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 Rule 14a-11(c) or Rule 14a-12
| [ ] | Preliminary Proxy Statement | |
| [X] | Definitive Proxy Statement | |
| [ ] | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
| [ ] | Definitive Additional Materials | |
| [ ] | Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12 |
PG&E & E Corporation and Pacific Gas and Electric Company
Filing Jointly
(Name
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
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PG&E CORPORATION AND PACIFIC GAS AND ELECTRIC COMPANY
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[PG&E LOGO] Joint Notice of 2001 Annual Meetings - Joint Proxy Statement
April 16, 2001
| [X] | Fee not required. | ||||
| [ ] | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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): | ||||
| (4) | Proposed maximum aggregate value of transaction: | ||||
| (5) | Total fee paid: | ||||
| [ ] | Fee paid previously with preliminary materials. | ||||
| [ ] | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | ||||
| (1) | Amount Previously Paid: | ||||
| (2) | Form, Schedule or Registration Statement No.: | ||||
| (3) | Filing Party: | ||||
| (4) | Date Filed: | ||||
 | PG&E Corporation and Pacific Gas and Electric Company Joint Notice of 2002 Annual Meetings • Joint Proxy Statement |
March 13, 2002
To the Shareholders of PG&E Corporation and Pacific Gas and Electric Company:
You are cordially invited to attend the fifth annual meeting of
PG&E Corporation and the 95th annual meeting of Pacific Gas and
Electric Company. The meetings will be held concurrently on
Wednesday, May 16, 2001, at 3:00 p.m., in the Masonic Auditorium,
1111 California Street, San Francisco, California.
The accompanying Joint Proxy Statement contains information
about matters to be considered at both the PG&E Corporation and
Pacific Gas and Electric Company annual meetings. At the annual
meetings, PG&E Corporation and Pacific Gas and Electric Company
shareholders will be asked to vote on the election of directors and
ratification of the selection of independent public accountants for
2001 for their respective companies. The Boards of Directors and
management of PG&E Corporation and Pacific Gas and Electric Company
recommend that you vote "FOR" the nominees for directors and the
ratification of the appointment of Deloitte & Touche LLP as the
independent public accountants for 2001, as set forth in the Joint
Proxy Statement.
In addition to the matters described above, PG&E Corporation
shareholders will be asked to vote on a management proposal to
increase the number of shares available to be issued under the
Long-Term Incentive Program. For the reasons stated in the Joint
Proxy Statement, the PG&E Corporation Board of Directors and
management recommend that PG&E Corporation shareholders vote "FOR"
this proposal.
PG&E Corporation shareholders also will be asked to vote on the
proposals submitted by individual PG&E Corporation shareholders
described in the Joint Proxy Statement, if such proposals are
properly presented at the annual meeting. For the reasons stated in
the Joint Proxy Statement, the PG&E Corporation Board of Directors
and management recommend that PG&E Corporation shareholders vote
"AGAINST" these proposals.
Your vote on the business at the annual meetings is important.
If you hold shares in both PG&E Corporation and Pacific Gas and
Electric Company, you will be provided with a separate proxy form
for each company. For your convenience, we offer you the option of
executing and submitting your proxy and voting instructions over the
Internet, by telephone, or by mail. Whether or not you plan to
attend, please vote as soon as possible so that your shares can be
represented at the annual meetings.
During the annual meetings, PG&E Corporation and Pacific Gas
and Electric Company management also will report on operations and
other matters affecting PG&E Corporation and Pacific Gas and
Electric Company, act on such other matters as may properly come
before the meetings, and respond to shareholders' questions.
Sincerely,
/s/ ROBERT D. GLYNN, JR.
Robert D. Glynn, Jr.
Chairman of the Board, Chief Executive
Officer,
and President of PG&E Corporation
Chairman of the Board of
Pacific Gas and Electric Company
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Table of Contents
| You are cordially invited to attend the 6th annual meeting of PG&E Corporation and the 96th annual meeting of Pacific Gas and Electric Company. The meetings will be held concurrently on Wednesday, April 17, 2002, at 10:00 a.m., in the Masonic Auditorium, 1111 California Street, San Francisco, California. | ||
| The accompanying Joint Proxy Statement contains information about matters to be considered at both the PG&E Corporation and Pacific Gas and Electric Company annual meetings. At the annual meetings, PG&E Corporation and Pacific Gas and Electric Company shareholders will be asked to vote on the election of directors and ratification of the appointment of independent public accountants for 2002 for their respective companies. The Boards of Directors and management of PG&E Corporation and Pacific Gas and Electric Company recommend that you vote “FOR” the nominees for directors and the ratification of the appointment of Deloitte & Touche LLP as the independent public accountants for 2002, as set forth in the Joint Proxy Statement. | ||
| PG&E Corporation shareholders also will be asked to vote on two management proposals to amend PG&E Corporation’s Articles of Incorporation and Bylaws to (1) implement enhancement of simple majority voting, and (2) reduce the authorized range of directors and delete from the Bylaws the provision that restates the authorized range of directors as set forth in the Articles of Incorporation. For the reasons stated in the Joint Proxy Statement, the PG&E Corporation Board of Directors and management recommend that PG&E Corporation shareholders vote “FOR” these proposals. | ||
| Pacific Gas and Electric Company shareholders also will be asked to vote on five management proposals to amend Pacific Gas and Electric Company’s Articles of Incorporation and Bylaws to (1) establish a classified Board of Directors, (2) reduce the authorized range of directors and transfer the provision that establishes the authorized range of directors from the Bylaws to the Articles of Incorporation, (3) transfer the provision that prohibits cumulative voting in the election of directors from the Bylaws to the Articles of Incorporation, (4) include constituency provisions, and (5) require that shareholder action be taken at an annual or special meeting. For the reasons stated in the Joint Proxy Statement, the Pacific Gas and Electric Company Board of Directors and management recommend that Pacific Gas and Electric Company shareholders vote “FOR” these proposals. | ||
| PG&E Corporation shareholders also will be asked to vote on the proposals submitted by individual PG&E Corporation shareholders described in the Joint Proxy Statement, if such proposals are properly presented at the annual meeting. For the reasons stated in the Joint Proxy Statement, the PG&E Corporation Board of Directors and management recommend that PG&E Corporation shareholders vote “AGAINST” these proposals. | ||
| Your vote on the business at the annual meetings is important. For your convenience, we offer you the option of executing and submitting your proxy and voting instructions over the Internet, by telephone, or by mail. Whether or not you plan to attend, please vote as soon as possible so that your shares can be represented at the annual meetings. | ||
| During the annual meetings, PG&E Corporation and Pacific Gas and Electric Company management also will report on operations and other matters affecting PG&E Corporation and Pacific Gas and Electric Company, act on such other matters as may properly come before the meetings, and respond to shareholders’ questions. |
| Sincerely, | |
 | |
| Robert D. Glynn, Jr. | |
| Chairman of the Board, Chief Executive Officer, | |
| and President of PG&E Corporation | |
| Chairman of the Board of | |
| Pacific Gas and Electric Company |
Table of Contents
| Joint Notice of Annual Meetings of Shareholders | |||||||
| Joint Proxy Statement | |||||||
| Questions and Answers | 1 | ||||||
| Item No. 1: | Election of Directors | 6 | |||||
| Information Regarding the Boards of Directors of PG&E Corporation and Pacific Gas and Electric Company | 9 | ||||||
| Item No. 2: | Ratification of Appointment of Independent Public Accountants | 16 | |||||
| Item | PG&E Corporation Management (To Be Voted on by PG&E Corporation Shareholders Only) | 17 | |||||
| Item Nos. | Pacific Gas and Electric Company Management Proposals (To Be Voted on by Pacific Gas and Electric Company Shareholders Only) | 19 | |||||
| Item Nos. 10-15: | PG&E Corporation Shareholder Proposals (To Be Voted on by PG&E Corporation Shareholders Only) | 23 | |||||
| Executive Compensation | 32 | ||||||
| Report of the Audit Committees | 47 | ||||||
| Other Information | 48 | ||||||
| Appendix A | Articles Third and Eighth of the (As Proposed to Be Amended) | A-1 | |||||
| Appendix B – | Articles Fifth, Sixth, Seventh, and Eighth of the Restated Articles of Incorporation and Article II of the Bylaws of Pacific Gas and Electric Company (As Proposed to Be Amended) | B-1 | |||||
| March 13, 2002 |
To the Shareholders of PG&E Corporation and Pacific Gas and Electric Company
April 16, 2001
TO THE SHAREHOLDERS OF PG&E CORPORATION AND PACIFIC GAS AND ELECTRIC COMPANY:Company:
The annual meetings of shareholders of PG&E Corporation and Pacific Gas and Electric Company will be held concurrently on Wednesday, May 16, 2001,April 17, 2002, at 3:10:00 p.m.a.m., in the Masonic Auditorium, 1111 California Street, San Francisco, California, for the purpose of considering the following matters:
(1) For PG&E Corporation and Pacific Gas and Electric Company shareholders,
to elect the following 9 and 10 directors, respectively, to each Board
for the ensuing year:
| (1) | For PG&E Corporation and Pacific Gas and Electric Company shareholders, to elect the following nine and ten directors, respectively, to each Board for the ensuing year: |
| David R. Andrews | Robert D. Glynn, Jr. | Carl E. Reichardt | ||
| David A. Coulter | David M. Lawrence, MD | Gordon R. Smith* | ||
| C. Lee Cox | Mary S. Metz | Barry Lawson Williams | ||
| William S. Davila | ||||
| * Gordon R. Smith is a nominee for director of | ||||
| (2) | For PG&E Corporation and Pacific Gas and Electric Company shareholders, to ratify each Board | |
| (3) | For PG&E Corporation shareholders only, to act upon two management proposals described on pages 17-18 of the Joint Proxy Statement, | |
| (4) | For Pacific Gas and Electric Company shareholders only, to act upon five management proposals described on pages 19-22 of the Joint Proxy Statement, | |
| (5) | For PG&E Corporation shareholders only, to act upon proposals submitted by PG&E Corporation shareholders and described on pages 23-31 of the Joint Proxy Statement, if such proposals are properly presented at the meeting, and | |
| (6) | For PG&E Corporation and Pacific Gas and Electric Company shareholders, to transact such other business as may properly come before the meetings and any adjournments or postponements thereof. |
The Boards of Directors have fixed the close of business on February 19, 2002, as the record date for the purpose of determining shareholders who are entitled to receive notice of and to vote at the annual meetings.
| By Order of the Boards of Directors, | |
 | |
| Linda Y.H. Cheng | |
| Corporate Secretary, | |
| PG&E Corporation and | |
| Pacific Gas and Electric Company |
Joint Proxy Statement
This Joint Proxy Statement provides information concerning the Joint Annual Meetings of PG&E Corporation and Pacific Gas and Electric Company, shareholders,
to ratify each Board of Directors' appointment of Deloitte & Touche LLP
as independent public accountants for 2001 forwhich will be held concurrently on Wednesday, April 17, 2002. The Joint Proxy Statement and proxy cards, together with the PG&E Corporation and Pacific Gas and Electric Company (3) For PG&E Corporation shareholders only,joint 2001 Annual Report to act upon the management
proposal describedShareholders, were mailed beginning on pages 13-19or about March 13, 2002.
Questions and Answers
Why did you send me this proxy statement and a proxy card?
The Boards of the Joint Proxy Statement,
(4) For PG&E Corporation shareholders only, to act upon five proposals
submitted by PG&E Corporation shareholders and described on pages 20-25Directors of the Joint Proxy Statement, if such proposals are properly presented
at the meeting, and
(5) For PG&E Corporation and Pacific Gas and Electric Company shareholders,
to transact such other business as may properly come before the(Boards) are soliciting proxies for use at their respective annual meetings, andincluding any adjournments or postponements thereof.
Shareholderspostponements. This proxy statement and a proxy card were sent to anyone who owned shares of recordcommon stock of PG&E Corporation andand/or shares of preferred stock of Pacific Gas and Electric Company at the close of business on April 4, 2001, and valid proxyholdersFebruary 19, 2002. This date is the record date set by the Boards to determine which shareholders may
attend and vote at the respectiveJoint Annual Meetings. This Joint Proxy Statement describes certain matters management expects will be voted on at the annual meetings. If your shares are registered
in the name of a brokerage firm, bank, or trustee andmeetings, gives you plan to attend the
meeting, please obtain from the firm, bank, or trustee a letter or other
evidence of your beneficial ownership of those shares on April 4, 2001, to
facilitate your admittance to the meeting.
If you are a participant in the PG&E Corporation Dividend Reinvestment
Plan, please note that the PG&E Corporation proxy covers all shares of common
stock in your account with PG&E Corporation, including any shares which may be
held in that plan. If you hold shares in bothinformation about PG&E Corporation and Pacific Gas and Electric Company and their managements, and provides general information regarding the voting process and attendance at the annual meetings.
How do I vote?
You can attend and vote at the meetings, or the proxyholders will vote your shares as you indicate on your proxy. There are three ways to submit your proxy.
Over the Internet at http://www.eproxy.com/pcg/
If you submit your proxy over the Internet or by telephone, your vote must be received by 4:00 p.m., Eastern daylight time, on Tuesday, April 16, 2002. These Internet and telephone voting procedures comply with California law.
What am I voting on and what are the Board’s voting recommendations?
PG&E Corporation shareholders will be voting on the following items:
| Item No. | Description | Board’s Voting Recommendation | ||||||
| 1 | Election of Directors | For all nominees | ||||||
| 2 | Ratification of Appointment of Independent Public Accountants | For this proposal | ||||||
| 3-4 | Management Proposals | For these proposals | ||||||
| 10-15 | Shareholder Proposals | Against these proposals | ||||||
Pacific Gas and Electric Company shareholders will be voting on the following items:
| Item No. | Description | Board’s Voting Recommendation | ||||||
| 1 | Election of Directors | For all nominees | ||||||
| 2 | Ratification of Appointment of Independent Public Accountants | For this proposal | ||||||
| 5-9 | Management Proposals | For these proposals | ||||||
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What vote is required to approve each item?
To elect directors:
| The nominees receiving the largest number of votes cast are elected as directors, up to the maximum number of directors to be chosen at the meetings. In other words, the nine nominees for director of PG&E Corporation and the ten nominees for director of Pacific Gas and Electric Company receiving the greatest number of votes will be elected. Votes against a nominee or votes withheld will have no legal effect. |
To approve the PG&E Corporation management proposals to amend the Articles of Incorporation and Bylaws:
| A majority of the outstanding shares of PG&E Corporation common stock must approve each proposal. Abstentions and broker non-votes (see definition below) will have the same effect as a vote against a proposal. |
| To approve the Pacific Gas and Electric Company management proposals to amend the Articles of Incorporation and Bylaws: |
| A majority of the outstanding shares of Pacific Gas and Electric Company voting stock must approve each proposal. Abstentions and broker non-votes (see definition below) will have the same effect as a vote against a proposal. |
To approve other items described in the Joint Proxy Statement:
| For each properly presented proposal, a majority of the shares represented and voting on the proposal must approve the proposal. The approval votes also must be greater than 25 percent of the shares entitled to vote. Abstentions will have the same effect as a vote against a proposal. Broker non-votes (see definition below) will not be considered in determining whether or not a proposal is approved. |
What is a broker non-vote?
If you hold your shares indirectly through a broker, bank, trustee, nominee, or other third party, that party is the registered owner of your shares and submits the proxy to vote your shares. You are the beneficial owner of the shares and typically you will be providedasked to provide the registered owner with instructions as to how your shares should be voted.
Broker non-votes occur when brokers or nominees have voted on some of the matters to be acted on at a meeting, but do not vote on certain other matters because, under the rules of the New York Stock Exchange, they are not permitted to vote on those other matters without instructions from the beneficial owners of the shares.
Will shareholders be asked to vote on matters other than those described in the Joint Proxy Statement?
If other matters are raised during the Joint Annual Meetings, shareholders will vote on such matters only if PG&E Corporation or Pacific Gas and Electric Company, as appropriate, determines that these other matters satisfy advance notice requirements in the appropriate Bylaws and otherwise properly come before the annual meetings. If other matters properly come before the annual meetings, the proxyholders named on the enclosed proxy card will vote the shares for which they hold proxies at their discretion, to the extent permitted by law.
What shares are included on my proxy card?
For PG&E Corporation, the shares included on your proxy card represent all the shares of PG&E Corporation stock in your account, including shares in the PG&E Corporation Dividend Reinvestment Plan. For Pacific Gas and Electric Company, the shares included on your card represent all the shares of Pacific Gas and Electric Company preferred stock in your account.
If you are a shareholder of both PG&E Corporation common stock and Pacific Gas and Electric Company preferred stock, you will receive a separate proxy formcard for each company. If you receive more than one proxy card for either company, it means your shares are held in more than one account. You should vote the shares on all your proxy cards. If you would like to consolidate your accounts, you may do so by contacting our transfer agent, Mellon Investor Services LLC, toll-free at 1-800-719-9056.
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How many copies of the proxy statement and annual report will I receive?
If you are a registered directly withholder of PG&E Corporation common stock and/or Pacific Gas and Electric Company (including shares held by participants in the PG&E
Corporation Dividend Reinvestment Plan) or ifpreferred stock, you will receive one proxy statement and annual report for each account.
If you are a participant who holdsbeneficial owner of PG&E Corporation common stock and/or Pacific Gas and Electric Company preferred stock and receive your proxy materials through ADP Investor Communication Services (ADP), and there are multiple beneficial owners at the same address, you may receive fewer proxy statements and annual reports than the number of beneficial owners at that address. Securities and Exchange Commission regulations permit ADP to deliver only one proxy statement and annual report to multiple beneficial owners sharing an address, unless we receive contrary instructions from any beneficial owner at that same address. If you receive your proxy materials through ADP and wish to receive a separate proxy statement or annual report in anythe future, please contact the office of the defined contribution retirement plans
maintained byCorporate Secretary of PG&E Corporation or any of its subsidiaries,Pacific Gas and Electric Company, as appropriate, at P.O. Box 193722, San Francisco, CA 94119-3722 or by calling 1-415-267-7070.
What if I return my proxy but don’t specify how I want my shares voted?
The PG&E Corporation proxyholders will vote those shares “For” Items 1 through 4 and “Against” Items 10 through 15. The Pacific Gas and Electric Company proxyholders will vote those shares “For” Items 1, 2, and 5 through 9.
What if I do not submit my proxy?
Your shares will not be voted if you may execute and
submitdo not provide a proxy or vote at the annual meetings.
Can I change my proxy vote?
Yes, you can change your proxy and voting instructionsvote or revoke your proxy any time before the annual meetings by (1) returning a later-dated proxy card, (2) entering a new vote over the Internet or by telephone, by
using(3) notifying the control numberCorporate Secretary in writing, or (4) submitting a written ballot at the meetings.
Is my vote confidential?
Yes. According to each company’s confidential voting policy, shareholder votes will only be revealed to a non-employee proxy tabulator or an independent inspector of election, except (1) as necessary to meet legal requirements, (2) in a dispute regarding authenticity of proxies and instructions printed onballots, (3) in the event of a proxy contest, if the other party does not agree to comply with the confidential voting policy, and (4) where disclosure may be necessary for either company to assert or defend claims.
Who will count the votes?
Mellon Investor Services LLC (MIS) will act as the proxy form. Or, you may
vote by mail by marking, signing, dating,tabulators and mailing the proxy card ininspectors of election for the accompanying envelope. If your shares are registered in the name of a brokerage
firm, bank, or trustee, you will be able to vote over the Internet, by
telephone, or by mail by following the instructions printed on the proxy card
you receive from the firm, bank, or trustee.
By Order of the Boards of Directors,
/s/ LESLIE H. EVERETT
Leslie H. Everett
Vice President and Corporate Secretary,
PG&E Corporation and
Pacific Gas and Electric Company
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PG&E Corporation
Pacific Gas and Electric Company
JOINT PROXY STATEMENT
INTRODUCTION
This Joint Proxy Statement2002 annual meetings. MIS is provided to the shareholdersindependent of PG&E Corporation and Pacific Gas and Electric Company in connection withand their respectivedirectors, officers, and employees.
How many shares are eligible to vote at the annual meetingsmeetings?
On February 19, 2002, there were 364,206,190 shares of shareholdersPG&E Corporation common stock, without par value, outstanding and any adjournments or postponements
thereof. The annual meetings will be held concurrently on Wednesday, May 16,
2001, at 3:00 p.m., in the Masonic Auditorium, 1111 California Street, San
Francisco, California.entitled to vote. Each share is entitled to one vote.
On February 19, 2002, there were 17,258,280 shares of Pacific Gas and Electric Company preferred stock, $25 par value, and 326,926,667 shares of Pacific Gas and Electric Company common stock, $5 par value, outstanding and entitled to vote. Each share is entitled to one vote. PG&E Corporation and a subsidiary hold 100 percent of the issued and outstanding shares of Pacific Gas and Electric Company common stock. Together they own approximately 95 percent of the total outstanding voting stock of Pacific Gas and Electric Company. Holders of Pacific Gas and Electric Company's
firstCompany’s preferred stock hold approximately 5 percent of the Company'sCompany’s total outstanding voting stock.
GENERAL INFORMATION
The Boards
May I attend the annual meetings?
All shareholders of Directorsrecord as of the close of business on February 19, 2002, may attend the annual meetings of PG&E Corporation and Pacific Gas and Electric CompanyCompany.
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Real-time captioning services and assistive listening devices will be available at the meetings for the hearing impaired. Please contact an usher if you wish to be seated in the real-time captioning section or require an assistive listening device. Audio cassette recordings of the meetings may be requested by calling the office of the Corporate Secretary.
What do I need to do in order to attend the annual meetings?
If you are soliciting proxies hereunder for use at their respectivea registered shareholder, you will receive an admission ticket along with your proxy card. Please bring the admission ticket to the meetings.
If a broker, bank, trustee, nominee, or other third party holds your shares, please inform that party that you plan to attend the annual meetings and ask for a legal proxy. Bring the legal proxy to be held on May 16, 2001,the shareholder registration area when you arrive at the meetings and at any adjournmentswe will issue you an admission ticket. If you cannot get a legal proxy in time, we will issue an admission ticket to you if you bring a copy of your brokerage or postponements
thereof, and a respective form of proxy is provided with this Joint Proxy
Statement. This Joint Proxy Statement and the accompanying proxy form were first
mailed on or about April 16, 2001, tobank account statement showing that you owned PG&E Corporation andor Pacific Gas and Electric Company stock as of February 19, 2002.
All shareholders entitledmust have an admission ticket to vote atattend the annual meetings. Shareholders of record may vote overAlso, shareholders will be asked to present valid picture identification, such as a driver’s license or passport, before being admitted to the Internetmeetings. Cameras, recording devices, and other electronic devices will not be permitted at the address listed onmeetings, and no items will be allowed into the proxy form, by callingmeetings which might pose a concern for the toll-free telephone number listed on the proxy
form, or by marking, signing, dating, and mailing their proxy card in the
postage-paid envelope provided. The Internet and telephone voting procedures
comply with California law. If your shares are held through a brokerage firm,
bank, or trustee, you willsafety of those attending.
Will I be able to vote overask questions during the Internet, by telephone, or
by mail by followingannual meetings?
During the instructions onmeetings, there may be time for some shareholders to ask questions. The Chair of the proxy cardmeetings may need to limit questions in order to maintain an orderly meeting and to give shareholders the maximum opportunity to participate. Therefore, there may not be enough time for everyone to get a chance to speak. If you receive fromdo not get a chance to ask questions during the firm, bank, or trustee.meetings, members of management will be available after the meetings.
How do I recommend someone to be a director?
You may revoke your proxy atrecommend any time before it is exercised at the annual
meeting. You may do this by advising the Vice President and Corporate Secretaryperson to be a director of PG&E Corporation or Pacific Gas and Electric Company (asby writing to the case may be) in
writing of your desireCorporate Secretary. The Nominating and Compensation Committee will consider nominees recommended by shareholders for election to revoke your proxy, or by submitting a duly executed
proxy bearing a later date. You also may revoke your proxy by attending the annual meeting and indicating thatBoards.
If you wish to vote in person.
The Boards of Directors of PG&E Corporationnominate a candidate for director, you must provide timely and Pacific Gas and Electric
Company have established April 4, 2001, as the record date for the determination
of shareholders of PG&E Corporation and Pacific Gas and Electric Company
entitled to receiveproper written notice of and to vote at their respective annual meetings.
As of April 4, 2001, there were 387,137,690 shares of PG&E Corporation common
stock, without par value, outstanding and entitled to vote at the PG&E
Corporation annual meeting; each such share is entitled to one vote. As of April
4, 2001, there were 17,258,280 shares of Pacific Gas and Electric Company first
preferred stock, $25 par value, and 326,926,667 shares of Pacific Gas and
Electric Company common stock, $5 par value, outstanding and entitled to vote at
the Pacific Gas and Electric Company annual meeting; each such share is entitled
to one vote.
Shares represented by properly executed proxies received by PG&E
Corporation or Pacific Gas and Electric Company prior to or at the annual
meetings will be voted at the respective annual meetings in accordance with the
instructions specified in each proxy, and will be counted for purposes of
establishing a quorum, regardless of how or whether such shares are voted on any
specific proposal. If no instructions are specifiednomination in the PG&E Corporation
proxy,manner described in the subject shares will be voted (1) FOR the electionBylaws of the nomineesappropriate company. Notice of the PG&E Corporation Board of Directors, unless authority to vote is withheld as
provided in the proxy, (2) FOR ratification of the appointment of Deloitte &
Touche LLP as PG&E Corporation's independent public accountants for 2001, (3)
FOR the management proposal to increase the number of shares availabledirector nominations proposed to be issued under the Long-Term Incentive Program, and (4) AGAINST each of the
shareholder proposals that are properly presented at the meeting. If no
instructions are specified in the Pacific Gas and Electric Company proxy, the
subject shares will be voted (1) FOR the election of the nominees of the Pacific
Gas and Electric Company Board of Directors, unless authority to vote is
withheld as provided in the proxy, and (2) FOR ratification of the appointment
of Deloitte & Touche LLP as Pacific Gas and Electric Company's independent
public accountants for 2001.
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PG&E Corporation also has received timely notice of six shareholder
proposals that the proponent states he intends to present for vote at the annual
meeting. Two of the proposals request that PG&E Corporation make certain
statements regarding its statement in opposition to, and voting on, shareholder
proposals included in the proxy statement. The third proposal requests that PG&E
Corporation provide certain information regarding directors' business
relationships with PG&E Corporation. The fourth proposal requests that PG&E
Corporation provide certain information regarding the "amount of pay cuts that
the top 100 executives of the company and the directors have volunteered or
agreed to take in response to the company's financial crisis." The fifth
proposal would require that PG&E Corporation index all 2001 executive
compensation to stock performance during a specific 18-month period. The sixth
proposal would require that the 2001 annual meeting of shareholders be held in
the Virgin Islands. The proxyholders named in the PG&E Corporation proxy will
exercise their discretionary voting authority to vote the shares for which they
hold proxies AGAINST any of these proposals that counsel determines properly
come before PG&E Corporation's 2001 annual meeting of shareholders.
Management of PG&E Corporation and Pacific Gas and Electric Company have
not received timely notice of any other matters that shareholders intend to
present at the annual meetings, and do not know of any matter to be acted upon
at the meetings other than the matters described above. However, if any other
matter should properly comebrought before the 2003 annual meetings the proxyholders named
in the enclosed proxy will vote the shares for which they hold proxies at their
discretion.
Except with respect to the election of directors, each other proposal which
may be presented at the meetings must receive the affirmative vote of a majority
of the shares represented and voting on the proposal. In addition, the
affirmative votes must constitute at least a majority of the required quorum
(i.e., more than 25 percent of the outstanding shares of voting stock of PG&E Corporation or Pacific Gas and Electric Company asmust be received at the case may be). The
required quorum is a majorityprincipal executive office of the outstanding sharesappropriate company no later than January 27, 2003. For a copy of voting stockeither company’s Bylaws, send a written request to that company’s Corporate Secretary.
When are shareholder proposals due for the 2003 annual meetings?
If you would like to submit a proposal for inclusion in either company’s proxy statement for the 2003 annual meetings, the company’s Corporate Secretary must receive your proposal by November 13, 2002.
If you would like to introduce any other business at either company’s 2003 annual meeting of shareholders, you must provide timely and proper written notice of the matter in the manner described in the Bylaws of the appropriate company. For a copy of either company’s Bylaws, send a written request to that company’s Corporate Secretary.
Notice of other business proposed to be brought before the 2003 annual meetings of PG&E Corporation or Pacific Gas and Electric Company (asmust be received at the case may be).principal executive office of the appropriate company no later than January 27, 2003. However, if the 2003 annual meeting of either company is scheduled for a date that differs by more than 30 days from the anniversary date of the 2002 Joint Annual Meetings, the shareholder’s notice will be timely if it is received no later than the tenth day following the date on which each company publicly discloses the date of its 2003 annual meeting.
Shareholder proposals and nominations received after these deadlines will not be considered at the 2003 annual meetings.
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How much did this proxy solicitation cost?
PG&E Corporation and Pacific Gas and Electric Company intendhired D.F. King & Co., Inc. to count abstentions
both for purposes of determining the presence or absence of a quorum andassist in the total numberdistribution of shares representedproxy materials and voting with respect to a proposal.
Accordingly, abstentions will have the same effect as a vote against a proposal.
Broker non-votes, if any, with respect to a proposal will be counted for
purposessolicitation of determining the presence or absence of a quorum, but will not be
counted as shares represented and voting with respect to that proposal. Broker
non-votes occur when brokers or nominees have voted on some of the matters to be
acted on at a meeting, but fail to vote on certain other matters because, under
the rules of the New York Stock Exchange, they are not permitted to vote on such
other matters in the absence of instructions from the beneficial owners of
shares.
CONFIDENTIAL VOTINGvotes. The estimated fee is $11,500 plus reasonable out-of-pocket expenses. In 2000,addition, PG&E Corporation and Pacific Gas and Electric Company formalized
their Confidential Voting Policy. Under this policy, all proxies, ballots,will reimburse brokerage houses and other custodians, nominees, and fiduciaries for reasonable out-of-pocket expenses for forwarding proxy and solicitation material to shareholders.
What is the address of the principal executive office?
Correspondence may be addressed to:
| PG&E Corporation or Pacific Gas and Electric Company Corporate Secretary P.O. Box 193722 San Francisco, CA 94119-3722 |
Your vote is important.
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Nine and 10ten directors will be elected to serve on the Boards of Directors of PG&E Corporation and Pacific Gas and Electric Company, respectively, to hold office until the next annual meetings or until their successors shall be elected and qualified.qualified, except in the case of death, resignation, or removal of a director. The 9nine nominees for director of PG&E Corporation and the 10ten nominees for director of Pacific Gas and Electric Company whom the respective Boards propose for election are the same, except for Gordon R. Smith, who is a nominee for the Pacific Gas and Electric Company Board only. The composition of these slates of nominees is consistent with the policy of PG&E Corporation and Pacific Gas and Electric Company that at least 75 percent of their Boards shall be composed of directors who are neither current nor former officers or employees of PG&E Corporation, Pacific Gas and Electric Company, or any of their respective subsidiaries.
Information is provided on the following pages about the nominees for directors, including their principal occupations for the past five years, certain other directorships, age, and length of service as a director of PG&E Corporation and Pacific Gas and Electric Company. Membership on Board committees, attendance at Board and committee meetings, and ownership of stock inof PG&E Corporation and Pacific Gas and Electric Company are indicated in separate sections following the individual resumes of the nominees.
Directors of PG&E Corporation and Pacific Gas and Electric Company are
elected from those nominated based on a plurality of votes cast. The nominees
receiving the highest number of affirmative votes (up to the number of directors
to be elected) are elected. Votes against a nominee or votes withheld have no
legal effect. Unless authority to vote is withheld or another contrary
instruction is indicated, properly executed proxies received by PG&E Corporation
or Pacific Gas and Electric Company prior to or at the annual meetings will be
voted FOR the election of the nominees listed on the following pages.
All of the nominees have agreed to serve if elected. Should any of the nominees become unavailable at the time of the meeting to accept nomination or election as a director, the respective proxyholders named inon the enclosed PG&E Corporation or Pacific Gas and Electric Company proxy card will vote for substitute nominees at their discretion.
THE BOARDS OF DIRECTORS OF PG&E CORPORATION AND PACIFIC GAS AND ELECTRIC COMPANY
RECOMMEND THE ELECTION OF THEIR RESPECTIVE NOMINEES FOR DIRECTOR
PRESENTED IN THIS JOINT PROXY STATEMENT.
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- --------------------------------------------------------------------------------
Nominees for
The Boards of Directors of PG&E Corporation and Pacific Gas and Electric Company Unanimously Recommend the Election of Their Respective Nominees for Director Presented in This Joint Proxy Statement.
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Nominees for Directors of PG&E Corporation and
 | David R. Mr. Andrews is Senior Vice President Government Affairs, General Counsel, and Secretary of PepsiCo, Inc. (food and beverage businesses), and has held that position since February 2002. Prior to joining PepsiCo, Inc., Mr. Andrews was a partner in the law firm of McCutchen, Doyle, Brown & Enersen, LLP | |
 | David A. Mr. Coulter is Vice Chairman of J.P. Morgan Chase & Co. (financial services and retail banking), and has held that position since January 2001. Prior to the merger with J.P. Morgan & Co. Incorporated, he was Vice Chairman of The Chase Manhattan Corporation (bank holding company) from August 2000 to December 2000. He was a | |
 | C. Mr. Cox is retired Vice Chairman of AirTouch Communications, Inc. and retired President and Chief Executive Officer of AirTouch Cellular (cellular telephone and paging services). He was an executive officer of AirTouch Communications, Inc. and its predecessor, PacTel Corporation, from 1987 until his retirement in April 1997. Mr. Cox, | |
 | William S. Mr. Davila is President Emeritus of The Vons Companies, Inc. (retail grocery). He was President of The Vons Companies, Inc. from 1986 until his retirement in May 1992. Mr. Davila, | |
 | Robert D. Mr. Glynn is Chairman of the Board, Chief Executive Officer, and President of PG&E Corporation and Chairman of the Board of Pacific Gas and Electric Company. He has been an officer of PG&E Corporation since December 1996 and an officer of Pacific Gas and Electric Company since January 1988. Mr. Glynn, | |
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 | David M. Dr. Lawrence is Chairman and Chief Executive Officer of Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals, and has been an executive officer of those companies for more than the past five years. Dr. Lawrence, | |
 | Mary S. Dr. Metz is President of S. H. Cowell Foundation, and has held that position since January 1999. Prior to that date, she was Dean of University Extension, University of California, Berkeley from July 1991 to June 1998. Dr. Metz, | |
 | Carl E. Mr. Reichardt is Vice Chairman of the Ford Motor Company, and has held that position since October 2001. He is the retired Chairman of the Board and Chief Executive Officer of Wells Fargo & Company (bank holding company) and Wells Fargo Bank, N.A. He was an executive officer of Wells Fargo Bank, N.A. from 1978 until his retirement in December 1994. Mr. Reichardt, | |
 | Gordon R. Mr. Smith is President and Chief Executive Officer of Pacific Gas and Electric Company, and has been an officer of Pacific Gas and Electric Company since | |
 | Barry Lawson Williams Mr. Williams is President of Williams Pacific Ventures, Inc. (business consulting and mediation), and has held that position since | |
| * | Gordon R. Smith is a nominee for director of Pacific Gas and Electric Company only. |
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Board Committees
The committees of the PG&E Corporation Board of Directors are the Executive Committee, Audit Committee, Finance Committee, Nominating and Compensation Committee, and Public Policy Committee. The Pacific Gas and Electric Company Board of Directors has an Executive Committee and Audit Committee. All committee members are directors of PG&E Corporation or Pacific Gas and Electric Company, as appropriate. To ensure that all committee members can perform their duties in an intelligent and fully informed manner, committee members and other directors have access to all of PG&E Corporation’s and Pacific Gas and Electric Company’s books, records, and other documents of any kind. The current membership and duties of these committees are as follows:
described below.
| Nominating and | ||||||||
| Executive | Audit | Finance | Compensation | Public Policy | ||||
| Committees | Committees | Committee | Committee | Committee | ||||
| R. D. Glynn, Jr.* C. L. Cox M. S. Metz C. E. Reichardt G. R. Smith(1) B. L. Williams | C. L. Cox* D. R. Andrews W. S. Davila M. S. Metz B. L. Williams | B. L. Williams* D. R. Andrews D. A. Coulter C. E. Reichardt | C. E. Reichardt* D. A. Coulter C. L. Cox D. M. Lawrence, MD | M. S. W. S. Davila D. M. Lawrence, MD |
| * | Chair | |
| (1) | Member of the Pacific Gas and Electric Company Executive Committee only. |
Executive Committee only.
EXECUTIVE COMMITTEESCommittees
Each Executive Committee, subject to the provisions of law and certain limits imposed by the PG&E Corporation or the Pacific Gas and Electric Company Board (as the case may be), may exercise any of the powers and perform any of the duties of the PG&E Corporation Board or the Pacific Gas and Electric Company Board, respectively. The Executive Committees meet as needed. One PG&E Corporation Executive Committee meeting was held in 20002001 and no Pacific Gas and Electric Company Executive Committee meetings were held in 2000.
AUDIT COMMITTEES2001.
Audit Committees
The Audit Committees of PG&E Corporation (five meetings were held in 2000)2001) and Pacific Gas and Electric Company (committee was established(five meetings were held in February 2001) advise and assist the Boards of Directors of those entities in fulfilling their responsibilities in connection with financial and accounting practices, internal controls, external and internal auditing programs, business ethics, and compliance with laws, regulations, and policies that may have a material impact on the consolidated financial statements of PG&E Corporation, Pacific Gas and Electric Company, and their respective subsidiaries. The Audit Committees satisfy themselves as to the independence and competence of PG&E Corporation'sCorporation’s and Pacific Gas and Electric Company'sCompany’s independent public accountants, and review and discuss with the independent accountants and with PG&E Corporation'sCorporation’s and Pacific Gas and Electric Company'sCompany’s officers and internal auditors the scope and results of the independent accountants'accountants’ audit work, consolidated quarterly and annual financial statements, the quality and effectiveness of internal controls, and compliance with laws, regulations, policies, and programs. The Audit Committees also recommend to the appropriate Board of Directors the firm of independent public accountants to be selected to audit PG&E Corporation'sCorporation’s and Pacific Gas and Electric Company'sCompany’s accounts, and make further inquiries as they deem necessary or desirable to inform themselves as to the conduct of the affairs of PG&E Corporation, Pacific Gas and Electric Company, and their respective subsidiaries.
The members of the Audit Committees of PG&E Corporation and Pacific Gas and Electric Company are identical. The Audit Committees are composed entirely of directors who are (a)(1) financially knowledgeable, including at least one member who has accounting or related financial management expertise, (b)(2) neither current nor former officers or employees of PG&E Corporation, Pacific Gas and Electric Company, or their subsidiaries, (c)(3) not consultants to PG&E Corporation, Pacific Gas and Electric Company, or any of their subsidiaries, and (d)
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Finance Committee
The Finance Committee of PG&E Corporation (13(eight meetings were held in 2000)2001) advises and assists the Board with respect to the financial and capital investment policies and objectives of PG&E Corporation and its subsidiary companies, including specific actions required to achieve those objectives. The Finance Committee reviews long-term financial and investment plans and strategies, annual financial plans, dividend policy, short-term and long-term financing plans, proposed capital investments, proposed divestments, major commercial banking, investment banking, financial consulting, and other financial relations of PG&E Corporation or its subsidiaries, and price risk management activities. Each year, the Finance Committee presents for the Board of Directors’ review and approval (1) a five-year financial plan for PG&E Corporation and its subsidiaries that incorporates, among other things, the Corporation’s business strategy goals, and (2) an annual budget that reflects elements of the approved five-year plan. Members of the Board of Directors receive a monthly report that compares the Corporation’s performance to the budget and provides other information regarding financial performance.
One member of the Committee, who is neither a current nor former employee of, nor current consultant to, PG&E Corporation or any of its subsidiaries, is appointed by the Board of Directors as the Committee'sCommittee’s Chair.
NOMINATING AND COMPENSATION COMMITTEE
Nominating and Compensation Committee
The Nominating and Compensation Committee of PG&E Corporation (seven(four meetings were held in 2000)2001) advises and assists the Boards of PG&E Corporation and Pacific Gas and Electric Company with respect to the selection and compensation of directors. It also advises and assists PG&E Corporation and its subsidiaries on employment, compensation, benefits policies and practices, and the development, selection, and compensation of policy-making officers. The Nominating and Compensation Committee reviews and acts upon the compensation of officers of PG&E Corporation and its subsidiaries, except that the compensation of the Chief Executive Officers of PG&E Corporation and Pacific Gas and Electric Company is established by the full Board of Directors of PG&E Corporation or Pacific Gas and Electric Company Board (as the case may be) upon recommendation of the Committee, and the Committee has delegated to the PG&E Corporation Chief Executive Officer the authority to approve compensation for certain officers of PG&E Corporation and its subsidiaries. The Committee also reviews long-range planning for executive development and succession, and the composition and performance of the Boards of PG&E Corporation and Pacific Gas and Electric Company.
The Nominating and Compensation Committee is composed entirely of directors who are (a)(1) neither current nor former officers or employees of PG&E Corporation or any of its subsidiaries, (b)(2) not consultants to PG&E Corporation or any of its subsidiaries, and (c)(3) neither current nor former officers or employees of any other corporation on whose board of directors any PG&E Corporation officer serves as a member. One member of the Committee is appointed by the Board of Directors as the Committee'sCommittee’s Chair.
The Nominating and Compensation
Public Policy Committee will consider nominees
recommended by shareholders for election to the Boards of Directors of PG&E
Corporation and Pacific Gas and Electric Company. The names of such nominees,
accompanied by relevant biographical information, should be submitted in writing
to the Vice President and Corporate Secretary of PG&E Corporation or Pacific Gas
and Electric Company (as the case may be). The Nominating and Compensation
Committee seeks qualified, dedicated, and highly regarded individuals who have
experience relevant to PG&E Corporation's or Pacific Gas and Electric Company's
business operations, who understand the complexities of PG&E Corporation's or
Pacific Gas and Electric Company's business environment, and who will represent
the best interests of all the shareholders of PG&E Corporation or Pacific Gas
and Electric Company. In accordance with PG&E Corporation's and Pacific Gas and
Electric Company's commitment to equal opportunity, the Committee continues to
seek qualified women and minority candidates for the Boards.
PUBLIC POLICY COMMITTEE
The Public Policy Committee of PG&E Corporation (three(two meetings were held in 2000)2001) advises and assists the Board of Directors with respect to public policy issues whichthat could affect significantly the interests of the customers, shareholders, or employees of PG&E Corporation, or itsPacific Gas and Electric Company, and their respective subsidiaries. The Public Policy Committee reviews the policies and practices of PG&E Corporation and its subsidiaries with respect to protection and improvement of the quality of the environment, charitable and community service organizations and activities, equal opportunity in hiring and promoting employees, and development of minority-owned and women-owned businesses as suppliers to PG&E Corporation, Pacific Gas and itsElectric Company, and their subsidiaries. The Committee also reviews significant societal, governmental, and environmental trends and issues that may affect the operations of PG&E Corporation, Pacific Gas and Electric Company, or itstheir subsidiaries.
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One member of the Committee, who is neither a current nor former employee of, nor current consultant to, PG&E Corporation or any of its subsidiaries, is appointed by the Board of Directors as the Committee'sCommittee’s Chair.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
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Attendance at Board and Committee Meetings
Thirteen meetings of the PG&E Corporation Board of Directors and 29twenty meetings of the PG&E Corporation Board committees were held in 2000.2001. Overall attendance of incumbent directors at such meetings was 97%94%. Individual attendance at meetings of the PG&E Corporation Board of Directors and Board committees was as follows: D. R. Andrews 100%96%, D. A. Coulter 94%84%, C. L. Cox 96%95%, W. S. Davila 100%, R. D. Glynn, Jr. 100%, D. M. Lawrence 90%84%, M. S. Metz 95%, C. E. Reichardt 100%96%, and B. L. Williams 100%96%.
