<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1995
REGISTRATION NO. 033-57007
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SDO PARENT CO., INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 6719 33-0643023
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
JURISDICTION OF CODE NUMBER)
INCORPORATION OR
ORGANIZATION)
101 ASH STREET
SAN DIEGO, CALIFORNIA 92101
(619) 696-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES),
----------------
N. A. PETERSON
101 ASH STREET
SAN DIEGO, CALIFORNIA 92101
(619) 696-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
IT IS REQUESTED THAT COPIES OF COMMUNICATIONS BE SENT TO:
DAVID R. SNYDER
PILLSBURY MADISON & SUTRO
101 W. BROADWAY, SUITE 1800
SAN DIEGO, CALIFORNIA 92101
(619) 544-3369
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
----------------
THIS REGISTRATION STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH THE PROVISIONS OF SECTION 8(A) OF THE SECURITIES ACT OF 1933.
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<PAGE>
SDO PARENT CO., INC.
CROSS-REFERENCE SHEET
(Pursuant to Item 501(b) of Regulation S-K)
<TABLE>
<CAPTION>
FORM S-4 LOCATION IN PROXY
ITEM NO. CAPTION STATEMENT PROSPECTUS
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<C> <C> <S>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Available Information;
Incorporation of Certain
Documents by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............. Summary of Proxy Statement; Item
No. 2
4. Terms of the Transaction................... Summary of Proxy Statement; Item
No. 2
5. Pro Forma Financial Information............ Item No. 2
6. Material Contacts with the Company Being
Acquired.................................. *
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters........................ *
8. Interests of Named Experts and Counsel..... *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... *
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3
Registrants............................... Incorporation of Certain
Documents by Reference; Summary
of Proxy Statement
11. Incorporation of Certain Information by
Reference................................. Incorporation of Certain
Documents by Reference
12. Information With Respect to S-2 or S-3
Registrants............................... *
13. Incorporation of Certain Information by
Reference................................. *
14. Information With Respect to Registrants
Other Than S-2 or S-3 Registrants......... *
C. INFORMATION ABOUT THE COMPANY BEING
ACQUIRED
15. Information With Respect to S-3 Companies.. Incorporation of Certain
Documents by Reference; Summary
of Proxy Statement
16. Information With Respect to S-2 or S-3
Companies................................. *
17. Information With Respect to Companies Other
Than S-3 or S-2 Companies................. *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 LOCATION IN PROXY
ITEM NO. CAPTION STATEMENT PROSPECTUS
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<C> <C> <S>
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited........ Notice to Shareholders; Summary
Information; General
Information; Proxy
Solicitations; Item No. 1--
Election of Directors; Item No.
2--Rights of Dissenting
Shareholders; Item No. 2--
Required Vote; Item No. 3--
Company Recommendation;
Incorporation of Certain
Documents by Reference
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer...................... *
</TABLE>
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* Not Applicable.
<PAGE>
SAN DIEGO GAS & ELECTRIC COMPANY
Notice of Annual Meeting of Shareholders
and
Proxy Statement and Prospectus
ANNUAL MEETING
TUESDAY, APRIL 25, 1995
<PAGE>
SAN DIEGO GAS & ELECTRIC COMPANY
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
- --------------------------------------------------------------------------------
You are invited to attend the 1995 Annual Meeting of San Diego Gas & Electric
Company Shareholders, to be held at 11:00 a.m. on Tuesday, April 25, 1995, at
the California Center for the Arts, Escondido, 340 North Escondido Boulevard,
Escondido, California (a map is included with the enclosed Notice of Meeting
and Proxy Statement and Prospectus).
As is our custom, refreshments will be served before the Annual Meeting.
During the Annual Meeting, SDG&E's business will be reviewed. In addition,
there will be an important decision regarding the structure of the company. The
shareholders will be asked to consider and vote upon a proposal to implement a
holding company structure for SDG&E. This proposal, and the other matters to be
voted upon at the Annual Meeting, are described in the enclosed Proxy Statement
and Prospectus. A summary of the Annual Meeting will be included in the Spring
Investors Report, which will be mailed to you in May.
Whether or not you plan to attend the Annual Meeting, please fill out, sign and
return your proxy card right away. Your vote is very important.
Sincerely yours,
Thomas A. Page
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
MAP AND DIRECTIONS TO 1995 ANNUAL MEETING
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
- -------------------------------------------------------------------------------
SAN DIEGO GAS & ELECTRIC COMPANY
- -------------------------------------------------------------------------------
P.O. Box 1831, 101 Ash Street
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San Diego, California 92112-4150
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Tuesday, April 25, 1995
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The Annual Meeting of Shareholders of San Diego Gas & Electric Company will be
held on Tuesday, April 25, 1995, at 11:00 a.m. at the California Center for
the Arts, Escondido, 340 North Escondido Boulevard, Escondido, California, to
consider and act upon:
1. The election of ten persons as Directors of SDG&E--the nominees are Richard
C. Atkinson, Ann Burr, Richard A. Collato, Daniel W. Derbes, Catherine T.
Fitzgerald, Robert H. Goldsmith, William D. Jones, Ralph R. Ocampo, Thomas
A. Page and Thomas C. Stickel;
2. A proposal to approve and implement a holding company structure for SDG&E
and a related agreement of merger which, if approved, will involve (i)
formation of a holding company, SDO Parent Co., Inc. (name subject to
change), (ii) holders of SDG&E Common Stock having their shares converted
into shares of common stock of the holding company, (iii) SDG&E becoming a
subsidiary of the holding company, and (iv) consummation of related
activities to complete the transition to a holding company structure;
3. A proposal to amend, restate and extend the 1986 Long-Term Incentive Plan;
4. A shareholders' proposal regarding criteria for incentive compensation; and
5. Such other business as may properly come before the Annual Meeting.
The close of business on March 1, 1995 has been fixed as the record date for
the determination of shareholders entitled to notice of and to vote at the
Annual Meeting and any adjournment or postponement thereof.
San Diego, California By order of the Board of Directors
March 10, 1995 N. A. Peterson
Senior Vice President,
General Counsel and Secretary
- -------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT! Please sign and return your enclosed proxy promptly,
even if you expect to attend the Annual Meeting. A business reply envelope is
enclosed for your convenience in returning the proxy. It requires no postage
if mailed within the United States. Ample free parking will be available at
the California Center for the Arts, Escondido.
<PAGE>
SAN DIEGO GAS & ELECTRIC COMPANY
SDO PARENT CO., INC.
P.O. BOX 1831, 101 ASH STREET
SAN DIEGO, CALIFORNIA 92112-4150
ANNUAL MEETING OF SHAREHOLDERS
PROXY STATEMENT AND PROSPECTUS
This Proxy Statement and Prospectus is being furnished to shareholders (the
"Shareholders") of San Diego Gas & Electric Company, a California corporation
("SDG&E" or the "Company"), in connection with the solicitation of proxies by
the SDG&E Board of Directors (the "Board of Directors"). The proxies will be
voted at the Annual Meeting of Shareholders to be held at 11:00 a.m. on
Tuesday, April 25, 1995, at the California Center for the Arts, Escondido, 340
North Escondido Boulevard, Escondido, California, and at any adjournment or
postponement thereof (the "Annual Meeting"), for the purposes listed in the
preceding Notice of Annual Meeting.
At the Annual Meeting, the Shareholders will be asked to approve, among other
things, the implementation of a holding company structure for SDG&E and a
related agreement of merger (the "Merger Agreement") among SDG&E, SDO Parent
Co., Inc., a California corporation formed by SDG&E ("ParentCo"), and San Diego
Merger Company, a California corporation formed by ParentCo ("MergeCo"). At the
time of the Merger (defined below), ParentCo will be a wholly owned subsidiary
of SDG&E and MergeCo will be a wholly owned subsidiary of ParentCo. Pursuant to
the Merger Agreement, MergeCo will merge with and into SDG&E (the "Merger") and
each outstanding share of the common stock of SDG&E, without par value ("SDG&E
Common Stock"), will be automatically converted into one share of the common
stock of ParentCo, without par value ("ParentCo Common Stock"). As a result,
SDG&E will become a subsidiary of ParentCo and the holders of SDG&E Common
Stock will become holders of ParentCo Common Stock. The outstanding shares of
SDG&E's cumulative preferred stock, $20 par value per share ("SDG&E Cumulative
Preferred Stock"), and SDG&E's preference stock (cumulative), without par value
("SDG&E Preference Stock (Cumulative)"), will be unchanged and will continue to
be outstanding shares of SDG&E. See "Item No. 2--Formation of a Holding Company
Structure" under the heading "Plan of Implementation." The name "SDO Parent
Co., Inc." is subject to change at the discretion of the Board of Directors and
without further action by the Shareholders prior to consummation of the Merger.
This Proxy Statement and Prospectus also serves as the Prospectus for
ParentCo under the Securities Act of 1933 with respect to the issuance of up to
116,541,000 shares of ParentCo Common Stock in connection with the Merger.
Further information concerning the stock offered hereby is contained in "Item
No. 2--Formation of a Holding Company Structure" under the heading "Articles of
Incorporation and Bylaws of ParentCo."
The approximate date of mailing of this Proxy Statement and Prospectus is
March 10, 1995.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT AND PROSPECTUS IS MARCH 1, 1995.
<PAGE>
AVAILABLE INFORMATION
This Proxy Statement is also a Prospectus delivered in compliance with the
Securities Act of 1933, as amended (the "Securities Act"). A registration
statement under the Securities Act has been filed with the Securities and
Exchange Commission (the "SEC"), Washington, D.C., with respect to the
securities offered in the Prospectus (the "Registration Statement"). As
permitted by the rules and regulations of the SEC, this Proxy Statement and
Prospectus omits certain information contained in the Registration Statement.
For further information pertaining to the securities being offered, reference
is made to the Registration Statement, including exhibits filed as a part
thereof.
SDG&E is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance with the
Exchange Act, files reports, proxy statements and other information with the
SEC. These reports, proxy statements and other information, as well as the
Registration Statement, can be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices in Chicago
(Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511) and in New York (Seven World Trade Center, 13th Floor, New
York, New York 10048), and copies of such material can be obtained from the
public reference section of the SEC at prescribed rates by writing to the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549. SDG&E Common Stock is listed
on the New York Stock Exchange (the "NYSE") and on the Pacific Stock Exchange
(the "PSE"). Reports, proxy material and other information concerning SDG&E may
also be inspected at the offices of the NYSE and the PSE.
ParentCo was formed to effectuate the transactions described under "Item No.
2--Formation of a Holding Company Structure" and has not previously been
subject to the requirements of the Exchange Act, and there is currently no
public market for its stock. However, if the transactions described herein are
approved and consummated, ParentCo will become subject to the same information,
reporting and proxy statement requirements under the Exchange Act as currently
apply to SDG&E, and such information will be available for inspection and
copying at the offices of the SEC set forth above. ParentCo has applied to have
ParentCo Common Stock listed on the NYSE and the PSE as of (or promptly
following) the effective date of the Merger described under "Item No. 2--
Formation of a Holding Company Structure," and if such applications are
accepted Exchange Act reports, proxy statements and other information
concerning ParentCo will be available for inspection and copying at such
exchanges.
No person is authorized to give any information or to make any
representations with respect to the matters described in this Proxy Statement
and Prospectus other than those contained herein or in the documents
incorporated herein by reference. Any information or representations with
respect to such matters not contained herein or therein must not be relied upon
as having been authorized by SDG&E or ParentCo.
This Proxy Statement and Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities (i) other than the registered
securities to which it relates or (ii) in any jurisdiction to any person to
whom it is unlawful to make such offer or solicitation in such jurisdiction.
Neither the delivery of this Proxy Statement and Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of SDG&E or ParentCo since the date hereof or
that the information in this Proxy Statement and Prospectus or in the documents
incorporated by reference herein is correct as of any time subsequent to the
dates hereof and thereof, respectively.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement and Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. These documents are available
upon request from the Office of the Secretary, San Diego Gas & Electric
Company, P.O. Box 1831, San Diego, California 92112-4150 (telephone: in
California, (800) 826-5942; and from elsewhere, (800) 243-5454). In order to
ensure timely delivery of the documents, any request should be made by April
18, 1995.
ii
<PAGE>
The following document filed by SDG&E with the SEC is incorporated in this
Proxy Statement and Prospectus by reference:
SDG&E's Annual Report on Form 10-K for the year ended December 31, 1994.
All documents filed by SDG&E pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Proxy Statement and
Prospectus and prior to the Annual Meeting shall be deemed to be incorporated
by reference in this Proxy Statement and Prospectus and to be a part of this
Proxy Statement and Prospectus from the date of filing of such documents. Any
statement contained herein or in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Proxy Statement and
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement and Prospectus.
Upon written or oral request, a copy of any and all of the information that
has been incorporated by reference in this Proxy Statement and Prospectus will
be provided without charge to each person, including any beneficial owner, to
whom this Proxy Statement and Prospectus is delivered. This will not include
exhibits to the information unless the exhibits are specifically incorporated
by reference in the information. Requests for copies should be made to the
Office of the Secretary of SDG&E at the address and telephone numbers set forth
above.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF PROXY STATEMENT................................................. v
ITEM NO. 1--ELECTION OF DIRECTORS......................................... v
ITEM NO. 2--FORMATION OF A HOLDING COMPANY STRUCTURE...................... v
SDG&E................................................................... v
ParentCo................................................................ v
Reasons for the Restructuring........................................... v
Accomplishing the Restructuring......................................... vi
Regulatory Approvals.................................................... vii
Dividend Policy......................................................... vii
Federal Income Tax Consequences......................................... vii
Vote Required to Approve the
Restructuring.......................................................... vii
Rights of Dissenting Shareholders....................................... vii
Selected Financial Information.......................................... viii
Additional Financial Information........................................ ix
ITEM NO. 3--AMENDMENT OF 1986 LTIP........................................ ix
ITEM NO. 4--SHAREHOLDER PROPOSAL.......................................... ix
GENERAL INFORMATION........................................................ 1
Meeting Date; Voting; Proxies............................................ 1
ITEM NO. 1--ELECTION OF DIRECTORS.......................................... 2
Nominees................................................................. 2
Footnotes................................................................ 5
Committees............................................................... 6
Security Ownership of Management and Certain Beneficial Holders.......... 7
Section 16 Reporting..................................................... 8
Executive Compensation and Transactions with Management and Others....... 9
Compensation of Directors................................................ 10
Employment Contract of Mr. Page.......................................... 10
1986 Long-Term Incentive Plan............................................ 11
Pension Plan and Supplemental Executive Retirement Plan.................. 13
Executive Severance Allowance Plan....................................... 14
Report of the Executive Compensation Committee........................... 15
Comparative Common Stock Performance..................................... 18
ITEM NO. 2--FORMATION OF A HOLDING COMPANY STRUCTURE....................... 19
General.................................................................. 19
Plan of Implementation................................................... 19
Reasons for the Restructuring............................................ 19
Merger Agreement......................................................... 21
Amendment or Termination................................................. 21
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Treatment of Preferred Stock............................................. 22
Pro Forma Financial Effects.............................................. 24
Dividend Policy.......................................................... 24
Directors and Management of ParentCo and SDG&E........................... 25
Articles of Incorporation and Bylaws of ParentCo......................... 26
Listing of ParentCo Common Stock......................................... 29
Transfer Agent and Registrar............................................. 29
Common Stock Investment Plan and Employee Benefit Plans.................. 29
Regulation............................................................... 29
Conditions Precedent to the Merger....................................... 30
Effective Date of the Merger............................................. 30
Required Vote............................................................ 31
Rights of Dissenting Shareholders........................................ 31
Market Values of Stock................................................... 34
Exchange of Stock Certificates Not Required.............................. 34
Federal Income Tax Consequences of the Merger............................ 34
Legal Opinion............................................................ 35
ITEM NO. 3--AMENDMENT OF
1986 LTIP................................................................. 35
General.................................................................. 35
Purpose.................................................................. 36
Shares Subject to LTIP................................................... 36
Description of LTIP...................................................... 36
Federal Income Tax Consequences.......................................... 38
Amended LTIP Benefits.................................................... 40
Company Recommendation................................................... 40
Effect of Implementation of Holding Company Structure.................... 40
ITEM NO. 4--SHAREHOLDER PROPOSAL........................................... 40
EXPERTS/RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANT.................... 41
ANNUAL REPORT AND AVAILABILITY OF FORM 10-K................................ 42
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING.............................. 42
PROXY SOLICITATIONS........................................................ 42
OTHER BUSINESS TO BE BROUGHT BEFORE THE ANNUAL MEETING..................... 42
Exhibit A--Agreement of Merger............................................. A-1
Exhibit B--Restated Articles of Incorporation for SDO Parent Co., Inc...... B-1
Exhibit C--Chapter 13 of the California General Corporation Law............ C-1
Exhibit D--1986 LTIP (as revised).......................................... D-1
</TABLE>
iv
<PAGE>
SUMMARY OF PROXY STATEMENT
The following summary of the matters to be voted on at the Annual Meeting of
Shareholders is qualified in its entirety by reference to the more detailed
information set forth elsewhere herein, including the exhibits hereto and the
documents incorporated herein by reference.
ITEM NO. 1--ELECTION OF DIRECTORS
Ten persons have been nominated for election as Directors of SDG&E. Each of
the nominees is currently serving as a Director of SDG&E (as well as a Director
of ParentCo). If the proposed formation of a holding company structure for
SDG&E described below is approved and implemented, each of the Directors of
SDG&E will also be ratified as a Director of ParentCo.
ITEM NO. 2--FORMATION OF A HOLDING COMPANY STRUCTURE
SDG&E
SDG&E is an operating public utility primarily engaged in the business of
providing (i) electric service to customers in San Diego County and the
southern portion of Orange County and (ii) gas to customers in San Diego
County. SDG&E's principal executive offices are located at 101 Ash Street, San
Diego, California 92101 (telephone number: (619) 696-2000) (mailing address:
P.O. Box 1831, San Diego, California 92112-4150).
PARENTCO
ParentCo, the proposed holding company for SDG&E, was organized by SDG&E for
the purpose of becoming the new parent holding company. Its principal executive
offices are at the same location as SDG&E's offices referred to above (it also
shares the same telephone number and mailing address).
REASONS FOR THE RESTRUCTURING
The SDG&E Board of Directors considers it to be in the best interests of
SDG&E and its Shareholders to change the corporate structure of SDG&E and its
subsidiaries. The objective of such a restructuring is to have SDG&E and its
direct subsidiaries become separate, directly-owned subsidiaries of a new
parent company (ParentCo), with the present holders of SDG&E Common Stock
becoming holders of ParentCo Common Stock. The Board of Directors believes the
proposed restructuring will provide the means for a more clearly defined
separation of utility and non-utility operations and permit greater financial
and organizational flexibility to meet the changing operational, regulatory and
economic environment for utilities.
The proposed restructuring will lead to a change for holders of SDG&E Common
Stock in the nature of their investment: from shares of stock in a regulated
utility with some
v
<PAGE>
diversified operations in separate subsidiaries to shares of stock in a holding
company which is not directly regulated in the same manner as a utility. SDG&E
will constitute the predominant part of ParentCo's earning power and assets for
the foreseeable future. However, both regulation of utilities and the markets
which SDG&E has traditionally served are changing. As facets of the traditional
utility business which were once regulated, such as electric generation, become
less regulated and more competitive, the energy options for customers,
particularly large industrial users of energy, are expanding.
Management believes that the corporate separation afforded by a holding
company structure will permit the holding company, ParentCo, to respond
effectively to increasing competition in the energy business. Where a facet of
the business becomes unregulated, that facet can be separated from the core
utility business of SDG&E, although remaining under the common ownership of
ParentCo. Separation of such facets of the energy business, as well as the
diversified operations of SDG&E's present non-utility subsidiaries, from the
core utility business of SDG&E will help to protect SDG&E's stability as viewed
by sources of financing. Such stability is vital to avoid increased capital
costs for SDG&E, and thus higher utility rates. Accordingly, the holding
company structure will support SDG&E's ability to continue efficiently meeting
its customers' needs while permitting ParentCo to respond to a changing
business environment. See "Item No. 2--Formation of a Holding Company
Structure--Reasons for the Restructuring."
ACCOMPLISHING THE RESTRUCTURING
Pursuant to the Merger Agreement in the form attached to this Proxy Statement
and Prospectus as Exhibit A, a subsidiary of ParentCo (MergeCo) will be merged
with and into SDG&E. In the Merger, the outstanding shares of SDG&E Common
Stock will be converted into new shares of ParentCo Common Stock on a share-
for-share basis, and SDG&E will become a subsidiary of ParentCo. SDG&E
Cumulative Preferred Stock and SDG&E Preference Stock (Cumulative) will remain
outstanding, and be unaffected by the Merger.
If the actions contemplated by the Merger Agreement are approved by the
Shareholders, it is contemplated that the Merger will become effective as soon
as practicable following receipt of all required regulatory approvals in
respect of the Merger and related restructuring, including approval by the
California Public Utilities Commission (the "CPUC"). An application for such
approval by the CPUC was filed by SDG&E on November 7, 1994.
Following the Merger, SDG&E's interest in its direct subsidiaries will be
transferred to ParentCo (the transfer and the Merger are sometimes referred to
as the "restructuring"). The restructuring will be accounted for in a manner
similar to a pooling of interests.
If the restructuring is completed, it will not be necessary to exchange
certificates representing SDG&E Common Stock for certificates representing
ParentCo Common Stock. Rather, certificates for SDG&E Common Stock will
automatically be deemed to represent certificates for a like number of shares
of ParentCo Common Stock.
vi
<PAGE>
Application has been made to list ParentCo Common Stock on the New York Stock
Exchange (the "NYSE") and on the Pacific Stock Exchange. In the absence of such
listing on the NYSE, the Board of Directors may elect not to consummate the
transactions contemplated by the Merger Agreement (including the Merger).
REGULATORY APPROVALS
SDG&E must obtain certain authorizations from the CPUC, the Federal Energy
Regulatory Commission and the Nuclear Regulatory Commission to implement
various aspects of the restructuring. See "Item No. 2--Formation of a Holding
Company Structure--Regulation."
DIVIDEND POLICY
It is expected that ParentCo initially will make quarterly dividend payments
on ParentCo Common Stock equal to the rate currently paid by SDG&E on SDG&E
Common Stock and on approximately the same schedule of dates as that now
followed by SDG&E. Future dividend payments initially will depend primarily on
the earnings, financial condition and capital requirements of SDG&E. See "Item
No. 2--Formation of a Holding Company Structure--Dividend Policy."
FEDERAL INCOME TAX CONSEQUENCES
The proposed restructuring should not affect the position of present SDG&E
Shareholders for federal income tax purposes. See "Item No. 2--Formation of a
Holding Company Structure--Federal Income Tax Consequences of the Merger."
VOTE REQUIRED TO APPROVE THE RESTRUCTURING
Shareholder approval of the restructuring will require the favorable vote of:
1. A majority of the outstanding shares of SDG&E Common Stock;
2. A majority of the outstanding shares of SDG&E Common Stock and SDG&E
Cumulative Preferred Stock, voting together, with each share of SDG&E
Common Stock having one vote and each share of SDG&E Cumulative Preferred
Stock having two votes; and
3. Two-thirds of the outstanding shares of SDG&E Cumulative Preferred
Stock and SDG&E Preference Stock (Cumulative), voting together, with each
share having one vote. See "Item No. 2--Formation of a Holding Company
Structure--Required Vote."
SDG&E's Directors and executive officers and their affiliates own less than
one percent (1%) of the voting securities of SDG&E. After the restructuring,
they will continue to own less than one percent (1%) of the voting securities
of ParentCo.
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of SDG&E Cumulative Preferred Stock, 4.60% Series, upon compliance
with certain statutory requirements, will be entitled to receive payment of the
fair market value of their shares if the Merger is completed. Holders of SDG&E
Common Stock and holders of SDG&E Cumulative Preferred Stock other than the
4.60% Series who comply with the
vii
<PAGE>
statutory requirements also may be entitled to receive payment of the fair
market value of their shares if the Merger is completed; however, they will not
be so entitled unless (i) five percent (5%) or more of the shares of their
class (with SDG&E Common Stock, as one class, and SDG&E Cumulative Preferred
Stock other than the 4.60% Series, as another class) demand payment or (ii)
their shares are restricted as to transfer. Holders of SDG&E Preference Stock
(Cumulative) have no statutory right to dissent and receive payment for their
shares in connection with the Merger. See "Item No. 2--Formation of a Holding
Company Structure--Rights of Dissenting Shareholders."
SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information with respect to
the Company. Such financial information is derived from, and qualified by
reference to, the financial statements contained in certain documents
incorporated herein by reference.
RESULTS OF OPERATIONS(1)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
1994(2) 1993 1992 1991 1990
------------------- --------- --------- ---------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES
Electric................... $ 1,510.3 $ 1,514.6 $ 1,447.1 $ 1,357.5 $ 1,356.4
Gas........................ 346.2 346.7 337.0 338.2 355.1
Diversified operations..... 125.5 118.8 86.8 93.3 60.4
Total.................... 1,982.0 1,980.1 1,870.9 1,789.0 1,771.9
Operating income............. 321.9 293.7 296.3 315.5 314.0
Net income (before preferred
dividend requirements)...... 143.5 218.7 210.7 208.1 207.8
Earnings applicable to common
shares...................... 135.8 210.2 201.1 197.5 197.0
Earnings per common share.... 1.17 1.81 1.77 1.76 1.76
Dividends declared per common
share....................... 1.52 1.48 1.44 1.3875 1.35
</TABLE>
OTHER FINANCIAL INFORMATION(1)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Total assets................. $ 4,642.5 $ 4,702.2 $ 4,494.6 $ 4,046.7 $ 3,945.2
Long-term debt and preferred
stock subject to mandatory
redemption (excludes current
portion)(3)................. 1,480.2 1,525.0 1,651.9 1,331.2 1,337.1
Common shareholders' equity.. 1,474.4 1,516.2 1,441.4 1,350.0 1,295.6
Book value per common share.. 12.65 13.01 12.53 12.00 11.58
</TABLE>
- --------
(1) Information presented reflects consolidated information for SDG&E. Please
refer to "Item No. 2--Formation of a Holding Company Structure--Pro Forma
Financial Effects" for a discussion of certain pro forma effects of the
proposed restructuring on results of operations and other financial
information for SDG&E.
(2) Includes charges of approximately $80 million after-tax, or $0.68 per
common share, for June 1994 writedowns related to non-earning assets of
SDG&E (approximately $13 million) and its non-utility subsidiaries
(approximately $67 million).
(3) Includes long-term debt redeemable within one year.
viii
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
SDG&E's 1994 Annual Report to Shareholders, a copy of which was enclosed with
this Proxy Statement and Prospectus, contains audited financial statements of
SDG&E as of December 31, 1994 and for the year ended on that date. Additional
copies of the Annual Report may be obtained without charge upon request as
provided under "Incorporation of Certain Documents by Reference" above.
ITEM NO. 3--AMENDMENT OF 1986 LTIP
On October 24, 1994, the Board of Directors amended, restated and extended
SDG&E's 1986 Long-Term Incentive Plan (the "LTIP") subject to approval by the
Shareholders at the Annual Meeting to: (i) extend the term until April 24,
2005; (ii) include technical changes to conform the LTIP to certain
deductibility requirements of Section 162(m) of the Internal Revenue Code of
1986, as amended, and to Rule 16b-3 under the Securities Exchange Act of 1934,
as amended; (iii) add provisions for the automatic grant of 300 shares of SDG&E
Common Stock per year to each non-employee Director (to become shares of
ParentCo Common Stock if the proposed formation of a holding company structure
for SDG&E is approved and implemented); and (iv) make certain other, technical
changes.
These changes will be effective upon their approval by the Shareholders. The
amendment, restatement and extension of the LTIP does not increase the number
of shares available for grant under the LTIP above the number previously
approved by the Shareholders.
ITEM NO. 4--SHAREHOLDER PROPOSAL
SDG&E has received a shareholder proposal which is included in this Proxy
Statement and Prospectus in accordance with the rules of the SEC. The proposal
relates to recommended criteria for incentive compensation. See "Item No. 4--
Shareholder Proposal" below for further discussion regarding this proposal. For
the reasons set forth in SDG&E's opposition statement to the proposal, the
Board of Directors recommends that the Shareholders vote "AGAINST" the
proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE (1) "FOR" THE ELECTION
OF ALL NOMINEES FOR DIRECTOR, (2) "FOR" APPROVAL OF THE MERGER AGREEMENT AND
THE PROPOSED FORMATION OF A HOLDING COMPANY STRUCTURE, (3) "FOR" THE PROPOSAL
TO AMEND THE LTIP, AND (4) "AGAINST" THE SHAREHOLDER PROPOSAL.
ix
<PAGE>
SAN DIEGO GAS & ELECTRIC COMPANY
SDO PARENT CO., INC.
