-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q+Kj8B0TpcLA/tNAVuzGP+Mhkm+NCPZDzvOpQjITfnoj4B0LzH0+1lF96SRDD9Hz FiJLVWmEwXZEnnUTgBKcgA== 0000950150-98-000414.txt : 19980326 0000950150-98-000414.hdr.sgml : 19980326 ACCESSION NUMBER: 0000950150-98-000414 CONFORMED SUBMISSION TYPE: DEF 14C PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980505 FILED AS OF DATE: 19980325 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN CALIFORNIA GAS CO CENTRAL INDEX KEY: 0000092108 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 951240705 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14C SEC ACT: SEC FILE NUMBER: 001-01402 FILM NUMBER: 98572650 BUSINESS ADDRESS: STREET 1: 555 W FIFTH ST STREET 2: ML 14H1 CITY: LOS ANGELES STATE: CA ZIP: 90013 BUSINESS PHONE: 2132441200 MAIL ADDRESS: STREET 1: PO BOX 3249 CITY: LOS ANGELES STATE: CA ZIP: 90051-1249 DEF 14C 1 DEFINITIVE INFORMATION STATEMENT 1 SCHEDULE 14C INFORMATION INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Check the appropriate box: [ ] Preliminary Information Statement [ ] Confidential, for Use of the Commission [X] Definitive Information Statement Only (as permitted by Rule 14c-5(d)(2))
Southern California Gas Company - -------------------------------------------------------------------------------- (Name of Registrant As Specified in Charter) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11. (1) Title of each class of securities to which transaction applies: - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - -------------------------------------------------------------------------------- (5) Total fee paid: - -------------------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: - -------------------------------------------------------------------------------- (3) Filing Party: - -------------------------------------------------------------------------------- (4) Date Filed: - -------------------------------------------------------------------------------- 2 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 5, 1998 at 10:00 a.m., at The Gas Company Tower, 555 West Fifth Street, Los Angeles, California, for the following purposes: (1) To elect directors for the ensuing year. (2) To transact any other business which may properly come before the meeting. Shareholders of record at the close of business on March 16, 1998 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 31, 1998 3 SOUTHERN CALIFORNIA GAS COMPANY ------------------------ INFORMATION STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS ------------------------ 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 5, 1998. It is being mailed to shareholders commencing March 31, 1998. 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 distribution utility, providing natural gas service to residential, commercial, industrial, utility electric generation and wholesale customers through approximately 4.8 million meters in a 23,000-square-mile service territory with a population of 17.6 million. The Gas Company is a subsidiary of Pacific Enterprises which owns approximately 96% of SoCalGas' voting shares. During 1997, the shareholders of Pacific Enterprises and Enova Corporation, the parent company of San Diego Gas & Electric Company, approved a business combination of the two companies. Upon completion of the combination, Pacific Enterprises and Enova will become separate subsidiaries of Sempra Energy, a newly-formed holding company, and the holders of their common stock will become shareholders of the new holding company. SoCalGas will remain a direct subsidiary of Pacific Enterprises and will become an indirect subsidiary of Sempra Energy. 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. 4 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 16, 1998. At that date, SoCalGas' outstanding shares consisted of 91,300,000 shares of Common Stock (all of which were owned by Pacific Enterprises) and 862,043 shares of Preferred Stock (of which 50,477 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 1997, the Board of Directors held eleven meetings. BOARD COMMITTEES The Board of Directors maintains Audit, Compensation, Executive, Nominating and Public Policy Committees. 