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Twelve meetings of the Pacific Gas and Electric Company Board of Directors and five meetings of the Pacific Gas and Electric Company Board committees were held in 2000.2001. Overall attendance of incumbent directors at thesesuch meetings was 97%96%. Individual attendance at the meetings was as follows: D. R. Andrews 100%, D. A. Coulter 90%92%, C. L. Cox 90%94%, W. S. Davila 100%, R. D. Glynn, Jr. 100%, D. M. Lawrence 90%92%, M. S. Metz 100%94%, C. E. Reichardt 100%92%, G. R. Smith 100%, and B. L. Williams 100%94%. There were no meetings
Compensation of the Pacific Gas and
Electric Company Executive Committee in 2000.
COMPENSATION OF DIRECTORSDirectors
Each director who is not an officer or employee of PG&E Corporation or Pacific Gas and Electric Company receives a quarterly retainer of $7,500 plus a fee of $1,000 for each Board or Board committee meeting attended. Non-employee directors who chair Board committees receive an additional quarterly retainer of $625. Under the Deferred Compensation Plan for Non-Employee Directors, directors of PG&E Corporation or Pacific Gas and Electric Company may elect to defer all or part of such compensation for varying periods. Directors who participate in the Deferred Compensation Plan may convert their deferred compensation into a number of common stock equivalents, the value of which is tied to the market value of PG&E Corporation common stock. Alternatively, participating directors may direct that their deferred compensation earn interest.
No director who serves on both the PG&E Corporation and Pacific Gas and Electric Company Boards and corresponding committees is paid additional compensation for concurrent service on Pacific Gas and Electric Company'sCompany’s Board or its committees, except that separate meeting fees are paid for each meeting of the Pacific Gas and Electric Company Board, or a Pacific Gas and Electric Company Board committee, that is not held concurrently or sequentially with a meeting of the PG&E Corporation Board or a corresponding PG&E Corporation Board committee. It is the usual practice of PG&E Corporation and Pacific Gas and Electric Company that meetings of the respective Boards and corresponding committees are held concurrently and, therefore, that a single meeting fee is paid to each director for each set of meetings.
In addition, directors of PG&E Corporation or Pacific Gas and Electric Company are reimbursed for reasonable expenses incurred in attending Board or committee meetings. Directors of PG&E Corporation or Pacific Gas and Electric Company also are reimbursed for reasonable expenses incurred in connection with other activities undertaken on behalf of or for the benefit of PG&E Corporation or Pacific Gas and Electric Company.
Effective January 1, 1998, the PG&E Corporation Retirement Plan for Non-Employee Directors was terminated. Directors who had accrued benefits under the Plan were given a one-time option of receiving at retirement the benefit accrued through 1997, or of converting the present value of their accrued benefit into a PG&E Corporation common stock equivalent investment held in the Deferred Compensation Plan for Non-Employee Directors. The payment of frozen accrued retirement benefits, or distributions from the Deferred Compensation Plan attributable to the conversion of retirement benefits, cannot be made until the later of age 65 or retirement from the Board.
Under the Non-Employee Director Stock Incentive Plan, a component of the PG&E Corporation Long-Term Incentive Program, on the first business day of January of each year, each non-employee director of PG&E Corporation is entitled to receive stock-based grants with a total aggregate equity value of $30,000, composed of (1) restricted shares of PG&E Corporation common stock valued at $10,000 (based on the closing price of PG&E Corporation common stock on the first business day of the year), and (2) a combination, as elected by the director, of non-qualified stock options and common stock equivalents with a total equity value of $20,000, based on equity value increments of $5,000. The exercise price of stock options is equal to the market value of PG&E Corporation common stock (i.e., the closing price) on the date of grant. Restricted stock and stock options vest over the five-year period following the date of grant, except that restricted stock and stock options will vest immediately upon mandatory retirement from the Board, at
age 70, upon a director'sdirector’s death or disability, or in the event of a change in control. Common stock equivalents awarded are payable in the form of PG&E Corporation common stock only following a 8
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director'sdirector’s retirement from the Board, upon a director'sdirector’s death or disability, or in the event of a change in control. Unvested awards are forfeited if the recipient ceases to be a director for any other reason.
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On January 3, 2000,2, 2001, each non-employee director received 504511 restricted shares of PG&E Corporation common stock. In addition, directors who were granted stock options received options to purchase 1,9151,077 shares of PG&E Corporation common stock for each $5,000 increment of equity value (subject to the aggregate $20,000 limit) at an exercise price of $19.8125$19.5625 per share, and directors who were granted common stock equivalents received 252255 common stock equivalent units for each $5,000 increment of equity value (subject to the aggregate $20,000 limit).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Relationships and Related Transactions
Mr. Andrews, a director of PG&E Corporation and Pacific Gas and Electric Company, is a member atresigned from the law firm of McCutchen, Doyle, Brown & Enersen, LLP.
AlthoughLLP (McCutchen) in January 2002. Mr. Andrews doesdid not personally provide legal services to PG&E Corporation, Pacific Gas and Electric Company, or their affiliates, Mr. Andrews'
law firm hasaffiliates. During 2001, McCutchen provided general legal services to Pacific Gas and Electric Company in the normal course of business, and such services could continuebusiness.
Legal Proceedings
Proofs of Claims Filed in the future.
BOARD OF DIRECTORS RETIREMENT POLICYBankruptcy Case
On April 6, 2001, Pacific Gas and Electric Company filed a voluntary petition for relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of California (Bankruptcy Court). Pursuant to Chapter 11 of the U.S. Bankruptcy Code, Pacific Gas and Electric Company retains control of its assets and is authorized to operate its business as a debtor in possession while being subject to the jurisdiction of the Bankruptcy Court.
Bankruptcy law imposes an automatic stay to prevent parties from making certain claims or taking certain actions that would interfere with the estate or property of a Chapter 11 debtor. In general, Pacific Gas and Electric Company may not pay pre-petition debts without the Bankruptcy Court’s permission. Through September 5, 2001, the last day for non-governmental creditors to file proofs of claim, non-governmental claims were submitted for an approximate aggregate amount of $42.1 billion. This amount includes claims filed by generators, which Pacific Gas and Electric Company believes have been overstated, and claims by financial institutions, which Pacific Gas and Electric Company believes contain significant duplication. The Bankruptcy Court also has disallowed approximately $9 billion of claims filed by non-governmental entities. J.P. Morgan Trust Co. of Delaware submitted a proof of claim for approximately $1.45 million dollars relating to its ownership interest in shares of Pacific Gas and Electric Company’s preferred stock. J.P. Morgan Chase Bank submitted a proof of claim for approximately $173 million, related to its provision of a stand-by letter of credit which provides credit and liquidity support for certain of Pacific Gas and Electric Company’s Pollution Control Bonds. Both entities are subsidiaries of J.P. Morgan Chase & Co., which was created on December 31, 2000, in a merger between The Chase Manhattan Corporation and J.P. Morgan & Co. Incorporated. Mr. David Coulter, a director of both PG&E Corporation and Pacific Gas and Electric Company, is a Vice Chairman of J.P. Morgan Chase & Co. and J.P. Morgan Chase Bank, responsible for Retail and Middle Market Financial Services and for Investment Management and Private Banking.
California Attorney General Complaint
On January 10, 2002, the California Attorney General (AG) filed a complaint in the San Francisco Superior Court against PG&E Corporation and its directors, as well as against the directors of Pacific Gas and Electric Company, based on allegations of unfair or fraudulent business acts or practices in violation of California Business and Professions Code Section 17200. Among other allegations, the AG alleges that past transfers of money from Pacific Gas and Electric Company to PG&E Corporation, and allegedly from PG&E Corporation to other affiliates of PG&E Corporation, violated various conditions established by the California Public Utilities Commission (CPUC) in decisions approving the holding company formation. The AG also alleges that the December 2000 and January and February 2001 ringfencing transactions by which PG&E Corporation subsidiaries complied with credit rating agency criteria to establish independent credit ratings violated the holding company conditions. The AG alleges that these ringfencing transactions included conditions that restricted PG&E National Energy Group’s ability to provide any funds to PG&E Corporation through dividends, capital distributions or similar payments, reducing PG&E Corporation’s cash and thereby impairing PG&E Corporation’s ability to comply with the first priority condition and subordinating Pacific Gas and Electric Company’s interests to the interests of PG&E Corporation and its other affiliates. (On January 9, 2002, the CPUC issued a decision interpreting the “first priority condition” and concluded that the condition, at least under certain circumstances, includes the requirement that each of the holding companies “infuse the utility with all types of capital necessary for the utility to fulfill its obligation to
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The AG seeks injunctive relief, the appointment of a receiver, restitution in an amount according to proof, civil penalties of $2,500 against each defendant for each violation of California Business and Professions Code section 17200 and that the total penalty not be less than $500 million, and costs of the lawsuit.
In addition, the AG alleges that, through Pacific Gas and Electric Company’s bankruptcy proceedings, PG&E Corporation and Pacific Gas and Electric Company engaged in unlawful, unfair, and fraudulent business practices by seeking to implement the transactions proposed in the proposed Plan of Reorganization filed in Pacific Gas and Electric Company’s bankruptcy proceeding. The AG’s complaint also seeks restitution of assets allegedly wrongfully transferred to PG&E Corporation from Pacific Gas and Electric Company. The Bankruptcy Court has original and exclusive jurisdiction of these claims. Therefore, on February 8, 2002, PG&E Corporation filed a notice of removal in the Bankruptcy Court to transfer the AG’s complaint to the Bankruptcy Court.
On February 15, 2002, a motion to dismiss, or in the alternative, to stay, the complaint was filed in the Bankruptcy Court.
Federal Securities Lawsuit
On April 16, 2001, a complaint was filed against PG&E Corporation and Pacific Gas and Electric Company in the U.S. District Court for the Central District of California entitledJack Gillam; DOES 1 TO 5, Inclusive, and All Persons similarly situated vs. PG&E Corporation, Pacific Gas and Electric Company; and DOES 6 to 10, Inclusive.The complaint was filed after Pacific Gas and Electric Company filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Pacific Gas and Electric Company informed plaintiff that the action is stayed by the automatic stay provisions of the U.S. Bankruptcy Code and on or about April 23, 2001, plaintiff filed a notice of voluntary dismissal without prejudice with respect to Pacific Gas and Electric Company. By order entered on or about May 31, 2001, the case was transferred to the U.S. District Court for the Northern District of California.
On August 9, 2001, the plaintiff filed a first amended complaint entitledJack Gillam, et al. vs. PG&E Corporation, Robert D. Glynn, Jr., and Peter A. Darbee,in the U.S. District Court for the Northern District of California. The first amended complaint, purportedly brought on behalf of all persons who purchased PG&E Corporation common stock or certain shares of Pacific Gas and Electric Company’s preferred stock between July 20, 2000, and April 9, 2001, claims that defendants caused PG&E Corporation’s Condensed Consolidated Financial Statements for the second and third quarters of 2000 to be materially misleading in violation of federal securities laws by recording as a deferred cost and capitalizing as a regulatory asset the under-collections that resulted when escalating wholesale energy prices caused Pacific Gas and Electric Company to pay far more to purchase electricity than it was permitted to collect from customers. The defendants filed a motion to dismiss the first amended complaint, based largely on public disclosures by PG&E Corporation, Pacific Gas and Electric Company, and others regarding the under-collections, the risk that they might not be recoverable, the financial consequences of non-recovery, and other information from which analysts and investors could assess for themselves the probability of recovery. On January 14, 2002, the district court granted the defendants’ motion to dismiss the plaintiffs’ complaint with leave to amend the complaint. On February 4, 2002, the plaintiffs filed a second amended complaint in the U.S. District Court for the Northern District of California entitledJack Gillam, et al. vs. PG&E Corporation, and Robert D. Glynn, Jr.In addition to containing many of the same allegations as were contained in the prior complaint, the complaint contains allegations similar to the allegations in the California Attorney General’s complaint against PG&E Corporation, discussed above. The defendants intend to file a motion to dismiss the second amended complaint.
Board of Directors Retirement Policy
It is the policy of the Boards of Directors of PG&E Corporation and Pacific Gas and Electric Company that a person may not be designated as a candidate for election or re-election as a director after he or she has reached the age of 70. 9
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SECURITY OWNERSHIP OF MANAGEMENTDue to the current financial and business situation, the Boards of Directors of PG&E Corporation and Pacific Gas and Electric Company elected to adopt a one-year waiver of the retirement policy for purposes of nominating candidates for re-election at the 2002 annual meetings of shareholders. The Boards may determine whether to waive the retirement policy on a year-to-year basis in light of the current business climate.
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Security Ownership of Management
The following table sets forth the number of shares of PG&E Corporation common stock beneficially owned (as defined in the rules of the Securities and Exchange Commission) as of MarchJanuary 31, 2001,2002, by the respective directors of PG&E Corporation and Pacific Gas and Electric Company, the nominees for director, the current executive officers of PG&E Corporation and Pacific Gas and Electric Company named in the Summary Compensation Table on pages 31-32,37-38, and all directors and executive officers of PG&E Corporation and Pacific Gas and Electric Company as a group. The number of shares shown for each such person, and for the directors, nominees for director, and executive officers as a group, constituted less than 1 percent of the outstanding shares of PG&E Corporation common stock. As of MarchJanuary 31, 2001,2002, no director, nominee for director, or executive officer owned shares of any class of Pacific Gas and Electric Company securities. The table also sets forth common stock equivalents credited to the accounts of directors and executive officers under PG&E Corporation'sCorporation’s deferred compensation and equity plans.
| Beneficial | Common Stock | |||||||||||
| Name | Stock Ownership(1)(2) | Equivalents(3) | Total | |||||||||
David R. Andrews(4) | 1,025 | 767 | 1,792 | |||||||||
David A. Coulter(4) | 4,630 | 15,218 | 19,848 | |||||||||
C. Lee Cox(4) | 28,544 | 1,506 | 30,050 | |||||||||
William S. Davila(4) | 16,865 | 11,530 | 28,395 | |||||||||
Robert D. Glynn, Jr.(5) | 1,029,201 | 92,451 | 1,121,652 | |||||||||
David M. Lawrence, MD(4) | 27,206 | 2,307 | 29,513 | |||||||||
Mary S. Metz(4) | 19,860 | 2,262 | 22,122 | |||||||||
Carl E. Reichardt(4) | 16,788 | 13,601 | 30,389 | |||||||||
Gordon R. Smith(6) | 471,289 | 13,664 | 484,953 | |||||||||
Barry Lawson Williams(4) | 14,314 | 5,689 | 20,003 | |||||||||
Thomas G. Boren(7) | 147,809 | 57,761 | 205,570 | |||||||||
Peter A. Darbee(7) | 134,703 | 0 | 134,703 | |||||||||
P. Chrisman Iribe(7) | 225,611 | 24,622 | 250,233 | |||||||||
Thomas B. King(7) | 150,112 | 88,273 | 238,385 | |||||||||
L. E. Maddox(7) | 313,108 | 29,491 | 342,599 | |||||||||
Kent M. Harvey(8) | 126,913 | 0 | 126,913 | |||||||||
Roger J. Peters(8) | 133,035 | 0 | 133,035 | |||||||||
James K. Randolph(8) | 152,121 | 141 | 152,262 | |||||||||
Gregory M. Rueger(8) | 176,879 | 0 | 176,879 | |||||||||
| All PG&E Corporation directors and executive officers as a group (18 persons) | 3,128,337 | 387,391 | 3,515,728 | |||||||||
| All Pacific Gas and Electric Company directors and executive officers as a group (15 persons) | 2,340,009 | 159,574 | 2,499,583 | |||||||||
| (1) | Includes any shares held in the name of the spouse, minor children, or other relatives sharing the home of the director or executive officer and, in the case of executive officers, includes shares of PG&E Corporation common stock held in the defined contribution retirement plans maintained by PG&E Corporation, Pacific Gas and Electric Company, and their subsidiaries. Except as otherwise indicated below, the directors, nominees for director, and executive officers have sole voting and investment power over the shares shown. Voting power includes the power to direct the voting of the shares held, and investment power includes the power to direct the disposition of the shares held. |
| Also includes the following shares of PG&E Corporation common stock in which the beneficial owners share voting and investment power: Mr. Coulter 4,630 shares, Mr. Cox 16,761 shares, Mr. Davila 200 shares, Dr. Lawrence |
| (2) | Includes shares of PG&E Corporation common stock which the directors and executive officers have the right to acquire within 60 days of January 31, 2002, through the exercise of vested stock options granted under the PG&E Corporation Long-Term Incentive Program, as follows: Mr. Cox 11,783 shares, Mr. Glynn 1,006,691 shares, Dr. Lawrence 11,783 shares, Dr. Metz 11,783 shares, Mr. Reichardt 11,783 shares, Mr. Smith 448,434 |
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| shares, Mr. Williams 9,510 shares, Mr. Boren 132,585 shares, Mr. Darbee 99,067 shares, Mr. Iribe 207,500 shares, Mr. King 140,901 shares, Mr. Maddox 311,967 shares, Mr. Harvey 122,201 shares, Mr. Peters 126,701 shares, Mr. Randolph 138,534 shares, Mr. Rueger 163,033 shares, all PG&E Corporation directors and executive officers as a group 2,910,256 shares, and all Pacific Gas and Electric Company directors and executive officers as a group 2,182,837 shares. The directors and executive officers have neither voting power nor investment power with respect to shares shown unless and until such shares are purchased through the exercise of the options, pursuant to the terms of the PG&E Corporation Long-Term Incentive Program. | |
| (3) | Reflects the number of stock units purchased by officers and directors through salary and other compensation deferrals or awarded under equity compensation plans. The value of each stock unit is equal to the value of a share of PG&E Corporation common stock and fluctuates daily based on the market price of PG&E Corporation common stock. The directors and officers who own these stock units share the same market risk as PG&E Corporation shareholders, although they do not have voting rights with respect to these stock units. |
| (4) | Mr. Andrews, Mr. Coulter, Mr. Cox, Mr. Davila, Dr. Lawrence, Dr. Metz, Mr. Reichardt, and Mr. Williams are directors of both PG&E Corporation and Pacific Gas and Electric Company. |
| (5) | Mr. Glynn is a director and executive officer of PG&E Corporation, and also is a director of Pacific Gas and Electric Company. He is named in the Summary Compensation Table on pages 37-38. |
| (6) | Mr. Smith is a director and an executive officer of Pacific Gas and Electric Company, and also is an executive officer of PG&E Corporation. He is named in the Summary Compensation Table on pages 37-38. |
| (7) | Mr. Boren, Mr. Darbee, Mr. Iribe, Mr. King, and Mr. Maddox are executive officers of PG&E Corporation named in the Summary Compensation Table on pages 37-38. |
| (8) | Mr. Harvey, Mr. Peters, Mr. Randolph, and Mr. Rueger are executive officers of Pacific Gas and Electric Company named in the Summary Compensation Table on pages 37-38. |
15
Dr. Lawrence 5,489 shares, Dr. Metz 4,614 shares, Mr. Reichardt 5,489
shares, Mr. Smith 322,301 shares, Mr. Williams 4,991 shares, Mr. Boren
11,718 shares, Mr. Iribe 99,234 shares, Mr. King 50,001 shares, Mr. Maddox
213,035 shares, Mr. Harvey 82,968 shares, Mr. Peters 72,968 shares, Mr.
Randolph 100,968 shares, Mr. Richard 62,668 shares, Mr. Rueger 156,601
shares, all PG&E Corporation directors and executive officers as a group
1,873,954 shares, and all Pacific Gas and Electric Company directors and
executive officers as a group 1,564,337 shares. The directors and executive
officers have neither voting power nor investment power with respect to
shares shown unless and until such shares are purchased through the exercise
of the options, pursuant to the terms of the PG&E Corporation Long-Term
Incentive Program.
(3) Reflects the number of stock units purchased by officers and directors
through salary and other compensation deferrals or awarded under equity
compensation plans. The value of each stock unit is equal to the value of a
share of PG&E Corporation common stock and fluctuates daily based on the
market price of PG&E Corporation common stock. The directors and officers
who own these stock units share the same market risk as PG&E Corporation
shareholders, although they do not have voting rights with respect to these
stock units.
(4) Mr. Andrews, Mr. Coulter, Mr. Cox, Mr. Davila, Dr. Lawrence, Dr. Metz, Mr.
Reichardt, and Mr. Williams are directors of both PG&E Corporation and
Pacific Gas and Electric Company.
(5) Mr. Glynn is a director and executive officer of PG&E Corporation, and also
is Chairman of the Board of Directors of Pacific Gas and Electric Company.
He is named in the Summary Compensation Table on pages 31-32.
(6) Mr. Smith is a director and an executive officer of Pacific Gas and Electric
Company, and also is an executive officer of PG&E Corporation. He is named
in the Summary Compensation Table on pages 31-32.
(7) Mr. Boren, Mr. Darbee, Mr. Iribe, Mr. King, and Mr. Maddox are executive
officers of PG&E Corporation named in the Summary Compensation Table on
pages 31-32.
(8) Mr. Harvey, Mr. Peters, Mr. Randolph, Mr. Richard, and Mr. Rueger are
executive officers of Pacific Gas and Electric Company named in the Summary
Compensation Table on pages 31-32.
11
16
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On the recommendation of the Audit Committees of PG&E Corporation and Pacific Gas and Electric Company, the Boards of Directors of those entities have selected Deloitte & Touche LLP as the independent public accountants to examine the consolidated financial statements of PG&E Corporation and Pacific Gas and Electric Company for the year 2001.2002. Deloitte & Touche LLP is a major national accounting firm with substantial expertise in the energy and utility businesses. Deloitte & Touche LLP has been employed to perform this function for PG&E Corporation and Pacific Gas and Electric Company since 1999.
Audit Fees. For the year ended December 31, 2000,2001, estimated fees for services rendered by Deloitte & Touche LLP for the reviews of Forms 10-Q and for the audits of the financial statements of PG&E Corporation and its subsidiaries are $3.1$3.6 million. This amount includes fees for stand-alone audits of various subsidiaries, including estimated fees of $1.1$0.9 million for Pacific Gas and Electric Company and its subsidiaries.
Financial Information Systems Design and Implementation Fees. For the year ended December 31, 2000,2001, Deloitte & Touche LLP and its affiliates did not render any services related to the design and implementation of financial information systems for PG&E Corporation or Pacific Gas and Electric Company.
All Other Fees. For the year ended December 31, 2000,2001, aggregate fees for all other services rendered by Deloitte & Touche LLP and its affiliates to PG&E Corporation and its subsidiaries were $11.3 million. This amount includes $4.4consisted of $1.6 million of fees for services relating to financings, regulatory filings, and accounting consultations that should be performed only by the Corporation’s independent auditor (“audit related fees”), $3.0 million of fees for tax services, and $4.0 million of other non-audit related fees. These amounts include $24,000 of audit related fees and $21,000 of other non-audit related fees for Pacific Gas and Electric Company and its subsidiaries.
One or more representatives of Deloitte & Touche LLP will be present at the annual meetings, withmeetings. They will have the opportunity to make a statement if they so desire, and will be available to respond to appropriate questions.
The affirmative vote of a majority of the shares represented and voting on
the proposal is required to ratify the appointment of the independent public
accountants and the affirmative votes must constitute a majority of the required
quorum. Abstentions will have the same effect as a vote against the proposal.
Unless indicated to the contrary, properly executed proxies received byquestions from shareholders.
PG&E Corporation orand Pacific Gas and Electric Company prior to or at the annual
meetings will be voted "FOR" this proposal.
This appointment isare not required to be submittedsubmit these appointments to a vote of the shareholders. If the shareholders of either PG&E Corporation or Pacific Gas and Electric Company should not ratify the appointment, the respective Audit Committee will investigate the reasons for rejection by the shareholders and the respective Board of Directors will reconsider the appointment.
THE BOARDS OF DIRECTORS OF
The Boards of Directors of PG&E CORPORATION AND PACIFIC GAS AND ELECTRIC COMPANY
UNANIMOUSLY RECOMMEND A VOTE Corporation and Pacific Gas and Electric Company Unanimously Recommend a VoteFOR THE PROPOSAL TO RATIFY THE APPOINTMENT OF
DELOITTE the Proposal to Ratify the Appointment of Deloitte & TOUCHETouche LLP.
IF YOU DO NOT HOLD ANY SHARES OF
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To Be Voted on by PG&E Corporation Shareholders Only
Item No. 3: Management Proposal TO BE VOTED ON BYRegarding a Proposed Amendment to PG&E CORPORATION SHAREHOLDERS ONLYCorporation’s Articles of Incorporation to Implement Enhancement of Simple Majority Voting
At the 2001 annual meeting of PG&E Corporation, a majority of shares present and voting approved a shareholder proposal recommending that the Board of Directors amend the fair price provision in the Corporation’s Restated Articles of Incorporation to provide that a simple majority vote of shareholders be the only fair price provision requirement to effect a merger or business combination involving the Corporation or any of its subsidiaries. Because a majority vote of shareholders is already required under California law for significant corporate transactions involving the Corporation or any of its subsidiaries, the adoption of this recommendation would render the fair price provision unnecessary. Also, because the Corporation’s Shareholder Rights Plan already affords shareholders substantial protection against inadequate offers or coercive or unfair takeover tactics, the Board of Directors believes that the fair price provision no longer provides shareholders with any meaningful incremental protection.
The following proposal has been submitted byBoard of Directors therefore proposes to delete the fair price provision from the Corporation’s Restated Articles of Incorporation. This proposed amendment would not affect the constituency provision contained in the Corporation’s Restated Articles of Incorporation. A copy of Article Eighth of the Restated Articles of Incorporation of PG&E Corporation's management
for action atCorporation as proposed to be amended is attached to this Joint Proxy Statement as Appendix A.
The proposed amendment to Article Eighth of the Corporation's annual meeting. To beRestated Articles of Incorporation of PG&E Corporation is permitted under California law and the rules of the New York Stock Exchange, the principal exchange upon which PG&E Corporation’s common stock is listed and traded. The proposed amendment will not become effective until (1) it is approved this proposal
must receiveby the affirmative vote of a majority of the PG&E Corporation shares
represented and voting on the proposal and the affirmative votes must constitute
at least a majority of the required quorum. Abstentions will be counted in the
number of shares represented and voting, and will have the same effect as a vote
against the proposal. Broker non-votes with respect to the proposal, if any,
will be counted for purposes of determining the presence or absence of a quorum,
but will not be counted in the number of shares represented and voting on the
proposal. Unless indicated to the contrary, properly executed proxies received
by PG&E Corporation prior to or at the annual meeting will be voted "FOR" this
proposal.
ITEM NO. 3: MANAGEMENT PROPOSAL REGARDING INCREASE IN SHARES AVAILABLE TO BE
ISSUED UNDER THE LONG-TERM INCENTIVE PROGRAM
The PG&E Corporation Board of Directors has unanimously approved, and
recommends to the shareholders for approval, an increase in the number ofoutstanding shares of PG&E Corporation common stock, availableand (2) a certificate of amendment is filed with the California Secretary of State.
The Board of Directors of PG&E Corporation Unanimously Recommends a VoteFOR the Foregoing Amendment to the Articles of Incorporation of PG&E Corporation.
Item No. 4: Management Proposal Regarding Proposed Amendment to PG&E Corporation’s Articles of Incorporation and Bylaws to Reduce the Authorized Range of Directors and Delete from the Bylaws the Provision That Restates the Authorized Range of Directors as Set Forth in the Articles of Incorporation
PG&E Corporation’s Restated Articles of Incorporation currently provide that the authorized number of directors shall be within a range of between seven and thirteen. PG&E Corporation’s Bylaws also list the range of the authorized number of directors as set forth in the Restated Articles of Incorporation, and fix the exact authorized number of directors. The current authorized number of directors to be issued underelected at the 2002 annual meeting is nine.
On September 20, 2001, PG&E Corporation and Pacific Gas and Electric Company jointly filed a proposed Plan of Reorganization in U.S. Bankruptcy Court that would enable Pacific Gas and Electric Company to pay all valid creditor claims in full and emerge from Chapter 11 bankruptcy proceedings. The proposed Plan reorganizes Pacific Gas and Electric Company and PG&E Corporation into two separate stand-alone companies no longer affiliated with one another. The common shares of the reorganized Pacific Gas and Electric Company will be distributed to PG&E Corporation shareholders (spin-off).
As part of the spin-off of Pacific Gas and Electric Company, the current members of the PG&E Corporation Long-Term Incentive Program (the "LTIP"). Thereand Pacific Gas and Electric Company Boards of Directors will be divided between the entities. PG&E Corporation is expected to have five directors immediately following the spin-off. This number falls outside the range of directors currently authorized in the Restated Articles of Incorporation and set forth in the Bylaws.
The Board of Directors of PG&E Corporation has unanimously approved (1) an amendment to the Corporation’s Restated Articles of Incorporation to provide that the Board of Directors shall consist of not less than
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The proposed amendment to Article Third of the Restated Articles of Incorporation of PG&E Corporation is permitted under California law and the rules of the New York Stock Exchange, the principal exchange upon which PG&E Corporation’s common stock is listed and traded. The proposed amendment to the Corporation’s Restated Articles of Incorporation will not become effective until (1) it is approved by the affirmative vote of a majority of the outstanding shares of PG&E Corporation common stock, reserved for issuance under(2) Pacific Gas and Electric Company becomes a stand-alone entity, as contemplated in the LTIP. Asproposed Plan of April 4,Reorganization, and (3) a certificate of amendment is filed with the California Secretary of State. The proposed amendment to the Corporation’s Bylaws will not become effective until (1) it is approved by the affirmative vote of a majority of the outstanding shares, and (2) the foregoing amendment to the Restated Articles of Incorporation becomes effective.
The Board of Directors of PG&E Corporation Unanimously Recommends a VoteFOR the Foregoing Amendments to the Articles of Incorporation and Bylaws of PG&E Corporation.
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To Be Voted on by Pacific Gas and Electric Company Shareholders Only
On September 20, 2001, approximately 1.9 millionPG&E Corporation and Pacific Gas and Electric Company jointly filed a proposed Plan of Reorganization in U.S. Bankruptcy Court that would enable Pacific Gas and Electric Company to pay all valid creditor claims in full and emerge from Chapter 11 bankruptcy proceedings. The proposed Plan reorganizes Pacific Gas and Electric Company and PG&E Corporation into two separate stand-alone companies no longer affiliated with one another. The common shares of the Corporation's common stock already had been issued pursuantreorganized Pacific Gas and Electric Company will be distributed to stock options
granted underPG&E Corporation shareholders (spin-off).
All amendments to Pacific Gas and Electric Company’s Restated Articles of Incorporation and Bylaws proposed in Items Nos. 5 through 9 will only become effective once the LTIPCompany becomes a stand-alone entity, as contemplated in the Plan of Reorganization. Appendix B of this Joint Proxy Statement sets forth the Company’s Restated Articles of Incorporation and approximately 31.5 million shares were subject to
outstanding awards under the LTIP, leaving approximately 1 million shares
availableBylaws, as proposed to be issued pursuantamended in Items Nos. 5 through 9.
Item No. 5: Management Proposal Regarding a Proposed Amendment to future awards underPacific Gas and Electric Company’s Articles of Incorporation to Establish a Classified Board of Directors
Currently, the LTIP.total number of directors constituting the Board of Directors of Pacific Gas and Electric Company is ten with each director serving a term of one year. As a consequence, shareholders must elect directors to fill the authorized positions at each annual meeting of shareholders.
Pacific Gas and Electric Company proposes amending the Company’s Restated Articles of Incorporation to establish a classified board. If the shareholders approveauthorized number of directors is nine or greater, the Board of Directors would be divided into three classes, with members of each class elected for staggered terms of three years. Each class would consist of one-third of the directors or as close an approximation as possible. If the authorized number of directors is reduced to between six and eight directors, the Board would be divided into two classes, with members of each class elected for staggered terms of two years.
If the number of directors changes, the increase or decrease in the number of directors would be apportioned by the Board of Directors as provided for in the proposed increase, an additional 15 million shares
would be reserved for use underamendment. In no event, however, may a decrease in the LTIP, bringing the approximate number of shares available to be issued pursuant to future awards underdirectors shorten the LTIP to 16
million.
PURPOSE
The LTIP is designed to advanceterm of any incumbent director. Under California law, vacancies in the interestsBoard of Directors created by any resignation or death or by an increase in the size of the Corporation and its
shareholders by providing officers, key management employees, and other eligible
participants with financial incentives tied directly to the Corporation's
long-term business objectives. The LTIP encompasses and supplements three plans:
the Stock Option Plan, the Performance Unit Plan, and the Non-Employee Director
Stock Incentive Plan, each of which is described below. In addition, other types
of incentive awardsBoard may be grantedfilled by the vote of the majority of the directors remaining in office.
The establishment of a classified Board of Directors would help to eligible participantsensure continuity and stability in accordance with
such terms as may bethe Board and in the policies adopted by the Committee.
The Nominating and Compensation Committee (the "Committee")Board. Following establishment of the PG&E
Corporationa classified Board of Directors, only one-third of the directors would be subject to election each year (if the Board is divided into three classes) and, at any given time, two-thirds of the Board members would have had prior experience as directors of the Company. This would facilitate long-range planning and policy development, and promote the creation of long-term value for the Company’s shareholders.
The proposed amendment may limit the ability of shareholders of the Company to change the composition of the Board of Directors by extending the time required to elect a committee composed entirelymajority of directors. Adoption of the proposed amendment also may make more difficult, or discourage, certain attempts to take over or acquire control of the Company, even where such action would be favorable to the Company’s shareholders or supported by a majority of shareholders. A principal intent of the proposal to establish a classified Board of Directors, however, is to encourage any person seeking to gain control of the Company to negotiate directly with the Board, thereby giving the Board added leverage in such negotiations to ensure the fairness of any such transaction to all shareholders.
The proposed amendment to the Restated Articles of Incorporation of Pacific Gas and Electric Company is permitted under California law and the rules of the American Stock Exchange, the principal exchange upon which the Company’s preferred stock is listed and traded. The proposed amendment will not become effective until (1) it is approved by the affirmative vote of a majority of the outstanding shares of Pacific Gas and Electric Company
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The Board of Directors of Pacific Gas and Electric Company Unanimously Recommends a VoteFOR the Foregoing Amendment to the Articles of Incorporation of Pacific Gas and Electric Company.
Item No. 6: Management Proposal Regarding Proposed Amendments to Pacific Gas and Electric Company’s Articles of Incorporation and Bylaws to Reduce the Authorized Range of Directors and Transfer the Provision That Establishes the Authorized Range of Directors from the Bylaws to the Articles of Incorporation
Currently, the Company’s Bylaws provide that the authorized maximum and minimum number of directors shall be within the range of nine to seventeen. The current authorized number of directors to be elected at the 2002 annual meeting is ten.
As part of the spin-off of Pacific Gas and Electric Company, the current members of PG&E Corporation’s and Pacific Gas and Electric Company’s Boards of Directors will be divided between the entities, such that no directors will serve as director of both entities. Each entity is expected to have five directors immediately following the spin-off. This number falls outside the range of directors recommendedcurrently authorized in the Bylaws.
The proposed amendments would (1) reduce the authorized range of directors from a range of nine to seventeen directors to a range of five to nine directors, (2) transfer the provisions that establish the minimum and maximum authorized number of directors from the Company’s Bylaws to its Restated Articles of Incorporation, and (3) change the exact number of directors specified in the Bylaws to five and clarify the permissible methods for fixing the exact number of directors within the range established by the Articles of Incorporation.
Under California law, the Restated Articles of Incorporation may only be amended by the approval of a majority of the Board of Directors and a majority of the outstanding shares. Specifying the authorized range of directors in the Restated Articles of Incorporation would effectively limit a substantial shareholder’s ability to increase the size of the Board of Directors for the purpose of appointing additional directors to gain control of the Company. However, consistent with the other proposed amendments to the Company’s Restated Articles of Incorporation and Bylaws, this proposed amendment is intended to encourage a takeover bidder to negotiate directly with the Board of Directors. This ensures the fair and equitable treatment of all shareholders.
The proposed amendment to the Restated Articles of Incorporation of Pacific Gas and Electric Company is permitted under California law and the rules of the American Stock Exchange, the principal exchange upon which the Company’s preferred stock is listed and traded. The proposed amendment to the Company’s Articles of Incorporation will not become effective until (1) it is approved by the affirmative vote of a majority of the outstanding shares of Pacific Gas and Electric Company voting stock, (2) the Company becomes a stand-alone entity, as contemplated in the Plan of Reorganization, and (3) a certificate of amendment is filed with the California Secretary of State. The proposed amendment to the Company’s Bylaws will not become effective until (1) it is approved by the affirmative vote of a majority of the outstanding shares, and (2) the foregoing amendment to the Restated Articles of Incorporation becomes effective.
The Board of Directors of Pacific Gas and Electric Company Unanimously Recommends a VoteFOR the Foregoing Amendments to the Articles of Incorporation and Bylaws of Pacific Gas and Electric Company.
Item No. 7: Management Proposal Regarding a Proposed Amendment to Pacific Gas and Electric Company’s Articles of Incorporation and Bylaws to Transfer the Provision That Prohibits Cumulative Voting in the Election of Directors from the Bylaws to the Articles of Incorporation
Currently, Pacific Gas and Electric Company’s Bylaws specify that no shareholder may cumulate his or her voting power in the election of directors. Under cumulative voting, the total number of votes that each shareholder may cast in an election for directors is determined by multiplying the number of directors to be elected by the number of votes to which the shareholder’s shares are entitled. Each shareholder may “cumulate” his or her votes by giving them all to one candidate, or may distribute his or her votes among as many candidates as the shareholder sees fit.
20
The proposed amendments will transfer the provision that prohibits cumulative voting from the Company’s Bylaws to its Restated Articles of Incorporation. The Board of Directors believes that cumulative voting gives a disproportionate and unfair weight to votes cast by a minority shareholder or shareholders. By prohibiting cumulative voting, the Company ensures that all directors are elected or removed only by a majority vote of shareholders voting in the election.
A company’s bylaws may be amended by the board of directors or by a majority of the outstanding shares if permitted by California law. Under California law, the articles of incorporation may be amended only upon approval by both the company’s board of directors and the shareholders. If the prohibition on cumulative voting is moved from the Bylaws to the Restated Articles of Incorporation, shareholders could not initiate cumulative voting unless they first obtained the concurrence and cooperation of the Board of Directors.
The proposed amendment to the Restated Articles of Incorporation of Pacific Gas and Electric Company is permitted under California law and the rules of the American Stock Exchange, the principal exchange upon which the Company’s preferred stock is listed and traded. The proposed amendment to the Company’s Articles of Incorporation will not become effective until (1) it is approved by the affirmative vote of a majority of the outstanding shares of Pacific Gas and Electric Company voting stock, (2) the Company becomes a stand-alone entity, as contemplated in the Plan of Reorganization, and (3) a certificate of amendment is filed with the California Secretary of State. The proposed amendment to the Company’s Bylaws will not become effective until (1) it is approved by the affirmative vote of a majority of the outstanding shares of Pacific Gas and Electric Company voting stock, and (2) the foregoing amendment to the Restated Articles of Incorporation becomes effective.
The Board of Directors of Pacific Gas and Electric Company Unanimously Recommends a VoteFOR the Foregoing Amendments to the Articles of Incorporation and Bylaws of Pacific Gas and Electric Company.
Item No. 8: Management Proposal Regarding a Proposed Amendment to Pacific Gas and Electric Company’s Articles of Incorporation to Include Constituency Provisions
Pacific Gas and Electric Company proposes amending the Company’s Restated Articles of Incorporation to enumerate factors that the Board of Directors approve the proposed increasemay consider in the number of shares available to be issued under the LTIP.
TYPES OF INCENTIVE AWARDS
The LTIP contains a number of optional forms of incentive awards that may
be used at the sole discretion of the Committee. Incentive awards under the LTIP
may take the form of stock options, stock appreciation rights ("SARs"), dividend
equivalents, performance units, restricted stock, common stock equivalents, or
other stock-based awards. The stock options may be incentive stock options
("ISOs") intended to qualify for special tax treatment or non-qualified stock
options ("NQSOs").
At the present time, PG&E Corporation uses the LTIP to grant stock options
and other stock-based awards to eligible employees, to award performance units
to eligible employees, and to grant options, restricted stock, and common stock
equivalents to eligible non-employee directors pursuant to the formula
provisions of the Non-Employee Director Stock Incentive Plan component of the
LTIP. Under the LTIP, no more than 2 million of the currently authorized shares
may be issued in the form of restricted stock, and no more than 3 million of the
proposed additional shares could be issued in the form of restricted stock.
The type of incentive award to be granted, as well as the terms and
conditions of the award,determining what is determined by the Committee at the time of grant,
except that, as described below, non-employee directors are not eligible to
13
18
receive any form of incentive award under the LTIP other than pursuant to the
formula provisions of the Non-Employee Director Stock Incentive Plan. (See
"Non-Employee Director Stock Incentive Plan" below.)
ELIGIBILITY
All officers of PG&E Corporation are eligible to participate in the LTIP.
Also eligible to participate, if so identified by the Committee (or by the Chief
Executive Officer of PG&E Corporation, to the extent authorized by the LTIP),
are officers of wholly owned subsidiaries of PG&E Corporation, other key
management employees of PG&E Corporation or any wholly owned subsidiary of the
Corporation, other employees or consultants of PG&E Corporation or any
subsidiary or affiliate of the Corporation, and other persons whose
participation in the LTIP is deemed by the Committee to be in the best interests of the Corporation. AsCompany and its shareholders when evaluating a business combination involving the Company. The proposed “constituency provision” would authorize the Board of December 31, 2000, there were 23 currentDirectors, when evaluating certain third-party business combination proposals or former
officersoffers, to give due consideration to all factors it may consider relevant. Such factors could include, without limitation, (1) the adequacy of the consideration offered, (2) the financial and managerial resources and future prospects of the acquirer, and (3) the legal, economic, environmental, regulatory, and social effects of the proposed transaction on the Company’s and its subsidiaries’ employees, customers, suppliers, and other affected persons and entities, and on the communities and geographic areas in which the Company and its subsidiaries provide utility service or are located, and in particular, the effect on the Company’s and its subsidiaries’ ability to safely and reliably meet any public utility obligations at reasonable rates. Such a constituency provision is included in the Restated Articles of Incorporation of PG&E Corporation, 128 currentthe Company’s parent.
When deciding whether to enter into a merger, a sale of all or former officerssubstantially all of PG&E Corporation
subsidiaries, 917 currentthe assets of the Company, or former key management employeesother similar transaction, the principal consideration of PG&E Corporationa board of directors is the interests of shareholders. Under California law, it is not entirely clear how far a board may go in considering other factors in evaluating such transactions. Although the manner and extent to which a matter may affect shareholders is a vital element in any consideration of any business combination involving the Company, the impact upon other constituencies that necessarily influence the success of the Company (and hence benefit the shareholders) also is a legitimate factor to consider. The Board of Directors should be authorized to consider other constituencies in its determination of what is in the best interests of the Company and its subsidiaries, and no other persons participating inshareholders.
The constituency provision may make more difficult, or discourage, certain attempts to take over or acquire control of the LTIP.
Non-employee directors of PG&E Corporation are eligible to receive grants
of incentive awards in accordance with, and subjectCompany, even where such action would be favorable to the termsCompany’s shareholders or supported by a majority of shareholders. However, the provision would allow the Board of Directors to take into account the effects of a takeover proposal on a broad number of constituencies and conditionsto consider any potential adverse effect in determining whether to accept or reject the proposal.
The proposed amendment to the Restated Articles of Incorporation of Pacific Gas and Electric Company is permitted under California law and the rules of the Non-Employee DirectorAmerican Stock Incentive Plan component ofExchange, the LTIP.
