<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Burlington Northern Santa Fe Corporation
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[BURLINGTON NORTHERN LOGO]
March 8, 1999
Dear Fellow Stockholder:
On behalf of the Board of Directors, it is my pleasure to invite you to
attend the Company's annual meeting of stockholders on Thursday, April 15,
1999, in Fort Worth.
On the following pages you will find a Notice of Meeting that identifies the
proposals for your action, including the election of the Board of Directors
and approval of a stock incentive plan, as well as other information to help
you make an informed vote. In addition to the items of business to be voted
on at the meeting, we will also discuss the Company's 1998 performance and
address your questions.
To make it easier for you to vote your shares, we are introducing telephone
voting. The enclosed proxy card describes how to use this convenient new
service. Alternatively, you may complete the enclosed proxy card and return
it in the postage-paid envelope.
Your vote is important. Whether or not you plan to attend the meeting, I
encourage you to read this proxy statement and either vote by telephone, or
sign, date, and return your proxy card in the envelope provided, so that
your shares will be represented at the meeting. Of course, you are always
welcome to come to the meeting and vote your shares in person.
As indicated by the logo below, during 1999 we will celebrate the 150th
anniversary of the dates when two of our predecessor railroads were first
organized.
Sincerely,
[SIGNATURE OF ROBERT D. KREBS]
Robert D. Krebs
[BURLINGTON LOGO]
<PAGE>
Burlington Northern Santa Fe Corporation
- - -------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
- - -------------------------------------------------------------------------------
The fourth annual meeting of stockholders of Burlington Northern Santa Fe
Corporation ("BNSF" or the "Company") will be held at 9:00 a.m. on Thursday,
April 15, 1999, at the Worthington Hotel in the Grand Ballroom, 200 Main
Street, Fort Worth, Texas 76102, for the following purposes:
(1) to elect fifteen directors;
(2) to approve the Burlington Northern Santa Fe 1999 Stock Incentive Plan;
and
(3) to transact such other business as is properly brought before the
meeting and at any adjournment or postponement of the meeting.
Stockholders of record at the close of business on February 26, 1999, are
entitled to notice of the meeting and are entitled to vote at the meeting in
person or by proxy. A list of these stockholders will be kept at the offices
of the Company in Fort Worth, Texas for a period of ten days prior to the
meeting. You may authorize BNSF to vote your shares as you direct using the
enclosed proxy card or by telephone as explained on the card.
By order of the Board of Directors.
MARSHA K. MORGAN
Vice President--Investor Relations
and
Corporate Secretary
2650 Lou Menk Drive
Second Floor
Fort Worth, Texas 76131-2830
March 8, 1999
YOUR VOTE IS IMPORTANT
Please vote by toll-free telephone
as explained on the enclosed proxy card,
or mark, sign, and date your proxy card and return
it promptly in the enclosed envelope, whether or not
you plan to attend the meeting.
<PAGE>
TABLE OF CONTENTS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
PROXY STATEMENT........................................................... 1
INFORMATION ABOUT THE ANNUAL MEETING...................................... 1
Annual Meeting.......................................................... 1
Items to be Voted Upon.................................................. 1
Who Can Vote............................................................ 1
How to Vote by Proxy.................................................... 1
Changing Your Vote...................................................... 2
Votes Required.......................................................... 2
Counting the Vote....................................................... 2
Dividend Reinvestment Plan.............................................. 3
BNSF Stock Plans........................................................ 3
Annual Meeting Admission................................................ 3
OTHER INFORMATION......................................................... 3
Costs of Solicitation................................................... 3
Section 16(a) Beneficial Ownership Reporting Compliance................. 4
Independent Public Accountants.......................................... 4
Advance Notice Procedures............................................... 4
GOVERNANCE OF THE COMPANY................................................. 5
Role of the Board....................................................... 5
Board Structure......................................................... 5
1998 Board Meetings..................................................... 5
Board Committees........................................................ 5
Directors' Compensation................................................. 6
Directors' Retirement and Stock Plans................................... 6
Retirement Policy....................................................... 7
Certain Relationships................................................... 8
STOCK OWNERSHIP IN THE COMPANY............................................ 8
Certain Beneficial Owners............................................... 8
Ownership of Management................................................. 9
ELECTION OF DIRECTORS..................................................... 10
Annual Election......................................................... 10
Nominees................................................................ 10
APPROVAL OF THE BURLINGTON NORTHERN SANTA FE 1999 STOCK INCENTIVE PLAN.... 13
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
EXECUTIVE COMPENSATION................................................. 17
Compensation Committee Report on 1998 Executive Compensation......... 17
Performance Graph.................................................... 23
Summary Compensation Table........................................... 24
Stock Option Grants in 1998.......................................... 25
Option Exercises and Holdings........................................ 26
Pension Plans........................................................ 26
Employment Contracts and Change in Control Arrangements.............. 28
OTHER BUSINESS......................................................... 30
BURLINGTON NORTHERN SANTA FE 1999 STOCK INCENTIVE PLAN................. Appendix
</TABLE>
ii
<PAGE>
Burlington Northern Santa Fe Corporation
2650 Lou Menk Drive
Fort Worth, Texas 76131-2830
March 8, 1999
- - -------------------------------------------------------------------------------
PROXY STATEMENT FOR 1999 ANNUAL MEETING OF STOCKHOLDERS
- - -------------------------------------------------------------------------------
Your vote is very important. For this reason, the Board of Directors is
requesting that you allow your common stock to be represented at the fourth
annual meeting of stockholders by the proxies named in the enclosed Proxy
Card. This proxy statement and the form of proxy are being sent to you in
connection with this request and are being mailed to all stockholders
beginning on March 8, 1999.
INFORMATION ABOUT THE ANNUAL MEETING
- - -------------------------------------------------------------------------------
Annual April 15, 1999 Worthington Hotel
Meeting 9:00 a.m. Grand Ballroom
200 Main Street
Fort Worth, Texas 76102
Items to be You will be voting on the following matters:
Voted Upon
. the election of fifteen directors;
. the approval of the Burlington Northern Santa Fe
1999 Stock Incentive Plan; and
. any other matters properly brought before the
meeting.
Who Can You are entitled to vote your common stock if our
Vote records show that you held your shares as of the
close of business on the record date, February 26,
1999. Each stockholder is entitled to one vote for
each share of common stock held on that date, at
which time we had 470,373,788 shares of common
stock outstanding and entitled to vote. The
Company's common stock is its only issued and out-
standing class of stock.
How to You may vote by one of the following methods:
Vote by
Proxy Proxy Card: If you sign, date and return your
signed proxy card before the annual meeting, we
will vote your shares as you direct. You have three
choices on each matter to be voted upon. For the
election of directors, you may vote for (1) all of
the nominees, (2) none of the nominees, or (3) all
of the nominees except those you designate. For
each other item of business, you may vote "FOR" or
"AGAINST" or you may "ABSTAIN" from voting.
If you return your signed proxy card but do not
specify how you want to vote your shares, we will
vote them "FOR" the election of all of our nominees
for director and "FOR" approval of the Burlington
Northern Santa Fe 1999 Stock Incentive Plan. If any
matters other than those set forth above are prop-
erly brought before the annual meeting, your signed
proxy gives the individuals named as proxies au-
thority to vote your shares in accordance with
their best judgment.
<PAGE>
Telephone Voting: If you elect to vote your proxy
by telephone as described in the telephone voting
instructions on the proxy card, we will vote your
shares as you direct. Your telephone vote autho-
rizes the named proxies to vote your shares in the
same manner as if you had marked, signed and re-
turned your proxy card.
Changing You can revoke your proxy at any time before it is
Your Vote voted at the annual meeting by:
(1) submitting another proxy with a more recent
date than that of the proxy first given (i) by
using the telephone voting procedures, or (ii)
by signing and returning a proxy card to the
Company;
(2) attending the annual meeting and voting in per-
son; or
(3) sending written notice of revocation to our
Corporate Secretary, Marsha K. Morgan.
Votes Required The nominees for election as directors at the an-
nual meeting will be elected by a plurality of the
votes of the shares present in person or repre-
sented by proxy at the meeting. The fifteen nomi-
nees having the greatest number of votes will be
elected. All other matters submitted to the stock-
holders will require the affirmative vote of a ma-
jority of the shares of the Company's common stock
present or represented by proxy and entitled to
vote at the annual meeting.
Counting Quorum. Voting can take place at the annual meeting
the Vote only if stockholders owning a majority of the total
number of shares of common stock outstanding on the
record date are present in person or represented by
effective proxies. If you have returned valid proxy
instructions or vote in person, your common stock
will be counted for the purpose of determining
whether there is a quorum, even if you wish to ab-
stain from some or all matters introduced at the
meeting. If you hold your common stock through a
broker, bank or other nominee (in "street name"),
generally the nominee may only vote the common
stock which it holds for you in accordance with
your instructions. However, if it has not received
your instructions within ten days of the meeting,
the nominee may vote on matters which the New York
Stock Exchange determines to be routine. If a nomi-
nee cannot vote on a particular matter because it
is not routine, this is a "broker non-vote" on that
matter. Abstentions and broker non-votes will be
counted as present or represented at the annual
meeting for purposes of determining whether a quo-
rum exists.
Effect of Abstentions and Broker Non-Votes. Because
abstentions with respect to any matter are treated
as shares present or represented and entitled to
vote for the purposes of determining whether that
matter has been approved by the stockholders, ab-
stentions have the same effect as negative votes.
Broker non-votes and shares to which proxy author-
ity has been withheld with respect
2
<PAGE>
to any matter are not deemed to be present or rep-
resented and are not entitled to vote for purposes
of determining whether stockholder approval of that
matter has been obtained. Therefore, these shares
will have no effect on the outcome of the vote on
any such matter.
Inspectors of Election. Representatives of First
Chicago Trust Company, a division of EquiServe,
will tabulate the votes and act as inspectors of
election.
Dividend Shares held for the account of persons participat-
Reinvestment ing in the Company's dividend reinvestment plan
Plan will be voted automatically in accordance with the
vote indicated by the stockholder of record on the
proxy. If no choice is indicated, both record
shares and shares held in the Company's dividend
reinvestment plan will be voted "FOR" the election
of our nominees for director and "FOR" approval of
the 1999 Stock Incentive Plan. If the stockholder
does not vote the shares held of record, the indi-
vidual's shares held in the dividend reinvestment
account will not be voted.
BNSF Stock If you participate in one of the Company's 401(k)
Plans savings plans, your proxy card permits you to di-
rect the trustee how to vote the number of shares
allocated to your account. The trustees of the
Company's 401(k) plans also vote allocated shares
of common stock for which it has not received di-
rection in the same proportion as directed shares
are voted.
Annual Meeting If you plan on attending the meeting, please mark
Admission the appropriate box on your proxy card or, if vot-
ing by telephone, please indicate your plans when
prompted. An admission card is included if you are
a stockholder of record; simply detach it from the
proxy card and bring it with you. If you are a ben-
eficial owner of stock held by a bank, broker or
investment plan (with your stock held in "street
name"), an admission card in the form of a legal
proxy will be sent to you by your broker or other
registered holder. If you do not receive the legal
proxy in time, you may be admitted to the meeting
by showing your most recent brokerage statement or
other proof of ownership verifying your ownership
of our stock. Because seating is limited, admission
will be limited to stockholders with an admission
card and guests of the Company.
OTHER INFORMATION
- - -------------------------------------------------------------------------------
Costs of We will pay the cost of preparing, printing and
Solicitation mailing material in connection with this solicita-
tion of proxies. In addition to solicitation by
mail, regular employees of the Company and paid so-
licitors may make solicitations personally and by
telephone or otherwise. We will, upon request, re-
imburse brokerage firms, banks and others for their
reasonable out-of-pocket expenses in forwarding
proxy material to beneficial owners of stock or
otherwise in connection with this solicitation of
proxies. We have retained Kissel-Blake, a division
of
3
<PAGE>
Shareholder Communications Corporation, to assist
in the solicitation for a fee of $11,000, plus rea-
sonable out-of-pocket expenses.
Section 16(a) Section 16(a) of the Securities Exchange Act of
Beneficial Ownership 1934 requires our Directors and executive officers
Reporting Compliance to file reports of holdings and transactions in the
Company's common stock with the SEC. Based on Com-
pany records and representations from these per-
sons, the Company believes that all SEC beneficial
ownership reporting requirements for 1998 were met,
with the exception of two late filings with respect
to two charitable gifts of stock by Jeffrey R.
Moreland, an executive officer of the Company.
Independent PricewaterhouseCoopers LLP served as the indepen-
Public Accountants dent public accountant for the Company in 1998. The
Company's independent public accountant for 1999
will be selected by the Board at a regular Board
meeting to be held in 1999. Representatives of
PricewaterhouseCoopers LLP will be present at the
annual meeting with the opportunity to make a
statement if they desire to do so and are expected
to be available to respond to appropriate ques-
tions.
Advance Notice Stockholder Proposals for Annual Meeting in
Procedures 2000. Proposals by stockholders to be considered
for inclusion in the proxy materials solicited by
the directors for the annual meeting in 2000 must
be received by the Corporate Secretary, 2650 Lou
Menk Drive, Second Floor, Fort Worth, Texas 76131-
2830, no later than November 9, 1999. The use of
certified mail, return receipt requested, is ad-
vised. To be eligible for inclusion, a proposal
must also comply with Rule 14a-8 and all other ap-
plicable provisions of Regulation 14A under the Se-
curities Exchange Act of 1934.
Other Stockholder Business at Annual Meeting in
2000. For other business to be introduced at the
annual meeting in 2000, including proposals not
submitted pursuant to Rule 14a-8 for inclusion in
our proxy materials, stockholders must send advance
notice in writing to the Corporate Secretary. To be
timely, notice must be received no later than De-
cember 17, 1999 and no earlier than November 17,
1999. The advance notice must also meet the other
requirements of Article II, Section 10 of the
Company's By-Laws. You may obtain a copy of our By-
Laws by writing to our Corporate Secretary, Marsha
K. Morgan.
Stockholder Nomination of Directors. The Directors
and Corporate Governance Committee will consider
candidates for election as director as recommended
by stockholders. Any such recommendation, together
with the person's qualifications and consent to be-
ing considered as a nominee, should be sent in
writing to the Corporate Secretary on or before No-
vember 30 of the year preceding the annual meeting
to permit adequate time for review by the
Committee.
4
<PAGE>
Stockholders intending to nominate a candidate for
election as director at the annual meeting in 2000
must give advance notice in writing to the Corpo-
rate Secretary. To be timely, notice must be re-
ceived no later than December 17, 1999 and no ear-
lier than November 17, 1999. The advance notice
must also meet the other requirements of Article
XII, Section 3 of the Company's By-Laws.
GOVERNANCE OF THE COMPANY
- - -------------------------------------------------------------------------------
Role of the Board Pursuant to the Delaware General Corporation Law,
the business, property and affairs of the Company
are managed under the direction of the Board of Di-
rectors. The Board has responsibility for estab-
lishing broad corporate policies and for the over-
all performance and direction of the Company, but
is not involved in day-to-day operations. Members
of the Board keep informed of the Company's busi-
ness by participating in Board and committee meet-
ings, by reviewing analyses and reports sent to
them regularly, and through discussions with the
Chairman, President and Chief Executive Officer and
other officers.