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 1997, the Committee held three meetings. The Compensation Committee, which consists entirely of non-officer directors, 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 1997, the Committee held five 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 1997, the Committee did not meet. 2 5 The Nominating Committee considers and makes recommendations regarding the nominations of directors and the size and composition of the Board of Directors. During 1997, 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 1997, 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 1997, the Committee acted by written consent on one occasion. DIRECTOR COMPENSATION All directors of SoCalGas are also directors of Pacific Enterprises or officers of SoCalGas. Non-officer directors receive an annual base retainer of $25,000 and an additional $3,000 for each Committee which they chair. Non-officer directors also receive $900 for each meeting of the Board or Committee 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 annual base retainer plus ten times the meeting fee and continues for a maximum period equal to the director's years of service as a non-officer director. 3 6 ELECTION OF DIRECTORS At the Annual Meeting of Shareholders, directors will elect seven directors (comprising the entire authorized number of directors) 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 names of the Board of Directors' seven nominees for election as directors and biographical information regarding each nominee are set forth below. Each nominee is currently a director of the Gas Company and, except for Mr. Mitchell, also Pacific Enterprises. 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, 57, has been a director of the Gas Company since 1993 and of Pacific Enterprises since 1988. She is a realtor with Prudential California, a real estate sales company. She is a Commissioner of the California Horse Racing Board and a Trustee of Lewis & Clark College. She is a director of Orange County Community Foundation and for a number of years she has been involved in leadership positions with various other 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, 64, has been a director of the Gas Company since 1993 and of Pacific Enterprises since 1991. He 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.; and a member of the Board of Councilors of the School of Public Administration, University of Southern California. Committees: Audit, Nominating, and Public Policy 4 7 WILFORD D. GODBOLD, JR., PRESIDENT, CHIEF EXECUTIVE OFFICER AND A DIRECTOR OF ZERO CORPORATION, AN INTERNATIONAL MANUFACTURER PRIMARILY OF ENCLOSURES AND THERMAL MANAGEMENT EQUIPMENT FOR THE ELECTRONICS MARKET. Mr. Godbold, 59, has been a director of the Gas Company since 1993 and of Pacific Enterprises since 1990. He is also a director of Santa Fe Pacific Pipelines, Inc., the California State Chamber of Commerce (past chairman) and The Employer's Group (past chairman). He is a member of the Board of Trustees of The Wellness Community, a member of the Council on California Competitiveness and 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, 71, has been a director of the Gas Company since 1993 and of Pacific Enterprises since 1978. He is also a director of 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, Debt Financing, Executive, and Public Policy WARREN I. MITCHELL PRESIDENT OF SOUTHERN CALIFORNIA GAS COMPANY AND EXECUTIVE VICE PRESIDENT OF PACIFIC ENTERPRISES. Mr. Mitchell, 60, became a director of SoCalGas in 1997. He is a director of the Pacific Coast Gas Association, United Way of Greater Los Angeles, Los Angeles Area Chamber of Commerce, CALSTART, Gas Research Institute and The Employers Group; a director and trustee of the Institute of Gas Technology; a trustee of the University of California Riverside Foundation; and a member of the American Gas Association. Committees: Debt Financing and Executive RICHARD J. STEGEMEIER, CHAIRMAN EMERITUS OF THE BOARD OF UNOCAL CORPORATION, AN INTEGRATED PETROLEUM COMPANY. Mr. Stegemeier, 69, has been a director of the Gas Company and of Pacific Enterprises since 1995. He is also a director of Foundation Health Systems, Inc., Halliburton Company, Montgomery Watson, Inc., Northrop Grumman Corporation, Outboard Marine Corporation and Wells Fargo Bank. Committees: Audit, Compensation, and Nominating 5 8 DIANA L. WALKER, PARTNER IN THE LOS ANGELES BASED LAW FIRM OF O'MELVENY & MYERS. Mrs. Walker, 56, has been a director of the Gas Company since 1993 and of Pacific Enterprises since 1989. She is also a director of United Way of Greater Los Angeles, the former Chair of the Board of Governors of the Institute for Corporate Counsel, a former trustee of Marlborough School and a member of various professional organizations. O'Melveny & Myers LLP, of whom Mrs. Walker is a partner, provides legal services to the Gas Company and Pacific Enterprises. Committees: Audit, Nominating, and Public Policy 6 9 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 16, 1998 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............................................. 