Non-employee directors areprincipal exchange upon which
21
The LTIP became effective asBoard of January 1, 1992,Directors of Pacific Gas and will terminate on
December 31, 2005, unless terminated sooner accordingElectric Company Unanimously Recommends a VoteFOR the Foregoing Amendment to the termsArticles of Incorporation of Pacific Gas and Electric Company.
Item No. 9: Management Proposal Regarding a Proposed Amendment to Pacific Gas and Electric Company’s Articles of Incorporation to Require That Shareholder Action Be Taken at an Annual or Special Meeting
Currently, California law provides that any action which may be taken at any annual or special meeting of Pacific Gas and Electric Company’s shareholders may be taken without a meeting and without prior notice, if a written consent setting forth such action is signed by shareholders having at least the minimum number of votes required by California law.
Pacific Gas and Electric Company proposes amending the Company’s Restated Articles of Incorporation to require that all shareholder action be taken at a duly called annual meeting or special meeting of shareholders and that no action may be taken by the written consent of the LTIP.
SHARES SUBJECT TO THE LTIP
Ifshareholders. As currently provided in the Company’s Bylaws, a special meeting of shareholders approvemay be called by the Secretary or an Assistant Secretary upon the written request of holders of not less than 10 percent of the votes entitled to be cast at that meeting.
The proposed increaseamendment would afford all shareholders an equal opportunity to participate in a meeting where shareholder action is proposed to be taken. The proposal also would prevent sudden shareholder action to remove the entire Board of Directors and would assist the Board in preserving its ability to negotiate directly with a potential acquirer on behalf of the Company’s shareholders, thus fostering the fair and equitable treatment of all shareholders. However, this also may make more difficult, or discourage, certain attempts to takeover or gain control of the Company, even where such action would be favorable to the Company’s shareholders or supported by a majority of shareholders.
The proposed amendment to the Restated Articles of Incorporation of Pacific Gas and Electric Company is permitted under California law and the rules of the American Stock Exchange, the principal exchange upon which the Company’s preferred stock is listed and traded. The proposed amendment will not become effective until (1) it is approved by the affirmative vote of a majority of the outstanding shares of Pacific Gas and Electric Company voting stock, (2) the LTIP would
permitCompany becomes a maximumstand-alone entity, as contemplated in the Plan of 49,389,230Reorganization, and (3) a certificate of amendment is filed with the California Secretary of State.
The Board of Directors of Pacific Gas and Electric Company Unanimously Recommends a VoteFOR the Foregoing Amendment to the Articles of Incorporation of Pacific Gas and Electric Company.
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To Be Voted on by PG&E Corporation Shareholders Only
Item No. 10: Shareholder Proposal Regarding Independent Directors
Mr. Ray T. Chevedden, 5965 South Citrus Avenue, Los Angeles, California 90043, holder of 3,000 shares of PG&E Corporation common stock, for use
under the LTIP,has given notice of which approximately 16 million would be availablehis intention to be
issued pursuant to future awards. No more than 2 million shares currently
reserved for issuance under the LTIP, and no more than 3 million of the 15
million proposed additional shares, could take the form of restricted stock.
Shares of PG&E Corporation common stock covered by previously granted incentive
awards may be reused or added back to the LTIP under certain circumstances set
forth in the LTIP and to the extent permitted by applicable law.
STOCK OPTION PLAN
The Committee may grant ISOs, NQSOs, tandem SARs, and tandem dividend
equivalents to eligible participants (see "Eligibility" above), subject to the
terms and conditions of the Stock Option Plan adopted by the Committee.
Stock Options. Stock options allow the optionee to buy a certain number of
shares of PG&E Corporation common stock at an exercise price equal to the market
price at the time the option is granted. The option may not be exercised until
the right to do so has vested under a schedule approved by the Committee.
Although vesting schedules may vary, the vesting schedule currently used by the
Committee generally provides that one-third of the options may be exercised on
or after the second anniversary of the date of grant, two-thirds on or after the
third anniversary, and 100 percent on or after the fourth anniversary. Options
which are granted in lieu of bonus generally are vested immediately, although
the options may not be exercised for at least one year after the date of grant.
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Tandem SARs. At the discretion of the Committee, options may be granted
with or without tandem SARs which permit an optionee to surrender an option or a
portion thereof in exchange for a cash payment equal to the difference between
the current market value of PG&E Corporation common stock and the exercise
price. A tandem SAR is subject to the same terms and conditions as the related
option, except that it may be exercised only when the market value exceeds the
exercise price. Certain restrictions also exist with respect to the payment of
the dividend equivalent account to the optionee (see "Tandem Dividend
Equivalents" below). In addition, SARs held by executive officers of PG&E
Corporation and other participants who are subject to Section 16 of the
Securities Exchange Act of 1934 may be exercised only during certain quarterly
window periods. No SARs have been granted since 1991.
Tandem Dividend Equivalents. Options may be granted with or without tandem
dividend equivalents. When an option is granted with tandem dividend
equivalents, a dividend equivalent account is established for the optionee. On
each dividend record date for PG&E Corporation common stock, the optionee's
account is credited with an amount equal to the dividend on PG&E Corporation
common stock subject to the unexercised portion of the option. Funds in the
account are accessible only when (1) the option or related tandem SAR is
exercised, and (2) if an SAR is exercised, the market value of PG&E Corporation
common stock has increased by an average of at least 5 percent per year for the
first five years after the grant or, in the case of options held for longer than
five years, such market value has increased by at least 25 percent. In June
1997, the Committee determined to discontinue granting tandem dividend
equivalents with options and no option grants with dividend equivalents have
been made since that time.
Payment for Shares Upon Exercise of Stock Options. At the time an option is
exercised, shares of PG&E Corporation common stock may be purchased using (1)
cash (including any dividend equivalent account funds), (2) shares of PG&E
Corporation common stock owned by the optionee for at least one year, (3) a
"cashless exercise" procedure (whereby a broker sells the shares or holds them
as collateral for a margin loan, and delivers the option sale or loan proceeds
to the optionee), or (4) any combination of the foregoing or any other method of
payment which the Committee may allow. The Corporation will not make loans to
optionees for the purpose of exercising options.
Term of Options and Tandem SARs. Although the Committee has the discretion
to vary the term of an option and any related tandem SAR, in general, the term
of each ISO and related tandem SAR is 10 years and the term of each NQSO and
related tandem SAR is 10 years and one day, subject to earlier termination, as
described below.
Termination of Employment or Relationship with the Corporation. Upon
termination of the optionee's employment or relationship with the Corporation
without cause, (1) any unexercised options shall be canceled and terminated
immediately, except that any unexercised options which are vested may be
exercised during the balance of their term or within 30 days of termination,
whichever is shorter, and (2) the optionee's dividend equivalent account (if
any) shall not be credited with any dividends paid after the date of
termination. However, if an optionee is covered by the PG&E Corporation Officer
Severance Policy, unvested options will continue to vest after termination of
employment for a certain time period and all vested options will be exercisable
for a certain time period after termination of employment. If an optionee is
terminated for cause any unexercised options will be terminated immediately. If
an optionee's employment is terminated by reason of retirement, death,
disability, or divestiture or change in control of a subsidiary of PG&E
Corporation, or if an optionee's employment is terminated without cause within
one year after a change in control of PG&E Corporation, (1) special rules allow
the optionee to exercise all vested and unvested options within certain time
periods after termination, and (2) the optionee's dividend equivalent account
(if any) shall continue to be credited with dividends on unexercised options as
long as those options remain exercisable. For more information, see "Termination
of Employment and Change in Control Provisions" on page 37.
Limitation on Options and SARs Awarded to Any Optionee. The LTIP provides
that, during any calendar year, an eligible participant may be granted options
and SARs representing no more than 2 percent of the total number of shares
reserved for use under the LTIP.
PERFORMANCE UNIT PLAN
The Committee may grant performance units to certain officers of PG&E
Corporation and such other employees of PG&E Corporation, other companies,
affiliates, subsidiaries, or associations as may be designated by the Committee,
subject to the terms and conditions of the Performance Unit Plan adopted by the
Committee. The number of units granted to a recipient is determined by the
Committee based upon recommendations made by the Chief Executive Officer of PG&E
Corporation. The number of units granted is based on the Corporation's financial
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success, its future business plans, relevant compensation, general economic
conditions, and other appropriate factors.
Vesting. The performance units vest one-third in each of the three years
following the year of grant. At the time of the annual grant of units, the
Committee establishes performance targets to be met within the vesting period as
a condition of earning the units. Performance targets may be based entirely on
corporate goals, entirely on business unit goals, or partially on corporate
goals and partially on business unit goals. Performance targets may be adjusted
during the vesting period, at the Committee's sole discretion, to reflect
extraordinary events beyond management's control.
For example, the Committee has approvedpresent the following performance target
for the 2001 performance unit grants: to achieve a three-year cumulative total
shareholder return that equals at least the 75th percentile of the three-year
cumulative total shareholder return of the 12 company comparator group. To the
extent that this performance target is met, the recipient would receive 100
percent of the vested units; performance below the target results in a reduction
or elimination entirely of the number of units paid to the recipient; and
performance above the target can result in an increase up to 200 percent. The
value of a unit at payment is equal to the average market price of PG&E
Corporation common stock for the 30 calendar day period prior to the end of the
year in which the unit qualifies for payment.
Dividend Equivalents. Each time a cash dividend is declared on PG&E
Corporation common stock, an amount equal to the cash dividend per share
multiplied by the number of outstanding but unearned units held by the recipient
of a performance unit will be accrued on behalf of the recipient. As soon as
practicable following the end of each year, recipients will receive a cash
payment of the dividends accrued for the year, modified by performance for that
year as measured against the applicable performance target.
Termination of Employment or Relationship with the Corporation. If the
employment of a recipient of performance units is terminated by the Corporation
without cause, unvested awards will be forfeited. However, if the recipient is
covered by the PG&E Corporation Officer Severance Policy, awards under the
Performance Unit Plan will continue to vest and be payable during a certain
period of time after termination of employment. Any unvested awards remaining at
the end of such period will be forfeited. If a recipient's employment is
terminated by reason of retirement, death, or disability, awards will continue
to be payable, subject to modification based upon performance in the year during
which employment terminated. For more information, see "Termination of
Employment and Change in Control Provisions" on page 37.
NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
On the first business day of each calendar year during the term of the
LTIP, each PG&E Corporation director who is not an employee of the Corporation
automatically receives incentive awards with an aggregate fair market value (as
determined in accordance with the Plan) of $30,000. The incentive awards are
composed of restricted stock having an aggregate fair market value as of the
first business day of each calendar year of $10,000, and a combination of stock
options and common stock equivalents having an aggregate value (as is determined
in accordance with the Plan) of $20,000 as of the first business day of the
calendar year.
Restricted Stock. Shares of restricted stock may be forfeited to PG&E
Corporation to the extent that they are not vested. Such shares generally will
vest at the rate of 20 percent on each anniversary of the grant date. Non-
employee directors will have all of the rights of a PG&E Corporation shareholder
with respect to all outstanding shares of restricted stock, including the right
to vote and receive dividends, whether or not such shares are vested. Upon
termination of service as a PG&E Corporation director, any unvested shares of
restricted stock will be forfeited. In the event of a termination by reason of
mandatory retirement at the age specified in the PG&E Corporation Board of
Directors retirement policy, by reason of death or disability, or by reason of a
change in control, all shares of restricted stock will become fully vested.
Stock Options. The number of stock options to purchase shares of PG&E
Corporation common stock is determined by dividing the equity value increment
(subject to aggregate $20,000 limit) by the per-option value on the first
business day of the year. The per-option value is based on the Black-Scholes
stock option valuation method, discounting the resulting value by 20 percent.
Stock options awarded under the Plan to non-employee directors become
exercisable as to one-third of the options on or after the second anniversary of
the date of grant, as to two-thirds of the options on or after the third
anniversary, and as to 100 percent on or after the fourth anniversary. The
option exercise price is equal to the fair market value of PG&E Corporation
common stock on the date of grant. Dividend equivalents are not granted in
connection with the options. The term of each option is 10 years and one day
from the date of grant. Upon termination of a director's service on the Board by
reason of
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death, disability, mandatory retirement at age 70, or retirement after five
years of continuous service on the Board, all options will become fully
exercisable. Options will be exercisable for the longer of the remainder of the
option term or five years in the case of termination by reason of mandatory
retirement, or one year in the case of termination by reason of death or
disability. If termination is for any other reason, unvested options shall
terminate and vested options shall remain exercisable for three months after
termination or the remainder of the option term, whichever is shorter.
Common Stock Equivalents. Each common stock equivalent unit awarded under
the Plan to non-employee directors is equal to one share of PG&E Corporation
common stock. The number of common stock equivalents is determined by dividing
the equity value increment (subject to the aggregate $20,000 limit) by the
closing price of PG&E Corporation common stock on the first business day of the
year. On each dividend payment date, additional common stock equivalents are
credited to a director's account determined by dividing the aggregate amount of
the dividends (the dividend multiplied by the number of common stock equivalent
units on the dividend record date) by the closing price of PG&E Corporation
common stock on the dividend payment date. Common stock equivalents are
distributed to the director in the form of an equal number of shares of PG&E
Corporation common stock upon the director's retirement from the Board after
five years of continuous service or upon a director's mandatory retirement at
age 70. Common stock equivalents also become payable immediately in the event of
the director's death or disability. If a director's service on the Board
terminates for any other reason, all common stock equivalents are forfeited on
the date of termination.
OTHER INCENTIVE AWARDS
The Committee also may grant other types of incentive awards, including
stand-alone SARs or stand-alone dividend equivalents (SARs or dividend
equivalents granted without options), stock grants, and limited SARs (SARs which
are exercisable only in the event of a change in control). In October 1997, the
Committee approved the Executive Stock Ownership Program under which certain
officers are subject to stock ownership guidelines and, if they meet or exceed
those guidelines, are entitled to receive a type of incentive award under the
LTIP called a Special Incentive Stock Ownership Premium ("SISOP") to the extent
the eligible officers reach certain designated stock ownership target levels.
(For a further discussion of the Executive Stock Ownership Program, see
"Nominating and Compensation Committee Report on Compensation" on pages 26-30.)
SISOPs are credited to the officer's account under the PG&E Corporation Deferred
Compensation Plan. SISOPs, once vested in accordance with the Executive Stock
Ownership Program, will be distributed to the officer in accordance with the
Deferred Compensation Plan in the form of an equal number of shares of PG&E
Corporation common stock. When SISOPs are awarded, the shares of PG&E
Corporation common stock subject to distribution upon settlement of the SISOPs
are deducted from the pool of shares reserved for issuance under the LTIP. If
SISOPs are forfeited, the shares previously subject to the SISOPs will become
available again under the LTIP.
TAX WITHHOLDING
To the extent that a recipient of an incentive award incurs any tax
liability in connection with the exercise or receipt of an incentive award, the
recipient's withholding obligation may be satisfied through payroll deductions
or a direct cash payment to PG&E Corporation. In addition, the Committee may
allow the recipient to satisfy all or part of such withholding obligation by
allowing PG&E Corporation to withhold a portion of the shares to be issued to
the recipient.
RE-PRICING PROHIBITED
PG&E Corporation does not re-price or change the terms of options once they
have been granted. The Committee may allow a recipient of an incentive award to
surrender or exchange an unexercised option or award for another award of the
same or a different type, as long as the exercise price or purchase price of the
new option or award is not lower than the exercise price or purchase price of
the original option or award.
DEFERRAL OF PAYMENTS
The Committee may allow the deferral of any cash payments that may become
due under the LTIP.
ADJUSTMENT UPON CHANGES IN NUMBER OR VALUE OF SHARES OF COMMON STOCK
In order to prevent enlargement or dilution of rights resulting from stock
dividends, stock splits, recapitalizations, mergers, consolidations, or other
events that materially increase or decrease the number or value
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of shares of PG&E Corporation common stock, the Committee may make such
adjustments as it deems appropriate.
NON-TRANSFERABILITY OF INCENTIVE AWARDS
Incentive awards shall not be transferable otherwise than by will or by the
laws of descent and distribution, and generally may be exercised during the
lifetime of the recipient only by the recipient.
CHANGE IN CONTROL
Upon the occurrence of a change in control (as defined in the LTIP), (1)
any time periods relating to the exercise or realization of any incentive award
will be accelerated so that such award may be exercised or realized in full
immediately upon the change in control, (2) all shares of restricted stock will
immediately cease to be forfeitable, and (3) all conditions relating to the
realization of any stock-based award will immediately terminate. For more
information, see "Termination of Employment and Change in Control Provisions" on
page 37.
AMENDMENT AND TERMINATION OF THE LTIP AND INCENTIVE AWARDS
The PG&E Corporation Board of Directors or the Committee may at any time
suspend, terminate, modify, or amend the LTIP in any respect. However,
shareholder approval of amendments shall be obtained in the manner and to the
degree required by applicable laws or regulations. The Committee also may amend
or modify the terms and conditions of any incentive award, or may cancel or
annul any grant of an award. No suspension, termination, modification, or
amendment of the LTIP, and no amendment, modification, cancellation, or
annulment of any incentive award, may adversely affect a recipient's rights
under the LTIP or such incentive award without the recipient's consent. The
Committee may not reduce the exercise price or purchase price of any outstanding
option or incentive award below the original exercise price or purchase price.
FUNDING
Inasmuch as the LTIP is designed to encourage financial performance and to
improve the value of shareholders' investment in PG&E Corporation, the costs of
the LTIP will be funded from corporate earnings.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief description of the federal income tax consequences
of stock options, tandem SARS, tandem dividend equivalents, performance units,
common stock equivalents, and restricted stock granted under the LTIP under
present tax laws.
Non-Qualified Stock Options. There will be no federal income tax
consequences to either the optionee or PG&E Corporation upon the grant of a
NQSO. Upon the exercise of a NQSO, the optionee generally will have taxable
ordinary income equal to the difference between the current market value of the
shares and the option exercise price, and the Corporation will be entitled to a
federal income tax deduction of that amount.
Incentive Stock Options. There will be no federal income tax consequences
to either the optionee or PG&E Corporation upon the grant or exercise of an ISO.
However, unless the holding period requirements discussed below are violated,
upon exercise of an ISO, an optionee will be deemed to have a tax preference
item (equal to the difference between the current market value of the shares on
the date of exercise and the option exercise price) that may result in
alternative minimum tax liability. If an optionee exercises an ISO and does not
dispose of the shares within two years from the date of grant or within one year
from the date the shares are transferred to the optionee, any gain realized upon
disposition will be taxable to the employee as long-term capital gain, and the
Corporation will not be entitled to any deduction. If an optionee violates the
holding period requirements, the optionee will realize ordinary income in the
year of disposition, and the Corporation will be entitled to a corresponding
deduction in an amount equal to the excess of (1) the lesser of (a) the amount
realized on the sale or exchange or (b) the fair market value of the shares on
the date of exercise, over (2) the option exercise price.
An ISO which is exercised more than three months after the optionee
terminates employment with the Corporation will be treated as a NQSO for federal
income tax purposes.
Tandem Stock Appreciation Rights. There will be no federal income tax
consequences to either the optionee or PG&E Corporation upon the grant of a
tandem SAR or during the period that the unexercised right remains outstanding.
Upon the exercise of a tandem SAR, the amount received will be taxable to the
optionee as ordinary income, and the Corporation will be entitled to a
corresponding deduction.
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Tandem Dividend Equivalents. There will be no federal income tax
consequences to either the optionee or PG&E Corporation upon the establishment
of a dividend equivalent account or during the period that funds accrue in the
account. Amounts paid from the account will be taxable to the optionee as
ordinary income, and the Corporation will be entitled to a corresponding
deduction.
Performance Units. There will be no federal income tax consequences to
either the recipient or PG&E Corporation upon the grant of performance units.
Dividend equivalents paid on performance units will be taxable to the recipient
as ordinary income, and the Corporation will be entitled to a corresponding
deduction. Upon the payment of performance units, the amount received will be
taxable to the recipient as ordinary income, and the Corporation will be
entitled to a corresponding deduction.
Common Stock Equivalents. There will be no federal income tax consequences
to either the recipient or PG&E Corporation upon the grant of common stock
equivalents. The recipient will not recognize any income when additional common
stock equivalents are credited to the recipient's account upon conversion of
dividend equivalents. Upon distribution of common stock equivalents to the
recipient, the recipient will recognize ordinary income equal to the value of
the cash or securities distributed, and the Corporation will be entitled to a
corresponding deduction.
Restricted Stock. Upon the grant of restricted stock subject to a vesting
schedule, the recipient will be deemed to receive taxable ordinary income equal
to the fair market value of the shares at the time they vest. Upon the sale or
disposition of the shares, the recipient will realize capital gain or loss in an
amount equal to the difference between the fair market value of the shares on
each vesting date and the sale or disposition price.
Section 83(b) of the Internal Revenue Code permits a recipient to elect,
within 30 days after the grant of any shares of restricted stock subject to a
vesting schedule, to be taxed at the time of grant at ordinary income rates on
the fair market value of all shares received, based on the fair market value of
the shares on the date of grant. If the recipient makes a Section 83(b)
election, any later appreciation in the value of the shares will be taxable as
capital gain instead of ordinary income when they are sold or transferred.
At the time a recipient elects to be taxed on the grant of restricted
stock, the Corporation will be entitled to a federal income tax deduction in an
amount equal to the ordinary income recognized by the recipient.
BENEFITS UNDER THE LTIP
Subject to certain limitations, the Committee has full discretion to
determine the number, type, and value of incentive awards to be granted to
eligible participants under the LTIP. Thus, the benefits and amounts that will
be received by or allocated to the officers, directors, and employees of PG&E
Corporation are not determinable. Information regarding incentive awards granted
to the named executive officers during the past year is presented in "Option/SAR
Grants in 2000" on page 33 and "Long-Term Incentive Program--Awards in 2000" on
page 35. The amount of incentive awards to be received by each non-employee
director is determined under the formula provisions of the Non-Employee Director
Stock Incentive Plan, as discussed above.
THE BOARD OF DIRECTORS OF PG&E CORPORATION UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THIS PROPOSAL.
IF YOU DO NOT HOLD ANY SHARES OF PG&E CORPORATION COMMON STOCK, YOU ARE NOT
ENTITLED TO VOTE ON THE FOLLOWING FIVE SHAREHOLDER PROPOSALS.
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Item Nos. 4 to 8:
Shareholder Proposals
TO BE VOTED ON BY PG&E CORPORATION SHAREHOLDERS ONLY
The following proposals have been submitted by shareholdersproposal for action at the PG&E Corporation annual meeting. Tomeeting:
“10 — INDEPENDENT DIRECTORS on KEY COMMITTEES
Resolved:
| PG&E Corporation shareholders request a bylaw be adopted that the board (and/or management, if applicable) nominate independent directors to key board committees to the fullest extent possible. | ||
| An independent director is a director whose only nontrivial professional, familial or financial connection to the company, its Chairman, CEO or any other executive officer is his or her directorship. Further information on this definition is under “Independent Director Definition” at the Council of Institutional Investors website,www.cii.org. | ||
| Institutional Investors own 47% of PG&E stock. |
| The key board committees are: |
| • | Audit | ||
| • | Nominating | ||
| • | Compensation |
| Also, request that any change on this proposal topic be put to shareholder vote — as a separate proposal and apply to successor companies. |
| Shareholder-friendly |
| The company could have been shareholder-friendly and allowed a shareholder vote on this topic in 2001. It only needed a small technical change in wording. |
| This topic won 45% approval at the PG&E 2000 shareholder meeting — | |
| This 45% approval was 70% higher than the vote at the 1999 annual meeting. |
| These key oversight committees deserve heightened independence — free of Enron-type director links to PG&E. The following Directors profited directly or indirectly from their links to PG&E (Source — previous PG&E proxies): |
| 1. | David Andrews |
| • | Mr. Andrew’s employer, the law firm of McCutchen, Doyle & Enersen, LLP, collected fees from PG&E. |
| 2. | Dr. David Lawrence CEO of Kaiser Health Plan |
| • | Kaiser collected $23 million from PG&E. |
| 3. | David Coulter CEO of BankAmerica Corp. until Oct. 1998 |
| • | Bank of America collected $2.5 million from PG&E. |
| 4. | Lee Cox Vice Chairman of AirTouch until 1997 |
| • | AirTouch collected $1.5 Million from PG&E. |
| It is a disappointment that the new director, Mr. Andrews with the above Enron-type link to PG&E, was selected after the 45%-vote in favor of greater independence. |
| It is believed that greater accountability, through independent directors on key committees, could help avoid these events that we do not want repeated: |
| • | PG&E bankruptcy work may cost $400 million. | ||
| • | San Francisco voters deal a blow to PG&E. |
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| • | Adopt a proposal to allow the city to set up a public power system to take over the San Francisco PG&E business. | ||
| • | Enron owes PG&E and other California utilities tens of millions. | ||
| • | A PG&E net loss of $3.4 billion in 2001 | ||
| • | PG&E borrowed more than $6.8 billion | ||
| • | Total PG&E debt zoomed to $19 billion | ||
| • | PG&E strategy of blaming the state of California for the PG&E crises | ||
| • | Meanwhile, directors allow CEO to collect $7 million paycheck. |
For improved accountability:
INDEPENDENT DIRECTORS ON KEY COMMITTEES
The Board of Directors of PG&E Corporation Recommends a VoteAGAINST This Proposal.
The Board of Directors believes this proposal is unnecessary. The PG&E Corporation Audit Committee and Nominating and Compensation Committee are each composed entirely of independent directors as defined in the Corporation’s corporate governance guidelines. Independent directors are defined in the guidelines as directors who are neither (1) current nor former employees of, or consultants to, PG&E Corporation or its subsidiaries, nor (2) current nor former officers or employees of any other corporation on whose board of directors any officer of PG&E Corporation serves as a member. Further, another requirement of the guidelines specifies that 75 percent of the Board be approved,composed of directors who are neither current nor former officers of PG&E Corporation or any of its subsidiaries. The Corporation is in compliance with this requirement.
The PG&E Corporation Board of Directors believes that the composition of its Audit Committee and its Nominating and Compensation Committee, each properly presented
proposal must receiveconsisting solely of independent directors, and the affirmative votepresence of a majority of independent directors on the Board pursuant to the Board’s corporate governance policies ensure independent oversight of management.
For these reasons, the PG&E Corporation shares represented and voting on the proposal, and the affirmative votes must
constitute at least a majorityBoard of the required quorum. Abstentions will be
counted in the number of shares represented and voting, and will have the same
effect as aDirectors unanimously recommends that shareholders vote against theAGAINST this proposal. Broker non-votes with respect to a
particular proposal will be counted for purposes of determining the presence or
absence of a quorum, but will not be counted in the number of shares represented
and voting on the proposal. Unless indicated to the contrary, properly executed
proxies received by PG&E Corporation prior to or at the annual meeting will be
voted "AGAINST" these proposals.
ITEM NO. 4: SHAREHOLDER PROPOSAL REGARDING CONFIDENTIAL SHAREHOLDER VOTING
Item No. 11: Shareholder Proposal Regarding Poison Pills (Shareholder Rights Plan)
Mr. Chris Rossi, P.O. Box 249, Boonville, California 95415, holder of 1,000 shares of PG&E Corporation common stock, has given notice of his intention to present the following proposal for action at the PG&E Corporation annual meeting:
"RESOLVED:
CONFIDENTIAL SHAREHOLDER VOTING
ADOPT PROPOSAL THAT WON 50%-PLUS
“11 — SHAREHOLDER VOTE ON POISON PILLS
| PG&E shareholders request a bylaw that our company not adopt a poison pill and shall redeem any existing pill unless it has first received affirmative support from shareholders. | ||
| Why require a shareholder vote to maintain a poison pill? |
| Poison pills: |
| 1) | Adversely affect shareholder value. | ||
| 2) | Injures shareholders by reducing management accountability. | ||
| 3) | Are a major shift of shareholder rights from shareholders to management. |
| POWER AND ACCOUNTABILITY By Nell Minow and Robert Monks |
| 4) The Council of Institutional Investorswww.cii.org institutional investors whose assets exceed $1 Trillion (emphasizing the “T”), recommends poison pills be approved by shareholders. | ||
| 5) Institutional investors own 47% of PG&E stock. Furthermore, institutional investors have a fiduciary duty to vote in the best interest of shareholders. |
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| 6) Some shareholders may look to institutional shareholders for leadership in evaluating the merits of shareholder proposals. Institutional shareholders have the fiduciary duty to make an independent analysis — plus the staff and resources to study the issues thoroughly from a shareholder-value perspective. |
| Greater Management Accountability |
| It is believed that shareholder vote on poison pills will improve PG&E/ Pacific Gas and Electric Company accountability while our utility subsidiary lingers in bankruptcy: | ||
| A) $17.5 million in bonuses given to top executives while our shattered utility navigates through bankruptcy. | ||
| B) Some of the fattest bonuses include the top 6 officers and 17 other senior managers — their salaries double. | ||
| C) $17.5 million in bonuses follow $50 million in bonuses handed to employees just days before our company filed bankruptcy on April 6, 2001. |
| To take one step |
| I believe that it is consistent with conventional wisdom that when many items are not the best practice — that making one change deserves attention. Specifically, at PG&E there were/are a number of allowed practices that institutional investors believe are not best practices, such as: |
| • | Five of the total of 9 directors have links to PG&E — a widely criticized practice of the high-flying bankrupt Enron. | ||
| • | The newest director, Mr. Andrews, has a link to PG&E — evidence of recent Enron-type practices. | ||
| • | Furthermore, Mr. Andrews for some reason was given a valued seat on the key audit committee which demands greater independence. | ||
| • | 40% of the audit committee has links to PG&E. | ||
| • | 75% of the compensation committee has links to PG&E. | ||
| • | 75% of the nominating committee has links to PG&E. | ||
| • | The Council of Institutional Investors holds that the above 3 key committees be 100% independent. | ||
| • | Management recommended a 2001 management stock option plan that raised our total potential stock dilution to 12% — or 267% higher than the PG&E peer group average |
SHAREHOLDER VOTE ON POISON PILLS
The Board of Directors of PG&E Corporation Recommends a VoteAGAINST This Proposal.
The Board of Directors adopted the Corporation’s Shareholder Rights Plan on December 15, 2000, in order to protect the Corporation’s shareholders who voted to abstain did not vote no.)
PG&E shareholders recommend thatin the board adopt a bylaw requiring
confidentiality for all proxies, ballots and voting tabulations that
identify how shareholders vote and thatevent the inspectors of election be
independent and not employees of the company.
SUPPORTING STATEMENT:
The confidential ballotCorporation is fundamentalconfronted with an inadequate offer or with coercive or unfair takeover tactics. Plans similar to the American system. This
protection ensures that shareholders are not subjected to:
- Actual
- Perceived or
- Potential coercive pressure.
The PG&E proxy solicitor has elaborate databases to match
street-name shareholder account numbers with the actual identity of many
shareholders.
The Investor Responsibility Research Center (IRRC) reported that
confidential voting proposals won 52% shareholder approval in 2000. IRRC
reported that 75% of institutional investors surveyed said they
consistently support confidential voting resolutions. PG&E is
majority-ownedCorporation’s Shareholder Rights Plan have been adopted by institutional shareholders.
The 50%-plus margin has added significance since
management-appointed trustees vote large blocks of PG&E stock,more than 2,000 U.S. corporations, including substantial employee-owned shares listed on page 40 of the 2001 proxy under
State Street Bank. Many institutional investors believe that such trustees
follow management's recommendations.
WHAT INCENTIVE IS THERE FOR IMPROVING CORPORATE GOVERNANCE -- HIGHLIGHTED
BY CONFIDENTIAL VOTING?
A new survey by McKinsey & Co., international management
consultant shows that institutional investors are prepared to pay an 18%
premium for good corporate governance.
McKinsey warns that companies that fail to reform will find
themselves at a competitive disadvantage in attracting capital to finance
growth.
Wall Street Journal June 19, 2000
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25
LIMIT UNDEMOCRATIC MANAGEMENT INFLUENCE
This need for this reform is demonstrated by the Lucent Technologies
position statement. It said that by using non-confidential voting Lucent
wanted "the ability to determine how an institution voted and engage in a
dialogue with that institution regarding its concerns." Lucent management
could thus disproportionately influence the ballot by identifying large
shareholders -- not voting with management -- and lobby those shareholders
to change their vote.
WHAT ISSUES HIGHLIGHT CONCERN ABOUT IMPROVING PG&E'S PERFORMANCE?
The 1998 directors and key-employees stock option plan has a total potential
stock dilution of 8% - compared to 2% stock dilution for PG&E peer group.
Investor Responsibility Research Center
PG&E Annual Meeting Report March 1999
- PG&E ran up a deficit equal to half its net worth in just 4
months -- buying electricity in the state's deregulated market.
- The PG&E shortfall is so enormous that analysts expect its deficit to
exceed $3 billion by Oct. 31 -- more thanabout half of the $5.7 billion PG&E
shareholder equity.
Wall Street Journal Sept. 27, 2000
To improve management accountability vote yes:
CONFIDENTIAL SHAREHOLDER VOTING
YES ON 4"
THE BOARD OF DIRECTORS OF PG&E CORPORATION RECOMMENDS A VOTE AGAINST THIS
PROPOSAL.
In 2000, PG&E Corporation formalized its Confidential Voting Policy. Under
this policy, all proxies, ballots,Fortune 500 companies and voting tabulationsan increasing number of publicly traded utilities. The Board considers the Shareholder Rights Plan to be invaluable in protecting the right of shareholders to realize the full value of their investment in the Corporation.
The Shareholder Rights Plan is designed to safeguard shareholders from abusive tactics that reveal how a
particular shareholder has voted are treated as confidential. This policy
ensureshave been used by certain bidders against other companies and that shareholders can vote or give a proxy free from coercive pressure.
Therefore, the Board of Directors believes this shareholder proposal is
unnecessary.
The Corporation supports policiesare not in the best interest of the Corporation’s shareholders. These tactics may unfairly pressure shareholders, squeeze them out of their investment without giving them any real choice, and practices that maintaindeprive them of the confidentialityfull value of itstheir shares.
These points were underscored in a 1997 study prepared by the nationally recognized proxy solicitation and balloting processesinvestor relations firm, Georgeson & Company, Inc. This study concluded that companies with shareholder rights plans received higher premiums than companies without shareholder rights plans, and has
incorporated these protections into its Confidential Voting Policy (set forth on
page 2 of this proxy statement). However,that the Corporation cannot support this
shareholder proposal because it does not include exemptions for proxy contests
or situations in which disclosurepresence of a shareholder's vote is legally required.
Inshareholder rights plan did not reduce the caselikelihood of a proxy contest, the proposed confidential voting policy
would not apply to the third party that was soliciting proxies, yet could
continue to apply to the Corporation, thereby giving the third party dissident
an unfair advantage. The dissident would be able to view shareholder voting
decisions and other information, and use that information to persuade individual
shareholders to vote in the dissident's favor. This advantage is not only
unfair, but could be detrimental to shareholders. In contesting the dissident's
solicitation of proxies, the Corporation's Board of Directors has a legal
obligation to act in the best interests of shareholders as a group, whereas the
dissident would have no such obligation and would be free to act purely in his
or her own self-interest. Given the unfair advantage the dissident would gain
from having access to voting information, the Board's ability to act in the best
interests of shareholders would be hindered because the directors would not have
the same access to that information.
This shareholder proposal also fails to permit exceptions in disputes
regarding the authenticity of proxies or ballots, or when access to the
shareholder voting information is required in response to federal or state legal
requirements or may be necessary to assist the Corporation in making a claim or
defending against a claim.takeovers.
For these reasons, the PG&E Corporation Board of Directors unanimously recommends that shareholders voteAGAINST this proposal.
ITEM NO. 5: SHAREHOLDER PROPOSAL REGARDING SHAREHOLDER DEMOCRACY
Mrs. Sydell B. Lemerman, 1855 Capistrano, Berkeley, California 94707,
holder
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Item No. 12: Shareholder Proposal Regarding Auditor Services
The United Brotherhood of 1,291Carpenters on behalf of the Massachusetts State Carpenters Pension Fund, 350 Fordham Road, Wilmington, Massachusetts 01887, beneficial owner of 6,400 shares of PG&E Corporation common stock, has given notice of herits intention to present the following proposal for action at the PG&E Corporation annual meeting:
"The
| “Auditor Services Proposal |
| Resolved, that the shareholders of PG&E Corporation (“Company”) request that the Board of Directors adopt a policy stating that the public accounting firm retained by our Company to provide audit services, or any affiliated company, should not also be retained to provide non-audit services to our Company. | ||
| Statement of Support: The role of independent auditors in ensuring the integrity of the financial statements of public corporations is fundamentally important to the efficient and effective operation of the financial markets. The U. S. Securities and Exchange Commission recently stated: |
| Independent auditors have an important public trust. Investors must be able to rely on issuers’ financial statements. It is the auditor’s opinion that furnishes investors with critical assurance that the financial statements have been subjected to a rigorous examination by an objective, impartial, and skilled professional, and that investors, therefore, can rely on them. If investors do not believe that an auditor is independent of a company, they will derive little confidence from the auditor’s opinion and will be far less likely to invest in that public company’s securities. (Final Rule: Revision of the Commission’s Auditor Independence Requirements — “Auditor Independence Release” Exchange Act Release No. 43602, 11/21/00). |
| It is critically important to the integrity of the auditing process and the confidence of investors that those firms performing audits for public corporations avoid business relationships that might compromise their independence or raise the perception of compromised judgment. At the heart of the challenge to auditor independence is the growing level of business and financial relationships developing between audit firms and their clients. The Auditor Independence Release identifies these growing business relationships that threaten auditor independence: |
| Accounting firms have woven an increasingly complex web of business and financial relationships with their audit clients. The nature of the non-audit services that accounting firms provide to their audit clients has changed, and the revenues from these services have dramatically increased. |
| The growth of non-audit revenues represents a trend that has been accelerating dramatically in the last several years, with non-audit fees for consulting or advisory services exceeding audit fees at many companies. Our Company is in the category of companies that pays its audit firm more for non-audit advisory services than it does for audit services. The Company’s most recent proxy statement indicated that for the year ended December 31, 2000, Deloitte & Touche LLP received $3,100,000 for audit services, while receiving $11,300,000 for non-audit services rendered. | ||
| We believe that this financial “web of business and financial relationships” may at a minimum create the perception of a conflict of interest that could result in a lack of owner and investor confidence in the integrity of the Company’s financial statements. As long-term shareowners, we believe that the best means of addressing this issue is to prohibit any audit firm retained by our Company to perform audit services from receiving payment for any non-audit services performed by the firm. We urge your support for this resolution designed to protect the integrity of the Company’s auditing and financial reporting processes.” |
The Board of Directors of PG&E Corporation request theRecommends a VoteAGAINST This Proposal.
The Board of Directors takebelieves in the necessary stepsimportance of auditor independence. However, this proposal is too extreme because it would prohibit the Corporation from obtaining non-audit services from its independent auditor without regard to amend the company's governing instrumentsnature of those services.
Numerous safeguards and policies oversee non-audit relationships between PG&E Corporation and its independent auditor. In June 2000, the Corporation adopted a policy that only permits engaging the independent
26
Pursuant to Securities and voting,"Exchange Commission (SEC) regulations, the independent auditor is prohibited from providing nine specific types of non-audit services, such as certain bookkeeping and if (2)financial information systems design and implementation services, which raise independence issues. The Corporation does not obtain these services from its independent auditor. The SEC specifically stated that it does not seek to discourage the affirmative votes constitute
at least a majoritydevelopment of non-audit services that do not raise independence issues. Instead, the rules were designed to restrict non-audit services only to the extent necessary to protect the integrity and independence of the required quorum. SEC rules requireaudit function. In fact, certain services relating to financings, regulatory filings, and accounting consultations should be performed only by the Corporation’s independent auditor, even though those services do not fall within the SEC’s definition of audit fees for proxy disclosure purposes.
The discretion to determine the best allocation of tasks among accounting and other firms is an essential component of the ability of the Board and the Audit Committee to discharge their responsibilities to the Corporation and its shareholders. We do not believe that the proxy
statement discloseretention of this discretion undermines in any way the treatmentCorporation’s ability to monitor and ensure the independence of abstentionsour independent auditor. Corporation officers and the Audit Committee continually monitor and evaluate the performance of the Corporation’s independent auditor in both its audit services and its non-audit services, the fees paid for each item to be voted upon
by shareholders (except forall such services, and the ratificationcompatibility of accountants). PG&E Corporation
reports all affirmative votes, negative votes, and abstentions cast at each
annual meeting in its first quarterly report on Form 10-Q filedthe non-audit services with the SEC
after the meeting.
Although California law does not specifically address the treatment of
abstentions, other states do. For example, in Delaware, where the majority of
publicly traded corporations are incorporated, most matters submitted to
shareholders are considered approved if the matter receives the affirmative vote
of a majoritymaintenance of the shares "present and entitled to vote." Under Delaware law,
abstentions are included in determining the numberfirm’s independence.
The Board of shares "present and
entitled to vote." In the absence of controlling authority under California law,
PG&E Corporation has chosen to follow the law of Delaware and treat abstentions
as shares "present and voting." PG&E CorporationDirectors believes that most investorsthe safeguards implemented by the Corporation protect the independence of the audit function and that preventing the independent auditor from performing any non-audit services would result in public corporations understandinefficiencies and expect this treatment of abstentions. The
Corporation's proxy statement fully discloses this intended treatment so that a
shareholder can make an informed decision in deciding whether to cast an
abstention.
Further, California law requires that some matters submitted to
shareholders, such as proposed amendmentsincreased costs to the Corporation's Articles of
Incorporation, be approved by the holders of a majority of the Corporation's
outstanding shares. Under this approval standard, abstentions must be counted,
since the abstaining shareholder's shares are outstanding. Therefore, the
shareholder proposal would be legally impossible to implement, as it would
require the Corporation to violate California law.without providing any additional protection.
For these reasons, the PG&E Corporation Board of Directors unanimously recommends that shareholders voteAGAINST this proposal.
22
Item No. 13: Shareholder Proposal Regarding the Board of Directors’ Role
The Laborers’ District Council of Western Pennsylvania Pension Fund, 1109 Fifth Avenue, Pittsburgh, Pennsylvania 15219, beneficial owner of 4,700 shares of PG&E Corporation common stock, has given notice of its intention to present the following proposal for action at the PG&E Corporation annual meeting:
| “Resolved, that the shareowners of PG&E Corporation (“Company”) hereby urge that the Board of Directors include in future proxy statements a description of the Board’s role in the development and monitoring of the Company’s long-term strategic plan. Specifically, the disclosure should include the following: (1) A description of the Company’s corporate strategy development process, including timelines; (2) an outline of the specific tasks performed by the Board in the strategy development and the compliance monitoring processes, and (3) a description of the mechanisms in place to ensure director access to pertinent information for informed director participation in the strategy development and monitoring processes. | ||
| Statement of Support: The development of a well-conceived corporate strategy is critical to the long-term success of a corporation. While senior management of our Company is primarily responsible for development of the Company’s strategic plans, in today’s fast-changing environment it is more important than ever that the Board engage actively and continuously in strategic planning and the ongoing assessment of business opportunities and risks. It is vitally important that the individual members of the Board, and the Board as an entity, participate directly and meaningfully in the development and continued assessment of our Company’s strategic plan. | ||
| A recent report by PricewaterhouseCoopers entitled “Corporate Governance and the Board — What Works Best” examined the issue of director involvement in corporate strategy development. The Corporate Governance Report found that chief executives consistently rank strategy as one of their top |
27
ITEM NO. 6: SHAREHOLDER PROPOSAL REGARDING CUMULATIVE VOTING
| issues, while a poll of directors showed that board contributions to the strategic planning process are lacking. It states: “Indeed, it is the area most needing improvement. Effective boards play a critical role in the development process, by both ensuring a sound strategic planning process and scrutinizing the plan itself with the rigor required to determine whether it deserves endorsement.” | ||
| The Company’s proxy statement, and corporate proxy statements generally, provides biographical and professional background information on each director, indicating his or her compensation, term of office, and board committee responsibilities. While this information is helpful in assessing the general capabilities of individual directors, it provides shareholders no insight into how the directors, individually and as a team, participate in the critically important task of developing the Company’s operating strategy. And while there is no one best process for board involvement in the strategy development and monitoring processes, shareholder disclosure on the Board’s role in strategy development would provide shareholders information with which to better assess the performance of the board in formulating corporate strategy. Further, it would help to promote “best practices” in the area of meaningful board of director involvement in strategy development. | ||
| We urge your support for this important corporate governance reform.” |
The Board of Directors of PG&E Corporation Recommends a VoteAGAINST This Proposal.
