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Southern California Gas Company
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PRELIMINARY COPY
LOGO
SOUTHERN CALIFORNIA GAS COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Southern California Gas Company will
be held on May 6, 1997 at 10:00 a.m., at The Gas Company Tower, 555 West Fifth
Street, Los Angeles, California, for the following purposes:
(1) To vote upon a bylaw amendment reducing the minimum and maximum
number of directors.
(2) To elect directors for the ensuing year.
(3) To transact any other business which may properly come before the
meeting.
Shareholders of record at the close of business on March 17, 1997 will be
entitled to notice of and to vote at the Annual Meeting.
ONLY SHAREHOLDERS OF THE COMPANY ARE ENTITLED TO ATTEND THE ANNUAL MEETING.
SHAREHOLDERS OF RECORD WILL BE ADMITTED UPON VERIFICATION OF RECORD SHARE
OWNERSHIP AT THE ADMISSION DESK. SHAREHOLDERS WHO OWN SHARES THROUGH BANKS,
BROKERAGE FIRMS, NOMINEES OR OTHER ACCOUNT CUSTODIANS, MUST PRESENT PROOF OF
BENEFICIAL SHARE OWNERSHIP (SUCH AS A BROKERAGE ACCOUNT STATEMENT) AT THE
ADMISSION DESK.
By Order of the Board of Directors
Thomas C. Sanger, Secretary
Los Angeles, California
March , 1997
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SOUTHERN CALIFORNIA GAS COMPANY
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INFORMATION STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
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WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
Southern California Gas Company ("SoCalGas" or the "Gas Company") is
providing this Information Statement to shareholders in connection with its
Annual Meeting of Shareholders to be held on May 6, 1997. It is being mailed to
shareholders commencing March , 1997.
SOUTHERN CALIFORNIA GAS COMPANY
SoCalGas is a public utility engaged in supplying natural gas throughout
most of Southern and portions of Central California. It is the nation's largest
natural gas utility, providing gas service through 4.8 million meters in a
23,000-square-mile service territory with a population of 17 million.
The Gas Company is a subsidiary of Pacific Enterprises which owns
approximately 96% of SoCalGas' voting shares. On October 14, 1996, Pacific
Enterprises and Enova Corporation, the parent company of San Diego Gas &
Electric Company, announced that their Boards of Directors had unanimously
approved a business combination of the two companies. Upon completion of the
combination, Pacific Enterprises and Enova will become separate subsidiaries of
a new holding company and the holders of their common stock will become
shareholders of the new holding company. As a result, SoCalGas will become an
indirect subsidiary of the new holding company. SoCalGas Common Stock and
Preferred Stock will remain outstanding and unaffected by the business
combination.
SoCalGas' principal executive offices are located at The Gas Company Tower,
555 West Fifth Street, Los Angeles, California. Its telephone number is (213)
244-1200.
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OUTSTANDING SHARES VOTING RIGHTS
Shareholders who are present at the Annual Meeting in person or by proxy
will be entitled to one vote for each of the Company's shares which they held of
record at the close of business on March 17, 1997. At that date, SoCalGas'
outstanding shares consisted of shares of Common Stock (all of which
were owned by Pacific Enterprises) and shares of Preferred Stock (of
which shares were owned by Pacific Enterprises).
In electing directors, shareholders will be entitled to cumulate votes if
any shareholder gives notice at the meeting, prior to the voting, of an
intention to cumulate votes. If that notice is given, all shareholders will be
entitled to a number of votes for each of their shares equal to the number of
directors to be elected and may cast all of their votes for any one director
candidate whose name has been placed in nomination prior to the voting or
distribute their votes among two or more such candidates in such proportions as
they may determine.
In voting upon other matters properly presented to the Annual Meeting, each
shareholder will be entitled to one vote for each share of SoCalGas Common or
Preferred Stock.
BOARD OF DIRECTORS
SoCalGas' entire Board of Directors is elected at each Annual Meeting of
Shareholders. During 1996, the Board of Directors held thirteen meetings.
BOARD COMMITTEES
The Board of Directors maintains Audit, Compensation, Executive, Nominating
and Public Policy Committees. These committees are identical in membership and
comparable in function to identically-named committees maintained by Pacific
Enterprises' Board of Directors.
The Audit Committee, which consists entirely of non-officer directors,
recommends to the Board of Directors the selection of independent auditors;
approves and reviews services and fees of independent auditors; and reviews
accounting and financial policies, internal accounting controls and the results
of audit engagements. During 1996, the Committee held three meetings.