5,962 Herbert L. Carter (#1)..................................... 910 Wilford D. Godbold, Jr. ................................... 2,000 Leslie E. LoBaugh, Jr. (#2)................................ 34,868 Ignacio E. Lozano, Jr. (#3)................................ 1,453 Warren I. Mitchell (#2).................................... 63,474 Debra L. Reed (#2)......................................... 33,173 Richard J. Stegemeier...................................... 1,000 Lee M. Stewart (#2)........................................ 33,024 Ralph Todaro (#2).......................................... 39,209 Diana L. Walker............................................ 562 All Directors and Executive Officers as a group (19 persons)(#2)......................................... 378,368
- --------------- #1 Includes 19 shares held as guardian. #2 Includes shares issuable upon exercise of employee stock options that are exercisable on or prior to May 31, 1998. Such option shares total 31,300 shares for Mr. LoBaugh; 51,500 shares for Mr. Mitchell; 28,800 shares for Ms. Reed; 27,000 shares for Mr. Stewart; 32,500 shares for Mr. Todaro; and 313,400 shares for all directors and executive officers as a group. #3 Includes 500 shares held by spouse. No SoCalGas director or executive officer owns any shares of Pacific Enterprises Preferred Stock. 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. 7 10 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 a combination of other large utilities and California-based general industry companies. To provide incentives for exceptional performance, the Committee has increasingly provided opportunities for performance-based compensation (annual bonuses and stock option 8 11 awards as a percentage of base salary) at levels 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 competitive levels 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 at least 40% to 60% of total annual compensation. COMPENSATION AWARDS Salaries Warren I. Mitchell, President of the Gas Company, received a 12% salary increase for 1997 to bring his salary more in line with competitive practices. 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 1997 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 1997 resulted in SoCalGas achieving a return on equity of 16.7%. 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 1997. 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. 9 12 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 1997, Mr. Mitchell was awarded options on 27,000 shares having a grant-date estimated value of $266,760. COMPENSATION COMMITTEE Richard J. Stegemeier, Chairman Wilford D. Godbold, Jr. Ignacio E. Lozano, Jr. 10 13 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
ANNUAL COMPENSATION LONG-TERM COMPENSATION ------------------------ --------------------------------- AWARDS PAYOUTS ----------------------- ------- SHARES RESTRICTED UNDERLYING ALL OTHER NAME AND STOCK OPTIONS/ LTIP COMPENSATION PRINCIPAL POSITIONS YEAR SALARY BONUS AWARDS SARS PAYOUTS (1)(2) - --------------------------------------- ---- -------- -------- ---------- ---------- ------- ------------ Warren I. Mitchell President 1997 $356,000 $280,000 $-0- 27,000 $-0- $ 8,977 1996 $318,000 $249,600 $-0- 21,000 $-0- $ 5,721 1995 $306,000 $180,000 $-0- 27,000 $-0- $ 5,836 Debra L. Reed Senior Vice President 1997 $266,000 $182,000 $-0- 21,000 $-0- $ 5,873 1996 $236,000 $161,000 $-0- 15,000 $-0- $ 5,308 1995 $221,000 $112,875 $-0- 15,000 $-0- $ 5,269 Lee M. Stewart Senior Vice President 1997 $251,000 $171,500 $-0- 21,000 $-0- $ 6,361 1996 $226,000 $154,000 $-0- 15,000 $-0- $ 5,277 1995 $211,000 $107,625 $-0- 15,000 $-0- $ 4,845 Leslie E. LoBaugh, Jr. Vice President and 1997 $261,000 $122,400 $-0- 6,600 $-0- $ 8,270 General Counsel 1996 $256,000 $112,500 $-0- 6,600 $-0- $ 5,237 1995 $251,000 $ 81,300 $-0- 7,500 $-0- $ 7,236 Ralph Todaro Vice President and 1997 $201,900 $ 97,950 $-0- 6,600 $-0- $ 5,584 Controller 1996 $182,900 $ 84,000 $-0- 6,600 $-0- $ 5,230 1995 $177,900 $ 55,400 $-0- 7,500 $-0- $ 5,210
