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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
PG&E Corporation and Pacific Gas and Electric Company
Filing Jointly
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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
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
Joint Notice of Annual Meetings of Shareholders
Joint Proxy Statement 1
General Information 1
Item No. 1: Election of Directors 3
Information Regarding the Boards of Directors of PG&E
Corporation and Pacific Gas and Electric Company 6
Item No. 2: Ratification of Appointment of
Independent Public Accountants 12
Item No. 3: Management Proposal
(To Be Voted on by PG&E Corporation
Shareholders Only) 13
Item Nos. 4-8: Shareholder Proposals
(To Be Voted on by PG&E Corporation
Shareholders Only) 20
Executive Compensation 26
Report of the Audit Committees 39
Other Information 40
Appendix A - Charter of the Audit Committees A-1
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Joint Notice of Annual Meetings of 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:
The annual meetings of shareholders of PG&E Corporation and Pacific Gas and
Electric Company will be held concurrently on Wednesday, May 16, 2001, at 3:00
p.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:
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 the Pacific Gas and Electric Company Board
only.
(2) For 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 for PG&E Corporation and
Pacific Gas and Electric Company,
(3) For PG&E Corporation shareholders only, to act upon the management
proposal described on pages 13-19 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 20-25
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
meetings and any adjournments or postponements thereof.
Shareholders of record of PG&E Corporation and Pacific Gas and Electric
Company at the close of business on April 4, 2001, and valid proxyholders may
attend and vote at the respective annual meetings. If your shares are registered
in the name of a brokerage firm, bank, or trustee and 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 both PG&E Corporation and Pacific Gas
and Electric Company, you will be provided with a separate proxy form for each
company.
If your shares are registered directly with PG&E Corporation and/or Pacific
Gas and Electric Company (including shares held by participants in the PG&E
Corporation Dividend Reinvestment Plan) or if you are a participant who holds
PG&E Corporation stock in any of the defined contribution retirement plans
maintained by PG&E Corporation or any of its subsidiaries, you may execute and
submit your proxy and voting instructions over the Internet or by telephone by
using the control number and instructions printed on the proxy form. Or, you may
vote by mail by marking, signing, dating, and mailing the proxy card in 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 Statement is provided to the shareholders of PG&E
Corporation and Pacific Gas and Electric Company in connection with their
respective annual meetings of shareholders 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.
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
first preferred stock hold approximately 5 percent of the Company's total
outstanding voting stock.
GENERAL INFORMATION
The Boards of Directors of PG&E Corporation and Pacific Gas and Electric
Company are soliciting proxies hereunder for use at their respective annual
meetings to be held on May 16, 2001, and at any adjournments 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, to PG&E Corporation and Pacific Gas and
Electric Company shareholders entitled to vote at the annual meetings.
Shareholders of record may vote over the Internet at the address listed on
the proxy form, by calling 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 will be able to vote over the Internet, by telephone, or
by mail by following the instructions on the proxy card you receive from the
firm, bank, or trustee.
You may revoke your proxy at any time before it is exercised at the annual
meeting. You may do this by advising the Vice President and Corporate Secretary
of PG&E Corporation or Pacific Gas and Electric Company (as the case may be) in
writing of your desire 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 that you wish to vote in person.
The Boards of Directors of PG&E Corporation 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 receive 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 specified in the PG&E Corporation
proxy, the subject shares will be voted (1) FOR the election of the nominees 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 available 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 come before the 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, as the case may be). The
required quorum is a majority of the outstanding shares of voting stock of PG&E
Corporation or Pacific Gas and Electric Company (as the case may be). PG&E
Corporation and Pacific Gas and Electric Company intend to count abstentions
both for purposes of determining the presence or absence of a quorum and in the
total number of shares represented 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
purposes 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 VOTING
In 2000, PG&E Corporation and Pacific Gas and Electric Company formalized
their Confidential Voting Policy. Under this policy, all proxies, ballots, and
voting tabulations that reveal how a particular shareholder has voted are
treated as confidential.
The vote of any shareholder will not be revealed to anyone other than a
non-employee proxy tabulator or an independent inspector of election, except (i)
as necessary to meet legal requirements, (ii) in a dispute regarding
authenticity of proxies and ballots, (iii) in the event of a proxy contest, if
the other party does not agree to comply with the Confidential Voting Policy,
and (iv) where disclosure may be necessary for PG&E Corporation or Pacific Gas
and Electric Company to assert or defend claims.
Representatives of Mellon Investor Services LLC will act as the proxy
tabulators and the inspectors of elections for the 2001 annual meetings. They
are independent of PG&E Corporation, Pacific Gas and Electric Company, and their
directors, officers, and employees. The proxy tabulators will forward comments
written on the proxy forms to the Vice President and Corporate Secretary of PG&E
Corporation or Pacific Gas and Electric Company (as the case may be) but will
not disclose the identity of the shareholder unless that shareholder has
requested a written response.
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Item No. 1:
Election of Directors of PG&E Corporation and
Pacific Gas and Electric Company
Nine and 10 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. The 9 nominees for director of PG&E Corporation and the 10
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
in 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 in the enclosed PG&E Corporation or
Pacific Gas and Electric Company proxy 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 Directors of PG&E Corporation and
Pacific Gas and Electric Company
Biographical Information
[PHOTOGRAPH] DAVID R. ANDREWS
Mr. Andrews is a partner in the law firm of McCutchen,
Doyle, Brown & Enersen, LLP, and has held that position
since May 2000. He also held that position from 1981 to July
1997. From August 1997 to April 2000, he served as the legal
advisor to the U.S. Department of State and former Secretary
Madeleine Albright. Mr. Andrews, 59, has been a director of
PG&E Corporation and Pacific Gas and Electric Company since
August 2000. He also is a director of NetCel360 Holdings
Limited, and UnionBanCal Corporation.
[PHOTOGRAPH] DAVID A. COULTER
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 Partner in the Beacon Group,
L.P. (investment banking firm) from January 2000 to July
2000 and was Chairman and Chief Executive Officer of
BankAmerica Corporation and Bank of America NT&SA from May
1996 to October 1998. Mr. Coulter, 53, has been a director
of Pacific Gas and Electric Company since May 1996 and a
director of PG&E Corporation since December 1996. He also is
a director of CoorsTek.
[PHOTOGRAPH] C. LEE COX
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, 59, has been a director
of Pacific Gas and Electric Company since February 1996 and
a director of PG&E Corporation since December 1996. He also
is a director of Riverstone Networks, Inc.
[PHOTOGRAPH] WILLIAM S. DAVILA
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,
69, has been a director of Pacific Gas and Electric Company
since February 1992 and a director of PG&E Corporation since
December 1996. He also is a director of Home Depot, Inc. and
Hormel Foods Corporation.
