def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to sec. 240.14a-12 |
Puget Energy, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Fee not required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the
filing for which the offsetting fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing. |
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(1)
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Form, Schedule or Registration Statement No.:
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Date Filed:
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April 1, 2005
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders of Puget Energy, Inc., (Puget Energy) which will be
held on May 10, 2005 at 10:00 a.m. at the Kitsap
Conference Center, 100 Washington Avenue, Bremerton, Washington
98337. You will find a map with directions on the back page of
this proxy statement. Enclosed is our 2004 annual report for
your review.
Details of the business to be conducted at the meeting are given
in the attached Notice of Annual Meeting of Shareholders and
Proxy Statement. Only common stock shareholders of record at the
close of business on March 11, 2005 are entitled to vote at
the meeting.
Whether or not you plan to attend the annual meeting, it is
important that your shares be represented and voted. Therefore,
I urge you to promptly vote and submit your proxy by telephone,
via Internet or by signing, dating and returning the enclosed
proxy card in the enclosed envelope provided.
We will provide live coverage of the annual meeting from the
Investors section of the Puget Energy website at
www.pse.com. Replay of the annual meeting of shareholders
will be available in the Investors section of the website for
those of you that are unable to attend.
We appreciate your continued interest in Puget Energy and look
forward to seeing you at the meeting.
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Sincerely, |
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Stephen P. Reynolds
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President and Chief Executive Officer |
Notice of Annual Meeting of Shareholders
Tuesday, May 10, 2005 at 10:00 a.m.
Kitsap Conference Center
100 Washington Avenue
Bremerton, Washington 98337
Dear Shareholder:
The Annual Meeting of Shareholders of Puget Energy, Inc. will be
held at the Kitsap Conference Center, 100 Washington Avenue,
Bremerton, Washington on Tuesday May 10, 2005, at
10:00 a.m. for the following purposes:
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To elect three Class II directors to serve for three-year
terms expiring in 2008 and one Class III director to serve
a one-year term expiring in 2006. |
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To approve an amended and restated Long-term Incentive Plan. |
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To approve an amended and restated Nonemployee Director Stock
Plan. |
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To ratify the appointment of PricewaterhouseCoopers LLP as our
independent registered public accounting firm for fiscal year
2005. |
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To consider other matters properly presented at the meeting. |
Only common stock shareholders of record at the close of
business on March 11, 2005 will be entitled to vote.
Your vote is important. Regardless of the number of
shares you own, please vote as soon as possible. You may vote
your proxy by telephone, via Internet, or by signing, dating and
returning the enclosed proxy card in the enclosed envelope
provided. You will find instructions on the enclosed proxy card.
If your shares are registered in the name of a brokerage firm or
trustee and you plan to attend the meeting in person, please
bring a letter, account statement or other evidence of your
beneficial ownership to the meeting.
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By Order of the Board of Directors |
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James W. Eldredge
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Corporate Secretary |
April 1, 2005
Bellevue, Washington
TABLE OF CONTENTS
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A-1 |
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B-1 |
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PUGET ENERGY, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
This proxy statement is being furnished to you by the Board of
Directors of Puget Energy, Inc. (Puget Energy) to solicit
proxies for use at its Annual Meeting of Shareholders. The
meeting will be held at the Kitsap Conference Center, 100
Washington Avenue, Bremerton, Washington at 10:00 a.m. on
May 10, 2005. This proxy statement, proxy card and our 2004
Annual Report are being mailed to shareholders beginning on or
about April 1, 2005.
The mailing address of Puget Energys principal executive
offices is Puget Energy, Inc., 10885 NE 4th Street,
P.O. Box 97034, Bellevue, Washington 98009-9734.
All of Puget Energys operations are conducted through its
direct subsidiaries, Puget Sound Energy, Inc., Puget
Energys principal subsidiary, and InfrastruX Group, Inc.
QUESTIONS AND ANSWERS
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Who is entitled to vote at the Annual Meeting? |
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Only holders of Puget Energy common stock (common stock) at the
close of business on March 11, 2005 (the record date) are
entitled to vote. As of the record date, approximately
99,900,000 shares of common stock are outstanding. You are
entitled to one vote for each share of common stock you held on
the record date. For the election of directors, you may not vote
more shares for individual directors than the total number of
shares you held on the record date. Puget Energy has
approximately 40,400 shareholders of record as of the
record date. |
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What am I voting on? |
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There are four proposals to be voted upon: |
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1. Proposal 1: The
election of three Class II directors and one Class III
director. |
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2. Proposal 2: Approval
of an amended and restated Long-term Incentive Plan. |
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3. Proposal 3: Approval
of an amended and restated Nonemployee Director Stock Plan. |
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4. Proposal 4: Ratification
of the selection of PricewaterhouseCoopers LLP as our
independent
registered
public accounting firm for fiscal year 2005. |
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We are not aware of any other matter to be presented for action
at the Annual Meeting. |
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How does the Board of Directors recommend I vote? |
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The Board of Directors recommends a vote FOR each of
the proposals listed herein. |
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How can I vote my shares? |
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You may vote your shares by telephone, via the Internet or by
signing, dating and returning the enclosed proxy card in the
enclosed envelope. The enclosed proxy card contains instructions
on each method. Whichever method you use, the proxies identified
on your proxy card will vote your shares in accordance with your
instructions. |
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How will my proxy be voted? |
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If we receive a proper proxy, your shares will be voted as you
direct. You may revoke a proxy at any time before it is voted by
delivering a written notice to the Corporate Secretary or by
signing and delivering a proxy card that is dated later. If you
attend the Annual Meeting in person, you may revoke the proxy by
giving notice of revocation to an inspector of election at the
Annual Meeting or by voting at the Annual Meeting. |
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Has a proxy solicitor been retained by Puget Energy for 2005? |
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Yes, Puget Energy has retained Georgeson Shareholder
Communications, Inc. to assist with the solicitation of proxies
at an approximate cost of $10,000, plus reimbursement of
out-of-pocket expenses. |
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What does it mean if I receive more than one proxy card and/or
annual report? |
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It means that your shares are either registered with different
brokerage firms, under different names or with different
addresses. Be sure to vote all your accounts to ensure that all
your shares are voted. We encourage shareholders to have all
their shares either registered with Puget Energy or in one
brokerage firm with the same address to reduce the duplication
of materials. |
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What constitutes a quorum? |
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The holders of a majority of the shares of the common stock,
present in person or by proxy at the Annual Meeting, constitute
a quorum for the transaction of business. There must be a quorum
for the meeting to be held. Abstentions and broker
non-votes (shares held by a broker or nominee that does
not have the authority, either express or discretionary, to vote
on a particular matter) are counted for purposes of determining
the presence or absence of a quorum for the transaction of
business at the Annual Meeting. |
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How many votes are required? |
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If a quorum is present at the Annual Meeting, for
Proposal 1, the four nominees for election as directors who
receive the greatest number of votes cast by the shares present
in person or represented by proxy at the Annual Meeting will be
elected directors. For Proposal 4, the proposal will be
approved if the votes cast in favor of the proposal exceed the
votes cast against the proposal. Abstentions and broker
non-votes will have no impact on the outcome of Proposals 1
and 4. |
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For Proposals 2 and 3, the proposal will be approved
under Washington law if the votes cast in favor of the proposal
exceed the votes cast against the proposal. In addition to the
Washington law requirements, the rules of the New York Stock
Exchange (NYSE) require approval by a majority of votes
cast on a proposal, provided that the total votes cast on the
proposal must represent over 50% in interest of all securities
entitled to vote on the proposal. Abstentions and broker
non-votes will have no impact on the outcome of the vote on
Proposals 2 and 3 under Washington law. However, under the
NYSE approval requirements, abstentions are treated as votes
cast against a proposal. Also under the NYSE approval
requirements, broker non-votes are not counted as votes cast so
they could prevent us from satisfying the NYSE requirement that
the total votes cast on the proposal represent over 50% in
interest of all securities entitled to vote on the proposal. |
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Can brokers vote on the election of directors and the
ratification of the registered independent accounting firm? |
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Yes. If you hold your shares through a broker, bank or other
nominee and you do not provide instructions on how to vote, your
broker or other nominee may have authority to vote your shares
on certain routine matters. Proposal 1-Election
of Directors and Proposal 4-Ratification of the appointment
of the registered independent accounting firm are considered
routine matters and brokers may vote either FOR Proposal 1
or FOR Proposal 4, or FOR both unless you direct otherwise. |
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Can brokers vote on Proposal 2 and Proposal 3 if I do
not provide instructions on how to vote? |
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No. Brokers can not vote on the two equity plan proposals
without your instruction. |
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Who owns more than 5 percent of Puget Energy common stock? |
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Mutual Funds managed by Franklin Resources, Inc. and its
affiliates of San Mateo, California own more than five
percent of Puget Energy common stock. |
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How are shares of Puget Energy common stock held in the 401(k)
Investment Plan for employees of Puget Sound Energy voted? |
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If you are a current or former employee who is a participant in
the Puget Sound Energy 401(k) Investment Plan, you will receive
a proxy card showing the number of shares of common stock held
in your 401(k) account under the plan as of the record date. If
you also own shares in a registered account or Employee Stock
Purchase Plan account, you will receive a combined proxy card
showing the total number of shares in all such accounts. To
instruct the plan trustee on how to vote your shares, you may
vote your shares by telephone, via Internet or by signing,
dating and returning the proxy card in the envelope provided. If
you do not provide timely voting instructions for your plan
shares, then you will be deemed to have instructed the plan
trustee not to vote your shares. |
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How are shares of Puget Energy common stock held in the Employee
Stock Purchase Plan accounts voted? |
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You will receive a proxy card showing the number of shares of
common stock held in your account under the plan as of the
record date. If you also own shares in a registered account or
401(k) Plan account, you will receive a combined proxy card
showing the total number of shares in all such accounts. To
instruct the plan trustee on how to vote your shares, you may
vote your shares by telephone, via Internet, or by signing,
dating and returning the proxy card in the envelope provided.
Any proxies not returned by participants will not be voted. |
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Who counts the votes? |
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Mellon Investor Services will tabulate the votes in a
confidential manner and will act as inspector of election. No
one will disclose the identity and vote of any shareholder
unless legally required to do so. |
PROPOSAL 1 ELECTION OF DIRECTORS
Eleven directors currently constitute the Companys Board
of Directors. After the retirement of Douglas P. Beighle as the
Companys non-employee Chairman of the Board after the 2005
Annual Meeting, as described below under Other Director
Information, the Board of Directors will consist of ten
directors. The Board of Directors is divided into three classes.
Class I consists of four directors, and Class II and
Class III consist of three directors each. Generally, one
class of directors is elected each year to a three-year term.
The members of Puget Energys Board of Directors and Board
Committees are the same as the members of Puget Sound
Energys Board of Directors and Board Committees.
Directors are elected to hold office until their successors are
elected and qualified, or until resignation or removal in the
manner provided in our Bylaws. At the Annual Meeting, the
shareholders will elect three Class II directors to serve
for a term of three years expiring on the date of the 2008
Annual Meeting. In addition, Charles W. Bingham, currently a
Class II director whose term expires at the Annual Meeting,
has been nominated for reelection as a Class III director
to fill the vacancy in that Class created by the retirement of
Mr. Beighle. If elected, Mr. Bingham will serve for
the remaining term of the Class III directors, which
expires on the date of the 2006 Annual Meeting.
Class II Nominees Standing for Election
Terms Expiring in 2008
William S. Ayer, age 50, has been Chairman,
President and Chief Executive Officer of Alaska Airlines and
Alaska Air Group (air transportation) since 2003. He served as
Alaska Airlines President and Chief Operating Officer from
November 1997 to January 2002, and as Chief Executive Officer of
Alaska Airlines from January 2002 to February 2003. Prior to
that, he served in various marketing, planning and operational
capacities with Horizon Air, including Sr. Vice President
Operations. Mr. Ayer was appointed a director of Puget
Energy and Puget Sound Energy in January 2005. His appointment
to the Board of Directors was recommended to the Governance and
Public Affairs Committee by a nonemployee director.
Mr. Ayer also serves as a director of Alaska Air Group,
Alaska Airlines, the Alaska Airlines Foundation, Angel Flight,
the Museum of Flight and serves on the University of Washington
Business School Advisory Board.
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Robert L. Dryden, age 71, served as President, Chief
Executive Officer and a director of ConneXt, Inc. (a former
subsidiary of Puget Sound Energy) from 1999 until his retirement
in 2001. Prior to that, he served as Executive Vice President,
Airplane Production, Boeing Commercial Airplane Group from 1990
until 1998. Mr. Dryden has been a director of Puget Energy
since its incorporation in 1999 and of Puget Sound Energy since
1991. Mr. Dryden also serves as a director of the
Ambulatory Surgery Center and Washington Imaging Services at
Overlake Hospital Medical Center, Vykor Company and Software
Revolution, Inc.
Sally G. Narodick, age 59, is retired President of
Narodick Consulting, which specialized in strategic planning for
the educational technology industry. She retired as Chief
Executive Officer of Apex Learning Inc., a venture-backed
Internet distance learning company, in 2000. Previously, she
served as a Consultant on Strategic Planning for Educational
Technology software for IBM Corporation. Ms. Narodick has
been a director of Puget Energy since its incorporation in 1999
and of Puget Sound Energy since 1989. Ms. Narodick also
serves as a director of Cray, Inc., Penford Corporation,
SumTotal Systems, Inc. and Solutia Inc.
Class III Nominee Standing for Election Term
Expiring in 2006
Charles W. Bingham, age 71, served as Executive Vice
President of Weyerhaeuser Company (forest products industry)
from 1981 until his retirement in 1995. Mr. Bingham has
been a director of Puget Energy since its incorporation in 1999
and of Puget Sound Energy since 1978. Mr. Bingham also
serves as a director of the Evergreen Forest Trust.
The Board of Directors recommends that you vote FOR
Proposal 1 the election
of each of the nominees listed herein.
DIRECTORS CONTINUING IN OFFICE
Class III Terms Expiring in 2006
Craig W. Cole, age 54, has been President and Chief
Executive Officer of Brown & Cole Stores, LLC (retail
grocery) since 1989. Mr. Cole has served as a director of
Puget Energy and Puget Sound Energy since December 1999. In
addition, he serves as a director of the National Food Marketing
Institute and the National Association of Corporate Directors
(Pacific NW Chapter). Mr. Cole also serves as a Regent of
the University of Washington and is a member of the Washington
Roundtable.
Tomio Moriguchi, age 67, has served as Chairman and
Chief Executive Officer of Uwajimaya, Inc. (food and merchandise
distributor) since December 1994. Mr. Moriguchi has been a
director of Puget Energy since its incorporation in 1999 and of
Puget Sound Energy since 1988. Mr. Moriguchi also serves as
President of the Board of North American Post Publishing, Inc.
Class I Terms Expiring in 2007
Phyllis J. Campbell, age 53, has been President and
Chief Executive Officer of The Seattle Foundation (charitable
foundation) since 2003. Prior to that, she was Chair of the
Community Board of U.S. Bank, Washington from 2001 to 2003.
She was also President of U.S. Bank, Washington (financial
institution) from 1993 to 2001. Ms. Campbell has been a
director of Puget Energy since its incorporation in 1999 and of
Puget Sound Energy since 1993. She also serves as a director of
Nordstrom, SAFECO Corporation, Alaska Air Group, Inc. and Joshua
Green Corporation (privately held). She is on the Board of
Governors of the Washington State University Foundation.
Stephen E. Frank, age 63, served as Chairman,
President and Chief Executive Officer of Southern California
Edison (regulated utility) from 1995 until his retirement in
January 2002. Prior to that, he was President and Chief
Operating Officer of Florida Power and Light Company from 1990
to 1995. Mr. Frank has been a director of Puget Energy and
Puget Sound Energy since 2003. He also serves as a director of
UNOVA, Inc., Washington Mutual, Inc., Associated
Electric & Gas Insurance Services Limited and LNR
Property Corporation.
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Dr. Kenneth P. Mortimer, age 67, is President
Emeritus of the University of Hawaii and Western Washington
University. He is also Chancellor Emeritus of the University of
Hawaii at Manoa. Dr. Mortimer was named president of the
University of Hawaii in 1993. He is also Senior Associate of the
National Center for Higher Education Management Systems.
Dr. Mortimer holds a Ph.D. degree from the University of
California at Berkeley and an MBA from the Wharton School of the
University of Pennsylvania. Dr. Mortimer has been a
director of Puget Energy and Puget Sound Energy since 2001.
Stephen P. Reynolds, age 57, has been President and
Chief Executive Officer of Puget Energy and Puget Sound Energy
since January 2002. Prior to that, he was President and Chief
Executive Officer of Reynolds Energy International (energy
industry consulting) from 1998 to 2002. Mr. Reynolds has
been a director of Puget Energy and Puget Sound Energy since
2002. Mr. Reynolds also serves as a director of UNOVA,
Inc., Oregon Steel Mills, Inc. and InfrastruX Group, Inc. (a
Puget Energy majority owned subsidiary).
OTHER DIRECTOR INFORMATION
Douglas P. Beighle, age 72, has been Chairman of the
Boards of Directors of Puget Energy and Puget Sound Energy since
March 2002 and served as Lead Director from April 2001 to March
2002. Mr. Beighle will be retiring from Board service on
May 10, 2005 after the Annual Meeting of Shareholders on
that date. Mr. Beighle served as Senior Vice President of
The Boeing Company (aerospace manufacturing and sales) from 1986
until his retirement in 1997. Mr. Beighle has been a
director of Puget Energy since its incorporation in 1999 and of
Puget Sound Energy since 1981. He currently serves as a director
of Washington Mutual, Inc. and Simpson Investment Company
(privately held).
BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
Independence of the Board
The Board has reviewed the relationships between Puget Energy
and each of its directors and has determined that all of the
directors, other than Stephen P. Reynolds, Puget Energys
President and Chief Executive Officer, are independent under the
New York Stock Exchange (NYSE) corporate governance listing
standards and Puget Energys Corporate Governance
Guidelines. In making these determinations, the Board has
established a categorical standard that a directors
independence is not impaired solely as a result of the director,
or a company for which the director or an immediate family
member of the director serves as an executive officer, making
payments to Puget Sound Energy for power or natural gas provided
by Puget Sound Energy at rates fixed in conformity with law or
governmental authority, unless such payments would automatically
disqualify the director under the NYSEs corporate
governance listing standards.
Board Attendance
The Puget Energy Board of Directors met ten times during 2004.
Each director has attended at least 95% of these meetings and
the meetings of the Board Committees on which he or she served.
Directors on average attended 99% of all Board and Board
Committee meetings during 2004.
Under the Companys Corporate Governance Guidelines, each
director is encouraged to attend Puget Energys regularly
scheduled annual meeting of shareholders. All Directors as of
May 4, 2004, except Sally Narodick, attended the 2004
Annual Meeting of Shareholders of Puget Energy.
Executive Sessions
Non-management directors meet in executive session on a regular
basis, generally on the same date as each scheduled Board
meeting. The Chairman of the Board, a non-management director,
presides over the executive sessions. Shareholders may
communicate with the non-management directors of the Board
through the procedures described under the section of this proxy
statement, Shareholder Communications with the Board.
5
Committees of the Board of Directors
The Puget Energy Board of Directors has established Audit,
Corporate Governance and Public Affairs, and Compensation and
Leadership Development standing committees, and Securities
Pricing committees, which meet in addition to regular Board
meetings. The membership of these committees and a brief
statement of their principal responsibilities are presented as
follows:
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William S. Ayer
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Douglas P. Beighle
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Charles W. Bingham
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Phyllis J. Campbell
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Chair |
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Craig W. Cole
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Chair |
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Robert L. Dryden
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Stephen E. Frank
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Tomio Moriguchi
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Dr. Kenneth P. Mortimer
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Sally G. Narodick
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Chair |
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Chair |
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Stephen P. Reynolds
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The chair of each committee discussed below serves as the
presiding director during executive sessions of each such
committee.
Audit Committee
The Audit Committee assists the full Board in oversight of:
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The integrity of the Companys financial statements. |
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The Companys compliance with legal and regulatory
requirements. |
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The independent auditors qualifications and independence. |
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The performance of the Companys internal and independent
auditors. |
In addition, the Audit Committee has ultimate authority and
responsibility to select, evaluate and, where appropriate,
replace the independent auditor. Each member of the Audit
Committee is an independent director under SEC rules and NYSE
listing standards. The Board has determined that
Ms. Narodick meets the definition of audit committee
financial expert under SEC rules.
The Audit Committee met seven times during 2004.
Compensation and Leadership Development Committee
The purpose of the Compensation and Leadership Development
Committee is to:
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Discharge the responsibilities of the Board relating to
compensation of the Companys officers. |
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Approve and evaluate officer compensation plans, policies and
programs. |
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Oversee long-range planning for executive development and
succession, and the design, administration and performance of
employee retirement and savings plans. |
6
Each member of the Compensation and Leadership Development
Committee is independent under NYSE listing standards. The
Compensation and Leadership Development Committee met six times
during 2004.
Governance and Public Affairs Committee
The purpose of the Governance and Public Affairs Committee is to:
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Identify individuals qualified to become members of the Board. |
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Select and recommend to the Board director candidates. |
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Develop, update as necessary and recommend to the Board
corporate governance principles and policies, including the
Companys Corporate Governance Guidelines. |
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Monitor compliance with the Companys corporate governance
principles and policies. |
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Oversee the Companys involvement with key constituencies,
including community activities. |
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Approve director fees and other retention terms. |
Each member of the Governance and Public Affairs Committee is
independent under NYSE listing standards. The Governance and
Public Affairs Committee met four times in 2004.
Securities Pricing Committee
When authorized by the Board, the Securities Pricing Committee
approves the final terms of securities offerings by the Company
and such other matters as may be delegated to the Committee by
the Board in connection with the Companys securities
offerings. The Securities Pricing Committee met two times in
2004.
DIRECTOR NOMINATION PROCEDURES
The Governance and Public Affairs Committee is responsible for
the identification, review, selection and recommendation to the
Board of candidates for director nominees, including the
development of policies and procedures to assist in the
performance of these responsibilities. The Committee reviews
with the Board the requisite skills and characteristics for
Board nominees and composition and the specific considerations
relating to individual director candidates. Upon the
Committees recommendation, the Board recommends the Board
nominees to the shareholders for election.
