<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
Union Pacific Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
<PAGE>
Notice of Annual Meeting
of Shareholders
[LOGO OF UNION PACIFIC]
1416 Dodge Street
Room 1230
Omaha, NE 68179
To the Shareholders: March 9, 2000
You are hereby notified that the 2000 Annual Meeting of Shareholders of
Union Pacific Corporation, a Utah corporation (the Company), will be held at
the Little America Hotel, 500 S. Main Street, Salt Lake City, Utah, at 8:30
A.M., Mountain Daylight Time, on Friday, April 21, 2000 for the following
purposes:
(1) to elect 12 directors, each to serve for a term of one year;
(2) to adopt the Union Pacific Corporation 2000 Directors Stock Plan;
(3) 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 11, 2000
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.
Carl W. von Bernuth
Senior Vice President,
General Counsel 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 21, 2000
March 9, 2000
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 21,
2000 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 9, 2000.
The close of business on February 11, 2000 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 247,845,885 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. 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 also will 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 under Securities and Exchange
Commission (SEC) Rule 14a-8 for consideration for inclusion in the Company's
proxy statement and form of proxy relating to the 2001 Annual Meeting must
submit in writing such proposal and any statement in support thereof to the
Secretary of the Company by November 8, 2000 and comply with the other
requirements of Rule 14a-8.
Under SEC Rule 14a-4, the Company may exercise discretionary voting
authority under proxies it solicits to vote on a proposal made by a
shareholder at the 2001 Annual Meeting that the shareholder does not seek to
include in the Company's proxy statement pursuant to SEC Rule 14a-8 unless the
Company is notified about the proposal on or before January 21, 2001, and the
shareholder satisfies the other requirements of SEC Rule 14a-4(c). However,
except with respect to shareholder proposals included in the Company's proxy
statement pursuant to SEC Rule 14a-8, the Company's By-Laws provide that to be
considered at the 2001 Annual Meeting any shareholder proposal must be
submitted in writing to the Secretary at the executive offices of the Company
during the period beginning on December 22, 2000 and ending on January 21,
2001 and must contain the information specified by and otherwise comply with
the Company's By-Laws. Any shareholder wishing to receive a copy of the
Company's By-Laws should direct a written request to the Secretary at the
Company's executive offices.
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<PAGE>
(1) ELECTION OF 12 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 12 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 12 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 11, 2000 all directors and executive officers as a group
beneficially owned 17,563,064 shares of Common Stock, representing 6.99% of
the outstanding Common Stock, of which 3,423,336 are shares with respect to
which such persons have the right to acquire beneficial ownership within 60
days. No nominee for director other than Mr. Anschutz beneficially owned more
than 0.65% of the outstanding Common Stock. Mr. Anschutz beneficially owns
5.04% 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.
Mr. William H. Gray, III, found it necessary to leave the Board on December
31, 1999, due to significantly increased responsibilities of administering the
Gates Millennium Scholars Program. The Board wishes to express its deep
appreciation to Mr. Gray for the integrity, conscientiousness, strength of
character and special insight that have been a constant hallmark of his
service as a director of the Company, and wishes Mr. Gray every success in his
future endeavors.
The following tables set forth certain information on the nominees for
director, including Common Stock beneficially owned as of February 11, 2000
and current holdings of Company Common Stock Units, representing deferred
compensation and
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other amounts credited to their accounts. 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.
<TABLE>
<CAPTION>
Equity Ownership
--------------------
Name and Principal Occupation UPC UPC
or Employment Units (a) Shares
----------------------------- --------- ----------
<S> <C> <C>
Philip F. Anschutz 4,006 12,497,059(b)
Chairman of the Board, Chief Executive Officer and a
director, The Anschutz Corporation and Anschutz
Company (the corporate parent of The Anschutz
Corporation), energy, transportation,
communications, professional sports, agriculture
and real estate, Denver, CO. Director, Forest Oil
Corporation, Qwest Communications International
Inc. Director and Vice Chairman of the Company
since 1996. Age 60.
Robert P. Bauman 1,549 3,785
Retired Chief Executive, SmithKline Beecham p.l.c.,
pharmaceuticals and consumer products, Parsippany,
NJ. Director, CIGNA Corporation, Invensys p.l.c.,
Morgan Stanley Dean Witter & Co., Reuters Holdings
p.l.c. Director of the Company since 1987. Age 68.
Richard B. Cheney 4,160 2,185
Chairman of the Board, Chief Executive Officer and a
director, Halliburton Company, specialized services
for the petroleum industry, Dallas, TX. Director,
Electronic Data Systems Corp., The Procter & Gamble
Company. Director of the Company since 1993. Age
59.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Equity Ownership
-------------------
Name and Principal Occupation UPC UPC
or Employment Units(a) Shares
----------------------------- --------- --------
<S> <C> <C>
E. Virgil Conway 2,263 17,785
Chairman and a member of the Board, Metropolitan
Transportation Authority, public transportation, New
York, NY. Director, Accuhealth, Inc., Centennial
Insurance Company. Trustee, Atlantic Mutual Insurance
Company, Consolidated Edison Company of New York, Inc.,
Urstadt Biddle Properties, Inc., Mutual Funds Managed
by Phoenix Duff & Phelps. Director of the Company since
1978. Age 70.
Richard K. Davidson 105,424 1,587,386(c)
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 of the Company since 1994. Age 58.
Thomas J. Donohue 1,218 1,800
President and Chief Executive Officer, U.S. Chamber of
Commerce, business federation, Washington, DC.
Director, Sunrise Assisted Living, Inc., XM Satellite
Radio. Director of the Company since 1998. Age 61.
Spencer F. Eccles 2,114 9,785(d)
Chairman and Chief Executive Officer, First Security
Corporation, bank holding company, Salt Lake City, UT.
Director, Anderson Lumber Co., First Security Bank,
N.A., Zion's Cooperative Mercantile Institution.
Director of the Company since 1976. Age 65.
Ivor J. Evans 25,591 253,334(e)
President and Chief Operating Officer of Union Pacific
Railroad Company, a subsidiary of the Company. Director
of the Company since 1999. Age 57.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Equity Ownership
----------------
Name and Principal Occupation UPC UPC
or Employment Units (a) Shares
----------------------------- --------- ------
<S> <C> <C>
Elbridge T. Gerry, Jr. 3,298 4,794(f)
Partner, Brown Brothers Harriman & Co., bankers, New York,
NY. Director of the Company since 1986. Age 66.
Judith Richards Hope 1,971 4,385
Senior Counsel, Paul, Hastings, Janofsky & Walker, law
firm, Los Angeles, CA, New York, NY and Washington, DC.
Director, The Budd Company, General Mills, Inc., Zurich
Insurance Companies--U.S. Member, The Harvard Corporation
(The President and Fellows of Harvard College). Director
of the Company since 1988. Age 59.
Richard J. Mahoney 2,278 5,198
Retired Chairman and Chief Executive Officer, Monsanto
Company, agricultural, pharmaceutical and food products,
St. Louis, MO. Distinguished Executive in Residence,
Center for the Study of American Business, Washington
University, St. Louis, MO. Advisory Director,
Metropolitan Life Insurance Company. Director of the
Company since 1991. Age 66.
Richard D. Simmons 2,157 4,828
Retired President, International Herald Tribune,
communications, Washington, DC. Director, J. P. Morgan &
Co. Incorporated, Morgan Guaranty Trust Company of New
York, The Washington Post Company, OBLOG Software
Systems, Inc., World Web Limited. Director of the Company
since 1982. Age 65.
</TABLE>
- ---------
(a) See "Compensation of Directors" for a discussion of the Stock Unit Grant
and Deferred Compensation Plan for non-employee directors. Additionally,
see "Report on Compensation" for an explanation of certain restrictions on
retention stock units for employee directors.
(b) See "Security Ownership of Certain Beneficial Owners".
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<PAGE>
(c) The UPC Unit amount includes 32,309 deferred stock units and 73,115
retention stock units. The UPC Shares amount includes 1,192,425 shares of
Common Stock subject to presently exercisable stock options granted under
the 1993 Stock Option and Retention Stock Plan. In addition, Mrs. Richard
K. Davidson is the beneficial owner of 15,910 shares of Common Stock. Mr.
Davidson disclaims beneficial interest in such shares.
(d) Mr. Eccles also has shared voting or investment power with respect to
30,000 shares held in family trusts or owned by members of Mr. Eccles'
family.
(e) The UPC Unit amount includes retention stock units only. The UPC Shares
amount includes 73,334 shares of Common Stock subject to presently
exercisable stock options and 80,000 restricted shares granted under the
1993 Stock Option and Retention Stock Plan.
(f) Mr. Gerry also has shared voting or investment power with respect to
399,561 shares held in family trusts.
- ---------
All nominees for director are also members of the Board of Directors of
Union Pacific Railroad Company (the Railroad), 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 the Railroad until their
successors are elected.
Except for the nominees listed below, each of the nominees named in the
preceding table has held the indicated office or position in his or her
principal occupation for at least five years. Each of the nominees listed
below held the earliest indicated office or position 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, and non-executive Chairman and a
director of Southern Pacific Rail Corporation until September 1996. Mr. Robert
P. Bauman was non-executive Chairman of British Aerospace p.l.c. from April
1994 through May 8, 1998. Mr. Bauman was also Deputy Chairman of BTR p.l.c.,
manufacturing and engineering, from October 1997 to May 8, 1998 and was
Chairman of BTR from May 8, 1998 to February 3, 1999. Mr. Richard B. Cheney
served as Senior Fellow, American Enterprise Institute through September 30,
1995, President and Chief Executive Officer of Halliburton Company from
October 1 through December 31, 1995, Chairman, President and Chief Executive
Officer of Halliburton from January 1, 1996 through May 30, 1997, Chairman and
Chief Executive Officer of Halliburton from May 31, 1997 to October 1, 1998,
Chief
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Executive Officer of Halliburton from October 1, 1998 to December 31, 1999 and
Chairman and Chief Executive Officer of Halliburton from February 1, 2000 to
present. Mr. Richard K. Davidson was Chairman and Chief Executive Officer of
the Railroad until August 15, 1995, Chairman of the Railroad until November 6,
1996 and Chairman and Chief Executive Officer of the Railroad since such date.