[PHOTOGRAPH] ROBERT D. GLYNN, JR.
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, 58, has been a director of Pacific Gas and Electric
Company since June 1995 and a director of PG&E Corporation
since December 1996.
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[PHOTOGRAPH] DAVID M. LAWRENCE, MD
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,
60, has been a director of Pacific Gas and Electric Company
since January 1995 and a director of PG&E Corporation since
December 1996. He also is a director of Agilent Technologies
Inc.
[PHOTOGRAPH] MARY S. METZ
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,
63, has been a director of Pacific Gas and Electric Company
since March 1986 and a director of PG&E Corporation since
December 1996. She also is a director of Longs Drug Stores
Corporation, SBC Communications Inc., Sodexho Marriott
Services, Inc., and UnionBanCal Corporation.
[PHOTOGRAPH] CARL E. REICHARDT
Mr. Reichardt is 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, 69, has been a
director of Pacific Gas and Electric Company since February
1985 and a director of PG&E Corporation since December 1996.
He also is a director of ConAgra, Inc., Ford Motor Company,
HCA - The Healthcare Co., HSBC Holdings PLC, McKesson HBOC,
Inc., and Newhall Management Corporation.
[PHOTOGRAPH] GORDON R. SMITH*
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 June 1980. Mr. Smith, 53, has been a director of
Pacific Gas and Electric Company since June 1997.
[PHOTOGRAPH] BARRY LAWSON WILLIAMS
Mr. Williams is President of Williams Pacific Ventures, Inc.
(business consulting and mediation), and has held that
position since May 1987. He also has served as interim
President and Chief Executive Officer of the American
Management Association (management development organization)
since November 2000. Mr. Williams, 56, has been a director
of Pacific Gas and Electric Company since September 1990 and
a director of PG&E Corporation since December 1996. He also
is a director of CH2M Hill Companies, Ltd., Newhall
Management Corporation, R.H. Donnelley Inc., The Simpson
Manufacturing Company Inc., Synavant Inc., and USA
Education, Inc.
* Gordon R. Smith is a nominee for director of Pacific Gas and
Electric Company only.
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Information Regarding the
Boards of Directors of PG&E Corporation and
Pacific Gas and Electric Company
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. The current
membership and duties of these committees are as follows:
NOMINATING AND
EXECUTIVE AUDIT FINANCE COMPENSATION PUBLIC POLICY
COMMITTEES COMMITTEES COMMITTEE COMMITTEE COMMITTEE
R. D. Glynn, Jr.* C. L. Cox* B. L. Williams* C. E. Reichardt* M. S. Metz*
C. L. Cox D. R. Andrews D. R. Andrews D. A. Coulter W. S. Davila
M. S. Metz W. S. Davila D. A. Coulter C. L. Cox D. M. Lawrence, MD
C. E. Reichardt M. S. Metz C. E. Reichardt D. M. Lawrence, MD
G. R. Smith(1) B. L. Williams
B. L. Williams
* Chair
(1) Member of the Pacific Gas and Electric Company Executive Committee only.
EXECUTIVE COMMITTEES
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 2000 and no Pacific Gas and
Electric Company Executive Committee meetings were held in 2000.
AUDIT COMMITTEES
The Audit Committees of PG&E Corporation (five meetings were held in 2000)
and Pacific Gas and Electric Company (committee was established 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's
and Pacific Gas and Electric Company's independent public accountants, and
review and discuss with the independent accountants and with PG&E Corporation's
and Pacific Gas and Electric Company's officers and internal auditors the scope
and results of the independent 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's and
Pacific Gas and Electric Company'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) financially knowledgeable, including at least one member
who has accounting or related financial management expertise, (b) neither
current nor former officers or employees of PG&E Corporation, Pacific Gas and
Electric Company or their subsidiaries, (c) not consultants to PG&E Corporation,
Pacific Gas and Electric Company or any of their subsidiaries, and (d) neither
current nor former officers or employees of any other corporation on whose board
of directors any PG&E Corporation or Pacific Gas and Electric Company officer
serves as a member. The members of the Audit Committees are independent as
defined in the listing standards of the New York Stock Exchange and the American
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Stock Exchange. One member of each Committee is appointed by the appropriate
Board of Directors as the Committee's Chair.
FINANCE COMMITTEE
The Finance Committee of PG&E Corporation (13 meetings were held in 2000)
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.
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's Chair.
NOMINATING AND COMPENSATION COMMITTEE
The Nominating and Compensation Committee of PG&E Corporation (seven
meetings were held in 2000) 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 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) neither current nor former officers or employees of PG&E Corporation
or any of its subsidiaries, (b) not consultants to PG&E Corporation or any of
its subsidiaries, and (c) 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's Chair.
The Nominating and Compensation 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 meetings were held
in 2000) advises and assists the Board of Directors with respect to public
policy issues which could affect significantly the interests of the customers,
shareholders, or employees of PG&E Corporation or its 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 and
its subsidiaries. The Committee also reviews significant societal, governmental,
and environmental trends and issues that may affect the operations of PG&E
Corporation or its 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's Chair.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
Thirteen meetings of the PG&E Corporation Board of Directors and 29
meetings of the PG&E Corporation Board committees were held in 2000. Overall
attendance of incumbent directors at such meetings was 97%. Individual
attendance at meetings of the PG&E Corporation Board of Directors and Board
committees was as follows: D. R. Andrews 100%, D. A. Coulter 94%, C. L. Cox 96%,
W. S. Davila 100%, R. D. Glynn, Jr. 100%, D. M. Lawrence 90%, M. S. Metz 95%, C.
E. Reichardt 100%, and B. L. Williams 100%.
Ten meetings of the Pacific Gas and Electric Company Board of Directors
were held in 2000. Overall attendance of incumbent directors at these meetings
was 97%. Individual attendance at the meetings was as follows: D. R. Andrews
100%, D. A. Coulter 90%, C. L. Cox 90%, W. S. Davila 100%, R. D. Glynn, Jr.
100%, D. M. Lawrence 90%, M. S. Metz 100%, C. E. Reichardt 100%, G. R. Smith
100%, and B. L. Williams 100%. There were no meetings of the Pacific Gas and
Electric Company Executive Committee in 2000.
COMPENSATION OF DIRECTORS
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'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 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'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
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director's retirement from the Board, upon a director'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.
On January 3, 2000, each non-employee director received 504 restricted
shares of PG&E Corporation common stock. In addition, directors who were granted
stock options received options to purchase 1,915 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 per share, and directors who
were granted common stock equivalents received 252 common stock equivalent units
for each $5,000 increment of equity value (subject to the aggregate $20,000
limit).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Andrews, a director of PG&E Corporation and Pacific Gas and Electric
Company, is a member at the law firm of McCutchen, Doyle, Brown & Enersen, LLP.
