,
machinery, aircraft parts, military and miscellaneous boxcar shipments.
Shipments of waste, ranging from municipal waste to contaminated soil, move to
landfills and reclamation centers across the country. Distribution services,
including transloading and warehousing services, are also offered. A truck-
competitive transportation product in tank containers for customers shipping
specialty chemicals, other liquids and dry material is also offered.
Metals. The Metals business includes virtually all of the commodities
included in or resulting from the production of steel. Taconite, an iron ore
derivative produced in northern Minnesota, scrap steel, and coal coke are BNSF
Railway's primary input products, while finished steel products range from
structural beams and steel coils to wire and nails. BNSF Railway also hauls
both ferrous and non-ferrous products including recyclable metals. BNSF
Railway links the integrated steel mills in the East with fabricators in the
West and Southwest. Service is also provided to various mini-mills in the
Southwest that feed rebar, beams, and coiled rod to the construction industry.
Various non-ferrous products such as copper, lead, and aluminum are
transported for the beverage, automotive, and telecommunications industries.
Automotive. The Automotive group is responsible for both assembled motor
vehicles and shipments of vehicle parts to numerous destinations throughout
the Midwest, Southwest, West and Pacific Northwest.
Minerals and Ores. Commodities in this group include clays, sands, cements,
aggregates, sodium compounds and other industrial minerals. Both the oil and
the construction industries are serviced. Industrial minerals include various
mined and processed commodities such as cement and aggregates (construction
sand, gravel and crushed stone) that generally move to domestic markets for
use in general construction and public work projects, such as highway
projects. Borates and clays move to domestic points as well as to export
markets primarily through West Coast ports. Sodium compounds, primarily soda
ash, is moved to domestic markets for use in the manufacturing of glass and
other industrial products. Sand is utilized in the manufacturing of glass and
for use in foundry and oil drilling applications.
Freight Statistics. The following tables set forth certain freight
statistics relating to rail operations for the periods indicated. Amounts
shown represent combined BNRR and ATSF results for all periods; certain
amounts have been reclassified to reflect changes in the business groups and
to conform to current year presentation.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenue ton-miles (millions)......................... 411,059 397,902 360,605
Freight revenue per thousand revenue ton-miles....... $19.82 $20.11 $20.84
Average haul per ton (miles)......................... 875 864 821
</TABLE>
7
<PAGE>
REVENUES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1996 1995 1994
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Intermodal............................................. $2,088 $2,000 $1,956
Coal................................................... 1,973 1,962 1,907
Agricultural Commodities............................... 1,170 1,290 955
Chemicals.............................................. 765 712 701
Forest Products........................................ 555 557 569
Consumer and Food Products............................. 469 486 481
Metals................................................. 413 397 356
Automotive............................................. 397 398 380
Minerals and Ores...................................... 319 313 302
------ ------ ------
Total Freight Revenue.................................. 8,149 8,115 7,607
Other Revenue.......................................... 38 35 50
------ ------ ------
Total Revenues....................................... $8,187 $8,150 $7,657
====== ====== ======
CARS/UNITS
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Intermodal............................................. 2,571 2,527 2,465
Coal................................................... 1,854 1,878 1,847
Agricultural Commodities............................... 585 664 578
Chemicals.............................................. 449 435 431
Forest Products........................................ 334 347 357
Consumer and Food Products............................. 309 332 337
Metals................................................. 391 399 370
Automotive............................................. 250 264 238
Minerals and Ores...................................... 249 257 246
------ ------ ------
Total Cars/Units..................................... 6,992 7,103 6,869
====== ====== ======
AVERAGE REVENUE PER CAR/UNIT
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Intermodal............................................. $ 812 $ 791 $ 794
Coal................................................... 1,064 1,045 1,032
Agricultural Commodities............................... 2,000 1,943 1,652
Chemicals.............................................. 1,704 1,637 1,626
Forest Products........................................ 1,662 1,605 1,594
Consumer and Food Products............................. 1,518 1,464 1,427
Metals................................................. 1,056 995 962
Automotive............................................. 1,588 1,508 1,597
Minerals and Ores...................................... 1,281 1,218 1,228
------ ------ ------
Average Revenue Per Car/Unit....................... $1,165 $1,142 $1,107
====== ====== ======
</TABLE>
8
<PAGE>
GOVERNMENT REGULATION AND LEGISLATION
Rail operations are subject to the regulatory jurisdiction of the Surface
Transportation Board of the United States Department of Transportation
("DOT"), the Federal Railroad Administration of DOT, the Occupational Safety
and Health Administration ("OSHA"), and state regulatory agencies. The Surface
Transportation Board, which is the successor to the Interstate Commerce
Commission ("ICC"), has jurisdiction over certain rates, routes, and services,
the extension, sale, or abandonment of rail lines, and consolidation or merger
with, or acquisition of control of, rail common carriers. DOT and OSHA have
jurisdiction under several federal statutes over a number of safety and health
aspects of rail operations. State agencies regulate some aspects of rail
operations with respect to health and safety in areas not otherwise preempted
by federal law.
BNSF Railway's rail operations, as well as those of its competitors, are
subject to extensive federal, state and local environmental regulation. These
laws cover discharges to waters, air emissions, toxic substances, and the
generation, handling, storage, transportation, and disposal of waste and
hazardous materials. This regulation has the effect of increasing the cost and
liabilities associated with rail operations. Environmental risks are also
inherent in rail operations which frequently involve transporting chemicals
and other hazardous materials.
The railroad industry, including BNSF Railway, will become subject to future
requirements regulating air emissions from diesel locomotives that may
increase operating and capital costs. The United States Environmental
Protection Agency ("EPA") issued in early 1997 proposed regulations nationally
applicable to new locomotive engines and certain engines remanufactured after
1999. Final regulations are to be promulgated by the end of the year. It is
anticipated that these regulations will be effective for locomotive engines
installed after 1999 and through 2010. Under some interpretations of federal
law, older locomotive engines may be regulated by states based on standards
and procedures which the State of California ultimately adopts. At this time
it is unknown whether California will adopt any locomotive emission standards.
Many of BNSF Railway's land holdings are and have been used for industrial
or transportation-related purposes or leased to commercial or industrial
companies whose activities may have resulted in discharges onto the property.
As a result, BNSF Railway is now subject and will from time to time continue
to be subject to environmental cleanup and enforcement actions. In particular,
the federal Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), also known as the "Superfund" law, generally imposes joint and
several liability for cleanup and enforcement costs, without regard to fault
or the legality of the original conduct, on current and former owners and
operators of a site. Accordingly, BNSF Railway may be responsible under CERCLA
and other federal and state statutes for all or part of the costs to clean up
sites at which certain substances may have been released by BNSF Railway, its
current lessees, former owners or lessees of properties, or other third
parties. For further discussion, reference is made to Note 13 to the
consolidated financial statements on pages 31 and 32 of BNSF's 1996 Annual
Report to Shareholders, which information is hereby incorporated by reference.
COMPETITION
The business environment in which BNSF Railway operates remains highly
competitive. Depending on the specific market, deregulated motor carriers,
other railroads and river barges exert pressure on various price and service
levels. The presence of advanced, high service truck lines with expedited
delivery, subsidized infrastructure and minimal empty mileage continues to
affect the market for non-bulk, time sensitive freight. The potential
expansion of longer combination vehicles could further encroach upon markets
traditionally served by railroads. In order to remain competitive, BNSF
Railway and other railroads continue to develop and implement operating
efficiencies to improve productivity.
As railroads streamline, rationalize and otherwise enhance their franchises,
competition among rail carriers intensifies. BNSF Railway's primary rail
competitor in the western region of the United States is
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Union Pacific Railroad Company ("UP"), which now includes the former Southern
Pacific Transportation Company ("SP") and Chicago & North Western
Transportation Company ("C&NW"). Other Class I railroads and numerous regional
railroads and motor carriers also operate in parts of the same territories
served by BNSF Railway. Coal, one of BNSF Railway's primary commodities, has
experienced significant pressure on rates due to competition from the joint
effort of C&NW/UP and from BNSF Railway's effort to penetrate new markets.
The Surface Transportation Board approved the proposed common control and
merger of rail carriers controlled by UP and SP in its written decision dated
August 12, 1996, and the transaction was consummated on September 11, 1996. As
a condition of the merger, the STB imposed the provisions of the rights
agreement between BNSF Railway and UP/SP which grants rights to BNSF Railway
to approximately 4,000 miles of track and requires the purchase by BNSF
Railway from UP/SP of more than 335 miles of track for $150 million. Approval
of the UP/SP transaction created an enhanced competitor to BNSF Railway. The
Board's decision also provides BNSF Railway with greater access to Gulf Coast
and West Coast markets and improves its route structure. BNSF Railway has
commenced operations and is handling rail traffic utilizing the rights
obtained from UP/SP.
BNSF is monitoring proposals involving the possible merger with or other
disposition of Consolidated Rail Corporation (Conrail) between CSX Corporation
and Norfolk Southern Corporation and will evaluate any definitive agreement
and related filings with the Surface Transportation Board to determine the
impact, if any, on BNSF Railway. Conrail, CSX and Norfolk Southern operate the
three largest rail systems in the eastern United States.
BNSF is also studying the ongoing privatization of the Mexican rail network.
The northeastern Mexico rail concession has been awarded to a group including
Kansas City Southern Railway; the northwestern Mexico rail concession is now
going through the bid process, with a successful bidder to be announced by
mid-1997.
PIPELINE INVESTMENT
Santa Fe Pacific Pipelines, Inc. ("SFP Pipelines"), an indirect, wholly-
owned subsidiary of BNSF, serves as the general partner of Santa Fe Pacific
Pipeline Partners, L.P. (the "Partnership"), a Delaware master limited
partnership formed in 1988 to acquire and operate the refined petroleum
products pipeline business of SFP. SFP Pipelines owns a two percent interest
as the Partnership's general partner and an approximate 42 percent interest as
limited partner. As general partner, SFP Pipelines is entitled to receive two
percent of all amounts available for distribution by the Partnership and also
an additional incentive depending upon the level of cash distributions paid to
holders of limited partner interests in the Partnership ("Partnership Units").
BNSF accounts for its interest in the Partnership on the equity basis.
In September 1990, SFP Pipeline Holdings, Inc., an indirect, wholly-owned
subsidiary of BNSF, issued $219 million principal amount of Variable Rate
Exchangeable Debentures due 2010 (the "Holdings Debentures") at an eight
percent discount. The Holdings Debentures are exchangeable under certain
circumstances at the option of the holders upon the first to occur of certain
specified events, or final maturity, for substantially all of the Partnership
Units that are owned by SFP Pipelines. The interest payable with respect to
the Holdings Debentures for a particular quarter is equal to the greater of
(i) the distributions of cash from operations declared by the Partnership on
the Partnership Units for which such Holdings Debentures are exchangeable and
(ii) two percent of the weighted average unpaid balance of such Holdings
Debentures outstanding during such quarter, provided that in no event shall
the amount of interest paid on the Holdings Debentures exceed an average
annual rate of 16 percent since their date of issuance.
The Partnership is one of the largest independent pipeline common carriers
of refined petroleum products in the United States, and the largest in the
western United States, in terms of product deliveries,
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barrel miles, and pipeline mileage, with approximately 3,300 miles of pipeline
serving six states. The Partnership transports refined petroleum products,
including gasoline, diesel fuel, and commercial and military jet fuel,
primarily for major petroleum companies, independent refiners, the United
States military, and marketers and distributors of such products. The
Partnership also operates 14 truck loading terminals and provides pipeline
service to 40 customer-owned terminals, three commercial airports, and 11
military bases. The Partnership shipped 365.4 million barrels in 1996, up from
354.3 million barrels in 1995.
Substantially all of the Partnership's pipeline operations are common
carrier operations that are subject to federal or state rate regulation. The
Federal Energy Regulatory Commission (FERC) exercises economic regulatory
jurisdiction over interstate shipments through the Partnership's system. For a
description of certain FERC proceedings challenging certain of the
Partnership's rates and seeking refunds and prospective rate reductions, see
the section entitled "East Line Civil Litigation and FERC Proceedings" under
Item 3, Legal Proceedings, in the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1996, which section is hereby incorporated by
reference. Intrastate shipments are subject to economic regulation by the
California Public Utilities Commission.
ITEM 3. LEGAL PROCEEDINGS
Set forth below is a description of certain legal proceedings involving BNSF
and its subsidiaries.
WHEAT AND BARLEY TRANSPORTATION RATES
In September 1980, a class action lawsuit was filed against BNSF Railway in
United States District Court for the District of Montana ("Montana District
Court") challenging the reasonableness of BNSF Railway export wheat and barley
rates. The class consists of Montana grain producers and elevators. The
plaintiffs sought a finding that BNSF Railway single car export wheat and
barley rates for shipments moving from Montana to the Pacific Northwest were
unreasonably high and requested damages in the amount of $64 million. In March
1981, the Montana District Court referred the rate reasonableness issue to the
ICC. Subsequently, the state of Montana filed a complaint at the ICC
challenging BNSF Railway's multiple car rates for Montana wheat and barley
movements occurring after October 1, 1980.
The ICC issued a series of decisions in this case from 1988 to 1991. Under
these decisions, the ICC applied a revenue to variable cost test to the rates
and determined that BNSF Railway owed $9,685,918 in reparations plus interest.
In its last decision, dated November 26, 1991, the ICC found BNSF Railway's
total reparations exposure to be $16,559,012 through July 1, 1991. The ICC
also found that BNSF Railway's current rates were below a reasonable maximum
and vacated its earlier rate prescription order.
BNSF Railway appealed to the United States Court of Appeals for the District
of Columbia Circuit ("D.C. Circuit") those portions of the ICC's decisions
concerning the post-October 1, 1980 rate levels. BNSF Railway's primary
contention on appeal was that the ICC erred in using the revenue to variable
cost rate standard to judge the rates instead of Constrained Market
Pricing/Stand Alone Cost principles. The limited portions of decisions that
cover pre-October 1, 1980 rates were appealed to the Montana District Court.
On March 24, 1992, the Montana District Court dismissed plaintiffs' case as
to all aspects other than those relating to pre-October 1, 1980 rates. On
February 9, 1993, the D.C. Circuit served its decision regarding the appeal of
the several ICC decisions in this case. The court held that the ICC did not
adequately justify its use of the revenue to variable cost standard as BNSF
Railway had argued and remanded the case to the ICC for further administrative
proceedings.
On July 22, 1993, the ICC served an order in response to the D.C. Circuit's
February 9, 1993 decision. In its order, the ICC stated it would use the
Constrained Market Pricing/Stand-Alone Cost principles in assessing the
reasonableness of BNSF Railway wheat and barley rates moving from Montana to
Pacific Coast ports from 1978 forward. The ICC assigned the case to the Office
of Hearings to develop a procedural
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schedule. On October 28, 1994, plaintiffs filed their opening evidence arguing
that the revenue received by BNSF Railway exceeded the stand alone costs of
transporting that traffic and that BNSF Railway rates were unreasonably high.
BNSF Railway filed its evidence March 29, 1995, showing that the stand alone
costs of transporting the traffic exceeded the revenue derived by BNSF Railway
on that traffic and that consequently, its rates were not unreasonably high.
The parties filed briefs simultaneously on August 16, 1995, and the proceeding
awaits decision by the Surface Transportation Board, successor to the ICC.
COAL TRANSPORTATION CONTRACT LITIGATION
On April 26, 1991, an action was filed against BNSF Railway in the 102nd
Judicial District Court for Bowie County, Texas, seeking a reduction of the
transportation rates required to be paid under two contracts (Southwestern
Electric Power Company v. Burlington Northern Railroad Company, No. D-102-CV-
91-0720). The plaintiff, Southwestern Electric Power Company ("SWEPCO"), was
challenging the contract rates for transportation of coal to its electric
generating facilities at Cason, Texas, and Flint Creek, Arkansas. SWEPCO
contended that productivity gains achieved by BNSF Railway constituted unusual
economic conditions giving rise to a "gross inequity" because BNSF Railway's
costs of providing service have been reduced over the contracts' terms. On
August 2, 1994, plaintiff amended its complaint to further allege that BNSF
Railway had been unjustly enriched by retaining differences between the rates
actually charged and those that SWEPCO alleged should have been charged.
SWEPCO sought both prospective rate relief and recovery of alleged past
overcharges.
BNSF Railway's primary contention was that both parties anticipated
productivity gains in the rail industry when negotiating the contracts and
agreed that BNSF Railway would retain most of its productivity gains. BNSF
Railway further contended that there was no agreement that transportation
rates paid by SWEPCO would be based on BNSF Railway's cost of providing
service.
On November 18, 1994, the jury rendered a verdict denying plaintiff's
request for prospective rate relief and that plaintiff take nothing on its
principal claims of "gross inequity." However, BNSF Railway was assessed
damages approximating $56 million relating to plaintiff's alternative claim of
unjust enrichment. On January 20, 1995, the trial court rendered a judgment on
the verdict in an amount approximating $74 million, which included attorneys'
fees and interest. The judgment further awarded post-judgment interest at 10
percent per annum and issued declaratory orders pertaining to the two
contracts. BNSF Railway filed its notice of appeal in the case on February 17,
1995 and posted a bond staying enforcement of the judgment in the Court of
Appeals for the Sixth Court of Appeals District of Texas, Texarkana, Texas
(Burlington Northern Railroad Company v. Southwestern Electric Power Company,
No. 06-95-00024-CV). By decision dated April 30, 1996, the Court of Appeals
reversed the judgment of the trial court and rendered judgment in favor of
BNSF Railway. SWEPCO was assessed costs of appeal. SWEPCO has been denied two
motions for rehearing before the Court of Appeals. On October 14, 1996, SWEPCO
applied for discretionary review of the decision by the Texas Supreme Court.
ENVIRONMENTAL PROCEEDINGS
BNSF Railway has been advised that it is a target of a Grand Jury
investigation in the United States District Court for the Eastern District of
Missouri with respect to former railcar cleaning activities conducted by
independent contractors at Cherryville, Missouri. The proceeding relates to
alleged violations of federal environmental protection statutes with respect
to lead contamination at several sites in the Cherryville area. In addition,
BNSF Railway has received personal injury claims from certain individuals
formerly residing at or near some of these sites. The Missouri Department of
Natural Resources ("DNR") also is investigating the matter with respect to
possible violations of state environmental protection laws and has indicated
that it may seek a civil penalty from BNSF Railway. BNSF Railway and another
potentially responsible party had previously prepared investigation and
remediation plans in conjunction with the DNR. BNSF Railway modified the plans
and is expediting a response and implementing remediation with DNR approval.
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On December 18, 1995, the State of Illinois filed a Complaint captioned
People of the State of Illinois v. Burlington Northern Railroad Company,
Beazer East, Inc. and Koppers Industries, Inc. (PCB No. 96-132) before the
Illinois Pollution Control Board against BNSF Railway, Beazer East, Inc. and
Koppers Industries, Inc. alleging violations of the Illinois Environmental
Protection Act with respect to a facility in Galesburg, Illinois. This
facility is not operated by BNSF Railway. The proceeding may result in
monetary sanctions in excess of $100,000. BNSF Railway and Beazer East, Inc.
have made an offer to the State of Illinois to settle this matter.
On December 30, 1996, BNSF Railway was named a defendant in a lawsuit by the
Wisconsin Department of Natural Resources (State of Wisconsin v. Burlington
Northern Railroad Company, Case No. 96 CV403, Circuit Court, Douglas County)
in connection with two separate matters in Superior, Wisconsin. One of the
matters involves the alleged obligation to close a wastewater holding pond
located on property which BNSF Railway does not own. The State alleges that
BNSF Railway is an owner or operator of the pond and is subject to the
obligation because of its discharge of treated wastewater into the pond. The
other matter relates to petroleum impacts to property formerly owned by BNSF
Railway. The current owner discovered the petroleum and debris when excavating
the property. It is possible that BNSF Railway will be required to pay
monetary sanctions to the State in excess of $100,000 in connection with the
resolution of these two matters.
BNSF Railway has been issued a Notice of Violation by the Texas Natural
Resource Conservation Commission with respect to the alleged failure to timely
file wastewater discharge reports and other deficiencies at a facility in
Silsbee, Texas. The State has made a demand for penalties in excess of
$100,000, calling for the correction of alleged recordkeeping deficiencies and
a study of the ditch receiving the permitted discharges.
MERGER-RELATED LITIGATION
Numerous complaints were filed arising out of the Agreement and Plan of
Merger dated June 29, 1994, as amended, between BNI and SFP. On June 30, 1994,
shortly after announcement of the proposed BNI-SFP merger ("Merger"), two
purported stockholder class action suits were filed in the Court of Chancery
of the State of Delaware (Miller v. Santa Fe Pacific Corporation, C.A. No.
13587; Cosentino v. Santa Fe Pacific Corporation, C.A. No. 13588). On July 1,
1994, two additional purported stockholder class action suits were filed in
the Court of Chancery of the State of Delaware (Fielding v. Santa Fe Pacific
Corporation, C.A. No. 13591; Wadsworth v. Santa Fe Pacific Corporation, C.A.
No. 13597).
The actions named as defendants SFP, the individual members of the SFP Board
of Directors, and BNI. In general, the actions variously alleged that SFP's
directors breached their fiduciary duties to the stockholders by agreeing to
the proposed merger for allegedly "grossly inadequate" consideration in light
of recent operating results of SFP, recent trading prices of SFP's common
stock and other alleged factors, by allegedly failing to take all necessary
steps to ensure that stockholders will receive the maximum value realizable
for their shares (including allegedly failing to actively pursue the
acquisition of SFP by other companies or conducting an adequate "market
check"), and by allegedly failing to disclose to stockholders the full extent
of the future earnings potential of SFP, as well as the current value of its
assets. The Miller and Fielding cases further alleged that the proposed Merger
was unfairly timed and structured and, if consummated, would allegedly
unfairly deprive the stockholders of standing to pursue certain pending
stockholder derivative litigation. Plaintiffs also alleged that BNI was
responsible for aiding and abetting the alleged breach of fiduciary duty
committed by the SFP Board. The actions sought certification of a class action
on behalf of SFP's stockholders. In addition, the actions sought injunctive
relief against consummation of the Merger and, in the event that the Merger
was consummated, the rescission of the Merger, an award of compensatory or
rescissory damages and other damages, including court costs and attorneys'
fees, an accounting by defendants of all profits realized by them as a result
of the Merger, and various other forms of relief.
On October 6, 1994, shortly after Union Pacific Corporation ("UPC") issued a
press release in which it announced a proposal for UPC to acquire SFP (the
"UPC Proposal"), plaintiffs in the four lawsuits described
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above filed in the Court of Chancery of the State of Delaware a Consolidated
Amended Complaint (Miller v. Santa Fe Pacific Corporation, C.A. No. 13587). In
their Consolidated Amended Complaint, plaintiffs repeated the allegations
contained in their earlier lawsuits and further alleged that, in light of the
UPC Proposal, SFP's directors had breached their fiduciary duties by failing
to fully inform themselves about and to adequately explore available
alternatives to the merger with BNI, including the alternative of a merger
transaction with UPC, and by failing to fully inform themselves about the
value of SFP. The Consolidated Amended Complaint sought the same relief sought
in plaintiffs' earlier lawsuits and, in addition, requested that SFP's
directors be ordered to explore alternative transactions and to negotiate in
good faith with all interested persons, including UPC.
Also, on October 6, 1994, five additional purported stockholder class action
suits relating to SFP's proposed participation in the Merger with BNI were
filed in the Court of Chancery of the State of Delaware (Weiss v. Santa Fe
Pacific Corporation, C.A. No. 13779; Lifshitz v. Krebs, C.A. No. 13780; Stein
v. Santa Fe Pacific Corporation, Lewis v. Santa Fe Pacific Corporation, C.A.
No. 13783; Abramson v. Lindig, C.A. No. 13784). On October 7, 1994, three more
purported stockholder class action suits relating to SFP's proposed
participation in the Merger with BNI were filed in the Court of Chancery of
the State of Delaware (Graulich v. Santa Fe Pacific Corporation, C.A. No.
13786; Anderson v. Santa Fe Pacific Corporation, C.A. No. 13787; Green v.
Santa Fe Pacific Corporation, C.A. No. 13788). All of these lawsuits named as
defendants SFP and the individual members of the SFP Board of Directors; the
Lifshitz case further named BNI as a defendant. In general, these actions
variously alleged that, in light of SFP's recent operating results and the UPC
Proposal, SFP's directors breached their fiduciary duties to stockholders by
purportedly not taking the necessary steps to ensure that SFP's stockholders
would receive "maximum value" for their shares of SFP stock, including
purportedly refusing to negotiate with UPC or to "seriously consider" the UPC
Proposal and failing to announce any active auction or open bidding
procedures. The actions generally sought relief that is materially identical
to the relief sought in the Miller case, and in addition sought entry of an
order requiring SFP's directors to immediately undertake an evaluation of
SFP's worth as a merger/acquisition candidate and to establish a process
designed to obtain the highest possible price for SFP, including taking steps
to "effectively expose" SFP to the marketplace in an effort to create an
"active auction" in SFP. The Weiss case further sought entry of an order
enjoining SFP's directors from implementing any poison pill or other device
designed to thwart the UPC Proposal or any other person's proposal to acquire
SFP.
The Anderson lawsuit was subsequently withdrawn. On October 14, 1994, the
Chancery Court entered an order consolidating the remaining 11 purported
stockholder class action suits under the heading In Re Santa Fe Pacific
Corporation Shareholder Litigation, C.A. No. 13587 (the "Shareholder
Litigation").
On October 26, 1994, BNI filed a Motion to Dismiss the Consolidated and
Amended Complaint.
On March 6, 1995, plaintiffs in the Shareholder Litigation filed a Revised
Second Consolidated and Amended Complaint, which superseded their previously
filed complaints. The Revised Second Consolidated and Amended Complaint
generally repeated many of the same allegations, and requested relief similar
to that requested in plaintiffs' earlier complaints. In addition, the Revised
Second Consolidated and Amended Complaint alleged that SFP's directors
breached their fiduciary duties: by proceeding with and completing the joint
SFP-BNI Tender Offer; by approving and implementing the Shareholder Rights
Plan, which purportedly resulted in a "premature ending" of the "bidding
process" by allegedly deterring and defeating UPC's acquisition overtures,
exempting BNI from its provisions, and "coercing" SFP stockholders to vote in
favor of the Merger; by approving the termination fee and expense
reimbursement provisions of the Merger Agreement by authorizing the stock
repurchase provisions of the Merger Agreement, which allegedly were designed
to "lock-up" the Merger by providing stockholders with an "illusory promise"
that the Merger Agreement exchange ratio would increase, while reserving SFP's
right not to repurchase such stock; and by purportedly failing to disclose all
material facts necessary for SFP's stockholders to evaluate in an informed
manner and vote on the Merger, including purportedly failing to fully disclose
the risks that the ICC would not approve the Merger and purportedly failing to
fully disclose SFP's intentions with respect to the repurchase of SFP stock,
as permitted by the Merger Agreement, as well as whether there will be a fair
opportunity for all SFP stockholders to "participate" in any SFP stock
repurchases, and on what basis. As
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additional relief to that requested in the earlier complaints, plaintiffs
requested injunctive and other relief: enjoining consummation of the Merger;
ordering SFP, SFP's directors, and BNI to make unspecified supplemental
disclosures to stockholders; requiring SFP to conduct a new vote on the Merger
subsequent to such disclosures; enjoining SFP from improperly or
discriminatorily implementing the Shareholder Rights Plan or any other
"defensive" tactic; ordering SFP's directors to take all appropriate steps to
enhance SFP's value and attractiveness as a merger or acquisition candidate,
including "effectively exposing" SFP to the marketplace by means of an active
auction on a "level playing field"; and declaring the termination fee and
expense reimbursement provisions of the Merger Agreement invalid and
unenforceable.
On March 13, 1995, SFP and SFP's directors filed a motion to dismiss the
Shareholder Litigation on the grounds that the Plaintiffs failed to state a
cause of action upon which relief may be granted. BNI also filed a motion to
dismiss the Revised Second Consolidated and Amended Complaint. On May 31,
1995, the Delaware Chancery Court rendered its decision granting the motion to
dismiss that was filed by SFP and SFP's directors on March 13, 1995 and the
motion to dismiss filed by BNI. The plaintiffs appealed the dismissal to the
Delaware Supreme Court.
On November 22, 1995, the Delaware Supreme Court issued an opinion that
affirmed in part and reversed in part the May 31, 1995 decision of the
Delaware Chancery Court. The Delaware Supreme Court reversed the Chancery
Court's dismissal of plaintiffs' claims that, in taking the alleged
"defensive" actions identified in the Revised Second Consolidated and Amended
Complaint, including approval and implementation of the Shareholder Rights
Plan, SFP's directors violated their fiduciary duties to stockholders. The
Delaware Supreme Court affirmed the Chancery Court's dismissal of all other
claims asserted by plaintiffs in the litigation, including all claims against
BNI.
On December 11, 1995, the SFP defendants filed with the Delaware Chancery
Court a motion for summary judgment against plaintiffs' remaining claims in
the Shareholder Litigation, which motion is pending. On December 29, 1995, the
SFP defendants filed their Answer to plaintiffs' Revised Second Consolidated
and Amended Complaint.
BNSF believes this lawsuit is meritless and continues to oppose it
vigorously.
ICC MERGER CASE
On October 13, 1994, BNI, BNRR, SFP, and ATSF ("Applicants") filed a
railroad merger and control application with the ICC, Finance Docket No.
32549, Burlington Northern Inc. and Burlington Northern Railroad Company--
Control and Merger--Santa Fe Pacific Corporation and The Atchison, Topeka and
Santa Fe Railway Company. Applicants sought an order, pursuant to 49 U.S.C.
(S)(S) 11343-11347 (1988), approving and authorizing BNI's acquisition of
control of and merger with SFP, the resulting common control of BNRR and ATSF
by BNSF, the consolidation of BNRR and ATSF by BNSF, the consolidation of BNRR
and ATSF operations, and the merger of BNRR and ATSF. The ICC approved the
application in its written decision served August 23, 1995, which decision was
effective as of September 22, 1995. Several petitions for reconsideration or
to reopen the ICC's decision were filed by parties to the proceeding and all
of these have been denied. Additionally, eight parties to the proceeding filed
petitions for review of the ICC's approval decision with the United States
Court of Appeals for the District of Columbia, which petitions are now pending
before that court. Each of the petitions for reconsideration or to reopen and
for review challenge various aspects of the ICC's decision, including the
extent of conditions imposed on its approval. The principal challenges to the
ICC decision were rejected by the Court of Appeals for the District of
Columbia on March 28, 1997, and the remaining challenge is not expected to
affect materially the benefits to be realized by the acquisition of common
control of BNRR and ATSF by BNSF.
CROW RESERVATION CROSSING ACCIDENT CASE
At approximately 10:15 a.m. on November 22, 1993, there was an accident at a
BNSF Railway crossing located within the boundaries of the Crow reservation in
which three members of the Crow tribe were killed. The crossing, which is
located on a rural gravel road just south of Lodge Grass, Montana, was
protected by crossbucks and advance warning signs.
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A lawsuit was filed in the Crow Tribal Court (Estates of Red Wolf, Red Horse
and Bull Tail v. Burlington Northern Railroad Company, Case No. 94-31) on
behalf of the estates of the driver and the two passengers. One of the
passenger cases was severed and has yet to go to trial. The other two cases
proceeded to trial in January 1996 and, on February 6, 1996, a Crow Tribal
Court jury rendered a verdict against BNSF Railway for compensatory damages in
the total amount of $250 million.
BNSF Railway has filed an appeal to the Crow Court of Appeals in and for the
Crow Indian Reservation, where it will seek, among other things, to have the
case dismissed on the basis that the Crow Tribal Court lacks subject matter
jurisdiction over these claims. If the appellate court fails to grant relief
to BNSF Railway, BNSF Railway will pursue its defenses in federal court. On
February 26, 1996, the Federal District Court for the District of Montana
entered an order enjoining any action by the Tribal Court plaintiffs to
enforce the judgment pending appeal through the tribal court and federal court
systems. BNSF Railway was required to post a $5 million bond with the federal
court. The Tribal Court plaintiffs appealed that decision to the Unted States
Court of Appeals for the Ninth Circuit.
On January 29, 1997, the Ninth Circuit issued an opinion which reversed the
district court and remanded the matter to that trial court with directions to
dissolve the injunction. The basis for the appellate court's decision was a
determination that BNSF Railway had failed to exhaust its remedies in the
tribal court. BNSF Railway filed a petition for rehearing, which petition is
pending before the Ninth Circuit.
In Tribal Court, the plaintiffs filed a Notice and Request with the Tribal
Appellate Court requesting, among other things, the entry of an order reducing
the amount of the judgment from $250 million to $25 million. On February 7,
1997, the Tribal Appellate court issued an order setting forth its intention
to grant the motion to reduce the judgment by remanding the matter to the
trial court for the limited purpose of reducing the judgment in accordance
with the request.
OTHER CLAIMS
BNSF and its subsidiaries also are parties to a number of other legal
actions and claims, various governmental proceedings and private civil suits
arising in the ordinary course of business, including those related to
environmental matters and personal injury claims. For a description of certain
claims against SFP Pipelines and the Partnership, see the sections entitled
"East Line Civil Litigation and FERC Proceedings," "East Line Civil
Litigation," and "FERC Proceedings" under Item 3, Legal Proceedings, of the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1996,
which sections are hereby incorporated by reference.
While the final outcome of these and other legal actions referred to under
Item 3 of this Report on Form 10-K cannot be predicted with certainty,
considering among other things the meritorious legal defenses available, it is
the opinion of BNSF management that none of these items, when finally
resolved, will have a material adverse effect on the annual results of
operations, financial position or liquidity of BNSF, although an adverse
resolution of a number of these items could have a material adverse effect on
the results of operations in a particular quarter or fiscal year.
Reference is made to Note 6 to the consolidated financial statements on page
27 of BNSF's 1996 Annual Report to Shareholders for information concerning
certain pending administrative appeals with the Internal Revenue Service,
which information is hereby incorporated by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by BNSF to a vote of its securities holders during
the fourth quarter of 1996.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names, ages, and positions of all executive officers of
BNSF (excluding Robert D. Krebs, an executive officer who is also a director
of BNSF, information as to whom is included in BNSF's Proxy Statement dated
March 5, 1997) and their business experience during the past five years.
Executive officers hold office until their successors are elected or
appointed, or until their earlier death, resignation, or removal.
DOUGLAS J. BABB, 44
Senior Vice President and Chief of Staff since September 1995. Prior to
that, Vice President and General Counsel of BNRR from December 1986.
JAMES B. DAGNON, 57
Senior Vice President-Employee Relations since September 1995. Prior to
that, Executive Vice President, Employee Relations of BNI since January 1992,
and Senior Vice President, Employee Relations of BNI since August 1991.
THOMAS N. HUND, 43
Vice President and Controller since September 1995. Prior to that, Vice
President and Controller of SFP since July 1990.
DONALD G. MCINNES, 56
Senior Vice President and Chief Operations Officer since September 1995.
Prior to that, Senior Vice President and Chief Operating Officer of ATSF since
January 1994, Senior Vice President-Intermodal Business Unit of ATSF since
January 1992, and Vice President-Intermodal of ATSF since July 1989.
JEFFREY R. MORELAND, 52
Senior Vice President-Law and General Counsel since September 1995. Prior to
that, Vice President-Law and General Counsel of SFP from October 1994, and
Vice President-Law and General Counsel of ATSF from June 1989.
MATTHEW K. ROSE, 37
Senior Vice President-Merchandise Business Unit since May 1996. Prior to
that, Vice President-Chemicals and Plastics of ATSF and BNRR from January
1996, Vice President, South Region Field Marketing of BNRR from January 1995,
Vice President, Automotive of BNRR from June 1994, and General Manager,
Facilities and Technology of BNRR from January 1993. Prior to that, Vice
President-Transportation of Triple Crown Services, a subsidiary of Norfolk
Southern Corporation.
CHARLES L. SCHULTZ, 49
Senior Vice President-Intermodal and Automotive Business Unit since February
1996. Prior to that, Vice President-Intermodal of ATSF and BNRR from September
1995, Vice President-Intermodal of ATSF from January 1994, Vice President-
Management Services of ATSF from June 1991, and Vice President-Information
Services of ATSF from July 1989.
DENIS E. SPRINGER, 51
Senior Vice President and Chief Financial Officer since September 1995.
Prior to that, Senior Vice President and Chief Financial Officer of SFP from
October 1993, Senior Vice President, Treasurer and Chief
17
<PAGE>
Financial Officer of SFP from January 1992, and Vice President, Treasurer and
Chief Financial Officer of SFP from January 1991.
GREGORY T. SWIENTON, 47
Senior Vice President-Coal and Agricultural Commodities Business Unit since
May 1996. Prior to that, Senior Vice President-Consumer and Industrial
Business Unit from February 1996, Senior Vice President-Industrial Business
Unit from September 1995, Executive Vice President, Intermodal Business of
BNRR from June 1994, and Executive Director-Europe and Africa (Brussels) of
DHL Worldwide Express (international freight company) from January 1991.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
BNSF's common stock is listed on the New York Stock Exchange under the
symbol "BNI." The common stock is also listed on the Chicago Stock Exchange
and Pacific Stock Exchange. Information as to the high and low sales prices of
such stock for the two years ending December 31, 1996 (or the common stock of
BNI prior to September 22, 1995) and the frequency and amount of dividends
declared on such stock during such period, is set forth below the heading
"Quarterly Financial Data-Unaudited" on page 37 of BNSF's 1996 Annual Report
to Shareholders and is hereby incorporated by reference. The approximate
number of record holders of the common stock at January 31, 1997 was 74,000.
As consideration for its acquisition of Washington Central Railroad Company,
Inc. ("Washington Central") on December 4, 1996, BNSF issued 363,008 shares of
its common stock, $.01 par value, to the four individuals who were Washington
Central's shareholders immediately prior to the merger transaction (the
"Shareholders"), each of whom was an "accredited investor" as defined in Rule
501 under the Securities Act of 1933, plus an additional 46,096 shares to be
held in escrow for four years to assure the performance of certain obligations
of the Shareholders. The offer and sale of BNSF common stock in connection
with the acquisition of Washington Central was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D promulgated thereunder.
ITEM 6. SELECTED FINANCIAL DATA
There is disclosed on page 1 of BNSF's 1996 Annual Report to Shareholders
selected financial data of BNSF for each of the last five fiscal years. Such
data with respect to the following topics are incorporated by reference:
Revenues; Operating income; Income before extraordinary item and cumulative
effect of change in accounting method; Accounting change/Extraordinary item;
Net income; Primary earnings per share; Fully diluted earnings per share;
Dividends declared per common share; Total assets; and Long-term debt and
commercial paper, including current portion.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations appearing on pages 11 through 18 of BNSF's 1996 Annual Report to
Shareholders is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of BNSF and subsidiary companies,
together with the reports thereon, appearing in Part IV of this Report on Form
10-K and on pages 19 through 37 of BNSF's 1996 Annual Report to Shareholders,
are hereby incorporated by reference.
18
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Reference is made to BNSF's Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 26, 1996, regarding BNSF's change
in its independent accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of BNSF is provided on pages 2 through
4 of BNSF's proxy statement dated March 5, 1997, under the heading "Name, Age
and Business Experience of the Company's Nominees for Directors" and the
information under that heading is hereby incorporated by reference.
Information concerning the executive officers of BNSF (excluding one
executive officer who is also a director of BNSF) is included in Part I of
this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning the compensation of directors and executive officers
of BNSF is provided on pages 5 through 6 under the heading "Directors'
Compensation" and pages 16 through 22 under the heading "EXECUTIVE
COMPENSATION AND OTHER INFORMATION" in BNSF's proxy statement dated March 5,
1997, and the information under those headings is hereby incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning the ownership of BNSF equity securities by certain
beneficial owners and management is provided on pages 7 through 9 under the
headings "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" and "SECURITY
OWNERSHIP OF MANAGEMENT" of BNSF's proxy statement dated March 5, 1997, and is
hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
provided on page 6 under the heading "Certain Relationships and Related
Transactions" of BNSF's proxy statement dated March 5, 1997, and the
information under that heading is hereby incorporated by reference.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
1. Consolidated Financial Statements:
Report of Price Waterhouse LLP........................................ [19*]
Report of Coopers & Lybrand L.L.P..................................... F-2
Consolidated Statement of Income for the three years ended December
31, 1996............................................................. [20*]
Consolidated Balance Sheet at December 31, 1996 and 1995.............. [21*]
Consolidated Statement of Cash Flows for the three years ended
December 31, 1996.................................................... [22*]
Consolidated Statement of Changes In Stockholders' Equity for the
three years ended December
31, 1996............................................................. [23*]
Notes to Consolidated Financial Statements............................ [24-37*]
</TABLE>
- --------
(*Incorporated by reference from the indicated pages of BNSF's 1996 Annual
Report to Shareholders.)
2. Consolidated Financial Statement Schedules for the three years ended
December 31, 1996:
<TABLE>
<S> <C>
Report of Price Waterhouse LLP............................................ F-1
Report of Coopers & Lybrand L.L.P......................................... F-2
Schedule II--Valuation and Qualifying Accounts............................ F-3
</TABLE>
Schedules other than that listed above are omitted because they are not
required or applicable, or the required information is included in the
consolidated financial statements or related notes.
3. Exhibits:
See Index to Exhibits on pages E-1-E-4 for a description of the exhibits
filed as a part of this Report.
(b) Reports on Form 8-K
BNSF filed the following Current Reports on Form 8-K during the quarter ended
December 31, 1996, or subsequently:
Current Report on Form 8-K (Date of earliest event reported: October 22,
1996) which referenced under Item 5, Other Events, and filed as an exhibit
under Item 7, Financial Statements, Pro Forma Financial Information and
Exhibits, the registrant's third quarter 1996 earnings press release.
Current Report on Form 8-K (Date of earliest event reported: January 21,
1997) which referenced under Item 5, Other Events, and filed as an exhibit
under Item 7, Financial Statements, Pro Forma Financial Information and
Exhibits, the registrant's fourth quarter 1996 and full year 1996 earnings
press release.
20
<PAGE>
SIGNATURES
BURLINGTON NORTHERN SANTA FE CORPORATION, PURSUANT TO THE REQUIREMENTS OF
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, HAS DULY CAUSED
THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
BURLINGTON NORTHERN SANTA FE
CORPORATION
/s/ Robert D. Krebs
By: _________________________________
Robert D. Krebs
President and Chief
Executive Officer
Dated: March 31, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF BURLINGTON
NORTHERN SANTA FE CORPORATION AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Robert D. Krebs President and Chief Executive Officer
___________________________________________ (Principal Executive Officer), and
Robert D. Krebs Director
/s/ Denis E. Springer Senior Vice President and Chief Financial
___________________________________________ Officer (Principal Financial Officer)
Denis E. Springer
/s/ Thomas N. Hund Vice President and Controller
___________________________________________ (Principal Accounting Officer)
Thomas N. Hund
/s/ Joseph F. Alibrandi* Director
___________________________________________
Joseph F. Alibrandi
/s/ Jack S. Blanton* Director
___________________________________________
Jack S. Blanton
/s/ John J. Burns, Jr.* Director
___________________________________________
John J. Burns, Jr.
/s/ Daniel P. Davison* Chairman of the Board, Director
___________________________________________
Daniel P. Davison
/s/ George Deukmejian* Director
___________________________________________
George Deukmejian
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Daniel J. Evans* Director
___________________________________________
Daniel J. Evans
/s/ Bill M. Lindig* Director
___________________________________________
Bill M. Lindig
/s/ Ben F. Love* Director
___________________________________________
Ben F. Love
/s/ Roy S. Roberts* Director
___________________________________________
Roy S. Roberts
/s/ Marc J. Shapiro* Director
___________________________________________
Marc J. Shapiro
/s/ Arnold R. Weber* Director
___________________________________________
Arnold R. Weber
/s/ Robert H. West* Director
___________________________________________
Robert H. West
/s/ J. Steven Whisler* Director
___________________________________________
J. Steven Whisler
/s/ Edward E. Whitacre, Jr.* Director
___________________________________________
Edward E. Whitacre, Jr.
/s/ Ronald B. Woodard* Director
___________________________________________
Ronald B. Woodard
/s/ Michael B. Yanney* Director
___________________________________________
Michael B. Yanney
</TABLE>
/s/ Jeffrey R. Moreland
*By: ________________________________
Jeffrey R. Moreland
Senior Vice President-Law and
General Counsel
Attorney in Fact
Dated: March 31, 1997
S-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Burlington Northern Santa Fe Corporation and Subsidiaries
Our audit of the consolidated financial statements for the year ended
December 31, 1996 referred to in our report dated February 7, 1997 appearing
on page 19 of the 1996 Annual Report to Shareholders of Burlington Northern
Santa Fe Corporation (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedule listed in Item 14(a)2. of this Form
10-K. In our opinion, the Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein for the year ended
December 31, 1996 when read in conjunction with the related consolidated
financial statements.
Price Waterhouse LLP
Chicago, Illinois
February 7, 1997
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Burlington Northern Santa Fe Corporation and Subsidiaries
We have audited the consolidated financial statements of Burlington Northern
Santa Fe Corporation and Subsidiaries as of December 31, 1995, and for each of
the two years in the period ended December 31, 1995, which financial
statements are included on pages 20 through 37 of the 1996 Annual Report to
Shareholders of Burlington Northern Santa Fe Corporation and incorporated by
reference herein. We have also audited the financial statement schedule for
each of the two years in the period ended December 31, 1995 listed in Item 14
of this Form 10-K. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Burlington
Northern Santa Fe Corporation and Subsidiaries as of December 31, 1995, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
As discussed in Note 4 to the consolidated financial statements, the Company
changed its method of accounting for periodic major locomotive overhauls in
1995 and for postemployment benefits in 1994.
Coopers & Lybrand L.L.P.
Fort Worth, Texas
February 15, 1996
F-2
<PAGE>
SCHEDULE II
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- --------- --------- -------- ---------- --------
BALANCE
BALANCE ADDITION AT END
AT ADDITIONS OF SFP OF
BEGINNING CHARGED ACCRUAL DEDUCTIONS PERIOD
DESCRIPTION OF PERIOD TO INCOME (1) (2) (3)
----------- --------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
December 31, 1996
Casualty and environmental
liabilities.................. $916 $262 $-- $368 $810
==== ==== ==== ==== ====
December 31, 1995
Casualty and environmental
liabilities.................. $637 $164 $320 $205 $916
==== ==== ==== ==== ====
December 31, 1994
Casualty and environmental
liabilities.................. $689 $183 $-- $235 $637
==== ==== ==== ==== ====
</TABLE>
- --------
(1) Represents SFP's recorded liability at date of Merger
(2) Principally represents cash payments
(3) Classified in the consolidated balance sheet as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Casualty and environmental liabilities (current
liabilities)............................................. $267 $290 $221
Casualty and environmental liabilities (noncurrent
liabilities)............................................. 543 626 416
---- ---- ----
$810 $916 $637
==== ==== ====
</TABLE>
F-3
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2 Agreement and Plan of Merger dated as of June 29, 1994 between
Burlington Northern Inc. and Santa Fe Pacific Corporation as amended
by Amendments 1 and 2 thereto, together with Amendments 3 and 4
thereto. Schedules have been omitted. Schedules will be furnished
supplementally to the Securities and Exchange Commission upon request.
Incorporated by reference to Exhibit 2.1 to BNSF's Report on Form 8-K
(Date of earliest event reported: September 22, 1995).
3.1 Amended and Restated Certificate of Incorporation of BNSF (amended as
of September 11, 1995). Incorporated by reference to Exhibit 3.1 to
BNSF's Report on Form 10-Q for the quarter ended September 30, 1995.
3.2 By-Laws of BNSF (amended as of January 18, 1996). Incorporated by
reference to Exhibit 3.2 to BNSF's Report on Form 10-K for the fiscal
year ended December 31, 1995.
4.1 Amended and Restated Five-Year Revolving Credit Agreement dated as of
November 15, 1996, between Burlington Northern Santa Fe Corporation
and Chemical Securities Inc. and J.P. Morgan Securities Inc. as Co-
arrangers, The Chase Manhattan Bank as Administrative Agent, Morgan
Guaranty Trust Company of New York as Documentation Agent, and a
consortium of lenders.
4.2 Amended and Restated 364-Day Revolving Credit Agreement dated as of
November 15, 1996, between Burlington Northern Santa Fe Corporation
and Chemical Securities Inc. and J.P. Morgan Securities Inc., The
Chase Manhattan Bank as Administrative Agent, Morgan Guaranty Trust
Company of New York as Documentation Agent, and a consortium of
lenders.
BNSF is not filing any other instruments evidencing indebtedness
because the total amount of securities authorized under any single
such instrument does not exceed 10% of BNSF's total assets. BNSF will
furnish copies of any material instruments upon request of the
Securities and Exchange Commission.
10.1* Burlington Northern Santa Fe Non-Employee Directors' Stock Plan.
Incorporated by reference to Appendix A to BNSF's Proxy Statement
dated March 5, 1996. Amendment to Burlington Northern Santa Fe Non-
Employee Directors' Stock Plan dated January 16, 1997.
10.2* Burlington Northern Santa Fe Corporation 1987 Stock Option Incentive
Plan. Incorporated by reference to BNSF's Registration Statement on
Form S-8 (File No. 33-62833).
10.3* Burlington Northern Santa Fe Corporation Incentive Compensation Plan.
Incorporated by reference to BNSF's Registration Statement on Form S-8
(File No. 33-62835).
10.4* Burlington Northern Inc. Senior Executive Survivor Benefit Plan as of
April 1, 1986. Incorporated by reference to Amendment No. 1 to BNI's
Report on Form 10-K for the fiscal year ended December 31, 1987.
10.5* Burlington Northern Inc. Deferred Compensation Plan as amended
effective January 1, 1991. Incorporated by reference to Exhibit 10.5
to BNSF's Report on Form 10-K for the fiscal year ended December 31,
1995.
10.6* Burlington Northern Inc. Performance Share Unit Plan (1981) as of
January 1, 1988. Incorporated by reference to Amendment No. 1 to BNI's
Report on Form 10-K for the fiscal year ended December 31, 1987.
10.7* Burlington Northern Inc. 1987 Performance Share Unit Plan as of
January 1, 1988. Incorporated by reference to Amendment No. 1 to BNI's
Report on Form 10-K for the fiscal year ended December 31, 1987.
</TABLE>
- --------
*Management contract or compensatory plan or arrangement.
E-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.8* Burlington Northern Inc. Supplemental Benefits Plan (as amended and
restated effective September 21, 1995). Incorporated by reference to
Exhibit 10.8 to BNSF's Report on Form 10-K for the fiscal year ended
December 31, 1995.
10.9* 1989 Burlington Northern Inc. Restricted Stock Incentive Plan.
Incorporated by reference to BNI's Report on Form 10-K for the fiscal
year ended December 31, 1990.
10.10* Burlington Northern Santa Fe Corporation 1990 Directors Stock Option
Plan. Incorporated by reference to BNSF's Registration Statement on
Form S-8 (File No. 33-62825).
10.11* Burlington Northern Santa Fe Incentive Bonus Stock Program.
Incorporated by reference to Exhibit 10.11 to BNSF's Report on Form
10-K for the fiscal year ended December 31, 1995.
10.12* Burlington Northern Santa Fe Corporation 1992 Stock Option Incentive
Plan. Incorporated by reference to BNSF's Registration Statement on
Form S-8 (File No. 33-62839).
10.13* Burlington Northern Santa Fe 1996 Stock Incentive Plan. Incorporated
by reference to Appendix B to BNSF's Proxy Statement dated March 5,
1996.
10.14* Burlington Northern Santa Fe Supplemental Retirement Plan,
Incorporated by reference to Exhibit 10.1 to BNSF's Report on Form 10-
Q for the quarter ended September 30, 1996.
10.15* Burlington Northern Santa Fe Estate Enhancement Program, as amended
and restated effective October 1, 1996.
10.16* Agreement between BNSF and Robert D. Krebs dated as of January 30,
1997.
10.17* Form of BNSF Change-in-Control Agreement (which may be entered into by
all executive officers of BNSF, except for Mr. Krebs, and which would
replace any BNI or SFP change-in-control agreement currently held).
10.18* Employment Agreement by and between Burlington Northern Inc. and
Gregory T. Swienton. Incorporated by reference to Exhibit 10.23 to
BNI's Report on Form 10-K for the fiscal year ended December 31, 1994.
10.19* Burlington Northern Santa Fe Deferred Compensation Plan for Directors
as amended January 16, 1997.
10.20* Burlington Northern Inc. Nonqualified 401(k) Restoration Plan.
Incorporated by reference to Exhibit 10.20 to BNSF's Report on Form
10-K for the fiscal year ended December 31, 1995.
10.21* Burlington Northern Inc. Form of Severance Agreement and amendments
through September 18, 1995 (applicable to Messrs. Babb, Dagnon, Rose
and Swienton as of March 26, 1997). Incorporated by reference to
Exhibit 10.21 to BNSF's Report on Form 10-K for the fiscal year ended
December 31, 1995.
10.22* Burlington Northern Inc. Director's Charitable Award Program.
Incorporated by reference to Exhibit 10.22 to BNSF's Report on Form
10-K for the fiscal year ended December 31, 1995.
10.23* Burlington Northern Santa Fe Salary Exchange Option Program.
Incorporated by reference to Exhibit 10.23 to BNSF's Report on Form
10-K for the fiscal year ended December 31, 1995. Amendment to
Burlington Northern Santa Fe Salary Exchange Option Program dated
January 15, 1997.
10.24* Santa Fe Pacific Corporation Supplemental Retirement Plan
("Supplemental Plan"). Incorporated by reference to Exhibit 10(d) to
SFP's Report on Form 10-K for the fiscal year ended December 31, 1984.
Supplemental Plan as amended October 1, 1989, and Amendment to
Supplemental Plan dated February 27, 1990, are incorporated by
reference to Exhibit 10(d) to SFP's Report on Form 10-K for the fiscal
year ended December 31, 1989. Amendment to Supplemental Plan dated
March 22, 1994, and effective January 1, 1994, is incorporated by
reference to Exhibit 10.24 to BNSF's Report on Form 10-K for the
fiscal year ended December 31, 1995.
</TABLE>
- --------
*Management contract or compensatory plan or arrangement.
E-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.25* SFP Incentive Stock Compensation Plan. Incorporated by reference to
Exhibit 10(e) to SFP's Report on Form 10-K for the fiscal year ended
December 31, 1985. Amendments to SFP Incentive Stock Compensation Plan
dated May 28, 1987 and October 29, 1987 are incorporated by reference
to Exhibit 10(e) to SFP's Report on Form 10-K for the fiscal year
ended December 31, 1987. Amendments to SFP Incentive Stock
Compensation Plan dated March 8, 1989, June 8, 1989, and February 27,
1990 are incorporated by reference to Exhibit 10(e) to SFP's Report on
Form 10-K for the fiscal year ended December 31, 1989. Amendment to
SFP Incentive Stock Compensation Plan effective as of July 24, 1990 is
incorporated by reference to SFP's Report on Form 10-Q for the quarter
ended June 30, 1990. Amendment to SFP Incentive Stock Compensation
Plan dated December 4, 1990, is incorporated by reference to Exhibit
10(e) to SFP's Report on Form 10-K for the fiscal year ended December
31, 1990.
10.26* SFP Form of Severance Agreement dated November 2, 1987 (applicable to
Messrs. Hund, McInnes, Moreland, Schultz and Springer as of March 26,
1997), as adopted in May 1987 and amended in October 1987.
Incorporated by reference to Exhibit 10(j) to SFP's Report on
Form 10-K for the fiscal year ended December 31, 1987. Amendment to
Form of Severance Agreement dated July 24, 1990 is incorporated by
reference to SFP's Report on Form 10-Q for the quarter ended June 30,
1990. Amendment to Form of Severance Agreement adopted January 25,
1994 is incorporated by reference to Exhibit 10.1 to SFP's Report on
Form 10-Q for the quarter ended June 30, 1994. Amendment to Form of
Severance Agreement dated March 28, 1995 is incorporated by reference
to Exhibit 10.5 to SFP's Report on Form 10-K for the fiscal year ended
December 31, 1994.
10.27* Burlington Northern Santa Fe Directors' Retirement Plan. Incorporated
by reference to Exhibit 10.29 to BNSF's Report on Form 10-K for the
fiscal year ended December 31, 1995.
10.28* Benefits Protection Trust Agreement dated as of January 22, 1996 by
and between BNSF and Bankers Trust Company.
10.29* Retirement Benefit Agreement dated February 26, 1992 between SFP and
R. D. Krebs. Incorporated by reference to Exhibit 10(l) to SFP's
Report on Form 10-K for the fiscal year ended December 31, 1991.
10.30* Amended and Restated Trust Agreement dated as of April 1, 1994 by and
between SFP and The Bank of New York. Incorporated by reference to
Exhibit 10.32 to BNSF's Report on Form 10-K for the fiscal year ended
December 31, 1995.
10.31* Trust Agreement dated as of July 26, 1994 by and between SFP and The
Bank of New York. Incorporated by reference to Exhibit 10.33 to BNSF's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.32* The Atchison, Topeka and Santa Fe Railway Company Incentive
Compensation Plan. Incorporated by reference to Exhibit 10(n) to SFP's
Report on Form 10-K for the fiscal year ended December 31, 1991.
10.33* Burlington Northern Santa Fe Long Term Incentive Stock Plan.
Incorporated by reference to BNSF's Registration Statement on Form S-8
(File No. 33-63247).
10.34* Santa Fe Pacific Corporation Supplemental Retirement and Savings Plan.
Incorporated by reference to Exhibit 10(s) to SFP's Report on Form 10-
K for the fiscal year ended December 31, 1993.
10.35* Burlington Northern Santa Fe Incentive Stock Compensation Plan.
Incorporated by reference to BNSF's Registration Statement on Form S-8
(File No. 33-63253).
11 Computation of Earnings per Common Share.
</TABLE>
- --------
*Management contract or compensatory plan or arrangement.
E-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
12 Computation of Ratio of Earnings to Fixed Charges.
13 1996 Annual Report to Shareholders of BNSF (Consolidated Financial
Highlights on page 1, and pages 11-37, only).
21 Subsidiaries of BNSF.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Price Waterhouse LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
99 Santa Fe Pacific Pipeline Partners, L.P. Report on Form 10-K for the
fiscal year ended December 31, 1996 (sections in Item 3, Legal
Proceedings, under the headings "East Line Civil Litigation and FERC
Proceedings," "East Line Civil Litigation" and "FERC Proceedings,"
only).
</TABLE>
E-4
<PAGE>
==========================================================================
BURLINGTON NORTHERN SANTA FE CORPORATION
_____________________________________
$1,500,000,000
AMENDED AND RESTATED
FIVE-YEAR REVOLVING CREDIT AGREEMENT
Dated as of November 15, 1996
_____________________________________
CHASE SECURITIES INC.
and
J.P. MORGAN SECURITIES INC.,
as Co-Arrangers,
THE CHASE MANHATTAN BANK,
as Administrative Agent,
and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Documentation Agent
==========================================================================
<PAGE>
TABLE OF CONTENTS
Page
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SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . . . 17
SECTION 2. THE REVOLVING CREDIT LOANS . . . . . . . . . . . . . . . 18
2.1 The Commitments . . . . . . . . . . . . . . . . . . 18
2.2 Procedure for Revolving Credit Borrowing . . . . . 18
2.3 Repayment of Revolving Credit Loans . . . . . . . . 19
2.4 Commitment Increases . . . . . . . . . . . . . . . . 19
SECTION 3. THE MONEY MARKET LOANS . . . . . . . . . . . . . . . . . 20
3.1 Money Market Option . . . . . . . . . . . . . . . . 20
3.2 Money Market Quote Request . . . . . . . . . . . . 20
3.3 Invitation for Money Market Quotes . . . . . . . . 21
3.4 Submission and Contents of Money Market Quotes . . 21
3.5 Notice to Borrower . . . . . . . . . . . . . . . . . 22
3.6 Acceptance and Notice by Borrower . . . . . . . . . 23
3.7 Allocations . . . . . . . . . . . . . . . . . . . . 23
3.8 Certain Restrictions . . . . . . . . . . . . . . . . 24
3.9 Repayment of Money Market Loans . . . . . . . . . . 24
SECTION 4. CERTAIN PROVISIONS APPLICABLE TO
THE COMMITMENTS AND THE LOANS . . . . . . . . . . . . . 24
4.1 Fees . . . . . . . . . . . . . . . . . . . . . . . . 24
4.2 Minimum Borrowing Amounts . . . . . . . . . . . . . 24
4.3 Termination or Reduction of Commitments . . . . . . 24
4.4 Optional Prepayments; Mandatory Prepayments . . . . 25
4.5 Conversion and Continuation Options . . . . . . . . 25
4.6 Minimum Amounts of Tranches . . . . . . . . . . . . 26
4.7 Interest Rates and Payment Dates . . . . . . . . . 26
4.8 Computation of Interest and Fees . . . . . . . . . 27
4.9 Evidence of Debt . . . . . . . . . . . . . . . . . . 27
4.10 Basis for Determining Interest Rate Inadequate
or Unfair . . . . . . . . . . . . . . . . . . . . . 28
4.11 Illegality . . . . . . . . . . . . . . . . . . . . 29
4.12 Increased Cost and Reduced Return . . . . . . . . 29
4.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . 31
4.14 Base Rate Loans Substituted for Affected Eurodollar
Loans . . . . . . . . . . . . . . . . . . . . . . 34
4.15 Pro Rata Treatment and Payments . . . . . . . . . 34
4.16 Funding Losses . . . . . . . . . . . . . . . . . . 35
4.17 Replacement of Affected Lender . . . . . . . . . . 36
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SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . 36
5.1 Financial Condition . . . . . . . . . . . . . . . . 36
5.2 No Change . . . . . . . . . . . . . . . . . . . . . 37
5.3 Corporate Existence and Power . . . . . . . . . . . 37
5.4 Corporate and Governmental Authorization;
Non Contravention . . . . . . . . . . . . . . . . . 37
5.5 Binding Effect . . . . . . . . . . . . . . . . . . . 37
5.6 Litigation . . . . . . . . . . . . . . . . . . . . . 37
5.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . 38
5.8 Federal Regulations . . . . . . . . . . . . . . . . 38
5.9 ERISA . . . . . . . . . . . . . . . . . . . . . . . 38
5.10 Not an Investment Company . . . . . . . . . . . . 38
5.11 Subsidiaries . . . . . . . . . . . . . . . . . . . 38
5.12 Environmental Matters . . . . . . . . . . . . . . 39
5.13 Full Disclosure . . . . . . . . . . . . . . . . . . 39
5.14 Limitation on Subsidiary Restrictions . . . . . . 39
SECTION 6. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . 39
6.1 Conditions to Closing Date . . . . . . . . . . . . 39
6.2 Conditions to Each Loan . . . . . . . . . . . . . . 41
SECTION 7. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . 41
7.1 Information . . . . . . . . . . . . . . . . . . . . 41
7.2 Maintenance of Properties; Insurance . . . . . . . 44
7.3 Conduct of Business and Maintenance of Existence . . 44
7.4 Compliance with Laws . . . . . . . . . . . . . . . . 45
7.5 Use of Proceeds . . . . . . . . . . . . . . . . . . 45
7.6 Maintenance of Ownership of Railroads . . . . . . . 45
SECTION 8. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . 45
8.1 Financial Condition Covenants . . . . . . . . . . . 45
8.2 Limitation on Debt . . . . . . . . . . . . . . . . . 45
8.3 Limitation on Liens . . . . . . . . . . . . . . . . 46
8.4 Consolidations, Mergers and Sale of Assets . . . . 47
8.5 Limitation on Transactions with Affiliates . . . . 48
8.6 Limitation on Subsidiary Restrictions . . . . . . . 48
SECTION 9. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . 48
9.1 Events of Default . . . . . . . . . . . . . . . . . 48
9.2 Notice of Default . . . . . . . . . . . . . . . . . 51
SECTION 10. THE AGENTS . . . . . . . . . . . . . . . . . . . . . . . 51
10.1 Appointment and Authorization . . . . . . . . . . 51
10.2 Agents and Affiliates . . . . . . . . . . . . . . 51
10.3 Action by Agents . . . . . . . . . . . . . . . . . 51
10.4 Consultation with Experts; Delegation of Duties . . 52
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10.5 Liability of Agents . . . . . . . . . . . . . . . . 52
10.6 Indemnification of Agents . . . . . . . . . . . . 52
10.7 Credit Decision . . . . . . . . . . . . . . . . . . 53
10.8 Successor Agents . . . . . . . . . . . . . . . . . 53
10.9 The Co-Arrangers. . . . . . . . . . . . . . . . . . 53
SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 53
11.1 Amendments and Waivers . . . . . . . . . . . . . . 53
11.2 Notices . . . . . . . . . . . . . . . . . . . . . . 54
11.3 No Waiver; Cumulative Remedies . . . . . . . . . . 55
11.4 Survival of Representations and Warranties . . . . 55
11.5 Expenses . . . . . . . . . . . . . . . . . . . . . 55
11.6 Successors and Assigns . . . . . . . . . . . . . . 56
11.7 Indemnification by the Borrower . . . . . . . . . 57
11.8 Adjustments . . . . . . . . . . . . . . . . . . . . 58
11.9 Counterparts . . . . . . . . . . . . . . . . . . . 58
11.10 Severability . . . . . . . . . . . . . . . . . . . 58
11.11 Integration . . . . . . . . . . . . . . . . . . . 59
11.12 GOVERNING LAW . . . . . . . . . . . . . . . . . . 59
11.13 Submission To Jurisdiction; Waivers . . . . . . . 59
11.14 Acknowledgments . . . . . . . . . . . . . . . . . 59
11.15 Certain Existing Lenders . . . . . . . . . . . . 60
11.16 WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . 60
SCHEDULES:
Schedule I Bank Names, Addresses and Commitments
Schedule II Existing Debt
Schedule III Certain Litigation and Environmental Matters
EXHIBITS:
Exhibit A Form of Money Market Quote Request
Exhibit B Form of Invitation for Money Market Quotes
Exhibit C Form of Money Market Quote
Exhibit D Form of Notice of Money Market Borrowing
Exhibit E-1 Form of Opinion of Mayer, Brown & Platt
Exhibit E-2 Form of Opinion of General Counsel
Exhibit E-3 Form of Opinion of Simpson Thacher & Bartlett
Exhibit F Form of Assignment and Acceptance
Exhibit G-1 Form of Revolving Credit Note
Exhibit G-2 Form of Money Market Note
Exhibit H Form of New Lender Supplement
Exhibit I Form of Commitment Increase Supplement
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<PAGE>
AMENDED AND RESTATED FIVE-YEAR REVOLVING CREDIT AGREEMENT, dated
as of November 15, 1996, among:
(i) BURLINGTON NORTHERN SANTA FE CORPORATION, a
Delaware corporation (the "Borrower");
(ii) the several banks and other financial
institutions from time to time parties to this Agreement as Lenders (the
"Lenders");
(iii) CHASE SECURITIES INC. and J.P. MORGAN
SECURITIES INC., as Co-Arrangers (in such capacity, the "Co-
Arrangers");
(iv) THE CHASE MANHATTAN BANK, as Administrative
Agent (in such capacity, the "Administrative Agent"); and
(v) MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Documentation Agent (in such capacity, the "Documentation Agent").
W I T N E S S E T H :
-------------------
WHEREAS, the Borrower wishes to amend and restate its Five-Year
Revolving Credit Agreement, dated as of November 21, 1995 (the "Existing
Credit Agreement"), among the Borrower, the Lenders, the Co-Arrangers,
the Administrative Agent and the Documentation Agent;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto hereby agree that
the Existing Credit Agreement is amended and restated in its entirety,
effective as of the Closing Date, as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"Absolute Rate Auction": a solicitation of Money
Market Quotes setting forth Money Market Absolute Rates
pursuant to Section 3.
"Accounts Receivable Financing": any transaction or
series of transactions that may be entered into by the Borrower
or any of its Subsidiaries pursuant to which the Borrower or
any of its Subsidiaries may sell, convey or otherwise transfer,
or may grant a security interest in, Receivables Program Assets
(it being understood that such
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2
transaction or transactions may, or may not, be recorded as
liabilities on the consolidated balance sheet of the Borrower).
"Accounts Receivable Financing Amount": with respect
to any Accounts Receivable Financing and without duplication,
the outstanding principal amount of obligations referred to in
clause (a) of the definition of Receivables Program
Obligations.
"Administrative Agent": as defined in the Preamble to
this Agreement.
"Administrative Questionnaire": with respect to each
Lender, an administrative questionnaire in the form prepared by
the Administrative Agent and submitted to the Administrative
Agent (with a copy to the Borrower) duly completed by such
Lender.
"Affected Lender" means any Lender (i) that has
demanded compensation under subsection 4.12 or 4.13 or (ii)
whose obligation to make Eurodollar Loans has been suspended
pursuant to subsection 4.11.
"Affiliate": each Controlling Person and each Person
(other than the Borrower or a Subsidiary) that is controlled by
or is under common control with a Controlling Person.
"Agents": the collective reference to the
Administrative Agent and the Documentation Agent.
"Agreement": this Amended and Restated $1,500,000,000
Five-Year Revolving Credit Agreement, as amended, supplemented
or otherwise modified from time to time.
"Applicable Lending Office": with respect to any
Lender, (a) in the case of its Base Rate Loans, its Domestic
Lending Office, (b) in the case of its Eurodollar Loans, its
Eurodollar Lending Office and (c) in the case of its Money
Market Loans, its Money Market Lending Office.
"Applicable Margin": for any Revolving Credit Loan on
any day, (a) in the case of Base Rate Loans, 0% and (b) in the
case of Eurodollar Loans, the rate per annum set forth below
opposite the applicable Rating in effect on such day:
Rating Applicable Margin
------ -----------------
Rating I .13%
Rating II .175
Rating III .185
Rating IV .215
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Rating V .30
Rating VI .45
; provided, that if on any day more than one Rating would be
applicable, the Applicable Margin shall be determined on the
basis of the higher of such Ratings (i.e., the Rating having
the lower numerical designation), unless such higher Rating is
more than one Rating category higher than the lower of such
Ratings, in which event the Applicable Margin will be
determined on the basis of the median Rating (or the higher of
the intermediate Ratings if there is no median Rating).
"Assignee": as defined in subsection 11.6(c).
"Assignment and Acceptance": each Assignment and
Acceptance, substantially in the form of Exhibit F, delivered
pursuant to subsection 11.6(c).
"Base Rate": for any day, a rate per annum equal to
the higher of (a) the Prime Rate for such day and (b) the sum
of 1/2 of 1% plus the Federal Funds Rate for such day.
"Base Rate Loan": a Revolving Credit Loan bearing
interest based upon the Base Rate in accordance with this
Agreement.
"Benefitted Lender": defined in subsection 11.8.
"Borrower": as defined in the Preamble to this
Agreement.
"Borrowing Date": any Domestic Business Day or
Eurodollar Business Day, as the case may be, specified in a
notice pursuant to subsection 2.2 or 3.2 as a date on which the
Borrower requests the Lenders to make Loans hereunder.
"Burlington Northern Railroad": Burlington Northern
Railroad Company, a Delaware corporation, and its successors.
"Change of Control": a Change of Control shall be
deemed to occur (a) if a "person" (including any syndicate or
group deemed to be a "person" under Sections 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) of more than 30% of the then
outstanding voting stock of the Borrower; or (b) if the
majority of the Board of Directors of the Borrower shall not be
Continuing Directors of the Borrower. For purposes of this
definition, "Continuing Directors" means, as of any date and
with respect to any Person, (i) individuals who on the date one
year prior to such date were members of such Person's Board of
Directors and (ii) any new Directors whose nomination for
election by such Person's shareholders was approved by a vote
of at least a majority of the Directors then still in office
who either were
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4
Directors on the date one year prior to such date or whose
nomination for election was previously so approved.
"Closing Date": the date on which the conditions
precedent set forth in subsection 6.1 shall be satisfied.
"Co-Arrangers": as defined in the Preamble to this
Agreement.
"Committed Credit Facility": any credit facility
pursuant to which the lenders parties thereto have committed,
subject to the conditions set forth therein, to make loans or
extend other credit to the Borrower and/or any Material
Subsidiary.
"Commitment": as to any Lender, the obligation of such
Lender to make Revolving Credit Loans to the Borrower hereunder
in an aggregate principal amount at any one time outstanding
not to exceed the amount set forth opposite such Lender's name
under the column "Commitment" on Schedule I (or such portion
thereof assigned to such Lender pursuant to subsection 11.6),
as such amount may be changed from time to time in accordance
with the provisions of this Agreement.
"Commitment Increase Notice": as defined in subsection
2.4(a).
"Commitment Percentage": as to any Lender at any time,
the percentage which such Lender's Commitment then constitutes
of the aggregate Commitments (or, at any time after all the
Commitments shall have expired or terminated, the percentage
which the aggregate principal amount of such Lender's Loans
then outstanding constitutes of the aggregate principal amount
of the Loans then outstanding).
"Commitment Period": the period from and including the
Closing Date to and including November 15, 2001.
"Consolidated Subsidiary": at any date, any Subsidiary
or other entity the accounts of which are consolidated with
those of the Borrower in its consolidated financial statements
prepared in accordance with GAAP as of such date.
"Consolidated Tangible Net Worth": at any date, the
consolidated stockholders' equity of the Borrower and its
Consolidated Subsidiaries less their consolidated Intangible
Assets, all as included in a balance sheet prepared in
accordance with GAAP as of such date; for purposes of this
definition, "Intangible Assets" means the amount (to the extent
reflected in such balance sheet) of (a) all write-ups (other
than write-ups resulting from foreign currency translations and
write-ups of assets of a going concern business made within
twelve months after the acquisition of such business)
subsequent to September 30, 1995 in the book value of any asset
owned by the Borrower or a Consolidated Subsidiary, (b) all
investments in unconsolidated Subsidiaries, (c) all equity
investments in Persons (other than Pipeline Partners and TTX
Company) that are not Subsidiaries to the extent that the
aggregate amount of all
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5
such investments exceeds $50,000,000, and (d) all unamortized
debt issuance costs, goodwill, patents, trademarks, service
marks, trade names, copyrights, organization or developmental
expenses and other intangible assets (other than unamortized
debt discount).
"Consolidated Total Capital": at any date, the sum of
(i) Consolidated Total Debt at such date and (ii) Consolidated
Tangible Net Worth at such date.
"Consolidated Total Debt": the aggregate amount of all
Debt of the Borrower and its Consolidated Subsidiaries, plus
all related unamortized debt discount, plus any Accounts
Receivable Financing Amount, determined on a consolidated basis
in accordance with GAAP; provided that there shall not be
counted for purposes of determining Consolidated Total Debt (i)
any Debt of Pipeline Partners for which a Subsidiary is liable
solely by virtue of being a general partner of such debtor and
(ii) the Accounts Receivable Financing Amount of up to
$350,000,000 in respect of Receivables Program Obligations that
do not constitute Debt.
"Controlling Person": any Person that is in control of
the Borrower (such control being the power to direct or cause a
direction of the management and policies of the Borrower,
whether through the ownership of voting stock, by contract or
otherwise), but the mere holding of a position as an officer or
a director of the Borrower shall not, in the absence of other
factors, cause a Person to be a Controlling Person.
"Crow Judgment": the judgment in effect on the date
hereof in respect of the case styled Estates of Red Wolf, Red
Horse and Bull Tail v. Burlington Northern Railroad Company,
Case No. 94-31 in the Crow Tribal Court.
"Debt": of any Person at any date, without
duplication, (a) all obligations of such Person for borrowed
money, (b) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (c) all accrued
obligations of such Person to pay the deferred purchase price
of property or services, except (i) any obligation with respect
to an asset the purchase price of which does not exceed
$50,000, (ii) any obligation arising in the ordinary course of
business and payable in full in less than one year and (iii)
accounts payable or accrued expenses arising in the ordinary
course of business and payable in full in less than one year,
(d) all lease obligations of such Person as lessee which would
be capitalized in accordance with GAAP, (e) all Debt of others
secured by a Lien on any asset of such Person, whether or not
such Debt is otherwise an obligation of such Person (but only
to the extent of the fair market value of the asset subject to
such Lien), (f) all obligations of such Person in respect of
acceptances issued or created for the account of such Person
and all obligations of such Person which have become due and
payable to reimburse the issuing bank or other Person in
respect of a letter of credit or similar instrument issued for
such Person's account, (g) any obligations of the Borrower or
any Subsidiary under Receivables Documents to repurchase or
otherwise insure the collectability of
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6
Receivables Program Assets other than (i) any such obligations
for breach of warranty claims and (ii) any such obligations
under expense reimbursement provisions, indemnity provisions
and interest and yield protection provisions and (h) all
obligations of others of the character described in the
foregoing clauses (a) through (g) Guaranteed by such Person
(but only to the extent of the maximum liability of such Person
under such Guarantee).
"Default": any of the events specified in Section 9,
whether or not any requirement for the giving of notice, the
lapse of time, or both, or any other condition, has been
satisfied.
"Disposition": the sale, assignment, lease, exchange,
transfer or other disposition of any asset, other than
equipment or materials which are unfit or undesirable for use
by the Borrower and its Subsidiaries and disposed of in the
ordinary course of business; and "Dispose" shall be the verb
form of such term.
"Documentation Agent": as defined in the Preamble to
this Agreement.
"Dollars" and "$": dollars in lawful currency of the
United States of America.
"Domestic Business Day": any day except a Saturday,
Sunday or other day on which commercial banks in New York City
or Chicago are authorized by law to close.
"Domestic Lending Office": as to each Lender, its
office located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative
Questionnaire as its Domestic Lending Office) or such other
office as such Lender may hereafter designate as its Domestic
Lending Office by notice to the Borrower and the Administrative
Agent.
"Environmental Laws": any and all applicable federal,
state, local and foreign statutes, laws, judicial decisions,
regulations, ordinances, rules, judgments, orders, decrees,
injunctions, permits, concessions, grants, franchises,
licenses, governmental agreements and other restrictions
relating to the environment, the effect of the environment on
human health or to emissions, discharges or releases of
pollutants, contaminants, or Hazardous Substances or wastes
into the environment including, without limitation, ambient
air, surface water, ground water, or land, or otherwise
relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of
pollutants, contaminants, or Hazardous Substances or wastes or
the clean-up or other remediation thereof.
"ERISA": the Employee Retirement Income Security Act
of 1974, as amended, or any successor statute.
"ERISA Group": the Borrower, any Subsidiary and all
members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) under
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7
common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414
of the Internal Revenue Code.
"Eurodollar Business Day": any Domestic Business Day
on which commercial banks are open for international business
(including dealings in Dollar deposits) in London.
"Eurodollar Lending Office": as to each Lender, its
office, branch or affiliate located at its address set forth in
its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Eurodollar Lending Office)
or such other office, branch or affiliate of such Lender as it
may hereafter designate as its Eurodollar Lending Office by
notice to the Borrower and the Administrative Agent.
"Eurodollar Loans": Revolving Credit Loans bearing
interest based upon the Eurodollar Rate in accordance with this
Agreement.
"Eurodollar Rate": for any Interest Period in respect
of Eurodollar Loans or Money Market LIBOR Loans, the average
(rounded upward, if necessary, to the next higher 1/16 of 1%)
of the respective rates per annum at which deposits in Dollars
are offered by each of the Reference Lenders to prime banks in
the London interbank market at approximately 11:00 A.M., London
time, two Eurodollar Business Days before the first day of such
Interest Period, for a period of time comparable to such
Interest Period.
"Event of Default": any of the events specified in
Section 9, provided that any requirement for the giving of
notice, the lapse of time, or both, or any other condition, has
been satisfied.
"Existing Credit Agreement": as defined in the
recitals hereto.
"Facility Fee Calculation Amount": as to any Lender on
any date, the sum of (a) the outstanding principal amount of
such Lender's Revolving Credit Loans on such date and (b) the
undrawn amount of such Lender's Commitment. In calculating the
"undrawn" amount of any Lender's Commitment for purposes of
clause (b) of this definition, any reduction in the actual
availability of such Lender's Commitment caused by outstanding
Money Market Loans shall be disregarded.
"Facility Fee Rate": on any day, the rate per annum
set forth below opposite the applicable Rating in effect on
such day:
Rating Facility Fee Rate
------ -----------------
Rating I .07%
Rating II .075
Rating III .09
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8
Rating IV .11
Rating V .15
Rating VI .225
; provided, that if on any day more than one Rating would be
applicable, the Facility Fee Rate shall be determined on the
basis of the higher of such Ratings (i.e., the Rating having
the lower numerical designation), unless such higher Rating is
more than one Rating category higher than the lower of such
Ratings, in which event the Facility Fee Rate will be
determined on the basis of the median Rating (or the higher of
the intermediate Ratings if there is no median Rating).