Mr. Davidson has also been 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. Thomas J. Donohue was
President and Chief Executive Officer of the American Trucking Associations,
the national organization of the trucking industry, through September 1997 and
since such date has been President and Chief Executive Officer of the U.S.
Chamber of Commerce. Mr. Ivor J. Evans was Senior Vice President of Emerson
Electric Company, industrial motors and equipment, appliance components,
electronics, power tools and valves, through September 14, 1998. Mrs. Judith
Richards Hope was Senior Partner of Paul, Hastings, Janofsky & Walker through
April 1997 and since such date has been Senior Counsel to such firm. 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. Richard D. Simmons was President of International Herald Tribune through
March 31, 1996.
Compensation of Directors
Directors who are not employees of the Company receive an annual retainer
of $60,000 plus expenses. Directors are required to invest $30,000 of the
retainer in the Stock Unit Account referred to below. In addition, Chairs 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 Rate or Vanguard Accounts 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
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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 Rate Account or a Stock Unit Account administered by the Company or in
various accounts administered by The Vanguard Group. The accounts are
unfunded, unsecured obligations of the Company. The Company Fixed Rate Account
earns interest compounded annually at a rate determined by the Treasurer of
the Company in January of each year and the Vanguard Accounts experience
earnings and value fluctuations as determined by Vanguard's investment
experiences. 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 1999 totaled $176,500.
Directors who are not employees of the Company receive $10 million of
excess liability insurance coverage and have elected to receive $100,000 of
term life insurance for which the Company paid total premiums of approximately
$1,370 for each director in 1999. 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, Cheney, Conway,
Eccles, Gerry, Hope, Mahoney and Simmons currently are eligible to receive
pension benefits 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. Non-employee directors first elected since January 1996 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 1,889 Stock Units based on a Company Common Stock price of $45 per
share. Directors first elected to the Board prior to 1996 will continue to be
eligible for the $36,000 annual pension. However, such directors were
permitted to exchange $6,000 of
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<PAGE>
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, as amended, 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 1,785
restricted shares 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 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.
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Governance of the Company
In accordance with applicable Utah 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 standing Committees and
adopted certain guidelines and policies to assist it in fulfilling its
responsibilities as described below.
During 1999, the Board of Directors met seven times. None of the directors
attended fewer than 75% of the regularly scheduled meetings of the Board and
Committees on which he or she served. The average attendance of all directors
at Board and Committee meetings was 96%.
Committees of the Board
Executive Committee
The current members of the Executive Committee are Philip F. Anschutz
(Chair), Robert P. Bauman, E. Virgil Conway, Richard K. Davidson, Elbridge T.
Gerry, Jr. and Judith Richards Hope.
The Committee has all the powers of the Board, when the Board is not in
session, to direct and manage 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 1999.
Audit Committee
The current members of the Audit Committee are Judith Richards Hope
(Chair), Thomas J. Donohue, Spencer F. Eccles and Richard D. Simmons.
The Committee meets regularly with financial management, the internal
auditors and the independent certified public accountants of the Company 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 Company 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
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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 four times in 1999.
Finance Committee
The current members of the Finance Committee are Elbridge T. Gerry, Jr.
(Chair), Philip F. Anschutz, Spencer F. Eccles, 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 1999.
Compensation and Benefits Committee
The current members of the Compensation and Benefits Committee are E.
Virgil Conway (Chair), Robert P. Bauman, Richard B. Cheney, Thomas J. Donohue
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 plans and determines
for senior executives the amounts of, and the individuals to whom, awards
shall be made thereunder. The Committee is responsible for reviewing and
recommending to the Board 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
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plans remain competitive. See pages 22-27 for the Committee's report on 1999
compensation and stock ownership programs. The Committee met five times in
1999.
Corporate Governance and Nominating Committee
The current members of the Corporate Governance and Nominating Committee
are Robert P. Bauman (Chair), Philip F. Anschutz, Richard B. Cheney, Elbridge
T. Gerry, Jr., and Richard J. Mahoney.
The Committee assists management concerning matters of succession, reviews
and recommends changes in compensation for the Board of Directors, reviews the
qualifications of candidates for the position of director and recommends
candidates to the Board of Directors as nominees for director for election at
the Annual Meetings 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 reviews
current trends and practices in corporate governance and recommends to the
Board adoption of programs pertinent to the Company. In this connection the
Committee periodically reviews 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 also
assesses and refines on an ongoing basis the process of CEO evaluation and
coordinates 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 for
consideration at the 2001 Annual Meeting should advise the Secretary of the
Company in writing during the period beginning on December 22, 2000 and ending
on January 21, 2001 and include sufficient biographical material to permit an
appropriate evaluation of the candidate and comply with all other procedures
contained in the Company's By-Laws. 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. The Committee met two times in 1999.
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Corporate Governance Guidelines and Policies
The Board has adopted and refined from time to time the guidelines and
policies set forth below, and they are published herein to inform shareholders
of the Board's thinking with respect to selected corporate governance issues
considered to be of significance to shareholders. The Board, with ongoing
input from the Corporate Governance and Nominating Committee, will continue to
assess the appropriateness of these guidelines and policies and implement such
changes and adopt such additions as may be necessary or desirable to ensure
the effective and efficient governance of the Company.
Board Meeting Agendas. The Board permits 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 reports on
aspects of parent or subsidiary operations.
Distribution of Board Materials. The Board recommends 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 encourages 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 has adopted a guideline to maintain a Board size of
ten to 12 members with no more than two inside directors. The Board is
currently at 12 members.
Board Independence. The Board has established the criteria 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.
CEO Service on Outside Boards. The Board recommends 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.
14
<PAGE>
New Director Orientation. The Board requests 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 recommends 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 permits 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 considers it desirable 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 Corporate Governance and
Nominating Committee.
Board Member Pensions. The Board eliminated the non-employee director
pension plan for directors who begin service after January 1996. New directors
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 recommends 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.
Evaluation of the Chairman and CEO. The Corporate Governance and Nominating
Committee, in conjunction with the Compensation and Benefits Committee,
developed a written procedure, including a Mission Statement for the Chairman
and CEO, which was presented to and confirmed by the full Board, for
evaluating the Chairman and CEO. This process involves the distribution of a
questionnaire and business objectives summary to all non-employee directors
prior to the January Board meeting. The questionnaire provides each director
the opportunity to assess individual elements of performance in major
categories such as leadership, strategic planning, financial performance,
operations, human resources, external relations and communications, and Board
relations. The questionnaire and business objectives summary become the basis
for a discussion, led by the Chair of the Corporate Governance and Nominating
Committee, during an Executive Session of the Board, without the CEO or any
member of management present, of Company and CEO performance for the year. The
Compensation
15
<PAGE>
and Benefits Committee then meets following the Executive Session to determine
bonuses, if any, to be awarded to the CEO and management of the Company. The
Chairs of the Corporate Governance and Nominating Committee and the
Compensation and Benefits Committee then review with the CEO his performance
and any recommended areas for improvement.
Change in Principal Occupation. The Board adopted a policy with respect to
the retirement of directors from their principal occupation requiring that a
director submit his or her resignation from the Board of Directors to the
Corporate Governance and Nominating Committee for its consideration and
recommendation as to acceptance upon a director's retirement, resignation or
other significant change in professional duties and responsibilities.
Evaluation of Board Performance. The Corporate Governance and Nominating
Committee, on recommendation of the management of the Company, developed a
process whereby the Board of Directors will periodically review Board
performance, including the conduct of Board meetings, to provide the Committee
and the Chairman with input as to how the effectiveness of the Board might be
improved. The process involves the distribution of a self-assessment
questionnaire to all Board members in advance of a Board meeting at which
performance is to be reviewed. This questionnaire invites written comments by
the individual director on all aspects of the Board process and then becomes
the basis for a discussion during an Executive Session of the Board, led by
the Chairman and CEO, of Board performance and any recommended improvements.
The most recent such evaluation of Board efficiency and effectiveness was
conducted by the Board in July 1999. During this session the directors
commented on various aspects of the Board process and suggested several topics
for future management presentations.
Evaluation of Director Performance. To assist in discharging its
responsibilities to review the qualifications of candidates for the position
of director and to recommend candidates to the Board of Directors as nominees
to stand for election at Annual Meetings or to fill such Board vacancies as
may occur during the year, the Corporate Governance and Nominating Committee
has developed a Board Profile outlining qualities deemed helpful to the
Company and has adopted a selection procedure that reviews a
16
<PAGE>
number of areas in evaluating the performance and contributions of current
directors in connection with their renomination to stand for election to the
Board.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, 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 SEC 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. As a matter of practice, the Company's
administrative staff assists the Company's executive officers and directors in
preparing initial reports of ownership and reports of changes in ownership and
filing such reports with the SEC and the New York Stock Exchange. Based solely
on a review of the copies of such forms furnished to the Company and written
representations from the Company's executive officers and directors, the
Company believes that, except as described in the next sentence, none of its
executive officers and directors failed to comply with Section 16(a) reporting
requirements in 1999. Due to an error by the Company's administrative staff, a
report of the cash exercise of an option to purchase and hold shares of the
Company's Common Stock by Richard K. Davidson was filed late.
Security Ownership of Certain Beneficial Owners
The following table sets forth information known to the Company 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 12,497,059(a) 5.04%
555 17th Street, Suite 2400
Denver, Colorado 80202
The Anschutz Corporation 12,495,274 5.04%
555 17th Street, Suite 2400
Denver, Colorado 80202
Sanford C. Bernstein & Co., Inc. 15,848,233(b) 6.40%
767 Fifth Avenue
New York, NY 10153
J. P. Morgan & Co. Incorporated 13,076,360(c) 5.20%
60 Wall Street
New York, NY 10260
</TABLE>
17
<PAGE>
- ---------
(a) Includes 1,785 shares granted to Mr. Anschutz under the 1992 Restricted
Stock Plan for Non-Employee Directors of Union Pacific Corporation and
12,495,274 shares owned by The Anschutz Corporation. Does not include
shares owned by Anschutz Foundation, a party to the Anschutz Shareholders
Agreement described below. Mr. Anschutz disclaims beneficial ownership of
the 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 Anschutz Foundation.