The Compensation Committee reviews the performance and approves or
recommends the compensation of senior management and recommends the adoption of
and administers compensation plans in which senior management is eligible to
participate. The Committee also considers management succession plans. During
1996, the Committee held six meetings.
The Executive Committee may act on all but certain major corporate matters
reserved to the Board of Directors. It meets when emergency issues or scheduling
make it difficult to assemble the Board of Directors. During 1996, the Committee
did not meet.
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The Nominating Committee considers and makes recommendations regarding the
nominations of directors and the size and composition of the Board of Directors.
During 1996, the Committee held two meetings. The Committee will consider
shareholder suggestions for nominees for director. Suggestions may be submitted
to the Secretary of Southern California Gas Company, P.O. Box 3249, Los Angeles,
California 90051-1249. Biographical information concerning the proposed nominee
should also be included to assist the Committee in its deliberations.
The Public Policy Committee reviews and monitors SoCalGas' fulfillment of
its responsibilities on matters of public policy and corporate governance.
During 1996, the Committee held three meetings.
The Board of Directors also maintains a Debt Financing Committee which
authorizes borrowings and other debt financings and related matters. During
1996, the Committee acted by written consent on one occasion.
DIRECTOR COMPENSATION
Each director of SoCalGas is also a director of Pacific Enterprises. The
Boards of Directors of the two companies typically meet jointly as typically do
the identically-named committees of the two boards.
Directors who are also officers of SoCalGas or Pacific Enterprises are not
separately compensated for their services as directors or as members of
Committees. For their services as directors of both the Gas Company and Pacific
Enterprises, non-officer directors receive annual retainers of $25,000 and an
additional $3,000 for each two identically-named committees of the two boards
which they chair. Non-officer directors also receive $900 for each separate or
joint meeting of the boards or committees which they attend. Directors may defer
the receipt of their compensation and earn interest on the amounts deferred.
Non-officer directors receive retirement benefits commencing upon the later
of retirement or attaining age 65. The annual retirement benefit is the sum of
the then current annual base retainer and the then current board meeting fee
multiplied by ten and adjusted upward for subsequent increases in the retainer
or meeting fee. The benefit continues for a maximum period equal to the
director's years of service as a non-officer director.
PROPOSED BYLAW AMENDMENT
SoCalGas' bylaws currently provide for a Board of Directors consisting of
not less than nine nor more than seventeen members, with the exact number fixed
(within that range) from time to time by the Board. The membership of the Boards
of Directors of SoCalGas and Pacific Enterprises is identical.
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The Board of Directors of the new holding company for Pacific Enterprises
and Enova Corporation will consist of between nine and seventeen members, with
the exact number to be fixed (within that range) from time to time by the Board
of the new holding company. SoCalGas will be an indirect subsidiary, through
Pacific Enterprises of the new holding company. The Board of Directors of the
new holding company will be comprised of an equal number of directors designated
by each of Pacific Enterprises and Enova including Richard D. Farman, President
and Chief Operating Officer of Pacific Enterprises and Steven L. Baum, President
and Chief Executive Officer of Enova. To date, Pacific Enterprises and Enova
have not decided who, in addition to Messrs. Farman and Baum, will be designated
to serve on the Board of the new holding company after the completion of the
business combination of the two companies.
The Board of Directors of SoCalGas and Pacific Enterprises currently each
consist of nine directors but one director will retire at the Annual Meeting of
Shareholders. In view of the pending business combination of Pacific Enterprises
and Enova, the Boards have determined that it would be inadvisable to fill the
vacancy that would be created by this retirement. Instead of filing this vacancy
and to continue identical board membership between the Gas Company and Pacific
Enterprises, the Boards believe it is preferable that the size of both Boards be
reduced.
Consequently, the Gas Company's Board of Directors is proposing and
recommends that shareholders approve an amendment to SoCalGas' bylaws to provide
for a Board consisting of not less than seven nor more than thirteen directors.
The exact number of directors would continue to
be fixed (within this reduced range) from time to time by the Board. Subject to
and effective immediately upon shareholder approval of this amendment, the Board
has fixed the number of directors at eight. An identical amendment to the bylaws
of Pacific Enterprises is being submitted for approval by the shareholders of
Pacific Enterprises and, subject to shareholder approval of that amendment, the
number of directors of Pacific Enterprises will also be fixed at eight.
Approval of the proposed bylaw amendment requires the affirmative vote of a
majority of the outstanding shares of SoCalGas Common and Preferred Stock.
Pacific Enterprises has advised SoCalGas that it intends to vote the SoCalGas
shares which it holds in favor of the amendment. Doing so would be sufficient to
approve the amendment.