"Federal Funds Rate": for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100th of 1%)
equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Domestic Business
Day next succeeding such day, provided that (a) if such day is
not a Domestic Business Day, the Federal Funds Rate for such
day shall be such rate on such transactions on the next
preceding Domestic Business Day as so published on the next
succeeding Domestic Business Day, and (b) if no such rate is so
published on such next succeeding Domestic Business Day, the
Federal Funds Rate for such day shall be the average rate
quoted to The Chase Manhattan Bank on such day on such
transactions as determined by the Administrative Agent.
"GAAP": generally accepted accounting principles as
defined and determined in accordance with subsection 1.2(b).
"Guarantee": by any Person, any obligation, contingent
or otherwise, of such Person directly or indirectly
guaranteeing any Debt or other obligation of any other Person
and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of
such Person (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by
agreement to keep-well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of
assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part), provided
that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Hazardous Substances": any toxic, radioactive,
caustic or otherwise hazardous substance, including petroleum,
its derivatives, by-products and other hydrocarbons, or any
substance having any constituent elements displaying any of the
foregoing characteristics.
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9
"Interest Payment Date": (a) as to any Base Rate Loan,
the last day of each March, June, September and December, (b)
as to any Eurodollar Loan having an Interest Period of three
months or less, the last day of such Interest Period, (c) as to
any Eurodollar Loan having an Interest Period longer than three
months, each day which is three months, or a whole multiple
thereof, after the first day of such Interest Period and the
last day of such Interest Period, (d) as to any Money Market
Loan having an Interest Period of three months or 90 days, as
the case may be, or less, the last day of such Interest Period
and (e) as to any Money Market Loan having an Interest Period
longer than three months or 90 days, as the case may be, each
day which is three months, or a whole multiple thereof, after
the first day of such Interest Period and the last day of such
Interest Period.
"Interest Period": (a) with respect to any Eurodollar
Loan:
(i) in respect of any Revolving Credit
Loan borrowed as or converted into a Eurodollar Loan,
the period commencing on the borrowing or conversion
date, as the case may be, with respect to such
Eurodollar Loan and ending one, two, three or six
months thereafter (or such shorter period requested by
the Borrower and approved by the Administrative Agent
and the Required Lenders), as selected (or requested)
by the Borrower in its Notice of Revolving Credit
Borrowing or Notice of Eurodollar Conversion, as the
case may be, given with respect thereto; and
(ii) in respect of any Eurodollar Loan
continued as a Eurodollar Loan for a subsequent
Interest Period, each period commencing on the last day
of the next preceding Interest Period applicable to
such Eurodollar Loan and ending one, two, three or six
months thereafter (or such shorter period requested by
the Borrower and approved by the Administrative Agent
and the Required Lenders), as selected (or requested)
by the Borrower in its Notice of Eurodollar
Continuation given with respect thereto;
provided, that all of the foregoing provisions relating to
Interest Periods in respect of Eurodollar Loans are subject to
the following:
(A) if any Interest Period pertaining to a
Eurodollar Loan would otherwise end on a day that is
not a Eurodollar Business Day, such Interest Period
shall be extended to the next succeeding Eurodollar
Business Day unless the result of such extension would
be to carry such Interest Period into another calendar
month, in which event such Interest Period shall end on
the immediately preceding Eurodollar Business Day;
(B) any Interest Period in respect of any
Eurodollar Loan that would otherwise extend beyond the
Termination Date shall end on the Termination Date; and
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10
(C) any Interest Period pertaining to a
Eurodollar Loan that begins on the last Eurodollar
Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the
calendar month at the end of such Interest Period)
shall, subject to clause (B) above, end on the last
Eurodollar Business Day of a calendar month;
(b) with respect to each Money Market LIBOR Loan, the
period commencing on the date of such Loan specified in the
applicable Notice of Money Market Borrowing and ending such
whole number of months thereafter as the Borrower may elect in
accordance with Section 3; provided, that all of the foregoing
provisions relating to Interest Periods in respect of Money
Market LIBOR Loans are subject to the following:
(i) any Interest Period pertaining to a
Money Market LIBOR Loan that would otherwise end on a
day that is not a Eurodollar Business Day shall be
extended to the next succeeding Eurodollar Business Day
unless such Eurodollar Business Day falls in another
calendar month, in which case such Interest Period
shall end on the next preceding Eurodollar Business
Day;
(ii) any Interest Period pertaining to a
Money Market LIBOR Loan that begins on the last
Eurodollar Business Day of a calendar month (or on a
day for which there is no numerically corresponding day
in the calendar month at the end of such Interest
Period) shall, subject to clause (iii) below, end on
the last Eurodollar Business Day of a calendar month;
and
(iii) any Interest Period in respect of any
such Money Market Loan that would otherwise end after
the Termination Date shall end on the Termination Date;
and
(c) with respect to each Money Market Absolute Rate
Loan, the period commencing on the date of such Loan specified
in the applicable Notice of Money Market Borrowing and ending
such number of days thereafter (but not less than 1 nor more
than 365 days) as the Borrower may elect in accordance with
Section 3; provided, that all of the foregoing provisions
relating to Interest Periods in respect of Money Market
Absolute Rate Loans are subject to the following:
(i) any Interest Period pertaining to a
Money Market Absolute Rate Loan that would otherwise
end on a day that is not a Eurodollar Business Day
shall be extended to the next succeeding Eurodollar
Business Day; and
(ii) any Interest Period in respect of
any such Money Market Loan that would otherwise end
after the Termination Date shall end on the Termination
Date.
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11
"Interest Rate Agreement": an interest rate protection
agreement, interest rate future, interest rate option, interest
rate cap or other interest rate hedge arrangement, providing to
the Borrower protection against increases in interest rates.
"Internal Revenue Code": the Internal Revenue Code of
1986, as amended, or any successor statute.
"Invitation for Money Market Quotes": each request by
the Borrower, delivered by the Administrative Agent, for
Lenders to submit bids to make Money Market Loans, which shall
contain the information in respect of such requested Money
Market Loans specified in Exhibit B and shall be delivered to
the Lenders in writing, by telecopy, or by telephone,
immediately confirmed by telecopy.
"Lenders": as defined in the Preamble to this
Agreement; such term shall include Lenders that are parties to
this Agreement on the date hereof and Lenders that become
parties to this Agreement pursuant to subsection 11.6(c) or
subsection 2.4.
"LIBOR Auction": a solicitation of Money Market Quotes
setting forth Money Market Margins based on the Eurodollar Rate
pursuant to Section 3.
"Lien": any mortgage, pledge, hypothecation,
assignment (to the extent such assignment is intended to secure
an obligation of any Person), encumbrance, lien (statutory or
other), charge or other security interest or any preference,
priority or other security agreement or, if they have the same
economic effect as any of the foregoing, any preferential
arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title
retention agreement and any capitalized lease).
"Loan": any loan made by any Lender pursuant to this
Agreement.
"Material Plan": at any time a Plan or Plans having
aggregate Unfunded Liabilities in excess of $20,000,000.
"Material Subsidiary": Burlington Northern Inc.,
Burlington Northern Railroad, Santa Fe Pacific Corporation,
Santa Fe Railroad, BN Leasing Corporation and any other
Subsidiary of the Borrower the consolidated assets of which, as
would be shown in a consolidated balance sheet as at the last
day of its most recently ended fiscal year determined in
accordance with GAAP, are in excess of 5% of Consolidated
Tangible Net Worth as of the last day of the most recently
ended fiscal year, provided that notwithstanding the foregoing,
neither SFP Pipeline Holdings, Inc. or any of its Subsidiaries
nor Santa Fe Receivables Corporation shall be deemed to be a
Material Subsidiary. Unless otherwise specified, references in
this Agreement to "Material Subsidiary" shall be references to
a Material Subsidiary of the Borrower.
"Money Market Absolute Rate": as defined in subsection
3.4(b)(iv).
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12
"Money Market Absolute Rate Loan": a Loan to be made
by a Lender pursuant to an Absolute Rate Auction.
"Money Market Lending Office": as to each Lender, its
Domestic Lending Office or such other office, branch or
affiliate of such Lender as it may hereafter designate as its
Money Market Lending Office by notice to the Borrower and the
Administrative Agent; provided that any Lender may from time to
time by notice to the Borrower and the Administrative Agent
designate separate Money Market Lending Offices for its Money
Market LIBOR Loans, on the one hand, and its Money Market
Absolute Rate Loans, on the other hand, in which case all
references herein to the Money Market Lending Office of such
Lender shall be deemed to refer to either or both of such
offices, as the context may require.
"Money Market LIBOR Loan": a Loan to be made by a
Lender pursuant to a LIBOR Auction (including such a loan
bearing interest at the Base Rate pursuant to clause (ii) of
the last sentence of subsection 4.10).
"Money Market Loan": a Money Market LIBOR Loan or a
Money Market Absolute Rate Loan.
"Money Market Margin": as defined in subsection
3.4(b)(iii).
"Money Market Note": as defined in subsection 4.9(d).
"Money Market Quote": each offer by a Lender to make
Money Market Loans pursuant to an Invitation for Money Market
Quotes, which Money Market Quote shall contain the information
specified in Exhibit C and shall be delivered to the
Administrative Agent by telecopy.
"Money Market Quote Request": each request by the
Borrower for Lenders to submit bids to make Money Market Loans,
which shall contain the information in respect of such
requested Money Market Loans specified in Exhibit A and shall
be delivered to the Administrative Agent by telecopy.
"Moody's": Moody's Investors Service, Inc.
"Moody's Rating": for any day, the rating of the
Borrower's senior unsecured, non-credit-enhanced debt by
Moody's in effect at 9:00 A.M., New York City time, on such
day; provided, that if such debt of the Borrower shall not be
rated by such rating agency, such Rating shall be such rating
agency's counterparty or similar rating specifically assigned
by such rating agency to the Borrower. If Moody's shall have
changed its system of classifications after the date hereof,
the Moody's Rating shall be considered to be at or above a
specified level if it is at or above the new rating which most
closely corresponds to the specified level under the old rating
system.
<PAGE>
13
"Multiemployer Plan": at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA
to which (a) any member of the ERISA Group is then making or
accruing an obligation to make contributions or (b) any Person,
who was at the time of such contribution a member of the ERISA
Group, has within the preceding five plan years made
contributions.
"New Lender": as defined in subsection 2.4(b).
"Notes": the collective reference to the Revolving
Credit Notes and the Money Market Notes.
"Notice of Base Rate Conversion": as defined in
subsection 4.5(a); each such notice shall be delivered in
writing or by telecopy and shall specify the principal amount
of the Eurodollar Loans being converted to Base Rate Loans
pursuant thereto.
"Notice of Eurodollar Continuation": as defined in
subsection 4.5(b); each such notice shall be delivered in
writing or by telecopy and shall specify the length or lengths
of the Interest Periods to be applicable to the Eurodollar
Loans being continued pursuant thereto.
"Notice of Eurodollar Conversion": as defined in
subsection 4.5(a); each such notice shall be delivered in
writing or by telecopy and shall specify the principal amount
of Base Rate Loans being converted to Eurodollar Loans pursuant
thereto and the length or lengths of the initial Interest
Period(s) applicable thereto.
"Notice of Money Market Borrowing": each confirmation
by the Borrower of its acceptance of Money Market Quotes, which
Notice of Money Market Borrowing shall be substantially in the
form of Exhibit D and shall be delivered to the Administrative
Agent by telecopy.
"Notice of Revolving Credit Borrowing": an irrevocable
notice from the Borrower, delivered pursuant to subsection 2.2,
requesting the Lenders to make Revolving Credit Loans; each
such notice shall be delivered in writing or by telecopy and
shall specify (i) the amount of such Loans, (ii) whether such
Loans are to be initially Eurodollar Loans, Base Rate Loans or
a combination thereof, and (iii) if such Loans are to be
entirely or partly Eurodollar Loans, the respective amounts of
each such Type of Loan and the length of the initial Interest
Period for such Eurodollar Loans.
"Offered Increase Amount": as defined in subsection
2.4(a).
"Participant": as defined in subsection 11.6(b).
"PBGC": the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under
ERISA.
<PAGE>
14
"Person": an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other
entity of whatever nature.
"Pipeline Partners": Santa Fe Pacific Pipeline
Partners, L.P., a Delaware limited partnership.
"Plan": at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV
of ERISA or subject to the minimum funding standards under
Section 412 of the Internal Revenue Code and either (i) is
maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at
any time within the preceding five years been maintained, or
contributed to, by any Person which was at the time of such
maintenance or contribution a member of the ERISA Group for
employees of any Person which was at such time a member of the
ERISA Group.
"Prime Rate": the rate of interest publicly announced
from time to time by The Chase Manhattan Bank as its prime rate
at its principal office in New York City.
"Rating": as applicable, Rating I, Rating II, Rating
III, Rating IV, Rating V or Rating VI.
"Rating I": applies on any day on which the S&P Rating
is at or above A and the Moody's Rating is at or above A2.
"Rating II": applies on any day on which (i) the S&P
Rating is A- or above or the Moody's Rating is A3 or above and
(ii) Rating I does not apply.
"Rating III": applies on any day on which the S&P
Rating is BBB+ or the Moody's Rating is Baa1.
"Rating IV": applies on any day on which the S&P
Rating is BBB or the Moody's Rating is Baa2.
"Rating V": applies on any day on which the S&P Rating
is BBB- or the Moody's Rating is Baa3.
"Rating VI": applies on any day on which none of
Rating I, Rating II, Rating III, Rating IV or Rating V applies
(including, without limitation, any day on which there is no
Moody's Rating and no S&P Rating).
"Re-Allocation Date": as defined in subsection 2.4(d).
"Receivables Documents": a receivables purchase
agreement entered into by the Borrower, a Selling Subsidiary
and/or a Receivables Subsidiary and each other
<PAGE>
15
instrument, agreement and other document entered into by the
Borrower or any Selling Subsidiary or Receivables Subsidiary
relating to the transactions contemplated by such receivables
purchase agreement, including but not limited to the transfer
of the Receivables Program Assets by the Borrower and the
Selling Subsidiaries pursuant to such receivables purchase
agreement.
"Receivables Program Assets": (a) all rights of the
Borrower or any Selling Subsidiary to payments (whether
constituting accounts, chattel paper, instruments, general
intangibles or otherwise, and including the right to payment of
any interest or finance charges) which are transferred by the
Borrower, a Selling Subsidiary or a Receivables Subsidiary
pursuant to the Receivables Documents, (b) all rights, title
and interest of the Borrower, a Selling Subsidiary or a
Receivables Subsidiary in goods relating to a sale that gave
rise to such rights to payment, (c) security interests or liens
(and the property subject thereto) purporting to secure such
rights to payment, (d) all guaranties and other agreements or
arrangements of whatever character from time to time supporting
such rights to payment, (e) lock-boxes and bank accounts of the
Borrower, any Selling Subsidiary or a Receivables Subsidiary in
which proceeds of any of the foregoing are held, and all
investments from such accounts and other claims and rights in
connection therewith, (f) rights and interests of a Receivables
Subsidiary under Receivables Documents, and (g) all collections
(including recoveries) and other proceeds of the assets
described in the foregoing clauses.
"Receivables Program Obligations": (a) notes, trust
certificates, undivided interests, partnership interests or
other interests representing the right to be paid a specified
principal amount from the Receivables Program Assets, and (b)
related obligations of the Borrower, a Subsidiary or a Special
Purpose Vehicle (including, without limitation, rights in
respect of interest or yield, breach of warranty claims and
expense reimbursement and indemnity provisions).
"Receivables Subsidiary": a special purpose
Wholly-Owned Subsidiary created in connection with the
transactions contemplated by an Accounts Receivable Financing,
which Subsidiary engages in no activities other than those
incidental to such Accounts Receivable Financing.
"Reference Lenders": The Chase Manhattan Bank, Morgan
Guaranty Trust Company of New York and Union Bank of
Switzerland.
"Register": as defined in subsection 11.6(f).
"Regulation G": Regulation G of the Board of Governors
of the Federal Reserve System as in effect from time to time.
"Regulation U": Regulation U of the Board of Governors
of the Federal Reserve System as in effect from time to time.
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16
"Required Lenders": at any time Lenders the Commitment
Percentages of which aggregate at least 51%.
"Revolving Credit Loans": as defined in subsection
2.1.
"Revolving Credit Note": as defined in subsection 4.9(d).
"S&P": Standard & Poor's Ratings Group.
"S&P Rating": for any day, the rating of the
Borrower's senior unsecured, non credit-enhanced debt by S&P in
effect at 9:00 A.M., New York City time, on such day; provided,
that if such debt of the Borrower shall not be rated by such
rating agency, such Rating shall be such rating agency's
counterparty or similar rating specifically assigned by such
rating agency to the Borrower. If S&P shall have changed its
system of classifications after the date hereof, the S&P Rating
shall be considered to be at or above a specified level if it
is at or above the new rating which most closely corresponds to
the specified level under the old rating system.
"Santa Fe Railroad": The Atchison, Topeka and Santa Fe
Railway Company, a Delaware corporation, and its successors.
"Selling Subsidiary": any Subsidiary other than a
Receivables Subsidiary which is a party to a Receivables
Document.
"Special Purpose Vehicle": a trust, partnership or
other special purpose Person established by the Borrower and/or
its Subsidiaries to implement an Accounts Receivable Financing.
"Specified Obligations": with respect to any Person,
the collective reference to (a) the Debt of such Person and (b)
the obligations of such Person to make payments to
counterparties under Interest Rate Agreements in the event of
the occurrence of a termination event thereunder.
"Subsidiary": any corporation or other entity of which
securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other
persons performing similar functions are at the time directly
or indirectly owned by the Borrower (or, if such term is used
with reference to any other Person, by such other Person).
Unless otherwise specified, references in this Agreement to
"Subsidiary" shall be references to a Subsidiary of the
Borrower.
"Termination Date": the last day of the Commitment
Period (or such earlier date on which the Commitments shall
terminate pursuant to the terms of this Agreement).
<PAGE>
17
"364-Day Facility": the Amended and Restated 364-Day
Revolving Credit Agreement, dated the date hereof, among the
Borrower and the lenders, co-arrangers, and agents parties
thereto, as the same may be amended, supplemented or modified
from time to time.
"Tranche": the collective reference to Eurodollar
Loans the then current Interest Periods with respect to all of
which begin on the same date and end on the same later date
(whether or not such Loans shall originally have been made on
the same day).
"Type": (a) as to any Revolving Credit Loan, its
nature as a Base Rate Loan or a Eurodollar Loan and (b) as to
any Money Market Loan, its nature as a Money Market LIBOR Loan
or a Money Market Absolute Rate Loan.
"Unfunded Liabilities": with respect to any Plan at
any time, the amount (if any) by which (a) the value of all
benefit liabilities under such Plan, determined on a plan
termination basis using the assumptions prescribed by the PBGC
for purposes of Section 4044 of ERISA, exceeds (b) the fair
market value of all Plan assets allocable to such liabilities
under Title IV of ERISA (excluding any accrued but unpaid
contributions), all determined as of the then most recent
valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the
ERISA Group to the PBGC or any other Person under Title IV of
ERISA.
"United States": the United States of America,
including the States and the District of Columbia, but
excluding its territories and possessions.
"Wholly-Owned Subsidiary": any Subsidiary all of the
shares of capital stock or other ownership interests of which
(except directors' qualifying shares) are at the time directly
or indirectly owned by the Borrower (or, if such term is used
with reference to any other Person, by such other Person).
1.2 Other Definitional Provisions. (a) Unless
otherwise specified therein, all terms defined in this Agreement shall
have the defined meanings when used in any Note, certificate or other
document made or delivered pursuant hereto.
(b) Unless otherwise specified herein, all accounting
terms used herein shall be interpreted, all accounting determinations
hereunder shall be made, and all financial statements required to be
delivered hereunder shall be prepared in accordance with generally
accepted accounting principles as in effect from time to time in the
United States, applied on a basis consistent (except for changes
concurred with by the Borrower's independent public accountants) with
the most recent audited consolidated financial statements of the
Borrower and its Consolidated Subsidiaries delivered to the Lenders;
provided, that if the Borrower notifies the Administrative Agent that
the Borrower wishes to amend any covenant in Section 8 to eliminate the
effect of any change in generally accepted accounting principles on the
operation of such covenant (or if the Administrative Agent notifies the
Borrower that the
<PAGE>
18
Required Lenders wish to amend Section 8 for such purpose), then the
Borrower's compliance with such covenant shall be determined on the
basis of generally accepted accounting principles in effect immediately
before the relevant change in generally accepted accounting principles
became effective, until either such notice is withdrawn or such covenant
is amended in a manner satisfactory to the Borrower and the Required
Lenders.
(c) The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement, and Section, subsection, Schedule and Exhibit references are
to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall
be equally applicable to both the singular and plural forms of such
terms.
SECTION 2. THE REVOLVING CREDIT LOANS
2.1 The Commitments. (a) Subject to the terms and
conditions hereof, each Lender severally agrees to make revolving credit
loans ("Revolving Credit Loans") to the Borrower from time to time
during the Commitment Period in an aggregate principal amount at any one
time outstanding not to exceed the amount of such Lender's Commitment;
provided, that no Revolving Credit Loan may be made if, after giving
effect to such Loan and to any simultaneous repayment of outstanding
Loans, the aggregate outstanding principal amount of Revolving Credit
Loans and Money Market Loans would exceed the aggregate amount of the
Commitments. During the Commitment Period the Borrower may use the
Commitments by borrowing Revolving Credit Loans, prepaying Revolving
Credit Loans in whole or in part, and reborrowing Revolving Credit
Loans, all in accordance with the terms and conditions hereof.
(b) The Revolving Credit Loans may from time to time
be (i) Eurodollar Loans, (ii) Base Rate Loans or (iii) a combination
thereof, as determined by the Borrower and notified to the
Administrative Agent in accordance with subsections 2.2 and 4.5.
2.2 Procedure for Revolving Credit Borrowing. The
Borrower shall request Revolving Credit Loans by delivering a Notice of
Revolving Credit Borrowing to the Administrative Agent prior to 10:00
A.M., New York City time, (a) three Eurodollar Business Days prior to
the requested Borrowing Date, if all or any part of the requested
Revolving Credit Loans are to be initially Eurodollar Loans or (b) on
such Borrowing Date, otherwise, requesting the Lenders to make Revolving
Credit Loans on such Borrowing Date. Upon receipt of such Notice of
Revolving Credit Borrowing the Administrative Agent shall promptly
notify each Lender thereof, and not later than 12:00 noon, New York City
time, on such Borrowing Date each Lender shall make available to the
Administrative Agent at its office specified in subsection 11.2 the
amount of the Revolving Credit Loan to be made by such Lender on such
Borrowing Date, in immediately available funds. The Administrative
Agent shall on such Borrowing Date make available to the Borrower the
aggregate of the
<PAGE>
19
amounts made available to the Administrative Agent by the Lenders, in
like funds as received by the Administrative Agent.
2.3 Repayment of Revolving Credit Loans. The Borrower
hereby unconditionally promises to pay to the Administrative Agent, for
the account of each Lender, on the Termination Date, the aggregate
principal amount of the Revolving Credit Loans of such Lender
outstanding on such date.
2.4 Commitment Increases. (a) In the event that the
Borrower wishes to increase the aggregate Commitments at any time that
no Default or Event of Default has occurred and is continuing, it shall
notify the Administrative Agent in writing of the amount (the "Offered
Increase Amount") of such proposed increase (such notice, a "Commitment
Increase Notice"). The Borrower may, at its election, (i) offer one or
more of the Lenders the opportunity to participate in all or a portion
of the Offered Increase Amount pursuant to subsection (c) below and/or
(ii) with the consent of the Administrative Agent (which consent shall
not be unreasonably withheld), offer one or more additional banks,
financial institutions or other entities the opportunity to participate
in all or a portion of the Offered Increase Amount pursuant to paragraph
(b) below. Each Commitment Increase Notice shall specify which Lenders
and/or banks, financial institutions or other entities the Borrower
desires to participate in such commitment increase. The Borrower or, if
requested by the Borrower, the Administrative Agent will notify such
Lenders and/or banks, financial institutions or other entities of such
offer.
(b) Any additional bank, financial institution or
other entity which the Borrower selects to offer participation in the
increased Commitments and which elects to become a party to this
Agreement and obtain a Commitment in an amount so offered and accepted
by it pursuant to subsection 2.4(a)(ii) shall execute a New Lender
Supplement with the Borrower and the Administrative Agent, substantially
in the form of Exhibit H, whereupon such bank, financial institution or
other entity (herein called a "New Lender") shall become a Lender for
all purposes and to the same extent as if originally a party hereto and
shall be bound by and entitled to the benefits of this Agreement, and
Schedule I shall be deemed to be amended to add the name and Commitment
of such New Lender, provided that the Commitment of any such new Lender
shall be in an amount not less than $10,000,000.
(c) Any Lender which accepts an offer to it by the
Borrower to increase its Commitment pursuant to subsection 2.4(a)(i)
shall, in each case, execute a Commitment Increase Supplement with the
Borrower and the Administrative Agent, substantially in the form of
Exhibit I, whereupon such Lender shall be bound by and entitled to the
benefits of this Agreement with respect to the full amount of its
Commitment as so increased, and Schedule I shall be deemed to be amended
to so increase the Commitment of such Lender.
(d) If any bank, financial institution or other entity
becomes a New Lender pursuant to subsection 2.4(b) or any Lender's
Commitment is increased pursuant to subsection 2.4(c), additional
Revolving Credit Loans made on or after the effectiveness thereof (the
"Re-Allocation Date") shall be made pro rata based on the Commitment
Percentages in effect on
<PAGE>
20
and after such Re-Allocation Date (except to the extent that any such
pro rata borrowings would result in any Lender making an aggregate
principal amount of Revolving Credit Loans in excess of its Commitment,
in which case such excess amount will be allocated to, and made by, such
new Lenders and/or Lenders with such increased Commitments to the extent
of, and pro rata based on, their respective Commitments otherwise
available for Revolving Credit Loans), and continuations of Eurodollar
Loans outstanding on such Re-Allocation Date shall be effected by
repayment of such Eurodollar Loans on the last day of the Interest
Period applicable thereto and the making of new Eurodollar Loans pro
rata based on such new Commitment Percentages. In the event that on any
such Re-Allocation Date there is an unpaid principal amount of Base Rate
Loans, the Borrower shall make prepayments thereof and borrowings of
Base Rate Loans so that, after giving effect thereto, the Base Rate
Loans outstanding are held pro rata based on such new Commitment
Percentages. In the event that on any such Re- Allocation Date there is
an unpaid principal amount of Eurodollar Loans, such Eurodollar Loans
shall remain outstanding with the respective holders thereof until the
expiration of their respective Interest Periods (unless the Borrower
elects to prepay any thereof in accordance with the applicable
provisions of this Agreement), and interest on and repayments of such
Eurodollar Loans will be paid thereon to the respective Lenders holding
such Eurodollar Loans pro rata based on the respective principal amounts
thereof outstanding.
(e) Notwithstanding anything to the contrary in this
subsection 2.4, (i) in no event shall any transaction effected pursuant
to this subsection 2.4 cause (A) the aggregate Commitments to exceed
$2,000,000,000 or (B) the sum of the aggregate Commitments plus the
aggregate Commitments then in effect under (and as defined in) the
364-Day Facility to exceed $2,500,000,000 and (ii) no Lender shall have
any obligation to increase its Commitment unless it agrees to do so in
its sole discretion.
SECTION 3. THE MONEY MARKET LOANS
3.1 Money Market Option. The Borrower may, as set
forth in this Section, at any time request the Administrative Agent to
solicit offers from all the Lenders to make Money Market Loans to the
Borrower. The Lenders may, but shall have no obligation to, make such
offers, and the Borrower may, but shall have no obligation to, accept
any such offers in the manner set forth in this Section. No Money
Market Loan may be made if, after giving effect to such Loan and to any
simultaneous repayment of outstanding Loans, the aggregate outstanding
principal amount of Revolving Credit Loans and Money Market Loans would
exceed the aggregate amount of the Commitments.
3.2 Money Market Quote Request. When the Borrower
wishes to request offers to make Money Market Loans under this Section,
it shall transmit to the Administrative Agent by facsimile transmission
a Money Market Quote Request so as to be received no later than Noon,
New York City time, (a) four Eurodollar Business Days prior to the
Borrowing Date proposed therein, in the case of a LIBOR Auction or (b)
one Business Day prior to the Borrowing Date proposed therein, in the
case of an Absolute Rate Auction (or (x) in either case, such other time
or date as the Borrower and the Administrative Agent shall have
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21
mutually agreed and shall have notified to the Lenders not later than
the date of the Money Market Quote Request for the first LIBOR Auction
or Absolute Rate Auction for which such change is to be effective and
(y) in the case of an Absolute Rate Auction for a proposed Borrowing
Date occurring on the Closing Date, not later than 9:00 A.M., New York
City time, on the Closing Date), specifying:
(i) the proposed Borrowing Date, which shall be a
Eurodollar Business Day in the case of a LIBOR Auction or a
Domestic Business Day in the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Loans, which shall
be $5,000,000 or a larger whole multiple of $1,000,000,
(iii) the duration of the Interest Period applicable
thereto, subject to the provisions of the definition of
Interest Period, and
(iv) whether the Money Market Quotes requested are
to set forth a Money Market Margin or a Money Market Absolute
Rate.
3.3 Invitation for Money Market Quotes. The
Administrative Agent, promptly upon receipt of any Money Market Quote
Request, shall send to the Lenders by facsimile transmission an
Invitation for Money Market Quotes, which shall constitute an invitation
by the Borrower to each Lender to submit Money Market Quotes offering to
make the Money Market Loans to which such Money Market Quote Request
relates in accordance with this Section.
3.4 Submission and Contents of Money Market Quotes.
(a) Each Lender may submit, as it may elect in its sole discretion, a
Money Market Quote containing an offer or offers to make Money Market
Loans in response to any Invitation for Money Market Quotes. Each Money
Market Quote must comply with the requirements of this subsection 3.4
and must be submitted to the Administrative Agent by facsimile
transmission at its offices specified in or pursuant to subsection 11.2
not later than (i) 10:00 A.M., New York City time, three Eurodollar
Business Days prior to the proposed Borrowing Date, in the case of a
LIBOR Auction, or (ii) 10:00 A.M., New York City time, on the proposed
Borrowing Date, in the case of an Absolute Rate Auction (or, in either
case, such other time or date as the Borrower and the Administrative
Agent shall have mutually agreed and shall have notified to the Lenders
not later than the date of the Money Market Quote Request for the first
LIBOR Auction or Absolute Rate Auction for which such change is to be
effective); provided that Money Market Quotes submitted by the
Administrative Agent (or any affiliate of the Administrative Agent) in
the capacity of a Lender may be submitted, and may only be submitted, if
the Administrative Agent or such affiliate notifies the Borrower of the
terms of the offer or offers contained therein not later than 15 minutes
prior to the deadline for the other Lenders. Subject to Sections 6 and
9, any Money Market Quote so made shall be irrevocable except with the
written consent of the Administrative Agent given on the instructions of
the Borrower.
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22
(b) Each Money Market Quote shall in any case specify:
(i) the proposed Borrowing Date,
(ii) the principal amount of the Money Market Loan for
which each such offer is being made, which principal amount (A)
may be greater than or less than the Commitment of the quoting
Lender, (B) must be $5,000,000 or a larger whole multiple of
$1,000,000, and (C) may be subject to an aggregate limitation
as to the principal amount of Money Market Loans for which
offers being made by such quoting Lender may be accepted,
(iii) in the case of a LIBOR Auction, the margin above
or below the applicable Eurodollar Rate (the "Money Market
Margin") offered for each such Money Market Loan, expressed as
a percentage (specified to the nearest 1/16 of 1%) to be added
to or subtracted from the Eurodollar Rate,
(iv) in the case of an Absolute Rate Auction, the rate
of interest per annum (specified to the nearest 1/10,000 of 1%)
(the "Money Market Absolute Rate") offered for each such Money
Market Loan, and
(v) the identity of the quoting Lender.
A Money Market Quote may set forth up to three separate offers by the
quoting Lender with respect to each Interest Period specified in the
related Invitation for Money Market Quotes.
(c) Any Money Market Quote shall be disregarded if it:
(i) is not substantially in conformity with Exhibit C
or does not specify all of the information required by
subsection 3.4(b);
(ii) contains qualifying, conditional or similar
language;
(iii) proposes terms other than or in addition to
those set forth in the applicable Invitation for Money Market
Quotes; or
(iv) arrives after the time set forth in subsection
3.4(a).
3.5 Notice to Borrower. The Administrative Agent
shall promptly notify the Borrower of the terms (a) of any Money Market
Quote submitted by a Lender that is in accordance with subsection 3.4
and (b) of any Money Market Quote that amends, modifies or is otherwise
inconsistent with a previous Money Market Quote submitted by such Lender
with respect to the same Money Market Quote Request. Any such
subsequent Money Market Quote shall be disregarded by the Administrative
Agent unless such subsequent Money Market Quote is submitted solely to
correct a manifest error in such former Money Market Quote. The
Administrative Agent's notice to the Borrower shall specify (i) the
aggregate
<PAGE>
23
principal amount of Money Market Loans for which offers have been
received for each Interest Period specified in the related Money Market
Quote Request, (ii) the respective principal amounts and Money Market
Margins or Money Market Absolute Rates, as the case may be, so offered
and (iii) if applicable, limitations on the aggregate principal amount
of Money Market Loans for which offers in any single Money Market Quote
may be accepted.
3.6 Acceptance and Notice by Borrower. Not later than
11:00 A.M., New York City time, (a) three Eurodollar Business Days prior
to the proposed Borrowing Date, in the case of a LIBOR Auction or (b) on
the proposed Borrowing Date, in the case of an Absolute Rate Auction
(or, in either case, such other time or date as the Borrower and the
Administrative Agent shall have mutually agreed and shall have notified
to the Lenders not later than the date of the Money Market Quote Request
for the first LIBOR Auction or Absolute Rate Auction for which such
change is to be effective), the Borrower shall notify the Administrative
Agent of its acceptance or non-acceptance of the offers notified to it
pursuant to subsection 3.5. In the case of acceptance, such notice
shall be a Notice of Money Market Borrowing and shall specify the
aggregate principal amount of offers for each Interest Period that are
accepted. The Borrower may accept any Money Market Quote in whole or in
part; provided that:
(i) the aggregate principal amount of Money Market
Loans made pursuant to a Money Market Quote Request may not
exceed the applicable amount set forth in such Money Market
Quote Request,
(ii) the principal amount of Money Market Loans made
on a Borrowing Date pursuant to a Money Market Quote Request
must be $5,000,000 or a larger whole multiple of $1,000,000,
(iii) acceptance of offers may only be made on the
basis of ascending Money Market Margins or Money Market
Absolute Rates, as the case may be, and
(iv) the Borrower may not accept any offer that is
required to be disregarded as described in subsection 3.4(c) or
that otherwise fails to comply substantially with the
requirements of this Agreement.
3.7 Allocations. If offers are made by two or more
Lenders with the same Money Market Margins or Money Market Absolute
Rates, as the case may be, for a greater aggregate principal amount than
the amount in respect of which such offers are accepted for the related
Interest Period, the principal amount of Money Market Loans in respect
of which such offers are accepted shall be allocated by the
Administrative Agent among such Lenders as nearly as possible (in whole
multiples of $1,000,000, as the Administrative Agent may deem
appropriate) in proportion to the aggregate principal amounts of such
offers. Determinations by the Administrative Agent of the amounts of
Money Market Loans shall be conclusive in the absence of manifest error.
Upon acceptance, notice and allocation of Money Market Quotes pursuant
to and in accordance with subsections 3.6 and 3.7, the Administrative
<PAGE>
24
Agent will, in accordance with its usual practice, notify each Lender
whose Money Market Quote has been accepted of the amount of its Money
Market Quote accepted and allocated.
3.8 Certain Restrictions. The Borrower may request
offers to make Money Market Loans for up to five Interest Periods in a
single Money Market Quote Request.
3.9 Repayment of Money Market Loans. The Borrower
hereby unconditionally promises to pay to the Administrative Agent, for
the account of the relevant Lender, on the last day of the Interest
Period with respect thereto, the aggregate principal amount of each
Money Market Loan of such Lender.
SECTION 4. CERTAIN PROVISIONS APPLICABLE TO
THE COMMITMENTS AND THE LOANS
4.1 Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a facility fee for
the period from and including the Closing Date to the date on which the
Commitments have terminated and all Loans have been repaid in full,
computed at the Facility Fee Rate, in each case on the average daily
Facility Fee Calculation Amount of such Lender during the period for
which payment is made, payable in arrears on the last day of each March,
June, September and December and on the date on which the Commitments
have terminated and all Loans have been repaid in full, commencing on
the first of such dates to occur after the date of this Agreement.
(b) The Borrower agrees to pay to each Agent and each
Co-Arranger the fees on the dates and in the amounts previously agreed
to in writing by the Borrower and such respective Persons.
4.2 Minimum Borrowing Amounts. Each borrowing under
the Commitments shall be in an amount equal to $5,000,000 or a whole
multiple of $1,000,000 in excess thereof.
4.3 Termination or Reduction of Commitments. The
Borrower shall have the right, upon notice to the Administrative Agent
not later than 11:00 A.M., New York City time, on the date of such
action, to terminate any of the Commitments or, from time to time, to
reduce the amount of any of the Commitments; provided, that no reduction
of the Commitments shall be permitted if, after giving effect thereto
and to any simultaneous repayment of Revolving Credit Loans and/or Money
Market Loans, the aggregate outstanding principal amount of the
Revolving Credit Loans and Money Market Loans would exceed the
Commitments. Any reduction of any of the Commitments shall be in an
amount equal to $10,000,000 or a whole multiple of $1,000,000 in excess
thereof and shall reduce permanently the Commitments then in effect.
The Administrative Agent will, in accordance with its usual practice,
notify the Lenders of each such notice of termination or reduction.
<PAGE>
25
4.4 Optional Prepayments; Mandatory Prepayments. (a)
The Borrower may, (i) upon notice to the Administrative Agent not later
than 11:00 A.M., New York City time, on the date of prepayment, prepay
any Base Rate Loans (or any Money Market Loans bearing interest based
upon the Base Rate pursuant to clause (ii) of the last sentence of
subsection 4.10) or (ii) upon at least three Eurodollar Business Days'
notice to the Administrative Agent, prepay any Eurodollar Loans, in each
case in whole or in part in amounts aggregating $5,000,000 or any larger
whole multiple of $1,000,000, by paying the principal amount to be
prepaid together with accrued interest thereon to the date of
prepayment. Upon prepaying any Eurodollar Loan on any date other than
the last day of an Interest Period applicable thereto, the Borrower
shall be obligated to pay the amounts described in subsection 4.16.
(b) Except as provided in subsection 4.4(a) with
respect to a Money Market Loan bearing interest based upon the Base Rate
pursuant to clause (ii) of the last sentence of subsection 4.10 and in
subsection 4.4(d), the Borrower may not prepay all or any portion of the
principal amount of any Money Market Loan prior to the maturity thereof.
(c) Upon receipt of a notice of prepayment pursuant to
this subsection 4.4, the Administrative Agent shall promptly notify each
Lender of the contents thereof and of such Lender's ratable share (if
any) of such prepayment, and such notice shall not thereafter be
revocable by the Borrower.
(d) If a Change of Control shall occur with respect to
the Borrower, the Administrative Agent shall, upon the request of the
Required Lenders, by notice to the Borrower given within six months
after the date of such Change of Control, terminate the Commitments,
whereupon the Commitments shall immediately terminate, and any Loans
then outstanding (together with accrued interest thereon) shall become
due and payable on the fifth Eurodollar Business Day after such notice
is given.
4.5 Conversion and Continuation Options. (a) The
Borrower may, on the last day of any Interest Period with respect
thereto, convert Eurodollar Loans to Base Rate Loans by giving notice
thereof (a "Notice of Base Rate Conversion") to the Administrative Agent
not later than 10:00 A.M., New York City time, on the last day of the
then current Interest Period in respect of the Eurodollar Loans being
converted. The Borrower may from time to time convert Base Rate Loans
to Eurodollar Loans by giving notice thereof (a "Notice of Eurodollar
Conversion") to the Administrative Agent at least three Eurodollar
Business Days prior to the first day of the Interest Period to be
applicable to such Loans. Upon receipt of any such notice the
Administrative Agent shall promptly notify each Lender thereof. All or
any part of outstanding Eurodollar Loans and Base Rate Loans may be
converted as provided herein, provided that no Loan may be converted
into a Eurodollar Loan when any Event of Default has occurred and is
continuing.
(b) The Borrower may continue any Eurodollar Loans as
such upon the expiration of the then current Interest Period with
respect thereto by giving notice thereof (a "Notice of Eurodollar
Continuation") to the Administrative Agent at least three Eurodollar
Business Days prior to the last day of such then current Interest
Period, provided that no
<PAGE>
26
Eurodollar Loan may be continued as such when any Event of Default has
occurred and is continuing, and provided, further, that if the Borrower
shall fail to give such Notice of Eurodollar Continuation or if such
continuation is not permitted pursuant to the preceding proviso, such
Loans shall be automatically converted to Base Rate Loans on the last
day of such then expiring Interest Period.
4.6 Minimum Amounts of Tranches. All borrowings,
conversions and continuations of Loans hereunder and all selections of
Interest Periods hereunder shall be in such amounts and be made pursuant
to such elections so that, after giving effect thereto, the aggregate
principal amount of Eurodollar Loans comprising each Tranche shall be
equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof.
Not more than twenty Tranches may be outstanding at any time.
4.7 Interest Rates and Payment Dates. (a) Each
Eurodollar Loan shall bear interest during each Interest Period with
respect thereto at a rate per annum equal to the Eurodollar Rate
determined for such Interest Period plus the Applicable Margin.
(b) Each Base Rate Loan shall bear interest at a rate
per annum equal to the Base Rate plus the Applicable Margin.
(c) Each Money Market Loan shall bear interest at the
applicable rate set forth in the Notice of Money Market Borrowing
applicable thereto.
(d) If any principal amount of any Loan shall not be
paid when due, from and after the date on which such principal amount
was due (i) the outstanding principal amount of all Eurodollar Loans and
Money Market Loans shall bear interest at 2% above the rate that would
otherwise be applicable thereto until the earlier of (A) the date on
which such overdue principal amount is paid in full and (B) the last day
of the respective Interest Periods applicable to such outstanding
Eurodollar Loans and Money Market Loans, and thereafter the outstanding
principal amount of all Eurodollar Loans and Money Market Loans shall
bear interest at a rate equal to 2% above the rate applicable at such
time to Base Rate Loans until such overdue principal amount is paid in
full (as well after as before judgment) and (ii) the outstanding
principal amount of all Base Rate Loans shall bear interest at a rate
equal to 2% above the rate applicable at such time to Base Rate Loans
until such overdue principal amount is paid in full (as well after as
before judgment). If all or a portion of (i) any interest payable on
any Loan or (ii) any facility fee or other amount payable hereunder,
shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue amount shall bear interest at a
rate per annum which is 2% above the rate applicable at such time to
Base Rate Loans, in each case from the date of such non-payment until
such amount is paid in full (as well after as before judgment).
(e) Interest shall be payable in arrears on each
Interest Payment Date, provided that interest accruing pursuant to
paragraph (d) of this subsection shall be payable from time to time on
demand.
<PAGE>
27
4.8 Computation of Interest and Fees. (a) Facility
fees and, whenever it is calculated on the basis of the Prime Rate,
interest shall be calculated on the basis of a 365- (or 366-, as the
case may be) day year for the actual days elapsed; and, otherwise,
interest shall be calculated on the basis of a 360-day year for the
actual days elapsed. The Administrative Agent shall as soon as
practicable notify the Borrower and the relevant Lenders of each
determination of a Eurodollar Rate. Any change in the interest rate on
a Loan resulting from a change in the Base Rate shall become effective
as of the opening of business on the day on which such change becomes
effective. The Administrative Agent shall as soon as practicable notify
the Borrower and the Lenders of the effective date and the amount of
each such change in the Base Rate.
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Agreement shall
be conclusive and binding on the Borrower and the Lenders in the absence
of manifest error.
(c) If any Reference Lender shall for any reason no
longer have a Commitment or any Loans, such Reference Lender shall
thereupon cease to be a Reference Lender, and if, as a result, there
shall only be one Reference Lender remaining, the Administrative Agent
(after consultation with the Borrower and the Lenders) shall, by notice
to the Borrower and the Lenders, designate another Lender as a Reference
Lender so that there shall at all times be at least two Reference
Lenders.
(d) Each Reference Lender shall use its best efforts
to furnish quotations of rates to the Administrative Agent as
contemplated hereby. If any of the Reference Lenders shall be unable or
shall otherwise fail to supply such rates to the Administrative Agent
upon its request, the rate of interest shall, subject to the provisions
of subsection 4.10, be determined on the basis of the quotations of the
remaining Reference Lenders or Reference Lender.
4.9 Evidence of Debt. (a) Each Lender shall maintain
in accordance with its usual practice appropriate records evidencing
indebtedness of the Borrower to such Lender resulting from each Loan of
such Lender from time to time, including the amounts of principal and
interest payable and paid to such Lender from time to time under this
Agreement and under any Note.
(b) The Administrative Agent shall maintain the
Register pursuant to subsection 11.6(f), and a record therein for each
Lender, in which shall be recorded (i) the amount of each Loan made
hereunder, the Type thereof and each Interest Period applicable thereto,
(ii) the amount of any principal or interest due and payable or to
become due and payable from the Borrower to each Lender hereunder and
(iii) both the amount of any sum received by the Administrative Agent
hereunder from the Borrower and each Lender's share thereof.
(c) The records of each Lender maintained pursuant to
subsection 4.9(a) and the entries made by the Administrative Agent in
the Register shall, to the extent permitted by
<PAGE>
28
applicable law, be prima facie evidence of the existence and amounts of
the obligations of the Borrower therein recorded; provided, however,
that the failure of any Lender to maintain such records or the
Administrative Agent to maintain the Register or any such record, or any
error in either thereof, shall not in any manner affect the obligation
of the Borrower to repay (with applicable interest) the Loans made by
such Lender in accordance with the terms of this Agreement.
(d) The Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Borrower will execute and
deliver to such Lender, within thirty days after notification of such
request by the Administrative Agent to the Borrower, (i) a promissory
note of the Borrower evidencing the Revolving Credit Loans of such
Lender, substantially in the form of Exhibit G-1 with appropriate
insertions (a "Revolving Credit Note"), and (ii) a promissory note of
the Borrower evidencing the Money Market Loans of such Lender,
substantially in the form of Exhibit G-2 with appropriate insertions (a
"Money Market Note").
4.10 Basis for Determining Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period for any
Eurodollar Loan or Money Market LIBOR Loan:
(a) the Administrative Agent is advised by the
Reference Lenders that deposits in Dollars (in the applicable
amounts) are not being offered by the Reference Lenders in the
relevant market for such Interest Period, or
(b) in the case of Revolving Credit Loans, Lenders
having 50% or more of the aggregate amount of the Commitments
advise the Administrative Agent that the Eurodollar Rate as
determined by the Administrative Agent will not adequately and
fairly reflect the cost to such Lenders of funding their
Eurodollar Loans for such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the
Borrower and the Lenders, whereupon until the Administrative Agent
notifies the Borrower that the circumstances giving rise to such
suspension no longer exist, the obligations of the Lenders to make,
convert Loans into or continue Loans as, as the case may be, Eurodollar
Loans shall be suspended, and any Loan that was to be converted into, or
continued as, a Eurodollar Loan for such Interest Period shall, instead,
be continued as, or converted into, a Base Rate Loan on the first day of
such Interest Period. Unless the Borrower notifies the Administrative
Agent at least two Domestic Business Days before the first day of any
such Interest Period in respect of any requested Eurodollar Loan or
Money Market LIBOR Loan for which a Notice of Revolving Credit Borrowing
or Notice of Money Market Borrowing, as the case may be, has previously
been given that it elects not to borrow on such date, (i) if such
requested Loan is a Eurodollar Loan, such Loan shall instead be made as
a Base Rate Loan and (ii) if such requested Loan is a Money Market LIBOR
Loan, such Money Market LIBOR Loan shall bear interest for each day from
and including the first day to but excluding the last day of the
Interest Period applicable thereto at the rate applicable to Base Rate
Loans for such day.
<PAGE>
29
4.11 Illegality. If, on or after the date of this
Agreement, the adoption of any applicable law, rule or regulation, or
any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or its Eurodollar Lending Office)
with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency shall make it
unlawful or impossible for any Lender (or its Eurodollar Lending Office)
to make, maintain or fund its Eurodollar Loans and such Lender shall so
notify the Administrative Agent, the Administrative Agent shall
forthwith give notice thereof to the other Lenders and the Borrower,
whereupon until such Lender notifies the Borrower and the Administrative
Agent that the circumstances giving rise to such suspension no longer
exist, the obligation of such Lender to make Eurodollar Loans shall be
suspended. Before giving any notice to the Administrative Agent
pursuant to this subsection, such Lender shall designate a different
Eurodollar Lending Office if such designation will avoid the need for
giving such notice and will not, in the judgment of such Lender, be
otherwise disadvantageous to such Lender. If such Lender shall
determine that it may not lawfully continue to maintain and fund any of
its outstanding Eurodollar Loans to maturity and shall so specify in
such notice, the Borrower shall prepay in full the then outstanding
principal amount of each such Eurodollar Loan on the date required by
law (as specified in such notice), together with accrued interest
thereon. Concurrently with prepaying each such Eurodollar Loan, the
Borrower shall borrow a Base Rate Loan in an equal principal amount from
such Lender (on which interest and principal shall be payable
contemporaneously with the related Eurodollar Loans of the other
Lenders), and such Lender shall make such a Base Rate Loan.
4.12 Increased Cost and Reduced Return. (a) If on or
after (i) the date hereof, in the case of any Revolving Credit Loan or
any obligation to make Revolving Credit Loans, or (ii) the date of the
related Money Market Quote, in the case of any Money Market Loan, the
adoption of any applicable law, rule or regulation, or any change
therein, or any change in the interpretation or administration thereof
by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any
Lender (or its Applicable Lending office) with any request or directive
(whether or not having the force of law) of any such authority, central
bank or comparable agency shall impose, modify or deem applicable any
reserve (including, without limitation, any such requirement imposed by
the Board of Governors of the Federal Reserve System, but excluding any
such reserve requirement in respect of Eurocurrency liabilities
described in paragraph (c) of this subsection 4.12), special deposit,
insurance assessment or similar requirement against assets of, deposits
with or for the account of, or credit extended by, any Lender (or its
Applicable Lending Office) or on the interbank eurodollar market any
other condition affecting its Eurodollar Loans or Money Market LIBOR
Loans or its obligation to make such Loans and the result of any of the
foregoing is to increase the cost to such Lender (or its Applicable
Lending Office) of making or maintaining any such Loan, or to reduce the
amount of any sum received or receivable by such Lender (or its
Applicable Lending Office) under this Agreement with respect thereto, by
an amount deemed by such Lender to be material, then, within 15 days
after demand by such Lender (with a copy to the
<PAGE>
30
Administrative Agent), the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such
increased cost or reduction.
(b) If any Lender shall have determined that, after
the date hereof, the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change in any such law, rule or
regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or any
request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on
capital of such Lender (or its parent holding company) as a consequence
of such Lender's obligations hereunder to a level below that which such
Lender (or its parent holding company) could have achieved but for such
adoption, change, request or directive (taking into consideration its
policies with respect to capital adequacy) by an amount deemed by such
Lender to be material, then from time to time, within 15 days after
demand by such Lender (with a copy to the Administrative Agent), the
Borrower shall pay to such Lender such additional amount or amounts as
will compensate such Lender (or its parent holding company) for such
reduction.
(c) In addition to, and without duplication of,
amounts which may become payable from time to time pursuant to
paragraphs (a) and (b) of this subsection 4.12, the Borrower agrees to
pay to each Lender which requests compensation under this paragraph (c)
by notice to the Borrower, on the last day of each Interest Period with
respect to any Eurodollar Loan made by such Lender, at any time when
such Lender shall be required to maintain reserves against "Eurocurrency
liabilities" under Regulation D of the Board of Governors of the Federal
Reserve System (or, at any time when such Lender may be required by the
Board of Governors of the Federal Reserve System or by any other
governmental authority, whether within the United States or in another
relevant jurisdiction, to maintain reserves against any other category
of liabilities which includes deposits by reference to which the
Eurodollar Rate is determined as provided in this Agreement or against
any category of extensions of credit or other assets of such Lender
which includes any such Eurodollar Loans), an additional amount
(determined by such Lender's calculation or, if an accurate calculation
is impracticable, reasonable estimate using such reasonable means of
allocation as such Lender shall determine) equal to the actual costs, if
any, incurred by such Lender during such Interest Period as a result of
the applicability of the foregoing reserves to such Eurodollar Loans.
(d) Each Lender will promptly notify the Borrower and
the Administrative Agent of any event of which it has knowledge,
occurring after the date hereof, which will entitle such Lender to
compensation pursuant to this subsection 4.12 and will designate a
different Applicable Lending Office if such designation will avoid the
need for, or reduce the amount of, such compensation and will not, in
the judgment of such Lender, be otherwise disadvantageous to such
Lender; provided that if a Lender shall not have so notified the
Borrower within 90 days of such event, such Lender may not seek
compensation for any period beginning prior to the date which is 90 days
prior to the date upon which the Borrower is notified of such event. A
certificate of any Lender claiming compensation under this
<PAGE>
31
subsection and setting forth the additional amount or amounts to be paid
to it hereunder shall be conclusive in the absence of manifest error. In
determining such amount, such Lender may use any reasonable averaging
and attribution methods.
(e) The provisions of this subsection shall survive
any termination of this Agreement.
4.13 Taxes. (a) Any and all payments by the Borrower
to or for the account of any Lender or the Administrative Agent
hereunder or under any Note shall be made free and clear of and without
deduction for any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings (subject to paragraph (g)
hereof), and all liabilities with respect thereto, excluding, in the
case of each Lender and the Administrative Agent, taxes imposed on or
measured by its net income, and franchise, value added or similar taxes
imposed on it, by a jurisdiction on the basis of a present or former
connection between such jurisdiction and the Lender or Administrative
Agent other than a connection arising solely from such Administrative
Agent or Lender having executed, delivered or performed its obligations
or received a payment under, or enforced, this Agreement or any Note
(all such non-excluded taxes, duties, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as
"Taxes"). If the Borrower shall be required by law to deduct any Taxes
from or in respect of any sum payable hereunder to any Lender or the
Administrative Agent, (i) the sum payable shall be increased as
necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this subsection
4.13) such Lender or the Administrative Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law
and (iv) the Borrower shall furnish to the Administrative Agent, at its
address referred to in subsection 11.2, the original or a certified copy
of a receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any
present or future stamp or documentary taxes and any other excise or
property taxes, or charges or similar levies which arise from any
payment made hereunder or from the execution or delivery of, or
otherwise with respect to, this Agreement or any Note (hereinafter
referred to as "Other Taxes").
(c) The Borrower agrees to indemnify each Lender and
the Administrative Agent for the full amount of Taxes or Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed or
asserted by any jurisdiction on amounts payable under this subsection
4.13) paid by such Lender or the Administrative Agent (as the case may
be) and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto. This indemnification shall
be made within 30 days from the date such Lender or the Administrative
Agent (as the case may be) makes written demand therefor. If any Lender
or the Administrative Agent receives any written demand from any taxing
authority asserting a liability for any Taxes or Other Taxes for which
such Lender or the Administrative Agent is entitled to an indemnity
under this paragraph (c), such Lender or Agent shall promptly furnish
the Borrower and the Administrative Agent with a copy of such demand.
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32
(d) If any Lender is a "foreign corporation,
partnership or trust" within the meaning of the Internal Revenue Code,
on or prior to the date of its execution and delivery of this Agreement
in the case of each Lender listed on the signature pages hereof and on
or prior to the date on which it becomes a Lender in the case of each
other Lender, and from time to time thereafter (but only so long as such
Lender remains lawfully able to do so), such Lender agrees with and in
favor of the Administrative Agent and the Borrower to deliver to the
Administrative Agent and the Borrower: (i) before the payment of any
interest in the first calendar year and before the payment of any
interest in each third succeeding calendar year during which interest
may be paid under this Agreement, properly completed Internal Revenue
Service Forms 1001, or any successor form prescribed by the Internal
Revenue Service, certifying that such Lender is entitled to benefits
under an income tax treaty to which the United States is a party which
reduces the rate of withholding tax on payments of interest; (ii) before
the payment of any interest is due in the first taxable year of such
Lender and in each succeeding taxable year of such Lender during which
interest may be paid under this Agreement, two properly completed and
executed copies of Internal Revenue Service Form 4224, or any successor
form prescribed by the Internal Revenue Service, certifying that the
income receivable pursuant to this Agreement is effectively connected
with the conduct of a trade or a business in the United States; or (iii)
such other form or forms as may be required under the Internal Revenue
Code or other laws of the United States as a condition to exemption
from, or reduction of, United States withholding tax. Such Lender
agrees to promptly notify the Administrative Agent and the Borrower of
any change in circumstances which would modify or render invalid any
claimed exemption or reduction. In addition, in the event any Lender
that claims exemption from, or reduction of, withholding tax under a
United States tax treaty by providing Internal Revenue Service Form 1001
sells, assigns, grants a participation in, or otherwise transfers all or
part of the obligations of the Borrower to such Lender under this
Agreement or any Note, such Lender agrees to notify the Administrative
Agent and the Borrower of the percentage amount in which it is no longer
the beneficial owner of obligations of the Borrower to such Lender under
this Agreement or any Note. To the extent of such percentage amount, the
Administrative Agent and the Borrower will treat such Lender's Internal
Revenue Service Form 1001 as no longer valid. In the event any Lender
that claims exemption from United States withholding tax by filing
Internal Revenue Service Form 4224 with the Administrative Agent and the
Borrower sells, assigns, grants a participation in, or otherwise
transfers all or part of the obligations of the Borrower to such Lender
under this Agreement or any Note, such Lender agrees to undertake sole
responsibility for complying with the withholding tax requirements
imposed by Sections 1441 and 1442 of the Internal Revenue Code. If the
Form 1001, Form 4224 or any other appropriate forms required to be
provided by a Lender at the time such Lender first becomes a party to
this Agreement indicates a United States interest withholding tax rate
in excess of zero, withholding tax at such rate shall be considered
excluded from Taxes. The Borrower shall not be required to pay any
amounts with respect to United States withholding taxes under subsection
(a) of this subsection 4.13 if the Lender shall have delivered to the
Borrower an Internal Revenue Service Form 1001 or 4224 and such Lender
was not actually entitled based on the law at the time of such delivery
to a reduced United States interest withholding tax.
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33
(e) For any period with respect to which a Lender has
failed to provide the Borrower with the appropriate form pursuant to
subsection 4.13(d) (unless such failure is due to a change in treaty,
law or regulation occurring subsequent to the date on which a form
originally was required to be provided), such Lender shall not be
entitled to indemnification under subsection 4.13(a) with respect to
Taxes imposed by the United States. Should a Lender which is otherwise
exempt from or subject to a reduced rate of withholding tax become
subject to Taxes because of its failure to deliver a form required
hereunder, the Borrower shall take such steps as such Lender shall
reasonably request to assist such Lender to recover such Taxes.
(f) In the event that the Borrower is obligated to
make an indemnification payment pursuant to this subsection 4.13 to any
Lender and the Lender receives a refund of Taxes with respect to which
the Borrower made an indemnification payment, the Lender promptly shall
remit the amount of such refund to the Borrower.
(g) If any Lender is entitled to a reduction in the
applicable withholding tax, the Administrative Agent may withhold from
any interest payment to such Lender an amount equivalent to the
applicable withholding tax after taking into account such reduction. If
the forms or other documentation required by paragraph (d) are not
delivered to the Administrative Agent, then the Administrative Agent may
withhold from any interest payment to such Lender not providing such
forms or other documentation an amount equivalent to the applicable
withholding tax unless the Borrower withholds the appropriate amount
pursuant to subsection 4.13(a).
(h) If the Internal Revenue Service or any other
governmental authority of the United States or other jurisdiction
asserts a claim that the Administrative Agent or the Borrower did not
properly withhold tax from amounts paid to or for the account of any
Lender (because the appropriate form was not delivered, was not properly
executed, or because such Lender failed to notify the Administrative
Agent or the Borrower of a change in circumstances which rendered the
exemption from, or reduction of, withholding tax ineffective, or for any
other reason) such Lender shall indemnify the Administrative Agent and
the Borrower fully for all amounts paid, directly or indirectly, by the
Administrative Agent or the Borrower as tax or otherwise, including
penalties and interest, and including any taxes imposed by any
jurisdiction on the amounts payable to the Administrative Agent or the
Borrower under this subsection, together with all costs and expenses
(including reasonable fees and disbursements of counsel).
(i) Each Lender agrees that it will (i) take all
reasonable actions requested by the Borrower, including, without
limitation, changing the jurisdiction of the Lender's Applicable Lending
Office, that are, in the judgment of such Lender, not disadvantageous to
such Lender to maintain all complete or partial exemptions, if any,
available to it from withholding taxes (whether available by treaty or
existing administrative waiver), and (ii) to the extent reasonable and,
in the judgment of such Lender, not disadvantageous to it, otherwise
cooperate with the Borrower to minimize any amounts payable by the
Borrower under this subsection 4.13.
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34
(j) The provisions of this subsection shall survive
any termination of this Agreement. Each Lender will promptly notify the
Borrower and the Administrative Agent of any event of which it has
knowledge, occurring after the date hereof, which will entitle such
Lender to compensation pursuant to this subsection 4.13; provided that
if a Lender shall not have so notified the Borrower within 90 days of
such event of which it has knowledge, such Lender may not seek
compensation for any period beginning prior to the date which is 90 days
prior to the date upon which the Borrower is notified of such event.
4.14 Base Rate Loans Substituted for Affected
Eurodollar Loans. If any Lender is an Affected Lender and the Borrower
shall, by at least five Eurodollar Business Days' prior notice to such
Lender through the Administrative Agent, have elected that the
provisions of this subsection 4.14 shall apply to such Lender, then,
unless and until such Lender notifies the Borrower that the
circumstances that caused such Lender to be an Affected Lender no longer
apply:
(a) all Loans which would otherwise be made by such
Lender as Eurodollar Loans shall be made instead as Base Rate
Loans (on which interest and principal shall be payable
contemporaneously with the related Eurodollar Loans of the
other Lenders), and
(b) after each of its Eurodollar Loans has been
repaid, all payments of principal which would otherwise be
applied to repay such Eurodollar Loans shall be applied to
repay its Base Rate Loans instead.
4.15 Pro Rata Treatment and Payments. (a) Each
borrowing by the Borrower in respect of Revolving Credit Loans (subject
to the provisions of subsection 2.4(d)), each payment by the Borrower on
account of any facility fee hereunder and any reduction of the
Commitments of the Lenders shall be made pro rata according to the
respective Commitment Percentages of the Lenders. Each payment
(including each prepayment) by the Borrower on account of principal of
and interest on the Loans shall be made pro rata according to the
respective principal amounts of, or interest on, the Loans, as the case
may be, then due and owing to the Lenders. All payments (including
prepayments) to be made by the Borrower hereunder or under any Note,
whether on account of principal, interest, fees or otherwise, shall be
made without deduction, set-off or counterclaim and shall be made prior
to 12:00 Noon, New York City time, on the due date thereof to the
Administrative Agent, for the account of the Lenders, at the
Administrative Agent's office specified in subsection 11.2, in Dollars
and in immediately available funds. The Administrative Agent shall
distribute such payments to the Lenders promptly upon receipt in like
funds as received. Whenever any payment of principal of, or interest
on, the Base Rate Loans or of fees shall be due on a day that is not a
Domestic Business Day, the date for payment thereof shall be extended to
the next succeeding Domestic Business Day. Whenever any payment of
principal of, or interest on, the Eurodollar Loans or Money Market LIBOR
Loans shall be due on a day that is not a Eurodollar Business Day, the
date for payment thereof shall be extended to the next succeeding
Eurodollar Business Day unless such Eurodollar Business Day falls in
another calendar month, in which case the date for payment thereof shall
be the next preceding
<PAGE>
35
Eurodollar Business Day. Whenever any payment of principal of, or
interest on, the Money Market Absolute Rate Loans shall be due on a day
that is not a Domestic Business Day, the date for payment thereof shall
be extended to the next succeeding Domestic Business Day. If the date
for any payment of principal is extended by operation of law or
otherwise, interest thereon shall be payable for such extended time.
(b) Unless the Administrative Agent shall have
received notice from the Borrower prior to the date on which any payment
is due to the Lenders hereunder that the Borrower will not make such
payment in full, the Administrative Agent may assume that the Borrower
has made such payment in full to the Administrative Agent on such date
and the Administrative Agent may, in reliance upon such assumption,
cause to be distributed to each Lender on such due date an amount equal
to the amount then due such Lender. If and to the extent that the
Borrower shall not have so made such payment, each Lender shall repay to
the Administrative Agent forthwith on demand such amount distributed to
such Lender together with interest thereon, for each day from the date
such amount is distributed to such Lender until the date such Lender
repays such amount to the Administrative Agent, at the Federal Funds
Rate.
(c) Unless the Administrative Agent has received
notice from a Lender prior to a Borrowing Date that such Lender will not
make available to the Administrative Agent the amount that would
constitute its share of the Loans to be made on such Borrowing Date, the
Administrative Agent may assume that such Lender is making such amount
available to the Administrative Agent, and the Administrative Agent may,
in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the
Administrative Agent by the required time on such Borrowing Date, such
Lender shall pay to the Administrative Agent, on demand, such amount
with interest thereon at a rate equal to the daily average Federal Funds
Rate for the period until such Lender makes such amount immediately
available to the Administrative Agent. A certificate of the
Administrative Agent submitted to any Lender with respect to any amounts
owing under this subsection shall be conclusive in the absence of
manifest error. In addition to, and not in limitation of, the
foregoing, if such Lender's share of such Loans is not made available to
the Administrative Agent by such Lender within three Business Days of
such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum equal to
the Federal Funds Rate plus the Applicable Margin applicable to
Eurodollar Loans, on demand, from the Borrower.
4.16 Funding Losses. If the Borrower makes any
payment of principal with respect to any Eurodollar Loan or Money Market
Loan on any day other than the last day of an Interest Period applicable
thereto, or if the Borrower fails to borrow, prepay, convert or continue
any Eurodollar Loan or Money Market Loan after giving a Notice of
Revolving Credit Borrowing, Notice of Money Market Borrowing or notice
of prepayment, continuation or conversion, as the case may be, the
Borrower shall reimburse each Lender within 15 days after demand for any
resulting loss or expense incurred by it (or by an existing or
prospective Participant in the related Loan), including (without
limitation) any loss incurred in liquidating or employing deposits from
third parties, but excluding loss of margin for the period after any
<PAGE>
36
such payment or failure to borrow or prepay, provided that such Lender
shall have delivered to the Borrower a certificate as to the amount of
such loss or expense, which certificate shall be conclusive in the
absence of manifest error. The provisions of this subsection shall
survive any termination of this Agreement.
4.17 Replacement of Affected Lender. At any time any
Lender is an Affected Lender, the Borrower may replace such Affected
Lender as a party to this Agreement with one or more other bank(s) or
financial institution(s) reasonably satisfactory to the Administrative
Agent, such bank(s) or financial institution(s) to have a Commitment or
Commitments, as the case may be, in an aggregate amount equal to the
Commitment of such Affected Lender being replaced thereby, and upon
notice from the Borrower such Affected Lender shall assign, without
recourse or warranty, its Commitment, its Revolving Credit Loans, and
all of its other rights and obligations hereunder to such replacement
bank(s) or other financial institution(s) for a purchase price equal to
the sum of the principal amount of the Loans so assigned, all accrued
and unpaid interest thereon, its ratable share of all accrued and unpaid
fees, any amounts payable under subsection 4.16 as a result of such
Lender receiving payment of any Eurodollar Loan prior to the end of an
Interest Period therefor and all other obligations owed to such Affected
Lender hereunder; provided that no Affected Lender shall be required to
assign any Money Market Loan.
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce the Agents and the Lenders to enter into this
Agreement and to make the Loans, the Borrower hereby represents and
warrants to each Agent and each Lender that:
5.1 Financial Condition. (a) The unaudited
consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of June 30, 1996 and the related unaudited consolidated
statements of income and cash flows for the six months then ended,
copies of which have been delivered to each of the Lenders, fairly
present, in conformity with GAAP applied on a basis consistent with the
financial statements referred to in paragraph (b) of this subsection,
the consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of such date and their consolidated results of
operations and cash flows for such six-month period.
(b) The consolidated balance sheet of the Borrower and
its Consolidated Subsidiaries as of December 31, 1995 and the related
audited consolidated statements of income and cash flows for the fiscal
year then ended, reported on by Coopers & Lybrand LLP, copies of which
have been delivered to each of the Lenders, fairly present, in
conformity with GAAP, the consolidated financial position of the
Borrower and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for the fiscal year
then ended.
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37
5.2 No Change. Since June 30, 1996, there has been no
material adverse change in the financial position, results of operations
or business of the Borrower and its Consolidated Subsidiaries,
considered as a whole.
5.3 Corporate Existence and Power. The Borrower is a
corporation duly incorporated, validly existing and in good standing
under the laws of the State of Delaware, and has all corporate powers
and all governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted, except in any case
where the failure to be in good standing or to have such powers,
licenses, authorizations, consents or approvals would not, in the
aggregate, materially adversely affect the financial position, results
of operations or business of the Borrower and its Consolidated
Subsidiaries, considered as a whole.
5.4 Corporate and Governmental Authorization; Non
Contravention. The execution, delivery and performance by the Borrower
of this Agreement and any Note are within the Borrower's corporate
powers, have been duly authorized by all necessary corporate action,
require no action by or in respect of, or filing with, any governmental
body, agency or official and do not contravene, or constitute a default
under, any provision of applicable law, rule or regulation or of the
certificate of incorporation or by-laws of the Borrower or of any
agreement, judgment, injunction, order, decree or other instrument
binding upon the Borrower or result in the creation or imposition of any
Lien on any asset of the Borrower or any Subsidiary except for any
contravention of or default under or Lien arising under any law, rule or
regulation or any agreement, judgment, order, decree or other instrument
(other than agreements or instruments constituting or evidencing Debt)
not material to the business of the Borrower and its Consolidated
Subsidiaries, considered as a whole, which contravention, default or
Lien would not (a) materially adversely affect the financial position,
results of operations or business of the Borrower and its Consolidated
Subsidiaries, considered as a whole or (b) adversely affect in any
substantive way the rights and remedies of the Agents and the Lenders
hereunder.
5.5 Binding Effect. This Agreement constitutes, and
any Note when executed and delivered will constitute, a valid and
binding agreement of the Borrower except as the enforceability thereof
may be limited by (a) bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (b) general equitable principles
(whether enforceability is considered in a proceeding in equity or at
law).
5.6 Litigation. Except as disclosed in the Form 10-K
of the Borrower for the fiscal year ended December 31, 1995, the Form
10-Q of the Borrower for the period ending March 31, 1996, the Form 10-Q
of the Borrower for the period ending June 30, 1996, or in Schedule III,
there is no action, suit or proceeding pending against, or to the
knowledge of the Borrower threatened against or affecting, the Borrower
or any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official (a) in which there is a reasonable
possibility of an adverse decision that could materially adversely
affect the business, financial position or results of operations of the
Borrower and its Consolidated
<PAGE>
38
Subsidiaries, considered as a whole, or (b) that in any manner draws
into question the validity of this Agreement or any Note.
5.7 Taxes. United States Federal income tax returns
of Santa Fe Pacific Corporation and its Material Subsidiaries have been
examined and closed or the statutes of limitations have expired for all
fiscal years through the year ended December 31, 1980. United States
Federal income tax returns of Burlington Northern Inc. and its Material
Subsidiaries have been examined and closed or the statutes of
limitations have expired for all fiscal years through the year ended
December 31, 1985. The Borrower and its Material Subsidiaries have
filed all United States Federal income tax returns and all other
material tax returns which are required to be filed by them and have
paid all taxes due pursuant to such returns or pursuant to any
assessment received by the Borrower or any Material Subsidiary except
for any taxes being contested in good faith by appropriate proceedings
and as to which accruals have been provided in accordance with GAAP. The
accruals on the books of the Borrower and its Material Subsidiaries in
respect of taxes or other governmental charges are, in the opinion of
the Borrower, adequate.
5.8 Federal Regulations. No part of the proceeds of
any Loans will be used for "purchasing" or "carrying" any "margin stock"
within the respective meanings of each of the quoted terms under
Regulation G or Regulation U in violation of such Regulations.
5.9 ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA
and the Internal Revenue Code with respect to each Plan and is in
compliance in all material respects with the presently applicable
provisions of ERISA and the Internal Revenue Code with respect to each
Plan. No member of the ERISA Group has (a) sought a waiver of the
minimum funding standard under Section 412 of the Internal Revenue Code
in respect of any Plan, (b) failed to make any contribution or payment
to any Plan or Multiemployer Plan, or made any amendment to any Plan,
that has resulted or could result in the imposition of a Lien or the
posting of a bond or other security under ERISA or the Internal Revenue
Code or (c) incurred any liability under Title IV of ERISA other than
for regular contributions, which are not delinquent, and other than a
liability to the PBGC for premiums under Section 4007 of ERISA or a
liability to any Multiemployer Plan not in excess of $50,000,000.
5.10 Not an Investment Company. The Borrower is not
an "investment company" within the meaning of the Investment Company Act
of 1940, as amended.
5.11 Subsidiaries. Each of the Borrower's corporate
Material Subsidiaries is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted except in any case where the
failure to be in good standing or to have such powers, licenses,
authorizations, consents and approvals would not, in the aggregate (a)
materially adversely affect the financial position, results of
operations or business of the Borrower
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39
and its Consolidated Subsidiaries, considered as a whole, or (b)
adversely affect in any substantive way the rights and remedies of the
Agents and the Lenders hereunder or under any Note.
5.12 Environmental Matters. Except as disclosed in
the Form 10-K of the Borrower for the fiscal year ended December 31,
1995, the Form 10-Q of the Borrower for the period ending March 31,
1996, the Form 10-Q of the Borrower for the period ending June 30, 1996,
or in Schedule III, the Borrower and its Subsidiaries are in compliance
in all material respects with all Environmental Laws, and no Hazardous
Substances have been released upon any properties owned, leased or
operated by the Borrower or any of its Subsidiaries, except, in each
case, to an extent that would not be reasonably anticipated to have a
material adverse effect on the business, financial position or results
of operations of the Borrower and its Consolidated Subsidiaries,
considered as a whole.
5.13 Full Disclosure. The material furnished to the
Agents and the Lenders by or on behalf of the Borrower in connection
with the negotiation, execution and delivery of this Agreement, taken as
a whole, does not contain as of the date hereof, did not contain at the
time so furnished and will not contain on the date of the initial
borrowing of Loans, any untrue statement of a material fact and does not
as of the date hereof omit, did not omit at the time so furnished and
will not omit on the date of the initial borrowing of Loans, to state
any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
5.14 Limitation on Subsidiary Restrictions. Neither
the Borrower nor any Material Subsidiary has entered into any agreement
with any Person prior to the date hereof that will continue to be in
effect after the Closing Date which prohibits or limits the ability of
such Material Subsidiary to pay dividends or make other distributions to
the Borrower.
SECTION 6. CONDITIONS PRECEDENT
6.1 Conditions to Closing Date. The Closing Date will
occur on the date of satisfaction of the following conditions precedent:
(a) Revolving Credit Agreement. The Documentation
Agent shall have received this Agreement, executed and
delivered by a duly authorized officer of the Borrower, with a
counterpart for each Lender.
(b) Related Agreements. The Documentation Agent shall
have received, with a copy for each Lender, true and correct
copies, certified as to authenticity by the Borrower, of such
other documents or instruments as may be reasonably requested
by the Documentation Agent, including, without limitation, a
copy of any material debt instrument, material security
agreement or other material contract to which the Borrower or
its Subsidiaries may be a party.
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(c) Corporate Proceedings of the Borrower. The
Documentation Agent shall have received, with a counterpart for
each Lender, a copy of the resolutions, in form and substance
satisfactory to the Documentation Agent, of the Board of
Directors of the Borrower authorizing (i) the execution,
delivery and performance of this Agreement and any Note and
(ii) the borrowings contemplated hereunder, certified by the
secretary or an assistant secretary of the Borrower as of the
Closing Date, which certificate shall be in form and substance
satisfactory to the Documentation Agent and shall state that
the resolutions thereby certified have not been amended,
modified, revoked or rescinded.
(d) Borrower Incumbency Certificate. The
Documentation Agent shall have received, with a counterpart for
each Lender, a certificate of the Borrower, dated the Closing
Date, as to the incumbency and signature of the officers of the
Borrower executing this Agreement and documents executed by the
Borrower pursuant hereto, satisfactory in form and substance to
the Documentation Agent, executed by the vice-president -
finance or the chief financial officer and the secretary or an
assistant secretary of the Borrower.
(e) Corporate Documents. The Documentation Agent
shall have received, with a counterpart for each Lender, true
and complete copies of the certificate of incorporation and
by-laws of the Borrower, certified as of the Closing Date as
complete and correct copies thereof by the secretary or an
assistant secretary of the Borrower.
(f) Fees. Each Agent and each Co-Arranger shall have
received the fees referred to in subsection 4.1 to be received
on or prior to the Closing Date.
(g) Legal Opinions. The Documentation Agent shall
have received, with a counterpart for each Lender, the
following executed legal opinions:
(i) the executed legal opinion of Mayer,
Brown & Platt, counsel to the Borrower, substantially
in the form of Exhibit E-1;
(ii) the executed legal opinion of the
general counsel of the Borrower, substantially in the
form of Exhibit E-2; and
(iii) the executed legal opinion of Simpson
Thacher & Bartlett, special counsel to the
Documentation Agent and the Administrative Agent,
substantially in the form of Exhibit E-3.
Each such legal opinion shall be dated the Closing Date and
shall cover such other matters incident to the transactions
contemplated by this Agreement as either Agent may reasonably
require.
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(h) Representations and Warranties. Each of the
representations and warranties made by the Borrower in this
Agreement shall be true and correct in all material respects on
and as of the Closing Date as if made on and as of the Closing
Date.
(i) No Default. No Default or Event of Default shall
have occurred and be continuing on the Closing Date.
(j) Additional Matters. All corporate and other
proceedings, and all documents, instruments and other legal
matters in connection with the transactions contemplated by
this Agreement shall be satisfactory in form and substance to
the Agents, and the Agents and the Lenders shall have received
such other documents and legal opinions in respect of any
aspect or consequence of the transactions contemplated hereby
or thereby as the Agents shall reasonably request.
6.2 Conditions to Each Loan. The agreement of each
Lender to make any Loan requested to be made by it on any date
(including, without limitation, its initial Loan) is subject to the
satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Borrower in this
Agreement shall be true and correct in all material respects on
and as of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall
have occurred and be continuing on such date or after giving
effect to the Loans requested to be made on such date.
(c) Notice of Borrowing. The Administrative Agent
shall have received by the time required pursuant to subsection
2.2 or 3.6, as the case may be, the Notice of Revolving Credit
Borrowing or Notice of Money Market Borrowing, as the case may
be, in respect of such Loans.
Each borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower as of the date thereof that
the conditions contained in paragraphs (a), (b) and (c) of this
subsection have been satisfied.