Director candidates may be recommended or suggested by a current
director, a member of senior management or a shareholder. In
addition, the Governance and Public Affairs Committee has
authority to retain search firms to identify director
candidates. A director candidate should be referred to the Chair
of the Governance and Public Affairs Committee for consideration
by the Committee, which may then recommend the director
candidate to the Board for its consideration, if deemed
appropriate. A shareholder wishing to recommend a director
candidate for consideration by the Committee should submit their
suggestions in writing to the Chair of the Governance and Public
Affairs Committee, c/o the Corporate Secretary, providing
the candidates name, biographical data and other relevant
information. Shareholders who intend to nominate a director for
election at the 2006 Annual Meeting of Shareholders must provide
advance written notice of such nomination to the Corporate
Secretary in the manner described below under Shareholder
Proposals Advance Notice Procedures for Director
Nominations and Other Business. In the event there is a
vacancy on the Board, the Governance and Public Affairs
Committee will initiate the effort to identify appropriate
director candidates.
The Board has adopted Director Recruiting and Selection Criteria
as set out in Exhibit A to the Governance and Public
Affairs Committee Charter, which is available in the Investors
section of the Companys website at www.pse.com. In
accordance with the Selection Criteria, the Governance and
Public Affairs Committee and the Board, as appropriate, will
review the following considerations, among others, in their
evaluation of candidates for Board nomination: personal and
professional ethics; commitment to fulfill
7
the duties of the Board; financial expertise; industry
knowledge; training and experience in public policy and
governmental affairs; regional knowledge and contacts; ethnic,
gender, professional, and philosophical diversity; and other
relevant qualifications. A director candidates ability to
devote adequate time to Board and Board Committee activities is
also considered. Pursuant to Puget Energys Corporate
Governance Guidelines, directors are expected to tender their
resignation prior to the annual shareholders meeting following
their 72nd birthday, though a director may stand for
reelection even though the retirement policy would prevent him
or her from completing a full three year term. In addition,
without specific approval from the Board, no director may serve
on more than five public company Boards (including service on
the Puget Energy/ Puget Sound Energy boards, which are counted
together as one board). The Committee periodically reviews with
the Board the appropriate process for, and the considerations to
be made in, the evaluation of director candidates.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD
Shareholders of Puget Energy may communicate with an individual
director or the Board of Directors as a group via
U.S. Postal mail directed to: Chair of the Board of
Directors, c/o Corporate Secretary, Puget Energy, Inc.,
P.O. Box 97034, PSE-12, Bellevue, Washington 98009-9734.
Please clearly specify in each communication the applicable
addressee or addressees you wish to contact. All such
communication will be forwarded to the intended director or
Board as a whole.
The sections below entitled Shareholder
Proposals Submission of Shareholder Proposals for
Inclusion in Proxy Statement and Shareholder
Proposals Advance Notice Procedures for Director
Nominations and Other Business, respectively, outline the
procedures for submission of shareholder proposals for inclusion
in Puget Energys proxy statement for the 2006 Annual
Meeting of Shareholders and submission of nominations of persons
for election to the Board or proposals for other business to be
considered at the 2006 Annual Meeting of Shareholders.
ADDITIONAL CORPORATE GOVERNANCE INFORMATION
The following corporate governance materials of Puget Energy are
available in the Investors section of the Companys website
at www.pse.com, or a copy will be mailed to you upon
written request to Puget Energy, Inc., Investor Services, P.O.
Box 97034, PSE-08S, Bellevue, WA 98009-9734, or by calling
(425) 462-3898:
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Corporate Governance Guidelines; |
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Corporate Ethics and Compliance Code; |
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Audit Committee, Governance and Public Affairs Committee and
Compensation and Leadership Development Committee
charters; and |
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Code of Ethics for our Chief Executive Officer and senior
financial officers. |
If any material provisions of our Corporate Ethics and
Compliance Code or our Code of Ethics are waived for our Chief
Executive Officer or senior financial officers, or
if any substantive changes are made to either code as they
relate to any director or executive officer, we will disclose
that fact on our website within five (5) business days. In
addition, any other material amendments of these codes will be
disclosed.
8
DIRECTOR COMPENSATION
The following table provides information on the compensation of
Puget Energys nonemployee directors. Puget Energy also
reimburses nonemployee directors for the out-of-pocket expenses
of attending meetings. Directors who are employed by Puget
Energy do not receive any compensation for their Board
activities.
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DIRECTOR COMPENSATION | |
Quarterly Director
Retainer(1)
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$ |
15,000 |
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Additional Quarterly Retainer for Board Chair
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10,000 |
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Additional Quarterly Retainer for Audit Committee Chair
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2,500 |
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Additional Quarterly Retainer for Audit Committee Members
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1,000 |
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Additional Quarterly Retainer for Compensation and Governance
Committee Chairs
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1,500 |
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Additional Quarterly Retainer for Securities Pricing Committee
Chair (no meeting fee)
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500 |
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Additional Quarterly Retainer for Securities Pricing Committee
Member (no meeting fee)
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500 |
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Fee for Each Board and Committee Meeting
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1,250 |
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Fee for Each Telephonic Meeting Lasting 60 Minutes or less
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625 |
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(1) |
100% of the quarterly retainer fee is paid in the form of Puget
Energy shares until a director owns a number of Puget Energy
shares equal in value to two years of retainer fees. After
meeting this ownership requirement, under the terms of the
Nonemployee Director Plan as currently in effect, a portion of
the quarterly retainer payable to a director for a fiscal
quarter is payable in a number of shares of Puget Energy stock
determined by dividing two-thirds of the quarterly retainer
payable by the fair market value of Puget Energys common
stock on the last business day of that fiscal quarter. |
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A nonemployee director may elect to receive up to 100% of the
quarterly retainer in Puget Energy shares and may elect to defer
the issuance of shares as compensation under the Nonemployee
Director Plan in accordance with the terms of the plan. |
In addition to the compensation listed in the table above, Puget
Energys nonemployee directors are eligible to participate
in Puget Sound Energys Deferred Compensation Plan for
Nonemployee Directors. Directors annually may elect to defer all
or a part of their fees payable in cash. Deferred compensation
may be allocated in one or more measurement funds
(which currently includes an interest crediting fund, an equity
index fund, a bond index fund and a Puget Energy common stock
fund). Changes in measurement funds allocations are
allowed quarterly.
9
STOCK PRICE PERFORMANCE
The chart below compares the five-year cumulative total
shareholder return (share price appreciation plus reinvested
dividends) of Puget Energy common stock to the cumulative total
return of the Standard & Poors 500 Stock Index
(S&P 500) and the Edison Electric Institute
(EEI) Combination Gas & Electric Investor-Owned
Utilities Index.
Five-Year Cumulative Total Return
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1999 | |
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2000 | |
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2001 | |
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2002 | |
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2003 | |
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2004 | |
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Puget Energy
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$ |
100.00 |
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$ |
154.89 |
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$ |
131.97 |
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$ |
140.78 |
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$ |
158.53 |
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$ |
172.06 |
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EEI Gas & Electric Index
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100.00 |
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148.86 |
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135.08 |
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109.24 |
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136.56 |
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170.12 |
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S&P 500 Index
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100.00 |
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90.90 |
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80.09 |
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62.39 |
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80.29 |
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89.03 |
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This comparison assumes $100 was invested on December 31,
1999 in: (a) Puget Energy common stock; (b) the
S&P 500 Stock Index; and (c) the EEI Combination
Gas & Electric Investor-Owned Utilities Index. The
graph then observes, in each case, stock price growth and
dividends paid (assuming dividends were reinvested) over five
years.
The Puget Energy Board of Directors and its Compensation and
Leadership Development Committee recognize that many factors
influence the market price of stock, one of which is company
performance. The returns shown on the graph do not necessarily
predict future performance.
10
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
Beneficial Ownership Table
The following table shows the number of shares of common stock
beneficially owned on February 15, 2005 by each director
and nominee, by each executive officer named in the Summary
Compensation Table and by the directors and executive officers
of Puget Energy as a group. Puget Energy considers executive
officers of Puget Sound Energy and the Chief Executive Officer
of InfrastruX to be executive officers of Puget Energy. No
director or executive officer owns more than 1% of the
outstanding shares of common stock. Franklin Resources, Inc. of
San Mateo California beneficially owns approximately 6.3%
of Puget Energy common stock. Percentage beneficial ownership is
based on 99,886,429 shares outstanding as of
February 15, 2005.
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Number of Beneficially | |
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Number of Share | |
Name |
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Owned Shares | |
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Interests Held | |
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William S. Ayer
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Douglas P. Beighle
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5,401 |
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7,174 |
(1) |
Charles W. Bingham
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10,616 |
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552 |
(1) |
Phyllis J. Campbell
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1,000 |
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8,788 |
(1)(2) |
Craig W. Cole
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200 |
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9,822 |
(1) |
Robert L. Dryden
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128 |
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7,904 |
(1) |
Stephen E. Frank
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3,737 |
(1) |
Tomio Moriguchi
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1,424 |
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14,965 |
(1)(2) |
Kenneth P. Mortimer
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1,761 |
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5,904 |
(1)(2) |
Sally G. Narodick
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258 |
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8,718 |
(1) |
Stephen P. Reynolds
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280,578 |
(3) |
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32,626 |
(2) |
Michael Lennon
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(4) |
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Eric M. Markell
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6,066 |
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5,249 |
(2) |
Susan McLain
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14,752 |
(5) |
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12,602 |
(2) |
Bertrand A. Valdman
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12,084 |
(5) |
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1,132 |
(2) |
All directors and executive officers, including named executive
officers, as a group
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398,311 |
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155,193 |
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Franklin Resources, Inc. and affiliates
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6,314,700 |
(6) |
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(1) |
Includes stock units held in the Puget Energy Directors
Stock Plan. |
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(2) |
Includes stock units held in the Puget Sound Energy Deferred
Compensation Plan. |
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(3) |
Includes 60,000 shares of restricted stock,
202,500 shares of common stock subject to stock options
that are currently exercisable, and 950 shares held by
Mr. Reynolds wife. |
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(4) |
Mr. Lennon holds stock options to
purchase 200,000 shares of InfrastruX common stock
that are currently exercisable. |
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(5) |
Includes shares held under the Puget Sound Energy Investment
Plan for Employees. |
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(6) |
Information presented is based on a Schedule 13G filed on
February 14, 2005 by Franklin Resources, Inc. (FRI),
Charles B. Johnson, Rupert H. Johnson, Jr. and Franklin
Advisers, Inc. This amount includes 6,314,700 shares of
common stock beneficially owned by Franklin Advisers, Inc. or
Fiduciary Trust Company International, subsidiaries of
Franklin Resources, Inc. According to the Schedule 13G,
Franklin Advisers, Inc. has sole voting and investment power
over 6,312,000 of the shares and Fiduciary Trust Company
International has sole voting and investment power over 2,700 of
the shares. Each of the reporting persons disclaims beneficial
ownership of the shares. The address of Franklin Resources, Inc.
is One Franklin Parkway, San Mateo, California 94403. |
11
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities Exchange Act of 1934
requires the directors and officers of Puget Energy and Puget
Sound Energy to file reports of ownership and changes in
ownership with respect to the equity securities of the Companies
with the Securities and Exchange Commission. To our knowledge,
based on our review of the reports furnished to Puget Energy in
2004 and written representations that no other reports were
required, all directors and officers of Puget Energy who are
subject to the Section 16 reporting requirements filed the
required reports on a timely basis in 2004 except that a
delinquent Form 4 was filed on behalf of Ms. Narodick,
Director, Puget Energy and Puget Sound Energy, on
August 30, 2004 relating to shares acquired by gift to a
family trust on October 19, 2001.
EXECUTIVE COMPENSATION
Compensation and Leadership Development Committee Report
The Board of Directors of Puget Energy delegates responsibility
for executive compensation to the Compensation and Leadership
Development Committee. The Committee is responsible for
developing the compensation and benefit policies and framework
for the Company. In addition, the Committee establishes all
elements of compensation for the President and Chief Executive
Officer, including any special compensation and benefits, and
reviews and approves the President and Chief Executive
Officers recommendations regarding all elements of
compensation for the other executive officers. The Committee is
composed entirely of non-employee, independent directors. The
Committee directly engages an independent executive compensation
consultant for advice regarding trends and various issues
associated with the Companys compensation programs and
practices.
The Committee believes that executive compensation packages
should do the following:
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Attract and retain outstanding executives by providing
compensation opportunities consistent with those offered by the
electric and combination gas and electric utility industries for
similar positions; |
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Place a significant portion of each executives total pay
at risk to motivate executives to achieve Company and individual
performance goals; |
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Be aligned with annual operating goals that create shareholder
value and support continued emphasis on low cost, reliable
service to customers; and |
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Tie the long-term incentive compensation component of Chief
Executive Officer and executive compensation to Company
performance and increased value to shareholders. |
In making compensation decisions, the Committee reviews
comprehensive surveys of management pay provided by a national
consulting firm for a selection of utility and other companies
that are most similar in scope and size to Puget Energy. The
surveyed utility companies are part of the Edison Electric
Institute (EEI) Investor-Owned Utilities Index and most are
gas and electric combination companies which comprise the EEI
Combination Gas & Electric Investor-Owned Utilities
Index presented in the Stock Price Performance Graph on
page 10.
Compensation Philosophy
The Committees compensation policies encompass a mix of
base salary and annual and long-term incentive compensation
programs. The Committee designs the total package to provide
participants with appropriate incentives to achieve current
operational performance and customer service goals as well as
the long-term objective of enhancing shareholder value.
Long-term incentives are designed to comprise the largest
portion of each executives incentive pay.
12
Base salaries are generally targeted at the 50th percentile for
the comparator group. Actual salaries vary by individual and
depend on additional factors, such as expertise, performance,
and level of contribution relative to others in the organization.
Generally, base salaries for executives are administered on a
subjective, individual basis by the Committee using as a
guideline, median salary levels of a select group of electric
and combination gas and electric companies and other comparable
companies from the industry surveys described above.
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Annual Incentive Compensation |
Total cash compensation (base salary plus annual incentive
award) is targeted at the 50th percentile of total compensation
for the industry comparator group if annual performance goals
are achieved. If performance goals are achieved at the highest
level, total cash compensation will be leveraged to be near the
75th percentile.
All executive officers of Puget Sound Energy participate in its
annual Goals and Incentive Plan. This plan is designed to
provide financial incentives to executives for achieving desired
annual operating results while meeting the Companys
service quality commitment to customers. For 2004, the targeted
opportunity for awards from this plan varied by executive
officer: Mr. Reynolds target was 75% of base salary.
The targets for Messrs. Valdman and Markell were 60% and
45% of base salary, respectively, and the target for
Ms. McLain was 45% of base salary. Mr. Lennon, who is
a named executive officer of Puget Energy because of his role as
Chief Executive Officer of InfrastruX, participates in the
InfrastruX annual incentive compensation program, pursuant to
which he had a target award of 50% of base salary.
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Long-Term Incentive Compensation |
Total direct compensation (base salary plus annual incentive,
plus long-term incentives) opportunities are designed to be
competitive with market practices, generally targeting the 50th
percentile. The Companys long-term incentive program
consists of performance shares, which are contingent grants of
Puget Energy stock. If key long-term goals are achieved and
relative performance for shareholders exceeds market averages,
total compensation will reach the 75th percentile or higher.
Under the 1995 Long-Term Incentive Compensation Plan, approved
by shareholders in 1995, the Puget Energy Compensation Committee
has awarded contingent grants of common stock to Puget Sound
Energy executives and key employees that generally pay in stock
at the end of a three- or four-year period. Grants prior to 2004
were four-year performance cycles, based on Puget Energys
cumulative four-year total shareholder return relative to the
EEI Combination Gas & Electric Investor-Owned Utilities
Index during that period (LTIP Awards). The number of shares
delivered at the end of the four-year cycle will range from zero
to 175% of the contingent grant. Dividend equivalents are
accrued during the performance period and paid out in cash when
and to the extent the related performance shares are paid.
Grants made in 2004 have three-year performance cycles and are
based on Puget Energys total shareholder return and on
Puget Energys total shareholder return relative to the EEI
Combination Gas & Electric Investor-Owned Utilities
Index. The awards will be modified based on performance outcomes
on a set of service quality measures during the performance
period. Performance is measured and a portion of the award
determined at the end of each year in the three-year cycle, with
payout for all three years made at the conclusion of the cycle
based on continued service until that date. The number of shares
delivered at the end of the three-year cycle will range from
zero to 192.5 percent of the contingent grant. Dividend
equivalents are accrued during the performance period and paid
out in cash when and to the extent the related performance
shares are paid.
The Committee intends to implement the LTIP Award program
beginning in 2005 by awarding to Puget Sound Energy executives
and key employees contingent grants of Puget Energy stock that
will be paid at the end of a three-year period based on Puget
Energys total shareholder return relative to the EEI
Combination Gas & Electric Investor Owned Utilities
Index and performance outcomes on a set of service quality
measures during the performance period. Performance is measured
and a portion of the award determined at the end of
13
each year in the three-year cycle, with payout for all three
years made at the conclusion of the cycle based on continued
service until that date.
The Committee may also make grants of stock options, stock
appreciation rights, restricted stock or restricted stock units
to selected executive officers in appropriate circumstances.
These circumstances would generally include the hiring of new
executives or the need to retain current executive officers.
As part of its Long-Term Incentive Program, the Committee has
also established stock ownership guidelines to be achieved over
a five-year period for Puget Sound Energy officers and key
managers. The guidelines range from two times base salary for
the named executive officers to 50% of base salary for other key
employees. The Committee has determined that as of
December 31, 2004, all of the Named Executive Officers meet
or exceed their guidelines.
In addition to base salary, annual and long-term incentive award
opportunities, the Company also provides its executive officers
with benefits and perquisites targeted to competitive practices.
Executive officers are eligible to participate in
Company-provided retirement plans (see Retirement Benefits
Statement on page 19) and the Puget Sound Energy
Deferred Compensation Plan for Key Employees. The Deferred
Compensation Program provides executives an opportunity to defer
up to 100% of base salary, any annual incentive awards and
vested Performance Shares into an account with four measurement
funds. The measurement funds mirror performance in major asset
classes of bonds, stocks, Puget Energy stock, and an interest
crediting fund that changes rate quarterly based on corporate
bond rates. Officer level executives also are eligible to
receive reimbursement for financial planning, tax preparation,
and legal services up to a maximum amount of $9,500 per
year.
Recent Compensation Results
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Annual Incentive Compensation |
For 2004, the performance goals for the named executives of
Puget Sound Energy included EPS performance and other specified
operational goals. The targets for Messrs. Reynolds and
Valdman were based 70% on EPS performance. For Mr. Markell
and Ms. McLain, the targets were based 30% on EPS
performance. Excluding one-time earnings adjustments unrelated
to core 2004 performance, EPS results achieved the threshold
funding level, and other operational goals achieved payment
levels that varied from below threshold to the target level.
Based on the combination of financial results and operational
goals, incentive awards in the following amounts were paid:
Mr. Reynolds, $400,000; Ms. McLain, $75,318;
Mr. Markell, $73,651. Mr. Valdman received an
incentive award of $204,000 per the terms of his offer
letter when he joined the company. Mr. Lennon did not
receive an award payment under the InfrastruX plan, due to
financial performance below threshold level for payment. The
Committee approved a recommendation to the InfrastruX board of
retention awards to Mr. Lennon of $46,446 on
October 5, 2004 and $46,446 on January 11, 2005.
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Long-Term Incentive Compensation |
The Long-Term Incentive Plan Awards Table on page 18 lists
the grants made in 2004 to the named executive officers for the
three-year performance cycle ending December 31, 2006. As
part of the 2004-2006 LTIP grant, performance on 15% of the
grant was determined based on 2004 results. Performance on
relative TSR was below threshold, performance on Puget Energy
TSR achieved 70% of target, and service quality measures
achieved 100% of target. Overall, the one-year performance of
the cycle was 35%, and when applied to the 15% of grants being
determined, resulted in 5.25% of the shares being credited. The
Restricted Stock Column of the Summary Compensation Table on
page 16 shows the value of these credited awards on
December 31, 2004.
14
The Summary Compensation Table on page 16 shows the payout
for the four-year cycle ended December 31, 2004. Based on
the four-year cumulative total shareholder return for Puget
Energy compared to that of companies in the EEI Combination
Gas & Electric Investor-Owned Utilities Index results
were achieved at the 41st percentile, which generated
payout at 30% of target funding level.
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Chief Executive Officer Compensation |
As reported in last years Committee Report, based on
Mr. Reynolds outstanding performance in carrying the
Company forward and the Boards desire to retain his
services for the long term, the Committee in January 2004
awarded Mr. Reynolds a retention grant of 10,000 restricted
stock units payable in cash and 40,000 shares of restricted
stock. These awards vest in three installments at the third,
fourth, and fifth anniversaries of the grant. In February 2004,
Mr. Reynolds base salary as President and Chief
Executive Officer was determined to be below the median for
Chief Executive Officers in comparable companies and was
increased from $685,000 per year to $720,000.
Mr. Reynolds was granted performance shares consistent with
the terms described under Long-Term Incentive
Compensation.
The Committee has established annual incentive objectives for
Mr. Reynolds across two key dimensions: annual financial
objectives and strategic objectives. The Companys
financial performance was at the threshold level of performance
as described under Annual Incentive Compensation.
Mr. Reynolds performance on his strategic objectives
was outstanding, as he continued to build the leadership team
and focus the company as a vertically integrated utility. In
addition, under Mr. Reynolds direction, the Company
made significant accomplishments in securing new generation
resources during 2004. The Committee considered the combination
of results and paid Mr. Reynolds a Goals &
Incentive Plan payment of $400,000 as described above under
Annual Incentive Compensation.
Section 162(m) of the Internal Revenue Code of 1986, as
amended, generally disallows a tax deduction to public companies
for compensation over $1 million paid to a companys
chief executive officer and four other most highly compensated
executive officers, unless that compensation is deferred or is
considered performance-based. Our policy is to structure
executive officer compensation to achieve deductibility under
Section 162(m) while preserving flexibility in compensation
program design to achieve corporate objectives. Future
Performance share grants are designed to be deductible by the
Company under Section 162(m), subject to shareholder
approval of the 2005 Long-Term Incentive Plan. The Company has a
salary and incentive award deferral plan that permits
compensation deferred under the plan by the named executive
officers to be exempt from the Section 162(m) limit on tax
deductibility.
|
|
|
Compensation and Leadership |
|
Development Committee of |
|
Puget Energy, Inc. |
|
|
Phyllis J. Campbell, Chair |
|
Douglas P. Beighle |
|
Charles W. Bingham |
|
Robert L. Dryden |
|
Stephen E. Frank |
|
Dr. Kenneth P. Mortimer |
|
Sally G. Narodick |
15
Summary Compensation Table
The following information is furnished for the years ended
December 31, 2004, 2003 and 2002 with respect to Puget
Energys and Puget Sound Energys President and Chief
Executive Officer and each of the four other most highly
compensated executive officers of Puget Energy and Puget Sound
Energy (the Named Executive Officers) during 2004.