101 ASH STREET
SAN DIEGO, CALIFORNIA 92101
----------------
PROXY STATEMENT AND PROSPECTUS
----------------
GENERAL INFORMATION
MEETING DATE; VOTING; PROXIES
The enclosed proxy is solicited by the Board of Directors (the "Board of
Directors") of San Diego Gas & Electric Company ("SDG&E" or the "Company") from
the shareholders of SDG&E (the "Shareholders") for use at the Annual Meeting of
Shareholders, together with any adjournment or postponement thereof (the
"Annual Meeting"), to be held at 11:00 a.m. on Tuesday, April 25, 1995, at the
California Center for the Arts, Escondido, 340 North Escondido Boulevard,
Escondido, California. Mail to SDG&E should be addressed to the Office of the
Secretary, P.O. Box 1831, San Diego, California 92112-4150.
The enclosed proxy may be revoked at any time before it is voted by filing a
written notice of revocation with SDG&E or by presenting an executed proxy
bearing a later date at or prior to the Annual Meeting. A Shareholder also may
revoke a proxy by attending the Annual Meeting and voting in person; however,
attendance at the Annual Meeting will not in and of itself constitute
revocation of a proxy.
The Board of Directors has fixed the close of business on March 1, 1995 as
the record date (the "Record Date") for the determination of Shareholders
entitled to notice of and to vote at the Annual Meeting.
SDG&E has three classes of stock, of which there were issued and outstanding
at the close of business on the Record Date the following:
(a) 116,531,735 shares of common stock, without par value ("SDG&E Common
Stock");
(b) 1,374,650 shares of cumulative preferred stock, $20 par value per
share ("SDG&E Cumulative Preferred Stock"); and
(c) 3,190,000 shares of preference stock (cumulative), without par value
("SDG&E Preference Stock (Cumulative)").
A Shareholder of record as of the close of business on the Record Date is
entitled to one vote per share for each share of SDG&E Common Stock held and
two votes per share for each share of SDG&E Cumulative Preferred Stock held.
Holders of SDG&E Preference Stock (Cumulative) have voting rights only in
limited circumstances described in the SDG&E Restated Articles of Incorporation
(the "SDG&E Restated Articles"), and as allowed by California law.
Shares represented by properly executed proxies received by SDG&E prior to or
at the Annual Meeting will be voted at the Annual Meeting in accordance with
the instructions specified in each proxy. If no instructions are specified in a
particular proxy, subject shares will be voted (i) "FOR" the election of the
nominees of the Board of Directors for directorships, unless authority to vote
is withheld as provided in the proxy, (ii) "FOR" approval of the proposed
formation of a holding company structure for SDG&E and a related agreement of
merger, (iii) "FOR" the proposal to amend the 1986 Long-Term Incentive Plan
(the "LTIP"), and (iv) "AGAINST" the shareholder proposal. In the event that
any other matters properly come before the Annual Meeting, the holders of
proxies solicited by the Board of Directors will vote on those matters in
accordance with their judgment, and discretionary authority to do so is
included in the proxy.
<PAGE>
This Proxy Statement and Prospectus and the enclosed proxy were first mailed
on or about March 10, 1995 to Shareholders entitled to vote at the Annual
Meeting.
ITEM NO. 1--ELECTION OF DIRECTORS
(ITEM 1 ON COMMON STOCK AND CUMULATIVE PREFERRED STOCK PROXY CARDS)
The full Board of Directors is to be elected at the Annual Meeting to serve
until the end of the ensuing 12-month period (or until their successors are
duly elected and qualified). The ten candidates nominated to serve on the Board
of Directors receiving the highest number of affirmative votes shall be elected
to the Board of Directors. If the proposed formation of a holding company
structure for SDG&E is approved and implemented, each of the Directors of SDG&E
will also be ratified as a Director of the parent holding company, to serve for
the terms provided in such corporation's charter documents. See "Item No. 2--
Formation of a Holding Company Structure--Articles of Incorporation and Bylaws
of ParentCo, and --Elections: Classified Board of Directors" below.
The persons named in the enclosed proxy card will vote the number of shares
shown thereon. Proxies given to the persons named will be voted "FOR" the
election of all nominees listed below, unless authority to vote is withheld
with respect to one or more nominees. All of the nominees are presently
Directors of SDG&E (as well as Directors of the corporation which is proposed
for shareholder approval as the parent holding company) and, with the exception
of Messrs. Jones and Stickel, have been elected previously by the Shareholders.
Should any of the nominees become unavailable (an event which is not
anticipated), and the size of the Board of Directors is not reduced
accordingly, proxies will be voted for the remainder of the listed nominees and
for such other nominees as may be designated by the present Board of Directors
as replacements for those who become unavailable.
Shares represented by proxies in which authority to vote is "WITHHELD" with
respect to one or more nominees will be counted in the number of votes cast but
will not be counted as votes for or against any nominee. If a broker or other
nominee holding shares for a beneficial owner does not vote in the election of
Directors, the shares will not be counted in the number of votes cast.
THE BOARD RECOMMENDS THE ELECTION OF ITS NOMINEES FOR DIRECTORS.
NOMINEES
- --------------------------------------------------------------------------------
RICHARD C. ATKINSON,
PH.D.
Dr. Atkinson has been
the chancellor of the
University of
[PICTURE] California at San
Diego since July,
1980. He is a
director of Qualcomm,
Inc. Before joining
UCSD, he served as
director of the National Science
Foundation. He is a former long-term
member of the faculty at Stanford
University.
Age 65
Director since 1992
Chairman of the Audit Committee and Member of the Executive Committee
2
<PAGE>
- --------------------------------------------------------------------------------
ANN BURR RICHARD A. COLLATO
Ms. Burr is president Mr. Collato has been
of the San Diego president and chief
Division of Time executive officer of
[PICTURE] Warner Cable, which [PICTURE] the YMCA of San Diego
includes Southwestern County since January
Cable TV and American 1981. He is a trustee
Cablevision of of Springfield
Coronado. College and a
director of the Armed
Age 48 Services YMCA of the
USA.
Director since 1993
Age 51
Member of the Audit and
Nominating Committees Director since 1993
Member of the Finance and Nominating
Committees
- --------------------------------------------------------------------------------
DANIEL W. DERBES CATHERINE T.
Mr. Derbes is FITZGERALD
president of Signal Ms. Fitzgerald is
Ventures. From executive vice
[PICTURE] November 1985 until [PICTURE] president of
December 31, 1988, he Internationale
was president of Nederlanden Group,
Allied-Signal North America, a
International Inc. life, health,
and executive vice property and casualty
president of Allied-Signal Inc., a insurance company.
multi-national advanced technologies Ms. Fitzgerald was formerly executive
company. He is a director of Oak vice president, Internationale
Industries, Inc., WD-40 Co., Pacific Nederlanden Group, America Life
Diversified Capital Company (PDC) and Companies, and a member of the
Wahlco Environmental Systems, Inc. management executive committee of
(Wahlco Environmental). Security Life of Denver, a wholly
owned subsidiary of Nationale-
Age 64 Nederlanden N.V. Prior to that Ms.
Fitzgerald was executive vice
Director since 1983 president, human resources and a
member of the management executive
Chairman of the Finance Committee and committee of Broadway Stores, Inc.
Member of the Executive and Executive Division of Carter Hawley Hale
Compensation Committees Stores, Inc., a retail department
store chain.
Age 61
Director since 1979
Chairwoman of the Executive
Compensation Committee and Member of
the Audit Committee
3
<PAGE>
- --------------------------------------------------------------------------------
ROBERT H. GOLDSMITH WILLIAM D. JONES
Mr. Goldsmith is a Mr. Jones is
management president, chief
consultant. He is a executive officer and
[PICTURE] former chairman, [PICTURE] a director of
president and chief CityLink Investment
executive officer of Corporation. From
Exten Industries, 1989 to 1993, he
Inc. and a former served as general
chairman and chief manager/senior asset
executive officer of Rohr, Inc. He is manager and investment manager with
also a former vice chairman and chief certain real estate subsidiaries of
operating officer of Precision Forge The Prudential. Prior to joining The
Co., senior vice president of Pneumo Prudential, Mr. Jones served as a San
Corporation's Aerospace and Diego City Council member from 1982
Industrial Group and vice president to 1987. Mr. Jones is a director of
and general manager, commercial The Price Real Estate Investment
(aircraft) engine projects division Trust and a member of the board of
and the gas turbine division of trustees of the University of San
General Electric Company. Diego.
Age 64 Age 39
Director since 1992 Director since 1994
Member of the Executive Compensation Member of the Finance and Nominating
and Finance Committees Committees
- --------------------------------------------------------------------------------
RALPH R. OCAMPO, M.D. THOMAS A. PAGE
Dr. Ocampo is a San Mr. Page has been
Diego physician and chairman and chief
surgeon. executive officer of
SDG&E since February
[PICTURE] [PICTURE] 1983. Mr. Page was
president of SDG&E
from February 1983 to
December 1991, and
has been president
since January 1994. Mr. Page is a
director of Burnham Pacific
Properties and the chairman of the
board and a director of PDC and
Wahlco Environmental.
Age 63 Age 61
Director since 1983 Director since 1979
Member of the Finance Committee Chairman of the Executive and
Nominating Committees
4
<PAGE>
- --------------------------------------------------------------------------------
THOMAS C. STICKEL
Mr. Stickel is the
chairman and founder
of American Partners
Capital Group, Inc.
[PICTURE] From 1983 to 1992, he
was chairman and
chief executive
officer of TCS
Enterprises, Inc., a
business and financial services
holding company. Mr. Stickel is also
a director of Catellus Development
Corporation, the Del Mar Thoroughbred
Club, C.O.P.S., Inc., Shelly Young
Cosmetics and the Clair Burgener
Foundation.
Age 45
Director since 1994
Member of the Audit and Executive Compensation Committees
- --------------------------------------------------------------------------------
FOOTNOTES
During 1994, 11 meetings of the Board of Directors were held. Each of the
Directors, during their respective terms in 1994, attended 75% or more of the
aggregate of (1) the total number of Board meetings and (2) the total number of
meetings held by all Board Committees on which the Director served, except for
Mr. Stickel who attended 67% of the meetings held during his term of service
(Mr. Stickel was elected as a Director in October of 1994 and attended two of
the three meetings held after his election; his attendance at the funeral of a
family member prevented his participation at the missed meeting).
On March 4, 1993, Dr. Ocampo petitioned for protection under Chapter 11 of
the Federal Bankruptcy Code. This filing was made in connection with certain
legal proceedings involving a limited partnership in which Dr. Ocampo is a
general partner. Dr. Ocampo filed a Disclosure Statement and Plan of
Reorganization on November 9, 1994.
5
<PAGE>
COMMITTEES
In addition to Executive and Finance Committees, the Board of Directors has
Audit, Executive Compensation and Nominating Committees.
Audit Committee
Members of this Committee are Directors R. C. Atkinson, A. Burr, C. T.
Fitzgerald and, effective February 27, 1995, T. C. Stickel. The Committee held
two meetings during 1994. In addition to recommending an independent auditor
for each ensuing year, this Committee reviews (1) the overall plan of the
annual independent audit, (2) financial statements, (3) audit results, (4) the
scope of internal audit procedures and (5) the auditors' evaluation of internal
controls. This Committee is composed exclusively of Directors who are not
salaried employees of SDG&E.
Executive Compensation Committee
Members of this Committee are Directors D. W. Derbes, C. T. Fitzgerald, R. H.
Goldsmith and, effective February 27, 1995, T. C. Stickel. The Committee held
three meetings during 1994. This Committee reviews the salaries and other forms
of compensation of executives of SDG&E and makes compensation recommendations
to the full Board of Directors. This Committee is composed exclusively of
Directors who are not salaried employees of SDG&E.
Nominating Committee
Members of this Committee are Directors A. Burr, R. A. Collato, T. A. Page
and, effective February 27, 1995, W. D. Jones. The Committee held one meeting
during 1994. In addition to considering and recommending nominees to the Board
of Directors, this Committee recommends (1) criteria for the composition and
membership of the Board of Directors and its Committees and (2) Directors'
compensation. The Committee considers any nominees recommended by Shareholders
by letter to the Board of Directors. This Committee is composed of the Chief
Executive Officer of SDG&E and three Directors who are not salaried employees
of SDG&E.
6
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL HOLDERS
On March 1, 1995, there were approximately 70,356 holders of record of SDG&E
Common Stock. The following table sets forth the beneficial ownership of (1)
all Directors and the five highest compensated executive officers individually,
(2) all Directors and executive officers as a group and (3) the only beneficial
owners known to SDG&E to hold more than 5% of any class of SDG&E's voting
securities as of March 1, 1995. All holdings listed in the table below are of
SDG&E Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP PERCENT OF
BENEFICIAL OWNER (SHARES)(A) CLASS
---------------- ----------------- ----------
<S> <C> <C>
Directors and Named Executive Officers:
R. C. Atkinson.................................... 1,000 *
A. Burr........................................... 1,000 *
R. A. Collato..................................... 1,909 *
D. W. Derbes...................................... 2,056 *
C. T. Fitzgerald.................................. 2,537 *
R. H. Goldsmith................................... 1,093 *
W. D. Jones....................................... -0- *
R. R. Ocampo...................................... 13,128 *
T. C. Stickel..................................... 200 *
T. A. Page........................................ 176,028 *
S. L. Baum........................................ 39,925 *
G. D. Cotton...................................... 28,289 *
D. E. Felsinger................................... 30,867 *
N. A. Peterson.................................... 11,064 *
All directors and executive officers as a group
(20 persons)..................................... 381,633(B) *
Others:
First Interstate Bank of California .............. 16,413,436(C) 14.085%
Trust Securities,
W11-4 707 Wilshire Boulevard
Los Angeles, CA 90017
Franklin Resources, Inc........................... 5,900,660(D) 5.064%
777 Mariners Island Boulevard
San Mateo, CA 94404
Union Bank Trust Department....................... 9,751,725(E) 8.368%
530 B Street
San Diego, CA 92101
</TABLE>
- --------
* less than 1% of the shares outstanding
(A) All shares are beneficially owned by the directors and named officers, with
sole voting and investment power, except for the following:
. Dr. Atkinson: 1,000 shares held jointly with spouse/children of same
household.
. Mr. Collato: 1,909 shares held jointly with spouse/children of same
household.
. Mr. Derbes: 1,656 shares credited to a Common Stock Investment Plan
("CSIP") account with the shareholders' agent.
. Ms. Fitzgerald: 2,137 shares credited to a CSIP account with the
shareholders' agent.
. Mr. Goldsmith: 93 shares credited to a CSIP account with the shareholders'
agent.
. Dr. Ocampo: 13,128 shares held jointly with spouse/children of same
household.
. Mr. Stickel: 200 shares held jointly with spouse/child of same household.
. Mr. Page: 59,775 shares held jointly with or separately by spouse/children
of same household; 13,613 shares credited to a CSIP account with the
shareholders' agent; 51,800 shares credited as of 2/1/95 to a Savings Plan
account with the trustee; 50,840 shares of restricted stock purchased under
the 1986 Long-Term Incentive Plan (the "LTIP") as to which vesting has not
occurred.
7
<PAGE>
. Mr. Baum: 2,159 shares credited as of 2/1/95 to a Savings Plan account with
the trustee; 18,510 shares of restricted stock purchased under the LTIP as
to which vesting has not occurred.
. Mr. Cotton: 7,228 shares credited as of 2/1/95 to a Savings Plan account
with the trustee; 10,785 shares of restricted stock purchased under the
LTIP as to which vesting has not occurred.
. Mr. Felsinger: 5,296 shares credited as of 2/1/95 to a Savings Plan account
with the trustee; 14,855 shares of restricted stock purchased under the
LTIP as to which vesting has not occurred.
. Mr. Peterson: 23 shares credited as of 2/1/95 to a Savings Plan account
with the trustee; 1,190 shares held jointly with spouse/children of same
household; 609 shares credited to a CSIP account with the shareholders'
agent; 8,980 shares of restricted stock purchased under the LTIP as to
which vesting has not occurred.
(B) Excludes 3,880 shares delivered to SDG&E on 1/31/95 to satisfy certain
withholding tax obligations relating to the vesting of shares pursuant to
the LTIP as described below under "1986 Long-Term Incentive Plan." All
shares beneficially owned by the directors and officers, with sole voting
and investment power, except for the following:
. 86,049 shares held jointly with or separately by spouses or children living
in the same household.
. 84,704 shares credited as of 2/1/95 to the officers' Savings Plan accounts
with the trustee.
. 18,956 shares credited to CSIP accounts with the shareholders' agent.
. 144,760 shares of restricted stock purchased by officers in 1991, 1992,
1993 and 1994 under the LTIP, as to which restrictions for vesting of
shares have not yet been satisfied.
(C) 12,305,412 shares as of 2/1/95 are held by the bank in its capacity as
shareholders' agent for the CSIP. The bank holds 4,108,124 shares of SDG&E
Common Stock, 5,665 shares of SDG&E Cumulative Preferred Stock and 24,640
shares of SDG&E Preference Stock (Cumulative) as trustee for various other
trusts.
(D) According to a Schedule 13G filed February 6, 1995, the indicated shares
are owned by Franklin Resources, Inc., its subsidiaries and investment
companies advised by such subsidiaries.
(E) 9,707,928 shares as of 2/1/95 are held by the bank in its capacity as
trustee under the Savings Plan. The trustee has discretion under the
Savings Plan to vote the shares in the absence of voting directions by the
Savings Plan participants. The agent holds 43,797 shares of SDG&E Common
Stock and 100 shares of SDG&E Cumulative Preferred Stock as trustee for
various other trusts.
SECTION 16 REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires SDG&E's directors, executive officers and holders of
more than 10% of SDG&E's Common Stock to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of SDG&E Common Stock and other equity securities of SDG&E. SDG&E
believes that during the fiscal year ended December 31, 1994, its officers,
directors and holders of more than 10% of outstanding SDG&E Common Stock
complied with all Section 16(a) filing requirements, with the exception of K.
A. Flanagan and J. L. Laun, officers of SDG&E, each of whom filed an initial
report on Form 3 approximately one month late.
8
<PAGE>
EXECUTIVE COMPENSATION AND TRANSACTIONS WITH MANAGEMENT AND OTHERS
The following table sets forth information as to all compensation awarded,
paid, earned or distributed by SDG&E during the last three fiscal years for
services in all capacities to or for the benefit of the chief executive officer
and the four highest compensated executive officers whose earned compensation
exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------ -------------------------
OTHER ANNUAL LTIP ALL OTHER
SALARY BONUS COMPENSATION PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR (A) (B) (C) (D)(E) (F)
- --------------------------- ---- -------- -------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
T. A. Page............... 1994 $528,615 $253,000 $11,228 $ 76,147 $ 60,078
Chairman, Chief
Executive.............. 1993 509,203 337,000 9,910 513,777 55,161
Officer and President... 1992 486,408 265,000 5,079 344,703 48,682
S. L. Baum............... 1994 244,999 90,000 1,278 23,969 18,606
Executive Vice
President.............. 1993 244,307 129,000 1,107 162,006 17,695
1992 224,650 90,000 232 110,504 15,496
D. E. Felsinger.......... 1994 228,076 81,000 2,137 13,644 14,103
Executive Vice
President.............. 1993 216,970 111,000 1,881 96,401 10,755
1992 187,731 73,000 668 60,334 9,139
N. A. Peterson........... 1994 200,004 74,000 -0- -0- -0-
Sr. Vice President,
General................ 1993 110,772 62,000 -0- 10,844 -0-
Counsel and Secretary... 1992 -0- -0- -0- -0- -0-
G. D. Cotton............. 1994 184,999 68,000 340 16,778 14,862
Sr. Vice President...... 1993 184,722 98,000 302 105,076 14,160
1992 176,784 70,000 244 71,795 12,744
</TABLE>
- --------
(A) Amounts shown reflect compensation paid and amounts deferred. All officers
may elect to defer bonuses and base salary for periods of time they select.
Restricted stock awarded in 1994 pursuant to the LTIP is reported below in
the Long-Term Incentive Plan table.
(B) Bonuses are paid pursuant to the Executive Incentive Compensation Plan
("EICP") as described below under "Report of the Executive Compensation
Committee" below.
(C) Other annual compensation includes any deferred compensation interest above
120% of the applicable federal rate.
(D) LTIP payouts relate to restrictions lifted on restricted stock awarded
pursuant to the LTIP. Payouts are based on SDG&E performance as described
below under "1986 Long-Term Incentive Plan."
(E) The aggregate holdings/value of restricted stock held on December 31, 1994,
by the individuals listed in this table, are: T. A. Page, 54,970
shares/$920,748; S. L. Baum, 19,810 shares/$331,818; D. E. Felsinger,
15,595 shares/$261,216; N. A. Peterson, 8,980 shares/$150,415; and G. D.
Cotton, 11,695 shares/ $195,891. The value of the aggregate restricted
stock holdings at December 31, 1994 is determined by multiplying $19.25,
the fair market value of SDG&E's Common Stock on December 31, 1994, less
the purchase price of $2.50 per share, by the number of shares held. These
December 31, 1994 share amounts include the March 1, 1995 share amounts
shown in "Security Ownership of Management and Certain Beneficial Holders"
above. In certain instances, the March 1, 1995 amounts are less due to the
vesting of certain shares in January 1995. Regular quarterly dividends are
paid on restricted stock held by these individuals, when declared by
SDG&E.
(F) All other compensation includes a cash amount paid to each officer
designated solely for the purpose of paying (a) the premium for an
insurance policy providing death benefits equal to two times such officer's
current compensation; such cash amount includes a gross-up payment such
that the net amount retained by each officer, after deduction for any
income tax imposed on such payment, will be equal to the gross amount which
would have been paid to such officer had the income tax not been imposed;
(b) SDG&E match under deferred compensation agreements which allow officers
who have exceeded the maximum pretax amount under the Savings Plan to
continue to make pretax deferrals of base compensation to an account in
their name up to a maximum of 15%; up to 6% of base compensation will be
matched by an SDG&E contribution of 50 cents per dollar deferred; no amount
can be deferred by an officer or matched by SDG&E under this agreement
until the officer contributes to the Savings Plan the maximum amount
allowed by the tax law; and (c) SDG&E contributions to the Savings Plan.
The respective amounts paid in fiscal year 1994 for each of the above
officers were: T. A. Page, $44,096, $14,010, and $1,972; S. L. Baum,
$11,125, $5,502 and $1,979; D. E. Felsinger, $8,475, $3,950 and $1,678; N.
A. Peterson, $-0-, $-0- and $-0-; and G. D. Cotton, $9,297, $2,085 and
$3,480.
9
<PAGE>
COMPENSATION OF DIRECTORS
During 1994, Directors not holding salaried positions in SDG&E were paid an
annual retainer of $30,000, payable at the rate of $2,500 per month. No
additional fees were paid for attendance at any meeting of the Board or of any
Committee of the Board. Non-employee Directors are reimbursed for their out-of-
pocket expenses incurred to attend meetings. All Directors except Mr. Page are
non-salaried Directors.
A proposal is included with this Proxy Statement and Prospectus which would
add provisions to the LTIP for the automatic grant of 300 shares of SDG&E
common stock per year to non-employee Directors (to become shares of parent
holding company common stock if the proposed formation of a holding company
structure for SDG&E is approved and implemented). See "Item No. 3--Amendment of
1986 LTIP" below.
D. W. Derbes and T. A. Page are Directors of SDG&E who are also directors of
PDC and Wahlco Environmental. As a non-employee director, D. W. Derbes receives
a $500 fee for attending each meeting of PDC. D. W. Derbes also receives an
annual retainer of $12,000 plus a $1,000 fee for attending each meeting of
Wahlco Environmental.
Mr. Page received no fees or other compensation for serving as a Director of
SDG&E or any of its subsidiaries.
Directors may elect to defer their retainers and/or fees for periods of time
they select.
On December 17, 1990, the Board adopted a Retirement Plan for Directors
applicable to Directors serving on the Board on or after such date. If a
Director has at least five years of total Board service, then, beginning in the
calendar quarter following the later of the Director's retirement from the
Board or attaining age 65, the Director (or a surviving spouse) will receive
during each subsequent 12-month period, a benefit amount equal to the
Director's annual retainer (currently $30,000) for a benefit period equal to
the number of years of the Director's total service on the Board. The benefit
will end upon the completion of the benefit period or the death of the later to
die of the Director and a surviving spouse, whichever occurs first. In
computing the benefit period, periods of service as an employee Director shall
be disregarded.
EMPLOYMENT CONTRACT OF MR. PAGE
On September 12, 1988, Thomas A. Page and SDG&E entered into an employment
agreement dated as of June 15, 1988. Mr. Page's employment agreement provides
that he will serve as Chief Executive Officer and Chairman of the Board of
Directors of SDG&E for a period of two years beginning June 15, 1988, subject
to automatic extensions for successive two-year periods (unless the contract is
terminated as described below) and that he will receive a salary at a rate of
not less than $31,916.66 per month or such greater amount as may, from time to
time, be determined by the Board.
The employment agreement also provides that Mr. Page will be entitled to
participation in the Executive Incentive Compensation Plan, any other annual
bonus plan, the Savings Plan, the LTIP and any other long-term incentive plan.
In addition, Mr. Page is entitled to participate in the Supplemental Executive
Retirement Plan (the "SERP") and the Pension Plan. Pursuant to an earlier
agreement between Mr. Page and SDG&E, Mr. Page was credited with years of
service under the Pension Plan and the SERP equal to his years of service with
SDG&E plus five extra years.
Under the employment agreement, if Mr. Page's employment is terminated (i) by
the Board upon two years' written notice, (ii) upon his death or permanent
disability, (iii) by SDG&E for cause or (iv) by Mr. Page upon 30 days written
notice to SDG&E, which termination is other than a "Constructive Termination"
(as defined below), he will receive benefits through the last day of his term
of employment and no additional benefits. If Mr. Page's employment is
terminated (i) because of the dissolution, liquidation or winding-up of SDG&E,
(ii) by a majority vote of the SDG&E Board of Directors without cause upon 30
days written notice
10
<PAGE>
or (iii) by Mr. Page as a result of (A) any violation of the compensation
provisions of the employment agreement, (B) any adverse and significant change
in Mr. Page's position, duties, responsibilities or status, including the
failure to be elected to the Board and as Chief Executive Officer of SDG&E or
(C) a change in Mr. Page's normal business location to a point away from
SDG&E's main headquarters (each, a Constructive Termination), he will be
entitled to two years' salary paid in a lump sum plus a bonus equal to 200% of
the average of the three highest bonuses paid to him during the previous five
years, continued health and life insurance benefits under various plans, his
SERP benefit (without regard to the limit described therein relating to Section
280G of the Internal Revenue Code of 1986, as amended (the "Code")) and his
LTIP benefit. If any of the payments set forth in the previous sentence become
subject to the excise tax imposed by Section 4999 of the Code, SDG&E will pay
Mr. Page an additional amount such that the net amount retained by Mr. Page
after deduction for such excise tax and any income and excise tax imposed on
such additional amount will be equal to the gross amount which would have been
paid to Mr. Page under the agreement had the excise tax not been imposed. The
benefits payable to Mr. Page under the agreement on account of a change in
control are in lieu of any benefits which would have otherwise been payable to
Mr. Page under the Executive Severance Allowance Plan. The term "change in
control" includes such significant events as those described under "Pension
Plan and Supplemental Executive Retirement Plan" below.
1986 LONG-TERM INCENTIVE PLAN
LONG-TERM INCENTIVE PLAN
AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE
NNMBER PAYOUTS UNDER
OF NON-STOCK
RESTRICTED PERFORMANCE PERIOD PRICE-BASED
NAME SHARES UNTIL PAYOUT PLANS (A)(B)
- ---- ---------- ------------------- ----------------
<S> <C> <C> <C>
T. A. Page...................... 18,820 Four Annual Periods $326,998
S. L. Baum...................... 5,940 Four Annual Periods 103,208
2,500 One-Year (1996)(C) 43,438
D. E. Felsinger................. 5,080 Four Annual Periods 88,265
2,500 One-Year (1996)(C) 43,438
N. A. Peterson.................. 4,420 Four Annual Periods 76,798
G. D. Cotton.................... 3,960 Four Annual Periods 68,805
</TABLE>
- --------
(A) The value (target) of the restricted stock awards is determined by
multiplying $19.875, the fair market value of SDG&E Common Stock on the
date of grant, December 6, 1994, less the purchase price of $2.50 per
share, by the number of shares awarded.