(b) Based on information contained in Schedule 13G filed by Sanford C.
Bernstein & Co., Inc. (Sanford Bernstein) with the SEC with respect to
shares of Common Stock owned on December 31, 1999. According to the
filing, on that date Sanford Bernstein had sole and shared power to vote
7,847,717 and 1,637,767, respectively, of such shares, and had sole and
shared power to dispose of 15,848,233 and 0, respectively, of such shares.
(c) Based on information contained in Schedule 13G filed by J. P. Morgan & Co.
Incorporated (Morgan) with the SEC with respect to shares of Common Stock
owned on December 31, 1999. According to the filing, on that date Morgan
had sole and shared power to vote 9,606,083 and 286,779, respectively, of
such shares, and had sole and shared power to dispose of 12,438,386 and
514,774, respectively, of such shares.
- ---------
Certain Relationships and Related Transactions
Agreement with Anschutz Shareholders
In connection with the Company's acquisition (the Acquisition) of Southern
Pacific Rail Corporation (SP), 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 elect Mr. Anschutz, or another individual
selected by TAC and reasonably acceptable to the Board of Directors of the
Company (such individual 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 5.04% 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 September 2003
(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 and to recommend the election
of the Anschutz Designee as a director.
18
<PAGE>
In accordance with this Agreement, Mr. Anschutz is included on the Company's
slate of nominees for director at the upcoming Annual Meeting. 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 (the Code). 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 SP, 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 was appointed Vice Chairman of the
Company's Board of Directors and 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 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 September 2003 (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
19
<PAGE>
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
Effective November 3, 1997, ANSCO Investment Company (ANSCO), a subsidiary
of TAC, entered into an agreement with the Railroad, replacing agreements
between ANSCO and SP's railroad subsidiaries assumed by the Railroad,
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
Railroad's rail system. Effective May 1, 1997, ANSCO leased from the Railroad
3,639 feet of yard track at the Burnham Yard in Denver, Colorado, for storage
of ANSCO Winter Park Ski Train railcars at an annual rental based on the
Railroad's usual and customary charge for rental of track. In addition,
effective September 1, 1997, ANSCO leased a vacant coach shop building at
Burnham Yard from the Railroad for repair and maintenance of ANSCO Winter Park
Ski Train railcars. The current annual rentals under these lease agreements
are approximately $23,700 and $21,700, respectively, and are subject to annual
adjustment. Compensation paid or accrued to the Railroad during 1999 under all
three agreements totaled approximately $304,800.
Pacific Pipeline System LLC (Pacific Pipeline), a majority-owned indirect
subsidiary of Anschutz Company, owns a crude oil pipeline located on a portion
of the Railroad's right-of-way between Santa Clarita and Los Angeles/Long
Beach, California. The pipeline is covered by an easement agreement between
the Railroad, as successor in interest to Southern Pacific Transportation
Company (SPTC), and Pacific Pipeline, which provides for compensation to the
Railroad for the use of its right-of-way. Prior to entering into the 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. The total amount paid to
the Railroad by Pacific Pipeline under this agreement in 1999 was
approximately $3,965,200. Pacific Pipeline also reimbursed the Railroad
approximately $3,400 for construction-related expenses. In December 1999, the
Railroad invoiced Pacific Pipeline approximately $3,910,000 for rentals under
the easement agreement for calendar year 2000. This amount was paid by Pacific
Pipeline in January 2000.
20
<PAGE>
Additionally, in May 1999, Pacific Pipeline acquired certain pipeline
assets making up what is known as Line 63, a crude oil gathering and
transportation system located in California, from Arco Pipeline Company. Among
the Line 63 assets conveyed to Pacific Pipeline were 12 crossing permits and
one right-of-way encroachment agreement, all granted by the Railroad. Pursuant
to these instruments Pacific Pipeline paid approximately $22,500 during 1999.
The Railroad billed Qwest Communications Corporation (Qwest), an affiliate
of TAC, approximately $557,900 for periodic easement rentals and other
miscellaneous real estate rentals and approximately $4,430,000 for
reimbursement of expenses related to the construction, operation and
maintenance of a Qwest fiber optic system along approximately 3,500 miles of
the Railroad's right-of-way during 1999. An easement agreement acquired by the
Railroad in the SP merger permits Qwest to settle all or a portion of the
required easement rentals. Settlement of such easement rentals for 1999
totaled approximately $13,764,000. The terms of the easement agreement, as
amended in 1996, 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.
Other Business Relationships
Judith Richards Hope is Senior Counsel to Paul, Hastings, Janofsky &
Walker, a law firm that rendered legal services to the Company during 1999 and
2000.
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, Thomas J.
Donohue and Richard D. Simmons.
The Railroad has a consulting agreement with Modjeski & Masters, Inc.,
providing for that firm to conduct fatigue assessment studies on certain
railroad bridges, and paid approximately $450,665 to such firm during 1999 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.
21
<PAGE>
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 executive
compensation for 1999.
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 designed to
enhance long-term share 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 that
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 senior executive officer's salary, taking into
consideration the executive's performance, corporate and operating unit
performance, the executive's position and responsibility in the organization,
the executive's experience and expertise, salaries for similar 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, could 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 35 of this Proxy Statement, as well as
industrial companies
22
<PAGE>
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 reserve account for payment of incentive awards
is credited based on a shareholder-approved formula tied to return on equity
(ROE) and net income. The account is credited only in years where the results
from continuing operations of the Company 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
incentive awards. 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 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 11
months of the year. For 1999, a total of $10,348,050 was awarded to 133
executives under the EIP.
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 that encourage officers to own and hold the
Company's stock and ties their long-term economic interests directly to those
of the shareholders. The Company's long-term incentives currently include
stock options, retention stock, and retention stock units.
Stock Options. Stock options are the key element in the Company's long-term
compensation program. The size of individual 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 is not a factor in any
23
<PAGE>
award grants. 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 10 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 to seven times
salary, depending on the executive's position with the Company. Until the
minimum ownership amount is achieved, executives are expected to retain in
Common Stock (or deferred Common Stock units) 100% of the profit upon exercise
of options, net of taxes and cost of exercise.
Retention Stock and Retention Stock Units. Retention grants to executives
consist of shares or share units 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 or retention stock units are directed toward retention of
executives, long-term performance incentives and alignment of executive
interests with other shareholders in the Company.
Consistent with the basic framework of the Company's long-term compensation
philosophy, in 1999 the Company developed two new programs designed to fully
align the interests of executives with shareholders, provide additional means
of increasing executive stock ownership and create additional executive
retention vehicles.
Executive Stock Purchase Incentive Plan. In September 1999, the Committee
approved, and recommended for Board approval, the Executive Stock Purchase
Incentive Plan. This special one-time program allowed certain executives,
including the Chief Executive Officer, to purchase from the Company a
predetermined quantity of Common Stock at fair market value using a full-
recourse, interest-bearing loan obtained from the Company. The program creates
an environment where participants share the same risks and rewards as
shareholders.
In October 1999, 64 executives purchased 1,008,000 shares at a fair market
value of $46.3125 per share, resulting in an aggregate loan amount of
$46,683,000. The terms of the loan are described on page 30 of this Proxy
Statement. Participants are eligible to receive deferred cash incentive awards
equal to portions of the loan principal and/or accrued interest if certain
Company performance and individual service criteria are met
24
<PAGE>
over a 40-month performance period ending January 31, 2003. Deferred cash
incentive awards must be applied to pay the loan. A deferred cash incentive
award equal to the net accrued interest is earned if the Common Stock price
appreciates at least 15% over the purchase price and is maintained for 20
consecutive days. Additional deferred cash incentive awards, each equal to
one-third of the original loan amount, are earned in three tiers if the
following criteria are met during the performance period: 1) the participant
remains an employee of the Company during the performance period, 2) earnings
per share of $5.00 or greater are achieved during any calendar year, and 3)
either earnings per share of $6.00 or greater are achieved during any calendar
year or a stock price of $85 is achieved and maintained for 20 consecutive
days (in which case all earnings-per-share criteria are deemed to have been
met). Federal income tax payable on deferred cash payments received will be
reimbursed to the executive if a stock price of $100 is achieved and
maintained for 20 consecutive days during the performance period. If a
participant voluntarily terminates employment with the Company or sells any
shares acquired under the Plan prior to the end of the performance period, the
loan repayment is accelerated and any deferred cash incentive award payments
are forfeited.
Executive Incentive Premium Exchange Program. In September 1999, the
Committee also approved the Executive Incentive Premium Exchange Program
(EIPEP). Under the EIPEP, executives eligible to receive awards under the EIP
could elect in advance to forego all or a portion of his or her 1999 EIP award
and receive instead retention stock units equal to 150% of the incentive
amount foregone. The retention stock units were valued at the fair market
value of Common Stock on the day incentive awards were approved and are
generally subject to a three-year vesting period. The retention stock units
are forfeited if the executive voluntarily resigns, retires or is terminated
(for cause) before the three-year vesting requirement is met. Once vested, the
retention stock units are either paid out in shares of Common Stock or
deferred under the Company's Deferral of Stock Award Gains Program. Executives
subject to restrictions under Section 162(m) of the Code are required to defer
until termination of employment. Executive officers, including the Chief
Executive Officer, elected to forego $5,304,250 of EIP cash incentive awards
and received 193,937 retention stock units.
Long Term Performance Program. The Committee established the Long Term
Performance Program (LTPP) in 1996. The performance period associated with
certain awards under the LTPP will expire in November 2000. The LTPP covered
all executives and approximately 350 non-executive employees responsible for
key business results.