- ------------ (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 1997 were, respectively, $2,732, $1,445 and $4,800 for Mr. Mitchell; $-0-, $1,073 and $4,800 for Ms. Reed; $550, $1,011 and $4,800 for Mr. Stewart; $6,295, $1,011 and $964 for Mr. LoBaugh; and $-0-, $784 and $4,800 for Mr. Todaro. (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, 1997, he would have received $753,130. 11 14 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 1997 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 1997 PRICE DATE PRESENT VALUE(2) ---- ------------ ----------------- -------- ---------- ---------------- Warren I. Mitchell........... 27,000 3.9% $30 5/8 3/3/07 $266,760 Debra L. Reed................ 21,000 3.0% $30 5/8 3/3/07 $207,480 Lee M. Stewart............... 21,000 3.0% $30 5/8 3/3/07 $207,480 Leslie E. LoBaugh, Jr. ...... 6,600 .9% $30 5/8 3/3/07 $ 65,208 Ralph Todaro................. 6,600 .9% $30 5/8 3/3/07 $ 65,208
- ------------- (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. (2) Estimated present value is based on the Black Scholes Model and consists of an option value of $4.05 and a dividend equivalent value of $5.83. The following assumptions were used in the Black Scholes Model: stock price volatility of 16.74%, a risk-free rate of return of 6.69%, and an annual dividend yield of 4.7%. 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 10.70% respectively. The dividend equivalent value is based on $1.44 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. 12 15 The following table sets forth for each executive officer named under "Executive Compensation -- Summary Compensation Table" information regarding stock options to purchase shares of Pacific Enterprises Common Stock exercised in 1997 and stock options outstanding at December 31, 1997. OPTION/SARS EXERCISES AND OUTSTANDING OPTION/SAR VALUES
NUMBER OF OPTIONS/SARS PACIFIC ENTERPRISES VALUE OF UNEXERCISED EXERCISED IN 1997 UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS/SARS ------------------- AT DECEMBER 31, 1997(1) AT DECEMBER 31, 1997 SHARES VALUE ------------------------------ ------------------------------ ACQUIRED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE -------- -------- ----------- ---------------- ----------- ---------------- (OPTION SHARES) Warren I. Mitchell..... 45,600 $518,525 27,000 60,000 $584,250 $189,000 Debra L. Reed.......... 6,000 $ 54,525 36,800 21,000 $365,500 $147,000 Lee M. Stewart......... 6,900 $ 66,262 35,000 21,000 $364,812 $147,000 Leslie E. LoBaugh,Jr. ......... 21,600 $258,669 29,100 6,600 $170,438 $ 46,200 Ralph Todaro........... -0- $ -0- 30,300 6,600 $297,212 $ 46,200
- ------------- (1) The exercise price of outstanding options ranges from $19 1/4 to $47 1/4. 13 16 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) 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 39 for Mr. Mitchell, 19 for Ms. Reed, 30 for Mr. Stewart, 22 for Mr. LoBaugh and 12 for Mr. Todaro. EMPLOYMENT AND EMPLOYMENT-RELATED AGREEMENTS During 1996, SoCalGas or Pacific Enterprises 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 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 in varying amounts not in excess of the executive's base salary plus incentive bonus (at target) that are conditioned upon the completion of the business combination (or another business 14 17 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. The bonus payable to Mitchell is also subject to certain deferral provisions. Sempra Energy, the new holding company for Pacific Enterprises and Enova Corporation that will result from the business combination of the two companies, also during 1996 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. 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 Sempra Energy 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 opportunity 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 that if Mr. Mitchell's employment is terminated by Sempra Energy (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 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 excise taxes they may impose upon him. 15 18 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 1998 Annual Meeting of Shareholders has expired. The period for the receipt by SoCalGas of notice of business to be brought by shareholders before the 1999 Annual Meeting of Shareholders will commence on January 5, 1999 and end on March 5, 1999. 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 1998. 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 1997 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. ------------------------------ 16 -----END PRIVACY-ENHANCED MESSAGE-----