SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 1-3779
SAN DIEGO GAS & ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State or other jurisdiction of incorporation or organization)
95-1184800
(I.R.S. Employer Identification No.)
101 ASH STREET, SAN DIEGO, CALIFORNIA
(Address of principal executive offices)
92101
(Zip code)
(619) 696-2000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered Preference Stock (Cumulative) Without Par Value (except $1.70 and $1.7625 Series) American and Pacific Cumulative Preferred Stock, $20 Par Value (except 4.60% Series) American and Pacific Common Stock, Without Par Value New York and Pacific |
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Exhibit Index on page 31, Glossary on page 39.
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 31, 1995:
Common Stock $2.4 Billion
Preferred Stock $15 Million
As of January 31, 1995, there were 116,532,416 shares of common stock, without par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1994 Annual Report to Shareholders are incorporated by reference into Parts I, II, and IV.
Portions of the March 1995 Proxy Statement prepared for the April 1995 annual meeting of shareholders are incorporated by reference into Part III.
INDEX
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . 21
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . 22
Item 4. Submission of Matters to a Vote of Security Holders. 27 Executive Officers of the Registrant . . . . . . . . 27
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . 28
Item 6. Selected Financial Data . . . . . . . . . . . . . . 28
Item 7. Management's Discussion and Analysis of Financial .
Condition and Results of Operations . . . . . . . 28
Item 8. Financial Statements and Supplementary Data . . . . 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . 28
PART III
Item 10. Directors and Executive Officers of the Registrant . 28
Item 11. Executive Compensation . . . . . . . . . . . . . . . 28
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . 28
Item 13. Certain Relationships and Related Transactions . . . 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . 29
Independent Auditors' Consent . . . . . . . . . . . . . . . . 37
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 38
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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PART I
Item 1. Business
Description of Business
San Diego Gas & Electric Company is an operating public utility organized and existing under the laws of the State of California. SDG&E is engaged principallyin the electric and natural gas business. It generates and purchases electricenergy and distributes it to 1.1 million customers in San Diego County and a portion of Orange County, California. It also purchases and distributes natural gas to 696,000 customers in San Diego County. In addition, it transports electricity and natural gas for others. Factors affecting SDG&E's utility operations include regulation, deregulation, competition, nonutility generation, customers' bypass of its electric and gas system, population growth, changes in interest and inflation rates, and environmental and other laws.
SDG&E's diversified interests include four subsidiaries: Enova Corporation, which invests in affordable-housing projects; Enova Energy Management, which provides energy management consulting services to utilities and large consumers; Califia Company, which conducts leasing activities; and Pacific Diversified Capital Company, which is a holding company for SDG&E's other subsidiaries. PDC owns an 80-percent share in Wahlco Environmental Systems, a supplier of air pollution control and energy-saving products and services for utilities and other industries. PDC's other subsidiary, Phase One Development, is a commercial real estate developer.
SDG&E is seeking approval to form a holding company. Under the proposed structure, SDG&E would become a subsidiary of the parent company, as would SDG&E's existing subsidiaries. SDG&E believes that it must change its corporate structure to respond to changes in the California utility industry and the movement toward a more competitive marketplace.
Additional information concerning SDG&E's subsidiaries and the formation of a holding company is described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 18 in the 1994 Annual Report to Shareholders and in Notes 1 through 3 of the "Notes to Consolidated Financial Statements" beginning on page 32 of the 1994 Annual Report to Shareholders.
Government Regulation
Local Regulation
SDG&E has separate electric and gas franchises with the two
counties and 25 cities in its service territory. These franchises
allow SDG&E to locate facilities for the transmission and
distribution of electricity and gas in the streets and other public
places. The franchises do not have fixed terms, except for the
electric and gas franchises with the cities of Chula Vista (1997),
Encinitas (2012), San Diego (2021), and Coronado (2028); and the
gas franchises with the city of Escondido (2036) and the county of
San Diego (2030).
State Regulation
The California Public Utilities Commission consists of five members
appointed by the governor and confirmed by the senate for six-year
terms. The commission regulates SDG&E's rates and conditions of
service, sales of securities, rate of return, rates of
depreciation, uniform systems of accounts, examination of records,
and long-term resource procurement. The CPUC also conducts various
reviews of utility performance and conducts investigations into
various matters, such as deregulation, competition and the
environment, to determine its future policies.
The California Energy Commission has discretion over electric-demand forecasts for the state and for specific service territories. Based upon these forecasts, the CEC determines the need for additional energy sources and for conservation programs. The CEC sponsors alternative-energy research and development projects, promotes energy conservation programs, and maintains a statewide plan of action in case of energy shortages. In addition, the CEC certifies power-plant sites and related facilities within California.
Federal Regulation
The Federal Energy Regulatory Commission regulates transmission
access, the uniform systems of accounts, rates of depreciation and
electric rates involving sales for resale. The FERC also regulates
the interstate sale and transportation of natural gas.
The Nuclear Regulatory Commission oversees the licensing, construction and operation of nuclear facilities. NRC regulations require extensive review of the safety, radiological and environmental aspects of these facilities. Periodically, the NRC requires that newly developed data and techniques be used to reanalyze the design of a nuclear power plant and, as a result, requires plant modifications as a condition of continued operation in some cases.
Licenses and Permits
SDG&E obtains a number of permits, authorizations and licenses in
connection with the construction and operation of its generating
plants. Discharge permits, San Diego Air Pollution Control
District permits and NRC licenses are the most significant
examples. The licenses and permits may be revoked or modified by
the granting agency if facts develop or events occur that differ
significantly from the facts and projections assumed in granting
the approval. Furthermore, discharge permits and other approvals
are granted for a term less than the expected life of the facility.
They require periodic renewal, which results in continuing
regulation by the granting agency.
Other regulatory matters are described throughout this report.
Competition
This topic is discussed in "Electric Operations" and "Rate Regulation" herein and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 18 of the 1994 Annual Report to Shareholders and in Note 11 of the "Notes to Consolidated Financial Statements" on page 38 of the 1994 Annual Report to Shareholders.
Sources of Revenue
Electric-
Residential $ 612 $ 615 $ 601
Commercial 600 572 543
Industrial 231 250 245
Other 67 77 58
------ ------ ------
Total Electric 1,510 1,514 1,447
------ ------ ------
Gas-
Residential 204 195 181
Commercial 65 63 61
Industrial 31 40 54
Other 46 49 41
------ ------ ------
Total Gas 346 347 337
------ ------ ------
Total Utility 1,856 1,861 1,784
------ ------ ------
Diversified Operations 126 119 87
------ ------ ------
Total $1,982 $1,980 $1,871
====== ====== ======
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Industry segment information is contained in "Statements of Consolidated Financial Information by Segments of Business" on page 31 of the 1994 Annual Report to Shareholders.
Construction Expenditures
Construction expenditures, excluding nuclear fuel and the allowance for equity funds used during construction, were $264 million in 1994 and are estimated to be about $240 million annually over the next 5 years.
Electric Operations
Introduction
In April 1994 the CPUC announced its proposal to restructure
California's regulated electric utility industry to stimulate
competition and to lower rates. The proposed regulatory framework
would be phased in by 2002, allowingutility customers to purchase
their energy from either utility or nonutility suppliers. The
outcome of this and other ongoing proceedings is expected to have
a significant impact on SDG&E's operations. These matters are
discussed in Note 11 of the "Notes to Consolidated Financial
Statements" on page 38 of the 1994 Annual Report to Shareholders
and in "Management's Discussion & Analysis of Financial Condition
and Results of Operations" beginning on page 18 of the 1994 Annual
Report to Shareholders.
Resource Planning
SDG&E's ability to provide energy at the lowest possible cost has
been based on a combination of production from its own plants and
purchases from other producers. The purchases have been a
combination of short-term and long-term contracts and spot
purchases. All resource acquisitions are obtained through a
competitive bidding process. The CPUC's recent decisions on the
Biennial Resource Plan Update proceedings required SDG&E to allow
qualified nonutility power producers that cogenerate or use
renewable energy technologies to bid for a portion of SDG&E's
future capacity needs. As a result of the decisions SDG&E would be
required to enter into contracts (ranging in term from 17 to 30
years) to purchase 500 mw of power, including 341 mw from
cogenerators, 94 mw from geothermal sources, and the remainder from
wind and other sources. On January 17, 1995 SDG&E filed a petition
with the FERC, contending that the CPUC's BRPU orders and auction
rules do not comply with the Public Utility Regulatory Policies Act
and that the FERC should require the CPUC to comply with PURPA. On
February 22, 1995 the FERC ruled unanimously that the CPUC violated
PURPA because, among other things the CPUC excluded other potential
suppliers from the bidding process, which would result in the
utilities paying more to the winning bidders than they would pay if
the utilities purchased the same quantities of power elsewhere. The
FERC acknowledged the CPUC's right, for environmental reasons, to
favor particular resources over others so long as the state does
not set prices above the purchasing utility's avoided cost. The
FERC held that the BRPU auction procedures were unlawful and that
SDG&E and Edison cannot lawfully be compelled to enter into
contracts resulting from the current BRPU auction until the CPUC
corrects the auction procedures.
In 1994 SDG&E also negotiated contracts for 745 mw of short-term purchased-power. The CPUC has also ordered utilities in the state to implement pilot demonstration projects to allow others to bid to supply utilities' customers with energy-conservation services that could reduce the need for generation capacity.
Additional information concerning resource planning and industry restructuring is discussed in Note 11 of the "Notes to Consolidated Financial Statements" on page 38 of the Annual Report to Shareholders and in "Management's Discussion & Analysis of Financial Condition and Results of Operations" beginning on page 18 of the 1994 Annual Report to Shareholders.
Electric Resources
Based on generating plants in service and purchased-power contracts
in place as of January 31, 1995, the net megawatts of electric
power expected to be available to SDG&E during the next summer
(normally the time of highest demand) are as follows:
Source Net Megawatts
--------------------------------------------------
Gas/Oil generating plants 1,611
Nuclear generating plants* 214
Combustion turbines 332
Long-term contracts with other utilities 675
Short-term contracts with other utilities 666
Contracts with others 470
-----
Total 3,968
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*Excludes San Onofre Nuclear Generating Station Unit 3 (216 mw) which is scheduled for refueling from July through August 1995.
SDG&E's record system peak demand of 3,294 mw occurred on August 12, 1994 when the net system capability, including power purchases, was 3,767 mw.
Gas/Oil Generating Plants: SDG&E's South Bay and Encina power plants are equipped to burn either natural gas or fuel oil. The four South Bay units went into operation between 1960 and 1971 and can generate 690 mw. The five Encina units began operation between 1954 and 1978 and can generate 921 mw. SDG&E sold and leased back Encina Unit 5 (315 mw) in 1978. The lease term is through 2004, with renewal options for up to 15 additional years.
SDG&E has 19 combustion turbines that were placed in service from 1966 to 1979. They are located at various sites and are used only in times of peak demand.
The Silver Gate plant is in storage and its 230 mw are not included in the system's capability. Silver Gate is not scheduled to return to service. The plant would have to comply with various environmental rules and regulations before returning to service. The cost of compliance could be significant.
Additional information concerning SDG&E's power plants is described under "Environmental Matters" and "Electric Properties" herein and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 18 of the 1994 Annual Report to Shareholders.
Nuclear Generating Plants: SDG&E owns 20 percent of the three nuclear units at San Onofre Nuclear Generating Station. The cities of Riverside and Anaheim own a total of 5 percent of SONGS 2 and 3. Southern California Edison Company owns the remaining interests and operates the units.
In November 1992 the CPUC issued a decision to permanently shut down SONGS 1. SDG&E and Edison filed a decommissioning plan in November 1994, although final decommissioning will not occur until SONGS 2 and 3 are also decommissioned. The unit's spent nuclear fuel has been removed from the reactor and stored on-site. In March 1993 the NRC issued a Possession-Only License for SONGS 1, and the unit was placed in a long-term storage condition in May 1994.
SONGS 2 and 3 began commercial operation in August 1983 and April 1984, respectively. SDG&E's share of the capacity is 214 mw of SONGS 2 and 216 mw of SONGS 3.
Between 1992 and 1994, SDG&E spent $79 million on capital modifications and additions for all three units and expects to spend $29 million in 1995 on SONGS 2 and 3. SDG&E deposits funds in an external trust to provide for the future dismantling and decontamination of the units. The shutdown of SONGS 1 does not affect
contributions to the trust. For additional information, see Note 6 of the "Notes to Consolidated Financial Statements" on page 34 of the 1994 Annual Report to Shareholders.
In 1983 the CPUC adopted performance-based incentive plans for SONGS that set a Target Capacity Factor range of 55 to 80 percent for SONGS 2 and 3. Energy costs or savings outside that range are shared equally by SDG&E and its customers. Since the TCF was adopted, these units have operated above 55 percent for each of their fuel cycles. In addition to always attaining the minimum TCF, SONGS 2 and 3 have exceeded the range a total of five times in the twelve completed cycles. However, there can be no assurance that they will continue to achieve a 55 percent capacity factor. SONGS Unit 2 was shut down on February 11, 1995 to begin its scheduled 55-day refueling after operating continuously for 552 days. If the refueling is completed on schedule, SONGS 2 would be eligible for a Target Capacity Factor incentive reward.
On November 15, 1994 SDG&E, Edison and the CPUC's Division of Ratepayer Advocates signed a settlement agreement on the accelerated recovery of SONGS Units 2 and 3 capital costs. The agreement would allow SDG&E to recover more than $750 million over an eight-year period beginning in February 1996, rather than over the anticipated operational life of the units, which is expected to extend to 2013. During the eight-year period, the authorized rate of return would be reduced from 9.76 percent to 7.52 percent (SDG&E's 1995 authorized cost of debt). The agreement also includes an incentive plan that would encourage continued, efficient operation of the plant. However continued operation of SONGS beyond the eight-year period would be at the owners' discretion. Under the plan, customers would pay about four cents per kilowatt-hour during the eight-year period. This pricing plan would replace the traditional method of recovering the units' operating expenses and capital improvements. This is intended to make the plants more competitive with other sources. SDG&E is unable to predict the impact of this proposal, if approved, on the results of its operations. However, it is expected to be considered in conjunction with the CPUC's industry restructuring proposal. A CPUC decision is expected in the first half of 1995.
Additional information concerning the SONGS units and the CPUC's industry restructuring proposal is presented under "Environmental Matters" and "Legal Proceedings" herein, in "Management's Discussion & Analysis of Financial Condition and Results of Operations" beginning on page 18 of the 1994 Annual Report to Shareholders, and in Notes 10 and 11 of the "Notes to Consolidated Financial Statements" beginning on page 36 of the 1994 Annual Report to Shareholders.
Purchased Power: The following table lists contracts with other utilities and others:
Bonneville Power May Through September 300 Hydro Power Administration (1995 and 1996) Comision Federal de Through August 1996 150 Geothermal Electricidad (Mexico) Portland General Through December 1998 50 Hydro storage Electric Company Through December 2013 75 Coal Public Service Company Through April 2001 100 System supply of New Mexico |
Short-Term Contracts with Other Utilities:
Imperial Irrigation District Through March 1995 200 System Supply
PacifiCorp Through December 1995 200 System Supply
Rocky Mountain Through December 1995 66 Coal
Generation Cooperative
Salt River Project Through December 1995 200 System Supply
Contracts with Others:
Cities of Azusa, Banning Through December 1995 40 Coal
and Colton
Enron Power Marketing, Inc. Through March 1995 and 50 System Supply
June through September
1995
Goal Line Limited Through December 2024 50 Cogeneration
Partnership
Louis Dreyfus Electric June through September 150 System Supply
Power, Inc. 1995
Sithe Energies Through December 2019 102 Cogeneration
USA, Inc.
Yuma Cogeneration Through June 2024 50 Cogeneration
Associates
Other Various 28 Various
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The commitment with CFE is for energy and capacity. The others are for capacity only. The capacity charges are based on the costs of the generating facilities from which purchases are made. These charges generally cover costs such as operating and maintenance expenses, transmission expenses, administrative and general expenses, state and local taxes, lease payments, depreciation, and a return on the seller's rate base (if a utility) or other markup on the seller's cost.
Energy costs under the CFE contract are indexed to changes in Mayan crude oil prices and the dollar/peso exchange rate. Energy costs under the other contracts are based primarily on the cost of fuel used to generate the power.
The locations of the suppliers which have long-term contracts with SDG&E and the primary transmission lines (and their capacities) used by SDG&E are shown on the following map of the Western United States. The transmission capacity shown for the Pacific Intertie does not reflect the effects of the fire at the DC terminal at Sylmar discussed under "Transmission Arrangements - Pacific Intertie" herein. Where applicable, interconnection to the primary lines is provided by contract.
[ MAP ]
Long-Term Contracts with Other Utilities Bonneville Power Administration: In 1993 SDG&E and BPA entered into a four-year agreement for the exchange of capacity and energy. SDG&E provides BPA with off-peak, non-firm energy in exchange for firm summer capacity and associated energy. In addition, SDG&E makes energy available for BPA to purchase during the period of January through April of each year. To facilitate the exchange, SDG&E has agreements with Southern California Edison and the Los Angeles Department of Water & Power for 200 mw of firm transmission service from the Nevada-Oregon border to SONGS.
Comision Federal de Electricidad: In 1986 SDG&E began the 10-year term of a purchase agreement under which SDG&E purchases firm energy and capacity of 150 mw from CFE. The agreement will terminate on September 1, 1996.
Portland General Electric Company: In 1985 SDG&E and PGE entered into an agreement for the purchase of 75 mw of capacity from PGE's Boardman Coal Plant from January 1989 through December 2013. SDG&E pays a monthly capacity charge plus a charge based upon the amount of energy received. In addition, SDG&E has 50 mw of available hydro storage service with PGE through December 1998. SDG&E has also purchased 75 mw of transmission service from PGE in the northern section of the Pacific Intertie through December 2013.
Public Service Company of New Mexico: In 1985 SDG&E and PNM entered into an agreement for the purchase of 100 mw of capacity from PNM's system from June 1988 through April 2001. SDG&E pays a capacity charge plus a charge based on the amount of energy received.
Short-Term Contracts with Other Utilities Imperial Irrigation District: In April 1994 SDG&E and IID entered into agreements for the purchase of up to 200 mw of firm energy from July 1994 through March 1995. The energy charge is based on the amount of energy received.
PacifiCorp: In October 1994 SDG&E entered into an agreement with PacifiCorp for the purchase of 200 mw of capacity through 1995. SDG&E pays a capacity charge plus a charge based on the amount of energy received.
Rocky Mountain Generation Cooperative: In November 1994 SDG&E and RMGC entered into an agreement for the purchase of 66 mw of capacity through December 1995. SDG&E pays a capacity charge plus a charge based on the amount of energy received.
Salt River Project: In November 1994 SDG&E and SRP entered into an agreement for the purchase of 200 mw of capacity through December 1995. SDG&E pays a capacity charge plus a charge based on the amount of energy received.
Contracts with Others
Cities of Azusa, Banning and Colton: In 1993 SDG&E and the cities
entered into an agreement for the purchase of 40 mw of capacity
from January 1995 through December 1995. SDG&E pays a capacity
charge plus a charge based on the amount of energy received.
Enron Power Marketing, Inc.: In April 1994 SDG&E and Enron entered into an agreement for the purchase of 50 mw of firm energy from July 1994 through March 1995. In November 1994 SDG&E and Enron entered into an agreement for the purchase of 50 mw of firm energy from June through September 1995. The energy charge is based on the amount of energy received.
Goal Line Limited Partnership: In December 1990 SDG&E and Goal Line entered into a 30-year agreement for the purchase of 50 mw of capacity which began in February 1995. SDG&E pays a capacity charge plus a charge based on the amount of energy received.
Louis Dreyfus Electric Power, Inc.: In November 1994 SDG&E and Dreyfus entered into an agreement for the purchase of 150 mw of firm energy from June through September 1995. The energy charge is based on the amount of energy received.
Sithe Energies USA, Inc.: In April 1985 SDG&E entered into three 30-year agreements for the purchase of 102 mw of capacity from December 1989 through December 2019. SDG&E pays a capacity charge plus a charge based on the amount of energy received.
Yuma Cogeneration Associates: In March 1990 SDG&E and Yuma Cogeneration Associates entered into a 30-year agreement for the purchase of 50 mw of capacity which began in June 1994. SDG&E pays a capacity charge plus a charge based on the amount of energy received.
Other: SDG&E currently purchases capacity and energy from 115 as-available Qualifying Facilities. SDG&E also has four 20-year agreements with Pacific Energy and Landfill Generating Partners for the purchase of 5 mw of firm capacity through the years 2006-2011. SDG&E pays a capacity charge plus a charge based on the amount of energy received. These account for approximately 28 mw of capacity annually.
Additional information concerning SDG&E's purchased-power contracts is described in "Legal Proceedings" herein and in "Management's Discussion & Analysis of Financial Condition and Results of Operations" beginning on page 18 of the 1994 Annual Report to Shareholders, and in Notes 10 and 11 of the "Notes to Consolidated Financial Statements" beginning on page 36 of the 1994 Annual Report to Shareholders.
Power Pools
In 1964 SDG&E, Pacific Gas & Electric, and Edison entered into the
California Power Pool Agreement. It provides for the transfer of
electrical capacity and energy by purchase, sale or exchange during
emergencies and at other mutually determined times.
SDG&E is a participant in the Western Systems Power Pool, which involves an electric power and transmission rate agreement with utilities and power agencies located from British Columbia through the western states and as far east as the Mississippi River. The 64 investor-owned and municipal utilities, state and federal power agencies, energy brokers and power marketers share power and information in order to increase efficiency and competition in the bulk power market. Participants are able to target and coordinate delivery of cost-effective sources of power from outside their service territories through a centralized exchange of information.
Transmission Arrangements
In addition to interconnections with other California utilities,
SDG&E has firm transmission capabilities for purchased power from
the Northwest, the Southwest and Mexico.
Pacific Intertie: The Pacific Intertie enables SDG&E to purchase and receive surplus coal and hydroelectric power from the Northwest. SDG&E, PG&E, and Edison share transmission capacity on the Pacific Intertie under an agreement that expires in July 2007. SDG&E's share of the intertie is 466 mw through 1996 and 266 mw through July 2007. In October 1994 a major fire at the DC terminal at Sylmar reduced SDG&E's rights on the DC line by 100 mw. Repairs are not expected to be completed until October 1995. This is not expected to have a significant impact on SDG&E's transmission capabilities within California.
Southwest Powerlink: SDG&E's 500-kilovolt Southwest Powerlink transmission line, which it shares with Arizona Public Service Company and IID, extends from Palo Verde, Arizona to San Diego and enables SDG&E to import power from the Southwest. SDG&E's share of the line is 914 mw, although it can be less, depending on specific system conditions.
Mexico Interconnection: Mexico's Baja California Norte system is connected to SDG&E's system via two 230-kilovolt interconnections with firm capability of 408 mw. SDG&E uses this interconnection for transactions with CFE.
Additional Transmission Capabilities: Through an agreement with Edison, SDG&E has obtained the option to purchase 100 mw of transmission service on the existing Palo Verde - Devers transmission line in the late 1990s. The agreement is contingent upon Edison's construction of its second transmission line connecting the Palo Verde Nuclear Generating Station in Arizona to the Devers substation near Palm Springs, California. This agreement also provides SDG&E with the option to exchange up to 200 mw of Southwest Powerlink transmission rights for up to 200 additional mw of Edison's rights on the existing Palo Verde - Devers transmission line. This exchange would enable both utilities to further diversify their transmission paths.
Transmission Access
As a result of the enactment of the National Energy Policy Act of
1992, the FERC has established rules to implement the Act's
transmission access provisions. These rules specify FERC-required
procedures for others' requests for transmission service.
Additional information regarding transmission access is described in "Management's Discussion & Analysis of Financial Condition and Results of Operations" beginning on page 18 of the 1994 Annual Report to Shareholders.
Fuel and Purchased-Power Costs
The following table shows the percentage of each electric fuel
source used by SDG&E and compares the costs of the fuels with each
other and with the total cost of purchased power:
Percent of Kwhr Cents per Kwh
- -------------------------------------------------------------------
1994 1993 1992 1994 1993 1992
----- ----- ----- ---- ---- ----
Natural gas 22.4% 24.4% 27.4% 3.1 3.4 3.1
Nuclear fuel 21.8 17.2 22.3 0.5 0.6 0.8
Fuel oil 1.4 3.7 0.6 2.6 2.5 4.0
----- ----- ----- ----- ----- -----
Total generation 45.6 45.3 50.3
Purchased power-net 54.4 54.7 49.7 3.7 3.5 3.8
----- ----- ------ ----- ----- -----
Total 100.0% 100.0% 100.0%
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The cost of purchased power includes capacity costs as well as the costs of fuel. The cost of natural gas includes transportation costs. The costs of natural gas, nuclear fuel and fuel oil do not include SDG&E's capacity costs. While fuel costs are significantly less for nuclear units than for other units, capacity costs are higher.
Electric Fuel Supply
Natural Gas: Information concerning natural gas is provided in
"Natural Gas Operations" herein.
Nuclear Fuel: The nuclear-fuel cycle includes services performed by others. These services and the dates through which they are under contract are as follows:
Mining and milling of uranium concentrate(1) 1995 Conversion of uranium concentrate to uranium hexafluoride(2) 1995
Enrichment of uranium hexafluoride(3) 1998 Fabrication of fuel assemblies 2000 Storage and disposal of spent fuel(4) - |
1 SDG&E's contracted supplier of uranium concentrate is United States Enrichment Corporation. However, the majority is supplied by purchases from the spot market.