SECTION 7. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as any of the
Commitments remains in effect or any amount is owing to any Lender or
Agent hereunder or under any Note:
7.1 Information. The Borrower will deliver to the
Administrative Agent in sufficient number for all of the Lenders (and
the Administrative Agent shall promptly deliver to each Lender upon
receipt):
<PAGE>
42
(a) as soon as available and in any event within 120
days after the end of each fiscal year of the Borrower, a
consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of the end of such fiscal year and the related
consolidated statements of income, stockholders' equity and
cash flows for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all
reported on in a manner acceptable to the Securities and
Exchange Commission by independent public accountants of
nationally recognized standing;
(b) within 120 days after the end of each fiscal year
of the Borrower, a consolidating balance sheet in reasonable
detail of the Borrower and its Consolidated Subsidiaries as of
the end of such fiscal year and the related consolidating
statement of income for such fiscal year, all certified by the
chief financial officer, chief accounting officer or vice
president-finance of the Borrower as having been used in
connection with the preparation of the financial statements
referred to in paragraph (a) of this subsection;
(c) as soon as available and in any event within 60
days after the end of each of the first three quarters of each
fiscal year of the Borrower, a consolidated balance sheet of
the Borrower and its Consolidated Subsidiaries as of the end of
such quarter, the related consolidated statement of income for
such quarter and for the portion of the Borrower's fiscal year
ended at the end of such quarter, setting forth in comparative
form such statement of income for the corresponding quarter and
the corresponding portion of the Borrower's previous fiscal
year, and the related consolidated statement of cash flow for
the portion of the Borrower's fiscal year ended at the end of
such quarter, setting forth in comparative form such statement
of cash flow for the corresponding portion of the Borrower's
previous fiscal year, all certified as to fairness of
presentation, generally accepted accounting principles and
consistency (except for any changes concurred with by the
Borrower's independent public accountants) by the chief
financial officer, chief accounting officer or vice
president-finance of the Borrower;
(d) simultaneously with the delivery of each set of
financial statements referred to in paragraphs (a) and (c) of
this subsection, a certificate of the chief financial officer,
chief accounting officer or vice president-finance of the
Borrower (A) setting forth in reasonable detail the
calculations required to establish whether the Borrower was in
compliance with the requirements of subsections 8.1, and 8.2 on
the date of such financial statements, (B) stating whether
there exists on the date of such certificate any Default and,
if any Default then exists, setting forth the details thereof
and the action that the Borrower is taking or proposes to take
with respect thereto and (C) stating whether, to the best of
his knowledge, after due inquiry, since the date of the most
recent previous delivery of financial statements pursuant to
paragraph (a) or (c) of this subsection, there has been any
material adverse change in the business, financial position or
results of operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole, and, if so, the nature of
such material adverse change;
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43
(e) simultaneously with the delivery of each set of
financial statements referred to in paragraph (a) of this
subsection, a statement of the firm of independent public
accountants that reported on such statements (i) stating that
their audit examination has included a review of the terms of
this Agreement as they relate to financial or accounting
matters (including without limitation the requirements of
subsections 8.1 and 8.2) and (ii) stating whether anything has
come to their attention to cause them to believe that any
Default existed on the date of such statements;
(f) within five days after any officer of the Borrower
obtains knowledge of any Default, if such Default is then
continuing, a certificate of the chief financial officer, chief
accounting officer or vice president-finance of the Borrower
setting forth the details thereof and the action that the
Borrower is taking or proposes to take with respect thereto;
(g) promptly upon the mailing thereof to the
shareholders of the Borrower generally, copies of all financial
statements, reports and proxy statements so mailed;
(h) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits thereto and
any registration statements on Form S-8 or its equivalent) and
annual, quarterly or other reports that the Borrower shall have
filed with the Securities and Exchange Commission (it being
understood that if such reports and the financial statements,
reports and proxy statements referred to in paragraph (g) of
this subsection are provided within the time period prescribed
by, and contain the financial statements, opinions and
certifications required by, paragraphs (a) and (c) of this
subsection, the requirements of supplying such financial
statements, opinions and certifications shall be deemed to have
been met);
(i) if and when any member of the ERISA Group (i)
gives or is required to give notice to the PBGC of any
"reportable event" (as defined in Section 4043 of ERISA) with
respect to any Plan that might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that
the plan administrator of any Plan has given or is required to
give notice of any such reportable event, a copy of the notice
of such reportable event given or required to be given to the
PBGC; (ii) receives notice of complete or partial withdrawal
liability under Title IV of ERISA or notice that any
Multiemployer Plan is in reorganization, is insolvent or has
been terminated, a copy of such notice; (iii) receives notice
from the PBGC under Title IV of ERISA of an intent to
terminate, impose liability (other than for premiums under
Section 4007 of ERISA) in respect of, or appoint a trustee to
administer any Plan, a copy of such notice; (iv) applies for a
waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code, a copy of such application; (v) gives
notice of intent to terminate any Plan under Section 4041(c) of
ERISA, a copy of such notice and other information filed with
the PBGC; (vi) gives notice of withdrawal from any Plan
pursuant to Section 4063 of ERISA, a copy of such notice; or
(vii) fails to make any payment or contribution to any Plan or
makes any amendment to any Plan that has resulted or could
result in the imposition of a Lien or the posting of a bond or
other
<PAGE>
44
security, a certificate of the chief financial officer, the
vice president-finance or the chief accounting officer of the
Borrower setting forth details as to such occurrence and
action, if any, that the Borrower or applicable member of the
ERISA Group is required or proposes to take;
(j) as soon as reasonably practicable after the
chairman, president, secretary, treasurer, chief financial
officer, vice president-finance, chief legal officer or any
vice president of the Borrower obtains knowledge of the
commencement of, or a material threat of the commencement of,
an action, suit, arbitration or other proceeding against the
Borrower or any Subsidiary before any court or arbitrator or
any governmental body, agency, arbitrator or other official in
which there is a reasonable possibility of an adverse decision
that could materially adversely affect the business, financial
position or results of operation of the Borrower and its
Consolidated Subsidiaries, considered as a whole, or that in
any manner draws into question the validity of this Agreement,
information as to the nature of such pending or threatened
action, suit or proceeding;
(k) promptly after the chairman, president, secretary,
treasurer, chief financial officer, vice president-finance,
chief legal officer or any vice president of the Borrower
obtains knowledge of a Change of Control, information as to the
details thereof; and
(l) from time to time such additional information
regarding the financial position, results of operations or
business of the Borrower or any of its Subsidiaries as the
Administrative Agent, at the reasonable request of any Lender,
may request.
7.2 Maintenance of Properties; Insurance. (a) Except
as otherwise permitted by subsection 8.4, the Borrower will keep, and
will cause each Subsidiary to keep, all material property useful and
necessary in its business in good working order and condition, ordinary
wear and tear excepted, to the extent required by sound business
practice.
(b) The Borrower will insure, and will cause each
Subsidiary to insure, its assets and businesses to such extent as is
customary for companies engaged in the same or similar businesses in
similar locations.
7.3 Conduct of Business and Maintenance of Existence.
Except as permitted by subsection 8.4, the Borrower will continue, and
will cause each Subsidiary to continue, to engage in business of the
same general type as now conducted by the Borrower and such Subsidiary,
and will preserve, renew and keep in full force and effect, and will
cause each Subsidiary to preserve, renew and keep in full force and
effect, its corporate existence and its rights, privileges and
franchises necessary or desirable in the normal conduct of business;
provided that nothing in this subsection shall prohibit (a) any merger,
consolidation or Disposition permitted by subsection 8.4, or (b) the
termination of the corporate existence of any Subsidiary (other than
Burlington Northern Railroad or Santa Fe Railroad or, in the event of
the merger or consolidation of Burlington Northern Railroad and Santa Fe
Railroad, the surviving corporation of such merger or consolidation) if
the Borrower in good faith
<PAGE>
45
determines that such termination is in the best interest of the Borrower
and is not materially disadvantageous to the Lenders.
7.4 Compliance with Laws. The Borrower will comply,
and will cause each Subsidiary to comply, in all material respects with
all applicable laws, ordinances, rules, regulations and requirements of
governmental authorities (including, without limitation, Environmental
Laws and ERISA and the rules and regulations thereunder) except (a)
where necessity of compliance therewith is contested in good faith by
appropriate proceedings or (b) where the failure so to comply would not
have a material adverse effect on the business, financial position or
results of operations of the Borrower and its Consolidated Subsidiaries,
considered as a whole.
7.5 Use of Proceeds. (a) The Borrower will use the
proceeds of the Loans for working capital and other general corporate
purposes.
(b) None of the proceeds of any Loan will be used,
directly or indirectly, for the purpose, whether immediate, incidental
or ultimate, of purchasing or carrying any "margin stock" within the
meaning of Regulation G or Regulation U in violation of such
Regulations.
7.6 Maintenance of Ownership of Railroads. The
Borrower will at all times own, directly or through one or more
Wholly-Owned Subsidiaries that are Material Subsidiaries, all
outstanding capital stock of Burlington Northern Railroad and Santa Fe
Railroad (or, in the event of the merger or consolidation of Burlington
Northern Railroad and Santa Fe Railroad, the surviving corporation of
such merger or consolidation).
SECTION 8. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as any of the
Commitments remains in effect or any amount is owing to any Lender or
Agent hereunder or under any Note:
8.1 Financial Condition Covenants.
(a) Maintenance of Consolidated Tangible Net Worth.
The Borrower will not permit Consolidated Tangible Net Worth at
any time to be less than $4,400,000,000.
(b) Limitation on Consolidated Total Debt. The
Borrower will not permit Consolidated Total Debt at any time to
exceed 55% of Consolidated Total Capital at such time.
8.2 Limitation on Debt. (a) The Borrower will not
permit any Subsidiary to create, incur, assume or suffer to
exist any Debt, except:
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46
(i) Debt of any Subsidiary to the Borrower or to
another Wholly-Owned Subsidiary;
(ii) Debt of any Subsidiary used for the purposes
specified in, and secured by any Lien permitted by (or, if such
Subsidiary is not a Material Subsidiary, any Lien which would
be permitted if it were a Material Subsidiary by), subsection
8.3(b), (c), (d), (e) or (j), and any refinancing of such Debt
in a principal amount not exceeding the fair market value (as
determined in good faith by the Borrower), on the date of such
refinancing, of the assets subject to such Lien;
(iii) Debt of any Subsidiary outstanding on the date
hereof and listed on Schedule II, and any Debt of any
Subsidiary the proceeds of which are used to refinance such
outstanding Debt of such Subsidiary, provided that the
principal amount thereof is not increased;
(iv) Receivables Program Obligations, to the extent
that the Accounts Receivable Financing Amount thereof does not
exceed $750,000,000; and
(v) additional Debt of any Subsidiary in an
aggregate principal amount for all Subsidiaries at any time
outstanding not exceeding 5% of Consolidated Tangible Net
Worth.
(b) The Borrower will not permit any Subsidiary or
Special Purpose Vehicle to incur any Receivables Program Obligations
(including as permitted by subsection 8.2(a)(v)) to the extent that the
Accounts Receivable Financing Amount thereof exceeds $750,000,000.
8.3 Limitation on Liens. Neither the Borrower nor any
Material Subsidiary will create or have outstanding any Lien on any
asset now owned or hereafter acquired by it, except:
(a) Liens existing on the date hereof securing Debt
outstanding on the date hereof;
(b) any Lien existing on any asset of any corporation
at the time such corporation becomes a Material Subsidiary and
not created in contemplation of such event;
(c) any Lien on any asset securing Debt incurred or
assumed for the purpose of financing all or any part of the
cost of acquiring such asset, provided that such Lien attaches
to such asset, and only to such asset, concurrently with or
within 360 days after the acquisition (or completion of
development) thereof;
(d) any Lien on any asset of any corporation existing
at the time such corporation is merged into or consolidated
with the Borrower or a Material Subsidiary and not created in
contemplation of such event;
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47
(e) any Lien existing on any asset prior to the
acquisition thereof by the Borrower or a Material Subsidiary
and not created in contemplation of such acquisition;
(f) Liens created on railroad property pursuant to
after-acquired property clauses of mortgages on such railroad
property so long as such mortgage was in existence on the date
hereof;
(g) Liens arising pursuant to judgments, attachments,
distraint or similar legal processes in an amount not exceeding
$250,000,000 which have been bonded or stayed pending appeal or
other contest;
(h) materialmen's, vendor's, workmen's, operator's,
mechanics', carrier's and like Liens imposed by law, incurred
in good faith in the ordinary course of business and securing
obligations that are not yet due or that are being contested in
good faith by appropriate proceedings;
(i) any Lien arising out of the refinancing,
extension, renewal or refunding of any Debt secured by any Lien
permitted by any of the foregoing clauses of this Section,
provided that such Debt is not increased beyond the principal
amount thereof outstanding on the date of such refinancing,
extension, renewal or refinancing, and is not secured by any
additional assets;
(j) any Lien on railroad locomotives, auto racks or
rolling stock securing Debt incurred for the purpose of
acquiring or refurbishing such property; provided, that such
Lien attaches to such property and only to such property within
360 days after the acquisition or the completion of
refurbishment of such property;
(k) any Lien on Receivables Program Assets securing
Receivables Program Obligations; and
(l) Liens not otherwise permitted by the foregoing
clauses of this subsection securing Debt in an aggregate
principal amount at any time outstanding not exceeding 5% of
Consolidated Tangible Net Worth.
8.4 Consolidations, Mergers and Sale of Assets. The
Borrower will not, and will not permit any Material Subsidiary to,
consolidate with or merge into any other Person or Dispose of all or
substantially all of its assets, property or business, in any single
transaction or series of related transactions; provided, that (a) any
Material Subsidiary may merge or consolidate with, or Dispose of all or
substantially all of its assets, property or business to, any other
Subsidiary or may merge or consolidate with, or Dispose of all or
substantially all of its assets, property or business to, the Borrower
(if the Borrower shall be the surviving corporation in any such merger
or consolidation), (b) subject to subsection 7.6, any Material
Subsidiary may consolidate with or merge into any other Person, or any
Material Subsidiary (other than Burlington Northern Railroad or Santa Fe
Railroad) may Dispose of all or
<PAGE>
48
substantially all of its assets, property or business in any single
transaction or any series of related transactions, on terms and
conditions approved by the Board of Directors of the Borrower, and (c)
subject to subsection 7.6, the Borrower may merge or consolidate with
any other corporation if (i) (A) the surviving corporation shall be the
Borrower or (B) the surviving corporation, if not the Borrower, shall be
a corporation organized and existing under the laws of the United States
or any state thereof or the District of Columbia and shall expressly
assume by a written assignment executed and delivered to the
Administrative Agent, all of the rights and obligations of the Borrower
under this Agreement (and pursuant to which such surviving corporation
shall become the "Borrower" under this Agreement), and (ii) after giving
effect to such merger or consolidation no Default shall have occurred
and be continuing.
8.5 Limitation on Transactions with Affiliates. The
Borrower will not, and will not permit any Subsidiary to, directly or
indirectly, pay any funds to or for the account of, make any investment
(whether by acquisition of stock or indebtedness, by loan, advance,
transfer of property, guarantee or other agreement to pay, purchase or
service, directly or indirectly, any Debt, or otherwise) in, lease,
sell, transfer or otherwise dispose of any assets, tangible or
intangible, to, or participate in, or effect any transaction in
connection with any joint enterprise or other joint arrangement with,
any Affiliate other than in the ordinary course of business and on terms
and conditions at least as favorable to the Borrower or such Subsidiary
as the terms and conditions which would apply in a similar transaction
with a Person not an Affiliate.
8.6 Limitation on Subsidiary Restrictions. The
Borrower will not permit any Material Subsidiary to enter into any
agreement after the date hereof with any Person which prohibits or
limits the ability of such Material Subsidiary to pay dividends or make
other distributions to the Borrower, or amend, modify or supplement any
existing agreement or instrument in any manner that has the effect of so
prohibiting or limiting such ability.
SECTION 9. EVENTS OF DEFAULT
9.1 Events of Default. If any of the following events
shall occur and be continuing:
(a) the Borrower shall fail to pay when due any
principal of any Loan;
(b) the Borrower shall fail to pay interest on any
Loan or any fees or other amounts payable hereunder within five
days after the same becomes due and payable;
(c) the Borrower shall fail to observe or perform any
covenant contained in subsection 7.1(f), 7.6, 8.1, 8.4, 8.6, or
at any time that Rating VI is in effect, subsection 8.2, 8.3 or
8.5;
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49
(d) (i) the Borrower shall fail to observe or perform
any covenant contained in subsection 8.2, 8.3 or 8.5 at any
time that a Rating other than Rating VI is in effect and such
default continues unremedied for a period of 30 days after the
occurrence thereof or (ii) the Borrower shall fail to observe
or perform any covenant or agreement contained in this
Agreement (other than those covered by clause (a), (b), (c) or
(d)(i) above) for 30 days after written notice thereof has been
given to the Borrower by the Administrative Agent at the
request of any Lender;
(e) any representation, warranty, certification or
statement made by the Borrower in this Agreement or in any
certificate, financial statement or other document delivered
pursuant to this Agreement shall prove to have been incorrect
in any material respect when made (or deemed made);
(f) any payment in respect of Specified Obligations of
the Borrower and its Material Subsidiaries (except for Debt
under this Agreement) having a principal amount in excess of
$75,000,000 in the aggregate shall not be paid when due or
within any applicable grace period;
(g) any event or condition shall occur that results in
the acceleration of the maturity of any Specified Obligations
of the Borrower and its Material Subsidiaries (except for Debt
under this Agreement) and/or cancellation of commitments under
Committed Credit Facilities in a principal amount in excess of
$75,000,000 in the aggregate for all such Specified Obligations
and Committed Credit Facilities or enables the holder of such
Specified Obligation and/or the lenders under any such
Committed Credit Facility or any Person acting on behalf of
such holders and/or lenders to accelerate the maturity of such
Specified Obligation and/or to terminate the commitments to
extend credit under such Committed Credit Facility, in each
case in an aggregate amount in excess of $75,000,000 for all
such Specified Obligations and Committed Credit Facilities;
(h) the Borrower or any Material Subsidiary shall
commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its
property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors,
or shall fail generally to pay its debts as they become due, or
shall take any corporate action to authorize any of the
foregoing;
(i) an involuntary case or other proceeding shall be
commenced against the Borrower or any Material Subsidiary
seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator,
<PAGE>
50
custodian or other similar official of it or any substantial
part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period
of 60 days; or an order for relief shall be entered against the
Borrower or any Material Subsidiary under the federal
bankruptcy laws as now or hereafter in effect;
(j) any member of the ERISA Group at the time in
question shall fail to pay when due an amount or amounts
aggregating in excess of $10,000,000 which it shall have become
liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan shall be filed under Title IV of
ERISA by any member of the ERISA Group at the time in question,
any plan administrator or any combination of the foregoing; or
the PBGC shall institute proceedings under Title IV of ERISA to
terminate, to impose liability (other than for premiums under
Section 4007 of ERISA) in respect of, or to cause a trustee to
be appointed to administer any Material Plan; or a condition
shall exist by reason of which the PBGC would be entitled to
obtain a decree adjudicating that any Material Plan must be
terminated; or there shall occur a complete or partial
withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer
Plans which could cause one or more members of the ERISA Group
to incur a current payment obligation in excess of $50,000,000;
or
(k) (i) one or more judgments or orders for the
payment of money in an aggregate amount in excess of
$100,000,000, other than the Crow Judgment, shall be rendered
against the Borrower or any Material Subsidiary and such
judgments or orders shall continue unsatisfied and unstayed for
a period of 30 days; or (ii) in the case of the Crow Judgment,
(A) Burlington Northern Railroad shall cease diligently and
actively to pursue one or more appeals or other applicable
legal proceedings to overturn or challenge the Crow Judgment
and defend against enforcement thereof, in each case in any
court in the United States having jurisdiction to consider such
appeals or proceedings; (B) any enforcement, injunction,
seizure, attachment or other action affecting the assets or
operations of Burlington Northern Railroad shall occur in
respect of the Crow Judgment that, individually or in the
aggregate, has a material adverse effect on the financial
position, results of operations or business of the Borrower and
its Consolidated Subsidiaries, considered as a whole; (C) any
state or Federal court shall render a judgment, order or
decision having the effect of allowing enforcement of the Crow
Judgment, and such judgment, order or decision shall continue
unsatisfied and unstayed for a period of 30 days; or (D) (x)
the amount of the award thereunder (excluding post-judgment
interest) is increased to an amount greater than $250,000,000,
(y) the amount of such award not covered by insurance exceeds
$100,000,000 and (z) the judgment, order or decision effecting
such increase shall continue unsatisfied and unstayed for a
period of 30 days;
then, and in any such event, (A) if such event is an Event of Default
specified in paragraph (h) or (i) of this subsection 9.1 with respect to
the Borrower, automatically the Commitments shall immediately terminate
and the Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement and any Note shall immediately become
due and
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51
payable, and (B) if such event is any other Event of Default, either or
both of the following actions may be taken: (i) with the consent of the
Required Lenders, the Administrative Agent may, or upon the request of
the Required Lenders, the Administrative Agent shall, by notice to the
Borrower declare the Commitments to be terminated forthwith, whereupon
the Commitments shall immediately terminate; and (ii) with the consent
of the Required Lenders, the Administrative Agent may, or upon the
request of the Required Lenders, the Administrative Agent shall, by
notice to the Borrower, declare the Loans hereunder (with accrued
interest thereon) and all other amounts owing under this Agreement and
any Note to be due and payable forthwith, whereupon the same shall
immediately become due and payable. Except as expressly provided above
in this subsection 9.1, presentment, demand, protest and all other
notices of any kind are hereby expressly waived by the Borrower.
9.2 Notice of Default. The Administrative Agent shall
give notice to the Borrower under subsection 9.1(d)(ii) promptly upon
being requested to do so by any Lender and shall thereupon notify all
the Lenders thereof.
SECTION 10. THE AGENTS
10.1 Appointment and Authorization. Subject to the
limitations set forth in subsection 10.9, each Lender irrevocably
appoints and authorizes each Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement and any Note as
are delegated to such Agent by the terms hereof or thereof, together
with all such powers as are reasonably incidental thereto.
10.2 Agents and Affiliates. Each Agent shall have the
same rights and powers under this Agreement and any Note held by it as
any other Lender and may exercise or refrain from exercising the same as
though it were not an Agent. The Lenders acknowledge that each Agent
may receive information regarding the Borrower or its Affiliates that is
not expressly furnished pursuant to this Agreement to it in such
capacity (including information that may be subject to confidentiality
obligations in favor of the Borrower or such Affiliate) and acknowledge
that each Agent shall be under no obligation to provide such information
to them. Each Agent and each of their respective affiliates may accept
deposits from, lend money to, acquire equity interests in and generally
engage in any kind of banking, trust, financial advisory, underwriting
or other business with the Borrower or any Subsidiary or Affiliate of
the Borrower as if it were not an Agent hereunder and without notice to
or consent of the Lenders.
10.3 Action by Agents. The obligations of the Agents
hereunder are only those expressly set forth herein and no Agent shall
have or be deemed to have any fiduciary relationship with any Lender,
and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or
otherwise exist against the Agents. The Documentation Agent shall have
no responsibilities, duties, obligations, or liabilities hereunder or
otherwise in connection herewith after the Closing Date. No Agent shall
be deemed to have knowledge or notice of the occurrence of any Default
except, in the
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52
case of the Administrative Agent, to the extent it has received requests
from any Lender pursuant to subsection 9.1(d)(ii). Without limiting the
generality of the foregoing, no Agent shall be required to take any
action with respect to any Default, except as expressly provided in
Section 9. Each Agent shall be fully justified in failing or refusing
to take any action under this Agreement unless it shall first receive
such advice or concurrence of the Required Lenders as it deems
appropriate and, if it so requests, it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take
any such action.
10.4 Consultation with Experts; Delegation of Duties.
Any Agent may execute any of its duties under this Agreement by or
through agents, employees or legal counsel. Any Agent may consult with
legal counsel (who may be internal counsel or counsel for the Borrower),
independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken by it in
good faith in accordance with the advice of such counsel, accountants or
experts.
10.5 Liability of Agents. No Agent nor any of such
Agent's affiliates nor any of their respective directors, officers,
agents, or employees shall be liable for any action taken or not taken
by it in connection herewith (a) with the consent or at the request of
the Required Lenders or (b) in the absence of its own gross negligence
or willful misconduct. Without limiting the generality of the
foregoing, if this Agreement requires that any notice, consent,
certificate, statement, opinion or other writing be reasonably
satisfactory or otherwise acceptable to either Agent, then neither Agent
nor any of their respective directors, officers, agents or employees
shall be liable for accepting the same or acting thereon as long as such
Agent did so in good faith. No Agent nor any of their directors,
officers, agents or employees shall be responsible for or have any duty
to ascertain, inquire into or verify (i) any statement, warranty or
representation made in connection with this Agreement or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of the Borrower; (iii) the satisfaction of any condition
specified in Section 6, except receipt of items required to be delivered
to the Administrative Agent; or (iv) the validity, effectiveness or
genuineness of this Agreement or any Note or any other instrument or
writing furnished in connection herewith. No Agent shall incur any
liability by acting in reliance upon any notice, consent, certificate,
statement or other writing (which may be a bank wire, telex or similar
writing) believed by it to be genuine or to be signed by the proper
party or parties.
10.6 Indemnification of Agents. Each Lender shall,
ratably in accordance with its Commitment, indemnify each Agent and such
Agent's affiliates and their respective directors, officers, agents and
employees (to the extent not reimbursed by the Borrower) against any
cost, expense (including counsel fees and disbursements (which for these
purposes shall encompass the allocated costs and all disbursements of
internal counsel)), claim, demand, action, loss or liability (except
such as result from such indemnitee's gross negligence or willful
misconduct) that such indemnitee may suffer or incur in connection with
this Agreement or any Note or any action taken or omitted by such
indemnitee hereunder. The provisions of this subsection shall survive
any termination of this Agreement.
<PAGE>
53
10.7 Credit Decision. Each Lender acknowledges that
it has, independently and without reliance upon any Agent and such
Agent's affiliates or any other Lender or their respective directors,
officers, agents or employees, and based on such documents and
information as it has deemed appropriate, made its own credit analysis
and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon any
Agent or such Agent's affiliates or any other Lender or their respective
directors, officers, agents or employees, and based on such documents
and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking any action under
this Agreement. Except for notices, reports and other documents
expressly herein required to be furnished to the Lenders by an Agent,
such Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of the Borrower which may come into the possession of
any of such Agent or its affiliates or directors, officers, agents or
employees.
10.8 Successor Agents. The Administrative Agent,
subject to the appointment and acceptance of a successor Administrative
Agent as provided below, may resign as Administrative Agent hereunder at
any time by giving notice thereof to the Lenders and the Borrower. Upon
any such resignation, the Required Lenders (with the consent of the
Borrower, which shall not be unreasonably withheld or delayed) shall
have the right to appoint a successor to Administrative Agent. If no
such successor Administrative Agent shall have been so appointed by the
Required Lenders, and shall have accepted such appointment, within 30
days after the retiring Administrative Agent gives notice of
resignation, then such retiring Administrative Agent may, on behalf of
the Lenders, appoint a successor Administrative Agent, which shall be a
commercial bank organized or licensed under the laws of the United
States or of any State thereof and having a combined capital and surplus
of at least $500,000,000. Upon the acceptance of its appointment as
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become
vested with all the rights and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from
its duties and obligations hereunder. After any retiring Administrative
Agent's resignation hereunder as Administrative Agent, the provisions of
this Section and subsection 11.5 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Administrative
Agent.
10.9 The Co-Arrangers. The Co-Arrangers, in such
capacity, shall have no duties or responsibilities, and shall incur no
liability, under this Agreement.
SECTION 11. MISCELLANEOUS
11.1 Amendments and Waivers. Neither this Agreement
nor any Note nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of
this subsection. The Required Lenders may, from time to time, (a) enter
into with the Borrower written amendments, supplements or modifications
hereto or to any Note
<PAGE>
54
for the purpose of adding any provisions to this Agreement or to any
Note or changing in any manner the rights of the Lenders or of the
Borrower hereunder or thereunder or (b) waive, on such terms and
conditions as the Required Lenders may specify in such instrument, any
of the requirements of this Agreement or any Default or Event of Default
and its consequences; provided, however, that no such waiver and no such
amendment, supplement or modification shall (i) reduce the amount or
extend the scheduled date of maturity of any Loan, or reduce the stated
rate of any interest or fee payable hereunder or extend the scheduled
date of any payment thereof or increase the amount or extend the
expiration date of any Lender's Commitment, in each case without the
consent of each Lender affected thereby, or (ii) amend, modify or waive
any provision of this subsection or reduce the percentage specified in
the definition of Required Lenders, or consent to the assignment or
transfer by the Borrower of any of its rights and obligations under this
Agreement, in each case without the written consent of all the Lenders,
or (iii) amend, modify or waive any provision of Section 10 without the
written consent of both Agents. Any such waiver and any such amendment,
supplement or modification shall apply equally to each of the Lenders
and shall be binding upon the Borrower, the Lenders, the Agents and all
future holders of the Loans. In the case of any waiver, the Borrower,
the Lenders and the Agents shall be restored to their former positions
and rights hereunder and under any Notes, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; no such
waiver shall extend to any subsequent or other Default or Event of
Default or impair any right consequent thereon.
11.2 Notices. All notices, requests and demands to or
upon the respective parties hereto to be effective shall be in writing
(including by facsimile transmission), and, unless otherwise expressly
provided herein, shall be deemed to have been duly given or made when
delivered, or three Domestic Business Days after being deposited in the
mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of the Borrower, the
Administrative Agent and the Documentation Agent and as set forth in
Schedule I in the case of the Lenders, or to such other address as may
be hereafter notified by the respective parties hereto:
The Borrower: Burlington Northern Santa Fe
Corporation
Two Century Centre
1700 East Golf Road
Schaumburg, IL 60173-5860
Attention: Patrick J. Ottensmeyer
Fax: 847-995-6605
The Administrative Agent:
The Chase Manhattan Bank
10 South LaSalle Street
Suite 2300
Chicago, IL 60603
Attention: Jonathan E. Twichell
Fax: 312-807-4550
Tel: 312 807-4038
<PAGE>
55
with a copy to: Chase Loan and Agency Services
Group
140 East 45th Street, 29th Floor
New York, NY 10017
Attention: Janet N. Belden
Fax: 212-622-0002
Tel: 212-622-0011
The Documentation Agent: Morgan Guaranty Trust Company of
New York
60 Wall Street
New York, New York 10260
Attention: Charles H. King
Fax: (212) 648-5336
Tel: (212) 648-7138
; provided that any notice, request or demand to or upon either Agent
shall not be effective until received.
11.3 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of either Agent or any
Lender, any right, remedy, power or privilege hereunder or under any
Note shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
11.4 Survival of Representations and Warranties. All
representations and warranties made hereunder and in any document,
certificate or statement delivered pursuant hereto or in connection
herewith shall survive the execution and delivery of this Agreement and
the making of the Loans hereunder.
11.5 Expenses. The Borrower shall pay all reasonable
out-of-pocket expenses of the Agents in connection with the preparation
and effectiveness of this Agreement (including reasonable fees and
disbursements of Simpson Thacher & Bartlett, special counsel to the
Agents). The Borrower shall also pay (i) all reasonable out-of-pocket
expenses of the Agents (including, without duplication, reasonable fees
and disbursements of counsel to the Agents) in connection with (A) the
administration of this Agreement and any waiver or consent hereunder or
any amendment hereof or (B) any Default or alleged Default hereunder and
(ii) if an Event of Default occurs, all out-of-pocket expenses incurred
by any Agent or any Lender, including reasonable fees and disbursements
of counsel, in connection with such Event of Default and collection,
bankruptcy, insolvency and other enforcement proceedings resulting
therefrom.
<PAGE>
56
11.6 Successors and Assigns. (a) The provisions of
this Agreement and any Notes shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns, except that (i) other than under the provisions of clause (c)
of subsection 8.4, the Borrower may not assign or otherwise transfer any
of its rights or obligations under this Agreement or any Notes without
the prior written consent of all Lenders and (ii) a Lender may assign or
otherwise transfer any of its rights under this Agreement or any Notes
only in accordance with the provisions of paragraph (b), (c) or (d) of
this subsection.
(b) Any Lender may at any time grant to one or more
banks or other institutions (each a "Participant") participating
interests in its Commitments or its Loans. In the event of any such
grant by a Lender of a participating interest to a Participant, whether
or not upon notice to the Borrower and the Administrative Agent, such
Lender shall remain responsible for the performance of its obligations
hereunder, and the Borrower and the Administrative Agent shall continue
to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement. Any agreement
pursuant to which any Lender may grant such a participating interest
shall provide that such Lender shall retain the sole right and
responsibility to enforce the obligations of the Borrower hereunder
including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement; provided that
such participation agreement may provide that such Lender will not agree
to any modification, amendment or waiver of this Agreement without the
consent of the Participant that would reduce the principal of or rate of
interest on any Loan or Loans in which such Participant has a
participating interest, reduce any fee payable pursuant to subsection
4.1 or postpone the date fixed for any payment of interest or principal
on such Loan or Loans or of such fees or is of a type that requires the
consent of all the Lenders pursuant to clause (ii) of the proviso in
subsection 11.1. The Borrower agrees that each Participant shall, to
the extent provided in its participation agreement but subject to
paragraph (e) of this subsection, be entitled to the benefits of
subsections 4.10 through 4.16 with respect to its participating
interest. An assignment or other transfer that is not permitted by
paragraph (c) or (d) below shall be given effect for purposes of this
Agreement only to the extent of a participating interest granted in
accordance with this paragraph (b).
(c) Any Lender may, in accordance with applicable law,
at any time assign to one or more banks or other entities of a type to
which commercial banks customarily assign loans of the type made under
this Agreement (each an "Assignee") a portion of its Commitments in an
amount not less than $10,000,000 (provided, that, if such Lender's
Commitment is $10,000,000 or less, it may assign all, but not less than
all, of its Commitment and provided, further, that assignments by one
Lender to another Lender may be in any amounts) and its rights and
obligations under this Agreement, and such Assignee shall assume such
rights and obligations, pursuant to an Assignment and Acceptance
executed by such Assignee and such transferor Lender, with (and subject
to) the consent of the Borrower and the Administrative Agent, which
consent of the Administrative Agent shall not be unreasonably withheld;
provided that if an Assignee is a Lender or an affiliate of a Lender, no
such consents shall be required. Each such assignment must be a
proportionate share of the
<PAGE>
57
transferor Lender's Commitment and Revolving Credit Loans. Upon
execution and delivery of such instrument and payment by such Assignee
to such transferor Lender of an amount equal to the purchase price
agreed between such transferor Lender and such Assignee (and, in the
case of an Assignee not incorporated under the laws of the United States
of America or a state thereof, delivery to the Administrative Agent of
the documents described in subsection 4.13), such Assignee shall be a
Lender party to this Agreement and shall have all the rights and
obligations of a Lender with a Commitment as set forth in such
instrument of assumption, and the transferor Lender shall be released
from its obligations hereunder to a corresponding extent, and no further
consent or action by any party shall be required. In connection with
any such assignment the transferor Lender shall pay to the
Administrative Agent a fee of $2,500 for processing such assignment,
provided that such fee shall be payable by the Borrower in the event it
is required to be paid in respect of an assignment required by the
Borrower pursuant to subsection 4.17.
(d) Any Lender may at any time assign all or any
portion of its rights under this Agreement or any Note to a Federal
Reserve Bank. No such assignment shall release the transferor Lender
from its obligations hereunder.
(e) No Participant or other transferee of any Lender's
rights shall be entitled to receive any greater payment under
subsections 4.12 or 4.16 than such Lender would have been entitled to
receive with respect to the rights transferred (if it had not so
transferred such rights), unless such transfer is made with the
Borrower's prior written consent after the date hereof or made pursuant
to subsection 11.10.
(f) The Administrative Agent shall maintain at the
address of the Administrative Agent referred to in subsection 11.2 a
copy of each Assignment and Acceptance delivered to it and a register
(the "Register") for the recordation of the names and addresses of the
Lenders and the Commitments of, and principal amounts of the Loans owing
to, each Lender from time to time. The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower, the
Administrative Agent and the Lenders shall treat each Person whose name
is recorded in the Register as the owner of a Loan or other obligation
hereunder as the owner thereof for all purposes of this Agreement,
notwithstanding any notice to the contrary. Any assignment of any Loan
or other obligation hereunder shall be effective only upon appropriate
entries with respect thereto being made in the Register. The Register
shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
11.7 Indemnification by the Borrower. The Borrower
agrees to indemnify each Lender and each Agent, their respective
affiliates and the respective directors, officers, agents, stockholders,
partners and employees of the foregoing (each an "Indemnitee") and hold
each such Indemnitee harmless from and against all liabilities, losses,
damages, costs and expenses, including, subject to the limitations set
forth in the next succeeding sentence, reasonable fees and disbursements
of counsel (which for these purposes shall encompass the allocated costs
of internal legal services and all disbursements of internal counsel),
in connection with any investigative, administrative or judicial action,
suit or proceeding,
<PAGE>
58
whether or not such Indemnitee shall be designated a party thereto, that
may be incurred by such Indemnitee relating to or arising out of this
Agreement or any actual or proposed use of the proceeds of any Loan,
provided that in no event shall any Indemnitee have the right to be
indemnified hereunder by the Borrower for its own gross negligence or
willful misconduct as determined by a court of competent jurisdiction.
The obligation of the Borrower to indemnify each Indemnitee under this
subsection for fees and disbursements of counsel shall be limited to the
fees and expenses of one counsel in each jurisdiction representing all
such Persons, except (i) to the extent that, in the reasonable judgment
of any such Person, the existence of actual or potential conflicts of
interest make representation by the same counsel inappropriate and (ii)
that any such Person that is a party to, or compelled to participate in,
any such action, suit or proceeding shall be indemnified for the
reasonable fees and disbursements of its counsel to the extent provided
in the immediately preceding sentence. The provisions of this subsection
shall survive any termination of this Agreement.
11.8 Adjustments. If any Lender (a "Benefitted
Lender") shall at any time receive any payment of all or part of its
Revolving Credit Loans (or, after acceleration of the Loans pursuant to
Section 9, its Loans), or interest thereon, or receive any collateral in
respect thereof (whether voluntarily or involuntarily, by deduction,
set-off or counterclaim, pursuant to events or proceedings of the nature
referred to in subsection 9.1(h) or (i), or otherwise), in a greater
proportion than any such payment to or collateral received by any other
Lender, if any, in respect of such other Lender's Revolving Credit Loans
(or, after acceleration of the Loans pursuant to Section 9, its Loans),
or interest thereon, such Benefitted Lender shall purchase for cash from
the other Lenders a participating interest in such portion of each such
other Lender's Revolving Credit Loans (or, after acceleration of the
Loans pursuant to Section 9, its Loans), or shall provide such other
Lenders with the benefits of any such collateral, or the proceeds
thereof, as shall be necessary to cause such Benefitted Lender to share
the excess payment or benefits of such collateral or proceeds ratably
with each of the Lenders; provided, however, that if all or any portion
of such excess payment or benefits is thereafter recovered from such
Benefitted Lender, such purchase shall be rescinded, and the purchase
price and benefits returned, to the extent of such recovery, but without
interest.
11.9 Counterparts. This Agreement may be executed by
one or more of the parties to this Agreement on any number of separate
counterparts (including by facsimile transmission), and all of said
counterparts taken together shall be deemed to constitute one and the
same instrument. A set of the copies of this Agreement signed by all
the parties shall be lodged with the Borrower and each Agent.
11.10 Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof,
and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other
jurisdiction.
11.11 Integration. This Agreement represents the
agreement of the Borrower, the Agents and the Lenders with respect to
the subject matter hereof, and there are no
<PAGE>
59
promises, undertakings, representations or warranties by either Agent or
any Lender relative to the subject matter hereof not expressly set forth
or referred to herein or in the Notes.
11.12 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.
11.13 Submission To Jurisdiction; Waivers. The
Borrower hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal
action or proceeding relating to this Agreement and the Notes
to which it is a party, or for recognition and enforcement of
any judgment in respect thereof, to the non-exclusive general
jurisdiction of the Courts of the State of New York, the courts
of the United States of America for the Southern District of
New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now
or hereafter have to the venue of any such action or proceeding
in any such court or that such action or proceeding was brought
in an inconvenient court and agrees not to plead or claim the
same;
(c) agrees that service of process in any such action
or proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar form
of mail), postage prepaid, to the Borrower at its address set
forth in subsection 11.2 or at such other address of which the
Administrative Agent shall have been notified pursuant thereto;
and
(d) agrees that nothing herein shall affect the right
to effect service of process in any other manner permitted by
law or shall limit the right to sue in any other jurisdiction.
11.14 Acknowledgments. The Borrower hereby
acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the Notes;
(b) neither any Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower arising out of or in
connection with this Agreement or any of the Notes, and the
relationship between the Agents and Lenders, on one hand, and
the Borrower, on the other hand, in connection herewith or
therewith is solely that of creditor and debtor; and
<PAGE>
60
(c) no joint venture is created hereby or otherwise
exists by virtue of the transactions contemplated hereby among
the Lenders or among the Borrower and the Lenders.
11.15 Certain Existing Lenders. Each lender that is a
"Lender" under (and as defined in) the Existing Credit Agreement and
that is not a Lender signatory hereto shall, effective upon the
satisfaction of the conditions set forth in Section 6 hereof on the
Closing Date, cease to be a Lender, and the commitments of such lender
under the Existing Credit Agreement to make additional extensions of
credit shall thereupon be terminated.
11.16 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS
AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY
NOTE AND FOR ANY COUNTERCLAIM THEREIN.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
BURLINGTON NORTHERN SANTA FE CORPORATION
By:
------------------------------------
Title:
CHASE SECURITIES INC., as a
Co-Arranger
By:
------------------------------------
Title:
J.P. MORGAN SECURITIES INC.,
as a Co-Arranger
By:
------------------------------------
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent
<PAGE>
61
and as a Lender
By:
------------------------------------
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Documentation
Agent and as a Lender
By:
------------------------------------
Title:
ABN AMRO BANK N.V.
By:
------------------------------------
Title:
BANK OF AMERICA ILLINOIS
By:
------------------------------------
Title:
BANK OF MONTREAL
By:
------------------------------------
Title:
THE BANK OF NEW YORK
By:
------------------------------------
Title:
<PAGE>
62
CREDIT LYONNAIS, CAYMAN ISLAND
BRANCH
By:
------------------------------------
Title:
CREDIT SUISSE
By:
------------------------------------
Title:
THE DAI-ICHI KANGYO BANK, LTD.,
CHICAGO BRANCH
By:
------------------------------------
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By:
------------------------------------
Title:
MELLON BANK, N.A.
By:
------------------------------------
Title:
NATIONAL WESTMINSTER BANK PLC
By:
------------------------------------
Title:
<PAGE>
63
NATIONAL WESTMINSTER BANK PLC,
NASSAU BRANCH
By:
------------------------------------
Title:
THE NORTHERN TRUST COMPANY
By:
------------------------------------
Title:
SOCIETE GENERALE, SOUTHWEST AGENCY
By:
------------------------------------
Title:
UNION BANK OF SWITZERLAND
By:
------------------------------------
Title:
By:
------------------------------------
Title:
CIBC INC.
By:
------------------------------------
Title:
CITIBANK, N.A.
By:
------------------------------------
Title:
<PAGE>
64
COMMERZBANK AG, CHICAGO BRANCH
By:
------------------------------------
Title:
By:
------------------------------------
Title:
THE FUJI BANK, LIMITED
By:
------------------------------------
Title:
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., CHICAGO BRANCH
By:
------------------------------------
Title:
ROYAL BANK OF CANADA
By:
------------------------------------
Title:
<PAGE>
65
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By:
------------------------------------
Title:
By:
------------------------------------
Title:
BANCA COMMERCIALE ITALIANA
By:
------------------------------------
Title:
By:
------------------------------------
Title:
BANQUE PARIBAS
By:
------------------------------------
Title:
By:
------------------------------------
Title:
<PAGE>
66
BOATMEN'S NATIONAL BANK OF ST. LOUIS
By:
------------------------------------
Title:
CAISSE NATIONALE DE CREDIT AGRICOLE
By:
------------------------------------
Title:
FIRST BANK NATIONAL ASSOCIATION
By:
------------------------------------
Title:
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By:
------------------------------------
Title:
THE MITSUBISHI TRUST AND BANKING
CORPORATION, CHICAGO BRANCH
By:
------------------------------------
Title:
NATIONSBANK, N.A.
By:
------------------------------------
Title:
<PAGE>
67
PNC BANK, NATIONAL ASSOCIATION
By:
------------------------------------
Title:
THE SAKURA BANK, LIMITED
By:
------------------------------------
Title:
THE SANWA BANK LIMITED
By:
------------------------------------
Title:
WACHOVIA BANK OF GEORGIA, N.A.
By:
------------------------------------
Title:
<PAGE>
EXHIBIT 4.2
=============================================================================
BURLINGTON NORTHERN SANTA FE CORPORATION
_____________________________________
$500,000,000
AMENDED AND RESTATED
364-DAY REVOLVING CREDIT AGREEMENT
Dated as of November 15, 1996
_____________________________________
CHASE SECURITIES INC.
and
J.P. MORGAN SECURITIES INC.,
as Co-Arrangers,
THE CHASE MANHATTAN BANK,
as Administrative Agent,
and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Documentation Agent
=============================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . 17
SECTION 2. THE REVOLVING CREDIT LOANS . . . . . . . . . . . 17
2.1 The Commitments . . . . . . . . . . . . . . . . 18
2.2 Procedure for Revolving Credit Borrowing . . . 18
2.3 Repayment of Revolving Credit Loans . . . . . . 18
2.4 Commitment Increases . . . . . . . . . . . . . 18
SECTION 3. THE MONEY MARKET LOANS . . . . . . . . . . . . . 20
3.1 Money Market Option . . . . . . . . . . . . . . 20
3.2 Money Market Quote Request . . . . . . . . . . 20
3.3 Invitation for Money Market Quotes . . . . . . 21
3.4 Submission and Contents of Money Market Quotes 21
3.5 Notice to Borrower . . . . . . . . . . . . . . 22
3.6 Acceptance and Notice by Borrower . . . . . . . 22
3.7 Allocations . . . . . . . . . . . . . . . . . . 23
3.8 Certain Restrictions . . . . . . . . . . . . . 23
3.9 Repayment of Money Market Loans . . . . . . . . 23
SECTION 4. CERTAIN PROVISIONS APPLICABLE TO
THE COMMITMENTS AND THE LOANS . . . . . . 24
4.1 Fees . . . . . . . . . . . . . . . . . . . . . 24
4.2 Minimum Borrowing Amounts . . . . . . . . . . . 24
4.3 Termination or Reduction of Commitments . . . . 24
4.4 Optional Prepayments; Mandatory Prepayments . . 24
4.5 Conversion and Continuation Options . . . . . . 25
4.6 Minimum Amounts of Tranches . . . . . . . . . . 25
4.7 Interest Rates and Payment Dates . . . . . . . 26
4.8 Computation of Interest and Fees . . . . . . . 26
4.9 Evidence of Debt . . . . . . . . . . . . . . . 27
4.10 Basis for Determining Interest Rate Inadequate
or Unfair . . . . . . . . . . . . . . . . . . . 28
4.11 Illegality . . . . . . . . . . . . . . . . . . 28
4.12 Increased Cost and Reduced Return . . . . . . 29
4.13 Taxes . . . . . . . . . . . . . . . . . . . . 31
4.14 Base Rate Loans Substituted for Affected
Eurodollar Loans . . . . . . . . . . . . . . 34
4.15 Pro Rata Treatment and Payments . . . . . . . 34
4.16 Funding Losses . . . . . . . . . . . . . . . . 35
4.17 Replacement of Affected Lender . . . . . . . . 36
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SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . 36
5.1 Financial Condition . . . . . . . . . . . . . . 36
5.2 No Change . . . . . . . . . . . . . . . . . . . 36
5.3 Corporate Existence and Power . . . . . . . . . 36
5.4 Corporate and Governmental Authorization; Non
Contravention . . . . . . . . . . . . . . . . 37
5.5 Binding Effect . . . . . . . . . . . . . . . . 37
5.6 Litigation . . . . . . . . . . . . . . . . . . 37
5.7 Taxes . . . . . . . . . . . . . . . . . . . . . 37
5.8 Federal Regulations . . . . . . . . . . . . . . 38
5.9 ERISA . . . . . . . . . . . . . . . . . . . . . 38
5.10 Not an Investment Company . . . . . . . . . . 38
5.11 Subsidiaries . . . . . . . . . . . . . . . . . 38
5.12 Environmental Matters . . . . . . . . . . . . 38
5.13 Full Disclosure . . . . . . . . . . . . . . . 39
5.14 Limitation on Subsidiary Restrictions . . . . 39
SECTION 6. CONDITIONS PRECEDENT . . . . . . . . . . . . . . 39
6.1 Conditions to Closing Date . . . . . . . . . . 39
6.2 Conditions to Each Loan . . . . . . . . . . . . 41
SECTION 7. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . 41
7.1 Information . . . . . . . . . . . . . . . . . . 41
7.2 Maintenance of Properties; Insurance . . . . . 44
7.3 Conduct of Business and Maintenance of Existence 44
7.4 Compliance with Laws . . . . . . . . . . . . . 44
7.5 Use of Proceeds . . . . . . . . . . . . . . . . 45
7.6 Maintenance of Ownership of Railroads . . . . . 45
SECTION 8. NEGATIVE COVENANTS . . . . . . . . . . . . . . . 45
8.1 Financial Condition Covenants . . . . . . . . . 45
8.2 Limitation on Debt . . . . . . . . . . . . . . 45
8.3 Limitation on Liens . . . . . . . . . . . . . . 46
8.4 Consolidations, Mergers and Sale of Assets . . 47
8.5 Limitation on Transactions with Affiliates . . 48
8.6 Limitation on Subsidiary Restrictions . . . . . 48
SECTION 9. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . 48
9.1 Events of Default . . . . . . . . . . . . . . . 48
9.2 Notice of Default . . . . . . . . . . . . . . . 51
SECTION 10. THE AGENTS . . . . . . . . . . . . . . . . . . . 51
10.1 Appointment and Authorization . . . . . . . . 51
10.2 Agents and Affiliates . . . . . . . . . . . . 51
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10.3 Action by Agents . . . . . . . . . . . . . . . 51
10.4 Consultation with Experts; Delegation of Duties 52
10.5 Liability of Agents . . . . . . . . . . . . . 52
10.6 Indemnification of Agents . . . . . . . . . . 52
10.7 Credit Decision . . . . . . . . . . . . . . . 52
10.8 Successor Agents . . . . . . . . . . . . . . . 53
10.9 The Co-Arrangers. . . . . . . . . . . . . . . 53
SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . 53
11.1 Amendments and Waivers . . . . . . . . . . . . 53
11.2 Notices . . . . . . . . . . . . . . . . . . . 54
11.3 No Waiver; Cumulative Remedies . . . . . . . . 55
11.4 Survival of Representations and Warranties . . 55
11.5 Expenses . . . . . . . . . . . . . . . . . . . 55
11.6 Successors and Assigns . . . . . . . . . . . . 55
11.7 Indemnification by the Borrower . . . . . . . 57
11.8 Adjustments . . . . . . . . . . . . . . . . . 58
11.9 Counterparts . . . . . . . . . . . . . . . . . 58
11.10 Severability . . . . . . . . . . . . . . . . 58
11.11 Integration . . . . . . . . . . . . . . . . . 58
11.12 GOVERNING LAW . . . . . . . . . . . . . . . . 59
11.13 Submission To Jurisdiction; Waivers . . . . . 59
11.14 Acknowledgments . . . . . . . . . . . . . . . 59
11.15 Certain Existing Lenders . . . . . . . . . . 60
11.16 WAIVERS OF JURY TRIAL . . . . . . . . . . . . 60
SCHEDULES:
Schedule I Bank Names, Addresses and Commitments
Schedule II Existing Debt
Schedule III Certain Litigation and Environmental Matters
EXHIBITS:
Exhibit A Form of Money Market Quote Request
Exhibit B Form of Invitation for Money Market Quotes
Exhibit C Form of Money Market Quote
Exhibit D Form of Notice of Money Market Borrowing
Exhibit E-1 Form of Opinion of Mayer, Brown & Platt
Exhibit E-2 Form of Opinion of General Counsel
Exhibit E-3 Form of Opinion of Simpson Thacher & Bartlett
Exhibit F Form of Assignment and Acceptance
-iii-
<PAGE>
Exhibit G-1 Form of Revolving Credit Note
Exhibit G-2 Form of Money Market Note
Exhibit H Form of New Lender Supplement
Exhibit I Form of Commitment Increase Supplement
-iv-
<PAGE>
AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT,
dated as of November 15, 1996, among:
(i) BURLINGTON NORTHERN SANTA FE CORPORATION, a
Delaware corporation (the "Borrower");
(ii) the several banks and other financial institutions
from time to time parties to this Agreement as Lenders (the "Lenders");
(iii) CHASE SECURITIES INC. and J.P. MORGAN SECURITIES
INC., as Co-Arrangers (in such capacity, the "Co- Arrangers");
(iv) THE CHASE MANHATTAN BANK, as Administrative Agent
(in such capacity, the "Administrative Agent"); and
(v) MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Documentation Agent (in such capacity, the "Documentation Agent").
W I T N E S S E T H :
---------------------
WHEREAS, the Borrower wishes to amend and restate its
364-Day Revolving Credit Agreement, dated as of November 21, 1995 (the
"Existing Credit Agreement"), among the Borrower, the Lenders, the
Co-Arrangers, the Administrative Agent and the Documentation Agent;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter set forth, the parties hereto hereby agree that
the Existing Credit Agreement is amended and restated in its entirety,
effective as of the Closing Date, as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Absolute Rate Auction": a solicitation of Money Market
Quotes setting forth Money Market Absolute Rates pursuant to Section
3.
"Accounts Receivable Financing": any transaction or series
of transactions that may be entered into by the Borrower or any of
its Subsidiaries pursuant to which the Borrower or any of its
Subsidiaries may sell, convey or otherwise transfer, or may grant a
security interest in, Receivables Program Assets (it being
understood that such transaction or transactions may, or may not, be
recorded as liabilities on the consolidated balance sheet of the
Borrower).
<PAGE>
2
"Accounts Receivable Financing Amount": with respect to
any Accounts Receivable Financing and without duplication, the
outstanding principal amount of obligations referred to in clause
(a) of the definition of Receivables Program Obligations.
"Administrative Agent": as defined in the Preamble to this
Agreement.
"Administrative Questionnaire": with respect to each
Lender, an administrative questionnaire in the form prepared by the
Administrative Agent and submitted to the Administrative Agent (with
a copy to the Borrower) duly completed by such Lender.
"Affected Lender" means any Lender (i) that has demanded
compensation under subsection 4.12 or 4.13 or (ii) whose obligation
to make Eurodollar Loans has been suspended pursuant to subsection
4.11.
"Affiliate": each Controlling Person and each Person
(other than the Borrower or a Subsidiary) that is controlled by or
is under common control with a Controlling Person.
"Agents": the collective reference to the Administrative
Agent and the Documentation Agent.
"Agreement": this Amended and Restated $500,000,000
364-Day Revolving Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"Applicable Lending Office": with respect to any Lender,
(a) in the case of its Base Rate Loans, its Domestic Lending Office,
(b) in the case of its Eurodollar Loans, its Eurodollar Lending
Office and (c) in the case of its Money Market Loans, its Money
Market Lending Office.
"Applicable Margin": for any Revolving Credit Loan on any
day, (a) in the case of Base Rate Loans, 0% and (b) in the case of
Eurodollar Loans, the rate per annum set forth below opposite the
applicable Rating in effect on such day:
Rating Applicable Margin
------ -----------------
Rating I .125%
Rating II .175
Rating III .20
Rating IV .25
Rating V .375
Rating VI .60
<PAGE>
3
; provided, that if on any day more than one Rating would be
applicable, the Applicable Margin shall be determined on the basis
of the higher of such Ratings (i.e., the Rating having the lower
numerical designation), unless such higher Rating is more than one
Rating category higher than the lower of such Ratings, in which
event the Applicable Margin will be determined on the basis of the
median Rating (or the higher of the intermediate Ratings if there is
no median Rating).
"Assignee": as defined in subsection 11.6(c).
"Assignment and Acceptance": each Assignment and
Acceptance, substantially in the form of Exhibit F, delivered
pursuant to subsection 11.6(c).
"Base Rate": for any day, a rate per annum equal to the
higher of (a) the Prime Rate for such day and (b) the sum of 1/2 of
1% plus the Federal Funds Rate for such day.
"Base Rate Loan": a Revolving Credit Loan bearing interest
based upon the Base Rate in accordance with this Agreement.
"Benefitted Lender": defined in subsection 11.8.
"Borrower": as defined in the Preamble to this Agreement.
"Borrowing Date": any Domestic Business Day or Eurodollar
Business Day, as the case may be, specified in a notice pursuant to
subsection 2.2 or 3.2 as a date on which the Borrower requests the
Lenders to make Loans hereunder.
"Burlington Northern Railroad": Burlington Northern
Railroad Company, a Delaware corporation, and its successors.
"Change of Control": a Change of Control shall be deemed
to occur (a) if a "person" (including any syndicate or group deemed
to be a "person" under Sections 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of
more than 30% of the then outstanding voting stock of the Borrower;
or (b) if the majority of the Board of Directors of the Borrower
shall not be Continuing Directors of the Borrower. For purposes of
this definition, "Continuing Directors" means, as of any date and
with respect to any Person, (i) individuals who on the date one year
prior to such date were members of such Person's Board of Directors
and (ii) any new Directors whose nomination for election by such
Person's shareholders was approved by a vote of at least a majority
of the Directors then still in office who either were Directors on
the date one year prior to such date or whose nomination for
election was previously so approved.
"Closing Date": the date on which the conditions precedent
set forth in subsection 6.1 shall be satisfied.
<PAGE>
4
"Co-Arrangers": as defined in the Preamble to this
Agreement.
"Committed Credit Facility": any credit facility pursuant
to which the lenders parties thereto have committed, subject to the
conditions set forth therein, to make loans or extend other credit
to the Borrower and/or any Material Subsidiary.
"Commitment": as to any Lender, the obligation of such
Lender to make Revolving Credit Loans to the Borrower hereunder in
an aggregate principal amount at any one time outstanding not to
exceed the amount set forth opposite such Lender's name under the
column "Commitment" on Schedule I (or such portion thereof assigned
to such Lender pursuant to subsection 11.6), as such amount may be
changed from time to time in accordance with the provisions of this
Agreement.
"Commitment Increase Notice": as defined in subsection
2.4(a).
"Commitment Percentage": as to any Lender at any time, the
percentage which such Lender's Commitment then constitutes of the
aggregate Commitments (or, at any time after all the Commitments
shall have expired or terminated, the percentage which the aggregate
principal amount of such Lender's Loans then outstanding constitutes
of the aggregate principal amount of the Loans then outstanding).
"Commitment Period": the period from and including the
Closing Date to and including November 14, 1997.
"Consolidated Subsidiary": at any date, any Subsidiary or
other entity the accounts of which are consolidated with those of
the Borrower in its consolidated financial statements prepared in
accordance with GAAP as of such date.
"Consolidated Tangible Net Worth": at any date, the
consolidated stockholders' equity of the Borrower and its
Consolidated Subsidiaries less their consolidated Intangible Assets,
all as included in a balance sheet prepared in accordance with GAAP
as of such date; for purposes of this definition, "Intangible
Assets" means the amount (to the extent reflected in such balance
sheet) of (a) all write-ups (other than write-ups resulting from
foreign currency translations and write-ups of assets of a going
concern business made within twelve months after the acquisition of
such business) subsequent to September 30, 1995 in the book value of
any asset owned by the Borrower or a Consolidated Subsidiary, (b)
all investments in unconsolidated Subsidiaries, (c) all equity
investments in Persons (other than Pipeline Partners and TTX
Company) that are not Subsidiaries to the extent that the aggregate
amount of all such investments exceeds $50,000,000, and (d) all
unamortized debt issuance costs, goodwill, patents, trademarks,
service marks, trade names, copyrights, organization or
developmental expenses and other intangible assets (other than
unamortized debt discount).
<PAGE>
5
"Consolidated Total Capital": at any date, the sum of (i)
Consolidated Total Debt at such date and (ii) Consolidated Tangible
Net Worth at such date.
"Consolidated Total Debt": the aggregate amount of all
Debt of the Borrower and its Consolidated Subsidiaries, plus all
related unamortized debt discount, plus any Accounts Receivable
Financing Amount, determined on a consolidated basis in accordance
with GAAP; provided that there shall not be counted for purposes of
determining Consolidated Total Debt (i) any Debt of Pipeline
Partners for which a Subsidiary is liable solely by virtue of being
a general partner of such debtor and (ii) the Accounts Receivable
Financing Amount of up to $350,000,000 in respect of Receivables
Program Obligations that do not constitute Debt.
"Controlling Person": any Person that is in control of the
Borrower (such control being the power to direct or cause a
direction of the management and policies of the Borrower, whether
through the ownership of voting stock, by contract or otherwise),
but the mere holding of a position as an officer or a director of
the Borrower shall not, in the absence of other factors, cause a
Person to be a Controlling Person.
"Crow Judgment": the judgment in effect on the date hereof
in respect of the case styled Estates of Red Wolf, Red Horse and
Bull Tail v. Burlington Northern Railroad Company, Case No. 94-31 in
the Crow Tribal Court.
"Debt": of any Person at any date, without duplication,
(a) all obligations of such Person for borrowed money, (b) all
obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments, (c) all accrued obligations of such
Person to pay the deferred purchase price of property or services,
except (i) any obligation with respect to an asset the purchase
price of which does not exceed $50,000, (ii) any obligation arising
in the ordinary course of business and payable in full in less than
one year and (iii) accounts payable or accrued expenses arising in
the ordinary course of business and payable in full in less than one
year, (d) all lease obligations of such Person as lessee which would
be capitalized in accordance with GAAP, (e) all Debt of others
secured by a Lien on any asset of such Person, whether or not such
Debt is otherwise an obligation of such Person (but only to the
extent of the fair market value of the asset subject to such Lien),
(f) all obligations of such Person in respect of acceptances issued
or created for the account of such Person and all obligations of
such Person which have become due and payable to reimburse the
issuing bank or other Person in respect of a letter of credit or
similar instrument issued for such Person's account, (g) any
obligations of the Borrower or any Subsidiary under Receivables
Documents to repurchase or otherwise insure the collectability of
Receivables Program Assets other than (i) any such obligations for
breach of warranty claims and (ii) any such obligations under
expense reimbursement provisions, indemnity provisions and interest
and yield protection provisions and (h) all obligations of others of
the character described in the foregoing clauses (a) through (g)
Guaranteed by such Person (but only to the extent of the maximum
liability of such Person under such Guarantee).
<PAGE>
6
"Default": any of the events specified in Section 9,
whether or not any requirement for the giving of notice, the lapse
of time, or both, or any other condition, has been satisfied.
"Disposition": the sale, assignment, lease, exchange,
transfer or other disposition of any asset, other than equipment or
materials which are unfit or undesirable for use by the Borrower and
its Subsidiaries and disposed of in the ordinary course of business;
and "Dispose" shall be the verb form of such term.
"Documentation Agent": as defined in the Preamble to this
Agreement.
"Dollars" and "$": dollars in lawful currency of the
United States of America.
"Domestic Business Day": any day except a Saturday, Sunday
or other day on which commercial banks in New York City or Chicago
are authorized by law to close.
"Domestic Lending Office": as to each Lender, its office
located at its address set forth in its Administrative Questionnaire
(or identified in its Administrative Questionnaire as its Domestic
Lending Office) or such other office as such Lender may hereafter
designate as its Domestic Lending Office by notice to the Borrower
and the Administrative Agent.
"Environmental Laws": any and all applicable federal,
state, local and foreign statutes, laws, judicial decisions,
regulations, ordinances, rules, judgments, orders, decrees,
injunctions, permits, concessions, grants, franchises, licenses,
governmental agreements and other restrictions relating to the
environment, the effect of the environment on human health or to
emissions, discharges or releases of pollutants, contaminants, or
Hazardous Substances or wastes into the environment including,
without limitation, ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, or Hazardous Substances or
wastes or the clean-up or other remediation thereof.
"ERISA": the Employee Retirement Income Security Act of
1974, as amended, or any successor statute.
"ERISA Group": the Borrower, any Subsidiary and all
members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) under common control which,
together with the Borrower or any Subsidiary, are treated as a
single employer under Section 414 of the Internal Revenue Code.
"Eurodollar Business Day": any Domestic Business Day on
which commercial banks are open for international business
(including dealings in Dollar deposits) in London.
<PAGE>
7
"Eurodollar Lending Office": as to each Lender, its
office, branch or affiliate located at its address set forth in its
Administrative Questionnaire (or identified in its Administrative
Questionnaire as its Eurodollar Lending Office) or such other
office, branch or affiliate of such Lender as it may hereafter
designate as its Eurodollar Lending Office by notice to the Borrower
and the Administrative Agent.
"Eurodollar Loans": Revolving Credit Loans bearing
interest based upon the Eurodollar Rate in accordance with this
Agreement.
"Eurodollar Rate": for any Interest Period in respect of
Eurodollar Loans or Money Market LIBOR Loans, the average (rounded
upward, if necessary, to the next higher 1/16 of 1%) of the
respective rates per annum at which deposits in Dollars are offered
by each of the Reference Lenders to prime banks in the London
interbank market at approximately 11:00 A.M., London time, two
Eurodollar Business Days before the first day of such Interest
Period, for a period of time comparable to such Interest Period.
"Event of Default": any of the events specified in Section
9, provided that any requirement for the giving of notice, the lapse
of time, or both, or any other condition, has been satisfied.
"Existing Credit Agreement": as defined in the recitals
hereto.
"Facility Fee Calculation Amount": as to any Lender on any
date, the sum of (a) the outstanding principal amount of such
Lender's Revolving Credit Loans on such date and (b) the undrawn
amount of such Lender's Commitment. In calculating the "undrawn"
amount of any Lender's Commitment for purposes of clause (b) of this
definition, any reduction in the actual availability of such
Lender's Commitment caused by outstanding Money Market Loans shall
be disregarded.
"Facility Fee Rate": on any day, the rate per annum equal
to .075%.
"Federal Funds Rate": for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100th of 1%) equal
to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal
Reserve Bank of New York on the Domestic Business Day next
succeeding such day, provided that (a) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate
on such transactions on the next preceding Domestic Business Day as
so published on the next succeeding Domestic Business Day, and (b)
if no such rate is so published on such next succeeding Domestic
Business Day, the Federal Funds Rate for such day shall be the
average rate quoted to The Chase Manhattan Bank on such day on such
transactions as determined by the Administrative Agent.
<PAGE>
8
"Five-Year Facility": the Amended and Restated Five-Year
Revolving Credit Agreement, dated the date hereof, among the
Borrower and the lenders, co-arrangers, and agents parties thereto,
as the same may be amended, supplemented or modified from time to
time.
"GAAP": generally accepted accounting principles as
defined and determined in accordance with subsection 1.2(b).
"Guarantee": by any Person, any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any
Debt or other obligation of any other Person and, without limiting
the generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of such Person (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt or
other obligation (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (b) entered into for the
purpose of assuring in any other manner the obligee of such Debt or
other obligation of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part), provided that
the term Guarantee shall not include endorsements for collection or
deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hazardous Substances": any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any
constituent elements displaying any of the foregoing
characteristics.
"Interest Payment Date": (a) as to any Base Rate Loan, the
last day of each March, June, September and December, (b) as to any
Eurodollar Loan having an Interest Period of three months or less,
the last day of such Interest Period, (c) as to any Eurodollar Loan
having an Interest Period longer than three months, each day which
is three months, or a whole multiple thereof, after the first day of
such Interest Period and the last day of such Interest Period, (d)
as to any Money Market Loan having an Interest Period of three
months or 90 days, as the case may be, or less, the last day of such
Interest Period and (e) as to any Money Market Loan having an
Interest Period longer than three months or 90 days, as the case may
be, each day which is three months, or a whole multiple thereof,
after the first day of such Interest Period and the last day of such
Interest Period.
"Interest Period": (a) with respect to any Eurodollar
Loan:
(i) in respect of any Revolving Credit Loan
borrowed as or converted into a Eurodollar Loan, the period
commencing on the borrowing or conversion date, as the case
may be, with respect to such Eurodollar Loan and ending
one, two, three or six months thereafter (or such shorter
period requested by the
<PAGE>
9
Borrower and approved by the Administrative Agent and the
Required Lenders), as selected (or requested) by the
Borrower in its Notice of Revolving Credit Borrowing or
Notice of Eurodollar Conversion, as the case may be, given
with respect thereto; and
(ii) in respect of any Eurodollar Loan
continued as a Eurodollar Loan for a subsequent Interest
Period, each period commencing on the last day of the next
preceding Interest Period applicable to such Eurodollar
Loan and ending one, two, three or six months thereafter
(or such shorter period requested by the Borrower and
approved by the Administrative Agent and the Required
Lenders), as selected (or requested) by the Borrower in its
Notice of Eurodollar Continuation given with respect
thereto;
provided, that all of the foregoing provisions relating to Interest
Periods in respect of Eurodollar Loans are subject to the following:
(A) if any Interest Period pertaining to a
Eurodollar Loan would otherwise end on a day that is not a
Eurodollar Business Day, such Interest Period shall be
extended to the next succeeding Eurodollar Business Day
unless the result of such extension would be to carry such
Interest Period into another calendar month, in which event
such Interest Period shall end on the immediately preceding
Eurodollar Business Day;
(B) any Interest Period in respect of any
Eurodollar Loan that would otherwise extend beyond the
Termination Date shall end on the Termination Date; and
(C) any Interest Period pertaining to a Eurodollar
Loan that begins on the last Eurodollar Business Day of a
calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the
end of such Interest Period) shall, subject to clause (B)
above, end on the last Eurodollar Business Day of a
calendar month;
(b) with respect to each Money Market LIBOR Loan, the
period commencing on the date of such Loan specified in the
applicable Notice of Money Market Borrowing and ending such whole
number of months thereafter as the Borrower may elect in accordance
with Section 3; provided, that all of the foregoing provisions
relating to Interest Periods in respect of Money Market LIBOR Loans
are subject to the following:
(i) any Interest Period pertaining to a Money
Market LIBOR Loan that would otherwise end on a day that is
not a Eurodollar Business Day shall be extended to the next
succeeding Eurodollar Business Day unless such Eurodollar
Business Day falls in another calendar month, in which case
such Interest Period shall end on the next preceding
Eurodollar Business Day;
<PAGE>
10
(ii) any Interest Period pertaining to a
Money Market LIBOR Loan that begins on the last Eurodollar
Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall, subject to
clause (iii) below, end on the last Eurodollar Business Day
of a calendar month; and
(iii) any Interest Period in respect of any
such Money Market Loan that would otherwise end after the
last day of the Commitment Period shall end on the last day
of the Commitment Period; and
(c) with respect to each Money Market Absolute Rate Loan,
the period commencing on the date of such Loan specified in the
applicable Notice of Money Market Borrowing and ending such number
of days thereafter (but not less than 1 nor more than 365 days) as
the Borrower may elect in accordance with Section 3; provided, that
all of the foregoing provisions relating to Interest Periods in
respect of Money Market Absolute Rate Loans are subject to the
following:
(i) any Interest Period pertaining to a Money
Market Absolute Rate Loan that would otherwise end on a day
that is not a Eurodollar Business Day shall be extended to
the next succeeding Eurodollar Business Day; and
(ii) any Interest Period in respect of any
such Money Market Loan that would otherwise end after the
last day of the Commitment Period shall end on the last day
of the Commitment Period.
"Interest Rate Agreement": an interest rate protection
agreement, interest rate future, interest rate option, interest rate
cap or other interest rate hedge arrangement, providing to the
Borrower protection against increases in interest rates.
"Internal Revenue Code": the Internal Revenue Code of
1986, as amended, or any successor statute.
"Invitation for Money Market Quotes": each request by the
Borrower, delivered by the Administrative Agent, for Lenders to
submit bids to make Money Market Loans, which shall contain the
information in respect of such requested Money Market Loans
specified in Exhibit B and shall be delivered to the Lenders in
writing, by telecopy, or by telephone, immediately confirmed by
telecopy.
"Lenders": as defined in the Preamble to this Agreement;
such term shall include Lenders that are parties to this Agreement
on the date hereof and Lenders that become parties to this Agreement
pursuant to subsection 11.6(c) or subsection 2.4.
"LIBOR Auction": a solicitation of Money Market Quotes
setting forth Money Market Margins based on the Eurodollar Rate
pursuant to Section 3.
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11
"Lien": any mortgage, pledge, hypothecation, assignment
(to the extent such assignment is intended to secure an obligation
of any Person), encumbrance, lien (statutory or other), charge or
other security interest or any preference, priority or other
security agreement or, if they have the same economic effect as any
of the foregoing, any preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or
other title retention agreement and any capitalized lease).
"Loan": any loan made by any Lender pursuant to this
Agreement.
"Material Plan": at any time a Plan or Plans having
aggregate Unfunded Liabilities in excess of $20,000,000.
"Material Subsidiary": Burlington Northern Inc.,
Burlington Northern Railroad, Santa Fe Pacific Corporation, Santa Fe
Railroad, BN Leasing Corporation and any other Subsidiary of the
Borrower the consolidated assets of which, as would be shown in a
consolidated balance sheet as at the last day of its most recently
ended fiscal year determined in accordance with GAAP, are in excess
of 5% of Consolidated Tangible Net Worth as of the last day of the
most recently ended fiscal year, provided that notwithstanding the
foregoing, neither SFP Pipeline Holdings, Inc. or any of its
Subsidiaries nor Santa Fe Receivables Corporation shall be deemed to
be a Material Subsidiary. Unless otherwise specified, references in
this Agreement to "Material Subsidiary" shall be references to a
Material Subsidiary of the Borrower.
"Money Market Absolute Rate": as defined in subsection
3.4(b)(iv).
"Money Market Absolute Rate Loan": a Loan to be made by a
Lender pursuant to an Absolute Rate Auction.
"Money Market Lending Office": as to each Lender, its
Domestic Lending Office or such other office, branch or affiliate of
such Lender as it may hereafter designate as its Money Market
Lending Office by notice to the Borrower and the Administrative
Agent; provided that any Lender may from time to time by notice to
the Borrower and the Administrative Agent designate separate Money
Market Lending Offices for its Money Market LIBOR Loans, on the one
hand, and its Money Market Absolute Rate Loans, on the other hand,
in which case all references herein to the Money Market Lending
Office of such Lender shall be deemed to refer to either or both of
such offices, as the context may require.
"Money Market LIBOR Loan": a Loan to be made by a Lender
pursuant to a LIBOR Auction (including such a loan bearing interest
at the Base Rate pursuant to clause (ii) of the last sentence of
subsection 4.10).
"Money Market Loan": a Money Market LIBOR Loan or a Money
Market Absolute Rate Loan.
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12
"Money Market Margin": as defined in subsection
3.4(b)(iii).
"Money Market Note": as defined in subsection 4.9(d).
"Money Market Quote": each offer by a Lender to make Money
Market Loans pursuant to an Invitation for Money Market Quotes,
which Money Market Quote shall contain the information specified in
Exhibit C and shall be delivered to the Administrative Agent by
telecopy.
"Money Market Quote Request": each request by the Borrower
for Lenders to submit bids to make Money Market Loans, which shall
contain the information in respect of such requested Money Market
Loans specified in Exhibit A and shall be delivered to the
Administrative Agent by telecopy.
"Moody's": Moody's Investors Service, Inc.
"Moody's Rating": for any day, the rating of the
Borrower's senior unsecured, non-credit-enhanced debt by Moody's in
effect at 9:00 A.M., New York City time, on such day; provided, that
if such debt of the Borrower shall not be rated by such rating
agency, such Rating shall be such rating agency's counterparty or
similar rating specifically assigned by such rating agency to the
Borrower. If Moody's shall have changed its system of
classifications after the date hereof, the Moody's Rating shall be
considered to be at or above a specified level if it is at or above
the new rating which most closely corresponds to the specified level
under the old rating system.
"Multiemployer Plan": at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to
which (a) any member of the ERISA Group is then making or accruing
an obligation to make contributions or (b) any Person, who was at
the time of such contribution a member of the ERISA Group, has
within the preceding five plan years made contributions.
"New Lender": as defined in subsection 2.4(b).
"Notes": the collective reference to the Revolving Credit
Notes and the Money Market Notes.
"Notice of Base Rate Conversion": as defined in subsection
4.5(a); each such notice shall be delivered in writing or by
telecopy and shall specify the principal amount of the Eurodollar
Loans being converted to Base Rate Loans pursuant thereto.
"Notice of Eurodollar Continuation": as defined in
subsection 4.5(b); each such notice shall be delivered in writing or
by telecopy and shall specify the length or lengths of the Interest
Periods to be applicable to the Eurodollar Loans being continued
pursuant thereto.
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13
"Notice of Eurodollar Conversion": as defined in
subsection 4.5(a); each such notice shall be delivered in writing or
by telecopy and shall specify the principal amount of Base Rate
Loans being converted to Eurodollar Loans pursuant thereto and the
length or lengths of the initial Interest Period(s) applicable
thereto.
"Notice of Money Market Borrowing": each confirmation by
the Borrower of its acceptance of Money Market Quotes, which Notice
of Money Market Borrowing shall be substantially in the form of
Exhibit D and shall be delivered to the Administrative Agent by
telecopy.
"Notice of Revolving Credit Borrowing": an irrevocable
notice from the Borrower, delivered pursuant to subsection 2.2,
requesting the Lenders to make Revolving Credit Loans; each such
notice shall be delivered in writing or by telecopy and shall
specify (i) the amount of such Loans, (ii) whether such Loans are to
be initially Eurodollar Loans, Base Rate Loans or a combination
thereof, and (iii) if such Loans are to be entirely or partly
Eurodollar Loans, the respective amounts of each such Type of Loan
and the length of the initial Interest Period for such Eurodollar
Loans.
"Offered Increase Amount": as defined in subsection
2.4(a).
"Participant": as defined in subsection 11.6(b).
"PBGC": the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Person": an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity
of whatever nature.
"Pipeline Partners": Santa Fe Pacific Pipeline Partners,
L.P., a Delaware limited partnership.
"Plan": at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV of
ERISA or subject to the minimum funding standards under Section 412
of the Internal Revenue Code and either (i) is maintained, or
contributed to, by any member of the ERISA Group for employees of
any member of the ERISA Group or (ii) has at any time within the
preceding five years been maintained, or contributed to, by any
Person which was at the time of such maintenance or contribution a
member of the ERISA Group for employees of any Person which was at
such time a member of the ERISA Group.
"Prime Rate": the rate of interest publicly announced from
time to time by The Chase Manhattan Bank as its prime rate at its
principal office in New York City.
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14
"Rating": as applicable, Rating I, Rating II, Rating III,
Rating IV, Rating V or Rating VI.
"Rating I": applies on any day on which the S&P Rating is
at or above A and the Moody's Rating is at or above A2.
"Rating II": applies on any day on which (i) the S&P
Rating is A- or above or the Moody's Rating is A3 or above and (ii)
Rating I does not apply.
"Rating III": applies on any day on which the S&P Rating
is BBB+ or the Moody's Rating is Baa1.
"Rating IV": applies on any day on which the S&P Rating is
BBB or the Moody's Rating is Baa2.
"Rating V": applies on any day on which the S&P Rating is
BBB- or the Moody's Rating is Baa3.
"Rating VI": applies on any day on which none of Rating I,
Rating II, Rating III, Rating IV or Rating V applies (including,
without limitation, any day on which there is no Moody's Rating and
no S&P Rating).
"Re-Allocation Date": as defined in subsection 2.4(d).
"Receivables Documents": a receivables purchase agreement
entered into by the Borrower, a Selling Subsidiary and/or a
Receivables Subsidiary and each other instrument, agreement and
other document entered into by the Borrower or any Selling
Subsidiary or Receivables Subsidiary relating to the transactions
contemplated by such receivables purchase agreement, including but
not limited to the transfer of the Receivables Program Assets by the
Borrower and the Selling Subsidiaries pursuant to such receivables
purchase agreement.
"Receivables Program Assets": (a) all rights of the
Borrower or any Selling Subsidiary to payments (whether constituting
accounts, chattel paper, instruments, general intangibles or
otherwise, and including the right to payment of any interest or
finance charges) which are transferred by the Borrower, a Selling
Subsidiary or a Receivables Subsidiary pursuant to the Receivables
Documents, (b) all rights, title and interest of the Borrower, a
Selling Subsidiary or a Receivables Subsidiary in goods relating to
a sale that gave rise to such rights to payment, (c) security
interests or liens (and the property subject thereto) purporting to
secure such rights to payment, (d) all guaranties and other
agreements or arrangements of whatever character from time to time
supporting such rights to payment, (e) lock-boxes and bank accounts
of the Borrower, any Selling Subsidiary or a Receivables Subsidiary
in which proceeds of any of the foregoing are held, and all
investments from such accounts and other claims and rights in
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15
connection therewith, (f) rights and interests of a Receivables
Subsidiary under Receivables Documents, and (g) all collections
(including recoveries) and other proceeds of the assets described in
the foregoing clauses.
"Receivables Program Obligations": (a) notes, trust
certificates, undivided interests, partnership interests or other
interests representing the right to be paid a specified principal
amount from the Receivables Program Assets, and (b) related
obligations of the Borrower, a Subsidiary or a Special Purpose
Vehicle (including, without limitation, rights in respect of
interest or yield, breach of warranty claims and expense
reimbursement and indemnity provisions).
"Receivables Subsidiary": a special purpose Wholly-Owned
Subsidiary created in connection with the transactions contemplated
by an Accounts Receivable Financing, which Subsidiary engages in no
activities other than those incidental to such Accounts Receivable
Financing.
"Reference Lenders": The Chase Manhattan Bank, Morgan
Guaranty Trust Company of New York and Union Bank of Switzerland.
"Register": as defined in subsection 11.6(f).
"Regulation G": Regulation G of the Board of Governors of
the Federal Reserve System as in effect from time to time.
"Regulation U": Regulation U of the Board of Governors of
the Federal Reserve System as in effect from time to time.
"Required Lenders": at any time Lenders the Commitment
Percentages of which aggregate at least 51%.
"Revolving Credit Loans": as defined in subsection 2.1.
"Revolving Credit Note": as defined in subsection 4.9(d).
"S&P": Standard & Poor's Ratings Group.