The Board of Directors agrees that it plays a vital role in the development and monitoring of the Corporation’s long-term strategic plan. The Board supports providing shareholders with information as described in this proposal. Accordingly, the Corporation contacted the proponent to discuss how this information should be disclosed to shareholders. Specifically, we proposed that the proxy statement provided to shareholders each year in connection with the Corporation’s annual meeting include a description of the respective roles of the Corporation’s Finance Committee and Board of Directors in developing and monitoring the strategic plan for the Corporation and its subsidiaries. We were not able to reach agreement with the proponent as to our proposed disclosure.
Although the Corporation’s proposed disclosure apparently does not meet all of the proponent’s requirements, the Corporation has added this disclosure to the Joint Proxy Statement in order to make this information available to all our shareholders. This information is presented in the discussion under “Information Regarding the Board of Directors of PG&E Corporation and Pacific Gas and Electric Company — Board Committees — Finance Committee” on pages 9-10 of the Joint Proxy Statement.
The Corporation believes that its augmented discussion of the Board’s role in the development and monitoring of strategic planning provides the disclosure requested in this shareholder proposal and addresses the concerns raised by the proponent. Thus, we believe that no additional disclosure is necessary to provide shareholders with information enabling them to understand how the members of the Board participate in formulating corporate strategy.
For this reason, the PG&E Corporation Board of Directors unanimously recommends that shareholders voteAGAINST this proposal.
Item No. 14: Shareholder Proposal Regarding Radioactive Wastes
Mr. Ron Rattner, 1998 Broadway Street, #1204, San Francisco, California 94109, beneficial owner of 1,975 shares of PG&E Corporation common stock, has given notice of his intention to present the following proposal for action at the PG&E Corporation annual meeting:
“RADIOACTIVE WASTES: RISK REDUCTION POLICY
| Preliminary statement: |
| Pacific Gas and Electric Company’s production and storage of high level radioactive wastes at Diablo Canyon nuclear plant involves significant and possibly catastrophic risks to the public, to the environment, and to our company which must be mitigated. | ||
| National Security Risks: | ||
| Since the 9/11/01 tragedies we have been made aware of our vulnerability to terrorism and urgent need for increased vigilance. A terrorist attack on tons of high level radioactive wastes at Diablo Canyon could |
28
| make the entire coast of California uninhabitable for generations. Nuclear Regulatory Commission anti-terrorist exercises conducted between 1991-2000 revealed potential vulnerability to “significant core damage” at nearly 50% of 68 nuclear plants tested. The exercises did not consider bombing or a direct hit by large aircraft. After 9/11 the NRC revealed that “nuclear power plants were not designated to withstand such crashes”. |
| Earthquake and Transportation Risks: |
| Diablo Canyon operations are continually creating substantial quantities of high level radioactive wastes in spent fuel pools on the earthquake-prone California Coast. During every day of unrestricted operation each Diablo Canyon reactor produces radioactive wastes equivalent to those of an Hiroshima bomb. No safe off-site storage place exists or will be available-if-ever-for over a decade. Even if storage outside California becomes feasible, shipment to a distant storage site on barges, trains and trucks would entail significantly increased risks of accidents or terrorism. | ||
| Fiscal Risks: | ||
| The Company’s financial prospects are already uncertain and clouded by its entanglement in complex and burdensome California federal bankruptcy proceedings. Share prices have sharply declined; dividends have been suspended; thousands of shareholders, pensioners and retirees have been hurt. Any loss from a catastrophic nuclear attack or accident could jeopardize corporate viability and remaining shareholder equity. | ||
| Public Policy Risks: | ||
| No corporate profit goal can justify profligate disregard of serious hazards to public and environmental health and safety. The recent “Erin Brockovich” film revealed to the shareholders and to the world an institutional disregard of human health and life, which is uncivilized and unacceptable. PG&E must avert moral bankruptcy by promoting the highest good as it pursues the bottom line. | ||
| Conclusion: | ||
| Fiscally and morally, PG&E has a compelling duty to mitigate risks arising from production and storage of high level radioactive wastes at Diablo Canyon Nuclear Plant. | ||
| Therefore, it is | ||
| RESOLVED | ||
| That shareholders request the Board of Directors forthwith adopt and implement a new policy and plan to reduce PG&E vulnerability to a catastrophic nuclear accident or terrorist attack at Diablo Canyon. Pursuant to such plan, production of high level radioactive wastes shall not exceed the current capacity of existing spent fuel pools, thereby averting untenable risks of possible off-site shipments or excessive on-site storage.” |
The Board of Directors of PG&E Corporation Recommends a VoteAGAINST This Proposal.
The Board of Directors believes this proposal is unnecessary. Pacific Gas and Electric Company’s Diablo Canyon Power Plant (Diablo Canyon) is in compliance with detailed regulations of the United States Nuclear Regulatory Commission (NRC), which has established comprehensive requirements including the monitoring and review of the safety, radiological, and environmental aspects of these facilities, the comprehensive and mandatory quality controls used in the operation of the plant, and the storage and disposal of spent nuclear fuel. These regulations also require that nuclear power plants take adequate measures to protect the public from the possibility of exposure to radioactive release caused by acts of sabotage.
Pacific Gas and Electric Company has applied to the NRC for a license to construct and use “dry” steel and concrete storage containers for spent fuel storage after the existing spent fuel pools capacity is depleted. Pacific Gas and Electric Company will comply with NRC requirements regarding use of these containers, including requirements that the containers be designed to withstand earthquakes and other natural disasters. Currently there is no transportation of spent fuel to or from Diablo Canyon and no existing plans to commence such transportation in the future. However, any such transportation would be subject to a number of NRC procedures, specifications, and regulations designed to protect containers transporting used nuclear fuel from attack as well as accident.
For these reasons, the PG&E Corporation Board of Directors unanimously recommends that shareholders voteAGAINST this proposal.
29
Item No. 15: Shareholder Proposal Regarding Confidential Voting
Mr. Simon Levine, Trustee of the Simon Levine Living Trust, 960 Shorepoint Court, No. 306, Alameda, California 94501, holder of 5,000 shares of PG&E Corporation common stock, has given notice of his intention to present the following proposal for action at the PG&E Corporation annual meeting:
"The
“15 — FREE AND CONFIDENTIAL SHAREHOLDER VOTING
| PG&E shareholders request that the Board of Directors take the steps necessary to adopt a policy of confidential voting at all meetings of company shareholders through a bylaw. This includes the following provisions: | ||
| 1) The voting of all proxies, consents or authorizations will be secret. No such document shall be available for examination, nor shall the vote or identity of any shareholder be disclosed except to the extent necessary to meet the legal requirements, if any, of the Company’s state of incorporation. | ||
| 2) The exception is in a proxy contest where each party is to have equal access to the above. | ||
| 3) Independent election inspectors shall conduct the receipt, certification and tabulation of such votes. |
| Ensure the Integrity of PG&E Elections |
| With confidential shareholder voting the integrity of our company’s elections and shareholder votes can be better protected against potential abuse. |
| Implementing confidential voting can enhance shareholder value: |
| Shareholders would feel free to question or challenge management nominees and positions on specific ballot items if they are protected by a confidential ballot box. This is especially important for professional money managers whose business relationships can be jeopardized by their voting positions. |
| Fundamental to the American system |
| The confidential ballot is fundamental to the American system. This protection ensures that shareholders are not subjected to: |
| • | Actual | ||
| • | Perceived or | ||
| • | Potential coercive pressure. |
| Confidential voting bylaw |
| According to our company’s 2001 proxy statement confidential voting is apparently not formalized as a bylaw. |
| While there is no inference that PG&E management uses coercion, the existence of this possibility is sufficient to justify confidentiality. Major companies, such as Coca-Cola, Dow Chemical, Georgia-Pacific, Gillette, Kimberly Clark and Louisiana Pacific use confidential voting. | ||
| A survey of 56 institutional investors revealed that 75% said they consistently support confidential voting proposals. PG&E is 47% owned by institutional shareholders. | ||
| Institutional investor support of this topic is high-caliber support |
| This proposal topic won significant institutional support to pass at the 2001 annual meetings of other major companies. Institutional investor support is high-caliber support. |
| Institutional investor leadership |
| Some shareholders may look to institutional shareholders for leadership in evaluating the merits of shareholder proposals. Institutional shareholders have the fiduciary duty to encourage an independent analysis of the merits of shareholder proposals — plus the staff and resources to study the issues thoroughly from a shareholder-value perspective. |
CONFIDENTIAL SHAREHOLDER VOTING
The Board of Directors of PG&E Corporation requestRecommends a VoteAGAINST This Proposal.
PG&E Corporation adopted a formal confidential voting policy in 2000. It states that the vote of any shareholder will not be revealed to anyone other than a non-employee proxy tabulator or an independent
30
The Board of Directors takebelieves that the necessary steps to amend the company's governing instruments to adopt
the following:
REINSTATE CUMULATIVE VOTING FOR THE ELECTION OF PG&E CORP. DIRECTORS.
Cumulative Voting isintroduction of the utmost importance in order to let us,additional procedural element of a bylaw does not change the shareholders, have a voice in the corporation. It is essential in letting
us express ourselves as OWNERS.
When we are not in agreement with those in whom we put our faith and trust
and we want them to know that in no uncertain terms, cumulative voting
HELPS emphasize our concern by disavowing them and voting them out. It
provides us the necessary tools to CHOOSE the directors we want.
It is to US, the ownersobjective of the company, to PROVIDE the leadership necessary
to run the company well and profitably.
Thousandsproposal, that of dollars are spent in preparing for and holding the annual
meetings. As with prior annual meetings, the 1999 annual meeting was held
in San Francisco, there were 261 shareholders and proxyholders in
attendance. Last year, the annual meeting was held in Boston, Mass.
Consider the extra thousands of dollars that was spent in transporting,
housing and feeding Mr. Glynn, Mr. Smith, Ms. Everett, the Board of
Directors and the numerous staff members to that meeting which had 36
shareholders and proxyholders in attendance. Who outnumbered who? Is this
the way to run a company? Spending the extra time and money for 36?
Last year, about 33% voted in favor of Cumulative Voting. We only need an
additional 18% in favor to reassert our right. (source of number and
percentage-PG&E Corp.)
Itrequiring confidential voting. This proposal is unnecessary since confidential voting has already been said that the beginning of a 1000 mile journey is in taking the
first step. Our first step is to make sure WE VOTE FOR CUMULATIVE VOTING.
It is our right and responsibility!!!
VOTE "YES" TO REINSTATE CUMULATIVE VOTING FOR THE ELECTION OF DIRECTORS."
THE BOARD OF DIRECTORS OFadopted by PG&E CORPORATION RECOMMENDS A VOTE AGAINST THIS
PROPOSAL.
PG&E Corporation believes that cumulative voting would erode shareholders'
ability to elect directors who represent the interests of the shareholders as a
whole. Under cumulative voting, the total number of votes that each shareholder
may cast in an election for directors is determined by multiplying the number of
directors to be elected by the number of votes to which the shareholder's shares
are entitled. Each shareholder may "cumulate" his or her votes by giving them
all to one candidate, or may distribute his or her votes among as many
candidates as the shareholder sees fit. For example, if nine directors were to
be elected, a shareholder or group of shareholders holding 10 percent of the
shares voting at the meeting would be capable of electing a director. This is
true even if the holders of the remaining 90 percent of the voting shares are
opposed to the election of that candidate and cast their votes to elect nine
other directors.
Cumulative voting would give a disproportionate and unfair weight to the
votes cast by a minority shareholder or shareholders. Not adopting cumulative
voting ensures that all directors are elected or removed only by a majority vote
of shareholders voting in the election.Corporation.
For this reason, the PG&E Corporation Board of Directors unanimously recommends that shareholders voteAGAINST this proposal.
ITEM NO. 7: SHAREHOLDER PROPOSAL REGARDING MINIMUM NUMBER OF DIRECTORS
Mr. Clifford Brauff, 3101 Melendy Drive, San Carlos, California 94040,
holder of 245 shares of PG&E Corporation common stock, has given notice of his
intention to present the following proposal for action at the PG&E Corporation
annual meeting:
"Resolved:
REINSTATE BOARD SIZE TO AT LEAST 9 DIRECTORS
To enhance shareholder value PG&E shareholders recommend to reinstate
board size to at least 9 directors. The 9 director minimum requirement was
the rule at PG&E until 2000. In 2000 the minimum
23
28
number of directors was cut to 7 directors for our $22 billion company.
Thus there could legally be only 6 directors to monitor
31
Nominating and advise the
insider Chairman/CEO/President, the 7th director.
This could drop to only 4 experienced directors -- not counting the
insider Chairman/CEO/President -- if one director resigned and another
director had an extended illness. This could result in an added problem
since certain current PG&E directors are heavily committed as presidents of
outside organizations and further committed beyond their presidencies to 3
outside directorships each.
Directors could also be overextended with only 7 directors, and at
times possibly only 4 experienced directors, to fill the seats of the 5
Board Committees
Audit Committee
Nominating & Compensation Committee Public Policy Committee
Executive Committee
Finance Committee
Since the 7-director minimum was recommended by management in 2000,
there has been further work by the Securities and Exchange Commission to
mandate increased qualifications for the Audit Committee. The 7-director
minimum and unforeseen circumstances could at times result in an undue
burdenReport on the board to quickly fill a vacancy for a qualified director for
the audit committee:
A director that combines the both the mandated higher qualifications
specific to the audit committee with broader qualifications to be an asset
to the entire board.
EXTENSIVE STUDIES FAVOR LARGER BOARDS:
Bigger boards may contribute to better financial performance, said a
research study by Dan Dalton, Dean of Indiana University's Kelley School of
Business. Dalton reviewed 27 studies on board size complied over the last
40 years. Dalton said there is good reason to opt for 9 directors instead
of 6.
Wall Street Journal Aug. 24, 2000
Dan Dalton, Indiana University said larger boards are better able to secure
critical resources through networks their directors create. In addition,
larger boards allow coalitions to form that are more likely to challenge
CEOs and moderate their dominating influence.
Director's Monthly Aug. 2000
The current smaller board permitted allows the one person who holds
the 3 titles of PG&E Chairman/ CEO/President, to yield more control and
leverage over the board. Paradoxically, the board is responsible for the
independent oversight of this one person to protect shareholder value.
If shareholders have any doubt on the need for more effective director
oversight of management, compare PG&E's stock price today with its $36
price 8 years ago and the 63% higher dividend 5 years ago.
REINSTATE BOARD SIZE TO AT LEAST 9 DIRECTORS
YES ON 7"
THE BOARD OF DIRECTORS OF PG&E CORPORATION RECOMMENDS A VOTE AGAINST THIS
PROPOSAL.
The Board believes there is no need to change the authorized minimum number
of directors from 7 to 9. At the 2000 annual meeting of PG&E Corporation
shareholders, 96 percent of the shares present and voting approved a management
proposal to establish an authorized Board size of from 7 to 13 directors. As
noted in the 2000 joint proxy statement, the Board believes that the
establishment of the existing range of the minimum and maximum number of
directors is consistent with current corporate governance practices.
For this reason, the PG&E Corporation Board of Directors unanimously
recommends that shareholders vote AGAINST this proposal.
ITEM NO. 8: SHAREHOLDER PROPOSAL REGARDING SIMPLE MAJORITY VOTE
Mr. Nick Rossi, P.O. Box 249, Boonville, California 95415, holder of 600
shares of PG&E Corporation common stock, has given notice of his intention to
present the following proposal for action at the PG&E Corporation annual
meeting:
"Resolved:
ENHANCE SIMPLE MAJORITY VOTE PROPOSAL APPROVED BY A 93% VOTE IN 2000
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Shareholders recommend to enhance the company Simple Majority Vote
proposal approved by 93% of shareholders. It was approved as Item No. 3 at
the 2000 shareholder meeting and adopted by the company.
Under this enhanced proposal the simple majority vote needed to effect
a merger or business combination as specified in Item No. 3 in the 2000
proxy statement is to be the sole requirement. It alone is to entirely
replace the added or combined requirements of (1) the business combination
must be approved by a disinterested board or (2) the fair price criteria
must be met. Simple majority vote will thus be all that is necessary to
effect a merger or business combination.
A major institutional shareholder advisor firm stated that fair price
provisions rarely protect shareholders. Instead they are designed to
discourage would-be acquirers from taking a controlling interest in the
company and offering shareholders an opportunity to sell shares at a
premium in instances where management does not favor an acquisition.
Hence shareholders could be denied a premium price for their stock
simply because management opposed the transaction for personal reasons.
This independent firm strongly maintains that a simple majority of
voting shares should be all that is necessary to effect changes regarding a
company and its corporate governance provisions. Requiring more than a
simple majority may permit management to entrench itself by blocking
amendments that are in shareholders' best interest.
To increase shareholder value:
ENHANCE SIMPLE MAJORITY VOTE PROPOSAL APPROVED BY A 93% VOTE IN 2000
VOTE YES FOR ITEM NO. 8"
THE BOARD OF DIRECTORS OF PG&E CORPORATION RECOMMENDS A VOTE AGAINST THIS
PROPOSAL.
At the 2000 annual meeting of PG&E Corporation shareholders, 93 percent of
the shares present and voting approved an amendment to the "fair price"
provision in Article Eighth of the Restated Articles of Incorporation of PG&E
Corporation. This proposal would change that amendment to the shareholders'
detriment.
A majority vote requirement alone (as advocated in this shareholder
proposal) is not sufficient to protect shareholders against transactions that
are not necessarily in the best interests of all shareholders. The Corporation's
fair price provision, as approved by the shareholders last year, is not intended
to, and does not, prevent or impede a potential acquiror from acquiring control
of PG&E Corporation at a fair price. Instead, the fair price provision is
intended to inhibit abusive conduct on the part of a potential acquiror and is
designed to protect shareholders against practices that do not treat all
shareholders fairly and equally, including inadequate or coercive takeovers or
self-dealing transactions. The current fair price provision will ensure that a
proposal resulting in a business combination will be scrutinized by the
disinterested directors on the Board of Directors or that the consideration paid
to shareholders in the business combination is no less than certain minimum
price requirements set forth in the fair price provision.
The fair price provision does not prevent business combinations opposed by
management. If a potential acquiror is willing to pay shareholders a price that
meets the minimum price requirements set forth in the fair price provision, such
business combination need only be approved by majority vote. If a potential
acquiror is not willing to pay shareholders a price that meets the minimum fair
price requirements, then the potential acquiror must negotiate directly with the
disinterested directors of the Board of Directors to reach terms that are fair
and provide the best results for all shareholders.
For these reasons, the PG&E Corporation Board of Directors unanimously
recommends that shareholders vote AGAINST this proposal.
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Executive Compensation
NOMINATING AND COMPENSATION COMMITTEE REPORT ON COMPENSATION
The Nominating and Compensation Committee of the PG&E Corporation Board of Directors (the "Committee")(Committee) is responsible for overseeing and establishing executive compensation policies for PG&E Corporation and its subsidiaries, including Pacific Gas and Electric Company. The Committee also oversees the PG&E Corporation Long-Term Incentive Program and other employee benefit plans.
This report relates to the compensation paid to executive officers of PG&E Corporation and Pacific Gas and Electric Company during the fiscal year ended December 31, 2000.2001. Compensation for the Chief Executive Officers of PG&E Corporation and Pacific Gas and Electric Company is approved by their respective Board of Directors based on the recommendation of the Committee, which is composed of independent non-employee directors. In establishing the 20002001 compensation of the Chief Executive Officers of PG&E Corporation and Pacific Gas and Electric Company, each Board of Directors approvedratified the recommendations of the Committee without modification.Committee. Compensation for all other PG&E Corporation and subsidiary officers is approved by the Committee, except that the Committee has delegated to the PG&E Corporation Chief Executive Officer the authority to approve compensation for certain officers of PG&E Corporation and its subsidiaries.
The Committee established compensation programs for 20002001 to meet four objectives:
- To emphasize long-term incentives to further align shareholder and
officers' interests and focus employees on enhancing total return for the
Corporation's shareholders.
- To attract, retain, and motivate employees with the necessary mix of
skills and experience for the development of PG&E Corporation's
unregulated businesses, as well as the successful operation and expansion
of its utility business.
- To minimize short-term and long-term costs and reduce corporate exposure
to longer-term financial risk.
- To achieve maximum value from PG&E Corporation's collective workforce by
designing compensation programs that facilitate movement by employees
among the Corporation and its subsidiaries.
The Committee retains an independent consultant, Hewitt Associates, to help
evaluate PG&E Corporation's compensation policies, to provide information about
industry compensation practices and competitive pay levels, and to recommend
compensation alternatives which are consistent with PG&E Corporation's
compensation policies. Founded in 1940, Hewitt Associates is an international
firm of consultants and actuaries specializing in the design and administration
of employee compensation and benefit programs.
| • | To emphasize long-term incentives to further align shareholder and officers’ interests and focus employees on enhancing total return for the Corporation’s shareholders. | |
| • | To attract, retain, and motivate employees with the necessary mix of skills and experience for the development of PG&E Corporation’s unregulated businesses, as well as the successful operation and expansion of its utility business. | |
| • | To minimize short-term and long-term costs and reduce corporate exposure to longer-term financial risk. | |
| • | To achieve maximum value from PG&E Corporation’s collective workforce by designing compensation programs that facilitate movement by employees among the Corporation and its subsidiaries. |
To meet its objectivegoal of paying compensation that is competitive with similar companies in 2000,2001, the Committee selected a group consisting of 1211 other major energy companies (the "comparator group")(comparator group). These companies were selected by the Committee because they wereare comparable to PG&E Corporation in size and because their approach to compensation emphasizedemphasizes long-term incentives. All of the companies in the comparator group were included in the Standard & Poor'sPoor’s 500 Stock Index.
For 2000,2001, the Committee established the following specific compensation targets for officers:
- A significant component of every officer's compensation should be tied
directly to PG&E Corporation's performance for shareholders.
-
| • | A significant component of every officer’s compensation should be tied directly to PG&E Corporation’s performance for shareholders. | |
| • | Annual cash compensation (base salary and target annual incentive) and benefits should be equal to the average compensation paid to comparable officers of companies | |
| • | For targeted performance, long-term incentives should be equal to the 75th percentile compensation paid to comparable officers of companies in the comparator group. |
In evaluating compensation program alternatives, the Committee considers the potential impact on PG&E Corporation of Section 162(m) of the Internal Revenue Code. Section 162(m) eliminates the deductibility of compensation over $1 million paid to the five highest paid executive officers of public corporations, excluding "performance-based“performance-based compensation."” Compensation programs generally will qualify as performance-based if (1) the performance targets are pre-established objective standards, (2) the programs have been approved by shareholders, and (3) there is no discretion to modify or alter payments after the performance targets have been established for the year.
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The Committee believes that compensation paid under two of PG&E
Corporation's three performance-based plans is deductible under Section 162(m).
A substantial portion of the compensation paid to the executive officers of PG&E
Corporation and Pacific Gas and Electric Company is paid under these qualifying
performance-based plans. Although short-term compensation paid under PG&E
Corporation's third performance-based plan will not be excluded from the
deduction limit under Section 162(m), payments under this plan are conditioned
primarily on the achievement of pre-established corporate financial objectives.
To the extent consistent with the Committee'sCommittee’s overall policy of maintaining a competitive, performance-based compensation program, it is PG&E Corporation'sCorporation’s intent to maintain the tax deductibility of the compensation which it pays. However, dueThe Committee endeavors to the restrictive naturemaximize deductibility of Section 162(m), technical compliance
with its requirements can reduce or eliminate the value of using certain types
of plans designed to provide incentives to increase shareholder value. As a
result, although the Committee, in designing and maintaining a competitive
incentive compensation program, will qualify as much of the compensation for
deduction under Section 162(m) as is reasonably possible, such qualification is
not a mandatory precondition to payments where technical compliance is
inconsistent withof the Committee's objective of incenting performance which
results in increased shareholder value. It is anticipated that the amount of any
tax deduction that may be forgone dueInternal Revenue Code to the impactextent practicable while maintaining competitive compensation. However, tax consequences, including but not limited to tax deductibility, are subject to many factors (such as changes in the
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Principal Components of Compensation
Base Salary
PG&E Corporation Base Salary
PG&E Corporation'sCorporation’s executive salaries are reviewed annually by the Committee based on (1) the results achieved by each individual, (2) expected corporate financial performance, measured by combined earnings per share, dividends, and stock price performance, and (3) changes in the average salaries paid to comparable executives by companies in the comparator group.
In setting the 20002001 salary levels for PG&E Corporation'sCorporation’s executive officers, the Committee'sCommittee’s objective was that the overall average of the salaries paid to all officers as a group (including the Chief Executive Officer) should be approximately equal to the target competitive level.
Robert D. Glynn, Jr., Chief Executive Officer of PG&E Corporation, received an annual base salary of $900,000 in 2000.2001. The salary level for Mr. Glynn is comparable to the average salary of chief executive officers of the 1211 companies in the comparator group. The overall average of the base salaries received by all PG&E Corporation officers (including Mr. Glynn) for 20002001 was comparable to the average salary paid to all officers of the comparator group.
Pacific Gas and Electric Company Base Salary
Pacific Gas and Electric Company'sCompany’s executive salaries are reviewed annually by the Committee based on (1) the results achieved by each individual, (2) expected corporate financial performance, measured by combined earnings per share, dividends, and stock price performance, and (3) changes in the average salaries paid to comparable executives by companies in the comparator group.
In setting the 20002001 salary levels for Pacific Gas and Electric Company'sCompany’s executive officers, the Committee'sCommittee’s objective was that the overall average of the salaries paid to all officers as a group (including the Chief Executive Officer) should be approximately equal to the target competitive level.
Gordon R. Smith, Chief Executive Officer of Pacific Gas and Electric Company, received an annual base salary of $630,000 in 2000.2001. The salary level for Mr. Smith is comparable to the average salary of senior executives in comparable positions in the 1211 companies in the comparator group. The overall average of the base salaries received by all Pacific Gas and Electric Company officers (including Mr. Smith) for 20002001 was comparable to the average salary paid to all officers of the comparator group.
SHORT-TERM INCENTIVES
Short-Term Incentives
PG&E Corporation Annual Incentive
The PG&E Corporation Short-Term Incentive Plan for 20002001 was designed to provide annual incentives to all executive officers based largely on PG&E Corporation'sCorporation’s success in meeting the 20002001 corporate operating earnings per share objective. This objective emphasizes the impact of on-going results of operations by eliminating the 27
32
effect of extraordinary gains or losses. Annual incentives for executive officers with operating responsibility for the Corporation'sCorporation’s major lines of business, Pacific Gas and Electric Company and PG&E National Energy Group, are based on a combination of corporate operating earnings and the results of their line of business.
At the beginning of the year, target awards are set based on each executive'sexecutive’s responsibilities and salary level. Final awards are determined by the Committee and may range from zero to twice the target, depending on the
33
In 2000,2001, PG&E Corporation'sCorporation’s corporate operating earnings per share were $2.54. Executive$3.02. The majority of executive officers whose principal responsibilities are corporate in
nature received no Short-Term Incentive Plan awards. Certain executive officers
whose principal responsibilities are primarily for operations of the PG&E
National Energy Group received awards for the portion of their Short-Term
Incentive Plan target based on the performance of that line of business, and
received no award for the portion of their target based on corporate
performance. Awards paidequal to executive officers with senior operating
responsibility for the PG&E National Energy Group ranged from 93.5 percent to
150131 percent of their total target awards.
Pacific Gas and Electric Company Annual Incentive
The Pacific Gas and Electric Company Short-Term Incentive Plan for 20002001 was designed to provide annual incentives to all executive officers based on meeting financial, service, and other measures of the Company,company, as well as those of specific business units and departments.
At the beginning of the year, target awards are set based on each executive'sexecutive’s responsibilities and salary level. Final awards are determined by the Committee and may range from zero to twice the target, depending on the extent to which the stated objectives are achieved. The Committee has discretion to modify or eliminate awards.
In 2000,2001, Pacific Gas and Electric Company executive officers received no
Short-Term Incentive Plan awards that ranged from 135 percent to 152 percent of their total target awards.
Stock Options in Lieu of Short-Term Incentive Plan Awards
In 1998, to further increase the officers'officers’ ability to align their individual economic interests with those of the Corporation and its shareholders, the Committee adopted a program whereby eligible officers could elect to convert up to 50 percent of the award they otherwise would be entitled to receive under their respective Short-Term Incentive Plan, and instead receive stock options under the PG&E Corporation Stock Option Plan described below.
LONG-TERM INCENTIVES
Long-Term Incentives
PG&E Corporation Long-Term Incentive Program.The PG&E Corporation Long-Term Incentive Program permits various stock-based incentive awards to be granted to executive officers and other employees of the Corporation and its subsidiaries. The Stock Option Plan and the Performance Unit Plan (each of which is a component of the Long-Term Incentive Program) provide incentives based on PG&E Corporation'sCorporation’s financial performance over time.
PG&E Corporation Stock Option Plan.The Stock Option Plan provides incentives based on PG&E Corporation'sCorporation’s ability to sustain financial performance over a 3- to 10-year period. Under the Plan, officers, and other key employees of PG&E Corporation and its subsidiaries receive stock options based on their responsibilities and position. These options allow them to purchase a certain number of shares of PG&E Corporation common stock at the market price on the date of grant. Generally, optionees must hold the options for at least two full years and exercise them within 10 years. Options granted in lieu of Short-Term Incentive Plan awards, as discussed above, will be vested immediately, although the options may not be exercised for at least one year after the date of grant. PG&E Corporation does not re-price or change the terms of options once they have been granted.
At the Committee'sCommittee’s discretion, stock options may be granted with tandem "stock“stock appreciation rights"rights” which have vesting periods and exercise guidelines that are similar to the options. These rights allow option-holders to surrender their options when they have vested and receive a cash payment equal to the difference between the exercise price and the current market price. No stock appreciation rights have been granted since 1991.
Stock options also may be granted with or without tandem "dividend
equivalents"“dividend equivalents” which provide for credits to be made to a dividend equivalent account equal to the current common stock dividend multiplied by the recipient'srecipient’s unexercised options. For options granted with dividend equivalents, option-holders are entitled to receive the amounts accumulated in their dividend equivalent account only when, and to the extent that, the 28
33
underlying options or stock appreciation rights are exercised. If a stock appreciation right is exercised, the option-holderholder of the right receives the associated dividend equivalent only if the stock price has appreciated by at least 5 percent per year from the date of grant or by at least 25 percent if the options have been held for more than five years. In June 1997, the Committee adopted the policy that future stock option grants will not include dividend equivalents, and no such grants with dividend equivalents have been made since that time.
The size of the stock option grantgrants for each executive officer of PG&E Corporation and Pacific Gas and Electric Company in 20002001 was determined by the Committee based on the Committee'sCommittee’s objectives of paying target total
compensation at the average total compensation of the companies in the
comparator group, and of tying a substantial component of target total compensation directly to financial performance for shareholders.shareholders and satisfying
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PG&E Corporation Performance Unit Plan.The Performance Unit Plan provides incentives based on PG&E Corporation'sCorporation’s ability to sustain superior total returns for shareholders (dividends plus stock price appreciation) over a three-year period. Under the Plan, officers of PG&E Corporation and its subsidiaries receive performance units reflecting their level of responsibility. One-third of the units vest each year. At the end of each year, the number of vested performance units is increased or decreased based on PG&E Corporation'sCorporation’s three-year total return for shareholders (dividends plus stock price appreciation) as ranked against a group of comparator companies. Each officer receives an incentive payment equal to the final number of vested units multiplied by the average market price of PG&E Corporation common stock during the 30 calendar day period prior to the end of the year. Each time a cash dividend is declared on PG&E Corporation common stock, an amount equal to the cash dividend per share multiplied by the number of units held by a recipient will be accrued on behalf of the recipient and, at the end of the year, the amount of accrued dividend equivalents will be increased or decreased by the same percentage used to increase or decrease the recipient'srecipient’s number of vested performance units for the year.
In determining Performance Unit Plan results for units granted in 1998 and
1999, PG&E Corporation'sCorporation’s performance is compared with that of the 49 other largest energy-based companies in the nation. Current year performance is weighted at 60 percent, the performance in the prior year at 25 percent, and the performance in the year before that at 15 percent. For units granted in 2000 and 2001, PG&E Corporation'sCorporation’s performance is compared with that of a group of 1211 energy companies selected from the Dow Jones Utility Index and is based on a three-yeartwo-year cumulative total shareholder return rather than on a weighted annual total shareholder return. These changes to the methodology for determining results provide a better gauge of sustained multi-year performance and focus on performance relative to select industry peers.
For the three years ended December 31, 2000,2001, PG&E Corporation'sCorporation’s total shareholder return had a weighted average ranking of 44th32nd among the 50 largest energy-based companies in the nation andnation. Based on these rankings, officers received awards for 2001 performance that were based on 58 percent of vested units granted in 1999. For the two years ended December 31, 2001, PG&E Corporation’s total shareholder return had a cumulative ranking of 11th10th among the 12 company comparator group. Based on these rankings, officers received no paymentpayments under the Plan for 2001 performance, based on vested units granted in 2000 performance.
and 2001.
Executive Stock Ownership Program.Effective January 1, 1998, the Committee adopted the Executive Stock Ownership Program which contains certain stock ownership targets for executives to be achieved within five years after becoming an executive officer. The targets are set as a multiple of the executive'sexecutive’s base salary and vary according to the executive'sexecutive’s level of responsibility within the Corporation. The executive stock ownership targets are as follows: three times base salary for the Chief Executive Officer of PG&E Corporation; two times base salary for heads of the Corporation'sCorporation’s lines of business, and the Chief Financial Officer, and the General Counsel of PG&E Corporation; and one and one-half times base salary for the Senior Vice Presidents of PG&E Corporation.Corporation and the Senior Vice Presidents of Pacific Gas and Electric Company. To the extent an executive officer achieves and maintains the stock ownership targets within the first three years of becoming an executive officer, the executive officer will be entitled to receive additional common stock equivalents (called Special Incentive Stock Ownership Premiums or SISOPs) to be credited to the deferred compensation portion of his or her Supplemental Retirement Savings Plan account balance. The additional common stock equivalents vest three years after the date of grant, subject to accelerated vesting in accordance with the Officer Severance Policy and upon a change in control of the Corporation. The additional common stock equivalents are subject to forfeiture if the executive fails to maintain the applicable stock ownership target.
BENEFITS
Retention Mechanisms
In an effort to retain certain key personnel to ensure a continued workforce of experienced and knowledgeable employees in light of the energy crisis, bankruptcy proceedings, and the proposed Plan of Reorganization, PG&E Corporation and Pacific Gas and Electric Company implemented various retention mechanisms in 2001. The Management Retention Program provides key employees of PG&E Corporation and Pacific Gas and Electric Company with financial incentives to continue their employment through certain key dates. The Management Retention Program has been approved by the U.S. Bankruptcy Court for the Northern District of California (in which Pacific Gas and Electric Company filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code) and is supported by the Official Committee of Unsecured Creditors, which represents the unsecured creditors in the Company’s bankruptcy case. The Special Senior Executive
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Benefits
Benefit plans are designed to meet the individual needs of PG&E Corporation and its subsidiaries and to permit portability of benefits among the Corporation and its subsidiaries. Tax-deferred savings arrangements provide employees with an opportunity to supplement their retirement income through employee and matching 29
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contributions by PG&E Corporation or one of its subsidiaries. PG&E Corporation also provides excess retirement benefits for its executive officers based on salary and incentive compensation.
The defined contribution benefit plans of PG&E Corporation and its subsidiaries permit participants in those plans to direct the investment of their contributions into PG&E Corporation common stock, providing another opportunity for executive officers to increase their proprietary interest in PG&E Corporation. The PG&E Corporation Supplemental Retirement Savings Plan also permits the executives who participate in the plan to direct that the return on their deferred compensation be tied directly to the performance of PG&E Corporation common stock.
SUMMARY
Summary
We, the members of the Nominating and Compensation Committee of the Board of Directors of PG&E Corporation, believe that the compensation programs of PG&E Corporation and Pacific Gas and Electric Company are successful in attracting and retaining qualified employees and in tying compensation directly to performance for shareholders and service to customers. We will continue to monitor closely the effectiveness and appropriateness of each of the components of compensation to reflect changes in the business environment of PG&E Corporation and Pacific Gas and Electric Company.
April 16, 2001
NOMINATING AND COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF
March 13, 2002
Nominating and Compensation Committee of the Board of Directors of PG&E CORPORATION
Corporation
Carl E. Reichardt, Chair
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Summary Compensation Table
[This table summarizes the principal components of compensation paid to the Chief Executive Officers and the other most highly compensated executive officers of PG&E Corporation and Pacific Gas and Electric Company during the past year.]
| Annual Compensation | Long-Term Compensation | |||||||||||||||||||||||||||||||
| Awards | ||||||||||||||||||||||||||||||||
| Other | Payouts | |||||||||||||||||||||||||||||||
| Annual | Restricted | Securities | All Other | |||||||||||||||||||||||||||||
| Compen- | Stock | Underlying | LTIP | Compen- | ||||||||||||||||||||||||||||
| Name and Principal | Salary | Bonus | sation | Award(s) | Options/SARs | Payouts | sation | |||||||||||||||||||||||||
| Position | Year | ($) | ($)(1) | ($)(2) | ($)(3) | (# of Shares) | ($)(4) | ($)(5) | ||||||||||||||||||||||||
| Robert D. Glynn, Jr. | 2001 | $ | 900,000 | $ | 1,181,700 | $ | 4,817 | $ | 3,000,000 | 470,800 | $ | 74,588 | $ | 413,196 | ||||||||||||||||||
| Chairman of the Board, Chief | 2000 | 900,000 | 0 | 3,806 | 0 | 322,100 | 0 | 41,280 | ||||||||||||||||||||||||
| Executive Officer, and President of PG&E Corporation; Chairman of the Board of Pacific Gas and Electric Company | 1999 | 800,000 | 1,224,000 | 23,181 | 0 | 300,000 | 176,204 | 36,780 | ||||||||||||||||||||||||
| Thomas G. Boren | 2001 | $ | 690,000 | $ | 679,478 | $ | 81,297 | $ | 1,750,000 | 272,000 | $ | 44,757 | $ | 501,203 | ||||||||||||||||||
| Executive Vice President of PG&E | 2000 | 630,000 | 441,790 | 50,478 | 0 | 212,600 | 0 | 543,571 | ||||||||||||||||||||||||
| Corporation; President and Chief Executive Officer of PG&E National Energy Group | 1999 | 250,000 | 318,750 | (6) | 29,262 | 0 | 150,000 | 33,900 | 735,615 | |||||||||||||||||||||||
| Peter A. Darbee | 2001 | $ | 455,000 | $ | 328,578 | $ | 4,817 | $ | 1,125,000 | 183,800 | $ | 26,105 | $ | 613,596 | ||||||||||||||||||
| Senior Vice President and Chief | 2000 | 415,000 | 0 | 3,806 | 0 | 147,200 | 0 | 441,500 | ||||||||||||||||||||||||
| Financial Officer of PG&E Corporation | 1999 | 113,864 | 113,333 | 1,290 | 0 | 150,000 | 19,781 | 450,000 | ||||||||||||||||||||||||
| P. Chrisman Iribe | 2001 | $ | 425,000 | $ | 306,914 | $ | 0 | $ | 1,125,000 | 186,400 | $ | 25,355 | $ | 57,846 | ||||||||||||||||||
| Senior Vice President of PG&E | 2000 | 400,000 | 300,000 | 0 | 0 | 122,700 | 0 | 40,000 | ||||||||||||||||||||||||
| Corporation; President and Chief Operating Officer, East Region, of PG&E National Energy Group | 1999 | 350,000 | 330,750 | 5,456 | 0 | 106,500 | 44,214 | 48,672 | ||||||||||||||||||||||||
| Thomas B. King | 2001 | $ | 425,000 | $ | 306,914 | $ | 0 | $ | 1,125,000 | 186,400 | $ | 41,020 | $ | 1,090,207 | ||||||||||||||||||
| Senior Vice President of PG&E | 2000 | 400,000 | 300,000 | 49,343 | 0 | 122,700 | 0 | 1,598,631 | ||||||||||||||||||||||||
| Corporation; President and Chief Operating Officer, West Region, of PG&E National Energy Group | 1999 | 350,000 | 336,875 | 12,049 | 0 | 100,000 | 59,325 | 76,487 | ||||||||||||||||||||||||
| L. E. Maddox | 2001 | $ | 425,000 | $ | 306,914 | $ | 249 | $ | 1,125,000 | 186,400 | $ | 30,670 | $ | 132,306 | ||||||||||||||||||
| Senior Vice President of PG&E | 2000 | 400,000 | 300,000 | 224,718 | 0 | 110,400 | 0 | 617,472 | ||||||||||||||||||||||||
| Corporation; President and Chief Operating Officer, Trading, of PG&E National Energy Group | 1999 | 400,000 | 250,000 | 7,563 | 0 | 93,700 | 62,215 | 41,750 | ||||||||||||||||||||||||
| Gordon R. Smith | 2001 | $ | 630,000 | $ | 664,808 | $ | 937 | $ | 1,750,000 | 272,000 | $ | 40,282 | $ | 241,302 | ||||||||||||||||||
| Senior Vice President of PG&E | 2000 | 630,000 | 0 | 820 | 0 | 212,600 | 0 | 28,960 | ||||||||||||||||||||||||
| Corporation; President and Chief Executive Officer of Pacific Gas and Electric Company | 1999 | 550,000 | 460,075 | 10,054 | 0 | 122,500 | 74,436 | 25,360 | ||||||||||||||||||||||||
| Gregory M. Rueger | 2001 | $ | 340,000 | $ | 257,550 | $ | 0 | $ | 625,000 | 79,400 | $ | 15,385 | $ | 129,145 | ||||||||||||||||||
| Senior Vice President – Generation | 2000 | 310,000 | 0 | 0 | 0 | 59,900 | 0 | 14,700 | ||||||||||||||||||||||||
| and Chief Nuclear Officer of Pacific Gas and Electric Company | 1999 | 290,000 | 222,633 | 4,172 | 0 | 46,700 | 36,654 | 14,743 | ||||||||||||||||||||||||
| James K. Randolph | 2001 | $ | 325,000 | $ | 218,725 | $ | 0 | $ | 625,000 | 72,600 | $ | 15,385 | $ | 123,028 | ||||||||||||||||||
| Senior Vice President and Chief of | 2000 | 305,000 | 0 | 0 | 0 | 59,900 | 0 | 13,725 | ||||||||||||||||||||||||
| Utility Operations of Pacific Gas and Electric Company | 1999 | 290,000 | 221,850 | 4,172 | 0 | 46,700 | 36,654 | 13,050 | ||||||||||||||||||||||||
| Kent M. Harvey | 2001 | $ | 285,000 | $ | 213,465 | $ | 0 | $ | 625,000 | 76,000 | $ | 15,385 | $ | 113,462 | ||||||||||||||||||
| Senior Vice President, Chief | 2000 | 260,000 | 0 | 0 | 0 | 59,900 | 0 | 11,700 | ||||||||||||||||||||||||
| Financial Officer, and Treasurer of Pacific Gas and Electric Company | 1999 | 245,000 | 185,551 | 4,172 | 0 | 46,700 | 36,654 | 23,083 | ||||||||||||||||||||||||
| Roger J. Peters | 2001 | $ | 285,000 | $ | 212,753 | $ | 0 | $ | 625,000 | 76,000 | $ | 15,385 | $ | 112,619 | ||||||||||||||||||
| Senior Vice President and General | 2000 | 260,000 | 0 | 0 | 0 | 59,900 | 0 | 11,700 | ||||||||||||||||||||||||
| Counsel of Pacific Gas and Electric Company | 1999 | 245,000 | 180,920 | 3,852 | 0 | 46,700 | 31,002 | 11,469 | ||||||||||||||||||||||||
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| (1) | Represents payments received or deferred in 2000, 2001, and 2002 for achievement of corporate and organizational objectives in 1999, 2000, and 2001, respectively, under the Short-Term Incentive Plan. |
| (2) | Amounts reported consist of (i) reportable officer benefit allowances, (ii) payments of related taxes, and (iii) dividend equivalent payments on performance units under the Performance Unit Plan. |
| (3) | In an effort to retain certain key personnel to ensure a continued workforce of experienced and knowledgeable employees in light of the |
38
Option/ SAR Grants in 2001 2000, and 1999 for
achievement of corporate performance objectives for the periods 1998 through
2000, 1997 through 1999, and 1996 through 1998, respectively, under the
Performance Unit Plan.