The positions and offices below are at Puget Energy and Puget
Sound Energy, except that Mr. Markell and Ms. McLain
are officers of Puget Sound Energy only and Mr. Lennon is
Chief Executive Officer of InfrastruX, a majority owned
subsidiary of Puget Energy. Annual compensation includes amounts
deferred at the officers election.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Compensation | |
|
Long-Term Compensation | |
|
|
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
|
Awards | |
|
|
|
|
|
|
|
|
|
|
Other Annual | |
|
Restricted | |
|
Awards | |
|
|
|
|
|
|
|
|
Salary | |
|
Bonus | |
|
Compensation | |
|
Stock/Units | |
|
Options | |
|
LTIP | |
|
All Other | |
Name and Principal Position in 2004 |
|
Year | |
|
($) | |
|
($)(3) | |
|
($) | |
|
($)(4) | |
|
(#)(5) | |
|
Payouts ($) | |
|
Compensation ($) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
S. Reynolds
|
|
|
2004 |
|
|
$ |
717,278 |
|
|
$ |
400,000 |
|
|
$ |
|
|
|
$ |
1,276,746 |
|
|
|
|
|
|
$ |
|
(6) |
|
$ |
221,771 |
(9) |
|
President and Chief |
|
|
2003 |
|
|
|
667,708 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7) |
|
|
213,407 |
|
|
Executive Officer |
|
|
2002 |
|
|
|
622,916 |
|
|
|
325,000 |
|
|
|
126,796 |
|
|
|
1,137,000 |
|
|
|
300,000 |
|
|
|
|
(8) |
|
|
150,389 |
|
M. Lennon
|
|
|
2004 |
|
|
|
400,399 |
|
|
|
46,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) |
|
|
300 |
(10) |
|
InfrastruX President |
|
|
2003 |
|
|
|
397,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7) |
|
|
288 |
|
|
and Chief Executive |
|
|
2002 |
|
|
|
256,667 |
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8) |
|
|
|
|
|
Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B. Valdman(1)
|
|
|
2004 |
|
|
|
340,000 |
|
|
|
304,000 |
|
|
|
161,962 |
|
|
|
29,791 |
|
|
|
|
|
|
|
45,389 |
(6) |
|
|
21,472 |
(11) |
|
Senior Vice President |
|
|
2003 |
|
|
|
15,693 |
|
|
|
|
|
|
|
|
|
|
|
234,200 |
|
|
|
|
|
|
|
|
(7) |
|
|
29 |
|
|
and Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S. McLain
|
|
|
2004 |
|
|
|
255,952 |
|
|
|
75,318 |
|
|
|
|
|
|
|
19,486 |
|
|
|
|
|
|
|
52,916 |
(6) |
|
|
18,808 |
(12) |
|
Senior Vice President |
|
|
2003 |
|
|
|
245,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223,880 |
(7) |
|
|
18,401 |
|
|
Operations |
|
|
2002 |
|
|
|
220,978 |
|
|
|
37,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,417 |
(8) |
|
|
12,361 |
|
E. Markell(2)
|
|
|
2004 |
|
|
|
250,273 |
|
|
|
73,651 |
|
|
|
|
|
|
|
19,054 |
|
|
|
|
|
|
|
32,229 |
(6) |
|
|
17,919 |
(13) |
|
Senior Vice President |
|
|
2003 |
|
|
|
238,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,830 |
(7) |
|
|
15,733 |
|
|
Energy Resources |
|
|
2002 |
|
|
|
89,385 |
|
|
|
|
|
|
|
84,400 |
|
|
|
|
|
|
|
|
|
|
|
|
(8) |
|
|
187 |
|
|
|
|
|
(1) |
Mr. Valdman became Senior Vice President and Chief
Financial Officer of Puget Energy and Puget Sound Energy on
January 6, 2004. Mr. Valdman joined Puget Sound Energy
in November 2003. |
|
|
(2) |
Mr. Markell became Senior Vice President Energy Resources
on February 19, 2003. He joined Puget Sound Energy as Vice
President Corporate Development in July 2002. |
|
|
(3) |
In January 2004 Mr. Reynolds received a discretionary award
made by the Compensation Committee in recognition of
Mr. Reynolds 2003 performance on comprehensive
strategic objectives in positioning the Company to accomplish
long-term success as a vertically integrated regulated utility.
In 2004 Mr. Valdman received a signing bonus of $100,000
and a minimum annual incentive for 2004 of $204,000 per his
offer letter. |
|
|
(4) |
The amounts reported in the Restricted Stock column reflect the
value of restricted stock and restricted stock unit awards
granted to Mr. Reynolds in 2002 and 2004 and restricted
stock awards granted to Mr. Valdman in 2003. The dollar
amounts in this column are determined by multiplying the number
of shares covered by the awards by the closing price of the
Common Stock on the grant date. These awards have vesting
provisions based on length of service. The amounts in this
column also include the value of the first year of the credited
2004-2006 Performance Share awards for all the Named Executive
Officers, as discussed in the Compensation and Leadership
Development Committee Report. These awards will be paid out in
Puget Energy stock and cash at the end of the three-year cycle
based on continued service until that date. |
|
|
|
The number and value of the aggregate restricted stock and
restricted stock unit holdings of Mr. Reynolds and
Mr. Valdman as of the close of trading on December 31,
2004 are 80,000 shares and units, with value of $1,976,000;
and 10,000 shares, with a value of $247,000, respectively,
based on the closing price of the Common Stock on that date of
$24.70. |
16
|
|
|
|
(5) |
The numbers reported in the Options column reflect the number of
options granted. For Mr. Reynolds these are options for
shares of Puget Energy common stock. In 2002, the InfrastruX
board of directors granted Mr. Lennon options to
purchase 400,000 shares of InfrastruX common stock. |
|
|
(6) |
The amounts for 2004 represent payment of Long-Term Incentive
Compensation Plan (LTIP) awards for the four-year
performance cycle ended December 31, 2004, which consist of
(a) shares valued as of the December 31, 2004 closing
price of $24.70, plus (b) a total dividend amount of
$5.05 per share during the four-year performance period
multiplied by the total number of shares. The number and value
of shares for each of the named executive officers are as set
forth below. |
|
|
|
|
|
|
|
|
|
|
|
Shares | |
|
|
| |
Name |
|
Number | |
|
Value | |
|
|
| |
|
| |
S. Reynolds
|
|
|
|
|
|
$ |
|
|
M. Lennon
|
|
|
|
|
|
|
|
|
B. Valdman
|
|
|
1,530.3 |
|
|
|
36,375 |
|
S. McLain
|
|
|
1,784.1 |
|
|
|
42,408 |
|
E. Markell
|
|
|
1,086.6 |
|
|
|
25,828 |
|
|
|
|
|
(7) |
The amounts for 2003 represent payment of Long-Term Incentive
Compensation Plan (LTIP) awards for the four-year
performance cycle ended December 31, 2003, which consist of
(a) shares valued as of the December 31, 2003 closing
price of $23.77, plus (b) a total dividend amount of
$5.89 per share during the four-year performance period
multiplied by the total number of shares. The number and value
of shares for each of the named executive officers are as set
forth below. |
|
|
|
|
|
|
|
|
|
|
|
Shares | |
|
|
| |
Name |
|
Number | |
|
Value | |
|
|
| |
|
| |
S. Reynolds
|
|
|
|
|
|
$ |
|
|
M. Lennon
|
|
|
|
|
|
|
|
|
B. Valdman
|
|
|
|
|
|
|
|
|
S. McLain
|
|
|
7,548.2 |
|
|
|
179,421 |
|
E. Markell
|
|
|
736 |
|
|
|
17,495 |
|
|
|
|
|
(8) |
The amounts for 2002 represent payment of LTIP awards for the
four-year performance cycle ended December 31, 2002, which
consist of (a) shares valued as of the December 31,
2002 closing price of $22.05, plus (b) a total dividend
amount of $6.73 per share during the four-year performance
period multiplied by the total number of shares. The number and
value of shares for each of the named executive officers are as
set forth below. |
|
|
|
|
|
|
|
|
|
|
|
Shares | |
|
|
| |
Name |
|
Number | |
|
Value | |
|
|
| |
|
| |
S. Reynolds
|
|
|
|
|
|
$ |
|
|
M. Lennon
|
|
|
|
|
|
|
|
|
B. Valdman
|
|
|
|
|
|
|
|
|
S. McLain
|
|
|
4,740 |
|
|
|
104,571 |
|
E. Markell
|
|
|
|
|
|
|
|
|
|
|
|
|
(9) |
Represents $12,600 match and company contribution under the
Investment Plan for Employees, $41,916 match under the
Investment Plan make up, $144,417 for the dollar value of stock
equivalents credited for 2004 to a Retirement Equivalent Stock
Account, which vests over seven years, as described in
Employment Contracts, Termination of Employment and
Change-in-Control Arrangements, $10,000 for payment of
dividend equivalents for restricted stock units, and $2,838
imputed income on life insurance. |
|
|
(10) |
Represents $300 imputed income on life insurance. |
17
|
|
(11) |
Represents $10,057 match and company contribution under the
Investment Plan for Employees, $11,067 match under the
Investment Plan make up, and $348 imputed income on life
insurance. |
|
(12) |
Represents $13,774 match and company contribution under the
Investment Plan for Employees, $3,583 under the Investment Plan
make up, and $1,451 imputed income on life insurance. |
|
(13) |
Represents $11,939 match and company contribution under the
Investment Plan for Employees, $5,078 under the Investment Plan
make up, and $902 imputed income on life insurance. |
Option Exercises In Last Fiscal Year And Fiscal Year-End
Option Values
The following table presents information regarding the number
and value of outstanding unexercised options held by the Named
Executive Officers at the end of 2004. No options were granted
to the Named Executive Officers in 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
|
Number of Securities | |
|
|
|
|
|
|
Shares | |
|
|
|
Underlying Unexercised | |
|
|
|
|
Underlying | |
|
Value of |
|
Options at Fiscal | |
|
Value of Unexercised In-the-Money | |
|
|
Options | |
|
Options |
|
Year-End (#) | |
|
Options at Fiscal Year-End (1) | |
|
|
Exercised in | |
|
Exercised in |
|
| |
|
| |
Name |
|
2004 | |
|
2004 |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable ($) | |
|
Unexercisable ($) | |
|
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
Puget Energy Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S. Reynolds
|
|
|
|
|
|
$ |
|
|
|
|
135,000 |
|
|
|
165,000 |
|
|
$ |
295,650 |
|
|
$ |
361,350 |
|
B. Valdman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S. McLain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E. Markell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
InfrastruX Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M. Lennon
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
Puget Energy Options: Amounts are the number of options
for Puget Energy common stock multiplied by the difference
between the closing price of Puget Energy common stock on
December 31, 2004 of $24.70 per share, minus the
exercise or base price for that option. InfrastruX
Options: The amounts for Mr. Lennon are the number of
options for InfrastruX common stock multiplied by $0.00, which
is the difference in the fair market value of the InfrastruX
common stock on December 31, 2004 as determined by the
InfrastruX Board of Directors and the exercise price for these
options. |
There is no guarantee that these Puget Energy or InfrastruX
options will have this value when and if they are exercised.
Long-Term Incentive Plan Awards in 2004
The following table presents information regarding performance
share grants made to the named executive officers under the 1995
Long-Term Incentive Compensation Plan in 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Share Payouts | |
|
|
Number of | |
|
Period Until | |
|
| |
Name |
|
Shares(1) | |
|
Maturation or Payout | |
|
Threshold (#) | |
|
Target (#) | |
|
Maximum (#) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
S. Reynolds
|
|
|
75,184 |
|
|
|
3 years |
|
|
|
|
|
|
|
75,184 |
|
|
|
144,729 |
|
M. Lennon
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
B. Valdman
|
|
|
22,973 |
|
|
|
3 years |
|
|
|
|
|
|
|
22,973 |
|
|
|
44,223 |
|
S. McLain
|
|
|
15,026 |
|
|
|
3 years |
|
|
|
|
|
|
|
15,026 |
|
|
|
28,925 |
|
E. Markell
|
|
|
14,694 |
|
|
|
3 years |
|
|
|
|
|
|
|
14,694 |
|
|
|
28,286 |
|
|
|
(1) |
Awards are contingent grants of common stock. The number of
shares delivered at the end of the three-year cycle will range
from zero to 192.5% of the contingent grant. The actual payout
depends on PSE total shareholder return compared to the
returns reported in the Edison Electric Institutes
Combination Gas & Electric Investor-Owned Utilities
Index, Puget Energys total shareholder return, and
PSEs performance on Service Quality Indices (SQIs).
Performance is measured and a portion of |
18
|
|
|
the award determined at the end of each year in the three-year
cycle, with payout for all three years made at the conclusion of
the cycle based on continued service until that date. To receive
100% of the grant, Puget Energy must perform at the 50th
percentile among Edison Electric Institutes Gas &
Electric companies, achieve 10% TSR, and meet 10 of the SQIs. To
receive 192.5% of the grant, Puget Energy must perform at or
above the 85th percentile ranking, achieve a TSR at or above
13%, and accomplish all 11 SQIs. Dividend equivalents are
accrued during the performance period and paid out in cash when
and to the extent the performance shares are paid. |
Retirement Benefits Statement
The table below presents estimated retirement benefits for the
named executive officers, assuming retirement on January 1,
2005 at age 62 after selected periods of service. The table
lists the estimated aggregate values under our qualified pension
plan and the Supplemental Executive Retirement Plan (SERP), the
Washington Natural Gas Nonqualified Retirement Plan and the SERP
pension-type rollover accounts and Annual Cash Balance
Restoration Account in the Deferred Compensation Plan. Social
Security benefits will not be deducted from the amounts shown in
the table.
Estimated Annual Benefit Upon Retirement at Age 62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years of Credited Service | |
Average Annual |
|
| |
Compensation |
|
5 | |
|
10 | |
|
15+ | |
|
|
| |
|
| |
|
| |
$200,000
|
|
$ |
33,333 |
|
|
$ |
66,667 |
|
|
$ |
100,000 |
|
300,000
|
|
|
50,000 |
|
|
|
100,000 |
|
|
|
150,000 |
|
400,000
|
|
|
66,667 |
|
|
|
133,333 |
|
|
|
200,000 |
|
500,000
|
|
|
83,333 |
|
|
|
166,667 |
|
|
|
250,000 |
|
600,000
|
|
|
100,000 |
|
|
|
200,000 |
|
|
|
300,000 |
|
Estimated aggregate benefits are based on the following formula:
three and one-third percent multiplied by years of credited
service (up to 15) multiplied by average annual
compensation (salary plus bonus) for the highest three calendar
years in the last five complete calendar years prior to
retirement.
The following named executive officers have the indicated years
of credited service as of December 31, 2004:
Mr. Markell, 2.42; Ms. McLain, 16.67; and
Mr. Valdman, 1.08.
The average annual compensation as of December 31, 2003 for
the following named executive officers was: $237,625 for
Mr. Markell, $279,342 for Ms. McLain, and $328,332 for
Mr. Valdman.
Mr. Reynolds is covered only by the cash balance formula of
the qualified pension plan (the Cash Balance
formula) and the Annual Cash Balance Restoration Account
in the Deferred Compensation Plan. As described more fully in
Employment Contracts, Termination of Employment and
Change-in-Control Arrangements, in lieu of participation
in the SERP, Mr. Reynolds receives an annual credit of
stock equivalents to a Retirement Equivalent Stock Account equal
to 15% of combined base salary and incentive bonus for the
preceding year, which vest over seven years.
Under the Cash Balance formula, each eligible participant
annually receives a benefit accrual based on additions during
such year to a hypothetical account (a Cash Balance
Account) established for such participant. Each year a
participants Cash Balance Account is credited with
compensation credits and interest credits. The compensation-
crediting rate for each year is based on the participants
age as of the last day of that year. For participants who are
less than 30 years old, the compensation credit is 3%; for
participants who are at least 30 years old, but less than
40 years old, the compensation credit is 4%; for
participants who are at least 40 years old, but less than
50 years old, the compensation credit is 5%; for
participants who are at least 50 years old, but less than
55 years old, the compensation credit is 6%; for
participants who are at least 55 years old, but less than
60 years old, the compensation credit is 7%; and for
participants who are at least 60 years old, the
compensation credit is 8%. Eligible cash compensation includes
base wage or salary (prior to any payroll deductions under the
Puget Sound Energy 401(k) or cafeteria plans), overtime,
differentials and
19
bonuses (other than bonuses payable under the Puget Sound Energy
Long Term Incentive Program for Senior Management, signing,
retention and similar bonuses, and bonuses paid after the last
day of the year in which the participants employment
terminates), up to the limit imposed by the Internal Revenue
Code ($205,000 for 2004 and $210,000 for 2005). The
interest-crediting rate for a calendar year is 4%, or such
higher amount as Puget Sound Energy may determine. Compensation
credits are made as of the last day of each calendar year.
Interest credits are made as of the last day of each calendar
year quarter, based on the balance in the participants
Cash Balance Account as of the beginning of that quarter. The
interest-crediting rate for 2004 was 5.25% and the 2005 rate is
6.5%. A participant may elect to receive, at the time of
termination, a lump sum distribution of not less than the vested
balance in his or her Cash Balance Account or annuitized
payments from the Retirement Plans trust fund. In general,
all salaried employees and certain union-represented employees
become eligible to participate in the Retirement Plan on their
date of hire. An employees benefit under the Retirement
Plan becomes vested after five years of active service (or, if
earlier, upon attaining normal retirement age (age 65)
while employed by Puget Sound Energy or its affiliates). There
are no employee contributions to the Retirement Plan.
Under the Annual Cash Balance Restoration Account in the
Deferred Compensation Plan, each participant receives an annual
contribution from the Company equal to the actuarial equivalent
of the benefit lost under the Cash Balance formula, if any, due
to the participants deferrals to the Deferred Compensation
Plan. A participant may elect to receive, at normal retirement
age (age 62), a lump sum distribution of not less than the
vested balance in his or her Cash Balance Restoration Account or
installment payments over various periods but in no event more
than 20 years. In general, a participant is eligible for a
contribution to the participants Annual Cash Balance
Restoration Account if he or she is eligible for the Cash
Balance formula. A participants benefit from the Annual
Cash Balance Restoration Account is always 100% vested.
Mr. Reynolds estimated annual benefit payable from
the Retirement Plan at normal retirement age (under the Cash
Balance Formula) is $23,024. This is based on the assumptions
that his eligible compensation will be the legal maximum each
year ($200,000 in 2002 and 2003, $205,000 in 2004 and $210,000
in 2005 and beyond) and the interest-crediting rate will be 4.0%
in 2002 and 2003, 5.25% in 2004, 6.5% in 2005 and 4% each year
thereafter and is not subject to any deduction for Social
Security or other offset amounts. Mr. Reynolds
estimated annual benefit payable from the Cash Balance
Restoration Account at normal retirement age is $0. This is
based on no balance currently in Mr. Reynolds Cash
Balance Restoration Account and assumes the Company will not be
required to make contributions to his Cash Balance Restoration
Account before normal retirement age. Mr. Reynolds
estimated total benefit payable from the Retirement Equivalent
Stock Account at normal retirement age is $418,579. This is
based on the dollar value of all stock equivalents credited for
2002, 2003 and 2004 and the closing price of the Common Stock of
$23.69 on February 15, 2005.
Mr. Lennon is not a participant in the pension programs
covered in this section.
20
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information regarding Puget
Energy common stock that may be issued upon the exercise of
options, warrants and other rights granted to employees,
consultants or directors under all of the Puget Energy existing
equity compensation plans, as of December 31, 2004:
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(a) | |
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(b) | |
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(c) | |
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| |
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| |
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| |
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Number of securities | |
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Weighted-average | |
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remaining available for | |
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Number of securities to | |
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exercise price of | |
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issuance under equity | |
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be issued upon exercise | |
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outstanding | |
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compensation plans | |
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of outstanding options, | |
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options, warrants | |
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(excluding securities | |
Plan Category |
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warrants and rights | |
|
and rights | |
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reflected in column (a)) | |
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| |
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| |
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| |
Equity compensation plans approved by security holders
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40,000 |
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$ |
22.51 |
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|
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965,125 |
(1)(2)(3) |
Equity compensation plans not approved by security holders
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260,000 |
(4) |
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$ |
22.51 |
(4) |
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19,932 |
(5) |
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|
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Total
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300,000 |
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$ |
22.51 |
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985,057 |
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The table does not include 75,289 deferred stock units in
the Companys deferred compensation plans that are payable
in stock, plus cash for any fractional shares, of which all are
currently vested.
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(1) |
Includes 206,946 shares remaining available for issuance
under Puget Energys Employee Stock Purchase Plan. |
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(2) |
Includes 758,179 shares remaining available for issuance
under Puget Energys 1995 Long-Term Incentive
Compensation Plan (the Existing 1995 Plan) (not including the
3,000,000 shares authorized for issuance under the 2005
Long-Term Incentive Plan as proposed to be amended and restated
(the 2005 Plan). As of December 31, 2004, there were
four active performance share grant cycles. Depending on the
level of achievement of performance goals, the outstanding
performance share grants may be paid out at zero shares at
minimum achievement level, 730,786 shares at target level
or 1,278,876 shares at maximum level. Because there is no
exercise price associated with performance shares, such shares
are not included in the weighted-average price calculation. |
|
(3) |
In addition to stock options, Puget Energy may also grant stock
awards, performance awards and other stock-based awards under
the Existing 1995 Plan (the 2005 Plan as proposed to be amended
and restated). |
|
(4) |
Does not include stock options that were assumed by PSE in
connection with its acquisition of Washington Energy Company.
The assumed options are for the purchase of 4,099 shares of
Puget Energy common stock and have a weighted-average exercise
price of $22.47 per share. In the event that any assumed
option is not exercised, no further option to purchase shares of
common stock will be issued in place of such unexercised option. |
|
(5) |
Represents 19,932 shares available for issuance under Puget
Energys Nonemployee Director Stock Plan (Nonemployee
Director Plan) (not including the 250,000 shares authorized
under the Nonemployee Director Plan as proposed to be amended
and restated, subject to shareholder approval). The Nonemployee
Director Plan provides for automatic stock payments to each of
Puget Energys nonemployee directors. Each nonemployee
director who is a nonemployee director at any time during a
calendar year may receive a stock payment as a portion of the
quarterly retainer paid to such director. Effective July 1,
2003, the number of shares that will be issued to each
nonemployee director as a stock payment under the Nonemployee
Director Plan is determined by dividing two-thirds of the
quarterly retainer payable to such director for a fiscal quarter
by the fair market value of Puget Energys common stock on
the last business day of that fiscal quarter. As proposed to be
amended and restated, the Nonemployee Director Plan provides
that the portion of the quarterly retainer that may be payable
in stock will be determined by the Governance and Public Affairs
Committee from time to time. A nonemployee director may elect to
increase the percentage of his or her quarterly retainer that is
paid in stock, up to 100%. A nonemployee director may also elect
to defer the issuance of shares under the Nonemployee Director
Plan in accordance with the terms of the plan. |
21
Summary of Equity Compensation Plans Not Approved by
Shareholders
Non-Plan Grants
On January 7, 2002, Puget Energy granted Stephen P.