2 Competitive bids will be sought in 1995 for a multi-year contract to supply conversion services beginning in 1996.
3 The Department of Energy is committed to offer any required enrichment services through 2014.
4 Spent fuel is being stored at SONGS, where storage capacity will be adequate at least through 2003. If necessary, modifications in fuel-storage technology can be implemented to provide on-site storage capacity for operation through 2014, the expiration date of the NRC operating license. The DOE's plan is to provide a permanent storage site for the spent nuclear fuel by 2010.
Pursuant to the Nuclear Waste Policy Act of 1982, SDG&E entered into a contract with the DOE for spent-fuel disposal. Under the agreement, the DOE is responsible for the ultimate disposal of spent fuel. SDG&E is paying a disposal fee of $1 per megawatt-hour of net nuclear generation. Disposal fees average $3 million per year. SDG&E recovers these disposal fees in customer rates.
To the extent not currently provided by contract, the availability and the cost of the various components of the nuclear fuel cycle for SDG&E's nuclear facilities cannot be estimated at this time.
Additional information concerning nuclear fuel costs is discussed in Note 10 of the "Notes to Consolidated Financial Statements" beginning on page 36 of the 1994 Annual Report to Shareholders.
Fuel Oil: SDG&E has no long-term commitments to purchase fuel oil. The use of fuel oil is dependent upon price differences between it and alternative fuels, primarily natural gas. During 1994 SDG&E burned 337,000 barrels of fuel oil. Fuel oil usage in 1995 will depend on its price relative to natural gas and the availability of natural gas and other alternatives. The lowest-priced fuel is used in order to minimize fuel costs for electric generation.
Natural Gas Operations
SDG&E purchases natural gas for resale to its customers and for fuel in its generating plants. All natural gas is delivered to SDG&E under a transportation and storage agreement with Southern California Gas Company through two transmission pipelines with a combined capacity of 430 million cubic feet per day.
During 1994 SDG&E purchased approximately 95 billion cubic feet of natural gas. The majority of SDG&E's natural gas requirements are met through contracts of less than one year. SDG&E purchases natural gas primarily from various spot-market suppliers and from suppliers under short-term contracts. These supplies originate in New Mexico, Oklahoma and Texas, and are transported to the SoCal Gas Company pipeline at the California border by El Paso Natural Gas Company and by Transwestern Pipeline Company. SDG&E also purchases natural gas under long-term contracts with four Canadian suppliers. This natural gas is transported to SDG&E's system over Alberta Natural Gas, Pacific Gas Transmission, and PG&E pipelines. The contracts have varying terms through 2004.
Additional information concerning SDG&E's gas operations is described under "Legal Proceedings" herein and in "Management's Discussion & Analysis of Financial Condition and Results of Operations" beginning on page 18 of the 1994 Annual Report to Shareholders and Note 10 of the "Notes to Consolidated Financial Statements" beginning on page 36 of the 1994 Annual Report to Shareholders.
Rate Regulation
Introduction
In April 1994 the CPUC announced its proposal to restructure
California's regulated electric utility industry to stimulate
competition and to lower rates. The proposed regulatory framework
would be phased in by 2002, allowing utility customers to purchase
their energy from either utility or nonutility suppliers. The
utilities would continue to provide transmission and distribution
services to customers that chose to purchase their energy from
other providers. The CPUC also proposed that the cost of providing
these services and the cost of serving remaining utility customers
would be recovered through a performance-based ratemaking process.
SDG&E is currently participating in a performance-based ratemaking
process on an experimental basis which commenced in 1993 and runs
through 1998. The CPUC is holding several hearings to consider
whether its proposal or some other form of a competitive market
should be developed and how the cost of the transition to
competition should be shared among utility shareholders and
customers. The CPUC has stated that it expects to issue a final
decision by May 1995 and require implementation by September 1995.
SDG&E cannot predict the impact of the CPUC's final decision.
However, it is expected to change significantly the following
ratemaking mechanisms that are currently in effect.
Base Rates
Base rates allow SDG&E to recover the cost of operating and
maintaining the utility system, taxes, depreciation, and other
non-fuel business costs. In addition, SDG&E files an annual
application to establish its cost of capital, which reflects the
cost of debt and equity.
Cost of Capital
On November 22, 1994 the CPUC issued its decision on the 1995 Cost
of Capital proceeding. The Commission authorized higher returns in
1995 for the six California investor-owned utilities to maintain
the utilities' financial integrity, compensate investors for the
increased costs of doing business, and recognize the increased
levels of risk arising from industry restructuring. SDG&E was
authorized a return on equity of 12.05 percent for an overall rate
of return of 9.76 percent. SDG&E's 1994 authorized return on equity
and rate of return were 10.85 percent and 9.03 percent,
respectively.
Fuel and Energy Rates
The CPUC requires balancing accounts for fuel and purchased energy
costs and for sales volumes. The CPUC sets balancing account rates
based on estimated costs and sales volumes. Revenues are adjusted
upward or downward to reflect the differences between authorized
and actual volumes and costs. These differences are accumulated in
the balancing accounts and represent amounts to be either recovered
from customers or returned to them. These balancing accounts were
overcollected by $112 million at December 31, 1994. The CPUC
adjusts SDG&E's rates annually to amortize the accumulated
differences. As a result, changes in SDG&E's fuel and
purchased-power costs or changes in electric and natural gas sales
volumes normally have not affected SDG&E's net income. As described
under "Performance-Based Ratemaking" SDG&E can realize rewards or
penalties depending on the achievement of certain benchmarks for
operations and expenses.
Electric Fuel Costs and Sales Volumes
Rates to recover electric fuel and purchased-power costs are
determined in the Energy Cost Adjustment Clause proceeding. This
proceeding normally takes place annually, in two phases. In the
forecast phase, prices are set based on the estimated cost of fuel
and purchased power for the following year and are adjusted to
reflect any changes from the previous period. These adjustments
are made by amortizing any accumulation in the balancing accounts
described above. In the second phase, the reasonableness review,
the CPUC evaluates the prudence of SDG&E's nuclear and natural gas
storage operations. As described under "Performance-Based
Ratemaking", reviews of fuel and purchased-power transactions,
electric operations and natural gas transactions now are required
only if SDG&E's fuel and energy expenses vary significantly from
the established benchmarks.
The Electric Revenue Adjustment Mechanism compensates for variations in sales volume compared to the estimates used for setting the non-fuel component of rates. ERAM is designed to stabilize revenues, which may otherwise vary due to changes in sales volumes resulting from weather fluctuations and other factors. Any accumulation in the ERAM balancing account is amortized when new rates are set in the ECAC proceeding.
Natural Gas Costs and Sales Volumes
Rates to recover the cost of purchasing and transporting natural
gas to SDG&E are determined in the Biennial Cost Allocation
Proceeding. The BCAP proceeding normally occurs every two years
and is updated in the interim year for purposes of amortizing any
accumulation in the balancing accounts.
Balancing accounts for natural gas costs and sales volumes are similar to those for electric fuel costs and sales volumes. The natural gas balancing accounts include the Purchased Gas Account for natural gas costs and the Gas Fixed Cost Account for sales volumes. Balancing account coverage includes both core customers (primarily residential and commercial customers) and noncore customers (primarily large industrial customers). However, SDG&E receives balancing account coverage on only 75 percent of noncore GFCA overcollections and undercollections.
Performance-Based Ratemaking
SDG&E implemented performance-based ratemaking in 1993 for natural
gas procurement and transportation, and electric generation and
purchased energy, and in 1994 for base rates.
The CPUC approved the first two mechanisms on a two-year experimental basis beginning August 1, 1993. SDG&E plans to file a request with the CPUC to continue the two mechanisms beyond their July 31, 1995 expiration until the CPUC has evaluated their effectiveness. These mechanisms measure SDG&E's ability to purchase and transport natural gas, and to generate or purchase energy at the lowest possible cost, by comparing SDG&E's performance against various market benchmarks. SDG&E's shareholders and customers share in any savings or excess costs within predetermined ranges.
Under the natural gas procurement and transportation mechanism, if SDG&E's expenses exceed the benchmark by more than 2 percent, SDG&E will recover one-half of the excess over 2 percent from customers. However, if expenses fall below the index, SDG&E's shareholders and customers will share equally in the savings.
The benchmark to measure SDG&E's electric generation and purchased energy performance (generation and dispatch) is based upon the difference between SDG&E's actual and authorized electric fuel and short-term purchased energy expenses. SDG&E is at risk for about one-half of the expenses that exceed the authorized amount by 6 percent or less. SDG&E is allowed to recover expenses exceeding the 6 percent range, subject to a reasonableness review by the CPUC. SDG&E's customers will receive about one-half of the savings should expenses fall below the authorized amount by 6 percent or less. SDG&E's customers receive 100 percent of the additional savings should expenses fall below the authorized amount by 6 percent or more.
On August 3, 1994 the CPUC approved the Base Rate component of SDG&E's Performance-Based Ratemaking proposal, implementing the base-rate mechanism beginning in 1994 and ending in 1998, thereby replacing the traditional general rate case application. The base-rate mechanism has three segments. The first is a formula similar to the traditional attrition mechanism used to determine SDG&E's annual revenue requirement for operating, maintenance and capital costs. SDG&E's initial revenue requirements were based on SDG&E's 1993 General Rate Case decision. The second is a set of indicators which determine performance standards for customer rates, employee safety, electric system reliability and customer satisfaction. Each indicator specifies a range of possible shareholder benefits and risks. SDG&E could be penalized up to a total of $21 million should it fall significantly below these standards or earn up to $19 million if it exceeds all of the performance targets. The third segment sets limits on SDG&E's rate of return. If SDG&E realizes an actual rate of return that exceeds its authorized rate of return from 1 percent to 1 1/2 percent, it is required to return 25 percent of the excess over 1 percent to customers. If SDG&E's rate of return exceeds the authorized level by more than 1 1/2 percent, SDG&E will also return 50 percent of the excess over 1 1/2 percent to customers. SDG&E will be at risk if its rate of return falls less than 3 percent below the authorized level. However, if SDG&E's rate of return is 3 percent or more below or above the authorized level, a rate case review would automatically occur. SDG&E may request a rate case review if at any time its rate of return drops 1 1/2 percent or more below the authorized level.
On October 31, 1994 SDG&E filed reports with the CPUC on the results of the generation and dispatch and the gas procurement mechanisms for the year ended July 31, 1994. SDG&E's fuel and purchased power expenses fell below the benchmarks for these mechanisms by $35 million. As a result, SDG&E's ECAC application (see above) and its current Biennial Cost Allocation Proceeding application request a shareholder reward of $8 million and that the remainder of these savings be given to customers through lower rates. SDG&E must file a report with the CPUC on the results of the 1994 PBR Base Rates mechanism by May 15, 1995. SDG&E expects to determine the final 1994 PBR base rate reward or penalty in September 1995 when the Edison Electric Institute publishes its final report on 1994 national electric rates.
Energy Conservation Programs
Over the past several years, SDG&E has promoted conservation
programs to encourage efficient use of energy. The programs are
designed to conserve energy through the use of energy-efficiency
measures that will reduce customers' energy costs and reduce the
need to build additional power plants. The costs of these programs
are recovered from customers. The programs contain an incentive
mechanism that could increase or decrease SDG&E's earnings,
depending upon the performance of the programs in meeting specified
efficiency and expenditure targets. The CPUC has encouraged
expansion of these programs, authorizing annual expenditures of $54
million from 1993 through 1995. However, the CPUC has also ordered
utilities to conduct a test program to determine if unaffiliated
suppliers could offer energy conservation services at a lower cost.
Low Emission Vehicle Programs
Since 1991 SDG&E has conducted a CPUC-approved natural gas vehicle
program. The program includes building refueling stations,
demonstrating new technology, providing incentives and converting
portions of SDG&E's fleet vehicles to natural gas. The cost of
this program is being recovered in natural gas rates. In 1994 SDG&E
and the other investor-owned utilities in California filed
applications with the CPUC for funding to implement natural gas
vehicle and electric vehicle programs through the year 2000. A CPUC
decision is expected in the second quarter of 1995.
Electric Rates
The average price per kilowatt-hour charged to electric customers
was 9.7 cents in 1994 and 9.4 cents in 1993.
Natural Gas Rates
The average price per therm of natural gas charged to customers was
59.9 cents in 1994 and 55.1 cents in 1993.
Additional information concerning rate regulation is described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 18 of the 1994 Annual Report to Shareholders.
Environmental Matters
SDG&E's operations are guided by federal, state and local
environmental laws and regulations governing air quality, water
quality, hazardous substance handling and disposal, land use, and
solid waste. Compliance programs to meet these laws and
regulations increase the cost of electric and natural gas service
by requiring changes or delays in the location, design,
construction and operation of new facilities. SDG&E may also incur
significant costs to operate its facilities in compliance with
these laws and regulations and to clean up the environment as a
result of prior operations of SDG&E or others. The costs of
compliance with environmental laws and regulations are normally
recovered in customer rates.
Electric and Magnetic Fields
Scientists are researching the possibility that exposure to power
frequency magnetic fields causes adverse health effects. This
research, although often referred to as relating to electric and
magnetic fields, or EMFs, focuses on magnetic fields. To date,
some laboratory studies suggest that such exposure creates
biological effects, but those effects have not been shown to be
harmful.
The studies that have most concerned the public are certain epidemiological studies. Some of those studies reported a weak correlation between childhood leukemia and the proximity of homes to certain power lines and equipment. Other studies reported weak correlations between computer estimates of historic exposure and disease. Various wire configuration categories and the computer calculations were used as substitutes for historical exposure measurements, which were not available. However, some of the studies also measured actual field levels. When actual field levels were measured, no correlation was found with disease.
Other epidemiological studies found no correlation between estimated exposure and any disease. Scientists cannot explain why some studies using estimates of past exposure report correlations between estimated fields and disease, while others do not. Neither can scientists explain why no studies correlate measured fields with disease.
To respond to public concern and scientific uncertainty, the CPUC created the California Consensus Group in 1991 and assigned this group the responsibility of reaching agreement on interim measures which could be implemented until science provides direction. In November 1993 the CPUC adopted an interim policy regarding EMFs, which implemented the Consensus Group's recommendations. Consistent with the more than twenty major scientific reviews of available research literature, the CPUC concluded that no health risk has been identified with exposure to low-frequency magnetic fields. The November 1993 decision also created two utility-funded programs (a public education program and a research program), which directed utilities to adopt a low-cost EMF-reduction policy for new projects. The low-cost EMF-reduction policy entails design changes to new projects to achieve a noticeable reduction of magnetic-field levels. The CPUC indicated that utilities should use 4 percent of the cost of new or upgraded facilities as a benchmark in developing low-cost measures which produce a noticeable reduction in field levels. In May 1994 SDG&E adopted design guidelines which implement the low-cost measures, subject to safety, reliability, efficiency and other operational criteria.
Litigation concerning EMFs is discussed under "Legal Proceedings" herein.
Hazardous Substances
On May 4, 1994 the CPUC issued its decision on the Hazardous Waste
Collaborative, approving a mechanism for utilities to recover their
hazardous waste costs, including those related to Superfund sites
or similar sites requiring cleanup. Basically, the decision allows
utilities to recover 90 percent of their cleanup costs and related
third-party litigation costs and 70 percent of the related
insurance-litigation expenses.
BKK Corporation: SDG&E was one of several hundred companies using the BKK Corporation's West Covina facility, which operated under a permit for the disposal of hazardous waste prior to its 1984 closure. The site is listed for cleanup in the California Superfund Site Priority List under the Hazardous Substance Account Act, which imposes cleanup liability on the sites' owners, operators or users. The California Department of Toxic Substances Control is working with the site owner/operator to determine whether a post-closure permit should be issued for the facility. In addition, the U.S. Environmental Protection Agency is overseeing BKK's assessment of potential releases from the site, including releases into the groundwater, to determine whether any remediation will be required. SDG&E believes the site owner/operator will perform any required assessment and remedial activities. SDG&E is unable to estimate the cost of cleaning up the site or what liability, if any, it may have for such cleanup costs.
North American Environmental: In 1992 the U.S. Environmental Protection Agency named SDG&E as a Potentially Responsible Party (PRP), for the North American Environmental, Inc. site in Clearfield, Utah. The EPA has evaluated the extent of the site's contamination and potential remediation costs. All required cleanup and corrective actions at the site have been completed. Any individual liability among the PRPs has not been determined. The contractor who had transported SDG&E's hazardous wastes to the site has agreed to indemnify SDG&E against liability for remediation, if any, associated with the site. Although SDG&E's ultimate liability, if any, cannot be determined, it is not expected to be material.
Rosens: SDG&E was named as a PRP with respect to the Rosen's Electrical Equipment Supply Company site in Pico Rivera, California. Additional information concerning this site is described in "Management's Discussion & Analysis of Financial Condition and Results of Operations" beginning on page 18 of the 1994 Annual Report to Shareholders.
Waste Water Treatment: SDG&E is authorized to operate the waste-water-treatment facilities at the Encina and South Bay power plants under the California Hazardous Waste Treatment Permit Reform Act of 1992. To comply with the state's regulations, construction of secondary containment for the waste-water-treatment facilities was completed in 1994 at a total cost of $3 million. New waste-water-storage tanks for these facilities were installed in 1991. SDG&E received authorization to operate the new tanks from the California Department of Toxic Substances Control pursuant to a variance from the hazardous-waste-facility permitting requirements. In June 1993 this variance was withdrawn due to a change in the Department's policy. SDG&E and the Department successfully negotiated a agreement that authorizes the continued operation of these storage tanks without the need for a complete hazardous-waste-facility permit. Recently, however, the California legislature adopted a new law which supersedes the agreement and allows the storage tanks to be operated as a part of and subject to the same requirements governing the waste-water-treatment facility.
Underground Storage: California has enacted legislation to protect ground water from contamination by hazardous substances. Underground storage containers require permits, inspections and periodic reports, as well as specific requirements for new tanks, closure of old tanks and monitoring systems for all tanks. SDG&E's capital program to comply with these requirements has cost $3 million to date. It is expected that cleanup of sites previously contaminated by underground tanks will occur for an unknown number of years. SDG&E cannot predict the cost of such cleanup. Additionally, if a facility is reactivated, the removal and replacement of existing tanks may be required. Specific known underground locations requiring assessment and/or remediation are indicated below:
On May 29, 1987 the San Diego Regional Water Quality Control Board issued SDG&E a cleanup and abatement order for gasoline contamination originating from an underground storage tank located at SDG&E's Mountain Empire operation and maintenance facility. To comply with the order SDG&E has implemented a "pump and treat"
program to remediate the site. Because the source of the area's drinking water is near the contamination, the Environmental Health Services Department and the Regional Board have required SDG&E to further assess the extent of the contamination and may require SDG&E to undertake alternative remediation to further protect the drinking water from contamination. SDG&E is unable to estimate the costs for the assessment or for alternative remediation.
On January 7, 1993 SDG&E was issued a notice of corrective action by the Department of Health Services relative to soil contamination from used motor oil associated with an underground tank located at SDG&E's South Bay Operation and Maintenance facility. At present, SDG&E is unable to estimate the extent of the contamination or the potential remediation costs.
In 1993 SDG&E discovered a shallow underground tank-like structure while installing underground electric facilities. The structure was located under a public street immediately west of a former generating facility. The past ownership, operation and use of the structure is unknown. Hydrocarbon contamination has been found in the vicinity of the structure, but it has not been established whether the structure was the source of the contamination. The San Diego County Department of Health Services has issued a cleanup and abatement order to SDG&E. The order requires SDG&E to conduct a site assessment to delineate the nature and scope of the contamination. SDG&E's duty to meet these requirements has been postponed pending the resolution of property ownership. SDG&E is unable to estimate the nature and extent of the contamination or the potential remediation costs.
Station B: Station B is located in downtown San Diego and was operated as a generating facility from 1911 until June 1993. During 1986, three 100,000-gallon underground diesel-fuel storage tanks were removed. Pursuant to a cleanup and abatement order, SDG&E remediated the existing hydrocarbon contamination. In the course of the remediation effort, detectible levels of PCB were discovered. Further analysis of PCB contamination in the area is required before site closure. SDG&E has not completed its assessment of such PCBs and therefore is unable to estimate the cost of any PCB remediation, or whether or not any will be required.
In addition, asbestos was used in the construction of the facility. Renovation, reconditioning or demolition of the facility will require the removal of the asbestos in a manner complying with all applicable environmental, health and safety laws. The estimated capital cost of this removal is between $3 million and $6 million. Additionally, reuse of the facility may require the removal or cleanup of PCBs, paints containing heavy metals or fuel oil. SDG&E is assessing the extent of any possible contamination by these or other hazardous materials at the facility. However, until the assessment is completed, SDG&E is unable to estimate the extent of any contamination or the cost of any associated remediation.
Encina Power Plant: During 1993 SDG&E discovered the presence of hydrocarbon contamination in subsurface soil at its Encina power plant. This contamination is located near the fuel-storage facilities and is believed to be fuel oil originating from a 1950s refueling spill. SDG&E has reported the discovery of the contamination to governmental agencies and has determined it does not pose a significant risk to the environment or to public health. SDG&E is unable to estimate the costs of assessing and of remediating the contamination.
Manufactured Gas Plant Sites: During the late 1800s and early 1900s SDG&E and its predecessors manufactured gas from the combustion of fuel oil at a manufactured gas plant in downtown San Diego and at small facilities in the nearby cities of Escondido and Oceanside. Although no tar pits common to town gas sites have been found at the facilities, ash and other residual hazardous byproducts from the gas-manufacturing process were found at the Escondido site during grading for expansion of a substation. Remediation of the Escondido site has been completed at a cost of $3 million. Based upon its assessment and remediation activities, SDG&E has applied to the Department of Health Services for a closure certification for the Escondido site.
SDG&E and the Department of Health Services are aware that hazardous substances resulting from the operation of the Escondido manufactured-gas plant may be present on adjacent locations. SDG&E will coordinate any required assessment or remediation of any such locations with the department.
SDG&E has not found any similar town gas site residuals at the San Diego site. However, ash residue similar to that at Escondido was found on property adjacent to SDG&E's Oceanside gas regulator station. This ash residue has been covered with asphalt to prevent public exposure. Some ash residue has also been observed in soil adjacent to the San Diego site, which is a possible location for a new sports arena for the City of San Diego. As a part of its investigation of the site, the City is proposing to conduct a sampling and analysis effort to determine whether or not the site has been contaminated by hazardous materials.
Due to the possibility that town gas residuals exist under the San Diego and Oceanside sites, and as a result of the proposed sampling and analysis plan to be conducted by the City of San Diego, SDG&E will implement an environmental assessment of the sites in 1995. SDG&E is unable to estimate the cost of assessment and potential remediation of these sites.
Litigation concerning hazardous substances is discussed in "Legal Proceedings - Metropolitan Transit Development Board" herein.
Air Quality
The San Diego Air Pollution Control District regulates air quality
in San Diego County in conformance with the California and federal
Clean Air Acts. California's standards are more restrictive than
federal standards.
Although SDG&E facilities comply with very strict emission limits and contribute only about 3 percent of the air emissions in San Diego County, the APCD is required by the California Clean Air Act to further reduce emissions from all San Diego industry. The APCD has adopted Rule 69 to further reduce nitrogen oxide emissions from SDG&E power plants. This rule will require the retrofit of the Encina and South Bay power plants with catalytic converters to remove approximately 87 percent of current nitrogen oxide emissions. The estimated capital cost to comply with Rule 69 is $110 million. In addition, annual operating costs will increase about $6 million after all units have been retrofitted. SDG&E expects this to be completed by 2001.
The acid rain section of the federal Clean Air Act Amendments of 1990 requires SDG&E to upgrade the continuous emission monitors at its Encina and South Bay power plants to provide more-complete emissions data. Installation of the required continuous emission monitor upgrades was completed in 1994 at a cost of approximately $5 million.
In 1990 the South Coast Air Quality Management District passed a rule which will require SDG&E's older natural gas compressor engines at its Moreno facility to either meet new stringent nitrogen oxide emission levels or be converted to electric drive. In October 1993 the Air Quality District adopted a new program called RECLAIM, which will replace existing rules and require SDG&E's natural gas compressor engines at its Moreno facility to reduce their nitrogen oxide emission levels by about 10 percent a year through 2003. This will be accomplished through the installation of new emission monitoring equipment, operational changes to take advantage of low emitting engines, and engine retrofits. However, SDG&E is concluding negotiations with the Air Quality District to reclassify three of these engines, which will eliminate the need for certain monitoring equipment for those engines. The cost of complying with the proposed rule is expected to be $3 million.
Water Quality
Discharge permits are required to enable SDG&E to discharge its
cooling water and its treated in-plant waste water, and are,
therefore, a prerequisite to the continued operation of SDG&E's
power plants. The promulgation or modification of
water-quality-control plans by state and federal agencies may
impose increasingly stringent cooling-water and
treated-waste-water-discharge requirements on SDG&E in the future.
SDG&E is unable to predict the terms and conditions of any renewed permits or their effects on plant or unit availability, the cost of constructing new cooling-water-treatment facilities, or the cost of modifying the existing treatment facilities. However, any modifications required by such permits could involve substantial expenditures, and certain plants or units may be unavailable for electric generation during such modification. Additional information concerning discharge permits for the South Bay, Encina and SONGS plants is provided in
"Management's Discussion & Analysis of Financial Condition and Results of Operations" beginning on page 18 of the 1994 Annual Report to Shareholders.
Additional information concerning SDG&E's environmental matters is described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 18 of the 1994 Annual Report to Shareholders and in Note 10 of the "Notes to Consolidated Financial Statements" beginning on page 36 of the 1994 Annual Report to Shareholders. Litigation concerning hazardous substances is discussed in "Legal Proceedings - Metropolitan Transit Development Board" herein.
