<PAGE>
As filed with the Securities and Exchange Commission on February 17, 1995
Registration No. 033-57007
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
PRE-EFFECTIVE AMENDMENT NO. 1
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
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
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)
__________
Nad 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. [_]
<PAGE>
-------------------
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SDO PARENT CO., INC.
__________
CROSS-REFERENCE SHEET
(Pursuant to Item 501(b) of Regulation S-K)
Form S-4 Location in Proxy
Item No. Caption Statement Prospectus
- -------- ----------------------------------- --------------------------------
A. Information About the Transaction
1. Forepart of Registration Outside Front Cover Page
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Available Information;
Cover Pages of Prospectus Incorporation of Certain
Documents by Reference; Table
of Contents
3. Risk Factors, Ratio of Earnings Summary of Proxy Statement;
to Fixed Charges and Other Item No. 2
Information
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 Incorporation of Certain
Registrants Documents by Reference; Summary
of Proxy Statement
11. Incorporation of Certain Incorporation of Certain
Information by Reference 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 Incorporation of Certain
Companies Documents by Reference; Summary
of Proxy Statement
16. Information With Respect to S-2 *
or S-3 Companies
<PAGE>
17. Information With Respect to *
Companies Other Than S-3 or S-2
Companies
D. Voting and Management
Information
18. Information if Proxies, Consents Notice to Shareholders; Summary
or Authorizations are to be Information; General
Solicited 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
____________________________
* 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 TO CALIFORNIA CENTER FOR THE ARTS, ESCONDIDO]
<PAGE>
Notice of Annual Meeting of Shareholders of SDG&E
Office of the Secretary
San Diego Gas & Electric Company
P.O. Box 1831, 101 Ash Street
San Diego, California 92112-4150
Tuesday, April 25, 1995
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:
1. Elect ten persons as Directors of SDG&E - the names of the ten nominees
intended to be presented for election 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. Consider and take action upon 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. (whose name is subject to change prior to
implementation of the holding company structure), (ii) current 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 into a holding company structure;
3. Consider and take action upon a proposal to amend, restate and extend
the 1986 Long-Term Incentive Plan;
4. Consider and act upon a proposal submitted by individual shareholders
and described in the enclosed proxy statement and prospectus, if
properly presented at the meeting; and
5. Act upon such other business as may properly come before the Annual
Meeting.
The SDG&E Board of Directors has fixed the close of business on March
1, 1995 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. It is anticipated that the proxy material will be
mailed to shareholders on or about the date of this notice.
San Diego, California
By order of the Board of Directors
March 10, 1995 N. A. Peterson, Senior Vice President,
General Counsel and Secretary
<PAGE>
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>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
[Subject to completion, dated February 17, 1995]
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 __], 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,
ii
<PAGE>
(800)243-5454). In order to ensure timely delivery of the documents, any
request should be made by April 18, 1995.
The following documents filed by SDG&E with the SEC are incorporated in
this Proxy Statement and Prospectus by reference:
1. SDG&E's Annual Report on Form 10-K for the year ended December 31,
1993;
2. SDG&E's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1994, June 30, 1994 and September 30, 1994; and
3. SDG&E's Current Report on Form 8-K dated November 7, 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
-----------------
Page
----
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................................... x
ITEM NO. 4 - SHAREHOLDER PROPOSAL..................................... x
GENERAL INFORMATION................................................... 1
Meeting Date; Voting; Proxies....................................... 1
ITEM NO. 1 - ELECTION OF DIRECTORS.................................... 2
- ----------------------------------
Nominees............................................................ 3
Footnotes........................................................... 6
Committees.......................................................... 7
Security Ownership of Management and Certain Beneficial Holders..... 7
Section 16 Reporting................................................ 9
Executive Compensation and Transactions with Management and Others.. 10
Compensation of Directors........................................... 11
Employment Contract of Mr. Page..................................... 12
1986 Long-Term Incentive Plan....................................... 13
Pension Plan and Supplemental Executive Retirement Plan............. 15
Executive Severance Allowance Plan.................................. 16
Report of the Executive Compensation Committee...................... 17
Comparative Common Stock Performance................................ 22
ITEM NO. 2 - FORMATION OF A HOLDING COMPANY STRUCTURE
- -----------------------------------------------------
General............................................................. 23
Plan of Implementation.............................................. 23
Reasons for the Restructuring....................................... 24
Merger Agreement.................................................... 26
Amendment or Termination............................................ 26
Treatment of Preferred Stock........................................ 27
Pro Forma Financial Effects......................................... 28
Dividend Policy..................................................... 30
Directors and Management of ParentCo and SDG&E...................... 30
Articles of Incorporation and Bylaws of ParentCo.................... 31
Listing of ParentCo Common Stock.................................... 35
Transfer Agent and Registrar........................................ 36
Common Stock Investment and Employee Benefit Plans.................. 36
Regulation.......................................................... 36
Conditions Precedent to the Merger.................................. 37
Effective Date of the Merger........................................ 37
Required Vote....................................................... 38
Rights of Dissenting Shareholders................................... 38
Market Values of Stock.............................................. 42
Exchange of Stock Certificates Not Required......................... 42
Federal Income Tax Consequences of the Merger....................... 43
Legal Opinion....................................................... 44
ITEM NO. 3 - AMENDMENT OF 1986 LTIP................................... 44
- -----------------------------------
General............................................................. 44
Purpose............................................................. 45
Shares Subject to LTIP.............................................. 45
Description of LTIP................................................. 45
Federal Income Tax
Consequences........................................................ 48
Amended LTIP Benefits............................................... 49
Company Recommendation.............................................. 50
Effect of Implementation of Holding Company Structure............... 50
ITEM NO. 4 - SHAREHOLDER PROPOSAL..................................... 51
- ---------------------------------
Experts/Relationship with Independent Public Accountant............... 52
Annual Report and Availability of Form 10-K........................... 52
Shareholder Proposals for 1996 Annual Meeting......................... 53
Proxy Solicitations................................................... 53
Other Business to be Brought Before the Annual Meeting................ 53
Exhibit A - Agreement of Merger....................................... A-1
Exhibit B - Articles of Incorporation for ParentCo.................... B-1
Exhibit C - Chapter 13 of the California General Corporation Law...... C-1
Exhibit D - 1986 LTIP (as revised).................................... D-1
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 diversified operations
v
<PAGE>
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, have 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.
vii
<PAGE>
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 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.
viii
<PAGE>
<TABLE>
<CAPTION>
Results of Operations/(1)/
For the Nine Months
Ended September 30, For the Year Ended December 31,
-------------------- ------------------------------------------------
(Millions of dollars, except per share amounts)
1994/(2)/ 1993 1993 1992 1991 1990 1989
---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues
Electric............................ $ 1,115.1 $1,111.2 $1,514.6 $1,447.1 $1,357.5 $1,356.4 $1,324.9
Gas................................. 252.4 257.2 346.7 337.0 338.2 355.1 300.4
Diversified operations.............. 91.4 86.2 118.8 86.8 93.3 60.4 44.2
Total.............................. $ 1,458.9 $1,454.6 $1,980.1 $1,870.9 $1,789.0 $1,771.9 $1,669.5
Operating income..................... 223.0 223.0 293.7 296.3 315.5 314.0 284.8
Net income (before preferred
dividend requirements)............. 86.4 161.9 218.7 210.7 208.1 207.8 179.4
Earnings applicable to common shares. 80.6 155.3 210.2 201.1 197.5 197.0 168.2
Earnings per common share............ 0.69 1.34 1.81 1.77 1.76 1.76 1.50
Dividends declared per common share.. 1.14 1.11 1.48 1.44 1.3875 1.35 1.35
<CAPTION>
Other Financial Information/(1)/
As of September 30, As of December 31,
-------------------- ------------------------------------------------
(Millions of dollars, except per share amounts)
1994 1993 1993 1992 1991 1990 1989
---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets......................... $ 4,579.8 $4,683.3 $4,702.2 $4,494.6 $4,046.7 $3,945.2 $3,860.3
Long-term debt and preferred stock
subject to mandatory redemption
(excludes current portion)/(3)/..... 1,478.0 1,580.5 1,525.0 1,651.9 1,331.2 1,337.1 1,287.2
Common shareholders' equity.......... 1,463.1 1,504.2 1,516.2 1,441.4 1,350.0 1,295.6 1,248.4
Book value per common share.......... 12.56 12.91 13.01 12.53 12.00 11.58 11.16
</TABLE>
/(1)/ Information presented reflects consolidated information for SDG&E.
Please refer to "Item No. 2 -Formation of a Holding Company--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.
ix
<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) permit
incentive stock options under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") to be granted from the shares subject to the
LTIP; (ii) extend the term until April 24, 2005; (iii) include technical
changes to conform the LTIP to certain deductibility requirements of
Section 162(m) of the Code and to Rule 16b-3 under the Securities Exchange
Act of 1934, as amended; (iv) 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 (v)
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 must be included in
this Proxy Statement and Prospectus in accordance with the rules of the
SEC. The proposal is on the subject of executive 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.
x
<PAGE>
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.
xi
<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)").