Reynolds, President and Chief Executive Officer of Puget Energy
and Puget Sound Energy, two non-qualified stock option grants
outside of any equity incentive plan adopted by Puget Energy
(Non-Plan Option Grants). These stock option grants were an
inducement to Mr. Reynolds employment and in lieu of
participation in the Companys Supplemental Executive
Retirement Plan. One of the Non-Plan Option Grants made to
Mr. Reynolds is for 150,000 shares of Puget Energy
common stock and vests at a rate of 20% per year, for full
vesting after five years. The other Non-Plan Option Grant made
to Mr. Reynolds is for 110,000 shares of Puget Energy
common stock and vests at a rate of 25% per year, for full
vesting after four years. The exercise price of both Non-Plan
Option Grants is $22.51 per share, equal to 100% of the
fair market value of Puget Energy common stock on the date of
grant. As of December 31, 2004, all of the
260,000 shares subject to the Non-Plan Option Grants
remained outstanding. Except as expressly provided in the option
agreement relating to each of the Non-Plan Option Grants, the
Non-Plan Option Grants are subject to the terms and conditions
of the Companys Existing 1995 Plan.
Upon a change of control (as defined in the Employment Agreement
between Puget Energy and Mr. Reynolds, dated
January 7, 2002), both Non-Plan Option Grants will become
fully vested and immediately exercisable. If
Mr. Reynolds employment or service relationship with
Puget Energy is terminated by Puget Energy without cause or by
Mr. Reynolds with good reason, the vesting and
exercisability of the Non-Plan Option Grants will be accelerated
as follows: (1) the vesting and exercisability of the
150,000 share Non-Plan Option Grant will be accelerated
such that the total number of shares vested and exercisable will
be calculated as if the option had vested on a daily basis over
the four-year period through the date of termination and
(2) the vesting and exercisability of the 110,00 share
Non-Plan Option Grant will be accelerated by two years. For
purposes of the Non-Plant Option Grants, the terms
cause and good reason have the meanings
given to them in the Employment Agreement between Puget Energy
and Mr. Reynolds, dated January 1, 2002.
Subject to the provisions regarding a change of control and
termination of employment or service relationship by Puget
Energy without cause or by Mr. Reynolds for good reason, as
described above, upon termination of Mr. Reynolds
employment or service relationship with Puget Energy for any
reason, the unvested portion of the Non-Plan Option Grants will
terminate automatically and the vested portion may be exercised
as follows: (1) generally, on or before the earlier of
three months after termination and the expiration date of the
option, (2) if termination is due to retirement, disability
or death, on or before the earlier of one year after termination
and the expiration date of the option, or (3) if death
occurs after termination, but while the option is still
exercisable, on or before the earlier of one year after the date
of death and the expiration date of the option.
The Non-Plan Option Grants provide for the payment of the
exercise price of options by any of the following means:
(1) cash, (2) check, (3) tendering shares of
Puget Energys common stock, either actually or by
attestation, already owned for at least six months (or any
shorter period necessary to avoid a charge to Puget
Energys earnings for financial reporting purposes) that on
the day prior to the exercise date have a fair market value
equal to the aggregate exercise price of the shares being
purchased, (4) delivery of a properly executed exercise
notice, together with irrevocable instructions to a brokerage
firm designated by Puget Energy to deliver promptly to Puget
Energy the aggregate amount of sale or loan proceeds to pay the
option exercise price and any withholding tax obligations that
may arise in connection with the exercise or (5) any other
method permitted by the plan administrator.
22
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
Agreements
Mr. Reynolds. As of January 1, 2002, Puget
Energy and Puget Sound Energy (the Companies) entered into an
employment agreement with Mr. Reynolds to secure his
services as Chief Executive Officer and President. The agreement
has an initial term of three years after which time it will be
automatically renewed for one-year terms unless notice of
termination is given by either party at least 180 days
prior to the expiration of the then current term. Pursuant to
the agreement, Mr. Reynolds was appointed to the Board of
Directors and the board will recommend him for reelection during
the term of the agreement.
Mr. Reynolds will receive a base salary of at least
$650,000, which will be reviewed annually and may be increased
at the discretion of the board. He will participate in the
Companies annual incentive bonus program with a target
bonus of 55% of base salary and a maximum bonus of at least 110%
of base salary, except that his annual incentive bonus for 2002
was guaranteed to be at least $325,000.
Mr. Reynolds will also participate in the Puget Energy 1995
Long-Term Incentive Compensation Plan, under which he will be
granted annual performance awards (LTIP awards) valued at not
less than 150% of his base salary. Each LTIP Award may be funded
from 0% to 175% of the award at the end of each four-year
performance cycle, depending on the Companies performance.
If the Companies adopt new annual incentive bonus plans or new
equity-based incentive compensation plans or programs in
substitution for the LTIP awards, Mr. Reynolds will be
granted awards of comparable value under such plans or programs.
As an inducement to his employment, Mr. Reynolds was
granted a non-qualified option to purchase 150,000 shares
of the common stock with an exercise price equal to the fair
market value of the common stock on the date of grant. The
option has a term of ten years and vests over four years from
January 1, 2002, at a rate of 25% per year.
As a further inducement to his employment and in lieu of
participation in the Companies Supplemental Executive
Retirement Plan, Mr. Reynolds received the following grants:
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a) non-qualified option to
purchase 150,000 shares of the common stock with an
exercise price equal to the fair market value of the common
stock on the date of grant. The option has a term of ten years
and vests over a period of five years from January 1, 2002,
at a rate of 20% per year; |
|
|
b) 50,000 restricted shares of the common stock, with the
restrictions on the shares lapsing over five years from
January 1, 2002, at 20% per year; and |
|
|
c) performance-based stock equivalents that will be
credited to a deferred compensation account under the
Companies deferred compensation plan (the Retirement
Equivalent Stock Account) each January commencing on
January 1, 2003, calculated as the number of shares
obtained by taking 15% of Mr. Reynolds base salary
and incentive bonus for the preceding year and dividing that
amount by the average per-share closing price of the common
stock on the last day of October, November and December of the
preceding year. These stock equivalents are entitled to all
dividends declared on the common stock, which will be reinvested
in the common stock and credited to the Retirement Equivalent
Stock Account. The stock equivalents vest over seven years from
January 1, 2002 at 15% per year for the first six
years, with the balance vesting in the seventh year. |
If at any time the Companies terminate Mr. Reynolds
employment without cause, or Mr. Reynolds terminates his
employment with good reason (as the terms cause and
good reason are defined in the agreement), the
Companies will pay Mr. Reynolds a severance benefit equal
to two times his then current annual base salary and target
annual incentive bonus, accelerate two years vesting of his
performance-based stock equivalent grants, and accelerate
vesting under his stock option grants to the date of
termination. If Mr. Reynolds is terminated for cause, he
will be entitled to receive any base salary, annual incentive
bonuses or stock equivalent grants due to him through the date
of his termination, and he will retain the vested portion of his
Retirement Equivalent Stock Account and any vested stock options
or restricted stock grants.
23
If a change of control occurs during the term of
Mr. Reynolds employment with the Companies, the
Companies will pay him an amount equal to three times his then
current base salary and target annual incentive bonus and
accelerate the vesting of the equity awards described above. In
addition, Mr. Reynolds will retain existing medical, dental
and insurance benefits for a period of three years or until he
obtains similar coverage through another employer.
Mr. Reynolds will also receive a cash payment equal to any
excise taxes payable by him due to payments received under the
agreement or any other payment or benefit from the Company, plus
the tax expense to him resulting from this payment.
Mr. Lennon. Effective May 6, 2002, InfrastruX,
a majority owned subsidiary of Puget Energy, entered into an
employment agreement with Mr. Lennon to secure his services
as President and Chief Executive Officer. The agreement has an
initial term of two years after which time it will be
automatically renewed for one-year terms unless notice of
termination is provided in writing by either party no less than
six months prior to the expiration date. Pursuant to the
agreement, Mr. Lennon will receive a minimum annual base
salary of $385,000. The Board of Directors or Executive
Committee of InfrastruX will determine and the Compensation
Committee of the Board of Directors of Puget Energy will approve
any increases in the amount of the annual base salary in future
years.
Mr. Lennon will also participate in the InfrastruX annual
incentive bonus program with a threshold bonus of 20% of base
salary, a target bonus of 50% of base salary and a maximum bonus
of 80% of base salary, except that his annual incentive bonus
for 2002 will be at least $100,000. Mr. Lennon received a
transition incentive payment of $50,000 when the agreement
became effective.
Mr. Lennons agreement also provides for an option
under the InfrastruX 2000 Stock Incentive Plan to purchase
400,000 shares of InfrastruX common stock. The option vests
over four years from May 1, 2003, at a rate of 25% per
year.
During the term of Mr. Lennons agreement, he is
entitled to participate in all benefit programs provided or
offered from time to time to senior executive-level employees of
InfrastruX, subject to and in accordance with applicable
eligibility requirements.
If, prior to the completion of Mr. Lennons agreement,
InfrastruX terminates Mr. Lennons employment without
cause, or Mr. Lennon terminates his employment with good
reason (as the terms cause and good
reason are defined in the agreement), he will receive:
(a) termination payments equal to one year of base salary,
(b) the number of unvested shares subject to the option
that would have vested through the date that is twelve months
following the date of termination shall become immediately
exercisable as of the termination date and shall remain
exercisable until the earlier of four years from the termination
date and the expiration of the 10-year term of the option, and
(c) any unpaid base salary which has accrued for services
already performed as of the termination date. If Mr. Lennon
is terminated for cause, he will not be entitled to receive any
of the foregoing benefits, other than unpaid base salary which
has accrued for services already performed as of the termination
date.
In the event that Puget Energy sells its controlling interest in
InfrastruX to an unrelated third party (successor party), other
than in a sale pursuant to a public offering of InfrastruX
common stock, the unvested shares subject to the option shall
vest and become immediately exercisable as of the effective date
of the change of control. In the event Mr. Lennons
employment with InfrastruX or the successor party is terminated
without cause or by employee for good reason within one year
following the change of control, Mr. Lennon will be
entitled to receive a severance payment equal to three times the
sum of his base salary plus the target bonus. In the event
Mr. Lennons employment with InfrastruX or the
successor party should be terminated by him without good reason
within one year following the change of control, he will be
entitled to receive a severance payment equal to one year of his
base salary.
In the event that there has been no change of control nor an
initial public offering of InfrastruX common stock by
December 31, 2006, Mr. Lennon will have the right,
exercisable between January 1 and January 31, 2007, to sell
shares of InfrastruX common stock received by him upon exercise
of the option to InfrastruX pursuant to the terms of the
agreement.
24
Ms. McLain, Mr. Markell and Mr. Valdman.
In March 1999, May 2003 and November 2003, Puget Sound Energy
entered into change of control agreements with each of
Ms. McLain, Mr. Markell and Mr. Valdman (the
Executives), respectively. Pursuant to the terms of their
respective agreements, for a period of two years following a
change of control of Puget Sound Energy (the employment
period), Ms. McLain will continue to be employed in
the executive capacity of Vice President Operations
Delivery, or a substantially comparable position as described in
her agreement, Mr. Markell will continue to be employed in
the executive capacity of Vice President Corporate
Development, or a substantially comparable position as described
in his agreement and Mr. Valdman will continue to be
employed in the executive capacity of Senior Vice President and
Chief Financial Officer, or a substantially comparable position
as described in his agreement. During the employment period, the
Executives will be entitled to continued compensation and
benefits at comparable levels, full vesting of any stock
options, stock appreciation rights or restricted stock, cash out
of any performance awards and full vesting under the Puget Sound
Energy Supplemental Executive Retirement Plan (SERP) so
that the Executives will be entitled to receive at age 62
or, at their election, at any age between 55 and 62, a
retirement benefit reduced one-third
percent (1/3%)
for each month that benefits commence prior to the beginning of
the month coincident with or next following the date the
Executive would attain age 62.
If at any time during the employment period Puget Sound Energy
terminates an Executives employment without cause, or the
Executive terminates his or her employment with good reason (as
the terms cause and good reason are
defined in the Executives agreement), Puget Sound Energy
will pay the Executive a lump sum in cash equal to (i) any
accrued but unpaid salary, (ii) a pro rata portion of the
Executives annual bonus for the year, (iii) any
accrued paid time off pay and (iv) maximum severance
benefit equal to two times the sum of the annual base salary and
the annual bonus for which he or she was eligible for the year
in which the date of termination occurs. The Executive will also
receive a separate lump-sum supplemental retirement benefit
equal to the difference between (i) the actuarial
equivalent of the amount he or she would have received under the
Retirement Plan and the SERP had his or her employment continued
until the end of the employment period, and (ii) the
actuarial equivalent of the amount he or she actually receives
or is entitled to receive under the retirement plan and SERP. At
least through the remainder of the employment period, Puget
Sound Energy will also continue benefits to the Executive and/or
the Executives family at least equal to those that would
have been provided if the Executives employment had not
terminated, except that if the Executive becomes re-employed
with another employer and is eligible to receive medical or
other welfare benefits under another employer-provided plan, the
medical and other welfare benefits received under the agreement
will be secondary to those provided by the other employer. In
addition, if the Executive is age 55 or older, in lieu of
receiving monthly benefits under the SERP, the Executive may
elect to receive the actuarial equivalent lump sum value of the
SERP benefits based on the retirement benefit payable under the
SERP at the Executives age on the date of termination or
to have such lump sum value transferred to a deferred
compensation plan. If the Executive is younger than the minimum
age for eligibility for payment of SERP benefits, the Executive
may elect to receive the discounted value of the SERP benefits
to which the Executive would be entitled at the minimum age.
If any payments paid or payable under an Executives change
in control agreement or otherwise are characterized as
excess parachute payments within the meaning of
Section 280G the Internal Revenue Code of 1986, then Puget
Sound Energy will pay to the Executive an additional amount
equal to the excise taxes imposed, plus an amount equal to the
federal and (if applicable) the state income and excise taxes
which will be payable by the Executive as a result of this
additional payment.
2005 Long-Term Incentive Compensation
Please refer to Appendix A page A-9, Section 15.3
of this proxy statement for a description of the effect of
certain corporate transactions, such as a merger or sale of
assets, on outstanding awards under the Existing 1995 Plan (the
2005 Plan as proposed to be amended and restated).
25
PROPOSAL 2 APPROVAL OF AN AMENDED AND
RESTATED LONG-TERM
INCENTIVE PLAN
The Board of Directors, upon recommendation of the Compensation
and Leadership Development Committee, is requesting that the
shareholders vote for approval of the Puget Energy, Inc. 2005
Long-Term Incentive Plan (2005 Plan), which amends in its
entirety and restates the existing Puget Energy, Inc. 1995
Long-Term Incentive Compensation Plan (the Existing 1995 Plan).
Shareholder approval of the 2005 Plan is intended to enable the
Company to achieve the following objectives:
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1. The continued ability of the Company to offer
performance-based equity compensation to key employees.
Currently, the Companys primary equity incentive program
is the award of performance shares to certain key employees. The
performance shares are contingent awards of Puget Energy stock
that are paid out only if Company performance goals are met. At
December 31, 2004, approximately 149,000 shares remain
available for issuance under the Existing 1995 Plan based on
achievement of target performance goals for outstanding awards.
Shareholder approval of the 2005 Plan, which increases the
number of shares available for issuance under the 2005 Plan,
will allow the Compensation Committee to continue this program.
The Board believes the performance share program serves the best
interests of shareholders by focusing key employees on the
Companys long-term performance and motivates them to work
in a way that maximizes shareholder value. Providing an
opportunity to acquire an ownership interest in the Company also
helps attract and retain key employees and aligns their
interests and efforts with the long-term interests of the
Companys shareholders. |
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2. The ability of the Company to achieve full tax
deductibility for performance-based compensation. The
shareholders are also being asked to approve the material terms
of the performance-based provisions of the 2005 Plan so that
certain awards granted under the 2005 Plan may qualify as
performance-based compensation under
Section 162(m) of the Internal Revenue Code of 1986 (Code),
including outstanding grants described below. Pursuant to
Section 162(m), in order for the Company to be able to
deduct compensation in excess of $1 million paid in any
year to the Companys Chief Executive Officer or the four
other most highly compensated executive officers (within the
meaning of Section 162(m)), the compensation must qualify
as performance-based. One of the requirements of
performance-based compensation for purposes of
Section 162(m) is that the material terms of the
performance goals for the compensation be approved by the
Companys shareholders. The material terms of the
performance goals for awards granted under the 2005 Plan are
described below. |
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|
3. The continued ability of the Company to utilize
various equity vehicles as deemed appropriate by the
Compensation Committee to maintain the Companys ability to
attract, retain and motivate the best employees. The 2005
Plan is a comprehensive equity incentive compensation plan and
provides for the following types of awards in addition to
performance shares: performance units, stock awards, restricted
stock, stock units, stock options, stock appreciation rights and
other stock and cash-based awards. As discussed above,
performance shares are the types of awards historically granted
most frequently under the Existing 1995 Plan. However, options,
restricted stock and restricted stock units were also granted,
primarily in connection with the hiring of new executive
officers or the need to retain current executive officers. The
Company may also grant these types of equity awards to other
employees and service providers. The flexibility of the 2005
Plan will allow future awards to be based on then-current
objectives for aligning compensation with increasing long-term
shareholder value. Shareholder approval of the 2005 Plan will
permit the Company to award long-term equity incentive
compensation that achieves these goals. |
The Existing 1995 Plan was originally approved by
shareholders at the 1995 Annual Meeting of Shareholders. The
2005 Plan includes the following material revisions from the
1995 Restatement:
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an increase of 3,000,000 shares in the number of shares
authorized for issuance, from 1,200,000 to 4,200,000; |
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the addition of share replenishment features, as described
below; |
26
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the expansion of the types of persons eligible to participate
in the plan to include all employees, other service providers
and nonemployee directors; |
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the expansion of the types of awards available for grant to
also include cash-based awards that can qualify as
performance-based for purposes of Section 162(m); and |
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the addition of a ten-year term to the plan, which previously
had no expiration date. |
The following summary of the 2005 Plan is included to assist
shareholders in understanding the principal features of the 2005
Plan and in accordance with Securities and Exchange Commission
rules. The summary is subject to the specific provisions
contained in the full text of the 2005 Plan set forth as
Appendix A to this proxy statement.
Description of the 2005 Long-Term Incentive Plan
Administration and Eligibility. The 2005 Plan will be
administered by the Compensation Committee of the Companys
Board of Directors or such other committee or committees
selected by the Companys Board of Directors to administer
the 2005 Plan with respect to designated classes of eligible
persons. To the extent permitted by law, the Companys
Board of Directors may delegate to one or more of the
Companys senior executive officers the right to grant
awards within limits specifically prescribed by the
Companys Board of Directors. The committee will have the
authority to administer and interpret the 2005 Plan and to
establish the terms of awards granted under the 2005 Plan, but
may not reprice options or stock appreciation rights without
shareholder approval. The Committee will select the persons to
whom awards are granted, which may include employees,
nonemployee directors, consultants, agents, advisors and
independent contractors.
Number of shares reserved for issuance. The 2005 Plan
will authorize the issuance of up to 4,200,000 shares of
the Companys common stock, subject to adjustment in the
event of a stock split, stock dividend, recapitalization and
other similar events. The aggregate number of shares that may be
issued pursuant to awards granted under the 2005 Plan that
contain no restrictions or restrictions based solely on
continuous employment or services for less than three years
(except in the event of a termination of service due to death,
retirement or disability) will not exceed 1,050,000 shares,
subject to adjustment in the event of a stock split, stock
dividend, recapitalization and other similar events. Shares
issued under the 2005 Plan will consist of authorized and
unissued shares.
Shares of common stock covered by an award granted under the
2005 Plan will not be counted as used unless and until they are
actually issued and delivered to a participant. Shares relating
to awards granted under the 2005 Plan that lapse, expire,
terminate or are canceled, forfeited, reacquired or settled for
cash, or otherwise terminated and shares withheld by or tendered
to the Company in connection with the exercise of an option or
other award granted under the 2005 Plan or in connection with
the satisfaction of tax withholding obligations relating to
awards are available for grant under the 2005 Plan. Awards that
the Company grants as substitute awards in connection with
acquisition transactions will not reduce the number of shares
authorized for issuance under the 2005 Plan. In addition, in the
event an acquired entity has shares available for grant under
one or more pre-existing plans not adopted in contemplation of
the acquisition, then, to the extent determined by the
Companys Board of Directors or the committee, those shares
(as adjusted using the exchange ratio in the transaction, to the
extent appropriate) may be used for awards under the 2005 Plan
and will not reduce the number of shares authorized for issuance
under the 2005 Plan, except that awards using those shares may
not be made after the date awards could have been made under the
original terms of the pre-existing plans and may only be made to
individuals who were not employees or directors of the Company
or of any of the Companys affiliated companies prior to
the acquisition.
Performance shares and performance units. The committee
may grant performance shares, which are units valued by
reference to shares of the Companys common stock, and
performance units, which are units valued by reference to
property other than the Companys common stock. Performance
criteria relating to any performance share or performance unit
award are determined by the committee. Performance share or
performance unit awards may be paid in stock, cash or other
property or in any combination of cash, stock and other
property, at the discretion of the committee.
27
Stock awards, restricted stock and stock units. The
committee may grant awards of shares of common stock, or awards
designated in units of common stock, that are subject to
repurchase or forfeiture restrictions, if any, which may be
based on continuous service with the Company or the achievement
of specified performance criteria, as determined by the
committee. Until the lapse of the restrictions, participants may
not dispose of their restricted stock. The committee, in its
sole discretion, may waive the repurchase or forfeiture period
and any other terms, conditions or restrictions on restricted
stock and stock units under such circumstances and subject to
such terms and conditions as the committee deems appropriate.
Stock units may be paid in stock, cash or in a combination of
stock and cash.
Stock options. The 2005 Plan provides for the grant of
nonqualified stock options and incentive stock options. The
committee determines the exercise price for stock options, which
may not be less than 100% of the fair market value of the stock
on the date of grant, except for awards that the Company grants
as substitute awards in connection with acquisition
transactions. The committee will establish the term of each
option, but if not established, the term will be ten years from
the date the option is granted. The committee has the discretion
to establish the vesting schedule for each option.
Unless otherwise provided in the instrument evidencing an
option, a participant will generally be able to exercise the
vested portion of his or her option for (1) three months
following his or her termination for reasons other than cause,
retirement, death or disability and (2) one year following
his or her termination due to retirement, death or disability.
