Union Pacific 2005 Annual Report Download - page 70

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appreciation rights, retention shares, stock units, and incentive bonus awards may be granted to eligible
employees of the Corporation and its subsidiaries. Non-employee directors are not eligible for awards under the
2004 Plan. As of December 31, 2005, 2,237,650 options and 124,750 retention shares and stock units were
outstanding under the 2004 Plan.
In January 2006, our Board of Directors approved a new Long Term Plan (LTP). Participants were awarded
stock units subject to the attainment of certain performance targets and continued employment through
January 31, 2009. The LTP performance criteria used to determine the number of stock units that will be earned
during the 37-month performance period is annual return on invested capital (ROIC), calculated by the
Compensation and Benefits Committee of the Board of Directors, which may be adjusted to reflect the effect of
special transactions or events such as significant gains on the sale of real estate, tax adjustments, accounting
changes or reclassifications. At the end of year one of the performance period, a participant may earn up to
one-third of the target number of stock units granted to him or her based on the first year of ROIC performance
achieved. At the end of year two, the participant may earn additional stock units up to a total of two-thirds of the
target number of stock units granted to him or her based on the average of the first two years of ROIC
performance achieved. During year three of the performance period, the participant may earn up to 200% of the
target number of stock units granted to him or her based on the average of all three years of ROIC performance
achieved. Stock units that are earned under the LTP will be paid out in shares of our common stock.
Pursuant to the above plans, 19,303,495; 21,571,309; and 6,899,211 shares of our common stock were
available for grant at December 31, 2005, 2004, and 2003, respectively.
Options – Stock options are granted with an exercise price equal to the fair market value of our common stock as
of the date of the grant. Options are granted with a 10-year term and are generally exercisable one to two years
after the date of the grant. A summary of the stock options issued under the 1993 Plan, the UP Shares Plan, the
Directors Plan, the 2001 Plan, and the 2004 Plan, and changes during the years ending December 31 are as
follows:
Year Ended December 31,
2005 2004 2003
Shares
Weighted-
Average
Exercise
Price Shares
Weighted-
Average
Exercise
Price Shares
Weighted-
Average
Exercise
Price
Outstanding, beginning of year ..... 17,522,133 $56.17 18,515,231 $53.75 21,352,105 $53.00
Granted ....................... 4,462,260 64.71 2,220,450 65.04 2,398,300 55.98
Exercised ...................... (9,408,918) 55.91 (2,942,406) 47.52 (4,955,725) 51.58
Forfeited ....................... (139,266) 57.88 (271,142) 57.23 (279,449) 54.69
Outstanding, end of year .......... 12,436,209 $59.41 17,522,133 $56.17 18,515,231 $53.75
Options exercisable at year end ..... 10,087,771 $59.42 14,878,933 $54.92 15,514,331 $53.27
Weighted-average fair value of
options granted during the year . . N/A $12.92 N/A $16.38 N/A $14.30
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