-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, buq2BtXhnLEnJX9eS5te1ZNRaBNqH8UzbgZIc2998wbho9TjF9MdJMNrkTb4qGum +Xi9O7Kv81MPYOCXVFAohQ== 0000732639-94-000031.txt : 19941116 0000732639-94-000031.hdr.sgml : 19941116 ACCESSION NUMBER: 0000732639-94-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: CSE SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANTA FE PACIFIC CORP CENTRAL INDEX KEY: 0000732639 STANDARD INDUSTRIAL CLASSIFICATION: 4011 IRS NUMBER: 363258709 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08627 FILM NUMBER: 94559519 BUSINESS ADDRESS: STREET 1: 1700 EAST GOLF RD CITY: SCHAUMBURG STATE: IL ZIP: 60173-5860 BUSINESS PHONE: 7089956000 FORMER COMPANY: FORMER CONFORMED NAME: SANTA FE SOUTHERN PACIFIC CORP DATE OF NAME CHANGE: 19890516 10-Q 1 10-Q DOCUMENT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended September 30, 1994 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number: 1-8627 SANTA FE PACIFIC CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-3258709 (State of Incorporation) (I.R.S. Employer Identification No.) 1700 East Golf Road, Schaumburg, Illinois 60173-5860 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (708) 995-6000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares Outstanding Class at September 30, 1994 ----------------------------- ------------------------- Common Stock, $1.00 par value 186,996,400 shares PART I FINANCIAL INFORMATION SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (In millions, except per share data)
Three Months Nine Months Ended September 30, Ended September 30, 1994 1993 1994 1993 ---------- ---------- ---------- ---------- Operating Revenues $ 680.2 $ 585.8 $ 1,969.9 $ 1,778.1 ---------- ---------- ---------- ---------- Operating Expenses Compensation and benefits 208.5 195.0 625.3 600.0 Contract services 104.2 85.7 282.3 239.8 Fuel 62.8 53.4 182.9 172.2 Equipment rents 62.9 65.4 185.3 170.1 Depreciation and amortization 50.4 47.6 149.6 140.4 Materials and supplies 26.8 33.9 91.6 98.1 Other 46.8 55.2 147.0 154.6 ---------- ---------- ---------- ---------- Total Operating Expenses 562.4 536.2 1,664.0 1,575.2 ---------- ---------- ---------- ---------- Operating Income 117.8 49.6 305.9 202.9 Equity in Earnings of Pipeline 9.3 (3.5) 26.3 11.1 Interest Expense 29.6 34.1 89.5 103.7 Gain on Sale of California Lines - - - 145.4 Other Income (Expense)-Net (10.0) 18.8 22.7 4.7 ---------- ---------- ---------- ---------- Income From Continuing Operations Before Income Taxes 87.5 30.8 265.4 260.4 Income Taxes 37.0 41.1 112.3 136.1 ---------- ---------- ---------- ---------- Income (Loss) From Continuing Operations 50.5 (10.3) 153.1 124.3 Income from Discontinued Operations, Net of Income Taxes - 7.5 23.1 147.5 ---------- ---------- ---------- ---------- Net Income (Loss) $ 50.5 $ (2.8) $ 176.2 $ 271.8 ========== ========== ========== ========== Income (Loss) Per Share of Common Stock Continuing Operations $ 0.27 $ (0.05) $ 0.81 $ 0.67 Discontinued Operations - 0.04 0.12 0.79 ---------- ---------- ---------- ---------- Net Income (Loss) $ 0.27 $ (0.01) $ 0.93 $ 1.46 ========== ========== ========== ========== Average Number of Common and Common Equivalent Shares 189.3 187.5 189.7 186.7 ========== ========== ========== ========== (See accompanying notes to Consolidated Financial Statements) -1-
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET (UNAUDITED) (In millions)
September 30, December 31, 1994 1993 -------------- -------------- Assets Current Assets Cash and cash equivalents, at cost which approximates market $ 16.5 $ 70.3 Accounts receivable, less allowances 98.3 96.1 Materials and supplies 97.1 92.3 Note receivable - current 36.2 72.5 Current portion of deferred income taxes 103.4 99.3 Other 9.1 27.2 -------------- -------------- Total current assets 360.6 457.7 -------------- -------------- Note Receivable - 36.2 Other Long-Term Assets 322.9 323.3 Properties, Plant and Equipment 6,176.5 5,886.1 Less-accumulated depreciation and amortization 1,544.5 1,577.7 -------------- -------------- Net properties 4,632.0 4,308.4 Net Assets of Discontinued Operations - 248.4 -------------- -------------- Total Assets $ 5,315.5 $ 5,374.0 ============== ============== Liabilities and Shareholders' Equity Current Liabilities Accounts payable and accrued liabilities $ 702.0 $ 669.8 Notes payable and current maturities of long-term debt 191.6 184.7 -------------- -------------- Total current liabilities 893.6 854.5 -------------- -------------- Long-Term Debt Due After One Year 890.0 991.1 Postretirement Benefits Liability 257.7 284.7 Restructuring Liability 201.0 257.8 Other Long-Term Liabilities 698.2 601.7 Deferred Income Taxes 1,167.2 1,115.9 -------------- -------------- Total liabilities 4,107.7 4,105.7 -------------- -------------- Shareholders' Equity Common stock 190.0 190.0 Paid-in capital 842.0 869.7 Retained income 262.9 340.3 Treasury stock, at cost (87.1) (131.7) -------------- -------------- Total shareholders' equity 1,207.8 1,268.3 -------------- -------------- Total Liabilities and Shareholders' Equity $ 5,315.5 $ 5,374.0 ============== ==============
(See accompanying notes to Consolidated Financial Statements) -2- SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (In millions)
Nine Months Ended September 30, 1994 1993 ---------- ---------- Operating Activities Net income $ 176.2 $ 271.8 Adjustments to reconcile net income to operating cash flows: Income from discontinued operations, net of income taxes (23.1) (147.5) Depreciation and amortization 149.6 140.4 Deferred income taxes 52.2 105.1 Rail restructuring costs paid (51.9) (65.4) Imputed interest expense 15.5 20.6 Gain on sales of property, plant and equipment (3.4) (151.7) Other-net (55.9) (18.0) Changes in working capital: Accounts receivable: Sale of accounts receivable 40.0 - Other changes (42.2) (39.4) Materials and supplies (4.8) (14.2) Accounts payable and accrued liabilities 32.2 75.8 Other 13.2 (1.9) ---------- ---------- Net Cash Provided By Operating Activities-Continuing Operations 297.6 175.6 Discontinued Operations-Net 54.3 69.9 ---------- ---------- Net Cash Provided by Operating Activities 351.9 245.5 ---------- ---------- Investing Activities Cash used for capital expenditures (333.2) (255.4) Proceeds from the sale of property, plant and equipment 16.2 236.6 Other-net 92.9 72.2 Discontinued Operations-Net (49.4) (85.7) ---------- ---------- Net Cash Used For Investing Activities (273.5) (32.3) ---------- ---------- Financing Activities Proceeds from long-term borrowings 32.0 6.5 Principal payments on long-term borrowings (183.6) (154.0) Cash dividends paid - (18.5) Other-net 10.8 14.4 Discontinued Operations-Net 8.6 (97.4) ---------- ---------- Net Cash Used For Financing Activities (132.2) (249.0) ---------- ---------- Decrease in Cash and Cash Equivalents (53.8) (35.8) Cash and Cash Equivalents: Beginning of period 70.3 62.1 ---------- ---------- End of period $ 16.5 $ 26.3 ========== ========== Supplemental Disclosure of Cash Flow Information Cash paid during the period for: Interest $ 73.5 $ 78.6 Income Taxes $ 48.8 $ 5.3 ========== ========== (See accompanying notes to Consolidated Financial Statements) -3-
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (a) The consolidated financial statements should be read in conjunction with the Santa Fe Pacific Corporation ("SFP", "Registrant" or "Company") Annual Report on Form 10-K for the year ended December 31, 1993 ("1993 Form 10-K"), including those financial statements and notes thereto incorporated by reference from the Registrant's 1993 Annual Report to Shareholders and Amendment No. 1 and Amendment No. 2 on Form 10-K/A dated June 29, 1994 and October 5, 1994, respectively, and the Company's Current Report on Form 8-K dated August 3, 1994 (as amended by Form 8-K/A dated October 5, 1994), which restated certain sections of the 1993 Form 10-K to reflect SFP's gold subsidiary, Santa Fe Pacific Gold Corporation ("SFP Gold"), as a discontinued operation. (b) In the opinion of SFP management, the consolidated statement of operations for the three and nine months ended September 30, 1994 and 1993 reflects all adjustments necessary for a fair statement of the results of operations. Except as otherwise disclosed, all adjustments are of a normal recurring nature. (c) The consolidated statement of operations for the three and nine months ended September 30, 1994 is not necessarily indicative of the results of operations for the full year 1994. (d) On June 29, 1994, SFP's Board of Directors approved the distribution to SFP shareholders of its remaining 85.4% interest in SFP Gold. Holders of record of SFP common stock as of September 12, 1994, received a distribution on September 30, 1994 of one share of common stock of SFP Gold for every approximately 1.7 shares of SFP common stock held. Accordingly, certain current year and comparative prior year amounts in the consolidated financial statements have been reclassified to present SFP Gold as a discontinued operation. Under a ruling obtained from the Internal Revenue Service, the distribution is tax-free to SFP shareholders. Through June 30, 1994 the Company had recorded 1994 net income of $23.1 million from discontinued operations which represented earnings from first and second quarter operations, and estimated transaction and other costs related to the distribution partially offset by estimated earnings prior to the distribution on September 30, 1994. No adjustments were required to be made to these estimates in the third quarter of 1994. Income from discontinued operations for the three months ended September 30, 1993 and the nine months ended September 30, 1993 and 1994 was as follows: - 4 - Three Months Ended Nine Months Ended September 30, September 30, 1993 1994 1993 ------ ------ ------ (In millions) Revenues $ 83.2 $273.7 $204.6 ------ ------ ------ Income before income taxes 18.4 44.2 277.9 Income taxes 10.9 21.1 130.4 ------ ------ ------ Income from discontinued operations $ 7.5 $ 23.1 $147.5 ------ ------ ------ In June 1993, SFP Gold completed an asset exchange with Hanson Natural Resources Company ("Hanson"). SFP Gold received certain gold assets of Hanson, and Hanson acquired essentially all coal and aggregate assets of SFP Gold. Income from discontinued operations for the nine months ended September 30, 1993 includes an after tax gain on the exchange of $108.3 million or $0.58 per share. (e) In June 1994, SFP changed the eligibility requirements for its postretirement medical benefits, resulting in a pre-tax, non-cash curtailment gain of $29.5 million related to employees who are no longer currently eligible for benefits. The Atchison, Topeka and Santa Fe Railway Company ("Santa Fe Railway") recorded $28.1 million of the gain which is included in Other income (expense)- net. The remaining $1.4 million is reflected in the Equity in Earnings of Pipeline. (f) At September 30, 1994, Santa Fe Railway had entered into various commodity swap transactions with several counterparties covering approximately 90 million gallons of diesel fuel in 1994 which is anticipated to cover approximately 90% of remaining 1994 fuel purchases and 160 million gallons in 1995 which is anticipated to cover approximately 40% of 1995 fuel purchases. These swap arrangements have an average price of 48 cents per gallon. This price does not include taxes, fuel handling costs and any differences which may occur from time to time between the prices of commodities hedged and the purchase price of the Santa Fe Railway's diesel fuel. The effect of the fuel hedges was to decrease