Board Structure The Company currently has fifteen directors. Each
is elected to a one-year term.
1998 Board Meetings In 1998, the Board met six times. Each incumbent
member of the Board attended 78 percent or more of
the aggregate of the total number of meetings of
the Board and the total number of meetings held by
all committees of the Board on which he or she
served. Average attendance at Board and committee
meetings for all directors was over 96%.
Board Committees The Board has established Executive, Compensation,
Directors and Corporate Governance, and Audit Com-
mittees. No member of any committee is presently an
employee of the Company or its subsidiaries with
the exception of Mr. Krebs, who serves as Chairman
of the Executive Committee.
The Executive Committee did not meet during 1998.
The committee exercises the authority of the Board
during intervals between meetings of the Board sub-
ject to certain limitations of Delaware law.
The Compensation Committee met four times during
1998. The committee reviews and makes recommenda-
tions to the Board concerning:
. the compensation of the President and Chief Ex-
ecutive Officer and other senior officers of the
Company;
. performance of fiduciaries for the Company's
pension trust funds;
. proposed employee benefit and stock plans, and
Company compensation systems and practices;
5
<PAGE>
. the evaluation of the performance of the
Company's officers and the selection of individ-
uals for appointment or promotion as officers;
and
. grants of stock awards.
The Directors and Corporate Governance Committee
met three times during 1998. The committee reviews
and makes recommendations to the Board concerning:
. the size and composition of the Board;
. nominees for election as directors;
. evaluation of the performance of the Board;
. compensation and benefits for directors; and
. nominations of candidates for election as direc-
tor recommended by stockholders.
The Audit Committee met three times during 1998.
The functions of the committee are:
. to oversee the Company's accounting, auditing,
and financial policies and practices and its in-
ternal control policies and procedures;
. to recommend to the Board the engagement of an
independent accounting firm; and
. to review with management and the independent
public accountant the Company's financial state-
ments, basic accounting and financial policies
and practices, audit scope, and competence of
control personnel.
Directors' We pay non-employee directors an annual retainer
Compensation fee of $36,000, in quarterly installments. We pay
each Committee Chairman a supplemental annual re-
tainer fee of $5,000. In addition, for attendance
at each Board or Committee meeting or any inspec-
tion trip or similar meeting, we pay a meeting fee
of $1,000 plus expenses. Dr. Weber also receives
$10,000 annually for his services as an economic
advisor to the Board. Directors who are also offi-
cers or employees of the Company receive no compen-
sation for their duties performed as a director of
the Company.
Directors' Burlington Northern Santa Fe Directors' Retirement
Retirement and Stock Plan. Non-employee Board members are eligible for
Plans an annual benefit under the Directors' Retirement
Plan if they have served as a member of the Board
for ten consecutive years, have attained mandatory
retirement age, or are designated by the Directors
and Corporate Governance Committee as eligible for
benefits. The annual benefit is the amount of the
annual retainer fee for services as a Board member
at the time of termination of service; the benefit
ceases upon an individual's death. Service as a
member of the boards of BNSF's predecessor
companies counts toward the ten consecutive years
of service requirement.
6
<PAGE>
Burlington Northern Santa Fe Non-Employee Direc-
tors' Stock Plan. In 1998, each non-employee direc-
tor was granted non-qualified stock options to pur-
chase 3,000 shares of Company common stock at
$33.24 per share, the fair market value on the date
of grant (as adjusted for the Company's September
1, 1998 three-for-one stock split). These options
vest on April 16, 1999 (unless earlier terminated
pursuant to the plan) and expire on April 16, 2008,
or earlier if a director leaves the Board. Each in-
dividual (other than employees) elected to the
Board of Directors at the 1999 annual meeting and
at each subsequent annual meeting will automati-
cally be granted non-qualified stock options to
purchase 3,000 shares of the Company's common stock
(subject to adjustment as provided in the Direc-
tors' Stock Plan) at 100% of the fair market value
of such shares on the date that the options are
granted. Each option will become exercisable com-
mencing on the first anniversary date of the grant
and will terminate no later than ten years from the
date of grant.
At each annual meeting each newly-elected director
who has not previously received such an award will
also be granted a one-time Retainer Stock Award of
3,000 restricted shares of common stock pursuant to
the Directors' Stock Plan. These shares vest rata-
bly upon the third, fourth and fifth anniversary of
the award subject to the attainment of a 12% com-
pound annual growth rate in the fair market value
of a share of common stock (as defined in the Di-
rectors' Stock Plan) maintained for a 30 consecu-
tive trading day period immediately prior to or
following the respective anniversary date. To the
extent that an award has not vested previously, it
will be forfeited six years from date of grant.
The Directors' Stock Plan also permits directors by
timely election to forego up to 25% of their annual
retainer and receive a Retainer Stock Award in the
form of restricted stock of 150% of the amount
foregone based on the fair market value of the
Company's common stock on the date of grant (Decem-
ber 31 of each calendar year), to vest three years
from date of grant. In 1998, 13 directors each re-
ceived a Retainer Stock Award of 402 restricted
shares after electing to forego 25% of their annual
retainer.
Burlington Northern Santa Fe Deferred Compensation
Plan for Directors. Non-employee directors may vol-
untarily defer a portion or all of the fees they
would otherwise receive into a Prime Rate interest
account, a Company phantom stock account, or other
investment option established under the plan's
terms. Distributions are made in either annual in-
stallments or as a lump sum after service as a di-
rector ceases. The Company has assumed all obliga-
tions incurred through September 22, 1995, under
the BNI Deferred Compensation Plan for Directors, a
predecessor plan.
Retirement Policy
Under the Board's corporate governance standards,
no individual may serve as a director beyond the
annual meeting of stockholders on or following his
or her seventy-second birthday. Individual
7
<PAGE>
directors who change the responsibility they held
when they were elected to the Board should volun-
teer to resign from the Board to afford the Board
the opportunity, via the Directors and Corporate
Governance Committee, to review the continued ap-
propriateness of Board membership under the circum-
stances. The Board's corporate governance standards
call for a director who is also an employee of the
Company to retire from the Board upon his or her
termination of employment.
Certain Mr. Deukmejian is a partner of the Sidley & Austin
Relationships law firm, which firm provided legal services to the
Company in 1998 and is expected to provide legal
services in 1999.
STOCK OWNERSHIP IN THE COMPANY
- - -------------------------------------------------------------------------------
Certain Beneficial To the best of the Company's knowledge, the follow-
Owners ing are the only persons who own beneficially five
percent or more of its common stock outstanding:
<TABLE>
<CAPTION>
Shares Held
and Nature of
Name and Address Beneficial
of Beneficial Owner Ownership Percentage(3)
------------------- ------------- -------------
<S> <C> <C>
Brinson Partners, Inc....................... 31,571,526(1) 6.69%
209 South LaSalle Street
Chicago, IL 60604-1295
and
UBS AG
Bahnhofstrasse 45
8021, Zurich, Switzerland
FMR Corp.................................... 26,344,928(2) 5.58%
82 Devonshire Street
Boston, MA 02109
</TABLE>
- - --------
(1) Based on share holdings reported in a joint-filing on Schedule 13G dated
February 3, 1999, pursuant to the Securities Exchange Act of 1934 and
provided to the Company for holdings as of December 31, 1998. The Schedule
13G indicates that of the total shares held, the reporting person had sole
voting power and sole dispositive power for no shares and had shared
voting power and shared dispositive power for 31,571,526 shares. In the
filing, Brinson Partners, Inc. disclaims beneficial ownership of these
securities.
(2) Based on share holdings reported in Schedule 13G, dated February 1, 1999,
pursuant to the Securities Exchange Act of 1934 and provided to the
Company for holdings as of December 31, 1998. The Schedule 13G indicates
that of the total shares held, the reporting person had sole power to vote
or direct the vote for 3,801,608 shares and shared power to vote or direct
the vote for no shares, and had sole power to dispose or to direct the
disposition of 26,344,928 shares.
(3) Based on 471,765,464 shares of common stock of the Company outstanding as
of December 31, 1998.
8
<PAGE>
Ownership of The following table shows, as of February 26, 1999
Management (unless otherwise indicated), the number of shares
of the Company's common stock beneficially owned by
directors, the executive officers named in the Sum-
mary Compensation Table, and all directors and ex-
ecutive officers of the Company as a group, with
sole voting and investment power, unless otherwise
indicated. No individual director or executive of-
ficer owned more than one percent of the outstand-
ing common stock as of that date.
<TABLE>
<CAPTION>
Shares Held
and Nature of
Name of Beneficial Owner Position Beneficial Ownership
- - ------------------------ -------- --------------------
<S> <C> <C>
Joseph F. Alibrandi..... Director 15,138(1)
Jack S. Blanton......... Director 36,387(1)
John J. Burns, Jr....... Director 19,822(1)(2)
George Deukmejian....... Director 17,142(1)
Robert D. Krebs......... Chairman, President and Chief
Executive Officer, Director 2,618,790(4)(5)
Bill M. Lindig.......... Director 14,460(1)
Vilma S. Martinez....... Director 6,852(1)
Roy S. Roberts.......... Director 15,310(1)
Marc J. Shapiro......... Director 16,227(1)
Arnold R. Weber......... Director 30,636(1)
Robert H. West.......... Director 16,263(1)
J. Steven Whisler....... Director 18,299(1)(3)
Edward E. Whitacre,
Jr...................... Director 27,840(1)
Ronald B. Woodard....... Director 16,312(1)
Michael B. Yanney....... Director 52,193(1)
Matthew K. Rose......... Senior Vice President and
Chief Operations Officer 316,969(4)
Denis E. Springer....... Senior Vice President and
Chief Financial Officer 536,871(4)(6)
Gregory T. Swienton..... Senior Vice President--Coal and
Agricultural Commodities Business Unit 326,766(4)
Charles L. Schultz...... Senior Vice President--Intermodal
and Automotive Business Unit 518,093(4)(7)
Directors and Executive
Officers as a Group.... 5,704,817(1)(4)
</TABLE>
- - --------
(1) The amounts reported include restricted stock issued under the Non-
Employee Directors' Stock Plan as follows: 4,227 for each of Messrs.
Alibrandi, Burns, Deukmejian, Lindig, Roberts, Shapiro, Weber, West,
Whisler, Woodard, and Yanney; 3,387 for Mr. Blanton; 3,402 for Ms.
Martinez; 3,840 for Mr. Whitacre; and 57,126 for all directors as a group.
The amounts reported include shares which may be acquired within 60 days
upon the exercise of stock options under the Non-Employee Directors' Stock
Plan as follows: 9,000 for each of Messrs. Alibrandi, Burns, Deukmejian,
Roberts, Shapiro, West, Whisler, and Woodard; 27,000 for each of Messrs.
Blanton and Yanney; 6,000 for Mr. Lindig; 3,000 for Ms. Martinez; 21,000
for Mr. Weber; 18,000 for Mr. Whitacre; and 174,000 for all directors as a
group.
9
<PAGE>
The amounts reported include phantom stock units under the Deferred
Compensation Plan for Directors as of January 31, 1999, as follows: 3,562
for Mr. Burns; 589 for Mr. Roberts; 839 for Mr. Whisler; 3,085 for Mr.
Woodard; 14,966 for Mr. Yanney; and 23,041 for all directors as a group.
(2) Mr. Burns is President and Chief Executive Officer and a director of
Alleghany Corporation, which beneficially owns 22,294,242 shares of the
Company's common stock according to its Schedule 13D filed with the
Securities and Exchange Commission and dated September 22, 1995 (as
adjusted for BNSF's three-for-one stock split effective September 1,
1998).
(3) Includes 4,233 shares in which Mr. Whisler shares voting and investment
power as co-trustee and co-beneficiary of a family revocable trust.
(4) The amounts reported include shares of restricted stock granted to
executive officers as follows: 165,191 for Mr. Krebs; 44,725 for Mr. Rose;
45,420 for Mr. Springer; 60,462 for Mr. Swienton; 42,221 for Mr. Schultz;
and 510,930 for all executive officers as a group.
The amounts reported include shares which may be acquired within 60 days
upon the exercise of stock options as follows: 1,671,124 for Mr. Krebs
(including 576,000 held in a family partnership to which Mr. Krebs
disclaims beneficial ownership); 268,950 for Mr. Rose; 446,183 for Mr.
Springer; 249,000 for Mr. Swienton; 430,893 for Mr. Schultz; and 3,814,357
for all executive officers as a group.
The amounts reported include share equivalents credited under the
Investment and Retirement Plan, a 401(k) plan, as of January 31, 1999, as
follows: 30,314 for Mr. Krebs; 1,278 for Mr. Rose; 9,205 for Mr. Schultz;
and 56,168 for all executive officers as a group.
(5) Includes 28,917 shares held by a family partnership to which Mr. Krebs
disclaims beneficial ownership.
(6) Includes 43,130 shares held jointly with his spouse in which Mr. Springer
shares voting and investment power.
(7) Includes 75 shares and 141 shares held by immediate family members to
which Mr. Schultz disclaims beneficial ownership, and 177 shares held in
an IRA account.
ELECTION OF DIRECTORS
- - -------------------------------------------------------------------------------
Annual Election At the annual meeting, you and the other stockhold-
ers will elect fifteen directors, each to hold of-
fice for a term of one year and until his or her
successor has been elected and qualified. All in-
cumbent directors, with the exception of Ms. Marti-
nez, initially became directors of the Company on
September 22, 1995, with the business combination
of Burlington Northern Inc. ("BNI") and Santa Fe
Pacific Corporation ("SFP") pursuant to the Agree-
ment and Plan of Merger dated June 29, 1994, as
amended, among BNI, SFP, and the Company. Ms. Mar-
tinez was first elected in 1998. All incumbent di-
rectors have been nominated for re-election.
Nominees The nominees for whom the shares represented by the
enclosed proxy are intended to be voted, unless
such authority is withheld, are identified below
along with certain background information. We do
not contemplate that any of these nominees will be
unavailable for election but, if such a situation
should arise, the proxy will be voted in accordance
with the best judgment of the named proxies unless
you have directed otherwise. Years served as a di-
rector of the Company includes prior service as di-
rectors of BNI, SFP and predecessor companies. No
director, other than Mr. Krebs, is or has been em-
ployed by or served as an executive officer of the
Company or its subsidiaries.
10
<PAGE>
NOMINEES FOR DIRECTOR
JOSEPH F. ALIBRANDI, 70 Director since 1982
Chairman and a director of Whittaker Corporation, Los Angeles, California
(aerospace) since December 1985; also Chief Executive Officer of Whittaker
Corporation from November 1975 to December 1994, and from September 1996 to
present. Also Chairman of BioWhittaker, Inc. (biotechnology) from October 1991
to September 1997. Also a director of Catellus Development Corporation,
BankAmerica Corporation, and Jacobs Engineering Group Inc. Member of Executive
Committee and Compensation Committee.
