Pricing Supplement No. 1 Dated March 13, 1998 Rule 424(b)(3)
(To Prospectus dated August 12, 1997 and File No. 333-32879
Prospectus Supplement dated August 20, 1997)
Burlington Northern Santa Fe Corporation
Medium-Term Notes, Series B
$100,000,000
6.05% REset Put Securities ("REPSSM")*
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Trade Date: March 13, 1998
Original Issue Date: March 24, 1998
Principal Amount: $100,000,000
Price to Public: 99.90% of Principal Amount, plus
accrued interest, if any, from and
including March 24, 1998
Purchase Price: 99.55% of Principal Amount, plus
accrued interest, if any, from and
including March 24, 1998
Interest Rate: To but excluding March 15, 2001,
6.05%. From and including March 15,
2001, as described under
"Additional Terms - Interest Rate
and Interest Payment Dates"
Interest Payment Dates: March 15 and September 15 of each
year, commencing September 15, 1998
Maturity Date: March 15, 2031, subject to the Call
Option and Put Option referred to
below
Call Option: The Notes may be called by the
Callholder prior to maturity, as
described under "Additional Terms -
Call Option; Put Option"
Repayment/Put Option: The Notes are subject to repayment
by the Company prior to the
Maturity Date, pursuant to the Put
Option as described under
"Additional Terms - Call Option;
Put Option"
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Form: [X] Book-Entry [ ] Certificated
CUSIP No.: 12189QAC4
Original Issue Discount Note: [ ] Yes [X] No
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Agents: Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co.
Agents acting in the capacity as indicated below:
[ ] Agent [X] Principal
Other Provisions: See the Attachment
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MORGAN STANLEY & CO. INCORPORATED GOLDMAN, SACHS & CO.
-----------------------------
* REPS is a service mark of Morgan Stanley, Dean Witter, Discover & Co.
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
NOTES. SPECIFICALLY, THE AGENT MAY OVER-ALLOT IN CONNECTION WITH THE
OFFERING, AND MAY BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
ADDITIONAL TERMS
These Additional Terms constitute a part of Pricing Supplement
No. 1 dated March 13, 1998, of Burlington Northern Santa Fe Corporation and
contains a description of additional terms and provisions applicable to the
Company's 6.05% REset Put Securities (the "Notes") constituting a tranche
of the Company's Medium-Term Notes, Series B. The Notes are described in
the Prospectus and the Prospectus Supplement for the Medium-Term Notes,
Series B, referred to above, and reference is made thereto for a detailed
summary of additional provisions of the Notes. The Notes are Fixed Rate
Notes as described in the Prospectus Supplement, subject to and as modified
by the Coupon Reset Process and other provisions described below. The
description of the particular terms of the Notes set forth in this Pricing
Supplement supplements, and to the extent inconsistent therewith replaces,
the description of the terms and provisions of the "Debt Securities" in the
Prospectus and the "Notes" in the Prospectus Supplement. Capitalized terms
used but undefined herein shall have the meanings given such terms in such
Prospectus and Prospectus Supplement.
Interest Rate and Interest Payment Dates
The Notes will bear interest at the rate of 6.05% from and
including March 24, 1998 to but excluding March 15, 2001 (the "Coupon Reset
Date"). Interest on the Notes will be payable semi-annually on March 15 and
September 15 of each year, commencing September 15, 1998 (each, an
"Interest Payment Date"). Interest will be calculated based on a 360-day
year consisting of twelve 30-day months. On each Interest Payment Date,
interest will be payable to the persons in whose name the Notes are
registered on the fifteenth calendar day (whether or not a Business Day)
immediately preceding the related Interest Payment Date (each, a "Record
Date"). "Business Day" means any day other than a Saturday, a Sunday or a
day on which banking institutions in The City of New York are authorized or
required by law or regulation to be closed.