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ELECTION OF DIRECTORS
At the Annual Meeting of Shareholders, directors will be elected to hold
office until the next Annual Meeting and until their successors have been
elected and qualified. The director candidates receiving the highest number of
affirmative votes (up to the number of directors to be elected) will be elected
as directors.
The Board of Directors currently consists of nine directors one of whom
will retire at the Annual Meeting. Subject to and effective immediately upon
shareholder approval of the bylaw amendment described under "Proposed Bylaw
Amendment," the Board will consist of eight directors.
The names of the Board of Directors' eight nominees for election as
directors and biographical information regarding each nominee are set forth
below. Each nominee is currently a director of both the Gas Company and Pacific
Enterprises and, unless otherwise noted, each nominee has held the position set
forth beneath his or her name or various positions with the same organization
for at least the last five years.
HYLA H. BERTEA,
COMMUNITY LEADER.
Mrs. Bertea, 56, is a realtor with Grubb & Ellis, a real estate sales company.
She is a Commissioner of the California Horse Racing Board and a Trustee of
Lewis & Clark College. For a number of years she has been involved in leadership
positions with various cultural, educational and health organizations in the
Orange County and Los Angeles areas. She was a co-commissioner of gymnastics and
member of the executive staff for the 1984 Olympics.
Committees: Audit, Nominating,
and Public Policy
HERBERT L. CARTER,
EXECUTIVE VICE CHANCELLOR EMERITUS AND TRUSTEE PROFESSOR OF PUBLIC
ADMINISTRATION OF THE CALIFORNIA STATE UNIVERSITY SYSTEM.
Dr. Carter, 63, was President and Chief Executive Officer of United Way of
Greater Los Angeles from 1992 until 1995 and Executive Vice Chancellor of the
California State University System from 1974 until 1992. He is a director of
Golden State Mutual Insurance Co.; a member of the Board of Councilors of the
School of Public Administration, University of Southern California; and a member
of the Board of Trustees of Loyola Marymount University.
Committees: Audit, Nominating,
and Public Policy
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RICHARD D. FARMAN
PRESIDENT AND CHIEF OPERATING OFFICER OF
PACIFIC ENTERPRISES.
Mr. Farman, 61, is a director and executive committee member of the Los
Angeles Area Chamber of Commerce, and director of Union Bank, Sentinel Group
Funds, Inc. and the National Business-Higher Education Forum. He is a past
chairman of KCET Public Television, Progress L.A., Inc., the American Gas
Association and the Natural Gas Council, and a member of the Pacific Coast Gas
Association and the National Petroleum Council.
Committees: Debt Financing,
Executive, and Public Policy
WILFORD D. GODBOLD, JR.,
PRESIDENT, CHIEF EXECUTIVE OFFICER AND A DIRECTOR OF ZERO CORPORATION, AN
INTERNATIONAL MANUFACTURER OF ENCLOSURES AND COOLING EQUIPMENT FOR THE
ELECTRONICS MARKET, AND OF AIR CARGO AND AIR FREIGHT ENCLOSURES.
Mr. Godbold, 58, is a director of Santa Fe Pacific Pipelines, Inc.; the
California State Chamber of Commerce (past chairman); The Employer's Group (past
chairman); a member of the Board of Trustees of the 4A's Foundation and the
Wellness Community; and a member of the Council on California Competitiveness.
He is a past President of the Board of Trustees of Marlborough School.
Committees: Audit, Compensation,
and Executive
IGNACIO E. LOZANO, JR.,
CHAIRMAN OF THE BOARD OF LA OPINION, A SPANISH LANGUAGE DAILY NEWSPAPER. DURING
1976 AND 1977 MR. LOZANO SERVED AS UNITED STATES AMBASSADOR TO EL SALVADOR.
Mr. Lozano, 70, is a director of BankAmerica Corporation, Bank of America
NT&SA, The Walt Disney Company, Pacific Mutual Life Insurance Company, the Santa
Anita Foundation and the Youth Opportunities Foundation. He is a trustee of the
University of Notre Dame and a member of the California Press Association.
Committees: Audit, Compensation,
Executive, and
Public Policy
RICHARD J. STEGEMEIER,
CHAIRMAN EMERITUS OF THE BOARD OF UNOCAL
CORPORATION, AN INTEGRATED PETROLEUM
COMPANY.
Mr. Stegemeier, 68, is a director of Foundation Health Corporation, Halliburton
Company, Northrop Grumman Corporation, Outboard Marine Corporation and Wells
Fargo Bank.
Committees: Audit, Compensation,
and Nominating
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DIANA L. WALKER,
PARTNER IN THE LOS ANGELES BASED LAW FIRM OF O'MELVENY & MYERS.