(B) The payout amounts set forth in this column represent both the maximum and
the target amounts payable upon achievement of all performance-vesting
goals. The minimum payout upon failure to achieve any of the performance
vesting goals would be $0. The actual payout will depend upon the
achievement of performance-vesting goals and upon the fair market value of
SDG&E Common Stock at the date of vesting.
(C) Special grants of 2,500 shares each were made in 1994 to S. L. Baum and D.
E. Felsinger. Lifting of restrictions on these shares is dependent upon
Company performance for 1996 (discussed below).
The LTIP provides that the Executive Compensation Committee may grant to
certain executives any combination of nonqualified stock options, incentive
stock options, restricted stock, stock appreciation rights, performance awards,
stock payments or dividend equivalents. As of December 31, 1994, all grants
made under the LTIP have been in the form of restricted stock.
11
<PAGE>
With respect to LTIP shares purchased in 1986 through 1989, all restrictions
have been lifted in prior years.
With respect to LTIP shares purchased in 1990, 1991, 1992, 1993 and 1994,
restrictions on one-quarter of the number of shares originally placed in escrow
are to be released and the shares are to be delivered to the executives for
each of the four succeeding calendar years if SDG&E's earnings per share meet
or exceed the earnings per share target set by the Executive Compensation
Committee or if, at the end of the first, second and third quarters of the
following year, earnings for the twelve months then ending equal or exceed the
weighted average of the targets for the prior year and the current year. In
addition, as to shares purchased in 1990, 1991 and 1992, the restrictions on
all remaining shares that are not released in such manner will be released and
the shares will be delivered to executives at the end of the fourth succeeding
calendar year, if and only if, a total return to shareholders goal, as
determined by the Executive Compensation Committee or the Board, is met. Shares
purchased in 1993 have no end-of-term goal. As to shares purchased in 1994, the
restrictions on all remaining shares may be released by the Board of Directors
after considering the impact on 1995--1998 earnings of industry and corporate
restructuring during such period.
In addition to the above-described restricted shares with four-year
performance period-based restrictions, a special grant of 2,500 shares was made
to each of S. L. Baum and D. E. Felsinger in 1994. The restrictions on these
shares are to be lifted at the end of 1996 if the Company meets or exceeds the
target earnings per share for 1996 as set by the Executive Compensation
Committee. Such target earnings may be adjusted to reflect industry and
corporate restructuring.
With respect to LTIP shares purchased in 1990, the total return to
shareholders goal as set by the Board of Directors for the four-year period
ending in 1994 was met, the restrictions have been lifted and all shares have
been delivered to the executives. However, since the one-year earnings per
share goal was not met at year-end 1994, the shares issued in 1991, 1992 and
1993 which could have been released in 1994 are still held in escrow.
In general, restricted shares may not be sold, transferred or pledged until
restrictions are removed or expire. Purchasers of restricted stock have voting
rights and will receive dividends prior to the time the restrictions lapse if
and to the extent paid on SDG&E Common Stock generally.
All shares of restricted stock purchased are placed in escrow. It is
anticipated that restricted stock would be forfeited and would be resold to
SDG&E at original cost in the event that vesting is not achieved by virtue of
performance or other criteria.
Under the LTIP, all outstanding incentive awards become fully vested and
exercisable without restrictions upon the occurrence of one of two events after
a change in control. The first triggering event is the failure of a successor
corporation or its parent or subsidiary to make adequate provision for
continuation of the LTIP by substituting new awards. In the second triggering
event, even if adequate provision for continuation of the LTIP and substitution
of new awards has been made, an executive's incentive awards will become vested
and exercisable if the executive is terminated within three years after a
change of control for reasons other than cause, retirement, death or
disability, or voluntarily terminates employment due to adverse circumstances.
The term "change in control" includes such significant events as those
described under "Pension Plan and Supplemental Executive Retirement Plan"
below. The adverse circumstances allowing such voluntary termination of
employment consist of significant and adverse changes in the executive's
position, duties, responsibilities or status, or the reduction or elimination
of the executive's compensation or incentive compensation opportunities.
The LTIP will expire in January 1996, unless terminated by the Board prior to
that date; however, a proposal is included in this Proxy Statement and
Prospectus which, if approved by the Shareholders, would
12
<PAGE>
extend the term of the LTIP until April 24, 2005 (see "Item No. 3--Amendment of
1986 LTIP" below). Outstanding incentive awards will not be affected by such
expiration or termination and will vest or be forfeited in accordance with
their terms.
PENSION PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<TABLE>
<CAPTION>
PENSION PLAN AND SERP TABLE
---------------------------------------------------------------------------
AGGREGATE ANNUAL BENEFIT FOR CREDITED
YEARS OF SERVICE(1)
-----------------------------------------------------
ASSUMED ANNUAL 10 YEARS
COMPENSATION 5 YEARS AND THEREAFTER
-------------- ------------------ ----------------------
<S> <C> <C>
$100,000 $ 30,000 $ 60,000
200,000 60,000 120,000
300,000 90,000 180,000
400,000 120,000 240,000
500,000 150,000 300,000
600,000 180,000 360,000
700,000 210,000 420,000
800,000 240,000 480,000
</TABLE>
- --------
(1) Credited years of service under the Pension Plan for the five highest paid
executive officers are: T. A. Page, 17 years; S. L. Baum, 10 years; D. E.
Felsinger, 22 years; N. A. Peterson, 2 years; and G. D. Cotton, 19 years.
In addition to the Pension Plan, the Supplemental Executive Retirement Plan
(SERP) provides a supplemental retirement benefit for certain executives. The
aggregate monthly benefit payable under the combined Pension Plan and SERP to
an executive who retires at age 62 and has completed at least five years of
service will be a percentage of the executive's final pay equal to 6% times
years of service (up to a maximum of 10 years); however, officers appointed
after July 1, 1994 shall receive 5% times years of service (up to a maximum of
10 years). Final pay is defined in the SERP as the monthly base pay rate in
effect during the month immediately preceding retirement, plus 1/12 of the
average of the highest three years' gross bonus awards. Alternatively, the
executive may elect to receive a lump sum cash payment equal to the actuarially
determined present value of the monthly benefits. The SERP also provides
reduced benefits to executives who retire between the ages of 55 and 61, if the
executive has completed at least five years of employee service. Benefits may
be paid also to executives who retire after age 62.
The above table shows the aggregate annual retirement benefits payable to
executives under the Pension Plan and the SERP, assuming a straight life
annuity form of pension at the normal retirement age of 62 for specified
compensation and years of service. The benefit amounts listed in the table are
not subject to a deduction for Social Security benefits. SERP payments will be
reduced by benefits payable under the Pension Plan.
The SERP, as amended, provides monthly surviving spouse benefits equal to 50%
of the defined benefits and disability benefits equal to 100% of the defined
benefits.
The SERP also provides enhanced benefits to an executive who is adversely
affected within three years after the occurrence of an event constituting a
change in control of SDG&E. If, during that period, an executive is terminated
for reasons other than cause, retirement, death or disability, or voluntarily
leaves employment for reasons specified in the SERP, the executive may elect
either to take early retirement, if otherwise qualified to do so, or to receive
a lump sum cash payment equal to the actuarially determined present value of
normal retirement benefits based on ten years of service. Some or all of the
amounts to be paid will be funded out of the cash value of a life insurance
policy paid for by SDG&E on behalf of the executive.
13
<PAGE>
The lump sum payment under the SERP is limited. If that payment alone, or
when added together with other payments that the executive has the right to
receive from SDG&E in connection with a change in control of SDG&E, becomes
subject to the excise tax imposed by Section 4999 of the Code, the payment must
be reduced until no such payment is subject to the excise tax. The effect of
this limitation is that total severance payments made to an executive in
connection with a change in control of SDG&E may not exceed approximately 2.99
times the executive's average W-2 income for the five years preceding the
change of control.
Certain significant events described in the SERP constitute a change in
control, such as the dissolution of SDG&E, the sale of substantially all the
assets of SDG&E, a merger or the acquisition by one person or group of the
beneficial ownership of more than 25% of the voting power of SDG&E coupled with
the election of a new majority of the Board. An SDG&E-initiated merger in which
SDG&E is the surviving entity is not a change in control; accordingly, the
proposal regarding the formation of a holding company structure for SDG&E and
related restructuring set forth below under "Item No. 2--Formation of a Holding
Company Structure" will not constitute a change in control. The adverse actions
that allow an executive to leave employment voluntarily are described in the
SERP and consist of events such as a significant and adverse change in the
executive's position, duties, responsibilities or status, or the reduction or
elimination of the executive's compensation or incentive compensation
opportunities.
EXECUTIVE SEVERANCE ALLOWANCE PLAN
SDG&E's Executive Severance Allowance Plan, as amended (the "Executive
Severance Plan"), covers officers with one or more years of employee service in
lieu of coverage under the SDG&E severance plan for non-officer employees.
The Executive Severance Plan provides two different severance allowances
depending upon whether the officer's termination is related to a change in
control of SDG&E. Termination unrelated to a change in control essentially
means a termination due to a reduction in staff, or a termination resulting
from SDG&E's sale of a work unit. The term "change in control" includes such
significant events as those described under "Pension Plan and Supplemental
Executive Retirement Plan" above. If, within three years after a change in
control, the officer is terminated for reasons other than cause, retirement,
death or disability, or leaves employment voluntarily due to adverse actions,
the officer is entitled to a severance allowance. The adverse actions that
allow an officer to leave employment voluntarily are described in the Executive
Severance Plan and consist of events such as a significant and adverse change
in the officer's position, duties, responsibilities or status, or the reduction
or elimination by SDG&E (or its successors) of the officer's compensation or
incentive compensation opportunities.
In the event of a termination unrelated to a change in control, officers with
one or more years of employee service, but less than five years of employee
service, will receive a severance allowance consisting of a continuation of
base salary and health and basic life insurance benefits for nine months.
Officers with five or more years of employee service receive a continuation of
base salary and such benefits for 12 months.
The Executive Severance Plan provides that, if the length of an officer's
severance allowance is greater under the employees' severance plan than under
the Executive Severance Plan, the officer's severance allowance under the
Executive Severance Plan will be for that longer period.
In the event of a termination related to a change in control, the officer
will receive a severance allowance consisting of one year's final pay in a lump
sum payable within five days after termination and, at the officer's option,
either the continuation of health and basic life insurance coverage for 12
months or a lump sum payment equal to the present value of that coverage.
Payments pursuant to the Executive Severance Plan alone, or when combined with
compensation from other SDG&E sources made in connection with a change in
control of SDG&E, may not exceed approximately 2.99 times the officer's average
W-2 income for the five years preceding the change in control.
14
<PAGE>
The Executive Severance Plan provides a procedure and a formula to reduce the
total payments to be received by an officer by reason of a change in control if
such total payments would exceed the 2.99 limitation (causing an excise tax to
be due) and if the officer waives receipt of all or a portion of the excess.
Under the formula, an officer's lump sum benefit under the SERP would be first
reduced, if necessary, to zero. It is not anticipated that any reduction under
any other benefit plan would be necessary in the case of any officer.
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
The Executive Compensation Committee, which is composed entirely of
independent outside Directors, acts on behalf of the Board of Directors in the
interests of the Shareholders in formulating policy and administering approved
programs for compensating SDG&E's officers and other senior executives.
The compensation policy of SDG&E, with respect to its executives, is to
provide a total compensation package wherein the mix and total of base salary,
annual incentive and long-term incentive, the composition of its benefit
programs, and the terms and administration of the plans by which such forms of
compensation are determined (1) are structured and administered in the best
interests of the Shareholders, (2) are reasonable in comparison to competitive
practice, (3) align the amount of compensation with corporate performance, and
(4) will continue to motivate and reward on the basis of company and individual
performance. The Executive Compensation Committee believes that a significant
portion of the total compensation of all executives, and most specifically, the
Chief Executive Officer, should be "at risk" and based upon the achievement of
measurable, superior financial and operational performance.
In discharging its responsibility, the Executive Compensation Committee,
subject to the final approval of the Board of Directors, determines the factors
and criteria to be used in compensating the Chief Executive Officer, as well as
other executives of SDG&E, and applies these factors and criteria in
administering the various plans and programs in which these executives
participate to ensure they are (1) consistent with SDG&E's compensation policy,
(2) compatible with SDG&E's other compensation programs and (3) administered in
accordance with their terms and the objectives for which they are intended.
To assist in the performance of the above and to ensure that it is provided
with unbiased, objective input, the Executive Compensation Committee has
retained the services of an outside independent compensation consulting firm.
This firm provides advice to the Executive Compensation Committee with respect
to the reasonableness of compensation paid to executives of SDG&E. In doing so,
it takes into account and advises the Executive Compensation Committee of the
compensation practices of, and compensation levels paid by, comparable utility
companies of similar size and geographic location. These companies, with the
exception of certain gas utilities, are included in the Dow Jones Utilities
Index referenced in the performance graph below (see "Comparative Common Stock
Performance"). The Executive Compensation Committee considers the compensation
practices and levels paid by major non-utility companies located in California.
Increased competition also requires the collection of comparative information
from deregulated companies nationwide. In addition, the Executive Compensation
Committee reviews economic and comparative compensation surveys compiled and
provided by the Human Resources department of SDG&E. The Executive Compensation
Committee believes that by taking into account the compensation practices of
other comparative utilities as well as major California non-utility companies,
it can best determine the level of compensation necessary to attract, retain
and motivate its executives.
While it may rely on such information, the Executive Compensation Committee
is ultimately and solely responsible for any decisions made or recommended to
the Board of Directors with regard to the compensation of SDG&E's executives.
The Executive Compensation Committee has reviewed the compensation of SDG&E's
executives and has determined that their compensation is consistent with
SDG&E's policy.
Chairman, President and Chief Executive Officer Compensation
The compensation of the Chairman, President and Chief Executive Officer, Mr.
Thomas A. Page, as well as that of the other executives, is directly tied to
the achievement of the corporate goals described below.
15
<PAGE>
The base salary of the Chief Executive Officer, and the other executives, is
targeted at the competitive median (50th percentile) for comparably sized
utilities and companies. Pursuant to Mr. Page's employment agreement described
above, he will receive a salary of not less than $31,916.66 per month. The
Chief Executive Officer's targeted participation levels are 50% under the EICP
and 61% under the LTIP, of base salary. Actual incentive compensation earned
under these two plans is contingent upon SDG&E's attaining stated performance
goals. At targeted compensation levels, 53% of the Chief Executive Officer's
total compensation is contingent on the achievement of these quantifiable
corporate performance goals. As discussed further below in the EICP and LTIP
sections, these goals include earnings per share, return on equity, market-to-
book, operating and maintenance expenses, rates, electric reliability, safety,
and customer satisfaction.
Base Salary Compensation
The base salary component for the Chief Executive Officer and the other
executives is reviewed annually and is based upon the responsibilities of the
position and the experience of the individual. The Executive Compensation
Committee also takes into account the base salaries of executives with similar
responsibilities at the above-mentioned companies. Other factors taken into
consideration by the Executive Compensation Committee are the condition of the
local and national economies and SDG&E's financial and operational health. The
individual performance of the specific executive is also considered. The base
salary information is gathered and analyzed in order to determine the
appropriate compensation level. While these statistical factors may warrant one
level of pay, more subjective elements such as the condition of the economy may
dictate another.
Executive Incentive Compensation Plan (EICP)
Under the EICP, cash payments may be made annually to the Chief Executive
Officer and other executives based on a combination of financial and operating
performance goals. There are three elements that determine the individual
awards: (1) the executive's base salary; (2) the participation level; and (3)
corporate performance. The participation level is expressed as a percentage and
is set by the Executive Compensation Committee based on the executive's duties
and level of responsibility. The amount of the individual award is determined
by multiplying the executive's base salary by the participation level and then
modifying it by total corporate performance.
The EICP is highly leveraged on the basis of performance. Accordingly, no
payments may be made unless and until the minimum performance levels are
exceeded. Under the terms of the EICP, corporate performance is measured
against preset quantifiable goals approved by the Executive Compensation
Committee at the beginning of the year. A target and a minimum and maximum
performance range are established for each goal. Financial goals include (1)
the percent return on shareholders' equity and (2) the ratio of SDG&E's stock
market price to its book value, which is then compared to other utilities.
Operating goals include (1) adherence to SDG&E's operating budget, (2) an
electric rate target, (3) customer service satisfaction as measured by customer
surveys, (4) average customer electric outage, and (5) lost-time accidents.
Total corporate performance is determined from the degree of achievement of
each of these goals. These goals directly support the performance-based rates
goals approved by the California Public Utilities Commission. The Executive
Compensation Committee gives equal weight to the financial goals and the
operating goals in order to balance shareholder and customer interests. This
serves to assist SDG&E in reaching its goals of lowering rates and increasing
earnings at the same time.
All 1994 operating performance minimum goals were met or exceeded with
customer satisfaction achieving an all-time high and safety experiencing an
all-time low number of accidents. Due to non-recurring write-downs, the 1994
financial goal of return on shareholders' equity was not met, although SDG&E's
market-to-book ratio is still in the top 25% of utilities. For 1994, the
individual awards could not exceed 75% of base salary for the Chief Executive
Officer and 60% for other executives. The EICP compensation component
represents 24% of the Chief Executive Officer's total mix of compensation based
upon the targets set under the EICP and LTIP. The actual amounts earned by each
of SDG&E's five highest compensated executives under the EICP are listed in the
Summary Compensation Table.
16
<PAGE>
1986 Long-Term Incentive Plan (LTIP)
The LTIP was approved by the Shareholders in 1986 to promote the interests of
SDG&E and its Shareholders. The LTIP was presented to the Shareholders for vote
and included the term and number of shares approved for issue. The LTIP
delegates the responsibility of administration and goal determination to the
Executive Compensation Committee. The LTIP's primary purpose is to enhance the
value of SDG&E to its Shareholders by encouraging executives to remain with
SDG&E and to act and perform to increase the price of SDG&E's shares and its
earnings per share. To accomplish these objectives, SDG&E sells shares of its
stock to its executives at a fixed price of $2.50 per share. These shares are
subject to substantial restrictions on the rights of SDG&E's executives to
benefit fully from such shares unless and until certain company earnings
improvement and continued service requirements are met. If these requirements
or other criteria are not met, it is anticipated that the executives' rights to
such shares would be forfeited and they would be sold back to SDG&E at their
original purchase price.
All of SDG&E's executives are eligible to participate in the LTIP at various
levels. The number of shares granted is determined by a formula adopted by the
Executive Compensation Committee, and is calculated as a percentage of base
salary. The higher the salary level, the higher the participation level (or
percentage of risk). For example, in 1994 the Chief Executive Officer
participated at 61% of base salary, making the LTIP equal to 29% of his mix of
total target compensation. As a component of the executives' total compensation
package, the LTIP formula is reviewed annually. The review takes into
consideration that the value of such shares, at the time of grant, has been
determined to be consistent with the size of grants made to executives in
similar positions in the above-mentioned companies. Other factors accounted for
are LTIP goals, current share ownership and current participation levels.
With respect to LTIP shares purchased in 1990, 1991, 1992, 1993 and 1994,
restrictions on one-quarter of the number of shares originally placed in escrow
are to be released and the shares are to be delivered to the executives for
each of the four succeeding calendar years if SDG&E's earnings per share meet
or exceed the earnings per share target set by the Executive Compensation
Committee or if, at the end of the first, second and third quarters of the
following year, earnings for the twelve months then ending equal or exceed the
weighted average of the targets for the prior year and the current year. In
addition, as to shares purchased in 1990, 1991 and 1992, the restrictions on
all remaining shares that are not released in such manner will be released and
the shares will be delivered to executives at the end of the fourth succeeding
calendar year, if and only if, a total return to shareholders goal, as
determined by the Executive Compensation Committee or the Board, is met. Shares
purchased in 1993 have no end of term goal. As to shares purchased in 1994, the
restrictions on all remaining shares may be released by the Board of Directors
after considering the impact on 1995--1998 earnings of industry and corporate
restructuring during such period.
In addition to the above-described restricted shares with four-year
performance period-based restrictions, a special grant of 2,500 shares was made
to each of S. L. Baum and D. E. Felsinger in 1994. The restrictions on these
shares are to be lifted at the end of 1996 if the Company meets or exceeds the
target earnings per share for 1996 as set by the Executive Compensation
Committee. Such target earnings may be adjusted to reflect industry and
corporate restructuring.
With respect to LTIP shares purchased in 1990, the total return to
shareholders goal as set by the Board of Directors for the four-year period
ending in 1994 was met, the restrictions have been lifted and all shares have
been delivered to the executives. However, since the one-year earnings per
share goal was not met at year-end 1994, the shares issued in 1991, 1992 and
1993 which could have been released in 1994 are still held in escrow.
The number of restricted shares sold to SDG&E's five highest-compensated
executives in 1994, pursuant to the LTIP, is shown in the Long-Term Incentive
Plan Table. The goals for restricted shares sold in 1994 are based on the
achievement of increased earnings per share.
Revenue Reconciliation Act of 1993
In 1993, Section 162(m) of the Internal Revenue Code of 1986 was amended to
limit the deductibility of most forms of compensation, over $1,000,000, paid to
top executives of publicly-held corporations. The Executive Compensation
Committee believes that awards of stock options and stock appreciation rights,
if
17
<PAGE>
any, under the LTIP will not be subject to the limitations on compensation
deductibility as a result of the amendments submitted to the Shareholders for
approval at the Annual Meeting (see "Item No. 3--Amendment of 1986 LTIP"
below). The Executive Compensation Committee intends to maintain flexibility
in the manner and conditions under which grants of restricted stock are made
under the LTIP, however, and such grants may in the future be subject to the
limitations on compensation deductibility under certain circumstances.
The report is submitted by the Executive Compensation Committee:
Catherine T. Fitzgerald, Chair
Daniel W. Derbes
Robert H. Goldsmith
COMPARATIVE COMMON STOCK PERFORMANCE
The following graph compares the percentage change in SDG&E's cumulative
total shareholder return on SDG&E Common Stock over the last five fiscal years
with the performances of the Standard & Poor's 500 Index and the Dow Jones
Utilities Index over the same period. The returns were calculated assuming the
investment in SDG&E Common Stock, the S&P 500, and the Dow Jones Utilities
Index on December 31, 1989, and reinvestment of all dividends.
[CRC GRAPH]
[TABLE FOR PERFORMANCE GRAPH IN EDGAR FORMAT]
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
AMONG SDG&E, DOW JONES UTILITIES INDEX AND S&P 500 INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) SDG&E S&P 500 INDEX DOW JONES UTILITIES INDEX
- --------------------- ------- ------------- -------------------------
<S> <C> <C> <C>
Measurement Pt -- 12/31/89...... $100.00 $100.00 $100.00
FYE 12/31/90.................... $105.89 $ 96.89 $ 95.48
FYE 12/31/91.................... $113.74 $126.42 $109.89
FYE 12/31/92.................... $128.60 $136.05 $114.30
FYE 12/31/93.................... $141.07 $149.76 $125.26
FYE 12/31/94.................... $117.86 $151.74 $106.37
</TABLE>
- --------
(A) Calculations for the S&P 500 Index were performed by Standard & Poor's
Compustat Services, Inc.
(B) The Dow Jones Utilities Index (consisting of 11 electric utilities and
four gas utilities) is maintained by Dow Jones & Company, Inc. and
reported daily in The Wall Street Journal.
(C) At December 31, 1988 and through May 1991 SDG&E was involved in merger
negotiations and SDG&E Common Stock was trading at inflated prices. SDG&E
estimates that, absent the merger negotiations, the cumulative total
shareholder return on SDG&E Common Stock over the last five fiscal years
would have been $134.
18
<PAGE>
ITEM NO. 2--FORMATION OF A HOLDING COMPANY STRUCTURE
(ITEM 2 ON COMMON STOCK AND CUMULATIVE PREFERRED STOCK PROXY CARDS)
(ITEM 1 ON PREFERENCE STOCK (CUMULATIVE) PROXY CARDS)
GENERAL
The Board of Directors has authorized, subject to shareholder approval, a
plan to change the corporate structure of SDG&E and its subsidiaries. The
result of the restructuring will be to have SDG&E and all of its direct
subsidiaries become separate subsidiaries of a parent holding company, SDO
Parent Co., Inc. ("ParentCo"), with the present holders of SDG&E Common Stock
becoming holders of the common stock of ParentCo, without par value ("ParentCo
Common Stock"). The direct subsidiaries of SDG&E that, in addition to SDG&E,
would become direct subsidiaries of ParentCo are Pacific Diversified Capital
Company, Enova Corporation, Califia Company and Enova Energy Management, Inc.
Management and the Board of Directors consider the proposed change in
corporate structure to be in the best interests of SDG&E and its Shareholders,
believing that a parent holding company, with SDG&E as its principal
subsidiary, will result in benefits for SDG&E, its Shareholders and other
constituents.
THE BOARD OF DIRECTORS OF SDG&E RECOMMENDS APPROVAL OF THE PROPOSED FORMATION
OF A HOLDING COMPANY STRUCTURE AND URGES EACH SHAREHOLDER TO VOTE "FOR" THE
PROPOSED RESTRUCTURING.
PLAN OF IMPLEMENTATION
To carry out the restructuring, SDG&E has formed a new California
corporation, SDO Parent Co., Inc. (which name is subject to change at the
discretion of the Board of Directors and without further action by the
Shareholders prior to consummation of the restructuring). ParentCo has, in
turn, formed a new California corporation, San Diego Merger Company
("MergeCo"). Prior to the Merger (defined below), (i) MergeCo will have a
nominal amount of stock outstanding, all of which will be held by ParentCo, and
no business or properties of its own, and (ii) ParentCo will have no business
or properties of its own, and its outstanding stock will be held by SDG&E.
SDG&E, ParentCo and MergeCo have approved an agreement of merger (the "Merger
Agreement"). The Merger Agreement is subject to certain conditions, including
shareholder approval as required by California law. If the transactions
contemplated by the Merger Agreement occur, SDG&E will become a subsidiary of
ParentCo through the merger of MergeCo into SDG&E (the "Merger"). A copy of the
Merger Agreement is attached to this Proxy Statement as Exhibit A, and is
incorporated herein by reference.
In the Merger, each share of SDG&E Common Stock will be converted into one
share of ParentCo Common Stock. Following the Merger, SDG&E will transfer to
ParentCo the capital stock of SDG&E's present direct subsidiaries so that these
companies also will become direct subsidiaries of ParentCo (the Merger, the
transfer and related activity are sometimes referred to in this Proxy Statement
and Prospectus as the "restructuring").
It is anticipated that the restructuring will not affect the position of
present Shareholders of SDG&E for federal income tax purposes. See "Federal
Income Tax Consequences of the Merger" below.
Except for SDG&E Common Stock, none of the securities of SDG&E, including
SDG&E Cumulative Preferred Stock, SDG&E Preference Stock (Cumulative) and
SDG&E's debt securities, will be changed by the Merger. The outstanding shares
of SDG&E Cumulative Preferred Stock and SDG&E Preference Stock (Cumulative)
will continue to be outstanding shares of SDG&E. See "Treatment of Preferred
Stock" below.
REASONS FOR THE RESTRUCTURING
The principal reason for the proposed restructuring, including the formation
of ParentCo, is to respond to the changing business environment in the electric
and gas utility industries in a manner which management
19
<PAGE>
believes is in the best interests of the Shareholders and customers. The
proposed restructuring will allow SDG&E to operate its regulated utility
business efficiently while providing, through the structure of a holding
company with other direct subsidiaries, an organization which permits
separation of the other facets of the Company from such regulated utility
business.
For over a century, SDG&E has operated predominantly as a traditional
utility, responsible for constructing and operating the generation,
transmission and distribution facilities needed to serve its customers.
However, both regulation of utilities and the markets which SDG&E has
traditionally served are changing. As facets of the traditional utility
business which were once regulated, such as electric generation, become less
regulated and more competitive, the energy options for customers, particularly
large industrial users of energy, are expanding.
