<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
PACIFIC ENTERPRISES
- --------------------------------------------------------------------------------
(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):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[PACIFIC ENTERPRISES LOGO]
555 West Fifth Street
Los Angeles, CA 90013-1011
FEBRUARY 6, 1997
Dear Shareholder:
On behalf of the Board of Directors, it is a pleasure to invite you to
attend a Special Meeting of Shareholders at which you will be asked to approve a
business combination of Pacific Enterprises and Enova Corporation, the holding
company for San Diego Gas & Electric Company.
Your Board of Directors believes that the strategic combination of Pacific
Enterprises and Enova will create a company that is well positioned to compete
vigorously in an energy marketplace undergoing rapid deregulation both here in
California and on a national level. The combined companies will provide a broad
range of energy services and be better able than either company alone to pursue
opportunities for enhanced earnings growth in an increasingly competitive energy
market. To pursue opportunities in the unregulated markets pending the expected
completion of the business combination at the end of this year, Pacific
Enterprises and Enova have already formed a joint venture to market energy
products and services.
Combining Pacific Enterprises and Enova makes sense because:
- It is a natural, logical and timely response to competitive forces that
brings together two companies of similar size and with similar views of
the future energy marketplace.
- It combines two California utilities with highly complementary operations
that are geographically contiguous. Pacific Enterprises brings its
experience and expertise as the nation's largest natural gas distribution
utility and Enova brings its experience and expertise as an electric
utility with proven power purchasing skills and the lowest electric rates
of California investor-owned utilities.
- It combines the management teams of two companies with a track record of
streamlining operations and is expected to result in additional net cost
savings and cost avoidances of $1.2 billion over ten years to be shared
between customers and shareholders. The combined companies will be led by
Richard D. Farman, President and Chief Operating Officer of Pacific
Enterprises, who will become Chairman and Chief Executive Officer, and
Stephen L. Baum, President and Chief Executive Officer of Enova, who will
become Vice Chairman, President and Chief Operating Officer.
- It will spur energy competition envisioned by California regulators and
legislators, ultimately stimulating the California economy and benefiting
all of the communities served by Southern California Gas Company and San
Diego Gas & Electric.
YOUR BOARD OF DIRECTORS URGES YOU TO VOTE FOR THIS
PROPOSED COMBINATION.
Through this strategic combination, Pacific Enterprises and Enova are
preparing for new opportunities emerging in the deregulated natural gas and
electricity marketplace. In forging the combination, we intend to be
aggressively prepared for this new environment, leading the way, and fashioning
our own destiny as we do so.
In the strategic business combination, Pacific Enterprises and Enova will
become subsidiaries of a new holding company and holders of Pacific Enterprises
and Enova Common Stock will become shareholders of the new holding company.
Holders of Pacific Enterprises Common Stock will receive 1.5038 shares of Common
Stock of the new holding company for each share of Pacific Enterprises Common
Stock and holders of Enova Common Stock will receive one share of Common Stock
of the new holding company for each share of Enova Common Stock. Shares of
Pacific Enterprises Preferred Stock will not be converted and will remain
outstanding as shares of Pacific Enterprises.
This conversion ratio results in a 7.4% premium to holders of Pacific
Enterprises Common Stock based upon the trading prices of Pacific Enterprises
and Enova Common Stock immediately prior to the announcement of the combination.
In addition, the new holding company intends to adopt the current annual
<PAGE> 3
dividend rate on Enova Common Stock of $1.56 resulting in holders of Pacific
Enterprises Common Stock receiving an equivalent annual dividend of $2.35 for
each share they now own -- an increase of 63% over Pacific Enterprises' $1.44
current annual rate.
The completion of the business combination is subject to the satisfaction
of a number of conditions, including approval of shareholders of Pacific
Enterprises and Enova, approval by the California Public Utilities Commission
and satisfaction of the other regulatory conditions described in the
accompanying Joint Proxy Statement/Prospectus. Detailed information concerning
the business combination and related transactions, together with financial and
other information concerning Pacific Enterprises and Enova, are included in the
Joint Proxy Statement/Prospectus. I urge you to review this information
carefully.
Pacific Enterprises' shareholder approval of the business combination
requires the favorable vote of holders of a majority of the shares of Pacific
Enterprises Common Stock and a majority of the shares of Pacific Enterprises
Common and Preferred Stock (voting together as a single class) outstanding on
the record date for the Special Meeting of Shareholders. THUS, FAILING TO VOTE
YOUR SHARES WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE BUSINESS
COMBINATION. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
PROMPTLY COMPLETE, DATE, SIGN AND RETURN YOUR PROXY CARD OR VOTING INSTRUCTION
IN THE ENCLOSED POSTAGE PREPAID RETURN ENVELOPE.
PACIFIC ENTERPRISES' BOARD OF DIRECTORS HAS APPROVED THE BUSINESS
COMBINATION OF PACIFIC ENTERPRISES AND ENOVA AND THE RELATED TRANSACTIONS
CONTEMPLATED BY THE BUSINESS COMBINATION AND RECOMMENDS THAT PACIFIC ENTERPRISES
SHAREHOLDERS VOTE FOR APPROVAL OF THE PRINCIPAL TERMS OF THE BUSINESS
COMBINATION. THE BOARD'S REASONS FOR ITS RECOMMENDATION ARE SET FORTH IN THE
JOINT PROXY STATEMENT/PROSPECTUS.
The Special Meeting will be held at 10:00 a.m., local time, at The Westin
Bonaventure Hotel, 404 South Figueroa Street, Los Angeles, California on March
11, 1997. If you have any questions prior to the Special Meeting or need further
assistance, please call D.F. King & Co, Inc., who will be assisting Pacific
Enterprises with the Special Meeting, at 1-800-431-9646.
We thank you for your support.
Sincerely yours,
/s/ WILLIS B. WOOD, JR.
------------------------------
Willis B. Wood, Jr.
Chairman of the Board and
Chief Executive Officer
ii
<PAGE> 4
PACIFIC ENTERPRISES
555 WEST FIFTH STREET
LOS ANGELES, CA 90013
(213) 895-5000
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, MARCH 11, 1997
To the Shareholders of Pacific Enterprises:
A Special Meeting of Shareholders of Pacific Enterprises, a California
corporation, will be held on Tuesday, March 11, 1997 at The Westin Bonaventure
Hotel, 404 South Figueroa Street, Los Angeles, California commencing at 10:00
a.m., local time, to consider and vote upon a proposal to approve the principal
terms of a business combination of Pacific Enterprises and Enova Corporation
("Enova").
The terms of the business combination are set forth in an Agreement and
Plan of Merger and Reorganization (the "Merger Agreement"), among Pacific
Enterprises, Enova, Mineral Energy Company, a corporation formed to become a
holding company for Pacific Enterprises and Enova (the "New Holding Company"),
and subsidiaries of New Holding Company formed to effect the business
combination. Pacific Enterprises and Enova will select a new name for the
holding company prior to completing the business combination.
The Merger Agreement provides for the merger of the subsidiaries of New
Holding Company with and into Pacific Enterprises and Enova. Upon the completion
of these mergers, each share of Pacific Enterprises Common Stock will be
converted into 1.5038 shares of New Holding Company Common Stock and each share
of Enova Common Stock will be converted into one share of New Holding Company
Common Stock, and Pacific Enterprises and Enova will become subsidiaries of New
Holding Company, all as more fully described in the accompanying Joint Proxy
Statement/Prospectus to which the Merger Agreement and related agreements are
attached. Approval by Pacific Enterprises' shareholders of the business
combination will be deemed to be an approval and ratification of the Merger
Agreement and the related agreements and the transactions contemplated thereby.
The Board of Directors of Pacific Enterprises has fixed the close of
business on January 13, 1997 as the record date for the determination of
shareholders of Pacific Enterprises entitled to notice of and to vote at the
Special Meeting of Shareholders and any adjournment or postponement thereof.
Approval of the business combination by shareholders of Pacific Enterprises
requires the affirmative vote by holders of a majority of the shares outstanding
on the record date of (i) Pacific Enterprises Common Stock and (ii) Pacific
Enterprises Common Stock and Preferred Stock, voting together as a single class,
and is a condition to the business combination. The business combination is also
subject to approval of Enova's shareholders, certain required regulatory
approvals and other conditions.
Pacific Enterprises' Bylaws permit each shareholder who desires to do so,
to elect that his or her identity and individual vote be held confidential.
Confidentiality will not apply to the extent that voting disclosure is required
by applicable law or is appropriate to assert or defend any claim relating to
shareholder voting. Confidentiality also will not apply with respect to any
matter for which shareholder votes are solicited in opposition to the voting
recommendations of the Board of Directors unless the persons engaged in the
opposition solicitation provide shareholders with voting confidentiality (which,
if not otherwise provided, will be requested by Pacific Enterprises) comparable
to the voting confidentiality provided by Pacific Enterprises. Any shareholder
desiring confidential voting must mark the appropriate box and return the
enclosed proxy card.
The employee benefit plans of Pacific Enterprises and its subsidiaries
automatically provide for confidential voting of shares held on behalf of
employees participating in the plans. Employees holding shares through these
plans need not take any action to obtain confidential voting and may vote their
shares by returning the enclosed voting instruction.
<PAGE> 5
Proxies and voting instructions that are timely received will be voted in
the manner directed thereon. If no direction is given, they will be voted (as to
the shares for which they are authorized to be voted) FOR approval of the
principal terms of a business combination of Pacific Enterprises and Enova.
ONLY SHAREHOLDERS OF PACIFIC ENTERPRISES ARE ENTITLED TO ATTEND THE SPECIAL
MEETING. AN ADMISSION TICKET TO THE SPECIAL MEETING IS PRINTED ON THE INSIDE
BACK COVER OF THIS JOINT PROXY STATEMENT/PROSPECTUS. IF YOU PLAN TO ATTEND THE
SPECIAL MEETING, PLEASE BRING THIS TICKET WITH YOU. IT WILL ADMIT YOU AND A
GUEST OR FAMILY MEMBER TO THE SPECIAL MEETING.
Shareholders who do not bring an admission ticket to the Special Meeting
must have their share ownership verified to obtain admission. Shareholders of
record will be admitted upon verification of record share ownership at the
admission desk. Shareholders who own shares through banks, brokerage firms,
nominees, employee benefit plans or other account custodians, must present proof
of beneficial share ownership (such as a brokerage account or employee benefit
plan statement) at the admission desk.
If you expect to attend the Special Meeting in person, please check the
attendance box provided on the enclosed proxy card or voting instruction.
Seating is limited and will be on a first-come, first-serve basis. Doors will
open at 9:00 a.m.
A summary of certain provisions of Chapter 13 of the California General
Corporation Law pertaining to the rights of dissenting shareholders in
connection with the business combination is included in the Joint Proxy
Statement/Prospectus in the section entitled "Dissenters' Rights." The complete
text of Chapter 13 of the California General Corporation Law is set forth as
Annex I to the Joint Proxy Statement/Prospectus.
EVEN IF YOU NOW EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE MARK, SIGN,
DATE AND RETURN THE ACCOMPANYING PROXY OR VOTING INSTRUCTION IN THE ENCLOSED
ADDRESSED POSTAGE-PAID ENVELOPE. If you are a shareholder of record and attend
the Special Meeting, you may vote in person, whether or not you have sent in
your proxy.
By Order of the Board of Directors
/s/ THOMAS C. SANGER
Thomas C. Sanger
Secretary
February 6, 1997
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
ii
<PAGE> 6
JOINT PROXY STATEMENT
OF
PACIFIC ENTERPRISES
AND
ENOVA CORPORATION
------------------------
PROSPECTUS
OF
MINERAL ENERGY COMPANY
(TEMPORARY NAME OF NEW HOLDING COMPANY)
------------------------
This Joint Proxy Statement/Prospectus relates to a proposed business
combination of Pacific Enterprises and Enova Corporation ("Enova"). Pacific
Enterprises is a holding company for Southern California Gas Company ("Southern
California Gas"), and Enova is a holding company for San Diego Gas & Electric
Company ("SDG&E").
Upon completion of the business combination, Pacific Enterprises and Enova
will become subsidiaries of New Holding Company and holders of Pacific
Enterprises Common Stock and Enova Common Stock will become holders of Common
Stock of New Holding Company. New Holding Company has been temporarily named
Mineral Energy Company; however, a new name will be selected prior to the
completion of the business combination.
The terms of the business combination are set forth in the Agreement and
Plan of Merger and Reorganization dated as of October 12, 1996 and as amended as
of January 13, 1997 (as amended, the "Merger Agreement") attached as Annex A to
this Joint Proxy Statement/Prospectus. It provides for mergers of Pacific
Enterprises and Enova with subsidiaries of New Holding Company in which Pacific
Enterprises and Enova will be the surviving corporations and will become
separate subsidiaries of New Holding Company. In the mergers, shares of Pacific
Enterprises Common Stock and Enova Common Stock will be converted into shares of
New Holding Company Common Stock and New Holding Company will be owned by the
former shareholders of Pacific Enterprises and Enova. Each share of Pacific
Enterprises Common Stock will be converted into 1.5038 shares of New Holding
Company Common Stock and each share of Enova Common Stock will be converted into
one share of New Holding Company Common Stock. Shares of Pacific Enterprises
Preferred Stock will remain outstanding and unchanged as a result of the
mergers.
Based upon the capitalization of Pacific Enterprises and Enova and the
ratios for the conversion of Pacific Enterprises and Enova Common Stock into New
Holding Company Common Stock, Pacific Enterprises shareholders will own
approximately 52% and Enova shareholders will own approximately 48% of New
Holding Company Common Stock that will be outstanding upon completion of the
business combination.
This Joint Proxy Statement/Prospectus is being furnished to the shareholders
of Pacific Enterprises in connection with the solicitation of proxies by the
Pacific Enterprises Board of Directors for use at a Special Meeting of
Shareholders of Pacific Enterprises to be held at 10:00 a.m., local time, on
Tuesday, March 11, 1997, at The Westin Bonaventure Hotel, 404 South Figueroa
Street, Los Angeles, California, and at any adjournment or postponement thereof.
At the Pacific Enterprises Special Meeting, holders of Pacific Enterprises
Common Stock and Pacific Enterprises Preferred Stock will be asked to approve
the principal terms of the business combination of Pacific Enterprises and
Enova.
This Joint Proxy Statement/Prospectus is also being furnished to the
shareholders of Enova in connection with the solicitation of proxies by the
Enova Board of Directors for use at the Special Meeting of Shareholders of Enova
to be held at 10:00 a.m., local time, on Tuesday, March 11, 1997, at the Del Mar
Fairgrounds, the Mission Tower Building, 2260 Jimmy Durante Boulevard, Del Mar,
California, and at any adjournment or postponement thereof. At the Enova Special
Meeting, holders of Enova Common Stock will be asked to approve the principal
terms of the business combination of Pacific Enterprises and Enova.
This Joint Proxy Statement/Prospectus constitutes a prospectus of New
Holding Company with respect to up to approximately 250 million shares of New
Holding Company Common Stock to be issued in the business combination. All
information herein with respect to Pacific Enterprises has been furnished by
Pacific Enterprises and all information herein with respect to Enova has been
furnished by Enova.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Joint Proxy Statement/Prospectus is February 6, 1997. This
Joint Proxy Statement/Prospectus is first being mailed to shareholders of
Pacific Enterprises and Enova on or about February 7, 1997.
<PAGE> 7
AVAILABLE INFORMATION
Both Pacific Enterprises and Enova are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Securities
Exchange Act"), and, accordingly, each files reports, proxy statements and other
information with the Securities and Exchange Commission. Such reports, proxy
statements and other information filed with the Securities and Exchange
Commission are available for inspection and copying at the public reference
facilities maintained by the Securities and Exchange Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W, Washington, D.C. 20549, and at the
Securities and Exchange Commission's Regional Offices located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at
7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
documents may also be obtained from the Public Reference Room of the Securities
and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W, Washington,
D.C. 20549, at prescribed rates. In addition, the Securities and Exchange
Commission maintains a web site (at http://www.sec.gov) that contains
information regarding Pacific Enterprises and Enova. Moreover, any such material
and other information concerning Pacific Enterprises and Enova can be inspected
at the New York Stock Exchange, Inc., 20 Broad Street, 7th Floor, New York, New
York 10005, on which exchange Pacific Enterprises Common Stock and Enova Common
Stock are listed, and at the Pacific Stock Exchange, Inc., 301 Pine Street, San
Francisco, California 94104, on which exchange Pacific Enterprises Common Stock
and Preferred Stock and Enova Common Stock are listed, and such material and
other information concerning Pacific Enterprises can also be inspected at the
American Stock Exchange, 86 Trinity Place, New York, New York 10006, on which
exchange Pacific Enterprises Preferred Stock is listed.
New Holding Company has filed a registration statement on Form S-4
(together with all amendments, schedules and exhibits thereto, the "Registration
Statement") with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of New Holding Company Common Stock to be issued in the business
combination. This Joint Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Securities and
Exchange Commission. The Registration Statement is available for inspection and
copying at the locations set forth above. Statements contained in this Joint
Proxy Statement/Prospectus or in any document incorporated by reference in this
Joint Proxy Statement/Prospectus as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or such other document, each
such statement being qualified in all respects by such reference.
INCORPORATION BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE DOCUMENTS RELATING TO
PACIFIC ENTERPRISES ARE AVAILABLE UPON REQUEST FROM SHAREHOLDER SERVICES
DEPARTMENT, 555 WEST 5TH STREET, SUITE 2900, LOS ANGELES, CALIFORNIA 90013-1011,
(800) 722-5483. THE DOCUMENTS RELATING TO ENOVA ARE AVAILABLE UPON REQUEST FROM
SHAREHOLDER SERVICES OFFICE, P.O. BOX 129400, SAN DIEGO, CALIFORNIA 92112-9400,
(800) 826-5942. TO ENSURE TIMELY DELIVERY, ANY REQUEST FOR DOCUMENTS SHOULD BE
RECEIVED BY MARCH 4, 1997.
Pacific Enterprises and Enova hereby undertake to provide without charge to
each person, including any beneficial owner, to whom a copy of this Joint Proxy
Statement/Prospectus has been delivered, upon the written or oral request of
such person, by first class mail or other equally prompt means within one
business day of receipt of such request, a copy (without exhibits, except those
specifically incorporated by reference) of any and all of the documents referred
to below which have been or may be incorporated in this Joint Proxy
Statement/Prospectus by reference. Requests for such documents should be
directed to the persons indicated above.
2
<PAGE> 8
The following documents, previously filed with the Securities and Exchange
Commission by Pacific Enterprises (File No. 1-40) or Enova (File No. 1-11439)
and SDG&E (File No. 1-3779) pursuant to the Securities Exchange Act, are hereby
incorporated by reference:
1. Pacific Enterprises' Annual Report on Form 10-K for the year ended
December 31, 1995.
2. Pacific Enterprises' Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996, June 30, 1996 and September 30, 1996, as
amended.
3. Pacific Enterprises' Current Reports on Form 8-K dated October 15,
1996 and January 28, 1997.
4. Annual Report on Form 10-K of Enova and SDG&E for the year ended
December 31, 1995, as amended.
5. Quarterly Reports on Form 10-Q of Enova and SDG&E for the quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996, as amended.
6. Current Reports on Form 8-K of Enova and SDG&E dated February 2,
1996, September 24, 1996, October 15, 1996 and January 29, 1997.
The information relating to Pacific Enterprises and Enova contained in this
Joint Proxy Statement/ Prospectus does not purport to be comprehensive and
should be read together with the information in the documents incorporated by
reference herein.
All documents filed by Pacific Enterprises and Enova pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act after the date hereof
and prior to the date of the Pacific Enterprises Special Meeting of
Shareholders, and any adjournment or postponement thereof, or the Enova Special
Meeting of Shareholders, and any adjournment or postponement thereof,
respectively, shall be deemed to be incorporated by reference herein and to be a
part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus.
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Joint Proxy Statement/Prospectus, and, if given or made, such information or
representation should not be relied upon as having been authorized. This Joint
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Joint Proxy
Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction, to or
from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither the
delivery of this Joint Proxy Statement/Prospectus nor any distribution of
securities pursuant to this Joint Proxy Statement/Prospectus shall, under any
circumstances, create an implication that there has been no change in the
affairs of Pacific Enterprises or Enova or in the information set forth herein
since the date of this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus does not cover any resale of the
securities to be received by shareholders of Pacific Enterprises or Enova upon
completion of the business combination, and no person is authorized to make any
use of this Joint Proxy Statement/Prospectus in connection with any such resale.
3
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION................................................................. 2
INCORPORATION BY REFERENCE............................................................ 2
SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS........................................... 6
The Companies....................................................................... 6
The Special Meetings of Shareholders................................................ 7
Required Vote....................................................................... 7
The Business Combination............................................................ 8
Exchange of Stock Certificates...................................................... 8
Energy Marketing Joint Venture...................................................... 8
Background.......................................................................... 9
Reasons for the Business Combination................................................ 9
Recommendations of Boards of Directors.............................................. 10
Fairness Opinions of Financial Advisors............................................. 10
Interests of Certain Persons in the Business Combination............................ 11
Management of New Holding Company................................................... 13
Conditions to the Business Combination.............................................. 13
Rights to Terminate, Amend or Waive Conditions...................................... 13
Certain Federal Income Tax Consequences............................................. 14
Operations After the Business Combination........................................... 14
Regulatory Matters.................................................................. 14
Accounting Treatment................................................................ 15
Dissenters' Rights.................................................................. 15
Dividends and Distributions......................................................... 15
Comparison of Rights of Shareholders................................................ 16
SELECTED HISTORICAL AND PRO FORMA DATA................................................ 17
Selected Historical Financial and Market Data....................................... 17
Selected Unaudited Pro Forma Financial Data......................................... 20
Notes to Selected Historical and Pro Forma Data..................................... 22
Comparative Market Prices and Dividends............................................. 23
THE BUSINESS COMBINATION.............................................................. 24
Background.......................................................................... 24
Reasons for the Business Combination................................................ 28
Recommendations of Boards of Directors.............................................. 30
Fairness Opinions of Financial Advisors............................................. 34
Interests of Certain Persons........................................................ 49
Certain Arrangements Regarding Directors and Management............................. 49
Energy Marketing Joint Venture...................................................... 54
Certain Federal Income Tax Consequences............................................. 55
Accounting Treatment................................................................ 56
Stock Exchange Listing of New Holding Company Common Stock.......................... 56
Federal Securities Law Consequences................................................. 57
REGULATORY MATTERS.................................................................... 57
THE MERGER AGREEMENT.................................................................. 60
The Business Combination............................................................ 60
Conversion of Shares................................................................ 60
Fractional Shares................................................................... 61
Exchange of Stock Certificates...................................................... 61
Energy Marketing Joint Venture...................................................... 62
Representations and Warranties...................................................... 62
</TABLE>
4
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Certain Covenants................................................................... 63
No Solicitation of Acquisition Proposals............................................ 64
New Holding Company Board of Directors.............................................. 64
Indemnification..................................................................... 64
Conditions to Obligations to Effect the Business Combination........................ 65
Benefit Plans....................................................................... 66
Termination......................................................................... 66
Termination Fees.................................................................... 67
Amendment and Waiver................................................................ 67
Standstill Provisions............................................................... 68
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.......................... 69
SELECTED INFORMATION CONCERNING PACIFIC ENTERPRISES AND ENOVA......................... 78
Business of Pacific Enterprises..................................................... 78
Business of Enova................................................................... 78
Certain Business Relationships Between Pacific Enterprises and Enova................ 78
NEW HOLDING COMPANY................................................................... 79
Management of New Holding Company................................................... 79
Dividends........................................................................... 79
DESCRIPTION OF NEW HOLDING COMPANY CAPITAL STOCK...................................... 80
General............................................................................. 80
New Holding Company Common Stock.................................................... 80
New Holding Company Preferred Stock................................................. 80
Certain Anti-Takeover Provisions.................................................... 81
COMPARISON OF SHAREHOLDERS' RIGHTS.................................................... 81
Comparison of the Rights of Holders of Common Stock................................. 81
MEETINGS, VOTING AND PROXIES.......................................................... 84
Pacific Enterprises Special Meeting of Shareholders................................. 84
Enova Special Meeting of Shareholders............................................... 86
Shareholders Proposals for 1997 Annual Meetings..................................... 87
DISSENTERS' RIGHTS.................................................................... 87
Demand for Purchase................................................................. 88
Vote Against the Business Combination............................................... 88
Notice of Approval.................................................................. 89
Submission of Stock Certificates.................................................... 89
Purchase of Dissenting Shares....................................................... 89
EXPERTS............................................................................... 90
LEGAL MATTERS......................................................................... 90
Annex A Agreement of Plan of Merger and Reorganization................................ A-1
Annex B Fairness Opinion of Barr Devlin & Co. Incorporated............................ B-1
Annex C Fairness Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated........ C-1
Annex D Fairness Opinion of Morgan Stanley & Co. Incorporated......................... D-1
Annex E Employment Agreement of Richard D. Farman..................................... E-1
Annex F Employment Agreement of Stephen L. Baum....................................... F-1
Annex G Employment Agreement of Warren I. Mitchell.................................... G-1
Annex H Employment Agreement of Donald E. Felsinger................................... H-1
Annex I Chapter 13 of the California General Corporation Law (Dissenters' Rights)..... I-1
Annex J New Holding Company Articles of Incorporation................................. J-1
Annex K New Holding Company Bylaws.................................................... K-1
</TABLE>
5
<PAGE> 11
This Joint Proxy Statement/Prospectus contains forward looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act, including expectations regarding the benefits of the
business combination and estimates of related cost savings and cost avoidances.
The expectations reflected in such forward looking statements are necessarily
based upon various assumptions that involve judgments with respect to, among
other things, future national and regional economic, competitive and regulatory
conditions, legislative developments, technological developments, inflation
rates, weather conditions, financial market conditions, future business
decisions and other uncertainties, all of which are difficult to predict and
many of which are beyond the control of Pacific Enterprises and Enova.
Accordingly, while the companies believe that these assumptions are reasonable,
there can be no assurance that the assumptions will approximate actual
experience or that the expectations or estimates will be realized. All
subsequent written or oral forward looking statements attributable to Pacific
Enterprises or Enova, or persons acting on their behalf, are expressly qualified
in their entirety by the foregoing cautionary statements.
SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS
The following is a summary of certain important terms and conditions of the
business combination of Pacific Enterprises and Enova and related information.
This summary does not purport to be complete and is qualified in its entirety by
reference to the more detailed information appearing in this Joint Proxy
Statement/Prospectus, the Annexes hereto and the documents incorporated herein
by reference. Shareholders are urged to read this Joint Proxy
Statement/Prospectus and the Annexes hereto in their entirety.
THE COMPANIES
New Holding Company. New Holding Company will be a holding company for
Pacific Enterprises and Enova upon the completion of the business combination.
Pacific Enterprises and Enova are intrastate holding companies exempt from the
registration requirements of the Public Utility Holding Company Act and believe
that the intrastate exemption will also be available to New Holding Company. See
"Regulatory Matters" and "New Holding Company." The principal executive office
of New Holding Company will be located at 101 Ash Street, P.O. Box 129400, San
Diego, California 92112-9400, telephone number (619) 239-7700 or at an as yet
undetermined new location in San Diego, California.
Pacific Enterprises. Pacific Enterprises is a holding company engaged in
supplying natural gas throughout most of southern and part of central
California. These operations are conducted through Pacific Enterprises' primary
subsidiary, Southern California Gas, the nation's largest natural gas
distribution utility, providing natural gas service to residential, commercial,
industrial, utility electric generation and wholesale customers through
approximately 4.7 million meters in a 23,000 square mile service area with a
population of approximately 17.4 million. Through other subsidiaries, Pacific
Enterprises is also engaged in interstate and offshore natural gas transmission
to serve its utility operations, natural gas marketing, alternate energy
development, centralized heating and cooling for large building complexes,
energy management services and investments in foreign utility operations. The
principal executive office of Pacific Enterprises and Southern California Gas
is, and after completion of the business combination will continue to be,
located at 555 West Fifth Street, Los Angeles, California 90013-1011, telephone
number (213) 895-5000. See "Selected Information Concerning Pacific Enterprises
and Enova -- Business of Pacific Enterprises" and "New Holding Company."
Enova. Enova is an energy management company providing electricity, natural
gas and value-added products and services to customers throughout California and
certain other states. Enova is the parent company of SDG&E and six other
subsidiaries - Enova Energy, Enova Financial, Enova International, Enova
Technologies, Califia Company and Pacific Diversified Capital Company. SDG&E is
Enova's principal subsidiary and is a public utility that provides regulated
electric service through 1.2 million meters in San Diego and southern Orange
counties, and regulated natural gas service through 700,000 meters in San Diego
County. SDG&E's service area encompasses 4,100 square miles, covering two
counties and 25 cities with a population of approximately 3.0 million. Through
other subsidiaries, Enova is also engaged in providing natural gas and
electricity and related energy services, investing in affordable housing limited
partnerships, developing and operating natural gas and electricity projects
outside the United States, developing new
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technologies generally related to utilities and energy, leasing computer
equipment and developing real estate. The principal executive office of Enova
and SDG&E is, and after completion of the business combination will, in the case
of SDG&E, continue to be, located at 101 Ash Street, P.O. Box 129400, San Diego,
California 92112-9400, telephone number (619) 239-7700. The principal executive
office of Enova after completion of the business combination will be located at
101 Ash Street, P.O. Box 129400, San Diego, California 92112-9400, telephone
number (619) 239-7700 or at an as yet undetermined new location in San Diego,
California. See "Selected Information Concerning Pacific Enterprises and
Enova -- Business of Enova" and "New Holding Company."
THE SPECIAL MEETINGS OF SHAREHOLDERS
Pacific Enterprises. At the Pacific Enterprises Special Meeting of
Shareholders, the holders of Pacific Enterprises Common Stock and the holders of
Pacific Enterprises Common Stock and Pacific Enterprises Preferred Stock, voting
together as a single class, will be asked to approve the principal terms of the
business combination of Pacific Enterprises and Enova. The completion of the
business combination is conditioned upon such approval having been obtained. See
"Meetings, Voting and Proxies -- Pacific Enterprises Special Meeting of
Shareholders."
The Pacific Enterprises Special Meeting is scheduled to be held at 10:00
a.m., local time, on Tuesday, March 11, 1997 at The Westin Bonaventure Hotel,
404 South Figueroa Street, Los Angeles, California. The Pacific Enterprises
Board of Directors has fixed the close of business on January 13, 1997 as the
record date for the determination of holders of Pacific Enterprises Common Stock
and Pacific Enterprises Preferred Stock entitled to notice of and to vote at the
Pacific Enterprises Special Meeting.
The Pacific Enterprises Board of Directors, by a unanimous vote of those
present, has approved the Merger Agreement and the transactions contemplated
thereby and recommends that Pacific Enterprises' shareholders vote FOR approval
of the principal terms of the business combination.
Enova. At the Enova Special Meeting of Shareholders, the holders of Enova
Common Stock will be asked to approve the principal terms of the business
combination of Pacific Enterprises and Enova. The completion of the business
combination is conditioned upon such approval having been obtained. See
"Meetings, Voting and Proxies -- Enova Special Meeting of Shareholders."
The Enova Special Meeting, is scheduled to be held at 10:00 a.m., local
time, on Tuesday, March 11, 1997, at the Del Mar Fairgrounds, the Mission Tower
Building, 2260 Jimmy Durante Boulevard, Del Mar, California. The Enova Board of
Directors has fixed the close of business on January 13, 1997 as the record date
for the determination of holders of Enova Common Stock entitled to notice of and
to vote at the Enova Special Meeting of Shareholders.
The Enova Board of Directors, by a unanimous vote, has adopted and approved
the Merger Agreement and the transactions contemplated thereby and recommends
that Enova's shareholders vote FOR approval of the principal terms of the
business combination.
REQUIRED VOTE
Pacific Enterprises. Under the California General Corporation Law and the
Articles of Incorporation of Pacific Enterprises, the approval of the business
combination of Pacific Enterprises and Enova requires the approval of the
principal terms of the business combination by the affirmative vote of a
majority of the votes entitled to be cast at the Pacific Enterprises Special
Meeting of Shareholders by (i) all holders of Pacific Enterprises Common Stock
and (ii) all holders of Pacific Enterprises Common Stock and Pacific Enterprises
Preferred Stock, voting together as a single class. On the record date for the
Pacific Enterprises Special Meeting there were 84,167,910 shares of Pacific
Enterprises Common Stock, and 800,253 shares of Pacific Enterprises Preferred
Stock outstanding and entitled to vote. As of the record date, directors and
executive officers of Pacific Enterprises, together with their affiliates as a
group, owned less than 1% of the issued and outstanding shares of Pacific
Enterprises Common Stock and Pacific Enterprises Preferred Stock. See "Meetings,
Voting and Proxies -- Pacific Enterprises Special Meeting of Shareholders."
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Enova. Under the California General Corporation Law and the Articles of
Incorporation of Enova, the approval of the business combination of Pacific
Enterprises and Enova requires the approval of the principal terms of the
business combination by the affirmative vote of a majority of the votes entitled
to be cast at the Enova Special Meeting of Shareholders by all holders of Enova
Common Stock. On the record date for the Enova Special Meeting, there were
116,628,735 shares of Enova Common Stock outstanding and entitled to vote. As of
the record date, directors and executive officers of Enova, together with their
affiliates as a group, owned less than 1% of the issued and outstanding shares
of Enova Common Stock. See "Meetings, Voting and Proxies -- Enova Special
Meeting of Shareholders."
THE BUSINESS COMBINATION
The Merger Agreement provides for the business combination of Pacific
Enterprises and Enova to be effected by (a) a merger of a subsidiary of New
Holding Company with and into Pacific Enterprises, with Pacific Enterprises
remaining as the surviving corporation and becoming a subsidiary of New Holding
Company, and (b) a merger of another subsidiary of New Holding Company with and
into Enova, with Enova remaining as the surviving corporation and also becoming
a subsidiary of New Holding Company. In the Pacific Enterprises merger, each
share of Pacific Enterprises Common Stock (other than shares owned by Enova,
Pacific Enterprises, New Holding Company or any of their wholly owned
subsidiaries and shares as to which dissenters' rights are perfected) will be
canceled and converted into the right to receive 1.5038 shares of New Holding
Company Common Stock. In the Enova merger, each share of Enova Common Stock
(other than shares owned by Enova, Pacific Enterprises, New Holding Company or
any of their wholly owned subsidiaries and shares as to which dissenters' rights
are perfected) will be canceled and converted into the right to receive one
share of New Holding Company Common Stock. See "The Merger Agreement --
Conversion of Shares." Pacific Enterprises shareholders will receive cash, in
lieu of fractional shares of New Holding Company Common Stock. See "The Merger
Agreement -- Fractional Shares."
Shares of Pacific Enterprises and Southern California Gas Preferred Stock
and SDG&E Preference Stock will not be converted in the business combination and
will remain outstanding without any change in their respective rights,
preferences and privileges. These shares will continue to be administered by
their respective issuers following the completion of the business combination in
a manner consistent with past practice. See "The Merger Agreement -- Conversion
of Shares."
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the completion of the business combination,
there will be mailed to holders of Pacific Enterprises and Enova Common Stock a
letter of transmittal and instructions for surrendering their stock certificates
in exchange for certificates representing New Holding Company Common Stock.
Holders of certificates which prior to the completion of the business
combination represented shares of Pacific Enterprises Common Stock or Enova
Common Stock (including SDG&E Common Stock certificates that represent shares of
Enova Common Stock) will not be entitled to receive any payment of dividends or
other distributions on, or payment for any fractional share with respect to,
such shares until certificates therefor have been surrendered for certificates
representing shares of New Holding Company Common Stock. Cash will be paid to
shareholders in lieu of fractional shares of New Holding Company Common Stock.
Holders of shares of Pacific Enterprises Common Stock or Enova Common Stock
should not submit certificates representing their shares for exchange until a
form of letter of transmittal and instructions therefor are received. See "The
Merger Agreement -- Exchange of Stock Certificates."
ENERGY MARKETING JOINT VENTURE
As contemplated by the Merger Agreement, subsidiaries of Pacific
Enterprises and Enova have formed an energy marketing joint venture to pursue
energy marketing opportunities and provide related energy products and services.
The joint venture is terminable by either company without economic penalty in
the event the Merger Agreement is terminated. See "The Business
Combination -- Energy Marketing Joint Venture" and "The Merger
Agreement -- Energy Marketing Joint Venture."
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BACKGROUND
For a description of the background of the business combination, see "The
Business Combination -- Background."
REASONS FOR THE BUSINESS COMBINATION
Benefits of the Business Combination. Pacific Enterprises and Enova view
the combination of the two companies as a natural outgrowth of utility
deregulation and restructuring that is reshaping the natural gas and electric
industries in California and throughout the nation. The combination joins two
excellent companies of similar market capitalization, with similar views of the
future of the utility and energy industries and with highly complementary
operations that are geographically contiguous. The combination is expected to
provide substantial strategic, financial and other benefits to the shareholders
of the two companies, as well as to their employees and the customers and
communities which they serve. These benefits are expected to include:
- Support for Utility Deregulation -- The completion of the business
combination is timed to coincide with California electric utility
deregulation and ongoing natural gas utility deregulation and is intended
to establish a company that, by providing to customers multiple energy
products and services and lower costs than the companies could achieve
individually, will have the ability to compete effectively in unregulated
markets and serve customers more cost-effectively in regulated markets.
- Competitive and Strategic Position -- The combination of the companies'
complementary expertise and vision, including Pacific Enterprises'
substantially larger and more diverse natural gas customer base and its
customer expertise and gas purchasing and distribution capabilities and
Enova's customer and marketing expertise in both electricity and natural
gas markets and its low cost electricity generation, transmission and
purchasing capabilities, provides New Holding Company with the size and
scope to be an effective competitor in the emerging and increasingly
competitive markets for energy and energy services.
- Expanded Management Resources and Employment Opportunities -- New Holding
Company will be able to draw on a larger and more diverse pool of
management for leadership in an increasingly competitive environment. As
a company better able to respond to competitive pressures, New Holding
Company will offer better prospects for employees and be better able to
retain and attract the most qualified employees.
- Communities -- New Holding Company will continue to play a leading role
in the economic development of the communities now served by Pacific
Enterprises and Enova, and philanthropic and volunteer programs currently
maintained by the two companies and their utility subsidiaries will be
continued.
Potential Cost Savings and Cost Avoidances Resulting from the Business
Combination. Pacific Enterprises and Enova believe that the business combination
will result in significant cost savings and cost avoidances that will benefit
customers and shareholders. Operating synergies are expected to generate cost
savings and cost avoidances, net of the costs to achieve such savings and
avoidances, of approximately $1.2 billion over a ten-year period. The savings
and avoidances in 1998, 1999 and 2000 are expected to be lower than any
subsequent year's savings due to the costs of achieving and phasing-in certain
cost savings. Estimated cost savings and cost avoidances have been limited to
quantifiable savings expected by management to be achievable as a result of the
business combination. The major components of the expected savings and
avoidances are:
- Integration of corporate functions -- The combined companies will have
the ability to eliminate redundant functions in a variety of areas,
including accounting and finance, human resources, information services,
external relations, legal and executive administration.
- Integration of corporate programs -- The combined companies will be able
to integrate various corporate and administrative functions, thereby
reducing certain non-labor costs in the areas of
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insurance, advertising, professional services, benefit plan
administration, credit facilities, association dues, postage, research
and development, shareholder services and information systems.
- Integration of field support functions -- The combined companies will be
able to integrate related field support or customer interface functions
in the areas of customer service, marketing and sales, transmission and
distribution operations, gas supply operations and support services, such
as purchasing and materials management.
- Streamlining of inventories and purchasing economics -- The combined
companies will be able to centralize purchasing and inventory functions
related to construction and maintenance activities, as well as
headquarters functions.
- Consolidation of facilities -- The combined companies' physical location
and reduction in total personnel will enable reductions in expenditures
for facilities.
To the extent Section 854(b)(2) of the California Public Utility Act is
applicable to the business combination, the California Public Utilities
Commission will be required to find that the business combination equitably
allocates short-term and long-term forecasted economic benefits of the business
combination between shareholders and utility ratepayers with ratepayers
receiving not less than 50% of the benefits from regulated operations. The
accounting treatment of these cost savings and cost avoidances and the costs of
attaining them will depend upon the regulatory treatment accorded by the
California Public Utilities Commission. See "The Business Combination -- Reasons
for the Business Combination -- Potential Cost Savings and Cost Avoidances
Resulting From the Business Combination."
RECOMMENDATIONS OF BOARDS OF DIRECTORS
Pacific Enterprises. The Pacific Enterprises Board of Directors, by a
unanimous vote of those present, has approved and adopted the Merger Agreement
and the transactions contemplated thereby. The Pacific Enterprises Board
believes that the terms of the business combination are fair to, and in the best
interests of, Pacific Enterprises' shareholders, and recommends that the
shareholders of Pacific Enterprises vote FOR approval of the principal terms of
the business combination. The Pacific Enterprises Board approved and adopted the
Merger Agreement and the transactions contemplated thereby after consideration
of a number of factors described under the heading "The Business
Combination -- Reasons for the Business Combination -- Recommendations of Boards
of Directors."
Enova. The Enova Board of Directors, by a unanimous vote, has approved and
adopted the Merger Agreement and the transactions contemplated thereby. The
Enova Board believes that the terms of the business combination are fair to, and
in the best interests of, Enova's shareholders, and recommends that the
shareholders of Enova vote FOR approval of the principal terms of the business
combination. The Enova Board approved and adopted the Merger Agreement and the
transactions contemplated thereby after consideration of a number of factors
described under the heading "The Business Combination -- Reasons for the
Business Combination -- Recommendations of Boards of Directors."
FAIRNESS OPINIONS OF FINANCIAL ADVISORS
Pacific Enterprises. Barr Devlin & Co. Incorporated ("Barr Devlin") has
delivered written opinions, dated October 11, 1996 and the date of this Joint
Proxy Statement/Prospectus, to the Pacific Enterprises Board of Directors to the
effect that, as of the dates of such opinions, the conversion ratio in the
business combination of 1.5038 shares of New Holding Company Common Stock for
each share of Pacific Enterprises Common Stock is fair to the holders of shares
of Pacific Enterprises Common Stock from a financial point of view. The full
text of the written opinion of Barr Devlin dated as of the date of this Joint
Proxy Statement/Prospectus, which sets forth assumptions made, procedures
followed, matters considered and limits of the review undertaken by Barr Devlin
in rendering its opinion is attached hereto as Annex B and is incorporated by
reference in this Joint Proxy Statement/Prospectus. Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") also delivered written opinions,
dated October 11, 1996 and the date of this Joint Proxy Statement/Prospectus, to
the Pacific Enterprises Board of Directors to the effect that, as of the
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dates of such opinions, the conversion ratio of 1.5038 shares of New Holding
Common Stock for each share of Pacific Enterprises Common Stock and the
conversion ratio of one share of New Holding Common Stock for each share of
Enova Common Stock are fair to the holders of Pacific Enterprises Common Stock
(other than Enova, New Holding Company and their affiliates) from a financial
point of view. The full text of the written opinion of Merrill Lynch dated as of
the date of this Joint Proxy Statement/Prospectus, which sets forth certain
assumptions made, procedures followed, matters considered and limits of the
review undertaken by Merrill Lynch in rendering its opinion, is attached hereto
as Annex C and is incorporated by reference in this Joint Proxy
Statement/Prospectus. Holders of shares of Pacific Enterprises Common Stock
should read such opinions in their entirety. See "The Business
Combination -- Fairness Opinions of Financial Advisors" and Annexes B and C.
Enova. Morgan Stanley & Co. Incorporated ("Morgan Stanley") has delivered
its written opinions, dated October 12, 1996 and the date of this Joint Proxy
Statement/Prospectus, to the Enova Board of Directors to the effect that, as of
the dates of such opinions, the conversion ratio in the business combination of
one share of New Holding Company Common Stock for each share of Enova Common
Stock pursuant to the Merger Agreement is fair to the holders of Enova Common
Stock from a financial point of view. The full text of the written opinion of
Morgan Stanley dated as of the date of this Joint Proxy Statement/Prospectus,
which sets forth assumptions made, matters considered and limits of the review
undertaken in connection with the opinion, is attached hereto as Annex D and is
incorporated by reference in this Joint Proxy Statement/Prospectus. Holders of
shares of Enova Common Stock should read such opinion in its entirety. See "The
Business Combination -- Fairness Opinions of Financial Advisors" and Annex D.
INTERESTS OF CERTAIN PERSONS IN THE BUSINESS COMBINATION
Directorships. Upon the completion of the business combination, the Board
of Directors of New Holding Company will be comprised of an equal number of
directors designated by each of Pacific Enterprises and Enova. Among the
directors of New Holding Company will be Richard D. Farman, President and Chief
Operating Officer of Pacific Enterprises, and Stephen L. Baum, President and
Chief Executive Officer of Enova. See "The Business Combination -- Certain
Arrangements Regarding Directors and Management -- Board of Directors."
Employment Agreements. Messrs. Farman, Baum, Warren I. Mitchell, President
of Southern California Gas, and Donald E. Felsinger, President and Chief
Executive Officer of SDG&E, have entered into employment agreements with New
Holding Company to become effective upon the completion of the business
combination and continuing for a term of five years or until mandatory
retirement age at 65, whichever is earlier, subject to certain automatic renewal
provisions. Upon completion of the business combination (i) Mr. Farman will
serve as Chairman of the Board and Chief Executive Officer of New Holding
Company until the earlier of September 1, 2000 or the second anniversary of the
completion of the business combination, and thereafter as Chairman of the Board
during the period, if any, until September 1, 2000, (ii) Mr. Baum will serve as
Vice-Chairman, President and Chief Operating Officer of New Holding Company
until the earlier of September 1, 2000 or the second anniversary of the
completion of the business combination and during the period, if any, commencing
on the second anniversary of the completion of the business combination and
ending on September 1, 2000, he will be nominated to, and if elected serve as,
the Vice Chairman of the Board, Chief Executive Officer and President of New
Holding Company, and during the period, if any, commencing September 1, 2000 and
ending on the expiration date of his employment agreement, Mr. Baum will be
nominated to, and if elected will serve as, Chairman, Chief Executive Officer
and President of New Holding Company, (iii) Mr. Mitchell will serve as President
and the principal executive officer of New Holding Company's businesses that are
economically regulated by the California Public Utilities Commission, and (iv)
Mr. Felsinger will serve as President and the principal executive officer of New
Holding Company's businesses that are not so regulated. See "The Business
Combination -- Certain Arrangements Regarding Directors and
Management -- Employment Agreements." Copies of the employment agreements of
Messrs. Farman, Baum, Mitchell and Felsinger are attached hereto as Annexes E,
F, G and H, respectively, and are incorporated by reference in this Joint Proxy
Statement/Prospectus.
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Enova Interim Employment Agreements. On September 18, 1996, Mr. Baum
entered into an employment agreement with Enova to serve as its President and
Chief Executive Officer and Mr. Felsinger entered into an employment agreement
with SDG&E to serve as its President and Chief Executive Officer and as
Executive Vice President of Enova, for the period prior to the completion of the
business combination. These agreements will be superseded by the employment
agreements with New Holding Company upon the completion of the business
combination. See "The Business Combination -- Certain Arrangements Regarding
Directors and Management -- Enova Interim Employment Agreements."
Pacific Enterprises Severance Agreements. The Pacific Enterprises Board of
Directors has adopted severance agreements covering 24 executives, officers and
key employees of Pacific Enterprises and its subsidiaries to memorialize past
severance practices and provide for the payment of severance benefits in the
event of the actual or constructive termination of employment of a covered
employee (other than for cause, death or disability) during the term of the
agreements. The benefits payable under the agreements generally consist of (i) a
lump sum cash payment equal to either 2.0 or 1.5 times annual base salary,
depending upon employment position, and (ii) certain continued welfare benefits.
If all covered individuals were to be terminated as of January 1, 1998 under
circumstances giving rise to an entitlement to severance benefits, the aggregate
value of the lump sum cash severance benefits so payable would be approximately
$9 million. See "The Business Combination -- Certain Arrangements Regarding
Directors and Management -- Pacific Enterprises Severance Agreements."
Incentive/Retention Bonus Agreements. The Board of Directors of Pacific
Enterprises has authorized incentive/retention bonus agreements with 23 selected
executives, officers and key employees and the Board of Directors of Enova has
authorized incentive/retention bonus agreements with 10 selected executives and
officers to compensate covered individuals for the performance of services in
connection with the business combination, and to provide an incentive for these
individuals to continue their employment with the combined companies following
the completion of the business combination. The amount payable under each
agreement is equal to a specified multiple of the participant's base salary plus
annual incentive bonus at target. The multiple is 1.0 or less except for two
individuals for whom the multiple is 2.0. Payment of the bonuses is generally
conditioned upon both (i) completion of the business combination or another
business combination transaction and (ii) transition of the covered employee to
employment with the combined companies. Amounts payable to Messrs. Farman and
Mitchell and to all Enova participants are also subject to certain deferral
conditions. The Pacific Enterprises agreements provide for maximum aggregate
incentive/retention bonus payments of approximately $6 million and the Enova
agreements provide for maximum aggregate incentive/retention bonus payments of
approximately $4.7 million. The Boards have also authorized the managements of
Pacific Enterprises and Enova to enter into agreements with non-officer
employees providing for the payment of additional incentive/retention bonuses in
the maximum aggregate amount of $5 million for each company. See "The Business
Combination -- Certain Arrangements Regarding Directors and
Management -- Incentive/Retention Bonus Agreements."
Vesting of Employee Stock Options. Under pre-existing terms of Pacific
Enterprises' employee stock option and incentive plans, all outstanding employee
stock options granted under the plans will become immediately exercisable in
full upon approval of the business combination by the shareholders of Pacific
Enterprises. See "The Business Combination -- Certain Arrangements Regarding
Directors and Management -- Vesting of Employee Stock Options."
Indemnification. Pursuant to the Merger Agreement, to the extent not
provided by an existing right of indemnification or other agreement or policy,
from and after the completion of the business combination, New Holding Company
will, to the fullest extent not prohibited by applicable law, indemnify each
person who, prior to that time, was an officer or director of Pacific
Enterprises or Enova or any of their subsidiaries against certain liabilities
(i) arising out of actions or omissions occurring at or prior to the business
combination that arise from or are based on such service as an officer or
director, or (ii) that are based on, arise out of or pertain to the transactions
contemplated by the Merger Agreement. To the fullest extent permitted by law,
from and after the completion of the business combination, all rights to
indemnification existing in favor of the employees, agents, directors or
officers of Pacific Enterprises, Enova and their respective subsidiaries with
respect to their activities as such prior to the business combination, will
survive the business combination and
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will continue in full force and effect for a period of not less than six years
from the completion of the business combination. See "The Merger
Agreement -- Indemnification."
MANAGEMENT OF NEW HOLDING COMPANY
Directorships. Upon the completion of the business combination, New Holding
Company's Board of Directors will be comprised of an equal number of directors
designated by each of Pacific Enterprises and Enova. Among the directors of New
Holding Company at the Effective Time will be Messrs. Farman and Baum. See "The
Business Combination -- Certain Arrangements Regarding Directors and
Management -- Board of Directors."
Employment Agreements. Each of Messrs. Farman, Baum, Mitchell and Felsinger
has entered into an employment agreement with New Holding Company to become
effective upon the completion of the business combination and continuing for a
term of five years or until mandatory retirement at age 65, whichever is
earlier, subject to certain automatic renewal provisions. See "The Business
Combination -- Certain Arrangements Regarding Directors and
Management -- Employment Agreements."
CONDITIONS TO THE BUSINESS COMBINATION
The obligations of Pacific Enterprises and Enova to complete the business
combination are subject to the satisfaction of certain conditions, including the
approval of the principal terms of the business combination by each company's
shareholders, the receipt of all material statutory and governmental approvals,
the absence of any injunction that prevents the completion of the business
combination, the listing on the New York Stock Exchange of the shares of New
Holding Company Common Stock to be issued in the business combination, the
qualification of the business combination as a pooling of interests transaction
for accounting purposes, the accuracy of the representations and warranties of
the other company set forth in the Merger Agreement as of the completion date
(except for inaccuracies which would not have a material adverse effect on such
other company), the performance by the other company in all material respects,
or waiver, of all obligations required to be performed under the Merger
Agreement, there having been no material adverse effect on the other company or
the ability of the companies to achieve the business objectives contemplated by
the business combination, the expiration or termination of the applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, the
receipt of tax opinions that the business combination will be treated as an
exchange under Section 351 of the Internal Revenue Code, the receipt of certain
material third-party consents and the effectiveness of the Registration
Statement for the shares of New Holding Company Common Stock to be issued in the
business combination. See "The Merger Agreement -- Conditions to Obligations to
Effect the Business Combination."
RIGHTS TO TERMINATE, AMEND OR WAIVE CONDITIONS
The Merger Agreement contains reciprocal termination provisions which
provide Pacific Enterprises and Enova with the ability to terminate the business
combination under certain circumstances, including (i) the failure of the
shareholders of either company to provide the requisite approval of the business
combination on or before June 30, 1997, (ii) the withdrawal or adverse
modification of the recommendation of the business combination by the other
company's Board of Directors or the approval of a third party acquisition
proposal by the other company's Board of Directors, or (iii) the occurrence of a
third party acquisition proposal which the Board of Directors of the company
that is the subject of the proposal determines in good faith, after consultation
with outside counsel and after giving effect to all concessions which may be
offered by the other company in the terms and conditions of the business
combination, is reasonably necessary to accept in order to act in a manner
consistent with its fiduciary duties under applicable law. The Merger Agreement
requires that a termination fee of $72 million be paid and expenses of up to $10
million be reimbursed if the Merger Agreement is terminated under certain
circumstances and, in the case of the termination fee, a third party acquisition
proposal is accepted within one year of the termination. See "The Merger
Agreement -- Termination" and "The Merger Agreement -- Termination Fees."
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The Merger Agreement may be amended by Pacific Enterprises and Enova at any
time before or after the approval of the business combination by their
respective shareholders, but, after that approval, no amendment may be made
which by law requires further approval of the shareholders. At any time prior to
the completion of the business combination, Pacific Enterprises or Enova may:
(a) extend the time for the performance of any of the obligations or other acts
of the other company; (b) waive any inaccuracies in the representations and
warranties contained in the Merger Agreement or in any document delivered
pursuant to the Merger Agreement; and (c) waive compliance with any of the
agreements or conditions contained in the Merger Agreement. See "The Merger
Agreement -- Amendment and Waiver."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Pacific Enterprises' obligation to effect the business combination is
conditioned on the delivery of an opinion to Pacific Enterprises from Skadden,
Arps, Slate, Meagher and Flom LLP, counsel for Pacific Enterprises, and Enova's
obligation to effect the business combination is conditioned upon the delivery
of an opinion to Enova from Shearman & Sterling, counsel for Enova, each dated
as date of completion of the business combination, based upon certain customary
representations and assumptions set forth therein, substantially to the effect
that, for federal income tax purposes, the business combination will be treated
as an exchange under Section 351 of the Internal Revenue Code. Pacific
Enterprises and Enova have the right to waive this condition, but have no
intention of doing so. In the event the condition were to be waived by either
company, each company would distribute a supplement to this Joint Proxy
Statement/Prospectus to disclose the waiver and all material related
consequences including risks to investors, and would resolicit the shareholder
approval of the principal terms of the business combination.
As such an exchange, in general: (i) no gain or loss will be recognized by
Pacific Enterprises, Enova or New Holding Company pursuant to the business
combination; (ii) except with respect to any cash received in respect of
fractional shares, no gain or loss will be recognized by holders of Pacific
Enterprises Common Stock upon the conversion of their Pacific Enterprises Common
Stock into New Holding Company Common Stock in the business combination; and
(iii) no gain or loss will be recognized by holders of Enova Common Stock upon
the conversion of their Enova Common Stock into New Holding Company Common Stock
in the business combination. See "The Business Combination -- Certain Federal
Income Tax Consequences."
EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE TAX
CONSEQUENCES OF THE BUSINESS COMBINATION TO SUCH SHAREHOLDER UNDER FEDERAL,
STATE, LOCAL OR ANY OTHER APPLICABLE LAW.
OPERATIONS AFTER THE BUSINESS COMBINATION
Upon completion of the business combination, Pacific Enterprises and Enova
will be subsidiaries of New Holding Company and will continue to own and operate
their primary subsidiaries, Southern California Gas and SDG&E, respectively. The
headquarters of New Holding Company will be in San Diego, California. The
headquarters of the two utility subsidiaries of New Holding Company will remain
in their current locations, Southern California Gas in Los Angeles and SDG&E in
San Diego. The Energy Marketing Joint Venture will be headquartered in Los
Angeles. The utility subsidiaries, taken together, will provide natural gas
service through 5.4 million meters throughout most of southern and part of
central California and electric service through 1.2 million meters in San Diego
and southern Orange counties in southern California. New Holding Company's
non-utility subsidiaries will engage in unregulated natural gas and electricity
marketing and offer energy related products and services. See "Regulatory
Matters" and "New Holding Company."
REGULATORY MATTERS
The approval of the California Public Utilities Commission under the
applicable provisions of the California Public Utility Act, the approval or
disclaimer of jurisdiction of the Federal Energy Regulatory Commission under the
Federal Power Act, the expiration or termination of the applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act, the approval of
the Securities and Exchange
14
<PAGE> 20
Commission under the Public Utility Holding Company Act, and the approval of the
Nuclear Regulatory Commission under the Atomic Energy Act are required in order
to complete the business combination.
Pacific Enterprises and Enova are currently exempt from the registration
and other requirements of the Public Utility Holding Company Act (other than
from Section 9(a)(2) thereof) as intrastate holding companies. The companies
believe that this exemption will also be available to New Holding Company upon
completion of the business combination.
Under the Merger Agreement, Pacific Enterprises and Enova have agreed to
use all reasonable efforts to obtain all necessary material permits, licenses,
franchises and other governmental authorizations necessary or advisable to
complete or effect the business combination and related transactions
contemplated by the Merger Agreement. Various parties may seek intervention in
these proceedings to oppose the business combination or to have conditions
imposed upon the receipt of necessary approvals. While Pacific Enterprises and
Enova believe that they will receive the requisite regulatory approvals for the
business combination, there can be no assurance as to the timing of such
approvals or the ability of the companies to obtain such approvals on
satisfactory terms or otherwise. It is a condition to the completion of the
business combination that final orders approving the business combination be
obtained from the various federal and state commissions described above and
neither such final orders nor any order, law or regulation of any governmental
authority shall impose terms or conditions which, in the aggregate, could
reasonably be expected to have a material adverse effect on (i) the ability of
the companies to achieve the business objectives contemplated by the business
combination or (ii) the operations, properties, assets or financial condition or
results of operations of New Holding Company and its prospective subsidiaries
taken as a whole, or which would be materially inconsistent with the agreements
of the companies contained in the Merger Agreement. See "Regulatory Matters."
ACCOUNTING TREATMENT
Pacific Enterprises and Enova believe that the business combination will be
treated as a pooling of interests for accounting purposes. See "The Business
Combination -- Accounting Treatment." The receipt by the companies of a letter
from Deloitte & Touche LLP, their respective independent accountants, stating
that the transaction will qualify as a pooling of interests, is a condition
precedent to completion of the business combination. See "The Merger
Agreement -- Conditions to Obligations to Effect the Business Combination."
DISSENTERS' RIGHTS
Under the California General Corporation Law, shareholders of record of
Pacific Enterprises and Enova, as to whose shares there exists no restriction on
the transfer, who do not wish to accept shares of New Holding Company will have
the right to have the fair value of their Pacific Enterprises and Enova shares
appraised by judicial determination and paid to them in cash only if demands for
payment are duly filed with respect to five percent or more of the outstanding
shares of the class of shares which they hold. In order to perfect such
dissenters' rights, holders of Pacific Enterprises Common Stock and Enova Common
Stock must comply with the certain procedural requirements, including filing
written notice with Pacific Enterprises or Enova not later than the date of the
Pacific Enterprises Special Meeting of Shareholders or Enova Special Meeting of
Shareholders of an intention to dissent and demand payment of the fair value of
his or her shares, voting against approval of the principal terms of the
business combination and making a written demand for payment and depositing the
certificates representing such shares within thirty days after notice is given
by Pacific Enterprises and Enova of the results of the vote at the Special
Meetings of Shareholders. See "Dissenters' Rights" and Annex I.
DIVIDENDS AND DISTRIBUTIONS
Pacific Enterprises and Enova. Pursuant to the Merger Agreement, Pacific
Enterprises and Enova have each agreed that they will not declare or pay any
dividends on shares of Common Stock other than regular quarterly dividends not
to exceed 110% of the dividends for the prior fiscal year. They have also each
agreed that they will not purchase or otherwise acquire shares of their Common
Stock other than the repurchase by each company of up to 4,250,000 shares. See
"The Merger Agreement -- Certain Covenants."
15
<PAGE> 21
New Holding Company. New Holding Company intends initially to adopt Enova's
current annual dividend rate of $1.56 per share. Based upon the number of shares
of New Holding Company Common Stock expected to be issued in the business
combination, New Holding Company's annual common share dividend requirements
will increase by approximately $76 million over the current dividend
requirements of Pacific Enterprises and Enova and will represent approximately
95% of the 1995 pro forma combined income of the two companies. See "New Holding
Company" and "Description of New Holding Company Capital Stock -- New Holding
Company Common Stock."
COMPARISON OF RIGHTS OF SHAREHOLDERS
As a result of the business combination, holders of Pacific Enterprises
Common Stock and Enova Common Stock (other than holders of dissenting shares),
will become shareholders of New Holding Company. Their rights in New Holding
Company will differ in certain respects from those as shareholders of Pacific
Enterprises or Enova, as the case may be, due to differences between the
Articles of Incorporation and Bylaws of Pacific Enterprises and Enova and those
of the New Holding Company. For a comparison of the Articles of Incorporation
and Bylaws provisions of Pacific Enterprises and Enova to New Holding Company,
see "Comparison of Shareholders' Rights."
16
<PAGE> 22
SELECTED HISTORICAL AND PRO FORMA DATA
The summary below sets forth selected historical financial and market data
and selected unaudited pro forma financial data. The financial data should be
read in conjunction with the historical consolidated financial statements and
related notes thereto of Pacific Enterprises and Enova, incorporated herein by
reference, and in conjunction with the unaudited pro forma combined condensed
financial statements and related notes thereto of New Holding Company included
elsewhere in this Joint Proxy Statement/Prospectus. See "Unaudited Pro Forma
Combined Condensed Financial Information." The results of operations for interim
periods are not necessarily indicative of the results for a full year.
SELECTED HISTORICAL FINANCIAL AND MARKET DATA
The selected historical financial data of Pacific Enterprises and Enova for
the five years ended December 31, 1995, set forth below, have been derived from
audited financial statements. The selected historical financial data of Pacific
Enterprises and Enova as of and for the nine-month period ended September 30,
1996, set forth below, have been derived from unaudited financial statements.
The selected historical market data of Pacific Enterprises and Enova set forth
below are based on the closing sales prices of Pacific Enterprises Common Stock
and Enova Common Stock as reported on the New York Stock Exchange Composite Tape
for the dates indicated. The Aggregate Market Capitalization represents the
product of the closing prices on the dates indicated multiplied by the number of
outstanding shares on such dates.
RECENT DEVELOPMENTS
Pacific Enterprises. On January 28, 1997, Pacific Enterprises announced
consolidated net income of $203 million for the year ended December 31, 1996,
representing an increase of 9.7% from consolidated net income of $185 million in
1996. Earnings for common shares were $2.37 per share for 1996, representing a
11.7% increase from $2.12 per common share in 1995. Earnings for common shares
for 1996 includes net benefits of $9 million ($.11 per common share) from
favorable non-recurring items. Consolidated operating revenues for 1996 were
$2.6 billion, representing a 9.4% increase from consolidated operating revenues
of $2.3 billion in 1995.
On January 7, 1997, the Pacific Enterprises Board of Directors declared a
quarterly dividend of $.36 per share on Pacific Enterprises Common Stock payable
on February 14, 1997 to shareholders of record as of January 21, 1997.
Enova. On January 27, 1997, Enova announced consolidated net income of $231
million for the year ended December 31, 1996, representing a 2.3% increase from
consolidated net income of $226 million in 1995. Earnings for common shares were
$1.98 per share for 1996, representing a 2.1% increase from $1.94 per common
share in 1995. Consolidated operating revenues for 1996 were $2.0 billion,
representing a 6.6% increase from consolidated operating revenues of $1.9
billion in 1995.
On January 27, 1997, the Enova Board of Directors declared a quarterly
dividend of $.39 per share on Enova Common Stock payable on April 15, 1997 to
holders of record as of March 10, 1997.
17
<PAGE> 23
PACIFIC ENTERPRISES
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------------------------
1996 1995 1994 1993 1992 1991
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating Revenues...................... $ 1,787 $2,343 $2,664 $2,899 $2,900 $3,007
Operating Income (a).................... 353 422 439 442 415 414
Allowance for Borrowed and Other Funds
Used During Construction............. 6 9 4 7 6 5
Income from Continuing Operations....... 155 185 172 181 136 167
Preferred Dividend Requirements......... 6 10 12 15 16 16
Earnings for Common Shares from
Continuing Operations (b)............ 149 175 160 166 120 151
Earnings per Common Share from
Continuing Operations................ 1.80 2.12 1.95 2.06 1.60 2.09
Cash Dividends Declared per Common
Share................................ 1.06 1.34 1.26 0.60 0.44 2.62
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------------------------
1996 1995 1994 1993 1992 1991
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total Assets............................ $ 4,958 $5,259 $5,445 $5,596 $5,414 $5,462
Long Term Debt.......................... 1,296 1,371 1,550 1,394 1,915 1,925
Short Term Debt (c)..................... 217 334 406 325 432 148
Preferred Stock......................... 80 188 218 258 258 258
Common Stock Equity..................... 1,364 1,295 1,210 1,026 711 1,441
Book Value per Common Share............. 16.48 15.71 14.74 12.19 9.44 19.74
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------------------------
1996 1995 1994 1993 1992 1991
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
MARKET DATA -- COMMON STOCK
Aggregate Market Capitalization......... $ 2,562 $2,395 $1,796 $1,999 $1,393 $1,916
Closing Market Price per Share.......... $ 30.13 $28.25 $21.25 $23.75 $18.50 $26.25
Ratio of Market Value to Book Value..... 1.83x 1.80x 1.44x 1.95x 1.96x 1.33x
</TABLE>
See accompanying Notes to Selected Historical and Pro Forma Data.
18
<PAGE> 24
ENOVA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------
1996 1995 1994 1993 1992 1991
------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating Revenues................. $ 1,444 $ 1,871 $ 1,912 $ 1,897 $ 1,789 $ 1,700
Operating Income (a) (f)........... 385 474 440 473 473 420
Allowance for Borrowed and Other
Funds Used During
Construction.................... 7 9 9 22 11 9
Income from Continuing
Operations...................... 176 226 199 219 211 188
Earnings for Common Shares from
Continuing Operations (b)....... 176 226 199 219 211 188
Earnings per Common Share from
Continuing Operations........... 1.51 1.94 1.71 1.89 1.86 1.68
Cash Dividends Declared per Common
Share........................... 1.17 1.56 1.52 1.48 1.44 1.39
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------
1996 1995 1994 1993 1992 1991
------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total Assets....................... $ 4,760 $ 4,670 $ 4,598 $ 4,643 $ 4,429 $ 3,978
Long Term Debt..................... 1,443 1,350 1,339 1,411 1,491 1,156
Short Term Debt (c)................ 70 151 239 279 173 171
Common Stock Equity................ 1,559 1,520 1,474 1,516 1,441 1,350
Book Value per Common Share........ 13.38 13.04 12.65 13.01 12.53 12.00
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------
1996 1995 1994 1993 1992 1991
------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
MARKET DATA -- COMMON STOCK
Aggregate Market Capitalization.... $ 2,579 $ 2,769 $ 2,243 $ 2,898 $ 2,761 $ 2,531
Closing Market Price per Share..... $22.125 $23.750 $19.250 $24.875 $24.000 $22.500
Ratio of Market Value to Book
Value........................... 1.65x 1.82x 1.52x 1.91x 1.92x 1.88x
</TABLE>
See accompanying Notes to Selected Historical and Pro Forma Data.
19
<PAGE> 25
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The following selected unaudited pro forma financial information combines
the historical consolidated balance sheets and statements of income of Pacific
Enterprises and Enova, including their respective subsidiaries, after giving
effect to the business combination. The unaudited pro forma combined condensed
balance sheet data at September 30, 1996, and December 31, 1995, 1994 and 1993
give effect to the business combination as if it had occurred at the respective
balance sheet dates. The unaudited pro forma combined condensed statements of
income for each of the years in the three-year period ended December 31, 1995,
and for the nine-month period ended September 30, 1996, give effect to the
business combination as if it had occurred at January 1, 1993. These statements
are prepared on the basis of accounting for the business combination as a
pooling of interests and are based on the assumptions set forth in the notes
thereto. The following information is not necessarily indicative of the
financial position or operating results that would have occurred had the
business combination been completed on the date as of which, or at the beginning
of the periods for which, the business combination is being given effect nor is
it necessarily indicative of future operating results or financial position. See
"Unaudited Pro Forma Combined Condensed Financial Information."
20
<PAGE> 26
NEW HOLDING COMPANY
UNAUDITED PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------
1996 1995 1994 1993
------------- ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating Revenues............................... $ 3,190 $4,166 $4,514 $4,716
Operating Income (a)............................. 738 896 879 915
Allowance for Borrowed and Other Funds Used
During Construction........................... 13 18 13 29
Preferred Dividend Requirements.................. 6 10 12 15
Earnings for Common Shares from Continuing
Operations (b)................................ 325 401 359 385
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------------
1996 1995 1994 1993
------------- ------ ------ -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Total Assets (g)................................ $ 9,513 $9,758 $9,931 $10,181
Long Term Debt.................................. 2,739 2,721 2,889 2,805
Short Term Debt (c)............................. 287 485 645 604
Preferred Stock................................. 80 188 218 258
Common Stock Equity............................. 2,923 2,815 2,684 2,542
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------
1996 1995 1994 1993
------------- ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
PRO FORMA PER SHARE DATA
NEW HOLDING COMPANY
Earnings per Common Share (d)................. $1.35 $ 1.67 $ 1.50 $ 1.62
Cash Dividends Declared per Common Share...... 0.93 1.21 1.16 0.93
Book Value per Common Share................... 12.13 11.70 11.18 10.60
PRO FORMA EQUIVALENT PER SHARE DATA (E)
PACIFIC ENTERPRISES
Earnings per Common Share..................... $2.03 $ 2.51 $ 2.26 $ 2.44
Cash Dividends Declared per Common Share...... 1.40 1.82 1.74 1.40
Book Value per Common Share................... 18.24 17.59 16.81 15.94
ENOVA CORPORATION
Earnings per Common Share..................... $1.35 $ 1.67 $ 1.50 $ 1.62
Cash Dividends Declared per Common Share...... 0.93 1.21 1.16 0.93
Book Value per Common Share................... 12.13 11.70 11.18 10.60
</TABLE>
See accompanying Notes to Selected Historical and Pro Forma Data.
21
<PAGE> 27
NOTES TO SELECTED HISTORICAL AND PRO FORMA DATA
(a) Income from operations before interest and taxes.
(b) Net income from continuing operations after dividends on preferred stock.
(c) Includes bank and other notes payable, commercial paper borrowings and
current portion of long term debt.
(d) Pro forma common share amounts give effect to the conversion of each
outstanding share of Pacific Enterprises Common Stock into 1.5038 shares of
New Holding Company Common Stock. See "The Merger Agreement -- The Business
Combination." Pro forma common share amounts do not, however, give effect to
the synergies and related cost savings of the business combination or
transaction costs. For a description of the synergies, see "The Business
Combination -- Reasons for the Business Combination; Recommendations of
Boards of Directors."
(e) The data assume that the business combination was completed prior to the
periods presented. Pro forma and equivalent pro forma per share amounts give
effect to the conversion of each outstanding share of Pacific Enterprises
Common Stock into 1.5038 shares of New Holding Company Common Stock and each
outstanding share of Enova Common Stock into one share of New Holding
Company Common Stock. Pro forma dividends declared per common share reflect
the historical dividends declared by Pacific Enterprises and Enova divided
by the pro forma average number of shares of New Holding Company Common
Stock outstanding. The pro forma average number of outstanding shares of New
Holding Company Common Stock was calculated by multiplying the average
number of outstanding shares during the year of Pacific Enterprises Common
Stock and Enova Common Stock by the exchange ratio for each company's Common
Stock.
(f) Enova's operating income presentation has been restated from a utility
presentation to conform to Pacific Enterprises. A reconciliation of the
reported amount to the restated amount is as follows:
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER ----------------------------------------------
30, 1996 1995 1994 1993 1992 1991
------------- ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Operating Income as
reported.................. $ 255 $ 346 $ 332 $ 304 $ 309 $ 305
Plus: Income Taxes.......... 128 135 154 155 153 127
Other Income (pre-tax)...... 7 1) (38 23 20) (1
Preferred Dividend
Requirement............... (5)) (8) (8) (9) (9) (11
------ ------ ------ ------ ------ ------
Restated Operating Income... $ 385 $ 474 $ 440 $ 473 $ 473 $ 420
========== ==== ==== ==== ==== ====
</TABLE>
(g) Enova balance sheet presentation has been restated to conform to Pacific
Enterprises. The restatement consists primarily of the reclassification of
Enova regulatory accounts payable to conform to Pacific Enterprises'
presentation of regulatory accounts receivable. A reconciliation of the
reported amounts to the restated amounts is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------
1996 1995 1994 1993
------------- ------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Assets as reported........................... $ 4,760 $ 4,670 $ 4,598 $ 4,643
Plus: Accrued Taxes.......................... (25)
Regulatory Accounts Receivable............... (201) (171) (112) (33)
Other........................................ (4)
------------- ------------- ------------- -------------
Restated Assets.............................. $ 4,555 $ 4,499 $ 4,486 $ 4,585
========== ====== ====== ======
</TABLE>
22
<PAGE> 28
COMPARATIVE MARKET PRICES AND DIVIDENDS
Pacific Enterprises Common Stock and Enova Common Stock are traded on the
New York Stock Exchange. The following table sets forth, for the periods
indicated, the high and low sales price of the Pacific Enterprises Common Stock
and the Enova Common Stock as reported on the New York Stock Exchange Composite
Tape and dividends paid.
COMPARATIVE MARKET PRICES AND DIVIDENDS
<TABLE>
<CAPTION>
PACIFIC ENTERPRISES ENOVA
--------------------------------- -------------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1994
First Quarter............... $24.500 $20.000 $ .30 $ 25.000 $ 21.500 $ .38
Second Quarter.............. 23.250 19.750 .32 23.250 17.500 .38
Third Quarter............... 22.000 19.250 .32 20.875 18.000 .38
Fourth Quarter.............. 21.625 20.000 .32 20.125 18.625 .38
1995
First Quarter............... $24.875 $21.000 $ .32 $ 21.625 $ 19.125 $ .39
Second Quarter.............. 26.375 23.000 .34 22.875 20.125 .39
Third Quarter............... 25.375 22.375 .34 23.250 20.750 .39
Fourth Quarter.............. 28.625 24.625 .34 23.875 21.875 .39
1996
First Quarter............... $29.625 $25.250 $ .34 $ 24.750 $ 21.625 $ .39
Second Quarter.............. 29.625 24.500 .36 23.125 20.375 .39
Third Quarter............... 31.375 28.500 .36 23.000 20.500 .39
Fourth Quarter.............. 32.500 28.375 .36 23.000 21.500 .39
1997
First Quarter (through
February 4).............. $31.250 $29.750 (1) $ 23.000 $ 21.750 (2)
</TABLE>
- ---------------
(1) On January 7, 1997, the Pacific Enterprises Board of Directors declared a
quarterly dividend of $.36 per share on Pacific Enterprises Common Stock
payable on February 14, 1997 to shareholders of record as of January 21,
1997.
(2) On January 27, 1997, the Enova Board of Directors declared a quarterly
dividend of $.39 per share on Enova Common Stock payable on April 15, 1997
to holders of record as of March 10, 1997.
On October 11, 1996, the last full trading day before the public
announcement of the execution and delivery of the Merger Agreement, the high,
low and closing prices on the New York Stock Exchange Composite Tape of (i)
Pacific Enterprises Common Stock were $31.625, $31.125 and $31.50, respectively,
and (ii) Enova Common Stock were $22.625, $22.375 and $22.50, respectively.
On February 4, 1997, the most recent date for which it was practicable to
obtain market price data prior to printing this Joint Proxy
Statement/Prospectus, the high, low and closing sales prices per share of
Pacific Enterprises Common Stock on the New York Stock Exchange Composite Tape
were $30.50, $30.25 and $30.375, respectively, and the high, low and closing
sales price per share of Enova Common Stock on the New York Stock Exchange
Composite Tape were $22.50, $22.125 and $22.25, respectively.
The market prices of Pacific Enterprises Common Stock and Enova Common
Stock are subject to fluctuation. Pacific Enterprises shareholders and Enova
shareholders are urged to obtain current market quotations for Pacific
Enterprises Common Stock and Enova Common Stock.
Upon completion of the business combination, New Holding Company intends
initially to adopt an annual dividend rate of $1.56 per share on New Holding
Company Common Stock. See "New Holding Company -- Dividends."
23
<PAGE> 29
THE BUSINESS COMBINATION
BACKGROUND
Pacific Enterprises and Enova are neighboring public utility holding
companies. Through Southern California Gas, Pacific Enterprises provides
regulated natural gas service throughout most of southern California and
portions of central California. Through SDG&E, Enova provides regulated electric
and natural gas service throughout San Diego County and regulated electric
service in portions of Orange County in southern California.
In recent years both companies have turned their strategic attention to
developments in California and federal regulatory policies that have
substantially increased competition in the market for natural gas and are
designed similarly to increase competition in the wholesale and retail markets
for electricity. Against this background, each company independently reached the
conclusion that a key factor contributing to success in the increasingly
competitive markets for natural gas and electricity would be the ability to
competitively market both energy sources together with related energy products
and services on both a regulated basis and on an unregulated basis and both
within and outside the areas served by their utility subsidiaries.
In strategic planning sessions held during 1995, Pacific Enterprises'
senior management reviewed the prospects for gas distribution utilities on a
local, regional and national basis in view of ongoing deregulation and
increasing competition for the transportation and distribution of natural gas
and proposals for deregulation of electric utilities and concluded that
deregulatory and economic forces were likely to result in an increasing overlap
of natural gas and electricity markets. They considered these developments in
view of Pacific Enterprises' large customer base, extensive experience in
purchasing natural gas and reputation for high quality service and against the
high market saturation for natural gas and slower population growth within the
utility service territory of Southern California Gas and the resulting limited
prospects for growth in traditional natural gas utility service within southern
California. After considering all of these factors, they concluded that Pacific
Enterprises' future competitive position and prospects for growth would be
significantly enhanced by marketing electricity as well as natural gas and
related products and services on a regional and eventually national and
international basis.
Pacific Enterprises' senior management discussed these conclusions with the
Pacific Enterprises Board of Directors at a strategic planning meeting held on
October 3, 1995 and at subsequent Pacific Enterprises Board meetings. Against
this background, the Pacific Enterprises Board authorized Pacific Enterprises to
evaluate the prospects of marketing both natural gas and electricity and related
products and services and to explore the possibility of a strategic alliance,
acquisition or other business combination with other utilities and gas and power
marketers. Subsequently, Pacific Enterprises discussed on a preliminary basis
possible marketing and other alliances with several other companies.
In late 1995, Enova's management completed strategic planning work
regarding the fundamental restructuring occurring in the electric industry and
related energy markets, the effects of this restructuring on Enova's businesses
and prospects and potential strategic alternatives available to Enova in the
context of those developments. Enova's management concluded that Enova's
competitive position in this new environment as well as its growth prospects
would be significantly enhanced by, among other things, increasing the scale of
its operations and customer base, pursuing opportunities in certain desirable
lines of business, including opportunities based on electronic communications
interconnection with customers, combining with or acquiring a natural gas
distribution company or natural gas marketer so as to better be able to provide
a full range of energy products and services and pursuing natural gas
distribution and other energy related opportunities in Mexico. Pacific
Enterprises was identified at this time as a potentially attractive combination
partner.
On January 17, 1996, Enova engaged Morgan Stanley & Co. Incorporated as its
financial advisor to advise Enova with respect to a potential transaction
involving Enova and Pacific Enterprises.
On February 26, 1996, at a regularly scheduled meeting of the Enova Board
of Directors, Enova senior management and representatives of Morgan Stanley
briefed the Enova Board with regard to a potential "merger of equals" business
combination with Pacific Enterprises. The Enova Board authorized Thomas A.
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Page, Chairman of Enova, and Stephen L. Baum, President and Chief Executive
Officer of Enova, to initiate discussions with Pacific Enterprises regarding
such a business combination.
On March 1, 1996, Mr. Page approached Willis B. Wood, Jr., Chairman and
Chief Executive Officer of Pacific Enterprises, to discuss exploring the
possibility of increasing the value of Pacific Enterprises and Enova through a
combination of the two companies. During the ensuing discussion, Messrs. Page
and Wood were each encouraged by the similarity of their respective companies'
views as to the future of the utility industry and the potential benefits of
such a business combination. The Pacific Enterprises Board of Directors was
advised of this discussion at a regularly scheduled meeting held on March 3,
1996, and authorized further discussions between the two companies.
Throughout March 1996 there were further discussions involving Messrs.
Wood, Page and Baum as well as Richard D. Farman, President and Chief Operating
Officer of Pacific Enterprises, for establishing a basis for combining the
business and operations of the two companies. At these discussions, the two
companies' views of the future of the utility industry were discussed as well as
the possibility of a business combination structured as a merger of equals. The
issues of competitive positioning, potential synergies and regulatory treatment
were identified as significant issues to be explored and those of company
valuation, dividend policies, combination structure, management succession,
Board composition and headquarters locations were identified as significant
points to be agreed upon. Discussions were also initiated at this time regarding
the possibility of forming a joint venture to pursue marketing opportunities in
the unregulated segment of the markets for energy products and services. In
addition, representatives of Barr Devlin & Co. Incorporated provided financial
advice to Pacific Enterprises on the possibility of a business combination with
Enova.
The Enova and Pacific Enterprises Boards of Directors were briefed on the
status of these discussions at regularly scheduled meetings held on March 25 and
April 2, 1996, respectively, and encouraged further discussions of a potential
business combination.
On April 3, 1996, Pacific Enterprises and Enova entered into a
confidentiality agreement, pursuant to which they agreed to exchange non-public
information. For a description of certain standstill provisions contained in the
confidentiality agreement, see "The Merger Agreement -- Standstill Provisions."
Throughout the remainder of April and during June and July 1996, Pacific
Enterprises and Enova exchanged confidential financial and other information and
numerous discussions were held among Messrs. Wood and Farman of Pacific
Enterprises and Messrs. Page and Baum of Enova and the respective financial
advisors and legal counsel for Pacific Enterprises and Enova. These discussions
focused primarily upon the valuation of the two companies, dividend policy,
management and headquarters locations of the combined companies. The status of
these discussions was reviewed with the Pacific Enterprises Board of Directors
at regularly scheduled meetings held on May 9 and June 4, and the Enova Board of
Directors at regularly scheduled meetings held on April 23 and May 28.
