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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
-------------------------------------
Commission file number 1-1402
---------------------------------------------
SOUTHERN CALIFORNIA GAS COMPANY
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-1240705
- --------------------------------------------- ------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
555 West Fifth Street, Los Angeles, California 90013-1011
---------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(213) 244-1200
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Common stock outstanding: Wholly owned by Pacific Enterprises
ITEM 1. FINANCIAL STATEMENTS.
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (Unaudited)
(Dollars in millions)
Three Months Ended
March 31,
----------------
1999 1998
------ ------
Operating Revenues $607 $664
----- -----
Expenses:
Cost of natural gas distributed 256 301
Operation and maintenance 152 162
Depreciation 64 63
Income taxes 40 39
Other taxes and franchise
payments 25 29
----- -----
Total 537 594
----- -----
Operating Income 70 70
----- -----
Other Income and (Deductions):
Regulatory interest (3) 1
Allowance for equity funds used during construction 1 1
Income taxes on non-operating income 1 (1)
Other - net (1) (1)
----- -----
Total (2) --
----- -----
Interest Charges:
Long-term debt 19 20
Other 2 2
----- -----
Total 21 22
----- -----
Net Income 47 48
Preferred Dividend Requirements -- 1
----- -----
Earnings Applicable to Common Shares $ 47 $ 47
===== =====
See notes to Consolidated Financial Statements.
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
Balance at
--------------------------
March 31, December 31,
1999 1998
(Unaudited)
--------- -----------
ASSETS:
Utility plant - at original cost $6,092 $6,063
Less accumulated depreciation (3,173) (3,111)
------ ------
Utility plant - net 2,919 2,952
------ ------
Current Assets:
Cash and cash equivalents 312 11
Accounts receivable - trade 380 453
Due from affiliates 36 --
Deferred income taxes 194 157
Natural gas in storage 4 49
Materials and supplies 13 14
Prepaid expenses 23 14
------ ------
Total current assets 962 698
------ ------
Regulatory assets 183 184
------ ------
Total $4,064 $3,834
====== ======
See notes to Consolidated Financial Statements.
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
Balance at
-----------------------------
March 31, December 31,
1999 1998
(Unaudited)
------------ -----------
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock $ 835 $ 835
Retained earnings 472 525
------ ------
Total common equity 1,307 1,360
Preferred stock 22 22
Long-term debt 967 967
------ ------
Total capitalization 2,296 2,349
------ ------
Current Liabilities:
Accounts payable - trade 118 153
Accounts payable - affiliates -- 111
Accounts payable - other 222 221
Regulatory balancing accounts
overcollected - net 392 129
Other taxes payable 45 31
Accrued income taxes 23 30
Interest accrued 48 46
Dividends payable 100 --
Long-term debt due within one year 75 75
Other 91 75
------ ------
Total current liabilities 1,114 871
------ ------
Customer advances for construction 30 31
Deferred income taxes - net 361 323
Deferred investment tax credits 57 58
Deferred credits and other liabilities 206 202
------ ------
Total deferred credits 654 614
------ ------
Commitments and contingent liabilities (Note 3)
Total $4,064 $3,834
====== ======
See notes to Consolidated Financial Statements.
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited)
(Dollars in millions)
Three Months Ended
March 31,
------------------
1999 1998
----- -----
Cash Flows from Operating Activities:
Net income $ 47 $ 48
Adjustments to reconcile net income to
Net cash provided by operating activities:
Depreciation 64 63
Deferred income taxes 37 7
Other - net (16) (7)
Net change in other working capital components 204 421
---- ----
Net cash provided by operating
activities 336 532
---- ----
Cash Flows from Investing Activities:
Capital expenditures (32) (22)
Other - net (3) (13)
---- ----
Net cash used in investing activities (35) (35)
---- ----
Cash Flows from Financing Activities:
Redemption of preferred stock -- (75)
Issuance of long-term debt -- 75
Payment on long-term debt -- (149)
Decrease in short-term debt -- (271)
Dividends paid -- (56)
---- ----
Net cash used in financing
activities -- (476)
---- ----
Increase in Cash and Cash Equivalents 301 21
Cash and Cash Equivalents, January 1 11 --
---- ----
Cash and Cash Equivalents, March 31 $312 $ 21
==== ====
Supplemental Disclosure of Cash Flow Information:
Interest payments (net of amount capitalized) $ 19 $ 24
==== ====
Income tax payments $ 53 $ 33
==== ====
See notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
This Quarterly Report on Form 10-Q is that of Southern California Gas
Company (SoCalGas or the Company), the principal subsidiary of
Pacific Enterprises (PE). PE is a subsidiary of Sempra Energy, a
California-based Fortune 500 energy services company. The financial
statements herein are the Consolidated Financial Statements of
SoCalGas and its subsidiaries.
The accompanying Consolidated Financial Statements have been prepared
in accordance with the interim-period-reporting requirements of Form
10-Q. Results of operations for interim periods are not necessarily
indicative of results for the entire year. In the opinion of
management, the accompanying statements reflect all adjustments
necessary for a fair presentation. These adjustments are of a normal
recurring nature.
The Company's significant accounting policies, as well as those of
its subsidiaries, are described in the notes to Consolidated
Financial Statements in the Company's 1998 Annual Report. The same
accounting policies are followed for interim reporting purposes.
This Quarterly Report should be read in conjunction with the
Company's 1998 Annual Report, which includes the Consolidated
Financial Statements and notes thereto, and the annual "Management's
Discussion & Analysis of Financial Condition and Results of
Operations."
In conformity with generally accepted accounting principles,
SoCalGas' accounting policies reflect the financial effects of rate
regulation authorized by the California Public Utilities Commission
(CPUC). SoCalGas applies the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" (SFAS No. 71). This statement requires cost-
based rate-regulated entities that meet certain criteria to reflect
the authorized recovery of costs due to regulatory decisions in their
financial statements. SoCalGas continues to meet the criteria of SFAS
No. 71 in accounting for its regulated operations.
2. BUSINESS COMBINATIONS
PE/Enova
On June 26, 1998 (pursuant to an October 1996 agreement) Enova and PE
completed a business combination in which the two companies became
subsidiaries of a new company named Sempra Energy. As a result of the
combination, (i) each outstanding share of common stock of Enova was
converted into one share of common stock of Sempra Energy, (ii) each
outstanding share of common stock of PE was converted into 1.5038
shares of common stock of Sempra Energy and (iii) the preferred stock
and/or preference stock of SDG&E, PE and SoCalGas remain outstanding.
Additional information on the business combination is discussed in
the Company's 1998 Annual Report.