JACK S. BLANTON, 71 Director since 1989
Chairman and Chief Executive Officer of Houston Endowment, Inc., Houston,
Texas (private charitable foundation) since December 1990. From December 1986
to present, President and Chief Executive Officer of Eddy Refining Company
(petroleum products). Also a director of Pogo Producing Company. Member of
Compensation Committee and Directors and Corporate Governance Committee.
JOHN J. BURNS, JR., 67 Director since 1995
President and Chief Executive Officer of Alleghany Corporation, New York, New
York (holding company with asset management, reinsurance, industrial minerals,
and steel fastener manufacturing operations, and an investment position in
Burlington Northern Santa Fe Corporation) since July 1992. Also a director of
Alleghany Corporation and Chicago Title Corporation. Member of Executive
Committee and Compensation Committee.
GEORGE DEUKMEJIAN, 70 Director since 1991
Partner of Sidley & Austin, Los Angeles, California (law firm) since February
1991. Formerly, Governor of the State of California from January 1983 until
January 1991. Also a director of Foundation Health Systems, Inc. and Whittaker
Corporation. Member of Audit Committee and Directors and Corporate Governance
Committee.
ROBERT D. KREBS, 56 Director since 1983
Chairman, President and Chief Executive Officer of the Company since April
1997, and President and Chief Executive Officer since September 1995. Also,
Chairman, President and Chief Executive Officer of The Burlington Northern and
Santa Fe Railway Company. Also, Chairman, President and Chief Executive
Officer of Santa Fe Pacific Corporation from June 1988 to January 1998. Also a
director of Phelps Dodge Corporation. Chairman of the Executive Committee.
BILL M. LINDIG, 62 Director since 1993
Chairman and Chief Executive Officer of SYSCO Corporation, Houston, Texas
(marketer and distributor of foodservice products) since January 1999. From
January 1995 to January 1999, President and Chief Executive Officer, and from
November 1985 to January 1995, President and Chief Operating Officer, of SYSCO
Corporation. Also a director of SYSCO Corporation. Member of Compensation
Committee and Directors and Corporate Governance Committee.
VILMA S. MARTINEZ, 55 Director since 1998
Partner in Munger, Tolles & Olson LLP, Los Angeles, California (law firm)
since 1982. Also a director of Anheuser-Busch Companies, Inc., Fluor
Corporation, Sanwa Bank California, and Shell Oil Company. Member of Audit
Committee and Directors and Corporate Governance Committee.
ROY S. ROBERTS, 59 Director since 1993
Vice President and Group Executive, North American Vehicle Sales, Service and
Marketing of General Motors Corporation, Detroit, Michigan (manufacturer of
motor vehicles) since October 1998. From August 1998 to October 1998, Vice
President and General Manager, Field Sales, Service and Parts, from February
1996 to August 1998, Vice President and General Manager of Pontiac-GMC
Division,
11
<PAGE>
and from October 1992 to February 1996, General Manager, GMC Truck Division,
of General Motors Corporation. Also a director of Abbott Laboratories and
Volvo Trucks North America, Inc. Member of Audit Committee and Directors and
Corporate Governance Committee.
MARC J. SHAPIRO, 51 Director since 1995
Vice Chairman for Finance and Risk Management of The Chase Manhattan
Corporation, New York, New York (banking) since July 1997. Previously,
Chairman and Chief Executive Officer, Chase Bank of Texas N.A., Houston, Texas
(banking) since 1989. Also a director of Browning-Ferris Industries, Inc. and
a trustee of Weingarten Realty Investors. Member of Audit Committee and
Directors and Corporate Governance Committee.
ARNOLD R. WEBER, 69 Director since 1986
President-Emeritus, Northwestern University, Evanston, Illinois (higher
education) since July 1998. From January 1995 through June 1998, Chancellor of
Northwestern University, and from February 1985 through December 1994,
President of Northwestern University. Also a director of PepsiCo, Inc.,
Tribune Company, Aon Corporation, and Deere & Company. Member of Executive
Committee and Audit Committee.
ROBERT H. WEST, 60 Director since 1980
Chairman of the Board of Butler Manufacturing Company, Kansas City, Missouri
(manufacturer of pre-engineered building systems and specialty components)
since January 1999, and Chairman and Chief Executive Officer from May 1986 to
January 1999. Also a director of Butler Manufacturing Company, Commerce
Bancshares, Inc. and Kansas City Power & Light Company. Chairman of Audit
Committee and member of Compensation Committee.
J. STEVEN WHISLER, 44 Director since 1995
President and Chief Operating Officer, Phelps Dodge Corporation, Phoenix,
Arizona (mining and manufacturing) since December 1997. From October 1988 to
December 1997, Senior Vice President of Phelps Dodge Corporation. Also,
President of Phelps Dodge Mining Company, a division of Phelps Dodge
Corporation, from November 1991 to September 1998. Also a director of Phelps
Dodge Corporation and Southern Peru Copper Corporation. Member of Audit
Committee and Directors and Corporate Governance Committee.
EDWARD E. WHITACRE, JR., 57 Director since 1993
Chairman of the Board and Chief Executive Officer, SBC Communications Inc.,
San Antonio, Texas (telecommunications) since January 1990. Also a director of
Anheuser-Busch Companies, Inc., Emerson Electric Co., The May Department
Stores Company, and SBC Communications Inc. Chairman of Directors and
Corporate Governance Committee and member of Executive Committee.
RONALD B. WOODARD, 55 Director since 1995.
Retired President of Boeing Commercial Airplane Group, a division of The
Boeing Company (aerospace), a position held from December 1993 to November
1998. From March 1993 to December 1993, Executive Vice President-Boeing
Commercial Airplane Group. Also a director of Whittaker Corporation. Member of
Audit Committee and Compensation Committee.
MICHAEL B. YANNEY, 65 Director since 1989
Chairman and Chief Executive Officer, America First Companies L.L.C., Omaha,
Nebraska (investments) since 1984. Also a director of Forest Oil Corporation,
Inc., Level 3 Communications, Inc. and RCN Corporation. Chairman of
Compensation Committee and member of Executive Committee.
12
<PAGE>
APPROVAL OF THE BURLINGTON NORTHERN SANTA FE 1999 STOCK INCENTIVE PLAN
- - -------------------------------------------------------------------------------
The Board of Directors recommends the approval of the Burlington Northern
Santa Fe 1999 Stock Incentive Plan ("1999 Stock Plan") under which a total of
20,000,000 shares of the Company's common stock will be made available for
grants. The plan was established to:
. attract and retain executive, managerial and other salaried employees;
. motivate employees to achieve long-range goals;
. provide incentive compensation opportunities that are competitive with
other major companies; and
. further identify our employees' interests with those of all our stock-
holders through stock-based compensation.
We believe the use of stock incentives will promote the growth in value of
our stock and the enhancement of long-term stockholder return.
The types of stock incentives authorized are:
. stock options;
. restricted stock and restricted stock units;
. performance stock; and a
. stock purchase program.
The Board of Directors adopted the Burlington Northern Santa Fe 1999 Stock
Incentive Plan on January 21, 1999, subject to approval by stockholders. The
1999 Stock Plan is similar to and is intended to replace the Company's 1996
Stock Incentive Plan which was approved by our stockholders at the 1996 annual
meeting. Unlike the 1996 plan, the new plan does not provide for awards of
stock appreciation rights or performance units. Also, awards of restricted
stock, restricted units, and performance stock are cumulatively limited to 4
million shares for the life of the new plan. Upon approval, the new plan will
be used for 1999 and future stock awards. On February 26, 1999, the Company's
common stock closed at $33.125 on the New York Stock Exchange.
The 1996 Plan authorized shares not exceeding thirty million shares (as
adjusted for the Company's September 1, 1998 three-for-one stock split) to be
used for stock awards. As of the close of business on February 26, 1999, only
an aggregate of 3,196,713 shares of the Company's common stock remained
available for future grants under the existing 1996 Incentive Stock Plan, less
shares to be issued for existing elections by employees to defer all or a
portion of their annual cash awards into restricted stock under the Incentive
Compensation Plan. The number of shares to be issued for deferred 1998 ICP
bonuses is 469,273. An additional 286,200 options will be issued pursuant to
elections under the Salary Exchange Option Program. There were outstanding
stock awards (options plus restricted shares) of 21,382,752 as of February 26,
1999. The remaining 2,441,240 shares under the 1996 plan are intended to be
awarded as stock options to salaried employees, none of whom are executive
officers, as their 1999 long-term incentive award.
The full text of the Burlington Northern Santa Fe 1999 Stock Incentive Plan
is presented in the Appendix to this proxy statement. The following is a
summary of the major provisions of the plan and is qualified in its entirety
by the full text of the plan itself.
Administration. The Compensation Committee of the Board of Directors
("Committee") administers the 1999 Stock Plan. At least two members of the
Committee must be both a non-employee and a "Non-Employee Director" within the
meaning of Rule 16b-3 under the Securities
13
<PAGE>
Exchange Act of 1934. Committee members may not participate in the plan. The
Committee is authorized to interpret the plan, to establish rules and
regulations for its operation, to select the employees eligible to receive
awards, and to determine the type, amount, and terms and conditions of awards.
While the Committee may delegate its authority and duties under the plan in
certain circumstances, only the Committee may select and grant awards to
participants who are subject to Section 16 of the Securities Exchange Act of
1934.
Eligibility for Participation. All salaried employees of BNSF or its
subsidiaries are eligible to be selected to participate in the plan. The
Committee selects all participants in its discretion. BNSF and its
subsidiaries currently employ approximately 5,200 salaried individuals.
Amendment and Termination of Plan. The Board may suspend, amend or terminate
the plan at any time, with or without prior notice, but it may not, without
stockholder approval, increase the aggregate number of shares which may be
issued under the plan, adopt any amendment which would materially increase the
benefits accruing to participants or materially modify eligibility
requirements for participation in the plan. The plan will remain in effect
until terminated by the Board.
Available Shares. The Committee may grant awards during the period from
January 1, 1999 until the plan's termination. Twenty million shares of common
stock are available for awards. Shares related to awards which terminate by
expiration, forfeiture, cancellation or otherwise without the issuance of
shares, or which are settled in cash in lieu of common stock, and shares used
to pay an option exercise price will be available for grant under the plan. A
maximum of four million shares may be granted in the form of restricted stock,
restricted stock units or performance stock under the plan.
Limitation on Awards. No participant may receive any award of a stock option
to the extent that the sum of the number of shares subject to the award, and
the number of shares subject to prior awards of options under the plan or
other plans during a one-year period ending on the date of grant, exceeds one
million shares.
Stock Options. The Committee may grant awards in the form of incentive stock
options and non-qualified stock options to purchase shares of BNSF's common
stock. This will include option grants to certain senior executives in an
amount equal to the number of shares tendered to pay an option exercise price.
The Committee will determine the number of shares subject to each option, the
manner and time of the option's exercise, the terms and conditions applicable
to the award, and the exercise price per share of stock subject to the option.
The exercise price of a stock option must be no less than the fair market
value of BNSF's common stock on the date of grant. Upon exercise, the option
price may be paid by a participant in cash, shares of common stock, a
combination of the two or other consideration as the Committee may deem
appropriate. Any stock option granted in the form of an incentive stock option
will satisfy the applicable requirements of Section 422 of the Internal
Revenue Code.
Restricted Stock. Grants of shares of restricted stock or restricted stock
units will be subject to such terms, conditions, restrictions or limitations
as the Committee deems appropriate, including restrictions on transferability
and continued employment. The plan gives the Committee the discretion to
accelerate the delivery of a restricted stock award.
Performance Stock. The plan allows for the grant of performance stock awards
which are contingent upon the attainment of certain performance objectives
determined by the Committee. The performance objectives to be achieved during
the performance period and the measure of whether and to what degree such
objectives have been attained will also be determined by the Committee.
14
<PAGE>
Stock Purchase Program. The Committee may establish programs enabling
participants to purchase common stock at not less than 75% of the fair market
value at the time of purchase (or an average stock value over a determined
period). The Committee designates eligible participants. Restrictions such as
those imposed with respect to restricted stock may be imposed on shares
purchased under this program.
Change in Control/Change in Ownership. In the event of a "change in control"
(as defined in the plan), all options, restricted stock, restricted stock
units, performance shares, and shares acquired under a stock purchase
arrangement will become fully vested.
In general, the plan defines a "change in control" as occurring if: (a) any
"person" becomes the beneficial owner of securities representing 25% or more
of the voting power of the Company's outstanding securities; or (b) during any
period of two consecutive years, individuals who at the beginning of such
period constitute the Board of Directors of the Company cease to constitute at
least a majority of the Board; or (c) the Company's stockholders approve a
merger or consolidation of the Company with another company; or (d) the
Company's stockholders approve a plan of complete liquidation or an agreement
for the sale or disposition by the Company of all or substantially all of its
assets. However, a merger or other business combination with a Class I
railroad or holding company of a Class I railroad will not constitute a change
in control unless the Board so determines.
Federal Income Tax Consequences. An employee who has been granted an
incentive stock option will not realize taxable income and the Company will
not be entitled to a deduction at the time of the grant or exercise of such
option. If the employee makes no disposition of shares acquired pursuant to an
incentive stock option within two years from the date of grant of such option,
or within one year of the transfer of the shares to such employee, any gain or
loss realized on a subsequent disposition of the shares will be treated as a
long-term capital gain or loss. Under these circumstances, the Company will
not be entitled to any deduction for Federal income tax purposes. If the
foregoing holding period requirements are not satisfied, the employee will
generally realize ordinary income at the time of the disposition in an amount
equal to the lesser of (i) the excess of the fair market value of the shares
on the date of exercise over the option price or (ii) the excess of the amount
realized upon disposition of the shares, if any, over the option price, and
the Company will be entitled to a corresponding deduction.
An employee will not realize taxable income at the time of the grant of a
non-qualified option. Upon exercise, however, the employee will realize
ordinary income equal to the excess, if any, of the fair market value of the
shares on the date of exercise over the option price, and the Company will be
entitled to a corresponding deduction. Upon subsequent disposition of the
shares, the employee will realize short-term or long-term capital gain or
loss, with the basis for computing such gain or loss equal to the option price
plus the amount of ordinary income realized upon exercise.
An employee who has been granted a restricted stock award will not realize
taxable income at the time of grant, and the Company will not be entitled to a
deduction at that time, assuming that the restrictions constitute a
substantial risk of forfeiture for Federal income tax purposes. Upon the
vesting of shares subject to an award, the holder will realize ordinary income
in an amount equal to the fair market value of the shares at such time, and
the Company will be entitled to a corresponding deduction. Dividends paid to
the holder during the restriction period will also be compensation income to
the employee and deductible as such by the Company. The holder of a restricted
stock award may elect to be taxed at the time of grant of the award on the
then fair market value of the shares, in which case (i) the Company will be
entitled to a deduction at the same time and in the same amount, (ii)
dividends paid to the holder during the restriction period will be taxable as
dividends to the holder and
15
<PAGE>
not deductible by the Company, and (iii) there will be no further tax
consequences when the restrictions lapse. If an employee who has made such an
election subsequently forfeits the shares, he or she will not be entitled to
any deduction or loss. The Company, however, will be required to include as
ordinary income the lesser of the fair market value of the forfeited shares or
the amount of the deduction originally claimed with respect to the shares.