Following significant progress by Messrs. Wood, Farman, Page and Baum
regarding the matters described in the preceding paragraph, the companies
established working groups composed of representatives of both companies to
examine various issues including structure, financial modeling, regulatory
considerations, integration of employee benefit plans, communications and
analysis of synergies and the feasibility of a joint venture to market natural
gas and electricity and related products and services pending the completion of
a business combination. An introductory meeting was held on July 16 and 17,
1996, attended by representatives of Pacific Enterprises and Enova and their
respective counsel and financial advisors. Following this meeting, Deloitte &
Touche Consulting Group, a division of Deloitte & Touche LLP, was jointly
engaged by Pacific Enterprises and Enova to assist the managements of the two
companies in their identification and quantification of the potential cost
savings and cost avoidances from synergies resulting from a business
combination. Deloitte & Touche Consulting Group was not retained to, nor did
they, prepare or present any report, opinion or appraisal for or to the
management or Board of Directors of Pacific Enterprises or Enova.
In addition, to assist the Pacific Enterprises Board of Directors and
management in understanding and performing appropriate due diligence with
respect to the electric utility business and nuclear generation generally and
with respect to Enova's electric utility business and nuclear generating
facility in particular,
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Pacific Enterprises retained Coopers & Lybrand Consulting Group as economic
consultants and HGP, Inc., a management/technical consulting firm, as electrical
generation (nuclear, fossil), and transmission and distribution consultants.
Also in July, Pacific Enterprises received advice from Merrill Lynch, Pierce,
Fenner & Smith Incorporated as an additional financial advisor with respect to a
potential transaction with Enova.
On July 19, 1996, Pacific Enterprises and Enova agreed that for a period of
60 days neither company would solicit proposals from third parties regarding a
potential business combination or similar transaction.
On July 22, 1996, at a regularly scheduled meeting, the Enova Board of
Directors was briefed on the progress of negotiations with Pacific Enterprises.
During the next several weeks, the various joint working groups continued
their work with respect to synergies analysis, business plans, legal structures,
regulatory plans, an energy marketing joint venture, due diligence and employee
benefits. In addition, discussions were commenced between counsel for Pacific
Enterprises and counsel for Enova with respect to terms of an agreement for the
business combination and a joint venture agreement. A committee comprised of
representatives of Enova and Pacific Enterprises, their respective counsel and
compensation consultants was formed to assess, among other things, the
reasonableness of the employment agreements to be entered into by New Holding
Company and Messrs. Farman, Baum, Warren E. Mitchell, President of Southern
California Gas, and Donald E. Felsinger, President and Chief Executive Officer
of SDG&E.
On August 6, 1996, at a regularly scheduled meeting, the Pacific
Enterprises Board of Directors was briefed on the progress of the discussions
with Enova. At this meeting, Barr Devlin and Merrill Lynch made preliminary
presentations to the Pacific Enterprises Board regarding the proposed
transaction, including potential strategic benefits of the business combination
and associated potential risks. In addition, legal counsel described the duties
and responsibilities of the Pacific Enterprises Board in considering a business
combination. Following extensive discussions, the Pacific Enterprises Board
authorized management to continue discussions with Enova and provided direction
regarding certain issues with respect to an agreement for the business
combination, particularly those relating to the circumstances allowing, and the
consequences of, termination of the business combination.
On August 26, 1996, at a regularly scheduled meeting, the Enova Board of
Directors was briefed on the progress of negotiations with Pacific Enterprises.
On September 3, 1996, at a regularly scheduled meeting, the Pacific
Enterprises Board of Directors received a further update on the status of
negotiations with Enova. Throughout the remainder of September there were
numerous discussions regarding certain provisions of the agreement for the
business combination, including termination fees and expense reimbursement,
between Messrs. Wood and Farman of Pacific Enterprises and Messrs. Page and Baum
of Enova and between legal counsel and financial advisors for Pacific
Enterprises and Enova.
On September 18, 1996, at a special meeting, the Enova Board of Directors
was updated by senior management regarding the proposed business combination,
including potential strategic benefits of the transaction, the status of
negotiations on, and key terms and conditions of, a proposed business
combination agreement and an energy marketing joint venture agreement, the
regulatory plan for the transaction and the status of Enova's due diligence
review of Pacific Enterprises. Representatives of Morgan Stanley presented a
general overview of the financial aspects of the transaction. Legal counsel
provided advice regarding the Enova Board's legal responsibilities and fiduciary
duties to shareholders in evaluating the proposed transaction and the status of
negotiations regarding a business combination agreement. The Enova Board
authorized the senior management of Enova to continue discussions with
representatives of Pacific Enterprises and provided direction regarding certain
remaining business combination agreement issues.
On September 25, 1996, at a special meeting held telephonically, and on
October 1, 1996, at a regularly scheduled meeting, the Pacific Enterprises Board
of Directors received advice from Pacific Enterprises' management, legal counsel
and financial advisors regarding the remaining issues including advice from
Merrill Lynch and Barr Devlin to the effect that the magnitude of the proposed
termination fee and expense
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reimbursement for the business combination were within the range of fees
provided for in comparable transactions.
On October 8, 1996, at a day-long special meeting, the Pacific Enterprises
Board of Directors received a presentation from Messrs. Page, Baum and
Felsinger, regarding Enova's views regarding the future of the utility industry
and the expected benefits of a potential business combination of Enova and
Pacific Enterprises and of an energy marketing joint venture. The Pacific
Enterprises Board also received presentations from Pacific Enterprises'
management, legal counsel and financial advisors as to the status of the
discussions with Enova and detailed due diligence presentations from legal
counsel and economic and nuclear consultants regarding Enova and its
subsidiaries. Members of senior management presented the findings of the
potential synergies analysis, that was prepared by managements of Pacific
Enterprises and Enova with the assistance of consultants. In addition,
management and legal counsel reviewed the material terms of the business
combination agreement and the term sheet regarding the energy marketing joint
venture. The Pacific Enterprises Board also reviewed the proposed employment
agreements between New Holding Company and Messrs. Farman, Baum, Mitchell and
Felsinger and was advised by its compensation consultants that, based upon a
review of employment agreements in other utility combinations, the agreements
were reasonable to provide an orderly transition of senior management for New
Holding Company. Barr Devlin and Merrill Lynch reviewed financial and other
information concerning Pacific Enterprises, Enova, the combined companies and
the proposed ratios for converting Pacific Enterprises and Enova Common Stock
into Common Stock of New Holding Company.
On October 9, 1996, at a day-long special meeting, the Enova Board of
Directors received a presentation from Messrs. Wood, Farman and Mitchell,
regarding Pacific Enterprises' views regarding the future of the utility
industry and the expected benefits of a potential business combination of Enova
and Pacific Enterprises and of an energy marketing joint venture. The Enova
Board also received presentations from its senior management and financial and
legal advisors who discussed material aspects of the transaction, the proposed
Energy Marketing Joint Venture, and related transactions. Members of senior
management presented the findings of the synergies analysis, that was prepared
by managements of Pacific Enterprises and Enova with the assistance of
consultants. Morgan Stanley representatives reviewed for the Enova Board various
financial and other information and indicated that Morgan Stanley expected to be
in a position to deliver its opinion that the conversion ratio pursuant to the
then current draft of the business combination was fair from a financial point
of view to the holders of Enova Common Stock when the terms of the transaction
were finalized. Legal counsel summarized the terms of the then current draft of
the business combination agreement and advised as to the fiduciary duties of the
directors. In addition, the Enova Board was advised by senior management, who
had received assistance from outside compensation consultants, that the proposed
employment agreements to be entered into by New Holding Company and each of
Messrs. Baum, Felsinger, Farman and Mitchell, based on a review of similar
agreements entered into in connection with similar transactions in the utility
industry, were consistent with relevant competitive practices while providing
shareholders with assurances that key management talent will be retained pending
completion of the proposed business combination.
On October 11, 1996, at a special meeting, the Pacific Enterprises Board of
Directors was updated by Pacific Enterprises' management, legal counsel,
financial advisors and consultants as to the status of previously unresolved
issues. All Pacific Enterprises directors participated in the special meeting in
person or by telephone, except Paul A. Miller who was traveling and unable to
participate. In addition, management and legal counsel reviewed the material
terms of the Merger Agreement and the term sheet regarding the Energy Marketing
Joint Venture and Barr Devlin and Merrill Lynch updated financial and other
information concerning Pacific Enterprises, Enova, the combined companies and
the conversion ratios. At the special meeting, Barr Devlin delivered its
fairness opinion to the Pacific Enterprises Board to the effect that, as of the
date thereon, the conversion ratio of 1.5038 shares of New Holding Company
Common Stock for each share of Pacific Enterprises Common Stock is fair to the
holders of Pacific Enterprises Common Stock. Merrill Lynch also delivered its
fairness opinion to the Pacific Enterprises Board to the effect that, as of the
date of such opinion and based upon assumptions made, matters considered and
limits of review set forth therein, the conversion ratio of 1.5038 shares of New
Holding Company Common Stock for each share of Pacific
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Enterprises Common Stock and the conversion ratio of one share of New Holding
Company Common Stock for each share of Enova Common Stock are fair to holders of
Pacific Enterprises Common Stock (other than Enova, New Holding Company and
their affiliates) from a financial point of view. Following extensive discussion
and consideration of the presentations and analyses delivered at the meeting and
prior meetings, the Pacific Enterprises Board, by the unanimous vote of those
present, approved the Merger Agreement and the transactions contemplated thereby
and authorized the execution of the Merger Agreement.
On October 12, 1996, at a special meeting, the Enova Board of Directors met
and received updates from its senior management and financial and legal advisors
as to the terms of the Merger Agreement and related agreements. Morgan Stanley
delivered its fairness opinion to the Enova Board, to the effect that the
conversion ratio of one share of New Holding Company Common Stock for each share
of Enova Common Stock was fair from a financial point of view to the holders of
Enova Common Stock. After considering and discussing the various presentations
at such meeting and at prior meetings as well as the recommendation of Enova's
senior management, the Enova Board approved, by a unanimous vote, the Merger
Agreement and the transactions contemplated thereby and authorized the execution
of the Merger Agreement.
On October 12, 1996, Pacific Enterprises and Enova executed and delivered
the Merger Agreement.
On January 13, 1997, Pacific Enterprises and Enova entered into an
amendment to the Merger Agreement which clarified certain matters with respect
to the Energy Marketing Joint Venture and subsidiaries of Pacific Enterprises
and Enova executed and delivered an agreement forming the Energy Marketing Joint
Venture.
For a description of certain pre-existing business relationships between
Pacific Enterprises and Enova, see "Selected Information Concerning Pacific
Enterprises and Enova -- Certain Business Relationships Between Pacific
Enterprises and Enova."
REASONS FOR THE BUSINESS COMBINATION
Benefits of the Business Combination. -- Pacific Enterprises and Enova view
the combination of the two companies as a natural outgrowth of utility
deregulation and restructuring that is reshaping the natural gas and electric
industries in California and throughout the nation. The combination joins two
excellent companies of similar market capitalization, with similar views of the
future of the utility and energy industries and with highly complementary
operations that are geographically contiguous. The combination is expected to
provide substantial strategic, financial and other benefits to the shareholders
of the two companies, as well as to their employees and the customers and the
communities which they serve. The Boards of Directors of Pacific Enterprises and
Enova believe that these benefits include:
- Support for Utility Deregulation -- The combination is timed to coincide
with California electric utility deregulation and ongoing natural gas
utility deregulation and is intended to establish a company that, by
providing to customers multiple energy products and services and lower
costs than the companies could achieve individually, will have the
ability to compete effectively in unregulated markets and serve customers
more cost-effectively in regulated markets. Through Southern California
Gas and SDG&E, New Holding Company will offer regulated natural gas
service throughout most of southern California and portions of central
California and regulated electric service in San Diego and southern
Orange Counties in southern California. New Holding Company also will
engage in unregulated natural gas and electricity marketing and offer
energy related products and services throughout California and the
rapidly developing national and international marketplace for energy and
energy services.
- Competitive and Strategic Position -- The combination of the companies'
complementary expertise and vision, including Pacific Enterprises'
substantially larger and more diverse natural gas customer base and its
customer expertise and natural gas purchasing and distribution
capabilities and Enova's customer and marketing expertise in both
electricity and natural gas markets and its low cost electric generation,
transmission and purchasing capabilities, provides New Holding Company
with the size and scope to be an effective competitor in the emerging and
increasingly competitive markets for energy and energy services. It will
create a company that will have the ability to develop and market
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competitive new products and services and provide integrated energy
solutions for wholesale and retail customers.
- Expanded Management Resources and Employment Opportunities -- New Holding
Company will be able to draw on a larger and more diverse pool of
management for leadership in an increasingly competitive environment. As
a company more able to effectively respond to competitive pressures, New
Holding Company will offer better prospects for employees and be better
able to retain and attract the most qualified employees.
- Communities -- New Holding Company will continue to play a leading role
in the economic development of the communities now served by Pacific
Enterprises and Enova and philanthropic and volunteer programs currently
maintained by the two companies and their utility subsidiaries will be
continued. These communities will also benefit from increased competition
and lower prices for regulated and deregulated natural gas and
electricity and energy related products and services and expected growth
in unregulated businesses to offset employment losses from cost
reductions created through the combination.
Potential Cost Savings and Cost Avoidances Resulting from the Business
Combination. Pacific Enterprises and Enova believe that the business combination
will result in significant cost savings and cost avoidances that will benefit
customers and shareholders. Potential savings and avoidances have been limited
to quantifiable amounts estimated by the managements of Pacific Enterprises and
Enova to be achieved by a combination of the operations of the two companies.
Recognition has been given to costs to be incurred in achieving these potential
savings and avoidances and to the time required to implement plans designed to
integrate operations. These estimated savings and avoidances are attributable to
the business combination and do not include other types of savings and
avoidances that might be achieved without a combination of the companies. In
addition, New Holding Company will continue efforts already underway by Pacific
Enterprises and Enova to increase productivity and reduce costs by redesigning
and reengineering key business processes.
Operating synergies from the business combination are estimated to generate
total cost savings and cost avoidances, net of $205 million estimated costs to
achieve such savings and avoidances, of $1.2 billion over a ten-year period. The
accounting treatment of the cost savings and cost avoidances and costs of
attaining them will depend upon the regulatory treatment accorded by the
California Public Utilities Commission. The savings and avoidances in 1998, 1999
and 2000 are expected to be lower than in any subsequent year due to the costs
to achieve and phase-in of such savings and avoidances.
The major components and estimated amounts of the anticipated cost savings
and cost avoidances based on the synergies analysis (without reduction for the
costs to achieve them) prepared by Pacific Enterprises and Enova managements
with the assistance of Deloitte & Touche Consulting Group are set forth below.
It is impracticable to allocate the costs to achieve these savings and
avoidances to specific components.
- Integration of corporate functions -- The combined companies will have
the ability to eliminate redundant functions in a variety of areas,
including accounting and finance, human resources, information services,
external relations, legal and executive administration. The staffing
levels for these functions are relatively fixed and do not vary directly
with an increase or decrease in the number of employees or customers. The
companies estimate cost savings and cost avoidances to be approximately
$538 million over a ten-year period through integration of corporate
functions.
- Integration of corporate programs -- The combined companies will be able
to integrate various corporate and administrative functions, thereby
reducing certain non-labor costs in the areas of insurance, advertising,
professional services, benefits plan administration, credit facilities,
association dues, postage, research and development and shareholder
services. In addition, future operational expenditures in the area of
information systems that would be made by each company on a stand-alone
basis will be reduced. Additional expenditures will be reduced through
the more efficient management of investment in other technology areas,
including personal computers, other hardware and related software, and
data center requirements. The companies estimate cost savings and cost
avoidances to be approximately $462 million over a ten-year period
through integration of corporate programs.
- Integration of field support functions -- The combined companies will be
able to integrate related field support or customer interface functions
in the areas of customer service, marketing and sales,
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transmission and distribution operations, gas supply operations and
support services, such as purchasing and materials management. The
staffing levels in these functions also do not increase or decrease
linearly with the number of employees or customers. In addition, the
companies share service territory in the Orange County area where
approximately 80,000 common customers are located. This overlap in
customers will also enable consolidation of certain local functions such
as meter reading. The companies estimate cost savings and cost avoidances
to be approximately $332 million over a ten-year period through
integration of field support functions.
- Streamlining of inventories and purchasing economics -- The combined
companies will be able to centralize purchasing and inventory functions
related to construction and maintenance activities, as well as
headquarters functions. Inventory may be shared across locations and
purchasing leverage leading to materials and services volume discounts
may be obtained as a result of the business combination. The companies
estimate cost savings and cost avoidances to be approximately $23 million
over a ten-year period through streamlining of inventories and purchasing
economics.
- Consolidation of facilities -- The combined companies physical location
and reduction in total personnel required will enable reductions in
expenditures for facilities. The combined companies expect to reduce
total square footage for corporate headquarters functions and potentially
consolidate other field or field support facilities. The companies
estimate cost savings and cost avoidances to be approximately $39 million
over a ten-year period through consolidation of facilities.
Approximately 60% of estimated cost savings and cost avoidances as
described above are expected to be achieved through personnel reductions
involving the elimination of approximately 860 duplicative positions. A
transition committee comprised of senior officers of Pacific Enterprises and
Enova is examining the manner in which to best organize and manage the business
of Pacific Enterprises and Enova following the combination of the two companies
and to identify duplicative positions in corporate and administrative functions.
Mr. Baum chairs the committee and coordinates its day-to-day activities with the
concurrence of Mr. Farman. Both companies are committed to achieving cost
savings and avoidances resulting from personnel reductions through attrition,
strictly controlled hiring, reassignment, retraining and voluntary separation
programs.
To the extent Section 854(b)(2) of the California Public Utility Act is
applicable to the business combination, the California Public Utilities
Commission will be required to find that the business combination equitably
allocates short-term and long-term forecasted economic benefits of the business
combination between shareholders and utility ratepayers with ratepayers
receiving not less than 50% of the benefits from regulated operations. See
"Regulatory Matters."
RECOMMENDATIONS OF BOARDS OF DIRECTORS
Pacific Enterprises. The Pacific Enterprises Board of Directors has
concluded that the terms of the business combination of Pacific Enterprises and
Enova are fair to, and in the best interests of, Pacific Enterprises'
shareholders. Accordingly, the Pacific Enterprises Board, by the unanimous vote
of those present, has approved the Merger Agreement and recommends the approval
by Pacific Enterprises' shareholders of the principal terms of the business
combination.
The Pacific Enterprises Board of Directors believes that the combination of
Pacific Enterprises and Enova represents a significant strategic opportunity and
will offer Pacific Enterprises and its shareholders better prospects for the
future than would be available to Pacific Enterprises as a stand-alone entity.
In addition to the expected cost savings and cost avoidances and other joint
benefits described above, the Pacific Enterprises Board believes that the
combination will offer the following distinct benefits to Pacific Enterprises
and its shareholders:
- New Holding Company intends to adopt Enova's current annual dividend rate
of $1.56 per share. Pacific Enterprises' shareholders will receive 1.5038
shares of New Holding Company Common Stock for each of their shares of
Pacific Enterprises Common Stock, which currently provide an annual
dividend rate of $1.44. Thus, the New Holding Company dividend will
represent the equivalent of $2.35 for each share of Pacific Enterprises
Common Stock -- a 63% increase in dividends per share for Pacific
Enterprises' shareholders.
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- The conversion ratio of 1.5038 shares of New Holding Company Common Stock
for each share of Pacific Enterprises Common Stock represents a premium
of approximately 7.4% over the trading price of Pacific Enterprises
Common Stock immediately prior to the announcement of the business
combination.
In reaching its decision to approve the business combination, the Pacific
Enterprises Board of Directors also considered the following factors:
- The current and historical market prices and dividends on Pacific
Enterprises Common Stock and Enova Common Stock.
- The financial performance, condition, business operations and prospects
of Pacific Enterprises and Enova on both a combined and a stand-alone
basis.
- The ongoing and proposed deregulation and restructuring and increasing
competitiveness of the natural gas and electric utility industries and
substantial recent increases in industry consolidation.
- The effects of the business combination on Pacific Enterprises' existing
shareholders, including the opportunity to share in the anticipated
benefits of ownership of the combined enterprise.
- The more balanced natural gas/electric revenue mix that would be produced
by the business combination and the benefits of marketing electricity as
well as natural gas.
- Other business combinations and strategic alliances potentially available
to Pacific Enterprises, Enova and the combined companies.
- The expected accounting treatment of the business combination as a
pooling of interests, thereby avoiding reductions in earnings which would
result from the creation and amortization of goodwill under the purchase
method of accounting.
- The expected federal income tax treatment of the combination as a
tax-free exchange to shareholders.
- The structure of the transaction as a "merger-of-equals" providing for a
balanced treatment of Pacific Enterprises and Enova and their
shareholders.
- The expected regulatory treatment of the business combination.
- The analyses of Barr Devlin and Merrill Lynch and their opinions that the
conversion ratio of 1.5038 shares of New Holding Company Common Stock for
each share of Pacific Enterprise Common Stock is fair, from a financial
point of view, to the holders of Pacific Enterprises Common Stock.
- The projected pro forma ownership of approximately 52% of New Holding
Company by shareholders of Pacific Enterprises implied by the conversion
ratio.
- The management succession plan and composition of the New Holding Company
Board of Directors as providing a prudent plan for managing the
integration of and transition in management of the two companies.
- The terms of the Merger Agreement providing substantially reciprocal
representations and warranties, conditions to closing and rights relating
to termination.
The Pacific Enterprises Board of Directors considered these factors as a
whole, and did not assign specific or relative weight to the factors. Each was
considered to support the conclusion that the terms of the business combination
are fair to, and in the best interests of, Pacific Enterprises and its
shareholders.
In its deliberations concerning the business combination, the Pacific
Enterprises Board of Directors also considered that Enova, but not Pacific
Enterprises, generates a preponderance of its revenues and income from electric
utility operations and also owns a 20% interest in two operating nuclear
generating units and one unit which is being decommissioned. Pacific Enterprises
retained Coopers & Lybrand Consulting Group as economic consultants and HGP,
Inc. as nuclear consultants to assist the Pacific Enterprises Board and
management in understanding and performing appropriate due diligence with
respect to the electric utility business and nuclear generation generally and
with respect to Enova's electric utility business and nuclear
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generating units in particular. Through these efforts, the Pacific Enterprises
Board and management achieved a sufficient level of understanding of the
economic and regulatory issues (both on a general level and with respect to
Enova) that the combination of Pacific Enterprises with a utility having
substantial electric operations is considered to be a significant benefit and
Enova's interest in nuclear generating units is not considered to be an
impediment to the business combination.
At the October 8, 1996 special meeting of the Pacific Enterprises Board of
Directors, HGP presented a report containing the results of its evaluation of
Enova's generating plants. HGP concluded that Enova's non-nuclear facilities and
its electrical transmission and distribution system were reliable and well
managed although substantial upgrades to the transmission system may be required
if nuclear-fueled generating plants were to be prematurely shut down. HGP also
concluded that Enova's nuclear-fueled generating plants are safe and reasonably
operated, decommissioning cost estimates are reasonable and current and future
funding of the trust established to fund decommissioning costs should be
adequate barring unforeseen changes in decommissioning assumptions. In the
course of its evaluation, HGP reviewed documentation containing relevant
operating statistics (capacity factors, production costs and regulatory
performance) and reviewed external performance evaluations of the plants
including, in the case of the nuclear stations, Institute of Nuclear Power
Operations ratings, NRC Systematic Assessment of Licensee Performance ratings
and other ratings based on publicly available industry benchmarking data of
nuclear station performance. Many of these ratings put Enova's nuclear-fueled
generating plants among the highest of the applicable rating categories during
the most recent period for which data is available, although the ratings for
operation and maintenance costs are higher than average due largely to higher
staffing levels and refueling outage durations are longer than average. The HGP
evaluation took into account specific information associated with fossil and
nuclear fuel generating plants in the following categories: ownership (in the
case of nuclear plants); safety; regulatory compliance; operations; and
economics. Finally, HGP briefed the Pacific Enterprises Board of Directors on
the generic risks associated with nuclear-fueled generating plants including
radiation litigation. Based upon discussions between HGP and certain members of
Enova management regarding HGP's initial findings with respect to the nuclear
stations, Enova management briefed the Chairman of the Audit Committee of
Enova's Board of Directors.
HGP is a nationally recognized management/technical consulting firm,
specializing in commercial nuclear plant operations consulting, with experience
in the evaluation of the performance of nuclear powered electric generating
stations. HGP was selected based on its reputation, experience and expertise.
HGP prepared its report based on materials provided to it by Enova, two tours of
Enova's facilities, interviews, documentation review and review of publicly
available materials concerning the plants and publicly available information
concerning other comparable plants. HGP was paid approximately $275,000 for its
services in preparing the report.
Coopers & Lybrand Consulting Group, engaged by Pacific Enterprises as
economic consultants, was not retained to, nor did they, prepare or present any
report, opinion or appraisal for or to the management or Board of Directors of
Pacific Enterprises or Enova.
THE PACIFIC ENTERPRISES BOARD OF DIRECTORS HAS APPROVED AND ADOPTED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY BY THE UNANIMOUS VOTE
OF THOSE PRESENT AND BELIEVES THAT THE TERMS OF THE BUSINESS COMBINATION ARE
FAIR TO, AND IN THE BEST INTERESTS OF, PACIFIC ENTERPRISES' SHAREHOLDERS.
ACCORDINGLY, THE PACIFIC ENTERPRISES BOARD RECOMMENDS THAT PACIFIC ENTERPRISES'
SHAREHOLDERS VOTE FOR APPROVAL OF THE PRINCIPAL TERMS OF THE BUSINESS
COMBINATION.
Enova. The Enova Board of Directors believes that the terms of the business
combination are fair to, and in the best interests of, Enova and its
shareholders. Accordingly, the Enova Board has unanimously approved the Merger
Agreement and recommends the approval by the holders of Enova Common Stock of
the principal terms of the business combination. The Enova Board believes that
this opportunity for Enova and
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Pacific Enterprises to merge as equals provides a unique opportunity for Enova
shareholders to participate in the earnings growth of the combined company. This
growth will derive from:
- The ability of the combined company to compete more effectively as the
utility industry increasingly moves towards deregulation both regionally
and nationally.
- Access to a substantially larger customer base.
- Domestic market diversification, leading to the faster-growing natural
gas market constituting a larger portion of revenues and income and to
reduced regulatory and business risk.
- International market diversification, both reducing risk and affording
enhanced growth opportunities.
- Operating efficiencies obtained from economies of scale.
- The more efficient use of advanced information systems.
- Improved opportunities for cost reductions.
- Increased natural gas product and service offerings to customers.
- Long-term financial capability of a larger company.
In the judgment of the Enova Board of Directors, these factors combine to
offer shareholders improved opportunities for revenue, earnings and dividend
growth and an enhanced ability to vigorously compete in the future energy
industry.
In reaching this conclusion, and in addition to the factors described
above, the Enova Board of Directors also considered:
- Current industry, economic and market conditions which encourage
consolidation to create new avenues for earnings growth and reduce risk.
- The anticipated benefits of the business combination to Enova's
shareholders, customers and the communities served by SDG&E.
- The impact of regulation under various state and federal laws, most
particularly the restructuring of the California energy industry.
- The proposed structure of the transaction as a merger of equals between
Enova and Pacific Enterprises and the terms of the Merger Agreement and
other documents executed in connection with the business combination
which provide for reciprocal representations and warranties, conditions
to closing and rights to termination, and balanced rights and
obligations.
- The prospective financial strength of each company individually and the
benefits of the business combination discussed above, including the
benefits of the energy marketing joint venture. See "The Business
Combination -- Energy Marketing Joint Venture."
- The management succession plan specified in the Merger Agreement and the
employment agreements of Messrs. Baum, Farman, Felsinger and Mitchell (as
described under "The Business Combination -- Certain Arrangements
Regarding Directors and Management -- Employment Agreements") which
provides a prudent plan for managing the integration of and transition in
management.
- That the business combination is expected to be treated as a tax-free
transaction under Section 351 of the Internal Revenue Code to
shareholders and to Enova and to be accounted for as a pooling-of-
interests transaction (which avoids the reduction in earnings which would
result from the creation and amortization of goodwill under purchase
accounting).
- The opinions of Morgan Stanley to the effect that as of the dates thereof
and subject to the assumptions made, matters considered and the limits of
the review undertaken, as stated therein, the conversion ratio pursuant
to the Merger Agreement is fair to holders of Enova Common Stock from a
financial point of view.
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In determining that the business combination is fair to and in the best
interests of its shareholders, the Enova Board of Directors considered the above
facts as a whole and did not assign specific or relative weights to them. Each
was considered to support the conclusion that the terms of the proposed
combination are fair to, and in the best interests of, Enova and its
shareholders.
THE ENOVA BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND ADOPTED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE
TERMS OF THE BUSINESS COMBINATION ARE FAIR TO, AND IN THE BEST INTERESTS OF,
ENOVA'S SHAREHOLDERS. ACCORDINGLY, THE ENOVA BOARD RECOMMENDS THAT ENOVA'S
SHAREHOLDERS VOTE FOR APPROVAL OF THE PRINCIPAL TERMS OF THE BUSINESS
COMBINATION.
FAIRNESS OPINIONS OF FINANCIAL ADVISORS
Pacific Enterprises' Financial Advisors
Barr Devlin.
Pacific Enterprises retained Barr Devlin & Co. Incorporated to act as one
of its financial advisors in connection with the business combination. Barr
Devlin was selected by the Pacific Enterprises Board to act as a Pacific
Enterprises' financial advisor based on Barr Devlin's qualifications, expertise
and reputation, as well as Barr Devlin's prior investment banking relationship
and familiarity with Pacific Enterprises.
Barr Devlin has delivered its written opinions to the Pacific Enterprises
Board of Directors, dated October 11, 1996 and the date of this Joint Proxy
Statement/Prospectus, to the effect that, on and as of the dates of such
opinions, and based upon assumptions made, matters considered, and limits of the
review, as set forth in the opinions, the conversion ratio of 1.5038 shares of
New Holding Company Common Stock for each share of Pacific Enterprises Common
Stock is fair, from a financial point of view, to the holders of Pacific
Enterprises Common Stock.
A COPY OF THE BARR DEVLIN FAIRNESS OPINION DATED AS OF THE DATE OF THIS
JOINT PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY BARR DEVLIN, IS
ATTACHED AS ANNEX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS. BARR DEVLIN
ADDRESSED ITS OPINIONS TO THE PACIFIC ENTERPRISES BOARD OF DIRECTORS AND SUCH
OPINIONS ARE DIRECTED ONLY TO THE FAIRNESS OF THE CONVERSION RATIOS FROM A
FINANCIAL POINT OF VIEW AND DO NOT CONSTITUTE A RECOMMENDATION TO ANY PACIFIC
ENTERPRISES SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE PACIFIC
ENTERPRISES SPECIAL MEETING OF SHAREHOLDERS. THE SUMMARY OF THE BARR DEVLIN
FAIRNESS OPINION DATED AS OF THE DATE HEREOF, SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE BARR DEVLIN FAIRNESS OPINION DATED AS OF THE DATE HEREOF AND IS ATTACHED
HERETO AS ANNEX B.
In connection with rendering its fairness opinion dated the date of this
Joint Proxy Statement/Prospectus, Barr Devlin (i) reviewed the Annual Reports,
Forms 10-K and the related financial information for the three-year period ended
December 31, 1995, and the Forms 10-Q and the related unaudited financial
information for the quarterly periods ended March 31, 1996, June 30, 1996, and
September 30, 1996 (as amended) for Pacific Enterprises and Southern California
Gas; (ii) reviewed the Annual Reports, Forms 10-K (as amended) and the related
financial information for the three-year period ended December 31, 1995, and the
Forms 10-Q and the related unaudited financial information for the quarterly
periods ended March 31, 1996, June 30, 1996, and September 30, 1996 (as amended)
for Enova and SDG&E; (iii) reviewed certain other filings with the Securities
and Exchange Commission and other regulatory authorities made by Pacific
Enterprises, Southern California Gas, Enova and SDG&E during the last three
years, including proxy statements, FERC Forms 1 and 2, Forms 8-K and
registration statements; (iv) reviewed certain internal information, including
financial forecasts, relating to the business, earnings, capital expenditures,
cash flow, assets and prospects of Pacific Enterprises and Enova furnished to
Barr Devlin by Pacific Enterprises and Enova; (v) conducted discussions with
members of senior management of Pacific Enterprises and Enova concerning their
respective businesses, regulatory environments, prospects, strategic objectives
and potential cost savings and operating synergies which might be realized for
the benefit of the companies following the
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business combination; (vi) reviewed the historical market prices and trading
activity for shares of Pacific Enterprises Common Stock and Enova Common Stock
and compared them with those of certain publicly traded companies deemed by Barr
Devlin to be relevant; (vii) compared the results of operations of Pacific
Enterprises and Enova with those of certain companies deemed by Barr Devlin to
be relevant; (viii) compared the proposed financial terms of the business
combination with the financial terms of certain utility industry business
combinations deemed by Barr Devlin to be relevant; (ix) analyzed the respective
contributions in terms of assets, earnings, cash flow, earnings before interest
and taxes, and shareholders' equity of Pacific Enterprises and Enova; (x)
analyzed the valuation of shares of Pacific Enterprises Common Stock and Enova
Common Stock using various valuation methodologies deemed by Barr Devlin to be
appropriate; (xi) considered the pro forma capitalization, earnings and cash
flow of New Holding Company; (xii) compared the pro forma capitalization ratios,
earnings per share, dividends per share, book value per share, cash flow per
share, return on equity and payout ratio of New Holding Company with each of the
corresponding current and projected values for Pacific Enterprises and Enova on
a stand-alone basis; (xiii) reviewed the Merger Agreement; (xiv) reviewed the
Registration Statement, including this Joint Proxy Statement/Prospectus; and
(xv) reviewed such other studies, conducted such other analyses, considered such
other financial, economic and market criteria, performed such other
investigations and took into account such other matters as Barr Devlin deemed
necessary or appropriate for purposes of its opinion.
In rendering its fairness opinions, Barr Devlin relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or otherwise furnished or made available to it by
Pacific Enterprises and Enova, and upon the assurances of management of Pacific
Enterprises and Enova that they were not aware of any facts that would make such
information inaccurate or misleading. With respect to the financial projections
and potential cost savings and operating synergies of Pacific Enterprises and
Enova, Barr Devlin assumed that such projections and potential cost savings and
operating synergies were reasonably prepared and reflected the best currently
available estimates and judgments of the managements of Pacific Enterprises and
Enova as to the future financial performance of Pacific Enterprises and Enova,
as the case may be, and as to the outcomes projected of legal, regulatory and
other contingencies. Barr Devlin was not provided with and did not undertake an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Pacific Enterprises or Enova, nor did Barr Devlin make any
physical inspection of the properties or assets of Pacific Enterprises or Enova.
In addition, Barr Devlin was not requested to, and did not, solicit any
indications of interest from third parties with respect to the purchase of all
or a part of Pacific Enterprises.
In arriving at its fairness opinions, Barr Devlin assumed that the business
combination will be tax-free reorganization as described in Section 351 of the
Internal Revenue Code and the regulations thereunder and that Pacific
Enterprises, Enova and holders of Pacific Enterprises Common Stock and Enova
Common Stock who exchange their shares solely for New Holding Company Common
Stock will recognize no gain or loss for federal income tax purposes as a result
of the completion of the business combination. In addition, Barr Devlin has
assumed that the business combination will qualify as a pooling of interests for
financial accounting purposes. Barr Devlin's fairness opinions are based upon
general financial, stock market and other conditions and circumstances as they
existed and could be evaluated, and the information made available to it, as of
the respective dates of the opinions. Barr Devlin's fairness opinions are
directed to the Pacific Enterprises Board of Directors and the fairness of the
conversion ratio to the holders of Pacific Enterprises Common Stock from a
financial point of view, do not address any other aspect of the business
combination and do not constitute a recommendation to any Pacific Enterprises
shareholder as to how such shareholder should vote at the Pacific Enterprises
Special Meeting of Shareholders. Although Barr Devlin evaluated the fairness of
the conversion ratio from a financial point of view to the holders of Pacific
Enterprises Common Stock, the specific conversion ratio was determined by
Pacific Enterprises and Enova through arm's-length negotiations. Pacific
Enterprises did not place any limitations upon Barr Devlin with respect to the
procedures followed or factors considered by Barr Devlin in rendering its
fairness opinions.
Barr Devlin has advised Pacific Enterprises that, in its view, the
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily
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susceptible to summary description. Furthermore, in arriving at its fairness
opinions, Barr Devlin did not attribute any particular weight to any analysis or
factor considered by it, nor did Barr Devlin ascribe a specific range of fair
values to Pacific Enterprises; rather, Barr Devlin made its determination as to
the fairness of the conversion ratio to holders of Pacific Enterprises Common
Stock on the basis of qualitative judgments as to the significance and relevance
of each of the financial and comparative analyses and factors described below.
Accordingly, notwithstanding the separate factors summarized below, Barr Devlin
believes that its analyses must be considered as a whole and that considering
any portion or portions of these analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
evaluation process underlying its opinions. In its analyses, Barr Devlin made
many assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond Pacific
Enterprises' and Enova's control. Any estimates in these analyses do not
necessarily indicate actual values or predict future results or values, which
may be significantly more or less favorable than as set forth therein. In
addition, analyses relating to the value of businesses do not purport to be
appraisals or to reflect the prices at which businesses actually may be sold.
In connection with rendering its fairness opinions, and preparing its
various written and oral presentations to the Pacific Enterprises Board of
Directors, Barr Devlin performed a variety of financial and comparative analyses
and considered a variety of factors of which the material analyses and factors
are summarized below. While this summary describes the material analyses
performed and factors considered, it does not purport to be a complete
description of the analyses performed or factors considered by Barr Devlin. The
final results of the analyses described in this summary were discussed with the
Pacific Enterprises Board of Directors, at its meetings on October 8, 1996 and
October 11, 1996. Barr Devlin derived implied exchange ratios for Pacific
Enterprises Common Stock and Enova Common Stock based upon what these analyses,
when considered in light of the judgment and experience of Barr Devlin,
suggested about the relative values of the respective Common Stock. Barr
Devlin's opinions are based upon its consideration of the collective results of
all such analyses, together with the other factors referred to in its opinions.
Because each share of Pacific Enterprises Common Stock is being converted into
1.5038 shares of New Holding Company Common Stock, these implied conversion
ratios can be compared to the 1.0 share of New Holding Company Common Stock that
each share of Enova Common Stock will be converted into pursuant to the business
combination. In concluding that the conversion ratio is fair, from a financial
point of view, to the holders of Pacific Enterprises Common Stock and in its
discussions with the Pacific Enterprises Board, Barr Devlin noted that 1.5038
(the Pacific Enterprises conversion ratio relative to the Enova conversion ratio
of 1.0) was within each range of implied exchange ratios set forth below, which
were derived from the analyses performed by it. In connection with its opinion
dated the date hereof, Barr Devlin performed certain procedures to update its
analyses made for its October 11, 1996 opinion and reviewed with the managements
of Pacific Enterprises and Enova the assumptions upon which such analyses were
based. The results of such analyses were substantially the same as those for the
October 11, 1996 opinion of Barr Devlin.
Stock Trading History. Barr Devlin reviewed the performance of the per
share market prices and trading volumes of Pacific Enterprises Common Stock and
Enova Common Stock and compared such per share market price movements to
movements in (i) the Dow Jones Utility Index and (ii) the Standard and Poor's
500 Composite Index to provide perspective on the current and historical stock
price performance of Pacific Enterprises and Enova relative to comparable
companies and selected market indices. Barr Devlin also calculated the ratio of
the weekly closing market price per share of Pacific Enterprises Common Stock to
the weekly closing market price per share of Enova Common Stock for the period
September 9, 1993 to October 10, 1996. This analysis showed that over this
three-year period Pacific Enterprises Common Stock traded at an average price of
1.12 times the then current per share market price of Enova Common Stock. For
the 6-month and 12-month periods ending October 10, 1996, Pacific Enterprises
Common Stock traded at an average of 1.31 times and 1.23 times, respectively, of
the then current per share market price of Enova Common Stock. This analysis was
utilized to provide historical background for the manner in which the public
trading market had valued Pacific Enterprises and Enova in absolute terms and
relative to each other.
Publicly Traded Comparable Company Analysis. Using publicly available
information, Barr Devlin compared selected financial information and ratios
(described below) for Pacific Enterprises with the
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corresponding financial information and ratios for a group of local gas
distribution utilities or their holding companies and compared selected
financial information and ratios (described below) for Enova with the
corresponding financial information and ratios for a group of regulated electric
and electric and gas utilities or their holding companies which were deemed by
Barr Devlin to be most comparable to Pacific Enterprises and Enova,
respectively. The comparable companies were selected on the basis of being
companies which possessed general business, operating and financial
characteristics representative of companies in industries in which Pacific
Enterprises and Enova, respectively, operate. The Pacific Enterprises comparable
companies consisted of NICOR, Inc., Brooklyn Union Gas Company, Peoples Energy
Corporation, AGL Resources, Inc., Washington Gas Light Company, Piedmont Natural
Gas Co., WICOR, Inc., Indiana Energy Inc., New Jersey Resources Corporation,
Laclede Gas Company and Bay State Gas Co. The Enova comparable companies
consisted of Baltimore Gas & Electric Company, Pinnacle West Capital
Corporation, Public Service Company of Colorado, Illinova Corporation, Western
Resources, Inc. and Puget Sound Power and Light Company.
In evaluating the current market values of Pacific Enterprises Common Stock
and Enova Common Stock, Barr Devlin determined ranges of multiples for selected
financial ratios for the comparable companies, including: (i) the market value
of outstanding common stock as a multiple of (a) net income available to common
stock for the 12-month period ended June 30, 1996, (b) projected net income
available to common stock for the 12-month periods ended December 31, 1996 and
December 31, 1997, (c) book value of common equity for the most recently
available fiscal quarter ended June 30, 1996, and (d) after-tax cash flow from
operations for the 12-month period ended June 30, 1996, plus, in each case, the
value of cash and certain regulatory assets; and (ii) the "aggregate market
value" (defined as the sum of the market value of common stock, plus the
liquidation value of preferred stock, the principal amount of debt, capitalized
lease obligations and minority interests, minus cash and cash equivalents) as a
multiple of (a) earnings before interest, taxes, depreciation and amortization
for the 12-month period ended June 30, 1996, and (b) earnings before interest
and taxes for the 12-month period ended June 30, 1996, plus, in each case, the
value of cash and certain regulatory assets. This analysis produced reference
values of $32.86 to $37.96 per share in the case of Pacific Enterprises and
$22.15 to $26.86 per share in the case of Enova. The implied range of conversion
ratios resulting from these reference values was 1.22 to 1.71, with a midpoint
value of 1.47.
Discounted Cash Flow Analysis. To determine an implied conversion ratio
based upon a discounted cash flow analysis, Barr Devlin prepared and reviewed
the results of unleveraged discounted cash flow analyses for both Pacific
Enterprises and Enova for the period ending in fiscal year 2000 (the "projection
period"). The purpose of the discounted cash flow analysis was to determine the
present value of the businesses of each of Pacific Enterprises and Enova. To
calculate the present value of a business using a discounted cash flow analysis,
the projected unleveraged free cash flows for each year, together with the
estimated value of the business in the final year of the projection period, are
discounted to the present. Barr Devlin estimated terminal values for Pacific
Enterprises and Enova by applying multiples (described below) to (i) the
projected book value of Pacific Enterprises' and Enova's common equity as of
fiscal year-end 2000 and (ii) the projected net income of Pacific Enterprises
and Enova for fiscal year 2000. The multiples applied were based on analyses of
the corresponding multiples of certain public companies comparable to Pacific
Enterprises and Enova, respectively. For the purposes of these analyses, the
terminal multiple ranges used were (a) with respect to book value, 1.70x - 2.00x
and 1.50x - 1.75x for Pacific Enterprises and Enova, respectively, and (b) with
respect to net income, 13.0x - 14.5x and 11.5x - 13.0x for Pacific Enterprises
and Enova, respectively. The annual cash flows and terminal value were then
discounted to present value using discount rates that ranged from 8.0 percent to
9.0 percent for Pacific Enterprises and 7.5 percent to 8.5 percent for Enova.
This analysis produced reference values of $27.06 to $39.76 per share in the
case of Pacific Enterprises and $18.52 to $24.17 per share in the case of Enova.
The implied range of conversion ratios resulting from these reference values was
1.12 to 2.15, with a midpoint value of 1.64.
Discounted Dividend Analysis. Barr Devlin prepared and reviewed the results
of discounted dividend analyses of Pacific Enterprises and Enova based on
certain financial assumptions relating to projected dividends per share and
other normalized cash distributions to shareholders for each year in the
projection period prepared by Pacific Enterprises' and Enova's managements. To
calculate the value of a stock using
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discounted dividend analysis, the projected dividend per share and other
normalized cash distributions to shareholders for each fiscal year together with
the estimated share price as of fiscal year-end 2000 are discounted to the
present at an estimated cost of equity capital rate. Barr Devlin estimated the
fiscal year-end 2000 share price by dividing (x) the estimated annualized fiscal
year-end dividend in 2000 by (y) the estimated cost of equity capital rate less
the estimated sustainable rate of growth in the respective company's dividends
after fiscal year 2000. Barr Devlin considered market-derived cost of equity
capital rates ranging from 10.0 percent to 11.0 percent and sustainable dividend
growth rates ranging from 3.5 percent to 5.5 percent for Pacific Enterprises and
market-derived cost of equity capital rates ranging from 9.0 percent to 10.0
percent and sustainable dividend growth rates ranging from 1.5 percent to 3.5
percent for Enova. This analysis produced reference values of $24.31 to $36.49
per share in the case of Pacific Enterprises and $17.87 to $24.67 per share in
the case of Enova. The implied range of conversion ratios resulting from these
reference values was 0.99 to 2.04, with a midpoint value of 1.52.
Contribution Analysis. Barr Devlin calculated the relative contribution of
Pacific Enterprises and Enova to the pro forma combined company with respect to
(i) net income, (ii) book value of common equity, (iii) earnings before interest
and taxes and (iv) cash flow, in each case for the latest 12-month period and
for each year in the projection period. These contribution indices yielded
implied conversion ratios during the projection period ranging from 1.10 to
1.52, with a midpoint value of 1.31.
Comparable Transaction Analysis. To determine an implied conversion ratio
based upon a comparable transaction analysis, Barr Devlin reviewed certain
transactions involving mergers between regulated electric and gas utility
companies, and gas distribution utility companies, or their holding companies
deemed by Barr Devlin to be comparable to the business combination. The
comparable transactions were selected because they were strategic combinations
of electric and/or electric and gas utility companies and/or gas distribution
utility companies (or their holding companies) which resulted in the creation of
newly formed, newly named, publicly traded corporations with meaningful senior
executive officer representation from each of the merging companies, and with
boards of directors consisting of representatives from the boards of directors
of each of the merging companies prior to the transaction.
Barr Devlin calculated the implied equity consideration for each of the
comparable transactions as a multiple of each company's respective latest
twelve-month net income available to common stock, latest twelve-month cash flow
and book value of common equity for the most recently available fiscal quarter
preceding the transaction. In addition, Barr Devlin calculated the "implied
total consideration" (defined as the sum of the implied equity consideration
plus the liquidation value of preferred stock and the principal amount of debt,
minus cash and option proceeds, if any) for each of the comparable transactions
as a multiple of each company's respective latest twelve-month earnings before
interest, taxes, depreciation and amortization and earnings before interest and
taxes. The comparable transactions included in this analysis consisted of Kansas
City Power and Light Co./Utilicorp United Inc., Puget Sound Power and Light
Company/Washington Energy Company, Public Service Company of
Colorado/Southwestern Public Service Company, Wisconsin Energy
Corporation/Northern States Power Company, Midwest Resources Inc./Iowa-Illinois
Gas & Electric Company, Washington Water Power Company/Sierra Pacific Resources,
Cincinnati Gas & Electric Company/PSI Resources and Midwest Energy Company/Iowa
Resources. This analysis produced reference values of $36.26 to $41.96 per share
in the case of Pacific Enterprises and $25.23 to $31.41 per share in the case of
Enova. The implied range of conversion ratios resulting from these reference
values was 1.15 to 1.66, with a midpoint value of 1.41.
Because the reasons for and circumstances surrounding each of the
comparable transactions analyzed were diverse and because of the inherent
differences between the operations of Pacific Enterprises, Enova and the
companies in the comparable transactions, Barr Devlin believes that a purely
quantitative comparable transaction analysis would not be particularly
meaningful in the context of the business combination. Barr Devlin believes that
an appropriate use of a comparable transaction analysis in this instance would
involve qualitative judgments concerning differences between the characteristics
of these transactions and the business combination which would affect the
relative values of the comparable transaction companies, Pacific Enterprises and
Enova.
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Pro Forma Merger Analysis. Barr Devlin analyzed certain pro forma effects
to the shareholders of Pacific Enterprises resulting from the business
combination for each year in the projection period based on the conversion ratio
of 1.5038 shares of New Holding Company Common Stock for each share of Pacific
Enterprises Common Stock. This analysis, based on the respective forecasts of
the managements of Pacific Enterprises and Enova and assuming retention of a
portion of the potential synergies (assuming the proposed regulatory plan as
presented to the California Public Utilities Commission is approved
substantially as contemplated) showed meaningful accretion in earnings per share
and significant accretion in dividends per share to holders of Pacific
Enterprises Common Stock in all years of the projection period.
Barr Devlin is a privately held investment banking firm specializing in
strategic and merger advisory services to the electric and gas utility
industries, the energy industry and selected other industries. In this capacity,
Barr Devlin and principals of Barr Devlin have been involved as advisors in
numerous transactions and advisory assignments in the electric, gas and energy
industries and are constantly engaged in the valuation of businesses and
securities in those industries.
Pursuant to the terms of Barr Devlin's engagement, Pacific Enterprises has
agreed to pay Barr Devlin for its services in connection with the business
combination (i) an initial financial advisory progress fee of $1,500,000 which
was paid upon execution of the Merger Agreement; (ii) an additional financial
advisory progress fee of $2,400,000, payable in four equal quarterly
installments commencing three months after the date of the execution of the
Merger Agreement; provided that no such installment is payable for any quarterly
period during which the shareholders of Enova or Pacific Enterprises fail to
approve the business combination at a meeting of shareholders duly held for such
purpose or for any quarterly period thereafter; and (iii) a transaction fee of
$5,100,000 payable upon completion of the business combination. Pacific
Enterprises has agreed to reimburse Barr Devlin for its out-of-pocket expenses,
including fees and expenses of legal counsel and other advisors engaged with the
consent of Pacific Enterprises, and to indemnify Barr Devlin against certain
liabilities, including liabilities under the federal securities laws, relating
to or arising out of its engagement.
Barr Devlin renders various investment banking and other financial advisory
services to Pacific Enterprises. Since July 1, 1994, Barr Devlin has earned
compensation from Pacific Enterprises with respect to such services of
approximately $750,000, excluding compensation with respect to its services
related to the business combination.
Merrill Lynch.
Pacific Enterprises retained Merrill Lynch, Pierce, Fenner & Smith
Incorporated to act as one of its financial advisors in connection with the
business combination. Merrill Lynch was selected by the Pacific Enterprises
Board to act as a Pacific Enterprises' financial advisor based on Merrill
Lynch's qualifications, expertise and reputation, as well as Merrill Lynch's
prior investment banking relationship and familiarity with Pacific Enterprises.
Merrill Lynch delivered its written opinion dated October 11, 1996, which
was confirmed in a written opinion dated the date of this Joint Proxy
Statement/Prospectus, to the Pacific Enterprises Board of Directors to the
effect that, as of such date, and based upon the assumptions made, matters
considered and limits of review as set forth in such opinion, the conversion
ratio of 1.5038 shares of New Holding Company Common Stock for each share of
Pacific Enterprises Common Stock and the conversion ratio of one share of New
Holding Company Common Stock for each share of Enova Common Stock, are fair to
the holders of Pacific Enterprises Common Stock (other than Enova, New Holding
Company and their affiliates) from a financial point of view.
A COPY OF THE MERRILL LYNCH FAIRNESS OPINION DATED AS OF THE DATE OF THIS
JOINT PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY MERRILL LYNCH,
IS ATTACHED AS ANNEX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS. MERRILL LYNCH
ADDRESSED ITS OPINIONS TO THE PACIFIC ENTERPRISES BOARD OF DIRECTORS AND SUCH
OPINIONS ARE DIRECTED ONLY TO THE FAIRNESS OF THE CONVERSION RATIOS FROM A
FINANCIAL POINT OF VIEW AND DO NOT CONSTITUTE A RECOMMENDATION TO ANY PACIFIC
ENTERPRISES SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE PACIFIC
ENTERPRISES SPECIAL MEETING OF SHAREHOLDERS. THE SUMMARY OF THE MERRILL LYNCH
FAIRNESS OPINION, DATED AS
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OF THE DATE HEREOF, SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MERRILL LYNCH
FAIRNESS OPINION DATED AS OF THE DATE HEREOF AND IS ATTACHED HERETO AS ANNEX C.
In arriving at its fairness opinion, dated as of the date hereof, Merrill
Lynch: (i) reviewed Pacific Enterprises' Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31, 1995 and
Pacific Enterprise's Forms 10-Q and the related unaudited financial information
for the quarterly periods ended March 31, 1996, June 30, 1996 and September 30,
1996 (as amended); (ii) reviewed Enova's Annual Reports, Forms 10-K (as amended)
and related financial information for the five fiscal years ended December 31,
1995 and Enova's Forms 10-Q and the related unaudited financial information for
the quarterly periods ended March 31, 1996, June 30, 1996 and September 30, 1996
(as amended); (iii) reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of Pacific
Enterprises and Enova furnished to Merrill Lynch by Pacific Enterprises and
Enova, respectively, and reviewed certain potential cost, operating and capital
savings net of the costs to achieve such savings (the "synergies") expected to
be achieved as a result of the business combination, which were prepared jointly
by the managements of Pacific Enterprises and Enova with the assistance of a
third party consultant; (iv) conducted discussions with members of senior
management of Pacific Enterprises and Enova concerning their respective
businesses, regulatory environments, prospects and strategic objectives and the
synergies which might be realized for New Holding Company following the business
combination; (v) reviewed the historical market prices and trading activity for
the Pacific Enterprises Common Stock and the Enova Common Stock; (vi) compared
the results of operations of Pacific Enterprises and Enova with those of certain
companies which Merrill Lynch deemed to be reasonably similar to Pacific
Enterprises and Enova, respectively; (vii) analyzed the relative valuation of
the Pacific Enterprises Common Stock and the Enova Common Stock using various
valuation methodologies which Merrill Lynch deemed appropriate; (viii)
considered the pro forma earnings per share, dividends per share, and certain
other financial ratios for New Holding Company as compared to Pacific
Enterprises and Enova; (ix) reviewed the Merger Agreement and this Joint Proxy
Statement/Prospectus; and (x) reviewed such other financial studies and analyses
and performed such other investigations and took into account such other matters
as Merrill Lynch deemed necessary, including Merrill Lynch's assessment of
general economic, market and monetary conditions.
In preparing its fairness opinions, Merrill Lynch relied on the accuracy
and completeness of all information supplied or otherwise made available to it
by Pacific Enterprises and Enova, and Merrill Lynch did not independently verify
such information or undertake an independent appraisal of the assets or
liabilities, contingent or otherwise, of Pacific Enterprises and Enova. With
respect to the financial forecasts and the potential synergies furnished by
Pacific Enterprises and Enova, Merrill Lynch assumed that they were reasonably
prepared and reflect the best currently available estimates and judgment of
their respective managements as to the expected future performance of Pacific
Enterprises, Enova, and with respect to the synergies, New Holding Company,
respectively. In connection with rendering the Merrill Lynch fairness opinions,
Pacific Enterprises informed Merrill Lynch, and Merrill Lynch assumed, that the
business combination is of long-term strategic importance to Pacific Enterprises
and Enova, respectively. Merrill Lynch also assumed, with Pacific Enterprises'
consent, that obtaining any necessary regulatory approvals and third-party
consents for the business combination or otherwise will not have a materially
adverse effect on Pacific Enterprises, Enova or New Holding Company. The Merrill
Lynch fairness opinions address the ownership position in the combined company
to be received by the holders of Pacific Enterprises Common Stock pursuant to
the conversion ratios on the terms set forth in the Merger Agreement and do not
address the future trading or acquisition value for New Holding Company Common
Stock. Merrill Lynch also assumed with Pacific Enterprises' consent that, for
federal income tax purposes, the business combination will qualify as a
transaction described in Section 351 of the Internal Revenue Code, and that the
business combination will be accounted for as a pooling of interests under
generally accepted accounting principles. The Merrill Lynch fairness opinions
are necessarily based upon market, economic and other conditions as they existed
on, and could be evaluated as of, the dates of such opinions.
The following is a summary of the material financial analyses presented by
Merrill Lynch to the Pacific Enterprises Board at its meeting on October 11,
1996, which analyses were considered by Merrill Lynch in
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arriving at its opinion dated October 11, 1996. Merrill Lynch utilized
substantially the same types of financial analysis in arriving at its fairness
opinion dated as of the date of this Proxy Statement/Prospectus.
Analysis of Selected Publicly Traded Comparable Companies. As part of its
analysis, Merrill Lynch compared certain financial and operating information and
projected financial performance for Pacific Enterprises and Enova with
corresponding financial and operating information and projected financial
performance with (i) in the case of Pacific Enterprises, six publicly traded
companies that Merrill Lynch deemed reasonably similar to Pacific Enterprises
and (ii) in the case of Enova, seven publicly traded companies that Merrill
Lynch deemed to be most comparable to Enova. The Pacific Enterprises public
comparable companies were: AGL Resources Inc., The Brooklyn Union Gas Company,
NICOR Inc., ONEOK Inc., Peoples Energy Corporation and Washington Gas Light
Company. The Enova public comparable companies were: Edison International,
Pacific Gas & Electric Company, Pinnacle West Capital Corporation, Baltimore Gas
& Electric Company, DQE, Inc., Illinova Corporation and New England Electric
System. Earnings estimates for Pacific Enterprises, Enova and the public
comparable companies were based on estimates by IBES, a data service that
monitors and publishes compilations of earnings estimates by selected research
analysts regarding certain publicly traded companies. With respect to each
public comparable company, Pacific Enterprises and Enova, Merrill Lynch
analyzed, among other things, (i) the market price per share of common stock for
such company as of October 9, 1996 as a multiple of its 1996 and 1997 projected
earnings per share, (ii) the firm value of such company (defined to be the
market value of the common stock of the company plus the liquidation value of
the preferred stock plus total debt and minority interests less cash, cash
equivalents and other investments) as a multiple of its earnings before interest
and taxes and as a multiple of its earnings before interest, taxes, depreciation
and amortization, for the latest twelve-months reported results. Merrill Lynch
noted in its analysis that (i) the market price per share of common stock as of
October 9, 1996 as a multiple of 1996 earnings per share ranged (x) from 12.8x
to 18.4x in the case of the Pacific Enterprises public comparable companies as
compared to 14.0x for Pacific Enterprises and (y) from 8.6x to 12.9x in the case
of the Enova public comparable companies as compared to 11.3x for Enova, (ii)
the firm value as a multiple of latest twelve-months earnings before interest
and taxes ranged from (x) 7.6x to 11.7x in the case of the Pacific Enterprises
public comparable companies as compared to 8.8x for Pacific Enterprises and (y)
from 8.2x to 12.0x in the case of the Enova public comparable companies as
compared to 8.7x for Enova and (iii) the firm value as a multiple of latest
twelve-months earnings before interest, taxes, depreciation and amortization
ranged from (x) 5.7x to 8.2x in the case of the Pacific Enterprises public
comparable companies as compared to 5.7x for Pacific Enterprises and (y) from
5.3x to 7.2x in the case of the Enova public comparable companies as compared to
5.3x for Enova.
Historical Trading Ratio. Merrill Lynch compared the historical trading
ratio of the market price per share of Pacific Enterprises Common Stock to the
market price per share of Enova Common Stock for the period from October 9, 1993
to October 9, 1996. Merrill Lynch calculated the mean historical trading ratio
between such market prices for the period from (i) October 9, 1993 to October 9,
1996 to be 1.124x; (ii) October 9, 1995 to October 9, 1996 to be 1.234x; (iii)
April 9, 1996 to October 9, 1996 to be 1.308x; (iv) July 9, 1996 to October 9,
1996 to be 1.378x; and (v) September 28, 1996 to October 9, 1996 to be 1.385x.
In addition, Merrill Lynch observed that the trading ratio was 1.399x on October
9, 1996.
Implied Exchange Ratio Analysis; Contribution Analysis. Merrill Lynch
compared the earnings per share, dividends per share and book value per share of
Pacific Enterprises Common Stock to the comparable figures per share of Enova
Common Stock and derived implied exchange ratios based on this analysis. Merrill
Lynch conducted this analysis utilizing the following two different sets of
projections: (i) the "management case" was based on the respective long-term
business plans of Pacific Enterprises and Enova which were supplied by their
respective managements (except that, in the case of Pacific Enterprises, Merrill
Lynch derived the projections for the years 2001 and 2002 which figures were
reviewed and approved by Pacific Enterprises' management) and (ii) the
"conservative case" was based on the respective long-term business plans of
Pacific Enterprises and Enova with certain hypothetical downward adjustments
made by Merrill Lynch, which figures were reviewed and approved by the
management of Pacific Enterprises. Utilizing this methodology, Merrill Lynch
determined the implied conversion ratios in the management case during the years
1997 through 2002 to (i) range from a low of 1.106x to a high of 1.583x based on
a comparison of earnings per share figures (as compared to a range of 1.145x to
1.269 in the conservative case), (ii) range from
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a low of 0.968x to a high of 1.237x based on a comparison of dividends per share
figures (the range of multiples were the same in the conservative case) (iii)
range from a low of 1.185x to a high of 1.421x based on a comparison of book
value per share figures (as compared to a range of 1.310x to 1.529x in the
conservative case).
Merrill Lynch also analyzed and compared the respective contribution of
earnings before interest, taxes, depreciation and amortization and earnings
before interest and taxes of Pacific Enterprises and Enova to the New Holding
Company using the management case and the conservative case and determined an
implied exchange ratio based on those relative contributions. In its management
case analysis, Merrill Lynch determined that during the years 1997 through 2002
the relative contribution of Pacific Enterprises to (i) the earnings before
interest, taxes, depreciation and amortization of New Holding Company ranged
from 42.7% to 55.8% (as compared to 42.9% to 53.8% in the conservative case) and
the corresponding implied exchange ratio ranged from a low of 1.022x to a high
of 1.733x (as compared to 1.032x to 1.598x in the conservative case) and (ii)
the earnings before interest and taxes of New Holding Company ranged from 44.7%
to 54.5% (as compared to 45.2% to 51.1% in the conservative case) and the
corresponding implied exchange ratio ranged from a low of 1.110x to a high of
1.642x (as compared to 1.130x to 1.434x in the conservative case).
Discounted Cash Flow Implied Exchange Ratios. Utilizing a discounted cash
flow analysis, Merrill Lynch compared the implied equity values per share of
Pacific Enterprises Common Stock to the implied equity values per share of Enova
Common Stock. In connection with this analysis, Merrill Lynch calculated the
implied equity value per share of Pacific Enterprises Common Stock based upon
the discounted net present value (utilizing discount rates ranging from 7.5% to
8.5%) of the sum of (i) the projected stream of after-tax unlevered free cash
flows of Pacific Enterprises for the period 1996 through 2001 and (ii) the
projected terminal value of Pacific Enterprises at such year by applying
multiples ranging from 8.0x to 10.0x to Pacific Enterprises's projected earnings
before interest and taxes in 2001. Merrill Lynch performed a similar analysis to
determine the implied equity value per share of Enova Common Stock utilizing
discount rates ranging from 7.5% to 8.5% and terminal earnings before interest
and taxes multiples ranging from 8.0x to 9.0x . Merrill Lynch performed a
discounted cash flow analysis and a comparison of the resulting implied equity
per share values with respect to Pacific Enterprises and Enova for each of the
management case and the conservative case under the following three scenarios
relating to the amount of synergies attributable to Enova's valuation: (i) in
the "no synergy case," Enova's value is calculated without credit for any of the
synergies; (ii) in the "25% case," Enova is credited with 25% of the synergies;
and (iii) in the "50% case," Enova is credited with 50% of the synergies.
Utilizing this methodology, Merrill Lynch calculated the range of implied
conversion ratios (i) for the management case to be (a) 1.486x to 1.657x in the
no synergy case, (b) 1.359x to 1.558x in the 25% case, and (c) 1.312x to 1.471x
in the 50% case and (ii) for the conservative case to be (a) 1.217x to 1.368x in
the no synergy case, (b) 1.147x to 1.282x in the 25% case, and (c) 1.080x to
1.210x in the 50% case.
Pro Forma Analysis. Utilizing an estimated conversion ratio of 1.505 and
the management case and conservative case projections with respect to Pacific
Enterprises and Enova, and based on the timing and magnitude of the synergies
realizable from the transaction, Merrill Lynch reviewed the accretion or
dilution to Pacific Enterprises' and Enova's stand-alone earnings per share for
the years 1998 through 2002. Merrill Lynch performed this analysis under the
following two scenarios: (i) the "written off case," the costs to achieve the
synergies are written off at the closing of the business combination, and (ii)
the "amortized case," the costs to achieve the synergies are written off over a
period of five years commencing with the year they are incurred. In its analysis
of Enova, Merrill Lynch determined utilizing the management case projections
that (i) in the written off case, the business combination would be dilutive to
Enova's stand alone earnings per share in 1998 and would be accretive in the
years 1999 to 2002 (as compared to dilutive in the years 1998 and 1999 and
accretive in the years 2000 to 2002 utilizing the conservative case projections)
and (ii) in the amortized case, the business combination would be dilutive to
Enova's stand alone earnings per share in the years 1998 and 1999 and would be
accretive in the years 2000 to 2002 (as compared to dilutive in the years 1998
to 2000 and accretive in the years 2001 and 2002 utilizing the conservative case
projections). In its review of Pacific Enterprises, Merrill Lynch analyzed
utilizing the management case projections and the conservative case projections
that the pro forma earnings of the combined company attributable to one share
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of Pacific Enterprises Common Stock (i.e., 1.505 shares of New Holding Company
Common Stock) would be accretive to Pacific Enterprises' stand alone earnings
per share in the years 1998 through 2002 for both the written off case and the
amortized case. Utilizing an estimated conversion ratio of 1.505 Merrill Lynch
also analyzed that the pro forma dividends of the New Holding Company
attributable to one share of Pacific Enterprises Common Stock would be accretive
to Pacific Enterprises' dividends per share on a stand alone basis in amounts
ranging from 21.6% to 47.7% for the years 1998 to 2002. Utilizing an estimated
conversion ratio of 1.505 and assuming that the costs to achieve the synergies
will be written off at closing, Merrill Lynch also analyzed that the ratio of
total debt and preferred stock to total capitalization of New Holding Company
for the years 1998 to 2002 ranged from a low of 44.8% to a high of 48.1% in the
management case and from a low of 45.6% to a high of 50.0% in the conservative
case (as compared to ratios for Pacific Enterprises on a stand alone basis for
those years ranging from 44.3% to 55.5% in the management case and from 46.2% to
53.2% in the conservative case).
Analysis of Value to Pacific Enterprises Shareholders. Merrill Lynch also
analyzed the implied equity value per share attributable to Pacific Enterprises
Common Stock by analyzing hypothetical trading values of New Holding Company
Common Stock on such date. Utilizing price earnings multiples ranging from 12.5x
to 14.0x with respect to the New Holding Company, Merrill Lynch analyzed the
implied equity value per 1.505 shares of New Holding Company Common Stock. The
implied equity value per share ranged from (i) $37.07 to $41.51 utilizing
conservative case projections for New Holding Company 1998 earnings per share
and (ii) $40.26 to $45.09 utilizing management case projections for New Holding
Company 1998 earnings per share. As part of its analysis, Merrill Lynch also
compared the weighted average 1997 price earnings multiple and the total return
(defined as the aggregate of dividend yield and five year earnings per share
growth) for New Holding Company to comparable figures for the following publicly
traded companies that Merrill Lynch deemed reasonably similar to New Holding
Company: LG&E Energy Corp., Scana Corp., NIPSCO Industries, Washington Water
Power Co., UtiliCorp. and Baltimore Gas & Electric. Earnings estimates for New
Holding Company were based on the management case and conservative case
projections supplied by management of Pacific Enterprises and Enova and earnings
estimates for the New Holding Company public comparables were based on IBES
estimates. Merrill Lynch noted that for the New Holding Company public
comparables (i) the 1997 price earnings multiple ranged from a low of 11.3x to a
high of 14.0x with a median of 12.2x (as compared to the weighted average 1997
price earnings multiple of 12.4x for New Holding Company, which multiple is
based on a weighted average of 1997 price earnings multiples for Pacific
Enterprises and Enova calculated using IBES estimates and based on their
weighted ownership in New Holding Company) and (ii) total return ranged from a
low of 8.8% to a high of 11.1% with a median of 9.5% (as compared to a total
return with respect to New Holding Company of 13.3% based on the management case
projections and 12.1% based on the conservative case projections). Merrill Lynch
did not address in its opinion the future trading or acquisition value for New
Holding Company Common Stock.
The summary set forth above does not purport to be a complete description
of the analyses performed by Merrill Lynch. The preparation of a fairness
opinion is a complex process not necessarily susceptible to partial or summary
description. Merrill Lynch believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors considered
by it, without considering all such factors and analyses, could create a
misleading view of the process underlying its analyses set forth in the Merrill
Lynch opinions. Any estimates incorporated in the analyses performed by Merrill
Lynch and the ranges of valuations resulting from any particular analysis are
not necessarily indicative of actual past or future results or values, which may
be significantly more or less favorable than such estimates or those suggested
by such analysis. Estimated values do not purport to be appraisals and do not
necessarily reflect the prices at which businesses or companies may be sold in
the future. No company in the Pacific Enterprises public comparable companies is
identical to Pacific Enterprises and no company in the Enova public comparable
companies is identical to Enova. Accordingly, an analysis of publicly traded
comparable companies is not simply mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies or company to which they
are being compared.
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The Pacific Enterprises Board of Directors selected Merrill Lynch to render
its fairness opinion because Merrill Lynch is an internationally recognized
investment banking firm with substantial expertise in transactions similar to
the business combination and because it is familiar with Pacific Enterprises and
its business. As part of its investment banking business, Merrill Lynch is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions. Merrill Lynch has provided, in the
past, various financial advisory and/or financial services to Pacific
Enterprises and Enova and has received fees for the rendering of such services.
In the ordinary course of Merrill Lynch's business, Merrill Lynch may actively
trade the securities of Pacific Enterprises and Enova for its own account and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.
With respect to Merrill Lynch's services as a financial advisor to Pacific
Enterprises in connection with the business combination, Pacific Enterprises (i)
paid Merrill Lynch a retainer of $250,000, (ii) paid Merrill Lynch, upon
execution of the Merger Agreement, a fee of $1,750,000, (iii) has agreed to pay
Merrill Lynch, upon the successful vote of the shareholders of Pacific
Enterprises approving the business combination, a fee of $1,750,000, and (iv)
has agreed to pay Merrill Lynch, upon completion of the business combination, a
fee of $7,000,000 against which the fees set forth in clauses (i), (ii) and
(iii) of this sentence will be credited. Pursuant to the terms of an engagement
letter dated August 1, 1996, Pacific Enterprises has also agreed to reimburse
Merrill Lynch for its reasonable out-of-pocket expenses, including all
reasonable fees and disbursements of its legal counsel, and to indemnify Merrill
Lynch and certain related persons against certain liabilities, including certain
liabilities under the federal securities laws, arising out of its engagement.
Enova's Financial Advisor
Morgan Stanley.
Enova retained Morgan Stanley & Co. Incorporated to act as its financial
advisor in connection with the business combination. Morgan Stanley was selected
by the Enova Board of Directors to act as Enova's financial advisor based on
Morgan Stanley's qualifications, expertise and reputation, as well as Morgan
Stanley's prior investment banking relationship and familiarity with Enova.
Morgan Stanley has delivered its written opinions to the Enova Board of
Directors, dated October 12, 1996 and the date of this Joint Proxy
Statement/Prospectus, to the effect that, on and as of the dates of such
opinions, and based on assumptions made, matters considered, and limits of
review, as set forth in the opinions, the conversion ratio pursuant to the
Merger Agreement of one share of New Holding Company Common Stock for each share
of Enova Common Stock is fair from a financial point of view to holders of
shares of Enova Common Stock.
THE FULL TEXT OF MORGAN STANLEY'S OPINION, DATED AS OF THE DATE OF THIS
JOINT PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH, AMONG OTHER THINGS,
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX D TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. ENOVA SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE
MORGAN STANLEY OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S OPINION
IS DIRECTED ONLY TO THE FAIRNESS OF THE CONVERSION RATIO PURSUANT TO THE MERGER
AGREEMENT FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF ENOVA COMMON STOCK
AND IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE BUSINESS COMBINATION AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF ENOVA COMMON STOCK AS TO HOW TO
VOTE AT THE ENOVA SPECIAL MEETING OF SHAREHOLDERS. THE SUMMARY OF THE MATERIAL
ELEMENTS OF MORGAN STANLEY'S OPINION DATED AS OF THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION.
In connection with rendering its opinions, Morgan Stanley: (i) reviewed
certain publicly available financial statements and other information of Enova
and Pacific Enterprises; (ii) reviewed certain internal financial statements and
other financial and operating data concerning Enova and Pacific Enterprises
prepared by their respective managements; (iii) analyzed certain financial
projections of Enova and Pacific Enterprises prepared by their respective
managements, including projections related to the Energy Marketing Joint
Venture; (iv) analyzed certain securities research analysts' projections for
Enova and Pacific Enterprises; (v) discussed the past and current operations and
financial condition and the prospects of Enova and Pacific Enterprises with
senior executives of Enova and Pacific Enterprises, respectively; (vi) reviewed
the reported
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prices and trading activity of both Enova Common Stock and Pacific Enterprises
Common Stock; (vii) compared the financial performance of Enova and Pacific
Enterprises and the prices and trading activity of Enova Common Stock and
Pacific Enterprises Common Stock with those of certain other comparable publicly
traded companies and their securities; (viii) reviewed the financial terms, to
the extent publicly available, of certain comparable merger or acquisition
transactions; (ix) analyzed the pro forma impact of the business combination and
the energy marketing joint venture on New Holding Company's earnings per share,
consolidated capitalization and financial ratios; (x) participated in
discussions and negotiations among representatives of Enova and Pacific
Enterprises and their respective financial and legal advisors; (xi) reviewed the
Merger Agreement and certain related documents; (xii) discussed certain
regulatory issues relating to the business combination with senior executives of
Enova and Pacific Enterprises; (xiii) reviewed and discussed with Enova and
Pacific Enterprises an analysis prepared by Enova and Pacific Enterprises with
the assistance of a third-party consultant regarding estimates of the amount and
timing of the cost savings estimated to be derived from the business
combination; and (xiv) performed such other analyses and examinations and
considered such other factors as it deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of its opinions. In addition, Morgan
Stanley assumed that the financial projections and estimates of cost savings to
be derived from the business combination were reasonably prepared on bases
reflecting the best current available estimates and judgments of the future
financial performances of Enova and Pacific Enterprises, respectively. Morgan
Stanley did not make any independent valuation or appraisal of the assets or
liabilities of Enova and Pacific Enterprises; however, Morgan Stanley reviewed
the presentation of Enova and Pacific Enterprises regarding estimates of
environmental liabilities without independent verification upon such estimates
for the purpose of its opinion. Morgan Stanley has assumed that the business
combination will be treated as a "pooling of interests" business combination in
accordance with U.S. generally accepted accounting principles and will qualify
as a transaction described in Section 351 of the Internal Revenue Code. In
addition, Morgan Stanley has assumed that the business combination would be
consummated in accordance with the terms set forth in the Merger Agreement.
Morgan Stanley's opinions were necessarily based on economic, market and other
conditions as in effect on, and the information made available to Morgan Stanley
as of, the dates thereof.
In arriving at its opinions, Morgan Stanley further assumed that in
connection with the receipt of all of the necessary regulatory and governmental
approvals for the business combination, no restriction will be imposed that
would have a material adverse effect on the contemplated benefits expected to be
derived in the business combination. In addition, in arriving at its opinions,
Morgan Stanley was not authorized to solicit, and did not solicit, interest from
any party with respect to a merger with or other business combination
transaction involving Enova or any of its assets.
The following is a brief summary of the analyses and examinations performed
by Morgan Stanley in preparation of its opinion dated October 12, 1996 and
reviewed with the Enova Board of Directors on October 12, 1996:
Peer Group Comparison. As part of its analysis, Morgan Stanley compared
certain financial information of Enova with that of a group of electric utility
companies, including Baltimore Gas & Electric Co., Carolina Power & Light Co.,
Dominion Resources Inc., Edison International, Florida Progress Corp., Illinova
Corp., Pinnacle West Capital Corp., PP&L Resources Inc., Public Service Company
of New Mexico and Wisconsin Public Service (collectively, the "electric utility
comparables") and Pacific Enterprises with that of a group of local natural gas
distribution companies, including Atlanta Gas Light Co., Brooklyn Union Gas Co.,
Indiana Energy Inc., MCN Corp., National Fuel Gas Co., Northwest Natural Gas
Co., Piedmont Natural Gas Co., Peoples Energy Corp., Washington Gas Light Co.
and WICOR Inc. (collectively, the "local distribution comparables"). Such
financial information included price to earnings multiple, price to book value
multiple, price to operating cash flow multiple, dividend yield and market
capitalization to earnings before interest, taxes, depreciation and
amortization. In particular, such analyses indicated that as of October 11,
1996, based on a compilation of earnings projections by securities research
analysts, Enova traded at 11.5 and 11.3 times forecasted earnings for the
calendar years 1996 and 1997, respectively, 1.7 times book value as of the
latest quarter end, 5.2 times trailing twelve-months operating cash flow for the
latest reported twelve-month period,
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a 6.9% dividend yield and 5.8 times trailing twelve-months earnings before
interest, taxes, depreciation and amortization for the latest reported
twelve-month period as derived from publicly available information, compared to
a range of 10.7 to 13.2 times 1996 earnings and 10.1 to 12.6 times 1997
earnings, 1.3 to 2.0 times book value, 4.7 to 5.7 times trailing twelve-months
operating cash flow, 2.5% to 7.4% dividend yield and 4.8 to 7.3 times trailing
twelve-months earnings before interest, taxes, depreciation and amortization for
the electric utility comparables, and Pacific Enterprises traded at 14.3 and
13.7 times forecasted earnings for the calendar years 1996 and 1997,
respectively, 2.0 times book value as of the most recent quarter end, 5.2 times
trailing twelve-months operating cash flow for the latest reported twelve-month
period, a 4.6% dividend yield and 6.0 times trailing twelve-month earnings
before interest, taxes, depreciation and amortization for the latest reported
twelve-month period as derived from publicly available information, compared to
a range of 12.8 to 16.8 times 1996 earnings, 12.5 to 15.4 times 1997 earnings,
1.5 to 2.5 times book value, 5.9 to 7.9 times trailing twelve-month operating
cash flow, 3.4% to 5.5% dividend yield and 6.0 to 8.7 times trailing
twelve-month earnings before interest, taxes, depreciation and amortization for
the local distribution comparables. Morgan Stanley noted that, as of October 11,
1996, both Enova and Pacific Enterprises were generally trading within the range
of the electric utility comparables and the local distribution comparables,
respectively, based on the above financial ratios.
No company utilized as a comparison in the comparable companies analysis is
identical to Enova or Pacific Enterprises. In evaluating the comparable
companies, Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Enova and Pacific
Enterprises, such as the impact of competition on Enova or Pacific Enterprises
and the industry generally, industry growth and the absence of any adverse
material change in the financial condition and prospects of Enova or Pacific
Enterprises or the industry or in the financial markets in general.
Historical Exchange Ratio Analysis. Morgan Stanley also reviewed the ratio
of Enova Common Stock to Pacific Enterprises Common Stock trading prices over
the latest one month, one year and three year periods. These ratios ranged from
approximately 0.910 to 1.479 times and, based on the closing price of Enova
Common Stock and Pacific Enterprises Common Stock on October 11, 1996 of $22.50
and $31.50, respectively, the ratio was 1.400 times. Based on the ratios for
converting Enova Common Stock and Pacific Enterprises Common Stock into New
Holding Company Common Stock, in the business combination represents
approximately a 7.4% premium to the ratio based on the October 11, 1996 closing
prices.
Contribution Analysis. Morgan Stanley analyzed the pro forma contribution
of each of Enova and Pacific Enterprises to New Holding Company. Such analysis
included, among other things, relative contributions of sales, earnings before
interest, taxes, depreciation and amortization, net income, market value and
total assets at or over various time periods. In particular, such analysis
showed that Pacific Enterprises would contribute approximately 54.9% of the
average sales, 44.4% of the average earnings before interest, taxes,
depreciation and amortization, 41.4% of the average net income and 40.9% of the
average market value for the last four fiscal years and 49.5% of total assets as
of the latest reported quarter end. Morgan Stanley observed that the
aforementioned contribution percentages implied conversion ratios between Enova
Common Stock and Pacific Enterprises Common Stock in the range of 0.992 to
1.719, as compared to a conversion ratio of 1.5038 implied by the ratios for
converting Enova Common Stock and Pacific Enterprises Common Stock into New
Holding Company Common Stock in the business combination.
Discounted Cash Flow Analysis. Morgan Stanley performed a discounted cash
flow analysis of Enova and Pacific Enterprises based on certain financial
projections prepared by the respective management of each company for the fiscal
years 1996 through 2001 and 1996 through 2000, respectively. Morgan Stanley
discounted the unlevered free cash flows of each company (net income available
to common shareholders plus preferred stock dividends plus depreciation and
amortization plus deferred taxes plus after-tax net interest expense less
capital expenditures less investment in working capital) over the forecast
period at a range of discount rates of 8.0% to 9.0%, representing an estimated
weighted average cost of capital range for Enova and Pacific Enterprises. The
sum of the present values of such free cash flows for each company was then
added to the present value of each company's terminal value, computed using a
perpetual growth rate range on unlevered free cash flow of 1.0% to 3.0% and 2.0%
to 4.0% for the electric business of Enova and gas
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businesses of Enova and Pacific Enterprises, respectively, representing an
estimated range of unlevered free cash flow growth for Enova and Pacific
Enterprises, and discounted at the aforementioned range of discount rates. Based
on this analysis, Morgan Stanley calculated per share values for Enova ranging
from approximately $18.50 to $25.50 and for Pacific Enterprises ranging from
approximately $27.25 to $39.25.