Although Mr. Andrews does not personally provide legal services to PG&E
Corporation, Pacific Gas and Electric Company, or their affiliates, Mr. Andrews'
law firm has provided general legal services to Pacific Gas and Electric Company
in the normal course of business, and such services could continue in the
future.
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.
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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 March 31, 2001, 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, 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 March 31, 2001, 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's deferred
compensation and equity plans.
BENEFICIAL COMMON STOCK
NAME STOCK OWNERSHIP(1)(2) EQUIVALENTS(3) TOTAL
David R. Andrews(4) 511 766 1,277
David A. Coulter(4) 4,115 10,919 15,034
C. Lee Cox(4) 18,155 1,506 19,661
William S. Davila(4) 14,188 10,501 24,689
Robert D. Glynn, Jr.(5) 762,623 99,181 861,804
David M. Lawrence, MD(4) 17,681 2,306 19,987
Mary S. Metz(4) 11,709 1,748 13,457
Carl E. Reichardt(4) 9,980 13,600 23,580
Gordon R. Smith(6) 345,684 20,058 365,742
Barry Lawson Williams(4) 9,280 5,689 14,969
Thomas G. Boren(7) 26,483 55,109 81,592
Peter A. Darbee(7) 35,397 10,345 45,742
P. Chrisman Iribe(7) 117,482 21,298 138,780
Thomas B. King(7) 58,750 97,245 155,995
L. E. Maddox(7) 213,784 33,349 247,133
Kent M. Harvey(8) 85,973 0 85,973
Roger J. Peters(8) 79,054 0 79,054
James K. Randolph(8) 101,659 141 101,800
Daniel D. Richard, Jr.(8) 63,102 438 63,540
Gregory M. Rueger(8) 163,096 0 163,096
All PG&E Corporation directors and executive
officers as a group (18 persons) 2,098,352 421,079 2,519,431
All Pacific Gas and Electric Company directors
and executive officers as a group (15 persons) 1,686,810 166,853 1,853,663
(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 4,155
shares, Mr. Cox 12,666 shares, Mr. Davila 200 shares, Dr. Metz 4,868 shares,
Mr. Smith 3,884 shares, Mr. Peters 3,042 shares, all PG&E Corporation
directors and executive officers as a group 29,031 shares, and all Pacific
Gas and Electric Company directors and executive officers as a group 28,815
shares.
(2) Includes shares of PG&E Corporation common stock which the directors and
executive officers have the right to acquire within 60 days of March 31,
2001, through the exercise of vested stock options granted under the PG&E
Corporation Long-Term Incentive Program, as follows: Mr. Cox 5,489 shares,
Mr. Glynn 739,791 shares,
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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.
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Item No. 2:
Ratification of Appointment of Independent Public Accountants
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. 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, 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 million. This amount includes fees for stand-alone audits of various
subsidiaries, including estimated fees of $1.1 million for Pacific Gas and
Electric Company and its subsidiaries.
Financial Information Systems Design and Implementation Fees. For the year
ended December 31, 2000, 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, 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 $4.4
million for Pacific Gas and Electric Company and its subsidiaries.
One or more representatives of Deloitte & Touche LLP will be present at the
annual meetings, with 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 by PG&E
Corporation or Pacific Gas and Electric Company prior to or at the annual
meetings will be voted "FOR" this proposal.
This appointment is not required to be submitted 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 PG&E CORPORATION AND PACIFIC GAS AND ELECTRIC COMPANY
UNANIMOUSLY RECOMMEND A VOTE FOR THE PROPOSAL TO RATIFY THE APPOINTMENT OF
DELOITTE & TOUCHE LLP.
IF YOU DO NOT HOLD ANY SHARES OF PG&E CORPORATION COMMON STOCK, YOU ARE NOT
ENTITLED TO VOTE ON THE FOLLOWING MANAGEMENT PROPOSAL.
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Item No. 3:
Management Proposal
TO BE VOTED ON BY PG&E CORPORATION SHAREHOLDERS ONLY
The following proposal has been submitted by PG&E Corporation's management
for action at the Corporation's annual meeting. To be approved, this proposal
must receive 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 of shares
of PG&E Corporation common stock available to be issued under the PG&E
Corporation Long-Term Incentive Program (the "LTIP"). There are currently
34,389,230 shares of PG&E Corporation common stock reserved for issuance under
the LTIP. As of April 4, 2001, approximately 1.9 million shares of the
Corporation's common stock already had been issued pursuant to stock options
granted under the LTIP and approximately 31.5 million shares were subject to
outstanding awards under the LTIP, leaving approximately 1 million shares
available to be issued pursuant to future awards under the LTIP. If the
shareholders approve the proposed increase, an additional 15 million shares
would be reserved for use under the LTIP, bringing the approximate number of
shares available to be issued pursuant to future awards under the LTIP to 16
million.
PURPOSE
The LTIP is designed to advance the interests 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 awards may be granted to eligible participants in accordance with
such terms as may be adopted by the Committee.
The Nominating and Compensation Committee (the "Committee") of the PG&E
Corporation Board of Directors, a committee composed entirely of outside
directors, recommended that the Board of Directors approve the proposed increase
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, is determined by the Committee at the time of grant,
except that, as described below, non-employee directors are not eligible to
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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. As of December 31, 2000, there were 23 current or former
officers of PG&E Corporation, 128 current or former officers of PG&E Corporation
subsidiaries, 917 current or former key management employees of PG&E Corporation
and its subsidiaries, and no other persons participating in the LTIP.
Non-employee directors of PG&E Corporation are eligible to receive grants
of incentive awards in accordance with, and subject to, the terms and conditions
of the Non-Employee Director Stock Incentive Plan component of the LTIP.
Non-employee directors are not eligible to receive any other incentive award
under the LTIP. There currently are eight non-employee directors of PG&E
Corporation, all of whom are eligible to receive incentive awards under the
formula provisions of the Non-Employee Director Stock Incentive Plan.
ADMINISTRATION OF THE LTIP
Except with respect to incentive awards granted to non-employee directors,
the Committee determines the eligible participants who will be granted incentive
awards, determines the amount and type of award, determines the terms and
conditions of awards, construes and interprets the LTIP, and makes all other
determinations with respect to the LTIP, to the extent permitted by applicable
law and subject to certain restrictions specified in the LTIP. The Chief
Executive Officer of PG&E Corporation has authority to grant incentive awards in
conformance with the guidelines approved by the Committee to eligible
participants who are neither officers nor directors of the Corporation.
