EXHIBIT 10.12
PG&E CORPORATION
LONG-TERM INCENTIVE PROGRAM
(As amended effective as of February 16, 2000)
1. Purpose of the Program
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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;
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/1/ Capitalized words are defined in Section 20 hereof.
(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 which INCENTIVE
AWARDS shall be granted to such ELIGIBLE PARTICIPANTS; (c) to designate the
types of INCENTIVE AWARD being granted to such ELIGIBLE
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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
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There shall be reserved for use under the PROGRAM (subject to the
provisions of Section 13 hereof) a total of 34,389,230 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, and (iv) 11,000,000 shares of COMMON STOCK added to the
PROGRAM effective as of April 21, 1999.
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
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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.
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.
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5. Designation of Incentive Awards
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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
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Equivalents
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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 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
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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 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
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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
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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
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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
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.
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12. Replacement of Grants
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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
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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
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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
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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
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(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 the CORPORATION's or other relevant entity's then
outstanding voting securities.
17. Listing and Registration of Shares
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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
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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
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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.
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.
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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,
and February 16, 2000. Unless terminated sooner pursuant to Section 16
hereof, the PROGRAM shall terminate on December 31, 2005.
20. Definitions
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(a) BOARD OF DIRECTORS means the Board of Directors of PG&E CORPORATION.
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(b) CHANGE IN CONTROL has the meaning set forth in Section 16 hereof.
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(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
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time.
(e) COMMITTEE means the Nominating and Compensation Committee of the BOARD
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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
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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
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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.
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(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
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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
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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
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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,
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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
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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
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exercisable only in the event of a CHANGE IN CONTROL.
(u) 1986 OPTION PLAN means the Pacific Gas and Electric Company 1986
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Stock Option Plan, as amended to date.
(v) NON-EMPLOYEE DIRECTOR means a DIRECTOR who is not an EMPLOYEE.
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(w) NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN RULES means the Non-
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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
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under the STOCK OPTION PLAN.
(z) OPTION PRICE means the purchase price for the COMMON STOCK upon
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exercise of an OPTION.
(aa) PERFORMANCE UNIT means a performance unit granted under the
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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
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that can be converted at a future date into cash or stock.
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(ee) PROGRAM means the PG&E Corporation Long-Term Incentive Program
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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
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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
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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
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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
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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.
(ll) STOCK-BASED AWARD means any award that is valued in whole or in
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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
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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
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another INCENTIVE AWARD.
(oo) TERMINATION occurs when an EMPLOYEE ceases to be employed by the
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CORPORATION as a common law employee, when a DIRECTOR ceases to
be a member of the BOARD OF DIRECTORS or the Board of
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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
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hereof.
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EXHIBIT A
PG&E CORPORATION
STOCK OPTION PLAN
(As amended effective as of February 16, 2000)
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.
14
(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 being granted to
such ELIGIBLE PARTICIPANTS as ISOS or NON-QUALIFIED STOCK
15
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 34,389,230 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.
16
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 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.
17
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.
(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
18
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.
(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, all OPTIONS
held by the OPTIONEE, to the extent that such OPTIONS have not
previously expired or been exercised, shall become fully exercisable
and
19
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 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.
20
(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
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
-----------------
21
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
(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 the CORPORATION's or other relevant entity's then
outstanding voting securities.
22
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
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
23
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, and February 16,
2000. 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.
(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.
---
24
(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.
------------
(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
25
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.
(z) PROGRAM means the PG&E Corporation Long-Term Incentive Program, as
-------
amended effective as of April 21, 1999, 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.
26
(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.
---------------------
27
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 February 16, 2000.
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.
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.
____________________________________
/3/ Words in all capitals are defined in Article I.
28
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.
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;
29
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 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
30
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), 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.
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
31
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.
32
EXHIBIT C
PG&E CORPORATION
NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
(As amended effective as of April 21, 1999)
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 RESTRICTED
- -----------------------------
/4/Capitalized words are defined in Section 15 hereof.
33
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.
34
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.
(c) Each NON-QUALIFIED STOCK OPTION granted under the Plan shall become
exercisable and vested cumulatively as follows: (i) up to thirty-
35
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.
(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
36
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 34,389,230 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 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
------------------------------------------------
37
(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-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
38
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.
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
-----------------
39
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 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
-------------------------------------
40
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 COMMITTEE made various
amendments to the PLAN effective October 21, 1998. Effective April 21,
1999, the PLAN, and the PROGRAM of which the PLAN is a part, were amended
to add 11,000,000 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.
------------------
41
(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.
------------
(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
42
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 April 21, 1999, 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.
(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.
(x) 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).
43