<PAGE> 1
As filed with the Securities and Exchange Commission on February 21, 1996
Registration No. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
PG&E PARENT CO., INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------
CALIFORNIA 4931 94-3234914
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
77 BEALE STREET
P.O. BOX 770000
SAN FRANCISCO, CALIFORNIA 94177
(415) 973-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------
BRUCE R. WORTHINGTON, ESQ.
77 BEALE STREET, B32
P.O. BOX 770000
SAN FRANCISCO, CALIFORNIA 94177
(415) 973-2078
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
LESLIE P. JAY, ESQ.
GEOFFREY P. LEONARD, ESQ.
ORRICK, HERRINGTON & SUTCLIFFE
400 SANSOME STREET
SAN FRANCISCO, CALIFORNIA 94111
(415) 392-1122
------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box./ /
------------
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
Title of Each Class of Amount Proposed Proposed Amount of
Securities to be Registered to be Maximum Maximum Registration
Registered Offering Price Aggregate Fee(2)
Per Unit(1) Offering Price
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, without par value......... 430,000,000 shares $26.50 $11,395,000,000 $1,521,311
=====================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1), based on the average of the high and low prices
for shares of Common Stock of Pacific Gas and Electric Company on the New
York Stock Exchange Composite Tape on February 15, 1996.
(2) Pursuant to Rule 457(b), the total required fee of $3,929,311 has been
reduced by the $2,408,000 filing fee previously paid at the time of filing
of the preliminary proxy materials in connection with this transaction on
December 22, 1995.
------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 3
EXPLANATORY NOTE
The number of shares of PG&E Parent Co., Inc. Common Stock to be issued in
the conversion of Pacific Gas and Electric Company Common Stock in the Merger
described herein cannot be precisely determined at the time this Registration
Statement becomes effective because shares of Pacific Gas and Electric Company
Common Stock may be issued thereafter and until the effective time of the Merger
under the Pacific Gas and Electric Company Dividend Reinvestment Plan, Stock
Option Plan and Savings Fund Plan. This Registration Statement covers a number
of shares of PG&E Parent Co., Inc. Common Stock which is estimated to be at
least as large as the number of shares of Pacific Gas and Electric Company
Common Stock which is expected to be outstanding at the effective time of the
Merger. See the undertaking in Item 22(3) in Part II of this Registration
Statement.
<PAGE> 4
PG&E Parent Co., Inc.
Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
LOCATION OR HEADING IN THE
FORM S-4 ITEM NUMBER AND CAPTION PROXY STATEMENT AND PROSPECTUS
- -------------------------------- ------------------------------
<S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus........................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................................ "Available Information;" Incorporation of Certain
Documents by Reference;" "Table of Contents"
3. Risk Factors, Ratio of Earnings to Fix Charges and
Other Information........................................ "Summary"
4. Terms of the Transaction................................. "Summary;" "Item No. 2: Formation of a Holding
Company Structure"
5. Pro Forma Financial Information.......................... "Item No. 2: Formation of a Holding Company Structure"
6. Material Contacts with the Company
Being Acquired........................................... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters............ Not Applicable
8. Interests of Named Experts and Counsel................... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities........... Not Applicable
10. Information with Respect to S-3 Registrants.............. "Available Information;" "Incorporation of Certain
Documents by Reference"
11. Incorporation of Certain Information by Reference........ "Available Information;" Incorporation of Certain
Documents by Reference"
12. Information with Respect to S-2 or S-3 Registrants....... Not Applicable
13. Incorporation of Certain Information by Reference........ Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants.............................. Not Applicable
15. Information with Respect to S-3 Companies................ "Available Information;" "Incorporation of Certain
Documents by Reference"
16. Information with Respect to S-2 or S-3 Companies......... Not Applicable
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies................................ Not Applicable
18. Information if Proxies, Consents or Authorizations
are to be Solicited...................................... "Summary;" "General Information;" "Item No. 1: Election
of Directors;" "Item No. 2: Formation of a Holding Company
Structure--Rights of Dissenting Shareholders," "--Shareholder
Vote;" "Item No. 3: Amendment and Restatement of the Long-Term
Incentive Program;" "Incorporation of Certain Documents by
Reference;" "Other Information"
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer.......... Not Applicable
</TABLE>
<PAGE> 5
PACIFIC GAS AND ELECTRIC COMPANY
February 29, 1996
(PG&E
LOGO)
Dear PG&E Shareholder:
You are cordially invited to attend the annual meeting of
shareholders of Pacific Gas and Electric Company on Wednesday, April
17, 1996, at 10:00 a.m. The meeting will be held in the Masonic
Auditorium, 1111 California Street, San Francisco, California.
AT THE ANNUAL MEETING, PG&E SHAREHOLDERS WILL BE ASKED TO CONSIDER
AND VOTE ON A PROPOSAL TO FORM A HOLDING COMPANY STRUCTURE FOR PG&E.
The Board of Directors and management of PG&E believe that a holding
company structure will be in the best interests of PG&E and its
shareholders. This structure will help PG&E to respond more effectively
and efficiently to competitive changes occurring in the utility
industry and to new business opportunities that may arise from these
changes. It will enhance the financial separation of the company's
California utility business from its other businesses, and will provide
greater financing flexibility.
THE ATTACHED SERIES OF QUESTIONS AND ANSWERS PROVIDES INFORMATION
ON THE PROPOSED HOLDING COMPANY, WHAT IT IS, AND HOW IT WILL AFFECT THE
INDIVIDUAL SHAREHOLDER. The enclosed Proxy Statement and Prospectus
contains a more extensive discussion of the proposal.
THE BOARD OF DIRECTORS AND MANAGEMENT OF PG&E RECOMMEND APPROVAL
OF THE HOLDING COMPANY STRUCTURE AND URGE EACH SHAREHOLDER TO VOTE FOR
THE PROPOSED RESTRUCTURING.
At the annual meeting, PG&E shareholders also will be asked to
vote on the election of directors, modifications to the Long-Term
Incentive Program, and ratification of the selection of independent
public accountants for 1996. Action also will be taken on such other
matters as may properly be presented at the meeting. This includes a
proposal submitted by an individual shareholder. For the reasons stated
in the enclosed Proxy Statement and Prospectus, the Board of Directors
and management recommend that shareholders vote against this proposal.
Your vote on the business at the annual meeting is important,
regardless of the number of shares you own. WHETHER OR NOT YOU PLAN TO
ATTEND, PLEASE SIGN, DATE, AND RETURN YOUR PROXY AS SOON AS POSSIBLE IN
THE ENVELOPE PROVIDED SO THAT YOUR SHARES CAN BE VOTED IN ACCORDANCE
WITH YOUR INSTRUCTIONS. During the meeting, management will report on
operations and other matters affecting PG&E, and will respond to
shareholders' questions.
Sincerely,
/s/ Stanley T. Skinner
Stanley T. Skinner
Chairman of the Board and
Chief Executive Officer
<PAGE> 6
The Holding Company And How It Will Affect You
You may notice that this year's proxy materials look different from those of
prior years. This is because they contain an extensive discussion of a proposal
to form a holding company structure for PG&E. This proposal is briefly
summarized below. For those desiring further information, each answer is
cross-referenced to the page or pages of the Proxy Statement and Prospectus in
which the topic is discussed in more detail.
WHAT IS BEING PROPOSED?
The Board of Directors proposes to form a holding company, a structure which is
commonly used throughout the utility industry. PG&E and its two principal
subsidiaries, Pacific Gas Transmission Company (PGT) and PG&E Enterprises, would
become subsidiaries of the holding company. PG&E's current common shareholders
would own the common stock of the holding company rather than that of the
utility itself. (Please see pages 10 to 11 of the Proxy Statement and
Prospectus.)
These charts show PG&E's current structure and the proposed holding company
structure:
CURRENT STRUCTURE
COMMON AND PREFERRED SHAREHOLDERS
:
:
:
PG&E
:
...........................:...........................
: : :
: : :
PGT and PG&E Enterprises Other PG&E
Subsidiaries and Subsidiaries Subsidiaries
PROPOSED STRUCTURE
COMMON SHAREHOLDERS
:
:
PREFERRED Holding
SHAREHOLDERS Company
: :
: :
: ...........................:.............................
: : : :
PG&E PGT and PG&E Enterprises
: Subsidiaries and Subsidiaries
:
:
Other PG&E
Subsidiaries
WHY IS A HOLDING COMPANY BEING FORMED?
The main reason is to enable the company to respond more effectively and
efficiently to competitive changes occurring in the gas and electric utility
industry and to take advantage of new business opportunities that may develop
from these changes. The proposed restructuring also should enhance the financial
separation of the company's California utility business from its other
businesses, and provide the company with greater financing flexibility. (Please
see pages 11 to 12.)
HOW WOULD MY OWNERSHIP OF PG&E STOCK BE AFFECTED BY THE NEW STRUCTURE?
Owners of PG&E common stock automatically would become owners of the holding
company common stock on a one-for-one basis. Preferred stock would remain a
security of PG&E, not the holding company. It is expected that the holding
company common stock would be traded on the New York Stock Exchange and Pacific
Stock Exchange. PG&E preferred stock would continue to be traded on the American
Stock Exchange and Pacific Stock Exchange. (Please see pages 13 and 20.)
<PAGE> 7
WOULD SHAREHOLDERS HAVE TO TURN IN THEIR CURRENT STOCK CERTIFICATES?
No. PG&E common stock certificates automatically would represent the same number
of shares of common stock of the holding company. IT WOULD NOT BE NECESSARY FOR
HOLDERS OF COMMON STOCK OF THE HOLDING COMPANY TO EXCHANGE THEIR STOCK
CERTIFICATES. If you wish, you could exchange your PG&E certificates for those
of the holding company by requesting that new certificates be issued. (Please
see page 24.)
HOW WOULD A HOLDING COMPANY STRUCTURE AFFECT COMMON AND PREFERRED STOCK
DIVIDENDS?
Instead of the common stock dividend coming from PG&E, it would come from the
holding company. When the restructuring takes effect, we expect the holding
company common stock dividends to be no less than the dividends PG&E is paying
on its common stock at that time. Subsequently, the dividend would depend on the
financial performance of the holding company's subsidiaries, principally PG&E,
and on other factors. We expect the holding company dividends to be paid on
approximately the same dates in each year as PG&E dividends are paid now.
Preferred stock would continue to be a security of PG&E, not the holding
company, and holders of preferred stock would continue to have priority as to
PG&E dividends. (Please see pages 14, 15, and 17.)
WOULD THE DIVIDEND REINVESTMENT PLAN REMAIN UNDER A HOLDING COMPANY STRUCTURE?
Yes. This plan would be assumed by the holding company to enable you to reinvest
your dividends, including preferred stock dividends, in the holding company
common stock. No further action would be required to continue your participation
in the dividend reinvestment plan. (Please see page 20.)
HOW WOULD FORMATION OF A HOLDING COMPANY AFFECT PERSONAL FEDERAL INCOME TAXES?
It wouldn't. There will be no federal income tax consequences to you when your
PG&E shares are converted to the holding company shares. For capital gain
purposes, the tax basis and holding period of the holding company shares would
be the same as those for PG&E shares. (Please see pages 24 to 25.)
WHAT WOULD THE NEW HOLDING COMPANY BE CALLED?
We have not yet chosen a name for the holding company. It is temporarily being
called "PG&E Parent Co., Inc." We expect the name to be chosen by the Board of
Directors prior to the restructuring. No further shareholder action will be
required. (Please see page 10.)
HOW SOON WOULD THE HOLDING COMPANY STRUCTURE BE FORMED, IF IT IS APPROVED BY
SHAREHOLDERS?
Management intends to form the holding company structure by the end of 1996.
However, approval from regulatory agencies (the California Public Utilities
Commission, the Federal Energy Regulatory Commission, and the Nuclear Regulatory
Commission) could have an effect on the timing. (Please see pages 20 to 21.)
THE ENCLOSED PROXY STATEMENT AND PROSPECTUS PRESENTS A THOROUGH AND DETAILED
DISCUSSION OF PG&E'S PROPOSAL TO FORM A HOLDING COMPANY STRUCTURE.
<PAGE> 8
(PG&E LOGO)
[RECYCLE LOGO] Printed with soybean ink on recycled/recyclable paper
<PAGE> 9
PACIFIC GAS AND ELECTRIC COMPANY
(PHOTOGRAPH APPEARS HERE SHOWING PICTURES OF PG&E'S SYSTEM AND LOGO)
NOTICE OF 1996 ANNUAL MEETING
PROXY STATEMENT AND PROSPECTUS
<PAGE> 10
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
February 29, 1996
TO THE SHAREHOLDERS OF PACIFIC GAS AND ELECTRIC COMPANY:
The annual meeting of shareholders of Pacific Gas and Electric Company will
be held in the Masonic Auditorium, 1111 California Street, San Francisco,
California, on Wednesday, April 17, 1996, at 10:00 a.m., for the purpose of:
1. Electing 15 directors to serve for the ensuing year;
2. Acting upon a management proposal to form a holding company structure for
PG&E and approve a related agreement of merger which will result in (i)
the current holders of PG&E common stock having their shares converted
into shares of common stock of the holding company, (ii) PG&E becoming a
subsidiary of the holding company, and (iii) the consummation of related
activities to complete the transition into a holding company structure;
3. Acting upon a management proposal to amend and restate the Long-Term
Incentive Program;
4. Ratifying the Board of Directors' selection of Arthur Andersen LLP as
PG&E's independent public accountants for 1996;
5. Acting on a proposal submitted by an individual shareholder and described
on page 34; and
6. Transacting such other business as may properly come before the meeting
and any adjournment thereof.
Shareholders of record at the close of business on February 20, 1996, and
valid proxy holders may attend and vote at the meeting. If your shares are
registered in the name of a brokerage firm or trustee and you plan to attend the
meeting, please obtain from the firm or trustee a letter or other evidence of
your beneficial ownership of those shares to facilitate your admittance to the
meeting. If you are a participant in the Dividend Reinvestment Plan, please note
that the enclosed proxy covers all shares in your account, including any shares
which may be held in that Plan.
YOUR VOTE ON THE BUSINESS AT THE ANNUAL MEETING IS IMPORTANT, REGARDLESS OF
THE NUMBER OF SHARES YOU OWN. YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF
SENDING FOLLOW-UP LETTERS TO ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED
PROXY. WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE SIGN, DATE, AND RETURN YOUR
PROXY AS SOON AS POSSIBLE IN THE ENVELOPE PROVIDED SO THAT YOUR SHARES CAN BE
VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS.
By Order of the Board of Directors,
/s/ Leslie H. Everett
Leslie H. Everett
Corporate Secretary
NOTE: THE PROXY STATEMENT AND PROSPECTUS THAT FOLLOWS APPEARS IN A FORMAT
DIFFERENT FROM THAT OF PRIOR YEARS BECAUSE SHAREHOLDERS ARE BEING ASKED TO
CONSIDER A PROPOSAL REGARDING THE FORMATION OF A HOLDING COMPANY STRUCTURE FOR
PG&E.
<PAGE> 11
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 12
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of any offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED FEBRUARY 21, 1996
Pacific Gas and Electric Company
PG&E Parent Co., Inc.
77 Beale Street
San Francisco, California 94105
PROXY STATEMENT AND PROSPECTUS
This Proxy Statement and Prospectus is being furnished to shareholders of
Pacific Gas and Electric Company, a California corporation, in connection with
the solicitation of proxies by the PG&E Board of Directors. The proxies will be
voted at the annual meeting of shareholders to be held at 10:00 a.m. on
Wednesday, April 17, 1996, in the Masonic Auditorium, 1111 California Street,
San Francisco, California, and at any adjournment or postponement thereof, for
the purposes listed in the preceding Notice of Annual Meeting of Shareholders.
At the annual meeting, the shareholders will be asked to approve, among
other things, the formation of a holding company structure for PG&E and a
related agreement of merger (the "Merger Agreement") among PG&E, PG&E Parent
Co., Inc., a California corporation formed by PG&E ("ParentCo"), and PG&E Merger
Company, a California corporation formed by ParentCo ("MergeCo"). At the time of
the Merger (defined below), ParentCo will be a wholly-owned subsidiary of PG&E,
and MergeCo will be a wholly-owned subsidiary of ParentCo. Pursuant to the
Merger Agreement, MergeCo will merge with and into PG&E (the "Merger") and each
outstanding share of the common stock of PG&E, $5 par value ("PG&E Common
Stock"), will automatically be converted into one share of the common stock of
ParentCo, without par value ("ParentCo Common Stock"). As a result, PG&E will
become a subsidiary of ParentCo and the holders of PG&E Common Stock will become
holders of ParentCo Common Stock. The outstanding shares of PG&E's first
preferred stock, $25 par value per share ("PG&E Preferred Stock"), will be
unchanged and will continue to be outstanding shares of PG&E. In connection with
the implementation of the holding company structure, PG&E intends to transfer to
ParentCo its ownership interests in its two principal subsidiaries--Pacific Gas
Transmission Company ("PGT") and PG&E Enterprises ("Enterprises"). See "Item No.
2: Formation of a Holding Company Structure" under the heading "Plan of
Implementation." The name of the holding company has not yet been determined
and, for purposes of this Proxy Statement and Prospectus, it is referred to as
PG&E Parent Co., Inc. ("ParentCo") (which name is subject to change at the
discretion of the Board of Directors and without further action by the
shareholders prior to or as part of the Merger).
The principal executive offices of PG&E and ParentCo are located at 77
Beale Street, San Francisco, California (telephone number (415) 973-7000).
This Proxy Statement and Prospectus also serves as the prospectus for
ParentCo under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the issuance of up to 430,000,000 shares of ParentCo Common
Stock in connection with the Merger. Further information concerning the stock
offered hereby is contained in "Item No. 2: Formation of a Holding Company
Structure" under the heading "Articles of Incorporation and Bylaws of ParentCo."
The approximate date of mailing of this Proxy Statement and Prospectus is
February 29, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT AND PROSPECTUS IS FEBRUARY____,1996.
i
<PAGE> 13
AVAILABLE INFORMATION
This Proxy Statement and Prospectus is also a prospectus delivered in
compliance with the Securities Act. A registration statement under the
Securities Act has been filed with the Securities and Exchange Commission (the
"SEC") with respect to the securities offered hereby (the "Registration
Statement"). As permitted by the rules and regulations of the SEC, this Proxy
Statement and Prospectus omits certain information contained in the Registration
Statement. For further information pertaining to the securities being offered,
reference is made to the Registration Statement, including exhibits filed as a
part thereof.
PG&E is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance with
the Exchange Act, files reports, proxy statements, and other information with
the SEC. These reports, proxy statements, and other information, as well as the
Registration Statement, can be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices in Chicago (Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511) and
in New York (Seven World Trade Center, Suite 1300, New York, New York 10048),
and copies of such material can be obtained from the public reference section of
the SEC at prescribed rates by writing to the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Reports, proxy statements, and other information
concerning PG&E also may be inspected at the offices of the New York Stock
Exchange ("NYSE"), the American Stock Exchange ("ASE"), and the Pacific Stock
Exchange ("PSE").
ParentCo was formed to effectuate the transactions described under "Item
No. 2: Formation of a Holding Company Structure." ParentCo previously has not
been subject to the requirements of the Exchange Act and there is currently no
public market for its stock. However, if the transactions described herein are
approved and consummated, ParentCo will become subject to the same information,
reporting, and proxy statement requirements under the Exchange Act as currently
apply to PG&E, and such information will be available for inspection and copying
at the offices of the SEC set forth above. ParentCo has applied to have ParentCo
Common Stock listed on the NYSE and the PSE as of (or promptly following) the
effective date of the Merger described under "Item No. 2: Formation of a Holding
Company Structure," and, if such applications are accepted, Exchange Act
reports, proxy statements, and other information concerning ParentCo will be
available for inspection and copying at such exchanges.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT AND PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT AND PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH
IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT AND PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF PG&E SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement and Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. These documents are
available upon request from David M. Kelly, Transfer Agent, Shareholder
Services, Pacific Gas and Electric Company, 77 Beale Street, B26B, P.O. Box
770000, San Francisco, California 94177 (telephone 1-800-367-7731). In order to
ensure timely delivery of the documents, any request should be made by April 10,
1996.
The following documents filed by PG&E with the SEC are incorporated in
this Proxy Statement and Prospectus by reference:
1. PG&E's annual report on Form 10-K for the year ended December 31, 1994.
2. PG&E's quarterly reports on Form 10-Q for the quarters ended March 31,
1995, June 30, 1995, and September 30, 1995.
ii
<PAGE> 14
3. PG&E's current reports on Form 8-K dated January 4, 1995, January 19,
1995, February 21, 1995, March 2, 1995, April 20, 1995, May 17, 1995,
May 23, 1995, May 26, 1995, July 14, 1995, July 20, 1995, August 17,
1995, October 4, 1995, October 19, 1995, October 26, 1995, November 2,
1995, November 20, 1995, December 22, 1995, January 17, 1996, January
18, 1996 (Form 8-K/A), and February 21, 1996.
All documents filed by PG&E pursuant to Sections 13(a), 13(c), 14, or
15(d) of the Exchange Act subsequent to the date of this Proxy Statement and
Prospectus and prior to the termination of the offering covered by this Proxy
Statement and Prospectus shall be deemed to be incorporated by reference in this
Proxy Statement and Prospectus and to be a part of this Proxy Statement and
Prospectus from the date of filing of such documents. Any statement contained
herein or in a document all or a portion of which is incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement and Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement and Prospectus.
iii
<PAGE> 15
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY OF PROXY STATEMENT AND PROSPECTUS............................................................................ V
GENERAL INFORMATION.................................................................................................. 1
ITEM NO. 1: ELECTION OF DIRECTORS.................................................................................... 2
Nominees for Director.......................................................................................... 3
Information Regarding the PG&E Board of Directors.............................................................. 6
ITEM NO. 2: FORMATION OF A HOLDING COMPANY STRUCTURE................................................................. 10
General........................................................................................................ 10
Plan of Implementation......................................................................................... 10
Reasons for the Restructuring.................................................................................. 11
Merger Agreement............................................................................................... 13
Amendment or Termination of the Merger Agreement............................................................... 13
Amendment of PG&E Restated Articles............................................................................ 14
Transfer of PGT and Enterprises to ParentCo.................................................................... 14
Treatment of Preferred Stock................................................................................... 14
Treatment of PG&E Indebtedness................................................................................. 15
Pro Forma Financial Information................................................................................ 15
Dividend Policy................................................................................................ 17
Directors and Management of ParentCo and PG&E.................................................................. 17
Articles of Incorporation and Bylaws of ParentCo............................................................... 18
Stock Exchange Listing......................................................................................... 20
Transfer Agent and Registrar................................................................................... 20
Dividend Reinvestment Plan and Employee Benefit Plans.......................................................... 20
Regulation..................................................................................................... 20
Conditions Precedent to the Merger............................................................................. 21
Effective Date of the Merger................................................................................... 21
Shareholder Vote............................................................................................... 22
Rights of Dissenting Shareholders.............................................................................. 22
Market Values of Stock......................................................................................... 24
Exchange of Stock Certificates Not Required.................................................................... 24
Federal Income Tax Consequences of the Merger.................................................................. 24
Legal Opinion.................................................................................................. 25
Experts........................................................................................................ 25
ITEM NO. 3: AMENDMENT AND RESTATEMENT OF THE LONG-TERM INCENTIVE PROGRAM............................................. 26
ITEM NO. 4: RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS.............................................. 33
ITEM NO. 5: SHAREHOLDER PROPOSAL..................................................................................... 34
EXECUTIVE COMPENSATION............................................................................................... 35
OTHER INFORMATION.................................................................................................... 44
Exhibit A--Agreement of Merger.................................................................................. A-1
Exhibit B--Restated Articles of Incorporation of PG&E Parent Co., Inc. ......................................... B-1
Exhibit C--Chapter 13 of the California General Corporation Law................................................. C-1
</TABLE>
iv
<PAGE> 16
Summary of Proxy Statement and Prospectus
The following summary of the matters to be voted on at the annual meeting
is qualified in its entirety by reference to the more detailed information set
forth elsewhere in this document, including the attached exhibits and the
documents incorporated herein by reference. Unless the context otherwise
requires, "PG&E" shall refer to Pacific Gas and Electric Company, and the
"Company" shall refer to PG&E and its wholly-owned and majority-owned
subsidiaries, prior to the formation of a holding company structure, and to
ParentCo and its wholly-owned and majority-owned subsidiaries, including PG&E,
after the formation of a holding company structure.
ITEM NO. 1: ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE ELECTION OF ALL NOMINEES FOR DIRECTOR.
Fifteen persons have been nominated for election as directors of PG&E. If
the proposed formation of a holding company structure for PG&E described below
is approved and implemented, the directors of PG&E also will become, and be
ratified as, directors of ParentCo. See "Item No. 2: Formation of a Holding
Company Structure--Directors and Management of ParentCo and PG&E."
ITEM NO. 2: FORMATION OF A
HOLDING COMPANY STRUCTURE
THE BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND
THE PROPOSED FORMATION OF A HOLDING COMPANY STRUCTURE.
PROPOSED RESTRUCTURING
The PG&E Board of Directors has authorized, subject to shareholder
approval, a plan to restructure the corporate organization of PG&E and its
subsidiaries. The result of the restructuring will be to have PG&E become a
separate subsidiary of a parent holding company, PG&E Parent Co., Inc.
(ParentCo), with the present holders of PG&E Common Stock becoming holders of
ParentCo Common Stock. The name PG&E Parent Co., Inc. is being used temporarily
and is expected to change prior to, or as part of, the formation of a holding
company structure for PG&E.
As part of the restructuring, it is contemplated that PG&E will transfer
its ownership interests in its two principal subsidiaries--Pacific Gas
Transmission Company ("PGT") and PG&E Enterprises ("Enterprises")--to ParentCo,
so that PGT and Enterprises will become
v
<PAGE> 17
subsidiaries of ParentCo. (These proposed changes to the corporate structure of
PG&E and its subsidiaries and the transactions connected therewith are generally
referred to in this Proxy Statement and Prospectus as the "restructuring.")
REASONS FOR THE RESTRUCTURING
The PG&E Board of Directors considers the proposed restructuring to be in
the best interests of PG&E and its shareholders and believes that it will
facilitate the separation of PG&E's California utility business from the
Company's other businesses, while permitting greater financing flexibility to
meet the changing business environment.
As facets of the traditional utility business, such as electric
generation, become less regulated and more competitive, the energy options for
customers are expanding and the challenges to utility operations are
intensifying. At the same time that the regulatory framework and energy markets
within California are changing, industry change outside PG&E's Northern and
Central California service territory is presenting the Company with new business
opportunities.
The corporate separation and financing flexibility afforded by a holding
company structure will increase the Company's ability to respond to the changing
operational, regulatory, and economic environment for utilities. For example,
should it become necessary or appropriate, a holding company structure could
accommodate separation of components of PG&E's business from PG&E's remaining
core utility business, while allowing for common ownership of these businesses
under ParentCo. Similarly, when new business opportunities arise, the new
businesses can be operated through subsidiaries of ParentCo rather than through
subsidiaries of PG&E, thereby enhancing the separation between PG&E and those
businesses.
This separation of business functions will facilitate the development of
other businesses while helping to insulate PG&E--the utility--from the risks
associated with these activities. Such separation also will permit a more
effective and flexible use of financing techniques that are directly suited to
the particular requirements, characteristics, and risks of the Company's other
businesses. Accordingly, it is believed that the holding company structure will
support PG&E's ability to continue to meet its customers' needs efficiently
while permitting the Company to respond to a changing business environment. See
"Item No. 2: Formation of a Holding Company Structure--Reasons for the
Restructuring."
ACCOMPLISHING THE RESTRUCTURING
The restructuring will be effected through a reverse triangular merger,
which is widely used in corporate restructurings. The outstanding shares of PG&E
Common Stock will be converted into new shares of ParentCo Common Stock on a
share-for-share basis, and PG&E will become a subsidiary of ParentCo. PG&E
Preferred Stock and debt securities of PG&E will remain outstanding at the PG&E
level. See "Item No. 2: Formation of a Holding Company Structure--Treatment of
Preferred Stock" and "--Treatment of PG&E Indebtedness."
vi
<PAGE> 18
As part of the restructuring, it is contemplated that PG&E will transfer
its ownership interests in PGT and Enterprises to ParentCo. See "Item No. 2:
Formation of a Holding Company Structure--Transfer of PGT and Enterprises to
ParentCo."
If shareholder approval is received, it is contemplated that the Merger
will become effective as soon as practicable following receipt of all required
regulatory approvals in respect of the Merger and related restructuring,
including approval by the California Public Utilities Commission (the "CPUC").
An application for such approval by the CPUC was filed by PG&E on October 20,
1995.
NO EXCHANGE OF CERTIFICATES
Upon completion of the Merger, it will NOT be necessary to exchange
certificates representing PG&E Common Stock for certificates representing
ParentCo Common Stock. Rather, certificates for PG&E Common Stock automatically
will be deemed to represent certificates for the same number of shares of
ParentCo Common Stock.
STOCK EXCHANGE LISTINGS
Application has been made to list ParentCo Common Stock on the New York
Stock Exchange ("NYSE") and the Pacific Stock Exchange ("PSE"). In the absence
of such listing on the NYSE, the Board of Directors may elect not to consummate
the transactions contemplated by the Merger Agreement (including the Merger).