Mrs. Walker, 55, is a director of United Way of Greater Los Angeles and a former
trustee of Marlborough School. She has served various professional
organizations. O'Melveny & Myers, of whom Mrs. Walter is a partner, provides
legal services to the Gas Company and Pacific Enterprises.
Committees: Audit, Nominating,
and Public Policy
WILLIS B. WOOD, JR.,
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER OF PACIFIC ENTERPRISES.
Mr. Wood, 62, is a director of Great Western Financial Corporation and Great
Western Bank. He is the Chairman of the California Medical Center Foundation; a
director of the California State Chamber of Commerce, the Los Angeles World
Affairs Council and the Automobile Club of Southern California; Vice Chairman of
the Board of Trustees of Harvey Mudd College, a trustee of the University of
Southern California and the Southwest Museum; and a member of the California
Business Roundtable.
Committees: Debt Financing and
Executive
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SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
None of SoCalGas' directors or executive officers own any SoCalGas Common
Stock (all of which is owned by Pacific Enterprises) or Preferred Stock. The
following table sets forth the number of shares of Pacific Enterprises Common
Stock beneficially owned as of March 17, 1997 by each director and nominee, each
executive officer named under "Executive Compensation" and, as a group, all such
persons and all other executive officers of the Gas Company.
NUMBER OF SHARES
NAME OF COMMON STOCK
----------------------------------------------------------- -----------------
Hyla H. Bertea.............................................
Herbert L. Carter (#1).....................................
Larry J. Dagley (#2).......................................
Richard D. Farman (#2).....................................
Wilford D. Godbold, Jr. ................................... 2,000
Leslie E. LoBaugh, Jr. (#2)................................
Ignacio E. Lozano, Jr. (#3)................................
Paul A. Miller (#4)........................................ 11,386
Warren I. Mitchell (#2)....................................
Debra L. Reed (#2).........................................
Richard J. Stegemeier...................................... 1,000
Lee M. Stewart (#2)........................................
Diana L. Walker............................................
Willis B. Wood, Jr. (#2)...................................
All Directors and Executive Officers as a group
( persons)(#2)..........................................
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#1 Includes shares held as guardian.
#2 Includes shares issuable upon exercise of employee stock options that are
exercisable prior to May 31, 1997. Such option shares total 15,000 shares for
Mr. Dagley, 284,000 shares for Mr. Farman, 50,700 shares for Mr. LoBaugh,
115,100 shares for Mr. Mitchell, 42,800 shares for Ms. Reed, 41,900 shares
for Mr. Stewart, 421,200 shares for Mr. Wood and shares for all
executive officers as a group.
#3 Includes 500 shares held by spouse.
#4 Mr. Miller will retire as a director at the Annual Meeting.
The shares of Pacific Enterprises Common Stock owned by all directors and
executive officers as a group represent less than 1% of Pacific Enterprises'
outstanding shares.
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The information contained under the caption "Report of the Compensation
Committee" shall not be deemed to be "soliciting material" or to be "filed" with
the Securities and Exchange Commission and shall not be deemed to be
incorporated into any filing by SoCalGas under the Securities Act of 1933 or the
Securities Exchange Act of 1934 in the absence of specific reference to such
information and caption.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors reviews management
compensation levels, evaluates management performance, and considers management
succession and related matters. The Committee also administers executive
incentive plans.
Each year the Compensation Committee reviews and approves a compensation
plan for executive officers. The plan is developed in conjunction with
independent compensation consultants and includes a review of compensation
practices of large utilities throughout the United States as well as
California-based general industry companies, a review of the performance of
these companies and SoCalGas, and subjective judgments as to the past and
expected future contributions of individual executives.
Base salaries are reviewed annually and adjustments are also considered
upon changes in executive responsibilities. Annual performance bonus opportunity
levels are developed and payment of bonuses tied to success in achieving a rate
of return on equity derived from that authorized for SoCalGas by the California
Public Utilities Commission. Longer term incentive compensation is provided by
annual grants of employee stock options to purchase shares of Pacific
Enterprises Common Stock.
COMPENSATION CONSULTANTS
To assist in performing its functions, the Compensation Committee retains
Hewitt Associates and other nationally recognized consulting firms specializing
in executive compensation issues. These consultants assist the Committee in
formulating executive compensation policies and advises the Committee on
programs and practices to implement policies adopted by the Committee. In doing
so, they prepare and review with the Committee surveys and other materials
reflecting executive compensation policies of other companies and other factors
(including relative performance and general economic conditions) which they deem
relevant.
COMPENSATION POLICY
The policy of the Compensation Committee is to establish total compensation
levels competitive with companies with which SoCalGas competes for executives.