operating expense by $0.4 million for the three months ended September 30, 1994 and to increase operating expense by $2.2 million for the three months ended September 30, 1993, and to increase operating expense by $3.0 million and $6.5 million for the nine months ended September 30, 1994 and 1993, respectively. The fair market value of the Santa Fe Railway's fuel hedging transactions at September 30, 1994 was an unrealized gain of $6.1 million. In addition, at September 30, 1994 the Company had four related interest rate swap transactions with a total notional principal amount of $100 million, for the purpose of establishing rates in anticipation of an expected future debt offering. The swap transactions called for the payment of a fixed interest rate of 6.2%, which was based upon ten year treasury notes, and the - 5 - receipt of a variable interest rate. The fair value of the swap transactions at September 30, 1994 was an unrealized gain of approximately $9.4 million. In conjunction with a debt offering closed on November 8, 1994, the Company closed out the swap transactions which resulted in a gain of $10.9 million. The gain will be amortized as an adjustment to interest expense over the ten year term of the borrowing. (g) As a result of the distribution of common stock of SFP Gold on September 30, 1994, the number of stock options outstanding increased by 6.7 million accompanied with a decrease in the related exercise price, both which complied with regulations under the Internal Revenue Code. The adjustments resulted from a provision in existing plans to modify awards to reflect the impact of the SFP Gold spin-off. Additionally, the shareholders of SFP and Burlington Northern Inc. ("BNI") are to each vote on the proposed merger of SFP and BNI at special shareholder meetings scheduled to be held on November 18, 1994. The approval by shareholders would constitute a "change in control" for SFP thereby accelerating the vesting of or causing a lapse of restrictions applicable to most outstanding stock options, restricted stock awards, and other awards under the Santa Fe Pacific Long Term Incentive Stock Plan and the Santa Fe Pacific Incentive Stock Compensation Plan. Specifically, if the merger is approved by shareholders, the vesting of restricted stock awards would result in a net charge of approximately $5 million in the fourth quarter of 1994. (h) In the first quarter of 1993, Santa Fe Railway completed the second stage of three scheduled closings on the sale to eight southern California transportation agencies of certain interests in approximately 340 miles of rail lines and additional property. Santa Fe Railway received $166.9 million in cash proceeds resulting in a pre-tax gain of $145.4 million. The gain recognized is net of the cost of the properties and other expenses of the sale. Proceeds of $126 million were used to retire debt related to discontinued operations. The final closing occurred in the second quarter of 1993 in which proceeds of $60 million were received. No gain was recognized under the final closing as proceeds were offset by the cost of property, other expenses of the sale and an obligation retained by Santa Fe Railway, which under certain conditions, requires the repurchase of a portion of the properties sold for $50 million. - 6 - (i) SFP is a party to a number of legal actions and claims, various governmental proceedings and private civil suits arising in the ordinary course of business, including those related to environmental exposures and employee injury claims. While the final outcome of these items cannot be predicted with certainty, considering among other things, the meritorious legal defenses available, it is the opinion of SFP management that none of these items, when finally resolved, will have a material adverse effect on the annual results of operations, financial position or liquidity of SFP, although an adverse resolution of a number of these items in a single year could have a material adverse effect on the results of operations for that year. - 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations --------------------- Current Quarter Compared with Same Quarter of Preceding Year ------------------------------------------------------------ SFP reported net income for the third quarter of $50.5 million or $0.27 per share compared to a net loss of $2.8 million or $0.01 per share last year. The increase in net income primarily relates to: 1) higher operating income due to increased traffic levels, continued operating efficiencies, and the adverse effects of flooding in the midwest in 1993; 2) a $12.8 million increase in equity in earnings of Pipeline, which includes a $12.2 million special litigation and environmental charge in 1993; 3) higher income taxes in 1993 which reflect a $27.7 million charge for the retroactive effect of an increase in the federal income tax rate from 34% to 35%; and 4) lower interest expense. The above improvements are partially offset by a $28.8 million decrease in other income (expense)-net. Other income (expense)-net in 1993 included pre-tax credits totaling $21.6 million related to the favorable outcome of arbitration and litigation settlements. Income for the third quarter of 1993 also included $7.5 million from the Company's discontinued gold operations. These gold operations were treated as discontinued as of June 30, 1994 and made no contribution to 1994 third quarter results. Net income from continuing operations was $50.5 million or $0.27 per share in 1994 as compared to adjusted net income from continuing operations of $12.0 million or $0.07 per share in 1993. This increase is primarily due to higher operating income and lower interest expense. Adjustments in the 1993 period include the pipeline litigation and environmental charge, the retroactive increase in tax rates, and the favorable arbitration and litigation settlements, discussed above. Operating income at Santa Fe Railway for the quarter was $117.8 million, an increase of $68.2 million over the $49.6 million reported in the third quarter of 1993. Operating revenues of $680.2 million, which includes revenue from miscellaneous transportation related items, rose 16% as carloadings increased 11% and average revenue per car increased 4%. Freight revenues by commodity for the three and nine months ended September 30, 1994 and 1993 were as follows: - 8 - Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 -------- -------- -------- -------- (In millions) Intermodal Intermodal Marketing Companies $ 114.2 $ 87.4 $ 326.6 $ 279.7 Direct Marketing 136.1 96.2 376.7 284.8 International 57.9 49.0 162.8 144.9 -------- -------- -------- -------- Total Intermodal 308.2 232.6 866.1 709.4 -------- -------- -------- -------- Carload Commodities Petroleum 37.1 32.8 108.1 104.9 Chemicals & Plastics 36.1 35.8 106.7 99.9 Consumer/Food Products 31.7 30.0 98.1 94.8 Building Materials & Paper Prod. 31.4 27.5 90.4 79.8 Metals 19.9 19.8 60.3 57.1 -------- -------- -------- -------- Total Carload Commodities 156.2 145.9 463.6 436.5 -------- -------- -------- -------- Bulk Products Coal 60.2 56.7 178.0 164.3 Minerals, Ores & Other 36.9 36.7 111.3 116.0 Grain 35.9 45.1 95.3 122.8 Grain Products 21.5 18.9 63.2 60.5 -------- -------- -------- -------- Total Bulk Products 154.5 157.4 447.8 463.6 -------- -------- -------- -------- Automotive Motor Vehicles 42.9 33.1 142.0 117.3 Vehicle Parts 6.1 5.6 19.5 21.0 -------- -------- -------- -------- Total Automotive 49.0 38.7 161.5 138.3 -------- -------- -------- -------- Total Freight Revenue $ 667.9 $ 574.6 $1,939.0 $1,747.8 ======== ======== ======== ======== Intermodal revenues increased 33% to $308.2 million, partially because this was the business area most severely affected by the 1993 flood. Direct marketing revenues increased 41% primarily due to increased less-than-truckload, Quantum and UPS shipments. Intermodal marketing companies revenues increased 31% primarily due to a 24% volume increase and rate increases on all traffic originating or terminating in either Texas or Northern California. Carload commodity revenues of $156.2 million were 7% higher than last year, principally reflecting increased volumes in building materials & paper products, petroleum and consumer/food products. Bulk products revenues declined 2% as lower grain shipments were partially offset by higher volumes in coal and grain products. Grain revenues were lower due to reduced export - 9 - grain shipments, while coal traffic increased as utilities experienced increased demand and continued to build inventory levels. Automotive revenues increased 27% to $49.0 million due to higher volumes and average revenue per car. Quarterly operating expenses for Santa Fe Railway were $562.4 million, an increase of 5% from last year reflecting both volume increases and inflation. Compensation and benefits expense of $208.5 million increased 7% as the effects of higher traffic levels were partially offset by operating efficiencies. Contract services expense increased $18.5 million due to higher business volumes and increased use of contracted locomotive maintenance, partially offset by the absence of expenses incurred as a result of the 1993 flooding. Materials and supplies expense decreased $7.1 million due to lower locomotive materials expense. Other expense decreased $8.4 million due in part to 1993 detour expenses incurred as a result of the floods. SFP's investment in Santa Fe Pacific Pipeline Partners, L.P. ("Pipeline Partnership") produced equity income of $9.3 million in the quarter compared to a loss of $3.5 million in the prior year. The increase in equity income is principally due to a $12.2 million special litigation and environmental charge recorded in 1993 and an increase in commercial volumes. Interest expense decreased $4.5 million reflecting lower debt levels. Other income (expense)-net decreased $28.8 million due primarily to credits of $21.6 million related to the favorable outcome of arbitration and litigation settlements recorded in the third quarter of 1993 and lower real estate income. Year to Date 1994 Compared to Year to Date 1993 ----------------------------------------------- SFP reported net income of $176.2 million or $0.93 per share for the nine months ended September 30, 1994 compared to $271.8 million or $1.46 per share in 1993. The decrease in net income primarily relates to a pre-tax gain of $145.4 million recorded in 1993 related to the sale of rail lines in southern California as discussed in Note (h) and lower income from discontinued operations, including a $108.3 million after tax gain on the exchange of mineral assets in 1993. The above are partially offset by a $103.0 million increase in operating income due primarily to increased traffic levels, continued operating efficiencies and the adverse effects of flooding in the midwest in 1993, as well as lower interest expense and higher other income (expense)-net. Adjusted net income from continuing operations was $123.5 million or $0.65 per share in 1994 compared to $61.4 million or $0.33 per share in 1993. Results of 1994 have been adjusted to exclude a pre-tax credit of $29.5 million resulting from a change in postretirement medical benefits eligibility requirements discussed in Note (e), a $12.3 million pre-tax charge related to an adverse appellate court decision and pre-tax gains of $34.2 million related to the sale of an investment and a favorable litigation settlement. Results for 1993 - 10 - have been adjusted to exclude the third quarter special items discussed previously and the gain on the sale of California lines. Santa Fe Railway's