"S&P Rating": for any day, the rating of the Borrower's
senior unsecured, non credit-enhanced debt by S&P in effect at 9:00
A.M., New York City time, on such day; provided, that if such debt
of the Borrower shall not be rated by such rating agency, such
Rating shall be such rating agency's counterparty or similar rating
specifically assigned by such rating agency to the Borrower. If S&P
shall have changed its system of classifications after the date
hereof, the S&P Rating shall be considered to be at or above a
specified level if it is at or above the new rating which most
closely corresponds to the specified level under the old rating
system.
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16
"Santa Fe Railroad": The Atchison, Topeka and Santa Fe
Railway Company, a Delaware corporation, and its successors.
"Selling Subsidiary": any Subsidiary other than a
Receivables Subsidiary which is a party to a Receivables Document.
"Special Purpose Vehicle": a trust, partnership or other
special purpose Person established by the Borrower and/or its
Subsidiaries to implement an Accounts Receivable Financing.
"Specified Obligations": with respect to any Person, the
collective reference to (a) the Debt of such Person and (b) the
obligations of such Person to make payments to counterparties under
Interest Rate Agreements in the event of the occurrence of a
termination event thereunder.
"Subsidiary": any corporation or other entity of which
securities or other ownership interests having ordinary voting power
to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly
owned by the Borrower (or, if such term is used with reference to
any other Person, by such other Person). Unless otherwise
specified, references in this Agreement to "Subsidiary" shall be
references to a Subsidiary of the Borrower.
"Termination Date": November 15, 1998 (or such earlier
date on which the Commitments shall terminate pursuant to the terms
of this Agreement).
"Tranche": the collective reference to Eurodollar Loans
the then current Interest Periods with respect to all of which begin
on the same date and end on the same later date (whether or not such
Loans shall originally have been made on the same day).
"Type": (a) as to any Revolving Credit Loan, its nature as
a Base Rate Loan or a Eurodollar Loan and (b) as to any Money Market
Loan, its nature as a Money Market LIBOR Loan or a Money Market
Absolute Rate Loan.
"Unfunded Liabilities": with respect to any Plan at any
time, the amount (if any) by which (a) the value of all benefit
liabilities under such Plan, determined on a plan termination basis
using the assumptions prescribed by the PBGC for purposes of Section
4044 of ERISA, exceeds (b) the fair market value of all Plan assets
allocable to such liabilities under Title IV of ERISA (excluding any
accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the
ERISA Group to the PBGC or any other Person under Title IV of ERISA.
"United States": the United States of America, including
the States and the District of Columbia, but excluding its
territories and possessions.
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17
"Wholly-Owned Subsidiary": any Subsidiary all of the
shares of capital stock or other ownership interests of which
(except directors' qualifying shares) are at the time directly or
indirectly owned by the Borrower (or, if such term is used with
reference to any other Person, by such other Person).
1.2 Other Definitional Provisions. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the
defined meanings when used in any Note, certificate or other document made
or delivered pursuant hereto.
(b) Unless otherwise specified herein, all accounting
terms used herein shall be interpreted, all accounting determinations
hereunder shall be made, and all financial statements required to be
delivered hereunder shall be prepared in accordance with generally accepted
accounting principles as in effect from time to time in the United States,
applied on a basis consistent (except for changes concurred with by the
Borrower's independent public accountants) with the most recent audited
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries delivered to the Lenders; provided, that if the Borrower
notifies the Administrative Agent that the Borrower wishes to amend any
covenant in Section 8 to eliminate the effect of any change in generally
accepted accounting principles on the operation of such covenant (or if the
Administrative Agent notifies the Borrower that the Required Lenders wish to
amend Section 8 for such purpose), then the Borrower's compliance with such
covenant shall be determined on the basis of generally accepted accounting
principles in effect immediately before the relevant change in generally
accepted accounting principles became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the
Borrower and the Required Lenders.
(c) The words "hereof", "herein" and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement
as a whole and not to any particular provision of this Agreement, and
Section, subsection, Schedule and Exhibit references are to this Agreement
unless otherwise specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
SECTION 2. THE REVOLVING CREDIT LOANS
2.1 The Commitments. (a) Subject to the terms and
conditions hereof, each Lender severally agrees to make revolving credit
loans ("Revolving Credit Loans") to the Borrower from time to time during
the Commitment Period in an aggregate principal amount at any one time
outstanding not to exceed the amount of such Lender's Commitment; provided,
that no Revolving Credit Loan may be made if, after giving effect to such
Loan and to any simultaneous repayment of outstanding Loans, the aggregate
outstanding principal amount of Revolving Credit Loans and Money Market
Loans would exceed the aggregate amount of the Commitments. During the
Commitment Period the Borrower may use the Commitments by
<PAGE>
18
borrowing Revolving Credit Loans, prepaying Revolving Credit Loans in whole
or in part, and reborrowing Revolving Credit Loans, all in accordance with
the terms and conditions hereof.
(b) The Revolving Credit Loans may from time to time be
(i) Eurodollar Loans, (ii) Base Rate Loans or (iii) a combination thereof,
as determined by the Borrower and notified to the Administrative Agent in
accordance with subsections 2.2 and 4.5.
2.2 Procedure for Revolving Credit Borrowing. The
Borrower shall request Revolving Credit Loans by delivering a Notice of
Revolving Credit Borrowing to the Administrative Agent prior to 10:00 A.M.,
New York City time, (a) three Eurodollar Business Days prior to the
requested Borrowing Date, if all or any part of the requested Revolving
Credit Loans are to be initially Eurodollar Loans or (b) on such Borrowing
Date, otherwise, requesting the Lenders to make Revolving Credit Loans on
such Borrowing Date. Upon receipt of such Notice of Revolving Credit
Borrowing the Administrative Agent shall promptly notify each Lender
thereof, and not later than 12:00 noon, New York City time, on such
Borrowing Date each Lender shall make available to the Administrative Agent
at its office specified in subsection 11.2 the amount of the Revolving
Credit Loan to be made by such Lender on such Borrowing Date, in immediately
available funds. The Administrative Agent shall on such Borrowing Date make
available to the Borrower the aggregate of the amounts made available to the
Administrative Agent by the Lenders, in like funds as received by the
Administrative Agent.
2.3 Repayment of Revolving Credit Loans. The Borrower
hereby unconditionally promises to pay to the Administrative Agent, for the
account of each Lender, on the Termination Date, the aggregate principal
amount of the Revolving Credit Loans of such Lender outstanding on such
date.
2.4 Commitment Increases. (a) In the event that the
Borrower wishes to increase the aggregate Commitments at any time that no
Default or Event of Default has occurred and is continuing, it shall notify
the Administrative Agent in writing of the amount (the "Offered Increase
Amount") of such proposed increase (such notice, a "Commitment Increase
Notice"). The Borrower may, at its election, (i) offer one or more of the
Lenders the opportunity to participate in all or a portion of the Offered
Increase Amount pursuant to subsection (c) below and/or (ii) with the
consent of the Administrative Agent (which consent shall not be unreasonably
withheld), offer one or more additional banks, financial institutions or
other entities the opportunity to participate in all or a portion of the
Offered Increase Amount pursuant to paragraph (b) below. Each Commitment
Increase Notice shall specify which Lenders and/or banks, financial
institutions or other entities the Borrower desires to participate in such
commitment increase. The Borrower or, if requested by the Borrower, the
Administrative Agent will notify such Lenders, and/or banks, financial
institutions or other entities of such offer.
(b) Any additional bank, financial institution or other
entity which the Borrower selects to offer participation in the increased
Commitments and which elects to become a party to this Agreement and obtain
a Commitment in an amount so offered and accepted by it pursuant to
subsection 2.4(a)(ii) shall execute a New Lender Supplement with the
Borrower and the
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19
Administrative Agent, substantially in the form of Exhibit H, whereupon such
bank, financial institution or other entity (herein called a "New Lender")
shall become a Lender for all purposes and to the same extent as if
originally a party hereto and shall be bound by and entitled to the benefits
of this Agreement, and Schedule I shall be deemed to be amended to add the
name and Commitment of such New Lender, provided that the Commitment of any
such new Lender shall be in an amount not less than $10,000,000.
(c) Any Lender which accepts an offer to it by the
Borrower to increase its Commitment pursuant to subsection 2.4(a)(i) shall,
in each case, execute a Commitment Increase Supplement with the Borrower and
the Administrative Agent, substantially in the form of Exhibit I, whereupon
such Lender shall be bound by and entitled to the benefits of this Agreement
with respect to the full amount of its Commitment as so increased, and
Schedule I shall be deemed to be amended to so increase the Commitment of
such Lender.
(d) If any bank, financial institution or other entity
becomes a New Lender pursuant to subsection 2.4(b) or any Lender's
Commitment is increased pursuant to subsection 2.4(c), additional Revolving
Credit Loans made on or after the effectiveness thereof (the "Re-Allocation
Date") shall be made pro rata based on the Commitment Percentages in effect
on and after such Re-Allocation Date (except to the extent that any such pro
rata borrowings would result in any Lender making an aggregate principal
amount of Revolving Credit Loans in excess of its Commitment, in which case
such excess amount will be allocated to, and made by, such new Lenders
and/or Lenders with such increased Commitments to the extent of, and pro
rata based on, their respective Commitments otherwise available for
Revolving Credit Loans), and continuations of Eurodollar Loans outstanding
on such Re-Allocation Date shall be effected by repayment of such Eurodollar
Loans on the last day of the Interest Period applicable thereto and the
making of new Eurodollar Loans pro rata based on such new Commitment
Percentages. In the event that on any such Re-Allocation Date there is an
unpaid principal amount of Base Rate Loans, the Borrower shall make
prepayments thereof and borrowings of Base Rate Loans so that, after giving
effect thereto, the Base Rate Loans outstanding are held pro rata based on
such new Commitment Percentages. In the event that on any such
Re-Allocation Date there is an unpaid principal amount of Eurodollar Loans,
such Eurodollar Loans shall remain outstanding with the respective holders
thereof until the expiration of their respective Interest Periods (unless
the Borrower elects to prepay any thereof in accordance with the applicable
provisions of this Agreement), and interest on and repayments of such
Eurodollar Loans will be paid thereon to the respective Lenders holding such
Eurodollar Loans pro rata based on the respective principal amounts thereof
outstanding.
(e) Notwithstanding anything to the contrary in this
subsection 2.4, (i) in no event shall any transaction effected pursuant to
this subsection 2.4 cause (A) the aggregate Commitments to exceed
$1,000,000,000 or (B) the sum of the aggregate Commitments plus the
aggregate Commitments then in effect under (and as defined in) the Five-Year
Facility to exceed $2,500,000,000, and (ii) no Lender shall have any
obligation to increase its Commitment unless it agrees to do so in its sole
discretion.
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20
SECTION 3. THE MONEY MARKET LOANS
3.1 Money Market Option. The Borrower may, as set forth
in this Section, at any time during the Commitment Period request the
Administrative Agent to solicit offers from all the Lenders to make Money
Market Loans to the Borrower. The Lenders may, but shall have no obligation
to, make such offers, and the Borrower may, but shall have no obligation to,
accept any such offers in the manner set forth in this Section. No Money
Market Loan may be made if, after giving effect to such Loan and to any
simultaneous repayment of outstanding Loans, the aggregate outstanding
principal amount of Revolving Credit Loans and Money Market Loans would
exceed the aggregate amount of the Commitments.
3.2 Money Market Quote Request. When the Borrower wishes
to request offers to make Money Market Loans under this Section, it shall
transmit to the Administrative Agent by facsimile transmission a Money
Market Quote Request so as to be received no later than Noon, New York City
time, (a) four Eurodollar Business Days prior to the Borrowing Date proposed
therein, in the case of a LIBOR Auction or (b) one Business Day prior to the
Borrowing Date proposed therein, in the case of an Absolute Rate Auction (or
(x) in either case, such other time or date as the Borrower and the
Administrative Agent shall have mutually agreed and shall have notified to
the Lenders not later than the date of the Money Market Quote Request for
the first LIBOR Auction or Absolute Rate Auction for which such change is to
be effective and (y) in the case of an Absolute Rate Auction for a proposed
Borrowing Date occurring on the Closing Date, not later than 9:00 A.M., New
York City time, on the Closing Date), specifying:
(i) the proposed Borrowing Date, which shall be a
Eurodollar Business Day in the case of a LIBOR Auction or a Domestic
Business Day in the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Loans, which shall be
$5,000,000 or a larger whole multiple of $1,000,000,
(iii) the duration of the Interest Period applicable
thereto, subject to the provisions of the definition of Interest
Period, and
(iv) whether the Money Market Quotes requested are to
set forth a Money Market Margin or a Money Market Absolute Rate.
3.3 Invitation for Money Market Quotes. The
Administrative Agent, promptly upon receipt of any Money Market Quote
Request, shall send to the Lenders by facsimile transmission an Invitation
for Money Market Quotes, which shall constitute an invitation by the
Borrower to each Lender to submit Money Market Quotes offering to make the
Money Market Loans to which such Money Market Quote Request relates in
accordance with this Section.
3.4 Submission and Contents of Money Market Quotes. (a)
Each Lender may submit, as it may elect in its sole discretion, a Money
Market Quote containing an offer or offers
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21
to make Money Market Loans in response to any Invitation for Money Market
Quotes. Each Money Market Quote must comply with the requirements of this
subsection 3.4 and must be submitted to the Administrative Agent by
facsimile transmission at its offices specified in or pursuant to subsection
11.2 not later than (i) 10:00 A.M., New York City time, three Eurodollar
Business Days prior to the proposed Borrowing Date, in the case of a LIBOR
Auction, or (ii) 10:00 A.M., New York City time, on the proposed Borrowing
Date, in the case of an Absolute Rate Auction (or, in either case, such
other time or date as the Borrower and the Administrative Agent shall have
mutually agreed and shall have notified to the Lenders not later than the
date of the Money Market Quote Request for the first LIBOR Auction or
Absolute Rate Auction for which such change is to be effective); provided
that Money Market Quotes submitted by the Administrative Agent (or any
affiliate of the Administrative Agent) in the capacity of a Lender may be
submitted, and may only be submitted, if the Administrative Agent or such
affiliate notifies the Borrower of the terms of the offer or offers
contained therein not later than 15 minutes prior to the deadline for the
other Lenders. Subject to Sections 6 and 9, any Money Market Quote so made
shall be irrevocable except with the written consent of the Administrative
Agent given on the instructions of the Borrower.
(b) Each Money Market Quote shall in any case specify:
(i) the proposed Borrowing Date,
(ii) the principal amount of the Money Market Loan for
which each such offer is being made, which principal amount (A) may
be greater than or less than the Commitment of the quoting Lender,
(B) must be $5,000,000 or a larger whole multiple of $1,000,000, and
(C) may be subject to an aggregate limitation as to the principal
amount of Money Market Loans for which offers being made by such
quoting Lender may be accepted,
(iii) in the case of a LIBOR Auction, the margin above or
below the applicable Eurodollar Rate (the "Money Market Margin")
offered for each such Money Market Loan, expressed as a percentage
(specified to the nearest 1/16 of 1%) to be added to or subtracted
from the Eurodollar Rate,
(iv) in the case of an Absolute Rate Auction, the rate of
interest per annum (specified to the nearest 1/10,000 of 1%) (the
"Money Market Absolute Rate") offered for each such Money Market
Loan, and
(v) the identity of the quoting Lender.
A Money Market Quote may set forth up to three separate offers by the
quoting Lender with respect to each Interest Period specified in the related
Invitation for Money Market Quotes.
(c) Any Money Market Quote shall be disregarded if it:
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22
(i) is not substantially in conformity with Exhibit C or
does not specify all of the information required by subsection
3.4(b);
(ii) contains qualifying, conditional or similar language;
(iii) proposes terms other than or in addition to those set
forth in the applicable Invitation for Money Market Quotes; or
(iv) arrives after the time set forth in subsection
3.4(a).
3.5 Notice to Borrower. The Administrative Agent shall
promptly notify the Borrower of the terms (a) of any Money Market Quote
submitted by a Lender that is in accordance with subsection 3.4 and (b) of
any Money Market Quote that amends, modifies or is otherwise inconsistent
with a previous Money Market Quote submitted by such Lender with respect to
the same Money Market Quote Request. Any such subsequent Money Market Quote
shall be disregarded by the Administrative Agent unless such subsequent
Money Market Quote is submitted solely to correct a manifest error in such
former Money Market Quote. The Administrative Agent's notice to the Borrower
shall specify (i) the aggregate principal amount of Money Market Loans for
which offers have been received for each Interest Period specified in the
related Money Market Quote Request, (ii) the respective principal amounts
and Money Market Margins or Money Market Absolute Rates, as the case may be,
so offered and (iii) if applicable, limitations on the aggregate principal
amount of Money Market Loans for which offers in any single Money Market
Quote may be accepted.
3.6 Acceptance and Notice by Borrower. Not later than
11:00 A.M., New York City time, (a) three Eurodollar Business Days prior to
the proposed Borrowing Date, in the case of a LIBOR Auction or (b) on the
proposed Borrowing Date, in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the Borrower and the Administrative
Agent shall have mutually agreed and shall have notified to the Lenders not
later than the date of the Money Market Quote Request for the first LIBOR
Auction or Absolute Rate Auction for which such change is to be effective),
the Borrower shall notify the Administrative Agent of its acceptance or
non-acceptance of the offers notified to it pursuant to subsection 3.5. In
the case of acceptance, such notice shall be a Notice of Money Market
Borrowing and shall specify the aggregate principal amount of offers for
each Interest Period that are accepted. The Borrower may accept any Money
Market Quote in whole or in part; provided that:
(i) the aggregate principal amount of Money Market
Loans made pursuant to a Money Market Quote Request may not exceed
the applicable amount set forth in such Money Market Quote Request,
(ii) the principal amount of Money Market Loans made on
a Borrowing Date pursuant to a Money Market Quote Request must be
$5,000,000 or a larger whole multiple of $1,000,000,
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23
(iii) acceptance of offers may only be made on the basis
of ascending Money Market Margins or Money Market Absolute Rates, as
the case may be, and
(iv) the Borrower may not accept any offer that is
required to be disregarded as described in subsection 3.4(c) or that
otherwise fails to comply substantially with the requirements of
this Agreement.
3.7 Allocations. If offers are made by two or more Lenders
with the same Money Market Margins or Money Market Absolute Rates, as the
case may be, for a greater aggregate principal amount than the amount in
respect of which such offers are accepted for the related Interest Period,
the principal amount of Money Market Loans in respect of which such offers
are accepted shall be allocated by the Administrative Agent among such
Lenders as nearly as possible (in whole multiples of $1,000,000, as the
Administrative Agent may deem appropriate) in proportion to the aggregate
principal amounts of such offers. Determinations by the Administrative
Agent of the amounts of Money Market Loans shall be conclusive in the
absence of manifest error. Upon acceptance, notice and allocation of Money
Market Quotes pursuant to and in accordance with subsections 3.6 and 3.7,
the Administrative Agent will, in accordance with its usual practice, notify
each Lender whose Money Market Quote has been accepted of the amount of its
Money Market Quote accepted and allocated.
3.8 Certain Restrictions. The Borrower may request offers
to make Money Market Loans for up to five Interest Periods in a single Money
Market Quote Request.
3.9 Repayment of Money Market Loans. The Borrower hereby
unconditionally promises to pay to the Administrative Agent, for the account
of the relevant Lender, on the last day of the Interest Period with respect
thereto, the aggregate principal amount of each Money Market Loan of such
Lender.
SECTION 4. CERTAIN PROVISIONS APPLICABLE TO
THE COMMITMENTS AND THE LOANS
4.1 Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a facility fee for the
period from and including the Closing Date to the date on which the
Commitments have terminated and all Loans have been repaid in full, computed
at the Facility Fee Rate, in each case on the average daily Facility Fee
Calculation Amount of such Lender during the period for which payment is
made, payable in arrears on the last day of each March, June, September and
December and on the date on which the Commitments have terminated and all
Loans have been repaid in full, commencing on the first of such dates to
occur after the date of this Agreement.
(b) The Borrower agrees to pay to each Agent and each
Co-Arranger the fees on the dates and in the amounts previously agreed to in
writing by the Borrower and such respective Persons.
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24
4.2 Minimum Borrowing Amounts. Each borrowing under the
Commitments shall be in an amount equal to $5,000,000 or a whole multiple of
$1,000,000 in excess thereof.
4.3 Termination or Reduction of Commitments. (a) The
Borrower shall have the right, upon notice to the Administrative Agent not
later than 11:00 A.M., New York City time, on the date of such action, to
terminate any of the Commitments or, from time to time, to reduce the amount
of any of the Commitments; provided, that no reduction of the Commitments
shall be permitted if, after giving effect thereto and to any simultaneous
repayment of Revolving Credit Loans and/or Money Market Loans, the aggregate
outstanding principal amount of the Revolving Credit Loans and Money Market
Loans would exceed the Commitments. Any reduction of any of the Commitments
shall be in an amount equal to $10,000,000 or a whole multiple of $1,000,000
in excess thereof and shall reduce permanently the Commitments then in
effect. The Administrative Agent will, in accordance with its usual
practice, notify the Lenders of each such notice of termination or
reduction.
(b) If on any date after the end of the Commitment Period,
after giving effect to any repayments of Loans on such date, the amount of
the Commitments exceeds the aggregate outstanding principal amount of the
Loans, the Commitments shall be automatically permanently reduced by the
amount of such excess.
4.4 Optional Prepayments; Mandatory Prepayments. (a) The
Borrower may, (i) upon notice to the Administrative Agent not later than
11:00 A.M., New York City time, on the date of prepayment, prepay any Base
Rate Loans (or any Money Market Loans bearing interest based upon the Base
Rate pursuant to clause (ii) of the last sentence of subsection 4.10) or
(ii) upon at least three Eurodollar Business Days' notice to the
Administrative Agent, prepay any Eurodollar Loans, in each case in whole or
in part in amounts aggregating $5,000,000 or any larger whole multiple of
$1,000,000, by paying the principal amount to be prepaid together with
accrued interest thereon to the date of prepayment. Upon prepaying any
Eurodollar Loan on any date other than the last day of an Interest Period
applicable thereto, the Borrower shall be obligated to pay the amounts
described in subsection 4.16.
(b) Except as provided in subsection 4.4(a) with respect
to a Money Market Loan bearing interest based upon the Base Rate pursuant to
clause (ii) of the last sentence of subsection 4.10 and in subsection
4.4(d), the Borrower may not prepay all or any portion of the principal
amount of any Money Market Loan prior to the maturity thereof.
(c) Upon receipt of a notice of prepayment pursuant to
this subsection 4.4, the Administrative Agent shall promptly notify each
Lender of the contents thereof and of such Lender's ratable share (if any)
of such prepayment, and such notice shall not thereafter be revocable by the
Borrower.
(d) If a Change of Control shall occur with respect to the
Borrower, the Administrative Agent shall, upon the request of the Required
Lenders, by notice to the Borrower given within six months after the date of
such Change of Control, terminate the Commitments,
<PAGE>
25
whereupon the Commitments shall immediately terminate, and any Loans then
outstanding (together with accrued interest thereon) shall become due and
payable on the fifth Eurodollar Business Day after such notice is given.
4.5 Conversion and Continuation Options. (a) The
Borrower may, on the last day of any Interest Period with respect thereto,
convert Eurodollar Loans to Base Rate Loans by giving notice thereof (a
"Notice of Base Rate Conversion") to the Administrative Agent not later than
10:00 A.M., New York City time, on the last day of the then current Interest
Period in respect of the Eurodollar Loans being converted. The Borrower may
from time to time convert Base Rate Loans to Eurodollar Loans by giving
notice thereof (a "Notice of Eurodollar Conversion") to the Administrative
Agent at least three Eurodollar Business Days prior to the first day of the
Interest Period to be applicable to such Loans. Upon receipt of any such
notice the Administrative Agent shall promptly notify each Lender thereof.
All or any part of outstanding Eurodollar Loans and Base Rate Loans may be
converted as provided herein, provided that no Loan may be converted into a
Eurodollar Loan when any Event of Default has occurred and is continuing.
(b) The Borrower may continue any Eurodollar Loans as such
upon the expiration of the then current Interest Period with respect thereto
by giving notice thereof (a "Notice of Eurodollar Continuation") to the
Administrative Agent at least three Eurodollar Business Days prior to the
last day of such then current Interest Period, provided that no Eurodollar
Loan may be continued as such when any Event of Default has occurred and is
continuing, and provided, further, that if the Borrower shall fail to give
such Notice of Eurodollar Continuation or if such continuation is not
permitted pursuant to the preceding proviso, such Loans shall be
automatically converted to Base Rate Loans on the last day of such then
expiring Interest Period.
4.6 Minimum Amounts of Tranches. All borrowings,
conversions and continuations of Loans hereunder and all selections of
Interest Periods hereunder shall be in such amounts and be made pursuant to
such elections so that, after giving effect thereto, the aggregate principal
amount of Eurodollar Loans comprising each Tranche shall be equal to
$5,000,000 or a whole multiple of $1,000,000 in excess thereof. Not more
than twenty Tranches may be outstanding at any time.
4.7 Interest Rates and Payment Dates. (a) Each
Eurodollar Loan shall bear interest during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such
Interest Period plus the Applicable Margin.
(b) Each Base Rate Loan shall bear interest at a rate per
annum equal to the Base Rate plus the Applicable Margin.
(c) Each Money Market Loan shall bear interest at the
applicable rate set forth in the Notice of Money Market Borrowing applicable
thereto.
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26
(d) If any principal amount of any Loan shall not be paid
when due, from and after the date on which such principal amount was due (i)
the outstanding principal amount of all Eurodollar Loans and Money Market
Loans shall bear interest at 2% above the rate that would otherwise be
applicable thereto until the earlier of (A) the date on which such overdue
principal amount is paid in full and (B) the last day of the respective
Interest Periods applicable to such outstanding Eurodollar Loans and Money
Market Loans, and thereafter the outstanding principal amount of all
Eurodollar Loans and Money Market Loans shall bear interest at a rate equal
to 2% above the rate applicable at such time to Base Rate Loans until such
overdue principal amount is paid in full (as well after as before judgment)
and (ii) the outstanding principal amount of all Base Rate Loans shall bear
interest at a rate equal to 2% above the rate applicable at such time to
Base Rate Loans until such overdue principal amount is paid in full (as well
after as before judgment). If all or a portion of (i) any interest payable
on any Loan or (ii) any facility fee or other amount payable hereunder,
shall not be paid when due (whether at the stated maturity, by acceleration
or otherwise), such overdue amount shall bear interest at a rate per annum
which is 2% above the rate applicable at such time to Base Rate Loans, in
each case from the date of such non-payment until such amount is paid in
full (as well after as before judgment).
(e) Interest shall be payable in arrears on each Interest
Payment Date, provided that interest accruing pursuant to paragraph (d) of
this subsection shall be payable from time to time on demand.
4.8 Computation of Interest and Fees. (a) Facility fees
and, whenever it is calculated on the basis of the Prime Rate, interest
shall be calculated on the basis of a 365- (or 366-, as the case may be) day
year for the actual days elapsed; and, otherwise, interest shall be
calculated on the basis of a 360-day year for the actual days elapsed. The
Administrative Agent shall as soon as practicable notify the Borrower and
the relevant Lenders of each determination of a Eurodollar Rate. Any change
in the interest rate on a Loan resulting from a change in the Base Rate
shall become effective as of the opening of business on the day on which
such change becomes effective. The Administrative Agent shall as soon as
practicable notify the Borrower and the Lenders of the effective date and
the amount of each such change in the Base Rate.
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower and the Lenders in the absence of
manifest error.
(c) If any Reference Lender shall for any reason no longer
have a Commitment or any Loans, such Reference Lender shall thereupon cease
to be a Reference Lender, and if, as a result, there shall only be one
Reference Lender remaining, the Administrative Agent (after consultation
with the Borrower and the Lenders) shall, by notice to the Borrower and the
Lenders, designate another Lender as a Reference Lender so that there shall
at all times be at least two Reference Lenders.
(d) Each Reference Lender shall use its best efforts to
furnish quotations of rates to the Administrative Agent as contemplated
hereby. If any of the Reference Lenders shall be
<PAGE>
27
unable or shall otherwise fail to supply such rates to the Administrative
Agent upon its request, the rate of interest shall, subject to the
provisions of subsection 4.10, be determined on the basis of the quotations
of the remaining Reference Lenders or Reference Lender.
4.9 Evidence of Debt. (a) Each Lender shall maintain in
accordance with its usual practice appropriate records evidencing
indebtedness of the Borrower to such Lender resulting from each Loan of such
Lender from time to time, including the amounts of principal and interest
payable and paid to such Lender from time to time under this Agreement and
under any Note.
(b) The Administrative Agent shall maintain the Register
pursuant to subsection 11.6(f), and a record therein for each Lender, in
which shall be recorded (i) the amount of each Loan made hereunder, the Type
thereof and each Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) both the amount of any sum
received by the Administrative Agent hereunder from the Borrower and each
Lender's share thereof.
(c) The records of each Lender maintained pursuant to
subsection 4.9(a) and the entries made by the Administrative Agent in the
Register shall, to the extent permitted by applicable law, be prima facie
evidence of the existence and amounts of the obligations of the Borrower
therein recorded; provided, however, that the failure of any Lender to
maintain such records or the Administrative Agent to maintain the Register
or any such record, or any error in either thereof, shall not in any manner
affect the obligation of the Borrower to repay (with applicable interest)
the Loans made by such Lender in accordance with the terms of this
Agreement.
(d) The Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Borrower will execute and deliver to
such Lender, within thirty days after notification of such request by the
Administrative Agent to the Borrower, (i) a promissory note of the Borrower
evidencing the Revolving Credit Loans of such Lender, substantially in the
form of Exhibit G-1 with appropriate insertions (a "Revolving Credit Note"),
and (ii) a promissory note of the Borrower evidencing the Money Market Loans
of such Lender, substantially in the form of Exhibit G-2 with appropriate
insertions (a "Money Market Note").
4.10 Basis for Determining Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period for any
Eurodollar Loan or Money Market LIBOR Loan:
(a) the Administrative Agent is advised by the Reference
Lenders that deposits in Dollars (in the applicable amounts) are not
being offered by the Reference Lenders in the relevant market for
such Interest Period, or
(b) in the case of Revolving Credit Loans, Lenders having
50% or more of the aggregate amount of the Commitments advise the
Administrative Agent that the Eurodollar Rate as determined by the
Administrative Agent will not adequately and fairly
<PAGE>
28
reflect the cost to such Lenders of funding their Eurodollar Loans
for such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower
and the Lenders, whereupon until the Administrative Agent notifies the
Borrower that the circumstances giving rise to such suspension no longer
exist, the obligations of the Lenders to make, convert Loans into or
continue Loans as, as the case may be, Eurodollar Loans shall be suspended,
and any Loan that was to be converted into, or continued as, a Eurodollar
Loan for such Interest Period shall, instead, be continued as, or converted
into, a Base Rate Loan on the first day of such Interest Period. Unless the
Borrower notifies the Administrative Agent at least two Domestic Business
Days before the first day of any such Interest Period in respect of any
requested Eurodollar Loan or Money Market LIBOR Loan for which a Notice of
Revolving Credit Borrowing or Notice of Money Market Borrowing, as the case
may be, has previously been given that it elects not to borrow on such date,
(i) if such requested Loan is a Eurodollar Loan, such Loan shall instead be
made as a Base Rate Loan and (ii) if such requested Loan is a Money Market
LIBOR Loan, such Money Market LIBOR Loan shall bear interest for each day
from and including the first day to but excluding the last day of the
Interest Period applicable thereto at the rate applicable to Base Rate Loans
for such day.
4.11 Illegality. If, on or after the date of this
Agreement, the adoption of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by
any Lender (or its Eurodollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank
or comparable agency shall make it unlawful or impossible for any Lender (or
its Eurodollar Lending Office) to make, maintain or fund its Eurodollar
Loans and such Lender shall so notify the Administrative Agent, the
Administrative Agent shall forthwith give notice thereof to the other
Lenders and the Borrower, whereupon until such Lender notifies the Borrower
and the Administrative Agent that the circumstances giving rise to such
suspension no longer exist, the obligation of such Lender to make Eurodollar
Loans shall be suspended. Before giving any notice to the Administrative
Agent pursuant to this subsection, such Lender shall designate a different
Eurodollar Lending Office if such designation will avoid the need for giving
such notice and will not, in the judgment of such Lender, be otherwise
disadvantageous to such Lender. If such Lender shall determine that it may
not lawfully continue to maintain and fund any of its outstanding Eurodollar
Loans to maturity and shall so specify in such notice, the Borrower shall
prepay in full the then outstanding principal amount of each such Eurodollar
Loan on the date required by law (as specified in such notice), together
with accrued interest thereon. Concurrently with prepaying each such
Eurodollar Loan, the Borrower shall borrow a Base Rate Loan in an equal
principal amount from such Lender (on which interest and principal shall be
payable contemporaneously with the related Eurodollar Loans of the other
Lenders), and such Lender shall make such a Base Rate Loan.
4.12 Increased Cost and Reduced Return. (a) If on or
after (i) the date hereof, in the case of any Revolving Credit Loan or any
obligation to make Revolving Credit Loans, or
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29
(ii) the date of the related Money Market Quote, in the case of any Money
Market Loan, the adoption of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by
any Lender (or its Applicable Lending office) with any request or directive
(whether or not having the force of law) of any such authority, central bank
or comparable agency shall impose, modify or deem applicable any reserve
(including, without limitation, any such requirement imposed by the Board of
Governors of the Federal Reserve System, but excluding any such reserve
requirement in respect of Eurocurrency liabilities described in paragraph
(c) of this subsection 4.12), special deposit, insurance assessment or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Lender (or its Applicable Lending Office) or on
the interbank eurodollar market any other condition affecting its Eurodollar
Loans or Money Market LIBOR Loans or its obligation to make such Loans and
the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making or maintaining any such Loan,
or to reduce the amount of any sum received or receivable by such Lender (or
its Applicable Lending Office) under this Agreement with respect thereto, by
an amount deemed by such Lender to be material, then, within 15 days after
demand by such Lender (with a copy to the Administrative Agent), the
Borrower shall pay to such Lender such additional amount or amounts as will
compensate such Lender for such increased cost or reduction.
(b) If any Lender shall have determined that, after the
date hereof, the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change in any such law, rule or
regulation, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or any request or directive
regarding capital adequacy (whether or not having the force of law) of any
such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on capital of such Lender (or its
parent holding company) as a consequence of such Lender's obligations
hereunder to a level below that which such Lender (or its parent holding
company) could have achieved but for such adoption, change, request or
directive (taking into consideration its policies with respect to capital
adequacy) by an amount deemed by such Lender to be material, then from time
to time, within 15 days after demand by such Lender (with a copy to the
Administrative Agent), the Borrower shall pay to such Lender such additional
amount or amounts as will compensate such Lender (or its parent holding
company) for such reduction.
(c) In addition to, and without duplication of, amounts
which may become payable from time to time pursuant to paragraphs (a) and
(b) of this subsection 4.12, the Borrower agrees to pay to each Lender which
requests compensation under this paragraph (c) by notice to the Borrower, on
the last day of each Interest Period with respect to any Eurodollar Loan
made by such Lender, at any time when such Lender shall be required to
maintain reserves against "Eurocurrency liabilities" under Regulation D of
the Board of Governors of the Federal Reserve System (or, at any time when
such Lender may be required by the Board of Governors of the Federal Reserve
System or by any other governmental authority, whether within the United
States or in another relevant jurisdiction, to maintain reserves against any
other category
<PAGE>
30
of liabilities which includes deposits by reference to which the Eurodollar
Rate is determined as provided in this Agreement or against any category of
extensions of credit or other assets of such Lender which includes any such
Eurodollar Loans), an additional amount (determined by such Lender's
calculation or, if an accurate calculation is impracticable, reasonable
estimate using such reasonable means of allocation as such Lender shall
determine) equal to the actual costs, if any, incurred by such Lender during
such Interest Period as a result of the applicability of the foregoing
reserves to such Eurodollar Loans.
(d) Each Lender will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring after
the date hereof, which will entitle such Lender to compensation pursuant to
this subsection 4.12 and will designate a different Applicable Lending
Office if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the judgment of such Lender, be otherwise
disadvantageous to such Lender; provided that if a Lender shall not have so
notified the Borrower within 90 days of such event, such Lender may not seek
compensation for any period beginning prior to the date which is 90 days
prior to the date upon which the Borrower is notified of such event. A
certificate of any Lender claiming compensation under this subsection and
setting forth the additional amount or amounts to be paid to it hereunder
shall be conclusive in the absence of manifest error. In determining such
amount, such Lender may use any reasonable averaging and attribution
methods.
(e) The provisions of this subsection shall survive any
termination of this Agreement.
4.13 Taxes. (a) Any and all payments by the Borrower to
or for the account of any Lender or the Administrative Agent hereunder or
under any Note shall be made free and clear of and without deduction for any
and all present or future taxes, duties, levies, imposts, deductions,
charges or withholdings (subject to paragraph (g) hereof), and all
liabilities with respect thereto, excluding, in the case of each Lender and
the Administrative Agent, taxes imposed on or measured by its net income,
and franchise, value added or similar taxes imposed on it, by a jurisdiction
on the basis of a present or former connection between such jurisdiction and
the Lender or Administrative Agent other than a connection arising solely
from such Administrative Agent or Lender having executed, delivered or
performed its obligations or received a payment under, or enforced, this
Agreement or any Note (all such non-excluded taxes, duties, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred
to as "Taxes"). If the Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder to any Lender or the
Administrative Agent, (i) the sum payable shall be increased as necessary so
that after making all required deductions (including deductions applicable
to additional sums payable under this subsection 4.13) such Lender or the
Administrative Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions, (iii) the Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law and (iv) the Borrower shall furnish to the
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31
Administrative Agent, at its address referred to in subsection 11.2, the
original or a certified copy of a receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes and any other excise or property taxes, or
charges or similar levies which arise from any payment made hereunder or
from the execution or delivery of, or otherwise with respect to, this
Agreement or any Note (hereinafter referred to as "Other Taxes").
(c) The Borrower agrees to indemnify each Lender and the
Administrative Agent for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed or asserted by any
jurisdiction on amounts payable under this subsection 4.13) paid by such
Lender or the Administrative Agent (as the case may be) and any liability
(including penalties, interest and expenses) arising therefrom or with
respect thereto. This indemnification shall be made within 30 days from the
date such Lender or the Administrative Agent (as the case may be) makes
written demand therefor. If any Lender or the Administrative Agent receives
any written demand from any taxing authority asserting a liability for any
Taxes or Other Taxes for which such Lender or the Administrative Agent is
entitled to an indemnity under this paragraph (c), such Lender or Agent
shall promptly furnish the Borrower and the Administrative Agent with a copy
of such demand.
(d) If any Lender is a "foreign corporation, partnership
or trust" within the meaning of the Internal Revenue Code, on or prior to
the date of its execution and delivery of this Agreement in the case of each
Lender listed on the signature pages hereof and on or prior to the date on
which it becomes a Lender in the case of each other Lender, and from time to
time thereafter (but only so long as such Lender remains lawfully able to do
so), such Lender agrees with and in favor of the Administrative Agent and
the Borrower to deliver to the Administrative Agent and the Borrower: (i)
before the payment of any interest in the first calendar year and before the
payment of any interest in each third succeeding calendar year during which
interest may be paid under this Agreement, properly completed Internal
Revenue Service Forms 1001, or any successor form prescribed by the Internal
Revenue Service, certifying that such Lender is entitled to benefits under
an income tax treaty to which the United States is a party which reduces the
rate of withholding tax on payments of interest; (ii) before the payment of
any interest is due in the first taxable year of such Lender and in each
succeeding taxable year of such Lender during which interest may be paid
under this Agreement, two properly completed and executed copies of Internal
Revenue Service Form 4224, or any successor form prescribed by the Internal
Revenue Service, certifying that the income receivable pursuant to this
Agreement is effectively connected with the conduct of a trade or a business
in the United States; or (iii) such other form or forms as may be required
under the Internal Revenue Code or other laws of the United States as a
condition to exemption from, or reduction of, United States withholding tax.
Such Lender agrees to promptly notify the Administrative Agent and the
Borrower of any change in circumstances which would modify or render invalid
any claimed exemption or reduction. In addition, in the event any Lender
that claims exemption from, or reduction of, withholding tax under a United
States tax treaty by providing Internal Revenue Service Form 1001 sells,
assigns, grants a participation in, or otherwise transfers all or part of
the obligations of the Borrower to
<PAGE>
32
such Lender under this Agreement or any Note, such Lender agrees to notify
the Administrative Agent and the Borrower of the percentage amount in which
it is no longer the beneficial owner of obligations of the Borrower to such
Lender under this Agreement or any Note. To the extent of such percentage
amount, the Administrative Agent and the Borrower will treat such Lender's
Internal Revenue Service Form 1001 as no longer valid. In the event any
Lender that claims exemption from United States withholding tax by filing
Internal Revenue Service Form 4224 with the Administrative Agent and the
Borrower sells, assigns, grants a participation in, or otherwise transfers
all or part of the obligations of the Borrower to such Lender under this
Agreement or any Note, such Lender agrees to undertake sole responsibility
for complying with the withholding tax requirements imposed by Sections 1441
and 1442 of the Internal Revenue Code. If the Form 1001, Form 4224 or any
other appropriate forms required to be provided by a Lender at the time such
Lender first becomes a party to this Agreement indicates a United States
interest withholding tax rate in excess of zero, withholding tax at such
rate shall be considered excluded from Taxes. The Borrower shall not be
required to pay any amounts with respect to United States withholding taxes
under subsection (a) of this subsection 4.13 if the Lender shall have
delivered to the Borrower an Internal Revenue Service Form 1001 or 4224 and
such Lender was not actually entitled based on the law at the time of such
delivery to a reduced United States interest withholding tax.
(e) For any period with respect to which a Lender has
failed to provide the Borrower with the appropriate form pursuant to
subsection 4.13(d) (unless such failure is due to a change in treaty, law or
regulation occurring subsequent to the date on which a form originally was
required to be provided), such Lender shall not be entitled to
indemnification under subsection 4.13(a) with respect to Taxes imposed by
the United States. Should a Lender which is otherwise exempt from or
subject to a reduced rate of withholding tax become subject to Taxes because
of its failure to deliver a form required hereunder, the Borrower shall take
such steps as such Lender shall reasonably request to assist such Lender to
recover such Taxes.
(f) In the event that the Borrower is obligated to make an
indemnification payment pursuant to this subsection 4.13 to any Lender and
the Lender receives a refund of Taxes with respect to which the Borrower
made an indemnification payment, the Lender promptly shall remit the amount
of such refund to the Borrower.
(g) If any Lender is entitled to a reduction in the
applicable withholding tax, the Administrative Agent may withhold from any
interest payment to such Lender an amount equivalent to the applicable
withholding tax after taking into account such reduction. If the forms or
other documentation required by paragraph (d) are not delivered to the
Administrative Agent, then the Administrative Agent may withhold from any
interest payment to such Lender not providing such forms or other
documentation an amount equivalent to the applicable withholding tax unless
the Borrower withholds the appropriate amount pursuant to subsection
4.13(a).
(h) If the Internal Revenue Service or any other
governmental authority of the United States or other jurisdiction asserts a
claim that the Administrative Agent or the Borrower
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33
did not properly withhold tax from amounts paid to or for the account of any
Lender (because the appropriate form was not delivered, was not properly
executed, or because such Lender failed to notify the Administrative Agent
or the Borrower of a change in circumstances which rendered the exemption
from, or reduction of, withholding tax ineffective, or for any other reason)
such Lender shall indemnify the Administrative Agent and the Borrower fully
for all amounts paid, directly or indirectly, by the Administrative Agent or
the Borrower as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts payable to
the Administrative Agent or the Borrower under this subsection, together
with all costs and expenses (including reasonable fees and disbursements of
counsel).
(i) Each Lender agrees that it will (i) take all
reasonable actions requested by the Borrower, including, without limitation,
changing the jurisdiction of the Lender's Applicable Lending Office, that
are, in the judgment of such Lender, not disadvantageous to such Lender to
maintain all complete or partial exemptions, if any, available to it from
withholding taxes (whether available by treaty or existing administrative
waiver), and (ii) to the extent reasonable and, in the judgment of such
Lender, not disadvantageous to it, otherwise cooperate with the Borrower to
minimize any amounts payable by the Borrower under this subsection 4.13.
(j) The provisions of this subsection shall survive any
termination of this Agreement. Each Lender will promptly notify the
Borrower and the Administrative Agent of any event of which it has
knowledge, occurring after the date hereof, which will entitle such Lender
to compensation pursuant to this subsection 4.13; provided that if a Lender
shall not have so notified the Borrower within 90 days of such event of
which it has knowledge, such Lender may not seek compensation for any period
beginning prior to the date which is 90 days prior to the date upon which
the Borrower is notified of such event.
4.14 Base Rate Loans Substituted for Affected Eurodollar
Loans. If any Lender is an Affected Lender and the Borrower shall, by at
least five Eurodollar Business Days' prior notice to such Lender through the
Administrative Agent, have elected that the provisions of this subsection
4.14 shall apply to such Lender, then, unless and until such Lender notifies
the Borrower that the circumstances that caused such Lender to be an
Affected Lender no longer apply:
(a) all Loans which would otherwise be made by such Lender
as Eurodollar Loans shall be made instead as Base Rate Loans (on
which interest and principal shall be payable contemporaneously with
the related Eurodollar Loans of the other Lenders), and
(b) after each of its Eurodollar Loans has been repaid,
all payments of principal which would otherwise be applied to repay
such Eurodollar Loans shall be applied to repay its Base Rate Loans
instead.
4.15 Pro Rata Treatment and Payments. (a) Each borrowing
by the Borrower in respect of Revolving Credit Loans (subject to the
provisions of subsection 2.4(d)), each payment by the Borrower on account of
any facility fee hereunder and any reduction of the Commitments
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34
of the Lenders shall be made pro rata according to the respective Commitment
Percentages of the Lenders. Each payment (including each prepayment) by the
Borrower on account of principal of and interest on the Loans shall be made
pro rata according to the respective principal amounts of, or interest on,
the Loans, as the case may be, then due and owing to the Lenders. All
payments (including prepayments) to be made by the Borrower hereunder or
under any Note, whether on account of principal, interest, fees or
otherwise, shall be made without deduction, set-off or counterclaim and
shall be made prior to 12:00 Noon, New York City time, on the due date
thereof to the Administrative Agent, for the account of the Lenders, at the
Administrative Agent's office specified in subsection 11.2, in Dollars and
in immediately available funds. The Administrative Agent shall distribute
such payments to the Lenders promptly upon receipt in like funds as
received. Whenever any payment of principal of, or interest on, the Base
Rate Loans or of fees shall be due on a day that is not a Domestic Business
Day, the date for payment thereof shall be extended to the next succeeding
Domestic Business Day. Whenever any payment of principal of, or interest on,
the Eurodollar Loans or Money Market LIBOR Loans shall be due on a day that
is not a Eurodollar Business Day, the date for payment thereof shall be
extended to the next succeeding Eurodollar Business Day unless such
Eurodollar Business Day falls in another calendar month, in which case the
date for payment thereof shall be the next preceding Eurodollar Business
Day. Whenever any payment of principal of, or interest on, the Money Market
Absolute Rate Loans shall be due on a day that is not a Domestic Business
Day, the date for payment thereof shall be extended to the next succeeding
Domestic Business Day. If the date for any payment of principal is extended
by operation of law or otherwise, interest thereon shall be payable for such
extended time.
(b) Unless the Administrative Agent shall have received
notice from the Borrower prior to the date on which any payment is due to
the Lenders hereunder that the Borrower will not make such payment in full,
the Administrative Agent may assume that the Borrower has made such payment
in full to the Administrative Agent on such date and the Administrative
Agent may, in reliance upon such assumption, cause to be distributed to each
Lender on such due date an amount equal to the amount then due such Lender.
If and to the extent that the Borrower shall not have so made such payment,
each Lender shall repay to the Administrative Agent forthwith on demand such
amount distributed to such Lender together with interest thereon, for each
day from the date such amount is distributed to such Lender until the date
such Lender repays such amount to the Administrative Agent, at the Federal
Funds Rate.
(c) Unless the Administrative Agent has received notice
from a Lender prior to a Borrowing Date that such Lender will not make
available to the Administrative Agent the amount that would constitute its
share of the Loans to be made on such Borrowing Date, the Administrative
Agent may assume that such Lender is making such amount available to the
Administrative Agent, and the Administrative Agent may, in reliance upon
such assumption, make available to the Borrower a corresponding amount. If
such amount is not made available to the Administrative Agent by the
required time on such Borrowing Date, such Lender shall pay to the
Administrative Agent, on demand, such amount with interest thereon at a rate
equal to the daily average Federal Funds Rate for the period until such
Lender makes such amount immediately available to the Administrative Agent.
A certificate of the Administrative Agent
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35
submitted to any Lender with respect to any amounts owing under this
subsection shall be conclusive in the absence of manifest error. In addition
to, and not in limitation of, the foregoing, if such Lender's share of such
Loans is not made available to the Administrative Agent by such Lender within
three Business Days of such Borrowing Date, the Administrative Agent shall
also be entitled to recover such amount with interest thereon at the rate per
annum equal to the Federal Funds Rate plus the Applicable Margin applicable to
Eurodollar Loans, on demand, from the Borrower.
4.16 Funding Losses. If the Borrower makes any payment of
principal with respect to any Eurodollar Loan or Money Market Loan on any
day other than the last day of an Interest Period applicable thereto, or if
the Borrower fails to borrow, prepay, convert or continue any Eurodollar
Loan or Money Market Loan after giving a Notice of Revolving Credit
Borrowing, Notice of Money Market Borrowing or notice of prepayment,
continuation or conversion, as the case may be, the Borrower shall reimburse
each Lender within 15 days after demand for any resulting loss or expense
incurred by it (or by an existing or prospective Participant in the related
Loan), including (without limitation) any loss incurred in liquidating or
employing deposits from third parties, but excluding loss of margin for the
period after any such payment or failure to borrow or prepay, provided that
such Lender shall have delivered to the Borrower a certificate as to the
amount of such loss or expense, which certificate shall be conclusive in the
absence of manifest error. The provisions of this subsection shall survive
any termination of this Agreement.
4.17 Replacement of Affected Lender. At any time any
Lender is an Affected Lender, the Borrower may replace such Affected Lender
as a party to this Agreement with one or more other bank(s) or financial
institution(s) reasonably satisfactory to the Administrative Agent, such
bank(s) or financial institution(s) to have a Commitment or Commitments, as
the case may be, in an aggregate amount equal to the Commitment of such
Affected Lender being replaced thereby, and upon notice from the Borrower
such Affected Lender shall assign, without recourse or warranty, its
Commitment, its Revolving Credit Loans, and all of its other rights and
obligations hereunder to such replacement bank(s) or other financial
institution(s) for a purchase price equal to the sum of the principal amount
of the Loans so assigned, all accrued and unpaid interest thereon, its
ratable share of all accrued and unpaid fees, any amounts payable under
subsection 4.16 as a result of such Lender receiving payment of any
Eurodollar Loan prior to the end of an Interest Period therefor and all
other obligations owed to such Affected Lender hereunder; provided that no
Affected Lender shall be required to assign any Money Market Loan.
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce the Agents and the Lenders to enter into this
Agreement and to make the Loans, the Borrower hereby represents and warrants
to each Agent and each Lender that:
5.1 Financial Condition. (a) The unaudited consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as of June
30, 1996 and the related unaudited
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36
consolidated statements of income and cash flows for the six months then
ended, copies of which have been delivered to each of the Lenders, fairly
present, in conformity with GAAP applied on a basis consistent with the
financial statements referred to in paragraph (b) of this subsection, the
consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of such date and their consolidated results of operations
and cash flows for such six-month period.
(b) The consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of December 31, 1995 and the related audited
consolidated statements of income and cash flows for the fiscal year then
ended, reported on by Coopers & Lybrand LLP, copies of which have been
delivered to each of the Lenders, fairly present, in conformity with GAAP,
the consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of such date and their consolidated results of operations
and cash flows for the fiscal year then ended.
5.2 No Change. Since December 31, 1995, there has been no
material adverse change in the financial position, results of operations or
business of the Borrower and its Consolidated Subsidiaries, considered as a
whole.
5.3 Corporate Existence and Power. The Borrower is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware, and has all corporate powers and all
governmental licenses, authorizations, consents and approvals required to
carry on its business as now conducted, except in any case where the failure
to be in good standing or to have such powers, licenses, authorizations,
consents or approvals would not, in the aggregate, materially adversely
affect the financial position, results of operations or business of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
5.4 Corporate and Governmental Authorization; Non
Contravention. The execution, delivery and performance by the Borrower of
this Agreement and any Note are within the Borrower's corporate powers, have
been duly authorized by all necessary corporate action, require no action by
or in respect of, or filing with, any governmental body, agency or official
and do not contravene, or constitute a default under, any provision of
applicable law, rule or regulation or of the certificate of incorporation or
by-laws of the Borrower or of any agreement, judgment, injunction, order,
decree or other instrument binding upon the Borrower or result in the
creation or imposition of any Lien on any asset of the Borrower or any
Subsidiary except for any contravention of or default under or Lien arising
under any law, rule or regulation or any agreement, judgment, order, decree
or other instrument (other than agreements or instruments constituting or
evidencing Debt) not material to the business of the Borrower and its
Consolidated Subsidiaries, considered as a whole, which contravention,
default or Lien would not (a) materially adversely affect the financial
position, results of operations or business of the Borrower and its
Consolidated Subsidiaries, considered as a whole or (b) adversely affect in
any substantive way the rights and remedies of the Agents and the Lenders
hereunder.
5.5 Binding Effect. This Agreement constitutes, and any
Note when executed and delivered will constitute, a valid and binding
agreement of the Borrower except as the enforceability thereof may be
limited by (a) bankruptcy, insolvency or similar laws affecting
<PAGE>
37
creditors' rights generally and (b) general equitable principles (whether
enforceability is considered in a proceeding in equity or at law).
5.6 Litigation. Except as disclosed in the Form 10-K of
the Borrower for the fiscal year ended December 31, 1995, the Form 10-Q of
the Borrower for the period ending March 31, 1996, the Form 10-Q of the
Borrower for the period ending June 30, 1996, or in Schedule III, there is
no action, suit or proceeding pending against, or to the knowledge of the
Borrower threatened against or affecting, the Borrower or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency
or official (a) in which there is a reasonable possibility of an adverse
decision that could materially adversely affect the business, financial
position or results of operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole, or (b) that in any manner draws into
question the validity of this Agreement or any Note.
5.7 Taxes. United States Federal income tax returns of
Santa Fe Pacific Corporation and its Material Subsidiaries have been
examined and closed or the statutes of limitations have expired for all
fiscal years through the year ended December 31, 1980. United States
Federal income tax returns of Burlington Northern Inc. and its Material
Subsidiaries have been examined and closed or the statutes of limitations
have expired for all fiscal years through the year ended December 31, 1985.
The Borrower and its Material Subsidiaries have filed all United States
Federal income tax returns and all other material tax returns which are
required to be filed by them and have paid all taxes due pursuant to such
returns or pursuant to any assessment received by the Borrower or any
Material Subsidiary except for any taxes being contested in good faith by
appropriate proceedings and as to which accruals have been provided in
accordance with GAAP. The accruals on the books of the Borrower and its
Material Subsidiaries in respect of taxes or other governmental charges are,
in the opinion of the Borrower, adequate.
5.8 Federal Regulations. No part of the proceeds of any
Loans will be used for "purchasing" or "carrying" any "margin stock" within
the respective meanings of each of the quoted terms under Regulation G or
Regulation U in violation of such Regulations.
5.9 ERISA. Each member of the ERISA Group has fulfilled
its obligations under the minimum funding standards of ERISA and the
Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA
Group has (a) sought a waiver of the minimum funding standard under Section
412 of the Internal Revenue Code in respect of any Plan, (b) failed to make
any contribution or payment to any Plan or Multiemployer Plan, or made any
amendment to any Plan, that has resulted or could result in the imposition
of a Lien or the posting of a bond or other security under ERISA or the
Internal Revenue Code or (c) incurred any liability under Title IV of ERISA
other than for regular contributions, which are not delinquent, and other
than a liability to the PBGC for premiums under Section 4007 of ERISA or a
liability to any Multiemployer Plan not in excess of $50,000,000.
<PAGE>
38
5.10 Not an Investment Company. The Borrower is not an
"investment company" within the meaning of the Investment Company Act of
1940, as amended.
5.11 Subsidiaries. Each of the Borrower's corporate
Material Subsidiaries is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation,
and has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as
now conducted except in any case where the failure to be in good standing or
to have such powers, licenses, authorizations, consents and approvals would
not, in the aggregate (a) materially adversely affect the financial
position, results of operations or business of the Borrower and its
Consolidated Subsidiaries, considered as a whole, or (b) adversely affect in
any substantive way the rights and remedies of the Agents and the Lenders
hereunder or under any Note.
5.12 Environmental Matters. Except as disclosed in the
Form 10-K of the Borrower for the fiscal year ended December 31, 1995, the
Form 10-Q of the Borrower for the period ending March 31, 1996, the Form
10-Q of the Borrower for the period ending June 30, 1996, or in Schedule
III, the Borrower and its Subsidiaries are in compliance in all material
respects with all Environmental Laws, and no Hazardous Substances have been
released upon any properties owned, leased or operated by the Borrower or
any of its Subsidiaries, except, in each case, to an extent that would not
be reasonably anticipated to have a material adverse effect on the business,
financial position or results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole.
5.13 Full Disclosure. The material furnished to the
Agents and the Lenders by or on behalf of the Borrower in connection with
the negotiation, execution and delivery of this Agreement, taken as a whole,
does not contain as of the date hereof, did not contain at the time so
furnished and will not contain on the date of the initial borrowing of
Loans, any untrue statement of a material fact and does not as of the date
hereof omit, did not omit at the time so furnished and will not omit on the
date of the initial borrowing of Loans, to state any material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
5.14 Limitation on Subsidiary Restrictions. Neither the
Borrower nor any Material Subsidiary has entered into any agreement with any
Person prior to the date hereof that will continue to be in effect after the
Closing Date which prohibits or limits the ability of such Material
Subsidiary to pay dividends or make other distributions to the Borrower.
SECTION 6. CONDITIONS PRECEDENT
6.1 Conditions to Closing Date. The Closing Date will
occur on the date of satisfaction of the following conditions precedent:
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39
(a) Revolving Credit Agreement. The Documentation Agent
shall have received this Agreement, executed and delivered by a duly
authorized officer of the Borrower, with a counterpart for each
Lender.
(b) Related Agreements. The Documentation Agent shall
have received, with a copy for each Lender, true and correct copies,
certified as to authenticity by the Borrower, of such other
documents or instruments as may be reasonably requested by the
Documentation Agent, including, without limitation, a copy of any
material debt instrument, material security agreement or other
material contract to which the Borrower or its Subsidiaries may be a
party.
(c) Corporate Proceedings of the Borrower. The
Documentation Agent shall have received, with a counterpart for each
Lender, a copy of the resolutions, in form and substance
satisfactory to the Documentation Agent, of the Board of Directors
of the Borrower authorizing (i) the execution, delivery and
performance of this Agreement and any Note and (ii) the borrowings
contemplated hereunder, certified by the secretary or an assistant
secretary of the Borrower as of the Closing Date, which certificate
shall be in form and substance satisfactory to the Documentation
Agent and shall state that the resolutions thereby certified have
not been amended, modified, revoked or rescinded.
(d) Borrower Incumbency Certificate. The Documentation
Agent shall have received, with a counterpart for each Lender, a
certificate of the Borrower, dated the Closing Date, as to the
incumbency and signature of the officers of the Borrower executing
this Agreement and documents executed by the Borrower pursuant
hereto, satisfactory in form and substance to the Documentation
Agent, executed by the vice-president - finance or the chief
financial officer and the secretary or an assistant secretary of the
Borrower.
(e) Corporate Documents. The Documentation Agent shall
have received, with a counterpart for each Lender, true and complete
copies of the certificate of incorporation and by-laws of the
Borrower, certified as of the Closing Date as complete and correct
copies thereof by the secretary or an assistant secretary of the
Borrower.
(f) Fees. Each Agent and each Co-Arranger shall have
received the fees referred to in subsection 4.1 to be received on or
prior to the Closing Date.
(g) Legal Opinions. The Documentation Agent shall have
received, with a counterpart for each Lender, the following executed
legal opinions:
(i) the executed legal opinion of Mayer, Brown
& Platt, counsel to the Borrower, substantially in the form
of Exhibit E-1;
(ii) the executed legal opinion of the general
counsel of the Borrower, substantially in the form of
Exhibit E-2; and
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40
(iii) the executed legal opinion of Simpson
Thacher & Bartlett, special counsel to the Documentation
Agent and the Administrative Agent, substantially in the
form of Exhibit E-3.
Each such legal opinion shall be dated the Closing Date and shall
cover such other matters incident to the transactions contemplated
by this Agreement as either Agent may reasonably require.
(h) Representations and Warranties. Each of the
representations and warranties made by the Borrower in this
Agreement shall be true and correct in all material respects on and
as of the Closing Date as if made on and as of the Closing Date.
(i) No Default. No Default or Event of Default shall have
occurred and be continuing on the Closing Date.
(j) Additional Matters. All corporate and other
proceedings, and all documents, instruments and other legal matters
in connection with the transactions contemplated by this Agreement
shall be satisfactory in form and substance to the Agents, and the
Agents and the Lenders shall have received such other documents and
legal opinions in respect of any aspect or consequence of the
transactions contemplated hereby or thereby as the Agents shall
reasonably request.
6.2 Conditions to Each Loan. The agreement of each Lender
to make any Loan requested to be made by it on any date (including, without
limitation, its initial Loan) is subject to the satisfaction of the
following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Borrower in this
Agreement shall be true and correct in all material respects on and
as of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to
the Loans requested to be made on such date.
(c) Notice of Borrowing. The Administrative Agent shall
have received by the time required pursuant to subsection 2.2 or
3.6, as the case may be, the Notice of Revolving Credit Borrowing or
Notice of Money Market Borrowing, as the case may be, in respect of
such Loans.
Each borrowing by the Borrower hereunder shall constitute a representation
and warranty by the Borrower as of the date thereof that the conditions
contained in paragraphs (a), (b) and (c) of this subsection have been
satisfied.
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41
SECTION 7. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as any of the
Commitments remains in effect or any amount is owing to any Lender or Agent
hereunder or under any Note:
7.1 Information. The Borrower will deliver to the
Administrative Agent in sufficient number for all of the Lenders (and the
Administrative Agent shall promptly deliver to each Lender upon receipt):
(a) as soon as available and in any event within 120 days
after the end of each fiscal year of the Borrower, a consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as
of the end of such fiscal year and the related consolidated
statements of income, stockholders' equity and cash flows for such
fiscal year, setting forth in each case in comparative form the
figures for the previous fiscal year, all reported on in a manner
acceptable to the Securities and Exchange Commission by independent
public accountants of nationally recognized standing;
(b) within 120 days after the end of each fiscal year of
the Borrower, a consolidating balance sheet in reasonable detail of
the Borrower and its Consolidated Subsidiaries as of the end of such
fiscal year and the related consolidating statement of income for
such fiscal year, all certified by the chief financial officer,
chief accounting officer or vice president-finance of the Borrower
as having been used in connection with the preparation of the
financial statements referred to in paragraph (a) of this
subsection;
(c) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal
year of the Borrower, a consolidated balance sheet of the Borrower
and its Consolidated Subsidiaries as of the end of such quarter, the
related consolidated statement of income for such quarter and for
the portion of the Borrower's fiscal year ended at the end of such
quarter, setting forth in comparative form such statement of income
for the corresponding quarter and the corresponding portion of the
Borrower's previous fiscal year, and the related consolidated
statement of cash flow for the portion of the Borrower's fiscal year
ended at the end of such quarter, setting forth in comparative form
such statement of cash flow for the corresponding portion of the
Borrower's previous fiscal year, all certified as to fairness of
presentation, generally accepted accounting principles and
consistency (except for any changes concurred with by the Borrower's
independent public accountants) by the chief financial officer,
chief accounting officer or vice president-finance of the Borrower;
(d) simultaneously with the delivery of each set of
financial statements referred to in paragraphs (a) and (c) of this
subsection, a certificate of the chief financial officer, chief
accounting officer or vice president-finance of the Borrower (A)
setting forth in reasonable detail the calculations required to
establish whether the Borrower was in compliance with the
requirements of subsections 8.1, and 8.2 on the date of such
financial statements, (B) stating whether there exists on the date
of such certificate any Default
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42
and, if any Default then exists, setting forth the details thereof
and the action that the Borrower is taking or proposes to take with
respect thereto and (C) stating whether, to the best of his
knowledge, after due inquiry, since the date of the most recent
previous delivery of financial statements pursuant to paragraph (a)
or (c) of this subsection, there has been any material adverse
change in the business, financial position or results of operations
of the Borrower and its Consolidated Subsidiaries, considered as a
whole, and, if so, the nature of such material adverse change;
(e) simultaneously with the delivery of each set of
financial statements referred to in paragraph (a) of this
subsection, a statement of the firm of independent public
accountants that reported on such statements (i) stating that their
audit examination has included a review of the terms of this
Agreement as they relate to financial or accounting matters
(including without limitation the requirements of subsections 8.1
and 8.2) and (ii) stating whether anything has come to their
attention to cause them to believe that any Default existed on the
date of such statements;
(f) within five days after any officer of the Borrower
obtains knowledge of any Default, if such Default is then
continuing, a certificate of the chief financial officer, chief
accounting officer or vice president-finance of the Borrower setting
forth the details thereof and the action that the Borrower is taking
or proposes to take with respect thereto;
(g) promptly upon the mailing thereof to the shareholders
of the Borrower generally, copies of all financial statements,
reports and proxy statements so mailed;
(h) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent) and annual,
quarterly or other reports that the Borrower shall have filed with
the Securities and Exchange Commission (it being understood that if
such reports and the financial statements, reports and proxy
statements referred to in paragraph (g) of this subsection are
provided within the time period prescribed by, and contain the
financial statements, opinions and certifications required by,
paragraphs (a) and (c) of this subsection, the requirements of
supplying such financial statements, opinions and certifications
shall be deemed to have been met);
(i) if and when any member of the ERISA Group (i) gives or
is required to give notice to the PBGC of any "reportable event" (as
defined in Section 4043 of ERISA) with respect to any Plan that
might constitute grounds for a termination of such Plan under Title
IV of ERISA, or knows that the plan administrator of any Plan has
given or is required to give notice of any such reportable event, a
copy of the notice of such reportable event given or required to be
given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any
Multiemployer Plan is in reorganization, is insolvent or has been
terminated, a copy of such notice; (iii) receives notice from the
PBGC under Title IV of ERISA of an intent to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in
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43
respect of, or appoint a trustee to administer any Plan, a copy of
such notice; (iv) applies for a waiver of the minimum funding
standard under Section 412 of the Internal Revenue Code, a copy of
such application; (v) gives notice of intent to terminate any Plan
under Section 4041(c) of ERISA, a copy of such notice and other
information filed with the PBGC; (vi) gives notice of withdrawal
from any Plan pursuant to Section 4063 of ERISA, a copy of such
notice; or (vii) fails to make any payment or contribution to any
Plan or makes any amendment to any Plan that has resulted or could
result in the imposition of a Lien or the posting of a bond or other
security, a certificate of the chief financial officer, the vice
president-finance or the chief accounting officer of the Borrower
setting forth details as to such occurrence and action, if any, that
the Borrower or applicable member of the ERISA Group is required or
proposes to take;
(j) as soon as reasonably practicable after the chairman,
president, secretary, treasurer, chief financial officer, vice
president-finance, chief legal officer or any vice president of the
Borrower obtains knowledge of the commencement of, or a material
threat of the commencement of, an action, suit, arbitration or other
proceeding against the Borrower or any Subsidiary before any court
or arbitrator or any governmental body, agency, arbitrator or other
official in which there is a reasonable possibility of an adverse
decision that could materially adversely affect the business,
financial position or results of operation of the Borrower and its
Consolidated Subsidiaries, considered as a whole, or that in any
manner draws into question the validity of this Agreement,
information as to the nature of such pending or threatened action,
suit or proceeding;
(k) promptly after the chairman, president, secretary,
treasurer, chief financial officer, vice president-finance, chief
legal officer or any vice president of the Borrower obtains
knowledge of a Change of Control, information as to the details
thereof; and
(l) from time to time such additional information
regarding the financial position, results of operations or business
of the Borrower or any of its Subsidiaries as the Administrative
Agent, at the reasonable request of any Lender, may request.
7.2 Maintenance of Properties; Insurance. (a) Except as
otherwise permitted by subsection 8.4, the Borrower will keep, and will
cause each Subsidiary to keep, all material property useful and necessary in
its business in good working order and condition, ordinary wear and tear
excepted, to the extent required by sound business practice.
(b) The Borrower will insure, and will cause each
Subsidiary to insure, its assets and businesses to such extent as is
customary for companies engaged in the same or similar businesses in similar
locations.
7.3 Conduct of Business and Maintenance of Existence.
Except as permitted by subsection 8.4, the Borrower will continue, and will
cause each Subsidiary to continue, to engage in business of the same general
type as now conducted by the Borrower and such Subsidiary, and will
preserve, renew and keep in full force and effect, and will cause each
Subsidiary to preserve,
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44
renew and keep in full force and effect, its corporate existence and its
rights, privileges and franchises necessary or desirable in the normal
conduct of business; provided that nothing in this subsection shall prohibit
(a) any merger, consolidation or Disposition permitted by subsection 8.4, or
(b) the termination of the corporate existence of any Subsidiary (other than
Burlington Northern Railroad or Santa Fe Railroad or, in the event of the
merger or consolidation of Burlington Northern Railroad and Santa Fe
Railroad, the surviving corporation of such merger or consolidation) if the
Borrower in good faith determines that such termination is in the best
interest of the Borrower and is not materially disadvantageous to the
Lenders.
7.4 Compliance with Laws. The Borrower will comply, and
will cause each Subsidiary to comply, in all material respects with all
applicable laws, ordinances, rules, regulations and requirements of
governmental authorities (including, without limitation, Environmental Laws
and ERISA and the rules and regulations thereunder) except (a) where
necessity of compliance therewith is contested in good faith by appropriate
proceedings or (b) where the failure so to comply would not have a material
adverse effect on the business, financial position or results of operations
of the Borrower and its Consolidated Subsidiaries, considered as a whole.
7.5 Use of Proceeds. (a) The Borrower will use the
proceeds of the Loans for working capital and other general corporate
purposes.
(b) None of the proceeds of any Loan will be used,
directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any "margin stock" within the meaning of
Regulation G or Regulation U in violation of such Regulations.
7.6 Maintenance of Ownership of Railroads. The Borrower
will at all times own, directly or through one or more Wholly-Owned
Subsidiaries that are Material Subsidiaries, all outstanding capital stock
of Burlington Northern Railroad and Santa Fe Railroad (or, in the event of
the merger or consolidation of Burlington Northern Railroad and Santa Fe
Railroad, the surviving corporation of such merger or consolidation).
SECTION 8. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as any of the
Commitments remains in effect or any amount is owing to any Lender or Agent
hereunder or under any Note:
8.1 Financial Condition Covenants.
(a) Maintenance of Consolidated Tangible Net Worth. The
Borrower will not permit Consolidated Tangible Net Worth at any time
to be less than $4,400,000,000.
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45
(b) Limitation on Consolidated Total Debt. The Borrower
will not permit Consolidated Total Debt at any time to exceed 55% of
Consolidated Total Capital at such time.
8.2 Limitation on Debt. (a) The Borrower will not permit
any Subsidiary to create, incur, assume or suffer to exist any Debt,
except:
(i) Debt of any Subsidiary to the Borrower or to
another Wholly-Owned Subsidiary;
(ii) Debt of any Subsidiary used for the purposes
specified in, and secured by any Lien permitted by (or, if such
Subsidiary is not a Material Subsidiary, any Lien which would be
permitted if it were a Material Subsidiary by), subsection 8.3(b),
(c), (d), (e) or (j), and any refinancing of such Debt in a
principal amount not exceeding the fair market value (as determined
in good faith by the Borrower), on the date of such refinancing, of
the assets subject to such Lien;
(iii) Debt of any Subsidiary outstanding on the date
hereof and listed on Schedule II, and any Debt of any Subsidiary the
proceeds of which are used to refinance such outstanding Debt of
such Subsidiary, provided that the principal amount thereof is not
increased;
(iv) Receivables Program Obligations, to the extent that
the Accounts Receivable Financing Amount thereof does not exceed
$750,000,000; and
(v) additional Debt of any Subsidiary in an aggregate
principal amount for all Subsidiaries at any time outstanding not
exceeding 5% of Consolidated Tangible Net Worth.
(b) The Borrower will not permit any Subsidiary or Special
Purpose Vehicle to incur any Receivables Program Obligations (including as
permitted by subsection 8.2(a)(v)) to the extent that the Accounts
Receivable Financing Amount thereof exceeds $750,000,000.
8.3 Limitation on Liens. Neither the Borrower nor any
Material Subsidiary will create or have outstanding any Lien on any asset
now owned or hereafter acquired by it, except:
(a) Liens existing on the date hereof securing Debt
outstanding on the date hereof;
(b) any Lien existing on any asset of any corporation at
the time such corporation becomes a Material Subsidiary and not
created in contemplation of such event;
(c) any Lien on any asset securing Debt incurred or
assumed for the purpose of financing all or any part of the cost of
acquiring such asset, provided that such Lien
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46
attaches to such asset, and only to such asset, concurrently with or
within 360 days after the acquisition (or completion of development)
thereof;
(d) any Lien on any asset of any corporation existing at
the time such corporation is merged into or consolidated with the
Borrower or a Material Subsidiary and not created in contemplation
of such event;
(e) any Lien existing on any asset prior to the
acquisition thereof by the Borrower or a Material Subsidiary and not
created in contemplation of such acquisition;
(f) Liens created on railroad property pursuant to
after-acquired property clauses of mortgages on such railroad
property so long as such mortgage was in existence on the date
hereof;
(g) Liens arising pursuant to judgments, attachments,
distraint or similar legal processes in an amount not exceeding
$250,000,000 which have been bonded or stayed pending appeal or
other contest;
(h) materialmen's, vendor's, workmen's, operator's,
mechanics', carrier's and like Liens imposed by law, incurred in
good faith in the ordinary course of business and securing
obligations that are not yet due or that are being contested in good
faith by appropriate proceedings;
(i) any Lien arising out of the refinancing, extension,
renewal or refunding of any Debt secured by any Lien permitted by
any of the foregoing clauses of this Section, provided that such
Debt is not increased beyond the principal amount thereof
outstanding on the date of such refinancing, extension, renewal or
refinancing, and is not secured by any additional assets;
(j) any Lien on railroad locomotives, auto racks or
rolling stock securing Debt incurred for the purpose of acquiring or
refurbishing such property; provided, that such Lien attaches to
such property and only to such property within 360 days after the
acquisition or the completion of refurbishment of such property;
(k) any Lien on Receivables Program Assets securing
Receivables Program Obligations; and
(l) Liens not otherwise permitted by the foregoing clauses
of this subsection securing Debt in an aggregate principal amount at
any time outstanding not exceeding 5% of Consolidated Tangible Net
Worth.
8.4 Consolidations, Mergers and Sale of Assets. The
Borrower will not, and will not permit any Material Subsidiary to,
consolidate with or merge into any other Person or Dispose of all or
substantially all of its assets, property or business, in any single
transaction or
<PAGE>
47
series of related transactions; provided, that (a) any Material Subsidiary
may merge or consolidate with, or Dispose of all or substantially all of its
assets, property or business to, any other Subsidiary or may merge or
consolidate with, or Dispose of all or substantially all of its assets,
property or business to, the Borrower (if the Borrower shall be the
surviving corporation in any such merger or consolidation), (b) subject to
subsection 7.6, any Material Subsidiary may consolidate with or merge into
any other Person, or any Material Subsidiary (other than Burlington Northern
Railroad or Santa Fe Railroad) may Dispose of all or substantially all of
its assets, property or business in any single transaction or any series of
related transactions, on terms and conditions approved by the Board of
Directors of the Borrower, and (c) subject to subsection 7.6, the Borrower
may merge or consolidate with any other corporation if (i) (A) the surviving
corporation shall be the Borrower or (B) the surviving corporation, if not
the Borrower, shall be a corporation organized and existing under the laws
of the United States or any state thereof or the District of Columbia and
shall expressly assume by a written assignment executed and delivered to the
Administrative Agent, all of the rights and obligations of the Borrower
under this Agreement (and pursuant to which such surviving corporation shall
become the "Borrower" under this Agreement), and (ii) after giving effect to
such merger or consolidation no Default shall have occurred and be
continuing.
8.5 Limitation on Transactions with Affiliates. The
Borrower will not, and will not permit any Subsidiary to, directly or
indirectly, pay any funds to or for the account of, make any investment
(whether by acquisition of stock or indebtedness, by loan, advance, transfer
of property, guarantee or other agreement to pay, purchase or service,
directly or indirectly, any Debt, or otherwise) in, lease, sell, transfer or
otherwise dispose of any assets, tangible or intangible, to, or participate
in, or effect any transaction in connection with any joint enterprise or
other joint arrangement with, any Affiliate other than in the ordinary
course of business and on terms and conditions at least as favorable to the
Borrower or such Subsidiary as the terms and conditions which would apply in
a similar transaction with a Person not an Affiliate.
8.6 Limitation on Subsidiary Restrictions. The Borrower
will not permit any Material Subsidiary to enter into any agreement after
the date hereof with any Person which prohibits or limits the ability of
such Material Subsidiary to pay dividends or make other distributions to the
Borrower, or amend, modify or supplement any existing agreement or
instrument in any manner that has the effect of so prohibiting or limiting
such ability.
SECTION 9. EVENTS OF DEFAULT
9.1 Events of Default. If any of the following events
shall occur and be continuing:
(a) the Borrower shall fail to pay when due any principal
of any Loan;
(b) the Borrower shall fail to pay interest on any Loan or
any fees or other amounts payable hereunder within five days after
the same becomes due and payable;
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48
(c) the Borrower shall fail to observe or perform any
covenant contained in subsection 7.1(f), 7.6, 8.1, 8.4, 8.6, or at
any time that Rating VI is in effect, subsection 8.2, 8.3 or 8.5;
(d) (i) the Borrower shall fail to observe or perform any
covenant contained in subsection 8.2, 8.3 or 8.5 at any time that a
Rating other than Rating VI is in effect and such default continues
unremedied for a period of 30 days after the occurrence thereof or
(ii) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by
clause (a), (b), (c) or (d)(i) above) for 30 days after written
notice thereof has been given to the Borrower by the Administrative
Agent at the request of any Lender;
(e) any representation, warranty, certification or
statement made by the Borrower in this Agreement or in any
certificate, financial statement or other document delivered
pursuant to this Agreement shall prove to have been incorrect in any
material respect when made (or deemed made);
(f) any payment in respect of Specified Obligations of the
Borrower and its Material Subsidiaries (except for Debt under this
Agreement) having a principal amount in excess of $75,000,000 in the
aggregate shall not be paid when due or within any applicable grace
period;
(g) any event or condition shall occur that results in the
acceleration of the maturity of any Specified Obligations of the
Borrower and its Material Subsidiaries (except for Debt under this
Agreement) and/or cancellation of commitments under Committed Credit
Facilities in a principal amount in excess of $75,000,000 in the
aggregate for all such Specified Obligations and Committed Credit
Facilities or enables the holder of such Specified Obligation and/or
the lenders under any such Committed Credit Facility or any Person
acting on behalf of such holders and/or lenders to accelerate the
maturity of such Specified Obligation and/or to terminate the
commitments to extend credit under such Committed Credit Facility,
in each case in an aggregate amount in excess of $75,000,000 for all
such Specified Obligations and Committed Credit Facilities;
(h) the Borrower or any Material Subsidiary shall commence
a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or
any substantial part of its property, or shall consent to any such
relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced
against it, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become
due, or shall take any corporate action to authorize any of the
foregoing;
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49
(i) an involuntary case or other proceeding shall be
commenced against the Borrower or any Material Subsidiary seeking
liquidation, reorganization or other relief with respect to it or
its debts under any bankruptcy, insolvency or other similar law now
or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or
any substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a period
of 60 days; or an order for relief shall be entered against the
Borrower or any Material Subsidiary under the federal bankruptcy
laws as now or hereafter in effect;
(j) any member of the ERISA Group at the time in question
shall fail to pay when due an amount or amounts aggregating in
excess of $10,000,000 which it shall have become liable to pay under
Title IV of ERISA; or notice of intent to terminate a Material Plan
shall be filed under Title IV of ERISA by any member of the ERISA
Group at the time in question, any plan administrator or any
combination of the foregoing; or the PBGC shall institute
proceedings under Title IV of ERISA to terminate, to impose
liability (other than for premiums under Section 4007 of ERISA) in
respect of, or to cause a trustee to be appointed to administer any
Material Plan; or a condition shall exist by reason of which the
PBGC would be entitled to obtain a decree adjudicating that any
Material Plan must be terminated; or there shall occur a complete or
partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer
Plans which could cause one or more members of the ERISA Group to
incur a current payment obligation in excess of $50,000,000; or
(k) (i) one or more judgments or orders for the payment of
money in an aggregate amount in excess of $100,000,000, other than
the Crow Judgment, shall be rendered against the Borrower or any
Material Subsidiary and such judgments or orders shall continue
unsatisfied and unstayed for a period of 30 days; or (ii) in the
case of the Crow Judgment, (A) Burlington Northern Railroad shall
cease diligently and actively to pursue one or more appeals or other
applicable legal proceedings to overturn or challenge the Crow
Judgment and defend against enforcement thereof, in each case in any
court in the United States having jurisdiction to consider such
appeals or proceedings; (B) any enforcement, injunction, seizure,
attachment or other action affecting the assets or operations of
Burlington Northern Railroad shall occur in respect of the Crow
Judgment that, individually or in the aggregate, has a material
adverse effect on the financial position, results of operations or
business of the Borrower and its Consolidated Subsidiaries,
considered as a whole; (C) any state or Federal court shall render a
judgment, order or decision having the effect of allowing
enforcement of the Crow Judgment, and such judgment, order or
decision shall continue unsatisfied and unstayed for a period of 30
days; or (D) (x) the amount of the award thereunder (excluding
post-judgment interest) is increased to an amount greater than
$250,000,000, (y) the amount of such award not covered by insurance
exceeds $100,000,000 and (z) the judgment, order or decision
effecting such increase shall continue unsatisfied and unstayed for
a period of 30 days;
<PAGE>
50
then, and in any such event, (A) if such event is an Event of Default
specified in paragraph (h) or (i) of this subsection 9.1 with respect to the
Borrower, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement and any Note shall immediately become due and payable,
and (B) if such event is any other Event of Default, either or both of the
following actions may be taken: (i) with the consent of the Required
Lenders, the Administrative Agent may, or upon the request of the Required
Lenders, the Administrative Agent shall, by notice to the Borrower declare
the Commitments to be terminated forthwith, whereupon the Commitments shall
immediately terminate; and (ii) with the consent of the Required Lenders,
the Administrative Agent may, or upon the request of the Required Lenders,
the Administrative Agent shall, by notice to the Borrower, declare the Loans
hereunder (with accrued interest thereon) and all other amounts owing under
this Agreement and any Note to be due and payable forthwith, whereupon the
same shall immediately become due and payable. Except as expressly provided
above in this subsection 9.1, presentment, demand, protest and all other
notices of any kind are hereby expressly waived by the Borrower.