Base salaries are set at levels comparable to those of other large utilities. To
provide incentives for exceptional performance, the Committee is increasingly
providing opportunities for performance-based compensation (annual
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bonuses and stock option awards as a percentage of base salary) that bring total
compensation (salary and performance-based compensation) closer to
California-based general industry levels.
The Compensation Committee believes these policies appropriately align the
financial interests of executives with those of shareholders. Base salaries are
at levels competitive with other large utilities and amounts paid as annual
bonuses and the realized value of stock options is highly variable and closely
tied to corporate performance. As a consequence, much of an executive officer's
compensation is "at risk" with the targeted value of annual bonuses and the
grant-date estimated value of annual employee stock option awards intended to
contribute from about 40% to 60% of total annual compensation.
COMPENSATION AWARDS
Salaries
Warren I. Mitchell, President of the Gas Company, received a 4% salary
increase for 1996.
Performance Bonuses
The Compensation Committee establishes annual performance bonus
opportunities for executive officers based upon the attainment of objective
financial goals. Performance at targeted levels is intended to compensate
executive officers with bonuses somewhat above the midpoint for bonuses for
comparable levels of responsibility and performance at other large utilities.
Target award levels for 1996 ranged from 40% of base salary for the President to
25% of base salary for Vice Presidents, with maximum award levels for excellent
performance ranging from 80% to 50% of base salary.
Continued superior performance during 1996 resulted in SoCalGas achieving a
return on equity of %. This return is substantially above the 11.6% rate of
return authorized by the California Public Utilities Commission and the target
return established by the Compensation Committee for the payment of performance
bonuses. This excellent return, together with favorable assessments of his
contributions to achieving it, resulted in paying a maximum performance bonus to
Mr. Mitchell for 1996.
Stock Options
To provide long-term incentive compensation and in lieu of cash
compensation, the Compensation Committee relies exclusively upon awards of
options to purchase Pacific Enterprises Common Stock, the ultimate realizable
value of which closely equates compensation to shareholder returns. Stock
options are granted with an exercise price that is not less than the fair market
value of the option shares at the date of the grant. They are typically granted
for a ten-year term and vest in equal cumulative annual installments over a
three-year period with vesting and exercisability subject only to continuing
employment.
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Since 1995, stock options also have been typically granted with
performance-based dividend equivalents. These provide executive officers with
the opportunity to receive, upon the exercise of an option, all or a portion of
the cash dividends that would have been paid on the shares as to which the
option is exercised as if the shares had been outstanding from the date the
option was granted. No dividend equivalents are payable unless Pacific
Enterprises meets a threshold performance goal and the percentage of dividends
paid as dividend equivalents (to a maximum of all of the dividends that would
have been paid on the shares) depends upon the extent to which the threshold
performance goal is exceeded. In addition, no dividend equivalents are payable
in respect of the exercise of any "out-of-the-money" option -- an option for
which the exercise price exceeds the market value of the shares purchased.
In awarding stock options, the Compensation Committee sizes option grants
to provide a grant-date estimated value somewhat above the midpoint for option
and other long-term incentive awards provided by large utilities. Since the
Compensation Committee uses only stock options to provide long-term incentive
compensation, options awards are typically larger than those at companies that
provide additional forms of long-term compensation. During 1996, Mr. Mitchell
was awarded options 21,000 shares having a grant-date estimated value of
$164,220.
Employment and Employment-Related Agreements
In connection with the business combination of Pacific Enterprises and
Enova Corporation, the Compensation Committee and the Board of Directors have
approved employment agreements for the four senior officers of the new holding
company that will result from the combination. These agreements are with Mr.
Mitchell and Richard D. Farman, President and Chief Operating Officer of Pacific
Enterprises, and two senior executives of Enova. In reviewing these agreements,
the Committee and the Board received advice from their independent compensation
consultants that, based upon a review of employment agreements in other utility
combinations, the agreements were reasonable in order to provide an orderly
transition of management for the combined companies.
The Compensation Committee also considered the effect of the business
combination upon the ability of SoCalGas to attract and retain executives and to
motivate them to act diligently and objectively with respect to the business
combination in spite of the personal uncertainties that it presents.
Consequently, with the assistance of independent compensation consultants and
merger and acquisition experts and other advisors, the Committee reviewed its
existing executive severance benefit and retention policies and practices.
Following this review and upon receiving advice that its proposed arrangements
were reasonable and consistent with relevant competitive practices, the
Committee and the Board of Directors approved agreements with each of SoCalGas'
executive officers to memorialize past severance practices and to provide
compensation for services in connection with the business combination and an
incentive to continue employment with the combined companies.