(4) Amounts reported for 2000 consist of: (i) contributions to defined
contribution retirement plans (Mr. Glynn $7,650, Mr. Darbee $17,000, Mr.
Iribe $17,000, Mr. King $17,000, Mr. Maddox $17,000, Mr. Smith $6,615, Mr.
Rueger $7,650, Mr. Randolph $7,650, Mr. Harvey $7,650, Mr. Peters $7,650,
and Mr. Richard $5,100), (ii) premiums on indemnity policies to secure the
payment of benefits under the Supplemental Executive Retirement Plan and the
Deferred Compensation Plan (Mr. Glynn $780, Mr. Smith $610, and Mr. Rueger
$750), (iii) contributions received or deferred under excess benefit
arrangements associated with defined contribution retirement plans (Mr.
Glynn $32,850, Mr. Boren $5,906, Mr. Darbee $24,500, Mr. Iribe $23,000, Mr.
King $23,000, Mr. Maddox $23,000, Mr. Smith $21,735, Mr. Rueger $6,300, Mr.
Randolph $6,075, Mr. Harvey $4,050, Mr. Peters $4,050, and Mr. Richard
$6,600), (iv) above-market interest on deferred compensation, and (v)
relocation allowances and other one-time payments, including one-time
payments made pursuant to employment arrangements and credited to deferred
compensation accounts (Mr. Boren $537,665, Mr. Darbee $400,000, Mr. King
$1,558,631, and Mr. Maddox $577,472).
(5)
[This amount includes $465,675 which was used by Mr. Glynn to purchase
123,324 stock options on March 1, 1999, under the Stock Option Purchase
Program. These options have an exercise price of $31.4375 per share and
expire on March 2, 2009.
(6) Mr. Boren and Mr. Darbee were not employed by PG&E Corporation or Pacific
Gas and Electric Company in 1998.
(7) This amount includes $31,875 that was used by Mr. Boren to purchase 11,718
stock options on March 1, 2000, under the Stock Option Purchase Program.
These options have an exercise price of $19.8125 per share and expire on
March 2, 2010.
32
37
OPTION/SAR GRANTS IN 2000
[This table summarizes the distribution and the terms and conditions of stock options granted to the executive officers named in the Summary Compensation Table during the past year.]
| Grant | ||||||||||||||||||||
| Individual Grants | Date Value | |||||||||||||||||||
| Number of | % of Total | |||||||||||||||||||
| Securities | Options/SARs | Grant | ||||||||||||||||||
| Underlying | Granted to | Exercise or | Date | |||||||||||||||||
| Options/SARs | Employees in | Base Price | Expiration | Present | ||||||||||||||||
| Granted (#)(1)(2) | 2001(2) | ($/Sh)(3) | Date(4) | Value ($)(5) | ||||||||||||||||
| Name | ||||||||||||||||||||
| Robert D. Glynn, Jr. | 235,400 | 2.06 | % | $ | 12.625 | 01-06-2011 | $ | 1,365,320 | ||||||||||||
| 235,400 | (6) | 2.06 | % | $ | 16.010 | 08-16-2011 | $ | 1,414,754 | ||||||||||||
| Thomas G. Boren | 136,000 | 1.19 | % | $ | 12.625 | 01-06-2011 | $ | 788,800 | ||||||||||||
| 136,000 | (6) | 1.19 | % | $ | 16.010 | 08-16-2011 | $ | 817,360 | ||||||||||||
| Peter A. Darbee | 91,900 | 0.81 | % | $ | 12.625 | 01-06-2011 | $ | 533,020 | ||||||||||||
| 91,900 | (6) | 0.81 | % | $ | 16.010 | 08-16-2011 | $ | 552,319 | ||||||||||||
| P. Chrisman Iribe | 93,200 | 0.82 | % | $ | 12.625 | 01-06-2011 | $ | 540,560 | ||||||||||||
| 93,200 | (6) | 0.82 | % | $ | 16.010 | 08-16-2011 | $ | 560,132 | ||||||||||||
| Thomas B. King | 93,200 | 0.82 | % | $ | 12.625 | 01-06-2011 | $ | 540,560 | ||||||||||||
| 93,200 | (6) | 0.82 | % | $ | 16.010 | 08-16-2011 | $ | 560,132 | ||||||||||||
| L. E. Maddox | 93,200 | 0.82 | % | $ | 12.625 | 01-06-2011 | $ | 540,560 | ||||||||||||
| 93,200 | (6) | 0.82 | % | $ | 16.010 | 08-16-2011 | $ | 560,132 | ||||||||||||
| Gordon R. Smith | 136,000 | 1.19 | % | $ | 12.625 | 01-06-2011 | $ | 788,800 | ||||||||||||
| 136,000 | (6) | 1.19 | % | $ | 16.010 | 08-16-2011 | $ | 817,360 | ||||||||||||
| Gregory M. Rueger | 39,700 | 0.35 | % | $ | 12.625 | 01-06-2011 | $ | 230,260 | ||||||||||||
| 39,700 | (6) | 0.35 | % | $ | 16.010 | 08-16-2011 | $ | 238,597 | ||||||||||||
| James K. Randolph | 36,300 | 0.32 | % | $ | 12.625 | 01-06-2011 | $ | 210,540 | ||||||||||||
| 36,300 | (6) | 0.32 | % | $ | 16.010 | 08-16-2011 | $ | 218,163 | ||||||||||||
| Kent M. Harvey | 38,000 | 0.33 | % | $ | 12.625 | 01-06-2011 | $ | 220,400 | ||||||||||||
| 38,000 | (6) | 0.33 | % | $ | 16.010 | 08-16-2011 | $ | 228,380 | ||||||||||||
| Roger J. Peters | 38,000 | 0.33 | % | $ | 12.625 | 01-06-2011 | $ | 220,400 | ||||||||||||
| 38,000 | (6) | 0.33 | % | $ | 16.010 | 08-16-2011 | $ | 228,380 | ||||||||||||
| (1) | All options granted to executive officers in 2001 are exercisable as follows: one-third of the options may be exercised on or after the second anniversary of the date of grant, two-thirds on or after the third anniversary, and 100 percent on or after the fourth anniversary, provided that options will vest immediately upon the occurrence of certain events. No options were accompanied by tandem dividend equivalents. |
| (2) | No stock appreciation rights (SARs) have been granted since 1991. |
| (3) | The exercise price is equal to the closing price of PG&E Corporation common stock on the date of grant. |
39
| (4) | All options granted to executive officers in 2001 expire ten years and one day from the date of grant, subject to earlier expiration in the event of the officer’s termination of employment with PG&E Corporation, Pacific Gas and Electric Company, or one of their respective subsidiaries. |
| (5) | Estimated present values are based on the Black-Scholes Model, a mathematical formula used to value options traded on stock exchanges. The Black-Scholes Model considers a number of factors, including the expected volatility and dividend rate of the stock, interest rates, and time of exercise of the option. The following assumptions were used in applying the Black-Scholes Model to the 2001 option grants shown in the table above: volatility of 29.05 percent for the January 5, 2001 grant and 33.0 percent for the August 15, 2001 grant, risk-free rate of return of 5.95 percent for the January 5, 2001 grant and 5.24 percent for the August 15, 2001 grant, dividend yield of $1.20 for the January 5, 2001 grant and $0.00 for the August 15, 2001 grant (the annual dividend rate on the grant date), and an exercise date five years after the date of grant. The ultimate value of the options will depend on the future market price of PG&E Corporation common stock, which cannot be forecast with reasonable accuracy. That value will depend on the future success achieved by employees for the benefit of all shareholders. The estimated grant date present value for the options shown in the table was $5.80 per share for the January 5, 2001 grant and $6.01 per share for the August 15, 2001 grant. |
| (6) | Stock option grants that would normally be made in January 2002 were made in August 2001, using the guidelines approved by the Nominating and Compensation Committee for 2001 grants. In most cases, the accelerated 2002 grant represents the same grant as an officer’s 2001 grant. It is expected that the next broad-based annual grant will not be made until January 2003, approximately 16 months after the accelerated grant. |
40
Aggregated Option/ SAR Exercises in 2000 are exercisable as
follows: one-third of the options may be exercised on or after the second
anniversary of the date of grant, two-thirds on or after the third
anniversary,2001 and 100 percent on or after the fourth anniversary, provided
that options will vest immediately upon the occurrence of certain events. No
options were accompanied by tandem dividend equivalents.
(2) No stock appreciation rights (SARs) have been granted since 1991.
(3) The exercise price is equal to the closing price of PG&E Corporation common
stock on the date of grant.
(4) All options granted to executive officers in 2000 expire 10 years and one
day from the date of grant, subject to earlier expiration in the event of
the officer's termination of employment with PG&E Corporation, Pacific Gas
and Electric Company, or one of their respective subsidiaries.
(5) Estimated present values are based on the Black-Scholes Model, a
mathematical formula used to value options traded on stock exchanges. The
Black-Scholes Model considers a number of factors, including the expected
volatility and dividend rate of the stock, interest rates, and time of
exercise of the option. The following assumptions were used in applying the
Black-Scholes Model to the 2000 option grants shown in the table above:
volatility of 20.19%, risk-free rate of return of 6.10%, dividend yield of
$1.20 (the annual dividend rate on the grant date), and an exercise date
five years after the date of grant. The ultimate value of the options will
depend on the future market price of PG&E Corporation common stock, which
cannot be forecast with reasonable accuracy. That value will depend on the
future success achieved by employees for the benefit of all shareholders.
The estimated grant date present value for the options shown in the table
was $3.26 per share.
33
38
AGGREGATED OPTION/Year-End Option/ SAR EXERCISES IN 2000 AND YEAR-END OPTION/SAR VALUES
[ThisValues
[This table summarizes exercises of stock options and tandem stock appreciation rights (granted in prior years) by the executive officers named in the Summary Compensation Table during the past year, as well as the number and value of all unexercised options held by such named executive officers at the end of 2000.2001.]
| Value of | ||||||||||||||||
| Number of Securities | Unexercised | |||||||||||||||
| Underlying Unexercised | In-the-Money | |||||||||||||||
| Options/SARs at | Options/SARs at | |||||||||||||||
| Shares Acquired | End of 2001 (#) | End of 2001(1) | ||||||||||||||
| on Exercise | Value Realized | (Exercisable/ | (Exercisable/ | |||||||||||||
| Name | (#) | ($) | Unexercisable) | Unexercisable) | ||||||||||||
Robert D. Glynn, Jr.(2) | 7,500 | $ | (99,883 | ) | 720,991/1,071,233 | $ | 0/$2,317,513 | |||||||||
| Thomas G. Boren | 0 | 0 | 61,718/584,600 | 0/1,338,920 | ||||||||||||
| Peter A. Darbee | 0 | 0 | 50,000/431,000 | 0/904,755 | ||||||||||||
| P. Chrisman Iribe | 0 | 0 | 114,234/396,966 | 0/917,554 | ||||||||||||
| Thomas B. King | 0 | 0 | 66,668/392,432 | 0/917,554 | ||||||||||||
| L. E. Maddox | 0 | 0 | 213,035/390,165 | 0/917,554 | ||||||||||||
Gordon R. Smith(2) | 5,000 | (64,971 | ) | 294,601/608,399 | 0/1,338,920 | |||||||||||
| Gregory M. Rueger | 0 | 0 | 110,633/187,299 | 0/390,846 | ||||||||||||
James K. Randolph(2) | 4,500 | (60,412 | ) | 86,134/180,499 | 0/357,373 | |||||||||||
| Kent M. Harvey | 0 | 0 | 69,801/183,899 | 0/374,110 | ||||||||||||
Roger J. Peters(2) | 2,000 | (26,070 | ) | 74,301/183,899 | 0/374,110 | |||||||||||
| (1) | Based on the difference between the option exercise price (without reduction for the amount of accrued dividend equivalents, if any) and a fair market value of $19.24, which was the closing price of PG&E Corporation common stock on December 31, 2001. |
| (2) | The options exercised would have expired on January 3, 2002. After accounting for accrued dividend equivalents, Mr. Glynn |
41
Long-Term Incentive Program — Awards in 2001
[This table summarizes the long-term incentive awards made to the executive officers named in the Summary Compensation Table during the past year.]
| Estimated Future Payouts Under | ||||||||||
| Awards | Non-Stock Price-Based Plans | |||||||||
| Performance or | ||||||||||
| Other Period | ||||||||||
| Number of Shares, | Until Maturation | Threshold | Target | Maximum | ||||||
| Name | Units, or Other Rights | or Payout | ($ or #) | ($ or #) | ($ or #) | |||||
| Robert D. Glynn, Jr. | 36,500(2) 3,782(3) 307,692(4) | 3 years 3 years variable(4) | 0 units | 36,500 units | 73,000 units | |||||
| Thomas G. Boren | 17,425(2) 4,125(3) 133,997(4) | 3 years 3 years variable(4) | 0 units | 17,425 units | 34,850 units | |||||
| Peter A. Darbee | 12,875(2) 115,385(4) | 3 years variable(4) | 0 units | 12,875 units | 25,750 units | |||||
| P. Chrisman Iribe | 10,125(2) 1,661(3) 86,142(4) | 3 years 3 years variable(4) | 0 units | 10,125 units | 20,250 units | |||||
| Thomas B. King | 10,125(2) 8,062(3) 86,142(4) | 3 years 3 years variable(4) | 0 units | 10,125 units | 20,250 units | |||||
| L. E. Maddox | 10,125(2) 295(3) 86,142(4) | 3 years 3 years variable(4) | 0 units | 10,125 units | 20,250 units | |||||
| Gordon R. Smith | 17,425(2) 2,298(3) 179,487(4) | 3 years 3 years variable(4) | 0 units | 17,425 units | 34,850 units | |||||
| Gregory M. Rueger | 5,450(2) 47,857(4) | 3 years variable(4) | 0 units | 5,450 units | 10,900 units | |||||
| James K. Randolph | 5,125(2) 47,857(4) | 3 years variable(4) | 0 units | 5,125 units | 10,250 units | |||||
| Kent M. Harvey | 5,125(2) 47,857(4) | 3 years variable(4) | 0 units | 5,125 units | 10,250 units | |||||
| Roger J. Peters | 5,125(2) 47,857(4) | 3 years variable(4) | 0 units | 5,125 units | 10,250 units | |||||
| (1) | For units granted pursuant to the Performance Unit Plan, payments are determined by multiplying the number of units earned in a given year by the average market price of PG&E Corporation common stock for the 30 calendar day period prior to the end of the year. For grants of phantom restricted stock units, payments will be determined by multiplying the number of units by the closing market price of PG&E Corporation common stock on the date of vesting. |
| (2) | Represents performance units granted under the Performance Unit Plan. The units vest one-third in each of the three years |
42
| (3) | Represents common stock equivalents called Special Incentive Stock Ownership Premiums (SISOPs) earned under the Executive Stock Ownership Program. SISOPs are earned by eligible officers who achieve and maintain minimum PG&E Corporation common stock ownership levels as set by the Nominating and Compensation Committee. All of the officers named in the Summary Compensation Table on pages 37-38, are eligible officers. Each SISOP represents a share of PG&E Corporation common stock that vests at the end of three years. Units can be forfeited prior to vesting if an eligible officer fails to maintain his or her minimum stock ownership level. Upon retirement or termination, vested SISOPs are distributed in the form of an equivalent number of shares of PG&E Corporation common stock. |
| (4) | Represents phantom restricted stock units awarded to the named executive. These units vest on December 31, 2004, only if the Corporation’s performance, as measured by relative total shareholder return on a cumulative basis over four years, is at or above the 55th percentile of its comparator group and the executive is in service. However, if at the end of the third year of the grant, December 31, 2003, the Corporation’s performance as measured by relative total shareholder return on a cumulative basis is at or above the 75th percentile of its comparator group, the units will vest at that time. Eligible executives may elect to defer award payments under the PG&E Corporation Supplemental Retirement Savings Plan before vesting. Such deferrals will be made in PG&E Corporation phantom stock units on the first business day of January of the year following vesting. Awards not deferred will be paid in cash in January of the year following vesting. |
43
Retirement Benefits
PG&E Corporation and Pacific Gas and Electric Company provide retirement benefits to some of the executive officers named in the Summary Compensation Table on pages 31-32.37-38. The benefit formula for eligible executive officers is 1.7 percent of the average of the three highest combined salary and annual incentive awards during the last 10ten years of service multiplied by years of credited service. During 2001, a significant portion of the unfunded corporate retirement obligations of PG&E Corporation was reduced as a result of tax law changes increasing the annual pension benefit which can be paid from a tax-qualified pension plan and an amendment to the Retirement Plan. As of December 31, 2000,2001, the estimated annual retirement benefits (assuming credited service to age 65) for the most highly compensated executive officers assuming credited service to age
65, arewere as follows: Mr. Glynn $646,886, Mr. Boren $374,935, Mr. Smith $627,042,$651,912, Mr. Rueger $344,522, Mr. Randolph $308,836, Mr. Harvey $284,061,$283,782, and Mr. Peters $264,593, and Mr. Richard
$130,145.$264,314. The amounts shownestimated annual retirement benefits are single life annuity benefits and would not be subject to any Social Security offsets.
EMPLOYMENT CONTRACTS/ARRANGEMENTS
Employment Contracts/Arrangements
Thomas G. Boren'sBoren’s employment letter entitles him to receive salary, other cash and equity awards as described elsewhere in this proxy statement, and other standard employee benefits. Mr. Boren'sBoren’s participation in the supplemental defined benefit executive retirement plan includes recognition of credited years with his former employer, Southern Company, although benefits will be reduced by benefits payable from Southern Company'sCompany’s plan, excluding special enhancements payable as part of his separation from Southern Company. Under his employment letter, Mr. Boren was entitled to receive $1,000,000 in three annual installments, upon satisfaction of annual general business goals. Mr. Boren'sBoren’s last installment iswas payable December 31, 2001, upon satisfaction of the 2001 business goals. If Mr. Boren terminates his employment with PG&E Corporation
before December 31, 2001, the payment will be forfeited. Mr. Boren also is eligible to receive a mortgage subsidy equal to $26,667 per $100,000 of loan value, limited to a loan amount of $1,500,000, through July 2004, with a maximum subsidy of $400,000 ($80,000 per year). Mr. Boren also will be compensated for the loss of mortgage tax deduction in excess of the $1,000,000 maximum allowed by law, up to the stated maximum mortgage loan amount of $1,500,000.
Thomas B. King'sKing’s employment letter entitles him to receive salary, other cash and equity awards as described elsewhere in this proxy statement, and other standard employee benefits. In connection with his relocation to Bethesda, Maryland, at the request of PG&E Corporation, Mr. King received a one-time payment of $150,000, net of taxes, and a one-time taxable payment of $75,000. If Mr. King resigns from his position prior to December 31, 2004 (and is not then an employee of PG&E Corporation or its affiliates), he will be required to repay the gross amount of such payments. Mr. King also received (1) a moving allowance equal to one month's pay;month’s pay, (2) reimbursement for travel expenses incurred in finding a principal residence in the Bethesda area, and for the reasonable cost of temporary housing;housing, (3) reimbursement of closing costs incurred in the sale of his prior residence and the purchase of a new residence;residence, (4) indemnification for loss suffered on the sale of his prior residence;residence, and (5) reimbursement of certain losses and expenses incurred in placing his children in comparable schools in the Bethesda area. Mr. King also is entitled to receive a mortgage subsidy of $3,500 per month, payable for four years, commencing with the first mortgage payment for his new residence. If Mr. King resigns from employment with PG&E Corporation or one of its subsidiaries or affiliates before December 31, 2004, he will be required to repay all amounts provided under the temporary mortgage subsidy.
L. E. Maddox'sMaddox’s employment letter entitles him to receive salary, other cash and equity awards described elsewhere in this proxy statement, and other standard employee benefits. In connection with his relocation to Bethesda, Maryland, at the request of PG&E Corporation, Mr. Maddox received a one-time payment of $250,000, net of taxes, and a one-time taxable payment of $75,000. If Mr. Maddox resigns from his position before December 31, 2004 (and is not then an employee of PG&E Corporation or its affiliates), he will be required to repay the gross amount of such payments. Mr. Maddox also received (1) a moving allowance equal to one month's pay;month’s pay, (2) reimbursement for travel expenses incurred in finding a principal residence in the Bethesda area, and for the reasonable cost of temporary housing;housing, (3) reimbursement of closing costs incurred in the sale of his prior residence and the purchase of a new residence;residence, (4) indemnification for loss suffered on the sale of his prior residence;residence, and (5) reimbursement of certain losses and expenses incurred in placing his children in comparable schools in the Bethesda area. Mr. Maddox also is entitled to receive a mortgage subsidy of $3,500 per month, payable for four years, commencing with the first mortgage payment for his new residence. If Mr. Maddox resigns from employment with PG&E Corporation or one of its subsidiaries or affiliates before December 31, 2004, he will be required to repay all amounts provided under the temporary mortgage subsidy.
36
41
TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL PROVISIONS
44
Termination of Employment and Change in Control Provisions
The PG&E Corporation Officer Severance Policy, which covers most officers of PG&E Corporation and its subsidiaries, including the executive officers named in the Summary Compensation Table, provides benefits if a covered officer is terminated without cause. In most situations, benefits under the policy include (1) a lump sum payment of one and one-half or two times annual base salary and target Short-Term Incentive Plan award (the applicable severance multiple being dependent on an officer'sofficer’s level), (2) continued vesting of equity-based awards for 18 months or two years after termination (depending on the applicable severance multiple), (3) accelerated vesting of up to two-thirds of the common stock equivalents awarded under the Executive Stock Ownership Program (depending on an officer'sofficer’s level), and (4) payment of health care insurance premiums for 18 months or two years after termination (depending on the applicable severance multiple). In lieu of all or a portion of the lump sum payment, a terminated officer who is covered by PG&E Corporation'sCorporation’s Supplemental Executive Retirement Plan can elect additional years of service and/or age for purposes of calculating pension benefits. Effective July 21, 1999, the policy was amended to provide covered officers with alternative benefits that apply upon actual or constructive termination following a change in control or potential change in control. According to the policy, a "change“change in control"control” occurs upon (1) the acquisition of 20 percent or more of the Corporation'sCorporation’s outstanding voting securities by a single entity or person, (2) a change in the directors who constitute a majority of the Board of Directors over a two-year period, unless the new directors were nominated by at least two-thirds of the Board of Directors who were directors at the beginning of the two-year period, or (3) shareholder approval of certain corporate transactions. Constructive termination includes certain changes to a covered officer'sofficer’s responsibilities. In the event of a change in control or potential change in control, the policy provides for a lump sum payment of the sumtotal of (1) unpaid base salary earned through the termination date, (2) target Short-Term Incentive Plan award calculated for the fiscal year in which termination occurs ("Target Bonus")(Target Bonus), (3) any accrued but unpaid vacation pay, and (4) three times the sum of Target Bonus and the officer'sofficer’s annual base salary in effect immediately before either the date of termination or the change in control, whichever base salary is greater. Change in control termination benefits also include reimbursement of excise taxes levied upon the severance benefit pursuant to Internal Revenue Code Section 4999.
The Long-Term Incentive Program (LTIP) permits the grant of various types of stock-based incentive awards, including awards granted under the Stock Option Plan, the Performance Unit Plan, and the Non-Employee Director Stock Incentive Plan. The LTIP and the component plans provide that, upon the occurrence of a change in control, (1) any time periods relating to the exercise or realization of any incentive award (including common stock equivalents awarded under the Executive Stock Ownership Program) will be accelerated so that such award may be exercised or realized in full immediately upon the change in control, (2) all shares of restricted stock will immediately cease to be forfeitable, and (3) all conditions relating to the realization of any stock-based award will terminate immediately. Under the LTIP, a "change“change in control"control” will be deemed to have occurred if any of the following occurs: (1) any "person"“person” (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, but excluding any benefit plan for employees or any trustee, agent, or other fiduciary for any such plan acting in such person'sperson’s capacity as such fiduciary), directly or indirectly, becomes the beneficial owner of securities of PG&E Corporation representing 20 percent or more of the combined voting power of PG&E Corporation'sCorporation’s then outstanding securities, (2) during any two consecutive years, individuals who at the beginning of such a period constitute the Board of Directors cease for any reason to constitute at least a majority of the Board of Directors, unless the election, or the nomination for election by the shareholders of the Corporation, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period, or (3) the shareholders of the Corporation shall have approved (i) any consolidation or merger of the Corporation other than a merger or consolidation that would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent of such surviving entity) at least 70 percent of the combined voting power of the Corporation, such surviving entity, or the parent of such surviving entity outstanding immediately after the merger or consolidation, (ii) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Corporation, or (iii) any plan or proposal for the liquidation or dissolution of the Corporation. For purposes of this definition, the term "combined“combined voting power"power” means the combined voting power of the then outstanding voting securities of the Corporation or the other relevant entity.
37
42
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN(1)
[This
The Special Senior Executive Retention Grants provide certain senior executive officers with phantom restricted stock units that fully vest upon a change in control. For these purposes, “change in control” has the same definition as under the LTIP. The Special Senior Executive Retention Grants are described in more detail in the Nominating and Compensation Committee Report on Compensation on pages 35-36, in footnote 3 of the Summary Compensation Table on page 38, and in footnote 4 of the Long-Term Incentive Program — Awards in 2001 Table on page 43.
45
Comparison of Five-Year Cumulative Total Shareholder Return(1)
[This graph compares the cumulative total return on PG&E Corporation common stock (equal to dividends plus stock price appreciation) during the past five fiscal years with that of the Standard & Poor'sPoor’s 500 Stock Index and the Dow Jones Utilities Index.]
(PERFORMANCE GRAPH)
| Dow Jones Utilities | Standard & Poor’s 500 | |||||||||||
| PG&E Corporation | Index (DJUI) | Stock Index (S&P) | ||||||||||
| 1996 | 100 | 100 | 100 | |||||||||
| 1997 | 152 | 123 | 133 | |||||||||
| 1998 | 164 | 146 | 171 | |||||||||
| 1999 | 111 | 138 | 208 | |||||||||
| 2000 | 114 | 208 | 189 | |||||||||
| 2001 | 110 | 154 | 166 | |||||||||
| (1) | Assumes $100 invested on December 31, 1996, in Pacific Gas and Electric Company common stock, the Standard & |
46
Report of the Standard & Poor's 500 Stock Index, and the Dow
Jones Utilities Index, and assumes quarterly reinvestment of dividends. The
total shareholder returns shown are not necessarily indicative of future
returns. PG&E Corporation was formed on January 1, 1997, and, on that date,
all outstanding shares of Pacific Gas and Electric Company common stock were
converted on a one-for-one basis to shares of PG&E Corporation common stock.
38
43
REPORT OF THE AUDIT COMMITTEESAudit Committees
The Audit Committees of PG&E Corporation and Pacific Gas and Electric Company are composed of at least three independent directors and operate under written charters adopted by thetheir respective Board of Directors (Appendix A).Directors. The members of the Audit Committees of PG&E Corporation and Pacific Gas and Electric Company are identical. At both PG&E Corporation and Pacific Gas and Electric Company, management is responsible for internal controls and the integrity of the financial reporting process.
In this regard, management has represented to the Audit Committees that PG&E Corporation'sCorporation’s and Pacific Gas and Electric Company'sCompany’s consolidated financial statements were prepared in accordance with generally accepted accounting principles. In addition, the Committees reviewed and discussed these consolidated financial statements with management and the independent auditors. The Committees also reviewed with the independent auditors matters that are required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees).
Deloitte and Touche LLP was the independent auditor for PG&E Corporation and Pacific Gas and Electric Company in 2000.2001. The Corporation'sCorporation’s independent auditors provided to the Committees the written disclosures required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the Committees discussed with the independent auditors that firm'sfirm’s independence. In addition, the Committees have reviewed non-audit fees that PG&E Corporation, Pacific Gas and Electric Company, and their respective subsidiaries have paid to the independent auditors, including amounts for information technology services, for purposes of considering whether such fees are compatible with maintaining the auditor'sauditor’s independence.
Based on the Committees'Committees’ reviews and discussions with management and the independent auditors, the Committees recommended to the Boards of Directors that the audited consolidated financial statements for PG&E Corporation and Pacific Gas and Electric Company be included in the PG&E Corporation and Pacific Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 2000,2001, filed with the Securities and Exchange Commission.
April 16, 2001
AUDIT COMMITTEES OF THE BOARDS OF DIRECTORS OF
March 13, 2002
Audit Committees of the Boards of Directors of PG&E CORPORATION AND PACIFIC GAS
AND ELECTRIC COMPANY
Corporation and Pacific Gas and Electric Company
C. Lee Cox, Chair
47
Principal Shareholders
The following table presents certain information regarding shareholders who are known to PG&E Corporation or Pacific Gas and Electric Company to be the beneficial owners of more than 5 percent of any class of voting securities of PG&E Corporation or Pacific Gas and Electric Company as of January 31, 2001:
2002:
| Name and Address of | Amount and Nature of | Percent | ||||||||
| Class of Stock | Beneficial Owner | Beneficial Ownership | of Class | |||||||
| Pacific Gas and Electric Company stock(1) | PG&E Corporation(2) P.O. Box 193722 San Francisco, CA 94119-3722 | 326,926,667 | 94.99 | % | ||||||
| PG&E Corporation common stock | State Street Bank and Trust Company(3) 225 Franklin Street Boston, MA 02110 | 29,993,967 | 8.24 | % | ||||||
| (1) | Pacific Gas and Electric Company’s common stock and preferred stock vote together as a single class and each share is entitled to one vote. |
| (2) | As a result of the formation of the holding company on January 1, 1997, PG&E |
| (3) | The information relating to State Street Bank and Trust |
Section 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCEBeneficial Ownership Reporting Compliance
In accordance with Section 16(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission regulations, PG&E Corporation'sCorporation’s and Pacific Gas and Electric Company'sCompany’s respective directors, certain officers, and persons who own greater than 10 percent of PG&E Corporation'sCorporation’s or Pacific Gas and Electric Company'sCompany’s equity securities are required to file reports of ownership and changes in ownership of such equity securities with the Securities and Exchange Commission and the principal national securities exchange on which such equity securities are registered, and to furnish PG&E Corporation or Pacific Gas and Electric Company (as the case may be) with copies of all such reports they file.
Based solely on its review of copies of such reports received or written representations from certain reporting persons, PG&E Corporation and Pacific Gas and Electric Company believe that during 20002001 all filing requirements applicable to their directors, officers, and 10 percent shareholders were satisfied, with
the following exceptions. Anexcept that an Initial Statement of Beneficial Ownership was filed late for Dinyar B. MistryDaniel D. Richard, Jr., who became Vice President - Controllersubject to such filing requirements with respect to PG&E Corporation in December 2000.
| By Order of the Boards of Directors of | |
| PG&E Corporation and Pacific Gas and Electric Company, | |
| |
| Linda Y.H. Cheng | |
| Corporate Secretary, | |
| PG&E Corporation and | |
| Pacific Gas and Electric Company |
48
Restated Articles of Pacific Gas and
Electric Company on November 1, 2000, was filed late. Mr. Mistry does not own
any Pacific Gas and Electric Company securities. In addition, Bruce R.
Worthington failed to timely file an annual report on Form 5 to report the
exempt acquisition through inheritance of 66 shares Incorporation
Articles Third and Pacific Gas and Electric Company's joint 2000 annual
reportEighth
THIRD:
I. The entire cost of soliciting proxies
will be paid by PG&E Corporation and Pacific Gas and Electric Company.
PROPOSALS BY SHAREHOLDERS - 2002
To be considered for inclusion in the PG&E Corporation and Pacific Gas and
Electric Company Joint Proxy Statement for the 2002 Annual Meetings, shareholder
proposals intended to be presented at the meetings must be received by the Vice
President and Corporate Secretary no earlier than May 17, 2001, and no later
than December 17, 2001.
The Bylaws of PG&E Corporation and Pacific Gas and Electric Company provide
that, if a shareholder wishes to make a nomination for director or to introduce
any business at the annual meeting of shareholders, the shareholder must provide
timely and proper written notice of the matter, in the manner described in the
Bylaws. Copies of the Bylaws are available by writing to the PG&E Corporation or
Pacific Gas and Electric Company Office of the Vice President and Corporate
Secretary, as appropriate. Notice of business proposed to be brought before the
2002 annual meeting of PG&E Corporation or Pacific Gas and Electric Company must
be received at the principal executive office of PG&E Corporation or Pacific Gas
and Electric Company (as the case may be), no earlier than May 17, 2001, and no
later than March 2, 2002. However, if the 2002 annual meeting of either company
is scheduled for a date that differs by more than 30 days from the anniversary
date of the 2001 joint annual meeting, the shareholder's notice will be timely
if received no later than the tenth day following the date on which that company
publicly discloses the date of its 2002 annual meetings. Shareholder proposals
and shareholder nominations received after the deadline will not be considered
at the 2002 annual meetings.
By Order of the BoardsBoard of Directors of PG&Ethe Corporation and Pacific Gas and
Electric Company,
[/s/ LESLIE H. EVERETT]
Leslie H. Everett
Vice President and Corporate Secretary,
PG&E Corporation and
Pacific Gas and Electric Company
YOUR VOTE IS IMPORTANT.
IF YOU ARE NOT EXECUTING AND SUBMITTING YOUR PROXY AND VOTING INSTRUCTIONS OVER
THE INTERNET OR BY TELEPHONE, PLEASE MARK, SIGN, DATE, AND MAIL THE ENCLOSED
PROXY CARD AS SOON AS POSSIBLE.
At the annual meetingsshall consist of shareholders, real-time captioning services and
assistive listening devices willsuch number of directors, not less than five (5) nor more than nine (9), as shall be available for the hearing impaired. Please
contact an usher at the meeting if you wish to be seatedprescribed in the real-time
captioning section or ask a representative at the shareholder registration desk
if you wish to use an assistive listening device.
For shareholders with impaired vision, audio cassette recordingsBylaws.
EIGHTH:
The directors of the meetings will be available without charge. Please contact the officeCorporation, when evaluating any proposal or offer which would involve (i) a merger or consolidation of the Vice
President and Corporate Secretary, One Market, Spear Tower, Suite 2400, San
Francisco, CA 94105 or call (415) 267-7070.
41
46
- --------------------------------------------------------------------------------
APPENDIX A
PG&E CORPORATION
PACIFIC GAS AND ELECTRIC COMPANY
CHARTER OF THE AUDIT COMMITTEES
OF THE BOARDS OF DIRECTORS
The Boards of Directors of PG&E Corporation and Pacific Gas and Electric Company
each have adopted the following charter for their Audit Committees.
An Audit Committee of this Board of Directors is established to consist of
at least three directors, one of whom shall be appointed by this Board of
Directors as the Committee's chair, all of whom shall be financially literate,
which includes the ability to read and understand fundamental financial
statements, including a company's balance sheet, income statement, and cash flow
statement. In addition, one member shall have accounting or related financial
management expertise resulting from past employment experience in finance or
accounting, requisite professional certification in accounting, or any other
comparable experience or background that results in his or her financial
sophistication (including being or having been a chief executive officer, chief
financial officer, or other senior officer with financial oversight
responsibilities), and none of whom shall (a) be a current or former officer or
employee of this corporation or any of its subsidiaries; (b) besubsidiaries with another corporation, (ii) a current
consultant or a director who is a partner in, or a controlling shareholder or an
executive officer of, any for-profit business organization to which this
corporation made, or from which this corporation received, payments (other than
those arising solely from investments in this corporation's securities) that
exceed five percent of this corporation's or business organization's
consolidated gross revenues for that year, or $200,000, whichever is more, in
any of the past three years; (c) be an officer or employee of any other
enterprise on whose board of directors any officer of this corporation serves as
a member; (d) be an immediate family member of any individual who is an
executive officer of this corporation or has been an executive officer during
the past three years; (e) have any other relationships that would interfere with
the exercise of independent judgment.
The basic responsibility of the Audit Committee shall be to advise and
assist this Board in fulfilling its responsibilities for this corporation and
its subsidiaries and affiliates in connection with financial and accounting
practices, internal controls, external and internal auditing programs, business
ethics, and compliance with laws, regulations, and policies that may have a
material impact on the consolidated financial statements of this corporation and
its subsidiaries. The Audit Committee shall oversee these areas for this
corporation and all of its controlled subsidiaries and affiliates, and, to the
extent practicable, for any of this corporation's subsidiaries and affiliates
that it does not control. The Audit Committee shall have the ultimate authority
and responsibility to recommend to this Board of Directors the selection or
replacement of the independent auditors, and the independent auditors ultimately
shall be accountable to the Audit Committee and this Board of Directors. More
specifically, the Audit Committee shall:
1. Satisfy itself as to the independence of the independent auditors.
2. Recommend the independent auditors to be nominated each year by the
full Board.
3. Review the formal written statement submitted periodically by the
independent auditors delineating all relationships between them and this
corporation and its subsidiaries and affiliates, discuss with them any disclosed
relationships or services that may impact their objectivity and independence,
and recommend to the Board any action the Audit Committee deems necessary to
ensure the independence of the independent auditors.
4. Review and act upon the scope of the independent audit, the non-audit
services to be performed by the independent auditors, and the terms of
engagement and compensation of such independent auditors.
5. Review the adequacy and direction of the internal audit function,
including the appointment and replacement of the senior internal auditor.
6. Review the adequacy of the internal controls of this corporation and
its subsidiaries and affiliates (in consultation with the independent auditors
and the senior internal auditor).
7. Review, prior to issuance, the consolidated annual and interim
financial statements of this corporation and its subsidiaries, any report
rendered by the independent auditors in connection with those financial
statements, and any significant disputes between management and the independent
auditors that arose in connection with the preparation of those financial
statements.
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47
8. Discuss with the independent auditors any significant accounting and
audit issues pertinent to these financial statements, including the quality of
this corporation's accounting principles, and consider major changes and other
major questions of choice respecting the appropriate auditing and accounting
principles and practices to be used in preparing the consolidated financial
statements of this corporation and its subsidiaries.
9. Prepare the Audit Committee's report that is filed with this
corporation's annual proxy statement.
10. Review legal and regulatory matters that may have a material impact on
the consolidated financial statements of this corporation and its subsidiaries,
and monitor related compliance with laws, regulations, policies and programs,
including the existence and adequacy of statements of policy concerning
conflicts of interest and general business ethics.
11. Review periodically, and no less than annually, expense reimbursements
paid to the Chairman of the Board, the Chief Executive Officer, and the
President, if those positions are filled, and to such other officers of this
corporation and its subsidiaries and affiliates as may be deemed appropriate by
the Committee.
12. Serve as a channel of communication between the independent auditors
and the Board of Directors and between the senior internal auditor and the
Board, and report regularly to the Board on the Committee's deliberations and
actions taken.
13. Review and reassess annually the adequacy of the Audit Committee's
charter as set forth in this resolution.
The Audit Committee shall fix its own time and place of meetings and shall
prescribe its own rules of procedure.
Officers of this corporation shall attend meetings of the Audit Committee
only upon the express invitation of the Chair of the Audit Committee.
Unless otherwise designated by the Committee, the Vice President and
Corporate Secretary of this corporation, or an Assistant Corporate Secretary,
shall serve as secretary to the Audit Committee.
A-2
48
[RECYCLE SYMBOL] Printed with soybean ink on recycled/recyclable paper.
49
APPENDIX B
PG&E CORPORATION
LONG-TERM INCENTIVE PROGRAM
(As amended effective as of May 16, 2001)
1. Purpose of the Program
This is the controlling and definitive statement of the PG&E Corporation
Long-Term Incentive Program, as amended and restated herein (hereinafter
called the PROGRAM(1)). The purpose of the PROGRAM is to advance the
interests of the CORPORATION by providing ELIGIBLE PARTICIPANTS with
financial incentives to promote the success of its long-term (five to
ten years) business objectives, and to increase their proprietary
interest in the success of the CORPORATION. It is the intent of the
CORPORATION to reward those ELIGIBLE PARTICIPANTS who have a significant
impact on improved long-term corporate achievements. Inasmuch as the
PROGRAM is designed to encourage financial performance and to improve
the value of shareholders' investment in PG&E CORPORATION, the costs of
the PROGRAM will be funded from corporate earnings.
2. Program Administration
The PROGRAM shall be administered by the COMMITTEE, except that the
BOARD OF DIRECTORS shall administer the PROGRAM with respect to grants
of INCENTIVE AWARDS TO NON-EMPLOYEE DIRECTORS. The BOARD OF DIRECTORS
may at any time revest authority to administer the PROGRAM in all
respects in the BOARD OF DIRECTORS. Subject to the provisions of the
PROGRAM, the COMMITTEE or the BOARD OF DIRECTORS, as the case may be,
shall have full and final authority, in its sole discretion:
(a) to determine the ELIGIBLE PARTICIPANTS to whom INCENTIVE AWARDS
shall be granted and the number of shares of COMMON STOCK to be
awarded under each INCENTIVE AWARD, based on the recommendation
of the CHIEF EXECUTIVE OFFICER (except that awards to the CHIEF
EXECUTIVE OFFICER shall be based on the recommendation of the
BOARD OF DIRECTORS and awards to NON-EMPLOYEE DIRECTORS shall be
based on the recommendation of the COMMITTEE);
(b) to determine the time or times at which INCENTIVE AWARDS shall
be granted;
(c) to designate the types of INCENTIVE AWARD being granted;
- --------------------
(1) Capitalized words are defined in Section 20 hereof.
50
(d) to vary the OPTION vesting schedule described in the STOCK
OPTION PLAN;
(e) to determine the terms and conditions, not inconsistent with the
terms of the PROGRAM, of any INCENTIVE AWARD granted hereunder
(including, but not limited to, the consideration and method of
payment for shares purchased upon the exercise of an INCENTIVE
AWARD, and any vesting acceleration or exercisability provisions
in the event of a CHANGE IN CONTROL or TERMINATION), based in
each case on such factors as the COMMITTEE or BOARD OF DIRECTORS
shall deem appropriate;
(f) to approve forms of agreement for use under the PROGRAM;
(g) to construe and interpret the PROGRAM and any related INCENTIVE
AWARD agreement and to define the terms employed herein and
therein;
(h) except as provided in Section 18 hereof, to modify or amend any
INCENTIVE AWARD or to waive any restrictions or conditions
applicable to any INCENTIVE AWARD or the exercise or realization
thereof;
(i) except as provided in Section 18 hereof, to prescribe, amend and
rescind rules, regulations and policies relating to the
administration of the PROGRAM;
(j) except as provided in Section 18 hereof, to suspend, terminate,
modify or amend the PROGRAM;
(k) to delegate to one or more agents such administrative duties as
the COMMITTEE or BOARD OF DIRECTORS may deem advisable, to the
extent permitted by applicable law; and
(l) to make all other determinations and take such other action with
respect to the PROGRAM and any INCENTIVE AWARD granted hereunder
as the COMMITTEE may deem advisable, to the extent permitted by
applicable law.