Other
Research, Development and Demonstration
SDG&E conducts research and development in areas that provide value
to SDG&E and its customers. Annual research, development and
demonstration costs averaged $7 million over the past three years.
The CPUC historically has permitted rate recovery of research,
development and demonstration expenditures.
Wages
SDG&E and Local 465, International Brotherhood of Electrical
Workers have a labor agreement through February 29, 1996.
Employees of Registrant
As of December 31, 1994 SDG&E had 3,998 employees compared to 4,166
at December 31, 1993. SDG&E's subsidiaries had 550 employees at
December 31, 1994 compared to 818 at December 31, 1993.
Foreign Operations
SDG&E foreign operations in 1994 included power purchases and sales
with CFE in Mexico and purchases of energy and natural gas from
suppliers in Canada and purchases of uranium from suppliers in
Canada and Brazil.
SDG&E's subsidiaries operated in various foreign locations in 1994, including Great Britain, Australia, and Italy and sold products and services to customers in additional foreign countries.
Additional information concerning foreign operations is described under "Electric Operations" and "Natural Gas Operations" herein and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 18 of the 1994 Annual Report to Shareholders and in Note 10 of the "Notes to Consolidated Financial Statements" beginning on page 36 of the 1994 Annual Report to Shareholders.
Item 2. Properties
Substantially all utility plant is subject to the lien of the July 1, 1940 mortgage and deed of trust and its supplemental indentures between SDG&E and the First Trust of California N.A. as trustee, securing the outstanding first mortgage bonds.
Information concerning SDG&E's properties is discussed below. Additional information is described under "Electric Operations" and "Gas Operations" herein and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 18 of the 1994 Annual Report to Shareholders and in Notes 1 through 3, 6, 10 and 11 of the "Notes to Consolidated Financial Statements" beginning on page 32 of the 1994 Annual Report to Shareholders.
Electric Properties
As of December 31, 1994 SDG&E's installed generating capacity based on summer ratings, was as follows:
Plant Location Net Megawatts - ----------------------------------------------------------------- Encina Carlsbad 921 South Bay Chula Vista 690 San Onofre South of San Clemente 430* Combustion Turbines (19) Various 332 Silver Gate** San Diego 0 - ----------------------------------------------------------------- |
*SDG&E's 20 percent share.
**Placed in storage in 1984. Net generating capability is 230 mw.
Except for San Onofre and some of the combustion turbines, these plants are equipped to burn either oil or gas.
The 1994 system load factor was 57 percent and ranged from 55 percent to 64 percent for the past five years.
SDG&E's electric transmission and distribution facilities include substations, and overhead and underground lines. Periodically various areas of the service territory require expansion to handle customer growth.
SDG&E owns an approved nuclear power-plant site near Blythe, California.
Natural Gas Properties
SDG&E's natural gas facilities are located in San Diego and Riverside counties and consist of the Moreno and Rainbow compressor stations, the Encanto storage facility in San Diego, various high-pressure transmission pipelines, high-pressure and low-pressure distribution mains, and service lines. SDG&E's natural gas system is sufficient to meet customer demand and short-term growth. SDG&E is currently undergoing an expansion of its high-pressure transmission lines to accommodate expected long-term customer growth.
General Properties
The 21-story corporate office building at 101 Ash Street, San Diego is occupied pursuant to a capital lease through the year 2005. The lease has four separate five-year renewal options. SDG&E also occupies an office complex at Century Park Court in San Diego pursuant to an operating lease ending in the year 2007. The lease can be renewed for two five-year periods.
In addition, SDG&E occupies eight operating and maintenance centers, two business centers, seven district offices, and five branch offices.
Subsidiary Properties
Wahlco Environmental Systems, Inc. has manufacturing facilities in the continental United States, Puerto Rico, Great Britain and Australia, and a sales office in Italy.
Item 3. Legal Proceedings
The Subsidiary Shareholder, Blackburn v. Watt, Graybill and Tang proceedings, described in SDG&E's 1993 Annual Report on Form 10-K, were concluded during the year ended December 31, 1994. Information concerning the conclusion of these proceedings is contained in SDG&E's Quarterly Reports on Form 10-Q for the three-month periods ended March 31, 1994 and June 30, 1994.
Century Power
On April 1, 1987 Century Power Corporation, formerly Alamito Company, submitted a filing to justify its rates for the following 24 months under a power sales and interconnection agreement with SDG&E. The Federal Energy Regulatory Commission permitted the rates to become effective as of June 1, 1987 subject to refund. In 1988 an administrative law judge ruled unreasonable a component of rates based on the return on equity of Tucson Electric Power Company, a supplier and former affiliate of Century. If the decision stands, demand charges paid by SDG&E could be reduced by $12 million, plus interest, to be refunded principally to SDG&E customers. On September 23, 1993 SDG&E filed a motion requesting the FERC to decide this matter. On December 23, 1993 the FERC issued an order denying SDG&E's motion on the grounds that the matter had been resolved under a settlement reached by the parties in 1991 and approved by the FERC. On January 24, 1994 SDG&E filed a request for rehearing.
On February 11, 1993 SDG&E filed a complaint with the FERC against Tucson and Century, seeking to adjust its purchase costs under the power sales and interconnection agreement with Century. The complaint seeks summary disposition and moves for an order directing Century and Tucson to refund amounts that they improperly billed SDG&E in violation of the agreement. If successful, SDG&E would be entitled to approximately $15 million, plus interest, which would be refunded principally to SDG&E customers. On April 23, 1993 Tucson and Century filed answers to the complaint, denying liability. In addition, Tucson brought a counterclaim of $3 million against SDG&E based on alleged underbillings.
SDG&E is unable to predict the ultimate outcome of this litigation.
American Trails
On August 23, 1985 Michael Bessey and others who owned American
Trails, a membership campground company, filed a complaint against
Wahlco, Inc. and others in the Superior Court of San Diego County
for breach of contract, negligence, fraud, intentional interference
with contract, breach of the implied covenant of good faith and
fair dealing, and breach of fiduciary duty in connection with
contingent payments, which were not realized following the
redemption of plaintiffs' interest in American Trails Partners No.
1. The plaintiffs were seeking compensatory damages in the amount
of $12 million and punitive damages in an unspecified amount.
Wahlco has cross-complained against the plaintiffs for defrauding
Wahlco into investing $3 million in American Trails.
On September 21, 1993 judgment was entered by the court in favor of Wahlco and the other defendants and against the plaintiffs on all of plaintiffs' claims. Wahlco was denied any recovery on its cross-claims. As a result of the trial court's decision, all claims and causes of action by the plaintiffs against Wahlco have been determined in favor of Wahlco. Subsequently, the plaintiffs filed a notice of appeal from the court's judgment and the appeal is pending. Wahlco intends to continue defending this lawsuit vigorously.
By agreements dated September 19, 1987, October 28, 1987, and March 1, 1990, Robert R. Wahler, as Trustee of the Wahler Family Trust; John H. McDonald; and Westfore, a California limited partnership, agreed, subject to certain exceptions, to indemnify Pacific Diversified Capital Company and its subsidiaries in connection with the American Trails litigation. Wahlco, Inc. is pursuing these parties for indemnification pursuant to the indemnification agreements.
SDG&E is unable to predict the ultimate outcome of this litigation.
Public Service Company of New Mexico
On October 27, 1993 SDG&E filed a complaint with the FERC against Public Service Company of New Mexico, alleging that charges under a 1985 power purchase agreement are unjust, unreasonable and discriminatory. SDG&E requested that the FERC investigate the rates charged under the agreement and establish December 26, 1993 as the effective refund date. The relief, if granted, would reduce annual demand charges paid by SDG&E to PNM by up to $11 million per year through April 2001. If approved, the proceeds would be refunded principally to SDG&E customers.
On December 8, 1993 PNM answered the complaint and moved that it be dismissed. PNM denied that the rates are unjust, unreasonable or discriminatory and asserted that SDG&E's claims were barred by certain orders issued by the FERC in 1988.
SDG&E is unable to predict the ultimate outcome of this litigation.
Canadian Natural Gas
During early 1991 SDG&E signed four long-term natural gas supply contracts with Husky Oil Ltd., Canadian Hunter Ltd. and Noranda Inc., Bow Valley Energy Inc., and Summit Resources Ltd. Canadian-sourced natural gas began flowing to SDG&E under these contracts on November 1, 1993. Disputes have arisen with each of these producers with respect to events which are alleged by the producers to have occurred justifying a revision to the pricing terms of each contract, and possibly their termination. Consequently, during December 1993 SDG&E filed complaints in the United States Federal District Court, Southern District of California, seeking a declaration of SDG&E's contract rights. Specifically, SDG&E states that neither price revision nor contract termination is warranted.
On March 14, 1994 SDG&E voluntarily dismissed its complaint against Bow Valley without prejudice. On April 24, 1994 the court denied the other defendants' motions to dismiss SDG&E's complaints. These motions were based on jurisdictional grounds. Two of the defendants, Bow Valley and Husky Oil, filed claims on June 12, 1994 and June 29, 1994 respectively, against SDG&E with Queens Bench in Alberta, Canada, seeking a declaration that they are entitled to damages or, in the alternative, that they may terminate their respective natural gas supplies with SDG&E. SDG&E has answered these claims. On February 27, 1995 SDG&E and Husky Oil reached a tentative agreement dismissing all of their respective claims with prejudice.
Bow Valley and Summit Resources gave SDG&E notice that their natural gas supply contracts with SDG&E were terminated pursuant to provisions in the contract that purportedly give them the right to do so. SDG&E has responded that the notices were inappropriate and that it will seek both contract and tort damages.
SDG&E is unable to predict the ultimate outcome of this litigation.
Additional information concerning these contracts is provided under "Natural Gas Operations" herein and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 18 of the 1994 Annual Report to Shareholders and in Note 10 of the "Notes to Consolidated Financial Statements" beginning on page 36 of the 1994 Annual Report to Shareholders. Electric and Magnetic Fields
McCartin
On November 13, 1992 a group of 25 individual plaintiffs filed a
complaint against SDG&E in the Orange County Superior Court for
medical monitoring, intentional infliction of emotional distress,
negligent infliction of emotional distress, strict products
liability, negligent product liability, trespass, nuisance,
diminution in property value, inverse condemnation and injunctive
relief, alleging that plaintiffs have been damaged by EMFs from
SDG&E's power lines. The plaintiffs did not specify damages.
Trial began on April 11, 1994 on the inverse condemnation claim only. The plaintiffs had dismissed all other claims prior to trial. On May 13, 1994 the jury returned a verdict in favor of SDG&E. The jury found that SDG&E's
power lines did not diminish the value of the plaintiffs' properties. On May 16, 1994 the judge ratified the jury's verdict and on June 17, 1994 the judge signed the final judgment in SDG&E's favor. On August 19, 1994 the plaintiffs filed a notice of appeal of the trial court's decision.
SDG&E is unable to predict the ultimate outcome of this litigation.
Covalt
On December 16, 1993 Martin and Joyce Covalt filed a complaint
against SDG&E in Orange County Superior Court. The Covalt lawsuit
involves the same lawyers, allegations and neighborhood as the
McCartin lawsuit. On April 13, 1994 SDG&E filed a demurrer to
plaintiffs' claims. On June 22, 1994 an Orange County Superior
Court judge, different from the judge who presided over the
McCartin case, denied SDG&E's demurrer. On July 15, 1994 SDG&E
petitioned the California Court of Appeal to review the trial
judge's decision on the grounds that the California Public
Utilities Commission, not the courts, has exclusive jurisdiction
over power line health and safety issues. The Court of Appeal
agreed to consider SDG&E's petition on August 17, 1994 and stayed
the trial court proceedings. The Court of Appeal heard oral
argument on SDG&E's petition on November 16, 1994, but has not yet
issued a decision.
SDG&E is unable to predict the ultimate outcome of this litigation.
North City West
On June 14, 1993 the Peninsula at Del Mar Highlands Homeowners
Association filed a complaint with the Superior Court of San Diego
County against the City of San Diego and SDG&E to prevent SDG&E
from continuing construction of an electric substation in an area
which is known as North City West. In the complaint, plaintiffs
sought to have the city either revoke previously issued permits or
reopen the hearing process to address alleged EMF concerns. On July
6, 1993 the court denied the plaintiffs' motion for a temporary
restraining order. On July 30, 1993 the court denied the
plaintiffs' motion for a preliminary injunction. On September 28,
1993 the plaintiffs withdrew their complaint and the court
dismissed it without prejudice.
On August 18, 1993 the plaintiffs filed a complaint with the CPUC requesting that construction of the substation be immediately halted until the CPUC conducts an initial environmental assessment and determines whether an environmental impact report is necessary. On September 22, 1993 SDG&E moved to dismiss the complaint on the grounds that the city's environmental review of the project in 1989 was proper and sufficient. On January 7, 1994 the CPUC dismissed the plaintiffs' complaint, ruling that the city had performed all appropriate environmental reviews. On February 7, 1994 the plaintiffs filed an application with the CPUC, asking it to reconsider its January 7, 1994 decision. On December 7, 1994 the CPUC granted the plaintiff's request for a rehearing of the January 7, 1994 dismissal. The CPUC stated that the grounds upon which the complaint originally was dismissed were insufficient. The Administrative Law Judge assigned to the case has ordered public participation and evidentiary hearings to examine whether the substation which SDG&E completed in 1994, causes any unreasonable environmental impacts or other health or safety concerns.
SDG&E is unable to predict the ultimate outcome of this litigation.
Metropolitan Transit Development Board
On October 13, 1993 MTDB filed a complaint in the San Diego County Superior Court against Union Oil Company of California, Graybill Terminal Company, Mary Dutton Boehm as the Executrix of the Estate of Grayson W. Boehm, and SDG&E. MTDB owns property located adjacent to an oil storage tank farm owned by the Graybill Terminal Company and has alleged that contamination from the Graybill site migrated beneath its property, contaminating the soil and ground water.
MTDB has alleged that SDG&E stored petroleum products at the Graybill site and was also responsible for certain renovations to the site's fixtures and equipment which stored and/or transported hazardous substances. MTDB has also stated that SDG&E at one time owned and operated the MTDB property and also owned certain fuel oil pipelines located on the property. MTDB's complaint alleges, among other things, nuisance, trespass and negligence, and seeks unspecified compensatory and special damages, indemnity, and certain equitable and
declaratory relief. On November 24, 1993 SDG&E filed an answer to the complaint, denying all of MTDB's allegations.
In January 1995 co-defendants Graybill Terminal Company and Union Oil Company of California agreed to indemnify and defend SDG&E from all stated claims of MTDB. Further, Graybill and Unocal agreed to release SDG&E from any claims of equitable indemnity and contribution, and will dismiss all related cross-complaints with prejudice. A formal agreement is expected to be prepared and executed in early 1995.
Transphase Systems
On May 3, 1993 Transphase Systems, Inc. filed a complaint against Southern California Edison Company and SDG&E in the United States District Court for the Central District of California. The complaint alleged that Edison and SDG&E unlawfully constrained Transphase from selling its thermal energy storage systems under utility-sponsored demand-side management programs in violation of federal and state antitrust and unfair competition laws. The plaintiff claimed not less than $50 million in actual damages, attorneys' fees, prejudgment interest and costs. The plaintiff also sought certain injunctive relief.
On August 25, 1993 Transphase filed a motion for a preliminary injunction to order SDG&E to cease competitive bidding activities for all generation resources until demand-side-resource providers were permitted to participate. On October 7, 1993 the court dismissed all of Transphase's causes of action with prejudice. On October 19, 1993 Transphase filed a notice of appeal of the court's dismissal.
On May 12, 1994 the Ninth Circuit Court of Appeal denied the appeal. On September 1, 1994 Transphase filed a petition with the United States Supreme Court to have the court review the dismissal of its case by the lower courts. On September 30, 1994 SDG&E filed its opposition to the petition. On October 31, 1994 the U.S. Supreme Court denied Transphase's petition, leaving in place the District Court's original order dismissing all of Transphase's claims.
Additional information concerning competitive bidding is described under "Resource Planning" herein and in the "Management's Discussion & Analysis of Financial Condition and Results of Operations" beginning on page 18 of the 1994 Annual Report to Shareholders.
James Litigation
On July 12, 1994 Glen James filed a complaint in the United States District Court for the Southern District of California against Edison, SDG&E, and Combustion Engineering. The allegations in the complaint are substantially identical to those contained in the complaint of R.C. Tang, which was filed against the same defendants in 1993 and reported in SDG&E's 1993 Annual Report on Form 10-K and its March 31, 1994 Quarterly Report on Form 10-Q. The complaint alleges that the plaintiff was damaged by the emission of radiation while serving as an electrical designer and engineer for outside contractors performing services at the San Onofre Nuclear Generating Station intermittently between 1982 and 1988. The plaintiff has asked for general compensatory damages and punitive damages.
On August 11, 1994 the defendants filed a motion to dismiss plaintiff's complaint. A federal district court judge denied defendants' motion on December 12, 1994. Trial is expected to begin in the summer of 1995.
SDG&E is unable to predict the ultimate outcome of this litigation.
McLandrich Litigation
On February 6, 1995 Cheryl Marie McLandrich and Paul Michael McLandrich, by and through their guardian, Linda McLandrich, filed a complaint in the United States District Court for the Southern District of California against Edison, SDG&E, and Combustion Engineering. The allegations in the complaint are substantially identical to those contained in the complaints of R.C. Tang and Glen James described above. The complaint alleges that the death of the plaintiffs' father, Gregory McLandrich, was the result of the emission of radiation while serving as an
Edison nuclear engineer at SONGS. The plaintiffs have asked for general compensatory damages and punitive damages. The Tang, James and McLandrich complaints were all filed by the same attorneys.
SDG&E is unable to predict the ultimate outcome of this litigation.
Environmental Issues
Other legal matters related to environmental issues are described under "Environmental Matters" herein.
Regulatory Issues
Other legal matters related to regulatory proceedings or actions are described under Regulatory Matters herein.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 4. Executive Officers of the Registrant
Name Age Positions (1990 - Current)
- ----------------------------------------------------------------------------
Thomas A. Page 61 Chairman and Chief Executive
Officer since January 1983 and
President from 1983 through 1991
and since January 1994.
Stephen L. Baum 54 Executive Vice President since January 1993.
Senior Vice President - Law and Corporate
Affairs and General Counsel from January
1992 through December 1992.
Senior Vice President and General Counsel
from 1987 through 1991.
Donald E. Felsinger 47 Executive Vice President since January 1993.
Senior Vice President - Marketing and
Resource Development from January 1992
through December 1992.
Vice President - Marketing and Resource
Development from February 1989 through
December 1991.
Gary D. Cotton 54 Senior Vice President - Customer Operations
since January 1993.
Senior Vice President - Customer Services
from January 1992 through December 1992.
Senior Vice President - Engineering
and Operations from 1986 through 1991.
Edwin A. Guiles 45 Senior Vice President - Energy Supply
since January 1993.
Vice President - Engineering and Operations
from January 1992 through December 1992.
Vice President - Corporate Planning
from 1990 through 1991.
Nad A. Peterson 68 Senior Vice President and General Counsel
Counsel since June 1993 and
Corporate Secretary since January 1994.
Senior Vice President and Corporate
Secretary at Fluor Corporation from
1987 through 1992.
Frank H. Ault 50 Vice President and Controller since
January 1993.
Controller from May 1986 through
December 1992.
Kathleen A. Flanagan 44 Vice President - Corporate Communications
since July 1994.
Manager - Corporate Communications at
Southern California Edison from 1991
through 1994.
Director - Government Relations and
Public Affairs at Luz International
from 1989 to 1991.
Ronald K. Fuller 57 Vice President - Governmental and
Regulatory Services since April 1984.
Margot A. Kyd 41 Vice President - Human Resources since
January 1993.
Vice President - Administrative Services
from 1988 through 1992.
John L. Laun, III 47 Vice President - Customer & Marketing
Services since July 1994.
Division Manager - Corporate Communication
from June 1993 to July 1994.
Manager - Special Projects from
January 1992 to June 1993.
Director - Utility Consulting at Xenergy Inc.
from 1991 through 1992.
Senior Vice President - Utility Consulting
at Palmer Bellevue Corporation from 1989
through 1991.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
SDG&E's common stock is traded on the New York and Pacific stock exchanges. At December 31, 1994 there were 70,356 holders of SDG&E common stock. The quarterly common stock information required by Item 5 is incorporated by reference from page 39 of SDG&E's 1994 Annual Report to Shareholders.
Item 6. Selected Financial Data
The information required by Item 6 is incorporated by reference from the Ten-Year Summary beginning on page 16 of SDG&E's 1994 Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The information required by Item 7 is incorporated by reference from pages 18 through 23 of SDG&E's 1994 Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
The information required by Item 8 is incorporated by reference from pages 24 through 39 of SDG&E's 1994 Annual Report to Shareholders. See Item 14 herein for a listing of financial statements included in the 1994 Annual Report to Shareholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required on Identification of Directors is incorporated by reference from "Election of Directors" in SDG&E's March 1995 Proxy Statement. The information required on executive officers is incorporated by reference from Item 4 herein.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference from "Executive Compensation and Transactions with Management and Others" in SDG&E's March 1995 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated by reference from "Security Ownership of Management and Certain Beneficial Holders" in SDG&E's March 1995 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial statements
Page in
Annual Report*
Responsibility Report for the Consolidated Financial
Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 24
Independent Auditors' Report . . . . . . . . . . . . . . . . . 24
Statements of Consolidated Income for the years ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . 25
Consolidated Balance Sheets at December 31, 1994 and 1993 . . 26
Statements of Consolidated Cash Flows for the year
ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . 27
Statements of Consolidated Changes in Capital Stock and
Retained Earnings for the years ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . 28
Statements of Consolidated Capital Stock at
December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . 29
Statements of Consolidated Long-Term Debt at
December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . 30
Statements of Consolidated Financial Information by
Segments of Business for the years ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . 31
Notes to Consolidated Financial Statements . . . . . . . . . . 32
Quarterly Financial Data (Unaudited) . . . . . . . . . . . . . 39
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*Incorporated by reference from the indicated pages of the 1994 Annual Report to Shareholders.
2. Financial statement schedules
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Allowance for doubtful accounts Balance at Charged to Deductions Balance at
(deducted from accounts receivable): Beginning of Year Operating Expenses (A) End of Year
----------------- ------------------ ---------- -----------
1994 $2,410 $4,738 $4,910 $2,238
1993 $2,154 $6,001 $5,745 $2,410
1992 $2,145 $5,017 $5,008 $2,154
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(A) Accounts charged off during the year, net of recoveries of accounts previously charged off.
All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the consolidated financial statements and the notes to consolidated financial statements included herein.
INDEPENDENT AUDITORS' REPORT
San Diego Gas & Electric Company
We have audited the consolidated financial statements of San Diego Gas & Electric Company and subsidiaries as of December 31, 1994 and 1993 and for each of the three years in the period ended December 31, 1994, and have issued our report thereon dated February 27, 1995 (which report contains an emphasis paragraph referring to the Company's consideration of alternative strategies for its 80 percent owned subsidiary, Wahlco Environmental Systems, Inc.); such consolidated financial statements and report are included in your 1994 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of San Diego Gas & Electric Company and subsidiaries, listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Diego, California
February 27, 1995
3. Exhibits
The Forms 8, 8-K, 10-K and 10-Q referred to herein were filed under Commission File Number 1-3779.
Exhibit 3 -- Bylaws and Articles of Incorporation
Bylaws
3.1 Restated Bylaws - December 20, 1993 (Incorporated by reference from SDG&E's 1993 Form 10-K)
Articles of Incorporation
3.2 Restated Articles of Incorporation - April 26, 1994 (Incorporated by reference from SDG&E's March 31, 1994 Quarterly Report on Form 10-Q, Ex 3.1)
Exhibit 4 -- Instruments Defining the Rights of Security Holders, Including Indentures
4.1 Mortgage and Deed of Trust dated July 1, 1940. (Incorporated by reference from Registration No. 2-49810, Exhibit 2A.)
4.2 Second Supplemental Indenture dated as of March 1, 1948. (Incorporated by reference from Registration No. 2-49810, Exhibit 2C.)
4.3 Ninth Supplemental Indenture dated as of August 1, 1968. (Incorporated by reference from Registration No. 2-68420, Exhibit 2D.)
4.4 Tenth Supplemental Indenture dated as of December 1, 1968. (Incorporated by reference from Registration No. 2-36042, Exhibit 2K.)
4.5 Sixteenth Supplemental Indenture dated August 28, 1975. (Incorporated by reference from Registration No. 2-68420, Exhibit 2E.)
4.6 Thirtieth Supplemental Indenture dated September 28, 1983. (Incorporated by reference from Registration No. 33-34017, Exhibit 4.3.)
Exhibit 10 -- Material Contracts (Previously filed exhibits are incorporated by reference from SDG&E's Forms 10-K or Forms 10-Q as referenced below).
Compensation
10.1 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Officers #3 (1995 compensation,
1996 bonus).
10.2 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Officers #1 (1995 compensation,
1996 bonus).
10.3 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Nonemployee Directors (1995
compensation).
10.4 Form of San Diego Gas & Electric Company 1986 Long-Term
Incentive Plan 1994 restricted stock award agreement.
10.5 San Diego Gas & Electric Company Retirement Plan for
Directors, restated as of October 24, 1994.
31
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10.6 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Officers #3 (1994
compensation) (1993 Form 10-K Exhibit 10.1).
10.7 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Officers #1 (1994 compensation,
1995 incentive) (1993 Form 10-K Exhibit 10.2).