If the Callholder (as defined below) elects to purchase the Notes
pursuant to the Call Option (as defined below), the Calculation Agent (as
defined below) will reset the interest rate for the Notes effective on the
Coupon Reset Date, pursuant to the Coupon Reset Process described below. In
such circumstance, (i) the Notes will be purchased by the Callholder at
100% of the principal amount thereof on the Coupon Reset Date, on the terms
and subject to the conditions described herein (interest accrued to but
excluding the Coupon Reset Date will be paid by the Company on such date to
the holders of the Notes on the most recent Record Date), and (ii) from and
including the Coupon Reset Date, the Notes will bear interest at the rate
determined by the Calculation Agent in accordance with the procedures set
forth under "--Coupon Reset Process if Notes are Called" below.
Maturity Date
The Notes will mature on March 15, 2031 (the "Maturity Date").
However, holders of the Notes will be entitled to receive 100% of the
principal amount thereof on the Coupon Reset Date from either (i) the
Callholder, if the Callholder purchases the Notes pursuant to
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the Call Option, or (ii) the Company, by exercise of the Put Option (as
defined below) by the Trustee for and on behalf of the holders of the
Notes, if the Callholder does not purchase the Notes pursuant to the Call
Option. See "Call Option; Put Option" below.
For persons holding the Notes (or an interest therein) on the
Coupon Reset Date, the effect of the operation of the Call Option and Put
Option will be that such holders will be entitled to receive, and will be
required to accept, 100% of the principal amount of such Notes (plus
accrued interest) on the Coupon Reset Date in satisfaction of the Company's
obligations to the holders of the Notes. Interest accrued to but excluding
the Coupon Reset Date will be paid by the Company on such date to the
holders of the Notes on the most recent Record Date.
Call Option; Put Option
(i) Call Option. Pursuant to the terms of the Notes, the
Callholder, by giving notice to the Trustee (the "Call Notice"), has the
right to purchase the aggregate principal amount of Notes, in whole but not
in part (the "Call Option"), on the Coupon Reset Date, at a price equal to
100% of the principal amount thereof (the "Call Price") (interest accrued
to but excluding the Coupon Reset Date will be paid by the Company on such
date to the holders of the Notes on the most recent Record Date). In order
for the Callholder to exercise the Call Option, the Call Notice is required
to be given to the Trustee, in writing, prior to 4:00 p.m., New York time,
no later than fifteen calendar days prior to the Coupon Reset Date for the
Notes.
If the Callholder exercises its rights under the Call Option,
unless terminated in accordance with its terms, (i) not later than 2:00
p.m., New York time, on the Business Day prior to the Coupon Reset Date,
the Callholder will deliver the Call Price in immediately available funds
to the Trustee for payment of the Call Price on the Coupon Reset Date and
(ii) the holders of Notes will be required to deliver and will be deemed to
have delivered the Notes to the Callholder against payment therefor on the
Coupon Reset Date through the facilities of the Depositary. No holder of
any Notes or any interest therein will have any right or claim against the
Callholder as a result of the Callholder's decision whether or not to
exercise the Call Option or performance or nonperformance of its
obligations with respect thereto.
The Call Option provides for certain circumstances under which
the Call Option may be terminated (as set forth below). If the Call Option
is terminated, notice of such termination will be promptly given in writing
to the Trustee by the Callholder or the Company, as the case may be. If the
Call Option is not exercised or if the Call Option otherwise terminates,
the Trustee will be required to exercise the Put Option described below.
Except for the events specified in clauses (i) through (iii)
below, with respect to which termination is at the Callholder's Option, the
Call Option will automatically and immediately terminate, no payment will
be due hereunder from the Callholder, and the Coupon Reset Process will
terminate, if any of the following occurs: (i) an Event of Default occurs
under Section 501(1), 501(2), 501(3) or 501(4) of the Indenture; (ii) a
default, event of default or other similar condition or event (however
described) in respect of the Company or any of its material subsidiaries
has occurred under one or more agreements or instruments relating to
indebtedness of the Company or any of its material subsidiaries
(individually or collectively) in an aggregate amount of not less than
$75,000,000, which has resulted in such indebtedness becoming due and
payable under such agreements or instruments, before it would otherwise
have been due and payable; (iii) the Company or any of its material
subsidiaries (individually or collectively) has defaulted in making one or
more payments on
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the due date thereof in an aggregate amount of not less than $75,000,000
under such agreements or instruments (after giving effect to any applicable
notice requirement or grace period); (iv) an Event of Default has occurred
and is continuing under Section 501(5) or 501(6) of the Indenture; (v) the
Callholder fails to deliver the Call Notice to the Trustee prior to 4:00
p.m., New York time, on the fifteenth calendar day prior to the Coupon
Reset Date; (vi) on the Bid Date (as defined below), fewer than two Dealers
(as defined below) submit timely Bids (as defined below) substantially as
provided below; or (vii) the Callholder fails to pay the Call Price by 2:00
p.m., New York time, on the Business Day prior to the Coupon Reset Date.