25
<PAGE>
Participants were awarded options, at an exercise price of $56.50, which
vested in three annual installments January 1, 1998, 1999 and 2000. In
addition, participants other than the four most highly compensated executive
officers for 1996 were awarded retention stock that vests in three increments
if graduated stock price targets, beginning at $72 per share, are sustained
for 20 consecutive days on or before November 20, 2000. If the targets are not
achieved by November 20, 2000, the retention shares are forfeited. To date,
none of the retention shares have vested. In lieu of retention shares, the
four most highly compensated executive officers for 1996 (including the
current Chief Executive Officer) received performance options that become
exercisable in three increments when the stock price targets are achieved. If
the targets are not achieved by November 20, 2000, the options become
exercisable on November 20, 2005.
The Company's executive officers were not granted stock options or
retention stock during 1999. Certain executives received retention stock unit
grants in lieu of cash incentive awards, under the EIPEP and as shown in the
Summary Compensation Table on page 28 of this Proxy Statement.
CEO Compensation
In 1999, the Company's most highly compensated officer was Richard K.
Davidson, Chairman and Chief Executive Officer. During the year, the Committee
reviewed Mr. Davidson's base salary, which was last adjusted in November 1996
when he was elected Chief Executive Officer of the Company. The review
included comparisons of competitive CEO base compensation, as well as the
Committee's subjective evaluation of Mr. Davidson's overall performance. Based
on the review, the Committee recommended and the full Board of Directors
approved an increase in Mr. Davidson's annual base pay from $800,000 to
$950,000 effective June 1, 1999.
During the January 2000 Board meeting, all non-employee directors met in
Executive Session to review the performance of the Chairman and CEO and the
Company for the year as described under "Evaluation of the Chairman and CEO"
beginning on page 15 of this Proxy Statement and discussed below.
Nineteen ninety-nine was a transitional year for the Company. Its largest
operating unit, the Railroad, rebounded strongly from service difficulties it
experienced in 1997 and 1998. In 1999, under Mr. Davidson's leadership, the
Railroad implemented the decentralized operations regional structure, improved
service levels and customer satisfaction, and established a base for future
growth.
26
<PAGE>
A key indicator of this transition is the Railroad's six consecutive
quarters of earnings improvement achieved under Mr. Davidson's leadership,
beginning in the third quarter of 1998. In 1999, the Company exceeded key
financial objectives established at the beginning of the year. Net income from
continuing operations of $783 million provided a return on equity of over 10%
for shareholders. Net cash flow (free cash flow less dividends) of $57 million
surpassed the break-even 1999 goal, even after reinvesting a solid $1.8
billion in capital expenditures to lay the foundation for the future.
The Railroad had a record-setting year in 1999 in several critical
financial measures. Revenue growth of 9% pushed total revenue over the $10-
billion mark, an industry best. Operating income of $1.8 billion at the
Railroad was 9% above the previous high set in 1996 for the Railroad and SP
combined. Operating expenses are the lowest since 1995 enabling the operating
ratio, at 82%, to be the best ever for the combined system. Volumes increased
to a record-setting 900 billion gross ton miles (GTM) as the end-of-year
employee levels were down over 3,000 since 1996, the year of the merger.
Coupled together, GTM per employee, a key productivity measure, rose to the
highest level in the history of the Railroad at approximately 17.3 million
tons per employee.
Overnite Transportation Company's revenues increased 2.7% for the year
despite business disruptions caused by job actions by the Teamsters. Overnite
reported net income of $29 million in 1999 and generated $43 million of free
cash flow after funding a $55-million capital program. Overnite's investment
to protect its employees and ensure customer service through its Business
Disruption Contingency Plan continues to show positive results, with best-ever
on-time delivery levels of over 97% for the fourth quarter.
As a result of his contributions, the Committee awarded Mr. Davidson 73,115
retention stock units as reflected in the Summary Compensation Table on page
28 of this Proxy Statement. Mr. Davidson would have been eligible to receive
an award under the EIP, but had elected in advance to exchange the entire
amount of any such award for retention stock units under the EIPEP.
The Compensation and Benefits Committee
E. Virgil Conway, Chair
Robert P. Bauman
Richard B. Cheney
Thomas J. Donohue
Richard D. Simmons
27
<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 Payouts sation(d)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard K. Davidson 1999 $887,504 $ 0 $ 81,410 $3,000,000 0 $ 0 $ 51,725
Chairman and CEO 1998 800,000 0 95,005 0 100,200 0 43,090
1997 800,000 0 100,883 0 0 0 60,320
Ivor J. Evans 1999 516,670 0 53,461 1,050,000 0 0 21,080
President and COO 1998 147,223 500,000(f) 0 3,210,000 190,000 0 13,080
of the Railroad (e)
Carl W. von Bernuth 1999 391,800 615,000 180 0 0 0 19,475
Senior Vice President, 1998 381,000 0 163 0 35,200 0 18,551
General Counsel 1997 360,000 0 148 0 0 0 34,670
and Secretary
Robert F. Starzel 1999 350,040 255,000 149 0 0 0 26,241
Senior Vice President, 1998 350,040 0 149 0 18,200 0 175,981
Corporate Relations (g) 1997 350,040 200,000 161 0 0 0 160,938
James A. Shattuck 1999 302,448 305,000 111 0 0 0 18,203
Vice Chairman 1998 289,668 0 101 102,319 24,200 0 17,400
of the Railroad (h) 1997 281,088 60,000 94 0 0 0 16,063
</TABLE>
- ---------
(a) Bonus amounts foregone under the Company's EIPEP are excluded from the
bonus column, and the value of the retention stock units awarded is
included in the restricted stock awards column.
(b) Other Annual Compensation includes reimbursements for Medicare tax on
supplemental pension and thrift plans and certain personal benefits,
including the following: for Mr. Davidson in 1999, 1998 and 1997--use of
corporate transportation $26,090, $38,740 and $52,230, respectively, and
tax and financial counseling services $52,780, $53,660 and $43,730,
respectively; and for Mr. Evans in 1999--use
28
<PAGE>
of corporate transportation $37,624, and tax and financial counseling
services $13,720. Other Annual Compensation below disclosure thresholds has
been omitted.
(c) Aggregate restricted stock holdings (excluding stock units awarded in
January 2000 as described below) and the value thereof as of December 31,
1999: Mr. Evans, 80,000 shares, $3,495,000; Mr. Starzel, 14,175 shares,
$619,270; and Mr. Shattuck, 28,475 shares, $1,244,002. Dividends on Mr.
Evans' and 1,700 of Mr. Shattuck's shares will be paid at the same rate
and time as dividends on all other shares of Common Stock. The remainder
of Mr. Shattuck's and all Mr. Starzel's shares are performance retention
shares granted under the LTPP as described beginning on page 25. Dividends
on these shares will be forfeited until such time as related performance
criteria are met. Pursuant to EIPEP, Messrs. Davidson and Evans elected to
forego all of their respective annual incentive awards, and Mr. Evans
additionally elected to forego all of the guaranteed bonus described on
page 30, in exchange for grants of retention stock units equal to 150% of
the amount foregone, with retention stock units valued at the fair market
value of Common Stock on January 27, 2000, the day the award was made. The
amounts shown in the restricted stock awards column for 1999 for Messrs.
Davidson and Evans include 71,543 and 25,591 retention stock units,
respectively, so awarded. Such retention stock units are generally subject
to a three-year vesting period. During the vesting period, the holder is
entitled to receive a payment in cash equal to the amount of dividends
that would have been paid on an equivalent number of shares of outstanding
Common Stock.
(d) All Other Compensation for 1999 consists of Company-matched thrift plan
contributions (Mr. Davidson $26,625, Mr. Evans $5,500, Mr. von Bernuth
$11,754, Mr. Starzel $10,501 and Mr. Shattuck $9,073), and life insurance
premiums in 1999 (Mr. Davidson $25,100, Mr. Evans $15,580, Mr. von Bernuth
$7,721, Mr. Starzel $15,740 and Mr. Shattuck $9,130).
(e) Mr. Evans joined the Railroad as President and COO on September 15, 1998.
(f) The bonus for Mr. Evans for 1998 represents a one-time award to replace
compensation forfeited by Mr. Evans upon leaving his previous employment.
(g) Mr. Starzel, the former Vice Chairman of SP, served as Vice President--
Western Region of the Railroad from September 24, 1996 to April 30, 1998
when he was elected Senior Vice President-Corporate Relations of the
Company.
(h) Mr. Shattuck served as Executive Vice President-Marketing and Sales of the
Railroad to March 1, 1999, when he was elected Vice Chairman of the
Railroad.
29
<PAGE>
In order to induce Mr. Evans to become the President and Chief Operating
Officer of the Railroad, the Company agreed to pay Mr. Evans a guaranteed
bonus of $300,000 for 1999, payable following the end of the year. The Company
also agreed that in the event Mr. Evans' employment is involuntarily
terminated within three years of the date he commenced his employment, other
than for cause, Mr. Evans will be entitled to a severance payment of two
years' salary and bonus (not including the one-time initial employment award)
and early vesting of the retention stock awarded to him in connection with
joining the Company. "Cause" means the willful engaging in conduct that is
demonstrably and materially injurious to the Company, monetarily or otherwise.
In November 1999 the Company and Mr. Evans amended the agreement to provide
that Mr. Evans could elect to exchange all or a portion of his guaranteed
bonus for a grant of retention stock units equal to 150% of the bonus
foregone.
Indebtedness of Management
In September 1999, the Board of Directors approved the Executive Stock
Purchase Incentive Plan (ESPIP) whereby certain of the Company's executive
officers purchased Common Stock at fair market value with the proceeds of
full-recourse, unsecured, interest bearing loans from the Company as described
beginning on page 24 of this Proxy Statement. The loans have a seventy-six
month term, commencing October 1, 1999, and accrue interest at 6.02% (the
applicable federal rate as determined pursuant to Section 1274(d) of the Code
on the purchase date for loans of such maturity), compounded annually.
