<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[X] Definitive Proxy Statement RULE 14A-6(E)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Union Pacific Corporation
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(Name of Registrant as Specified In Its Charter)
Union Pacific Corporation
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
<PAGE>
[LOGO OF UNION PACIFIC CORPORATION APPEARS HERE]
DICK DAVIDSON
CHAIRMAN
March 3, 1997
To the Shareholders:
I would like to extend greetings to all of you in my first shareholder
communication since becoming Chairman and CEO. It is very important to us
that we maintain your support of our efforts as we face the challenges ahead.
Union Pacific grew and prospered during Drew Lewis' ten years at the
helm, and I am grateful to be overseeing a strong, well managed operation.
Under Drew's leadership, we completed the Southern Pacific merger and became
the largest railroad in the country. It is our objective to further increase
shareholder value by maximizing the synergies of this merger, enhancing
quality of service, and reducing costs through a smooth integration of the
Union Pacific and Southern Pacific railroads. Our accomplishments in these
areas on behalf of our customers will determine the future value of Union
Pacific.
We hope that many of you will join us for our Annual Meeting of
Shareholders at Little America, 500 S. Main Street, Salt Lake City, on April
18. We look forward to saying hello, telling you about present and future
plans for Union Pacific and answering any questions you may have.
Sincerely,
/s/ Dick Davidson
<PAGE>
[LOGO OF UNION PACIFIC NOTICE OF ANNUAL MEETING
CORPORATION APPEARS HERE] OF SHAREHOLDERS
Martin Tower
Eighth and Eaton Avenues
Bethlehem, PA 18018
To the Shareholders: March 3, 1997
You are hereby notified that the 1997 Annual Meeting of Shareholders of
Union Pacific Corporation, a Utah corporation (the Company), will be held
at the Little America Hotel, Salt Lake City, Utah, at 8:30 A.M., Mountain
Daylight Time, on Friday, April 18, 1997 for the following purposes:
(1) to elect six directors, each to serve for a term of one year;
(2) to ratify the appointment of Deloitte & Touche LLP as the
independent certified public accountants of the Company; and
to transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof; all in accordance with
the accompanying Proxy Statement.
Only shareholders of record at the close of business on February 12,
1997 are entitled to notice of and to vote at the Annual Meeting.
Shareholders are urged to date, sign and return the enclosed proxy
promptly, whether or not they expect to attend the meeting in person.
J. L. SWANTAK
Vice President and Secretary
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE,
SHAREHOLDERS ARE URGED TO DATE, SIGN AND RETURN THE ACCOMPANYING FORM OF
PROXY IN THE ENCLOSED ENVELOPE WHETHER OR NOT THEY EXPECT TO ATTEND THE
ANNUAL MEETING IN PERSON. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT
IS VOTED.
(The enclosed return envelope requires no postage if mailed in the United
States.)
<PAGE>
UNION PACIFIC CORPORATION
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 18, 1997
March 3, 1997
This Proxy Statement is being furnished to shareholders of Union Pacific
Corporation, a Utah corporation (the Company), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at
the Annual Meeting of Shareholders (Annual Meeting) to be held on April 18,
1997 for the purpose of considering and voting upon the matters set forth in
the accompanying notice of the Annual Meeting. The first date on which this
Proxy Statement and the accompanying form of proxy are being sent to
shareholders of the Company is March 3, 1997.
The close of business on February 12, 1997 has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
Annual Meeting. As of the record date there were 246,832,608 shares of Common
Stock (Common Stock) of the Company outstanding, exclusive of shares held in
the treasury of the Company which may not be voted.
Holders of shares of Common Stock are entitled to one vote for each share
registered in their respective names. Unless the shareholder specifies
otherwise, the persons named in the enclosed proxy will vote for all of the
Board of Directors' nominees for director for whom they are authorized to
vote. On all matters considered at the Annual Meeting, abstentions and broker
non-votes will be treated as neither a vote "for" nor "against" the matter.
Abstentions and broker non-votes will be counted in determining if a quorum is
present.
All shares represented by properly executed proxies will, unless such
proxies have previously been revoked, be voted at the Annual Meeting in
accordance with the directions on the proxies. If no direction is indicated,
the shares will be voted as recommended by the Board of Directors. A
shareholder executing and returning a proxy has the power to revoke it at any
time before it is voted by providing written notice of such revocation to the
Secretary of the Company, by submitting a validly executed later-dated proxy
or by attending the meeting and voting in person. The mere presence of a
shareholder at the Annual Meeting, however, will not constitute a revocation
of a previously submitted proxy.
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The Company will bear the costs of its solicitation of proxies. In addition
to the use of the mails, proxies may be solicited by personal interview,
telephone and facsimile transmission by the directors, officers and employees
of the Company. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
material to the beneficial owners of Common Stock held of record by such
persons, and the Company may reimburse such custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in
connection with such solicitation. In addition, Morrow & Co., Inc., 909 Third
Avenue, New York, N.Y. 10022 has been engaged to solicit proxies for the
Company. The anticipated fees of Morrow & Co., Inc. are $14,500 plus certain
expenses.
SHAREHOLDER PROPOSALS
Shareholders desiring to submit a proposal for consideration for inclusion
in the Company's proxy statement and form of proxy relating to the 1998 Annual
Meeting of Shareholders must submit in writing such proposal and any statement
in support thereof to the Secretary of the Company by November 3, 1997.
(1) ELECTION OF SIX DIRECTORS
Unless authority to do so is withheld, the Company's proxies intend to vote
the enclosed proxy at the Annual Meeting for the election of the six nominees
for director named herein, all of whom are currently directors of the Company.
It is intended that the nominees for director be elected to hold office for a
term of one year or until their successors are elected. If any nominee(s) for
director for any reason should become unavailable for election, it is intended
that discretionary authority will be exercised by the persons named in the
enclosed proxy in respect of the election of such other person(s) as the Board
of Directors shall nominate. The Board of Directors is not aware of any
circumstances likely to cause any nominee for director to become unavailable
for election. The six nominees for director receiving the highest number of
votes cast at the Annual Meeting will be elected. Mr. Anschutz has been
nominated as a director pursuant to the Anschutz Shareholders Agreement, as
described under "Certain Relationships and Related Transactions-Agreement with
Anschutz Shareholders".
As of February 12, 1997 all directors and executive officers as a group
beneficially owned 15,649,700 shares of Common Stock, representing 6.34% of
the outstanding Common Stock, of which 1,558,881 are shares with respect to
which such persons have the
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right to acquire beneficial ownership within 60 days pursuant to stock
options. No director or nominee for director other than Mr. Anschutz
beneficially owned more than 0.25% of the outstanding Common Stock. Mr.
Anschutz beneficially owns 5.35% of the outstanding Common Stock, and,
pursuant to the Anschutz Shareholders Agreement, such shares are required to
be voted in accordance with the recommendations of the Board of Directors in
the election of directors.
Drew Lewis, formerly Chairman and Chief Executive Officer and a director of
the Company, retired from those positions effective January 1, 1997. The Board
of Directors wishes to express its appreciation for the ability, foresight and
unstinting effort that Mr. Lewis gave in his leadership and direction of the
Company through one of the most challenging periods in its history, and to
convey to Mr. Lewis its admiration, gratitude and sincere thank you for a job
well done!
Robert W. Roth, who has served as a director since 1972, will, under the
Company's retirement policy for directors, retire as a director following this
year's Annual Meeting. The Board of Directors acknowledges, with deep
appreciation, the significant contributions made by Mr. Roth to the growth and
success of the Company during his many years of service, including 11 years as
chairman of the Audit Committee, and wishes him every happiness in his future
endeavors.
Due to the spin-off of Union Pacific Resources Group Inc. in October 1996,
Jack L. Messman has resigned as a director of the Company. The Board of
Directors wishes to express its sincere gratitude for the growth and success
of Union Pacific Resources under Mr. Messman's leadership and to wish him well
as he guides and directs Resources forward as an independent public company.
The following tables set forth certain information on the nominees for
director and the directors continuing in office, including Common Stock
beneficially owned as of February 12, 1997 and current holdings of Company
Common Stock Units, representing deferred compensation and other amounts for
non-employee directors credited to their Stock Unit Accounts. See
"Compensation of Directors" for a discussion of the Stock Unit Grant and
Deferred Compensation Plan. These ownership figures indicate the alignment of
the named individuals' financial interests with the interests of the Company's
shareholders since each Common Stock Unit is equivalent in value to a share of
Company Common Stock and the value of their total holdings fluctuates with the
price of the Company's Common Stock.
3
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<TABLE>
<CAPTION>
EQUITY OWNERSHIP
----------------
NAME AND PRINCIPAL OCCUPATION UPC UPC
OR EMPLOYMENT UNITS SHARES
----------------------------- ----- ------
<S> <C> <C>
Philip F. Anschutz 355 13,198,213(a)
Chairman of the Board and a director, The Anschutz Corpora-
tion and Anschutz Company (the corporate parent of The
Anschutz Corporation), energy, transportation, communica-
tions and real estate, Denver, Colorado. Director and Vice
Chairman of the Company since 1996. Age 57.
Spencer F. Eccles 804 9,785(b)
Chairman and Chief Executive Officer, First Security Corpo-
ration, bank holding company, Salt Lake City, Utah. Direc-
tor, Anderson Lumber Co., First Security Bank of Utah,
Zion's Cooperative Mercantile Institution. Director of the
Company since 1976. Age 62.
William H. Gray, III 787 2,031
President and Chief Executive Officer, United Negro College
Fund, Inc. (dba The College Fund/UNCF), educational assis-
tance, Fairfax, Virginia. Director, Chase Manhattan Corp.,
Electronic Data Systems Corp., MBIA Inc., Prudential In-
surance Company of America, Rockwell International Corpo-
ration, Warner-Lambert Company, Westinghouse Electric Cor-
poration. Director of the Company since 1991. Age 55.