9.2 Notice of Default. The Administrative Agent shall
give notice to the Borrower under subsection 9.1(d)(ii) promptly upon being
requested to do so by any Lender and shall thereupon notify all the Lenders
thereof.
SECTION 10. THE AGENTS
10.1 Appointment and Authorization. Subject to the
limitations set forth in subsection 10.9, each Lender irrevocably appoints
and authorizes each Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement and any Note as are delegated to
such Agent by the terms hereof or thereof, together with all such powers as
are reasonably incidental thereto.
10.2 Agents and Affiliates. Each Agent shall have the
same rights and powers under this Agreement and any Note held by it as any
other Lender and may exercise or refrain from exercising the same as though
it were not an Agent. The Lenders acknowledge that each Agent may receive
information regarding the Borrower or its Affiliates that is not expressly
furnished pursuant to this Agreement to it in such capacity (including
information that may be subject to confidentiality obligations in favor of
the Borrower or such Affiliate) and acknowledge that each Agent shall be
under no obligation to provide such information to them. Each Agent and
each of their respective affiliates may accept deposits from, lend money to,
acquire equity interests in and generally engage in any kind of banking,
trust, financial advisory, underwriting or other business with the Borrower
or any Subsidiary or Affiliate of the Borrower as if it were not an Agent
hereunder and without notice to or consent of the Lenders.
10.3 Action by Agents. The obligations of the Agents
hereunder are only those expressly set forth herein and no Agent shall have
or be deemed to have any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or otherwise exist against the
Agents. The Documentation Agent shall have no responsibilities, duties,
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51
obligations, or liabilities hereunder or otherwise in connection herewith
after the Closing Date. No Agent shall be deemed to have knowledge or
notice of the occurrence of any Default except, in the case of the
Administrative Agent, to the extent it has received requests from any Lender
pursuant to subsection 9.1(d)(ii). Without limiting the generality of the
foregoing, no Agent shall be required to take any action with respect to any
Default, except as expressly provided in Section 9. Each Agent shall be
fully justified in failing or refusing to take any action under this
Agreement unless it shall first receive such advice or concurrence of the
Required Lenders as it deems appropriate and, if it so requests, it shall
first be indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
10.4 Consultation with Experts; Delegation of Duties. Any
Agent may execute any of its duties under this Agreement by or through
agents, employees or legal counsel. Any Agent may consult with legal
counsel (who may be internal counsel or counsel for the Borrower),
independent public accountants and other experts selected by it and shall
not be liable for any action taken or omitted to be taken by it in good
faith in accordance with the advice of such counsel, accountants or experts.
10.5 Liability of Agents. No Agent nor any of such
Agent's affiliates nor any of their respective directors, officers, agents,
or employees shall be liable for any action taken or not taken by it in
connection herewith (a) with the consent or at the request of the Required
Lenders or (b) in the absence of its own gross negligence or willful
misconduct. Without limiting the generality of the foregoing, if this
Agreement requires that any notice, consent, certificate, statement, opinion
or other writing be reasonably satisfactory or otherwise acceptable to
either Agent, then neither Agent nor any of their respective directors,
officers, agents or employees shall be liable for accepting the same or
acting thereon as long as such Agent did so in good faith. No Agent nor any
of their directors, officers, agents or employees shall be responsible for
or have any duty to ascertain, inquire into or verify (i) any statement,
warranty or representation made in connection with this Agreement or any
borrowing hereunder; (ii) the performance or observance of any of the
covenants or agreements of the Borrower; (iii) the satisfaction of any
condition specified in Section 6, except receipt of items required to be
delivered to the Administrative Agent; or (iv) the validity, effectiveness
or genuineness of this Agreement or any Note or any other instrument or
writing furnished in connection herewith. No Agent shall incur any
liability by acting in reliance upon any notice, consent, certificate,
statement or other writing (which may be a bank wire, telex or similar
writing) believed by it to be genuine or to be signed by the proper party or
parties.
10.6 Indemnification of Agents. Each Lender shall,
ratably in accordance with its Commitment, indemnify each Agent and such
Agent's affiliates and their respective directors, officers, agents and
employees (to the extent not reimbursed by the Borrower) against any cost,
expense (including counsel fees and disbursements (which for these purposes
shall encompass the allocated costs and all disbursements of internal
counsel)), claim, demand, action, loss or
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52
liability (except such as result from such indemnitee's gross negligence or
willful misconduct) that such indemnitee may suffer or incur in connection
with this Agreement or any Note or any action taken or omitted by such
indemnitee hereunder. The provisions of this subsection shall survive any
termination of this Agreement.
10.7 Credit Decision. Each Lender acknowledges that it
has, independently and without reliance upon any Agent and such Agent's
affiliates or any other Lender or their respective directors, officers,
agents or employees, and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into
this Agreement. Each Lender also acknowledges that it will, independently
and without reliance upon any Agent or such Agent's affiliates or any other
Lender or their respective directors, officers, agents or employees, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking any
action under this Agreement. Except for notices, reports and other
documents expressly herein required to be furnished to the Lenders by an
Agent, such Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of the Borrower which may come into the possession of any
of such Agent or its affiliates or directors, officers, agents or employees.
10.8 Successor Agents. The Administrative Agent, subject
to the appointment and acceptance of a successor Administrative Agent as
provided below, may resign as Administrative Agent hereunder at any time by
giving notice thereof to the Lenders and the Borrower. Upon any such
resignation, the Required Lenders (with the consent of the Borrower, which
shall not be unreasonably withheld or delayed) shall have the right to
appoint a successor to Administrative Agent. If no such successor
Administrative Agent shall have been so appointed by the Required Lenders,
and shall have accepted such appointment, within 30 days after the retiring
Administrative Agent gives notice of resignation, then such retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be a commercial bank organized or licensed
under the laws of the United States or of any State thereof and having a
combined capital and surplus of at least $500,000,000. Upon the acceptance
of its appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Administrative Agent's resignation hereunder as Administrative Agent, the
provisions of this Section and subsection 11.5 shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was
Administrative Agent.
10.9 The Co-Arrangers. The Co-Arrangers, in such
capacity, shall have no duties or responsibilities, and shall incur no
liability, under this Agreement.
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53
SECTION 11. MISCELLANEOUS
11.1 Amendments and Waivers. Neither this Agreement nor
any Note nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this subsection. The
Required Lenders may, from time to time, (a) enter into with the Borrower
written amendments, supplements or modifications hereto or to any Note for
the purpose of adding any provisions to this Agreement or to any Note or
changing in any manner the rights of the Lenders or of the Borrower
hereunder or thereunder or (b) waive, on such terms and conditions as the
Required Lenders may specify in such instrument, any of the requirements of
this Agreement or any Default or Event of Default and its consequences;
provided, however, that no such waiver and no such amendment, supplement or
modification shall (i) reduce the amount or extend the scheduled date of
maturity of any Loan, or reduce the stated rate of any interest or fee
payable hereunder or extend the scheduled date of any payment thereof or
increase the amount or extend the expiration date of any Lender's
Commitment, in each case without the consent of each Lender affected
thereby, or (ii) amend, modify or waive any provision of this subsection or
reduce the percentage specified in the definition of Required Lenders, or
consent to the assignment or transfer by the Borrower of any of its rights
and obligations under this Agreement, in each case without the written
consent of all the Lenders, or (iii) amend, modify or waive any provision of
Section 10 without the written consent of both Agents. Any such waiver and
any such amendment, supplement or modification shall apply equally to each
of the Lenders and shall be binding upon the Borrower, the Lenders, the
Agents and all future holders of the Loans. In the case of any waiver, the
Borrower, the Lenders and the Agents shall be restored to their former
positions and rights hereunder and under any Notes, and any Default or Event
of Default waived shall be deemed to be cured and not continuing; no such
waiver shall extend to any subsequent or other Default or Event of Default
or impair any right consequent thereon.
11.2 Notices. All notices, requests and demands to or
upon the respective parties hereto to be effective shall be in writing
(including by facsimile transmission), and, unless otherwise expressly
provided herein, shall be deemed to have been duly given or made when
delivered, or three Domestic Business Days after being deposited in the
mail, postage prepaid, or, in the case of telecopy notice, when received,
addressed as follows in the case of the Borrower, the Administrative Agent
and the Documentation Agent and as set forth in Schedule I in the case of
the Lenders, or to such other address as may be hereafter notified by the
respective parties hereto:
The Borrower: Burlington Northern Santa Fe
Corporation
Two Century Centre
1700 East Golf Road
Schaumburg, IL 60173-5860
Attention: Patrick J. Ottensmeyer
Fax: 847-995-6605
<PAGE>
54
The Administrative Agent: The Chase Manhattan Bank
10 South LaSalle Street
Suite 2300
Chicago, IL 60603
Attention: Jonathan E. Twichell
Fax: 312-807-4077
Tel: 312-807-4450
with a copy to: Chase Loan and Agency Services
Group
140 East 45th Street, 29th Floor
New York, NY 10017
Attention: Janet N. Belden
Fax: 212-622-0002
Tel: 212-622-0011
The Documentation Agent: Morgan Guaranty Trust Company
of New York
60 Wall Street
New York, New York 10260
Attention: Charles H. King
Fax: (212) 648-5336
Tel: (212) 648-7138
; provided that any notice, request or demand to or upon either Agent shall
not be effective until received.
11.3 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of either Agent or any
Lender, any right, remedy, power or privilege hereunder or under any Note
shall operate as a waiver thereof; nor shall any single or partial exercise
of any right, remedy, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, remedy, power
or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exclusive of any rights, remedies, powers and
privileges provided by law.
11.4 Survival of Representations and Warranties. All
representations and warranties made hereunder and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of
the Loans hereunder.
11.5 Expenses. The Borrower shall pay all reasonable
out-of-pocket expenses of the Agents in connection with the preparation and
effectiveness of this Agreement (including reasonable fees and disbursements
of Simpson Thacher & Bartlett, special counsel to the
<PAGE>
55
Agents). The Borrower shall also pay (i) all reasonable out-of-pocket
expenses of the Agents (including, without duplication, reasonable fees and
disbursements of counsel to the Agents) in connection with (A) the
administration of this Agreement and any waiver or consent hereunder or any
amendment hereof or (B) any Default or alleged Default hereunder and (ii) if
an Event of Default occurs, all out-of-pocket expenses incurred by any Agent
or any Lender, including reasonable fees and disbursements of counsel, in
connection with such Event of Default and collection, bankruptcy, insolvency
and other enforcement proceedings resulting therefrom.
11.6 Successors and Assigns. (a) The provisions of this
Agreement and any Notes shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, except that
(i) other than under the provisions of clause (c) of subsection 8.4, the
Borrower may not assign or otherwise transfer any of its rights or
obligations under this Agreement or any Notes without the prior written
consent of all Lenders and (ii) a Lender may assign or otherwise transfer
any of its rights under this Agreement or any Notes only in accordance with
the provisions of paragraph (b), (c) or (d) of this subsection.
(b) Any Lender may at any time grant to one or more banks
or other institutions (each a "Participant") participating interests in its
Commitments or its Loans. In the event of any such grant by a Lender of a
participating interest to a Participant, whether or not upon notice to the
Borrower and the Administrative Agent, such Lender shall remain responsible
for the performance of its obligations hereunder, and the Borrower and the
Administrative Agent shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement. Any agreement pursuant to which any Lender may grant such a
participating interest shall provide that such Lender shall retain the sole
right and responsibility to enforce the obligations of the Borrower
hereunder including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement; provided that
such participation agreement may provide that such Lender will not agree to
any modification, amendment or waiver of this Agreement without the consent
of the Participant that would reduce the principal of or rate of interest on
any Loan or Loans in which such Participant has a participating interest,
reduce any fee payable pursuant to subsection 4.1 or postpone the date fixed
for any payment of interest or principal on such Loan or Loans or of such
fees or is of a type that requires the consent of all the Lenders pursuant
to clause (ii) of the proviso in subsection 11.1. The Borrower agrees that
each Participant shall, to the extent provided in its participation
agreement but subject to paragraph (e) of this subsection, be entitled to
the benefits of subsections 4.10 through 4.16 with respect to its
participating interest. An assignment or other transfer that is not
permitted by paragraph (c) or (d) below shall be given effect for purposes
of this Agreement only to the extent of a participating interest granted in
accordance with this paragraph (b).
(c) Any Lender may, in accordance with applicable law, at
any time assign to one or more banks or other entities of a type to which
commercial banks customarily assign loans of the type made under this
Agreement (each an "Assignee") a portion of its Commitments in an amount not
less than $10,000,000 (provided, that, if such Lender's Commitment is
$10,000,000 or less, it may assign all, but not less than all, of its
Commitment and provided, further, that
<PAGE>
56
assignments by one Lender to another Lender may be in any amounts) and its
rights and obligations under this Agreement, and such Assignee shall assume
such rights and obligations, pursuant to an Assignment and Acceptance
executed by such Assignee and such transferor Lender, with (and subject to)
the consent of the Borrower and the Administrative Agent, which consent of
the Administrative Agent shall not be unreasonably withheld; provided that
if an Assignee is a Lender or an affiliate of a Lender, no such consents
shall be required. Each such assignment must be a proportionate share of
the transferor Lender's Commitment and Revolving Credit Loans. Upon
execution and delivery of such instrument and payment by such Assignee to
such transferor Lender of an amount equal to the purchase price agreed
between such transferor Lender and such Assignee (and, in the case of an
Assignee not incorporated under the laws of the United States of America or
a state thereof, delivery to the Administrative Agent of the documents
described in subsection 4.13), such Assignee shall be a Lender party to this
Agreement and shall have all the rights and obligations of a Lender with a
Commitment as set forth in such instrument of assumption, and the transferor
Lender shall be released from its obligations hereunder to a corresponding
extent, and no further consent or action by any party shall be required. In
connection with any such assignment the transferor Lender shall pay to the
Administrative Agent a fee of $2,500 for processing such assignment. In
connection with any such assignment the transferor Lender shall pay to the
Administrative Agent a fee of $2,500 for processing such assignment,
provided that such fee shall be payable by the Borrower in the event it is
required to be paid in respect of an assignment required by the Borrower
pursuant to subsection 4.17.
(d) Any Lender may at any time assign all or any portion
of its rights under this Agreement or any Note to a Federal Reserve Bank. No
such assignment shall release the transferor Lender from its obligations
hereunder.
(e) No Participant or other transferee of any Lender's
rights shall be entitled to receive any greater payment under subsections
4.12 or 4.16 than such Lender would have been entitled to receive with
respect to the rights transferred (if it had not so transferred such
rights), unless such transfer is made with the Borrower's prior written
consent after the date hereof or made pursuant to subsection 11.10.
(f) The Administrative Agent shall maintain at the address
of the Administrative Agent referred to in subsection 11.2 a copy of each
Assignment and Acceptance delivered to it and a register (the "Register")
for the recordation of the names and addresses of the Lenders and the
Commitments of, and principal amounts of the Loans owing to, each Lender
from time to time. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Administrative Agent and
the Lenders shall treat each Person whose name is recorded in the Register
as the owner of a Loan or other obligation hereunder as the owner thereof
for all purposes of this Agreement, notwithstanding any notice to the
contrary. Any assignment of any Loan or other obligation hereunder shall be
effective only upon appropriate entries with respect thereto being made in
the Register. The Register shall be available for inspection by the
Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
<PAGE>
57
11.7 Indemnification by the Borrower. The Borrower agrees
to indemnify each Lender and each Agent, their respective affiliates and the
respective directors, officers, agents, stockholders, partners and employees
of the foregoing (each an "Indemnitee") and hold each such Indemnitee
harmless from and against all liabilities, losses, damages, costs and
expenses, including, subject to the limitations set forth in the next
succeeding sentence, reasonable fees and disbursements of counsel (which for
these purposes shall encompass the allocated costs of internal legal
services and all disbursements of internal counsel), in connection with any
investigative, administrative or judicial action, suit or proceeding,
whether or not such Indemnitee shall be designated a party thereto, that may
be incurred by such Indemnitee relating to or arising out of this Agreement
or any actual or proposed use of the proceeds of any Loan, provided that in
no event shall any Indemnitee have the right to be indemnified hereunder by
the Borrower for its own gross negligence or willful misconduct as
determined by a court of competent jurisdiction. The obligation of the
Borrower to indemnify each Indemnitee under this subsection for fees and
disbursements of counsel shall be limited to the fees and expenses of one
counsel in each jurisdiction representing all such Persons, except (i) to
the extent that, in the reasonable judgment of any such Person, the
existence of actual or potential conflicts of interest make representation
by the same counsel inappropriate and (ii) that any such Person that is a
party to, or compelled to participate in, any such action, suit or
proceeding shall be indemnified for the reasonable fees and disbursements of
its counsel to the extent provided in the immediately preceding sentence.
The provisions of this subsection shall survive any termination of this
Agreement.
11.8 Adjustments. If any Lender (a "Benefitted Lender")
shall at any time receive any payment of all or part of its Revolving Credit
Loans (or, after acceleration of the Loans pursuant to Section 9, its
Loans), or interest thereon, or receive any collateral in respect thereof
(whether voluntarily or involuntarily, by deduction, set-off or
counterclaim, pursuant to events or proceedings of the nature referred to in
subsection 9.1(h) or (i), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Lender, if any, in
respect of such other Lender's Revolving Credit Loans (or, after
acceleration of the Loans pursuant to Section 9, its Loans), or interest
thereon, such Benefitted Lender shall purchase for cash from the other
Lenders a participating interest in such portion of each such other Lender's
Revolving Credit Loans (or, after acceleration of the Loans pursuant to
Section 9, its Loans), or shall provide such other Lenders with the benefits
of any such collateral, or the proceeds thereof, as shall be necessary to
cause such Benefitted Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of the Lenders; provided, however,
that if all or any portion of such excess payment or benefits is thereafter
recovered from such Benefitted Lender, such purchase shall be rescinded, and
the purchase price and benefits returned, to the extent of such recovery,
but without interest.
11.9 Counterparts. This Agreement may be executed by one
or more of the parties to this Agreement on any number of separate
counterparts (including by facsimile transmission), and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Borrower and each Agent.
<PAGE>
58
11.10 Severability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
11.11 Integration. This Agreement represents the
agreement of the Borrower, the Agents and the Lenders with respect to the
subject matter hereof, and there are no promises, undertakings,
representations or warranties by either Agent or any Lender relative to the
subject matter hereof not expressly set forth or referred to herein or in
the Notes.
11.12 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
11.13 Submission To Jurisdiction; Waivers. The Borrower
hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal
action or proceeding relating to this Agreement and the Notes to
which it is a party, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general
jurisdiction of the Courts of the State of New York, the courts of
the United States of America for the Southern District of New York,
and appellate courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered
or certified mail (or any substantially similar form of mail),
postage prepaid, to the Borrower at its address set forth in
subsection 11.2 or at such other address of which the Administrative
Agent shall have been notified pursuant thereto; and
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction.
11.14 Acknowledgments. The Borrower hereby acknowledges
that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the Notes;
<PAGE>
59
(b) neither any Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower arising out of or in
connection with this Agreement or any of the Notes, and the
relationship between the Agents and Lenders, on one hand, and the
Borrower, on the other hand, in connection herewith or therewith is
solely that of creditor and debtor; and
(c) no joint venture is created hereby or otherwise exists
by virtue of the transactions contemplated hereby among the Lenders
or among the Borrower and the Lenders.
11.15 Certain Existing Lenders. Each lender that is a
"Lender" under (and as defined in) the Existing Credit Agreement and that is
not a Lender signatory hereto shall, effective upon the satisfaction of the
conditions set forth in Section 6 hereof on the Closing Date, cease to be a
Lender, and the commitments of such lender under the Existing Credit
Agreement to make additional extensions of credit shall thereupon be
terminated.
11.16 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS AND
THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY NOTE AND
FOR ANY COUNTERCLAIM THEREIN.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
BURLINGTON NORTHERN SANTA FE CORPORATION
By:
-------------------------------------
Title:
CHASE SECURITIES INC., as a
Co-Arranger
By:
-------------------------------------
Title:
<PAGE>
60
J.P. MORGAN SECURITIES INC.,
as a Co-Arranger
By:
-------------------------------------
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent
and as a Lender
By:
-------------------------------------
Title:
<PAGE>
61
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Documentation
Agent and as a Lender
By:
-------------------------------------
Title:
ABN AMRO BANK N.V.
By:
-------------------------------------
Title:
BANK OF AMERICA ILLINOIS
By:
-------------------------------------
Title:
BANK OF MONTREAL
By:
-------------------------------------
Title:
THE BANK OF NEW YORK
By:
-------------------------------------
Title:
<PAGE>
62
CREDIT LYONNAIS, CAYMAN ISLAND
BRANCH
By:
-------------------------------------
Title:
CREDIT SUISSE
By:
-------------------------------------
Title:
THE DAI-ICHI KANGYO BANK, LTD.,
CHICAGO BRANCH
By:
-------------------------------------
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By:
-------------------------------------
Title:
MELLON BANK, N.A.
By:
-------------------------------------
Title:
NATIONAL WESTMINSTER BANK PLC
By:
-------------------------------------
Title:
<PAGE>
63
NATIONAL WESTMINSTER BANK PLC,
NASSAU BRANCH
By:
-------------------------------------
Title:
THE NORTHERN TRUST COMPANY
By:
-------------------------------------
Title:
SOCIETE GENERALE, SOUTHWEST AGENCY
By:
-------------------------------------
Title:
UNION BANK OF SWITZERLAND
By:
-------------------------------------
Title:
By:
-------------------------------------
Title:
CIBC INC.
By:
-------------------------------------
Title:
CITIBANK, N.A.
By:
-------------------------------------
Title:
<PAGE>
64
COMMERZBANK AG, CHICAGO BRANCH
By:
-------------------------------------
Title:
By:
-------------------------------------
Title:
THE FUJI BANK, LIMITED
By:
-------------------------------------
Title:
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., CHICAGO BRANCH
By:
-------------------------------------
Title:
ROYAL BANK OF CANADA
By:
-------------------------------------
Title:
<PAGE>
65
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By:
-------------------------------------
Title:
By:
-------------------------------------
Title:
BANCA COMMERCIALE ITALIANA
By:
-------------------------------------
Title:
By:
-------------------------------------
Title:
BANQUE PARIBAS
By:
-------------------------------------
Title:
By:
-------------------------------------
Title:
<PAGE>
66
BOATMEN'S NATIONAL BANK OF ST. LOUIS
By:
-------------------------------------
Title:
CAISSE NATIONALE DE CREDIT AGRICOLE
By:
-------------------------------------
Title:
FIRST BANK NATIONAL ASSOCIATION
By:
-------------------------------------
Title:
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By:
-------------------------------------
Title:
THE MITSUBISHI TRUST AND BANKING
CORPORATION, CHICAGO BRANCH
By:
-------------------------------------
Title:
NATIONSBANK, N.A.
By:
-------------------------------------
Title:
<PAGE>
67
PNC BANK, NATIONAL ASSOCIATION
By:
-------------------------------------
Title:
THE SAKURA BANK, LIMITED
By:
-------------------------------------
Title:
THE SANWA BANK LIMITED
By:
-------------------------------------
Title:
WACHOVIA BANK OF GEORGIA, N.A.
By:
-------------------------------------
Title:
<PAGE>
EXHIBIT 10.1
AMENDMENT OF
BURLINGTON NORTHERN SANTA FE
NON-EMPLOYEE DIRECTORS' STOCK PLAN
----------------------------------
WHEREAS, Burlington Northern Santa Fe Corporation (the
"Corporation") maintains Burlington Northern Santa Fe Non-Employee Directors'
Stock Plan (the "Plan"); and
WHEREAS, amendment of the Plan is now desirable to make changes
permitted by recently adopted changes to Federal securities regulations;
RESOLVED, that the Plan be, and it hereby is, amended, effective
January 16, 1997, in the following particulars:
1. By substituting the following for the first sentence of paragraph 2.1
(c) of the Plan:
"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 prior to the date of grant as may be required by
rules established by the Board."
2. By substituting the phrase:
"equal to a number of shares of Stock determined by
dividing 150% of the amount of the Cancelled
Compensation by the Fair Market Value of the Stock"
for the phrase:
"equal to a number of shares of Stock determined by
dividing 125% of the amount of the Cancelled
Compensation by the Fair Market Value of the Stock"
where the latter phrase appears in subsection A-1.3 of
Supplement A of the Plan.
3. By substituting the following for subsection A-1.4 of
Supplement A of the Plan:
"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
<PAGE>
earned (or at such other time required under rules
established by the Board)"
FURTHER RESOLVED, pursuant to its authority under subsection
A-1.4 of Supplement A, the Board hereby requires that the elections
required under subsection A-1.4 of Supplement A of the Plan shall be
made by a director by the date of the annual meeting of shareholders in
the year of grant.
FURTHER RESOLVED, that each of the Secretary and other officers
of the Company are hereby authorized and empowered by and on behalf and
in the name of the Company to do and perform or cause to be done and
performed, all such agreements, undertakings, documents, instruments, or
certificates, as each such officer may deem necessary or appropriate to
effectuate or carry out fully the propose and intent of the foregoing
resolutions.
Fort Worth, Texas
January 16, 1997
<PAGE>
EXHIBIT 10.15
BURLINGTON NORTHERN SANTA FE
ESTATE ENHANCEMENT PROGRAM
-----------------------------
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
SECTION 1 1
General 1
History, Purpose and Effective Date 1
Governing Documents 1
Plan Administration 1
Non-Alienation 1
Source of Benefits 2
Plan Year 2
Policy Year 2
Notices 2
Applicable Laws 2
Gender and Number 2
SECTION 2 2
Participation 2
Participation 2
Plan Not Contract of Employment 2
SECTION 3 3
Benefits 3
Available Coverage 3
Elected Increases and Decreases in Coverage 3
Cost 3
Cash Value 3
Limitation on Benefits 3
Election to Forego Salary 4
SECTION 4 4
Split-Dollar and Collateral-Assignment Agreements 4
Introduction 4
Insurance Policy 5
Policy Ownership 5
Payment of Premiums 5
Collateral-Assignment Agreement 7
Limitations on Owner's Rights under Policy 8
Collection and Payment of Death Benefit 8
Termination of Split-Dollar Agreement 9
9
Payments on Termination of Split-Dollar Agreement 12
12
SECTION 5 13
Plan Administration 13
Plan Administrator; Administration 13
Determination of Benefits 14
i
<PAGE>
SECTION 6 14
Miscellaneous 14
Amendment and Termination 14
Validity 14
SECTION 7 14
Change in Control and Potential Change in Control 14
ii
<PAGE>
BURLINGTON NORTHERN SANTA FE
ESTATE ENHANCEMENT PROGRAM
----------------------------
SECTION 1
---------
General
-------
1.1 History, Purpose and Effective Date. Effective April 18, 1996 (the
"Effective Date"), as amended and restated effective November 1, 1996,
Burlington Northern Santa Fe, a Delaware corporation (the "Company"),
established the Burlington Northern Santa Fe Estate Enhancement Program (the
"Plan"). The purpose of this Plan is to provide senior management employees
of the Company and any subsidiary of the Company which adopts this Plan (a
"Subsidiary") an opportunity to either individually purchase a life insurance
policy or to make available to other persons the opportunity to purchase a
life insurance policy insuring either (a) the life of such employee and
providing a death benefit upon the death of the employee, or (b) the lives of
such employee and his spouse and providing a death benefit upon the death of
the survivor of the employee and his spouse (a "Policy"), pursuant to a
collateral assignment, split-dollar arrangement with the Company.
1.2 Governing Documents. In the event of any inconsistency between the
terms of this Plan as described herein and the terms of any Policy purchased
by an Owner (as defined in subsection 2.1), or any related Split-Dollar
Agreement or Collateral-Assignment Agreement (as described in Section 4)
executed by an Owner, the terms of such policy or agreement shall be
controlling as to that Owner, Participant, his spouse (if any), his assignee
(if any), his successor-in-interest (if any) and his beneficiary or
beneficiaries.
1.3 Plan Administration. The authority to control and manage the day-
to-day operation and administration of this Plan is vested in the Company's
Vice President - Human Resources (the "Plan Administrator") or such other
officer of the Company as its Board of Directors shall designate; provided,
however, that any action required or permitted to be taken by the Plan
Administrator may be taken by the Compensation Committee of the Company's
Board of Directors (the "Committee").
1.4 Non-Alienation. Except to the extent provided under subsection 4.5
and under the terms of a Policy and the related Split-Dollar and Collateral-
Assignment Agreements, no Participant's or Owner's benefits under this Plan
may be voluntarily or involuntarily assigned or alienated.
<PAGE>
1.5 Source of Benefits. Any benefit payable to or on account of a
Participant under this Plan shall be paid by the insurance company issuing the
Policy (the "Insurer").
1.6 Plan Year. The "Plan Year" shall be the period beginning April
18, 1996 and ending December 31, 1996 and each calendar year thereafter.
1.7 Policy Year. The "Policy Year" shall mean the 12-consecutive month
period designated as such in a Policy or such other period as determined by
the Plan Administrator.
1.8 Notices. Any notice or document required to be given to or filed
with the Plan Administrator shall be considered to be given or filed if
delivered to the Administrator of this Plan or mailed by registered mail,
postage prepaid to the Administrator, in care of the Company, at its principal
corporate office.
1.9 Applicable Laws. This Plan shall be construed and administered in
accordance with the internal laws of the State of Illinois, except to the
extent preempted by Federal law.
1.10 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 2
---------
Participation
-------------
2.1 Participation. Each Senior Management Employee (as defined below)
shall become a "Participant" in this Plan as of the date on or after the
Effective Date on which he or another person purchases a Policy pursuant to
the terms of this Plan and executes a related "Split-Dollar Agreement" and
"Collateral-Assignment Agreement" as set forth in Section 4 hereof; provided
that such Senior Management Employee has executed an "Agreement to Forego
Salary" in accordance with subsection 3.6 hereof. The term "Owner" means the
Participant or other person purchasing a Policy pursuant to the terms of this
Plan. The term "Senior Management Employee" means a full-time employee on the
active roll of the Company or any Subsidiary who holds the position of
President or Senior Vice President of the Company or a Subsidiary.
2.2 Plan Not Contract of Employment. This Plan does not constitute a
contract of employment, and nothing in this Plan will give any employee or
Participant the right to be retained in the employ of the Company or a
Subsidiary, nor the right to any incentive award, nor any right or claim to
any benefit under this
2
<PAGE>
Plan, except to the extent specifically provided under the terms of this Plan.
SECTION 3
---------
Benefits
--------
3.1 Available Coverage. Subject to the Participant satisfying any
insurability requirements of the Insurer, an Owner may purchase a Policy on
the life of the Participant or on the lives of the Participant and his spouse.
The death benefit coverage that may be purchased under a Policy may not exceed
the amount which may be purchased in accordance with the amounts to be
contributed as premiums by the Company and the Owner in accordance with the
related Split-Dollar Agreement.
3.2 Elected Increases and Decreases in Coverage. In accordance with
the terms of this Plan, and subject to the Participant satisfying any
insurability requirements of the Insurer, the Owner, prior to the
Participant's termination of employment with the Company and the Subsidiaries,
may elect to increase or decrease the amount payable as a death benefit
(within the limits set forth in subsection 3.1), with such election to be in
such form and made at such time as the Company and the Insurer may require.
3.3 Cost. The cost of providing the life insurance coverage under any
Policy purchased by an Owner shall be shared between the Owner and the Company
in accordance with the terms of such Policy and the related Split-Dollar
Agreement and Collateral-Assignment Agreement executed by the Owner, as
described in subsection 4.4.
3.4 Cash Value. Each Policy purchased by an Owner shall be designed to
have a cash value. In accordance with the specific terms of the Policy
purchased by an Owner and subject to the related Split-Dollar Agreement and
Collateral-Assignment Agreement executed by that Owner, the Owner may be
entitled to withdraw his interest in such cash value, surrender it for a lump
sum cash payment or convert it to an annuity, with a corresponding reduction
in the death benefit payable under the Policy.
3.5 Limitation on Benefits. The amount of benefits payable to or on
account of a Participant pursuant to this Plan shall not exceed the total
amount of death proceeds and other benefits payable by the Insurer under any
Policy purchased by the Owner with respect to such Participant, reduced by the
amount of such death proceeds to which the Company is entitled pursuant to the
Split-Dollar Agreement and Collateral-Assignment Agreement executed by the
Owner.
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<PAGE>
3.6 Election to Forego Salary. As a condition of participating in this
Plan, each Participant will be required to make a one-time irrevocable
election to forego a specified portion of his salary for each 12-month period
beginning on and after the Policy Date of the Policy (as defined in the
Policy), with such election to remain in effect until the first to occur of
(a) the date which is the fifth (5th) annual anniversary of the Policy Date,
(b) the date on which the Participant terminates employment with the Company
or Subsidiary, or (c) the date on which the related Split-Dollar Agreement
terminates in accordance with subsection 4.8. The Participant shall make such
election by execution of an "Agreement to Forego Salary" prior to the Policy
Date, which agreement shall specify a level dollar amount of salary which the
Participant elects to forego during each such 12-month period, which dollar
amount will be at least $50,000 and no more than $100,000 for each 12-month
period. The amounts which a Participant agrees to forego pursuant to this
subsection 3.6 shall be included in determining the amounts of the
Participant's "compensation" under any nonqualified supplemental pension plan
or group life insurance plan maintained by the Company but shall be
disregarded for purposes of all other plans or arrangements maintained by the
Company and the Subsidiaries. If the Participant's election to forego salary
is no longer in effect because of his termination of employment with the
Company or Subsidiary as described in (b) of this subsection 3.6, and such
termination is for a reason other than the Participant's disability (as
determined by the Plan Administrator) or death, then, in accordance with
subsection 4.4(c), the Owner will be required to pay to the Company, as part
of the Owner's Policy Year Contribution to Premium for the remainder of the
Policy Year in which such termination occurs and for each succeeding Policy
Year until the date that is five (5) years after the Policy Date, an amount
equal to the level amount of salary which the Participant had elected to
forego for a 12-month period under this subsection 3.6 (such amount to be pro-
rated for payments made for the remainder of the Policy year in which the
termination of employment occurs), reduced by thirty-five percent (35%), each
such reduced amount hereinafter referred to as the "Owner's Special
Contribution."
SECTION 4
---------
Split-Dollar and Collateral-Assignment Agreements
-------------------------------------------------
4.1 Introduction. The Split-Dollar Agreement and Collateral-Assignment
Agreement executed by the Owner in conjunction with his purchase of a Policy
shall establish the rights of the Company to the proceeds of any such Policy
acquired by the Owner and shall include such terms and conditions, not
inconsistent with this Plan, as the Plan Administrator may, with the consent
of the Vice President - Law and General Counsel, prescribe. The terms of the
particular Split-Dollar Agreement and Collateral-Assignment Agreement executed
by an Owner shall apply solely to that Owner.
4
<PAGE>
4.2 Insurance Policy. The Policy shall be purchased by the Owner from
any insurance company chosen by the Owner, provided that such insurance
company must either (a) have a rating of "AA" or better, as determined by any
major rating company other than A.M. Best, or (b) be approved by the Company's
Chief Financial Officer. The Company shall take all reasonable steps
necessary to enable the Insurer to issue the Policy, and to comply with any
reasonable request to take any further action which may be necessary to cause
the Policy to conform to the provisions of this Plan. The Owner's rights
under any Policy purchased by such Owner shall be subject to the terms and
conditions of the related Split-Dollar Agreement and Collateral-Assignment
Agreement executed by the Owner.
4.3 Policy Ownership. The Owner shall be the sole and absolute owner
of any Policy purchased by such Owner, and may exercise all ownership rights
granted to the owner thereof by the terms of the Policy, except as may
otherwise be provided in the related Split-Dollar and Collateral-Assignment
Agreements executed by the Owner.
4.4 Payment of Premiums. While the Split-Dollar Agreement remains in
effect:
(a) Except as otherwise provided in the Split-Dollar Agreement, the
premium to be paid to the Insurer for the Policy in each Policy
Year ("Total Policy Year Premium") shall be set forth in an
exhibit ("Exhibit B") attached to the Split-Dollar Agreement.
(b) Except as otherwise provided in the Split-Dollar Agreement, on or
before the date of such Split-Dollar Agreement as to the first
Policy Year and on or before the first day of each next succeeding
Policy Year, or within the grace period provided in the Policy,
the Company shall pay to the Insurer the Total Policy Year Premium
set forth in the Exhibit for that Policy Year. However, for
purposes of determining the amount due the Company as a result of
its payments toward the premiums on the Policy, in each Policy
Year the Company shall be deemed to have paid only that portion of
the premium (the "Company's Policy Year Net Premium Payment") for
which it has not received payment from the Owner as the Owner's
Policy Year Contribution to Premium as provided for in subsection
(c) next below; provided that the Owner's Special Contributions,
if any, as defined in section 3.6, shall not be considered part of
the Owner's Policy Year Contribution to Premium for this purpose.
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<PAGE>
(c) Except as otherwise provided herein, as to each Policy Year, a
certain amount of contribution to the premium shall be due from
the Owner (the "Owner's Policy Year Contribution to Premium") for
such Plan Year. This amount shall be based upon the annual cost
of the current life insurance coverage provided on behalf of the
Participant for such Policy Year and shall be equal to the
"economic benefit" of such current life insurance coverage for
Federal income tax purposes, as provided in Revenue Ruling 64-328
(or the corresponding applicable provisions of any future Revenue
Ruling) or as otherwise provided for Federal income tax purposes.
The Owner shall be required to pay the Owner's Policy Year
Contribution to Premium to the Company for each such Policy Year,
subject to any assignment of the Policy in accordance with the
terms thereof and of the related Split-Dollar and Collateral-
Assignment Agreements.
(i) If the Participant is the Owner of the Policy, and so long
as the Participant's employment with the Company continues
and unless the Company and the Participant agree otherwise,
the Company shall deduct the Owner's Policy Year
Contribution to Premium from the Participant's normal salary
payments on a level basis during the Policy Year, except as
to the first Policy Year, during which the Owner's Policy
Year Contribution to Premium shall be deducted on a level
basis beginning as of the date of enrollment, and except as
to the last Policy Year, during which the Owner's Policy
Year Contribution to Premium shall be deducted on a level
basis ending as of the date of the termination of the Split-
Dollar Agreement. Upon the termination of the Participant's
employment with the Company or a Subsidiary in any Policy
Year and continuing until the termination of the Split-
Dollar Agreement, the Participant shall be required to pay
the balance of the Owner's Policy Year Contribution to
Premium for such Policy Year (which has not theretofore been
deducted from the Participant's salary) generally within
ninety (90) days of such termination of the Participant's
employment with the Company, and the Participant shall be
required to pay the Owner's Policy Year Contribution to
Premium for each succeeding Policy Year generally within
ninety (90) days of the premium payment date for the Policy
for each such Policy Year.
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<PAGE>
(ii) If the Owner of the Policy is not the Participant, the Owner
shall pay the Owner's Policy Year Contribution to Premium
for each Policy Year generally within ninety (90) days of
the premium payment date for the Policy for each such Policy
Year. In all events, the Owner shall pay the Owner's Policy
Year Contribution to Premium prior to the end of each such
Policy Year.
(iii) For the Policy Year in which the Participant dies (or, with
respect to a Policy insuring the lives of the Participant
and his spouse, for the Policy Year in which the survivor of
the Participant and his spouse dies), an appropriate
adjustment shall be made to the Owner's Policy Year
Contribution to Premium for such Policy Year (and any
applicable Policy Year thereafter) to reflect such event.
Any provision of this subsection (c) to the contrary notwithstanding, if
the Participant's employment with the Company or a Subsidiary shall be
terminated for any reason other than the Participant's disability (as
determined by the Plan Administrator) or death before the date that is
five (5) years after the Policy Date, then the Owner's Policy Year
Contribution to Premium for each succeeding Policy Year until the date
that is five (5) years after the Policy Date shall be increased by the
Owner's Special Contributions, as defined in section 3.6.
4.5 Collateral-Assignment Agreement. To secure the payment to the
Company of the amount due it hereunder as a result of its payments toward the
premiums on the Policy, the Owner shall contemporaneously with its purchase
and the execution of the Split-Dollar Agreement assign the Policy in favor of
the Company as collateral pursuant to a written agreement, which collateral
assignment shall specifically provide that the sole right of the Company
thereunder is to be paid the amount due it under the Split-Dollar Agreement as
a result of its payments toward the premiums on the Policy, including payments
attributable to the Owner's Special Contributions, if any. Such payment shall
be made from the cash value of the Policy (as defined therein) if the Split-
Dollar Agreement is terminated or if the Owner surrenders or cancels the
Policy while the related Split-Dollar Agreement remains in effect, or from the
death benefit provided under the Policy, if the Participant dies (or with
respect to a Policy insuring the lives of the Participant and his spouse, if
both the Participant and his spouse die) while the Policy and the related
Split-Dollar Agreement remain in effect. In no event shall the Company have
any right to borrow against or withdraw amounts from the Policy, to surrender
or cancel the Policy, or take any other action which would impair or defeat
the rights of
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<PAGE>
the Owner as the owner of the Policy. The collateral assignment of the Policy
to the Company shall not be terminated, altered or amended by the Owner while
the Split-Dollar Agreement is in effect. The Owner and the Company shall take
all action necessary to cause such collateral assignment to conform to the
provisions of the Split-Dollar Agreement.
4.6 Limitations on Owner's Rights under Policy. As the sole and
absolute owner of the Policy, the Owner may exercise all of the rights,
options, privileges and other incidents of ownership granted to the owner
thereof by the terms of the Policy (including, without limitation, the
unlimited ability to borrow against or withdraw amounts from the cash value of
the Policy and to surrender or cancel the Policy). Notwithstanding the
foregoing, so long as the Split-Dollar Agreement remains in effect: (a) if
the Policy is a variable policy, investment decisions with respect to the
Policy will be made by the Owner, subject to approval by the Company's Chief
Financial Officer or Vice President-Finance, or as otherwise specifically
provided in the related Split-Dollar Agreement; (b) the Owner shall not take
any action with respect to the Policy which would have a direct or indirect
adverse effect on the Company's interests under the Split-Dollar Agreement in
the Policy without the prior written consent of the Committee or the Company's
Chief Executive Officer; and (c) except with respect to the Owners's right to
change the beneficiaries of the Participant's Death Benefit, as defined in
subparagraph (iii) of subsection 4.7(b), and to assign the Owner's interests
in the Policy and under the related Split-Dollar Agreement as may be provided
therein, the Owner shall not take any other action with respect to the Policy
(regardless of whether it would directly or indirectly adversely affect the
Company's interests under the Split-Dollar Agreement in the Policy) without
the prior written consent of the Committee or the Company's Chief Executive
Officer. For purposes of this subsection 4.6, the Owner may borrow against or
withdraw from the cash value of the Policy any amounts which may be required
to be paid to the Company and which are due the Company under subsection
4.4(c) or subsection 4.9, so long as the amount of any such loan or withdrawal
made to pay the Company under subsection 4.4(c) is chargeable solely against
the Participant's Death Benefit and that portion of the cash value of the
Policy which is in excess of the cash value of the Policy due the Company
under the related Split-Dollar Agreement as a result of its payments toward
the premiums on the Policy pursuant to the Collateral-Assignment Agreement.
4.7 Collection and Payment of Death Benefit.
(a) Upon the death of the Participant (or with respect to a Policy
insuring the lives of the Participant and his spouse, upon the
death of the survivor of the
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<PAGE>
Participant and his spouse) while the related Split-Dollar
Agreement remains in effect, the Company and the Owner's
beneficiary shall promptly take all action necessary to obtain the
death benefit provided under the Policy and payable as a result of
the maturity of the Policy (the "Death Benefit").
(b) The Death Benefit shall be paid as follows:
(i) The Company shall first be paid from the Death Benefit any
unpaid amount of the Participant's Plan Year Contribution to
Premium owed to it by the Participant under subsection
4.4(c).
(ii) The Company shall next be paid from the Death Benefit the
total net amount of the payments made by it toward the
premiums of the Policy. Such amount shall be the sum of the
Company's Policy Year Net Premium Payment amounts under
subsection 4.4(b), which amount shall include, as provided
in subsection 4.4(b), the Owner's Special Contributions, if
any (the "Company's Cumulative Net Premium Payment").
(iii) The Owner's beneficiary under a Policy shall next be paid,
in the manner and in the amount or amounts provided in the
beneficiary designation provision of such Policy, from the
Death Benefit an amount equal to the Participant's Death
Benefit. For purposes of this subparagraph (iii), the
"Participant's Death Benefit" shall be that portion of the
Death Benefit remaining after the payments provided for in
items (i) and (ii) of this subsection 4.7(b), and then
reduced by any loan chargeable against the Participant's
Death Benefit.
(c) The beneficiary designation provision of the Policy shall conform
to the provisions hereof.
4.8 Termination of Split-Dollar Agreement.
(a) A Split-Dollar Agreement shall terminate, without notice, on the
first day of the month following the month during which the first
of the following events occurs:
(i) The Owner fails to make any premium payment required under
subsection 4.4(c) for any Policy Year by the end of such
Policy Year or the Owner notifies the Company that the Owner
intends to surrender or cancel the Policy.
9
<PAGE>
(ii) The Participant's employment with the Company or a
Subsidiary terminates before the date that is five (5) years
after the Policy Date as a result of the Participant's
involuntary termination of employment for cause.
(iii) The Participant's employment with the Company or a
Subsidiary terminates before the date that is five (5) years
after the Policy Date as a result of the Participant's
voluntary termination of employment.
(iv) The Participant's employment with the Company or a
Subsidiary terminates before the date that is five (5) years
after the Policy Date as a result of the Participant's
retirement (as defined below) and neither the Committee nor
the Company's Chief Executive Officer consent to the
continuation of the Split-Dollar Agreement; provided that
with respect to the retirement of the Company's Chief
Executive Officer before the date that is five (5) years
after the Policy Date, the consent of the Committee shall be
necessary for the continuation of the Split-Dollar
Agreement.
(v) The Participant establishes a relationship with a competitor
of the Company or engages in any activity which is in
conflict with or adverse to the interests of the Company, as
determined by the Committee in its sole discretion, whether
before or after the Participant's employment with the
Company or a Subsidiary has terminated and whether before,
on or after the date upon which the Participant retires or
becomes eligible to retire, and neither the Committee nor
the Company's Chief Executive Officer consent to the
continuation of the Split-Dollar Agreement; provided that
with respect to a Participant who is the Company's Chief
Executive Officer, the consent of the Committee shall be
necessary for the continuation of the Split-Dollar Agreement
under the circumstances described in this subparagraph (v)
of subsection 4.8(a).
(vi) The date immediately before the date that is fifteen (15)
years after the Policy Date.
(vii) The Company terminates the Split-Dollar Agreement by written
notice to the Owner. Such notice shall be effective as of
the date of such notice.
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<PAGE>
(viii) The Owner terminates the Split-Dollar Agreement by written
notice to the Company. Such notice shall be effective as of
the date of such notice.
(b) The following events shall not result in the termination of a
Split-Dollar Agreement:
(i) The Participant's employment with the Company or a
Subsidiary terminates after the date that is five (5) years
after the Policy Date as a result of the Participant's
voluntary termination of employment.
(ii) The Participant's employment with the Company or a
Subsidiary terminates after the date that is five (5) years
after the Policy Date as a result of the Participant's
involuntary termination of employment for cause.
(iii) The Participant's employment with the Company or a
Subsidiary terminates after the date that is five (5) years
after the Policy Date as a result of the Participant's
retirement.
(iv) The Participant's employment with the Company or a
Subsidiary terminates before the date that is five (5) years
after the Policy Date as a result of the Participant's
retirement and the Committee or the Company's Chief
Executive Officer consent to the continuation of the Split-
Dollar Agreement; provided that with respect to the
retirement of the Company's Chief Executive Officer before
the date that is five (5) years after the Policy Date, the
consent of the Committee shall be necessary for the
continuation of the Split-Dollar Agreement.
(v) The Participant dies.
(vi) The Participant's employment with the Company or a
Subsidiary terminates as a result of the Participant's
disability (as determined by the Plan Administrator).
(vii) The Participant's employment with the Company or a
Subsidiary terminates as a result of the Participant's
involuntary termination of employment not for cause.
(c) For purposes of this Plan, the Participant shall be deemed to have
terminated employment as a result of retirement if the Participant
either (i) terminates
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<PAGE>
employment on or after the attainment of age 65 or (ii) terminates
employment on or after the attainment of age 55 after having
earned 10 years of service, as defined in the Burlington Northern
Pension Plan or the Santa Fe Pacific Retirement Plan, whichever is
applicable. For purposes of this subsection (b), each of the
Company's plans identified above shall also include any successor
plan.
4.9 Payments on Termination of Split-Dollar Agreement.
(a) Upon termination of a Split-Dollar Agreement upon the occurrence
of any of the events described in Section 4.8, the Company shall
be entitled to receive from the cash value of the related Policy
an amount equal to the sum of (i) the Company's Cumulative Net
Premium Payment, including the total amount of the Owner's Special
Contributions, as defined in subsection 3.6, if any, plus (ii) any
amount of the Participant's Plan Year Contribution to Premium owed
to the Company by the Participant under subsection 4.4(c), if any.
Such amount is hereinafter referred to as the "Company's
Cumulative Net Premium Payment at Termination."
(b) If the Company shall terminate the Split-Dollar Agreement by
written notice to the Owner as provided in subsection 4.8(a)(vii),
the Company shall make a payment to the Owner equal to the sum of
(i) the amount of salary foregone by the Participant pursuant to
the terms of the "Agreement to Forego Salary" entered into by the
Participant in accordance with subsection 3.6, plus (ii) the total
amount of the Owner's Special Contributions, as defined in
subsection 3.6, if any, plus (iii) interest on the amounts
described in (i) and (ii) of this subsection (b) at the Applicable
Rate (as hereinafter defined) from the date of such Agreement to
Forego Salary until the date the Company terminates the Split-
Dollar Agreement by written notice to the Owner, compounded
annually. The "Applicable Rate" shall mean one percent (1%) plus
the annual average composite yield on Moody's Seasoned Corporate
Bond Yield Index for the twelve month period ending on the last
day of the month immediately preceding the date on which the
Company terminates the Split-Dollar Agreement, as determined from
Moody's Bond Record published by Moody's Investors Service, Inc.
(or any successors thereto), or, if such yield is no longer
published, a substantially similar average selected by the
Company.
(c) For thirty (30) days after the date of the termination of the
Split-Dollar Agreement, the Owner shall have the
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<PAGE>
option of obtaining the release of the collateral assignment of
the Policy to the Company. To obtain such release, the Owner
shall pay to the Company an amount equal to the Company's
Cumulative Net Premium Payment at Termination, and,
notwithstanding any other provision hereof, the Owner shall
specifically be allowed to borrow against or withdraw from the
cash value of the Policy for this purpose. Upon receipt of such
amount, the Company shall release the collateral assignment of the
Policy by the execution and delivery of an appropriate instrument
of release.
(d) If the Owner fails to exercise such option within such thirty (30)
day period, then, at the request of the Company, the Owner shall
execute any document or documents required by the Insurer to
transfer the interest of the Owner in the Policy to the Company.
Alternatively, the Company may enforce its right to be paid an
amount equal to the Company's Cumulative Net Premium Payment at
Termination under the collateral assignment of the Policy.
Thereafter, neither the Owner, nor the Owner's successors,
assigns, heirs, executors, administrators or beneficiaries shall
have any further interest in and to the Policy, either under the
terms thereof or under this Plan. However, in no event shall the
Owner be liable to the Company in the event the cash value of a
Policy at the time of the termination of the related Split-Dollar
Agreement is insufficient to pay the Company an amount equal to
the Company's Cumulative Net Premium Payment at Termination.
SECTION 5
---------
Plan Administration
-------------------
5.1 Plan Administrator; Administration. The Vice President - Human
Resources of the Company or such other officer of the Company as its Board of
Directors shall designate shall be the Plan Administrator under this Plan.
Except as otherwise specifically provided herein, the Plan Administrator shall
have discretionary authority to control and manage the operation and
administration of this Plan. The Plan Administrator shall also have the power
to establish, adopt, or revise such rules and regulations as the Plan
Administrator may deem advisable for the administration of this Plan. The
interpretation and construction of this Plan by the Plan Administrator and any
action taken thereunder, shall be binding and conclusive upon all persons.
The Plan Administrator shall not, in any event, be liable to any person for
any action taken or omitted to be taken in connection with the interpretation,
construction or administration of this
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<PAGE>
Plan, so long as such action or omission to act is made in good faith. The
Plan Administrator shall be eligible to participate in this Plan but shall not
vote or act upon any matter that relates solely to his interest in this Plan
as a Participant.
5.2 Determination of Benefits. Except as otherwise specifically
provided herein, the Plan Administrator shall make all determinations
concerning rights to benefits under this Plan. Any decision by the Plan
Administrator denying a claim by a Participant or his beneficiary for benefits
under this Plan shall be stated in writing and delivered or mailed to the
Participant or such beneficiary. Such decision shall set forth the specific
reasons for the denial, written to the best of the Plan Administrator's
ability in a manner that may be understood without legal or actuarial counsel.
In addition, the Plan Administrator shall afford a reasonable opportunity to
the Participant or such beneficiary for a full and fair review of the decision
denying such claim.
SECTION 6
---------
Miscellaneous
-------------
6.1 Amendment and Termination. This Plan may be amended or terminated
by the Company or its successor, in its discretion, at any time and without
the consent or approval of any other person. The power to amend this Plan may
be delegated by the Board of Directors of the Company to the Vice President -
Human Resources, provided that the Vice President - Human Resources shall not
amend this Plan if such amendment would expand the group of employees who is
eligible to participate in this Plan or if such amendment would increase the
cost of premiums payable by the Company or would otherwise increase the
Company's cost of maintaining this Plan. Further, the Vice President - Human
Resources shall not terminate this Plan without the prior written consent of
the Board of Directors of the Company.
6.2 Validity. In the event any provision of this Plan is held invalid,
void, or unenforceable, the same shall not affect, in any respect whatsoever,
the validity of any other provision of this Plan.
SECTION 7
---------
Change in Control and Potential Change in Control
-------------------------------------------------
Notwithstanding any other provision of this Plan, no change shall be
made to this Plan, the related Split-Dollar Agreements or Collateral
Assignment Agreements which are adverse to the interests of an Owner without
the consent of the Owner, in the event of a Change in Control or Potential
Change in Control. For
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purposes of this Section 7, "Change in Control" and "Potential Change in
Control" are defined as follows:
(a) Change in Control. A "Change in Control" shall be deemed to have
occurred if:
(i) 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;
(ii) 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 of Directors of the Company, 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 item (i), (iii) or (iv) of this
definition) whose election by the Board of Directors of the
Company 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;
(iii) The stockholders of the Company approve a merger or
consolidation of the Company with any other company other
than (A) 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 (B) a merger or consolidation
15
<PAGE>
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
(iv) 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 item
(iv), 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
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Railroad or a holding company of a Class I railroad that is
approved by the Board of Directors of the Company shall not
constitute a "Change in Control" unless the Board of
Directors of the Company makes a determination that the
transaction shall constitute a "Change in Control."
(b) Potential Change in Control. A Potential Change in Control shall
exist during any period in which the circumstances described in
item (i), (ii), (iii) or (iv), below, exist (provided, however,
that a Potential Change in Control shall cease to exist not later
than the occurrence of a Change in Control):
(i) The Company or any successor or assign thereof enters into
an agreement, the consummation of which would result in the
occurrence of a Change in Control; provided that a Potential
Change in Control described in this item (i) shall cease to
exist upon the expiration or other termination of all such
agreements;
(ii) Any person (including the Company) publicly announces an
intention to take or to consider taking actions which if
consummated would constitute a Change in Control; provided
that a Potential Change in Control described in this item
(ii) shall cease to exist upon the withdrawal of such
intention, or upon a reasonable determination by the
directors that there is no reasonable chance that such
actions would be consummated;
(iii) Any "person", as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended
(other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the
Company, or any corporation owned, directly or indirectly,
by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company) is
the beneficial owner, directly or indirectly, of securities
of the Company representing 9.5% or more of the combined
voting power of the Company's then outstanding securities.
However, a Potential Change in Control shall not be deemed
to exist by reason of ownership of securities of the Company
by any person, to the extent that such securities of the
Company are acquired pursuant to a reorganization,
recapitalization, spin-off or other similar
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transactions (including a series of prearranged related
transactions) to the extent that immediately after such
transaction or transactions, such securities are directly or
indirectly owned in substantially the same proportions as
the proportions of ownership of the Company's securities
immediately prior to the transaction or transactions; or
(iv) The Board of Directors of the Company adopts a resolution to
the effect that, for purposes of this Plan, a potential
change in control exists; provided that a Potential Change
in Control described in this item (iv) shall cease to exist
upon a reasonable determination by the Board of Directors of
the Company that the reasons that gave rise to the
resolution providing for the existence of a potential change
in control have expired or no longer exist.
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EXHIBIT 10.16
[LETTERHEAD OF BURLINGTON NORTHERN SANTA FE CORPORATION]
January 30, 1997
Mr. Robert D. Krebs
142 Stonegate Lane
Lake Forest, Illinois 60045
Dear Mr. Krebs:
Burlington Northern Santa Fe Corporation (the "Corporation") considers
it essential to the best interests of its stockholders to foster the
continuous employment of key management personnel. In this connection, the
Board of Directors of the Corporation (the "Board") recognizes that, as is the
case with many publicly held corporations, the possibility of a Change in
Control (as that term is defined in this letter) may exist, and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Corporation and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of
the Corporation's management, including yourself, to their assigned duties
without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control.
In order to induce you to remain in the employ of the Corporation or its
affiliates, the Corporation agrees that you shall receive the severance
benefits set forth in this letter agreement (the "Agreement") in the event
your employment with the Corporation is terminated under the circumstances
described below subsequent to a "Change in Control" (as defined in Section 2),
and that you shall be eligible for the parachute tax gross-up and certain
other benefits described in this Agreement.
1. TERM. The "Agreement Term" shall begin on January 16, 1997, (the
"Effective Date" of this Agreement), and shall end on December 31, 1999,
subject to the following:
(i) As of January 1, 2000, and each January 1 thereafter, the Agreement
Term shall automatically be extended to the next following December 31;
provided, however, that no such extension shall take place if, on or before
the September 30 next preceding the date on which the extension would
otherwise take place, the
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Corporation has given notice that it does not wish to extend the Agreement
Term; and further provided that no such extension shall take place if a Change
in Control has occurred prior to the date on which the extension would
otherwise take place.
(ii) Subject to Subsection (iii) next below, if a Change in Control
occurs during the Agreement Term (as it may be extended from time to time),
the Agreement Term shall be extended for a period of twenty-four (24) months
beyond the last day of the calendar month in which the Change in Control
occurs, but in no event less than twelve (12) months beyond the date of the
consummation of the Change in Control.
(iii) If a Change in Control described in Subsection 2(i) or 2(iii)
occurs during the Agreement Term (as it may be extended from time to time),
but the Board thereafter determines that it will not consummate the
transaction or regulatory approval for the transaction is not obtained, then
the Board may reduce the 24-month extension period set forth in Subsection
(ii) next above; provided that the Agreement Term may not end earlier than six
(6) months after such notice of reduction is provided by the Board or, if
earlier, the date such Agreement Term would end in the absence of action under
this Subsection (iii).
(iv) In no event, however, shall the Agreement Term extend beyond the
end of the calendar month in which your 65 birthday occurs if you are subject
to mandatory retirement at such age or to the extent permitted by law.
2. CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred if:
(i) 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 Corporation, any trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation, or any company owned, directly or
indirectly, by the stockholders of the Corporation in substantially the same
proportions as their ownership of stock of the Corporation), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing 25% or more of
the combined voting power of the Corporation's then outstanding securities.
(ii) During any period of two consecutive years (not including any
period prior to the Effective Date), 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 Corporation
to effect a transaction described in subsections (i), (iii) or (iv) of this
definition) whose election by the Board or nomination for
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election by the Corporation'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.
(iii) The stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other company other than (a) a
merger or consolidation which would result in the voting securities of the
Corporation 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 Corporation (or such surviving entity) outstanding
immediately after such merger or consolidation, or (b) a merger or
consolidation effected to implement a recapitalization of the Corporation (or
similar transaction) in which no "person" (as hereinabove defined) acquires
more than 25% of the combined voting power of the Corporation's then
outstanding securities.
(iv) The stockholders of the Corporation adopt a plan of complete
liquidation of the Corporation or approve an agreement for the sale or
disposition by the Corporation of all or substantially all of the
Corporation's assets. For purposes of this subsection (iv), the term "the
sale or disposition by the Corporation of all or substantially all of the
Corporation's assets" shall mean a sale or other disposition transaction or
series of related transactions involving assets of the Corporation or of any
direct or indirect subsidiary of the Corporation (including the stock of any
direct or indirect subsidiary of the Corporation) 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 Corporation 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 Corporation (as hereinafter defined). For
purposes of the preceding sentence, the "fair market value of the Corporation"
shall be the aggregate market value of the outstanding shares of common stock
of the Corporation (on a fully diluted basis) plus the aggregate market value
of the Corporation's other outstanding equity securities. The aggregate
market value of the shares of common stock of the Corporation (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 common stock of the Corporation for the ten
trading days immediately preceding the Transaction Date. The aggregate market
value of any other equity
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securities of the Corporation shall be determined in a manner similar to that
prescribed in the immediately preceding sentence for determining the aggregate
market value of the shares of common stock of the Corporation or by such other
method as the Board of Directors of the Corporation shall determine is
appropriate.
A Change in Control that occurs prior to the beginning of the Agreement Term
shall be disregarded for purposes of this Agreement.
3. BASIS OF EMPLOYMENT TERMINATION. If your Date of Termination occurs
during the Agreement Term, on a date that is coincident with or follows the
occurrence of a Change in Control, or if you have a disability during the
Agreement Term after the occurrence of a Change in Control, you shall be
eligible for payments and benefits in accordance with, and to the extent
provided by, Section 4, with such eligibility determined on the basis for your
termination of employment. For purposes of this Agreement, the basis for your
termination of employment shall be determined in accordance with this Section
3.
(i) Disability. If, as a result of your incapacity due to physical or
mental illness, you shall have been absent from the full-time performance of
your duties with the Corporation for six (6) consecutive months, and within
thirty (30) days after written Notice of Termination is given by the
Corporation, you shall not have returned to the full-time performance of your
duties, your employment may be terminated by the Corporation for "Disability."
Notwithstanding any other provision of this Agreement, a termination of
employment under this Subsection (i) shall not cause you to be considered a
terminated employee within the meaning of the Corporation's long term
disability plan and your rights thereunder shall not be affected by this
Agreement.
(ii) Cause. Your Date of Termination shall be deemed to have occurred
for "Cause," if your Date of Termination occurs because of circumstances
described in paragraph (a) or paragraph (b) next below, as determined in
accordance with the procedures set forth in paragraphs (A), (B) and (C) next
below:
(a) the willful and continued failure by you to substantially
perform your duties with the Corporation (other than any such failure
resulting from your incapacity due to physical or mental illness or any
such actual or anticipated failure after the issuance of a Notice of
Termination by you for Good Reason); or
(b) the willful engaging by you in conduct which is demonstrably
and materially injurious to the Corporation, monetarily or otherwise.
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For purposes of this Subsection (ii), no act, or failure to act, on your part
shall be deemed "willful" unless done, or omitted to be done, by you not in
good faith and without a reasonable belief that your action or omission was in
the best interest of the Corporation. Your Date of Termination shall not be
deemed to have occurred for "Cause" unless the procedures described in
paragraphs (A), (B) and (C), next below, have been satisfied:
(A) A written notice of alleged Cause is delivered to you by the
Board or a member of the Board. In the case of "Cause" described in
paragraph 3(iii)(a), the written notice shall consist of specific
identification of the manner in which the Board or such Board member
believes that you have not substantially performed your duties, and
shall include a demand for such performance. In the case of "Cause"
described in paragraph 3(iii)(b), the written notice shall consist of
specific identification of the manner in which the Board or such Board
member believes that you have engaged in conduct which is demonstrably
and materially injurious to the Corporation.
(B) You have received an opportunity to be heard by the Board or a
member of the Board, which will consist of delivery to you of reasonable
advance written notice of a Board meeting (to be delivered at or after
the time you receive the notice of alleged Cause, described in paragraph
(A) next above), at which you, together with your counsel, may be heard
by the Board, concerning the contents of the notice of alleged Cause
and, in the case of "Cause" described in paragraph 3(iii)(a), the manner
in which you intend to achieve substantial performance.
(C) You have received a copy of your Notice of Termination, which
will include a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters (3/4) of the entire membership of the
Board at a meeting of the Board, which occurs after your opportunity to
be heard by the Board (at that meeting or a subsequent meeting), and
which finds that in the good faith opinion of the Board you were guilty
of conduct set forth in the notice of alleged Cause and which specifies
the particulars thereof in detail. The Date of Termination set forth in
the Notice of Termination shall be not earlier than thirty (30) days
after the notice of alleged Cause has been delivered to you in
accordance with paragraph 3(ii)(A).
(iii) Good Reason. Subject to the procedures set forth in paragraphs
(A), (B), and (C) next below, you shall be entitled to terminate your
employment for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean, without your express written consent, the occurrence, after a
Change in Control, of any of the
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circumstances described in paragraphs (a) through (h) next below. However,
"Good Reason" shall not exist under paragraphs (a), (e), (f), (g) or (h), next
below, if such circumstances are fully corrected prior to the Date of
Termination specified in the Notice of Termination given in respect thereof:
(a) The assignment to you of any duties with a level of
responsibility inconsistent with the position in the Corporation that
you held immediately prior to the Change in Control, or a significant
adverse alteration in the status of your responsibilities from those in
effect immediately prior to such Change in Control.
(b) A reduction by the Corporation in your annual base salary as
in effect on the Effective Date, and adjusted to reflect such increases
as may be made after the Effective Date and prior to the occurrence of a
Change in Control, and also adjusted to reflect such decreases as may be
made after the Effective Date, but taking decreases into account only to
the extent that they are part of across-the-board salary reductions
similarly affecting all management personnel of the Corporation and all
management personnel of any person in control of the Corporation.
(c) The Corporation's requiring you to be based anywhere other
than fifty (50) miles from your work location on the date of the Change
in Control except for required travel on the Corporation's business to
an extent substantially consistent with your business travel obligations
during the one-year period prior to the Change in Control.
(d) The failure by the Corporation to pay to you any portion of
your current compensation or to pay to you any portion of an installment
of deferred compensation under any deferred compensation program of the
Corporation within seven (7) days of the date such compensation is due.
(e) The failure by the Corporation to continue in effect any
compensation plan in which you participate immediately prior to the
Change in Control that is material to your total compensation, including
but not limited to the Corporation's Retirement Plan, Supplemental
Retirement Plan, Investment and Retirement Plan, Supplemental Investment
and Retirement Plan, Incentive Compensation Plan, Stock Incentive Plan,
Incentive Bonus Stock Program, Salary Exchange Option Program, or any
substitute plans adopted prior to the Change in Control, unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by the
Corporation to continue your
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participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount of
benefits provided and the level of your participation relative to other
participants, as existed at the time of the Change in Control.
(f) The failure by the Corporation to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Corporation's life insurance, medical, health and accident, or
disability plans in which you were participating at the time of the
Change in Control, the taking of any action by the Corporation which
would directly or indirectly materially reduce any of such benefits or
deprive you of any material fringe benefit enjoyed by you at the time of
the Change in Control, or the failure by the Corporation to provide you
with the number of paid vacation days to which you are entitled on the
basis of years of service with the Corporation in accordance with the
Corporation's normal vacation policy in effect at the time of the Change
in Control.
(g) The failure of the Corporation to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 8.
(h) Any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the requirements
of Subsection 3(vi) (and, if applicable, the requirements of Subsection
3(iii)), which purported termination shall not be effective for purposes
of this Agreement.
You shall not be deemed to have terminated employment for Good Reason unless
you have delivered a written Notice of Termination, which:
(A) identifies the circumstances, and the provisions of this
Subsection 3(iii), which form the basis for your termination for Good
Reason;
(B) in the case of circumstances described in paragraphs (a), (e),
(f), (g) or (h) next above, demands correction; and
(C) specifies a Date of Termination which is not less than fifteen
(15) days nor more than sixty (60) days after the Notice of Termination
has been provided to the Corporation.
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Your continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason hereunder.
(iv) Discharge Absent Cause or Disability. You shall be deemed to have
been discharged by the Corporation absent Cause or Disability if your
employment is terminated by the Corporation other than in accordance with
Subsection 3(i) (relating to Disability) or Subsection 3(ii) (relating to
Cause). Your Date of Termination under this Subsection 3(iv) may not be
earlier than sixty (60) days after the written Notice of Termination is
delivered to you. However, the sixty (60) day notice requirement shall not
apply to a termination which occurs prior to the date of a Change in Control;
provided, however, that if your employment is terminated in accordance with
this Subsection 3(iv) within sixty (60) days prior to the occurrence of a
Change in Control, your employment shall be deemed to have been terminated on
the date specified in the Notice of Termination, but not earlier than sixty
(60) days after such notice is provided to you.
(v) Payment in Lieu of Notice. The Corporation shall be deemed to have
complied with the requirement of this Section 3 relating to advance Notice of
Termination if it places you on a fully-paid leave of absence during such
notice period; provided, however, that to the extent that such leave of
absence prevents you from returning to work following a disability, as
described in Subsection 3(i), or prevents you from substantially performing
your duties, as described in Subsection 3(ii)(a), the establishment of such
leave of absence shall be deemed inconsistent with the provisions of
Subsection 3(i) or Subsection 3(ii), and except to the extent that another
provision of Subsection 3(i) or Subsection 3(ii) applies, your employment will
be deemed to have been terminated in accordance with Subsection 3(iv)
(relating to discharge absent Cause or Disability). For purposes of this
Subsection (v), during such fully-paid leave of absence, you shall be entitled
to base salary, and to continue as a participant in all compensation, benefit
and insurance plans in which you were participating at the time the leave of
absence began.
(vi) Notice of Termination. "Notice of Termination" shall mean a
notice that shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(vii) Date of Termination. "Date of Termination" shall mean the date
on which your employment with the Corporation and any affiliates terminates
for any reason.
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(viii) Extension of Date of Termination. If, within fifteen (15) days
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to extensions under this Subsection
(viii), the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, then the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided,
however, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute if the dispute relates to a
termination under Section 3(iv) of this Agreement and the Corporation's
failure to provide benefits under this Agreement, the Corporation will
continue to pay you your full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, base salary) and
continue you as a participant in all compensation, benefit and insurance plans
in which you were participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved in accordance with this
Subsection (viii). Amounts paid under this Subsection (viii) are in addition
to all other amounts due under this Agreement, and shall not be offset against
or reduce any other amounts due under this Agreement and shall not be reduced
by any compensation earned by you as the result of employment by another
employer. Notwithstanding the foregoing provisions of this Subsection (viii),
the determination of whether your Date of Termination has occurred within the
Agreement Term shall be determined without regard to any extensions under this
Subsection (viii).
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. If your Date of
Termination occurs during the Agreement Term, on a date that is coincident
with or follows the occurrence of a Change in Control, or if you have a
disability during the Agreement Term and after the occurrence of a Change in
Control, you shall be entitled to payments and benefits in accordance with,
and to the extent provided by, this Section 4.
(i) Discharge for Cause and Voluntary Resignation. If your employment
is terminated by the Corporation for Cause, or is terminated by you other than
for Good Reason, the Corporation shall pay you your full base salary through
the Date of Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which you are entitled under
any compensation plan of the Corporation or any
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affiliate at the time such payments are due, and the Corporation shall have no
further obligations to you under this Agreement.
(ii) Disability. During any period that you fail to perform your full-
time duties with the Corporation as a result of incapacity due to physical or
mental illness, you shall continue to receive your base salary at the rate in
effect at the commencement of any such period, together with all compensation
payable to you under the long term disability plan or other similar plan
during such period, until your employment is terminated pursuant to Section
3(ii). Thereafter, or in the event your employment shall be terminated by
reason of your death, your benefits shall be determined under the
Corporation's retirement, insurance and other compensation programs then in
effect in accordance with the terms of such program; however, your receipt of
benefits under the long term disability plan will not be affected by your
termination under this Agreement.
(iii) Termination for Good Reason and Discharge Absent Cause or
Disability. If your employment is terminated by you for Good Reason, or by
the Corporation absent Cause or Disability (as described in Subsection 3(iv)),
then you shall be entitled to the payments and benefits described below:
(a) Prior Salary and Deferrals. The Corporation shall pay to you
(1) your full base salary through your Date of Termination at the rate
in effect at the time the Notice of Termination is given, with payment
to be made no later than the fifth day following your Date of
Termination; (2) your Bonus Rate (defined below) for the year in which
your Date of Termination occurs, subject to a pro-rata reduction for the
portion of the year after your Date of Termination; and (3) all other
amounts to which you are entitled under any compensation plan of the
Corporation, at the time such payments are due under the terms of such
plans.
(b) Restricted Stock Awards. Notwithstanding any provision of the
Corporation's 1996 Stock Incentive Plan or successor plan, the
Restricted Period with respect to any Restricted Stock other than
Performance-based Restricted Stock (including, without limitation,
Restricted Stock granted under the Corporation's Incentive Bonus Stock
Plan) granted to you thereunder prior to the date of the Change in
Control shall lapse on your Date of Termination, and such shares shall
be distributed to you not later than the fifth day following your Date
of Termination.
(c) Stock Options. Pursuant to the Corporation's 1996 Stock
Incentive Plan or successor plan, the restrictions shall lapse on a
proportion of any outstanding option award. A proportion of the option
award upon which the restrictions
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shall lapse shall be a fraction, the denominator of which is the total
number of months of any Restricted Period applicable to the option award
and the numerator of which is the number of months of such Restricted
Period which elapsed prior to the Date of Termination.
However, any Options that are not affected by this Subsection shall
continue to be available pursuant to the terms of the aforementioned
plans.
(d) Any and all premiums that are due or may become due in
connection with insurance policies obtained as a result of your
participation in the Corporation's Estate Enhancement Program (the
"Policy") shall be paid by the Corporation within five (5) days
following your Date of Termination. Notwithstanding any provision of
the Estate Enhancement Program to the contrary, the Policy, Split-Dollar
Agreement and Collateral Assignment Agreement shall remain in effect and
you shall have no further obligations under your Agreement to Forego
Salary under the Estate Enhancement Program and all obligations you may
have under the Program and related agreements shall be the obligation of
the Corporation.
(iv) Mitigation and Set-Off. Except as provided in paragraph 4(iii)(f)
and paragraph 4(iii)(g), you shall not be required to mitigate the amount of
any payment provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in this
Section 4 be reduced by any compensation earned by you as the result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by you to the Corporation, or otherwise.
5. STOCK PLANS.
(i) STOCK OPTIONS AND RESTRICTED STOCK. If (I) a Change in Control
occurs during the Agreement Term, (II) you are employed by the Corporation on
the date of the consummation of the Change in Control, and (III) the Change in
Control occurs prior to the end of the Restricted Period for Options or
Restricted Stock relating to shares of common stock of the Corporation granted
to you under the Corporation's 1996 Stock Incentive Plan, then upon the
consummation of the Change in Control, you shall vest in any such unvested
Options and Restricted Stock other than Performance-based Restricted Stock.
(ii) PERFORMANCE SHARE PLAN. If (I) a Change in Control occurs during
the Agreement Term, (II) you are employed by the Corporation on the date of
the Change in Control and your employment thereafter is not terminated for
Cause or by voluntary
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resignation, and (III) the Change in Control occurs prior to the end of the
Performance Period for shares of common stock of the Corporation granted to
you under the Corporation's Performance Share Plan, then upon the consummation
of the Change in Control, you shall vest in any such unvested shares, based on
the applicable price goals under the terms of the plan, and the per-share
price which has been achieved for shares of common stock of the Corporation at
any time during the Performance Period and on or before the consummation of
the Change in Control date, determined without regard to the plan requirement
that a specified number of years during the Performance Period must have
elapsed prior to the vesting of shares. If you are terminated for Cause or by
voluntary resignation, you will receive no benefits under the Performance
Share Plan. After the consummation of the Change in Control, the terms of the
Performance Share Plan will govern without regard to the foregoing provisions
for persons who remain in the employ of the Corporation. If you have
terminated employment under Subsection 3(iii) or 3(iv) after the consummation
of the Change in Control, you shall have no further rights under the
Performance Share Plan.
6. PARACHUTE TAX.
(i) In the event it shall be determined that any payment, benefit or
distribution (or combination thereof) by the Corporation, any affiliate or
associated company, trusts established by the Corporation, any affiliate or
associated company, for the benefit of its employees, to or for your benefit
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement, or otherwise) (a "Payment") would be subject to the excise
tax imposed by section 4999 of the Code, or any interest or penalties are
incurred by you with respect to such excise tax (such excise tax, together
with any such interest and penalties, hereinafter collectively referred to as
the "Excise Tax"), you shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by you of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and the Excise Tax imposed upon the
Gross-Up Payment, you retain an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. For purposes of this Section 6,
"Payments" will include any payments, benefits or distributions to other
persons with respect to awards granted to you and transferred by you to such
other person in accordance with the terms of the awards, to the extent that
such awards result in taxable income being attributable to you.
(ii) Subject to the provisions of Subsection 6(iii), all determinations
required to be made under this Section 6,
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including whether and when a Gross- Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by such nationally recognized certified public
accounting firm as may be designated by the Corporation (the "Accounting
Firm"), which shall provide detailed supporting calculations both to the
Corporation and you within fifteen (15) business days of the receipt of notice
from you that there has been a Payment, or such earlier time as is requested
by the Corporation. All fees and expenses of the Accounting Firm shall be
borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant
to this Section 6, shall be paid by the Corporation to you within five (5)
days after the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by you, it shall so
indicate to you in writing. Any determination by the Accounting Firm shall be
binding upon the Corporation and you. As a result of the uncertainty in the
application of section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Corporation should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Corporation exhausts its remedies pursuant
to Subsection 6(iii) and you thereafter are required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Corporation to you or for your benefit.