REGULATORY APPROVALS
PG&E must obtain certain authorizations from the CPUC, the Federal Energy
Regulatory Commission, and the Nuclear Regulatory Commission to implement
various aspects of the restructuring. See "Item No. 2: Formation of a Holding
Company Structure--Regulation."
DIVIDEND POLICY
When the restructuring takes effect, it is expected that the dividends on
ParentCo Common Stock will be no less than the dividends PG&E is paying on PG&E
Common Stock at that time. It also is expected that ParentCo will pay dividends
on approximately the same schedule of dates as that now followed by PG&E. Future
dividend payments will depend primarily on the earnings of ParentCo's
subsidiaries, principally PG&E; the dividend restrictions of ParentCo and its
subsidiaries, including PG&E; other financial considerations; and other factors
affecting the Company. See "Item No. 2: Formation of a Holding Company
Structure--Dividend Policy."
FEDERAL INCOME TAX CONSEQUENCES
The proposed restructuring should not affect the position of present PG&E
shareholders for federal income tax purposes. See "Item No. 2: Formation of a
Holding Company Structure--Federal Income Tax Consequences of the Merger."
vii
<PAGE> 19
SHAREHOLDER VOTE
Only holders of record of shares of PG&E Common Stock and PG&E Preferred
Stock on February 20, 1996 (the "Record Date"), will be entitled to receive
notice of and to vote at the annual meeting with respect to approval of the
Merger Agreement to effect the restructuring.
Shareholder approval of the restructuring will require the favorable vote
of:
1. A majority of the outstanding shares of PG&E Common Stock entitled to
vote at the meeting; and
2. A majority of the outstanding shares of PG&E Common Stock and PG&E
Preferred Stock entitled to vote at the meeting, voting together, with
each share of PG&E Common Stock and PG&E Preferred Stock having one
vote.
PG&E's directors and executive officers and their affiliates own less than
one percent (1%) of the voting securities of PG&E. After the restructuring, they
will continue to own less than one percent (1%) of the voting securities of
ParentCo.
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of PG&E Common Stock and holders of PG&E Preferred Stock who
comply with the statutory requirements may be entitled to receive payment of the
fair market value of their shares if the Merger is completed; however, they will
not be so entitled unless (i) five percent (5%) or more of the shares of their
class (with PG&E Common Stock as one class, and PG&E Preferred Stock as another
class) demand payment, or (ii) their shares are subject to a restriction on
transfer. See "Item No. 2: Formation of a Holding Company Structure--Rights of
Dissenting Shareholders."
viii
<PAGE> 20
SELECTED FINANCIAL INFORMATION
The following table sets forth selected consolidated financial information
with respect to the Company. Such information is derived from, and qualified by
reference to, the financial statements contained in certain documents
incorporated by reference herein.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1991 1992 1993 1994 1995(a)
---- ---- ---- ---- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating revenues............................ $9,823 $10,316 $10,550 $10,350 $9,622
Operating income.............................. 2,550 2,700 2,560 2,424 2,763
Net income.................................... 1,026 1,171 1,065 1,007 1,339
Earnings per common share..................... 2.24 2.58 2.33 2.21 2.99
Dividends declared per common share........... 1.64 1.76 1.88 1.96 1.96
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31
----------------------------------------------------------------
1991 1992 1993 1994 1995(a)
---- ---- ---- ---- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Book value per common share................... $ 18.40 $ 19.41 $ 19.77 $ 20.07 $ 20.77
Common stock price per common
share...................................... 32.63 33.13 35.13 24.38 28.38
Total assets.................................. 22,901 24,188 27,146 27,709 26,850
Long-term obligations and preferred
stock and preferred securities with
mandatory redemption provisions
(excluding current portions)............... $ 8,341 $ 8,526 $ 9,367 $ 8,813 $ 8,486
Preferred stock without mandatory
redemption provisions...................... 895 791 808 733 402
Common stock equity........................... 7,681 8,283 8,446 8,635 8,599
------- ------- ------- ------- -------
Total capitalization.......................... $16,917 $17,600 $18,621 $18,181 $17,487
------- ------- ------- ------- -------
</TABLE>
- --------
(a) For pro forma information reflecting the restructuring, see "Item No. 2:
Formation of a Holding Company Structure--Pro Forma Financial Information."
ADDITIONAL FINANCIAL INFORMATION
PG&E's current report on Form 8-K dated February 21, 1996, which is
incorporated by reference in this Proxy Statement and Prospectus, contains
audited financial statements of PG&E as of December 31, 1995, and for the year
ending on that date. Such financial information also is included in PG&E's 1995
Annual Report to Shareholders, a copy of which is enclosed with this Proxy
Statement and Prospectus. Additional copies of the Annual Report may be obtained
without charge upon request as provided under "Incorporation of Certain
Documents by Reference" above.
ix
<PAGE> 21
ITEM NO. 3: AMENDMENT AND RESTATEMENT OF THE
LONG-TERM INCENTIVE PROGRAM
THE BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE AMENDMENT AND RESTATEMENT
OF THE LONG-TERM INCENTIVE PROGRAM.
The PG&E Board of Directors has amended and restated PG&E's Long-Term
Incentive Program (the "LTIP"), effective January 1, 1996, subject to approval
by the shareholders, to: (1) provide for the grant of restricted stock to
directors of PG&E or any parent corporation who are not employees of the
Company; (2) make changes to the stock option and performance unit features to
permit the LTIP to meet the requirements of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), relating to the tax deductibility
of compensation paid to certain executive officers; (3) authorize an additional
10 million shares of PG&E Common Stock for the grant of incentive awards under
the LTIP; (4) extend the term of the LTIP to December 31, 2005; and (5) make
certain other technical and clarifying changes to the LTIP.
ITEM NO. 4: RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
THE BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE RATIFICATION OF ARTHUR ANDERSEN LLP AS
PG&E'S INDEPENDENT PUBLIC ACCOUNTANTS FOR 1996.
The PG&E Board of Directors has selected Arthur Andersen LLP as the
independent public accountants to examine the financial statements of PG&E and
its subsidiaries for the year 1996. Although this appointment is not required to
be submitted to a vote of the shareholders, the PG&E Board of Directors believes
it is appropriate as a matter of policy to request that the shareholders ratify
the appointment.
ITEM NO. 5: SHAREHOLDER PROPOSAL
THE BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE AGAINST THE SHAREHOLDER PROPOSAL.
PG&E has received a shareholder proposal which is included in this Proxy
Statement and Prospectus in accordance with the rules of the SEC. The proposal
relates to directors' compensation. See "Item No. 5: Shareholder Proposal" on
page 34 for further discussion regarding this proposal.
x
<PAGE> 22
General Information
Your proxy, using the enclosed form, is solicited by the PG&E Board of
Directors for use at the annual meeting of shareholders to be held on April 17,
1996, and at any adjournment thereof.
The only items of business which management intends to present at the
meeting are listed in the preceding Notice of Annual Meeting of Shareholders and
are explained in more detail on the following pages. By returning your signed
proxy, you authorize management to vote your shares as you indicate on these
items of business and to vote your shares in accordance with management's best
judgment in response to proposals initiated by others at the meeting.
You may revoke your signed proxy at any time before it is exercised at the
annual meeting. You may do this by advising the Corporate Secretary in writing
of your desire to revoke your proxy, or by submitting a duly executed proxy
bearing a later date. You also may revoke your proxy by attending the annual
meeting and indicating that you wish to vote in person.
Each shareholder of record at the close of business on February 20, 1996
(the "Record Date"), is entitled, for each share then held, to one vote on each
proposal or item that comes before the annual meeting. On February 20, 1996,
PG&E had outstanding 21,582,228 shares of PG&E Preferred Stock and 414,392,180
shares of PG&E Common Stock entitled to vote at the meeting.
Shares represented by properly executed proxies received by PG&E prior to
or at the annual meeting will be voted at the annual meeting in accordance with
the instructions specified in each proxy. If no instructions are specified in a
particular proxy, subject shares will be voted (i) FOR the election of the
nominees of the Board of Directors, unless authority to vote is withheld as
provided in the proxy, (ii) FOR approval of the proposed formation of a holding
company structure for PG&E and a related agreement of merger (the "Merger
Agreement"), (iii) FOR the amendment and restatement of the Long-Term Incentive
Program, (iv) FOR ratification of Arthur Andersen LLP as PG&E's independent
public accountants for 1996, and (v) AGAINST the shareholder proposal.
If you mark "Abstain" with respect to any proposal on your proxy, your
shares will be counted in the number of votes cast, but will not be counted as
votes for or against the proposal. If a broker or other nominee holding shares
for a beneficial owner does not vote on a proposal, the shares will not be
counted in the number of votes cast.
This Proxy Statement and Prospectus and the accompanying proxy form were
first mailed on or about February 29, 1996, to shareholders entitled to vote at
the annual meeting.
PG&E has approximately 248,595 shareholder accounts. Many shareholders own
100 shares or less. To ensure a proper representation at the meeting, each
shareholder, regardless of the number of shares owned, is requested to sign,
date, and return promptly the enclosed proxy, using the accompanying
postage-paid return envelope.
1
<PAGE> 23
Item No. 1:
Election of Directors
Fifteen directors will be elected to serve on PG&E's Board of Directors
until the next annual meeting or until their successors shall be elected and
qualified. The nominees for director whom the Board proposes for election are
consistent with PG&E's policy that at least 75 percent of the Board shall be
composed of directors who are neither current nor former officers or employees
of the Company. If the proposed formation of a holding company structure for
PG&E is approved and implemented, the directors of PG&E also will become, and be
ratified as, directors of ParentCo. See "Item No. 2: Formation of a Holding
Company Structure--Directors and Management of ParentCo and PG&E."
On the following pages, information is provided about the nominees for
director, including their principal occupations for the past five years, certain
other directorships, age, and length of service as a director of PG&E.
Membership on Board committees, attendance at Board and committee meetings, and
ownership of stock in PG&E are indicated in separate sections following the
individual resumes of the nominees.
Directors are elected from those nominated based on a plurality of votes
cast. Unless authority to vote is withheld or another contrary instruction is
indicated, properly executed proxies received by PG&E prior to or at the annual
meeting will be voted for the election of the nominees listed on the following
pages, all of whom have agreed to serve if elected. Should any of the nominees
become unavailable at the time of the meeting to accept nomination or election
as a director, the proxyholders named in the enclosed proxy will vote for
substitute nominees at their discretion.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION
OF ITS NOMINEES FOR DIRECTORS.
2
<PAGE> 24
Nominees for Director
Biographical Information
(PHOTO OF RICHARD A. CLARKE APPEARS HERE)
RICHARD A. CLARKE
Mr. Clarke is former Chairman of the Board of PG&E. He was Chairman of the Board
of PG&E from May 1, 1986, until his retirement on May 31, 1995, and also was
Chief Executive Officer of PG&E from May 1, 1986, to June 30, 1994. Mr. Clarke,
65, has been a director of PG&E since 1985 and also is a director of BankAmerica
Corporation, Bank of America NT&SA, Consolidated Freightways, Inc., and Potlatch
Corporation.
(PHOTO OF HARRY M. CONGER APPEARS HERE)
HARRY M. CONGER
Mr. Conger is Chairman of the Board and Chief Executive Officer of Homestake
Mining Company and has been an executive officer of that company for more than
the past five years. Mr. Conger, 65, has been a director of PG&E since 1982 and
also serves as a director of ASA Limited, Baker Hughes Inc., and CalMat Co.
(PHOTO OF C. LEE COX APPEARS HERE)
C. LEE COX
Mr. Cox is Vice Chairman of AirTouch Communications and President and Chief
Executive Officer of AirTouch Cellular. He has been an executive officer of
AirTouch Communications and its predecessor, PacTel Corporation, for more than
the past five years. Mr. Cox, 54, became a director of PG&E on February 21,
1996. He also serves as a director of Cellular Communications, Inc.
(PHOTO OF WILLIAM S. DAVILA APPEARS HERE)
WILLIAM S. DAVILA
Mr. Davila is President Emeritus of The Vons Companies, Inc. (retail grocery).
He was President of The Vons Companies, Inc. from 1986 until his retirement on
May 1, 1992, and continues to serve as a director of that company. Mr. Davila,
64, has been a director of PG&E since 1992 and also is a director of Geo. A.
Hormel & Company and Wells Fargo & Company.
(PHOTO OF ROBERT D. GLYNN, JR. APPEARS HERE)
ROBERT D. GLYNN, JR.
Mr. Glynn is President and Chief Operating Officer of PG&E and has been an
officer of PG&E for more than the past five years. Mr. Glynn, 53, has been a
director of PG&E since June 1995.
3
<PAGE> 25
Nominees for Director
Continued
(PHOTO OF DAVID M. LAWRENCE, MD APPEARS HERE)
DAVID M. LAWRENCE, MD
Dr. Lawrence is Chairman and Chief Executive Officer of Kaiser Foundation Health
Plan, Inc. and Kaiser Foundation Hospitals and has been an executive officer of
those companies for more than the past five years. Dr. Lawrence, 55, has been a
director of PG&E since January 1995 and also is a director of Hewlett-Packard
Company.
(PHOTO OF RICHARD B. MADDEN APPEARS HERE)
RICHARD B. MADDEN
Mr. Madden is former Chairman of the Board and Chief Executive Officer of
Potlatch Corporation (diversified forest products). He was Chief Executive
Officer of Potlatch Corporation from 1971 until his retirement in May 1994, and
continues to serve as a director of that company. Mr. Madden, 66, has been a
director of PG&E since 1977 and also is a director of Consolidated Freightways,
Inc. and URS Corporation.
(PHOTO OF MARY S. METZ APPEARS HERE)
MARY S. METZ
Dr. Metz is Dean of University Extension, University of California, Berkeley.
She has held that position since July 1991. Prior to that date, she was
President of Mills College, having held that position from 1981 until June 30,
1990. Dr. Metz, 58, has been a director of PG&E since 1986 and also is a
director of Longs Drug Stores Corporation, Pacific Telesis Group, and Union
Bank.
(PHOTO OF REBECCA Q. MORGAN APPEARS HERE)
REBECCA Q. MORGAN
Ms. Morgan is President and Chief Executive Officer of Joint Venture: Silicon
Valley Network (nonprofit collaborative formed to address critical issues facing
Silicon Valley). She has held that position since September 1, 1993. Prior to
that date, she was a California State Senator since 1984. Ms. Morgan, 57, has
been a director of PG&E since April 1995.
(PHOTO OF SAMUEL T. REEVES APPEARS HERE)
SAMUEL T. REEVES
Mr. Reeves is President of Pinnacle Trading, LLC (international investing). He
has held that position since July 1, 1995. Prior to that date, he was President
and Co-Chairman of the Board of Dunavant Enterprises, Inc. (cotton
merchandising) from 1978 until his retirement on June 30, 1995. Mr. Reeves, 61,
has been a director of PG&E since 1992 and also is a director of Morgan Stanley
Institutional Fund, Inc., Morgan Stanley Fund, Inc., and PCS Cash Fund, Inc.,
registered investment companies, and Tiger Management Corporation.
4
<PAGE> 26
(PHOTO OF CARL E. REICHARDT APPEARS HERE)
CARL E. REICHARDT
Mr. Reichardt is former Chairman of the Board and Chief Executive Officer of
Wells Fargo & Company (bank holding company) and Wells Fargo Bank, N.A. He was
an executive officer of Wells Fargo Bank, N.A. from 1978 until his retirement
on December 31, 1994, and continues to serve as a director of Wells Fargo &
Company and Wells Fargo Bank, N.A. Mr. Reichardt, 64, has been a director of
PG&E since 1985 and also is a director of ConAgra, Inc., Columbia/HCA
Healthcare Corporation, Ford Motor Company, McKesson Corporation, Newhall
Management Corporation, and SunAmerica, Inc.
(PHOTO OF JOHN C. SAWHILL APPEARS HERE)
JOHN C. SAWHILL
Dr. Sawhill is President and Chief Executive Officer of The Nature Conservancy
(international environmental organization). He has held that position since
April 1, 1990. Dr. Sawhill, 59, has been a director of PG&E since 1990 and also
is a director of The Vanguard Group, Inc. and each of the Vanguard Funds,
registered investment companies, and NACCO Industries, Inc.
(PHOTO OF ALAN SEELENFREUND APPEARS HERE)
ALAN SEELENFREUND
Mr. Seelenfreund is Chairman of the Board and Chief Executive Officer of
McKesson Corporation (distributor of pharmaceuticals and health care products),
and has been an executive officer of that company for more than the past five
years. Mr. Seelenfreund, 59, has been a director of PG&E since 1993 and also is
a director of Armor All Products Corporation.
(PHOTO OF STANLEY T. SKINNER APPEARS HERE)
STANLEY T. SKINNER
Mr. Skinner is Chairman of the Board and Chief Executive Officer of PG&E and has
been an executive officer of PG&E for more than the past five years. Mr.
Skinner, 58, has been a director of PG&E since 1986 and also is a director of
The Federal Reserve Bank of San Francisco.
(PHOTO OF BARRY LAWSON WILLIAMS APPEARS HERE)
BARRY LAWSON WILLIAMS
Mr. Williams is President of Williams Pacific Ventures, Inc. (venture capital
and real estate, consulting, and mediation) and has been an executive officer of
that company for more than the past five years. Mr. Williams, 51, has been a
director of PG&E since 1990 and also is a director of American President
Companies, Ltd., Tenera, L.P., and Simpson Manufacturing Co., Inc.
5
<PAGE> 27
Information Regarding the PG&E Board of Directors
BOARD COMMITTEES
The Board of Directors is responsible for the overall affairs of PG&E. To
assist it in carrying out this responsibility, the Board has delegated certain
authority to several permanent committees, the membership and duties of which
are as follows:
<TABLE>
<CAPTION>
NOMINATING AND
EXECUTIVE AUDIT FINANCE COMPENSATION PUBLIC POLICY
COMMITTEE COMMITTEE COMMITTEE COMMITTEE COMMITTEE
<S> <C> <C> <C> <C>
S. T. Skinner* H. M. Conger* R. B. Madden* C. E. Reichardt* M. S. Metz*
H. M. Conger C. L. Cox R. A. Clarke D. M. Lawrence, MD R. A. Clarke
R. D. Glynn, Jr. W. S. Davila C. E. Reichardt S. T. Reeves W. S. Davila
R. B. Madden M. S. Metz S. T. Skinner J. C. Sawhill R. D. Glynn, Jr.
M. S. Metz R. Q. Morgan B. L. Williams A. Seelenfreund J. C. Sawhill
C. E. Reichardt B. L. Williams
*Chair
</TABLE>
EXECUTIVE COMMITTEE
The Executive Committee (no meetings held in 1995), subject to the
provisions of law and certain limits imposed by the Board of Directors, may
exercise any of the powers and perform any of the duties of the Board. The
Executive Committee meets as needed.
AUDIT COMMITTEE
The Audit Committee (five meetings held in 1995) satisfies itself as to
the independence and competence of PG&E's independent public accountants. It
reviews with them and with PG&E's officers and internal auditors the scope and
results of the independent accountants' audit work, PG&E's annual financial
statements, and PG&E's internal accounting and control systems. The Audit
Committee also recommends to the Board the firm of independent public
accountants to be selected to audit PG&E's accounts, and makes further inquiries
as it deems necessary or desirable to inform itself as to the conduct of PG&E's
affairs. The Audit Committee is composed entirely of directors who are neither
(a) present or former officers or employees of PG&E or any of its subsidiaries;
(b) consultants to PG&E or any of its subsidiaries; nor (c) officers or
employees of any other corporation on whose board of directors any PG&E officer
serves as a member. One member of the Committee is appointed by the Board of
Directors as the Committee's Chair.
FINANCE COMMITTEE
The Finance Committee (six meetings held in 1995) reviews and recommends
to the Board long-range financial policies and objectives, and actions required
to achieve those objectives. Specifically, the Finance Committee reviews capital
and operating budgets, current and projected financial results of operations,
short-term and long-range financing plans, dividend policy, financial management
of PG&E's retirement plan and other major investment trusts, risk management
activities, and major commercial banking, investment banking, financial
consulting, and other financial relations of PG&E.
The Finance Committee is composed of the Chairman of the Board and of
directors who are neither officers nor employees of the Company. One member of
the Committee, who is neither a current nor former officer or employee of the
Company, is appointed by the Board of Directors as the Committee's Chair.
NOMINATING AND COMPENSATION COMMITTEE
The Nominating and Compensation Committee (seven meetings held in 1995)
reviews and makes recommendations to the Board of Directors regarding the
selection of nominees to serve as advisory directors and directors of PG&E, and
the compensation and benefit policies and practices of PG&E. This Committee
reviews and approves the compensation of officers and certain non-officers of
PG&E except that of the Chairman of the Board and Chief Executive Officer, whose
compensation is established by the full Board. This Committee also reviews
long-range planning for executive
6
<PAGE> 28
development and succession, and the composition and performance of the Board.
The Nominating and Compensation Committee is composed entirely of directors who
are neither (a) present or former officers or employees of PG&E or any of its
subsidiaries; (b) consultants to PG&E or any of its subsidiaries; nor (c)
officers or employees of any other corporation on whose board of directors any
PG&E officer serves as a member. One member of the Committee is appointed by the
Board of Directors as the Committee's Chair.
The Nominating and Compensation Committee will consider nominees
recommended by shareholders for election to the Board of Directors. The names of
such nominees, accompanied by relevant biographical information, should be
submitted in writing to the Corporate Secretary. The Nominating and Compensation
Committee seeks qualified, dedicated, and highly regarded individuals who have
experience relevant to PG&E's business operations, who understand the
complexities of PG&E's business environment, and who will represent the best
interests of PG&E and its shareholders. In accordance with PG&E's long-standing
commitment to equal opportunity, the Committee continues to seek qualified women
and minority candidates for the Board.
PUBLIC POLICY COMMITTEE
The Public Policy Committee (two meetings held in 1995) advises the Board
of Directors regarding public policy issues which could significantly affect
PG&E's customers, shareholders, or employees, or the communities PG&E serves.
The Public Policy Committee reviews PG&E's policies and practices to
protect and improve the quality of the environment, to support and contribute to
charitable and community service organizations, to ensure equal opportunity in
hiring and promoting employees, and to encourage development of minority-owned
and women-owned businesses as suppliers to PG&E. One member of the Committee,
who is neither a current nor former officer or employee of the Company, is
appointed by the Board of Directors as the Committee's Chair.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
Thirteen meetings of the Board of Directors and twenty meetings of Board
committees were held in 1995. Overall attendance at such meetings was 91%.
Individual attendance at meetings of the Board of Directors and Board committees
was as follows: R. A. Clarke 100%, H. M. Conger 89%, W. S. Davila 95%, R. D.
Glynn, Jr. 86%, D. M. Lawrence 81%, R. B. Madden 84%, M. S. Metz 100%, R. Q.
Morgan 83%, S. T. Reeves 75%, C. E. Reichardt 96%, J. C. Sawhill 100%, A.
Seelenfreund 79%, S. T. Skinner 100%, and B. L. Williams 96%.
COMPENSATION OF DIRECTORS
Each director who is not an employee of PG&E receives a quarterly retainer
of $5,500 plus a fee of $1,000 for each Board or Board committee meeting
attended. Non-employee directors who chair Board committees receive an
additional quarterly retainer of $625. Under the Directors' Deferred
Compensation Plan, directors may elect to defer with interest all or part of
such compensation for varying periods.
PG&E's Retirement Plan for Non-Employee Directors provides a retirement
benefit for non-employee directors with at least five years of service on the
Board. Eligible retirees are entitled to receive quarterly payments equal to the
number of quarters which they served on the Board. The amount of the quarterly
payment is equal to the quarterly retainer as of the date of the director's
retirement. Indemnity policies cover a portion of the accrued benefits earned
under the Retirement Plan for Non-Employee Directors and the Directors' Deferred
Compensation Plan in the event that benefits are not paid when due.
The Board of Directors has adopted a Restricted Stock Plan for
Non-Employee Directors, effective January 1, 1996, subject to shareholder
approval. Under this plan, on the first business day of each year, each
non-employee director receives restricted shares of PG&E Common Stock having a
market value of $10,000 on the date of grant. Stock awarded under the plan vests
over the five-year period following the award, except that all shares vest
immediately at the time of mandatory retirement from the Board or in the event
of a change in control. Unvested shares are forfeited if the recipient ceases to
be a director for any other reason. A proposal is included in this Proxy
Statement and Prospectus to amend and restate the PG&E Long-Term Incentive
Program to, among other things, add a Restricted Stock Plan for Non-Employee
Directors. See "Item No. 3: Amendment and Restatement of the Long-Term Incentive
Program." For 1996, 353 restricted shares of PG&E Common Stock will be issued to
each person who was a non-employee director on January 2, 1996, as soon as
practicable following receipt of all required shareholder and regulatory
approvals.
7
<PAGE> 29
PG&E officers who also are directors receive no additional compensation
for services as a member of the PG&E Board of Directors, any PG&E Board
committee, or the Board or any Board committee of any PG&E subsidiary.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Cox, a director of PG&E, also is Vice Chairman of AirTouch
Communications and President and Chief Executive Officer of AirTouch Cellular,
which were paid approximately $1,115,100 in fees by PG&E during 1995 in
connection with providing cellular telephone and paging services to PG&E in the
normal course of business. Such services are expected to continue to be provided
in the future. Mr. Cox has no personal interest in these transactions.
Dr. Lawrence, a director of PG&E, also is Chairman and Chief Executive
Officer of Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals,
which were paid approximately $24,324,000 in fees by PG&E and its subsidiaries
during 1995 in connection with providing health care services for employees,
retirees, and surviving dependents in the normal course of business. Such
services are expected to continue to be provided in the future. Dr. Lawrence has
no personal interest in these transactions.
Ms. Morgan, a director of PG&E, also is President and Chief Executive
Officer of Joint Venture: Silicon Valley Network (JVSV Network), a nonprofit
collaborative. As part of PG&E's overall efforts to retain customers and to
stimulate the economy in PG&E's service territory, in 1995 PG&E provided $96,000
of support to JVSV Network. PG&E expects to continue providing support to JVSV
Network in the future. Ms. Morgan has no personal interest in these
transactions.
BOARD OF DIRECTORS RETIREMENT POLICY
It is the policy of the Board of Directors that a person may not be
designated as a candidate for election or re-election as a director of PG&E
after he or she has reached the age of 70.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of the PG&E Common Stock
beneficially owned (as defined in the rules of the Securities and Exchange
Commission) as of January 31, 1996, by the directors, the nominees for director,
the executive officers named in the Summary Compensation Table on page 40, and
all directors and executive officers as a group. As of January 31, 1996, none of
the directors, nominees for director, or executive officers owned any shares of
PG&E Preferred Stock. None of the directors, nominees for director, or executive
officers, nor the directors and executive officers as a group, owned as much as
1% of any class of securities.
8
<PAGE> 30
<TABLE>
<CAPTION>
(A) (B) (C)
CURRENT VESTED OPTIONS TO
NAME STOCK OWNERSHIP(1) PURCHASE COMMON STOCK(2) TOTAL
<S> <C> <C> <C>
Richard A. Clarke 10,835 145,000 155,835
Harry M. Conger 5,108 5,108
C. Lee Cox(3) 0 0
William S. Davila 4,668 4,668
Robert D. Glynn, Jr. 3,933 15,000 18,933
David M. Lawrence, MD 353 353
Richard B. Madden 3,353 3,353
Mary S. Metz 3,467 3,467
Rebecca Q. Morgan 748 748
Samuel T. Reeves 8,353 8,353
Carl E. Reichardt 2,353 2,353
John C. Sawhill 24,848 24,848
Alan Seelenfreund 853 853
Stanley T. Skinner 17,938 30,000 47,938
Barry Lawson Williams 2,447 2,447
James D. Shiffer 5,208 20,001 25,209
Gregory M. Rueger 6,763 16,333 23,096
Gordon R. Smith 4,861 10,834 15,695
Bruce R. Worthington 3,186 6,000 9,186
All directors and executive
officers as a group (22 persons) 107,025 280,301 387,326
</TABLE>
(1) Includes any shares held in the name of the spouse, minor children, or
other relatives sharing the home of the director or executive officer and,
in the case of executive officers, includes shares held in PG&E's Savings
Fund Plan. Except as otherwise indicated below, the directors, nominees for
director, and executive officers have sole voting and investment power over
the shares shown. Voting power includes the power to direct the voting of
the shares held, and investment power includes the power to direct the
disposition of the shares held.
Also includes the following shares of PG&E Common Stock in which the
beneficial owners share voting and investment power: Mr. Davila, 200
shares; Mr. Madden, 3,000 shares; Dr. Metz, 887 shares; Mr. Smith, 3,884
shares; and all directors and executive officers as a group, 7,971 shares.
Also includes 353 shares of restricted stock granted to each of the
following persons under PG&E's Restricted Stock Plan for Non-Employee
Directors, which is being submitted to the shareholders for approval at the
annual meeting: Mr. Clarke, Mr. Conger, Mr. Davila, Dr. Lawrence, Mr.
Madden, Dr. Metz, Ms. Morgan, Mr. Reeves, Mr. Reichardt, Dr. Sawhill, Mr.