Expenses incurred in connection with the business combination were
$0.3 million, after tax, and $0.5 million, after tax, for the three-
month periods ended March 31, 1999 and 1998, respectively. These
costs consisted primarily of employee-related costs, and investment
banking, legal, regulatory and consulting fees.
KN Energy
On February 22, 1999, Sempra Energy and KN Energy, Inc. (KN Energy)
announced that their respective boards of directors had approved
Sempra Energy's acquisition of KN Energy, subject to approval by the
shareholders of both companies and by various federal and state
regulatory agencies. If the transaction is approved, holders of KN
Energy common stock will receive 1.115 shares of Sempra Energy common
stock or $25 in cash, or some combination thereof, for each share of
KN Energy common stock. In the aggregate, the cash portion of the
transaction will constitute not more than 30 percent of the total
consideration. The transaction will be treated as a purchase for
accounting purposes. On March 30, 1999, Sempra Energy was notified
that the U.S. Federal Trade Commission had granted the Company's
request for early clearance under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, with respect to the proposed
merger.
3. MATERIAL CONTINGENCIES
NATURAL GAS INDUSTRY RESTRUCTURING
The natural gas industry experienced an initial phase of
restructuring during the 1980s by deregulating natural gas sales to
noncore customers. On January 21, 1998, the CPUC released a staff
report initiating a project to assess the current market and
regulatory framework for California's natural gas industry. The
general goals of the plan are to consider reforms to the current
regulatory framework emphasizing market-oriented policies benefiting
California's natural gas consumers.
In August 1998, California enacted a law prohibiting the CPUC from
enacting any natural gas industry restructuring decision for core
customers prior to January 1, 2000; the CPUC continues to study the
issue. During the implementation moratorium, the CPUC will hold
hearings throughout the state and intends to give the legislature a
draft ruling before adopting a final market-structure policy. SDG&E
and SoCalGas will actively participate in this effort.
4. COMPREHENSIVE INCOME
In conformity with generally accepted accounting principles, the
Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." Comprehensive income for the
three-month periods ended March 31, 1999 and 1998 was equal to net
income.
5. SEGMENT INFORMATION
The Company has two separately managed reportable segments: natural
gas distribution and natural gas transmission/storage. The accounting
policies of the segments are the same as those described in the notes
to Consolidated Financial Statements in the Company's 1998 Annual
Report, and segment performance is evaluated by management based on
reported operating income. Intersegment transactions are generally
recorded the same as sales or transactions with third parties.
Interest expense and income tax expense are not allocated to the
reportable segments. Interest revenue is included in other income on
the Statements of Consolidated Income herein. It is not allocated to
the reportable segments. There were no significant changes in segment
assets for the three months ended March 31, 1999.
- --------------------------------------------------------------
Three months ended
March 31,
----------------------------
(Dollars in millions) 1999 1998
- --------------------------------------------------------------
Revenues:
Distribution $ 517 $ 555
Transmission and storage 102 112
Other (12) (3)
-----------------------
Total $ 607 $ 664
-----------------------
Segment Income:
Distribution $ 109 $ 91
Transmission and storage 12 20
All other (11) (2)
-----------------------
Total segment income 110 109
Interest expense (21) (22)
Income tax expense (39) (40)
Nonoperating income (expense) (3) 1
-----------------------
Net income $ 47 $ 48
-----------------------
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements contained in this Form 10-Q and Management's
Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's 1998 Annual Report.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. The words "estimates," "believes," "expects,"
"anticipates," "plans" and "intends," variations of such words, and
similar expressions are intended to identify forward-looking
statements that involve risks and uncertainties which could cause
actual results to differ materially from those anticipated.
These statements are necessarily based upon various assumptions
involving judgments with respect to the future including, among
others, local, regional, national and international economic,
competitive, political and regulatory conditions and developments;
technological developments; capital market conditions; inflation
rates; interest rates; energy markets; weather conditions; business,
regulatory or legal decisions; the pace of deregulation of retail
natural gas and electricity industries; the timing and success of
business development efforts; and other uncertainties, all of which
are difficult to predict and many of which are beyond the control of
the Company. Accordingly, while the Company believes that the
assumptions are reasonable, there can be no assurance that they will
approximate actual experience, or that the expectations will be
realized. Readers are urged to review and consider carefully the
risks, uncertainties and other factors which affect the Company's
business described in this quarterly report and other reports filed
by the Company from time to time with the Securities and Exchange
Commission. Readers are cautioned not to put undue reliance on any
forward-looking statements. For those statements, the Company claims
the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.
BUSINESS COMBINATIONS
See Note 2 of the notes to Consolidated Financial Statements
regarding the PE/Enova business combination and the KN Energy
proposed merger.
CAPITAL RESOURCES AND LIQUIDITY
The Company's utility operations continue to be a major source of
liquidity. In addition, working capital requirements are met through
the issuance of short-term and long-term debt. These capital
resources are expected to remain available. Cash requirements
primarily include utility capital expenditures and repayments and
retirements of long-term debt. Major changes in cash flows not
described elsewhere are described below. Cash and cash equivalents at
March 31, 1999 are available for investment in utility plant, the
retirement of debt, and other corporate purposes.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows from operations decreased primarily due to payments on
behalf of affiliated companies and a decrease in collections on
regulatory balancing accounts compared to 1998. Overcollected
balancing accounts payable increased in 1999 and undercollected
balancing accounts receivable decreased in 1998 due to actual natural
gas costs' being lower than amounts collected in rates for both
periods.
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures for property, plant and equipment are estimated
to be $170 million for the full year 1999 and will be financed
primarily by internally generated funds. These expenditures will
largely represent investment in rate base. Construction, investment
and financing programs are continuously reviewed and revised in
response to changes in competition, customer growth, inflation,
customer rates, the cost of capital, and environmental and regulatory
requirements.
CASH FLOWS FROM FINANCING ACTIVITIES
On February 2, 1998, the Company redeemed all outstanding shares of
7-3/4% Series Preferred Stock for a total cost of $76 million,
including unpaid dividends.
RESULTS OF OPERATIONS
The table below summarizes the components of natural gas volumes and
revenues by customer class for the three months ended March 31, 1999 and
1998.
Gas Sales, Transportation & Exchange
(Dollars in millions, volumes in billion cubic feet)
Gas Sales Transportation & Exchange Total
--------------------------------------------------------------
Throughput Revenue Throughput Revenue Throughput Revenue
--------------------------------------------------------------
1999:
Residential 100 $ 619 1 $ 1 101 $ 620
Commercial and industrial 25 144 77 62 102 206
Utility electric generation* 16 7 16 7
Wholesale 45 16 45 16
--------------------------------------------------------------
125 $ 763 139 $ 86 264 849
Balancing accounts and other (242)
--------
Total $ 607
- -----------------------------------------------------------------------------------------
1998:
Residential 96 $ 710 1 $ 4 97 $ 714
Commercial and industrial 24 153 81 66 105 219
Utility electric generation* 23 11 23 11
Wholesale 43 13 43 13
--------------------------------------------------------------
120 $ 863 148 $ 94 268 957
Balancing accounts and other (293)
--------
Total $ 664
- -----------------------------------------------------------------------------------------
* The portion representing SDG&E's sales for electric generation includes
margin only.