Management believes that the corporate separation afforded by a holding
company structure will permit the holding company, ParentCo, to respond
effectively to increasing competition in the energy business. Where a facet of
the business, such as electric generation, becomes unregulated, that business
can be separated from the core utility business of SDG&E, although remaining
under the common ownership of ParentCo. Separation will facilitate the
development of such unregulated businesses while insulating SDG&E from the
risks associated with their activities. Following the restructuring, any
liabilities of the direct subsidiaries of ParentCo other than SDG&E will not
constitute liabilities of SDG&E. Accordingly, any benefits or detriments of
these subsidiaries will flow to the security holders of ParentCo and not to the
security holders of SDG&E (i.e., holders of SDG&E Cumulative Preferred Stock,
SDG&E Preference Stock (Cumulative) and SDG&E's debt securities).
In 1994, the California Public Utilities Commission (the "CPUC") issued a
proposal to restructure the California utility industry to allow for increased
competition in certain facets of the utility business. In response to such
proposal, SDG&E suggested consideration of the separation of its electric
generation assets. SDG&E is currently evaluating such a separation and making
preparations should the CPUC order it. Absent CPUC direction, a separation may
nevertheless become expedient in view of evolving regulatory and market
circumstances. Other facets of SDG&E's present business also may become future
candidates for separation. Any separation of SDG&E assets and resources will be
effected in compliance with applicable regulatory and security holder approval
requirements, and the terms of any such separation will depend upon future
conditions and the scope of involved assets and resources.
Separation of the competitive, unregulated facets of the energy business, as
well as the diversified operations of SDG&E's present subsidiaries (Pacific
Diversified Capital Company, Enova Corporation, Califia Company and Enova
Energy Management, Inc.), from the core utility business of SDG&E will help to
protect SDG&E's stability as viewed by sources of financing. Such stability is
vital to avoid increased capital costs for SDG&E which would lead to higher
utility rates. Accordingly, the holding company structure will support SDG&E's
ability to continue efficiently meeting its customers needs while permitting
the Company to respond to a changing business environment.
Management also believes that the holding company structure will permit the
use of financing techniques that are more directly suited to the particular
requirements, characteristics and risks of non-utility operations without any
impact on the capital structure or credit of SDG&E. Management anticipates that
(i) ParentCo, in addition to receiving dividends from SDG&E (and other direct
subsidiaries of ParentCo), may obtain funds through debt or equity financings,
(ii) SDG&E may obtain funds through its own financings (which may include the
issuance of first mortgage bonds or preferred stock, as well as the issuance of
additional shares of SDG&E Common Stock to ParentCo), and (iii) the non-utility
businesses may obtain funds from ParentCo, from other non-utility affiliates or
from their own outside financings. Any financings will depend upon the
financial and other conditions of the entities involved and on market
conditions.
The proposed restructuring provides for a holding company that will not be a
utility. Neither ParentCo nor any securities it issues will be subject to the
jurisdiction of the CPUC, the Federal Energy Regulatory
20
<PAGE>
Commission (the "FERC") or the Nuclear Regulatory Commission (the "NRC");
provided, however, that (i) as the sole owner of SDG&E Common Stock, ParentCo
may be indirectly subject to such jurisdiction with respect to certain matters
due to the application to SDG&E of laws, orders and rules which can affect and
regulate utilities, and (ii) rules or orders of these commissions may impose
restrictions on ParentCo's relationship with SDG&E that are designed to protect
utility customers, to promote the common defense and security, or to protect
the health and safety of the public. See "Regulation" below. The utility
business of SDG&E will constitute the predominant part of ParentCo's earning
power for the foreseeable future after the restructuring.
Following the restructuring, SDG&E will continue to operate as a public
utility subject to the jurisdiction of the CPUC, the FERC and the NRC. The
operations of SDG&E will continue to be conducted as they are at the present
time, with the same assets and management. Management and the SDG&E Board of
Directors believe that the restructuring will have no material adverse effect
on SDG&E, its continuing security holders or its customers.
MERGER AGREEMENT
The Merger Agreement has been approved by the Boards of Directors of SDG&E,
ParentCo and MergeCo. Pursuant to the Merger Agreement, the following events
will occur upon the effectiveness of the Merger:
. Each outstanding share of SDG&E Common Stock will be automatically
converted into one share of ParentCo Common Stock.
. Each outstanding share of SDG&E Cumulative Preferred Stock and SDG&E
Preference Stock (Cumulative) will continue as one such issued and
outstanding share, with the same voting powers, designations, preferences,
rights, qualifications, limitations and restrictions, just as prior to the
Merger.
. The outstanding shares of the common stock of MergeCo will be
automatically converted into all of the issued and outstanding shares of
SDG&E Common Stock, all of which will then be owned by ParentCo (with the
effect that the number of issued and outstanding shares of SDG&E Common
Stock immediately after the Merger will be the same as the number of
issued and outstanding shares of SDG&E Common Stock immediately prior to
the Merger).
. The shares of ParentCo Common Stock then held by SDG&E will be canceled.
As a result, SDG&E, which will be the surviving corporation in the Merger, will
become a subsidiary of ParentCo, and all of the ParentCo Common Stock
outstanding immediately after the Merger will be owned by the holders of SDG&E
Common Stock outstanding immediately prior to the Merger.
Following the Merger, SDG&E will complete the restructuring by transferring
the capital stock of SDG&E's present direct subsidiaries (Pacific Diversified
Capital Company, Enova Corporation, Califia Company and Enova Energy
Management, Inc.) to ParentCo.
AMENDMENT OR TERMINATION
By mutual consent of their respective boards of directors, SDG&E, ParentCo
and MergeCo may abandon the Merger or amend, modify or supplement the terms of
the Merger Agreement in such manner as may be agreed upon by them in writing at
any time before or after approval of the restructuring by the Shareholders.
However, no such amendment, modification or supplement shall, if agreed to
after such approval by the Shareholders, change any of the principal terms of
the Merger Agreement. SDG&E will notify the Shareholders in the event of any
material amendment, modification or supplement.
The Merger Agreement provides that it may be terminated, and the Merger
abandoned, at any time, whether before or after approval of the restructuring
by the Shareholders, by action of the SDG&E Board of Directors if such Board
determines that the completion of the restructuring would for any reason be
21
<PAGE>
inadvisable or not in the best interests of SDG&E or its Shareholders. In
making such determination, the SDG&E Board of Directors would consider, among
other things, demands for cash payments, if any, made by holders of SDG&E
Common Stock or SDG&E Cumulative Preferred Stock seeking to exercise statutory
dissenters' rights under applicable California law (described below under
"Rights of Dissenting Shareholders").
The SDG&E Board of Directors would be expected to terminate and abandon the
restructuring, for example, if SDG&E has not received, within a reasonable
period after shareholder approval, the approval of the CPUC on terms which are
satisfactory to the SDG&E Board of Directors. SDG&E is unable to predict under
what other circumstances the restructuring might be terminated and abandoned.
TREATMENT OF PREFERRED STOCK
The proposed Merger and restructuring will not result in any change in
SDG&E's two outstanding classes of preferred stock (SDG&E Cumulative Preferred
Stock and SDG&E Preference Stock (Cumulative)). The decision of the SDG&E Board
of Directors to have SDG&E Cumulative Preferred Stock and SDG&E Preference
Stock (Cumulative) continue as securities of SDG&E is based upon, among other
things, a desire to avoid changing the nature of the investment represented by
such stock, as well as the desire of SDG&E not to foreclose future issuances of
preferred stock to help meet its capital requirements. SDG&E's debt securities
also will not be altered in the Merger; rather, these securities will remain
outstanding and will continue as obligations of SDG&E as the survivor of the
Merger (in the case of SDG&E's first mortgage bonds, continuing to be secured
by a first mortgage lien on the properties of SDG&E that are subject to such
lien).
The utility operations of SDG&E presently constitute, and are expected to
continue to constitute for the foreseeable future, the substantial majority of
the affiliated group's consolidated assets and earning power. Accordingly, it
is believed that SDG&E Cumulative Preferred Stock and SDG&E Preference Stock
(Cumulative) will retain their investment rating, as well as their
qualification for legal investment, by remaining outstanding securities of
SDG&E.
SDG&E Cumulative Preferred Stock and SDG&E Preference Stock (Cumulative) will
continue to rank senior to SDG&E Common Stock (all of which, after the Merger,
will be held by ParentCo) as to dividends and as to the distribution of assets
of SDG&E in the event of any liquidation of SDG&E. SDG&E Cumulative Preferred
Stock and SDG&E Preference Stock (Cumulative) are and will be unrelated in rank
to ParentCo Common Stock or the common stock of other direct subsidiaries to be
held by ParentCo (initially, Pacific Diversified Capital Company, Enova
Corporation, Califia Company and Enova Energy Management, Inc.). Payment of
dividends on ParentCo Common Stock will in large part depend on the earnings of
SDG&E and payment of dividends on SDG&E Common Stock. SDG&E's Restated Articles
will continue to provide that no dividends may be paid on SDG&E Common Stock
unless dividends are current on SDG&E Cumulative Preferred Stock and SDG&E
Preference Stock (Cumulative). Payment of any dividends on the common stock of
any other direct subsidiaries held by ParentCo will be unaffected by any
dividend payment or nonpayment on either SDG&E Cumulative Preferred Stock,
SDG&E Preference Stock (Cumulative) or SDG&E Common Stock.
Separation from SDG&E of the assets and earnings of its non-utility
subsidiaries will decrease the assets and may decrease the earnings of SDG&E,
and will result in SDG&E's investment in these subsidiaries being no longer of
potential benefit to holders of SDG&E Cumulative Preferred Stock, SDG&E
Preference Stock (Cumulative) or SDG&E's debt securities (i.e., any earnings of
these subsidiaries will not be available to pay dividends, interest or
principal with respect to such securities). However, the SDG&E Board of
Directors believes that such holders will not be materially affected by the
separation. SDG&E's net investment in its non-utility subsidiaries was
approximately $106 million at December 31, 1994, representing approximately
7.2% of the SDG&E Common Stock shareholders' equity as of that date. If the
separation of the non-utility subsidiaries had occurred on January 1, 1994, the
net income (before SDG&E Cumulative Preferred Stock
22
<PAGE>
and SDG&E Preference Stock (Cumulative) dividend requirements) of SDG&E for the
year ended December 31, 1994 would have increased by approximately $62.8
million, or approximately 43.8%, and total assets would have decreased by
approximately $459.2 million, or approximately 9.9%. However, such increase in
net income reflected for SDG&E for the year ended December 31, 1994 had such
separation occurred on January 1, 1994 is affected by a significant charge
during such period for writedowns at the non-utility subsidiaries of
approximately $67 million (related to non-earning assets--see "Pro Forma
Financial Effects" below). In the absence of such writedowns, such net income
would have decreased upon a separation by approximately $4.2 million, or
approximately 2.0%.
The SDG&E Board of Directors believes that the separation will have no
material adverse effect on SDG&E's utility operations or on its financial
position or results of operations. Following the Merger, SDG&E will continue to
be a reporting company under the Securities Exchange Act of 1934, as amended.
While annual meetings of SDG&E shareholders are expected to continue to be held
after the Merger, SDG&E may decide not to solicit proxies from holders of SDG&E
Cumulative Preferred Stock or SDG&E Preference Stock (Cumulative) in connection
with the election of directors and in connection with other matters requiring
the approval of shareholders but not requiring a class vote of holders of SDG&E
Cumulative Preferred Stock or SDG&E Preference Stock (Cumulative), since the
shares of SDG&E Common Stock owned by ParentCo will have sufficient voting
power to take action without the vote of SDG&E Cumulative Preferred Stock or
SDG&E Preference Stock (Cumulative).
23
<PAGE>
PRO FORMA FINANCIAL EFFECTS
The following table summarizes certain pro forma financial effects of the
restructuring as of December 31, 1994, and for the year ended December 31,
1994, which, in the opinion of management, reflect all adjustments necessary
for a fair presentation.
<TABLE>
<CAPTION>
SDG&E ADJUSTMENTS PARENTCO
AS SDG&E AND RECLASS- CONSOLIDATED
REPORTED PRO FORMA IFICATIONS(1) PRO FORMA
---------- ---------- ------------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
BALANCE SHEETS--AS OF
DECEMBER 31, 1994
Assets
Utility Plant--net....... $3,149,092 $3,149,092 $ 0 $3,149,092
Investments and other
property................. 466,864 189,165 277,699 466,864
Current assets........... 394,494 308,425 86,069 394,494
Deferred charges and
other assets............. 632,001 536,567 95,434 632,001
---------- ---------- --------- ----------
Total Assets.............. $4,642,451 $4,183,249 $ 459,202 $4,642,451
========== ========== ========= ==========
Capitalization and
Liabilities
Capitalization
Common equity........... $1,474,430 $1,368,916 $ 105,514 $1,474,430
Preferred stock......... 118,493 118,493 (118,493)(2) 0
Preferred stock of
SDG&E.................. 118,493 (2) 118,493
Long-term debt.......... 1,340,237 1,214,119 126,118 1,340,237
---------- ---------- --------- ----------
Total Capitalization..... 2,933,160 2,701,528 231,632 2,933,160
---------- ---------- --------- ----------
Current liabilities..... 687,209 587,453 99,756 687,209
Deferred taxes and other
liabilities............ 1,022,082 894,268 127,814 1,022,082
---------- ---------- --------- ----------
Total Capitalization and
Liabilities.............. $4,642,451 $4,183,249 $ 459,202 $4,642,451
========== ========== ========= ==========
STATEMENTS OF INCOME--YEAR ENDED DECEMBER 31,
1994(3)
Operating Revenues........ $1,982,037 $1,856,503 $ 125,534 $1,982,037
Operating Expenses........ 1,660,121 1,550,360 109,761 1,660,121
---------- ---------- --------- ----------
Operating Income.......... 321,916 306,143 15,773 321,916
---------- ---------- --------- ----------
Other Income (Deductions). (73,095) (7,258) (65,837) (73,095)
Interest Charges.......... 105,344 92,589 12,755 105,344
Preferred Dividend
Requirements of SDG&E.... 7,663 (2) 7,663
---------- ---------- --------- ----------
Net Income................ 143,477 206,296 (70,482) 135,814
---------- ---------- --------- ----------
Preferred Dividend
Requirements............. 7,663 7,663 (7,663)(2) 0
---------- ---------- --------- ----------
Earnings Applicable to
Common Shares............ $ 135,814 $ 198,633 $ (62,819) $ 135,814
========== ========== ========= ==========
</TABLE>
- --------
(1) Pro forma SDG&E amounts have been adjusted to eliminate subsidiaries to be
transferred to ParentCo following the Merger.
(2) Pro forma amounts assume no exercise of preferred stockholders' dissenters'
rights. Preferred stock of SDG&E and related dividends have been
reclassified.
(3) Includes charges of approximately $80 million for SDG&E (as reported, or
ParentCo on a consolidated pro forma basis), or $0.68 per common share, for
June 1994 writedowns related to non-earning assets of SDG&E (on a pro forma
basis--approximately $13 million) and non-SDG&E subsidiaries of ParentCo
(approximately $67 million).
DIVIDEND POLICY
It is anticipated that quarterly dividends on ParentCo Common Stock will
commence at a rate equal to that currently being paid on SDG&E Common Stock,
and will be paid on approximately the same dates in
24
<PAGE>
each year as dividends on SDG&E Common Stock have been paid. The quarterly
dividend most recently declared by the SDG&E Board of Directors was $0.39 per
share of SDG&E Common Stock payable on April 15, 1995 to holders of record on
March 10, 1995. The rate and timing of dividends of ParentCo will depend upon
the earnings, financial condition and dividend restrictions of ParentCo and its
subsidiaries, including SDG&E, and upon other factors affecting dividend policy
which are not presently determinable.
Initially, the funds required by ParentCo to enable it to pay dividends on
ParentCo Common Stock are expected to be derived primarily from dividends paid
by SDG&E on SDG&E Common Stock. It is anticipated that such cash dividends paid
by SDG&E to ParentCo will be sufficient, together with any amounts provided by
other subsidiaries of ParentCo, to enable ParentCo to pay cash dividends on
ParentCo Common Stock and to meet operating and other expenses. However, the
dividend policy of SDG&E will be established by SDG&E's Board of Directors as
though SDG&E were a stand-alone utility, and the amounts of dividends declared
and paid by SDG&E will be subject to the availability of earnings and the needs
of the utility business, as well as CPUC requirements. In addition, the ability
of SDG&E to pay dividends on SDG&E Common Stock to ParentCo will be subject to
the prior dividend rights of SDG&E Cumulative Preferred Stock and SDG&E
Preference Stock (Cumulative), to restrictions contained in the indenture
supporting SDG&E's first mortgage bonds and other agreements to which SDG&E is
or may become a party, and to requirements of California law.
Payment of dividends on SDG&E Cumulative Preferred Stock and SDG&E Preference
Stock (Cumulative) is anticipated to continue at the specified rates without
interruption or change; however, the payment of these dividends is also
dependent upon the earnings and financial condition of, and other factors
affecting, SDG&E.
DIRECTORS AND MANAGEMENT OF PARENTCO AND SDG&E
The Directors of SDG&E elected at the Annual Meeting will also be the
Directors of ParentCo after the completion of the restructuring (see "Item No.
1--Election of Directors" above). In approving the Merger Agreement and the
proposed formation of a holding company structure for SDG&E, Shareholders will
be considered also to have ratified the election of these persons as Directors
of ParentCo (as well as ratifying the establishment of a classified Board for
ParentCo and the inclusion of certain Directors within the various classes as
set forth below--see "Articles of Incorporation and Bylaws of ParentCo--
Elections: Classified Board of Directors" below). Subsequent to the Merger, the
composition of the respective Boards of Directors of SDG&E and ParentCo may be
the same or may be different.
The following persons, each of whom is currently an executive officer of
SDG&E, will hold, at least initially, in addition to the office or offices held
with SDG&E, the offices of ParentCo indicated below:
<TABLE>
<CAPTION>
NAME OFFICE
---- ------
<S> <C>
Thomas A. Page.................. Chairman of the Board, President and Chief
Executive Officer
Stephen L. Baum................. Executive Vice President and Chief Financial
Officer
Donald E. Felsinger............. Executive Vice President
Nad A. Peterson................. Senior Vice President, General Counsel and
Secretary
Frank H. Ault................... Vice President and Controller
</TABLE>
Initially, ParentCo will not have full-time officers and employees of its
own. To the extent, however, that the activities of ParentCo expand, ParentCo
may employ full-time salaried officers and employees. ParentCo and SDG&E each
expect, from time to time, to render to the other certain services and to make
available the use of certain facilities and equipment. The corporation
receiving such services or using such facilities and equipment will reimburse
the other corporation for the cost or fair market value thereof, as
appropriate.
25
<PAGE>
ARTICLES OF INCORPORATION AND BYLAWS OF PARENTCO
The articles of incorporation of ParentCo, as they shall be amended and
restated prior to the effectiveness of the Merger (the "ParentCo Articles"),
have been prepared in accordance with the California General Corporation Law
(the "California GCL") and give ParentCo broad corporate powers to engage in
any lawful activity for which a corporation may be formed under the laws of the
State of California. The name "SDO Parent Co., Inc.," which is presently set
forth in the ParentCo Articles, is subject to change at the discretion of the
Board of Directors and without further action by the Shareholders prior to
consummation of the Merger. The following statements summarize certain relevant
provisions of the ParentCo Articles. This summary should be read in the context
of, and is qualified by reference to, (i) the full ParentCo Articles, a copy of
which is attached to this Proxy Statement and Prospectus as Exhibit B, and (ii)
the laws of the State of California. By approving the Merger Agreement and the
proposed formation of a holding company structure for SDG&E, Shareholders will
be ratifying the provisions of the ParentCo Articles.
The ParentCo Articles contain certain provisions which are similar to the
SDG&E Restated Articles; however, aside from the deletion of certain provisions
which are obsolete or unnecessary or which specifically concern SDG&E
Cumulative Preferred Stock and SDG&E Preference Stock (Cumulative), there are
certain distinctions which are noted below. Shareholders should be aware that
one effect of these distinct provisions of the ParentCo Articles may be to
delay and thus make more difficult a change in the composition of the ParentCo
Board of Directors as compared with the SDG&E Board of Directors, or the
removal of existing management, even in circumstances where a majority of the
shareholders of ParentCo may be dissatisfied with the performance of the
incumbent Directors or otherwise desire to make changes.
Analysis of distinctions in the ParentCo Articles should be tempered,
however, by reference to SDG&E's status as a substantially regulated entity
(see "Regulation" below). For example, changes in control of SDG&E typically
would be subject to CPUC review and approval. Accordingly, while certain
provisions of the ParentCo Articles may have the effect of making changes in
Board composition and management subject to delay and thus more difficult, the
transition from holding stock in a regulated utility to holding stock in
ParentCo may have the effect of lessening other restrictions (e.g., certain
regulatory reviews of a change in control) affecting a shareholder's ability to
influence corporate policy and control.
Capital Stock
The ParentCo Articles authorize the issuance of 300 million shares of
ParentCo Common Stock and 30 million shares of preferred stock of ParentCo (the
"ParentCo Preferred Stock"). Immediately after the Merger, ParentCo will have
approximately 116,541,000 shares of ParentCo Common Stock and no shares of
ParentCo Preferred Stock outstanding. Under California law, shares of ParentCo
Common Stock and ParentCo Preferred Stock may be issued by ParentCo from time
to time upon such terms and for such consideration (and, as to Preferred Stock,
having such rights, preferences, privileges and restrictions) as may be
determined by the ParentCo Board of Directors. Such further issuances, up to
the aggregate amounts authorized by the ParentCo Articles, will not require
authorization from the CPUC or approval by the shareholders. ParentCo may issue
ParentCo Common Stock from time to time pursuant to common stock investment and
employee benefit plans (see "Common Stock Investment and Employee Benefit
Plans" below). Aside from these plans, there presently are no intentions to
offer or sell shares of ParentCo Preferred Stock or additional shares of
ParentCo Common Stock. Under current provisions of the Public Utility Holding
Company Act of 1935, as amended (the "Holding Company Act"), and the rules and
regulations thereunder, issuance of ParentCo Preferred Stock may be restricted.
Holders of ParentCo Common Stock, subject to any prior rights or preferences
of ParentCo Preferred Stock outstanding, (i) have equal rights to receive
dividends if and when declared by the ParentCo Board of Directors out of funds
legally available therefor and (ii) will receive any distribution made to
shareholders upon liquidation. ParentCo Common Stock has no preemptive rights
to subscribe for additional shares of ParentCo Common Stock or other securities
of ParentCo, nor does it have any redemption or conversion
26
<PAGE>
rights. ParentCo Common Stock has voting rights on the basis of one vote per
share. Any series of ParentCo Preferred Stock issued by ParentCo will have such
voting rights as may be determined by the ParentCo Board of Directors at the
time of issuance; however, the present policies of the national stock exchanges
against issuances of stock with disparate voting rights may serve to limit
ParentCo's issuances of any ParentCo Preferred Stock with enhanced voting
rights.
Number of Directors
The California GCL allows the number of persons constituting the board of
directors of a corporation to be fixed by the bylaws or the articles of
incorporation, or permits the bylaws to provide that the number of directors
may vary within a specified range, the exact number to be determined by the
board of directors. The California GCL further provides that, in the case of a
variable board, the maximum number of directors may not exceed two times the
minimum number minus one. The bylaws of SDG&E (the "SDG&E Bylaws") provide for
a Board of Directors that may vary between seven (7) and thirteen (13) members,
inclusive, and the SDG&E Board of Directors has presently fixed the exact
number of directors at ten (10). The SDG&E Bylaws permit the range of
directors, and the precise number within such range, to be modified by a
majority of the outstanding SDG&E shares entitled to vote.
The ParentCo Articles provide that the number of directors of ParentCo shall
not be fewer than nine (9) nor more than thirteen (13), with the exact number
to be determined by the ParentCo Board of Directors or by a bylaw or an
amendment thereof adopted by a vote of the holders of shares representing at
least 66 2/3% of the outstanding shares of ParentCo entitled to vote. The
ParentCo Board is presently fixed at ten (10), and its membership is identical
to the SDG&E Board of Directors. The ParentCo Articles also provide that the
range of directors, and the precise number within such range, may be modified
by a vote of the holders of at least 66 2/3% of the outstanding ParentCo
shares. ParentCo has no current intention of changing the number of directors
of ParentCo if the Merger is consummated.
Cumulative Voting
Under cumulative voting, each share of stock entitled to vote in an election
of directors has such number of votes as is equal to the number of directors to
be elected. A shareholder may then cast all of his or her votes for a single
candidate or may allocate them among as many candidates as the shareholder may
choose. As a result, shareholders holding a significant minority percentage of
the outstanding shares entitled to vote in an election of directors may be able
to effect the election of one or more directors. If cumulative voting is
available, then it is mandatory upon timely notice given by any shareholder at
a meeting at which directors are to be elected.
The SDG&E Bylaws provide for the elimination of cumulative voting, as do the
ParentCo Articles. Thus, the holder or holders of shares representing a
majority of the votes entitled to be cast in an election of directors for
ParentCo will be able to elect all directors then being elected. The absence of
cumulative voting could have the effect of preventing representation of
minority shareholders on the ParentCo Board of Directors.
Elections: Classified Board of Directors
The California GCL generally requires that directors be elected annually but
does permit a "classified" board of directors if a corporation either (i) has
outstanding securities listed on the New York Stock Exchange (the "NYSE") or
the American Stock Exchange (the "AMEX") or (ii) has securities designated for
trading as a National Market System security on the National Association of
Security Dealers Automatic Quotation ("Nasdaq") and at least 800 shareholders
(including record and beneficial owners) (collectively, "Listed Corporations").
SDG&E is a Listed Corporation and ParentCo will, upon the effectiveness of the
Merger or promptly thereafter, be a Listed Corporation. SDG&E's Restated
Articles currently do not provide for a classified board, and the Directors of
SDG&E, who are also the Directors of ParentCo, are set forth above under "Item
No. 1--Election of Directors."
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<PAGE>
The ParentCo Articles provide that, upon ParentCo's attainment of status as a
Listed Corporation (i.e., upon the effectiveness of the Merger or promptly
thereafter), the ParentCo Board of Directors will become a classified board
with three classes of directors, with members of one class to be elected each
year for a maximum term of three years. By approving the Merger Agreement and
the proposed formation of a holding company structure for SDG&E, Shareholders
will be ratifying the election of the Directors to the following classes of the
ParentCo Board in the event the Merger is consummated:
(1) Class I (with terms expiring at the next annual meeting of ParentCo):
Directors R. C. Atkinson, A. Burr and R. A. Collato;
(2) Class II (with terms expiring at the annual meeting of ParentCo
following the next annual meeting): Directors D. W. Derbes, C. T.
Fitzgerald and R. H. Goldsmith; and
(3) Class III (with terms expiring at the annual meeting of ParentCo
following the next two annual meetings): Directors W. D. Jones, R. R.
Ocampo, T. A. Page and T. C. Stickel.
With a classified board, unless adequate cause for removal of directors
exists, at least two annual meetings of shareholders would be required for a
majority of the shareholders comprising less than a 66 2/3% majority to make a
change in control of the ParentCo Board of Directors, since only a minority of
the directors will be elected at each meeting.
Actions by Written Consent
The California GCL permits shareholders, unless specifically prohibited by
the articles of incorporation, to take action without a meeting by the written
consent of the holders of at least the number of shares necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. SDG&E's Restated Articles do not restrict shareholder
action by written consent. Action by written consent may, in some
circumstances, permit the taking of shareholder action opposed by the Board of
Directors more rapidly than would be possible if a meeting of shareholders were
required.
In connection with its evaluation of the restructuring, the Board has
determined that it is important that it be able to give advance notice of and
consideration to any action to be voted on by shareholders, and that all
shareholders be able to discuss at a meeting matters which may affect their
rights. Accordingly, the ParentCo Articles eliminate actions by written consent
of shareholders unless either (i) the Board waives the prohibition in a
particular circumstance or (ii) the action is by the unanimous written consent
of all shareholders.
Fair Price Provisions
The ParentCo Articles contain "fair price" provisions which are substantially
similar to those contained in SDG&E's Restated Articles. These provisions are
intended to reduce the possibility of unfair treatment of shareholders in
takeover situations.
Indemnification Provisions
The ParentCo Articles contain provisions regarding the indemnification of
directors, officers and other agents of ParentCo which are substantially
similar to provisions contained in SDG&E's Restated Articles.