Judith Richards Hope 670 4,385
Senior Partner, Paul, Hastings, Janofsky & Walker, law
firm, Los Angeles, California, New York, N.Y. and Washing-
ton, D.C. Director, General Mills, Inc., Zurich Reinsur-
ance Center Holdings, Inc. Member, The Harvard Corporation
(The President and Fellows of Harvard College). President,
International Law Institute. Director of the Company since
1988. Age 56.
John R. Meyer 1,103 8,943
Professor Emeritus, Harvard University, Cambridge, Massa-
chusetts. Director, ACNielsen, The Dun & Bradstreet Corpo-
ration, Rand McNally Co., Inc. Trustee, Mutual Life Insur-
ance Company of New York. Director of the Company since
1978. Age 69.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
EQUITY OWNERSHIP
----------------
NAME AND PRINCIPAL OCCUPATION UPC UPC
OR EMPLOYMENT UNITS SHARES
----------------------------- ----- ------
<S> <C> <C>
Richard D. Simmons 845 4,544
Retired President, International Herald Tribune, communi-
cations, Washington, D.C. Director, J. P. Morgan & Co.,
Incorporated, Morgan Guaranty Trust Company of New York,
The Washington Post Company, Yankee Publishing. Director
of the Company since 1982. Age 62.
- ---------
(a) See "Security Ownership of Certain Beneficial Owners".
(b) In addition, 44,080 shares of Common Stock are held by trusts of which Mr.
Eccles is sole trustee or under powers of attorney granted to Mr. Eccles.
- ---------
DIRECTORS CONTINUING IN OFFICE
The following directors are continuing in office for the respective periods
indicated or until their successors are elected.
<CAPTION>
EQUITY OWNERSHIP
----------------
NAME AND PRINCIPAL OCCUPATION UPC UPC
OR EMPLOYMENT UNITS SHARES
----------------------------- ----- ------
Term Expiring in 1998
<S> <C> <C>
Robert P. Bauman 273 3,785
Chairman, British Aerospace p.l.c., aircraft and aerospace
manufacturer, London, England. Director, CIGNA Corpora-
tion, Morgan Stanley Group Inc., Reuters Holdings p.l.c.
Director of the Company since 1987. Age 65.
Richard K. Davidson - 616,711(a)
Chairman, President and Chief Executive Officer of the
Company and Chairman and Chief Executive Officer of Union
Pacific Railroad Company, a subsidiary of the Company.
Director, CALEnergy Company, Inc., The BFGoodrich Compa-
ny. Director of the Company since 1994. Age 55.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
EQUITY OWNERSHIP
----------------
NAME AND PRINCIPAL OCCUPATION UPC UPC
OR EMPLOYMENT UNITS SHARES
----------------------------- ----- ------
<S> <C> <C>
Elbridge T. Gerry, Jr. 1,114 4,672(b)
Partner, Brown Brothers Harriman & Co., bankers, New York,
N.Y. Director of the Company since 1986. Age 63.
Richard J. Mahoney 959 3,196
Retired Chairman and Chief Executive Officer, Monsanto
Company, agricultural, chemical, pharmaceutical and food
products, manmade fibers and plastics, St. Louis, Missou-
ri. Distinguished Executive in Residence, Center for the
Study of American Business, Washington University, St.
Louis, Missouri. Director, Metropolitan Life Insurance
Company. Director of the Company since 1991. Age 63.
James D. Robinson, III 735 5,385(c)
Chairman and Chief Executive Officer, RRE Investors, LLC,
a private venture investment firm, President, J. D. ROB-
INSON INC., a strategic advisory company, and Chairman,
Violy, Byorum & Partners, LLC, a financial and strategic
advisory company specializing in Latin America, New York,
N.Y. Senior Advisor, Trust Company of the West. Director,
Bristol-Myers Squibb Company, The Coca-Cola Company, Cam-
bridge Technology Partners (Massachusetts), Inc., First
Data Corporation. Director of the Company from 1974 to
1985 and since 1989. Age 61.
Term Expiring in 1999
Richard B. Cheney 273 2,185
Chairman, President and Chief Executive Officer, Hallibur-
ton Company, specialized services for the petroleum in-
dustry, Dallas, Texas. Director, Electronic Data Systems
Corp., Procter & Gamble Co. Director of the Company since
1993. Age 56.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
EQUITY OWNERSHIP
----------------
NAME AND PRINCIPAL OCCUPATION UPC UPC
OR EMPLOYMENT UNITS SHARES
----------------------------- ----- ------
<S> <C> <C>
E. Virgil Conway 946 17,785
Chairman and a member of the Board, Metropolitan Transpor-
tation Authority, public transportation, New York, N.Y.
Director, Accu-Health, Inc., Centennial Insurance Compa-
ny, Trism, Inc. Trustee, Atlantic Mutual Insurance Compa-
ny, Consolidated Edison Company of New York, Inc., HRE
Properties, Mutual Funds Managed by Phoenix Home Life and
Phoenix Duff & Phelps. Director of the Company since
1978. Age 67.
L. White Matthews, III - 447,380(d)
Executive Vice President-Finance of the Company. Director,
The Pilot Funds. Member, Financial Accounting Standards
Advisory Council. Director of the Company since 1994. Age
51.
Thomas A. Reynolds, Jr. 2,355 8,785
Chairman Emeritus, Winston & Strawn, law firm, Chicago,
Illinois, New York, N.Y. and Washington, D.C. Director,
Gannett Co., Inc., Jefferson Smurfit Group. Director of
the Company since 1989. Age 68.
</TABLE>
- ---------
(a) Includes 458,485 shares of Common Stock subject to presently exercisable
stock options and 105,500 restricted shares granted under the 1993 Stock
Option and Retention Stock Plan.
(b) Mr. Gerry also has shared voting or investment power with respect to
485,352 shares held in family trusts.
(c) Mrs. James D. Robinson, III, is the beneficial owner of 2,000 shares of
Common Stock and Mr. Robinson is co-trustee for a family trust which owns
1,600 shares. Mr. Robinson disclaims beneficial interest in such shares.
(d) Includes 287,010 shares of Common Stock subject to presently exercisable
stock options and 104,100 restricted shares granted under the 1993 Stock
Option and Retention Stock Plan.
- ---------
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All directors continuing in office are also members of the Board of
Directors of Union Pacific Railroad Company (Union Pacific), an indirect
wholly-owned subsidiary of the Company, and it is intended that all nominees
for director will also be elected to serve on the Board of Union Pacific until
their successors are elected.
Except for the directors listed below, each of the directors named in the
preceding tables has held the indicated office or position in his or her
principal occupation for at least five years. Each of the directors listed
below held the office or position first indicated as of at least five years
ago.
Mr. Philip F. Anschutz also served as President of The Anschutz Corporation
and Anschutz Company until December 1996, President and Chief Executive
Officer of Southern Pacific Rail Corporation until 1993 and Chairman and a
director of Southern Pacific until September 1996. Mr. Robert P. Bauman was
Chief Executive of SmithKline Beecham p.l.c. through April 1994 and since such
date has been non-executive Chairman of British Aerospace, p.l.c. Mr. Richard
B. Cheney served as Secretary of Defense through January 20, 1993, Senior
Fellow, American Enterprise Institute, from 1993 through September 30, 1995
and since October 1, 1995 has served as Chairman, President and Chief
Executive Officer of Halliburton Company. Mr. Richard K. Davidson was Chairman
and Chief Executive Officer of Union Pacific until August 15, 1995, Chairman
of Union Pacific until November 6, 1996 and Chairman and Chief Executive
Officer of Union Pacific since such date. Mr. Davidson has also been President
of the Company since May 26, 1994, President and Chief Operating Officer of
the Company since November 1, 1995 and Chairman, President and Chief Executive
Officer of the Company since January 1, 1997. Mr. Richard J. Mahoney was
Chairman and Chief Executive Officer of Monsanto Company through March 31,
1995, Chairman of the Executive Committee and a director of Monsanto through
March 1996 and since April 1, 1995 has been Distinguished Executive in
Residence at Washington University in St. Louis. Mr. L. White Matthews, III,
was Senior Vice President-Finance of the Company until April 16, 1992 and
since such date has been Executive Vice President-Finance of the Company. Mr.
Thomas A. Reynolds, Jr., was Chairman of Winston & Strawn through December 31,
1992 and since such date has been Chairman Emeritus of such firm. Mr. James D.
Robinson, III, was Chairman and Chief Executive Officer of American Express
Company (diversified travel, financial and information services) through
January 25, 1993. Mr. Richard D. Simmons was President of International Herald
Tribune through March 31, 1996.
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<PAGE>
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive an annual retainer of
$60,000, $6,000 of which is required to be invested in the Stock Unit Account
referred to below, plus expenses. In addition, Chairmen of Board Committees
receive annual retainers of $6,000 each. Directors who are employees of the
Company receive no retainers. Under the Stock Unit Grant and Deferred
Compensation Plan for directors of the Company, a director may elect by
December 31 of any year to defer all or a portion of any compensation for
service as a director in the ensuing year or years, excluding reimbursement
for expenses. Payment of such deferred compensation begins, for amounts in the
Stock Unit Account, in January of the year following termination of service as
a director (or of a year selected by the director but no earlier than such
termination) and, for amounts in the Fixed Income Account referred to below,
at the election of the director either at any of such times or in the January
following retirement from the director's primary occupation. Deferred
compensation may be paid, at the election of the director, in either a lump
sum or in up to 10 equal annual installments and may be invested, at the
option of the director, in either a Fixed Income Account or a Stock Unit
Account. The Accounts are unfunded, unsecured obligations of the Company. The
Fixed Income Account earns interest compounded annually at a rate determined
by the Treasurer of the Company in January of each year. The Stock Unit
Account fluctuates in value based on changes in the price of the Common Stock,
and equivalents to cash dividends paid on the Common Stock are deemed to be
reinvested in the Stock Unit Account. Cash retainers voluntarily deferred by
six directors during 1996 totaled $150,000.
Directors who are not employees of the Company receive $10 million of excess
liability insurance and have elected to receive $100,000 of term insurance for
which the Company paid total premiums of $1,433 for each director in 1996.