Discounted Dividend Analysis. Morgan Stanley performed a discounted
dividend analysis of Enova and Pacific Enterprises based on certain dividend and
share repurchase projections prepared by the respective managements of each
company for the fiscal years ended 1996 through 2001 and 1996 through 2000,
respectively. Morgan Stanley discounted the dividends and share repurchases of
Enova and Pacific Enterprises over the forecast period at a range of discount
rates of 9.0% to 10.0% and 9.5% to 10.5% representing an estimated range of cost
of equity for Enova and Pacific Enterprises, respectively. The sum of the
present values of such dividends and share repurchases was then added to the
present value of each company's terminal value, computed using a perpetual
dividend growth rate range of 1.0% to 3.0% and 2.0% to 4.0% representing an
estimated range of long-term dividend growth rates for Enova and Pacific
Enterprises, respectively, and discounted at the aforementioned range of
discount rates. Based on this analysis, Morgan Stanley calculated per share
values for Enova ranging from approximately $20.50 to $24.25 and for Pacific
Enterprises ranging from approximately $30.50 to $38.25.
Analysis of Selected Precedent Transactions. Morgan Stanley reviewed the
following proposed or completed utility merger of equals transactions announced
since 1985: Kansas City Power & Light Co./UtiliCorp United, Public Service
Company of Colorado/Southwestern Public Service Co., Wisconsin Energy
Corp./Northern States Power Co., Iowa-Illinois Gas and Electric Co./Midwest
Resources Inc., Midwest Energy Co./Iowa Resources Inc. and Cleveland Electric
Illumination Co./The Toledo Edison Co. Morgan Stanley compared the range of
market premiums for the utility mergers with the business combination's market
premium. The analysis showed for the utility mergers a range of premium to
market price one day prior to the announcement of the transactions of 0% to
8.3%. Based on the ratios for converting Enova Common Stock and Pacific
Enterprises Common Stock into New Holding Company Common Stock in the business
combination and based on Enova Common Stock and Pacific Enterprises Common Stock
closing share prices on October 11, 1996, Morgan Stanley observed that the
implied premium for the business combination was within the corresponding
premium range of the utility mergers.
No transaction utilized as a comparison in the comparable transaction
analysis is identical to the business combination. In evaluating the precedent
transactions, Morgan Stanley made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Enova and
Pacific Enterprises, such as the impact of competition on Enova or Pacific
Enterprises and the industry generally, industry growth and the absence of any
adverse material change in the financial condition and prospects of Enova or
Pacific Enterprises or the industry or in the financial markets in general.
Mathematical analysis (such as determining the average or median) is not in
itself a meaningful method of using comparable transaction data.
Pro Forma Analysis of the Business Combination. Morgan Stanley analyzed the
pro forma impact of the business combination and the energy marketing joint
venture on New Holding Company's earnings per share for the fiscal years ended
1998, 1999 and 2000. The year of the analysis period is based on the assumption
that 1998 constitutes the first full year after the business combination. Such
analysis was based on cash flow and earnings estimates for the aforementioned
fiscal years for Enova and Pacific Enterprises prepared by the respective
managements of each company and a portion of the estimates for cost savings (net
of the cost to achieve such savings) expected to be derived from the business
combination prepared by Enova and Pacific Enterprises averaged over a ten-year
period. Morgan Stanley observed that, based on the ratio for converting Enova
Common Stock and Pacific Enterprises Common Stock into New Holding Company
Common Stock in the business combination and assuming that the business
combination would be treated as a pooling of interests for accounting purposes,
the business combination would be modestly dilutive to Enova shareholders in
1998 and modestly accretive thereafter.
In connection with its written opinion dated as of the date of this Joint
Proxy Statement/Prospectus, Morgan Stanley reviewed the analyses used to render
its October 12, 1996 opinion by performing procedures
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to update certain such analyses and by reviewing the assumptions upon which such
analyses were based and the factors considered in connection therewith.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Morgan
Stanley believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all analyses and factors, would create an incomplete view of the
processes underlying its opinions. The range of valuations resulting from any
particular analysis described above should therefore not be taken to be Morgan
Stanley's view of the actual value of Enova or Pacific Enterprises.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Enova or Pacific
Enterprises. The analyses performed by Morgan Stanley are not necessarily
indicative of actual values, which may be significantly more or less favorable
than suggested by such analyses. Such analyses were prepared solely as a part of
Morgan Stanley's analysis of the fairness from a financial point of view to
holders of Enova Common Stock of the conversion ratio of one share of New
Holding Company Common Stock for each share of Enova Common Stock in the
business combination and were provided to the Enova Board of Directors in
connection with the delivery of Morgan Stanley's opinion dated October 12, 1996.
The analyses do not purport to be appraisals or to reflect the prices at which
Enova or Pacific Enterprises might actually be sold. In addition, as described
above, Morgan Stanley's opinion and presentation to the Enova Board was one of
the many factors taken into consideration by the Enova Board in making its
determination to approve the business combination. Consequently, the Morgan
Stanley analyses described above should not be viewed as determinative of the
Enova Board's or Enova management's opinion with respect to the value of Enova
or of whether the Enova Board or Enova management would have been willing to
agree to a different conversion ratio pursuant to the Merger Agreement.
The consideration to be received by the shareholders of Enova pursuant to
the business combination was determined through negotiations between Enova and
Pacific Enterprises and was approved by the Enova Board of Directors. Morgan
Stanley provided advice to Enova during the course of such negotiations;
however, the decision to enter into the Merger Agreement and to accept the
conversion ratio of one share of New Holding Company Common Stock for each share
of Enova Common Stock was solely that of the Enova Board.
Enova retained Morgan Stanley because of its experience and expertise.
Morgan Stanley is an internationally recognized investment banking and advisory
firm. Morgan Stanley, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. In the course of its
market-making and other trading activities, Morgan Stanley may, from time to
time, have a long or short position in, and buy and sell, securities of Enova or
Pacific Enterprises. In the past, Morgan Stanley and its affiliates have
provided financial advisory services to Enova and have received customary fees
in connection with these services.
Enova has agreed to pay Morgan Stanley a fee for its financial advisory
services in connection with the business combination. Enova has agreed to pay
Morgan Stanley (i) an advisory fee estimated to be between $150,000 and $250,000
which is payable in the event that the business combination is not completed and
(ii) if the business combination is successfully completed, a transaction fee of
approximately $10,500,000, against which any advisory fee paid will be credited.
In addition, Enova has agreed to reimburse Morgan Stanley for its out-of-pocket
expenses related to the engagement and to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and each
person, if any, controlling Morgan Stanley, or any of its affiliates against
certain liabilities and expenses, including liabilities under federal securities
laws, in connection with Morgan Stanley's engagement.
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INTERESTS OF CERTAIN PERSONS
In considering the recommendations of the Boards of Directors of Pacific
Enterprises and Enova with respect to the business combination, shareholders
should be aware that certain members of Pacific Enterprises' and Enova's
management and Boards of Directors have certain interests in the business
combination that are in addition to the interests of shareholders of Pacific
Enterprises and Enova generally. The respective Boards of Pacific Enterprises
and Enova were aware of these interests and considered them, among other
matters, in evaluating the Merger Agreement and the transactions contemplated
thereby. See "The Business Combination -- Certain Arrangements Regarding
Directors and Management."
CERTAIN ARRANGEMENTS REGARDING DIRECTORS AND MANAGEMENT
In connection with the business combination, a number of agreements,
described below, have been entered into with certain directors, officers and key
employees of Pacific Enterprises, Enova and their subsidiaries.
Board of Directors. Upon completion of the business combination, the New
Holding Company Board of Directors will consist of an equal number of directors
designated by each of Pacific Enterprises and Enova. Richard D. Farman,
President and Chief Operating Officer of Pacific Enterprises, and Stephen L.
Baum, President and Chief Executive Officer of Enova, will serve on the New
Holding Company Board. To date, Pacific Enterprises and Enova have not decided
who, in addition to Messrs. Farman and Baum, will be designated to serve on the
New Holding Company Board after completion of the business combination.
Employment Agreements. New Holding Company has entered into employment
agreements with Messrs. Farman, Baum, Warren I. Mitchell, President of Southern
California Gas, and Donald E. Felsinger, President and Chief Executive Officer
of SDG&E, that will become effective upon the completion of the business
combination. Each agreement provides for an initial employment term of five
years (subject to earlier mandatory retirement at age 65) with automatic one
year extensions on the fourth anniversary of the completion of the business
combination (and each anniversary thereafter) unless either party elects not to
extend the term. At the time the agreements become effective, they will
supersede the severance agreements applicable to Messrs. Farman and Mitchell,
which will thereupon terminate.
Mr. Farman's employment agreement provides that, commencing upon the
completion of the business combination and ending on the earlier of September 1,
2000 or the second anniversary of the completion of the business combination, he
will serve as Chairman of the Board of Directors and Chief Executive Officer of
New Holding Company and as a member of its Office of the Chairman (which will be
an office held jointly by Mr. Farman and Mr. Baum) and will report only to the
New Holding Company Board of Directors. The presidents and principal executive
officers of New Holding Company's regulated and non-regulated businesses and the
most senior person in charge of each of New Holding Company's policy units will
report directly to the Office of the Chairman. During the period, if any,
commencing on the second anniversary of the completion of the business
combination and ending on September 1, 2000, Mr. Farman will be nominated to the
position of, and if elected will serve as, Chairman of the Board of New Holding
Company.
Under the terms of his agreement, Mr. Farman will receive an annual base
salary of not less than $760,000 and be entitled to participate in (i) annual
incentive compensation plans providing him with a bonus opportunity on a
year-by-year basis of not less than 60% of his annual base salary at target
performance and 120% of his annual base salary at maximum performance, (ii)
long-term compensation plans and (iii) all retirement and welfare benefit plans
applicable generally to employees and/or senior executive officers of New
Holding Company.
Mr. Baum's employment agreement provides that, commencing upon the
completion of the business combination and ending on the earlier of September 1,
2000 or the second anniversary of the completion of the business combination, he
will serve as Vice-Chairman of the Board of Directors, President and Chief
Operating Officer of New Holding Company and as a member of its Office of the
Chairman. During the period, if any, commencing on the second anniversary of the
completion of the business combination and ending on September 1, 2000, Mr. Baum
will be nominated to the position of, and if elected will serve as,
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Vice-Chairman of the Board, Chief Executive Officer and President of New Holding
Company. During the period, if any commencing September 1, 2000 and ending on
expiration of his employment agreement, Mr. Baum will be nominated to the
position of, and if elected will serve as, Chairman, Chief Executive Officer and
President of New Holding Company.
Under the terms of his agreement, Mr. Baum will receive an annual base
salary of not less than $645,000 during the period in which he serves as
President and Chief Operating Officer of New Holding Company and thereafter
(during which he will serve as Chief Executive Officer and President of New
Holding Company) an annual base salary of no less than that of his predecessor
as Chief Executive Officer of New Holding Company and will be entitled to
participate in (i) annual incentive compensation plans and long-term
compensation plans and awards providing him with the opportunity to earn, on a
year-by-year basis, short-term and long-term compensation at least equal (in
terms of target, maximum and minimum awards expressed as a percentage of annual
base salary) to the greater of his opportunities in effect prior to the
completion of the business combination and awards granted to the Chief Executive
Officer under incentive compensation plans during the period in which he serves
as President and Chief Operating Officer of New Holding Company and (ii) all
retirement and welfare benefit plans applicable generally to employees and/or
senior executive officers of New Holding Company.
Mr. Mitchell's employment agreement provides that, commencing on the
completion of the business combination, he will serve as President and the
principal executive officer of the businesses of New Holding Company and its
subsidiaries that are economically regulated by the California Public Utilities
Commission. Mr. Felsinger's employment agreement provides that, commencing on
the completion of the business combination, he will serve as President and the
principal executive officer of the businesses of New Holding Company and its
subsidiaries that are not so regulated. In such capacities, Messrs. Mitchell and
Felsinger will report to the Office of the Chairman or, if such office no longer
exists, the Chief Executive Officer of New Holding Company.
As compensation for services, Messrs. Mitchell and Felsinger will each
receive an annual base salary of not less than $440,000; and be entitled to
participate in (i) annual incentive compensation plans and long-term
compensation plans and awards providing them with an annual bonus opportunity at
least equal (in terms of target, maximum and minimum awards expressed as a
percentage of annual base salary) to their opportunities in effect prior to the
completion of the business combination and (ii) in all retirement and welfare
benefit plans applicable generally to employees and/or senior executive officers
of New Holding Company.
The employment agreements with Messrs. Farman and Mitchell provide that if
New Holding Company terminates the executive's employment (other than for cause,
death or disability) or the executive terminates his employment for good reason,
the executive will be entitled to receive an amount equal to (i) the sum of his
annual base salary and annual incentive compensation (equal to the greater of
his target bonus for the year of termination or the average of the three years'
highest gross bonus awards in the five years preceding termination), multiplied
by two, provided that in the event of termination following a change in control
such multiple will be three; (ii) a pro rata portion of the target amount
payable under any annual incentive compensation awards for the year or, if
greater, the average of the three years' highest gross bonus awards paid to the
executive in the five years preceding the year of termination; (iii) the present
value of the benefits to which he would be entitled under New Holding Company's
defined benefit pension and retirement plans if he continued working for an
additional two years and had increased his age by two years as of termination,
but not beyond mandatory retirement age of 65, provided that in the event of a
termination following a change in control both such numbers will be three years,
but not beyond mandatory retirement age of age 65.
The employment agreements with Messrs. Baum and Felsinger provide that if
New Holding Company terminates the executive's employment (other than for cause,
death or disability) or the executive terminates his employment for good reason,
the executive will be entitled to receive an amount equal to (i) the sum of his
annual base salary and annual incentive compensation (equal to the greater of
his target bonus for the year of termination or the average of the three years'
highest gross bonus awards in the five years preceding termination), multiplied
by the number of years remaining in the term of his agreement, but in no event
less than two, provided that in the event of termination following a change in
control such multiplier will be three;
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(ii) a pro rata portion of the target amount payable under any annual incentive
compensation awards for the year or, if greater, the average of the three years'
highest gross bonus awards paid to the executive in the five years preceding the
year of termination; (iii) the present value of the benefits attributable to
additional years of age and service credit for purposes of the calculation of
retirement benefits under the Enova Supplemental Executive Retirement Plan as if
he had remained employed for the remainder of the term of the agreement, but in
no event less than two years.
In addition, each employment agreement provides that (i) all equity-based
long-term incentive compensation awards will immediately vest and become
exercisable, provided that any awards granted on or after the completion of the
business combination will remain outstanding and exercisable until the earlier
of the 18 months following termination or the expiration of the original term of
the award, (ii) with respect to all cash-based long-term incentive compensation
awards that are outstanding under any plan, New Holding Company will pay the
executive a pro rata portion of all outstanding cash-based, long-term incentive
compensation awards at target, (iii) the executive will be allowed to continue
to participate in New Holding Company's welfare benefit plans for a period of
two years or until he is eligible for retiree medical benefits, whichever is
longer, provided that in the event of termination following a change in control
such period will not be less than three years; and (iv) the executive will be
entitled to payment of any compensation previously deferred. Each employment
agreement also provides that the executive will not be entitled to receive any
benefits that would be subject to the excise taxes under Section 4999 of the
Internal Revenue Code provided, however, that the executive may enter into and
receive additional compensation under a post-termination consulting and
non-competition agreement with New Holding Company and provided, that in the
event the executive receives a notice from the Internal Revenue Service to the
effect that the amounts payable under the consulting and non-competition
agreement would be subject to the excise tax imposed under Section 4999 of the
Internal Revenue Code, New Holding Company will provide the executive with an
additional payment to offset the effects of such excise tax.
The employment agreements of Messrs. Farman, Baum, Mitchell and Felsinger
are attached hereto as Annexes E, F, G and H, respectively, and are incorporated
herein by reference. The provisions of the agreements which relate to the
executive serving as a director on the New Holding Company Board of Directors
assume that the executive is elected to the New Holding Company Board by the New
Holding Company's shareholders.
Enova Interim Employment Agreements. On September 18, 1996, Enova entered
into an employment agreement with Stephen L. Baum to serve as its President and
Chief Executive Officer and SDG&E entered into an employment agreement with
Donald E. Felsinger to serve as its President and Chief Executive Officer and as
Executive Vice President of Enova. Upon the completion of the business
combination, these agreements will terminate and be superseded by the employment
agreements entered into between Messrs. Baum and Felsinger and New Holding
Company.
The agreements have an initial two-year term, which will be automatically
extended for a two-year period on September 18, 1998 and on each even numbered
anniversary thereof, unless terminated in accordance with their terms. During
the term of the agreements, Mr. Baum will receive an annual base salary of not
less than $495,000 and Mr. Felsinger will receive an annual base salary of not
less than $350,000, subject to increases from time to time. In addition, Messrs.
Baum and Felsinger will be entitled to participate in the Executive Incentive
Plan, the 1986 Long Term Incentive Plan, the Supplemental Executive Retirement
Plan and other bonus, incentive or deferred compensation and retirement plans
and fringe benefit programs of Enova and SDG&E, as applicable.
In the event that Mr. Baum's or Mr. Felsinger's employment is involuntarily
terminated on account of the dissolution, liquidation or winding-up of Enova or
SDG&E, as the case may be, or without "cause," or if Messrs. Baum and Felsinger
terminate their employment for "good cause" (as such terms are defined in the
agreements), they will receive: (i) a lump sum payment of two years' base
salary, determined by annualizing their highest monthly base salary paid at any
time during the term, (ii) a bonus of two times the average of their three
highest annual bonus awards, not necessarily consecutive, paid in the previous
five years, (iii) accelerated vesting and exercisability and/or immediate
removal of all restrictions on any outstanding
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1986 Long Term Incentive Plan award or other long or short term incentive award,
and notwithstanding any conflicting provision in the applicable incentive plan,
each such option or award will remain outstanding for three years from the date
of termination of employment, (iv) continued health and life insurance benefits
and other existing benefit plans for two years, and (v) two years of additional
age and service credit under the Supplemental Executive Retirement Plan, without
giving effect to certain early retirement factors therein. Additionally, such
termination will be considered a "qualifying termination" under Mr. Baum's or
Mr. Felsinger's split dollar life insurance agreement in order to fund their
benefits under the Supplemental Executive Retirement Plan.
The business combination with Pacific Enterprises will not constitute a
"change in control" for purposes of the agreements. However, in the event that
Mr. Baum's or Mr. Felsinger's employment terminates under any of the foregoing
circumstances following the occurrence of another transaction that would
constitute a "change of control" as defined in the 1986 Long Term Incentive
Plan, then, in addition to the foregoing payments and benefits: (i) each
outstanding option or award will remain outstanding until the expiration of its
original term, (ii) health, life insurance and other benefits will continue
until he reaches normal retirement age and, thereafter, he will be treated as if
he had retired at normal retirement age under the SDG&E pension plan, and (iii)
he will receive a lump sum payment of his benefits under the Supplemental
Executive Retirement Plan, less the value of his entitlement under the pension
plan, to be paid without regard to the Supplemental Executive Retirement Plan's
limitation of payments on account of the application of Section 280G of the
Internal Revenue Code. The agreements also provide for a gross up payment to be
made to offset the effects of any excise tax imposed under Section 4999 of the
Internal Revenue Code.
Pacific Enterprises Severance Agreements. Pacific Enterprises and its
subsidiaries have entered into severance agreements with certain of their
executives, officers and key employees that memorialize past severance
practices. The agreements provide for the payment of severance benefits in the
event of the actual or constructive termination of employment of these
individuals (other than for cause, death or disability) during the term of the
agreements. The agreements have an initial term of three years with automatic
one-year extensions on each anniversary of the agreements unless either party
elects not to extend the term.
The benefits payable under the severance agreements consist of: (i) a
lump-sum cash payment equal to either 2.0 or 1.5 times annual base salary,
depending upon employment position; (ii) continuation of welfare benefits for a
period of 18 months; (iii) payout of deferred compensation at a preferred
interest rate; (iv) continued financial planning services for a period of one
year; (v) payout of accrued vacation benefits; and (vi) outplacement services.
If the amount of the foregoing benefits, when taken together with any other
payments to a covered individual, would otherwise fail to be deductible by
reason of the "golden parachute" provisions of Section 280G of the Internal
Revenue Code, the amount of such benefits will be reduced to the extent
necessary to provide that the net payments will be so deductible. To the extent
any provisions of the agreements would disqualify the business combination or
another business combination transaction for treatment as a pooling of interests
for accounting purposes, such provisions will be deemed null and void.
As of December 31, 1996, Pacific Enterprises and its subsidiaries had
entered into severance agreements with 24 individuals. If all covered
individuals were to be terminated as of January 1, 1998 under circumstances
giving rise to an entitlement to severance benefits, the aggregate value of the
lump sum cash severance benefits so payable would be approximately $9 million.
The approximate amounts payable to executive officers of Pacific Enterprises
under such circumstances are as follows: Richard D. Farman, $930,000; Warren I.
Mitchell, $670,000; Larry J. Dagley, $650,000; Frederick E. John, $550,000;
Leslie E. LoBaugh, Jr., $530,000; Debra L. Reed, $500,000; Lee M. Stewart,
$480,000; Eric B. Nelson, $440,000; Ralph Todaro, $280,000; and Dennis V.
Arriola, $230,000. The agreements entered into with Messrs. Farman and Mitchell
will be superseded by their respective employment agreements upon the completion
of the business combination.
Incentive/Retention Bonus Agreements. The Board of Directors of Pacific
Enterprises has authorized incentive/retention bonus agreements with 23
executives, officers and key employees and the Boards of Directors of Enova and
SDG&E have authorized incentive/retention bonus agreements with 10 selected
executives and officers. The purpose of the agreements is to (i) compensate
covered individuals for the performance of services related to the business
combination, in addition to their ongoing duties, and
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(ii) provide an incentive for these individuals to continue their employment
with the New Holding Company. The amount payable under each agreement is equal
to a specified multiple of the participant's base salary plus annual incentive
bonus at target. The multiple is 1.0 or less except for two individuals for whom
the multiple is 2.0. Payment of the bonuses is conditioned upon the completion
of the business combination or another business combination transaction during
the term of the agreements. If the business combination is completed, payment
generally will be made if (i) the covered individual continues employment with
New Holding Company and its subsidiaries for a specified period of six to twelve
months following the completion of the business combination or (ii) the covered
individual's employment is actually or constructively terminated prior to or
following the completion of the business combination other than for cause. The
incentive/retention bonus agreements provide for the deferral of payment of
amounts that would otherwise fail to be deductible by reason of Section 162(m)
of the Internal Revenue Code. With respect to pooling and deductibility of
payments under Internal Revenue Code Section 280G, the incentive/retention bonus
agreements contain provisions similar to those of the Pacific Enterprises'
severance agreements.
The incentive/retention bonus agreements for Messrs. Farman and Mitchell
and each of the Enova participants additionally provide for the deferral, under
a deferred compensation plan, of amounts otherwise payable under their
agreements. For Messrs. Farman and Mitchell and officers of Enova, the entire
amount of their bonuses will be deferred for a period of at least two years from
the completion of the business combination. The entire bonus amount will be
deemed to be invested in New Holding Company Common Stock, with any deemed
dividends deemed to be reinvested in additional shares. One-half of the bonus
will be payable two years from the completion of the business combination. The
remaining half will be payable at the later of (i) two years from the completion
of the business combination and (ii) the first date on which a share of New
Holding Company Common Stock attains a value that is 10% higher than the value
of a share of Pacific Enterprises or Enova Common Stock, as applicable, on
October 11, 1996, the last trading day before the announcement of the business
combination, as adjusted for the business combination. The bonus payments will
be made in cash, based on the value of New Holding Company Common Stock on each
payment date. The same terms generally apply to non-officers of Enova, except
that the mandatory deferral period is one year. In addition, participants may
select a deferral period of greater than two years, during which time the
amounts deferred will continue to be deemed invested in New Holding Company
Common Stock with dividends reinvested.
The incentive/retention bonus agreements of Pacific Enterprises and its
subsidiaries provide for maximum aggregate incentive/retention bonus payments of
approximately $6 million, assuming the business combination is completed on
January 1, 1998. The approximate amounts payable to executive officers of
Pacific Enterprises (excluding any increase or decrease attributable to the
deferral of such amounts) are as follows: Richard D. Farman, $1,220,000; Warren
I. Mitchell, $620,000; Larry J. Dagley, $910,000; Frederick E. John, $290,000;
Leslie E. LoBaugh, Jr., $280,000; Debra L. Reed, $260,000; Lee M. Stewart,
$250,000; Eric B. Nelson, $230,000; Ralph Todaro, $200,000; and Dennis V.
Arriola, $160,000.
The incentive/retention bonus agreements of Enova and its subsidiaries
provide for maximum aggregate incentive/retention bonus payments of
approximately $4.7 million assuming the business combination is completed on
January 1, 1998. The approximate amounts payable to executive officers of Enova
(excluding any increase or decrease attributable to the deferral of such
amounts) are as follows: Thomas A. Page, $880,000; Stephen L. Baum, $1,032,000;
Donald E. Felsinger, $704,000; David R. Kuzma, $692,000; Edwin A. Guiles,
$316,000; and Gary D. Cotton, $223,000.
In addition, the Chairman of the Board of Pacific Enterprises and the Chief
Executive Officer of Enova have each been granted the authority to provide
incentive/retention bonus agreements to other non-officer employees. The maximum
aggregate bonus amounts payable under such agreements is $5 million for each
company.
Vesting of Employee Stock Options. Pursuant to pre-existing terms of
employee stock option and incentive plans maintained by Pacific Enterprises,
upon approval of the business combination by the
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shareholders of Pacific Enterprises, all outstanding Pacific Enterprises
employee stock options will become immediately exercisable in full. The
following table sets forth information with respect to the number and
approximate net value of accelerated employee stock options held by the
executive officers of Pacific Enterprises, assuming that the business
combination is approved by shareholders on March 11, 1997.
<TABLE>
<CAPTION>
NUMBER OF APPROXIMATE NET
UNVESTED VALUE OF
OPTIONS ACCELERATED
NAME AND TITLE ACCELERATED OPTIONS(1)
------------------------------------------ ----------- ---------------
<S> <C> <C>
Willis B. Wood, Jr. 118,200 $ 835,000
Richard D. Farman 93,333 $ 545,000
Warren I. Mitchell 44,400 $ 300,000
Larry J. Dagley 10,000 $ 35,000
Frederick E. John 22,600 $ 135,000
Leslie LoBaugh, Jr. 26,400 $ 175,000
Debra L. Reed 21,700 $ 95,000
Lee M. Stewart 18,700 $ 95,000
Eric B. Nelson 8,600 $ 45,000
Ralph Todaro 10,600 $ 60,000
Dennis V. Arriola 6,300 $ 35,000
</TABLE>
- ---------------
(1) The figures in this column have been determined by multiplying (i) the
number of option shares assumed to be accelerated upon shareholder approval
of the business combination by (ii) the excess of the $30.375 per share
price of Pacific Enterprises Common Stock on December 31, 1996 over the
exercise price of each option. The actual net value of the accelerated
options will depend on the market price of Pacific Enterprises Common Stock
on and after the date its shareholders approve the business combination.
Indemnification. Pursuant to the Merger Agreement, to the extent not
provided by an existing right of indemnification or other agreement or policy,
from and after the completion of the business combination, New Holding Company
will, to the fullest extent not prohibited by applicable law, indemnify, defend
and hold harmless each person who, prior to that date, was an officer or
director of Pacific Enterprises or Enova or any of their subsidiaries against
all losses, expenses (including reasonable attorneys' fees), claims, damages or
liabilities or, subject to certain restrictions, amounts paid in settlement (i)
arising out of actions or omissions occurring at or prior to completion of the
business combination that arise from or are based on such service as an officer
or director or (ii) that are based on or arise out of or pertain to the
transactions contemplated by the Merger Agreement. For a period of five years
following the completion of the business combination and subject to certain
limitations, New Holding Company also will maintain in effect the policies of
director and officer liability insurance. All rights to indemnification existing
in favor of the employees, agents, directors or officers of Pacific Enterprises,
Enova and their respective subsidiaries with respect to their activities as such
prior to the completion of the business combination, will survive the business
combination and will continue in full force and effect for a period of not less
than six years from the completion of the business combination. See "The Merger
Agreement -- Indemnification."
ENERGY MARKETING JOINT VENTURE
As contemplated by the Merger Agreement, subsidiaries of Pacific
Enterprises and Enova have formed an Energy Marketing Joint Venture with an
initial capitalization of $10 million to pursue energy marketing opportunities.
Additional capital and assets will be contributed by Pacific Enterprises and
Enova in accordance with the terms of a related joint venture agreement.
The Energy Marketing Joint Venture will market energy (including
electricity at retail and natural gas at both wholesale and retail) and energy
related products and services. It will engage in commodity trading in natural
gas and other fuels, including gas pipeline capacity trading,
storage/balancing/peaking services, asset
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based services, and related risk management services. It will also provide
project management, design, construction, leasing, financing, operation,
maintenance, equipment monitoring and energy information consulting and other
services related to the use of energy.
The targeted customers for energy commodity marketing products will
initially be large industrial customers (greater than 250,000 therms of natural
gas usage annually or BTU equivalent in electricity consumption), large and
medium sized commercial customers (greater than 50,000 therms of natural gas
usage annually or a BTU equivalent in electricity consumption), including
schools, hospitals, colleges, federal or state facilities, national chain
accounts and municipalities and residential and small commercial customers. The
targeted customers for energy management products and services will be
residential consumers, the business-to-business marketplace (including large
industrial and commercial customers, commercial buildings, hospitals, hotels,
retail chain stores, restaurants chains and grocery store chains), the wholesale
marketplace (including municipal utilities, local distribution companies and
electric co-ops), and federal and state government facilities, colleges,
universities and schools.
During the first one to two years of operation, the energy marketing joint
venture expects to focus 80% of its marketing efforts in California and the
balance outside of California, targeting areas where the retail direct access
sector is opened up as a result of electric industry deregulation or locations
of key customers. The energy marketing joint venture expects to expand through a
combination of internal growth and possibly other joint ventures or
acquisitions.
The Energy Marketing Joint Venture is terminable by either company without
economic penalty in the event the Merger Agreement is terminated.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the business combination to holders of Pacific Enterprises
Common Stock and holders of Enova Common Stock. The summary is based upon the
Internal Revenue Code, administrative pronouncements, judicial decisions and
Treasury regulations, subsequent changes to any of which may affect the tax
consequences described herein. The summary does not purport to be a
comprehensive description of all of the tax consequences applicable to a
particular taxpayer. In particular, the summary does not address the tax
consequences to shareholders subject to special tax rules, such as banks,
insurance companies, dealers in securities or shareholders who acquired their
stock pursuant to the exercise of employee stock options or otherwise as
compensation. In addition, the summary only applies to a shareholder (a) who is
a U.S. citizen or resident, a U.S. corporation, partnership or other entity
created or organized under the laws of the United States, or an estate or trust
the income of which is subject to U.S. federal income taxation regardless of its
source and (b) who holds shares of Pacific Enterprises Common Stock or Enova
Common Stock as capital assets. Shareholders are urged to consult their tax
advisors as to the particular United States federal income tax consequences to
them of the business combination and as to the foreign, state, local and other
tax consequences thereof.
Except with respect to any cash in respect of fractional shares received by
holders of Pacific Enterprises Common Stock pursuant to the business
combination, the business combination has been structured to qualify as tax-free
transactions under Section 351 the Internal Revenue Code. The obligations of
Pacific Enterprises and Enova to complete the business combination are
conditioned on the receipt by Pacific Enterprises of an opinion from Skadden,
Arps, Slate, Meagher & Flom LLP, counsel to Pacific Enterprises, and the receipt
by Enova of an opinion from Shearman & Sterling, counsel to Enova, that based
upon customary representations and assumptions the business combination so
qualifies. Pacific Enterprises and Enova have the right to waive this condition,
but have no intention of doing so. In the event the condition were to be waived
by either company, each company would distribute a supplement to this Joint
Proxy Statement/Prospectus to disclose the waiver and all material related
consequences including risks to investors, and would resolicit the shareholder
approval of the principal terms of the business combination. See "The Merger
Agreement -- Conditions to Obligations to Effect the Business Combination." The
following discussion represents a summary of the contents of the opinions that
the companies expect to receive prior to the closing.
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Tax Consequences to Pacific Enterprises Shareholders and Enova
Shareholders. Subject to the discussion below concerning fractional shares, no
gain or loss will be recognized by holders of Pacific Enterprises Common Stock
and holders of Enova Common Stock (other than shareholders who exercise and
perfect dissenters' rights) upon the conversion of their Pacific Enterprises
Common Stock and Enova Common Stock into New Holding Company Common Stock.
The aggregate tax basis of the shares of New Holding Company Common Stock
received by such shareholders will be the same as the aggregate tax basis of the
shares of Pacific Enterprises Common Stock and Enova Common Stock exchanged
therefor, reduced by the tax basis allocable to any fractional-share interest in
New Holding Company Common Stock with respect to which cash is being received.
The holding period of the shares of New Holding Company Common Stock received by
holders of Pacific Enterprises Common Stock and holders of Enova Common Stock
will include the holding period of the shares of Pacific Enterprises Common
Stock and Enova Common Stock surrendered therefor.
Holders of Pacific Enterprises Common Stock who receive cash with respect
to fractional shares will be treated as having received such fractional shares
pursuant to the business combination and then as having sold those fractional
shares in the market for cash. Such Pacific Enterprises shareholders will
recognize gain or loss with respect to such fractional shares in an amount equal
to the difference between the tax basis allocated to such fractional shares and
the cash received in respect thereof. Any such gain or loss will be capital gain
or loss and will constitute long-term capital gain or loss if the holding period
of such fractional shares (as determined above) exceeds one year.
Tax Consequences to Pacific Enterprises and Enova. No income, gain or loss
will be recognized by Pacific Enterprises, Enova or New Holding Company pursuant
to the business combination.
Tax Consequences to Pacific Enterprises and Enova Shareholders upon
Exercise of Dissenting Shareholders' Rights. A holder of Pacific Enterprises
Common Stock or Enova Common Stock who exercises and perfects dissenters' rights
will generally recognize capital gain or loss equal to the difference between
the amount of cash received (other than in respect of interest) and such
shareholder's tax basis in his shares of stock. Such capital gain or loss will
be longterm capital gain or loss if such shares have a holding period exceeding
one year at the time of the completion of the business combination. Interest, if
any, awarded will be includible in such shareholder's income as ordinary income
for U.S. federal income tax purposes.
ACCOUNTING TREATMENT
The business combination is designed to qualify as a pooling of interests
for accounting and financial reporting purposes. Under this method of
accounting, the recorded assets and liabilities of Pacific Enterprises and Enova
will be carried forward to the consolidated financial statements of New Holding
Company at their recorded amounts; income of New Holding Company will include
income of Pacific Enterprises and Enova for the entire fiscal year in which the
business combination occurs; and the reported income of the separate
corporations for prior periods will be combined and restated as income of New
Holding Company. The receipt by each of Pacific Enterprises and Enova of a
letter from Deloitte & Touche LLP, their respective independent accountants,
stating that the transaction will qualify as a pooling of interests, is a
condition to the completion of the business combination. Representatives of
Deloitte & Touche LLP are expected to be present at the Pacific Enterprises and
Enova Special Meetings of Shareholders and to be available to respond to
questions, and will have an opportunity to make a statement if they desire to do
so. See "The Merger Agreement -- Conditions to Obligations to Effect the
Business Combination" and "Unaudited Pro Forma Combined Condensed Financial
Information."
STOCK EXCHANGE LISTING OF NEW HOLDING COMPANY COMMON STOCK
Application will be made for the listing on the New York Stock Exchange of
the shares of New Holding Company Common Stock to be issued in the business
combination. Such listing is a condition precedent to the completion of the
business combination. So long as Pacific Enterprises and Enova continue to meet
applicable listing requirements, Pacific Enterprises Common Stock and Enova
Common Stock will continue to be listed on the New York and Pacific Stock
Exchanges until the completion of the business combination.
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Shares of Pacific Enterprises Preferred Stock will not be converted in the
business combination and will remain outstanding. Pacific Enterprises Preferred
Stock will continue to be listed on the American and Pacific Stock Exchanges
following the completion of the business combination, so long as Pacific
Enterprises continues to meet applicable listing requirements.
Shares of SDG&E Preference Stock (Cumulative) and of SDG&E Cumulative
Preferred Stock will not be converted in the business combination and will
remain outstanding. SDG&E Preferred Stock (Cumulative) and SDG&E Preferred Stock
will continue to be listed on the American Stock Exchange following the
completion of the business combination, so long as SDG&E continues to meet
applicable listing requirements.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of New Holding Company Common Stock received by Pacific
Enterprises or Enova shareholders in the business combination will be freely
transferable, except that shares of New Holding Company Common Stock received by
persons who are deemed to be "affiliates" (as such term is defined under the
Securities Act) of Pacific Enterprises or Enova prior to the business
combination may be resold by them only in transactions permitted by the resale
provisions of Rule 145 promulgated under the Securities Act (or Rule 144, in the
case of such persons who become affiliates of New Holding Company) or as
otherwise permitted under the Securities Act. Persons who may be deemed to be
affiliates of Pacific Enterprises, Enova or New Holding Company generally
include individuals or entities that control, are controlled by, or are under
common control with, such company and may include certain officers and directors
of such company as well as principal shareholders of such company. The Merger
Agreement requires each of Pacific Enterprises and Enova to use all reasonable
efforts to cause each of its affiliates to execute a written agreement to the
effect that such affiliate will not sell, assign or transfer any shares of New
Holding Company received in the business combination except (i) pursuant to an
effective registration statement under the Securities Act, (ii) by a sale made
in conformity with the volume and other limitations of Rule 145 promulgated
under the Securities Act (and otherwise in accordance with Rule 144 promulgated
under the Securities Act if the person is an affiliate of New Holding Company
and if so required at the time) or (iii) in a transaction which, in the opinion
of independent counsel to the affiliate reasonably satisfactory to New Holding
Company or as described in a "no-action" or interpretive letter from the Staff
of the Securities and Exchange Commission, is not required to be registered
under the Securities Act.
This Joint Proxy Statement/Prospectus does not cover resales of New Holding
Company Common Stock received by any person who may be deemed to be an affiliate
of Pacific Enterprises, Enova or New Holding Company.
REGULATORY MATTERS
Pacific Enterprises and Enova have agreed to use all reasonable efforts to
obtain all necessary material permits, licenses, franchises and other
governmental authorizations necessary or advisable to effect the business
combination and the other transactions contemplated by the Merger Agreement.
Competitors, consumer groups and various other parties have intervened or may
intervene in these proceedings to oppose the business combination or to have
conditions imposed upon the receipt of necessary approvals. While Pacific
Enterprises and Enova believe that they will receive the requisite regulatory
approvals for the business combination, there can be no assurance as to the
timing of such approvals or the ability of such parties to obtain such approvals
on satisfactory terms or otherwise. It is a condition to the completion of the
business combination that final orders approving the business combination be
obtained from the various federal and state commissions described below and that
neither such final orders nor any order, law or regulation of any governmental
authority impose terms or conditions which, in the aggregate, could reasonably
be expected to have a material adverse effect on (i) the ability of the
companies to achieve the business objectives contemplated by the business
combination or (ii) the operations, properties, assets or financial condition or
results of operations of New Holding Company and its prospective subsidiaries
taken as a whole, or which would be materially inconsistent with the agreements
of the companies contained in the Merger Agreement. Set forth below is a summary
of the material regulatory requirements affecting the business combination.
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California Public Utility Act. Section 854 of the California Public Utility
Act provides that it is unlawful for any person without the prior authorization
of the California Public Utilities Commission (the "CPUC") directly or
indirectly to merge, acquire or control a California public utility. Pacific
Enterprises, Enova and New Holding Company have jointly filed an application
with CPUC for authorization to consummate the business combination pursuant to
which Southern California Gas and SDG&E will become indirect subsidiaries of New
Holding Company. Southern California Gas and SDG&E are, and following the
completion of the combination will continue to be, California public utilities
subject to the jurisdiction of the CPUC with respect to their utility
operations.
Under the applicable standards of the California Public Utility Act, before
authorizing the acquisition of a California utility, the CPUC is required to
find that the acquisition (i) provides short-term and long-term economic
benefits to utility ratepayers and (ii) will not adversely affect competition.
In addition, to the extent Section 854(b)(2) of the California Public Utility
Act is applicable to the business combination, the CPUC will be required to find
that the business combination equitably allocates short-term and long-term
forecasted economic benefits of the business combination between shareholders
and utility ratepayers with ratepayers receiving not less than 50% of the
benefits from regulated operations. In making its finding with respect to
competition, the CPUC is required to request an advisory opinion from the
California Attorney General as to the effect of the acquisition on competition
and mitigation measures with respect to adverse effects.
In addition, before authorizing an acquisition, the CPUC must find that the
acquisition is, on balance, in the public interest after considering the
following criteria: (i) maintenance or improvement of the financial condition of
the affected public utilities, (ii) maintenance or improvement of the quality of
service to public utility ratepayers in California, (iii) maintenance or
improvement of the management of the affected public utilities, (iv) fairness
and reasonableness of the acquisition to affected public utility employees and
shareholders, (v) benefits on an overall basis to California and local economies
and to communities served by the public utilities, (vi) preservation of the
CPUC's jurisdiction and its capacity to effectively regulate and audit public
utility operation in California and (vii) mitigation measures to prevent
significant adverse consequences. The CPUC is also required to consider
reasonable options to the acquisition recommended by other parties to the CPUC
proceedings to determine whether comparable short-term and long-term economic
savings can be achieved through other means while avoiding the possible adverse
consequences of the acquisition.
Federal Power Act. Section 203 of the Federal Power Act provides that no
public utility shall sell or otherwise dispose of its jurisdictional facilities
or, directly or indirectly, merge or consolidate such facilities with those of
any other person or acquire any security of any other public utility without
first having obtained authorization from the Federal Energy Regulatory
Commission (the "FERC"). Pacific Enterprises and Enova have filed with the FERC
a petition for disclaimer of jurisdiction over the business combination and have
also filed, in the alternative, an application for approval of the business
combination. Under Section 203 of the Federal Power Act, the FERC will approve a
business combination if it finds the business combination "consistent with the
public interest." Under its recently promulgated policy governing mergers of
jurisdictional electric utilities under the Federal Power Act, the FERC has
indicated it will consider: (i) whether the business combination will adversely
affect competition, (ii) whether the business combination will adversely affect
rates, and (iii) whether the business combination will impair the effectiveness
of regulation.
Antitrust Considerations. The Hart-Scott-Rodino Antitrust Improvements Act
(the "HSR Act") provides that certain transactions (including the business
combination) may not be completed until certain information has been submitted
to the Antitrust Division of the Department of Justice and the Federal Trade
Commission and specified HSR Act waiting period requirements have been
satisfied. The expiration or earlier termination of the HSR Act waiting period
would not preclude the Antitrust Division or the Federal Trade Commission, or
private parties or state attorneys general, from challenging the business
combination on antitrust grounds. Neither Pacific Enterprises nor Enova believes
that the business combination will violate federal antitrust laws. The companies
will timely submit the information required by the HSR Act. If the business
combination is not completed within 12 months after the expiration or earlier
termination of the initial HSR Act waiting period, Pacific Enterprises and Enova
would be required to submit new information to
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the Antitrust Division and the Federal Trade Commission, and a new HSR Act
waiting period would have to expire or be earlier terminated before the business
combination could be completed.
Public Utility Holding Company Act. Section 9(a)(2) of the Public Utility
Holding Company Act (the "Holding Company Act") provides that it is unlawful for
any person without the prior approval of the Securities and Exchange Commission
to acquire any security of any public utility company or public utility holding
company if, upon giving effect to the transaction, that person would own 5% or
more of the voting securities of two or more public utility companies or public
utility holding companies. Accordingly, New Holding Company will timely file an
application to obtain Securities and Exchange Commission for approval for its
indirect acquisition, through the business combination, of the stock of Southern
California Gas and SDG&E. Under the applicable standards of the Holding Company
Act, if the proposed acquisition complies with applicable state law, the
Securities and Exchange Commission is directed to approve the acquisition unless
it finds that (1) the acquisition would tend towards detrimental interlocking
relations or a detrimental concentration of control, (2) the consideration to be
paid in connection with the acquisition is not reasonable, or (3) the
acquisition would unduly complicate the capital structure of the applicant's
holding company system or would be detrimental to the proper functioning of the
applicant's holding company system. In order to approve a proposed acquisition,
the Securities and Exchange Commission must also find that the acquisition would
tend towards the development of an integrated public utility system and must not
find that the acquisition would be detrimental to the integration and corporate
simplification standards of the Holding Company Act.
Pacific Enterprises and Enova are currently exempt from the registration
and other requirements of the Holding Company Act, (other than from Section
9(a)(2) thereof) under Section 3(a)(1) of the Holding Company Act applicable to
utility holding companies which, together with each of their material public
utility subsidiaries, are predominantly intrastate in character and carry on
their business substantially in a single state in which the holding company and
every material public utility subsidiary is organized. New Holding Company is,
and Pacific Enterprises, Enova, Southern California Gas and SDG&E are and will
continue to be, incorporated in California and will conduct public utility
business (as defined in the Holding Company Act) substantially only in
California. Accordingly, the companies believe that such exemption from the
Holding Company Act will be available to New Holding Company.
Public Utility Regulatory Policies Act. Pacific Enterprises owns indirect
interests in several small electric generation facilities which are "qualifying
facilities" under Public Utility Regulatory Policies Act and as such are
entitled to a mandatory purchase obligation and exemption from regulation in
connection with their sales of electricity. Qualifying facility status is not
available to any facilities more than 50% owned by an electric utility or
electric utility holding company.
Upon the completion of the business combination, New Holding Company by
reason of its indirect ownership of SDG&E will become an electric utility
holding company. Consequently, in order to avoid the loss of qualifying facility
status for Pacific Enterprises' small electric generation facilities, Pacific
Enterprises must cause its ownership in these facilities (aggregated with
ownership by all other entities constituting electric utilities or electric
utility holding companies) to be not more than 50% prior to the completion of
the business combination. Pacific Enterprises is considering several
alternatives to accomplish this result including the sale of all or part of
these facilities.
Atomic Energy Act. SDG&E holds Nuclear Regulatory Commission (the "NRC")
licenses in connection with its partial ownership in the San Onofre Nuclear
Generating Stations. The Atomic Energy Act provides that such a license or any
rights thereunder may not be transferred or in any manner disposed of, directly
or indirectly, to any person through transfer of control of the licensee unless
the NRC finds that such transfer is in accordance with the Atomic Energy Act and
consents to the transfer. Pursuant to the Atomic Energy Act, SDG&E will seek the
NRC's consent prior to the business combination because SDG&E, as a subsidiary
of Enova, will be indirectly owned by New Holding Company after completion of
the business combination.
Other. Pacific Enterprises and Enova possess municipal franchises and
various permits and licenses that may need to be renewed or replaced as a result
of the business combination. Neither Pacific Enterprises nor Enova anticipates
any difficulties at the present time in obtaining such renewals or replacements.
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, which is attached hereto as Annex A. The summary is not intended to
be complete and is qualified in its entirety by reference to the Merger
Agreement.
THE BUSINESS COMBINATION
The Merger Agreement provides that, following the approval of the principal
terms of the business combination by the shareholders of Pacific Enterprises and
Enova and the satisfaction or waiver of the other conditions to the business
combination, including obtaining requisite regulatory approvals, Pacific
Enterprises and Enova will become subsidiaries of New Holding Company and the
holders of Pacific Enterprises and Enova Common Stock will become holders of New
Holding Company Common Stock.
Pacific Enterprises and Enova have agreed in the Merger Agreement to call,
give notice of, convene and hold a special meeting of their respective
shareholders as soon as reasonably practicable for the purpose of securing their
approval of the business combination. Pacific Enterprises' obligation to hold
the Pacific Enterprises Special Meeting of Shareholders is subject to the
condition that neither Barr Devlin nor Merrill Lynch shall have withdrawn its
opinion as to the fairness to the holders of Pacific Enterprises Common Stock of
the ratio for the conversion of Pacific Enterprises Common Stock into New
Holding Company Common Stock. Enova's obligation to hold the Enova Special
Meeting of Shareholders is subject to the condition that Morgan Stanley shall
not have withdrawn its opinion as to the fairness to the holders of Enova Common
Stock of the ratio for the conversion of Enova Common Stock into New Holding
Company Common Stock.
If the business combination is approved by shareholders of Pacific
Enterprises and Enova, and the other conditions to the business combination are
satisfied or waived, the completion of the business combination will take place
on the second business day immediately following the date on which the last of
the conditions referred to below under "The Merger Agreement -- Conditions to
Obligations to Effect the Business Combination" is fulfilled or waived, or at
such other time and date as Pacific Enterprises and Enova shall mutually agree.
CONVERSION OF SHARES
The Merger Agreement provides that the business combination will be
effected by mergers of subsidiaries of New Holding Company with Pacific
Enterprises and Enova in which Pacific Enterprises and Enova will be the
surviving corporations in the mergers. In the merger of Pacific Enterprises:
- Each issued and outstanding share of Pacific Enterprises Common Stock
(other than shares that are canceled as described below and shares as to
which dissenters' rights are perfected) will be converted into the right
to receive 1.5038 shares of fully paid and non-assessable shares of New
Holding Company Common Stock.
- The aggregate of all shares of the capital stock of the merger subsidiary
of New Holding Company issued and outstanding immediately prior to the
merger will be converted into the right to receive that number of shares
of Pacific Enterprises Common Stock which is equivalent to the aggregate
number of shares of Pacific Enterprises Common Stock outstanding
immediately prior to the merger.
- Each share of Pacific Enterprises Common Stock (including any associated
right to receive or purchase shares of the capital stock of Pacific
Enterprises pursuant to the terms of a Rights Agreement, dated as of
March 7, 1989, as amended, between Pacific Enterprises and Chemical Bank,
as successor Rights Agent) that is owned by subsidiaries of Pacific
Enterprises or by Enova, New Holding Company or any of their subsidiaries
will be canceled and cease to exist.
- All issued and outstanding shares of Pacific Enterprises Preferred Stock
will be unchanged and will remain outstanding.
- The shares of Pacific Enterprises Common Stock as to which dissenters'
rights are perfected will not be canceled and converted into the right to
receive New Holding Company Common Stock but will be
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canceled and converted into such consideration as may be due with respect
to such shares pursuant to the applicable provisions of the California
General Corporation Law.
In the merger of Enova:
- Each issued and outstanding share of Enova Common Stock (other than
shares that are canceled as described below and shares as to which
dissenters' rights are perfected) will be converted into the right to
receive one fully paid and non-assessable share of New Holding Company
Common Stock.
- The aggregate of all shares of the capital stock of the merger subsidiary
of New Holding Company issued and outstanding immediately prior to the
merger will be converted into the right to receive that number of shares
of Enova Common Stock which is equivalent to the aggregate number of
shares of Enova Common Stock outstanding immediately prior to the merger.
- Each share of Enova Common Stock that is owned by subsidiaries of Enova
or by Pacific Enterprises, New Holding Company or any of their
subsidiaries will be canceled and cease to exist.
- The shares of Enova Common Stock as to which dissenters' rights are
perfected will not be canceled and converted into the right to receive
New Holding Company Common Stock but will be canceled and converted into
such consideration as may be due with respect to such shares pursuant to
the applicable provisions of the California General Corporation Law.
All shares of New Holding Company Common Stock outstanding immediately
prior to the business combination will be canceled. Consequently, as a result of
the business combination, Pacific Enterprises and Enova will become subsidiaries
of New Holding Company and holders of Pacific Enterprises and Enova Common Stock
(other than those who perfect their dissenters' rights) will become holders of
New Holding Company Common Stock.
Based upon the capitalization of Pacific Enterprises and Enova and the
ratios for the conversion of Pacific Enterprises and Enova Common Stock into New
Holding Company Common Stock, Pacific Enterprises shareholders will own
approximately 52% and Enova shareholders will own approximately 48% of New
Holding Company Common Stock that will be outstanding upon completion of the
business combination.
Shares of Pacific Enterprises and Southern California Gas Preferred Stock
and SDG&E Preference Stock will not be converted in the business combination and
will remain outstanding without any change in their respective rights,
preferences and privileges. These shares will continue to be administered by
their respective issuers following the completion of the business combination in
a manner consistent with past practice.
FRACTIONAL SHARES
If any holder of Pacific Enterprises Common Stock would be entitled to
receive a number of shares of New Holding Company Common Stock that includes a
fraction, then in lieu of a fractional share, the holder will be entitled to
receive a cash payment, without any interest thereon, in an amount representing
the holder's proportionate interest in the net proceeds from the sale by an
exchange agent on behalf of all such holders of the aggregate of the fractions
of shares of New Holding Company Common Stock that would otherwise be issued to
such holders. The sale of the aggregate fractional shares by the exchange agent
will be executed on the New York Stock Exchange.
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the completion of the business combination, an
exchange agent will mail to each holder of record of the certificates previously
representing shares of Pacific Enterprises and Enova Common Stock, a letter of
transmittal and instructions for use in effecting the surrender of the
certificates in exchange for certificates representing shares of New Holding
Company Common Stock. Upon surrender of a certificate to the exchange agent for
cancellation, together with a duly executed letter of transmittal and such other
documents as the exchange agent may require, the holder of the certificate will
be entitled to receive a certificate representing that number of whole shares of
New Holding Company Common Stock and any cash
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in lieu of fractional shares of New Holding Company Common Stock which the
holder of the surrendered certificate has the right to receive pursuant to the
provisions of the Merger Agreement. Until surrendered, each certificate will be
deemed, at any time after the completion of the business combination, to
represent only the right to receive, upon surrender, a certificate representing
the shares of New Holding Company Common Stock and cash in lieu of any
fractional shares of New Holding Company Common Stock.
No dividends or other distributions declared or made after the completion
of the business combination with respect to New Holding Company Common Stock
with a record date after the completion of the business combination will be paid
to the holder of any unsurrendered certificate with respect to New Holding
Company Common Stock represented thereby and no cash payment in lieu of
fractional shares will be paid to any such holder until the holder of record of
the certificate surrenders such certificate. After such surrender, subject to
applicable law, there will be paid to the holder, without interest, the unpaid
dividends and distributions, and any cash payment in lieu of a fractional share
to which the holder is entitled.
HOLDERS OF PACIFIC ENTERPRISES COMMON STOCK OR ENOVA COMMON STOCK SHOULD
NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL FORM. HOLDERS OF
PACIFIC ENTERPRISES PREFERRED STOCK NEED NOT EXCHANGE THEIR CERTIFICATES.
ENERGY MARKETING JOINT VENTURE
As contemplated by the Merger Agreement, subsidiaries of Pacific
Enterprises and Enova have formed an Energy Marketing Joint Venture to pursue
energy marketing opportunities and provide related energy products and services.
The Energy Marketing Joint Venture is terminable by either company without
economic penalty in the event the Merger Agreement is terminated.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary reciprocal representations and
warranties by Pacific Enterprises and Enova relating to, among other things, (a)
their respective organizations, the organization of their respective
subsidiaries and similar corporate matters; (b) their respective capital
structures; (c) authorization, execution, delivery, performance and
enforceability of the Merger Agreement and related matters; (d) required
regulatory approvals; (e) their compliance with applicable laws and agreements;
(f) reports and financial statements filed with the Securities and Exchange
Commission and the accuracy of information contained therein; (g) the absence of
any material adverse effect on their operations, properties, assets, financial
condition or results of operations or the ability to achieve the business
objectives contemplated by the business combination; (h) the absence of adverse
material suits, claims or proceedings, and other litigation issues; (i) the
accuracy of information supplied by each of Pacific Enterprises and Enova for
use in the Registration Statement of which this Joint Proxy Statement/Prospectus
forms a part; (j) certain agreements relating to certain employment and benefits
matters; (k) tax matters; (l) retirement and other employee benefit plans and
matters relating to the Employee Retirement Income Security Act; (m) labor
matters; (n) compliance with environmental laws, possession of material
environmental, health, and safety permits and other environmental issues; (o)
the regulation of Pacific Enterprises and Enova and their subsidiaries as public
utilities; (p) the shareholder vote required in connection with the Merger
Agreement and the transactions contemplated thereby (as set forth in this Joint
Proxy Statement/Prospectus) being the only vote required; (q) that neither
Pacific Enterprises and Enova nor any of their respective affiliates have taken
or agreed to take any action that would prevent New Holding Company from
accounting for the business combination as a pooling of interests for financial
accounting purposes; and (r) the delivery of fairness opinions by Barr Devlin
and Merrill Lynch, in the case of Pacific Enterprises, and Morgan Stanley, in
the case of Enova. In addition, the Merger Agreement contains representations
and warranties by Enova as to its (a) compliance with health, safety, regulatory
and legal requirements regarding its nuclear operations and (b) the continued
tax-exempt status of outstanding revenue bonds of SDG&E.
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<PAGE> 68
CERTAIN COVENANTS
Pursuant to the Merger Agreement, Pacific Enterprises and Enova each has
agreed that, during the period from the date of the Merger Agreement until the
completion of the business combination, it will, subject to certain exceptions
specified therein, among other things:
- Dividends. Not declare or pay any dividends on Common Stock other than
regular quarterly dividends not in excess of 110% of the dividends for
the prior year.
- Stock Acquisitions. Not redeem, purchase or otherwise acquire shares of
Common Stock or Preferred Stock other than (i) mandatory redemptions and
certain refundings of Preferred Stock, (ii) in connection with employee
benefit plans, (iii) the repurchase by each company of up to 4,250,000
shares of its Common Stock and (iv) the expenditure by each company of up
to $50 million for repurchases or other acquisitions of Preferred Stock.
- Issuance of Stock. Not issue any capital stock, rights, warrants, options
or convertible or similar securities other than in connection with (i)
certain refundings of Preferred Stock and debt, (ii) certain permitted
business acquisitions and financings and (iii) employee benefit plans,
stock option and other incentive compensation plans, directors' plans and
stock purchase and dividend reinvestment plans.
- Acquisitions. Not engage in acquisitions of $10 million or more.
- Capital Expenditures. Not make any capital expenditures in excess of $20
million, in the aggregate over the amounts budgeted.
- Dispositions. Not sell, lease, encumber or otherwise dispose of material
assets in an aggregate amount equaling or exceeding $10 million, other
than planned or ordinary course of business dispositions and
encumbrances.
- Indebtedness. Not incur indebtedness other than (i) short-term
indebtedness in the ordinary course of business consistent with past
practice; (ii) long-term indebtedness not aggregating more than $100
million; (iii) in connection with certain refundings of Preferred Stock
and existing indebtedness; and (iv) refinancing of industrial development
bonds for which Enova is unable to obtain an opinion of outside counsel
as to continuing tax-exempt status.
- Employee Compensation and Benefits. Not enter into, adopt, amend or
increase the amount or accelerate the payment or vesting of any benefit
or amount payable, or grant any discretionary awards or benefits, under
any employee benefit plan, except for normal promotion and compensation
increases, hiring and discretionary award grants in the ordinary course
of business consistent with past practice that, in the aggregate, do not
result in a material increase in benefits or compensation expense to such
party or any of its subsidiaries.
- Employment Agreements. Not to enter into or amend any employment,
severance or special pay arrangement with respect to termination of
employment or other similar contract, agreement or arrangement with any
director or officer other than in the ordinary course of business
consistent with past practice.
- Pooling. Not take any actions which would, or would be reasonably likely
to, prevent New Holding Company from accounting for the business
combination as a pooling of interests.
- Taxation of Business Combination. Not take any actions which would, or
would be reasonably likely to, adversely affect the status of the
business combination as a tax-free transaction.
- Cooperation. Cooperate with the other company, provide reasonable access
to its books and records and promptly notify the other company of any
significant changes in its properties, assets, financial condition or
results of operations and discuss with the other company any material
changes in its rates or charges (other than pass-through fuel and gas
rates or charges), standards of service or accounting.
- Third Party Consents. Use all commercially reasonable efforts to obtain
certain third-party consents to the business combination.
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<PAGE> 69
- Breach. Not take any action that would, or is reasonably likely to,
result in a material breach of any provision of the Merger Agreement or
in any of its representations and warranties being untrue.
Any action prohibited by the foregoing may nonetheless be taken to the
extent expressly permitted by the Merger Agreement or the Energy Marketing Joint
Venture Agreement, or to the extent required by rule, regulation, statute or
other law in connection with California Assembly Bill 1890 (Public Utilities:
electrical restructuring) or in connection with the California Public Utilities
Commission and the Federal Energy Regulatory Commission electric industry
restructuring proceedings, or consented to in writing by the other company.
In addition, pursuant to the Merger Agreement, joint transition and
strategic opportunity committees have been formed to examine various
alternatives regarding the manner in which to best organize, manage and
integrate the business of New Holding Company after the completion of the
business combination and to facilitate the companies' ability to pursue
strategic opportunities in a manner consistent with both the objectives of the
Merger Agreement and the companies' desires to compete as aggressively as
possible in the rapidly evolving energy marketplace.
NO SOLICITATION OF ACQUISITION PROPOSALS
The Merger Agreement provides that neither Pacific Enterprises nor Enova
will directly or indirectly, initiate, solicit or encourage, or take any action
to facilitate the making of any offer or proposal which constitutes or is
reasonably likely to lead to any acquisition proposal by a third party. The
companies have also agreed that if either company should receive an unsolicited
acquisition proposal, it will not engage in negotiations or provide any
confidential information or data to any person relating to the proposal, except
prior to the receipt of the approval of the business combination by
shareholders, either company may engage in such negotiations or provide such
information in response to an unsolicited proposal to the extent the board of
directors of the company receiving the unsolicited proposal determines in good
faith, after consultation with outside counsel, that such action is reasonably
necessary for such board of directors to act in a manner consistent with its
fiduciary duties under applicable law. Acquisition proposal is defined in the
Merger Agreement to mean any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving either company or any of
its material subsidiaries, or any proposal or offer (in each case, whether or
not in writing and whether or not delivered to the shareholders of a company
generally) to acquire in any manner, directly or indirectly, a substantial
equity interest in, or a substantial portion of the assets of either company or
any of its material subsidiaries.
NEW HOLDING COMPANY BOARD OF DIRECTORS
The Merger Agreement provides that the Boards of Directors of Pacific
Enterprises and Enova will take such action as may be necessary to cause the New
Holding Company Board at the completion of the business combination to be
constituted of an equal number of directors designated by each of Pacific
Enterprises and Enova including Richard W. Farman, President and Chief Operating
Officer of Pacific Enterprises, and Stephen L. Baum, President and Chief
Executive Officer of Enova. The initial designation of such directors among the
three classes of the New Holding Company Board will be agreed between the
companies, the designees of each company to be divided as equally as is feasible
among such classes; provided, however, that if, prior to the completion of the
business combination, any of such designees shall decline or be unable to serve,
the company which designated such person will designate another person to serve
in such person's stead. To date, Pacific Enterprises and Enova have not decided
who, in addition to Messrs. Farman and Baum, will be designated to serve on the
New Holding Company Board after the completion of the business combination.
INDEMNIFICATION
The Merger Agreement provides that, to the extent, if any, not provided by
an existing right of indemnification or other agreement or policy, from and
after the completion of the business combination, New Holding Company will, to
the fullest extent not prohibited by applicable law, indemnify, defend and hold
harmless each person who, prior to that time, was an officer or director of
Pacific Enterprises or Enova or any
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of their subsidiaries against all losses, expenses (including reasonable
attorney's fees), claims, damages or liabilities or, subject to the proviso of
the next succeeding sentence, amounts paid in settlement arising out of actions
or omissions occurring at or prior to the completion of the business combination
(whether or not asserted or claimed prior to, at or after that time) that are in
whole or in part based on, or arising out of the fact that such person is or was
a director or officer of such party or based on or arising out of or pertaining
to the transactions contemplated by the Merger Agreement. In the event of any
such loss, expense, claim, damage or liability (whether or not arising before
the completion of the business combination), (i) New Holding Company will pay
the reasonable fees and expenses of counsel selected by the indemnified
individuals, which counsel shall be reasonably satisfactory to New Holding
Company, promptly after statements therefor are received and otherwise advance
to an indemnified individual upon request reimbursement of documented expenses
reasonably incurred, in either case to the extent not prohibited by California
law, (ii) New Holding Company will cooperate in the defense of any such matter
and (iii) any determination required to be made with respect to whether an
indemnified individual's conduct complies with the standards set forth under
California law and New Holding Company's Articles of Incorporation or Bylaws
will be made by independent counsel mutually acceptable to New Holding Company
and the indemnified individual; provided, however, that New Holding Company will
not be liable for any settlement effected without its written consent.
In addition, the Merger Agreement requires that for a period of six years
after the completion of the business combination, New Holding Company will cause
to be maintained in effect the policies of director and officer liability
insurance currently maintained by Pacific Enterprises and Enova; provided,
however, that in no event will New Holding Company be required to expend in any
one year an amount in excess of 200% of the annual premiums currently paid by
Enova and Pacific Enterprises for such insurance; and provided further that if
the annual premiums of such insurance coverage exceed such amount, New Holding
Company will be obligated to obtain a policy with the greatest coverage
available for a cost not exceeding such amount. Moreover, neither New Holding
Company nor any of its successors or assigns will (i) consolidate with or merge
into any other person so as not to be the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfer all or substantially all
of its properties and assets to any person unless, in either such case, proper
provisions are made so that the successors and assigns of New Holding Company
assume the obligations set forth in the Merger Agreement.
Also, the Merger Agreement provides that to the fullest extent not
prohibited by law, from and after the completion of the business combination,
all rights to indemnification as of the date of the Merger Agreement in favor of
the employees, agents, directors or officers of Pacific Enterprises, Enova and
their respective subsidiaries with respect to their activities as such, prior to
the completion of the business combination, as provided in their respective
Articles of Incorporation or By-laws or otherwise in effect on the date of the
Merger Agreement, will survive the business combination and will continue in
full force and effect for a period of not less than six years from the
completion of the business combination. Moreover, Pacific Enterprises, Enova and
New Holding Company will honor and fulfill in all respects the obligations of
Pacific Enterprises and Enova pursuant to indemnification agreements with
Pacific Enterprises' and Enova's officers and directors existing at that time.
CONDITIONS TO OBLIGATIONS TO EFFECT THE BUSINESS COMBINATION
The respective obligations of Pacific Enterprises and Enova to effect the
business combination are subject to the following conditions: (a) approval of
the principal terms of the business combination by the shareholders of Pacific
Enterprises and Enova shall have been obtained; (b) no temporary restraining
order or preliminary or permanent injunction or other order by any federal or
state court preventing completion of the business combination shall have been
issued and continuing in effect, and the business combination and the other
transactions contemplated hereby shall not have been prohibited under any
applicable federal or state law or regulation; (c) the Registration Statement of
which this Joint Proxy Statement/Prospectus is a part shall have become
effective in accordance with the provisions of the Securities Act, and no stop
order suspending such effectiveness shall have been issued and remain in effect;
(d) the shares of New Holding Company Common Stock issuable in the business
combination shall have been approved for listing on the
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New York Stock Exchange upon official notice of issuance; (e) all statutory
approvals shall have been obtained at or prior to the completion of the business
combination and do not impose terms or conditions which, in the aggregate, could
reasonably be expected to have a material adverse effect on (i) the ability of
the companies to achieve the business objectives contemplated by the business
combination or (ii) the operations, properties, assets or financial condition or
results of operations of New Holding Company and its prospective subsidiaries
taken as a whole or which would be materially inconsistent with the agreements
of the parties contained in the Merger Agreement; (f) the applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act shall have expired
or been terminated; (g) each of Pacific Enterprises and Enova shall have
received a letter of its independent public accountants, Deloitte & Touche LLP,
dated the date of completion of the business combination, in form and substance
reasonably satisfactory to Pacific Enterprises and Enova, stating that the
transactions effected pursuant to the Merger Agreement will qualify as a pooling
of interests transaction under generally accepting accounting principles and
applicable Securities and Exchange Commission regulations; and (h) with respect
to each of Pacific Enterprises and Enova: (i) the performance in all material
respects of its agreements and covenants contained in or contemplated by the
Merger Agreement required to be performed by it at or prior to the completion of
the business combination; (ii) the representations and warranties set forth in
the Merger Agreement shall be true and correct in all material respects as of
the date of the Merger Agreement and as of the completion of the business
combination; (iii) the receipt of officer's certificates from each other stating
that the conditions set forth the Merger Agreement have been satisfied; (iv) no
material adverse effects shall have occurred and there shall exist no fact or
circumstance which could reasonably be expected to have a material adverse
effect on the operations, properties, assets, financial condition, results of
operations or prospects of the other company and its subsidiaries taken as a
whole or on the consummation of the transactions contemplated by the Merger
Agreement or the ability of the companies to achieve the business objectives
contemplated by the business combination; (v) Pacific Enterprises shall have
received an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, and Enova shall
have received an opinion of Shearman & Sterling, to the effect that the Pacific
Enterprises Merger, taken together with the Enova Merger, will be treated as a
tax-free reorganization under Section 351 of the Internal Revenue Code; and (vi)
the material required third party consents shall have been obtained.
BENEFIT PLANS
A committee comprised of officers and employees of Pacific Enterprises and
Enova has been formed for the purpose of developing short and long-term
incentive compensation arrangements for New Holding Company which are to be
implemented after the completion of the business combination and making any
appropriate adjustments to the performance goals, target awards and any other
relevant criteria under the incentive compensation plans of Pacific Enterprises
and Enova that are in effect as of that date to take the business combination
into account. In addition, the committee will conduct a review of Pacific
Enterprises' and Enova's benefit plans in order to coordinate the provision of
benefits after the completion of the business combination and to eliminate
duplicative benefits.
Pursuant to pre-existing terms of employee stock option and incentive plans
maintained by Pacific Enterprises, upon approval of the business combination by
the shareholders of Pacific Enterprises, all outstanding employee stock options
will become immediately exercisable in full.
TERMINATION
The Merger Agreement may be terminated at any time prior to the completion
of the business combination under certain circumstances, including by mutual
consent of Pacific Enterprises and Enova; by either company if the business
combination is not completed by April 30, 1998; by either company if the
requisite shareholder approvals are not obtained by June 30, 1997; by either
company as a result of a legal or regulatory prohibition; by a non-breaching
company if there occurs a material breach of any material representation,
warranty, covenant or agreement contained in the Merger Agreement which is not
cured within sixty days; by either company if there is a withdrawal or adverse
modification of the recommendation of the Merger Agreement by the other
company's Board of Directors or the approval of a third party acquisition
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proposal by the other company's Board of Directors; or by either company, under
certain circumstances, as a result of a third party acquisition proposal which
such company, pursuant to its directors' fiduciary duties, determines to accept.
In the event of termination of the Merger Agreement (other than as a result
of a willful breach) by either Pacific Enterprises or Enova, as provided above,
there will be no liability or obligation on the part of either Pacific
Enterprises or Enova or their respective officers or directors other than: (i)
to hold in strict confidence all documents furnished to the other in accordance
with the Confidentiality Agreement, dated April 4, 1996; (ii) to pay certain
fees and expenses pursuant to certain specified provisions of the Merger
Agreement; and (iii) to comply with certain other specified provisions of the
Merger Agreement.
TERMINATION FEES
If the Merger Agreement is terminated as a result of: (i) the failure of
the shareholders of either Pacific Enterprises or Enova to provide the requisite
approval of the business combination on or before June 30, 1997 at a time
following the initiation of a publicly announced third party acquisition
proposal involving the company whose shareholders fail to grant the necessary
approval; (ii) the withdrawal or adverse modification of the recommendation of
the business combination by the other company's Board of Directors or the
approval of a third party acquisition proposal by the other company's Board of
Directors; or (iii) the occurrence of a third party acquisition proposal which
the Board of Directors of the company receiving the proposal determines in good
faith, after consultation with outside counsel and after giving effect to all
concessions which may be offered by the other company in the terms and
conditions of the Merger Agreement, is reasonably necessary to accept in order
for such Board to act in a manner consistent with its fiduciary duties under
applicable law, then (x) the company whose shareholders fail to grant the
necessary approval, in the case of clause (i) above, (y) the non-terminating
company, in the case of clause (ii) above, or (z) the company which has received
the third party acquisition proposal, in the case of clause (iii) above, will be
required to pay to the other company a termination fee of $72 million plus an
expense reimbursement calculated as described below if, within one year
following such termination, such company or any of its material subsidiaries
consummates, or accepts a written offer to consummate, an acquisition proposal
with any third party.
If a termination fee becomes payable within the first four months following
the execution of the Merger Agreement, the expense reimbursement will equal $3
million plus an amount equal to the recipient's documented out-of-pocket
expenses in excess of $3 million, subject to a maximum aggregate expense
reimbursement of $5 million. If a termination fee becomes payable after the
first four months following the execution of the Merger Agreement, the expense
reimbursement will equal $3 million plus an amount equal to the recipient's
documented out-of-pocket expenses in excess of $3 million, subject to a maximum
aggregate expense reimbursement of $10 million. The Merger Agreement also
provides for the payment by the non-terminating company of an expense
reimbursement amount calculated as described above upon a termination of the
Merger Agreement by reason of a material breach by the other company.
The Merger Agreement further provides that all termination fees constitute
liquidated damages and not a penalty and, if one party should fail to pay any
termination fee due, the defaulting party shall pay the cost and expenses in
connection with any action taken to collect payment, together with interest on
the amount of any unpaid termination fee.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by mutual agreement of Pacific
Enterprises and Enova at any time prior to the completion of the business
combination but, after approval of the principal terms of the business
combination by shareholders of Pacific Enterprises or Enova, no amendment may be
made which by law requires further approval by the shareholders. In addition,
either company may at any time prior to the completion of the business
combination: (i) extend the time for the performance of any of the obligations
or other acts of the other company, (ii) waive any inaccuracies in the
representations and warranties or in any document delivered or (iii) waive
compliance with any of the agreements or conditions.
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STANDSTILL PROVISIONS
Pursuant to a Confidentiality Agreement between Pacific Enterprises and
Enova dated April 4, 1996, the companies have agreed that, for a period of
thirty months from the date of the agreement neither company nor any of its
affiliates will (unless and until authorized to do so in writing by or on behalf
of the Board of Directors of the other company) directly or indirectly: (i)
acquire, offer, propose or seek to acquire or agree to acquire any voting
securities or any substantial portion of the business or assets of the other
company; (ii) make, or in any way participate in any "solicitation" of "proxies"
(as such terms are defined by the rules of the Securities and Exchange
Commission) with respect to voting securities of the other company, or seek to
advise or influence any person with respect to voting of such voting securities;
(iii) form, join or in any way participate in a "group" (within the meaning of
Section 13(d)(3) of the Securities Exchange Act) with respect to any voting
securities of the other company; (iv) seek or propose to influence control over
the Board of Directors, or management or policies, of the other company; (v)
make any public announcement or disclose any plan, intention, proposal or
arrangement inconsistent with the foregoing; (vi) take any action which might
require such other company to make a public announcement regarding the
possibility of a business combination; (vii) advise, assist or encourage any
other person in connection with the foregoing; (viii) request that the other
company, or its affiliates or representatives, amend, modify or waive any
provision described in this paragraph; or (ix) request any authorization to
engage in any of the foregoing.
In addition, each of Pacific Enterprises and Enova has agreed that for a
period of eighteen months from the date of the Confidentiality Agreement,
neither it nor any of its affiliates or representatives will, directly or
indirectly, unless so authorized in writing by the other company, solicit the
employment of or hire any employees of the other party or its affiliates with
whom the hiring company had contact or who became known to such company during
the investigation of the business combination, other than pursuant to any
general advertisement for or solicitation of employees by either party or its
affiliates.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma financial information combines the
historical consolidated balance sheets and statements of income of Pacific
Enterprises and Enova, including their respective subsidiaries, after giving
effect to the business combination. The unaudited pro forma combined condensed
balance sheet at September 30, 1996 gives effect to the business combination as
if it had occurred at September 30, 1996. The unaudited pro forma combined
condensed statements of income for each of the three years in the period ended
December 31, 1995, the nine-month periods ended September 30, 1996 and 1995,
give effect to the business combination as if it had occurred at January 1,
1993. These statements are prepared on the basis of accounting for the business
combination as a pooling of interests and are based on the assumptions set forth
in the notes thereto.
The following unaudited pro forma financial information has been prepared
from, and should be read in conjunction with, the historical consolidated
financial statements and related notes thereto of Pacific Enterprises and Enova
incorporated by reference herein. The following information is not necessarily
indicative of the financial position or operating results that would have
occurred had the business combination been completed on the date, or at the
beginning of the periods, for which the business combination is being given
effect nor is it necessarily indicative of future operating results or financial
position.