Other Terms of Awards. The Plan provides for the forfeiture of awards in the
event of termination of employment except in the circumstances described
below.
In the event employment terminates by reason of death, all awards will vest.
In the event termination occurs by reason of disability or retirement, all
awards will vest ratably except that the proportion of awards subject to
performance criteria will remain subject to the same terms and conditions. In
the event of termination by the Company other than for cause, all performance-
based awards will be forfeited and all other awards will vest ratably. In the
event of death, non-qualified and incentive stock options will be exercisable
for three years. In the event of disability or retirement, non-qualified stock
options will be exercisable for three years and incentive stock options will
be exercisable for three months. In the event of termination by the Company
other than for cause, options will be exercisable for three months. In no
event shall any options be exercisable later than the scheduled expiration
date.
The Committee may establish such other terms, conditions, restrictions, or
limitations governing the grant of awards as are not inconsistent with the
plan.
New Plan Benefits. Awards made to date under the 1999 Stock Plan, subject to
stockholder approval, are described in the table below. Future awards are in
the discretion of the Committee and cannot be determined at this time.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
Stock Options (1)
----------------------------
Name and Position No. of Shares Exercise Price
- - ----------------- ------------- --------------
<S> <C> <C>
Robert D. Krebs................................... 450,000 $32.84
Chairman, President and Chief Executive Officer
Matthew K. Rose................................... 150,000 $32.84
Senior Vice President and Chief Operations
Officer
Denis E. Springer................................. 100,000 $32.84
Senior Vice President and Chief Financial
Officer
Gregory T. Swienton............................... 75,000 $32.84
Senior Vice President--Coal and Agricultural
Commodities Business Unit
Charles L. Schultz................................ 75,000 $32.84
Senior Vice President--Intermodal and Automotive
Business Group
Executive Group (2)............................... 1,030,000 $32.84
Nonexecutive Officer.............................. 5,586,965 $32.84
Employee Group
</TABLE>
16
<PAGE>
- - --------
(1) Options are exercisable commencing after one year and for a term of up to
ten years. The ultimate value of the options will depend on the future
market value of the Company's stock, which cannot be forecast with
reasonable accuracy.
(2) Includes the executive officers named above and all other executive
officers.
Board Recommendation. The Committee and the Board of Directors believe that
the existing 1996 Stock Incentive Plan has assisted BNSF in attracting,
motivating and retaining key employees. The 1999 Stock Incentive Plan will
continue the essential features of the 1996 plan but without stock
appreciation rights and with a limit on the number of shares available for use
as restricted stock, restricted stock units, or performance stock. We believe
that stock awards are an important part of BNSF's incentive compensation of
officers, managers, and other salaried employees. These kinds of stock-based
awards further align management's interests with those of our stockholders
because their value appreciates to the extent that the market price of BNSF's
stock increases. Therefore, we recommend that stockholders vote to approve the
Burlington Northern Santa Fe 1999 Stock Incentive Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
BURLINGTON NORTHERN SANTA FE 1999 STOCK INCENTIVE PLAN.
EXECUTIVE COMPENSATION
- - -------------------------------------------------------------------------------
Compensation Committee Report on 1998 Executive Compensation
Compensation The following report on 1998 executive compensation
Committee is presented by the Compensation Committee of the
Board (the "Committee") which has responsibility
for reviewing and making recommendations to the
Board for executive compensation. This includes es-
tablishing and reviewing executive base salaries,
administering the annual Incentive Compensation
Plan as it relates to executive officers, and ad-
ministering equity-based compensation under the
Burlington Northern Santa Fe 1996 Stock Incentive
Plan ("Stock Plan") and predecessor plans. The Com-
mittee consists of independent, non- employee di-
rectors who have no interlocking relationships with
the Company.
BNSF Vision The Company's vision is to realize its tremendous
potential by providing transportation services that
consistently meet customers' expectations. Bench-
marks are identified against which the Company can
measure its success in meeting the needs of its
primary constituencies--customers, stockholders,
employees, and communities. The Company's executive
compensation programs help the Company realize its
vision and support its business strategies.
Philosophies and The Committee believes that compensation programs
Objectives should reflect the Company's compensation philoso-
phy and support specific compensation objectives.
The Committee also believes that programs designed
specifically for executives should exemplify the
Com- pany's compensation philosophy and reflect ex-
ecutives' roles as key decision-makers. The philo-
sophical principles and specific objectives are
noted below.
17
<PAGE>
Philosophical Principles
. Compensation programs should encourage strong
operating and financial performance.
. Compensation programs should help create a
shared sense of direction, ownership, and com-
mitment.
. The Company should emphasize performance-based
compensation ("pay at risk") through both cash
and equity-based incentives.
Specific Program Objectives
. The compensation programs should attract and re-
tain key employees and managers by providing
competitive opportunities.
. The programs should focus employees on operating
performance that will maximize the value of the
Company's rail operations.
. The programs should focus employees on the mar-
ket performance of the Company's stock by en-
couraging large equity holdings, thus enabling
employees to realize significant gains if the
Company attains its performance objectives.
. The programs should provide mechanisms to allow
employees to exchange cash compensation for
stock-based awards.
Competitive The Committee has established external competitive
Compensation benchmarks for each element of compensation which
Objectives it believes fully support the principles outlined
above. The market for assessing compensation is de-
fined as companies from general industry with reve-
nue comparable to the Company. The group of compa-
rators used for these analyses will be broader than
that used for the peer group index reflected in the
Performance Graph following this report. The Com-
mittee believes that the Company's most direct com-
petitors for executive talent are not limited to
companies used as a peer group to compare stock-
holder returns. Rather, the market reflects a
broader group with which the Company competes to
attract and retain the most skilled and talented
executives available.
The Committee's marketplace compensation objectives
are:
. Base Salaries--To manage fixed compensation at a
conservative level, market rates for executives'
base salary ranges will be set at approximately
the 25th percentile level.
. Annual Incentives--Opportunities under the In-
centive Compensation Plan ("ICP") are intended
to provide competitive total cash compensation
(base salary plus annual incentives) based on
performance goal achievement. If the Company at-
tains its targeted performance goals (67% ICP
achievement), cash compensation levels will ap-
proximate the 50th percentile of the Company's
comparator group. If the Company attains supe-
rior performance levels, cash compensation will
exceed the 50th percentile of the Company's com-
parator group.
18
<PAGE>
. Long Term Incentives--To place greater emphasis
on pay that is tied to the Company's stock per-
formance over time, opportunities provided under
long term incentive programs will be targeted at
the 75th percentile of total compensation in the
comparator market.
. Employee and Executive Benefits--Benefit levels
will reflect moderately competitive market lev-
els (competitive market median).
Annual Cash Base Salaries. The Company considers various fac-
Compensation tors in assigning executives to specific salary
ranges, including job content, level of responsi-
bility, and accountability. On an annual basis, all
employees' salaries including those of executives
are reviewed and adjusted to reflect individual
performance and position within their respective
ranges.
Incentive Compensation Plan. Executives are eligi-
ble for annual performance-based awards under the
Company's ICP as are all salaried employees. For
1998, goals for all participants including execu-
tives were weighted 70% upon achievement of
targeted levels of operating income and 15% each
upon achievement of safety and on-time performance
goals. The incentive award for all employees, in-
cluding all executive officers, reflected a payout
of 72.83% of the individual's maximum ICP poten-
tial.
The actual incentives earned by Messrs. Rose,
Springer, Swienton and Schultz for achievement of
Company goals were based on the Company's perfor-
mance as described under "CEO Compensation" in this
report. Specific departmental goals for 1999 focus
on operating efficiency, business unit margins and
contributions, and equipment utilization. These de-
partmental goals are weighted at 20%, the operating
income weighting is reduced from 70% to 50% and the
weightings for safety and on-time performance re-
main at 15% each.
The level of award opportunity under the ICP varies
by executive. Opportunities generally are estab-
lished to provide competitive (50th percentile)
cash compensation relative to the market for per-
formance that meets the Company's targets, and will
exceed the 50th percentile of cash compensation for
superior Company performance.
Long-Term Incentives To encourage ownership in the Company and to align
employees' interests with those of stockholders,
the Company provides equity grants under the Stock
Plan. The Stock Plan supports the Company's compen-
sation philosophy and objectives, and encourages
employee focus on the types and levels of perfor-
mance that lead to increased stock prices and over-
all returns to stockholders. The specific programs
used under the plan, including the Incentive Bonus
Stock Program, Stock Option Grants, the Salary Ex-
change Option Program, the Performance Share Plan,
and the Senior Management Stock Deferral Plan, all
enable and support executive stock ownership.
19
<PAGE>
Stock Ownership Goals. A commitment to significant
stock ownership on the part of the Company manage-
ment is an important element of the compensation
programs. The Committee has established stock own-
ership guidelines as follows:
<TABLE>
<CAPTION>
1998
Stock Ownership Goals
Executive Level (As a Multiple of Salary)
--------------- -------------------------
<S> <C>
Senior Vice Presidents............. 3 x Base Salary
Vice Presidents.................... 2 x Base Salary
Senior Managers in Salary Bands 34-
36................................ 1 to 2 x Base Salary
</TABLE>
Each executive and senior manager covered by the
goals is required to retain the net, after-tax
shares obtained through option exercises, or
through vested restricted stock, until he or she
accumulates the required ownership levels. The Com-
mittee monitors total share holdings on an annual
basis. Ninety-eight percent of all executives and
senior managers currently meet their respective
ownership goals.
Incentive Bonus Stock Program. To encourage indi-
vidual stock ownership, executives and senior man-
agers are given the opportunity to exchange up to
100% of their ICP cash awards for a grant of re-
stricted stock. Participants electing the exchange
receive a restricted stock grant equal to 150% of
the ICP award foregone. Shares generally will vest
three years after grant, but may vest in two years
upon attainment of certain pre-specified return on
invested capital performance goals.
Stock Option Grants. Under the Stock Plan, the Com-
pany makes periodic grants of stock options to all
salaried employees. Stock options cannot be issued
with an exercise price below the market value of
the Company common stock on the date of grant, thus
ensuring that recipients will realize benefit only
when the price of the Company's stock appreciates.
Stock options for executives and others may also
include a reload feature that encourages executives
to exercise their options and helps them achieve
their stock ownership goals. To reinforce the
Company's goal of linking a substantial portion of
total compensation to stock value, the grant sizes
for all eligible employees are targeted to provide
long-term incentive opportunities at the 75th per-
centile of the market. Actual stock option grants
also reflect each recipient's individual perfor-
mance and salary band.
Salary Exchange Option Program. To reinforce the
link between stock price performance and executive
compensation, executives and selected senior manag-
ers have the opportunity to exchange up to 25% of
their base salary each year for a grant of non-
qualified stock options with an exercise price
equal to the fair market value of the Company's
common stock on the date of grant and with a term
of up to ten years from date of grant. Participants
receive 450 non-qualified stock options for each
$1,000.00 of base salary exchanged and may elect
salary exchanges for up to three consecutive years
at one time.
20
<PAGE>
Performance Share Plan. The special, one-time grant
of performance-based restricted stock to executives
and other selected senior managers on January 18,
1996 is now in the vesting measurement period for
the first one-third of the grant. The first one-
third will vest when the fair market value of the
Company's stock maintains a value of $34.89 for 30
consecutive trading days before January 18, 2002.
The second one-third will vest when the fair market
value of the stock maintains a value of $39.08 for
30 consecutive trading days between January 18,
2000 and January 18, 2002. The final one-third will
vest when the fair market value of the stock main-
tains a value of $43.76 for 30 consecutive trading
days between January 18, 2001 and January 18, 2002.
If the Company's stock price does not reach these
performance goals by January 18, 2002, the corre-
sponding shares will not vest and will be forfeit-
ed.
Senior Management Stock Deferral Plan. The Senior
Management Stock Deferral Plan provides management
with retirement and tax planning flexibility. The
plan allows senior managers to defer unrealized
gains from non-qualified stock option exercises, or
the value of restricted stock grants, such as
grants from the Incentive Bonus Stock Program
(above). Stock options must be exercised using pre-
viously acquired shares of the Company's common
stock to take advantage of this plan.
CEO Compensation The factors upon which Mr. Krebs' 1998 compensation
was based are the same as described for all execu-
tive officers pursuant to the executive compensa-
tion strategy described earlier in this report. Mr.
Krebs is eligible to participate in the same com-
pensation plans available to other executive offi-
cers of the Company. Mr. Krebs participates in the
Company's programs that allow him to receive re-
stricted shares instead of cash for ICP awards and
that allow him to exchange a significant portion of
his base salary for options. Mr. Krebs' 1998 stock
ownership goal was six times his base salary, and
he exceeded this goal.
Based on a review by outside consultants of compen-
sation levels for the Company relative to those of
corporations of comparable size, revenues, and em-
ployee base, the Committee assesses Mr. Krebs' base
salary each year. In accordance with its estab-
lished objectives, the Committee measures Mr.
Krebs' base salary against the 25th percentile for
an organization of the Company's size, as reflected
in competitive studies.
Mr. Krebs' base salary has remained at $725,000
since January 1, 1996. In 1998, Mr. Krebs' salary
paid was $530,000, reflecting his previous election
to exchange salary for stock options under the Sal-
ary Exchange Option Program, and a deduction for
substantially all of the annual costs of a life in-
surance policy benefiting his children under the
Company's Estate Enhancement Program.
21
<PAGE>
In January 1998, the Committee granted Mr. Krebs
450,000 non-qualified stock options (as adjusted
for BNSF's three-for-one stock split). The size of
this grant was based on competitive data and was
reflective of Mr. Krebs' desire to receive options
instead of an increase in his base salary. Mr.
Krebs also declined receiving a base salary in-
crease for 1999.
Mr. Krebs' 1998 incentive opportunity under the ICP
was weighted 70% upon achievement of targeted
growth in operating income and 15% each upon the
achievement of safety and on-time performance
goals. The actual incentive earned by Mr. Krebs was
$575,721. Mr. Krebs exchanged virtually all of his
award for shares of restricted stock under the In-
centive Bonus Stock Program. The computation for
the percentage of goal achievement for Mr. Krebs
and other executive officers, which resulted in a
72.83% payout, was exactly the same as the computa-
tion for other salaried employees.
Actual awards for Mr. Krebs and others reflected
operating income that was 87.76% of the goal.
Awards also reflected BNSF's performance relative
to aggressive safety goals. The Company exceeded
its goals for reduction of lost work time on the
system (as measured by Federal Railroad Administra-
tion standards) but did not attain its goal for re-
duction of personal injuries. Lastly, the awards
reflect the fact that the Company partially
achieved goals for on-time performance.