(iii) You shall notify the Corporation in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Corporation of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten (10) business days after you are informed
in writing of such claim and shall apprise the Corporation of the nature of
such claim and the date on which such claim is requested to be paid. You
shall not pay such claim prior to the expiration of the thirty (30) day period
following the date on which it gives such notice to the Corporation (or such
shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Corporation notifies you in writing prior to the
expiration of such period that it desires to contest such claim, you shall:
(a) give the Corporation any information requested by the Corporation
relating to such claim;
(b) take such action in connection with contesting such claim as the
Corporation shall reasonably request in writing from time to time,
including, without limitation, accepting
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legal representation with respect to such claim by an attorney
reasonably selected by the Corporation;
(c) cooperate with the Corporation in good faith in order to effectively
contest such claim; and
(d) permit the Corporation to participate in any proceedings relating to
such claim;
provided, however, that the Corporation shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold you harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Subsection 6(iii), the Corporation shall control all proceedings taken
in connection with such contest and, at its sole option, may pursue or forego
any and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct you to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and you agree to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Corporation shall
determine; provided, however, that if the Corporation directs you to pay such
claim and sue for a refund, the Corporation shall advance the amount of such
payment to you, on an interest-free basis, and shall indemnify and hold you
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to such advance;
and provided, further, that if you are required to extend the statute of
limitations to enable the Corporation to contest such claim, you may limit
this extension solely to such contested amount. The Corporation's control of
the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and you shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(iv) If, after the receipt by you of an amount advanced by the
Corporation pursuant to Subsection 6(iii), you become entitled to receive any
refund with respect to such claim, you shall (subject to the Corporation's
complying with the requirements of Subsection 6(iii)) promptly pay to the
Corporation the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
you of an amount advanced by the Corporation pursuant to Subsection 6(iii), a
determination is made that you
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shall not be entitled to any refund with respect to such claim and the
Corporation does not notify you in writing of its intent to contest such
denial of refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be required
to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
(v) Notwithstanding any other provision of this Agreement to the
contrary, in the event that it shall be determined that (a) the Payments to
you would, if made, be subject to an Excise Tax (or would result in the loss
of a deduction to the Corporation or its affiliates under section 280G of the
Code), but that, (b) if the amount of the Payments were reduced by an amount
that is not greater than 20% of the value of all Payments otherwise due to you
(determined without regard to the limitations of this Section (v)); then the
amount of the Payments otherwise due to you (regardless of whether payable
pursuant to the terms of this Agreement or otherwise) shall be reduced to an
amount which is determined to be $1 less than the maximum amount of the
Payments which could be made to you without resulting in the imposition of
Excise Taxes (and without the loss of a deduction under section 280G of the
Code). You shall be entitled to select the order in which payments are to be
reduced in accordance with this Section (v). If, by reason of the limitations
of this Section (v), the maximum amount payable to you under this Agreement or
otherwise cannot be determined prior to the due date for such payment, the
Corporation shall pay on the due date the minimum amount which it in good
faith determines to be payable and shall pay the remaining amount, with
interest at a rate, compounded semi-annually, equal to 120% of the applicable
Federal rate determined under section 1274(d) of the Code, as soon as such
remaining amount is determined in accordance with this Section (v).
Application of this Section (v) shall be made by an Accounting Firm selected
in the manner set forth in Section 6(ii).
(vi) You shall be eligible for benefits under this Section 6, and shall
be subject to the terms of this Section 6, regardless of whether the Change in
Control occurs or the payments are made during the Agreement Term, regardless
of whether you are employed by the Corporation on or after the occurrence of a
Change in Control and, if your Date of Termination shall have occurred,
regardless of the reason for such termination.
7. RIGHTS OF EMPLOYMENT. Except as otherwise expressly provided in
this Agreement:
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(i) nothing in this Agreement shall be construed as limiting your right
to resign prior to the beginning or after the end of the Agreement Term; and
(ii) nothing in this Agreement shall be construed as limiting the
Corporation's right to discharge you at any time prior to the beginning or
after the end of the Agreement Term, or to renegotiate the terms of your
employment for any period prior to the beginning or after the end of the
Agreement Term.
(iii) Termination Not Covered by Agreement. Except as otherwise
provided in subsection 3(iv) (relating to discharge absent Cause or
Disability), or as otherwise expressly provided in this Agreement, this
Agreement shall be inapplicable to the determination of your rights to
payments and benefits, if your Date of Termination occurs prior to the
occurrence of a Change in Control, or if your Date of Termination occurs after
the end of the Agreement Term and you are not subject to a disability after a
Change in Control.
8. SUCCESSORS; BINDING AGREEMENT. (i) The Corporation will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Corporation to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Corporation would be required to
perform it if no such succession had taken place. Failure of the Corporation
to obtain such assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle you to
compensation from the Corporation in the same amount and on the same terms to
which you would be entitled hereunder if you terminate your employment for
Good Reason following a Change in Control, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this Agreement,
"Corporation" shall mean the Corporation as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by
you and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devises and legatees. If you should die
while any amount would still be payable to you hereunder had you continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to your devisee, legatee or other
designee or, if there is no such designee, to your estate.
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9. NOTICE. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Corporation shall be directed to
the attention of the Board with a copy to the Secretary of the Corporation, or
to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.
10. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by you and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Illinois without regard to its
conflicts of law principles. All references to sections of the Exchange Act
or the Code shall be deemed also to refer to any successor provisions to such
sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the parties to this Agreement shall survive the expiration of
the Agreement Term. Capitalized terms used in this Agreement shall be defined
as set forth in this Agreement.
11. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
13. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Chicago, Illinois, in
accordance with the rules of the American
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Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
you shall be entitled to seek specific performance of your right to be paid
until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
14. AMENDMENT. This Agreement may be amended or cancelled only by
mutual agreement of the parties in writing without the consent of any other
person. So long as you shall live, no person, other than the parties hereto,
shall have any rights under or interest in this Agreement or the subject
matter hereof.
15. GENERAL RELEASE AND COVENANT NOT TO SUE. You agree that as a
condition of receiving benefits under this Agreement in connection with your
termination of employment, you shall execute the attached General Release and
Covenant Not to Sue within thirty (30) days following your Date of
Termination. Notwithstanding any other provision herein, no benefits or
payments in connection with your termination of employment shall be provided
until the executed General Release and Covenant Not to Sue has been received
by the Corporation and a seven (7) day revocation period from the date of
execution has expired.
16. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior
agreement of the parties hereto in respect of the subject matter contained
herein is hereby terminated and cancelled. Notwithstanding the foregoing
provisions of this paragraph 16, if you have entered into a letter agreement
with Santa Fe Pacific Corporation or Burlington Northern Inc. relating to
certain separation benefits to be provided if your employment terminates after
the occurrence of a Change in Control, and such agreement provided that, as a
result of stockholder approval of the merger between Burlington Northern Inc.
and Santa Fe Pacific Corporation, you will be entitled to such benefits if
your employment terminates for reasons as specified in such agreement prior to
the expiration of such Change in Control event which is September 22, 1997 for
the agreement with Burlington Northern Inc. and February 7, 1998, for the
agreement with Santa Fe Pacific Corporation (each agreement, as it has been
amended from time to time, is referred to as the "Prior Agreement"), then you
may irrevocably elect, by writing filed not later than 30 days after such
termination of employment, to receive benefits under the Prior Agreement in
lieu of benefits under this Agreement. Upon the filing of such election, your
rights shall be determined in accordance with (and you shall become subject
to) the Prior Agreement, and this
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Agreement shall be void; provided, however, that your rights to benefits under
the Prior Agreement shall be reduced by the actuarial equivalent of any
amounts you may have received under this Agreement; and further provided that
an election in accordance with this sentence shall not affect the limitation
on your benefits set forth in Section 6(v) (relating to restrictions on
benefits subject to parachute taxes) and shall not affect the Corporation's
ability to impose such limit.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Corporation the enclosed copy of this letter,
which will then constitute our agreement on this subject.
Sincerely,
Burlington Northern
Santa Fe Corporation
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Agreed to this day
---
of , 1997.
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GENERAL RELEASE AND COVENANT NOT TO SUE
For and in consideration of the terms of the Agreement between Burlington
Northern Santa Fe Corporation and its affiliates and [NAME] dated [DATE],
("Agreement"), the undersigned does hereby fully waive, release, remit and
forever discharge Burlington Northern Santa Fe Corporation and any and all of
its affiliates, divisions, subsidiaries, officers, directors, stockholders,
agents advisors and employees from any and all claims, demands or causes of
action, including any claims for merger protection benefits pursuant to the
Interstate Commerce Commission decision in the Northern Lines or Frisco
merger proceedings, claims arising under Title VII of the Civil Rights Act of
1964, as amended, 42 U.S.C. Section 2000(e), et seq., the Civil Rights Act of
1866, 42 U.S.C. Section 1981, the Age Discrimination in Employment Act of
1967, as amended, 29 U.S.C. Section 621, et seq., the Federal Employers'
Liability Act, and any other federal, state or local law, order, regulation,
common law, contract or collective bargaining agreement, which relates to my
employment or cessation of employment by Burlington Northern Santa Fe
Corporation and its affiliates; provided however that the undersigned does not
waive enforcement of rights to any benefits provided or extended pursuant to
the terms of the Agreement or to assert any counterclaims in response to any
litigation initiated by BNSF Corporation against me. The undersigned
specifically waives all claims, whether past or present, known or unknown, and
whether or not in litigation, which I, or acting on my behalf, my heirs,
successors, executors, administrators or assigns, may have based on any
action, omission or event occurring prior to this date. Included in this
Release are any and all claims for future damages allegedly arising from the
alleged continuation of the effects of any past action, omission or event.
This General Release and Covenant Not to Sue is executed willingly and
voluntarily, for adequate consideration, and after having the opportunity to
consult with counsel. This General Release and Covenant Not to Sue is
irrevocable and binding upon the undersigned.
- ------------------------ -----------------------------
Date Name
-----------------------------
Signature
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EXHIBIT 10.17
EXHIBIT A
[INSERT NAME AND ADDRESS]
Dear ________:
Burlington Northern Santa Fe Corporation (the "Corporation") considers
it essential to the best interests of its stockholders to foster the
continuous employment of key management personnel. In this connection, the
Board of Directors of the Corporation (the "Board") recognizes that, as is the
case with many publicly held corporations, the possibility of a Change in
Control (as that term is defined in this letter) may exist, and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Corporation and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of
the Corporation's management, including yourself, to their assigned duties
without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control.
In order to induce you to remain in the employ of the Corporation or its
affiliates, the Corporation agrees that you shall receive the severance
benefits set forth in this letter agreement (the "Agreement") in the event
your employment with the Corporation is terminated under the circumstances
described below subsequent to a "Change in Control" (as defined in Section 2),
and that you shall be eligible for the parachute tax gross-up and certain
other benefits described in this Agreement.
1. TERM. The "Agreement Term" shall begin on January 16, 1997, (the
"Effective Date" of this Agreement), and shall end on December 31, 1999,
subject to the following:
(i) As of January 1, 2000, and each January 1 thereafter, the Agreement
Term shall automatically be extended to the next following December 31;
provided, however, that no such extension shall take place if, on or before
the September 30 next preceding the date on which the extension would
otherwise take place, the Corporation has given notice that it does not wish
to extend the Agreement Term; and further provided that no such extension
shall
<PAGE>
take place if a Change in Control has occurred prior to the date on which the
extension would otherwise take place.
(ii) Subject to Subsection (iii) next below, if a Change in Control
occurs during the Agreement Term (as it may be extended from time to time),
the Agreement Term shall be extended for a period of twenty-four (24) months
beyond the last day of the calendar month in which the Change in Control
occurs, but in no event less than twelve (12) months beyond the date of the
consummation of the Change in Control.
(iii) If a Change in Control described in Subsection 2(i) or 2(iii)
occurs during the Agreement Term (as it may be extended from time to time),
but the Board thereafter determines that it will not consummate the
transaction or regulatory approval for the transaction is not obtained, then
the Board may reduce the 24-month extension period set forth in Subsection
(ii) next above; provided that the Agreement Term may not end earlier than six
(6) months after such notice of reduction is provided by the Board or, if
earlier, the date such Agreement Term would end in the absence of action under
this Subsection (iii).
(iv) In no event, however, shall the Agreement Term extend beyond the
end of the calendar month in which your 65 birthday occurs if you are subject
to mandatory retirement at such age or to the extent permitted by law.
2. CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred if:
(i) 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 Corporation, any trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation, or any company owned, directly or
indirectly, by the stockholders of the Corporation in substantially the same
proportions as their ownership of stock of the Corporation), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing 25% or more of
the combined voting power of the Corporation's then outstanding securities.
(ii) During any period of two consecutive years (not including any
period prior to the Effective Date), 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 Corporation
to effect a transaction described in subsections (i), (iii) or (iv) of this
definition) whose election by the Board or nomination for election by the
Corporation's stockholders was approved by a vote of at least two-thirds (2/3)
of the directors then still in
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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.
(iii) The stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other company other than (a) a
merger or consolidation which would result in the voting securities of the
Corporation 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 Corporation (or such surviving entity) outstanding
immediately after such merger or consolidation, or (b) a merger or
consolidation effected to implement a recapitalization of the Corporation (or
similar transaction) in which no "person" (as hereinabove defined) acquires
more than 25% of the combined voting power of the Corporation's then
outstanding securities.
(iv) The stockholders of the Corporation adopt a plan of complete
liquidation of the Corporation or approve an agreement for the sale or
disposition by the Corporation of all or substantially all of the
Corporation's assets. For purposes of this subsection (iv), the term "the
sale or disposition by the Corporation of all or substantially all of the
Corporation's assets" shall mean a sale or other disposition transaction or
series of related transactions involving assets of the Corporation or of any
direct or indirect subsidiary of the Corporation (including the stock of any
direct or indirect subsidiary of the Corporation) 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 Corporation 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 Corporation (as hereinafter defined). For
purposes of the preceding sentence, the "fair market value of the Corporation"
shall be the aggregate market value of the outstanding shares of common stock
of the Corporation (on a fully diluted basis) plus the aggregate market value
of the Corporation's other outstanding equity securities. The aggregate
market value of the shares of common stock of the Corporation (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 common stock of the Corporation for the ten
trading days immediately preceding the Transaction Date. The aggregate market
value of any other equity securities of the Corporation shall be determined in
a manner similar to that prescribed in the immediately preceding sentence
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for determining the aggregate market value of the shares of common stock of
the Corporation or by such other method as the Board of Directors of the
Corporation shall determine is appropriate.
A Change in Control that occurs prior to the beginning of the Agreement Term
shall be disregarded for purposes of this Agreement.
3. BASIS OF EMPLOYMENT TERMINATION. If your Date of Termination occurs
during the Agreement Term, on a date that is coincident with or follows the
occurrence of a Change in Control, or if you have a disability during the
Agreement Term after the occurrence of a Change in Control, you shall be
eligible for payments and benefits in accordance with, and to the extent
provided by, Section 4, with such eligibility determined on the basis for your
termination of employment. For purposes of this Agreement, the basis for your
termination of employment shall be determined in accordance with this Section
3.
(i) Disability. If, as a result of your incapacity due to physical or
mental illness, you shall have been absent from the full-time performance of
your duties with the Corporation for six (6) consecutive months, and within
thirty (30) days after written Notice of Termination is given by the
Corporation, you shall not have returned to the full-time performance of your
duties, your employment may be terminated by the Corporation for "Disability."
Notwithstanding any other provision of this Agreement, a termination of
employment under this Subsection (i) shall not cause you to be considered a
terminated employee within the meaning of the Corporation's long term
disability plan and your rights thereunder shall not be affected by this
Agreement.
(ii) Cause. Your Date of Termination shall be deemed to have occurred
for "Cause," if your Date of Termination occurs because of circumstances
described in paragraph (a) or paragraph (b) next below, as determined in
accordance with the procedures set forth in paragraphs (A), (B) and (C) next
below:
(a) the willful and continued failure by you to substantially
perform your duties with the Corporation (other than any such failure
resulting from your incapacity due to physical or mental illness or any
such actual or anticipated failure after the issuance of a Notice of
Termination by you for Good Reason); or
(b) the willful engaging by you in conduct which is demonstrably
and materially injurious to the Corporation, monetarily or otherwise.
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For purposes of this Subsection (ii), no act, or failure to act, on your part
shall be deemed "willful" unless done, or omitted to be done, by you not in
good faith and without a reasonable belief that your action or omission was in
the best interest of the Corporation. Your Date of Termination shall not be
deemed to have occurred for "Cause" unless the procedures described in
paragraphs (A), (B) and (C), next below, have been satisfied:
(A) A written notice of alleged Cause is delivered to you by the
Board or a member of the Board. In the case of "Cause" described in
paragraph 3(iii)(a), the written notice shall consist of specific
identification of the manner in which the Board or such Board member
believes that you have not substantially performed your duties, and
shall include a demand for such performance. In the case of "Cause"
described in paragraph 3(iii)(b), the written notice shall consist of
specific identification of the manner in which the Board or such Board
member believes that you have engaged in conduct which is demonstrably
and materially injurious to the Corporation.
(B) You have received an opportunity to be heard by the Board or a
member of the Board, which will consist of delivery to you of reasonable
advance written notice of a Board meeting (to be delivered at or after
the time you receive the notice of alleged Cause, described in paragraph
(A) next above), at which you, together with your counsel, may be heard
by the Board, concerning the contents of the notice of alleged Cause
and, in the case of "Cause" described in paragraph 3(iii)(a), the manner
in which you intend to achieve substantial performance.
(C) You have received a copy of your Notice of Termination, which
will include a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters (3/4) of the entire membership of the
Board at a meeting of the Board, which occurs after your opportunity to
be heard by the Board (at that meeting or a subsequent meeting), and
which finds that in the good faith opinion of the Board you were guilty
of conduct set forth in the notice of alleged Cause and which specifies
the particulars thereof in detail. The Date of Termination set forth in
the Notice of Termination shall be not earlier than thirty (30) days
after the notice of alleged Cause has been delivered to you in
accordance with paragraph 3(ii)(A).
(iii) Good Reason. Subject to the procedures set forth in paragraphs
(A), (B), and (C) next below, you shall be entitled to terminate your
employment for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean, without your express written consent, the occurrence, after a
Change in Control, of any of the
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circumstances described in paragraphs (a) through (h) next below. However,
"Good Reason" shall not exist under paragraphs (a), (e), (f), (g) or (h), next
below, if such circumstances are fully corrected prior to the Date of
Termination specified in the Notice of Termination given in respect thereof:
(a) The assignment to you of any duties with a level of
responsibility inconsistent with the position in the Corporation that
you held immediately prior to the Change in Control, or a significant
adverse alteration in the status of your responsibilities from those in
effect immediately prior to such Change in Control.
(b) A reduction by the Corporation in your annual base salary as
in effect on the Effective Date, and adjusted to reflect such increases
as may be made after the Effective Date and prior to the occurrence of a
Change in Control, and also adjusted to reflect such decreases as may be
made after the Effective Date, but taking decreases into account only to
the extent that they are part of across-the-board salary reductions
similarly affecting all management personnel of the Corporation and all
management personnel of any person in control of the Corporation.
(c) The Corporation's requiring you to be based anywhere other
than fifty (50) miles from your work location on the date of the Change
in Control except for required travel on the Corporation's business to
an extent substantially consistent with your business travel obligations
during the one-year period prior to the Change in Control.
(d) The failure by the Corporation to pay to you any portion of
your current compensation or to pay to you any portion of an installment
of deferred compensation under any deferred compensation program of the
Corporation within seven (7) days of the date such compensation is due.
(e) The failure by the Corporation to continue in effect any
compensation plan in which you participate immediately prior to the
Change in Control that is material to your total compensation, including
but not limited to the Corporation's Retirement Plan, Supplemental
Retirement Plan, Investment and Retirement Plan, Supplemental Investment
and Retirement Plan, Incentive Compensation Plan, Stock Incentive Plan,
Incentive Bonus Stock Program, Salary Exchange Option Program, or any
substitute plans adopted prior to the Change in Control, unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by the
Corporation to continue your
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participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount of
benefits provided and the level of your participation relative to other
participants, as existed at the time of the Change in Control.
(f) The failure by the Corporation to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Corporation's life insurance, medical, health and accident, or
disability plans in which you were participating at the time of the
Change in Control, the taking of any action by the Corporation which
would directly or indirectly materially reduce any of such benefits or
deprive you of any material fringe benefit enjoyed by you at the time of
the Change in Control, or the failure by the Corporation to provide you
with the number of paid vacation days to which you are entitled on the
basis of years of service with the Corporation in accordance with the
Corporation's normal vacation policy in effect at the time of the Change
in Control.
(g) The failure of the Corporation to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 8.
(h) Any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the requirements
of Subsection 3(vi) (and, if applicable, the requirements of Subsection
3(iii)), which purported termination shall not be effective for purposes
of this Agreement.
You shall not be deemed to have terminated employment for Good Reason unless
you have delivered a written Notice of Termination, which:
(A) identifies the circumstances, and the provisions of this
Subsection 3(iii), which form the basis for your termination for Good
Reason;
(B) in the case of circumstances described in paragraphs (a), (e),
(f), (g) or (h) next above, demands correction; and
(C) specifies a Date of Termination which is not less than fifteen
(15) days nor more than sixty (60) days after the Notice of Termination
has been provided to the Corporation.
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Your continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason hereunder.
(iv) Discharge Absent Cause or Disability. You shall be deemed to have
been discharged by the Corporation absent Cause or Disability if your
employment is terminated by the Corporation other than in accordance with
Subsection 3(i) (relating to Disability) or Subsection 3(ii) (relating to
Cause). Your Date of Termination under this Subsection 3(iv) may not be
earlier than sixty (60) days after the written Notice of Termination is
delivered to you. However, the sixty (60) day notice requirement shall not
apply to a termination which occurs prior to the date of a Change in Control;
provided, however, that if your employment is terminated in accordance with
this Subsection 3(iv) within sixty (60) days prior to the occurrence of a
Change in Control, your employment shall be deemed to have been terminated on
the date specified in the Notice of Termination, but not earlier than sixty
(60) days after such notice is provided to you.
(v) Payment in Lieu of Notice. The Corporation shall be deemed to have
complied with the requirement of this Section 3 relating to advance Notice of
Termination if it places you on a fully-paid leave of absence during such
notice period; provided, however, that to the extent that such leave of
absence prevents you from returning to work following a disability, as
described in Subsection 3(i), or prevents you from substantially performing
your duties, as described in Subsection 3(ii)(a), the establishment of such
leave of absence shall be deemed inconsistent with the provisions of
Subsection 3(i) or Subsection 3(ii), and except to the extent that another
provision of Subsection 3(i) or Subsection 3(ii) applies, your employment will
be deemed to have been terminated in accordance with Subsection 3(iv)
(relating to discharge absent Cause or Disability). For purposes of this
Subsection (v), during such fully-paid leave of absence, you shall be entitled
to base salary, and to continue as a participant in all compensation, benefit
and insurance plans in which you were participating at the time the leave of
absence began.
(vi) Notice of Termination. "Notice of Termination" shall mean a
notice that shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(vii) Date of Termination. "Date of Termination" shall mean the date
on which your employment with the Corporation and any affiliates terminates
for any reason.
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(viii) Extension of Date of Termination. If, within fifteen (15) days
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to extensions under this Subsection
(viii), the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, then the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided,
however, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute if the dispute relates to a
termination under Section 3(iv) of this Agreement and the Corporation's
failure to provide benefits under this Agreement, the Corporation will
continue to pay you your full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, base salary) and
continue you as a participant in all compensation, benefit and insurance plans
in which you were participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved in accordance with this
Subsection (viii). Amounts paid under this Subsection (viii) are in addition
to all other amounts due under this Agreement, and shall not be offset against
or reduce any other amounts due under this Agreement and shall not be reduced
by any compensation earned by you as the result of employment by another
employer. Notwithstanding the foregoing provisions of this Subsection (viii),
the determination of whether your Date of Termination has occurred within the
Agreement Term shall be determined without regard to any extensions under this
Subsection (viii).
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. If your Date of
Termination occurs during the Agreement Term, on a date that is coincident
with or follows the occurrence of a Change in Control, or if you have a
disability during the Agreement Term and after the occurrence of a Change in
Control, you shall be entitled to payments and benefits in accordance with,
and to the extent provided by, this Section 4.
(i) Discharge for Cause and Voluntary Resignation. If your employment
is terminated by the Corporation for Cause, or is terminated by you other than
for Good Reason, the Corporation shall pay you your full base salary through
the Date of Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which you are entitled under
any compensation plan of the Corporation or any
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affiliate at the time such payments are due, and the Corporation shall have no
further obligations to you under this Agreement.
(ii) Disability. During any period that you fail to perform your
full-time duties with the Corporation as a result of incapacity due to
physical or mental illness, you shall continue to receive your base salary at
the rate in effect at the commencement of any such period, together with all
compensation payable to you under the long term disability plan or other
similar plan during such period, until your employment is terminated pursuant
to Section 3(ii). Thereafter, or in the event your employment shall be
terminated by reason of your death, your benefits shall be determined under
the Corporation's retirement, insurance and other compensation programs then
in effect in accordance with the terms of such program; however, your receipt
of benefits under the long term disability plan will not be affected by your
termination under this Agreement.
(iii) Termination for Good Reason and Discharge Absent Cause or
Disability. If your employment is terminated by you for Good Reason, or by
the Corporation absent Cause or Disability (as described in Subsection 3(iv)),
then you shall be entitled to the payments and benefits described below:
(a) Prior Salary and Deferrals. The Corporation shall pay to you
(1) your full base salary through your Date of Termination at the rate
in effect at the time the Notice of Termination is given, with payment
to be made no later than the fifth day following your Date of
Termination; (2) your Bonus Rate (defined below) for the year in which
your Date of Termination occurs, subject to a pro-rata reduction for the
portion of the year after your Date of Termination; and (3) all other
amounts to which you are entitled under any compensation plan of the
Corporation, at the time such payments are due under the terms of such
plans.
(b) Additional Salary and Severance. In lieu of any further
salary or bonus payments to you for periods subsequent to your Date of
Termination, you shall be entitled to the benefits described in
paragraph (I) next below; provided that, in lieu of such benefits, you
may elect to receive the benefits described in paragraph (II) next
below, subject to the limitations set forth in such paragraph (II) and
except as provided in Subsection 4(iv):
(I) The Corporation shall pay to you, at the time specified
in Subsection 4(iv), a lump sum severance payment equal to: (A)
the sum of three (3) times your Salary Rate and (B) three times
your Bonus Rate.
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(II) You may elect to receive, in lieu of the lump-sum
severance under Subsection 4(iii)(b)(I)(A) provided for in
paragraph (I) next above, the benefits provided for under The
Burlington Northern and Santa Fe Railway Company Severance Program
(the "Severance Program"), the terms and provisions of which are
incorporated herein by this reference, but only if you are then
eligible for receipt of those benefits under the terms of the
Severance Program.
For purposes of this Subsection (iii):
(A) Your "Salary Rate" shall be equal to the greatest of:
(1) your annual salary as in effect as of the Date of Termination
plus any amounts deferred under the Burlington Northern Santa Fe
Supplemental Investment and Retirement Plan or foregone under the
Salary Exchange Option Program, (2) your highest consecutive
twelve (12) months' salary over the twenty-four (24) month period
preceding the Date of Termination, or (3) your annual salary as in
effect immediately prior to the Change in Control.
(B) Your "Bonus Rate" shall be the amount which you would
have received under the Corporation's Incentive Compensation Plan
for the calendar year in which your Date of Termination occurs, if
you had remained employed by the Corporation for that entire year,
with the level of performance based on the performance through
your Date of Termination and extrapolated through the end of the
year. For purposes of Subsection 4(iii)(b)(I) "Bonus Rate" shall
mean the amount that would be payable if the target level of
performance is achieved for the year.
(c) Restricted Stock Awards. Notwithstanding any provision of the
Corporation's 1996 Stock Incentive Plan or successor plan, the
Restricted Period with respect to any Restricted Stock other than
Performance-based Restricted Stock (including, without limitation,
Restricted Stock granted under the Corporation's Incentive Bonus Stock
Plan) granted to you thereunder prior to the date of the Change in
Control shall lapse on your Date of Termination, and such shares shall
be distributed to you at the time specified in Subsection 4(iv).
(d) Stock Options. Pursuant to the Corporation's 1996 Stock
Incentive Plan or successor plan, the restrictions shall lapse on a
proportion of any outstanding option award. A proportion of the option
award upon which the restrictions shall lapse shall be a fraction, the
denominator of which is
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the total number of months of any Restricted Period applicable to the
option award and the numerator of which is the number of months of such
Restricted Period which elapsed prior to the Date of Termination.
However, any Options that are not affected by this Subsection shall
continue to be available pursuant to the terms of the aforementioned
plans.
(e) Legal Fees. The Corporation shall pay to you all legal fees
and expenses incurred by you as a result of such termination (including
all such fees and expenses, if any, incurred in contesting or disputing
any such termination or in seeking to obtain or enforce any right or
benefit provided by this Agreement or in connection with any tax audit
or proceeding to the extent attributable to the application of section
4999 of the Code, to any payment or benefit provided hereunder);
provided, however, that payment with respect to any legal action other
than in connection with a tax dispute shall be made only if you are
successful in the action.
(f) Group Health Coverage. You and your eligible family members
shall be entitled to group health coverage to the extent that such
coverage is required to be provided in accordance with the provisions of
section 4980B of the Code and section 601 of the Employee Retirement
Income Security Act (sometimes referred to as "COBRA coverage");
provided that your eligibility for such coverage shall be determined as
though such coverage was required for the greater of thirty-six (36)
months after your Date of Termination or the period otherwise required
under the applicable COBRA coverage provisions. For the thirty-six (36)
month period during which you are entitled to such medical benefit
coverage under this paragraph (f), the premiums for such coverage shall
be paid by the Corporation (either by direct payment of such premiums,
or by reimbursing you for the premiums, at the election of the
Corporation), and the period of such coverage provided under this
paragraph (f) shall be counted toward the Corporation's obligation to
provide COBRA coverage.
(g) Welfare Benefits. For the thirty-six (36) month period after
your Date of Termination, the Corporation shall arrange to provide you
with life, disability, and accident insurance benefits substantially
similar to those which you were receiving immediately prior to the
Notice of Termination. Benefits otherwise receivable by you pursuant to
this paragraph (g) shall be reduced to the extent comparable benefits
are actually received by you during the thirty-six (36) month period
following your termination, and
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any such benefits actually received by you shall be reported to the
Corporation.
(h) Outplacement and Financial Assistance. For a period of twelve
(12) months following such termination, the Corporation shall pay the
expenses of such outplacement services as you may require, and/or for
financial planning services with such services to be performed by an
agency approved by the Corporation; provided, however, that
reimbursement for all fees under this paragraph (h) shall not exceed
$20,000.
(i) Tax Benefits. The Corporation shall pay you an additional
amount necessary to provide the benefits under Subsection 4(iii)(b)(I)
on an after-tax basis, except that this benefit shall be limited to the
extent set forth in Section 6 and shall be reduced to the extent
necessary so that no such payments would result in an excise tax imposed
by Section 4999 of the Code.
(iv) Form of Payment. The payments provided for in paragraphs
4(iii)(b), (c) and (d) (the "Severance Payments") shall be paid in accordance
with the following:
(a) Unless you are eligible and elect an option based upon the
Severance Program as described in Section 4(iii)(b)(II) or elect to
participate in a deferred compensation program, the Severance Payments
shall be made not later than the fifth day following your Date of
Termination. However, if the amounts of such payments cannot be finally
determined on or before such day, the Corporation shall pay to you on
such day an estimate, as determined in good faith by the Corporation, of
the minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined but in no event later than the thirtieth day after the Date
of Termination. In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such excess
shall constitute a loan by the Corporation to you, payable on the fifth
day after demand by the Corporation (together with interest at the rate
provided in section 1274(b)(2)(B) of the Code.
(b) Notwithstanding the foregoing provisions of this Subsection
(iv) or the provisions of paragraph 4(iii)(b)(I), if you are treated as
terminating your employment for Good Reason, by reason of relocation
under circumstances described in Section 3(iii)(c) and not for any other
reason under Subsection 3(iii), and you retain or are offered a
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position in another location that, in status and responsibilities, is
equal to or better than the position you held at the time of the Change
in Control, and you are entitled to benefits under paragraph
4(iii)(b)(I), those benefits shall not be paid in a lump sum, but
instead 1/12 of the lump sum benefit amount otherwise payable shall be
distributed to you during each of the 12 calendar months next following
the month which includes your Date of Termination, provided however that
such payments shall cease as of the date you are in "Competition" (as
described below) and shall not recommence thereafter.
For purposes of this Subsection, you shall be considered to be in
"Competition" during any period in which you are employed by, perform
any material services for, or own any interest in (except for an
interest of not more than 1% in any publicly traded business) any Class
I railroad, or any company or other enterprise that offers shipping
services to the public (including, without limitation, trucking
services, rail services, air-freight services, and water- going freight
services).
(v) Mitigation and Set-Off. Except as provided in paragraph 4(iii)(f)
and paragraph 4(iii)(g), you shall not be required to mitigate the amount of
any payment provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in this
Section 4 be reduced by any compensation earned by you as the result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by you to the Corporation, or otherwise.
5. STOCK PLANS.
(i) STOCK OPTIONS AND RESTRICTED STOCK. If (I) a Change in Control
occurs during the Agreement Term, (II) you are employed by the Corporation on
the date of the consummation of the Change in Control, and (III) the Change in
Control occurs prior to the end of the Restricted Period for Options or
Restricted Stock relating to shares of common stock of the Corporation granted
to you under the Corporation's 1996 Stock Incentive Plan, then upon the
consummation of the Change in Control, you shall vest in any such unvested
Options and Restricted Stock other than Performance-based Restricted Stock.
(ii) PERFORMANCE SHARE PLAN. If (I) a Change in Control occurs during
the Agreement Term, (II) you are employed by the Corporation on the date of
the Change in Control and your employment thereafter is not terminated for
Cause or by voluntary resignation, and (III) the Change in Control occurs
prior to the end of the Performance Period for shares of common stock of the
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Corporation granted to you under the Corporation's Performance Share Plan,
then upon the consummation of the Change in Control, you shall vest in any
such unvested shares, based on the applicable price goals under the terms of
the plan, and the per-share price which has been achieved for shares of common
stock of the Corporation at any time during the Performance Period and on or
before the consummation of the Change in Control date, determined without
regard to the plan requirement that a specified number of years during the
Performance Period must have elapsed prior to the vesting of shares. If you
are terminated for Cause or by voluntary resignation, you will receive no
benefits under the Performance Share Plan. After the consummation of the
Change in Control, the terms of the Performance Share Plan will govern without
regard to the foregoing provisions for persons who remain in the employ of the
Corporation. If you have terminated employment under Subsection 3(iii) or
3(iv) after the consummation of the Change in Control, you shall have no
further rights under the Performance Share Plan.
6. PARACHUTE TAX.
(i) In the event it shall be determined that any payment, benefit or
distribution (or combination thereof) by the Corporation, any affiliate or
associated company, trusts established by the Corporation, any affiliate or
associated company, for the benefit of its employees, to or for your benefit
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement, or otherwise) (a "Payment") would be subject to the excise
tax imposed by section 4999 of the Code, or any interest or penalties are
incurred by you with respect to such excise tax (such excise tax, together
with any such interest and penalties, hereinafter collectively referred to as
the "Excise Tax"), you shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by you of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and the Excise Tax imposed upon the
Gross-Up Payment, you retain an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. For purposes of this Section 6,
"Payments" will include any payments, benefits or distributions to other
persons with respect to awards granted to you and transferred by you to such
other person in accordance with the terms of the awards, to the extent that
such awards result in taxable income being attributable to you.
(ii) Subject to the provisions of Subsection 6(iii), all determinations
required to be made under this Section 6, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions
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to be utilized in arriving at such determination, shall be made by such
nationally recognized certified public accounting firm as may be designated by
the Corporation (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Corporation and you within fifteen (15)
business days of the receipt of notice from you that there has been a Payment,
or such earlier time as is requested by the Corporation. All fees and
expenses of the Accounting Firm shall be borne solely by the Corporation. Any
Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by
the Corporation to you within five (5) days after the receipt of the
Accounting Firm's determination. If the Accounting Firm determines that no
Excise Tax is payable by you, it shall so indicate to you in writing. Any
determination by the Accounting Firm shall be binding upon the Corporation and
you. As a result of the uncertainty in the application of section 4999 of the
Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Corporation should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Corporation
exhausts its remedies pursuant to Subsection 6(iii) and you thereafter are
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Corporation to you or for your
benefit.
(iii) You shall notify the Corporation in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Corporation of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten (10) business days after you are informed
in writing of such claim and shall apprise the Corporation of the nature of
such claim and the date on which such claim is requested to be paid. You
shall not pay such claim prior to the expiration of the thirty (30) day period
following the date on which it gives such notice to the Corporation (or such
shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Corporation notifies you in writing prior to the
expiration of such period that it desires to contest such claim, you shall:
(a) give the Corporation any information requested by the Corporation
relating to such claim;
(b) take such action in connection with contesting such claim as the
Corporation shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Corporation;
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(c) cooperate with the Corporation in good faith in order to effectively
contest such claim; and
(d) permit the Corporation to participate in any proceedings relating to
such claim;
provided, however, that the Corporation shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold you harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Subsection 6(iii), the Corporation shall control all proceedings taken
in connection with such contest and, at its sole option, may pursue or forego
any and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct you to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and you agree to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Corporation shall
determine; provided, however, that if the Corporation directs you to pay such
claim and sue for a refund, the Corporation shall advance the amount of such
payment to you, on an interest-free basis, and shall indemnify and hold you
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to such advance;
and provided, further, that if you are required to extend the statute of
limitations to enable the Corporation to contest such claim, you may limit
this extension solely to such contested amount. The Corporation's control of
the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and you shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(iv) If, after the receipt by you of an amount advanced by the
Corporation pursuant to Subsection 6(iii), you become entitled to receive any
refund with respect to such claim, you shall (subject to the Corporation's
complying with the requirements of Subsection 6(iii)) promptly pay to the
Corporation the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by you
of an amount advanced by the Corporation pursuant to Subsection 6(iii), a
determination is made that you shall not be entitled to any refund with
respect to such claim and the Corporation does not notify you in writing of
its intent to contest such denial of refund prior to the expiration of
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thirty (30) days after such determination, then such advance shall be forgiven
and shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid.
(v) Notwithstanding any other provision of this Agreement to the
contrary, in the event that it shall be determined that (a) the Payments to
you would, if made, be subject to an Excise Tax (or would result in the loss
of a deduction to the Corporation or its affiliates under section 280G of the
Code), but that, (b) if the amount of the Payments were reduced by an amount
that is not greater than 20% of the value of all Payments otherwise due to you
(determined without regard to the limitations of this Section (v)); then the
amount of the Payments otherwise due to you (regardless of whether payable
pursuant to the terms of this Agreement or otherwise) shall be reduced to an
amount which is determined to be $1 less than the maximum amount of the
Payments which could be made to you without resulting in the imposition of
Excise Taxes (and without the loss of a deduction under section 280G of the
Code). You shall be entitled to select the order in which payments are to be
reduced in accordance with this Section (v). If, by reason of the limitations
of this Section (v), the maximum amount payable to you under this Agreement or
otherwise cannot be determined prior to the due date for such payment, the
Corporation shall pay on the due date the minimum amount which it in good
faith determines to be payable and shall pay the remaining amount, with
interest at a rate, compounded semi-annually, equal to 120% of the applicable
Federal rate determined under section 1274(d) of the Code, as soon as such
remaining amount is determined in accordance with this Section (v).
Application of this Section (v) shall be made by an Accounting Firm selected
in the manner set forth in Section 6(ii).
(vi) You shall be eligible for benefits under this Section 6, and shall
be subject to the terms of this Section 6, regardless of whether the Change in
Control occurs or the payments are made during the Agreement Term, regardless
of whether you are employed by the Corporation on or after the occurrence of a
Change in Control and, if your Date of Termination shall have occurred,
regardless of the reason for such termination.
7. RIGHTS OF EMPLOYMENT. Except as otherwise expressly provided in
this Agreement:
(i) nothing in this Agreement shall be construed as limiting your right
to resign prior to the beginning or after the end of the Agreement Term; and
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(ii) nothing in this Agreement shall be construed as limiting the
Corporation's right to discharge you at any time prior to the beginning or
after the end of the Agreement Term, or to renegotiate the terms of your
employment for any period prior to the beginning or after the end of the
Agreement Term.
(iii) Termination Not Covered by Agreement. Except as otherwise
provided in subsection 3(iv) (relating to discharge absent Cause or
Disability), or as otherwise expressly provided in this Agreement, this
Agreement shall be inapplicable to the determination of your rights to
payments and benefits, if your Date of Termination occurs prior to the
occurrence of a Change in Control, or if your Date of Termination occurs after
the end of the Agreement Term and you are not subject to a disability after a
Change in Control.
8. SUCCESSORS; BINDING AGREEMENT. (i) The Corporation will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Corporation to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Corporation would be required to
perform it if no such succession had taken place. Failure of the Corporation
to obtain such assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle you to
compensation from the Corporation in the same amount and on the same terms to
which you would be entitled hereunder if you terminate your employment for
Good Reason following a Change in Control, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this Agreement,
"Corporation" shall mean the Corporation as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by
you and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devises and legatees. If you should die
while any amount would still be payable to you hereunder had you continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to your devisee, legatee or other
designee or, if there is no such designee, to your estate.
9. NOTICE. For the purpose of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed by
United States certified or registered mail, return receipt requested,
postage prepaid, addressed to the
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<PAGE>
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Corporation shall be directed to the attention of the
Board with a copy to the Secretary of the Corporation, or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be
effective only upon receipt.
10. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by you and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Illinois without regard to its
conflicts of law principles. All references to sections of the Exchange Act
or the Code shall be deemed also to refer to any successor provisions to such
sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the parties to this Agreement shall survive the expiration of
the Agreement Term. Capitalized terms used in this Agreement shall be defined
as set forth in this Agreement.
11. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
13. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Chicago, Illinois, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of
20
<PAGE>
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
14. AMENDMENT. This Agreement may be amended or cancelled only by
mutual agreement of the parties in writing without the consent of any other
person. So long as you shall live, no person, other than the parties hereto,
shall have any rights under or interest in this Agreement or the subject
matter hereof.
15. GENERAL RELEASE AND COVENANT NOT TO SUE. You agree that as a
condition of receiving benefits under this Agreement in connection with your
termination of employment, you shall execute the attached General Release and
Covenant Not to Sue within thirty (30) days following your Date of
Termination. Notwithstanding any other provision herein, no benefits or
payments in connection with your termination of employment shall be provided
until the executed General Release and Covenant Not to Sue has been received
by the Corporation and a seven (7) day revocation period from the date of
execution has expired.
16. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior
agreement of the parties hereto in respect of the subject matter contained
herein is hereby terminated and cancelled. Notwithstanding the foregoing
provisions of this paragraph 16, if you have entered into a letter agreement
with Santa Fe Pacific Corporation or Burlington Northern Inc. relating to
certain separation benefits to be provided if your employment terminates after
the occurrence of a Change in Control, and such agreement provided that, as a
result of stockholder approval of the merger between Burlington Northern Inc.
and Santa Fe Pacific Corporation, you will be entitled to such benefits if
your employment terminates for reasons as specified in such agreement prior to
the expiration of such Change in Control event which is September 22, 1997 for
the agreement with Burlington Northern Inc. and February 7, 1998, for the
agreement with Santa Fe Pacific Corporation (each agreement, as it has been
amended from time to time, is referred to as the "Prior Agreement"), then you
may irrevocably elect, by writing filed not later than 30 days after such
termination of employment, to receive benefits under the Prior Agreement in
lieu of benefits under this Agreement. Upon the filing of such election, your
rights shall be determined in accordance with (and you shall become subject
to) the Prior Agreement, and this Agreement shall be void; provided, however,
that your rights to benefits under the Prior Agreement shall be reduced by the
actuarial equivalent of any amounts you may have received under this
Agreement; and further provided that an election in
21
<PAGE>
accordance with this sentence shall not affect the limitation on your benefits
set forth in Section 6(v) (relating to restrictions on benefits subject to
parachute taxes) and shall not affect the Corporation's ability to impose such
limit.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Corporation the enclosed copy of this letter,
which will then constitute our agreement on this subject.
Sincerely,
Burlington Northern
Santa Fe Corporation
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
Agreed to this day
---
of , 1997.
------------
22
<PAGE>
GENERAL RELEASE AND COVENANT NOT TO SUE
For and in consideration of the terms of the Agreement between Burlington
Northern Santa Fe Corporation and its affiliates and [NAME] dated [DATE],
("Agreement"), the undersigned does hereby fully waive, release, remit and
forever discharge Burlington Northern Santa Fe Corporation and any and all of
its affiliates, divisions, subsidiaries, officers, directors, stockholders,
agents advisors and employees from any and all claims, demands or causes of
action, including any claims for merger protection benefits pursuant to the
Interstate Commerce Commission decision in the Northern Lines or Frisco
merger proceedings, claims arising under Title VII of the Civil Rights Act of
1964, as amended, 42 U.S.C. Section 2000(e), et seq., the Civil Rights Act of
1866, 42 U.S.C. Section 1981, the Age Discrimination in Employment Act of
1967, as amended, 29 U.S.C. Section 621, et seq., the Federal Employers'
Liability Act, and any other federal, state or local law, order, regulation,
common law, contract or collective bargaining agreement, which relates to my
employment or cessation of employment by Burlington Northern Santa Fe
Corporation and its affiliates; provided however that the undersigned does not
waive enforcement of rights to any benefits provided or extended pursuant to
the terms of the Agreement or to assert any counterclaims in response to any
litigation initiated by BNSF Corporation against me. The undersigned
specifically waives all claims, whether past or present, known or unknown, and
whether or not in litigation, which I, or acting on my behalf, my heirs,
successors, executors, administrators or assigns, may have based on any
action, omission or event occurring prior to this date. Included in this
Release are any and all claims for future damages allegedly arising from the
alleged continuation of the effects of any past action, omission or event.
This General Release and Covenant Not to Sue is executed willingly and
voluntarily, for adequate consideration, and after having the opportunity to
consult with counsel. This General Release and Covenant Not to Sue is
irrevocable and binding upon the undersigned.
- ----------------------- ----------------------------------
Date Name
----------------------------------
Signature
23
<PAGE>
EXHIBIT 10.19
As Amended January 16, 1997
BURLINGTON NORTHERN SANTA FE CORPORATION
DEFERRED COMPENSATION PLAN FOR DIRECTORS
----------------------------------------
ARTICLE 1
PURPOSE
-------
1.01 The purpose of this Deferred Compensation Plan (Plan) is to attract and
retain highly qualified individuals to serve as members of the Company's Board
of Directors.
ARTICLE II
ADMINISTRATION
--------------
2.01 The Plan shall be administered by the Directors and Corporate Governance
Committee of the Board of Directors (the "Committee"). The Committee shall
interpret the Plan, prescribe, amend and rescind rules relating to it from
time to time as it deems proper and in the best interests of the Company, and
to take any other action necessary for the administration of the Plan. Any
decision or interpretation adopted by the Committee shall be final and
conclusive and shall be binding upon all participants.
ARTICLE III
PARTICIPATION
-------------
3.01 Participation in this Plan is voluntary. Each director of the Company
may elect to participate in the Plan by written notice to the Company upon his
election to the Board of Directors.
3.02 The election, which shall be irrevocable, shall remain in effect for one
year which shall begin on the day of the annual stockholders' meeting and
shall terminate the day before the succeeding annual stockholders' meeting.
3.03 The election by a director who is elected to the Board at other than an
annual stockholders' meeting shall remain in effect until the next annual
stockholders' meeting.
<PAGE>
ARTICLE IV
COMPENSATION
------------
4.01 Each Participant may elect to have all or a specified percentage of his
Compensation deferred until he ceases to be a director.
4.02 "Compensation" shall mean the annual retainer and meeting fees for Board
and Board Committee meetings.
4.03 The Company shall establish a memorandum account for each Participant
who has elected to defer a portion of his Compensation for any year and shall
credit such account for Compensation on the date payment would otherwise have
been made.
4.04 Interest on investment returns shall be reflected to each member's
account at the end of each quarter and such other periods as may be determined
by the Committee. The rate of return shall be based upon the investment
option selected and the return on such investment option. Such investment
options shall be established by the Board with such terms and conditions as
they may deem appropriate.
4.05 Distribution of a Participant's memorandum account shall be as follows:
(a) In five equal annual installments in January of each year
following the year in which the Participant ceases to be a
director; or,
(b) If approved by the Committee, in some other number of equal annual
installments, not to exceed ten, commencing in January of the year
following the year in which the Participant ceases to be a
director;
(c) If approved by the Committee, in a lump sum on a date within the
ten year period following the year in which the Participant ceases
to be a director.
4.06 Interest shall accrue on the outstanding memorandum account balance to
the date of distribution.
4.07 If a Participant dies or becomes permanently disabled prior to payment
of all amounts due under the Plan, the balance of the amount due shall be
payable to the Participant or his estate, at the discretion of the Committee,
in a lump sum as soon as is practicable or in some number of equal annual
installments, not to exceed ten, commencing in January of the year following
the year in which the Participant died or became permanently disabled.
4.08 The Committee shall distribute periodic earnings reports to the
Participants under the Plan.
<PAGE>
ARTICLE V
GENERAL PROVISIONS
------------------
5.01 The deferred compensation to be paid to the Participants pursuant to
this Plan is an unfunded obligation of the Company. Nothing herein contained
shall require the Company to segregate any monies from its general funds, or
to create any trusts, or to make any special deposits with respect to this
obligation. Title to and beneficial ownership of any funds invested or
reinvested, including the income or profits therefrom, which the Company may
make to fulfill its obligations under this Plan shall at all times remain in
the Company. A Participant's right to receive the payment of any deferred
compensation may not be assigned, transferred, pledged or encumbered except by
will or by the laws of descent and distribution.
5.02 The Board of Directors may from time to time amend, suspend or terminate
the Plan, in whole or in part, and if the Plan is suspended or terminated, the
Board may reinstate any or all of its provisions.
<PAGE>
EXHIBIT 10.23
BURLINGTON NORTHERN SANTA FE CORPORATION
AMENDMENT OF BURLINGTON NORTHERN
SANTA FE SALARY EXCHANGE OPTION PROGRAM
- ---------------------------------------
WHEREAS, Burlington Northern Santa Fe Corporation ("Company")
maintains the Burlington Northern Santa Fe Salary Exchange Option Program (the
"Program");
WHEREAS, amendment of the Program is now desirable to make changes
permitted by recently adopted changes to Federal securities regulations;
RESOLVED, that the Program be, and it hereby is amended effective
January 1, 1997 in the following particulars:
1. By deleting the following sentence from Section 5 of the
Program where it appears therein:
"Notwithstanding the foregoing, and except in
the initial Program year, any officer of the Company
subject to Section 16(b) of the Securities and
Exchange Act of 1934, must make such election not less
than six months before the scheduled grant date"
2. By deleting the following sentence from Section 7 of the
Program where it appears therein:
"Notwithstanding the foregoing, any officer of the
Company subject to Section 16(b) of the Securities Exchange
Act of 1934, must give notice of termination of participation
not less tat six months before the beginning of the next
calendar year."
FURTHER RESOLVED, that each of the Secretary and other officers of the
Company are hereby authorized and empowered by and on behalf and in the name
of the Company to do and perform or cause to be done and performed, all such
acts and deeds and to make, execute, and deliver, or cause to be made,
executed and delivered all such agreements, undertakings, documents,
instruments, or certificates, as each such officer may deem necessary or
appropriate to effectuate or carry out fully the purpose and intent of the
foregoing resolutions.
Fort Worth, Texas
January 15, 1997
<PAGE>
EXHIBIT 10.28
BURLINGTON NORTHERN SANTA FE CORPORATION
BENEFITS PROTECTION TRUST
-------------------------
1
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION
BENEFITS PROTECTION TRUST
-------------------------
TABLE OF CONTENTS
ARTICLE PAGE
- ------- ----
1: Definitions 2
2: Creation of Trust 6
3: Trustee Expense Account 9
4: Benefit Account 10
5: Payments from the Trust 11
6: Management of Trust Assets 13
7: Administrative Powers 17
8: Insurance and Annuity Contracts 18
9: Trustee's Powers after Change of Control 21
10: Taxes, Expenses and Compensation
of Trustee 25
11: General Duties of Trustee 26
12: Indemnification 28
13: No Duty to Advance Funds 28
14: Accounts 29
15: Administration of the Plans;
Communications 31
16: Resignation or Removal of Trustee 33
17: Amendment of Agreement; Termination
of Trust; Termination with Respect to an
Affiliate and Transfer to Successor Trustee 37
18: Prohibition of Diversion 40
19: Prohibition of Assignment of Interest 42
20: Miscellaneous 42
2
<PAGE>
BENEFITS PROTECTION TRUST AGREEMENT
-----------------------------------
THIS AGREEMENT (the "Agreement"), made as of the 22nd day of January, 1996,
by and between BURLINGTON NORTHERN SANTA FE CORPORATION, a corporation organized
and existing under the laws of the State of Delaware, and BANKERS TRUST COMPANY,
a New York banking corporation (hereinafter referred to as the "Trustee").
W I T N E S S E T H
WHEREAS, the Company (as hereinafter defined) or an Affiliate (as hereinafter
defined) thereof has adopted the plans, programs, and policies and has entered
into the contracts listed on Schedule 1 (hereinafter referred to either
specifically by name or collectively as the "Plans") and may adopt or enter into
other such plans which will be listed from time to time on Schedule 1 and may,
from time to time, amend, modify or terminate any such Plan in accordance with
its terms or to comply with any changes in the law and to increase the number of
participants in any such Plan; and
WHEREAS, the Company desires to establish a Benefits Protection Trust
(hereinafter referred to as this "Trust") in order to ensure that Participants
(as hereinafter defined) and their beneficiaries will receive the benefits which
the Company and its Affiliates are obligated to provide for them or which they
reasonably anticipate receiving pursuant to the Plans; and
WHEREAS, the Trustee is not a party to the Plans; and
WHEREAS, the aforesaid obligations of the Company are not funded or otherwise
secured and the Company has agreed to take steps to assure that the future
payment of amounts under such Plans will not be improperly withheld in the event
that a "Change of Control" (as
3
<PAGE>
hereinafter defined) of the Company should occur; and
WHEREAS, for purposes of assuring that such payments will not be improperly
withheld, the Company desires to: (a) deposit with the Trustee, subject to the
claims of the Company's existing or future general creditors, amounts of cash
and/or marketable securities for the payment of the fees and expenses of the
Trustee in pursuing claims of the Participants and their beneficiaries against
the Company for such payments and/or in requiring the Company to deposit
sufficient cash and/or marketable securities in the Trust to pay benefits under
the Plans; and (b) retain the right to deposit with the Trustee, subject to the
same conditions, further amounts of cash and/or marketable securities for the
payment of amounts under such Plans as they may become due and payable; and
WHEREAS, in the event that the Trustee resigns in accordance with Section
16.1 or 16.2 hereof, the Company shall have the exclusive right and power to
appoint, in its sole discretion, a successor trustee in accordance with such
sections , and if no such successor trustee becomes trustee under this Agreement
within the applicable time period prescribed in Section 16.1 or 16.2, as
applicable, the Company intends for all funds held in the Benefit Account (as
hereinafter defined), after payment of all fees, expenses and indemnities due to
or incurred by the Trustee under this Agreement, to be immediately paid in the
form of lump-sums (or, in the discretion of the Trustee, distributions of
annuity contracts of insurance companies of equivalent values to any such
lump-sum payments) to Participants and their beneficiaries in accordance with
Section 16.1 or 16.2, as applicable.
NOW, THEREFORE, the Company and the Trustee agree as follows:
ARTICLE 1: DEFINITIONS.
------------------------
4
<PAGE>
1.1 "Affiliate" shall mean any corporation, partnership or other entity,
the majority interest in which is held by the Company directly or through one or
more intermediaries.
1.2 The "Board" shall mean the Board of Directors of Burlington Northern
Santa Fe Corporation.
1.3 "Change of Control" shall mean the occurrence of any of the following:
(a) any person (as such term is used in sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) being or
becoming the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act)
directly or indirectly, of securities of the Company representing 20% or more of
the combined voting power of the Company's then outstanding securities,
(b) the first purchase by any person (as such term is used in
subsection (a) of this Section 1.3) of the Company's Common Stock pursuant to a
tender or exchange offer to acquire such number of shares of the Company's
Common Stock as would result in such person holding twenty percent (20%) or more
of the combined voting power of the Company's then outstanding Common Stock
(other than a tender or exchange offer made by the Company or an Affiliate),
(c) the approval by the Company's stockholders of a merger or
consolidation, a sale or disposition of all or substantially all of the
Company's assets or a plan of liquidation or dissolution of the Company, or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company
ceasing for any reason to constitute at least a majority thereof, unless the
election or nomination for the election by the Company's stockholders of each
new director was approved by a vote of at least two thirds of
5
<PAGE>
the directors then still in office who were directors at the beginning of the
period.
(e) notwithstanding (a) through (d), the business combination of
Burlington Northern Inc. and Santa Fe Pacific Corporation, which was effective
September 22, 1995, does not constitute a Change of Control.
Notwithstanding the foregoing, a Change of Control shall not be deemed
to occur if the Company either merges or consolidates with or into another
company or sells or disposes of all or substantially all of its assets to
another company, if such merger, consolidation, sale or disposition is in
connection with a corporate restructuring wherein the stockholders of the
Company immediately before such merger, consolidation, sale or disposition own,
directly or indirectly, immediately following such merger, consolidation, sale
or disposition at least eighty percent (80%) of the combined voting power of all
outstanding classes of securities of the company resulting from such merger or
consolidation, or to which the Company sells or disposes of its assets, in
substantially the same proportion as their ownership in the Company immediately
before such merger, consolidation, sale or disposition. Further notwithstanding
the foregoing, an event will not be treated as a Change of Control for purposes
of this Agreement if the Board so determines by an affirmative vote of at least
two thirds of its incumbent members immediately prior to the occurrence of such
event, and the Company shall provide prompt notice of such determination to the
Trustee.
In addition, notwithstanding any provision herein to the contrary, a
Change of Control shall not be deemed to occur where the acquirer is, directly
or indirectly, a Class I railroad or a holding company of a Class I railroad
("Merger Transaction"), or any events or
6
<PAGE>
transactions that form a part of, or are in furtherance of the Merger
Transaction (including, without limitation, any announcement of the Merger
Transaction or the execution of any agreement in furtherance of the Merger
Transaction) for the purposes of this Trust, unless the Board so determines by
an affirmative vote of at least two thirds of its incumbent members immediately
prior to the occurrence of such event, and the Company shall provide prompt
notice of such determination to the Trustee.
1.4 "Company" shall mean Burlington Northern Santa Fe Corporation, its
successors, and assigns.
1.5 "Equitable Share" shall mean the interest of any Plan in the assets of
the Trust.
1.6 "Investment Manager" shall mean a bank, an insurance company or an
investment adviser registered under the Investment Advisers Act of 1940,
appointed pursuant to Article VI hereto to manage all or a portion of the assets
of the Trust.
1.7 "Participants" shall mean active and former directors and employees of
the Company and/or of its Affiliates.
1.8 "Responsible Employer" shall mean, in connection with a particular
Plan, an entity (either the Company or an Affiliate) that is obligated to
provide benefits to directors or employees pursuant to that Plan, either through
contributions to the Trust or otherwise.
1.9 "Threatened Change of Control" shall mean either of the following
events:
(a) A person described in Section 1.3 of this Article 1,
(1) initiates a tender offer to acquire such number of shares as
would result in such person holding twenty percent (20%) or more of the voting
power of the Company's outstanding common shares; or
7
<PAGE>
(2) solicits proxies for votes to elect members of the Board at a
shareholders' meeting of the Company;
provided, however, that, an event will not be treated as a Threatened Change
of Control for purposes of this Agreement if the Board so determines by an
affirmative vote of at least two thirds of its incumbent members immediately
prior to the occurrence of such event, and the Company shall provide prompt
notice of such determination to the Trustee, or
(b) The Company notifies the Trustee in writing that such a Threatened
Change of Control exists.
1.10 "Threatened Change of Control Period" shall mean the period beginning
on the date a Threatened Change of Control commences and ending on the earliest
of:
(a) The date when a person described in Section 1.3 of this Article 1,
(1) shall have abandoned the tender offer, or (2) shall not have elected a
member of the Board as the case may be, or (3) shall own less than five percent
(5%) of the voting power of the Company's outstanding common shares; or
(b) If the Threatened Change of Control Period has commenced by reason
of a written notification by the Company as provided in Section 1.9(b) of this
Article 1, the earlier of (1) the expiration of six (6) months after the Trustee
has received such notification, if a Threatened Change of Control described in
Section 1.9(a) has not occurred within such 6-month period, and (2) the date the
Company shall have notified the Trustee in writing that the Threatened Change of
Control has terminated; or
(c) The date a Change of Control occurs.
8
<PAGE>
ARTICLE 2. CREATION OF TRUST.
- ----------------------------
2.1 The Company hereby establishes with the Trustee and the Trustee hereby
accepts a trust consisting of two accounts established by the Trustee for
purposes of accounting for funds delivered to the Trustee by the Company. One
such account shall be known as the "Trustee Expense Account," and shall be used
exclusively to pay the fees, expenses and indemnities due or incurred by the
Trustee in accordance with the terms of this Agreement. The other such account
shall be known as the "Benefit Account," and shall be used to make payments
under the Plans. The Benefit Account shall be divided into a separate Equitable
Share for each Plan which is funded by the Company in accordance with Section
4.1 of Article 4. If a single Plan has more than one Responsible Employer, then
a separate Equitable Share shall be created for each such Responsible Employer.
The Trustee, for investment purposes only, may commingle all Trust assets and
treat them as a single fund, but the records of the Trustee at all times shall
show the percentages of the Trust allocable to each of the several Equitable
Shares, as well as the percentage of each Equitable Share that is attributable
to contributions by each Responsible Employer.
2.2 The Company and the Trustee agree that the Trust created herein shall
be revocable by the Company as to any assets held in the Trustee Expense Account
at any time before a Change of Control, but shall not be revocable by the
Company or by any successor thereto as to assets held in the Benefit Account at
any time, or as to any amounts held under the Trust at any time after a Change
of Control. The principal of the Trust, and any earnings thereon, shall be used
exclusively for the uses and purposes of Participants and their beneficiaries
and general creditors of each Responsible Employer, as herein set forth.
9
<PAGE>
Participants and their beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any rights created
under the Plans and this Agreement shall be mere unsecured contractual rights of
Participants and their beneficiaries against the appropriate Responsible
Employer. Any assets held by the Trust will be subject to the claims of the
general creditors of the Responsible Employers under federal and state law in
the event that any such Responsible Employer becomes insolvent, as defined in
Section 18.2(a). The Trust established hereunder is intended to be a grantor
trust within the meaning of Section 671 of the Internal Revenue Code of 1986, as
amended (the "Code"), and all interest and other income earned on the investment
of the Trust shall for such purposes be the property of, and taxable to, the
Company. All taxes on or with respect to the Trust shall be payable by the
Company from its separate funds, provided, however, that to the extent that the
Company does not timely make any such payments, such taxes shall be paid from
the Trustee Expense Account, and if the Trustee Expense Account is insufficient
then from the Benefit Account.
2.3 The Company may amend any existing Plans upon prior written notice
thereof to the Trustee, provided, however, that the Company may not amend any
Plans in such a manner that would materially increase the administrative duties
of the Trustee under this Agreement without the Trustee's express prior written
consent thereto. The Company may add plans, other than plans intended to be
qualified under Section 401(a) of the Code, under the Trust upon prior written
notice thereof to the Trustee and by amending Schedule 1; provided, however,
that the Company may not add any such plan under the Trust without the Trustee's
express prior written consent to such addition. The Company shall furnish to
the Trustee copies of all Plans, and the Trustee shall have no duties or
obligations whatsoever under this Agreement
10
<PAGE>
with respect to any Plan of which the Trustee has not received a copy from the
Company. If the Company amends any existing Plans or adds plans, it shall send
to the Trustee a copy of any such amendments or plans, and the Trustee shall
have no duties or obligations whatsoever under this Agreement with respect to
any amendment to a Plan or new plans of which the Trustee has not received a
copy from the Company.
ARTICLE 3: TRUSTEE EXPENSE ACCOUNT.
- -----------------------------------
3.1 Concurrently with the execution of this Trust, the Company will deliver
to the Trustee, to be held in trust hereunder and credited to the Trustee
Expense Account, the sum of five hundred thousand dollars ($500,000) in cash, to
be administered and disposed of by the Trustee as provided herein.
3.2 Upon the Trustee's obtaining actual knowledge of the existence of a
Threatened Change of Control or a Change of Control, the Trustee shall require
the Company to deliver the additional amount of one million five hundred
thousand dollars ($1,500,000) in cash to the Trust, to be credited to the
Trustee Expense Account. The Trustee shall make written demand for any such
additional amount, and the Company will comply with such demand within 15 days
of its receipt thereof. In the event the Company fails to provide the Trustee
with such additional amount within 15 days of the receipt by the Company of such
written demand, the Trustee shall have the right to resign immediately as
Trustee, and immediately upon such resignation shall have no further duties
hereunder. The Trustee will have no duty to find or secure the appointment of a
successor trustee upon its resignation pursuant to this Section, nor shall its
resignation or the termination of any further duties be contingent upon the
appointment and
11
<PAGE>
qualification of a successor trustee. If the Threatened Change of Control
Period terminates and no Change of Control has occurred, the Company may
withdraw any portion of the one million five hundred thousand dollars
($1,500,000) deposited upon the demand of the Trustee, together with any income
actually earned thereon and reduced by any losses attributable thereto.
3.3 At any time, the Company shall have the unlimited right to add to the
Trustee Expense Account additional amounts of cash and/or marketable securities.
Such amounts (together with the income attributable thereto) which are over and
above the aggregate amounts of $500,000 and $2,000,000 described in Sections 3.1
and 3.2 respectively may be withdrawn by the Company at any time prior to a
Change of Control, but not after.
ARTICLE 4: BENEFIT ACCOUNT
- ---------------------------
4.1 The Company may elect at any time to deliver cash and/or marketable
securities reasonably acceptable to the Trustee to be credited to the Benefit
Account. Any such delivery shall be accepted by the Trustee only if it is
accompanied by a designation of the Plan or Plans under the provisions of which
such funds are to be disbursed, the Responsible Employer whose obligations are
being funded, and if more than one Plan or the obligations of more than one
Responsible Employer are being funded, the amount being allocated in respect of
each Plan and each Responsible Employer. Such delivery shall be credited to the
Equitable Share or Equitable Shares of the Plan or Plans in respect of which
funds are being provided within the Benefit Account.
4.2 After a Change of Control has occurred, if the Trustee determines that
amounts held under the Trust allocated to the Equitable Share(s) of one or more
Plans are insufficient to pay all benefits payable (whether currently or on a
deferred basis) under such Plan or Plans, the Trustee shall make a written
demand on the Responsible Employer or Responsible Employers
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to provide funds in an amount determined by the Trustee sufficient to pay all
benefits payable (whether currently or on a deferred basis) under such Plan or
Plans. If, after a Change of Control, the Trustee shall determine that benefits
under one or more Plans which are not payable from assets of an Equitable Share
under the Trust are not being paid to Participants and beneficiaries in the
proper amounts and in a timely manner, the Trustee may in its discretion demand
in writing that the Responsible Employer or Responsible Employers deliver to the
Trustee assets sufficient to pay all benefits payable (whether currently or on a
deferred basis) under such Plan or Plans. The Responsible Employer or
Responsible Employers shall transfer such funds within 30 days from the time the
written demand is mailed.
ARTICLE 5: PAYMENTS FROM THE TRUST.
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5.1 The Company shall, from time to time, furnish the Trustee with such
written information regarding the Participants and beneficiaries under the Plans
(including updated mailing addresses) and the amount and/or method of
determination of benefits under the Plans (hereinafter referred to as
"Participant Data") as the Company deems relevant or as the Trustee shall
request in writing. The Company shall, after a Change of Control, furnish the
Trustee with such Participant Data and other information as the Trustee may from
time to time request within thirty (30) days of such request. The Company will,
from time to time, but not less frequently than annually, update Participant
Data with respect to all Plans.
5.2 Prior to a Change of Control, the Trustee, at the direction of the
Company, shall make payments to Participants and beneficiaries or to any
disbursing agent designated by the Company in such manner and in such amounts as
the Company shall direct, to the extent funds are available in the Equitable
Share(s) of the applicable Plan or Plans. After a Change of Control and
notwithstanding any other provisions of this Agreement, the Trustee shall,
without direction from the Company, to the extent funds are available in the
corresponding Equitable Share(s) of such Plan or Plans, make payments to any
disbursing agent previously retained by the Company for such purpose or, in the
Trustee's sole discretion, directly to Plan Participants
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and beneficiaries in such manner and in such amounts as the Trustee shall
determine they are entitled to be paid under the Plans based on the most recent
Participant Data furnished to the Trustee by the Company and any supplemental
information furnished to the Trustee by a Participant or beneficiary upon which
the Trustee may reasonably rely in making such determination and based upon the
terms of the Plans, including any amendments thereto, as in effect on the date
of such Change of Control to the extent that copies of such Plans and amendments
were received by the Trustee prior to the date of such Change of Control.
5.3 After a Change of Control, in the event the Internal Revenue Service
issues a notice of deficiency to any Participant and/or beneficiary of a Plan
stating that such Participant and/or beneficiary is subject to any tax by reason
of any undistributed interest in the Trust, the Trustee, upon presentation of a
copy of such determination and written direction from the Participant and/or
beneficiary, shall distribute to such Participant and/or beneficiary the amount
included in such Participant's or beneficiary's taxable gross income by reason
of any interest in the Trust, which amount shall be stated in such written
direction. The Trustee shall not be liable in any way for any payment made
pursuant to any such written direction, including, without limitation, for any
such inclusion of such amount in any Participant's or beneficiary's taxable
gross income. Any benefit to which such Participant and/or beneficiary
subsequently becomes entitled shall be offset by the actuarial equivalent of the
amount previously distributed pursuant to the preceding provisions of this
Section 5.3.
5.4 Payments to Participants and beneficiaries pursuant to Sections 5.2 and
5.3 of this Article 5 shall be made by the Trustee to the extent that funds in
the relevant Equitable Share(s) are sufficient to allow such payments. In any
month in which the Trustee determines that the
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Equitable Share of one or more Plans in the Benefit Account does not have
sufficient funds to provide for the current payment of all amounts otherwise
payable to Participants and beneficiaries in such month under a Plan or Plans,
the amount otherwise currently payable to each such Participant or beneficiary
under such Plan or Plans during such month shall be reduced by a fraction, the
numerator of which is the amount of funds then available in the Equitable
Share(s) of such Plan or Plans and the denominator of which is the total of the
benefits paid prior to such reduction during such month to all Participants and
beneficiaries under such Plan or Plans. In the event that the Trustee shall at
any time determine that all liabilities to Participants and beneficiaries,
whether present or deferred, fixed or contingent, under any Plan or Plans have
been satisfied in full, and at such time there are assets remaining in the
Equitable Share or Equitable Shares allocated to such Plan or Plans, the Trustee
shall allocate such remaining assets among the Equitable Shares of any or all of
the remaining Plans in such manner as the Trustee deems appropriate, taking into
account the liabilities outstanding under each such other Plan and the funding
level of each such other Equitable Share. In any event, the Trustee shall have
no duty to make any benefit payment out of the assets of the Trust to any
Participant or beneficiary in excess of the aggregate benefits to which such
Participant or beneficiary is entitled under any Plan or Plans.
ARTICLE 6: MANAGEMENT OF TRUST ASSETS.
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6.1 Prior to a Change of Control, the Trust assets shall be held, invested
and reinvested by the Trustee as designated by the written direction of the
Company or of any Investment Manager appointed by the Company to manage all or a
portion of the assets of the Trust, with respect to those assets as to which the
Company has notified the Trustee that such
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Investment Manager has been granted investment authority. The Trustee shall not
be under any duty, or have any right, to question any such directions of the
Company or any Investment Manager or to review any securities or other property
held pursuant to such direction, or to make any suggestions to the Company or
any Investment Manager in connection therewith; and the Trustee shall as
promptly as practicable comply with any directions given by the Company
hereunder or such Investment Manager. In exercising the powers of the Company
under this Section 6.1 of Article 6 the Company shall act by its Corporate
Treasurer or his written designees, each of whom is fully authorized to exercise
such powers. The Trustee may, and shall, follow the written directions signed
by said Corporate Treasurer or such designees.
6.2 In the absence of written direction of the Company, the Trustee shall
invest the assets as if a Change of Control had occurred as provided in Section
6.3 of this Article 6 and Article 9.
6.3 After a Change of Control, the Trustee shall have exclusive authority
and discretion to manage and control the Trust assets and may employ Investment
Managers including affiliates of the Trustee to manage the investment of the
Trust assets. Pursuant to such authority and discretion, the Trustee may
exercise, from time to time and at any time, the power:
(a) To invest and reinvest the assets of the Trust, without distinction
between principal and income, in shares of stock (whether common or preferred)
or other evidences of ownership; shares of any registered investment company or
mutual fund for which an Investment Manager or any affiliate of an Investment
Manager or the Trustee or any affiliate of the Trustee, provides, for
compensation, custodial, advisory, or other services; bonds; debentures; notes
or
16
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other evidences of indebtedness, unsecured or secured by mortgages on real or
personal property wherever situated (including any part interest in a bond and
mortgage or note and mortgage whether insured or uninsured) and other property,
including without limitation shares in any collective investment fund maintained
by the Trustee, or part interest in property, real or personal, foreign or
domestic, and in order to reduce the rate of interest rate fluctuations,
contracts, as either buyer or seller, for the future delivery of United States
Treasury securities and comparable Federal Government-backed securities;
provided, however, that no portion of the assets of the Trust may be directly
invested in common or preferred stock, or evidences of indebtedness, of the
Company or any entity controlled, controlling, or under common control with the
Company;
(b) To sell, convey, redeem, exchange, grant options for the purchase
or exchange of, or otherwise dispose of, any real or personal property, at
public or private sale, for cash or upon credit, with or without security,
without obligation on the part of any person dealing with the Trustee to see to
the application of the proceeds of or to inquire into the validity, expediency
or propriety of any such disposition;
(c) To exercise, personally or by general or limited proxy, the right
to vote any shares of stock, bonds or other securities held in the Trust; to
delegate discretionary voting power to trustees of a voting trust for any period
of time; and to exercise, personally or by power of attorney, any other rights
appurtenant to any securities or other property of the Trust;
(d) To join in or oppose any reorganization, recapitalization,
consolidation, merger or liquidation, or any plan therefor, or any lease,
mortgage or sale of the property of any organization the securities of which are
held in the Trust; to pay from the assets of the Trust
17
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any assessments, charges or compensation specified in any plan of
reorganization, recapitalization, consolidation, merger or liquidation; to
deposit any property with any committee or depositary; and to retain any
property allotted to the Trust in any reorganization, recapitalization,
consolidation, merger or liquidation;
(e) To exercise or sell any conversion or subscription or other rights
appurtenant to any stock, security or other property held in the Trust;
(f) To borrow from any lender (including the Trustee in its individual
capacity) money, in any amount and upon any reasonable terms and conditions, for
purposes of this Agreement, and to pledge or mortgage any property held in the
Trust to secure the repayment of any such loan;
(g) To compromise, settle or arbitrate any claim, debt, or obligation
of or against the Trust; to enforce or abstain from enforcing any right, claim,
debt or obligation (subject to the provisions of Section 9.3 of Article 9); and
to abandon any property determined by it to be worthless;
(h) To make loans of securities held in the Trust to registered brokers
and dealers upon such terms and conditions as are permitted by applicable law
and regulations, and in each instance to permit the securities so lent to be
registered in the name of the borrower or a nominee of the borrower, provided
that in each instance the loan is adequately secured and neither the borrower
nor any affiliate of the borrower has discretionary authority or control with
respect to the assets of the Trust involved in the transaction or renders
investment advice with respect to those assets;
(i) To invest and reinvest any property in the Trust in any other form
or type
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of investment not specifically mentioned in this section; and
(j) To open and maintain any bank account or accounts, in the name of
the Trustee in any bank or banks, including, if the Trustee is a bank, the
Trustee's own banking department.
ARTICLE 7: ADMINISTRATIVE POWERS.
- ---------------------------------
The Trustee shall have and in its sole and absolute discretion may exercise
from time to time and at any time the following administrative powers and
authority with respect to the Trust:
7.1 To hold property of the Trust in its own name or in the name of a
nominee or nominees, without disclosure of the trust, or in bearer form so that
it will pass by delivery, but no such holding shall relieve the Trustee of its
responsibility for the safe custody and disposition of the Trust in accordance
with the provisions of this Agreement; the Trustee's books and records shall at
all times show that such property is part of the Trust; and the Trustee shall be
absolutely liable for any loss occasioned by the acts of its nominee or nominees
with respect to securities registered in the name of the nominee or nominees;
7.2 To organize and incorporate under the laws of any state it may deem
advisable one or more corporations (and to acquire an interest in any such
corporation that it may have organized and incorporated) for the purpose of
acquiring and holding title to any property, interests or rights that the
Trustee is authorized to acquire under Article 6 hereof;
7.3 To employ in the management of the Trust suitable agents, without
liability for any loss occasioned by any such agents selected by the Trustee
with the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent person acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of a like character and
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with like aims;
7.4 To make, execute and deliver, as Trustee, any deeds, conveyances,
leases, mortgages, contracts, waivers or other instruments in writing that the
Trustee may deem necessary or desirable in the exercise of its powers under this
Agreement; and
7.5 To do all other acts that the Trustee may deem necessary or proper to
carry out any of the powers set forth in this Agreement or otherwise in the best
interests of the Trust.
7.6 Notwithstanding any powers granted to the Trustee pursuant to this
Agreement or applicable law, the Trustee shall not have any power that could
give the Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Code.
ARTICLE 8: INSURANCE AND ANNUITY CONTRACTS.
- -------------------------------------------
8.1 The Trustee, upon written direction of the Company prior to a Change of
Control, shall pay from the Benefit Account such sums to such insurance company
or companies as the Company may direct for the purpose of procuring
participating or nonparticipating insurance and/or annuity contracts for the
Plans (hereinafter referred to as "Contracts"). The Company shall prepare. or
cause to be prepared in such form as it shall prescribe, the application for any
Contract to be applied for. The Trustee shall receive and hold in the Trust,
subject to the provisions hereinafter set forth in this Article 8, all Contracts
so obtained.
8.2 The Trustee shall be the complete and absolute owner of Contracts held
in the Trust and, upon written direction of the Company prior to a Change of
Control, shall have power, without the consent of any other person, to exercise
any and all of the rights, options or privileges that belong to the absolute
owner of any Contract held in the Trust or that are granted
20
<PAGE>
by the terms of any such Contract or by the terms of this Agreement. Prior to a
Change of Control, the Trustee shall have no discretion with respect to the
exercise of any of the foregoing powers or to take any other action permitted by
any Contract held in the Trust, but shall exercise such powers or take such
action only upon the written direction of the Company and the Trustee shall have
no duty to exercise any of such powers or to take any such action unless and
until it shall have received such direction. After a Change of Control, the
Trustee shall exercise, without directions from the Company, any and all of the
rights, options or privileges that belong to the absolute owner of any Contract
held in the Trust or that are granted by the terms of any such Contract or by
the terms of this Agreement. The Trustee, upon the written direction of the
Company prior to a Change of Control, shall deliver any Contract held in the
Trust to such person or persons as may be specified in the direction.
8.3 The Trustee shall hold in the Trust the proceeds of any sale,
assignment or surrender of any Contract held in the Trust and any and all
dividends and other payments of any kind received in respect of any Contract
held in the Trust.
8.4 Upon the written direction of the Company prior to a Change of Control,
the Trustee shall pay from the Benefit Account premiums, assessments, dues,
charges and interest, if any, upon any Contract held in the Trust. The Trustee
shall have no duty to make any such payment unless and until it shall have
received such direction. After a Change of Control, the Trustee shall pay from
the Benefit Account premiums, assessments, dues, charges and interest, if any,
upon any Contract held in the Trust, without direction from the Company.
8.5 No insurance company that may issue any Contract or Contracts held in
the Trust shall be deemed to be a party to this Agreement for any purpose, or to
be responsible in any
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way for the validity of this Agreement or to have any liability under this
Agreement other than as stated in each Contract that it may issue. Any insurance
company may deal with the Trustee as sole owner of any Contract issued by it and
held in the Trust, without inquiry as to the authority of the Trustee to act,
and may accept and rely upon any written notice, instruction, direction,
certificate or other communication from the Trustee believed by it to be genuine
and to be signed by an officer of the Trustee and shall incur no liability or
responsibility for so doing. Any sums paid out by any insurance company under
any of the terms of a Contract issued by it and held in the Trust either to the
Trustee, or, in accordance with the direction of the Trustee, to any other
person or persons designated as payees in such Contract shall be a full and
complete discharge of the liability to pay such sums, and the insurance company
shall have no obligation to look to the disposition of any sums so paid. No
insurance company shall be required to look into the terms of this Agreement, to
question any action of the Trustee or to see that any action of the Trustee is
authorized by the terms of this Agreement.