Directors may also elect to participate in a Company sponsored contributory
health care plan. Medical and dental benefits are paid only after payment of
benefits under any other group plan in which a director participates. Retired
directors are also eligible to participate in a contributory medical program.
Each non-employee director who was elected to the Board prior to January
1996 participates in a pension plan which provides an annual pension benefit
of $36,000 upon retirement from the Board of Directors with at least five
years of service and attainment of age 65. Directors Bauman, Conway, Eccles,
Gerry, Gray, Hope, Mahoney, Meyer, Reynolds, Robinson, Roth and Simmons
currently are eligible to receive pension benefits
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upon retirement. The Company has purchased annuities to satisfy part of the
pension obligation to certain directors in amounts calculated to provide the
same expected amount net of federal taxes as the pension obligation replaced
by the annuity. In January 1996, the Board terminated the pension plan for
directors newly elected subsequent to that date. Future non-employee directors
will receive a credit, at their fifth anniversary date, to the Stock Unit
Account referred to above. The amount of the credit was determined based upon
certain age, retirement and mortality assumptions and a discount rate of 9.8%,
and would not be available until after termination of Board service. Such
credit would be equal to 1,308 Stock Units based on a Company Common Stock
price of $65 per share. Current directors will continue to be eligible for the
$36,000 annual pension. However, current directors were permitted to exchange
$6,000 of such pension for a credit to the Stock Unit Account calculated to
provide an approximately equivalent expected present value to the $6,000
annual pension. Such credits to the Stock Unit Accounts are reflected in the
preceding biographical information on directors.
As part of its overall program to promote charitable giving, the Company has
established the Union Pacific Corporation Board of Directors' Charitable
Contribution Plan pursuant to which the Company has purchased $1 million of
life insurance on each incumbent director, subject to vesting requirements
based on length of service as a director (i.e., over a five-year period in 20%
increments). Death benefits will be paid to the Company and the Company will
donate up to $500,000 of the proceeds to no more than two charitable
organizations recommended by the director and the remainder of the proceeds to
Union Pacific Foundation in the name of the director. Directors derive no
financial benefit from this program since all charitable contribution tax
deductions accrue solely to the Company. Moreover, benefits paid to the
Company's Foundation may reduce the amount of funding that the Company
provides to the Foundation.
Under the 1992 Restricted Stock Plan for Non-Employee Directors of Union
Pacific Corporation, each individual who was a non-employee director on May
28, 1992, has received, and each individual elected as a non-employee director
thereafter has received or will receive, an award of 1,200 restricted shares
(adjusted to 1,785 shares as a result of the Union Pacific Resources Group
Inc. (Resources) spin-off in October 1996) of Common Stock. The restricted
shares of Common Stock vest on the date a director ceases to be a director of
the Company by reason of death, disability or retirement. During the
restricted period, the director has the right to vote and receive dividends on
such shares, but may not transfer or encumber such shares, and will forfeit
such shares unless
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he or she remains a director during the restricted period. As used above,
"retirement" means termination of service as a director of the Company, if (a)
the director at the time of termination was ineligible for continued service
as a director under the Company's Retirement Policy, or (b) the director had
served as a director of the Company for at least three years from the date
restricted shares of Common Stock were granted to such director, and such
termination is (i) due to the director's taking a position with or providing
services to a governmental, charitable or educational institution whose
policies prohibit continued service on the Board of the Company, (ii) due to
the fact that continued service as a director would be a violation of law, or
(iii) not due to the voluntary resignation or refusal to stand for reelection
by the director.
GOVERNANCE OF THE COMPANY
In accordance with applicable Utah State law and the By-Laws of the Company,
the business and affairs of the Company are managed under the direction of its
Board of Directors. The Board has established certain Committees and adopted
certain guidelines and policies to assist it in fulfilling its
responsibilities as described below.
During 1996, the Board of Directors met nine times. None of the directors
attended fewer than 75% of the meetings of the Board and Committees on which
he or she served. The average attendance of all directors at Board and
Committee meetings was 98%.
COMMITTEES OF THE BOARD
Executive Committee
The current members of the Executive Committee are Elbridge T. Gerry, Jr.
(Chairman), Philip F. Anschutz, E. Virgil Conway, Richard K. Davidson, Judith
Richards Hope, L. White Matthews, III, John R. Meyer, James D. Robinson, III,
Robert W. Roth and Richard D. Simmons.
The Committee has all the powers of the Board, when the Board is not in
session, to direct and manage, in the Company's best interest, all of the
business and affairs of the Company in all cases in which specific directions
have not been given by the Board. The Committee did not meet in 1996.
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Audit Committee
The current members of the Audit Committee are Robert W. Roth (Chairman),
Richard B. Cheney, Spencer F. Eccles, Elbridge T. Gerry, Jr., Judith Richards
Hope, John R. Meyer and Thomas A. Reynolds, Jr.
The Committee meets regularly with financial management, the internal
auditors and the independent certified public accountants to provide oversight
to the financial reporting process and internal control structure. The
Committee reviews fees and non-audit engagements of the independent certified
public accountants. Both the independent certified public accountants and the
internal auditors have unrestricted access to the Committee and meet regularly
with the Committee, without senior financial management representatives
present, to discuss the results of their examinations and their opinions on
the adequacy of internal controls and quality of financial reporting. The
Committee also reviews the scope of audits as well as the annual audit plan.
In addition, the Committee reviews the administration of the Company's
policies concerning business conduct, derivatives, environmental management
and use of corporate aircraft as well as officers' travel and business
expenses. Each year the Committee recommends to the Board of Directors
selection of the firm of independent certified public accountants to audit the
accounts and records of the Company and its consolidated subsidiaries. The
Committee met three times in 1996.
Finance Committee
The current members of the Finance Committee are John R. Meyer (Chairman),
Philip F. Anschutz, Robert P. Bauman, Richard K. Davidson, Spencer F. Eccles,
Elbridge T. Gerry, Jr., William H. Gray, III, Judith Richards Hope and Richard
J. Mahoney.
The Committee is responsible for oversight of the Company's financial
position. The Committee meets regularly with management to review the
Company's capital structure, short and long-term financing plans and programs,
dividend policies and actions, investor relations activities, insurance
programs, tax management and other related matters. The Committee also reviews
the investment management of assets held by the Company's pension, thrift and
other funded employee benefit programs, including the appointment of
investment managers and trustees. The Committee met four times in 1996.
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Compensation and Benefits Committee
The current members of the Compensation and Benefits Committee are E. Virgil
Conway (Chairman), Robert P. Bauman, Richard B. Cheney, William H. Gray, III,
Richard J. Mahoney, Thomas A. Reynolds, Jr., James D. Robinson, III and
Richard D. Simmons.
The Committee reviews and makes recommendations to the Board of Directors
with respect to employee salaries exceeding an amount set by the By-Laws which
cannot be exceeded without Board or Executive Committee approval. The
Committee administers the Company's Executive Incentive and Stock Option and
Retention Stock Plans and determines for senior executives the amounts of, and
the individuals to whom, awards shall be made thereunder. The Committee is
responsible for recommending and reviewing all the material amendments to the
Company's pension, thrift and employee stock ownership plans. The Committee
also periodically reviews the Company's vacation, life insurance and medical
and dental benefit plans and the matching gifts program to ensure that these
benefit plans remain competitive. See Pages 23-28 for the Committee's report
on 1996 compensation and stock ownership programs. The Committee met four
times in 1996.
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee, with members Robert P.
Bauman (Chairman), Philip F. Anschutz, Richard B. Cheney, Elbridge T. Gerry,
Jr., and Richard J. Mahoney, was formed in January 1997. The Committee assumed
certain responsibilities formerly assigned to the Compensation, Benefits and
Nominating Committee with respect to assisting management concerning matters
of succession, reviewing and recommending changes in compensation for the
Board of Directors, reviewing the qualifications of candidates for the
position of director and recommending candidates to the Board of Directors as
nominees for director for election at the Annual Meetings of Shareholders or
to fill such Board vacancies as may occur during the year.
The Committee is also responsible for the oversight of the Corporate
Governance Guidelines and Policies discussed below to ensure board
independence and promote excellence in governance. The Committee will review
current trends and practices in corporate governance and recommend to the
Board adoption of programs pertinent to the Company. In this connection the
Committee will periodically review the composition and activities of the
Board, including but not limited to, committee memberships and Board
evaluation, compensation, size, retirement policy and stock ownership. The
Committee will
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<PAGE>
also assess and refine on an ongoing basis the process of CEO evaluation and
coordinate with the Compensation and Benefits Committee on implementation.
The Committee will consider director candidates suggested by directors and
shareholders of the Company. Shareholders desiring to suggest candidates
should advise the Secretary of the Company in writing by December 31 of the
year preceding the Annual Meeting of Shareholders and include sufficient
biographical material to permit an appropriate evaluation. In considering
candidates for director, the Board of Directors seeks individuals who have
demonstrated outstanding management or professional ability and who have
attained a position of leadership in their chosen careers.
CORPORATE GOVERNANCE GUIDELINES AND POLICIES
The Board in January 1996 adopted the guidelines and policies listed below.
These guidelines and policies are being published in this Proxy Statement to
inform shareholders of the Board's thinking with respect to selected corporate
governance issues considered to be of significance to shareholders. The
guidelines and policies are not rigid rules and the Board, with the input of
the new Corporate Governance and Nominating Committee, will continue to assess
the appropriateness and efficacy of these guidelines and policies and it is
likely that changes will be implemented from time to time.
Board Meeting Agendas. The Board formalized an existing guideline permitting
the origination by directors and the management of the Company of action items
relating to the business and affairs of the Company for the Board agenda and
the scheduling of information reports on aspects of parent or subsidiary
operations.
Distribution of Board Materials. The Board adopted a guideline based on
current practice recommending that information and material for Board
consideration be distributed to directors at least five days in advance of the
meeting, with additional time to be provided when the complexity of an issue
demands.
Board Presentations. The Board adopted a guideline encouraging broad
management participation in Board presentations and the involvement of those
managers who are directly responsible for the recommendations or other matters
before the Board.