1
<PAGE>
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 Merger Agreement (defined below under
"Item No. 2 - Formation of a Holding Company Structure--Plan of
Implementation") and the proposed formation of a holding company structure
for SDG&E, (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.
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.
2
<PAGE>
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 THE BOARD'S NOMINEES FOR DIRECTORS.
Nominees
Richard C. Atkinson, Ph.D.
[picture] Dr. Atkinson has been the chancellor of the University
of 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
Ann Burr
[picture] Ms. Burr is president of the San Diego Division of Time
Warner Cable, which includes Southwestern Cable TV and
American Cablevision of Coronado.
3
<PAGE>
Age 48
Director since 1993
Member of the Audit and Nominating Committees
Richard A. Collato
[picture] Mr. Collato has been president and chief executive
officer of the YMCA of San Diego County since January
1981. He is a trustee of Springfield College and a
director of the Armed Services YMCA of the USA.
Age 51
Director since 1993
Member of the Finance and Nominating Committees
Daniel W. Derbes
[picture] Mr. Derbes is president of Signal Ventures. From
November 1985 until December 31, 1988, he was president
of Allied-Signal International Inc. and executive vice
president of Allied-Signal Inc., a multi-national
advanced technologies company. He is a director of Oak
Industries, Inc., WD-40 Co., Pacific Diversified
Capital Company (PDC) and Wahlco Environmental Systems,
Inc. (Wahlco Environmental).
Age 64
Director since 1983
Chairman of the Finance Committee and Member of the Executive and
Executive Compensation Committees
4
<PAGE>
Catherine T. Fitzgerald
[picture] Ms. Fitzgerald is executive vice president of
Internationale Nederlanden Group, North America, a
life, health, property and casualty insurance company.
Ms. Fitzgerald was formerly executive vice president,
Internationale Nederlanden Group, America Life
Companies, and a member of the management executive
committee of Security Life of Denver, a wholly owned
subsidiary of Nationale-Nederlanden N.V. Prior to that
Ms. Fitzgerald was executive vice president, human
resources and a member of the management executive
committee of Broadway Stores, Inc. Division of Carter
Hawley Hale Stores, Inc., a retail department store
chain.
Age 61
Director since 1979
Chairwoman of the Executive Compensation Committee and Member of the Audit
Committee
Robert H. Goldsmith
[picture] Mr. Goldsmith is a management consultant. He is a
former chairman, president and chief executive officer
of Exten Industries, Inc. and a former chairman and
chief executive officer of Rohr, Inc. He is also a
former vice chairman and chief operating officer of
Precision Forge Co., senior vice president of Pneumo
Corporation's Aerospace and Industrial Group and vice
president and general manager, commercial (aircraft)
engine projects division and the gas turbine division
of General Electric Company.
Age 64
Director since 1992
Member of the Executive Compensation and Finance Committees
5
<PAGE>
William D. Jones
[picture] Mr. Jones is president, chief executive officer and a
director of CityLink Investment Corporation. From 1989
to 1993, he served as general manager/senior asset
manager and investment manager with certain real estate
subsidiaries of The Prudential. Prior to joining The
Prudential, Mr. Jones served as a San Diego City
Council member from 1982 to 1987. Mr. Jones is a
director of The Price Real Estate Investment Trust and
a member of the board of trustees of the University of
San Diego.
Age 39
Director since 1994
Member of the Finance and Nominating Committees
Ralph R. Ocampo, M.D.
[picture] Dr. Ocampo is a San Diego physician and surgeon.
Age 63
Director since 1983
Member of the Finance Committee
Thomas A. Page
[picture] Mr. Page has been chairman and chief executive officer
of SDG&E since February 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 61
Director since 1979
Chairman of the Executive and Nominating Committees
6
<PAGE>
Thomas C. Stickel
[picture] Mr. Stickel is the chairman and founder of American
Partners Capital Group, Inc. 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.
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 T. C. Stickel (effective February 27, 1995). 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.
7
<PAGE>
Executive Compensation Committee
--------------------------------
Members of this Committee are Directors D. W. Derbes, C. T.
Fitzgerald, R. H. Goldsmith and T. C. Stickel (effective February 27,
1995). 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, W. D.
Jones (effective February 27, 1995) and T. A. Page. 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 two
Directors who are not salaried employees of SDG&E.
Security Ownership of Management and Certain Beneficial Holders
At [March 1], 1995, there were approximately 70,356 holders 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.
8
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial
Ownership Percent of
Beneficial Owner (Shares)/(A)/ Class
- --------------------------------------------------------------------------
Directors and Named Executive Officers:
<S> <C> <C>
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 175,002 *
S. L. Baum 47,857 *
G. D. Cotton 28,134 *
D. E. Felsinger 30,747 *
N. A. Peterson 11,041 *
All directors and executive officers as a
group (20 persons) 387,815/(B)/ *
Others:
First Interstate Bank of California 16,626,343/(C)/ 14.267%
Trust Securities, W11-4
707 Wilshire Boulevard
Los Angeles, CA 90017
Union Bank Trust Department 9,838,207/(D)/ 8.442%
530 B Street
San Diego, CA 92101
*less than 1% of the shares outstanding
- --------------------------------------------------------------------------
</TABLE>
/(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: 400 shares held jointly with spouse/children of the same
household; 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. 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; 50,774 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.
. Mr. Baum: 2,091 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: 7,073 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: 5,176 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.
9
<PAGE>
. Mr. Peterson: 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.
. 82,887 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)/ 12,533,775 shares as of 2/1/95 are held by the bank in its capacity as
shareholders' agent for the CSIP. The bank holds 4,092,568 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)/ 9,794,701 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 43,506 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.
10
<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.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
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
11
<PAGE>
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.
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
12
<PAGE>
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 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
13
<PAGE>
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
<TABLE>
<CAPTION>
Long-Term Incentive Plan
Awards in Last Fiscal Year
- ---------------------------------------------------------------------------------------
Estimated Future Payouts
Under
Number of Restricted Non-Stock-
Shares Performance Period Price-Based
Name 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 in 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.
14
<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
15
<PAGE>
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
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 5% times years of service (up to a maximum
of 10 years); however, officers appointed prior to July 1, 1994 shall
receive 6% 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
16
<PAGE>
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.
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.
17
<PAGE>
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.
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.
18
<PAGE>
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.
19
<PAGE>
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.
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.
20
<PAGE>
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 of 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.
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
21
<PAGE>
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 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 any, under the LTIP will not be subject to the
limitations on compensation deductibility as a result of the amendments
submitted to the
22
<PAGE>
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.
[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.
23
<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, (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
24
<PAGE>
become direct subsidiaries of ParentCo (the transfer, the Merger 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
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, have
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
25
<PAGE>
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
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.
26
<PAGE>
Management and the SDG&E Board of Directors believe that the restructuring
will have no 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 presently 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.
27
<PAGE>
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 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
28
<PAGE>
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 September 30,
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 and SDG&E Preference Stock
(Cumulative) dividend requirements) of SDG&E for the nine months ended
September 30, 1994 would have increased by approximately $62.3 million, or
approximately 72.2%, and total assets would have decreased by
approximately $454.1 million, or approximately 9.9%. However, such
increase in net income reflected for SDG&E for the nine months ended
September 30, 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 $4.7 million, or approximately 3.1%.
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).
Pro Forma Financial Effects
The following table summarizes certain pro forma financial effects of
the restructuring as of September 30, 1994, for the nine months ended
September 30, 1994, and for the year ended December 31, 1993, which, in
the opinion of management, reflect all adjustments necessary for a fair
presentation.