Policy On Section 162(m) of the Internal Revenue Code limits
Deductibility of the tax deductibility by a company of compensation
Compensation in excess of $1 million paid to any of its most
highly compensated executive officers. However,
performance-based compensation that has been ap-
proved by stockholders is excluded from the $1 mil-
lion limit if, among other requirements, the com-
pensation is payable only upon attainment of pre-
established, objective performance goals and the
board committee that establishes such goals con-
sists only of "outside directors" (as defined for
purposes of Section 162(m)). All members of the
Committee qualify as "outside directors."
The Committee has considered these requirements and
the regulations. While the tax impact of any com-
pensation arrangement is one factor to be consid-
ered, this impact is evaluated by the Committee in
light of the Company's overall compensation philos-
ophy and objectives. The Company has established
the Stock Plan which permits the grant of stock
awards which meet the requirements of Section
162(m) of the Code and hence will maximize the
Company's federal income tax deductions for compen-
sation expense. In 1998, all compensation expense
was deductible by the Company for federal income
tax purposes. However, the Committee believes there
are circumstances in which the Company's and stock-
holders' interests may be best served by providing
compensation that is not fully deductible, and that
its ability to exercise discretion outweighs the
advantages of qualifying compensation under Section
162(m).
22
<PAGE>
Compensation Committee:
Michael B. Yanney, Chairman
Joseph F. Alibrandi
Jack S. Blanton
John J. Burns, Jr.
Bill M. Lindig
Robert H. West
Ronald B. Woodard
Performance Graph The following graph depicts a five year comparison
of cumulative total stockholder returns for the
Company, the Standard & Poor's 500 Stock Index
("S&P 500"), and the Standard & Poor's Railroad In-
dex ("S&P Rail"). The Company is included within
both the S&P 500 and S&P Rail indices. The graph
assumes the investment of $100 on December 31,
1993, in the common stock of the Company's prede-
cessor, Burlington Northern Inc., the S&P 500, and
the S&P Rail, and the reinvestment of all divi-
dends.
<TABLE>
<CAPTION>
December 31 Company S&P 500 S&P Rail
----------- ------- ------- --------
<S> <C> <C> <C>
1993 $100 $100 $100
1994 $ 85 $101 $ 86
1995 $141 $139 $126
1996 $158 $171 $150
1997 $172 $228 $169
1998 $193 $293 $155
</TABLE>
23
<PAGE>
Summary Compensation The following table summarizes the compensation
Table earned by our Chief Executive Officer and each of
the other four most highly compensated executive
officers in 1998, for the years indicated below.
<TABLE>
<CAPTION>
Annual
Compensation Long-Term Compensation
------------------ ----------------------
Awards
----------------------
Securities
Name and Underlying
Principal Restricted Options All Other
Position Year Salary(1) Bonus(2) Stock(2)(3) (Shares) Compensation(4)
--------- ---- --------- -------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert D. Krebs......... 1998 $530,000 $ 35,961 $809,640 613,008 $97,533
Chairman, President and 1997 $530,000 $ 28,875 $655,491 440,250 $89,913
Chief Executive Officer 1996 $544,000 $ 16,229 $760,067 515,793 $32,895
Matthew K. Rose......... 1998 $310,000 $124,579 $362,744 135,000 $28,955
Senior Vice President 1997 $262,917 $ 76,958 $212,188 108,300 $22,736
and
Chief Operations 1996 $192,333 $ 80,532 $104,725 72,900 $22,262
Officer
Denis E. Springer....... 1998 $338,000 $299,550 $ 0 121,950 $27,332
Senior Vice President 1997 $321,000 $235,210 $ 0 127,674 $17,361
and
Chief Financial Officer 1996 $325,000 $255,462 $ 0 63,000 $18,017
Gregory T. Swienton..... 1998 $325,000 $165,849 $147,458 67,500 $25,230
Senior Vice President-- 1997 $312,000 $110,657 $144,468 60,000 $22,270
Coal &
Agricultural 1996 $300,000 $107,005 $144,381 45,000 $27,112
Commodities Business
Unit
Charles L. Schultz...... 1998 $271,000 $147,926 $174,342 103,950 $22,991
Senior Vice President-- 1997 $236,667 $206,959 $ 0 97,689 $17,673
Intermodal & Automotive 1996 $260,833 $ 75,000 $138,666 98,733 $10,296
Business Unit
</TABLE>
- - --------
(1) Salary has been reduced by the amounts foregone for participation in
Salary Exchange Option Program by Messrs. Krebs, Rose, Springer and
Schultz and for Mr. Krebs' participation in the Company's Estate
Enhancement Program in 1998 and 1997.
(2) The bonus awards for the individuals named above were paid pursuant to the
annual incentive compensation plan described in the Compensation Committee
Report on 1998 Executive Compensation in this proxy statement. Messrs.
Krebs, Rose, and Swienton elected to forego all or a portion of their
annual incentives pursuant to the Incentive Bonus Stock Program for
restricted stock in 1996, 1997 and 1998 and Mr. Schultz made a similar
election as to 1996 and 1998. In 1996, Mr. Krebs' performance units were
cancelled and restricted shares were issued in lieu thereof with the
original vesting schedule. The bonuses waived by the named executives are
excluded from the Bonus column and the value of restricted shares is
included in the Restricted Stock column.
(3) Restricted stock and its corresponding market value owned by the
individuals named above, based upon a per share value of $34.25 as of
December 31, 1998, is as follows:
<TABLE>
<CAPTION>
Named Executive Shares of Restricted Stock Market Value
--------------- -------------------------- ------------
<S> <C> <C>
Mr. Krebs............................ 156,237 $5,351,117
Mr. Rose............................. 34,134 $1,169,090
Mr. Springer......................... 48,585 $1,664,036
Mr. Swienton......................... 56,157 $1,923,377
Mr. Schultz.......................... 42,840 $1,467,270
</TABLE>
(4) Reflects matching contributions to the Burlington Northern Santa Fe
Investment and Retirement Plan (or, prior to 1997, the Burlington Northern
Inc. Thrift and Profit Sharing Plan I and the SFP Investment and
Retirement Plan) and the Burlington Northern Santa Fe Supplemental
Investment and Retirement Plan (or, prior to 1997, the Burlington Northern
Inc. Nonqualified 401(k)
24
<PAGE>
Restoration Plan and the SFP Supplemental Investment and Retirement Plan).
In addition, $50,000 is reflected for Mr. Krebs in connection with his
participation in the Company's Estate Enhancement Program for 1998 and
1997.
Stock Option The following table provides information as to the
Grants in 1998 individuals named in the Summary Compensation Table
and grants of options during 1998. All initial op-
tion grants to these individuals have a reload fea-
ture under which optionees using outstanding shares
to pay the exercise price receive an option for the
number of shares so used with an exercise price
equal to fair market value on the date of exercise
and expiring on the same date as the initial option.
No more than two reload grants may be made in con-
nection with any initial grant and the reload fea-
ture is not available with respect to any grant of
options pursuant to a reload. Share numbers have
been adjusted as necessary to reflect BNSF's three-
for-one stock split effective September 1, 1998.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------
Number of Potential
Securities % of Total Realizable
Underlying Options Exercise Value at
Options Granted to or Base Assumed
Granted Employees in Price Expiration Black-Scholes
Name (Shares) Fiscal Year ($/Share) Date Calculation(6)
- - ---- ---------- ------------ --------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Robert D. Krebs(1)...... 81,450 0.85% $30.97 01/01/08 $ 445,532
450,000 4.72% $29.10 01/14/08 $2,290,500
81,558 0.86% $34.77 03/28/05 $ 510,553
Matthew K. Rose(2)...... 135,000 1.42% $29.10 01/14/08 $ 687,150
Denis E. Springer(3).... 31,950 0.34% $30.97 01/01/08 $ 174,767
90,000 0.94% $29.10 01/14/08 $ 458,100
Gregory T. Swienton(4).. 67,500 0.71% $29.10 01/14/08 $ 343,575
Charles L. Schultz(5)... 36,450 0.38% $30.97 01/01/08 $ 199,382
67,500 0.71% $29.10 01/14/08 $ 343,575
</TABLE>
- - --------
(1) The option grant of 81,450 shares was granted on January 1, 1998, with a
reload option in exchange for $181,000 of his 2000 base salary. This
option grant becomes exercisable on January 1, 2001. The option grant of
450,000 shares, with a reload option, was granted on January 14, 1998, and
includes consideration of Mr. Krebs' desire to decline a 1998 salary
increase. This option grant became exercisable on January 14, 1999. The
option grant of 81,558 shares was granted on July 23, 1998, as a reload
grant in connection with his use of shares to exercise vested stock
options and became exercisable on January 23, 1999.
(2) The option grant of 135,000 shares was granted on January 14, 1998, with a
reload option, and became exercisable on January 14, 1999.
(3) The option grant of 31,950 shares was granted on January 1, 1998, with a
reload option in exchange for $71,000 of his 2000 base salary. This option
grant becomes exercisable on January 1, 2001. The option grant of 90,000
shares was granted on January 14, 1998, with a reload option, and became
exercisable on January 14, 1999.
(4) The option grant of 67,500 shares was granted on January 14, 1998, with a
reload option, and became exercisable on January 14, 1999.
(5) The option grant of 36,450 shares was granted on January 1, 1998, with a
reload option in exchange for $81,000 of his 2000 base salary. This option
grant becomes exercisable on January 1, 2001. The option grant of 67,500
shares was granted on January 14, 1998, with a reload option, and became
exercisable on January 14, 1999.
25
<PAGE>
(6) The estimated present value at grant date reflected in the table has been
calculated using the Black-Scholes option pricing model based on the
following assumptions:
Exercise price: Equal to the fair market value of the underlying stock on
Option term: the date of grant
Three years
Interest rate: Equal to interest rate on a U.S. Treasury security on
December 31, 1998 with a maturity date corresponding to the
option term
Volatility rate:20%
Dividend rate: $0.48 annual dividend per share
The approach used in developing the assumptions upon which the Black-
Scholes variation was based is consistent with the requirements of
Statement of Financial Accounting Standard No. 123, "Accounting for Stock
Based Compensation." The ultimate value of these options will depend on the
future market price of the Company's stock. The Black-Scholes model is only
one method of valuing options, and the actual value of the options may be
significantly different. The actual value of an option to an executive, if
any, will depend on the excess of the stock price over the exercise price
on the date the option is exercised.
Option Exercises and The following table provides information as to the
Holdings individuals named in the Summary Compensation Table
concerning their exercise of stock options during
1998 and unexercised stock options held as of the
end of 1998. No executives held Stock Appreciation
Rights ("SARs") in 1998, and BNSF has no plans to
award SARs in the future.
AGGREGATED 1998 STOCK OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Year In-the-Money Options
Shares Aggregate End (Shares) at Year End(1)(2)
Acquired Value ------------------------- -------------------------
Name On Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- - ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert D. Krebs......... 289,533 $5,520,696 1,107,687 875,508 $13,016,259 $4,045,641
Matthew K. Rose......... 20,925 $ 267,706 124,950 166,050 $ 716,462 $ 865,715
Denis E. Springer....... 70,000 $1,821,940 348,533 160,200 $ 5,431,115 $ 778,289
Gregory T. Swienton..... 3,600 $ 61,128 181,500 67,500 $ 1,878,225 $ 347,625
Charles L. Schultz...... 0 $ 0 339,093 159,750 $ 6,108,721 $ 814,347
</TABLE>
- - --------
(1) Dollar values are calculated by determining the difference between the
fair market value of the securities underlying options and the exercise
price of options at exercise or at year-end, as applicable.
(2) Options are in-the-money if the fair market value of the underlying
securities exceeds the exercise or base price of the option.
Pension Plans The following tables show the estimated pension
benefits payable to a covered participant at normal
retirement age (age 65) under the Burlington North-
ern Santa Fe Retirement Plan ("Retirement Plan"),
as well as under the non-qualified supplemental
pension plan that provides benefits that would oth-
erwise be denied participants by reason of certain
Internal Revenue Code limitations on qualified plan
benefits.
26
<PAGE>
A participant's average yearly compensation for
purposes of the Retirement Plan is based upon his
or her average base salary and cash bonus earned
for the 60 consecutive months during the last 120
months of service for which such average is the
highest or, in the case of a participant who has
been employed for less than five years, the period
of his or her employment with the Company and its
subsidiaries. For purposes of the Retirement Plan,
covered compensation for 1998 for the five individ-
uals named in the Summary Compensation Table was:
<TABLE>
<CAPTION>
Estimated
1998 Covered Years Of
Executive Officer Compensation Service
----------------- ------------ ---------
<S> <C> <C>
Mr. Krebs............................... $1,300,721 33
Mr. Rose................................ $ 696,408 6
Mr. Springer............................ $ 654,550 16
Mr. Swienton............................ $ 589,154 5
Mr. Schultz............................. $ 589,154 29
</TABLE>
Pursuant to the Retirement Plan, Mr. Krebs, Mr.