Natural gas revenues decreased 9 percent for the three-month period
ended March 31, 1999, compared to the same period in 1998. The
decrease was primarily due to a decrease in the average cost of
natural gas and lower utility electric generating sales, partially
offset by a slight increase in sales to residential customers due to
customer growth and colder weather in 1999.
Cost of natural gas distributed decreased 15 percent for the three-
month period ended March 31, 1999 compared to the same period in
1998. The decrease was primarily due to a decrease in the average
cost of natural gas purchased and lower utility electric generating
sales. Under the current regulatory framework, changes in revenue
resulting from core market changes in volumes and the cost of natural
gas do not affect net income.
Operating expenses decreased 6 percent for the three-month period
ended March 31, 1999 compared to the same period in 1998 due to a
continuing emphasis on reducing operating costs to remain competitive
in the marketplace.
YEAR 2000 ISSUES
Most companies are affected by the inability of many automated
systems and applications to process the year 2000 and beyond. The
Year 2000 issues are the result of computer programs and other
automated processes using two digits to identify a year, rather than
four digits. Any of the Company's computer programs that include
date-sensitive software may recognize a date using "00" as
representing the year 1900, instead of the year 2000, or "01" as
1901, etc., which could lead to system malfunctions. The Year 2000
issue impacts both Information Technology ("IT") systems and also
non-IT systems, including systems incorporating embedded processors.
To address this problem, in 1996, both Pacific Enterprises and Enova
Corporation established company-wide Year 2000 programs. These
programs have now been consolidated into Sempra Energy's overall Year
2000 readiness effort. Sempra Energy has established a central Year
2000 Program Office, which reports to the Company's Chief Information
Technology Officer and reports periodically to the audit committee of
the Board of Directors.
The Company's State of Readiness
Sempra Energy has identified all IT and non-IT systems (including
embedded systems) that might not be Year 2000 ready and categorizing
them in the following areas: IT applications, computer hardware and
software infrastructure, telecommunications, embedded systems, and
third parties. The Company evaluated its exposure in all of these
areas. These systems and applications are being tracked and measured
through four key phases: inventory, assessment, remediation/testing,
and Year 2000 readiness. The Company has prioritized so that, when
possible, critical systems are being assessed and modified/replaced
first. Critical systems are those applications and systems, including
embedded processor technology, which, if not appropriately
remediated, may have a significant impact on energy delivery, revenue
collection or the safety of personnel, customers or facilities. The
Company's Year 2000 testing effort includes functional testing of
Year 2000 dates and validating that changes have not altered existing
functionality. The Company uses an independent, internal review
process to verify that the appropriate testing has occurred.
The Company's Year 2000 project is currently on schedule and the
company estimates that all critical systems will be Year 2000 Ready
by June 30, 1999. The Company defines "Year 2000 Ready" as suitable
for continued use into the year 2000 with no significant operational
problems.
Sempra Energy's current schedule for Year 2000 testing, readiness and
development of contingency plans is subject to change depending upon
the remediation and testing phases of the Company's compliance effort
and upon developments that may arise as the Company continues to
assess its computer-based systems and operations. In addition, this
schedule is dependent upon the efforts of third parties, such as
suppliers (including energy producers) and customers. Accordingly,
delays by third parties may cause the Company's schedule to change.
The Costs to Address the Company's Year 2000 Issues
Sempra Energy's budget for the Year 2000 program is $48 million, of
which $40 million has been spent. As the Company continues to assess
its systems and as the remediation and testing efforts progress, cost
estimates may change. The Company's Year 2000 readiness effort is
being funded entirely by operating cash flows.
The Risks of the Company's Year 2000 Issues
Based upon its current assessment and testing of the Year 2000 issue,
the Company believes the reasonably likely worst case Year 2000
scenarios to have the following impacts upon Sempra Energy and its
operations. With respect to the Company's ability to provide energy
to its domestic utility customers, the Company believes that the
reasonably likely worst case scenario is for small, localized
interruptions of utility service which are restored in a time frame
that is within normal service levels. With respect to services that
are essential to Sempra Energy's operations, such as customer
service, business operations, supplies and emergency response
capabilities, the scenario is for minor disruptions of essential
services with rapid recovery and all essential information and
processes ultimately recovered.
To assist in preparing for and mitigating these possible scenarios,
Sempra Energy is a member of several industry-wide efforts
established to deal with Year 2000 problems affecting embedded
systems and equipment used by the nation's natural gas and electric
power companies. Under these efforts, participating utilities are
working together to assess specific vendors' system problems and to
test plans. These assessments will be shared by the industry as a
whole to facilitate Year 2000 problem solving.
A portion of this risk is due to the various Year 2000 Ready
schedules of critical third party suppliers and customers. The
Company continues to contact its critical suppliers and customers to
survey their Year 2000 remediation programs. While risks related to
the lack of Year 2000 readiness by third parties could materially and
adversely affect the Company's business, results of operations and
financial condition, the Company expects its Year 2000 readiness
efforts to reduce significantly the Company's level of uncertainty
about the impact of third party Year 2000 issues on both its IT
systems and its non-IT systems.
The Company's Contingency Plans
Sempra Energy's contingency plans for Year-2000-related interruptions
are being incorporated in the Company's existing overall emergency
preparedness plans. To the extent appropriate, such plans will
include emergency backup and recovery procedures, remediation of
existing systems parallel with installation of new systems, replacing
electronic applications with manual processes, identification of
alternate suppliers and increasing inventory levels. These
contingency plans are well underway and the Company plans to be
completed by June 30, 1999. Due to the speculative and uncertain
nature of contingency planning, there can be no assurances that such
plans actually will be sufficient to reduce the risk of material
impacts on the Company's operations due to Year 2000 issues.
FACTORS INFLUENCING FUTURE PERFORMANCE
Because of the ratemaking and regulatory process, electric and
natural gas industry restructuring, and the changing energy
marketplace, there are several factors that will influence the
Company's future financial performance. These factors are discussed
below.
KN Energy Acquisition
See discussion of the KN Energy acquisition in Note 2 of the notes to
Consolidated Financial Statements.
Industry Restructuring
See discussion of industry restructuring in Note 3 of the notes to
Consolidated Financial Statements.