29
<PAGE>
<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 September 30, 1994
Assets
Utility Plant - net............................. $3,134,811 $3,134,811 $ 0 $3,134,811
Investments and other property.................. 460,473 232,103 228,370 460,473
Current assets.................................. 421,877 307,051 114,826 421,877
Construction funds, deferred charges and other
assets....................................... 562,672 451,769 110,903 562,672
- -----------------------------------------------------------------------------------------------------------
Total Assets...................................... $4,579,833 $4,125,734 $ 454,099 $4,579,833
===========================================================================================================
Capitalization and Liabilities
Capitalization
Common equity................................. $1,463,124 $1,357,148 $ 105,976 $1,463,124
Preferred stock............................... 118,493 118,493 (118,493)/(2)/ 0
Preferred stock of SDG&E...................... 118,493 /(2)/ 118,493
Long-term debt................................ 1,337,996 1,220,448 117,548 1,337,996
- -----------------------------------------------------------------------------------------------------------
Total Capitalization............................ 2,919,613 2,696,089 223,524 2,919,613
- -----------------------------------------------------------------------------------------------------------
Current liabilities........................... 746,049 634,961 111,088 746,049
Deferred taxes and other liabilities.......... 914,171 794,684 119,487 914,171
- -----------------------------------------------------------------------------------------------------------
Total Capitalization and Liabilities.............. $4,579,833 $4,125,734 $ 454,099 $4,579,833
===========================================================================================================
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Statements of Income - Nine Months ended
September 30, 1994/(3)/
<S> <C> <C> <C> <C>
Operating Revenues........................ $1,458,884 $1,367,432 $ 91,452 $1,458,884
Operating Expenses........................ 1,235,901 1,155,049 80,623 1,235,672
- ----------------------------------------------------------------------------------------------
Operating Income.......................... 222,983 212,383 10,829 223,212
- ----------------------------------------------------------------------------------------------
Other Income (Deductions)................. (59,733) 3,889 (63,851) (59,962)
Interest Charges.......................... 76,884 67,580 9,304 76,884
Preferred Dividend Requirements of SDG&E.. 5,747 /(2)/ 5,747
- ----------------------------------------------------------------------------------------------
Net Income................................ 86,366 148,692 (68,073) 80,619
- ----------------------------------------------------------------------------------------------
Preferred Dividend Requirements........... 5,747 5,747 (5,747)/(2)/ 0
- ----------------------------------------------------------------------------------------------
Earnings Applicable to Common Shares...... $ 80,619 $ 142,945 $(62,326) $ 80,619
==============================================================================================
Statements of Income - Year ended
December 31, 1993
Operating Revenues........................ $1,980,115 $1,861,266 $118,849 $1,980,115
Operating Expenses........................ 1,686,441 1,573,052 113,389 1,686,441
- ----------------------------------------------------------------------------------------------
Operating Income.......................... 293,674 288,214 5,460 293,674
- ----------------------------------------------------------------------------------------------
Other Income.............................. 26,340 19,081 7,259 26,340
Interest Charges.......................... 101,299 91,423 9,876 101,299
Preferred Dividend Requirements of SDG&E.. 8,565 /(2)/ 8,565
- ----------------------------------------------------------------------------------------------
Net Income................................ 218,715 215,872 (5,722) 210,150
- ----------------------------------------------------------------------------------------------
Preferred Dividend Requirements........... 8,565 8,565 (8,565)/(2)/ 0
- ----------------------------------------------------------------------------------------------
Earnings Applicable to Common Shares...... $ 210,150 $ 207,307 $ 2,843 $ 210,150
==============================================================================================
</TABLE>
(1) Pro forma SDG&E amounts have been adjusted to eliminate subsidiaries
to be transferred to ParentCo.
(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
31
<PAGE>
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 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 $0.38 per share
of SDG&E Common Stock payable on January 15, 1995 to holders of record on
December 10, 1994.] 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" and "Elections:
Classified Board of Directors" below). At annual meetings of ParentCo
subsequent to the Merger, persons may be nominated for election as
Directors of ParentCo who will not be members of the SDG&E Board of
Directors.
32
<PAGE>
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.
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
33
<PAGE>
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 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
34
<PAGE>
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.
35
<PAGE>
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."
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,
36
<PAGE>
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 (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.
37
<PAGE>
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 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 NRC, with respect to SDG&E's partial ownership of
and co-licensee status as to the San Onofre nuclear generating facilities.
The
38
<PAGE>
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,
however, 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.
39
<PAGE>
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" below. 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 and (ii) approval by the NYSE of ParentCo Common Stock
for listing upon official notice of issuance.
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., 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.
40
<PAGE>
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 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.
41
<PAGE>
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.
42
<PAGE>
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.
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;
(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.
(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.
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<PAGE>
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 either (i) Stock Transfer Department,
P.O. Box 54261, Los Angeles, California 90054 or (ii) 120 Broadway, 13th
Floor, New York, New York 10271.
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.
44
<PAGE>
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 1/2% 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. No market value is available.
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.
45
<PAGE>
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.
(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.
46
<PAGE>
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) permit
incentive stock options under Section 422 of the Internal Revenue Code
(the "Code") to be granted from the shares subject to the LTIP; (ii)
extend the term until April 24, 2005; (iii) include technical changes to
conform the LTIP to certain deductibility requirements of Section 162(m)
of the Code as described below and to Rule 16b-3 under the Exchange Act;
(iv) 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 (v) 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 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
47
<PAGE>
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, 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 C. T. Fitzgerald, Chair, R. H. Goldsmith and D. W.
Derbes). 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 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
48
<PAGE>
restatement of the LTIP is approved by the Shareholders, each incumbent
non-employee Director will receive a grant of 300 shares of Common Stock
effective upon the conclusion of the Annual Meeting.
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 [__], 1995 was [$_____].
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 option 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
49
<PAGE>
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 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 may be awarded to all employees under the amended and
restated LTIP.
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
50
<PAGE>
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.
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
51
<PAGE>
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.
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."
52
<PAGE>
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.
53
<PAGE>
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 only 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."
"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."
SDG&E 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
54
<PAGE>
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, 1993 and 1992 and for each of the
three years in the period ended December 31, 1993, incorporated in this
Proxy Statement and Prospectus by reference from the Company's Annual
Report on Form 10-K for 1993, as amended, 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.
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.
55
<PAGE>
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
56
<PAGE>
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'
A-1
<PAGE>
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.
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.
A-2
<PAGE>
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 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
A-3
<PAGE>
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
A-4
<PAGE>
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.
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).
A-5
<PAGE>
8.3 No Counterparts. This agreement may not be executed in
--------------- ---
counterparts.
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:______________________________
A-6
<PAGE>
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
B-1
<PAGE>
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.
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
B-2
<PAGE>
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
(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.
B-3
<PAGE>
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) with respect to 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.
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<PAGE>
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.
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.
B-5
<PAGE>
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.
B-6
<PAGE>
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.
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<PAGE>
(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 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
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<PAGE>
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 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,
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<PAGE>
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.
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(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 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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<PAGE>
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.
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(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.
(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.
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(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.
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
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<PAGE>
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
D-4
<PAGE>
amount of cash subject to each Incentive Award. 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.
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<PAGE>
(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 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.
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<PAGE>
(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;
(iii) only at the time of grant if related to an Incentive Stock
Option;
(iv) 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
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<PAGE>
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.
D-8
<PAGE>
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 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
D-9
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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 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.
(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
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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.
(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
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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-12
<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.
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(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. 1 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 17, 1995.
SDO PARENT CO., INC.
By: /s/ Nad A. Peterson
--------------------
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. 1 to Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
</TABLE>
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<TABLE>
<S> <C> <C>
Principal Executive Officer:
*/s/ Thomas A. Page Chairman of the Board, February 17, 1995
- ---------------------------------- Chief Executive Officer,
Thomas A. Page President and Director
Principal Financial Officer:
*/s/ Donald E. Felsinger Executive Vice President February 17, 1995
- ---------------------------------- and Chief Financial
Donald E. Felsinger Officer
Principal Accounting Officer:
*/s/ Frank H. Ault Vice President and February 17, 1995
- ---------------------------------- Controller
Frank H. Ault
Directors (other than Mr. Page):
*/s/ Richard C. Atkinson Director February 17, 1995
- ----------------------------------
Richard C. Atkinson
*/s/ Ann Burr Director February 17, 1995
- ----------------------------------
Ann Burr
*/s/ Richard A. Collato Director February 17, 1995
- ----------------------------------
Richard A. Collato
*/s/ Daniel W. Derbes Director February 17, 1995
- ----------------------------------
Daniel W. Derbes
*/s/ Catherine T. Fitzgerald Director February 17, 1995
- ----------------------------------
Catherine T. Fitzgerald
*/s/ Robert H. Goldsmith Director February 17, 1995
- ----------------------------------
Robert H. Goldsmith
*/s/ William D. Jones Director February 17, 1995
- ----------------------------------
William D. Jones
*/s/ Ralph R. Ocampo Director February 17, 1995
- ----------------------------------
Ralph R. Ocampo
</TABLE>
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<S> <C> <C>
*/s/ Thomas C. Stickel Director February 17, 1995
- ----------------------------------
Thomas C. Stickel
* By: David R. Snyder
---------------
Attorney-in-Fact
</TABLE>
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EXHIBIT INDEX
These Exhibits are numbered in accordance with the Exhibit Table of Item 601 of
Regulation S-K.
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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 -
(Incorporated 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
Registration No. 2-49810 -Exhibit 2C.)
4.4 Ninth Supplemental Indenture dated as of August -
1, 1968. (Incorporated by reference from
Registration No. 2-68420 -Exhibit 2D.)
4.5 Tenth Supplemental Indenture dated as of December -
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
Registration No. 2-68420 -Exhibit 2E.)
4.7 Thirtieth Supplemental Indenture dated September -
28, 1983. (Incorporated by reference from
Registration 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 Deferred -
Compensation Agreement for Officers #3 (1994
compensation). (Incorporated by reference from
SDG&E's 1993 Form 10-K -Exhibit 10.1.)
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10.2 Form of San Diego Gas & Electric Company Deferred -
Compensation Agreement for Officers #1 (1994
compensation, 1995 incentive). (Incorporated by
reference from SDG&E's 1993 Form 10-K - Exhibit
10.2.)
10.3 Form of San Diego Gas & Electric Company Deferred -
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, -
Restatement 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 -
December 1, 1993. (Incorporated by reference
from SDG&E's 1993 Form 10-K -Exhibit 10.7.)
10.8 Amendment to San Diego Gas & Electric Company and -
Southern California Gas Company Restated
Long-Term Wholesale Natural Gas Service Contract
(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 Control
Bonds dated as of June 1, 1993. (Incorporated by
reference from SDG&E's June 30, 1993 Form 10-Q -
Exhibit 10.1.)