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See "Executive Compensation -- Employment and Employment Related
Agreements."
COMPENSATION COMMITTEE
Richard J. Stegemeier, Chairman
Wilford D. Godbold, Jr.
Ignacio E. Lozano, Jr.
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EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by SoCalGas and its
affiliates to SoCalGas' President and its other four most highly compensated
executive officers.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
---------------------------------
AWARDS PAYOUTS
----------------------- -------
SHARES
ANNUAL COMPENSATION RESTRICTED UNDERLYING ALL OTHER
NAME AND --------------------------- STOCK OPTIONS/ LTIP COMPENSATION
PRINCIPAL POSITIONS YEAR SALARY BONUS AWARDS SARS PAYOUTS (1)(2)
- --------------------------------------- ----- --------- --------- ---------- ---------- ------- ------------
Warren I. Mitchell
President 1996 $ 318,000 $ $-0- 21,000 $ -0- $ 5,721
1995 $ 306,000 $ 180,000 $-0- 27,000 $ -0- $ 5,836
1994 $ 291,000 $ 171,000 $-0- 25,000 $ -0- $ 6,803
Larry J. Dagley
Senior Vice President and 1996 $ 300,000 $ $-0- 15,000 $ -0- $ 4,046
Chief Financial Officer(3) 1995 $ 115,384 $ 75,000 (3) -0- $ -0- $ 428
Debra L. Reed
Senior Vice President 1996 $ 236,000 $ $-0- 15,000 $ -0- $ 5,308
1995 $ 221,000 $ 112,875 $-0- 15,000 $ -0- $ 5,269
1994 $ 183,600 $ 67,000 $-0- 7,000 $ -0- $ 5,139
Lee M. Stewart
Senior Vice President 1996 $ 226,000 $ $-0- 15,000 $ -0- $ 5,277
1995 $ 211,000 $ 107,625 $-0- 15,000 $ -0- $ 4,845
1994 $ 165,300 $ 51,000 $-0- 7,000 $ -0- $ 5,075
Leslie E. LoBaugh, Jr.
Vice President and 1996 $ 251,000 $ $-0- 6,600 $ -0- $ 5,237
General Counsel 1995 $ 251,000 $ 81,300 $-0- 7,500 $ -0- $ 7,236
1994 $ 251,000 $ 110,250 $-0- 10,000 $ -0- $ 7,698
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(1) Consists of interest accruals on deferred compensation above 120% of the
applicable federal rate, the dollar value of insurance premiums paid with
respect to the term portion of life insurance and employer contributions to
defined contribution plans. Such interest accruals, insurance premiums and
contributions for 1996 were, respectively, $125, $1,096 and $4,500 for Mr.
Mitchell; $60, $1,026 and $2,960 for Mr Dagley; $-0-, $808 and $4,500 for
Ms. Reed; $4, $773 and $4,500 for Mr. Stewart; and $3,182, $871 and $1,184
for Mr. LoBaugh.
(2) A life insurance policy has been purchased for Mr. LoBaugh under
arrangements providing for offsets of supplemental pension benefits by the
cash surrender value of the policy. If Mr. LoBaugh had become entitled to
the cash surrender value of his policy at December 31, 1996, he would have
received benefits which would have exceeded his supplemental pension
benefits by $707,300.
(3) Mr. Dagley joined Pacific Enterprises and SoCalGas in August 1995. As a
$500,000 signing bonus, he was credited with 20,833 shares of Pacific
Enterprises Common Stock vesting, subject to continued employment, in equal
installments (together with deemed reinvested dividends) over a five year
period. At December 31, 1996, his unvested share balance was 17,734 shares
having a fair market value (absent vesting restrictions) of $538,670.
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STOCK OPTIONS
Pacific Enterprises maintains a Stock Option Plan pursuant to which stock
options may be granted to employees of SoCalGas to purchase Pacific Enterprises
Common Stock. The following table sets forth information regarding stock options
granted during 1996 to each of the Gas Company's executive officers named under
"Executive Compensation -- Summary Compensation Table."