Amendment of Articles
Except for the fair price provisions contained in SDG&E's Restated Articles
(for which amendment requires a 66 2/3% shareholder vote), the SDG&E Restated
Articles may be amended by the approval of the holders of shares having a
majority of the votes entitled to be cast for such amendment. The ParentCo
Articles provide that the provisions relating to (i) indemnification of
officers and directors, (ii) the number of directors, classification of the
board and the election of directors (including the limitation on cumulative
voting), (iii) the limitation on action of shareholders by written consent,
(iv) the fair price provisions and
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<PAGE>
(v) amendment of the bylaws of ParentCo (the "ParentCo Bylaws") can only be
amended by a vote of the holders of shares representing at least 66 2/3% of the
outstanding shares of ParentCo entitled to vote.
Amendment of Bylaws
The SDG&E Bylaws may be amended or repealed either by the SDG&E Board of
Directors or by the holders of shares having a majority of the votes entitled
to be cast for such amendment. The ParentCo Articles provide that (1) upon a
vote of at least 66 2/3% of the authorized number of directors, the ParentCo
Board of Directors will be able to adopt, amend or repeal any of the ParentCo
Bylaws, and (2) the ParentCo Bylaws may also be adopted, amended or repealed by
a vote of the holders of shares representing at least 66 2/3% of the
outstanding shares of ParentCo entitled to vote.
The ParentCo Bylaws initially will be substantially similar to the SDG&E
Bylaws.
LISTING OF PARENTCO COMMON STOCK
ParentCo has applied to list ParentCo Common Stock on the NYSE and on the
Pacific Stock Exchange (the "PSE"). It is expected that such listings will
occur on, or soon after, the effective date of the Merger. At the time of the
listing of ParentCo Common Stock, SDG&E Common Stock will then be delisted from
trading on these stock exchanges (all outstanding shares will then be held by
ParentCo). Shares of SDG&E Cumulative Preferred Stock and SDG&E Preference
Stock (Cumulative) that are listed on the AMEX and the PSE will continue to be
so listed.
TRANSFER AGENT AND REGISTRAR
It is expected that the transfer agent for and the registrar of ParentCo
Common Stock will be the same as is presently serving in such capacities for
SDG&E Common Stock: First Interstate Bank of California.
COMMON STOCK INVESTMENT PLAN AND EMPLOYEE BENEFIT PLANS
If the Merger is completed, SDG&E's Common Stock Investment Plan will be
assumed and continued by ParentCo on and after the effective date of the
Merger, so that shares of ParentCo Common Stock thereafter will be available to
the holders of ParentCo Common Stock and the customers of SDG&E on the same
terms as provided in SDG&E's Common Stock Investment Plan.
If the Merger is completed, SDG&E's Savings Plan and 1986 Long-Term Incentive
Plan will be amended, as and when appropriate, to provide for the acquisition
of ParentCo Common Stock rather than SDG&E Common Stock. Such plans, as well as
the Pension Plan and other employee benefit plans of SDG&E (collectively, the
"Employee Benefit Plans"), also will be amended, as and when appropriate, to
include eligible employees of ParentCo and the subsidiaries of ParentCo other
than SDG&E and to make any other changes necessary or appropriate as a result
of the formation of a holding company structure for SDG&E and the related
restructuring.
By approving the Merger Agreement and the proposed formation of a holding
company structure for SDG&E, the Shareholders will be deemed to have approved
the actions to be taken in connection therewith and with the Employee Benefit
Plans, including any amendments to the Employee Benefit Plans necessary to
accomplish those actions.
REGULATION
As a utility, SDG&E is subject to the jurisdiction of the CPUC with respect
to rates for retail sales, standards of service, issuances of securities and
certain other matters. SDG&E is also subject to the jurisdiction of (i) the
FERC, with respect to certain phases of its electric business, including rates
for sales at wholesale, rates for transmission, interconnections with other
electric utilities and accounting, and (ii) the
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<PAGE>
NRC, with respect to SDG&E's partial ownership of and co-licensee status as to
the San Onofre nuclear generating facilities. The formation of a holding
company structure for SDG&E, the Merger and the related restructuring will not
change the applicability of such regulatory jurisdiction to SDG&E. Moreover,
SDG&E must obtain certain authorizations from the CPUC, the FERC and the NRC to
implement various aspects of the restructuring. An application for
authorization from the CPUC was filed on November 7, 1994, and SDG&E
subsequently filed for approvals from the FERC and the NRC.
So long as ParentCo is not a public utility or the owner or licensee of
nuclear generating facilities, it will not be directly subject to regulation by
the CPUC, the FERC or the NRC, except to the extent that rules or orders of
these commissions may impose restrictions on ParentCo's relationship with SDG&E
that are designed to protect utility customers, to promote the common defense
and security, or to protect the health and safety of the public. CPUC rules
are, for example, designed to (i) ensure that all costs incurred by SDG&E which
result from the activities undertaken by SDG&E's affiliates will be fully
recovered from such affiliates, (ii) provide the CPUC with access to all
information necessary to analyze SDG&E's costs and monitor the relationships
between SDG&E and its non-utility affiliates, (iii) ensure that SDG&E's
customers will be insulated from effects of non-utility activities, and (iv)
protect the financial health of SDG&E's utility operations. SDG&E will continue
to be subject to CPUC regulation of its operations, including its dealings with
ParentCo.
ParentCo believes that it will be entitled to an exemption from all
provisions of the Holding Company Act except Section 9(a)(2), which requires
prior approval of the Securities and Exchange Commission (the "SEC") for
certain utility acquisitions. The exemption will take effect upon completion of
the Merger and related restructuring and the filing with the SEC of an
appropriate exemption statement pursuant to the provisions of the Holding
Company Act. It will be necessary to file an annual exemption statement each
year after that. The basis of this exemption is that both ParentCo and SDG&E,
as ParentCo's only public utility subsidiary, are incorporated in the same
state, are predominantly intrastate in character and carry on their business
substantially in the state of incorporation. The exemption is available only so
long as the utility business of SDG&E, and of any other public utility
subsidiary from which ParentCo derives a material portion of its income, is
predominantly intrastate in nature. The exemption may also be revoked on a
finding by the SEC that such exemption may be detrimental to the public
interest or the interest of investors or consumers. The prior approval of the
SEC under Section 9(a)(2) of the Holding Company Act would be required if
ParentCo proposed the acquisition, directly or indirectly, of additional
utility subsidiaries. ParentCo has no present intention of becoming a
registered holding company subject to regulation by the SEC under the Holding
Company Act.
CONDITIONS PRECEDENT TO THE MERGER
The Merger Agreement provides that consummation of the Merger is subject to
approval of the principal terms of the Merger Agreement by the shareholders of
SDG&E, ParentCo and MergeCo, as more fully set forth below under "Required
Vote." If the required votes of the Shareholders of SDG&E are obtained, SDG&E
will then cause the shares of ParentCo and MergeCo to be voted in favor of the
Merger.
In addition, the Merger is also subject to (i) a review by the CPUC of the
proposal to form a holding company structure for SDG&E without imposition of
terms and conditions which are unsatisfactory to the SDG&E Board of Directors,
(ii) approval by the NYSE of ParentCo Common Stock for listing upon official
notice of issuance and (iii) receipt of other required regulatory
authorizations.
EFFECTIVE DATE OF THE MERGER
The Merger Agreement provides that the Merger will be effective at the end of
the last day of the calendar month during which the Merger Agreement and
related officers' certificates are filed with the California Secretary of State
as provided in Section 1103 of the California GCL. Management anticipates that
the effective date will occur prior to or on September 30, 1995, although there
can be no assurance (e.g.,
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due to delays which may occur in seeking approval from the CPUC or acceleration
of that process) that the effective date will not occur prior to or subsequent
to that date.
REQUIRED VOTE
Under California law and SDG&E's Restated Articles, approval of the Merger
Agreement and the proposed formation of a holding company structure for SDG&E
will require the favorable vote of (1) a majority of the outstanding shares of
SDG&E Common Stock and (2) a majority of the outstanding shares of the combined
classes of SDG&E Common Stock and SDG&E Cumulative Preferred Stock, with each
share of SDG&E Common Stock being entitled to one vote and each share of SDG&E
Cumulative Preferred Stock being entitled to two votes. In addition, the Merger
Agreement provides that consummation of the Merger is conditioned upon approval
by a two-thirds majority of the outstanding shares of the combined classes of
SDG&E Cumulative Preferred Stock and SDG&E Preference Stock (Cumulative), with
each share being entitled to one vote.
An abstention, or shares represented by proxies which are marked "ABSTAIN,"
as well as the failure of a broker or other nominee to vote shares for a
beneficial owner, will have the same effect as a vote against the Merger
Agreement and the proposed formation of a holding company structure for SDG&E.
RIGHTS OF DISSENTING SHAREHOLDERS
The rights of Shareholders who dissent with respect to the Merger are
governed by Chapter 13, Sections 1300-1312 ("Chapter 13"), of the California
GCL, the text of which is set forth as Exhibit C to this Proxy Statement. The
description of dissenters' rights in this Proxy Statement is qualified in its
entirety by reference to Chapter 13 of the California GCL.
If the Merger is completed, certain of the Shareholders who object to the
Merger and who have fully complied with all applicable provisions of Chapter 13
of the California GCL will have the right to require SDG&E to purchase their
shares for cash at the fair market value of such shares as of the close of
business on November 4, 1994, the business day before the terms of the Merger
were first announced, excluding any appreciation or depreciation because of the
proposed Merger. See "Market Values of Stock" below. Persons who are beneficial
owners of shares of SDG&E but whose shares are held by another person, such as
a broker or nominee, should instruct the record holder to follow the procedures
outlined below if such persons wish to dissent with respect to any or all of
their shares.
The procedural requirements to be complied with differ in some respects
depending upon whether or not the shares at issue are listed on either (i) a
national securities exchange certified by the California Commissioner of
Corporations or (ii) the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System. The only class of shares eligible to
be dissenting shares which is not so listed (the "Unlisted Shares") is the
SDG&E Cumulative Preferred Stock, 4.60% Series. The classes of shares eligible
to be dissenting shares which are so listed (the "Listed Shares") are (1) all
series of SDG&E Cumulative Preferred Stock other than the Unlisted Shares and
(2) SDG&E Common Stock. Holders of shares of SDG&E Preference Stock
(Cumulative) are not entitled to have SDG&E purchase their shares.
Unlisted Shares must be purchased by SDG&E upon compliance by any holder with
all applicable requirements. Listed Shares must also be purchased by SDG&E if
all applicable requirements are complied with, but only if (a) demands for
payment are filed with respect to five percent (5%) or more of the outstanding
shares of such class (with shares of SDG&E Common Stock treated as one single
class for such purposes and all shares of SDG&E Cumulative Preferred Stock,
other than the Unlisted Shares, treated as another single class), or (b) the
shares are subject to a restriction on transfer imposed by SDG&E or by any law
or regulation. In this regard, SDG&E is not aware of any restriction on
transfer except restrictions that may be imposed upon Shareholders who are
deemed to be "affiliates" of SDG&E (as that term is defined in Rule 144 adopted
by the SEC under the Securities Act of 1933, as amended (the "Securities Act"))
and/or
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those who received shares in private transactions exempt from the registration
requirements of the Securities Act. SDG&E urges any Shareholder believing there
is any such restriction affecting his or her shares to consult with his or her
own legal counsel as to the nature and extent of any dissenters' rights he or
she may have.
The different procedures for security holders wishing to dissent under
Chapter 13 of the California GCL with respect to Listed Shares and Unlisted
Shares are summarized below.
Unlisted Shares
Assuming SDG&E elects to proceed with the Merger (see "Amendment or
Termination" above), within ten days after approval of the Merger by the
Shareholders SDG&E will notify all holders of Unlisted Shares who did not vote
in favor of the Merger of the approval. SDG&E will offer all such holders a
cash price for their shares that SDG&E considers to be the fair market value
(as described above) of the shares. The notification will also contain a brief
description of the procedures to be followed under Chapter 13 of the California
GCL (and a copy of it) in order for a holder of Unlisted Shares to exercise his
or her rights to have SDG&E purchase such shares. These procedures include the
following requirements:
(1) The holder of record must not have voted the shares in favor of the
Merger. The holder may, however, have abstained from voting without losing
the right to have SDG&E purchase his or her shares. The holder may also
have voted some of his or her shares in favor of the Merger without losing
rights as to shares not voted in favor of the Merger.
(2) Any such holder who wishes to have SDG&E purchase his or her shares
that were not voted in favor of the Merger must make a written demand to
have SDG&E purchase the shares for their fair market value. The demand must
include the information specified below and must be received by SDG&E or
its transfer agent within 30 days after the date on which notice of
approval of the Merger is mailed by SDG&E to the holder. See "Demand for
Purchase" below.
Listed Shares
For a holder of Listed Shares to exercise the right to have SDG&E purchase
his or her shares, the procedures to be followed under Chapter 13 of the
California GCL include the following requirements:
(1) The holder of record must have voted the shares against the Merger.
It is not sufficient to abstain from voting. However, the holder may vote
part of his or her shares in favor of the Merger or abstain from voting
part of his or her shares without losing the right to have SDG&E purchase
those shares which were voted against the Merger.
(2) Any such holder who voted against the Merger, and who wishes to have
SDG&E purchase his or her shares that were voted against the Merger, must
make a written demand to have SDG&E purchase the dissenting shares for
their fair market value. The demand must include the information specified
below and must be received by SDG&E or its transfer agent not later than
the date of the Annual Meeting at which the Merger is approved. See "Demand
for Purchase" below.
Assuming SDG&E elects to proceed with the Merger (see "Amendment or
Termination" above), within ten days after approval of the Merger by SDG&E's
Shareholders, SDG&E will notify any holders of Listed Shares who voted against
the Merger and made a timely demand for purchase (and who are entitled to
require SDG&E to purchase their shares because either (1) holders of five
percent (5%) or more of the outstanding shares of the relevant class filed
notices by the date of the Annual Meeting or (2) the shares are restricted as
to transfer) of the approval and will offer all of these holders a cash price
for their shares which SDG&E considers to be the fair market value (as
described above) of the shares. The notification will also contain a brief
description of the procedures to be followed under Chapter 13 of the California
GCL (and a copy of it) in order for a holder of Listed Shares to exercise his
or her right to have SDG&E purchase such shares.
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Demand for Purchase
Merely voting or delivering a proxy directing a vote against approval of the
Merger does not constitute a demand for purchase. A written demand is required.
In all cases, the written demand must:
(1) Be made by the person who was the holder of record on the Record Date
(or his or her duly authorized representative) and not by someone who is
merely a beneficial owner of the shares or a holder who acquired the shares
subsequent to the Record Date;
(2) State the number and class of dissenting shares; and
(3) Include an offer to sell the shares to SDG&E at what the holder
believes to be the fair market value of the shares on November 4, 1994, the
business day before the terms of the Merger were first announced, excluding
any appreciation or depreciation because of the proposed Merger.
In addition, the following conditions apply:
(a) The demand should be sent by registered or certified mail, return
receipt requested;
(b) The demand must be signed by the holder of record (or his or her duly
authorized representative) exactly as his or her name appears on the form
of proxy accompanying his or her copy of this Proxy Statement and
Prospectus;
(c) A demand regarding shares owned jointly by more than one person must
identify and be signed by all such holders; and
(d) Any person signing a demand in any representative capacity (such as
attorney-in-fact, executor, administrator, trustee or guardian) must
indicate his or her title and, if SDG&E so requests, must furnish written
proof of his or her capacity and authority to sign the demand.
A demand for payment may not be withdrawn without the consent of SDG&E.
Other Requirements
Within 30 days after the date on which notice of approval of the Merger is
mailed by SDG&E to appropriate Shareholders, a holder's certificates,
representing any shares which the holder demands that SDG&E purchase, must be
submitted to SDG&E at its principal offices or to SDG&E's transfer agent to be
endorsed with a statement that the shares are dissenting shares. Upon
subsequent transfer of these endorsed shares, the new certificates will be
similarly endorsed.
If SDG&E and a Shareholder fail to agree on either the fair market value of
the shares or on the eligibility of the shares to be purchased by SDG&E, then
either the Shareholder or SDG&E may file a complaint for judicial resolution of
the dispute. The complaint must be filed within six months after the date on
which the notice of approval is mailed to Shareholders. If a complaint is not
filed within such six-month period, the shares will lose their eligibility for
status as dissenting shares. Two or more dissenting Shareholders may join as
plaintiffs or be joined as defendants in such an action. If the fair market
value of the shares is in dispute, the court shall determine, or shall appoint
one or more impartial appraisers to assist in its determination of, the fair
market value. The costs of the action will be assessed or apportioned as the
court considers equitable, but if the fair market value is determined to exceed
the price offered by SDG&E, then SDG&E will be required to pay such costs.
Under certain circumstances, SDG&E may also be required to pay attorneys' fees
and certain other costs.
Any demands, notices or other documents required to be sent to SDG&E may be
sent to it at Office of the Secretary, 101 Ash Street, P.O. Box 1831, San
Diego, California 92112-4150. Any demands, notices or other documents required
to be sent to a transfer agent may be sent to First Interstate Bank of
California at: Attention Mr. Ron Lug, 707 Wilshire Blvd., W11-2, Los Angeles,
California 90017.
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As mentioned above, under the Merger Agreement the SDG&E Board of Directors
has the right to abandon the Merger for any reason (even after Shareholder
approval), and that right may be exercised if the aggregate cost of purchasing
dissenting shares is not acceptable. In such case, SDG&E will not be obligated
to purchase any dissenting shares, but may be required to pay necessary
expenses and reasonable legal fees of Shareholders who have in good faith
commenced proceedings to enforce their dissenters' rights.
MARKET VALUES OF STOCK
The market values of the various classes and series of capital stock of SDG&E
on November 4, 1994 (the business day immediately preceding public announcement
of the terms of the proposed Merger) were:
<TABLE>
<CAPTION>
MARKET VALUE
TITLE OF CLASS/SERIES PER SHARE
--------------------- ------------
<S> <C>
Common Stock................................................. $19.625
Cumulative Preferred Stock:
5% Series.................................................. 11.25
4% Series.................................................. 10.25
4.40% Series............................................... 10.125
4.60% Series(1)............................................ --
Preference Stock (Cumulative):
$7.20 Series............................................... 85.00
$1.70 Series(1)............................................ --
$1.82 Series............................................... 22.50
$1.7625 Series(1).......................................... --
</TABLE>
- --------
(1) Not listed or publicly traded.
There is no public market as yet for ParentCo Common Stock.
EXCHANGE OF STOCK CERTIFICATES NOT REQUIRED
If the proposed restructuring is carried out, it will not be necessary for
holders of SDG&E Common Stock to exchange their existing stock certificates for
stock certificates of ParentCo. Holders of SDG&E Common Stock will
automatically become holders of ParentCo Common Stock on a share-for-share
basis, and the present stock certificates for SDG&E Common Stock will
automatically represent shares of ParentCo Common Stock.
After the restructuring, as presently outstanding certificates are presented
for transfer, new certificates bearing the name of SDO Parent Co., Inc. (or a
name which may be substituted for SDO Parent Co., Inc. prior to consummation of
the Merger) will be issued. New certificates of ParentCo will also be issued in
exchange for old certificates of SDG&E upon the request of any Shareholder.
Certificates presented for transfer to a name other than that in which the
surrendered certificate is registered must be properly endorsed, with the
signature guaranteed, and accompanied by evidence of payment of any applicable
stock transfer taxes.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
SDG&E and ParentCo have been advised by their counsel, Pillsbury Madison &
Sutro, that:
(1) No gain or loss will be recognized by the holders of shares of SDG&E
Common Stock on the receipt of shares of ParentCo Common Stock solely in
exchange for shares of SDG&E Common Stock.
(2) The basis of shares of ParentCo Common Stock received by the holders
of shares of SDG&E Common Stock will be the same as the basis of the shares
of SDG&E Common Stock exchanged for them.
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(3) As to each holder of shares of SDG&E Common Stock who held his or her
shares as a capital asset, the holding period of shares of ParentCo Common
Stock will include the holding period of the shares of SDG&E Common Stock
exchanged for them.
(4) No gain or loss will be recognized by ParentCo upon the issuance of
shares of ParentCo Common Stock in exchange for shares of SDG&E Common
Stock.
The advice of Pillsbury Madison & Sutro summarized above is conditioned on
the receipt by SDG&E of a private letter ruling from the Internal Revenue
Service to the effect that (i) the formation of MergeCo and the Merger will be
disregarded for federal income tax purposes, and (ii) the transaction will be
treated as a transfer by the holders of SDG&E Common Stock of such SDG&E Common
Stock to ParentCo solely in exchange for an equal number of shares of ParentCo
Common Stock. SDG&E has applied for, but not yet received, such a ruling. SDG&E
reserves the right to proceed with the Merger and related restructuring in the
absence of such a ruling if, in the opinion of SDG&E's management, all
necessary approvals in connection with the Merger have been obtained and
Pillsbury Madison & Sutro removes receipt of such a ruling as a condition to
its opinion.
Holders of SDG&E Common Stock or SDG&E Cumulative Preferred Stock who
contemplate dissenting from the Merger should consult with their tax advisors
concerning the tax consequences of that action.
The United States federal income tax discussion set forth above is based upon
current law and is intended for general information only. The foregoing is not
intended to be a comprehensive discussion of all possible federal income tax
consequences of the Merger. Furthermore, the registration statement of which
this Proxy Statement and Prospectus is a part does not provide information
regarding the tax consequences of the Merger under the tax laws of any state or
of any local or foreign jurisdiction. Holders of SDG&E Common Stock are urged
to consult their own tax advisors with respect to specific tax consequences of
the Merger.
LEGAL OPINION
Pillsbury Madison & Sutro, as counsel for SDG&E and ParentCo, has rendered an
opinion (filed as an exhibit to the registration statement of which this Proxy
Statement and Prospectus is a part) to the effect that the ParentCo Common
Stock offered in this Proxy Statement and Prospectus will be validly issued,
fully paid and nonassessable.
ITEM NO. 3--AMENDMENT OF 1986 LTIP
(ITEM 3 ON COMMON STOCK AND CUMULATIVE PREFERRED STOCK PROXY CARDS)
GENERAL
On October 24, 1994, the Board of Directors amended, restated and extended
SDG&E's 1986 Long-Term Incentive Plan (the "LTIP") subject to approval by the
Shareholders at the Annual Meeting to: (i) extend the term until April 24,
2005; (ii) include technical changes to conform the LTIP to certain
deductibility requirements of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), as described below and to Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); (iii) add
provisions for the automatic grant of 300 shares of SDG&E Common Stock per year
to each non-employee Director (to become shares of parent holding company
common stock if the proposed formation of a holding company structure for SDG&E
is approved and implemented); and (iv) make certain other, technical changes.
These changes will be effective upon their approval by the Shareholders. The
amendment, restatement and extension of the LTIP does not increase the number
of shares available for grant under the LTIP above the number previously
approved by the Shareholders.
In 1993, the Code was amended to add Section 162(m). Section 162(m) places a
limit of $1,000,000 on the amount of compensation that may be deducted by SDG&E
in any tax year with respect to each of
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SDG&E's highest paid executives, including compensation relating to exercise of
LTIP awards. However, such compensation arising from stock options and stock
appreciation rights is not subject to the limit and may be deducted if certain
limitations approved by the Shareholders are applied to awards granted to
executives. In order to permit deductibility of compensation relating to
certain types of awards granted to executive officers, SDG&E is requesting the
Shareholders to approve the amendments to the LTIP relative to Section 162(m)
at the Annual Meeting.
PURPOSE
The purpose of the amended and restated LTIP is to promote the interests of
SDG&E and its Shareholders by encouraging key individuals to acquire stock or
to increase their proprietary interest in SDG&E. By providing the opportunity
to acquire stock or receive other incentives, SDG&E seeks to attract and retain
those key employees upon whose judgment, initiative and leadership the success
of SDG&E largely depends. While the number of individuals receiving
discretionary grants under the LTIP has declined in recent years, and the
maximum number of shares available for award (which has remained constant since
inception) is modest in comparison to the total number of shares of SDG&E
Common Stock outstanding, the Board of Directors believes that the LTIP remains
an important means of compensating key employees.
SHARES SUBJECT TO LTIP
There are 2,700,000 shares of SDG&E Common Stock reserved for issuance under
the amended and restated LTIP. As of the Record Date, 2,201,540 shares of SDG&E
Common Stock remained available for issuance.
DESCRIPTION OF LTIP
The full text of the amended and restated LTIP, substantially in the form in
which it will take effect if the modifications are approved by the
Shareholders, is set forth as Exhibit D to this Proxy Statement and Prospectus.
The following summary of the principal features of the LTIP is subject to, and
qualified in its entirety by, the specific terms of the LTIP, Exhibit D.
Administration
The LTIP will be administered by a Committee. Currently the Committee
consists of the Executive Compensation Committee of the Board of Directors
(presently comprising D. W. Derbes, C. T. Fitzgerald, R. H. Goldsmith and T. C.
Stickel). The Board of Directors may fill vacancies from time to time to remove
or add members. All members of the Committee must be disinterested persons
under Rule 16b-3 of the Exchange Act ("Rule 16b-3"). Modifications reflected in
the LTIP will permit members of the Committee to receive automatic annual
grants of Common Stock in accordance with Rule 16b-3, as described below.
The Committee selects those employees of SDG&E or its subsidiaries who will
be eligible to receive awards under the LTIP. Currently there are 11 employees
participating in the LTIP. The LTIP provides that the Committee may grant to
eligible individuals any combination of nonqualified stock options, incentive
stock options, restricted stock, stock appreciation rights, performance awards,
stock payments or dividend equivalents. Each grant will be memorialized in a
separate agreement with the person receiving the grant. This agreement will
indicate the type and terms of the award. The participation of non-employee
Directors of SDG&E is limited to automatic annual grants of SDG&E Common Stock,
as described below.
Non-Employee Director Formula Grants
Non-employee Directors are not eligible to receive awards under the LTIP
other than an annual grant of 300 shares of Common Stock (subject to anti-
dilution adjustments). These grants are designed to comply with the provisions
of Rule 16b-3 and are made at the conclusion of each regular annual meeting of
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Shareholders to incumbent non-employee Directors who will continue to serve on
the Board of Directors thereafter. The shares of Common Stock will be issued
for past service by the non-employee Directors and without payment of any
purchase price. Partial year service will be prorated accordingly. Assuming the
amendment and restatement of the LTIP is approved by the Shareholders, each
incumbent non-employee Director will receive a grant of up to 300 shares of
Common Stock effective upon the conclusion of the Annual Meeting and based upon
service during the prior year.
Stock Options
Nonqualified stock options will provide for the right to purchase shares of
Common Stock at a price which is not less than 100% of the fair market value of
the Common Stock subject to the option on the effective date of the grant.
These options will be granted for a term which may not exceed ten years.
Incentive stock options will be designed to comply with the provisions of the
Code, and will be subject to restrictions contained in the Code. Incentive
stock options will be granted with an exercise price of not less than 100% of
the fair market value of the Common Stock subject to the option on the date of
grant and will extend for a term of up to ten years. Incentive stock options
granted to persons who own more than 10% of the combined voting power of
SDG&E's outstanding securities must be granted at prices which are not less
than 110% of fair market value on the date of grant and may not extend for more
than five years from the date of grant. The closing price per share of SDG&E
Common Stock as reported on the New York Stock Exchange on February 24, 1995
was $21.125.
The option exercise price must be paid in full at the time of exercise. The
price may be paid in cash or, as acceptable to the Committee, by loan made by
SDG&E to the participant, by arrangement with a broker where payment of the
option price is guaranteed by the broker, by the surrender of shares of SDG&E
owned by the participant exercising the option and having a fair market value
on the date of exercise equal to the option price, or by any combination of the
foregoing equal to the option price.
Options for employees will have such other terms and be exercisable in such
manner and at such times as the Committee may determine. An option agreement
for an employee may provide for accelerated exercisability in the event of the
employee's death, disability or retirement or other events in accordance with
policies established by the Committee.
The Committee may, at any time prior to exercise and subject to consent of
the participant, amend, modify or cancel any options previously granted and may
or may not substitute in their place options at a different price and of a
different type under different terms or in different amounts.
Restricted Stock
Restricted stock may be granted or sold to employees for prices determined by
the Committee (subject to a minimum of $2.50 per share) and subject to such
restrictions as may be appropriate. It is anticipated that restricted stock
would be forfeited and would be resold to SDG&E at cost in the event that
"vesting" is not achieved by virtue of seniority or performance or other
criteria. In general, restricted shares may not be sold, transferred or
hypothecated until restrictions are removed or expire. Purchasers of restricted
stock, unlike recipients of options, will have voting rights and will receive
dividends prior to the time when the restrictions lapse.