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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 reference
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 reference
from SDG&E's March 31, 1993 Form 10-Q - Exhibit
10.2.)
10.13 Loan agreement with the City of San Diego in -
connection with the issuance of Industrial
Development 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
Development 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 Deferred -
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 Deferred -
Compensation Agreement for Officers #1 (1993
compensation, 1994 incentive). (Incorporated by
reference from SDG&E's 1992 Form 10-K - Exhibit
10.2.)
10.17 Form of San Diego Gas & Electric Company Deferred -
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.)
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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 reference
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 November 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
November 25, 1987. (Incorporated by reference
from SDG&E's 1992 Form 10-K - Exhibit 10.8.)
10.23 Amended 1986 Long-Term Incentive Plan. -
(Incorporated 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 reference
from SDG&E's September 30, 1992 Form 10-Q
-Exhibit 10.1.)
10.27 Gas Purchase Agreement, dated March 12, 1991 -
between Husky Oil Operations Limited and San
Diego Gas & Electric Company. (Incorporated by
reference from SDG&E's 1991 Form 10-K - Exhibit
10.1.)
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10.28 Gas Purchase Agreement, dated March 12, 1991 -
between 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 -
between Bow Valley Industries Limited and San
Diego 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 -
between Summit Resources Limited and San Diego
Gas & Electric Company. (Incorporated by
reference from SDG&E's 1991 Form 10-K - Exhibit
10.4.)
10.31 Service Agreement Applicable to Firm -
Transportation Service under Rate Schedule FS-1,
dated May 31, 1991 between Alberta Natural Gas
Company 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 -
December 31, 1991 between Pacific Gas and
Electric Company and San Diego Gas & Electric
Company. (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
California Edison Company, as agent for SDG&E and
others; Contract DE-SC05-84UEO7541, dated
November 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.)
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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.
(Incorporated 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.
(Incorporated by reference from SDG&E's 1991 Form
10-K -Exhibit 10.11.)
10.37 Form of San Diego Gas & Electric Company Deferred -
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 Deferred -
Compensation Agreement for Officers #1 (1992
compensation, 1993 incentive). (Incorporated by
reference from SDG&E's 1991 Form 10-K - Exhibit
10.17.)
10.39 Form of San Diego Gas & Electric Company Deferred -
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 Deferred -
Compensation Agreement for Officers #1 (1991
compensation, 1992 incentive). (Incorporated 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 reference
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 reference
from SDG&E's 1991 Form 10-K - Exhibit 10.38.)
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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. (Incorporated 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
reference 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.)
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.
(Incorporated by reference from SDG&E's 1990 Form
10-K - Exhibit 10.7.)
10.52 San Diego Gas & Electric Company Executive -
Severance Allowance Plan, as Amended and
Restated, December 17, 1990. (Incorporated by
reference from SDG&E's 1990 Form 10-K - Exhibit
10.8.)
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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 Company -
1986 Long-Term Incentive Plan adopted January 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 amended.
(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
November 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. -
(Incorporated by reference from SDG&E's 1988 Form
10-K - Exhibit 10A.)
10.60 U. S. Navy contract for electric service, -
Contract 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>
-8-
<PAGE>
<TABLE>
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- ----------- ----------- ---------------
<C> <S> <C>
10.62 Public Service Company of New Mexico and San -
Diego 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 -Exhibit
10H.)
10.63 San Diego Gas & Electric Company and Portland -
General Electric Company Long-Term Power Sale and
Transmission Service agreements dated November 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 Purchase
and Sale of Electric Capacity and Energy dated
November 20, 1980 and additional Agreement to the
contract dated March 22, 1985. (Incorporated 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
radioactive 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 - Exhibit 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 (Ordinance -
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.)
</TABLE>
-9-
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- ----------- ----------- ---------------
<C> <S> <C>
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 -
Exhibit 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.
(Incorporated 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 -
original 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
(Cumulative).
99.3 Form of follow-up letter from Thomas A. Page to
Shareholders.
</TABLE>
The Forms 10-K and 10-Q referred to above were filed under Commission File
Number 1-3779.
-10-
<PAGE>
EXHIBIT 3.2
BYLAWS OF SDO PARENT CO., INC.
------------------------------
ARTICLE ONE
-----------
Corporate Management
--------------------
The business and affairs of the Corporation shall be managed, and all
corporate powers shall be exercised, by or under the direction of the Board of
Directors ("the Board"), subject to the Articles of Incorporation and the
California Corporations Code.
ARTICLE TWO
-----------
Officers
--------
Section 1. Designation. The officers of the Corporation shall consist of
-----------
a Chairman of the Board (the "Chairman") or a President, or both, one or more
Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer,
one or more Assistant Treasurers, a Controller, one or more Assistant
Controllers, and such other officers as the Board may from time to time elect.
Any two or more of such offices may be held by the same person.
Section 2. Term. The officers shall be elected by the Board as soon as
----
possible after the annual meeting of the Shareholders, and shall hold office for
one year or until their successors are duly elected. Any officers may be
removed from office at any time, with or without cause, by the vote of a
majority of the authorized number of Directors. The Board may fill vacancies or
elect new officers at any time.
Section 3. Chairman. The Chairman shall preside over meetings of the
--------
Shareholders and of the Board, make a full report to each Shareholders' annual
meeting covering the next preceding fiscal year, and perform all other duties
designated by the Board.
Section 4. The President. The President shall have the general
-------------
management and direction of the affairs of the Corporation, subject to the
control of the Board. In the absence or disability of the Chairman, the
President shall perform the duties and exercise the powers of the Chairman.
Section 5. Vice Presidents. The Vice Presidents, one of whom shall be
---------------
the chief financial officer, shall have such duties as the President or the
Board shall designate.
<PAGE>
Section 6. Chief Financial Officer. The Chief Financial Officer shall be
-----------------------
responsible for the issuance of securities and the management of the
Corporation's cash, receivables and temporary investments.
Section 7. Secretary and Assistant Secretary. The Secretary shall attend
---------------------------------
all meetings of the Shareholders and the Board, keep a true and accurate record
of the proceedings of all such meetings and attest the same by his or her
signature, have charge of all books, documents and papers which appertain to the
office, have custody of the corporate seal and affix it to all papers and
documents requiring sealing, give all notices of meetings, have the custody of
the books of stock certificates and transfers, issue all stock certificates, and
perform all other duties usually appertaining to the office and all duties
designated by the bylaws, the President or the Board. In the absence of the
Secretary, any Assistant Secretary may perform the duties and shall have the
powers of the Secretary.
Section 8. Treasurer and Assistant Treasurer. The Treasurer shall
---------------------------------
perform all duties usually appertaining to the office and all duties designated
by the President or the Board. In the absence of the Treasurer, any Assistant
Treasurer may perform the duties and shall have all the powers of the Treasurer.
Section 9. Controller and Assistant Controller. The Controller shall be
-----------------------------------
responsible for establishing financial control policies for the Corporation,
shall be its principal accounting officer, and shall perform all duties usually
appertaining to the office and all duties designated by the President or the
Board. In the absence of the Controller, any Assistant Controller may perform
the duties and shall have all the powers of the Controller.
Section 10. Chief Executive Officer. Either the Chairman or the
-----------------------
President shall be the chief executive officer.
Section 11. Chief Operating Officer. Either the President or any Vice
-----------------------
President shall be the chief operating officer.
ARTICLE THREE
-------------
Directors
---------
Section 1. Number. The authorized number of Directors shall be
------
determined as set forth in the Articles of Incorporation.
Section 2. Election. A Board shall be elected as set forth in the
--------
Articles of Incorporation. Any candidate nominated by management for election
to the Board shall be so nominated without regard to his or her sex, race, color
or creed.
Section 3. Vacancies. Vacancies in the Board may be filled as set forth
---------
in the Articles of Incorporation.
-2-
<PAGE>
Section 4. Compensation. Members of the Board shall receive such
------------
compensation as the Board may from time to time determine.
Section 5. Regular Meetings. The regular meetings of the Board shall be
----------------
held immediately after each annual meeting of the Shareholders in April, and on
the fourth Monday of each other month, at 1:00 p.m. at the principal office of
the Corporation in San Diego, California. If any such date is a legal holiday,
the meeting shall be held on the next day which is not a holiday. The Board may
cancel, or designate a different date, time or place for any regular meeting.
Section 6. Special Meetings. Special meetings of the Board may be called
----------------
at any time by the Chairman, the President or any two Directors.
Section 7. Notice of Meetings. Written notice shall be given to each
------------------
Director of the date, time and place of each regular meeting and each special
meeting of the Board. If given by mail, such notice shall be mailed to each
Director at least four days before the date of such meeting, or such notice may
be given to each Director personally or by telegram at least 48 hours before the
time of such meeting. Every notice of special meeting shall state the purpose
for which such meeting is called. Notice of a meeting need not be given to any
Director who signs a waiver of notice, whether before or after the meeting, or
who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such Director.