Board Size. The Board adopted an advisory guideline that the Board take the
necessary steps over time to reach a Board size of 12 to 14 members.
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Board Independence. The Board adopted the policy that at least a majority of
the Board members be independent directors and that the membership of the
Audit Committee and the Compensation and Benefits Committee be made up
exclusively of independent directors. The Board adopted as its standard of
independence the standard used by the New York Stock Exchange in determining
independence of directors on the Audit Committees of listed companies.
Chief Executive Officer Evaluation. The Board adopted as a guideline the
practices of the Compensation and Benefits Committee in evaluating the Chief
Executive Officer. These practices include:
. Set performance criteria and establish a compensation package that
contains a high level of at-risk reward;
. Perform an annual evaluation at a session at which the CEO is not
present;
. Report the results of the evaluation to the full Board as well as all
compensation awards and the justification for such awards;
. Include in the evaluation the CEO's performance in meeting established
targets, corporate and operating unit performance, the experience and
expertise of the CEO and comparable compensation at comparable
companies; and
. Include in the evaluation the initiation of strategic projects to
provide long-term economic benefit to the Company, earnings growth, cost
containment initiatives and increase in shareholder value.
CEO Service on Outside Boards. The Board adopted a guideline that when the
CEO is invited to serve on outside boards of directors, the CEO should present
the issue to the Board for review and approval.
New Director Orientation. The Board adopted a guideline that new directors,
upon election to the Board, be provided with a comprehensive set of materials
on the operations, finances and business plan of the Company, visit at least
two major facilities during the first year of service and meet informally with
as many members of senior management as practical.
Board Committee Meeting Agendas. The Board adopted existing guidelines for
the inclusion of items on Board Committee agendas as developed by the
Departments of the Company that administer the area of responsibility charged
to each committee, and to
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<PAGE>
permit committee members to suggest topics for inclusion or request additional
information with respect to any program previously reviewed by the committee.
Board Member Compensation. The Board adopted a guideline that non-employee
Board members generally be paid an annual retainer valued between the median
and seventy-fifth percentile of compensation at comparable companies, with
such retainer to be reviewed periodically by the Compensation and Benefits
Committee. Directors' compensation in the future will be the responsibility of
the new Corporate Governance and Nominating Committee. The Board included in
the guideline its intent that any increases in the retainer generally be paid
in common stock equivalents with the goal that 50% of the annual retainer be
paid in common stock equivalents.
Board Member Pensions. The Board adopted a policy to eliminate the non-
employee director pension plan for directors who begin service after the
adoption of this policy. New directors are to receive a one-time credit to
their deferred Union Pacific Stock Unit Accounts after five years of service.
Board Member Equity Ownership Target. The Board adopted a guideline that
Board members should own equity in the Company equal to at least three times
the value of the annual retainer, with the goal to be reached within five
years of joining the Board.
Cumulative Voting and the Classified Board. The Board also reviewed the
Company's policies concerning the election of directors and approved and
recommended that shareholders vote for amendments to the Company's Revised
Articles of Incorporation to eliminate cumulative voting in the election of
directors and to eliminate the Company's classified Board. These amendments
were overwhelmingly approved by the shareholders at the 1996 Annual Meeting
and the Company's Revised Articles of Incorporation were amended accordingly.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors to file initial reports of ownership and
reports of changes in ownership of the Company's Common Stock with the
Securities and Exchange Commission and the New York Stock Exchange. Executive
officers and directors are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file. Based solely on a review of
the copies of such forms furnished to the Company
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and written representations from the Company's executive officers and
directors, the Company believes that none of its executive officers and
directors failed to comply with Section 16(a) reporting requirements in 1996.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information known to the Company as of
February 12, 1997 regarding the beneficial ownership of the Common Stock of
the Company by owners of more than five percent of the outstanding shares of
such Common Stock.
<TABLE>
<CAPTION>
NAMES AND ADDRESSES NUMBER OF SHARES OF COMMON PERCENT OF
OF BENEFICIAL OWNERS STOCK BENEFICIALLY OWNED CLASS
-------------------- -------------------------- ----------
<S> <C> <C>
Philip F. Anschutz 13,198,213(a) 5.35%
555 17th Street, Suite 2400
Denver, Colorado 80202
The Anschutz Corporation 12,879,274 5.22%
555 17th Street, Suite 2400
Denver, Colorado 80202
</TABLE>
- ---------
(a) Includes 1,785 shares granted to Mr. Anschutz under the 1992 Restricted
Stock Plan for Non-Employee Directors of Union Pacific Corporation,
12,879,274 shares owned by The Anschutz Corporation and 317,154 shares
owned by Anschutz Foundation. Mr. Anschutz is the owner of 100% of the
stock of Anschutz Company, which owns 100% of the stock of The Anschutz
Corporation, and is a director of the Anschutz Foundation.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Agreement with Anschutz Shareholders
In connection with the Company's acquisition (the Acquisition) of Southern
Pacific Rail Corporation (SP or Southern Pacific), the Company entered into a
shareholders agreement (Anschutz Shareholders Agreement) with Mr. Philip F.
Anschutz, The Anschutz Corporation (TAC) and Anschutz Foundation, a not-for-
profit corporation (collectively, Anschutz Shareholders), which provides,
among other things, that the Company would
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elect Mr. Anschutz, or another individual selected by TAC and reasonably
acceptable to the Board of Directors of the Company (such director being
referred to as the Anschutz Designee), as a director of the Company. In
accordance with the terms of the Anschutz Shareholders Agreement, Mr. Anschutz
was elected to the Board in September 1996. Currently, Mr. Anschutz
beneficially owns 5.35% of the Company's outstanding shares of Common Stock.
See "Security Ownership of Certain Beneficial Owners".
Pursuant to the Anschutz Shareholders Agreement, following the initial
appointment of the Anschutz Designee as a director, until the seventh
anniversary of the Acquisition (subject to earlier termination under certain
circumstances), the Company has agreed to include the Anschutz Designee in the
Board's slate of nominees for the election of directors at its annual meetings
of shareholders and to recommend the election of the Anschutz Designee as a
director. In accordance with this Agreement, Mr. Anschutz is included on the
Company's slate of nominees for director at the upcoming Annual Meeting of
Shareholders. The Company also has agreed to (i) appoint Mr. Anschutz, but not
any other Anschutz Designee, as Vice Chairman of the Board of Directors with
such duties as shall be assigned by the Board or the Chairman of the Board,
and (ii) appoint the Anschutz Designee, subject to certain conditions, as a
member of the Executive, Finance and Compensation and Benefits Committees of
the Board. However, the Company is not obligated to cause the Anschutz
Designee to become a member of the Compensation and Benefits Committee of the
Board if, and only for so long as, in the opinion of tax counsel for the
Company, the membership of the Anschutz Designee on such Committee would be
likely to cause the disallowance of any federal income tax deduction by the
Company under Section 162(m) of the Internal Revenue Code of 1986, as amended.
Section 162(m) requires that all members of a compensation committee qualify
as "outside directors" in order for a publicly held company to obtain a
deduction for certain performance-based compensation awarded to senior
executive officers; the Company believes that Mr. Anschutz, by virtue of his
having been an officer of Southern Pacific, would not qualify as an "outside
director" under regulations issued under Section 162(m). Accordingly, after
consummation of the Acquisition in September 1996, Mr. Anschutz has been
appointed Vice Chairman of the Company's Board of Directors and was appointed
as a member of the Executive, Finance, and Corporate Governance and Nominating
Committees of the Board.
Under the Anschutz Shareholders Agreement, the Anschutz Designee, at the
request of the Company, is required to resign from the Board upon certain
occurrences, including
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if the Anschutz Shareholders and their affiliates cease to own at least 4% (or
under certain circumstances 3%) of the total outstanding securities of the
Company entitled to vote in the election of directors (Voting Securities).
The Anschutz Shareholders Agreement provides for certain "standstill"
limitations on the Anschutz Shareholders until the seventh anniversary of the
Acquisition (subject to earlier termination under certain circumstances and
certain exceptions) with respect to, among other things: the acquisition of
Voting Securities; the solicitation of proxies with respect to Voting
Securities; seeking or proposing any merger, business combination or similar
extraordinary transaction involving the Company; seeking to control or
influence the management, Board or policies of the Company; and the
disposition of Voting Securities. In addition, during such "standstill"
period, the Anschutz Shareholders have agreed to vote all shares of the
Company's Common Stock which they are entitled to vote in accordance with the
recommendation of the Company's Board of Directors in the election of
directors. On all other matters, the Anschutz Shareholders may vote their
shares in their discretion.
Transactions Involving Anschutz Shareholders and Affiliates
TAC and Southern Pacific Transportation Company (SPTC) are parties to an
agreement dated as of November 1, 1988, as amended, requiring TAC to provide
management services with respect to SPTC's various mineral interests,
including oil and gas, hard minerals and water rights. The total amount paid
or accrued for 1996 with respect to this contract was $579,373.
SPTC and Anschutz Marketing and Transportation Company (AMT), an affiliate
of TAC, were parties to a 1990 agreement under which AMT conducted locomotive
fuel price hedging activities on behalf of SPTC pursuant to which AMT was paid
$300,000 in 1996. This agreement was terminated by Union Pacific effective as
of December 31, 1996, for a fee of $150,000.
In January 1991, SPTC entered into a contract with AMT whereby AMT handles
the procurement of diesel fuel supplies, primarily from outside suppliers, for
Southern Pacific for a fee of $10,000 per month. If AMT's services result in
savings to Southern Pacific (based upon SP's historical costs as compared to
published indices), AMT receives a portion of those savings. The total amount
paid to or accrued to AMT under this contract in 1996 was $2,660,020. In
addition, AMT sold diesel fuel to SP in 1996 for a total of approximately
$1,430,000. This contract expires in January 1999, but SPTC has the right to
terminate prior to the end of the term upon payment of an early termination
fee of
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<PAGE>
$450,000. Union Pacific intends to take over the SP fueling responsibilities
effective May 1, 1997 and will accordingly exercise its right to terminate
this contract with AMT.