EFFECTIVE DATE AND DURATION OF THE LTIP
The LTIP became effective as of January 1, 1992, and will terminate on
December 31, 2005, unless terminated sooner according to the terms of the LTIP.
SHARES SUBJECT TO THE LTIP
If the shareholders approve the proposed increase in shares, the LTIP would
permit a maximum of 49,389,230 shares of PG&E Corporation common stock for use
under the LTIP, of which approximately 16 million would be available 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 approved 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 shareholders for action at
the PG&E Corporation annual meeting. To be approved, each properly presented
proposal must receive 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 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
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 SHAREHOLDER VOTE IN 2000
(The 50%-plus vote was 48%-plus even if abstentions are counted as no
votes. Clearly, shareholders who voted to abstain did not vote no.)
PG&E shareholders recommend that the board adopt a bylaw requiring
confidentiality for all proxies, ballots and voting tabulations that
identify how shareholders vote and that the inspectors of election be
independent and not employees of the company.
SUPPORTING STATEMENT:
The confidential ballot is fundamental 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-owned by institutional shareholders.
The 50%-plus margin has added significance since
management-appointed trustees vote large blocks of PG&E stock, 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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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 than 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, and voting tabulations that reveal how a
particular shareholder has voted are treated as confidential. This policy
ensures 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 policies and practices that maintain the
confidentiality of its proxy solicitation and balloting processes and has
incorporated these protections into its Confidential Voting Policy (set forth on
page 2 of this proxy statement). However, the Corporation cannot support this
shareholder proposal because it does not include exemptions for proxy contests
or situations in which disclosure of a shareholder's vote is legally required.
In the case 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.
For these reasons, the PG&E Corporation Board of Directors unanimously
recommends that shareholders vote AGAINST this proposal.
ITEM NO. 5: SHAREHOLDER PROPOSAL REGARDING SHAREHOLDER DEMOCRACY
Mrs. Sydell B. Lemerman, 1855 Capistrano, Berkeley, California 94707,
holder of 1,291 shares of PG&E Corporation common stock, has given notice of her
intention to present the following proposal for action at the PG&E Corporation
annual meeting:
"The shareholders of PG&E Corporation request the Board of Directors take
the necessary steps to amend the company's governing instruments to adopt
the following.
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SHAREHOLDER DEMOCRACY
"RESULTS FROM VOTING ON PROPOSALS WILL BE DETERMINED ONLY BY THE YES AND NO
VOTES CAST. ABSTENTION VOTES WILL NOT BE COUNTED."
We live in a Democracy and our vote is our sacred right. When the election
votes are tallied, the abstentions are NOT counted (think of the chaos if
they were), yet PG&E Corp. denies that right when it comes to voting on
company proposals.
"Accordingly, abstentions will have the same effect as a vote against a
proposal." page 2 - Joint notice of 2000 Annual Meetings - Joint Proxy
Statement.
It is not in the law! It is not in the rules and regulations of the S.E.C!
The Corporation is not mandated in overriding the shareholders majority
vote, it has made its own ruling to do so.
A Yes vote means YES! A No vote means NO! An Abstention means I am present
but I am not voting.
In defense of their stance, the Corporation likes to state that the SEC
does not object and that all other companies do the same thing and
therefore it is the right thing to do. WRONG!! A Yes vote means YES! A No
vote means NO! An Abstention means neither yes or no and should NOT be
counted. There is no other way.
If a proposal does not gather sufficient votes, it is proposed again until
it is either accepted or rejected for lack of sufficient support. That's
the way it is now, except that PG&E Corp. uses the abstentions to have
their way and this is WRONG!!
Make your vote count and mean what you would like it to mean. YES, NO, NO
VOTE!!!
Do not let the Corporation override our majority vote.
Vote YES for Shareholder Democracy."
THE BOARD OF DIRECTORS OF PG&E CORPORATION RECOMMENDS A VOTE AGAINST THIS
PROPOSAL.
The standard for determining whether shareholders have approved a matter
submitted to them is controlled by the law of the state under which the
corporation is incorporated. Although most publicly traded corporations are
incorporated in Delaware, PG&E Corporation is incorporated in California. Under
California law, most matters presented to shareholders are considered approved
by shareholders if (1) the matter receives the affirmative vote of a majority of
the shares "represented and voting," and if (2) the affirmative votes constitute
at least a majority of the required quorum. SEC rules require that the proxy
statement disclose the treatment of abstentions for each item to be voted upon
by shareholders (except for the ratification 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 filed 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 majority of the shares "present and entitled to vote." Under Delaware law,
abstentions are included in determining the number 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 Corporation believes that most investors in
public corporations understand 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 amendments 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.
For these reasons, the PG&E Corporation Board of Directors unanimously
recommends that shareholders vote AGAINST this proposal.
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ITEM NO. 6: SHAREHOLDER PROPOSAL REGARDING CUMULATIVE 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 shareholders of PG&E Corporation request the Board of Directors take
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 is of the utmost importance in order to let us, 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 owners of the company, to PROVIDE the leadership necessary
to run the company well and profitably.
Thousands 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.)
It has 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 OF 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.
For this reason, the PG&E Corporation Board of Directors unanimously
recommends that shareholders vote AGAINST 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
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number of directors was cut to 7 directors for our $22 billion company.
Thus there could legally be only 6 directors to monitor 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
burden 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") 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. 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 2000
compensation of the Chief Executive Officers of PG&E Corporation and Pacific Gas
and Electric Company, each Board of Directors approved the recommendations of
the Committee without modification. 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 2000 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 meet its objective of paying compensation that is competitive with
similar companies in 2000, the Committee selected a group consisting of 12 major
energy companies (the "comparator group"). These companies were selected by the
Committee because they were comparable to PG&E Corporation in size and because
their approach to compensation emphasized long-term incentives. All of the
companies in the comparator group were included in the Standard & Poor's 500
Stock Index.
For 2000, 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.
- Annual cash compensation (base salary and target annual incentive) and
benefits should be equal to the average compensation paid to comparable
officers of companies in the comparator group.
- For targeted performance, long-term incentives should be equal to the
75th percentile compensation paid to comparable officers of companies in
the comparator group.
Finally, 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 compensation." Compensation
programs 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's overall policy of maintaining
a competitive, performance-based compensation program, it is PG&E Corporation's
intent to maintain the tax deductibility of the compensation which it pays.
However, due to the restrictive nature 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 with 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 due to the impact of the Section 162(m) limit
will be insignificant.