If a participant dies after termination but while an option is
otherwise exercisable, the participants executor will
generally be able to exercise the vested portion of the option
for one year following the participants death. If a
participant is terminated for cause, all options generally will
automatically expire. In no event may an option be exercised
later than the expiration of its term.
Stock appreciation rights. Stock appreciation rights, or
SARs, may be granted under the 2005 Plan. Upon exercise of a
SAR, the holder is entitled to receive the excess of the fair
market value of the shares for which the right is exercised over
the grant price of the SAR. At the committees discretion,
payment upon exercise of a SAR may be in shares of common stock,
cash or some combination of shares of common stock and cash, or
in any other manner approved by the committee. The grant price
of a SAR must be at least 100% of the fair market value of the
stock on the date of grant, except for awards that the Company
grants as substitute awards in connection with acquisition
transactions. Unless otherwise provided in the agreement
evidencing a SAR or upon termination of employment or services,
the SAR will be exercisable in accordance with the terms and
conditions described above for options, which may be waived or
modified by the committee at any time.
Other stock-based or cash-based awards. The committee
also will be authorized to grant to participants other
incentives payable in cash or in shares of common stock subject
to terms and conditions determined by the committee.
Corporate transactions. Unless otherwise provided in the
instrument evidencing an award, in the event of certain
corporate transactions, such as a merger or sale of assets, each
outstanding award will automatically accelerate and become fully
vested and all restrictions thereon will lapse immediately prior
to the effective date of the corporate transaction. All awards
that are subject to acceleration upon the corporate transaction
will be cashed out by the Company within 30 days after the
effective date of the corporate transaction. Any awards that do
not accelerate (because the instrument evidencing the award
specifically provides that acceleration will not occur in the
event of a corporate transaction) will be assumed or replaced by
the successor company or its parent. Any awards that are assumed
or replaced by the successor company will become fully vested
and all restrictions thereon will lapse in the event the
participants employment is subsequently terminated within
two years of the corporate transaction, unless the participant
is terminated for cause (as defined in the 2005 Plan) or the
participant terminates his or her employment voluntarily without
good reason (as defined in the 2005 Plan). If the successor
company refuses to assume or replace awards, such awards will
become fully vested and all restrictions thereon will lapse
immediately prior to the corporate transaction and will
terminate if not exercised by the participant prior to the
corporate transaction.
Performance-Based Compensation under Section 162(m).
The committee may determine that awards under the 2005 Plan will
be made subject to the attainment of performance goals relating
to one or a
28
combination of business criteria for purposes of qualifying the
award under of Section 162(m). These business criteria
include: cash flows (including, but not limited to, operating
cash flow, free cash flow or cash flow return on capital);
working capital; earnings per share; book value per share;
operating income (including or excluding depreciation,
amortization, extraordinary items, restructuring charges or
other expenses); revenues; operating margins; return on assets;
return on equity; debt; debt plus equity; market or economic
value added; stock price appreciation; total shareholder return;
cost control; strategic initiatives; market share; net income;
return on invested capital; improvements in capital structure;
cash management or asset management metrics; customer
satisfaction; employee satisfaction; services performance;
subscriber, safety or reliability metrics; or Service Quality
Indices. Any performance criteria may be used to measure the
performance of the Company as a whole or any business unit of
the Company and may be measured relative to the performance of
other corporations. The committee may adjust downwards, but not
upwards, the amount payable pursuant to such awards and may not
waive the achievement of the applicable performance goals except
in the case of the death or disability of the participant.
The maximum amount of shares of the Companys common stock
subject to awards intended to qualify as performance-based
awards under Section 162(m) that may be granted to any
individual under the 2005 Plan during any calendar year period
is (a) 600,000 shares, with respect to stock options
and SARs and (b) 400,000 shares, with respect to
awards other than stock options and SARs or performance units,
such limits being subject to automatic adjustment in the event
of a stock split, stock dividend, recapitalization and other
similar events. The individual maximum dollar value payable,
with respect to performance units intended to qualify as
performance-based awards under Section 162(m) to any
individual under the 2005 Plan during any calendar year period,
is limited to $3 million.
The Companys Chief Executive Officer and the four other
most highly compensated executive officers (within the meaning
of Section 162(m) with respect to the last fiscal year),
other than Mr. Lennon, have received grants of performance
shares under the 2005 Plan that remain outstanding. Each grant
is subject to performance criteria measured over a three-year
performance period. If the performance goals for a particular
grant are not met, no payment will be made. If the performance
goals are met, payment will be made in February of the year
following the end of the performance period. For the years 2002
through 2005, Mr. Reynolds received grants of 69,247,
67,867, 75,184 and 71,369 performance shares; Mr. Valdman
received grants of 13,281, 18,527, 22,973 and 21,551 performance
shares; Ms. McLain received grants of 7,740, 15,687, 15,026
and 14,092 performance shares; and Mr. Markell received
grants of 6,601, 15,336, 14,694 and 13,799 performance shares.
The Compensation and Leadership Development Committee Report on
page 12 describes the performance share program.
Transferability. Except as otherwise determined by the
committee and to the extent permitted by Section 422 of the
Code, during the participants lifetime, awards may be
exercised only by the participant and are not assignable or
transferable other than by will or the laws of descent and
distribution, except that a participant may designate a
beneficiary who may exercise an award or receive payment under
an award after the participants death.
Adjustment of Shares. In the event of a stock split,
stock dividend, recapitalization or other similar events, the
committee shall make proportional adjustments in (a) the
maximum number and kind of securities available for issuance
under the 2005 Plan and the maximum number and kind of
securities that may be made subject to awards to any
participant, (b) the maximum number and kind of securities
that may be issued upon exercise of incentive stock options,
(c) the maximum number and kind of securities that may be
issued pursuant to awards that contain no restrictions or
restrictions based solely on continuous employment or services
for less than three years (except in the event of a termination
of service due to death, retirement or disability), and
(d) the number and kind of securities that are subject to
any outstanding award and the per share price of such
securities, without any change in the aggregate price to be paid
therefore.
Term, termination and amendment. Unless terminated
earlier by the Companys Board of Directors or the
committee, the 2005 Plan will terminate on May 10, 2015.
The Companys Board of Directors, or the committee, may
generally amend, suspend, or terminate all or a portion of the
2005 Plan at any time, subject
29
to shareholder approval to the extent required by applicable law
or by New York Stock Exchange rules or other regulatory
requirements.
Federal Income Tax Consequences. The following is a
summary of the material U.S. federal income tax
consequences to the Company and to participants in the 2005
Plan. The summary is based on the Code and the
U.S. Treasury regulations promulgated thereunder as in
effect as of the date of this proxy statement, all of which may
change with retroactive effect. The summary is not intended to
be a complete analysis or discussion of all potential tax
consequences that may be important to participants in the 2005
Plan. Therefore, the Company strongly encourages participants to
consult their own tax advisors as to the specific federal income
tax or other tax consequences of their participation in the 2005
Plan.
Performance Shares, Performance Units, Restricted Stock and
Stock Units. A participant who receives an award of
performance shares, performance units, restricted stock or stock
units does not generally recognize taxable income at the time
the award is granted. Instead, the participant recognizes
ordinary income in the first taxable year in which his or her
interest in the shares underlying the award becomes either
(a) freely transferable or (b) no longer subject to
substantial risk of forfeiture. The amount of taxable income is
equal to the fair market value of the cash or shares received
pursuant to the award less the amount, if any, paid for the
shares.
A participant may elect to recognize income at the time he or
she receives restricted stock in an amount equal to the fair
market value of the restricted stock (less any cash paid for the
shares) on the date the award is granted.
Stock Awards. When a participant receives shares of stock
that are not subject to restrictions, the participant will
generally recognize taxable ordinary income at the time of
receipt of the shares equal to the fair market value of the
shares at the time of grant minus the amount, if any, paid for
the shares.
Incentive Stock Options. Generally, the grant of an
incentive stock option will not result in any federal income tax
consequences to the participant or to the Company. The exercise
of an incentive stock option generally will not result in the
recognition of income by the participant for regular tax
purposes, but may subject the participant to the alternative
minimum tax or increase the participants alternative
minimum tax liability. If a participant exercises an incentive
stock option and does not dispose of the shares within two years
from the date of grant or within one year from the date of
exercise, any gain realized upon disposition will be taxable to
the employee as long-term capital gain. If a participant
violates these holding period requirements, the participant will
realize ordinary income in the year of disposition 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 exercise price. An incentive stock option that is
exercised more than three months after the participant
terminates employment with the Company will be treated as a
nonqualified stock option for federal income tax purposes.
Nonqualified Stock Options. Generally, the grant of a
nonqualified stock option will not result in any federal income
tax consequences to the participant or to the Company. Upon
exercise of a nonqualified stock option, the participant
generally will recognize ordinary income equal to the excess of
the fair market value of the stock on the date of exercise over
the amount paid for the stock upon exercise of the option.
Stock Appreciation Rights. A participant will not
recognize taxable income upon the grant of an SAR. Upon the
exercise of an SAR, a participant will recognize taxable
ordinary income equal to the difference between the fair market
value of the underlying shares on the date of exercise and the
grant price of the SAR.
Tax effects on the Company. The Company receives a
compensation expense deduction at the same time and in an amount
equal to the ordinary income recognized by the participant,
subject to the limitations imposed by Section 162(m)
described below.
Potential Limitation on the Companys Deductions.
Section 162(m) precludes a deduction for compensation paid
to the Companys chief executive officer and the four other
most highly compensated executive officers to the extent that
such compensation exceeds $1 million per individual for a
taxable year. If certain requirements are met, qualified
performance-based compensation is disregarded for purposes of
the $1 million
30
limitation. We believe that the 2005 Plan has been structured in
a manner that complies with Section 162(m). Therefore,
assuming certain requirements are met, amounts received by such
executive officers pursuant to awards of options,
performance-vested restricted stock or stock units, performance
shares and performance units granted under the 2005 Plan
generally will be deductible.
General. A new plan benefits table, as described in the
federal proxy rules, is not provided because all awards made
under the 2005 Plan are discretionary. However, please refer to
the tables Summary Compensation Table and
Long-Term Incentive Plan Awards in 2004 on
pages 16 and 18 of this proxy statement, which set forth
the grants made to the Companys chief executive officer
and the other four most highly compensated executive officers in
the last fiscal year.
As of March 11, 2005, the record date for this Annual
Meeting, there were approximately 65 persons eligible to
participate in the 2005 Plan. On February 28, 2005,
the closing price of the Companys common stock was $22.92.
The Board of Directors recommends that you vote FOR
Proposal 2 approval of an
amended and restated Long-Term Incentive Plan.
PROPOSAL 3 APPROVAL OF AN AMENDED AND
RESTATED
NONEMPLOYEE DIRECTOR STOCK PLAN
The Board of Directors, upon recommendation of the Governance
and Public Affairs Committee, is requesting that the
shareholders vote for approval of the Puget Energy, Inc.
Nonemployee Director Stock Plan, as amended and restated (the
Nonemployee Director Plan).
As described in the Director Compensation section of
the proxy statement on page 9, the current compensation
program for nonemployee directors includes an equity component
that provides for paying a portion of nonemployee director
retainers in Puget Energy common stock, and permitting
nonemployee directors to convert up to 100% of their retainers
into common stock. This equity compensation is issued under the
Nonemployee Director Plan. Approximately 20,000 shares
remain available for issuance under the Nonemployee Director
Plan. The Nonemployee Director Plan as amended and restated
increases the number of shares available for issuance under the
plan.
Shareholder approval of the Nonemployee Director Plan is
intended to enable the Company to continue the equity
compensation program for nonemployee directors. The Board
believes that the equity component of nonemployee director
compensation is in the bests interests of the Companys
shareholders because:
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1. |
facilitating the ownership of common stock by nonemployee
directors aligns the interests of the directors with the
long-term interests of the Companys shareholders; and |
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2. |
providing equity compensation that is competitive with the
Companys peers will better enable the Company to retain
and attract qualified directors. |
The Board of Directors originally adopted the Nonemployee
Director Plan on October 7, 1997, at a time when
shareholder approval of the plan was not required. As amended
and restated, the Nonemployee Director Plan includes the
following material revisions from the plan as originally adopted
by the Board:
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an increase of 250,000 shares in the number of shares
authorized for issuance, from 100,000 to 350,000; and |
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an extension of the term of the plan from December 31,
2007 to December 31, 2015. |
The following summary of the Nonemployee Director Plan is
included to assist shareholders in understanding the principal
features of the Nonemployee Director Plan and in accordance with
Securities and Exchange Commission rules. The summary is subject
to the specific provisions contained in the full text of the
Nonemployee Director Plan set forth as Appendix B.
31
Description of the Amended and Restated Nonemployee Director
Stock Plan
Administration. The Nonemployee Director Plan will be
administered by the Governance and Public Affairs Committee of
the Companys Board of Directors. The committee has the
authority to administer and interpret the Nonemployee Director
Plan, including, among other things, the power to determine all
questions of fact that may arise under the plan, interpret the
plan and make all other determinations necessary or advisable
for the administration of the plan and prescribe, amend and
rescind rules and regulations relating to the plan.
Number of shares reserved for issuance. The Nonemployee
Director Plan will authorize the issuance of up to
350,000 shares of the Companys common stock, subject
to adjustment in the event of a stock split, stock dividend,
recapitalization and other similar events. Shares issued under
the Nonemployee Director Plan will consist of authorized and
unissued shares.
Determination of quarterly retainers and stock payments.
The Companys Board of Directors, in its sole discretion,
determines the amount of the quarterly retainer that is paid to
nonemployee directors. Each nonemployee director may be granted
a stock payment under the Nonemployee Director Plan as a portion
of the quarterly retainer payable to the nonemployee director.
The number of shares of common stock to be issued as a stock
payment is determined by dividing the fair market value of the
common stock for the last business day of a fiscal quarter into
all or a fraction of the quarterly retainer payable to the
participant for that fiscal quarter, as determined and set forth
in resolutions adopted by the committee from time to time. In
lieu of receiving the cash portion of the quarterly retainer, a
participant may elect to reduce up to 100% of the cash portion
by a specified amount and have such amount applied to purchase
additional shares of common stock.
Election to defer issuance of shares. A participant may
elect to defer the issuance of the shares of common stock
issuable pursuant to a stock payment in accordance with the
terms of the Nonemployee Director Plan.
Transferability. No participant has the right to assign
or transfer the right to receive any stock payment or any other
right or interest under the Nonemployee Director Plan or to
cause or permit any encumbrance, pledge or charge of any nature
to be imposed on a stock payment (prior to the Company effecting
the issuance of shares) or any right or interest under the
Nonemployee Director Plan, other than by will or the laws of
descent and distribution, except that a participant may
designate a beneficiary who may exercise an award or receive
payment under an award after the participants death.
Adjustment of Shares. In the event of a stock split,
stock dividend, recapitalization or other similar events, the
maximum number and kind of shares that may be issued under the
Nonemployee Director Plan and the maximum number and kind of
shares that are credited pursuant to the Nonemployee Director
Plan to any deferred stock account may be appropriately adjusted
by the committee.
Term, termination and amendment. Unless terminated
earlier by the Companys Board of Directors, the
Nonemployee Director Plan will terminate on December 31,
2015. The Companys Board of Directors may generally amend,
suspend, or terminate all or a portion of the Nonemployee
Director Plan at any time. No amendment suspension or
termination of the Nonemployee Director Plan will, without the
consent of the participant, alter, terminate, impair or
adversely affect any right or obligations under any stock
payment previously granted, unless such amendment, suspension or
termination is required by applicable law.
Federal Income Tax Consequences. The following is a
summary of the material U.S. federal income tax
consequences to the Company and to participants in the
Nonemployee Director Plan. The summary is based on the Code and
the U.S. Treasury regulations promulgated thereunder as in
effect as of the date of this proxy statement, all of which may
change with retroactive effect. The summary is not intended to
be a complete analysis or discussion of all potential tax
consequences that may be important to participants in the
Nonemployee Director Plan. Therefore, the Company strongly
encourages participants to consult their own tax advisors as to
the specific federal income tax or other tax consequences of
their participation in the Nonemployee Director Plan.
32
Stock Payments. When a participant receives a stock
payment under the Nonemployee Director Plan, the participant
will generally recognize taxable ordinary income at the time of
receipt of the shares equal to the fair market value of the
shares at the time of grant.
Tax effects on the Company. The Company receives a
compensation expense deduction at the same time and in an amount
equal to the ordinary income recognized by the participant.
New Plan Benefits. The number of shares issued pursuant
to stock payments under the Nonemployee Director Plan is
discretionary on the part of the committee, as it determines the
portion of the quarterly retainer that may be paid as a stock
payment, and on the part of the participant, as each participant
may elect to increase the portion of the quarterly retainer that
is paid as a stock payment. However, in fiscal year 2004,
nonemployee directors as a group received an aggregate of
19,548 shares with a value of $444,000 as stock payments
under the Nonemployee Director Plan.
General. As of March 11, 2005, the record date for
this Annual Meeting, there were ten persons eligible to
participate in the Nonemployee Director Plan. On
February 28, 2005, the closing price of the Companys
common stock was $22.92.
The Board of Directors recommends that you vote FOR
Proposal 3 approval of the
Amended and Restated Nonemployee Director Stock
Plan.
33
AUDIT COMMITTEE REPORT
The Audit Committee of the Puget Energy Board of Directors is
composed of five directors who are independent directors as
defined under the rules of the New York Stock Exchange and the
Securities and Exchange Commission. The Committee operates under
a written charter approved by the Board of Directors, a copy of
which was provided with the 2004 proxy statement and is
available in the Investors section of Puget Energys
website at www.pse.com.
The primary purpose of the Audit Committee is to assist the
Board of Directors of Puget Energy in oversight of the
Companys financial reporting processes. As stated in the
Audit Committee Charter, it is not the responsibility of the
Audit Committee to plan or conduct audits or to verify whether
the Companys financial statements are complete and
accurate or in accordance with generally accepted accounting
principles. The management of Puget Energy is responsible for
the preparation, presentation and integrity of the
Companys financial statements, accounting and financial
reporting principles, internal controls and procedures designed
to assure compliance with accounting standards, applicable laws
and regulations. PricewaterhouseCoopers LLP is responsible for
performing an independent audit of the financial statements of
Puget Energy in accordance with generally accepted auditing
standards.
Consistent with its oversight responsibilities, the Audit
Committee has reviewed and discussed the audited financial
statements with management of Puget Energy and representatives
of PricewaterhouseCoopers LLP. The discussions with
PricewaterhouseCoopers LLP included the matters required to be
discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees), as amended. In addition,
the Audit Committee received the written disclosures and the
letter regarding independence from PricewaterhouseCoopers LLP as
required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and discussed
with PricewaterhouseCoopers LLP its independence.
Based upon the Audit Committees discussions with
management and the independent auditors and their review of the
representations of management and the report of
PricewaterhouseCoopers LLP to the Audit Committee, the Audit
Committee recommended to the Board of Directors that the audited
financial statements be included in the Annual Report on
Form 10-K for the fiscal year ended December 31, 2004
for filing with the Securities and Exchange Commission.
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Audit Committee of Puget Energy, Inc. |
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Sally G. Narodick, Chair |
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Douglas P. Beighle |
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Charles W. Bingham |
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Tomio Moriguchi |
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Dr. Kenneth P. Mortimer |
34
INDEPENDENT AUDITORS FEES
The aggregate fees billed by PricewaterhouseCoopers LLP, Puget
Energys independent auditors, in fiscal year 2004 and 2003
were as follows:
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2004 | |
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2003 | |
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Audit-fees(1)
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$ |
2,084,000 |
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$ |
850,000 |
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Audit-Related fees(2)
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82,000 |
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261,000 |
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Tax fees(3)
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59,000 |
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200,000 |
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All other fees
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Total
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$ |
2,225,000 |
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$ |
1,311,000 |
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(1) |
For professional services rendered for the audit of Puget
Energys annual financial statements, reviews of financial
statements included in Puget Energys Forms 10-Q, and
consents and reviews of documents filed with the Securities and
Exchange Commission. The 2004 fees are estimated and include an
aggregate amount of $1,251,000 billed to Puget Energy through
December 31, 2004. In 2004, audit fees included $1,284,000
for professional services rendered and the audit of Puget
Energys assessment of and the effectiveness of internal
controls over financial reporting (Sarbanes-Oxley 404). |
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(2) |
Consists of employee benefit plan audits, due diligence reviews
and assistance with Sarbanes-Oxley readiness. |
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(3) |
Consists of tax planning, consulting and tax return reviews. |
The Audit Committee has adopted a policy for the pre-approval of
all audit and non-audit services provided by the Companys
independent auditor. The policy is designed to ensure that the
provision of these services does not impair the auditors
independence. Under the policy, unless a type of service to be
provided by the independent auditor has received general
pre-approval, it will require specific pre-approval by the Audit
Committee. In addition, any proposed services exceeding
pre-approved cost levels will require specific pre-approval by
the Audit Committee.
The annual audit services engagement terms and fees, as well as
any changes in terms, conditions and fees relating to the
engagement, are subject to specific pre-approval by the Audit
Committee. In addition, on an annual basis, the Audit Committee
grants general pre-approval for specific categories of audit,
audit-related, tax and other services, within specified fee
levels, that may be provided by the independent auditor. With
respect to each proposed pre-approved service, the independent
auditor is required to provide detailed back-up documentation to
the Audit Committee regarding the specific services to be
provided. Under the policy, the Audit Committee may delegate
pre-approval authority to one or more of its members. The member
or members to whom such authority is delegated shall report any
pre-approval decisions to the Audit Committee at its next
scheduled meeting. The Audit Committee does not delegate
responsibilities to pre-approve services performed by the
independent auditor to management.
For 2004, all audit and non-audit services were pre-approved.
PROPOSAL 4 RATIFICATION OF THE APPOINTMENT
OF THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed PricewaterhouseCoopers LLP as
Puget Energys independent auditor for the current fiscal
year, and the Board is asking shareholders to ratify that
appointment. Under current law, rules, and regulations, as well
as the charter of the Audit Committee, the Audit Committee is
required to be directly responsible for the appointment,
compensation, and oversight of Puget Energys independent
auditor. Therefore, the selection of the independent auditor is
within the sole discretion of the Audit Committee. However, the
Board considers the appointment of the independent auditor to be
an important matter of shareholder concern and is submitting the
appointment of PricewaterhouseCoopers LLP
35
for ratification by the shareholders as a matter of good
corporate practice. If the shareholders fail to ratify the
appointment, the Audit Committee will reconsider whether to
retain PricewaterhouseCoopers LLP.
PricewaterhouseCoopers LLP has audited the Companys
financial statements since 1933. Representatives of the firm are
expected to be present at the Annual Meeting. They will have the
opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate shareholder
questions.