Seelenfreund, and Mr. Williams. All directors and executive officers as a
group were granted a total of 4,236 shares of restricted stock. See "Item
No. 3: Amendment and Restatement of the Long-Term Incentive Program." The
grant of such shares was conditioned upon receipt of shareholder and
regulatory approvals. Such shares vest over a five-year period and are
subject to forfeiture under certain circumstances.
(2) Includes shares of PG&E Common Stock which Mr. Clarke and the executive
officers have the right to acquire within 60 days of January 31, 1996,
through the exercise of vested stock options granted under PG&E's Stock
Option Plan. Mr. Clarke and the executive officers have neither voting
power nor investment power with respect to shares shown unless and until
such shares are purchased through the exercise of the options, pursuant to
the terms of the Stock Option Plan.
(3) Mr. Cox was elected by the Board effective February 21, 1996, and is
standing for election by shareholders of PG&E for the first time this year.
9
<PAGE> 31
Item No. 2:
Formation of a Holding Company Structure
GENERAL
The Board of Directors and management believe that the formation of a
holding company structure will be in the best interests of PG&E and its
shareholders. The result of the restructuring will be to have PG&E become a
separate subsidiary of the new parent holding company, ParentCo, with the
present holders of PG&E Common Stock becoming holders of ParentCo Common Stock.
As part of the restructuring, it is contemplated that PG&E will transfer its
ownership interests in its two principal subsidiaries--PGT and Enterprises--to
ParentCo, so that PGT and Enterprises will become subsidiaries of ParentCo.
The restructuring will help the Company to respond more effectively and
efficiently to competitive changes taking place in the utility industry and to
new business opportunities that may arise from those changes. This structure
also will enhance the financial separation of the Company's California utility
business from its other businesses, and will provide greater financing
flexibility.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE
PROPOSED FORMATION OF A HOLDING COMPANY STRUCTURE AND
URGES EACH SHAREHOLDER TO VOTE FOR THE PROPOSED RESTRUCTURING.
PLAN OF IMPLEMENTATION
To carry out the restructuring, PG&E has caused to be formed two new
California corporations: PG&E Parent Co., Inc. and PG&E Merger Company
("MergeCo"). The name of the holding company has not yet been determined and,
for purposes of this Proxy Statement and Prospectus, it is referred to as PG&E
Parent Co., Inc. ("ParentCo") (which name is subject to change at the discretion
of the Board of Directors and without further action by the shareholders prior
to or as part of the restructuring). Prior to the Merger (defined below), PG&E
will own all the outstanding stock of ParentCo and ParentCo will own all the
outstanding stock of MergeCo. ParentCo and MergeCo currently have no business or
properties of their own. MergeCo is a transitory corporation, formed solely to
effectuate the Merger, and will cease to exist upon the Merger.
PG&E, ParentCo, and MergeCo have approved the Merger Agreement, which
provides that, subject to certain conditions including shareholder approval,
PG&E will become a subsidiary of ParentCo through the merger of MergeCo into
PG&E (the "Merger"). In the Merger, each share of PG&E Common Stock will be
converted into one share of ParentCo Common Stock. (See "Exchange of Stock
Certificates Not Required" below.) A copy of the Merger Agreement is attached to
this Proxy Statement and Prospectus as Exhibit A, and is incorporated herein by
reference.
In connection with the restructuring, it is contemplated that PG&E will
transfer to ParentCo its ownership interests in its two principal subsidiaries:
PGT and Enterprises. To the extent the Company acquires new businesses or assets
not regulated by the California Public Utilities Commission (the "CPUC"), such
businesses and assets also may be transferred to ParentCo. It is intended that
the other PG&E subsidiaries will remain subsidiaries of PG&E. After the
restructuring, the current holders of PG&E Common Stock will own all of the
outstanding ParentCo Common Stock, and ParentCo will own all of the outstanding
PG&E Common Stock. It also is anticipated that after the restructuring, ParentCo
will own directly or indirectly all of the outstanding stock of PGT and
Enterprises, and any other transferred businesses or assets, which, together
with ParentCo's ownership of all the PG&E Common Stock, is expected to
constitute all or substantially all of ParentCo's business and properties.
10
<PAGE> 32
The following diagrams illustrate the present corporate structure of PG&E
and its subsidiaries and the intended organization after the restructuring is
completed.
CURRENT STRUCTURE
COMMON AND PREFERRED SHAREHOLDERS
:
:
PG&E
:
:
...........................:.........................
: : :
: : :
PGT and Enterprises and Other PG&E
Subsidiaries Subsidiaries Subsidiaries
PROPOSED STRUCTURE
COMMON SHAREHOLDERS
:
:
:
PREFERRED SHAREHOLDERS ParentCo
: :
: ......................:........................
: : : :
: : : :
PG&E PGT and Enterprises and
: Subsidiaries Subsidiaries
:
:
Other PG&E
Subsidiaries
The proposed restructuring should not affect the position of present
shareholders of PG&E for federal income tax purposes. (See "Federal Income Tax
Consequences of the Merger" below.)
After the Merger, the outstanding shares of PG&E Preferred Stock will
continue to be outstanding shares of PG&E. Debt securities and other
indebtedness of PG&E will continue to be obligations of PG&E and, in the case of
PG&E's mortgage bonds, will continue to be secured by a first mortgage lien on
all or substantially all the properties of PG&E. See "Treatment of Preferred
Stock" and "Treatment of PG&E Indebtedness" below.
REASONS FOR THE RESTRUCTURING
The principal reason for the proposed restructuring is to enable the
Company to respond more effectively and efficiently to competitive changes
taking place in the gas and electric utility industry, thereby benefiting
shareholders and customers. It is believed that the proposed restructuring will
allow PG&E to efficiently operate its utility business which is subject to
regulation by the CPUC, while enabling the Company to respond more flexibly to
regulatory and other industry changes which are presenting new business
opportunities and challenges. The proposed restructuring also will improve the
financial separation of PG&E's California utility operations from the Company's
other businesses, while providing the Company with greater financing
flexibility.
11
<PAGE> 33
PG&E has operated primarily as a traditional utility, responsible for
constructing and operating the utility generation, transmission, and
distribution facilities needed to serve its customers in Northern and Central
California. However, the regulation of utilities and the markets which PG&E has
traditionally served are changing. As facets of the traditional utility business
become less regulated and more competitive, the energy options for customers are
expanding, and the challenges to existing utility operations are intensifying.
For example, in recent years the CPUC has been exploring alternatives for
encouraging competition in the generation of electricity in an effort to lower
customer rates. In December 1995, the CPUC issued an order that, when
implemented, will significantly change the regulation of utilities in California
and the markets which PG&E serves. The key elements of the order include (1)
creation of a wholesale power pool which would manage bids for electricity and
set market clearing prices to create a more efficient market for electric
generation, (2) establishment of an independent system operator to control and
manage the electric transmission system, (3) implementation of direct access for
certain customers who would be able to contract directly with electric
generation providers or intermediaries beginning in 1998, with direct access for
all customers phased in not later than 2003, (4) the possible voluntary
divestiture by utilities of at least 50% of their fossil-fueled electric
generation assets, and (5) a request for utility comment on corporate separation
of generation, transmission, and distribution assets under a holding company
structure or otherwise. In response to this order PG&E is considering a range of
possible alternatives, including the possible divestiture of a substantial
portion of its generating assets.
At the same time that facets of PG&E's traditional utility business are
becoming less regulated and more competitive, industry changes outside PG&E's
Northern and Central California service territory are presenting the Company
with new business opportunities. The expansion of independent power facilities
within the United States already has resulted in an increase in the Company's
investments outside California. In foreign countries, opportunities for
participating in electric generation projects are emerging, and government-owned
utilities are being privatized--a process whereby government-owned businesses
are sold to private investors. These developments are expected to continue to
offer the opportunity for expansion of the Company's investments outside
Northern and Central California.
The corporate separation and financing flexibility afforded by a holding
company structure will increase the Company's ability to respond to these
industry changes. For example, should it become necessary or appropriate, a
holding company structure could accommodate the separation of a component of
PG&E's business from PG&E's remaining core utility business, while allowing
common ownership of these businesses under ParentCo. Similarly, when new
business opportunities arise, the new businesses can be operated through
subsidiaries of ParentCo rather than through subsidiaries of PG&E, thereby
enhancing the separation between PG&E and those businesses. Such separation of
business functions will facilitate the development of these other businesses
while helping to insulate PG&E--the utility--from the risks associated with
their activities.
In contrast to a holding company structure, PG&E's current corporate
structure cannot accommodate the same degree of financial separation because all
business activities must be either part of the utility itself or conducted in
entities downstream of the utility. As a result, under the present corporate
organization, any volatility in earnings associated with these other businesses
would continue to be reflected in the present utility's financial results. In a
holding company structure these other businesses may be operated in sister
companies of PG&E, while sharing a common parent, ParentCo. The benefit of a
holding company structure is that the utility will be more effectively insulated
from the potential volatility of these businesses, since the activities of
sister companies of PG&E would not be reflected in the utility's financial
statements and any unfavorable financial results of these companies would not
adversely affect PG&E's equity capital.
In addition to this improved separation and insulation for PG&E's core
utility activities, management also believes that the holding company structure
will permit the use of financing techniques that are more directly suited to the
particular requirements, characteristics, and risks of the Company's other
businesses without any impact on the capital structure of PG&E. Management
anticipates that (i) ParentCo, in addition to receiving dividends from PG&E
(and other direct subsidiaries of ParentCo), may obtain funds through its own
debt or equity financings, (ii) PG&E may obtain funds through its own
financings (which may include the issuance of debt or preferred stock, as well
as the issuance of additional shares of PG&E Common Stock to ParentCo), and
(iii) the other businesses may obtain funds from ParentCo, from affiliates
other than PG&E, or from their own outside financings. Any financings will
depend upon the financial and other conditions of the entities involved and on
market conditions.
The proposed restructuring provides for a holding company that will not be
a utility. Under the expected regulatory treatment, neither ParentCo nor any
securities it issues will be subject to the direct jurisdiction of the CPUC, the
Federal Energy Regulatory Commission (the "FERC"), or the Nuclear Regulatory
Commission (the "NRC"). (See "Regulation" below.)
12
<PAGE> 34
Following the restructuring, PG&E still will operate as a public utility
subject to the jurisdiction of the CPUC, the FERC, and the NRC. The utility
business of PG&E is expected to constitute the principal part of ParentCo's
earnings for the foreseeable future after the restructuring.
MERGER AGREEMENT
The Merger Agreement has been unanimously approved by the Boards of
Directors of PG&E, ParentCo, and MergeCo. Pursuant to the Merger Agreement, the
following events will occur upon the effectiveness of the Merger:
- MergeCo will merge with PG&E, with PG&E being the surviving corporation.
- Each outstanding share of PG&E Common Stock will be automatically
converted into one share of ParentCo Common Stock.
- Each outstanding share of PG&E Preferred Stock will continue as one
such issued and outstanding share, with the same voting powers,
designations, preferences, rights, qualifications, limitations, and
restrictions as were applicable to such shares prior to the Merger.
- The outstanding shares of the common stock of MergeCo will be
automatically converted into all of the issued and outstanding shares of
PG&E Common Stock, all of which will then be owned by ParentCo (with the
effect that the number of issued and outstanding shares of PG&E Common
Stock immediately after the Merger will be the same as the number of
issued and outstanding shares of PG&E Common Stock immediately prior to
the Merger).
- The outstanding shares of ParentCo Common Stock held by PG&E will be
canceled.
As a result, PG&E, which will be the surviving corporation in the Merger,
will become a direct subsidiary of ParentCo, and all of the ParentCo Common
Stock outstanding immediately after the Merger will be owned by the holders of
PG&E Common Stock outstanding immediately prior to the Merger. In addition, as
the holder of all outstanding PG&E Common Stock following the Merger, ParentCo
will have sufficient voting power to take action on matters affecting PG&E which
do not require a class vote of the holders of PG&E Preferred Stock.
AMENDMENT OR TERMINATION OF THE MERGER AGREEMENT
By mutual consent of their respective Boards of Directors, PG&E, ParentCo,
and MergeCo may abandon the Merger or amend, modify, or supplement the terms of
the Merger Agreement in such manner as may be agreed upon by them in writing at
any time before or after approval of the restructuring by the shareholders of
PG&E. However, no such amendment, modification, or supplement shall, if agreed
to after such approval by the shareholders of PG&E, change any of the principal
terms of the Merger Agreement. PG&E will notify the shareholders in the event of
any material amendment, modification, or supplement to the Merger Agreement.
The Merger Agreement provides that it may be terminated, and the Merger
abandoned, at any time, whether before or after approval of the restructuring by
the shareholders of PG&E, by action of the PG&E Board of Directors if such Board
determines that the completion of the restructuring would for any reason be
inadvisable or not in the best interests of PG&E or its shareholders.
In making such determination, the PG&E Board of Directors would consider,
among other things, the number of holders of PG&E Common Stock or PG&E Preferred
Stock seeking to exercise statutory dissenters' rights under applicable
California law (described below under "Rights of Dissenting Shareholders"). The
PG&E Board of Directors also may terminate and abandon the restructuring if PG&E
has not received, within a reasonable period after shareholder approval, the
approval of the CPUC and other regulatory agencies on terms which are
satisfactory to the PG&E Board of Directors. PG&E is unable to predict under
what other circumstances the restructuring might be terminated and abandoned.
13
<PAGE> 35
AMENDMENT OF PG&E RESTATED ARTICLES
Approval of the Merger Agreement by the shareholders also will constitute
approval to amend and restate the Restated Articles of Incorporation of PG&E
(the "PG&E Restated Articles") to delete the "fair price" provisions contained
in Article NINTH of such Articles. Article NINTH of the PG&E Restated Articles
currently provides that transactions with any shareholder beneficially owning
more than 5% of PG&E's voting stock who seeks to effect certain business
combinations with PG&E (such as a merger, consolidation, transfer of substantial
assets, or recapitalization) must (1) be approved by 75% of the outstanding
voting stock, (2) be approved by a majority of disinterested directors, or (3)
satisfy certain "fair price" criteria with respect to the remaining
shareholders. PG&E has decided to delete Article NINTH of the PG&E Restated
Articles because such provisions no longer will be appropriate for PG&E once it
becomes a subsidiary of ParentCo following the Merger at which time the PG&E
Common Stock no longer will be publicly traded. In addition, the deletion of the
fair price provisions would avoid the risk of inadvertently triggering these
provisions as the result of certain inter-company transactions following the
restructuring. Substantially similar fair price provisions will be included in
Article EIGHTH of the ParentCo Articles (as defined below) that would apply to
transactions involving ParentCo Common Stock. (See "Articles of Incorporation
and Bylaws of ParentCo--Fair Price Provisions.")
TRANSFER OF PGT AND ENTERPRISES TO PARENTCO
As part of the restructuring, it is contemplated that PG&E will transfer
to ParentCo its ownership interests in PGT and Enterprises. PGT is a gas
pipeline company with operations in the Pacific Northwest. Enterprises is an
entity primarily with interests in various energy-related businesses located
outside California, and it is expected that Enterprises will be used as a
vehicle to pursue new energy-related foreign and domestic business
opportunities. As a result of the proposed transfer, PGT and Enterprises and
their assets no longer would be owned by PG&E. If the separation of these
subsidiaries had occurred on January 1, 1995, the net income (before PG&E
Preferred Stock dividend requirements) of PG&E for the year ended December 31,
1995, would have decreased by approximately $59 million, or approximately 4%,
and total assets would have decreased by approximately $2,198 million, or
approximately 8%. PG&E's net investment in PGT and Enterprises was approximately
$1,221 million on December 31, 1995, representing approximately 14% of the PG&E
Common Stock shareholders' equity as of that date.
The transfer of PGT and Enterprises to ParentCo, like other aspects of the
restructuring, is conditioned upon obtaining certain consents and other
approvals, the specific terms and conditions of which PG&E cannot predict.
Moreover, at the time of the transfers, PG&E's net investment in PGT and
Enterprises and their contribution to the net income of PG&E may differ
materially from the amounts and percentages shown above due in part to the
impact of the changing regulatory environment on PG&E's future operations as
well as new business opportunities and other changes in the Company's
businesses. It is possible that, based on future events, the PG&E Board of
Directors may determine that it is not in the best interests of PG&E or its
shareholders to transfer one or both of these subsidiaries to ParentCo in
connection with proposed restructuring. Provided the necessary regulatory and
other approvals are obtained, the Board of Directors may decide to proceed with
the remaining elements of the restructuring plan without transferring one or
both of these subsidiaries to ParentCo. The Board of Directors would not
consider any such modification to the intended restructuring to require either a
new vote of, or a separate notice to, the shareholders of PG&E, prior to
consummating the Merger and implementing a holding company structure for PG&E.
TREATMENT OF PREFERRED STOCK
The proposed Merger and restructuring will not result in any change in the
terms of PG&E's outstanding Preferred Stock, which will remain outstanding at
the PG&E level and will not be converted into, or otherwise become, a security
of ParentCo. The decision to have the PG&E Preferred Stock continue as a
security of PG&E is based upon, among other things, a desire to avoid changing
the nature of the investment represented by such stock, namely, an investment in
a senior security of a regulated utility, as well as the desire of PG&E not to
limit its ability to issue preferred stock in the future to help meet its
capital requirements.
PG&E Preferred Stock will continue to rank senior to PG&E Common Stock
(all of which, after the Merger, will be held by ParentCo) as to dividends and
as to the distribution of assets of PG&E in the event of any liquidation of
PG&E. Payment of dividends on ParentCo Common Stock will depend in large part on
the earnings of PG&E and payment of dividends on PG&E Common Stock. (See
"Dividend Policy.") The PG&E Restated Articles will continue to provide that no
dividends may be paid on PG&E Common Stock unless dividends are current on PG&E
Preferred Stock. Payment of any dividends on the common stock of any other
ParentCo subsidiaries will be unaffected by any dividend payment or nonpayment
on either PG&E Preferred Stock or PG&E Common Stock.
14
<PAGE> 36
Separation from PG&E of the assets and earnings of PGT and Enterprises
will decrease the assets and earnings of PG&E, and will result in PG&E's
investment in these subsidiaries being no longer of potential benefit to holders
of PG&E Preferred Stock (i.e., the assets and any earnings of these subsidiaries
will not be available to pay dividends or other amounts with respect to such
Preferred Stock). However, the utility operations of PG&E presently constitute,
and are expected to continue to constitute for the foreseeable future, the
predominant part of the Company's consolidated assets and earnings. Accordingly,
although the Company is unable to predict the ultimate outcome of regulatory and
other industry changes, it is believed that this transaction will not materially
affect the holders of PG&E Preferred Stock or the investment ratings of such
stock. (See "Transfer of PGT and Enterprises to ParentCo" above.)
Following the Merger, PG&E will continue to be subject to the
informational and other requirements under the Securities Exchange Act of 1934,
as amended, and will continue to hold annual shareholder meetings. However,
after the Merger, PG&E may decide not to solicit proxies from holders of PG&E
Preferred Stock in connection with the election of directors and in connection
with other matters requiring the approval of shareholders but not requiring a
class vote of holders of PG&E Preferred Stock, since the shares of PG&E Common
Stock owned by ParentCo will have sufficient voting power to take action without
the vote of PG&E Preferred Stock. The PG&E Preferred Stock is currently listed
on the American Stock Exchange ("ASE") and the Pacific Stock Exchange ("PSE")
and it is contemplated that it will continue to be so listed after the Merger.
PG&E will not discontinue proxy solicitation with respect to a particular series
of PG&E Preferred Stock in those cases where the applicable rules of a
securities exchange on which the series is listed requires continued proxy
solicitation.
TREATMENT OF PG&E INDEBTEDNESS
All of PG&E's indebtedness outstanding immediately prior to the Merger
will continue to be outstanding indebtedness of PG&E after the Merger and, in
the case of PG&E's first mortgage bonds, will continue to be secured by a first
mortgage lien on all or substantially all of the properties of PG&E, excluding
the common stock of PGT and Enterprises which will be released from such
mortgage lien upon their transfer to ParentCo. The PG&E indebtedness will be
neither assumed nor guaranteed by ParentCo in connection with the Merger. The
decision to have the indebtedness of PG&E continue as obligations of PG&E is
based upon a desire not to alter, or potentially alter, the nature of the
investment represented by such indebtedness, namely, a fixed income obligation
of a regulated utility.
Separation from PG&E of the assets and earnings of PGT and Enterprises
will decrease the assets and earnings of PG&E, and will result in PG&E's
investment in these subsidiaries being no longer of potential benefit to holders
of PG&E's debt securities (i.e., the assets and any earnings of these
subsidiaries will not be available to pay interest or principal with respect to
such securities). As noted above, PG&E's utility operations presently
constitute, and are expected to continue to constitute for the foreseeable
future, the predominant part of the Company's consolidated assets and earnings.
Accordingly, although the Company is unable to predict the ultimate outcome of
regulatory and other industry changes, it is believed that this transaction will
not materially affect the holders of PG&E debt securities or the respective
investment ratings of these securities. (See "Transfer of PGT and Enterprises to
ParentCo" above.)
PRO FORMA FINANCIAL INFORMATION
The following table summarizes certain pro forma financial effects of the
restructuring as of December 31, 1995, and for the year ended December 31, 1995,
as if the restructuring had occurred December 31, 1995 and January 1, 1995,
respectively, which, in the opinion of management, reflect all adjustments
necessary for a fair presentation. This information should be read in
conjunction with the consolidated financial statements and notes to consolidated
financial statements incorporated by reference herein. The holding company
restructuring is a reorganization of commonly-controlled entities and will be
accounted for as an as-if pooling of interests.
15
<PAGE> 37
<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)
-----------------------------
PG&E
CONSOLIDATED PRO FORMA PG&E PARENTCO
HISTORICAL ADJUSTMENTS(1) CONSOLIDATED(1) CONSOLIDATED
---------- -------------- --------------- ------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C>
BALANCE SHEETS--AS OF DECEMBER 31, 1995
Assets
Net plant in service........................................ $18,585 $(1,000) $17,585 $18,585
Investments and other noncurrent assets..................... 2,103 (912) 1,191 2,103
Current assets.............................................. 3,341 (129) 3,212 3,341
Deferred charges............................................ 2,821 (157) 2,664 2,821
------- ------- ------- -------
Total Assets................................................... $26,850 $(2,198) $24,652 $26,850
======= ======= ======= =======
Capitalization and Liabilities
Capitalization
Common stock equity...................................... $ 8,599 $(1,221) $ 7,378 $ 8,599
Preferred stock and preferred securities................. 839 -- 839 839
Long-term debt........................................... 8,049 (610) 7,439 8,049
------- ------- ------- -------
Total Capitalization........................................ 17,487 (1,831) 15,656 17,487
Other noncurrent liabilities................................ 1,233 (117) 1,116 1,233
Current liabilities......................................... 3,218 129 3,347 3,218
Deferred income taxes and other deferred credits............ 4,912 (379) 4,533 4,912
------- ------- ------- -------
Total Capitalization and Liabilities........................... $26,850 $(2,198) 24,652 $26,850
======= ======= ======= =======
Book Value per Common Share.................................... $ 20.77 $ 20.77
======= =======
STATEMENTS OF INCOME--YEAR ENDED DECEMBER 31, 1995
Operating Revenues............................................. $ 9,622 $ (379) $ 9,243 $ 9,622
Operating Expenses............................................. 6,859 (308) 6,551 6,859
------- ------- ------- -------
Operating Income............................................... 2,763 (71) 2,692 2,763
Other Income (Deductions)...................................... 151 (51) 100 151
Interest Charges............................................... 680 (33) 647 680
Preferred Dividend Requirements of PG&E........................ -- -- -- 70(2)
------- ------- ------- -------
Pretax Income.................................................. 2,234 (89) 2,145 2,164
Income Taxes................................................... 895 (30) 865 895
------- ------- ------- -------
Net Income..................................................... 1,339 (59) 1,280 1,269
======= =======
Preferred Dividend Requirements................................ 70 70(2) --
------- ======= -------
Earnings Available for Common Shares........................... $ 1,269 $ 1,269
======= =======
Earnings per Common Share...................................... $ 2.99 $ 2.99
======= =======
Ratio of Earnings to Fixed Charges(3).......................... 4.12 4.14 3.56
======= ======= =======
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends(4)................................ 3.56 3.56 3.56
======= ======= =======
</TABLE>
- ---------
(1) Reflects transfer of PGT and Enterprises from PG&E to ParentCo in connection
with restructuring.
(2) Reflects dividends associated with PG&E Preferred Stock as a charge against
retained earnings for PG&E and as a charge against net income for ParentCo.
(3) For the purpose of computing the Company's ratios of earnings to fixed
charges, "earnings" represent net income adjusted for the minority interest
in losses of less than 100%-owned affiliates, the Company's equity in
undistributed income or loss of less than 50%-owned affiliates, income
taxes, and fixed charges (excluding capitalized interest). "Fixed charges"
include interest on long-term debt and short-term borrowings (including a
representative portion of rental expense), amortization of bond premium,
discount and expense, interest on capital leases, pretax earnings required
to cover the preferred stock dividend requirements of majority-owned
subsidiaries, and after-tax earnings required to cover the tax-deductible
preferred security distribution requirements of majority-owned subsidiaries.
(4) For the purpose of computing the Company's ratios of earnings to combined
fixed charges and preferred stock dividends, "earnings" represent net income
adjusted for the minority interest in losses of less than 100%-owned
affiliates, the Company's equity in undistributed income or loss of less
than 50%-owned affiliates, income taxes, and fixed charges (excluding
capitalized interest). "Fixed charges" include interest on long-term debt
and short-term borrowings (including a representative portion of rental
expense), amortization of bond premium, discount and expense, interest on
capital leases, pretax earnings required to cover the preferred stock
dividend requirements of majority-owned subsidiaries, and after-tax earnings
required to cover the tax-deductible preferred security distribution
requirements of majority-owned subsidiaries. "Preferred stock dividends"
represent the sum of requirements for preferred stock dividends that are
deductible for federal income tax purposes and requirements for preferred
stock dividends that are not deductible for federal income tax purposes
increased to an amount representing pretax earnings which would be required
to cover such dividend requirements.
16
<PAGE> 38
DIVIDEND POLICY
It is anticipated that the quarterly dividends on ParentCo Common Stock
will commence at a rate no less than that being paid on PG&E Common Stock at the
time of the Merger, and will be paid on approximately the same dates in each
year as dividends on PG&E Common Stock have been paid. The rate and timing of
dividends of ParentCo in the future will depend primarily on the earnings of
ParentCo's subsidiaries, principally PG&E; the dividend restrictions of ParentCo
and its subsidiaries, including PG&E; other financial considerations; and other
factors affecting the Company. The quarterly dividend most recently declared by
the Board of Directors of PG&E was $.49 per share of PG&E Common Stock payable
on April 15, 1996, to holders of record on March 15, 1996.
Initially, the funds required by ParentCo to operate and to enable it to
pay dividends on ParentCo Common Stock following the Merger are expected to be
derived primarily from dividends paid by PG&E on PG&E Common Stock. It is
anticipated that such cash dividends paid by PG&E to ParentCo will be
sufficient, together with any amounts provided by other subsidiaries of
ParentCo, to enable ParentCo to pay cash dividends on ParentCo Common Stock and
to meet operating and other expenses. However, the dividend policy of PG&E will
continue to be established by PG&E's Board of Directors as though PG&E were a
comparable stand-alone utility, and the amount of dividends declared and paid by
PG&E will be subject to the availability of earnings and the needs of the
utility business, as well as CPUC requirements. In addition, the ability of PG&E
to pay dividends on PG&E Common Stock to ParentCo will be subject to the prior
dividend rights of PG&E Preferred Stock, to restrictions contained in the
indenture supporting PG&E's first mortgage bonds and other agreements to which
PG&E is or may become a party, to other factors affecting PG&E, and to
requirements of California law.
The PG&E Common Stock dividend currently is based on a number of financial
considerations, including sustainability, financial flexibility, and
competitiveness with investment opportunities of similar risk. The Company has a
long-term objective of reducing its dividend payout ratio (dividends declared
divided by earnings available for common stock) to reflect the increased
business risk in the utility industry. It is anticipated that these same
considerations will apply after the restructuring. At this time, the Company is
unable to determine the impact, if any, that changes in regulation of the
utility industry will have on the Company's dividend level in the future.
Payment of dividends on PG&E Preferred Stock is anticipated to continue at
the specified rates without interruption or change; provided, however, that the
payment of these dividends also is dependent upon the earnings and financial
condition of PG&E, upon restrictions contained in the indenture supporting
PG&E's first mortgage bonds and other agreements to which PG&E is or may become
a party, upon other factors affecting PG&E, and upon requirements of California
law.
DIRECTORS AND MANAGEMENT OF PARENTCO AND PG&E
The directors of PG&E will become the directors of ParentCo upon the
completion of the Merger. (See "Item No. 1: Election of Directors" above.) In
approving the Merger Agreement and the proposed formation of a holding company
structure for PG&E, shareholders of PG&E will be considered to have ratified the
election of these persons as directors of ParentCo. Subsequent to the Merger,
the composition of the Board of Directors of ParentCo and PG&E may change over
time.