Immediately following the original issuance of the Notes, the
"Callholder" will be Morgan Stanley & Co. International Limited, who will,
concurrently with such issuance, purchase the Call Option from the Company
for consideration in an amount equal to 3.74% of the principal amount of
the Notes. Thereafter, the Callholder from time to time may assign all (but
not less than all) its rights under the Call Option to any Affiliate of
Morgan Stanley & Co. International Limited, in each case without notice to
or consent of the holders of the Notes. Under certain circumstances, the
Company has the right or the obligation to reacquire the Call Option.
"Affiliate" shall mean, in relation to any party, any entity controlled,
directly or indirectly, by the party, any entity that controls, directly or
indirectly, the party or any entity directly or indirectly under a common
control with the party. For this purpose, "control" of any entity or party
means ownership of a majority of the voting power of the entity or party.
(ii) Put Option. If the Call Option is not exercised or if the
Call Option otherwise terminates, the Trustee will be obligated to exercise
the right of the holders of the Notes to require the Company to purchase
the aggregate principal amount of Notes, in whole but not in part (the "Put
Option"), on the Coupon Reset Date at a price equal to 100% of the
principal amount thereof (the "Put Price"), plus accrued but unpaid
interest to but excluding such Coupon Reset Date, in each case, to be paid
by the Company to the holders on the Coupon Reset Date. If the Trustee
exercises the Put Option, then the Company shall deliver the Put Price in
immediately available funds to the Trustee by no later than 10:00 a.m., New
York time, on the Coupon Reset Date, and the holders of the Notes will be
required to deliver and will be deemed to have delivered the Notes to the
Company against payment therefor on the Coupon Reset Date through the
facilities of the Depositary. By its purchase of Notes, each holder
irrevocably agrees that the Trustee shall exercise the Put Option relating
to such Notes for or on behalf of such Notes as provided herein. No holder
of any Notes or any interest therein has the right to consent or object to
the exercise of the Trustee's duties under the Put Option.
The transactions described above will be executed on the Coupon
Reset Date through the Depositary in accordance with the procedures of the
Depositary, and the accounts of participants will be debited and credited
and the Notes delivered by book-entry as necessary to effect the purchases
and sales thereof. For further information with respect to transfers and
settlement through the Depositary, see "Description of the
Notes--Book-Entry System" in the Prospectus Supplement.
Notice to Holders by Trustee
In anticipation of the exercise of the Call Option or the Put
Option on the Coupon Reset Date, the Trustee will notify the Holders of the
Notes, not less than 30 days nor more than 60 days prior to the Coupon
Reset Date, that all Notes shall be delivered on the Coupon Reset Date
through the facilities of the Depositary against payment of the Call Price
by the Callholder under the Call Option or payment of the Put Price by the
Company under the Put
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Option. The Trustee will notify the holders of the Notes once it is
determined whether the Call Price or the Put Price shall be delivered.
Coupon Reset Process if Notes are Called
The following discussion describes the steps to be taken in order
to determine the interest rate to be paid on Notes on and after the Coupon
Reset Date in the event the Call Option has been exercised with respect to
the Notes.
Under the Notes and pursuant to a Calculation Agency Agreement,
Morgan Stanley & Co. Incorporated has been appointed the calculation agent
for the Notes (in such capacity as calculation agent, the "Calculation
Agent"). If the Callholder exercises the Call Option, then the following
steps (the "Coupon Reset Process") will be taken in order to determine the
interest rate to be paid on the Notes from and including such Coupon Reset
Date to but excluding the Maturity Date. The Company and the Calculation
Agent will use reasonable efforts to cause the actions contemplated below
to be completed in as timely a manner as possible.