The Board of Directors recommends that you vote FOR
Proposal 4 approval of the
appointment of PricewaterhouseCoopers LLP as Puget
Energys independent auditor.
SHAREHOLDER PROPOSALS
Submission of Shareholder Proposals for Inclusion in Proxy
Statement
Shareholders who intend to have a proposal considered for
inclusion in our proxy materials for the 2006 Annual Meeting of
Shareholders must submit the proposal at our principal executive
office no later than December 2, 2005.
Advance Notice Procedures for Director Nominations and Other
Business
Shareholders who intend to nominate persons for election to the
Board or to present a proposal at the 2006 Annual Meeting of
Shareholders without inclusion of the proposal in our proxy
materials must provide advance written notice of such nomination
or proposal in the manner required by Puget Energys
Bylaws. Notice of nominations, complying with Section 3.3
of the Bylaws, must be delivered to the Corporate Secretary not
less than 120 or more than 150 days prior to the date of
the 2006 Annual Meeting of Shareholders (or if less than
120 days notice or prior public disclosure of the
date of the annual meeting is given to shareholders, not later
than the tenth day following the day of such notice or public
disclosure is given). Notice of other business, complying with
Section 2.6 of the Bylaws, must be delivered to the
Corporate Secretary no earlier than January 11, 2006 and no
later than February 10, 2006. Notices should be sent to:
Corporate Secretary, Puget Energy Inc., 10885 NE
4th Street, P.O. Box 97034, Bellevue, Washington
98009-9734.
For proposals that are not timely filed, Puget Energy retains
discretion to vote proxies it receives. For proposals that are
timely filed, Puget Energy retains discretion to vote proxies it
receives provided that (1) the Company includes in its
proxy statement advice on the nature of the proposal and how it
intends to exercise its voting discretion and (2) the
proponent does not issue a proxy statement.
ADDITIONAL INFORMATION ABOUT THE MEETING
Solicitation of Proxies
The Puget Energy Board of Directors is soliciting the proxies in
the form enclosed. Stephen P. Reynolds and James W. Eldredge,
and each or either of them, are named as proxies. We, or our
agent, Georgeson Shareholder Communications, Inc., may solicit
your proxy by mail, personal interview, telephone and fax. We
will request that banks, brokerage houses and other custodians,
nominees or fiduciaries forward soliciting materials to their
principals and obtain authorization for the execution of
proxies. We will reimburse them for their expenses in forwarding
and collecting proxies. Our officers, directors, employees and
other agents may solicit proxies without compensation, except
for reimbursement of expenses. In addition, Puget Energy has
retained Georgeson Shareholder Communications, Inc. to aid in
the solicitation of proxies at an approximate cost of $10,000,
plus reimbursement for out-of-pocket expenses. Puget Energy will
pay all costs of solicitation of proxies.
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Available Information
Puget Energys 2004 Annual Report and Form 10-K were
mailed to shareholders with this proxy statement. Upon request,
the Company will furnish without charge a copy of the
Companys Annual Report on Form 10-K. The
Form 10-K has been filed with the SEC.
The Companys website address is www.pse.com. The
Companys reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 are available or may be accessed free of charge through the
Investors section of the Companys website as soon as
reasonably practicable after the reports are electronically
filed with, or furnished to, the SEC. The Companys website
and the information contained therein or connected thereto are
not intended to be incorporated into this Annual Report on
Form 10-K.
37
APPENDIX A
PUGET ENERGY, INC.
2005 LONG-TERM INCENTIVE PLAN
(The 1995 Long-Term Incentive Compensation Plan as amended
and
restated and renamed effective May 10, 2005)
SECTION 1. PURPOSE
The purpose of the Puget Energy, Inc. 2005 Long-Term Incentive
Plan is to attract, retain and motivate employees, officers,
directors, consultants, agents, advisors and independent
contractors of the Company and its Related Companies by
providing them the opportunity to acquire a proprietary interest
in the Company and to align their interests and efforts to the
long-term interests of the Companys shareholders.
SECTION 2. DEFINITIONS
Certain capitalized terms used in the Plan have the meanings set
forth in Appendix A to the Plan.
SECTION 3. ADMINISTRATION
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3.1 |
Administration of the Plan |
The Plan shall be administered by the Board or the Compensation
Committee, which shall be composed of two or more directors,
each of whom is a non-employee director within the
meaning of Rule 16b-3(b)(3) promulgated under the Exchange
Act, or any successor definition adopted by the Securities and
Exchange Commission, and an outside director within
the meaning of Section 162(m) of the Code, or any successor
provision thereto. Notwithstanding the foregoing, the Board may
delegate responsibility for administering the Plan with respect
to designated classes of Eligible Persons to different
committees consisting of two or more members of the Board,
subject to such limitations as the Board deems appropriate,
except with respect to Awards to Participants who are subject to
Section 16 of the Exchange Act or Awards granted pursuant
to Section 16 of the Plan. Members of any committee shall
serve for such terms as the Board may determine, subject to
removal by the Board at any time. To the extent consistent with
applicable law, the Board may authorize one or more senior
executive officers of the Company to grant Awards to designated
classes of Eligible Persons, within limits specifically
prescribed by the Board; provided, however, that no such officer
shall have or obtain authority to grant Awards to himself or
herself or to any person subject to Section 16 of the
Exchange Act. All references in the Plan to the
Committee shall be, as applicable, to the
Compensation Committee or any other committee or any officer to
whom the Board or the Compensation Committee has delegated
authority to administer the Plan.
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3.2 |
Administration and Interpretation by Committee |
(a) Except for the terms and conditions explicitly set
forth in the Plan and to the extent permitted by applicable law,
the Committee shall have full power and exclusive authority,
subject to such orders or resolutions not inconsistent with the
provisions of the Plan as may from time to time be adopted by
the Board or a Committee composed of members of the Board, to
(i) select the Eligible Persons to whom Awards may from
time to time be granted under the Plan; (ii) determine the
type or types of Award to be granted to each Participant under
the Plan; (iii) determine the number of shares of Common
Stock to be covered by each Award granted under the Plan;
(iv) determine the terms and conditions of any Award
granted under the Plan; (v) approve the forms of notice or
agreement for use under the Plan; (vi) determine whether,
to what extent and under what circumstances Awards may be
settled in cash, shares of Common Stock or other property or
canceled or suspended; (vii) determine whether, to what
extent and under what circumstances cash, shares of Common
Stock, other property and other amounts payable with respect to
an Award shall be deferred either automatically or at the
election of the Participant; (viii) interpret and
administer the Plan and any instrument
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evidencing an Award, notice or agreement executed or entered
into under the Plan; (ix) establish such rules and
regulations as it shall deem appropriate for the proper
administration of the Plan; (x) delegate ministerial duties
to such of the Companys employees as it so determines; and
(xi) make any other determination and take any other action
that the Committee deems necessary or desirable for
administration of the Plan.
(b) In no event, however, shall the Committee have the
right, without shareholder approval, to (i) cancel or amend
outstanding Options or SARs for the purpose of repricing,
replacing or regranting such Options or SARs with Options or
SARs that have a purchase or grant price that is less than the
purchase or grant price for the original Options or SARs except
in connection with adjustments provided in Section 15, or
(ii) issue an Option or SAR or amend an outstanding Option
or SAR to provide for the grant or issuance of a new Option or
SAR on exercise of the original Option or SAR.
(c) The effect on the vesting of an Award of a
Company-approved leave of absence or a Participants
working less than full-time shall be determined by the
Companys chief human resources officer or other person
performing that function or, with respect to directors or
executive officers, by the Compensation Committee, whose
determination shall be final.
(d) Decisions of the Committee shall be final, conclusive
and binding on all persons, including the Company, any
Participant, any shareholder and any Eligible Person. A majority
of the members of the Committee may determine its actions.
SECTION 4. SHARES SUBJECT TO THE PLAN
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4.1 |
Authorized Number of Shares |
Subject to adjustment from time to time as provided in
Section 15.1, a maximum of 4,200,000 shares of Common
Stock shall be available for issuance under the Plan. Shares
issued under the Plan shall be drawn from authorized and
unissued shares.
4.2 Share Usage
(a) Shares of Common Stock covered by an Award shall not be
counted as used unless and until they are actually issued and
delivered to a Participant. If any Award lapses, expires,
terminates or is canceled prior to the issuance of shares
thereunder or if shares of Common Stock are issued under the
Plan to a Participant and thereafter are forfeited to or
otherwise reacquired by the Company, the shares subject to such
Awards and the forfeited or reacquired shares shall again be
available for issuance under the Plan. Any shares of Common
Stock (i) tendered by a Participant or retained by the
Company as full or partial payment to the Company for the
purchase price of an Award or to satisfy tax withholding
obligations in connection with an Award, or (ii) covered by
an Award that is settled in cash, or in a manner such that some
or all of the shares of Common Stock covered by the Award are
not issued, shall be available for Awards under the Plan. The
number of shares of Common Stock available for issuance under
the Plan shall not be reduced to reflect any dividends or
dividend equivalents that are reinvested into additional shares
of Common Stock or credited as additional shares of Common Stock
subject or paid with respect to an Award.
(b) The Committee shall also, without limitation, have the
authority to grant Awards as an alternative to or as the form of
payment for grants or rights earned or due under other
compensation plans or arrangements of the Company.
(c) Notwithstanding anything in the Plan to the contrary,
the Committee may grant Substitute Awards under the Plan.
Substitute Awards shall not reduce the number of shares
authorized for issuance under the Plan. In the event that an
Acquired Entity has shares available for awards or grants under
one or more preexisting plans not adopted in contemplation of
such acquisition or combination, then, to the extent determined
by the Board or the Compensation Committee, the shares available
for grant pursuant to the terms of such preexisting plan (as
adjusted, to the extent appropriate, using the exchange ratio or
other adjustment or valuation ratio or formula used in such
acquisition or combination to determine the consideration
payable to holders of common stock of the entities that are
parties to such acquisition or combination) may be used for
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Awards under the Plan and shall not reduce the number of shares
of Common Stock authorized for issuance under the Plan;
provided, however, that Awards using such available shares shall
not be made after the date awards or grants could have been made
under the terms of such preexisting plans, absent the
acquisition or combination, and shall only be made to
individuals who were not employees or directors of the Company
or a Related Company prior to such acquisition or combination.
In the event that a written agreement between the Company and an
Acquired Entity pursuant to which a merger, consolidation or
statutory share exchange is completed is approved by the Board
and said agreement sets forth the terms and conditions of the
substitution for or assumption of outstanding awards of the
Acquired Entity, said terms and conditions shall be deemed to be
the action of the Committee without any further action by the
Committee, except as may be required for compliance with
Rule 16b-3 promulgated under the Exchange Act, and the
persons holding such awards shall be deemed to be Participants.
(d) Notwithstanding the other provisions in this
Section 4.2, the maximum number of shares that may be
issued upon the exercise of Incentive Stock Options shall equal
the aggregate number of shares stated in Section 4.1,
subject to adjustment as provided in Section 15.1.
4.3 Limitations
Subject to adjustment as provided in Section 15.1, the
aggregate number of shares that may be issued pursuant to Awards
granted under the Plan that contain no restrictions or
restrictions based solely on continuous employment or services
for less than three years (except where Termination of Service
occurs by reason of death, Retirement or Disability) shall not
exceed 1,050,000 of the aggregate number of shares specified in
Section 4.1.
SECTION 5. ELIGIBILITY
An Award may be granted to any employee, officer or director of
the Company or a Related Company whom the Committee from time to
time selects. An Award may also be granted to any consultant,
agent, advisor or independent contractor for bona fide services
rendered to the Company or any Related Company.
SECTION 6. AWARDS
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6.1 |
Form, Grant and Settlement of Awards |
The Committee shall have the authority, in its sole discretion,
to determine the type or types of Awards to be granted under the
Plan. Such Awards may be granted either alone or in addition to
or in tandem with any other type of Award. Any Award settlement
may be subject to such conditions, restrictions and
contingencies as the Committee shall determine.
6.2 Evidence of Awards
Awards granted under the Plan shall be evidenced by a written,
including an electronic, notice or agreement that shall contain
such terms, conditions, limitations and restrictions as the
Committee shall deem advisable and that are not inconsistent
with the Plan.
6.3 Deferrals
The Committee may permit or require a Participant to defer
receipt of the payment of any Award. If any such deferral
election is permitted or required, the Committee, in its sole
discretion, shall establish rules and procedures for such
payment deferrals, which may include the grant of additional
Awards or provisions for the payment or crediting of interest or
dividend equivalents, including converting such credits to
deferred stock unit equivalents.
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6.4 Dividends and Distributions
Participants may, if the Committee so determines, be credited
with dividends paid with respect to shares of Common Stock
underlying an Award in a manner determined by the Committee in
its sole discretion. The Committee may apply any restrictions to
the dividends or dividend equivalents that the Committee deems
appropriate. The Committee, in its sole discretion, may
determine the form of payment of dividends or dividend
equivalents, including cash, shares of Common Stock, Restricted
Stock or Stock Units.
SECTION 7. PERFORMANCE AWARDS
7.1 Performance Shares
The Committee may grant Awards of Performance Shares, designate
the Participants to whom Performance Shares are to be awarded
and determine the number of Performance Shares and the terms and
conditions of each such Award. Performance Shares shall consist
of a unit valued by reference to a designated number of shares
of Common Stock, the value of which may be paid to the
Participant by delivery of shares of Common Stock or, if set
forth in the instrument evidencing the Award, of such property
as the Committee shall determine, including, without limitation,
cash, shares of Common Stock, other property, or any combination
thereof, upon the attainment of performance goals, as
established by the Committee, and other terms and conditions
specified by the Committee. Notwithstanding the foregoing, the
amount to be paid under an Award of Performance Shares may be
adjusted on the basis of such further consideration as the
Committee shall determine in its sole discretion.
7.2 Performance Units
The Committee may grant Awards of Performance Units, designate
the Participants to whom Performance Units are to be awarded and
determine the number of Performance Units and the terms and
conditions of each such Award. Performance Units shall consist
of a unit valued by reference to a designated amount of property
other than shares of Common Stock, which value may be paid to
the Participant by delivery of such property as the Committee
shall determine, including, without limitation, cash, shares of
Common Stock, other property, or any combination thereof, upon
the attainment of performance goals, as established by the
Committee, and other terms and conditions specified by the
Committee. Notwithstanding the foregoing, the amount to be paid
under an Award of Performance Units may be adjusted on the basis
of such further consideration as the Committee shall determine
in its sole discretion.
SECTION 8. OPTIONS
8.1 Grant of Options
The Committee may grant Options designated as Incentive Stock
Options or Nonqualified Stock Options.
8.2 Option Exercise Price
The exercise price for shares purchased under an Option shall be
as determined by the Committee, but shall not be less than 100%
of the Fair Market Value on the Grant Date, except in the case
of Substitute Awards. Notwithstanding the foregoing, the
Committee, in its sole discretion, may establish an exercise
price that is equal to the average of 100% of the Fair Market
Value over a period of trading days not to exceed 30 days
from the Grant Date.
8.3 Term of Options
Subject to earlier termination in accordance with the terms of
the Plan and the instrument evidencing the Option, the maximum
term of a Nonqualified Stock Option shall be as established for
that Option by the Committee or, if not so established, shall be
ten years from the Grant Date.
A-4
8.4 Exercise of Options
The Committee shall establish and set forth in each instrument
that evidences an Option the time at which, or the installments
in which, the Option shall vest and become exercisable, any of
which provisions may be waived or modified by the Committee at
any time.
To the extent an Option has vested and become exercisable, the
Option may be exercised in whole or from time to time in part by
delivery to or as directed or approved by the Company of a
properly executed stock option exercise agreement or notice, in
a form and in accordance with procedures established by the
Committee, setting forth the number of shares with respect to
which the Option is being exercised, the restrictions imposed on
the shares purchased under such exercise agreement, if any, and
such representations and agreements as may be required by the
Committee, accompanied by payment in full as described in
Sections 8.5 and 13. An Option may be exercised only for
whole shares and may not be exercised for less than a reasonable
number of shares at any one time, as determined by the Committee.
8.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be
paid in full to the Company by delivery of consideration equal
to the product of the Option exercise price and the number of
shares purchased. Such consideration must be paid before the
Company will issue the shares being purchased and must be in a
form or a combination of forms acceptable to the Committee for
that purchase, which forms may include:
(a) cash, check or wire transfer;
(b) tendering (either actually or by attestation) shares of
Common Stock that on the day prior to the exercise date have an
aggregate Fair Market Value equal to the aggregate exercise
price of the shares being purchased under the Option;
(c) having the Company withhold a number of shares of
Common Stock that would otherwise be issued to the Participant
upon exercise of the Option having a Fair Market Value on the
day prior to the exercise date equal to the aggregate exercise
price of the shares being purchased under the Option;
(d) to the extent permitted by law, delivery of a properly
executed exercise notice, together with irrevocable instructions
to a brokerage firm designated or approved by the Company to
deliver promptly to the Company the aggregate amount of proceeds
to pay the Option exercise price and any tax withholding
obligations that may arise in connection with the exercise, all
in accordance with the regulations of the Federal Reserve Board;
or
(e) such other consideration as the Committee may permit.
8.6 Effect of Termination of Service
The Committee shall establish and set forth in each instrument
that evidences an Option whether the Option shall continue to be
exercisable, and the terms and conditions of such exercise,
after a Termination of Service, any of which provisions may be
waived or modified by the Committee at any time. If not so
established in the instrument evidencing the Option, the Option
shall be exercisable according to the following terms and
conditions, which may be waived or modified by the Committee at
any time:
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(a) Any portion of an Option that is not vested and
exercisable on the date of a Participants Termination of
Service shall expire on such date. |
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(b) Any portion of an Option that is vested and exercisable
on the date of a Participants Termination of Service shall
expire on the earliest to occur of |
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(i) if the Participants Termination of Service occurs
for reasons other than Cause, Retirement, Disability or death,
the date that is three months after such Termination of Service; |
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(ii) if the Participants Termination of Service
occurs by reason of Retirement, Disability or death, the
one-year anniversary of such Termination of Service; and |
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(iii) the last day of the maximum term of the Option (the
Option Expiration Date). |
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Notwithstanding the foregoing, if a Participant dies after his
or her Termination of Service but while an Option is otherwise
exercisable, the portion of the Option that is vested and
exercisable on the date of such Termination of Service shall
expire upon the earlier to occur of (y) the Option
Expiration Date and (z) the one-year anniversary of the
date of death, unless the Committee determines otherwise. |
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Also notwithstanding the foregoing, in case a Participants
Termination of Service occurs for Cause, all Options granted to
the Participant shall automatically expire upon first
notification to the Participant of such termination, unless the
Committee determines otherwise. If a Participants
employment or service relationship with the Company is suspended
pending an investigation of whether the Participant shall be
terminated for Cause, all the Participants rights under
any Option shall likewise be suspended during the period of
investigation. If any facts that would constitute termination
for Cause are discovered after a Participants Termination
of Service, any Option then held by the Participant may be
immediately terminated by the Committee, in its sole discretion. |
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(c) A Participants change in status from an employee
to a consultant, advisor or independent contractor or a change
in status from a consultant, advisor or independent contractor
to an employee shall not be considered a Termination of Service
for purposes of this Section 8.6. |
SECTION 9. INCENTIVE STOCK OPTIONS
Notwithstanding any other provisions of the Plan, the terms and
conditions of any Incentive Stock Options shall in addition
comply in all respects with Section 422 of the Code, or any
successor provision, and any applicable regulations thereunder.
SECTION 10. STOCK APPRECIATION RIGHTS
10.1 Grant of Stock Appreciation Rights
The Committee may grant Stock Appreciation Rights to
Participants at any time on such terms and conditions as the
Committee shall determine in its sole discretion. An SAR may be
granted in tandem with an Option or alone
(freestanding). The grant price of a tandem SAR
shall be equal to the exercise price of the related Option. The
grant price of a freestanding SAR shall be established in
accordance with procedures for Options set forth in
Section 8.2. An SAR may be exercised upon such terms and
conditions and for such term as the Committee determines in its
sole discretion; provided, however, that, subject to earlier
termination in accordance with the terms of the Plan and the
instrument evidencing the SAR, the term of a freestanding SAR
shall be as established for that SAR by the Committee or, if not
so established, shall be ten years, and in the case of a tandem
SAR, (a) the term shall not exceed the term of the related
Option and (b) the tandem SAR may be exercised for all or
part of the shares subject to the related Option upon the
surrender of the right to exercise the equivalent portion of the
related Option, except that the tandem SAR may be exercised only
with respect to the shares for which its related Option is then
exercisable. The Committee shall establish and set forth in each
instrument that evidences an SAR whether the SAR shall continue
to be exercisable, and the terms and conditions of such
exercise, after a Termination of Service, any of which
provisions may be waived or modified by the Committee at any
time. If not so established in the instrument evidencing the
SAR, the SAR shall be exercisable according to the terms and
conditions set forth in Section 8.6 (a)-(c) for
Options, which may be waived or modified by the Committee at any
time.
10.2 Payment of SAR Amount
Upon the exercise of an SAR, a Participant shall be entitled to
receive payment in an amount determined by multiplying:
(a) the difference between the Fair Market Value of the
Common Stock on the date of
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exercise over the grant price of the SAR by (b) the number
of shares with respect to which the SAR is exercised. At the
discretion of the Committee as set forth in the instrument
evidencing the Award, the payment upon exercise of an SAR may be
in cash, in shares, in some combination thereof or in any other
manner approved by the Committee in its sole discretion.
SECTION 11. STOCK AWARDS, RESTRICTED STOCK AND
STOCK UNITS
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11.1 |
Grant of Stock Awards, Restricted Stock and Stock Units |
The Committee may grant Stock Awards, Restricted Stock and Stock
Units on such terms and conditions and subject to such
repurchase or forfeiture restrictions, if any, that may be based
on continuous service with the Company or a Related Company or
the achievement of any performance goals, as the Committee shall
determine in its sole discretion, which terms, conditions and
restrictions shall be set forth in the instrument evidencing the
Award.
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11.2 |
Vesting of Restricted Stock and Stock Units |
Upon the satisfaction of any terms, conditions and restrictions
prescribed with respect to Restricted Stock or Stock Units, or
upon a Participants release from any terms, conditions and
restrictions of Restricted Stock or Stock Units, as determined
by the Committee, and subject to the provisions of
Section 13, (a) the shares of Restricted Stock covered
by each Award of Restricted Stock shall become freely
transferable by the Participant, and (b) Stock Units shall
be paid in shares of Common Stock or, if set forth in the
instrument evidencing the Awards, in cash or a combination of
cash and shares of Common Stock. Any fractional shares subject
to such Awards shall be paid to the Participant in cash.