8.6 Anything contained herein to the contrary notwithstanding, neither the
Company nor the Trustee shall be liable for the refusal of any insurance company
to issue or change any Contract or Contracts or to take any other action
requested by the Trustee; nor for the form, genuineness, validity, sufficiency
or effect of any Contract or Contracts held in the Trust; nor for the act of any
person or persons that may render any such Contract or Contracts null and void;
nor for the failure of any insurance company to pay the proceeds and avails of
any such Contract or Contracts as and when the same shall become due and
payable; nor for any delay in payment resulting from any provision contained in
any such Contract or Contracts; nor for the fact that for any reason whatsoever
(other than their own negligence or willful misconduct)
22
<PAGE>
any Contract or Contracts shall lapse or otherwise become uncollectible.
ARTICLE 9: TRUSTEE'S POWERS AFTER CHANGE OF CONTROL.
- ---------------------------------------------------
9.1 After a Change of Control, the Trustee shall exercise for the sole
benefit of the Plan Participants and their beneficiaries any of the powers set
forth in Section 5.2 of Article 5, Section 6.3 of Article 6 and Sections 8.2
through 8.6 of Article 8 without direction from the Company including the power
to negotiate for and purchase Contracts the rates of return and maturity dates
of which may reasonably be expected to yield assets of the Trust sufficient to
discharge any or all of the obligations of the Company and its Affiliates under
the Plans. After the occurrence of a Change of Control, the Trustee shall have
the power to settle all Trust liabilities with respect to any or all Plan
Participants and beneficiaries with respect to any periodic payment obligation
by the purchase and distribution of an annuity contract of an insurance company
providing for such periodic payment.
9.2 Within thirty (30) days after a Change of Control, the Company shall
notify all Participants and beneficiaries who are entitled to receive benefits
under the Plans in writing (1) with respect to each Plan for which benefits are
payable from assets of an Equitable Share under the Trust, that the Trustee
shall continue to pay such benefits from the assets of such Equitable Share
after the Change of Control and (2) with respect to any Plan for which benefits
are not payable from assets of an Equitable Share under the Trust, that the
Trustee is available to aid the Participants and beneficiaries entitled to
benefits under such Plan in pursuing any claims they may have against the
Company or an Affiliate under the terms of such Plan. The Company shall
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provide such notice by using the same method as required by the Department of
Labor pursuant to 29 C.F.R. 5 2520.104b-l(b)(1) as now in effect without regard
to subsequent amendments. If the Company fails to do so, to the extent that the
Trustee has actual knowledge of any such failure, the Trustee shall send such
notice by certified mail return receipt requested to all unnotified Participants
and/or the beneficiaries described above to their last address provided to the
Trustee by the Company prior to a Change of Control. Alternatively, the
Trustee may, at its option, provide such notification by placing an
advertisement in one newspaper of general circulation in each of the ten
locations in which the largest number of employees of the Company and its
Affiliates are located as communicated by the Company to the Trustee prior to a
Change of Control.
9.3 (a) If, after a Change of Control, a Participant or beneficiary
notifies the Trustee that a Responsible Employer (or insurance company, contract
administrator or any other party acting on the Responsible Employer's behalf, if
applicable) has refused to pay a claim under any Plan the benefits under which
are not payable from assets of an Equitable Share under the Trust, then, unless
the Trustee shall determine that the claim has no basis in law and fact, the
Trustee:
(1) will promptly attempt to negotiate with the Responsible Employer
to obtain payment, settlement, or other disposition of the claim, subject to the
consent of the Participant or beneficiary.
(2) will, if negotiations fail within ninety (90) days to result in a
payment, settlement or other disposition agreeable to the Participant or
beneficiary (hereinafter referred
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<PAGE>
to as the "Plaintiff"), upon the receipt of written authorization from the
Participant or beneficiary in substantially the form attached as Exhibit A
hereto, institute and maintain legal proceedings (hereinafter referred to as the
"Litigation") against the Responsible Employer or other appropriate person or
entity to recover on the claim on behalf of the Plaintiff; and (3) may, subject
to the consent of the Plaintiff, settle or discontinue the Litigation.
(b) The Trustee shall direct the course of the Litigation and shall
keep the Plaintiff informed of the progress of the Litigation as the Trustee
deems appropriate, but no less frequently than quarterly. If, during the
Litigation,
(1) the Plaintiff directs in writing that the Litigation on behalf of
the Plaintiff be settled or discontinued, the Trustee shall take all appropriate
action to follow such direction, provided that the written direction specifies
the terms and conditions of the settlement or discontinuance, and further
provided that the Plaintiff, if requested by the Trustee, shall execute and
deliver to the Trustee a document in a form acceptable to the Trustee releasing
and holding harmless the Trustee from any liability resulting from the Trustee's
following such direction;
(2) the Plaintiff refuses to consent to the settlement or other
disposition of the Litigation on terms recommended in writing by the Trustee or
does not agree with the Trustee's conduct of the litigation, the Trustee may
proceed in its sole and absolute discretion, to take such action as it deems
appropriate in the Litigation, including entering into settlement or
discontinuance of the Litigation, provided that the Trustee shall first afford
the Plaintiff at least fourteen (14) days' advance notice of any decision to
settle or otherwise discontinue the Litigation; further provided, however, that
the Trustee shall not be authorized to proceed in the Litigation on behalf of
the Plaintiff after (i) the Plaintiff shall have revoked in writing the
authorization of the Trustee to proceed on his behalf (in substantially the form
attached as Exhibit B hereto) and shall have delivered such writing to the
Trustee and (ii) the Plaintiff shall
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have appointed his own counsel, whose fees and expenses are to be paid by the
Plaintiff and who shall appear in the Litigation on behalf of the Plaintiff in
lieu of counsel retained by the Trustee. Thereafter, the Trustee shall have no
obligation to proceed further on behalf of such Plaintiff or to pay from the
Trustee Expense Account any costs or expenses incurred in the Litigation after
the date of the delivery of such writing.
(c) The Trustee is empowered to utilize, at the expense of the Trust,
and to charge the Trustee Expense Account, counsel and other appropriate
experts, including nationally recognized pension or benefit consultants,
actuaries and accountants, which shall be identified in writing by the Company
to the Trustee as and when the services of any such counsel or experts are to be
utilized by the Trustee, but, in any event, prior to the occurrence of a
Threatened Change of Control, to aid the Trustee in making any determination
under this Article 9 and in determining whether to pursue or settle any
Litigation. The Trustee shall be fully protected, without any independent duty
of investigation, in reliance upon any assumptions or actuarial or other
determinations rendered by any pension or benefit consulting or actuarial firm
retained pursuant to this Section 9.3(c). The Trustee shall have the discretion
to determine the form and nature that any Litigation against the Company, or
other appropriate person or entity, shall take, and the procedural rules and
laws applicable to such Litigation shall supersede any inconsistent provision in
this Agreement.
9.4 After a Change of Control, the Trustee shall bill the Company directly,
on a monthly basis, for all fees and expenses described in Section 10.2. The
Trustee may commence legal action against the Company to recover any amount not
paid within 30 days of the billing date, and shall be obligated to commence such
an action if the Company's failure to pay causes a reduction in the assets of
the Trustee Expense Account below two million dollars ($2,000,000).
9.5 After a Change of Control, the Trustee shall be obligated to commence
legal action to compel a Responsible Employer to provide funds to pay benefits
under all Plans if the Trustee has issued a demand pursuant to Section 4.2 of
Article 4 and the Responsible Employer has failed to transfer the demanded funds
in a timely fashion under Section 4.2 of Article 4.
9.6 After a Change of Control, the Trustee shall appoint a nationally
recognized pension
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<PAGE>
or benefit consulting or actuarial firm, which shall be identified in writing by
the Company to the Trustee prior to the occurrence of a Threatened Change of
Control, to determine any assumptions and make any actuarial or other
determinations necessary or appropriate to any determinations required to be
made by the Trustee under this Agreement, including, without limitation, under
Sections 4.2, 5.2, 5.3, 5.4 and 9.3 hereof, and the Trustee shall be fully
protected in acting under this Agreement in reliance upon any such assumptions
or determinations rendered by such firm without any duty by the Trustee to make
any determination or investigation of its own with respect thereto. Moreover,
after a Change of Control, in making any determination under this Agreement, the
Trustee shall be fully protected in reliance upon Participant Data (as defined
in Section 5.1 hereof) furnished to the Trustee by the Company and any
supplemental information furnished to the Trustee by a Participant or
beneficiary, as provided under Section 5.2 hereof, and upon the terms of the
Plans, including any amendments thereto, as in effect on the date of such Change
of Control to the extent that copies of such Plans and amendments were received
by the Trustee prior to the date of such Change of Control.
ARTICLE 10: TAXES, EXPENSES AND COMPENSATION OF TRUSTEE.
- --------------------------------------------------------
10.1 The Company shall pay any Federal, state, local or other taxes imposed
or levied with respect to the assets and/or income of the Trust or any part
thereof under existing or future laws, and the Company, in its discretion, or
the Trustee, in its discretion, may contest the validity or amount of any tax,
assessment, claim or demand respecting the Trust or any part thereof. The
Trustee shall deduct any taxes required to be withheld with respect to any
payments made pursuant to the Trust.
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10.2 The Trustee shall be reimbursed on a monthly basis, or on such other
basis as the Trustee deems reasonable, for the fees and expenses set forth in
Schedule 2 attached hereto and its reasonable expenses, including but not
limited to the retention of legal counsel (including but not limited to legal
counsel and other professionals retained by the Trustee pursuant to this
Agreement and to legal counsel retained to represent the Trustee in any action
brought by the Company or any Participant against the Trustee), accountants and
actuaries and such other professionals as the Trustee determines are necessary
or appropriate to enable it to perform its services as Trustee.
10.3 Notwithstanding the foregoing provisions of this Article 10, to the
extent that the Company does not timely pay or reimburse any amounts payable or
reimbursable by the Company pursuant to this Article 10, such amounts shall be
paid or reimbursed from the Trustee Expense Account, and if the Trustee Expense
Account is insufficient, then from the Benefit Account.
ARTICLE 11: GENERAL DUTIES OF TRUSTEE.
- -------------------------------------
11.1 Subject to Article 17 hereof, the Trustee shall discharge its duties
under this Agreement solely in the interest of the Participants in the Plans and
their beneficiaries and (1) for the exclusive purpose of providing benefits to
such Participants and their beneficiaries and defraying reasonable expenses of
administering the Trust; and (2) with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims.
11.2 (a) The Trustee is not responsible for ascertaining whether a
Threatened Change
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of Control has occurred or whether a Threatened Change of Control Period exists.
The Company will notify the Trustee of the commencement and/or termination of a
Threatened Change of Control Period.
(b) The Trustee is responsible for ascertaining whether a Change of
Control has occurred, and in so-ascertaining, the Trustee shall rely solely upon
publicly available information and any other information actually received by
the Trustee from the Company. Among the ways the Trustee may use to determine
whether a Change of Control has occurred is to read The Wall Street Journal and
The New York Times on a daily basis.
11.3 The Trustee may consult with counsel, who may be counsel for the
Company prior to a Change of Control or for the Trustee in its individual
capacity, and shall not be deemed imprudent by reason of its taking or
refraining from taking any action in accordance with the opinion of counsel.
11.4 The Company may designate in writing, prior to a Change of Control,
counsel to be retained by the Trustee after a Change of Control to enforce the
rights of Participants and beneficiaries to benefits under the Plans. If the
designated counsel declines to provide representation, or if the Trustee so
elects for any reason or no reason, the Trustee may dismiss the designated law
firm and engage another qualified law firm for this purpose; however, the law
firm so engaged may not be the same law firm which represents the Trustee with
respect to its responsibilities as Trustee under this Agreement. The Company
may not dismiss or engage such counsel or cause the Trustee to engage or dismiss
such counsel after a Change of Control.
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ARTICLE 12: INDEMNIFICATION.
- ----------------------------
12.1 The Company agrees to indemnify and hold the Trustee harmless from and
against any liability that the Trustee may incur arising out of the Trustee's
execution of this Agreement (including attorneys' fees and expenses), unless
arising from the Trustee's own gross negligence, willful misconduct, or willful
breach of the provisions of its obligations under this Agreement. The Trustee
shall not be required to give any bond or any other security for the faithful
performance of its duties under this Agreement, except as required by law.
12.2 Any amount payable to the Trustee under this Agreement and not
previously paid by the Company shall be paid by the Company promptly upon
written demand therefor by the Trustee or, if the Company fails to make payment
within 15 days after such written demand, from the Trustee Expense Account, and
if the Trustee Expense Account is insufficient then from the Benefit Account. In
the event that payment is made hereunder to the Trustee from the assets of the
Trust, the Trustee shall promptly notify the Company in writing of the amount of
such payment. The Company agrees that, upon receipt of such notice, it will
deliver to the Trustee to be held in the Trust an amount in cash (or in
marketable securities or in some combination thereof) equal to any payments made
from the Trust to the Trustee pursuant to this Article 12. The failure of the
Company to transfer any such amount shall not in any way impair the Trustee's
right to indemnification, reimbursement and payment pursuant to this Article 12.
The provisions of this Article 12 shall survive the termination of this Trust
Agreement.
ARTICLE 13: NO DUTY TO ADVANCE FUNDS.
- ------------------------------------
Nothing contained in this Agreement shall require the Trustee to risk or
expend its own funds in the performance of the duties as the trustee hereunder.
In the acceptance and
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performance of its duties hereunder, the Trustee acts solely as trustee and not
in its individual capacity, and all persons, other than the Company, having any
claim against the Trustee related to this Agreement or the actions or agreements
of the Trustee contemplated hereby shall look solely to the assets of the Trust
for the payment or satisfaction thereof except to the extent that the Trustee
has engaged in willful misconduct or gross negligence, or the Trustee has
willfully breached its obligations under this Agreement. Without limiting the
foregoing, the Trustee shall not be liable in its individual capacity for the
payment of the fees and expenses of counsel and other professionals retained by
the Trustee in accordance with this Agreement.
ARTICLE 14: ACCOUNTS.
- --------------------
14.1 (a) The Trustee shall keep accurate and detailed accounts of all its
receipts, investments and disbursements under this Agreement on a calendar year
basis. Such person or persons as the Company shall designate shall be allowed to
inspect the books of account relating to the Trust upon request at any
reasonable time during the business hours of the Trustee.
(b) Within 120 days after (1) the close of each calendar year, (2) the
date of the Trustee's resignation or removal as provided in Article 16 hereof or
(3) the date of termination of the Trust as provided in Article 17 hereof, the
Trustee shall transmit to the Company, and certify the accuracy of, a written
statement of the assets and liabilities of the Trust, showing the current value
of each asset at that date, and a written account of all the Trustee's
transactions relating to the Trust during the period from the last previous
accounting to the close of that year.
(c) Unless the Company shall have filed with the Trustee written
exceptions or objections to any such statement and account, within 120 days
after receipt thereof, the
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Company shall be deemed to have approved such statement and account; and in such
case or upon the written approval by the Company of any such statement and
account, the Trustee shall be forever released and discharged with respect to
all matters and things contained in such statement and account as though it had
been settled by decree of a court of competent jurisdiction in an action or
proceeding to which the Company and all persons having any beneficial interest
in the Trust were parties.
14.2 The Trustee shall determine the fair market value of the Trust, the
Benefit Account, the Trustee Expense Account and each Equitable Share as of each
December 31, or more frequently (but not more often than monthly) if it so
desires. If there is a diminution in value of the Trustee Expense Account below
(1) five hundred thousand dollars ($500,000) prior to the commencement or after
the end of a Threatened Change of Control Period, or (2) two million dollars
($2,000,000) during a Threatened Change of Control Period or upon the occurrence
of a Change of Control, but only if the Trustee has demanded one million five
hundred thousand dollars ($1,500,000) pursuant to Section 3.2 of Article 3
hereof, the Company shall provide the Trustee with sufficient funds to make up
for any such diminution in value within 15 days after written demand by the
Trustee for such payment. At any time other than a Threatened Change of Control
Period or after a Change of Control, if the Company fails to comply with the
Trustee's written demand within 15 days to provide the Trustee with sufficient
funds to make up for any diminution in value below five hundred thousand dollars
($500,000) in the Trustee Expense Account, the Trustee may resign as Trustee
upon one hundred twenty (120) days'
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written notice in accordance with Section 16.1 of Article 16 hereof. In the
event that the Trustee Expense Account falls below two million dollars
($2,000,000) during a Threatened Change of Control Period or on or after the
occurrence of a Change of Control, and the Company fails to comply with the
Trustee's written demand to make up for any such diminution in value below
$2,000,000 within 15 days of receipt of such written demand, the Trustee has the
right to resign immediately as trustee under this Agreement, and immediately
upon such resignation shall have no further duties hereunder. The Trustee will
have no duty to find or secure the appointment of a successor trustee upon its
resignation pursuant to this Section, nor shall its resignation or the
termination of any further duties be contingent upon the appointment and
qualification of a successor trustee.
14.3 Nothing contained in this Agreement or in the Plans shall deprive the
Trustee of the right to have a judicial settlement of its accounts. In any
proceeding for a judicial settlement of the Trustee's accounts or for
instructions in connection with the Trust, the only other necessary party
thereto in addition to the Trustee shall be the Company. If the Trustee so
elects, it may bring in as a party or parties defendant any other person or
persons. No person interested in the Trust, other than the Company, shall have
a right to compel an accounting, judicial or otherwise, by the Trustee, and each
such person shall be bound by all accountings by the Trustee to the Company, as
herein provided, as if the account had been settled by decree of a court of
competent jurisdiction in an action or proceeding to which such person was a
party.
ARTICLE 15: ADMINISTRATION OF THE PLANS; COMMUNICATIONS.
- --------------------------------------------------------
15.1 The Company shall administer the Plans as provided therein and subject
to Section 5.2 of Article 5, Section 6.3 of Article 6, and of Article 9 hereof,
and, subject to any other delegation by the Company and express written
assumption by the Trustee of the duties of administering the Plans, the Trustee
shall not be responsible in any respect for administering the
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Plans. The Trustee shall not be responsible for the adequacy of the Trust to
meet and discharge all payments and liabilities under the Plans. The Trustee
shall be fully protected in relying upon any written notice, instruction,
direction or other communication signed by an officer of the Company designated
pursuant to this Agreement. The Company, from time to time, shall furnish the
Trustee with the names and specimen signatures of the designated officers of the
Company and shall promptly notify the Trustee of the termination of office of
any designated officer of the Company and the appointment of a successor
thereto. Until notified to the contrary, the Trustee shall be fully protected
in relying upon the most recent list of the designated officers of the Company
furnished to it by the Company.
15.2 Any action required by any provision of this Agreement to be taken by
the Board shall be evidenced by a resolution of such Board certified to the
Trustee by the Secretary or an Assistant Secretary of the Company under its
corporate seal, and the Trustee shall be fully protected in relying upon any
resolution so certified to it. Unless other evidence with respect thereto has
been specifically prescribed in this Agreement, any other action of the Company
under any provision of this Agreement, including any approval of or exceptions
to the Trustee's accounts, shall be evidenced by a certificate signed by an
officer of the Company, and the Trustee shall be fully protected in relying upon
such certificate. The Trustee may accept a certificate signed by an officer of
the Company as proof of any fact or matter that it deems necessary or desirable
to have established in the administration of the Trust (unless other evidence of
such fact or matter is expressly prescribed herein), and the Trustee shall be
fully protected in relying upon the statements in the certificate.
15.3 The Trustee shall be entitled conclusively to rely upon any written
notice,
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instruction, direction, certificate or other communication believed by it to be
genuine and to be signed by the proper person or persons.
15.4 All notices to the Trustee hereunder shall be in writing and, until
written notice is given to the contrary, shall be sent to the Trustee at its
office at 909 Fannin Street, Houston, Texas 77010, Attention: Pamela P. Beattie,
Vice President, Telecopy (713) 759-6769; communications to the Company shall be
sent to it at its office at 3000 Continental Plaza, 777 Main Street, Fort Worth,
Texas 76102, Attention: James B. Dagnon, Senior Vice President-Employee
Relations, Telecopy (817) 333-3280, with a copy to Dennis J. Cech, Assistant
Vice President-Compensation and Benefits.
ARTICLE 16: RESIGNATION OR REMOVAL OF TRUSTEE.
- ---------------------------------------------
16.1 The Trustee may resign at any time, other than during a Threatened
Change of Control Period or after a Change of Control, upon one hundred twenty
(120) days' written notice to the Company or such shorter period as is
acceptable to the Company (hereinafter referred to as the "Resignation Period")
and immediately after the Resignation Period shall have no further duties
hereunder. The Trustee will have no duty to find or secure the appointment of a
successor trustee upon its resignation pursuant to this Section, nor shall the
Trustee have any liability to any person in connection with the appointment, or
failure to secure the appointment, of any such successor trustee, nor shall its
resignation or its termination of any further duties be contingent upon the
appointment and qualification of a successor trustee. Promptly after receipt of
such notice, the Company shall appoint a successor trustee, such trustee to
become trustee under this Agreement upon its acceptance of this Trust; provided
that, if upon the
35
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expiration of the Resignation Period, no successor trustee has become trustee
under this Agreement in accordance with this Section 16.1, the Trustee shall
immediately (A) pay to itself all fees, expenses and indemnities due to or
incurred by the Trustee hereunder, in accordance with Article 10 (including any
amounts due or payable with respect to the firm appointed pursuant to the
following clause (B)), and (B) satisfy all vested benefit obligations to
Participants or their beneficiaries under the Plans by single payments in the
form of lump-sums to such Participants or beneficiaries or, in the discretion of
the Trustee, in lieu of any or all such lump-sum payments, by distributions of
annuity contracts purchased from insurance companies having values equivalent to
any such lump-sum payments, the amounts of such payments determined (based on
the most recent Participant Data furnished to the Trustee by the Company) by a
nationally recognized pension or benefit consulting or actuarial firm appointed
by the Trustee for this purpose (and the Trustee shall be fully protected
without further liability under this Agreement in making distributions from the
Trust in reliance upon such determinations); provided that if the Equitable
Share of any Plan in the Benefit Account does not have sufficient funds to
provide for satisfaction in full of all such vested benefit obligations
otherwise payable in accordance with the preceding clause to Participants and
beneficiaries under such Plan, then each such amount otherwise payable to each
such Participant or beneficiary shall be reduced on a proportionate basis.
16.2 During a Threatened Change of Control Period or after a Change of
Control, the Trustee may resign only under one of the following circumstances:
(a) A final decision of a court of competent jurisdiction removing the
Trustee by reason of such court's determination of the existence of a conflict
of interest which prevents
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the Trustee from properly performing its duties hereunder. The Trustee agrees
to use its best efforts to avoid any such conflict. For the purpose of this
Agreement, the decision of a court shall not be deemed to be final unless the
decision is not appealable, or no appeal has been taken from the decision and
the time for an appeal has expired. Notwithstanding the foregoing provisions of
this subsection (a), such resignation shall not be effective until the Trustee
or the Company has obtained the agreement of a bank to act as successor trustee
which bank (1) is among the 100 largest banks in the United States, as measured
by deposits, and (2) has a rating of "B/C" or greater based upon the most
current rating from Keefe, Bruyett & Woods ("KB&W") or its successor, or if KB&W
or its successor should cease to publish ratings, then a short-term debt rating
from Moody's of "P-1," or greater, or from Standard and Poor's of "A-1." In any
event, the Trustee shall continue to be custodian of the Trust until the new
trustee is in place, and the Trustee shall be entitled to expenses and fees
through the later of the effective date of its resignation as Trustee or the end
of its custodianship of the Trust assets.
(b) The Trustee has exhausted all of its legal remedies and has been
unsuccessful in such litigation to require the Company to remit to the Trustee
such amounts as are billed pursuant to Section 9.4 of Article 9 hereof and the
assets of the Trust have been exhausted. In such event, the Trustee shall have
the right to resign immediately as Trustee, and immediately upon such
resignation shall have no further duties hereunder. The Trustee will have no
duty to find or secure the appointment of a successor trustee upon its
resignation pursuant to this sub-section, nor shall its resignation or the
termination of any further duties be contingent upon the appointment and
qualification of a successor trustee.
(c) The Trustee has made a good faith determination that all
liabilities to Participants and beneficiaries under the Plans, whether
37
<PAGE>
present or deferred, fixed or contingent, have been satisfied in full.
(d) Notwithstanding the foregoing provisions of this Section 16.2, in
addition, the Trustee may resign under the circumstances described in Sections
3.2 and 14.2 hereof. Immediately upon the resignation of the Trustee under the
circumstances described in either Section 3.2 or 14.2 hereof, the Company shall
have the sole right and power to select and appoint a successor trustee
hereunder, and, if so appointed, such successor trustee shall become trustee
under this Agreement upon its acceptance of this Trust; provided that, if no
such successor trustee has become trustee under this Agreement in accordance
with the preceding clause of this subsection (d) of this Section 16.2 within
sixty (60) days following such resignation of the Trustee, the Trustee shall
immediately upon the expiration of such sixty-day period (A) pay to itself all
fees, expenses and indemnities due to or incurred by the Trustee hereunder, in
accordance with Article 10 (including any amounts due or payable with respect to
the firm appointed pursuant to the following clause (B)) and (B) satisfy all
vested benefit obligations to Participants or their beneficiaries under the
Plans by single payment in the form of lump-sums to such Participants or
beneficiaries or, in the discretion of the Trustee, in lieu of any or all such
lump-sum payments, by distributions of annuity contracts purchased from
insurance companies having values equivalent to any such lump-sum payments, the
amounts of such payments determined (based on the most recent Participant Data
furnished to the Trustee by the Company) by a nationally recognized pension or
benefit consulting or actuarial firm appointed by the Trustee for this purpose
(and the Trustee shall be fully protected without further liability under this
Agreement in making distributions from the Trust in reliance upon such
determinations); provided that if the Equitable Share of any Plan in the Benefit
Account
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<PAGE>
does not have sufficient funds to provide for satisfaction in full of all such
vested benefit obligations otherwise payable in accordance with the preceding
clause to Participants and beneficiaries under such Plan, then each such amount
otherwise payable to each such Participant or beneficiary shall be reduced on a
proportionate basis. In the event of the Trustee's resignation in accordance
with the preceding sentence, the Trustee shall have no duty to find or secure
the appointment of a successor trustee, nor shall the Trustee have any liability
to any person in connection with the appointment, or failure to secure the
appointment of any such successor trustee, and following such resignation by the
Trustee, the Trustee shall have no further duties or obligations under this
Agreement, except that, prior to the earlier to occur of (i) the date that a
successor trustee appointed by the Company becomes trustee under this Agreement
and (ii) sixty (60) days following the date of such resignation by the Trustee,
the Trustee's sole duty with respect to this Agreement shall be to preserve the
principal of the assets held in the Benefit Account and the Trustee Expense
Account as of the date of such resignation by the Trustee until the distribution
or payment thereof in accordance with the preceding sentence.
16.3 Prior to a Change of Control, the Company may remove the Trustee upon
30 days written notice to the Trustee, or upon shorter notice if acceptable to
the Trustee. Such removal shall become effective, however only upon the
occurrence of all of the following events:
(a) The appointment by the Company of a successor trustee; and
(b) The acceptance of the Trust by the successor trustee; and
(c) The delivery of the Trust assets to the successor trustee.
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16.4 Each successor trustee shall have the powers and duties conferred upon
the Trustee in this Agreement, and the term "Trustee" as used in this Agreement
shall be deemed to include any successor trustee. Upon designation or
appointment of a successor trustee, the Trustee shall transfer and deliver the
assets of the Trust to the successor trustee, reserving such reasonable sums as
the Trustee shall deem necessary to defray its expenses in settling its
accounts, to pay any of its compensation due and unpaid and to discharge any
obligation of the Trust for which the Trustee may be liable. If the sums so
reserved are not sufficient for these purposes, the Trustee shall be entitled to
recover the amount of any deficiency from either the Company or the successor
trustee, or both. When the Trust shall have been transferred and delivered to
the successor trustee and the accounts of the Trustee have been settled as
provided in Article 14 hereof, the Trustee shall be released and discharged from
all further accountability or liability for the Trust and shall not be
responsible in any way for the further disposition of the Trust or any part
thereof. 16.5 Notwithstanding anything to the contrary, in the event it resigns
or is removed, the Trustee shall have a right to have its accounts settled as
provided in Article 14 hereof.
ARTICLE 17: AMENDMENT OF AGREEMENT; TERMINATION OF TRUST; TERMINATION WITH
- --------------------------------------------------------------------------
RESPECT TO AN AFFILIATE AND TRANSFER TO SUCCESSOR TRUSTEE.
- ---------------------------------------------------------
17.1 The Company expressly reserves the right at any time to amend in
writing or terminate this Agreement and the Trust created thereby to any extent
that it may deem advisable; provided,
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<PAGE>
however, that (1) subsequent to a Change of Control, no such amendment or
termination may result, directly or indirectly, in the return of any assets of
the Benefit Account to the Company prior to the satisfaction of all liabilities
under the Plans to Plan Participants and beneficiaries, (2) no amendment may be
made unless the Company, in its reasonable judgment, believes that such
amendment would have no material adverse effect on the amount of benefits
payable under the Trust to Participants or their beneficiaries or that such
amendment is necessary to avoid a greater adverse impact on the Participants or
their beneficiaries, and (3) no amendment or termination may be made after the
date on which a Change of Control occurs which would (i) permit the Company to
withdraw any assets from the Trustee Expense Account, (ii) directly or
indirectly reduce or restrict the Trustee's rights and duties under this
Agreement, or (iii) permit the Company to remove the Trustee following the date
on which a Change of Control occurs. No amendment shall be made without the
Trustee's consent thereto in writing if, and to the extent that, the effect of
such amendment is to increase the Trustee's responsibilities hereunder, and/or
reduce the Trustee's rights hereunder in any way, including, without limitation,
the Trustee's rights hereunder to require the Company to deliver the additional
amount of $1,500,000 upon the occurrence of a Threatened Change of Control or a
Change of Control, and/or affect in any way the Trustee's right to resign under
this Agreement. Such proposed amendment shall be delivered to the Trustee as a
written instrument of amendment, duly executed and acknowledged by the Company.
The Company also shall deliver to the Trustee a copy of any modifications or
amendments to the Plans. Subject to Section 17.2 hereof, the Trustee's consent
shall not be required for the termination of the Trustee Expense Account or its
removal as Trustee.
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17.2 In the event the Company terminates the Trustee Expense Account, prior
to the occurrence of a Change of Control, the Trustee shall reserve such sums it
deems necessary to pay its fees and expenses, and shall distribute all remaining
assets of the Trustee Expense Account in accordance with the written directions
of the Company and the Trustee shall provide the Company with a final written
account in accordance with Article 14 hereof. The Company shall have no right
to terminate the Trustee Expense Account during a Threatened Change of Control
Period or upon or after the occurrence of a Change of Control.
17.3 This Trust shall be terminated upon the final payment of all amounts
payable to all of the Participants and beneficiaries pursuant to the Plans, and
the payments of all amounts due to the Trustee and all costs and expenses
chargeable to the Trust. Upon termination of this Trust, the Trustee shall have
a right to have its account settled as provided in Article 14 hereof. Promptly
upon termination of this Trust, and after payment of all fees, expenses and
indemnities due to or incurred by the Trustee hereunder, any remaining portion
of the assets of the Trust shall be paid to the Company.
17.4 In the event that, whether before or after a Change of Control, the
Company shall dispose of substantially all its interest in an Affiliate which is
a participating employer under one or more Plans, the Trustee shall, upon
instruction by the Company, transfer to a substantially similar irrevocable
grantor trust designated by such Affiliate or its successor a portion of the
assets of the Benefit Account equal to the portion, if any, of each Equitable
Share allocable to benefits payable in respect of the employees of such
Affiliate. In the case of any instruction received by the Trustee pursuant to
this Section 17.4 prior to a Change of Control, the Trustee may conclusively
rely on the Company's determination as to the portion of the assets of the
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<PAGE>
Benefit Account allocable to the benefits payable in respect of employees of
such Affiliate under the Plans. After the date on which a Change of Control
occurs, the Trustee shall not make any transfer pursuant to this Section 17.4
except pursuant to a determination by a nationally recognized pension or benefit
consulting or actuarial firm appointed by the Trustee as to the portion of the
Benefit Account allocable to benefits payable in respect of employees of the
former Affiliate, which determination the Trustee in its good faith judgment
determines to have been made on an independent good faith basis and on the basis
of all pertinent Participant Data furnished to the Trustee by the Company before
the occurrence of a Change of Control. Upon the making of any transfer in
accordance with this Section 17.4, the Trustee shall be released and discharged
from any and all obligations with respect to such transferred assets and with
respect to any benefits payable in respect of the employees of the former
Affiliate.
17.5 The Trust shall be terminated upon resignation of the Trustee under
subsection (b) of Section 16.2 and final payment of all amounts payable under
Section 16.1 and subsection (d) of Section 16.2.
ARTICLE 18: PROHIBITION OF DIVERSION.
- ------------------------------------
18.1 Except as provided in Sections 2.2, 3.2, 3.3, 17.1, and 18.2 at no time
prior to the satisfaction of all liabilities with respect to Participants and
their beneficiaries under this Trust shall any part of the corpus and/or income
of the Trust be used for, or diverted to, purposes other than for the exclusive
benefit of such Participants and their beneficiaries and, except as provided in
Section 17.3, the assets of the Trust shall never inure to the benefit of the
Company and shall be held for the exclusive purposes of providing benefits to
Participants in the Plans and their beneficiaries and defraying reasonable
expenses of administering the Plans
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and of the Trustee and/or performing any of the Trustee's duties under this
Agreement.
18.2 (a) Notwithstanding any provision of this Agreement to the contrary,
the Trustee shall cease payment of benefits to Participants and beneficiaries
with respect to any Responsible Employer that is "insolvent," as defined below.
The assets of the Trust shall at all times, as provided for in Section 2.2 and
as set forth below, be subject to claims of the general creditors of each
Responsible Employer under federal and state laws. For purposes of this
Agreement, a Responsible Employer shall be considered "insolvent" if such
Responsible Employer is subject to a pending proceeding as a debtor under the
Bankruptcy Code of the United States or bankruptcy laws of any state, or if such
Responsible Employer is unable to pay its debts as they become due.
(b) Any time the Trustee has actual knowledge, or has determined that a
Responsible Employer is insolvent, the Trustee shall deliver, to satisfy the
claims of the insolvent Responsible Employer's general creditors as a court of
competent jurisdiction may direct, that portion of any undistributed principal
and income in the Trust attributable to the insolvent Responsible Employer's
contributions to the Trust. The Board of Directors and the Chief Executive
Officer of the Responsible Employer shall have the duty, respectively, to inform
the Trustee, in writing, of the insolvency of such Responsible Employer.
(c) Unless the Trustee has actual knowledge of the insolvency of a
Responsible Employer , or has received notice of the insolvency of a Responsible
Employer, as provided in subsection (d) of this Section 18.2, the Trustee shall
have no duty to inquire whether any Responsible Employer is insolvent. The
Trustee may in all events rely on such evidence concerning the insolvency of a
Responsible Employer as may be furnished to the Trustee and
44
<PAGE>
that provides the Trustee with a reasonable basis for making a determination
concerning the solvency of the Responsible Employer.
(d) If a Responsible Employer, or a person claiming to be a creditor of
a Responsible Employer, alleges in writing to the Trustee that a Responsible
Employer has become insolvent, the Trustee shall determine, within thirty (30)
days after the receipt of such notice, whether such Responsible Employer is
insolvent and, pending such determination, the Trustee shall, only with respect
to those benefit payments that are made under a Plan of the Responsible Employer
alleged to be insolvent, discontinue payments of amounts on behalf of
Participants and beneficiaries, and shall hold that portion of the assets of the
Trust attributable to the alleged insolvent Responsible Employer's contributions
to the Trust for the benefit of such Responsible Employer's general creditors.
From the date of discontinuance of such payments until the Trustee receives an
order from a court of competent jurisdiction directing the disposition of the
held assets in the Trust, the provisions of Article 10 governing the payment of
Trust expenses or taxes shall not be suspended.
(e) The Trustee shall resume the payments discontinued under subsection
(d) that are payable on behalf of Participants and beneficiaries in accordance
with Section 5.2 and/or 5.3 of this Agreement only after the Trustee has
determined that the Responsible Employer alleged to be insolvent is not
insolvent (or is no longer insolvent, if the Trustee initially determined such
entity was insolvent). Upon resumption of such payments, the first payment
following such discontinuance shall include the aggregate amount of all payments
from the assets of the Trust which would have been made to the Participant or
beneficiary during the period of discontinuance, less the aggregate amount of
payments made to the Participant or beneficiary
45
<PAGE>
by the Responsible Employer in lieu of payments from the Trust during any such
period of discontinuance.
ARTICLE 19: PROHIBITION OF ASSIGNMENT OF INTEREST.
- --------------------------------------------------
No interest, right or claim in or to any part of the Trust or any payment
therefrom shall be assignable, transferable or subject to sale, mortgage,
pledge, hypothecation, commutation, anticipation, garnishment, attachment,
execution or levy of any kind, and the Trustee shall not recognize any attempt
to assign, transfer, sell, mortgage, pledge, hypothecate, commute or anticipate
the same, except to the extent required by law.
ARTICLE 20: MISCELLANEOUS.
- -------------------------
20.1 This Agreement shall be interpreted, construed and enforced, and the
Trust hereby created shall be administered, in accordance with the laws of the
United States and of the state of New York. Nothing in this Agreement shall be
construed to subject the Trust created hereunder to the Employee Retirement
Income Security Act of 1974, as amended.
20.2 The Company shall, at any time and from time to time, upon the
reasonable request of the Trustee, execute and deliver such further instruments
and do such further acts as may be necessary or proper to effectuate the purpose
of this Agreement.
20.3 The titles to Articles of this Agreement are placed herein for
convenience of reference only, and the Agreement is not to be construed by
reference thereto.
20.4 This Agreement shall bind and inure to the benefit of the successors
and assigns of the Company and the Trustee, respectively and the Plans.
20.5 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute but one instrument,
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which may be sufficiently evidenced by any counterpart.
20.6 If any provision of this Agreement is determined to be invalid or
unenforceable the remaining provisions shall not for that reason alone also be
determined to be invalid or unenforceable.
20.7 Each Participant and his beneficiary is an intended beneficiary under
this Trust, and shall be entitled to enforce all terms and provisions hereof
with the same force and effect as if such person had been a party hereto,
provided that, no action taken by any Participant or beneficiary by virtue of
this Section 20.7 shall in any way affect any rights or duties of the Trustee
under this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their respective names by their duly authorized officers under their
corporate seals as of the day and year first above written.
BURLINGTON NORTHERN SANTA FE CORPORATION
By: _____________________________
ATTEST:
_______________________________________
Secretary
BANKERS TRUST COMPANY
By: _____________________________
ATTEST:
_______________________________________
48
<PAGE>
STATE OF
SS.:
COUNTY OF
On this ___ day of _____________, 1996, before me personally came
____________________, to me known, who, being duly sworn, did depose and say
that (s)he resides at _______________________________________________________,
and that (s)he is ____________________________ of __________________________,
one of the corporations described in and which executed the foregoing
instrument; that (s)he knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by order of
the Board of Directors of said corporation; and that (s)he signed his/her name
thereto by like order.
________________________________________
Notary Public, State of
STATE OF
SS.:
COUNTY OF
49
<PAGE>
On this ___ day of _____________, 1996, before me personally came
____________________, to me known, who, being duly sworn, did depose and say
that (s)he resides at _______________________________________________________,
and that (s)he is ____________________________ of __________________________,
one of the corporations described in and which executed the foregoing
instrument; that (s)he knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by order of
the Board of Directors of said corporation; and that (s)he signed his/her name
thereto by like order.
________________________________________
Notary Public, State of
Schedule 1
THE PLANS
The following Corporation plans and agreements (collectively referred to as
the "Plans") are subject to this Trust:
Burlington Northern Inc. Deferred Compensation Plan
Burlington Northern Inc. Deferred Compensation Plan for Directors
Burlington Northern Inc. Incentive Compensation Plan
Burlington Northern Inc. Performance Share Unit Plan (1981)
Burlington Northern Inc. 1987 Performance Share Unit Plan
Burlington Northern Inc. Retirement Income Plan for Directors
Burlington Northern Inc. Senior Executive Survivor Benefits Plan
Burlington Northern Inc. Supplemental Benefits Plan
Retirement Policy for Directors of Santa Fe Pacific Corporation
50
<PAGE>
Supplemental Retirement Agreement between Santa Fe Southern Pacific and Mr.
Bernard Goldman
Retirement Benefit between John P. Des Barres and Santa Fe Southern Pacific
Corporation dated April 11, 1988
Burlington Northern Santa Fe Supplemental Retirement Plan
Burlington Northern Santa Fe Supplemental Investment and Retirement Plan
Burlington Northern Santa Fe Corporation Deferred Compensation Policy for
Directors
Burlington Northern Santa Fe Corporation Directors' Retirement Plan
Burlington Northern Santa Fe Senior Management Stock Deferral Plan
Schedule 2
Fee Schedule
Trustee and Administration Fees prior to Change of Control or
Threatened Change of Control:
$50,000 flat annual fee - charged quarterly
Includes:
Trusteeship
Accounting and Reporting
Equitable Share Determination
Trade Clearance Costs
Tax Lot Accounting
Investment Management Fees are not included in this fee, but are
covered under a separate agreement.
51
<PAGE>
EXHIBIT A
Authorization Pursuant to Article 9.3 of
Burlington Northern Santa Fe Corporation Benefits Protection Trust
------------------------------------------------------------------
TO: BANKERS TRUST COMPANY
This is to authorize BANKERS TRUST COMPANY as Trustee of the Burlington Northern
Santa Fe Corporation Benefits Protection Trust (the "Trust") to institute and
maintain legal proceedings against the Company (as defined in the Trust) or
other appropriate person or entity to assert the following claim(s) on my
behalf: (nature of claim]. The Trustee shall have the powers and be subject to
the procedures set forth in Article 9 of the Trust (a copy of which I have
already received and reviewed).
Any proceedings by the Trustee under this authorization may be initiated in my
name as a plaintiff (or as a member of a class) or in the name of the Trustee,
or both. as the Trustee determines is necessary or appropriate at the time
proceedings are commenced.
____________________________________
Participant
52
<PAGE>
EXHIBIT B
Revocation of Authorization Under Article 9.3 of
Burlington Northern Santa Fe Corporation Benefits Protection Trust
------------------------------------------------------------------
TO: BANKERS TRUST COMPANY
This is to notify you that I revoke any prior authorization I have
given to you as Trustee of the Burlington Northern Santa Fe Corporation Benefits
Protection Trust (the "Trust") to maintain legal proceedings against the Company
(as defined in the Trust), or otherwise to assert the following claim(s) on my
behalf: (nature of claim(s)].
I understand that this Revocation of Authorization is conditioned upon, and
shall not be effective until, the appointment by me of my own counsel and the
appearance of that counsel in any legal proceeding on my behalf in lieu of
counsel retained by the Trustee. I understand further that, upon the occurrence
of these conditions, the Trustee shall have no obligation to proceed further on
my behalf, or to pay any costs or expenses incurred after the delivery of this
Revocation of Authorization.
_______________________________________
Participant
53
<PAGE>
EXHIBIT 11
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income
- ----------
Primary:
Net income $ 889 $ 92 $ 416
Convertible and mandatory redeemable preferred
stock dividends - (21) (22)
------ ----- -----
Net income available for common shareholders $ 889 $ 71 $ 394
====== ===== =====
Fully diluted:
Net income $ 889 $ 71 $ 416
====== ===== =====
Weighted average number of shares
- ---------------------------------
Primary:
Average common shares outstanding 152.1 104.4 89.1
Common share equivalents resulting from assumed
exercise of stock options 3.9 2.3 1.1
------ ----- -----
156.0 106.7 90.2
====== ===== =====
Fully diluted (1):
Average common shares outstanding 156.0 106.7 89.1
Common share equivalents resulting from assumed
conversion of convertible preferred
stock - - 7.4
Common share equivalents resulting from assumed
exercise of stock options assuming full
dilution - - 1.0
------ ----- -----
156.0 106.7 97.5
====== ===== =====
Earnings per common share
- -------------------------
Primary $ 5.70 $ 0.67 $4.37
Fully diluted 5.70 0.67 4.27
</TABLE>
Primary earnings per common share are computed by dividing net income, after
deduction of preferred stock dividends, by the weighted average number of
common shares and common share equivalents outstanding. Fully diluted
earnings per common share are computed by dividing net income by the weighted
average number of common shares and common share equivalents outstanding.
Common share equivalents are computed using the treasury stock method. An
average market price is used to determine the number of common share
equivalents for primary earnings per common share. The higher of the average
or end-of-period market price is used to determine common share equivalents
for fully diluted earnings per common share. In addition, the if-converted
method was used for convertible preferred stock when computing fully diluted
earnings per common share. The average number of common shares used for
earnings per share calculations for the year ended December 31, 1995 reflect
the effect of common shares issued in connection with the merger with Santa Fe
Pacific Corporation (SFP) as outstanding for the period from September 22,
1995 through December 31, 1995.
Earnings per common share may not compute due to the level of rounding in this
exhibit.
(1) For the year ended December 31, 1995, the computation of fully diluted
earnings per share was antidilutive; therefore, the amounts reported for
primary and fully diluted earnings per share are the same.
<PAGE>
EXHIBIT 12
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIO AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Earnings:
Pre-tax income $1,440 $ 334 $ 695
Add:
Interest and fixed charges,
excluding capitalized interest 301 220 155
Portion of rent under long-term
operating leases representative
of an interest factor 179 129 98
Amortization of capitalized interest 3 1 -
Less: Undistributed equity in earnings
of investments accounted for
under the equity method (5) (27) (4)
------- ------ ------
Total earnings available for fixed charges $1,918 $ 657 $ 944
======= ====== ======
Fixed charges:
Interest and fixed charges $ 314 $ 227 $ 157
Portion of rent under long-term operating
leases representative of an interest
factor 179 129 98
------- ------ ------
Total fixed charges $ 493 $ 356 $ 255
======= ====== ======
Ratio of earnings to fixed charges 3.89x 1.85x(1) 3.70x
======= ====== ======
</TABLE>
(1) Earnings for the year ended December 31,1995, include merger, severance and
asset charges of $735 million. Excluding these costs, the ratio would have been
3.91x
<PAGE>
EXHIBIT 13
CONSOLIDATED FINANCIAL HIGHLIGHTS
Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions, except per share data)
The selected financial data shown below include BNSF results for the
year ended December 31, 1996, BNI results for each of the four years
ended December 31, 1995 and SFP results from September 22, 1995 to
December 31, 1995.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
December 31, 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED:
Revenues $ 8,187 $ 6,163 $4,976 $4,672 $4,604
Operating income(1) 1,748 526 853 661 597
Income before extraordinary
item and cumulative effect
of change in accounting method 889 198 426 296 299
Accounting change/Extraordinary
item(2)(3)(4) - (106) (10) - (21)
Net income $ 889 $ 92 $ 416 $ 296 $ 278
Earnings available for common
stockholders $ 889 $ 71 $ 394 $ 274 $ 275
Primary earnings per share:
Before extraordinary item and
change in accounting method $ 5.70 $ 1.66 $ 4.48 $ 3.06 $ 3.35
Accounting change/Extraordinary
item - (.99) (.11) - (.24)
Primary earnings per share $ 5.70 $ .67 $ 4.37 $ 3.06 $ 3.11
Average shares (in millions) 156.0 106.7 90.2 89.7 88.6
Fully diluted earnings per share:
Before extraordinary item and
change in accounting method $ 5.70 $ 1.66 $ 4.38 $ 3.04 $ 3.34
Accounting change/Extraordinary
item - (.99) (.11) - (.24)
Fully diluted earnings per share $ 5.70 $ .67 $ 4.27 $ 3.04 $ 3.10
Average shares (in millions) 156.0 106.7 97.5 97.2 89.5
Dividends declared per common share $ 1.20 $ 1.20 $ 1.20 $ 1.20 $ 1.20
- -------------------------------------------------------------------------------
AT YEAR END:
Total assets $ 19,846 $ 18,269 $7,592 $7,045 $6,563
Long-term debt and commercial paper,
including current portion 4,711 4,233 1,819 1,737 1,567
Stockholders' equity 5,981 5,037 2,237 1,919 1,728
Total debt to capital 44% 46% 45% 48% 48%
- -------------------------------------------------------------------------------
FOR THE YEAR ENDED:
Capital expenditures $ 2,234 $ 890 $ 698 $ 676 $ 487
Depreciation and amortization 760 520 362 352 338
Operating ratio(5) 78.6% 79.5% 82.9% 85.9% 87.0%
- -------------------------------------------------------------------------------
</TABLE>
(1) 1995 includes $735 million before taxes related to merger,
severance and asset charges as discussed in Note 3 of the financial
statements.
(2) 1995 includes the cumulative effect of the change in accounting
method for locomotive overhauls which decreased net income by
$100 million, or $.94 per common share. Additionally, 1995 includes an
extraordinary loss on retirement of debt of $6 million (after tax), or
$.05 per common share.
(3) 1994 includes the cumulative effect of the implementation of the
accounting standard for postemployment benefits.
(4) 1992 includes the cumulative effect of the change in accounting
method for revenue recognition and the cumulative effect of the
implementation of the accounting standard for postretirement benefits.
(5) 1995 operating ratio excludes the pre-tax charges discussed in note
(1) above.
BURLINGTON NORTHERN SANTA FE CORPORATION 1
<PAGE>
FINANCIAL CONTENTS
11 Management's Discussion and Analysis
19 Report of Management
19 Report of Independent Accountants
20 Consolidated Statement of Income
21 Consolidated Balance Sheet
22 Consolidated Statement of Cash Flows
23 Consolidated Statement of Changes in
Stockholders' Equity
24 Notes to Consolidated Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's discussion and analysis relates to the financial condition and
results of operations of Burlington Northern Santa Fe Corporation and its
majority-owned subsidiaries (collectively BNSF or Company). The principal
subsidiaries were Burlington Northern Inc. (BNI), Burlington Northern Railroad
Company (BNRR), Santa Fe Pacific Corporation (SFP) and The Atchison, Topeka
and Santa Fe Railway Company (ATSF). SFP and ATSF became subsidiaries of BNSF
on September 22, 1995 as a result of a business combination accounted for as a
purchase. Effective December 1996, BNI was merged with and into SFP, and ATSF
merged with and into BNRR and the name was changed to The Burlington Northern
and Santa Fe Railway Company (BNSF Railway).
RESULTS OF OPERATIONS
The results of operations discussed below include BNSF results for the year
ended December 31, 1996, BNI results for each of the two years ended December
31, 1995 and 1994 and SFP results from the merger date, September 22, 1995,
through December 31, 1995.
Year ended December 31, 1996 compared with year ended December 31, 1995.
BNSF recorded net income for 1996 of $889 million ($5.70 per common share),
compared with net income of $92 million ($.67 per common share) for 1995.
Results for 1995 include $735 million of merger, severance and asset charges
which reduced net income by approximately $453 million, or $4.24 per common
share. Results for 1995 were further reduced by $100 million (after tax), or
$.94 per common share, for the cumulative effect of an accounting change for
locomotive overhauls and $6 million (after tax), or $.05 per common share, for
an extraordinary loss on early retirement of debt. Excluding the above items,
net income for 1995 would have been $651 million.
REVENUE TABLE
The following table presents BNSF's revenue information by commodity for the
years ended December 31, 1996, 1995 and 1994 and includes certain
reclassifications of prior year information to conform to current year
presentation.
<TABLE>
<CAPTION>
Revenues Revenue Ton Miles (RTM) Revenue Per Thousand RTM
- ----------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
(IN MILLIONS) (IN MILLIONS)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Intermodal $2,088 $1,120 $ 758 71,262 38,516 24,671 $29.30 $29.08 $30.72
Coal 1,973 1,821 1,674 169,380 153,169 136,164 11.65 11.89 12.29
Agricultural Commodities 1,170 1,143 776 59,601 55,356 33,922 19.63 20.65 22.88
Chemicals 765 443 356 28,896 17,155 13,859 26.47 25.82 25.69
Forest Products 555 471 452 25,140 19,828 19,495 22.08 23.75 23.19
Consumer and Food Products 469 365 318 18,201 12,332 10,341 25.77 29.60 30.75
Metals 413 320 256 20,199 13,804 11,503 20.45 23.18 22.66
Automotive 397 213 156 6,062 3,158 2,031 65.49 67.45 76.81
Minerals and Ores 319 260 222 12,318 10,119 8,588 25.90 25.69 25.85
Other 38 7 8 - - - - - -
- ----------------------------------------------------------------------------------------------------------
Total $8,187 $6,163 $4,976 411,059 323,437 260,574 $19.82 $19.03 $19.07
- ----------------------------------------------------------------------------------------------------------
</TABLE>
BURLINGTON NORTHERN SANTA FE CORPORATION 11
<PAGE>
REVENUES
Total revenues for 1996 were $8,187 million compared with revenues of $6,163
million for 1995. The $2,024 million increase primarily reflects inclusion of
a full year of SFP results in 1996. Prior to the business combination, coal
and agricultural made up approximately 50 percent of BNI's revenues while
intermodal shipments comprised approximately 45 percent of total SFP revenues.
Intermodal revenues increased $968 million compared with 1995, due to
inclusion of a full year of SFP operations. Prospectively, it is expected that
intermodal traffic will continue to represent a significant portion of BNSF's
revenues.
Coal revenues improved $152 million during 1996. Approximately 85 percent of
the increase was due to the inclusion of a full year of SFP operations.
Additionally, tonnage of low-sulfur coal shipped from the Powder River Basin
increased from 1995. Revenue per thousand revenue ton miles declined
principally as a result of continuing competitive pricing pressures and a
change in traffic mix.
Agricultural commodities revenues during 1996 were $27 million greater than
1995 reflecting a full year of SFP operations largely offset by lower export
shipments of wheat and corn.
Chemicals revenues increased $322 million compared with 1995. Approximately
90 percent of the increase was due to inclusion of a full year of SFP
operations. The remaining increase was due to strong petroleum products and
agricultural chemicals demand.
Revenue increases and changes in revenue per thousand revenue ton miles in
all other commodity groups were principally due to the inclusion of SFP
results for the full year.
EXPENSES
Total operating expenses for 1996 were $6,439 million compared with expenses
of $5,637 million for 1995. The operating ratio for 1996 was 78.6 percent,
compared with an operating ratio of 79.5 percent for 1995, excluding $735
million for merger, severance and asset charges. The favorable decrease in the
operating ratio reflects synergies from combining operations which resulted in
reduced costs principally within administrative functions. These benefits were
partially offset by higher prices paid for labor, services and materials,
including a significant increase in the cost of diesel fuel during 1996.
Compensation and benefits expenses of $2,561 million were $494 million above
1995 principally due to the full year of combined operations. The Company
began to realize the benefit of the merger during 1996 as employment, which
approximated 43,000 at the end of 1996, decreased by 5 percent when compared
with the prior year. Salaried employee levels have decreased over 15 percent
in the same time period.
Purchased services expenses increased $273 million for 1996 compared with
1995, principally reflecting a full year of combined operations.
Depreciation and amortization expense for 1996 was $240 million higher than
1995 primarily due to the full year depreciation and amortization for combined
operations.
Equipment rents expenses were $196 million higher than 1995 due to the full
year combined operations as well as an increase in lease rental expense for
freight cars.
Fuel expenses for 1996 were $247 million or 51 percent higher than 1995
primarily due to an increase in consumption resulting from the full year of
combined operations and an 8 cent increase in the average price per gallon.
Materials and other expenses for 1996 increased $87 million compared with
1995. The increase reflects the full year of combined operations partially
offset by decreases in expenses from cost initiatives including reductions in
employee injuries due to increased focus on employee safety.
As discussed in Note 3: Merger, severance and asset charges, the Company
recorded $735 million for such costs in 1995. The principal components of the
charge were $287 million related to BNSF's plan to centralize the majority of
its clerical functions and $254 million for severance, pension and other
salaried employee benefits and for employee relocation cost incurred during
the period. Additionally, $105 million was recorded for planned branch line
dispositions. The remaining $89 million included obligations for vacating leased
facilities and the write-off of duplicate and excess assets. Additional accruals
of $138 million were recorded through purchase accounting related to former SFP
employees and assets. When its plans are completed, BNSF expects to have
eliminated over 3,000 positions and disposed of approximately 4,000 miles of low
density track. To date, BNSF has eliminated approximately 1,500 salaried
positions and 500 clerical positions and has disposed of approximately 2,000
miles of low-density track. Also as described in Note 3, costs
12 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
related to union employee relocation as well as certain costs for separation and
severances were not included in the charge; therefore, these costs, to the
extent incurred, will be recorded as future operating expenses. Presently, the
magnitude of any future expense is unknown.
Interest expense increased $81 million compared with 1995, due to the full
year effect of interest on SFP debt in 1996 as well as an increase in the
levels of outstanding debt.
Other income net was $35 million below 1995. The decrease is due to a full
year of combined operations in 1996 as well as $16 million of equity in
earnings of SFP from February 21, 1995, the date of BNI's initial investment
in SFP, to September 22, 1995, the date of merger consummation.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
BNSF recorded net income for 1995 of $92 million ($.67 per common share,
primary and fully diluted) compared with net income of $416 million ($4.37 per
common share, primary, and $4.27 per common share, fully diluted) for 1994. As
previously discussed, 1995 included the merger, severance and asset charges,
the accounting change for locomotive overhauls and the extraordinary loss on
early retirement of debt. Excluding these items, net income for 1995 would
have been $651 million. Results for 1994 were reduced by $10 million (after
tax), or $.11 per common share, for the cumulative effect of an accounting
change for postemployment benefits. Excluding the accounting change, net
income for 1994 would have been $426 million.
REVENUES
Total revenues for 1995 were $6,163 million compared with revenues of $4,976
million for 1994. The $1,187 million increase reflects $802 million of SFP
revenues for the period of September 22, 1995 through December 31, 1995.
Excluding SFP, revenues increased by $385 million or 8 percent primarily due
to higher coal and agricultural commodities revenues.
Intermodal revenues increased $362 million when compared with 1994, almost
exclusively due to the inclusion of SFP revenues in 1995.
Coal revenues improved $147 million during 1995 due to higher traffic levels
caused primarily by new business, favorable weather conditions early in the
year and increased demand for low-sulfur coal from the Powder River Basin as
well as the addition of $58 million of SFP revenues in 1995. Revenue per
thousand revenue ton miles declined as a result of continuing competitive
pricing pressures and a change in traffic mix.
Agricultural commodities revenues during 1995 were $367 million greater than
1994. The increase was principally caused by improvements in corn and soybean
revenues which benefited from increased crop production as well as higher
traffic volumes to the Pacific Northwest due to stronger export demand during
1995. Barley and wheat revenues declined primarily due to weaker export demand
compared with the strong demand in 1994. Additionally, agricultural
commodities revenues included $59 million of SFP revenues during 1995. The
shift in commodities to lower yielding corn and soybeans from higher yielding
wheat led to the aggregate decrease in revenue per thousand revenue ton miles.
Revenues for chemicals increased $87 million and forest products increased
$19 million compared with 1994. The addition of $80 million of SFP revenues
along with strong petroleum products demand contributed to the increase in
chemicals revenues. The increase in forest product revenues was due to the
addition of $32 million of SFP revenues and was partially offset by lower
traffic levels for lumber.
Metals revenues increased $64 million due to increased taconite, aluminum and
steel products revenues as well as the addition of $28 million of SFP revenues
in 1995.
Revenue increases in all other commodity groups are principally due to the
inclusion of SFP revenues from September 22, 1995 to December 31, 1995.
EXPENSES
Total operating expenses for 1995, including $664 million of SFP operating
expenses and $735 million of merger, severance and asset charges, were $5,637
million compared with expenses of $4,123 million for 1994. Excluding the
merger, severance and asset charges, the operating ratio for 1995 was 79.5
percent, an improvement over the operating ratio of 82.9 percent for 1994.
Compensation and benefits expenses of $2,067 million were $301 million above
1994 and included $233 million of SFP compensation and benefits expense. The
remaining $68 million of the increase was due to higher traffic levels, a wage
increase for union represented employees effective July 1994, an increase in
health and welfare costs for union employees due primarily to an increase in
insurance premium rates, and increased incentive compensation expense. These
increases were partially offset by operating efficiencies.
BURLINGTON NORTHERN SANTA FE CORPORATION 13
<PAGE>
Purchased services expenses increased $64 million for 1995 compared with
1994, principally reflecting the addition of SFP expenses.
Depreciation and amortization expense for 1995 was $158 million higher than
1994 primarily due to the inclusion of $86 million of SFP depreciation and
amortization expense for 1995. Additionally, the increase reflects $30 million
attributable to the 1995 effect of a change in accounting for locomotive
overhauls. The remainder of the increase was due to capital additions which
increased the Company's asset base.
Equipment rents expenses were $111 million higher than 1994 due to the
inclusion of $70 million of SFP equipment rents expense in 1995 as well as a
$46 million increase in lease rental expense as a result of a larger fleet of
leased freight cars and an increase in the leasing of locomotives to meet
power requirements in 1995.
Fuel expenses for 1995 were $111 million higher compared with 1994 primarily
due to the addition of $74 million of SFP expenses along with a $29 million
increase in consumption resulting from higher traffic volumes in 1995. An
increase in the average price paid per gallon of 1.2 cents in 1995 contributed
to the remainder of the increase.
Materials and other expenses for 1995 increased $34 million compared with
1994, principally reflecting the addition of SFP expenses and expenses
attributable to the change in accounting for locomotive overhauls in 1995.
Interest expense increased $65 million compared with 1994, principally due to
the addition of $26 million of SFP expense in 1995 as well as interest on the
$500 million of unsecured debt incurred in 1995 to finance BNI's investment in
SFP.
Other income (expense), net was $31 million favorable in 1995 compared with
1994. This increase was due to BNI's equity in earnings of SFP of $16 million.
The remainder of the increase in other income was principally due to interest
income on the settlement of a tax refund and lower fees on the sale of
accounts receivable in 1995.
In December 1995, BNSF defeased BNI's 9% debentures due 2016, by placing $166
million of U.S. government securities into an irrevocable trust for the
purpose of repaying the debentures in 1996. The defeasance resulted in an
extraordinary charge of $6 million (after tax), principally reflecting the
call premium on the debt.
Effective January 1, 1995, BNSF changed its method of accounting for periodic
major locomotive overhauls. Under the new method, overhauls on owned units are
capitalized and depreciated ratably until the next anticipated overhaul. In
addition, estimated costs for overhauls on leased units are accrued on a
straight-line basis over the life of the leases. BNSF previously expensed
locomotive overhauls when the costs were incurred. The cumulative effect of
this change for years prior to 1995 was a reduction in net income of $100
million (after tax) while the effect of this change for the year ended
December 31, 1995 was to reduce net income by $25 million (after tax).
ACQUISITION OF SFP
On June 29, 1994, BNI and SFP entered into an Agreement and Plan of Merger (as
amended, the Merger Agreement) pursuant to which SFP would merge with BNI in
the manner set forth below (the Merger). Stockholders of BNI and SFP approved
the Merger Agreement at special stockholders' meetings held on February 7,
1995. On August 23, 1995, the Interstate Commerce Commission issued a written
decision approving the Merger and on September 22, 1995 the Merger was
consummated. As discussed in Note 2, the business combination with SFP was
accounted for by the purchase method.
Pursuant to the Merger Agreement, BNI and SFP commenced tender offers
(together, the Tender Offer) to acquire 25 million and 38 million shares of
SFP common stock, respectively, at $20 per share in cash. During 1995, SFP
borrowed $1.0 billion under a credit facility of which $760 million of the
proceeds were used to purchase the 38 million shares pursuant to the Tender
Offer. In addition, BNI borrowed $500 million under a credit facility of which
the proceeds were used to finance BNI's purchase of SFP common stock in the
Tender Offer. The Tender Offer was completed on February 21, 1995.
To ensure that the transaction contemplated by the Merger Agreement qualified
as a tax-free transaction for federal income tax purposes, the parties
utilized the holding company structure. Under the holding company structure,
BNSF created two subsidiaries. One subsidiary merged with and into BNI, and
the other subsidiary merged with and into SFP. The holding company structure
had the same economic effect with respect to the stockholders of BNI and SFP
as would have a direct merger of BNI and SFP.
14 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
1996 CASHFLOWS
Cash generated from operations is BNSF's principal source of liquidity. BNSF
generally funds any additional requirements through debt issuance, including
commercial paper, or leasing of assets.
Operating activities provided cash of $1,871 million during 1996 compared
with $1,416 million during 1995. The increase in cash from operations was
primarily attributable to higher earnings before depreciation and
amortization, and deferred income taxes as compared to 1995. The above was
partially offset by an increase in payments for employee, merger and
separation costs and a net increase in working capital.
BNSF's cash outflows from investing activities for 1996 predominantly
consisted of capital expenditures of $2,234 million which are further
discussed below, while cash inflows from financing activities reflect net
proceeds from borrowings of $445 million partially offset by dividend payments
of $184 million.
OTHER CAPITAL RESOURCES
BNSF issues commercial paper from time to time. These borrowings are supported
by bank revolving credit agreements. Outstanding commercial paper balances are
considered as reducing available borrowings under these agreements. The bank
revolving credit agreements allow borrowings of up to $500 million on a
short-term basis and an additional $1.5 billion on a long-term basis. Annual
facility fees are currently .075 percent and .11 percent, respectively, and
are subject to change based upon changes in BNSF's senior unsecured debt
ratings. Borrowing rates are based upon, i) LIBOR plus a spread based upon
BNSF's senior unsecured debt ratings, ii) money market rates offered at the
option of the lenders, or iii) an alternate base rate. The commitments of the
lenders to make the loans are currently scheduled to expire on November 14,
1997 and November 15, 2001, respectively.
At December 31, 1996, there were no borrowings against the revolving credit
agreements and the maturity value of commercial paper outstanding was $916
million, leaving a total of $584 million of the long-term revolving credit
agreement available and $500 million of the short-term revolving credit
agreement available.
In February 1996, BNSF issued $175 million of 6.875% debentures due February
15, 2016. In June 1996, BNSF issued $200 million of 7.29% debentures due June
1, 2036. The net proceeds from the sale of these debentures were used for
general corporate purposes including the repayment of short-term debt. Both
debentures were issued under a BNSF shelf registration which has $475 million
remaining.
CAPITAL EXPENDITURES AND RESOURCES
A breakdown of cash capital expenditures is set forth in the following table
(in millions):
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- ---------------------------------------------------
<S> <C> <C> <C>
Track structure and other
roadway property $1,625 $706 $544
Equipment 609 184 154
- ---------------------------------------------------
Total capital expenditures $2,234 $890 $698
- ---------------------------------------------------
</TABLE>
Track and other roadway capital expenditures for 1996 increased
significantly compared with 1995. This increase reflects a full year of
capital projects required to maintain the capacity of an expanded route
system. Additionally, BNSF significantly expanded capacity throughout its
system in 1996, primarily in the Powder River Basin and in the Pacific
Northwest. Also as a result of the merger of Union Pacific Railroad Company
(UP) and Southern Pacific Rail Corporation (SP) (discussed below) the Company
purchased certain prior UP or SP routes during 1996. Equipment capital
expenditures increased in 1996 compared with 1995 due principally to the
purchase of 225 locomotives in 1996. During 1995, the Company acquired nearly
all new locomotives through operating leases. Additionally, equipment capital
spending was higher in 1996 due to the ownership of a substantially larger
locomotive and car fleet.
Capital expenditures in 1997 are expected to approximate $1.85 billion.
Approximately $1.1 billion of these expenditures will be for maintaining
productive capacity of the existing route structures. The remainder will be
spent on the acquisition of new equipment, including 180 locomotives, and
capacity expansion projects throughout the system including the Powder River
Basin and the Pacific Northwest.
BURLINGTON NORTHERN SANTA FE CORPORATION 15
<PAGE>
INFLATION
Due to the capital intensive nature of BNSF's business the full effect of
inflation is not reflected in operating expenses because depreciation is based
on historical cost. An assumption that all operating assets were depreciated at
current price levels would result in substantially greater expense than
historically reported amounts.
DIVIDENDS
Common stock dividends declared were $1.20 per common share annually for 1996,
1995 and 1994. Dividends paid on common stock during 1996 were $184 million,
and $129 million on common and preferred stock during 1995 and 1994. The
increase in 1996 dividends reflects an increase in outstanding shares of
common stock principally due to the Merger. On January 16, 1997, the Board of
Directors declared a dividend of 30 cents per share upon its outstanding
shares of common stock, $.01 par value, payable April 1, 1997, to stockholders
of record on March 10, 1997.
CAPITAL STRUCTURE
BNSF's ratio of total debt to total capital was 44 percent at the end of 1996
compared with 46 and 45 percent at the end of 1995 and 1994, respectively.
OTHER MATTERS
CASUALTY AND ENVIRONMENTAL
Personal injury claims, including work-related injuries to employees, are a
significant expense for the railroad industry. Employees of BNSF are
compensated for work-related injuries according to the provisions of the
Federal Employers' Liability Act (FELA). For several years prior to 1992, the
trend of significant increases in BNSF's personal injury expense reflected the
combined effects of increasing frequency of claims, rising medical expenses,
legal judgments and settlements. FELA's system of requiring finding of fault,
coupled with unscheduled awards and reliance on the jury system, contributed
to these significant increases in expense in past years. BNSF implemented a
number of safety programs to reduce the number of personal injury claims and
personal injury expense. The total amount of personal injury expenses were
$162 million, $143 million, and $170 million in 1996, 1995 and 1994,
respectively. Expenses in 1996 reflect a full year of combined operations
while 1995 includes SFP expenses from September 22, 1995 through December 31,
1995. Expenses in 1994 reflect only BNI.
As discussed in more detail in Note 13: Environmental and other
contingencies, the Company's operations, as well as those of its competitors,
are subject to extensive federal, state and local environmental regulation.
BNSF's operating procedures include practices to protect the environment from
the environmental risks inherent in railroad operations, which frequently
involve transporting chemicals and other hazardous materials. Additionally,
many of BNSF's land holdings are and have been used for industrial or
transportation-related purposes or leased to commercial or industrial
companies whose activities may have resulted in discharges onto the property.
As a result, BNSF is subject to environmental clean-up and enforcement
actions. In particular, the Federal Comprehensive Environmental Response
Compensation and Liability Act of 1980, also known as the "Superfund" law, as
well as similar state laws generally impose joint and several liability for
clean-up and enforcement costs without regard to fault or the legality of the
original conduct on current and former owners and operators of a site.
BNSF is involved in a number of administrative and judicial proceedings and
other mandatory clean-up efforts at approximately 345 sites at which it is
being asked to participate in the study and/or clean-up of alleged
environmental contamination. BNSF paid approximately $47 million, $31 million,
and $21 million during 1996, 1995 and 1994, respectively for mandatory
clean-up efforts, including amounts expended under federal and state voluntary
clean-up programs. BNSF has accruals of approximately $225 million for
remediation and restoration of all known sites. BNSF anticipates that the
majority of the accrued costs at December 31, 1996 will be paid over the next
five years. No individual site is considered to be material.
Liabilities recorded for environmental costs represent BNSF's best estimates
for remediation and restoration of these sites and include both asserted and
unasserted claims. Unasserted claims are not considered to be a material
component of the liability. Although recorded liabilities include BNSF's best
estimates of all costs, without reduction for anticipated recoveries from
third parties, BNSF's total clean-up costs at these sites cannot be predicted
with certainty due
16 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
to various factors such as the extent of corrective actions that may be
required, evolving environmental laws and regulations, advances in
environmental technology, the extent of other parties' participation in
clean-up efforts, developments in ongoing environmental analyses related to
sites determined to be contaminated, and developments in environmental surveys
and studies of potentially contaminated sites. As a result, future charges to
income for environmental liabilities could have a significant effect on
results of operations in a particular quarter or fiscal year as individual
site studies and remediation and restoration efforts proceed or as new sites
arise. However, expenditures associated with such liabilities are typically
paid out over a long period; therefore, management believes that it is
unlikely that any identified matters, either individually or in the aggregate,
will have a material adverse effect on BNSF's consolidated financial position
or liquidity.
The railroad industry, including BNSF Railway, will become subject to future
requirements regulating air emissions from diesel locomotives that may
increase their operating costs. Regulations applicable to new locomotive
engines were issued by the Environmental Protection Agency in early 1997, with
final regulations to be promulgated by the end of the year. It is anticipated
that these regulations will be effective for locomotive engines installed
after 1999 and through 2010. Under some interpretations of federal law, older
locomotive engines may be regulated by states based on standards and
procedures which the State of California ultimately adopts. At this time, it
is unknown whether California will adopt locomotive emission standards that
may differ from federal standards.
OTHER CLAIMS AND LITIGATION
BNSF and its subsidiaries are parties to a number of legal actions and claims,
various governmental proceedings and private civil suits arising in the
ordinary course of business, including those related to environmental matters
and personal injury claims. While the final outcome of these items cannot be
predicted with certainty, considering among other things the meritorious legal
defenses available, it is the opinion of management that none of these items,
when finally resolved, will have a material adverse effect on the annual
results of operations, financial position or liquidity of BNSF, although an
adverse resolution of a number of these items could have a material adverse
effect on the results of operations in a particular quarter or fiscal year.
LABOR
Labor unions represent approximately 88 percent of BNSF Railway employees
under collective bargaining agreements with 13 different labor organizations.
BNRR, ATSF and other major railroads were actively involved in industry-wide
labor contract negotiations beginning in late 1994. Through this process,
wages, health and welfare benefits, work rules and other issues have now been
negotiated for substantially all BNSF Railway union-represented employees.
BNSF Railway remains in negotiations with approximately 425 employees
represented by the American Train Dispatchers Department of the Brotherhood of
Locomotive Engineers.
The new collective bargaining agreements will remain in effect through at
least December 31, 1999 and until new agreements are reached or the Railway
Labor Act's procedures are exhausted. The new collective bargaining agreements
include provisions for retroactive and prospective wage increases, signing
bonuses and lump-sum payments. Throughout the negotiation process, the Company
had been providing reserves related to potential union agreements; therefore,
payments related to the retroactive portion of these agreements did not have a
material effect on the Company's 1996 results of operations.
HEDGING ACTIVITIES
FUEL
BNSF has a program to hedge against fluctuations in the price of its diesel
fuel purchases. This program includes forward purchases for delivery at
fueling facilities. Additionally, this program includes various commodity swap
and collar transactions which are accounted for as hedges. Any gains or losses
associated with changes in market value of these hedges are deferred and
recognized as a component of fuel expense in the period in which the hedged
fuel is purchased and used. To the extent BNSF hedges portions of its fuel
purchases, it may not fully benefit from decreases in fuel prices. However,
throughout 1996 and the beginning of 1997, BNSF Railway has seen a continued
increase in the price of fuel, which has resulted in an increase in fuel
expense for unhedged purchases. Based on 1996 fuel consumption, each one cent
increase in the price of fuel would result in approximately $10 million in
additional fuel expense on an annual basis.
BURLINGTON NORTHERN SANTA FE CORPORATION 17
<PAGE>
As of February 7, 1997, BNSF had entered into fuel swaps for approximately
635 million gallons at an average price of approximately 54 cents per gallon.
These contracts have expiration dates ranging from March 1997 to December
1998.
The above price does not include taxes, fuel handling costs, certain
transportation costs and any differences which may occur from time to time
between the prices of commodities hedged and the purchase price of BNSF's
diesel fuel.
BNSF's fuel hedging program covers approximately 35 percent of estimated 1997
fuel purchases and 25 percent of estimated 1998 fuel purchases. Quarterly
hedges in 1997 range from 20 percent to 40 percent of anticipated fuel
purchases while 1998 hedges approximate 25 percent each quarter. Hedge
positions are closely monitored to ensure that they will not exceed actual
fuel requirements. Unrecognized gains from BNSF's fuel hedging transactions
were approximately $17 million at December 31, 1996 and were not material at
December 31, 1995. BNSF also monitors its hedging positions and credit ratings
of its counterparties and does not anticipate losses due to counterparty
nonperformance.
INTEREST RATE
As of February 7, 1997, BNSF has interest rate swap transactions with a total
principal amount of $875 million to fix interest rates on commercial paper
debt. The interest rate swap transactions require payment of a weighted
average fixed interest rate of approximately 5.8 percent, and the receipt of a
variable interest rate based on a commercial paper composite rate. Swap
transactions of $625 million, $250 million and $125 million will mature during
the years ended December 31, 1997, 1998 and 1999, respectively.
UP - SP MERGER
The Surface Transportation Board (STB) approved the proposed common control
and merger of rail carriers controlled by Union Pacific Corporation and SP in
its written decision dated August 12, 1996. The transaction was consummated on
September 12, 1996. As a condition of the merger, the STB imposed provisions
which grant BNRR and ATSF access to approximately 3,900 miles of UP-SP track.
The STB decision provides the Company's subsidiaries with greater access to
Gulf Coast and West Coast markets. The Company is currently evaluating the STB
decision and the impact of the UP-SP merger. Additionally, BNSF management is
evaluating market opportunities and alternatives. The ultimate net effect of
the UP- SP merger on BNSF is presently unknown.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" which
establishes the accounting and reporting requirements for recognizing and
measuring impairment of long-lived assets to be either held and used or held
for disposal. In the first quarter of 1996, BNSF adopted SFAS No. 121 which
had no impact on the Company's financial position or 1996 results of
operations.
FORWARD-LOOKING INFORMATION
To the extent that these written statements include predictions concerning
future operations and results of operations, such statements are
forward-looking statements that involve risks and uncertainties, and actual
results may differ materially. Factors that could cause actual results to
differ materially include, but are not limited to, general economic downturns,
which may limit demand and pricing; labor matters, which may affect the costs
and feasibility of certain operations; and competition and commodity
concentrations, which may affect traffic and pricing levels.
18 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
REPORT OF MANAGEMENT
TO THE STOCKHOLDERS OF BURLINGTON NORTHERN SANTA FE CORPORATION
The accompanying consolidated financial statements of Burlington Northern
Santa Fe Corporation and subsidiary companies were prepared by management, who
are responsible for their integrity and objectivity. They were prepared in
accordance with generally accepted accounting principles and properly include
amounts that are based on management's best judgments and estimates. Other
financial information included in this annual report is consistent with that
in the consolidated financial statements.
The Company maintains a system of internal accounting controls to provide
reasonable assurance that assets are safeguarded and that the books and
records reflect the authorized transactions of the Company. Limitations exist
in any system of internal accounting controls based upon the recognition that
the cost of the system should not exceed the benefits derived. The Company
believes its system of internal accounting controls, augmented by its internal
auditing function, appropriately balances the cost/benefit relationship.
Independent accountants provide an objective assessment of the degree to
which management meets its responsibility for fairness of financial reporting.
They regularly evaluate the system of internal accounting controls and perform
such tests and other procedures as they deem necessary to express an opinion
on the fairness of the consolidated financial statements.
The Board of Directors pursues its responsibility for the Company's financial
statements through its Audit Committee which is composed solely of directors
who are not officers or employees of the Company. The Audit Committee meets
regularly with the independent accountants, management and internal auditors.
The independent accountants and the Company's internal auditors have direct
access to the Audit Committee, with and without the presence of management
representatives, to discuss the scope and results of their work and their
comments on the adequacy of internal accounting controls and the quality of
financial reporting.
Robert D. Krebs
President and Chief Executive Officer
Denis E. Springer
Senior Vice President and Chief Financial Officer
Thomas N. Hund
Vice President and Controller
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Burlington Northern
Santa Fe Corporation and Subsidiaries
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of Burlington Northern Santa Fe Corporation and subsidiary companies
at December 31, 1996 and the results of their operations and their cash flows
for the year in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above. The consolidated financial statements of
Burlington Northern Santa Fe Corporation and subsidiary companies for the
years ended December 31, 1995 and 1994 were audited by other independent
accountants whose report dated February 15, 1996 expressed an unqualified
opinion on those statements and included an explanatory paragraph that
described the changes in the Company's method of accounting for periodic major
locomotive overhauls in 1995 and for postemployment benefits in 1994 discussed
in Note 4 to the financial statements.