(a) No later than five Business Days prior to the Coupon Reset
Date, the Company will provide the Calculation Agent with (i) a list
(the "Dealer List"), containing the names and addresses of at least
three but not more than five dealers, one of whom shall be Morgan
Stanley & Co. Incorporated, from whom the Company desires the
Calculation Agent to obtain Bids for the purchase of the Notes and
(ii) such other material as may reasonably be requested by the
Calculation Agent to facilitate a successful Coupon Reset Process.
(b) Within one Business Day following receipt by the Calculation
Agent of the Dealer List, the Calculation Agent will provide to each
dealer ("Dealer") on the Dealer List (i) a copy of the Pricing
Supplement dated March 13, 1998, together with the Prospectus
Supplement dated August 20, 1997 and Prospectus dated August 12, 1997,
relating to the offering of the Notes (collectively, the "Pricing
Supplement"), (ii) a copy of the form of Notes and (iii) a written
request that each Dealer submit a Bid to the Calculation Agent by
12:00 noon, New York time, on the third Business Day prior to the
Coupon Reset Date (the "Bid Date"). "Bid" means an irrevocable written
offer given by a Dealer for the purchase of all of the Notes, settling
on the Coupon Reset Date, and shall be quoted by such Dealer as a
stated yield to maturity on Notes ("Yield to Maturity"). Each Dealer
shall also be provided with (i) the name of the Company, (ii) an
estimate of the Purchase Price (which shall be stated as a U.S. dollar
amount and be calculated by the Calculation Agent in accordance with
paragraph (c) below), (iii) the principal amount and maturity of the
Notes and (iv) the method by which interest will be calculated on the
Notes.
(c) The purchase price for the Notes in connection with the
Coupon Reset Process after the exercise of the Call Option (the
"Purchase Price") shall be equal to (i) the principal amount of the
Notes, plus (ii) a premium (the "Notes Premium") which shall be equal
to the excess, if any, on the Coupon Reset Date of (A) the discounted
present value to the Coupon Reset Date of a bond with a maturity of
March 15, 2031, which has an interest rate of 5.892%, semi-annual
interest payments on each March 15 and September 15, commencing
September 15, 2001, and a principal amount equal to the principal
amount of the Notes, and assuming a discount rate equal to the
Treasury Rate over (B) such principal amount of Notes. The "Treasury
Rate" means the per annum rate equal to the offer side yield to
maturity of the current on-the-run 30-year United States Treasury
Security per Telerate page 500, or any successor page, at 11:00 a.m.,
New York time, on the Bid
<PAGE>
Date (or such other time or date that may be agreed upon by the
Company and the Calculation Agent) or, if such rate does not appear on
Telerate page 500, or any successor page, at such time, the rates on
GovPX End-of-Day Pricing at 3:00 p.m., New York time, on the Bid Date
(or such other time or date that may be agreed upon by the Company and
the Calculation Agent).
(d) The Calculation Agent will provide written notice to the
Company by 12:30 p.m., New York time, on the Bid Date, setting forth
(i) the names of each of the Dealers from whom the Calculation Agent
received Bids on the Bid Date, (ii) the Bid submitted by each such
Dealer and (iii) the Purchase Price as determined pursuant to
paragraph (c) above. Except as provided below, the Calculation Agent
will thereafter select from the Bids received the Bid with the lowest
Yield to Maturity (the "Selected Bid"); provided, however, that (i) if
the Calculation Agent has not received a timely Bid from a Dealer on
or before the Bid Date, the Selected Bid shall be the lowest of all
Bids received by such time and (ii) if any two or more of the lowest
Bids submitted are equivalent, the Company shall in its sole
discretion select any of such equivalent Bids (and such selected Bid
shall be the Selected Bid). The Calculation Agent will set the Coupon
Reset Rate equal to the interest rate that will amortize the Notes
Premium fully over the term of the Notes at the Yield to Maturity
indicated by the Selected Bid. The Calculation Agent will notify the
Dealer that submitted the Selected Bid by 4:00 p.m., New York time, on
the Bid Date.
(e) Immediately after calculating the Coupon Reset Rate for the
Notes, the Calculation Agent will provide written notice to the
Company and the Trustee, setting forth the Coupon Reset Rate. The
Coupon Reset Rate for the Notes will be effective from and including
the Coupon Reset Date.