Dividends paid on the purchased shares are assigned to the Company to offset
the loan balance until certain performance criteria are met, following which
the dividends are paid to the individual. The proceeds of deferred cash
incentives awarded during the performance period under the ESPIP must also be
applied to pay the loans. Following such payment, the balance of the loans at
the end of the performance period, together with accrued and unpaid interest
thereon, will generally be payable in three equal installments (plus interest)
on the first three anniversaries after the end of the performance period. The
payment of the loan will be accelerated if the executive officer's service is
terminated while the loan is outstanding. If the executive officer's service
is terminated during the performance period for any reason, no deferred cash
incentives will be awarded. The loan may also be prepaid at any time at the
executive officer's option.
30
<PAGE>
The following table describes the indebtedness of the Company's executive
officers under the ESPIP:
<TABLE>
<CAPTION>
Aggregate
Amount of
Greatest Indebtedness
Amount of as of
Indebtedness December 31,
Name in 1999 1999
---- ------------- -------------
<S> <C> <C>
R. K. Davidson $9,403,046.38 $9,403,046.38
I. J. Evans 4,701,523.19 4,701,523.19
L. H. Suggs 3,526,142.39 3,526,142.39
D. J. Duffy 1,880,609.28 1,880,609.28
R. B. King 1,880,609.28 1,880,609.28
J. J. Koraleski 1,880,609.28 1,880,609.28
C. W. von Bernuth 1,880,609.28 1,880,609.28
J. R. Young 1,880,609.28 1,880,609.28
L. M. Bryan, Jr. 940,304.64 940,304.64
C. R. Eisele 940,304.64 940,304.64
M. E. McAuliffe 376,121.86 376,121.86
B. R. Gutschewski 235,076.16 235,076.16
M. S. Jones 235,076.16 235,076.16
R. J. Putz 235,076.16 235,076.16
B. W. Schaefer 235,076.16 235,076.16
G. F. Schuster 235,076.16 235,076.16
</TABLE>
Security Ownership of Management
The following table sets forth information concerning the beneficial
ownership of the Company's Common Stock as of February 11, 2000 by the
Company's Chief Executive Officer and the other four most highly compensated
executive officers.
<TABLE>
<CAPTION>
Number of Percent
Shares Beneficially of
Name Owned (a) Class
---- ------------------- -------
<S> <C> <C>
Richard K. Davidson 1,619,696 0.65%
Ivor J. Evans 253,334 0.10%
Carl W. von Bernuth 505,437 0.20%
Robert F. Starzel 81,007 0.03%
James A. Shattuck 223,322 0.09%
</TABLE>
- ---------
(a) Included in the number of shares beneficially owned by Messrs. Davidson,
Evans, von Bernuth, Starzel and Shattuck are 1,192,425, 73,334, 410,150,
58,500 and 131,790 shares, respectively, which such persons have the right
to acquire within 60
31
<PAGE>
days pursuant to stock options. Included in the number of shares owned by
Messrs. Evans, Starzel and Shattuck are 80,000, 14,175 and 28,475
restricted shares, respectively, awarded under the 1993 Stock Option and
Retention Stock Plan. Included in the number of shares owned by Messrs.
Davidson and von Bernuth are 32,309 and 12,952 deferred stock units,
respectively, representing deferred stock option exercise gains, which they
will acquire as shares of Common Stock at termination of employment. Not
included in the number of shares owned by Messrs. Davidson and Evans are
73,115 and 25,591 restricted stock units, respectively, awarded under the
EIPEP.
- ---------
Option/SAR Grants Table
The following table sets forth information concerning individual grants of
stock options during 1999 to the Company's Chief Executive Officer and the
other four most highly compensated executive officers.
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------
% of
Total
Number of Options/
Securities SARs
Underlying Granted Exercise Grant Date
Options/SARs to or Base Expiration Present
Name Granted Employees Price Date Value
---- ------------ --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Richard K. Davidson 0 0% -- -- --
Ivor J. Evans 0 0% -- -- --
Carl W. von Bernuth 0 0% -- -- --
Robert F. Starzel 0 0% -- -- --
James A. Shattuck 0 0% -- -- --
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
The following table sets forth individual exercises of stock options during
1999 by the Company's Chief Executive Officer and the other four most highly
compensated executive officers.
32
<PAGE>
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End at FY-End
Shares ------------- -------------
Acquired On Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
---- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Richard K. Davidson 59,493 $1,421,561 1,004,925 $3,881,017
468,700 0
Ivor J. Evans 0 0 73,334 130,253
116,666 455,872
Carl W. von Bernuth 48,193 1,330,779 365,150 2,312,323
112,700 0
Robert F. Starzel 0 0 45,000 0
13,700 0
James A. Shattuck 14,817 469,884 106,290 126,728
25,700 0
</TABLE>
Defined Benefit Plans
Pensions for non-agreement employees of the Company and the Railroad are
provided chiefly through the Pension Plan for Salaried Employees of Union
Pacific Corporation and Affiliates (Basic Plan) and the Supplemental Pension
Plan for Officers and Managers of Union Pacific Corporation and Affiliates
(Supplemental Plan). The amount of the annual pension benefit from both Plans
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
generally the aggregate amount reflected in the salary and bonus columns of
the Summary Compensation Table.
The Supplemental Plan is an unfunded non-contributory plan which provides,
unlike the Basic Plan, 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 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. Davidson, Evans, von Bernuth,
Starzel and Shattuck have accrued benefits under the Supplemental Plan.
33
<PAGE>
The credited years of service and approximate final average earnings (as of
February 29, 2000) for each of the five individuals named in the Summary
Compensation Table under both Plans mentioned above are as follows: Mr.
Davidson 39, $1,626,000; Mr. Evans 6 (vesting of which is subject to
continuing employment by the Railroad through May 1, 2002, subject to early
vesting in certain circumstances), $989,000; Mr. von Bernuth 20, $883,000; Mr.
Starzel 11, $560,000 and Mr. Shattuck 39, $497,000.
The Company has purchased annuities to satisfy certain unfunded obligations
under the 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 with these purchases. These purchases reduce the
Company's obligations under the 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 Supplemental Plan net
of federal taxes will be the same as the net amount that would have been
received from the Supplemental Plan if the annuity had not been purchased.
The estimated annual benefits payable under the Plans at normal retirement
at age 65 based upon final average earnings and years of employment is
illustrated in the following table:
<TABLE>
<CAPTION>
Years of Employment
---------------------------------------------------------------------------
Final 5 Yrs 10 Yrs 15 Yrs 20 Yrs 25 Yrs 30 Yrs 35 Yrs 40 Yrs
Average Employ- Employ- Employ- Employ- Employ- Employ- Employ- Employ-
Earnings ment ment ment ment ment ment ment ment
-------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 400,000 $ 32,100 $ 64,210 $ 96,310 $128,420 $160,520 $192,590 $ 211,350 $ 230,110
600,000 48,770 97,550 146,320 195,100 243,870 292,590 321,350 350,110
800,000 65,440 130,890 196,330 261,780 327,220 392,590 431,350 470,110
1,000,000 82,110 164,230 246,340 328,460 410,570 492,590 541,350 590,110
1,200,000 98,780 197,570 296,350 395,140 493,920 592,590 651,350 710,110
1,400,000 115,450 230,910 346,360 461,820 577,270 692,590 761,350 830,110
1,600,000 132,120 264,250 396,370 528,500 660,620 792,590 871,350 950,110
1,800,000 148,790 297,590 446,380 595,180 743,970 892,590 981,350 1,070,110
2,000,000 165,460 330,930 496,390 661,860 827,320 992,590 1,091,350 1,190,110
</TABLE>
The benefits in the foregoing Pension Plan Table would be paid in the form
of a life annuity with 50% surviving spouse's benefit, and reflect offsets for
Social Security or Railroad Retirement.
Pursuant to a supplemental retirement agreement previously entered into
with SP, Mr. Starzel has been granted an additional monthly benefit of $10,000
(adjusted for inflation from July 1, 1995) beginning at age 62.
34
<PAGE>
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, Burlington Northern, Inc. (BNI), and 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).
[Performance Graph]
UNP S&P 500 Peers
----- ------- -----
12/94 1.000 1.000 1.000
12/95 1.497 1.374 1.374
12/96 2.075 1.689 1.533
12/97 2.221 2.252 1.771
12/98 1.626 2.895 1.797
12/99 1.602 3.504 1.318
35
<PAGE>
(2) ADOPTION OF THE UNION PACIFIC CORPORATION
2000 DIRECTORS STOCK PLAN
Introduction
On February 24, 2000, the Board of Directors approved and recommended for
submission to the shareholders for their adoption the Union Pacific
Corporation 2000 Directors Stock Plan (the Plan). The approval by an
affirmative vote of the holders of a majority of the shares of Common Stock
present, in person or by proxy and entitled to vote on this proposal, at the
2000 Annual Meeting is required for adoption.
If the Plan is approved by shareholders, the 1992 Restricted Stock Plan for
Non-Employee Directors of Union Pacific Corporation will be terminated and
certain other benefits currently offered to non-employee directors will be
discontinued or phased out. For non-employee directors elected in the future,
the number of restricted shares received upon initial election to the Board
would be reduced from 1,785 shares to 1,000 shares, and the stock unit awards
currently credited to accounts of non-employee directors elected after 1996,
on their fifth anniversary, will be discontinued. Term life insurance coverage
would be discontinued for non-employee directors and the contributory health
care plan would be available for only those non-employee directors currently
enrolled. The charitable bequest program would remain available to all current
non-employee and employee directors, but would not be a benefit available to
any director elected in the future. In place of the discontinued benefits
outlined above, the non-employee directors would receive certain Stock Awards
as set forth below.
If the Plan is not approved, the current compensation and benefit programs
for the directors will remain in place.
The Board of Directors believes that the adoption of the Plan is desirable
because it will promote the Company's interests and those of its shareholders
by attracting, retaining and motivating qualified individuals to serve on the
Company's Board of Directors and to align the financial interests of such
individuals with those of the Company's shareholders by providing for or
increasing their proprietary interest in the Company.