operating income for the first nine months was $305.9 million compared with $202.9 million a year earlier. Operating revenues of $1,969.9 million improved 11% as carloadings increased 9% and average revenue per car increased 2%. Intermodal revenues increased 22% compared to last year reflecting increased carloadings in the intermodal marketing company and direct marketing segments, and higher average revenue per car in intermodal marketing companies. Carload commodities revenues increased 6% primarily reflecting increased volumes in building materials & paper products and chemicals & plastics. Bulk products revenues declined 3% as lower export grain shipments were partially offset by higher coal revenues. Automotive revenues increased 17% reflecting higher volumes and average revenue per car. Operating expenses at Santa Fe Railway were $1,664.0 million, a 6% increase over last year. Compensation and benefits expense was $25.3 million or 4% above last year due to higher traffic levels, partially offset by operating efficiencies. Contract services expense of $282.3 million was 18% above last year principally reflecting higher volumes and increased use of contract services for locomotive maintenance. Equipment rents expense of $185.3 million was 9% above last year and fuel expense of $182.9 million was 6% above last year, both reflecting increased business volumes. Income from SFP's equity investment in the Pipeline Partnership of $26.3 million increased by $15.2 million compared to last year, primarily due to the absence of the $12.2 million third quarter 1993 special litigation and environmental charge discussed previously, a $1.4 million credit related to the change in postretirement benefits eligibility requirements recorded in 1994, and volume increases at the Pipeline Partnership. Interest expense of $89.5 million was $14.2 million lower due principally to lower outstanding debt. Other income (expense)-net increased $18.0 million and includes the net favorable impacts of 1994 special items including the credit for the change in postretirement medical benefits eligibility requirements discussed in Note (e), pre- tax gains of $34.2 million related to the sale of an investment and a favorable litigation settlement, partially offset by the $12.3 million charge for an adverse appellate court decision. Other income (expense)-net in 1993 included credits of $21.6 million related to the favorable outcome of arbitration and litigation settlements. Excluding special items in both years, other income (expense)-net declined $10.4 million from last year, primarily the result of lower real estate income. - 11 - Financial Condition and Other Matters ------------------------------------- Year-to-Date Cash Flow ---------------------- For the nine months ended September 30, 1994, net cash provided by operating activities from continuing operations totaled $297.6 million which includes net income before depreciation and deferred taxes and a $40 million sale of accounts receivable. Total capital expenditures for the first nine months of 1994, which include noncash transactions, were $485.8 million. Noncash transactions of $152.6 million primarily represent directly financed equipment acquisitions and reimbursable projects. Capital spending principally related to equipment, new facilities and improvements to track structure and other road properties and was primarily funded through cash generated from continuing operations, equipment financings, short-term borrowings and available cash balances. Total principal payments on long-term borrowings were $183.6 million for the nine months ended September 30, 1994. SFP's ratio of total debt to capital was 47% at September 30, 1994 compared to 48% at December 31, 1993. Rail Restructuring ------------------ Benefits from the eastern lines crew consist agreement of approximately $25 million annually and from centralization of certain transportation functions of approximately $20 million annually are being realized as expected and as previously disclosed. Restructuring costs paid of $51.9 million for the first nine months of 1994 are also being incurred as expected, with annual payments estimated to be approximately $65 million in 1994. Merger Activities ----------------- On June 29, 1994, and as amended on October 27, 1994, SFP and BNI entered into a definitive Agreement and Plan of Merger ("Merger Agreement") which calls for SFP to merge with and into BNI, with BNI being the surviving corporation ("Merger"). Upon consummation of the Merger, each SFP share outstanding will be converted into the right to receive 0.34 of a share of BNI stock. The Merger has been approved by the boards of directors of SFP and BNI, but is still subject to a number of conditions, including approval by the shareholders of both BNI and SFP and approval by the Interstate Commerce Commission ("ICC"). A special meeting of SFP shareholders is scheduled to be held on November 18, 1994 to vote on the Merger. Union Pacific Corporation ("UPC") has submitted various non-binding proposals to acquire SFP. Additionally, UPC has solicited proxies from SFP shareholders to vote against the Merger. UPC's latest proposal dated November 8, 1994 proposes a two-step transaction using a voting trust, in which UPC would first acquire about 57% of SFP's outstanding shares through a cash tender offer at a price of $17.50 per share, with the remaining SFP shares to be exchanged on the basis of 0.354 of a share of UPC common stock for each share of SFP stock upon merger of - 12 - the two companies ("the UPC Proposal"). Both the cash and stock portions of the UPC Proposal would be fully taxable to SFP shareholders. On November 10, 1994 UPC commenced the tender offer contemplated by the UPC Proposal. The UPC Proposal is contingent on a number of conditions including: there being validly tendered and not withdrawn prior to the expiration of the proposal, a number of SFP shares which constitutes at least a majority of the shares outstanding; negotiation of a definitive merger agreement between SFP and UPC; SFP shareholders not approving the Merger Agreement with BNI; UPC satisfaction that Section 203 of the Delaware General Corporation Law has been complied with or is invalid or otherwise inapplicable; termination of the Merger Agreement with BNI; receipt of an opinion from the ICC Staff, satisfactory to UPC, that the voting trust to be used is consistent with the policies of the ICC; approval of the boards of directors of SFP and UPC; and approval by SFP shareholders. ICC approval of the proposed merger would be required; however, such would not effect consideration received by SFP shareholders due to the voting trust. As part of the above proposal, UPC also left open its previously submitted alternative proposal to acquire SFP, which proposed to exchange 0.407 shares of UPC stock for each share of SFP stock. This proposal would require, among other things, the termination of the Merger Agreement with BNI; negotiation of a definitive merger agreement between SFP and UPC; approval of the boards of directors and shareholders of SFP and UPC; and ICC approval. SFP announced on November 11, 1994 that its board of directors is evaluating the latest UPC proposal. PART II. OTHER INFORMATION -------------------------- Item 1. Legal Proceedings -------------------------- On June 30, 1994, shortly after announcement of the proposed BNI-SFP merger, two purported stockholder class action suits were filed in the Court of Chancery of the State of Delaware (Miller v. Santa Fe Pacific Corporation, C.A. No. 13587; Cosentino v. Santa Fe Pacific Corporation, C.A. No. 13588). On July 1, 1994, two additional purported stockholder class action suits were filed in the Court of Chancery of the State of Delaware (Fielding v. Santa Fe Pacific Corporation, C.A. No. 13591; Wadsworth v. Santa Fe Pacific Corporation, C.A. No. 13597). The actions name as defendants SFP, the individual members of the SFP Board of Directors and BNI. In general, the actions variously allege that SFP's directors breached their fiduciary duties to the stockholders by agreeing to the proposed merger for allegedly "grossly inadequate" consideration in light of recent operating results of SFP, recent trading prices of SFP's common stock and other alleged factors, by allegedly failing to take all necessary steps to ensure that stockholders will receive the maximum value realizable for their - 13 - shares (including allegedly failing to actively pursue the acquisition of SFP by other companies or conducting an adequate "market check") and by allegedly failing to disclose to stockholders the full extent of the future earnings potential of SFP, as well as the current value of its assets. The Miller and Fielding cases further allege that the proposed merger is unfairly timed and structured and, if consummated, would allegedly unfairly deprive the stockholders of standing to pursue certain pending stockholder derivative litigation. Plaintiffs also have alleged that BNI is responsible for aiding and abetting the alleged breach of fiduciary duty committed by the SFP Board. The actions seek certification of a class action on behalf of SFP's stockholders. In addition, the actions seek injunctive relief against consummation of the Merger and, in the event that the Merger is consummated, the rescission of the Merger, an award of compensatory or rescissory damages and other damages, including court costs and attorneys' fees, an accounting by defendants of all profits realized by them as a result of the Merger and various other forms of relief. On October 6, 1994, shortly after UPC issued a press release in which it announced the UPC Proposal, plaintiffs in the four lawsuits described above filed in the Court of Chancery of the State of Delaware a Consolidated Amended Complaint (Miller v. Santa Fe Corporation, C.A. No. 13587). In their Consolidated Amended Complaint, plaintiffs repeat the allegations contained in their earlier lawsuits and further allege that, in light of the UPC Proposal, SFP's directors have breached their fiduciary duties by failing to fully inform themselves about and to adequately explore available alternatives to the Merger, including the alternative of a merger transaction with UPC, and by failing to fully inform themselves about the value of SFP. The Consolidated Amended Complaint seeks the same relief sought in plaintiffs' earlier lawsuits and, in addition, requests that SFP's directors be ordered to explore alternative transactions and to negotiate in good faith with all interested persons, including UPC. Also on October 6, 1994, UPC filed in the Court of Chancery of the State of Delaware a lawsuit against SFP, SFP's directors and BNI (Union Pacific Corporation v. Santa Fe Pacific Corporation, C.A. No. 13778). In its Complaint, UPC alleges that SFP's management purportedly rejected the UPC Proposal "out-of-hand" without regard to the facts of the UPC Proposal, and that SFP's directors have breached their fiduciary duties by purportedly refusing to negotiate with UPC regarding the UPC Proposal, by refusing to terminate the Merger Agreement and by failing to include in the Merger Agreement a provision allowing SFP to terminate the Merger Agreement in order to enter into an agreement with UPC. UPC seeks injunctive relief mandating SFP to negotiate with UPC regarding the UPC Proposal, a declaration that UPC has not tortiously interfered with defendants' contractual or other legal rights, an injunction against defendants from bringing or maintaining any action against UPC alleging that UPC has tortiously interfered