(f) The Callholder will sell the Notes to the Dealer that made
the Selected Bid at the Purchase Price, such sale to be settled on the
Coupon Reset Date in immediately available funds.
The Calculation Agency Agreement provides that the Calculation
Agent for the Notes may resign at any time as Calculation Agent, such
resignation generally to be effective ten Business Days after the delivery
to the Company and the Trustee of notice of such resignation. In such case,
the Company may appoint a successor Calculation Agent for the Notes.
The Calculation Agent, in its individual capacity, may buy, sell,
hold and deal in the Notes and may exercise any vote or join in any action
which any holder of the Notes may be entitled to exercise or take as if it
were not the Calculation Agent. The Calculation Agent, in its individual
capacity, may also engage in any transaction with the Company as if it were
not the Calculation Agent.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States Federal
income tax considerations relating to the purchase, ownership and
disposition of the Notes by an initial holder of the Notes who purchases
the Notes on the Original Issue Date. This summary is based upon current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
existing and proposed Treasury regulations promulgated thereunder and
current administrative rulings and court decisions currently in effect, all
of which are subject to change, possibly with retroactive effect. The
discussion does not deal with all Federal tax
<PAGE>
considerations applicable to all categories of investors (including
insurance companies, tax- exempt organizations, financial institutions or
broker-dealers) some of which may be subject to special rules. In addition,
this summary is limited to holders who will hold the Notes as "capital
assets" (generally, property held for investment) within the meaning of
Section 1221 of the Code. This summary only addresses the United States
Federal income tax considerations of the Notes until the Coupon Reset Date.
Investors are urged to consult their own tax advisors to
determine the Federal, state, local, foreign, and other tax consequences
relating to the purchase, ownership and disposition of the Notes.
Prospective investors should note that no rulings have been or
are expected to be sought from the Internal Revenue Service (the "Service")
with respect to any of the Federal income tax considerations discussed
below, and no assurance can be given that the Service will not take
contrary positions.
Treatment of Notes
Although there is no authority on point characterizing
instruments such as the Notes, and the matter is not free from doubt, the
Company intends to treat the Notes as fixed rate debt instruments that
mature on the Coupon Reset Date for United States Federal income tax
purposes. The issue price of the Notes will be equal to the first price at
which a substantial amount of the Notes are sold for money (excluding sales
to bond houses, brokers or similar persons or organizations acting in the
capacity as underwriters, placement agents or wholesalers) without regard
to any amount paid by the Callholder as option premium with respect to the
Call Option. So viewed, each holder must include in gross income the stated
interest paid or accrued on the Notes in accordance with its usual method
of accounting. Upon the sale, exchange, redemption or other disposition by
a holder of Notes, the holder should recognize capital gain or loss equal
to the difference between the amount realized from the disposition of the
Notes (exclusive of amounts attributable to the payment of accrued interest
not previously included in income, which will be taxable as ordinary
income) and the holder's adjusted tax basis in the Notes at the time of the
sale, exchange, redemption or other disposition. A holder's adjusted tax
basis in the Notes generally will equal the holder's purchase price for
such Notes. Pursuant to the Taxpayer Relief Act of 1997, in the case of an
individual holder, any capital gain recognized on the disposition of the
Notes will generally be subject to U.S. Federal income tax at a stated
maximum rate of (i) 20%, if the holder's holding period in the Notes was
more than 18 months at the time of such sale, exchange, redemption or other
disposition, or (ii) 28%, if the holder's holding period in such Notes was
more than one year, but not more than 18 months, at the time of such sale,
exchange, redemption, or other disposition. The ability to use capital
losses to offset ordinary income in determining taxable income is generally
limited.