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NEW HOLDING COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
PACIFIC ENOVA PRO FORMA
ENTERPRISES CORPORATION ADJUSTMENTS PRO FORMA
(AS REPORTED) (AS REPORTED) (NOTE 3) COMBINED
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES AND OTHER INCOME
Gas (Note 1).................................. $ 1,692 $ 239 $ (41) $ 1,890
Electric...................................... 1,164 1,164
Other......................................... 95 41 136
------- -------- ------- --------
Total Operating Revenues.............. 1,787 1,444 (41) 3,190
Other Income.................................. 16 7 23
------- -------- ------- --------
Total................................. 1,803 1,451 (41) 3,213
------- -------- ------- --------
EXPENSES
Cost of gas distributed (Note 1).............. 548 93 (41) 600
Electric fuel................................. 92 92
Purchased power............................... 234 234
Operating and maintenance expense............. 631 359 (28) 962
Depreciation and amortization................. 192 249 441
Franchise payments and other taxes............ 73 34 28 135
Preferred dividends of subsidiaries........... 6 5 11
------- -------- ------- --------
Total................................. 1,450 1,066 (41) 2,475
------- -------- ------- --------
Income From Operations Before Interest and
Income Taxes.................................. 353 385 738
Interest Expense................................ 76 79 155
------- -------- ------- --------
Income From Operations Before Income Taxes...... 277 306 583
Income Taxes.................................... 122 130 252
------- -------- ------- --------
Net Income...................................... 155 176 331
Dividends on Preferred Stock.................... 4 4
Preferred Stock Original Issue Discount......... 2 2
------- -------- ------- --------
Net Income Applicable to Common Stock........... $ 149 $ 176 $ 325
======= ======== ======= ========
Net Income Per Share of Common Stock............ $ 1.80 $ 1.51 $ 1.35
======= ======== ======= ========
Weighted Average Shares Outstanding (Note 2).... 82,618 116,567 41,623 240,808
======= ======== ======= ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
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NEW HOLDING COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
PACIFIC ENOVA PRO FORMA
ENTERPRISES CORPORATION ADJUSTMENTS PRO FORMA
(AS REPORTED) (AS REPORTED) (NOTE 3) COMBINED
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES AND OTHER INCOME
Gas (Note 1).................................. $ 1,692 $ 230 $ (36) $ 1,886
Electric...................................... 1,131 1,131
Other......................................... 53 41 94
------- -------- ------- --------
Total Operating Revenues.............. 1,745 1,402 (36) 3,111
Other Income.................................. 26 1 27
------- -------- ------- --------
Total................................. 1,771 1,403 (36) 3,138
------- -------- ------- --------
EXPENSES
Cost of gas distributed (Note 1).............. 531 83 (36) 578
Electric fuel................................. 75 75
Purchased power............................... 263 263
Operating and maintenance expense............. 644 352 (29) 967
Depreciation and amortization................. 181 208 389
Franchise payments and other taxes............ 75 34 29 138
Preferred dividends of subsidiaries........... 9 6 15
------- -------- ------- --------
Total................................. 1,440 1,021 (36) 2,425
------- -------- ------- --------
Income From Continuing Operations Before
Interest and Income Taxes..................... 331 382 713
Interest Expense................................ 84 85 169
------- -------- ------- --------
Income From Continuing Operations Before Income
Taxes......................................... 247 297 544
Income Taxes.................................... 110 124 234
------- -------- ------- --------
Income From Continuing Operations............... 137 173 310
Dividends on Preferred Stock.................... 8 8
------- -------- ------- --------
Net Income Applicable to Common Stock........... $ 129 $ 173 $ 302
======= ======== ======= ========
Net Income Per Share of Common Stock............ $ 1.57 $ 1.48 $ 1.26
======= ======== ======= ========
Weighted Average Shares Outstanding (Note 2).... 82,227 116,535 41,426 240,188
======= ======== ======= ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
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NEW HOLDING COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
PACIFIC ENOVA PRO FORMA
ENTERPRISES CORPORATION ADJUSTMENTS PRO FORMA
(AS REPORTED) (AS REPORTED) (NOTE 3) COMBINED
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES AND OTHER INCOME
Gas (Note 1).................................. $ 2,280 $ 310 $ (48) $ 2,542
Electric...................................... 1,504 1,504
Other......................................... 63 57 120
------- -------- ------- --------
Total Operating Revenues.............. 2,343 1,871 (48) 4,166
Other Income.................................. 34 1 35
------- -------- ------- --------
Total................................. 2,377 1,872 (48) 4,201
------- -------- ------- --------
EXPENSES
Cost of gas distributed (Note 1).............. 682 113 (48) 747
Electric fuel................................. 100 100
Purchased power............................... 342 342
Operating and maintenance expense............. 920 511 (38) 1,393
Depreciation and amortization................. 243 278 521
Franchise payments and other taxes............ 98 46 38 182
Preferred dividends of subsidiaries........... 12 8 20
------- -------- ------- --------
Total................................. 1,955 1,398 (48) 3,305
------- -------- ------- --------
Income From Operations Before Interest and
Income Taxes.................................. 422 474 896
Interest Expense................................ 108 113 221
------- -------- ------- --------
Income From Operations Before Income Taxes...... 314 361 675
Income Taxes.................................... 129 135 264
------- -------- ------- --------
Net Income...................................... 185 226 411
Dividends on Preferred Stock.................... 10 10
------- -------- ------- --------
Net Income Applicable to Common Stock........... $ 175 $ 226 $ 401
======= ======== ======= ========
Net Income Per Share of Common Stock............ $ 2.12 $ 1.94 $ 1.67
======= ======== ======= ========
Weighted Average Shares Outstanding (Note 2).... 82,265 116,535 41,445 240,245
======= ======== ======= ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
72
<PAGE> 78
NEW HOLDING COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
PACIFIC ENOVA PRO FORMA
ENTERPRISES CORPORATION ADJUSTMENTS PRO FORMA
(AS REPORTED) (AS REPORTED) (NOTE 3) COMBINED
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES AND OTHER INCOME
Gas (Note 1).................................. $ 2,664 $ 346 $ (62) $ 2,948
Electric...................................... 1,510 1,510
Other......................................... 56 56
------- -------- ------- --------
Total Operating Revenues.............. 2,664 1,912 (62) 4,514
Other Income.................................. 38 (38)
------- -------- ------- --------
Total................................. 2,702 1,874 (62) 4,514
EXPENSES
Cost of gas distributed (Note 1).............. 924 147 (62) 1,009
Electric fuel................................. 143 143
Purchased power............................... 343 343
Operating and maintenance expense............. 977 486 (37) 1,426
Depreciation and amortization................. 239 262 501
Franchise payments and other taxes............ 113 45 37 195
Preferred dividends of subsidiaries........... 10 8 18
------- -------- ------- --------
Total................................. 2,263 1,434 (62) 3,635
------- -------- ------- --------
Income From Continuing Operations Before
Interest and Income Taxes.................. 439 440 879
Interest Expense................................ 128 105 233
------- -------- ------- --------
Income From Continuing Operations Before Income
Taxes......................................... 311 335 646
Income Taxes.................................... 139 136 275
------- -------- ------- --------
Income From Continuing Operations............... 172 199 371
Dividends on Preferred Stock.................... 12 12
------- -------- ------- --------
Net Income Applicable to Common Stock........... $ 160 $ 199 $ 359
======= ======== ======= ========
Net Income Per Share of Common Stock From
Continuing Operations......................... $ 1.95 $ 1.71 $ 1.50
======= ======== ======= ========
Weighted Average Shares Outstanding (Note 2).... 81,939 116,484 41,281 239,704
======= ======== ======= ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
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<PAGE> 79
NEW HOLDING COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
PACIFIC ENOVA PRO FORMA
ENTERPRISES CORPORATION ADJUSTMENTS PRO FORMA
(AS REPORTED) (AS REPORTED) (NOTE 3) COMBINED
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES AND OTHER INCOME
Gas (Note 1).................................. $ 2,899 $ 347 $ (80) $ 3,166
Electric...................................... 1,514 1,514
Other......................................... 36 36
------- -------- ------- --------
Total Operating Revenues.............. 2,899 1,897 (80) 4,716
Other Income.................................. 24 23 47
------- -------- ------- --------
Total................................. 2,923 1,920 (80) 4,763
------- -------- ------- --------
EXPENSES
Cost of gas distributed (Note 1).............. 1,086 166 (80) 1,172
Electric fuel................................. 174 174
Purchased power............................... 326 326
Operating and maintenance expense............. 1,029 482 (35) 1,476
Depreciation and amortization................. 243 245 488
Franchise payments and other taxes............ 113 45 35 193
Preferred dividends of subsidiaries........... 10 9 19
------- -------- ------- --------
Total................................. 2,481 1,447 (80) 3,848
------- -------- ------- --------
Income From Continuing Operations Before
Interest and Income Taxes..................... 442 473 915
Interest Expense................................ 135 100 235
------- -------- ------- --------
Income From Continuing Operations Before Income
Taxes......................................... 307 373 680
Income Taxes.................................... 126 154 280
------- -------- ------- --------
Income From Continuing Operations............... 181 219 400
Dividends on Preferred Stock.................... 15 15
------- -------- ------- --------
Net Income Applicable to Common Stock........... $ 166 $ 219 $ 385
======= ======== ======= ========
Net Income Per Share of Common Stock From
Continuing Operations......................... $ 2.06 $ 1.89 $ 1.62
======= ======== ======= ========
Weighted Average Shares Outstanding (Note 2).... 80,472 116,049 40,542 237,063
======= ======== ======= ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
74
<PAGE> 80
NEW HOLDING COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
PACIFIC ENOVA PRO FORMA
ENTERPRISES CORPORATION ADJUSTMENTS PRO FORMA
(AS REPORTED) (AS REPORTED) (NOTE 3) COMBINED
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
PROPERTY PLANT & EQUIPMENT
Utility Plant - at Original Cost.......... $ 6,036 $ 5,647 $11,683
Accumulated Depreciation and
Decommissioning......................... 2,809 2,547 5,356
------ ------ ------ ------
Total property, plant and
equipment -- net.............. 3,227 3,100 6,327
------ ------ ------ ------
CURRENT ASSETS:
Cash and cash equivalents............... 180 193 373
Accounts and notes receivable (net of
allowance for doubtful accounts of
PE, $19 and Enova, $2)(Note 1)....... 272 205 $ (4)
35 508
Notes receivable........................ 35 (35)
Income taxes receivable................. 34 (8) 26
Deferred income taxes................... 77 19 96
Gas in storage.......................... 20 9 29
Other inventories....................... 24 64 (9) 79
Regulatory accounts receivable.......... 265 (201) 64
Prepaid expenses........................ 18 18
Other................................... 31 (11) 20
------ ------ ------ ------
Total current assets............ 890 528 (205) 1,213
------ ------ ------ ------
OTHER INVESTMENTS......................... 108 577 685
OTHER RECEIVABLES......................... 16 16
DEFERRED TAXES RECEIVABLE IN RATES........ 276 (276)
REGULATORY ASSETS......................... 621 373 994
OTHER ASSETS.............................. 96 279 (97) 278
------ ------ ------ ------
Total Assets.................... $ 4,958 $ 4,760 $(205) $ 9,513
====== ====== ====== ======
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
75
<PAGE> 81
NEW HOLDING COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
PACIFIC ENOVA PRO FORMA
ENTERPRISES CORPORATION ADJUSTMENTS PRO FORMA
(AS REPORTED) (AS REPORTED) (NOTE 3) COMBINED
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
CAPITALIZATION:
Capital Stock:
Preferred Stock......................... $ 80 $ 80
Common Stock............................ 1,117 857 1,974
------ ------ ------ ------
Total capital stock............. 1,197 857 2,054
Retained earnings......................... 297 702 999
Deferred compensation relating to Employee
Stock Ownership Plan.................... (50) (50)
------ ------ ------ ------
Total Shareholders' equity...... 1,444 1,559 3,003
Preferred stocks of a subsidiary.......... 95 104 199
Long-term debt............................ 1,166 1,443 2,609
Debt of Employee Stock Ownership Plan..... 130 130
------ ------ ------ ------
Total Capitalization............ 2,835 3,106 5,941
------ ------ ------ ------
CURRENT LIABILITIES:
Short-term debt......................... 193 193
Accounts payable (Note 1)............... 390 121 (4) 507
Other taxes payable..................... 31 31
Long-term debt due within one year...... 24 70 94
Regulatory balancing accounts........... 201 (201)
Accrued interest........................ 44 27 71
Dividends Payable....................... 47 (47)
Other................................... 99 150 47 296
------ ------ ------ ------
Total current liabilities....... 781 616 (205) 1,192
------ ------ ------ ------
LONG-TERM LIABILITIES..................... 219 (219)
CUSTOMER ADVANCES FOR CONSTRUCTION........ 44 35 79
OTHER POSTRETIREMENT BENEFITS LIABILITY... 230 34 264
DEFERRED INCOME TAXES..................... 367 543 910
DEFERRED INVESTMENT TAX CREDITS........... 65 100 165
OTHER LIABILITIES AND DEFERRED CREDITS.... 417 360 185 962
------ ------ ------ ------
Total Liabilities and
Shareholders' Equity.......... $ 4,958 $ 4,760 $(205) $ 9,513
====== ====== ====== ======
Common Shares Outstanding................. 82,786 116,566 41,707 241,059
====== ====== ====== ======
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
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<PAGE> 82
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) Intercompany transactions between Pacific Enterprises and Enova during the
periods presented were considered to be material and, accordingly, pro forma
adjustments were made to eliminate such transactions.
(2) The pro forma combined condensed financial statements reflect the conversion
of each outstanding share of Pacific Enterprises Common Stock into 1.5038
shares of New Holding Company Common Stock and the conversion of each
outstanding share of Enova Common Stock into one share of New Holding
Company Common Stock, as provided in the Merger Agreement. The pro forma
combined condensed financial statements are presented as if the companies
were combined during all periods included therein.
(3) Financial statement presentation differences between Pacific Enterprises and
Enova were considered to be material and, accordingly, have been adjusted in
the pro forma combined condensed financial statements.
(4) The allocation between Pacific Enterprises and Enova and their customers of
the estimated cost savings resulting from the business combination, net of
costs incurred to achieve such savings, will be subject to regulatory review
and approval. None of these estimated cost savings, the costs to achieve
such savings, or transaction costs (including fees for financial advisors,
attorneys, accountants, consultants, filings and printing) have been
reflected in the pro forma combined condensed financial statements.
Transaction costs, estimated at approximately $45 million, are being charged
to expense as incurred in accordance with paragraph 58 of Accounting
Principles Board Opinion No. 16. No transaction costs were incurred through
September 30, 1996 and accordingly, no transaction costs are included in
operating expense in the pro forma income statement for the period then
ended.
(5) Accounting policy differences between Pacific Enterprises and Enova were
considered to be immaterial and, accordingly, have not been adjusted in the
pro forma combined condensed financial statements.
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<PAGE> 83
SELECTED INFORMATION CONCERNING PACIFIC ENTERPRISES AND ENOVA
BUSINESS OF PACIFIC ENTERPRISES
Pacific Enterprises is a holding company engaged in supplying natural gas
throughout most of southern and part of central California. These operations are
conducted through Pacific Enterprises' primary subsidiary, Southern California
Gas, the nation's largest natural gas distribution utility, providing gas
service to residential, commercial, industrial, utility electric generation and
wholesale customers through approximately 4.7 million meters in a 23,000 square
mile service area with a population of approximately 17.4 million. Through other
subsidiaries, Pacific Enterprises is also engaged in interstate and offshore
natural gas transmission to serve its utility operations, natural gas marketing,
alternate energy development, centralized heating and cooling for large building
complexes, energy management services and investing in foreign utility
operations. The principal executive office of Pacific Enterprises and Southern
California Gas is, and after the completion of the business combination, will be
located at 555 West Fifth Street, Los Angeles, California 90013-1011, telephone
number (213) 895-5000. Additional information concerning Pacific Enterprises and
its subsidiaries is included in the Pacific Enterprises documents filed with the
Securities and Exchange Commission, which are incorporated by reference herein.
See "Incorporation by Reference" and "Available Information."
BUSINESS OF ENOVA
Enova is an energy management company providing electricity, natural gas
and value-added products and services to customers throughout California and
certain other states. Enova is the parent company of SDG&E and six other
subsidiaries -- Enova Energy, Enova Financial, Enova International, Enova
Technologies, Califia Company and Pacific Diversified Capital Company. SDG&E is
Enova's principal subsidiary and is a public utility that provides regulated
electric service through 1.2 million meters in San Diego and southern Orange
counties, and regulated natural gas service through 700,000 meters in San Diego
County. SDG&E's service area encompasses 4,100 square miles, covering two
counties and 25 cities with a population of approximately 3.0 million. Enova
Energy is an energy services company providing natural gas and electricity and
related energy services to utilities, municipalities and large consumers of
power in California and other states. Enova Financial invests in limited
partnerships representing approximately 1,000 affordable housing projects
located throughout the United States. Enova International was formed in 1996 to
own, develop and operate natural gas and electricity projects outside the United
States. Enova Technologies is in the business of developing new technologies
generally related to utilities and energy. Califia Company leases computer
equipment. Pacific Diversified Capital Company is the parent company of Phase
One Development, which is engaged in real estate development. The principal
executive office of Enova and SDG&E is, and after the completion of the business
combination, in the case of SDG&E, will be, located at 101 Ash Street, P.O. Box
129400, San Diego, California 92112-9400, telephone number (619) 239-7700. The
principal executive office of Enova after completion of the business combination
will be located at 101 Ash Street, P.O. Box 129400, San Diego, California
92112-9400, telephone number (619) 239-7700 or at an as yet undetermined new
location in San Diego, California. Additional information concerning Enova and
its subsidiaries is included in the Enova documents filed with the Securities
and Exchange Commission which are incorporated by reference herein. See
"Incorporation by Reference" and "Available Information."
CERTAIN BUSINESS RELATIONSHIPS BETWEEN PACIFIC ENTERPRISES AND ENOVA
As contemplated by the Merger Agreement, Pacific Enterprises and Enova have
formed a joint venture to pursue natural gas and electricity marketing
opportunities and related energy management and related energy services. See
"The Merger Agreement -- Energy Marketing Joint Venture."
Through its intrastate pipeline system, Southern California Gas transports
natural gas purchased by SDG&E for delivery to SDG&E's gas distribution system.
Southern California Gas also provides storage services for gas supplies
purchased by SDG&E. Southern California Gas' revenues for these services were
$41 million and $36 million for the nine months ended September 30, 1996 and
1995, respectively, and
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<PAGE> 84
$48 million, $62 million and $80 million for the three years ended December 31,
1995, 1994 and 1993, respectively.
Southern California Gas and SDG&E are jointly pursuing various projects to
provide natural gas pipeline service to Baja California, Mexico. Other
subsidiaries of Pacific Enterprises and Enova are partners in a project to
construct, own and operate a local natural gas distribution company in Mexicali,
Baja California and a project to construct, own and operate an electricity
generating facility in Rosarito, Baja California.
Southern California Gas also provides meter repair services to SDG&E and
the two companies provide emergency mutual assistance and various other services
to one another. SDG&E also purchases electricity from a small power plant owned
and operated by a subsidiary of Pacific Enterprises. Revenues from these
activities are not material.
NEW HOLDING COMPANY
Upon the completion of the business combination, Pacific Enterprises and
Enova will become subsidiaries of New Holding Company.
The headquarters of New Holding Company will be in 101 Ash Street, P. O.
Box 129400, San Diego, California 92112-9400 or an as yet undetermined new
location in San Diego, California. New Holding Company's two subsidiaries,
Pacific Enterprises and Enova will continue to own and operate their primary
subsidiaries, Southern California Gas and SDG&E, respectively. The headquarters
of the two utility subsidiaries will remain in their current locations, Southern
California Gas in Los Angeles and SDG&E in San Diego. New Holding Company's
indirect utility subsidiaries will provide natural gas service through 5.4
million meters in southern and part of central California and electric service
through 1.2 million meters in San Diego and Orange counties in southern
California. New Holding Company's non-utility subsidiaries will engage in
unregulated natural gas and electricity marketing and offer energy related
products and services. The business of New Holding Company will be to operate as
a holding company for its direct and indirect utility subsidiaries. See
"Regulatory Matters."
MANAGEMENT OF NEW HOLDING COMPANY
For information regarding the directors and executive officers of New
Holding Company upon completion of the business combination see "The Business
Combination -- Certain Arrangements Regarding Directors and Management."
DIVIDENDS
New Holding Company intends initially to adopt an annual dividend rate of
$1.56 per share on New Holding Company Common Stock. Based upon the number of
shares of New Holding Company Common Stock expected to be issued in the business
combination, New Holding Company's annual common share dividend requirements
will increase by approximately $76 million over the current dividend
requirements of Pacific Enterprises and Enova and will represent 95% of the 1995
pro forma combined income of the two companies.
The timing and amount of future dividends will depend on the earnings of
New Holding Company and its subsidiaries, their financial condition, cash
requirements, applicable government regulations and policies and other factors
deemed relevant by the New Holding Company Board of Directors. Additionally,
various financing arrangements, charter provisions and regulatory requirements
may impose certain restrictions on the ability of New Holding Company's
subsidiaries to transfer funds to New Holding Company in the form of cash
dividends, loans or advances.
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<PAGE> 85
DESCRIPTION OF NEW HOLDING COMPANY CAPITAL STOCK
GENERAL
The authorized capital stock of New Holding Company upon the completion of
the business combination will consist of 750 million shares of Common Stock and
50 million shares of Preferred Stock issuable from time to time in series by
resolution of the New Holding Company Board of Directors. It is anticipated that
approximately 250 million shares of New Holding Company Common Stock will be
issued and outstanding immediately after the completion of the business
combination. The description of New Holding Company capital stock set forth
herein does not purport to be complete and is qualified in its entirety by
reference to the Articles of Incorporation and Bylaws of New Holding Company to
be in effect upon the completion of the business combination, copies of which
are attached hereto as Annexes J and K, respectively, as well as applicable law.
NEW HOLDING COMPANY COMMON STOCK
The holders of New Holding Company Common Stock will be entitled to receive
such dividends as the New Holding Company Board of Directors may from time to
time declare, subject to any rights of holders of outstanding shares of New
Holding Company Preferred Stock. Shareholders of Pacific Enterprises and Enova
entitled to receive New Holding Company Common Stock will, subject to any
applicable escheat law, be entitled to dividends declared after the completion
of the business combination regardless of when certificates representing Pacific
Enterprises Common Stock or Enova Common Stock, as the case may be, are
exchanged.
Except as otherwise provided by law, each holder of New Holding Company
Common Stock will be entitled to one vote per share on each matter submitted to
a vote at a meeting of shareholders, subject to any class or series voting
rights of holders of New Holding Company Preferred Stock. Under the New Holding
Company Articles of Incorporation, the New Holding Company Board of Directors
will be classified into three classes each consisting of, as nearly as may be
possible, one-third of the total number of directors constituting the entire New
Holding Company Board. The holders of New Holding Company Common Stock will not
be entitled to cumulate votes for the election of directors.
In the event of any liquidation, dissolution or winding up of New Holding
Company, whether voluntary or involuntary, the holders of shares of New Holding
Company Common Stock, subject to any rights of the holders of outstanding shares
of New Holding Company Preferred Stock, will be entitled to receive any
remaining assets of New Holding Company after the discharge of its liabilities.
Holders of New Holding Company Common Stock will not be entitled to
preemptive rights to subscribe for or purchase any part of any new or additional
issue of stock or securities convertible into stock. New Holding Company Common
Stock does not contain any redemption provisions or conversion rights and is not
liable to assessment or further call. The shares of New Holding Company Common
Stock to be issued in the business combination, when so issued, will be fully
paid and nonassessable.
It is a condition to the completion of the business combination that New
Holding Company Common Stock be approved for listing on the New York Stock
Exchange, subject to official notification of issuance.
NEW HOLDING COMPANY PREFERRED STOCK
The New Holding Company Board of Directors is authorized, pursuant to the
New Holding Company Articles of Incorporation, to issue New Holding Company
Preferred Stock from time to time in one or more series, each of which will have
such distinctive designation or title fixed by the New Holding Company Board
prior to the issuance of any shares thereof. Each such class or series of New
Holding Company Preferred Stock will have such voting powers, full or limited,
or no voting powers, and such preferences and relative, participating, optional
or other special rights and such qualifications, limitations or restrictions
thereof, as will be stated in such resolution or resolutions providing for the
issue of such series of preferred stock as may be adopted from time to time by
the New Holding Company Board prior to the issuance of any shares thereof
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<PAGE> 86
pursuant to the authority vested in it. No New Holding Company Preferred Stock
will be issued in the business combination.
CERTAIN ANTI-TAKEOVER PROVISIONS
The New Holding Company Articles of Incorporation and Bylaws contain
provisions that may have the effect of discouraging persons from acquiring large
blocks of New Holding Company Stock or delaying or preventing a change in
control of New Holding Company. The material provisions which may have such an
effect are: (i) classification of the New Holding Company Board of Directors
into three classes with the term of only one class expiring each year; (ii) a
provision permitting the New Holding Company Board of Directors to adopt, amend
or repeal the New Holding Company Bylaws; (iii) authorization for the New
Holding Company Board to issue New Holding Company Preferred Stock in series and
to fix rights and preferences of the series (including, among other things,
whether, and to what extent, the shares of any series will have voting rights
and the extent of the preferences of the shares of any series with respect to
dividends and other matters); (iv) a provision that shareholders may take action
only at an annual or special meeting and not by written consent in lieu of a
meeting; (v) advance notice procedures with respect to nominations of directors
or proposals other than those adopted or recommended by the New Holding Company
Board; and (vi) provisions permitting amendment of certain of these and related
provisions only by an affirmative vote of the holders of at least two-thirds of
the outstanding shares of New Holding Company Common Stock entitled to vote.
Certain acquisitions of outstanding voting shares of New Holding Company
would also require approval of the Securities and Exchange Commission under the
Public Utility Holding Company Act and of various state and foreign regulatory
authorities.
See "Comparison of Shareholders' Rights -- Comparison of the Rights of
Holders of Common Stock" and "Regulatory Matters."
COMPARISON OF SHAREHOLDERS' RIGHTS
Pacific Enterprises, Enova and New Holding Company are incorporated in the
State of California. Pacific Enterprises' shareholders, whose rights are
currently governed by California law, the Pacific Enterprises Articles of
Incorporation and Bylaws, and Enova's shareholders, whose rights are currently
governed by California law, the Enova Articles of Incorporation and Bylaws will
upon the completion of the business combination become shareholders of New
Holding Company (except to the extent any such holders successfully require
Pacific Enterprises or Enova, as the case may be, to purchase their shares for
cash through the exercise of dissenters' rights). After such time, their rights
will then be governed by California law, the New Holding Company Articles of
Incorporation and the New Holding Company Bylaws.
Certain differences, including all material differences, that may affect
the rights and interests of shareholders of Pacific Enterprises and Enova are
set forth below. This summary is not intended to be an exhaustive or detailed
description of the provisions discussed. It is qualified in its entirety by
reference to the California General Corporation Law, the Pacific Enterprises
Articles of Incorporation and Bylaws, the Enova Articles of Incorporation and
Bylaws, and the New Holding Company Articles of Incorporation and Bylaws. All
references herein to the New Holding Company Articles of Incorporation and
Bylaws are to such Articles of Incorporation and Bylaws as will be in effect at
the completion of the business combination. The New Holding Company Articles of
Incorporation and Bylaws to be in effect at that time are attached to this Joint
Proxy Statement/Prospectus as Annexes J and K, respectively.
COMPARISON OF THE RIGHTS OF HOLDERS OF COMMON STOCK
Number Of Directors. The New Holding Company Articles of Incorporation and
Bylaws provide that the New Holding Company Board of Directors will consist of
between 9 and 17 members, the exact number to be fixed by the New Holding
Company Board from time to time. Under Pacific Enterprises' Articles of
Incorporation and Bylaws, the Pacific Enterprises Board of Directors is
comprised of between 9 and 17
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<PAGE> 87
directors, the exact number to be fixed by the Pacific Enterprises Board.
Currently, the Pacific Enterprises Board consists of 9 directors. Under the
Enova Articles of Incorporation and Bylaws, the Enova Board of Directors is
comprised of between 9 and 13 directors, the exact number to be fixed by the
Enova Bylaws. Currently, the Enova Board consists of 10 directors.
Classified Board Of Directors. The New Holding Company Articles of
Incorporation and Bylaws provide that the New Holding Company Board of Directors
will be divided into three classes of directors, with each class being as nearly
equal in size as is possible. At each annual meeting, one class is to be elected
to a three-year term. The Pacific Enterprises Board of Directors is not
classified, and the Pacific Enterprises Bylaws provide that each director will
be elected annually to a one-year term. The Enova Articles of Incorporation and
Bylaws provide for the Enova Board to be divided into three classes classified
in the same manner as the New Holding Company Board.
Vacancies On The Board Of Directors. Under the New Holding Company Articles
of Incorporation and Bylaws, vacancies on the New Holding Company Board of
Directors may be filled by the designee of a majority of the directors then in
office, even if less than a quorum. A director so designated will hold office
for a term coinciding with the term of the class to which such director is
elected. Vacancies on the Pacific Enterprises Board of Directors and the Enova
Board are filled in the same manner, except a vacancy on the Pacific Enterprises
Board resulting from the removal of a director may only be filled by a majority
vote of shareholders.
Shareholder Action By Written Consent. The New Holding Company Articles of
Incorporation provide that shareholder actions may only be taken at a special or
annual meeting of shareholders. The Enova Articles of Incorporation make similar
provisions for such actions. Any action permitted or required to be taken at a
special or annual meeting of shareholders of Pacific Enterprises may be taken by
the written consent of such shareholders in lieu of such a meeting.
Confidential Voting. The New Holding Company and the Pacific Enterprises
Bylaws provide shareholders the ability to elect voting confidentially on all
matters submitted by the Board of Directors for shareholder approval.
Confidentiality elections will not apply to the extent that voting disclosure is
required by applicable law or is appropriate to assert or defend any claim
relating to shareholder voting. Confidentiality also will not apply with respect
to any matter for which shareholder votes are solicited in opposition to the
voting recommendations or nominees of the Board of Directors unless the persons
engaged in the opposition solicitation provide shareholders with comparable
voting confidentiality. The Enova Bylaws do not provide for confidential voting.
Amendments Of Articles. The New Holding Company and the Enova Articles of
Incorporation provide that the provisions thereof relating to: (i) the
classified Board of Directors; (ii) the absence of cumulative voting; (iii)
shareholders' ability to act by written consent; (iv) indemnification
provisions; (v) the ability of directors to adopt and amend the Bylaws; and (vi)
amendment of the Articles, may not be amended or repealed without the
affirmative vote of the holders of not less than two-thirds of the outstanding
shares of common stock entitled to vote. The California General Corporation Law
provides that, unless a higher percentage is specified in a corporation's
articles, such articles may be amended by the affirmative vote of the holders of
a majority of the outstanding shares of the corporation entitled to vote
thereon.
The Pacific Enterprises Articles of Incorporation may, in general, be
amended by an affirmative vote of holders of a majority of the outstanding
shares of Pacific Enterprises stock entitled to vote.
Amendment Of Bylaws. The New Holding Company Articles of Incorporation
provide that the New Holding Company Bylaws can be altered, amended, changed or
repealed either by an affirmative vote of two-thirds of the authorized number of
members of the New Holding Company Board of Directors or by an affirmative vote
by the holders of at least two-thirds of outstanding New Holding Company Common
Stock. The Enova Bylaws may be amended in a similar manner. The Pacific
Enterprises Bylaws generally may be amended by either the vote of the majority
of the outstanding shares or by approval of the Pacific Enterprises Board of
Directors.
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<PAGE> 88
Notice Of Shareholder Proposals/Nominations Of Directors. The New Holding
Company Bylaws and the Pacific Enterprises Bylaws have substantially the same
requirements for providing advance notice of the introduction by shareholders of
business to be transacted at meetings of shareholders. For any such proposal
properly to be brought before an annual meeting, a shareholder of record, on the
date both of giving such notice and of determining shareholders entitled to vote
at the annual meeting, must give timely notice of such proposal in a proper
written form to the company's corporate secretary, as provided in their
respective bylaws. To be timely, a shareholder's notice to the secretary must be
delivered to or mailed and received at a corporation's principal executive
offices not less than 60 nor more than 120 days prior to the date of the annual
meeting of shareholders; provided, however, that if less than 70 days' notice or
prior public disclosure of the date of the meeting is given to shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure of the date of
the annual meeting was made, whichever occurs first.
Generally, the New Holding Company Bylaws and the Pacific Enterprises
Bylaws require that a shareholder's notice include: (i) a description of the
proposed business and the reasons for conducting such business; (ii) the name
and record address of such shareholder; (iii) the class and number of shares
that are owned beneficially or of record by such shareholder; (iv) a description
of any financial or other interest of each such shareholder in the proposal; and
(v) a representation that such shareholder intends to appear in person or by
proxy at the annual meeting to bring such business before the meeting.
The New Holding Company Bylaws and the Pacific Enterprises Bylaws permit
shareholders to nominate persons for election to the New Holding Company Board
of Directors or the Pacific Enterprises Board of Directors, as the case may be,
at any annual meeting of shareholders if they are shareholders of record as of
both the date of giving such notice and the date of determining shareholders
entitled to vote at the annual meeting. A shareholder must give timely notice
thereof in a proper written form to the corporate secretary, as provided in the
bylaws. To be timely, a shareholder's notice must meet the same timeliness
requirements as described above for providing advance notice of business to be
transacted at a shareholders' meeting.
To be in proper written form, a shareholder's notice to the secretary must
set forth (a) as to each person whom the shareholder proposes to nominate for
election as a director: (i) the name, age, business address and residence
address of the person; (ii) the principal occupation or employment of the
person; (iii) the class or series and number of shares of capital stock of the
company that are owned beneficially or of record by the person; and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act; and (b) as to the shareholder giving the notice: (i)
the name and record address of such shareholder; (ii) the class or series and
number of shares of capital stock of the company that are owned beneficially or
of record by such shareholder; (iii) a description of all arrangements or
understandings between such shareholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the nomination(s)
are to be made by such shareholder; (iv) a representation that such shareholder
intends to appear in person or by proxy at the meeting to nominate the persons
named in the notice; and (v) any other information relating to such shareholder
that would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Securities Exchange Act. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
The Enova Bylaws have no similar advance notice provisions.
Fair Price Provisions. The Enova Articles of Incorporation contain a "fair
price" provision which generally requires that certain mergers, business
combinations and similar transactions with a "Dominant Shareholder" (generally
the beneficial owner of at least 10% but less than 99% of New Holding Company's
or Enova's voting stock, as the case may be) be approved by the holders of at
least two-thirds of the outstanding voting stock, unless (i) two-thirds of the
authorized number of members of the company's board of directors have approved
such transaction or (ii) certain "fair price" and procedural requirements are
satisfied.
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The New Holding Company and the Pacific Enterprises Articles of
Incorporation have no similar provision relating to business combinations.
Common Stock Purchase Rights. Pacific Enterprises is a party to a Rights
Agreement, dated as of March 7, 1989, with Chemical Bank, as successor Rights
Agent thereunder, pursuant to which Pacific Enterprises Common Stock currently
trades with common stock purchase rights. The rights, which cannot be traded
separately from Pacific Enterprises Common Stock, become exercisable upon the
occurrence of certain triggering events, including the acquisition by a person
or group of beneficial ownership of 20% or more of the Pacific Enterprises
Common Stock. In connection with entering into the Merger Agreement, the Rights
Agreement was amended to provide that the rights will be terminated immediately
prior to the completion of the business combination. The rights could have the
effect of delaying, deferring or preventing a takeover or change of control of
Pacific Enterprises that has not been approved by the Pacific Enterprises Board
of Directors.
Neither Enova nor New Holding Company is currently a party to a rights
agreement.
MEETINGS, VOTING AND PROXIES
This Joint Proxy Statement/Prospectus is being furnished to (i) the holders
of Pacific Enterprises Common Stock and Preferred Stock in connection with the
solicitation of proxies by the Pacific Enterprises Board of Directors from such
holders for use at the Pacific Enterprises Special Meeting of Shareholders and
(ii) the holders of Enova Common Stock in connection with the solicitation of
proxies by the Enova Board of Directors from such holders for use at the Enova
Special Meeting of Shareholders.
PACIFIC ENTERPRISES SPECIAL MEETING OF SHAREHOLDERS
Purpose of Pacific Enterprises Special Meeting. The purpose of the Pacific
Enterprises Special Meeting of Shareholders is to consider and vote upon a
proposal to approve the principal terms of the business combination of Pacific
Enterprises and Enova. No other business may be conducted at the Pacific
Enterprises Special Meeting.
The Pacific Enterprises Board of Directors, by a unanimous vote of those
present, has approved the Merger Agreement providing for the business
combination and the transactions contemplated thereby and recommends that
Pacific Enterprises' shareholders vote FOR approval of the principal terms of
the business combination. The completion of the business combination is
conditioned upon approval by Pacific Enterprises' shareholders.
Date, Place and Time; Record Date. The Pacific Enterprises Special Meeting
of Shareholders is scheduled to be held on Tuesday, March 11, 1997 at 10:00
a.m., local time, at The Westin Bonaventure Hotel, 404 South Figueroa Street,
Los Angeles, California. Shareholders who are present at the Pacific Enterprises
Special Meeting in person or by proxy will be entitled to one vote for each of
their shares of Pacific Enterprises Common Stock and Pacific Enterprises
Preferred Stock held of record at the close of business on January 13, 1997. At
the close of business on that date, 84,167,910 shares of Pacific Enterprises
Common Stock and 800,253 shares of Pacific Enterprises Preferred Stock were
issued and outstanding and entitled to vote.
Voting Rights. Each share of Pacific Enterprises Common Stock and Pacific
Enterprises Preferred Stock outstanding on the January 13, 1997 record date for
the Pacific Enterprises Special Meeting of Shareholders is entitled to one vote.
A majority of shares issued and outstanding and entitled to vote, present in
person or by proxy, will constitute a quorum for the transaction of business at
the Pacific Enterprises Special Meeting. Abstentions and broker non-votes
(proxies from brokers or nominees indicating that they have not received voting
instructions from the beneficial owners or other persons entitled to vote
shares) will be considered present for the purpose of establishing a quorum. The
affirmative vote of the holders of (i) a majority of outstanding shares of
Pacific Enterprises Common Stock and (ii) a majority of the outstanding shares
of Pacific Enterprises Common Stock and Pacific Enterprises Preferred Stock,
voting together as a single class, is required for approval of the principal
terms of the business combination and is a condition to completion of the
business combination. In determining whether the business combination has
received the
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requisite number of affirmative votes, abstentions and broker non-votes will
have the same effect as votes cast against approval.
As of January 13, 1997, the record date for the Pacific Enterprises Special
Meeting of Shareholders, the directors and executive officers of Pacific
Enterprises, together with their affiliates as a group, own beneficially less
than 1% of the issued and outstanding shares of Pacific Enterprises Common Stock
and less than 1% of the issued and outstanding shares of each series of Pacific
Enterprises Preferred Stock.
Proxies and Voting Instructions. The accompanying proxy or voting
instruction is solicited on behalf of the Board of Directors of Pacific
Enterprises. All shares represented by properly executed proxies and voting
instructions received in time for the Pacific Enterprises Special Meeting of
Shareholders will be voted in accordance with the instructions specified
thereon. If no instructions are specified, the shares will be voted FOR approval
of the principal terms of the business combination. Holders of proxies and
voting instructions are also authorized to vote the shares represented thereby
in their discretion as to any matters incident to the conduct of the Pacific
Enterprises Special Meeting.
A shareholder giving a proxy may revoke it at any time before it is voted.
Proxies may be revoked by (a) filing with the Secretary of Pacific Enterprises,
a written notice of revocation bearing a later date than the proxy; (b) duly
executing a later dated proxy relating to the same shares and delivering it to
the Secretary of Pacific Enterprises before the taking of the vote at the
Pacific Enterprises Special Meeting; or (c) attending the Pacific Enterprises
Special Meeting and voting in person. Attendance at the Pacific Enterprises
Special Meeting will not by itself revoke a proxy.
If a Pacific Enterprises shareholder is a participant in the Pacific
Enterprises Dividend Reinvestment and Stock Purchase Plan, the proxy will
represent the shares held on behalf of the participant under the plan and such
shares will be voted in accordance with the instructions on the Pacific
Enterprises proxy. If a participant does not return a Pacific Enterprises proxy,
the participant's shares will not be voted.
At the record date for the Pacific Enterprises Special Meeting of
Shareholders, employee benefit plans held shares of Pacific Enterprises Common
Stock representing 14.2% of the outstanding voting shares. Participants in these
plans may direct the voting of shares allocated to their individual employee
accounts by providing timely voting instructions to the plan trustees.
Instructions must be received by the trustees, and may be revoked or changed
only by new instructions received by the trustees at least two days before the
Pacific Enterprises Special Meeting of Shareholders.
Of the shares held by employee benefit plans, shares representing 11.6% of
the outstanding voting shares are held by the Retirement Savings Plans of
Pacific Enterprises and its subsidiaries. Substantially all of these shares have
been allocated to individual employee accounts. T. Rowe Price Trust Company, as
trustee for such plans, will vote unallocated shares and allocated shares for
which voting instructions are not timely received in the same manner and
proportion as allocated shares for which voting instructions are timely
received.
The remaining shares held by employee benefit plans of Pacific Enterprises
(representing 2.6% of the outstanding voting shares) are held by the Employee
Stock Ownership Plan of Pacific Enterprises. None of these shares have been
allocated to individual employee accounts. Accordingly, all of such shares will
be voted by the plan trustee, U.S. Trust Company of California, in accordance
with instructions to be received from Pacific Enterprises' Benefits Committee,
all of the members of which are officers or other employees of Pacific
Enterprises and/or Southern California Gas. The Benefits Committee has adopted a
general guideline contemplating that these shares will be voted in the same
manner and proportion as shares held in the Retirement Savings Plans of Pacific
Enterprises are voted but meets shortly prior to each meeting of shareholders to
determine whether the specific issues to be voted upon are appropriate for the
application of that guideline.
The expenses of soliciting proxies and voting instructions for the Pacific
Enterprises Special Meeting of Shareholders will be paid by Pacific Enterprises
(except Pacific Enterprises and Enova will share equally in expenses incurred in
connection with the printing and filing of this Joint Proxy
Statement/Prospectus) and will include reimbursement of banks, brokerage firms,
nominees, fiduciaries and other custodians for expenses of forwarding
solicitation materials to beneficial owners of voting shares. The solicitation
is being made by
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mail and may also be made in person or by letter, telephone, telecopy, telegram
or other means of communication by directors, officers and employees of Pacific
Enterprises and its subsidiaries who will not be additionally compensated
therefor. In addition, D.F. King & Co., Inc. has been retained by Pacific
Enterprises to assist in the solicitation of proxies and will be paid a fee of
$15,000 plus an additional $3.50 per shareholder contact and reimbursement for
reasonable out-of-pocket expenses.
The Pacific Enterprises Special Meeting of Shareholders may be adjourned to
another date or place for any proper purpose, including the solicitation of
additional proxies and voting instructions.
ENOVA SPECIAL MEETING OF SHAREHOLDERS
Purpose of Enova Special Meeting. The purpose of the Enova Special Meeting
of Shareholders is to consider and vote upon a proposal to approve the principal
terms of the business combination of Pacific Enterprises and Enova. No other
business may be conducted at the Enova Special Meeting.
The Enova Board of Directors, by a unanimous vote, has approved the Merger
Agreement providing for the business combination and the transactions
contemplated thereby and recommends that Enova's shareholders vote FOR approval
of the principal terms of the business combination. Pursuant to the Merger
Agreement, completion of the business combination is conditioned upon approval
of the business combination by Enova's shareholders.
Date, Place and Time; Record Date. The Enova Special Meeting of
Shareholders is scheduled to be held on Tuesday, March 11, 1997, at 10:00 a.m.,
local time, at the Del Mar Fairgrounds, the Mission Tower Building, 2260 Jimmy
Durante Boulevard, Del Mar, California. Holders of record of shares of Enova
Common Stock at the close of business on January 13, 1997, will be entitled to
notice of and to vote at the Enova Special Meeting. At the close of business on
that date, 116,628,735 shares of Enova Common Stock were issued and outstanding
and entitled to vote.
Voting Rights. Each outstanding share of Enova Common Stock is entitled to
one vote. A majority of the voting power of the shares issued and outstanding
and entitled to vote, present in person or by proxy, shall constitute a quorum
for the transaction of business at the Enova Special Meeting. Abstentions and
broker non-votes (proxies from brokers or nominees indicating that they have not
received voting instructions from the beneficial owners or other persons
entitled to vote shares) will be considered present for the purpose of
establishing a quorum. The affirmative vote of a majority of the votes entitled
to be cast at the Enova Special Meeting by all holders of Enova Common Stock is
required to approve the business combination and is a condition to completion of
the business combination. In determining whether the business combination has
received the requisite number of affirmative votes, abstentions and broker
non-votes will have the same effect as votes cast against approval of the
business combination.
As of January 13, 1997, the record date for the Enova Special Meeting, the
directors and executive officers of Enova, together with their affiliates as a
group, own beneficially less than 1% of the issued and outstanding shares of
Enova Common Stock.
Proxies and Voting Instructions. The accompanying proxy or voting
instruction is solicited on behalf of the Board of Directors of Enova. All
shares represented by properly executed proxies and voting instructions received
in time for the Enova Special Meeting will be voted in accordance with the
instructions specified thereon. If no instructions are specified, the shares
will be voted FOR approval of the principal terms of the business combination.
Holders of proxies and voting instructions are also authorized to vote the
shares represented thereby in their discretion as to any matters incident to the
conduct of the Enova Special Meeting.
A shareholder giving a proxy may revoke it at any time before it is voted.
Proxies may be revoked by (a) filing with the Secretary of Enova, a written
notice of revocation bearing a later date than the proxy; (b) duly executing a
later dated proxy relating to the same shares and delivering it to the Secretary
of Enova before the taking of the vote at the Enova Special Meeting; or (c)
attending the Enova Special Meeting and voting in person. Attendance at the
Enova Special Meeting will not by itself revoke a proxy.
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If an Enova shareholder is a participant in the Enova Direct Common Stock
Investment Plan, the proxy will represent the shares held on behalf of the
participant under the Enova Direct Common Stock Investment Plan and such shares
will be voted in accordance with the instructions on the Enova proxy. If a
participant does not return a Enova proxy, the participant's shares will not be
voted.
At the record date for the Enova Special Meeting of Shareholders, the SDG&E
Savings Plan held shares of Enova Common Stock, representing approximately 8% of
the outstanding voting shares. Participants in these plans may direct the voting
of shares allocated to their individual employee accounts by providing timely
voting instructions to the plan trustees. Instructions must be received by the
trustees, and may be revoked or changed only by new instructions received by the
trustees, at least two days before the Enova Special Meeting. Union Bank, as
trustee for the SDG&E Savings Plan, has discretion to vote the shares held by
the plan in the absence of voting direction by SDG&E Savings Plan participants.
The expenses of soliciting proxies and voting instructions for the Enova
Special Meeting of Shareholders will be paid by Enova (except Pacific
Enterprises and Enova will share equally in expenses incurred in connection with
the printing and filing of this Joint Proxy Statement/Prospectus) and will
include reimbursement of banks, brokerage firms, nominees, fiduciaries and other
custodians for expenses of forwarding solicitation materials to beneficial
owners of voting shares. The solicitation is being made by mail and may also be
made in person or by letter, telephone, telecopy, telegram or other means of
communication by directors, officers and employees of Enova and its subsidiaries
who will not be additionally compensated therefor. In addition, Georgeson &
Company Inc. has been retained by Enova to assist in the solicitation of proxies
and will be paid a fee of up to $50,000 and Enova has agreed to reimburse
Georgeson & Company Inc. for costs and expenses incurred in connection with such
proxy solicitation.
The Enova Special Meeting may be adjourned to another date or place for any
proper purpose, including the solicitation of additional proxies and voting
instructions.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETINGS
Proposals that shareholders of Pacific Enterprises wish to have included in
the proxy materials relating to the next Annual Meeting of Pacific Enterprises
(1997) must have been received by Pacific Enterprises by November 22, 1996.
Proposals that shareholders of Enova wish to have included in the proxy
materials relating to the next Annual Meeting of Enova (1997) must have been
received by Enova by November 14, 1996.
DISSENTERS' RIGHTS
RIGHTS OF SHAREHOLDERS OF PACIFIC ENTERPRISES AND ENOVA TO DISSENT FROM THE
BUSINESS COMBINATION AND DEMAND PAYMENT FOR THEIR SHARES ARE GOVERNED BY CHAPTER
13 OF THE CALIFORNIA GENERAL CORPORATION LAW (THE "CGCL"), THE FULL TEXT OF
WHICH IS REPRINTED AS ANNEX I TO THIS JOINT PROXY STATEMENT. THE SUMMARY OF
THESE RIGHTS SET FORTH BELOW IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO ANNEX I.
Under the CGCL, shareholders of Pacific Enterprises and Enova as to whose
shares there exists no restriction on transfer will not have any dissenters'
rights with respect to the business combination unless demands for payment are
duly filed with respect to five percent or more of the outstanding shares of the
class of shares which they hold. If such demands for payment are properly filed,
such holders will have dissenters' rights to be paid in cash the fair market
value of their shares only by fully complying with Chapter 13 of the CGCL.
Holders of shares as to which there exists a restriction on transfer will have
dissenters' rights without regard to other demands filed for payment but only
upon such full compliance.
Under the CGCL, "fair market value" is determined as of the day before the
first announcement of the terms of the business combination, excluding any
appreciation or depreciation in consequence of the business combination. Cash
dividends declared and paid on dissenting shares after the date of approval of
the principal terms of the business combination by shareholders are deducted
from the amount paid for dissenting shares. If the parties are unable to agree
on fair market value, it is subject to litigation in the case of Pacific
Enterprises
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in the Superior Court for the County of Los Angeles and in the case of Enova in
the Superior Court for the County of San Diego, including appellate review.
The terms of the business combination were publicly announced on October
14, 1996. On October 11, 1996, the last trading day prior to the public
announcement of the terms of the business combination, the high and low sales
prices for Pacific Enterprises Common Stock were $31.625 and $31.125 and for
Enova Common Stock were $22.625 and $22.375, respectively.
DISSENTERS' RIGHTS CANNOT BE VALIDLY EXERCISED BY PERSONS OTHER THAN
SHAREHOLDERS OF RECORD REGARDLESS OF THE BENEFICIAL OWNERSHIP OF THE SHARES.
Persons who are beneficial owners of shares held of record by another person,
such as a broker, a bank or a nominee, should instruct the record holder to
follow the procedures outlined below if they wish to dissent from the business
combination with respect to any or all of their shares.
In order to perfect their dissenters' rights, shareholders of record must:
(i) make written demand for the purchase of their dissenting shares upon the
corporation that issued their shares or its transfer agent on or before the date
of the Pacific Enterprises Special Meeting of Shareholders or the Enova Special
Meeting of Shareholders, as the case may be; (ii) vote their dissenting shares
against approval of the principal terms of the business combination; and (iii)
within thirty days after the mailing to shareholders by Pacific Enterprises or
Enova, as the case may be, of notice of approval of the principal terms of the
business combination, submit the certificates representing their dissenting
shares to Pacific Enterprises or Enova, as the case may be, or its transfer
agent for notation thereon that they represent dissenting shares. Failure to
follow any of these procedures may result in the loss of statutory dissenters'
rights.
DEMAND FOR PURCHASE
Dissenting shareholders of Pacific Enterprises, must submit to Pacific
Enterprises at its principal office, 555 West Fifth Street, Los Angeles,
California 90013, or to its transfer agent, Chemical Mellon Shareholder
Services, Washington Bridge Station, P.O. Box 990, Ridgefield Park, New Jersey
07660 a written demand that Pacific Enterprises purchase for cash some or all of
their shares. Dissenting shareholders of Enova must submit to Enova at its
principal office, 101 Ash Street, San Diego, California 92112, or to its
transfer agent, First Chicago Trust Company, P.O. Box 2500, Jersey City, NJ
07303-2500, a written demand that Enova purchase for cash some or all of their
shares.
The notice must state the number of shares held of record which the
shareholder demands to be purchased and the amount claimed to be the "fair
market value" of those shares. That statement of fair market value will
constitute an offer by the dissenting shareholder to sell such shares at that
price. SUCH DEMAND WILL NOT BE EFFECTIVE UNLESS IT IS RECEIVED BY NOT LATER THAN
THE DATE OF THE PACIFIC ENTERPRISES SPECIAL MEETING OF SHAREHOLDERS OR THE ENOVA
SPECIAL MEETING OF SHAREHOLDERS, AS THE CASE MAY BE.
Dissenting shareholders may not withdraw their demand for payment without
the consent of the of Pacific Enterprises or Enova Board of Directors, as the
case may be. The rights of dissenting shareholders to demand payment terminate
if the business combination is abandoned (although dissenting shareholders are
entitled upon demand to reimbursement of expenses incurred in a good faith
assertion of their dissenters' rights), or if the shares are transferred prior
to submission for endorsement as dissenting shares.
No shareholder who has a right to demand payment of cash for such
shareholder's shares and who in fact makes such a demand will have any right to
attack the validity of the business combination or have the business combination
set aside or rescinded, except in an action to test whether the number of shares
required to approve the business combination have been legally voted in favor
thereof. Any shareholder who does not demand payment of cash for such
shareholder's shares and who institutes an action to attack the validity of the
business combination or to have the business combination set aside or rescinded
would not thereafter have any right to demand payment of cash pursuant to the
exercise of dissenters' rights.
VOTE AGAINST THE BUSINESS COMBINATION
Dissenting shareholders must vote their dissenting shares against the
business combination. Record shareholders may vote part of the shares which they
are entitled to vote in favor of the business combination or
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abstain from voting a part of such shares without jeopardizing their dissenters'
rights as to other shares; however, if record shareholders vote part of the
shares they are entitled to vote in favor of the business combination and fail
to specify the number of shares they are so voting, it is conclusively presumed
under California law that their approving vote is with respect to all shares
which they are entitled to vote. Voting against the business combination will
not of itself, absent compliance with the provisions summarized herein, satisfy
the requirements of the CGCL for exercise and perfection of dissenters' rights.
However, any shareholder desiring to exercise dissenters' rights must vote
against the business combination.
NOTICE OF APPROVAL
If shareholders have a right to require Pacific Enterprises or Enova, as
the case may be, to purchase their shares for cash under the dissenters' rights
provisions of the CGCL, Pacific Enterprises or Enova, as the case may be, will
mail to each such shareholder a notice of approval of the business combination
within ten days after the date of shareholder approval, stating the price
determined by it to represent the "fair market value" of the dissenting shares.
The statement or price will constitute an offer to purchase any dissenting
shares at that price.
SUBMISSION OF STOCK CERTIFICATES
Within thirty days after the mailing of the notice of approval of the
business combination, dissenting shareholders must submit to Pacific Enterprises
or Enova, as the case may be, or its transfer agent at the address set forth
above, certificates representing the dissenting shares which it is demanded be
purchased, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed. The notice of approval of the business
combination will specify the date by which the submission of certificates for
endorsement must be made and a submission made after that date will not be
effective for any purpose.
PURCHASE OF DISSENTING SHARES
If a dissenting shareholder and Pacific Enterprises or Enova, as the case
may be, agree that the shares are dissenting shares and agree upon the price of
the shares, Pacific Enterprises or Enova, as the case may be, upon surrender of
the certificates, will make payment of that amount (plus interest thereon at the
legal rate on judgments from the date of such agreement) within thirty days
after that agreement. Any agreement between dissenting shareholders and Pacific
Enterprises or Enova, as the case may be, fixing the "fair market value" of any
dissenting shares must be filed with the Secretary of Pacific Enterprises or
Enova, as the case may be.
If Pacific Enterprises or Enova, as the case may be, denies that the shares
are dissenting shares, or Pacific Enterprises or Enova, as the case may be, and
a dissenting shareholder fail to agree upon the "fair market value" of the
shares, the dissenting shareholder may, within six months after the date on
which notice of approval of the merger was mailed to the shareholder, but not
thereafter, file a complaint (or intervene in a pending action, if any) in the
Superior Court for Los Angeles County, State of California in the case of
Pacific Enterprises and in the Superior Court for San Diego County, State of
California in the case of Enova, requesting that the Superior Court determine
whether the shares are dissenting shares and the "fair market value" of such
dissenting shares. The Superior Court may appoint one or more impartial
appraisers to determine the "fair market value" per share of the dissenting
shares. The costs of the action will be assessed or apportioned as the Superior
Court considers equitable, but if the "fair market value" is determined to
exceed the price offered to the shareholder by Pacific Enterprises or Enova, as
the case may be, then Pacific Enterprises or Enova, as the case may be, will be
required to pay such costs including, in the discretion of the Superior Court,
attorneys' fees, fees of expert witnesses and interest at the legal rate on
judgments, if such "fair market value" is determined to exceed 125 percent of
the price offered by Pacific Enterprises or Enova, as the case may be. A
dissenting shareholder must bring this action within six months after the date
on which notice of approval of the business combination was mailed to the
shareholder whether or not the corporation responds within such time to the
shareholder's written demand that Pacific Enterprises or Enova, as the case may
be, purchase for cash shares voted against the business combination.
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EXPERTS
The consolidated financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference from the Annual Report on Form 10-K of Enova
and SDG&E for the year ended December 31, 1995 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance on
the report of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference from the Annual Report on Form 10-K of Pacific
Enterprises for the year ended December 31, 1995 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will pass upon the legality of the
shares of New Holding Company Common Stock to be issued in connection with the
business combination.
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ANNEX A
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
ENOVA CORPORATION,
PACIFIC ENTERPRISES,
MINERAL ENERGY COMPANY,
G MINERAL ENERGY SUB
AND
B MINERAL ENERGY SUB
DATED AS OF OCTOBER 12, 1996
(AS AMENDED AS OF JANUARY 13, 1997)
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TABLE OF CONTENTS
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ARTICLE I
THE MERGERS
SECTION 1.01. The Mergers.......................................................... A-9
SECTION 1.02. Effective Time of the Mergers; Closing............................... A-10
SECTION 1.03. Effects of the Mergers............................................... A-10
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities............................................. A-11
SECTION 2.02. Exchange of Certificates............................................. A-12
SECTION 2.03. Dissenting Shares.................................................... A-13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PACIFIC
SECTION 3.01. Organization and Qualification....................................... A-14
SECTION 3.02. Subsidiaries......................................................... A-14
SECTION 3.03. Capitalization....................................................... A-14
SECTION 3.04. Authority; Non-Contravention; Statutory Approvals; Compliance........ A-15
SECTION 3.05. Reports and Financial Statements..................................... A-16
SECTION 3.06 Absence of Certain Changes or Events; Absence of Undisclosed
Liabilities.......................................................... A-17
SECTION 3.07. Litigation........................................................... A-17
SECTION 3.08. Registration Statement and Proxy Statement........................... A-17
SECTION 3.09. Tax Matters.......................................................... A-17
SECTION 3.10. Employee Matters; ERISA.............................................. A-20
SECTION 3.11. Environmental Protection............................................. A-21
SECTION 3.12. Regulation as a Utility.............................................. A-23
SECTION 3.13. Vote Required........................................................ A-23
SECTION 3.14. Accounting Matters................................................... A-23
SECTION 3.15. Opinions of Financial Advisors....................................... A-23
SECTION 3.16. Insurance............................................................ A-23
SECTION 3.17. Pacific Rights Agreement............................................. A-23
SECTION 3.18. Brokers.............................................................. A-23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ENOVA
SECTION 4.01. Organization and Qualification....................................... A-24
SECTION 4.02. Subsidiaries......................................................... A-24
SECTION 4.03. Capitalization....................................................... A-24
SECTION 4.04. Authority; Non-Contravention; Statutory Approvals; Compliance........ A-25
SECTION 4.05. Reports and Financial Statements..................................... A-26
SECTION 4.06 Absence of Certain Changes or Events; Absence of Undisclosed
Liabilities.......................................................... A-26
SECTION 4.07. Litigation........................................................... A-26
SECTION 4.08. Registration Statement and Proxy Statement........................... A-27
SECTION 4.09. Tax Matters.......................................................... A-27
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SECTION 4.10. Employee Matters; ERISA.............................................. A-29
SECTION 4.11. Environmental Protection............................................. A-30
SECTION 4.12. Regulation as a Utility.............................................. A-31
SECTION 4.13. Nuclear Operations................................................... A-31
SECTION 4.14. Vote Required........................................................ A-31
SECTION 4.15. Accounting Matters................................................... A-31
SECTION 4.16. Opinion of Financial Advisor......................................... A-32
SECTION 4.17. Insurance............................................................ A-32
SECTION 4.18. Ownership of Pacific Common Stock.................................... A-32
SECTION 4.19. Brokers.............................................................. A-32
SECTION 4.20. Tax-Exempt Status.................................................... A-32
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGERS
SECTION 5.01. Conduct of Business Pending the Mergers.............................. A-32
SECTION 5.02. Transition and Strategic Opportunity Committees...................... A-36
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Access to Information; Confidentiality............................... A-37
SECTION 6.02. Registration Statement; Joint Proxy Statement........................ A-37
SECTION 6.03. Regulatory Matters................................................... A-38
SECTION 6.04. Shareholder Approvals................................................ A-38
SECTION 6.05. Directors' and Officers' Indemnification............................. A-39
SECTION 6.06. Disclosure Schedules................................................. A-40
SECTION 6.07. Public Announcements................................................. A-40
SECTION 6.08. Rule 145 Affiliates.................................................. A-40
SECTION 6.09. Employee Agreements and Workforce Matters............................ A-40
SECTION 6.10. Employee Benefit Plans............................................... A-41
SECTION 6.11. Stock Option and Other Stock Plans................................... A-41
SECTION 6.12. No Solicitations..................................................... A-42
SECTION 6.13. Company Board of Directors........................................... A-43
SECTION 6.14. Company Officers..................................................... A-43
SECTION 6.15. Employment Contracts................................................. A-43
SECTION 6.16. Post-Merger Operations............................................... A-43
SECTION 6.17. Expenses............................................................. A-44
SECTION 6.18. Energy Marketing Joint Venture....................................... A-44
ARTICLE VII
CONDITIONS TO THE MERGERS
SECTION 7.01. Conditions to the Obligations of Each Party.......................... A-44
SECTION 7.02. Conditions to the Obligations of Pacific............................. A-45
SECTION 7.03. Conditions to the Obligations of Enova............................... A-45
</TABLE>
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<TABLE>
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination.......................................................... A-46
SECTION 8.02. Effect of Termination................................................ A-47
SECTION 8.03. Fees and Expenses.................................................... A-47
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Effectiveness of Representations, Warranties and Agreements.......... A-49
SECTION 9.02. Notices.............................................................. A-49
SECTION 9.03. Certain Definitions.................................................. A-50
SECTION 9.04. Amendment............................................................ A-50
SECTION 9.05. Waiver............................................................... A-51
SECTION 9.06. Headings............................................................. A-51
SECTION 9.07. Severability......................................................... A-51
SECTION 9.08. Entire Agreement..................................................... A-51
SECTION 9.09. Assignment........................................................... A-51
SECTION 9.10. Parties in Interest.................................................. A-51
SECTION 9.11. Failure or Indulgence Not Waiver; Remedies Cumulative................ A-51
SECTION 9.12. Governing Law........................................................ A-51
SECTION 9.13. Counterparts......................................................... A-52
SECTION 9.14. WAIVER OF JURY TRIAL................................................. A-52
SECTION 9.15. Further Assurances................................................... A-52
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Summary of Terms of Energy Marketing Joint Venture
Exhibit 1.02(a)(i) Enova Merger Agreement
Exhibit 1.02(a)(ii) Pacific Merger Agreement
Exhibit 6.08 Form of Affiliate Agreement
Exhibit 6.15 Form of Employment Contracts
</TABLE>
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INDEX OF DEFINED TERMS
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1935 Act............................................................................. A-14
Acquisition Proposal................................................................. A-43
affiliate............................................................................ A-23
Affiliate Agreement.................................................................. A-40
affiliates........................................................................... A-50
Agreement............................................................................ A-9
Atomic Energy Act.................................................................... A-26
Barr Devlin.......................................................................... A-23
beneficial owner..................................................................... A-50
Bonds................................................................................ A-32
business day......................................................................... A-50
California Law....................................................................... A-9
Certificates......................................................................... A-12
Closing Agreement.................................................................... A-18
Closing.............................................................................. A-10
Closing Date......................................................................... A-10
Code................................................................................. A-9
Company.............................................................................. A-9
Company Common Stock................................................................. A-11
Company Replacement Plans............................................................ A-41
Company Shares....................................................................... A-12
Confidentiality Agreement............................................................ A-37
control.............................................................................. A-50
controlled by........................................................................ A-50
Converted Shares..................................................................... A-12
CPUC................................................................................. A-16
Disclosure Schedules................................................................. A-40
Dissenting Shares.................................................................... A-13
Effective Time....................................................................... A-10
Encumbrances......................................................................... A-14
Energy Marketing Joint Venture....................................................... A-9
Energy Marketing Joint Venture Agreement............................................. A-9
Energy Marketing Required Statutory Approvals........................................ A-38
Enova................................................................................ A-9
Enova Benefit Plans.................................................................. A-29
Enova Common Stock................................................................... A-11
Enova Disclosure Schedule............................................................ A-40
Enova Dissenting Shares.............................................................. A-13
Enova Effective Time................................................................. A-10
Enova Financial Statements........................................................... A-26
Enova Material Adverse Effect........................................................ A-24
Enova Merger......................................................................... A-9
</TABLE>
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Enova Merger Agreement............................................................... A-10
Enova Out-of-Pocket Expenses......................................................... A-48
Enova Preferred Stock................................................................ A-24
Enova Ratio.......................................................................... A-11
Enova Required Consents.............................................................. A-25
Enova Required Statutory Approvals................................................... A-25
Enova SEC Reports.................................................................... A-26
Enova Shareholders' Approval......................................................... A-31
Enova Special Meeting................................................................ A-39
Enova Sub............................................................................ A-9
Enova Sub Common Stock............................................................... A-24
Enova Sub Par Value $20 Preferred Stock.............................................. A-24
Enova Sub No Par Preference Stock.................................................... A-24
Environmental Claim.................................................................. A-22
Environmental Laws................................................................... A-22
Environmental Permits................................................................ A-21
ERISA................................................................................ A-20
Excess Shares........................................................................ A-12
Exchange Act......................................................................... A-16
Exchange Agent....................................................................... A-12
Exchange Ratios...................................................................... A-11
FERC................................................................................. A-16
Final Order.......................................................................... A-45
GAAP................................................................................. A-9
Gas Act.............................................................................. A-16
Governmental Authority............................................................... A-16
Hazardous Materials.................................................................. A-22
HSR Act.............................................................................. A-38
Indemnified Parties.................................................................. A-39
Indemnified Party.................................................................... A-39
IRS.................................................................................. A-19
Joint Proxy/Registration Statement................................................... A-37
joint venture........................................................................ A-50
Joint Venture Material Adverse Effect................................................ A-14
knowledge............................................................................ A-50
Merger Consideration................................................................. A-12
Mergers.............................................................................. A-9
Merrill Lynch........................................................................ A-23
Morgan Stanley....................................................................... A-32
New Opportunity...................................................................... A-36
Newco Enova Sub...................................................................... A-9
Newco Pacific Sub.................................................................... A-9
NRC.................................................................................. A-26
NYSE................................................................................. A-12
Pacific.............................................................................. A-9
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
Pacific Benefit Plans................................................................ A-20
Pacific Class A Preferred Stock...................................................... A-11
Pacific Common Stock................................................................. A-11
Pacific Disclosure Schedule.......................................................... A-40
Pacific Dissenting Shares............................................................ A-13
Pacific Effective Time............................................................... A-10
Pacific Financial Statements......................................................... A-16
Pacific Material Adverse Effect...................................................... A-14
Pacific Merger....................................................................... A-9
Pacific Merger Agreement............................................................. A-10
Pacific Out-of-Pocket Expenses....................................................... A-47
Pacific Preferred Stock.............................................................. A-11
Pacific Ratio........................................................................ A-11
Pacific Required Consents............................................................ A-15
Pacific Required Statutory Approvals................................................. A-16
Pacific Right........................................................................ A-11
Pacific Rights Agreement............................................................. A-11
Pacific SEC Reports.................................................................. A-16
Pacific Shareholders' Approval....................................................... A-23
Pacific Special Meeting.............................................................. A-38
Pacific Sub.......................................................................... A-15
Pacific Sub Common Stock............................................................. A-15
Pacific Sub Preference Stock......................................................... A-15
Pacific Sub Preferred Stock.......................................................... A-15
Pacific Sub Series A Preferred....................................................... A-15
Pacific Sub Series Preferred......................................................... A-15
Pacific Sub $25 Preferred............................................................ A-15
PBGC................................................................................. A-20
PCBs................................................................................. A-22
person............................................................................... A-50
Power Act............................................................................ A-14
Proxy Statement...................................................................... A-17
Registration Statement............................................................... A-17
Release.............................................................................. A-22
Representatives...................................................................... A-37
SEC.................................................................................. A-16
Securities Act....................................................................... A-16
Shares Trust......................................................................... A-13
SONGS................................................................................ A-31
Special Meeting...................................................................... A-39
Stock Award.......................................................................... A-42
Stock Plans.......................................................................... A-42
Strategic Opportunity Committee...................................................... A-36
subsidiary or subsidiaries........................................................... A-50
subsidiary company................................................................... A-23
Tax Return........................................................................... A-17
</TABLE>
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Tax Ruling........................................................................... A-18
Taxes................................................................................ A-17
Three Year Period.................................................................... A-51
Transition Committee................................................................. A-36
under common control with............................................................ A-50
Violation............................................................................ A-15
</TABLE>
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of October 12,
1996 and as amended as of January 13, 1997, (as amended, this "AGREEMENT"),
among Enova Corporation, a California corporation ("ENOVA"; provided, however,
that references in Article IV hereof to "Enova" prior to January 1, 1996 shall
be deemed references to San Diego Gas & Electric, a California corporation and,
since January 1, 1996, a wholly owned subsidiary of Enova ("ENOVA SUB")),
Pacific Enterprises, a California corporation ("PACIFIC"), Mineral Energy
Company, a California corporation, 50% of whose outstanding capital stock is
owned by Enova and 50% of whose outstanding capital stock is owned by Pacific
(the "COMPANY"), G Mineral Energy Sub, a California corporation and wholly owned
subsidiary of the Company ("NEWCO ENOVA SUB"), and B Mineral Energy Sub, a
California corporation and wholly owned subsidiary of the Company ("NEWCO
PACIFIC SUB"),
W I T N E S S E T H:
WHEREAS, Enova and Pacific have each determined that, to promote the best
interests of its shareholders and employees and those customers and communities
served by its utility subsidiaries, it wishes to compete aggressively in the
rapidly evolving energy marketplace and that it may best do so through a
combination with the other party, and therefore Pacific and Enova have each
determined to engage in a business combination as peer firms in a strategic
merger of equals and, accordingly, have formed the Company to participate in
such business combination;
WHEREAS, in furtherance thereof the respective Boards of Directors of
Enova, Pacific, the Company, Newco Enova Sub and Newco Pacific Sub have approved
the consummation of the reorganization provided for in this Agreement, pursuant
to which Newco Enova Sub and Newco Pacific Sub will merge with and into Enova
and Pacific, respectively, all in accordance with the California General
Corporation Law (the "CALIFORNIA LAW") and on the terms and conditions set forth
in this Agreement (such transactions are referred to herein individually as the
"ENOVA MERGER" and the "PACIFIC MERGER", respectively, and collectively as the
"MERGERS"), as a result of which the common shareholders of Enova and Pacific
will together own all of the outstanding shares of common stock of the Company
(which will, in turn, own all of the outstanding shares of common stock of
Pacific and Enova) and each share of each other class of capital stock of Enova
and Pacific shall be unaffected and remain outstanding;
WHEREAS, Pacific and Enova contemplate forming a joint venture (the "ENERGY
MARKETING JOINT VENTURE") to pursue natural gas and electricity marketing
opportunities and provide energy management and related energy services, which
joint venture will be governed by an agreement containing substantially the
terms set forth in Exhibit A hereto (the "ENERGY MARKETING JOINT VENTURE
AGREEMENT");
WHEREAS, for federal income tax purposes, it is intended that the Mergers
shall collectively qualify as a transaction described in Section 351 of the
Internal Revenue Code of 1986, as amended (the "CODE"), and that the
shareholders of Enova and Pacific will recognize no gain or loss for federal
income tax purposes as a result of the consummation of the Mergers, except with
respect to any cash received; and
WHEREAS, for accounting purposes, it is intended that the transactions
contemplated hereby shall be accounted for as a pooling of interests under
United States generally accepted accounting principles applied on a consistent
basis ("GAAP");
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGERS
SECTION 1.01. The Mergers. Upon the terms and subject to the conditions of
this Agreement:
(a) At the Enova Effective Time, Newco Enova Sub shall be merged with and
into Enova (the "ENOVA MERGER") in accordance with California Law. Enova shall
be the surviving corporation in the Enova Merger
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and shall continue its corporate existence under the laws of the State of
California. As a result of the Enova Merger, Enova shall become a subsidiary of
the Company. The effects and the consequences of the Enova Merger shall be as
set forth in Section 1.03(a).
(b) At the Pacific Effective Time, Newco Pacific Sub shall be merged with
and into Pacific (the "PACIFIC MERGER") in accordance with California Law.
Pacific shall be the surviving corporation in the Pacific Merger and shall
continue its corporate existence under the laws of the State of California. As a
result of the Pacific Merger, Pacific shall become a subsidiary of the Company.
The effects and the consequences of the Pacific Merger shall be as set forth in
Section 1.03(b).
SECTION 1.02. Effective Time of the Mergers; Closing. (a) On the Closing
Date, (i) with respect to the Enova Merger, the parties thereto shall file the
merger agreement in substantially the form attached as Exhibit 1.02(a)(i) with
the Secretary of State of the State of California in such form as required by,
and executed in accordance with the relevant provisions of, California Law (the
"ENOVA MERGER AGREEMENT"), and (ii) with respect to the Pacific Merger, the
parties thereto shall file the merger agreement in substantially the form
attached as Exhibit 1.02(a)(ii) with the Secretary of State of the State of
California, in such form as required by, and executed in accordance with the
relevant provisions of, California Law (the "PACIFIC MERGER AGREEMENT"). The
Enova Merger shall become effective at the time specified in the Enova Merger
Agreement (the "ENOVA EFFECTIVE TIME"), and the Pacific Merger shall become
effective at the time specified in the Pacific Merger Agreement (the "PACIFIC
EFFECTIVE TIME"). The effective time specified in the Enova Merger Agreement
shall also be the effective time specified in the Pacific Merger Agreement. The
term "EFFECTIVE TIME" shall mean the time and date of the Pacific Effective
Time.
(b) The closing (the "CLOSING") of the Mergers shall take place at the
offices of Shearman & Sterling, 777 South Figueroa Street, 34th Floor, Los
Angeles, California 90017-5418 at 10:00 A.M., local time, on the second business
day immediately following the date on which the last of the conditions set forth
in Article VII hereof is fulfilled or waived, or at such other time and date and
place as Pacific and Enova shall mutually agree (the "CLOSING DATE").
SECTION 1.03. Effects of the Mergers. (a) At the Enova Effective Time, (i)
the Articles of Incorporation of Enova, as in effect immediately prior to the
Enova Effective Time, shall be the Articles of Incorporation of Enova as the
surviving corporation in the Enova Merger until thereafter amended as provided
by law and such Articles of Incorporation, and (ii) the Bylaws of Enova, as in
effect immediately prior to the Enova Effective Time, shall be the Bylaws of
Enova as the surviving corporation in the Enova Merger, until thereafter amended
as provided by law, the Articles of Incorporation of the surviving corporation
and such Bylaws. Subject to the foregoing, the additional effects of the Enova
Merger shall be as provided in the applicable provisions of California Law.
(b) At the Pacific Effective Time, (i) the Articles of Incorporation of
Pacific, as in effect immediately prior to the Pacific Effective Time, shall be
the Articles of Incorporation of Pacific as the surviving corporation in the
Pacific Merger until thereafter amended as provided by law and such Articles of
Incorporation, and (ii) the Bylaws of Pacific, as in effect immediately prior to
the Pacific Effective Time shall be the Bylaws of Pacific as the surviving
corporation in the Pacific Merger, until thereafter amended as provided by law,
the Articles of Incorporation of the surviving corporation and such Bylaws.
Subject to the foregoing, the additional effects of the Pacific Merger shall be
as provided in the applicable provisions of California Law.
(c) The parties shall take all appropriate action so that at the Effective
Time, (i) the Articles of Incorporation of the Company shall be in such form as
shall mutually be agreed to by Pacific and Enova prior to the Effective Time,
and (ii) the Bylaws of the Company shall be in such form as shall mutually be
agreed to by Pacific and Enova prior to the Effective Time.
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<PAGE> 106
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities. (a) At the Enova Effective Time, by
virtue of the Enova Merger and without any action on the part of any holder of
any capital stock of Enova or Newco Enova Sub:
(i) Cancellation of Certain Enova Common Stock. Each share of Common
Stock, no par value, of Enova (the "ENOVA COMMON STOCK") that is owned by
subsidiaries of Enova or by Pacific, the Company or any of their
subsidiaries shall be cancelled and cease to exist.
(ii) Conversion of Enova Common Stock. Each issued and outstanding
share of Enova Common Stock (other than shares cancelled pursuant to
Section 2.01(a)(i) and Enova Dissenting Shares) shall be converted into the
right to receive 1.00 (the "ENOVA RATIO") fully paid and non-assessable
share of Common Stock, no par value, of the Company (the "COMPANY COMMON
STOCK"). Upon such conversion, each holder of a certificate formerly
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of Company Common Stock to
be issued in consideration therefor upon the surrender of such certificate
in accordance with Section 2.02.
(iii) Conversion of Newco Enova Sub Common Stock. The aggregate of all
shares of the capital stock of Newco Enova Sub issued and outstanding
immediately prior to the Enova Effective Time shall be converted into the
right to receive that number of shares of Enova Common Stock which shall be
equivalent to the aggregate number of shares of Enova Common Stock
outstanding immediately prior to the Enova Effective Time.
(b) At the Pacific Effective Time, by virtue of the Pacific Merger and
without any action on the part of any holder of any capital stock of Pacific or
Newco Pacific Sub:
(i) Cancellation of Certain Pacific Common Stock. Each share of Common
Stock of Pacific (the "PACIFIC COMMON STOCK"), including any associated
right (the "PACIFIC RIGHT") to receive or purchase shares of the capital
stock of Pacific pursuant to the terms of a Rights Agreement, dated as of
March 7, 1989 between Pacific and Chemical Bank, as successor Rights Agent
thereunder (the "PACIFIC RIGHTS AGREEMENT"), that is owned by subsidiaries
of Pacific or by Enova, the Company or any of their subsidiaries shall be
cancelled and cease to exist. All references in this Agreement to Pacific
Common Stock shall be deemed to include the associated Pacific Rights.
(ii) Conversion of Pacific Common Stock. Each issued and outstanding
share of Pacific Common Stock (other than shares cancelled pursuant to
Section 2.01(b)(i) and Pacific Dissenting Shares) shall be converted into
the right to receive 1.5038 (the "PACIFIC RATIO", and together with the
Enova Ratio, the "EXCHANGE RATIOS") shares of fully paid and non-assessable
shares of Company Common Stock. Upon such conversion, each holder of a
certificate formerly representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the shares of
Company Common Stock to be issued in consideration therefor upon the
surrender of such certificate in accordance with Section 2.02.
(iii) Conversion of Newco Pacific Sub Common Stock. The aggregate of
all shares of the capital stock of Newco Pacific Sub issued and outstanding
immediately prior to the Pacific Effective Time shall be converted into the
right to receive that number of shares of Pacific Common Stock which shall
be equivalent to the aggregate number of shares of Pacific Common Stock
outstanding immediately prior to the Pacific Effective Time.
(iv) Pacific Preferred Stock to Remain Unchanged. All issued and
outstanding shares of Class A Preferred Stock of Pacific (the "PACIFIC
CLASS A PREFERRED STOCK") and of Preferred Stock of Pacific (the "PACIFIC
PREFERRED STOCK") shall be unchanged and shall remain outstanding after the
Pacific Merger.
(c) At the Effective Time, by virtue of the Mergers and without any action
on the part of any holder of any capital stock of Enova, Pacific or the Company,
each share of Company Common Stock issued and outstanding immediately prior to
the Effective Time shall be cancelled, and no consideration shall be delivered
in exchange therefor.
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SECTION 2.02. Exchange of Certificates.
(a) Deposit with Exchange Agent. As soon as practicable after the Effective
Time, the Company shall deposit with such bank or trust company mutually
agreeable to Pacific and Enova (the "EXCHANGE AGENT"), certificates representing
shares of Company Common Stock required to effect the exchanges referred to in
Sections 2.01(a)(ii) and (b)(ii).
(b) Exchange Procedures. As soon as practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Enova Common Stock or Pacific Common Stock (the
"CERTIFICATES") that were converted (the "CONVERTED SHARES") into the right to
receive shares of Company Common Stock (the "COMPANY SHARES") pursuant to
Section 2.01, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon actual delivery of the Certificates to the Exchange Agent) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing Company Shares. Upon surrender of a Certificate to
the Exchange Agent for cancellation (or to such other agent or agents as may be
appointed by agreement of Pacific and Enova), together with a duly executed
letter of transmittal and such other documents as the Exchange Agent shall
require, the holder of such Certificate shall be entitled to receive in exchange
therefor a certificate representing that number of whole Company Shares which
such holder has the right to receive pursuant to the provisions of this Article
II. In the event of a transfer of ownership of Converted Shares which is not
registered in the transfer records of Enova or Pacific, as the case may be, a
certificate representing the proper number of Company Shares may be issued to a
transferee if the Certificate representing such Converted Shares is presented to
the Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence satisfactory to the Exchange Agent that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.02, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the certificate representing Company Shares and cash in lieu of any
fractional shares of Company Common Stock ("MERGER CONSIDERATION") as
contemplated by this Section 2.02.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Company
Shares with a record date after the Effective Time shall be paid to the holder
of any unsurrendered Certificate with respect to the Company Shares represented
thereby and no cash payment in lieu of fractional shares shall be paid to any
such holder pursuant to Section 2.02(d) until the holder of record of such
Certificate shall surrender such Certificate. Subject to the effect of unclaimed
property, escheat and other applicable laws, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole Company Shares issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of any cash payable in lieu of a
fractional share of Company Common Stock to which such holder is entitled
pursuant to Section 2.02(d) and the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole Company Shares and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective Time
but prior to surrender and a payment date subsequent to surrender payable with
respect to such whole Company Shares, as the case may be.
(d) No Fractional Securities. Notwithstanding any other provision of this
Agreement, no certificates or scrip representing fractional shares of Company
Common Stock shall be issued upon the surrender for exchange of Certificates and
such fractional shares shall not entitle the owner thereof to vote or to any
other rights of a holder of Company Common Stock. Each holder of a fractional
share interest shall be paid an amount in cash representing such holder's
proportionate interest in the net proceeds from the sale by the Exchange Agent
on behalf of all such holders of the aggregate of the fractions of shares of
Company Common Stock that would otherwise be issued to such holders ("EXCESS
SHARES"). The sale of the Excess Shares by the Exchange Agent shall be executed
on the New York Stock Exchange, Inc. (the "NYSE") through one or more member
firms of the NYSE and shall be executed in round lots to the extent practicable.
Until the net proceeds of such sale or sales have been distributed to the former
holders of Pacific Common Stock and Enova Common Stock, the Company will cause
the Exchange Agent to hold such proceeds in trust for the holders of
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<PAGE> 108
such fractional share interests (the "SHARES TRUST"). The Company shall pay all
commissions, transfer taxes and other out-of-pocket transaction costs, including
the expenses and compensation of the Exchange Agent, incurred in connection with
such sale of the Excess Shares. The Exchange Agent shall determine the portion
of the Shares Trust to which each former holder of Pacific Common Stock or Enova
Common Stock shall be entitled, if any, by multiplying the amount of the
aggregate net proceeds comprising the Shares Trust by a fraction the numerator
of which is the amount of the fractional shares of Company Common Stock to which
such former holder of Pacific Common Stock or Enova Common Stock is entitled and
the denominator of which is the aggregate amount of fractional share interests
to which all holders of Company Common Stock are entitled. As soon as
practicable after the determination of the amount of cash, if any, to be paid to
former holders of Pacific Common Stock and Enova Common Stock in lieu of any
fractional shares of Company Common Stock interests, the Exchange Agent shall
make available such amounts to such former holders of Pacific Common Stock and
Enova Common Stock without interest.
(e) Closing of Transfer Books. From and after the Enova Effective Time or
the Pacific Effective Time, as the case may be, the stock transfer books of
Enova and Pacific shall be closed and no transfer of any capital stock of Enova
or Pacific shall thereafter be made. If, after the Effective Time, Certificates
are presented to the Company, they shall be cancelled and exchanged for
certificates representing the appropriate Company Shares as provided in Section
2.02.
(f) Termination of Exchange Agent. Any certificates representing Company
Shares deposited with the Exchange Agent pursuant to Section 2.02(a) and not
exchanged within one year after the Effective Time pursuant to this Section 2.02
shall be returned by the Exchange Agent to the Company, which shall thereafter
act as Exchange Agent. All funds held by the Exchange Agent for payment to the
holders of unsurrendered Certificates and unclaimed at the end of one year from
the Effective Time shall be returned to the Company, after which time any holder
of unsurrendered Certificates shall look as a general creditor only to the
Company for payment of such funds to which such holder may be due, subject to
applicable law. The Company shall not be liable to any person for such shares or
funds delivered to a public official pursuant to any applicable unclaimed
property, escheat or similar law.
SECTION 2.03. Dissenting Shares. (a) Notwithstanding any provision of this
Agreement to the contrary, any shares of capital stock of Pacific or Enova held
by a holder who has exercised dissenters' rights for such shares in accordance
with California Law and who, as of the Effective Time, has not effectively
withdrawn or lost such dissenters' rights ("PACIFIC DISSENTING SHARES" or "ENOVA
DISSENTING SHARES", as the case may be, and collectively "DISSENTING SHARES"),
shall not be converted into or represent a right to receive Company Common Stock
in the Pacific Merger (in the case of Pacific Dissenting Shares) or in the Enova
Merger (in the case of Enova Dissenting Shares), but the holder thereof shall
only be entitled to such rights as are granted by California Law.
(b) Notwithstanding the provisions of subsection (a), if any holder of
Dissenting Shares shall effectively withdraw or lose (through failure to perfect
or otherwise) his dissenters' rights, then, as of the later of the Pacific
Effective Time or the Enova Effective Time, as applicable, or the occurrence of
such event, such holder's shares shall automatically be converted into and
represent only the right to receive the applicable Merger Consideration, without
interest thereon, upon surrender of the certificate or certificates representing
such Dissenting Shares.
(c) Enova shall give Pacific and Pacific shall give Enova (i) prompt notice
of any written demands received pursuant to Section 1301 of California Law,
withdrawals of such demands, and any other instruments served pursuant to
California Law and received thereby and (ii) the opportunity to participate in
all negotiations and proceedings with respect to such demands. Neither Pacific
nor Enova shall, except with the prior written consent of the other, voluntarily
make any payment with respect to any such demands or offer to settle or settle
any such demands.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PACIFIC
Pacific represents and warrants to Enova as follows:
SECTION 3.01. Organization and Qualification. Except as set forth in
Section 3.01 of the Pacific Disclosure Schedule, each of Pacific and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, has all requisite power
and authority, and has been duly authorized by all necessary approvals and
orders, to own, lease and operate its assets and properties and to carry on its
business as it is now being conducted, and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its business
or the ownership or leasing of its assets and properties makes such
qualification necessary other than in such jurisdictions where the failure to be
so qualified and in good standing will not, when taken together with all other
such failures, have a material adverse effect on the operations, properties,
assets, financial condition or the results of operations of Pacific and its
subsidiaries taken as a whole or on the consummation of the transactions
contemplated by this Agreement (any such material adverse effect being
hereinafter referred to as a "PACIFIC MATERIAL ADVERSE EFFECT") or a material
adverse effect on the ability of (i) the Energy Marketing Joint Venture to
achieve the business objectives contemplated by the Energy Marketing Joint
Venture Agreement or (ii) at and after the Effective Time, the Company and its
prospective subsidiaries to achieve the business objectives contemplated by the
Summary of Terms attached as Exhibit A (any such material adverse effect being
hereinafter referred to as a "JOINT VENTURE MATERIAL ADVERSE EFFECT").