It is anticipated that the following persons will hold, at least
initially, in addition to the office or offices held with PG&E, the offices of
ParentCo indicated below:
<TABLE>
<CAPTION>
NAME OFFICE
---- ------
<S> <C>
Stanley T. Skinner Chairman of the Board, President, and Chief Executive Officer
Gordon R. Smith Chief Financial Officer
Bruce R. Worthington General Counsel
Leslie H. Everett Corporate Secretary
</TABLE>
17
<PAGE> 39
Initially, ParentCo will not have full-time officers and employees of its
own. To the extent, however, that the activities of ParentCo expand, ParentCo
may employ full-time salaried officers and employees. ParentCo and PG&E each
expect, from time to time, to render to the other certain services and to make
available the use of certain facilities and equipment. The corporation receiving
such services or using such facilities and equipment will reimburse the other
corporation for the cost or fair market value thereof, as appropriate. The
agreements and arrangements between ParentCo and PG&E for the provision of such
services and the use of such facilities and equipment are subject to review by
the CPUC. (See "Regulation" below.)
ARTICLES OF INCORPORATION AND BYLAWS OF PARENTCO
The articles of incorporation of ParentCo, as they shall be amended and
restated prior to the effectiveness of the Merger (the "ParentCo Articles"),
have been prepared in accordance with the California General Corporation Law and
give ParentCo broad corporate powers to engage in any lawful activity for which
a corporation may be formed under the laws of the State of California. The name
"PG&E Parent Co., Inc.," which is presently set forth in the ParentCo Articles,
is subject to change at the discretion of the Board of Directors and without
further action by the shareholders prior to or as part of the Merger. The
following statements summarize certain relevant provisions of the ParentCo
Articles. This summary should be read in the context of, and is qualified by
reference to, (i) the full ParentCo Articles, a copy of which is attached to
this Proxy Statement and Prospectus as Exhibit B and incorporated herein by
reference, and (ii) the laws of the State of California. By approving the Merger
Agreement and the proposed formation of a holding company structure for PG&E,
shareholders of PG&E will be ratifying the provisions of the ParentCo Articles.
The ParentCo Articles are substantially the same as the current PG&E
Restated Articles, except that they do not include certain provisions of the
PG&E Restated Articles which are obsolete or unnecessary or which specifically
concern PG&E Preferred Stock. (See "Amendment of PG&E Restated Articles" above.)
Shareholders should be aware that certain provisions of the ParentCo Articles
may have the effect of discouraging unilateral tender offers or other attempts
to take over and acquire the business of the Company, and as a result these
provisions might diminish the opportunity for ParentCo's shareholders to sell
their shares at a premium over then prevailing market prices.
CAPITAL STOCK
The ParentCo Articles authorize the issuance of 800 million shares of
ParentCo Common Stock and 85 million shares of preferred stock of ParentCo (the
"ParentCo Preferred Stock"). Immediately after the Merger, the number of
outstanding shares of ParentCo Common Stock will be the same as the number of
outstanding shares of PG&E Common Stock immediately prior to the Merger and no
shares of ParentCo Preferred Stock will be outstanding. Under California law,
shares of ParentCo Common Stock and ParentCo Preferred Stock may be issued by
ParentCo from time to time upon such terms and for such consideration (and, as
to Preferred Stock, having such rights, preferences, privileges, and
restrictions) as may be determined by the ParentCo Board of Directors. Such
further issuances, up to the aggregate amounts authorized by the ParentCo
Articles, will not require authorization from the CPUC or approval by the
shareholders. ParentCo also may issue ParentCo Common Stock from time to time
pursuant to dividend reinvestment and employee benefit plans (see "Dividend
Reinvestment and Employee Benefit Plans" below). Under current provisions of the
Public Utility Holding Company Act of 1935, as amended (the "Holding Company
Act"), and the rules and regulations thereunder, issuance of ParentCo Preferred
Stock may be restricted.
Holders of ParentCo Common Stock, subject to any prior rights or
preferences of ParentCo Preferred Stock outstanding, (i) have equal rights to
receive dividends if and when declared by the ParentCo Board of Directors out of
funds legally available therefor, and (ii) will receive any distribution made to
shareholders upon liquidation. ParentCo Common Stock has no preemptive rights to
subscribe for additional shares of ParentCo Common Stock or other securities of
ParentCo, nor does it have any redemption or conversion rights. ParentCo Common
Stock has voting rights on the basis of one vote per share. Any series of
ParentCo Preferred Stock issued by ParentCo will have such voting rights as may
be determined by the ParentCo Board of Directors at the time of issuance;
however, the present policies of the national stock exchanges against issuances
of stock with disparate voting rights may serve to limit ParentCo's issuances of
any ParentCo Preferred Stock with enhanced voting rights.
18
<PAGE> 40
NUMBER OF DIRECTORS
The California General Corporation Law allows the number of persons
constituting the board of directors of a corporation to be fixed by the bylaws
or the articles of incorporation, or permits the bylaws or articles of
incorporation to provide that the number of directors may vary within a
specified range, the exact number to be determined by the board of directors.
The PG&E Restated Articles provide for a Board of Directors that may vary
between fourteen (14) and seventeen (17) members, inclusive, with the exact
number to be determined by the bylaws of PG&E (the "PG&E Bylaws"). The PG&E
Bylaws currently fix the exact number of directors at fifteen (15).
The ParentCo Articles expand the range of the number of directors by
providing that there shall not be fewer than nine (9) nor more than seventeen
(17) directors, with the exact number to be determined by the bylaws of ParentCo
("ParentCo Bylaws"). The ParentCo Bylaws fix the exact number of directors at
fifteen (15) and, as of the Merger, the membership of the ParentCo Board will be
identical to the PG&E Board of Directors. Increasing the range in the number of
directors to between nine and seventeen is intended to give the Board of
Directors of ParentCo greater flexibility in determining the appropriate number
of directors who should constitute the Board.
CUMULATIVE VOTING
Under cumulative voting, each share of stock entitled to vote in an
election of directors has such number of votes as is equal to the number of
directors to be elected. A shareholder then may cast all of his or her votes for
a single candidate or may allocate them among as many candidates as the
shareholder may choose. As a result, shareholders holding a significant minority
percentage of the outstanding shares entitled to vote in an election of
directors may be able to effect the election of one or more directors. If
cumulative voting is available, then it is mandatory upon timely notice given by
any shareholder at a meeting at which directors are to be elected.
Neither the PG&E Bylaws nor the ParentCo Articles allow cumulative voting.
Thus, the holder or holders of shares representing a majority of the votes
entitled to be cast in an election of directors for ParentCo will be able to
elect all directors then being elected. The absence of cumulative voting could
have the effect of preventing representation of minority shareholders on the
ParentCo Board of Directors.
FAIR PRICE PROVISIONS
The ParentCo Articles contain "fair price" provisions which are
substantially similar to those which have been contained in the PG&E Restated
Articles (see "Amendment of PG&E Restated Articles" above), except for a
modification that will have the effect of clarifying that these provisions have
no applicability to transactions between PG&E and ParentCo. The "fair price"
provisions included in the ParentCo Articles are intended to reduce the
possibility of unfair treatment of shareholders in takeover situations. In
addition, the fair price provisions provide that, when evaluating any proposal
or offer involving a business combination or merger or consolidation of the
Company, the Board of Directors shall give due consideration to all factors they
may consider relevant. Such factors may include the legal, economic,
environmental, regulatory, and social effects of the proposed transaction on the
Company's employees, customers, suppliers, and other affected persons and
entities and on the communities and geographic areas in which the Company
provides utility service or is located, and in particular, the effect on the
Company's ability to safely and reliably meet any public utility obligations at
reasonable rates.
INDEMNIFICATION AND LIABILITY PROVISIONS
The ParentCo Articles contain provisions regarding the indemnification of
directors, officers, and other agents of ParentCo and the limitation of
liability of ParentCo directors which are substantially similar to provisions
contained in the PG&E Restated Articles.
AMENDMENT OF ARTICLES
The PG&E Restated Articles and the ParentCo Articles may be amended by the
approval of the holders of shares having a majority of the votes entitled to be
cast for such amendment, except for amendment of the fair price provisions
(which may require a vote of 75% of the outstanding shares entitled to vote).
19
<PAGE> 41
BYLAWS
The ParentCo Bylaws initially will be substantially similar to the PG&E
Bylaws.
STOCK EXCHANGE LISTING
ParentCo has applied to list ParentCo Common Stock on the New York Stock
Exchange ("NYSE") and on the Pacific Stock Exchange ("PSE"). It is expected that
such listings will occur on, or soon after, the effective date of the Merger. At
the time of the listing of ParentCo Common Stock, PG&E Common Stock then will be
delisted from trading on these stock exchanges (all outstanding shares will be
held by ParentCo). The PG&E Preferred Stock is currently listed on the American
Stock Exchange ("ASE") and PSE and it is contemplated that it will continue to
be so listed after the Merger.
TRANSFER AGENT AND REGISTRAR
PG&E currently acts as the transfer agent for PG&E Common Stock and PG&E
Preferred Stock. After the Merger, it is anticipated that PG&E will continue to
act as the transfer agent for PG&E Preferred Stock and that PG&E will act as the
transfer agent for ParentCo Common Stock. It is expected that the registrar of
ParentCo Common Stock will be the same as is presently serving in such capacity
for PG&E Common Stock and PG&E Preferred Stock: First Interstate Bank of
California.
DIVIDEND REINVESTMENT PLAN AND EMPLOYEE BENEFIT PLANS
If the Merger is completed, PG&E's Dividend Reinvestment Plan will be
assumed and continued by ParentCo on and after the effective date of the Merger,
so that shares of ParentCo Common Stock thereafter will be available to the
holders of ParentCo Common Stock and PG&E Preferred Stock on the same terms as
provided in PG&E's Dividend Reinvestment Plan.
If the Merger is completed, PG&E's Stock Option Plan, Savings Fund Plan,
and Restricted Stock Plan for Non-Employee Directors (assuming it is approved by
shareholders of PG&E at the annual meeting) will be amended, as and when
appropriate, to provide for the issuance of ParentCo Common Stock rather than
PG&E Common Stock. Such plans, as well as the Retirement Plan and other employee
benefit plans of PG&E (collectively, the "Employee Benefit Plans"), also will be
amended, as and when appropriate, to include eligible employees of ParentCo and
the other subsidiaries of ParentCo, in addition to the eligible employees of
PG&E, and to make any other changes necessary or appropriate as a result of the
formation of a holding company structure for PG&E and the related restructuring.
By approving the Merger Agreement and the proposed formation of a holding
company structure for PG&E, the shareholders of PG&E will be deemed to have
approved the actions to be taken in connection with the Employee Benefit Plans,
including any amendments to the Employee Benefit Plans necessary to accomplish
those actions.
REGULATION
As a utility, PG&E is subject to the jurisdiction of the CPUC with respect
to rates for retail sales, standards of service, issuances of securities, and
certain other matters. PG&E also is subject to the jurisdiction of (i) the FERC,
with respect to certain aspects of its electric business, including
hydroelectric licenses, rates for sales at wholesale, rates for transmission,
interconnections with other electric utilities, and accounting, and (ii) the
NRC, with respect to PG&E's ownership of and licensee status as to the Diablo
Canyon nuclear generating facility and also as to the Humboldt Bay nuclear
generating facility, a retired power plant. The formation of a holding company
structure for PG&E, the Merger, and the related restructuring will not change
the applicability of such regulatory jurisdiction to PG&E. Moreover, PG&E must
obtain certain authorizations from the CPUC, the FERC, and the NRC to implement
various aspects of the restructuring. An application for authorization from the
CPUC was filed on October 20, 1995, and PG&E subsequently filed for approvals
from the FERC and the NRC.
PGT is an interstate gas pipeline company subject to the jurisdiction of
the FERC with respect to transmission rates, standards of service, accounting,
and other matters. The formation of a holding company structure and the
contemplated transfer to ParentCo of PG&E's ownership interest in PGT will not
change the applicability of such regulatory jurisdiction to PGT.
20
<PAGE> 42
Enterprises owns, directly or indirectly, interests in various electric
generating facilities located within the United States, but outside PG&E's
service territory of Northern and Central California. These generating
facilities are subject to limited regulation by the FERC and state regulatory
agencies. The formation of the holding company structure and the contemplated
transfer to ParentCo of PG&E's ownership interest in Enterprises will not change
this regulation.
So long as ParentCo is not a public utility or the owner or licensee of
nuclear generating facilities, it will not be subject to regulation by the CPUC,
the FERC, or the NRC, except to the extent that rules or orders of these
commissions may impose restrictions on ParentCo's relationship with PG&E, PGT,
or another regulated affiliate that are designed to protect utility customers,
to promote the common defense and security, or to protect the health and safety
of the public. CPUC rules are, for example, designed to (i) ensure that all
costs incurred by PG&E which result from the activities undertaken by PG&E's
affiliates will be fully recovered from such affiliates, (ii) provide the CPUC
with access to all information necessary to analyze PG&E's costs and monitor the
transactions between PG&E and its non-utility affiliates, (iii) ensure that
PG&E's customers will be insulated from effects of non-utility activities, and
(iv) protect the financial health of PG&E's utility operations. PG&E will
continue to be subject to CPUC regulation of its operations, including its
dealings with ParentCo.
ParentCo believes that it will be entitled to an exemption from all
provisions of the Holding Company Act except Section 9(a)(2), which requires
prior approval of the Securities and Exchange Commission (the "SEC") for certain
utility acquisitions. The exemption will take effect upon completion of the
Merger and related restructuring and the filing with the SEC of an appropriate
exemption statement pursuant to the provisions of the Holding Company Act. It
will be necessary to file an annual exemption statement each year thereafter.
The basis of this exemption is that both ParentCo and PG&E, as ParentCo's only
public utility subsidiary, are incorporated in the same state (i.e.,
California), and PG&E is predominately intrastate in character and carries on
its business substantially in the state of incorporation. The exemption is
available only so long as the utility business of PG&E, and of any other public
utility subsidiary from which ParentCo derives a material portion of its income,
remain predominantly within California. PGT, Enterprises, and affiliates in
which they hold an interest do not constitute public utilities, as defined by
the Holding Company Act, and therefore do not affect the availability of the
exemption.
The exemption from the provisions of the Holding Company Act also may be
revoked on a finding by the SEC that such exemption may be detrimental to the
public interest or the interest of investors or consumers. Further, the prior
approval of the SEC under Section 9(a)(2) of the Holding Company Act would be
required if ParentCo proposed the acquisition or creation, directly or
indirectly, of additional utility subsidiaries. ParentCo has no present
intention of becoming a registered holding company subject to regulation by the
SEC under the Holding Company Act.
CONDITIONS PRECEDENT TO THE MERGER
The Merger Agreement provides that consummation of the Merger is subject
to approval of the principal terms of the Merger Agreement by the shareholders
of PG&E, ParentCo, and MergeCo, as is more fully set forth below under
"Shareholder Vote" and to the approval by the NYSE of ParentCo Common Stock for
listing upon official notice of issuance. If the shareholders of PG&E approve
the Merger, PG&E then will cause the shares of ParentCo and MergeCo to be voted
in favor of the Merger.
In addition, the decision to proceed with the Merger is subject to, among
other things, the receipt, on terms and conditions satisfactory to the Board of
Directors of PG&E, of (i) authorization from the CPUC to form a holding company
structure for PG&E, (ii) other required regulatory authorizations, and (iii)
such other consents and approvals as the Board may deem necessary or
appropriate.
EFFECTIVE DATE OF THE MERGER
The Merger Agreement provides that the Merger will be effective at the end
of the last day of the calendar month during which the Merger Agreement and
related officers' certificates are filed with the California Secretary of State
as provided in Section 1103 of the California General Corporation Law.
Management anticipates that the effective date will occur on or before December
31, 1996, although there can be no assurance that the effective date will not
occur prior to or subsequent to that date due to uncertainties in obtaining CPUC
or other regulatory approvals.
21
<PAGE> 43
SHAREHOLDER VOTE
Approval of the Merger Agreement and the proposed formation of a holding
company structure for PG&E will require the favorable vote of (1) a majority of
the outstanding shares of PG&E Common Stock entitled to vote at the annual
meeting, and (2) a majority of the outstanding shares of PG&E Common Stock and
PG&E Preferred Stock entitled to vote at the annual meeting, voting together,
with each share having one vote.
Unless they are marked to the contrary, properly executed proxies received
by PG&E prior to or at the annual meeting will be voted in favor of the Merger
Agreement and the proposed formation of a holding company structure for PG&E.
Proxies which are marked "Abstain," as well as broker proxies which are not
voted with respect to the Merger Agreement, will have the same effect as a vote
against this proposal.
RIGHTS OF DISSENTING SHAREHOLDERS
The rights of shareholders of PG&E who dissent with respect to the Merger
are governed by Chapter 13, Sections 1300-1312 ("Chapter 13"), of the California
General Corporation Law, the text of which is set forth as Exhibit C to this
Proxy Statement and Prospectus and is incorporated herein by reference. The
description of dissenters' rights in this Proxy Statement and Prospectus is
qualified in its entirety by reference to Chapter 13 of the California General
Corporation Law.
If the Merger is completed, the shareholders who object to the Merger and
who have fully complied with all applicable provisions of Chapter 13 of the
California General Corporation Law may have the right to require PG&E to
purchase their shares for cash at the fair market value of such shares as of the
close of business on October 18, 1995, the business day before the terms of the
Merger were first announced, excluding any appreciation or depreciation because
of the proposed Merger. (See "Market Values of Stock" below.) Persons who are
beneficial owners of shares of PG&E but whose shares are held by another person,
such as a broker or nominee, should instruct the record holder to follow the
procedures outlined below if such persons wish to dissent with respect to any or
all of their shares.
Under the California General Corporation Law, shares of PG&E Common Stock
and PG&E Preferred Stock must be purchased by PG&E if all applicable
requirements are complied with, but only if (a) demands for payment are filed
with respect to five percent (5%) or more of the outstanding shares of the class
(with shares of PG&E Common Stock treated as one single class for such purposes
and all shares of PG&E Preferred Stock treated as another single class), or (b)
the shares are subject to a restriction on transfer imposed by PG&E or by any
law or regulation. In this regard, PG&E is not aware of any restriction on
transfer except restrictions that may be imposed upon shareholders who are
deemed to be "affiliates" of PG&E (as that term is defined in Rule 144 adopted
by the SEC under the Securities Act of 1933, as amended (the "Securities Act")).
PG&E urges any shareholder believing there is any such restriction affecting his
or her shares to consult with his or her own legal counsel as to the nature and
extent of any dissenters' rights he or she may have.
PROCEDURAL REQUIREMENTS
For a holder of shares of PG&E Common Stock and PG&E Preferred Stock to
exercise the right to have PG&E purchase his or her shares, the procedures to be
followed under Chapter 13 of the California General Corporation Law include the
following requirements:
(1) The holder of record must have voted the shares against the Merger. It
is not sufficient to abstain from voting. However, the holder may vote part of
his or her shares in favor of the Merger or abstain from voting part of his or
her shares without losing the right to have PG&E purchase those shares which
were voted against the Merger.
(2) Any such holder who wishes to have PG&E purchase his or her shares
that were voted against the Merger must make a written demand to have PG&E
purchase the dissenting shares for their fair market value. The demand must
include the information specified below and must be received by PG&E or its
transfer agent not later than the date of the annual meeting at which the Merger
is approved. See "Demand for Purchase" below.
Assuming PG&E elects to proceed with the Merger (see "Amendment or
Termination of the Merger Agreement" above), within ten days after approval of
the Merger by the shareholders, PG&E will notify any holders of shares who voted
against the Merger and made a timely demand for purchase (and who are entitled
to require PG&E to purchase their shares because either (1) holders of five
percent (5%) or more of the outstanding shares of the relevant class filed
demands by the date of the annual meeting, or (2) the shares are subject to a
restriction on transfer) of the approval and will offer all of these holders a
cash price for their shares which PG&E considers to be the fair market value (as
described
22
<PAGE> 44
above) of the shares. The notification also will contain a brief description of
the procedures to be followed under Chapter 13 of the California General
Corporation Law (and a copy of such Chapter) in order for a holder to exercise
his or her right to have PG&E purchase such shares.
Demand for Purchase
Merely voting or delivering a proxy directing a vote against approval of
the Merger does not constitute a demand for purchase. A written demand is
required. In all cases, the written demand must:
(1) Be made by the person who was the holder of record on the Record Date
(or his or her duly authorized representative) and not by someone who
is merely a beneficial owner of the shares or a holder who acquired
the shares subsequent to the Record Date;
(2) State the number and class of dissenting shares; and
(3) Include an offer to sell the shares to PG&E at what the holder
believes to be the fair market value of the shares on October 18,
1995, the business day before the terms of the Merger were first
announced, excluding any appreciation or depreciation because of the
proposed Merger.
In addition, the following conditions apply:
(a) The demand should be sent by registered or certified mail, return
receipt requested;
(b) The demand must be signed by the holder of record (or his or her duly
authorized representative) exactly as his or her name appears on the
form of proxy accompanying his or her copy of this Proxy Statement and
Prospectus;
(c) A demand regarding shares owned jointly by more than one person must
identify and be signed by all such holders; and
(d) Any person signing a demand in any representative capacity (such as
attorney-in-fact, executor, administrator, trustee, or guardian) must
indicate his or her title and, if PG&E so requests, must furnish
written proof of his or her capacity and authority to sign the demand.
A demand for payment may not be withdrawn without the consent of PG&E.
OTHER REQUIREMENTS
Within 30 days after the date on which notice of approval of the Merger is
mailed by PG&E to appropriate shareholders, a holder's stock certificates
representing any shares which the holder demands that PG&E purchase must be
submitted to PG&E at its principal office to be endorsed with a statement that
the shares are dissenting shares. Upon subsequent transfer of these endorsed
shares, the new certificates will be similarly endorsed.
If PG&E and a shareholder agree that the shares are dissenting shares and
agree upon the price of the shares, the shareholder will be entitled to the
agreed price with interest thereon at the legal rate on judgments from the date
of such agreement. If PG&E and a shareholder fail to agree on either the fair
market value of the shares or on the eligibility of the shares to be purchased
by PG&E, then either the shareholder or PG&E may file a complaint for judicial
resolution of the dispute. The complaint must be filed within six months after
the date on which the notice of approval is mailed to shareholders. If a
complaint is not filed within such six-month period, the shares will lose their
eligibility for status as dissenting shares. Two or more dissenting shareholders
may join as plaintiffs or be joined as defendants in such an action. If the fair
market value of the shares is in dispute, the court shall determine, or shall
appoint one or more impartial appraisers to assist in its determination of, the
fair market value. The costs of the action will be assessed or apportioned as
the court considers equitable, but if the fair market value is determined to
exceed the price offered by PG&E, then PG&E will be required to pay such costs.
Under certain circumstances, PG&E also may be required to pay attorneys' fees
and certain other costs.
No payment will be made for dissenting shares until completion of the
Merger. In addition, any cash dividends declared and paid by PG&E upon the
dissenting shares after shareholder approval of the Merger and prior to payment
being made for the dissenting shares shall be credited against the amount to be
paid for such dissenting shares.
23
<PAGE> 45
As mentioned above, under the Merger Agreement, the PG&E Board of
Directors has the right to abandon the Merger for any reason (even after
shareholder approval), and that right may be exercised if the aggregate cost of
purchasing dissenting shares is not acceptable. In such case, PG&E will not be
obligated to purchase any dissenting shares, but may be required to pay
necessary expenses and reasonable legal fees of shareholders who have in good
faith commenced proceedings to enforce their dissenters' rights.
Any demands, notices or other documents required to be sent to PG&E may be
sent to it at Office of the Corporate Secretary, 77 Beale Street, Mail Code B32,
P.O. Box 770000, San Francisco, CA 94177.
MARKET VALUES OF STOCK
The market values of the various classes and series of capital stock of
PG&E on October 18, 1995 (the business day immediately preceding public
announcement of the terms of the proposed Merger), were:
<TABLE>
<CAPTION>
MARKET VALUE
TITLE OF CLASS/SERIES PER SHARE
--------------------- ------------
<S> <C>
Common Stock................ $29.63
Preferred Stock
7.44%....................... 25.13
7.04%....................... 25.38
6.875%...................... 23.50
6.57%....................... 25.90
6.30%....................... 25.63
5.00%....................... 17.38
5.00% Series A.............. 17.50
4.80%....................... 16.38
4.50%....................... 15.75
4.36%....................... 15.63
6.00%....................... 21.50
5.50%....................... 19.63
5.00%....................... 17.88
</TABLE>
There is no public market as yet for ParentCo Common Stock.
EXCHANGE OF STOCK CERTIFICATES NOT REQUIRED
Upon completion of the Merger, it will not be necessary for holders of
PG&E Common Stock to exchange their existing stock certificates for stock
certificates of ParentCo. Holders of PG&E Common Stock automatically will become
holders of ParentCo Common Stock on a share-for-share basis, and the present
stock certificates for PG&E Common Stock automatically will represent shares of
ParentCo Common Stock.
After the restructuring, as presently outstanding stock certificates are
presented for transfer, new certificates bearing the name of PG&E Parent Co.,
Inc. (or such other name as may be substituted for, or otherwise replace, the
name of PG&E Parent Co., Inc.) will be issued. New certificates of ParentCo also
will be issued in exchange for old certificates of PG&E upon the request of any
shareholder. Certificates presented for transfer to a name other than that in
which the surrendered certificate is registered must be properly endorsed, with
the signature medallion guaranteed, and accompanied by evidence of payment of
any applicable stock transfer taxes.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
PG&E and ParentCo have been advised by their counsel, Orrick, Herrington &
Sutcliffe, that:
(1) No gain or loss will be recognized by the holders of shares of PG&E
Common Stock on the receipt of shares of ParentCo Common Stock solely
in exchange for shares of PG&E Common Stock;
(2) The basis of shares of ParentCo Common Stock received by the holders
of shares of PG&E Common Stock will be the same as the basis of the
shares of PG&E Common Stock exchanged for such ParentCo Common Stock;
24
<PAGE> 46
(3) As to each holder of shares of PG&E Common Stock who held his or her
shares as a capital asset, the holding period of shares of ParentCo
Common Stock will include the holding period of the shares of PG&E
Common Stock exchanged for such ParentCo Common Stock; and
(4) No gain or loss will be recognized by ParentCo upon the issuance of
shares of ParentCo Common Stock in exchange for shares of PG&E Common
Stock.
Holders of PG&E Common Stock or PG&E Preferred Stock who contemplate
dissenting from the Merger should consult with their tax advisors concerning the
tax consequences of that action.
The United States federal income tax discussion set forth above is based
upon current law and is intended for general information only. The foregoing is
not intended to be a comprehensive discussion of all possible federal income tax
consequences of the Merger. Furthermore, the Registration Statement of which
this Proxy Statement and Prospectus is a part does not provide information
regarding the tax consequences of the Merger under the tax laws of any state or
of any local or foreign jurisdiction. Holders of PG&E Common Stock are urged to
consult their own tax advisors with respect to specific tax consequences of the
Merger.
LEGAL OPINION
Orrick, Herrington & Sutcliffe, as counsel for PG&E and ParentCo, has
rendered an opinion to the effect that the ParentCo Common Stock offered in this
Proxy Statement and Prospectus will be validly issued, fully paid, and
nonassessable.
EXPERTS
The consolidated financial statements and related schedule included in
PG&E's current report on Form 8-K dated February 21, 1996, and incorporated by
reference in this Proxy Statement and Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in giving said report.
25
<PAGE> 47
Item No. 3:
Amendment and Restatement of the Long-Term Incentive Program
GENERAL
The PG&E Board of Directors has amended and restated PG&E's Long-Term
Incentive Program (the "LTIP"), effective January 1, 1996, subject to approval
by the shareholders, to: (1) provide for the grant of restricted stock to
directors of PG&E or any parent corporation who are not employees of the
Company; (2) make changes to the stock option and performance unit features to
permit the LTIP to meet the requirements of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), relating to the tax deductibility
of compensation paid to certain executive officers; (3) authorize an additional
10 million shares of PG&E Common Stock for the grant of incentive awards under
the LTIP; (4) extend the term of the LTIP to December 31, 2005; and (5) make
certain other technical and clarifying changes to the LTIP.
A majority of the votes cast is required to approve the amendment and
restatement of the LTIP. Properly executed proxies received by PG&E prior to or
at the annual meeting will be voted in favor of this proposal unless they are
marked to the contrary.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO
AMEND AND RESTATE THE LONG-TERM INCENTIVE PROGRAM.
PURPOSE AND PRINCIPAL FEATURES OF THE AMENDED AND RESTATED LTIP
The following summary describes the purpose and principal features of the
LTIP, as amended and restated.
PURPOSE
The purpose of the LTIP is to advance the interests of the Company and
its shareholders by providing officers, key management employees, and other
eligible participants with financial incentives tied directly to the Company's
long-term business objectives. As originally approved by the shareholders in
1992, the LTIP encompassed and supplemented two plans which previously had been
administered separately: the Stock Option Plan (described below) and the
Performance Unit Plan (described below). The amended and restated LTIP
encompasses and further supplements these two plans, and also adds a new plan:
the Restricted Stock Plan for Non-Employee Directors (described below).