It is possible that the Service will disagree with or that a
court will not uphold the foregoing treatment of the Notes. In particular,
the Service could seek to treat the Notes as maturing on the Maturity Date
rather than the Coupon Reset Date, in which case (i) the issue price of the
Notes would include the premium paid by the Callholder with respect to the
Call Option, and (ii) the holder would be treated as selling a Call Option
to the Callholder for an amount equal to the premium paid by the Callholder
for the Call Option. The amount deemed received as consideration for sale
of the Call Option would be treated as an option premium paid to such
holder (and consequently would not be recognized as income on the writing
of the Call Option). Because of the Coupon Reset Process, if the Notes were
treated as maturing on the Maturity Date, holders would be subject to
certain Treasury Regulations dealing with contingent payment debt
instruments (the "Contingent Debt Regulations"). Under the Contingent Debt
Regulations, each holder would be required (regardless of such
<PAGE>
holder's usual method of accounting) to include in gross income original
issue discount for each interest accrual period in an amount equal to the
product of the adjusted issue price of the Notes at the beginning of each
interest accrual period and a projected yield to maturity of the Notes. The
projected yield to maturity would be based on the "comparable yield" (i.e.,
the yield at which the Company would issue a fixed rate debt instrument
maturing on the Maturity Date, with terms and conditions otherwise similar
to those of the Notes), which would be higher than the stated interest rate
on the Notes prior to the Coupon Reset Date. In addition, the character of
any gain or loss recognized on the sale, exchange, retirement or other
disposition of the Notes could differ from that set forth in the preceding
paragraph. For example, if the Contingent Debt Regulations applied, any
gain recognized on the sale of the Notes would be treated as interest
income, while any losses would generally be ordinary to the extent of
previously accrued original issue discount, and any excess would be capital
loss. The ability to use capital losses to offset ordinary income in
determining taxable income is generally limited.
Foreign Holders of Notes
Interest paid with respect to the Notes to a holder that is not a
United States person (a "Foreign Holder") generally will not be subject to
the 30% withholding tax generally imposed with respect to U.S. source
interest paid to such persons, provided that such holder is not engaged in
a trade or business in the United States in connection with which it holds
such Notes, does not bear certain relationships to the Company and fulfills
certain certification requirements. Under such certification requirements,
the holder must certify, under penalties of perjury, that it is not a
"United States person" and is the beneficial owner of the Notes, and must
provide its name and address. For this purpose, "United States person"
means a citizen or resident of the United States, a corporation,
partnership, or other entity created or organized in or under the laws of
the United States or any State thereof (including the District of
Columbia), an estate the income of which is includible in gross income for
United States Federal income tax purposes, regardless of its source, or a
trust subject to the primary supervision of a court within the United
States and the control of one or more U.S. persons with respect to all
substantial decisions.
A Foreign Holder generally will not be subject to United States
Federal income tax with respect to any gain recognized upon the disposition
of Notes unless (i) such gain is effectively connected with the conduct by
the Foreign Holder of a trade or business in the United States, (ii) in the
case of any individual holder, such Foreign Holder is present in the United
States for 183 days or more in the taxable year during which the
disposition occurs and certain other conditions are met or (iii) the Notes
are treated as subject to the Contingent Debt Regulations and the holder
fails to satisfy the certification requirements of the preceding paragraph.
Backup Withholding
Payments made on the Notes and proceeds from the sale of Notes
will not be subject to a "backup" withholding tax of 31% unless, in
general, the holder fails to comply with certain reporting procedures and
is not an exempt recipient under applicable provisions of the Code.
Recently issued Treasury regulations (the "Final Withholding
Regulations"), which are generally effective with respect to payments made
after December 31, 1998, consolidate and modify the current certification
requirements and means by which holders may claim exemption from United
States federal income tax withholding on foreign persons and from backup
withholding. Foreign Holders claiming benefits under an income tax treaty
may be required to obtain a taxpayer identification number and to certify
their eligibility under the
<PAGE>
treaty's limitation of benefits article in order to comply with the Final
Withholding Regulations. Because the application of the Final Withholding
Regulations will vary depending upon a holder's particular circumstances,
all holders are urged to consult their own tax advisors regarding the
application of the Final Withholding Regulations to them.
UNDERWRITING
The settlement date for the purchase of the Notes will be March
24, 1998, as agreed upon by the Company and the Agent pursuant to Rule
15c6-1 under the Securities Exchange Act of 1934.
VALIDITY OF THE NOTES
The validity of the Notes will be passed upon for the Company by
Mayer, Brown & Platt, Chicago, Illinois. No counsel will be passing upon
the validity of the Notes for the Agents.