10.8 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Nonemployee Directors (1994
compensation)(1993 Form 10-K Exhibit 10.3).
10.9 Form of San Diego Gas & Electric Company 1986 Long-Term
Incentive Plan 1993 restricted stock award agreement(1993
Form 10-K Exhibit 10.4).
10.10 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Officers #3 (1993 compensation)
(1992 Form 10-K Exhibit 10.1).
10.11 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Officers #1 (1993 compensation,
1994 incentive) (1992 Form 10-K Exhibit 10.2).
10.12 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Nonemployee Directors (1993
compensation) (1992 Form 10-K Exhibit 10.3).
10.13 Form of San Diego Gas & Electric Company 1986 Long-Term
Incentive Plan 1992 restricted stock award agreement (1992
Form 10-K Exhibit 10.4).
10.14 Supplemental Executive Retirement Plan restated as of
July 1, 1994.
10.15 Amended 1986 Long-Term Incentive Plan, Restatement as of
October 25, 1993 (1993 Form 10-K Exhibit 10.6).
10.16 Executive Incentive Plan dated April 23, 1985 (1991 Form
10-K Exhibit 10.39).
10.17 Employment agreement between San Diego Gas & Electric
Company and Thomas A. Page, dated June 15, 1988 (1988 Form
10-K Exhibit 10E).
10.18 Supplemental Pension Agreement with Thomas A. Page, dated as
of April 3, 1978 (1988 Form 10-K Exhibit 10V).
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Financing Agreements
10.19 Loan agreement with Mellon Bank, N.A dated as of January 3, 1995.
10.20 Loan agreement with First Interstate Bank of California
dated as of January 3, 1995
10.21 Loan agreement with CIBC Inc. dated as of December 1, 1993
as amended (1993 Form 10-K Exhibit 10.7).
10.22 Loan agreement with the California Pollution Control
Financing Authority in connection with the issuance of $60
million of Pollution Control Bonds dated as of June 1, 1993
(June 30, 1993 Form 10-Q Exhibit 10.1).
10.23 Loan agreement with the City of San Diego in connection with
the issuance of $92.7 million of Industrial Development
Bonds 1993 Series C dated as of July 1, 1993 (June 30, 1993
Form 10-Q Exhibit 10.2).
32
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10.24 Loan agreement with Mellon Bank, N.A dated as of April 15,
1993 as amended (March 31,1993 Form 10-Q Exhibit 10.1).
10.25 Loan agreement with First Interstate Bank of California
dated as of April 15, 1993 as amended (March 31,1993 Form
10-Q Exhibit 10.2).
10.26 Loan agreement with the City of San Diego in connection with
the issuance of Industrial Development Bonds 1993 Series A
dated as of April 1, 1993 (March 31,1993 Form 10-Q Exhibit 10.3).
10.27 Loan agreement with the City of San Diego in connection with
the issuance of Industrial Development Bonds 1993 Series B
dated as of April 1, 1993 (March 31,1993 Form 10-Q Exhibit 10.4).
10.28 Loan agreement with the City of Chula Vista in connection
with the issuance of $250 million of Industrial Development
Revenue Bonds, dated as of December 1, 1992 (1992 Form 10-K
Exhibit 10.5).
10.29 Loan agreement with the City of San Diego in connection with
the issuance of $25 million of Industrial Development
Revenue Bonds, dated as of September 1, 1987 (1992 Form 10-K
Exhibit 10.6).
10.30 Loan agreement between Mellon Bank, N.A. and San Diego Gas
& Electric Company dated December 15, 1992, as amended (1992
Form 10-K Exhibit 10.10).
10.31 Loan Agreement with the City of San Diego in connection with
the issuance of $118.6 million of Industrial Development
Revenue Bonds dated as of September 1, 1992 (Sept 30, 1992
Form 10-Q Exhibit 10.1).
10.32 Loan agreement with California Pollution Control Financing
Authority, dated as of December 1, 1985, in connection with
the issuance of $35 million of pollution control bonds (1991
Form 10-K Exhibit 10.10).
10.33 Loan agreement with California Pollution Control Financing
Authority, dated as of December 1, 1991, in connection with
the issuance of $14.4 million of pollution control bonds
(1991 Form 10-K Exhibit 10.11).
10.34 Loan agreement with the City of San Diego in connection with
the issuance of $44.25 million of Industrial Development
Revenue Bonds, dated as of July 1, 1986 (1991 Form 10-K
Exhibit 10.36).
10.35 Loan agreement with the City of San Diego in connection with
the issuance of $81.35 million of Industrial Development
Revenue Bonds, dated as of December 1, 1986 (1991 Form 10-K
Exhibit 10.37).
10.36 Loan agreement with the City of San Diego in connection with
the issuance of $100 million of Industrial Development
Revenue Bonds, dated as of September 1, 1985 (1991 Form 10-K
Exhibit 10.38).
10.37 Loan agreement with California Pollution Control Financing
Authority dated as of December 1, 1984, in connection with
the issuance of $27 million of pollution control bonds (1991
Form 10-K Exhibit 10.40).
10.38 Loan agreement with California Pollution Control Financing
Authority dated as of May 1, 1984, in connection with the
issuance of $53 million of pollution control bonds (1991
Form 10-K Exhibit 10.41).
10.39 Loan agreement between Union Bank and SDG&E dated November
1, 1988 as amended (1989 Form 10-K Exhibit 10I).
10.40 Loan agreement between Bank of America National Trust &
Savings Association and SDG&E dated November 1, 1988 as
amended (1989 Form 10-K Exhibit 10J).
10.41 Loan agreement between First Interstate Bank of California
and SDG&E dated November 1, 1988 as amended (1989 Form 10-K
Exhibit 10K).
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Natural Gas Commodity, Transportation and Storage Contracts
10.42 Long-Term Natural Gas Storage Service Agreement dated
January 12, 1994 between Southern California Gas Company and
SDG&E.
10.43 Amendment to San Diego Gas & Electric Company and Southern
California Gas Company Restated Long-Term Wholesale Natural
Gas Service Contract dated March 26, 1993 (1993 Form 10-K
Exhibit 10.53).
10.44 Gas Purchase Agreement, dated March 12, 1991 between Husky
Oil Operations Limited and San Diego Gas & Electric Company
(1991 Form 10-K Exhibit 10.1).
10.45 Gas Purchase Agreement, dated March 12, 1991 between
Canadian Hunter Marketing Limited and San Diego Gas &
Electric Company (1991 Form 10-K Exhibit 10.2).
10.46 Gas Purchase Agreement, dated March 12, 1991 between Bow
Valley Industries Limited and San Diego Gas & Electric
Company (1991 Form 10-K Exhibit 10.3).
10.47 Gas Purchase Agreement, dated March 12, 1991 between Summit
Resources Limited and San Diego Gas & Electric Company (1991
Form 10-K Exhibit 10.4).
10.48 Service Agreement Applicable to Firm Transportation Service
under Rate Schedule FS-1, dated May 31, 1991 between Alberta
Natural Gas Company Ltd. and San Diego Gas & Electric
Company (1991 Form 10-K Exhibit 10.5).
10.49 Firm Transportation Service Agreement, dated December 31,
1991 between Pacific Gas and Electric Company and San Diego
Gas & Electric Company (1991 Form 10-K Exhibit 10.7).
10.50 Firm Transportation Service Agreement, dated April 25, 1991
between Pacific Gas Transmission Company and San Diego Gas
& Electric Company (March 31, 1991 Form 10-Q Exhibit 28.2).
10.51 San Diego Gas & Electric Company and Southern California Gas
Company Restated Long-Term Wholesale Natural Gas Service
Contract, dated September 1, 1990 (1990 Form 10-K Exhibit 10.9).
Nuclear
10.52 Uranium enrichment services contract between the U.S.
Department of Energy (DOE assigned its rights to the U.S.
Enrichment Corporation, a U.S. government-owned corporation,
on July 1, 1993) and Southern California Edison Company, as
agent for SDG&E and others; Contract DE-SC05-84UEO7541,
dated November 5, 1984, effective June 1, 1984, as amended
by modifications dated September 13, 1985, January 8, April
10, June 17 and August 8, 1986, March 26, 1987, February 20
and July 25, 1990, October 7, 1991, March 31, 1993 and March
17, 1994 (1991 Form 10-K Exhibit 10.9).
10.53 Fuel Lease dated as of September 8, 1983 between SONGS Fuel
Company, as Lessor and San Diego Gas & Electric Company, as
Lessee, and Amendment No. 1 to Fuel Lease, dated September
14, 1984 and Amendment No. 2 to Fuel Lease, dated March 2,
1987 (1992 Form 10-K Exhibit 10.11).
10.54 Agreement dated March 19, 1987, for the Purchase and Sale of
Uranium Concentrates between SDG&E and Saarberg-Interplan
Uran GmbH (assigned to Pathfinder Mines Corporation in June
1993) (1990 Form 10-K Exhibit 10.5).
10.55 Nuclear Facilities Qualified CPUC Decommissioning Master
Trust Agreement for San Onofre Nuclear Generating Station,
approved November 25, 1987 (1992 Form 10-K Exhibit 10.7).
34
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10.56 Amendment No. 1 to the Qualified CPUC Decommissioning Master
Trust Agreement dated September 22, 1994 (see Exhibit 10.55
herein).
10.57 Second Amendment to the San Diego Gas & Electric Company
Nuclear Facilities Qualified CPUC Decommissioning Master
Trust Agreement for San Onofre Nuclear Generating Stations
(see Exhibit 10.55 herein).
10.58 Nuclear Facilities Non-Qualified CPUC Decommissioning Master
Trust Agreement for San Onofre Nuclear Generating Station,
approved November 25, 1987 (1992 Form 10-K Exhibit 10.8).
10.59 Second Amended San Onofre Agreement among Southern
California Edison Company, SDG&E, the City of Anaheim and
the City of Riverside, dated February 26, 1987 (1990 Form
10-K Exhibit 10.6).
10.60 U. S. Department of Energy contract for disposal of spent
nuclear fuel and/or high-level radioactive waste, entered
into between the DOE and Southern California Edison Company,
as agent for SDG&E and others; Contract DE-CR01-83NE44418,
dated June 10, 1983 (1988 Form 10-K Exhibit 10N).
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Purchased Power
10.61 Public Service Company of New Mexico and San Diego Gas &
Electric Company 1988-2001 100 mw System Power Agreement
dated November 4, 1985 and Letter of Agreement dated April
28, 1986, June 4, 1986 and June 18, 1986 (1988 Form 10-K
Exhibit 10H).
10.62 San Diego Gas & Electric Company and Portland General
Electric Company Long-Term Power Sale and Transmission
Service agreements dated November 5, 1985 (1988 Form
10-K Exhibit 10I).
10.63 Comision Federal de Electricidad and San Diego Gas &
Electric Company Contract for the Purchase and Sale of
Electric Capacity and Energy dated November 20, 1980 and
additional Agreement to the contract dated March 22, 1985
(1988 Form 10-K Exhibit 10J).
10.64 Agreement with Arizona Public Service Company for Arizona
transmission system participation agreement - contract
790116 (1988 Form 10-K Exhibit 10P).
Other
10.65 U. S. Navy contract for electric service, Contract
N62474-70-C-1200-P00414, dated September 29, 1988 (1988 Form
10-K Exhibit 10C).
10.66 City of San Diego Electric Franchise (Ordinance No.10466)
(1988 Form 10-K Exhibit 10Q).
10.67 City of San Diego Gas Franchise (Ordinance No.10465) (1988
Form 10-K Exhibit 10R).
10.68 County of San Diego Electric Franchise (Ordinance No.3207)
(1988 Form 10-K Exhibit 10S).
10.69 County of San Diego Gas Franchise (Ordinance No.5669) (1988
Form 10-K Exhibit 10T).
10.70 Lease agreement dated as of March 25, 1992 with American
National Insurance Company as lessor of an office complex at
Century Park.
10.71 Lease agreement dated as of June 15, 1978 with Lloyds Bank
California, as owner-trustee and lessor - Exhibit B to
financing agreement of SDG&E's Encina Unit 5 equipment trust
(1988 Form 10-K Exhibit 10W).
35
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10.72 Amendment to Lease agreement dated as of July 1, 1993 with
Sanwa Bank California, as owner-trustee and lessor - Exhibit
B to secured loan agreement of SDG&E's Encina Unit 5
equipment trust (See Exhibit 10.71 herein).
10.73 Lease agreement dated as of July 14, 1975 with New England
Mutual Life Insurance Company, as lessor (1991 Form 10-K
Exhibit 10.42).
10.74 Assignment of Lease agreement dated as of November 19, 1993
to Shapery Developers as lessor by New England Mutual
Life Insurance Company (See Exhibit 10.73 herein).
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Exhibit 12 -- Statement re computation of ratios
12.1 Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends for the years ended December
31, 1994, 1993, 1992, 1991 and 1990.
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Exhibit 13 -- The financial statements and other documents listed under Part IV Item 14(a)1. and Management's Discussion and Analysis of Financial Condition and Results of Operations listed under Part II Item 7 of this Form 10-K are incorporated by reference from the 1994 Annual Report to Shareholders.
Exhibit 22 - Subsidiaries - See "Part I, Item 1. Description of Business."
Exhibit 24 - Independent Auditors' Consent, page 37.
Exhibit 27 - Financial Data Schedules
27.1 Financial Data Schedule for the year ended December 31, 1994.
(b) Reports on Form 8-K:
A Current Report on Form 8-K was filed on October 26, 1994 announcing the appointments of Thomas C. Stickel and William D. Jones to SDG&E's Board of Directors.
A Current Report on Form 8-K was filed on November 8, 1994 to report SDG&E's filing of an application with the California Public Utilities Commission to form a holding company.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated February 27, 1995 (which report contains an emphasis paragraph referring to the Company's consideration of alternative strategies for its 80 percent-owned subsidiary, Wahlco Environmental Systems, Inc.) appearing on page 24 of the 1994 Annual Report to Shareholders of San Diego Gas & Electric Company incorporated by reference in this Annual Report on Form 10-K for the year ended December 31, 1994.
We also consent to the incorporation by reference of the above-mentioned report in San Diego Gas & Electric Company Post-Effective Amendment No. 1 to Registration Statement No. 33-46736 on Form S-3, Post-Effective Amendment No. 4 to Registration Statement No. 2-71653 on Form S-8, Registration Statement No. 33-7108 on Form S-8, Registration Statement No. 33-45599 on Form S-3, Registration Statement No. 33-52834 on Form S-3 and Registration Statement No. 33-49837 on Form S-3.
DELOITTE & TOUCHE LLP
San Diego, California
February 28, 1995
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SAN DIEGO GAS & ELECTRIC COMPANY
February 27, 1995 By: /s/ Thomas A. Page
-------------------------------------
Thomas A. Page
Chairman, President and Chief Executive Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature Title Date
Principal Executive Officer:
/s/ Thomas A. Page
- ------------------------------------------------------------------------------
Thomas A. Page Chairman, President and Chief February 27, 1995
Executive Officer and a Director
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Principal Financial Officer:
/s/ Stephen L. Baum - ------------------------------------------------------------------------------ Stephen L. Baum Executive Vice President February 27, 1995 |
Principal Accounting Officer:
/s/ Frank H. Ault - ------------------------------------------------------------------------------ Frank H. Ault Vice President and Controller February 27, 1995 |
Directors:
/s/ Richard C. Atkinson - ------------------------------------------------------------------------------ Richard C. Atkinson Director February 27, 1995 /s/ Richard A. Collato - ------------------------------------------------------------------------------ Richard A. Collato Director February 27, 1995 /s/ Daniel W. Derbes - ------------------------------------------------------------------------------ Daniel W. Derbes Director February 27, 1995 /s/ Catherine T. Fitzgerald - ------------------------------------------------------------------------------ Catherine T. Fitzgerald Director February 27, 1995 /s/ Robert H. Goldsmith - ------------------------------------------------------------------------------ Robert H. Goldsmith Director February 27, 1995 /s/ William D. Jones - ------------------------------------------------------------------------------ William D. Jones Director February 27, 1995 /s/ Ralph R. Ocampo - ------------------------------------------------------------------------------ Ralph R. Ocampo Director February 27, 1995 /s/ Thomas C. Stickel - ------------------------------------------------------------------------------ Thomas C. Stickel Director February 27, 1995 |
GLOSSARY
APCD Air Pollution Control District
BCAP Biennial Cost Allocation Proceeding
BPA Bonneville Power Administration
BRPU Biennial Resource Plan Update
CEC California Energy Commission
CFE Comision Federal de Electricidad
CPUC California Public Utilities Commission
DOE Department of Energy
ECAC Energy Cost Adjustment Clause
Edison Southern California Edison Company and/or its parent,
SCEcorp
EMF Electric and magnetic fields
Enron Enron Power Marketing
ERAM Electric Revenue Adjustment Mechanism
FERC Federal Energy Regulatory Commission
GFCA Gas Fixed Cost Account
IID Imperial Irrigation District
kv Kilovolt
kwh Kilowatt hour
MTDB Metropolitan Transit Development Board
mw Megawatt
NRC Nuclear Regulatory Commission
Pacific Intertie A transmission line connecting San Diego to the Pacific
Northwest
PCB Polychlorinated Biphenyl
PDC Pacific Diversified Capital Company
PG&E Pacific Gas and Electric Company
PGE Portland General Electric Company
PNM Public Service Company of New Mexico
PURPA Public Utility Regulatory Policies Act
RECLAIM Regional Clean Air Incentive Market
RMGC Rocky Mountain Generation Cooperative
SDG&E San Diego Gas & Electric Company
SONGS/San Onofre San Onofre Nuclear Generating Station
SRP Salt River Project
Southwest Powerlink A transmission line connecting San Diego to Phoenix and
intermediate points
TCF Target Capacity Factor
WES Wahlco Environmental Systems, Inc.
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SAN DIEGO GAS & ELECTRIC COMPANY
1995 DEFERRED COMPENSATION AGREEMENT
FOR OFFICERS #3
THIS AGREEMENT is made and entered into this _____ day of December, 1994, by and between San Diego Gas & Electric Company (hereinafter "SDG&E") and _____________________________________ (hereinafter "Officer"), an elected officer of SDG&E.
WITNESSETH:
WHEREAS, SDG&E desires to provide Officer with the opportunity to defer base compensation and bonus that is payable for services to be rendered after the date of this Agreement and which, as a result of amendments to the Internal Revenue Code ("Code") made by the Tax Reform Act of 1986 ("1986 Tax Act"), cannot be contributed on Officer's behalf as Pretax Contributions to the SDG&E Savings Plan ("Savings Plan"); and
WHEREAS, SDG&E desires to match, as an additional SDG&E contribution, a percentage of the Officer's base compensation and bonus deferred pursuant to this Agreement; and
WHEREAS, Officer and SDG&E desire that the payment of a portion of Officer's base compensation and bonus and the additional matching contribution be deferred pursuant to the terms and provisions of this Agreement.
NOW, THEREFORE, THE PARTIES HERETO HEREBY AGREE AS FOLLOWS:
1. This Agreement shall be effective upon its execution by SDG&E and Officer with respect to base compensation and bonus which would otherwise be payable to Officer for services rendered after such execution and shall continue in effect until this Agreement is terminated as provided herein. Officer shall be eligible to enter into this Agreement only if Officer has elected the maximum Basic Contribution under the Savings Plan for which Officer is eligible.
2. SDG&E shall credit to an account on SDG&E's books, in Officer's name, that percentage of Officer's 1995 base compensation (in equal biweekly installments of whole dollar amounts) and 1996 bonus otherwise payable to Officer as may be specified by Officer in this Agreement's Election Form. The amount credited under this paragraph 2 may not exceed the percentage of Officer's 1995 base compensation and 1996 bonus that may be contributed as Pretax Contributions or After-tax Contributions under the terms of the Savings Plan (determined prior to any reduction of such percentage required under applicable law), reduced by any amount contributed by Officer as After-tax Contributions or on Officer's behalf as Pretax Contributions to the Savings Plan. Further, the amount credited under this paragraph 2 shall be limited to an amount
which when added to SDG&E's matching contribution under paragraph 3 of this Agreement and all allocations to his or her accounts under the Savings Plan, does not exceed the maximum amount that could have been allocated to Officer's Savings Plan accounts pursuant to Section 415 of the Code, as in effect prior to the enactment of the 1986 Tax Act. For purposes of this paragraph 2, "base compensation and bonus" shall include Officer's Pretax Contributions to the Savings Plan. SDG&E shall have the sole and complete authority to determine the maximum amount that may be credited under this paragraph 2.
3. In addition, as amounts are credited to Officer's account under paragraph 2, SDG&E shall also credit to Officer's account, as a matching contribution, an amount equal to the SDG&E Matching Contributions that would have been contributed on Officer's behalf to the Savings Plan (reduced by Matching Contributions actually made to the Savings Plan for Officer) under the provisions of the Code prior to enactment of the 1986 Tax Act, if the amount deferred under paragraph 2 had been contributed to the Savings Plan as Pretax Contributions or After-tax Contributions.
4. There shall be credited to Officer's account an additional amount equal to nine and four-tenths percent (9.4%) per annum computed on the balance in Officer's account as of the end of each month. SDG&E reserves the right to increase or decrease from time to time such percentage credited with respect to amounts to be credited under paragraphs 2 and 3 to the account after the date of such increase or decrease, provided that upon a "change-in-control" (as defined in the SDG&E Amended 1986 Long-Term Incentive Plan) no decrease will result in a percentage credited under the previous sentence of less than the last published interest rate shown in Moody's Average of Yields on Public Utility Bonds for a utility having a rating equivalent to SDG&E.
5. All amounts credited to Officer's account pursuant to paragraphs 2, 3, and 4 hereof shall be paid to Officer upon his or her termination of services as an Officer in the form and over the period specified by Officer on this Agreement's Election Form; provided, however, the SDG&E Compensation Committee ("Committee") may, in its sole discretion, provide instead for payment of the amount in Officer's account in a form and over a period determined by such Committee except that the Committee's authority and discretion to change the form or period of distribution shall terminate upon such a "change-in-control."
6. In the event of Officer's death after installment payments to Officer have commenced hereunder, installment payments shall continue to be paid to the person(s) specified by Officer on the Election Form for the remainder of the period selected by Officer on the Election Form. In the event of Officer's death
before any payment has been made under this Agreement, Officer's account shall be distributed or commence to be distributed, as soon as administratively practicable after Officer's death, to the person(s) specified by Officer on this Agreement's Election Form in the form and over the period selected on such Election Form. The Committee may, in its sole discretion, provide instead for payment of the amount in Officer's account to Officer's beneficiary in a form and over a period determined by the Committee except that the Committee's authority and discretion to change the form or period of distribution shall terminate upon such a "change-in- control."
If Officer's spouse is the beneficiary, the annual amount of any installment payments under this paragraph 6 shall at least equal the entire annual income earned by the account and if the spouse dies prior to distribution of all amounts in Officer's account, all undistributed income on such account shall be distributed to the spouse's estate. Upon the death of Officer's beneficiary, the balance in Officer's account (after the application of the previous sentence, if the spouse is the beneficiary) shall be distributed to the person(s) designated by the beneficiary on a form provided by SDG&E or, if no designation is made, to the beneficiary's estate.
7. No amounts credited to Officer's account may be assigned, transferred, encumbered, or made subject to any legal process for the payment of any claim against Officer, Officer's spouse or other beneficiary. In no event shall Officer, Officer's spouse, or other beneficiary have the right to recover any amount credited to Officer's account other than in accordance with this Agreement.
8. Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between SDG&E and Officer or any other person. To the extent that any person acquires a right to receive payments from SDG&E under this Agreement, such right shall be no greater than the right of any unsecured general creditor of SDG&E. Title to and beneficial ownership of any assets, whether cash or investments, which SDG&E may earmark to pay the deferred compensation hereunder, shall at all times remain assets of SDG&E and neither Officer nor any other person shall, under this Agreement, have any property interest whatsoever in any specific assets of SDG&E.
9. The existence of this Agreement shall not confer upon Officer the right to continue to serve as an Officer for any period of time.
10. This Agreement shall be deemed to modify any provisions in an employment agreement between Officer and SDG&E pertaining to the timing of payment of base compensation and bonus and, in
the event of any conflict between this Agreement and such provisions of the employment agreement, this Agreement shall control.
11. This Agreement may be terminated by SDG&E upon thirty days' written notice to Officer. This Agreement will also terminate upon Officer's filing of an election of a Basic Contribution percentage which is less than the maximum for which he or she is eligible under the Savings Plan. Termination of the Agreement shall be applicable only with respect to base compensation and bonus payable to Officer on and after the first day of the calendar year following the date of termination. Funds previously deferred and credited (and income earned on such funds) will continue to be governed by the applicable year's Officer's Deferred Compensation Agreement Election Form and Section 4 of this Agreement.
12. Officer acknowledges that Officer has been advised that Officer may confer with and seek advice from a tax or financial advisor of Officer's choice concerning this deferral. Officer further acknowledges that Officer has not received tax advice from SDG&E nor has Officer relied upon information provided by SDG&E in electing to make this deferral.
IN WITNESS WHEREOF, this Agreement has been executed on the day and year written above.
OFFICER SAN DIEGO GAS & ELECTRIC COMPANY
__________________________ By: __________________________
SAN DIEGO GAS & ELECTRIC COMPANY
1995 DEFERRED COMPENSATION AGREEMENT
FOR OFFICERS #1
(1995 BASE COMPENSATION)
(1996 BONUS)
THIS AGREEMENT, made and entered into this_____ day of December, 1994, by and between San Diego Gas & Electric Company, (hereinafter "Company") and ____________________________________ (hereinafter "Officer"), an elected Officer of Company.