Stock Appreciation Rights
Stock appreciation rights ("SARs") may be granted in tandem with stock
options or separately. If SARs are granted in tandem with options, the options
may be either nonqualified or incentive stock options. SARs granted by the
Committee in tandem with stock options will provide for payments to grantees
based upon increases in the price of the Common Stock over the exercise price
of the related option. The SARs will
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provide that the holder of the SARs may exercise the SARs or the option in
whole or in part, but the aggregate exercise may not cover more than the
aggregate number of shares upon which the value of the SARs is based. SARs
granted in tandem with options may not extend beyond the term of the related
option. SARs will be transferable only to the extent that the related option is
transferable. The Committee may elect to pay SARs in cash or in Common Stock or
in a combination of cash and Common Stock.
SARs which are issued separately from options will provide for payments based
upon increases in the price of the Common Stock over the fair market value of
the Common Stock or the book value of the Common Stock on the date of grant.
The Committee will determine whether fair market value or book value will be
the appropriate measure. As with other SARs, upon exercise the Committee may
determine to pay the SARs in cash or in Common Stock or in a combination of
cash and Common Stock.
Performance Awards, Common Stock Payments and Dividend Equivalents
Performance awards may be granted by the Committee on an individual basis.
Generally these awards will be paid in cash and will be based upon specific
agreements.
The Committee may approve a payment in Common Stock to any employee who
otherwise may be entitled to a cash payment other than base salary (e.g., a
bonus). Similarly, the Committee may award shares as dividend equivalents with
respect to grants of options or SARs.
Section 162(m)
In order to permit maximum deductibility of compensation relating to awards
of stock options and SARs, a limitation has been imposed upon the number of
such awards which may be made under the LTIP. Specifically, no more than an
aggregate of 270,000 shares of Common Stock shall be subject to stock options
and SARs that are granted under the amended and restated LTIP to any one
employee on or before April 24, 2005. A maximum of 2,700,000 shares have been
authorized for award under the amended and restated LTIP, of which 2,201,540
shares remained available for issuance as of the Record Date.
Other Provisions
The amended and restated LTIP contains customary provisions relating to
adjustments for increases or decreases in the number and kind of SDG&E's
securities. The Committee may periodically adopt rules and regulations for
purposes of carrying out the amended and restated LTIP.
The amended and restated LTIP will expire on April 24, 2005, unless it is
terminated before then by the Board of Directors.
The Board of Directors may amend, suspend or terminate the amended and
restated LTIP at any time without further action of the Shareholders except as
required by applicable law.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the federal income tax consequences of the
amended and restated LTIP as it relates to nonqualified stock options,
incentive stock options and share awards is intended to be a summary of
applicable federal law. State and local tax consequences may differ.
Options
Incentive stock options and nonqualified stock options are treated
differently for federal income tax purposes. Incentive stock options are
intended to comply with the requirements of Section 422 of the Code.
Nonqualified stock options need not comply with such requirements.
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An optionee is not taxed on the grant or exercise of an incentive stock
option. The difference between the exercise price and the fair market value of
the shares on the exercise date will, however, be a preference item for
purposes of the alternative minimum tax. If an optionee holds the shares
acquired upon exercise of an incentive stock option for at least two years
following grant and at least one year following exercise, the optionee's gain,
if any, upon a subsequent disposition of such shares is long-term capital gain.
The measure of the gain is the difference between the proceeds received on
disposition and the optionee's basis in the shares (which generally equals the
exercise price). If an optionee disposes of stock acquired pursuant to exercise
of an incentive stock option before satisfying the one and two-year holding
periods described above, the optionee will recognize both ordinary income and
capital gain in the year of disposition. The amount of the ordinary income will
be the lesser of (i) the amount realized on disposition less the optionee's
adjusted basis in the stock (usually the option price) or (ii) the difference
between the fair market value of the stock on the exercise date and the option
price. The balance of the consideration received on such a disposition will be
long-term capital gain if the stock had been held for at least one year
following exercise of the incentive stock option. SDG&E is not entitled to an
income tax deduction on the grant or exercise of an incentive stock option or
on the optionee's disposition of the shares after satisfying the holding period
requirement described above. If the holding periods are not satisfied, SDG&E
will be entitled to a deduction in the year the optionee disposes of the
shares, in an amount equal to the ordinary income recognized by the optionee.
An optionee is not taxed on the grant of a nonqualified stock option. On
exercise, however, the optionee recognizes ordinary income equal to the
difference between the option price and the fair market value of the shares on
the date of exercise. SDG&E is entitled to an income tax deduction in the year
of exercise in the amount recognized by the optionee as ordinary income. Any
gain on subsequent disposition of the shares is long-term capital gain if the
shares are held for at least one year following exercise. SDG&E does not
receive a deduction for this gain.
Share Awards
If a participant is awarded or purchases shares, the amount by which the fair
market value of the shares on the date of award or purchase exceeds the amount
paid for the shares will be taxed to the participant as ordinary income. SDG&E
will be entitled to a deduction in the same amount provided it makes all
required withholdings on the compensation element of the sale or award. The
participant's tax basis in the shares acquired is equal to the share's fair
market value on the date of acquisition. Upon a subsequent sale of any shares,
the participant will realize capital gain or loss (long-term or short-term,
depending on whether the shares were held for more than one year before the
sale) in an amount equal to the difference between his or her basis in the
shares and the sale price.
If a participant is awarded or purchases shares that are subject to a vesting
schedule, the participant is deemed to receive an amount of ordinary income
equal to the excess of the fair market value of the shares at the time they
vest over the amount (if any) paid for such shares by the participant. SDG&E is
entitled to a deduction equal to the amount of the income recognized by the
participant.
Code Section 83(b) permits a participant to elect, within 30 days after the
transfer of any shares subject to a vesting schedule to him or her, to be taxed
at ordinary income rates on the excess of the fair market value of the shares
at the time of the transfer over the amount (if any) paid by the participant
for such shares. Withholding taxes apply at that time. If the participant makes
a Section 83(b) election, any later appreciation in the value of the shares is
not taxed as ordinary income, but instead is taxed as capital gain when the
shares are sold or transferred.
Grants of shares to non-employee Directors are deemed subject to a vesting
schedule for six months from the date of grant, and absent a Section 83(b)
election to be taxed on the date of grant, the shares will not be taxed until
six months from the date of grant. The shares are deemed subject to a vesting
schedule because of the "short-swing profits" provisions of Section 16(b) of
the Exchange Act. No withholding taxes apply to shares granted to non-employee
Directors.
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AMENDED LTIP BENEFITS
The Committee has full discretion to determine the number, type and value of
awards to be granted to key employees under the LTIP. Therefore, the benefits
and amounts that will be received by each of the named executive officers, the
executive officers as a group and all other key employees are not determinable.
Details on incentive awards granted during the last three years to the named
executive officers are presented above under "Item No. 1--Election of
Directors--Executive Compensation and Transactions with Management and
Others,--Summary Compensation Table and--1986 Long-Term Incentive Plan."
The number of shares of Common Stock to be received by each non-employee
Director is fixed under the LTIP, as discussed above, and may not be amended
more frequently than once every six months.
COMPANY RECOMMENDATION
THE BOARD HAS UNANIMOUSLY APPROVED THE AMENDED AND RESTATED LTIP AND
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE AMENDED AND
RESTATED LTIP.
In order to be adopted, the amended and restated LTIP must be approved by a
majority of the combined classes of SDG&E Common Stock and SDG&E Cumulative
Preferred Stock present, or represented, and entitled to vote at the Annual
Meeting, with each share of SDG&E Common Stock being entitled to one vote and
each share of SDG&E Cumulative Preferred Stock being entitled to two votes. An
abstention, or shares represented by proxies which are marked "ABSTAIN," will
have the same effect as a vote against the proposal. The failure of a broker or
other nominee to vote shares for a beneficial owner will have no effect on the
proposal.
EFFECT OF IMPLEMENTATION OF HOLDING COMPANY STRUCTURE
Upon completion of the reorganization of SDG&E as a subsidiary of a parent
holding company, such parent holding company will assume and continue the
amended and restated LTIP and all of the shares of SDG&E Common Stock set aside
under the LTIP will become shares of common stock of such parent holding
company. By approving the formation of a parent holding company, the
Shareholders will be deemed to have approved the actions necessary to effect
the assumption of the LTIP by such parent holding company.
ITEM NO. 4--SHAREHOLDER PROPOSAL
(ITEM 4 ON COMMON STOCK AND CUMULATIVE PREFERRED STOCK PROXY CARDS)
SDG&E has received the following shareholder proposal submitted in accordance
with the rules of the SEC. This proposal will be voted upon at the Annual
Meeting if properly presented by the proposing shareholders or their qualified
representative. To be approved, the proposal must receive the affirmative vote
of a majority of the outstanding shares of SDG&E Common Stock and SDG&E
Cumulative Preferred Stock represented and voting at the Annual Meeting (with
shares of SDG&E Common Stock having one vote per share and shares of SDG&E
Cumulative Preferred Stock having two votes per share).
The proposal and supporting statement are presented as received by SDG&E, and
the Board of Directors disclaims any responsibility for their content. The
Board of Directors recommends a vote "AGAINST" the proposal for the reasons
stated in the opposition statement following the proposal. The name and address
of and number of shares represented to be held by the proposing shareholders
will be furnished by SDG&E to any Shareholder promptly upon receipt of any oral
or written request to the Secretary of SDG&E.
SHAREHOLDER PROPOSAL
"RESOLVED: That the shareholders recommend that the Board of Directors
institute the additional criteria that shareholders must receive a total
return of 9% in the fiscal year before any consideration is given to
officer options and bonus."
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"Reasons: Under the present system the officers may be awarded options at
$2.50 a share, and thus make a substantial profit even when the shareholders
have a negative return. The Directors have set a criteria for bonus and option
award that cannot be evaluated by the shareholders."
COMPANY OPPOSITION STATEMENT
The Board agrees that the compensation of SDG&E's officers should be tied to
the financial performance of the Company. Indeed, the Company's current long
and short-term incentive compensation programs are based upon achievement of
financial and operational goals, which in turn, enhance shareholder value. For
the reasons discussed below, however, the Board does not believe that total
return to shareholders is an appropriate criteria for officer compensation.
Two components impact shareholder return: dividends and appreciation in the
market price of the Company's stock. Dividends clearly depend on the financial
performance of the Company. Stock price, however, is subject to varying
economic, industry and market forces which are totally outside the scope of
management's control. These divergent forces can and do cause significant price
changes, up and down, among various stocks and stock groups.
Although previous goals under the Company's Long-Term Incentive Plan (LTIP)
have included total shareholder return, your Board no longer uses it to
determine incentive compensation. A total shareholder return goal can operate
capriciously to penalize or reward management and can do so for reasons
entirely beyond management's control. The Board believes that its existing
compensation programs, which are tied to specific performance goals including
earnings growth, provide the right type of incentive for the Company's
officers.
The Board urges each shareholder to review the more full discussion of the
Company's executive compensation programs and its "pay for performance"
approach included above in this Proxy Statement and Prospectus (see "Item No.
1--Election of Directors--Executive Compensation and Transactions with
Management and Others" and "--Report of the Executive Compensation Committee").
FOR THESE REASONS, THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
VOTE "AGAINST" THIS PROPOSAL. Proxies received will be voted against this
proposal unless a contrary choice is specified.
EXPERTS/RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANT
The consolidated financial statements and the related financial statement
schedules as of December 31, 1994 and 1993 and for each of the three years in
the period ended December 31, 1994, incorporated in this Proxy Statement and
Prospectus by reference from the Company's Annual Report on Form 10-K for 1994,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is incorporated herein by reference (which report contains
an emphasis paragraph referring to the Company's consideration of alternative
strategies for its 80 percent owned subsidiary, Wahlco Environmental Systems,
Inc.), and has been so incorporated in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
Deloitte & Touche LLP (or its predecessor firm, Deloitte Haskins & Sells) has
been employed regularly by SDG&E for many years to audit its financial
statements and for other purposes. Representatives of Deloitte & Touche LLP are
expected to be present at the Annual Meeting. They will have the opportunity to
make a statement, if they so desire, and will respond to appropriate questions
from Shareholders.
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ANNUAL REPORT AND AVAILABILITY OF FORM 10-K
SDG&E's 1994 Annual Report to Shareholders accompanies this Proxy Statement
and Prospectus. SDG&E's Annual Report to the SEC on Form 10-K for 1994, which
is incorporated into this Proxy Statement and Prospectus by reference, will be
provided to Shareholders, without charge, upon written request to N. A.
Peterson, Office of the Secretary, San Diego Gas & Electric Company, P.O. Box
1831, San Diego, California 92112-4150.
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Proposals that Shareholders may wish to have included in the proxy materials
relating to the next annual meeting must be received by SDG&E by November 10,
1995. If the Merger has been effected prior to such time, shareholder proposals
should be addressed to ParentCo.
PROXY SOLICITATIONS
In addition to the original solicitation by mail, some of the officers and
regular employees of SDG&E may solicit proxies by personal visits, telephone or
mail without receiving compensation in addition to their regular salaries.
SDG&E anticipates that the expense associated with these solicitation efforts
will be nominal. SDG&E will reimburse brokerage firms and other securities'
custodians for reasonable expenses incurred by them in forwarding proxy
material to beneficial owners of stock.
SDG&E has also retained Georgeson & Co., Inc., a proxy solicitation firm, to
assist in the solicitation of proxies at an estimated cost of $12,000 plus
disbursements. All costs associated with this solicitation will be borne by
SDG&E.
OTHER BUSINESS TO BE BROUGHT BEFORE THE ANNUAL MEETING
The Board of Directors does not know of any matters that will be presented
for action at the Annual Meeting other than the matters described above.
However, if any other matters properly come before the Annual Meeting, the
holders of proxies solicited by the Board of Directors will vote on those
matters in accordance with their judgment, and discretionary authority to do so
is included in the proxy.
By order of the Board of Directors
N. A. Peterson
Senior Vice President,
General Counsel and Secretary
San Diego, California
March 10, 1995
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EXHIBIT A
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER ("Agreement") is made as of [ ], 1995, by and
among SAN DIEGO GAS & ELECTRIC COMPANY, a California corporation ("SDG&E"), SAN
DIEGO MERGER COMPANY, a California corporation ("MergeCo"), and SDO PARENT CO.,
INC., a California corporation ("ParentCo"), with reference to the following
facts:
A. SDG&E has authorized capital consisting of (i) 255 million shares of
Common Stock, without par value ("SDG&E Common Stock"), of which approximately
116,541,000 shares are issued and outstanding; (ii) 1,375,000 shares of
Cumulative Preferred Stock, $20 par value ("Cumulative Preferred Stock"), of
which 1,374,650 shares (consisting of four separate series) are issued and
outstanding; and (iii) 10 million shares of Preference Stock (Cumulative),
without par value ("Preference Stock"), of which 3,190,000 shares (consisting
of four separate series) are issued and outstanding.
B. MergeCo has authorized capital consisting of 1000 shares of Common Stock
("MergeCo Common Stock"), of which 100 shares are issued and outstanding and
owned beneficially and of record by ParentCo.
C. ParentCo has authorized capital consisting of 300 million shares of Common
Stock ("ParentCo Common Stock"), of which 100 shares are issued and outstanding
and owned beneficially and of record by SDG&E, and 30 million shares of
Preferred Stock, none of which have been issued.
D. The Boards of Directors of the respective parties hereto deem it advisable
to merge MergeCo with and into SDG&E (the "Merger") in accordance with the
California General Corporation Law ("California GCL") and this Agreement for
the purpose of establishing ParentCo as the parent corporation for SDG&E in a
transaction intended to qualify for tax-free treatment.
NOW, THEREFORE, in consideration of the premises and agreements contained
herein, the parties agree that (i) MergeCo shall be merged with and into SDG&E
(the "Merger"), (ii) SDG&E shall be the corporation surviving the Merger, and
(iii) the terms and conditions of the Merger, the mode of carrying it into
effect, and the manner of converting and exchanging shares of capital stock
shall be as follows:
ARTICLE 1
THE MERGER
1.1 Officers' Certificates. Subject to and in accordance with the provisions
of this Agreement, officers' certificates of SDG&E and MergeCo (the "Officers'
Certificates") shall be signed and verified and thereafter delivered, together
with a copy of this Agreement, to the office of the Secretary of State of
California for filing, all as provided in Section 1103 of the California GCL.
1.2 Effective Time. The Merger shall become effective at 11:59 p.m. on the
last day of the calendar month during which the Officers' Certificates and this
Agreement are filed with the Secretary of State of California as contemplated
by Section 1.1 above (the "Effective Time"). At the Effective Time, the
separate existence of MergeCo shall cease and MergeCo shall be merged with and
into SDG&E, which shall continue its corporate existence as the surviving
corporation (SDG&E and MergeCo being sometimes referred to herein as the
"Constituent Corporations" and SDG&E, as the surviving corporation, being
sometimes referred to herein as the "Surviving Corporation"). SDG&E shall
succeed, without other transfer, to all the rights and property of MergeCo and
shall be subject to all the debts and liabilities of MergeCo in the same manner
as if SDG&E had itself incurred them. All rights of creditors and all liens
upon the property of each of SDG&E and MergeCo shall be preserved unimpaired.
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1.3 Appropriate Actions. Prior to and after the Effective Time, ParentCo,
SDG&E and MergeCo, respectively, shall take all such actions as may be
necessary or appropriate in order to effectuate the Merger. In this connection,
ParentCo shall issue the shares of ParentCo Common Stock into which outstanding
shares of SDG&E Common Stock will be converted on a share-for-share basis to
the extent provided in Article 2 of this Agreement. In case at any time after
the Effective Time any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
title to all properties, assets, privileges, rights, immunities and franchises
of either of the Constituent Corporations, the officers and directors of each
of the Constituent Corporations as of the Effective Time shall take all such
further action.
ARTICLE 2
TERMS OF CONVERSION AND EXCHANGE OF SHARES
At the Effective Time:
2.1 SDG&E Common Stock. Each share of SDG&E Common Stock issued and
outstanding immediately prior to the Merger shall be automatically changed and
converted into one share of ParentCo Common Stock, which shall thereupon be
issued and fully-paid and non-assessable; provided, however, that such
conversion shall not affect shares of holders, if any, who perfect their rights
as dissenting shareholders under Chapter 13 of the California GCL.
2.2 SDG&E Preferred Stock. Shares of the Cumulative Preferred Stock and
Preference Stock of SDG&E issued and outstanding immediately prior to the
Merger shall not be converted or otherwise affected by the Merger. Each such
share shall continue to be (i) issued and outstanding and (ii) a fully-paid and
nonassessable share (of Cumulative Preferred Stock or Preference Stock, as the
case may be) of the Surviving Corporation.
2.3 MergeCo Shares. The shares of MergeCo Common Stock issued and outstanding
immediately prior to the Merger shall be automatically changed and converted
into all of the issued and outstanding shares of Common Stock of the Surviving
Corporation, which shall thereupon be issued and fully-paid and nonassessable,
with the effect that the number of issued and outstanding shares of Common
Stock of the Surviving Corporation shall be the same as the number of issued
and outstanding shares of SDG&E Common Stock immediately prior to the Effective
Time.
2.4 ParentCo Shares. Each share of ParentCo Common Stock issued and
outstanding immediately prior to the Merger shall be canceled.
ARTICLE 3
ARTICLES OF INCORPORATION AND BYLAWS
3.1 SDG&E's Restated Articles. From and after the Effective Time, and until
thereafter amended as provided by law, the Restated Articles of Incorporation,
as amended, of SDG&E as in effect immediately prior to the Merger shall be and
continue to be the Restated Articles of Incorporation, as amended, of the
Surviving Corporation.
3.2 SDG&E's Bylaws. From and after the Effective Time, and until thereafter
amended as provided by law, the Bylaws of SDG&E as in effect immediately prior
to the Merger shall be and continue to be the Bylaws of the Surviving
Corporation.
ARTICLE 4
DIRECTORS AND OFFICERS
The persons who are directors and officers of SDG&E immediately prior to the
Merger shall continue as directors and officers, respectively, of the Surviving
Corporation and shall continue to hold office as provided in the Bylaws of the
Surviving Corporation. If, at or following the Effective Time, a vacancy shall
exist in the
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Board of Directors or in the position of any officer of the Surviving
Corporation, such vacancy may be filled in the manner provided in the Bylaws of
the Surviving Corporation.
ARTICLE 5
STOCK CERTIFICATES
5.1 Pre-Merger SDG&E Common. Following the Effective Time, each holder of an
outstanding certificate or certificates theretofore representing shares of
SDG&E Common Stock may, but shall not be required to, surrender the same to
ParentCo for cancellation or transfer, and each such holder or transferee will
be entitled to receive a certificate or certificates representing the same
number of shares of ParentCo Common Stock as the shares of SDG&E Common Stock
previously represented by the stock certificate(s) surrendered.
5.2 Outstanding Certificates. Until surrendered or presented for transfer in
accordance with Section 5.1 above, each outstanding certificate which, prior to
the Effective Time, represented SDG&E Common Stock shall be deemed and treated
for all corporate purposes to represent the ownership of the same number of
shares of ParentCo Common Stock as though such surrender or transfer and
exchange had taken place.
5.3 SDG&E Stock Transfer Books. The stock transfer books for SDG&E Common
Stock shall be deemed to be closed at the Effective Time and no transfer of
shares of SDG&E Common Stock outstanding prior to the Effective Time shall
thereafter be made on such books.
5.4 Post-Merger Rights of Holders. Following the Effective Time, the holders
of certificates representing SDG&E Common Stock outstanding immediately prior
to the Effective Time shall cease to have any rights with respect to stock of
the Surviving Corporation and their sole rights shall be with respect to the
ParentCo Common Stock into which their shares of SDG&E Common Stock shall have
been converted by the Merger.
ARTICLE 6
CONDITIONS OF THE MERGER
Completion of the Merger is subject to the satisfaction of the following
conditions:
6.1 Shareholder Approval. The principal terms of this Agreement shall have
been approved by such holders of capital stock of each of the Constituent
Corporations as is required by the California GCL.
6.2 SDG&E Preferred Vote. The principal terms of this Agreement shall have
been approved by the holders of at least two-thirds of the combined outstanding
shares of Cumulative Preferred Stock and Preference Stock.
6.3 ParentCo Common Stock Listed. The ParentCo Common Stock to be issued and
to be reserved for issuance pursuant to the Merger shall have been approved for
listing, upon official notice of issuance, by the New York Stock Exchange.
ARTICLE 7
AMENDMENT AND TERMINATION
7.1 Amendment. The parties to this Agreement, by mutual consent of their
respective boards of directors, may amend, modify or supplement this Agreement
in such manner as may be agreed upon by them in writing at any time before or
after approval of this Agreement by the pre-Merger shareholders of SDG&E (as
provided in Sections 6.1 and 6.2 above); provided, however, that no such
amendment, modification or supplement shall, if agreed to after such approval
by the pre-Merger shareholders of SDG&E, change any of the principal terms of
this Agreement.
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7.2 Termination. This Agreement may be terminated and the Merger and other
transactions provided for by this Agreement may be abandoned at any time,
whether before or after approval of this Agreement by the pre-Merger
shareholders of SDG&E, by action of the board of directors of SDG&E if such
board of directors determines for any reason that the completion of the
transactions provided for herein would for any reason be inadvisable or not in
the best interests of SDG&E or its shareholders.
ARTICLE 8
MISCELLANEOUS
8.1 Approval of ParentCo Shares. By its execution and delivery of this
Agreement, SDG&E, as the sole pre-Merger shareholder of ParentCo, consents to,
approves and adopts this Agreement and approves the Merger, subject to approval
of this Agreement by the pre-Merger shareholders of SDG&E (as provided in
Sections 6.1 and 6.2 above).
8.2 Approval of MergeCo Shares. By its execution and delivery of this
Agreement, ParentCo, as the sole pre-Merger shareholder of MergeCo, consents
to, approves and adopts this Agreement and approves the Merger, subject to
approval of this Agreement by the pre-Merger shareholders of SDG&E (as provided
in Sections 6.1 and 6.2 above).
8.3 No Counterparts. This agreement may not be executed in counterparts.
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IN WITNESS WHEREOF, SDG&E, ParentCo and MergeCo, pursuant to approval and
authorization duly given by resolutions adopted by their respective boards of
directors, have each caused this Agreement to be executed by its chairman of
the board or its president or one of its vice presidents and by its secretary
or one of its assistant secretaries.
SDG&E:
San Diego Gas & Electric Company,
a California corporation
By: _________________________________
Its: ________________________________
By: _________________________________
Its: ________________________________
ParentCo:
SDO Parent Co., Inc.,
a California corporation
By: _________________________________
Its: ________________________________
By: _________________________________
Its: ________________________________
MergeCo:
San Diego Merger Company,
a California corporation
By: _________________________________
Its: ________________________________
By: _________________________________
Its: ________________________________
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EXHIBIT B
RESTATED ARTICLES OF INCORPORATION
OF
SDO PARENT CO., INC.
FIRST: The name of the Corporation is SDO Parent Co., Inc.
SECOND: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business
or the practice of a profession permitted to be incorporated by the California
Corporations Code.
THIRD: Stock.
A. The Corporation is authorized to issue two classes of shares, to be
designated respectively Preferred Stock ("Preferred Stock") and Common Stock
("Common Stock"). The total number of shares of capital stock that the
Corporation is authorized to issue is 330,000,000, of which 30,000,000 shall be
Preferred Stock and 300,000,000 shall be Common Stock.
B. The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors of the Corporation (the "Board of Directors") is
expressly authorized to provide for the issue of all or any of the shares of
the Preferred Stock in one or more series, and to fix the designation and
number of shares and to determine or alter for each such series, such voting
powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other rights and such
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issue of such shares and as may be permitted by the General
Corporation Law of California. The Board of Directors is also expressly
authorized to increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any series subsequent to the
issue of shares of that series. If the number of shares of any such series
shall be so decreased, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
FOURTH: Directors.
A. The authorized number of directors of the Corporation shall not be fewer
than nine (9) nor more than thirteen (13). The exact authorized number of
directors shall be fixed from time to time, within the limits specified in this
Article FOURTH, by resolution of the Board of Directors, or by a bylaw or
amendment thereof duly adopted by the Board of Directors or the affirmative
vote of the holders of shares representing at least 66 2/3% of the outstanding
shares of the Corporation entitled to vote.
B. 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 of Directors. At each annual
meeting of shareholders the number of directors equal to the number of
directors of the 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 Paragraph B of this Article FOURTH
shall become effective only when the Corporation shall have become a "listed
corporation" within the meaning of section 301.5 of the California Corporations
Code.
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C. Vacancies in the Board of Directors, 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.
FIFTH: No shareholder may cumulate votes in the election of directors. This
Article FIFTH shall become effective only when the Corporation shall have
become a "listed corporation" within the meaning of section 301.5 of the
California Corporations Code.
SIXTH: Unless the Board of Directors, by a resolution adopted by 66 2/3% of
the authorized number of directors, waives the provisions of this Article SIXTH
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.
SEVENTH: Fair Price.
A. REQUIRED SHAREHOLDER VOTE FOR CERTAIN TRANSACTIONS.
Unless all of the conditions set forth in either Subsection 1 or 2 of Section
B of this Article SEVENTH have been fulfilled, any agreement, contract,
transaction or other arrangement providing for or resulting in a Business
Combination must be approved by the affirmative vote of 66 2/3% of the number
of shares of Common Stock outstanding at the time voting as a separate class.
Such affirmative vote shall be required notwithstanding the fact that no vote
may be required by law or these Articles or that a lesser percentage, different
or additional vote may be specified by law, these Articles, or in any agreement
with any national securities exchange or otherwise, in which case each vote
requirement shall be satisfied individually.
B. EXCEPTIONS.
Section A of this Article SEVENTH shall not apply to any Business Combination
if the conditions specified in either Subsection 1 or 2 below are met.