Section 8. Quorum. A majority of the authorized number of Directors
------
shall be necessary to constitute a quorum for the transaction of business, and
every act or decision of a majority of the Directors present at a meeting at
which a quorum is present shall be valid as the act of the Board, provided that
a meeting at which a quorum is initially present may continue to transact
business, notwithstanding the withdrawal of Directors, if any action taken is
approved by at least a majority of the required quorum for such meeting. A
majority of Directors present at any meeting, in the absence of a quorum, may
adjourn to another time.
Section 9. Action Upon Consent. Any action required or permitted to be
-------------------
taken by the Board may be taken without a meeting, if all members of the Board
shall individually or collectively consent in writing to such action.
Section 10. Telephonic Participation. Members of the Board may
------------------------
participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in the meeting
can hear one another. Such participation constitutes presence in person at the
meeting.
Section 11. Directors Emeritus. The Board may from time to time elect
------------------
one or more Directors Emeritus. Each Director Emeritus shall have the privilege
of attending meetings of the Board, upon invitation of the Chairman or the
President. No Director Emeritus shall be entitled to vote on any business
coming before the Board or be counted as a member of the Board for any purpose
whatsoever.
-3-
<PAGE>
ARTICLE FOUR
------------
Committees
----------
Section 1. Executive Committee. The Board shall appoint an Executive
-------------------
Committee. The Chairman shall be ex officio the Chairman thereof, unless the
Board shall appoint another member as Chairman. The Executive Committee shall
be composed of members of the Board, and shall at all times be subject to its
control. The Executive Committee shall have all the authority of the Board,
except with respect to:
(a) The approval of any action which also requires Shareholders'
approval.
(b) The filling of vacancies on the Board or on any committee.
(c) The fixing of compensation of the Directors for serving on the
Board or on any committee.
(d) The amendment or repeal of bylaws or the adoption of new
bylaws.
(e) The amendment or repeal of any resolution of the Board which
by its express terms is not so amendable or repealable.
(f) A distribution to the Shareholders.
(g) The appointment of other committees of the Board or the
members thereof.
Section 2. Audit Committee. The Board shall appoint an Audit
---------------
Committee comprised solely of Directors who are neither officers nor employees
of the Corporation and who are free from any relationship that, in the opinion
of the Board, would interfere with the exercise of independent judgment as
committee members. The Audit Committee shall review and make recommendations to
the Board with respect to:
(a) The engagement of an independent accounting firm to audit the
Corporation's financial statements and the terms of such
engagement.
(b) The policies and procedures for maintaining the Corporation's
books and records and for furnishing appropriate information
to the independent auditor.
(c) The evaluation and implementation of any recommendations made
by the independent auditor.
(d) The adequacy of the Corporation's internal audit controls and
related personnel.
-4-
<PAGE>
(e) Such other matters relating to the Corporation's financial
affairs and accounts as the Committee deems desirable.
Section 3. Other Committees. The Board may appoint such other
----------------
committees of its members as it shall deem desirable, and, within the
limitations specified for the Executive Committee, may vest such committees with
such powers and authorities as it shall see fit, and all such committees shall
at all times be subject to its control.
Section 4. Notice of Meetings. Notice of each meeting of any
------------------
committee of the Board shall be given to each member of such committee, and the
giving of such notice shall be subject to the same requirements as the giving of
notice of meetings of the Board, unless the Board shall establish different
requirements for the giving of notice of committee meetings.
Section 5. Conduct of Meetings. The provisions of these bylaws with
-------------------
respect to the conduct of meetings of the Board shall govern the conduct of
committee meetings. Written minutes shall be kept of all committee meetings.
ARTICLE FIVE
------------
Shareholder Meetings
--------------------
Section 1. Annual Meeting. The annual meeting of the Shareholders
--------------
shall be held at 11:00 a.m. on the fourth Tuesday in April in each year or on a
date and at a time determined to be appropriate by the Board of Directors. If
such day is a legal holiday, the meeting shall be held on the next day which is
not a holiday.
Section 2. Special Meetings. Special meetings of the Shareholders
----------------
for any purpose whatsoever may be called at any time by the Chairman, the
President, or the Board, or by one or more Shareholders holding not less than
one-tenth of the voting power of the Corporation.
Section 3. Place of Meetings. All meetings of the Shareholders
-----------------
shall be held at the principal office of the Corporation in San Diego,
California, or at such other locations as may be designated by the Board.
Section 4. Notice of Meetings. Written notice shall be given to
------------------
each Shareholder entitled to vote of the date, time, place and general purpose
of each meeting of Shareholders. Notice may be given personally, or by mail, or
by telegram, charges prepaid, to the Shareholder's address appearing on the
books of the Corporation. If a Shareholder supplies no address to the
Corporation, notice shall be deemed to be given if mailed to the place where the
principal office of the Corporation is situated, or published at least once in
some newspaper of general circulation in the county of said principal office.
Notice of any meeting shall be sent to each Shareholder entitled thereto not
less than 10 or more than 60 days before such meeting.
-5-
<PAGE>
Section 5. Voting. The Board may fix a time in the future not less than
------
10 or more than 60 days preceding the date of any meeting of Shareholders, or
not more than 60 days preceding the date fixed for the payment of any dividend
or distribution, or for the allotment of rights, or when any change or
conversion or exchange of shares shall go into effect, as a record date for the
determination of the Shareholders entitled to notice of and to vote at any such
meeting or entitled to receive any such dividend or distribution, or any such
allotment of rights, or to exercise the rights in respect to any such change,
conversion, or exchange of shares. In such case only Shareholders of record at
the close of business on the date so fixed shall be entitled to notice of and to
vote at such meeting or to receive such dividend, distribution or allotment of
rights, or to exercise such rights, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after any record date
fixed as aforesaid. The Board may close the books of the Corporation against any
transfer of shares during the whole or any part of such period.
Section 6. Quorum. At any Shareholders' meeting a majority of the
------
shares entitled to vote must be represented in order to constitute a quorum for
the transaction of business, but a majority of the shares present, or
represented by proxy, though less than a quorum, may adjourn the meeting to some
other date, and from day to day or from time to time thereafter until a quorum
is present.
ARTICLE SIX
-----------
Certificate of Shares
---------------------
Section 1. Form. Certificates for shares of the Corporation shall
----
state the name of the registered holder of the shares represented thereby, and
shall be signed by the Chairman or the President or a Vice President, and by the
Secretary or an Assistant Secretary. Any such signature may be by facsimile
thereof.
Section 2. Surrender. Upon a surrender to the Secretary, or to a
---------
transfer agent or transfer clerk of the Corporation, of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, the Corporation shall issue a new certificate to the
party entitled thereto, cancel the old certificate and record the transaction
upon its books.
Section 3. Right of Transfer. When a transfer of shares on the
-----------------
books is requested, and there is a reasonable doubt as to the rights of the
persons seeking such transfer, the Corporation, or its transfer agent or
transfer clerk, before entering the transfer of the shares on its books or
issuing any certificate therefor, may require from such person reasonable proof
of his or her rights, and, if there remains a reasonable doubt in respect
thereto, may refuse a transfer unless such person shall give adequate security
or a bond of indemnity executed by a corporate surety, or by two individual
sureties, satisfactory to the Corporation as to form, amount and responsibility
of sureties.
Section 4. Conflicting Claims. The Corporation shall be entitled to
------------------
treat the holder of record of any shares as the holder in fact thereof and shall
not be bound to recognize any equitable or other claim to or interest in such
shares on the part of any other person, whether or not it shall
-6-
<PAGE>
have express or other notice thereof, save as expressly provided by the laws of
the State of California.
Section 5. Loss Theft and Destruction. In the case of the alleged
--------------------------
loss, theft or destruction of any certificate of shares, another may be issued
in its place as follows: (1) the owner of the lost, stolen or destroyed
certificate shall file with the transfer agent of the Corporation a duly
executed Affidavit or Loss and Indemnity Agreement and Certificate of Coverage,
accompanied by a check representing the cost of the bond as outlined in any
blanket lost securities and avoid administration bond previously approved by the
Directors of the Corporation and executed by a surety company satisfactory to
them, which bond shall indemnify the Corporation, its transfer agents and
registrars; or (2) the Board may, in its discretion, authorize the issuance of a
new certificate to replace a lost, stolen or destroyed certificate on such other
terms and conditions as it may determine to be reasonable.
ARTICLE SEVEN
-------------
Indemnification of Agents of the Corporation
--------------------------------------------
Section 1. Definitions. For the purposes of this Article Seven,
-----------
"agent" means any person who (i) is or was a Director, officer, employee or
other agent of the Corporation, (ii) is or was serving at the request of the
Corporation as a director, officer, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise or
(iii) was a director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor corporation of the Corporation or of another
enterprise at the request of such predecessor corporation; "proceeding" means
any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative; and "expenses" includes, without
limitation, attorneys' fees and any expenses of establishing a right to
indemnification under Sections 4 or 5(c) of this Article Seven.