Performance-Based Regulation (PBR)
To promote efficient operations and improved productivity and to move
away from reasonableness reviews and disallowances, the CPUC has been
directing utilities to use PBR. PBR has replaced the general rate
case and certain other regulatory proceedings for both SoCalGas and
SDG&E. Under PBR, regulators require future income potential to be
tied to achieving or exceeding specific performance and productivity
goals, as well as cost reductions, rather than relying solely on
expanding utility rate base in a market where a utility already has a
highly developed infrastructure.
SoCalGas' PBR is in effect through December 31, 2002; however, the
CPUC decision allows for the possibility that changes to the PBR
mechanism could be adopted in a decision to be issued in SoCalGas'
1999 Biennial Cost Allocation Proceeding (BCAP) application which is
anticipated to become effective at year-end 1999.
Cost of Capital
Under PBR, annual Cost of Capital proceedings were replaced by an
automatic adjustment mechanism if changes in certain indices exceed
established tolerances. For 1999, SoCalGas is authorized to earn a
rate of return on common equity (ROE) of 11.6 percent and a 9.49
percent return on rate base (ROR), unchanged from 1998.
Annual Earnings Assessment Proceeding
An application was filed in May 1999 to recover shareholder rewards
for the Demand Side Management (DSM) programs and incentives earned
for its energy-efficiency and low-income programs totaling $5
million. The revenue requirement increase is proposed to become
effective on January 1, 2000. The DSM rewards and low-income program
incentives will be collected and recorded in earnings over ten years.
The energy-efficiency program incentives are recovered in one year.
Rewards and incentives for these programs are subject to CPUC
approval.
The CPUC has extended interim utility administration of energy-
efficiency and low-income programs through December 31, 2001.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except for the matters referred to in the Company's 1998 Annual
Report or referred to elsewhere in this Quarterly Report on Form 10-Q
for the three months ended March 31, 1999, neither the Company nor
any of its affiliates is a party to, nor is its property the subject
of, any material pending legal proceedings other than routine
litigation incidental to its businesses.
ITEM 4. SUBMISSION OF MATTERS TO VOTE
At the annual meeting on May 11, 1999, the Company's shareholders
elected 15 directors to hold office until the next annual meeting and
until their successors have been elected and qualified. The name of
each nominee and the number of shares voted for or withheld were as
follows:
Nominees Votes For Votes Withheld
- -------------------------------------------------------------------
Hyla H. Bertea 91,350,677 --
Ann L. Burr 91,350,677 --
Herbert L. Carter 91,350,677 --
Richard A. Collato 91,350,677 --
Daniel W. Derbes 91,350,677 --
Wilford D. Godbold, Jr. 91,350,677 --
Robert H. Goldsmith 91,350,677 --
William D. Jones 91,350,677 --
Ignacio E. Lozano, Jr. 91,350,677 --
Warren I. Mitchell 91,350,677 --
Ralph R. Ocampo 91,350,677 --
William G. Ouchi 91,350,677 --
Richard J. Stegemeier 91,350,677 --
Thomas C. Stickel 91,350,677 --
Diana L. Walker 91,350,677 --
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10 - Material Contracts - Compensation
10.1 Form of Sempra Energy Severance Pay Agreement
Exhibit 27 - Financial Data Schedules
27.1 Financial Data Schedule for the three months ended
March 31, 1999.
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
SOUTHERN CALIFORNIA GAS COMPANY
-------------------------------
(Registrant)
By: /s/ Warren Mitchell
Date: May 14, 1999 ---------------------------
Warren Mitchell
Chairman and President
12
15
UT
EXHIBIT 10.1
SEMPRA ENERGY
SEVERANCE PAY AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of December 1, 1998 (the
"Effective Date") is made by and between SEMPRA ENERGY, a California
corporation, and __________________ (the "Executive").
WHEREAS, the Executive is currently employed by Sempra Energy or a
subsidiary of Sempra Energy (Sempra Energy and its subsidiaries are
hereinafter collectively referred to as the "Company") as ______
(Title); and
WHEREAS, the Board of Directors of Sempra Energy (the "Board") has
determined that it is in the best interests of the Company to
institute formalized severance arrangements for certain of the
executives of the Company, including the Executive.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the Company and the Executive hereby agree as
follows:
Section 1. Definitions. For purposes of this Agreement, the
following capitalized terms have the meanings set forth below:
"Affiliate" has the meaning ascribed to such term in Rule 12b-2
promulgated under the Exchange Act.
"Beneficial Owner" has the meaning set forth in Rule 13d-3 under the
Exchange Act.
"Cause" means (i) the willful and continued failure by the Executive
to substantially perform the Executive's duties with the Company
(other than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination for
Good Reason by the Executive pursuant to Section 2 hereof), or (ii)
the Executive's commission of one or more acts of moral turpitude
that constitute a violation of applicable law (including but not
limited to a felony) which have or result in an adverse effect on the
Company, monetarily or otherwise, or one or more significant acts of
dishonesty. For purposes of clause (i) of this definition, no act,
or failure to act, on the Executive's part shall be deemed "willful"
unless done, or omitted to be done, by the Executive not in good
faith and without reasonable belief that the Executive's act, or
failure to act, was in the best interests of the Company.
Notwithstanding the foregoing, the Executive shall not be deemed
terminated for Cause pursuant to clause (i) of this definition unless
and until the Executive shall have been provided with reasonable
notice of and, if possible, a reasonable opportunity to cure the
facts and circumstances claimed to provide a basis for termination of
the Executive's employment for Cause.
A "Change in Control" of Sempra Energy shall be deemed to have
occurred when:
(a) Any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of Sempra Energy representing twenty
percent (20%) or more of the combined voting power of Sempra Energy's
then outstanding securities; or
(b) The following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on
the Effective Date, constitute the Board and any new director (other
than a director whose initial assumption of office is in connection
with an actual or threatened election contest, including, but not
limited to, a consent solicitation, relating to the election of
directors of Sempra Energy) whose appointment or election by the
Board or nomination for election by Sempra Energy's shareholders was
approved or recommended by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors on the date
hereof or whose appointment, election or nomination for election was
previously so approved or recommended; or
(c) There is consummated a merger or consolidation of Sempra Energy
or any direct or indirect subsidiary of Sempra Energy with any other
corporation, other than (A) a merger or consolidation which would
result in the voting securities of Sempra Energy outstanding
immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of Sempra Energy or
any subsidiary of Sempra Energy, at least sixty percent (60%) of the
combined voting power of the securities of Sempra Energy or such
surviving entity or any parent thereof outstanding immediately after
such merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of Sempra Energy (or similar
transaction) in which no Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of Sempra Energy (not including
in the securities beneficially owned by such Person any securities
acquired directly from Sempra Energy or its affiliates other than in
connection with the acquisition by Sempra Energy or its affiliates of
a business) representing twenty percent (20%) or more of the combined
voting power of Sempra Energy's then outstanding securities; or
(d) The shareholders of Sempra Energy approve a plan of complete
liquidation or dissolution of Sempra Energy or there is consummated
an agreement for the sale or disposition by Sempra Energy of all or
substantially all of Sempra Energy's assets, other than a sale or
disposition by Sempra Energy of all or substantially all of Sempra
Energy's assets to an entity, at least sixty percent (60%) of the
combined voting power of the voting securities of which are owned by
shareholders of Sempra Energy in substantially the same proportions
as their ownership of Sempra Energy immediately prior to such sale.