OPTION/SAR GRANTS(1)
NUMBER OF PERCENT OF
SHARES TOTAL OPTIONS/ GRANT DATE
UNDERLYING SARS GRANTED TO EXERCISE EXPIRATION ESTIMATED
NAME OPTIONS/SARS EMPLOYEES IN 1996 PRICE DATE PRESENT VALUE(2)
- ----------------------------- ------------ ----------------- -------- ---------- ----------------
Warren I. Mitchell........... 21,000 3.1% $ 27 3/5/06 $164,220
Larry J. Dagley.............. 15,000 2.2% $ 27 3/5/06 $117,300
Debra L. Reed................ 15,000 2.2% $ 27 3/5/06 $117,300
Lee M. Stewart............... 15,000 2.2% $ 27 3/5/06 $117,300
Leslie E. LoBaugh, Jr. ...... 6,600 1.0% $ 27 3/5/06 $ 51,612
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(1) All options are to purchase shares of Pacific Enterprises Common Stock. They
were granted with performance based dividend equivalents (see "Report of the
Compensation Committee -- Stock Options"); at an exercise price of 100% of
the fair market value of the option shares on the date of grant; for a
ten-year term, subject to earlier expiration upon termination of employment;
and exercisable in cumulative annual installments of one-third of the shares
initially subject to the option on each of the first three anniversaries of
the date of grant. Upon the March 11, 1997 approval by shareholders of
Pacific Enterprises of the principal terms of the business combination of
Pacific Enterprises and Enova Corporation, all options became and remain
fully exercisable.
(2) Estimated present value is based on the Black Scholes Model and consists of
an option value of $3.41 and a dividend equivalent value of $4.41. The
following assumptions were used in the Black Scholes Model: stock price
volatility of 18.91%, a risk-free rate of return of 6.27%, and an annual
dividend yield of 5.04%. Further adjustments were made based on actuarial
assumptions regarding the termination of employment prior to option vesting
and prior to expiration of the ten-year option term, reducing estimated
values by 17.57% and 9.29% respectively. The dividend equivalent value is
based on $1.36 annual dividend (the rate in effect on the grant date) and
the volatility of the cash flow measures which determine the amount of
dividend equivalent paid. At target levels of performance 67% of the
dividends are paid. Options will have no actual value unless the stock price
appreciates from the date of the grant to the exercise date.
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The following table sets forth for each executive officer named in the
under "Executive Compensation -- Summary Compensation Table" information
regarding stock options to purchase shares of Pacific Enterprises Common Stock
exercised in 1996 and stock options outstanding at December 31, 1996.
OPTION/SARS EXERCISE AND OUTSTANDING OPTION/SAR VALUES
NUMBER OF
OPTIONS/SARS PACIFIC ENTERPRISES VALUE OF UNEXERCISED
EXERCISED IN 1996 UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS/SARS
------------------ AT DECEMBER 31, 1996(1) AT DECEMBER 31, 1996
SHARES VALUE ----------------------------- -----------------------------
ACQUIRED REALIZED EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE(2)
-------- -------- ----------- ---------------- ----------- ----------------
(OPTION SHARES)
Warren I. Mitchell..... 16,400 $126,750 43,300 71,800 $ 117,513 $431,813
Larry J. Dagley........ -0- $ -0- -0- 15,000 $ -0- $ 50,625
Debra L. Reed.......... 3,200 $ 24,913 11,800 31,000 $ 30,625 $164,900
Lee M. Stewart......... 5,900 $ 40,963 10,900 31,000 $ 35,238 $164,900
Leslie E.
LoBaugh,Jr. ......... 12,800 $119,400 17,500 33,200 $ 15,313 $256,900
- -------------
(1) The exercise price of outstanding options range from $19 1/4 to $47 1/4.
(2) Upon the March 11, 1997 approval by shareholders of Pacific Enterprises of
the principal terms of the business combination of Pacific Enterprises and
Enova Corporation, all unexercisable options became and remain fully
exercisable.
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PENSION BENEFITS
The following table sets forth estimated annual pension benefits, including
supplemental pension benefits, payable upon retirement at age 65 to SoCalGas'
executive officers (based upon payment of benefits as a straight life annuity
and after maximum offset for social security benefits but without offset for any
other benefits) in various compensation and years-of-service classifications.
PENSION PLAN TABLE
YEARS OF SERVICE(2)
--------------------------------------------------------------
REMUNERATION(1) 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
---------------------- ---------- ---------- ---------- ---------- ----------
$ 200,000............ $ 95,000 $ 115,000 $ 117,500 $ 120,000 $ 122,500
400,000............ 195,000 235,000 240,000 245,000 250,000
600,000............ 295,000 355,000 362,500 370,000 377,500
800,000............ 395,000 475,000 485,000 495,000 505,000
1,000,000............ 495,000 595,000 607,500 620,000 632,500
1,200,000............ 595,000 715,000 730,000 745,000 760,000
- ---------------
(1) Average salary for highest three consecutive years of service and average of
three highest annual bonuses during the last ten years of service.
(2) Years of continuous service for each executive officer named in the Summary
Compensation Table number 38 for Mr. Mitchell, 1 for Mr. Dagley, 18 for Ms.
