Exhibit 10.40 

 

**BURLINGTON NORTHERN SANTA FE CORPORATION**

 

**DIRECTORS’ COMPENSATION FOR 2004-2005**

 

**Directors’ Compensation**

 

In July 2004, the Board, after review of competitive compensation levels and director responsibilities, revised certain elements of the compensation to bereceived by non-employee directors through fees, equity, and other programs as described below. Non-employee directors receive an annual retainer fee of $60,000, paid in quarterly installments. The Chairman of the Audit Committee is paid asupplemental annual retainer fee of $10,000, and each director who chairs any other Board committee is paid a supplemental annual retainer fee of $5,000. In addition, for attendance at each Committee meeting or any inspection trip or similarmeeting, a meeting fee of $1,000 plus expenses is paid, including expenses for attendance by spouses in connection with certain meetings. Directors who are also officers or employees of the Company receive no compensation for duties performed as adirector or a committee chairman. 

 

**Burlington Northern Santa FeDirectors’ Retirement Plan**

 

The Directors’Retirement Plan was terminated as of July 17, 2003. The plan provided non-employee directors an annual benefit if they served as a member of the Board for ten consecutive years, attained the mandatory retirement age, or were designated by theDirectors and Corporate Governance Committee as eligible for benefits. Individual participants who met the eligibility requirements of the Retirement Plan are eligible to receive annual payments for benefits accrued through July 17, 2003. The annualpayment is the amount of the annual retainer for services as a Board member at the time of termination of service for those individuals who are already retired. Non-employee members of the Board who meet the eligibility requirements will receive anannual payment in the amount of $40,000 upon departure from the Board, which was the amount of the annual retainer for services as a Board member at the time the Retirement Plan was terminated. Payment ceases upon an individual’s death. Serviceas a member on the board of directors of one or more of BNSF’s predecessor companies counts toward the requirement of ten consecutive years of service. 

 

An individual Board member as of July 17, 2003, who had not served as a member of the Board for a period of at least ten consecutive years as of such dateand had not attained age 72 as of July 17, 2003, but who subsequently meets the eligibility requirements, will be entitled to receive a pro rata annual payment for benefits at the time of departure from the Board. See Exhibit 10.23. 

 

**Burlington Northern Santa Fe Non-Employee Directors’ Stock Plan**

 

Under the Plan, each non-employee director is entitled toreceive a one-time grant of 1,000 Restricted Stock Units as of the annual meeting at which he or she is first elected to the Board. 

 

On April 29, 2004, each non-employee director elected at the 2004 annual meeting of shareholders was granted non-qualified stock options to purchase 3,000shares of Company common stock at $32.72 per share, the fair market value on the date of grant, pursuant to the Non-Employee Directors’ Stock Plan. These options vest on April 29, 2005, or earlier if a 

Exhibit 10.40 

 

director leaves the Board by reason of retirement, death, disability, or change in control, and expire on April 29, 2014. On April 29, 2004, each non-employee directorelected to the Board of Directors at the 2004 annual meeting also received a grant of 1,400 Restricted Stock Units. Under the Plan, as amended by the Board of Directors on July 22, 2004, the amount of Restricted Stock Units that each non-employeedirector elected to the Board of Directors at the 2005 annual meeting and at each subsequent annual meeting was increased to 1,700 Restricted Stock Units. 

 

On February 11, 2005, the Board of Directors amended the Plan to grant an additional 800 Restricted Stock Units to each non-employee director elected tothe Board of Directors at the 2005 annual meeting and each subsequent annual meeting in lieu of the 3,000 non-qualified stock options previously granted annually as described above, for a total grant of 2,500 Restricted Stock Units to eachnon-employee director elected at the 2005 annual meeting and each subsequent annual meeting. If an individual becomes a director on a date other than the date of the annual meeting, he or she will receive pro rata grants of Restricted Stock Units(as described above) for the portion of the one-year term following the date on which the individual becomes a director. The Restricted Stock Units will vest upon the date the director’s term of service ends by reason of retirement, death,disability, or change in control, subject to the director having served on the Board at least until the next annual meeting following election to the Board. Upon vesting, the director will receive one share of the Company’s common stock foreach Restricted Stock Unit. Directors holding Restricted Stock Units do not have any rights of a shareholder but have the right to receive a cash payment in lieu of a dividend at such times and in such amounts as dividends are paid on theCompany’s common stock. 

 

Prior to 2004, the Non-EmployeeDirectors’ Stock Plan also permitted directors by timely election to forego up to 25 percent of their annual retainer and receive a Retainer Stock Award in the form of restricted stock equal to 150 percent of the amount foregone based on thefair market value of BNSF’s common stock on the date of grant (December 31 of each calendar year), to vest three years from the date of grant, or earlier if a director left the Board by reason of retirement, death, disability, or change incontrol. All Retainer Stock Awards will vest by December 31, 2006. See Exhibit 10.1. 

 

**Burlington Northern Santa Fe Deferred Compensation Plan for Directors**

 

Prior to 2005, non-employee directors could voluntarily defer all or a portion of the fees they would otherwise receive into a Prime Rate interest account, a Company stock-equivalent (phantom stock) account or otherinvestment option established under the plan’s terms, which now includes an S&P 500 index fund and a long-term capital appreciation stock fund. Participants receive subsequent distributions from the Company in amounts determined byreference to the investment options chosen. Distributions will be made in cash in either annual installments or as a lump sum after a director’s departure from the Board. Participation in this plan is frozen, and no new contributions may bemade under the plan after December 31, 2004. See Exhibit 10.3. 

Exhibit 10.40 

 

**Charitable Contributions**

 

Burlington Northern Santa Fe Foundation will make an annual match of up to $10,000 for qualified contributions by non-employee directors.