1. The Business Combination shall have been approved by a resolution adopted
by 66 2/3% of the authorized number of directors of the Corporation, or
2. All of the following conditions have been met:
a. Any consideration to be received for any stock as a result of the
Business Combination shall be in cash or in the same form as a Dominant
Shareholder has previously paid for shares of that class. If varying forms
of consideration have been used, the form of consideration shall be the
form used to acquire the largest number of shares of the class receiving
consideration.
b. The aggregate amount of cash and the fair market value of any other
form of consideration shall, on a per share basis, be at least equal to the
Highest Purchase Price paid by a Dominant Shareholder for shares of the
same class.
c. After such Dominant Shareholder has become a Dominant Shareholder and
prior to the consummation of such Business Combination:
(1) There shall have been no failure to declare and pay in full at
the regular rate any periodic dividends on any outstanding preferred
stock unless such failure is approved by 66 2/3% of the authorized
number of directors of the Corporation;
(2) There shall have been no reduction in the quarterly rate of
dividends, if any, paid on common shares (such rate to be appropriately
adjusted to reflect the occurrence of any reclassification, reverse
stock split, recapitalization, reorganization or other similar
transaction having the effect of changing the number of outstanding
common shares) unless such reduction is approved by 66 2/3 of the
authorized number of directors of the Corporation; and
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(3) Neither a Dominant Shareholder nor an Affiliate thereof shall
have acquired Beneficial Ownership of any additional shares of voting
stock of the Corporation except as part of a transaction which has been
approved by a resolution adopted by 66 2/3% of the authorized number of
directors.
3. Definitions.
a. "Affiliate" means: a Person that directly, or indirectly through one
or more intermediaries, controls or is controlled by, or is under common
control with, a specified Person.
b. "Beneficial Ownership" means: ownership; holding the right to vote
pursuant to any agreement, arrangement or understanding; having the right
to acquire pursuant to any agreement, arrangement, understanding, option,
right, warrant or right of conversion; having the right to dispose of
pursuant to any agreement, arrangement or understanding; having the right
to receive money (e.g., dividends, redemption proceeds or proceeds from any
sale) pursuant to any agreement, arrangement or understanding; and
Beneficial Ownership (pursuant to the foregoing provisions of this
definition) by an Affiliate or by an officer, director or employee of a
Dominant Shareholder or any Affiliate of such an officer, director or
employee.
c. "Business Combination" means: (1) a merger or consolidation of the
Corporation or any Subsidiary with a Dominant Shareholder or with any other
corporation or entity which is, or after such merger or consolidation would
be, an Affiliate of a Dominant Shareholder; (2) the sale, lease, exchange,
pledge, transfer or other disposition by the Corporation, or a Subsidiary,
of assets exceeding ten percent (10%) of the total assets of the
Corporation in a transaction or series of transactions in which a Dominant
Shareholder is either a party or has an interest; (3) the issuance, sale,
exchange, disposition or other transfer by the Corporation or any
Subsidiary, in one transaction or a series of transactions, of any
securities of the Corporation, or any Subsidiary, to any Dominant
Shareholder or any Affiliate of any Dominant Shareholder in exchange for
cash, securities or other property having an aggregate fair market value in
excess of ten percent (10%) of the fair market value of the issued and
outstanding capital stock of the Corporation prior to such transaction; (4)
any reclassification of securities, any reverse stock split, or any
recapitalization of the Corporation or any other transaction which has the
effect, directly or indirectly, of increasing the Beneficial Ownership of
the Corporation or any Subsidiary by the Dominant Shareholder or any
Affiliate thereof.
d. "Dominant Shareholder" means: any Person (except this Corporation, any
Subsidiary of this Corporation, and any Savings, Pension, TRESOP or other
benefit plan of this Corporation or any fiduciary, trustee or custodian
thereof acting in such a capacity) who is the Beneficial Owner, directly or
indirectly, of more than ten percent (10%) but less than 99 percent (99%)
of the shares of the Corporation having the power to vote for the Board of
Directors. The relevant time for calculating this percentage shall be each
date on which any approval (board, shareholder, governmental or any other)
necessary to complete any agreement, contract, transaction or other
arrangement providing for or resulting in a Business Combination is
obtained.
e. "Highest Purchase Price" shall mean the highest amount of
consideration paid by a Dominant Shareholder at any time within two years
prior to the date of becoming a Dominant Shareholder and during any time
while having the status of Dominant Shareholder; provided, however, that
the Highest Purchase Price shall be appropriately adjusted to reflect the
occurrence of any reclassification, recapitalization, stock split, reverse
stock split or other readjustment to the number of outstanding shares of
stock in a class, or the payment of a stock dividend thereon occurring
between the last date upon which such Dominant Shareholder paid the Highest
Purchase Price and the effective date of the Business Combination.
f. "Person" means: any individual, group, partnership, association, firm,
corporation or other entity.
g. "Subsidiary ' means: any corporation in which this Corporation has
Beneficial Ownership of at least a majority of any class of stock having
the right to vote for directors.
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4. The Board of Directors by a vote of 66 2/3% of the authorized number of
directors shall have the right to make any determinations required under this
Article SEVENTH.
EIGHTH: Indemnity.
A. LIMITATION OF DIRECTORS' LIABILITY.
The liability of the directors of the Corporation for monetary damages shall
be eliminated to the fullest extent permissible under California law.
B. INDEMNIFICATION OF CORPORATE AGENTS.
The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with agents, vote of shareholders or disinterested
directors, or otherwise, in excess of the indemnification otherwise permitted
by Section 317 of the California Corporations Code, subject only to the
applicable limits set forth in Section 204 of the California Corporations Code.
NINTH: 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, solely by the affirmative vote of at least 66 2/3% 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 66 2/3% of the outstanding shares of the Corporation
entitled to vote.
TENTH: The amendment or repeal of Articles FOURTH, FIFTH, SIXTH, SEVENTH,
EIGHTH, NINTH and TENTH shall require the approval of the holders of shares
representing at least 66 2/3% of the outstanding shares of the Corporation
entitled to vote.
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EXHIBIT C
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW
DISSENTERS' RIGHTS
(S) 1300. REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES; CORPORATE
PURCHASE AT FAIR MARKET VALUE; DEFINITIONS
(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.
(S) 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND FOR
PURCHASE; TIME; CONTENTS
(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
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any dissenting shares as defined in subdivision (b) of Section 1300, unless
they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it 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 short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
(S) 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFICATED
SECURITIES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares to be exchanged for certificates of appropriate denomination
so stamped or endorsed or (b) if the shares are uncertificated securities,
written notice of the number of shares which the shareholder demands that the
corporation purchase. Upon subsequent transfers of the dissenting shares on the
books of the corporation, the new certificates, initial transaction statement,
and other written statements issued therefor shall bear a like statement,
together with the name of the original dissenting holder of the shares.
(S) 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR MARKET
VALUE; FILING; 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.
(S) 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION OF ISSUES;
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 value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was
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mailed to the shareholder, but not thereafter, may file a complaint in the
superior court of the proper county praying the court to determine whether the
shares are dissenting shares or the fair market value of the dissenting shares
or both or may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
(S) 1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION BY COURT; JUDGMENT;
PAYMENT; APPEAL; COSTS
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which
any dissenting shareholder who is a party, or who has intervened, is entitled
to require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of
Section 1301).
(S) 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST
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.
(S) 1307. DIVIDENDS ON DISSENTING SHARES
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.
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(S) 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL OF
DEMAND FOR PAYMENT
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.
(S) 1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into
shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice
of the approval by the outstanding shares or notice pursuant to subdivision
(i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
(S) 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
(S) 1311. EXEMPT SHARES
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
(S) 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND
MERGER OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTION; CONDITIONS
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity
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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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EXHIBIT D
1986 LONG-TERM INCENTIVE PLAN (AS REVISED)
SAN DIEGO GAS & ELECTRIC COMPANY
1986 LONG-TERM INCENTIVE PLAN
(Amended and Restated Effective April 25, 1995)
1. Purpose of the Plan. The purpose of the 1986 Long-Term Incentive Plan is
to promote the interests of San Diego Gas & Electric Company and its
shareholders by encouraging officers and key employees to acquire stock or
increase their proprietary interest in the Company. By thus providing the
opportunity to acquire Company stock and receive incentive payments, the
Company seeks to attract and retain such key employees upon whose judgment,
initiative, and leadership the success of the Company largely depends.
This amended and restated Plan (a) permits the grant of incentive stock
options as defined in section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), as well as options that are not incentive stock options
and other awards; (b) extends the term of the Plan; (c) adds provisions for the
grant of Common Stock to non-employee directors; (d) adds an individual grant
limitation required by section 162(m) of the Code for award income for certain
individuals to be tax deductible by the Company; and (e) makes certain
additional changes.
2. Definitions. Whenever the following terms are used in this Plan, they will
have the meanings specified below unless the context clearly indicates the
contrary.
(a) "Board of Directors" or "Board" means the Board of Directors of San Diego
Gas & Electric Company.
(b) "Change-in-Control" means (1) the dissolution or liquidation of the
Company, (2) a reorganization, merger, or consolidation of the Company with one
or more corporations as a result of which the Company is not the surviving
corporation, (3) the acquisition of beneficial ownership, directly or
indirectly, of more than 25% of the voting power of the outstanding stock of
the Company by one person, group, association, corporation, or other entity,
(the group) coupled with the election to the Board of Directors of new members
who were not originally nominated by the Board at the last annual meeting and
who constitute a new majority of the Board or (4) upon the sale of all or
substantially all the property of the Company. The term Change-in-Control shall
not apply to any reorganization or merger initiated voluntarily by the Company
in which the Company is the surviving entity.
(c) "Committee" means the committee appointed to administer the Plan pursuant
to Section 4.
(d) "Company" means San Diego Gas & Electric Company and its subsidiaries.
(e) "Common Shares" or "Common Stock" means the common shares of San Diego
Gas & Electric Company and any class of common shares into which such common
shares may hereafter be converted.
(f) "Dividend Equivalent" means the additional amount of Common Stock issued
in connection with an option, as described in Section 14.
(g) "Eligible Person" means an Employee eligible to receive an Incentive
Award.
(h) "Employee" means any regular full-time common-law employee of the
Company, or of any of its present or future subsidiary corporations, as defined
in section 424(f) of the Internal Revenue Code of 1986, as amended (the
"Code").
(i) "Fair Market Value" means the mean of the high and low sale prices
reported for the Common Stock on the New York Stock Exchange for the five (5)
trading days immediately preceding the date as of which such determination is
made.
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(j) "Good Reason" means termination of employment by the Officer when one or
more of the following occurs without the Officer's express written consent
within three years after a change of control:
(i) an adverse and significant change in the Holder's position, duties,
responsibilities or status with the Company, or a change in business
location to a point outside the Company's service territory, except in
connection with the termination of employment by the Company for Cause or
Disability, or as a result of Voluntary Retirement at or after either the
Holder's early (f.i.) or Normal Retirement Date (f.ii.) or death, or for
other than for Good Reason;
(ii) a reduction by the Company in base salary or incentive compensation
opportunity;
(iii) the taking of any action by the Company to eliminate benefit plans
without providing substitutes therefore, to reduce benefits thereunder or
to substantially diminish the aggregate value of incentive awards or other
fringe benefits including insurance and an automobile provided in
accordance with the Company's standard policy; or
(iv) a failure by the Company to obtain from any successor, before the
succession takes place, an agreement to assume and perform this Plan.
(k) "Holder" means a person holding an Incentive Award.
(l) "Incentive Award" means any Nonqualified Stock Option, Incentive Stock
Option, Common Stock, Restricted Stock, Stock Appreciation Right, Dividend
Equivalent, Stock Payment or Performance Award granted under the Plan.
(m) "Incentive Stock Option" means an option as defined under section 422 of
the Code, including an Incentive Stock Option granted pursuant to Section 8 of
the Plan.
(n) "Nonqualified Stock Option" means an option other than an Incentive Stock
option granted pursuant to Section 7 of the Plan.
(o) "Option" means either a Nonqualified Stock Option or Incentive Stock
Option.
(p) "Outside Director" shall mean a member of the Board of Directors who is
not an Employee.
(q) "Plan" means the 1986 Long-Term Incentive Plan as amended and restated
herein, which may be amended from time to time.
(r) "Restricted Stock" means Company stock sold or granted to an eligible
person at not less than two dollars and fifty cents ($2.50) per share, which is
nontransferable and subject to substantial risk of forfeiture until
restrictions lapse.
(s) "Stock Appreciation Right" or "Right" means a right granted pursuant to
Section 11 of the Plan to receive a number of shares of Common Stock or, in the
discretion of the Committee, an amount of cash or a combination of share and
cash, based on the increase in the Fair Market Value or book value of the
shares subject to the right.
(t) "Performance Award" means an award whose value may be linked to stock
value, book value, or other specific performance criteria which may be set by
the Board of Directors, but which is paid in cash, stock, or a combination of
both.
(u) "Stock Payment" means a payment in shares of the Common Stock to replace
all or any portion of the compensation (other than base salary) that would
otherwise become payable to an Employee in cash.
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3. Shares of Common Stock Subject to the Plan.
(a) Subject to the provisions of Section 3(c) and Section 15 of the Plan, the
aggregate number of shares of Common Stock that may be issued or transferred
pursuant to Incentive Awards or covered by Stock Appreciation Rights unrelated
to Options under the Plan will not exceed 2,700,000.
(b) The shares to be delivered under the Plan will be made available, at the
discretion of the Board of Directors or the Committee, either from authorized
but unissued shares of Common Stock or from previously issued shares of Common
Stock reacquired by the Company, including shares purchased on the open market.
(c) If Incentive Awards are forfeited or if Incentive Awards terminate for
any other reason before being exercised, then such Incentive Awards shall again
become available for award under the Plan. If Stock Appreciation Rights are
exercised, then only the number of Common Shares (if any) actually issued in
settlement of such Stock Appreciation Rights shall reduce the number of Common
Shares available under Section 3(a) and the balance shall again become
available for award under the Plan. If Restricted Stock is forfeited before any
dividends have been paid with respect to such Restricted Stock, then such
Restricted Stock shall again become available for award under the Plan.
4. Administration of the Plan.
(a) The Plan shall be administered by the Committee. The Committee shall
consist of two or more disinterested directors of the Company, who shall be
appointed by the Board. A member of the Board shall be deemed to be
"disinterested" only if he or she satisfies such requirements as the Securities
and Exchange Commission may establish for disinterested administrators acting
under plans intended to qualify for exemption under Rule 16b-3 under the
Securities Exchange Act of 1934 (or any other comparable provisions in effect
at the time or times in question). An Outside Director shall not fail to be
"disinterested" solely because he or she receives the grants of Common Stock
described in Section 6. The Board may also appoint one or more separate
committees of the Board, each composed of two or more directors of the Company
who need not be disinterested, who may administer the Plan with respect to
Employees who are not officers or directors of the Company, may grant Incentive
Awards under the Plan to such Employees and may determine all terms of such
Awards. Unless and until the Board of Directors appoints other members, and
subject to the requirement that they be "disinterested," the members of the
Committee shall be the members of the Executive Compensation Committee of the
Board of Directors, as such Executive Compensation Committee may be constituted
from time to time.
(b) The Committee has and may exercise such powers and authority as may be
necessary or appropriate for the Committee to carry out its functions as
described in the Plan. The Committee has authority in its discretion to
determine the Eligible Persons to whom, and the time or times at which,
Incentive Awards may be granted and the number of shares or Rights subject to
each award. Subject to the express provisions of the Plan, the Committee also
has authority to interpret the Plan, and to determine the terms and provisions
of the respective Incentive Award agreements (which need not be identical) and
to make all other determinations necessary or advisable for Plan
administration. The Committee has authority to prescribe, amend, and rescind
rules and regulations relating to the Plan. All interpretations,
determinations, and actions by the Committee will be final, conclusive, and
binding upon all parties.
(c) No member of the Board of Directors or the Committee will be liable for
any action or determination made in good faith by the Committee with respect to
the Plan or any Incentive and Performance Award under it.
5. Eligibility and Date of Grant.
(a) The Committee has authority, in its sole discretion, to determine and
designate from time to time those Eligible Persons who are to be granted
Incentive Awards, the type of Incentive Awards to be granted, and the number of
Rights, shares of Common Stock, or the amount of cash subject to each Incentive
Award.
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Each Incentive Award will be evidenced by a written instrument and may include
any other terms and conditions consistent with the Plan, as the Committee may
determine.
(b) the date of grant of an Incentive Award will be the date the Committee
takes the necessary action to approve the grant; provided, however, that if the
minutes or appropriate resolutions of the Committee provide that an Incentive
Award is to be granted as of a date in the future, the date of grant will be
such future date.
(c) any other provision of the Plan notwithstanding, the participation of
Outside Directors in the Plan shall be limited such that Outside Directors
shall receive no Incentive Awards other than the Common Stock granted pursuant
to Section 6 hereof.
6. Outside Director Participation. Upon the conclusion of each regular annual
meeting of the Company's shareholders, each incumbent Outside Director who will
continue serving as a member of the Board thereafter shall receive a grant of
300 Common Shares (subject to adjustment under Section 15 and prorated for
partial year service) in consideration of past service as a member of the Board
and without additional payment for such Common Shares.
7. Nonqualified Stock Options.
The Committee may approve the grant of Nonqualified Stock Options to Eligible
Persons, subject to the following terms and conditions:
(a) The purchase price of Common Stock under each Nonqualified Stock
Option may not be less than one hundred percent (100%) of the Fair Market
Value of the Common Stock on the date the Nonqualified Stock Option is
granted.
(b) No Nonqualified Stock Option may be exercised after ten (10) years
and one day from the date of grant.
(c) No fractional shares will be issued pursuant to the exercise of a
Nonqualified Stock Option nor will any cash payment be made in lieu of
fractional shares.
8. Incentive Stock Options. The Committee may approve the grant of Incentive
Stock Options to Eligible Persons, subject to the following terms and
conditions:
(a) The purchase price of each share of Common Stock under an Incentive
Stock Option will be at least equal to the Fair Market Value of a share of
the Common Stock on the date of grant; provided, however, that if an
Employee, at the time an Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company (as defined in section 424 of the
Code), then the Exercise Price of each share of Common Stock subject to
such Incentive Stock Option shall be at least one hundred and ten percent
(110%) of the Fair Market Value of such share of Common Stock, as
determined in the manner stated above.
(b) No Incentive Stock Option may be exercised after ten (10) years from
the date of grant; provided, however, that if any Employee, at the time an
Incentive Stock Option is granted to him, owns stock representing more than
ten percent (10%) of the total combined voting power of all classes of
stock of the Company (as defined in Section 424 of the Code), the Incentive
Stock Option granted shall not be exercisable after the expiration of five
(5) years from the date of grant.
(c) No fractional shares will be issued pursuant to the exercise of an
Incentive Stock Option nor will any cash payment be made in lieu of
fractional shares.
9. Option Rules. Options granted to any Eligible Person prior to April 24,
2005, together with Stock Appreciation Rights granted pursuant to Section 11
hereof during the period, shall in no event cover more than 270,000 shares of
Common Stock. The purchase price under each Option may be paid in cash, cash
equivalents or secured notes acceptable to the Committee, by arrangement with a
broker which is acceptable
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to the Committee where payment of the option price is made pursuant to an
irrevocable direction to the broker to deliver all or part of the proceeds from
the sale of the Option shares to the Company, by the surrender of shares of
Common Stock owned by the Holder exercising the option and having a Fair Market
Value on the date of exercise equal to the purchase price or in any combination
of the foregoing. Each Option granted to an Eligible Person shall be
exercisable in such manner and at such times as the Committee shall determine.
The Committee may modify, accelerate the exercisability of, extend or assume
outstanding Options or may accept the cancellation of outstanding options
(whether granted by the Company or by another issuer) in return for the grant
of new Options for the same or a different number of shares and at the same or
a different purchase price. The foregoing notwithstanding, no modification of
an Option shall, without the consent of the Holder, alter or impair his or her
rights or obligations under such Option.
10. Restricted Stock. The Committee may approve the grant of Restricted Stock
related or unrelated to Nonqualified Stock Options or Stock Appreciation Rights
to Eligible Persons, subject to the following terms and conditions:
(a) The Committee in its discretion will determine the purchase price which
will not be less than two dollars and fifty cents ($2.50) per share.
(b) All shares of Restricted Stock sold or granted pursuant to the Plan
(including any shares of Restricted Stock received by the Holder as a result of
stock dividends, stock splits, or any other forms of capitalization) will be
subject to the following restrictions:
(i) The shares may not be sold, transferred, or otherwise alienated or
hypothecated until the restrictions are removed or expire.
(ii) The Committee may require the Holder to enter into an escrow
agreement providing that the certificates representing Restricted Stock
sold or granted pursuant to the Plan will remain in the physical custody of
an escrow holder until all restrictions are removed or expire.
(iii) Each certificate representing Restricted Stock sold or granted
pursuant to the Plan will bear a legend making appropriate reference to the
restrictions imposed on the Restricted Stock.
(iv) The Committee may impose restrictions on any shares sold pursuant to
the Plan as it may deem advisable, including, without limitation,
restrictions designed to facilitate exemption from or compliance with the
Securities Exchange Act of 1934, as amended, with requirements of any stock
exchange upon which such shares or shares of the same class are then listed
and with any blue sky or other securities laws applicable to such shares.
(c) The restrictions imposed under subparagraph (b) above upon Restricted
Stock will lapse in accordance with a schedule or other conditions as
determined by the Committee, subject to the provisions of Section 17,
subparagraph (d).
(d) Subject to the provisions of subparagraph (b) above and Section 17,
subparagraph (d), the holder will have all rights of a shareholder with respect
to the Restricted Stock granted or sold, including the right to vote the shares
and receive all dividends and other distributions paid or made with respect
thereto.
11. Stock Appreciation Rights. The Committee may approve the grant of Rights
related or unrelated to Options to Eligible Persons, subject to the following
terms and conditions:
(a) A Stock Appreciation Right may be granted:
(i) at any time if unrelated to an option;
(ii) either at the time of grant, or at any time thereafter during the
option term if related to a Nonqualified Stock Option; or
(iii) only at the time of grant if related to an Incentive Stock Option;
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however, Stock Appreciation Rights granted to any Eligible Person prior to
April 24, 2005, together with Options granted pursuant to Sections 7 or 8
hereof during the period, shall in no event cover more than 270,000 shares of
Common Stock.
(b) A Stock Appreciation Right granted in connection with an Option will
entitle the Holder of the related Option, upon exercise of the Stock
Appreciation Right, to surrender such Option, or any portion thereof to the
extent unexercised, with respect to the number of shares as to which such Stock
Appreciation Right is exercised, and to receive payment of an amount computed
pursuant to Section 11(d). Such Option will, to the extent surrendered, then
cease to be exercisable.
(c) Subject to Section 11(g), a Stock Appreciation Right granted in
connection with an Option hereunder will be exercisable at such time or times,
and only to the extent that a related Option is exercisable, and will not be
transferable except to the extent that such related Option is exercisable, and
will not be transferable except to the extent that such related Option may be
transferable.
(d) Upon the exercise of a Stock Appreciation Right related to an Option, the
Holder will be entitled to receive payment of an amount determined by
multiplying:
(i) The difference obtained by subtracting the purchase price of a share
of Common Stock specified in the related Option from the Fair Market Value
of a share of Common Stock on the date of exercise of such Stock
Appreciation Right, by
(ii) The number of shares as to which such Stock Appreciation Right has
been exercised.
(e) The Committee may grant Stock Appreciation Rights unrelated to Options to
Eligible Persons which will be exercisable at such times as the Committee shall
determine. Section 11(d) shall be used to determine the amount payable at
exercise under such Stock Appreciation Right if Fair Market Value is used,
except that Fair Market Value shall not be used if the Committee specified in
the grant of the Right that book value or other measure as deemed appropriate
by the Committee was to be used, and in lieu of "price. . .specified in the
related option," the initial share value specified in the award shall be used.
(f) Payment of the amount determined under Section 11(d) or (e) may be made
solely in whole shares of Common Stock in a number determined at their Fair
Market Value on the date of exercise of the Stock Appreciation Right or
alternatively, at the sole discretion of the Committee, solely in cash or in a
combination of cash and shares as the Committee deems advisable. If the
Committee decides to make full payment in shares of Common Stock, and the
amount payable results in a fractional share, payment for the fractional share
will be made in cash.
(g) The Committee shall, at the time a Stock Appreciation Right is granted,
impose such conditions on the exercise of the Stock Appreciation Right as may
be required to satisfy the requirements of Rule 16b-3 under the Securities
Exchange Act of 1934 (or any other comparable provisions in effect at the time
or times in question). In addition, a Stock Appreciation Right granted under
the Plan may provide that it will be exercisable only in the event of a Change-
in-Control.
12. Performance Awards. The Committee may approve Performance Awards to
Eligible Persons. Such awards may be based on Common Stock performance over a
period determined in advance by the Committee or any other measures as
determined appropriate by the Committee. Payment will be in cash unless
replaced by a Stock Payment in full or in part as determined by the Committee.
13. Stock Payment. The Committee may approve Stock Payments of Common Stock
to Eligible Persons for all or any portion of the compensation (other than base
salary) that would otherwise become payable to an Employee in cash.
14. Dividend Equivalents. A Holder may also be granted at no additional cost
"Dividend Equivalents" based on the dividends declared on the Common Stock on
record dates during the period between the date
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an Option is granted and the date such Option is exercised, or such other
equivalent period, as determined by the Committee. Such Dividend Equivalents
shall be converted to additional shares or cash by such formula as may be
determined by the Committee.
Dividend Equivalents shall be computed, as of each dividend record date, both
with respect to the number of shares under the Option and with respect to the
number of Dividend Equivalent shares previously earned by the Holder (or his
successor in interest) and not issued during the period prior to the dividend
record date.
15. Adjustment Provisions.
(a) Subject to Section 15(b), if the outstanding shares of Common Stock are
increased, decreased, or exchanged for a different number or kind of shares or
other securities, or if additional shares or new or different shares or other
securities are distributed with respect to such shares of Common Stock or other
securities, through merger, consolidation, sale of all or substantially all of
the property of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
distribution with respect to such shares of Common Stock, or other securities,
an appropriate and proportionate adjustment may be made in (i) the maximum
number and kind of shares provided in Section 3 of the Plan, (ii) the number
and kind of shares or other securities subject to the then outstanding
Incentive Awards, and (iii) the price for each share or other unit of any other
securities subject to then outstanding Incentive Awards without change in the
aggregate purchase price or value as to which Incentive Awards remain
exercisable or subject to restrictions.
(b) Unless a successor corporation, or its parent or a subsidiary, agrees to
substitute new options, stock appreciation rights, performance awards or
restricted stock covered by its stock, with appropriate adjustments as to the
number and kind of shares and price, for all Incentive Awards then outstanding
and to continue the Plan, all Incentive Awards then outstanding under the Plan
shall be fully vested and exercisable without restrictions upon a Change-in-
Control. Even if the substitution of new awards and the continuation of the
Plan are provided for upon a Change-in-Control, as described in the preceding
sentence, all Incentive Awards then outstanding under the Plan shall
immediately become fully vested and exercisable without restrictions by any
Holder who within three years after a Change-in-Control occurs is terminated
for reasons other than cause, retirement, death, or disability or who
terminates employment due to Good Reason.
(c) Despite the provisions of Section 15(a), upon dissolution or liquidation
of the Company, or upon a reorganization, merger, or consolidation of the
Company with one or more corporations as a result of which the Company is not
the surviving corporation, or upon the sale of all or substantially all the
property of the Company, all Options, Stock Appreciation Rights, and
Performance Awards then outstanding under the Plan will be fully vested and
exercisable and all restrictions on Restricted Stock will immediately cease,
unless provisions are made in connection with such transaction for the
continuance of the Plan and the substitution for such Incentive Awards of new
Options, Stock Appreciation Rights, Performance Awards, or Restricted Stock
covering the stock of a successor employer corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices.
(d) Adjustments under Section 15(a) and 15(b) will be made by the Committee,
whose determination as to what adjustments will be made and the extent thereof
will be final, binding, and conclusive. No fractional interest will be issued
under the Plan on account of any such adjustments.
16. General Provisions.
(a) With respect to any shares of Common Stock issued or transferred under
any provision of the Plan, such shares may be issued or transferred subject to
such conditions, in addition to those specifically provided in the Plan, as the
Committee may direct.
(b) Nothing in the Plan or in any instrument executed pursuant to the Plan
will confer upon any Holder any right to continue in the employ of the Company
or any of its subsidiaries or affect the right of the Company to terminate the
employment of any Holder at any time and for any reason.
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<PAGE>
(c) No shares of Common Stock will be issued or transferred pursuant to an
Incentive Award unless and until all then applicable requirements imposed by
federal and state securities and other laws, rules, and regulations and by any
regulatory agencies having jurisdiction, and by any stock exchanges upon which
the Common Stock may be listed, have been fully met. As a condition precedent
to the issue of shares pursuant to the grant or exercise of an Incentive Award,
the Company may require the Holder to take any reasonable action to meet such
requirements.