The following summary of the material features of the Plan is qualified in
its entirety by the complete text of the Plan. A copy of the Plan may be
requested from the Company
36
<PAGE>
as provided on page 43. Additionally, the Plan was filed on Form 8-K with the
SEC on March 9, 2000, and a copy of such filing is available at the SEC's
website, http://www.sec.gov, on its EDGAR database.
Awards Subject to the Plan
Within the limits of the Plan, the Company may annually grant non-employee
directors stock options to purchase Common Stock of the Company (Stock
Options), as well as grant future non-employee directors, upon their initial
election to the Board, restricted shares and restricted share units (Stock
Grants, and together with Stock Options, Stock Awards).
Administration
The Plan shall be administered by the Board of Directors, except that, as
provided in the Plan, the Plan may be administered by a committee of directors
(the Committee), as appointed from time to time by the Board.
Subject to the express provisions of the Plan, the Committee shall be
authorized and empowered to do all things necessary or desirable in connection
with the administration of the Plan including, without limitation: (a) to
prescribe, amend and rescind rules relating to the Plan and to define terms
not otherwise defined therein; (b) to prescribe the form of documentation used
to evidence any Stock Option or Stock Grant awarded thereunder, including
provision for such terms as it considers necessary or desirable, not
inconsistent with the terms established by the Board; (c) to establish and
verify the extent of satisfaction of any conditions to exercisability
applicable to Stock Options or to receipt or vesting of Stock Grants; and (d)
to interpret and construe the Plan, any rules and regulations under the Plan
and the terms and conditions of any Stock Option or Stock Grant awarded
thereunder, and to make exceptions to any procedural provisions in good faith
and for the benefit of the Company. Notwithstanding any provision of the Plan,
the Board may at any time limit the authority of the Committee to administer
the Plan.
Eligibility
Non-employee directors of the Company are eligible to receive Stock Awards
under the Plan. Non-employee directors are those members of the Company's
Board of Directors who are not also employees or former employees of the
Company or any of its
37
<PAGE>
direct or indirect majority-owned subsidiaries (regardless of whether such
subsidiary is organized as a corporation, partnership or other entity).
There are currently 10 non-employee directors on the Board of Directors.
The determination of which non-employee directors shall receive Stock Awards,
the number of shares subject to such Stock Awards and the dates upon which
such Stock Awards are granted will be determined pursuant to the provisions of
the Plan. A description of these provisions is set forth below.
Terms of Stock Awards
The maximum number of shares of Common Stock which may be issued pursuant
to the Plan is 550,000, of which no more than 50,000 may be issued as Stock
Grants. The maximum number of shares of Common Stock subject to Stock Options
that may be awarded under the Plan during any calendar year to any person on
account of his or her service as a non-employee director shall not exceed
5,000 shares.
If the outstanding securities of the class then subject to the Plan are
increased, decreased or exchanged for or converted into cash, property or a
different number or kind of shares or securities, or if cash, property or
shares or securities are distributed in respect of such outstanding
securities, in either case as a result of a reorganization, reclassification,
dividend (other than a regular cash dividend) or other distribution, stock
split, reverse stock split, spin-off or the like, or if substantially all of
the property and assets of the Company are sold, then, unless the terms of
such transaction shall provide otherwise, the maximum number and type of
shares or other securities that may be issued under this Plan and that are
subject to the outstanding Stock Awards shall be appropriately adjusted, which
adjustment shall be determined by the Committee. In addition, in connection
with any such change in the class of securities then subject to the Plan, the
Committee may make appropriate and proportionate adjustments in the number and
type of shares or other securities or cash or other property that may be
acquired pursuant to Stock Options or Stock Grants previously awarded under
the Plan and the exercise price of such Stock Options or price, if any, of
such Stock Grants.
Stock Option Price and Terms
Commencing in 2001, each non-employee director will receive annually, on
the date of the first Board of Directors meeting of a calendar year, a Stock
Option to purchase a number of shares of Common Stock of the Company
determined by dividing
38
<PAGE>
60,000 by 1/3 of the fair market value on the date of such Board of Directors
meeting of one share of the Company's Common Stock, with the resulting
quotient rounded up or down to the nearest 50 shares. Subject to the annual
5,000 share limit set forth above, the Board of Directors can adjust this
formula in subsequent years, but no such adjustment will impact any Stock
Option then outstanding. Neither the Board of Directors nor the Committee has
the ability under the current Plan provisions to award Stock Options other
than pursuant to a formula that is the same for all non-employee directors.
Unless otherwise provided by the Committee, Stock Options granted under the
Plan will vest in full on the first anniversary of grant, with accelerated
full vesting upon the death or disability of the participant. In addition,
unless otherwise provided by the Committee, non-employee directors will
generally be able to exercise vested Stock Options for five years after
termination of service other than for cause. Non-employee directors forfeit
all vested and unvested Stock Options upon removal from the Board of Directors
for cause. Stock Options granted under the Plan have a term of ten years.
The exercise price for each Stock Option shall be the fair market value of
the stock on the date of the grant. However, the exercise price shall be
payable in such other form(s) of consideration as the Committee in its
discretion shall specify. The exercise price of previously awarded Stock
Options may not be adjusted or amended other than for a change in the class of
securities then subject to the Plan as set forth on the preceding page. On
February 24, 2000, the fair market value of a share of Common Stock of the
Company was $37.91.
Stock Grant Terms
Each non-employee director, upon his or her initial election to the Board
of Directors, shall receive a grant of 1,000 shares of restricted shares or
restricted share units. Restricted share units are the right to receive Common
Stock of the Company in the future. Participants shall not be required to make
any payment for a Stock Grant under the current terms of the Plan.
Unless otherwise provided by the Committee, participants shall have the
entire beneficial ownership interest in, and all rights and privileges as a
shareholder as to, the Stock Grant, if issued as restricted shares, subject to
the restrictions set forth in the Plan. Stock Grants issued as restricted
share units may provide that the participant has the right to receive dividend
payments or dividend equivalent payments on the Common
39
<PAGE>
Stock subject to such award, whether or not such award has vested. Dividends
on restricted share units may be paid in cash or may be credited to the
participant's account and later settled in cash or Company Common Stock, or a
combination thereof.
The Company shall retain the stock certificate evidencing ownership of the
restricted shares, or keep an account of restricted share units until the
restriction period terminates. Generally, the restriction period terminates on
the date the non-employee director ceases to be a director of the Company by
reason of death, disability or retirement (Restriction Period). Removal from
the Board of Directors for cause would result in forfeiture of a non-employee
director's Stock Grant to the Company. Upon a non-employee director ceasing
service as a director by reason of death, disability or retirement, the
Company shall provide to the non-employee director a certificate evidencing
ownership of the Stock Grant, free of all restrictions.
Additional Conditions, Amendment and Termination
The Board of Directors may, but need not, provide that the shares of Common
Stock issued upon exercise of the Stock Option or receipt of a Stock Grant
shall be subject to such further conditions, restrictions or agreements as the
Board of Directors in its discretion may specify prior to the exercise of such
Stock Option or receipt of a Stock Grant, including without limitation,
deferrals on issuance, conditions on vesting or transferability, and
forfeiture or repurchase provisions. The Committee may permit a participant to
elect to defer receipt of all or part of the Common Stock issuable upon the
exercise of a Stock Option or receipt of a Stock Grant, pursuant to rules and
regulations established by the Committee. The Board may waive conditions to
and/or accelerate exercisability of a Stock Option or vesting of a Stock
Grant, either automatically upon the occurrence of specified events (including
in connection with a change of control of the Company) or otherwise in its
discretion.
The Board may periodically amend the Plan as determined appropriate,
without further action by the Company's shareholders except to the extent
required by applicable law. Notwithstanding the foregoing, subject to
adjustment pursuant to the antidilution provisions of the Plan, the Plan may
not be amended to materially increase the number of shares of Common Stock
authorized for issuance under the Plan unless the amendment is approved by the
shareholders.
The Plan may be terminated at such time as the Board of Directors may
determine. Termination and expiration of the Plan shall not affect the rights
and obligations arising under Stock Awards theretofore granted and then in
effect.
40
<PAGE>
Transferability of Stock Awards
Unless otherwise provided by the Committee, each Stock Option shall be
transferable only by will or the laws of descent and distribution.
Common Stock issued in respect of Stock Grants, unless otherwise provided
by the Committee, shall be transferable at the end of the Restriction Period,
but not before then.
Federal Income Tax Consequences
Counsel has advised that under present Federal tax laws and regulations,
the significant Federal income tax consequences to non-employee directors and
the Company as a result of the grant of Stock Awards should be as described
below.
A non-employee director recognizes no taxable income upon the grant of a
Stock Option, but will recognize taxable income upon its exercise equal to the
excess, if any, of the fair market value of the shares of Common Stock at the
time of exercise over the exercise price. The non-employee director's tax
basis for the shares of Common Stock received will be their fair market value
at the time of exercise and any taxable gain or loss on a subsequent
disposition will be capital gain or loss if such shares are otherwise capital
assets.
The tax consequences of a Stock Grant depend upon whether such grant is
issued as restricted shares or restricted share units.
If the Stock Grant is issued in the form of restricted shares, the tax
consequences depend upon whether or not the non-employee director elects to be
taxed at the time of the grant of such restricted shares.
No Tax Election Made. If no election is made, taxable income is not
recognized at the time of such grant. Recognition of taxable income is
postponed until the restrictions on the shares lapse. At that time, the non-
employee director will recognize taxable income equal to the then fair market
value of the shares and such amount will be the tax basis for such shares. Any
taxable gain or loss on a subsequent disposition will be capital gain or loss
if such shares are otherwise capital assets.
Tax Election Made. If the election is made, taxable income is recognized at
the time of such grant equal to the fair market value of such shares at that
time, determined
41
<PAGE>
without regard to any of the restrictions thereon and such amount is the tax
basis for such shares. If such shares are subsequently forfeited before the
restrictions lapse, the non-employee director will be entitled to no deduction
on account thereof. Any taxable gain or loss on a disposition after the
restrictions lapse will be capital gain or loss if such shares are otherwise
capital assets.