WITNESSETH:
WHEREAS, in addition to 1995 base compensation, incentive compensation payable in the form of a single sum cash bonus may be paid to Officer in 1996 for outstanding performance in 1995 ("1996 Bonus"); and
WHEREAS, Officer and Company desire that the payment of said 1995 base compensation and/or 1996 bonus to Officer be deferred, pursuant to the terms and provisions of this Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. This Agreement shall be effective on the first date after its execution upon which Officer's bonus would otherwise be payable to Officer for outstanding performance and shall continue in effect until this Agreement is terminated as provided herein.
2. Company shall credit to an account on Company's books, in Officer's name, that portion of such Officer's bonus otherwise payable to Officer as may be specified by Officer on an Election Form submitted to Company simultaneously with the execution of this Agreement. If an Officer has elected to defer 100% of such Officer's bonus (pursuant to Deferred Compensation Agreements for Officers #1 and #3) and the Officer is also participating in the Savings Plan of San Diego Gas & Electric to the maximum extent permissible, such Officer may also elect to defer, and Company shall credit to the Officer's account, a portion of such Officer's base compensation (in equal monthly installments of whole dollar amounts).
3. There shall be credited to Officer's account an additional amount equal to nine and four-tenths percent (9.4%) per annum computed on the balance in Officer's account as of the end of each month; provided, however, that Company reserves the right to increase or decrease from time to time such amounts to be credited to the account after the date of such increase or decrease, provided that upon a "change-in-control" (as defined in the SDG&E Amended 1986 Long-Term Incentive Plan) the percentage used shall not decrease to less than the last published percentage shown in Moody's Average of Yields on Public Utility Bonds for a utility having a rating equivalent to SDG&E.
4. All amounts credited to Officer's account pursuant to paragraphs 2 and 3 hereof shall be paid to Officer on the date(s) specified by Officer on this Agreement's Election Form. In the event of Officer's death after installment payments to Officer have commenced hereunder, installment payments shall continue to be paid to the person(s) specified by Officer on the Election Form for the remainder of the period selected by Officer on this Agreement's Election Form. In the event of Officer's death before any payment has been made under this Agreement, Officer's account shall be distributed or commence to be distributed, as soon as administratively practicable after Officer's death, to the person(s) specified by Officer on this Agreement's Election Form in the form and over the period selected on such Election Form. The Company's Executive Compensation Committee may, in its sole discretion, provide instead for payment of the amount in Officer's account to Officer's beneficiary in a form and over a period determined by the Committee except that the Committee's authority and discretion to change the form or period of distribution shall terminate upon such a "change-in-control." If Officer's spouse is the beneficiary, the annual amount of any installment payments under this paragraph 4 shall at least equal the entire annual income earned by the account and if the spouse dies prior to distribution of all amounts in Officer's account, all undistributed income on such account shall be distributed to the spouse's estate. Upon the death of Officer's beneficiary, the balance in Officer's account (after the application of the previous sentence, if the spouse is the beneficiary) shall be distributed to the person(s) designated by the beneficiary on a form provided by Company or, if no designation is made, to the beneficiary's estate.
5. No amounts credited to Officer's account may be assigned, transferred, encumbered, or made subject to any legal process for the payment of any claim against Officer, Officer's spouse or beneficiary. In no event shall Officer, Officer's spouse or beneficiary have the right to recover any amounts credited to Officer's account other than in accordance with this Agreement.
6. Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between Company and the Officer or any other person. To the extent that any person acquires a right to receive payments from Company under this Agreement, such right shall be no greater than the right of any unsecured general creditor of Company. Title to and beneficial ownership of any assets, whether cash or investments which Company may earmark to pay the deferred compensation hereunder, shall at all times remain assets of Company and neither the Officer nor any other person shall, under this Agreement, have any property interest whatsoever in any specific assets of Company.
7. The existence of this Agreement shall not confer upon any Officer any right to continue to serve as an Officer for any period of time.
8. This Agreement may be terminated by Company upon 30 days written notice to the Officer. Such termination shall be applicable only with respect to bonuses and/or base compensation payable to Officer on and after the first day of the calendar year following the date of termination. Funds previously deferred and credited (and income earned on such funds) will continue to be governed by the applicable year's Officer's Deferred Compensation Agreement Election Form and Section 3 of this Agreement.
9. Officer acknowledges that Officer has been advised that Officer may confer with and seek advice from a tax or financial advisor of Officer's choice concerning this deferral. Officer further acknowledges that Officer has not received tax advice from SDG&E nor has Officer relied upon information provided by SDG&E in electing to make this deferral.
IN WITNESS WHEREOF, this Agreement has been executed on the day and year written above.
OFFICER SAN DIEGO GAS & ELECTRIC COMPANY
__________________________ By ____________________________
SAN DIEGO GAS & ELECTRIC COMPANY
1995 DEFERRED COMPENSATION AGREEMENT
FOR NONEMPLOYEE DIRECTORS
THIS AGREEMENT, made and entered into this _____ day of December, 1994, by and between San Diego Gas & Electric Company, (hereinafter "SDG&E") and ______________________________________ (hereinafter "Director"), a member of the Board of Directors of SDG&E (hereinafter the "Board"),
WITNESSETH:
WHEREAS, fees are paid to Directors as a retainer; and
WHEREAS, Director and SDG&E desire that the payment of said fees to Director be deferred, pursuant to the terms and provisions of this Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. This Agreement shall be effective on the first date subsequent to its execution upon which Director's fees would otherwise be payable to Director for service as a member of the Board and shall continue in effect until this Agreement is terminated as provided herein.
2. SDG&E shall credit to an account on SDG&E's books, in Director's name, that portion of such Director's fees otherwise payable to Director as may be specified by Director on an election form submitted to SDG&E simultaneously with the execution of this Agreement.
3. There shall be credited to Director's account an additional amount equal to nine and four-tenths percent (9.4%) per annum computed on the balance in Director's account as of the end of each month; provided, however, that SDG&E reserves the right to increase or decrease from time to time such amount with respect to amounts to be credited to the account subsequent to the date of such increase or decrease, provided that upon a "change-in-control" (as defined in the SDG&E Amended 1986 Long-Term Incentive Plan) the percentage used shall not decrease to less than the last published rate shown in Moody's Average of Yields on Public Utility Bonds for a utility having a rating equivalent to SDG&E.
4. All amounts credited to Director's account pursuant to paragraphs 2 and 3 hereof shall be paid to Director in a lump sum on the date specified by Director on the Director's election form. In the event of Director's death before any payment due under this paragraph 4 has been paid, such payment due shall be paid in a lump sum to the person specified by the Director on the election form as soon as administratively practicable.
5. No amounts credited to Director's account may be assigned, transferred, encumbered, or made subject to any legal process for the payment of any claim against Director, Director's spouse or beneficiary. In no event shall Director, Director's spouse or beneficiary have the right to recover any fees credited to Director's account other than in accordance with this Agreement.
6. Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between SDG&E and the Director or any other person. To the extent that any person acquires a right to receive payments from SDG&E under this Agreement, such right shall be no greater than the right of any unsecured general creditor of SDG&E. Title to and beneficial ownership of any assets, whether cash or investments which SDG&E may earmark to pay the deferred compensation hereunder, shall at all times remain assets of SDG&E and neither the Director nor any other person shall, under this Agreement, have any property interest whatsoever in any specific assets of SDG&E.
7. The existence of this Agreement shall not confer upon any Director any right to continue to serve as a Director for any period of time.
8. This Agreement may be terminated by SDG&E upon 30 days written notice to the Director. Such termination shall be applicable only with respect to fees payable to Director on and after the first day of the calendar year following the date of termination. Funds previously deferred and credited (and income earned on such funds) will continue to be governed by the applicable year's director election form and Section 3 of this Agreement.
9. Director acknowledges that Director has been advised that Director may confer with and seek advice from a tax or financial advisor of Director's choice concerning this deferral. Director further acknowledges that Director has not received tax advice from SDG&E nor has Director relied upon information provided by SDG&E in electing to make this deferral.
IN WITNESS WHEREOF, this Agreement has been executed on the day and year written above.
DIRECTOR SAN DIEGO GAS & ELECTRIC COMPANY
__________________________ By: ___________________________
SAN DIEGO GAS & ELECTRIC COMPANY
1986 LONG-TERM INCENTIVE PLAN
1994 RESTRICTED STOCK AWARD AGREEMENT
THIS RESTRICTED STOCK AWARD AGREEMENT (the "Agreement") is entered into this _____ day of ___________, 1994, by and between SAN DIEGO GAS & ELECTRIC COMPANY, a California corporation ("SDG&E") and ________________________ ("Participant").
WHEREAS, the Board of Directors of SDG&E ("the Board") has adopted the 1986 Long-Term Incentive Plan (the "Plan"), which provides for the granting to selected employees of SDG&E and its subsidiaries of awards of Common Stock of SDG&E ("Restricted Stock Awards");
WHEREAS, the grant of Restricted Stock Awards is intended as an incentive which will attract and retain highly competent persons as officers and key employees of SDG&E and its subsidiaries;
WHEREAS, Participant is a selected employee of SDG&E; and
WHEREAS, the Executive Compensation Committee of the Board (the "Committee") has authorized, and the Board has approved, the grant of a Restricted Stock Award to Participant pursuant to the terms of the Plan.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows:
SDG&E hereby grants to Participant, on the terms, conditions and restrictions hereinafter set forth, and in accordance with the Plan which is incorporated herein, as a matter of separate inducement to achieve a certain goal set by the Board and not in lieu of any salary or other compensation for Participant's services, a Restricted Stock Award consisting of ______________________________________ (_____________) shares of the authorized but unissued shares of SDG&E Common Stock, (the "Shares").
Participant hereby purchases and acquires the Shares, and SDG&E hereby sells and transfers the Shares to Participant. Concurrently with the execution hereof, SDG&E has delivered to
Participant, and Participant acknowledges receipt into escrow of, a certificate or certificates evidencing the Shares, duly issued to Participant by SDG&E. Concurrently with the execution hereof, Participant acknowledges that the Secretary or Assistant Secretary of SDG&E, holds on behalf of Participant all certificates evidencing the Shares. Participant also acknowledges prior receipt of a prospectus for the Plan, a copy of the Plan, and an Annual Report of SDG&E for the year 1992. Participant shall execute all such stock powers and other instruments of transfer in favor of SDG&E as are necessary at any time in the future to perform this contract.
The purchase price for the Shares shall be Two Dollars and Fifty Cents ($2.50) per share. In payment thereof, Participant has delivered to SDG&E, on the date first written above, and SDG&E acknowledges receipt of, a check payable to SDG&E in the amount of Dollars ($ ). SDG&E agrees that Participant shall be deemed a shareholder of record with respect to the Shares on the date first written above.
(a) The Restricted Term with respect to the Shares shall commence on the date first above written. The restrictions will be removed from and the restricted term will expire on one quarter of the restricted shares after the end of each of the years 1994, 1995, 1996 and 1997 if:
(1) At the end of each of such years SDG&E's earnings per share meets or exceeds the target earnings per share as set by the Committee.
(2) Beginning in 1995, at the end of any quarter, the published quarterly earnings meets or exceeds the previous year's target earnings plus 25% of the annual target per quarter.
During the Restricted Term, Participant shall, except as otherwise provided herein, have all of the rights of a stockholder with respect to all of the Shares subject to the Restricted Term, including without limitation the right to vote such Shares and the right to receive all dividends or other distributions with respect to such Shares. In connection with the payment of such dividends or other distributions, there shall be deducted any taxes or other amounts required by any governmental authority to be withheld and paid over to such authority for the account of Participant.
During the Restricted Term, the Shares subject to the Restricted Term shall not be sold, assigned, transferred, hypothecated or otherwise alienated, disposed of or encumbered except as provided in the Plan. The certificate for such Shares shall bear the following legend, or any other similar legend as may be required by SDG&E:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE MAY NOT
BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ENCUMBERED OR DISPOSED OF EXCEPT AS PERMITTED BY SAN DIEGO GAS & ELECTRIC COMPANY'S 1986 LONG-TERM INCENTIVE PLAN OR THE COMMITTEE WHICH ADMINISTERS THAT PLAN."
In the event Participant ceases to be employed by SDG&E at any time before the end of the Restricted Term for any reason, Participant shall sell, and SDG&E shall purchase all Shares subject to the Restricted Term for a price of Two Dollars and Fifty Cents ($2.50) per share. Upon the delivery by SDG&E to its Secretary or Assistant Secretary of (i) notice that Participant has ceased to be so employed, and (ii) its check, payable to the order of Participant, in the amount of such purchase price, said Secretary or Assistant Secretary shall deliver to SDG&E all certificates evidencing the Shares subject to the Restricted Term, accompanied by stock powers and other instruments of transfer duly executed by Participant, and shall deliver to Participant the check in the amount of the purchase price for such Shares.
Check one:
a. ___ Participant elects, pursuant to the Internal Revenue Code as amended, and the comparable provisions of state tax law, to include in gross income in connection with the grant of this Restricted Stock Award, all amounts now recognizable.
b. ___ Participant shall not elect, pursuant to the Internal Revenue Code as amended, or comparable provisions of any state tax law, to include any amount in gross income in connection with the grant of this Restricted Stock Award.
(a) Upon recognition of income as elected in paragraph 8 above, Participant shall, with respect to such Shares, make payment, in the form of cash or a cashier's check or in the manner stated
in paragraph 9(b) below, to SDG&E in an amount sufficient to satisfy any taxes or other amounts SDG&E determines is required by any governmental authority to be withheld and paid over by SDG&E or any of its subsidiaries to such authority for the account of Participant (collectively, "Withholding Taxes"), or shall otherwise make arrangements satisfactory to SDG&E for the payment of such amounts through withholding or otherwise. For purposes of paragraph 8(a), such payment or arrangements shall be made by December 9, 1993. For purposes of paragraph 8(b), the date shall be 30 days after the restrictions are removed. Participant shall, if requested by SDG&E, make appropriate representations in a form satisfactory to SDG&E that such Shares will not be sold other than pursuant to an effective registration statement under the Securities Act of 1933, as amended, or an applicable exemption from the registration requirements of such Act.
(b) Subject to the restrictions set forth in paragraph 9(c)
and such rules as the Committee may from time to time adopt and
upon approval by the Committee in its sole discretion, Participant
may elect to satisfy all or any portion of such Participant's tax
withholding obligations set forth in paragraph 9(a) by electing (i)
to have SDG&E withhold from delivery of any Shares otherwise
deliverable to Participant in the manner set forth in paragraph 10
hereof, a portion of such Shares to satisfy Withholding Taxes or
(ii) to deliver to SDG&E shares of Common Stock, no par value, of
SDG&E, other than those delivered to Participant in the manner set
forth in paragraph 10 hereof, to satisfy all or any portion of such
Participant's Withholding Taxes. The number of Shares withheld
from delivery or such other shares delivered shall equal the number
of shares the Committee, in its sole discretion, determines to have
a fair market value equal to the amount of such Participant's
Withholding Taxes required to be withheld or paid over by SDG&E or
any of its subsidiaries and which Participant elected to be
satisfied by withholding or delivery of shares.
(c) Participant's election to satisfy all or any portion of Participants Withholding Taxes under paragraph 9(b) is subject to the following restrictions:
(i) such election must be made in writing on or before the date when the amount of Withholding Taxes is required to be determined (the "Tax Date");
(ii) such election shall be irrevocable;
(iii) such election shall be subject to the approval or disapproval of the Committee, in its sole discretion;
(iv) the fair market value of the Shares to be withheld or other shares of Common Stock to be delivered to SDG&E for the purposes of satisfying all or any portion of such Participant's Withholding Taxes shall be deemed to be the average of the highest and lowest selling prices of such stock as reported on the New York Stock Exchange Composite Transactions Tape on the Tax Date, or if such stock is not traded that day, then on the next preceding day on which such stock was traded; and
(v) if Participant is or becomes subject to
Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), such election must be made either
six months or more prior to the Tax Date or within a ten-day
period beginning on the third and ending on the twelfth
business day following release for publication of SDG&E's
quarterly or annual summary statement of earnings in
accordance with Rule 16b-3(e)(3)(iii) under the 1934 Act;
provided that no such election may be made within six months
of the grant of such Restricted Stock award, except in the
case of death or disability of Participant."
Upon expiration of the Restricted Term applicable to any shares as provided in the manner stated in paragraph 4 above and payment by the Participant as required in paragraph 9 above, the Secretary or Assistant Secretary of SDG&E shall deliver to Participant all certificates evidencing the Shares free of legend and no longer subject to the Restricted Term and all restrictions set forth herein with respect to such Shares shall terminate.
If at the end of 1997 the restrictions have not been removed from and the Restricted Term has not expired on any of the shares purchased by Participant under this Agreement, Participant shall sell and SDG&E shall purchase all such shares for a price of Two Dollars and Fifty Cents ($2.50) per share no later than February 1, 1998. The Secretary or Assistant Secretary shall deliver to SDG&E all certificates evidencing such shares accompanied by stock powers and other instruments of transfer duly executed by Participant and shall deliver to Participant a check in the amount of the purchase price for such shares.
Participant's right, if any, to continue to serve SDG&E and its subsidiaries as an officer or employee shall not be enlarged or otherwise affected by the grant to him or her of this Restricted Stock Award, nor shall such grant in any way restrict the right of SDG&E or any of its subsidiaries to terminate Participant's employment at any time.
Each party hereto agrees to perform any further acts and to execute and deliver any documents which may be reasonably necessary to carry out the provisions hereof.
This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective assigns and successors-in-interest, and shall be governed by and interpreted in accordance with the laws of the State of California.
This Agreement contains the entire agreement and understanding between the parties as to the subject matter hereof.
The invalidity or unenforceability of any particular provision hereto shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted.
No amendment or modification hereof shall be valid unless it shall be in writing and signed by both parties hereto.
This Agreement may be executed in counterparts, each of which shall be deemed to be an original, and taken together shall constitute one and the same document.
All notices or other communications required or permitted hereunder shall be in writing, and shall be sufficient in all respects only if delivered in person or sent via certified mail, postage prepaid, addressed as follows:
If to SDG&E: San Diego Gas & Electric Company
P.O. Box 1831
San Diego, CA 92112
Attention: Corporate Secretary
|
If to Participant: ________________________________________
or such other address as shall be furnished in writing by any such party. Any such notice or communication shall be deemed to have been delivered when delivered in person or 48 hours after the date it has been mailed in the manner described above.
IN WITNESS WHEREOF, the parties hereto have executed this Restricted Stock Award Agreement on the day and year first above written.
PARTICIPANT
SAN DIEGO GAS & ELECTRIC COMPANY
By:___________________________________
Title:_________________________________
SAN DIEGO GAS & ELECTRIC COMPANY
RETIREMENT PLAN FOR DIRECTORS
(Restated as of October 24, 1994)
I. Purpose
The purpose of this Plan shall be to provide recognition and retirement compensation to eligible members of the San Diego Gas & Electric Company ("SDG&E") Board of Directors ("Board"), to facilitate SDG&E's ability to attract, retain and reward members of the Board.
II. Eligibility
Eligibility in this Plan shall be limited to members of the Board of Directors of SDG&E who have at least five years of total service (which need not be continuous service) as Directors, and who retire or resign from the Board in good standing or die while in service and in good standing.
III. Amount of Annual Benefit
This Plan shall pay an annual retirement benefit equal to the amount of annual compensation in effect at the time of the eligible Director's retirement, resignation or death. For purposes of determining the annual retirement benefit, annual compensation shall include the annual retainer, meeting fees, committee chair fees and the cash value of any stock grant, calculated at the effective date of grant, paid or payable to the eligible Director during the calendar year next preceding such retirement, resignation or death.
These amounts shall be paid quarterly in advance in four equal payments. No additional amount shall be paid for service on any of the committees of the Board nor shall interest be paid on these amounts.
All benefits payable under this Plan shall be offset by the benefits payable to the eligible Director for service as an SDG&E Director from the Retirement Plan for the Directors of SCEcorp and Southern California Edison Company.
IV. Duration of Payments
The Plan shall pay the retired Director or his/her surviving spouse a benefit for the number of years of total service on the Board (the Benefit Period). Service on the Board of an SDG&E subsidiary shall not be counted for computation of the amount of annual retirement benefit under the Plan or the Plan's Benefit Period. For the purpose of computing the Benefit Period, periods of service as an employee Director shall be disregarded.
If the years and months of actual service includes a fractional year, it shall be rounded up to a full year for purposes of determining the Benefit Period.
The first quarterly payment shall be made on the first day of the calendar quarter following:
* the Director's retirement, or
* the 65th anniversary of the Director's birth,
whichever occurs later.
If the Director dies without leaving a surviving spouse, no further benefits shall be payable under this Plan.
If the Director dies leaving a surviving spouse before retiring from the Board, benefit payments to that spouse shall begin on the first day of the calendar quarter following:
* the date of the Director's death, or
* the 65th anniversary of the Director's birth,
whichever occurs later.
If the Director dies leaving a surviving spouse after retirement from the Board but before benefit payments have begun, benefit payments to that spouse shall begin on the first day of the calendar quarter following the 65th anniversary of the Director's birth.
Once begun, benefit payments to a retired Director or his/her surviving spouse shall continue until:
* completion of payments for the Benefit Period, or
* payment of the quarterly payment preceding the date of death of the later to die of both the Director and the surviving spouse, if any, whichever occurs first.
V. Administration
This Plan shall be non-contributory, non-qualified and unfunded and shall represent an unsecured general obligation of SDG&E or a successor corporation. No special fund or trust shall be created nor shall any notes or securities be issued with respect to any retirement benefits.
The Chairman of the Compensation Committee of the Board or the Vice President - Human Resources of SDG&E shall have full and final authority to interpret this Plan, to make determinations advisable for the administration of this Plan, to approve ministerial changes and to approve changes as may be required by law or regulation. All such decisions and determinations shall be final and binding upon all parties.
If any person entitled to payments under this Plan is, in the opinion of the Committee or its designee, incapacitated and unable to use such payments in his/her own best interest, the Committee or its designee may direct that payments (or any portion) be made to the person's spouse or legal guardian, as an alternative to the payment to the person unable to use the payments. The Committee or its designee shall have no obligation to supervise the use of such payments.
This Plan shall be governed by the laws of the State of California.
CONFIDENTIAL
SAN DIEGO GAS & ELECTRIC COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Restated as of July 1, 1994)
The purpose of the San Diego Gas and Electric Company Supplemental Executive Retirement Plan ("Plan") is to provide a retirement benefit in addition to that provided under the San Diego Gas & Electric Company Pension Plan to Officers or designated Executives of the Company.
The Plan is unfunded. Benefits are payable only from the general assets of the Company, and not from any separate fund or trust. The Plan is exempt from the requirements of the federal Employee Retirement Income Security Act of 1974 ("ERISA"), except for the reporting and disclosure requirements contained in Part 1 of Subtitle of Title I of ERISA.
The Plan was effective July 15, 1981, and amended on April 24, 1985, October 20, 1986, April 28, 1987, October 24, 1988, November 21, 1988, October 28, 1991, May 26, 1992, May 24, 1993, November 22, 1993, and July 25, 1994.
a. Board of Directors means the Board of Directors of San Diego Gas & Electric Company.
b. Cause means the termination of employment by the Company for:
i. the willful and continued failure to substantially perform assigned duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a request for substantial performance is delivered by the Board which specifically identifies the manner in which the Board believes the Officer or Executive has not substantially performed assigned duties, or
ii. the willful engaging in gross misconduct materially and demonstrably injurious to the Company. No act, or failure to act, shall be considered "willful" unless done, or omitted to be done, not in good faith and without reasonable belief that the action or omission was in the best interest of the Company.