Notwithstanding the provisions contained in the foregoing paragraph, the
CHIEF EXECUTIVE OFFICER shall have the authority, in his sole
discretion: (a) to grant INCENTIVE AWARDS to any ELIGIBLE PARTICIPANT
who, at the time of the INCENTIVE AWARD grant, (i) is not an officer of
the CORPORATION or a DIRECTOR, and (ii) if such ELIGIBLE PARTICIPANT is
an EMPLOYEE, is receiving an annual salary which is below the level
which requires approval by the COMMITTEE; (b) to determine the time or
times at
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51
which INCENTIVE AWARDS shall be granted to such ELIGIBLE PARTICIPANTS;
(c) to designate the types of INCENTIVE AWARD being granted to such
ELIGIBLE PARTICIPANTS; and (d) to vary the OPTION vesting schedule
described in the STOCK OPTION PLAN for the OPTIONS granted to such
ELIGIBLE PARTICIPANTS; provided, however, that all grants of INCENTIVE
AWARDS by the CHIEF EXECUTIVE OFFICER shall conform to the guidelines
previously approved by the COMMITTEE.
3. Shares of Stock Subject to the Program
There shall be reserved for use under the PROGRAM (subject to the
provisions of Section 13 hereof) a total of 49,389,230 shares of COMMON
STOCK, which shares may be authorized but unissued shares of COMMON
STOCK or issued shares of COMMON STOCK which shall have been reacquired
by PG&E CORPORATION. Such shares consist of (i) 13,000,000 shares of
COMMON STOCK originally reserved for use under the PROGRAM at the time
it first became effective on January 1, 1992, (ii) 389,230 shares of
COMMON STOCK remaining under the 1986 OPTION PLAN and carried over to
the PROGRAM, (iii) 10,000,000 shares of COMMON STOCK added to the
PROGRAM effective as of January 1, 1996, (iv) 11,000,000 shares of
COMMON STOCK added to the PROGRAM effective as of April 21, 1999, and
(v) 15,000,000 shares of COMMON STOCK added to the PROGRAM effective as
of May 16, 2001. No more than 2,000,000 of the shares described in (i)
-- (iv), and no more than 3,000,000 of the shares described in (v) may
be designated as RESTRICTED STOCK.
If (i) any INCENTIVE AWARD expires or terminates for any reason without
having been exercised or purchased in full, (ii) an INCENTIVE AWARD is
surrendered in exchange for one or more other INCENTIVE AWARDS, or (iii)
any RESTRICTED STOCK is forfeited, then, in each such case, any
unexercised, unpurchased, surrendered or forfeited shares which were
subject to such INCENTIVE AWARD (except shares as to which a related
TANDEM SAR has been exercised) shall again be available for the future
grant of INCENTIVE AWARDS under the PROGRAM (unless the PROGRAM has
terminated). In addition, shares may be reused or added back to the
PROGRAM to the extent permitted by applicable law.
4. Eligibility
INCENTIVE AWARDS will be granted only to ELIGIBLE PARTICIPANTS. ISOS
will be granted only to EMPLOYEES. The COMMITTEE, in its sole
discretion, may grant INCENTIVE AWARDS to an ELIGIBLE PARTICIPANT who is
a resident or citizen of a foreign country, with such modifications as
the COMMITTEE may deem advisable to reflect the laws, tax policy or
customs of such foreign country.
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52
The PROGRAM shall not confer upon any RECIPIENT any right to
continuation of employment, service as a DIRECTOR or consulting
relationship with the CORPORATION; nor shall it interfere in any way
with the right of the RECIPIENT or the CORPORATION to terminate such
employment, service as a DIRECTOR or consulting relationship at any
time, with or without cause.
5. Designation of Incentive Awards
At the time of the grant of each INCENTIVE AWARD under the Program, the
COMMITTEE (or the CHIEF EXECUTIVE OFFICER, in the case of INCENTIVE
AWARDS granted by the CHIEF EXECUTIVE OFFICER to certain ELIGIBLE
PARTICIPANTS pursuant to Section 2 hereof, or the BOARD OF DIRECTORS, in
the case of INCENTIVE AWARDS granted by the BOARD OF DIRECTORS to
NON-EMPLOYEE DIRECTORS) shall determine whether such INCENTIVE AWARD is
to be designated as an ISO, NON-QUALIFIED STOCK OPTION, SAR, DIVIDEND
EQUIVALENT, PERFORMANCE UNIT, stock grant, RESTRICTED STOCK, LSAR,
PHANTOM STOCK or other STOCK-BASED AWARD; provided, however, that ISOS
may be granted only to EMPLOYEES.
Notwithstanding such designation, to the extent that the aggregate FAIR
MARKET VALUE (determined for each share as of the date of grant of the
OPTION covering each share) of the shares with respect to which OPTIONS
designated as ISOS become exercisable for the first time by any
RECIPIENT during any calendar year exceeds $100,000, such OPTIONS shall
be treated as NON-QUALIFIED STOCK OPTIONS.
Any INCENTIVE AWARD may be granted alone, contingent upon, in addition
to or in TANDEM with one or more other INCENTIVE AWARDS granted under
the PROGRAM. In addition, except as provided in Section 12 hereof, any
INCENTIVE AWARD may be granted in exchange for one or more other
INCENTIVE AWARDS.
6. Stock Options, Tandem Stock Appreciation Rights and Tandem Dividend
Equivalents
Except as provided in Section 9 below (relating to grants of INCENTIVE
AWARDS to NON-EMPLOYEE DIRECTORS), the COMMITTEE, in its sole
discretion, may grant ISOS, NON-QUALIFIED STOCK OPTIONS, TANDEM SARS and
TANDEM DIVIDEND EQUIVALENTS to ELIGIBLE PARTICIPANTS, subject to the
terms and conditions set forth in the STOCK OPTION PLAN attached hereto
as Exhibit A.
7. Performance Units
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53
Except as provided in Section 9 below (relating to grants of INCENTIVE
AWARDS to NON-EMPLOYEE DIRECTORS), the COMMITTEE, in its sole
discretion, may grant PERFORMANCE UNITS to ELIGIBLE PARTICIPANTS,
subject to the terms and conditions set forth in the PERFORMANCE UNIT
PLAN attached hereto as Exhibit B.
8. Other Incentive Awards
Except as provided in Section 9 below (relating to grants of INCENTIVE
AWARDS to NON-EMPLOYEE DIRECTORS), the COMMITTEE, in its sole
discretion, may grant other INCENTIVE AWARDS (including, but not limited
to, SARS granted without OPTIONS, DIVIDEND EQUIVALENTS granted without
OPTIONS, stock grants, RESTRICTED STOCK, LSARS, PHANTOM STOCK or other
STOCK-BASED AWARDS) to ELIGIBLE PARTICIPANTS, subject to such terms and
conditions as the COMMITTEE shall deem appropriate.
9. Grants of Incentive Awards to Non-Employee Directors
NON-EMPLOYEE DIRECTORS will only be eligible to be granted DIRECTOR
RESTRICTED STOCK, PHANTOM STOCK and NON-QUALIFIED STOCK OPTIONS in
accordance with, and subject to the terms and conditions contained in,
the NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN RULES attached hereto as
Exhibit C.
10. Termination of Employment or Relationship with the CORPORATION
The COMMITTEE may, in its sole discretion, establish terms and
conditions pertaining to the effect of TERMINATION on INCENTIVE AWARDS
granted to a RECIPIENT prior to TERMINATION, to the extent permitted by
applicable law.
11. Tax Withholding
When a RECIPIENT incurs tax liability in connection with the exercise of
an INCENTIVE AWARD or the receipt of shares of COMMON STOCK pursuant to
an INCENTIVE AWARD, which tax liability is subject to tax withholding
under applicable tax laws, and the RECIPIENT is obligated to pay the
CORPORATION an amount required to be withheld under applicable tax laws,
the RECIPIENT may satisfy the withholding tax obligation by (i) electing
to have the CORPORATION withhold such amount from his or her current
compensation through payroll deductions, or (ii) making a direct payment
to the CORPORATION in cash or by check.
The COMMITTEE may, in its sole discretion, permit a RECIPIENT to satisfy
all or part of his or her withholding tax obligations by having the
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54
CORPORATION withhold from the shares to be issued to the RECIPIENT that
number of shares having a FAIR MARKET VALUE equal to the amount required
to be withheld determined on the date when taxes otherwise would be
withheld in cash. The payment of withholding taxes in this manner, if
permitted by the COMMITTEE, shall be subject to such restrictions as the
COMMITTEE may impose, including any restrictions required by rules of
the Securities and Exchange Commission.
12. Replacement of Grants
The COMMITTEE may, in its sole discretion, offer a RECIPIENT (other than
NON-EMPLOYEE DIRECTORS) the option of surrendering an unexercised OPTION
or other INCENTIVE AWARD in exchange for another INCENTIVE AWARD of the
same type or for a different type of INCENTIVE AWARD; provided, however,
that no OPTION or INCENTIVE AWARD may be exchanged for a new OPTION or
INCENTIVE AWARD having an OPTION PRICE or purchase price that is lower
than the OPTION PRICE or purchase price of the original OPTION or
INCENTIVE AWARD.
13. Deferral of Payments
The COMMITTEE may, in its sole discretion, approve a RECIPIENT'S
deferral of any cash payments which may become due under the PROGRAM.
Such deferrals shall be subject to any conditions, restrictions or
requirements as the COMMITTEE may determine.
14. Adjustments Upon Changes in Number or Value of Shares of Common Stock
If there are any changes in the number or value of shares of COMMON
STOCK by reason of stock dividends, stock splits, reverse stock splits,
recapitalizations, mergers, consolidations or other events that
materially increase or decrease the number or value of issued and
outstanding shares of COMMON STOCK, the COMMITTEE may make such
adjustments as it shall deem appropriate, in order to prevent dilution
or enlargement of rights.
15. Non-Transferability of Incentive Awards
An INCENTIVE AWARD shall not be transferable by the RECIPIENT otherwise
than by will or the laws of descent and distribution, or pursuant to a
qualified domestic relations order as defined by the CODE, Title I of
ERISA or the rules thereunder. During the lifetime of the RECIPIENT, an
INCENTIVE AWARD may be exercised only by the RECIPIENT or by an
alternate payee under a qualified domestic relations order.
16. Change in Control
6
55
Upon the occurrence of a CHANGE IN CONTROL (as defined below):
(a) Any time periods relating to the exercise or realization of any
INCENTIVE AWARD granted hereunder shall be accelerated so that
such INCENTIVE AWARD may be immediately exercised or realized in
full;
(b) All shares of RESTRICTED STOCK granted hereunder shall
immediately cease to be forfeitable; and
(c) All conditions relating to the realization of any STOCK-BASED
AWARD granted hereunder shall immediately terminate.
A "CHANGE IN CONTROL" shall be deemed to have occurred if:
(a) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the EXCHANGE ACT, but excluding any benefit plan for
EMPLOYEES or any trustee, agent or other fiduciary for any such
plan acting in such person's capacity as such fiduciary),
directly or indirectly, becomes the beneficial owner of
securities of the CORPORATION representing twenty percent (20%)
or more of the combined voting power of the CORPORATION's then
outstanding securities;
(b) during any two consecutive years, individuals who at the
beginning of such a period constitute the BOARD OF DIRECTORS
cease for any reason to constitute at least a majority of the
BOARD OF DIRECTORS, unless the election, or the nomination for
election by the shareholders of the CORPORATION, of each new
DIRECTOR was approved by a vote of at least two-thirds (2/3) of
the DIRECTORS then still in office who were DIRECTORS at the
beginning of the period; or
(c) the shareholders of the CORPORATION shall have approved (i) any
consolidation or merger of the CORPORATION other than a merger
or consolidation which would result in the voting securities of
the CORPORATION outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or any
parent of such surviving entity) at least 70 percent of the
Combined Voting Power of the CORPORATION, such surviving entity
or the parent of such surviving entity outstanding immediately
after the merger or consolidation; (ii) any sale lease,
exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of the CORPORATION,Corporation or any of its subsidiaries, (iii) a tender offer or exchange offer for any plan or proposal for the
liquidation or dissolutioncapital stock of the CORPORATION. For purposesCorporation or any of this paragraph,its subsidiaries, or (iv) any similar transaction, shall give due consideration to all factors they may consider relevant. Such factors may include, without limitation, (a) the term Combined Voting Power shall meanadequacy, both in amount and form, of the combined voting powerconsideration offered in relation not only to the current market price of 7
56
the CORPORATION'sCorporation’s outstanding securities, but also the current value of the Corporation in a freely negotiated transaction with other potential acquirers and the Board’s estimate of the Corporation’s future value (including the unrealized value of its properties, assets and prospects) as an independent going concern, (b) the financial and managerial resources and future prospects of the acquirer, and (c) the legal, economic, environmental, regulatory and social effects of the proposed transaction on the Corporation’s and its subsidiaries’ employees, customers, suppliers and other affected persons and entities and on the communities and geographic areas in which the Corporation and its subsidiaries operate, provide utility service or other relevant entity's then outstanding
voting securities.
17. Listingare located, and Registration in particular, the effect on the Corporation’s and its subsidiaries’ ability to safely and reliably meet any public utility obligations they may have at reasonable rates.
Bylaws
Article II
1. Number. The exact number of directors shall be subjectnine (9) until changed, within the limits specified in the Articles of Incorporation, by either a resolution duly adopted by the Board of Directors or an amendment to this Bylaw duly adopted by the requirement that if at any
time the COMMITTEE shall determine, in its discretion, that the listing,
registration or qualificationBoard. No reduction of the shares covered thereby under any
securities exchange or under any state or federal law or the consent or
approvalauthorized number of any governmental regulatory body, including the California
Public Utilities Commission, is necessary or desirable as a condition
of, or in connection with, the granting of such INCENTIVE AWARD or the
issue or purchase of shares thereunder, such INCENTIVE AWARD may not be
exercised in whole or in part unless and until such listing,
registration, qualification, consent or approvaldirectors shall have been
effected or obtained freethe effect of removing any conditions not acceptable todirector before the COMMITTEE.
18. Amendment and Terminationdirector’s term of the Program and Incentive Awards
The BOARD OF DIRECTORS or the COMMITTEE may at any time suspend,
terminate, modify or amend the PROGRAM in any respect; provided,
however, that to the extent necessary and desirable to comply with
Section 422office expires.
A-1
Restated Articles of the CODE (or any other applicable law or regulation,
including the requirements of any stock exchange on which the COMMON
STOCK is listed or quoted), shareholder approval of any PROGRAM
amendment shall be obtained in such a manner and to such a degree as is
required by the applicable law or regulation.
No suspension, termination, modification or amendment of the PROGRAM
may, without the consent of the RECIPIENT, adversely affect his or her
rights under INCENTIVE AWARDS theretofore granted to such RECIPIENT. In
the event of amendments to the CODE or applicable rules or regulations
relating to ISOS subsequent to the date hereof, the CORPORATION may
amend the PROGRAM, and the CORPORATION and RECIPIENTS holding OPTION
agreements may agree to amend outstanding OPTION agreements, to conform
to such amendments.
The BOARD OF DIRECTORS or COMMITTEE may make such amendments or
modifications in the terms and conditions of any INCENTIVE AWARD as it
may deem advisable, or cancel or annul any grant of an INCENTIVE AWARD;
provided, however, that no such amendment, modification, cancellation or
annulment may, without the consent of the RECIPIENT, adversely affect
his or her rights under such INCENTIVE AWARD; and provided further the
BOARD OF DIRECTORS or COMMITTEE may not reduce the OPTION PRICE or
purchase price of any OPTION or INCENTIVE AWARD below the original
OPTION PRICE or purchase price.
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Notwithstanding the foregoing, the BOARD OF DIRECTORS or COMMITTEE
reserves the right, in its sole discretion, to (i) convert any
outstanding ISOS to NON-QUALIFIED STOCK OPTIONS, (ii) to require a
RECIPIENT to forfeit any unexercised or unpurchased INCENTIVE AWARDS,
any shares received or purchased pursuant to an INCENTIVE AWARD, or any
gains realized by virtue of the receipt of an INCENTIVE AWARD in the
event that such RECIPIENT competes against the CORPORATION, and (iii) to
cancel or annul any grant of an INCENTIVE AWARD in the event of a
RECIPIENT'S TERMINATION FOR CAUSE. For purposes of the PROGRAM,
"TERMINATION FOR CAUSE" shall include, but not be limited to,
termination because of dishonesty, criminal offense or violation of a
work rule, and shall be determined by, and in the sole discretion of,
the BOARD OF DIRECTORS or COMMITTEE.
19. Effective Date of the Program and Duration
The Program first became effective as of January 1, 1992. The first
amendment and restatement of the PROGRAM as of January 1, 1996, was
approved by the shareholders Incorporation
Articles Fifth, Sixth, Seventh, and restated the PROGRAM effective
January 1, 1998,Eighth
FIFTH:
I. The Board of new RULE 16B-3 which
became effective November 1, 1996, and (ii) provide automatic formula
awards of NON-QUALIFIED STOCK OPTIONS and PHANTOM STOCK to NON-EMPLOYEE
DIRECTORS within the limitsDirectors of the PROGRAM as previously approved by
shareholders in 1996. The PROGRAM was subsequently amended on October
21, 1998, April 21, 1999, February 16, 2000, September 19, 2000, and
February 21, 2001. Effective May 16, 2001, the PROGRAM was amended to
add 15,000,000 sharescorporation shall consist of COMMON STOCK to the totalsuch number of sharesdirectors, not less than five (5) nor more than nine (9), as shall be prescribed in the Bylaws.
SIXTH:
I. In the event that the authorized number of COMMON STOCK reserved for use under the PROGRAM. Unless terminated
sooner pursuant to Section 16 hereof, the PROGRAMdirectors shall terminate on
December 31, 2005.
20. Definitions
(a) BOARD OF DIRECTORS meansbe fixed at nine or more, the Board of Directors shall be divided into three classes, designated Class I, Class II, and Class III, with each class consisting of PG&E
CORPORATION.
(b) CHANGE IN CONTROL has the meaning set forth in Section 16
hereof.
(c) CHIEF EXECUTIVE OFFICER means the Chief Executive Officer of
PG&E CORPORATION.
(d) CODE means the Internal Revenue Code of 1986, as amended from
time to time.
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(e) COMMITTEE means the Nominating and Compensation Committeeone-third of the BOARD OF DIRECTORSdirectors or any successor to such committee.
(f) COMMON STOCK means common sharesas close an approximation as possible. The initial term of PG&E CORPORATION with no par
valueoffice of each director of Class I shall expire at the annual meeting next succeeding his or her election or appointment as a director, the initial term of office of each director of Class II shall expire at the second annual meeting next succeeding his or her election or appointment as a director, and any classthe initial term of common shares into which such common
shares hereafter may be converted.
(g) CONSULTANT means any person, including an advisor, who is
engaged byoffice of each director of Class III shall expire at the CORPORATION to render services.
(h) CORPORATION means PG&E CORPORATION,third annual meeting next succeeding his or her election or appointment as a director, and, any parent corporation
(as defined in Section 424(e)each case, until their successors are duly elected and qualified or until their earlier resignation, removal from office, or death. At each annual meeting, each of the CODE) or subsidiary
corporation (as defined in Section 424(f)successors to the directors of the CODE).
(i) DIRECTOR means any person who isclass whose term shall have expired at such annual meeting shall be elected for a memberterm running until the third annual meeting next succeeding his or her election and until his or her successor shall have been duly elected and qualified, except in the case of the BOARD OF
DIRECTORSdeath, resignation, or removal of such director.
II. In the event that the authorized number of directors shall be fixed with at least six but less than nine, the Board of Directors shall be divided into two classes, designated Class I and Class II, with each class consisting of any parent corporation
(as defined in Section 424(e)one-half of the CODE) which may hereafterdirectors or as close an approximation as possible. The initial term of office of each director of Class I shall expire at the annual meeting next succeeding his or her election or appointment as a director and the initial term of office of each director of Class II shall expire at the second annual meeting next succeeding his or her election or appointment as a director, and in each case, until their successors are duly elected and qualified or until their earlier resignation, removal from office, or death. At each annual meeting, each of the successors to the directors of the class whose term shall have expired at such annual meeting shall be established, including an advisory, emerituselected for a term running until the second annual meeting next succeeding his or honorary
director.
(j) DIRECTOR RESTRICTED STOCK means RESTRICTED STOCK granted to a
NON-EMPLOYEE DIRECTOR under the NON-EMPLOYEE DIRECTOR STOCK
INCENTIVE PLAN.
(k) DIVIDEND EQUIVALENT means a right that entitles the RECIPIENT to
receive cashher election and until his or COMMON STOCK based on the dividends declared on
the COMMON STOCK covered by such right.
(l) ELIGIBLE PARTICIPANT means any KEY EMPLOYEE. It also means, if
so identified by the COMMITTEE (or by the CHIEF EXECUTIVE
OFFICER,her successor shall have been duly elected and qualified, except in the case of INCENTIVE AWARDS granted by the CHIEF
EXECUTIVE OFFICER to certain ELIGIBLE PARTICIPANTS pursuant to
Section 2 hereof), other EMPLOYEES, DIRECTORS, CONSULTANTS,
employeesdeath, resignation, or consultantsremoval of such director.
III. Notwithstanding the rule that the classes be as nearly equal in number of directors as possible, in the event of any affiliates of PG&E CORPORATION,
and other persons whose participationchange in the PROGRAMauthorized number of directors, each director then continuing to serve as such shall nevertheless continue as a director of the class of which he or she is deemeda member until the expiration of his or her current term, or his or her death, resignation, or removal.
IV. At each annual election, the directors chosen to succeed those whose terms then expire shall be of the same class as the directors they succeed, unless by the COMMITTEE (or by the CHIEF EXECUTIVE OFFICER,reason of any intervening changes in the caseauthorized number of INCENTIVE AWARDS granted bydirectors, the CHIEF EXECUTIVE OFFICERBoard of Directors shall designate one or more directorships whose term then expires as directorships of another class in order more nearly to certain ELIGIBLE PARTICIPANTS pursuantachieve equality of number of directors among the classes.
V. No shareholder may cumulate votes in the election of directors.
SEVENTH:
The Board of Directors of the corporation, when evaluating any proposal or offer of another party to Section 2 hereof) to
be(a) make a tender or exchange offer for any equity security of the corporation; (b) merge or consolidate the corporation with another corporation or entity; (c) purchase or otherwise acquire all or substantially all of the properties and assets of the corporation; or (d) effect any similar transaction, may, in connection with the exercise of its judgment in determining what is in the best interests of the CORPORATION.
(m) EMPLOYEE means any person who is employed bycorporation and its shareholders, give due consideration to all factors they may consider relevant. Such factors may include, without limitation, (a) the CORPORATION.
The paymentadequacy, both in amount and form, of a director's fee or consulting fee by the CORPORATION shallconsideration offered in relation not be sufficientonly to constitute "employment"
by the CORPORATION.
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(n) ERISA means the Employee Retirement Income Security Act of 1974,
as amended.
(o) EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
(p) FAIR MARKET VALUE means the closingcurrent market price of the COMMON STOCK
reported oncorporation’s outstanding securities, but also the New York Stock Exchange Composite Transactions
for the date specified for determining such value.
(q) INCENTIVE AWARD means any ISO, NON-QUALIFIED STOCK OPTION, SAR,
DIVIDEND EQUIVALENT, PERFORMANCE UNIT or other STOCK-BASED AWARD
granted under the PROGRAM.
(r) ISO means an OPTION intended to qualify as an incentive stock
option under Section 422current value of the CODE.
(s) KEY EMPLOYEE means the Corporate Secretary, Treasurer, Vice
Presidentscorporation in a freely negotiated transaction with other potential acquirers and other executive officers of PG&E CORPORATION
above the rank of Vice President. It also means, if so
identified by the COMMITTEE (or by the CHIEF EXECUTIVE OFFICER,
in the case of INCENTIVE AWARDS granted by the CHIEF EXECUTIVE
OFFICER to certain ELIGIBLE PARTICIPANTS pursuant to Section 2
hereof), executive officers of wholly-owned subsidiaries of PG&E
CORPORATION (including subsidiaries which become such after
adoption of the PROGRAM) and any other key management employee
of PG&E CORPORATION or any wholly-owned subsidiary of PG&E
CORPORATION.
(t) LSAR means a limited stock appreciation right which is
exercisable only in the event of a CHANGE IN CONTROL.
(u) 1986 OPTION PLAN means the Pacific Gas and Electric Company 1986
Stock Option Plan, as amended to date.
(v) NON-EMPLOYEE DIRECTOR means a DIRECTOR who is not an EMPLOYEE.
(w) NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN RULES means the
Non-Employee Director Stock Incentive Plan attached hereto as
Exhibit C or any successor rules which the BOARD OF DIRECTORS
may adopt from time to time with respect to the grant of
INCENTIVE AWARDS to NON-EMPLOYEE DIRECTORS under the PROGRAM.
(x) NON-QUALIFIED STOCK OPTION means any OPTION which is not an ISO.
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(y) OPTION means an option to purchase shares of COMMON STOCK
granted under the STOCK OPTION PLAN.
(z) OPTION PRICE means the purchase price for the COMMON STOCK upon
exercise of an OPTION.
(aa) PERFORMANCE UNIT means a performance unit granted under the
PERFORMANCE UNIT PLAN.
(bb) PERFORMANCE UNIT PLAN means the Performance Unit Plan Rules
attached hereto as Exhibit B or any successor rules which the
COMMITTEE may adopt from time to time with respect to the grant
of PERFORMANCE UNITS under the PROGRAM.
(cc) PG&E CORPORATION means PG&E CORPORATION, a California
corporation.
(dd) PHANTOM STOCK means allocated hypothetical shares of COMMON
STOCK that can be converted at a future date into cash or stock.
(ee) PROGRAM means the PG&E Corporation Long-Term Incentive Program
set forth herein and as may be amended from time to time.
(ff) RECIPIENT means the ELIGIBLE PARTICIPANT receiving the INCENTIVE
AWARD, or his or her legal representative, legatees,
distributees or alternate payees, as the case may be.
(gg) RESTRICTED STOCK means COMMON STOCK that is subject to
forfeiture by the RECIPIENT to the CORPORATION under such
circumstances as may be specified by the COMMITTEE in its sole
discretion.
(hh) RETIREMENT means termination of employment with the CORPORATION
at age 55 or later, provided that the ELIGIBLE PARTICIPANT was
employed by the CORPORATION for at least five consecutive years
prior to the date of termination.
(ii) RULE 16b-3 means Rule 16b-3 under the EXCHANGE ACT or any
successor to Rule 16b-3, as in effect when discretion is being
exercised with respect to the Plan.
(jj) SAR means a stock appreciation right whose value is based on the
increase in the FAIR MARKET VALUE of the COMMON STOCK covered by
such right.
(kk) SECTION 16 OFFICER means any person who is designated by the
BOARD OF DIRECTORS as an executive officer of PG&E
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CORPORATION and any other person who is designated as an officer
of PG&E CORPORATION for purposes of Section 16 of the EXCHANGE
ACT.
(ll) STOCK-BASED AWARD means any award that is valued in whole or in
part by reference to, or is otherwise based on, the COMMON
STOCK, including, but not limited to, stock grants, RESTRICTED
STOCK, LSARS and PHANTOM STOCK.
(mm) STOCK OPTION PLAN means the Stock Option Plan Rules attached
hereto as Exhibit A or any successor rules which the COMMITTEE
may adopt from time to time with respect to the grant of OPTIONS
under the PROGRAM.
(nn) TANDEM refers to an INCENTIVE AWARD granted in conjunction with
another INCENTIVE AWARD.
(oo) TERMINATION occurs when an EMPLOYEE ceases to be employed by the
CORPORATION as a common law employee, when a DIRECTOR ceases to
be a member of the BOARD OF DIRECTORS or the Board of Directors
of any parent corporation which may hereafter be established (as
the case may be), or when the relationship between the
CORPORATION and a CONSULTANT or other ELIGIBLE PARTICIPANT
terminates, as the case may be.
(pp) TERMINATION FOR CAUSE has the meaning set forth in Section 18
hereof.
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EXHIBIT A
PG&E CORPORATION
STOCK OPTION PLAN
(As amended effective as of May 16, 2001)
1. PurposeDirectors’ estimate of the Plan
This iscorporation’s future value
B-1
EIGHTH:
Any action required or permitted to be awarded
under each OPTION, based on the recommendation of the CHIEF
EXECUTIVE OFFICER (except that awards to the CHIEF EXECUTIVE
OFFICER shall be shall be based on the recommendation of the
BOARD OF DIRECTORS); provided, however, that the number of
shares of COMMON STOCK to be awarded under each OPTION shall be
subject to the limitations specified in Section 5 hereof;
(b) to determine the time or times at which OPTIONS shall be
granted;
- --------------------
(2) Capitalized words are defined in Section 20 hereof.
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63
(c) to designate the OPTIONS being granted as ISOS or NON-QUALIFIED
STOCK OPTIONS;
(d) to vary the OPTION vesting schedule described in Section 11
hereof;
(e) to determine the terms and conditions, not inconsistent with the
terms of the PLAN, of any OPTION granted hereunder (including,
but not limited to, the consideration and method of payment for
shares purchased upon the exercise of an OPTION, and any vesting
acceleration or exercisability provisions in the event of a
CHANGE IN CONTROL or TERMINATION), based in each case on such
factors as the COMMITTEE shall deem appropriate;
(f) to approve forms of agreement for use under the PLAN;
(g) to construe and interpret the PLAN and any related OPTION
agreement and to define the terms employed herein and therein;
(h) except as provided in Section 18 hereof, to modify or amend any
OPTION or to waive any restrictions or conditions applicable to
any OPTION or the exercise thereof;
(i) except as provided in Section 18 hereof, to prescribe, amend and
rescind rules, regulations and policies relating to the
administration of the PLAN;
(j) except as provided in Section 18 hereof, to suspend, terminate,
modify or amend the PLAN;
(k) to delegate to one or more agents such administrative duties as
the COMMITTEE may deem advisable, to the extent permitted by
applicable law; and
(l) to make all other determinations and take such other action with
respect to the PLAN and any OPTION granted hereunder as the
COMMITTEE may deem advisable, to the extent permitted by
applicable law.
Notwithstanding the provisions contained in the foregoing paragraph, the
CHIEF EXECUTIVE OFFICER shall have the authority, in his sole
discretion: (a) to grant OPTIONS to any ELIGIBLE PARTICIPANT who, at the
time of the OPTION grant, (i) is not an officer of the CORPORATION or a
DIRECTOR, and (ii) if such ELIGIBLE PARTICIPANT is an EMPLOYEE, is
receiving an annual salary which is below the level which requires
approval by the COMMITTEE; (b) to determine the time or times at which
OPTIONS shall be granted to such ELIGIBLE PARTICIPANTS; (c) to designate
the OPTIONS
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being granted to such ELIGIBLE PARTICIPANTS as ISOS or NON-QUALIFIED
STOCK OPTIONS; and (d) to vary the OPTION vesting schedule described in
Section 11 hereof for the OPTIONS granted to such ELIGIBLE PARTICIPANTS;
provided, however, that (x) all grants of OPTIONS by the CHIEF EXECUTIVE
OFFICER shall conform to the guidelines previously approved by the
COMMITTEE, and (y) the number of shares of COMMON STOCK to be awarded
under each OPTION shall be subject to the limitations specified in
Section 5 hereof.
3. Shares of Stock Subject to the Plan
There shall be reserved for use under the PLAN and for the grant of any
other incentive awards pursuant to the PROGRAM (subject to the
provisions of Section 14 hereof) a total of 49,389,230 shares of COMMON
STOCK, which shares may be authorized but unissued shares of COMMON
STOCK or issued shares of COMMON STOCK which shall have been reacquired
by PG&E CORPORATION.
If any OPTION expires or terminates for any reason without having been
exercised in full, then any unexercised, shares which were subject to
such OPTION (except shares as to which a related TANDEM SAR has been
exercised) shall again be available for the future grant of OPTIONS
under the PLAN (unless the PLAN has terminated). In addition, shares may
be reused or added back to the PLAN to the extent permitted by
applicable law.
4. Eligibility
OPTIONS will be granted only to ELIGIBLE PARTICIPANTS. ISOS will be
granted only to EMPLOYEES. The COMMITTEE, in its sole discretion, may
grant OPTIONS to an ELIGIBLE PARTICIPANT who is a resident or citizen of
a foreign country, with such modifications as the COMMITTEE may deem
advisable to reflect the laws, tax policy or customs of such foreign
country.
The PLAN shall not confer upon any OPTIONEE any right to continuation of
employment, service as a DIRECTOR or consulting relationship with the
CORPORATION; nor shall it interfere in any way with the right of the
OPTIONEE or the CORPORATION to terminate such employment, service as a
DIRECTOR or consulting relationship at any time, with or without cause.
5. Limitation on Options and SARs Awarded to Any Eligible Participant
The aggregate number of shares of COMMON STOCK with respect to which any
ELIGIBLE PARTICIPANT may be granted OPTIONS and SARS under the PLAN
during any calendar year shall in no event exceed two percent (2%) of
the total number of shares reserved for use under the PLAN.
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6. Designation of Options
At the time of the grant of each OPTION under the PLAN, the COMMITTEE
(or the CHIEF EXECUTIVE OFFICER, in the case of OPTIONS granted by the
CHIEF EXECUTIVE OFFICER to certain ELIGIBLE PARTICIPANTS pursuant to
Section 2 hereof) shall determine whether such OPTION is to be
designated as an ISO or a NON-QUALIFIED STOCK OPTION; provided, however,
that ISOS may be granted only to EMPLOYEES.
Notwithstanding such designation, to the extent that the aggregate FAIR
MARKET VALUE (determined for each share as of the date of grant of the
OPTION covering each share) of the shares with respect to which OPTIONS
designated as ISOS become exercisable for the first time by any OPTIONEE
during any calendar year exceeds $100,000, such OPTIONS shall be treated
as NON-QUALIFIED STOCK OPTIONS.
7. Option Price
The OPTION PRICE of the COMMON STOCK under each OPTION issued shall be
the FAIR MARKET VALUE of the COMMON STOCK on the date of grant.
8. Stock Appreciation Rights
At the discretion of the COMMITTEE, an OPTION may be granted with or
without a TANDEM SAR which permits the OPTIONEE to surrender unexercised
an OPTION or portion thereof and to receive in exchange a payment having
a value equal to the difference between (x) the FAIR MARKET VALUE of the
COMMON STOCK covered by the surrendered portion of the OPTION on the
date the SAR is exercised and (y) the OPTION PRICE for such COMMON
STOCK. The SAR is subject to the same terms and conditions as the
related OPTION, except that (i) the SAR may be exercised only when there
is a positive spread (i.e., when the FAIR MARKET VALUE of the COMMON
STOCK subject to the OPTION exceeds the OPTION PRICE), (ii) in
accordance with Section 9 hereof, payment of the DEA (if any) to the
OPTIONEE may be restricted, and (iii) if the OPTIONEE is a SECTION 16
OFFICER, DIRECTOR or other person whose transactions in the COMMON STOCK
are subject to Section 16(b) of the EXCHANGE ACT, the SAR may be
exercised only during the period beginning on the third (3rd) business
day following the date of release of the CORPORATION's quarterly or
annual statement of earnings and ending on the twelfth (12th) business
day following such date. Upon the exercise of a SAR, the number of
shares subject to exercise under the related OPTION shall be
automatically reduced by the
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66
number of shares represented by the OPTION or portion thereof
surrendered. No payment will be required from the OPTIONEE upon the
exercise of a SAR, except that any amount necessary to satisfy
applicable federal, state or local tax requirements shall be withheld.
9. Dividend Equivalent Account
At the discretion of the COMMITTEE, an OPTION may be granted with or
without TANDEM DIVIDEND EQUIVALENTS. When an OPTION is granted with
TANDEM DIVIDEND EQUIVALENTS, a Dividend Equivalent Account ("DEA") shall
be established for the OPTIONEE. This DEA shall be credited quarterly on
each dividend record date with dividends which would have been paid on
the COMMON STOCK subject to the unexercised portion of the OPTION
(including any portion which has not yet vested on the record date), if
such portion had been exercised. Except as provided in Section 12(d)
hereof, at the time the OPTION or any related SAR is exercised, the
OPTIONEE shall receive all funds which have accumulated in the DEA with
respect to the shares of COMMON STOCK for which the OPTION or SAR is
being exercised; provided, however, that if the OPTIONEE exercises a
SAR, such DEA funds shall only be paid to the OPTIONEE if (i) the
percentage increase in the FAIR MARKET VALUE of the COMMON STOCK over
the OPTION PRICE averages at least five percent (5%) per year for the
first five (5) years after the grant, or (ii) in the case of OPTIONS
held for longer than five (5) years from the date of grant, such FAIR
MARKET VALUE has increased by at least twenty-five percent (25%) over
the OPTION PRICE.
10. Terms of Options
The term of each ISO shall be for ten (10) years from the date of grant,
subject to earlier termination as provided in Section 12 hereof. The
term of each NON-QUALIFIED STOCK OPTION shall be ten (10) years and one
(1) day from the date of grant, subject to earlier termination as
provided in Section 12 hereof. Any provision of the PROGRAM to the
contrary notwithstanding, no OPTION shall be exercised after the time
limitations stated in this Section 10.
11. Limitations on Exercise
(a) Each OPTION granted under the PROGRAM shall become exercisable
and vested only to the following extent: (i) up to one-third
(1/3) of the OPTIONS granted may be exercised on or after the
second (2nd) anniversary of the date of grant; (ii) up to
two-thirds (2/3) of the OPTIONS granted may be exercised on or
after the third (3rd) anniversary of the date of grant; and
(iii) up to one hundred percent (100%) of the OPTIONS granted
may be exercised on or after the fourth (4th) anniversary of the
date of grant.
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(b) No OPTION under the PROGRAM designated by the COMMITTEE as an
ISO and granted before January 1, 1987 may be exercised while
there is outstanding in the hands of the OPTIONEE any ISO which
was granted before the granting of the ISO hereunder sought to
be exercised. For this purpose an ISO shall be treated as
outstanding until such OPTION is (i) exercised in full, (ii)
surrendered in full by exercising SARS pursuant to Section 8
hereof, or (iii) rendered void by reason of lapse of time.
12. Termination of Employment or Relationship with the CORPORATION
(a) In the event of a TERMINATION by reason of a discharge or
TERMINATION FOR CAUSE, any unexercised OPTIONS theretofore
granted to an OPTIONEE under the PROGRAM shall forthwith
terminate.
(b) In the event of a TERMINATION by reason of RETIREMENT, all
OPTIONS held by the OPTIONEE, to the extent that such OPTIONS
have not previously expired or been exercised, shall become
fully exercisable and vested, notwithstanding the provisions of
Section 11(a) hereof, and the OPTIONEE shall have the right to
exercise such OPTIONS in full at any time within their
respective terms or within five (5) years after such RETIREMENT,
whichever is shorter. This five-year period shall be extended if
an OPTIONEE remains on the BOARD OF DIRECTORS after RETIREMENT.
In such case, the OPTIONS may be exercised as long as the
OPTIONEE remains a DIRECTOR and for a period of six (6) months
thereafter, or within five (5) years after RETIREMENT, whichever
is longer; provided, however, that no OPTION may be exercised
after the expiration of its term. To the extent any ISO held by
the OPTIONEE is exercised after the expiration of three (3)
months after such TERMINATION, the exercise will be deemed to
involve the exercise of a NON-QUALIFIED STOCK OPTION.
(c) In the event of a TERMINATION by reason of disability or death,
all OPTIONS held by the OPTIONEE, to the extent that such
OPTIONS have not previously expired or been exercised, shall
become fully exercisable and vested, notwithstanding the
provisions of Section 11(a) hereof, and the OPTIONEE (or the
OPTIONEE'S estate or a person who acquired the right to exercise
such OPTIONS by bequest or inheritance) shall have the right to
exercise such OPTIONS at any time within their respective terms
or within one (1) year after the date of such TERMINATION,
whichever is shorter. The term "disability" shall, for the
purposes of the PLAN, be defined in Section 22(e)(3) of the
CODE.
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(d) In the event of a TERMINATION by reason of a divestiture or
change in control of a subsidiary of PG&E CORPORATION, which
divestiture or change in control results in such subsidiary no
longer qualifying as a subsidiary corporation under Section
424(f) of the CODE or in the event of a TERMINATION coincident
with the sale of all or substantially all of the assets of a
subsidiary of PG&E CORPORATION, all OPTIONS held by the
OPTIONEE, to the extent that such OPTIONS have not previously
expired or been exercised, shall become fully exercisable and
vested, notwithstanding the provisions of Section 11(a) hereof,
and the OPTIONEE shall have the right to exercise such OPTIONS
in full at any time within their respective terms or within
three (3) years after such TERMINATION, whichever is shorter.
This three-year period shall be extended if an OPTIONEE remains
on the BOARD OF DIRECTORS after such TERMINATION. In such case,
the OPTIONS may be exercised as long as the OPTIONEE remains a
DIRECTOR and for a period of six (6) months thereafter, or
within three (3) years after such TERMINATION, whichever is
longer; provided, however, that no OPTION may be exercised after
the expiration of its term. To the extent any ISO held by the
OPTIONEE is exercised after the expiration of three (3) months
after such TERMINATION, the exercise will be deemed to involve
the exercise of a NON-QUALIFIED STOCK OPTION.
(e) In the event of a TERMINATION within one year after a CHANGE IN
CONTROL of the CORPORATION (other than a TERMINATION covered by
clauses (a), (b), or (c) above), OPTIONEE shall have the right
to exercise OPTIONS which OPTIONEE then holds (which OPTIONS
will have been accelerated previously in accordance with Section
16 below), to the extent that such OPTIONS have not previously
expired or been exercised, in full at any time within their
respective terms or within three (3) years after such
TERMINATION, whichever is shorter. This three-year period shall
be extended if an OPTIONEE remains on the BOARD OF DIRECTORS
after such TERMINATION. In such case, the OPTIONS may be
exercised as long as the OPTIONEE remains a DIRECTOR and for a
period of six (6) months thereafter, or within three (3) years
after such TERMINATION, whichever is longer; provided, however,
that no OPTION may be exercised after the expiration of its
term. To the extent any ISO held by the OPTIONEE is exercised
after the expiration of three (3) months after such TERMINATION,
the exercise will be deemed to involve the exercise of a
NON-QUALIFIED STOCK OPTION.
(f) In the event of a TERMINATION for any reason other than those
specified in subparagraphs (a) through (e) above, (i) any
unexercised OPTION or OPTIONS granted under the PROGRAM shall be
deemed canceled and terminated forthwith, except that the
OPTIONEE may
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exercise any unexercised OPTIONS theretofore granted which are
otherwise exercisable and vested within the provisions of
Section 11(a) hereof, during the balance of their respective
terms or within thirty (30) days of such TERMINATION, whichever
is shorter, and (ii) the DEA (if any) shall not be credited with
any dividends paid after the date of such TERMINATION.
(g) Notwithstanding the provisions of subparagraphs (a) through (f)
above, the COMMITTEE may, in its sole discretion, establish
different terms and conditions pertaining to the effect of
TERMINATION, to the extent permitted by applicable federal and
state law.
13. Payment for Shares Upon Exercise of Options
The exercise of any OPTION shall be contingent upon receipt by the
CORPORATION of (i) cash (including any DEA funds payable to the OPTIONEE
in connection with the exercise of such OPTION), (ii) check, (iii)
shares of COMMON STOCK, (iv) an executed exercise notice together with
irrevocable instructions to a broker to either sell the shares subject
to the OPTION or hold such shares as collateral for a margin loan and to
promptly deliver to the CORPORATION the amount of sale or loan proceeds
required to pay the OPTION PRICE, (v) any combination of the foregoing
in an amount equal to the full OPTION PRICE of the shares being
purchased, or (vi) such other consideration and method of payment, other
than a note from the OPTIONEE, as the COMMITTEE, in its sole discretion,
may allow (which, in the case of an ISO shall be determined at the time
of grant), to the extent permitted by applicable law. For purposes of
this paragraph, shares of COMMON STOCK that are delivered in payment of
the OPTION PRICE must have been previously owned by the OPTIONEE for a
minimum of one year, and shall be valued at their FAIR MARKET VALUE as
of the date of the exercise of the OPTION. The CORPORATION shall not
make loans to any OPTIONEE for the purpose of exercising OPTIONS.