Springer, and Mr. Schultz are grandfathered under
the Santa Fe Pacific Retirement Plan benefit for-
mula that was in place prior to adoption of the Re-
tirement Plan. Annual benefits payable under the
SFP benefit formula are not subject to any reduc-
tion for Railroad Retirement, Social Security, or
other offsets. The estimated annual benefits are
computed in the form of a single life annuity and
are based on average earnings and years of service
at retirement as follows:
SFP RETIREMENT PLAN FORMULA
<TABLE>
<CAPTION>
Years of Service
Average Yearly ----------------------------------------------------------------
Compensation 10 15 20 25 30 35 40
- - -------------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 250,000.............. $ 38,128 $ 57,192 $ 76,256 $ 95,320 $114,384 $133,448 $ 152,512
$ 300,000.............. $ 46,128 $ 69,192 $ 92,256 $115,320 $138,384 $161,448 $ 184,512
$ 400,000.............. $ 62,128 $ 93,192 $124,256 $155,320 $186,384 $217,448 $ 248,512
$ 500,000.............. $ 78,128 $117,192 $156,256 $195,320 $234,384 $273,448 $ 312,512
$ 600,000.............. $ 94,128 $141,192 $188,256 $235,320 $282,384 $329,448 $ 376,512
$ 800,000.............. $126,128 $189,192 $252,256 $315,320 $378,384 $441,448 $ 504,512
$1,200,000.............. $190,128 $285,192 $380,256 $475,320 $570,384 $665,448 $ 760,512
$1,600,000.............. $254,128 $381,192 $508,256 $635,320 $762,384 $889,488 $1,016,512
</TABLE>
27
<PAGE>
Pursuant to the Retirement Plan, Mr. Swienton is
grandfathered under the BNI retirement plan benefit
formula that was in place prior to adoption of the
Retirement Plan. Annual benefits under the BNI ben-
efit formula are not subject to any reduction for
Social Security, Railroad Retirement, or other off-
sets. The estimated annual benefits are computed in
the form of a single life annuity and are based on
average earnings and years of service at retirement
as follows:
BNI RETIREMENT PLAN FORMULA
<TABLE>
<CAPTION>
Average Years of Service
Yearly --------------------------------------------------------------
Compensation 10 15 20 25 30 35 40
------------ -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 250,000...... $ 37,470 $ 56,205 $ 74,940 $ 93,675 $112,410 $112,410 $112,410
$ 300,000...... $ 45,720 $ 68,580 $ 91,440 $114,300 $137,160 $137,160 $137,160
$ 400,000...... $ 62,220 $ 93,330 $124,440 $155,550 $186,660 $186,660 $186,660
$ 500,000...... $ 78,720 $118,080 $157,440 $196,800 $236,160 $236,160 $236,160
$ 600,000...... $ 95,220 $142,830 $190,440 $238,050 $285,660 $285,660 $285,660
$ 800,000...... $128,220 $192,330 $256,440 $320,550 $384,660 $384,660 $384,660
$1,200,000...... $194,220 $291,330 $388,440 $485,550 $582,660 $582,660 $582,660
$1,600,000...... $260,220 $390,330 $520,440 $650,550 $780,660 $780,660 $780,660
</TABLE>
Mr. Rose is covered under the current Retirement
Plan formula. Estimated annual benefit levels under
the BNSF Retirement Plan are not subject to any re-
duction for Social Security, Railroad Retirement,
or other offsets. The estimated annual benefits are
computed in the form of a single life annuity and
are based on average earnings and years of service
at retirement as follows:
BNSF RETIREMENT PLAN FORMULA
<TABLE>
<CAPTION>
Average Years of Service
Yearly --------------------------------------------------------------
Compensation 10 15 20 25 30 35 40
------------ -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 250,000...... $ 30,607 $ 45,910 $ 61,214 $ 76,517 $ 91,820 $107,124 $122,427
$ 300,000...... $ 37,607 $ 56,410 $ 75,214 $ 94,017 $112,820 $131,624 $150,427
$ 400,000...... $ 51,607 $ 77,410 $103,214 $129,017 $154,820 $180,624 $206,427
$ 500,000...... $ 65,607 $ 98,410 $131,214 $164,017 $196,820 $229,624 $262,427
$ 600,000...... $ 79,607 $119,410 $159,214 $199,017 $238,820 $278,624 $318,427
$ 800,000...... $107,607 $161,410 $215,214 $269,017 $322,820 $376,624 $430,427
$1,200,000...... $163,607 $245,410 $327,214 $409,017 $490,820 $572,624 $654,427
$1,600,000...... $219,607 $329,410 $439,214 $549,017 $658,820 $768,624 $878,427
</TABLE>
Employment Contracts In January 1997, the Board of Directors adopted new
and Change in BNSF change of control agreements to replace the
Control Arrangements SFP Severance Agreements and BNI Severance Agree-
ments. Messrs. Springer and Schultz have the BNSF
severance agreement. Mr. Krebs has this new agree-
ment but only as to the portion of the severance
agreement pertaining to stock awards, and addition-
ally, a provision for payment of life insurance
premiums due under the Estate Enhancement Program.
28
<PAGE>
Under this agreement, in the event of a change in
control (as defined in the Company's Trust Agree-
ments as discussed below) and subsequent qualifying
termination of employment, a participant would re-
ceive benefits equal to:
. three times base salary and target bonus plus a
tax make-whole payment;
. life, disability, and health benefits for a pe-
riod of up to thirty-six months;
. vesting of all restricted stock (other than the
performance-based restricted stock) and pro rata
vesting of stock options upon consummation of a
future change in control event; and
. outplacement and legal fees and expenses relat-
ing to claims under the severance agreement.
In addition, the tax make-whole payment would be
limited to the extent that its value, when aggre-
gated with other benefits or payments, equals three
times the "base amount" as defined in Section 280G
of the Internal Revenue Code. Moreover, the bene-
fits of the BNSF severance agreement are limited if
total benefits would incur an excise tax under Sec-
tion 4999 of the Code except where the total of the
benefits exceeds 120% of three times the "base
amount," in which case the benefits will be paid in
full with all accompanying excise taxes due.
Mr. Rose and Mr. Swienton each elected to retain
his prior BNI agreement which provides similar ben-
efits except that the bonus would be paid at maxi-
mum level, certain additional pension benefits are
provided, and a tax make-whole payment is not pro-
vided. In addition, Mr. Springer's prior SFP sever-
ance agreement, which provided benefits similar to
the BNSF severance agreement except that severance
is based upon two times annual salary and maximum
bonus, has been extended to provide benefits in the
event of termination due to relocation.
Trust Agreements The Company maintains trust agreements to permit
funds to be set aside with respect to the Company's
obligations to present and former executives and
directors under deferred compensation programs and
agreements, retirement commitments, certain con-
sulting agreements, and supplemental retirement
plans. To the extent the plans are currently fund-
ed, the trusts provide for permanent funding of
benefits under the supplemental retirement plans
and the Directors' Retirement Plan on a present
value basis. The trust agreements further provide
for a split-dollar life insurance plan ("Split-dol-
lar Plan") for certain key employees including Mr.
Krebs. The Split-dollar Plan provides for the pur-
chase of life insurance policies covering key em-
ployees, and for the payment to each covered em-
ployee's beneficiary of a portion of the death ben-
efit payable under such employee's life insurance
policy, with the remaining value in each policy to
be used to fund the other obligations of the trust.
The trust retains all rights to any cash values of
the policies and the executive officers pay the
cost of term coverage.
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In the event of a "change in control" of the Compa-
ny, the trust agreements provide for the payment of
amounts which may become due, subject only to the
claims of general creditors of the Company in the
event that it became bankrupt or insolvent. Any of
the following events are considered a "change in
control":
. any person becomes the beneficial owner of secu-
rities representing 25% or more of the voting
power of BNSF's outstanding securities;
. during any period of two consecutive years, in-
dividuals who at the beginning of this period
constitute the Board of Directors for the Com-
pany cease to constitute at least a majority of
the Board;
. BNSF's stockholders approve a merger or consoli-
dation of BNSF with another company; or
. BNSF's stockholders approve a plan of complete
liquidation or an agreement for the sale or dis-
position by BNSF of all or substantially all of
its assets.
OTHER BUSINESS
- - -------------------------------------------------------------------------------
If any matters other than those set forth above are properly brought before
the meeting, including any stockholder proposals omitted from the proxy
materials pursuant to SEC rules, it is intended that the persons acting under
the proxy will vote the proxies given to the Company in accordance with their
best judgment. A stockholder has indicated to the Company that he intends to
present one proposal at the meeting, submitted in accordance with the advance
notice of stockholder business provision of the By-Laws, that recommends
shortening the advance notice required to be given for stockholder proposals
and nominations; that interested stockholders be invited to attend and give
their opinions at Board meetings; that a committee be appointed to make
corporate governance more "open" and include employees and former employees in
decisions affecting railroad safety; that the Company terminate officers who
have "inappropriately disciplined" employees "for attempting to work in a safe
manner and consistent with railroad operating or safety rules"; and that the
Company give safety commendations and publicly accept safety commendations
from other organizations awarded to its employees. While BNSF is in favor of
policies that promote safe train operations and employee safety, we believe
that these issues are currently being addressed by the Company and that this
proposal would require a duplication of effort or an inefficent use of
resources. If this proposal is properly presented and is in order at the
annual meeting, the persons acting under the proxy intend to vote against it.
The Company also has received notices from members of this stockholder's
family that at the meeting they intend to nominate him, four members of his
family, and a current employee of a Company subsidiary, for election as
directors of the Company. The Board knows of no other business that may come
before the meeting.
If you are going to vote by mail, we encourage you to specify your choices
by marking the appropriate boxes on the enclosed proxy card. However, you do
not need to mark any boxes if you wish to vote according to the Board of
Directors' recommendations; just sign, date and return the proxy in the
enclosed envelope. If you are going to vote your proxy by telephone, simply
follow the instructions on the enclosed proxy card. Thank you for your
cooperation and your prompt response.
By order of the Board of Directors.
March 8, 1999
Marsha K. Morgan
Vice President-Investor Relations
and
Corporate Secretary
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APPENDIX
BURLINGTON NORTHERN SANTA FE 1999 STOCK INCENTIVE PLAN
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SECTION 1
STATEMENT OF PURPOSE
1.1. The BURLINGTON NORTHERN SANTA FE 1999 STOCK INCENTIVE PLAN (the "Plan")
has been established by BURLINGTON NORTHERN SANTA FE CORPORATION (the
"Company") to:
(a) attract and retain executive, managerial and other salaried
employees;
(b) motivate participating employees, by means of appropriate incentives,
to achieve long-range goals;
(c) provide incentive compensation opportunities that are competitive
with those of other major corporations; and
(d) further identify a Participant's interests with those of the
Company's other stockholders through compensation that is based on the
Company's common stock;
and thereby promote long-term financial interest of the Company and the
Related Companies, including the growth in value of the Company's equity and
enhancement of long-term stockholder return.
SECTION 2
DEFINITIONS
2.1. Unless the context indicates otherwise, the following terms shall have
the meanings set forth below:
(a) Award. The term "Award" shall mean any award or benefit granted to
any Participant under the Plan, including, without limitation, the grant of
Options, Restricted Stock, Restricted Stock Units, Performance Stock, or
Stock acquired through purchase under Section 10.
(b) Board. The term "Board" shall mean the Board of Directors of the
Company.
(c) Cause. The term "Cause" shall mean (a) the willful and continued
failure by the Participant to substantially perform his duties with the
Company (other than any such failure resulting from his incapacity due to
physical or mental illness), or (b) the willful engaging by the Participant
in conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise. For purposes of this definition, no act, or
failure to act, shall be deemed "willful" unless done, or omitted to be
done, by the Participant not in good faith and without reasonable belief
that his action or omission was in the best interest of the Company.
(d) Change in Control. A "Change in Control" shall be deemed to have
occurred if
(1) any "person" as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any
company owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company), is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly
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or indirectly, of securities of the Company representing 25% or more of
the combined voting power of the Company's then outstanding securities;
(2) during any period of two consecutive years (not including any
period prior to the effective date of this provision), individuals who
at the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in
clause (1), (3) or (4) of this definition) whose election by the Board
or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds ( 2/3) of the directors then still in
office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof;
(3) the stockholders of the Company approve a merger or consolidation
of the Company with any other company other than (i) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 80% of the combined
voting power of the voting securities of the Company (or such surviving
entity) outstanding immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no "person" (as
hereinabove defined) acquires more than 25% of the combined voting
power of the Company's then outstanding securities; or
(4) the stockholders of the Company adopt a plan of complete
liquidation of the Company or approve an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets. For purposes of this clause (4), the term "the sale or
disposition by the Company of all or substantially all of the Company's
assets" shall mean a sale or other disposition transaction or series of
related transactions involving assets of the company or of any direct
or indirect subsidiary of the Company (including the stock of any
direct or indirect subsidiary of the Company) in which the value of the
assets or stock being sold or otherwise disposed of (as measured by the
purchase price being paid therefor or by such other method as the Board
of Directors of the Company determines is appropriate in a case where
there is no readily ascertainable purchase price) constitutes more than
two-thirds of the fair market value of the Company (as hereinafter
defined). For purposes of the preceding sentence, the "fair market
value of the Company" shall be the aggregate market value of the
outstanding shares of Stock (on a fully diluted basis) plus the
aggregate market value of the Company's other outstanding equity
securities. The aggregate market value of the shares of Stock (on a
fully diluted basis) outstanding on the date of the execution and
delivery of a definitive agreement with respect to the transaction or
series of related transactions (the "Transaction Date") shall be
determined by the average closing price of the shares of Stock for the
ten trading days immediately preceding the Transaction Date. The
aggregate market value of any other equity securities of the Company
shall be determined in a manner similar to that prescribed in the
immediately preceding sentence for determining the aggregate market
value of the shares of Stock or by such other method as the Board of
Directors of the Company shall determine is appropriate.
Notwithstanding the foregoing, a merger, consolidation, acquisition of
common control, or business combination of the Company and a Class I
Railroad or a holding company of a Class I railroad that is approved by the
Board shall not constitute a "Change in Control" unless the Board makes a
determination that the transaction shall constitute a "Change in Control".
(e) Code. The term "Code" means the Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include reference
to any successor provision of the Code.
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(f) Date of Termination. A Participant's "Date of Termination" shall be
the date on which his employment with all Employers and Related Companies
terminates for any reason; provided that a Date of Termination shall not be
deemed to occur by reason of a transfer of the Participant between the
Company and a Related Company (including Employers) or between two Related
Companies (including Employers); and further provided that unless agreed
otherwise by the Participant, a Participant's employment shall not be
considered terminated while the Participant is on a leave of absence from
an Employer or a Related Company approved by the Participant's employer.
(g) Disability. Except as otherwise provided by the Committee, a
Participant shall be considered to have a "Disability" during the period in
which he is unable, by reason of a medically determinable physical or
mental impairment, to engage in any substantial gainful activity, which
condition, in the discretion of the Committee, is expected to have a
duration of not less than 120 days.
(h) Employee. The term "Employee" shall mean a person with an employment
relationship with the Company or a Related Company.
(i) Employer. The Company and each Related Company which, with the
consent of the Company, participates in the Plan for the benefit of its
eligible employees are referred to collectively as the "Employers" and
individually as an "Employer".
(j) Fair Market Value. The "Fair Market Value" of the Stock shall be the
mean between the highest and lowest quoted sales prices of a share of
Common Stock on the New York Stock Exchange Composite Transaction Report;
provided, that if there were no sales on the valuation date but there were
sales on dates within a reasonable period both before and after the
valuation date, the Fair Market Value is the weighted average of the means
between the highest and lowest sales on the nearest date before and the
nearest date after the valuation date. The average is to be weighed
inversely by the respective numbers of trading days between the selling
dates and the valuation date and shall be determined in good faith by the
Committee.
(k) Immediate Family. With respect to a particular Participant, the term
"Immediate Family" shall mean the Participant's spouse, children,
stepchildren, adoptive relationships, sisters, brothers and grandchildren.
(l) Option. The term "Option" shall mean any Incentive Stock Option or
Non-Qualified Stock Option granted under the Plan.
(m) Participant. The term "Participant" means an Employee who has been
granted an award under the Plan.
(n) Performance-Based Compensation. The term "Performance-Based
Compensation" shall have the meaning ascribed to it in section 162(m)(4)(C)
of the Code.
(o) Performance Period. The term "Performance Period" shall mean the
period over which applicable performance is to be measured.
(p) Qualified Retirement Plan. The term "Qualified Retirement Plan" means
any plan of the Company or a Related Company that is intended to be
qualified under section 401(a) of the Code.
(q) Related Companies. The term "Related Company" means any company
during any period in which it is a "subsidiary corporation" (as that term
is defined in Code section 424(f)) with respect to the Company.
(r) Restricted Period. The term "Restricted Period" shall mean the period
of time for which Restricted Stock is subject to forfeiture pursuant to the
Plan or during which Options and Stock Appreciation Rights are not
exercisable.