with defendants' contractual or other legal rights, a declaration that the Merger Agreement permits SFP to terminate the Merger Agreement in order to accept the UPC Proposal or, in the alternative, that the Merger Agreement is invalid and unenforceable for failing to include such a provision, and an award of UPC's costs in bringing its lawsuit, including reasonable attorneys' fees. - 14 - Also, on October 6, 1994, five additional purported stockholder class action suits relating to SFP's proposed participation in the Merger were filed in the Court of Chancery of the State of Delaware (Weiss v. Santa Fe Pacific Corporation, C.A. No. 13779; Lifshitz v. Krebs, C.A. No. 13780; Stein v. Santa Fe Pacific Corporation, C.A. No. 13782; Lewis v. Santa Fe Pacific Corporation, C.A. No. 13783; Abramson v. Lindig, C.A. No. 13784). On October 7, 1994, three more purported stockholder class action suits relating to SFP's proposed participation in the Merger were filed in the Court of Chancery of the State of Delaware (Graulich v. Santa Fe Pacific Corporation, C.A. No. 13786; Anderson v. Santa Fe Pacific Corporation, C.A. No. 13787; Green v. Santa Fe Pacific Corporation, C.A. No. 13788). All of these lawsuits name as defendants SFP and the individual members of the SFP Board of Directors; the Lifshitz case further names BNI as a defendant. In general, these actions variously allege that, in light of SFP's recent operating results and the UPC Proposal, SFP's directors have breached their fiduciary duties to stockholders by purportedly not taking the necessary steps to ensure that SFP's stockholders will receive "maximum value" for their shares of SFP stock, including purportedly refusing to negotiate with UPC or to "seriously consider" the UPC Proposal and failing to announce any active auction or open bidding procedures. The actions generally seek relief that is materially identical to the relief sought in the Miller case, and in addition seek entry of an order requiring SFP's directors to immediately undertake an evaluation of SFP's worth as a merger/acquisition candidate and to establish a process designed to obtain the highest possible price for SFP, including taking steps to "effectively expose" SFP to the marketplace in an effort to create an "active auction" in SFP. The Weiss case further seeks entry of an order enjoining SFP's directors from implementing any poison pill or other device designed to thwart the UPC Proposal or any other person's proposal to acquire SFP. The Anderson lawsuit was subsequently withdrawn. On October 14, 1994, the Chancery Court entered an order consolidating the remaining eleven purported stockholder class action suits under the heading In Re Santa Fe Pacific Corporation Shareholder Litigation, C.A. No. 13587. Also, on October 14, 1994, plaintiffs in the consolidated case filed a Consolidated and Amended Complaint, which supersedes the previously filed stockholder complaints. The Consolidated and Amended Complaint generally repeats the allegations of, and requests the same relief as, the plaintiffs' earlier complaints and, in addition, alleges that SFP's directors have breached their fiduciary duties by approving and recommending to SFP stockholders the Merger, by failing to fully inform themselves about, or to provide information to, possible alternative merger candidates such as UPC, and by issuing the Original Joint Proxy Statement/Prospectus, which purportedly fails to disclose all material information relevant to SFP stockholders' consideration of the proposed Merger, including failure to disclose that SFP's directors purportedly have an implied right to terminate the Merger Agreement as a result of the allegedly superior UPC Proposal, failure to disclose the facts considered by SFP's directors in allegedly determining that the UPC Proposal does not represent a fair price, failure to disclose sufficient facts relating to, and the relative - 15 - risks of obtaining, ICC approval of a BNI-SFP Merger and a UPC-SFP merger to enable SFP stockholders to weigh and compare the likelihood of obtaining ICC approval of those transactions, failure to disclose the substance of negotiations in late June 1994 between BNI and SFP leading to the Merger Agreement, failure to disclose advice provided to SFP's directors regarding the background of negotiations between BNI and SFP that had occurred since 1993 and the significance of that advice to the directors' approval of the Merger Agreement, failure to disclose facts regarding the SFP directors' consideration of a possible combination transaction with Kansas City Southern Industries, Inc. ("KCSI"), including the anticipated terms and potential value and benefits to SFP of such a transaction and the reasons why SFP concluded that the BNI transaction was superior and withdrew its bid submitted to KCSI in late June 1994, and failure to disclose that SFP did not provide any confidential information to UPC in response to an October 11, 1994 letter from Drew Lewis, UPC's Chairman and CEO, to Mr. Krebs. The Consolidated and Amended Complaint seeks, in addition to the relief requested in the prior stockholder complaints, an order requiring SFP to provide access to information concerning SFP or the Merger to any bona fide bidder, including UPC. On October 18, 1994, the Chancery Court entered an order denying two motions, one filed by UPC and one filed by the stockholder plaintiffs seeking the establishment of an expedited schedule that would have included a preliminary injunction hearing prior to the scheduled November 18, 1994 meeting of SFP stockholders. The Chancery Court concluded that an expedited schedule was unnecessary because, if plaintiffs prevailed on their claims, it could subsequently enter appropriate relief after SFP stockholder approval but before consummation of the Merger. On October 19, 1994, UPC filed an Amended and Supplemental Complaint. In addition to repeating the allegations and requested relief of UPC's earlier Complaint, the Amended and Supplemental Complaint adds James A. Shattuck as an additional plaintiff, alleges that SFP has made purportedly false and misleading statements in the Original Joint Proxy Statement/Prospectus and elsewhere regarding the UPC Proposal and the Merger, including statements denying that SFP's directors have the purported right to terminate the Merger Agreement in order to enter into a merger agreement with UPC based upon the UPC Proposal and denying that the Merger Agreement is allegedly void for failing to include such a right, statements failing to disclose the purportedly preclusive effect of the Merger Agreement on the SFP directors' consideration of other combination proposals, including the UPC Proposal, statements allegedly suggesting that the UPC Proposal does not represent a fair price, and statements allegedly misrepresenting UPC's objectives in proposing a UPC-SFP merger and the likelihood of obtaining ICC approval of such a merger. The Amended and Supplemental Complaint seeks, in addition to the relief requested in UPC's original Complaint, further declaratory and injunctive relief consisting of a declaration that the Original Joint Proxy Statement/Prospectus is false and misleading, an injunction preventing SFP from making any further allegedly materially false and misleading statements regarding the UPC Proposal or the Merger and an injunction against the November 18, 1994 SFP stockholder meeting. - 16 - On November 4, 1994, a purported stockholder class action suit relating to the proposed BNI-SFP merger was filed in the Chancery Division of the Circuit Court of Cook County of the State of Illinois (Rubin v. Santa Fe Pacific Corporation, No. 94 CH 10022). The action names as defendants SFP and the individual members of the SFP Board of Directors. The action alleges that SFP's directors breached their fiduciary duties to shareholders by rejecting UPC's October 30, 1994 revised merger proposal, which incorporated a revised proposed exchange ratio of .407 shares of UPC common stock for each share of SFP common stock, and that, as a result, SFP's stockholders have been deprived of the increase in the market value of their SFP common stock that allegedly would have occurred if SFP's directors had accepted UPC's October 30, 1994 proposal. The action seeks certification of a class action on behalf of SFP stockholders, an injunction preventing SFP and the SFP directors from taking any further action towards accepting the BNI-SFP merger, an award of unspecified general and special damages, appointment of a trustee to supervise the requested relief, establishment of a common fund on behalf of the class and an award of court costs, reasonable attorneys' fees and any other relief deemed appropriate by the Court. The Company believes that all of these lawsuits are meritless and intends to oppose them vigorously. Reference is made to the action entitled David Rodriquez, derivatively on behalf of Santa Fe Pacific Corporation v. John S. Reed, et. al. No. 92 CH 06618 reported in SFP's Annual Report on Form 10-K for the year ended December 31, 1993. The parties to the derivative action pending in the Circuit Court of Cook County, Illinois, have entered into a Stipulation of Settlement which, if approved by the Court, will result in the termination of that action. On October 17, 1994, the Court entered an Order giving preliminary approval to the proposed settlement, approving notice of the proposed settlement to SFP stockholders, setting December 7, 1994 as the date by which any written objections to the settlement must be filed, and scheduling a fairness hearing with respect to the settlement for December 14, 1994. In substance, the settlement, if approved by the Court, will result in the payment to the Company of approximately $11,000,000, provided by certain D&O insurance carriers, net of plaintiff's attorney's fee award and expenses. The Stipulation of Settlement provides for an award of fees and expenses for plaintiff's attorney of $2,710,000 and an incentive award to plaintiff of $40,000. SFP is a party to a number of other legal actions and claims, including various governmental proceedings and private civil suits arising in the ordinary course of business, including those related to environmental exposures and employee injury claims. While the final outcome of these items cannot be predicted with certainty, considering among other things, the meritorious legal defenses available, it is the opinion of SFP management that none of these items, when finally resolved, will have a material adverse effect on the annual results of operations, financial position or liquidity of SFP, although an adverse resolution of a number of these items in a single year could have a material adverse effect on the results of operations for that year. - 17 - Item 6. Exhibits and Reports on Form 8-K ----------------------------------------- (a) See Index to Exhibits on page E-1 for a description of the exhibits filed as part of this report. (b) Reports on Form 8-K. Registrant filed a Current Report on Form 8-K dated August 3, 1994, including Amendment No. 1 thereto on Form 8-K/A dated October 5, 1994, amending SFP's restated financial information related to discontinued operations. Registrant filed a Current Report on Form 8-K dated October 5, 1994, which included merger related press releases from SFP, BNI and UPC. Registrant filed a Current Report of Form 8-K dated October 19, 1994, which included SFP's third quarter 1994 earnings press release. Registrant filed a Current Report on Form 8-K dated October 28, 1994, related to pro-forma financial information on the proposed SFP-BNI merger and certain other related information. Registrant filed a Current Report of Form 8-K dated November 2, 1994, related to SFP's Board of Directors rejection of UPC's revised, non-binding proposal to acquire SFP through an exchange of stock, with a 0.407 exchange ratio. - 18 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SANTA FE PACIFIC CORPORATION (Registrant) /s/ Thomas N. Hund ---------------------------------------- Thomas N. Hund Vice President & Controller (On Behalf of the Registrant and as Principal Accounting Officer) Schaumburg, Illinois November 14, 1994 - 19 - EXHIBIT INDEX ------------- EXHIBIT NUMBER Description of Exhibit ------- ---------------------- 10.1* Santa Fe Pacific Long Term Incentive Stock Plan (as amended, effective January 26, 1993). 