PRINCIPAL COMPONENTS OF COMPENSATION
BASE SALARY
PG&E Corporation Base Salary
PG&E Corporation'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 2000 salary levels for PG&E Corporation's executive
officers, the Committee'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. The salary level for Mr. Glynn is
comparable to the average salary of chief executive officers of the 12 companies
in the comparator group. The overall average of the base salaries received by
all PG&E Corporation officers (including Mr. Glynn) for 2000 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'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 2000 salary levels for Pacific Gas and Electric Company's
executive officers, the Committee'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. The salary level
for Mr. Smith is comparable to the average salary of senior executives in
comparable positions in the 12 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 2000 was comparable to the average salary
paid to all officers of the comparator group.
SHORT-TERM INCENTIVES
PG&E Corporation Annual Incentive
The PG&E Corporation Short-Term Incentive Plan for 2000 was designed to
provide annual incentives to all executive officers based largely on PG&E
Corporation's success in meeting the 2000 corporate operating earnings per share
objective. This objective emphasizes the impact of on-going results of
operations by eliminating the
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effect of extraordinary gains or losses. Annual incentives for executive
officers with operating responsibility for the Corporation'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'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 corporate operating earnings per share objective is
achieved. The Committee has discretion to modify or eliminate awards.
In 2000, PG&E Corporation's corporate operating earnings per share were
$2.54. 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 paid to executive officers with senior operating
responsibility for the PG&E National Energy Group ranged from 93.5 percent to
150 percent of their total target awards.
Pacific Gas and Electric Company Annual Incentive
The Pacific Gas and Electric Company Short-Term Incentive Plan for 2000 was
designed to provide annual incentives to all executive officers based on meeting
financial, service, and other measures of the 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'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, Pacific Gas and Electric Company executive officers received no
Short-Term Incentive Plan awards.
Stock Options in Lieu of Short-Term Incentive Plan Awards
In 1998, to further increase the 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
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's financial performance over time.
PG&E Corporation Stock Option Plan. The Stock Option Plan provides
incentives based on PG&E Corporation'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's discretion, stock options may be granted with tandem
"stock appreciation 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" which provide for credits to be made to a dividend equivalent
account equal to the current common stock dividend multiplied by the recipient'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
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underlying options or stock appreciation rights are exercised. If a stock
appreciation right is exercised, the option-holder 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 grant for each executive officer of PG&E
Corporation and Pacific Gas and Electric Company in 2000 was determined by the
Committee based on the Committee'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. In making stock
option grants, the size of each executive officer's stock option grant was
determined primarily based on the compensation objectives described above.
PG&E Corporation Performance Unit Plan. The Performance Unit Plan provides
incentives based on PG&E Corporation'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'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'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'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,
PG&E Corporation's performance is compared with that of a group of 12 energy
companies selected from the Dow Jones Utility Index and is based on a three-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, PG&E Corporation's total
shareholder return had a weighted average ranking of 44th among the 50 largest
energy-based companies in the nation and a cumulative ranking of 11th among the
12 company comparator group. Based on these rankings, officers received no
payment under the Plan for 2000 performance.
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's base
salary and vary according to the executive'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'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. 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
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
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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
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 PG&E
CORPORATION
Carl E. Reichardt, Chair
David A. Coulter
C. Lee Cox
David M. Lawrence, MD
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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.]
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- ------------------------
PAYOUTS
OTHER AWARDS ALL
ANNUAL SECURITIES OTHER
COMPEN- UNDERLYING LTIP COMPEN-
SALARY BONUS SATION OPTIONS/SARS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) (# OF SHARES) ($)(3) ($)(4)
Robert D. Glynn, Jr., 2000 $900,000 $ 0 $ 3,806 322,100 $ 0 $ 41,280
Chairman of the Board, Chief 1999 800,000 1,224,000 23,181 300,000 176,204 36,780
Executive Officer, and President of PG&E 1998 700,000 931,350(5) 42,180 235,000 452,858 32,280
Corporation; Chairman of the Board of
Pacific Gas and Electric Company
Thomas G. Boren,(6) 2000 $630,000 $ 441,790 $50,478 212,600 $ 0 $ 543,571
Executive Vice President of PG&E 1999 250,000 318,750(7) 29,262 150,000 33,900 735,615
Corporation; President and Chief
Executive Officer of PG&E National Energy
Group
Peter A. Darbee,(6) 2000 $415,000 $ 0 $ 3,806 147,200 $ 0 $ 441,500
Senior Vice President, Chief Financial 1999 113,864 113,333 1,290 150,000 19,781 450,000
Officer, and Treasurer of PG&E
Corporation
P. Chrisman Iribe, 2000 $400,000 $ 300,000 $ 0 122,700 $ 0 $ 40,000
Senior Vice President of PG&E 1999 350,000 330,750 5,456 106,500 44,214 48,672
Corporation;
President and Chief Operating Officer, 1998 296,400 283,062 7,937 50,600 82,843 30,780
East Region, of PG&E National Energy
Group
Thomas B. King, 2000 $400,000 $ 300,000 $49,343 122,700 $ 0 $1,598,631
Senior Vice President of PG&E 1999 350,000 336,875 12,049 100,000 59,325 76,487
Corporation;
President and Chief Operating Officer, 1998 29,167 0 0 50,000 93,627 200,000
West Region, of PG&E National Energy
Group
L. E. Maddox, 2000 $400,000 $ 300,000 $224,718 110,400 $ 0 $ 617,472
Senior Vice President of PG&E 1999 400,000 250,000 7,563 93,700 62,215 41,750
Corporation;
President and Chief Operating Officer, 1998 350,000 126,700 12,812 92,700 129,207 46,335
Trading, of PG&E National Energy Group
Gordon R. Smith, 2000 $630,000 $ 0 $ 820 212,600 $ 0 $ 28,960
Senior Vice President of PG&E 1999 550,000 460,075 10,054 122,500 74,436 25,360
Corporation;
President and Chief Executive Officer of 1998 425,000 410,338 16,328 126,400 173,662 19,735
Pacific Gas and Electric Company
Gregory M. Rueger, 2000 $310,000 $ 0 $ 0 59,900 $ 0 $ 14,700
Senior Vice President - Generation 1999 290,000 222,633 4,172 46,700 36,654 14,743
and Chief Nuclear Officer of Pacific Gas 1998 278,000 230,684 8,993 50,600 110,926 13,260
and Electric Company
James K. Randolph, 2000 $305,000 $ 0 $ 0 59,900 $ 0 $ 13,725
Senior Vice President and Chief of 1999 290,000 221,850 4,172 46,700 36,654 13,050
Utility
Operations of Pacific Gas and Electric 1998 260,000 213,174 8,465 50,600 96,885 11,700
Company
Kent M. Harvey, 2000 $260,000 $ 0 $ 0 59,900 $ 0 $ 11,700
Senior Vice President, Chief Financial 1999 245,000 185,551 4,172 46,700 36,654 23,083
Officer,
and Treasurer of Pacific Gas and Electric 1998 220,000 189,486 8,465 50,600 96,885 9,900
Company
Roger J. Peters, 2000 $260,000 $ 0 $ 0 59,900 $ 0 $ 11,700
Senior Vice President and General Counsel 1999 245,000 180,920 3,852 46,700 31,002 11,469
of Pacific Gas and Electric Company 1998 230,000 196,650 6,529 50,600 33,727 10,350
Daniel D. Richard, Jr., 2000 $260,000 $ 0 $ 0 59,900 $ 0 $ 11,700
Senior Vice President, Public Affairs of 1999 245,000 182,905 4,304 53,300 37,434 5,714
PG&E Corporation and of Pacific Gas and 1998 220,000 186,912 7,937 33,733 82,843 3,600
Electric Company
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SUMMARY COMPENSATION TABLE
Continued
(1) Represents payments received or deferred from 1999 through 2001 for
achievement of corporate and organizational objectives from 1998 through
2000, 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) Represents payments received or deferred 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 $19.8125 per share and expire on
March 2, 2010.