The various amendments to the LTIP and the addition of the Restricted
Stock Plan for Non-Employee Directors were recommended by the Nominating and
Compensation Committee (the "Committee") of the PG&E Board of Directors, a
committee composed entirely of directors who are neither employed by nor
otherwise affiliated with PG&E. The Committee's decision was based on the
recommendations of an independent consulting firm specializing in compensation
and benefit matters.
TYPES OF INCENTIVE AWARDS
The LTIP contains a number of optional forms of incentive awards which may
be used at the sole discretion of the Committee. Incentive awards under the LTIP
may take the form of stock options, stock appreciation rights ("SARs"), dividend
equivalents, performance units, restricted stock, or other stock-based awards.
The stock options may be incentive stock options ("ISOs") intended to qualify
for special tax treatment or non-qualified stock options ("NQSOs").
At the present time, PG&E primarily uses the stock option, tandem SAR,
tandem dividend equivalent, and performance unit features of the LTIP. In
addition, subject to shareholder approval of the amendment and restatement of
the LTIP, PG&E intends to use the restricted stock feature of the LTIP for
awards to individuals who are directors of PG&E or any parent corporation which
may hereafter be formed, provided that such directors are not also employees of
the Company ("non-employee directors").
26
<PAGE> 48
The type of incentive award being granted, as well as the terms and
conditions of the award, is determined by the Committee at the time of grant,
except that, as described below, non-employee directors are not eligible to
receive any form of incentive award under the LTIP other than grants of
restricted stock. (See "Restricted Stock Plan for Non-Employee Directors"
below.)
ELIGIBILITY
All officers of PG&E are eligible to participate in the LTIP. Also
eligible to participate, if so identified by the Committee (or by the Chief
Executive Officer of PG&E, to the extent authorized by the LTIP), are officers
of wholly-owned subsidiaries of PG&E, other key management employees of PG&E or
any wholly-owned subsidiary of PG&E, other employees or consultants of PG&E or
any subsidiary or affiliate of PG&E, and other persons whose participation in
the LTIP is deemed by the Committee to be in the best interests of PG&E. As of
December 31, 1995, there were 50 current or former officers of PG&E, three
current or former officers of PG&E subsidiaries, 407 current or former key
management employees of PG&E, and six other persons participating in the LTIP.
Effective January 1, 1996, the amended and restated LTIP provides that
non-employee directors of PG&E or any parent corporation are eligible to receive
grants of restricted stock strictly in accordance with, and subject to, the
terms and conditions specified in the LTIP. Non-employee directors are not
eligible to receive any other form of incentive award under the LTIP. Prior to
the amendment and restatement of the LTIP, non-employee directors were not
eligible to participate in the LTIP. There currently are 13 non-employee
directors of PG&E, all of whom are eligible to receive grants of restricted
stock under the amended and restated LTIP. In addition, if the proposed
formation of a holding company structure for PG&E is approved by the
shareholders and implemented by the Company, non-employee directors of ParentCo
will be eligible to receive grants of restricted stock under the amended and
restated LTIP.
ADMINISTRATION OF THE LTIP
The Committee determines the eligible participants who will be granted
incentive awards, determines the amount and type of award, determines the terms
and conditions of awards, construes and interprets the LTIP, and makes all other
determinations with respect to the LTIP, to the extent permitted by applicable
law and subject to certain restrictions specified in the LTIP. The Chief
Executive Officer of PG&E has authority to grant incentive awards to eligible
participants who are neither officers nor directors of the Company and, in the
case of employees, whose annual salaries are below the level which requires
Committee approval. Grants by the Chief Executive Officer must conform to the
guidelines approved by the Committee. Grants of restricted stock to non-employee
directors of PG&E or any parent corporation will be made strictly in accordance
with the terms and conditions specified in the LTIP.
EFFECTIVE DATE AND DURATION OF THE LTIP
The LTIP became effective as of January 1, 1992, and originally was
scheduled to terminate on December 31, 2001. Upon its approval by the PG&E
shareholders, the amended and restated LTIP will become effective as of January
1, 1996, and will terminate on December 31, 2005, unless terminated sooner
according to the terms of the LTIP.
SHARES SUBJECT TO THE LTIP
A maximum of 23,389,230 shares of PG&E Common Stock are reserved for use
under the LTIP. These shares consist of (1) 13 million shares of PG&E Common
Stock originally authorized for use under the LTIP at the time it first became
effective on January 1, 1992; (2) 389,230 shares of PG&E Common Stock remaining
under PG&E's 1986 Stock Option Plan and carried over to the LTIP; and (3) 10
million shares of PG&E Common Stock added to the amended and restated LTIP,
effective January 1, 1996. Shares of PG&E Common Stock covered by previously
granted incentive awards may be reused or added back to the LTIP under certain
circumstances set forth in the LTIP and to the extent permitted by applicable
law. As a result of the reorganization of PG&E and its subsidiaries into a
holding company structure, shares of PG&E Common Stock automatically will be
converted into shares of ParentCo Common Stock, and ParentCo Common Stock will
be issued in lieu of PG&E Common Stock in connection with all stock option
exercises and incentive award grants occurring on or after the effective date of
the Merger.
27
<PAGE> 49
STOCK OPTION PLAN
The Committee may grant ISOs, NQSOs, tandem SARs, and tandem dividend
equivalents to eligible participants (see "Eligibility" above), subject to the
terms and conditions of the Stock Option Plan adopted by the Committee.
STOCK OPTIONS. Stock options allow the optionee to buy a certain number of
shares of PG&E Common Stock at an option price equal to the market price at the
time the option is granted. The option may not be exercised until the right to
do so has vested under a schedule approved by the Committee. The vesting
schedule currently used by the Committee generally provides that one-third of
the options may be exercised on or after the second anniversary of the date of
grant, two-thirds on or after the third anniversary, and 100 percent on or after
the fourth anniversary.
TANDEM SARS. At the discretion of the Committee, options may be granted
with or without tandem SARs which permit an optionee to surrender an option or a
portion thereof in exchange for a cash payment equal to the difference between
the current market value of PG&E Common Stock and the option price. A tandem SAR
is subject to the same terms and conditions as the related option, except that
it may be exercised only when the market value exceeds the option price. Certain
restrictions also exist with respect to the payment of the dividend equivalent
account to the optionee (see "Tandem Dividend Equivalents" below.) In addition,
executive officers of PG&E and other participants who are subject to Section 16
of the Securities Exchange Act of 1934 may exercise SARs only during certain
quarterly window periods.
TANDEM DIVIDEND EQUIVALENTS. Options may be granted with or without tandem
dividend equivalents. When an option is granted with tandem dividend
equivalents, a dividend equivalent account is established for the optionee. On
each dividend record date for PG&E Common Stock, the optionee's account is
credited with an amount equal to the dividend on PG&E Common Stock subject to
the unexercised portion of the option. Funds in the account are accessible only
when (1) the option or related tandem SAR is exercised, and (2) if a SAR is
exercised, the market value of PG&E Common Stock has increased by an average of
at least five percent per year for the first five years after the grant or, in
the case of options held for longer than five years, such market value has
increased by at least 25 percent.
PAYMENT FOR SHARES UPON EXERCISE OF STOCK OPTIONS. At the time an option
is exercised, shares of PG&E Common Stock may be purchased using (1) cash
(including any dividend equivalent account funds); (2) shares of PG&E Common
Stock owned by the optionee for at least one year; (3) a "cashless exercise"
procedure (whereby a broker sells the shares or holds them as collateral for a
margin loan, and delivers the option sale or loan proceeds to the optionee); or
(4) any combination of the foregoing or any other method of payment which the
Committee may allow. The Company will not make loans to optionees for the
purpose of exercising options.
TERM OF OPTIONS AND TANDEM SARS. The term of each ISO and related tandem
SAR is 10 years and the term of each NQSO and related tandem SAR is 10 years and
one day, subject to earlier termination, as described below.
TERMINATION OF EMPLOYMENT OR RELATIONSHIP WITH THE COMPANY. Upon
termination of the optionee's employment or relationship with the Company, (1)
any unexercised options shall be canceled and terminated immediately, except
that any unexercised options which are vested may be exercised during the
balance of their term or within 30 days of termination, whichever is shorter,
and (2) the optionee's dividend equivalent account (if any) shall not be
credited with any dividends paid after the date of termination. If an optionee
is terminated for cause or discharged, any unexercised options shall be
terminated immediately. In the event of a termination by reason of retirement,
by reason or death or disability, or by reason of a divestiture or change in
control of a subsidiary of PG&E, (1) special rules allow the optionee to
exercise all vested and unvested options within certain time periods after
termination, and (2) the optionee's dividend equivalent account (if any) shall
continue to be credited with dividends on unexercised options as long as those
options remain exercisable.
LIMITATION ON OPTIONS AND SARS AWARDED TO ANY OPTIONEE. Effective in 1994,
Section 162(m) of the Code placed a limit of $1 million on the amount of
compensation which may be deducted by PG&E in any tax year with respect to each
of the five highest paid executive officers. However, compensation arising from
stock options and SARs granted under the LTIP is not subject to this deduction
limit if certain limitations approved by the shareholders are applied to such
incentive awards. In order to maximize the deductibility of compensation
relating to awards of options and SARs, the LTIP has been amended to add a
limitation on the number of shares with respect to which an optionee may be
granted options and SARs under the LTIP. The amended and restated LTIP provides
that, during any calendar year, an eligible participant may be granted options
and SARs covering no more than two percent (2%) of the total number of shares
reserved for use under the LTIP.
28
<PAGE> 50
PERFORMANCE UNIT PLAN
The Committee may grant performance units to certain officers of PG&E and
such other employees of PG&E, other companies, affiliates, subsidiaries, or
associations as may be designated by the Committee, subject to the terms and
conditions of the Performance Unit Plan adopted by the Committee. The number of
units granted to a recipient is determined by the Committee based upon
recommendations made by the Chief Executive Officer of PG&E. The number of units
granted is based on the Company's financial success, its future business plans,
relevant compensation, general economic conditions, and other appropriate
factors.
The performance units vest one-third in each of the three years following
the year of grant. At the time of the annual grant of units, the Committee
establishes performance targets to be met within the vesting period as a
condition of earning the units. Performance targets may be based entirely on
corporate goals, entirely on business unit goals, or partially on corporate
goals and partially on business unit goals. Performance targets may be adjusted
during the vesting period, at the Committee's sole discretion, to reflect
extraordinary events beyond management's control.
The Committee has approved the following performance target for the 1996
performance unit grants: to achieve a three-year annual total shareholder return
that equals at least the median three-year annual total shareholder return of
the 50 largest power utilities nationwide. To the extent that this performance
target is met, the recipient would receive 100 percent of the vested units;
performance below the target results in a reduction or elimination entirely of
the number of units paid to the recipient; and performance above the target can
result in an increase up to 200 percent. The value of a unit at payment is equal
to the average market price of PG&E Common Stock for the 30 calendar day period
prior to the end of the year in which the unit qualifies for payment.
Each time a cash dividend is declared on PG&E Common Stock, an amount
equal to the cash dividend per share multiplied by the number of outstanding but
unearned units held by the recipient of a performance unit will be accrued on
behalf of the recipient. As soon as practicable following the end of each year,
recipients will receive a cash payment of the dividends accrued for the year,
modified by performance for that year as measured against the applicable
performance target. Prior to the amendment and restatement of the LTIP,
recipients of performance units received cash dividend equivalent payments each
time a cash dividend was declared on PG&E Common Stock. Under Section 162(m) of
the Code, amounts paid under performance-based compensation programs are not
subject to the limitation on the tax deductibility of executive officer
compensation. The addition of a performance target for dividend equivalents is
designed to qualify the performance unit feature of the LTIP as
performance-based compensation under Section 162(m).
RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
Subject to shareholder approval of the amendment and restatement of the
LTIP, each PG&E director who is not an employee of the Company automatically
will receive a grant of restricted shares of PG&E Common Stock having a fair
market value of $10,000 on the first business day each year during the term of
the LTIP. The 1996 restricted stock grants will be made to each person who was a
non-employee director of PG&E on January 2, 1996, as soon as practicable
following receipt of all required shareholder and regulatory approvals. After
the reorganization of the Company into a holding company structure, any
non-employee director of ParentCo who is not also a director of PG&E will
receive annual grants of restricted stock at the same time and in the same
amounts as PG&E directors.
Shares of restricted stock may be forfeited to PG&E to the extent that
they are not vested. Such shares generally will vest at the rate of 20 percent
on each anniversary of the grant date. Non-employee directors will have all of
the rights of a PG&E shareholder with respect to all outstanding shares of
restricted stock, including the right to vote and receive dividends, whether or
not such shares are vested. Upon termination of service as a PG&E or ParentCo
director, any unvested shares of restricted stock will be forfeited. In the
event of a termination by reason of mandatory retirement at the age specified in
the PG&E or ParentCo Board of Directors retirement policy, by reason of death or
disability, or by reason of a change in control, all shares of restricted stock
will become fully vested.
OTHER INCENTIVE AWARDS
The Committee also may grant other types of incentive awards, including
stand-alone SARs or stand-alone dividend equivalents (SARs or dividend
equivalents granted without options), stock grants, limited SARs (SARs which are
exercisable only in the event of a change in control), and phantom stock
(hypothetical shares of stock that can be converted at a future date into cash
or stock).
29
<PAGE> 51
TAX WITHHOLDING
To the extent that a recipient of an incentive award incurs any tax
liability in connection with the exercise or receipt of an award, the
recipient's withholding obligation may be satisfied through payroll deductions
or a direct cash payment to PG&E. In addition, the Committee may allow the
recipient to satisfy all or part of such withholding obligation by allowing PG&E
to withhold a portion of the shares to be issued to the recipient.
REPLACEMENT OF GRANTS
The Committee may allow a recipient of an incentive award to surrender or
exchange an unexercised option or award for another award of the same or a
different type, as long as the option price or purchase price of the new option
or award is not lower than the option price or purchase price of the original
option or award.
DEFERRAL OF PAYMENTS
The Committee may allow the deferral of any cash payments which may become
due under the LTIP.
ADJUSTMENT UPON CHANGES IN NUMBER OR VALUE OF SHARES OF COMMON STOCK
In order to prevent enlargement or dilution of rights resulting from stock
dividends, stock splits, recapitalizations, mergers, consolidations, or other
events that materially increase or decrease the number or value of shares of
PG&E Common Stock, the Committee may make such adjustments as it deems
appropriate.
NON-TRANSFERABILITY OF INCENTIVE AWARDS
Incentive awards shall not be transferable otherwise than by will or by
the laws of descent and distribution, and generally may be exercised during the
lifetime of the recipient only by the recipient.
CHANGE IN CONTROL
Unless the Committee determines that a change in control (as defined in
the LTIP) is in the best interests of the shareholders of PG&E and will not
adversely impact the recipients of incentive awards under the LTIP, (1) any time
periods relating to the exercise or realization of any incentive award shall be
accelerated so that such award may be exercised or realized in full immediately
upon the change in control, (2) all shares of restricted stock shall immediately
cease to be forfeitable, (3) all conditions relating to the realization of any
stock-based award shall immediately terminate, and (4) the Committee may offer
recipients the option of having PG&E purchase their awards for an amount of cash
which could have been attained upon the exercise or realization of such awards
if they had been fully exercisable or realizable. The proposed reorganization of
the Company into a holding company structure would not be considered a change in
control for purposes of the LTIP.
AMENDMENT AND TERMINATION OF THE LTIP AND INCENTIVE AWARDS
The PG&E Board of Directors or the Committee may at any time suspend,
terminate, modify, or amend the LTIP in any respect. However, shareholder
approval of amendments shall be obtained in the manner and to the degree
required by applicable laws or regulations. Any provisions in the LTIP
specifying the amount, price, or timing of incentive awards to be granted to
non-employee directors shall not be amended more than once every six months,
other than to comport with changes in certain laws and regulations. The
Committee also may amend or modify the terms and conditions of any incentive
award, or cancel or annul any grant of an award.
FUNDING
Inasmuch as the LTIP is designed to encourage financial performance and to
improve the value of shareholders' investment in PG&E, the costs of the LTIP
will be funded from corporate earnings.
30
<PAGE> 52
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief description of the federal income tax
consequences of stock options, tandem SARs, tandem dividend equivalents,
performance units, and restricted stock granted under the LTIP under present tax
laws.
NON-QUALIFIED STOCK OPTIONS. There will no federal income tax consequences
to either the optionee or the Company upon the grant of a NQSO. Upon the
exercise of a NQSO, the optionee generally will have taxable ordinary income
equal to the difference between the current market value of the shares and the
option price, and the Company will be entitled to a federal income tax deduction
of that amount.
INCENTIVE STOCK OPTIONS. There will be no federal income tax consequences
to either the optionee or the Company upon the grant or exercise of an ISO.
However, unless the holding period requirements discussed below are violated,
upon exercise of an ISO, an optionee will be deemed to have a tax preference
item (equal to the difference between the current market value of the shares on
the date of exercise and the option price) that may result in alternative
minimum tax liability. If an optionee exercises an ISO and does not dispose of
the shares within two years from the date of grant or within one year from the
date the shares are transferred to the optionee, any gain realized upon
disposition will be taxable to the employee as long-term capital gain, and the
Company will not be entitled to any deduction. If an optionee violates the
holding period requirements, the optionee will realize ordinary income in the
year of disposition, and the Company will be entitled to a corresponding
deduction in an amount equal to the excess of (1) the lesser of (a) the amount
realized on the sale or exchange or (b) the fair market value of the shares on
the date of exercise, over (2) the option price.
An ISO which is exercised more than three months after the optionee
terminates employment with the Company will be treated as a NQSO for federal
income tax purposes.
TANDEM STOCK APPRECIATION RIGHTS. There will be no federal income tax
consequences to either the optionee or the Company upon the grant of a tandem
SAR or during the period that the unexercised right remains outstanding. Upon
the exercise of a tandem SAR, the amount received will be taxable to the
optionee as ordinary income, and the Company will be entitled to a corresponding
deduction.
TANDEM DIVIDEND EQUIVALENTS. There will be no federal income tax
consequences to either the optionee or the Company upon the establishment of a
dividend equivalent account or during the period that funds accrue in the
account. Amounts paid from the account will be taxable to the optionee as
ordinary income, and the Company will be entitled to a corresponding deduction.
PERFORMANCE UNITS. There will be no federal income tax consequences to
either the recipient or the Company upon the grant of performance units.
Dividend equivalents paid on performance units will be taxable to the recipient
as ordinary income, and the Company will be entitled to a corresponding
deduction. Upon the payment of performance units, the amount received will be
taxable to the recipient as ordinary income, and the Company will be entitled to
a corresponding deduction.
RESTRICTED STOCK. Upon the grant to a non-employee director of restricted
stock subject to a vesting schedule, the recipient will be deemed to receive
taxable ordinary income equal to the fair market value of the shares at the time
they vest. Upon the sale or disposition of the shares, the recipient will
realize capital gain or loss in an amount equal to the difference between the
fair market value of the shares on each vesting date and the sale or disposition
price.
Section 83(b) of the Code permits a recipient to elect, within 30 days
after the grant of any shares of restricted stock subject to a vesting schedule,
to be taxed at ordinary income rates on the fair market value of all shares
received, based on the fair market value of the shares on the date of grant. If
the recipient makes a Section 83(b) election, any later appreciation in the
value of the shares will be taxable as capital gain instead of ordinary income
when they are sold or transferred.
Non-employee directors are subject to self-employment taxes on the amount
recognized as ordinary income. At the time the director elects to be taxed on
the grant of restricted stock, the Company will be entitled to a federal income
tax deduction in an amount equal to the ordinary income recognized by the
director.
31
<PAGE> 53
BENEFITS UNDER THE AMENDED AND RESTATED LTIP
Subject to certain limitations, the Committee has full discretion to
determine the number, type, and value of incentive awards to be granted to
eligible participants under the LTIP. Thus, the benefits and amounts that will
be received by or allocated to the officers, directors, and employees of PG&E
are not determinable. Information regarding incentive awards granted to the
named executive officers during the last three years is presented under
"Executive Compensation--Summary Compensation Table," "--Option/SAR Grants in
1995," and "--Long-Term Incentive Program--Awards in 1995." The amount of
restricted stock to be received by each non-employee director is fixed under the
LTIP, as discussed above (see "Restricted Stock Plan for Non-Employee
Directors"), and may not be amended more frequently than once every six months.
EFFECT OF IMPLEMENTATION OF HOLDING COMPANY STRUCTURE
Upon completion of the reorganization of PG&E as a subsidiary of ParentCo,
ParentCo will assume and continue the amended and restated LTIP and all of the
shares of PG&E Common Stock reserved for use under the LTIP will become shares
of ParentCo Common Stock. In addition, by approving the formation of ParentCo
and the related agreement of merger, the shareholders will be deemed to have
approved the actions necessary to effect the assumption of the LTIP by ParentCo.
32
<PAGE> 54
Item No. 4:
Ratification of Selection of Independent Public Accountants
On the recommendation of the PG&E Audit Committee, the PG&E Board of
Directors has selected Arthur Andersen LLP as the independent public accountants
to examine the financial statements of PG&E and its subsidiaries for the year
1996. It is anticipated that Arthur Andersen LLP will be appointed as
independent public accountants for ParentCo if the proposed formation of a
holding company structure is approved. Arthur Andersen LLP has been employed to
perform this function for PG&E since 1981.
One or more representatives of Arthur Andersen LLP will be present at the
annual meeting, and will have the opportunity to make a statement and to respond
to appropriate questions.
Although this appointment is not required to be submitted to a vote of the
shareholders, the Board of Directors believes it is appropriate as a matter of
policy to request that the shareholders ratify the appointment. If the
shareholders should not ratify the appointment, the Audit Committee will
investigate the reasons for rejection by the shareholders and the Board of
Directors will reconsider the appointment.
A majority of the votes cast is required to ratify the appointment of the
independent public accountants. Properly executed proxies received by PG&E prior
to or at the annual meeting will be voted in favor of this proposal unless they
are marked to the contrary.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO
RATIFY THE SELECTION OF ARTHUR ANDERSEN LLP.
33
<PAGE> 55
Item No. 5:
Shareholder Proposal
SHAREHOLDER PROPOSAL: COMPENSATION OF DIRECTORS
Mr. Nick Rossi, P.O. Box 249, Boonville, California, 95415, holder of 600
shares of PG&E Common Stock, has given notice of his intention to present the
following proposal for action at the annual meeting:
"The shareholders of Pacific Gas and Electric request the Board of
Directors take the necessary steps to amend the company's governing instruments
to adopt the following:
Beginning on the 1997 Pacific Gas and Electric fiscal year all members of
the Board of Director's total compensation will be 2,000 shares of Pacific Gas
and Electric common stock each year. No other compensation of any kind will be
paid."
In support of this proposal, Mr. Rossi has submitted the following
statement:
"For many years the Rossi family have been submitting for shareholder
vote, at this corporation as well as other corporations, proposals aimed at
putting management on the same playing field as the shareholders. This proposal
would do just that.
"A few corporations have seen the wisdom in paying directors solely in
stock. Most notably, Scott Paper and Travelers. Ownership in the company is the
American way. We feel that this method of compensation should be welcomed by
anyone who feels they have the ability to direct a major corporation's fortunes.
"The directors would receive 2,000 shares each year. If the corporation
does well, the directors will make more money in the value of the stock they
receive and the dividend that usually rise with more profits. If things go bad,
they will be much more inclined to correct things, because it will be coming
directly out of their pockets. Instead of the way it is done now, where
directors receive the same compensation for good or bad performance."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
PG&E believes that a portion of its directors' compensation should be
comprised of equity ownership in PG&E. Therefore, in 1995 the Board of Directors
adopted a program, subject to shareholder approval, whereby a portion of each
director's compensation would be comprised of PG&E Common Stock. In addition,
PG&E has an established program through which directors may, at their option,
reinvest all or a portion of their non-stock retainers and fees in PG&E Common
Stock, thereby facilitating their increased stock ownership over time.
However, PG&E does not agree that directors should be paid solely in
stock. PG&E desires to have a diverse Board, and requiring that all compensation
paid to directors be in the form of PG&E Common Stock could discourage or
prevent highly qualified individuals from serving on the Board in the future.
In addition, this shareholder proposal would restrict PG&E's ability to
establish director compensation that is appropriate and competitive with that
paid to directors of other utilities and industrial companies. Directors'
compensation arbitrarily set at 2,000 shares per year may bear no relationship
to fees that other companies are paying their directors, and could result in
fees which are too high or too low in relation to market practice. Setting
compensation at a fixed number of shares would inhibit PG&E's ability to offer
compensation that is competitive with that offered by other companies and would
reduce PG&E's ability to attract qualified directors.
For these reasons, the Board of Directors recommends that shareholders
vote AGAINST this proposal.
Approval of this shareholder proposal requires an affirmative vote of a
majority of the votes cast. Unless marked to the contrary, properly executed
proxies received by PG&E prior to or at the annual meeting will be voted against
this proposal.
34
<PAGE> 56
Executive Compensation
NOMINATING AND COMPENSATION COMMITTEE REPORT ON COMPENSATION
PG&E is the nation's largest investor-owned gas and electric utility,
serving over 13 million people in Northern and Central California. The Company's
assets at December 31, 1995, totalled $26.9 billion and its earnings for the
year exceeded $1.3 billion. PG&E delivers power to customers from a highly
diversified electric generating system, including hydroelectric, geothermal,
wind, solar, and gas-fired facilities, and from one of the most successful
nuclear power plants in the world. Through its affiliates U.S. Generating
Company and International Generating Company, Ltd., PG&E has become a national
leader in the growing independent power production business and currently is
exploring opportunities to expand internationally.
During the past five years, PG&E has provided shareholders an average
annual return--the combination of dividends and stock price appreciation--of 9.2
percent and, as shown in the graph on page 39, a cumulative total shareholder
return of 55 percent.
PG&E is committed to maintaining a high level of safety and service while
at the same time sustaining financial performance for shareholders. Meeting this
challenge in an increasingly competitive world requires exceptional people: men
and women with skill, experience, vision, and entrepreneurial spirit. It is
these men and women, at every level in PG&E, who make the difference between
superior performance and mediocrity, and who create value for PG&E's
shareholders and customers.
PG&E's compensation programs are designed to attract, retain, and motivate
these exceptional people. They reflect two fundamental principles which apply to
every officer of PG&E:
1. PG&E's compensation and benefits programs are competitive with those of
other employers. PG&E competes for talent. Every company wants the most
qualified and competent employees. Attracting and retaining employees
who make the difference for shareholders, customers, and the Company
require that PG&E offer competitive compensation and benefits.
2. Part of every officer's compensation is tied directly to PG&E's
performance for shareholders. If shareholders do well, officer
compensation rises. If shareholders do not do well, officer
compensation declines. In other words, a portion of every officer's
compensation is "incentive compensation" which is at risk based on
PG&E's financial performance. The greater the officer's management
responsibilities, the larger the share of his or her total compensation
is at risk.
In order to implement these principles, PG&E established the following four
objectives which were used to set 1995 compensation for officers:
1. Base salary and annual incentive compensation combined should be
approximately equal to the average compensation paid by other large
energy utilities.
2. Total compensation (base salary, target annual incentive, long-term
incentives, and benefits) should be about 80 percent of the average
total compensation of general industry.
3. Approximately one-half of target total compensation is tied directly to
financial performance for shareholders.
4. Incentive compensation is tied to both PG&E's short-term and
longer-term financial performance. This reflects PG&E's commitment to
achieve sustained growth in value for shareholders.
For 1996, the foregoing objectives were replaced by the following officer
compensation objectives:
1. Total compensation (base salary, target annual incentive, long-term
incentives, and benefits) and the pay mix should be competitive with
the average compensation of a comparator group of companies that
includes both major utilities and general industry companies.
2. For utility-specific positions, annual cash compensation (base salary
and target annual incentive) should be approximately equal to the
average cash compensation paid by other large utilities.
3. Approximately one-half of target total compensation should be tied
directly to financial performance for shareholders.
35
<PAGE> 57
4. Incentive compensation should be tied to both PG&E's short-term and
longer-term financial performance. This reflects PG&E's commitment to
achieve sustained growth in value for shareholders.
Compensation for the Chief Executive Officer is approved by the Board of
Directors based on the recommendation of the Nominating and Compensation
Committee of the Board, composed entirely of independent non-employee directors.
In establishing the compensation of the Chief Executive Officer for 1995, the
Board of Directors approved the recommendation of the Nominating and
Compensation Committee without modification. Compensation for all other officers
is approved by the Nominating and Compensation Committee. The Nominating and
Compensation Committee retains an independent consultant, Hewitt Associates, to
help evaluate PG&E's compensation policies and to recommend compensation
alternatives which are consistent with those policies. Founded in 1940, Hewitt
Associates is an international firm of consultants and actuaries specializing in
the design and administration of employee compensation and benefit programs.
Hewitt Associates has been engaged by the Nominating and Compensation Committee
since 1990.
Effective in 1994, Section 162(m) of the Internal Revenue Code eliminated
the deductibility of compensation over $1 million paid to the five highest paid
executive officers of public corporations. However, the deduction limitation
does not apply to amounts paid pursuant to performance-based compensation
programs, provided that (1) the performance targets are preestablished,
objective standards, (2) the programs have been approved by shareholders, and
(3) there is no discretion to modify or alter payments after the performance
targets have been established for the year. A substantial portion of the
compensation paid to PG&E's officers is wholly dependent upon PG&E's performance
and is determined by comparing changes in shareholder value against
predetermined performance targets set by the Committee at the beginning of each
year.