11.3 Waiver of Restrictions
Notwithstanding any other provisions of the Plan, the Committee,
in its sole discretion, may waive the repurchase or forfeiture
period and any other terms, conditions or restrictions on any
Restricted Stock or Stock Unit under such circumstances and
subject to such terms and conditions as the Committee shall deem
appropriate.
SECTION 12. OTHER STOCK OR CASH-BASED AWARDS
Subject to the terms of the Plan and such other terms and
conditions as the Committee deems appropriate, the Committee may
grant other incentives payable in cash or in shares of Common
Stock under the Plan.
SECTION 13. WITHHOLDING
The Company may require the Participant to pay to the Company
the amount of (a) any taxes that the Company is required by
applicable federal, state, local or foreign law to withhold with
respect to the grant, vesting or exercise of an Award (tax
withholding obligations) and (b) any amounts due from
the Participant to the Company or any Related Company
(other obligations). The Company shall not be
required to issue any shares of Common Stock or otherwise settle
an Award under the Plan until such tax withholding obligations
and other obligations are satisfied.
The Committee may permit or require a Participant to satisfy all
or part of the Participants tax withholding obligations
and other obligations by (a) paying cash to the Company,
(b) having the Company withhold an amount from any cash
amounts otherwise due or to become due from the Company to the
Participant, (c) having the Company withhold a number of
shares of Common Stock that would otherwise be issued to the
Participant (or become vested, in the case of Restricted Stock)
having a Fair Market Value equal to the tax withholding
obligations and other obligations, or (d) surrendering a
number of shares of Common Stock the Participant already owns
having a value equal to the tax withholding obligations and other
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obligations. The value of the shares so withheld may not exceed
the employers minimum required tax withholding rate, and
the value of the shares so tendered may not exceed such rate to
the extent the Participant has owned the tendered shares for
less than six months, if such limitations are necessary to avoid
adverse accounting consequences to the Company.
SECTION 14. ASSIGNABILITY
No Award or interest in an Award may be sold, assigned, pledged
(as collateral for a loan or as security for the performance of
an obligation or for any other purpose) or transferred by a
Participant or made subject to attachment or similar proceedings
otherwise than by will or by the applicable laws of descent and
distribution, except to the extent the Participant designates
one or more beneficiaries on a Company-approved form who may
exercise the Award or receive payment under the Award after the
Participants death. During a Participants lifetime,
an Award may be exercised only by the Participant.
Notwithstanding the foregoing and to the extent permitted by
Section 422 of the Code, the Committee, in its sole
discretion, may permit a Participant to assign or transfer an
Award subject to such terms and conditions as the Committee
shall specify.
SECTION 15. ADJUSTMENTS
15.1 Adjustment of Shares
In the event, at any time or from time to time, a stock
dividend, stock split, spin-off, combination or exchange of
shares, recapitalization, merger, consolidation, distribution to
shareholders other than a normal cash dividend, or other change
in the Companys corporate or capital structure results in
(a) the outstanding shares of Common Stock, or any
securities exchanged therefor or received in their place, being
exchanged for a different number or kind of securities of the
Company or (b) new, different or additional securities of
the Company or any other company being received by the holders
of shares of Common Stock, then the Committee shall make
proportional adjustments in (i) the maximum number and kind
of securities available for issuance under the Plan and the
maximum number and kind of securities that may be made subject
to Awards to any Participant as set forth in Section 16.3;
(ii) the maximum number and kind of securities issuable as
Incentive Stock Options as set forth in Section 4.2;
(iii) the maximum number and kind of securities that may be
issued pursuant to Awards granted under the Plan that contain no
restrictions or restrictions based solely on continuous
employment or services for less than three years (except where
Termination of Service occurs by reason of death, Retirement or
Disability) as set forth in Section 4.3; and (iv) the
number and kind of securities that are subject to any
outstanding Award and the per share price of such securities,
without any change in the aggregate price to be paid therefore.
The determination by the Committee as to the terms of any of the
foregoing adjustments shall be conclusive and binding.
Notwithstanding the foregoing, the issuance by the Company of
shares of stock of any class, or securities convertible into
shares of stock of any class, for cash or property, or for labor
or services rendered, either upon direct sale or upon the
exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to,
outstanding Awards. Also notwithstanding the foregoing, a
dissolution or liquidation of the Company or a Change of Control
shall not be governed by this Section 15.1 but shall be
governed by Sections 15.2 and 15.3, respectively.
15.2 Dissolution or Liquidation
To the extent not previously exercised or settled, and unless
otherwise determined by the Committee in its sole discretion,
Awards shall terminate immediately prior to the dissolution or
liquidation of the Company. To the extent a vesting condition,
forfeiture provision or repurchase right applicable to an Award
has not been waived by the Committee, the Award shall be
forfeited immediately prior to the consummation of the
dissolution or liquidation.
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15.3 Change of Control
Except as otherwise provided in the instrument that evidences a
specific Award, in the event of a Change of Control, each
outstanding Award shall automatically accelerate so that each
such Award shall, immediately prior to the effective date of the
Change of Control (the COC Effective Date),
become fully 100% vested and all restrictions thereon shall
lapse.
With respect to all Awards granted pursuant to the Plan that are
subject to acceleration upon a Change of Control, the Company
shall issue to the Participant within 30 days after the COC
Effective Date:
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(a) cash equal to the higher of (1) the average of the
last sale prices of the Common Stock on the New York Stock
Exchange in each of the 20 business days preceding the COC
Effective Date and (2) the highest price per share actually
paid for the Common Stock in connection with the Change of
Control, multiplied by the aggregate number of shares of the
Common Stock (or, if the event that triggered the COC Effective
Date is a Business Combination, the equivalent number of shares
of the then-outstanding common stock of the corporation
resulting from or effecting such Business Combination into which
such shares of Common Stock have been converted) equal to the
greater of (x) the total number of shares payable at the
target Award level upon full vesting of each such Award and
(y) such higher number of shares payable upon full vesting
of each such Award if the Company achieved, for each outstanding
Award cycle, the performance measures that the Company had
achieved for the applicable cycle during the period commencing
upon the starting year of such cycle and ending with the fiscal
quarter immediately preceding the COC Effective Date; and |
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(b) cash equal to the amount of the dividend equivalents
associated with the number of shares determined under
subsection (a) above, in accordance with the Plan. |
Any specific Awards that do not accelerate (because the
instrument evidencing the Award specifically provided that
acceleration of such Award shall not occur upon a Change of
Control) shall be assumed by the Successor Company or parent
thereof or shall be replaced with a comparable award of
equivalent value and with the same vesting schedule. Any such
Awards that are assumed or replaced shall become fully 100%
vested, and all restrictions thereon shall lapse in the event
the Participants employment should subsequently terminate
within two years following the Change of Control, unless
employment is terminated by the Company for Cause or voluntarily
by the Participant without Good Reason. If the Successor Company
refuses to assume or replace such Awards, such Awards shall
become fully 100% vested and all restrictions thereon shall
lapse immediately prior to the Change of Control and shall
terminate if not exercised by the Participant prior to the
Change of Control.
15.4 Further Adjustment of Awards
Subject to Sections 15.2 and 15.3, the Committee shall have
the discretion, exercisable at any time before a sale, merger,
consolidation, reorganization, liquidation, dissolution or
change of control of the Company, as defined by the Committee,
to take such further action as it determines to be necessary or
advisable with respect to Awards. Such authorized action may
include (but shall not be limited to) establishing, amending or
waiving the type, terms, conditions or duration of, or
restrictions on, Awards so as to provide for earlier, later,
extended or additional time for exercise, lifting restrictions
and other modifications, and the Committee may take such actions
with respect to all Participants, to certain categories of
Participants or only to individual Participants. The Committee
may take such action before or after granting Awards to which
the action relates and before or after any public announcement
with respect to such sale, merger, consolidation,
reorganization, liquidation, dissolution or change of control
that is the reason for such action.
15.5 No Limitations
The grant of Awards shall in no way affect the Companys
right to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its
business or assets.
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15.6 Fractional Shares
In the event of any adjustment in the number of shares covered
by any Award, each such Award shall cover only the number of
full shares resulting from such adjustment.
SECTION 16. CODE SECTION 162(m) PROVISIONS
Notwithstanding any other provision of the Plan, if the
Committee determines, at the time Awards are granted to a
Participant who is, or is likely to be as of the end of the tax
year in which the Company would claim a tax deduction in
connection with such Award, a Covered Employee, then the
Committee may provide that this Section 16 is applicable to
such Award.
16.1 Performance Criteria
If an Award is subject to this Section 16, then the lapsing
of restrictions thereon and the distribution of cash, shares of
Common Stock or other property pursuant thereto, as applicable,
shall be subject to the achievement of one or more objective
performance goals established by the Committee, which shall be
based on the attainment of specified levels of one or any
combination of the following performance criteria
for the Company as a whole or any business unit of the Company,
as reported or calculated by the Company: cash flows (including,
but not limited to, operating cash flow, free cash flow or cash
flow return on capital); working capital; earnings per share;
book value per share; operating income (including or excluding
depreciation, amortization, extraordinary items, restructuring
charges or other expenses); revenues; operating margins; return
on assets; return on equity; debt; debt plus equity; market or
economic value added; stock price appreciation; total
shareholder return; cost control; strategic initiatives; market
share; net income; return on invested capital; improvements in
capital structure; cash management or asset management metrics;
customer satisfaction, employee satisfaction, services
performance, subscriber, safety or reliability metrics; or
Service Quality Indices (together, the Performance
Criteria). Such performance goals also may be based on
the achievement of specified levels of Company performance (or
performance of an applicable affiliate or business unit of the
Company) under one or more of the Performance Criteria described
above relative to the performance of other corporations. Such
performance goals shall be set by the Committee within the time
period prescribed by, and shall otherwise comply with the
requirements of, Section 162(m) of the Code, or any
successor provision thereto, and the regulations thereunder.
16.2 Adjustment of Awards
Notwithstanding any provision of the Plan other than
Section 15, with respect to any Award that is subject to
this Section 16, the Committee may adjust downwards, but
not upwards, the amount payable pursuant to such Award, and the
Committee may not waive the achievement of the applicable
performance goals except in the case of the death or Disability
of the Covered Employee.
16.3 Limitations
Subject to adjustment from time to time as provided in
Section 15.1, no Covered Employee may be granted
(i) Options and SARs subject to this Section 16 in any
calendar-year period with respect to more than an aggregate of
600,000 shares of Common Stock for such Awards or
(ii) Awards other than Options and SARs or Performance
Units subject to this Section 16 in any calendar-year
period with respect to more than an aggregate of
400,000 shares of Common Stock for such Awards. The maximum
dollar value payable with respect to Performance Units subject
to this Section 16 granted to any Covered Employee in any
one calendar year is $3,000,000.
The Committee shall have the power to impose such other
restrictions on Awards subject to this Section 16 as it may
deem necessary or appropriate to ensure that such Awards satisfy
all requirements for performance-based compensation
within the meaning of Section 162(m)(4)(C) of the Code, or
any successor provision thereto.
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SECTION 17. AMENDMENT AND TERMINATION
17.1 Amendment, Suspension or Termination
The Board or the Compensation Committee may amend, suspend or
terminate the Plan or any portion of the Plan at any time and in
such respects as it shall deem advisable; provided, however,
that, to the extent required by applicable law, regulation or
stock exchange rule, shareholder approval shall be required for
any amendment to the Plan; and provided, further, that any
amendment that requires shareholder approval may be made only by
the Board. Subject to Section 17.3, the Committee may amend
the terms of any outstanding Award, prospectively or
retroactively.
17.2 Term of the Plan
Unless sooner terminated as provided herein, the Plan shall
terminate ten years from the Effective Date. After the Plan is
terminated, no future Awards may be granted, but Awards
previously granted shall remain outstanding in accordance with
their applicable terms and conditions and the Plans terms
and conditions. Notwithstanding the foregoing, no Incentive
Stock Options may be granted more than ten years after the later
of (a) the Effective Date and (b) the approval by the
shareholders of any amendment to the Plan that constitutes the
adoption of a new plan for purposes of Section 422 of the
Code.
17.3 Consent of Participant
The amendment, suspension or termination of the Plan or a
portion thereof or the amendment of an outstanding Award shall
not, without the Participants consent, materially
adversely affect any rights under any Award theretofore granted
to the Participant under the Plan. Any change or adjustment to
an outstanding Incentive Stock Option shall not, without the
consent of the Participant, be made in a manner so as to
constitute a modification that would cause such
Incentive Stock Option to fail to continue to qualify as an
Incentive Stock Option. Notwithstanding the foregoing, any
adjustments made pursuant to Section 15 shall not be
subject to these restrictions.
SECTION 18. GENERAL
18.1 No Individual Rights
No individual or Participant shall have any claim to be granted
any Award under the Plan, and the Company has no obligation for
uniformity of treatment of Participants under the Plan.
Furthermore, nothing in the Plan or any Award granted under the
Plan shall be deemed to constitute an employment contract or
confer or be deemed to confer on any Participant any right to
continue in the employ of, or to continue any other relationship
with, the Company or any Related Company or limit in any way the
right of the Company or any Related Company to terminate a
Participants employment or other relationship at any time,
with or without cause.
18.2 Issuance of Shares
Notwithstanding any other provision of the Plan, the Company
shall have no obligation to issue or deliver any shares of
Common Stock under the Plan or make any other distribution of
benefits under the Plan unless, in the opinion of the
Companys counsel, such issuance, delivery or distribution
would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act or the laws
of any state or foreign jurisdiction) and the applicable
requirements of any securities exchange or similar entity.
The Company shall be under no obligation to any Participant to
register for offering or resale or to qualify for exemption
under the Securities Act, or to register or qualify under the
laws of any state or foreign jurisdiction, any shares of Common
Stock, security or interest in a security paid or issued under,
or created by, the Plan, or to continue in effect any such
registrations or qualifications if made. The Company may issue
certificates for shares with such legends and subject to such
restrictions on transfer and stop-transfer
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instructions as counsel for the Company deems necessary or
desirable for compliance by the Company with federal, state and
foreign securities laws. The Company may also require such other
action or agreement by the Participants as may from time to time
be necessary to comply with applicable securities laws.
To the extent the Plan or any instrument evidencing an Award
provides for issuance of stock certificates to reflect the
issuance of shares of Common Stock, the issuance may be effected
on a noncertificated basis, to the extent not prohibited by
applicable law or the applicable rules of any stock exchange.
18.3 Indemnification
Each person who is or shall have been a member of the Board, or
a committee appointed by the Board, or an officer of the Company
to whom authority was delegated in accordance with
Section 3, shall be indemnified and held harmless by the
Company against and from any loss, cost, liability or expense
that may be imposed upon or reasonably incurred by such person
in connection with or resulting from any claim, action, suit or
proceeding to which such person may be a party or in which such
person may be involved by reason of any action taken or failure
to act under the Plan and against and from any and all amounts
paid by such person in settlement thereof, with the
Companys approval, or paid by such person in satisfaction
of any judgment in any such claim, action, suit or proceeding
against such person; provided, however, that such person shall
give the Company an opportunity, at its own expense, to handle
and defend the same before such person undertakes to handle and
defend it on such persons own behalf, unless such loss,
cost, liability or expense is a result of such persons own
willful misconduct or except as expressly provided by statute.
The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such person may be
entitled under the Companys certificate of incorporation
or bylaws, as a matter of law or otherwise, or of any power that
the Company may have to indemnify or hold harmless.
18.4 No Rights as a Shareholder
Unless otherwise provided by the Committee or in the instrument
evidencing the Award or in a written employment, services or
other agreement, no Award, other than a Stock Award, shall
entitle the Participant to any cash dividend, voting or other
right of a shareholder unless and until the date of issuance
under the Plan of the shares that are the subject of such Award.
18.5 Compliance With Laws and Regulations
In interpreting and applying the provisions of the Plan, any
Option granted as an Incentive Stock Option pursuant to the Plan
shall, to the extent permitted by law, be construed as an
incentive stock option within the meaning of
Section 422 of the Code.
18.6 Participants in Other Countries or Jurisdictions
Without amending the Plan, the Committee may grant Awards to
Eligible Persons who are foreign nationals on such terms and
conditions different from those specified in the Plan as may, in
the judgment of the Committee, be necessary or desirable to
foster and promote achievement of the purposes of the Plan and
shall have the authority to adopt such modifications,
procedures, subplans and the like as may be necessary or
desirable to comply with provisions of the laws or regulations
of other countries or jurisdictions in which the Company or any
Related Company may operate or have employees to ensure the
viability of the benefits from Awards granted to Participants
employed in such countries or jurisdictions, meet the
requirements that permit the Plan to operate in a qualified or
tax-efficient manner, comply with applicable foreign laws or
regulations and meet the objectives of the Plan.
18.7 No Trust or Fund
The Plan is intended to constitute an unfunded plan.
Nothing contained herein shall require the Company to segregate
any monies or other property, or shares of Common Stock, or to
create any trusts, or to
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make any special deposits for any immediate or deferred amounts
payable to any Participant, and no Participant shall have any
rights that are greater than those of a general unsecured
creditor of the Company.
18.8 Successors
All obligations of the Company under the Plan with respect to
Awards shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all
or substantially all the business and/or assets of the Company.
18.9 Severability
If any provision of the Plan or any Award is determined to be
invalid, illegal or unenforceable in any jurisdiction, or as to
any person, or would disqualify the Plan or any Award under any
law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws, or,
if it cannot be so construed or deemed amended without, in the
Committees determination, materially altering the intent
of the Plan or the Award, such provision shall be stricken as to
such jurisdiction, person or Award, and the remainder of the
Plan and any such Award shall remain in full force and effect.
18.10 Choice of Law
The Plan, all Awards granted thereunder and all determinations
made and actions taken pursuant hereto, to the extent not
otherwise governed by the laws of the United States, shall be
governed by the laws of the State of Washington without giving
effect to principles of conflicts of law.
18.11 Legal Requirements
The granting of Awards and the issuance of shares of Common
Stock under the Plan are subject to all applicable laws, rules
and regulations and to such approvals by any governmental
agencies or national securities exchanges as may be required.
SECTION 19. EFFECTIVE DATE
The effective date (the Effective Date) is
the date on which the Plan is approved by the shareholders of
the Company.
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APPENDIX A (to the 2005 Long-term Incentive Plan)
DEFINITIONS
As used for purposes of the Plan,
Acquired Entity means any entity acquired by
the Company or a Related Company or with which the Company or a
Related Company merges or combines.
Award means any Option, Stock Appreciation
Right, Stock Award, Restricted Stock, Stock Unit, Performance
Share, Performance Unit, cash-based award or other incentive
payable in cash or in shares of Common Stock as may be
designated by the Committee from time to time.
Board means the Board of Directors of the
Company.
Business Combination means (a) a merger
or consolidation, exchange of securities or reorganization of
the Company or (b) the sale or other disposition of
substantially all the assets of the Company.
Cause, unless otherwise defined in the
instrument evidencing an Award or in a written employment,
services or other agreement between the Participant and the
Company or a Related Company, means dishonesty, fraud, serious
or willful misconduct, failure to cooperate in a governmental
investigation, unauthorized use or disclosure of confidential
information or trade secrets, or conduct prohibited by law
(except minor violations), in each case as determined by the
Companys chief human resources officer or other person
performing that function or, in the case of directors and
executive officers, the Compensation Committee, whose
determination shall be conclusive and binding.
Change of Control, unless the Committee
determines otherwise with respect to an Award at the time the
Award is granted, means the happening of any of the following
events:
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(a) The acquisition by any Entity of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 30% or more of the outstanding Common Stock;
provided, however, that the following acquisitions of beneficial
ownership shall not constitute a Change of Control: (x) any
acquisition by the Company, (y) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company, or
(z) any acquisition by any corporation pursuant to a
Business Combination, if, following such Business Combination,
the conditions described in clauses (i), (ii) and
(iii) of subsection (c) below are
satisfied; or |
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(b) A Board Change, which shall have
occurred if a majority of the seats (other than vacant seats) on
the Board or its successor are occupied by individuals who were
neither (i) nominated by a majority of the Incumbent
Directors of the Company nor (ii) appointed by directors so
nominated; or |
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(c) Approval by applicable regulatory agencies of a
Business Combination unless immediately following such Business
Combination, (i) more than 60% of the then-outstanding
shares of common stock of the corporation resulting from or
effecting such Business Combination and the combined voting
power of the then-outstanding voting securities of such
corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by
all or substantially all the individuals and entities who were
the beneficial owners of the outstanding Common Stock
immediately prior to such Business Combination in substantially
the same proportion as their ownership, immediately prior to
such Business Combination, of the outstanding Common Stock,
(ii) no Entity (excluding the Company or any employee
benefit plan (or related trust) of the Company or the
corporation resulting from or effecting such Business
Combination) beneficially owns, directly or indirectly, 30% or
more of, respectively, the then-outstanding shares of common
stock of the corporation resulting from or effecting such
Business Combination or the combined voting power of the
then-outstanding voting securities of such corporation entitled
to vote generally in the election of directors, and
(iii) at least a majority of the members of the board of
directors of the corporation resulting from or effecting such
Business |
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Combination were Incumbent Directors of the Company at the time
of the execution of the initial agreement or action of the Board
providing for such Business Combination. |
COC Effective Date has the meaning set forth
in Section 15.3.
Code means the Internal Revenue Code of 1986,
as amended from time to time.
Committee has the meaning set forth in
Section 3.1.
Common Stock means the common stock, par
value $.01 per share, of the Company.
Company means Puget Energy, Inc., a
Washington corporation.
Compensation Committee means the Compensation
and Leadership Development Committee of the Board.
Covered Employee means a covered
employee as that term is defined for purposes of
Section 162(m)(3) of the Code or any successor provision.
Disability, unless otherwise defined by the
Committee or in the instrument evidencing the Award or in a
written employment, services or other agreement between the
Participant and the Company or a Related Company, means
disability as defined in the Companys
Investment Plan for Employees or other similar successor plan
applicable to salaried employees.
Effective Date has the meaning set forth in
Section 19.
Eligible Person means any person eligible to
receive an Award as set forth in Section 5.
Entity means any individual, entity or group
(within the meaning of Section 13(d)(3) of the Exchange
Act).
Exchange Act means the Securities Exchange
Act of 1934, as amended from time to time.
Fair Market Value means the average of the
high and low trading prices for the Common Stock on any given
date during regular trading or, if not trading on that date,
such price on the last preceding date on which the Common Stock
was traded, unless determined otherwise by the Committee using
such methods or procedures as it may establish.