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(s) Retirement. "Retirement" of a Participant shall mean the occurrence
of a Participant's Date of Termination under circumstances that constitute
a retirement with immediate eligibility for benefits under Article 6 or
Article 7 of the Burlington Northern Santa Fe Retirement Plan, or under the
terms of the Qualified Retirement Plan of an Employer or Related Company
that is extended to the Participant immediately prior to the Participant's
Date of Termination or, if no such plan is extended to the Participant on
his Date of Termination, under the terms of any applicable retirement
policy of the Participant's employer.
(t) SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
(u) Stock. The term "Stock" shall mean shares of common stock of the
Company, par value $0.01 per share.
SECTION 3
ELIGIBILITY
3.1. The Committee shall determine and designate from time to time, from
among the salaried, full-time officers and employees of the Employers those
Employees who will be granted one or more awards under the Plan.
SECTION 4
OPERATION AND ADMINISTRATION
4.1. Subject to the approval of the stockholders of the Company at the
Company's 1999 annual meeting of the stockholders, the Plan shall be effective
as of January 1, 1999 ("Effective Date"), provided however, that any awards
made under the Plan prior to approval by stockholders, shall be contingent on
approval of the Plan by stockholders of the Company and all dividends on
Awards shall be held by the Company and paid only upon such approval and all
other rights of a Participant in connection with an Award shall not be
effective until such approval is obtained. The Plan shall be unlimited and
remain in effect until termination by the Board, provided however, that no
Incentive Stock Options may be granted under the Plan on a date that is more
than ten years from the Effective Date or, if earlier, the date the Plan is
adopted by the Board.
4.2. The Plan shall be administered by the Compensation Committee of the
Board ("Committee") which shall be selected by the Board, shall consist solely
of members of the Board who are not employees or officers of the Company or
any Related Company and are not eligible to participate in the Plan, and shall
consist of not less than two members of the Board who meet the definition of a
"Non-Employee Director" under SEC Rule 16b-3 or such greater number as may be
required for compliance with SEC Rule 16b-3. The authority to manage and
control the operation and administration of the Plan shall be vested in the
Committee, subject to the following:
(a) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to select Employees to receive Awards, to
determine the time or times of receipt, to determine the types of Awards
and the number of shares covered by the Awards, to establish the terms,
conditions, performance criteria, restrictions, and other provisions of
such Awards, and to cancel or suspend Awards. In making such Award
determinations, the Committee may take into account the nature of services
rendered by the respective Employee, his present and potential contribution
to the Company's success, and such other factors as the Committee deems
relevant.
(b) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to determine the extent to which Awards under the
Plan will be structured to conform to the requirements applicable to
Performance-Based Compensation as described in Code section
162(m), and to take such action, establish such procedures, and impose such
restrictions at the time such awards are granted as the Committee
determines to be necessary or appropriate to conform to such requirements.
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(c) The Committee will have the authority and discretion to interpret the
Plan, to establish, amend, and rescind any rules relating to the Plan, to
determine the terms and provisions of any agreements made pursuant to the
Plan, and to make all other determinations that may be necessary or
advisable for the administration of the Plan.
(d) Any interpretation of the Plan by the Committee and any decision made
by it under the Plan is final and binding on all persons.
(e) Except as otherwise expressly provided in the Plan, where the
Committee is authorized to make a determination with respect to any Award,
such determination shall be made at the time the Award is made, except that
the Committee may reserve the authority to have such determination made by
the Committee in the future (but only if such reservation is made at the
time the Award is granted and is expressly stated in the Agreement
reflecting the Award).
(f) Except to the extent prohibited by applicable law or the rules of any
stock exchange, the Committee may allocate all or any portion of its
responsibilities and powers to any one or more of its members and other
than in respect to eligibility, times of Awards, and terms, conditions,
performance criteria, restrictions and other provisions of Awards, and
except as otherwise provided by the Committee from time to time, the
Committee delegates its responsibilities and powers to the Vice President-
Human Resources or his successor. Any such allocation or delegation may be
revoked by the Committee at any time.
(g) No member or authorized delegate of the Committee shall be liable to
any person for any action taken or omitted in connection with the
administration of the Plan unless attributable to his own fraud or willful
misconduct; nor shall the Employers be liable to any person for any such
action unless attributable to fraud or willful misconduct on the part of a
director or employee of the Employers. The Committee, the individual
members thereof, and persons acting as the authorized delegates of the
committee under the plan, shall be indemnified by the Employers against any
and all liabilities, losses, costs and expenses (including legal fees and
expenses) of whatsoever kind and nature which may be imposed on, incurred
by or asserted against the Committee or its members or authorized delegates
by reason of the performance of a Committee function if the Committee or
its members or authorized delegates did not act dishonestly or in willful
violation of the law or regulation under which such liability, loss, cost
or expense arises. This indemnification shall not duplicate but may
supplement any coverage available under any applicable insurance.
4.3. Notwithstanding any other provision of the Plan to the contrary, no
Participant shall receive any Award of an Option under the Plan to the extent
that the sum of:
(a) the number of shares of Stock subject to such Award;
(b) the number of shares of Stock subject to all other prior Awards of
Options under the Plan during the one-year period ending on the date of the
Award; and
(c) the number of shares of Stock subject to all other prior stock
options granted to the Participant under other plans or arrangements of the
Employers and Related Companies during the one-year period ending on the
date of the Award;
would exceed the Participant's Individual Limit under the Plan. The
determination made under the foregoing provisions of this subsection 4.3 shall
be based on the shares subject to the awards at the time of grant, regardless
of when the awards become exercisable. Subject to the provisions of Section
13, a Participant's "Individual Limit" shall be 1,000,000 shares per calendar
year.
4.4. To the extent that the Committee determines that it is necessary or
desirable to conform any Awards under the Plan with the requirements
applicable to "Performance-Based Compensation", as that term is used in Code
section 162(m)(4)(C), it may, at or prior to the time an Award is granted,
take such steps and impose such restrictions with respect to such Award as it
determines to be
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necessary to satisfy such requirements. To the extent that it is necessary to
establish performance goals for a particular performance period, those goals
will be based on one or more of the following business criteria: net income,
earnings per share, debt reduction, safety, on-time train performance, return
on investment, operating ratio, cash flow, return on assets, stockholders
return, revenue, customer satisfaction, and return on equity. If the Committee
establishes performance goals for a performance period relating to one or more
of these business criteria, the Committee may determine to approve a payment
for that particular performance period upon attainment of the performance goal
relating to any one or more of such criteria.
SECTION 5
SHARES AVAILABLE UNDER THE PLAN
5.1. The shares of Stock with respect to which Awards may be made under the
Plan shall be shares currently authorized but unissued or treasury shares
acquired by the Company, including shares purchased in open market or in
private transactions. Subject to the provisions of Section 12, the total
number of shares of Stock available for grant of Awards shall not exceed
twenty million (20,000,000) shares of Stock. Except as otherwise provided
herein, any shares subject to an Award which for any reason expires or is
terminated without issuance of shares (whether or not cash or other
consideration is paid to a Participant in respect to such Award) as well as
shares used to pay an Option Purchase Price under this Plan or a predecessor
plan shall again be available under the Plan.
SECTION 6
OPTIONS
6.1. The grant of an "Option" under this Section 6 entitles the Participant
to purchase shares of Stock at a price fixed at the time the Option is
granted, or at a price determined under a method established at the time the
Option is granted, subject to the terms of this Section 6. Options granted
under this section may be either Incentive Stock Options or Non-Qualified
Stock Options, and subject to Sections 11 and 16, shall not be exercisable for
six months from date of grant, as determined in the discretion of the
Committee. An "Incentive Stock Option" is an Option that is intended to
satisfy the requirements applicable to an "incentive stock option" described
in section 422(b) of the Code. A "Non-Qualified Stock Option" is an Option
that is not intended to be an "incentive stock option" as that term is
described in section 422(b) of the Code.
6.2. The Committee shall designate the Participants to whom Options are to
be granted under this Section 6 and shall determine the number of shares of
Stock to be subject to each such Option. To the extent that the aggregate fair
market value of Stock with respect to which Incentive Stock Options are
exercisable for the first time by any individual during any calendar year
(under all plans of the Company and all Related Companies) exceeds $100,000,
such options shall be treated as Non-Qualified Stock Options, to the extent
required by section 422 of the Code.
6.3. The determination and payment of the purchase price of a share of Stock
under each Option granted under this section shall be subject to the
following:
(a) The purchase price shall be established by the Committee or shall be
determined by a method established by the Committee at the time the Option
is granted; provided, however, that in no event shall such price be less
than Fair Market Value on the date of the grant.
(b) Subject to the following provisions of this subsection 6.3, the full
purchase price of each share of Stock purchased upon the exercise of any
Option shall be paid at the time of such exercise and, as soon as
practicable thereafter, a certificate representing the shares so purchased
shall be delivered to the person entitled thereto.
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(c) The purchase price shall be payable in cash or in shares of Stock
(valued at Fair Market Value as of the day of exercise).
(d) A Participant may elect to pay the purchase price upon the exercise
of an Option through a cashless exercise arrangement as may be established
by the Company.
6.4. Except as otherwise expressly provided in the Plan, an Option granted
under this Section 6 shall be exercisable as follows:
The terms and conditions relating to exercise of an Option shall be
established by the Committee, and may include, without limitation, conditions
relating to completion of a specified period of service, achievement of
performance standards prior to exercise of the Option, or achievement of Stock
ownership objectives by the Participant. No Option may be exercised by a
Participant after the expiration date applicable to that Option.
6.5. The exercise period of any Option shall be determined by the Committee
and shall not extend more than ten years after the Date of Grant.
6.6. In the event the Participant exercises an Option under this Plan or a
predecessor plan of the Company or a Related Company and pays all or a portion
of the purchase price in Common Stock, in the manner permitted by subsection
6.3, such Participant, pursuant to the exercise of Committee discretion at the
time the Option is exercised or to the extent previously authorized by the
Committee, may be issued a new Option to purchase additional shares of Stock
equal to the number of shares of Stock surrendered to the Company in such
payment. Such new Option shall have an exercise price equal to the Fair Market
Value per share on the date such new Option is granted, shall first be
exercisable six months from the date of grant of the new Option and shall have
an expiration date on the same date as the expiration date of the original
Option so exercised by payment of the purchase price in shares of Stock.
SECTION 7
RESTRICTED STOCK
7.1. Subject to the terms of this Section 7, Restricted Stock Awards under
the Plan are grants of Stock to Participants, the vesting of which is subject
to certain conditions established by the Committee, with some or all of those
conditions relating to events (such as performance or continued employment)
occurring after the date of grant, provided however that to the extent that
vesting of a Restricted Stock Award is contingent on continued employment, the
required employment period shall not generally be less than three years
following the grant of the Award unless such grant is in substitution for an
Award under this Plan or a predecessor plan of the Company or a Related
Company.
7.2. The Committee shall designate the Participants to whom Restricted Stock
is to be granted, and the number of shares of Stock that are subject to each
such Award. In no event shall more than four million shares be granted under
Sections 7, 8 and 9 of the Plan. The Award of shares under this Section 7 may,
but need not, be made in conjunction with a cash-based incentive compensation
program maintained by the Company, and may, but need not, be in lieu of cash
otherwise awardable under such program.
7.3. Shares of Restricted Stock granted to Participants under the Plan shall
be subject to the following terms and conditions:
(a) Except as otherwise hereinafter provided, Restricted Stock granted to
Participants may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Restricted Period.
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Except for such restrictions, the Participant as owner of such shares shall
have all the rights of a stockholder, including but not limited to the
right to vote such shares and, except as otherwise provided by the
Committee or as otherwise provided by the Plan, the right to receive all
dividends paid on such shares.
(b) Each certificate issued in respect of shares of Restricted Stock
granted under the Plan shall be registered in the name of the Participant
and, at the discretion of the Committee, each such certificate may be
deposited with the Company with a stock power endorsed in blank or in a
bank designated by the Committee.
(c) The Committee may award Performance-Based Restricted Stock, which
shall be Restricted Stock that becomes vested (or for which vesting is
accelerated) upon the achievement of performance goals established by the
Committee. The Committee may specify the number of shares that will vest
upon achievement of different levels of performance. Except as otherwise
provided by the Committee, achievement of maximum targets during the
Performance Period shall result in the Participant's receipt of the full
Performance-Based Restricted Stock Award. For achievement of the minimum
target but less than the maximum target the Committee may establish a
portion of the Award which the Participant is entitled to receive.
(d) Except as otherwise provided by the Committee, any Restricted Stock
which is not earned by the end of a Performance Period shall be forfeited.
If a Participant's Date of Termination occurs during a Performance Period
with respect to any Restricted Stock subject to a Performance Period
granted to him, the Committee may determine that the Participant will be
entitled to settlement of all or any portion of the Restricted Stock
subject to a Performance Period as to which he would otherwise be eligible,
and may accelerate the determination of the value and settlement of such
Restricted Stock subject to a Performance Period or make such other
adjustments as the Committee, in its sole discretion, deems desirable.
Subject to the limitations of the Plan and the Award of Restricted Stock,
upon the vesting of Restricted Stock, such Restricted Stock will be
transferred free of all restrictions to a Participant (or his or her legal
representative, beneficiary or heir).
SECTION 8
RESTRICTED STOCK UNITS
8.1. Subject to the terms of this Section 8, a Restricted Stock Unit
entitles a Participant to receive shares for the units at the end of a
Restricted Period to the extent provided by the Award with the vesting of such
units to be contingent upon such conditions as may be established by the
Committee (such as continued employment which, when required, shall be not
less than three years or satisfaction of performance criteria). The Award of
Restricted Stock Units under this Section 8 may, but need not, be made in
conjunction with a cash-based incentive compensation program maintained by the
Company, and may, but need not, be in lieu of cash otherwise awardable under
such program.
8.2. The Committee shall designate the Participants to whom Restricted Stock
Units shall be granted and the number of units that are subject to each such
Award. In no event shall more than four million shares be granted under
Sections 7, 8 and 9 of the Plan. During any period in which units are
outstanding and have not been settled in stock, the Participant shall not have
the rights of a stockholder, but shall have the right to receive a payment
from the Company in lieu of a dividend in an amount equal to such dividends
and at such times as dividends would otherwise be paid.
8.3. If a Participant's Date of Termination occurs during a Restricted
Period with respect to any Restricted Stock Units granted to him, the
Committee may determine that the Participant will be entitled to settlement of
all or any portion of the Restricted Stock Units as to which he would
otherwise be eligible, and may accelerate the determination of the value and
settlement of such Restricted Stock Units or make such other adjustments as
the Committee, in its sole discretion, deems desirable.
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SECTION 9
PERFORMANCE STOCK
9.1. Subject to the terms of this Section 9, a Performance Stock Award
provides for the distribution of Stock to a Participant upon the achievement
of performance objectives established by the Committee. For purposes of the
Plan, the "Performance Period" with respect to any Award shall be the period
over which the applicable performance is to be measured.