Two of the three performance-based plans which PG&E currently uses were
previously approved by the shareholders in 1992 before the effective date of
Section 162(m). These plans are tied exclusively to total shareholder return
from stock appreciation and dividends and comply substantially with the
requirements of the new law. However, these plans have now been amended to adopt
provisions required by the final regulations issued under Section 162(m) and are
being presented to shareholders for approval at this year's annual meeting. (See
"Amendment and Restatement of the Long-Term Incentive Program" above.)
To the extent consistent with the Committee's overall policy of
maintaining a competitive, performance-based compensation program, it is PG&E's
intent to maintain the tax deductibility of the compensation which it pays.
However, due to the restrictive nature of Section 162(m), technical compliance
with its requirements can reduce or eliminate the value of using certain types
of stock-derived plans. As a result, although the Committee in designing and
maintaining a competitive incentive compensation program will qualify as much of
the program for deduction under Section 162(m) as is reasonably possible, such
qualification is not a mandatory precondition to payments where technical
compliance is inconsistent with program objectives. It is anticipated that the
amount of any tax deduction forgone due to the impact of the Section 162(m)
limit will be de minimis.
PRINCIPAL COMPONENTS OF COMPENSATION
BASE SALARY
Executive salaries are reviewed annually by the Nominating and
Compensation Committee based on (a) the results achieved by each individual, (b)
PG&E's expected financial performance, measured by earnings per share for the
Company overall, dividends, and stock price appreciation, and (c) changes in the
average salaries paid by other large energy utilities.
For 1995, 14 utilities were used as comparators for the purpose of setting
base salary and annual incentives. These utilities, which are among the largest
utilities nationwide, were selected by the Committee because they are comparable
to PG&E in size and their approach to compensation emphasizes long-term
incentives; seven of these utilities are included in the Dow Jones Utilities
Index. The target established by the Nominating and Compensation Committee for
1995 officer salaries was the average salary paid to all officers of the 14
utilities used as comparators. In setting the 1995 salary levels for PG&E's
executive officers, the Committee's objective was that the overall average of
the salaries paid to all PG&E officers as a group (including the CEO) should be
approximately equal to the target competitive level.
In 1995, Chairman of the Board and Chief Executive Officer Stanley T.
Skinner received a base salary of $570,000. This salary level is below the
average salary of chief executive officers of other major energy utilities and
below 80 percent of the average salary of CEOs of major industrial companies.
The overall average of the actual base salaries received by all PG&E officers
(including Mr. Skinner) for 1995 was below the average salary paid to all
officers of the 14 comparator utilities.
36
<PAGE> 58
For 1996, the Nominating and Compensation Committee has adopted the
following officer pay objectives: (1) for all officers, a target total
compensation objective of the average compensation paid to all officers of
companies in a new comparator group consisting of 32 major utilities and general
industry companies, and (2) for utility-specific officer positions, a target
cash compensation (base salary plus target annual incentive) objective of the
average cash compensation paid by the utilities included in the new comparator
group.
ANNUAL INCENTIVE
The Performance Incentive Plan for 1995 was designed to provide annual
incentives to all officers and all management and non-bargaining unit employees
based on the achievement of financial and service-related objectives. The
performance measures for 1995 were (a) PG&E's success in meeting the corporate
earnings-per-share (EPS) objective, and (b) the success of each employee's
organizational unit in meeting its individual objectives, such as cost control,
quality of customer service, and operational efficiency. Awards for the Chairman
of the Board and Chief Executive Officer, the President and Chief Operating
Officer, and the Executive Vice President for 1995 are based entirely on the
corporate EPS performance objective. Awards for other participating employees
are designed to increase or decrease based on each organizational unit's success
in meeting its performance objectives. These objectives are not necessarily
weighted equally; the actual weightings for a given organizational unit are
determined by the Chairman of the Board and Chief Executive Officer and the head
of the organizational unit.
At the beginning of the year, target awards are set based on each
participating employee's job responsibilities and salary level. Final awards are
determined by the Nominating and Compensation Committee and may range from zero
to twice the target, depending on the extent to which the Company achieves its
financial and service-related objectives. The Committee has discretion to modify
or eliminate awards.
In 1995, PG&E exceeded its corporate EPS objective. This performance
resulted in Performance Incentive Plan awards to the Chairman of the Board and
Chief Executive Officer, the President and Chief Operating Officer, and the
Executive Vice President which were 148 percent of their target awards.
LONG-TERM INCENTIVES
The Stock Option Plan and the Performance Unit Plan provide incentives
based on PG&E's financial performance over time.
The Stock Option Plan provides incentives based on PG&E's ability to
sustain financial performance over a three-to-ten year period.
Under the Plan, officers, managers, and other key employees receive stock
options based on their responsibilities and position in the Company. These
options allow them to purchase a certain number of shares of PG&E Common Stock
at the market price on the date of grant (typically the first business day of
each year), provided that they hold the options for at least two full years and
exercise them within ten years. PG&E does not reprice or change the terms of
options once they have been granted.
At the Nominating and Compensation Committee's discretion, stock options
may be granted with tandem "stock appreciation rights" which have vesting
periods and exercise guidelines that are similar to the options. These rights
allow option-holders to surrender their options when they have vested and
receive a cash payment equal to the difference between the exercise price and
the current market price. No stock appreciation rights have been granted under
the Plan since 1991.
Stock options also may be granted with tandem "dividend equivalents" which
provide for credits to be made to a dividend equivalent account equal to the
current common stock dividend as applied to the recipient's unexercised options.
This reflects the importance of dividends as a component of total shareholder
return. Option-holders are entitled to receive the amounts accumulated in their
dividend equivalent account only when, and to the extent that, the underlying
options or stock appreciation rights are exercised. If a stock appreciation
right is exercised, the option-holder receives the associated dividend
equivalent only if the stock price has appreciated by at least 5 percent per
year from the date of grant or by at least 25 percent if the options have been
held for more than five years.
The size of the stock option grant for each executive officer in 1995 was
determined by the Nominating and Compensation Committee based on PG&E's
objectives of paying total compensation (base salary, target annual incentive,
long-term incentives, and benefits) at about 80 percent of the average total
compensation of general industry and of tying approximately one-half of target
total compensation directly to financial performance for shareholders. In making
stock
37
<PAGE> 59
option grants, the Committee is sensitive to the amount of stock options
previously granted to the executive officers, but the size of each executive
officer's stock option grant is determined primarily based on the compensation
objectives described above.
For 1996, the Chairman of the Board and Chief Executive Officer, the
President and Chief Operating Officer, the Executive Vice President, and the six
Senior Vice Presidents each received a one-time supplemental stock option grant
(without dividend equivalents) in addition to their annual stock option grant.
These supplemental grants are intended to align the long-term incentive
compensation for PG&E's senior officers with the long-term incentive
compensation for senior officers of other major utilities and general industry
companies, while increasing the portion of those officers' total compensation
which is at risk and tied directly to PG&E's performance for shareholders.
The Performance Unit Plan provides incentives based on PG&E's ability to
sustain superior total returns for shareholders (dividends plus stock price
appreciation) over a three-year period.
Under the Plan, officers receive performance units reflecting their level
of responsibility in the Company. One-third of the units vest each year. At the
end of each year, the number of vested performance units is increased or
decreased based on PG&E's three-year total return for shareholders (dividends
plus stock price appreciation) as compared with that of the 49 other largest
energy utilities in the nation. Each officer receives an incentive payment equal
to the final number of vested units multiplied by the average market price of
PG&E Common Stock during the 30-day calendar period prior to the end of the
year. In determining Performance Unit Plan results for a given year, PG&E's
performance in the current year is weighted at 60%, the performance in the prior
year at 25%, and the performance in the year before that at 15%.
Each time a cash dividend was paid on PG&E Common Stock in 1995, a
recipient of a performance unit received a dividend equivalent payment in an
amount equal to the cash dividend per share as applied to the number of units
held by the recipient. Effective in 1996, the method for making dividend
equivalent payments has been amended to provide that each time a cash dividend
is declared on PG&E Common Stock, an amount equal to the cash dividend per share
as applied to the number of units held by a recipient will be accrued on behalf
of the recipient and, at the end of the year, the amount of dividend equivalents
to be paid to the recipient will be increased or decreased by the same
percentage used to increase or decrease the number of vested performance units
for the year. This change is being presented to shareholders for approval at
this year's annual meeting. (See "Amendment and Restatement of the Long-Term
Incentive Program" above.)
During the three years ended December 31, 1995, 1994, and 1993, PG&E's
total return for shareholders ranked 40, 45, and 24, respectively, among the 50
largest energy utilities in the nation. This performance resulted in Performance
Unit Plan payouts to officers for 1995 which were 16 percent of target payouts.
BENEFITS
The Retirement Plan provides a lifetime annuity to all vested employees,
based on their salary level and years of service. The Savings Fund Plan provides
an opportunity for all employees to supplement their retirement income through
employee and PG&E contributions. The Flexible Benefits Plan allows all employees
not covered by collective bargaining agreements to choose among a variety of
benefit options, including medical and dental coverage and life insurance.
SUMMARY
We, the members of the Nominating and Compensation Committee of the Board
of Directors, believe that PG&E's compensation programs are successful in
attracting and retaining qualified employees and in tying compensation directly
to performance for shareholders and service to customers. We will continue to
monitor closely the effectiveness and appropriateness of each of the components
of compensation to reflect changes in PG&E's business environment.
February 21, 1996
NOMINATING AND COMPENSATION COMMITTEE
John B. M. Place, Chair
William F. Miller
Samuel T. Reeves
Carl E. Reichardt
John C. Sawhill
Alan Seelenfreund
38
<PAGE> 60
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN(1)
[This graph compares PG&E's cumulative total return to shareholders (equal to
dividends plus stock price appreciation) during the past five years with that of
the Standard & Poor's 500 Stock Index and the Dow Jones Utilities Index.]
[GRAPH APPEARS HERE]
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
AMONG PACIFIC GAS AND ELECTRIC COMPANY, S&P 500 INDEX,
AND DOW JONES UTILITIES INDEX
<TABLE>
<CAPTION>
Measurement period Pacific S&P 500 Dow Jones
(Fiscal Year Covered) Gas & Elec. Index Utilities Index
--------------------- ----------- ----- ---------------
<S> <C> <C> <C>
Measurement PT -
12/31/90 $100 $100 $100
1991 $139 $130 $115
1992 $149 $140 $120
1993 $166 $155 $131
1994 $124 $157 $111
1995 $155 $215 $147
</TABLE>
(1) Assumes $100 invested on December 31, 1990, in PG&E Common Stock, the
Standard & Poor's 500 Stock Index, and the Dow Jones Utilities Index, and
assumes quarterly reinvestment of dividends. The total shareholder returns
shown are not necessarily indicative of future returns.
39
<PAGE> 61
SUMMARY COMPENSATION TABLE
[This table summarizes the principal components of compensation of PG&E's
highest paid executive officers in the past year.]
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- --------------------------
AWARDS PAYOUTS
(A) (B) (C) (D) (E) (F) (G) (H)
SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION OPTIONS/SARS PAYOUTS COMPENSATION
POSITION YEAR ($) ($)(1) ($)(2) (# OF SHARES) ($)(3) ($)(4)
<S> <C> <C> <C> <C> <C> <C> <C>
Richard A. Clarke, 1995 $269,167 $196,408 $44,788 25,000 $ 44,800 $142,228
Former Chairman of 1994 680,000 165,620 45,266 25,000 54,056 43,920
the Board(5) 1993 640,000 143,070 40,950 25,000 370,488 42,238
Stanley T. Skinner, 1995 $570,000 $471,380 $33,543 25,000 $ 34,720 $ 31,020
Chairman of the Board and 1994 550,000 134,173 26,193 15,000 33,785 56,860
Chief Executive Officer 1993 475,000 88,760 20,678 15,000 203,768 37,757
Robert D. Glynn, Jr., 1995 $338,333 $229,437 $21,154 10,000 $ 16,986 $ 23,312
President and Chief 1994 244,000 50,817 18,235 7,500 17,120 13,960
Operating Officer 1993 198,000 38,790 19,472 7,500 98,772 11,389
James D. Shiffer, 1995 $320,000 $175,824 $21,034 10,000 $ 17,920 $ 15,420
Executive Vice President 1994 310,000 61,776 22,421 10,000 21,622 33,130
1993 265,000 53,340 24,282 10,000 135,858 33,357
Gregory M. Rueger, 1995 $240,500 $120,034 $18,132 7,500 $ 13,440 $ 11,573
Senior Vice President and 1994 240,500 39,858 16,898 7,500 16,217 11,596
General Manager, 1993 233,000 149,100 19,227 7,500 111,146 11,242
Nuclear Power Generation
Business Unit
Gordon R. Smith, 1995 $207,000 $130,535 $17,603 7,500 $ 11,944 $ 9,925
Senior Vice President and 1994 207,000 39,858 14,733 7,500 12,611 9,926
Chief Financial Officer 1993 195,000 27,700 16,338 5,000 74,098 11,073
Bruce R. Worthington, 1995 $207,000 $106,461 $10,273 5,000 $ 3,862 $ 9,315
Senior Vice President and 1994 190,980 19,445 0 3,000 0 10,586
General Counsel 1993 172,620 21,616 0 3,000 0 8,120
</TABLE>
(1) Represents payments received or deferred in 1996, 1995, and 1994 for
achievement of corporate and organizational objectives in 1995, 1994 and
1993, respectively, under the Performance Incentive Plan.
(2) Amounts reported consist of (i) officer benefit allowances, (ii) payments of
related taxes, and (iii) dividend equivalent payments on performance units
under the Performance Unit Plan.
(3) Represents payments received or deferred in 1996, 1995, and 1994 for
achievement of corporate performance objectives for the period 1991 through
1995 under the Performance Unit Plan.
(4) Amounts reported for 1995 consist of: (i) PG&E matching contributions to
the Savings Fund Plan (Mr. Clarke $6,750, Mr. Skinner $6,750, Mr. Glynn
$6,750, Mr. Shiffer $6,750, Mr. Rueger $6,750, Mr. Smith $6,750, and Mr.
Worthington $6,750); (ii) PG&E-paid premiums on indemnity policies to secure
the payment of benefits under the Supplemental Executive Retirement Plan and
the Deferred Compensation Plan (Mr. Clarke $13,320, Mr. Skinner $5,370, Mr.
Glynn $780, Mr. Shiffer $1,020, Mr. Rueger $750, and Mr. Smith $610); (iii)
payments received in lieu of vacation (Mr. Clarke $116,795 and Mr. Glynn
$7,307); and (iv) amounts received or deferred under the Savings Fund Plan
excess benefit arrangement (Mr. Clarke $5,363, Mr. Skinner $18,900, Mr.
Glynn $8,475, Mr. Shiffer $7,650, Mr. Rueger $4,072, Mr. Smith $2,565, and
Mr. Worthington $2,565).
(5) Mr. Clarke retired as Chairman of the Board on June 1, 1995.
40
<PAGE> 62
OPTION/SAR GRANTS IN 1995
[This table summarizes the distribution and the terms and conditions of stock
options granted to the highest paid executive officers in the past year.]
<TABLE>
<CAPTION>
GRANT
INDIVIDUAL GRANTS DATE VALUE
- ------------------------------------------------------------------------------------------------------------- ----------
(A) (B) (C) (D) (E) (F)
% OF TOTAL
NUMBER OF SECURITIES OPTIONS/SARS EXERCISE OR GRANT DATE
UNDERLYING OPTIONS/SARS GRANTED TO BASE PRICE EXPIRATION PRESENT
NAME GRANTED (#)(1) EMPLOYEES IN 1995 ($/SH)(2) DATE(3) VALUE ($)(4)
<S> <C> <C> <C> <C> <C>
Richard A. Clarke 25,000 4.38% $24.375 01-04-2005 $236,750
Stanley T. Skinner 25,000 4.38% $24.375 01-04-2005 236,750
Robert D. Glynn, Jr. 10,000 1.75% $24.375 01-04-2005 94,700
James D. Shiffer 10,000 1.75% $24.375 01-04-2005 94,700
Gregory M. Rueger 7,500 1.31% $24.375 01-04-2005 71,025
Gordon R. Smith 7,500 1.31% $24.375 01-04-2005 71,025
Bruce R. Worthington 5,000 0.88% $24.375 01-04-2005 47,350
</TABLE>
(1) All options granted to executive officers in 1995 are exercisable as
follows: one-third of the options may be exercised on or after the second
anniversary of the date of grant, two-thirds on or after the third
anniversary, and 100 percent on or after the fourth anniversary. The options
were accompanied by tandem dividend equivalents which provide for credits to
be made to the officer's dividend equivalent account in the amount of the
current PG&E Common Stock dividend as applied to the officer's unexercised
options. Funds in the account are paid out only when, and to the extent
that, the underlying options are exercised. At the time of exercise, the
exercise price may be paid in cash or shares of PG&E Common Stock owned by
the optionee for at least one year, or "cashless exercise" procedures may be
used.
(2) The exercise price is equal to the closing price of PG&E Common Stock on
January 3, 1995, the date of grant.
(3) All options granted to executive officers in 1995 expire 10 years and one
day from the date of grant, subject to earlier expiration in the event of
the officer's termination of employment with PG&E.
(4) Estimated present values include dividend equivalents and are based on the
Black-Scholes Model, a mathematical formula used to value options traded on
stock exchanges. The Black-Scholes Model considers a number of factors,
including the expected volatility and dividend rate of the stock, interest
rates, and time of exercise of the option. The following assumptions were
used in applying the Black-Scholes Model to the 1995 option grants shown in
the table above: volatility of 22.94%, risk-free rate of return of 7.96%,
dividend yield of $1.96, and an exercise date five years after the date of
grant. The ultimate value of the options will depend on the future market
price of PG&E Common Stock, which cannot be forecast with reasonable
accuracy. That value will depend on the future success achieved by employees
for the benefit of all shareholders.
41
<PAGE> 63
AGGREGATED OPTION/SAR EXERCISES IN 1995 AND YEAR-END OPTION/SAR VALUES
[This table summarizes exercises of stock options and tandem stock appreciation
rights (granted in prior years) by the highest paid executive officers in the
past year, as well as the number and value of all unexercised options held by
the named executive officers at the end of 1995.]
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY
ON EXERCISE VALUE REALIZED OPTIONS/SARS AT OPTIONS/SARS AT
NAME (#)(1) ($)(2) END OF 1995 (#) END OF 1995 ($)(3)
(EXERCISABLE/ (EXERCISABLE/
UNEXERCISABLE) UNEXERCISABLE)
<S> <C> <C> <C> <C>
Richard A. Clarke 0 $ 0 171,533/ 0 $510,496/$ 0
Stanley T. Skinner 26,333 160,998 15,000/55,000 0/ 100,000
Robert D. Glynn, Jr. 4,166 23,287 7,500/25,000 0/ 40,000
James D. Shiffer 9,166 46,245 10,001/29,999 0/ 40,000
Gregory M. Rueger 12,500 77,813 8,833/22,500 14,496/ 30,000
Gordon R. Smith 8,666 57,120 5,001/19,999 0/ 20,000
Bruce R. Worthington 3,000 11,250 3,000/11,000 0/ 30,000
</TABLE>
(1) Represents the number of shares for which the named executive officers
exercised options and tandem SARs payable in cash. No shares were received
upon exercise of options due to the use of "cashless exercise" procedures.
(2) Excludes amounts received under tandem dividend equivalents.
(3) Based on a fair market value of $28.375, which was the closing price of PG&E
Common Stock on December 29, 1995.
42
<PAGE> 64
LONG-TERM INCENTIVE PLAN--AWARDS IN 1995
[This table summarizes the long-term incentive awards made to the highest paid
executive officers in the past year.]
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
AWARDS NON-STOCK PRICE-BASED PLANS
------ ---------------------------
(A) (B) (C) (D) (E) (F)
PERFORMANCE OR
OTHER PERIOD
NUMBER OF SHARES, UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME UNITS, OR OTHER RIGHTS(1) OR PAYOUT ($ OR #)(2) ($ OR #)(2) ($ OR #)(2)
<S> <C> <C> <C> <C> <C>
Richard A. Clarke 10,000 3 years 0 units 10,000 units 20,000 units
Stanley T. Skinner 10,000 3 years 0 units 10,000 units 20,000 units
Robert D. Glynn, Jr. 4,875 3 years 0 units 4,875 units 9,750 units
James D. Shiffer 4,000 3 years 0 units 4,000 units 8,000 units
Gregory M. Rueger 3,000 3 years 0 units 3,000 units 6,000 units
Gordon R. Smith 3,000 3 years 0 units 3,000 units 6,000 units
Bruce R. Worthington 2,584 3 years 0 units 2,584 units 5,168 units
</TABLE>
(1) Represents performance units granted under the Performance Unit Plan. The
units vest one-third in each of the three years following the grant year,
and are earned over the vesting period based on PG&E's three-year total
annual shareholder return (dividends plus stock price appreciation) as
compared with that achieved by the 49 other largest domestic energy
utilities. This performance target may be adjusted during the vesting
period, at the sole discretion of the Nominating and Compensation Committee,
to reflect extraordinary events beyond management's control. In determining
PG&E's total annual shareholder return relative to the 49 other utilities,
third-year performance is weighted at 60%, second-year performance at 25%,
and first-year performance at 15%. Each time a cash dividend was paid on
PG&E Common Stock in 1995, the recipient of a performance unit received a
dividend equivalent payment equal to the PG&E Common Stock dividend as
applied to the number of units held by the recipient. For 1996, the
Performance Unit Plan has been revised so that each time a cash dividend is
declared on PG&E Common Stock, an amount equal to the cash dividend per
share as applied to the number of units held by a recipient will be accrued
on behalf of the recipient and, at the end of the year, the amount of
dividend equivalents to be paid to the recipient will be increased or
decreased by the same percentage used to increase or decrease the number of
vested performance units for the year.
(2) Payments are determined by multiplying the number of units earned in a given
year by the average market price of PG&E Common Stock for the last 30-day
calendar period of the year.
RETIREMENT BENEFITS
PG&E provides retirement benefits to the executive officers named in the Summary
Compensation Table on page 40. The benefit formula is 1.6 percent of the average
of the three highest combined salary and annual incentive awards during the last
ten years of service multiplied by years of credited service. As of December 31,
1995, the estimated annual retirement benefits for the most highly compensated
executive officers, assuming credited service to age 65, are as follows: Mr.
Clarke, $480,783; Mr. Skinner, $418,536; Mr. Glynn, $124,485; Mr. Shiffer,
$265,901; Mr. Rueger, $251,601; Mr. Smith, $174,007; and Mr. Worthington,
$142,309. Mr. Clarke retired on June 1, 1995. The amounts shown are single life
annuity benefits and would not be subject to any Social Security offsets.
43
<PAGE> 65
Other Information
PRINCIPAL SHAREHOLDERS
The only person or group known by PG&E to be the beneficial owner of more than 5
percent of any class of PG&E Common Stock is shown below:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
<S> <C> <C> <C>
Common Stock State Street Bank and 44,717,564 10.78
Trust Company(2)
225 Franklin Street
Boston, MA 02110
</TABLE>
(1) This information is based on beneficial ownership as of December 31, 1995.
(2) The information relating to the beneficial ownership of State Street Bank
and Trust Company is based on a Schedule 13G, dated February 12, 1996,
filed with the Securities and Exchange Commission. 40,923,522 shares are
held by the bank in its capacity as Trustee of PG&E's Savings Fund Plan for
its employees. The Trustee may not vote these shares in the absence of
voting instructions from the Plan participants. The bank also holds
3,794,042 shares of PG&E Common Stock as trustee of various collective
investment funds and trusts. The bank has sole voting power with respect to
3,357,062 of these shares, shared voting power with respect to 3,580 of
these shares, sole investment power with respect to 3,785,765 of these
shares, and shared investment power with respect to 8,277 of these shares.
44
<PAGE> 66
PROPOSALS BY SHAREHOLDERS - 1997
Any proposal by a shareholder to be submitted for inclusion in proxy
soliciting material for the 1997 annual shareholders meeting must be received by
the Corporate Secretary of PG&E after April 17, 1996, but no later than November
1, 1996.
ANNUAL REPORT
PG&E's 1995 Annual Report to Shareholders, including financial statements,
accompanies this Proxy Statement and Prospectus.
METHOD AND COST OF SOLICITING PROXIES
PG&E intends to solicit proxies principally by mail. Proxies also may be
solicited by personal contact, telephone, or other means by officers and other
employees of PG&E. PG&E has retained D. F. King & Co., Inc. to assist in the
solicitation of proxies at an estimated fee of $30,000 plus reimbursement of
reasonable expenses. In addition, banks, brokers, and other fiduciaries and
nominees will be reimbursed for the reasonable expenses of forwarding proxy
materials to beneficial owners of PG&E stock. The entire cost of soliciting
proxies will be paid by PG&E.
PG&E also has retained Corporate Election Services, Inc. to assist in the
tabulation of proxies and to act as the inspector of election at the annual
meeting.
SECTION 16(A) COMPLIANCE
In accordance with Section 16(a) of the Securities Exchange Act of 1934
and Securities and Exchange Commission ("SEC") regulations, PG&E's directors,
certain officers, and greater than 10 percent shareholders are required to file
reports of ownership and changes in ownership with the SEC and the NYSE and to
furnish PG&E with copies of all such reports they file.
Based solely on its review of copies of such reports received or written
representations from certain reporting persons, PG&E believes that during 1995
all filing requirements applicable to its directors, officers, and 10 percent
shareholders were satisfied.
OTHER MATTERS
Management does not know of any matter to be acted upon at the meeting
other than the matters above described. However, if any other matter should
properly come before the annual meeting, the proxyholders named in the enclosed
proxy will vote the shares for which they hold proxies at their discretion.
By Order of the Board of Directors,
/s/ Leslie H. Everett
Leslie H. Everett
Corporate Secretary
At the annual meeting of shareholders, real-time captioning services and
headsets will be available for the hearing impaired. Please contact an usher at
the meeting if you wish to be seated in the real-time captioning section or to
use a headset.
Audio cassette recordings of the meeting will be available, without
charge, for shareholders with impaired vision. Please contact the office of the
Corporate Secretary, 77 Beale Street, Mail Code B32, P.O. Box 770000, San
Francisco, CA 94177, or call (415) 973-2880.
YOUR VOTE IS VERY IMPORTANT.
PLEASE SIGN, DATE, AND RETURN YOUR PROXY AS SOON AS POSSIBLE.
45
<PAGE> 67
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 68
EXHIBIT A
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER ("Agreement") is made as of [___], 1996, by and
among PACIFIC GAS AND ELECTRIC COMPANY, a California corporation ("PG&E"), PG&E
MERGER COMPANY, a California corporation ("MergeCo"), and PG&E PARENT CO., INC.,
a California corporation ("ParentCo"), with reference to the following facts:
A. PG&E has authorized capital consisting of (i) 800,000,000 shares of
Common Stock, with par value of $5 per share ("PG&E Common Stock"), of which
[___] shares are issued and outstanding; (ii) 75,000,000 shares of First
Preferred Stock, with par value of $25 per share ("First Preferred Stock"), of
which [___] shares (consisting of 13 separate series) are issued and
outstanding; and (iii) 10,000,000 shares of $100 First Preferred Stock, with par
value of $100 per share ("$100 First Preferred Stock"), of which no shares are
issued and outstanding.
B. MergeCo has authorized capital consisting of 1,000 shares of Common
Stock ("MergeCo Common Stock"), of which 100 shares are issued and outstanding
and owned beneficially and of record by ParentCo.
C. ParentCo has authorized capital consisting of 800,000,000 shares of
Common Stock ("ParentCo Common Stock"), of which 100 shares are issued and
outstanding and owned beneficially and of record by PG&E, and 85,000,000 shares
of Preferred Stock, none of which have been issued.
D. The Boards of Directors of the respective parties hereto deem it
advisable to merge MergeCo with and into PG&E (the "Merger") in accordance with
the California General Corporation Law ("California GCL") and this Agreement for
the purpose of establishing ParentCo as the parent corporation for PG&E in a
transaction intended to qualify for tax-free treatment.
NOW, THEREFORE, in consideration of the premises and agreements contained
herein, the parties agree that (i) MergeCo shall be merged with and into PG&E
(the "Merger"), (ii) PG&E shall be the corporation surviving the Merger, and
(iii) the terms and conditions of the Merger, the mode of carrying it into
effect, and the manner of converting and exchanging shares of capital stock
shall be as follows:
ARTICLE 1
THE MERGER
1.1 Officers' Certificates. Subject to and in accordance with the
provisions of this Agreement, officers' certificates of PG&E, MergeCo and
ParentCo shall be signed and verified and thereafter delivered, together with a
copy of this Agreement, to the office of the Secretary of State of California
for filing, all as provided in Section 1103 of the California GCL.