Southern Pacific entered into an arrangement with AMT in 1994 under which
AMT performs the inventory control function at SP's fixed fueling facilities.
Charges for these services are determined on a cents per gallon of throughput
basis. The total amount paid or accrued by Southern Pacific under this
arrangement in 1996 was $769,332. Union Pacific has canceled this contract
effective April 1, 1997.
SPTC and Equus Farms, Inc., a subsidiary of TAC, are parties to a Hunting
and Use Agreement dated June 1, 1996, under which Equus provides to SPTC
certain hunting lands and facilities located in Weld County, Colorado, for an
annual fee of $120,000 plus expense reimbursement. The amount paid or accrued
under this agreement during 1996 was $148,454. This agreement has been
terminated by the Company effective March 31, 1997.
Prior to the Acquisition, Southern Pacific paid or accrued (a) to TAC
$237,210 for aircraft service and equipment, and (b) to ANSCO Investment
Company (ANSCO), a TAC subsidiary, $141,558 for arranging and coordinating the
use of SP railcars in film projects, and $137,066 for use of ANSCO owned
railcars. The Company does not anticipate further use of such services and
equipment under these arrangements.
Effective January 4, 1996, ANSCO entered into an agreement with Southern
Pacific's railroad subsidiaries, which agreement amended and restated pre-
existing agreements between the parties, governing the operation of ANSCO
owned railcars, including cars used in the operation of what is referred to as
the Winter Park Ski Train, over the SP rail system. Compensation paid or
accrued to Southern Pacific under this agreement during 1996 totaled $494,133.
Pacific Pipeline System, Inc., an indirect wholly-owned subsidiary of
Anschutz Company, proposes to construct and own a crude oil pipeline on a
portion of SPTC's right-of-way between Santa Clarita and Los Angeles/Long
Beach, California. SPTC entered into an easement agreement with Pacific
Pipeline which would provide compensation to SPTC at market rates for the use
of its right-of-way. Effective as of June 28, 1996, SPTC renegotiated the
easement agreement to revise the alignment of the original easement and
restructure the rental rate. The rental payments are expected to begin in 1997
upon commencement of construction at an annual rate of $4,080,000. Prior to
entering into the
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<PAGE>
easement agreement, SPTC obtained an opinion from an unrelated real estate
appraisal firm that the rental calculation and other terms pertaining to the
pipeline easement were representative of market transactions and were no less
favorable than could be obtained in an arms-length transaction. This opinion
was reaffirmed at the time of the amendment in June 1996.
During 1996, Southern Pacific purchased video conferencing services and
leased fiber optic circuits for its communications network from Qwest
Communications Corporation (QWEST), an affiliate of TAC. The total amount paid
or accrued for these services in 1996 was $1,830,400. SP billed QWEST
$3,116,870 in 1996 for easement rentals, the sale of twelve freight cars and
reimbursement of Company expenses related to the construction, operation and
maintenance of a QWEST fiber optic system along approximately 3,500 miles of
SP's right-of-way. The agreement with QWEST was amended in August 1996 to,
among other things, change the term of the easement and revise the conduit
rates of the existing agreement. The amended terms of this agreement were
reviewed by an independent appraiser who determined that the rates and other
terms of the easement were consistent with similar market transactions and
were no less favorable than could be obtained in an arms-length transaction.
In October and November, 1996, Union Pacific entered into agreements with
QWEST to survey, construct and operate a fiber optic telecommunications system
on Union Pacific rights-of-way between Alazon (Wells), Nevada and Salt Lake
City, Utah. Fees paid or accrued by QWEST pursuant to these agreements totaled
$873,115 during 1996.
In May of 1995, Resources force pooled TAC's interest in a drilling unit
which included Resources' Yellow Creek Deep Well in Uinta County, Wyoming. TAC
challenged the Wyoming Oil and Gas Conservation Commission's ruling that the
unit determination should be on the customary surface calculation basis,
rather than on a geologic basis as asserted by TAC. On September 16, 1996, the
issue was resolved in Resources' favor before the Wyoming Supreme Court which
affirmed the Wyoming Commission's ruling. The Commission retains jurisdiction
over this matter.
During 1996, TAC and certain affiliates shared a total of $51,050 in working
interest and overriding royalties paid by Resources on account of production
produced and marketed by Resources from various oil and gas wells located in
Colorado. Resources also reimbursed TAC in the amount of $18,736 for its share
of audit fees and operating
21
<PAGE>
expenses incurred in connection with certain oil and gas properties co-owned
by TAC and Resources.
Under a gas purchase agreement effective July 1, 1996, an affiliate of TAC
has dedicated to a subsidiary of Resources, all gas produced by the Anschutz
Exploration Corporation and Anschutz Colorado Corporation in certain counties
and townships in southeast Colorado. The Resources subsidiary will gather,
dehydrate and compress the gas prior to transporting it to two non-operated
plants in Kansas.
Other Business Relationships
The Company contracts with Brown Brothers Harriman & Co. (BBH) to manage a
portion of the Company's pension funds held in trust, for which BBH received
in 1996 approximately $120,000 paid from pension assets. Elbridge T. Gerry,
Jr. is a partner of BBH. The Company may continue to use BBH for such services
in 1997.
Judith Richards Hope is a Senior Partner of Paul, Hastings, Janofsky &
Walker, a law firm that rendered legal services to the Company during 1996 and
1997.
Indebtedness of Management
In February 1997, pursuant to the employment contract described in the
"Summary Compensation Table" section, the Company conditionally forgave the
remaining $400,000 balance of a loan to Jerry R. Davis, the current President
and Chief Operating Officer of Union Pacific, in connection with his
employment and move to Union Pacific's headquarters in Omaha. The loan,
originally in the amount of $600,000, was extended to Mr. Davis in 1995 by
Southern Pacific for the purchase of a residence in the Denver area. The
interest-free loan was to be forgiven in equal annual amounts over a period of
three years beginning March 1, 1996 and concluding March 1, 1998. Pursuant to
the terms of his employment contract, if Mr. Davis resigns prior to March 1,
1998, he will be required to repay $200,000 of the loan forgiveness
accelerated by his move to Omaha.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Benefits Committee includes the following non-employee
directors: Robert P. Bauman, Richard B. Cheney, E. Virgil Conway, William H.
Gray, III,
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<PAGE>
Richard J. Mahoney, Thomas A. Reynolds, Jr., James D. Robinson, III, and
Richard D. Simmons.
Union Pacific and Southern Pacific have consulting agreements with Modjeski
& Masters, Inc., providing for that firm to conduct fatigue assessment studies
on certain railroad bridges and paid approximately $724,000 to such firm
during 1996 for these services. William B. Conway is a brother of E. Virgil
Conway and President and owner of a substantial interest in Modjeski &
Masters, Inc.
REPORT ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee is responsible for administering the
executive compensation and stock ownership programs for the Company. The
Committee offers the following report on its decisions concerning compensation
for 1996.
The Committee's objective is to develop and oversee total compensation
programs which provide competitive annual compensation and the opportunity for
above average long-term compensation tied to the creation of shareholder
value. The Committee believes that superior performance by the Company's
executive and management team is essential to maximizing shareholder value.
This performance will be achieved only if the Company is able to attract
outstanding talent, motivate its executive team through incentives tied to the
creation of shareholder value, and retain and reward its executives through a
competitive compensation program.
The Committee administers a performance-based executive compensation program
consisting of two elements, annual compensation and long-term compensation.
The program is designed to provide payment for performance of assigned
accountabilities and achievement of predetermined goals which contribute to
corporate earnings, thereby enhancing shareholder value.
Annual Compensation
Total annual compensation consists of two components: base salary and at-
risk annual incentive pay. Depending on performance and the level of the
executive, between 20% and 75% of total annual compensation will be at risk.
The Committee reviews each executive officer's salary taking into
consideration the executive's performance, corporate and operating unit
performance, the executive's position and responsibility in the
23
<PAGE>
organization, the executive's experience and expertise, salaries for
comparable positions at comparable companies, and internal pay equity. In
making salary recommendations or decisions, the Committee exercises subjective
judgment using no specific weights for the above factors. Average base
salaries for the Company's executives generally do not exceed the median for
comparable companies. When the Company consistently attains its performance
criteria, total cash compensation for executives including salary and bonus
will be equal to or slightly above the seventy-fifth percentile for comparable
companies. Comparable companies include those in the line of business index in
the Performance Graph on Page 36 of this Proxy Statement as well as industrial
companies of a similar size in different lines of business with which the
Company competes for first rate executive talent.
Annual incentive pay is awarded under the Executive Incentive Plan (EIP). In
accordance with the EIP, a shareholder-approved formula based on return on
equity (ROE) and net income generates funding to a reserve account for payment
of incentive awards. The results from continuing operations of the Company
must produce a return on average annual shareholder's equity, before
accounting changes, of at least 10%. A 10% ROE allows 1.5% of net income to be
credited to the reserve fund. An ROE of 12% or greater allows crediting 3% of
net income, the maximum amount, to the fund. ROE between 10% and 12% adds, to
the base 1.5% credit, .075% of net income for each .1% of ROE over 10%. The
Board of Directors may credit to the reserve account all or a portion of the
amount produced by this formula. Some portion of the reserve account, based on
an assessment of performance as reviewed and approved by the Committee, may
then be awarded for the year in the form of executive incentive awards.
Individual awards are based on individual, operating unit and corporate
performance and vary from executive to executive. Under the EIP, the maximum
annual award that may be made to executive officers whose compensation is
subject to Section 162(m) of the Internal Revenue Code is .25% of covered
income for the Chief Executive Officer and .15% of covered income for other
covered executive officers (generally the four most highly compensated
officers other than the Chief Executive Officer). "Covered income" is the
greater of net income (excluding certain items) for the year or such net
income for the first eleven months of the year. In 1996 a total of $15,637,600
was awarded under the EIP to 138 executives.