"Change in Control Date" means the date on which a Change in Control
occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
"Date of Termination" has the meaning assigned thereto in Section 2
hereof.
"Disability" has the meaning set forth in the SERP (as defined
below), as in effect from time to time; provided, however, that in no
event shall the Executive be deemed to have incurred a Disability
hereunder if there exists a reasonable expectation that the Executive
will return to work on a full-time basis within ninety (90) days of
the events giving rise to the Disability.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the applicable rulings and regulations thereunder.
"Good Reason" means:
(a) Prior to a Change in Control, the occurrence of any of the
following without the prior written consent of the Executive, unless
such act or failure to act is corrected prior to the Date of
Termination specified in the Notice of Termination (as discussed in
Section 2 below):
(I) the assignment to the Executive of any duties materially
inconsistent with the range of duties and responsibilities
appropriate to a senior executive within the Company (such range
determined by reference to past, current and reasonable practices
within the Company);
(ii) a material reduction in the Executive's overall standing and
responsibilities within the Company, but not including (A) a mere
change in title, or (B) a transfer within Company, which, in the case
of both (A) and (B), does not adversely affect the Executive's
overall status within the Company;
(iii) a material reduction by the Company in the Executive's
aggregate annualized compensation and benefits opportunities, except
for across-the-board reductions (or modifications of benefit plans)
similarly affecting all similarly situated executives (both of the
Company and of any Person then in control of the Company) of
comparable rank with the Executive;
(iv) the failure by the Company to pay to the Executive any portion
of the Executive's current compensation and benefits or any portion
of an installment of deferred compensation under any deferred
compensation program of the Company within thirty (30) days of the
date such compensation is due;
(v) any purported termination of the Executive's employment that is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 2 hereof; for purposes of this Agreement, no
such purported termination shall be effective;
(vi) the failure by the Company to obtain a satisfactory agreement
from any successor of the Company requiring such successor to assume
and agree to perform the Company's obligations under this Agreement,
as contemplated in Section 8(a) hereof; or
(vii) the failure by the Company to comply with any material
provision of this Agreement.
(b) From and after a Change in Control, the occurrence of any of
the following without the prior written consent of the Executive,
unless such act or failure to act is corrected prior to the Date of
Termination specified in the Notice of Termination (as discussed in
Section 2 below):
(I) an adverse change in the Executive's title, authority, duties,
responsibilities or reporting lines as in effect immediately prior to
the Change in Control;
(ii) a reduction of ten percent (10%) or more by the Company in the
Executive's aggregate annualized compensation and benefits
opportunities, except for across-the-board reductions (or
modifications of benefit plans) of less than ten percent (10%)
similarly affecting all similarly situated executives (both of the
Company and of any Person then in control of the Company) of
comparable rank with the Executive;
(iii) the relocation of the Executive's principal place of employment
immediately prior to the Change in Control Date (the "Principal
Location") to a location which is both further away from Executive's
residence and more than thirty (30) miles from such Principal
Location, or the Company's requiring the Executive to be based
anywhere other than such Principal Location (or permitted relocation
thereof), or a substantial increase in the Executive's business
travel obligations outside of the Southern California area as of the
Effective Date other than any such increase that (A) arises in
connection with extraordinary business activities of the Company and
(B) is understood not to be part of the Executive's regular duties
with the Company;
(iv) the failure by the Company to pay to the Executive any portion
of the Executive's current compensation and benefits or any portion
of an installment of deferred compensation under any deferred
compensation program of the Company within thirty (30) days of the
date such compensation is due;
(v) any purported termination of the Executive's employment that is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 2 hereof; for purposes of this Agreement, no
such purported termination shall be effective;
(vi) the failure by the Company to obtain a satisfactory agreement
from any successor of the Company requiring such successor to assume
and agree to perform the Company's obligations under this Agreement,
as contemplated in Section 8(a) hereof; or
(vii) the failure by the Company to comply with any material
provision of this Agreement.
From and after a Change in Control, the Executive's determination
that an act or failure to act constitutes Good Reason shall be
presumed to be valid unless such determination is deemed to be
unreasonable by an arbitrator. The Executive's right to terminate
the Executive's employment for Good Reason shall not be affected by
the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or
a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
"Involuntary Termination" means (a) a termination of employment by
the Company other than for Cause, death, or Disability, or (b) the
Executive's resignation of employment with the Company for Good
Reason; provided, however, that, except as provided in the last
paragraph of Section 4, a termination of the Executive's employment
by reason of his or her retirement prior to a Change in Control shall
not constitute an Involuntary Termination hereunder.
"Notice of Termination" has the meaning assigned thereto in Section 2
hereof.
"Person" means any person, entity or "group" within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, except that
such term shall not include (i) the Company or any of its Affiliates,
(ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii)
an underwriter temporarily holding securities pursuant to an offering
of such securities, (iv) a corporation owned, directly or indirectly,
by the shareholders of Sempra Energy in substantially the same
proportions as their ownership of stock of Sempra Energy, or (v) a
person or group as used in Rule 13d-1(b) under the Exchange Act.
Section 2. Date and Notice of Termination. Any termination of the
Executive's employment by the Company or by the Executive shall be
communicated by a written notice of termination to the other party
(the "Notice of Termination"). Where applicable, the Notice of
Termination shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated. The
date of the Executive's termination of employment with the Company
(the "Date of Termination") shall be determined as follows: (i) if
the Executive's employment is terminated by the Company, either with
or without Cause, the Date of Termination shall be the date specified
in the Notice of Termination (which, in the case of a termination by
the Company other than for Cause, shall not be less than two (2)
weeks from the date such Notice of Termination is given unless the
Company elects to pay the Executive, in addition to any other amounts
payable hereunder, an amount equal to two (2) weeks of the
Executive's base salary in effect on the Date of Termination), and
(ii) if the basis for the Executive's Involuntary Termination is his
or her resignation for Good Reason, the Date of Termination shall be
determined by the Company, but shall not in any event be less than
fifteen (15) days nor more than sixty (60) days from the date such
Notice of Termination is given. Unless the Board determines
otherwise, notice by Executive of his or her resignation for Good
Reason must be made within 180 days of the act or failure to act the
Executive alleges to constitute Good Reason.