1.2 Effective Time. The Merger shall become effective at 11:59 p.m. on the
last day of the calendar month during which the officers' certificates and this
Agreement are filed with the Secretary of State of California as contemplated by
Section 1.1 above (the "Effective Time"). At the Effective Time, the separate
existence of MergeCo shall cease and MergeCo shall be merged with and into PG&E,
which shall continue its corporate existence as the surviving corporation (PG&E
and MergeCo being sometimes referred to herein as the "Constituent Corporations"
and PG&E, as the surviving corporation, being sometimes referred to herein as
the "Surviving Corporation"). PG&E shall succeed, without other transfer, to all
the rights and property of MergeCo and shall be subject to all the debts and
liabilities of MergeCo in the same manner as if PG&E had itself incurred them.
All rights of creditors and all liens upon the property of each of PG&E and
MergeCo shall be preserved unimpaired.
1.3 Appropriate Actions. Prior to and after the Effective Time, ParentCo,
PG&E and MergeCo, respectively, shall take all such actions as may be necessary
or appropriate in order to effectuate the Merger. In this connection, ParentCo
shall issue the shares of ParentCo Common Stock into which outstanding shares of
PG&E Common Stock will be converted on a share-for-share basis to the extent
provided in Article 2 of this Agreement. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement and to vest the Surviving Corporation with full title to all
properties, assets, privileges, rights, immunities and franchises of either of
the Constituent Corporations, the officers and directors of each of the
Constituent Corporations as of the Effective Time shall take all such further
action.
A-1
<PAGE> 69
ARTICLE 2
TERMS OF CONVERSION AND EXCHANGE OF SHARES
At the Effective Time:
2.1 PG&E Common Stock. Each share of PG&E Common Stock issued and
outstanding immediately prior to the Merger shall be automatically changed and
converted into one share of ParentCo Common Stock, which shall thereupon be
issued and fully-paid and non-assessable; provided, however, that such
conversion shall not affect shares of holders, if any, who perfect their rights
as dissenting shareholders under Chapter 13 of the California GCL.
2.2 PG&E Preferred Stock. Shares of the First Preferred Stock and $100
First Preferred Stock of PG&E issued and outstanding immediately prior to the
Merger shall not be converted or otherwise affected by the Merger. Each such
share shall continue to be (i) issued and outstanding and (ii) a fully-paid and
non-assessable share (of First Preferred Stock or $100 First Preferred Stock, as
the case may be) of the Surviving Corporation.
2.3 MergeCo Shares. The shares of MergeCo Common Stock issued and
outstanding immediately prior to the Merger shall be automatically changed and
converted into all of the issued and outstanding shares of Common Stock of the
Surviving Corporation, which shall thereupon be issued and fully-paid and
non-assessable, with the effect that the number of issued and outstanding shares
of Common Stock of the Surviving Corporation shall be the same as the number of
issued and outstanding shares of PG&E Common Stock immediately prior to the
Effective Time.
2.4 ParentCo Shares. Each share of ParentCo Common Stock issued and
outstanding immediately prior to the Merger shall be canceled.
ARTICLE 3
ARTICLES OF INCORPORATION AND BYLAWS
3.1 PG&E's Restated Articles. From and after the Effective Time, and until
thereafter amended as provided by law, the Restated Articles of Incorporation of
PG&E as in effect immediately prior to the Merger shall be and continue to be
the Restated Articles of Incorporation of the Surviving Corporation, except that
Article NINTH shall be deleted in its entirety.
3.2 PG&E's Bylaws. From and after the Effective Time, and until thereafter
amended as provided by law, the Bylaws of PG&E as in effect immediately prior to
the Merger shall be and continue to be the Bylaws of the Surviving Corporation.
ARTICLE 4
DIRECTORS AND OFFICERS
The persons who are directors and officers of PG&E immediately prior to
the Merger shall continue as directors and officers, respectively, of the
Surviving Corporation and shall continue to hold office as provided in the
Bylaws of the Surviving Corporation. If, at or following the Effective Time, a
vacancy shall exist in the Board of Directors or in the position of any officer
of the Surviving Corporation, such vacancy may be filled in the manner provided
in the Bylaws of the Surviving Corporation.
ARTICLE 5
STOCK CERTIFICATES
5.1 Pre-Merger PG&E Common Stock. Following the Effective Time, each
holder of an outstanding certificate or certificates theretofore representing
shares of PG&E Common Stock may, but shall not be required to, surrender the
same to ParentCo for cancellation or transfer, and each such holder or
transferee will be entitled to receive a certificate or certificates
representing the same number of shares of ParentCo Common Stock as the shares of
PG&E Common Stock previously represented by the stock certificate(s)
surrendered.
A-2
<PAGE> 70
5.2 Outstanding Certificates. Until surrendered or presented for transfer
in accordance with Section 5.1 above, each outstanding certificate which, prior
to the Effective Time, represented PG&E Common Stock shall be deemed and treated
for all corporate purposes to represent the ownership of the same number of
shares of ParentCo Common Stock as though such surrender or transfer and
exchange had taken place.
5.3 PG&E Stock Transfer Books. The stock transfer books for PG&E Common
Stock shall be deemed to be closed at the Effective Time and no transfer of
shares of PG&E Common Stock outstanding prior to the Effective Time shall
thereafter be made on such books.
5.4 Post-Merger Rights of Holders. Following the Effective Time, the
holders of certificates representing PG&E Common Stock outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to stock
of the Surviving Corporation and their sole rights shall be with respect to the
ParentCo Common Stock into which their shares of PG&E Common Stock shall have
been converted by the Merger, subject to the rights of any dissenting
shareholders under Chapter 13 of the California GCL.
ARTICLE 6
CONDITIONS OF THE MERGER
Completion of the Merger is subject to the satisfaction of the following
conditions:
6.1 Shareholder Approval. The principal terms of this Agreement shall have
been approved by such holders of capital stock of each of the Constituent
Corporations as is required by the California GCL.
6.2 ParentCo Common Stock Listed. The ParentCo Common Stock to be issued
and to be reserved for issuance pursuant to the Merger shall have been approved
for listing, upon official notice of issuance, by the New York Stock Exchange.
ARTICLE 7
AMENDMENT AND TERMINATION
7.1 Amendment. The parties to this Agreement, by mutual consent of their
respective boards of directors, may amend, modify or supplement this Agreement
in such manner as may be agreed upon by them in writing at any time before or
after approval of this Agreement by the pre-Merger shareholders of PG&E (as
provided in Section 6.1 above); provided, however, that no such amendment,
modification or supplement shall, if agreed to after such approval by the
pre-Merger shareholders of PG&E, change any of the principal terms of this
Agreement.
7.2 Termination. This Agreement may be terminated and the Merger and other
transactions provided for by this Agreement may be abandoned at any time,
whether before or after approval of this Agreement by the pre-Merger
shareholders of PG&E, by action of the board of directors of PG&E if such board
of directors determines for any reason that the completion of the transactions
provided for herein would for any reason be inadvisable or not in the best
interests of PG&E or its shareholders.
ARTICLE 8
MISCELLANEOUS
8.1 Approval of ParentCo Shares. By its execution and delivery of this
Agreement, PG&E, as the sole pre-Merger shareholder of ParentCo, consents to,
approves and adopts this Agreement and approves the Merger, subject to approval
of this Agreement by the pre-Merger shareholders of PG&E (as provided in Section
6.1 above).
8.2 Approval of MergeCo Shares. By its execution and delivery of this
Agreement, ParentCo, as the sole pre-Merger shareholder of MergeCo, consents to,
approves and adopts this Agreement and approves the Merger, subject to approval
of this Agreement by the pre-Merger shareholders of PG&E (as provided in Section
6.1 above).
8.3 No Counterparts. This Agreement may not be executed in counterparts.
A-3
<PAGE> 71
IN WITNESS WHEREOF, PG&E, ParentCo and MergeCo, pursuant to approval and
authorization duly given by resolutions adopted by their respective boards of
directors, have each caused this Agreement to be executed by its chairman of the
board or its president or one of its vice presidents and by its secretary or one
of its assistant secretaries.
PG&E:
PACIFIC GAS AND ELECTRIC COMPANY,
a California corporation
By:
---------------------
Its:
--------------------
By:
---------------------
Its:
--------------------
ParentCo:
PG&E PARENT CO., INC.,
a California corporation
By:
---------------------
Its:
--------------------
By:
---------------------
Its:
--------------------
MergeCo:
PG&E MERGER COMPANY,
a California corporation
By:
---------------------
Its:
--------------------
By:
---------------------
Its:
--------------------
A-4
<PAGE> 72
EXHIBIT B
RESTATED
ARTICLES OF INCORPORATION OF
PG&E PARENT CO., INC.
FIRST: The name of the Corporation shall be
PG&E PARENT CO., INC.
SECOND: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
THIRD:
I. The Board of Directors of the Corporation shall consist of such number
of directors, not less than nine (9) nor more than seventeen (17), as shall be
prescribed in the Bylaws.
II. The Board of Directors by a vote of two-thirds of the whole Board may
appoint from the directors an Executive Committee, which Committee may exercise
such powers as may lawfully be conferred upon it by the Bylaws of the
Corporation. Such Committee may prescribe rules for its own government and its
meetings may be held at such places within or without California as said
Committee may determine or authorize.
FOURTH: No shareholder may cumulate votes in the election of directors.
This Article FOURTH shall become effective only when the Corporation shall have
become a "listed corporation" within the meaning of Section 301.5 of the
California Corporations Code.
FIFTH: The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
SIXTH: The Corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the California Corporations Code) through bylaws,
resolutions, agreements with agents, vote of shareholders or disinterested
directors, or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to the applicable
limits set forth in Section 204 of the California Corporations Code.
SEVENTH:
I. The Corporation is authorized to issue two classes of shares, to be
designated respectively Preferred Stock ("Preferred Stock") and Common Stock
("Common Stock"). The total number of shares of capital stock that the
Corporation is authorized to issue is 885,000,000, of which 85,000,000 shall be
Preferred Stock and 800,000,000 shall be Common Stock.
II. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors of the Corporation is expressly authorized to
provide for the issue of all or any of the shares of the Preferred Stock in one
or more series, and to fix the designation and number of shares and to determine
or alter for each such series, such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating, optional
or other rights and such qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions adopted by the
Board of Directors providing for the issue of such shares and as may be
permitted by the General Corporation Law of California. The Board of Directors
is also expressly authorized to increase or decrease (but not below the number
of shares of such series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series. If the number of shares of any
such series shall be so decreased, the shares constituting such decrease shall
resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
EIGHTH:
I. The affirmative vote of the holders of not less than seventy-five
percent (75%) of the outstanding shares of "Voting Stock" (as hereinafter
defined) shall be required to implement or effect any "Business Combination" (as
hereinafter defined) involving the Corporation or any "Subsidiary" (as
hereinafter defined) of the Corporation and any "Related
B-1
<PAGE> 73
Person" (as hereinafter defined), or any "Affiliate" or "Associate" (as
hereinafter defined) of a Related Person, notwithstanding the fact that no vote
may be required or that a lesser percentage may be specified by law, in any
agreement with any national securities exchange or otherwise; provided, however,
that the seventy-five percent (75%) voting requirement shall not be applicable
and such Business Combination shall require only such affirmative vote as is
required by law, any agreement with any national securities exchange or
otherwise if:
(1) The Business Combination shall have been approved by the Board of
Directors without counting the vote of any director who is not a
"Disinterested Director" (as hereinafter defined); or
(2) All of the following conditions are met:
(i) The cash or "Fair Market Value" (as hereinafter defined) as
of the date of the consummation of the Business Combination (the
"Combination Date") of the property, securities or other
consideration to be received per share by holders of a particular
class or series of capital stock, as the case may be, of the
Corporation in the Business Combination is not less than the highest
of:
(a) the highest per share price (including brokerage
commissions, transfer taxes and soliciting dealers' fees) paid
by or on behalf of the Related Person in acquiring beneficial
ownership of any of its holdings of such class or series of
capital stock of the Corporation (A) within the two-year period
immediately prior to the first public announcement of the
proposed Business Combination (the "Announcement Date") or (B)
in the transaction or series of transactions in which the
Related Person became a Related Person, whichever is higher; or
(b) the highest Fair Market Value per share of the shares
of capital stock being acquired in the Business Combination as
of any date within the one-year period preceding: (A) the
Announcement Date or (B) the date on which the Related Person
became a Related Person, whichever is higher; or
(c) in the case of Common Stock, the highest per share book
value of the Common Stock as reported at the end of the three
fiscal quarters which preceded the Announcement Date, and in the
case of Preferred Stock the highest preferential amount per
share to which the holders of shares of such class or series of
Preferred Stock would be entitled as of the Combination Date in
the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation,
regardless of whether the Business Combination to be consummated
constitutes such an event.
The provisions of this paragraph I(2)(i) shall be required
to be met with respect to every class or series of outstanding
capital stock, whether or not the Related Person has previously
acquired any shares of a particular class or series of capital
stock. In all of the above instances, appropriate adjustments
shall be made for recapitalizations and for stock dividends,
stock splits and like distributions; and
(ii) The consideration to be received by holders of a particular
class or series of capital stock shall be in cash or in the same form
as previously has been paid by or on behalf of the Related Person in
connection with its direct or indirect acquisition of beneficial
ownership of shares of such class or series of stock. If the
consideration so paid for any such shares varied as to form, the form
of consideration for such shares shall be either cash or the form
used to acquire beneficial ownership of the largest number of shares
of such class or series of capital stock previously acquired by the
Related Person; and
(iii) After such Related Person has become a Related Person and
prior to the consummation of such Business Combination: (a) except as
approved by the Board of Directors without counting the vote of any
director who is not a Disinterested Director, there shall have been
no failure to declare and pay at the regular date therefor any full
quarterly dividends (whether or not cumulative) on the outstanding
Preferred Stock; (b) there shall have been (A) no reduction in the
annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock) except as
approved by the Board of Directors without counting the vote of any
director who is not a Disinterested Director, and (B) an increase in
such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has
the effect of reducing the number of outstanding shares of the Common
Stock, unless the failure so to increase such annual rate is approved
by the Board of Directors without counting the vote of any director
who is not a Disinterested Director; and (c) such Related Person
shall not have become the beneficial owner of any additional shares
of Voting Stock except as part of the transaction which results in
such Related Person becoming a Related Person; and
B-2
<PAGE> 74
(iv) After such Related Person has become a Related Person, the
Related Person shall not have received the benefit, directly or
indirectly (except proportionately as a shareholder), of any loans,
advances, guarantees, pledges or other financial assistance or any
tax credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise; and
(v) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any provisions subsequently replacing such Act, rules
or regulations) shall be mailed to public shareholders of the
Corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or subsequent
provisions).
II. For purpose of this Article EIGHTH:
(1) The term "Business Combination" shall mean any (i) merger or
consolidation of the Corporation or a Subsidiary with a Related Person or
any other person which is or after such merger or consolidation would be
an Affiliate or Associate of a Related Person; (ii) sale, lease, exchange,
mortgage, pledge, transfer or other disposition or guarantee (in one
transaction or a series of transactions) to or with or for the benefit of
any Related Person or any Affiliate or Associate of any Related Person, of
any assets of the Corporation or of a Subsidiary having an aggregate Fair
Market Value of $100 million or more; (iii) sale, lease, exchange,
mortgage, pledge, transfer or other disposition (in one transaction or a
series of transactions), to the Corporation or a Subsidiary of any assets
of a Related Person or any Affiliate or Associate of any Related Person
having an aggregate Fair Market Value of $100 million or more; (iv)
issuance, pledge or transfer of securities of the Corporation or a
Subsidiary (in one transaction or a series of transactions) to or with a
Related Person or any Affiliate or Associate of any Related Person in
exchange for cash, securities or other property (or a combination thereof)
having an aggregate Fair Market Value of $100 million or more; (v)
reclassification of securities (including any reverse stock split) or
recapitalization of the Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any other transaction that
would have the effect, either directly or indirectly, of increasing the
voting power or the proportionate share of any class of equity or
convertible securities of the Corporation or any Subsidiary which is
directly or indirectly beneficially owned by any Related Person or any
Affiliate or Associate of any Related Person; and (vi) any merger or
consolidation of the Corporation with any of its Subsidiaries after which
the provisions of this Article EIGHTH of the Articles of Incorporation
shall not be contained in the Articles of Incorporation of the surviving
entity.
(2) The term "person" shall mean any individual, firm, corporation or
other entity and shall include any group comprised of any person and any
other person with whom such person or any Affiliate or Associate of such
person has any agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or disposing of
Voting Stock of the Corporation.
(3) The term "Related Person" shall mean any person (other than the
Corporation, or any Subsidiary and other than any dividend reinvestment
plan or profit-sharing, employee stock ownership or other employee benefit
or savings plan of the Corporation or any Subsidiary or any trustee of or
fiduciary with respect to any such plan when acting in such capacity) who
or which:
(i) is the beneficial owner (as hereinafter defined) of five
percent (5%) or more of the Voting Stock;
(ii) is an Affiliate or Associate of the Corporation and at any
time within the two-year period immediately prior to the date in
question was the beneficial owner of five percent (5%) or more of the
then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to the
beneficial ownership of any shares of Voting Stock which were at any
time within the two-year period immediately prior to such time
beneficially owned by any Related Person, if such assignment or
succession shall have occurred in the course of a transaction or
series of transactions not involving a public offering within the
meaning of the Securities Act of 1933.
(4) A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly;
(ii) which such person or any of its Affiliates or Associates
has, directly or indirectly, (a) the right to acquire (whether such
right is exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options,
or otherwise, or (b) the right to vote pursuant to any agreement,
arrangement or understanding; or
B-3
<PAGE> 75
(iii) which is beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
(5) For the purposes of determining whether a person is a Related
Person pursuant to subparagraph (3) of this paragraph II, the number of
shares of Voting Stock deemed to be outstanding shall include shares
deemed owned through application of subparagraph (4) of this paragraph II
but shall not include any other shares of Voting Stock which may be
issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(6) The term "Affiliate," used to indicate a relationship with a
specified person, shall mean a person that directly, or indirectly,
through one or more intermediaries, controls, or is controlled by, or is
under common control with, such specified person. The term "Associate,"
used to indicate a relationship with a specified person, shall mean (i)
any person (other than the Corporation or a Subsidiary) of which such
specified person is an officer or partner or is, directly or indirectly,
the beneficial owner of 10% or more of any class of equity securities,
(ii) any trust or other estate in which such specified person has a
substantial beneficial interest or as to which such specified person
serves as trustee or in a similar fiduciary capacity, (iii) any relative
or spouse of such specified person or any relative of such spouse, who has
the same home as such specified person or who is a director or officer of
the Corporation or any Subsidiary, and (iv) any person who is a director
or officer of such specified person or any of its parents or subsidiaries
(other than the Corporation or a Subsidiary).
(7) The term "Subsidiary" means any corporation of which a majority
of any class of equity securities is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition of
Related Person set forth in subparagraph (3) of this paragraph II, the
term "Subsidiary" shall mean only a corporation of which a majority of the
outstanding shares of capital stock of such corporation entitled to vote
generally in the election of directors is owned, directly or indirectly,
by the Corporation.
(8) The term "Disinterested Director" means any member of the Board
of Directors, while such person is a member of the Board of Directors, who
is not an Affiliate, Associate or a representative of the Related Person
involved in a proposed Business Combination and was a member of the Board
of Directors immediately prior to the time that the Related Person became
a Related Person, and any successor of a Disinterested Director, while
such successor is a member of the Board of Directors, who is not an
Affiliate, Associate or a representative of the Related Person and is
recommended or elected to succeed a Disinterested Director by the Board of
Directors without counting the vote of any director who is not a
Disinterested Director.
(9) For the purposes of paragraph I(2)(i) of this Article EIGHTH, the
term "other consideration to be received" shall include, without
limitation, capital stock retained by the shareholders.
(10) The term "Voting Stock" shall mean all of the outstanding shares
of capital stock of the Corporation entitled to vote generally in the
election of directors, and each reference to a proportion of shares of
Voting Stock shall refer to such proportion of the votes entitled to be
cast by such shares voting together as one class.
(11) The term "Fair Market Value" means: (i) in case of capital
stock, the highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such stock on the Composite
Tape for the New York Stock Exchange Listed Stocks, or, if such stock is
not quoted on the Composite Tape, on the New York Stock Exchange, or if
such stock is not listed on such Exchange, on the principal United States
securities exchange registered under the Securities Exchange Act of 1934
on which such stock is listed, or, if such stock is not listed on any such
stock exchange, the highest closing bid quotation with respect to a share
of such stock during the 30-day period preceding the date in question on
the National Association of Securities Dealers, Inc. Automated Quotations
System or any successor system then in use, or if no such quotations are
available, the fair market value on the date in question of a share of
such stock as determined in good faith by the Board of Directors without
counting the vote of any director who is not a Disinterested Director; and
(ii) in the case of property other than cash or stock, the fair market
value of such property on the date in question as determined in good faith
by the Board of Directors without counting the vote of any director who is
not a Disinterested Director.
(12) A Related Person shall be deemed to have acquired a share of
Voting Stock at the time when such Related Person became the beneficial
owner thereof. If the Board of Directors without counting the vote of any
director who is not a Disinterested Director is not able to determine the
price at which a Related Person has acquired a share of Voting Stock, such
price shall be deemed to be the Fair Market Value of the shares in
question at the time when the
B-4
<PAGE> 76
Related Person becomes the beneficial owner thereof. With respect to
shares owned by Affiliates or other persons whose ownership is attributed
to a Related Person under the foregoing definition of Related Person, the
price deemed to be paid therefor by such Related Person shall be the price
paid upon the acquisition thereof by such Affiliate, Associate or other
person, or, if such price is not determinable by the Board of Directors
without counting the vote of any director who is not a Disinterested
Director, the Fair Market Value of the shares in question at the time when
the Affiliate, Associate, or other such person became the beneficial owner
thereof.
III. The fact that any Business Combination complies with the provisions
of paragraph I(2) of this Article EIGHTH shall not be construed to impose any
fiduciary duty, obligation or responsibility on the Board of Directors, or any
member thereof, to approve such Business Combination or recommend its adoption
or approval to the shareholders of the Corporation, nor shall such compliance
limit, prohibit or otherwise restrict in any manner the Board of Directors, or
any member thereof, with respect to evaluations of or actions and responses
taken with respect to such Business Combination.
IV. The Board of Directors of the Corporation shall have the power and
duty to determine for the purposes of this Article EIGHTH, on the basis of
information known to them after reasonable inquiry and in accordance with the
terms of this Article EIGHTH, whether a person is a Related Person and whether a
director is a Disinterested Director. Once the Board of Directors has made a
determination pursuant to the preceding sentence that a person is a Related
Person, the Board of Directors of the Corporation, without counting the vote of
any director who is not a Disinterested Director with respect to such Related
Person, shall have the power and duty to interpret all of the terms and
provisions of this Article EIGHTH and to determine on the basis of the
information known to them after reasonable inquiry all facts necessary to
ascertain compliance with this Article EIGHTH including, without limitation, (1)
the number of shares of Voting Stock beneficially owned by any person, (2)
whether a person is an Affiliate or Associate of another, (3) whether the assets
which are the subject of any Business Combination have, or the consideration to
be received for the issuance or transfer of securities by the Corporation or any
Subsidiary of the Corporation in any Business Combination has, an aggregate Fair
Market Value of $100 million or more, and (4) whether all of the applicable
conditions set forth in paragraph I(2) of this Article EIGHTH have been met with
respect to any Business Combination. Any determination pursuant to this Article
EIGHTH made in good faith shall be binding and conclusive on all parties.
V. The directors of the Corporation, when evaluating any proposal or offer
which would involve a Business Combination or the merger or consolidation of the
Corporation or any of its Subsidiaries with another Corporation, the sale of all
or substantially all of the assets of the Corporation or any of its
Subsidiaries, a tender offer or exchange offer for any capital stock of the
Corporation or any of its Subsidiaries or any similar transaction shall give due
consideration to all factors they may consider relevant. Such factors may
include, without limitation, (a) the adequacy, both in amount and form, of the
consideration offered in relation not only to the current market price of the
Corporation's outstanding securities, but also the current value of the
Corporation in a freely negotiated transaction with other potential acquirers
and the Board's estimate of the Corporation's future value (including the
unrealized value of its properties, assets and prospects) as an independent
going concern, (b) the financial and managerial resources and future prospects
of the acquirer, and (c) the legal, economic, environmental, regulatory and
social effects of the proposed transaction on the Corporation's and its
Subsidiaries' employees, customers, suppliers and other affected persons and
entities and on the communities and geographic areas in which the Corporation
and its Subsidiaries provide utility service or are located, and in particular,
the effect on the Corporation's and its Subsidiaries' ability to safely and
reliably meet any public utility obligations at reasonable rates.
VI. Nothing herein shall be construed to relieve any Related Person from
any fiduciary obligation imposed by law.
VII. Notwithstanding any other provisions of these Articles of
Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that a lesser percentage may otherwise be specified by law, these Articles of
Incorporation or the Bylaws), the affirmative vote of not less than seventy-five
percent (75%) of the total voting power of all outstanding Voting Stock voting
as a class shall be required to alter, amend or repeal or adopt any provisions
inconsistent with the provisions set forth in this Article EIGHTH, provided,
however, that this Article EIGHTH or any provision hereof may be altered,
amended or repealed, or any inconsistent provision may be adopted, upon the
affirmative vote of the holders of not less than a majority of the total voting
power of all outstanding Voting Stock voting as a class, if such alteration,
amendment or repeal, or if such adoption of any inconsistent provision, shall
first have been approved and recommended by the Board of Directors without
counting the vote of any director who is not a Disinterested Director.
B-5
<PAGE> 77
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 78
EXHIBIT C
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW
DISSENTERS' RIGHTS
SECTION 1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of
meeting of shareholders to act upon the reorganization summarizes this
section and Sections 1301, 1302, 1303 and 1304; provided, however, that
this provision does not apply to any shares with respect to which there
exists any restriction on transfer imposed by the corporation or by any
law or regulation; and provided, further, that this provision does not
apply to any class of shares described in subparagraph (A) or (B) if
demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that
subparagraph (A) rather than subparagraph (B) of this paragraph applies in
any case where the approval required by Section 1201 is sought by written
consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with
Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement,
in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SECTION 1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it
C-1
<PAGE> 79
is received by the corporation or any transfer agent thereof (l) in the case of
shares described in clause (i) or (ii) of paragraph (l) of subdivision (b) of
Section 1300 (without regard to the provisos in that paragraph), not later than
the date of the shareholders' meeting to vote upon the reorganization, or (2) in
any other case within 30 days after the date on which the notice of the approval
by the outstanding shares pursuant to subdivision (a) or the notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares to be
exchanged for certificates of appropriate denomination so stamped or endorsed or
(b) if the shares are uncertificated securities, written notice of the number of
shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303. AGREED PRICE--TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SECTION 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or
the corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. APPRAISERS' REPORT--PAYMENT--COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
C-2
<PAGE> 80
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SECTION 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
C-3
<PAGE> 81
SECTION 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
SECTION 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
C-4
<PAGE> 82
(PG&E LOGO)
[RECYCLE LOGO] Printed with soybean ink on recycled/recyclable paper
<PAGE> 83
Part II: Information Not Required in Prospectus
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 317 of the California Corporations Code and Article
SIXTH of the Registrant's Articles of Incorporation, directors, officers,
employees and agents of the Registrant may be indemnified by the Registrant in
certain circumstances against liabilities they incur while acting in such
capacities. Upon the effectiveness of the Merger (as contemplated in Part I of
this Registration Statement), the Registrant will have directors' and officers'
liability insurance policies in force insuring directors and officers of the
Registrant and its subsidiaries.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
2 Agreement of Merger (Exhibit A to Proxy Statement and Prospectus).
3.1 Articles of Incorporation of Registrant (Exhibit B to Proxy Statement
and Prospectus).
3.2 Bylaws of Registrant.
5 Opinion of Orrick, Herrington & Sutcliffe.
8 Tax Opinion of Orrick, Herrington & Sutcliffe.
23.1 Consent of Orrick, Herrington & Sutcliffe (included as part of Exhibits
5 and 8).
23.2 Consent of Arthur Andersen LLP.
99.1 Form of proxy and voting instruction form for Savings Fund Plan.
99.2 Consents of Persons named to become Directors.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-1
<PAGE> 84
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referred to in Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes as follows:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first-class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-2
<PAGE> 85
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City and County of San Francisco,
State of California, on the 21st day of February, 1996.
PG&E Parent Co., Inc.
By /s/ Bruce R. Worthington
---------------------------------
BRUCE R. WORTHINGTON
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------- -----------------
<S> <C> <C>
A. Principal Executive Officer
/s/ Bruce R. Worthington President February 21, 1996
- ---------------------------------------------
BRUCE R. WORTHINGTON
B. Principal Financial Officer and Principal
Accounting Officer
/s/ Bruce R. Worthington Treasurer February 21, 1996
- ---------------------------------------------
BRUCE R. WORTHINGTON
C. Majority of the Board of Directors
/s/ Bruce R. Worthington Sole Director February 21, 1996
- ---------------------------------------------
BRUCE R. WORTHINGTON
</TABLE>
II-3
<PAGE> 86
Index to Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- -----------------------------------------------------------------
<S> <C>
2 Agreement of Merger (Exhibit A to Proxy Statement and
Prospectus).