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OPTION/SAR GRANTS IN 2000
[This table summarizes the distribution and the terms and conditions of stock
options granted to the executive officers named in the Summary Compensation
Table during the past year.]
GRANT
INDIVIDUAL GRANTS DATE VALUE
------------------------------------------------------------------------------------- ------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS GRANT
UNDERLYING GRANTED TO EXERCISE OR DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED (#)(1)(2) 2000(2) ($/SH)(3) DATE(4) VALUE ($)(5)
Robert D. Glynn, Jr. 322,100 3.17% $19.8125 01-04-2010 $1,050,046
Thomas G. Boren 212,600 2.09% $19.8125 01-04-2010 $ 693,076
Peter A. Darbee 147,200 1.45% $19.8125 01-04-2010 $ 479,872
P. Chrisman Iribe 122,700 1.21% $19.8125 01-04-2010 $ 400,002
Thomas B. King 122,700 1.21% $19.8125 01-04-2010 $ 400,002
L. E. Maddox 110,400 1.09% $19.8125 01-04-2010 $ 359,904
Gordon R. Smith 212,600 2.09% $19.8125 01-04-2010 $ 693,076
Gregory M. Rueger 59,900 0.59% $19.8125 01-04-2010 $ 195,274
James K. Randolph 59,900 0.59% $19.8125 01-04-2010 $ 195,274
Kent M. Harvey 59,900 0.59% $19.8125 01-04-2010 $ 195,274
Roger J. Peters 59,900 0.59% $19.8125 01-04-2010 $ 195,274
Daniel D. Richard,
Jr. 59,900 0.59% $19.8125 01-04-2010 $ 195,274
(1) All options granted to executive officers 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, 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 $3.26 per share.
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AGGREGATED OPTION/SAR EXERCISES IN 2000 AND YEAR-END OPTION/SAR VALUES
[This table summarizes exercises of stock options and tandem stock appreciation
rights (granted in prior years) by the executive officers named in the Summary
Compensation Table during the past year, as well as the number and value of all
unexercised options held by such named executive officers at the end of 2000.]
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES ACQUIRED END OF 2000 (#) END OF 2000(1)
ON EXERCISE VALUE REALIZED (EXERCISABLE/ (EXERCISABLE/
NAME (#) ($) UNEXERCISABLE) UNEXERCISABLE)
Robert D. Glynn, Jr. 0 $ 0 460,825/868,099 $0/$60,394
Thomas G. Boren 0 0 0/374,318 0/40,595
Peter A. Darbee 0 0 0/297,200 0/27,600
P. Chrisman Iribe 0 0 46,867/277,933 0/23,006
Thomas B. King 0 0 16,667/256,033 0/23,006
L. E. Maddox 0 0 110,901/305,899 0/20,700
Gordon R. Smith 7,500 $31,188 172,135/463,865 0/39,863
Gregory M. Rueger 0 0 67,033/151,499 0/11,231
James K. Randolph 0 0 48,201/150,332 0/11,231
Kent M. Harvey 0 0 32,534/145,166 0/11,231
Roger J. Peters 0 0 41,034/145,166 0/11,231
Daniel D. Richard, Jr. 0 0 26,534/151,766 0/11,231
(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 $20.00, which was the closing price of PG&E Corporation common
stock on December 29, 2000.
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LONG-TERM INCENTIVE PROGRAM--AWARDS IN 2000
[This table summarizes the long-term incentive awards made to the executive
officers named in the Summary Compensation Table during the past year.]
ESTIMATED FUTURE PAYOUTS UNDER
AWARDS NON-STOCK PRICE-BASED PLANS
---------------------------------------- ---------------------------------------
PERFORMANCE OR
OTHER PERIOD
NUMBER OF SHARES, UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME UNITS, OR OTHER RIGHTS OR PAYOUT ($ OR #)(3) ($ OR #)(3) ($ OR #)(3)
Robert D. Glynn, Jr. 30,000(1) 3 years 0 units 30,000 units 60,000 units
2,773(2) 3 years
Thomas G. Boren 17,700(1) 3 years 0 units 17,700 units 35,400 units
9,814(2) 3 years
Peter A. Darbee 13,625(1) 3 years 0 units 13,625 units 27,250 units
9,730(2) 3 years
P. Chrisman Iribe 12,250(1) 3 years 0 units 12,250 units 24,500 units
6,047(2) 3 years
Thomas B. King 12,250(1) 3 years 0 units 12,250 units 24,500 units
856(2) 3 years
L. E. Maddox 10,350(1) 3 years 0 units 10,350 units 20,700 units
3,351(2) 3 years
Gordon R. Smith 17,700(1) 3 years 0 units 17,700 units 35,400 units
3,853(2) 3 years
Gregory M. Rueger 5,600(1) 3 years 0 units 5,600 units 11,200 units
James K. Randolph 5,600(1) 3 years 0 units 5,600 units 11,200 units
Kent M. Harvey 5,600(1) 3 years 0 units 5,600 units 11,200 units
Roger J. Peters 5,600(1) 3 years 0 units 5,600 units 11,200 units
Daniel D. Richard, Jr. 5,600(1) 3 years 0 units 5,600 units 11,200 units
(1) Represents performance units granted under the Performance Unit Plan. The
units vest one-third in each of the three years following the grant year,
and are earned over the vesting period based on PG&E Corporation's
three-year cumulative total shareholder return (dividends plus stock price
appreciation) as compared with that achieved by the 12 company comparator
group. This performance target may be adjusted during the vesting period, at
the sole discretion of the Nominating and Compensation Committee, to reflect
extraordinary events beyond management's control. Each time a cash dividend
is paid 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's number of
vested performance units for the year.