SECTION 3.02. Subsidiaries. Section 3.02 of the Pacific Disclosure Schedule
sets forth a description as of the date hereof of all subsidiaries and joint
ventures of Pacific, including the name of each such entity and Pacific's
interest therein, and, as to each subsidiary or joint venture identified as a
"Material Pacific Entity" in Section 3.02 of the Pacific Disclosure Schedule, a
brief description of the principal line or lines of business conducted by each
such entity. Except as set forth in Section 3.02 of the Pacific Disclosure
Schedule, none of such entities is a "public utility company", a "holding
company", a "subsidiary company" or an "affiliate" of any public utility company
within the meaning of Section 2(a)(5), 2(a)(7), 2(a)(8) or 2(a)(11) of the
Public Utility Holding Company Act of 1935, as amended (the "1935 ACT"),
respectively, or a "public utility" within the meaning of Section 201(e) of the
Federal Power Act (the "POWER ACT"). Except as set forth in Section 3.02 of the
Pacific Disclosure Schedule, all of the issued and outstanding shares of capital
stock of each subsidiary of Pacific are validly issued, fully paid,
nonassessable and free of preemptive rights, are owned directly or indirectly by
Pacific free and clear of any liens, claims, encumbrances, security interests,
equities, charges and options of any nature whatsoever ("ENCUMBRANCES") and
there are no outstanding subscriptions, options, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement, obligating any
such subsidiary to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of its capital stock or obligating it to grant, extend
or enter into any such agreement or commitment.
SECTION 3.03. Capitalization.
(a) Pacific. The authorized capital stock of Pacific consists of (i)
600,000,000 shares of Pacific Common Stock, (ii) 5,000,000 shares of Pacific
Class A Preferred Stock and (iii) 10,000,000 shares of Pacific Preferred Stock.
As of the close of business on September 30, 1996, there were issued and
outstanding (i) 85,034,885 shares of Pacific Common Stock, (ii) no shares of
Pacific Class A Preferred Stock and (iii) 800,253 shares of Pacific Preferred
Stock consisting of 300,000 shares of a series of $4.50 dividend preferred
stock, 100,000 shares of a series of $4.40 dividend preferred stock, 200,000
shares of a series of $4.75 dividend preferred stock, 200,000 shares of a series
of $4.36 dividend preferred stock and 253 shares of a series of $4.75 dividend
preferred stock (convertible on or before October 31, 1996). All of the issued
and outstanding shares of the capital stock of Pacific are validly issued, fully
paid, nonassessable and free of preemptive rights. Except as set forth in
Section 3.03(a) of the Pacific Disclosure Schedule, as of the date hereof, there
are no outstanding subscriptions, options, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions, arrangements, rights
or warrants, including any right of conversion
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or exchange under any outstanding security, instrument or other agreement,
obligating Pacific or any of its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of the capital stock of
Pacific or obligating Pacific or any of its subsidiaries to grant, extend or
enter into any such agreement or commitment, other than under the Pacific Rights
Agreement.
(b) Pacific Sub. The authorized capital stock of Southern California Gas
Company, a California corporation all of whose issued and outstanding common
stock is owned by Pacific ("PACIFIC SUB"), consists of (i) 100,000,000 shares of
common stock, no par value (the "PACIFIC SUB COMMON STOCK"), and (ii) shares of
preferred and preference stock (collectively the "PACIFIC SUB PREFERRED STOCK")
consisting of (A) 160,000 shares of Preferred Stock, par value $25 each (the
"PACIFIC SUB $25 PREFERRED"), (B) 840,000 shares of Preferred Stock, Series A,
par value $25 each (the "PACIFIC SUB SERIES A PREFERRED"), (C) 5,000,000 shares
of Series Preferred Stock, no par value (the "PACIFIC SUB SERIES PREFERRED"),
and (D) 5,000,000 shares of Preference Stock (the "PACIFIC SUB PREFERENCE
STOCK"). As of the close of business on September 30, 1996, there were issued
and outstanding 91,300,000 shares of Pacific Sub Common Stock, 79,011 shares of
Pacific Sub $25 Preferred, 783,036 shares of Pacific Sub Series A Preferred,
3,000,000 shares of Pacific Sub Series Preferred and no shares of Pacific Sub
Preference Stock. All of the issued and outstanding shares of the capital stock
of Pacific Sub are validly issued, fully paid, nonassessable and free of
preemptive rights. Except as set forth in Section 3.03(b) of the Pacific
Disclosure Schedule, as of the date hereof, there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating Pacific or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, the capital
stock of Pacific Sub or obligating Pacific or any of its subsidiaries to grant,
extend or enter into any such agreement or commitment.
SECTION 3.04. Authority; Non-Contravention; Statutory Approvals;
Compliance.
(a) Authority. Pacific has all requisite power and authority to enter into
this Agreement and the Energy Marketing Joint Venture Agreement and, subject to
the applicable Pacific Shareholders' Approval and the applicable Pacific
Required Statutory Approvals, to consummate the transactions contemplated hereby
or thereby. The execution and delivery of this Agreement and the Energy
Marketing Joint Venture Agreement and the consummation by Pacific of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Pacific, subject in the case of this
Agreement to obtaining the applicable Pacific Shareholders' Approval. This
Agreement has been, and the Energy Marketing Joint Venture Agreement upon
execution and delivery will be, duly and validly executed and delivered by
Pacific and, assuming the due authorization, execution and delivery hereof and
thereof by Enova, the Company, Newco Enova Sub and Newco Pacific Sub, as the
case may be, constitutes or will constitute the valid and binding obligation of
Pacific enforceable against it in accordance with its terms.
(b) Non-Contravention. Except as set forth in Section 3.04(b) of the
Pacific Disclosure Schedule, the execution and delivery of this Agreement and
the Energy Marketing Joint Venture Agreement by Pacific do not, and the
consummation of the transactions contemplated hereby or thereby will not (with
or without notice or lapse of time or both), violate, conflict with, or result
in a breach of any provision of, or constitute a default under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination, cancellation, or acceleration of any obligation or the loss of a
material benefit under, or result in the creation of any Encumbrance upon any of
the properties or assets (any such violation, conflict, breach, default, right
of termination, cancellation or acceleration, loss or creation, a "VIOLATION")
of Pacific or any of its subsidiaries or joint ventures pursuant to any
provisions of (i) the articles of incorporation, by-laws or similar governing
documents of Pacific or any of its subsidiaries or joint ventures, (ii) subject
to obtaining the Pacific Required Statutory Approvals and the receipt of the
Pacific Shareholders' Approval, any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any Governmental
Authority applicable to Pacific or any of its subsidiaries or joint ventures or
any of their respective properties or assets or (iii) subject to obtaining the
third-party consents set forth in Section 3.04(b) of the Pacific Disclosure
Schedule (the "PACIFIC REQUIRED CONSENTS"), any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Pacific or any of its
subsidiaries or joint ventures is now a party or by which it or any of its
properties
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or assets may be bound or affected, excluding from the foregoing clauses (ii)
and (iii) such Violations that would not, in the aggregate, have a Pacific
Material Adverse Effect or a Joint Venture Material Adverse Effect.
(c) Statutory Approvals. Except as set forth in Section 3.04(c) of the
Pacific Disclosure Schedule, no declaration, filing or registration with, or
notice to or authorization, consent or approval of, any court, governmental or
regulatory body (including a stock exchange or other self-regulatory body) or
authority, domestic or foreign (each, a "GOVERNMENTAL AUTHORITY") is necessary
for (i) the execution and delivery of this Agreement or the Energy Marketing
Joint Venture Agreement by Pacific or the consummation by Pacific of the
transactions contemplated hereby or thereby, the failure to obtain, make or give
which would have, in the aggregate, a Pacific Material Adverse Effect or a Joint
Venture Material Adverse Effect, and (ii) the execution and delivery of this
Agreement by the Company or the consummation by the Company of the transactions
contemplated hereby, the failure to obtain, make or give which would have, in
the aggregate, a material adverse effect on the operations, properties, assets,
financial condition or the results of operations of the Company and its
prospective subsidiaries taken as a whole or on the consummation of the
transactions contemplated by this Agreement (collectively, the "PACIFIC REQUIRED
STATUTORY APPROVALS", it being understood that references in this Agreement to
"obtaining" such Pacific Required Statutory Approvals shall mean making such
declarations, filings or registrations; giving such notice; obtaining such
consents or approvals; and having such waiting periods expire as are necessary
to avoid a violation of law).
(d) Compliance. Except as set forth in Section 3.04(d) of the Pacific
Disclosure Schedule or in Section 3.11 of the Pacific Disclosure Schedule, or as
disclosed in the Pacific SEC Reports, neither Pacific nor any of its
subsidiaries nor, to the knowledge of Pacific, any of its joint ventures, is in
violation of or is under investigation with respect to, or has been given notice
or been charged with any violation of, any law, statute, order, rule,
regulation, ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any Governmental Authority,
except for violations which, in the aggregate do not, and could not reasonably
be expected to, have a Pacific Material Adverse Effect or a Joint Venture
Material Adverse Effect. Except as set forth in Section 3.04(d) of the Pacific
Disclosure Schedule or in Section 3.11 of the Pacific Disclosure Schedule,
Pacific and each of its subsidiaries and joint ventures have all permits,
licenses, franchises and other governmental authorizations, consents and
approvals necessary to conduct their businesses as presently conducted, except
those which the failure to obtain would not, in the aggregate, have a Pacific
Material Adverse Effect or a Joint Venture Material Adverse Effect.
SECTION 3.05. Reports and Financial Statements. The filings required to be
made by Pacific and its subsidiaries under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), the California Public Utilities Act, the Power Act, the
Natural Gas Act (the "GAS ACT") or the 1935 Act have been filed with the
Securities and Exchange Commission (the "SEC"), the California Public Utilities
Commission (the "CPUC") or the Federal Energy Regulatory Commission (the
"FERC"), as the case may be, including all forms, statements, reports,
agreements (oral or written) and all documents, exhibits, amendments and
supplements appertaining thereto, and Pacific has complied in all material
respects with all applicable requirements of the appropriate act and the rules
and regulations thereunder. Pacific has made available to Enova a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by Pacific with the SEC since January 1, 1994 (as such
documents have since the time of their filing been amended, the "PACIFIC SEC
REPORTS"). As of their respective dates, the Pacific SEC Reports did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of Pacific included in the Pacific SEC Reports (collectively, the
"PACIFIC FINANCIAL STATEMENTS") have been prepared in accordance with GAAP
(except as may be indicated therein or in the notes thereto and except with
respect to unaudited statements as permitted by Form 10-Q of the SEC) and fairly
present the financial position of Pacific as of the dates thereof and the
results of its operations and cash flows for the periods then ended, subject, in
the case of the unaudited interim financial statements, to normal, recurring
audit adjustments. True, accurate and complete copies of the
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Articles of Incorporation and Bylaws of Pacific, as in effect on the date
hereof, have previously been made available to Enova.
SECTION 3.06. Absence of Certain Changes or Events; Absence of Undisclosed
Liabilities. (a) Except as set forth in the Pacific SEC Reports or Section 3.06
of the Pacific Disclosure Schedule, from January 1, 1996 through the date hereof
each of Pacific and its subsidiaries and joint ventures has conducted its
business only in the ordinary course of business consistent with past practice
and there has not been, and no fact or condition exists which could reasonably
be expected to have, a Pacific Material Adverse Effect or a Joint Venture
Material Adverse Effect.
(b) Neither Pacific nor any of its subsidiaries has any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of a nature
required by GAAP to be reflected in a consolidated corporate balance sheet,
except liabilities, obligations or contingencies that are accrued or reserved
against in the consolidated financial statements of Pacific or reflected in the
notes thereto for the year ended December 31, 1995, or which were incurred after
December 31, 1995 in the ordinary course of business and would not, in the
aggregate, have a Pacific Material Adverse Effect or a Joint Venture Material
Adverse Effect.
SECTION 3.07. Litigation. Except as disclosed in the Pacific SEC Reports or
as set forth in Section 3.07 of the Pacific Disclosure Schedule or in Section
3.11 of the Pacific Disclosure Schedule, (i) there are as of the date hereof no
claims, suits, actions or proceedings, pending or, to the knowledge of Pacific,
threatened, nor are there, to the knowledge of Pacific, any investigations or
reviews pending or threatened against, relating to or affecting Pacific or any
of its subsidiaries or joint ventures, (ii) there have not been any developments
since June 30, 1996 with respect to such disclosed claims, suits, actions,
proceedings, investigations or reviews and (iii) there are no judgments,
decrees, injunctions, rules or orders of any court, governmental department,
commission, agency, instrumentality or authority or any arbitrator applicable to
Pacific or any of its subsidiaries or joint ventures, which, when taken together
with any other nondisclosures described in clauses (i), (ii) or (iii), could
reasonably be expected to have a Pacific Material Adverse Effect or a Joint
Venture Material Adverse Effect.
SECTION 3.08. Registration Statement and Proxy Statement. None of the
information supplied or to be supplied by or on behalf of Pacific for inclusion
or incorporation by reference in (i) the registration statement on Form S-4 to
be filed with the SEC by the Company in connection with the issuance of shares
of Company Common Stock in the Mergers (the "REGISTRATION STATEMENT") will, at
the time the Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and (ii) the joint
proxy statement in definitive form relating to the meetings of Pacific and Enova
shareholders to be held in connection with the Mergers (the "PROXY STATEMENT")
will, at the date mailed to shareholders of Pacific and Enova and at the times
of the meetings of shareholders to be held in connection with the Mergers,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement and the Proxy Statement will comply as to
form in all material respects with the provisions of the Securities Act and the
Exchange Act, respectively, and the rules and regulations thereunder.
SECTION 3.09. Tax Matters. "TAXES", as used in this Agreement, means any
U.S. federal, state, county, local or foreign taxes, charges, fees, levies, or
other assessments, including, without limitation, all net income, gross income,
sales and use, ad valorem, transfer, gains, profits, excise, franchise, real and
personal property, gross receipt, capital stock, production, business and
occupation, disability, employment, payroll, license, estimated, stamp, custom
duties, severance or withholding taxes or charges imposed by any governmental
entity, and includes any interest and penalties (civil or criminal) on or
additions to any such taxes and any expenses incurred in connection with the
determination, settlement or litigation of any Tax liability. "TAX RETURN", as
used in this Agreement, means a report, return or other information required to
be supplied to any governmental entity with respect to Taxes including, where
permitted or required, combined or consolidated returns.
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(a) Filing of Timely Tax Returns. Except as set forth in Section 3.09(a) of
the Pacific Disclosure Schedule, Pacific and each of its subsidiaries have filed
(or there has been filed on their behalf) all Tax Returns required to be filed
by each of them under applicable law. All Tax Returns were in all material
respects (and, as to Tax Returns not filed as of the date hereof, will be) true,
complete and correct and filed on a timely basis.
(b) Payment of Taxes. Pacific and each of its subsidiaries have, within the
time and in the manner prescribed by law, paid (and until the Closing Date will
pay within the time and in the manner prescribed by law) all Taxes that are
currently due and payable except for those contested in good faith and for which
adequate reserves have been taken.
(c) Tax Reserves. Pacific and its subsidiaries have established (and until
the Closing Date will maintain) on their books and records reserves adequate to
pay all Taxes, all deficiencies in Taxes asserted or proposed against Pacific or
its subsidiaries and reserves for deferred income taxes in accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon the assets of Pacific or any of
its subsidiaries except liens for Taxes not yet due.
(e) Withholding Taxes. Pacific and each of its subsidiaries have complied
(and until the Closing Date will comply) in all respects with the provisions of
the Code relating to the payment and withholding of Taxes, including, without
limitation, the withholding and reporting requirements under Sections 1441
through 1464, 3401 through 3406, and 6041 and 6049 of the Code, as well as
similar provisions under any other laws, and have, within the time and in the
manner prescribed by law, withheld from employee wages and paid over to the
proper governmental authorities all amounts required.
(f) Extensions of Time for Filing Tax Returns. Except as set forth in
Section 3.09(f) of the Pacific Disclosure Schedule, neither Pacific nor any of
its subsidiaries has requested any extension of time within which to file any
Tax Return, which Tax Return has not since been filed.
(g) Waivers of Statute of Limitations. Except as set forth in Section
3.09(g) of the Pacific Disclosure Schedule, neither Pacific nor any of its
subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) Expiration of Statute of Limitations. Except as set forth in Section
3.09(h) of the Pacific Disclosure Schedule, the statute of limitations for the
assessment of all federal income and California franchise Taxes has expired for
all related Tax Returns of Pacific and each of its subsidiaries or those Tax
Returns have been examined by the appropriate taxing authorities for all periods
through the date hereof, and no deficiency for any such Taxes has been proposed,
asserted or assessed against Pacific or any of its subsidiaries that has not
been resolved and paid in full.
(i) Audit, Administrative and Court Proceedings. Except as set forth in
Section 3.09(i) of the Pacific Disclosure Schedule, no audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of Pacific or any of its subsidiaries, and
neither Pacific nor any of its subsidiaries has any knowledge of any threatened
action, audit or administrative or court proceeding with respect to any such
Taxes or Tax Returns.
(j) Powers of Attorney. Except as set forth in Section 3.09(j) of the
Pacific Disclosure Schedule, no power of attorney currently in force has been
granted by Pacific or any of its subsidiaries concerning any Tax matter.
(k) Tax Rulings. Except as set forth in Section 3.09(k) of the Pacific
Disclosure Schedule, neither Pacific nor any of its subsidiaries has received a
Tax Ruling or entered into a Closing Agreement with any taxing authority that
would have a continuing adverse effect after the Closing Date. "TAX RULING", as
used in this Agreement, shall mean a written ruling of a taxing authority
relating to Taxes. "CLOSING AGREEMENT", as used in this Agreement, shall mean a
written and legally binding agreement with a taxing authority relating to Taxes.
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(l) Availability of Tax Returns. Pacific and its subsidiaries have made
available to Enova complete and accurate copies of (i) all Tax Returns, and any
amendments thereto, filed by Pacific or any of its subsidiaries, (ii) all audit
reports received from any taxing authority relating to any Tax Return filed by
Pacific or any of its subsidiaries and (iii) any Closing Agreements entered into
by Pacific or any of its subsidiaries with any taxing authority.
(m) Tax Sharing Agreements. Except as set forth in Section 3.09(m) of the
Pacific Disclosure Schedule, no agreements relating to allocating or sharing of
Taxes exist between or among Pacific and any of its subsidiaries.
(n) Code Section 341(f). Neither Pacific nor any of its subsidiaries has
filed (or will file prior to the Closing) a consent pursuant to Section 341(f)
of the Code or has agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as that term is defined in Section
341(f)(4) of the Code) owned by Pacific or any of its subsidiaries.
(o) Code Section 168. No property of Pacific or any of its subsidiaries is
property that Pacific or any such subsidiary or any party to this transaction is
or will be required to treat as being owned by another person pursuant to the
provisions of Section 168(f)(8) of the Code (as in effect prior to its amendment
by the Tax Reform Act of 1986) or is "tax-exempt use property" within the
meaning of Section 168 of the Code.
(p) Code Section 481 Adjustments. Except as set forth in Section 3.09(p) of
the Pacific Disclosure Schedule and except for adjustments that in the aggregate
could not reasonably be expected to have a Pacific Material Adverse Effect,
neither Pacific nor any of its subsidiaries is required to include in income any
adjustment pursuant to Section 481(a) of the Code by reason of a voluntary
change in accounting method initiated by Pacific or any of its subsidiaries, and
to the best of the knowledge of Pacific, the Internal Revenue Service (the
"IRS") has not proposed any such adjustment or change in accounting method.
(q) Code Sections 6661 and 6662. All transactions that could give rise to
an understatement of federal income tax (within the meaning of Section 6661 of
the Code for Tax Returns the due date for which was on or before December 31,
1989 and within the meaning of Section 6662 of the Code for Tax Returns the due
date for which was after December 31, 1989) that could reasonably be expected to
result in a Pacific Material Adverse Effect have been adequately disclosed (or,
with respect to Tax Returns filed following the Closing, will be adequately
disclosed) on the Tax Returns of Pacific and its subsidiaries in accordance with
Section 6661(b)(2)(B) of the Code for Tax Returns the due date for which was on
or before to December 31, 1989, and in accordance with Section 6662(d)(2)(B) of
the Code for Tax Returns the due date for which was after December 31, 1989.
(r) NOLs. As of the date hereof, Pacific and its subsidiaries had net
operating loss carryovers available to offset future income as set forth in
Section 3.09(r) of the Pacific Disclosure Schedule. Section 3.09(r) of the
Pacific Disclosure Schedule sets forth the amount of and year of expiration of
each company's net operating loss carryovers.
(s) Credit Carryover. As of the date hereof, Pacific and its subsidiaries
had tax credit carryovers available to offset future tax liability as set forth
in Section 3.09(s) of the Pacific Disclosure Schedule. Section 3.09(s) of the
Pacific Disclosure Schedule sets forth the amount and year of expiration of each
company's tax credit carryovers.
(t) Code Section 338 Elections. Except as set forth in Section 3.09(t) of
the Pacific Disclosure Schedule, no election under Section 338 of the Code (or
any predecessor provision) has been made by or with respect to Pacific or any of
its subsidiaries or any of their respective assets or properties.
(u) Acquisition Indebtedness. Except as set forth in Section 3.09(u) of the
Pacific Disclosure Schedule, no indebtedness of Pacific or any of its
subsidiaries is "corporate acquisition indebtedness" within the meaning of
Section 279(b) of the Code.
(v) Intercompany Transactions. Except as set forth in Section 3.09(v) of
the Pacific Disclosure Schedule, neither Pacific nor any of its subsidiaries has
engaged in any intercompany transactions within the
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meaning of Section 1.1502-13 of the Treasury Regulations for which any income
remains unrecognized as of the close of the last taxable year prior to the
Closing Date.
(w) Code Section 280G. Except as set forth in Section 3.09(w) of the
Pacific Disclosure Schedule, neither Pacific nor any of its subsidiaries is a
party to any agreement, contract, or arrangement that could result, on account
of the transactions contemplated hereunder, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of Section
280G of the Code.
SECTION 3.10. Employee Matters; ERISA.
(a) Benefit Plans. Section 3.10(a) of the Pacific Disclosure Schedule
contains a true and complete list of each material employee benefit plan,
program or arrangement currently sponsored, maintained or contributed to by
Pacific or any of its subsidiaries for the benefit of employees, former
employees or directors and their beneficiaries in respect of services provided
to any such entity, including, but not limited to, any employee benefit plans
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and any material employment, consulting,
non-compete, severance or change in control agreement (collectively, the
"PACIFIC BENEFIT PLANS"). For the purposes of this Section 3.10 only, the term
"PACIFIC" shall be deemed to include predecessors thereof.
(b) Contributions. Except as set forth in Section 3.10(b) of the Pacific
Disclosure Schedule, all material contributions and other payments required to
be made by Pacific or any of its subsidiaries to any Pacific Benefit Plan (or to
any person pursuant to the terms thereof) have been made or the amount of such
payment or contribution obligation has been reflected in the Pacific Financial
Statements.
(c) Qualification; Compliance. Except as set forth in Section 3.10(c) of
the Pacific Disclosure Schedule, each of the Pacific Benefit Plans intended to
be "qualified" within the meaning of Section 401(a) of the Code has been
determined by the IRS to be so qualified, and, to the best knowledge of Pacific,
no circumstances exist that are reasonably expected by Pacific to result in the
revocation of any such determination. Pacific is in compliance in all material
respects with, and each Pacific Benefit Plan is and has been operated in all
material respects in compliance with, all applicable laws, rules and regulations
governing such plan, including, without limitation, ERISA and the Code. Each
Pacific Benefit Plan intended to provide for the deferral of income, the
reduction of salary or other compensation, or to afford other income tax
benefits, complies with the requirements of the applicable provisions of the
Code or other laws, rules and regulations required to provide such income tax
benefits.
(d) Liabilities. With respect to the Pacific Benefit Plans individually and
in the aggregate, no event has occurred, and, to the best knowledge of Pacific,
there exists no condition or set of circumstances that could subject Pacific or
any of its subsidiaries to any liability arising under the Code, ERISA or any
other applicable law (including, without limitation, any liability to any such
plan or the Pension Benefit Guaranty Corporation (the "PBGC")), or under any
indemnity agreement to which Pacific is a party, which liability, excluding
liability for benefit claims or PBGC premiums and funding obligations payable in
the ordinary course, could reasonably be expected to have a Pacific Material
Adverse Effect.
(e) Welfare Plans. Except as set forth in Section 3.10(e) of the Pacific
Disclosure Schedule, none of the Pacific Benefit Plans that are "welfare plans",
within the meaning of Section 3(1) of ERISA, provides for any retiree benefits
other than coverage mandated by applicable law or benefits the full cost of
which is borne by the retiree.
(f) Documents Made Available. Pacific has made available to Enova a true
and correct copy of each collective bargaining agreement to which Pacific or any
of its subsidiaries is a party or under which Pacific or any of its subsidiaries
has obligations and, with respect to each Pacific Benefit Plan, (i) such plan
and summary plan description, (ii) the most recent annual report filed with the
IRS, (iii) each related trust agreement, insurance contract, service provider or
investment management agreement (including all amendments to each such
document), (iv) the most recent determination of the IRS with respect to the
qualified status of such plan and (v) the most recent actuarial report or
valuation.
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(g) Payments Resulting from Mergers. Except as set forth in Section 3.10(g)
of the Pacific Disclosure Schedule or specifically provided for herein, neither
Pacific nor any of its subsidiaries is a party to any plan, agreement or
arrangement pursuant to the terms of which the consummation or announcement of
any transaction contemplated by this Agreement will (either alone or in
connection with the occurrence of any additional or further acts or events)
result in any (A) payment (whether of severance pay or otherwise) becoming due
from Pacific or any of its subsidiaries to any officer, employee, former
employee or director thereof or to a trustee under any "rabbi trust" or similar
arrangement, or (B) benefit under any Pacific Benefit Plan being established or
becoming accelerated, or immediately vested or payable.
(h) Labor Agreements. As of the date hereof, except as set forth in Section
3.10(h) of the Pacific Disclosure Schedule, neither Pacific nor any of its
subsidiaries is a party to any collective bargaining agreement or other labor
agreement with any union or labor organization. To the best knowledge of
Pacific, as of the date hereof, except as set forth in Section 3.10(h) of the
Pacific Disclosure Schedule, there is no current union representation question
involving employees of Pacific or any of its subsidiaries, nor does Pacific know
of any activity or proceeding of any labor organization (or representative
thereof) or employee group to organize any such employees. Except as set forth
in the Pacific SEC Reports or in Section 3.10(h) of the Pacific Disclosure
Schedule, (i) there is no unfair labor practice, employment discrimination or
other complaint against Pacific pending, or to the best knowledge of Pacific,
threatened, which has or could reasonably be expected to have, a Pacific
Material Adverse Effect, (ii) there is no strike, dispute, slowdown, work
stoppage or lockout pending, or to the best knowledge of Pacific, threatened,
against or involving Pacific or any of its subsidiaries which has or could
reasonably be expected to have a Pacific Material Adverse Effect and (iii) there
is no proceeding, claim, suit, action or governmental investigation pending or,
to the best knowledge of Pacific, threatened, in respect of which any director,
officer, employee or agent of Pacific or any of its subsidiaries is or may be
entitled to claim indemnification from Pacific pursuant to their respective
articles of incorporation or bylaws or as provided in the Indemnification
Agreements listed in Section 3.10(h) of the Pacific Disclosure Schedule.
SECTION 3.11. Environmental Protection.
(a) Compliance. Except as set forth in the Pacific SEC Reports, except as
set forth in Section 3.11(a) of the Pacific Disclosure Schedule and except where
the failure to be in compliance could not reasonably be expected to have a
Pacific Material Adverse Effect, (i) each of Pacific and its subsidiaries is in
compliance with all applicable Environmental Laws and (ii) neither Pacific nor
any of its subsidiaries has received any written communication, from any person
or Governmental Authority that alleges that Pacific or any of its subsidiaries
is not in such compliance with applicable Environmental Laws.
(b) Environmental Permits. Except as set forth in the Pacific SEC Reports
or as set forth in Section 3.11(b) of the Pacific Disclosure Schedule, each of
Pacific and its subsidiaries has obtained or has applied for all environmental,
health and safety permits and governmental authorizations (collectively, the
"ENVIRONMENTAL PERMITS") necessary for the construction of their facilities or
the conduct of their operations, and all such permits are in good standing or,
where applicable, a renewal application has been timely filed and is pending
agency approval, and Pacific and its subsidiaries are in material compliance
with all terms and conditions of the Environmental Permits, except where the
failure to obtain or be in compliance with such Environmental Permit could not
reasonably be expected to have a Pacific Material Adverse Effect.
(c) Environmental Claims. Except as set forth in the Pacific SEC Reports or
as set forth in Section 3.11(c)of the Pacific Disclosure Schedule, to the best
knowledge of Pacific, there is no Environmental Claim pending (i) against
Pacific or any of its subsidiaries or joint ventures, (ii) against any person or
entity whose liability for any Environmental Claim Pacific or any of its
subsidiaries or joint ventures has retained or assumed contractually or (iii)
against any real or personal property or operations which Pacific or any of its
subsidiaries or joint ventures owns, leases or manages, in whole or in part,
which, if adversely determined, could reasonably be expected to have, in the
aggregate, a Pacific Material Adverse Effect.
(d) Releases. Except as set forth in the Pacific SEC Reports or as set
forth in Section 3.11(c) or Section 3.11(d) of the Pacific Disclosure Schedule,
Pacific has no knowledge of any Releases of any Hazardous Material that would be
reasonably likely to form the basis of any Environmental Claim against
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Pacific or any of its subsidiaries or joint ventures, or against any person or
entity whose liability for any Environmental Claim Pacific or any of its
subsidiaries or joint ventures has retained or assumed contractually, which
could reasonably be expected to have, in the aggregate, a Pacific Material
Adverse Effect.
(e) Predecessors. Except as set forth in the Pacific SEC Reports or as set
forth in Section 3.11(e) of the Pacific Disclosure Schedule, Pacific has no
knowledge, with respect to any predecessor of Pacific or any subsidiary or joint
venture of Pacific, of any Environmental Claim pending or threatened, or of any
Release of Hazardous Materials that would be reasonably likely to form the basis
of any Environmental Claim, which could reasonably be expected to have a Pacific
Material Adverse Effect.
(f) Disclosure. To Pacific's best knowledge, Pacific has disclosed to Enova
all material facts which Pacific reasonably believes form the basis of a Pacific
Material Adverse Effect arising from (i) the cost of Pacific pollution control
equipment currently required or known to be required in the future; (ii) current
Pacific remediation costs or Pacific remediation costs known to be required in
the future; or (iii) any other environmental matter affecting Pacific.
(g) Cost Estimates. To Pacific's best knowledge, no environmental matter
set forth in the Pacific SEC Reports or the Pacific Disclosure Schedule could
reasonably be expected to exceed the cost estimates provided in the Pacific SEC
Reports by an amount that individually or in the aggregate could reasonably be
expected to have a Pacific Material Adverse Effect.
(h) Certain Definitions. As used in this Agreement:
(i) "ENVIRONMENTAL CLAIM" means any and all written administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, investigations, proceedings or notices of noncompliance or
violation by any person or entity (including any Governmental Authority)
alleging potential liability (including, without limitation, potential
liability for enforcement, investigatory costs, cleanup costs, governmental
response costs, removal costs, remedial costs, natural resources damages,
property damages, personal injuries, or penalties) arising out of, based on
or resulting from (A) the presence, or Release or threatened Release into
the environment, of any Hazardous Materials at any location, whether or not
owned, operated, leased or managed by Pacific or any of its subsidiaries or
joint ventures (for purposes of this Section 3.11), or by Enova or any of
its subsidiaries or joint ventures (for purposes of Section 4.11); (B)
circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law; or (C) any and all claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence or Release of any Hazardous
Materials.
(ii) "ENVIRONMENTAL LAWS" means all federal, state, local laws, rules
and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without
limitation, laws and regulations relating to Releases or threatened
Releases of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.
(iii) "HAZARDOUS MATERIALS" means (A) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, and transformers or
other equipment that contain dielectric fluid containing polychlorinated
biphenyls ("PCBS"); (B) any chemicals, materials or substances which are
now defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous wastes",
"restricted hazardous wastes", "toxic substances", "toxic pollutants", or
words of similar import, under any Environmental Law; and (C) any other
chemical, material, substance or waste, exposure to which is now
prohibited, limited or regulated under any Environmental Law in a
jurisdiction in which Pacific or any of its subsidiaries or joint ventures
operates (for purposes of this Section 3.11) or in which Enova or any of
its subsidiaries or joint ventures operates (for purposes of Section 4.11).
(iv) "RELEASE" means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, surface water, groundwater or property.
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SECTION 3.12. Regulation as a Utility. Pacific Sub is regulated as a public
utility by the State of California and by no other state. Except as set forth in
Section 3.12 of the Pacific Disclosure Schedule, neither Pacific nor any
"subsidiary company" or "affiliate" of Pacific is subject to regulation as a
public utility or public service company (or similar designation) by any other
state in the United States or any foreign country. As used in this Section 3.12
and in Section 4.12, the terms "SUBSIDIARY COMPANY" and "AFFILIATE" shall have
the respective meanings ascribed to them in the 1935 Act. Pacific is an exempt
holding company under Section 3(a)(1) of the 1935 Act. Section 3.12 of the
Pacific Disclosure Schedule sets forth each "affiliate" and each "subsidiary
company" of Pacific which may be deemed to be a "public utility company" or a
"holding company" within the meaning of the 1935 Act.
SECTION 3.13. Vote Required. The approval of the Pacific Merger by the
affirmative vote of (i) a majority of the votes entitled to be cast by all
holders of Pacific Common Stock and (ii) a majority of the votes entitled to be
cast by all holders of Pacific Common Stock and Pacific Preferred Stock, voting
together as a single class (the "PACIFIC SHAREHOLDERS' APPROVAL"), are the only
votes of the holders of any class or series of the capital stock of Pacific
required to approve this Agreement, the Mergers and the other transactions
contemplated hereby. No vote of shareholders of Pacific is required to approve
the Energy Marketing Joint Venture Agreement.
SECTION 3.14. Accounting Matters. Neither Pacific nor, to its best
knowledge, any of its affiliates has taken or agreed to take any action that
would prevent the Company from accounting for the transactions to be effected
pursuant to Articles I and II of this Agreement as a pooling of interests in
accordance with GAAP and applicable SEC regulations.
SECTION 3.15. Opinions of Financial Advisors. Pacific has received the
opinion of each of Barr Devlin & Co. Incorporated ("BARR DEVLIN") and Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MERRILL LYNCH"), dated October 11,
1996, to the effect that, as of such date, the Pacific Ratio is fair from a
financial point of view to the holders of Pacific Common Stock.
SECTION 3.16. Insurance. Except as set forth on Section 3.16 of the Pacific
Disclosure Schedule, each of Pacific and its subsidiaries is, and has been
continuously since January 1, 1993, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary for
companies conducting the business as conducted by Pacific and its subsidiaries
during such time period. Except as set forth on Schedule 3.16 of the Pacific
Disclosure Schedule, neither Pacific nor its subsidiaries has received any
notice of cancellation or termination with respect to any material insurance
policy of Pacific or its subsidiaries. The insurance policies of Pacific and
each of its subsidiaries are valid and enforceable policies in all material
respects.
SECTION 3.17. Pacific Rights Agreement. Pacific has delivered to Enova a
true and complete copy of the Pacific Rights Agreement as in effect on the date
hereof. Pacific has taken all necessary action to amend the Pacific Rights
Agreement so that neither the execution of this Agreement nor the consummation
of the Mergers will (a) cause the Pacific Rights to become exercisable, (b)
cause Enova or the Company to become an Acquiring Person (as such term is
defined in the Pacific Rights Agreement) or (c) give rise to a Distribution
Date, a Stock Acquisition Date, a Section 7(a)(iii) Event or a Section 13 Event
(as each term is defined in the Pacific Rights Agreement).
SECTION 3.18. Brokers. No broker, finder or investment banker (other than
Barr Devlin and Merrill Lynch) is entitled to any brokerage, finder's or other
fee or commission in connection with the Mergers based upon arrangements made by
or on behalf of Pacific. Pacific has heretofore furnished to Enova a complete
and correct copy of all agreements between Pacific and Merrill Lynch or Barr
Devlin pursuant to which such firm would be entitled to any payment relating to
the Mergers.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ENOVA
Enova represents and warrants to Pacific as follows:
SECTION 4.01. Organization and Qualification. Each of Enova and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, has all requisite power
and authority, and has been duly authorized by all necessary approvals and
orders, to own, lease and operate its assets and properties and to carry on its
business as it is now being conducted, and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its business
or the ownership or leasing of its assets and properties makes such
qualification necessary other than in such jurisdictions where the failure to be
so qualified and in good standing will not, when taken together with all other
such failures, have a material adverse effect on the operations, properties,
assets, financial condition or the results of operations of Enova and its
subsidiaries taken as a whole or on the consummation of the transactions
contemplated by this Agreement (any such material adverse effect being
hereinafter referred to as a "ENOVA MATERIAL ADVERSE EFFECT") or a Joint Venture
Material Adverse Effect.
SECTION 4.02. Subsidiaries. Section 4.02 of the Enova Disclosure Schedule
sets forth a description as of the date hereof of all subsidiaries and joint
ventures of Enova, including the name of each such entity and Enova's interest
therein, and, as to each subsidiary or joint venture identified as a "Material
Enova Entity" in Section 4.02 of the Enova Disclosure Schedule, a brief
description of the principal line or lines of business conducted by each such
entity. Except as set forth in Section 4.02 of the Enova Disclosure Schedule,
none of such entities is a "public utility company", a "holding company", a
"subsidiary company" or an "affiliate" of any public-utility company within the
meaning of Section 2(a)(5), 2(a)(7), 2(a)(8) or 2(a)(11) of the 1935 Act,
respectively, or a "public utility" within the meaning of Section 201(e) of the
Power Act. Except as set forth in Section 4.02 of the Enova Disclosure Schedule,
all of the issued and outstanding shares of capital stock of each subsidiary of
Enova are validly issued, fully paid, nonassessable and free of preemptive
rights, are owned directly or indirectly by Enova free and clear of any
Encumbrances and there are no outstanding subscriptions, options, calls,
contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating any such subsidiary to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or commitment.
SECTION 4.03. Capitalization.
(a) Enova. The authorized capital stock of Enova consists of 300,000,000
shares of Enova Common Stock and 30,000,000 shares of Preferred Stock, no par
value, of Enova ("ENOVA PREFERRED STOCK"). As of the close of business on
September 30, 1996, (i) 116,583,358 shares of Enova Common Stock and (ii) no
shares of Enova Preferred Stock were issued and outstanding. All of the issued
and outstanding shares of the capital stock of Enova are validly issued, fully
paid, nonassessable and free of preemptive rights. Except as set forth in
Section 4.03(a) of the Enova Disclosure Schedule, as of the date hereof, there
are no outstanding subscriptions, options, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions, arrangements, rights
or warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating Enova or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of Enova or obligating Enova or any
of its subsidiaries to grant, extend or enter into any such agreement or
commitment.
(b) Enova Sub. The authorized capital stock of Enova Sub consists of (i)
255,000,000 shares of common stock, no par value, of Enova Sub ("ENOVA SUB
COMMON STOCK"), (ii) 1,375,000 shares of preferred stock, par value $20 per
share, of Enova Sub (the "ENOVA SUB PAR VALUE $20 PREFERRED STOCK"), and (iii)
10,000,000 shares of preference stock, no par value, of Enova Sub (the "ENOVA
SUB NO PAR PREFERENCE STOCK"). As of the close of business on September 30,
1996, there were issued and outstanding (i) 116,583,358 shares of Enova Sub
Common Stock, (ii) 1,373,770 shares of Enova Sub Par Value $20 Preferred Stock
consisting of 375,000 shares of the 5% Series, 300,000 shares of the 4.50%
Series,
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325,000 shares of the 4.40% Series and 373,770 shares of the 4.60% Series, 1995,
and (iii) 3,190,000 shares of Enova Sub No Par Preference Stock consisting of
150,000 shares of the $7.20 Series, 1,400,000 shares of the $1.70 Series,
640,000 shares of the $1.82 Series and 1,000,000 shares of the $1.7625 Series.
All of the issued and outstanding shares of the capital stock of Enova Sub are
validly issued, fully paid, nonassessable and free of preemptive rights. Except
as set forth in Section 4.03(b) of the Enova Disclosure Schedule, as of the date
hereof, there are no outstanding subscriptions, options, calls, contracts,
voting trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement, obligating Enova
or any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, the capital stock of Enova Sub or obligating Enova or any of
its subsidiaries to grant, extend or enter into any such agreement or
commitment.
SECTION 4.04. Authority; Non-Contravention; Statutory Approvals;
Compliance.
(a) Authority. Enova has all requisite power and authority to enter into
this Agreement and the Energy Marketing Joint Venture Agreement and, subject to
the applicable Enova Shareholders' Approval and the applicable Enova Required
Statutory Approvals, to consummate the transactions contemplated hereby or
thereby. The execution and delivery of this Agreement and the Energy Marketing
Joint Venture Agreement and the consummation by Enova of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Enova, subject in the case of this Agreement to
obtaining of the applicable Enova Shareholders' Approval. This Agreement has
been, and the Energy Marketing Joint Venture Agreement upon execution and
delivery will be, duly and validly executed and delivered by Enova and, assuming
the due authorization, execution and delivery hereof and thereof by Pacific, the
Company, Newco Enova Sub and Newco Pacific Sub, as the case may be, constitutes
or will constitute the valid and binding obligation of Enova enforceable against
it in accordance with its terms.
(b) Non-Contravention. Except as set forth in Section 4.04(b) of the Enova
Disclosure Schedule, the execution and delivery of this Agreement and the Energy
Marketing Joint Venture Agreement by Enova do not, and the consummation of the
transactions contemplated hereby or thereby will not (with or without notice or
lapse of time or both), violate, conflict with, or result in a breach of any
provision of, or constitute a default under, or result in any Violation by Enova
or any of its subsidiaries or joint ventures pursuant to any provisions of (i)
the articles of incorporation or by-laws or similar governing documents of Enova
or any of its subsidiaries or joint ventures, (ii) subject to obtaining the
Enova Required Statutory Approvals and the receipt of the Enova Shareholders'
Approval, any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any Governmental Authority
applicable to Enova or any of its subsidiaries or joint ventures or any of their
respective properties or assets, or (iii) subject to obtaining the third-party
consents set forth in Section 4.04(b) of the Enova Disclosure Schedule (the
"ENOVA REQUIRED CONSENTS"), any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which Enova or any of its subsidiaries or
joint ventures is now a party or by which it or any of its properties or assets
may be bound or affected, excluding from the foregoing clauses (ii)and (iii)
such Violations that would not, in the aggregate, have a Enova Material Adverse
Effect or a Joint Venture Material Adverse Effect.
(c) Statutory Approvals. Except as set forth in Section 4.04(c) of the
Enova Disclosure Schedule, no declaration, filing or registration with, or
notice to or authorization, consent or approval of, any Governmental Authority
is necessary for (i) the execution and delivery of this Agreement or the Energy
Marketing Joint Venture Agreement by Enova or the consummation by Enova of the
transactions contemplated hereby or thereby, the failure to obtain, make or give
which would have, in the aggregate, a Enova Material Adverse Effect or a Joint
Venture Material Adverse Effect, and (ii) the execution and delivery of this
Agreement by the Company or the consummation by the Company of the transactions
contemplated hereby, the failure to obtain, make or give which would have, in
the aggregate, a material adverse effect on the operations, properties, assets,
financial condition or the results of operations of the Company and its
prospective subsidiaries taken as a whole or on the consummation of the
transactions contemplated by this Agreement (collectively, the "ENOVA REQUIRED
STATUTORY APPROVALS", it being understood that references in this Agreement to
"obtaining" such Enova Required Statutory Approvals shall mean making such
declarations,
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filings or registrations; giving such notice; obtaining such consents or
approvals; and having such waiting periods expire as are necessary to avoid a
violation of law).
(d) Compliance. Except as set forth in Section 4.04(d) of the Enova
Disclosure Schedule or in Section 4.11 of the Enova Disclosure Schedule or as
disclosed in the Enova SEC Reports, neither Enova nor any of its subsidiaries
nor, to the knowledge of Enova, any of its joint ventures, is in violation of or
is under investigation with respect to or has been given notice or been charged
with any violation of, any law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable environmental law,
ordinance or regulation) of any Governmental Authority, except for violations
which, in the aggregate do not, and could not reasonably be expected to have a
Enova Material Adverse Effect or a Joint Venture Material Adverse Effect. Except
as set forth in Section 4.04(d) of the Enova Disclosure Schedule or in Section
4.11 of the Enova Disclosure Schedule, Enova and each of its subsidiaries and
joint ventures have all permits, licenses, franchises and other governmental
authorizations, consents and approvals necessary to conduct their businesses as
presently conducted, except those which the failure to obtain would not, in the
aggregate, have a Enova Material Adverse Effect or a Joint Venture Material
Adverse Effect.
SECTION 4.05. Reports and Financial Statements. The filings required to be
made by Enova and its subsidiaries under the Securities Act, the Exchange Act,
the California Public Utilities Act, the Power Act, the Gas Act, the Atomic
Energy Act of 1954, as amended (the "ATOMIC ENERGY ACT"), or the 1935 Act have
been filed with the SEC, the CPUC, the Nuclear Regulatory Commission (the "NRC")
or the FERC, as the case may be, including all forms, statements, reports,
agreements (oral or written) and all documents, exhibits, amendments and
supplements appertaining thereto, and Enova has complied in all material
respects with all applicable requirements of the appropriate act and the rules
and regulations thereunder. Enova has made available to Pacific a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by Enova with the SEC since January 1, 1994 (as such
documents have since the time of their filing been amended, the "ENOVA SEC
REPORTS"). As of their respective dates, the Enova SEC Reports did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of Enova included in the Enova SEC Reports (collectively, the "ENOVA
FINANCIAL STATEMENTS") have been prepared in accordance with GAAP (except as may
be indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q of the SEC) and fairly present
the financial position of Enova as of the dates thereof and the results of its
operations and cash flows for the periods then ended, subject, in the case of
the unaudited interim financial statements, to normal recurring audit
adjustments. True, accurate and complete copies of the Articles of Incorporation
and Bylaws of Enova as in effect on the date hereof, are included (or
incorporated by reference) in the Enova SEC Reports.
SECTION 4.06. Absence of Certain Changes or Events; Absence of Undisclosed
Liabilities. (a) Except as set forth in the Enova SEC Reports or Section 4.06 of
the Enova Disclosure Schedule, from January 1, 1996 through the date hereof each
of Enova and its subsidiaries and joint ventures has conducted its business only
in the ordinary course of business consistent with past practice and there has
not been, and no fact or condition exists which could reasonably be expected to
have, a Enova Material Adverse Effect or a Joint Venture Material Adverse
Effect.
(b) Neither Enova nor any of its subsidiaries has any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of a nature
required by GAAP to be reflected in a consolidated corporate balance sheet,
except liabilities, obligations or contingencies that are accrued or reserved
against in the consolidated financial statements of Enova or reflected in the
notes thereto for the year ended December 31, 1995, or which were incurred after
December 31, 1995 in the ordinary course of business and would not, in the
aggregate, have a Enova Material Adverse Effect or a Joint Venture Material
Adverse Effect.
SECTION 4.07. Litigation. Except as disclosed in the Enova SEC Reports or
as set forth in Section 4.11 of the Enova Disclosure Schedule or in Section 4.07
of the Enova Disclosure Schedule, (i) there are as of the date hereof no claims,
suits, actions or proceedings, pending or, to the knowledge of Enova,
threatened, nor are
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there, to the knowledge of Enova, any investigations or reviews pending or
threatened against, relating to or affecting Enova or any of its subsidiaries or
joint ventures, (ii) there have not been any developments since June 30, 1996
with respect to such disclosed claims, suits, actions, proceedings,
investigations or reviews and (iii) there are no judgments, decrees,
injunctions, rules or orders of any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator applicable to Enova or
any of its subsidiaries or joint ventures, which, when taken together with any
other nondisclosures described in clause (i), (ii) or (iii), could reasonably be
expected to have a Enova Material Adverse Effect or a Joint Venture Material
Adverse Effect.
SECTION 4.08. Registration Statement and Proxy Statement. None of the
information supplied or to be supplied by or on behalf of Enova for inclusion or
incorporation by reference in (i) the Registration Statement will, at the time
the Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and (ii) the Proxy
Statement will, at the date mailed to shareholders of Pacific and Enova and at
the times of the meetings of such shareholders to be held in connection with the
Mergers, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement and the Proxy Statement will comply as to
form in all material respects with the provisions of the Securities Act and the
Exchange Act, respectively, and the rules and regulations thereunder.
SECTION 4.09. Tax Matters.
(a) Filing of Timely Tax Returns. Enova and each of its subsidiaries have
filed (or there has been filed on their behalf) all Tax Returns required to be
filed by each of them under applicable law. All Tax Returns were in all material
respects (and, as to Tax Returns not filed as of the date hereof, will be) true,
complete and correct and filed on a timely basis.
(b) Payment of Taxes. Enova and each of its subsidiaries have, within the
time and in the manner prescribed by law, paid (and until the Closing Date will
pay within the time and in the manner prescribed by law) all Taxes that are
currently due and payable except for those contested in good faith and for which
adequate reserves have been taken.
(c) Tax Reserves. Enova and its subsidiaries have established (and until
the Closing Date will maintain) on their books and records reserves adequate to
pay all Taxes, all deficiencies in Taxes asserted or proposed against Enova or
its subsidiaries and reserves for deferred income taxes in accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon the assets of Enova or any of
its subsidiaries except liens for Taxes not yet due.
(e) Withholding Taxes. Enova and each of its subsidiaries have complied
(and until the Closing Date will comply) in all respects with the provisions of
the Code relating to the payment and withholding of Taxes, including, without
limitation, the withholding and reporting requirements under Sections 1441
through 1464, 3401 through 3406, and 6041 and 6049 of the Code, as well as
similar provisions under any other laws, and have, within the time and in the
manner prescribed by law, withheld from employee wages and paid over to the
proper governmental authorities all amounts required.
(f) Extensions of Time for Filing Tax Returns. Except as set forth in
Section 4.09(f) of the Enova Disclosure Schedule, neither Enova nor any of its
subsidiaries has requested any extension of time within which to file any Tax
Return, which Tax Return has not since been filed.
(g) Waivers of Statute of Limitations. Except as set forth in Section
4.09(g) of the Enova Disclosure Schedule, neither Enova nor any of its
subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) Expiration of Statute of Limitations. Except as set forth in Section
4.09(h) of the Enova Disclosure Schedule, the statute of limitations for the
assessment of all federal income and California franchise Taxes has expired for
all related Tax Returns of Enova and each of its subsidiaries or those Tax
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Returns have been examined by the appropriate taxing authorities for all periods
through the date hereof, and no deficiency for any such Taxes has been proposed,
asserted or assessed against Enova or any of its subsidiaries that has not been
resolved and paid in full.
(i) Audit, Administrative and Court Proceedings. Except as set forth in
Section 4.09(i) of the Enova Disclosure Schedule, no audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of Enova or any of its subsidiaries, and
neither Enova nor any of its subsidiaries has any knowledge of any threatened
action, audit or administrative or court proceeding with respect to any such
Taxes or Tax Returns.
(j) Powers of Attorney. Except as set forth in Section 4.09(j) of the Enova
Disclosure Schedule, no power of attorney currently in force has been granted by
Enova or any of its subsidiaries concerning any Tax matter.
(k) Tax Rulings. Except as set forth in Section 4.09(k) of the Enova
Disclosure Schedule, neither Enova nor any of its subsidiaries has received a
Tax Ruling or entered into a Closing Agreement with any taxing authority that
would have a continuing adverse effect after the Closing Date.
(l) Availability of Tax Returns. Enova and its subsidiaries have made
available to Pacific complete and accurate copies of (i) all Tax Returns, and
any amendments thereto, filed by Enova or any of its subsidiaries, (ii) all
audit reports received from any taxing authority relating to any Tax Return
filed by Enova or any of its subsidiaries and (iii) any Closing Agreements
entered into by Enova or any of its subsidiaries with any taxing authority.
(m) Tax Sharing Agreements. Except as set forth in Section 4.09(m) of the
Enova Disclosure Schedule, no agreements relating to allocating or sharing of
Taxes exist between or among Enova and any of its subsidiaries.
(n) Code Section 341(f). Neither Enova nor any of its subsidiaries has
filed (or will file prior to the Closing) a consent pursuant to Section 341(f)
of the Code or has agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as that term is defined in Section
341(f)(4) of the Code) owned by Enova or any of its subsidiaries.
(o) Code Section 168. No property of Enova or any of its subsidiaries is
property that Enova or any such subsidiary or any party to this transaction is
or will be required to treat as being owned by another person pursuant to the
provisions of Section 168(f)(8) of the Code (as in effect prior to its amendment
by the Tax Reform Act of 1986) or is "tax-exempt use property" within the
meaning of Section 168 of the Code.
(p) Code Section 481 Adjustments. Other than adjustments that in the
aggregate could not reasonably be expected to have a Enova Material Adverse
Effect, neither Enova nor any of its subsidiaries is required to include in
income any adjustment pursuant to Section 481(a) of the Code by reason of a
voluntary change in accounting method initiated by Enova or any of its
subsidiaries, and to the best of the knowledge of Enova, the IRS has not
proposed any such adjustment or change in accounting method.
(q) Code Sections 6661 and 6662. All transactions that could give rise to
an understatement of federal income tax (within the meaning of Section 6661 of
the Code for Tax Returns the due date for which was on or before December 31,
1989, and within the meaning of Section 6662 of the Code for Tax Returns the due
date for which was after December 31, 1989) that could reasonably be expected to
result in a Enova Material Adverse Effect have been adequately disclosed (or,
with respect to Tax Returns filed following the Closing, will be adequately
disclosed) on the Tax Returns of Enova and its subsidiaries in accordance with
Section 6661(b)(2)(B) of the Code for Tax Returns the due date for which was on
or before December 31, 1989, and in accordance with Section 6662(d)(2)(B) of the
Code for Tax Returns the due date for which was after December 31, 1989.
(r) NOLs. As of the date hereof, Enova and its subsidiaries had net
operating loss carryovers available to offset future income as set forth in
Section 4.09(r) of the Enova Disclosure Schedule. Section 4.09(r) of the Enova
Disclosure Schedule sets forth the amount of and year of expiration of each
company's net operating loss carryovers.
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(s) Credit Carryover. As of the date hereof, Enova and its subsidiaries had
tax credit carryovers available to offset future tax liability as set forth in
Section 4.09(s) of the Enova Disclosure Schedule. Section 4.09(s) of the Enova
Disclosure Schedule sets forth the amount and year of expiration of each
company's tax credit carryovers.
(t) Code Section 338 Elections. Except as set forth in Section 4.09(t) of
the Enova Disclosure Schedule, no election under Section 338 of the Code (or any
predecessor provision) has been made by or with respect to Enova or any of its
subsidiaries or any of their respective assets or properties.
(u) Acquisition Indebtedness. Except as set forth in Section 4.09(u) of the
Enova Disclosure Schedule, no indebtedness of Enova or any of its subsidiaries
is "corporate acquisition indebtedness" within the meaning of Section 279(b) of
the Code.
(v) Intercompany Transactions. Except as set forth in Section 4.09(v) of
the Enova Disclosure Schedule, neither Enova nor any of its subsidiaries has
engaged in any intercompany transactions within the meaning of Section 1.1502-13
of the Treasury Regulations for which any income remains unrecognized as of the
close of the last taxable year prior to the Closing Date.
(w) Code Section 280G. Except as set forth in Section 4.09(w) of the Enova
Disclosure Schedule, neither Enova nor any of its subsidiaries is a party to any
agreement, contract, or arrangement that could result, on account of the
transactions contemplated hereunder, separately or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of the Section
280G of the Code.
SECTION 4.10. Employee Matters; ERISA.
(a) Benefit Plans. Section 4.10(a) of the Enova Disclosure Schedule
contains a true and complete list of each material employee benefit plan,
program or arrangement currently sponsored, maintained or contributed to by
Enova or any of its subsidiaries for the benefit of employees, former employees
or directors and their beneficiaries in respect of services provided to any such
entity, including, but not limited to, any employee benefit plans within the
meaning of Section 3(3) of ERISA and any material employment, consulting,
non-compete, severance or change in control agreement (collectively, the "ENOVA
BENEFIT PLANS"). For the purposes of this Section 4.10, the term "Enova" shall
be deemed to include predecessors thereof.
(b) Contributions. Except as set forth in Section 4.10(b) of the Enova
Disclosure Schedule, all material contributions and other payments required to
be made by Enova or any of its subsidiaries to any Enova Benefit Plan (or to any
person pursuant to the terms thereof) have been made or the amount of such
payment or contribution obligation has been reflected in the Enova Financial
Statements.
(c) Qualification; Compliance. Each of the Enova Benefit Plans intended to
be "qualified" within the meaning of Section 401(a) of the Code has been
determined by the IRS to be so qualified, and, to the best knowledge of Enova,
no circumstances exist that are reasonably expected by Enova to result in the
revocation of any such determination. Enova is in compliance in all material
respects with, and each Enova Benefit Plan is and has been operated in all
material respects in compliance with, all applicable laws, rules and regulations
governing such plan, including, without limitation, ERISA and the Code. Each
Enova Benefit Plan intended to provide for the deferral of income, the reduction
of salary or other compensation or to afford other income tax benefits complies
with the requirements of the applicable provisions of the Code or other laws,
rules and regulations required to provide such income tax benefits.
(d) Liabilities. With respect to the Enova Benefit Plans individually and
in the aggregate, no event has occurred, and, to the best knowledge of Enova,
there exists no condition or set of circumstances that could subject Enova or
any of its subsidiaries to any liability arising under the Code, ERISA or any
other applicable law (including, without limitation, any liability to any such
plan or the PBGC), or under any indemnity agreement to which Enova is a party,
which liability, excluding liability for benefit claims, PBGC premiums and
funding obligations payable in the ordinary course could reasonably be expected
to have a Enova Material Adverse Effect.
(e) Welfare Plans. Except as set forth in Section 4.10(e) of the Enova
Disclosure Schedule, none of the Enova Benefit Plans that are "welfare plans",
within the meaning of Section 3(1) of ERISA, provides for
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any retiree benefits other than coverage mandated by applicable law or benefits
the full cost of which is borne by the retiree.
(f) Documents Made Available. Enova has made available to Pacific a true
and correct copy of each collective bargaining agreement to which Enova or any
of its subsidiaries is a party or under which Enova or any of its subsidiaries
has obligations, and with respect to each Enova Benefit Plan, (i) such plan and
summary plan description, (ii) the most recent annual report filed with the IRS,
(iii) each related trust agreement, insurance contract, service provider or
investment management agreement (including all amendments to each such
document), (iv) the most recent determination of the IRS with respect to the
qualified status of such plan, and (v) the most recent actuarial report or
valuation.
(g) Payments Resulting from Mergers. Except as set forth in Section 4.10(g)
of the Enova Disclosure Schedule or specifically provided for herein, neither
Enova nor any of its subsidiaries is a party to any plan, agreement or
arrangement pursuant to the terms of which the consummation or announcement of
any transaction contemplated by this Agreement will (either alone or in
connection with the occurrence of any additional or further acts or events)
result in any (A) payment (whether of severance pay or otherwise) becoming due
from Enova or any of its subsidiaries to any officer, employee, former employee
or director thereof or to a trustee under any "rabbi trust" or similar
arrangement, or (B) benefit under any Enova Benefit Plan being established or
becoming accelerated, or immediately vested or payable.
(h) Labor Agreements. As of the date hereof, except as set forth in Section
4.10(h) of the Enova Disclosure Schedule, neither Enova nor any of its
subsidiaries is a party to any collective bargaining agreement or other labor
agreement with any union or labor organization. To the best knowledge of Enova,
as of the date hereof, there is no current union representation question
involving employees of Enova or any of its subsidiaries, nor does Enova know of
any activity or proceeding of any labor organization (or representative thereof)
or employee group to organize any such employees. Except as set forth in the
Enova SEC Reports or in Section 4.10(h) of the Enova Disclosure Schedule, (i)
there is no unfair labor practice, employment discrimination or other complaint
against Enova pending, or to the best knowledge of Enova, threatened, which has
or could reasonably be expected to have a Enova Material Adverse Effect, (ii)
there is no strike, dispute, slowdown, work stoppage or lockout pending, or, to
the best knowledge of Enova, threatened, against or involving Enova or any of
its subsidiaries which has or could reasonably be expected to have, a Enova
Material Adverse Effect and (iii) there is no proceeding, claim, suit, action or
governmental investigation pending or, to the best knowledge of Enova,
threatened, in respect of which any director, officer, employee or agent of
Enova or any of its subsidiaries is or may be entitled to claim indemnification
from Enova pursuant to their respective articles of incorporation or by-laws or
as provided in the Indemnification Agreements listed in Section 4.10(h) of the
Enova Disclosure Schedule.
SECTION 4.11. Environmental Protection.
(a) Compliance. Except as set forth in the Enova SEC Reports, except as set
forth in Section 4.11(a) of the Enova Disclosure Schedule and except where the
failure to be in compliance could not reasonably be expected to have a Enova
Material Adverse Effect, (i) each of Enova and its subsidiaries is in compliance
with all applicable Environmental Laws, and (ii) neither Enova nor any of its
subsidiaries has received any written communication from any person or
Governmental Authority that alleges that Enova or any of its subsidiaries is not
in such compliance with applicable Environmental Laws.
(b) Environmental Permits. Except as set forth in the Enova SEC Reports or
as set forth in Section 4.11(b) of the Enova Disclosure Schedule, each of Enova
and its subsidiaries has obtained or has applied for all Environmental Permits
necessary for the construction of their facilities or the conduct of their
operations, and all such permits are in good standing or, where applicable, a
renewal application has been timely filed and is pending agency approval, and
Enova and its subsidiaries are in material compliance with all terms and
conditions of the Environmental Permits, except where the failure to obtain or
be in compliance with the Environmental Permit could not reasonably be expected
to have a Enova Material Adverse Effect.
(c) Environmental Claims. Except as set forth in the Enova SEC Reports or
as set forth in Section 4.11(c) of the Enova Disclosure Schedule, to the best
knowledge of Enova, there is no Environmental Claim
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pending (i) against Enova or any of its subsidiaries or joint ventures, (ii)
against any person or entity whose liability for any Environmental Claim Enova
or any of its subsidiaries or joint ventures has retained or assumed
contractually, or (iii) against any real or personal property or operations
which Enova or any of its subsidiaries or joint ventures owns, leases or
manages, in whole or in part, which if adversely determined, could reasonably be
expected to have in the aggregate a Enova Material Adverse Effect.
(d) Releases. Except as set forth in the Enova SEC Reports or as set forth
in Section 4.11(c) or Section 4.11(d) of the Enova Disclosure Schedule, Enova
has no knowledge of any Releases of any Hazardous Material that would be
reasonably likely to form the basis of any Environmental Claim against Enova or
any of its subsidiaries or joint ventures, or against any person or entity whose
liability for any Environmental Claim Enova or any of its subsidiaries or joint
ventures has retained or assumed contractually, which could reasonably be
expected to have, in the aggregate, a Enova Material Adverse Effect.
(e) Predecessors. Except as set forth in the Enova SEC Reports or as set
forth in Section 4.11(e) of the Enova Disclosure Schedule, Enova has no
knowledge, with respect to any predecessor of Enova or any subsidiary or joint
venture of Enova, of any Environmental Claim pending or threatened, or of any
Release of Hazardous Materials that would be reasonably likely to form the basis
of any Environmental Claim, which could reasonably be expected to have a Enova
Material Adverse Effect.
(f) Disclosure. To Enova's best knowledge, Enova has disclosed to Pacific
all material facts which Enova reasonably believes form the basis of a Enova
Material Adverse Effect arising from (i) the cost of Enova pollution control
equipment currently required or known to be required in the future; (ii) current
Enova remediation costs or Enova remediation costs known to be required in the
future; or (iii) any other environmental matter affecting Enova.
(g) Cost Estimates. To Enova's best knowledge, no environmental matter set
forth in the Enova SEC Reports or the Enova Disclosure Schedule could be
reasonably expected to exceed the cost estimates provided in the Enova SEC
Reports by an amount that individually or in the aggregate could reasonably be
expected to have a Enova Material Adverse Effect.
SECTION 4.12. Regulation as a Utility. Enova Sub is regulated as a public
utility by the State of California and by no other state. Except as set forth in
Section 4.12 of the Enova Disclosure Schedule, neither Enova nor any "subsidiary
company" or "affiliate" of Enova is subject to regulation as a public utility or
public service company (or similar designation) by any other state in the United
States or any foreign country. Enova is an exempt holding company under Section
3(a)(1) of the 1935 Act. Section 4.12 of the Enova Disclosure Schedule sets
forth each "affiliate" and each "subsidiary company" of Enova which may be
deemed to be a "public utility company" or a "holding company" within the
meaning of the 1935 Act.
SECTION 4.13. Nuclear Operations. Except as set forth in Section 4.13 of
the Enova Disclosure Schedule, to the best knowledge of Enova, the operations of
the San Onofre Nuclear Generating Stations ("SONGS") are and have at all times
been conducted in material compliance with applicable health, safety, regulatory
and other legal requirements. To the best knowledge of Enova, SONGS maintains
emergency plans designed to respond to an unplanned release therefrom of
radioactive materials into the environment and liability insurance to the extent
required by law, which is consistent with Enova's view of the risks inherent in
the operation of a nuclear power facility. To the best knowledge of Enova, plans
for the decommissioning of each of the SONGS facilities and for the short-term
storage of spent nuclear fuel conform with the requirements of applicable
regulatory or other legal requirement, and such plans have at all times been
funded to the extent required by law, which is consistent with Enova's
reasonable budget projections for such plans.
SECTION 4.14. Vote Required. The approval of the Enova Merger by the
affirmative vote of a majority of the votes entitled to be cast by all holders
of Enova Common Stock (the "ENOVA SHAREHOLDERS' APPROVAL") is the only vote of
the holders of any class or series of the capital stock of Enova required to
approve this Agreement, the Mergers and the other transactions contemplated
hereby. No vote of shareholders of Enova is required to approve the Energy
Marketing Joint Venture Agreement.
SECTION 4.15. Accounting Matters. Neither Enova nor, to its best knowledge,
any of its affiliates has taken or agreed to take any action that would prevent
the Company from accounting for the transactions to be
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effected pursuant to Articles I and II of this Agreement as a pooling of
interests in accordance with GAAP and applicable SEC regulations.
SECTION 4.16. Opinion of Financial Advisor. Enova has received the opinion
of Morgan Stanley & Co. Incorporated ("MORGAN STANLEY"), dated October 12, 1996,
to the effect that, as of such date the Enova Exchange Ratio is fair to the
holders of Enova Common Stock.
SECTION 4.17. Insurance. Except as set forth on Section 4.17 of the Enova
Disclosure Schedule, each of Enova and its subsidiaries is, and has been
continuously since January 1, 1993, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary for
companies conducting the business as conducted by Enova and its subsidiaries
during such time period. Except as set forth on Schedule 4.17 of the Enova
Disclosure Schedule, neither Enova nor its subsidiaries has received any notice
of cancellation or termination with respect to any material insurance policy of
Enova or its subsidiaries. The insurance policies of Enova and each of its
subsidiaries are valid and enforceable policies in all material respects.
SECTION 4.18. Ownership of Pacific Common Stock. Enova does not
"beneficially own" (as such term is defined in the Pacific Rights Agreement) any
shares of Pacific Common Stock.
SECTION 4.19. Brokers. No broker, finder or investment banker (other than
Morgan Stanley) is entitled to any brokerage, finder's or other fee or
commission in connection with the Mergers based upon arrangements made by or on
behalf of Enova. Enova has heretofore furnished to Pacific a complete and
correct copy of all agreements between Enova and Morgan Stanley pursuant to
which such firm would be entitled to any payment relating to the Mergers.
SECTION 4.20. Tax-Exempt Status. Except as described in Section 4.20(a) of
the Enova Disclosure Schedule, the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not jeopardize the
tax-exempt status of the outstanding revenue bonds of Enova or its subsidiaries
used to finance electric facilities under Section 142(a) of the Code or under
Section 103(b)(4)(E) of the Internal Revenue Code of 1954, as amended, prior to
the Tax Reform Act of 1986 (the "BONDS"). Except as described in Section 4.20(b)
of the Enova Disclosure Schedule, the execution and delivery of the Energy
Marketing Joint Venture Agreement and the consummation of the transactions
contemplated thereby will not jeopardize the tax-exempt status of the Bonds. As
of the date hereof, except as set forth in Section 4.20(c) of the Enova
Disclosure Schedule, Enova is not aware of any pending or enacted law, rule,
regulation, administrative order or court decision that upon its implementation
would jeopardize such taxexempt status.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGERS
SECTION 5.01. Conduct of Business Pending the Mergers. Pacific and Enova
have each determined to enter into the transactions contemplated hereby in order
to compete as aggressively as possible in the rapidly evolving energy
marketplace. Consistent with their mutual objectives Pacific and Enova each
intend to pursue, jointly or independently, strategic opportunities that may
arise between the date of this Agreement and the Effective Time in accordance
with the terms of this Article V. Consistent with the foregoing, but for the
purpose of assuring that strategic opportunities are pursued that are consistent
with each party's objectives, after the date hereof and prior to the Effective
Time or earlier termination of this Agreement, Pacific and Enova each agrees as
to itself and its subsidiaries, except (x) as expressly contemplated or
permitted in this Agreement or the Energy Marketing Joint Venture Agreement, (y)
to the extent required by rule, regulation statute or other law in connection
with California Assembly Bill 1890 (Public Utilities: electrical restructuring)
or in connection with the CPUC and the FERC industry restructuring proceedings,
and (z) to the extent the other parties hereto shall otherwise consent in
writing, to the following:
(a) Ordinary Course of Business. Each party hereto shall, and shall cause
its respective subsidiaries to, carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner
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as heretofore conducted and use all commercially reasonable efforts to preserve
intact their present business organizations and goodwill, preserve the goodwill
and relationships with customers, suppliers and others having business dealings
with them and, subject to prudent management of workforce needs and ongoing
programs currently in force, keep available the services of their present
officers and employees. Except as set forth in Section 5.01(a) of the Pacific
Disclosure Schedule or the Enova Disclosure Schedule, respectively, no party
shall, nor shall any party permit any of its subsidiaries to, enter into a new
line of business, or make any change in the line of business it engages in as of
the date hereof involving any material investment of assets or resources or any
material exposure to liability or loss, in the case of Pacific, to Pacific and
its subsidiaries taken as a whole, and in the case of Enova, to Enova and its
subsidiaries taken as a whole.
(b) Dividends. No party shall, nor shall any party permit any of its
subsidiaries to (i) declare or pay any dividends on or make other distributions
in respect of any of their capital stock other than to such party or its
wholly-owned subsidiaries and other than dividends required to be paid on any
series of Pacific Preferred Stock, Pacific Sub Preferred Stock, Enova Sub
Preferred Stock or Califia Company preferred stock in accordance with the
respective terms thereof, regular quarterly dividends on Pacific Common Stock
with usual record and payment dates not during any fiscal year in excess of 110%
of the dividends for the prior fiscal year and regular quarterly dividends on
Enova Common Stock with usual record and payment dates not during any fiscal
year in excess of 110% of the dividends for the prior fiscal year; (ii) split,
combine or reclassify any of their capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of, or in
substitution for, shares of its capital stock, except as otherwise provided in
this Section 5.01; or (iii) redeem, repurchase or otherwise acquire any shares
of their capital stock, other than (A) redemptions, purchases or acquisitions
required by the respective terms of any series of Pacific Preferred Stock,
Pacific Sub Preferred Stock or Enova Sub Preferred Stock, (B) in connection with
refunding of Pacific Preferred Stock, Pacific Sub Preferred Stock or Enova Sub
Preferred Stock with preferred stock or debt at a lower cost of funds or in
connection with intercompany purchases of capital stock, (C) in connection with
employee benefit plans, (D) by Pacific, subject to paragraph (l) below, the
repurchase of up to 4,250,000 shares of Pacific Common Stock and the expenditure
of up to $50,000,000 for the redemption, repurchase or other acquisition of
shares of Pacific Preferred Stock and Pacific Sub Preferred Stock and (E) by
Enova, subject to paragraph (1) below, the repurchase of up to 4,250,000 shares
of Enova Common Stock and the expenditure of up to $50,000,000 for the
redemption, repurchase or other acquisition of shares of Enova Sub Preferred
Stock or Califia preferred stock. The last record date of each of Pacific and
Enova on or prior to the Effective Time which relates to a regular quarterly
dividend on Pacific Common Stock or Enova Common Stock, as the case may be,
shall be the same date and be other than the Effective Time.
(c) Issuance of Securities. No party shall, nor shall any party permit any
of its subsidiaries to, issue, agree to issue, deliver or sell, or authorize or
propose the issuance, delivery or sale of, any shares of their capital stock of
any class or any securities convertible into or exchangeable for, or any rights,
warrants or options to acquire, any such shares or convertible or exchangeable
securities, other than: (i) intercompany issuances of capital stock, (ii)
issuances in connection with transactions contemplated by paragraph (e) or
paragraph (h) below, (iii) in the case of Pacific and its subsidiaries (x) of
Pacific Rights issued pursuant to the Pacific Rights Agreement in form and
substance reasonably satisfactory to Enova, provided that the Pacific Rights
Agreement will be amended to provide that the consummation of the transactions
contemplated by this Agreement will not result in the triggering of any rights
or entitlements of Pacific shareholders under such Pacific Rights Agreement; (y)
in connection with refunding existing Pacific Preferred Stock and Pacific Sub
Preferred Stock (or Pacific Preferred Stock and Pacific Sub Preferred Stock
retired after January 1, 1996 and prior to the date hereof and not subsequently
refunded) with preferred stock or preference stock or debt at a lower cost of
funds; and (z) subject to Section 5.01(i), shares of Pacific Common Stock to be
issued pursuant to employee benefit plants, stock option and other incentive
compensation plans, director plans and stock purchase and dividend reinvestment
plans; (iv) in the case of Enova and its subsidiaries (x) in connection with
refunding of existing Enova Sub Preferred Stock (or Enova Sub Preferred Stock
retired after January 1, 1996 and prior to the date hereof and not subsequently
refunded) with preferred stock or debt at a lower cost of funds; (y) subject to
Section 5.01(i), shares of Enova Common Stock pursuant to employee benefit
plans, stock option and other incentive compensation plans, director plans and
stock purchase and dividend reinvestment plans or (z) rights issued pursuant to
a shareholders rights plan of Enova (if the
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provisions of such rights plan comport with terms analogous to those of Section
3.17 (substituting Pacific for Enova therein) and are customary for shareholder
rights plans); and (v) the issuance of capital stock under the Pacific Rights
Agreement if required by the respective terms thereof. The parties shall
promptly furnish to each other such information as may be reasonably requested
including financial information and take such action as may be reasonably
necessary and otherwise fully cooperate with each other in the preparation of
any registration statement under the Securities Act and other documents
necessary in connection with issuance of securities as contemplated by this
Section 5.01(c), subject to obtaining customary indemnities.
(d) Charter Documents. Except as set forth in Section 5.01(d) of the
Pacific Disclosure Schedule or the Enova Disclosure Schedule, no party shall
amend or propose to amend its respective articles of incorporation or by-laws,
except as contemplated herein.
(e) No Acquisitions. Except as set forth in Section 5.01(e) of the Pacific
Disclosure Schedule or the Enova Disclosure Schedule, and except for
acquisitions by a party and its subsidiaries of less than $10 million in any
transaction or series of related transactions, no party shall, nor shall any
party permit any of its subsidiaries to, acquire, or publicly propose to
acquire, or agree to acquire, by merger or consolidation with, or by purchase or
otherwise, a substantial equity interest in or a substantial portion of the
assets of, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire a material amount of assets, other than in the ordinary course of
business consistent with past practice.
(f) Capital Expenditures (including Emission Allowances). Except as set
forth in Section 5.01(f) of the Pacific Disclosure Schedule or the Enova
Disclosure Schedule or as required by law, no party shall, nor shall any party
permit any of its subsidiaries to, (i) make capital expenditures in excess of
$20 million over the amount budgeted by such party for capital expenditures on
the date hereof (as reflected on the capital expenditure budgets previously
provided by such party to the other) through the Effective Time or (ii) enter
into written commitments with respect to sulfur dioxide emission allowances as
provided for by the Clean Air Act Amendments of 1990, in excess of $100,000.
(g) No Dispositions. Except (i) as set forth in Section 5.01(g) of the
Pacific Disclosure Schedule or the Enova Disclosure Schedule and (ii) for
dispositions by a party and its affiliates of less than $10 million in any
transaction or series of related transactions, no party shall, nor shall any
party permit any of its subsidiaries to, sell, lease, license, encumber or
otherwise dispose of, any of its assets, other than dispositions in the ordinary
course of their business consistent with past practice.
(h) Indebtedness. Except (i) as set forth in Section 5.01(h) of the Basalt
Disclosure Schedule or the Granite Disclosure Schedule, (ii) as contemplated by
this Agreement, (iii) as budgeted by Enova Financial, Inc. on the date hereof
through December 31, 1997 or (iv) as required by any order, law or regulation of
any Governmental Authority, no party shall, nor shall any party permit any of
its subsidiaries to, incur or guarantee any indebtedness (including any debt
borrowed or guaranteed or otherwise assumed, including, without limitation, the
issuance of debt securities or warrants or rights to acquire debt) other than
(u) guarantees in favor of wholly owned subsidiaries of Pacific or Enova in
connection with the conduct of the business of such wholly owned subsidiaries;
(v) short-term indebtedness in the ordinary course of business consistent with
past practice (such as the issuance of commercial paper or the use of existing
credit facilities); (w) long-term indebtedness not aggregating more than
$100,000,000 in the case of either party and its subsidiaries; (x) in connection
with the refunding of Pacific Preferred Stock, Pacific Sub Preferred Stock or
Enova Sub Preferred Stock as permitted in Section 5.01(b); (y) in connection
with the refunding of existing indebtedness at maturity or at a lower cost of
funds or indebtedness retired after January 1, 1996 and prior to the date hereof
and not subsequently refunded; or (z) refinancing of industrial development
bonds for which Enova is unable to obtain an opinion of outside counsel as to
the continuing tax-exempt status of such industrial development bonds.
(i) Compensation, Benefits. Except (i) as set forth in Section 5.01(i) of
the Pacific Disclosure Schedule or the Enova Disclosure Schedule, (ii) as may be
required by applicable law or (iii) as expressly contemplated by this Agreement,
no party shall, nor shall any party permit any of its subsidiaries to, (A) enter
into, adopt or amend or increase the amount or accelerate the payment or vesting
of any benefit or amount
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payable, or grant any discretionary awards or benefits, under, any employee
benefit plan or other contract, agreement, commitment, arrangement, plan or
policy maintained by, contributed to or entered into by such party or any of its
subsidiaries, or increase, or enter into any contract, agreement, commitment or
arrangement to increase in any manner, the compensation or fringe benefits, or
otherwise to extend, expand or enhance the engagement, employment or any related
rights, of any director, officer or other employee of such party or any of its
subsidiaries, except for normal promotion and compensation increases, hiring and
discretionary award grants in the ordinary course of business consistent with
past practice that, in the aggregate, do not result in a material increase in
benefits or compensation expense to such party or any of its subsidiaries or (B)
enter into or amend any employment, severance, special pay arrangement with
respect to termination of employment or other similar contract, agreement or
arrangement with any director or officer other than in the ordinary course of
business consistent with past practice.
(j) 1935 Act. No party shall, nor shall any party permit any of its
subsidiaries, except as required or contemplated by this Agreement, to engage in
any activities which would cause a change in its status, or that of its
subsidiaries, under the 1935 Act, or that would impair the ability of Pacific or
Enova, respectively, to claim an exemption as of right under Rule 2 of the 1935
Act prior to the Mergers, or that would impair the ability of the Company to
claim an exemption as of right under Rule 2 of the 1935 Act following the
Mergers, other than the application to the SEC under the 1935 Act contemplated
by this Agreement for approval to the extent required of the transactions
contemplated hereby.
(k) Accounting. No party shall, nor shall any party permit any of its
subsidiaries to, make any changes in their accounting methods, except as
required by law, rule, regulation or GAAP.
(l) Pooling. No party shall, nor shall any party permit any of its
subsidiaries to, take any actions which would, or would be reasonably likely to,
prevent the Company from accounting for the transactions to be effected pursuant
to Articles I and II of this Agreement as a pooling of interests in accordance
with GAAP and applicable SEC regulations.
(m) Tax-Free Status. No party shall, nor shall any party permit any of its
subsidiaries to, take any actions which would, or would be reasonably likely to,
adversely affect the status of the Mergers as tax-free transactions (except as
to dissenters' rights and fractional shares) under Sections 351 of the Code.
(n) Affiliate Transactions. Except as set forth in Section 5.01(n) of the
Pacific Disclosure Schedule or the Enova Disclosure Schedule and except with
respect to agreements or arrangements entered into between a party and its
wholly owned subsidiaries or between wholly owned subsidiaries of a party (it
being agreed that, for purposes of this Section 5.01(n), Pacific Sub shall be
deemed to be a wholly owned subsidiary of Pacific and Enova Sub shall be deemed
to be a wholly owned subsidiary of Enova), no party shall, nor shall any party
permit any of its subsidiaries to, enter into any agreement or arrangement with
any of their respective affiliates on terms to such party or its subsidiaries
materially less favorable than could reasonably be expected to have been
obtained with an unaffiliated third party on an arm's length basis.
(o) Cooperation, Notification. Each party shall, and shall cause its
subsidiaries to, (i) confer on a regular and frequent basis with one or more
representatives of the other party to discuss material operational matters and
the general status of its ongoing operations (including, without limitation, the
status of the matters set forth in Section 5.01(e) of the Pacific Disclosure
Schedule and the Enova Disclosure Schedule); (ii) promptly notify the other
party of any significant changes in its properties, assets, financial condition
or results of operations; (iii) advise the other party of any change or event
which has had or, could reasonably be expected to result in, a Pacific Material
Adverse Effect or a Enova Material Adverse Effect, as the case may be, or a
Joint Venture Material Adverse Effect; and (iv) promptly provide the other party
with copies of all material filings made by such party or any of its
subsidiaries with any state or federal court, administrative agency, commission
or other Governmental Authority in connection with this Agreement and the
transactions contemplated hereby.
(p) Regulatory Matters. Except as set forth in Section 5.01(p) of the
Pacific Disclosure Schedule or the Enova Disclosure Schedule, except with regard
to those specific geographic regions where the parties provide overlapping
service, and except for filings contemplated by the applications filed in FERC
Docket
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Nos. EC96-19-000, EL96-48-000 and ER96-1663-000 and CPUC A.96-06-029, each party
shall, and shall cause its subsidiaries to, discuss with the other party any
material changes in its or its subsidiaries' material rates or charges (other
than pass-through fuel and gas rates or charges), standards of service or
accounting from those in effect on the date hereof and consult with the other
party prior to making any filing (or any amendment thereto), or effecting any
agreement, commitment, arrangement or consent, whether written or oral, formal
or informal, with respect thereto.