If the Stock Grant is issued in the form of restricted share units, taxable
income is not recognized at the time of such grant. Recognition of taxable
income is postponed until the restrictions on the restricted share units
lapse. At that time, the non-employee director will recognize taxable income
equal to the then fair market value of the shares issuable in payment of such
units and such amount will be the tax basis for such shares. Any taxable gain
or loss on a subsequent disposition will be capital gain or loss if such
shares are otherwise capital assets.
The Company is entitled to a tax deduction in the same amount as the income
recognized by the non-employee director and in the taxable year in which such
income is recognized. For Stock Grants, the Company is also entitled to a tax
deduction for any dividends or dividend equivalents paid to the non-employee
director prior to the time that such income is recognized.
The Board of Directors recommends that shareholders vote FOR approval of
Proposal 2.
(3) 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 2000 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 3.
42
<PAGE>
OTHER BUSINESS
The only business to come before the meeting of which the management is
aware is set forth in this Proxy Statement. If two proposals that were
excluded from this Proxy Statement in accordance with Rule 14a-8 of the
Securities Exchange Act of 1934 are properly brought before the meeting, it is
intended that the proxy holders will use their discretionary authority to vote
the proxies against such proposals. 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.
Carl W. von Bernuth
Senior Vice President,
General Counsel and Secretary
Any security holder wishing to receive, without charge, a copy of Union
Pacific's 1999 Annual Report on Form 10-K (without exhibits) filed with the
Securities and Exchange Commission, the Company's report, "Commitment to
Diversity" or a copy of the Union Pacific Corporation 2000 Directors Stock
Plan, should write to Secretary, Union Pacific Corporation, 1416 Dodge
Street, Room 1230, Omaha, NE 68179.
43
<PAGE>
<PAGE>
[LOGO] UNION PACIFIC PROXY
CORPORATION SOLICITED BY BOARD OF DIRECTORS
1416 Dodge Street ANNUAL MEETING APRIL 21, 2000
Room 1230 SALT LAKE CITY, UTAH
Omaha, NE 68179
The undersigned hereby appoints RICHARD K. DAVIDSON and CARL W. von BERNUTH,
and each of them, as Proxies, 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 on April 21, 2000 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 proposals 2 and 3. The Board of Directors
recommends a vote FOR all nominees in the election of Directors and FOR
proposals 2 and 3.
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 proposals 2 and 3.
For Withhold For All
1. Election of Directors - All All Except
Nominees: P.F. Anschutz, R.P. Bauman, ------- ------- -------
R.B. Cheney, E.V. Conway,
R.K. Davidson, T.J. Donohue,
S.F. Eccles, I.J. Evans,
E.T. Gerry, Jr., J.R. Hope,
R.J. Mahoney, R.D. Simmons
------------------------------------------------
(Except nominee(s) written above.)
For Against Abstain
2. Adopt the Union Pacific Corporation
2000 Directors Stock Plan.
------- ------- -------
3. Ratify appointment of Deloitte &
Touche as independent auditors. ------- ------- -------
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders and of the Proxy Statement.
Date: , 2000
------------------------------------
Signature(s)
-----------------------------------
-----------------------------------------------
Please sign exactly as name appears. Joint
owners should each sign personally. Where
applicable, indicate your official position or
representative capacity.
<PAGE>
[LOGO]
UNION PACIFIC CONFIDENTIAL VOTING INSTRUCTIONS FOR
CORPORATION ANNUAL MEETING APRIL 21, 2000
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 11, 2000, 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 21, 2000, 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. I understand that this card when properly executed will be voted in the
manner described herein; if no direction is made, the shares allocated to my
account will be voted FOR all nominees in the election of Directors and FOR
proposals 2 and 3; if I do not return my card, the shares that may be 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; and if I have shares allocated to more than one of the plans below and
wish to vote the shares differently among the plans, I may contact Harris Trust
& Savings Bank at 1-800-317-2512 for additional instruction cards.
Union Pacific Corporation Thrift Plan (THRT)
Union Pacific Resources Group Inc. Employees' Thrift Plan (RGRP)
Union Pacific Agreement Employee 401(k) Retirement Thrift Plan (AGRE)
Union Pacific Fruit Express Company Agreement Employee 401(k)
Retirement Thrift Plan (FREX)
Southern Pacific Rail Corporation Thrift Plan (SPCR)
Chicago and North Western Railway PS and Retirement Savings Program (CNWP)
Union Pacific Corporation Thrift Plan PAYSOP (UPSP)
Union Pacific Corporation Employee Stock Ownership Plan (TRASOP) (TSOP)
(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 proposals 2 and 3.
1. Election of Directors- For Withhold For All
All All Except
Nominees: P.F. Anschutz, R.P. Bauman,
R.B. Cheney, E.V. Conway, ----- ----- -----
R.K. Davidson, T.J. Donohue,
S.F. Eccles, I.J. Evans,
E.T. Gerry, Jr., J.R. Hope,
R.J. Mahoney, R.D. Simmons
- ----------------------------------------
(Except nominee(s) written above.)
For Against Abstain
2. Adopt the Union Pacific Corporation
2000 Directors Stock Plan. ----- ----- -----
3. Ratify appointment of Deloitte &
Touche as independent auditors. ----- ----- -----
The undersigned acknowledges receipt of the Notice of Annual Meeting
of Shareholders and of the Proxy Statement.
Dated:_____________________________, 2000
Signature________________________________
_________________________________________
Please sign exactly as name appears.
<PAGE>
UNION PACIFIC CORPORATION
2000 DIRECTORS STOCK PLAN
1. PURPOSE
-------
The purpose of the Union Pacific Corporation 2000 Directors Stock Plan (the
"Plan") is to advance the interests of Union Pacific Corporation, a Utah
corporation (the "Company"), by enabling the Company to attract, retain and
motivate qualified individuals to serve on the Company's Board of Directors
and to align the financial interests of such individuals with those of the
Company's stockholders by providing for or increasing their proprietary
interest in the Company.
2. DEFINITIONS
-----------
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the Board and/or a committee of the Board acting
pursuant to its authorization to administer this Plan under Section 7.
(c) "Common Stock" means the Company's Common Stock, par value $2.50, as
presently constituted, subject to adjustment as provided in Section 8.
(d) "Fair Market Value" means, as of any date, and unless the Board shall
specify otherwise, the average of the high and low trading prices of a
share of Common Stock as reported in the Wall Street Journal listing
of composite transactions for New York Stock Exchange issues.
(e) "Non-Employee Director" means a member of the Board who is not at the
time also an employee or former employee of the Company or any of its
direct or indirect majority-owned subsidiaries (regardless of whether
such subsidiary is organized as a corporation, partnership or other
entity).
(f) "Restricted Shares" means shares of Common Stock granted under Section
6(c) of the Plan.
(g) "Restricted Share Units" means the right to receive in the future a
share of Common Stock granted under Section 6(c) of the Plan.
(h) "Retirement" of a Participant means termination of service as a
director of the Company other than for cause, if (A) the Participant
at the time of termination was ineligible for continued service as a
director under the Company's Retirement Policy, or (B) the Participant
had served as a director of the Company for at least three years from
the date Restricted Shares were granted to such Participant, and such
termination is (i) due to Participant's taking a position with or
providing services to a governmental, charitable or educational
institution whose policies prohibit continued service on the Board,
(ii) due to the fact that continued service
<PAGE>
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
Participant.
(i) "Stock Grant" means the grant of 1,000 Restricted Shares or Restricted
Share Units, as determined by the Committee.
3. SHARES SUBJECT TO THE PLAN
--------------------------
Subject to adjustment as provided in Section 8, the maximum number of
shares of Common Stock which may be issued pursuant to this Plan shall not
exceed 550,000, no more than 50,000 of which may be issued as Stock Grants.
Shares issued under this Plan may be authorized and unissued shares of
Common Stock or shares of Common Stock reacquired by the Company. All or
any shares of Common Stock subject to a stock option under the Plan which
for any reason are not issued may again be made subject to a stock option
or Stock Grant under the Plan.
4. PARTICIPANTS
------------
Any person who is a Non-Employee Director shall be a participant hereunder
(each a "Participant").
5. AWARDS
(a) (i) Unless determined otherwise below, commencing January 1, 2001,
each Participant shall receive annually, on the date of the first
meeting of the Board of Directors of a calendar year, an option to
purchase a number of shares of Common Stock determined by dividing
60,000 by 1/3 of the Fair Market Value on the date of such annual
meeting of one share of Common Stock, with the resulting quotient
rounded (up or down, as the case may be) to the nearest 50 shares; and
(ii) Each Non-Employee Director shall upon his or her initial
election to the Board receive a Stock Grant effective as of the date
of such election. A Participant shall not be required to make any
payment for a Stock Grant granted hereunder.
(b) Subject always to Section 5(c), the Board may in its discretion adjust
the formula set forth in Section 5(a)(i) pursuant to which the number
of shares subject to an option shall be determined, provided that no
such adjustment shall effect any option then outstanding under the
Plan.
(c) Subject to adjustment pursuant to Section 8, the maximum number of
shares of Common Stock subject to stock options awarded under this
Plan during any calendar year to any person on account of his or her
service as a Non-Employee Director shall not exceed 5,000 shares.
2
<PAGE>
6. TERMS AND CONDITIONS OF STOCK AWARDS
------------------------------------
(a) General Terms and Conditions: Stock options and Stock Grants awarded
pursuant to the Plan need not be identical but each stock option and
Stock Grant shall be subject to the following general terms and
conditions:
(i) Terms and Restrictions Upon Shares: The Board may provide that
the shares of Common Stock issued upon exercise of a stock option or
receipt of a Stock Grant shall be subject to such further conditions,
restrictions or agreements as the Board in its discretion may specify
prior to the exercise of such stock option or receipt of a Stock
Grant, including without limitation, deferrals on issuance, conditions
on vesting or transferability, and forfeiture or repurchase
provisions. The Committee may permit a Participant to elect to defer
receipt of all or part of the Common Stock issuable upon the exercise
of a stock option or receipt of a Stock Grant, pursuant to rules and
regulations adopted by the Committee.