(2) 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. Of the officers named in the Summary Compensation
Table on pages 31-32, only Messrs. Glynn, Boren, Darbee, Iribe, King, Maddox
and Smith are eligible officers. Each SISOP represents a share of PG&E
Corporation common stock, which 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.
(3) 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.
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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. 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 10 years of service multiplied by years of credited
service. As of December 31, 2000, the estimated annual retirement benefits for
the most highly compensated executive officers, assuming credited service to age
65, are as follows: Mr. Glynn $646,886, Mr. Smith $627,042, Mr. Rueger $344,522,
Mr. Randolph $308,836, Mr. Harvey $284,061, Mr. Peters $264,593, and Mr. Richard
$130,145. The amounts shown are single life annuity benefits and would not be
subject to any Social Security offsets.
EMPLOYMENT CONTRACTS/ARRANGEMENTS
Thomas G. Boren'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'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'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's
last installment is 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'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; (2) reimbursement for travel expenses incurred in
finding a principal residence in the Bethesda area, and for the reasonable cost
of temporary housing; (3) reimbursement of closing costs incurred in the sale of
his prior residence and the purchase of a new residence; (4) indemnification for
loss suffered on the sale of his prior 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'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; (2) reimbursement for travel expenses
incurred in finding a principal residence in the Bethesda area, and for the
reasonable cost of temporary housing; (3) reimbursement of closing costs
incurred in the sale of his prior residence and the purchase of a new residence;
(4) indemnification for loss suffered on the sale of his prior 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.
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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'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'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'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 in control" occurs upon (1) the
acquisition of 20 percent or more of the Corporation'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's responsibilities. In the event
of a change in control or potential change in control, the policy provides for a
lump payment of the sum 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"), (3) any accrued but unpaid
vacation pay, and (4) three times the sum of Target Bonus and the officer'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 in control" will be deemed to have
occurred if any of the following occurs: (1) any "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'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'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 voting power" means the combined voting power of the then outstanding
voting securities of the Corporation or the other relevant entity.
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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's 500 Stock Index and the Dow
Jones Utilities Index.]
DOW JONES UTILITIES STANDARD & POOR'S 500
PG&E CORPORATION INDEX (DJUI) STOCK INDEX (S&P)
---------------- ------------------- ---------------------
1995 100 100 100
1996 80 109 123
1997 121 134 164
1998 131 160 211
1999 89 150 255
2000 91 227 232
(1) Assumes $100 invested on December 31, 1995, in Pacific Gas and Electric
Company common stock, 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.
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REPORT OF THE AUDIT 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 the respective Board of Directors (Appendix A). 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's and Pacific Gas and Electric Company'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. The Corporation'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'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's independence.
Based on the 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, filed with the Securities and Exchange Commission.
April 16, 2001
AUDIT COMMITTEES OF THE BOARDS OF DIRECTORS OF PG&E CORPORATION AND PACIFIC GAS
AND ELECTRIC COMPANY
C. Lee Cox, Chair
David R. Andrews
William S. Davila
Mary S. Metz
Barry Lawson Williams
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--------------------------------------------------------------------------------
OTHER INFORMATION
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:
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
CLASS OF STOCK BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
Pacific Gas and PG&E Corporation(1) 326,926,667 100.00%
Electric Company One Market, Spear Tower, Suite 2400
common stock San Francisco, CA 94105
PG&E Corporation State Street Bank and Trust Company(2) 26,366,361 7.26%
common stock 225 Franklin Street
Boston, MA 02110
(1) As a result of the formation of the holding company on January 1, 1997,
PG&E Corporation became the holder of all issued and outstanding shares of
Pacific Gas and Electric Company common stock. As of January 31, 2001, PG&E
Corporation and a subsidiary hold 100% of the issued and outstanding shares
of Pacific Gas and Electric Company common stock.
(2) The information relating to State Street Bank and Trust Company is based on
beneficial ownership as of December 31, 2000, as reported in a Schedule 13G,
dated February 8, 2001, filed with the Securities and Exchange Commission.
The bank holds 18,537,350 shares in its capacity as Trustee of the Pacific
Gas and Electric Company Saving Fund Plan. The Trustee may not vote these
shares in the absence of voting instructions from the Plan participants. The
bank also holds 7,829,011 shares of PG&E Corporation common stock in various
other fiduciary capacities. The bank has sole voting power with respect to
6,865,554 of these shares, shared voting power with respect to 113,493 of
these shares, sole investment power with respect to 7,812,948 of these
shares, and shared investment power with respect to 16,063 of these shares.
SECTION 16 BENEFICIAL 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's and Pacific
Gas and Electric Company's respective directors, certain officers, and persons
who own greater than 10 percent of PG&E Corporation's or Pacific Gas and
Electric Company'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 2000 all filing requirements applicable
to their directors, officers, and 10 percent shareholders were satisfied with
the following exceptions. An Initial Statement of Beneficial Ownership for
Dinyar B. Mistry who became Vice President - Controller 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 of PG&E Corporation common
stock.
ANNUAL REPORT
PG&E Corporation's and Pacific Gas and Electric Company's joint 2000 annual
report to shareholders, including financial statements, accompanies this Joint
Proxy Statement.
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METHOD AND COST OF SOLICITING PROXIES
PG&E Corporation and Pacific Gas and Electric Company intend to solicit
proxies principally by mail. Proxies also may be solicited by personal contact,
telephone, or other means by officers and other employees of PG&E Corporation or
Pacific Gas and Electric Company. PG&E Corporation and Pacific Gas and Electric
Company have retained D. F. King & Co., Inc. to assist in the solicitation of
proxies at an estimated fee of $11,500 plus reimbursement of reasonable
expenses. In addition, brokers, banks, and other fiduciaries and nominees will
be reimbursed for the reasonable expenses of forwarding the Joint Proxy
Statement and other proxy materials to beneficial owners of PG&E Corporation and
Pacific Gas and Electric Company stock. 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 Boards of Directors of
PG&E 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 meetings of shareholders, real-time captioning services and
assistive listening devices will be available for the hearing impaired. Please
contact an usher at the meeting if you wish to be seated 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 recordings of the
meetings will be available without charge. Please contact the office of the Vice
President and Corporate Secretary, One Market, Spear Tower, Suite 2400, San
Francisco, CA 94105 or call (415) 267-7070.
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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) be 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.
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[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.
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(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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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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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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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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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
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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, 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
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the CORPORATION's or other relevant entity's then outstanding
voting securities.
17. Listing and Registration of Shares
Each INCENTIVE AWARD shall 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 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 approval shall have been
effected or obtained free of any conditions not acceptable to the
COMMITTEE.