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<PAGE>
Long-Term Compensation
The Committee believes that long-term compensation should comprise a
substantial portion of each executive officer's total compensation. Long-term
compensation provides incentives which encourage officers to own and hold the
Company's stock and tie their long-term economic interests directly to those
of the shareholders. The Company's long-term incentives currently include
stock options and retention stock awards.
Stock Options. Stock options are the key element in the Company's long-term
compensation program. The magnitude of stock option awards is based on the
executive's position, experience and performance without giving particular
weight to any one factor. The number of options currently held by an executive
was not a factor in any award granted in 1996. Stock options are granted with
an exercise price equal to the fair market value of the Common Stock on the
date of the grant, and when vested are exercisable up to ten years from the
date of grant. To assure that stock awards continue to align executive and
shareholder interests, the Company maintains guidelines for executive stock
ownership levels and has communicated to executives its expectation that they
achieve and maintain a specific minimum amount of stock ownership ranging from
one times salary, to three to seven times salary for senior executives. Until
the minimum ownership amount is achieved, executives are expected to retain in
Common Stock 100% of the profit upon exercise of options, net of taxes and
cost of exercise.
Retention Stock. Retention stock grants to executives are awards of shares
that are subject to forfeiture if the executive terminates employment before
the minimum three-year retention period lapses or, in some cases, if certain
performance targets are not met. Awards of retention stock are directed toward
retention of executives, incentive for long-term performance and alignment of
executive interests with other shareholders of the Company.
Within the basic framework of the Company's long-term compensation
philosophy, in 1996 the Committee implemented a Long Term Performance Plan
(LTPP) for all executives and approximately 350 non-executives responsible for
key business results. The LTPP was designed to provide an incentive to
participants to increase shareholder value. Participants were awarded a three-
year stock option grant at an exercise price of $56.50 vesting pro-rata in
January of 1998, 1999 and 2000. In addition, participants received retention
stock grants equal to 35% of the number of shares covered by the stock option
which vest if the stock price targets and in some cases certain operating unit
goals are achieved and
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<PAGE>
continued employment requirements described below are met. Retention shares
equal to 15% of the stock option grant are subject to a $72 per share target
price for the Company's Common Stock; retention shares equal to 10% of the
stock option grant are subject to an $82 target price; and retention shares
equal to 10% of the stock option grant are subject to a $92 target price.
Price levels must be sustained for 20 consecutive days on or before November
20, 2000 and participants must generally remain employed by the Company
through November 20, 2000 in order to receive the shares.
In lieu of the retention stock awards described above, the four most highly
compensated executive officers, excluding the Chief Executive Officer,
received a grant of performance options generally equal to 50% of their three-
year LTPP option grant. The grant comprises three installments, becoming
exercisable on the later of November 20, 1997 and the date Union Pacific
achieves the stock price targets of $72, $82 and $92, respectively, for 20
consecutive days prior to November 20, 2000. Any performance option exercised
on or before November 20, 2000 will result in the net shares issued being held
by the Company and treated as retention shares, subject to forfeiture if the
officer does not remain employed by the Company through November 20, 2000.
Unless previously forfeited, all performance options will become exercisable
on November 20, 2005, regardless of whether targets have been met. See the
Options/SAR Grants Table.
If the target of $72 per share is achieved, shareholder value will have
increased an estimated $3.8 billion, if the $82 target is achieved shareholder
value will have increased an estimated $6.25 billion and if the $92 target is
achieved shareholder value will have increased an estimated $8.7 billion.
CEO Compensation
In 1996, the Company's most highly compensated officer was Drew Lewis,
Chairman and Chief Executive Officer. The Committee reviewed Mr. Lewis'
performance for 1996 and approved an annual incentive award for him based on
the factors previously outlined with no specific weight given to any factor.
During 1996 under Mr. Lewis' leadership, the Company completed two of the
most significant strategic initiatives in the Company's history. On September
11, 1996, after approval by the Surface Transportation Board, the Company
completed its acquisition of Southern Pacific. The merger created the largest
railroad in the country, serving 23 states with 36,000 route miles. When fully
implemented, the merger is expected to provide
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<PAGE>
$820 million in annual operating income benefits, over and above the combined
results of the two companies. On October 15, 1996, after receiving a favorable
ruling from the Internal Revenue Service, the Company completed the Spin-Off
of the approximately 83% of Resources owned by the Company in a tax-free
distribution to the Company's shareholders. The Spin-Off is anticipated to
provide substantial shareholder growth over the long term in both independent
companies.
In addition to the major strategic accomplishments of 1996, the Company
achieved $733 million in income from continuing operations, a growth of 18%
over 1995. Earnings per share from continuing operations were $3.36, up from
$3.01 in 1995.
The Company's major operating unit, Union Pacific Railroad Company, posted
record earnings of $940 million in net income, up 8.4% over 1995 based on
solid volume growth and continued cost improvement programs. Union Pacific's
operating ratio (excluding Southern Pacific) improved a full percentage point
to a record 77.1%. Union Pacific achieved a 12% gain in productivity from 15.5
million gross ton miles per employee (a key measure of railroad productivity)
to 17.4 million gross ton miles per employee. Additionally, Union Pacific
lowered its number of reportable injuries by 31% from 1995.
Overnite Transportation Company continued to be faced with significant
challenges in 1996 including stiff competition and Teamsters' organizing
efforts. Overnite reported a net loss of $23 million before goodwill in 1996,
but began many initiatives which started to take hold in the fourth quarter.
Overnite initiated an aggressive pricing strategy targeting those large
accounts which provide unacceptable margins and implemented quality
improvement initiatives expected to provide significant savings. On-time
service improved from 90% to 95%.
Prior to the Spin-Off, Resources generated $171 million in net income for
the Company in 1996. Resources had a record level of production for the year
at 287 thousands of barrels of oil equivalent per day, up 8% over 1995. For
the fifth consecutive year Resources was the most active driller in the
industry. Cash from operations continued to grow at a rate of 35% as measured
by earnings before interest, taxes, depreciation and exploration (EBITDAX),
adjusted for the 1995 Columbia Gas settlement.
Mr. Lewis retired as Chairman and CEO effective January 1, 1997 in
accordance with the Company's policy. During his tenure with the Company, he
re-directed its strategy from
27
<PAGE>
a widely-diversified holding company to a core transportation services
business, increasing shareholder value in excess of $14 billion. He provided
the Company with a solid foundation to grow its current business and to take
advantage of future transportation growth. At the time of his leaving he set
the stage for a smooth transition of leadership.
As a result of Mr. Lewis' contributions, he has been awarded payments as
reflected in the Summary Compensation Table, including $4,000,000 in
recognition of the successful merger with Southern Pacific and other strategic
initiatives accomplished under his leadership.
In order to continue to have access to Mr. Lewis' advice and counsel with
respect to government affairs, strategic matters and other matters, the
Company has entered into a five-year consulting arrangement with Mr. Lewis,
providing an annual retainer of $750,000. Details of the consulting
arrangement are described in the "Summary Compensation Table" section.
The Compensation and Benefits Committee
E. Virgil Conway, Chairman
Robert P. Bauman
Richard B. Cheney
William H. Gray, III
Richard J. Mahoney
Thomas A. Reynolds, Jr.
James D. Robinson, III
Richard D. Simmons
28
<PAGE>
SUMMARY COMPENSATION TABLE
The following table provides a summary of compensation during the last three
calendar years for the Company's Chief Executive Officer and the other four
most highly compensated executive officers.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------------------------------------------------
OTHER
ANNUAL RESTRICTED ALL OTHER
NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS(A) SATION(B) AWARDS(C) SARS(D) PAYOUTS SATION(E)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Drew Lewis 1996 $1,000,000 $2,000,000 $131,449 $ 0 0 $ 0 $4,065,440
Chairman and 1995 910,000 1,650,000 129,887 0 0 0 69,614
CEO 1994 880,000 1,500,000 162,578 0 969,647 0 135,816
Richard K. Davidson 1996 700,000 1,075,000 87,984 79,100 843,500 0 35,492
President and COO; 1995 625,000 900,000 64,234 0 130,283 0 30,291
Chairman and CEO 1994 537,450 800,000 82,640 1,895,000 250,895 0 27,089
of Union Pacific
Jerry R. Davis 1996 600,000 560,000 0 0 270,000 0 204,500
President and COO 1995 488,889 840,000 0 0 0 0 162,096
of Union Pacific(f)
L. White Matthews, III 1996 430,000 721,000 4,766 0 270,000 0 19,000
Executive Vice 1995 415,000 627,000 6,870 0 0 0 18,283
President--Finance 1994 400,000 560,000 13,396 1,895,000 223,017 0 17,104
Carl W. von Bernuth 1996 345,000 612,000 150 0 202,500 0 16,480
Senior Vice President 1995 330,000 532,000 5,457 0 0 0 15,148
and General Counsel 1994 292,500 475,000 3,073 0 167,263 0 12,500
</TABLE>
- ---------
(a) For 1996 and 1995, $460,000 and $330,000, respectively, of Mr. Lewis' EIP
award was paid by Resources.
(b) Other Annual Compensation includes reimbursements for Medicare tax on
supplemental pension and thrift plans, above market interest on deferred
compensation and certain personal benefits, including the following: for
Mr. Lewis in 1996, 1995 and 1994--use of corporate transportation $28,922,
$51,840, and $30,309, respectively, and tax and financial counseling
services $32,875, $28,667 and $32,839, respectively; and for Mr. Davidson
in 1996, 1995 and 1994--use of corporate transportation $42,269, $27,488
and $34,348, respectively, and tax and financial counseling services
$35,865, $26,736 and $24,450, respectively. Other Annual Compensation
below disclosure thresholds has been omitted.
29
<PAGE>
(c) Aggregate restricted stock holdings and the value thereof as of December
31, 1996: Mr. Davidson, 105,500 shares, $6,343,188 and Mr. Matthews,
104,100 shares, $6,259,013. 104,100 of Mr. Davidson's shares and all of
Mr. Matthews' shares are succession related grants. Dividends on the
succession related grants accumulate but will not be paid to the
individuals until the lapse of the restricted periods and will be subject
to forfeiture if service requirements are not met. Dividends on the
remainder of Mr. Davidson's shares will be paid at the same rate and time
as dividends on all other shares of Common Stock. The share amounts were
adjusted to reflect the Resources spin-off in October 1996.