(q) Third-Party Consents. Pacific shall, and shall cause its subsidiaries
to, use all commercially reasonable efforts to obtain all Pacific Required
Consents. Pacific shall promptly notify Enova of any failure or prospective
failure to obtain any such consents and, if requested by Enova, shall provide
copies of all Pacific Required Consents obtained by Pacific to Enova. Enova
shall, and shall cause its subsidiaries to, use all commercially reasonable
efforts to obtain all Enova Required Consents. Enova shall promptly notify
Pacific of any failure or prospective failure to obtain any such consents and,
if requested by Pacific, shall provide copies of all Enova Required Consents
obtained by Enova to Pacific.
(r) No Breach, Etc. No party shall, nor shall any party permit any of its
subsidiaries to, take any action that would or is reasonably likely to result in
a material breach of any provision of this Agreement or in any of its
representations and warranties set forth in this Agreement being untrue on and
as of the Closing Date.
(s) Company Actions. Enova and Pacific shall cause the Company to take only
those actions, from the date hereof until the Effective Time, that are required
or contemplated by this Agreement to be so taken by the Company, including,
without limitation, the declaration, filing or registration with, or notice to
or authorization, consent or approval of, any Governmental Authority, as set
forth in Section 3.04(b) of the Pacific Disclosure Schedule, Section 3.04(c) of
the Pacific Disclosure Schedule, Section 4.04(b) of the Enova Disclosure
Schedule and Section 4.04(c) of the Enova Disclosure Schedule.
SECTION 5.02. Transition and Strategic Opportunity Committees. (a)
Transition Committee. A committee comprised of Stephen L. Baum, President and
Chief Executive Officer of Enova, Donald E. Felsinger, President and Chief
Executive Officer of Enova Sub, Richard D. Farman, President and Chief Operating
Officer of Pacific, and Warren Mitchell, President of Pacific Sub (the
"TRANSITION COMMITTEE") has been established as of the date of this Agreement to
examine various alternatives regarding the manner in which to best organize,
manage and integrate the business of the Company after the Effective Time.
Stephen L. Baum, the President and Chief Executive Officer of Enova, shall chair
the Transition Committee and coordinate the day-to-day activities of the
Transition Committee with the concurrence of Richard D. Farman, the President
and Chief Operating Officer of Pacific. From time to time, the Transition
Committee shall report its findings to the Board of Directors of each of Pacific
and Enova. After the date that each of the Pacific Shareholders' Approval and
the Enova Shareholders' Approval has been obtained and prior to the Effective
Time, Richard D. Farman, President and Chief Operating Officer of Pacific, shall
attend meetings of Enova's Board of Directors and Stephen L. Baum, President and
Chief Executive Officer of Enova, shall attend meetings of Pacific's Board of
Directors as they deem appropriate in consultation with each other and to the
extent permitted by applicable law.
(b) Strategic Opportunity Committee. A committee comprised of Willis B.
Wood, Jr., the Chairman and Chief Executive Officer of Pacific, Richard D.
Farman, the President and Chief Operating Officer of Pacific, Stephen L. Baum,
the President and Chief Executive Officer of Enova, and Donald E. Felsinger, the
Chief Executive Officer of Enova Sub, (the "STRATEGIC OPPORTUNITY COMMITTEE")
also has been established to facilitate the parties' ability to pursue strategic
opportunities that would otherwise violate Sections 5.01 (a), (c), (e), (f),
(g), (h) or (k) (a "NEW OPPORTUNITY") in a manner consistent with both the
objectives of this Agreement and the parties' desires to compete as aggressively
as possible in the rapidly evolving energy marketplace. If the Strategic
Opportunity Committee unanimously approves the pursuit of a New Opportunity by
Pacific or Enova or the two parties acting jointly (no member of the Strategic
Opportunity Committee to unreasonably withhold such approval), then the pursuit
of such New Opportunity shall not be deemed a breach of such party's or parties'
obligations under Section 5.01. The approval of the pursuit of a New Opportunity
by the Strategic Opportunity Committee as provided herein shall be evidenced in
writing.
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Access to Information; Confidentiality. (a) Upon reasonable
notice and subject to restrictions contained in confidentiality agreements to
which such party is subject (from which such party shall use reasonable efforts
to be released), Pacific and Enova each shall (and shall cause each of their
subsidiaries to) afford to the officers, employees, accountants, counsel,
financial advisors and other representatives of the other (collectively,
"REPRESENTATIVES"), reasonable access, during the period prior to the Effective
Time, to all its properties, books, contracts, commitments and records and,
during such period, Pacific and Enova each shall (and shall cause each of their
subsidiaries to) furnish promptly to the other (i) all information concerning
its business, properties, directors, subsidiaries, officers, shareholders,
personnel and such other matters as such other party may reasonably request and
(ii) a copy of each material report, schedule and other document filed or
received by it or any of its subsidiaries pursuant to the requirements of the
FERC or the CPUC and a copy of each report, schedule and other document filed or
received by it or any of its subsidiaries pursuant to the requirements of
federal or state securities laws or filed with the SEC, the Department of
Justice, the Federal Trade Commission, the NRC, or any other federal, state or
local regulatory agency or commission, and each party shall make available to
the other party the appropriate individuals (including attorneys, accountants
and other professionals) for discussion of such party's business, properties,
tax situation and personnel as the other party may reasonably request.
(b) Each party shall, and shall cause its subsidiaries and Representatives
to, keep such information confidential in accordance with the terms of the
Confidentiality Agreement, dated April 4, 1996, between Pacific and Enova (the
"CONFIDENTIALITY AGREEMENT").
SECTION 6.02. Registration Statement; Joint Proxy Statement.
(a) Preparation and Filing. The parties will prepare and file with the SEC
as soon as reasonably practicable after the date hereof the Registration
Statement and the Proxy Statement (together, the "JOINT PROXY/REGISTRATION
STATEMENT"). The parties hereto shall each use reasonable efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as practicable after such filing. Each party hereto shall also take
such action as may be reasonably required to cause the shares of Company Common
Stock issuable in connection with the Mergers to be registered or to obtain an
exemption from registration under applicable state "blue sky" or securities
laws; provided, however, that no party shall be required to register or qualify
as a foreign corporation or to take other action which would subject it to
service of process in any jurisdiction where it will not be, following the
Mergers, so subject. Each of the parties hereto shall furnish all information
concerning itself which is required or customary for inclusion in the Joint
Proxy/Registration Statement. The parties shall use their best efforts to cause
the shares of Company Common Stock issuable in the Mergers to be approved for
listing on the NYSE upon official notice of issuance. The information provided
by any party hereto for use in the Joint Proxy/Registration Statement shall be
true and correct in all material respects without omission of any material fact
which is required to make such information not false or misleading. No
representation, covenant or agreement is made by any party hereto with respect
to information supplied by any other party for inclusion in the Joint Proxy
Statement/Registration Statement.
(b) Amendments and Supplements. No amendment or supplement to the Proxy
Statement or the Registration Statement will be made without the approval of all
parties. Each party will advise the others, promptly after it receives notice
thereof, of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, the issuance of any stop order, the
suspension, if applicable, of the qualification of such party's common stock for
sale in any jurisdiction, or any request by the SEC for amendment of the Proxy
Statement or the Registration Statement or comments thereon and responses
thereto or requests by the SEC for additional information.
(c) Letter of Enova's Accountants. Enova shall use best efforts to cause to
be delivered to the Company, Pacific, Newco Enova Sub and Newco Pacific Sub a
letter of Deloitte Touche LLP, dated a date within two business days before the
date of the Joint Proxy/Registration Statement, and addressed to the
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Company, Pacific, Newco Enova Sub and Newco Pacific Sub, in form and substance
reasonably satisfactory to the Company and Pacific and customary in scope and
substance for "cold comfort" letters delivered by independent public accountants
in connection with registration statements on Form S-4.
(d) Letter of Pacific's Accountants. Pacific shall use best efforts to
cause to be delivered to the Company, Enova, Newco Enova Sub and Newco Pacific
Sub a letter of Deloitte Touche LLP, dated a date within two business days
before the date of the Joint Proxy/Registration Statement, and addressed to the
Company, Enova, Newco Enova Sub and Newco Pacific Sub in form and substance
satisfactory to the Company and Enova and customary in scope and substance for
"cold comfort" letters delivered by independent public accountants in connection
with registration statements on Form S-4.
SECTION 6.03. Regulatory Matters.
(a) HSR Filings. Each party hereto shall file or cause to be filed with the
Federal Trade Commission and the Department of Justice any notifications
required to be filed by their respective "ultimate parent" companies under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), and the rules and regulations promulgated thereunder with respect to the
transactions contemplated hereby. Such parties will use all commercially
reasonable efforts to make such filings promptly and to respond promptly to any
requests for additional information made by either of such agencies.
(b) Other Regulatory Approvals. Each party hereto shall cooperate and use
its best efforts to promptly prepare and file all necessary documentation, to
effect all necessary applications, notices, petitions, filings and other
documents, and to use all commercially reasonable efforts to obtain all
necessary permits, consents, approvals and authorizations of all Governmental
Authorities necessary or advisable to (i) consummate the transactions
contemplated by this Agreement, including, without limitation, the Enova
Required Statutory Approvals and the Pacific Required Statutory Approvals; and
(ii) allow (A) the Energy Marketing Joint Venture to market and sell electricity
and natural gas and related products and services as contemplated by the Energy
Marketing Joint Venture Agreement and (B) at and after the Effective Time, the
Company's subsidiaries, to market and sell electricity and natural gas and
related products and services as contemplated by the Summary of Terms attached
as Exhibit A (the "ENERGY MARKETING REQUIRED STATUTORY APPROVALS"), such
commercially reasonable efforts to include, in the case of Pacific, the filing
of a notice of cancellation of any rate schedule or tariffs applicable to sales
of electricity by Pacific, or by any affiliate of Pacific, that are subject to
the jurisdiction of the FERC under the Power Act, provided that such notice of
cancellation shall be filed concurrently with, and the cancellation requested
therein shall be subject to the grant of, the request for approval of the Energy
Marketing Required Statutory Approvals. Enova shall have the right to review and
approve in advance all characterizations of the information relating to Enova,
on the one hand, and Pacific shall have the right to review and approve in
advance all characterizations of the information relating to Pacific, on the
other hand, in either case, which appear in any filing made in connection with
the transactions contemplated by this Agreement or the Mergers. Enova and
Pacific agree that they will consult with each other with respect to the
obtaining of all such necessary permits, consents, approvals and authorizations
of Governmental Authorities. Pacific and Enova shall jointly assist the Company
in its efforts to obtain any necessary approvals from any Governmental
Authority.
SECTION 6.04. Shareholder Approvals.
(a) Approval of Pacific Shareholders. Subject to the terms of Section
6.04(d), Pacific shall, as soon as reasonably practicable after the date hereof,
(i) take all steps necessary duly to call, give notice of, convene and hold a
special meeting of its shareholders (the "PACIFIC SPECIAL MEETING") for the
purpose of securing the Pacific Shareholders' Approval, (ii) distribute to its
shareholders the Joint Proxy Statement in accordance with applicable Federal and
state law and with its articles of incorporation and by-laws, (iii) subject to
the fiduciary duties of its board of directors, recommend to its shareholders
the approval of the Pacific Merger, this Agreement and the transactions
contemplated hereby and (iv) cooperate and consult with Enova with respect to
each of the foregoing matters.
(b) Approval of Enova Shareholders. Subject to the terms of Section
6.04(d), Enova shall, as soon as reasonably practicable after the date hereof,
(i) take all steps necessary to call, give notice of, convene and
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hold a special meeting of its shareholders (the "ENOVA SPECIAL MEETING" and,
together with the Pacific Special Meeting, the "SPECIAL MEETING") for the
purpose of securing the Enova Shareholders' Approval, (ii) distribute to its
shareholders the Joint Proxy Statement in accordance with applicable Federal and
state law and its articles of incorporation, (iii) subject to the fiduciary
duties of the board of directors of Enova, recommend to its shareholders the
approval of the Enova Merger, this Agreement and the transactions contemplated
hereby and (iv) cooperate and consult with Pacific with respect to each of the
foregoing matters.
(c) Meeting Dates. Pacific and Enova shall use their reasonable best
efforts to hold the Special Meetings on the same date and at the same time on
such date.
(d) Fairness Opinions. It shall be a condition to Pacific's obligation to
distribute the Joint Proxy/Registration Statement to its shareholders and to
hold the Pacific Special Meeting that the opinions of Barr Devlin and Merrill
Lynch referred to in Section 3.15 shall have been reaffirmed as of the date of
the Joint Proxy/Registration Statement and shall not have been withdrawn on or
prior to the date of the Pacific Special Meeting. It shall be a condition to
Enova's obligation to distribute the Joint Proxy/Registration Statement to its
shareholders and to hold the Enova Special Meeting that the opinion of Morgan
Stanley referred to in Section 4.16 shall have been reaffirmed as of the date of
the Joint Proxy/Registration Statement and shall not have been withdrawn on or
prior to the date of the Enova Special Meeting.
SECTION 6.05. Directors' and Officers' Indemnification.
(a) Indemnification. To the extent, if any, not provided by an existing
right of indemnification or other agreement or policy, from and after the
Effective Time, the Company shall, to the fullest extent not prohibited by
applicable law, indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date hereof, or who becomes prior to the
Effective Time, an officer or director of any of the parties hereto or any of
their subsidiaries (each an "INDEMNIFIED PARTY" and collectively, the
"INDEMNIFIED PARTIES") against all losses, expenses (including reasonable
attorney's fees), claims, damages or liabilities or, subject to the proviso of
the next succeeding sentence, amounts paid in settlement arising out of actions
or omissions occurring at or prior to the Effective Time (whether or not
asserted or claimed prior to, at or after the Effective Time) that are in whole
or in part based on, or arising out of the fact that such person is or was a
director or officer of such party or based on or arising out of or pertaining to
the transactions contemplated by this Agreement. In the event of any such loss,
expense, claim, damage or liability (whether or not arising before the Effective
Time), (i) the Company shall pay the reasonable fees and expenses of counsel
selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to the Company, promptly after statements therefor are received and
otherwise advance to such Indemnified Party upon request reimbursement of
documented expenses reasonably incurred, in either case to the extent not
prohibited by California Law (which consent shall not be unreasonably withheld),
(ii) the Company will cooperate in the defense of any such matter and (iii) any
determination required to be made with respect to whether an Indemnified Party's
conduct complies with the standards set forth under California law and the
Company's Articles of Incorporation or By-Laws shall be made by independent
counsel mutually acceptable to the Company and the Indemnified Party; provided,
however, that the Company shall not be liable for any settlement effected
without its written consent (which consent shall not be unreasonably withheld).
The Indemnified Parties as a group may retain only one law firm with respect to
each related matter except to the extent there is, in the sole opinion of
counsel to an Indemnified Party, under applicable standards of professional
conduct, a conflict on any significant issue between positions of any two or
more Indemnified Parties.
(b) Insurance. For a period of six years after the Effective Time, the
Company shall cause to be maintained in effect the policies of directors' and
officers' liability insurance maintained by Pacific and Enova; provided,
however, that in no event shall the Company be required to expend in any one
year an amount in excess of 200% of the annual premiums currently paid by Enova
and Pacific for such insurance; and provided further that if the annual premiums
of such insurance coverage exceed such amount, the Company shall be obligated to
obtain a policy with the greatest coverage available for a cost not exceeding
such amount.
(c) Successors. Neither the Company nor any of its successors or assigns
shall (i) consolidate with or merge into any other person so as not to be the
continuing or surviving corporation or entity of such
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consolidation or merger or (ii) transfer all or substantially all of its
properties and assets to any person unless, in either such case, proper
provisions shall be made so that the successors and assigns of the Company shall
assume the obligations set forth in this Section 6.05.
(d) Survival of Indemnification. To the fullest extent not prohibited by
law, from and after the Effective Time, all rights to indemnification as of the
date hereof in favor of the employees, agents, directors or officers of Pacific,
Enova and their respective subsidiaries with respect to their activities as such
prior to the Effective Time, as provided in their respective Articles of
Incorporation or By-laws, in effect on the date thereof or otherwise in effect
on the date hereof, shall survive the Mergers and shall continue in full force
and effect for a period of not less than six years from the Effective Time.
(e) Indemnification Agreements. Enova, Pacific and the Company shall honor
and fulfill in all respects the obligations of Enova and Pacific pursuant to
indemnification agreements with Enova's and Pacific's officers and directors
existing at the Effective Time.
SECTION 6.06. Disclosure Schedules. On or before the date hereof, (i)
Pacific shall deliver to Enova a schedule (the "PACIFIC DISCLOSURE SCHEDULE"),
which shall be accompanied by a certificate signed by the chief financial
officer of Pacific stating the Disclosure Schedule is being delivered pursuant
to this Section 6.06(i) and (ii) Enova shall deliver to Pacific a schedule (the
"ENOVA DISCLOSURE SCHEDULE"), which shall be accompanied by a certificate signed
by the chief financial officer of Enova stating the Enova Disclosure Schedule is
being delivered pursuant to this Section 6.06(ii). The Pacific Disclosure
Schedule and the Enova Disclosure Schedule are collectively referred to herein
as the "DISCLOSURE SCHEDULES". The Disclosure Schedules, when so delivered,
shall be deemed to constitute an integral part of this Agreement and to modify
the respective representations, warranties, covenants or agreements of the
parties hereto contained herein to the extent that such representations,
warranties, covenants or agreements expressly refer to the Disclosure Schedules.
Anything to the contrary contained herein or in the Disclosure Schedules
notwithstanding, any and all statements, representations, warranties or
disclosures set forth in the Disclosure Schedules delivered on or before the
date hereof shall be deemed to have been made on and as of the date hereof. From
time to time prior to the Closing, the parties shall promptly supplement or
amend the Disclosure Schedules with respect to any matter, condition or
occurrence hereafter arising which, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in the
Disclosure Schedules. No supplement or amendment shall be deemed to cure any
breach of any representation or warranty made in this Agreement or have any
effect for the purpose of determining satisfaction of the conditions set forth
in Section 7.02(b) or Section 7.03(b).
SECTION 6.07. Public Announcements. Subject to each party's disclosure
obligations imposed by law, Enova and Pacific will cooperate with each other in
the development and distribution of all news releases and other public
information disclosures with respect to this Agreement or any of the
transactions contemplated hereby and shall not issue any such public
announcement or statement without the consent of the other party (which consent
shall not be unreasonably withheld).
SECTION 6.08. Rule 145 Affiliates. Pacific shall identify in a letter to
Enova, and Enova shall identify in a letter to Pacific, all persons who are, at
the Closing Date, "affiliates" of Pacific and Enova, respectively, as such term
is used in Rule 145 under the Securities Act. Pacific and Enova shall use their
respective best efforts to cause their respective affiliates to deliver to the
Company on or prior to the Closing Date a written agreement substantially in the
form attached as Exhibit 6.08 (each, an "AFFILIATE AGREEMENT").
SECTION 6.09. Employee Agreements and Workforce Matters.
(a) Certain Employee Agreements. Subject to Section 6.10 and Section 6.15,
the Company and its subsidiaries shall honor, without modification, all
contracts, agreements, collective bargaining agreements and commitments of the
parties prior to the date hereof which apply to any current or former employee
or current or former director of the parties hereto; provided, however, that
this undertaking is not intended to prevent the Company from enforcing such
contracts, agreements, collective bargaining agreements and commitments in
accordance with their terms, including, without limitation, any reserved right
to amend, modify, suspend, revoke or terminate any such contract, agreement,
collective bargaining agreement or commitment.
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(b) Workforce Matters. Subject to the terms of any applicable collective
bargaining agreements, for a period of three years following the Effective Time,
any reductions in workforce in respect of employees of the Company shall be made
on a fair and equitable basis, in light of the circumstances and the objectives
to be achieved, giving consideration to previous work history, job experience,
and qualifications, without regard to whether employment was with Pacific or its
subsidiaries or Enova or its subsidiaries, and any employees whose employment is
terminated or jobs are eliminated by the Company or any of its subsidiaries
during such period shall be entitled to participate on a fair and equitable
basis in the job opportunity and employment placement programs offered by the
Company or any of its subsidiaries.
SECTION 6.10. Employee Benefit Plans.
(a) Maintenance of Pacific and Enova Benefit Plans. Each of the Pacific
Benefit Plans and Enova Benefit Plans in effect as of the Effective Time, except
as provided in Section 6.10(b) and Section 6.11, shall be maintained in effect
with respect to the employees or former employees of Pacific and any of its
subsidiaries, on the one hand, and of Enova and any of its subsidiaries, on the
other hand, respectively, who are covered by any such benefit plan immediately
prior to the Closing Date until the Company otherwise determines after the
Effective Time; provided, however, that nothing herein contained shall limit any
reserved right contained in any such Pacific Benefit Plan or Enova Benefit Plan
to amend, modify, suspend, revoke or terminate any such plan. Any person hired
by the Company or any of its subsidiaries after the Closing Date who was not
employed by any party hereto or its subsidiaries immediately prior to the
Closing Date shall be eligible to participate in such benefit plans maintained,
or contributed to, by the subsidiary, division or operation by which such person
is employed, provided that such person meets the eligibility requirements of the
applicable plan.
(b) Incentive Compensation Plans. Prior to the Effective Time, a committee
will be formed for the purposes of developing short- and long-term incentive
compensation arrangements for the Company which are to be implemented after the
Effective Time and making the appropriate adjustments, if any, to the
performance goals, target awards and any other relevant criteria under the
incentive compensation plans of Pacific and Enova that are in effect as of the
Effective Time to take the Mergers into account. In addition, such committee
shall conduct a review of Enova's and Pacific's respective benefit plans
following the signing of this Agreement in order to coordinate the provision of
benefits after the Effective Time and to eliminate duplicative benefits,
including, without limitation, through the establishment by the Company of
replacement benefit plans (the "COMPANY REPLACEMENT PLANS"). Each participant in
any Pacific Benefit Plan or Enova Benefit Plan that is replaced by a Company
Replacement Plan shall receive credit for purposes of eligibility to
participate, vesting, benefit accrual and eligibility to receive benefits under
any Company Replacement Plan for service credited for the corresponding purpose
under such benefit plan; provided, however, that such crediting of service shall
not operate to duplicate any benefit to any such participant or the funding for
any such benefit.
(c) Separate Plans. Pacific and Enova each agrees that even in the event
that the Pacific and Pacific Sub pension plan shares a common or master trust
with the Enova and Enova Sub pension plan and even if Enova and Pacific provide
identical benefits the plans shall remain legally separate whereby the assets of
one plan cannot be applied to the liabilities of the other plan.
SECTION 6.11. Stock Option and Other Stock Plans.
(a) Amendment of Stock Option Plans and Agreements. (i) Prior to the
Effective Time, Pacific shall use its reasonable best efforts to cause each
individual award agreement entered into under the Pacific Employee Stock Option
Plan, the Pacific Stock Incentive Plan and the Pacific 1979 Stock Option Plan to
be amended so as to eliminate the rights of the award recipients thereunder to
receive cash in exchange for such award upon a Change in Control (as such term
is defined in such plans) that are triggered, directly or indirectly, in whole
or in part, by the Mergers or any transaction or event consummated or occurring
in connection therewith.
(ii) Effective as of the Effective Time, Pacific shall amend the Pacific
Employee Stock Option Plan, the Pacific Stock Incentive Plan and the Pacific
1979 Stock Option Plan and Enova shall amend the 1986 Long-
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Term Incentive Plan (as amended and restated effective April 25, 1995) and each
of Pacific and Enova shall amend each underlying award agreement to provide that
each outstanding award with respect to shares of Pacific Common Stock and Enova
Common Stock, respectively (each, a "STOCK AWARD"), along with any tandem stock
appreciation right, shall constitute an award with respect shares of Company
Common Stock, on the same terms and conditions as were applicable under such
Stock Award, based on the same number of shares of the Company Common Stock as
the holder of such Stock Award would have been entitled to receive pursuant to
the Mergers in accordance with Article II had such holder exercised such award
in full immediately prior to the Effective Time. The number of shares, the award
price, and the terms and conditions of exercise of such award, shall be
determined in a manner that preserves both (i) the aggregate gain (or loss) on
the Stock Award immediately prior to the Effective Time and (ii) the ratio of
the exercise price per share subject to the Stock Award to the fair market value
(determined immediately prior to the Effective Time) per share subject to such
award; provided, however, that in the case of any option to which Section 421 of
the Code applies by reason of its qualification under any of Sections 422-424 of
the Code, option price, the number of shares purchasable pursuant to such option
and the terms and conditions of exercise of such option shall be determined in
order to comply with Section 424(a) of the Code. Prior to the Effective Time,
each of Pacific and Enova shall take such actions, including using its
reasonable best efforts to obtain the consent of the awardees, as may be
necessary to carry out the substitution and exchange contemplated in this
Section 6.11(a). At the Effective Time, the Company shall assume each award
agreement relating to a Stock Award, each as amended as previously provided. As
soon as practicable after the Effective Time, the Company shall deliver to the
holders of Stock Awards appropriate notices setting forth such holders' rights
pursuant to the Company stock incentive plan and each underlying award
agreement, each as assumed by the Company.
(b) Company Action. With respect to any other Pacific Benefit Plan, Enova
Benefit Plan or benefit plan of the Company under which the delivery of Pacific
Common Stock, Enova Common Stock or Company Common Stock, as the case may be, is
required upon payment of benefits, grant of awards or exercise of options (the
"STOCK PLANS"), the Company shall take all corporate action necessary or
appropriate to (i) obtain shareholder approval with respect to such plan to the
extent such approval is required for purposes of the Code or other applicable
law, or to enable such plan to comply with Rule 16b-3 promulgated under the
Exchange Act, (ii) reserve for issuance under such plan or otherwise provide a
sufficient number of shares of Company Common Stock for delivery upon payment of
benefits, grant of awards or exercise of options under such plan and (iii) as
soon as practicable after the Effective Time, file registration statements on
Form S-3 or Form S-8, as the case may be (or any successor or other appropriate
forms), with respect to the shares of Company Common Stock subject to such plan
to the extent such registration statement is required under applicable law, and
the Company shall use its best efforts to maintain the effectiveness of such
registration statements (and maintain the current status of the prospectuses
contained therein) for so long as such benefits and grants remain payable and
such options remain outstanding. With respect to those individuals who
subsequent to the Mergers will be subject to the reporting requirements under
Section 16(a) of the Exchange Act, the Company shall administer the Stock Plans,
where applicable, in a manner that complies with Rule 16b-3 promulgated under
the Exchange Act.
SECTION 6.12. No Solicitations. No party hereto shall, and each such party
shall cause its subsidiaries not to, permit any of its Representatives to, and
shall use its best efforts to cause such persons not to, directly or indirectly:
initiate, solicit or encourage, or take any action to facilitate the making of
any offer or proposal which constitutes or is reasonably likely to lead to any
Acquisition Proposal (as defined below), or, in the event of an unsolicited
Acquisition Proposal, except prior to the receipt of the Enova Shareholders'
Approval and of the Pacific Shareholders' Approval to the extent the Board of
Directors of the party receiving such unsolicited Acquisition Proposal
determines in good faith after consultation with outside counsel that such
action is reasonably necessary for such Board of Directors to act in a manner
consistent with its fiduciary duties under applicable law, engage in
negotiations or provide any confidential information or data to any person
relating to any Acquisition Proposal. Each party hereto shall notify the other
party orally and in writing of any such inquiries, offers or proposals, within
48 hours of the receipt thereof, shall keep the other party informed of the
status of any such inquiry, offer or proposal, and shall give the other party
three days' advance notice of any agreement to be entered into with or any
information to be supplied to any person making such
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inquiry, offer or proposal. Each party hereto shall immediately cease and cause
to be terminated all existing discussions and negotiations, if any, with any
parties conducted heretofore with respect to any Acquisition Proposal. As used
in this Section 6.12, "ACQUISITION PROPOSAL" shall mean any tender or exchange
offer, proposal for a merger, consolidation or other business combination
involving any party or any of its material subsidiaries, or any proposal or
offer (in each case, whether or not in writing and whether or not delivered to
the shareholders of a party generally) to acquire in any manner, directly or
indirectly, a substantial equity interest in, or a substantial portion of the
assets of any party or any of its material subsidiaries, other than any of the
foregoing transactions among the parties hereto or pursuant to the transactions
contemplated by this Agreement. Nothing contained herein shall prohibit a party
from taking and disclosing to its shareholders a position contemplated by Rule
14e-2(a) under the Exchange Act with respect to a Acquisition Proposal by means
of a tender offer.
SECTION 6.13. Company Board of Directors. Enova's and Pacific's Boards of
Directors will take such action as may be necessary to cause the Board of
Directors of the Company at the Effective Time to be constituted of an equal
number of directors designated by each of Enova and Pacific. Among the directors
of the Company at the Effective Time shall be Richard D. Farman, President and
Chief Operating Officer of Pacific, who shall be designated by Pacific, and
Stephen L. Baum, President and Chief Executive Officer of Enova, who shall be
designated by Enova. Neither Pacific nor Enova shall designate any other officer
as a director of the Company at the Effective Time. The initial designation of
such directors among the three classes of the Board of Directors of the Company
shall be agreed among the parties, the designees of each party to be divided as
equally as is feasible among such classes; provided, however, that if, prior to
the Effective Time, any of such designees shall decline or be unable to serve,
the party which designated such person shall designate another person to serve
in such person's stead. Enova's and Pacific's Boards of Directors will also take
such action as may be necessary to cause the committees of the Board of
Directors of the Company at the Effective Time to be constituted of an equal
number of directors of the Company designated by Enova and Pacific.
SECTION 6.14. Company Officers. At the Effective Time, pursuant to and in
accordance with the terms hereof and of the employment contracts referred to in
Section 6.15, Richard D. Farman, President and Chief Operating Officer of
Pacific, shall become Chairman of the Board and Chief Executive Officer of the
Company, and Stephen L. Baum, President and Chief Executive Officer of Enova,
shall become Vice-Chairman, President and Chief Operating Officer of the
Company. If either of such persons is unable or unwilling to hold such offices
for the period set forth in his employment contract, his successor shall be
selected by the Board of Directors of the Company in accordance with its Bylaws.
The Chairman of the Board and Chief Executive Officer and the President and
Chief Operating Officer of the Company shall comprise the Office of the Chairman
of the Company to which all other officers of the Company and, after the
Effective Time, the Chief Executive Officers of Pacific, Pacific Sub, Enova and
Enova Sub shall report. Richard D. Farman, President and Chief Operating Officer
of Pacific, and Stephen L. Baum, President and Chief Executive Officer of Enova,
shall unanimously recommend to the Board of Directors of the Company candidates
to serve as the officers of the Company who are not otherwise designated by this
Agreement. Such officers shall be appointed by the Board of Directors of the
Company in accordance with its By-Laws.
SECTION 6.15. Employment Contracts. The Company shall on the date hereof
enter into four employment contracts in the forms set forth in Exhibit 6.15.
SECTION 6.16. Post-Merger Operations. Following the Effective Time, the
Company shall conduct its operations in accordance with the following:
(a) Principal Corporate Offices. The Company and Enova Sub shall maintain
their principal corporate offices in San Diego and Pacific Sub shall maintain
its principal corporate offices in Los Angeles.
(b) Maintenance of Enova Sub and Pacific Sub. Pacific Sub, on the one hand,
and Enova Sub, on the other hand, shall continue their separate corporate
existences, operating under the names of "Southern California Gas Company" and
"San Diego Gas & Electric", respectively.
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(c) Charities. After the Effective Time, the Company shall provide
charitable contributions and community support within the service areas of the
parties and each of their respective subsidiaries at levels substantially
comparable to the levels of charitable contributions and community support
provided by the parties and their respective subsidiaries within their service
areas within the two-year period immediately prior to the Effective Time.
SECTION 6.17. Expenses. Subject to Section 8.03, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that those
expenses incurred in connection with printing the Joint Proxy Statement and the
Registration Statement, as well as the filing fees relating thereto, and any
such filing fees for applications to the FERC, the CPUC, the NRC or the SEC
shall be shared equally by Enova, on the one hand, and Pacific, on the other.
SECTION 6.18. Energy Marketing Joint Venture. As promptly as practicable
following the date hereof, each of Pacific and Enova shall use their best
efforts to negotiate the terms of, and enter into, the Energy Marketing Joint
Venture Agreement, which agreement shall contain substantially the terms
contemplated by the Summary of Terms attached as Exhibit A. Notwithstanding the
foregoing, each of Pacific Enterprises and Enova agrees that the Energy
Marketing Joint Venture Agreement dated as of January 13, 1997 by their
Affiliates is the Energy Marketing Joint Venture Agreement contemplated by this
Agreement. Accordingly, each of Enova and Pacific, subject to the provisions of
Section 6.03(b) and Section 7.01(e), waives any inaccuracy in the
representations and warranties contained in this Agreement and any failure to
comply with any of the agreements or conditions contained in this Agreement, in
each case to the extent any such inaccuracy or failure to comply arises out of
any difference between the terms of Exhibit A to this Agreement and the terms of
the Energy Marketing Joint Venture Agreement.
ARTICLE VII
CONDITIONS TO THE MERGERS
SECTION 7.01. Conditions to the Obligations of Each Party. The respective
obligations of each party to effect the Mergers shall be subject to the
satisfaction on or prior to the Closing Date of the following conditions,
except, to the extent permitted by applicable law, that such conditions may be
waived in writing pursuant to Section 9.05 by the joint action of the parties
hereto:
(a) Shareholder Approvals. The Pacific Shareholders' Approval and the Enova
Shareholders' Approval shall have been obtained.
(b) No Injunction. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court preventing
consummation of the Mergers shall have been issued and continuing in effect, and
the Mergers and the other transactions contemplated hereby shall not have been
prohibited under any applicable federal or state law or regulation.
(c) Registration Statement. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act, and no stop
order suspending such effectiveness shall have been issued and remain in effect.
(d) Listing of Shares. The shares of Company Common Stock issuable in the
Mergers pursuant to Article II shall have been approved for listing on the NYSE
upon official notice of issuance.
(e) Statutory Approvals. The Enova Required Statutory Approvals and the
Pacific Required Statutory Approvals shall have been obtained at or prior to the
Effective Time, such approvals shall have become Final Orders and neither such
Final Orders nor any order, law or regulation of any Governmental Authority
imposes terms or conditions which, in the aggregate, could reasonably be
expected to have a material adverse effect on (i) the ability of (A) the Energy
Marketing Joint Venture to achieve the business objectives contemplated by the
Energy Marketing Joint Venture Agreement or (B) at and after Effective Time, the
Company and its prospective subsidiaries to achieve the business objective
contemplated by the Summary of Terms attached as Exhibit A or (ii) the
operations, properties, assets or financial condition or results of operations
of the
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Company and its prospective subsidiaries taken as a whole or which would be
materially inconsistent with the agreements of the parties contained herein. A
"FINAL ORDER" means action by the relevant regulatory authority which has not
been reversed, stayed, enjoined, set aside, annulled or suspended, with respect
to which any waiting period prescribed by law before the transactions
contemplated hereby may be consummated has expired, and as to which all
conditions to the consummation of such transactions prescribed by law,
regulation or order have been satisfied.
(f) HSR Act. All applicable waiting periods under the HSR Act shall have
expired.
(g) Pooling. Each of Enova and Pacific shall have received a letter of its
independent public accountants, dated the Closing Date, in form and substance
reasonably satisfactory to Pacific and Enova, stating that the transactions
effected pursuant to Articles I and II of this Agreement will qualify as a
pooling of interests transaction under GAAP and applicable SEC regulations.
SECTION 7.02. Conditions to the Obligations of Pacific. The obligation of
Pacific to effect the Pacific Merger shall be further subject to the
satisfaction, on or prior to the Closing Date, of the following conditions,
except as may be waived by Pacific in writing pursuant to Section 9.05:
(a) Performance of Obligations of Enova. Enova will have performed in all
material respects its agreements and covenants contained in or contemplated by
this Agreement required to be performed by it at or prior to the Effective Time.
(b) Representations and Warranties. The representations and warranties of
Enova set forth in this Agreement shall be true and correct in all material
respects as of the date hereof (representations and warranties made as of a
specified date which shall be true and correct as of such date) and as of the
Closing Date as if made on and as of the Closing Date, except as otherwise
contemplated by this Agreement.
(c) Closing Certificates. Pacific shall have received a certificate signed
by an executive officer of Enova, dated the Closing Date, to the effect that, to
the best of each such officer's knowledge, the conditions set forth in Section
7.02(a) and Section 7.02(b) have been satisfied.
(d) Enova Material Adverse Effect. No Enova Material Adverse Effect shall
have occurred and there shall exist no fact or circumstance which could
reasonably be expected to have a material adverse effect on the operations,
properties, assets, financial condition, results of operations or prospects of
Enova and its subsidiaries taken as a whole or on the consummation of the
transactions contemplated by this Agreement or the ability of (i) the Energy
Marketing Joint Venture to achieve the business objectives contemplated by the
Energy Marketing Joint Venture Agreement or (ii) at and after Effective Time,
the Company and its prospective subsidiaries to achieve the business objectives
contemplated by the Summary of Terms attached as Exhibit A.
(e) Tax Opinion. Pacific shall have received an opinion of Skadden, Arps,
Slate, Meagher & Flom, in form and substance satisfactory to Pacific, dated the
Closing Date, to the effect that the Enova Merger, taken together with the
Pacific Merger, will be treated as an exchange under Section 351 of the Code.
(f) Enova Required Consents. The Enova Required Consents the failure of
which to obtain would have a Enova Material Adverse Effect or a Joint Venture
Material Adverse Effect shall have been obtained.
SECTION 7.03. Conditions to the Obligations of Enova. The obligations of
Enova to effect the Enova Merger shall be further subject to the satisfaction,
prior to the Closing Date, of the following conditions, except as may be waived
by Enova in writing pursuant to Section 9.05:
(a) Performance of Obligations of Pacific. Pacific will have performed in
all material respects its agreements and covenants contained in or contemplated
by this Agreement required to be performed at or prior to the Effective Time.
(b) Representations and Warranties. The representations and warranties of
Pacific set forth in this Agreement shall be true and correct in all material
respects as of the date hereof (representations and warranties made as of a
specified date which shall be true and correct as of such date) and as of the
Closing Date as if made on and as of the Closing Date, except as otherwise
contemplated by this Agreement.
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(c) Closing Certificates. Enova shall have received certificates signed by
the chief executive officer and chief financial officer of Pacific, dated the
Closing Date, to the effect that, to the best of such officer's knowledge, the
conditions set forth in Section 7.03(a) and Section 7.03(b) have been satisfied.
(d) Pacific Material Adverse Effect. No Pacific Material Adverse Effect
shall have occurred and there shall exist no fact or circumstance which could
reasonably be expected to have a material adverse effect on the operations,
properties, assets, financial condition, results of operations or prospects of
Pacific and its subsidiaries taken as a whole or on the consummation of the
transactions contemplated by this Agreement or the ability of (i) the Energy
Marketing Joint Venture to achieve the business objectives contemplated by the
Energy Marketing Joint Venture Agreement or (ii) at and after Effective Time,
the Company and its prospective subsidiaries to achieve the business objectives
contemplated by the Summary of Terms attached as Exhibit A.
(e) Tax Opinion. Enova shall have received an opinion of Shearman &
Sterling, in form and substance satisfactory to Enova, dated the Closing Date,
to the effect that the Enova Merger, taken together with the Pacific Merger,
will be treated as an exchange under Section 351 of the Code.
(f) Pacific Required Consents. The Pacific Required Consents the failure of
which to obtain would have a Pacific Material Adverse Effect or a Joint Venture
Material Adverse Effect shall have been obtained.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after approval by the shareholders
of the respective parties hereto contemplated by this Agreement:
(a) by mutual written consent of the Boards of Directors of Enova and
Pacific;
(b) by Pacific or Enova, by written notice to the other, if the Effective
Time shall not have occurred on or before April 30, 1998; provided, however,
that the right to terminate the Agreement under this Section 8.01(b) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before this date;
(c) by Pacific or Enova, by written notice to the other, if, either the
Enova Shareholders' Approval or the Pacific Shareholders' Approval, or both,
shall not have been obtained on or before June 30, 1997; provided, however, the
right to terminate this Agreement under this Section 8.01(c) shall not be
available to any party whose failure to fulfill any obligations under this
Agreement has been the cause of, or resulted in, the failure of either of such
approvals to have been obtained on or before such date;
(d) by Pacific or Enova, if any state or federal law, order, rule or
regulation is adopted or issued, which has the effect, as supported by the
written opinion of outside counsel for such party, of prohibiting the Pacific
Merger or the Enova Merger, or by any party hereto, if any court of competent
jurisdiction in the United States or any State shall have issued an order,
judgement or decree permanently restraining, enjoining or otherwise prohibiting
the Pacific Merger or the Enova Merger, and such order, judgement or decree
shall have become final and nonappealable;
(e) by Enova, by written notice to Pacific, if there shall have been any
material breach of any material representation or warranty, or any material
breach of any covenant or agreement of Pacific hereunder and such breach shall
not have been remedied within 60 days after receipt by Pacific of notice in
writing from Enova, specifying the nature of such breach and requesting that it
be remedied;
(f) by Pacific, by written notice to Enova, if there shall have been any
material breach of any material representation or warranty, or any material
breach of any covenant or agreement of Enova hereunder and such breach shall not
have been remedied within 60 days after receipt by Enova of notice in writing
from Pacific, specifying the nature of such breach and requesting that it be
remedied;
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(g) by Enova, by written notice to Pacific, if, prior to the Pacific
Special Meeting, the Board of Directors of Pacific or any committee thereof (i)
shall withdraw or modify in any manner adverse to Enova its approval or
recommendation of this Agreement or the Pacific Merger, (ii) shall approve or
recommend any Acquisition Proposal by a party other than Enova or any of its
affiliates, or (iii) shall resolve to take any of the actions specified in
clause (i) or (ii);
(h) by Pacific, by written notice to Enova, if, prior to the Enova Special
Meeting, the Board of Directors of Enova or any committee thereof (i) shall
withdraw or modify in any manner adverse to Pacific its approval or
recommendation of this Agreement or the Enova Merger, (ii) shall approve or
recommend any Acquisition Proposal by a party other than Pacific or any of its
affiliates, or (iii) shall resolve to take any of the actions specified in
clause (i) or (ii);
(i) by Enova at any time prior to the Enova Special Meeting, upon two days'
prior notice to Pacific, if, as a result of an Acquisition Proposal by a party
other than Pacific or any of its affiliates, the Board of Directors of Enova
determines in good faith after consultation with outside counsel (and after
giving effect to all concessions which may be offered by Pacific pursuant to the
proviso set forth below) that acceptance of the Acquisition Proposal is
reasonably necessary for such Board of Directors to act in a manner consistent
with its fiduciary duties under applicable law; provided, however, prior to any
such termination, Enova shall, and shall cause its respective financial and
legal advisors to, negotiate with Pacific to make such adjustments in the terms
and conditions of this Agreement as would enable Enova to proceed with the
transactions contemplated herein on such adjusted terms; or
(j) by Pacific at any time prior to the Pacific Special Meeting, upon two
days' prior notice to Pacific, if, as a result of an Acquisition Proposal by a
party other than Enova or any of its affiliates, the Board of Directors of
Pacific determines in good faith after consultation with outside counsel (and
after giving effect to all concessions which may be offered by Enova pursuant to
the proviso set forth below) that acceptance of the Acquisition Proposal is
reasonably necessary for such Board of Directors to act in a manner consistent
with its fiduciary duties under applicable law; provided, however, prior to any
such termination, Pacific shall, and shall cause its respective financial and
legal advisors to, negotiate with Enova to make such adjustments in the terms
and conditions of this Agreement as would enable Pacific to proceed with the
transactions contemplated herein on such adjusted terms.
SECTION 8.02. Effect of Termination. In the event of termination of this
Agreement by either Enova or Pacific pursuant to Section 8.01, there shall be no
liability on the part of either Enova or Pacific or their respective officers or
directors hereunder, except (a) Sections 6.01(b), 6.17 and 8.03 shall survive
the termination and (b) nothing herein shall relieve any party from liability
for any willful breach hereof.
SECTION 8.03. Fees and Expenses.
(a) Expense Reimbursement by Enova. If this Agreement is terminated
pursuant to (i) Section 8.01(c) as a result of the Enova Shareholders' Approval
not being obtained and on or prior to the date of the Enova Special Meeting
Enova has been the subject of a publicly announced Acquisition Proposal, (ii)
Section 8.01(f), (iii) Section 8.01(h) or (iv) Section 8.01(i), then Enova,
shall promptly (but not later than five business days after receipt or delivery
of notice of such termination, as applicable) pay to Pacific cash in an amount
equal to the greater of (x) $3 million or (y) the lesser of (A) all documented
out-of-pocket expenses and fees incurred by Pacific (including, without
limitation, fees and expenses payable to all legal, accounting, financial,
public relations and other professional advisers) arising out of, in connection
with or related to this Agreement and the Energy Marketing Joint Venture
Agreement and the transactions contemplated herein and therein and (B) $5
million, in the case of termination on or before February 12, 1997, or $10
million in the case of termination after February 12, 1997 (the "PACIFIC
OUT-OF-POCKET EXPENSES"); provided, however, that if this Agreement is
terminated by Pacific pursuant to Section 8.01(f) as a result of a willful
breach by Enova, Pacific may pursue any remedies available to it at law or in
equity and shall, in addition to the Pacific Out-of-Pocket Expenses, be entitled
to retain such additional amounts as Pacific may be entitled to receive at law
or in equity.
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(b) Expense Reimbursement by Pacific. If this Agreement is terminated
pursuant to (i) Section 8.01(c) as a result of the Pacific Shareholders'
Approval not being obtained and on or prior to the date of the Pacific Special
Meeting Pacific has been the subject of a publicly announced Acquisition
Proposal, (ii) Section 8.01(e), (iii) Section 8.01(g) or (iv) Section 8.01(j),
then Pacific, shall promptly (but not later than five business days after
receipt or delivery of notice of such termination, as applicable), pay to Enova
cash in an amount equal to the greater of (x) $3 million or (y) the lesser of
(A) all documented out-of-pocket expenses and fees incurred by Enova (including,
without limitation, fees and expenses payable to all legal, accounting,
financial, public relations and other professional advisers) arising out of, in
connection with or related to this Agreement and the Energy Marketing Joint
Venture Agreement and the transactions contemplated herein and therein and (B)
$5 million in the case of termination on or before February 12, 1997, or $10
million in the case of termination after February 12, 1997 (the "ENOVA
OUT-OF-POCKET EXPENSES"); provided, however, that if this Agreement is
terminated by Enova pursuant to Section 8.01(e) as a result of a willful breach
by Pacific, Enova may pursue any remedies available to it at law or in equity
and shall, in addition to the Enova Out-of-Pocket Expenses, be entitled to
retain such additional amounts as Enova may be entitled to receive at law or in
equity.
(c) Enova Termination Fee. If (i) this Agreement is terminated pursuant to
(1) Section 8.01(c) as a result of the Enova Shareholders' Approval not being
obtained and on or prior to the date of the Enova Special Meeting Enova has been
the subject of a publicly announced Acquisition Proposal, (2) Section 8.01(h) or
(3) Section 8.01(i) and (ii) within one year of any such termination described
in clause (i) above, Enova or any of its material subsidiaries accepts a written
offer to consummate or consummates an Acquisition Proposal, then Enova, will,
upon the earlier of such acceptance or consummation, pay to Pacific a
termination fee equal to $72 million in cash.
(d) Pacific Termination Fee. If (i) this Agreement is terminated pursuant
to (1) Section 8.01(c) as a result of the Pacific Shareholders' Approval not
being obtained and on or prior to the date of the Pacific Special Meeting
Pacific has been the subject of a publicly announced Acquisition Proposal, (2)
Section 8.01(g) or (3) Section 8.01(j) and (ii) within one year of any such
termination described in clause (i) above, Pacific or any of its material
subsidiaries accepts a written offer to consummate or consummates an Acquisition
Proposal, then Pacific, will, upon the earlier of such acceptance or
consummation, pay to Enova a termination fee equal to $72 million in cash.
(e) Expenses. The parties agree that the agreements contained in this
Section 8.03 are an integral part of the transactions contemplated by the
Agreement and constitute liquidated damages and not a penalty. If one party
fails to promptly pay to the other any fee due hereunder, the defaulting party
shall pay the costs and expenses (including legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other legal
action, taken to collect payment, together with interest on the amount of any
unpaid fee from the date such fee was required to be paid at a rate per annum
equal at all times to 2% per annum above the rate per annum that is the publicly
announced prime rate of Citibank, N.A.
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ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Effectiveness of Representations, Warranties and
Agreements. Except as otherwise provided in this Section 9.01, the
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party hereto, any person controlling any such party or
any of their officers or directors, whether prior to or after the execution of
this Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.01, as the case may be, except that the agreements set
forth in Articles I and II and Sections 6.05, 6.09, 6.10, 6.11, 6.13, 6.14, 6.15
and 6.16 shall survive the Effective Time indefinitely.
SECTION 9.02. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered, mailed or transmitted, and shall be effective
upon receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
change of address) or sent by electronic transmission, with confirmation
received, to the telecopy number specified below:
(a) If to Enova:
Enova Corporation
101 Ash Street
San Diego, California 92112
Telecopier No.: (619) 696-4611
Attention: Stephen L. Baum
With copies to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier No.: (212) 848-7179
Attention: David W. Heleniak, Esq.
and
Shearman & Sterling
555 California Street
San Francisco, California 94104
Telecopier No.: (415) 616-1199
Attention: Michael J. Kennedy, Esq.
(b) If to Pacific:
Pacific Enterprises
555 W. 5th Street
Los Angeles, California 90013
Telecopier No.: (213) 244-8292
Attention: Willis B. Wood, Jr.
Richard D. Farman
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With copies to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telecopier No. (212) 735-2000
Attention: Peter Allan Atkins, Esq.
Sheldon Adler, Esq.
SECTION 9.03. Certain Definitions. For purposes of this Agreement, the
term:
(a) "AFFILIATES" means a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person; including, without limitation, any partnership
or joint venture in which the person (either alone, or through or together with
any other subsidiary) has, directly or indirectly, an interest of 5% or more;
(b) "BENEFICIAL OWNER" with respect to any shares, means a person who shall
be deemed to be the beneficial owner of such shares (i) which such person or any
of its affiliates or associates beneficially owns, directly or indirectly, (ii)
which such person or any of its affiliates or associates (as such term is
defined in Rule 12b-2 of the Exchange Act) has, directly or indirectly, (A) the
right to acquire (whether such right is exercisable immediately or subject only
to the passage of time), pursuant to any agreement, arrangement or understanding
or upon the exercise of consideration rights, exchange rights, warrants or
options, or otherwise, or (B) the right to vote pursuant to any agreement,
arrangement or understanding or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its affiliates
or person with whom such person or any of its affiliates or associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any shares;
(c) "BUSINESS DAY" means any day other than a day on which banks in San
Diego or Los Angeles are required or authorized to be closed;
(d) "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(e) "JOINT VENTURE" of a person means any corporation or other entity
(including partnerships and other business associations and joint ventures) in
which such person or one or more of its subsidiaries owns an equity interest
that is less than a majority of any class of the outstanding voting securities
or equity, other than equity interests held for passive investment purposes
which are less than 5% of any class of the outstanding voting securities or
equity of any such entity;
(f) "KNOWLEDGE" of any person means the actual knowledge of the executive
officers of such person and each subsidiary of such person.
(g) "PERSON" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in Section
13(d)(3) of the Exchange Act); and
(h) "SUBSIDIARY" or "SUBSIDIARIES" of any person means any corporation,
partnership, joint venture or other legal entity of which such person (either
alone or through or together with any other subsidiary) owns, directly or
indirectly, more than 50% of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal entity.
SECTION 9.04. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after approval
hereof by the shareholders of Enova and Pacific, no amendment may be made which
by law requires further approval by such shareholders. This Agreement may not be
amended except by an instrument in writing signed by the parties hereto.
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SECTION 9.05. Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
SECTION 9.06. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.07. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 9.08. Entire Agreement. This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and undertakings (other than the Confidentiality
Agreement), both written and oral, among the parties, or any of them, with
respect to the subject matter hereof and, except as otherwise expressly provided
herein, is not intended to confer upon any other person any rights or remedies
hereunder.
SECTION 9.09. Assignment. This Agreement shall not be assigned by operation
of law or otherwise.
SECTION 9.10. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, other than Section 6.05 (which is intended to be for the benefit of
the Indemnified Parties and may be enforced by such Indemnified Parties).
Notwithstanding the foregoing and any other provision of this Agreement, and in
addition to any other required action of the Board of Directors of the Company
(a) a majority of the directors (or their successors) serving on the Board of
Directors of the Company who are designated by Pacific pursuant to Section 6.13
shall be entitled during the three year period commencing at the Effective Time
(the "THREE YEAR PERIOD") to enforce the provision of Sections 6.05, 6.09, 6.10,
6.11, 6.13, 6.14, 6.15 and 6.16 on behalf of the Pacific officers, directors and
employees, as the case may be, and (b) a majority of the directors (or their
successors) serving on the Board of Directors of the Company who are designated
by Enova pursuant to Section 6.13 shall be entitled during the Three Year Period
to enforce the provisions of Sections 6.05, 6.09, 6.10, 6.11, 6.13, 6.14, 6.15
and 6.16 on behalf of the Enova officers, directors and employees, as the case
may be. Such directors' right and remedies under the preceding sentence are
cumulative and are in addition to any other rights and remedies they may have at
law or in equity, but in no event shall this Section 9.10 be deemed to impose
any additional duties on any such directors. The Company shall pay, at the time
they are incurred, all costs, fees and expenses of such directors incurred in
connection with the assertion of any rights on behalf of the persons set forth
above pursuant to this Section.
SECTION 9.11. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 9.12. Governing Law. This Agreement shall governed by, and
construed in accordance with, the laws of the State of California.
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SECTION 9.13. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 9.14. WAIVER OF JURY TRIAL. EACH OF Enova, Pacific, THE COMPANY,
NEWCO Enova SUB AND NEWCO Pacific SUB HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING,
OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 9.15. Further Assurances. Each party will execute such further
documents and instruments and take such further actions as may reasonably be
requested by any other party in order to consummate the transactions
contemplated by this Agreement and the Energy Marketing Joint Venture Agreement
in accordance with the terms hereof and thereof.
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IN WITNESS WHEREOF, Enova, Pacific, the Company, Newco Enova Sub and Newco
Pacific Sub have caused this Agreement to be executed as of the date first
written above by their respective officers thereunto duly authorized.
ENOVA CORPORATION
By: /s/ STEPHEN L. BAUM
------------------------------------
Name: Stephen L. Baum
Title: President & Chief Executive
Officer
PACIFIC ENTERPRISES
By: /s/ WILLIS B. WOOD, JR.
------------------------------------
Name: Willis B. Wood, Jr.
Title: Chairman & Chief Executive
Officer
MINERAL ENERGY COMPANY
By: /s/ KEVIN C. SAGARA
------------------------------------
Name: Kevin C. Sagara
Title: President
G MINERAL ENERGY SUB
By: /s/ KEVIN C. SAGARA
------------------------------------
Name: Kevin C. Sagara
Title: President
B MINERAL ENERGY SUB
By: /s/ GARY W. KYLE
------------------------------------
Name: Gary W. Kyle
Title: President
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ANNEX B
[LETTERHEAD OF BARR DEVLIN]
February 6, 1997
The Board of Directors
Pacific Enterprises
555 West 5th Street
Los Angeles, California 90013-1011
Dear Members of the Board:
We understand that Pacific Enterprises, a California corporation ("PE"),
and Enova Corporation, a California corporation ("Enova"), have determined to
engage in a business combination as peer firms in a strategic merger-of-equals.
PE and Enova have formed Mineral Energy Company, a California corporation (the
"Company"), which in turn has formed B Mineral Energy Sub, a California
corporation, and G Mineral Energy Sub, a California corporation, to effect the
business combination. The terms and conditions of the business combination are
set forth in the Agreement and Plan of Merger and Reorganization, dated as of
October 12, 1996 and as amended as of January 13, 1997 (as amended, the "Merger
Agreement"), among PE, Enova and the Company. The Merger Agreement provides for,
among other things: (i) the merger of B Mineral Energy Company with and into PE
(the "PE Merger") and (ii) the merger of G Mineral Energy Company with and into
Enova (the "Enova Merger"). Pursuant to the PE Merger, each issued and
outstanding share of common stock, without par value, of PE (the "PE Common
Stock") (other than PE Dissenting Shares and shares canceled pursuant to
Sections 2.01(b)(i) of the Merger Agreement) shall be converted into the right
to receive 1.5038 shares (the "PE Conversion Ratio") of Company Common Stock;
and pursuant, to the Enova Merger, each issued and outstanding share of common
stock, without par value, of Enova (the "Enova Common Stock") (other than Enova
Dissenting Shares and shares canceled pursuant to Sections 2.01(a)(i) of the
Merger Agreement) shall be converted into the right to receive 1.000 share (the
"Enova Conversion Ratio") of Company Common Stock (collectively, the "Mergers").
As a result of the PE Merger and the Enova Merger, PE and Enova shall become
subsidiaries of the Company. The terms and conditions of the Mergers are set
forth in more detail in the Merger Agreement. Capitalized terms used herein
without definition have the respective meanings assigned to such terms in the
Merger Agreement.
We have been requested by PE to render our opinion with respect to the
fairness, from a financial point of view, to holders of PE Common Stock of the
PE Conversion Ratio to be offered in the Mergers.
In arriving at our opinion, we have, among other things:
(1) Reviewed the Annual Reports, Forms 10-K and the related financial
information of PE and Southern California Gas Company ("Southern
California Gas"), for the three-year period ended December 31, 1995,
and the Forms 10-Q and the related unaudited financial information for
the quarterly periods ended March 31, 1996, June 30, 1996 and
September 30, 1996 (as amended) for such companies;
(2) Reviewed the Annual Reports, Forms 10-K (as amended) and the related
financial information of Enova and San Diego Gas and Electric Company
("SDG&E"), for the three-year period ended December 31, 1995, and the
Forms 10-Q and the related unaudited financial information for the
quarterly periods ended March 31, 1996, June 30, 1996 and September
30, 1996, (as amended) for such companies;
(3) Reviewed certain other filings with the Securities and Exchange
Commission and other regulatory authorities made by PE, Southern
California Gas, Enova, and SDG&E during the last three years,
including proxy statements, FERC Forms 1 and 2, Forms 8-K and
registration statements;
(4) Reviewed certain internal information, including financial forecasts,
relating to the businesses, earnings, capital expenditures, cash flow,
assets and prospects of PE and Enova furnished to us by PE and Enova;
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(5) Conducted discussions with members of senior management of PE and
Enova concerning their respective businesses, regulatory environments,
prospects and strategic objectives and possible operating,
administrative and capital synergies which might be realized for the
benefit of the Company following the Mergers;
(6) Reviewed the historical market prices and trading activity for shares
of PE Common Stock and Enova Common Stock and compared them with those
of certain publicly traded companies which we deemed to be relevant;
(7) Compared the results of operations of PE and Enova with those of
certain companies which we deemed to be relevant;
(8) Compared the proposed financial terms of the Mergers with the
financial terms of certain utility industry business combinations
which we deemed to be relevant;
(9) Analyzed the respective contributions in terms of assets, earnings,
cash flow and shareholders' equity of PE and Enova to the Company;
(10) Analyzed the valuation of shares of PE Common Stock and Enova Common
Stock using various valuation methodologies which we deemed to be
appropriate;
(11) Considered the pro forma capitalization, earnings and cash flow of the
Company;
(12) Compared the pro forma capitalization ratios, earnings per share,
dividends per share, book value per share, cash flow per share, return
on equity and payout ratio of the Company with each of the
corresponding current and projected values for PE and Enova on a
stand-alone basis;
(13) Reviewed the Merger Agreement;
(14) Reviewed such other studies, conducted such other analyses, considered
such other financial, economic and market criteria, performed such
other investigations and took into account such other matters as we
deemed necessary or appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification, upon
the accuracy and completeness of all financial and other information publicly
available or otherwise furnished or made available to us by PE and Enova, and
have further relied upon the assurances of management of PE and Enova that they
are not aware of any facts that would make such information inaccurate or
misleading. With respect to the financial projections of PE and Enova
(including, without limitation, expected cost savings benefits), we have relied
upon the assurances of management of PE and Enova that such projections have
been reasonably prepared and reflect the best currently available estimates and
judgments of the management of PE and Enova as to the future financial
performance of PE and Enova and the Company, as the case may be, and as to the
projected outcomes of legal, regulatory and other contingencies. In arriving at
our opinion, we have not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of PE or Enova,
nor have we made any physical inspection of the properties or assets of PE or
Enova. We have assumed that the Mergers will be an exchange as described in
Section 351 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder, and that PE, Enova and holders of PE Common Stock and
Enova Common Stock who exchange their shares solely for Company Common Stock
will recognize no gain or loss for federal income tax purposes as a result of
the consummation of the Mergers. We have also assumed that the Mergers will
qualify as a pooling of interests for financial accounting purposes. You have
not authorized us to solicit, and we have not solicited, any indications of
interest from any third party with respect to the purchase of all or a part of
PE. Our opinion herein is necessarily based upon financial, stock market and
other conditions and circumstances existing and disclosed to us as of the date
hereof.
We have acted as financial advisor to PE in connection with the Mergers and
will receive certain fees for our services. In addition, we have in the past
rendered certain investment banking and financial advisory services to PE for
which we received customary compensation.
Our advisory services and the opinion expressed herein are provided solely
for the use of PE's Board of Directors in evaluating the Mergers and are not
provided on behalf of, or intended to confer rights or remedies
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upon, any stockholder of PE, Enova, the Company or any person other than PE's
Board of Directors. Except for its publication in the Joint Proxy
Statement/Prospectus which will be distributed to holders of PE Common Stock and
Enova Common Stock in connection with approval of the Mergers, our opinion may
not be published or otherwise used or referred to without our prior written
consent. This opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should act with
respect to the Mergers.
Based upon and subject to the foregoing, our experience as investment
bankers and other factors we deem relevant, we are of the opinion that, as of
the date hereof, the PE Conversion Ratio to be offered in connection with the
Mergers is fair, from a financial point of view, to the holders of PE Common
Stock.
Very truly yours,
BARR DEVLIN & CO. INCORPORATED
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ANNEX C
[LETTERHEAD OF MERRILL LYNCH]
February 6, 1997
Board of Directors of
Pacific Enterprises
555 West Fifth Street
Los Angeles, California 90013-1011
Ladies and Gentlemen:
Pacific Enterprises ("Pacific Enterprises"), Enova Corporation ("Enova"),
Mineral Energy Company, a newly-formed corporation, 50% of whose outstanding
capital stock is owned by Pacific Enterprises and 50% of whose capital stock is
owned by Enova ("Newco"), B Mineral Energy Sub ("Pacific Enterprises Sub") and G
Mineral Energy Sub ("Enova Sub"), both of which are wholly owned subsidiaries of
Newco, have entered into an Agreement and Plan of Merger and Reorganization
dated as of October 12, 1996 and as amended as of January 13, 1997 (as amended,
the "Agreement") providing for a business combination pursuant to which Pacific
Enterprises Sub will be merged with and into Pacific Enterprises (the "Pacific
Enterprises Merger") and Enova Sub will be merged with and into Enova (the
"Enova Merger", together with the Pacific Enterprises Merger, the "Mergers") and
each of Pacific Enterprises and Enova will thereby become a subsidiary of Newco.
In the Pacific Enterprises Merger, each outstanding share of Pacific
Enterprises' common stock, no par value (the "Pacific Enterprises Shares")
(other than shares of Pacific Enterprises' common stock owned by subsidiaries of
Pacific Enterprises or by Enova, Newco or any of their subsidiaries all of which
shall be canceled and retired), will be converted into the right to receive
1.5038 shares (the "Pacific Enterprises Ratio") of the common stock of Newco
(the "Newco Shares"). In the Enova Merger, each outstanding share of Enova's
common stock, no par value (the "Enova Shares") (other than shares of Enova's
common stock owned by subsidiaries of Enova or by Pacific Enterprises, Newco or
any of their subsidiaries all of which shall be canceled or retired), will be
converted into the right to receive 1.000 Newco Shares (the "Enova Ratio",
together with the Pacific Enterprises Ratio, the "Conversion Ratios"). As
contemplated by the Agreement, Pacific Enterprises and Enova have formed a joint
venture to pursue natural gas and electricity marketing opportunities and
provide energy management and related energy services pursuant to the Energy
Marketing Joint Venture Agreement dated as of January 13, 1997 between Pacific
Enterprises Sub and Enova Sub.
You have asked us whether, in our opinion, the Conversion Ratios are fair
to the holders of the Pacific Enterprises Shares (other than Enova, Newco, and
their affiliates) from a financial point of view.
In arriving at the opinion set forth below, we have:
(1) Reviewed Pacific Enterprises' Annual Reports, Form 10-K and related
financial information for the five fiscal years ended December 31,
1995 and Pacific Enterprises' Forms 10-Q and the related unaudited
financial information for the quarterly periods ended March 31, 1996,
June 30, 1996 and September 30, 1996, as amended;
(2) Reviewed Enova's Annual Reports, Forms 10-K, as amended, and related
financial information for the five fiscal years ended December 31,
1995 and Enova's Forms 10-Q and the related unaudited financial
information for the quarterly periods ended March 31, 1996, June 30,
1996 and September 30, 1996, as amended;
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of Pacific
Enterprises and Enova furnished to us by Pacific Enterprises and
Enova, respectively,, and reviewed certain potential cost, operating
and capital savings net of the costs to achieve such savings (the
"Synergies") expected to be achieved as a result of the Mergers, which
were prepared jointly by the managements of Pacific Enterprises and
Enova with the assistance of a third party consultant;
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(4) Conducted discussions with members of senior management of Pacific
Enterprises and Enova concerning their respective businesses,
regulatory environments, prospects and strategic objectives and the
Synergies which might be realized for Newco following the Mergers;
(5) Reviewed the historical market prices and trading activity for the
Pacific Enterprises Shares and the Enova Shares;
(6) Compared the results of operations of Pacific Enterprises and Enova
with that of certain companies which we deemed to be reasonably
similar to Pacific Enterprises and Enova, respectively;
(7) Analyzed the relative valuation of the Pacific Enterprises Shares and
the Enova Shares using various valuation methodologies which we deemed
appropriate;
(8) Considered the pro forma earnings per share, dividends per share, and
certain other financial ratios for Newco as compared to Pacific
Enterprises and Enova;
(9) Reviewed the Agreement; and
(10) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by Pacific
Enterprises and Enova, and we have not independently verified such information
or undertaken an independent appraisal of the assets or liabilities, contingent
or otherwise, of Pacific Enterprises and Enova. With respect to the financial
forecasts furnished by Pacific Enterprises and Enova and the potential
Synergies, we have assumed that they have been reasonably prepared and reflect
the best currently available estimates and judgment of their respective
managements as to the expected future performance of Pacific Enterprises, Enova,
and with respect to the Synergies, Newco, respectively. You have informed us,
and we have assumed that the Mergers are of long-term strategic importance to
Pacific Enterprises and Enova, respectively. We have also assumed, with your
consent, that obtaining any necessary regulatory approvals and third party
consents for the Mergers or otherwise will not have a materially adverse effect
on Pacific Enterprises, Enova or Newco. Our opinion as to the fairness of the
Conversion Ratios addresses the ownership position in the combined company to be
received by the holders of Pacific Enterprises Shares pursuant to the Conversion
Ratios on the terms set forth in the Agreement and does not address the future
trading or acquisition value for Newco Shares. We have also assumed with your
consent, that, for federal income tax purposes, the Mergers will qualify as a
transaction described in Section 351 of the Internal Revenue Code of 1986, as
amended, and that the Mergers will be accounted for as a pooling of interests
under generally accepted accounting principles. Our opinion is necessarily based
upon market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter.
We have, in the past, provided financial advisory and/or financing services
to Pacific Enterprises and Enova, and have received fees for the rendering of
such services. In the ordinary course of our business, we may trade in the debt
and equity securities of Pacific Enterprises and Enova for our own account and
for the accounts of our customers and, accordingly, may at any time hold a long
or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Pacific Enterprises in connection with its consideration of the
Mergers and does not constitute a recommendation to any shareholder as to how
such shareholder should vote on the proposed Mergers.
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On the basis of, and subject to the foregoing, we are of the opinion that
the Conversion Ratios are fair to the holders of the Pacific Enterprises Shares
(other than Enova, Newco and their affiliates) from a financial point of view.
Very truly yours
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
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ANNEX D
[LETTERHEAD OF MORGAN STANLEY]
February 6, 1997
The Board of Directors
Enova Corporation
101 Ash Street
San Diego, CA 92101
Members of the Board of Directors:
We understand that Enova Corporation ("Enova") and Pacific Enterprises
("Pacific"), Mineral Energy Company ("Newco"), B Mineral Energy Sub ("Pacific
Sub") and G Mineral Energy Sub ("Enova Sub") have entered into an Agreement and
Plan of Merger and Reorganization, dated as of October 12, 1996 and as amended
as of January 13, 1997 (as amended, the "Agreement"), which provides, among
other things, for the mergers (the "Mergers") of each of Enova Sub and Pacific
Sub, each wholly owned subsidiaries of Newco, with and into Enova and Pacific,
respectively. Pursuant to the Mergers, Enova and Pacific will become
subsidiaries of Newco and (i) each issued and outstanding share of common stock,
no par value, of Enova (the "Enova Common Stock"), other than shares which have
been canceled or as to which dissenters' rights have been perfected, shall be
converted into the right to receive 1.000 share (the "Enova Ratio") of common
stock, no par value, of Newco (the "Newco Common Stock"), and (ii) each issued
and outstanding share of common stock, no par value, of Pacific (the "Pacific
Common Stock"), other than shares which have been canceled or as to which
dissenters' rights have been perfected, shall be converted into the right to
receive 1.5038 shares (the "Pacific Ratio") of Newco Common Stock. The terms and
conditions of the Mergers are more fully set forth in the Agreement.
You have asked for our opinion as to whether the Enova Ratio pursuant to
the Agreement is fair from a financial point of view to holders of Enova Common
Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Enova and Pacific, respectively;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning Enova and Pacific prepared by their
respective managements;
(iii) analyzed certain financial projections of Enova and Pacific prepared
by their respective managements, including projections related to
the proposed Energy Marketing Joint Venture (as defined in the
Agreement);
(iv) analyzed certain securities research analysts' projections for Enova
and Pacific;
(v) discussed the past and current operations and financial condition and
the prospects of Enova and Pacific with senior executives of Enova
and Pacific, respectively;
(vi) reviewed the reported prices and trading activity of both Enova
Common Stock and Pacific Common Stock;
(vii) compared the financial performance of Enova and Pacific, and the
prices and trading activity of Enova Common Stock and Pacific Common
Stock with those of certain other comparable publicly traded
companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable merger or acquisition transactions;
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(ix) analyzed the pro forma impact of the Mergers and the proposed Energy
Marketing Joint Venture on Newco's earnings per share, consolidated
capitalization and financial ratios;
(x) participated in discussions and negotiations among representatives
of Enova and Pacific and their financial and legal advisors;
(xi) reviewed the Agreement and certain related documents;
(xii) discussed certain regulatory issues relating to the proposed Mergers
with senior executives of Enova and Pacific;
(xiii) reviewed and discussed with Enova and Pacific an analysis prepared
by Enova and Pacific with the assistance of a third-party consultant
regarding estimates of the amount and timing of the cost savings
estimated to be derived from the Mergers; and
(xiv) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections and estimates of cost savings
estimated to be derived from the Mergers, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of Enova and Pacific,
respectively. We have not made any independent valuation or appraisal of the
assets or liabilities of Enova or Pacific; however, we have reviewed the
presentations of Enova and Pacific regarding estimates of environmental
liabilities and have relied without independent verification upon such estimates
for purposes of this opinion. We have assumed that the Mergers will be treated
as a "pooling of interests" business combination in accordance with U.S.
Generally Accepted Accounting Principles and will qualify as a transaction
described in Section 351 of the Internal Revenue Code of 1986, as amended. In
addition, we have assumed that the Mergers will be consummated in accordance
with the terms set forth in the Agreement. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof.
In arriving at our opinion, we have assumed that in connection with the
receipt of all the necessary regulatory and governmental approvals for the
proposed Mergers, no restrictions will be imposed which would have a material
adverse effect on the contemplated benefits expected to be derived in the
proposed Merger. In addition, in arriving at our opinion, we were not authorized
to solicit, and did not solicit interest from any other party with respect to a
merger or other business combination transaction involving Enova or any of its
assets.
We have acted as financial advisor to the Board of Directors of Enova in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Enova and Pacific and have
received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Enova and may not be used for any other purpose without our prior
written consent. We hereby consent, however, to the inclusion of this opinion as
an exhibit to any proxy or registration statement distributed in connection with
the Merger. In addition, we express no opinion or recommendation as to how the
shareholders of the Enova should vote at the shareholders' meeting held in
connection with the Mergers.
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Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Enova Ratio pursuant to the Agreement is fair from a financial
point of view to holders of Enova Common Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: Jeffrey Holzschuh
Managing Director
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ANNEX E
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") made and entered into as of the 12th day
of October, 1996, by and between Mineral Energy Company (the "Company"), a
California corporation, and Richard D. Farman (the "Executive");
WHEREAS, the Executive is currently serving as President and Chief
Operating Officer of Pacific Enterprises, a California corporation ("Pacific
Enterprises"), and the Company desires to secure the continued employment of the
Executive in accordance herewith;
WHEREAS, pursuant to the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of October 12, 1996, among, inter alia, Pacific
Enterprises, Enova Corporation, a California corporation ("Enova"), and the
Company, the parties thereto have agreed to a merger (the "Merger") pursuant to
the terms thereof;
WHEREAS, the Executive is willing to commit himself to be employed by the
Company on the terms and conditions herein set forth and thus to forego
opportunities elsewhere; and
WHEREAS, the parties desire to enter into this Agreement, as of the
Effective Date (as hereinafter defined), setting forth the terms and conditions
for the employment relationship of the Executive with the Company during the
Employment Period (as hereinafter defined).
NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and
agreements set forth below, it is hereby agreed as follows:
1. EMPLOYMENT AND TERM.
(a) Employment. The Company agrees to employ the Executive, and the
Executive agrees to be employed by the Company, in accordance with the terms and
provisions of this Agreement during the term thereof (as described below).
(b) Term. The term of the Executive's employment under this Agreement shall
commence (the "Effective Date") as of the closing date (the "Closing Date") of
the Merger, as described in the Merger Agreement, and shall continue until the
earlier of the Executive's Mandatory Retirement Age (as defined herein) or the
fifth anniversary of the Effective Date (such term being referred to hereinafter
as the "Employment Period"); provided, however, that commencing on the fourth
anniversary of the Effective Date (and each anniversary of the Effective Date
thereafter) the term of this Agreement shall automatically be extended for one
additional year, unless, prior to such date, the Company or the Executive shall
give written notice to the other party that it or he, as the case may be, does
not wish to so extend this Agreement; and further provided, however, that if the
Merger Agreement is terminated, then, at the time of such termination, this
Agreement shall be deemed cancelled and of no force or effect and the Executive
shall continue to be subject to such agreements and arrangements that were in
effect prior to the Closing Date. As a condition to the Merger, the parties
hereto agree that the Company shall be responsible for all of the premises,
covenants and agreements set forth in this Agreement.
(c) Mandatory Retirement. In no event shall the term of the Executive's
employment hereunder extend beyond the end of the month in which the Executive's
65th birthday occurs (the "Mandatory Retirement Age").
2. DUTIES AND POWERS OF EXECUTIVE.
(a) Position.
(i) Period A. During the period commencing on the Effective Date and
ending on the earlier of September 1, 2000 or the second anniversary of the
Effective Date ("Period A"), the Executive shall serve as the Chairman of
the Board of Directors of the Company (the "Board") and Chief Executive
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Officer of the Company with such authority, duties and responsibilities
with respect to such position as set forth below in subsection (b) hereof.
In this capacity, the Executive shall be a member of the office of the
Chairman (which shall be an office held jointly by the Executive and the
President, Chief Operating Officer and Vice Chairman of the Board) ("Office
of the Chairman") and shall report only to the Board. The presidents and
principal executive officers of the Company's regulated and nonregulated
businesses and the senior-most person in charge of each of the Company's
policy units shall report directly to the Office of the Chairman.
(ii) Period B. During the period, if any, commencing on the second
anniversary of the Effective Date and ending on September 1, 2000 ("Period
B"), the Executive shall be nominated to the position of, and if elected
shall serve as, the Chairman of the Board with such authority, duties and
responsibilities with respect to such position as set forth below.
(b) Duties.
(i) Chief Executive Officer. The duties of the Chief Executive Officer
of the Company shall include but not be limited to directing the overall
business, affairs and operations of the Company, through its officers, all
of whom shall report directly or indirectly to the Office of the Chairman.
(ii) Chairman of the Board. The Chairman of the Board shall be a
director and shall preside at meetings of the Board and meetings of the
shareholders. The Chairman shall be responsible for Board and shareholder
governance and shall have such duties and responsibilities as are
customarily assigned to such positions.
(c) Board Membership. The Executive shall be a member of the Board on
the first day of the Employment Period, and the Board shall propose the
Executive for re-election to the Board throughout the Employment Period.
(d) Attention. During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the
Executive shall devote full attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive under this
Agreement, use the Executive's best efforts to carry out such
responsibilities faithfully and efficiently. It shall not be considered a
violation of the foregoing for the Executive to serve on corporate,
industry, civic or charitable boards or committees, so long as such
activities do not interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement.
3. COMPENSATION.
It is the Board's intention to provide the Executive with compensation
opportunities that, in total, are at a level that is consistent with that
provided by comparable companies to executives of similar levels of
responsibility, expertise and corporate and individual performance as determined
by the compensation committee of the Board. In this regard, the Executive shall
receive the following compensation for his services hereunder to the Company:
(a) Base Salary. During the Employment Period, the Executive's annual base
salary ("Annual Base Salary") shall be no less than $760,000 and shall be
payable in accordance with the Company's general payroll practices. Subject to
Section 4(e)(ii), the Board in its discretion may from time to time direct such
upward adjustments in the Executive's Annual Base Salary as the Board deems to
be necessary or desirable, including, without limitation, adjustments in order
to reflect increases in the cost of living and the Executive's performance. Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation of the Company under this Agreement.
(b) Incentive Compensation. Subject to Section 4(e)(ii), during the
Employment Period, the Executive shall participate in annual incentive
compensation plans and long-term incentive compensation plans of the Company
and, to the extent appropriate, the Company's subsidiaries (which long-term
incentive compensation plans may include plans offering stock options,
restricted stock and other long-term incentive
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compensation and all such annual and long-term plans to be hereinafter referred
to as the "Incentive Compensation Plans") and will be granted (i) on a
year-by-year basis, annual compensation providing the Executive with an annual
bonus opportunity of not less than 60% of his Annual Base Salary at target and
120% of his Annual Base Salary at maximum, and (ii) long-term incentive
compensation (collectively referred to as "Incentive Compensation Awards"). Any
equity awards granted to the Executive may be granted, at the Executive's
election, to trusts established for the benefit of members of the Executive's
family. With respect to incentive compensation awards granted prior to the
Effective Date, the Executive shall be entitled to retain such awards in
accordance with their terms, which shall be appropriately adjusted as a result
of the Merger.
(c) Retirement and Welfare Benefit Plans. In addition to the benefits
provided under Section 3(b), during the Employment Period and so long as the
Executive is employed by the Company, he shall be eligible to participate in all
other savings, retirement and welfare plans, practices, policies and programs
applicable generally to employees and/or senior executive officers of the
Company and its domestic subsidiaries, except with respect to any benefits under
any plan, practice, policy or program to which the Executive has waived his
rights in writing. To the extent that benefits payable or provided to the
Executive under such plans are materially less favorable on a benefit by benefit
basis than the benefits that would have been payable or provided to the
Executive under comparable Pacific Enterprises tax-qualified retirement plans,
executive retirement plans, executive medical plans and life insurance
arrangements in which the Executive was a participant (based on the terms of
such plans as of the Effective Date), the Executive shall be entitled to
benefits pursuant to the terms of this Agreement equal to the excess of the
benefits provided under the applicable Pacific Enterprises plans over the
benefits provided under the comparable Company plans.
(d) Expenses. The Company shall reimburse the Executive for all expenses,
including those for travel and entertainment, properly incurred by him in the
performance of his duties hereunder in accordance with policies established from
time to time by the Board.
(e) Fringe Benefits and Perquisites. During the Employment Period and so
long as the Executive is employed by the Company, he shall be entitled to
receive fringe benefits and perquisites in accordance with the plans, practices,
programs and policies of the Company and, to the extent appropriate, the
Company's subsidiaries from time to time in effect, commensurate with his
position.
4. TERMINATION OF EMPLOYMENT.
(a) Death. The Executive's employment shall terminate upon the Executive's
death.
(b) Disability. The Executive's active employment shall terminate at the
election of the Board or the Executive by reason of Disability (as herein
defined) during the Employment Period; provided, however, that the Board may not
terminate the Executive's active employment hereunder by reason of Disability
unless at the time of such termination there is no reasonable expectation that
the Executive will return to full time responsibilities hereunder within the
next ninety (90) day period. For purposes of the Agreement, disability
("Disability") shall have the same meaning as set forth in the Pacific
Enterprises long-term disability plan or its successor. Upon such termination
Executive shall continue as a participant under the Pacific Enterprises
long-term disability plan or its successor and under the disability provisions
of Pacific Enterprises' supplemental executive retirement plan or its successor
until Executive reaches mandatory retirement age, elects to commence retirement
benefits, becomes employed or ceases to have a Disability.
(c) By the Company for Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause (as herein defined). For
purposes of this Agreement, "Cause" shall mean (i) the willful and continued
failure by the Executive to substantially perform the Executive's duties with
the Company (other than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such actual or anticipated
failure after the issuance of a Notice of Termination for Good Reason by the
Executive pursuant to Section 4(d)) or (ii) the Executive's commission of one or
more acts of moral turpitude that constitute a violation of applicable law
(including but not limited to a felony) which have or result in an adverse
effect on the Company, monetarily or otherwise or one or more significant acts
of dishonesty. For purposes of clause (i) of this definition, no act, or failure
to act, on the Executive's part shall
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be deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive's act, or failure to
act, was in the best interest of the Company.
(d) By the Company without Cause. Notwithstanding any other provision of
this Agreement, the Company may terminate the Executive's employment other than
by a termination for Cause during the Employment Period, but only upon the
affirmative vote of three-fourths ( 3/4) of the membership of the Board.