Section 3. Severance Benefits Prior to Change in Control. Except as
provided in Section 4 and Section 12(g) hereof, in the event of the
Involuntary Termination of the Executive, the Company shall pay the
Executive, in one lump sum cash payment as soon as practicable
following such Involuntary Termination, (A) the full amount of any
earned but unpaid base salary through the Date of Termination at the
rate in effect on such date, plus (B) an amount (the "Severance
Payment") equal to the sum of (X) the Executive's annual base salary
as in effect on the Date of Termination and (Y) his or her average
annual bonus payment for the two years immediately preceding the Date
of Termination (or in the event that the Executive has not been
employed for two years, then his target bonus for the year in which
the termination occurs). In addition to the Severance Payment, the
Executive shall be entitled to the following additional benefits:
(I) Equity Based Compensation. The Executive shall retain all
rights to any equity-based compensation awards to the extent set
forth in the applicable plan and/or award agreement.
(ii) Welfare Benefits. Subject to Section 6 below, for a period of
______ following the Date of Termination, the Executive and his or
her dependents shall be provided with health insurance benefits
substantially similar to those provided to the Executive and his or
her dependents immediately prior to the Date of Termination;
provided, however, that such benefits shall be provided on
substantially the same terms and conditions and at the same cost to
the Executive as in effect immediately prior to the Date of
Termination.
(iii) Outplacement Services. The Executive shall receive
outplacement services suitable to his or her position for a period of
eighteen (18) months following the Date of Termination, or if
earlier, until the first acceptance of an offer of employment with a
subsequent employer, in an aggregate amount not to exceed $50,000.
(iv) Financial Planning Services. The Executive shall receive
financial planning services for a period of eighteen (18) months
following the Date of Termination at a level consistent with the
benefits provided under the Company's financial planning program for
the Executive, as in effect immediately prior to the Date of
Termination.
Section 4. Severance Benefits in Connection with and After Change in
Control. Notwithstanding the provisions of Section 3 above, in the
event of the Involuntary Termination of the Executive within two
years following a Change in Control, in lieu of the payments
described in Section 3 above, the Company shall pay the Executive, in
one lump sum cash payment as soon as practicable following such
Involuntary Termination, (A) the full amount of any earned but unpaid
base salary through the Date of Termination at the rate in effect on
such date, plus (B) an amount (the "Change in Control Severance
Payment") equal to ____ the sum of (X) the Executive's annual base
salary as in effect immediately prior to the Change in Control or the
Date of Termination, whichever is greater, and (Y) his or her average
annual bonus payment for the two years immediately preceding the
Change in Control Date or the Date of Termination, whichever is
greater (or in the event that the Executive has not been employed for
two years, then his target bonus for the year in which the Change in
Control or in which the termination occurs, whichever is greater).
In addition to the Change in Control Severance Payment, the Executive
shall be entitled to the following additional benefits:
(I) Equity-Based Compensation. Notwithstanding the provisions of
any applicable equity-compensation plan or award agreement to the
contrary, all equity-based incentive compensation awards (including,
without limitation, stock options, stock appreciation rights,
restricted stock awards, restricted stock units, performance share
awards, section 162(m) awards, and dividend equivalents) held by the
Executive under any annual incentive compensation plan or long-term
incentive compensation plan maintained by the Company shall
immediately vest and become exercisable or payable, as the case may
be, as of the Date of Termination, to be exercised or paid, as the
case may be, in accordance with the terms of the applicable plan and
award agreement, and any restrictions on any such awards shall
automatically lapse; provided, however, that any such awards granted
on or after the Effective Date shall remain outstanding and
exercisable until the earlier of (A) eighteen (18) months following
the Date of Termination or (B) the expiration of the original term of
such award (it being understood that all awards granted prior to the
Effective Date shall remain outstanding and exercisable for a period
that is no less than that provided for in the applicable agreement in
effect as of the date of grant).
(ii) SERP. The Executive shall receive a lump sum cash payment
representing the present value as of the Date of Termination of his
or her Supplemental Executive Retirement Plan ("SERP") benefits, to
be calculated as if the Executive had reached age 62 (or his or her
actual age if older) for service and vesting purposes, and applying
either the applicable early retirement factors under the Company's
tax-qualified retirement plan, if the Executive is less than age 62
but at least 55, or actuarially determined early retirement factors
if the Executive is less than age 55 and the applicable lump-sum
factors under the Company's tax-qualified retirement plan.
(iii) Welfare Benefits. Subject to Section 6 below, for a period of
_____ months following the Date of Termination, the Executive and his
or her dependents shall be provided with life, disability, accident
and health insurance benefits substantially similar to those provided
to the Executive and his or her dependents immediately prior to the
Date of Termination or the Change in Control Date, whichever is more
favorable to the Executive; provided, however, that such benefits
shall be provided on substantially the same terms and conditions and
at the same cost to the Executive as in effect immediately prior to
the Date of Termination or the Change in Control Date, whichever is
more favorable to the Executive.
(iv) Outplacement Services. The Executive shall receive
outplacement services suitable to his or her position for a period of
eighteen (18) months following the Date of Termination, or if
earlier, until the first acceptance of an offer of employment with a
subsequent employer, in an aggregate amount not to exceed $50,000.
(v) Financial Planning Services. The Executive shall receive
financial planning services for a period of eighteen (18) months
following the Date of Termination at a level consistent with the
benefits provided under the Company's financial planning program for
the Executive, as in effect immediately prior to the Date of
Termination or the Change in Control Date, whichever is more
favorable to the Executive.
(vi) Deferred Compensation. Notwithstanding any election heretofore
or hereafter made by the Executive under any deferred compensation
plan of the Company, the Executive shall receive a lump sum cash
payment in an amount equal to any compensation previously deferred by
the Executive (together with any accrued interest or earnings
thereon) under any deferred compensation plan of the Company.
Notwithstanding anything contained herein, if a Change in Control
occurs and the Executive's employment with the Company is terminated
by reason of an Involuntary Termination prior to the Change in
Control Date, and if such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated to
effect the Change in Control or (ii) otherwise arose in connection
with or in anticipation of the Change in Control, then the Executive
shall, in lieu of the payments described in Section 3 above, be
entitled to the Change in Control Severance Payment and the
additional benefits described in this Section 4 as if such
Involuntary Termination had occurred within two years following the
Change in Control.