14. Adjustments Upon Changes in Number or Value of Shares of Common Stock
If there are any changes in the number or value of shares of COMMON
STOCK by reason of stock dividends, stock splits, reverse stock splits,
recapitalizations, mergers, consolidations or other events that
materially increase or decrease the number or value of issued and
outstanding shares of COMMON STOCK, the COMMITTEE may make such
adjustments as it shall deem appropriate, in order to prevent dilution
or enlargement of rights.
15. Non-Transferability of Options
An OPTION shall not be transferable by the OPTIONEE otherwise than by
will
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or the laws of descent and distribution, or pursuant to a qualified
domestic relations order as defined by the CODE, Title I of ERISA or the
rules thereunder. During the lifetime of the OPTIONEE, an OPTION may be
exercised only by the OPTIONEE or by an alternate payee under a
qualified domestic relations order.
16. Change in Control
Upon the occurrence of a CHANGE IN CONTROL (as defined below), any time
periods relating to the exercise of any OPTION granted hereunder shall
be accelerated so that such OPTION may be immediately exercised in full.
A "CHANGE IN CONTROL" shall be deemed to have occurred if:
(a) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the EXCHANGE ACT, but excluding any benefit plan for
EMPLOYEES or any trustee, agent or other fiduciary for any such
plan acting in such person's capacity as such fiduciary),
directly or indirectly, becomes the beneficial owner of
securities of PG&E CORPORATION representing twenty percent (20%)
or more of the combined voting power of the CORPORATION's then
outstanding securities;
(b) during any two consecutive years, individuals who at the
beginning of such a period constitute the BOARD OF DIRECTORS
cease for any reason to constitute at least a majority of the
BOARD OF DIRECTORS, unless the election, or the nomination for
electiontaken by the shareholders of the CORPORATION,this corporation must be taken at a duly called annual meeting or a special meeting of each new
DIRECTOR was approved by a vote of at least two-thirds (2/3) of
the DIRECTORS then still in office who were DIRECTORS at the
beginning of the period; or
(d) the shareholders of the CORPORATION shall have approved (i) any
consolidation or merger of the CORPORATION other than a merger
or consolidation which would result in the voting securities of
the CORPORATION outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or any
parent of such surviving entity) at least 70 percent of the
Combined Voting Power of the CORPORATION, such surviving entity
or the parent of such surviving entity outstanding immediately
after the merger or consolidation; (ii) any sale, lease,
exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets
of the CORPORATION, or (iii) any plan or proposal for the
liquidation or dissolution of the CORPORATION. For purposes of
this paragraph, the term Combined Voting Power shall mean the
combined voting power of the CORPORATION's or other relevant
entity's then outstanding voting
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securities.
17. Listingcorporation and Registration of Shares
Each OPTION shallno action may be subject to the requirement that if at any time the
COMMITTEE shall determine, in its discretion, that the listing,
registration or qualification of the shares covered thereby under any
securities exchange or under any state or federal law or the consent or
approval of any governmental regulatory body, including the California
Public Utilities Commission, is necessary or desirable as a condition
of, or in connection with, the granting of such OPTION or the issue or
purchase of shares thereunder, such OPTION may not be exercised in whole
or in part unless and until such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any
conditions not acceptable to the COMMITTEE.
18. Amendment and Termination of the Plan and Options
The BOARD OF DIRECTORS or the COMMITTEE may at any time suspend,
terminate, modify or amend the PLAN in any respect; provided, however,
that, to the extent necessary and desirable to comply with Section 422
of the CODE (or any other applicable law or regulation, including the
requirements of any stock exchange on which the COMMON STOCK is listed
or quoted), shareholder approval of any PLAN amendment shall be obtained
in such a manner and to such a degree as is requiredtaken by the applicable
law or regulation.
No suspension, termination, modification or amendment of the PLAN may,
without thewritten consent of the OPTIONEE, adversely affect his or her rights
under OPTIONS theretofore granted to such OPTIONEE. In the event of
amendments to the CODE or applicable rules or regulations relating to
ISOS subsequent to the date hereof, the CORPORATION may amend the PLAN,
and the CORPORATION and OPTIONEES holding OPTION agreements may agree to
amend outstanding OPTION agreements, to conform to such amendments.
The COMMITTEE may make such amendments or modifications in the terms and
conditions of any OPTION as it may deem advisable, or cancel or annul
any grant of an OPTION; provided, however, that no such amendment,
modification, cancellation or annulment may, without the consent of the
OPTIONEE, adversely affect his or her rights under such OPTION; and
provided further the COMMITTEE may not reduce the OPTION PRICE or
purchase price of any OPTION or OPTION below the original OPTION PRICE
or purchase price.
Notwithstanding the foregoing, the COMMITTEE reserves the right, in its
sole discretion, to (i) convert any outstanding ISOS to NON-QUALIFIED
STOCK OPTIONS, (ii) to require a OPTIONEE to forfeit any unexercised or
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securities unpurchased OPTIONS, any shares received or purchased
pursuant to an OPTION, or any gains realized by virtue of the receipt of
an OPTION in the event that such OPTIONEE competes against the
CORPORATION, and (iii) to cancel or annul any grant of an OPTION in the
event of a OPTIONEE'S TERMINATION FOR CAUSE. For purposes of the
PROGRAM, "TERMINATION FOR CAUSE" shall include, but not be limited to,
termination because of dishonesty, criminal offense or violation of a
work rule, and shall be determined by, and in the sole discretion of,
the COMMITTEE.
19. Effective Date of the Plan and Duration
The PLAN first became effective as of January 1, 1992. It has since been
amended and restated. The amended and restated PLAN became effective as
of January 1, 1996, upon approval by the shareholders shareholders.
Bylaws
Article II
1. Number. The PLAN was
subsequently amended on October 21, 1998, April 21, 1999, February 16,
2000, and September 19, 2000. Effective May 16, 2001, the PLAN, and the
PROGRAM of which the PLAN is a part, were amended to add 15,000,000
shares of COMMON STOCK to the totalexact number of sharesdirectors shall be five (5) until changed, within the limits specified in the Articles of COMMON STOCK
reserved for use under the PLAN and the PROGRAM. Unless terminated
sooner pursuant to Section 18 hereof, the PLAN shall terminate on
December 31, 2005.
20. Definitions
(a) BOARD OF DIRECTORS meansIncorporation, by a resolution duly adopted by the Board of Directors of PG&E
CORPORATION.
(b) CHANGE IN CONTROL has the meaning set forth in Section 16
hereof.
(c) CHIEF EXECUTIVE OFFICER means the Chief Executive Officer of
PG&E CORPORATION.
(d) CODE means the Internal Revenue Code of 1986, as amended from
timeor an amendment to time.
(e) COMMITTEE means the Nominating and Compensation Committee of the
BOARD OF DIRECTORS or any successor to such committee.
(f) COMMON STOCK means common shares of PG&E CORPORATION with no par
value and any class of common shares into which such common
shares hereafter may be converted.
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(g) CONSULTANT means any person, including an advisor, who is
engaged by the CORPORATION to render services.
(h) CORPORATION means PG&E CORPORATION, and any parent corporation
(as defined in Section 424(e) of the CODE) or subsidiary
corporation (as defined in Section 424(f) of the CODE).
(i) DEA means a Dividend Equivalent Account described in Section 9
hereof.
(j) DIRECTOR means any person who is a member of the BOARD OF
DIRECTORS or the Board of Directors of any parent corporation
(as defined in Section 424(e) of the CODE) which may hereafter
be established, including an advisory, emeritus or honorary
director.
(k) DIVIDEND EQUIVALENT means a right that entitles the OPTIONEE to
receive cash or COMMON STOCK based on the dividends declared on
the COMMON STOCK covered by such right.
(l) ELIGIBLE PARTICIPANT means any KEY EMPLOYEE. It also means, if
so identified by the COMMITTEE (or by the CHIEF EXECUTIVE
OFFICER, in the case of OPTIONS granted by the CHIEF EXECUTIVE
OFFICER to certain ELIGIBLE PARTICIPANTS pursuant to Section 2
hereof), other EMPLOYEES, DIRECTORS, CONSULTANTS, employees or
consultants of any affiliates of PG&E CORPORATION, and other
persons whose participation in the PROGRAM is deemed by the
COMMITTEE (or by the CHIEF EXECUTIVE OFFICER, in the case of
OPTIONS granted by the CHIEF EXECUTIVE OFFICER to certain
ELIGIBLE PARTICIPANTS pursuant to Section 2 hereof) to be in the
best interests of the CORPORATION; provided, however, that
DIRECTORS who are not EMPLOYEES shall not be ELIGIBLE
PARTICIPANTS for purposes of the PLAN.
(m) EMPLOYEE means any person who is employed by the CORPORATION.
The payment of a director's fee or consulting fee by the
CORPORATION shall not be sufficient to constitute "employment"
by the CORPORATION.
(n) ERISA means the Employee Retirement Income Security Act of 1974,
as amended.
(o) EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
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(p) FAIR MARKET VALUE means the closing price of the COMMON STOCK
reported on the New York Stock Exchange Composite Transactions
for the date specified for determining such value.
(q) ISO means an OPTION intended to qualify as an incentive stock
option under Section 422 of the CODE.
(r) KEY EMPLOYEE means the Corporate Secretary, Treasurer, Vice
Presidents and other executive officers of PG&E CORPORATION
above the rank of Vice President. It also means, if so
identified by the COMMITTEE (or by the CHIEF EXECUTIVE OFFICER,
in the case of OPTIONS granted by the CHIEF EXECUTIVE OFFICER to
certain ELIGIBLE PARTICIPANTS pursuant to Section 2 hereof),
executive officers of wholly-owned subsidiaries of PG&E
CORPORATION (including subsidiaries which become such after
adoption of the PROGRAM) and any other key management employee
of PG&E CORPORATION or any wholly-owned subsidiary of PG&E
CORPORATION.
(s) NON-EMPLOYEE DIRECTOR means a DIRECTOR who is not an EMPLOYEE.
(t) NON-QUALIFIED STOCK OPTION means any OPTION which is not an ISO.
(u) OPTION means an option to purchase shares of COMMON STOCK
granted under the PLAN.
(v) OPTIONEE means the ELIGIBLE PARTICIPANT receiving the OPTION, or
his or her legal representative, legatees, distributees or
alternate payees, as the case may be.
(w) OPTION PRICE means the purchase price for the COMMON STOCK upon
exercise of an OPTION.
(x) PG&E CORPORATION means PG&E CORPORATION, a California
corporation.
(y) PLAN means this Stock Option Plan as amended and restated herein
and as may be amended from time to time, or any successor plan
which the COMMITTEE may adopt from time to time with respect to
the grant of OPTIONS under the PROGRAM.
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(z) PROGRAM means the PG&E Corporation Long-Term Incentive Program,
as amended effective as of May 16, 2001, and as may be amended
from time to time, pursuant to which the PLAN is adopted.
(aa) RETIREMENT means termination of employment with the CORPORATION
at age 55 or later, provided that the ELIGIBLE PARTICIPANT was
employed by the CORPORATION for at least five consecutive years
prior to the date of termination.
(bb) RULE 16b-3 means Rule 16b-3 under the EXCHANGE ACT or any
successor to Rule 16b-3, as in effect when discretion is being
exercised with respect to the PLAN.
(cc) SAR means a stock appreciation right whose value is based on the
increase in the FAIR MARKET VALUE of the COMMON STOCK covered by
such right.
(dd) SECTION 16 OFFICER means any person who is designated by the
BOARD OF DIRECTORS as an executive officer of PG&E CORPORATION
and any other person who is designated as an officer of PG&E
CORPORATION for purposes of Section 16 of the EXCHANGE ACT.
(ee) TANDEM refers to a DIVIDEND EQUIVALENT or SAR (as the case may
be) granted in conjunction with an OPTION.
(ff) TERMINATION occurs when an EMPLOYEE ceases to be employed by the
CORPORATION as a common law employee, when a DIRECTOR ceases to
be a member of the BOARD OF DIRECTORS or the Board of Directors
of any parent corporation which may hereafter be established (as
the case may be), or when the relationship between the
CORPORATION and a CONSULTANT or other ELIGIBLE PARTICIPANT
terminates, as the case may be.
(gg) TERMINATION FOR CAUSE has the meaning set forth in Section 12
hereof.
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EXHIBIT B
PG&E CORPORATION
PERFORMANCE UNIT PLAN
This is the controlling and definitive statement of the
Performance Unit Plan ("PLAN"(3)) for ELIGIBLE EMPLOYEES of PG&E CORPORATION
("CORPORATION") and such other companies, affiliates, subsidiaries, or
associations as the BOARD OF DIRECTORS may designate from time to time. The PLAN
was firstBylaw duly adopted by the BOARD in 1989 and was effective January 1, 1990. It has
since been amended from time to time, most recently on September 19, 2000.
Effective May 16, 2001,Board. No reduction of the PLAN, and the PROGRAM of which the PLAN is a part,
was amended to add 15,000,000 shares of COMMON STOCK to the totalauthorized number of shares of COMMON STOCK reserved for use under the PLAN and the PROGRAM.
ARTICLE I
DEFINITIONS
1.01 Board of Directors or Board shall mean the BOARD OF
DIRECTORS of the CORPORATION or, when appropriate, any committee of the BOARD
which has been delegated the authority to take action with respect to the PLAN.
1.02 Committee shall mean the Nominating and Compensation
Committee of the BOARD OF DIRECTORS.
1.03 Corporation shall mean PG&E CORPORATION, a California
corporation.
1.04 Eligible Employee shall mean employees of the CORPORATION
who are officers at the vice presidential level or above, the corporate
secretary, the controller, and the treasurer of the CORPORATION, and such other
employees of the CORPORATION, other companies, affiliates, subsidiaries, or
associations as may be designated by the COMMITTEE.
1.05 Performance Targets shall mean the annual CORPORATION
financial and operational goals adopted by the COMMITTEE to be used in
determining awards under the PLAN.
1.06 Plan shall mean the Performance Unit Plan ("PUP") as set
forth herein and as may be amended from time to time.
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(3) Words in all capitals are defined in Article I.
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1.07 Plan Administrator shall mean the COMMITTEE or such
individual or individuals as that COMMITTEE may appoint to handle the day-to-day
affairs of the PLAN.
1.08 Price shall mean the average market price of STOCK for the
last 30-day period of the YEAR preceding the YEAR in which UNITS are payable.
1.09 PUP Units shall mean the units granted to ELIGIBLE
EMPLOYEES who participate in the PLAN. A PUP UNIT has the equivalent value of
the current market price of a share of STOCK at the time of grant.
1.10 Retirement means termination of employment with the
CORPORATION at age 55 or later, provided that the ELIGIBLE EMPLOYEE was employed
by the CORPORATION for at least five consecutive years prior to the date of
termination.
1.11 Stock shall mean the common stock of the CORPORATION and
any class of common shares into which such STOCK hereafter may be converted.
1.12 Vesting Period shall mean the three calendar YEARS
commencing with the YEAR in which PUP UNITS are granted.
1.13 Year shall mean a calendar year.
ARTICLE II
2.01 Prior to the beginning of each YEAR, the COMMITTEE shall
determine whether PUP UNITS will be granted for such YEAR, the ELIGIBLE
EMPLOYEES to whom PUP UNITS will be granted, and the number of PUP UNITS to be
granted to each ELIGIBLE EMPLOYEE. Employees who become ELIGIBLE EMPLOYEES after
the beginning of a YEAR shall be entitled to a prorata grant of PUP UNITS.
2.02 At the same time that the COMMITTEE makes its determination
as to the granting of PUP UNITS, it shall also establish PERFORMANCE TARGETS.
Although it is intended that PERFORMANCE TARGETS will not change in the course
of the YEAR, the COMMITTEE reserves the right to modify or adjust a previously
set PERFORMANCE TARGET if, in its sole discretion, extraordinary events warrant
such modification or adjustment; provided, however, that no such modification or
adjustment shall increase the amount of any payment that would otherwise be due
based upon performance as measured against the original PERFORMANCE TARGET.
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2.03 Each grant of PUP UNITS shall have its own VESTING PERIOD.
Subject to modification as measured against a given YEAR's applicable
PERFORMANCE TARGET, each grant of PUP UNITS shall be payable as follows:
a. One-third after the end of the first YEAR of the VESTING
PERIOD;
b. One-third after the end of the second YEAR of the VESTING
PERIOD; and
c. One-third after the end of the third YEAR of the VESTING
PERIOD.
2.04 To determine the number of PUP UNITS earned, the applicable
PERFORMANCE TARGET shall be the PERFORMANCE TARGET for the YEAR in which the PUP
UNITS vest. Performance as measured against the applicable PERFORMANCE TARGET
for a YEAR shall modify all PUP UNITS that vest at the end of such YEAR. The
PERFORMANCE TARGETS established by the COMMITTEE may modify the number of UNITS
earned from 0% to 200% of the number of vested UNITS.
2.05 ELIGIBLE EMPLOYEES shall receive a cash payment as soon as
practicable following the YEAR PUP UNITS vest pursuant to the schedule set forth
in Section 2.03. The amount of the payment shall be equal to the product of the
number of PUP UNITS earned multiplied by the PRICE of STOCK.
2.06 Each time that the CORPORATION declares a dividend on its
STOCK, an amount equal to the dividend multiplied by an ELIGIBLE EMPLOYEE's
outstanding, but unearned PUP UNITS, shall be accrued on behalf of each ELIGIBLE
EMPLOYEE. As soon as practicable following the end of each YEAR, ELIGIBLE
EMPLOYEES shall receive a cash payment of the dividends accrued for that YEAR,
modified by performance for that YEAR as measured under Section 2.04.
2.07 An ELIGIBLE EMPLOYEE may elect to defer the payment of PUP
UNITS and/or dividends paid on PUP UNITS by making a timely election under the
Deferred Compensation Plan. Deferrals of benefits payable under this Plan shall
be subject to the rules contained in the Deferred Compensation Plan governing
elections to defer and receipt of deferred amounts.
ARTICLE III
3.01 Retirement. Upon RETIREMENT, all outstanding PUP UNITS
continue to be payable according to the terms of the PLAN. Thus, the number of
UNITS eventually earned by a retired employee is still subject to modification
depending on the extent to which applicable PERFORMANCE TARGETS are met
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during the YEAR preceding the January in which UNITS become payable under the
schedule of Section 2.03. A retired employee is not entitled to receive grants
of PUP UNITS after RETIREMENT.
3.02 Disability. If an ELIGIBLE EMPLOYEE is both disabled and
entitled to receive benefits under Pacific Gas and Electric Company's Long Term
Disability Plan, UNITS granted prior to the date of disability shall continue to
be payable according to the terms of this PLAN. An ELIGIBLE EMPLOYEE is not
entitled to receive grants of PUP UNITS after the date of disability as
determined under the provisions of the Long Term Disability Plan. If an ELIGIBLE
EMPLOYEE ceases to be an ELIGIBLE EMPLOYEE because of disability and is not
entitled to receive benefits under Pacific Gas and Electric Company's Long Term
Disability Plan, all outstanding grants of PUP UNITS become vested and payable
as soon as practicable in the YEAR following the YEAR in which the ELIGIBLE
EMPLOYEE ceases to be an ELIGIBLE EMPLOYEE. All of the UNITS payable shall be
subject to modification based upon performance as measured against the
PERFORMANCE TARGET for the YEAR in which the ELIGIBLE EMPLOYEE ceases to be an
ELIGIBLE EMPLOYEE.
3.03 Death. In the event of the death of an ELIGIBLE EMPLOYEE,
all outstanding grants of PUP UNITS held by the ELIGIBLE EMPLOYEE at the date of
death shall become vested and payable as soon as practicable in the YEAR
following the YEAR of death. All of the UNITS payable after an ELIGIBLE
EMPLOYEE's death shall be subject to modification based upon performance as
measured against the PERFORMANCE TARGET for the YEAR in which the death of the
ELIGIBLE EMPLOYEE occurs.
3.04 Termination. If an ELIGIBLE EMPLOYEE ceases to be an
ELIGIBLE EMPLOYEE for any reason other than RETIREMENT, disability, or death,
all outstanding grants of PUP UNITS shall be canceled as of the date that the
ELIGIBLE EMPLOYEE ceases to be an ELIGIBLE EMPLOYEE unless otherwise provided in
the PG&E Corporation Officer Severance Policy.
3.05 Change in Control. Upon a Change in Control as defined in
the PG&E Corporation Long Term Incentive Program (Program) or upon a termination
of employment coincident with the sale of all or substantially all of the assets
of a subsidiary of PG&E Corporation, all PUP UNITS shall become vested and
payable as soon as practicable in the YEAR following the Change in Control in
accordance with Section 16 of the Program.
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ARTICLE IV
ADMINISTRATIVE PROVISIONS
4.01 Administration. The PLAN shall be administered by the PLAN
ADMINISTRATOR whodirectors shall have the authority to interpret the PLAN and make such
rules as it deems appropriate. The PLAN ADMINISTRATOR shall have the duty and
responsibility of maintaining records, making the requisite calculations, and
disbursing payments hereunder. The PLAN ADMINISTRATOR's interpretations,
determinations, rules, and calculations shall be final and binding on all
persons and parties concerned.
4.02 Amendment and Termination. The CORPORATION may amend or
terminate the PLAN at any time, provided, however, that no such amendment or
termination shall adversely affect PUP UNITS which an ELIGIBLE EMPLOYEE has
earned prior to the date of such amendment or termination. PUP UNITS outstanding
but unearned at the date of any such amendment or termination may, in the sole
discretion of the CORPORATION, be canceled, and the CORPORATION shall have no
obligation to provide a substitute benefit of lesser, equal, or greater value.
4.03 Nonassignability of Benefits. The benefits payable under
this PLAN or the right to receive future benefits under this PLAN may not be
anticipated, alienated, pledged, encumbered, or subject to any charge or legal
process, and if any attempt is made to do so, or a person eligible for any
benefits becomes bankrupt, the interest under the PLAN of the person affected
may be terminated by the PLAN ADMINISTRATOR which, in its sole discretion, may
cause the same to be held if applied for the benefit of one or more of the
dependents of such person or make any other disposition of such benefits that it
deems appropriate.
4.04 No Guarantee of Employment. Nothing contained in this PLAN
shall be construed as a contract of employment between the CORPORATION or the
ELIGIBLE EMPLOYEE, or as a right of the ELIGIBLE EMPLOYEE to be continued in the
employ of the CORPORATION, to remain as an officer of the CORPORATION, or as a
limitation on the right of the CORPORATION to discharge any of its employees,
with or without cause.
4.05 Benefits Unfunded and Unsecured. The benefits under this
PLAN are unfunded, and the interest under this PLAN of any ELIGIBLE EMPLOYEE and
such ELIGIBLE EMPLOYEE's right to receive a distribution of benefits under this
PLAN shall be an unsecured claim against the general assets of the CORPORATION.
4.06 Applicable Law. All questions pertaining to the
construction, validity, and effect of removing any director before the PLAN shall be determined in accordancedirector’s term of office expires.
B-2
Printed with the laws of the United States, and to the extent not preempted by such
laws, by the laws of the State of California.
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EXHIBIT C
PG&E CORPORATION
NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
(As amended effective as of May 16, 2001)
1. Purpose of the Plan
Thissoybean ink on recycled/recyclable paper.
Your proxy is the controlling and definitive statementsolicited on behalf of the PG&E Corporation Non-Employee Director Stock Incentive Plan (hereinafter called the
PLAN(4)). The purposeBoard of the PLAN is to advance the interests of the
CORPORATION by providing NON-EMPLOYEE DIRECTORS with financial
incentives to promote the success of its long-term (five to ten years)
business objectives, and to increase their proprietary interest in the
success of the CORPORATION. Inasmuch as the PLAN is designed to
encourage financial performance and to improve the value of
shareholders' investment in PG&E CORPORATION, the costs of the PLAN will
be funded from corporate earnings.
2. Formula Awards of Director Restricted Stock, Non-Qualified Stock Options
and Phantom Stock to Non-Employee Directors
All awards of DIRECTOR RESTRICTED STOCK, NON-QUALIFIED STOCK OPTIONS and
PHANTOM STOCK under the PLAN shall be automatic and non-discretionary,
and shall be made strictly in accordance with the provisions contained
herein. No person shall have any discretion to select which NON-EMPLOYEE
DIRECTORS shall be granted DIRECTOR RESTRICTED STOCK, NON-QUALIFIED
STOCK OPTIONS or PHANTOM STOCK. Further, no person shall have any
discretion to determine the number of shares of DIRECTOR RESTRICTED
STOCK awarded to a NON-EMPLOYEE DIRECTOR, and, except as otherwise
provided in Section 4 with respect to a NON-EMPLOYEE DIRECTOR'S election
to allocate formula awards between NON-QUALIFIED STOCK OPTIONS and
PHANTOM STOCK, no person shall have any discretion to determine the
number of shares underlying NON-QUALIFIED STOCK OPTIONS and PHANTOM
STOCK awarded to a NON-EMPLOYEE DIRECTOR.
3. Awards of Director Restricted Stock
(a) On the first business day of each calendar year beginning on
January 1, 1998, during the duration of the PLAN, each person
who is a NON-EMPLOYEE DIRECTORDirectors. Unless contrary instructions are given on the first business day of the
applicable calendar year shall receive a grant of DIRECTOR
RESTRICTED STOCK in an amount to be determined in accordance
with the formula set forth in this Section 3(a). The number of
shares of DIRECTOR
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(4) Capitalized words are defined in Section 15 hereof.
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RESTRICTED STOCK to be granted to each NON-EMPLOYEE DIRECTOR
each calendar year shall be determined by (i) dividing ten
thousand dollars ($10,000) by the FAIR MARKET VALUE of the
COMMON STOCK on the first business day of the applicable
calendar year, and (ii) rounding the resulting number down to
the nearest whole share. No person shall receive more than one
(1) grant of DIRECTOR RESTRICTED STOCK during any calendar year.
(b) Shares of DIRECTOR RESTRICTED STOCK shall vest cumulatively as
follows: (i) twenty percent (20%) of such shares on the first
anniversary of the date of grant; (ii) forty percent (40%) of
such shares on the second anniversary of the date of grant;
(iii) sixty percent (60%) of such shares on the third
anniversary of the date of grant; (iv) eighty percent (80%) of
such shares on the fourth anniversary of the date of grant; and
(v) one hundred percent (100%) of such shares on the fifth
anniversary of the date of grant. Shares of DIRECTOR RESTRICTED
STOCK may not be resold or otherwise transferred by a GRANTEE
until such shares are vested in accordance with the provisionsreverse side of this Section 3(b).
4. Annual Election to Receive Non-Qualified Stock Options and Phantom Stock
By June 30 of each calendar year duringproxy card, the term of the Plan, each
person who is then a NON-EMPLOYEE DIRECTOR shall deliver to the
Corporate Secretary a written election to receive either NON-QUALIFIED
STOCK OPTIONS or PHANTOM STOCK, or both, with an aggregate value of
$20,000, on the first business day of the following calendar year,
provided the person continues to be a NON-EMPLOYEE DIRECTOR on the date
the award would otherwise be made. A NON-EMPLOYEE DIRECTOR may allocate
between NON-QUALIFIED STOCK OPTIONS and PHANTOM STOCK in minimum
increments with a value equal to $5,000, as determined in accordance
with Section 5 below with respect to NON-QUALIFIED STOCK OPTIONS, and
Section 6 below, with respect to PHANTOM STOCK. All awards of
NON-QUALIFIED STOCK OPTIONS and PHANTOM STOCK made to NON-EMPLOYEE
DIRECTORS shall comply with Section 5 and Section 6 below, respectively.
A NON-EMPLOYEE DIRECTOR who has failed to make a timely election or who
became a NON-EMPLOYEE DIRECTOR after June 30 shall be awarded
NON-QUALIFIED STOCK OPTIONS and PHANTOM STOCK, each with a value of
$10,000 as determined in accordance with Section 5 and Section 6,
respectively, provided that the NON-EMPLOYEE DIRECTOR continues to be a
NON-EMPLOYEE DIRECTOR on the on the first business day of the following
calendar year. Notwithstanding the foregoing, elections for calendar
year 1998 must be received by December 31, 1997, to be effective on the
first business day of calendar year 1998.
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5. Grant of Non-Qualified Stock Options to Non-Employee Directors
(a) On the first business day of each calendar year beginning on
January 1, 1998, during the duration of the PLAN, each person
who is then a NON-EMPLOYEE DIRECTOR and who has elected to
receive an award of NON-QUALIFIED STOCK OPTIONS in accordance
with Section 4, shall receive a grant of NON-QUALIFIED STOCK
OPTIONS with an aggregate value equal to $5,000, $10,000,
$15,000, or $20,000, as previously elected by the NON-EMPLOYEE
DIRECTOR (or $10,000 in the case of a NON-EMPLOYEE DIRECTOR who
has failed to make a timely election in accordance with Section
4 or who became a NON-EMPLOYEE DIRECTOR after June 30) (the
"Elected Option Value"). The number of shares subject to the
NON-QUALIFIED STOCK OPTIONS shall be determined by dividing the
Elected Option Value by the value of a NON-QUALIFIED STOCK
OPTION to purchase a single share of PG&E Corporation common
stock as of the first business day of the applicable calendar
year. The per stock option value shall be calculated in
accordance with the Black-Scholes stock option valuation method
using the average preceding November closing price of PG&E
Corporation stock and reducing the per option value so
calculated by twenty percent. The resulting number of
NON-QUALIFIED STOCK OPTIONS shall be rounded down to the nearest
whole share. No person shall receive more than one grant of
NON-QUALIFIED STOCK OPTIONS during any calendar year.
(b) The OPTION PRICE of the COMMON STOCK subject under each
NON-QUALIFIED STOCK OPTION shall be the FAIR MARKET VALUE of the
COMMON STOCK on the date of grant. The exercise of any
NON-QUALIFIED STOCK OPTION shall be contingent upon receipt by
the CORPORATION of (i) cash, (ii) check, (iii) shares of COMMON
STOCK, (iv) an executed exercise notice together with
irrevocable instructions to a broker to either sell the shares
subject to the NON-QUALIFIED STOCK OPTION or hold such shares as
collateral for a margin loan and to promptly deliver to the
CORPORATION the amount of sale or loan proceeds required to pay
the OPTION PRICE, or (v) any combination of the foregoing in an
amount equal to the full OPTION PRICE of the shares being
purchased. For purposes of this paragraph, shares of COMMON
STOCK that are delivered in payment of the OPTION PRICE must
have been previously owned by the GRANTEE for a minimum of one
year, and shall be valued at their FAIR MARKET VALUE as of the
date of the exercise of the NON-QUALIFIED STOCK OPTION. The
CORPORATION shall not make loans to any GRANTEE for the purpose
of exercising NON-QUALIFIED STOCK OPTIONS.
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(c) Each NON-QUALIFIED STOCK OPTION granted under the Plan shall
become exercisable and vested cumulatively as follows: (i) up to
thirty-three percent (33%) of the NON-QUALIFIED STOCK OPTION may
be exercised on or after the second anniversary of the date of
grant; (ii) up to sixty-six percent (66%) of the NON-QUALIFIED
STOCK OPTION may be exercised on or after the third anniversary
of the date of grant; and (iii) up to one hundred percent (100%)
of the NON-QUALIFIED STOCK OPTION may be exercised on or after
the fourth anniversary of the date of grant.
(d) The term of each NON-QUALIFIED STOCK OPTION shall be ten years
and one day from the date of grant, subject to earlier
termination as provided in Section 9 hereof. Any provision of
the PLAN to the contrary notwithstanding, no NON-QUALIFIED STOCK
OPTION shall be exercised after the time limitations stated in
this Section 5(d).
6. Awards of Phantom Stock to Non-Employee Directors
(a) On the first business day of each calendar year beginning on
January 1, 1998, during the duration of the PLAN, each person
who is then a NON-EMPLOYEE DIRECTOR and who has elected to
receive an award of PHANTOM STOCK in accordance with Section 4,
shall be credited with an amount of PHANTOM STOCK with a value
(as determined by the FAIR MARKET VALUE of the COMMON STOCK on
the first business day of the applicable calendar year) equal to
$5,000, $10,000, $15,000, or $20,000, as previously elected by
the NON-EMPLOYEE DIRECTOR (the "Elected Phantom Stock Value").
The number of shares of PHANTOM STOCK (including fractions
computed to three decimal places) to be granted to each
NON-EMPLOYEE DIRECTOR each calendar year shall be determined by
dividing the Elected Phantom Stock Value (or $10,000 in the case
of a NON-EMPLOYEE DIRECTOR who has failed to make a timely
election in accordance with Section 4 or who became a
NON-EMPLOYEE DIRECTOR after June 30) by the FAIR MARKET VALUE of
the COMMON STOCK on the first business day of the applicable
calendar year. No person shall receive more than one grant of
PHANTOM STOCK during any calendar year. The shares of PHANTOM
STOCK awarded to a NON-EMPLOYEE DIRECTOR shall be credited to a
newly established PHANTOM STOCK account for the NON-EMPLOYEE
DIRECTOR. Each share of PHANTOM STOCK shall be deemed to be
equal to one share (or fraction thereof) of COMMON STOCK on the
date of grant, and shall thereafter fluctuate in value in
accordance with the FAIR MARKET VALUE of the COMMON STOCK.
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(b) Each NON-EMPLOYEE DIRECTOR'S PHANTOM STOCK account shall be
credited quarterly on each dividend payment date with additional
shares of PHANTOM STOCK (including fractions computed to three
decimal places) determined by dividing (i) the aggregate amount
of dividends, i.e,. the dividend multiplied by the number of
shares of PHANTOM STOCK credited to the participant's account as
of the dividend record date, by (ii) by the FAIR MARKET VALUE of
the COMMON STOCK on the dividend payment date.
(c) Payment of the shares of PHANTOM STOCK credited to a
NON-EMPLOYEE DIRECTOR'S PHANTOM STOCK account shall only be made
after the NON-EMPLOYEE DIRECTOR'S RETIREMENT or MANDATORY
RETIREMENT from the BOARD OF DIRECTORS. Payment shall be made
only in the form of shares of COMMON STOCK equal to the number
of shares of PHANTOM STOCK credited to the NON-EMPLOYEE
DIRECTOR'S PHANTOM STOCK account on the date of distribution,
rounded down to the nearest whole share. The NON-EMPLOYEE
DIRECTOR may elect to receive the number of shares of COMMON
STOCK to which he is entitled in a lump sum distribution of the
entire amount or in a series of ten or less approximately equal
annual installments, provided that distribution shall commence
no later than January of the year following the year in which
the NON-EMPLOYEE DIRECTOR'S RETIREMENT or MANDATORY RETIREMENT
occurred.
7. Shares of Stock Subject to the Plan
There shall be reserved for use under the PLAN and for the grant of any
other INCENTIVE AWARDS pursuant to the PROGRAM (subject to the
provisions of Section 10 hereof) a total of 49,389,230 shares of COMMON
STOCK, which shares may be authorized but unissued shares of COMMON
STOCK or issued shares of COMMON STOCK which shall have been reacquired
by PG&E CORPORATION.
8. Dividend, Voting and Other Shareholder Rights
Except as otherwise provided in the PLAN, each GRANTEE shall have all of
the rights of a shareholder of PG&E CORPORATION with respect to all
outstanding shares of DIRECTOR RESTRICTED STOCK registered in his or her
name, whether or not such shares are vested, including the right to
receive dividends and other distributions paid or made with respect to
such shares and the right todesignated proxies will vote such shares. No GRANTEE shall have any
of the rights of a shareholder of PG&E CORPORATION with respect to a
NON-QUALIFIED STOCK OPTION until the shares acquired upon exercise of
such NON-QUALIFIED STOCK OPTION have been issued and registered in his
or her
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name. No GRANTEE shall have any of the rights of a shareholder of PG&E
CORPORATION with respect to PHANTOM STOCK credited to the NON-EMPLOYEE
DIRECTOR'S PHANTOM STOCK account under the Plan.
9. Termination of Status as a Non-Employee Director
(a) In the event of a TERMINATION by reason of disability or death,
(i) all shares of DIRECTOR RESTRICTED STOCK held by the GRANTEE
shall become fully vested, notwithstanding the provisions of
Section 3(b) hereof, and the GRANTEE (or the GRANTEE'S estate or
a person who acquired the shares of DIRECTOR RESTRICTED STOCK by
bequest or inheritance) shall have the right to resell or
transfer such shares at any time, (ii) all NON-QUALIFIED STOCK
OPTIONS held by the GRANTEE, to the extent that such
NON-QUALIFIED STOCK OPTIONS have not previously expired or been
exercised, shall become fully vested and exercisable,
notwithstanding the provisions of Section 5(c) hereof, and the
GRANTEE (or the GRANTEE'S estate or a person who acquired the
right to exercise the NON-QUALIFIED STOCK OPTION by bequest or
inheritance) shall have the right to exercise the NON-QUALIFIED
STOCK OPTIONS at any time within their respective terms or
within one (1) year after the date of the GRANTEE'S death or
disability, whichever is shorter, and (iii) all shares of
PHANTOM STOCK credited to the NON-EMPLOYEE DIRECTOR'S PHANTOM
STOCK account shall immediately become payable to the GRANTEE
(or the GRANTEE'S estate or a person who acquired the shares of
PHANTOM STOCK by bequest or inheritance) in the form of a number
of shares of COMMON STOCK equal to the number of shares of
PHANTOM STOCK credited to the NON-EMPLOYEE DIRECTOR'S PHANTOM
STOCK account, rounded down to the nearest whole share. The term
"disability" shall, for the purposes of the PLAN, be defined in
Section 22(e)(3) of the CODE.
(b) In the event of a TERMINATION by reason of MANDATORY RETIREMENT,
(i) all shares of DIRECTOR RESTRICTED STOCK held by the GRANTEE
shall become fully vested, notwithstanding the provisions of
Section 3(b) hereof, and the GRANTEE shall have the right to
resell or transfer such shares at any time, (ii) the
NON-QUALIFIED STOCK OPTIONS then held by the GRANTEE, to the
extent that such NON-QUALIFIED STOCK OPTIONS have not previously
expired or been exercised, shall become fully vested and
exercisable, notwithstanding the provisions of Section 5(c)
hereof, and the GRANTEE shall have the right to exercise the
NON-QUALIFIED STOCK OPTIONS at any time within their respective
terms or within five (5) years after such MANDATORY RETIREMENT,
whichever is shorter; and (iii) all shares of PHANTOM STOCK
credited to the NON-
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EMPLOYEE DIRECTOR'S PHANTOM STOCK account shall become payable
to the GRANTEE in accordance with Section 6(c) hereof.
(c) In the event of a TERMINATION for any reason other than those
specified in subparagraphs (a) and (b) above, (i) any unvested
shares of DIRECTOR RESTRICTED STOCK granted hereunder shall be
forfeited and the GRANTEE shall return to the CORPORATION for
cancellation any stock certificates representing such forfeited
shares which forfeited shares shall be deemed to be canceled and
no longer outstanding as of the date of TERMINATION; and from
and after the date of TERMINATION, the GRANTEE shall cease to be
a shareholder with respect to such forfeited shares and shall
have no dividend, voting or other rights with respect thereto,
(ii) any NON-QUALIFIED STOCK OPTIONS granted hereunder that have
not yet vested and become exercisable shall terminate, (iii) the
GRANTEE shall have the right to exercise NON-QUALIFIED STOCK
OPTIONS, to the extent that such NON-QUALIFIED STOCK OPTIONS
have vested and become exercisable as of the date of
TERMINATION, at any time within their respective terms or within
three months after such TERMINATION, whichever is shorter, after
which the NON-QUALIFIED STOCK OPTIONS shall terminate, and (iv)
all shares of PHANTOM STOCK credited to the NON-EMPLOYEE
DIRECTOR'S PHANTOM STOCK account shall be forfeited on the date
of TERMINATION; provided, however, that if the TERMINATION
results from the NON-EMPLOYEE DIRECTOR'S RETIREMENT, then the
PHANTOM STOCK credited to the NON-EMPLOYEE DIRECTOR'S PHANTOM
STOCK account shall become payable in accordance with Section
6(c) hereof.
(d) Notwithstanding the provisions of subparagraphs (a) through (c)
above, the BOARD OF DIRECTORS may, in its sole discretion,
establish different terms and conditions pertaining to the
effect of TERMINATION, to the extent permitted by applicable
federal and state law.
10. Adjustments Upon Changes in Number or Value of Shares of Common Stock
If there are any changes in the number or value of shares of COMMON
STOCK by reason of stock dividends, stock splits, reverse stock splits,
recapitalizations, mergers, consolidations or other events that
materially increase or decrease the number or value of issued and
outstanding shares of COMMON STOCK, the BOARD OF DIRECTORS or COMMITTEE
may make such adjustments as it shall deem appropriate, in order to
prevent dilution or enlargement of rights.
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11. Non-Transferability
NON-QUALIFIED STOCK OPTIONS, PHANTOM STOCK, and shares of DIRECTOR
RESTRICTED STOCK that have not vested in accordance with the provisions
of Section 3(b) hereof, shall not be transferable by the GRANTEE
otherwise than by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations order as defined by the CODE,
Title I of ERISA or the rules thereunder.
12. Change in Control
Upon the occurrence of a CHANGE IN CONTROL (as defined below), (i) any
time periods relating to the vesting of any shares of DIRECTOR
RESTRICTED STOCK granted hereunder shall be accelerated so that all such
shares immediately become fully vested, (ii) any time periods relating
to the vesting of NON-QUALIFIED STOCK OPTIONS granted hereunder shall be
accelerated so that all such NON-QUALIFIED STOCK OPTIONS immediately
become fully vested and exercisable for the remainder of their terms,
and (iii) all shares of PHANTOM STOCK credited to the NON-EMPLOYEE
DIRECTORS' PHANTOM STOCK accounts shall become payable in accordance
with Section 6(c) hereof as if the CHANGE IN CONTROL constituted a
RETIREMENT.
A "CHANGE IN CONTROL" shall be deemed to have occurred if:
(a) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the EXCHANGE ACT, but excluding any benefit plan for
EMPLOYEES or any trustee, agent or other fiduciary for any such
plan acting in such person's capacity as such fiduciary),
directly or indirectly, becomes the beneficial owner of
securities of PG&E CORPORATION representing twenty percent (20%)
or more of the combined voting power of PG&E CORPORATION's then
outstanding securities;
(b) during any two consecutive years, individuals who at the
beginning of such a period constitute the BOARD OF DIRECTORS
cease for any reason to constitute at least a majority of the
BOARD OF DIRECTORS, unless the election, or the nomination for
election by the shareholders of PG&E CORPORATION, of each new
DIRECTOR was approved by a vote of at least two-thirds (2/3) of
the DIRECTORS then still in office who were DIRECTORS at the
beginning of the period; or
the shareholders of the CORPORATION shall have approved (i) any
consolidation or merger of the CORPORATION other than a merger or
consolidation which would result in the voting securities of the
CORPORATION outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent of such
surviving entity) at least 70 percent of
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89
the Combined Voting Power of the CORPORATION, such surviving entity or
the parent of such surviving entity outstanding immediately after the
merger or consolidation; (ii) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all
or substantially all of the assets of the CORPORATION, or (iii) any plan
or proposal for the liquidation or dissolution of the CORPORATION. For
purposes of this paragraph, the term Combined Voting Power shall mean
the combined voting power of the CORPORATION's or other relevant
entity's then outstanding voting securities.