Good Reason means the occurrence of any of
the following events or conditions:
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(a) a change in the Participants status, position or
responsibilities (including reporting responsibilities) that
represents a material reduction of the status, position or
responsibilities as in effect immediately prior thereto; the
assignment to the Participant of any duties or responsibilities
that, in the Participants reasonable judgment, are
inconsistent with such status, position or responsibilities; or
any removal of the Participant from or failure to reappoint or
reelect the Participant to any of such positions, except in
connection with the termination of the Participants
employment for Cause, for Disability or as a result of his or
her death, or by the Participant other than for Good Reason; |
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(b) a reduction in the Participants annual base
salary; |
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(c) the Companys requiring the Participant (without
the Participants consent) to be based at any place outside
a 35-mile radius of his or her place of employment prior to a
Change of Control, except for reasonably required travel on the
Companys business that is not materially greater than such
travel requirements prior to the Change of Control; |
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(d) the Companys failure to (i) continue in
effect any material compensation or benefit plan (or the
substantial equivalent thereof) in which the Participant was
participating at the time of a Change of Control, including, but
not limited to, the Plan, or (ii) provide the Participant
with compensation and benefits at least equal (in terms of
benefit levels and/or reward opportunities) to those provided
for under each employee benefit plan, program and practice as in
effect immediately prior to the Change of Control (or as in
effect following the Change of Control, if greater); |
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(e) any material breach by the Company of any provision of
the Plan; or |
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(f) any purported termination of the Participants
employment for Cause by the Company that does not comply with
the terms of the Plan. |
Grant Date means the later of (a) the
date on which the Committee completes the corporate action
authorizing the grant of an Award or such later date specified
by the Committee or (b) the date on which all conditions
precedent to an Award have been satisfied, provided that
conditions to the exercisability or vesting of Awards shall not
defer the Grant Date.
Incentive Stock Option means an Option
granted with the intention that it qualify as an incentive
stock option as that term is defined for purposes of
Section 422 of the Code or any successor provision.
Incumbent Director means a member of the
Board who has been either (a) nominated by a majority of
the directors of the Company then in office or
(b) appointed by directors so nominated, but excluding for
this purpose any such individual whose initial assumption of
office occurs as a result of either an actual or threatened
election contest.
Nonqualified Stock Option means an Option
other than an Incentive Stock Option.
Option means a right to purchase Common Stock
granted under Section 8.
Parent Company means a company or other
entity that as a result of a Change of Control owns the Company
or all or substantially all the Companys assets either
directly or through one or more subsidiaries.
Participant means any Eligible Person to whom
an Award is granted.
Performance Award means an Award of
Performance Shares or Performance Units granted under
Section 7.
Performance Criteria has the meaning set
forth in Section 16.1.
Performance Share means an Award of units
denominated in shares of Common Stock granted under
Section 7.1.
Performance Unit means an Award of units
denominated in cash or property other than shares of Common
Stock granted under Section 7.2.
Plan means the Puget Energy, Inc. 2005
Long-Term Incentive Plan.
Related Company means any entity that is
directly or indirectly controlled by, in control of or under
common control with the Company.
Restricted Stock means an Award of shares of
Common Stock granted under Section 11, the rights of
ownership of which are subject to restrictions prescribed by the
Committee.
Retirement, unless otherwise defined in the
instrument evidencing the Award or in a written employment,
services or other agreement between the Participant and the
Company or a Related Company, means Retirement as
defined for purposes of the Plan by the Committee or the
Companys chief human resources officer or other person
performing that function or, if not so defined, means
Termination of Service on or after the date the Participant
reaches normal retirement age, as that term is
defined in Section 411(a)(8) of the Code.
Securities Act means the Securities Act of
1933, as amended from time to time.
Stock Appreciation Right or
SAR means a right granted under
Section 10.1 to receive the excess of the Fair Market Value
of a specified number of shares of Common Stock over the grant
price.
Stock Award means an Award of shares of
Common Stock granted under Section 11, the rights of
ownership of which are not subject to restrictions prescribed by
the Committee.
Stock Unit means an Award denominated in
units of Common Stock granted under Section 11.
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Substitute Awards means Awards granted or
shares of Common Stock issued by the Company in substitution or
exchange for awards previously granted by an Acquired Entity.
Successor Company means the surviving
company, the successor company or Parent Company, as applicable,
in connection with a Change of Control.
Termination of Service means a termination of
employment or service relationship with the Company or a Related
Company for any reason, whether voluntary or involuntary,
including by reason of death, Disability or Retirement. Any
question as to whether and when there has been a Termination of
Service for the purposes of an Award and the cause of such
Termination of Service shall be determined by the Companys
chief human resources officer or other person performing that
function or, with respect to directors and executive officers,
by the Compensation Committee, whose determination shall be
conclusive and binding. Transfer of a Participants
employment or service relationship between the Company and any
Related Company shall not be considered a Termination of Service
for purposes of an Award. Unless the Compensation Committee
determines otherwise, a Termination of Service shall be deemed
to occur if the Participants employment or service
relationship is with an entity that has ceased to be a Related
Company.
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APPENDIX B
PUGET ENERGY, INC.
AMENDED AND RESTATED
NONEMPLOYEE DIRECTOR STOCK PLAN
(Amended and Restated as of January 11, 2005)
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1. |
Establishment, Purpose and Duration of the Plan |
(a) The purpose of the Plan is to provide ownership of
Puget Energy, Inc. Common Stock to nonemployee members of the
Board of Directors in order to strengthen the commonality of
interest between directors and stockholders and to improve the
Companys ability to attract and retain highly qualified
individuals to serve as directors of the Company.
(b) The Plan shall become effective as of January 1,
1998.
(c) The Plan shall remain in effect, subject to the right
of the Board to terminate the Plan at any time pursuant to
Section 13, until all shares subject to the Plan have been
purchased or acquired according to the Plans provisions or
until December 31, 2015, whichever is earliest.
When used herein, the following terms shall have the respective
meanings set forth below:
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(a) Board or Board of
Directors means the Board of Directors of the Company. |
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(b) Committee means a committee
appointed by the Board consisting of two or more members of the
Board who are nonemployee directors within the
meaning of Rule 16b-3(b)(3) promulgated under the
Securities Exchange Act of 1934 or any successor definition
adopted by the Securities and Exchange Commission. |
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(c) Common Stock means the
Companys common stock, $.01 par value per share. |
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(d) Company means Puget Energy, Inc., a
Washington corporation, or any successor corporation as provided
in Section 14. |
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(e) Deferred Stock Account has the
meaning set forth in Section 8(b). |
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(f) Employee means any officer or
employee of the Company or of any Subsidiary. Directors who are
not otherwise employed by the Company or any Subsidiary shall
not be considered employees for purposes of the Plan. |
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(g) Market Price means the average of
the daily high and low per share trading prices for the Common
Stock as reported daily by the New York Stock Exchange in The
Wall Street Journal or similar readily available public
source for a single trading day. |
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(h) Nonemployee Director or
Participant means any person who is elected
or appointed to the Board of Directors and who is not an
Employee. |
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(i) Plan means the Companys
Nonemployee Director Stock Plan as set forth herein, as it may
be amended from time to time. |
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(j) Plan Administrator means the Board
or the Committee appointed from time to time by the Board to
administer the Plan. |
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(k) Quarterly Retainer means the
quarterly retainer payable to all Nonemployee Directors
(exclusive of any per-meeting fees, committee chair fees or
expense reimbursements). The Quarterly Retainer shall be
prorated based on the number of calendar months (including
partial calendar months) a |
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director has served as a Nonemployee Director during the fiscal
quarter for which the Quarterly Retainer is payable. |
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(l) Stock Payment means the fixed
portion of the Quarterly Retainer to be paid to Nonemployee
Directors in shares of Common Stock rather than cash for
services rendered as a director of the Company as provided in
Section 6 and that portion of the Quarterly Retainer to be
paid to Nonemployee Directors in shares of Common Stock
resulting from the election specified in Section 7. |
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(m) Subsidiary means any corporation
that is a subsidiary corporation of the Company, as
that term is defined in Section 424(f) of the Internal
Revenue Code of 1986, as amended. |
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3. |
Shares of Common Stock Subject to the Plan |
Subject to Section 10, the maximum aggregate number of
shares of Common Stock that shall be available for issuance
under the Plan shall be 350,000 shares. Shares issued under
the Plan shall be drawn from authorized and unissued shares.
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4. |
Administration of the Plan |
(a) The Plan will be administered by the Plan
Administrator. The Company shall pay all costs of administration
of the Plan.
(b) Subject to the express provisions of the Plan, the Plan
Administrator has and may exercise such powers and authority of
the Board as may be necessary or appropriate for the Plan
Administrator to carry out its functions under the Plan. Without
limiting the generality of the foregoing, the Plan Administrator
shall have full power and authority to (i) determine all
questions of fact that may arise under the Plan;
(ii) interpret the Plan and make all other determinations
necessary or advisable for the administration of the Plan; and
(iii) prescribe, amend and rescind rules and regulations
relating to the Plan, including, without limitation, any rules
the Plan Administrator determines are necessary or appropriate
to ensure that the Company and the Plan will be able to comply
with all applicable provisions of any federal, state or local
law, including securities laws. All interpretations,
determinations and actions by the Plan Administrator will be
final, conclusive and binding upon all parties. Any action of
the Plan Administrator with respect to the administration of the
Plan shall be taken pursuant to a majority vote at a meeting of
the Plan Administrator (at which members may participate by
telephone) or by the unanimous written consent of its members.
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5. |
Participation in the Plan |
All Nonemployee Directors shall participate in the Plan, subject
to the conditions and limitations of the Plan, so long as they
remain eligible to participate in the Plan as set forth below.
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6. |
Determination of Quarterly Retainers and Stock Payments |
(a) The Board, in its sole discretion, shall determine the
Quarterly Retainer for all Nonemployee Directors.
(b) Each director of the Company who is a Nonemployee
Director at any time during a calendar year may be granted a
Stock Payment as a portion of the Quarterly Retainer payable to
such director. The Stock Payment shall be made as soon as
possible following a fiscal quarter end. The number of shares of
Common Stock to be issued to each Participant as a Stock Payment
shall be determined by dividing the Market Price of the Common
Stock for the last business day of a fiscal quarter into all or
a fraction of the Quarterly Retainer payable to such Participant
for that fiscal quarter, as determined and set forth in
resolutions adopted by the Plan Administrator from time to time;
provided, however, that no fractional shares shall be issued,
and in lieu thereof the number of shares in the Stock Payment
shall be rounded to the nearest whole number of shares.
Certificates evidencing the shares of Common Stock constituting
Stock Payments shall be registered in the respective names of,
or as directed by, the Participants and shall be issued to each
Participant. Notwithstanding the foregoing, the Company may
effect the issuance of shares of Common Stock under this Plan on
a
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noncertificated basis, to the extent not prohibited by
applicable law or the applicable rules of any stock exchange.
(c) The cash portion of the Quarterly Retainer shall be
paid to Nonemployee Directors at such times and in such manner
as may be determined by the Board.
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7. |
Election to Increase Amount of Stock Payment |
(a) In lieu of receiving the cash portion, if any, of his
or her Quarterly Retainer, a Participant may make a written
election to reduce up to 100% of the cash portion of the
Quarterly Retainers to be paid during a calendar year by a
specified percentage or dollar amount and have such amount
applied to purchase additional shares of Common Stock.
(b) The election to reduce the cash portion of the
Quarterly Retainer shall be made on a form provided by the Plan
Administrator and must be returned to the Plan Administrator on
a date the Plan Administrator shall establish, but in any case
no later than the first day of the calendar year to which the
election relates or within 60 days after the Participant
first becomes a Nonemployee Director. The election form shall
state the amount by which the Participant desires to reduce the
cash portion of his or her Quarterly Retainers for the calendar
year, which shall be applied toward the purchase of Common Stock
in the same manner and on the same dates that the Stock Payments
are made pursuant to Section 6; provided, however, that no
fractional shares may be purchased, and in lieu thereof the
number of shares in the Stock Payment shall be rounded to the
nearest whole number of shares. No Participant shall be allowed
to change or revoke any election for the relevant calendar year,
but may change his or her election for any subsequent calendar
year.
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8. |
Election to Defer Receipt of Stock Payment |
Any director of the Company who may become entitled to a Stock
Payment may elect to have issuance of the shares of Common Stock
deferred in accordance with the provisions of this
Section 8.
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(a) Any such election shall be made on a form provided by
the Plan Administrator and must be returned to the Plan
Administrator on a date the Plan Administrator shall establish,
but in any case no later than the last day of the calendar year
prior to the calendar year to which the election relates or
within 30 days after the date the participant first becomes
a Nonemployee Director. Any such election shall be effective for
all Stock Payments in calendar years following the calendar year
in which it is filed; provided, however, that any such election
filed within 30 days after a Participant first becomes a
Nonemployee Director shall be effective on the first day of the
month following the month in which the Participant files the
election form. Any such election may be revoked by written
notice filed with the Plan Administrator. Any such revocation
shall be effective for all Stock Payments in calendar years
following the calendar year in which it is filed. Following any
such revocation, a Nonemployee Director may subsequently elect
to again have issuance of future Stock Payments deferred in
accordance with the provisions of this Section 8. Any such
new election shall comply with the procedures of this
Section 8(a). |
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(b) For each Nonemployee Director for whom one or more
Stock Payments are deferred under this Section 8, the
Company shall maintain an unfunded account (the Deferred
Stock Account) as follows: |
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(i) The Deferred Stock Account shall be credited in units
equal to the number of shares of Common Stock that are from time
to time deferred. The number of shares so credited to the
Deferred Stock Account (which number may be fractional) shall be
determined by dividing (A) the dollar amount of the
Quarterly Retainer that otherwise would be paid in Common Stock
pursuant to Sections 6 and 7 by (B) the Market
Price of the Common Stock for the last business day of the
fiscal quarter for which the deferral is made. |
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(ii) Whenever cash dividends are declared on shares of
Common Stock, a dividend equivalent shall be computed with
respect to each Deferred Stock Account. The amount of the
dividend equivalent shall be the product of (A) the number
of credited units in the Deferred Stock Account on the date as
of which the Company determines the holders of record of the
Common Stock who are entitled to receive the dividend and
(B) the per share dividend amount. The dividend equivalent |
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shall be credited to the Deferred Stock Account in the form of
additional units, effective on the date the cash dividend is
paid, the number of units (which number may be fractional)
obtained by dividing (1) the amount of the dividend
equivalent by (2) the Market Price of the Common Stock for
the dividend payment date. Dividend equivalents shall be
credited under this Section 8(b) until all units credited
to the Deferred Stock Account have been distributed to the
Nonemployee Director or to his or her estate in the form of
shares of Common Stock. |
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(iii) The Deferred Stock Account shall be debited for any
shares of Common Stock that are issued under Sections 8(c),
8(d) or 10. |
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(iv) The Deferred Stock Account shall be subject to any
adjustment required or permitted pursuant to Section 10. |
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(c) A Participant may elect, in a manner determined by the
Plan Administrator, to receive the shares of Common Stock
issuable to him or her from the Deferred Stock Account in a lump
sum payment or in substantially equal annual installments of not
more than 20 years (five years for Stock Payments deferred
before January 1, 2005). The election may be changed to an
allowable alternative payment period by submitting a new
election to the Plan Administrator which the Plan Administrator
accepts, provided that such election is submitted at least one
year before the Participant ceases to be a director of the
Company. The election most recently accepted by the Plan
Administrator shall govern the distribution of all shares of
Common Stock issuable to the Participant from his or her
Deferred Stock Account. If a Participant does not make any
election with respect to the distribution of shares of Common
Stock from the Participants Deferred Stock Account, then
such shares shall be issued in a lump sum payment. The lump sum
payment shall be made, or installment payments shall commence,
no later than January 15 of the calendar year following the
calendar year in which the Participant ceases to be a director
of the Company. Subsequent installments shall be paid each year
in January. |
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(d) Notwithstanding the provisions of Section 8(c) to
the contrary, if a Nonemployee Director should die prior to
issuance of all units that have been credited to the Deferred
Stock Account, the number of units remaining in the Deferred
Stock Account shall be issued to the Nonemployee Directors
estate in the form of shares of Common Stock as soon as
practicable following the date of death. |
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(e) No fractional shares of Common Stock shall be issued
under this Section 8, and in lieu thereof, the number of
shares of Common Stock to be distributed shall be rounded to the
nearest whole number of shares. |
Nonemployee Directors shall not be deemed for any purpose to be,
or have rights as, shareholders of the Company with respect to
any shares of Common Stock except as and when such shares are
issued and then only from the date of the certificate therefor.
No adjustment shall be made for dividends or distributions or
other rights for which the record date precedes the date of such
stock certificate.
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10. |
Adjustment for Changes in Capitalization |
If the outstanding shares of Common Stock of the Company are
increased, decreased or exchanged for a different number or kind
of shares or other securities, or if additional shares or new or
different shares or other securities are distributed with
respect to such shares of Common Stock or other securities,
through merger, consolidation, sale of all or substantially all
of the property of the Company, reorganization or
recapitalization, reclassification, stock dividend, stock split,
reverse stock split, combinations of shares, rights offering or
other distribution with respect to such shares of Common Stock
or other securities or other change in the corporate structure
or shares of Common Stock, the maximum number of shares and/or
the kind of shares that may be issued under the Plan and the
number and/or the kind of shares that are credited pursuant to
the Plan to any deferred stock account may be appropriately
adjusted by the Plan Administrator. Any determination by the
Plan Administrator as to any such adjustment will be final,
binding and conclusive. The maximum number of
B-4
shares issuable under the Plan as a result of any such
adjustment shall be rounded down to the nearest whole share.
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11. |
Continuation of Directors in Same Status |
Nothing in the Plan or in any instrument executed pursuant to
the Plan, and no action taken pursuant to the Plan, shall be
construed as creating or constituting evidence of any agreement
or understanding, express or implied, that a Nonemployee
Director will have any right to continue as a director or in any
other capacity for any period of time or at a particular
retainer or other rate of compensation.
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12. |
Nontransferability of Rights |
No Participant shall have the right to assign or transfer the
right to receive any Stock Payment or any other right of
interest under the Plan, contingent or otherwise, or to cause or
permit any encumbrance, pledge or charge of any nature to be
imposed on any such Stock Payment (prior to the Company
effecting the issuance of shares on a noncertificated basis or
by issuing stock certificates evidencing such Stock Payment) or
any such right or interest otherwise than by will or by the
applicable laws of descent and distribution, except to the
extent the Participant designates one or more beneficiaries on a
Company-approved form who may receive a Stock Payment after the
Participants death.
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13. |
Amendment and Termination of Plan |
(a) The Board will have the power, in its discretion, to
amend, suspend or terminate the Plan at any time.
(b) No amendment, suspension or termination of the Plan
will, without the consent of the Participant, alter, terminate,
impair or adversely affect any right or obligations under any
Stock Payment previously granted under the Plan to such
Participant, unless such amendment, suspension or termination is
required by applicable law.
(c) Notwithstanding the foregoing, and to the extent
required to qualify the Plan as a formula plan for purposes of
exemption from Section 16(b) of the Securities Exchange Act
of 1934, as amended, any provision of the Plan that either
states the amount and price of securities to be issued under the
Plan and specifies the price and timing of such issuances, or
sets forth a formula that determines the amount, price and
timing of such issuances, shall not be amended more than once
every six months, other than to comport with changes in the
Internal Revenue Code of 1986, as amended, the Employee
Retirement Income Security Act of 1974, as amended, or the rules
thereunder.
All obligations of the Company under the Plan shall be binding
on any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all
of the business and/or assets of the Company.
In the event any provision of the Plan shall be held illegal or
invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be
construed and enforced as if the illegal or invalid provision
had not been included.
The Plan shall be construed in accordance with, and governed by,
the laws of the state of Washington.
B-5
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
PUGET ENERGY, INC.
The undersigned hereby appoints Stephen P. Reynolds and James W. Eldredge, and each of them,
with power to act without the other and with power of substitution, as proxies and
attorneys-in-fact and hereby authorizes them to represent and vote, as provided on the other side,
all the shares of Puget Energy, Inc. Common Stock which the undersigned is entitled to vote, and,
in their discretion, to vote upon such other business as may properly come before the Annual
Meeting of Stockholders of the Company to be held May 10, 2005 or at any adjournment or
postponement thereof, with all powers which the undersigned would possess if present at the
Meeting.
(Continued and to be marked, dated and signed, on the other side)
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Address Change/Comments (Mark the corresponding box on the reverse side) |
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5 FOLD AND DETACH HERE 5
You can now access your Puget Energy account online.
Access your Puget Energy shareholder/stockholder account online via Investor ServiceDirect® (ISD).
Mellon Investor Services LLC, Transfer Agent for Puget Energy, Inc., now makes it easy and
convenient to get current information on your shareholder account.
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View account status |
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View certificate history |
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View book-entry information |
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View payment history for dividends |
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Make address changes |
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Obtain a duplicate 1099 tax form |
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Establish/change your PIN |
Visit us on the web at http://www.melloninvestor.com
Call 1-877-978-7778 between 9am-7pm
Monday-Friday Eastern Time
Investor ServiceDirect® is a registered trademark of Mellon Investor Services LLC
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED FOR THE PROPOSALS.
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Mark Here for Address Change or Comments
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SEE REVERSE SIDE |
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FOR |
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WITHHELD |
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FOR ALL |
ITEM 1. ELECTION OF DIRECTORS
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Nominees: |
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01 William S. Ayer |
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02 Charles W. Bingham |
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03 Robert L. Dryden |
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04 Sally G. Narodick |
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Withheld for the nominees you list below: (Write that
nominees name in the space provided below.)
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FOR |
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AGAINST |
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ABSTAIN |
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ITEM 2.
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Approval of a Long-Term Incentive Plan.
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ITEM 3.
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Approval of a Nonemployee Director Stock Plan.
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ITEM 4.
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Ratification of the appointment of
PricewaterhouseCoopers LLP
as our independent registered public accounting firm
for fiscal
year 2005.
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Choose MLinkSM for Fast, easy and secure 24/7 online access to your future proxy
materials, investment plan statements, tax documents and more. Simply log on to Investor
ServiceDirect® at www.melloninvestor.com/isd where step-by-step instructions will prompt
you through enrollment.
Please sign exactly as your name appears on this Voting Form. If shares are registered in more than
one name, the signatures of all such persons are required. A corporation should sign in its full
corporate name as a duly authorized officer, stating such officers title. Trustees, guardians,
executors and administrators should sign in their official capacity giving their full title as
such. A partnership should sign in the partnership name by an authorized person, stating such
persons title and relationship to the partnership.
NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
5 FOLD AND DETACH HERE 5
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 11:59 PM Eastern Time
the day prior to annual meeting day.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
Internet
http://www.proxyvoting.com/psd
Use the Internet to vote your proxy. Have your proxy card in hand when you access the web site.
Telephone
1-866-540-5760
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call.
Mail
Mark, sign and date
your proxy card
and
return it in the
enclosed postage-paid envelope.
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
You can view the Annual Report and Proxy Statement
on the Internet at: http://www.pse.com