Section 2. Indemnification for Third Party Actions. The Corporation
---------------------------------------
shall have the power to indemnify any person who is or was a party, or is
threatened to be made a party, to any proceeding (other than an action by or in
the right of the Corporation to procure a judgment in its favor) by reason of
the fact that such person is or was an agent of the Corporation against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such proceeding if such person acted in
good faith and in a manner such person reasonably believed to be in the best
interests of the Corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of such person was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which the
person reasonably believed to be in the best interests of the Corporation or
that the person had reasonable cause to believe that the person's conduct was
unlawful.
Section 3. Indemnification for Derivative Actions. The Corporation
--------------------------------------
shall have the power to indemnify any person who is or was a party, or is
threatened to be made a party, to any
-7-
<PAGE>
threatened, pending or completed action by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that such person is or was
an agent of the Corporation against expenses actually and reasonably incurred by
such person in connection with the defense or settlement of such action if such
person acted in good faith and in a manner such person believed to be in the
best interests of the Corporation and its Shareholders. No indemnification
shall be made under this Section 3:
(a) In respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the
Corporation in the performance of such person's duty to the
Corporation and its Shareholders, unless and only to the
extent that the court in which such proceeding is or was
pending shall determine upon application that, in view of all
the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for expenses and then only to
the extent that the court shall determine; or
(b) Of amounts paid in settling or otherwise disposing of a
pending action without court approval; or
(c) Of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
Section 4. Successful Defense. Notwithstanding any other provision
------------------
of this Article, to the extent that an agent of the Corporation has been
successful on the merits or otherwise (including the dismissal of an action
without prejudice or the settlement of a proceeding or action without admission
of liability) in defense of any proceeding referred to in Sections 2 or 3 of
this Article, or in defense of any claim, issue or matter therein, he or she
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred in connection therewith.
Section 5. Discretionary Indemnification. Except as provided in
-----------------------------
Section 4 of this Article Seven, any indemnification under Section 3 hereof
shall be made by the Corporation only if authorized in the specific case, upon a
determination that indemnification of the agent is proper in the circumstances
because the agent has met the applicable standard of conduct set forth in
Section 3, by:
(a) A majority vote of a quorum consisting of Directors who are
not parties to such proceeding;
(b) If such a quorum of Directors is not obtainable, by
independent legal counsel in a written opinion;
(c) Approval by the affirmative vote of a majority of the shares
of this Corporation represented and voting at a duly held
meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the
required quorum) or by the written consent of holders of a
majority of the outstanding shares which would be entitled to
vote at
-8-
<PAGE>
such meeting and, for such purpose, the shares owned by the
person to be indemnified shall not be considered outstanding
or entitled to vote; or
(d) The court in which such proceeding is or was pending, upon
application made by the Corporation, the agent or the attorney
or other person rendering services in connection with the
defense, whether or not such application by said agent,
attorney or other person is opposed by the Corporation.
Section 6. Advancement of Expenses. Expenses incurred in defending
-----------------------
any proceeding may be advanced by the Corporation prior to the final disposition
of such proceeding upon receipt of an undertaking by or on behalf of the agent
to repay such amount if it shall be determined ultimately that the agent is not
entitled to be indemnified as authorized in this Article Seven.
Section 7. Restriction on Indemnification. No indemnification or
------------------------------
advance shall be made under this Article Seven, except as provided in Sections 4
and 6 hereof, in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the Articles
of Incorporation of the Corporation, its bylaws, a resolution
of the Shareholders or an agreement in effect at the time of
the accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other
amounts were paid which prohibits or otherwise limits
indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 8. Non-Exclusive. In the absence of any other basis for
-------------
indemnification of an agent, the Corporation can indemnify such agent pursuant
to this Article Seven. The indemnification provided by this Article Seven shall
not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any statute, bylaw, agreement, vote of
Shareholders or disinterested Directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office. The rights to indemnification under this Article Seven shall continue
as to a person who has ceased to be a Director, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of the
person. Nothing contained in this Section 8 shall affect any right to
indemnification to which persons other than such Directors and officers may be
entitled by contract or otherwise.
Section 9. Expenses as a Witness. To the extent that any agent of
---------------------
the Corporation is by reason of such position, or a position with another entity
at the request of the Corporation, a witness in any action, suit or proceeding,
he or she shall be indemnified against all costs and expenses actually and
reasonably incurred by him or her or on his or her behalf in connection
therewith.
-9-
<PAGE>
Section 10. Insurance. The Board may purchase and maintain
---------
directors and officers liability insurance, at its expense, to protect itself
and any Director, officer or other named or specified agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss asserted against or incurred by the agent
in such capacity or arising out of the agent's status as such, whether or not
the Corporation would have the power to indemnify the agent against such
expense, liability or loss under the provisions of this Article Seven or under
California Law.
Section 11. Separability. Each and every paragraph, sentence, term
------------
and provision of this Article Seven is separate and distinct so that if any
paragraph, sentence, term or provision hereof shall be held to be invalid or
unenforceable for any reason, such invalidity or unenforceability shall not
affect the validity or unenforceability of any other paragraph, sentence, term
or provision hereof. To the extent required, any paragraph, sentence, term or
provision of this Article may be modified by a court of competent jurisdiction
to preserve its validity and to provide the claimant with, subject to the
limitations set forth in this Article and any agreement between the Corporation
and claimant, the broadest possible indemnification permitted under applicable
law. If this Article Seven or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Corporation shall
nevertheless have the power to indemnify each Director, officer, employee, or
other agent against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement with respect to any action, suit, proceeding or
investigation, whether civil, criminal or administrative, and whether internal
or external, including a grand jury proceeding and including an action or suit
brought by or in the right of the Corporation, to the full extent permitted by
any applicable portion of this Article Seven that shall not have been
invalidated or by any other applicable law.
Section 12. Agreements. Upon, and in the event of, a determination
----------
of the Board to do so, the Corporation is authorized to enter into
indemnification agreements with some or all of its Directors, officers,
employees and other agents providing for indemnification to the fullest extent
permissible under California law and the Corporation's Articles of
Incorporation.
Section 13. Retroactive Appeal. In the event this Article Seven is
------------------
repealed or modified so as to reduce the protection afforded herein, the
indemnification provided by this Article shall remain in full force and effect
with respect to any act or omission occurring prior to such repeal or
modification.
ARTICLE EIGHT
-------------
Obligations
-----------
All obligations of the Corporation, including promissory notes, checks,
drafts, bills of exchange, and contracts of every kind, and evidences of
indebtedness issued in the name of, or payable to, or executed on behalf of the
Corporation, shall be signed or endorsed by such officer or officers, or agent
or agents, of the Corporation and in such manner as, from time to time, shall be
determined by the Board.
-10-
<PAGE>
ARTICLE NINE
------------
Corporate Seal
--------------
The corporate seal shall set forth the name of the Corporation, state, and
date of incorporation.
ARTICLE TEN
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Amendments
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These bylaws may be amended or repealed as set forth in the Articles of
Incorporation.
ARTICLE ELEVEN
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Availability of Bylaws
----------------------
A current copy of these bylaws shall be mailed or otherwise furnished
to any Shareholder of record within five days after receipt of a request
therefor.
-11-
<PAGE>
EXHIBIT 5
(619) 236-1995
February 17, 1995
SDO Parent Co., Inc.
101 Ash Street
San Diego, California 92101
Re: Issuance of Common Stock in Connection with Formation of a
Holding Company Structure for SDG&E
Ladies and Gentlemen:
With reference to the Registration Statement on Form S-4 (No. 33-
57007) ("Registration Statement") filed by SDO Parent Co., Inc., a
California corporation ("ParentCo"), with the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933, as amended, with
respect to the issuance of up to 116,541,000 shares of ParentCo's common
stock in connection with a merger which will cause ParentCo to become the
parent holding company of San Diego Gas & Electric Company, a California
corporation, it is our opinion that such shares of ParentCo common stock,
when issued in accordance with the terms outlined in the Registration
Statement, including a Merger Agreement constituting Exhibit A to the
Proxy Statement and Prospectus portion of the Registration Statement, will
be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the SEC as
Exhibit 5 to the Registration Statement and we consent to being identified
in the Registration Statement under the caption "Legal Opinion."
Very truly yours,
/s/ Pillsbury Madison & Sutro
<PAGE>
EXHIBIT 8
February 17, 1995
San Diego Gas & Electric Company
101 Ash Street
San Diego, CA 92101
Ladies and Gentlemen:
You have asked for our opinion as to certain federal income tax
consequences of a proposed transaction that would result in the creation
of a holding company structure for San Diego Gas & Electric Company
("SDG&E") and its subsidiaries. The proposed transaction is set forth in
the Agreement of Merger (the "Agreement") among SDG&E, SDO Parent Co.
("ParentCo") and San Diego Merger Company ("MergeCo") set forth as Exhibit
A to the Proxy Statement/Prospectus of ParentCo included in ParentCo's
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission on December 22, 1994 (the "Registration Statement"). We
understand, and the opinions rendered herein assume, that the facts
surrounding the proposed transaction are as follows.