12 Statement regarding computation of ratio of earnings to fixed charges (as of September 30, 1994 and 1993). 27 Financial Data Schedule (as of September 30, 1994). * Management contract or compensatory plan or arrangement. E-1 EX-10.1 2 SFP LONG TERM INCENTIVE STOCK PLAN SANTA FE PACIFIC LONG TERM INCENTIVE STOCK PLAN EFFECTIVE DATE January 26, 1993 (as amended) TERMINATION DATE January 26, 2003 ADMINISTRATION OF Compensation and Benefits Committee of the Board of PLAN Directors. MAXIMUM PLAN 13,976,082 AWARD BASIS OF AWARD In order to further the identity of interest of employees with the stockholders of SFP, all of the forms of compensation under the Plan relate to SFP Common Stock. 1. Options (either ISOs or Non-Qualified Stock Options) 2. Restricted Stock 3. Performance Units 4. Stock Appreciation Rights 5. Performance Shares 6. Limited Stock Appreciation Rights AMOUNT OF AWARD The Committee shall select those employees to be granted awards under the Plan. The Committee shall also determine the terms and provisions of awards, which need not be identical. i SANTA FE PACIFIC LONG TERM INCENTIVE STOCK PLAN Statement of Purpose The purpose of the Santa Fe Pacific Long Term Incentive Stock Plan (the "Plan") is to encourage superior performance by salaried employees, by allowing Santa Fe Pacific Corporation ("SFP") to award several forms of incentive compensation to employees of the Company. By providing incentive compensation commensurate and competitive with that provided by other companies, the Plan should also assist SFP in attracting and retaining the services of qualified and capable employees. In order to further the identity of interest of employees with the stockholders of SFP, all of the forms of compensation under the Plan relate to SFP Common Stock. Employees' success in enhancing stockholder value will translate directly into an enhanced benefit for the employees. I. DEFINITIONS Unless the context indicates otherwise, the following terms have the meanings set forth below: "Acceleration Date" means the earliest date on which any of the following events shall first have occurred: (i) the acquisition described in clause (a) of the definition of Change in Control contained in this Section I, (ii) the change in the composition of the Board described in clause (b) of such definition, or (iii) the stockholder approval or adoption described in clause (c) or (d) of such definition. "Award" means a grant of Options, Restricted Stock, Performance Units, Performance Shares or Stock Appreciation Rights pursuant to the Plan. "Board" means the Board of Directors of SFP. "Cause" means (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. A "Change in Control" shall be deemed to have occurred if (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; (b) 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 (a), (c) or (d) 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; 1 (c) 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 (d) 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 (d), 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 Common 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 Common Stock shall be determined by multiplying the number of shares of Common 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") by the average closing price of the shares of Common 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 Common Stock or by such other method as the Board of Directors of the Company shall determine is appropriate. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the Compensation and Benefits Committee of the Board. "Common Stock" means the common stock, $1.00 par value, of SFP. "Company" means collectively SFP and all companies in which SFP owns, directly or indirectly, more than 50% of the voting stock. "Disability" means the inability of a Participant to continue to perform duties of employment, as determined by the Board or the Committee. "Fair Market Value" of a share of Common Stock on any particular date is 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. 2 "Grant Date" as used with respect to a particular Award means the date as of which such Award is granted by the Committee pursuant to the Plan. "Immediate Family" means, with respect to a particular Participant, the Participant's spouse, children and grandchildren. "Option" means an option to purchase shares of Common Stock granted by the Committee pursuant to the Plan, which may be designated as either an "Incentive Stock Option" or a "Non-Qualified Stock Option". "Incentive Stock Option" means an option that is intended to qualify as an Incentive Stock Option as described in Section 422 of the Code. "Limited Stock Appreciation Right" means a Stock Appreciation Right that is exercisable only as set forth in Section XV of the Plan. "Non-Qualified Stock Option" means an option granted pursuant to the Plan, other than an Incentive Stock Option. "Participant" means any employee of the Company who has accepted an Award granted by the Committee. If a Participant has transferred an Award in accordance with the Plan, references to "Participant" shall be deemed to refer to the Participant's transferee where the context indicates it is appropriate. "Performance Period" means a period of time determined by the Committee over which the performance goals associated with a Performance Unit, Restricted Stock or Performance Share are to be achieved and over which the Performance Unit, Restricted Stock, or Performance Share is subject to forfeiture if such goals are not achieved. "Performance Share(s)" shall mean Common Stock which is subject to the terms and conditions set forth in an Award agreement and the Plan and which is granted by the Committee pursuant to the Plan. "Performance Unit" means a right to money, the amount of which is measured as a percentage of the Fair Market Value of a share of Common Stock on the date following the end of a Performance Period. "Plan" means the Santa Fe Pacific Long Term Incentive Stock Plan as set forth herein and as may be amended from time to time. "Predecessor Plan" means the Santa Fe Pacific Incentive Stock Compensation Plan. "Restricted Period" means 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. "Restricted Stock" means Common Stock subject to a Restricted Period or a Performance Period which is granted by the Committee pursuant to the Plan. "Retirement" means a Participant's voluntarily leaving the employment of the Company after his early retirement date as defined in the retirement plan, or predecessor plan, under which the Participant is entitled to have his benefits calculated. "SFP" means Santa Fe Pacific Corporation. "Stock Appreciation Right" means the right, granted by the Committee pursuant to the Plan, to receive a payment equal to the increase in the Fair Market Value of a share of Common Stock subsequent to the Grant Date of such Award. 3 II. STOCK SUBJECT TO THE PLAN The maximum aggregate number of shares of Common Stock with respect to which Options, Restricted Stock, Performance Shares and Stock Appreciation Rights may be granted from time to time under the Plan shall not exceed the sum of (A) 13,976,082 shares of Common Stock plus (B) the lesser of (1) 2,266,913 shares of Common Stock or (2) the number of shares of Common Stock received by the Corporation in payment of the exercise price under any Option, whether issued under the Plan or a Predecessor Plan, subject to adjustment as provided in Section XIV. The Common Stock issued under the Plan may be either previously authorized but unissued shares or treasury shares acquired by SFP. In the event that any Award expires, lapses, is forfeited or otherwise terminates, any shares of Common Stock allocable to the terminated portion of such Award may again be made subject to an Award under the Plan. III. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Committee, subject to the authority of the Board as set forth in the Plan. The members of the Committee shall be directors of SFP who are not employees of the Company and are not eligible to participate in the Plan. The Committee shall select from time to time those employees to be granted Awards under the Plan. The Committee shall determine the terms and provisions of Awards, which need not be identical. The Committee shall grant all Awards. The Committee may construe the Plan, prescribe and rescind rules and regulations relating to the Plan and make all other determinations deemed necessary or advisable for the administration of the Plan, subject to the limitations of Section XVIII. IV. ELIGIBILITY Subject to the discretion of the Committee, all salaried officers and other salaried employees of the Company who have responsibility for the growth and profitability of the Company are eligible to receive Awards under the Plan. V. OPTIONS The Committee may from time to time, subject to the provisions of the Plan, grant Awards of Options to employees of the Company to purchase shares of Common Stock. The Committee may grant Options under this Plan or in respect to awards under a Predecessor Plan, that contain provisions for the issuance to the Participant upon exercise of such Option and payment of the exercise price therefrom with previously acquired shares, of an additional Option for the number of shares so delivered in payment of the exercise price, having such other terms and conditions not inconsistent with the Plan as the Committee may determine; provided that no such additional Option shall be granted upon the exercise of an Option transferred by a Participant in accordance with the Plan. Any Options granted may be designated as either Incentive Stock Options or as Non-Qualified Stock Options, or the Committee may designate a portion of an Award as "Incentive Stock Options" and the remaining portion as "Non-Qualified Stock Options." Any portion of an Award that is not designated as "Incentive Stock Options" shall be "Non-Qualified Stock Options" and shall not be subject to the requirements of Section VI of the Plan. The purchase price of the Common Stock subject to any Option shall be determined by the Committee. Such price shall be subject to adjustment as provided in Section XIV of the Plan. Options granted hereunder shall not be transferable other than by will or the laws of descent and distribution and during the Participant's lifetime shall be exercisable only by the Participant or by his guardian or legal representative; provided, however, that a Participant who is an employee may (a) in a manner specified by the Committee, designate in writing a beneficiary to exercise his Option after the Participant's death, provided that no such designation shall be effective unless received by the office of the Company designated for that purpose prior to the Participant's death and (b) if the Award