Reed, 29 for Mr. Stewart and 21 for Mr. LoBaugh.
EMPLOYMENT AND EMPLOYMENT-RELATED AGREEMENTS
SoCalGas or Pacific Enterprises has entered into a Severance Agreement and
an Incentive/Retention Bonus Agreement with each of the executive officers named
under "Executive Compensation -- Summary Compensation Table." The Severance
Agreements memorialize past severance practices and provide benefits in the
event of the actual or constructive termination of employment (other than for
cause, death or disability) that generally consist of a lump sum cash payment
equal to either 2.0 or 1.5 times annual base salary; continuation of welfare
benefits for 18 months; payment of deferred compensation at a preferred rate;
payout of accrued vacation benefits; and financial planning and outplacement
services.
The Incentive/Retention Bonus Agreements provide compensation for services
in connection with the business combination of Pacific Enterprises and Enova
Corporation and an incentive for executives to continue employment with the
combined companies. They provide for the payment of bonuses at a specified
multiple (1.0 or less except for one executive officer for whom the multiple is
2.0) of the executive's base salary plus incentive bonus (at target) that are
conditioned upon the
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completion of the business combination (or another business combination
transaction) and the transition of the executive to employment with the combined
companies for a period of six to twelve months or actual or constructive
termination of employment (other than for cause death or disability). The bonus
payable to Mitchell is also subject to certain deferral provisions.
The new holding company for Pacific Enterprises and Enova that will result
from the business combination of the two companies has entered into employment
agreements with Mr. Mitchell and Richard D. Farman, President and Chief
Operating Officer of Pacific Enterprises, and two senior executives of Enova.
These agreements will become effective upon the completion of the business
combination.
Mr. Mitchell's employment agreement will, upon becoming effective,
supercede his Severance Agreement with SoCalGas. It provides that he will serve
as President and principal executive officer of the businesses of the new
holding company and its subsidiaries that are economically regulated by the
California Public Utilities Commission. For these services, he will receive an
annual base salary of not less than $440,000; participate in annual and
long-term incentive compensation plans and awards providing him with an annual
bonus opportunities at least equal (as percentage of base salary) to his bonus
opportunities in effect prior to the completion of the business combination; and
participate in retirement and welfare benefit plans.
The employment agreement also provides if Mr. Mitchell's employment is
terminated by the new holding company (other than for cause, death or
disability) or by Mr. Mitchell for good reason, he will receive twice (three
times in the event of termination following a change in control) his annual base
salary and annual incentive compensation (at the higher of the target bonus for
the year of termination or the average of the three highest bonuses in the
preceding five years); a pro rata portion of the target annual incentive
compensation award for the year or, if greater, the average of the three highest
bonus awards for the preceding five years; the present value of retirement
benefits to which he would have been entitled had his employment continued for
an additional two years (three years in the case of termination following a
change of control) and had increased his age by such additional years as of
termination but not beyond mandatory retirement age of age 65; immediate vesting
of all equity-based, long-term incentive compensation awards; pro rata payment
of cash-based, long-term incentive awards at target performance; continued
participation in welfare benefit plans for two years; and payment of
compensation previously deferred. In certain circumstances, payments to Mr.
Mitchell under the employment agreement may be increased to offset exercise
taxes they may impose upon him.
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SHAREHOLDER PROPOSALS
Shareholders intending to bring any business before an Annual Meeting of
Shareholders of SoCalGas, including nominations of persons for election as
directors, must give written notice to the Secretary of the Gas Company of the
business to be presented. The notice must be received at the Gas Company's
offices within the periods and must be accompanied by the information and
documents specified in SoCalGas' bylaws, a copy of which may be obtained by
writing to the Secretary of the Gas Company.
The period for notice of business to be brought by shareholders before the
1997 Annual Meeting of Shareholders has expired. The period for the receipt by
SoCalGas of notice of business to be brought by shareholders before the 1998
Annual Meeting of Shareholders will commence on January 6, 1998 and end on March
7, 1998.
INDEPENDENT AUDITORS
The Board of Directors, upon the recommendation of its Audit Committee, has
selected Deloitte & Touche LLP to serve as SoCalGas' independent auditors for
1997. Representatives of Deloitte & Touche LLP are expected to attend the Annual
Meeting. They will have the opportunity to make a statement if they desire to do
so and to respond to appropriate questions from shareholders.
ANNUAL REPORTS
The Gas Company's 1996 Annual Report to Shareholders (which includes its
Annual Report to the Securities and Exchange Commission on Form 10-K) is being
mailed to shareholders together with this Information Statement.
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