SDG&E, a California corporation, is engaged in the sale of natural
gas and electricity. SDG&E has authorized capital of: (i) 255 million
shares of no par value common stock ("Common Stock"); (ii) 1.375 million
shares of $20 par value cumulative voting preferred stock ("Preferred
Stock"); and (iii) 10 million shares of no par value cumulative nonvoting
preference stock ("Preference Stock"). As of September 30, 1994, SDG&E
had the following outstanding shares of stock: (i) 116,475,955 shares of
Common Stock; (ii) four different series of Preferred Stock aggregating
1,374,650 shares; and (iii) four different series of Preference Stock
aggregating 3,190,000 shares. The SDG&E Common Stock is widely held and
publicly traded on the New York and Pacific Stock Exchanges. The SDG&E
Preferred and Preference series are publicly traded on the American and
Pacific Stock Exchanges, except for the 4.6% Series of SDG&E Preferred
Stock and the $1.70 and $1.7625 Series of SDG&E Preference Stock, which
are traded over the counter.
Califia Company ("Califia"), a California corporation, is engaged in
the business of leasing computer equipment. Califia has outstanding
27,249 shares of no par value voting common stock, 25,000 shares of Series
A $9.25 no par value nonvoting preferred stock and
<PAGE>
San Diego Gas & Electric Company
February 17, 1995
Page 2
36,500 shares of Series B $8.75 no par value nonvoting preferred stock.
SDG&E owns all of the outstanding common stock, 21,350 shares (85.4%) of
the Series A preferred stock and 31,000 shares (84.9%) of the Series B
preferred stock. The remaining outstanding preferred stock is held by CMA
Leasing Associates, an unrelated entity.
Enova Corporation ("Enova"), a California corporation, is a wholly
owned subsidiary of SDG&E which invests in affordable housing projects
through multiple limited partnership interests.
Pacific Diversified Capital Company ("PDCC"), a California
corporation, is a wholly owned subsidiary of SDG&E which acts as a holding
company. PDCC owns all of the stock of Phase One Development, Inc.
("Phase One") and 81 percent of the stock of Wahlco Environmental Systems,
Inc. ("WESI"). The remaining 19 percent of the stock of WESI is publicly
owned.
Phase One is a California corporation engaged in the business of real
estate development.
WESI, a Delaware corporation, is a holding company which owns Wahlco,
Inc. and several other subsidiaries engaged in the air pollution control
business.
Enova Energy Management, Inc. ("EEMI"), a California corporation, is
a wholly owned subsidiary of SDG&E engaged in the business of energy
procurement consulting services.
ParentCo, a California corporation, was formed for the purpose of
engaging in business as a holding company. ParentCo has authorized
capital consisting of 300 million shares of common stock and 30 million
shares of preferred stock, none of which have been issued.
MergeCo, a California corporation, was formed solely for the purpose
of consummating the proposed transaction. MergeCo has authorized capital
consisting of 1000 shares of common stock, none of which have been issued.
The management of SDG&E has determined that the proposed transaction
would be in the best interests of SDG&E, Califia, Enova, PDCC, EEMI and
the SDG&E stockholders. The management of SDG&E believes that a holding
company structure would facilitate the acquisition and integration of
other energy related operations by providing a more clearly defined
separation of utility and non-utility operations and would permit the use
of financing techniques that are more directly suited to the particular
requirements, characteristics and risks of non-utility operations with
substantially less impact on the capital structure or credit of SDG&E,
thereby increasing and improving SDG&E's financial flexibility.
<PAGE>
San Diego Gas & Electric Company
February 17, 1995
Page 3
Accordingly, the following steps have occurred:
Step 1 On December 20, 1994, ParentCo was incorporated; and
Step 2 On January 6, 1995, MergeCo was incorporated.
Following the receipt of certain regulatory approvals, the following
steps will occur:
Step 3 100 shares of common stock of ParentCo will be issued to
SDG&E; and
Step 4 100 shares of common stock of MergeCo will be issued to
ParentCo.
Pursuant to authority conferred on December 19, 1994 by the board of
directors of SDG&E and anticipated to be conferred on February 27, 1995 by
the board of directors of ParentCo and on April 25, 1995 by the
shareholders of SDG&E, and upon satisfaction of certain regulatory
conditions, the following steps will occur in the following sequence:
Step 5 MergeCo will merge with and into SDG&E according to
applicable state law; and
Step 6 SDG&E will distribute all of its stock of Califia, Enova,
PDCC and EEMI to ParentCo.
Under the merger described in Step 5, SDG&E will be the surviving
corporation and each outstanding share of SDG&E common stock will be
automatically converted into one share of common stock of ParentCo, except
that, to the extent that state law provides rights to dissenting
shareholders, those SDG&E shareholders who exercise dissenters' rights in
the statutorily prescribed manner ("Dissenters") will be paid by SDG&E an
amount equal to the fair market value of their shares at the time
immediately preceding the announcement of the merger or value as
determined by judicial proceedings, if the parties disagree. The 100
shares of MergeCo common stock issued to ParentCo will automatically be
converted into all of the issued and outstanding common stock of SDG&E.
The 100 shares of ParentCo common stock issued to SDG&E will be canceled
in the merger. The shares of Preferred Stock and Preference Stock issued
and outstanding immediately before the merger will not be affected by the
merger, but will remain issued and outstanding shares of SDG&E preferred
stock entitled to the same respective relative rights and preferences as
presently provided.
As a result of Steps 5 and 6, the SDG&E common shareholders other
than Dissenters (the "Transferors") will own all of the outstanding stock
of ParentCo and ParentCo will directly own all of the outstanding common
stock of SDG&E, Califia, Enova, PDCC and EEMI and all of the outstanding
preferred stock of Califia presently owned by SDG&E.
<PAGE>
San Diego Gas & Electric Company
February 17, 1995
Page 4
We understand and assume the following:
(a) No stock or securities will be issued for services rendered to
or for the benefit of ParentCo in connection with the proposed
transaction, and no stock or securities will be issued for indebtedness of
ParentCo.
(b) The transfer is not the result of the solicitation by a
promoter, broker, or investment house.
(c) The Transferors will not retain any rights in the property
transferred to ParentCo.
(d) ParentCo will not assume any liabilities of the Transferors and
the stock being transferred is not subject to any liabilities.
(e) There is no indebtedness between ParentCo and any Transferor and
there will be no indebtedness created in favor of any Transferor as a
result of the transaction.
(f) The transfers and exchanges will occur under a plan agreed upon
before the transaction in which the rights of the parties are defined.
(g) All exchanges will occur on approximately the same date.
(h) With the exception of incorporation shares issued to SDG&E which
will be canceled upon consummation of the transaction, there is no plan or
intention on the part of ParentCo to redeem or otherwise reacquire any
stock or indebtedness to be issued in the proposed transaction.
(i) There is no plan or intention for ParentCo to issue additional
shares of ParentCo stock, except pursuant to the Common Stock Investment
Plan (the "CSIP") and various employee benefit plans presently maintained
by SDG&E. In the past, such issuances have in the aggregate amounted
annually to less than one percent of the outstanding shares of SDG&E
Common Stock. There is no plan or intent for future issuances pursuant to
the CSIP and the employee benefit plans to exceed historical levels and it
is not anticipated that such issuances will exceed historical levels.
(j) To the best knowledge of management, there is no plan or
intention on the part of the Transferors to sell, exchange, transfer by
gift, or otherwise dispose of any of the stock of ParentCo to be received
in the exchange.
(k) Each Transferor will receive ParentCo common stock approximately
equal to the fair market value of the SDG&E common stock transferred to
ParentCo.
<PAGE>
San Diego Gas & Electric Company
February 17, 1995
Page 5
(l) ParentCo will remain in existence as a holding company, as
described above.
(m) There is no plan or intention by ParentCo to dispose of any
SDG&E stock, or any assets of SDG&E whose value exceeds in the aggregate
five percent of the shareholders' equity in SDG&E, other than in the
normal course of business operations. No such asset sale is being
considered as part of the proposed transaction. The proceeds from any such
sale would not be distributed to the shareholders of either ParentCo or
SDG&E (other than ParentCo).
(n) Each of the parties to the transaction will pay their own
expenses, if any, incurred in connection with the proposed transaction.
(o) ParentCo will not be a regulated investment company (a "RIC") or
a real estate investment trust (a "REIT"), and ParentCo will not hold
readily marketable stocks or securities for investment or interests in
RICs or REITs the value of which in the aggregate exceeds 80 percent of
the value of ParentCo's assets.
(p) To the best knowledge of management, no Transferor is under the
jurisdiction of a court in a title 11 or similar case (within the meaning
of section 368(a)(3)(A)) and the stock or securities received in the
exchange will not be used to satisfy the indebtedness of such debtor,
except that Dr. Ralph R. Ocampo, a director who holds 13,128 shares
jointly with spouse/children, petitioned for protection under Chapter 11
of the Federal Bankruptcy Code in March 1993.
Additionally, we assume (1) the accuracy of the Agreement; and (2)
the accuracy of all factual statements and representations made in our
December 19, 1994 IRS private letter ruling request and any supplements
thereto. Finally, we assume, and this opinion is conditioned on, the
receipt by SDG&E of a private letter ruling from the IRS ruling that the
formation of MergeCo and its merger with and into SDG&E will be
disregarded for federal income tax purposes, and the transaction will be
treated as a transfer by the Transferors of their SDG&E common stock to
ParentCo solely in exchange for an equal number of shares of common stock
of ParentCo.