(d) No Holder (individually or as a member of a group) and no beneficiary or
other person claiming under or through such Holder will have any right, title,
or interest in or to any shares of Common Stock allocated or reserved under the
Plan or subject to any Incentive Award except as to such shares of Common
Stock, if any, that have been issued or transferred to such Holder.
(e) The Company may make such provisions as it deems appropriate to withhold
any taxes which it determines it is required to withhold in connection with any
Incentive or Performance Award.
(f) No Incentive Award and no right under the Plan, contingent or otherwise,
will be assignable or subject to any encumbrance, pledge (other than a pledge
to secure a loan from the Company), or charge of any nature except that, under
such rules and regulations as the Company may establish pursuant to the terms
of the Plan, a beneficiary may be designated with respect to an Incentive Award
in the event of death of a Holder of such Incentive Award. If such beneficiary
is the executor or administrator of the estate of the Holder of such Incentive
Award, any rights with respect to such Incentive Award may be transferred to
the person or persons or entity (including a trust) entitled thereto under the
will of the Holder of such Incentive Award, or, in the case of intestacy, under
the laws relating to intestacy. Except as permitted by the Committee, no
Incentive Award which is comprised of a "derivative security," as that term is
defined in the Rules promulgated under Section 16 of the Exchange Act, which
includes Incentive Stock Options, Nonqualified Stock Options, Stock
Appreciation Rights, or Performance Awards, shall be transferable by any
Eligible Person other than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order.
(g) The Committee may permit a Holder to satisfy all or part of his or her
withholding or income tax obligations by having the Company withhold all or a
portion of any Common Stock that otherwise would be issued to him or her or by
surrendering all or a portion of any Common Stock that he or she previously
acquired. Such Common Stock shall be valued at its Fair Market Value on the
date when taxes otherwise would be withheld in cash. Any payment of taxes by
assigning Common Stock to the Company may be subject to restrictions, including
any restrictions required by rules of the Securities and Exchange Commission.
17. Amendment and Termination.
(a) The Board of Directors will have the power, in its discretion, to amend,
suspend, or terminate the Plan at any time, except that the provisions of
Section 6 relating to Common Stock grants to Outside Directors shall not be
amended more than once in any six-month period after the Plan becomes
effective. An amendment of the Plan shall be subject to the approval of the
Company's shareholders only to the extent required by applicable laws,
regulations and or rules.
(b) The Committee may, with the consent of a Holder, make such modifications
in the terms and conditions of the Incentive Award as it deems advisable or
cancel the Incentive Award (with or without consideration) with the consent of
the Holder.
(c) No amendment, suspension, or termination of the Plan will, without the
consent of the Holder, alter, terminate, impair, or adversely affect any right
or obligation under any Incentive Award previously granted under the Plan.
(d) In the event a Holder of Restricted Stock ceases to be an Employee, all
such Holder's Restricted Stock which remains subject to substantial risk of
forfeiture at the time his or her employment terminates will be repurchased by
the Company at the original price at which such Restricted Stock had been
purchased unless the Committee determines otherwise.
D-8
<PAGE>
(e) In the event a Holder of a Performance Award ceases to be an Employee,
all such Holder's Performance Awards will terminate except in the case of
retirement, death, or permanent and total disability. The Committee, in its
discretion, may authorize full or partial payment of Performance Awards in all
cases involving retirement, death, or permanent and total disability.
(f) The Committee may in its sole discretion determine, with respect to an
Incentive Award, that any Holder who is on unpaid leave of absence for any
reason will be considered as still in the employ of the Company, provided that
rights to such Incentive Award during an unpaid leave of absence will be
limited to the extent to which such right was earned or vested at the
commencement of such leave of absence.
18. Effective Date of Plan and Duration of Plan. This amended and restated
Plan will become effective upon approval by the shareholders of the Company
within twelve (12) months following the date of its adoption by the Board of
Directors. Unless previously terminated by the Board of Directors, the Plan
will terminate ten (10) years after its approval by the shareholders of the
Company.
D-9
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to the California Corporations Code, Article EIGHTH of the
Registrant's Articles of Incorporation and provisions of the Registrant's
Bylaws, directors, officers, employees and agents of the Registrant may be
indemnified by the Registrant in certain circumstances against liabilities they
incur while acting in such capacities. Upon the effectiveness of the Merger (as
contemplated in Part I of this Registration Statement), the Registrant will
have directors' and officers' liability insurance policies in force insuring
directors and officers of the Registrant and its subsidiaries.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See Exhibit Index.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of an
annual report of the Registrant or San Diego Gas & Electric Company pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant hereby undertakes as follows:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
II-1
<PAGE>
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy Statement and
Prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the Registration Statement when it became effective.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS PRE-EFFECTIVE AMENDMENT NO. 2 TO REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF SAN DIEGO, STATE OF CALIFORNIA, ON FEBRUARY 28, 1995.
SDO PARENT CO., INC.
/s/ Nad A. Peterson
By: _________________________________
NAD A. PETERSON SENIOR VICE
PRESIDENT, GENERAL COUNSEL AND
SECRETARY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS PRE-
EFFECTIVE AMENDMENT NO. 2 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Principal Executive Officer:
*/s/ Thomas A. Page Chairman of the February 28,
- ------------------------------------- Board, Chief 1995
THOMAS A. PAGE Executive Officer,
President and
Director
Principal Financial Officer:
/s/ Stephen L. Baum Executive Vice February 28,
- ------------------------------------- President and Chief 1995
STEPHEN L. BAUM Financial Officer
Principal Accounting Officer:
*/s/ Frank H. Ault Vice President and February 28,
- ------------------------------------- Controller 1995
FRANK H. AULT
Directors (other than Mr. Page):
*/s/ Richard C. Atkinson Director February 28,
- ------------------------------------- 1995
RICHARD C. ATKINSON
*/s/ Ann Burr Director February 28,
- ------------------------------------- 1995
ANN BURR
II-3
<PAGE>
SIGNATURE TITLE DATE
*/s/ Richard A. Collato Director February 28,
- ------------------------------------- 1995
RICHARD A. COLLATO
*/s/ Daniel W. Derbes Director February 28,
- ------------------------------------- 1995
DANIEL W. DERBES
*/s/ Catherine T. Fitzgerald Director February 28,
- ------------------------------------- 1995
CATHERINE T. FITZGERALD
*/s/ Robert H. Goldsmith Director February 28,
- ------------------------------------- 1995
ROBERT H. GOLDSMITH
*/s/ William D. Jones Director February 28,
- ------------------------------------- 1995
WILLIAM D. JONES
*/s/ Ralph R. Ocampo Director February 28,
- ------------------------------------- 1995
RALPH R. OCAMPO
*/s/ Thomas C. Stickel Director February 28,
- ------------------------------------- 1995
THOMAS C. STICKEL
/s/ Henry P. Morse, Jr.
*By: ________________________________
ATTORNEY-IN-FACT
II-4
<PAGE>
EXHIBIT INDEX
These Exhibits are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K.
<TABLE>
<CAPTION>
SEQUENTIAL PAGE
NO. IN MANUALLY
EXHIBIT NO. DESCRIPTION SIGNED ORIGINAL
----------- ----------- ---------------
<C> <S> <C>
2 Merger Agreement (Exhibit A to Proxy Statement --
and Prospectus).
3.1 Articles of Incorporation of Registrant (Exhibit --
B to Proxy Statement and Prospectus).
*3.2 Bylaws of Registrant. --
4.1 Restated Articles of Incorporation of SDG&E (In- --
corporated by reference from SDG&E's March 31,
1994 Form 10-Q--Exhibit 3.1).
4.2 Mortgage and Deed of Trust dated July 1, 1940. --
(Incorporated by reference from Registration
No. 2-49810--Exhibit 2A.)
4.3 Second Supplemental Indenture dated as of March --
1, 1948. (Incorporated by reference from Regis-
tration No. 2-49810--Exhibit 2C.)
4.4 Ninth Supplemental Indenture dated as of August --
1, 1968. (Incorporated by reference from Regis-
tration No. 2-68420--Exhibit 2D.)
4.5 Tenth Supplemental Indenture dated as of Decem- --
ber 1, 1968. (Incorporated by reference from
Registration No. 2-36042--Exhibit 2K.)
4.6 Sixteenth Supplemental Indenture dated August --
28, 1975. (Incorporated by reference from Reg-
istration No. 2-68420--Exhibit 2E.)
4.7 Thirtieth Supplemental Indenture dated September --
28, 1983. (Incorporated by reference from Reg-
istration No. 33-34017--Exhibit 4.3.)
*5 Opinion of Pillsbury Madison & Sutro. --
*8 Tax Opinion of Pillsbury Madison & Sutro. --
10.1 Form of San Diego Gas & Electric Company De- --
ferred Compensation Agreement for Officers #3
(1994 compensation). (Incorporated by reference
from SDG&E's 1993 Form 10-K--Exhibit 10.1.)
10.2 Form of San Diego Gas & Electric Company De- --
ferred Compensation Agreement for Officers #1
(1994 compensation, 1995 incentive). (Incorpo-
rated by reference from SDG&E's 1993 Form 10-
K--Exhibit 10.2.)
10.3 Form of San Diego Gas & Electric Company De- --
ferred Compensation Agreement for Nonemployee
Directors (1994 compensation). (Incorporated by
reference from SDG&E's 1993 Form 10-K--Exhibit
10.3.)
10.4 Form of San Diego Gas & Electric Company 1986 --
Long-Term Incentive Plan 1993 restricted stock
award agreement. (Incorporated by reference
from SDG&E's 1993 Form 10-K--Exhibit 10.4.)
10.5 Supplemental Executive Retirement Plan adopted --
on July 15, 1981 and amended on April 24, 1985,
October 20, 1986, April 28, 1987, October 24,
1988, November 21, 1988, October 28, 1991, May
28, 1992, May 24, 1993 and November 22, 1993.
(Incorporated by reference from SDG&E's 1993
Form 10-K--Exhibit 10.5.)
10.6 Amended 1986 Long-Term Incentive Plan, Restate- --
ment as of October 25, 1993. (Incorporated by
reference from SDG&E's 1993 Form 10-K--Exhibit
10.6.)
10.7 Loan agreement with CIBC Inc. dated as of Decem- --
ber 1, 1993. (Incorporated by reference from
SDG&E's 1993 Form 10-K--Exhibit 10.7.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL PAGE
NO. IN MANUALLY
EXHIBIT NO. DESCRIPTION SIGNED ORIGINAL
----------- ----------- ---------------
<C> <S> <C>
10.8 Amendment to San Diego Gas & Electric Company --
and Southern California Gas Company Restated
Long-Term Wholesale Natural Gas Service Con-
tract (see Exhibit 10.53) dated March 26, 1993.
(Incorporated by reference from SDG&E's 1993
Form 10-K--Exhibit 10.8.)
10.9 Loan agreement with the California Pollution --
Control Financing Authority in connection with
the issuance of $80 million of Pollution Con-
trol Bonds dated as of June 1, 1993. (Incorpo-
rated by reference from SDG&E's June 30, 1993
Form 10-Q--Exhibit 10.1.)
10.10 Loan agreement with the City of San Diego in --
connection with the issuance of $92.7 million
of Industrial Development Bonds 1993 Series C
dated as of July 1, 1993. (Incorporated by ref-
erence from SDG&E's June 30, 1993 Form 10-Q--
Exhibit 10.2.)
10.11 Loan agreement with Mellon Bank, N.A dated as of --
April 15, 1993. (Incorporated by reference from
SDG&E's March 31, 1993 Form 10-Q--Exhibit
10.1.)
10.12 Loan agreement with First Interstate Bank dated --
as of April 15, 1993. (Incorporated by refer-
ence from SDG&E's March 31, 1993 Form 10-Q--Ex-
hibit 10.2.)
10.13 Loan agreement with the City of San Diego in --
connection with the issuance of Industrial De-
velopment Bonds 1993 Series A dated as of April
1, 1993. (Incorporated by reference from
SDG&E's March 31, 1993 Form 10-Q--Exhibit
10.3.)
10.14 Loan agreement with the City of San Diego in --
connection with the issuance of Industrial De-
velopment Bonds 1993 Series B dated as of April
1, 1993. (Incorporated by reference from
SDG&E's March 31, 1993 Form 10-Q--Exhibit
10.4.)
10.15 Form of San Diego Gas & Electric Company De- --
ferred Compensation Agreement for Officers #3
(1993 compensation). (Incorporated by reference
from SDG&E's 1992 Form 10-K--Exhibit 10.1.)
10.16 Form of San Diego Gas & Electric Company De- --
ferred Compensation Agreement for Officers #1
(1993 compensation, 1994 incentive). (Incorpo-
rated by reference from SDG&E's 1992 Form 10-
K--Exhibit 10.2.)
10.17 Form of San Diego Gas & Electric Company De- --
ferred Compensation Agreement for Nonemployee
Directors (1993 compensation). (Incorporated by
reference from SDG&E's 1992 Form 10-K--Exhibit
10.3.)
10.18 Form of San Diego Gas & Electric Company 1986 --
Long-Term Incentive Plan 1992 restricted stock
award agreement. (Incorporated by reference
from SDG&E's 1992 Form 10-K--Exhibit 10.4.)
10.19 Loan agreement with the City of Chula Vista in --
connection with the issuance of $250 million of
Industrial Development Revenue Bonds, dated as
of December 1, 1992. (Incorporated by reference
from SDG&E's 1992 Form 10-K--Exhibit 10.5.)
10.20 Loan agreement with the City of San Diego in --
connection with the issuance of $25 million of
Industrial Development Revenue Bonds, dated as
of September 1, 1987. (Incorporated by refer-
ence from SDG&E's 1992 Form 10-K--Exhibit
10.6.)
10.21 Nuclear Facilities Qualified CPUC --
Decommissioning Master Trust Agreement for San
Onofre Nuclear Generating Station, approved No-
vember 25, 1987. (Incorporated by reference
from SDG&E's 1992 Form 10-K--Exhibit 10.7.)
10.22 Nuclear Facilities Non-Qualified CPUC --
Decommissioning Master Trust Agreement for San
Onofre Nuclear Generating Station, approved No-
vember 25, 1987. (Incorporated by reference
from SDG&E's 1992 Form 10-K--Exhibit 10.8.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL PAGE
NO. IN MANUALLY
EXHIBIT NO. DESCRIPTION SIGNED ORIGINAL
----------- ----------- ---------------
<C> <S> <C>
10.23 Amended 1986 Long-Term Incentive Plan. (Incorpo- --
rated by reference from SDG&E's 1992 Form 10-
K--Exhibit 10.9.)
10.24 Loan agreement between Mellon Bank, N.A. and San --
Diego Gas & Electric Company dated December 15,
1992, as amended. (Incorporated by reference
from SDG&E's 1992 Form 10-K--Exhibit 10.10.)
10.25 Fuel Lease dated as of September 8, 1983 between --
SONGS Fuel Company, as Lessor and San Diego Gas
& Electric Company, as Lessee, and Amendment
No. 1 to Fuel Lease, dated September 14, 1984
and Amendment No. 2 to Fuel Lease, dated March
2, 1987. (Incorporated by reference from
SDG&E's 1992 Form 10-K--Exhibit 10.11.)
10.26 Loan Agreement with the City of San Diego in --
connection with the issuance of $118.6 million
of Industrial Development Revenue Bonds dated
as of September 1, 1992. (Incorporated by ref-
erence from SDG&E's September 30, 1992 Form 10-
Q--Exhibit 10.1.)
10.27 Gas Purchase Agreement, dated March 12, 1991 be- --
tween Husky Oil Operations Limited and San Di-
ego Gas & Electric Company. (Incorporated by
reference from SDG&E's 1991 Form 10-K--Exhibit
10.1.)
10.28 Gas Purchase Agreement, dated March 12, 1991 be- --
tween Canadian Hunter Marketing Limited and San
Diego Gas & Electric Company. (Incorporated by
reference from SDG&E's 1991 Form 10-K--Exhibit
10.2.)
10.29 Gas Purchase Agreement, dated March 12, 1991 be- --
tween Bow Valley Industries Limited and San Di-
ego Gas & Electric Company. (Incorporated by
reference from SDG&E's 1991 Form 10-K--Exhibit
10.3.)
10.30 Gas Purchase Agreement, dated March 12, 1991 be- --
tween Summit Resources Limited and San Diego
Gas & Electric Company. (Incorporated by refer-
ence from SDG&E's 1991 Form 10-K--Exhibit
10.4.)
10.31 Service Agreement Applicable to Firm Transporta- --
tion Service under Rate Schedule FS-1, dated
May 31, 1991 between Alberta Natural Gas Com-
pany Ltd. and San Diego Gas & Electric Company.
(Incorporated by reference from SDG&E's 1991
Form 10-K--Exhibit 10.5.)
10.32 Firm Transportation Service Agreement, dated De- --
cember 31, 1991 between Pacific Gas and Elec-
tric Company and San Diego Gas & Electric Com-
pany. Incorporated by reference from SDG&E's
1991 Form 10-K--Exhibit 10.7.)
10.33 Supplemental Executive Retirement Plan adopted --
on July 15, 1981 and amended on April 24, 1985,
October 20, 1986, April 28, 1987, October 24,
1988, November 21, 1988 and October 28, 1991.
(Incorporated by reference from SDG&E's 1991
Form 10-K--Exhibit 10.8.)
10.34 Uranium enrichment services contract between the --
U. S. Department of Energy and Southern Cali-
fornia Edison Company, as agent for SDG&E and
others; Contract DE-SC05-84UEO7541, dated No-
vember 5, 1984, effective June 1, 1984, as
amended by modifications dated September 13,
1985, January 8, April 10, June 17 and August
8, 1986, March 26, 1987, February 20 and July
25, 1990, and October 7, 1991. (Incorporated by
reference from SDG&E's 1991 Form 10-K--Exhibit
10.9.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL PAGE
NO. IN MANUALLY
EXHIBIT NO. DESCRIPTION SIGNED ORIGINAL
----------- ----------- ---------------
<C> <S> <C>
10.35 Loan agreement with California Pollution Control --
Financing Authority, dated as of December 1,
1985, in connection with the issuance of $35
million of pollution control bonds. (Incorpo-
rated by reference from SDG&E's 1991 Form 10-
K--Exhibit 10.10.)
10.36 Loan agreement with California Pollution Control --
Financing Authority, dated as of December 1,
1991, in connection with the issuance of $14.4
million of pollution control bonds. (Incorpo-
rated by reference from SDG&E's 1991 Form 10-
K--Exhibit 10.11.)
10.37 Form of San Diego Gas & Electric Company De- --
ferred Compensation Agreement for Officers #3
(1992 compensation). (Incorporated by reference
from SDG&E's 1991 Form 10-K--Exhibit 10.16.)
10.38 Form of San Diego Gas & Electric Company De- --
ferred Compensation Agreement for Officers #1
(1992 compensation, 1993 incentive). (Incorpo-
rated by reference from SDG&E's 1991 Form 10-
K--Exhibit 10.17.)
10.39 Form of San Diego Gas & Electric Company De- --
ferred Compensation Agreement for Nonemployee
Directors (1992 compensation). (Incorporated by
reference from SDG&E's 1991 Form 10-K--Exhibit
10.18.)
10.40 Form of San Diego Gas & Electric Company De- --
ferred Compensation Agreement for Officers #1
(1991 compensation, 1992 incentive). (Incorpo-
rated by reference from SDG&E's 1991 Form 10-
K--Exhibit 10.20.)
10.41 Loan agreement with the City of San Diego in --
connection with the issuance of $44.25 million
of Industrial Development Revenue Bonds, dated
as of July 1, 1986. (Incorporated by reference
from SDG&E's 1991 Form 10-K-- Exhibit 10.36.)
10.42 Loan agreement with the City of San Diego in --
connection with the issuance of $81.35 million
of Industrial Development Revenue Bonds, dated
as of December 1, 1986. (Incorporated by refer-
ence from SDG&E's 1991 Form 10-K--Exhibit
10.37.)
10.43 Loan agreement with the City of San Diego in --
connection with the issuance of $100 million of
Industrial Development Revenue Bonds, dated as
of September 1, 1985. (Incorporated by refer-
ence from SDG&E's 1991 Form 10-K--Exhibit
10.38.)
10.44 Executive Incentive Plan dated April 23, 1985. --
(Incorporated by reference from SDG&E's 1991
Form 10-K--Exhibit 10.39.)
10.45 Loan agreement with California Pollution Control --
Financing Authority dated as of December 1,
1984, in connection with the issuance of $27
million of pollution control bonds. (Incorpo-
rated by reference from SDG&E's 1991 Form 10-
K-- Exhibit 10.40.)
10.46 Loan agreement with California Pollution Control --
Financing Authority dated as of May 1, 1984, in
connection with the issuance of $53 million of
pollution control bonds. (Incorporated by ref-
erence from SDG&E's 1991 Form 10-K-- Exhibit
10.41.)
10.47 Lease agreement dated as of July 14, 1975 with --
New England Mutual Life Insurance Company, as
lessor. (Incorporated by reference from SDG&E's
1991 Form 10-K--Exhibit 10.42.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL PAGE
NO. IN MANUALLY
EXHIBIT NO. DESCRIPTION SIGNED ORIGINAL
----------- ----------- ---------------
<C> <S> <C>
10.48 Firm Transportation Service Agreement, dated --
April 25, 1991 between Pacific Gas Transmission
Company and San Diego Gas & Electric Company.
(Incorporated by reference from SDG&E's March
31, 1991 Form 10-Q--Exhibit 28.2.)
10.49 Agreement dated March 19, 1987, for the Purchase --
and Sale of Uranium Concentrates between SDG&E
and Saarberg-Interplan Uran GmbH (assigned to
Pathfinder Mines Corporation in June 1993).
(Incorporated by reference from SDG&E's 1990
Form 10-K--Exhibit 10.5.)
10.50 Second Amended San Onofre Agreement among --
Southern California Edison Company, SDG&E, the
City of Anaheim and the City of Riverside,
dated February 26, 1987. (Incorporated by
reference from SDG&E's 1990 Form 10-K--
Exhibit 10.6.)
10.51 San Diego Gas & Electric Company Retirement Plan --
for Directors, adopted December 17, 1990. (In-
corporated by reference from SDG&E's 1990 Form
10-K--Exhibit 10.7.)
10.52 San Diego Gas & Electric Company Executive Sev- --
erance Allowance Plan, as Amended and Restated,
December 17, 1990. (Incorporated by reference
from SDG&E's 1990 Form 10-K--Exhibit 10.8.)
10.53 San Diego Gas & Electric Company and Southern --
California Gas Company Restated Long-Term
Wholesale Natural Gas Service Contract, dated
September 1, 1990. (Incorporated by reference
from SDG&E's 1990 Form 10-K--Exhibit 10.9.)
10.54 Amendment to the San Diego Gas & Electric Com- --
pany 1986 Long-Term Incentive Plan adopted Jan-
uary 23, 1989. (Incorporated by reference from
SDG&E's 1989 Form 10-K--Exhibit 10B.)
10.55 Loan agreement between San Diego Trust & Savings --
Bank and SDG&E dated January 1, 1989 as amend-
ed. (Incorporated by reference from SDG&E's
1989 Form 10-K--Exhibit 10H.)
10.56 Loan agreement between Union Bank and SDG&E --
dated November 1, 1988 as amended.
(Incorporated by reference from SDG&E's 1989
Form 10-K--Exhibit 10I.)
10.57 Loan agreement between Bank of America National --
Trust & Savings Association and SDG&E dated No-
vember 1, 1988 as amended. (Incorporated by
reference from SDG&E's 1989 Form 10-K--Exhibit
10J.)
10.58 Loan agreement between First Interstate Bank of --
California and SDG&E dated November 1, 1988 as
amended. (Incorporated by reference from
SDG&E's 1989 Form 10-K--Exhibit 10K.)
10.59 Severance Plan as amended August 22, 1988. (In- --
corporated by reference from SDG&E's 1988 Form
10-K--Exhibit 10A.)
10.60 U. S. Navy contract for electric service, Con- --
tract N62474-70-C-1200-P00414, dated September
29, 1988. (Incorporated by reference from
SDG&E's 1988 Form 10-K--Exhibit 10C.)
10.61 Employment agreement between San Diego Gas & --
Electric Company and Thomas A. Page, dated June
15, 1988. (Incorporated by reference from
SDG&E's 1988 Form 10-K--Exhibit 10E.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL PAGE
NO. IN MANUALLY
EXHIBIT NO. DESCRIPTION SIGNED ORIGINAL
----------- ----------- ---------------
<C> <S> <C>
10.62 Public Service Company of New Mexico and San Di- --
ego Gas & Electric Company 1988-2001 100 MW
System Power Agreement dated November 4, 1985
and Letter of Agreement dated April 28, 1986,
June 4, 1986 and June 18, 1986. (Incorporated
by reference from SDG&E's 1988 Form 10-K--Ex-
hibit 10H.)
10.63 San Diego Gas & Electric Company and Portland --
General Electric Company Long-Term Power Sale
and Transmission Service agreements dated No-
vember 5, 1985. (Incorporated by reference from
SDG&E's 1988 Form 10-K--Exhibit 10I.)
10.64 Comision Federal de Electricidad and San Diego --
Gas & Electric Company Contract for the Pur-
chase and Sale of Electric Capacity and Energy
dated November 20, 1980 and additional Agree-
ment to the contract dated March 22, 1985. (In-
corporated by reference from SDG&E's 1988 Form
10-K--Exhibit 10J.)
10.65 U. S. Department of Energy contract for disposal --
of spent nuclear fuel and/or high-level radio-
active waste, entered into between the DOE and
Southern California Edison Company, as agent
for SDG&E and others; Contract DE-CR01-
83NE44418, dated June 10, 1983. (Incorporated
by reference from SDG&E's 1988 Form 10-K--Ex-
hibit 10N.)
10.66 Agreement with Arizona Public Service Company --
for Arizona transmission system participation
agreement--contract 790116. (Incorporated by
reference from SDG&E's 1988 Form 10-K--Exhibit
10P.)
10.67 City of San Diego Electric Franchise (Ordinance --
No.10466). (Incorporated by reference from
SDG&E's 1988 Form 10-K--Exhibit 10Q.)
10.68 City of San Diego Gas Franchise (Ordinance --
No.10465). (Incorporated by reference from
SDG&E's 1988 Form 10-K--Exhibit 10R.)
10.69 County of San Diego Electric Franchise (Ordi- --
nance No.3207). (Incorporated by reference from
SDG&E's 1988 Form 10-K--Exhibit 10S.)
10.70 County of San Diego Gas Franchise (Ordinance --
No.5669). (Incorporated by reference from
SDG&E's 1988 Form 10-K--Exhibit 10T.)
10.71 Supplemental Pension Agreement with Thomas A. --
Page, dated as of April 3, 1978. (Incorporated
by reference from SDG&E's 1988 Form 10-K--Ex-
hibit 10V.)
10.72 Lease agreement dated as of June 15, 1978 with --
Lloyds Bank California, as owner-trustee and
lessor--Exhibit B to financing agreement of
SDG&E's Encina Unit 5 equipment trust. (Incor-
porated by reference from SDG&E's 1988 Form 10-
K--Exhibit 10W.)
23.1 Consent of Pillsbury Madison & Sutro (included --
as part of Exhibit 5).
23.2 Consent of Deloitte & Touche LLP.
*24 Power of Attorney (included in Part II of origi- --
nal Registration Statement).
*99.1 Form of Proxy for SDG&E Common Stock and SDG&E --
Cumulative Preferred Stock.
*99.2 Form of Proxy for SDG&E Preference Stock (Cumu- --
lative).
*99.3 Form of follow-up letter from Thomas A. Page to --
Shareholders.
</TABLE>
- --------
* Previously filed.
The Forms 10-K and 10-Q referred to above were filed under Commission File
Number 1-3779.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Pre-Effective Amendment
No. 2 to Registration Statement No. 33-57007 of SDO Parent Co., Inc. on Form S-
4 of our report dated February 27, 1995 (which report contains an emphasis
paragraph referring to the Company's consideration of alternative strategies
for its 80 percent owned subsidiary, Wahlco Environmental Systems, Inc.),
incorporated by reference in the Annual Report on Form 10-K of San Diego Gas &
Electric Company for the year ended December 31, 1994 and to the reference to
us under the heading "Experts" in the Proxy Statement and Prospectus, which is
part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
February 28, 1995