Agreement expressly permits, transfer an Option (other than an Incentive Stock Option) for 4 no consideration to any (i) member of the Participant's Immediate Family, (ii) trust solely for the benefit of members of the Participant's Immediate Family or (iii) partnership whose only partners are members of the Participant's Immediate Family; provided, however, that the transferee shall remain subject to all of the terms and conditions applicable to such Award prior to such transfer. The period of any Option, which is the time period during which the Option may be exercised, shall be determined by the Committee and shall not extend more than ten years after the Grant Date. Termination of employment shall result in forfeiture of all outstanding Options, except as set forth below. Termination by the Company for any reason other than Cause (including terminations pursuant to formal severance programs sponsored by an affiliated company), or termination by reason of Death, Disability, or Retirement, shall result in a lapse on all or a proportion of the Restricted Period applicable to any outstanding Award as set forth in Section XII. The provisions of the Plan relating to Options shall apply to, and govern, existing Option grants made under Predecessor Plans as if such awards were granted hereunder (except that such awards shall not count against the share limit set forth in Section II). A person electing to exercise an Option shall give written notice of such election to the Company in such form as the Committee may require, and shall tender to the Company the full purchase price of the shares of Common Stock for which the election is made. Payment of the purchase price shall be made in cash or in such other form as the Committee may approve, including shares of Common Stock valued at the Fair Market Value on the date of exercise of the Option. Notwithstanding any other provision in the Plan, if a Change in Control occurs while unexercised Options and Stock Appreciation Rights relating thereto, remain outstanding under the Plan, then from and after the Acceleration Date, all Options and Stock Appreciation Rights shall be exercisable in full, whether or not otherwise exercisable; provided, however, that no Option and Stock Appreciation Right shall become exercisable by reason of this paragraph to the extent that such acceleration of exercisability, when aggregated with other payments or benefits to the Participant, would, as determined by tax counsel selected by the Company, result in "Excess Parachute Payments" (as defined below) equal to or greater than three times the "base amount" as defined in Section 280G of the Code. "Excess Parachute Payments" shall mean "parachute payments" as defined in Section 280G of the Code other than (i) health and life insurance benefits and (ii) payments attributable to any award, benefit or other compensation plan or program based upon the number of full or fractional months of any restricted period (relating thereto) which has elapsed prior to the date of the Change in Control. Furthermore, such payments or benefits provided to a Participant under this Plan shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code, but only if, by reason of such reduction, the Participant's net after tax benefit shall exceed the net after tax benefit if such reduction were not made. "Net after tax benefit" shall mean the sum of (i) all payments and benefits which a Participant receives or is then entitled to receive from the Company and any of its subsidiaries that would constitute a "parachute payment" within the meaning of Section 280G of the Code, less (ii) the amount of federal income taxes payable with respect to the payments and benefits described in (i) above calculated at the maximum marginal income tax rate for each year in which such payments and benefits shall be paid to the Participant (based upon the rate in effect for such year as set forth in the Code at the time of the first payment of the foregoing), less (iii) the amount of excise taxes imposed with respect to the payments and benefits described in (i) above by Section 4999 of the Code. VI. INCENTIVE STOCK OPTIONS An Option designated by the Committee as an "Incentive Stock Option" is intended to qualify as an "incentive stock option" within the meaning of Subsection (b) of Section 422 of the Code and shall satisfy, in addition to the conditions of Section V, the conditions set forth in this Section VI. The purchase price of the Common Stock subject to an Incentive Stock Option shall be not less than the Fair Market Value of the Common Stock on the Grant Date. 5 An Incentive Stock Option shall not be granted to an individual who, on the Grant Date, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of SFP. The aggregate Fair Market Value, determined on the Grant Date, of the shares of Common Stock which any Participant may for the first time exercise Incentive Stock Options under the Plan in any calendar year shall not exceed $100,000. VII. RESTRICTED STOCK The Committee may from time-to-time, subject to the provisions of the Plan, grant awards of Restricted Stock to employees of the Company, with a Restricted Period of generally not less than three years or a Performance Period of generally not less than one year, and in no event less than six months. Each certificate representing Restricted Stock awarded under the Plan shall be registered in the name of the Participant and, during the Restricted Period or Performance Period shall be left on deposit with the Company with a stock power endorsed in blank. Participants shall have the right to receive dividends paid on their Restricted Stock and to vote such shares. Restricted Stock may not be sold, pledged, assigned, transferred or encumbered during the Restricted Period or Performance Period determined by the Committee. The Committee shall establish with respect to each Award of Restricted Stock subject to a Performance Period, certain goals for the Company and the number of shares that will vest upon achievement of different levels of performance. Achievement of maximum targets during the Performance Period shall result in the Participants' receipt of the full 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. Any Restricted Stock which is not earned by the end of the Performance Period shall be forfeited. Termination of employment shall result in forfeiture of all outstanding Restricted Stock, except as set forth below. Termination by the Company for any reason other than Cause (including terminations pursuant to formal severance programs sponsored by an affiliated company), or termination by reason of Death, Disability, or Retirement, shall result in a lapse on all or a proportion of the Restricted Period applicable to any outstanding Award other than Restricted Stock subject to a Performance Period as set forth in Section XII. Termination of employment prior to the end of the Performance Period for any reason including Death, Disability, and Retirement shall result in a forfeiture of outstanding Restricted Stock subject to a Performance Period. However, in lieu of such forfeiture, the Committee may establish terms and conditions in the Award Agreement or by such other action that a Participant is entitled to a portion of his Restricted Stock subject to a Performance Period. VIII. PERFORMANCE UNITS The Committee may from time to time, subject to the provisions of the Plan, grant Awards of Performance Units to employees of the Company at the same time as, and in number equal to, grants of Restricted Stock. The Committee shall, at the time Performance Units are granted, designate certain goals for the performance of the Company and the Performance Period over which the goals must be achieved. Such designated goals must be achieved in order for a Participant to receive the full value of the Performance Units following the end of the Performance Period. For the achievement of results below the goals warranting full value of the Performance Units, the Committee may determine the value of the Performance Units which the Participants are entitled to receive. To the extent earned in accordance with this Section, all Performance Units shall be payable in cash as soon as practicable following the end of the Performance Period. 6 Termination of employment prior to the end of the Performance Period for any reason including Death, Disability and Retirement shall result in the forfeiture of all outstanding Performance Units. However, in lieu of such forfeiture the Committee may determine that a Participant is entitled to receive a settlement for his Performance Units by reason of special circumstances. IX. STOCK APPRECIATION RIGHTS The Committee may from time to time, subject to the provisions of the Plan, grant Awards of Stock Appreciation Rights to employees of the Company subject to the limitation in Section II. The Committee shall determine at the time of the grant the time period during which the Stock Appreciation Rights may be exercised which period may not commence until six months after the Grant Date. Stock Appreciation Rights shall not be transferable other than by will or the laws of descent and distribution and during the Participant's lifetime shall be exercisable only by the Participant or by his guardian or legal representative; provided, however, that a Participant who is an employee may (a) in a manner specified by the Committee, designate in writing a beneficiary to exercise his Stock Appreciation Right after the Participant's death, provided that no such designation shall be effective unless received by the office of the Company designated for that purpose prior to the Participant's death and (b) if the Award Agreement expressly permits, transfer a Stock Appreciation Right for no consideration to any (i) member of the Participant's Immediate Family, (ii) trust solely for the benefit of members of the Participant's Immediate Family or (iii) partnership whose only partners are members of the Participant's Immediate Family; provided, however, that the transferee shall remain subject to all of the terms and conditions applicable to such Award prior to such transfer. Termination of employment shall result in forfeiture of all outstanding Stock Appreciation Rights, except as set forth below. Termination by the Company for any reason other than Cause, or termination by reason of Death, Disability, or Retirement, shall result in a lapse on all or a proportion of the Restricted Period applicable to any outstanding Award as set forth in Section XII. Subject to any restrictions or conditions imposed by the Committee, upon the exercise of a Stock Appreciation Right, the Company shall pay the amount, if any, by which the Fair Market Value of a share of Common Stock on the date of exercise exceeds the Fair Market Value of a share of Common Stock on the Grant Date. A person electing to exercise a Stock Appreciation Right shall give written notice of such election to the Company in such form as the Committee may require. The exercise of Stock Appreciation Rights or Options granted in tandem will result in an equal reduction in the number of corresponding Options or Stock Appreciation Rights which were granted in tandem with such Stock Appreciation Rights and Options. X. PERFORMANCE SHARES The Committee may from time to time, subject to the provisions of the Plan, grant Awards of Performance Shares to employees of the Company provided that the Performance Period shall not be less than six months. Each certificate representing Performance Shares awarded under the Plan shall be registered in the name of the Participant, subject