(e) By the Executive for Good Reason. The Executive may terminate his
employment during the Employment Period for Good Reason (as herein defined). For
purposes of this Agreement, "Good Reason" shall mean the occurrence without the
written consent of the Executive of any one of the following acts by the
Company, or failures by the Company to act, unless such act or failure to act is
corrected prior to the Date of Termination (as hereinafter defined) specified in
the Notice of Termination (as hereinafter defined) given in respect thereof:
(i) an adverse change in the Executive's title, authority, duties,
responsibilities or reporting lines as specified in Section 2(a) and 2(b)
of this Agreement;
(ii) a reduction by the Company in (A) the Executive's Annual Base
Salary as in effect on the date hereof or as the same may be increased from
time to time or (B) the Executive's aggregate annualized compensation and
benefits opportunities, except, in the case of both (A) and (B), for
across-the-board reductions similarly affecting all executives (both of the
Company and of any Person (as hereinafter defined) then in control of the
Company) whose compensation is directly determined by the compensation
committee of the Board (and the compensation committee of the board of
directors of any Person then in control of the Company); provided that, the
exception for across-the-board reductions shall not apply following a
Change in Control (as hereinafter defined);
(iii) the relocation of the Executive's principal place of employment
to a location away from his principal place of employment as of the
Effective Date, a substantial increase in the Executive's business travel
obligations outside of the Southern California area as of the Effective
Date, other than any such increase that (A) arises in connection with
extraordinary business activities of the Company and (B) is understood not
to be part of the Executive's regular duties with the Company;
(iv) the failure by the Company to pay to the Executive any portion of
the Executive's current compensation and benefits or to pay to the
Executive any portion of an installment of deferred compensation under any
deferred compensation program of the Company within thirty (30) days of the
date such compensation is due;
(v) the failure by the shareholders to elect the Executive to the
Board during the Employment Period;
(vi) the failure by the Board to elect the Executive to the position
of Chairman of the Board during Period B;
(vii) any purported termination of the Executive's employment that is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 4(f); for purposes of this Agreement, no such
purported termination shall be effective;
(viii) the failure by the Company to obtain a satisfactory agreement
from any successor of the Company requiring such successor to assume and
agree to perform the Company's obligations under this Agreement, as
contemplated in Section 11; or
(ix) the failure by the Company to comply with any material provision
of this Agreement.
Following a Change in Control (as hereinafter defined), the Executive's
determination that an act or failure to act constitutes Good Reason shall be
presumed to be valid unless such determination is deemed to be unreasonable by
an arbitrator. The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to physical
or mental illness. The Executive's
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continued employment shall not constitute consent to, or a waiver of rights with
respect to, any act or failure to act constituting Good Reason hereunder.
(f) Change in Control. Change in Control shall mean the occurrence of any
of the following events:
(i) Any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from the
Company or its affiliates other than in connection with the acquisition by
the Company or its affiliates of a business) representing twenty percent
(20%) or more of the combined voting power of the Company's then
outstanding securities; or
(ii) The following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on the
date hereof, constitute the Board and any new director (other than a
director whose initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the
Company's shareholders was approved or recommended by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors on the date hereof or whose appointment, election or nomination
for election was previously so approved or recommended; or
(iii) There is consummated a merger or consolidation of the Company or
any direct or indirect subsidiary of the Company with any other
corporation, other than (A) a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior to such
merger or consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity or any parent thereof), in combination with the ownership of any
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any subsidiary of the Company, at least sixty
percent (60%) of the combined voting power of the securities of the Company
or such surviving entity or any parent thereof outstanding immediately
after such merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no Person is or becomes the beneficial owner,
directly or indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company or its affiliates other than in connection with
the acquisition by the Company or its affiliates of a business)
representing twenty percent (20%) or more of the combined voting power of
the Company's then outstanding securities; or
(iv) The shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or disposition
by the Company of all or substantially all of the Company's assets to an
entity, at least sixty percent (60%) of the combined voting power of the
voting securities of which are owned by shareholders of the Company in
substantially the same proportions as their ownership of the Company
immediately prior to such sale.
"Person" shall have the meaning given in section 3(a)(9) of the Securities
Exchange Act of 1934 (the "Exchange Act"), as modified and used in sections
13(d) and 14(d) thereof, except that such term shall not include (i) the Company
or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any of its affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, (iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company, or (v) a person or group as used in Rule
13d-1(b) under the Exchange Act.
"Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the
Exchange Act.
Notwithstanding the foregoing, any event or transaction which would
otherwise constitute a Change in Control (a "Transaction") shall not constitute
a Change in Control for purposes of this Agreement if, in connection with the
Transaction, the Executive participates as an equity investor in the acquiring
entity or any of its affiliates (the "Acquiror"). For purposes of the preceding
sentence, the Executive shall not be deemed to have participated as an equity
investor in the Acquiror by virtue of (i) obtaining beneficial ownership of any
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equity interest in the Acquiror as a result of the grant to the Executive of an
incentive compensation award under one or more incentive plans of the Acquiror
(including, but not limited to, the conversion in connection with the
Transaction of incentive compensation awards of the Company into incentive
compensation awards of the Acquiror), on terms and conditions substantially
equivalent to those applicable to other executives of the Company immediately
prior to the Transaction, after taking into account normal differences
attributable to job responsibilities, title and the like, (ii) obtaining
beneficial ownership of any equity interest in the Acquiror on terms and
conditions substantially equivalent to those obtained in the Transaction by all
other shareholders of the Company, or (iii) obtaining beneficial ownership of
any equity interest in the Acquiror in a manner unrelated to a Transaction.
(g) Notice of Termination. During the Employment Period, any purported
termination of the Executive's employment (other than by reason of death) shall
be communicated by written Notice of Termination from one party hereto to the
other party hereto in accordance with Section 12(b). For purposes of this
Agreement, a "Notice of Termination" shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon, if any, and shall
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated. Further, a Notice of Termination for Cause is required to include a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths ( 3/4) of the entire membership of the Board at a meeting of the
Board that was called and held no more than ninety (90) days after the date the
Board had knowledge of the most recent act or omission giving rise to such
breach for the purpose of considering such termination (after reasonable notice
to the Executive and an opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board and, if possible, to cure the
breach that was the basis for the Notice of Termination for Cause) finding that,
in the good faith opinion of the Board, the Executive was guilty of conduct set
forth in clause (i) or (ii) of the definition of Cause herein, and specifying
the particulars thereof in detail. Unless the Board determines otherwise, a
Notice of Termination by the Executive alleging a termination for Good Reason
must be made within 180 days of the act or failure to act that the Executive
alleges to constitute Good Reason.
(h) Date of Termination. "Date of Termination," with respect to any
purported termination of the Executive's employment during the Employment
Period, shall mean the date specified in the Notice of Termination (which, in
the case of a termination by the Company for reasons other than Cause, shall not
be less than thirty (30) days and, in the case of a termination by the
Executive, shall not be less than fifteen (15) days nor more than sixty (60)
days), from the date such Notice of Termination is given.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Termination Other Than for Cause, Death or Disability. During the
Employment Period, if the Company shall terminate the Executive's employment
(other than for Cause, death or Disability) or the Executive shall terminate his
employment for Good Reason (termination in any such case being referred to as
"Termination"), the Company shall pay to the Executive the amounts, and provide
the Executive with the benefits, described in this Section 5 (hereinafter
referred to as the "Severance Payments"). Subject to Section 5(g), the amounts
specified in this Section 5(a) shall be paid within thirty (30) days after the
Date of Termination.
(i) Lump Sum Payment. In lieu of any further payments of Annual Base
Salary or annual Incentive Compensation Awards to the Executive for periods
subsequent to the Date of Termination, the Company shall pay to the
Executive a lump sum amount in cash equal to the product of (X) the sum of
(A) the Executive's Annual Base Salary and (B) the greater of the
Executive's target bonus for the year of termination or the average of the
three (3) years' highest gross bonus awards, not necessarily consecutive,
paid by the Company (or its predecessor) to the Executive in the five (5)
years preceding the year of termination and (Y) two (2); provided, however,
that in the event of a Termination following a Change in Control, such
multiplier shall be three (3).
(ii) Accrued Obligations. The Company shall pay the Executive a lump
sum amount in cash equal to the sum of (A) the Executive's Annual Base
Salary through the Date of Termination to the extent not
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theretofore paid, (B) an amount equal to any annual Incentive Compensation
Awards earned with respect to fiscal years ended prior to the year that
includes the Date of Termination to the extent not theretofore paid, and
(C) an amount equivalent to the target amount payable under any annual
Incentive Compensation Awards for the fiscal year that includes the Date of
Termination or if greater, the average of the three (3) years' highest
gross bonus awards, not necessarily consecutive, paid by the Company (or
its predecessor) to the Executive in the five (5) years preceding the year
of Termination multiplied by a fraction the numerator of which shall be the
number of days from the beginning of such fiscal year to and including the
Date of Termination and the denominator of which shall be 365, in each case
to the extent not theretofore paid. (The amounts specified in clauses (A),
(B) and (C) shall be hereinafter referred to as the "Accrued Obligations.")
(iii) Deferred Compensation. In the event of a Termination following a
Change in Control, the Company shall pay the Executive a lump sum payment
in an amount equal to any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon).
(iv) Pension Supplement. The Company shall pay the Executive a lump
sum payment (the "Pension Supplement") in an amount equal to the present
value (as determined in accordance with the terms of Pacific Enterprises'
supplemental executive retirement plan) of the benefits to which the
Executive would be entitled under the Company's defined benefit pension and
retirement plans (the "Pension and Retirement Plans") if he had continued
working for the Company for an additional two (2) years, and had increased
his age by two (2) years as of the Date of Termination but not beyond the
Mandatory Retirement Age; provided, however, that in the event of a
Termination following a Change in Control, such number of years shall be
three (3) but not beyond the Mandatory Retirement Age.
(v) Accelerated Vesting and Payment of Long-Term Incentive Awards. All
equity-based, long-term Incentive Compensation Awards held by the Executive
under any long-term Incentive Compensation Plan maintained by the Company
or any affiliate shall immediately vest and become exercisable as of the
Date of Termination, to be exercised in accordance with the terms of the
applicable plan and award agreement; provided, however, that any such
awards granted on or after the Effective Date shall remain outstanding and
exercisable until the earlier of (A) eighteen (18) months following the
Date of Termination or (B) the expiration of the original term of such
award (it being understood that all awards granted prior to the Effective
Date shall remain outstanding and exercisable for a period that is no less
than that provided for in the applicable agreement in effect as of the date
of grant), and the Company shall pay to the Executive, with respect to all
cash-based, long-term Incentive Compensation Awards made to the Executive
that are outstanding under any longterm Incentive Compensation Plan
maintained by the Company or any affiliate an amount equal to the target
amount payable under such long-term Incentive Compensation Awards
multiplied by a fraction, the numerator of which shall be the number of
days from the beginning of the award cycle to and including the Date of
Termination, and the denominator of which shall be the number of days in
the cycle as originally granted; and
(vi) Continuation of Welfare Benefits. For a period of two (2) years
or until the Executive is eligible for retiree medical benefits, whichever
is longer, immediately following the Date of Termination, the Company shall
arrange to provide the Executive and his dependents with life, disability,
accident and health insurance benefits substantially similar to those
provided to the Executive and his dependents immediately prior to the Date
of Termination, provided, however, that in no event shall the Executive be
entitled to receive disability benefits under the Pacific Enterprises
long-term disability plan or Pacific Enterprises' supplemental executive
retirement plan after the Executive has become eligible to commence receipt
of retirement benefits under Pacific Enterprises' supplemental executive
retirement plan, and provided, further, that if the Executive becomes
employed with another employer and is eligible to receive life, disability,
accident and health insurance benefits under another employer-provided
plan, the benefits under the Company's plans shall be secondary to those
provided under such other plan during such applicable period of
eligibility, and further provided, however, that in the event of a
termination following a Change in Control such period shall not be less
than three (3) years.
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(b) Termination by the Company for Cause or by the Executive Other than for
Good Reason. Subject to the provisions of Section 6 of this Agreement, if the
Executive's employment shall be terminated for Cause during the Employment
Period, or if the Executive terminates employment during the Employment Period
other than for Good Reason, the Company shall have no further obligations to the
Executive under this Agreement other than the Accrued Obligations.
(c) Termination due to Death or Disability. If the Executive's employment
shall terminate by reason of death or Disability, the Company shall pay the
Executive or his estate, as the case may be, the Accrued Obligations and, solely
in the case of termination by reason of Disability, the Pension Supplement. Such
payments shall be in addition to those rights and benefits to which the
Executive or his estate may be entitled under the relevant Company plans or
programs.
(d) Code Section 280G.
(i) Notwithstanding any other provisions of this Agreement, in the
event that any payment or benefit received or to be received by the
Executive (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with (A) the Company, (B) any Person (as
defined in Section 4(e)) whose actions result in a Change in Control or (C)
any Person affiliated with the Company or such Person) (all such payments
and benefits, including the Severance Payments, being hereinafter called
"Total Payments") would not be deductible (in whole or part) by the
Company, an affiliate or Person making such payment or providing such
benefit as a result of section 280G of the Code, then, to the extent
necessary to make such portion of the Total Payments deductible (and after
taking into account any reduction in the Total Payments provided by reason
of section 280G of the Code in such other plan, arrangement or agreement),
the cash Severance Payments shall first be reduced (if necessary, to zero),
and all other Severance Payments shall thereafter be reduced (if necessary,
to zero); provided, however, that the Executive may elect to have the
noncash Severance Payments reduced (or eliminated) prior to any reduction
of the cash Severance Payments.
(ii) For purposes of this limitation, (A) no portion of the Total
Payments the receipt or enjoyment of which the Executive shall have waived
at such time and in such manner as not to constitute a "payment" within the
meaning of section 280G(b) of the Code shall be taken into account, (B) no
portion of the Total Payments shall be taken into account which, in the
opinion of tax counsel ("Tax Counsel") reasonably acceptable to the
Executive and selected by the Company's accounting firm (or, in the case of
a payment following a Change in Control the accounting firm that was,
immediately prior to the Change in Control, the Company's independent
auditor) (the "Auditor"), does not constitute a "parachute payment" within
the meaning of section 280G(b)(2) of the Code, including by reason of
section 280G(b)(4)(A) of the Code, (C) the Severance Payments shall be
reduced only to the extent necessary so that the Total Payments (other than
those referred to in clause (A) or (B)) in their entirety constitute
reasonable compensation for services actually rendered within the meaning
of section 280G(b)(4)(B) of the Code or are otherwise not subject to
disallowance as deductions by reason of section 280G of the Code, in the
opinion of Tax Counsel, and (D) the value of any noncash benefit or any
deferred payment or benefit included in the Total Payments shall be
determined by the Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code.
(e) Consulting and Non-Competition. If the Total Payments are subject to
reduction in accordance with the above provisions of Section 5(d), the Executive
shall have the option, to be exercised within ten (10) days after receipt of
notice of such reduction from the Company, to enter into a consulting and non-
competition agreement with the Company (the "Consulting and Non-Competition
Agreement"), which shall (1) provide the Executive with payments and benefits,
payable over the term of the agreement, the present value of which in the
aggregate is equal to or greater than the present value (determined by applying
a discount rate equal to the interest rate provided in section 1274(b)(2)(B) of
the Code) of the balance of the payments and benefits otherwise payable to the
Executive without regard to the provisions of Section 5(d), (2) require the
Executive to make his services available to the Company for no more than twenty
(20) hours per month and (3) last for a period of not more than two (2) years
(unless the Executive consents to a longer period).
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(f) Gross-Up Payment. In the event that the Executive receives a notice
from the Internal Revenue Service to the effect that the amounts payable under
the Consulting and Non-Competition Agreement would be subject (in whole or part)
to the tax (the "Excise Tax") imposed under section 4999 of the Code, within
thirty (30) days after the date the Chairman of the Board receives a copy of
such notice the Company shall pay to the Executive such additional amounts (the
"Gross-Up Payment") such that the net amount retained by the Executive, after
deduction of any Excise Tax on the Total Payments and any federal, state and
local income and employment taxes and Excise Tax upon the Gross-Up Payment,
shall be equal to the Total Payments. For purposes of determining the amount of
the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at
the highest marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the Executive's
residence on the date on which the Gross-Up Payment is calculated for purposes
of this section, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes. In the event
that the Excise Tax is subsequently determined to be less than the amount taken
into account hereunder, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income tax imposed on the Gross-Up Payment being repaid by the
Executive to the extent that such repayment results in a reduction in Excise Tax
and/or a federal, state or local income tax deduction) plus interest on the
amount of such repayment at the rate provided in section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed the amount taken
into account hereunder (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional Gross-Up Payment in respect of such excess
(plus any interest, penalties or additions payable by the Executive with respect
to such excess) at the time that the amount of such excess is finally
determined. The Executive and the Company shall each reasonably cooperate with
the other in connection with any administrative or judicial proceedings
concerning the existence or amount of liability for Excise Tax with respect to
the Total Payments.
(g) Release. Notwithstanding anything herein to the contrary, the Company's
obligation to make the payments provided for in this Section 5 is expressly made
subject to and conditioned upon (i) the Executive's prior execution of a release
substantially in the form attached hereto as Exhibit A within forty-five (45)
days after the applicable Date of Termination and (ii) the Executive's
non-revocation of such release in accordance with the terms thereof.
6. NONEXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit the Executive's continuing
or future participation in any benefit, plan, program, policy or practice
provided by the Company and for which the Executive may qualify (except with
respect to any benefit to which the Executive has waived his rights in writing),
nor shall anything herein limit or otherwise affect such rights as the Executive
may have under any other contract or agreement entered into after the Effective
Date with the Company. Amounts which are vested benefits or which the Executive
is otherwise entitled to receive under any benefit, plan, policy, practice or
program of, or any contract or agreement entered into with, the Company shall be
payable in accordance with such benefit, plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
7. FULL SETTLEMENT; MITIGATION.
The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others, provided
that nothing herein shall preclude the Company from separately pursuing recovery
from the Executive based on any such claim. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts (including amounts for damages for breach) payable to the
Executive under any of the provisions of this Agreement and such amounts shall
not be reduced whether or not the Executive obtains other employment.
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8. ARBITRATION.
Any dispute about the validity, interpretation, effect or alleged violation
of this Agreement (an "arbitrable dispute") must be submitted to confidential
arbitration in Los Angeles, California. Arbitration shall take place before an
experienced employment arbitrator licensed to practice law in such state and
selected in accordance with the Model Employment Arbitration Procedures of the
American Arbitration Association. Arbitration shall be the exclusive remedy of
any arbitrable dispute. Should any party to this Agreement pursue any arbitrable
dispute by any method other than arbitration, the other party shall be entitled
to recover from the party initiating the use of such method all damages, costs,
expenses and attorneys' fees incurred as a result of the use of such method.
Notwithstanding anything herein to the contrary, nothing in this Agreement shall
purport to waive or in any way limit the right of any party to seek to enforce
any judgment or decision on an arbitrable dispute in a court of competent
jurisdiction.
9. CONFIDENTIALITY.
The Executive acknowledges that in the course of his employment with the
Company he has acquired nonpublic privileged or confidential information and
trade secrets concerning the operations, future plans and methods of doing
business ("Proprietary Information") of the Company, its subsidiaries and
affiliates; and the Executive agrees that it would be extremely damaging to the
Company, its subsidiaries and affiliates if such Proprietary Information were
disclosed to a competitor of the Company, its subsidiaries and affiliates or to
any other person or corporation. The Executive understands and agrees that all
Proprietary Information has been divulged to the Executive in confidence and
further understands and agrees to keep all Proprietary Information secret and
confidential (except for such information which is or becomes publicly available
other than as a result of a breach by the Executive of this provision) without
limitation in time. In view of the nature of the Executive's employment and the
Proprietary Information the Executive has acquired during the course of such
employment, the Executive likewise agrees that the Company, its subsidiaries and
affiliates would be irreparably harmed by any disclosure of Proprietary
Information in violation of the terms of this paragraph and that the Company,
its subsidiaries and affiliates shall therefore be entitled to preliminary
and/or permanent injunctive relief prohibiting the Executive from engaging in
any activity or threatened activity in violation of the terms of this paragraph
and to any other relief available to them. Inquiries regarding whether specific
information constitutes Proprietary Information shall be directed to the Board,
provided that the Company shall not unreasonably classify information as
Proprietary Information.
10. NON-SOLICITATION OF EMPLOYEES.
The Executive recognizes that he possesses and will possess confidential
information about other employees of the Company, its subsidiaries and
affiliates relating to their education, experience, skills, abilities,
compensation and benefits, and inter-personal relationships with customers of
the Company, its subsidiaries and affiliates. The Executive recognizes that the
information he possesses and will possess about these other employees is not
generally known, is of substantial value to the Company, its subsidiaries and
affiliates in developing their business and in securing and retaining customers,
and has been and will be acquired by him because of his business position with
the Company, its subsidiaries and affiliates. The Executive agrees that, during
the Employment Period and for a period of one (1) year thereafter, he will not,
directly or indirectly, solicit or recruit any employee of the Company, its
subsidiaries or affiliates for the purpose of being employed by him or by any
competitor of the Company, its subsidiaries or affiliates on whose behalf he is
acting as an agent, representative or employee and that he will not convey any
such confidential information or trade secrets about other employees of the
Company, its subsidiaries and affiliates to any other person; provided, however,
that it shall not constitute a solicitation or recruitment of employment in
violation of this paragraph to discuss employment opportunities with any
employee of the Company, its subsidiaries or affiliates who has either first
contacted the Executive or regarding whose employment the Executive has
discussed with and received the written approval of the Chairman of the Board
prior to making such solicitation or recruitment. In view of the nature of the
Executive's employment with the Company, the Executive likewise agrees that the
Company, its subsidiaries and affiliates would be irreparably harmed by any
solicitation or recruitment in violation of the terms of this paragraph and that
the Company, its subsidiaries
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and affiliates shall therefore be entitled to preliminary and/or permanent
injunctive relief prohibiting the Executive from engaging in any activity or
threatened activity in violation of the terms of this paragraph and to any other
relief available to them.
11. LEGAL FEES.
The Company shall pay to the Executive all legal fees and expenses
(including but not limited to fees and expenses in connection with any
arbitration) incurred by the Executive in disputing in good faith any issue
arising under this Agreement relating to the termination of the Executive's
employment or in seeking in good faith to obtain or enforce any benefit or right
provided by this Agreement, but in each case only to the extent the arbitrator
or court determines that the Executive had a reasonable basis for such claim.
12. SUCCESSORS.
(a) Assignment by Executive. This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) Successors and Assigns of Company. This Agreement shall inure to the
benefit of and be binding upon the Company, its successors and assigns.
(c) Assumption. The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its businesses and/or assets as
aforesaid that assumes and agrees to perform this Agreement by operation of law
or otherwise.
13. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without reference to its
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended, modified, repealed, waived, extended or discharged except by an
agreement in writing signed by the party against whom enforcement of such
amendment, modification, repeal, waiver, extension or discharge is sought. No
person, other than pursuant to a resolution of the Board or a committee thereof,
shall have authority on behalf of the Company to agree to amend, modify, repeal,
waive, extend or discharge any provision of this Agreement or anything in
reference thereto.
(b) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed, in
either case, to the principal corporate offices of Pacific Enterprises or to
such other address as either party shall have furnished to the other in writing
in accordance herewith. Notices and communications shall be effective when
actually received by the addressee.
(c) Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) Taxes. The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) No Waiver. The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(d) of this Agreement,
or the right of the Company to
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terminate the Executive's employment for Cause pursuant to Section 4(b) of this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) Entire Agreement. This instrument contains the entire agreement of the
Executive, the Company or any predecessor or subsidiary thereof with respect to
the subject matter hereof, and all promises, representations, understandings,
arrangements and prior agreements are merged herein and superseded hereby
including, but not limited to, that certain Severance Agreement, dated October
11, 1996, between the Executive and Pacific Enterprises. Notwithstanding the
foregoing, the provisions of any employee benefit or compensation plan, program
or arrangement applicable to the Executive, including that certain Incentive
Bonus Agreement, entered into between the Executive and Pacific Enterprises,
shall remain in effect, except as expressly otherwise provided herein.
IN WITNESS WHEREOF, the Executive and, pursuant to due authorization from
its Board of Directors, the Company have caused this Agreement to be executed as
of the day and year first above written.
MINERAL ENERGY COMPANY
/s/ KEVIN C. SAGARA
--------------------------------------
Kevin C. Sagara
President
/s/ RICHARD D. FARMAN
--------------------------------------
Richard D. Farman
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ANNEX F
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") made and entered into as of the 12th day
of October, 1996, by and between Mineral Energy Company (the "Company"), a
California corporation, and Stephen L. Baum (the "Executive");
WHEREAS, the Executive is currently serving as President and Chief
Executive Officer of Enova Corporation, a California corporation ("Enova"), and
the Company desires to secure the continued employment of the Executive in
accordance herewith;
WHEREAS, pursuant to the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of October 12, 1996, among, inter alia, Enova, Pacific
Enterprises, a California corporation ("Pacific Enterprises"), and the Company,
the parties thereto have agreed to a merger (the "Merger") pursuant to the terms
thereof;
WHEREAS, the Executive is willing to commit himself to be employed by the
Company on the terms and conditions herein set forth and thus to forego
opportunities elsewhere; and
WHEREAS, the parties desire to enter into this Agreement, as of the
Effective Date (as hereinafter defined), setting forth the terms and conditions
for the employment relationship of the Executive with the Company during the
Employment Period (as hereinafter defined),
NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and
agreements set forth below, it is hereby agreed as follows:
1. EMPLOYMENT AND TERM.
(a) Employment. The Company agrees to employ the Executive, and the
Executive agrees to be employed by the Company, in accordance with the terms and
provisions of this Agreement during the term thereof (as described below).
(b) Term. The term of the Executive's employment under this Agreement shall
commence (the "Effective Date") as of the closing date (the "Closing Date") of
the Merger, as described in the Merger Agreement, and shall continue until the
earlier of the Executive's Mandatory Retirement Age (as defined herein) or the
fifth anniversary of the Effective Date (such term being referred to hereinafter
as the "Employment Period"); provided, however, that commencing on the fourth
anniversary of the Effective Date (and each anniversary of the Effective Date
thereafter) the term of this Agreement shall automatically be extended for one
additional year, unless, prior to such date, the Company or the Executive shall
give written notice to the other party that it or he, as the case may be, does
not wish to so extend this Agreement; and further provided, however, that if the
Merger Agreement is terminated, then, at the time of such termination, this
Agreement shall be deemed cancelled and of no force or effect and the Executive
shall continue to be subject to such agreements and arrangements that were in
effect prior to the Closing Date. As a condition to the Merger, the parties
hereto agree that the Company shall be responsible for all of the premises,
covenants and agreements set forth in this Agreement.
(c) Mandatory Retirement. In no event shall the term of the Executive's
employment hereunder extend beyond the end of the month in which the Executive's
65th birthday occurs (the "Mandatory Retirement Age").
2. DUTIES AND POWERS OF EXECUTIVE.
(a) Position.
(i) Period A. During the period commencing on the Effective Date and
ending on the earlier of September 1, 2000 or the second anniversary of the
Effective Date ("Period A"), the Executive shall serve as the Vice Chairman
of the Board of Directors of the Company (the "Board"), President and
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Chief Operating Officer of the Company with such authority, duties and
responsibilities with respect to such position as set forth below in
subsection (b) hereof. In this capacity, the Executive shall be a member of
the office of the Chairman (which shall be an office held jointly by the
Executive and the Chief Executive Officer/Chairman of the Board) ("Office
of the Chairman") and shall report only to the Chief Executive
Officer/Chairman of the Board. The presidents and principal executive
officers of the Company's regulated and nonregulated businesses and the
senior-most person in charge of each of the Company's policy units shall
report directly to the Office of the Chairman.
(ii) Period B. During the period, if any, commencing on the second
anniversary of the Effective Date and ending on September 1, 2000 ("Period
B"), the Executive shall be nominated to the position of, and if elected
shall serve as, the Vice Chairman of the Board, Chief Executive Officer and
President of the Company with such authority, duties and responsibilities
with respect to such position as set forth below. In this capacity, the
Executive shall report only to the Board. The presidents and chief
executive officers of the Company's regulated and nonregulated businesses
and the senior-most person in charge of each of the Company's policy units
shall report directly to the Executive.
(iii) Period C. During the period, if any, commencing September 1,
2000 and ending on the expiration date of the Agreement ("Period C"), the
Executive shall be nominated to the position of, and if elected shall serve
as, Chairman, Chief Executive Officer and President of the Company with
such authority, duties and responsibilities with respect to such position
as set forth below. In this capacity, the Executive shall report only to
the Board. The presidents and chief executive officers of the Company's
regulated and nonregulated businesses and the senior-most person in charge
of each of the Company's policy units shall report directly to the
Executive.
(b) Duties.
(i) Chief Executive Officer. The duties of the Chief Executive Officer
of the Company shall include but not be limited to directing the overall
business, affairs and operations of the Company, through its officers, all
of whom shall report directly or indirectly to the Office of the Chairman
or, if there is no Office of the Chairman, to the Chief Executive Officer.
(ii) Chief Operating Officer. The duties of the Chief Operating
Officer of the Company shall include, but not be limited to, directing the
day-to-day business, affairs and operations of the Company, under the
supervision of the Chief Executive Officer and (to the extent the Chief
Executive Officer is not also the President) the President.
(iii) President. The duties of the President of the Company shall
include, but not be limited to, assisting the Chief Executive Officer (to
the extent the President is not also the Chief Executive Officer) in
directing the overall business, affairs and operations of the Company.
(iv) Chairman of the Board. The Chairman of the Board shall be a
director and shall preside at meetings of the Board and meetings of the
shareholders. The Chairman shall be responsible for Board and shareholder
governance and shall have such duties and responsibilities as are
customarily assigned to such positions.
(v) Vice Chairman of the Board. The Vice Chairman of the Board shall
be a director and, in the absence of the Chairman, shall preside at
meetings of the Board and meetings of shareholders. The Vice Chairman shall
assist the Chairman in his responsibility for Board and shareholder
governance and shall have such duties as are customarily assigned to such
position.
(c) Board Membership. The Executive shall be a member of the Board on the
first day of the Employment Period, and the Board shall propose the Executive
for re-election to the Board throughout the Employment Period.
(d) Attention. During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote full attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive under this Agreement, use the
Executive's best efforts to carry out such
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responsibilities faithfully and efficiently. It shall not be considered a
violation of the foregoing for the Executive to serve on corporate, industry,
civic or charitable boards or committees, so long as such activities do not
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement.
3. COMPENSATION.
It is the Board's intention to provide the Executive with compensation
opportunities that, in total, are at a level that is consistent with that
provided by comparable companies to executives of similar levels of
responsibility, expertise and corporate and individual performance as determined
by the compensation committee of the Board. In this regard, the Executive shall
receive the following compensation for his services hereunder to the Company:
(a) Base Salary. During the Employment Period, the Executive's annual base
salary ("Annual Base Salary") shall be payable in accordance with the Company's
general payroll practices. During Period A, the Executive's Annual Base Salary
shall in no event be less than $645,000. During Period B and Period C, if the
Executive is elected to the position of Chief Executive Officer, the Executive's
Annual Base Salary shall in no event be less than the annual base salary of the
Executive's predecessor as Chief Executive Officer of the Company. Subject to
Section 4(d)(ii), the Board in its discretion may from time to time direct such
upward adjustments in the Executive's Annual Base Salary as the Board deems to
be necessary or desirable, including, without limitation, adjustments in order
to reflect increases in the cost of living and the Executive's performance. Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation of the Company under this Agreement.
(b) Incentive Compensation. Subject to Section 4(d)(ii), during the
Employment Period, the Executive shall participate in annual incentive
compensation plans and long-term incentive compensation plans of the Company
and, to the extent appropriate, the Company's subsidiaries (which long-term
incentive compensation plans may include plans offering stock options,
restricted stock and other long-term incentive compensation and all such annual
and long-term plans to be hereinafter referred to as the "Incentive Compensation
Plans") and will be granted awards thereunder providing him with the opportunity
to earn, on a year-by-year basis, annual and long-term incentive compensation
(the "Incentive Compensation Awards") at least equal (in terms of target,
maximum and minimum awards expressed as a percentage of Annual Base Salary) to
the greater of the Executive's opportunities that were in effect prior to the
Effective Date and the awards granted to the Chief Executive Officer of the
Company under the Incentive Compensation Plans during Period A. Any equity
awards granted to the Executive may be granted, at the Executive's election, to
trusts established for the benefit of members of the Executive's family. With
respect to incentive compensation awards granted prior to the Effective Date,
the Executive shall be entitled to retain such awards in accordance with their
terms, which shall be appropriately adjusted as a result of the Merger.
(c) Retirement and Welfare Benefit Plans. In addition to the benefits
provided under Section 3(b), during the Employment Period and so long as the
Executive is employed by the Company, he shall be eligible to participate in all
other savings, retirement and welfare plans, practices, policies and programs
applicable generally to employees and/or senior executive officers of the
Company and its domestic subsidiaries, except with respect to any benefits under
any plan, practice, policy or program to which the Executive has waived his
rights in writing. To the extent that benefits payable or provided to the
Executive under such plans are materially less favorable on a benefit by benefit
basis than the benefits that would have been payable or provided to the
Executive under comparable Enova tax-qualified retirement plans, executive
retirement plans, split dollar and other executive life insurance arrangements
in which the Executive was a participant (based on the terms of such plans as of
the Effective Date), the Executive shall be entitled to benefits pursuant to the
terms of this Agreement equal to the excess of the benefits provided under the
applicable Enova plans over the benefits provided under the comparable Company
plans.
(d) Expenses. The Company shall reimburse the Executive for all expenses,
including those for travel and entertainment, properly incurred by him in the
performance of his duties hereunder in accordance with policies established from
time to time by the Board.
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(e) Fringe Benefits and Perquisites. During the Employment Period and so
long as the Executive is employed by the Company, he shall be entitled to
receive fringe benefits and perquisites in accordance with the plans, practices,
programs and policies of the Company and, to the extent appropriate, the
Company's subsidiaries from time to time in effect, commensurate with his
position.
4. TERMINATION OF EMPLOYMENT.
(a) Death or Disability. The Executive's employment shall terminate upon
the Executive's death or, at the election of the Board or the Executive, by
reason of Disability (as herein defined) during the Employment Period; provided,
however, that the Board may not terminate the Executive's employment hereunder
by reason of Disability unless at the time of such termination there is no
reasonable expectation that the Executive will return to work within the next
ninety (90) day period. For purposes of this Agreement, disability
("Disability") shall have the same meaning as set forth in the Enova long-term
disability plan or its successor.
(b) By the Company for Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause (as herein defined). For
purposes of this Agreement, "Cause" shall mean (i) the willful and continued
failure by the Executive to substantially perform the Executive's duties with
the Company (other than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such actual or anticipated
failure after the issuance of a Notice of Termination for Good Reason by the
Executive pursuant to Section 4(d)) or (ii) the Executive's commission of one or
more acts of moral turpitude that constitute a violation of applicable law
(including but not limited to a felony) which have or result in an adverse
effect on the Company, monetarily or otherwise or one or more significant acts
of dishonesty. For purposes of clause (i) of this definition, no act, or failure
to act, on the Executive's part shall be deemed "willful" unless done, or
omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's act, or failure to act, was in the best interest of
the Company.
(c) By the Company without Cause. Notwithstanding any other provision of
this Agreement, the Company may terminate the Executive's employment other than
by a termination for Cause during the Employment Period, but only upon the
affirmative vote of three-fourths (3/4) of the membership of the Board.
(d) By the Executive for Good Reason. The Executive may terminate his
employment during the Employment Period for Good Reason (as herein defined). For
purposes of this Agreement, "Good Reason" shall mean the occurrence without the
written consent of the Executive of any one of the following acts by the
Company, or failures by the Company to act, unless such act or failure to act is
corrected prior to the Date of Termination (as hereinafter defined) specified in
the Notice of Termination (as hereinafter defined) given in respect thereof:
(i) an adverse change in the Executive's title, authority, duties,
responsibilities or reporting lines as specified in Section 2(a) and 2(b)
of this Agreement;
(ii) a reduction by the Company in (A) the Executive's Annual Base
Salary as in effect on the date hereof or as the same may be increased from
time to time or (B) the Executive's aggregate annualized compensation and
benefits opportunities, except, in the case of both (A) and (B), for
across-the-board reductions similarly affecting all executives (both of the
Company and of any Person (as hereinafter defined) then in control of the
Company) whose compensation is directly determined by the compensation
committee of the Board (and the compensation committee of the board of
directors of any Person then in control of the Company); provided that, the
exception for across-the-board reductions shall not apply following a
Change in Control (as hereinafter defined);
(iii) the relocation of the Executive's principal place of employment
to a location away from the Company's headquarters or a substantial
increase in the Executive's business travel obligations outside of the
Southern California area as of the Effective Date, other than any such
increase that (A) arises in connection with extraordinary business
activities of the Company and (B) is understood not to be part of the
Executive's regular duties with the Company;
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(iv) the failure by the Company to pay to the Executive any portion of
the Executive's current compensation and benefits or to pay to the
Executive any portion of an installment of deferred compensation under any
deferred compensation program of the Company within thirty (30) days of the
date such compensation is due;
(v) the failure by the shareholders to elect the Executive to the
Board during the Employment Period;
(vi) the failure by the Board to elect the Executive to the positions
of Vice Chairman of the Board, President and Chief Executive Officer during
Period B, or Chairman of the Board, President and Chief Executive Officer
during Period C;
(vii) any purported termination of the Executive's employment that is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 4(f); for purposes of this Agreement, no such
purported termination shall be effective;
(viii) the failure by the Company to obtain a satisfactory agreement
from any successor of the Company requiring such successor to assume and
agree to perform the Company's obligations under this Agreement, as
contemplated in Section 11; or
(ix) the failure by the Company to comply with any material provision
of this Agreement.
Following a Change in Control (as hereinafter defined), the Executive's
determination that an act or failure to act constitutes Good Reason shall be
presumed to be valid unless such determination is deemed to be unreasonable by
an arbitrator. The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to physical
or mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
(e) Change in Control. Change in Control shall mean the occurrence of any
of the following events:
(i) Any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from the
Company or its affiliates other than in connection with the acquisition by
the Company or its affiliates of a business) representing twenty percent
(20%) or more of the combined voting power of the Company's then
outstanding securities; or
(ii) The following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on the
date hereof, constitute the Board and any new director (other than a
director whose initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the
Company's shareholders was approved or recommended by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors on the date hereof or whose appointment, election or nomination
for election was previously so approved or recommended; or
(iii) There is consummated a merger or consolidation of the Company or
any direct or indirect subsidiary of the Company with any other
corporation, other than (A) a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior to such
merger or consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity or any parent thereof), in combination with the ownership of any
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any subsidiary of the Company, at least sixty
percent (60%) of the combined voting power of the securities of the Company
or such surviving entity or any parent thereof outstanding immediately
after such merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no Person is or becomes the beneficial owner,
directly or indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company or its affiliates other than in connection with
the
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acquisition by the Company or its affiliates of a business) representing
twenty percent (20%) or more of the combined voting power of the Company's
then outstanding securities; or
(iv) The shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or disposition
by the Company of all or substantially all of the Company's assets to an
entity, at least sixty percent (60%) of the combined voting power of the
voting securities of which are owned by shareholders of the Company in
substantially the same proportions as their ownership of the Company
immediately prior to such sale.
"Person" shall have the meaning given in section 3(a)(9) of the Securities
Exchange Act of 1934 (the "Exchange Act"), as modified and used in sections
13(d) and 14(d) thereof, except that such term shall not include (i) the Company
or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any of its affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, (iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company, or (v) a person or group as used in Rule
13d-1(b) under the Exchange Act.
"Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the
Exchange Act.
Notwithstanding the foregoing, any event or transaction which would
otherwise constitute a Change in Control (a "Transaction") shall not constitute
a Change in Control for purposes of this Agreement if, in connection with the
Transaction, the Executive participates as an equity investor in the acquiring
entity or any of its affiliates (the "Acquiror"). For purposes of the preceding
sentence, the Executive shall not be deemed to have participated as an equity
investor in the Acquiror by virtue of (i) obtaining beneficial ownership of any
equity interest in the Acquiror as a result of the grant to the Executive of an
incentive compensation award under one or more incentive plans of the Acquiror
(including, but not limited to, the conversion in connection with the
Transaction of incentive compensation awards of the Company into incentive
compensation awards of the Acquiror), on terms and conditions substantially
equivalent to those applicable to other executives of the Company immediately
prior to the Transaction, after taking into account normal differences
attributable to job responsibilities, title and the like, (ii) obtaining
beneficial ownership of any equity interest in the Acquiror on terms and
conditions substantially equivalent to those obtained in the Transaction by all
other shareholders of the Company, or (iii) obtaining beneficial ownership of
any equity interest in the Acquiror in a manner unrelated to a Transaction.
(f) Notice of Termination. During the Employment Period, any purported
termination of the Executive's employment (other than by reason of death) shall
be communicated by written Notice of Termination from one party hereto to the
other party hereto in accordance with Section 12(b). For purposes of this
Agreement, a "Notice of Termination" shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon, if any, and shall
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated. Further, a Notice of Termination for Cause is required to include a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths (3/4) of the entire membership of the Board at a meeting of the
Board that was called and held no more than ninety (90) days after the date the
Board had knowledge of the most recent act or omission giving rise to such
breach for the purpose of considering such termination (after reasonable notice
to the Executive and an opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board and, if possible, to cure the
breach that was the basis for the Notice of Termination for Cause) finding that,
in the good faith opinion of the Board, the Executive was guilty of conduct set
forth in clause (i) or (ii) of the definition of Cause herein, and specifying
the particulars thereof in detail. Unless the Board determines otherwise, a
Notice of Termination by the Executive alleging a termination for Good Reason
must be made within 180 days of the act or failure to act that the Executive
alleges to constitute Good Reason.
(g) Date of Termination. "Date of Termination," with respect to any
purported termination of the Executive's employment during the Employment
Period, shall mean the date specified in the Notice of Termination (which, in
the case of a termination by the Company, for reasons other than Cause, shall
not be
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less than thirty (30) days and, in the case of a termination by the Executive,
shall not be less than fifteen (15) days nor more than sixty (60) days), from
the date such Notice of Termination is given).
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Termination Other Than for Cause, Death or Disability. During the
Employment Period, if the Company shall terminate the Executive's employment
(other than for Cause, death or Disability) or the Executive shall terminate his
employment for Good Reason (termination in any such case being referred to as
"Termination") the Company shall pay to the Executive the amounts, and provide
the Executive with the benefits, described in this Section 5 (hereinafter
referred to as the "Severance Payments"). Subject to Section 5(g), the amounts
specified in this Section 5(a) shall be paid within thirty (30) days after the
Date of Termination.
(i) Lump Sum Payment. In lieu of any further payments of Annual Base
Salary or annual Incentive Compensation Awards to the Executive for periods
subsequent to the Date of Termination, the Company shall pay to the
Executive a lump sum amount in cash equal to the product of (X) the sum of
(A) the Executive's Annual Base Salary and (B) the greater of the
Executive's target bonus for the year of termination or the average of the
three (3) years' highest gross bonus awards, not necessarily consecutive,
paid by the Company (or its predecessor) to the Executive in the five (5)
years preceding the year of termination and (Y) the number of years
remaining in the Employment Period (including fractional years), but in no
event less than two (2); provided, however, that in the event of a
Termination following a Change in Control such multiplier shall not be less
than three (3).
(ii) Accrued Obligations. The Company shall pay the Executive a lump
sum amount in cash equal to the sum of (A) the Executive's Annual Base
Salary through the Date of Termination to the extent not theretofore paid,
(B) an amount equal to any annual Incentive Compensation Awards earned with
respect to fiscal years ended prior to the year that includes the Date of
Termination to the extent not theretofore paid and (C) an amount equal to
the target amount payable under any annual Incentive Compensation Awards
for the fiscal year that includes the Date of Termination or, if greater,
the average of the three (3) years' highest gross bonus awards, not
necessarily consecutive, paid by the Company (or its predecessor) to the
Executive in the five (5) years preceding the year of Termination
multiplied by a fraction the numerator of which shall be the number of days
from the beginning of such fiscal year to and including the Date of
Termination and the denominator of which shall be 365, in each case to the
extent not theretofore paid. (The amounts specified in clauses (A), (B) and
(C) shall be hereinafter referred to as the "Accrued Obligations.")
(iii) Deferred Compensation. In the event of a Termination following
a Change in Control, the Company shall pay the Executive a lump sum payment
in an amount equal to any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon).
(iv) Pension Supplement. The Company shall provide the Executive with
such additional years of age and service credit for purposes of the
calculation of retirement benefits under the Enova Supplemental Executive
Retirement Plan (the "Enova SERP") as if he had remained employed for the
remainder of the Employment Period, but in no event less than two (2)
years, provided, however, that there shall be no reduction under the Enova
SERP for early retirement as set forth in paragraph 4.a.ii of the Enova
SERP, except for the early retirement reduction factor determined in
accordance with the table in Section 5.4 of the San Diego Gas & Electric
Company Pension Plan, as adopted by Enova (the "Pension Plan"); and
provided, further, however, that in the event of a Termination following a
Change in Control, the Company shall pay the Executive a lump sum payment
in an amount equal to the benefits under the Enova SERP as described in
paragraph 2.c of the Enova SERP, less the value calculated consistently
with paragraph 4.b of the SERP of the Executive's entitlement under the
Pension Plan, such payment to be calculated and paid without regard to the
limitation described in the Enova SERP relating to Section 280G of the Code
and with such additional years of age and service credit as if he had
remained employed for the remainder of the Employment Period, but in no
event less than two (2) years; and in either case the Executive's
termination shall be a "Qualifying Termination" as defined in the Split
Dollar
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Life Insurance Agreement entered into between the Executive and Enova, and
where necessary the Company shall take such steps, including the payment of
additional premiums, as may be necessary so that the cash value of the
policy as of the Date of Termination shall reflect the additional age and
service credit.
(v) Accelerated Vesting and Payment of Long-Term Incentive Awards. All
equity-based long-term Incentive Compensation Awards held by the Executive
under any long-term Incentive Compensation Plan maintained by the Company
or any affiliate shall immediately vest and become exercisable as of the
Date of Termination, to be exercised in accordance with the terms of the
applicable plan and award agreement; provided, however, that any such
awards granted on or after the Effective Date shall remain outstanding and
exercisable until the earlier of (A) eighteen (18) months following the
Date of Termination or (B) the expiration of the original term of such
award (it being understood that all awards granted prior to the Effective
Date shall remain outstanding and exercisable for a period that is no less
than that provided for in the applicable agreement in effect as of the date
of grant), and the Company shall pay to the Executive, with respect to all
cash-based, long-term Incentive Compensation Awards made to the Executive
that are outstanding under any long-term Incentive Compensation Plan
maintained by the Company or any affiliate an amount equal to the target
amount payable under such long-term Incentive Compensation Awards
multiplied by a fraction, the numerator of which shall be the number of
days from the beginning of the award cycle to and including the Date of
Termination, and the denominator of which shall be the number of days in
the cycle as originally granted.
(vi) Continuation of Welfare Benefits. For (A) the remainder of the
Employment Period, but in no event less than a period of two (2) years or
(B) until the Executive is eligible for retiree medical benefits, whichever
is longer, immediately following the Date of Termination, the Company shall
arrange to provide the Executive and his dependents with life, disability,
accident and health insurance benefits substantially similar to those
provided to the Executive and his dependents immediately prior to the Date
of Termination, provided, however, that if the Executive becomes employed
with another employer and is eligible to receive life, disability, accident
and health insurance benefits under another employer-provided plan, the
benefits under the Company's plans shall be secondary to those provided
under such other plan during such applicable period of eligibility, and
further provided, however, that in the event of a termination following a
Change in Control such period shall not be less than the number of years
until the Executive reaches normal retirement age as defined under the
Enova tax-qualified plans.
(b) Termination by the Company for Cause or by the Executive Other than for
Good Reason. Subject to the provisions of Section 6 of this Agreement, if the
Executive's employment shall be terminated for Cause during the Employment
Period, or if the Executive terminates employment during the Employment Period
other than for Good Reason, the Company shall have no further obligations to the
Executive under this Agreement other than the Accrued Obligations.
(c) Termination due to Death or Disability. If the Executive's employment
shall terminate by reason of death or Disability, the Company shall pay the
Executive or his estate, as the case may be, the Accrued Obligations and, solely
in the case of termination by reason of Disability, the Pension Supplement. Such
payments shall be in addition to those rights and benefits to which the
Executive or his estate may be entitled under the relevant Company plans or
programs.
(d) Code Section 280G.
(i) Notwithstanding any other provisions of this Agreement, in the
event that any payment or benefit received or to be received by the
Executive (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with (A) the Company, (B) any Person (as
defined in Section 4(e)) whose actions result in a Change in Control or (C)
any Person affiliated with the Company or such Person) (all such payments
and benefits, including the Severance Payments, being hereinafter called
"Total Payments") would not be deductible (in whole or part) by the
Company, an affiliate or Person making such payment or providing such
benefit as a result of section 280G of the Code, then, to the extent
necessary to make such portion of the Total Payments deductible (and after
taking into account any reduction in the Total Payments provided by reason
of section 280G of the Code in such
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other plan, arrangement or agreement), the cash Severance Payments shall
first be reduced (if necessary, to zero), and all other Severance Payments
shall thereafter be reduced (if necessary, to zero); provided, however,
that the Executive may elect to have the noncash Severance Payments reduced
(or eliminated) prior to any reduction of the cash Severance Payments.
(ii) For purposes of this limitation, (A) no portion of the Total
Payments the receipt or enjoyment of which the Executive shall have waived
at such time and in such manner as not to constitute a "payment" within the
meaning of section 280G(b) of the Code shall be taken into account, (B) no
portion of the Total Payments shall be taken into account which, in the
opinion of tax counsel ("Tax Counsel") reasonably acceptable to the
Executive and selected by the Company's accounting firm (or, in the case of
a payment following a Change in Control the accounting firm that was,
immediately prior to the Change in Control, the Company's independent
auditor) (the "Auditor"), does not constitute a "parachute payment" within
the meaning of section 280G(b)(2) of the Code, including by reason of
section 280G(b)(4)(A) of the Code, (C) the Severance Payments shall be
reduced only to the extent necessary so that the Total Payments (other than
those referred to in clause (A) or (B)) in their entirety constitute
reasonable compensation for services actually rendered within the meaning
of section 280G(b)(4)(B) of the Code or are otherwise not subject to
disallowance as deductions by reason of section 280G of the Code, in the
opinion of Tax Counsel, and (D) the value of any noncash benefit or any
deferred payment or benefit included in the Total Payments shall be
determined by the Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code.
(e) Consulting and Non-Competition. If the Total Payments are subject to
reduction in accordance with the above provisions of Section 5(d), the Executive
shall have the option, to be exercised within ten (10) days after receipt of
notice of such reduction from the Company, to enter into a consulting and non-
competition agreement with the Company (the "Consulting and Non-Competition
Agreement"), which shall (1) provide the Executive with payments and benefits,
payable over the term of the agreement, the present value of which in the
aggregate is equal to or greater than the present value (determined by applying
a discount rate equal to the interest rate provided in section 1274(b)(2)(B) of
the Code) of the balance of the payments and benefits otherwise payable to the
Executive without regard to the provisions of Section 5(d), (2) require the
Executive to make his services available to the Company for no more than twenty
(20) hours per month and (3) last for a period of not more than two (2) years
(unless the Executive consents to a longer period).
(f) Gross-Up Payment. In the event that the Executive receives a notice
from the Internal Revenue Service to the effect that the amounts payable under
the Consulting and Non-Competition Agreement would be subject (in whole or part)
to the tax (the "Excise Tax") imposed under section 4999 of the Code, within
thirty (30) days after the date the Chairman of the Board receives a copy of
such notice the Company shall pay to the Executive such additional amounts (the
"Gross-Up Payment") such that the net amount retained by the Executive, after
deduction of any Excise Tax on the Total Payments and any federal, state and
local income and employment taxes and Excise Tax upon the Gross-Up Payment,
shall be equal to the Total Payments. For purposes of determining the amount of
the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at
the highest marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the Executive's
residence on the date on which the Gross-Up Payment is calculated for purposes
of this section, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes. In the event
that the Excise Tax is subsequently determined to be less than the amount taken
into account hereunder, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income tax imposed on the Gross-Up Payment being repaid by the
Executive to the extent that such repayment results in a reduction in Excise Tax
and/or a federal, state or local income tax deduction) plus interest on the
amount of such repayment at the rate provided in section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed the amount taken
into account hereunder (including by reason of any payment the existence or
amount of which cannot be determined at the time of
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the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess (plus any interest, penalties or additions payable by the
Executive with respect to such excess) at the time that the amount of such
excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments.
(g) Release. Notwithstanding anything herein to the contrary, the Company's
obligation to make the payments provided for in this Section 5 is expressly made
subject to and conditioned upon (i) the Executive's prior execution of a release
substantially in the form attached hereto as Exhibit A within forty-five (45)
days after the applicable Date of Termination and (ii) the Executive's
non-revocation of such release in accordance with the terms thereof.
6. NONEXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit the Executive's continuing
or future participation in any benefit, plan, program, policy or practice
provided by the Company and for which the Executive may qualify (except with
respect to any benefit to which the Executive has waived his rights in writing),
nor shall anything herein limit or otherwise affect such rights as the Executive
may have under any other contract or agreement entered into after the Effective
Date with the Company. Amounts which are vested benefits or which the Executive
is otherwise entitled to receive under any benefit, plan, policy, practice or
program of, or any contract or agreement entered into with, the Company shall be
payable in accordance with such benefit, plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
7. NULL SETTLEMENT; MITIGATION.
The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others, provided
that nothing herein shall preclude the Company from separately pursuing recovery
from the Executive based on any such claim. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts (including amounts for damages for breach) payable to the
Executive under any of the provisions of this Agreement and such amounts shall
not be reduced whether or not the Executive obtains other employment.
8. ARBITRATION.
Any dispute about the validity, interpretation, effect or alleged violation
of this Agreement (an "arbitrable dispute") must be submitted to confidential
arbitration in San Diego, California. Arbitration shall take place before an
experienced employment arbitrator licensed to practice law in such state and
selected in accordance with the Model Employment Arbitration Procedures of the
American Arbitration Association. Arbitration shall be the exclusive remedy of
any arbitrable dispute. Should any party to this Agreement pursue any arbitrable
dispute by any method other than arbitration, the other party shall be entitled
to recover from the party initiating the use of such method all damages, costs,
expenses and attorneys' fees incurred as a result of the use of such method.
Notwithstanding anything herein to the contrary, nothing in this Agreement shall
purport to waive or in any way limit the right of any party to seek to enforce
any judgment or decision on an arbitrable dispute in a court of competent
jurisdiction.
9. CONFIDENTIALITY.
The Executive acknowledges that in the course of his employment with the
Company, he has acquired non-public privileged or confidential information and
trade secrets concerning the operations, future plans and methods of doing
business ("Proprietary Information") of the Company, its subsidiaries and
affiliates; and the Executive agrees that it would be extremely damaging to the
Company, its subsidiaries and affiliates if such Proprietary Information were
disclosed to a competitor of the Company, its subsidiaries and affiliates or to
any other person or corporation. The Executive understands and agrees that all
Proprietary Information has been
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divulged to the Executive in confidence and further understands and agrees to
keep all Proprietary Information secret and confidential (except for such
information which is or becomes publicly available other than as a result of a
breach by the Executive of this provision) without limitation in time. In view
of the nature of the Executive's employment and the Proprietary Information the
Executive has acquired during the course of such employment, the Executive
likewise agrees that the Company, its subsidiaries and affiliates would be
irreparably harmed by any disclosure of Proprietary Information in violation of
the terms of this paragraph and that the Company, its subsidiaries and
affiliates shall therefore be entitled to preliminary and/or permanent
injunctive relief prohibiting the Executive from engaging in any activity or
threatened activity in violation of the terms of this paragraph and to any other
relief available to them. Inquiries regarding whether specific information
constitutes Proprietary Information shall be directed to the Board provided,
that the Company shall not unreasonably classify information as Proprietary
Information.
10. NON-SOLICITATION OF EMPLOYEES.
The Executive recognizes that he possesses and will possess confidential
information about other employees of the Company, its subsidiaries and
affiliates relating to their education, experience, skills, abilities,
compensation and benefits, and inter-personal relationships with customers of
the Company, its subsidiaries and affiliates. The Executive recognizes that the
information he possesses and will possess about these other employees is not
generally known, is of substantial value to the Company, its subsidiaries and
affiliates in developing their business and in securing and retaining customers,
and has been and will be acquired by him because of his business position with
the Company, its subsidiaries and affiliates. The Executive agrees that, during
the Employment Period and for a period of one (1) year thereafter, he will not,
directly or indirectly, solicit or recruit any employee of the Company, its
subsidiaries or affiliates for the purpose of being employed by him or by any
competitor of the Company, its subsidiaries or affiliates on whose behalf he is
acting as an agent, representative or employee and that he will not convey any
such confidential information or trade secrets about other employees of the
Company, its subsidiaries and affiliates to any other person; provided, however,
that it shall not constitute a solicitation or recruitment of employment in
violation of this paragraph to discuss employment opportunities with any
employee of the Company, its subsidiaries or affiliates who has either first
contacted the Executive or regarding whose employment the Executive has
discussed with and received the written approval of the Chairman of the Board
prior to making such solicitation or recruitment. In view of the nature of the
Executive's employment with the Company, the Executive likewise agrees that the
Company, its subsidiaries and affiliates would be irreparably harmed by any
solicitation or recruitment in violation of the terms of this paragraph and that
the Company, its subsidiaries and affiliates shall therefore be entitled to
preliminary and/or permanent injunctive relief prohibiting the Executive from
engaging in any activity or threatened activity in violation of the terms of
this paragraph and to any other relief available to them.
11. LEGAL FEES.
The Company shall pay to the Executive all legal fees and expenses
(including but not limited to fees and expenses in connection with any
arbitration) incurred by the Executive in disputing in good faith any issue
arising under this Agreement relating to the termination of the Executive's
employment or in seeking in good faith to obtain or enforce any benefit or right
provided by this Agreement, but in each case only to the extent the arbitrator
or court determines that the Executive had a reasonable basis for such claim.
12. SUCCESSORS.
(a) Assignment by Executive. This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) Successors and Assigns of Company. This Agreement shall inure to the
benefit of and be binding upon the Company, its successors and assigns.
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(c) Assumption. The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its businesses and/or assets as
aforesaid that assumes and agrees to perform this Agreement by operation of law
or otherwise.
13. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without reference to its
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended, modified, repealed, waived, extended or discharged except by an
agreement in writing signed by the party against whom enforcement of such
amendment, modification, repeal, waiver, extension or discharge is sought. No
person, other than pursuant to a resolution of the Board or a committee thereof,
shall have authority on behalf of the Company to agree to amend, modify, repeal,
waive, extend or discharge any provision of this Agreement or anything in
reference thereto.
(b) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed, in
either case, to the Company's headquarters or to such other address as either
party shall have furnished to the other in writing in accordance herewith.
Notices and communications shall be effective when actually received by the
addressee.
(c) Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) Taxes. The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) No Waiver. The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4 of this Agreement, or
the right of the Company to terminate the Executive's employment for Cause
pursuant to Section 4 of this Agreement, shall not be deemed to be a waiver of
such provision or right or any other provision or right of this Agreement.
(f) Entire Agreement. This instrument contains the entire agreement of the
Executive, the Company or any predecessor or subsidiary thereof with respect to
the subject matter hereof, and all promises, representations, understandings,
arrangements and prior agreements are merged herein and superseded hereby
including, but not limited to, that certain employment agreement dated September
18, 1996 between the Executive and Enova. Notwithstanding the foregoing, the
provisions of any employee benefit or compensation plan, program or arrangement
applicable to the Executive, including that certain Incentive Bonus Agreement,
entered into between the Executive and Enova, shall remain in effect, except as
expressly otherwise provided herein.
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IN WITNESS WHEREOF, the Executive and, pursuant to due authorization from
its Board of Directors, the Company have caused this Agreement to be executed as
of the day and year first above written.
MINERAL ENERGY COMPANY
/s/ KEVIN C. SAGARA
--------------------------------------
Kevin C. Sagara
President
/s/ STEPHEN L. BAUM
--------------------------------------
Stephen L. Baum
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ANNEX G
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") made and entered into as of the 12th day
of October, 1996, by and between Mineral Energy Company (the "Company"), a
California corporation, and Warren I. Mitchell (the "Executive");
WHEREAS, the Executive is currently serving as President of Southern
California Gas Company, a California corporation and a subsidiary of Pacific
Enterprises, a California corporation ("Pacific Enterprises"), and the Company
desires to secure the continued employment of the Executive in accordance
herewith;
WHEREAS, pursuant to the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of October 12, 1996, among, inter alia, Pacific
Enterprises, Enova Corporation, a California corporation ("Enova") and the
Company, the parties thereto have agreed to a merger (the "Merger") pursuant to
the terms thereof;
WHEREAS, the Executive is willing to commit himself to be employed by the
Company on the terms and conditions herein set forth and thus to forego
opportunities elsewhere; and
WHEREAS, the parties desire to enter into this Agreement, as of the
Effective Date (as hereinafter defined), setting forth the terms and conditions
for the employment relationship of the Executive with the Company during the
Employment Period (as hereinafter defined).
NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and
agreements set forth below, it is hereby agreed as follows:
1. EMPLOYMENT AND TERM.
(a) Employment. The Company agrees to employ the Executive, and the
Executive agrees to be employed by the Company, in accordance with the terms and
provisions of this Agreement during the term thereof (as described below).
(b) Term. The term of the Executive's employment under this Agreement shall
commence (the "Effective Date") as of the closing date (the "Closing Date") of
the Merger as described in the Merger Agreement and shall continue until the
earlier of the Executive's Mandatory Retirement Age (as defined herein) or the
fifth anniversary of the Effective Date (such term being referred to hereinafter
as the "Employment Period"); provided, however, that commencing on the fourth
anniversary of the Effective Date (and each anniversary of the Effective Date
thereafter), the term of this Agreement shall automatically be extended for one
additional year, unless, prior to such date, the Company or the Executive shall
give written notice to the other party that it or he, as the case may be, does
not wish to so extend this Agreement; and further provided, however, that if the
Merger Agreement is terminated, then, at the time of such termination, this
Agreement shall be deemed cancelled and of no force or effect and the Executive
shall continue to be subject to such agreements and arrangements that were in
effect prior to the Closing Date of the Merger. As a condition to the Merger,
the parties hereto agree that the Company shall be responsible for all of the
premises, covenants and agreements set forth in this Agreement.
(c) Mandatory Retirement. In no event shall the term of the Executive's
employment hereunder extend beyond the end of the month in which the Executive's
65th birthday occurs (the "Mandatory Retirement Age").
2. DUTIES AND POWERS OF EXECUTIVE.
(a) Position. During the period commencing on the Effective Date the
Executive shall serve as President and Principal Executive Officer of the
businesses of the Company and its subsidiaries that are economically regulated
by the California Public Utilities Commission (the "Regulated Subsidiaries")
with such authority, duties and responsibilities with respect to such position
as set forth in subsection (b) hereof. In
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this capacity, the Executive shall report to the Office of the Chairman or if
the Office of the Chairman does not exist, the Chief Executive Officer of the
Company. The titles, authority, duties and responsibilities set forth in
subsection (b) hereof may be changed from time to time but only with the mutual
written agreement of the Executive and the Company.
(b) Duties of the President and Principal Executive Officer. The duties of
the President and Principal Executive Officer of the Company's Regulated
Subsidiaries shall include but not be limited to directing the overall business,
affairs and operations of the Company's Regulated Subsidiaries, through the
officers of such subsidiaries, all of whom shall report directly or indirectly
to the Executive.
(c) Attention. During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote full attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive under this Agreement, use the
Executive's best efforts to carry out such responsibilities faithfully and
efficiently. It shall not be considered a violation of the foregoing for the
Executive to serve on corporate, industry, civic or charitable boards or
committees, so long as such activities do not interfere with the performance of
the Executive's responsibilities as an employee of the Company in accordance
with this Agreement.
3. COMPENSATION.
It is the Board's intention to provide the Executive with compensation
opportunities that, in total, are at a level that is consistent with that
provided by comparable companies to executives of similar levels of
responsibility, expertise and corporate and individual performance as determined
by the compensation committee of the Board. In this regard, the Executive shall
receive the following compensation for his services hereunder to the Company:
(a) Base Salary. During the Employment Period, the Executive's annual base
salary ("Annual Base Salary") shall in no event be no less than $440,000 and
shall be payable in accordance with the Company's general payroll practices.
Subject to Section 4(e)(ii), the Board in its discretion may from time to time
direct such upward adjustments in the Executive's Annual Base Salary as the
Board deems to be necessary or desirable, including, without limitation,
adjustments in order to reflect increases in the cost of living and the
Executive's performance. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation of the Company under this Agreement.
(b) Incentive Compensation. Subject to Section 4(e)(ii), during the
Employment Period, the Executive shall participate in annual incentive
compensation plans and long-term incentive compensation plans of the Company
and, to the extent appropriate, the Company's Subsidiaries (which long-term
incentive compensation plans may include plans offering stock options,
restricted stock and other long-term incentive compensation and all such annual
and long-term plans to be hereinafter referred to as the "Incentive Compensation
Plans") and will be granted awards thereunder providing him with the opportunity
to earn, on a year-by-year basis, annual and long-term incentive compensation
(the "Incentive Compensation Awards") at least equal (in terms of target,
maximum and minimum awards expressed as a percentage of Annual Base Salary) to
the Executive's opportunities that were in effect prior to the Effective Date.
Any equity awards granted to the Executive may be granted, at the Executive's
election, to trusts established for the benefit of members of the Executive's
family. With respect to incentive compensation awards granted prior to the
Effective Date, the Executive shall be entitled to retain such awards in
accordance with their terms, which shall be appropriately adjusted as a result
of the Merger.
(c) Retirement and Welfare Benefit Plans. In addition to the benefits
provided under Section 3(b), during the Employment Period and so long as the
Executive is employed by the Company, he shall be eligible to participate in all
other savings, retirement and welfare plans, practices, policies and programs
applicable generally to employees and/or senior executive officers of the
Company and its domestic subsidiaries, except with respect to any benefits under
any plan, practice, policy or program to which the Executive has waived his
rights in writing. To the extent that benefits payable or provided to the
Executive under such plans are materially less favorable on a benefit by benefit
basis than the benefits that would have been payable or
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provided to the Executive under comparable Pacific Enterprises tax-qualified
retirement plans, executive retirement plans, executive medical plans and life
insurance arrangements in which the Executive was a participant (based on the
terms of such plans as of the Effective Date), the Executive shall be entitled
to benefits pursuant to the terms of this Agreement equal to the excess of the
benefits provided under the applicable Pacific Enterprises plans over the
benefits provided under the comparable Company plans.
(d) Expenses. The Company shall reimburse the Executive for all expenses,
including those for travel and entertainment, properly incurred by him in the
performance of his duties hereunder in accordance with policies established from
time to time by the Board.
(e) Fringe Benefits and Perquisites. During the Employment Period and so
long as the Executive is employed by the Company, he shall be entitled to
receive fringe benefits and perquisites in accordance with the plans, practices,
programs and policies of the Company and, to the extent appropriate, the
Company's subsidiaries from time to time in effect, commensurate with his
position.
4. TERMINATION OF EMPLOYMENT.
(a) Death. The Executive's employment shall terminate upon the Executive's
death.
(b) Disability. The Executive's active employment shall terminate at the
election of the Board or the Executive by reason of Disability (as herein
defined) during the Employment Period; provided, however, that the Board may not
terminate the Executive's active employment hereunder by reason of Disability
unless at the time of such termination there is no reasonable expectation that
the Executive will return to full time responsibilities hereunder within the
next ninety (90) day period. For purposes of the Agreement, disability
("Disability") shall have the same meaning as set forth in the Pacific
Enterprises long-term disability plan or its successor. Upon such termination
Executive shall continue as a participant under the Pacific Enterprises
long-term disability plan or its successor and under the disability provisions
of Pacific Enterprises' supplemental executive retirement plan or its successor
until Executive reaches mandatory retirement age, elects to commence retirement
benefits, becomes employed or ceases to have a Disability.
(c) By the Company for Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause (as herein defined). For
purposes of this Agreement, "Cause" shall mean (i) the willful and continued
failure by the Executive to substantially perform the Executive's duties with
the Company (other than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such actual or anticipated
failure after the issuance of a Notice of Termination for Good Reason by the
Executive pursuant to Section 4(d)) or (ii) the Executive's commission of one or
more acts of moral turpitude that constitute a violation of applicable law
(including but not limited to a felony) which have or result in an adverse
effect on the Company, monetarily or otherwise or one or more significant acts
of dishonesty. For purposes of clause (i) of this definition, no act, or failure
to act, on the Executive's part shall be deemed "willful" unless done, or
omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's act, or failure to act, was in the best interest of
the Company.
(d) By the Company without Cause. Notwithstanding any other provision of
this Agreement, the Company may terminate the Executive's employment other than
by a termination for Cause during the Employment Period, but only upon the
affirmative vote of three-fourths (3/4) of the membership of the Board.
(e) By the Executive for Good Reason. The Executive may terminate his
employment during the Employment Period for Good Reason (as herein defined). For
purposes of this Agreement, "Good Reason" shall mean the occurrence without the
written consent of the Executive of any one of the following acts by the
Company, or failures by the Company to act, unless such act or failure to act is
corrected prior to the Date of Termination (as hereinafter defined) specified in
the Notice of Termination (as hereinafter defined) given in respect thereof:
(i) an adverse change in the Executive's title, authority, duties,
responsibilities or reporting lines as specified in Sections 2(a) and 2(b)
of this Agreement;
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(ii) a reduction by the Company in (A) the Executive's Annual Base
Salary as in effect on the date hereof or as the same may be increased from
time to time or (B) the Executive's aggregate annualized compensation and
benefits opportunities, except, in the case of both (A) and (B), for
across-the-board reductions similarly affecting all executives (both of the
Company and of any Person (as hereinafter defined) then in control of the
Company) whose compensation is directly determined by the compensation
committee of the Board (and the compensation committee of the board of
directors of any Person then in control of the Company); provided that, the
exception for across-the-board reductions shall not apply following a
Change in Control (as hereinafter defined);
(iii) the Company's requiring the Executive to be based anywhere other
than the principal place of business of the Regulated Subsidiaries (or
permitted relocation thereof); or a substantial increase in the Executive's
business travel obligations outside of the Southern California area as of
the Effective Date, other than any such increase that (A) arises in
connection with extraordinary business activities of the Company and (B) is
understood not to be part of the Executive's regular duties with the
Company;
(iv) the failure by the Company to pay to the Executive any portion of
the Executive's current compensation and benefits or to pay to the
Executive any portion of an installment of deferred compensation under any
deferred compensation program of the Company within thirty (30) days of the
date such compensation is due;
(v) any purported termination of the Executive's employment that is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 4(f); for purposes of this Agreement, no such
purported termination shall be effective;
(vi) the failure by the Company to obtain a satisfactory agreement
from any successor of the Company requiring such successor to assume and
agree to perform the Company's obligations under this Agreement, as
contemplated in Section 11; or
(vii) the failure by the Company to comply with any material provision
of this Agreement.
Following a Change in Control (as hereinafter defined), the Executive's
determination that an act or failure to act constitutes Good Reason shall be
presumed to be valid unless such determination is deemed to be unreasonable by
an arbitrator. The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to physical
or mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
(f) Change in Control.
Change in Control shall mean the occurrence of any of the following events:
(i) Any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from the
Company or its affiliates other than in connection with the acquisition by
the Company or its affiliates of a business) representing twenty percent
(20%) or more of the combined voting power of the Company's then
outstanding securities; or
(ii) The following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on the
date hereof, constitute the Board and any new director (other than a
director whose initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the
Company's shareholders was approved or recommended by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors on the date hereof or whose appointment, election or nomination
for election was previously so approved or recommended; or
(iii) There is consummated a merger or consolidation of the Company or
any direct or indirect subsidiary of the Company with any other
corporation, other than (A) a merger or consolidation which
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would result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof), in combination
with the ownership of any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any subsidiary of the
Company, at least sixty percent (60%) of the combined voting power of the
securities of the Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or (B) a merger
or consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no Person is or becomes the beneficial
owner, directly or indirectly, of securities of the Company (not including
in the securities beneficially owned by such Person any securities acquired
directly from the Company or its affiliates other than in connection with
the acquisition by the Company or its affiliates of a business)
representing twenty percent (20%) or more of the combined voting power of
the Company's then outstanding securities; or
(iv) The shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or disposition
by the Company of all or substantially all of the Company's assets to an
entity, at least sixty percent (60%) of the combined voting power of the
voting securities of which are owned by shareholders of the Company in
substantially the same proportions as their ownership of the Company
immediately prior to such sale.
"Person" shall have the meaning given in section 3(a)(9) of the Securities
Exchange Act of 1934 (the "Exchange Act"), as modified and used in sections
13(d) and 14(d) thereof, except that such term shall not include (i) the Company
or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any of its affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, (iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company, or (v) a person or group as used in Rule
13d-1(b) under the Exchange Act.
"Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the
Exchange Act.
Notwithstanding the foregoing, any event or transaction which would
otherwise constitute a Change in Control (a "Transaction") shall not constitute
a Change in Control for purposes of this Agreement if, in connection with the
Transaction, the Executive participates as an equity investor in the acquiring
entity or any of its affiliates (the "Acquiror"). For purposes of the preceding
sentence, the Executive shall not be deemed to have participated as an equity
investor in the Acquiror by virtue of (i) obtaining beneficial ownership of any
equity interest in the Acquiror as a result of the grant to the Executive of an
incentive compensation award under one or more incentive plans of the Acquiror
(including, but not limited to, the conversion in connection with the
Transaction of incentive compensation awards of the Company into incentive
compensation awards of the Acquiror), on terms and conditions substantially
equivalent to those applicable to other executives of the Company immediately
prior to the Transaction, after taking into account normal differences
attributable to job responsibilities, title and the like, (ii) obtaining
beneficial ownership of any equity interest in the Acquiror on terms and
conditions substantially equivalent to those obtained in the Transaction by all
other shareholders of the Company, or (iii) obtaining beneficial ownership of
any equity interest in the Acquiror in a manner unrelated to a Transaction.
(g) Notice of Termination. During the Employment Period, any purported
termination of the Executive's employment (other than by reason of death) shall
be communicated by written Notice of Termination from one party hereto to the
other party hereto in accordance with Section 12(b). For purposes of this
Agreement, a "Notice of Termination" shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon, if any, and shall
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated. Further, a Notice of Termination for Cause is required to include a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths (3/4) of the entire membership of the Board at a meeting of the
Board that was called and held no more than ninety (90) days after the date the
Board had knowledge of the most recent act or omission giving rise to such
breach for the purpose of considering such
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termination (after reasonable notice to the Executive and an opportunity for the
Executive, together with the Executive's counsel, to be heard before the Board
and, if possible, to cure the breach that was the basis for the Notice of
Termination for Cause) finding that, in the good faith opinion of the Board, the
Executive was guilty of conduct set forth in clause (i) or (ii) of the
definition of Cause herein, and specifying the particulars thereof in detail.
Unless the Board determines otherwise, a Notice of Termination by the Executive
alleging a termination for Good Reason must be made within 180 days of the act
or failure to act that the Executive alleges to constitute Good Reason.
(h) Date of Termination. "Date of Termination," with respect to any
purported termination of the Executive's employment during the Employment
Period, shall mean the date specified in the Notice of Termination (which, in
the case of a termination by the Company, shall not be less than thirty (30)
days for reasons other than cause and, in the case of a termination by the
Executive, shall not be less than fifteen (15) days nor more than sixty (60)
days) from the date such Notice of Termination is given.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Termination Other Than for Cause, Death or Disability. During the
Employment Period, if the Company shall terminate the Executive's employment
(other than for Cause, death or Disability) or the Executive shall terminate his
employment for Good Reason (termination in any such case being referred to as
"Termination") the Company shall pay to the Executive amounts, and provide the
Executive with the benefits, described in this Section 5 (hereinafter referred
to as the "Severance Payments"). Subject to Section 5(g), the amounts specified
in this Section 5(a) shall be paid within thirty (30) days after the Date of
Termination.
(i) Lump Sum Payment. In lieu of any further payments of Annual Base
Salary or annual Incentive Compensation Awards to the Executive for periods
subsequent to the Date of Termination, the Company shall pay to the
Executive a lump sum amount in cash equal to the product of (X) the sum of
(A) the Executive's Annual Base Salary and (B) the greater of the
Executive's target bonus for the year of termination or the average of the
three (3) years' highest gross bonus awards, not necessarily consecutive,
paid by the Company (or its predecessor) to the Executive in the five (5)
years preceding the year of termination and (Y) two (2), provided, however,
that in the event of a Termination following a Change in Control such
multiplier shall be three (3).
(ii) Accrued Obligations. The Company shall pay the Executive a lump
sum amount in cash equal to the sum of (A) the Executive's Annual Base
Salary through the Date of Termination to the extent not theretofore paid,
(B) an amount equivalent to any annual Incentive Compensation Awards earned
with respect to fiscal years ended prior to the year that includes the Date
of Termination to the extent not theretofore paid, and (C) an amount
equivalent to the target amount payable under any annual Incentive
Compensation Awards for the fiscal year that includes the Date of
Termination or, if greater, the average of the three (3) years' highest
gross bonus awards, not necessarily consecutive, paid by the Company (or
its predecessor) to the Executive in the five (5) years preceding the year
of Termination multiplied by a fraction the numerator of which shall be the
number of days from the beginning of such fiscal year to and including the
Date of Termination and the denominator of which shall be 365, in each case
to the extent not theretofore paid. (The amounts specified in clauses (A),
(B) and (C) shall be hereinafter referred to as the "Accrued Obligations.")
(iii) Deferred Compensation. In the event of a Termination following a
Change in Control, the Company shall pay the Executive a lump sum payment
in an amount equal to any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon).
(iv) Pension Supplement. The Company shall pay the Executive a lump
sum payment (the "Pension Supplement") in an amount equal to the present
value (as determined in accordance with the terms of Pacific Enterprises'
supplemental executive retirement plan) of the benefits to which the
Executive would be entitled under the Company's defined benefit pension and
retirement plans (the "Pension and Retirement Plans") if he had continued
working for the Company for an additional two (2) years, and had increased
his age by two (2) years as of the Date of Termination but not beyond the
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Mandatory Retirement Age; provided, however, that in the event of a
Termination following a Change in Control, such number of years shall be
three (3) but not beyond the Mandatory Retirement Age.
(v) Accelerated Vesting and Payment of Long-Term Incentive Awards. All
equity-based, longterm Incentive Compensation Awards held by the Executive
under any long- term Incentive Compensation Plan maintained by the Company
or any affiliate shall immediately vest and become exercisable as of the
Date of Termination, to be exercised in accordance with the terms of the
applicable plan and award agreement; provided, however, that any such
awards granted on or after the Effective Date shall remain outstanding and
exercisable until the earlier of (A) eighteen (18) months following the
Date of Termination or (B) the expiration of the original term of such
award (it being understood that all awards granted prior to the Effective
Date shall remain outstanding and exercisable for a period that is no less
than that provided for in the applicable agreement in effect as of the date
of grant), and the Company shall pay to the Executive, with respect to all
cash-based, long-term Incentive Compensation Awards made to the Executive
that are outstanding under any longterm Incentive Compensation Plan
maintained by the Company or any affiliate an amount equal to the target
amount payable under such long-term Incentive Compensation Awards
multiplied by a fraction, the numerator of which shall be the number of
days from the beginning of the award cycle to and including the Date of
Termination, and the denominator of which shall be the number of days in
the cycle as originally granted; and
(vi) Continuation of Welfare Benefits. For a period of two (2) years
or until the Executive is eligible for retiree medical benefits, whichever
is longer, immediately following the Date of Termination, the Company shall
arrange to provide the Executive and his dependents with life, disability,
accident and health insurance benefits substantially similar to those
provided to the Executive and his dependents immediately prior to the Date
of Termination, provided, however, that in no event shall the Executive be
entitled to receive disability benefits under the Pacific Enterprises
long-term disability plan or Pacific Enterprises' supplemental executive
retirement plan after the Executive has become eligible to commence receipt
of retirement benefits under Pacific Enterprises' supplemental executive
retirement plan, and provided, further, that if the Executive becomes
employed with another employer and is eligible to receive life, disability,
accident and health insurance benefits under another employer-provided
plan, the benefits under the Company's plans shall be secondary to those
provided under such other plan during such applicable period of
eligibility, and further provided, however, that in the event of a
Termination following a Change in Control such period shall not be less
than three (3) years.
(b) Termination by the Company for Cause or by the Executive Other Than for
Good Reason. Subject to the provisions of Section 6 of this Agreement, if the
Executive's employment shall be terminated for Cause during the Employment
Period, or if the Executive terminates employment during the Employment Period
other than for Good Reason, the Company shall have no further obligations to the
Executive under this Agreement other than the Accrued Obligations.
(c) Termination Due to Death or Disability. If the Executive's employment
shall terminate by reason of death or Disability, the Company shall pay the
Executive or his estate, as the case may be, the Accrued Obligations and, solely
in the case of termination by reason of disability, the Pension Supplement. Such
payments shall be in addition to those rights and benefits to which the
Executive or his estate may be entitled under the relevant Company plans or
programs.
(d) Code Section 280G.
(i) Notwithstanding any other provisions of this Agreement, in the
event that any payment or benefit received or to be received by the
Executive (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with (A) the Company, (B) any Person (as
defined in Section 4(e)) whose actions result in a Change in Control or (C)
any Person affiliated with the Company or such Person) (all such payments
and benefits, including the Severance Payments, being hereinafter called
"Total Payments") would not be deductible (in whole or part) by the
Company, an affiliate or Person making such payment or providing such
benefit as a result of section 280G of the Code, then, to the extent
necessary to make such portion of the Total Payments deductible (and after
taking into account any reduction in the Total Payments provided by reason
of section 280G of the Code in such
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other plan, arrangement or agreement), the cash Severance Payments shall
first be reduced (if necessary, to zero), and all other Severance Payments
shall thereafter be reduced (if necessary, to zero); provided, however,
that the Executive may elect to have the noncash Severance Payments reduced
(or eliminated) prior to any reduction of the cash Severance Payments.
(ii) For purposes of this limitation, (A) no portion of the Total
Payments the receipt or enjoyment of which the Executive shall have waived
at such time and in such manner as not to constitute a "payment" within the
meaning of section 280G(b) of the Code shall be taken into account, (B) no
portion of the Total Payments shall be taken into account which, in the
opinion of tax counsel ("Tax Counsel") reasonably acceptable to the
Executive and selected by the Company's accounting firm (or, in the case of
a payment following a Change in Control the accounting firm that was,
immediately prior to the Change in Control, the Company's independent
auditor) (the "Auditor"), does not constitute a "parachute payment" within
the meaning of section 280G(b)(2) of the Code, including by reason of
section 280G(b)(4)(A) of the Code, (C) the Severance Payments shall be
reduced only to the extent necessary so that the Total Payments (other than
those referred to in clause (A) or (B)) in their entirety constitute
reasonable compensation for services actually rendered within the meaning
of section 280G(b)(4)(B) of the Code or are otherwise not subject to
disallowance as deductions by reason of section 280G of the Code, in the
opinion of Tax Counsel, and (D) the value of any noncash benefit or any
deferred payment or benefit included in the Total Payments shall be
determined by the Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code.