18. Amendment and Termination 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 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 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 of Pacific Gas and Electric Company at its
Annual Meeting on April 17, 1996. Effective January 1, 1997, the PROGRAM
was assumed by PG&E CORPORATION. At its meeting on December 17, 1997,
the BOARD OF DIRECTORS amended and restated the PROGRAM 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 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 shares of COMMON STOCK to the total number of shares of
COMMON STOCK reserved for use under the PROGRAM. Unless terminated
sooner pursuant to Section 16 hereof, the PROGRAM shall terminate on
December 31, 2005.
20. 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 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 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.
(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) 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.
(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 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 INCENTIVE AWARDS 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 INCENTIVE AWARDS granted by the CHIEF EXECUTIVE OFFICER to
certain ELIGIBLE PARTICIPANTS pursuant to Section 2 hereof) to
be in the best interests of the CORPORATION.
(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.
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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 closing price of the COMMON STOCK
reported on 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 422 of the CODE.
(s) 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 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. Purpose of the Plan
This is the controlling and definitive statement of the PG&E Corporation
Stock Option Plan set forth herein and as may be amended from time to
time (hereinafter called the PLAN(2)). The purpose of the PLAN 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 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. Plan Administration
The PLAN shall be administered by the COMMITTEE, which shall be
constituted in such a manner as to comply with the rules governing a
plan intended to qualify as a discretionary plan under RULE 16b-3.
Subject to the provisions of the PLAN, the COMMITTEE shall have full and
final authority, in its sole discretion:
(a) to determine the ELIGIBLE PARTICIPANTS to whom OPTIONS shall be
granted and the number of shares of COMMON STOCK 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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(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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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
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
(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. Listing and Registration of Shares
Each OPTION shall 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 required by the applicable
law or regulation.
No suspension, termination, modification or amendment of the PLAN may,
without the 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 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. 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 total number of shares 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 means 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
time 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 first 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, 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 total 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.
--------------------
(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 who 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 the PLAN shall be determined in accordance
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
This is the controlling and definitive statement of the PG&E Corporation
Non-Employee Director Stock Incentive Plan (hereinafter called the
PLAN(4)). The purpose 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 DIRECTOR 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
--------------------
(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 provisions
of this Section 3(b).
4. Annual Election to Receive Non-Qualified Stock Options and Phantom Stock
By June 30 of each calendar year during 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 to 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-
38
87
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.
39
88
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
40
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.
41
90
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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91
(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 to 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.
43
92
(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).
44
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 VOTE FOR ITEMS 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 name and
your name, 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 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 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.
The undersigned hereby appoints Robert D. Glynn, Jr. and Leslie H.
Everett, 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, at 3:00 p.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.)
As an alternative to completing and mailing this proxy card, you may
execute and submit your proxy and voting instructions over the Internet
at http://www.eproxy.com/pcg/ or by touch-tone telephone at
1-800-435-6710 (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]
ANNUAL MEETING OF SHAREHOLDERS
To be held at:
Masonic Auditorium
1111 California Street
San Francisco, California
May 16, 2001, at 3:00 p.m.
PLEASE USE THE ATTACHED TICKET TO ATTEND THE PG&E CORPORATION ANNUAL
MEETING, OR YOU MAY REGISTER AT THE MEETING.
--------------------------------------------------------------------------------
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, 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.
Real-time captioning services and assistive listening devices will be
available at the meeting for shareholders with impaired hearing. Please
contact an usher at the meeting if you wish to be seated in the
real-time captioning section or use 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
PG&E CORPORATION DIRECTORS RECOMMEND A VOTE FOR ITEMS 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 name and
your name, and specify the capacity in which you act.
--------------------------------------------------------------------------------
96
[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.
The undersigned hereby appoints Robert D. Glynn, Jr. and Leslie H. Everett, 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, at 3:00 p.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.)
97
Please mark
VOTING INSTRUCTIONS TO THE TRUSTEE - 2001 your votes as
indicated in [X]
this example
PG&E CORPORATION DIRECTORS RECOMMEND A VOTE FOR ITEMS 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 Date
--------------------------------------------------------------------------------
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.
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.
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
VOTING INSTRUCTIONS TO THE TRUSTEE - 2001
TO MERRILL LYNCH TRUST COMPANY, FSB, TRUSTEE:
Pursuant to the provisions of the PG&E Gas Transmission - Northwest
Corporation Savings Fund Plan, you are instructed to vote the shares of
stock credited to my Plan account as of April 4, 2001, at the annual
meeting of shareholders of PG&E Corporation to be held on May 16, 2001,
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.)
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.
TO PARTICIPANTS IN THE SAVINGS FUND 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. 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's annual meeting of shareholders on May 16,
2001. You have one vote for each share of PG&E Corporation common stock
credited to your account as of April 4, 2001. 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
PG&E CORPORATION DIRECTORS RECOMMEND A VOTE FOR ITEMS 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 Date
--------------------------------------------------------------------------------
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.
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.
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 MONDAY, MAY 14, 2001.
VOTING INSTRUCTIONS RECEIVED AFTER THAT TIME WILL NOT BE COUNTED.
(See reverse side for additional information.)
100
[PG&E CORP. LOGO]
2001 ANNUAL MEETING
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN
VOTING INSTRUCTIONS TO THE TRUSTEE - 2001
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, at the annual meeting
of shareholders of PG&E Corporation to be held on May 16, 2001, 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.)
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.
TO PARTICIPANTS IN THE SAVINGS FUND 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. 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's annual meeting of shareholders on May 16,
2001. You have one vote for each share of PG&E Corporation common stock
credited to your account as of April 4, 2001. 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
PG&E CORPORATION DIRECTORS RECOMMEND A VOTE FOR ITEMS 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
Optionee-------------------------------------------
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 Date
--------------------------------------------------------------------------------
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.
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.
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.)
102
[PG&E CORP. LOGO]
2001 ANNUAL MEETING
PG&E CORPORATION
RETIREMENT SAVINGS PLAN AND RETIREMENT SAVINGS PLAN FOR
UNION REPRESENTED EMPLOYEES
VOTING INSTRUCTIONS TO THE TRUSTEE - 2001
TO FIDELITY MANAGEMENT TRUST COMPANY, TRUSTEE:
Pursuant to the provisions of the PG&E Corporation Retirement Savings
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, at the annual meeting of shareholders of PG&E
Corporation to be held on May 16, 2001, 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.)
TO PARTICIPANTS IN THE RETIREMENT SAVINGS 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.
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 OF PG&E 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's annual meeting of shareholders on May 16,
2001. You have one vote for each share of PG&E Corporation common stock
credited to your account as of April 4, 2001. 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.