to forfeiture, and shall be left on deposit with the Company with a stock power endorsed in blank. Participants shall have the right to receive dividends paid on their Performance Shares and to vote such shares. Performance Shares may not be sold, pledged, assigned, transferred or encumbered, during the Performance Period determined by the Committee. The Committee shall establish with respect to each Award of Performance Shares, certain goals for the Company and the number of shares that will vest upon achievement of different levels of performance. Achievement of maximum targets during the Performance Period shall result in the 7 Participant's receipt of the full Performance Share Award. For achievement of the minimum target, but less than maximum targets, the Committee may establish the portion of the Award which the Participant is entitled to receive. Any Performance Shares which are not earned by the end of the Performance Period shall be forfeited. Termination of employment prior to the end of the Performance Period for any reason including Death, Disability and Retirement, shall result in a forfeiture of all outstanding Performance Shares. However, the Committee may establish terms and conditions in an Award Agreement or by such other action that a Participant is entitled to a portion of his Performance Shares by reason of special circumstances. If a Change in Control occurs while any shares of Restricted Stock, any Performance Units related to such Restricted Stock, Stock Appreciation Rights or Performance Shares remain subject to restrictions, relating thereto, from and after the Acceleration Date, (1) all such restrictions and all Restricted Periods and Performance Periods shall lapse, (2) all defined goals shall be deemed to have been met and (3) no later than the fifth day following the Acceleration Date, any Restricted Stock theretofore granted a Participant, the full value of all Performance Units related to such Restricted Stock, Stock Appreciation Rights and Performance Shares shall be paid to the Participant in cash; provided, however, that no payment or benefit shall be made by reason of this paragraph to the extent that such payment, when aggregated with other payments or benefits to the Participant, would, as determined by tax counsel selected by the Company, result in "Excess Parachute Payments" (as defined below) equal to or greater than three times the "base amount" as defined in Section 280G of the Code. "Excess Parachute Payments" shall mean "parachute payments" as defined in Section 280G of the Code other than (i) health and life insurance benefits and (ii) payments attributable to any award, benefit or other compensation plan or program based upon the number of full or fractional months of any restricted period (relating thereto) which has elapsed prior to the date of the Change in Control. Furthermore, such payments or benefits provided to a Participant under this Plan shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code, but only if, by reason of such reduction, the Participant's net after tax benefit shall exceed the net after tax benefit if such reduction were not made. "Net after tax benefit" shall mean the sum of (i) all payments and benefits which a Participant receives or is then entitled to receive from the Company and any of its subsidiaries that would constitute a "parachute payment" within the meaning of Section 280G of the Code, less (ii) the amount of federal income taxes payable with respect to the payments and benefits described in (i) above calculated at the maximum marginal income tax rate for each year in which such payments and benefits shall be paid to the Participant (based upon the rate in effect for such year as set forth in the Code at the time of the first payment of the foregoing), less (iii) the amount of excise taxes imposed with respect to the payments and benefits described in (i) above by Section 4999 of the Code. XI. CONTINUED EMPLOYMENT Participation in the Plan shall confer no rights to continued employment with the Company, nor shall it restrict the rights of the Company to terminate a Participant's employment relationship at any time. XII. TERMINATION OF EMPLOYMENT In the event of a Participant's termination of employment by reason of Death, the Restricted Period shall lapse on all of the Participant's outstanding Awards, except Restricted Stock subject to a Performance Period, Performance Units and Performance Shares, which are then subject to a Restricted Period. 8 In the event of a Participant's termination of employment by reason of Disability, Retirement or by the Company for any reason other than Cause, the Restricted Period shall lapse on a proportion of any outstanding Awards, (except Restricted Stock subject to a Performance Period, Performance Units and Performance Shares and except for Incentive Stock Options unless outstanding for more than a year). 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 termination of employment. Restricted Stock upon which the Restricted Period lapses shall be issued to the Participant or, in the case of Death, to the Participant's designated beneficiary, or in the absence of such designation, to the person to whom the Participant's rights pass by will or the laws of descent and distribution. Performance Shares which become payable under the Plan shall be issued to the Participant or in the case of Death, to the Participant's designated beneficiary, or in the absence of such designation, to the person to whom the Participant's rights pass by will or the laws of descent and distribution. Options and Stock Appreciation Rights which are or become exercisable at the time of a Participant's termination of employment by reason of Disability, Retirement or by the Company for any reason other than Cause, may be exercised by the Participant within three months following such termination of employment. Options and Stock Appreciation Rights which are or become exercisable at the time of a Participant's termination of employment by reason of Death, may be exercised by the Participant's designated beneficiary, or in the absence of such designation, by the person to whom the Participant's rights pass by will or the laws of descent and distribution at any time within one year after the Participant's Death but not after the expiration of the period of the Option or Stock Appreciation Right. If a Participant's employer ceased to be a part of the Company as defined in Section I, such Participant shall be deemed to have terminated employment with the Company as of the date the Participant's employer so ceased to be a company of which more than 50% of the voting stock is owned directly or indirectly by SFP. The Committee may determine that termination of employment by reason of special circumstances shall not terminate an Award or a portion thereof. XIII. AWARD AGREEMENT 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. XIV. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION In the event of a change in the capitalization of SFP due to a stock split, stock dividend, recapitalization, merger, consolidation, combination, or similar event or as in its sole discretion may deem appropriate, the aggregate shares subject to the Plan and the terms of any existing Awards shall be adjusted by the Board to reflect such change. XV. LIMITED STOCK APPRECIATION RIGHTS (a) The Committee shall have authority to grant a Limited Stock Appreciation Right ("Limited Right") to the holder of any Option granted under the Plan (referred to herein as the "Related LSAR Option") with respect to all or some of the shares of Common Stock covered by such Related LSAR Option. A Limited Right may be granted either at the time of grant of the Related LSAR Option or any time thereafter during its term (except as otherwise provided in Section XVII hereof). A Limited Right may be exercised only during the sixty-day period beginning on an Acceleration 9 Date. Each Limited Right shall be exercisable only if, and to the extent that, the Related LSAR Option is exercisable and, in the case of a Limited Right granted in respect of an Incentive Stock Option, only when the Fair Market Value per share of Common Stock exceeds the Fair Market Value of a share of Common Stock on the Grant Date (the "Option Price per share"). Notwithstanding the provisions of the two immediately preceding sentences, no Limited Right may be exercised by a holder who is subject to liability under Section 16(b) of the Exchange Act until the expiration of six (6) months from the date of grant of the Limited Right unless, prior to the expiration of such six (6) month period, the holder of such Limited Right ceases to be an employee of the Company by reason of such holder's death or Disability. Upon the exercise of a Limited Right, the Related LSAR Option shall cease to be exercisable to the extent of the shares of Common Stock with respect to which such Limited Right is exercised, but shall be considered to have been exercised to that extent for purposes of determining the number of shares of Common Stock available for the grant of further Options, Stock Appreciation Rights and Limited Rights pursuant to this Plan. Upon the exercise or termination of a Related LSAR Option, the Limited Right with respect to such Related LSAR Option shall terminate to the extent of the shares of Common Stock with respect to which the Related LSAR Option was exercised or terminated. (b) Upon the exercise of a Limited Right, the holder thereof shall receive in cash whichever of the following amounts is applicable: (i) in the case of an exercise of Limited Rights by reason of an acquisition of Common Stock described in clause (a) of the definition of Change of Control contained in Section I hereof, an amount equal to the Acquisition Spread (as defined in Subsection (d) hereof); (ii) in the case of an exercise of Limited Rights by reason of the change in composition of the Board of Directors described in clause (b) of the definition of Change in Control contained in Section I hereof, an amount equal to the Spread (as defined in Subsection (g) hereof); or (iii) in the case of an exercise of Limited Rights by reason of stockholder approval of an agreement or adoption of a plan described in clause (c) or (d) of the definition of Change in Control contained in Section I hereof, an amount equal to the Merger Spread (as defined in Subsection (f) hereof). Notwithstanding the foregoing provisions of this Section XV(b), (i) in the case of a Limited Right granted in respect of an Incentive Stock Option, the holder may not receive an amount in excess of the maximum amount that will enable such option to continue to qualify as an Incentive Stock Option, and (ii) no payment shall occur by reason of this Section XV(b) to the extent that such payment, when aggregated with other payments or benefits to the Participant, would, as determined by tax counsel selected by the Company, result in an "Excess Parachute Payments" (as defined below) equal to or greater than three times the "base amount" as defined in Section 280G of the Code. "Excess Parachute Payments" shall mean "parachute payments" as defined in Section 280G of the Code other than (i) health and life insurance benefits and (ii) payments attributable to any award, benefit or other compensation plan or program based upon the number of full or fractional months of any restricted period (relating thereto) which have elapsed prior to the date of the Change in Control. Furthermore, such payments or benefits provided to a Participant under this Plan shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code, but