Notwithstanding the foregoing, an Officer or Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Officer or Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board, excluding the Officer or Executive if a Board member, at a meeting of the Board called and held for the purpose (after reasonable notice and an opportunity, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Officer or Executive was guilty of conduct set forth above and specifying the particulars thereof in detail.
c. Change-in-Control means (1) the dissolution or
liquidation of the Company, (2) a reorganization, merger, or
consolidation of the Company with one or more corporations as a
result of which the Company is not the surviving corporation, (3)
the acquisition of beneficial ownership, directly or indirectly,
of more than 25% of the voting power of the outstanding stock of
the Company by one person, group, association, corporation, or
other entity, (the group) coupled with the election to the Board
of Directors of new members who were not originally nominated by
the Board at the last annual meeting and who constitute a new
majority of the Board or (4) upon the sale of all or substantially
all the property of the Company. The term Change-in-Control shall
not apply to any reorganization or merger initiated voluntarily by
the Company in which the Company is the surviving entity. At such
time, or within three years thereafter, regardless of whether
provisions are made in connection with such transaction for the
continuance of the Plan, if the Company or surviving corporation
shall terminate the Officer's or Executive's employment for other
than Cause, Retirement, Death, or Disability, or if the Officer or
Executive shall terminate employment for Good Reason, then the
Officer or Executive shall become eligible for and entitled to
benefits calculated under the provisions in Section 4.a.i. with
survivor benefits calculated under the provisions of Section
4.e.i., both based upon ten years of service and calculated without
reference to the service ratio noted in Section 4.a.ii. Such
benefit shall be paid by the Company to the Officer or Executive in
a lump sum, in cash, on the fifth day following the date of
termination. Except for any limitations of Section 280G of the
Internal Revenue Code described below, such amount will equal the
Actuarial Present Value of the
benefit so determined. However, if the Officer or Executive is
otherwise eligible for Early Retirement pursuant to Section 2.f.i.,
he or she may, at his or her sole discretion, elect to receive the
benefit determined above as an early retirement benefit, reduced
for early commencement by the appropriate early retirement
reduction factor as determined in accordance with the Pension Plan,
but without adjustment by the service ratio noted in Section
4.a.ii. Actuarial Present Value shall be determined on the basis
of 7.75% interest and using the UP-1984 Unisex Pension Mortality
Table for post-retirement ages only. The Actuarial Present Value
of the benefit calculated pursuant to Section 4.a.i. shall be
determined as the present value of an annuity deferred to age 62
(or an immediate annuity, if the Officer or Executive has attained
a greater age on the date of determination) assuming an eligible
spouse at annuity commencement as described in the following two
sentences. If the Officer or Executive is married at the time of
lump sum payment, the Actuarial Present Value shall be calculated
assuming the marriage continues to retirement. If the Officer or
Executive is unmarried, the Actuarial Present Value shall be
calculated assuming the presence of a spouse, three years younger
than the Officer or Executive, at retirement. The Actuarial
Present Value of the Offset to Retirement Benefits, pursuant to
Section 4.b. shall be determined as the present value of an annuity
deferred to Normal Retirement Age under the Pension Plan (or an
immediate annuity, if the Officer or Executive has attained a
greater age on the date of determination) and without reference to
potential increases in such benefits pursuant to cost of living
adjustments. However, such amount shall not exceed 2.99 times the
Officer's or Executive's "annualized includable compensation for
the base period" (as defined in Section 280G(d) of the Internal
Revenue Code of 1986, as amended (the "Code")) applicable to the
Change-in-Control of the Company prior to such Date of Termination;
provided, however, that if the lump sum severance payment under
this Section, calculated as set forth above, either alone or
together with other payments which the Officer or Executive has the
right to receive from the Company, would constitute a "parachute
payment" (as defined in Section 280G of the Code), such lump sum
severance payment shall be reduced to the largest amount as will
result in no portion of the lump sum severance payment under this
Section being subject to the excise tax imposed by Section 4999 of
the Code. The determination of any reduction in the lump sum
severance payment under this Section pursuant to the foregoing
proviso shall be made by the Company in good faith, and such
determination shall be conclusive and binding on the Officer or
Executive.
d. Company means San Diego Gas & Electric Company.
e. Executive means a management or highly compensated employee of the Company (within the meaning of Section 201(2) of ERISA) who is designated by the Board of Directors, in its discretion, to be eligible to participate in the Plan.
f. Final Pay means the monthly base pay rate in effect during the month immediately preceding Retirement, plus 1/12 of the average of the highest three years' gross bonus awards, not necessarily consecutive, of the person concerned.
g. Good Reason means termination of employment by the Officer or Executive when one or more of the following occurs without the Officer's or Executive's express written consent within three years after a Change-in-Control:
i. an adverse and significant change in the Officer's
or Executive's position, duties, responsibilities or status with
the Company, or a change in business location to a point outside
the Company's service territory, except in connection with the
termination of employment by the Company for Cause or Disability,
or as a result of voluntary Retirement at or after either the
Officer's or Executive's Early (i.i) or Normal Retirement Date
(i.ii.), or death, or for other than for Good Reason;
ii. a reduction by the Company in base salary or incentive compensation opportunity;
iii. the taking of any action by the Company to eliminate benefit plans without providing substitutes therefore, to reduce benefits thereunder or to substantially diminish the aggregate value of incentive awards or other fringe benefits including insurance and an automobile provided in accordance with the Company's standard policy; or
iv. a failure by the Company to obtain from any successor, before the succession takes place, an agreement to assume and perform this Plan.
h. Officer means an officer of the Company, but not including assistant officers or assistants to officers. For example, an Assistant Secretary would not be considered as an Officer for the purposes of the Plan.
i. Pension Plan means the San Diego Gas & Electric Company Pension Plan.
j. Retirement.
i. Early Retirement means retirement from service with
the Company anytime after attaining age 55 and completing 5 Years
of Service, but before age 65. Provided there shall be no
reduction in the Normal Retirement Benefit computed under Section
4.a.ii. in the case of an Officer or Executive who has attained age
62.
ii. Normal Retirement means retirement from service with the Company at age 65 or, if later, upon the fifth anniversary of the date on which the Officer or Executive became eligible to participate in the Plan.
iii. Late Retirement means retirement from service with the Company after Normal Retirement.
k. Years of Service means Years of Service as defined in the Pension Plan, but including for purposes of this Plan only Years of Service from date of hire to the earlier of date of death, date of Early Retirement, or attainment of age 65.
l. Surviving Spouse means the person legally married to an Officer or Executive for at least one year prior to the Officer's or Executive's death.
m. Participant means the Officers and Executives who have been designated by the Company to participate in the Plan.
All Officers and Executives (as defined in Section 2.e) are eligible to participate in the Plan.
a. Retirement Benefits. Subject to the further provisions of this Section 4, Retirement Benefits will be computed and paid as follows:
i. Normal Retirement Benefit , as to Officers and Executives who are Participants in the Plan on June 30, 1994, shall be a monthly benefit equal to 6% times Years of Service (to a maximum of 10 years) times Final Pay. As to Officers and Executives who become Participants in the Plan on or after July 1, 1994, Normal Retirement Benefit shall be a monthly benefit equal to 5% times Years of Service (to a maximum of 10 years) times Final Pay.
ii. Early Retirement Benefit shall be the Normal Retirement Benefit accrued to the date of Early Retirement, multiplied by the ratio of the lesser of his or her Years of Service to his or her date of Early Retirement or to age 62 over his or her Years of Service projected to age 62, and further multiplied by the appropriate early retirement reduction factor as determined in accordance with the Pension Plan.
iii. Late Retirement Benefit shall be the Normal Retirement Benefit accrued to the Normal Retirement date (age 65) but not beyond, payable at Late Retirement. However, the Board of Directors in its sole discretion, may increase the amount of the Late Retirement Benefit if the Officer or Executive concerned
continues in the employment of the Company after age 65 at the request of the Board of Directors.
b. Offset to Retirement Benefits. The retirement benefit payments set forth in Section 4.a. shall be reduced by the amount of the retirement payments, without regard to cost of living adjustments occurring after retirement, made to the retired Officer or Executive under the Pension Plan.
c. Normal Form of Retirement Benefits shall be a monthly benefit payable for the lifetime of the Officer or Executive, with benefits payable after his or her death to a Surviving Spouse in accordance with Section 4.e.
d. Optional Forms of Retirement Benefit are not available.
e. Death Benefit.
i. If death occurs before or after Retirement, a monthly lifetime benefit shall be payable to the Surviving Spouse of the Officer or Executive, equal to 3.0% times the Officer's or Executive's Year of Service (to a maximum of 10 years) times Final Pay.
ii. Any payments made pursuant to this Section 4.e. shall be reduced by the amount of any benefits payable under the Pension Plan subsequent to the death of the Officer or Executive.
f. Termination of Service.
No benefits will be payable under the Plan upon the termination of service of an Officer or Executive for reasons other than Death, Disability or Retirement, Change-in-Control or Good Reason under the Plan.
g. Disability Benefit.
i. If an Officer or Executive becomes disabled, as determined by the Board of Directors, a monthly benefit shall be payable to such Officer or Executive until the earlier of recovery, death or the later of age 65 or the fifth anniversary of the commencement of the disability, equal to 60% of Final Pay.
ii. Any payments made pursuant to this Section 4.g. shall be reduced by the amount of any disability benefits payable to the Officer or Executive and his or her family under any Company-sponsored disability program or governmental disability program.
iii. Upon the cessation of Disability Benefits, subsequent Retirement or Surviving Spouses' benefits shall be calculated in accordance with other Sections of this Plan.
h. Adjustment of Benefits.
Once determined, the benefits payable under the Plan may not be adjusted upward or downward (other than in accordance with the offset provisions contained in the Plan) except by action of the Board of Directors. Any such adjustments shall be based upon, but need not be equivalent to, changes in the Consumer Price Index, All Items, U.S. City Average, of the Bureau of Labor Statistics of the U.S. Department of Labor. The Board of Directors reserves the right to so adjust benefits payable under the Plan at any time, whether such change occurs prior to the time an Officer or Executive retires or dies, or after the time payment of benefits commences.
i. Forfeiture of Benefits.
As a condition of receiving benefits under the Plan, an Officer or Executive shall not after Retirement voluntarily appear against the Company before any judicial or administrative tribunal or legislative body, on any matter about which he or she possesses any expertise or special knowledge relative to the Company's business. Any breach of this condition will result in complete forfeiture of any further benefits under the Plan.
The Plan shall be administered by the Pension Committee of the Pension Plan, subject, however, to any action taken by the Board of Directors in respect to the Plan. The Pension Committee shall have the authority to interpret the Plan, shall file with the Department of Labor and distribute to the Officers or Executives the reports and other information required by ERISA, and shall otherwise be responsible for administration of the Plan.
The Committee (or the Board of Directors, to the extent provided in the Plan) shall have the exclusive right and full discretion to interpret the Plan and to decide any and all matters arising hereunder (including the right to remedy possible ambiguities, inconsistencies or omissions), to make, amend and rescind such rules as it deems necessary for the proper administration of the Plan and to make all other determinations necessary or advisable for the administration of the Plan,
including determinations regarding eligibility for benefits under the Plan and determinations of the amount of benefits payable under the Plan. All interpretations of the Committee or the Board of Directors with respect to any matter hereunder shall be final, conclusive and binding on all persons affected thereby.
No member of the Committee shall vote on any matter affecting such member.
The Board of Directors may amend or terminate the Plan at any time except that no such amendment or termination may occur as a result of a Change-in-Control, within three years after a Change- in-Control, or as a part of any plan to effect a Change-in-Control.
However, no such amendment or termination shall apply to any person who has then qualified for or is receiving benefits under the Plan.
The committee (and the Board of Directors, on the appeal of the denial of a claim) has full discretion and the exclusive right to determine eligibility for benefits under the Plan. The Committee's decision on a claim for benefits is final and binding on all persons, except as to an appeal of the Committee's denial of a claim to the Board of Directors. The Board of Directors' decision on an appeal of the Committee's denial of a claim for benefits is final and binding on all persons.
Any person who believes that benefits have been denied under the Plan to which he or she believes he or she is entitled may file a written claim with the Committee setting forth the nature of the benefit claimed, the amount thereof, and the basis for the claim of entitlement to such benefit. The Committee shall determine the validity of such claim and notify the claimant of the Committee's determination by first class mail within 90 days of the receipt of the written claim. In the case of a denial of claim, the notice shall set forth in understandable language;
a. The specific reason for the denial;
b. Specific references to pertinent Plan provisions on which the denial is based;
c. A description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or information is necessary; and
d. An explanation of the Plan's claim review procedure.
Within 60 days of the receipt of a denial of his or her claim, the claimant, or an authorized representative may file a written request for a full review by the Board of Directors of the claim for benefits. The Board of Directors shall fully review the claim for benefits and the prior denial of the claim and shall provide an opportunity for the claimant, or an authorized representative to review pertinent documents and submit issues and comments in writing. A decision upon review of the claim shall be made by the Board of Directors within 60 days of receipt of the request for review. The decision on review shall be in writing, and in understandable language, shall state the specific reasons for the decision, and shall include specific references to the pertinent Plan provisions on which the decision is based. The decision of the Board of Directors after review shall be final and conclusive on all persons.
a. This Plan is "unfunded" and "maintained primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees" pursuant to Section 401(a)(1) of ERISA. Nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall create or be construed to create a trust of any kind or a fiduciary relationship between the Company and an Officer, Executive, Surviving Spouse, or any other person. To the extent that any person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company. Title to and beneficial ownership of any asset, whether case or investments, which the Company may earmark to pay the deferred compensation hereunder shall at all times remain assets of the Company, and neither an Executive, Officer, or Surviving Spouse nor any other person shall, under this Plan, have any property interest whatsoever in any specific assets in the Company.
b. If any provision in the Plan is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way.
c. The Committee shall not recognize any transfer, mortgage, pledge, hypothecation, order or assignment by any Officer, Executive or Surviving Spouse of all or part of his or her interest hereunder, and such interest shall not be subject in any manner to transfer by operation of law, and shall be exempt from the claims of creditors or other claimants from all orders,
decrees, levies, garnishment and/or executions and other legal or equitable process or proceedings against such Officer, Executive or Surviving Spouse to the fullest extent which may be permitted by law;
d. The Plan shall be construed in accordance with ERISA and, to the extent not preempted by ERISA, the laws of the State of California.
a. Offset Value
Some of the Participants under this Plan own life insurance policies (the "Policies") purchased on their behalf by the Company.
The ownership of these Policies by each Participant is, however,
subject to certain conditions (set forth in a "Split-Dollar
Insurance Agreement" between the Participant and the Company) and,
if the Participant fails to meet the conditions set forth in the
Split-Dollar Life Insurance Agreement, the Participant may lost
certain rights under the Policy. In the event that a Participant
satisfies the conditions specified in Section 4 or 5 of the Split-
Dollar Life Insurance Agreement, so that the Participant or his or
her beneficiary becomes entitled to benefits under one of those
sections, the value of those benefits shall constitute an offset to
any benefits otherwise payable under this Plan. As the case may
be, this offset (the "Offset Value") shall be calculated by
determining the value of benefits paid or payable under the Split-
Dollar Life Insurance Agreement, that is, the cash value of the
Policy, or in the case of the Participant's death, the death
benefits payable to the beneficiary under the Policy. At the time
when the Participant terminates employment, the Actuarial
Equivalent (as defined in paragraph 9.d) of the Offset Value shall
be compared to the Actuarial Equivalent (as defined in paragraph
9.d) of the benefits payable under this Plan (the "Plan Value"),
and the Plan Value shall be reduced by the Actuarial Equivalent of
the Offset Value. The Plan Value shall be calculated by assuming
that the Participant or beneficiary immediately commences the
receipt of benefits upon termination of employment.
b. Manner and Calculation of Payment.
i. At the time when the Participant terminates employment, if the Plan Value exceeds the Actuarial Equivalent (as defined in paragraph 9.d) of the Offset Value, the excess of the Plan Value over the Actuarial Equivalent of the Offset Value shall be paid to the Participant or beneficiary in the manner
provided under this Plan; provided that, if the excess of the Plan Value over the Actuarial Equivalent of the Offset Value is less than $10,000, such excess shall be paid to the Participant or beneficiary at that time in a cash lump sum.
ii. Notwithstanding anything contained herein to the contrary, to avoid any loss of benefits from the use of a mortality assumption of age 80 in the definition of Actuarial Equivalent in paragraph 9.d, if the Participant or Surviving Spouse survives past his or her 80th birthday, benefits shall be payable to him or her in the manner and amount provided under this Plan as if the offset provisions of this paragraph 9 had not been included in the Plan document.
c. Payment of Certain Benefits.
If the Policy described in paragraph 9.a insures the life of an individual other than the Participant (the "Insured Party"), and if such Insured Party dies prior to the Participant's becoming eligible for benefits under the Plan, and if the Participant or the Participant's beneficiary subsequently becomes eligible for benefits hereunder, the Plan Value (as defined in paragraph 9.a) shall be offset by the Actuarial Equivalent (as defined in paragraph 9.d) of the death benefit previously paid to the Participant or the Participant's beneficiary pursuant to the Split- Dollar Life Insurance Agreement. If the Plan Value exceeds the Actuarial Equivalent of the death benefit previously paid to the Participant or the Participant's beneficiary, such excess shall thereupon be paid in the manner provided under this Plan; provided that, if the remaining amount of the Plan Value is less than $10,000, such amount shall be paid to the Participant or beneficiary at that time in a cash lump sum. Paragraph 9.b.ii shall also apply.
d. Actuarial Equivalent.
For purposes of this paragraph 9, the Actuarial Equivalent shall mean a benefit in the form of a lump sum payment which has the equivalent value computed using the interest rate as defined in paragraph 9.e., compounded annually, and assuming that the Participant and Surviving Spouse each die on his or her 80th birthday and, in the case of the Plan Value, computed without reference to any potential increases in the benefit pursuant to cost of living adjustments; provided, however, that, in the case of a benefit payable pursuant to paragraph 2.c hereof, the Actuarial Equivalent shall be the lump sum amount determined under paragraph 2.c.
e. Interest Rate.
For purposes of this paragraph 9, the interest rate shall be fixed by the Executive Compensation Committee effective on the date the Participant or his or her beneficiary becomes entitled to benefits under the Split-Dollar Life Insurance Agreement.
LOAN AGREEMENT
BETWEEN
MELLON BANK, N.A.
AND
SAN DIEGO GAS & ELECTRIC COMPANY
Dated as of January 3, 1995
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND FINANCIAL
REQUIREMENTS
1.1 Definitions . . . . . . . . . . . . . . 1
1.2 Interpretation . . . . . . . . . . . . . 6
1.3 Financial Requirements . . . . . . . . . . 6
ARTICLE II
|
AMOUNT AND TERMS OF CREDIT
2.1 Commitment for Loans . . . . . . . . . . . 6 2.2 Minimum Loan Amounts . . . . . . . . . . . 7 2.3 Notice of Borrowing . . . . . . . . . . . 7 2.4 Disbursement of Funds . . . . . . . . . . 8 2.5 Loan Account . . . . . . . . . . . . . 8 2.6 Prepayment or Conversion of Loans . . . . . . 8 2.7 Repayment of Principal and Payment of Interest . . 10 2.8 Commitment Fee . . . . . . . . . . . . . 11 2.9 Type of Funds for Payment and Place of Payment . . 12 2.10 Past Due Payments . . . . . . . . . . . . 12 2.11 Indemnification for Breaking Deposits . . . . . 13 2.12 Changes in Funding Circumstances . . . . . . . 13 |
ARTICLE III
CONDITIONS PRECEDENT
3.1 Conditions Precedent to the Loans. . . . . . . 16
3.2 Conditions Precedent to Each Loan. . . . . . . 17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Borrower . . 17
TABLE OF CONTENTS (Continued)
Page
ARTICLE V
COVENANTS OF THE BORROWER
5.1 Covenants of the Borrower . . . . . . . . . 19
ARTICLE VI
EVENTS OF DEFAULT
6.1 Default . . . . . . . . . . . . . . . 20
ARTICLE VII
MISCELLANEOUS
7.1 Notice . . . . . . . . . . . . . . . 23
7.2 Payment of Expenses . . . . . . . . . . . 23
7.3 Delay . . . . . . . . . . . . . . . . 24
7.4 Survival of Representations and Warranties . . . 24
7.5 Waiver . . . . . . . . . . . . . . . 24
7.6 Delivery of Documents . . . . . . . . . . 24
7.7 Binding Effect . . . . . . . . . . . . . 24
7.8 Governing Law . . . . . . . . . . . . . 25
7.9 Execution In Counterparts . . . . . . . . . 25
Annex I . . . . . . . . . . . . . . . 26
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LOAN AGREEMENT
THIS LOAN AGREEMENT made and entered into as of January 3, 1995 between SAN DIEGO GAS & ELECTRIC COMPANY, a California corporation (the "Borrower"), and the bank identified in Annex 1 hereto (the "Bank"), with respect to the following:
ARTICLE I
DEFINITIONS AND FINANCIAL REQUIREMENTS
1.1 Definitions
As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):
"Agreement" means this Loan Agreement, as amended, modified or supplemented from time to time.
"Availability Period" means the period from the date of this Loan Agreement through January 3, 2000.
"Bank Home Town" means the city identified in Annex 1 as the "Domestic Lending Office."
"Banking Day" means a day on which banks are open for business in New York, New York and the Bank Home Town, and on which dealings are carried on in Dollar deposits in offshore Dollar interbank markets.
"Board" means the Board of Governors of the Federal Reserve System of the United States (or any successor thereto).
"Borrowing" means a borrowing hereunder consisting of Loans made to the Borrower by the Bank.
"Business Day" means a day, except a Saturday or Sunday, in which the Bank is open for business.
"CD Loan" means a Loan for which interest is based on the CD Rate.
"CD Rate" means, for each CD Rate Interest Period, the rate of interest (rounded upward, if necessary, to the nearest 1/8 of one percent) determined pursuant to the following formula:
CD Rate = Certificate of Deposit Rate + Assessment Rate
1.00 - Reserve Percentage
Where,
(a) "Assessment Rate" means the rate (rounded upward, if necessary, to the nearest 1/100 of one percent) determined by the Bank to be the net annual assessment rate in effect on the first day of such CD Rate Interest Period for calculating the net annual assessment payable to the Federal Deposit Insurance Corporation (or any successor) for insuring deposits at offices of the Bank in the United States.
(b) "Certificate of Deposit Rate" means, for each such CD Rate Interest Period, the rate of interest determined by the Bank to be the arithmetic average (rounded upward, if necessary, to the nearest 1/100 of one percent) of the rates of interest bid by two or more certificate of deposit dealers of recognized standing selected by the Bank for the purchase at face value of Dollar certificates of deposit issued by major United States banks for such CD Rate Interest Period and in the amount of such CD Loan to be outstanding during such period at the time selected by the Bank on the first day of such CD Rate Interest Period.
(c) "Reserve Percentage" means, for such CD Rate Interest Period, the total (expressed as a decimal) of the maximum reserve percentages (including, but not limited to, marginal, emergency, supplemental, special, and other reserve percentages), in effect on the first day of such CD Rate Interest Period, prescribed by the Board for determining the reserves to be maintained by member banks of the Federal Reserve System for nonpersonal time deposits with a maturity equal to such CD Rate Interest Period.
"CD Rate Interest Period" means, for each CD Loan, the
period commencing on the date the CD Loan is made and ending thirty
(30), sixty (60), ninety (90), or one hundred eighty (180) days
thereafter, or any other period as mutually agreed upon, but in no
event ending later than the last day of the Availability Period, as
requested by the Borrower pursuant to a Notice of Borrowing.
"CD Rate Margin" means, with respect to any CD Rate Loan, the percentage figure set forth opposite the applicable S&P Bond Rating and the Moody's Bond Rating in Annex 1 hereto as the "CD Rate Margin" provided that if the S&P Bond Rating and the Moody's Bond Rating do not fall within the same Level, the CD Rate Margin will be the rate opposite the lower Level (with Level III being the lowest Level) and provided, further, that in the event an S&P Bond Rating or a Moody's Bond Rating is not available from either rating agency, the CD Rate Margin will be the rate opposite Level III.
"Code" means the Internal Revenue Code of 1986, as amended from time to time. Section references to the Code are to the Code, as in effect on the date of this Agreement, and to any subsequent provisions of the Code amendatory thereof, supplementary thereto or substituted therefore.
"Commitment" means the amount set forth in Annex 1 hereto as the "Amount of Bank Commitment," as the same may be reduced in accordance with Section 2.1(b) hereof.
"Commitment Fee" shall have the meaning given such term in Section 2.8 hereof.
"Default" means an event which, with the giving of notice, the lapse of time, or both, shall become an Event of Default.
"Dollar" and the sign "$" each mean United States dollars or such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts in the United States of America.
"Domestic Lending Office" means the office designated by the Bank as such in Annex 1 hereto, or such other office or offices as the Bank may from time to time select and notify to the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. Section references to ERISA are to ERISA, as in effect at the date of this Agreement, and to any subsequent provisions of ERISA amendatory thereto, supplementary thereto or substituted therefore.
"ERISA Affiliate" means each person (as defined in
Section 3(9) of ERISA) which together with the Borrower or any
Subsidiary would be deemed to be a member of the same "controlled
group" within the meaning of Sections 414(b) and (c) of the Code.
"Event of Default" has the meaning set forth in Article VI hereof.
"Interest Period" means (a) with respect to any CD Loan,
the CD Rate Interest Period for such Loan, (b) with respect to any
Offshore Loan, the Offshore Rate Interest Period for such Loan and
(c) with respect to any Money Market Loan, the Money Market
Interest Rate Period for such Loan.
"Lending Office" means, with respect to each Offshore Loan, the Offshore Lending Office, and with respect to all other Loans, the Domestic Lending Office.
"Loan" means a CD Loan, a Money Market Loan, an Offshore
Loan or a Reference Rate Loan.
"Money Market Loan" means a Loan in any amount the Bank, in its sole and absolute discretion, shall agree upon with the Borrower and for which interest is based on the Money Market Rate.
"Money Market Rate" means the rate of interest upon each Money Market Loan, as the Bank, in its sole and absolute discretion, shall agree upon with the Borrower.
"Money Market Rate Interest Period" means the Interest Period for each Money Market Loan, as agreed upon by the Bank, in its sole and absolute discretion, and the Borrower.
"Notice of Borrowing" shall have the meaning given such term in Section 2.3 hereof.
"Offshore Lending Office" means the office designated by the Bank as such in Annex 1 hereto, or such other office or offices as the Bank may from time to time select and notify to the Borrower.
"Offshore Loan" means a Loan for which interest is based on the Offshore Rate.
"Offshore Rate" means, for each Offshore Rate Interest Period, the interest rate per annum (rounded upward, if necessary to the nearest 1/100 of one percent) determined pursuant to the following formula:
Where:
(a) "IBOR" means, for each such Offshore Rate Interest Period, the interest rates per annum at which Dollar deposits for such Offshore Rate Interest Period would be offered by the Bank's Offshore Lending Office, to major banks in the offshore Dollar interbank markets upon request of such banks at approximately 11:00 a.m. New York time two (2) Banking Days prior to the first day of such Offshore Rate Interest Period;
(b) "Offshore Reserve Percentage" means, for each such Offshore Rate Interest Period, the maximum reserve percentage (expressed as a decimal) in effect on the first day of the Offshore Rate Interest Period, prescribed by the Board for determining the reserves to be maintained by member banks of the Federal Reserve System for "Eurocurrency liabilities" or for any other category of liabilities which includes deposits by reference to which the interest rate on Offshore Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of the Bank to United States residents.