(d) Amounts for 1996 represent three-year grants awarded in November 1996. For
a description of these grants, see "Report on Executive Compensation-Long
Term Compensation". Share amounts for 1995 and 1994 were adjusted to
reflect the Resources spin-off in October 1996.
(e) All Other Compensation consists of Company-matched thrift plan
contributions (Mr. Lewis $30,000, Mr. Davidson $21,000, Mr. Davis $4,500,
Mr. Matthews $12,900 and Mr. von Bernuth $10,350 in 1996), life insurance
premiums or payments in lieu thereof in 1996 (Mr. Lewis $35,440, Mr.
Davidson $14,492, Mr. Matthews $6,100 and Mr. von Bernuth $6,130), for Mr.
Lewis a Performance Award ($4,000,000) in recognition of the successful
merger with Southern Pacific and other strategic initiatives accomplished
under Mr. Lewis' leadership and for Mr. Davis a portion of a home purchase
loan forgiven by Southern Pacific in 1996 ($200,000) in accordance with
his employment contract.
(f) Mr. Davis served as President and CEO of Southern Pacific in 1995 and in
1996 through September 11, and as President, Southern Pacific Rail
Operations of Union Pacific from September 12, 1996 until November 6,
1996.
- ---------
Mr. Lewis retired as Chairman and Chief Executive Officer effective January
1, 1997. The Company has entered into a 5-year consulting contract with Mr.
Lewis under which he agrees to provide consulting services, not to exceed 120
hours in any 3-month period, relating to governmental affairs, strategic
matters and such other matters on which his advice may be requested. The
Company has agreed to an annual retainer with Mr. Lewis of $750,000 for such
services. In the event of the death of Mr. Lewis, any remaining amounts under
the contract will become payable. Mr. Lewis has agreed that he will not be
involved, directly or indirectly, with any business of the same type and
character as the
30
<PAGE>
business of the Company during the term of the consulting contract and for one
year after its termination.
The Company has assumed and amended an employment contract between Mr. Davis
and Southern Pacific providing certain terms for his employment through March
1, 1998, including an annual salary of $600,000. If Mr. Davis' employment is
terminated other than for cause (as defined in the employment contract), he
will be entitled to a severance payment in an amount based on the date of such
termination: if prior to September 11, 1997, $1,600,000; if between September
11, 1997 and March 1, 1998, $1,000,000; and if after March 1, 1998, no
severance payment. Mr. Davis has agreed not to engage in any business if such
business competes with the Company for a period of three years after his
termination of employment for cause or by resignation. The employment contract
also provides for certain loan arrangements described in "Certain
Relationships and Related Transactions-Indebtedness of Management".
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information concerning the direct beneficial
ownership of the Company's Common Stock as of February 12, 1997 by the
Company's Chief Executive Officer and the other four most highly compensated
executive officers.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENT OF
NAME OWNED (A) CLASS
---- ------------ ----------
<S> <C> <C>
Drew Lewis 100,000 0.04%
Richard K. Davidson 616,711 0.25%
Jerry R. Davis 8,101 0.003%
L. White Matthews, III 447,380 0.18%
Carl W. von Bernuth 267,438 0.11%
</TABLE>
- ---------
(a) Included in the number of shares beneficially owned by Messrs. Davidson,
Matthews and von Bernuth are 458,485, 287,010 and 232,585 shares,
respectively, which such persons have the right to acquire within 60 days
pursuant to stock options. Also included in the number of shares owned by
Messrs. Davidson and Matthews are 105,500 and 104,100 restricted shares,
respectively, awarded under the 1993 Stock Option and Retention Stock
Plan.
31
<PAGE>
OPTION/SAR GRANTS TABLE
The following table sets forth information concerning individual grants of
stock options during 1996 to the Company's Chief Executive Officer and the
other four most highly compensated executive officers. Stock appreciation
rights were not granted in 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
NUMBER OF SECURI- % OF TOTAL
TIES UNDERLYING OPTIONS/
OPTIONS/ SARS EXERCISE GRANT DATE
SARS GRANTED TO OR BASE EXPIRATION PRESENT
NAME GRANTED(A) EMPLOYEES PRICE DATE VALUE(B)
---- ----------------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Drew Lewis -0- 0% -- -- --
Richard K. Davidson 468,500(c) 8.40% $56.50 11/20/2006 $5,092,600
187,500(d) 3.36% 56.50 11/20/2006 2,038,100
187,500(e) 3.36% 56.50 11/20/2006 2,038,100
Jerry R. Davis 150,000(c) 2.69% 56.50 11/20/2006 1,630,500
60,000(d) 1.08% 56.50 11/20/2006 652,200
60,000(e) 1.08% 56.50 11/20/2006 652,200
L. White Matthews, III 150,000(c) 2.69% 56.50 11/20/2006 1,630,500
60,000(d) 1.08% 56.50 11/20/2006 652,200
60,000(e) 1.08% 56.50 11/20/2006 652,200
Carl W. von Bernuth 112,500(c) 2.02% 56.50 11/20/2006 1,222,900
45,000(d) 0.81% 56.50 11/20/2006 489,200
45,000(e) 0.81% 56.50 11/20/2006 489,200
</TABLE>
- ---------
(a) 1,700 shares of the options granted to each executive in each grant were
in the form of an incentive stock option and the balance in the form of a
non-qualified option.
(b) Calculated in accordance with the Black-Scholes option pricing model. The
assumptions used in such option pricing model are: expected volatility,
21.06%; expected dividend yield, 3.04%; expected option term, 4 years; and
risk-free rate of return, 6.14%.
(c) 40% of these options become exercisable on January 1, 1998; 26% become
exercisable on the later of November 20, 1997 and the attainment of a
Company Common Stock price of $72 per share for 20 consecutive days; 17%
become exercisable on the later of November 20, 1997 and the attainment of
a Company Common Stock price of $82 per share for 20 consecutive days; and
17% become
32
<PAGE>
exercisable the later of November 20, 1997 and the attainment of a Company
Common Stock price of $92 per share for 20 consecutive days. In any event,
all options become exercisable on November 20, 2005, unless previously
forfeited. Shares representing the net gain on options subject to price
targets that are exercised on or prior to November 20, 2000 are treated as
restricted shares, vesting of which is subject to continuing employment by
the Company through November 20, 2000, subject to certain exceptions.
(d) These options become exercisable on January 1, 1999.
(e) These options become exercisable on January 1, 2000.
- ---------
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth individual exercises of stock options during
1996 by the Company's Chief Executive Officer and the other four most highly
compensated executive officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
YEAR-END YEAR-END
SHARES --------------- ---------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Drew Lewis 696,732 $14,320,199 -0- $ -0-
173,459 5,078,012
Richard K. Davidson -0- -0- 458,485 12,037,285
992,277 7,127,908
Jerry R. Davis -0- -0- -0- -0-
270,000 1,181,250
L. White Matthews, III 44,472 1,343,799 287,010 7,487,600
344,343 3,357,641
Carl W. von Bernuth 5,948 180,031 232,585 6,374,154
258,258 2,518,253
</TABLE>
33
<PAGE>
DEFINED BENEFIT PLANS
Pensions for non-agreement employees of the Company, Union Pacific and Union
Pacific Technologies are provided through the Pension Plan for Salaried
Employees of Union Pacific Corporation and Affiliates (UP Basic Plan), the
Southern Pacific Rail Corporation Pension Plan (SP Basic Plan) and the
Supplemental Pension Plan for Officers and Managers of Union Pacific
Corporation and Affiliates (UP Supplemental Plan). The amount of the annual
pension benefit from all UP Plan sources is based upon average annual
compensation for the 36 consecutive months of highest regular compensation
(including up to three cash incentive payments within the 36-month period)
within the 120-month period immediately preceding retirement (final average
earnings). Regular compensation for this purpose is the aggregate amount
reflected in the salary and bonus columns of the Summary Compensation Table.
Mr. Davis is currently accruing service in the SP Basic Plan. It is the
Company's intention to cease service accruals under the SP Basic Plan on
December 31, 1997. Employees earning service under that plan will begin to
accrue service in the UP Basic Plan on January 1, 1998. The Benefit payable
after 1997 will be the greater of the SP Basic Plan benefit as of December 31,
1997 and the UP Basic Plan benefit calculated as of the actual retirement date
and considering SP and Union Pacific accrued service. Mr. Davis has 2 years of
credited service in the SP Basic Plan.
The UP Supplemental Plan is an unfunded non-contributory plan which
provides, unlike the UP and SP Basic Plans, for the grant of additional years
of employment and deemed age to officers or supervisors, for the inclusion of
earnings in excess of the limits contained in the Internal Revenue Code of
1986, as amended (the Code), and deferred incentive compensation in the
calculation of final average earnings and for any benefit in excess of the
limitations provided for under the Code. Messrs. Lewis, Davidson, Davis,
Matthews and von Bernuth have accrued benefits under the UP Supplemental Plan.
The credited years of service for each of the five individuals named in the
Summary Compensation Table under all of the Plans mentioned above are as
follows: Mr. Lewis 30, Mr. Davidson 36, Mr. Davis 34, Mr. Matthews 20 and Mr.
von Bernuth 17.
The Company has purchased annuities to satisfy certain unfunded obligations
under the UP Supplemental Plan to executives and certain other active and
former employees and has paid the federal and state taxes on behalf of such
persons imposed in connection
34
<PAGE>
with these purchases. These purchases reduce the Company's obligations under
the UP Supplemental Plan. The benefits in the following Pension Plan Table
will be reduced for any employee for whom an annuity was purchased by an
amount calculated so that the expected aggregate amount received by the
employee from the annuity and the UP Supplemental Plan net of federal taxes
will be the same as the net amount that would have been received from the UP
Supplemental Plan if the annuity had not been purchased.