only if, by reason of such reduction, the Participant's net after tax benefit shall exceed the net after tax benefit if such reduction were not made. "Net after tax benefit" shall mean the sum of (i) all payments and benefits which a Participant receives or is then entitled to receive from the Company and any of its subsidiaries that would constitute a "parachute payment" within the meaning of Section 280G of the Code, less (ii) the amount of federal income taxes payable with respect to the payments and benefits described in (i) above calculated at the maximum marginal income tax rate for each year in which such payments and 10 benefits shall be paid to the Participant (based upon the rate in effect for such year as set forth in the Code at the time of the first payment of the foregoing), less (iii) the amount of excise taxes imposed with respect to the payments and benefits described in (i) above by Section 4999 of the Code. (c) The term "Acquisition Price per Share" as used in this Section XV shall mean, with respect to the exercise of any Limited Right by reason of an acquisition of Common Stock described in clause (a) of the definition of Change in Control contained in Section I hereof, the highest Fair Market Value per share of Common Stock during the sixty-day period ending on the date the Limited Right is exercised. (d) The term "Acquisition Spread" as used in this Section XV shall mean an amount equal to the product obtained by multiplying (i) the excess of (A) the Acquisition Price per Share over (B) the Option Price per share of Common Stock at which the Related LSAR Option is exercisable, by (ii) the number of shares of Common Stock with respect to which such Limited Right is being exercised. (e) The term "Merger Price per Share" as used in this Section XV shall mean, with respect to the exercise of any Limited Right by reason of stockholder approval of an agreement or adoption of a plan described in clause (c) or (d) of the definition of Change in Control contained in Section I hereof, the greater of (i) the fixed or formula price for the acquisition of shares of Common Stock specified in such agreement or adoption, if such fixed or formula price is determinable on the date on which such Limited Right is exercised, and (ii) the highest Fair Market Value per share of Common Stock during the sixty-day period ending on the date on which such Limited Right is exercised. (f) The term "Merger Spread" as used in this Section XV shall mean an amount equal to the product obtained by multiplying (i) the excess of (A) the Merger Price per Share over (B) the Option Price per share of Common Stock at which the Related LSAR Option is exercisable, by (ii) the number of shares of Common Stock with respect to which such Limited Right is being exercised. (g) The term "Spread" as used in this Section XV shall mean, with respect to the exercise of any Limited Right by reason of a change in the composition of the Board described in clause (b) of the definition of Change in Control contained in Section I hereof, an amount equal to the product obtained by multiplying (i) the excess of (A) the highest Fair Market Value per share of Common Stock during the sixty-day period ending on the date the Limited Right is exercised over (B) the Option Price per share of Common Stock at which the Related LSAR Option is exercisable, by (ii) the number of shares of Common Stock with respect to which the Limited Right is being exercised. (h) Limited Rights granted hereunder shall not be transferable other than by will or the laws of descent and distribution and during the Participant's lifetime shall be exercisable only by the Participant or by his guardian or legal representative; provided, however, that a Participant who is an employee may (a) in a manner specified by the Committee, designate in writing a beneficiary to exercise his Limited Right after the Participant's death, provided that no such designation shall be effective unless received by the office of the Company designated for that purpose prior to the Participant's death and (b) if the Award Agreement expressly permits, transfer a Limited Right for no consideration to any (i) member of the Participant's Immediate Family, (ii) trust solely for the benefit of members of the Participant's Immediate Family or (iii) partnership whose only partners are members of the Participant's Immediate Family; provided, however, that the transferee shall remain subject to all of the terms and conditions applicable to such Award prior to such transfer. (i) Each Limited Right shall be granted on such terms and conditions not inconsistent with the Plan as the Committee may determine. (j) To exercise a Limited Right, the Participant shall (i) give written notice thereof to the Committee in form satisfactory to the Committee specifying the number of shares of Common Stock with respect to which the Limited Right is being exercised, and (ii) if requested by the Committee, deliver the option agreement to the Committee, who shall endorse thereon a notation of such exercise 11 and return the option agreement to the Participant. The date of exercise of a Limited Right that is validly exercised shall be deemed to be the date on which there shall have been delivered the instruments referred to in the first sentence of this paragraph (j). (k) The Company intends that this Section XV shall comply with the requirements of Rule 16b-3 and any future rules promulgated in substitution therefor ("the Rule") under the Exchange Act during the term of the Plan. Should any provision of this Section XV not be necessary to comply with the requirements of the Rule or should any additional provisions be necessary for this Section XV to comply with the requirements of the Rule, the Board may amend the Plan to add to or modify the provisions of the Plan accordingly. XVI. WITHHOLDING TAXES As a condition of delivery of cash or shares of Common Stock upon exercise or payment of an Award, the Company shall be entitled to require that the Participant (without regard to whether the Participant has transferred the Award in accordance with the Plan) satisfy federal, state and local tax withholding requirements as follows: (a) Cash Remittance Whenever shares of Common Stock are to be issued upon the exercise of an Option or the occurrence of the distribution or vesting date with respect to a share of Restricted Stock or Performance Shares, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy federal, state and local withholding tax requirements, if any, attributable to such exercise or occurrence, prior to the delivery of any certificate or certificates for such shares. In addition, upon the exercise of a Limited Stock Appreciation Right, a Stock Appreciation Right, or payment of a Performance Unit, the Company shall have the right to withhold from any cash payment required to be made pursuant thereto an amount sufficient to satisfy the federal, state and local withholding tax requirements, if any, attributable to such exercise or grant; provided, however, that no such amount shall be withheld from any such cash payment relating to an Award which was transferred by the Participant in accordance with the Plan. (b) Stock Withholding or Remittance In lieu of the remittance required by Section XVI(a) hereof or, if greater, the participant's estimated federal, state and local tax obligations associated with an Award hereunder, a Participant who is granted an Option, Stock Appreciation Right, Restricted Stock, Performance Shares, or Performance Units under the Plan, subject to approval by the Committee, may irrevocably elect by written notice to the Company at the office of the Company designated for that purpose, to (i) have the Company withhold shares of Common Stock from any Award hereunder or (ii) deliver other previously owned shares, the Fair Market Value of which at the tax date is determined to be equal to the amount to be withheld, if any, rounded down to the nearest whole share attributable to such exercise, occurrence or grant; provided, however, that no election to have shares of Common Stock withheld from any Award shall be effective with respect to an Award which was transferred by the Participant in accordance with the Plan. (c) Participants Subject to Section 16(b) Notwithstanding any other provision herein, a stock withholding election in connection with the exercise of an Option may be made by a Participant who is subject to Section 16(b) of the Securities Exchange Act of 1934 subject to the following additional restrictions: (1) it may not be made within six months after the grant of an Award (except in the case of the death or disability of the Participant) and (2) it must be made either (a) six months or more prior to the date as of which the amount of tax to be withheld is determined (the "Tax Date") or (b) within a ten day "window period" preceding the Tax Date beginning on the third business day following the release of the Company's quarterly or annual summary statement of sales and earnings. 12 XVII. EFFECTIVE DATE AND DURATION OF PLAN The Plan shall become effective upon its approval by the stockholders of SFP. Unless previously terminated by the Board, the Plan shall terminate on the tenth anniversary of its approval by the stockholders; provided, however, that such termination shall not terminate any Award then existing. XVIII. TERMINATION AND AMENDMENT 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 SFP's stockholders, except that any such increase or modification that may result from adjustments authorized by Section XIV 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. Except as expressly amended hereby, the Plan, as amended effective January 26, 1993, remains in full force and effect. 13 EX-12 3 RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12 Santa Fe Pacific Corporation Statement of Computation of Ratio of Earnings to Fixed Charges (as of September 30, 1994 and 1993) (In millions, except ratio) Nine Months Ended September 30, 1994 1993 ------------------- Earnings: Income from continuing operations before income taxes $265.4 $260.4 Add (less) income of unconsolidated subsidiaries greater than distributions (8.8) 7.0 Amortization of capitalized interest 1.6 1.2 Fixed charges before interest capitalized (see below) 116.8 129.9 ------- ------- Total Earnings $375.0 $398.5 ======= ======= Fixed Charges: Interest expense including amortization of debt discount $ 89.5 $103.7 Portion of rentals representing an interest factor 27.3 26.2 ------- ------- Fixed charges before interest capitalized 116.8 129.9 Interest capitalized 6.1 4.1 ------- ------- Total Fixed Charges $122.9 $134.0 ======= ======= Ratio of earnings to fixed charges (1) 3.1 3.0 ======= ======= (1) Earnings for the nine months ended September 30, 1993 include a $145.4 million gain on the sale of rail lines in southern California by The Atchison, Topeka and Santa Fe Railway Company. Excluding this gain, the ratio would have been 1.9. EX-27 4 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the unaudited September 30, 1994 Santa Fe Pacific Corporation and subsidiary companies consolidated financial statements and accompanying notes and is qualified in its entirety by reference to such financial statements. 1,000,000 9-MOS DEC-31-1994 SEP-30-1994 17 0 115 (17) 97 361 6,177 1,545 5,316 894 890 190 0 0 1,018 5,316 0 1,970 0 1,664 (49) 0 90 265 112 153 23 0 0 176 0.93 0 Includes equity in earnings of Pipeline of $26 million and other income (expense)-net of $23 million. Not applicable.
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