Section 5. Release. Notwithstanding anything herein to the
contrary, the Company's obligation to make the payments provided for
in this Agreement is expressly made subject to and conditioned upon
(i) the Executive's prior execution of a release substantially in the
form attached hereto as Exhibit A within forty-five (45) days after
the applicable Date of Termination and (ii) the Executive's non-
revocation of such release in accordance with the terms thereof.
Section 6. No Mitigation or Offset.
(a) No Mitigation by Executive. Except as otherwise expressly
provided herein, the Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided
for herein be reduced by any compensation earned by the Executive as
the result of employment by another employer; provided, however, that
if the Executive becomes employed with another employer and is
eligible to receive life, disability, accident and health insurance
benefits under another employer-provided plan, the Executive's
continued plan coverage as set forth in Section 3(ii) or 4(iii)
hereof, as the case may be, shall be secondary to the coverage
provided under such other plan(s) during such applicable period of
eligibility.
(b) No Offset by Company. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive or others, provided
that nothing herein shall preclude the Company from separately
pursuing recovery from the Executive based on any such claim.
Section 7. Section 280G
(a) Gross-Up. Notwithstanding any other provisions of this
Agreement, in the event that any payment or benefit received or to be
received by the Executive (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with (A) the
Company, (B) any Person whose actions result in a Change in Control
or (C) any Person affiliated with the Company or such Person) (all
such payments and benefits, including the Change in Control Severance
Payments, being hereinafter called the "Total Payments") would be
subject (in whole or part) to the tax (the "Excise Tax") imposed
under section 4999 of the Code, the Company shall pay to the
Executive such additional amounts (the "Gross-Up Payment") such that
the net amount retained by the Executive, after deduction of any
Excise Tax on the Total Payments and any federal, state and local
income and employment taxes and Excise Tax upon the Gross-Up Payment,
shall be equal to the Total Payments. For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income tax at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on
the date on which the Gross-Up Payment is calculated for purposes of
this section, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes.
In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder, the Executive
shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the
Gross-Up Payment attributable to such reduction (plus that portion of
the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income tax imposed on the Gross-Up Payment being
repaid by the Executive to the extent that such repayment results in
a reduction in Excise Tax and/or a federal, state or local income tax
deduction) plus interest on the amount of such repayment at the rate
provided in section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into account
hereunder (including by reason of any payment the existence or amount
of which cannot be determined at the time of the Gross-Up Payment),
the Company shall make an additional Gross-Up Payment in respect of
such excess (plus any interest, penalties or additions payable by the
Executive with respect to such excess) at the time that the amount of
such excess is finally determined. The Executive and the Company
shall each reasonably cooperate with the other in connection with any
administrative or judicial proceedings concerning the existence or
amount of liability for Excise Tax with respect to the Total
Payments.
(b) Accounting Firm. All determinations to be made with respect to
this Section 7 shall be made by the Company's independent accounting
firm (or, in the case of a payment following a Change in Control, the
accounting firm that was, immediately prior to the Change in Control,
the Company's independent auditor). The accounting firm shall be
paid by the Company for its services performed hereunder.
Section 8. Successors; Binding Agreement.
(a) Assumption by Successor. Sempra Energy will require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business or assets of Sempra Energy expressly to assume and to agree
to perform its obligations under this Agreement in the same manner
and to the same extent that Sempra Energy would be required to
perform such obligations if no such succession had taken place;
provided, however, that no such assumption shall relieve Sempra
Energy of its obligations hereunder. As used herein, the "Company"
shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid that assumes and agrees to
perform its obligations by operation of law or otherwise.
(b) Enforceability; Beneficiaries. This Agreement shall be binding
upon and inure to the benefit of the Executive (and the Executive's
personal representatives and heirs) and the Company and any
organization which succeeds to substantially all of the business or
assets of Sempra Energy, whether by means of merger, consolidation,
acquisition of all or substantially all of the assets of Sempra
Energy or otherwise, including, without limitation, as a result of a
Change in Control or by operation of law. This Agreement shall inure
to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die
while any amount would still be payable to such Executive hereunder
if he or she had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms
of this Agreement to his or her devisee, legatee or other designee
or, if there is no such designee, to his or her estate.
Section 9. Confidentiality; Non Solicitation.
(a) Confidentiality. The Executive acknowledges that in the course
of his or her employment within the Company, he or she has acquired
non-public privileged or confidential information and trade secrets
concerning the operations, future plans and methods of doing business
("Proprietary Information") of the Company; and the Executive agrees
that it would be extremely damaging to the Company if such
Proprietary Information were disclosed to a competitor of the Company
or to any other person or corporation. The Executive understands and
agrees that all Proprietary Information the Executive has acquired
during the course of such employment has been divulged to the
Executive in confidence and further understands and agrees to keep
all Proprietary Information secret and confidential (except for such
information which is or becomes publicly available other than as a
result of a breach by the Executive of this provision) without
limitation in time. In view of the nature of the Executive's
employment and the Proprietary Information the Executive has acquired
during the course of such employment, the Executive likewise agrees
that the Company would be irreparably harmed by any disclosure of
Proprietary Information in violation of the terms of this paragraph
and that the Company shall therefore be entitled to preliminary
and/or permanent injunctive relief prohibiting the Executive from
engaging in any activity or threatened activity in violation of the
terms of this paragraph and to any other judicial relief available to
it. Inquiries regarding whether specific information constitutes
Proprietary Information shall be directed to the Company's General
Counsel (or, if such position is vacant, the Company's Chief
Executive Officer); provided, however, that the Company shall not
unreasonably classify information as Proprietary Information.
(b) Non-Solicitation of Employees. The Executive recognizes that
he or she possesses and will possess confidential information about
other employees of the Company, relating to their education,
experience, skills, abilities, compensation and benefits, and
interpersonal relationships with customers of the Company. The
Executive recognizes that the information he or she possesses and
will possess about these other employees is not generally known, is
of substantial value to the Company in developing their business and
in securing and retaining customers, and has been and will be
acquired by him or her because of his or her business position within
the Company. The Executive agrees that for a period of one (1) year
following the Date of Termination, he or she will not, directly or
indirectly, solicit or recruit any employee of the Company for the
purpose of being employed by him or her or by any other competitor of
the Company on whose behalf he or she is acting as an agent,
representative or employee and that he or she will not convey any
such confidential information or trade secrets about other employees
of the Company to any other person; provided, however, that it shall
not constitute a solicitation or recruitment of employment in
violation of this paragraph to discuss employment opportunities with
any employee of the Company who has either first contacted the
Executive or regarding whose employment the Executive has discussed
with and received written approval of the Company's Senior Vice
President, Human Resources (or, if such position is vacant, the
Company's Chief Executive Officer), prior to making such solicitation
or recruitment. In view of the nature of the Executive's employment
with the Company, the Executive likewise agrees that the Company
would be irreparably harmed by any solicitation or recruitment in
violation of the terms of this paragraph and that the Company shall
therefore be entitled to preliminary and/or permanent injunctive
relief prohibiting the Executive from engaging in any activity or
threatened activity in violation of the terms of this paragraph and
to any other judicial relief available to it.