13. Amendment and Termination of the Plan
The BOARD OF DIRECTORS or the COMMITTEE may at any time suspend,
terminate, modify or amend the PLAN in any respect; provided, however,
that, to the extent necessary and desirable to comply with the CODE (or
any other applicable law or regulation, including the requirements of
any stock exchange on which the COMMON STOCK is listed or quoted),
shareholder approval of any PLAN amendment shall be obtained in such a
manner and to such a degree as is required by the applicable law or
regulation.
No suspension, termination, modification or amendment of the PLAN may,
without the consent of the GRANTEE, adversely affect his or her rights
with respect to DIRECTOR RESTRICTED STOCK, NON-QUALIFIED STOCK OPTIONS
or PHANTOM STOCK theretofore granted to such GRANTEE.
Except as provided in Section 2 hereof, the BOARD OF DIRECTORS or
COMMITTEE may make such amendments or modifications in the terms and
conditions of any grant of DIRECTOR RESTRICTED STOCK, NON-QUALIFIED
STOCK OPTIONS or PHANTOM STOCK as it may deem advisable, or cancel or
annul any grant of DIRECTOR RESTRICTED STOCK, NON-QUALIFIED STOCK
OPTIONS or PHANTOM STOCK; provided, however, that no such amendment,
modification, cancellation or annulment may, without the consent of the
GRANTEE, adversely affect his or her rights with respect to such grant.
14. Effective Date of the Plan and Duration
This PLAN became effective as of January 1, 1996, upon approval by the
shareholders of Pacific Gas and Electric Company at its Annual Meeting
on April 17, 1996. Effective January 1, 1997, the PLAN was assumed by
PG&E CORPORATION. At its meeting on December 17, 1997, the BOARD OF
DIRECTORS amended and restated the PLAN effective January 1, 1998, to
(i) reflect the adoption of new RULE 16B-3 which became effective
November 1, 1996, and (ii) provide automatic formula awards of
NON-QUALIFIED STOCK OPTIONS and PHANTOM STOCK to NON-EMPLOYEE DIRECTORS
within the limits of the PROGRAM as previously approved by shareholders
in 1996. The PLAN was subsequently amended on October 21, 1998 and April
21, 1999.
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Effective May 16, 2001, the PLAN, and the PROGRAM of which the PLAN is a
part, were amended to add 15,000,000 shares of COMMON STOCK to the total
number of shares of COMMON STOCK reserved for use under the PLAN and the
PROGRAM. Unless terminated sooner pursuant to Section 13 hereof, the
PLAN shall terminate on December 31, 2005.
15. Definitions
(a) BOARD OF DIRECTORS means the Board of Directors of PG&E
CORPORATION.
(b) CHANGE IN CONTROL has the meaning set forth in Section 12
hereof.
(c) CODE means the Internal Revenue Code of 1986, as amended from
time to time.
(d) COMMITTEE means the Nominating and Compensation Committee of the
BOARD OF DIRECTORS or any successor to such committee.
(e) COMMON STOCK means common shares of PG&E CORPORATION with no par
value and any class of common shares into which such common
shares hereafter may be converted.
(f) CORPORATION means PG&E CORPORATION, and any parent corporation
(as defined in Section 424(e) of the CODE) or subsidiary
corporation (as defined in Section 424(f) of the CODE).
(g) DIRECTOR means any person who is a member of the BOARD OF
DIRECTORS or the Board of Directors of any parent corporation
(as defined in Section 424(e) of the CODE) which may hereafter
be established, including an advisory, emeritus or honorary
director.
(h) DIRECTOR RESTRICTED STOCK means RESTRICTED STOCK granted to a
NON-EMPLOYEE DIRECTOR under the PLAN.
(i) EMPLOYEE means any person who is employed by the CORPORATION.
The payment of a director's fee or consulting fee by the
CORPORATION shall not be sufficient to constitute "employment"
by the CORPORATION.
(j) ERISA means the Employee Retirement Income Security Act of 1974,
as amended.
(k) EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
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(l) FAIR MARKET VALUE means the closing price of the COMMON STOCK
reported on the New York Stock Exchange Composite Transactions
for the date specified for determining such value.
(m) GRANTEE means the NON-EMPLOYEE DIRECTOR receiving the DIRECTOR
RESTRICTED STOCK, NON-QUALIFIED STOCK OPTIONS and PHANTOM STOCK
or his or her legal representative, legatees, distributees or
alternate payees, as the case may be.
(n) MANDATORY RETIREMENT means retirement as a DIRECTOR at age 70 or
at such other age as may be specified in the retirement policy
for the BOARD OF DIRECTORS or the Board of Directors of any
parent corporation which may hereafter be established (as the
case may be), as in effect at the time of a NON-EMPLOYEE
DIRECTOR'S TERMINATION.
(o) NON-EMPLOYEE DIRECTOR means a DIRECTOR who is not an EMPLOYEE.
(p) NON-QUALIFIED STOCK OPTION means a option to purchase shares of
COMMON STOCK which is not intended to qualify as an incentive
stock option under Section 422 of the CODE.
(q) PG&E CORPORATION means PG&E CORPORATION, a California
corporation.
(r) PHANTOM STOCK means allocated hypothetical shares of COMMON
STOCK that can be converted at a future date into stock.
(s) PLAN means this Non-Employee Director Stock Incentive Plan, as
may be amended from time to time, or any successor plan which
the COMMITTEE or BOARD OF DIRECTORS may adopt from time to time
with respect to the grant of DIRECTOR RESTRICTED STOCK,
NON-QUALIFIED STOCK OPTIONS, PHANTOM STOCK or other stock-based
incentive awards under the PROGRAM.
(t) PROGRAM means the PG&E Corporation Long-Term Incentive Program,
as amended effective May 16, 2001, and as may be amended from
time to time, pursuant toshares for which this PLAN is adopted.
(u) RESTRICTED STOCK means COMMON STOCK that is subject to
forfeiture by the GRANTEE to the CORPORATION under such
circumstances as may be specified by the COMMITTEE.
(v) RETIREMENT means TERMINATION of service on the BOARD OF
DIRECTORS after serving continuously for five consecutive years.
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(w) RULE 16b-3 means Rule 16b-3 under the EXCHANGE ACT or any
successor to Rule 16b-3, as in effect when discretion is being
exercised with respect to the PLAN.
TERMINATION occurs when a NON-EMPLOYEE DIRECTOR ceases to be a
member of the BOARD OF DIRECTORS or the Board of Directors of any parent
corporation which may hereafter be established (as the case may be).
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93
Please mark
YOUR PROXY IS SOLICITED BY THE your votes as
PG&E CORPORATION BOARD OF DIRECTORS. indicated in [X]
this example
PG&E CORPORATION DIRECTORS RECOMMEND A VOTEthey hold proxies FOR ITEMSItems 1, 2, AND 3.
FOR WITHHOLD
ALL FOR ALL FOR AGAINST ABSTAIN
ITEM 1. ELECTION OF DIRECTORS [ ] [ ] ITEM 2. RATIFICATION OF [ ] [ ] [ ]
APPOINTMENT OF
INDEPENDENT PUBLIC
NOMINEES ARE: ACCOUNTANTS
01-David R. Andrews, ITEM 3. PROPOSAL TO INCREASE
02-David A. Coulter, SHARES UNDER THE [ ] [ ] [ ]
03-C. Lee Cox, LONG-TERM INCENTIVE
04-William S. Davila, PROGRAM
05-Robert D. Glynn, Jr.,
06-David M. Lawrence, MD, PG&E CORPORATION DIRECTORS RECOMMEND
07-Mary S. Metz, A VOTE AGAINST ITEMS 4, 5, 6, 7, AND 8.
08-Carl E. Reichardt,
09-Barry Lawson Williams FOR AGAINST ABSTAIN
ITEM 4. SHAREHOLDER PROPOSAL
WITHHOLD vote only for: REGARDING CONFIDENTIAL [ ] [ ] [ ]
SHAREHOLDER VOTING
- -------------------------------------------
ITEM 5. SHAREHOLDER PROPOSAL
REGARDING
SHAREHOLDER [ ] [ ] [ ]
DEMOCRACY
ITEM 6. SHAREHOLDER PROPOSAL
REGARDING CUMULATIVE [ ] [ ] [ ]
VOTING
ITEM 7. SHAREHOLDER PROPOSAL
REGARDING MINIMUM [ ] [ ] [ ]
NUMBER OF DIRECTORS
ITEM 8. SHAREHOLDER PROPOSAL
REGARDING SIMPLE [ ] [ ] [ ]
MAJORITY VOTE
- ---------------------------------------------- --------------------------------------------- ---------------------------------
Signature Signature Date
If you are signing for the shareholder, please sign the shareholder's name3, and your name,4 and specify the capacity in which you act.
- --------------------------------------------------------------------------------
IF YOU ARE NOT SUBMITTING YOUR PROXY OVER THE INTERNET OR BY TELEPHONE,
PLEASE DETACH HERE AND MAIL THIS PROXY CARD IN THE ACCOMPANYING ENVELOPE.
(RETAIN ANNUAL MEETING TICKET BELOW.)
PRIOR TO VOTING, READ THE ACCOMPANYING JOINT PROXY STATEMENT AND THE
ABOVE PROXY CARD.
TO VOTE OVER THE INTERNET:
1. Go to the website http://www.eproxy.com/pcg/ anytime, 24 HOURS A
day, 7 DAYS A WEEKAGAINST Items 10, 11, 12, 13, 14, and follow the instructions.
2. When prompted, enter the 11-DIGIT CONTROL NUMBER located in the
lower-right portion of this proxy form.
TO VOTE BY TELEPHONE:
1. Using any touch-tone telephone in the U.S. or Canada, call the
TOLL-FREE number 1-800-435-6710 anytime, 24 HOURS A DAY, 7 DAYS
A WEEK and follow the instructions.
2. When prompted, enter the 11-DIGIT CONTROL NUMBER located in the
lower-right portion of this proxy form.
TO VOTE BY MAIL:
1. Mark, sign, and date the proxy card.
2. Detach the proxy card (the top portion of this page) and mail it
promptly, in the accompanying POSTAGE-PAID envelope.
Proxies and voting instructions submitted over the Internet or by telephone must
be received by 4:00 p.m., Eastern time, on Tuesday, May 15, 2001.
- --------------------------------------------------------------------------------
[PG&E CORP. LOGO] 2001 Annual Meeting Ticket
Ticket for the annual meeting on May 16, 2001, at 3:00 p.m. to be held at the
Masonic Auditorium, 1111 California Street, San Francisco, California. Doors
open at 2:00 p.m. You may bypass the shareholder registration area and present
this ticket at the entrance to the auditorium.
(See reverse side for additional information.)
94
[PG&E CORP. LOGO]
YOUR PROXY IS SOLICITED BY THE PG&E CORPORATION BOARD OF DIRECTORS.
UNLESS CONTRARY INSTRUCTIONS ARE GIVEN ON THE REVERSE SIDE OF THIS PROXY
CARD, THE DESIGNATED PROXIES WILL VOTE THE PG&E CORPORATION SHARES FOR
WHICH THEY HOLD PROXIES FOR ITEMS 1, 2, AND 3 AND AGAINST ITEMS 4, 5, 6,
7, AND 8.
15.
The undersigned hereby appoints Robert D. Glynn, Jr. and Leslie H.
Everett,Linda Y.H. Cheng, or either of them, proxies of the undersigned, with full power of substitution, to vote the stock of the undersigned at the annual meeting of shareholders of PG&E Corporation, to be held at 1111 California Street, San Francisco, California, on Wednesday, May 16,
2001,April 17, 2002, at 3:10:00 p.m.a.m., and at any adjournment or postponement thereof, as indicated on this proxy card, and upon all motions and resolutions which may properly come before said meeting, adjournments, or postponements thereof.
(CONTINUED, AND TO BE MARKED, DATED, AND SIGNED ON THE REVERSE SIDE.
(Continued, and to be marked, dated, and signed on the reverse side.)
As an alternative to completing and mailing this proxy card, you may execute and submit your proxy and voting instructions over the Internet athttp://www.eproxy.com/pcg/or by touch-tone telephone at1-800-435-6710 (from(from anywhere in the United States or Canada). These Internet and telephone voting procedures comply with California law.
- --------------------------------------------------------------------------------
IF YOU ARE NOT SUBMITTING YOUR PROXY OVER THE INTERNET OR BY TELEPHONE,
PLEASE DETACH HERE AND MAIL THIS PROXY CARD IN THE ACCOMPANYING ENVELOPE.
[PG&E CORP. LOGO]
Ù If you arenot submitting your proxy over the Internet or by telephone, please detach here and mail this proxy card in the accompanying envelope. Ù
ANNUAL MEETING OF SHAREHOLDERS
To be held at:
Masonic Auditorium
1111 California Street
San Francisco, California
May 16, 2001,
April 17, 2002, at 3:10:00 p.m.
PLEASE USE THE ATTACHED TICKET TO ATTEND THEa.m.
Ú Please use the attached ticket to attend the PG&E CORPORATION ANNUAL
MEETING, OR YOU MAY REGISTER AT THE MEETING.
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Corporation Annual Meeting, or you may register at the meeting. Ú
All available space at the Masonic Auditorium Garage at 1101 California Street (adjacent to the Masonic Auditorium) has been reserved to provide complimentary parking for shareholders. However, capacity is limited. Please show your annual meeting ticket to the garage attendants as you enter the garage.
NOTE: CELLULAR TELEPHONES, CAMERAS, TAPE RECORDERS,
Note: Shareholders may be asked to present valid picture identification, such as a driver’s license or passport, before being admitted to the meeting. Cameras, recording devices, and other electronic devices will not be permitted in the auditorium during the annual meeting, other than for PG&E Corporation purposes. A checkroom will be provided. For your protection, all briefcases, purses, packages, etc., WILL NOT BE
ALLOWED IN THE AUDITORIUM DURING THE ANNUAL MEETING, OTHER THAN FOR PG&E
CORPORATION PURPOSES. A CHECKROOM WILL BE PROVIDED. FOR YOUR PROTECTION,
ALL BRIEFCASES, PURSES, PACKAGES, etc., WILL BE SUBJECT TO INSPECTION AS
YOU ENTER THE MEETING. WE REGRET ANY INCONVENIENCE THIS MAY CAUSE YOU.
will be subject to inspection as you enter the meeting. No items will be allowed into the meeting which might pose a concern for the safety of those attending. We regret any inconvenience this may cause you.
Real-time captioning services and assistive listening devices will be available atfor the meeting for shareholders with impaired hearing.hearing impaired. Please contact an usher at the meeting if you wish to be seated in the real-time captioning section or userequire an assistive listening device. 95
Please mark
YOUR PROXY IS SOLICITED BY THE your votes as
PG&E CORPORATION BOARD OF DIRECTORS. indicated in [X]
this example
| Your proxy is solicited on behalf of the PG&E Corporation Board of Directors | Please mark your votes as indicated in this example | [X] |
PG&E CORPORATION DIRECTORS RECOMMEND A VOTEFORITEMS 1, 2, 3, AND 3.
4.
| FOR ALL | WITHHOLD FOR ALL | FOR | AGAINST | ABSTAIN | ||||||||||
| ITEM DIRECTORS | [ ] | [ ] | ITEM 2. | RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS | [ ] | [ ] | [ ] | |||||||
| NOMINEES ARE: | ITEM 3. | PROPOSAL TO IMPLEMENT ENHANCEMENT OF SIMPLE MAJORITY VOTING | [ ] | [ ] | [ ] | |||||||||
| 01-David R. Andrews, 03-C. Lee Cox, 05-Robert D. Glynn, Jr., 06-David M. Lawrence, MD, 09-Barry Lawson Williams WITHHOLD vote only for: | ITEM 4. | PROPOSAL TO REDUCE THE AUTHORIZED RANGE OF DIRECTORS AND DELETE FROM THE BYLAWS THE PROVISION THAT RESTATES THE AUTHORIZED RANGE OF DIRECTORS AS SET FORTH IN THE ARTICLES OF INCORPORATION | [ ] | [ ] | [ ] | |||||||||
PG&E CORPORATION DIRECTORS RECOMMEND
A VOTEAGAINSTITEMS 10, 11, 12, 13, 14,
AND 15.
| FOR | AGAINST | ABSTAIN | ||||||
| ITEM | SHAREHOLDER PROPOSAL REGARDING | [ ] | [ ] | [ ] | ||||
| ITEM | SHAREHOLDER PROPOSAL REGARDING | [ ] | [ ] | [ ] | ||||
| ITEM | SHAREHOLDER PROPOSAL REGARDING | [ ] | [ ] | [ ] | ||||
| ITEM | SHAREHOLDER PROPOSAL REGARDING | [ ] | [ ] | [ ] | ||||
| ITEM 14. | SHAREHOLDER PROPOSAL REGARDING RADIOACTIVE WASTES | [ ] | [ ] | [ ] | ||||
| ITEM 15. | SHAREHOLDER PROPOSAL REGARDING CONFIDENTIAL VOTING | [ ] | [ ] | [ ] |
| Signature | Signature | Date |
If you are signing for the shareholder, please sign the shareholder'sshareholder’s name and your name, and specify the capacity in which you act.
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96
[PG&E CORP. LOGO]
YOUR
Ù If you arenot submitting your proxy over the Internet or by telephone, please detach here and mail this proxy card in the accompanying envelope. Ù
(Retain Annual Meeting Ticket below.)
PRIOR TO VOTING, READ THE ACCOMPANYING JOINT PROXY IS SOLICITED BYSTATEMENT AND THE ABOVE PROXY CARD.
| TO VOTE OVER THE INTERNET: | |||
| 1. | Go to the websitehttp://www.eproxy.com/pcg/anytime,24 hours a day, 7 days a weekand follow the instructions. | ||
| 2. | When prompted, enter the11-digit Control Numberlocated in the lower-right portion of this proxy form. | ||
| TO VOTE BY TELEPHONE: | |||
| 1. | Using any touch-tone telephone in the U.S. or Canada, call thetoll-free number1-800-435-6710 anytime,24 hours a day, 7 days a weekand follow the instructions. | ||
| 2. | When prompted, enter the11-digit Control Numberlocated in the lower-right portion of this proxy form. | ||
| TO VOTE BY MAIL: | |||
| 1. | Mark, sign, and date the proxy card. | ||
| 2. | Detach the proxy card (the top portion of this page) and mail it promptly, in the accompanyingpostage-paid envelope. | ||
Proxies and voting instructions submitted over the Internet or by telephone must be received by
4:00 p.m., Eastern daylight time, on Tuesday, April 16, 2002.
 | 2002 Annual Meeting Ticket |
Ticket for the annual meeting on April 17, 2002, at 10:00 a.m. to be held at the Masonic Auditorium, 1111 California Street, San Francisco, California. Doors open at 9:00 a.m. You may bypass the shareholder registration area and present this ticket at the entrance to the auditorium.
(See reverse side for additional information.)
Your proxy is solicited on behalf of the PG&E CORPORATION BOARD OF DIRECTORS. UNLESS
CONTRARY INSTRUCTIONS ARE GIVEN ON THE REVERSE SIDE OF THIS PROXY CARD, THE
DESIGNATED PROXIES WILL VOTE THECorporation Board of Directors. Unless contrary instructions are given on the reverse side of this proxy card, the designated proxies will vote the PG&E CORPORATION SHARESCorporation shares for which they hold proxies FOR WHICH THEY HOLD
PROXIES FOR ITEMSItems 1, 2, AND 3, ANDand 4 and AGAINST ITEMS 4, 5, 6, 7, AND 8.Items 10, 11, 12, 13, 14, and 15.
The undersigned hereby appoints Robert D. Glynn, Jr. and Leslie H. Everett,Linda Y.H. Cheng, or either of them, proxies of the undersigned, with full power of substitution, to vote the stock of the undersigned at the annual meeting of shareholders of PG&E Corporation, to be held at 1111 California Street, San Francisco, California, on Wednesday, May 16, 2001,April 17, 2002, at 3:10:00 p.m.a.m., and at any adjournment or postponement thereof, as indicated on this proxy card, and upon all motions and resolutions which may properly come before said meeting, adjournments, or postponements thereof.
(CONTINUED, AND TO BE MARKED, DATED, AND SIGNED ON THE REVERSE SIDE.
(Continued, and to be marked, dated, and signed on the reverse side.) 97
Please mark
VOTING INSTRUCTIONS TO THE TRUSTEE - 2001 your votes as
indicated in [X]
this example
| Your proxy is solicited on behalf of the PG&E Corporation Board of Directors | Please mark your votes as indicated in this example | [X] |
PG&E CORPORATION DIRECTORS RECOMMEND A VOTEFORITEMS 1, 2, 3, AND 3.
4.
| FOR ALL | WITHHOLD FOR ALL | FOR | AGAINST | ABSTAIN | ||||||||||
| ITEM 1. ELECTION OF DIRECTORS | [ ] | [ ] | ITEM 2. | RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS | [ ] | [ ] | [ ] | |||||||
| NOMINEES ARE: | ITEM 3. | PROPOSAL TO IMPLEMENT ENHANCEMENT OF SIMPLE MAJORITY VOTING | [ ] | [ ] | [ ] | |||||||||
| 01-David R. Andrews, 03-C. Lee Cox, 05-Robert D. Glynn, Jr., 06-David M. Lawrence, MD, 09-Barry Lawson Williams WITHHOLD vote only for: | ITEM 4. | PROPOSAL TO REDUCE THE AUTHORIZED RANGE OF DIRECTORS AND DELETE FROM THE BYLAWS THE PROVISION THAT RESTATES THE AUTHORIZED RANGE OF DIRECTORS AS SET FORTH IN THE ARTICLES OF INCORPORATION | [ ] | [ ] | [ ] | |||||||||
PG&E CORPORATION DIRECTORS RECOMMEND
A VOTEAGAINSTITEMS 10, 11, 12, 13, 14,
AND 15.
| FOR | AGAINST | ABSTAIN | ||||||
| ITEM | SHAREHOLDER PROPOSAL REGARDING | [ ] | [ ] | [ ] | ||||
| ITEM | SHAREHOLDER PROPOSAL REGARDING | [ ] | [ ] | [ ] | ||||
| ITEM | SHAREHOLDER PROPOSAL REGARDING | [ ] | [ ] | [ ] | ||||
| ITEM | SHAREHOLDER PROPOSAL REGARDING | [ ] | [ ] | [ ] | ||||
| ITEM 14. | SHAREHOLDER PROPOSAL REGARDING RADIOACTIVE WASTES | [ ] | [ ] | [ ] | ||||
| ITEM 15. | SHAREHOLDER PROPOSAL REGARDING CONFIDENTIAL VOTING | [ ] | [ ] | [ ] | ||||
| Signature | Signature | Date |
If you are signing for the shareholder, please sign the shareholder’s name and your name, and specify the capacity in which you act.
2002 ANNUAL MEETING
PG&E CORPORATION
RETIREMENT SAVINGS PLAN AND MAIL THIS CARD IN THE ACCOMPANYING ENVELOPE.
PRIOR TO VOTING, READ THE ACCOMPANYING JOINT PROXY STATEMENT AND THE
ABOVE VOTING INSTRUCTION CARD.
TO VOTE OVER THE INTERNET:
1. Go to the website http://www.eproxy.com/pcg/ anytime, 24 HOURS A
DAY, 7 DAYS A WEEK and follow the instructions.
2. When prompted, enter the 11-DIGIT CONTROL NUMBER located in the
lower-right portion of this voting instruction form.
TO VOTE BY TELEPHONE:
1. Using any touch-tone telephone in the U.S. or Canada, call the
TOLL-FREE number 1-800-435-6710 anytime, 24 HOURS A DAY, 7 DAYS
A WEEK and follow the instructions.
2. When prompted, enter the 11-DIGIT CONTROL NUMBER located in the
lower-right portion of this voting instruction form.
TO VOTE BY MAIL:
1. Mark, sign, and date the voting instruction card.
2. Detach the voting instruction card (the top portion of this
page) and mail it promptly, in the accompanying POSTAGE-PAID
envelope.RETIREMENT SAVINGS PLAN FOR SHARES IN YOUR PLAN ACCOUNT, VOTING INSTRUCTIONS SUBMITTED OVER THE
INTERNET, BY TELEPHONE, OR BY MAIL MUST BE RECEIVED BY THE TRUSTEE
BY 4:00 P.M., EASTERN TIME, ON FRIDAY, MAY 11, 2001.
VOTING INSTRUCTIONS RECEIVED AFTER THAT TIME WILL NOT BE COUNTED.
(See reverse side for additional information.)
98
[PG&E CORP. LOGO]
2001 ANNUAL MEETING
PG&E GAS TRANSMISSION-NORTHWEST CORPORATION
SAVINGS FUND PLAN
UNION REPRESENTED EMPLOYEES
VOTING INSTRUCTIONS TO THE TRUSTEE - 2001
— 2002
TO MERRILL LYNCHFIDELITY MANAGEMENT TRUST COMPANY, FSB, TRUSTEE:
Pursuant to the provisions of the PG&E Gas Transmission - Northwest
Corporation Retirement Savings Fund Plan and Retirement Savings Plan for Union Represented Employees, you are instructed to vote the shares of stock credited to my Plan account as of April 4, 2001,February 19, 2002, at the annual meeting of shareholders of PG&E Corporation to be held on May 16, 2001,April 17, 2002, and at any adjournment or postponement thereof, as indicated on this voting instruction card, and upon all motions and resolutions which may properly come before said meeting, adjournments, or postponements thereof.
(CONTINUED, AND TO BE MARKED, DATED, AND SIGNED ON THE REVERSE SIDE.
(Continued, and to be marked, dated, and signed on the reverse side.)
TO PARTICIPANTS IN THE RETIREMENT SAVINGS FUND PLAN:
PLAN AND RETIREMENT SAVINGS PLAN FOR UNION REPRESENTED EMPLOYEES:
If you sign but do not otherwise complete the card, you will be instructing the Trustee to vote all shares in accordance with the recommendations of the PG&E Corporation Board of Directors.
- --------------------------------------------------------------------------------
IF YOU ARE NOT SUBMITTING YOUR VOTING INSTRUCTIONS OVER THE INTERNET OR BY
TELEPHONE, PLEASE DETACH HERE AND MAIL THIS CARD IN THE ACCOMPANYING ENVELOPE.
Ù If you arenot submitting your voting instructions over the Internet or by telephone, please detach here and mail this card in the accompanying envelope.Ù
TO PARTICIPANTS IN THE RETIREMENT SAVINGS FUND PLAN:
AS A PARTICIPANT, YOU ARE ENTITLED TO DIRECT THE TRUSTEE HOW TO VOTE THE
SHARES OFPLAN AND RETIREMENT SAVINGS PLAN FOR UNION REPRESENTED EMPLOYEES:
As a participant, you are entitled to direct the Trustee how to vote the shares of PG&E CORPORATION COMMON STOCK ALLOCATED TO YOUR ACCOUNT. Corporation common stock allocated to your account.The above voting instruction card is provided for your use in giving the Trustee of the Plan confidential instructions to vote your stock held in theyour Plan account at PG&E Corporation'sCorporation’s annual meeting of shareholders on May 16,
2001.April 17, 2002. You have one vote for each share of PG&E Corporation common stock credited to your account as of April 4, 2001.February 19, 2002. Enclosed is a joint proxy statement which sets forth the business to be transacted at the meeting. Please mark your instructions on the above card and sign, date, and return it in the accompanying envelope. As an alternative to completing and mailing the card, you may enter your voting instructions by touch-tone telephone at 1-800-435-6710 (only available in the United States and Canada) or over the Internet at http://www.eproxy.com/pcg/. These Internet and telephone voting procedures comply with California law. Stock in your Plan account for which the Trustee has not received voting instructions will not be voted by the Trustee. Participants who also own stock outside the Plan will receive a separate proxy voting instruction card for those shares. 99
Please mark
VOTING INSTRUCTIONS TO THE TRUSTEE - 2001 your votes as
indicated in [X]
this example
| VOTING INSTRUCTIONS TO THE TRUSTEE - 2002 | Please mark your votes as indicated in this example | [X] |
PG&E CORPORATION DIRECTORS RECOMMEND A VOTEFORITEMS 1, 2, 3, AND 3.
4.
| FOR ALL | WITHHOLD FOR ALL | FOR | AGAINST | ABSTAIN | ||||||||||
| ITEM 1. ELECTION OF DIRECTORS | [ ] | [ ] | ITEM 2. | RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS | [ ] | [ ] | [ ] | |||||||
| NOMINEES ARE: | ITEM 3. | PROPOSAL TO IMPLEMENT ENHANCEMENT OF SIMPLE MAJORITY VOTING | [ ] | [ ] | [ ] | |||||||||
| 01-David R. Andrews, 03-C. Lee Cox, 05-Robert D. Glynn, Jr., 06-David M. Lawrence, MD, 09-Barry Lawson Williams WITHHOLD vote only for: | ITEM 4. | PROPOSAL TO REDUCE THE AUTHORIZED RANGE OF DIRECTORS AND DELETE FROM THE BYLAWS THE PROVISION THAT RESTATES THE AUTHORIZED RANGE OF DIRECTORS AS SET FORTH IN THE ARTICLES OF INCORPORATION | [ ] | [ ] | [ ] | |||||||||
PG&E CORPORATION DIRECTORS RECOMMEND A VOTEAGAINSTITEMS 10, 11, 12, 13, 14, AND 15.
| FOR | AGAINST | ABSTAIN | ||||||
| ITEM | SHAREHOLDER PROPOSAL REGARDING | [ ] | [ ] | [ ] | ||||
| ITEM | SHAREHOLDER PROPOSAL REGARDING | [ ] | [ ] | [ ] | ||||
| ITEM | SHAREHOLDER PROPOSAL REGARDING | [ ] | [ ] | [ ] | ||||
| ITEM | SHAREHOLDER PROPOSAL REGARDING | [ ] | [ ] | [ ] | ||||
| ITEM 14. | SHAREHOLDER PROPOSAL REGARDING RADIOACTIVE WASTES | [ ] | [ ] | [ ] | ||||
| ITEM 15. | SHAREHOLDER PROPOSAL REGARDING CONFIDENTIAL VOTING | [ ] | [ ] | [ ] | ||||
| Signature | Date |
Ù If you arenot submitting your voting instructions over the Internet or by telephone, please detach here and mail this card in the accompanying envelope.Ù
PRIOR TO VOTING, READ THE ACCOMPANYING JOINT PROXY STATEMENT AND THE ABOVE VOTING INSTRUCTION CARD.
TO VOTE OVER THE INTERNET:
1.
| TO VOTE OVER THE INTERNET: | |||
| 1. | Go to the websitehttp://www.eproxy.com/pcg/anytime,24 hours a day, 7 days a weekand follow the instructions. | ||
| 2. | When prompted, enter the11-digit Control Numberlocated in the lower-right portion of this voting instruction form. | ||
| TO VOTE BY TELEPHONE: | |||
| 1. | Using any touch-tone telephone in the U.S. or Canada, call thetoll-free number1-800-435-6710 anytime,24 hours a day, 7 days a weekand follow the instructions. | ||
| 2. | When prompted, enter the11-digit Control Numberlocated in the lower-right portion of this voting instruction form. | ||
| TO VOTE BY MAIL: | |||
| 1. | Mark, sign, and date the voting instruction card. | ||
| 2. | Detach the voting instruction card (the top portion of this page) and mail it promptly, in the accompanying postage-paidenvelope. | ||
For shares in your Plan account, voting instructions submitted over the website http://www.eproxy.com/pcg/ anytime, 24 HOURS A
DAY, 7 DAYS A WEEK and followInternet, by telephone, or by mail must
be received by the instructions.
2. When prompted, enter the 11-DIGIT CONTROL NUMBER located in the
lower-right portion of this voting instruction form.
TO VOTE BY TELEPHONE:
1. Using any touch-tone telephone in the U.S. or Canada, call the
TOLL-FREE number 1-800-435-6710 anytime, 24 HOURS A DAY, 7 DAYS
A WEEK and follow the instructions.
2. When prompted, enter the 11-DIGIT CONTROL NUMBER located in the
lower-right portion of this voting instruction form.
TO VOTE BY MAIL:
1. Mark, sign, and date the voting instruction card.
2. Detach the voting instruction card (the top portion of this
page) and mail it promptly, in the accompanying POSTAGE-PAID
envelope.
FOR SHARES IN YOUR PLAN ACCOUNT, VOTING INSTRUCTIONS SUBMITTED OVER THE
INTERNET, BY TELEPHONE, OR BY MAIL MUST BE RECEIVED BY THE TRUSTEE
BYTrustee by 4:00 P.M.p.m., EASTERN TIME, ON MONDAY, MAY 14, 2001.
VOTING INSTRUCTIONS RECEIVED AFTER THAT TIME WILL NOT BE COUNTED.
(SeeEastern daylight time, on Friday, April 12, 2002.
Voting instructions received after that time will not be counted.
(See reverse side for additional information.) 100
[PG&E CORP. LOGO]
2001
2002 ANNUAL MEETING
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN
VOTING INSTRUCTIONS TO THE TRUSTEE - 2001
— 2002
TO STATE STREET BANK AND TRUST COMPANY, TRUSTEE:
Pursuant to the provisions of the Pacific Gas and Electric Company Savings Fund Plan, you are instructed to vote the shares of stock credited to my Plan account as of April 4, 2001,February 19, 2002, at the annual meeting of shareholders of PG&E Corporation to be held on May 16, 2001,April 17, 2002, and at any adjournment or postponement thereof, as indicated on this voting instruction card, and upon all motions and resolutions which may properly come before said meeting, adjournments, or postponements thereof.
(CONTINUED, AND TO BE MARKED, DATED, AND SIGNED ON THE REVERSE SIDE.
(Continued, and to be marked, dated, and signed on the reverse side.)
TO PARTICIPANTS IN THE SAVINGS FUND PLAN:
If you sign but do not otherwise complete the card, you will be instructing the Trustee to vote all shares in accordance with the recommendations of the PG&E Corporation Board of Directors.
- --------------------------------------------------------------------------------
IF YOU ARE NOT SUBMITTING YOUR VOTING INSTRUCTIONS OVER THE INTERNET OR BY
TELEPHONE, PLEASE DETACH HERE AND MAIL THIS CARD IN THE ACCOMPANYING ENVELOPE.
Ù If you arenot submitting your voting instructions over the Internet or by telephone, please detach here and mail this card in the accompanying envelope.Ù
TO PARTICIPANTS IN THE SAVINGS FUND PLAN:
AS A PARTICIPANT, YOU ARE ENTITLED TO DIRECT THE TRUSTEE HOW TO VOTE THE
SHARES OF
As a participant, you are entitled to direct the Trustee how to vote the shares of PG&E CORPORATION COMMON STOCK ALLOCATED TO YOUR ACCOUNT. Corporation common stock allocated to your account.The above voting instruction card is provided for your use in giving the Trustee of the Plan confidential instructions to vote your stock held in the Plan at PG&E Corporation'sCorporation’s annual meeting of shareholders on May 16,
2001.April 17, 2002. You have one vote for each share of PG&E Corporation common stock credited to your account as of April 4, 2001.February 19, 2002. Enclosed is a joint proxy statement which sets forth the business to be transacted at the meeting. Please mark your instructions on the above card and sign, date, and return it in the accompanying envelope. As an alternative to completing and mailing the card, you may enter your voting instructions by touch-tone telephone at 1-800-435-6710 (only available in the United States and Canada) or over the Internet at http://www.eproxy.com/pcg/. These Internet and telephone voting procedures comply with California law. Stock in your Plan account for which the Trustee has not received voting instructions will not be voted by the Trustee. Participants who also own stock outside the Plan will receive a separate proxy voting instruction card for those shares. 101
Please mark
VOTING INSTRUCTIONS TO THE TRUSTEE - 2001 your votes as
indicated in [X]
this example
| VOTING INSTRUCTIONS TO THE TRUSTEE - 2002 | Please mark your votes as indicated in this example | [X] |
PG&E CORPORATION DIRECTORS RECOMMEND A VOTEFORITEMS 1, 2, 3, AND 3.
4.
| FOR ALL | WITHHOLD FOR ALL | FOR | AGAINST | ABSTAIN | ||||||||||
| ITEM 1. ELECTION OF DIRECTORS | [ ] | [ ] | ITEM 2. | RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS | [ ] | [ ] | [ ] | |||||||
| NOMINEES ARE: | ITEM 3. | PROPOSAL TO IMPLEMENT ENHANCEMENT OF SIMPLE MAJORITY VOTING | [ ] | [ ] | [ ] | |||||||||
| 01-David R. Andrews, 03-C. Lee Cox, 05-Robert D. Glynn, Jr., 06-David M. Lawrence, MD, 09-Barry Lawson Williams WITHHOLD vote only for: | ITEM 4. | PROPOSAL TO REDUCE THE AUTHORIZED RANGE OF DIRECTORS AND DELETE FROM THE BYLAWS THE PROVISION THAT RESTATES THE AUTHORIZED RANGE OF DIRECTORS AS SET FORTH IN THE ARTICLES OF INCORPORATION | [ ] | [ ] | [ ] | |||||||||
PG&E CORPORATION DIRECTORS RECOMMEND
A VOTEAGAINSTITEMS 10, 11, 12, 13, 14,
AND 15.
| FOR | AGAINST | ABSTAIN | ||||||
| ITEM | SHAREHOLDER PROPOSAL REGARDING | [ ] | [ ] | [ ] | ||||
| ITEM | SHAREHOLDER PROPOSAL REGARDING | [ ] | [ ] | [ ] | ||||
| ITEM | SHAREHOLDER PROPOSAL REGARDING | [ ] | [ ] | [ ] | ||||
| ITEM | SHAREHOLDER PROPOSAL REGARDING | [ ] | [ ] | [ ] | ||||
| ITEM 14. | SHAREHOLDER PROPOSAL REGARDING RADIOACTIVE WASTES | [ ] | [ ] | [ ] | ||||
| ITEM 15. | SHAREHOLDER PROPOSAL REGARDING CONFIDENTIAL VOTING | [ ] | [ ] | [ ] |
| Signature | Date |
Ù If you are not submitting your voting instructions over the Internet or by telephone, please detach here and mail this card in the accompanying envelope.Ù
PRIOR TO VOTING, READ THE ACCOMPANYING JOINT PROXY STATEMENT AND THE ABOVE VOTING INSTRUCTION CARD.
TO VOTE OVER THE INTERNET:
1.
| TO VOTE OVER THE INTERNET: | |||
| 1. | Go to the websitehttp://www.eproxy.com/pcg/anytime,24 hours a day, 7 days a weekand follow the instructions. | ||
| 2. | When prompted, enter the11-digit Control Numberlocated in the lower-right portion of this voting instruction form. | ||
| TO VOTE BY TELEPHONE: | |||
| 1. | Using any touch-tone telephone in the U.S. or Canada, call thetoll-free number1-800-435-6710 anytime,24 hours a day, 7 days a weekand follow the instructions. | ||
| 2. | When prompted, enter the11-digit Control Numberlocated in the lower-right portion of this voting instruction form. | ||
| TO VOTE BY MAIL: | |||
| 1. | Mark, sign, and date the voting instruction card. | ||
| 2. | Detach the voting instruction card (the top portion of this page) and mail it promptly, in the accompanying postage-paidenvelope. | ||
For shares in your Plan account, voting instructions submitted over the website http://www.eproxy.com/pcg/ anytime, 24 HOURS A
DAY, 7 DAYS A WEEK and followInternet, by telephone, or by mail must
be received by the instructions.
2. When prompted, enter the 11-DIGIT CONTROL NUMBER located in the
lower-right portion of this voting instruction form.
TO VOTE BY TELEPHONE:
1. Using any touch-tone telephone in the U.S. or Canada, call the
TOLL-FREE number 1-800-435-6710 anytime, 24 HOURS A DAY, 7 DAYS
A WEEK and follow the instructions.
2. When prompted, enter the 11-DIGIT CONTROL NUMBER located in the
lower-right portion of this voting instruction form.
TO VOTE BY MAIL:
1. Mark, sign, and date the voting instruction card.
2. Detach the voting instruction card (the top portion of this
page) and mail it promptly, in the accompanying POSTAGE-PAID
envelope.
FOR SHARES IN YOUR PLAN ACCOUNT, VOTING INSTRUCTIONS SUBMITTED OVER THE
INTERNET, BY TELEPHONE, OR BY MAIL MUST BE RECEIVED BY THE TRUSTEE
BYTrustee by 4:00 P.M.p.m., EASTERN TIME, ON FRIDAY, MAY 11, 2001.
VOTING INSTRUCTIONS RECEIVED AFTER THAT TIME WILL NOT BE COUNTED.
(SeeEastern daylight time, on Monday, April 15, 2002.
Voting instructions received after that time will not be counted.
(See reverse side for additional information.) 102
[PG&E CORP. LOGO]
2001
2002 ANNUAL MEETING
PG&E GAS TRANSMISSION-NORTHWEST CORPORATION
RETIREMENT
SAVINGS FUND PLAN AND RETIREMENT SAVINGS PLAN FOR
UNION REPRESENTED EMPLOYEES
VOTING INSTRUCTIONS TO THE TRUSTEE - 2001
— 2002
TO FIDELITY MANAGEMENTMERRILL LYNCH TRUST COMPANY, FSB, TRUSTEE:
Pursuant to the provisions of the PG&E Gas Transmission — Northwest Corporation Retirement Savings Fund Plan, and Retirement Savings Plan for Union Represented Employees, you are instructed to vote the shares of stock credited to my Plan account as of April 4, 2001,February 19, 2002, at the annual meeting of shareholders of PG&E Corporation to be held on May 16, 2001,April 17, 2002, and at any adjournment or postponement thereof, as indicated on this voting instruction card, and upon all motions and resolutions which may properly come before said meeting, adjournments, or postponements thereof.
(CONTINUED, AND TO BE MARKED, DATED, AND SIGNED ON THE REVERSE SIDE.
(Continued, and to be marked, dated, and signed on the reverse side.)
TO PARTICIPANTS IN THE RETIREMENT SAVINGS PLAN AND RETIREMENT SAVINGS
PLAN FOR UNION REPRESENTED EMPLOYEES:
FUND PLAN:
If you sign but do not otherwise complete the card, you will be instructing the Trustee to vote all shares in accordance with the recommendations of the PG&E Corporation Board of Directors.
- --------------------------------------------------------------------------------
IF YOU ARE NOT SUBMITTING YOUR VOTING INSTRUCTIONS OVER THE INTERNET OR BY
TELEPHONE, PLEASE DETACH HERE AND MAIL THIS CARD IN THE ACCOMPANYING ENVELOPE.
Ù If you arenot submitting your voting instructions over the Internet or by telephone, please detach here and mail this card in the accompanying envelope.Ù
TO PARTICIPANTS IN THE RETIREMENT SAVINGS PLAN AND RETIREMENT SAVINGS
PLAN FOR UNION REPRESENTED EMPLOYEES:
AS A PARTICIPANT, YOU ARE ENTITLED TO DIRECT THE TRUSTEE HOW TO VOTE THE
SHARES OFFUND PLAN:
As a participant, you are entitled to direct the Trustee how to vote the shares of PG&E CORPORATION COMMON STOCK ALLOCATED TO YOUR ACCOUNT. Corporation common stock allocated to your account.The above voting instruction card is provided for your use in giving the Trustee of the Plan confidential instructions to vote your stock held in the Plan at PG&E Corporation'sCorporation’s annual meeting of shareholders on May 16,
2001.April 17, 2002. You have one vote for each share of PG&E Corporation common stock credited to your account as of April 4, 2001.February 19, 2002. Enclosed is a joint proxy statement which sets forth the business to be transacted at the meeting. Please mark your instructions on the above card and sign, date, and return it in the accompanying envelope. As an alternative to completing and mailing the card, you may enter your voting instructions by touch-tone telephone at 1-800-435-6710 (only available in the United States and Canada) or over the Internet at http://www.eproxy.com/pcg/. These Internet and telephone voting procedures comply with California law. Stock in your Plan account for which the Trustee has not received voting instructions will not be voted by the Trustee. Participants who also own stock outside the Plan will receive a separate proxy voting instruction card for those shares.