"Offshore Rate Interest Period" means, for each Offshore Loan, the period commencing on the date the Offshore Loan is made and ending one (1), three (3), or six (6) months thereafter, or any other period as mutually agreed upon, but in no event ending later than the last day of the Availability Period, as requested by the Borrower pursuant to a Notice of Borrowing.
"Offshore Rate Margin" means, with respect to any Offshore Loan, the percentage figure set forth opposite the applicable S&P Bond Rating and the Moody's Bond Rating in Annex 1 hereto as the "Offshore Rate Margin" provided that if the S&P Bond Rating and the Moody's Bond Rating do not fall within the same Level, the Offshore Rate Margin will be the rate opposite the lower Level (with Level III being the lowest Level) and provided, further, that in the event an S&P Bond Rating or a Moody's Bond Rating is not available from either rating agency, the Offshore Rate Margin will be the rate opposite Level III.
"Participant" shall have the meaning given such term in
Section 7.7 hereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.
"Person" means a corporation, an association, a partnership, an organization, a business, an individual or a government or political subdivision thereof or any governmental agency.
"Plan" means any multi-employer or single-employer plan as defined in Section 4001 of ERISA, which is maintained or contributed to, or, at any time during the five calendar years preceding the date of this Agreement, was maintained or contributed to, for employees of the Borrower or any Subsidiary or an ERISA Affiliate.
"Reference Rate" means the rate of interest publicly announced from time to time by the Bank in the Bank Home Town, as its commercial loan base rate. The Reference Rate is a rate set by the Bank based on various factors including the Bank's costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans. Loans may be priced at, above or below the Reference Rate. Any change in the fluctuating interest rate hereunder resulting from a change of the Reference Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Reference Rate, or if no such public announcement is made, on the date of such change.
"Reference Rate Loan" means a Loan for which interest is based on the Reference Rate.
"Repayment Date" means the due date for any Loan disbursed prior to the last day of the Availability Period and shall be no later than the last day of the Availability Period.
"Reportable Event" means an event described in Section 4043(b) of ERISA with respect to a Plan as to which the thirty (30) day notice requirement has not been waived by the PBGC.
"Subsidiary" means those Persons the decision-making process of which is controlled by the Borrower, its Subsidiaries or individuals who control the decision-making process of the Borrower.
"Unfunded Current Liability" of any Plan means the amount, if any, by which the present value of the accrued benefits under the Plan as of the close of its most recent Plan year exceeds the fair market value of the assets allocable thereto, determined in accordance with Section 412 of the Code.
1.2 Interpretation
(a) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof.
(b) The words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section or subdivision hereof.
1.3 Financial Requirements
Unless otherwise specified in this Agreement, all accounting terms used in this Agreement shall be interpreted, all financial information required under this Agreement shall be prepared, and all financial computations required under this Agreement shall be made, in accordance with generally accepted accounting principles as in effect from time to time, and applied on a basis consistent with the most recent audited consolidated financial statements of the Borrower delivered to the Bank.
ARTICLE II
AMOUNT AND TERMS OF CREDIT
2.1 Commitment For Loans
(a) Commitment. Subject to the terms and conditions of this Agreement, the Bank agrees, from time to time during the Availability Period, to make Loans to the Borrower, which
Loans shall be, at the option of the Borrower, CD Loans, Money Market Loans, Offshore Loans or Reference Rate Loans; provided, however, that the aggregate principal amount of Loans outstanding shall not at any time exceed the amount of the Commitment.
(b) Reduction of the Commitment. The Borrower may permanently reduce in whole or in part the unutilized portion of the Commitment by giving to the Bank written notice thereof, which notice shall specify the date and the amount of such reduction; provided, that, the Borrower shall, on or prior to the date of reduction or termination so specified, pay to the Bank the accrued Commitment Fee for the period up to such date of reduction or termination; and provided, further, that in no event shall the Commitment be reduced below the aggregate amount of all Loans outstanding on the date of such reduction.
2.2 Minimum Loan Amounts
(a) Each CD Loan and each Offshore Loan hereunder shall be in a minimum aggregate principal amount of One Million Dollars ($1,000,000) or integral multiples of One Hundred Thousand Dollars ($100,000).
(b) Each Reference Rate Loan shall be in a minimum aggregate principal amount of Five Hundred Thousand Dollars ($500,000) or integral multiples of One Hundred Thousand Dollars ($100,000).
2.3 Notice of Borrowing
(a) The disbursement of each Loan shall be made upon
written or tested telex request or telephone notice ("Notice
of Borrowing") promptly followed by written confirmation,
which Notice of Borrowing shall be irrevocable, shall be
received by the Bank at least (a) two (2) Banking Days prior
to the date of the Loan in the case of an Offshore Loan, and
(b) one (1) Business Day prior to the date of the Loan in the
case of a CD Loan, or Reference Rate Loan, and shall specify:
(i) The date of such Loan, which shall be a Business Day;
(ii) The aggregate principal amount of such Loan;
(iii) Whether the Loan is to be a CD Loan, Offshore Loan or Reference Rate Loan; and
(iv) If such Loan is to be a CD Loan, or Offshore Loan, the duration of the relevant Interest Period.
(b) The Borrower may also request offers to make Money Market Loans. The Bank may, but shall have no obligation to make such offers and Borrower may, but shall have no obligation to, accept any such offers as set forth as follows:
(i) The date of such Loan, which shall be a Business Day;
(ii) The aggregate principal amount of such Loan;
(iii) The duration of the relevant Interest Period; and
(iv) The applicable Money Market Rate.
2.4 Disbursement of Funds
Not later than 11:00 a.m. (in time zone of Bank Home Town) on the date specified for each Loan, the Bank shall make available such Loan (in the case of a Money Market Loan, if an offer made by Bank has been accepted by Borrower), in immediately available funds credited to the Borrower's bank account identified in Annex 1 hereto.
2.5 Loan Account
The Bank shall open and maintain on its books a Loan Account in the Borrower's name and shall: (a) enter as debits thereto (i) each CD Loan, Money Market Loan, Offshore Loan and Reference Rate Loan made to the Borrower and interest accrued thereon; and (b) enter as credits thereto all repayments of principal and payments of interest received by the Bank. The Bank shall give confirming notice to the Borrower of each Loan made to the Borrower. The Banks' records showing such entries shall be presumed correct, absent manifest error. Failure to make any such entry or notice, however, shall not affect the obligations of the Borrower in respect of each Loan.
2.6 Prepayment or Conversion of Loans
(a) The Borrower may prepay, at any time, any or all Loans, in whole or in part, provided, that:
(i) The Bank has received irrevocable notice of such prepayment at least (A) one (1) Business Day prior to the date thereof in the case of a CD Loan, a Money Market Loan or a Reference Rate Loan, and (B) two (2) Banking Days prior to the date thereof in the case of an Offshore Loan;
(ii) The notice of prepayment specifies (A) the date of prepayment which shall be (x) a Business Day in the case of a CD Loan, a Money Market Loan or
a Reference Rate Loan, and (y) a Banking Day in the case of an Offshore Loan, (B) the amount of the prepayment which shall be in an amount at least equal to (x) One Million Dollars ($1,000,000) or integral multiples thereof in the case of a CD Loan, a Money Market Loan or an Offshore Loan, or (y) Five Hundred Thousand Dollars ($500,000) or integral multiples thereof in the case of a Reference Rate Loan; and
(iii) On the date of prepayment, the Borrower pays to the Bank the principal amount of the Loans being prepaid together with all accrued interest thereon.
In addition, the Borrower shall pay to the Bank any amounts due under Section 2.11 hereof as a result of any prepayment in accordance with the terms of such Section 2.11.
(b) The Borrower may convert any or all outstanding loans of any type into a Loan or Loans of another type provided for herein, provided, that:
(i) The Bank has received irrevocable notice of such conversion at least (A) one (1) Business Day prior to the date thereof if a Loan will be converted into a CD Loan, a Money Market Loan or a Reference Rate Loan, and (B) two (2) Banking Days prior to the date thereof if a Loan will be converted into an Offshore Loan;
(ii) The notice of conversion specifies (A) the date of conversion which shall be both (x) if applicable, the last day of the Interest Period of the Loan to be converted, unless the Loan to be converted is a CD Loan, Money Market Loan or Offshore Loan affected by the circumstances described in Section 2.12(b) (i)(A) or (B), in which case the requirements of this clause (x) shall not apply and (y) a Business Day, or a Banking Day if the Loan is or will be converted into an Offshore Loan, (B) the Loan or Loans to be converted by amount and (C) the type of Loan into which a Loan or Loans are to be converted and the Interest Period applicable thereto; and
(iii) On the date of conversion (A) the Borrower pays
to the Bank the accrued and unpaid interest due
on the Loan to be converted, (B) no Default or
Event of Default has occurred or is continuing,
(C) the Repayment Date for such Loan has not
occurred and (D), if the Loan to be converted is
a CD Loan, Money Market Loan or Offshore Loan
affected by the circumstances described in
Section 2.12(b) (i)(A), the Borrower also pays to
the Bank any additional amounts payable to the
Bank in respect of such Loan pursuant to Sections
2.11 and 2.12(b)(i) hereof.
(c) In the event the Borrower (i) does not provide the
Bank with a timely notice of conversion as required under
Section 2.6(b) hereof and (ii) either (A) does not repay to
the Bank the principal amount of a CD Rate Loan, a Money
Market Loan or an Offshore Loan at the end of the Interest
Period applicable thereto, or (B), if the Loan to be converted
is a CD Loan, Money Market Loan or Offshore Loan affected by
the circumstances described in Section 2.12(b)(i)(A), does not
pay the additional amounts required to be paid on the date of
conversion, then at the option of the Bank, in its sole and
absolute discretion, such Loan or Loans shall be converted
into Reference Rate Loans and shall bear interest as a
Reference Rate Loan until the earlier of repayment thereof or
conversion thereof pursuant to Section 2.6(b) hereof;
provided, that:
(i) No Default or Event of Default (other than the failure to repay the principal amount of a Loan at the end of an applicable Interest Period) has occurred or is continuing on the date of such conversion;
(ii) The Repayment Date has not occurred.
In addition, the Borrower shall pay to the Bank accrued
and unpaid interest due on any Loan converted pursuant to this
Section 2.6(c) within the grace period provided in Section 6.1(b)
hereof, and any additional amounts as referenced in Section
2.12(b)(i)(A) hereof,
(d) Upon any conversion of a Loan pursuant to Sections 2.6(b) or (c) hereof, the Bank shall make such entries in the loan account established in accordance with Section 2.5 hereof to effect such conversion.
2.7 Repayment of Principal and Payment of Interest
(a) CD Loans. The outstanding principal balance of each CD Loan shall bear interest at a rate per annum equal to the sum of the CD Rate and the CD Rate Margin (such interest being computed daily on the basis of a three hundred sixty (360) day year and actual days elapsed, which results in more interest than if a three hundred sixty-five (365) day year were used). Interest on each CD Loan shall be paid by the Borrower on the last day of the CD Rate Interest Period for such CD Loan and,
in addition, (i) if such CD Rate Interest Period is one
hundred eighty (180) days, on the date falling ninety (90)
days after the commencement of such CD Rate Interest Period,
and (ii) if such CD Rate Interest Period is longer than one
hundred eighty (180) days, on each date occurring at ninety
(90) day intervals after the first date of the CD Rate
Interest Period. The entire outstanding principal amount of
each CD Loan shall be repaid by the Borrower on the last day
of the CD Rate Interest Period for such CD Loan.
(b) Money Market Loans. The outstanding principal balance of each Money Market Loan shall bear interest at a rate per annum equal to the Money Market Rate (as computed by the Bank). Interest on each Money Market Loan shall be paid, by the Borrower, on the last day of the Money Market Rate Interest Period, and, in addition, on such date or dates as the Bank, in its sole and absolute discretion, shall agree upon with the Borrower. The entire outstanding principal amount of each Money Market Loan shall be repaid by the Borrower on the last day of the Money Market Rate Interest Period.
(c) Offshore Loans. The outstanding principal balance of each Offshore Loan shall bear interest at a rate per annum equal to the sum of the Offshore Rate and the Offshore Rate Margin (such interest being computed daily on the basis of a three hundred sixty (360) day year and actual days elapsed, which results in more interest than if a three hundred sixty- five (365) day year were used). Interest on each Offshore Loan shall be paid, by the Borrower, on the last day of the Offshore Rate Interest Period for such Offshore Loan and, in addition, (i) if such Offshore Rate Interest Period is six (6) months, on the date falling three (3) months after the commencement of such Offshore Rate Interest Period, and (ii) if such Offshore Rate Interest Period is longer than six (6) months, on each date occurring at three (3) month intervals after the first day of the Offshore Rate Interest Period. The entire outstanding principal amount of each Offshore Loan shall be repaid by the Borrower on the last day of the Offshore Rate Interest Period for such Offshore Loan.
(d) Reference Rate Loans. The outstanding principal balance of each Reference Rate Loan shall bear interest at a rate per annum equal to the Reference Rate, (computed daily on the basis of a three hundred sixty-five (365) or three hundred sixty-six (366) day year, as the case may be, and actual days elapsed) as such Reference Rate shall change from time to time until principal is paid in full to the Bank. Interest on each outstanding Reference Rate Loan shall be paid by the Borrower quarterly in arrears commencing on the first Business Day of the calendar quarter immediately following the quarter during which such Reference Rate Loan was made to the Borrower, and upon payment in full of the principal of the Reference Rate Loan. The entire outstanding principal amount of each Reference Rate Loan made to the Borrower shall be repaid by the Borrower on the Repayment Date.
2.8 Commitment Fee
The Borrower shall pay the Bank a fee (the "Commitment Fee"), computed at the per annum rate set forth opposite the applicable S&P Bond Rating and the Moody's Bond Rating in Annex 1 hereto as
the "Commitment Fee Rate," provided that if the S&P Bond Rating and the Moody's Bond Rating do not fall within the same Level, the Commitment Fee Rate will be the rate opposite the lower Level (with Level III being the lowest Level) and provided, further, that in the event an S&P Bond Rating or a Moody's Bond Rating is not available from either rating agency, the Commitment Fee Rate will be the rate opposite Level III. The commitment Fee shall be computed on the difference, if any, between the Amount of Bank Commitment and the average daily total outstanding Loans. The Commitment Fee shall be calculated on the basis of a three hundred sixty-five (365) or three hundred sixty-six (366) day year, as the case may be, and actual days elapsed. The accrued Commitment Fee shall be payable quarterly in arrears with the first quarter commencing on the date hereof and ending on March 31, 1995. Each such payment shall be due and payable on the tenth day following receipt by the Borrower of notice from the Bank of the amount due, and, if the Commitment expires or is terminated or reduced, then on the tenth day following the date of such expiry, termination or reduction.
2.9 Type of Funds for Payment and Place of Payment
(a) The Borrower shall make each payment to the Bank of principal of, and interest on, the Loans, of the Commitment Fee and of other commissions or fees hereunder, without setoff or counterclaim, when due, in immediately available funds, not later than 11:00 A.M. (in time zone of Bank Home Town) on such due date and at its Domestic Lending Office (i) for the account of such office with respect to any CD Loan, Money Market Loan, or Reference Rate Loan, any payment related thereto, or any payment of the Commitment Fee or other commissions or fees hereunder, and (ii) for the account of the Offshore Lending Office with respect to any Offshore Loan or payment related thereto.
(b) All sums received after such time shall be deemed received on the next Banking Day in the case of a payment respecting an Offshore Loan, and the next Business Day in all other cases. Except in the case of Offshore Loans, whenever any payment to be made hereunder shall be due on a day which is not a Business Day, the payment shall be made on the next succeeding Business Day. In the case of Offshore Loans, the last day of the Offshore Rate Interest Period (and therefore the due date for repayment of principal and interest on Offshore Loans) shall be determined in accordance with the practices of the offshore Dollar interbank markets as from time to time in effect. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon and fees shall accrue and be payable on such extended time.
2.10 Past Due Payments
If any sum of principal, interest or other sum due hereunder in connection with a CD Loan, Money Market Loan or Offshore Loan is not paid when due, the Borrower shall, on demand, indemnify the Bank against any loss, cost or expense including any loss of profit and any loss, cost, or expense in liquidating or employing deposits acquired from third parties in connection with such Loan, incurred by the Bank as a consequence of any such failure to pay any sum of principal, interest, or other sum when due hereunder. In addition, loans which are not paid or converted, when due, shall bear interest until paid in full at the Reference Rate.
2.11 Indemnification for Breaking Deposits
If for any reason (including prepayment, conversion and acceleration) the Bank receives any payment of principal of any CD Loan, Money Market Loan or Offshore Loan on a day other than the last day of the Interest Period applicable to such Loan, then the Borrower shall reimburse the Bank on demand for any loss incurred by it as a result of the timing of such payment, including without limitation any loss incurred in liquidating or employing deposits from third parties and including loss of profit for the period after such payment. The Bank will provide the Borrower with a written statement of said costs, losses, or payments which certificate shall be presumed correct, absent manifest error. If as a result of prepayment, the Bank immediately redeploys the funds at a rate equal to or greater than the rate on the Loan prepaid, then the Borrower will not be obligated to reimburse the Bank for any cost.
2.12 Changes in Funding Circumstances
(a) Availability. In the event that the Bank shall determine, which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto, on the date any Notice of Borrowing is made that, by reason of any changes arising after the date of this Agreement affecting the offshore Dollar interbank markets or the secondary certificate of deposit market, as the case may be, adequate and fair means do not exist for ascertaining the applicable interest rate, then the Bank shall promptly give notice (by telephone confirmed in writing) to the Borrower of such determination. Thereafter, CD Loans and Offshore Loans, as the case may be, shall no longer be available until such time as the Bank notifies the Borrower that the circumstances giving rise to such notice by the Bank no longer exist, and, at such time, the Bank's obligation to make CD Loans or Offshore Loans, as the case may be, shall be automatically reinstated.
(b) Increased Costs and Illegality of Loans
(i) In the event that the Bank shall have determined
(which determination shall, absent manifest error, be final and conclusive and binding upon the Borrower):
(A) At any time, that the Bank shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any CD Loan, Money Market Loan or Offshore Loan, other than any such increased costs or reductions in the amounts received or receivable hereunder due to increased capital requirements as set forth in Section 2.12(c) below, because of (x) any change after the date of this Agreement in any applicable law or governmental rule, regulation, order or request (whether or not having the force of law) (or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, order or request), including, without limitation, (1) a change in the basis of taxation of payments to the Bank or its applicable Lending Office of the principal of or interest on the Loans or any other amounts payable hereunder (except for changes in the rate of tax on, or determined by reference to, the net income or profits of the Bank or its applicable Lending Office imposed by the jurisdiction in which its principal office or applicable Lending Office is located) or (2) a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D of the Board to the extent included in the computation of the CD Rate or Offshore Rate, as the case may be, or (y) other circumstances affecting the Bank or the offshore Dollar interbank markets or the secondary certificate of deposit market, as the case may be, or the position of the Bank in such market; or
(B) At any time, that the making or
continuance of any CD Loan, Money Market Loan or
Offshore Loan has been made (x) unlawful by any
law or governmental rule, regulation or order,
(y) impossible by compliance by the Bank with any
governmental rule or request (whether or not
having force of law) or (z) impracticable as a
result of a contingency occurring after the date
of this Agreement which materially and adversely
affects the offshore Dollar interbank markets or
the secondary certificate of deposit market, as
the case may be;
then, and in any such event, the Bank shall promptly give notice (by telephone confirmed in writing) to the Borrower. Thereafter (x) in the case of clause (A) above, the Borrower shall pay to the Bank, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as the Bank in its sole discretion shall determine) as shall be required to compensate the Bank for such increased costs or reductions in amounts received or receivable hereunder (a written notice as to the additional amounts owed to the Bank, showing the basis for the calculation thereof, submitted to the Borrower by the Bank shall, absent manifest error, be final and conclusive and binding on the Borrower) and (y) in the case of clause (B) above, the Borrower shall take one of the actions specified in Section 2.12(b)(ii) hereof as promptly as possible and, in any event, within the time period required by law.
(ii) At any time that any CD Loan, Money Market Loan or Offshore Loan is affected by the circumstances described in Section 2.12(b)(i)(A) or (B) above, the Borrower may (and in the case of a CD Loan or Offshore Loan affected by the circumstances described in Section 2.12(b)(i)(B) hereof shall) either (x) if the affected CD Loan, Offshore Loan or Money Market Loan is then being made, cancel its Notice of Borrowing by giving the Bank telephonic notice (confirmed in writing) of the cancellation on the same date that the Borrower was notified by the Bank pursuant to Section 2.12(b)(i)(A) or (B) hereof or (y) if the affected CD Loan, Money Market Loan or Offshore Loan is then outstanding, request the Bank to convert such CD Loan, Money Market Loan or Offshore Loan under Section 2.6(b) hereof; provided, however, that if the Borrower fails to request conversion under such Section 2.6(b), then the Bank may convert the Loans under Section 2.6(c) hereof in accordance with the terms thereof.
(c) Capital Adequacy. If the Bank determines (which determination shall, absent manifest error, be final, conclusive and binding upon the Borrower) at any time that any applicable law or governmental rule, regulation, order or request after the date of this Agreement (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank based on the existence of the Commitment hereunder or its obligations hereunder to make Loans,
the Borrower shall pay to the Bank upon its written demand therefore sent to the Borrower, such additional amounts as shall be required to compensate the Bank for the increased cost to the Bank as a result of such increase of capital. In determining such additional amounts (in the form of an increased commitment fee or such other form of compensation as the Bank shall, in its sole discretion determine) the Bank will act reasonably and in good faith and will use averaging and attribution methods which are reasonable, provided that the Bank's determination of compensation owing under this Section 2.12(c) shall, absent manifest error, be final and conclusive and binding on the Borrower. The Bank, upon determining that any additional amounts will be payable pursuant to this Section 2.12(c), will send written notice thereof to the Borrower, which notice shall show the basis for calculation of such additional amounts and shall be sent 30 days in advance of the effective date of any additional amounts.
ARTICLE III
CONDITIONS PRECEDENT
3.1 Conditions Precedent to the Loans
The obligation of the Bank to make any Loans hereunder is subject to the condition precedent that the Bank shall have received from the Borrower, on or prior to the date of this Agreement, all of the following in form and substance satisfactory to the Bank:
(a) A certified copy of the resolution of the Board of Directors of the Borrower or the Executive Committee thereof (if such action by the Executive Committee is authorized by the Bylaws of the Borrower) evidencing the authorization for the Borrowings herein provided and other matters contemplated hereby and a certified copy of all documents evidencing necessary corporate action and any governmental approval, including but not limited to that of the California Public Utilities Commission, with respect to Borrowings under this Loan Agreement;
(b) A favorable written opinion, in form and substance satisfactory to the Bank, of the Vice President and General Counsel or Assistant General Counsel of the Borrower as to the matters referred to in Sections 4.1(b) through 4.1(d) hereof;
(c) A signed copy of a Certificate of the Secretary or an Assistant Secretary of the Borrower which shall certify the names of the officers of the Borrower authorized to sign this Agreement and the other documents or certificates to be delivered pursuant hereto by the Borrower or any of its officers, together with the true signatures of each such
officer. The Bank may conclusively rely on such certificate until it shall receive a further certificate of the Secretary or an Assistant Secretary of the Borrower cancelling or amending the prior certificate and submitting the true signatures of the officers named in such further certificate; and
(d) Such additional information, document or instruments as may be reasonably requested by the Bank.
3.2 Conditions Precedent to Each Loan
The obligation to disburse any Loan at any time (including any Loan made on the date of this Agreement) is subject to the performance by the Borrower of all its obligations under this Agreement and to the satisfaction of the following further conditions:
(a) Timely receipt by the Bank of the appropriate Notice of Borrowing from the Borrower;
(b) The representations and warranties contained in Sections 4.1(a) through 4.1(g) hereof are true and accurate in all material respects as though made on and as of the date of the Notice of Borrowing and the date of the Loan requested therein;
(c) No Default or Event of Default has occurred and is continuing on the date of the Notice of Borrowing and the date of the Loan and no Default or Event of Default shall occur as a result of the making of the Loan; and
(d) Receipt by the Bank of such additional information concerning any of the matters set forth in Article IV hereof as may be reasonably requested by the Bank.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Borrower
The Borrower represents and warrants for the benefit of the Bank as follows:
(a) All financial statements, information and other data furnished by the Borrower to the Bank in connection with the Borrower's application for credit hereunder are, in all material respects, accurate and correct as of the date thereof and such financial statements have been prepared in accordance with generally accepted accounting principles and practices
consistently applied and accurately represent the financial condition of the Borrower;
(b) The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California and has all requisite power and authority, corporate or otherwise, to conduct its business, to own its properties and to execute, deliver and to perform all of its obligations under this Agreement;
(c) The making and the performance by the Borrower of this Agreement have been duly authorized by all necessary corporate action and do not contravene any provision of law or of the Borrower's amended Articles of Incorporation or Bylaws or of any indenture or agreement or instrument to which the Borrower is a party or by which the Borrower or its properties may be bound or affected, and this Agreement is binding on the Borrower;
(d) The Loans have been duly authorized by an order of the Public Utilities Commission of the State of California, and any governmental authority, commission or entity whose authorization is required, or, if such authorization has not been obtained, such authorization is not required;
(e) No Default or Event of Default has occurred and is continuing or would result from the incurring of obligations by the Borrower under this Agreement;
(f) None of the proceeds of any Loan hereunder will be used directly or indirectly for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any "margin stock" (as defined Regulation U, as amended from time to time, of the Board). The Borrower is not engaged principally, as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stocks within the meaning of said Regulation U;
(g) Each Plan is in substantial compliance with ERISA; no Plan is insolvent or in reorganization; no Plan has any material Unfunded Current Liability; no Plan has an accumulated or waived funding deficiency or permitted decreases in its funding standard account within the meaning of Section 412 of the Code; neither the Borrower, any Subsidiary nor any ERISA Affiliate has incurred any material liability to or on account of a Plan pursuant to Sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA or expects to incur any liability under any of the foregoing Sections on account of the termination of participation in or contributions to any such Plan; no proceedings have been instituted to terminate any Plan in a distressed termination; no condition exists
which presents a material risk to the Borrower or any Subsidiary of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; no lien imposed under the Code or ERISA on the assets of the Borrower or any Subsidiary exists or is likely to arise on account of any Plan; and the Borrower and each Subsidiary may terminate contributions to any other employee benefit plans maintained by them without incurring any material liability to any person interested therein; and
(h) As of the date of this Loan Agreement, there has been no material adverse change in the condition of the Borrower or the operation of the Borrower's business from and after September 30, 1994.