(c) Survival of Provisions. The obligations contained in this
Section 9 shall survive the termination or expiration of the
Executive's employment within the Company and shall be fully
enforceable thereafter. If it is determined by a court of competent
jurisdiction in any state that any restriction in this Section 9 is
excessive in duration or scope or is unreasonable or unenforceable
under the laws of that state, it is the intention of the parties that
such restriction may be modified or amended by the court to render it
enforceable to the maximum extent permitted by the law of that state.
Section 10. Notices. For the purpose of this Agreement, notices and
all other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered or
mailed by United States registered mail, return receipt requested,
postage prepaid, addressed to Sempra Energy, 101 Ash Street, San
Diego, CA 92101, Attn: Human Resources Administrator, or to the
Executive at the address in the records of the Company, or to such
other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
Section 11. Administration Prior to Change in Control. Prior to a
Change in Control, the compensation committee of the Board (the
"Compensation Committee") shall have full and complete authority to
construe and interpret the provisions of this Agreement, to determine
an individual's entitlement to benefits under this Agreement, to make
in its sole and absolute discretion all determinations contemplated
under this Agreement, to investigate and make factual determinations
necessary or advisable to administer or implement this Agreement, and
to adopt such rules and procedures as it deems necessary or advisable
for the administration or implementation of this Agreement. All
determinations made under this Agreement by the Compensation
Committee shall be final and binding on all interested persons.
Prior to a Change in Control, the Compensation Committee may delegate
responsibilities for the operation and administration of this
Agreement to one or more officers or employees of the Company. The
provisions of this Section 11 shall terminate and be of no further
force and effect upon the occurrence of a Change in Control.
Section 12. Miscellaneous.
(a) No Right of Employment. Nothing in this Agreement shall be
construed as giving the Executive any right to be retained in the
employ of the Company or shall interfere in any way with the right of
the Company to terminate the Executive's employment at any time, with
or without Cause.
(b) Unfunded Obligation. The obligations under this Agreement
shall be unfunded. Benefits payable under this Agreement shall be
paid from the general assets of the Company. The Company shall have
no obligation to establish any fund or to set aside any assets to
provide benefits under this Agreement.
(c) Rules of Construction. As used herein, the masculine gender
shall be deemed to include the feminine and the singular form shall
be deemed to encompass the plural, unless the context requires
otherwise. Headings of sections (other than the definitions) are
included solely for convenience of reference and shall not govern or
control the meaning of the text of this Agreement. The invalidity or
unenforceability of any provision of this Agreement shall not affect
the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
(d) Tax Withholding. All amounts paid under this Agreement shall
be subject to all applicable federal, state and local wage and
employment tax withholding.
(e) Exclusive Benefit. The Severance Payment, the Change in
Control Severance Payment and all other benefits provided hereunder
shall be in lieu of any other severance payments to which the
Executive is entitled under any other severance plan or arrangement
sponsored by the Company, as well as pursuant to any individual
employment or severance agreement that was entered by the Executive
and the Company, and, upon the Effective Date of this Agreement, all
such plans, programs, agreements and arrangements are hereby
automatically superseded and terminated.
(f) Dispute Resolution. Any disagreement, dispute, controversy or
claim arising out of or relating to this Agreement or the
interpretation of this Agreement or any arrangements relating to this
Agreement or contemplated in this Agreement or the breach,
termination or invalidity thereof shall be settled by final and
binding arbitration administered by JAMS/Endispute in San Diego,
California in accordance with the then existing JAMS/Endispute
Arbitration Rules and Procedures for Employment Disputes. In the
event of such an arbitration proceeding, the Executive and the
Company shall select a mutually acceptable neutral arbitrator from
among the JAMS/Endispute panel of arbitrators. In the event the
Executive and the Company cannot agree on an arbitrator, the
Administrator of JAMS/Endispute will appoint an arbitrator. Neither
the Executive nor the Company nor the arbitrator shall disclose the
existence, content, or results of any arbitration hereunder without
the prior written consent of all parties. Except as provided herein,
the Federal Arbitration Act shall govern the interpretation,
enforcement and all proceedings. The arbitrator shall apply the
substantive law (and the law of remedies, if applicable) of the state
of California, or federal law, or both, as applicable and the
arbitrator is without jurisdiction to apply any different substantive
law. The arbitrator shall have the authority to entertain a motion
to dismiss and/or a motion for summary judgment by any party and
shall apply the standards governing such motions under the Federal
Rules of Civil Procedure. The arbitrator shall render an award and a
written, reasoned opinion in support thereof. Judgment upon the
award may be entered in any court having jurisdiction thereof. The
Executive and the Company shall generally each be responsible for
payment of one-half the amount of the arbitrator's fee; provided,
however, that the Company shall pay to the Executive all legal fees
and expenses (including but not limited to fees and expenses in
connection with any arbitration) incurred by the Executive in
disputing in good faith any issue arising under this Agreement
relating to the termination of the Executive's employment in
connection with a Change in Control or in seeking in good faith to
obtain or enforce any benefit or right provided by this Agreement on
account of a Change in Control unless the arbitrator or court
determines that the Executive had no reasonable basis for such claim.
(g) Amendment and Termination. No provision of this Agreement may
be amended or terminated unless it is agreed to in writing and signed
by both parties hereto. Notwithstanding anything contained herein,
this Agreement shall automatically terminate and be of no further
force and effect and no benefits shall be payable hereunder in the
event that the Company sells or otherwise disposes of any part of the
business or assets of Sempra Energy or a subsidiary of Sempra Energy
(other than such a sale or disposition which is part of a transaction
or series of transactions which would result in a Change in Control)
and as a result of such transaction, the Executive is no longer
employed by the Company or any of its Affiliates.
(h) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all
of which together shall constitute one and the same instrument.
(I) Governing Law. This Agreement shall be governed by the laws of
the State of California, without giving effect to conflicts of laws
principles thereof.
(j) Nonexclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation
in any benefit, plan, program, policy or practice provided by the
Company and for which the Executive may qualify (except with respect
to any benefit to which the Executive has waived his rights in
writing), nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any other contract or
agreement entered into after the Effective Date with the Company.
Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any benefit, plan, policy, practice or
program of, or any contract or agreement entered into with, the
Company shall be payable in accordance with such benefit, plan,
policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
SEMPRA ENERGY
By: ________________________
Richard D. Farman
Chairman & Chief Executive Officer
EXECUTIVE
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