Price Waterhouse LLP
Chicago, Illinois
February 7, 1997
BURLINGTON NORTHERN SANTA FE CORPORATION 19
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Year ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $8,187 $6,163 $4,976
Operating expenses:
Compensation and benefits 2,561 2,067 1,766
Purchased services 866 593 529
Depreciation and amortization 760 520 362
Equipment rents 736 540 429
Fuel 727 480 369
Materials and other 789 702 668
Merger, severance and asset charges - 735 -
- --------------------------------------------------------------------------
Total operating expenses 6,439 5,637 4,123
- --------------------------------------------------------------------------
Operating income 1,748 526 853
Interest expense 301 220 155
Other income (expense), net (7) 28 (3)
- --------------------------------------------------------------------------
Income before income taxes 1,440 334 695
Income tax expense 551 136 269
- --------------------------------------------------------------------------
Income before extraordinary item and cumulative
effect of change in accounting method 889 198 426
Extraordinary item, loss on early retirement of
debt, net of tax - (6) -
- --------------------------------------------------------------------------
Income before cumulative effect of change in
accounting method 889 192 426
Cumulative effect of change in accounting method,
net of tax - (100) (10)
- --------------------------------------------------------------------------
Net income $ 889 $ 92 $ 416
- --------------------------------------------------------------------------
Primary earnings per common share:
Income before extraordinary item and change in
accounting method $ 5.70 $ 1.66 $ 4.48
Extraordinary item - (.05) -
Change in accounting method - (.94) (.11)
- --------------------------------------------------------------------------
Primary earnings per common share $ 5.70 $ 0.67 $ 4.37
- --------------------------------------------------------------------------
Average shares (in millions) 156.0 106.7 90.2
Fully diluted earnings per common share:
Income before extraordinary item and change
in accounting method $ 5.70 $ 1.66 $ 4.38
Extraordinary item - (.05) -
Change in accounting method - (.94) (.11)
- --------------------------------------------------------------------------
Fully diluted earnings per common share $ 5.70 $ 0.67 $ 4.27
- --------------------------------------------------------------------------
Average shares (in millions) 156.0 106.7 97.5
</TABLE>
See accompanying notes to consolidated financial statements.
20 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
CONSOLIDATED BALANCE SHEET
Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions)
- ---------------------------------------------------------------------------
December 31, 1996 1995
- ---------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 47 $ 50
Accounts receivable, net 711 620
Materials and supplies 222 220
Current portion of deferred income taxes 307 320
Other current assets 44 54
- ---------------------------------------------------------------------------
Total current assets 1,331 1,264
Property and equipment, net 17,633 16,001
Other assets 882 1,004
- ---------------------------------------------------------------------------
Total assets $19,846 $18,269
- ---------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 2,146 $ 2,289
Long-term debt due within one year 165 80
- ---------------------------------------------------------------------------
Total current liabilities 2,311 2,369
Long-term debt and commercial paper 4,546 4,153
Deferred income taxes 4,729 4,233
Casualty and environmental liabilities 543 626
Employee merger and separation costs 466 530
Other liabilities 1,270 1,321
- ---------------------------------------------------------------------------
Total liabilities 13,865 13,232
- ---------------------------------------------------------------------------
Commitments and contingencies (see Notes 3, 12 and 13)
Stockholders' equity:
Common stock, $.01 par value, 300,000,000
shares authorized; 154,198,088 shares and
149,649,930 shares issued, respectively 2 1
Additional paid-in capital 4,838 4,606
Retained earnings 1,165 459
Treasury stock, at cost, 196,122 shares and
44,713 shares, respectively (16) (3)
Other (8) (26)
- ---------------------------------------------------------------------------
Total stockholders' equity 5,981 5,037
- ---------------------------------------------------------------------------
Total liabilities and stockholders' equity $19,846 $18,269
- ---------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
BURLINGTON NORTHERN SANTA FE CORPORATION 21
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Year ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 889 $ 92 $ 416
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting method - 100 10
Depreciation and amortization 760 520 362
Deferred income taxes 453 (112) 126
Merger,severance and asset charges - 735 -
Employee merger and separation costs paid (183) (118) -
Other, net (62) 51 9
Changes in current assets and liabilities,
excluding SFP assets/liabilities acquired:
Accounts receivable, net (100) 63 (108)
Materials and supplies (2) (42) (13)
Other current assets (6) (5) (5)
Accounts payable and other current liabilities 122 132 11
- --------------------------------------------------------------------------
Net cash provided by operating activities 1,871 1,416 808
- --------------------------------------------------------------------------
INVESTING ACTIVITIES
Cash used for capital expenditures (2,234) (890) (698)
Purchase of SFP, net of cash acquired - (488) (18)
Other, net (10) 12 16
- --------------------------------------------------------------------------
Net cash used for investing activities (2,244) (1,366) (700)
- --------------------------------------------------------------------------
FINANCING ACTIVITIES
Net (decrease) increase in commercial paper (78) 895 64
Proceeds from issuance of long-term debt 626 1,294 310
Payments on long-term debt (103) (2,071) (346)
Dividends paid (184) (129) (129)
Proceeds from stock options exercised 118 25 6
Other, net (9) (41) (3)
- --------------------------------------------------------------------------
Net cash provided by (used for) financing
activities 370 (27) (98)
- --------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (3) 23 10
Cash and cash equivalents:
Beginning of year 50 27 17
- --------------------------------------------------------------------------
End of year $ 47 $ 50 $ 27
- --------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, net of amounts capitalized $ 306 $ 228 $ 149
Income taxes paid, net of refunds 69 250 128
Assets financed through capital
lease obligations 43 140 50
Noncash consideration for purchase of SFP:
Net assets acquired $ 3,319
Cash paid (532)
Cash acquired 26
- --------------------------------------------------------------------------
Noncash consideration $ 2,813
- --------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
22 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Burlington Northern Santa Fe Corporation and Subsidiaries
(Shares in thousands. Dollars in millions, except per share data.)
<TABLE>
<CAPTION>
Convertible
Preferred Common
Stock and Stock and
Outstanding Additional Additional
Common Paid-in Paid-in Retained Treasury
Shares Capital Capital Earnings Stock Other Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 88,796 $337 $ 1,421 $ 198 $ (4) $(33) $1,919
Net income 416 416
Dividends:
Common stock, $1.20 per share (107) (107)
Convertible preferred stock,
$3.125 per share (22) (22)
Adjustments associated with unearned
compensation, restricted stock 178 12 (1) 11
Exercise of stock options and related
tax benefit 184 8 8
Equity adjustment from minimum pension
liability 9 9
Other 66 3 3
- --------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 89,224 337 1,444 485 (5) (24) 2,237
Net income 92 92
Purchase of SFP:
Common stock issued 52,004 2,652 2,652
Value of outstanding SFP stock
options 119 119
Conversion and redemption of
convertible preferred stock
for common stock 7,313 (337) 335 (2)
Dividends:
Common stock, $1.20 per share (123) (123)
Convertible preferred stock,
$3.125 per share (21) (21)
Adjustments associated with unearned
compensation, restricted stock 243 13 2 16 31
Exercise of stock options and related
tax benefit 778 39 (3) 36
Equity adjustment from minimum pension
liability (18) (18)
Cost to equity investment adjustment 26 26
Other 43 5 3 8
- --------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 149,605 - 4,607 459 (3) (26) 5,037
Net income 889 889
Common stock dividends, $1.20
per share (183) (183)
Adjustments associated with unearned
compensation, restricted stock 539 8 (2) 3 9
Exercise of stock options and related
tax benefit 3,454 191 (11) 180
Equity adjustment from minimum pension
liability 15 15
Acquisition of a subsidiary 363 31 31
Other 41 3 3
- --------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 154,002 $ - $4,840 $1,165 $(16) $ (8) $5,981
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
BURLINGTON NORTHERN SANTA FE CORPORATION 23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
1 ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Burlington
Northern Santa Fe Corporation and its majority-owned subsidiaries
(collectively BNSF or Company). BNSF was incorporated in Delaware on December
16, 1994, for the purpose of effecting a business combination between
Burlington Northern Inc. (BNI) and Santa Fe Pacific Corporation (SFP) which
was consummated on September 22, 1995. The principal subsidiaries of BNI and
SFP were Burlington Northern Railroad Company (BNRR) and The Atchison, Topeka
and Santa Fe Railway Company (ATSF), respectively. Effective December 1996,
BNI was merged with and into SFP, and ATSF merged with and into BNRR and the
name was changed to The Burlington Northern and Santa Fe Railway Company (BNSF
Railway). The accompanying BNSF consolidated statements of income and cash
flows for the years ended December 31, 1996, 1995 and 1994 include BNSF's
results and cash flows for the year ended December 31, 1996, BNI's results and
cash flows for the years ended December 31, 1995 and 1994, and SFP's results
and cash flows from September 22, 1995 through December 31, 1995. All
significant intercompany accounts and transactions have been eliminated. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the periods presented.
RECLASSIFICATIONS
Certain comparative prior year amounts in the consolidated financial
statements and notes have been reclassified to conform with the current year
presentation.
CASH AND CASH EQUIVALENTS
All short-term investments with original maturities of less than 90 days are
considered cash equivalents. Cash equivalents are stated at cost, which
approximates market value.
MATERIALS AND SUPPLIES
Materials and supplies consist mainly of diesel fuel and repair parts for
equipment and other railroad property and are valued at the lower of average
cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are depreciated and amortized on a straight-line
basis over their estimated useful lives. Upon normal sale or retirement of
depreciable railroad property, cost less net salvage is charged to accumulated
depreciation and no gain or loss is recognized. Significant premature
retirements are recorded as gains or losses at the time of their occurrence.
Expenditures which significantly increase asset values or extend useful lives
are capitalized. Repair and maintenance expenditures are charged to operating
expense when the work is performed. Property and equipment are stated at cost
including property values of SFP, which were adjusted in applying purchase
accounting. Additionally, the Company incurs certain direct labor, contract
service, purchased software and other costs associated with the development
and installation of computer software. Costs for newly developed software or
significant enhancements to existing software are typically capitalized.
Research, operations and maintenance costs are charged to operating expense
when the work is performed.
REVENUE RECOGNITION
Transportation revenues are recognized based upon the proportion of service
provided.
EARNINGS PER COMMON SHARE
Primary earnings per common share are computed by dividing net income, after
deduction of preferred stock dividends, by the weighted average number of
common shares and common share equivalents outstanding. Common share
equivalents are computed using the treasury stock method. Fully diluted
earnings per common share are computed by dividing net income by the weighted
average number of common shares and common share equivalents outstanding.
During 1995 and 1994, the if-converted method was used for convertible
preferred stock when computing fully diluted earnings per common share. For
the year ended December 31, 1995, the computation of fully diluted earnings
per share was antidilutive; therefore, the amounts reported for primary and
fully diluted earnings per share were the same.
24 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
2 ACQUISITION OF SFP
On June 29, 1994, BNI and SFP entered into an Agreement and Plan of Merger (as
amended, the Merger Agreement) pursuant to which SFP would merge with BNI in
the manner set forth below (the Merger). Stockholders of BNI and SFP approved
the Merger Agreement at special stockholders' meetings held on February 7,
1995. On August 23, 1995, the Interstate Commerce Commission issued a written
decision approving the Merger and on September 22, 1995 the Merger was
consummated.
Pursuant to the Merger Agreement, BNI and SFP commenced tender offers
(together, the Tender Offer) to acquire 25 million and 38 million shares of
SFP common stock, respectively, at $20 per share in cash. During 1995, SFP
borrowed $1.0 billion under a credit facility of which $760 million of the
proceeds were used to purchase the 38 million shares pursuant to the Tender
Offer. In addition, BNI borrowed $500 million under a credit facility to
finance BNI's purchase of SFP common stock in the Tender Offer. The Tender
Offer was completed on February 21, 1995.
To ensure that the transaction contemplated by the Merger Agreement qualified
as a tax-free transaction for federal income tax purposes, the parties
utilized the holding company structure. Under the holding company structure,
BNSF created two subsidiaries. One subsidiary merged with and into BNI, and
the other subsidiary merged with and into SFP. The holding company structure
had the same economic effect with respect to the stockholders of BNI and SFP
as would have a direct merger of BNI and SFP.
The 1995 business combination with SFP was accounted for by the purchase
method. As such, the accompanying consolidated financial statements include
assets, liabilities and financial results of SFP after Merger consummation.
The following summarizes the purchase price (dollars in millions, except per
share data, and shares in thousands):
- -------------------------------------------------------------
BNI investment in SFP at September 22, 1995 $ 516
Shares of SFP common stock outstanding
at September 22, 1995 151,396
Less SFP shares held by BNI (25,000)
- -------------------------------------------------------------
Remaining SFP shares outstanding 126,396
Exchange ratio .4114
- -------------------------------------------------------------
Shares of BNSF common stock issued 52,000
Per share value of BNSF common stock $ 51
- -------------------------------------------------------------
Total value of BNSF common stock issued 2,652
Value of outstanding SFP stock options 119
BNI direct acquisition costs 32
- -------------------------------------------------------------
Purchase price $3,319
- -------------------------------------------------------------
The purchase price was calculated based on an estimated fair value of BNSF
common stock of $51 per share. The fair value was determined from the average
of the daily closing prices of BNI common stock for the five trading days
immediately preceding and the five trading days immediately following approval
of the Merger by BNI and SFP shareholders which occurred on February 7, 1995.
The effects of the acquisition on the consolidated balance sheet, including
the fair value adjustments, were as follows (in millions):
Property and equipment, net $ 9,409
Other assets 886
Deferred income taxes (2,936)
Long-term debt (2,034)
Other liabilities (2,006)
- -------------------------------------------------------------
Net assets acquired $ 3,319
- -------------------------------------------------------------
The purchase price allocation included $138 million for anticipated
nonrecurring costs and expenses for severance and relocation of prior SFP
employees and the planned disposition of excess SFP office space and other SFP
assets.
The consolidated pro forma results presented below were prepared as if the
Merger had occurred on January 1, 1994 and include the historical results of
BNI and SFP, excluding the after-tax effect of $309 million for merger-related
charges recorded by BNI in 1995. Additionally, the consolidated pro forma
results include the effects of purchase accounting adjustments and the Tender
Offer. Pro forma adjustments reflecting merger benefits are not included. This
unaudited consolidated pro forma information is not necessarily indicative of
the results of operations that might have occurred had the Merger actually
taken place on the date indicated, or of future results of operations of the
combined entities (dollars in millions, except per share data):
Year ended December 31, 1995 1994
- -------------------------------------------------------------
Revenues $8,150 $7,657
Operating expenses 6,824 6,465
Income before extraordinary items 605 536
Net income(1) 499 549
Primary earnings per share:
Income before extraordinary items $ 4.00 $ 3.63
Net income 3.27 3.72
Fully diluted earnings per share:
Income before extraordinary items $ 3.94 $ 3.59
Net income 3.25 3.67
(1) Pro forma 1995 results include approximately $230 million (pre-tax)
related to the merger severance and asset charge which are not considered
directly attributable to the Merger. Additionally, pro forma net income
includes the $100 million cumulative effect for the change in accounting for
locomotive overhauls for years prior to 1995 and a $25 million reduction for
the effect of the change on 1995. Also, 1995 pro forma net income includes the
$6 million extraordinary charge for retirement of debt. Pro forma 1994 net
income includes a $10 million reduction for a change in accounting.
BURLINGTON NORTHERN SANTA FE CORPORATION 25
<PAGE>
3 MERGER, SEVERANCE AND ASSET CHARGES
Included in the Consolidated Statement of Income for 1995 were operating
expenses of $735 million related to merger, severance and asset costs.
Significant components included in these costs are described below.
Employee-related costs of $287 million were recorded related to BNSF's plan
to centralize the majority of its union clerical functions which was approved
in 1995. This plan includes the reduction of approximately 1,600 employees
which, among other things, requires installation of common information
systems. The Company and the union entered into an implementation agreement
which allows the Company to abolish the positions and provide separation
benefits to affected employees. Benefits paid to affected employees may be in
the form of lump-sum payments or payments made over several years depending on
the seniority level and election of the employee. Implementation of the plan
began in 1996; however, the plan is not expected to be fully implemented until
1998 due to the geographical complexity of the combined rail system, and the
time required to finish development and installation of common systems.
Approximately 500 positions were abolished in 1996 and the remaining position
reductions are expected to occur during 1997 and 1998. No comparable costs
were accrued in applying purchase accounting, as ATSF's operations had
previously been centralized. Also, no provision for voluntary separation or
severance costs above those provided was included in the 1995 charge.
Presently, the magnitude of any future expense is unknown. Additionally,
relocation costs for clerical employees are charged to expense in the period
incurred.
Costs of $254 million were recorded for salaried employees and reflect
severance, pension and other employee benefits, and costs for employee
relocations incurred during the period. Severance, pension and other employee
benefit costs of $231 million reflect the elimination of approximately 1,000
former BNI employees. Most of these positions were eliminated in 1995 and
1996. Additional components of salaried employee costs include special
termination benefits to be received under the Company's retirement plan and
expenses related to restricted stock which vested upon approval of the Merger.
Relocation expenses of $23 million reflect costs incurred in 1995 for
relocating approximately 300 former BNI employees.
Costs of $105 million were included for branch line dispositions reflecting
the write-off of the net book value of the lines at the anticipated disposal
date, less estimated net proceeds. Approximately 75 line segments, covering
3,300 miles of former BNI lines were included, of which approximately 2,000
miles were disposed of during 1996. Remaining costs of $89 million included in
the $735 million charge related to obligations at leased facilities, a
majority of which have been vacated, and the write-off of duplicate and excess
assets including computer hardware and software and certain facilities.
Additional accruals of $138 million were recorded through purchase accounting
related to former SFP employees and assets. Approximately $105 million of
these costs related to termination of approximately 500 salaried employees for
severance payments and special termination benefits to be received under the
Company's retirement and health and welfare plans. Salaried employee costs
also include amounts to relocate approximately 500 former SFP employees. The
remaining $33 million of costs relate to the sale or abandonment of 500 miles
of branch lines, rents on vacated leased facilities and the write-off of
excess assets.
Current and long-term employee merger and separation liabilities totaling
$580 million are included in the consolidated balance sheet at December 31,
1996 and principally represent employee-related costs for the centralization
of clerical functions, as well as remaining liabilities for actions taken by
ATSF in prior periods. The majority of these prior ATSF costs are associated
with deferred benefits payable upon separation or retirement to certain active
conductors and trainmen incurred in connection with an agreement which, among
other things, reduced crew sizes. Additionally, certain locomotive engineers
are eligible for a deferred benefit payable upon separation or retirement,
associated with an agreement with ATSF which allowed for more flexible work
rules.
During 1996, BNSF paid $183 million for i) employee merger and separation
payments, principally related to the reduction of approximately 1,000 salaried
employees and 500 clerical employees, ii) salaried employee relocations
committed to in 1995, and iii) deferred benefits for ATSF conductors, trainmen
and locomotive engineers. At December 31, 1996, $114 million of the remaining
accrual is included within current liabilities for anticipated costs to be
paid in 1997. The remaining costs are expected to be paid over the next
several years, except for certain costs related to conductors, trainmen and
locomotive engineers of ATSF which will be paid upon the employees' separation
or retirement, as well as certain benefits for clerical employees which may be
paid on an installment basis, generally over five to ten years.
4 ACCOUNTING CHANGES
Effective January 1, 1995, BNSF changed its method of accounting for periodic
major locomotive overhauls. Under the new method, costs of owned locomotives
relating to components requiring major overhaul are depreciated, on a
straight-line basis, to the first major overhaul date. The remaining cost of
the owned locomotive is depreciated, on a straight-line basis, over the
estimated economic life of the locomotive.
26 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
The cost of overhauls on owned units are then capitalized when incurred and
depreciated, on a straight-line basis, until the next anticipated overhaul. In
addition, estimated costs for major overhauls on leased units are accrued on a
straight-line basis over the life of the leases. BNSF previously expensed
locomotive overhauls when the costs were incurred. BNSF believes that this
change is preferable because it improves the matching of expenses incurred to
revenues earned. The cumulative effect of this change on years prior to 1995
was a reduction in net income of $100 million (net of a $63 million income tax
benefit), or $.94 per share (primary and fully diluted). The effect of this
change for the year ended December 31, 1995, was to reduce income before
extraordinary item and cumulative effect of change in accounting method by $25
million or $.23 per share (primary and fully diluted). The pro forma effect of
this change on 1994 would have been to reduce net income by $26 million or
$.29 per share primary, and $.27 per share fully diluted.
Effective January 1, 1994, BNSF adopted Statement of Financial Accounting
Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits."
The cumulative effect, net of $7 million income tax benefit, of this change in
accounting attributable to years prior to 1994, was to decrease 1994 net
income by $10 million, or $.11 per common share.
5 OTHER INCOME (EXPENSE), NET
Other income (expense), net includes the following (in millions):
Year ended December 31, 1996 1995 1994
- ---------------------------------------------------------------
Equity in earnings of pipeline partnership $ 24 $ 9 $ -
Gain on property dispositions 23 12 15
Interest income 2 8 3
Accounts receivable sale fees (14) (4) (9)
BNI's equity in earnings of SFP prior
to consummation of the Merger - 16 -
Miscellaneous, net (42) (13) (12)
- ---------------------------------------------------------------
Total $ (7) $ 28 $ (3)
- ---------------------------------------------------------------
6 INCOME TAXES
Income tax expense, excluding the cumulative effect of change in
accounting method and extraordinary item, was as follows (in millions):
Year ended December 31, 1996 1995 1994
- ---------------------------------------------------------------
Current:
Federal $ 81 $ 216 $ 124
State 17 32 19
- ---------------------------------------------------------------
98 248 143
- ---------------------------------------------------------------
Deferred:
Federal 396 (101) 109
State 57 (11) 17
- ---------------------------------------------------------------
453 (112) 126
- ---------------------------------------------------------------
Total $551 $ 136 $ 269
- ---------------------------------------------------------------
Reconciliation of the federal statutory income tax rate to the effective tax
rate, excluding the cumulative effect of change in accounting method and
extraordinary item, was as follows:
Year ended December 31, 1996 1995 1994
- ---------------------------------------------------------------
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal tax benefit 3.4 4.0 3.4
Other, net (0.1) 1.7 0.3
- ---------------------------------------------------------------
Effective tax rate 38.3% 40.7% 38.7%
- ---------------------------------------------------------------
The components of deferred tax assets and liabilities were as follows
(in millions):
December 31, 1996 1995
- ---------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization $(5,110) $(5,076)
Other (397) (249)
- ---------------------------------------------------------------
Total deferred tax liabilities (5,507) (5,325)
- ---------------------------------------------------------------
Deferred tax assets:
Casualty and environmental liabilities 300 360
Employee merger and separation costs 214 359
Postretirement benefits 96 88
Non-expiring AMT credit carryforwards 44 124
Pensions 16 69
Other 415 412
- ---------------------------------------------------------------
Total deferred tax assets 1,085 1,412
- ---------------------------------------------------------------
Net deferred tax liability $(4,422) $(3,913)
- ---------------------------------------------------------------
Noncurrent deferred income tax
liability $(4,729) $(4,233)
Current deferred income tax asset 307 320
- ---------------------------------------------------------------
Net deferred tax liability $(4,422) $(3,913)
- ---------------------------------------------------------------
In 1996 and 1994, tax expense of $9 million and $6 million, respectively,
related to the adjustment to reduce the minimum pension liability was
allocated directly to stockholders' equity. In 1995, tax benefits of $11
million related to the adjustment to recognize the minimum pension liability
was allocated directly to stockholders' equity.
BNSF filed its first federal consolidated income tax return for 1995. BNI's
and SFP's federal income tax returns have been examined through 1991 and 1992,
respectively. All years prior to 1986 are closed for BNI and SFP. Issues
relating to the years 1986 - 1992 are being contested through various stages
of administrative appeal. In addition, BNSF and its subsidiaries have various
state income tax returns in the process of examination, administrative appeal
or litigation. Management believes that adequate provision has been made for
any adjustment that might be assessed for open years through 1996.
BURLINGTON NORTHERN SANTA FE CORPORATION 27
<PAGE>
7 ACCOUNTS RECEIVABLE, NET
A special purpose subsidiary of BNSF Railway has sold, with limited recourse,
variable rate certificates which mature in December 1999 evidencing undivided
interests in an accounts receivable master trust. The master trust's assets
include an ownership interest in a revolving portfolio of BNSF Railway's
accounts receivable which are used to support the certificates. At December
31, 1996, $280 million of certificates sold were outstanding and were
supported by receivables in the master trust of $347 million. A maximum of
$300 million of certificates can be sold if the master trust balance is
increased by receivables which are eligible for sale. BNSF Railway has
retained the collection responsibility with respect to the accounts receivable
held in trust. BNSF Railway is exposed to credit loss related to collection of
accounts receivable to the extent that the amount of receivables in the master
trust exceeds the amount of certificates sold. Upon the merger of ATSF and
BNRR, BNRR's receivables were added to the accounts receivable master trust,
effective January 1, 1997, but the $300 million maximum amount of certificates
which can be sold was not increased. Costs related to such agreements vary on
a monthly basis and are generally related to certain interest rates. These
costs are included in Other income (expense), net.
BNSF maintains an allowance for doubtful accounts based upon the expected
collectibility of all accounts receivable, including accounts receivable sold.
Allowances for doubtful accounts of $57 million and $50 million have been
recorded at December 31, 1996 and 1995, respectively.
8 PROPERTY AND EQUIPMENT, NET
Property and equipment, net (in millions), and the weighted average annual
depreciation rate (%) was as follows:
Depreciation
December 31, 1996 1995 Rate - 1996
- -------------------------------------------------------------------
Land $ 1,418 $ 1,379 -
Track structure 9,668 8,951 3.5%
Other roadway 7,231 6,598 2.8
Locomotives 1,525 1,231 6.9
Freight cars and other equipment 1,879 1,856 4.5
Computer hardware and software 402 319 18.1
- -------------------------------------------------------------------
Total cost 22,123 20,334
Less accumulated depreciation
and amortization (4,490) (4,333)
- -------------------------------------------------------------------
Property and equipment, net $17,633 $16,001
- -------------------------------------------------------------------
The consolidated balance sheet at December 31, 1996 and 1995 included $471
million and $200 million, respectively, for property and equipment under
capital leases.
In the first quarter of 1996, BNSF adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The adoption of SFAS No. 121 had no impact on the Company's financial position
or 1996 results of operations.
9 ACCOUNTS PAYABLE AND OTHER
CURRENT LIABILITIES
Accounts payable and other current liabilities consisted of the
following (in millions):
December 31, 1996 1995
- -------------------------------------------------------------------
Accounts and wages payable $ 581 $ 519
Casualty and environmental
liabilities 267 290
Accrued vacations 148 141
Taxes other than income taxes 125 143
Equipment leases 118 83
Employee merger and separation
costs 114 215
Other 793 898
- -------------------------------------------------------------------
Total $2,146 $2,289
- -------------------------------------------------------------------
10 DEBT
Debt outstanding was as follows (in millions):
December 31, 1996 1995
- -------------------------------------------------------------------
Notes and Debentures
7% debentures, due 2025 $350 $350
6 3/8% notes, due 2005 300 300
Pipeline exchangeable debentures,
11.2% (variable), due 2010 219 219
8 3/4% debentures, due 2022 200 200
7.29% debentures, due 2036 200 -
6 7/8% debentures, due 2016 175 -
7.40% notes, due 1999 150 150
7% notes, due 2002 150 150
7 1/2% debentures, due 2023 150 150
8 3/8% notes, due 2001 100 100
8 5/8% notes, due 2004 100 100
Other 28 29
Mortgage Bonds
Consolidated mortgage bonds,
3 1/5% to 9 1/4%, due 2006 to 2045 321 321
General mortgage bonds, 3 1/8% and
2 5/8%, due 2000 and 2010, respectively 62 62
Prior lien railway and land grant bonds,
4%, due 1997 57 57
General lien railway and land grant bonds,
3%, due 2047 35 35
Mortgage notes, 10.325%, due 1997 to 2014 31 32
First mortgage bonds, series A, 4%, due 1997 20 20
Mortgage notes, 8 5/8%, due 2008 18 20
Commercial Paper and Bank Borrowings
Commercial paper, 5.6% (variable) 907 985
Bank borrowings, 5.6% (variable) 65 85
Equipment Obligations
Equipment obligations, weighted average
rate of 8.02%, due 1997 to 2013 629 661
Capitalized lease obligations, weighted
average rate of 6.87%, expiring
1997 to 2009 400 154
Unamortized purchase accounting adjustment 101 114
Unamortized discount (57) (61)
- -------------------------------------------------------------------
Total 4,711 4,233
Less: Current portion of long-term debt (165) (80)
- -------------------------------------------------------------------
Long-term debt $4,546 $4,153
- -------------------------------------------------------------------
28 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
BNSF maintains a program for the issuance, from time to time, of commercial
paper. These borrowings are supported by bank revolving credit agreements.
Outstanding commercial paper balances are considered as reducing available
borrowings under these agreements. The bank revolving credit agreements allow
borrowings of up to $500 million on a short-term basis and $1.5 billion on a
long-term basis. Annual facility fees are currently .075 percent and .11
percent, respectively, and are subject to change based upon changes in BNSF's
senior unsecured debt ratings. Borrowing rates are based upon i) LIBOR plus a
spread based upon BNSF's senior unsecured debt ratings, ii) money market rates
offered at the option of the lenders, or iii) an alternate base rate. The
commitments of the lenders to make loans are currently scheduled to expire on
November 14, 1997 and November 15, 2001, respectively. At December 31, 1996,
there were no borrowings against the long-term revolving credit agreement, and
the maturity value of commercial paper outstanding was $916 million, leaving a
total of $584 million of the long-term revolving credit agreement available
and $500 million of the short-term revolving credit agreement available. A
significant portion of commercial paper has been hedged to fixed interest
rates through interest rate swap transactions (see Note 12: Hedging
activities, leases and other commitments).
The financial covenants of the bank revolving credit agreements require that
BNSF's consolidated tangible net worth, as defined in the agreements, be at
least $4.4 billion, and that its debt cannot exceed 55 percent of its
consolidated total capital, as defined in the agreements. BNSF was in
compliance with these financial covenants at December 31, 1996.
In February 1996, BNSF issued $175 million of 6.875% debentures due February
15, 2016. In June 1996, BNSF issued $200 million of 7.29% debentures due June
1, 2036. The net proceeds from the sale of these debentures were used for
general corporate purposes including the repayment of short-term debt. Both
debentures were issued under a BNSF shelf registration which, after being
increased by $500 million during the year, has $475 million remaining. In
October 1996, BNSF filed a prospectus supplement under this shelf registration
to provide for the issuance from time to time of up to $475 million principal
amount of the Company's Series A medium-term notes.
In December 1995, BNSF issued $300 million of 6 3/8% notes due December 15,
2005 and $350 million of 7% debentures due December 15, 2025 under the shelf
registration statement. The net proceeds from the sale of the notes and
debentures were used for general corporate purposes, including but not limited
to the repayment of commercial paper and short-term bank loans. During the
course of 1995, the Company entered into various interest rate swap agreements
with a principal amount of $500 million, for the purpose of establishing rates
in anticipation of debt issuances under the shelf registration statement. The
swaps were anticipated to hedge $250 million of 10-year debt and $250 million
of 30-year debt. In conjunction with the fourth quarter 1995 issuance of
10-year 6 3/8% notes and 30-year 7% debentures, the Company closed out the
swap transactions which resulted in losses of $13 million and $15 million,
respectively. The losses were deferred and are being recognized over the term
of the borrowings.
Additionally, in December 1995, BNSF defeased its 9% debentures by placing
$166 million of U.S. government securities into an irrevocable trust for the
purpose of repaying the debentures in April 1996. The defeasance of debt
resulted in an extraordinary charge of $6 million, net of applicable income
tax benefits of $3 million, principally reflecting the call premium on the
debt.
In 1996, BNRR and ATSF completed cross-border leveraged leases of equipment
for a total amount of $311 million which were recorded as capital lease
obligations. These transactions included the issuance of $242 million of
equipment secured debt. In 1995, BNRR completed cross- border leveraged leases
of equipment for a total amount of $136 million which were recorded as capital
lease obligations. These transactions included the issuance of $108 million of
equipment secured debt.
In November 1994, BNRR entered into a $150 million three-year term loan
facility agreement. In November 1995, this debt was repaid through the
issuance of commercial paper by BNRR. In May 1994, BNI issued $150 million of
7.4% notes due May 15, 1999.
Aggregate long-term debt scheduled maturities are $165 million, $98 million,
$237 million, $116 million and $1,154 million for 1997 through 2001,
respectively. Commercial paper borrowings of $907 million are included in
maturities for 2001.
BURLINGTON NORTHERN SANTA FE CORPORATION 29
<PAGE>
Substantially all BNSF Railway properties and certain other assets are
pledged as collateral to, or are otherwise restricted under, the various BNSF
Railway long-term debt agreements. Equipment obligations and capital leases
are secured by the underlying equipment.
In addition, an indirect wholly-owned subsidiary of BNSF is contingently
liable as general partner for $355 million of long-term debt issued by Santa
Fe Pacific Pipeline Partners, L.P. (Pipeline Partnership). The subsidiary
holds a 42 percent limited partner interest and a 2 percent general partner
interest in the Pipeline Partnership which it accounts for under the equity
method. The pipeline exchangeable debentures are exchangeable for BNSF's
limited partnership interest in the Pipeline Partnership. BNSF's investment in
the Pipeline Partnership was $283 million and $291 million at December 31,
1996 and 1995, respectively.
11 DISCLOSURES ABOUT FAIR VALUE
OF FINANCIAL INSTRUMENTS
The estimated fair values of BNSF's financial instruments at December 31,
1996 and 1995 and the methods and assumptions used to estimate the fair value
of each class of financial instruments held by BNSF, were as follows:
CASH AND CASH EQUIVALENTS
The carrying amount approximated fair value because of the short maturity of
these instruments.
LONG-TERM DEBT AND COMMERCIAL PAPER
The fair value of BNSF's long-term debt was primarily based on quoted market
prices for the same or similar issues, or on the current rates that would be
offered to BNSF for debt of the same remaining maturities. The carrying amount
of commercial paper approximated fair value because of the short maturity of
these instruments. The carrying amounts of BNSF's long-term debt and
commercial paper at December 31, 1996 and 1995 were $4,711 million and $4,233
million, respectively, while the estimated fair values at December 31, 1996
and 1995 were $4,721 million and $4,412 million, respectively.
12 HEDGING ACTIVITIES, LEASES
AND OTHER COMMITMENTS
HEDGING ACTIVITIES
FUEL
BNSF has a program to hedge against fluctuations in the price of its diesel
fuel purchases. This program includes various commodity swap transactions
which are accounted for as hedges. Any gains or losses associated with changes
in market value of these hedges are deferred and recognized as a component of
fuel expense in the period in which the hedged fuel is purchased and used. to
the extent BNSF hedges portions of its fuel purchases, it may not fully
benefit from decreases in fuel prices.
As of February 7, 1997, BNSF had entered into fuel swaps for approximately
635 million gallons at an average price of approximately 54 cents per gallon.
These contracts have expiration dates ranging from March 1997 to December
1998.
The above price does not include taxes, fuel handling costs, certain
transportation costs and any differences which may occur from time to time
between the prices of commodities hedged and the purchase price of BNSF's
diesel fuel.
BNSF's fuel hedging program covers approximately 35 percent of estimated 1997
fuel purchases and 25 percent of estimated 1998 fuel purchases. Quarterly
hedges in 1997 range from 20 percent to 40 percent of anticipated fuel
purchases while 1998 hedges approximate 25 percent each quarter. Hedge
positions are closely monitored to ensure that they will not exceed actual
fuel requirements in any period. Unrecognized gains from BNSF's fuel hedging
transactions were approximately $17 million at December 31, 1996 and were not
material at December 31, 1995. BNSF also monitors its hedging positions and
credit ratings of its counterparties and does not anticipate losses due to
counterparty nonperformance.
INTEREST RATE
From time to time, the Company enters into various interest rate hedging
transactions for the purpose of managing exposure to fluctuations in interest
rates and establishing rates in anticipation of future
debt issuances. as of February 7, 1997, BNSF has interest rate swap
transactions with a total principal amount of $875 million to fix
interest rates on commercial paper debt. The interest rate swap
transactions require payment of a weighted average fixed interest rate
of approximately 5.8
30 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
percent, and the receipt of a variable interest rate based on a commercial
paper composite rate. Swap transactions of $625 million, $250 million and $125
million will mature during the years ended december 31, 1997, 1998 AND 1999,
respectively. Unrecognized losses from BNSF's swap transactions were
immaterial at December 31, 1996. During 1995, the company closed out interest
rate swap transactions in conjunction with the issuance of debt (see Note 10:
Debt).
LEASES
BNSF has substantial lease commitments for locomotives, freight cars,
trailers, office buildings and other property. Most of these leases provide
the option to purchase the equipment at fair market value at the end of the
lease. however, some provide fixed price purchase options. Future minimum
lease payments (which reflect leases having non-cancelable lease terms in
excess of one year) as of December 31, 1996 are summarized as follows (in
millions):
Capital Operating
Year ended December 31 Leases Leases
- --------------------------------------------------------------
1997 $ 55 $ 322
1998 59 272
1999 55 216
2000 50 169
2001 50 142
Thereafter 311 1,284
- --------------------------------------------------------------
Total 580 $2,405
- --------------------------------------------------------------
Less amount representing interest 180
- --------------------------------------------------------------
Present value of minimum lease payments $400
- --------------------------------------------------------------
Lease rental expense for all operating leases was $446 million, $352 million
and $276 million for the years ended December 31, 1996, 1995 and 1994,
respectively. Contingent rentals and sublease rentals were not significant.
OTHER COMMITMENTS
BNSF has entered into commitments to acquire 180 locomotives in 1997. The
locomotives will be financed from one or a combination of sources including,
but not limited to, cash from operations, leases and debt issuances. The
decision on the method used will depend upon the current market conditions and
other factors.
In connection with the closing of the sale of rail lines in southern
California in 1992 and 1993, BNSF has entered into various shared use
agreements with the agencies, which require BNSF to pay the agencies
approximately $6 million annually to maintain track structure and facilities.
Additionally, BNSF recorded a $50 million liability in 1993 for an obligation
retained by BNSF, which under certain conditions requires a repurchase of a
portion of the properties sold.
13 ENVIRONMENTAL AND OTHER CONTINGENCIES
ENVIRONMENTAL
BNSF's operations, as well as those of its competitors, are subject to
extensive federal, state and local environmental regulation. BNSF's operating
procedures include practices to protect the environment from the environmental
risks inherent in railroad operations, which frequently involve transporting
chemicals and other hazardous materials. Additionally, many of BNSF's land
holdings are and have been used for industrial or transportation related
purposes or leased to commercial or industrial companies whose activities may
have resulted in discharges onto the property. As a result, BNSF is subject to
environmental clean- up and enforcement actions. In particular, the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980
(CERCLA), also known as the "Superfund" law, as well as similar state laws
generally impose joint and several liability for clean-up and enforcement
costs without regard to fault or the legality of the original conduct on
current and former owners and operators of a site. BNSF has been notified that
it is a potentially responsible party (PRP) for study and clean-up costs at
approximately 32 Superfund sites for which investigation and remediation
payments are or will be made or are yet to be determined (the Superfund sites)
and, in many instances, is one of several PRPs. In addition, BNSF may be
considered a PRP under certain other laws. Accordingly, under CERCLA and other
federal and state statutes, BNSF may be held jointly and severally liable for
all environmental costs associated with a particular site. If there are other
PRPs, BNSF generally participates in the clean-up of these sites through
cost-sharing agreements with terms that vary from site to site. Costs are
typically allocated based on relative volumetric contribution of material, the
amount of time the site was owned or operated, and/or the portion of the total
site owned or operated by each PRP.
BURLINGTON NORTHERN SANTA FE CORPORATION 31
<PAGE>
Environmental costs include initial site surveys and environmental studies of
potentially contaminated sites as well as costs for remediation and
restoration of sites determined to be contaminated. Liabilities for
environmental clean-up costs are initially recorded when BNSF's liability for
environmental clean-up is both probable and a reasonable estimate of
associated costs can be made. Adjustments to initial estimates are recorded as
necessary based upon additional information developed in subsequent periods.
BNSF conducts an ongoing environmental contingency analysis, which considers a
combination of factors including independent consulting reports, site visits,
legal reviews, analysis of the likelihood of participation in and the ability
of other PRPs to pay for clean-up, and historical trend analyses.
BNSF is involved in a number of administrative and judicial proceedings and
other mandatory clean-up efforts at approximately 345 sites, including the
Superfund sites, at which it is being asked to participate in the study and/or
clean-up of the environmental contamination. BNSF paid approximately $47
million, $31 million and $21 million during 1996, 1995 and 1994, respectively,
relating to mandatory clean-up efforts, including amounts expended under
federal and state voluntary clean-up programs. BNSF has accruals of
approximately $225 million for remediation and restoration of all known sites,
including $215 million pertaining to mandated sites, of which approximately
$55 million relates to the Superfund sites. BNSF anticipates that the majority
of the accrued costs at December 31, 1996 will be paid over the next five
years. No individual site is considered to be material. Recoveries received
from third parties, net of legal costs incurred, were approximately $31
million during 1995 and were not significant in the years ended December 31,
1996 and 1994.
Liabilities recorded for environmental costs represent BNSF's best estimates
for remediation and restoration of these sites and include both asserted and
unasserted claims. Unasserted claims are not considered to be a material
component of the liability. Although recorded liabilities include BNSF's best
estimates of all costs, without reduction for anticipated recoveries from
third parties, BNSF's total clean-up costs at these sites cannot be predicted
with certainty due to various factors such as the extent of corrective actions
that may be required, evolving environmental laws and regulations, advances in
environmental technology, the extent of other PRPs' participation in clean-up
efforts, developments in ongoing environmental analyses related to sites
determined to be contaminated, and developments in environmental surveys and
studies of potentially contaminated sites. As a result, future charges to
income for environmental liabilities could have a significant effect on
results of operations in a particular quarter or fiscal year as individual
site studies and remediation and restoration efforts proceed or as new sites
arise. However, expenditures associated with such liabilities are typically
paid out over a long period; therefore, management believes that it is
unlikely that any identified matters, either individually or in the aggregate,
will have a material adverse effect on BNSF's consolidated financial position
or liquidity.
The railroad industry, including BNSF Railway, will become subject to future
requirements regulating air emissions from diesel locomotives that may
increase their operating costs. Regulations applicable to new locomotive
engines were issued by the Environmental Protection Agency in early 1997, with
final regulations to be promulgated by the end of the year. It is anticipated
that these regulations will be effective for locomotive engines installed
after 1999 and through 2010. Under some interpretations of federal law, older
locomotive engines may be regulated by states based on standards and
procedures which the State of California ultimately adopts. At this time, it
is unknown whether California will adopt locomotive emission standards that
may differ from federal standards.
OTHER CLAIMS AND LITIGATION
BNSF and its subsidiaries are parties to a number of legal actions and
claims, various governmental proceedings and private civil suits arising in
the ordinary course of business, including those related to environmental
matters and personal injury claims. While the final outcome of these items
cannot be predicted with certainty, considering among other things the
meritorious legal defenses available, it is the opinion of management that
none of these items, when finally resolved, will have a material adverse
effect on the annual results of operations, financial position or liquidity of
BNSF, although an adverse resolution of a number of these items could have a
material adverse effect on the results of operations in a particular quarter
or fiscal year.
14 RETIREMENT PLANS
Prior to October 1, 1996, BNSF sponsored noncontributory, defined benefit
pension plans through its subsidiaries, BNI and SFP, covering substantially
all non-union employees. Additionally, BNI and SFP sponsored nonqualified
defined benefit plans for certain officers and other employees. On October 1,
1996, the respective BNI and SFP qualified defined benefit pension plans were
merged, creating the qualified BNSFRetirement Plan. The corresponding
nonqualified defined benefit plans were merged on October 1, 1996, creating
the nonqualified BNSF Supplemental Retirement Plan. The benefits under BNSF's
plans are based on years of credited service and the highest five-year average
compensation levels. BNSF's funding policy is to contribute annually not less
than the regulatory minimum, and not more than the maximum amount deductible
for income tax purposes.
32 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
Components of the net pension cost for BNSF's plans, including the prior BNI
and SFP plans, were as follows (in millions):
BNSF BNSF(1) BNI(2)
Year ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------
Service cost, benefits earned
during the period $ 17 $ 11 $ 12
Interest cost on projected benefit obligation 97 65 50
Actual return on plan assets (148) (114) (25)
Net amortization and deferred amounts 43 61 (1)
Curtailment costs - 10 -
Cost of special termination benefits - 32 -
- ----------------------------------------------------------------------------
Net pension cost $ 9 $ 65 $ 36
- ----------------------------------------------------------------------------
(1) Represents full year BNI combined with SFP for the period from
September 22, 1995 through December 31, 1995.
(2) Represents historical BNI only.
The following table shows the reconciliation of BNSF's and SFP's funded
status of the qualified plans and BNI's qualified and nonqualified plans with
amounts recorded in the consolidated balance sheet (in millions):
BNSF BNI SFP
December 31, 1996 1995 1995
- ----------------------------------------------------------------------------
Actuarial present value of
benefit obligations:
Vested benefit obligation $(1,081) $(641) $(547)
Accumulated benefit obligation $(1,161) $(696) $(575)
Projected benefit obligation $(1,247) $(758) $(614)
Plan assets at fair value,
primarily marketable equity
and debt securities 1,320 534 718
- ----------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation 73 (224) 104
Unrecognized net (gain) loss (63) 93 -
Unrecognized prior service cost (10) 2 -
Unamortized net transition obligation 15 20 -
Adjustment required to recognize
minimum liability - (53) -
- ----------------------------------------------------------------------------
Prepaid (accrued) pension
asset (liability) $ 15 $(162) $ 104
- ----------------------------------------------------------------------------
BNSF uses a September 30 measurement date. The prior BNI and SFP plans used
measurement dates of December 31 and September 30, respectively. The
assumptions used in accounting for the BNSF, BNI and SFP qualified and
nonqualified plans were as follows:
BNSF BNI SFP BNI
1996 1995 1995 1994
- ----------------------------------------------------------------------------
Discount rate 7.75% 7.0% 7.5% 9.0%
Rate of increase in
compensation levels 4.0% 4.0% 4.0% 5.5%
Expected long-term rate
of return on plan assets 9.5% 9.5% 9.75% 9.5%
- ----------------------------------------------------------------------------
The following table shows the reconciliation of the BNSF and SFP funded
status of the nonqualified supplemental plan with amounts recorded in the
consolidated balance sheet (in millions):
BNSF SFP
December 31, 1996 1995
- ----------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $(31) $ (7)
- ----------------------------------------------------------------------------
Accumulated benefit obligation $(32) $ (8)
- ----------------------------------------------------------------------------
Projected benefit obligation $(39) $(11)
- ----------------------------------------------------------------------------
Unrecognized net loss 14 3
Unrecognized prior service cost 1 -
Unamortized net transition obligation 1 -
Adjustment required to recognize mininum liability (9) -
- ----------------------------------------------------------------------------
Accrued pension liability $(32) $ (8)
- ----------------------------------------------------------------------------
Prior to December 31, 1996, BNSF sponsored 401(k) thrift and profit sharing
plans through its subsidiaries, BNI and SFP, which covered substantially all
non-union employees and certain union employees. The plans covering non-union
employees were merged on December 31, 1996. Under the merged plan, BNSF
matches 50 percent of the first 6 percent of non-union employees'
contributions, which are subject to certain percentage limits of the
employees' earnings, at each pay period. Depending on BNSF's performance, an
additional matching contribution of up to 30 percent of the first 6 percent
can be made at the end of the year. The prior BNI plan matched 35 percent of
the first 6 percent of non-union employees' contributions, at the end of each
quarter and depending on BNI's performance, matched an additional 20 to 40
percent at the end of the year. The prior SFP plan matched 100 percent of the
first 4 percent of non-union employees' contributions and 25 percent of the
first 4 percent of union employees' contributions. Under the prior plans, BNI
employees were immediately fully vested in the employer match, while SFP
employees became vested on a five year schedule based on length of service. As
part of the transition to the BNSF plan, former SFP employees became fully
vested in the employee match made through December 31, 1996. Employer
contributions made subsequent to December 31, 1996, for all non-union
employees, are subject to the five year length of service vesting schedule.
BNSF's 401(k) matching expense was $13 million in 1996 and 1995, and $8
million in 1994.
BURLINGTON NORTHERN SANTA FE CORPORATION 33
<PAGE>
15 OTHER POSTEMPLOYMENT BENEFIT PLANS
BNSF provides life insurance benefits to eligible former BNI non-union
employees. The life insurance plan is noncontributory and covers retirees
only. The postretirement benefit cost related to former BNI employees were $1
million in each of the three years ended December 31, 1996, 1995 and 1994,
respectively.
BNSF's policy is to fund benefits payable under the life insurance plan as
they come due. The accumulated postretirement benefit obligation related to
the former BNI plan was approximately $17 million at December 31, 1996 and
1995.
Salaried employees of the former SFP who have rendered 10 years of service
after attaining age 45 are eligible for both medical benefits and life
insurance coverage during retirement. The retiree medical plan is contributory
and provides benefits to retirees, their covered dependents and beneficiaries.
Retiree contributions are adjusted annually. The plan also contains fixed
deductibles, coinsurance and out- of-pocket limitations. The life insurance
plan is noncontributory and covers retirees only. Components of SFP's
postretirement benefit cost related to former SFP employees relating to its
medical and life insurance plans were as follows (in millions):
Life Insurance Medical
Plan Plan
- ----------------------------------------------------------------------------
1996 1995(1) 1996 1995(1)
- ----------------------------------------------------------------------------
Service cost $- $- $ 5 $ 1
Interest cost 4 1 12 3
Net amortization and deferred amounts - - - (2)
- ----------------------------------------------------------------------------
Net postretirement benefit cost $4 $1 $17 $ 2
- ----------------------------------------------------------------------------
(1) Includes only the components of postretirement benefit cost from September
22, 1995 to December 31, 1995.
BNSF's policy is to fund benefits payable under the medical and life
insurance plans as they come due. The following table shows the reconciliation
of the plans' obligations to amounts accrued at December 31, 1996 and 1995 (in
millions). The former SFP plan uses a September 30 measurement date.
Life Insurance Medical
Plan Plan
- ----------------------------------------------------------------------------
1996 1995 1996 1995
- ----------------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $43 $45 $119 $130
Fully eligible active
participants - - 11 15
Other active participants 4 4 33 40
- ----------------------------------------------------------------------------
47 49 163 185
Unrecognized net loss (1) (2) (3) (8)
- ----------------------------------------------------------------------------
Accrued postretirement
benefit cost $46 $47 $160 $177
- ----------------------------------------------------------------------------
For 1996, the assumed health care cost trend rate for managed care medical
costs is 10.5 percent and is assumed to decrease gradually to 5 percent by
2006 and remain constant thereafter. For medical costs not in managed care,
the assumed health care cost trend rate is 12 percent and is assumed to
decrease gradually to 5 percent by 2006 and remain constant thereafter.
Increasing the assumed health care cost trend rates by one percentage point
would increase the accumulated postretirement benefit obligation for the
medical plan by $20 million and the combined service and interest components
of net periodic postretirement benefit cost recognized in 1996 by $2 million.
For 1996, the weighted-average discount rate assumed in determining the
accumulated postretirement benefit obligation was 7.75 percent and the assumed
weighted-average salary increase was 4.0 percent.
OTHER PLANS
Under collective bargaining agreements, BNSF participates in multiemployer
benefit plans which provide certain postretirement health care and life
insurance benefits for eligible union employees. Insurance premiums paid
attributable to retirees, which are generally expensed as incurred, were $14
million in 1996, $11 million in 1995 and $10 million in 1994.
16 STOCK OPTIONS, OTHER INCENTIVE PLANS AND OTHER STOCKHOLDERS' EQUITY
STOCK OPTIONS
Under BNSF's stock option plan, options may be granted to officers and
salaried employees at fair market value of the Company's common stock on the
date of grant. Approximately 7.4 million common shares were available for
future grant at December 31, 1996. All options expire within 10 years after
the date of grant. Shares issued upon exercise of options may be issued from
treasury shares or from authorized but unissued shares.
34 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
The Company applies Accounting Principles Board (APB) Opinion 25 and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation expense has been recognized for its fixed stock option plans as
the exercise price equals the stock price on the date of grant. Had
compensation expense been determined for stock options granted in 1996 and
1995 based on the fair value at grant dates consistent with SFAS No. 123
"Accounting for Stock Based Compensation," the Company's pro forma 1996 net
income and earnings per share would have been $871 million and $5.58,
respectively, and 1995 net income and earnings per share would have been $84
million and $.59, respectively.
The pro forma amounts were estimated using the Black-Scholes option pricing
model with the following assumptions for 1996 and 1995:
1996 1995
- ----------------------------------------------------------------------------
Weighted average expected life (years) 3.0 3.0
Expected volatility 20% 20%
Annual dividend per share $1.20 $1.20
Risk free interest rate 6.11% 6.11%
Weighted average fair value
of options granted $13.34 $9.41
- ----------------------------------------------------------------------------
A summary of the status of the stock option plans as of December 31,
1996, 1995 and 1994, and changes during the years then ended, is
presented below:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average Weighted Average
Options Exercise Prices Options Exercise Prices Options Exercise Prices
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 9,598,653 $37.44 4,119,731 $41.16 3,635,091 $38.24
Granted 2,439,380 75.77 1,026,414 58.20 752,690 54.15
Conversion of SFP 0ptions - - 5,342,024 29.86 - -
Exercised (3,582,964) 34.37 (821,769) 31.27 (184,088) 33.42
Cancelled (199,784) 64.01 (67,747) 55.29 (83,962) 47.82
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of year 8,255,285 $49.46 9,598,653 $37.44 4,119,731 $41.16
- ---------------------------------------------------------------------------------------------------------------------
Options exercisable at year end 5,934,124 7,465,135 2,950,427
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information regarding stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Range of Options Option Weighted Average Weighted Average
Exercise prices Outstanding Exercisable Remaining Life Exercise Prices
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$09.04 to $24.27 2,216,025 2,216,025 5.2 years $19.76
$25.85 to $49.66 1,041,198 1,041,198 4.5 years $36.64
$50.58 to $73.88 2,655,216 2,655,216 7.3 years $56.04
$74.50 to $74.50 1,907,297 - 9.1 years $74.50
$80.19 to $86.63 435,549 21,685 8.8 years $82.07(1)
- ---------------------------------------------------------------------------------
$09.04 to $86.63 8,255,285 5,934,124 6.9 years $39.18
- ---------------------------------------------------------------------------------
</TABLE>
(1) The weighted average exercise price of options outstanding approximates
the weighted average exercise price of options exercisable.
OTHER INCENTIVE PLANS
BNSF has other long-term incentive programs in addition to stock options which
are administered separately on behalf of employees.
BNSF shareholders adopted the BNSF 1996 Stock Incentive Plan and the
Non-Employee Directors' Stock Plan (NEDS), two omnibus stock plans, at the
Annual Meeting of Shareholders on April 18, 1996. Under the BNSF Stock
Incentive Plan and NEDS, up to 10,000,000 and 300,000 shares of BNSF common
stock, respectively have been authorized to be issued in the form of stock
options, restricted stock, performance shares and performance units.
During 1996, BNSF awarded a total of approximately 400,000 shares of
restricted stock to eligible employees and directors. No cash payment is
required by the individual.
Shares awarded under the plans may not be sold, transferred or used as
collateral by the holder until the shares awarded become free of restrictions.
The restrictions will be lifted in thirds over three years beginning on the
third anniversary of the grant date if certain stock-price-based performance
goals are met. If, however, the performance goals are not met, the restricted
shares will be forfeited. All shares still subject to restrictions are
generally forfeited and returned to the plan if the employee's or director's
relationship is terminated. A total of 369,000 restricted shares related to
this award were outstanding as of December 31, 1996.
BURLINGTON NORTHERN SANTA FE CORPORATION 35
<PAGE>
Additionally, under the BNSF 1996 Stock Incentive Plan certain eligible
employees may defer the cash payment of their bonus paid under the Incentive
Compensation Plan (ICP) and will receive restricted stock which restrictions
lapse in three years or in two years if certain performance goals are met. The
number of restricted shares awarded are based on the amount of bonus deferred,
plus incremental shares, using the market price of BNSF common stock on the
date of grant. Restricted awards granted under this program totaled 81,000
shares in 1996. A total of 220,000 awards were outstanding under this and
prior programs on December 31, 1996.
In addition, all regularly-assigned salaried employees not eligible to
participate in deferrals under the ICP are eligible to participate in the BNSF
Discounted Stock Purchase Program. This program allows employees to use their
bonus earned under the ICP to purchase BNSF common stock at a discount from
the market price and requires that the stock be restricted for a three-year
period. During the years ended December 31, 1996, 1995 and 1994, 29,000,
39,000 and 32,000 shares were purchased under this plan.
Compensation expense is recorded for these BNSF plans in accordance with APB
Opinion 25 and was not material in 1996, 1995 or 1994.
OTHER STOCKHOLDERS' EQUITY
As a result of the Merger, certain investments in third parties held by both
BNI and SFP, which were previously recorded on the cost method, were converted
to the equity method due to BNSF's combined ownership position and ability to
exercise significant influence. As such, $26 million, which is net of deferred
taxes of $17 million, was recorded in 1995 as an increase to retained earnings
to reflect BNI's undistributed equity in earnings since initial investment.
SFP's investments were adjusted to fair value upon the application of purchase
accounting.
17 COMMON STOCK AND
PREFERRED CAPITAL STOCK
COMMON STOCK
BNSF is authorized to issue 300,000,000 shares of common stock, $.01 Par
Value. At December 31, 1996, there were 154,001,966 shares of common stock
outstanding. Each holder of common stock is entitled to one vote per share in
the election of directors and on all matters submitted to a vote of
stockholders. Subject to the rights and preferences of any future issuance of
preferred stock, each share of common stock is entitled to receive dividends
as may be declared by the Board of Directors out of funds legally available
and to share ratably in all assets available for distribution to stockholders
upon dissolution or liquidation. No holder of common stock has any preemptive
right to subscribe for any securities of BNSF.
PREFERRED STOCK, SERIES A, $.01 PAR VALUE, AUTHORIZED 25,000,000 SHARES
In 1992, BNI issued 6,900,000 shares of 6 1/4% Cumulative Convertible
Preferred Stock, Series A, No Par Value. The convertible preferred stock was
not redeemable prior to December 1995. In September 1995, the outstanding BNI
shares were converted to 6,878,607 shares of BNSF 6 1/4 Cumulative Convertible
Preferred Stock, $.01 par value. In October 1995, the Board of Directors voted
to redeem BNSF's 6 1/4% Cumulative Convertible Preferred Stock, Series A, $.01
par value, effective December 26, 1995, at the redemption price of $52.1875
per share. The majority of the holders of this preferred stock elected to
convert their shares into BNSF common stock as BNSF's common stock price was
significantly higher than the redemption price. As such, the cash payment for
shares redeemed was not significant.
CLASS A PREFERRED STOCK, $.01 PAR VALUE, AUTHORIZED 50,000,000 SHARES -
ZERO SHARES ISSUED
At December 31, 1996, BNSF had available for issuance 50,000,000 shares of
Class A Preferred Stock, $.01 Par Value. The Board of Directors has the
authority to issue such stock in one or more series, to fix the number of
shares and to fix the designations and the powers, rights, and qualifications
and restrictions of each series.
36 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
18 QUARTERLY FINANCIAL DATA -
UNAUDITED
<TABLE>
<CAPION>
(Dollars in millions, except per share data) Fourth Third Second First
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Revenues(1) $ 2,092 $ 2,044 $ 2,024 $ 2,027
Operating income 469 476 418 385
- --------------------------------------------------------------------------------
Net income $ 244 $ 247 $ 211 $ 187
- --------------------------------------------------------------------------------
Primary and fully diluted earnings
per common share $ 1.56 $ 1.58 $ 1.35 $ 1.21
- --------------------------------------------------------------------------------
Dividends declared per common share $ .30 $ .30 $ .30 $ .30
Common stock price:
High $90 1/8 $86 3/4 $88 3/4 $87 1/8
Low 77 7/8 76 1/4 77 7/8 73 1/2
1995
Revenues(1) $ 2,087 $ 1,455 $ 1,279 $ 1,342
Operating income (loss)(2) (175) 254 242 205
Income (loss) before extraordinary item
and cumulative effect of change in
accounting method (160) 133 124 101
Extraordinary item, loss on early
retirement of debt, net of tax(3) (6) - - -
Cumulative effect of change in accounting
method, net of tax(4) - - - (100)
- --------------------------------------------------------------------------------
Net income (loss) $ (166) $ 133 $ 124 $ 1
- --------------------------------------------------------------------------------
Primary earnings (loss) per common share:(4)
Income (loss) before extraordinary item
and change in accounting method $(1.15) $ 1.32 $ 1.31 $ 1.05
Extraordinary item (0.04) - - -
Change in accounting method - - - (1.11)
- --------------------------------------------------------------------------------
Primary earnings (loss) per common share $(1.19) $ 1.32 $ 1.31 $ (0.06)
- --------------------------------------------------------------------------------
Fully diluted earnings (loss) per
common share:(5)
Income (loss) before extraordinary item
and change in accounting method $(1.15) $ 1.28 $ 1.26 $ 1.05
Extraordinary item (0.04) - - -
Change in accounting method - - - (1.11)
- --------------------------------------------------------------------------------
Fully diluted earnings (loss) per common share $ (1.19) $ 1.28 $ 1.26 $ (0.06)
- --------------------------------------------------------------------------------
Dividends declared per common share $ .30 $ .30 $ .30 $ .30
Common stock price:
High $83 7/8 $76 1/4 $63 5/8 $60 1/8
Low 71 1/4 62 5/8 56 1/8 47 1/2
- --------------------------------------------------------------------------------
</TABLE>
(1) Amounts do not agree to previously reported amounts due to certain
reclassifications between revenues and expenses which were not
significant.
(2) Results include pre-tax charges of $587 million, $106 million, $10
million and $32 million for the fourth, third, second and first
quarters of 1995, respectively related to merger, severance and asset
charges as discussed in Note 3.
(3) Results for the fourth quarter include the loss on defeasance of
BNI 9% debentures of $6 million, net of $3 million income tax benefit,
or $.04 per share, treated as an extraordinary item.
(4) Effective January 1, 1995, BNSF changed its accounting for
locomotive overhauls. The cumulative effect of this change attributable
to years prior to 1995 was to decrease net income by $100 million, or
$1.11 per share.
(5) Fully diluted earnings per share are antidilutive for the first and
fourth quarters of 1995; therefore, the amounts reported for primary
and fully diluted earnings per share are the same. Amounts do not total
to the annual earnings per share because each quarter and the year are
calculated separately based on average outstanding shares and common
share equivalents during that period.
BURLINGTON NORTHERN SANTA FE CORPORATION 37
<PAGE>
EXHIBIT 21
BURLINGTON NORTHERN SANTA FE CORPORATION
----------------------------------------
Santa Fe Pacific Corporation (DE) 100%
BNSF Acquisition, Inc. (DE) 100%
SUBSIDIARIES OF SANTA FE PACIFIC CORPORATION
BN Leasing Corporation (DE) 100%
Burlington Northern International Services, Inc. (DE) 100%
Burlington Northern - Mexico Inc. (DE) 100%
The Burlington Northern and Santa Fe Railway Company (DE) 100%
Alameda Belt Line (CA) 50%
Aubrey Water Company (DE) 100%
The Belt Railway Company of Chicago (IL) 16.6%
Burlington Northern Dock Corporation (DE) 100%
Burlington Northern (Manitoba) Limited (Manitoba) 100%
Burlington Northern Railroad Holdings, Inc. (DE) 100%
Burlington Northern Worldwide, Inc. (DE) 100%
Camas Prairie Railroad Company (OR) 50%
Central California Traction Company (CA) 33.3%
The Dodge City and Cimarron Valley Railway Company (KS) 100%
Electro Northern, Inc. (DE) 100%
The Gulf and Inter-State Railway Company of Texas (TX) 100%
Houston Belt & Terminal Railway Company (TX) 49%
Iowa Transfer Railway Company (IA) 25%
Kansas City Terminal Railway Company (MO) 25%
Longview Switching Company (WA) 50%
Metrovias S.A. (Argentina) 16.6%
Los Angeles Junction Railway Company (CA) 100%
M T Properties, Inc. (MN) 37.8%
Northern Radio Limited (British Columbia) 100%
The Oakland Terminal Railway (CA) 50%
Oklahoma City Junction Railway Company (OK) 100%
Paducah & Illinois Railroad Company (KY) 33.3%
Portland Terminal Railroad Company (OR) 40%
Rio Grande, El Paso and Santa Fe Railroad Company (TX) 100%
Santa Fe Forwarding Company (DE) 100%
Santa Fe Rail Equipment Company (DE) 100%
Santa Fe Receivables Corporation (DE) 100%
Santa Fe Terminal Services, Inc. (DE) 100%
<PAGE>
The Burlington Northern and Santa Fe Railway Company (DE) (continued)
Star Lake Railroad Company (DE) 100%
St. Joseph Terminal Railroad Company (MO) 50%
Sunset Railway Company (CA) 50%
Terminal Railroad Association of St. Louis (MO) 14.3%
Texas City Terminal Railway Company (TX) 33.3%
Trenes de Buenos Aires S.A. (Argentina) 16.6%
TTX Company (DE) 17%
Western Fruit Express Company (DE) 100%
The Wichita Union Terminal Railway Company (KS) 66.6%
Winona Bridge Railway Company (MN) 100%
Burlington Northern Relocation Services Inc. (TX) 100%
Constellation 130, Inc. (CA) 100%
INB Corp. (NV) 100%
Limited Partnership Management, Inc. (DE) 100%
M-R Holdings Acquisition Company (DE) 100%
Midwest/Northwest Properties Inc. (DE) 100%
Pine Canyon Land Company (DE) 100%
Santa Fe Pacific Insurance Company (VT) 100%
Santa Fe Pacific Railroad Company (Act of Congress) 100%
SFP Pipeline Holdings, Inc. (DE) 100%
Santa Fe Pacific Pipelines, Inc. (DE) 100%
Sunset Communications Company (DE) 100%
Walker-Kurth Lumber Company (TX) 100%
The Zia Company (DE) 100%
- 2 -
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Burlington Northern Santa Fe Corporation on Form S-8 (File Nos. 33-62823,
33-62825, 33-62827, 33-62829, 33-62831, 33-62833, 33-62835, 33-62837, 33-62839,
33-62841, 33-62943, 33-63247, 33-63249, 33-63253, 33-63255, 333-03277,
333-03275, 333-19241), and Form S-3 (File No. 333-2501) of our report dated
February 15, 1996, on our audits of the consolidated financial statements and
financial statement schedule of Burlington Northern Santa Fe Corporation as of
December 31, 1995, and for the two years in the period ended December 31, 1995,
which report is included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Fort Worth, Texas
March 28, 1997
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in (i) the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 333-2501, as
amended) and (ii) the Registration Statements on Form S-8 (Nos. 33-62823;
33-62825; 33-62827; 33-62829; 33-62831; 33-62833; 33-62835; 33-62837; 33-62839;
33-62841; 33-62943; 33-63247; 33-63249; 33-63253; 33-63255; 333-03275;
333-03277; 333-19241) of Burlington Northern Santa Fe Corporation of our report
dated February 7, 1997 appearing on page 19 of the Annual Report to Shareholders
which is incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule,
which appears on page F-1 of this Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Chicago, Illinois
March 31, 1997
<PAGE>
POWER OF ATTORNEY
WHEREAS, BURLINGTON NORTHERN SANTA FE CORPORATION, a Delaware corporation
(the "Company"), will file with the Securities and Exchange Commission, under
the provisions of the Securities Exchange Act of 1934, as amended, its Annual
Report on Form 10-K for the fiscal year ended December 31, 1996; and
WHEREAS, the undersigned serve the Company in the capacity indicated;
NOW, THEREFORE, the undersigned hereby constitutes and appoints DENIS E.
SPRINGER and JEFFREY R. MORELAND, his attorney with full power to act for him in
his name, place and stead, to sign his name in the capacity set forth below, to
the Annual Report on Form 10-K of the Company for the fiscal year ended December
31, 1996, and to any and all amendments to such Annual Report on Form 10-K, and
hereby ratifies and confirms all that said attorney may or shall lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been executed by the
undersigned this 20th day of March, 1997.
/s/ Joseph F. Alibrandi /s/ Jack S. Blanton
- ----------------------- -------------------
Joseph F. Alibrandi, Director Jack S. Blanton, Director
/s/ John J. Burns, Jr. /s/ Daniel P. Davison
- ---------------------- ---------------------
John J. Burns, Jr., Director Daniel P. Davison
Chairman of the Board, Director
/s/ George Deukmejian /s/ Daniel J. Evans
- --------------------- -------------------
George Deukmejian, Director Daniel J. Evans, Director
/s/ Robert D. Krebs /s/ Bill M. Lindig
- ------------------- ------------------
Robert D. Krebs, President and Bill M. Lindig, Director
Chief Executive Officer, and
Director
/s/ Ben F. Love /s/ Roy S. Roberts
- --------------- ------------------
Ben F. Love, Director Roy S. Roberts, Director
/s/ Marc J. Shapiro /s/ Arnold R. Weber
- ------------------- -------------------
Marc J. Shapiro, Director Arnold R. Weber, Director
<PAGE>
/s/ Robert H. West /s/ J. Steven Whisler
- ------------------ ---------------------
Robert H. West, Director J. Steven Whisler, Director
/s/ Edward E. Whitacre, Jr. /s/ Ronald B. Woodard
- --------------------------- ---------------------
Edward E. Whitacre, Jr., Director Ronald B. Woodard, Director
/s/ Michael B. Yanney
- ---------------------
Michael B. Yanney, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Burlington Northern Santa Fe Corporation's Consolidated Financial Statements
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 47
<SECURITIES> 0
<RECEIVABLES> 768
<ALLOWANCES> 57
<INVENTORY> 222
<CURRENT-ASSETS> 1,331
<PP&E> 22,123
<DEPRECIATION> 4,490
<TOTAL-ASSETS> 19,846
<CURRENT-LIABILITIES> 2,311
<BONDS> 4,546
0
0
<COMMON> 2
<OTHER-SE> 5,979
<TOTAL-LIABILITY-AND-EQUITY> 19,846
<SALES> 0
<TOTAL-REVENUES> 8,187
<CGS> 0
<TOTAL-COSTS> 6,439
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 301
<INCOME-PRETAX> 1,440
<INCOME-TAX> 551
<INCOME-CONTINUING> 889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 889
<EPS-PRIMARY> 5.70
<EPS-DILUTED> 5.70
</TABLE>
<PAGE>
EXHIBIT 99
ITEM 3. LEGAL PROCEEDINGS.
EAST LINE CIVIL LITIGATION AND FERC PROCEEDINGS
In August 1992, two East Line refiners, Navajo Refining Company ("Navajo") and
El Paso Refinery, L.P. ("El Paso"), filed separate, though similar, civil
lawsuits (the "East Line Civil Litigation") against the Partnership arising from
the Partnership's alleged failure to provide additional pipeline capacity from
El Paso, Texas to Tucson and Phoenix, Arizona. In addition, El Paso filed a
protest/complaint with the FERC in September 1992 seeking to block the reversal
of the direction of flow of the six-inch pipeline between Phoenix and Tucson and
challenging the Partnership's proration policy, as well as the Partnership's
existing East Line rates (the "FERC Proceeding").
EAST LINE CIVIL LITIGATION
- --------------------------
The civil actions brought by Navajo and El Paso (El Paso Refining, Inc., and El
Paso Refinery, L.P. v. Santa Fe Pacific Pipelines, Inc. and Santa Fe Pacific
Pipeline Partners, L.P., No. 92-9144, County Court No. 5, El Paso County, filed
August 1992) were filed in New Mexico and Texas, respectively, seeking actual,
punitive and consequential damages alleged to have been caused by the
Partnership's failure to provide additional pipeline capacity from El Paso to
Tucson and Phoenix. Generally, the lawsuits allege that the refiners proceeded
with significant refinery expansions under the belief that the Partnership would
provide additional pipeline capacity to transport their product into Arizona,
and that they were damaged by their inability to ship additional volumes into
that highly competitive market when the Partnership did not provide such
additional capacity. The belief of Navajo and El Paso was purportedly based on
alleged oral representations made by General Partner personnel and from language
contained in a January 1989 settlement agreement with Navajo, relating to a 1985
FERC rate case.
In July 1993, the Partnership reached a settlement with Navajo whereby Navajo
agreed to dismiss its civil litigation in New Mexico and the Partnership agreed
to make certain cash payments to Navajo over three years and to undertake and
complete an additional pipeline capacity expansion between El Paso and Phoenix
if certain events related to volume levels and proration of pipeline capacity
should occur within five years of the date of the agreement.
El Paso's August 1992 civil action, as amended, claims unspecified actual
damages, which appear to include the alleged $190 million cost of its refinery
expansion, plus punitive and consequential damages. In addition, in October
1995, El Paso's general partner, El Paso Refining, Inc. ("EPRI"), filed a Second
Amended Petition seeking unspecified damages arising from alleged unfulfilled
representations of Partnership management with respect to future East Line
capacity, alleging that such representations had been relied upon in negotiating
the terms by which EPRI exchanged its refinery assets for ownership interests in
El Paso in 1989.
In October 1992, El Paso filed a petition for reorganization under Chapter 11 of
the federal bankruptcy laws and halted refinery operations and, in November
1993, the
<PAGE>
bankruptcy was converted to a Chapter 7 liquidation proceeding. During 1994, the
bankruptcy trustee for El Paso retained legal counsel for purposes of pursuing
El Paso's litigation against the Partnership. Depositions and written discovery
have been conducted by both parties since late 1994. To date, there have been no
hearings before the court and there is no pre-trial schedule.
On February 25, 1997, the Partnership entered into an agreement with the El Paso
bankruptcy trustee which, subject to the approval of the bankruptcy court, would
settle El Paso's and EPRI's claims in these civil matters in exchange for the
payment of $16 million by the Partnership in two equal installments. This
proposed settlement was submitted to the bankruptcy court overseeing the estates
of El Paso and EPRI for approval on March 18, 1997.
FERC PROCEEDINGS
- ----------------
At various dates following El Paso's September 1992 filing, other shippers on
the Partnership's South System, including Chevron U.S.A. Products Company
("Chevron"), Navajo, ARCO Products Company ("ARCO"), Texaco Refining and
Marketing Inc. ("Texaco"), Refinery Holding Company, L.P. (a partnership
formed by El Paso's long-term secured creditors that purchased El Paso's
refinery in May 1993), Mobil Oil Corporation and Tosco Corporation, have filed
separate complaints, and/or motions to intervene in proceedings initiated by
others, challenging the Partnership's rates on its East and West Lines.
Certain of these parties also claim that a gathering enhancement charge at the
Partnership's Watson, California pump station is in violation of the
Interstate Commerce Act. In subsequent procedural rulings, the FERC has
consolidated these challenges (Docket Nos. OR92-8-000, et al.) and ruled that
they must proceed as a complaint proceeding, with the burden of proof being
placed on the complaining parties. Such parties must show that the
Partnership's rates and practices at issue violate the requirements of the
Interstate Commerce Act.
On August 30, 1996, Ultramar Inc. ("Ultramar") filed a complaint concerning
charges associated with the use of the Partnership's Watson gathering
enhancement facilities (Docket No. OR96-15-000) and, on October 21, 1996, filed
an additional complaint against the Partnership's West Line rates (Docket No.
OR97-2-000), presenting largely the same issues raised by the West Line shippers
in the existing FERC proceedings. Management does not believe these complaints
raise significant additional issues. These complaints have been held in abeyance
pending a ruling in Docket Nos. OR92-8-000, et al.
In June 1994, the complainants filed their cases-in-chief with the FERC, seeking
reparations for shipments between 1990 and 1993 aggregating in the range of $15
million to $20 million, as well as tariff rate reductions of between 40% and 50%
for future shipments. In August 1994, the FERC Staff submitted its case-in-chief
in the FERC proceeding, employing rate-making methodologies similar in several
respects to those presented by the complainants. In subsequent filings, the
complainants revised their requested relief to seek reparations for shipments
between 1990 and 1994 aggregating
<PAGE>
approximately $35 million, as well as rate reductions of between 30% and 40% for
shipments in 1995 and thereafter.
Both the FERC Staff and several of the complainants argued, among other things,
against the Partnership s entitlement to an income tax allowance in its cost of
service. They also utilized the Partnership s capital structure at the time of
its formation in December 1988, or a hypothetical capital structure, for the
purpose of establishing the Partnership's 1985 starting rate base under FERC
Opinion 154-B. In addition, the FERC Staff and the complainants would generally
exclude most or all of the Partnership s civil and regulatory litigation expense
from its cost of service calculations. Each of these positions is adverse to the
Partnership's position regarding its existing rate structure.
As discussed in the Partnership's 1995 Form 10-K, in June 1995, the FERC issued
a decision in an unrelated rate proceeding involving Lakehead Pipe Line Company,
Limited Partnership ("Lakehead"), ruling that Lakehead could not include an
income tax allowance in its cost of service with respect to partnership income
that is attributable to limited partnership interests held by individuals. On
May 17, 1996, the FERC issued an order on rehearing in that proceeding (the
"Lakehead Order") that reaffirmed and clarified the June 1995 decision and
further limited Lakehead's entitlement to an income tax allowance by excluding
from Lakehead's cost of service the taxes attributable to curative allocations
of income to Lakehead s general partner under Section 704 (c) of the Internal
Revenue Code. If upheld and applied in the Partnership's FERC Proceeding, the
Partnership's entitlement to an income tax allowance in its cost of service
could also be limited by the principles stated in the Lakehead Order.
Successive rounds of testimony were filed by the respective parties, including
the Partnership, regarding the above summarized issues and other matters
relevant to the appropriateness of the Partnership's tariffs and rates. Among
other things, certain of the parties submitted revised cases based on the
Partnership s 1994 costs and revenues. The Partnership's surrebuttal
presentation responded to those cases, defending the Partnership's current rates
based on 1994 data, with certain normalizing adjustments, including a
significant adjustment to reflect an extensive pipe reconditioning program that
was begun in 1994.
Hearings in the FERC Proceeding commenced on April 9, 1996 and concluded on July
19, 1996. The parties completed the filing of their post-hearing briefs on
December 9, 1996. An initial decision by the FERC Administrative Law Judge is
expected in 1997.
The Energy Policy Act of 1992 ("EPACT") provided that existing oil pipeline
rates that were in effect without challenge for 365 days prior to the bill's
enactment in October 1992 are deemed to be "just and reasonable," with an
exception being allowed for parties, such as Navajo, that were prohibited from
filing challenges during that period due to the terms of settlement agreements.
In October 1993, with respect to Chevron's complaint, the FERC ruled that the
Partnership's West Line rates are deemed "just and reasonable" under EPACT
(i.e., are "grandfathered") and may only be challenged upon a showing of a
<PAGE>
substantial change in the economic circumstances which were the basis for the
rate ("changed circumstances"). In December 1994, ARCO, Texaco and Chevron filed
testimony in which they sought to demonstrate the required "changed
circumstances" in order to challenge the Partnership's West Line rates, citing
such factors as increased West Line volumes. In April 1995, the United States
Court of Appeals for the District of Columbia Circuit dismissed petitions for
review of the FERC's grandfathering rulings that had been filed by ARCO and
Texaco, on the ground that the FERC rulings are not yet final orders and,
therefore, are not yet subject to judicial review.
In December 1995, Texaco filed an additional FERC complaint, which involves the
question whether a tariff filing is required for movements on certain of the
Partnership's lines upstream of its Watson, California station origin point and,
if so, whether those rates may be set in this proceeding and what those rates
should be. Texaco's initial complaint was followed by several other West Line
shippers filing similar complaints and/or motions to intervene, all of which
have been consolidated into Docket Nos. 96-2-000 et al. Hearings before an
Administrative Law Judge were held in December 1996 and the parties completed
the filing of final post-hearing briefs on January 31, 1997. An initial decision
is expected during 1997.
In June 1996, the Partnership entered into an agreement with the El Paso
bankruptcy trustee to settle El Paso's claims in the FERC Proceeding with a
payment by the Partnership of $1,250,000. The agreement subsequently was
approved by the bankruptcy court, and the presiding FERC Administrative Law
Judge permitted El Paso to withdraw its complaint. This settlement does not
affect El Paso's civil litigation against the Partnership.
In September 1996, the Partnership and Navajo reached an agreement whereby
Navajo agreed to withdraw its complaint against the Partnership's West Line
rates in exchange for a cash payment of $1,000,000. Navajo s request to
withdraw its West Line complaint was submitted to the FERC for approval in
November 1996 and is currently pending. This settlement would not affect
Navajo's remaining complaint against the Partnership s East Line rates.
During 1996, the Partnership also presented settlement offers to all of the
remaining complainants in the FERC proceedings, including Navajo with respect to
East Line rates. The terms of the existing settlement agreements with El Paso
and Navajo do not provide for rate reductions, but other offers that have been
extended do include proposed prospective reductions in the rates at issue in the
proceedings.
During the quarter ended September 30, 1996, the Partnership recorded an $8
million provision to increase its existing reserves to reflect the total amount
that would be payable under the settlement offers that had been extended as of
that date, including those offers that have been accepted by El Paso and Navajo
and, during the quarter ended December 31, 1996, recorded an additional $15
million provision to increase its reserves to reflect management's current
estimate of the ultimate costs of resolution of the FERC
<PAGE>
proceedings. The Partnership is not able to predict with certainty whether
settlement agreements will be completed with some or all of the remaining
complainants, the final terms of any such additional settlement agreements that
may be consummated, or the final outcome of the FERC proceedings should they be
carried through to their conclusions. However, the ultimate resolution of the
FERC proceedings could have a material adverse effect on the Partnership's
results of operations, financial condition, liquidity and ability to maintain
its quarterly cash distribution at the current level.