(ii) Other Terms and Conditions: Except as set forth herein, no
holder of a stock option or Stock Grant shall have any rights as a
stockholder with respect to any shares of Common Stock subject to a
stock option or Stock Grant hereunder until said shares have been
issued. Stock options or Stock Grants may also contain such other
provisions, which shall not be inconsistent with any of the foregoing
terms, as the Board or the Committee shall deem appropriate. The Board
may waive conditions to and/or accelerate exercisability of a stock
option or vesting of a Stock Grant, either automatically upon the
occurrence of specified events (including in connection with a change
of control of the Company) or otherwise in its discretion. No stock
option or Stock Grant, however, nor anything contained in the Plan,
shall confer upon any Participant any right to serve as a director of
the Company.
(b) Terms and Conditions of Stock Options
-------------------------------------
(i) Term of Stock Options: Each stock option granted pursuant to the
Plan shall have a term of ten years from the date of grant.
(ii) Transferability of Stock Options: Unless otherwise provided by
the Committee, each stock option shall be transferable only by will or
the laws of descent and distribution.
(iii) Vesting of Stock Options: Unless otherwise provided by the
Committee in awarding a stock option, each stock option granted
pursuant to the Plan shall vest in full on the first anniversary of
the grant date for such option; provided, however, that, unless
otherwise provided by the Committee, in the event of the death or
disability (as determined by the Committee) of a Participant, any
unvested option granted pursuant to the Plan shall vest immediately.
3
<PAGE>
(iv) Exercise of Stock Option after Termination of Service: Unless
otherwise provided by the Committee in awarding a stock option, in the
event a Non-Employee Director ceases to be a director of the Company
for any reason, such Non-Employee Director shall be able to exercise
any stock options held by such Non-Employee Director and vested on the
date of such termination for a period of five years after the date of
such termination; provided, that (i) in no event shall any stock
option be exercisable after expiration of such option's ten year term
and (ii) any unexercised stock option shall expire immediately upon a
Participant's removal for cause from the Board.
(v) Stock Option Price: The exercise price for each stock option
shall be the Fair Market Value of the stock on the date of grant. The
exercise price for a stock option previously awarded under the Plan
may not be adjusted or amended, except as provided in Section 8. The
exercise price shall be payable in cash, by payment under an
arrangement with a broker where payment is made pursuant to an
irrevocable direction to the broker to deliver all or part of the
proceeds from the sale of the option shares to the Company, by the
surrender of shares of Common Stock owned by the optionholder
exercising the option and having a fair market value, as determined by
the Committee, on the date of exercise equal to the exercise price but
only if such will not result in an accounting charge to the Company,
or by any combination of the foregoing. In addition, the exercise
price shall be payable in such other form(s) of consideration as the
Committee in its discretion shall specify.
(c) Stock Grant Terms.
------------------
(i) Unless otherwise provided by the Committee in its discretion, at
the time of grant of Restricted Shares to a Participant, a certificate
representing 1,000 shares of Common Stock shall be registered in such
Participants' name and shall be held by the Company for his or her
account. Unless otherwise provided by the Committee in its
discretion, the Participant shall have the entire beneficial ownership
interest in, and all rights and privileges of a stockholder as to,
such Restricted Shares, including the right to vote such restricted
Shares and the right to receive dividends, subject to the following
restrictions: (A) the Participant shall not be entitled to delivery of
such stock certificate until the expiration of the Restriction Period
(as hereinafter defined); (B) none of the Restricted Shares may be
sold, transferred, assigned, pledged, or otherwise encumbered or
disposed of during the Restriction Period; (C) all of the Restricted
Shares shall be forfeited and all rights of the Participant to such
Restricted Shares shall terminate without further obligation on the
part of the Company if the Participant ceases to be a director of the
Company for any reason other than death, disability (as determined by
the Committee), or Retirement. Any shares of Common Stock or other
securities or property received as a result of a transaction listed in
Section 8 hereof shall be subject to the same restrictions as such
Restricted Shares.
4
<PAGE>
(ii) At the end of the Restriction Period all restrictions applicable
to the Restricted Shares shall lapse, and a stock certificate for a
number of shares of Common Stock equal to the number of Restricted
Shares, free of all restrictions, shall be delivered to the
Participant or his beneficiary, as the case may be. "Restriction
Period" shall mean the period commencing on the date of grant of
Restricted Shares and ending on the date such director ceases to be a
director of the Company by reason of death, disability (as determined
by the Committee) or Retirement.
(iii) Awards of Restricted Share Units shall be payable in shares of
Common Stock. The provisions of Section 6(c)(i) and 6(c)(ii) of the
Plan relating to the vesting and forfeiture of Restricted Shares shall
apply to any award of Restricted Stock Units. Any award of Restricted
Share Units may provide the Participant with the right to receive
dividend payments or dividend equivalent payments on the Common Stock
subject to the award, whether or not such award has vested. Such
payments may be made in cash or may be credited to a Participant's
account and later settled in cash or Common Stock or a combination
thereof, as determined by the Committee. Such payments and credits
may be subject to such conditions and contingencies as the Committee
may establish.
7. ADMINISTRATION OF THE PLAN
--------------------------
The Plan shall be administered by the Board, except that as provided herein
the Plan may be administered by a Committee of the Board, as appointed from
time to time by the Board. The Board shall fill vacancies on and from time
to time may remove or add members to the Committee. The Committee shall
act pursuant to a majority vote or unanimous written consent.
Subject to the express provisions of this Plan, the Committee shall be
authorized and empowered to do all things necessary or desirable in
connection with the administration of this Plan, including, without
limitation: (a) to prescribe, amend and rescind rules relating to this
Plan and to define terms not otherwise defined herein; (b) to prescribe the
form of documentation used to evidence any stock option or Stock Grant
awarded hereunder, including provision for such terms as it considers
necessary or desirable, not inconsistent with the terms established by the
Board; (c) to establish and verify the extent of satisfaction of any
conditions to exercisability applicable to stock options or to receipt or
vesting of Stock Grants; (d) to determine whether, and the extent to which,
adjustments are required pursuant to Section 8 hereof; and (e) to interpret
and construe this Plan, any rules and regulations under the Plan and the
terms and conditions of any stock option or Stock Grant awarded hereunder,
and to make exceptions to any procedural provisions in good faith and for
the benefit of the Company. Notwithstanding any provision of this Plan,
the Board may at any time limit the authority of the Committee to
administer this Plan.
All decisions, determinations and interpretations by the Board or, except
as to the Board, the Committee regarding the Plan, any rules and
regulations under the Plan and the terms
5
<PAGE>
and conditions of any stock option or Stock Grant awarded hereunder, shall
be final and binding on all Participants and holders of stock options or
Stock Grants. The Board and the Committee may consider such factors as it
deems relevant, in its sole and absolute discretion, in making such
decisions, determinations and interpretations including, without
limitation, the recommendations or advice of any officer or other employee
of the Company and such attorneys, consultants and accountants as it may
select.
All questions pertaining to the construction, regulation, validity and
effect of the Plan shall be determined in accordance with the laws of the
State of Utah.
8. ADJUSTMENT OF AND CHANGES IN THE STOCK
--------------------------------------
If the outstanding securities of the class then subject to this Plan are
increased, decreased or exchanged for or converted into cash, property or a
different number or kind of shares or securities, or if cash, property or
shares or securities are distributed in respect of such outstanding
securities, in either case as a result of a reorganization,
reclassification, dividend (other than a regular cash dividend), or other
distribution, stock split, reverse stock split, spin-off or the like, or if
substantially all of the property and assets of the Company are sold, then,
unless the terms of such transaction shall provide otherwise, the maximum
number and type of shares or other securities that may be issued under this
Plan shall be appropriately adjusted. The Committee shall determine in its
sole discretion the appropriate adjustment to be effected pursuant to the
immediately preceding sentence. In addition, in connection with any such
change in the class of securities then subject to this Plan, the Committee
may make appropriate and proportionate adjustments in the number and type
of shares or other securities or cash or other property that may be
acquired pursuant to stock options or Stock Grants theretofore awarded
under this Plan and the exercise price of such stock options or price, if
any, of such Stock Grants.
No right to purchase or receive fractional shares shall result from any
adjustment in stock options or Stock Grants pursuant to this Section 8. In
case of any such adjustment, the shares subject to the stock option or
Stock Grant shall be rounded up to the nearest whole share of Common Stock.
9. REGISTRATION, LISTING OR QUALIFICATION OF STOCK
-----------------------------------------------
In the event that the Board or the Committee determines in its discretion
that the registration, listing or qualification of the shares of Common
Stock issuable under the Plan on any securities exchange or under any
applicable law or governmental regulation is necessary as a condition to
the issuance of such shares under the stock option or Stock Grant, the
stock option or Stock Grant shall not be exercisable or exercised in whole
or in part unless such registration, listing, qualification, consent or
approval has been unconditionally obtained.
10. EFFECTIVE DATE, AMENDMENT AND TERMINATION OF PLAN
-------------------------------------------------
This Plan shall become effective upon its approval by the Company's
shareholders at the Company's 2000 annual meeting of stockholders.
6
<PAGE>
The Board may periodically amend the Plan as determined appropriate,
without further action by the Company's stockholders except to the extent
required by applicable law. Notwithstanding the foregoing, and subject to
adjustment pursuant to Section 8, the Plan may not be amended to materially
increase the number of shares of Common Stock authorized for issuance under
the Plan, unless any such amendment is approved by the Company's
stockholders. The Plan may be terminated at such time as the Board may
determine. Termination and expiration of the Plan will not affect the
rights and obligations arising under stock options or Stock Grants
theretofore awarded and then in effect.
7