The estimated annual benefits payable under the UP Basic Plan and UP
Supplemental Plan at normal retirement at age 65 based upon final average
earnings and years of employment is illustrated in the following table:
<TABLE>
<CAPTION>
PENSION PLAN TABLE
FINAL -----------------------------------------------------------------------
AVERAGE 15 YEARS OF 20 YEARS OF 25 YEARS OF 30 YEARS OF 35 YEARS OF 40 YEARS OF
EARNINGS EMPLOYMENT EMPLOYMENT EMPLOYMENT EMPLOYMENT EMPLOYMENT EMPLOYMENT
- ---------- ---------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 800,000 $197,700 $263,600 $ 329,500 $ 395,320 $ 434,540 $ 473,760
1,000,000 247,710 330,280 412,850 495,320 544,540 593,760
1,200,000 297,720 396,960 496,200 595,320 654,540 713,760
1,400,000 347,730 463,640 579,550 695,320 764,540 833,760
1,600,000 397,740 530,320 662,900 795,320 874,540 953,760
1,800,000 447,750 597,000 746,250 895,320 984,540 1,073,760
2,000,000 497,760 663,680 829,600 995,320 1,094,540 1,193,760
2,200,000 547,770 730,360 912,950 1,095,320 1,204,540 1,313,760
2,400,000 597,780 797,040 996,300 1,195,320 1,314,540 1,433,760
2,600,000 647,790 863,720 1,079,650 1,295,320 1,424,540 1,553,760
2,800,000 697,800 930,400 1,163,000 1,395,320 1,534,540 1,673,760
3,000,000 747,810 997,080 1,246,350 1,495,320 1,644,540 1,793,760
</TABLE>
The benefits in the foregoing Pension Plan Table would be paid in the form
of a life annuity with a 50% surviving spouse's benefit and reflect offsets
for Social Security. The benefits would be somewhat lower if applicable
Railroad Retirement offsets are considered.
FIVE-YEAR PERFORMANCE COMPARISON
The following graph provides an indicator of cumulative total shareholder
returns, assuming reinvestment of dividends, for the Company as compared to
the S&P 500 Stock Index and a peer group comprising CSX Corporation, Norfolk
Southern Corporation,
35
<PAGE>
Burlington Northern, Inc. (BNI), Santa Fe Pacific Corporation (SFP) (after
September 1995, BNI and SFP were merged to form Burlington Northern Santa Fe
Corporation). In addition, until the Third Quarter of 1996, when the Company's
oil, gas and mineral operations were spun off, the peer group also included the
following companies: Burlington Resources, Inc., El Paso Natural Gas Co., Santa
Fe Energy Resources, Inc., Santa Fe Pacific Gold Corporation, and Catellus
Development Corp. (the former real estate development subsidiary of Santa Fe).
The Union Pacific Resources spin-off was treated as a cash dividend reinvested
in Company Common Stock. For 1996, the cumulative total shareholder return for
the Company, assuming reinvestment of dividends, was 38.4%, while returns for
the S&P 500 Stock Index and the peer group were 22.9% and 11.6%, respectively.
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
UPC, S&P 500 AND PEER GROUP
================================================================================
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
12/91 12/92 12/93 12/94 12/95 12/96
<S> <C> <C> <C> <C> <C> <C>
UNP =.= 100.0 116.1 127.5 95.3 142.6 197.3
S&P 500 -.- 100.0 107.6 118.4 120.0 165.0 202.8
PEERS -X- 100.0 111.8 141.4 123.2 169.3 188.9
</TABLE>
36
<PAGE>
(2) RATIFICATION OF APPOINTMENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of the Audit Committee, has
appointed Deloitte & Touche LLP as the firm of independent certified public
accountants to audit the books and accounts of the Company and its
consolidated subsidiaries for the year 1997 subject to ratification by
shareholders. The appointment of Deloitte & Touche LLP continues a
relationship that began in 1969.
A representative of Deloitte & Touche LLP is expected to be present at the
Annual Meeting and will have an opportunity to make a statement if such
representative desires to do so and will be available to respond to
appropriate questions by shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF
PROPOSAL 2.
OTHER BUSINESS
The only business to come before the meeting of which the management is
aware is set forth in this Proxy Statement. If any other business is presented
for action, it is intended that discretionary authority to vote the proxies
shall be exercised in respect thereof in accordance with the best judgment of
the proxy holders.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS
ARE URGED TO DATE, SIGN AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE
ENCLOSED ENVELOPE.
J. L. SWANTAK
Vice President and Secretary
ANY SECURITY HOLDER WISHING TO RECEIVE, WITHOUT CHARGE, A COPY OF UNION
PACIFIC'S 1996 ANNUAL REPORT ON FORM 10-K (WITHOUT EXHIBITS) FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE COMPANY'S REPORT, "COMMITMENT TO
WORKPLACE DIVERSITY", SHOULD WRITE TO SECRETARY, UNION PACIFIC CORPORATION,
MARTIN TOWER, EIGHTH AND EATON AVENUES, BETHLEHEM, PA 18018.
37
<PAGE>
[LOGO OF PRINTED ON RECYCLED PAPER APPEARS HERE]
<PAGE>
[LOGO OF UNION PACIFIC PROXY
APPEARS HERE] SOLICITED BY BOARD OF DIRECTORS
ANNUAL MEETING April 18, 1997
SALT LAKE CITY, UTAH
The undersigned hereby appoints RICHARD K. DAVIDSON and JUDY L. SWANTAK, and
each of them, as Proxy, each with the power to appoint a substitute, and hereby
authorizes them to represent and to vote all the shares of stock of UNION
PACIFIC CORPORATION which the undersigned is entitled to vote at the Annual
Meeting of Shareholders to be held April 18, 1997 or any adjournment or
postponement thereof as indicated in this Proxy upon all matters referred to on
the reverse side and described in the Proxy Statement for the Meeting, and, in
their discretion as set forth in the Proxy Statement, upon any other matters
that may properly come before the meeting.
If no direction is made, this Proxy will be voted FOR all nominees in the
election of Directors and FOR proposal 2. The Board of Directors recommends a
vote FOR all nominees in the election of Directors and FOR proposal 2.
YOUR VOTE IS IMPORTANT! PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE
SIDE AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE.
(Continued and to be signed on reverse side.)
UNION PACIFIC CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.___
The Board of Directors recommends a vote FOR all nominees in the election of
Directors and FOR proposal 2.
<TABLE>
<S> <C> <C> <C>
1. Election of Directors--
For Withhold For All
Nominees: P.F. Anschutz, S.F. Eccles, W.H. Gray, III. All All Except
J.R. Hope, J.R. Meyer, R.D. Simmons
--- --- ---
- -------------------------------------------------
(Except nominee(s) written above.)
For Against Abstain
2. Ratify appointment of Deloitte & Touche LLP
as independent auditors --- --- ---
The undersigned acknowledges receipt of the
Notice of Annual Meeting of Shareholders and of
the Proxy Statement.
Dated: , 1997
--------------------------
Signature(s)
--------------------------
--------------------------------------
Please sign exactly as name appears. Joint
owners should sign personally. Where
applicable, indicate your official position or
representative capacity.
</TABLE>
<PAGE>
[LOGO OF UNION PACIFIC CONFIDENTIAL VOTING INSTRUCTIONS FOR
CORPORATION APPEARS HERE] ANNUAL MEETING APRIL 18, 1997
To the Trustee:
The UNDERSIGNED hereby instructs you to vote, in person or by proxy, all the
shares of stock of Union Pacific Corporation which were allocated to my account
as of February 12, 1997, under one or more of the plans listed below and
identified by the four-letter code below and on the reverse side of this card at
the Annual Meeting of Shareholders to be held on April 18, 1997, or any
adjournment or postponement thereof, as indicated upon all matters referred to
on the reverse side of this card and described in the Proxy Statement for the
Meeting. This card when property executed will be voted in the manner described
herein. If no direction is made, the shares allocated to your account will be
voted FOR all nominees in the election of Directors and FOR proposal 2. If you
do not return your card, the shares allocated to the plans in the left column
below will be voted by the Trustee in the same proportion as the shares with
respect to which voting instructions are received, and the shares allocated to
the plans in the right column below will not be voted. If you have shares
allocated to more than one of the plans below and wish to vote the shares
differently among the plans, you may contact Harris Trust & Savings Bank at
1-800-317-2512 for additional instruction cards.
<TABLE>
<S> <C>
Union Pacific Corporation Thrift Plan (UPTP) Union Pacific Corporation Thrift Plan PAYSOP (UPSP)
Union Pacific Resources Group Inc. Employees' Thrift Plan (RSTP) Union Pacific Corporation Employee Stock Ownership Plan
Union Pacific Agreement Employee 401(k) Retirement Thrift Plan (UPAT) (TRASOP) (USOP)
Union Pacific Fruit Express Company Agreement Employee 401(k)
Retirement Thrift Plan (UPFE)
Union Pacific Motor Freight Company Employee 401(k) Retirement Thrift
Plan (UPMF)
Skyway Retirement Savings Plan (SRSP)
Southern Pacific Rail Corporation Thrift Plan (SPTP)
Chicago and North Western Railway PS and Retirement Savings Program (CNWP) (Continued and to be signed on reverse side.)
</TABLE>
UNION PACIFIC CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. ____
The Union Pacific Corporation Board of Directors recommends a vote FOR all
nominees in the election of Directors and FOR proposal 2.
<TABLE>
<CAPTION>
<S> <C>
For Against Abstain
1. Election of Directors-- 2. Ratify appointment of Deloitte & Touche LLP ___ ___ ___
as independent auditors.
Nominees P.F. Anzchutz, S. F. Eccles, For Withhold For All
W.H. Gray. III. J.R. Hope, J.R. Meyer, All All Except
R.D. Simmons ___ ___ ___
The undersigned acknowledges receipt of the
- ---------------------------------------- Notice of Annual Meeting of Shareholders and of
(Except nominee(s) written above.) the Proxy Statement.
Dated:________________________ 1997
Signature:_________________________
-----------------------------------
Please sign exactly as name appears
</TABLE>