3.1 Articles of Incorporation of Registrant (Exhibit B to Proxy
Statement and Prospectus).
3.2 Bylaws of Registrant.
5 Opinion of Orrick, Herrington & Sutcliffe.
8 Tax Opinion of Orrick, Herrington & Sutcliffe.
23.1 Consent of Orrick, Herrington & Sutcliffe (included as part of
Exhibits 5 and 8).
23.2 Consent of Arthur Andersen LLP.
99.1 Form of proxy and voting instruction form for Savings Fund Plan.
99.2 Consents of Persons named to become Directors.
</TABLE>
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
PG&E PARENT CO., INC.
ARTICLE I
SHAREHOLDERS
1. PLACE OF MEETING. All meetings of the shareholders shall be held at the
office of the Corporation in the City and County of San Francisco, State of
California, or at such other place within the State of California as may be
designated by the Board of Directors.
2. ANNUAL MEETINGS. The annual meeting of shareholders shall be held each
year on a date and at a time designated by the Board of Directors.
Written notice of the annual meeting shall be given not less than ten (or,
if sent by third-class mail, thirty) nor more than sixty days prior to the date
of the meeting to each shareholder entitled to vote thereat. The notice shall
state the place, day, and hour of such meeting, and those matters which the
Board, at the time of mailing, intends to present for action by the
shareholders.
Notice of any meeting of the shareholders shall be given by mail or
telegraphic or other written communication, postage prepaid, to each holder of
record of the stock entitled to vote thereat, at his address, as it appears on
the books of the Corporation.
3. SPECIAL MEETINGS. Special meetings of the shareholders shall be called
by the Secretary or an Assistant Secretary at any time on order of the Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board, the
Chairman of the Executive Committee, or the President. Special meetings of the
shareholders shall also be called by the Secretary or an Assistant Secretary
upon the written request of holders of shares entitled to cast not less than ten
percent of the votes at the meeting. Such request shall state the purposes of
the meeting, and shall be delivered to the Chairman of the Board, the Vice
Chairman of the Board, the Chairman of the Executive Committee, the President or
the Secretary.
A special meeting so requested shall be held on the date requested, but
not less than thirty-five nor more than sixty days after the date of the
original request. Written notice of each special meeting of shareholders,
stating the place, day, and hour of such meeting and the business proposed to be
transacted thereat, shall be given in the manner stipulated in Article I,
Section 2, Paragraph 3 of these Bylaws within twenty days after receipt of the
written request.
4. ATTENDANCE AT MEETINGS. At any meeting of the shareholders, each holder
of record of stock entitled to vote thereat may attend in person or may
designate an agent or a reasonable number of agents, not to exceed three to
attend the meeting and cast votes for his shares. The authority of agents must
be evidenced by a written proxy signed by the shareholder designating the agents
authorized to attend the meeting and be delivered to the Secretary of the
Corporation prior to the commencement of the meeting.
ARTICLE II
DIRECTORS
1. NUMBER. The Board of Directors shall consist of fifteen (15) directors.
2. POWERS. The Board of Directors shall exercise all the powers of the
Corporation except those which are by law, or by the Articles of Incorporation
of this Corporation, or by the Bylaws conferred upon or reserved to the
shareholders.
3. EXECUTIVE COMMITTEE. There shall be an Executive Committee of the Board
of Directors consisting of the Chairman of the Committee, the Chairman of the
Board, if these offices be filled, the President, and four Directors who are not
officers of the Corporation. The members of the Committee shall be elected, and
may at any time be removed, by a two-thirds vote of the whole Board.
<PAGE> 2
The Executive Committee, subject to the provisions of law, may exercise
any of the powers and perform any of the duties of the Board of Directors; but
the Board may by an affirmative vote of a majority of its members withdraw or
limit any of the powers of the Executive Committee.
The Executive Committee, by a vote of a majority of its members, shall fix
its own time and place of meeting, and shall prescribe its own rules of
procedure. A quorum of the Committee for the transaction of business shall
consist of three members.
4. TIME AND PLACE OF DIRECTORS' MEETINGS. Regular meetings of the Board of
Directors shall be held on such days and at such times and at such locations as
shall be fixed by resolution of the Board, or designated by the Chairman of
the Board or, in his absence, the Vice Chairman of the Board, or the President
of the Corporation and contained in the notice of any such meeting. Notice of
meetings shall be delivered personally or sent by mail or telegram at least
seven days in advance.
5. SPECIAL MEETINGS. The Chairman of the Board, the Vice Chairman of the
Board, the Chairman of the Executive Committee, the President, or any five
directors may call a special meeting of the Board of Directors at any time.
Notice of the time and place of special meetings shall be given to each Director
by the Secretary. Such notice shall be delivered personally or by telephone to
each Director at least four hours in advance of such meeting, or sent by
first-class mail or telegram, postage prepaid, at least two days in advance of
such meeting.
6. QUORUM. A quorum for the transaction of business at any meeting of the
Board of Directors shall consist of six members.
7. ACTION BY CONSENT. Any action required or permitted to be taken by the
Board of Directors may be taken without a meeting if all Directors individually
or collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board of
Directors.
8. MEETINGS BY CONFERENCE TELEPHONE. Any meeting, regular or special, of
the Board of Directors or of any committee of the Board of Directors, may be
held by conference telephone or similar communication equipment, provided that
all Directors participating in the meeting can hear one another.
ARTICLE III
OFFICERS
1. OFFICERS. The officers of the Corporation shall be a Chairman of the
Board, a Vice Chairman of the Board, a Chairman of the Executive Committee
(whenever the Board of Directors in its discretion fills these offices), a
President, one or more Vice Presidents, a Secretary and one or more Assistant
Secretaries, a Treasurer and one or more Assistant Treasurers, a General
Counsel, a General Attorney (whenever the Board of Directors in its discretion
fills this office), and a Controller, all of whom shall be elected by the Board
of Directors. The Chairman of the Board, the Vice Chairman of the Board, the
Chairman of the Executive Committee, and the President shall be members of the
Board of Directors.
2. CHAIRMAN OF THE BOARD. The Chairman of the Board, if that office be
filled, shall preside at all meetings of the shareholders, of the Directors, and
of the Executive Committee in the absence of the Chairman of that Committee. He
shall be the chief executive officer of the Corporation if so designated by the
Board of Directors. He shall have such duties and responsibilities as may be
prescribed by the Board of Directors or the Bylaws. The Chairman of the Board
shall have authority to sign on behalf of the Corporation agreements and
instruments of every character, and in the absence or disability of the
President, shall exercise his duties and responsibilities.
3. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, if that
office be filled, shall have such duties and responsibilities as may be
prescribed by the Board of Directors, the Chairman of the Board, or the Bylaws.
He shall be the chief executive officer of the Corporation if so designated by
the Board of Directors. In the absence of the Chairman of the Board, he shall
preside at all meetings of the Board of Directors and of the shareholders; and,
in the absence of the Chairman of the Executive Committee and the Chairman of
the Board, he shall preside at all meetings of the Executive Committee. The Vice
Chairman of the Board shall have authority to sign on behalf of the Corporation
agreements and instruments of every character.
<PAGE> 3
4. CHAIRMAN OF THE EXECUTIVE COMMITTEE. The Chairman of the Executive
Committee, if that office be filled, shall preside at all meetings of the
Executive Committee. He shall aid and assist the other officers in the
performance of their duties and shall have such other duties as may be
prescribed by the Board of Directors or the Bylaws.
5. PRESIDENT. The President shall have such duties and responsibilities as
may be prescribed by the Board of Directors, the Chairman of the Board, or the
Bylaws. He shall be the chief executive officer of the Corporation if so
designated by the Board of Directors. If there be no Chairman of the Board, the
President shall also exercise the duties and responsibilities of that office.
The President shall have authority to sign on behalf of the Corporation
agreements and instruments of every character.
6. VICE PRESIDENTS. Each Vice President shall have such duties and
responsibilities as may be prescribed by the Board of Directors, the Chairman of
the Board, the Vice Chairman of the Board, the President, or the Bylaws. Each
Vice President's authority to sign agreements and instruments on behalf of the
Corporation shall be as prescribed by the Board of Directors. The Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board, or the
President may confer a special title upon any Vice President.
7. SECRETARY. The Secretary shall attend all meetings of the Board of
Directors and the Executive Committee, and all meetings of the shareholders, and
he shall record the minutes of all proceedings in books to be kept for that
purpose. He shall be responsible for maintaining a proper share register and
stock transfer books for all classes of shares issued by the Corporation. He
shall give, or cause to be given, all notices required either by law or the
Bylaws. He shall keep the seal of the Corporation in safe custody, and shall
affix the seal of the Corporation to any instrument requiring it and shall
attest the same by his signature.
The Secretary shall have such other duties as may be prescribed by the
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board,
the President, or the Bylaws.
The Assistant Secretaries shall perform such duties as may be assigned
from time to time by the Board of Directors, the Chairman of the Board, the Vice
Chairman of the Board, the President, or the Secretary. In the absence or
disability of the Secretary, his duties shall be performed by an Assistant
Secretary.
8. TREASURER. The Treasurer shall have custody of all moneys and funds of
the Corporation, and shall cause to be kept full and accurate records of
receipts and disbursements of the Corporation. He shall deposit all moneys and
other valuables of the Corporation in the name and to the credit of the
Corporation in such depositaries as may be designated by the Board of Directors
or any employee of the Corporation designated by the Board of Directors. He
shall disburse such funds of the Corporation as have been duly approved for
disbursement.
The Treasurer shall perform such other duties as may from time to time be
prescribed by the Board of Directors, the Chairman of the Board, the Vice
Chairman of the Board, the President, or the Bylaws.
The Assistant Treasurer shall perform such duties as may be assigned from
time to time by the Board of Directors, the Chairman of the Board, the Vice
Chairman of the Board, the President, or the Treasurer. In the absence or
disability of the Treasurer, his duties shall be performed by an Assistant
Treasurer.
9. GENERAL COUNSEL. The General Counsel shall be responsible for handling
on behalf of the Corporation all proceedings and matters of a legal nature. He
shall render advice and legal counsel to the Board of Directors, officers, and
employees of the Corporation, as necessary to the proper conduct of the
business. He shall keep the management of the Corporation informed of all
significant developments of a legal nature affecting the interests of the
Corporation. The General Counsel shall have such other duties as may from time
to time be prescribed by the Board of Directors, the Chairman of the Board, the
Vice Chairman of the Board, the President, or the Bylaws.
10. CONTROLLER. The Controller shall be responsible for maintaining the
accounting records of the Corporation and for preparing necessary financial
reports and statements, and he shall properly account for all moneys and
obligations due the Corporation and all properties, assets, and liabilities of
the Corporation. He shall render to the officers such periodic reports covering
the result of operations of the Corporation as may be required by them or any
one of them.
The Controller shall have such other duties as may from time to time be
prescribed by the Board of Directors, the Chairman of the Board, the Vice
Chairman of the Board, the President, or the Bylaws.
<PAGE> 4
ARTICLE IV
MISCELLANEOUS
1. RECORD DATE. The Board of Directors may fix a time in the future as a
record date for the determination of the shareholders entitled to notice of and
to vote at any meeting of shareholders, or entitled to receive any dividend or
distribution, or allotment of rights, or to exercise rights in respect to any
change, conversion, or exchange of shares. The record date so fixed shall be not
more than sixty nor less than ten days prior to the date of such meeting nor
more than sixty days prior to any other action for the purposes for which it is
so fixed. When a record date is so fixed, only shareholders of record on that
date are entitled to notice of and to vote at the meeting, or entitled to
receive any dividend or distribution, or allotment of rights, or to exercise the
rights, as the case may be.
2. TRANSFERS OF STOCK. Upon surrender to the Secretary or Transfer Agent
of the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment, or authority to transfer, and payment
of transfer taxes, the Corporation shall issue a new certificate to the person
entitled thereto, cancel the old certificate, and record the transaction upon
its books. Subject to the foregoing, the Board of Directors shall have power and
authority to make such rules and regulations as it shall deem necessary or
appropriate concerning the issue, transfer, and registration of certificates for
shares of stock of the Corporation, and to appoint and remove Transfer Agents
and Registrars of transfers.
3. LOST CERTIFICATES. Any person claiming a certificate of stock to be
lost, stolen, mislaid, or destroyed shall make an affidavit or affirmation of
that fact and verify the same in such manner as the Board of Directors may
require, and shall, if the Board of Directors so requires, give the Corporation,
its Transfer Agents, Registrars, and/or other agents a bond of indemnity in form
approved by counsel, and in amount and with such sureties as may be satisfactory
to the Secretary of the Corporation, before a new certificate may be issued of
the same tenor and for the same number of shares as the one alleged to have been
lost, stolen, mislaid, or destroyed.
4. EMPLOYEE'S STOCK PURCHASE PLAN. Subject to any limitation contained in
the Articles of Incorporation, the Board of Directors may in it discretion, from
time to time, authorize the issue and sale of shares of capital stock of this
Corporation to employees, pursuant to an employee's stock purchase plan, for
such consideration as the Board shall determine to be reasonable. Such plan may
provide for payment for such shares by installments over a period of time fixed
by the Board. In any such plan, the Board may provide for interest on any
installment payments, and that an employee may cancel his agreement to purchase
all or part of the shares thereunder. The Board may fix such other terms and
conditions for any such plan as it shall deem, in its discretion, to be in the
best interests of this Corporation. Any such plan may include employees of: This
Corporation's subsidiaries and affiliates; Pacific Service Employees
Association; Pacific Service Employees Credit Union; and such other associated
organizations as may be approved by the Board.
ARTICLE V
AMENDMENTS
1. AMENDMENT BY SHAREHOLDERS. Except as otherwise provided by law, these
Bylaws, or any of them, may be amended or repealed or new Bylaws adopted by the
affirmative vote of a majority of the outstanding shares entitled to vote at any
regular or special meeting of the shareholders.
2. AMENDMENT BY DIRECTORS. To the extent provided by law, these Bylaws, or
any of them, may be amended or repealed or new Bylaws adopted by resolution
adopted by a majority of the members of the Board of Directors.
<PAGE> 1
EXHIBIT 5
February 21, 1996
PG&E Parent Co., Inc.
77 Beale Street
San Francisco, CA 94105
Re: Issuance of Common Stock in Connection with the
Formation of a Holding Company Structure for PG&E
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-4
(the "Registration Statement"), in the form being filed by PG&E Parent Co.,
Inc., a California corporation ("ParentCo") with the Securities and Exchange
Commission (the "Commission") in connection with the registration under the
Securities Act of 1933, as amended (the "Act") of up to 430,000,000 shares of
common stock of ParentCo in connection with a merger which will cause ParentCo
to become the holding company of Pacific Gas and Electric Company, a California
corporation.
We examined instruments, documents, and records which we deemed relevant
and necessary for the basis of our opinion hereinafter expressed. Based on such
examination, we are of the opinion that when the issuance of the shares
of ParentCo common stock has been duly authorized by appropriate corporate
action and by appropriate action of the California Public Utilities Commission
and the shares of ParentCo common stock have been issued in accordance with the
terms of the Registration Statement, including the Agreement of Merger
constituting Exhibit A to the Proxy Statement and Prospectus contained in the
Registration Statement, the shares of ParentCo common stock will be validly
issued, fully paid and nonassessable.
We express no opinion as to matters of law in jurisdictions other than the
State of California and the federal law of the United States.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever it
appears in the Registration Statement and in any amendment thereto. In giving
such consent, we do not consider that we are "experts" within the meaning of
such term as used in the Act or the rules and regulations of the Commission
issued thereunder with respect to any part of the Registration Statement,
including this opinion as an exhibit or otherwise.
Very truly yours,
/s/ Orrick, Herrington & Sutcliffe
ORRICK, HERRINGTON & SUTCLIFFE
<PAGE> 1
EXHIBIT 8
February 21, 1996
Pacific Gas and Electric Company
77 Beale Street
San Francisco, CA 94105
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the plan to implement a holding company structure for Pacific
Gas and Electric Company ("PG&E") as described in the proxy statement and
prospectus of PG&E Parent Co., Inc. ("ParentCo") included in ParentCo's
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission on February 21, 1996 (the "Registration Statement"), and the
Agreement of Merger (the "Agreement") included as Exhibit A thereto.
In rendering this opinion, we have expressly assumed that the transactions
will be carried out as described in the Agreement and the Registration
Statement, that the statements contained in the Registration Statement are true
and correct and that the statements and the representations made to us in
connection with providing this opinion are true and correct. Unless otherwise
defined herein, capitalized terms have the meanings ascribed to them in the
Registration Statement.
This opinion is based upon the Internal Revenue Code of 1986, as amended
to the date hereof, the regulations promulgated thereunder, reported judicial
decisions and published administrative rulings. All of the foregoing are subject
to change, perhaps with retroactive effect; any such change may require
modification of some or all of the conclusions set forth in our opinion.
Based upon the foregoing, our opinion as to certain federal income tax
consequences upon consummation of the Merger is as follows:
1. No gain or loss will be recognized by the holders of shares of PG&E
Common Stock upon the receipt of shares of ParentCo Common Stock solely in
exchange for shares of PG&E Common Stock;
2. The basis of shares of ParentCo Common Stock received by the holders of
shares of PG&E Common Stock will be the same as the basis of the shares of PG&E
Common Stock surrendered in exchange therefor;
3. The holding period of the ParentCo Common Stock to be received by the
holders of shares of PG&E Common Stock will include the period during which the
PG&E Common Stock was held, provided that the PG&E Common Stock is held as a
capital asset on the date of the Merger; and
4. No gain or loss will be recognized by ParentCo upon the issuance of
shares of ParentCo Common Stock in exchange for shares of PG&E Common Stock.
No opinion is expressed as to tax treatment other than as discussed above,
or as to the tax treatment of any conditions existing at the time of, or effects
resulting from, the transaction that are not specifically covered by the above
opinions.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Item
No. 2: Formation of a Holding Company Structure--Federal Income Tax Consequences
of the Merger" in the Registration Statement.
Very truly yours,
/s/ Orrick, Herrington & Sutcliffe
ORRICK, HERRINGTON & SUTCLIFFE
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated February 12,
1996, included in Pacific Gas and Electric Company's Form 8-K dated February 21,
1996, and to all references to our Firm included in this registration statement.
/s/ Arthur Anderson LLP
San Francisco, California,
February 21, 1996
<PAGE> 1
EXHIBIT 99.1
The undersigned hereby appoints Stanley T. Skinner, Robert D. Glynn, Jr., and
Leslie H. Everett, or any of them, proxies of the undersigned, with full power
of substitution, to vote the stock of the undersigned at the annual meeting of
shareholders of Pacific Gas and Electric Company, to be held at 1111 California
Street, San Francisco, California, on Wednesday, April 17, 1996, at 10:00 a.m.,
and at any adjournment thereof, as instructed on the reverse hereof and upon all
motions and resolutions which may properly be presented for consideration at
said meeting. THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF PACIFIC GAS
AND ELECTRIC COMPANY.
PG&E
Please mark, sign, date, and return this
proxy promptly to Corporate Election
Services, P.O. Box 3200, Pittsburgh, PA
15230-3200
, 1996
--------------------------- -----
, 1996
--------------------------- -----
SHAREHOLDER'S SIGNATURE DATE
If you are signing for the shareholder,
please sign the shareholder's name and
your name, and state the capacity in
which you act.
Shareholder's Proxy For Annual Meeting, April 17, 1996
- --------------------------------------------------------------------------------
- PLEASE DETACH HERE AND RETURN THIS PROXY TO CORPORATE ELECTION SERVICES
IN THE ENCLOSED REPLY ENVELOPE. -
(PG&E
LOGO) PACIFIC GAS AND ELECTRIC COMPANY
ANNUAL MEETING
TO BE HELD AT:
MASONIC AUDITORIUM
1111 CALIFORNIA STREET
SAN FRANCISCO, CA 94108
APRIL 17, 1996, AT 10:00 A.M.
- PLEASE USE THE ATTACHED TICKET TO ATTEND THE ANNUAL MEETING.
YOU ALSO MAY REGISTER AT THE MEETING. -
- --------------------------------------------------------------------------------
PG&E 1996 Annual Meeting Ticket
For the Annual Shareholders Meeting at
----------------------------
10:00 a.m. on April 17, 1996
----------------------------
to be held at the Masonic Auditorium, 1111 California Street, San Francisco.
(Doors open at 9:00 a.m. You may bypass the registration area and
present this ticket at the entrance to the auditorium.)
Note: Cameras, tape recorders, etc., will not be allowed in the auditorium
during the meeting, other than for Company purposes. A checkroom will be
provided. For your protection, all briefcases, purses, packages, etc., will be
subject to inspection as you enter the meeting. We regret any inconvenience this
may cause you. (See reverse side for additional information.)
<PAGE> 2
YOUR PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. UNLESS CONTRARY INSTRUCTIONS
ARE GIVEN BELOW, THE ABOVE DESIGNATED PROXIES WILL VOTE THE SHARES FOR WHICH
THEY HOLD PROXIES IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF
DIRECTORS.
1. ELECTION OF DIRECTORS--The Board of Directors recommends a vote FOR the
nominees named below:
FOR all nominees listed below. (Except WITHHOLD AUTHORITY to
/ / as indicated to the contrary below.) / / vote for all nominees.
Richard A. Clarke; Harry M. Conger; C. Lee Cox; William S. Davila; Robert D.
Glynn, Jr.; David M. Lawrence, MD; Richard B. Madden; Mary S. Metz; Rebecca
Q. Morgan; Samuel T. Reeves; Carl E. Reichardt; John C. Sawhill; Alan
Seelenfreund; Stanley T. Skinner; and Barry Lawson Williams.
(Instructions: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THE NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
2. The Board of Directors recommends a vote FOR the following:
Proposal to form a holding company structure for PG&E and approve a related
agreement of merger to implement this structure.
FOR AGAINST ABSTAIN
/ / / / / /
3. The Board of Directors recommends a vote FOR the following:
Proposal to approve the amendment and restatement of the Long-Term Incentive
Program.
FOR AGAINST ABSTAIN
/ / / / / /
4. The Board of Directors recommends a vote FOR the following:
Proposal to ratify the selection of Arthur Andersen LLP as PG&E's independent
public accountants.
FOR AGAINST ABSTAIN
/ / / / / /
5. The Board of Directors recommends a vote AGAINST the following:
Shareholder Proposal: Compensation of Directors
FOR AGAINST ABSTAIN
/ / / / / /
- --------------------------------------------------------------------------------
- DETACH HERE AND RETURN THE TOP SECTION TO CORPORATE ELECTION
SERVICES IN THE ENCLOSED REPLY ENVELOPE. -
- --------------------------------------------------------------------------------
PG&E has reserved all available space at the Memorial Temple Garage at 1101
California Street (adjacent to the Masonic Auditorium) to provide complimentary
parking for our shareholders. However, capacity is limited. Please show your
annual meeting ticket to the garage attendant as you enter the garage.
Real-time captioning services and headsets will be available at the meeting for
shareholders with impaired hearing. Please contact an usher at the meeting if
you wish to be seated in the real-time captioning section or to use a headset.
<PAGE> 3
PG&E 1996 ANNUAL MEETING
SAVINGS FUND PLAN FOR EMPLOYEES OF PACIFIC GAS AND ELECTRIC COMPANY
VOTING INSTRUCTIONS TO THE TRUSTEE
PLEASE SIGN, DATE, AND RETURN THIS FORM PROMPTLY.
(Mark your voting instructions on the reverse side.)
, 1996
------------------------------ -----------
Signature Date
- --------------------------------------------------------------------------------
- PLEASE DETACH HERE AND RETURN THE TOP SECTION TO THE
TRUSTEE IN THE ENCLOSED REPLY ENVELOPE. -
TO ALL MEMBERS OF THE SAVINGS FUND PLAN:
AS A MEMBER, YOU ARE ENTITLED TO DIRECT THE TRUSTEE HOW TO VOTE THE SHARES
OF PG&E COMMON STOCK ALLOCATED TO YOUR ACCOUNT. This form is provided for your
use in giving the Trustee of the Plan confidential instructions to vote your
stock held in the Plan at the Company's annual meeting of shareholders on April
17, 1996. You have one vote for each share of stock credited to your account as
of February 20, 1996. Enclosed is a proxy statement which sets forth the
business to be transacted at the meeting. Please indicate your instructions on
this form and sign, date, and return the top section to STATE STREET BANK AND
TRUST COMPANY, TRUSTEE OF THE PLAN, in the envelope provided. IF YOU SIGN BUT DO
NOT OTHERWISE COMPLETE THE FORM, THE TRUSTEE WILL VOTE ALL SHARES IN ACCORDANCE
WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS. Stock in your Plan account
for which the Trustee has not received a signed voting instruction form will not
be voted by the Trustee. Members who also own stock outside the Plan will
receive a separate proxy form for those shares. Those proxies should be returned
directly to Corporate Election Services for tabulation.
To ensure that your shares are represented at the meeting, it is important
that your voting instructions be received by the Trustee on or before April 16,
1996.
State Street Bank and Trust Company, as Trustee
of the Savings Fund Plan for employees of
Pacific Gas and Electric Company
Box 1997 G.P.O.
New York, N. Y. 10117-0024
RETAIN THE BOTTOM SECTION FOR YOUR RECORDS
<PAGE> 4
TO STATE STREET BANK AND TRUST COMPANY, TRUSTEE
PURSUANT TO THE PROVISIONS OF THE SAVINGS FUND PLAN FOR EMPLOYEES OF PACIFIC
GAS AND ELECTRIC COMPANY, YOU ARE INSTRUCTED AS INDICATED BELOW WITH RESPECT
TO VOTING THE SHARES OF STOCK CREDITED TO MY ACCOUNT IN THE PLAN AS OF
FEBRUARY 20, 1996, AT THE ANNUAL MEETING OF SHAREHOLDERS OF THE COMPANY TO BE
HELD ON APRIL 17, 1996, AND AT ANY ADJOURNMENT THEREOF.
VOTING INSTRUCTIONS TO THE TRUSTEE--1996
1. ELECTION OF DIRECTORS--The Board of Directors recommends a vote FOR the
nominees named below:
FOR all nominees listed below. (Except WITHHOLD AUTHORITY to
/ / as indicated to the contrary below.) / / vote for all nominees.
Richard A. Clarke; Harry M. Conger; C. Lee Cox; William S. Davila; Robert D.
Glynn, Jr.; David M. Lawrence, MD; Richard B. Madden; Mary S. Metz; Rebecca
Q. Morgan; Samuel T. Reeves; Carl E. Reichardt; John C. Sawhill; Alan
Seelenfreund; Stanley T. Skinner; and Barry Lawson Williams.
(Instructions: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THE NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
2. The Board of Directors recommends a vote FOR the following:
Proposal to form a holding company structure for PG&E and approve a related
agreement of merger to implement this structure.
FOR AGAINST ABSTAIN
/ / / / / /
3. The Board of Directors recommends a vote FOR the following:
Proposal to approve the amendment and restatement of the Long-Term Incentive
Program.
FOR AGAINST ABSTAIN
/ / / / / /
4. The Board of Directors recommends a vote FOR the following:
Proposal to ratify the selection of Arthur Andersen LLP as PG&E's independent
public accountants.
FOR AGAINST ABSTAIN
/ / / / / /
5. The Board of Directors recommends a vote AGAINST the following:
Shareholder Proposal: Compensation of Directors
FOR AGAINST ABSTAIN
/ / / / / /
- --------------------------------------------------------------------------------
- DETACH HERE AND RETURN THE TOP SECTION TO THE
TRUSTEE IN THE ENCLOSED REPLY ENVELOPE. -
<PAGE> 1
EXHIBIT 99.2
Consent of Prospective Directors
The undersigned, being the directors of Pacific Gas and Electric Company,
a California corporation, hereby consent to being named as prospective directors
of PG&E Parent Co., Inc., a California corporation, in the Registration
Statement on Form S-4 of PG&E Parent Co., Inc.
Dated: December 20, 1995
/s/ Richard A. Clarke /s/ Carl E. Reichardt
- ----------------------------------------- ---------------------------
Name: Richard A. Clarke Name: Carl E. Reichardt
/s/ Harry M. Conger /s/ John C. Sawhill
- ----------------------------------------- ---------------------------
Name: Harry M. Conger Name: John C. Sawhill
/s/ William S. Davila /s/ Alan Seelenfreund
- ----------------------------------------- ---------------------------
Name: William S. Davila Name: Alan Seelenfreund
/s/ Robert D. Glynn, Jr. /s/ Stanley T. Skinner
- ----------------------------------------- ---------------------------
Name: Robert D. Glynn, Jr. Name: Stanley T. Skinner
/s/ David M. Lawrence /s/ Barry Lawson Williams
- ----------------------------------------- ---------------------------
Name: David M. Lawrence Name: Barry Lawson Williams
/s/ Richard B. Madden /s/ Rebecca Q. Morgan
- ----------------------------------------- ---------------------------
Name: Richard B. Madden Name: Rebecca Q. Morgan
/s/ Mary S. Metz /s/ Samuel T. Reeves
- ----------------------------------------- ---------------------------
Name: Mary S. Metz Name: Samuel T. Reeves
Dated: February 21, 1996
/s/ C. Lee Cox
- -----------------------------------------
Name: C. Lee Cox