9.2. The Committee shall designate the Participants to whom Performance
Stock Awards are to be granted, and the number of shares of Stock that are
subject to each such Award. In no event shall more than four million shares be
granted under Sections 7, 8 and 9 of the Plan. The Award of shares under this
Section 9 may, but need not, be made in conjunction with a cash-based
incentive compensation program maintained by the Company, and may, but need
not, be in lieu of cash otherwise awardable under such program.
9.3. If a Participant's Date of Termination occurs during a Performance
Period with respect to any Performance Stock granted to him, the Committee may
determine that the Participant will be entitled to settlement of all or any
portion of the Performance Stock as to which he would otherwise be eligible,
and may accelerate the determination of the value and settlement of such
Performance Stock or make such other adjustments as the Committee, in its sole
discretion, deems desirable.
SECTION 10
STOCK PURCHASE PROGRAM
10.1. The Committee may, from time to time, establish one or more programs
under which Participants will be permitted to purchase shares of Stock under
the Plan, and shall designate the Participants eligible to participate under
such Stock purchase programs. The purchase price for shares of Stock available
under such programs, and other terms and conditions of such programs, shall be
established by the Committee. The purchase price may not be less than 75% of
the Fair Market Value of the Stock at the time of purchase (or, in the
Committee's discretion, the average Stock value over a period determined by
the Committee), and further provided that the purchase price may not be less
than par value.
10.2. The Committee may impose such restrictions with respect to shares
purchased under this section, as the Committee determines to be appropriate.
Such restrictions may include, without limitation, restrictions of the type
that may be imposed with respect to Restricted Stock under Section 7.
SECTION 11
TERMINATION OF EMPLOYMENT
11.1. If a Participant's Date of Termination occurs for any reason other
than death, Disability, Retirement, or by reason of the Participant's
employment being terminated by the Participant's employer for any reason other
than Cause, all outstanding Awards shall be forfeited.
11.2. If a Participant's Date of Termination occurs by reason of death, all
Options outstanding immediately prior to the Participant's Date of Termination
shall immediately become exercisable and all restrictions on Restricted Stock,
Restricted Stock Units, Performance Stock and shares purchased under the Stock
Purchase Program outstanding immediately prior to the Participant's Date of
Termination shall lapse.
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<PAGE>
11.3. If a Participant's Date of Termination occurs by reason of Disability
or Retirement, the Restricted Period shall lapse on a proportion of any Awards
outstanding immediately prior to the Participant's Date of Termination (except
to the extent that an Award of Restricted Stock, Restricted Stock Units, and
Performance Stock is subject to a Performance Period, such proportion of the
Award shall remain subject to the same terms and conditions for vesting as
were in effect prior to termination). The proportion of an Award upon which
the Restricted Period shall lapse shall be a fraction, the denominator of
which is the total number of months of any Restricted Period applicable to an
Award and the numerator of which is the number of months of such Restricted
Period which elapsed prior to the Date of Termination.
11.4. If a Participant's Date of Termination occurs by reason of the
Participant's employment being terminated by the Participant's employer for
any reason other than for Cause, the Restricted Period shall lapse on a
proportion of any outstanding Awards (except Restricted Stock and Restricted
Stock Units subject only to a Performance Period, and Performance Stock which
shall be forfeited). The proportion of an Award upon which the Restricted
Period shall lapse shall be a fraction, the denominator of which is the total
number of months of any Restricted Period applicable to an Award and the
numerator of which is the number of months of such Restricted Period which
elapsed prior to the Date of Termination.
11.5. Non-Qualified Stock Options which are or become exercisable by reason
of death, Disability, or Retirement shall expire on the expiration date set
forth in the award or, if earlier:
(a) three years after the Date of Termination, if the Participant's
termination occurs because of death, Disability, or Retirement; and
(b) three months after the Date of Termination, if the Participant's
employment is terminated by the Participant's employer for reasons other
than Cause.
Incentive stock options which are or become exercisable by reason of death,
Disability, or Retirement shall expire on the expiration date set forth in the
award or, if earlier:
(a) three years after the Date of Termination, if the Participant's
termination occurs because of death; and
(b) three months after the Date of Termination, if the Participant is
terminated because of Disability, by the Participant's employer for reasons
other than Cause, or Retirement.
11.6. If a Participant's employment is terminated by the Participant's
employer for reasons other than Cause in connection with a merger,
consolidation, acquisition of common control, or business combination of the
Company and a Class I Railroad or a holding company of a Class I Railroad:
(a) All outstanding options then held by the Participant shall become
exercisable on the Participant's Date of Termination.
(b) Any restrictions on awards held by the Participant as of the
Participant's Date of Termination shall lapse and all Awards vested as if
all performance objectives have been attained.
11.7. Except to the extent the Committee shall otherwise determine, if as a
result of a sale or other transaction, a Participant's employer ceases to be a
Related Company (and the Participant's employer is or becomes an entity that
is separate from the Company), the occurrence of such transaction shall be
treated as the Participant's Date of Termination caused by the Participant
being discharged by the Employer.
11.8. Notwithstanding the foregoing provisions of this section, the
Committee may, with respect to any Awards of a Participant (or portion
thereof) that are outstanding immediately prior to the Participant's Date of
Termination, determine that a Participant's Date of Termination will not
result in forfeiture or other termination of the Award.
A-10
<PAGE>
SECTION 12
ADJUSTMENTS TO SHARES
12.1. If the Company shall effect a reorganization, merger, or
consolidation, or similar event or effect any subdivision or consolidation of
shares of Stock or other capital readjustment, payment of stock dividend,
stock split, spin-off, combination of shares or recapitalization or other
increase or reduction of the number of shares of Stock outstanding without
receiving compensation therefor in money, services or property, then the
Committee shall adjust (i) the number of shares of Stock available under the
Plan; (ii) the number of shares available under any individual or other
limits; (iii) the number of shares of Stock subject to outstanding Awards; and
(iv) the per-share price under any outstanding Award to the extent that the
Participant is required to pay a purchase price per share with respect to the
Award.
12.2. If the Committee determines that the adjustments in accordance with
the foregoing provisions of this section would not be fully consistent with
the purposes of the Plan or the purposes of the outstanding Awards under the
Plan, the Committee may make such other adjustments to the Awards to the
extent that the Committee determines such adjustments are consistent with the
purposes of the Plan and of the affected Awards.
SECTION 13
TRANSFERABILITY OF AWARDS
13.1. Awards under the Plan are not transferable except as designated by the
Participant by will or by the laws of descent and distribution. To the extent
that the Participant who receives an Award under the Plan has the right to
exercise such Award, the Award may be exercised during the lifetime of the
Participant only by the Participant. Notwithstanding the foregoing provisions
of this Section 13, the Committee may permit Awards under the Plan (other than
an Incentive Stock Option) to be transferred by a Participant for no
consideration to or for the benefit of the Participant's Immediate Family
(including, without limitation, to a trust for the benefit of a Participant's
Immediate Family or to a Family Partnership for members of the Immediate
Family), subject to such limits as the Committee may establish and the
transferee shall remain subject to all of the terms and conditions applicable
to such Award prior to such transfer.
SECTION 14
AWARD AGREEMENT
14.1. Each employee granted an Award pursuant to the Plan shall sign an
Award Agreement which signifies the offer of the Award by the Company and the
acceptance of the Award by the employee in accordance with the terms of the
Award and the provisions of the Plan. Each Award Agreement shall reflect the
terms and conditions of the Award. Participation in the Plan shall confer no
rights to continued employment with the Company nor shall it restrict the
right of the Company to terminate a Participant's employment at any time.
SECTION 15
TAX WITHHOLDING
15.1. All Awards and other payments under the Plan are subject to
withholding of all applicable taxes, which withholding obligations shall be
satisfied (without regard to whether the Participant has transferred an Award
under the Plan) by a cash remittance, or with the consent of the Committee,
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<PAGE>
through the surrender of shares of Stock which the Participant owns or to
which the Participant is otherwise entitled under the Plan pursuant to an
irrevocable election submitted by the Participant to the Company at the office
designated for such purpose. The number of shares of Stock needed to be
submitted in payment of the taxes shall be determined using the Fair Market
Value as of the applicable tax date rounding down to the nearest whole share;
provided that no election to have shares of Stock withheld from an Award or
submission of shares shall be effective with respect to an Award which was
transferred by a Participant in accordance with the Plan.
SECTION 16
CHANGE IN CONTROL
16.1. Subject to the provisions of Section 12 (relating to the adjustment of
shares), and except as otherwise provided in the Plan or the Agreement
reflecting the applicable Award, upon the occurrence of a Change in Control:
(a) All outstanding Options shall become fully exercisable.
(b) All shares of Restricted Stock, Restricted Stock Units and
Performance Stock shall become fully vested.
(c) All vesting restrictions imposed under Section 10 (relating to
restrictions on shares purchased by the Participants) shall cease to apply,
and the Participant shall become fully vested in those shares.
SECTION 17
TERMINATION AND AMENDMENT
17.1. The Board may suspend, terminate, modify or amend the Plan, provided
that any amendment that would increase the aggregate number of shares which
may be issued under the Plan; materially increase the benefits accruing to
Participants under the Plan; or materially modify the requirements as to
eligibility for participation in the Plan, shall be subject to the approval of
the Company's stockholders, except that any such increase or modification that
may result from adjustments authorized by Section 12 does not require such
approval. No suspension, termination, modification or amendment of the Plan
may terminate a Participant's existing Award or materially and adversely
affect a Participant's rights under such Award without the Participant's
consent.
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<PAGE>
Directions to
Burlington Northern Santa Fe Corporation
Annual Meeting of Stockholders
The Worthington Hotel 200 Main Street Fort Worth, Texas
All major freeways in the Fort Worth area converge on downtown. Take the
downtown exit as marked for each respective freeway and proceed to Main Street
which runs north and south through the center of downtown Fort Worth.
Valet and self-parking are available at the Worthington next to the hotel's main
entrance on 2nd Street between Houston and Main Street.
[MAP APPEARS HERE]
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION
2650 Lou Menk Drive, Second Floor
Fort Worth, Texas 76131-2830
P R O X Y
This Proxy is solicited on behalf of the Board of Directors.
The undersigned, revoking any proxy previously given, hereby appoints
Jeffrey R. Moreland and Marsha K. Morgan, and each of them, proxy for the
undersigned, with power of substitution, to vote as specified herein, all Common
Stock held by the undersigned, with the same force and effect as the undersigned
would be entitled to vote if personally present, at the annual meeting of
stockholders of the Company to be held at the Worthington Hotel, 200 Main
Street, Fort Worth, Texas 76102, Thursday, April 15, 1999, at 9:00 A.M. and at
any adjournment or postponement thereof. In their discretion, the proxies are
authorized to vote upon such other business as is properly brought before the
meeting.
You are encouraged to specify your choices by marking the appropriate box,
SEE REVERSE SIDE, but you need not mark any box if you wish to vote in
accordance with the Board of Directors' recommendation; however, the proxies
appointed above cannot vote your shares unless you sign and return this card, or
vote by telephone as explained on the other side.
If you are a participant in any of the following employee benefit plans of
the Company, this card also constitutes voting instructions for any shares held
for the stockholder in the Burlington Northern Santa Fe Investment and
Retirement Plan, Burlington Northern 401(k) Plan for TCU Employees and
Burlington Northern Santa Fe Non-Salaried Employees 401(k) Retirement Plan. If
you are a participant in any of these plans, your shares will be voted in
accordance with the terms of such plan.
IMPORTANT--PLEASE SIGN AND DATE ON REVERSE SIDE
SEE REVERSE SIDE
- - --------------------------------------------------------------------------------
. FOLD AND DETACH PROXY CARD HERE IF YOU ARE .
RETURNING YOUR VOTED PROXY CARD BY MAIL
It is important that your shares are represented at this meeting, whether or not
you attend the meeting in person. To make sure your shares are represented, we
urge you to complete and mail the proxy card above, or to vote using the
telephone voting instructions on the other side.
- - --------------------------------------------------------------------------------
IF YOU PLAN ON ATTENDING THE 1999 ANNUAL MEETING, PLEASE MARK THE BOX ON THE
PROXY CARD ON THE OTHER SIDE OR SIGNIFY YOUR INTENTION TO ATTEND WHEN YOU ACCESS
THE TELEPHONE VOTING SYSTEM AND ARE PROMPTED TO RESPOND, AND BRING THIS CARD
WITH YOU FOR ADMITTANCE AT THE ANNUAL MEETING.
<PAGE>
6677
[X] Please mark your votes as in this example.
This Proxy, when properly executed, will be voted in the manner directed herein.
If no directions are made, this proxy will be voted "FOR" the Nominees for
Director listed below, and "FOR" approval of the Burlington Northern Santa Fe
1999 Stock Incentive Plan.
The Board of Directors recommends a vote "FOR" all Nominees listed below, and
"FOR" approval of the Burlington Northern Santa Fe 1999 Stock Incentive Plan.
FOR WITHHELD
1. Election of Directors. [_] [_]
For, except vote withheld from the following nominee(s):
________________________________________________
If marked, vote is withheld from all nominees listed.
NOMINEES FOR DIRECTOR:
01 J.F. Alibrandi, 02 J.S. Blanton, 03 J.J. Burns Jr.,
04 G. Deukmejian, 05 R.D. Krebs, 06 B.M. Lindig,
07 V.S. Martinez, 08 R.S. Roberts, 09 M.J. Shapiro,
10 A.R. Weber, 11 R.H. West, 12 J.S. Whisler,
13 E.E. Whitacre, Jr., 14 R.B. Woodard, 15 M.B. Yanney.
2. Approval of the Burlington Northern Santa Fe 1999 Stock Incentive Plan.
FOR AGAINST ABSTAIN
[_] [_] [_]
I plan to attend the Annual Meeting of Stockholders. [_]
Please sign EXACTLY as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. This proxy votes all shares held in all capacities.
________________________________________
________________________________________
SIGNATURE(S) DATE
- - --------------------------------------------------------------------------------
. FOLD AND DETACH PROXY CARD HERE AND RETURN IN ENCLOSED .
ENVELOPE TO VOTE BY MAIL; RETAIN ADMISSION CARD
NOW YOU CAN VOTE BY TELEPHONE
24 HOURS A DAY AND 7 DAYS A WEEK
Your telephone vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed, and returned your proxy card. Please follow
these easy steps:
Call toll free 1-800-OK2-VOTE (1-800-652-8683) on a touch tone telephone.
Shareholders residing outside the United States, Canada and Puerto Rico
should call 1-201-924-0377.
Use the Control Number located in the box above, just below the
perforation. Enter the Control Number and pound signs (#) exactly as they
appear.
Follow the recorded instructions. Your telephone vote must be received by
12:00 midnight New York time on April 14, 1999.
- - --------------------------------------------------------------------------------
ADMISSION CARD
Burlington Northern Santa Fe Corporation
Annual Meeting of Stockholders
April 15, 1999, 9:00 A.M.
Worthington Hotel
Grand Ballroom
200 Main Street
Fort Worth, Texas 76102