(e) Consulting and Non-Competition. If the Total Payments are subject to
reduction in accordance with the above provisions of Section 5(d), the Executive
shall have the option, to be exercised within ten (10) days after receipt of
notice of such reduction from the Company, to enter into a consulting and non-
competition agreement with the Company (the "Consulting and Non-Competition
Agreement"), which shall (1) provide the Executive with payments and benefits,
payable over the term of the agreement, the present value of which in the
aggregate is equal to or greater than the present value (determined by applying
a discount rate equal to the interest rate provided in section 1274(b)(2)(B) of
the Code) of the balance of the payments and benefits otherwise payable to the
Executive without regard to the provisions of Section 5(d), (2) require the
Executive to make his services available to the Company for no more than twenty
(20) hours per month and (3) last for a period of not more than two (2) years
(unless the Executive consents to a longer period).
(f) Gross-Up Payment. In the event that the Executive receives a notice
from the Internal Revenue Service to the effect that the amounts payable under
the Consulting and Non-Competition Agreement would be subject (in whole or part)
to the tax (the "Excise Tax") imposed under section 4999 of the Code, within
thirty (30) days after the date the Chairman of the Board receives a copy of
such notice the Company shall pay to the Executive such additional amounts (the
"Gross-Up Payment") such that the net amount retained by the Executive, after
deduction of any Excise Tax on the Total Payments and any federal, state and
local income and employment taxes and Excise Tax upon the Gross-Up Payment,
shall be equal to the Total Payments. For purposes of determining the amount of
the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at
the highest marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the Executive's
residence on the date on which the Gross-Up Payment is calculated for purposes
of this section, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes. In the event
that the Excise Tax is subsequently determined to be less than the amount taken
into account hereunder, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income tax imposed on the Gross-Up Payment being repaid by the
Executive to the extent that such repayment results in a reduction in Excise Tax
and/or a federal, state or local income tax deduction) plus interest on the
amount of such repayment at the rate provided in section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed the amount taken
into account hereunder (including by reason of any payment the existence or
amount of which cannot be determined at the time of
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the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess (plus any interest, penalties or additions payable by the
Executive with respect to such excess) at the time that the amount of such
excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments.
(g) Release. Notwithstanding anything herein to the contrary, the Company's
obligation to make the payments provided for in this Section 5 is expressly made
subject to and conditioned upon (i) the Executive's prior execution of a release
substantially in the form attached hereto as Exhibit A within forty-five (45)
days after the applicable Date of Termination and (ii) the Executive's
non-revocation of such release in accordance with the terms thereof.
6. NONEXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit the Executive's continuing
or future participation in any benefit, plan, program, policy or practice
provided by the Company and for which the Executive may qualify (except with
respect to any benefit to which the Executive has waived his rights in writing),
nor shall anything herein limit or otherwise affect such rights as the Executive
may have under any other contract or agreement entered into after the Effective
Date with the Company. Amounts which are vested benefits or which the Executive
is otherwise entitled to receive under any benefit, plan, policy, practice or
program of, or any contract or agreement entered into with, the Company shall be
payable in accordance with such benefit, plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
7. FULL SETTLEMENT; MITIGATION.
The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others, provided
that nothing herein shall preclude the Company from separately pursuing recovery
from the Executive based on any such claim. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts (including amounts for damages for breach) payable to the
Executive under any of the provisions of this Agreement and such amounts shall
not be reduced whether or not the Executive obtains other employment.
8. ARBITRATION.
Any dispute about the validity, interpretation, effect or alleged violation
of this Agreement (an "arbitrable dispute") must be submitted to confidential
arbitration in Los Angeles, California. Arbitration shall take place before an
experienced employment arbitrator licensed to practice law in such state and
selected in accordance with the Model Employment Arbitration Procedures of the
American Arbitration Association. Arbitration shall be the exclusive remedy of
any arbitrable dispute. Should any party to this Agreement pursue any arbitrable
dispute by any method other than arbitration, the other party shall be entitled
to recover from the party initiating the use of such method all damages, costs,
expenses and attorneys' fees incurred as a result of the use of such method.
Notwithstanding anything herein to the contrary, nothing in this Agreement shall
purport to waive or in any way limit the right of any party to seek to enforce
any judgment or decision on an arbitrable dispute in a court of competent
jurisdiction.
9. CONFIDENTIALITY.
The Executive acknowledges that in the course of his employment with the
Company he has acquired nonpublic privileged or confidential information and
trade secrets concerning the operations, future plans and methods of doing
business ("Proprietary Information") of the Company, its subsidiaries and
affiliates; and the Executive agrees that it would be extremely damaging to the
Company, its subsidiaries and affiliates if such Proprietary Information were
disclosed to a competitor of the Company, its subsidiaries and affiliates or to
any other person or corporation. The Executive understands and agrees that all
Proprietary Information has been
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divulged to the Executive in confidence and further understands and agrees to
keep all Proprietary Information secret and confidential (except for such
information which is or becomes publicly available other than as a result of a
breach by the Executive of this provision) without limitation in time. In view
of the nature of the Executive's employment and the Proprietary Information the
Executive has acquired during the course of such employment, the Executive
likewise agrees that the Company, its subsidiaries and affiliates would be
irreparably harmed by any disclosure of Proprietary Information in violation of
the terms of this paragraph and that the Company, its subsidiaries and
affiliates shall therefore be entitled to preliminary and/or permanent
injunctive relief prohibiting the Executive from engaging in any activity or
threatened activity in violation of the terms of this paragraph and to any other
relief available to them. Inquiries regarding whether specific information
constitutes Proprietary Information shall be directed to the Company's Senior
Vice President, Public Policy (or, if such position is vacant, the Company's
Chief Executive Officer), provided, that the Company shall not unreasonably
classify information as Proprietary Information.
10. NON-SOLICITATION OF EMPLOYEES.
The Executive recognizes that he possesses and will possess confidential
information about other employees of the Company, its subsidiaries and
affiliates relating to their education, experience, skills, abilities,
compensation and benefits, and inter-personal relationships with customers of
the Company, its subsidiaries and affiliates. The Executive recognizes that the
information he possesses and will possess about these other employees is not
generally known, is of substantial value to the Company, its subsidiaries and
affiliates in developing their business and in securing and retaining customers,
and has been and will be acquired by him because of his business position with
the Company, its subsidiaries and affiliates. The Executive agrees that, during
the Employment Period and for a period of one (1) year thereafter, he will not,
directly or indirectly, solicit or recruit any employee of the Company, its
subsidiaries or affiliates for the purpose of being employed by him or by any
competitor of the Company, its subsidiaries or affiliates on whose behalf he is
acting as an agent, representative or employee and that he will not convey any
such confidential information or trade secrets about other employees of the
Company, its subsidiaries and affiliates to any other person; provided, however,
that it shall not constitute a solicitation or recruitment of employment in
violation of this paragraph to discuss employment opportunities with any
employee of the Company, its subsidiaries or affiliates who has either first
contacted the Executive or regarding whose employment the Executive has
discussed with and received the written approval of the Company's Vice
President, Human Resources (or, if such position is vacant, the Company's Chief
Executive Officer), prior to making such solicitation or recruitment. In view of
the nature of the Executive's employment with the Company, the Executive
likewise agrees that the Company, its subsidiaries and affiliates would be
irreparably harmed by any solicitation or recruitment in violation of the terms
of this paragraph and that the Company, its subsidiaries and affiliates shall
therefore be entitled to preliminary and/or permanent injunctive relief
prohibiting the Executive from engaging in any activity or threatened activity
in violation of the terms of this paragraph and to any other relief available to
them.
11. LEGAL FEES.
The Company shall pay to the Executive all legal fees and expenses
(including but not limited to fees and expenses in connection with any
arbitration) incurred by the Executive in disputing in good faith any issue
arising under this Agreement relating to the termination of the Executive's
employment or in seeking in good faith to obtain or enforce any benefit or right
provided by this Agreement, but in each case only to the extent the arbitrator
or court determines that the Executive had a reasonable basis for such claim.
12. SUCCESSORS.
(a) Assignment by Executive. This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
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(b) Successors and Assigns of Company. This Agreement shall inure to the
benefit of and be binding upon the Company, its successors and assigns.
(c) Assumption. The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its businesses and/or assets as
aforesaid that assumes and agrees to perform this Agreement by operation of law
or otherwise.
13. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without reference to its
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended, modified, repealed, waived, extended or discharged except by an
agreement in writing signed by the party against whom enforcement of such
amendment, modification, repeal, waiver, extension or discharge is sought. No
person, other than pursuant to a resolution of the Board or a committee thereof,
shall have authority on behalf of the Company to agree to amend, modify, repeal,
waive, extend or discharge any provision of this Agreement or anything in
reference thereto.
(b) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed, in
either case, to the principal corporate offices of Pacific Enterprises or to
such other address as either party shall have furnished to the other in writing
in accordance herewith. Notices and communications shall be effective when
actually received by the addressee.
(c) Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) Taxes. The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) No Waiver. The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(d) of this Agreement,
or the right of the Company to terminate the Executive's employment for Cause
pursuant to Section 4(b) of this Agreement shall not be deemed to be a waiver of
such provision or right or any other provision or right of this Agreement.
(f) Entire Agreement. This instrument contains the entire agreement of the
Executive, the Company or any predecessor or subsidiary thereof with respect to
the subject matter hereof, and all promises, representations, understandings,
arrangements and prior agreements are merged herein and superseded hereby
including, but not limited to, that certain Severance Agreement, dated October
11, 1996, between the Executive and Pacific Enterprises. Notwithstanding the
foregoing, the provisions of any employee benefit or compensation plan, program
or arrangement applicable to the Executive, including that certain Incentive
Bonus Agreement, entered into between the Executive and Pacific Enterprises,
shall remain in effect, except as expressly otherwise provided herein.
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IN WITNESS WHEREOF, the Executive and, pursuant to due authorization from
its Board of Directors, the Company have caused this Agreement to be executed as
of the day and year first above written.
MINERAL ENERGY COMPANY
/s/ KEVIN C. SAGARA
--------------------------------------
Kevin C. Sagara
President
/s/ WARREN I. MITCHELL
--------------------------------------
Warren I. Mitchell
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ANNEX H
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") made and entered into as of the 12th day
of October, 1996, by and between Mineral Energy Company (the "Company"), a
California corporation, and Donald E. Felsinger (the "Executive");
WHEREAS, the Executive is currently serving as President and Chief
Executive Officer of San Diego Gas & Electric Company and Executive Vice
President of Enova Corporation, a California corporation ("Enova"), and the
Company desires to secure the continued employment of the Executive in
accordance herewith;
WHEREAS, pursuant to the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of October 12, 1996, among, inter alia, Enova, Pacific
Enterprises, a California corporation ("Pacific Enterprises") and the Company,
the parties thereto have agreed to a merger (the "Merger") pursuant to the terms
thereof;
WHEREAS, the Executive is willing to commit himself to be employed by the
Company on the terms and conditions herein set forth and thus to forego
opportunities elsewhere; and
WHEREAS, the parties desire to enter into this Agreement, as of the
Effective Date (as hereinafter defined), setting forth the terms and conditions
for the employment relationship of the Executive with the Company during the
Employment Period (as hereinafter defined).
NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and
agreements set forth below, it is hereby agreed as follows:
1. EMPLOYMENT AND TERM.
(a) Employment. The Company agrees to employ the Executive, and the
Executive agrees to be employed by the Company, in accordance with the terms and
provisions of this Agreement during the term thereof (as described below).
(b) Term. The term of the Executive's employment under this Agreement shall
commence (the "Effective Date") as of the closing date (the "Closing Date") of
the Merger as described in the Merger Agreement and shall continue until the
earlier of the Executive's Mandatory Retirement Age (as defined herein) or the
fifth anniversary of the Effective Date (such term being referred to hereinafter
as the "Employment Period"); provided, however, that commencing on the fourth
anniversary of the Effective Date (and each anniversary of the Effective Date
thereafter), the term of this Agreement shall automatically be extended for one
additional year, unless, prior to such date, the Company or the Executive shall
give written notice to the other party that it or he, as the case may be, does
not wish to so extend this Agreement; and further provided, however, that if the
Merger Agreement is terminated, then, at the time of such termination, this
Agreement shall be deemed cancelled and of no force or effect and the Executive
shall continue to be subject to such agreements and arrangements that were in
effect prior to the Closing Date of the Merger. As a condition to the Merger,
the parties hereto agree that the Company shall be responsible for all of the
premises, covenants and agreements set forth in this Agreement.
(c) Mandatory Retirement. In no event shall the term of the Executive's
employment hereunder extend beyond the end of the month in which the Executive's
65th birthday occurs (the "Mandatory Retirement Age").
2. DUTIES AND POWERS OF EXECUTIVE.
(a) Position. During the period commencing on the Effective Date the
Executive shall serve as President and Principal Executive Officer of the
businesses of the Company and its subsidiaries that are not economically
regulated by the California Public Utilities Commission (the "Unregulated
Subsidiaries") with
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such authority, duties and responsibilities with respect to such position as set
forth in subsection (b) hereof. In this capacity, the Executive shall report to
the Office of the Chairman or if the Office of the Chairman does not exist, the
Chief Executive Officer of the Company. The titles, authority, duties and
responsibilities set forth in subsection (b) hereof may be changed from time to
time but only with the mutual written agreement of the Executive and the
Company.
(b) Duties of the President and Principal Executive Officer. The duties of
the President and Principal Executive Officer of the Company's Unregulated
Subsidiaries shall include but not be limited to directing the overall business,
affairs and operations of the Company's Unregulated Subsidiaries, through the
officers of such subsidiaries, all of whom shall report directly or indirectly
to the Executive.
(c) Attention. During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote full attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive under this Agreement, use the
Executive's best efforts to carry out such responsibilities faithfully and
efficiently. It shall not be considered a violation of the foregoing for the
Executive to serve on corporate, industry, civic or charitable boards or
committees, so long as such activities do not interfere with the performance of
the Executive's responsibilities as an employee of the Company in accordance
with this Agreement.
3. COMPENSATION.
It is the Board's intention to provide the Executive with compensation
opportunities that, in total, are at a level that is consistent with that
provided by comparable companies to executives of similar levels of
responsibility, expertise and corporate and individual performance as determined
by the compensation committee of the Board. In this regard, the Executive shall
receive the following compensation for his services hereunder to the Company:
(a) Base Salary. During the Employment Period, the Executive's annual base
salary ("Annual Base Salary") shall in no event be no less than $440,000 and
shall be payable in accordance with the Company's general payroll practices.
Subject to Section 4(d)(ii), the Board in its discretion may from time to time
direct such upward adjustments in the Executive's Annual Base Salary as the
Board deems to be necessary or desirable, including, without limitation,
adjustments in order to reflect increases in the cost of living and the
Executive's performance. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation of the Company under this Agreement.
(b) Incentive Compensation. Subject to Section 4(d)(ii), during the
Employment Period, the Executive shall participate in annual incentive
compensation plans and long-term incentive compensation plans of the Company
and, to the extent appropriate, the Company's Subsidiaries (which long-term
incentive compensation plans may include plans offering stock options,
restricted stock and other long-term incentive compensation and all such annual
and long-term plans to be hereinafter referred to as the "Incentive Compensation
Plans") and will be granted awards thereunder providing him with the opportunity
to earn, on a year-by-year basis, annual and long-term incentive compensation
(the "Incentive Compensation Awards") at least equal (in terms of target,
maximum and minimum awards expressed as a percentage of Annual Base Salary) to
the Executive's opportunities that were in effect prior to the Effective Date.
Any equity awards granted to the Executive may be granted, at the Executive's
election, to trusts established for the benefit of members of the Executive's
family. With respect to incentive compensation awards granted prior to the
Effective Date, the Executive shall be entitled to retain such awards in
accordance with their terms, which shall be appropriately adjusted as a result
of the Merger.
(c) Retirement and Welfare Benefit Plans. In addition to the benefits
provided under Section 3(b), during the Employment Period and so long as the
Executive is employed by the Company, he shall be eligible to participate in all
other savings, retirement and welfare plans, practices, policies and programs
applicable generally to employees and/or senior executive officers of the
Company and its domestic subsidiaries, except with respect to any benefits under
any plan, practice, policy or program to which the Executive has waived his
rights in writing. To the extent that benefits payable or provided to the
Executive under such plans are
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materially less favorable on a benefit by benefit basis than the benefits that
would have been payable or provided to the Executive under comparable Enova
tax-qualified retirement plans, executive retirement plans, split dollar and
other life insurance arrangements in which the Executive was a participant
(based on the terms of such plans as of the Effective Date), the Executive shall
be entitled to benefits pursuant to the terms of this Agreement equal to the
excess of the benefits provided under the applicable Enova plans over the
benefits provided under the comparable Company plans.
(d) Expenses. The Company shall reimburse the Executive for all expenses,
including those for travel and entertainment, properly incurred by him in the
performance of his duties hereunder in accordance with policies established from
time to time by the Board.
(e) Fringe Benefits and Perquisites. During the Employment Period and so
long as the Executive is employed by the Company, he shall be entitled to
receive fringe benefits and perquisites in accordance with the plans, practices,
programs and policies of the Company and, to the extent appropriate, the
Company's subsidiaries from time to time in effect, commensurate with his
position.
4. TERMINATION OF EMPLOYMENT.
(a) Death or Disability. The Executive's employment shall terminate upon
the Executive's death or, at the election of the Board or the Executive, by
reason of Disability (as herein defined) during the Employment Period; provided,
however, that the Board may not terminate the Executive's employment hereunder
by reason of Disability unless at the time of such termination there is no
reasonable expectation that the Executive will return to work within the next
ninety (90) day period. For purposes of this Agreement, disability
("Disability") shall have the same meaning as set forth in the Enova long-term
disability plan or its successor.
(b) By the Company for Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause (as herein defined). For
purposes of this Agreement, "Cause" shall mean (i) the willful and continued
failure by the Executive to substantially perform the Executive's duties with
the Company (other than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such actual or anticipated
failure after the issuance of a Notice of Termination for Good Reason by the
Executive pursuant to Section 4(d)) or (ii) the Executive's commission of one or
more acts of moral turpitude that constitute a violation of applicable law
(including but not limited to a felony) which have or result in an adverse
effect on the Company, monetarily or otherwise or one or more significant acts
of dishonesty. For purposes of clause (i) of this definition, no act, or failure
to act, on the Executive's part shall be deemed "willful" unless done, or
omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's act, or failure to act, was in the best interest of
the Company.
(c) By the Company without Cause. Notwithstanding any other provision of
this Agreement, the Company may terminate the Executive's employment other than
by a termination for Cause during the Employment Period, but only upon the
affirmative vote of three-fourths (3/4) of the membership of the Board.
(d) By the Executive for Good Reason. The Executive may terminate his
employment during the Employment Period for Good Reason (as herein defined). For
purposes of this Agreement, "Good Reason" shall mean the occurrence without the
written consent of the Executive of any one of the following acts by the
Company, or failures by the Company to act, unless such act or failure to act is
corrected prior to the Date of Termination (as hereinafter defined) specified in
the Notice of Termination (as hereinafter defined) given in respect thereof:
(i) an adverse change in the Executive's title, authority, duties,
responsibilities or reporting lines as specified in Sections 2(a) and 2(b)
of this Agreement;
(ii) a reduction by the Company in (A) the Executive's Annual Base
Salary as in effect on the date hereof or as the same may be increased from
time to time or (B) the Executive's aggregate annualized compensation and
benefits opportunities, except, in the case of both (A) and (B), for
across-the-board reductions similarly affecting all executives (both of the
Company and of any Person (as hereinafter defined) then in control of the
Company) whose compensation is directly determined by the compensation
committee of the Board (and the compensation committee of the board of
directors of any Person
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then in control of the Company); provided that, the exception for
across-the-board reductions shall not apply following a Change in Control
(as hereinafter defined);
(iii) the relocation of the Executive's principal place of employment
to a location away from the Company's headquarters or a substantial
increase in the Executive's business travel obligations outside of the
Southern California area as of the Effective Date, other than any such
increase that (A) arises in connection with extraordinary business
activities of the Company and (B) is understood not to be part of the
Executive's regular duties with the Company;
(iv) the failure by the Company to pay to the Executive any portion of
the Executive's current compensation and benefits or to pay to the
Executive any portion of an installment of deferred compensation under any
deferred compensation program of the Company within thirty (30) days of the
date such compensation is due;
(v) any purported termination of the Executive's employment that is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 4(f); for purposes of this Agreement, no such
purported termination shall be effective;
(vi) the failure by the Company to obtain a satisfactory agreement
from any successor of the Company requiring such successor to assume and
agree to perform the Company's obligations under this Agreement, as
contemplated in Section 11; or
(vii) the failure by the Company to comply with any material provision
of this Agreement.
Following a Change in Control (as hereinafter defined), the Executive's
determination that an act or failure to act constitutes Good Reason shall be
presumed to be valid unless such determination is deemed to be unreasonable by
an arbitrator. The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to physical
or mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
(e) Change in Control.
Change in Control shall mean the occurrence of any of the following events:
(i) Any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from the
Company or its affiliates other than in connection with the acquisition by
the Company or its affiliates of a business) representing twenty percent
(20%) or more of the combined voting power of the Company's then
outstanding securities; or
(ii) The following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on the
date hereof, constitute the Board and any new director (other than a
director whose initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the
Company's shareholders was approved or recommended by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors on the date hereof or whose appointment, election or nomination
for election was previously so approved or recommended; or
(iii) There is consummated a merger or consolidation of the Company or
any direct or indirect subsidiary of the Company with any other
corporation, other than (A) a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior to such
merger or consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity or any parent thereof), in combination with the ownership of any
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any subsidiary of the Company, at least sixty
percent (60%) of the combined voting power of the securities of the Company
or such surviving entity or any parent thereof outstanding immediately
after such merger or
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consolidation, or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no Person
is or becomes the beneficial owner, directly or indirectly, of securities
of the Company (not including in the securities beneficially owned by such
Person any securities acquired directly from the Company or its affiliates
other than in connection with the acquisition by the Company or its
affiliates of a business) representing twenty percent (20%) or more of the
combined voting power of the Company's then outstanding securities; or
(iv) The shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or disposition
by the Company of all or substantially all of the Company's assets to an
entity, at least sixty percent (60%) of the combined voting power of the
voting securities of which are owned by shareholders of the Company in
substantially the same proportions as their ownership of the Company
immediately prior to such sale.
"Person" shall have the meaning given in Section 3(a)(9) of the Securities
Exchange Act of 1934 (the "Exchange Act"), as modified and used in Sections
13(d) and 14(d) thereof, except that such term shall not include (i) the Company
or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any of its affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, (iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company, or (v) a person or group as used in Rule
13d-1(b) under the Exchange Act.
"Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the
Exchange Act.
Notwithstanding the foregoing, any event or transaction which would
otherwise constitute a Change in Control (a "Transaction") shall not constitute
a Change in Control for purposes of this Agreement if, in connection with the
Transaction, the Executive participates as an equity investor in the acquiring
entity or any of its affiliates (the "Acquiror"). For purposes of the preceding
sentence, the Executive shall not be deemed to have participated as an equity
investor in the Acquiror by virtue of (i) obtaining beneficial ownership of any
equity interest in the Acquiror as a result of the grant to the Executive of an
incentive compensation award under one or more incentive plans of the Acquiror
(including, but not limited to, the conversion in connection with the
Transaction of incentive compensation awards of the Company into incentive
compensation awards of the Acquiror), on terms and conditions substantially
equivalent to those applicable to other executives of the Company immediately
prior to the Transaction, after taking into account normal differences
attributable to job responsibilities, title and the like, (ii) obtaining
beneficial ownership of any equity interest in the Acquiror on terms and
conditions substantially equivalent to those obtained in the Transaction by all
other shareholders of the Company, or (iii) obtaining beneficial ownership of
any equity interest in the Acquiror in a manner unrelated to a Transaction.
(f) Notice of Termination. During the Employment Period, any purported
termination of the Executive's employment (other than by reason of death) shall
be communicated by written Notice of Termination from one party hereto to the
other party hereto in accordance with Section 12(b). For purposes of this
Agreement, a "Notice of Termination" shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon, if any, and shall
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated. Further, a Notice of Termination for Cause is required to include a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths (3/4) of the entire membership of the Board at a meeting of the
Board that was called and held no more than ninety (90) days after the date the
Board had knowledge of the most recent act or omission giving rise to such
breach for the purpose of considering such termination (after reasonable notice
to the Executive and an opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board and, if possible, to cure the
breach that was the basis for the Notice of Termination for Cause) finding that,
in the good faith opinion of the Board, the Executive was guilty of conduct set
forth in clause (i) or (ii) of the definition of Cause herein, and specifying
the particulars thereof in detail. Unless the Board determines otherwise, a
Notice of Termination by the Executive alleging a
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termination for Good Reason must be made within 180 days of the act or failure
to act that the Executive alleges to constitute Good Reason.
(g) Date of Termination. "Date of Termination," with respect to any
purported termination of the Executive's employment during the Employment
Period, shall mean the date specified in the Notice of Termination (which, in
the case of a termination by the Company, shall not be less than thirty (30)
days for reasons other than cause and, in the case of a termination by the
Executive, shall not be less than fifteen (15) days nor more than sixty (60)
days) from the date such Notice of Termination is given.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Termination Other Than for Cause, Death or Disability. During the
Employment Period, if the Company shall terminate the Executive's employment
(other than for Cause, death or Disability) or the Executive shall terminate his
employment for Good Reason (termination in any such case being referred to as
"Termination") the Company shall pay to the Executive amounts, and provide the
Executive with the benefits, described in this Section 5 (hereinafter referred
to as the "Severance Payments"). Subject to Section 5(g), the amounts specified
in this Section 5(a) shall be paid within thirty (30) days after the Date of
Termination.
(i) Lump Sum Payment. In lieu of any further payments of Annual Base
Salary or annual Incentive Compensation Awards to the Executive for periods
subsequent to the Date of Termination, the Company shall pay to the
Executive a lump sum amount in cash equal to the product of (X) the sum of
(A) the Executive's Annual Base Salary and (B) the greater of the
Executive's target bonus for the year of termination or the average of the
three (3) years' highest gross bonus awards, not necessarily consecutive,
paid by the Company (or its predecessor) to the Executive in the five (5)
years preceding the year of termination and (Y) the number of years
remaining in the Employment Period (including fractional years) but in no
event less than two (2), provided, however, that in the event of a
Termination following a Change in Control such multiplier shall not be less
than three (3).
(ii) Accrued Obligations. The Company shall pay the Executive a lump
sum amount in cash equal to the sum of (A) the Executive's Annual Base
Salary through the Date of Termination to the extent not theretofore paid,
(B) an amount equivalent to any annual Incentive Compensation Awards earned
with respect to fiscal years ended prior to the year that includes the Date
of Termination to the extent not theretofore paid, and (C) an amount
equivalent to the target amount payable under any annual Incentive
Compensation Awards for the fiscal year that includes the Date of
Termination or, if greater, the average of the three (3) years' highest
gross bonus awards, not necessarily consecutive, paid by the Company (or
its predecessor) to the Executive in the five (5) years preceding the year
of Termination multiplied by a fraction the numerator of which shall be the
number of days from the beginning of such fiscal year to and including the
Date of Termination and the denominator of which shall be 365, in each case
to the extent not theretofore paid. (The amounts specified in clauses (A),
(B) and (C) shall be hereinafter referred to as the "Accrued Obligations.")
(iii) Deferred Compensation. In the event of a Termination following
a Change in Control, the Company shall pay the Executive a lump sum payment
in an amount equal to any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon).
(iv) Pension Supplement. The Company shall provide the Executive with
such additional years of age and service credit for purposes of the
calculation of retirement benefits under the Enova Supplemental Executive
Retirement Plan (the "Enova SERP") as if he had remained employed for the
remainder of the Employment Period, but in no event less than two (2)
years, provided, however, that (A) if the Executive has not yet then
attained age 53 at the time the credit for age and service is given, he
will be credited with the additional amount of age credit as if he had
attained age 55 and (B) there shall be no reduction under the Enova SERP
for early retirement as set forth in Paragraph 4.a.ii of the Enova SERP,
except for the early retirement reduction factor as determined in
accordance with the table in Section 5.4 of the San Diego Gas & Electric
Company Pension Plan, as adopted by Enova (the "Pension Plan"), which
factors shall be applied to the Executive's age and years of service after
he is credited with
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the additional age and service described above; and provided, further,
however, that in the event of a Termination following a Change in Control,
the Company shall pay the Executive a lump sum payment in an amount equal
to the benefits under the Enova SERP as described in paragraph 2.c of the
Enova SERP, less the value calculated consistently with paragraph 4.b of
the SERP of the Executive's entitlement under the Pension Plan, such
payment to be calculated and paid without regard to the limitation
described in the Enova SERP relating to Section 280G of the Code and with
such additional years of age and service credit as if he had remained
employed for the remainder of the Employment Period, but in no event less
than two (2) years, provided that if he has not then attained age 53 at the
time the credit for age and service is given, he will be credited with the
additional amount of age credit as if he had attained age 55; and in either
case the Executive's termination shall be a "Qualifying Termination" as
defined in the Split Dollar Life Insurance Agreement entered into between
the Executive and Enova, and where necessary the Company shall take such
steps, including the payment of additional premiums, as may be necessary so
that the cash value of the policy as of the Date of Termination shall
reflect the additional age and service credit.
(v) Accelerated Vesting and Payment of Long-Term Incentive Awards. All
equity-based long-term Incentive Compensation Awards held by the Executive
under any long-term Incentive Compensation Plan maintained by the Company
or any affiliate shall immediately vest and become exercisable as of the
Date of Termination, to be exercised in accordance with the terms of the
applicable plan and award agreement; provided, however, that any such
awards granted on or after the Effective Date shall remain outstanding and
exercisable until the earlier of (A) eighteen (18) months following the
Date of Termination or (B) the expiration of the original term of such
award (it being understood that all awards granted prior to the Effective
Date shall remain outstanding and exercisable for a period that is no less
than that provided for in the applicable agreement in effect as of the date
of grant), and the Company shall pay to the Executive, with respect to all
cash-based, long-term Incentive Compensation Awards made to the Executive
that are outstanding under any long-term Incentive Compensation Plan
maintained by the Company or any affiliate an amount equal to the target
amount payable under such long-term Incentive Compensation Awards
multiplied by a fraction, the numerator of which shall be the number of
days from the beginning of the award cycle to and including the Date of
Termination, and the denominator of which shall be the number of days in
the cycle as originally granted.
(vi) Continuation of Welfare Benefits. For (A) the remainder of the
Employment Period, but in no event less than a period of two (2) years or
(B) until the Executive is eligible for retiree medical benefits, whichever
is longer, immediately following the Date of Termination, the Company shall
arrange to provide the Executive and his dependents with life, disability,
accident and health insurance benefits substantially similar to those
provided to the Executive and his dependents immediately prior to the Date
of Termination, provided, however, that if the Executive becomes employed
with another employer and is eligible to receive life, disability, accident
and health insurance benefits under another employer-provided plan, the
benefits under the Company's plans shall be secondary to those provided
under such other plan during such applicable period of eligibility, and
further provided, however, that in the event of a Termination following a
Change in Control such period shall not be less than the number of years
until the Executive reaches normal retirement age as defined under the
Enova tax-qualified plans.
(b) Termination by the Company for Cause or by the Executive Other than for
Good Reason. Subject to the provisions of Section 6 of this Agreement, if the
Executive's employment shall be terminated for Cause during the Employment
Period, or if the Executive terminates employment during the Employment Period
other than for Good Reason, the Company shall have no further obligations to the
Executive under this Agreement other than the Accrued Obligations.
(c) Termination due to Death or Disability. If the Executive's employment
shall terminate by reason of death or Disability, the Company shall pay the
Executive or his estate, as the case may be, the Accrued Obligations and, solely
in the case of Termination by reason of Disability, the Pension Supplement. Such
payments shall be in addition to those rights and benefits to which the
Executive or his estate may be entitled under the relevant Company plans or
programs.
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(d) Code Section 280G.
(i) Notwithstanding any other provisions of this Agreement, in the
event that any payment or benefit received or to be received by the
Executive (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with (A) the Company, (B) any Person (as
defined in Section 4(e)) whose actions result in a Change in Control or (C)
any Person affiliated with the Company or such Person) (all such payments
and benefits, including the Severance Payments, being hereinafter called
"Total Payments") would not be deductible (in whole or part) by the
Company, an affiliate or Person making such payment or providing such
benefit as a result of section 280G of the Code, then, to the extent
necessary to make such portion of the Total Payments deductible (and after
taking into account any reduction in the Total Payments provided by reason
of section 280G of the Code in such other plan, arrangement or agreement),
the cash Severance Payments shall first be reduced (if necessary, to zero),
and all other Severance Payments shall thereafter be reduced (if necessary,
to zero); provided, however, that the Executive may elect to have the
noncash Severance Payments reduced (or eliminated) prior to any reduction
of the cash Severance Payments.
(ii) For purposes of this limitation, (A) no portion of the Total
Payments the receipt or enjoyment of which the Executive shall have waived
at such time and in such manner as not to constitute a "payment" within the
meaning of section 280G(b) of the Code shall be taken into account, (B) no
portion of the Total Payments shall be taken into account which, in the
opinion of tax counsel ("Tax Counsel") reasonably acceptable to the
Executive and selected by the Company's accounting firm (or, in the case of
a payment following a Change in Control the accounting firm that was,
immediately prior to the Change in Control, the Company's independent
auditor) (the "Auditor"), does not constitute a "parachute payment" within
the meaning of section 280G(b)(2) of the Code, including by reason of
section 280G(b)(4)(A) of the Code, (C) the Severance Payments shall be
reduced only to the extent necessary so that the Total Payments (other than
those referred to in clause (A) or (B)) in their entirety constitute
reasonable compensation for services actually rendered within the meaning
of section 280G(b)(4)(B) of the Code or are otherwise not subject to
disallowance as deductions by reason of section 280G of the Code, in the
opinion of Tax Counsel, and (D) the value of any noncash benefit or any
deferred payment or benefit included in the Total Payments shall be
determined by the Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code.
(e) Consulting and Non-Competition. If the Total Payments are subject to
reduction in accordance with the above provisions of Section 5(d), the Executive
shall have the option, to be exercised within ten (10) days after receipt of
notice of such reduction from the Company, to enter into a consulting and non-
competition agreement with the Company (the "Consulting and Non-Competition
Agreement"), which shall (1) provide the Executive with payments and benefits,
payable over the term of the agreement, the present value of which in the
aggregate is equal to or greater than the present value (determined by applying
a discount rate equal to the interest rate provided in section 1274(b)(2)(B) of
the Code) of the balance of the payments and benefits otherwise payable to the
Executive without regard to the provisions of Section 5(d), (2) require the
Executive to make his services available to the Company for no more than twenty
(20) hours per month and (3) last for a period of not more than two (2) years
(unless the Executive consents to a longer period).
(f) Gross-Up Payment. In the event that the Executive receives a notice
from the Internal Revenue Service to the effect that the amounts payable under
the Consulting and Non-Competition Agreement would be subject (in whole or part)
to the tax (the "Excise Tax") imposed under section 4999 of the Code, within
thirty (30) days after the date the Chairman of the Board receives a copy of
such notice the Company shall pay to the Executive such additional amounts (the
"Gross-Up Payment") such that the net amount retained by the Executive, after
deduction of any Excise Tax on the Total Payments and any federal, state and
local income and employment taxes and Excise Tax upon the Gross-Up Payment,
shall be equal to the Total Payments. For purposes of determining the amount of
the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at
the highest marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the Executive's
residence on the date on which the Gross-Up Payment is calculated
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for purposes of this section, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local taxes. In
the event that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder, the Executive shall repay to the Company,
at the time that the amount of such reduction in Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable to such reduction
(plus that portion of the Gross-Up Payment attributable to the Excise Tax and
federal, state and local income tax imposed on the Gross-Up Payment being repaid
by the Executive to the extent that such repayment results in a reduction in
Excise Tax and/or a federal, state or local income tax deduction) plus interest
on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of
the Code. In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder (including by reason of any payment the existence
or amount of which cannot be determined at the time of the Gross-Up Payment),
the Company shall make an additional Gross-Up Payment in respect of such excess
(plus any interest, penalties or additions payable by the Executive with respect
to such excess) at the time that the amount of such excess is finally
determined. The Executive and the Company shall each reasonably cooperate with
the other in connection with any administrative or judicial proceedings
concerning the existence or amount of liability for Excise Tax with respect to
the Total Payments.
(g) Release. Notwithstanding anything herein to the contrary, the Company's
obligation to make the payments provided for in this Section 5 is expressly made
subject to and conditioned upon (i) the Executive's prior execution of a release
substantially in the form attached hereto as Exhibit A within forty-five (45)
days after the applicable Date of Termination and (ii) the Executive's
non-revocation of such release in accordance with the terms thereof.
6. NONEXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit the Executive's continuing
or future participation in any benefit, plan, program, policy or practice
provided by the Company and for which the Executive may qualify (except with
respect to any benefit to which the Executive has waived his rights in writing),
nor shall anything herein limit or otherwise affect such rights as the Executive
may have under any other contract or agreement entered into after the Effective
Date with the Company. Amounts which are vested benefits or which the Executive
is otherwise entitled to receive under any benefit, plan, policy, practice or
program of, or any contract or agreement entered into with, the Company shall be
payable in accordance with such benefit, plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
7. FULL SETTLEMENT; MITIGATION.
The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others, provided
that nothing herein shall preclude the Company from separately pursuing recovery
from the Executive based on any such claim. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts (including amounts for damages for breach) payable to the
Executive under any of the provisions of this Agreement and such amounts shall
not be reduced whether or not the Executive obtains other employment.
8. ARBITRATION.
Any dispute about the validity, interpretation, effect or alleged violation
of this Agreement (an "arbitrable dispute") must be submitted to confidential
arbitration in San Diego, California. Arbitration shall take place before an
experienced employment arbitrator licensed to practice law in such state and
selected in accordance with the Model Employment Arbitration Procedures of the
American Arbitration Association. Arbitration shall be the exclusive remedy of
any arbitrable dispute. Should any party to this Agreement pursue any arbitrable
dispute by any method other than arbitration, the other party shall be entitled
to recover from the party initiating the use of such method all damages, costs,
expenses and attorneys' fees incurred as a result of the use of such method.
Notwithstanding anything herein to the contrary, nothing in this Agreement shall
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purport to waive or in any way limit the right of any party to seek to enforce
any judgment or decision on an arbitrable dispute in a court of competent
jurisdiction.
9. CONFIDENTIALITY.
The Executive acknowledges that in the course of his employment with the
Company he has acquired nonpublic privileged or confidential information and
trade secrets concerning the operations, future plans and methods of doing
business ("Proprietary Information") of the Company, its subsidiaries and
affiliates; and the Executive agrees that it would be extremely damaging to the
Company, its subsidiaries and affiliates if such Proprietary Information were
disclosed to a competitor of the Company, its subsidiaries and affiliates or to
any other person or corporation. The Executive understands and agrees that all
Proprietary Information has been divulged to the Executive in confidence and
further understands and agrees to keep all Proprietary Information secret and
confidential (except for such information which is or becomes publicly available
other than as a result of a breach by the Executive of this provision) without
limitation in time. In view of the nature of the Executive's employment and the
Proprietary Information the Executive has acquired during the course of such
employment, the Executive likewise agrees that the Company, its subsidiaries and
affiliates would be irreparably harmed by any disclosure of Proprietary
Information in violation of the terms of this paragraph and that the Company,
its subsidiaries and affiliates shall therefore be entitled to preliminary
and/or permanent injunctive relief prohibiting the Executive from engaging in
any activity or threatened activity in violation of the terms of this paragraph
and to any other relief available to them. Inquiries regarding whether specific
information constitutes Proprietary Information shall be directed to the
Company's Senior Vice President, Public Policy (or, if such position is vacant,
the Company's Chief Executive Officer), provided, that the Company shall not
unreasonably classify information as Proprietary Information.
10. NON-SOLICITATION OF EMPLOYEES.
The Executive recognizes that he possesses and will possess confidential
information about other employees of the Company, its subsidiaries and
affiliates relating to their education, experience, skills, abilities,
compensation and benefits, and inter-personal relationships with customers of
the Company, its subsidiaries and affiliates. The Executive recognizes that the
information he possesses and will possess about these other employees is not
generally known, is of substantial value to the Company, its subsidiaries and
affiliates in developing their business and in securing and retaining customers,
and has been and will be acquired by him because of his business position with
the Company, its subsidiaries and affiliates. The Executive agrees that, during
the Employment Period and for a period of one (1) year thereafter, he will not,
directly or indirectly, solicit or recruit any employee of the Company, its
subsidiaries or affiliates for the purpose of being employed by him or by any
competitor of the Company, its subsidiaries or affiliates on whose behalf he is
acting as an agent, representative or employee and that he will not convey any
such confidential information or trade secrets about other employees of the
Company, its subsidiaries and affiliates to any other person; provided, however,
that it shall not constitute a solicitation or recruitment of employment in
violation of this paragraph to discuss employment opportunities with any
employee of the Company, its subsidiaries or affiliates who has either first
contacted the Executive or regarding whose employment the Executive has
discussed with and received the written approval of the Company's Vice
President, Human Resources (or, if such position is vacant, the Company's Chief
Executive Officer), prior to making such solicitation or recruitment. In view of
the nature of the Executive's employment with the Company, the Executive
likewise agrees that the Company, its subsidiaries and affiliates would be
irreparably harmed by any solicitation or recruitment in violation of the terms
of this paragraph and that the Company, its subsidiaries and affiliates shall
therefore be entitled to preliminary and/or permanent injunctive relief
prohibiting the Executive from engaging in any activity or threatened activity
in violation of the terms of this paragraph and to any other relief available to
them.
11. LEGAL FEES.
The Company shall pay to the Executive all legal fees and expenses
(including but not limited to fees and expenses in connection with any
arbitration) incurred by the Executive in disputing in good faith any issue
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arising under this Agreement relating to the termination of the Executive's
employment or in seeking in good faith to obtain or enforce any benefit or right
provided by this Agreement, but in each case only to the extent the arbitrator
or court determines that the Executive had a reasonable basis for such claim.
12. SUCCESSORS.
(a) Assignment by Executive. This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) Successors and Assigns of Company. This Agreement shall inure to the
benefit of and be binding upon the Company, its successors and assigns.
(c) Assumption. The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its businesses and/or assets as
aforesaid that assumes and agrees to perform this Agreement by operation of law
or otherwise.
13. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without reference to its
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended, modified, repealed, waived, extended or discharged except by an
agreement in writing signed by the party against whom enforcement of such
amendment, modification, repeal, waiver, extension or discharge is sought. No
person, other than pursuant to a resolution of the Board or a committee thereof,
shall have authority on behalf of the Company to agree to amend, modify, repeal,
waive, extend or discharge any provision of this Agreement or anything in
reference thereto.
(b) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed, in
either case, to the Company's headquarters or to such other address as either
party shall have furnished to the other in writing in accordance herewith.
Notices and communications shall be effective when actually received by the
addressee.
(c) Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) Taxes. The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) No Waiver. The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(d) of this Agreement,
or the right of the Company to terminate the Executive's employment for Cause
pursuant to Section 4(b) of this Agreement shall not be deemed to be a waiver of
such provision or right or any other provision or right of this Agreement.
(f) Entire Agreement. This instrument contains the entire agreement of the
Executive, the Company or any predecessor or subsidiary thereof with respect to
the subject matter hereof, and all promises, representations, understandings,
arrangements and prior agreements are merged herein and superseded hereby
including, but not limited to, that certain employment agreement dated September
18, 1996 between the Executive and Enova. Notwithstanding the foregoing, the
provisions of any employee benefit or compensation plan, program
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or arrangement applicable to the Executive, including that certain Incentive
Bonus Agreement, entered into between the Executive and Enova, shall remain in
effect, except as expressly otherwise provided herein.
IN WITNESS WHEREOF, the Executive and, pursuant to due authorization from
its Board of Directors, the Company have caused this Agreement to be executed as
of the day and year first above written.
MINERAL ENERGY COMPANY
/s/ KEVIN C. SAGARA
--------------------------------------
Kevin C. Sagara
President
/s/ DONALD E. FELSINGER
--------------------------------------
Donald E. Felsinger
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ANNEX I
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13 DISSENTERS' RIGHTS
1300 [SHORT FORM MERGER; PURCHASE OF SHARES AT FAIR MARKET VALUE;
"DISSENTING SHARES" AND DISSENTING SHAREHOLDER].--(a) If the approval of the
outstanding shares (Section 152) of a corporation is required for a
reorganization under subdivisions (a) and (b) or subdivision (e) or (f) of
Section 1201, each shareholder of the corporation entitled to vote on the
transaction and each shareholder of a subsidiary corporation in a short-form
merger may, by complying with this chapter, require the corporation in which the
shareholder holds shares to purchase for cash at their fair market value the
shares owned by the shareholder which are dissenting shares as defined in
subdivision (b). The fair market value shall be determined as of the day before
the first announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock split, or share
dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
1301 [DISSENTER'S RIGHTS; DEMAND ON CORPORATION FOR PURCHASE OF
SHARES].--(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any
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dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph) not later than the date of the shareholders' meeting to vote upon the
reorganization, or (2) in any other case within 30 days after the date on which
the notice of the approval by the outstanding shares pursuant to subdivision (a)
or the notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or shortform merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
1302 [DISSENTING SHARES, STAMPING OR ENDORSING].--Within 30 days after the
date on which notice of the approval by the outstanding shares or the notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, the
shareholder shall submit to the corporation at its principal office or at the
office of any transfer agent thereof, (a) if the shares are certified
securities, the shareholder's certificates representing any shares which the
shareholder demands that the corporation purchase, to be stamped or endorsed
with a statement that the shares are dissenting shares or to be exchanged for
certificates of appropriate denomination so stamped or endorsed or (b) if the
shares are uncertificated securities, written notice of the number of shares
which the shareholder demands that the corporation purchase. Upon subsequent
transfers of the dissenting shares on the books of the corporation the new
certificates, initial transaction statement, and other written statements issued
therefor shall bear a like statement, together with the name of the original
dissenting holder of the shares.
1303 [DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST; TIME
OF PAYMENT].--(a) If the corporation and the shareholder agree that the shares
are dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
1304 [DISSENTERS ACTIONS; JOINDER; CONSOLIDATION; APPOINTMENT OF
APPRAISERS].--(a) If the corporation denies that the shares are dissenting
shares, or the corporation and the shareholder fail to agree upon the fair
market values of the shares, then the shareholder demanding purchase of such
shares as dissenting shares or any interested corporation, within six months
after the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed
to the shareholder, but not thereafter, may file a compliant in the superior
court of the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
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issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
1305 [APPRAISERS DUTY AND REPORT; COURT JUDGMENT; PAYMENT; APPEAL; COSTS OF
ACTION].--(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to meet and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
1306 [DISSENTING SHAREHOLDERS: EFFECT OF PREVENTION OF PAYMENT OF FAIR
MARKET VALUE].--To the extent that the provisions of Chapter 5 prevent the
payment to any holders of dissenting shares of their fair market value, they
shall become creditors of the corporation for the amount thereof together with
interest at the legal rate on judgments until the date of payment, but
subordinate to all other creditors in any liquidation proceeding, such debt to
be payable when permissible under the provisions of Chapter 5.
1307 [DISSENTING SHARES, DISPOSITION OF DIVIDENDS]. -- Cash dividends
declared and paid by the corporation upon the dissenting shares after the date
of approval of the reorganization by the outstanding shares (Section 152) and
prior to payment for the shares by the corporation shall be credited against the
total amount to be paid by the corporation therefor.
1308 [DISSENTING SHARES, RIGHTS AND PRIVILEGES]. -- Except as expressly
limited in this chapter, holders of dissenting shares continue to have all the
rights and privileges incident to their shares, until the fair market value of
their shares is agreed upon or determined. A dissenting shareholder may not
withdraw a demand for payment unless the corporation consents thereto.
1309 [DISSENTING SHARES, LOSS OF STATUS]. -- Dissenting shares lose their
status as dissenting shares and the holders thereof cease to be dissenting
shareholders and cease to be entitled to require the corporation to purchase
their shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
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(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
1310 [SUSPENSION OF CERTAIN PROCEEDINGS WHILE LITIGATION IS PENDING]. --
If litigation is instituted to test the sufficiency or regularity of the votes
of the shareholders in authorizing a reorganization, any proceedings under
Section 1304 and 1305 shall be suspended until final determination of such
litigation.
1311 [CHAPTER INAPPLICABLE TO CERTAIN CLASSES OF SHARES]. -- This chapter,
except Section 1312, does not apply to classes of shares whose terms and
provisions specifically set forth the amount to be paid in respect to such
shares in the event of a reorganization or merger.
1312 [VALIDITY OF REORGANIZATION OR SHORT FORM MERGER, ATTACK ON;
SHAREHOLDERS' RIGHTS; BURDEN OF PROOF]. --(a) No shareholder of a corporation
who has a right under this chapter to demand payment of cash for the shares held
by the shareholder shall have any right at law or in equity to attack the
validity of the reorganization or shortform merger, or to have the
reorganization or short-form merger set aside or rescinded, except in an action
to test whether the number of shares required to authorize or approve the
reorganization have been legally voted in favor thereof; but any holder of
shares of a class whose terms and provisions specifically set forth the amount
to be paid in respect to them in the event of a reorganization or short-form
merger is entitled to payment in accordance with those terms and provisions or,
if the principal terms of the reorganization are approved pursuant to
subdivision (b) of Section 1202, is entitled to payment in accordance with the
terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days,
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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ANNEX J
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MINERAL ENERGY COMPANY
ARTICLE I
NAME
The name of the corporation is Mineral Energy Company (the "CORPORATION").
ARTICLE II
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of California (the "GENERAL CORPORATION LAW"), other than the banking
business, the trust company business or the practice of a profession permitted
to be incorporated by the California Corporations Code.
ARTICLE III
CAPITAL STOCK
1. The total number of shares of all classes of stock that the Corporation
is authorized to issue is 800,000,000, of which 750,000,000 shall be shares of
common stock, no par value ("COMMON STOCK"), and 50,000,000 shall be shares of
preferred stock ("PREFERRED STOCK"). The Preferred Stock may be issued in one or
more series.
2. The board of directors of the Corporation (the "BOARD") is authorized
(a) to fix the number of shares of Preferred Stock of any series; (b) to
determine the designation of any such series; (c) to increase or decrease (but
not below the number of shares of such series then outstanding) the number of
shares of any such series subsequent to the issue of shares of that series; and
(d) to determine or alter the rights, preferences, privileges and restrictions
granted to or imposed upon any such series.
3. Sections 502 and 503 of the General Corporation Law shall not apply to
distributions on Common Stock or Preferred Stock.
ARTICLE IV
DIRECTORS
1. The exact number of directors comprising the entire Board shall be fixed
from time to time by resolution of the Board, or by a bylaw or amendment thereof
duly adopted by the Board or approved by not less than two-thirds of the
outstanding shares entitled to vote generally in election of Directors.
2. The Board of Directors shall be divided into three classes, designated
Class I, Class II and Class III, as nearly equal in number as possible, and the
term of office of directors of one class shall expire at each annual meeting of
shareholders, but in all cases continue as to each director until his or her
successor shall be elected and shall qualify or until his or her earlier
resignation, removal from office, death or incapacity. Additional directorships
resulting from an increase in number of directors shall be apportioned among the
classes as equally as possible. The initial terms of office shall be determined
by resolution duly adopted by the Board. At each annual meeting of shareholders
the number of directors equal to the number of directors of the
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class whose term expires at the time of such meeting (or, if fewer, the number
of directors properly nominated and qualified for election) shall be elected to
hold office until the third succeeding annual meeting of shareholders after
their election. This Section shall become effective only when the Corporation
becomes a "listed corporation" within the meaning of Section 301.5 of the
General Corporation Law.
3. Vacancies in the Board, including, without limitation, vacancies created
by the removal of any director, may be filled by a majority of the directors
then in office, whether or not less than a quorum, or by a sole remaining
director.
ARTICLE V
CUMULATIVE VOTING
No shareholder may cumulate votes in the election of directors. This
Article V shall become effective only when the Corporation becomes a "listed
corporation" within the meaning of Section 301.5 of the General Corporation Law.
ARTICLE VI
ACTION BY SHAREHOLDERS
Unless the Board of Directors, by a resolution adopted by two-thirds of the
authorized number of directors, waives the provisions of this Article in any
particular circumstance, any action required or permitted to be taken by
shareholders of the Corporation must be taken either (i) at a duly called annual
or special meeting of shareholders of the Corporation or (ii) by the unanimous
written consent of all of the shareholders.
ARTICLE VII
LIABILITY OF DIRECTORS FOR MONETARY DAMAGES;
INDEMNIFICATION OF AND INSURANCE FOR CORPORATE AGENTS
1. The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
2. The Corporation shall have the power, by bylaw, agreement or otherwise,
to provide indemnification of agents (as defined in Section 317 of the General
Corporation Law) of the corporation to the fullest extent permissible under
California law and in excess of that expressly permitted under Section 317 of
the General Corporation Law, subject to the limits on such excess
indemnification set forth in Section 204 of the General Corporation Law.
3. The Corporation shall have the power to purchase and maintain insurance
on behalf of any agent (as defined in Section 317 of the General Corporation
Law) of the corporation against any liability asserted against or incurred by
the agent in that capacity or arising out of the agent's status as such to the
fullest extent permissible under California law and whether or not the
corporation would have the power to indemnify the agent under Section 317 of the
General Corporation Law or these articles of incorporation.
ARTICLE VIII
BY-LAWS
The Board of Directors is expressly authorized to make, amend or repeal the
bylaws of the Corporation, without any action on the part of the shareholders,
except as otherwise required by the General Corporation Law, solely by the
affirmative vote of at least two-thirds of the authorized number of directors.
The bylaws may also be amended or repealed by the shareholders, but only by the
affirmative vote of the holders of shares representing at least two-thirds of
the outstanding shares of the Corporation entitled to vote generally in election
of Directors.
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ARTICLE IX
AMENDMENT
The amendment or repeal of Articles IV, V, VI, VII, VIII and IX shall
require the approval of not less than two-thirds of the outstanding shares
entitled to vote generally in election of Directors.
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ANNEX K
AMENDED AND RESTATED
BYLAWS
OF
MINERAL ENERGY COMPANY
ARTICLE I
CORPORATE MANAGEMENT
The business and affairs of Mineral Energy Company (the "CORPORATION")
shall be managed, and all corporate powers shall be exercised, by or under the
direction of the board of directors of the Corporation (the "BOARD"), subject to
the articles of incorporation and the General Corporation Law of the State of
California (the "GENERAL CORPORATION LAW").
ARTICLE II
OFFICERS
1. Designation. The officers of the Corporation shall consist of a Chairman
of the Board (the "CHAIRMAN"), a Vice Chairman of the Board (the "VICE
CHAIRMAN"), a Chief Executive Officer or a President, or both, a Chief Operating
Officer, one or more Vice Presidents, a Secretary, one or more Assistant
Secretaries, a Treasurer, one or more Assistant Treasurers, a Controller, one or
more Assistant Controllers, and such other officers as the Board may from time
to time elect. Any two or more of such offices may be held by the same person.
2. Term. The officers shall be elected by the Board as soon as possible
after the Annual Meeting of the Shareholders, and shall hold office for one year
or until their successors are duly elected. Any officers may be removed from
office at any time, with or without cause, by the vote of a majority of the
authorized number of Directors. The Board may fill vacancies or elect new
officers at any time.
3. Chairman. The Chairman shall be a director and shall preside at meetings
of the Board and meetings of the Shareholders. The Chairman shall be responsible
for Board and Shareholder governance and shall have such duties and
responsibilities as are customarily assigned to such positions.
4. Vice Chairman. The Vice Chairman shall be a director and, in the absence
of the Chairman, shall preside at meetings of the Board and meetings of
Shareholders. The Vice Chairman shall assist the Chairman in his responsibility
for Board and Shareholder governance and shall have such duties as are
customarily assigned to such position.
5. Chief Executive Officer. The duties of the Chief Executive Officer of
the Corporation shall include, but not be limited to, directing the overall
business, affairs and operations of the Corporation, through its officers, all
of whom shall report directly or indirectly to the Office of the Chairman or, if
there is no Office of the Chairman, to the Chief Executive Officer.
6. President. The duties of the President of the Corporation shall include,
but not be limited to, assisting the Chief Executive Officer (to the extent the
President is not also the Chief Executive Officer) in directing the overall
business, affairs and operations of the Corporation.
7. Chief Operating Officer. The duties of the Chief Operating Officer of
the Corporation shall include, but not be limited to, directing the day-to-day
business, affairs and operations of the Corporation, under the supervision of
the Chief Executive Officer and (to the extent the Chief Executive Officer is
not also the President) the President.
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8. Vice Presidents. The Vice Presidents, one of whom shall be the chief
financial officer, shall have such duties as the Chief Executive Officer or the
Board shall designate.
9. Chief Financial Officer. The Chief Financial Officer shall be
responsible for the issuance of securities and the management of the
Corporation's cash, receivables and temporary investments.
10. Secretary and Assistant Secretary. The Secretary shall attend all
meetings of the Shareholders and the Board, keep a true and accurate record of
the proceedings of all such meetings and attest the same by his or her
signature, have charge of all books, documents and papers which appertain to the
office, have custody of the corporate seal and affix it to all papers and
documents requiring sealing, give all notices of meetings, have the custody of
the books of stock certificates and transfers, issue all stock certificates, and
perform all other duties usually appertaining to the office and all duties
designated by the bylaws, the Chief Executive Officer or the Board. In the
absence of the Secretary, any Assistant Secretary may perform the duties and
shall have the powers of the Secretary.
11. Treasurer and Assistant Treasurer. The Treasurer shall perform all
duties usually appertaining to the office and all duties designated by the Chief
Executive Officer or the Board. In the absence of the Treasurer, any Assistant
Treasurer may perform the duties and shall have all the powers of the Treasurer.
12. Controller and Assistant Controller. The Controller shall be
responsible for establishing financial control policies for the Corporation,
shall be its principal accounting officer, and shall perform all duties usually
appertaining to the office and all duties designated by the Chief Executive
Officer or the Board. In the absence of the Controller, any Assistant Controller
may perform the duties and shall have all the powers of the Controller.
ARTICLE III
DIRECTORS
1. Number. The Board shall consist of not less than nine nor more than 17
Directors. The exact number of Directors shall be fixed from time to time,
within the limits specified, in the manner specified in the articles of
incorporation.
2. Election. A Board shall be elected as set forth in the articles of
incorporation.
3. Vacancies. Vacancies in the Board may be filled as set forth in the
articles of incorporation.
4. Compensation. Members of the Board shall receive such compensation as
the Board may from time to time determine.
5. Regular Meetings. A regular meeting of the Board shall be held
immediately after each Annual Meeting of Shareholders. Other regular meetings of
the Board shall be held on such dates and at such times and places as may be
designated by resolution of the Board.
6. Special Meetings. Special meetings of the Board may be called at any
time by the Chairman, the Vice Chairman, the Chief Executive Officer, the
President or a majority of the authorized number of Directors.
7. Notice of Meetings. Written notice shall be given to each Director of
the date, time and place of each regular meeting and each special meeting of the
Board. If given by mail, such notice shall be mailed to each Director at least
four days before the date of such meeting, or such notice may be given to each
Director personally or by telegram at least 48 hours before the time of such
meeting. Every notice of special meeting shall state the purpose for which such
meeting is called. Notice of a meeting need not be given to any Director who
signs a waiver of notice, whether before or after the meeting, or who attends
the meeting without protesting, prior thereto or at its commencement, the lack
of notice to such Director.
8. Quorum. A majority of the authorized number of Directors shall be
necessary to constitute a quorum for the transaction of business, and every act
or decision of a majority of the Directors present at a meeting at which a
quorum is present shall be valid as the act of the Board, provided that a
meeting at which a quorum is
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initially present may continue to transact business, notwithstanding the
withdrawal of Directors, if any action taken is approved by at least a majority
of the required quorum for such meeting. A majority of Directors present at any
meeting, in the absence of a quorum, may adjourn to another time.
9. Action Upon Consent. Any action required or permitted to be taken by the
Board may be taken without a meeting, if all members of the Board shall
individually or collectively consent in writing to such action.
10. Telephonic Participation. Members of the Board may participate in a
meeting through use of conference telephone or similar communications equipment,
so long as all members participating in the meeting can hear one another. Such
participation constitutes presence in person at the meeting.
11. Directors Emeritus. The Board may from time to time elect one or more
Directors Emeritus. Each Director Emeritus shall have the privilege of attending
meetings of the Board, upon invitation of the Chairman, the Vice Chairman, the
Chief Executive Officer or the President. No Director Emeritus shall be entitled
to vote on any business coming before the Board or be counted as a member of the
Board for any purpose whatsoever.
ARTICLE IV
COMMITTEES
1. Executive Committee. The Board shall appoint an Executive Committee. The
Chairman shall be ex officio the Chairman thereof, unless the Board shall
appoint another member as Chairman. The Executive Committee shall be composed of
members of the Board, and shall at all times be subject to its control. The
Executive Committee shall have all the authority of the Board, except with
respect to:
(a) The approval of any action which also requires Shareholders'
approval;
(b) The filling of vacancies on the Board or on any committee;
(c) The fixing of compensation of the Directors for serving on the
Board or on any committee;
(d) The amendment or repeal of bylaws or the adoption of new bylaws;
(e) The amendment or repeal of any resolution of the Board which by
its express terms is not so amendable or repealable;
(f) A distribution to the Shareholders; and
(g) The appointment of other committees of the Board or the members
thereof.
2. Audit Committee. The Board shall appoint an Audit Committee comprised
solely of Directors who are neither officers nor employees of the Corporation
and who are free from any relationship that, in the opinion of the Board, would
interfere with the exercise of independent judgment as committee members. The
Audit Committee shall review and make recommendations to the Board with respect
to:
(a) The engagement of an independent accounting firm to audit the
Corporation's financial statements and the terms of such engagement;
(b) The policies and procedures for maintaining the Corporation's
books and records and for furnishing appropriate information to the
independent auditor;
(c) The evaluation and implementation of any recommendations made by
the independent auditor;
(d) The adequacy of the Corporation's internal audit controls and
related personnel; and
(e) Such other matters relating to the Corporation's financial affairs
and accounts as the Committee deems desirable.
3. Other Committees. The Board may appoint such other committees of its
members as it shall deem desirable, and, within the limitations specified for
the Executive Committee, may vest such committees with
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such powers and authorities as it shall see fit, and all such committees shall
at all times be subject to its control.
4. Notice of Meetings. Notice of each meeting of any committee of the Board
shall be given to each member of such committee, and the giving of such notice
shall be subject to the same requirements as the giving of notice of meetings of
the Board, unless the Board shall establish different requirements for the
giving of notice of committee meetings.
5. Conduct of Meetings. The provisions of these bylaws with respect to the
conduct of meetings of the Board shall govern the conduct of committee meetings.
Written minutes shall be kept of all committee meetings.
ARTICLE V
SHAREHOLDER MEETINGS
1. Annual Meeting. (a) An Annual Meeting of Shareholders shall be held each
year on such date and at such time as may be designated by resolution of the
Board.
(b) At an Annual Meeting of Shareholders, only such business shall be
conducted as shall have been properly brought before the Annual Meeting. To be
properly brought before an Annual Meeting, business must be (i) specified in the
notice of the Annual Meeting (or any supplement thereto) given by or at the
direction of the Board and (ii) otherwise properly brought before an Annual
Meeting by a Shareholder. For business to be properly brought before an Annual
Meeting by a Shareholder, including the nomination of any person (other than a
person nominated by or at the direction of the Board) for election to the Board,
the Shareholder must have given timely and proper written notice to the
Secretary of the Corporation. To be timely, the Shareholder's written notice
must be received at the principal executive office of the Corporation not less
than 60 nor more than 120 in advance of the date corresponding to the date of
the last Annual Meeting of Shareholders; provided, however, that in the event
the Annual Meeting to which the Shareholder's written notice relates is to be
held on a date that differs by more than 60 days from the date of the last
Annual Meeting of Shareholders, the Shareholder's written notice to be timely
must be so received not later than the close of business on the tenth day
following the date on which public disclosure of the date of the Annual Meeting
is made or given to Shareholders. To be proper, the Shareholder's written notice
must set forth as to each matter the Shareholder proposes to bring before the
Annual Meeting (w) a brief description of the business desired to be brought
before the Annual Meeting, (x) the name and address of the Shareholder as they
appear on the Corporation's books, (y) the class and number of shares of the
Corporation that are beneficially owned by the Shareholder and (z) any material
interest of the Shareholder in such business. In addition, if the Shareholder's
written notice relates to the nomination at the Annual Meeting of any person for
election to the Board, such notice to be proper must also set forth (A) the
name, age, business address and residence address of each person to be so
nominated, (B) the principal occupation or employment of each such person, (C)
the number of shares of capital stock of the Corporation beneficially owned by
each such person and (D) such other information concerning each such person as
would be required under the rules of the Securities and Exchange Commission in a
proxy statement soliciting proxies for the election of such person as a
Director, and must be accompanied by a consent, signed by each such person, to
serve as a Director of the Corporation if elected. Notwithstanding anything in
the Bylaws to the contrary, no business shall be conducted at an Annual Meeting
except in accordance with the procedures set forth in this Section.
2. Special Meetings. Special meetings of the Shareholders for any purpose
whatsoever may be called at any time by the Chairman, the Vice Chairman, the
Chief Executive Officer, the President or the Board, or by one or more
Shareholders holding not less than one-tenth of the voting power of the
Corporation. Within five business days after receiving such a written request
from Shareholders of the corporation, the Board shall determine whether such
Shareholders own not less than one-tenth of the voting power of the Corporation
and notify the requesting party or parties of its finding.
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<PAGE> 218
3. Place of Meetings. All meetings of the Shareholders shall be held at the
principal office of the Corporation in San Diego, California, or at such other
locations as may be designated by the Board.
4. Notice of Meetings. Written notice shall be given to each Shareholder
entitled to vote of the date, time, place and general purpose of each meeting of
Shareholders. Notice may be given personally, or by mail, or by telegram,
charges prepaid, to the Shareholder's address appearing on the books of the
Corporation. If a Shareholder supplies no address to the Corporation, notice
shall be deemed to be given if mailed to the place where the principal office of
the Corporation is situated, or published at least once in some newspaper of
general circulation in the county of said principal office. Notice of any
meeting shall be sent to each Shareholder entitled thereto not less than 10 or
more than 60 days before such meeting.
5. Voting. The Board may fix a time in the future not less than 10 or more
than 60 days preceding the date of any meeting of Shareholders, or not more than
60 days preceding the date fixed for the payment of any dividend or
distribution, or for the allotment of rights, or when any change or conversion
or exchange of shares shall go into effect, as a record date for the
determination of the Shareholders entitled to notice of and to vote at any such
meeting or entitled to receive any such dividend or distribution, or any such
allotment of rights, or to exercise the rights in respect to any such change,
conversion, or exchange of shares. In such case only Shareholders of record at
the close of business on the date so fixed shall be entitled to notice of and to
vote at such meeting or to receive such dividend, distribution or allotment of
rights, or to exercise such rights, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after any record date
fixed as aforesaid. The Board may close the books of the Corporation against any
transfer of shares during the whole or any part of such period.
6. Quorum. At any Shareholders' meeting a majority of the shares entitled
to vote must be represented in order to constitute a quorum for the transaction
of business, but a majority of the shares present, or represented by proxy,
though less than a quorum, may adjourn the meeting to some other date, and from
day to day or from time to time thereafter until a quorum is present.
7. Confidential Voting. Each Shareholder of the Corporation shall be
entitled to elect voting confidentiality as provided in this Section 7 on all
matters submitted to Shareholders by the Board and each form of proxy, consent,
ballot or other written voting instruction distributed to the Shareholders shall
include a check box or other appropriate mechanism by which Shareholders who
desire to do so may so elect voting confidentiality. All inspectors of election,
vote tabulators and other persons appointed or engaged by or on behalf of the
Corporation to process voting instructions (none of whom shall be a Director or
officer of the Corporation or any of its affiliates) shall be advised of and
instructed to comply with this Section 7 and, except as required or permitted
hereby, not at any time to disclose to any person (except to other persons
engaged in processing voting instructions), the identity and individual vote of
any Shareholder electing voting confidentiality; provided, however, that voting
confidentiality shall not apply and the name and individual vote of any
Shareholder may be disclosed to the Corporation or to any person (i) to the
extent that such disclosure is required by applicable law or is appropriate to
assert or defend any claim relating to voting or (ii) with respect to any matter
for which votes of Shareholders are solicited in opposition to any of the
nominees or the recommendations of the Board unless the persons engaged in such
opposition solicitation provide Shareholders of the Corporation with voting
confidentiality (which, if not otherwise provided, will be requested by the
Corporation) comparable in the opinion of the Corporation to the voting
confidentiality provided by this Section 7.
ARTICLE VI
CERTIFICATE OF SHARES
1. Form. Certificates for shares of the Corporation shall state the name of
the registered holder of the shares represented thereby, and shall be signed by
the Chairman, the Vice Chairman, the Chief Executive Officer, the President or a
Vice President, and by the Secretary or an Assistant Secretary. Any such
signature may be by facsimile thereof.
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<PAGE> 219
2. Surrender. Upon a surrender to the Secretary, or to a transfer agent or
transfer clerk of the Corporation, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the party entitled
thereto, cancel the old certificate and record the transaction upon its books.
3. Right of Transfer. When a transfer of shares on the books is requested,
and there is a reasonable doubt as to the rights of the persons seeking such
transfer, the Corporation, or its transfer agent or transfer clerk, before
entering the transfer of the shares on its books or issuing any certificate
therefor, may require from such person reasonable proof of his or her rights,
and, if there remains a reasonable doubt in respect thereto, may refuse a
transfer unless such person shall give adequate security or a bond of indemnity
executed by a corporate surety, or by two individual sureties, satisfactory to
the Corporation as to form, amount and responsibility of sureties.
4. Conflicting Claims. The Corporation shall be entitled to treat the
holder of record of any shares as the holder in fact thereof and shall not be
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not it shall have express or other
notice thereof, save as expressly provided by the laws of the State of
California.
5. Loss Theft and Destruction. In the case of the alleged loss, theft or
destruction of any certificate of shares, another may be issued in its place as
follows: (1) the owner of the lost, stolen or destroyed certificate shall file
with the transfer agent of the Corporation a duly executed Affidavit or Loss and
Indemnity Agreement and Certificate of Coverage, accompanied by a check
representing the cost of the bond as outlined in any blanket lost securities and
avoid administration bond previously approved by the Directors of the
Corporation and executed by a surety company satisfactory to them, which bond
shall indemnify the Corporation, its transfer agents and registrars; or (2) the
Board may, in its discretion, authorize the issuance of a new certificate to
replace a lost, stolen or destroyed certificate on such other terms and
conditions as it may determine to be reasonable.
ARTICLE VII
INDEMNIFICATION OF CORPORATE AGENTS
1. Definitions. For the purposes of this Article, "agent" means any person
who (i) is or was a Director, officer, employee or other agent of the
Corporation, (ii) is or was serving at the request of the Corporation as a
director, officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or (iii) was a director,
officer, employee or agent of a foreign or domestic corporation which was a
predecessor corporation of the Corporation or of another enterprise at the
request of such predecessor corporation; "proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes, without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under Sections 4 or 5(c) of this Article.
2. Indemnification for Third Party Actions. The Corporation shall indemnify
any person who is or was a party, or is threatened to be made a party, to any
proceeding (other than an action by or in the right of the Corporation to
procure a judgment in its favor) by reason of the fact that such person is or
was an agent of the Corporation against expenses, judgments, fines, settlements
and other amounts actually and reasonably incurred in connection with such
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in the best interests of the Corporation and, in the
case of a criminal proceeding, had no reasonable cause to believe the conduct of
such person was unlawful. The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which the person reasonably believed to be in the best interests
of the Corporation or that the person had reasonable cause to believe that the
person's conduct was unlawful.
3. Indemnification for Derivative Actions. The Corporation shall indemnify
any person who is or was a party, or is threatened to be made a party, to any
threatened, pending or completed action by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that such person is or was
an agent of
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<PAGE> 220
the Corporation against expenses actually and reasonably incurred by such person
in connection with the defense or settlement of such action if such person acted
in good faith and in a manner such person believed to be in the best interests
of the Corporation and its Shareholders. No indemnification shall be made under
this Section in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation in the performance of
such person's duty to the Corporation and its Shareholders, unless and only to
the extent that the court in which such proceeding is or was pending shall
determine upon application that, in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for expenses and then
only to the extent that the court shall determine; (b) of amounts paid in
settling or otherwise disposing of a pending action without court approval; or
(c) of expenses incurred in defending a pending action which is settled or
otherwise disposed of without court approval.
4. Successful Defense. Notwithstanding any other provision of this Article,
to the extent that an agent of the Corporation has been successful on the merits
or otherwise (including the dismissal of an action without prejudice or the
settlement of a proceeding or action without admission of liability) in defense
of any proceeding referred to in Sections 2 or 3 of this Article, or in defense
of any claim, issue or matter therein, the agent shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred in
connection therewith.
5. Discretionary Indemnification. Except as provided in Section 4, any
indemnification under Section 3 of this Article shall be made by the Corporation
only if authorized in the specific case, upon a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in Section 3, by (a) a
majority vote of a quorum consisting of Directors who are not parties to such
proceeding; (b) if such a quorum of Directors is not obtainable, by independent
legal counsel in a written opinion; (c) approval by the affirmative vote of a
majority of the shares of this Corporation represented and voting at a duly held
meeting at which a quorum is present (which shares voting affirmatively also
constitute at least a majority of the required quorum) or by the written consent
of holders of a majority of the outstanding shares which would be entitled to
vote at such meeting and, for such purpose, the shares owned by the person to be
indemnified shall not be considered outstanding or entitled to vote; or (d) the
court in which such proceeding is or was pending, upon application made by the
Corporation, the agent or the attorney or other person rendering services in
connection with the defense, whether or not such application by said agent,
attorney or other person is opposed by the Corporation.
6. Advancement of Expenses. Expenses incurred in defending any proceeding
may be advanced by the Corporation prior to the final disposition of such
proceeding upon receipt of an undertaking by or on behalf of the agent to repay
such amount if it shall be determined ultimately that the agent is not entitled
to be indemnified as authorized in this Article.
7. Restriction on Indemnification. No indemnification or advance shall be
made under this Article, except as provided in Sections 4 and 6 hereof, in any
circumstance where it appears that it would be inconsistent with (a) a provision
of the articles of incorporation of the Corporation, its bylaws, a resolution of
the Shareholders or an agreement in effect at the time of the accrual of the
alleged cause of action asserted in the proceeding in which the expenses were
incurred or other amounts were paid which prohibits or otherwise limits
indemnification; or (b) any condition expressly imposed by a court in approving
a settlement.
8. Non-Exclusive. The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any statute, bylaw, agreement, vote of Shareholders or
disinterested Directors or otherwise, both as to action in an official capacity
and as to action in another capacity while holding such office. The rights to
indemnification under this Article shall continue as to a person who has ceased
to be a Director, officer, employee, or agent and shall inure to the benefit of
the heirs, executors, and administrators of the person. Nothing contained in
this Section 8 of this Article shall affect any right to indemnification to
which persons other than such Directors and officers may be entitled by contract
or otherwise.
9. Expenses as a Witness. To the extent that any agent of the Corporation
is by reason of such position, or a position with another entity at the request
of the Corporation, a witness in any action, suit or proceeding,
K-7
<PAGE> 221
he or she shall be indemnified against all costs and expenses actually and
reasonably incurred by him or her or on his or her behalf in connection
therewith.
10. Insurance. The Corporation may purchase and maintain directors and
officers liability insurance, at its expense, to protect itself and any
Director, officer or other named or specified agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss asserted against or incurred by the agent
in such capacity or arising out of the agent's status as such, whether or not
the Corporation would have the power to indemnify the agent against such
expense, liability or loss under the provisions of this Article or under the
General Corporation Law.
11. Separability. Each and every paragraph, sentence, term and provision of
this Article is separate and distinct so that if any paragraph, sentence, term
or provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
unenforceability of any other paragraph, sentence, term or provision hereof. To
the extent required, any paragraph, sentence, term or provision of this Article
may be modified by a court of competent jurisdiction to preserve its validity
and to provide the claimant with, subject to the limitations set forth in this
Article and any agreement between the Corporation and claimant, the broadest
possible indemnification permitted under applicable law. If this Article or any
portion hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless have the power to
indemnify each Director, officer, employee, or other agent against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
with respect to any action, suit, proceeding or investigation, whether civil,
criminal or administrative, and whether internal or external, including a grand
jury proceeding and including an action or suit brought by or in the right of
the Corporation, to the full extent permitted by any applicable portion of this
Article that shall not have been invalidated or by any other applicable law.
12. Agreements. Upon, and in the event of, a determination of the Board to
do so, the Corporation is authorized to enter into indemnification agreements
with any or all of its Directors, officers, employees and other agents providing
for indemnification to the fullest extent permissible under California law and
the Corporation's articles of incorporation.
13. Retroactive Appeal. In the event this Article is repealed or modified
so as to reduce the protection afforded herein, the indemnification provided by
this Article shall remain in full force and effect with respect to any act or
omission occurring prior to such repeal or modification.
ARTICLE VIII
OBLIGATIONS
All obligations of the Corporation, including promissory notes, checks,
drafts, bills of exchange, and contracts of every kind, and evidences of
indebtedness issued in the name of, or payable to, or executed on behalf of the
Corporation, shall be signed or endorsed by such officer or officers, or agent
or agents, of the Corporation and in such manner as, from time to time, shall be
determined by the Board.
ARTICLE IX
CORPORATE SEAL
The corporate seal shall set forth the name of the Corporation, state, and
date of incorporation.
ARTICLE X
AMENDMENTS
These bylaws may be amended or repealed as set forth in the articles of
incorporation.
K-8
<PAGE> 222
ARTICLE XI
AVAILABILITY OF BYLAWS
A current copy of these bylaws shall be mailed or otherwise furnished to
any Shareholder of record within five days after receipt of a request therefor.
K-9
<PAGE> 223
If you are planning to attend the Pacific Enterprises Special Meeting of
Shareholders in person, please bring the admission ticket printed on this page
with you. If you do not have an admission ticket, verification of share
ownership will be necessary to obtain admission to the Annual Meeting. See
"Notice of Special Meeting of Shareholders" for details.
PACIFIC ENTERPRISES
ADMISSION TICKET
FOR SPECIAL MEETING OF SHAREHOLDERS
A SPECIAL MEETING OF SHAREHOLDERS OF PACIFIC ENTERPRISES
WILL BE HELD AT 10:00 A.M., LOCAL TIME
ON TUESDAY, MARCH 11, 1997 AT
THE WESTIN BONAVENTURE HOTEL,
404 SOUTH FIGUEROA STREET,
LOS ANGELES, CALIFORNIA
ADMIT ONE SHAREHOLDER AND GUEST
(Doors open at 9:00 a.m. You may by-pass the registration area and present this
ticket to the hosts at the inside doors.)
NOTE: Cameras, tape recorders, etc., will not be allowed in the meeting room.
<PAGE> 224
EXHIBIT 99.1
PROXY
PACIFIC ENTERPRISES
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
RICHARD D. FARMAN, THOMAS C. SANGER and WILLIS B. WOOD, JR., or any of
them, with full power of substitution, are authorized to vote the stock of the
undersigned at the Special Meeting of Shareholders of Pacific Enterprises to be
held on Tuesday, March 11, 1997 at 10:00 a.m., local time, or at any
adjournment.
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED ON THE REVERSE AND, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR APPROVAL OF THE PRINCIPAL TERMS OF THE
BUSINESS COMBINATION OF PACIFIC ENTERPRISES AND ENOVA CORPORATION.
(Continued - to be signed and dated - on reverse side.)
- -------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<TABLE>
<S> <C> <C>
Please mark
your votes as [X]
in this example
PACIFIC ENTERPRISES' BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING:
FOR AGAINST ABSTAIN
Approval of the principal terms of [ ] [ ] [ ] Mark here if you desire confidential [ ]
the Business Combination of Pacific voting in accordance with the policy
Enterprises and Enova Corporation described in the accompanying Joint
described in the accompanying Joint Proxy Statement/Prospectus.
Proxy Statement/Prospectus.
Mark here if you expect to attend the [ ]
Special Meeting in person.
</TABLE>
__
|
Signature(s): ____________________________________ Date: __________, 1997
Please sign exactly as name appears hereon.
- -------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 225
PROXY
CONFIDENTIAL VOTING INSTRUCTIONS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PACIFIC ENTERPRISES
T. Rowe Price Trust Company, Trustee for the Retirement Savings Plans
of Pacific Enterprises and its subsidiaries, is authorized and instructed to
vote or appoint a proxy or proxies to vote all shares of stock of Pacific
Enterprises credited to my account in such Plans at the Special Meeting of
Shareholders of Pacific Enterprises to be held on Tuesday, March 11, 1997
at 10:00 a.m., or at any adjournment.
The Retirement Savings Plans of Pacific Enterprises and its
subsidiaries make provisions for you to give confidential instructions as to
how you wish shares held by you in the Plans to be voted at the Special Meeting
of Shareholders of Pacific Enterprises. The Trustee will vote shares held in
the Plans for which instructions are not timely received and shares not
allocated to individual accounts in the same manner and ratio as shares for
which voting instructions are timely received from participants in the Plans.
Revocation or change of vote can be made only by new instructions received at
least two days before the meeting.
THIS INSTRUCTION WILL BE VOTED IN THE MANNER DIRECTED ON THE REVERSE AND, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR APPROVAL OF THE PRINCIPAL TERMS OF THE
BUSINESS COMBINATION OF PACIFIC ENTERPRISES AND ENOVA CORPORATION.
(Continued - to be signed and dated - on reverse side)
- ------------------------------------------------------------------------------
FOLD AND DETACH HERE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Please mark
your vote [X]
as in this
example
Pacific Enterprises' Board of Directors recommends a vote FOR
the following:
FOR AGAINST ABSTAIN
Approval of the principal terms of the [ ] [ ] [ ] Voting instructions must be received by the Trustee, and
Business Combination of Pacific may be revoked or changed only by new instructions
Enterprises and Enova Corporation received by the Trustee, at least two days before the
described in the accompanying Joint Special Meeting.
Proxy Statement/Prospectus.
Mark here if you plan to attend the Special Meeting [ ]
in person.
__________
|
|
|
Signature(s): ________________________________________________________________________Date: ______________________________, 1997
Please sign exactly as name appears hereon.
- ----------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
</TABLE>
<PAGE> 226
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Mineral Energy Company on Form S-4 and in the Joint Proxy Statement of Pacific
Enterprises and Enova Corporation/Prospectus of Mineral Energy Company,
forming a part thereof, of our reports dated January 31, 1996, appearing in and
incorporated by reference in the Annual Report on Form 10-K of Pacific
Enterprises for the year ended December 31, 1995, and to the reference to us
under the heading "Experts" in the Joint Proxy Statement of Pacific Enterprises
and Enova Corporation/Prospectus of Mineral Energy Company, which is part of
this Registration Statement.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 4, 1997