In light of the foregoing, and based solely on the information,
understandings and assumptions described herein, and assuming no material
changes in such information, understandings and assumptions nor in the
applicable law prior to consummation of the proposed transaction, our
opinion is as follows with respect to Step 5:
(i) No gain or loss will be recognized to the Transferors upon the
transfer of their SDG&E common stock to ParentCo solely in
exchange for shares of ParentCo common stock (section 351(a)).
<PAGE>
San Diego Gas & Electric Company
February 17, 1995
Page 6
(ii) No gain or loss will be recognized by ParentCo upon the receipt
of the SDG&E common stock solely in exchange for shares of
ParentCo common stock (section 1032(a)).
(iii) The basis of the ParentCo common stock to be received by the
Transferors in the transaction will be the same as the basis of
the SDG&E common stock surrendered in exchange therefor
(section 358(a)(1)).
(iv) The holding period of the ParentCo common stock to be received
by the Transferors will include the period during which the
SDG&E common stock was held, provided that the SDG&E common
stock was held as a capital asset on the date of the exchange
(section 1223(1)).
(v) The basis of the SDG&E common stock to be received by ParentCo
will be the same as the basis of the stock in the hands of the
exchanging Transferors (section 362(a)).
(vi) The holding period of the SDG&E common stock to be received by
ParentCo will include the period during which such stock was
held by the Transferors (section 1223(2)).
No opinion is expressed about the tax treatment of the transactions
described in Steps 1, 2, 3, 4 and 6. Further, no opinion is expressed
about the tax treatment of the transaction under other provisions of the
Internal Revenue Code and implementing regulations or about the tax
treatment of any conditions existing at the time of, or effects resulting
from, the transaction that are not specifically covered by the above
opinions.
The opinions rendered herein are based on provisions of the Internal
Revenue Code of 1986, as amended as of the date hereof, regulations
promulgated pursuant thereto, reported judicial decisions and published
administrative rulings. Judicial, legislative or administrative changes
may be forthcoming that would require modification of some or all of the
conclusions reached in those opinions and you should be aware that any
such changes may be applicable retroactively.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Formation of a Holding Company - Federal Income Tax Consequences of the
Merger" in the Registration Statement.
Very truly yours,
/s/ Pillsbury Madison & Sutro
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Pre-Effective
Amendment No. 1 to Registration Statement No. 33-57007 of SDO Parent Co.,
Inc. on Form S-4 of the report of Deloitte & Touche dated February 25,
1994 (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, as amended, of San Diego Gas & Electric
Company for the year ended December 31, 1993 and to the reference to
Deloitte & Touche LLP under the heading "Experts" in the Proxy Statement
and Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
San Diego, California
February 17, 1995
<PAGE>
EXHIBIT 99.1
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
---------------------------------------------------
SAN DIEGO GAS & ELECTRIC COMPANY Post Office Box 1831 San Diego,
-------------------------------------------------------------------
California 92112-4150
----------------------
PROXY for Annual Meeting of Shareholders - April 25, 1995
---------------------------------------------------------
THIS CARD IS ONLY FOR SHARES OF COMMON STOCK AND/OR PREFERRED STOCK.
DANIEL W. DERBES, RALPH R. OCAMPO and THOMAS A. PAGE, jointly or
individually, are hereby appointed as proxies with full power of
substitution to represent and vote all shares of stock of the undersigned
shareholder(s) of record on March 1, 1995, at the annual meeting of
shareholders of San Diego Gas & Electric Company ("SDG&E"), to be held at
the California Center for the Arts, Escondido, 340 North Escondido
Boulevard, Escondido, California on April 25, 1995, and at any adjournment
or postponement thereof, as indicated below:
1. ELECTION OF DIRECTORS - The Board of Directors recommends a vote FOR
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the following Nominees: 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.
[_] FOR all nominees listed above; except vote withheld [_]
WITHHELD for all nominees listed
above
for the following nominees (if any):
------------------
-------------------------------------------------------
2. FORMATION OF A HOLDING COMPANY STRUCTURE - The Board of Directors
-----------------------------------------------------------------
recommends a vote FOR this proposal.
-----------------------------------
Approval of the implementation of a holding company structure for SDG&E
which will involve (i) formation of a holding company, SDO Parent Co.,
Inc. (name subject to change), (ii) a merger of SDG&E with a subsidiary
of the holding company, with SDG&E surviving as a subsidiary of the
holding company, (iii) current holders of SDG&E Common Stock having
their shares converted into shares of holding company common stock, and
(iv) consummation of related activities, as more fully described in the
Proxy Statement and Prospectus.
[_] FOR [_] AGAINST [_] ABSTAIN
(Continued on other side)
--------------------------------------------------------------------------
(Continued from other side)
3. AMENDMENT OF 1986 LTIP - The Board of Directors recommends a vote FOR
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this proposal.
-------------
Approval of the amendment, restatement and extension of SDG&E's 1986
Long-Term Incentive Plan as described in the Proxy Statement and
Prospectus.
[_] FOR [_] AGAINST [_] ABSTAIN
4. SHAREHOLDER PROPOSAL - The Board of Directors recommends a vote AGAINST
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this proposal.
-------------
Shareholder Proposal as described in the Proxy Statement and Prospectus.
[_] FOR [_] AGAINST [_] ABSTAIN
5. In their discretion, act upon such other business as may properly come
before the meeting.
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder(s). If no direction is made, this
Proxy will be voted FOR Items 1, 2 and 3 and AGAINST Item 4.
Please sign exactly as name appears below. If signing as executor,
administrator, attorney, agent, trustee or guardian, please give full
title as such. If a corporation or partnership, please sign in full such
name by authorized person.
_____________________________, 1995
Dated
___________________________________
Signature
___________________________________
Signature (if held jointly)
WHETHER OR NOT YOU EXPECT TO ATTEND
THE MEETING Please mark, sign, date
and return the proxy card promptly
in the enclosed postage-paid
envelope.
Please indicate any change in the above address.
<PAGE>
EXHIBIT 99.2
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
---------------------------------------------------
SAN DIEGO GAS & ELECTRIC COMPANY Post Office Box 1831 San Diego,
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California 92112-4150
----------------------
PROXY for Annual Meeting of Shareholders - April 25, 1995
---------------------------------------------------------
THIS CARD IS ONLY FOR SHARES OF PREFERENCE STOCK.
DANIEL W. DERBES, RALPH R. OCAMPO and THOMAS A. PAGE, jointly or
individually, are hereby appointed as proxies with full power of
substitution to represent and vote all shares of stock of the undersigned
shareholder(s) of record on March 1, 1995, at the annual meeting of
shareholders of San Diego Gas & Electric Company ("SDG&E"), to be held at
the California Center for the Arts, Escondido, 340 North Escondido
Boulevard, Escondido, California on April 25, 1995, and at any adjournment
or postponement thereof, as indicated below:
1. FORMATION OF A HOLDING COMPANY STRUCTURE - The Board of Directors
-----------------------------------------------------------------
recommends a vote FOR this proposal.
-----------------------------------
Approval of the implementation of a holding company structure for SDG&E
which will involve (i) formation of a holding company, SDO Parent Co.,
Inc. (name subject to change), (ii) a merger of SDG&E with a subsidiary
of the holding company, with SDG&E surviving as a subsidiary of the
holding company, (iii) current holders of SDG&E Common Stock having
their shares converted into shares of holding company common stock, and
(iv) consummation of related activities, as more fully described in the
Proxy Statement and Prospectus.
[_] FOR [_] AGAINST [_] ABSTAIN
2. In their discretion, act upon such other business as may properly come
before the meeting.
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder(s). If no direction is made, this
Proxy will be voted FOR Item 1.
Please sign exactly as name appears below. If signing as executor,
administrator, attorney, agent, trustee or guardian, please give full
title as such. If a corporation or partnership, please sign in full such
name by authorized person.
_____________________________, 1995
Dated
___________________________________
Signature
___________________________________
Signature (if held jointly)
WHETHER OR NOT YOU EXPECT TO ATTEND
THE MEETING Please mark, sign, date
and return the proxy card promptly
in the enclosed postage-paid
envelope.
Please indicate any change in the above address.
<PAGE>
EXHIBIT 99.3
April __, 1995
Dear Fellow Shareholder:
Some time ago, we mailed you a proxy statement and prospectus and a proxy
for the annual shareholders meeting of Tuesday, April 25.
Since the company has not yet received your signed proxy, I am enclosing a
second proxy with this letter, in the event you have misplaced the first
one.
We are hoping to have as large a representation of shareholders as
possible at the meeting. Therefore, please sign the enclosed proxy and
return it in the accompanying prepaid envelope. In this way, you will be
assured that your shares will be represented at the shareholders meeting.
Please do not hesitate to let me know if you have any questions or
comments about the operation of your company. Your interest in San Diego
Gas & Electric is always most welcome.
Sincerely,
Thomas A. Page
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IF YOUR PROXY HAS BEEN MAILED
NO ACTION IS NECESSARY ON YOUR PART
----------------------------