ARTICLE V
COVENANTS OF THE BORROWER
5.1 Covenants of the Borrower
So long as this Agreement shall be in effect and the Commitment has not been terminated, and until the full and final payment of all principal of, and interest on, all Loans and all other obligations hereunder, the Borrower shall, unless the Bank shall otherwise consent in writing:
(a) Furnish the Bank with copies of the Borrower's 10-K statements, 10-Q statements, and other periodic statements, Registration Statements, 8-K reports and any and all other reports, statements, or documents filed with the Securities and Exchange Commission, promptly after such filings are made, and (i) with respect to the Borrower's 10-K statements, in no event later than one hundred twenty (120) days after the end of each year, and (ii) with respect to the Borrower's 10-Q statements, in no event later than sixty (60) days after the end of each quarter; and promptly after any request by the Bank such other information regarding the Borrower's activities as the Bank may reasonably request;
(b) Promptly upon demand by the Bank, pay to and reimburse the Bank for all costs and expenses incurred by the Bank, by reason of payment by the Bank of any governmental charges, taxes (other than taxes levied on earned income) and penalties imposed on this Agreement or any other instrument issued hereunder; and
(c) As soon as possible and, in any event, within ten
(10) days after the Borrower or any Subsidiary knows or has
reason to know of the occurrence of any of the following
events, the Borrower or such Subsidiary, as the case may be,
will deliver to the Bank a certificate of the chief financial
officer of the Borrower or such Subsidiary, as the case may
be, setting forth details as to such occurrence and such
action, if any, which the Borrower or such Subsidiary is
required or proposes to take, together with any notices
required or proposed to be given to or filed with or by the
Borrower or such Subsidiary, the PBGC, a Plan participant or
the Plan administrator with respect thereto: that a Reportable
Event has occurred; that an accumulated funding deficiency has
been incurred or an application may be or has been made to the
Secretary of the Treasury for a waiver or modification of the
minimum funding standard (including any required installment
payments) or an extension of any amortization period under
Section 412 of the Code with respect to a Plan; that a Plan
has been or may be terminated, reorganized, partitioned or
declared insolvent under Title IV of ERISA; that a Plan has an
Unfunded Current Liability giving rise to a lien under ERISA,
that proceedings may be or have been instituted to terminate
a Plan; that a proceeding has been instituted pursuant to
Section 515 of ERISA to collect a delinquent contribution to
a Plan; or that the Borrower or a Subsidiary or any ERISA
Affiliate will or may incur any liability (including any
contingent or secondary liability) to or on account of the
termination of or withdrawal from a Plan under Sections 4062,
4063, 4064, 4201 or 4204 of ERISA. The Borrower will deliver
to the Bank a complete copy of the annual report (Form 5500)
of each Plan required to be filed with the Internal Revenue
Service. In addition to any certificates or notices delivered
to the Bank pursuant to the first sentence hereof, copies of
annual reports and any other notices received by the Borrower
or Subsidiary required to be delivered to the Bank shall be
delivered to the Bank no later than ten (10) days after the
later of the date such report or notice has been filed with
the Internal Revenue Service or the PBGC, given to Plan
participants, or received by the Borrower or any Subsidiary.
(d) Promptly, upon any principal officer of the Company obtaining knowledge of the occurrence of an Event of Default, or an event which with the passage of time would create an Event of Default, the Borrower shall deliver to the Bank a certificate signed by the Chief Financial Officer, specifying the nature and period of existence thereof and what action the Company has taken or proposes to take with respect thereof.
ARTICLE VI
EVENTS OF DEFAULT
6.1 Default
Upon the occurrence of any of the following events (each
an "Event of Default"):
(a) The Borrower shall fail to pay when due the principal
amount of any Loans; provided, however, that if a Loan is
converted pursuant to Section 2.6(b) or 2.6(c) hereof, then
the failure to pay the principal amount of such Loan, when
due, shall not be deemed an Event of Default under this
Section 6.1(a);
(b) The Borrower shall fail to pay, when due, any installment of interest or any Commitment Fee due under this Agreement and such failure continues for seven (7) days after written notice of such non-payment from the Bank to the Borrower or, if the giving of such notice is not permitted or it is otherwise restricted by law, then such failure continues for seven (7) days;
(c) Any representation or warranty herein or in any agreement, instrument or certificate executed pursuant hereto or in connection with any transactions contemplated hereby shall prove to have been false or misleading in any material respect when made or when deemed to have been made;
(d) The Borrower shall breach or default under any term or provision of this Agreement not otherwise provided for in this Article VI within thirty (30) days after written notice of breach or default from the Bank to the Borrower;
(e) Any default shall occur under any other agreement involving the borrowing of money or any extension of credit, in the aggregate of Ten Million Dollars ($10,000,000) or more, to which the Borrower may be a party as obligor, if such default gives, or with the giving of notice or the lapse of time or both would give, to the holder of the obligation the right to accelerate the obligation or if the Borrower fails to pay any such obligation when due (including any applicable cure periods) within seven (7) days after written notice from the Bank to the Borrower;
(f) The Borrower shall fail to make, when due, any payment of principal or interest with respect to any debt, the aggregate principal amount of which is in excess of Ten Million Dollars ($10,000,000) and continues for ten (10) days;
(g) The Borrower shall fail to pay debts generally as they come due, or admits in writing its inability to pay its debts as such debts become due, files any petition or action for relief under any bankruptcy, reorganization, insolvency, or moratorium law or any other law for the relief of, or relating to, debtors, now or hereafter in effect, makes any assignment for the benefit of creditors, or takes any corporate action in furtherance of any of the foregoing;
(h) An involuntary petition shall be filed under any bankruptcy statute against the Borrower, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) shall be appointed to take possession, custody or control of the properties of the Borrower, unless such petition or appointment is set aside or withdrawn or ceases to be in effect within sixty (60) days from the date of said filing or appointment;
(i) Any financial statements, profit and loss statements or other statements furnished by the Borrower to the Bank prove to be false or incorrect in any material respect;
(j) The Borrower shall not, nor shall it permit any of
its significant Subsidiaries to create, incur, assume or
suffer to exist any lien upon any of its property, assets or
revenues, whether now owned or hereafter acquired, except for
(i) liens permitted by the Borrower's indenture, (ii) existing
liens, (iii) liens associated with Califia Company or Enova
Corporation, and (iv) any future liens not exceeding an aggregate amount of Ten Million Dollars ($10,000,000);
(k) The Borrower will not enter into any merger,
consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or
convey, sell, lease, assign, transfer or otherwise dispose of
substantially all of its property, business or assets, except
the Borrower may be merged or consolidated with another Person
provided that (x) Borrower is the surviving corporation, or
(y) (i) the survivor shall continue to use and operate the
Borrower's public utility business, (ii) the survivor shall
assume the Borrower's obligations hereunder in accordance with
documentation reasonably acceptable to the Bank and (iii)
after giving effect to such merger or consolidation no Default
or Event of Default shall have occurred or be continuing; or
(l) Any Plan shall fail to maintain the minimum funding standard required for any Plan year or part thereof or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code; any Plan is, shall have been or is likely to be terminated or the subject of termination proceedings under ERISA; any Plan shall have an Unfunded Current Liability; or the Borrower or any Subsidiary or any ERISA Affiliate has incurred or is likely to incur a liability to or on account of a Plan under Sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA; and there shall result from any such event or events the imposition of a lien upon the assets of the Borrower or any Subsidiary, the granting of a security interest, or a liability or a material risk of incurring a liability to the PBGC or a Plan or a trustee appointed under ERISA or a penalty under Section 4971 of the Code, which, in the opinion of the Bank, will have a material adverse effect upon the business, operations, condition (financial or otherwise) or prospects of the Borrower; then, and in any such event, and at any time thereafter if an Event of Default shall then be continuing, the Bank may take any or all of the following actions (provided, that, if an Event of Default specified in Sections 6.1(g) or 6.1(h) shall occur, the result which would occur upon the giving of written notice by the Bank to the Borrower as specified in clauses (i) and (ii) below shall occur without the giving of any such notice):
(i) Declare the Commitment terminated, whereupon any Commitment Fee shall forthwith become due and payable without any other notice of any kind;
(ii) Declare the principal of and any accrued interest in respect of all Loans and all other obligations owing hereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and
(iii) Pursue any other remedies available to the Bank under this Agreement or at law or equity.
ARTICLE VII
MISCELLANEOUS
7.1 Notice
All notices, requests or demands to or upon the Borrower shall be given or made at the address set forth below:
San Diego Gas & Electric Company
101 Ash Street
San Diego, California 92101
Attn: Cash Management Supv.
Or,
San Diego Gas & Electric Company
P.O. Box 1831
San Diego, California 92112
Attn: Cash Management Supv.
Fax: (619) 696-4899
All notices, requests or demands to or upon the Bank shall be given or made at the address set forth in Annex 1 hereto.
Except as otherwise provided herein, all such notices, requests and demands given or made in connection with the terms and provisions of this Agreement shall be deemed to have been given or made when sent overnight or via Federal Express, by registered mail, postage prepaid or, in case of telegraphic notice, when delivered to the telegraphic company, addressed as specified in this Section 7.1 or by telephonic contact followed by immediate written confirmation.
7.2 Payment of Expenses
The Borrower hereby agrees to pay all reasonable costs and expenses (including, without limitation, the fees and disbursements of outside counsel and the allocated costs, fees and disbursements for in-house legal services) of the Bank in connection with: (a) the preparation, execution, delivery and administration of this Agreement and the documents and instruments referred to herein and any amendment, waiver, amendment or consent
relating hereto or thereto, (b) the enforcement of this Agreement and the documents and instruments referred to herein, and (c) any refinancing or restructuring of the Commitment in the nature of a "work-out".
7.3 Delay
No failure to exercise, and no delay in exercising, on the part of the Bank, of any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies otherwise provided by law.
7.4 Survival of Representations and Warranties
All representations, warranties, covenants and agreements of the Borrower contained herein shall survive the making of Loans hereunder and shall continue in full force and effect so long as any amount is outstanding hereunder.
7.5 Waiver
This Agreement and any term or provision hereof may be
changed, waived, discharged or terminated by an instrument in
writing executed by the Borrower and the Bank. Any such change,
waiver, discharge or termination effected as above provided in this
Section 7.5 shall be effective for all purposes even as against the
Bank and its successors or subsequent assigns who have not joined
therein.
7.6 Delivery of Documents
The Borrower agrees that any time or from time to time, upon the written request of the Bank, the Borrower will execute and deliver such further documents and do such further acts and things as the Bank may reasonably request in order to fully effect the purposes of this Agreement and to provide for the payment of the principal and the interest of any Loan made hereunder in accordance with the terms and provisions hereof.
7.7 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the Bank, the Borrower, and their respective successors and assigns. The Bank may at any time sell, assign, grant participations in, or otherwise transfer to any other person, firm, or corporation (a "Participant") all or part of the obligations of
the Borrower under this Agreement. The Borrower agrees that each such disposition will give rise to a direct obligation of the Borrower to the Participant. The Borrower authorizes the Bank and each Participant, upon the occurrence of an Event of Default, to proceed directly by right of setoff or banker's lien against any property of the Borrower in the possession of or under the control of the Bank or such Participant, respectively. The Borrower authorizes the Bank to disclose to any prospective Participant and any Participant any and all information in the Bank's possession concerning the Borrower and this Agreement. The Participant shall, for the purposes of Section 2.12 of this Agreement, be considered to be a "Bank," and shall be entitled to the indemnity provided a Bank under Sections 2.10, 2.11, and 2.12 hereof; provided that, the Borrower shall not have to pay any additional amounts under Section 2.12 of this Agreement to such Participant unless such amount would have been payable to the Bank. The Borrower shall not assign its rights and obligations hereunder without the express written consent of the Bank.
7.8 Governing Law
This Agreement and all other agreements and instruments executed hereunder, and the rights and obligations of the parties hereunder, shall be governed by and construed and interpreted in accordance with the laws of the State of California.
7.9 Execution In Counterparts
This Agreement may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first hereinabove written.
SAN DIEGO GAS & ELECTRIC COMPANY
By:___________________________ Date:______________________
Title:________________________
MELLON BANK, N.A.
By:___________________________ Date:______________________
Title:________________________
ANNEX 1
(Effective January 3, 1995 to January 3, 2000)
This Annex 1 is attached to and forms a part of the Loan Agreement, dated as of January 3, 1995, between Mellon Bank, N.A. and San Diego Gas and Electric Company (the "Borrower").
Name of Bank Mellon Bank, N.A. (the "Bank")
Amount of Bank Fifty million dollars
Commitment ($50,000,000)
Expiration Date of
Availability Period January 3, 2000
Bond Rating Commitment CD Rate Offshore
(S&P/Moody's) Level Fee Rate Margin Rate Margin
A-/A3 or higher I .09% .375% .25%
BBB/Baa2 or higher II .15% .575% .45%
BBB-/Baa3 or lower III .30% .875% .75%
Bank Account of the Bank of America
Borrower 1850 Gateway Blvd., Concord, CA
- ------------------- ABA #121000358
San Diego Gas & Electric Company
Account #00506-00076
Domestic Lending Office Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258-0001
Offshore Lending Office Same address as Domestic Lending
Office
Address for Notices For Credit Matters:
to Bank Mellon Bank, N.A.
- ------------------- One Mellon Bank Center
Pittsburgh, PA 15258-0001
Attention: A. J. Sabatelle, V.P.
Phone: 412/236-2784
Fax: 412/234-6375
For Administrative Matters:
Mellon Bank, N.A.
Three Mellon Bank Center
Loan Administration Dept.
Pittsburgh, PA 15258-0001
Attention: Florence Lindsay
Phone: 412/234-3698
Fax: 412/236-2027
|
MELLON BANK, N.A.
By:________________________________ Date:______________________
Title:_____________________________
LOAN AGREEMENT
BETWEEN
FIRST INTERSTATE BANK OF CALIFORNIA
AND
SAN DIEGO GAS & ELECTRIC COMPANY
Dated as of January 3, 1995
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND FINANCIAL REQUIREMENTS
1.1 Definitions . . . . . . . . . . . . . . 1 1.2 Interpretation . . . . . . . . . . . . 6 1.3 Financial Requirements . . . . . . . . . . 6 |
ARTICLE II
AMOUNT AND TERMS OF CREDIT
2.1 Commitment for Loans . . . . . . . . . . 7 2.2 Minimum Loan Amounts . . . . . . . . . . . 7 2.3 Notice of Borrowing . . . . . . . . . . . 7 2.4 Disbursement of Funds. . . . . . . . . . . 8 2.5 Loan Account. . . . . . . . . . . . . . 8 2.6 Prepayment or Conversion of Loans. . . . . . . 8 2.7 Repayment of Principal and Payment of Interest . . 10 2.8 Commitment Fee . . . . . . . . . . . . . 12 2.9 Type of Funds for Payment and Place of Payment . . 12 2.10 Past Due Payments . . . . . . . . . . . . 13 2.11 Indemnification for Breaking Deposits . . . . . 13 2.12 Changes in Funding Circumstances . . . . . . . 13 |
ARTICLE III
CONDITIONS PRECEDENT
3.1 Conditions Precedent to the Loans . . . . . . 16
3.2 Conditions Precedent to Each Loan . . . . . . 17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Borrower . . 17
TABLE OF CONTENTS (Continued)
Page
ARTICLE V
COVENANTS OF THE BORROWER
5.1 Covenants of the Borrower . . . . . . . . . 19
ARTICLE VI
EVENTS OF DEFAULT
6.1 Default . . . . . . . . . . . . . . . 20
ARTICLE VII
MISCELLANEOUS
7.1 Notice . . . . . . . . . . . . . . . 23
7.2 Payment of Expenses . . . . . . . . . . . 23
7.3 Delay . . . . . . . . . . . . . . . . 24
7.4 Survival of Representations and Warranties. . . . 24
7.5 Waiver. . . . . . . . . . . . . . . . 24
7.6 Delivery of Documents. . . . . . . . . . . 24
7.7 Binding Effect . . . . . . . . . . . . . 24
7.8 Governing Law . . . . . . . . . . . . . 25
7.9 Execution In Counterparts . . . . . . . . . 25
Annex I . . . . . . . . . . . . . . . 26
|
LOAN AGREEMENT
THIS LOAN AGREEMENT made and entered into as of January 3, 1995 between SAN DIEGO GAS & ELECTRIC COMPANY, a California corporation (the "Borrower"), and the bank identified in Annex 1 hereto (the "Bank"), with respect to the following:
ARTICLE I
DEFINITIONS AND FINANCIAL REQUIREMENTS
1.1 Definitions
As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):
"Agreement" means this Loan Agreement, as amended, modified or supplemented from time to time.
"Availability Period" means, initially, the period from the date of this Agreement through January 3, 2000; provided, however, that the Availability Period shall be extended for successive one (1) or two (2) year periods upon (a) receipt by the Bank from the Borrower of a request for such extension, which request shall be received at least sixty (60) days prior to the current expiration date of the Availability Period, and (b) written approval of such extension from the Bank to the Borrower, which approval shall be given at the sole and absolute discretion of the Bank and shall be received at least thirty (30) days prior to the current expiration date of the Availability Period. After January 3, 1997, Availability Period shall mean the period from the date of the most recent extension of the Availability Period to the date set forth in the then effective Annex 1 hereto as the "Expiration Date of Availability Period."
"Bank Home Town" means the city identified in Annex 1 as the "Domestic Lending Office."
"Banking Day" means a day on which banks are open for business in New York, New York and the Bank Home Town, and on which dealings are carried on in Dollar deposits in offshore Dollar interbank markets.
"Board" means the Board of Governors of the Federal Reserve System of the United States (or any successor thereto).
"Borrowing" means a borrowing hereunder consisting of Loans made to the Borrower by the Bank.
"Business Day" means a day, except a Saturday or Sunday, in which the Bank is open for business.
"CD Loan" means a Loan for which interest is based on the CD Rate.
"CD Rate" means, for each CD Rate Interest Period, the rate of interest (rounded upward, if necessary, to the nearest 1/8 of one percent) determined pursuant to the following formula:
Where,
(a) "Assessment Rate" means the rate (rounded upward, if necessary, to the nearest 1/100 of one percent) determined by the Bank to be the net annual assessment rate in effect on the first day of such CD Rate Interest Period for calculating the net annual assessment payable to the Federal Deposit Insurance Corporation (or any successor) for insuring deposits at offices of the Bank in the United States.
(b) "Certificate of Deposit Rate" means, for each such CD Rate Interest Period, the rate of interest determined by the Bank to be the arithmetic average (rounded upward, if necessary, to the nearest 1/100 of one percent) of the rates of interest bid by two or more certificate of deposit dealers of recognized standing selected by the Bank for the purchase at face value of Dollar certificates of deposit issued by major United States banks for such CD Rate Interest Period and in the amount of such CD Loan to be outstanding during such period at the time selected by the Bank on the first day of such CD Rate Interest Period.
(c) "Reserve Percentage" means, for such CD Rate Interest Period, the total (expressed as a decimal) of the maximum reserve percentages (including, but not limited to, marginal, emergency, supplemental, special, and other reserve percentages), in effect on the first day of such CD Rate Interest Period, prescribed by the Board for determining the reserves to be maintained by member banks of the Federal Reserve System for nonpersonal time deposits with a maturity equal to such CD Rate Interest Period.
"CD Rate Interest Period" means, for each CD Loan, the
period commencing on the date the CD Loan is made and ending thirty
(30), sixty (60), ninety (90), one hundred eighty (180), two
hundred seventy (270), or three hundred sixty (360) days, or
eighteen (18), or twenty-four (24) months thereafter, or any other
period as mutually agreed upon, but never greater than the last day
of the Availability Period, as requested by the Borrower pursuant
to a Notice of Borrowing.
"CD Rate Margin" means, with respect to any CD Rate Loan, the percentage figure set forth opposite the applicable S&P Bond Rating and the Moody's Bond Rating in Annex 1 hereto as the "CD Rate Margin" provided that if the S&P Bond Rating and the Moody's Bond Rating do not fall within the same Level, the CD Rate Margin will be the rate opposite the lower Level (with Level III being the lowest Level) and provided, further, that in the event an S&P Bond Rating or a Moody's Bond Rating is not available from either rating agency, the CD Rate Margin will be the rate opposite Level III.
"Code" means the Internal Revenue Code of 1986, as amended from time to time. Section references to the Code are to the Code, as in effect on the date of this Agreement, and to any subsequent provisions of the Code amendatory thereof, supplementary thereto or substituted therefor.
"Commitment" means the amount set forth in Annex 1 hereto as the "Amount of Bank Commitment," as the same may be reduced in accordance with Section 2.1(b) hereof.
"Commitment Fee" shall have the meaning given such term in Section 2.8 hereof.
"Default" means an event which, with the giving of notice, the lapse of time, or both, shall become an Event of Default.
"Dollar" and the sign "$" each mean United States dollars or such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts in the United States of America.
"Domestic Lending Office" means the office designated by the Bank as such in Annex 1 hereto, or such other office or offices as the Bank may from time to time select and notify to the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. Section references to ERISA are to ERISA, as in effect at the date of this Agreement, and to any subsequent provisions of ERISA amendatory thereto, supplementary thereto or substituted therefor.
"ERISA Affiliate" means each person (as defined in
Section 3(9) of ERISA) which together with the Borrower or any
Subsidiary would be deemed to be a member of the same "controlled
group" within the meaning of Sections 414(b) and (c) of the Code.
"Event of Default" has the meaning set forth in Article VI hereof.
"Interest Period" means (a) with respect to any CD Loan,
the CD Rate Interest Period for such Loan, (b) with respect to any
Offshore Loan, the Offshore Rate Interest Period for such Loan and
(c) with respect to any Money Market Loan, the Money Market
Interest Rate Period for such Loan.
"Lending Office" means, with respect to each Offshore Loan, the Offshore Lending Office, and with respect to all other Loans, the Domestic Lending Office.
"Loan" means a CD Loan, a Money Market Loan, an Offshore Loan or a Reference Rate Loan.
"Money Market Loan" means a Loan in any amount the Bank, in its sole and absolute discretion, shall agree upon with the Borrower and for which interest is based on the Money Market Rate.
"Money Market Rate" means the rate of interest upon each Money Market Loan, as the Bank, in its sole and absolute discretion, shall agree upon with the Borrower.
"Money Market Rate Interest Period" means the Interest Period for each Money Market Loan, as agreed upon by the Bank, in its sole and absolute discretion, and the Borrower.
"Notice of Borrowing" shall have the meaning given such term in Section 2.3 hereof.
"Offshore Lending Office" means the office designated by the Bank as such in Annex 1 hereto, or such other office or offices as the Bank may from time to time select and notify to the Borrower.
"Offshore Loan" means a Loan for which interest is based on the Offshore Rate.
"Offshore Rate" means, for each Offshore Rate Interest Period, the interest rate per annum (rounded upward, if necessary to the nearest 1/100 of one percent) determined pursuant to the following formula:
Where:
(a) "IBOR" means, for each such Offshore Rate Interest Period, the interest rates per annum at which Dollar deposits for such Offshore Rate Interest Period would be offered by the Bank's branch in Nassau, to major banks in the offshore Dollar interbank markets upon request of such banks at approximately 11:00 a.m. New York time two (2) Banking Days prior to the
first day of such Offshore Rate Interest Period;
(b) "Offshore Reserve Percentage" means, for each such Offshore Rate Interest Period, the maximum reserve percentage (expressed as a decimal) in effect on the first day of the Offshore Rate Interest Period, prescribed by the Board for determining the reserves to be maintained by member banks of the Federal Reserve System for "Eurocurrency liabilities" or for any other category of liabilities which includes deposits by reference to which the interest rate on Offshore Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of the Bank to United States residents.
"Offshore Rate Interest Period" means, for each Offshore Loan, the period commencing on the date the Offshore Loan is made and ending one (1), three (3), six (6), nine (9), twelve (12), eighteen (18), or twenty-four (24) months thereafter, or, such other period or periods as the Bank, in its sole and absolute discretion, shall agree upon with the Borrower, but in any event not later than any other period as mutually agreed upon, but never greater than the last day of the Availability Period, as requested by the Borrower pursuant to a Notice of Borrowing.
"Offshore Rate Margin" means, with respect to any Offshore Loan, the percentage figure set forth opposite the applicable S&P Bond Rating and the Moody's Bond Rating in Annex 1 hereto as the "Offshore Rate Margin" provided that if the S&P Bond Rating and the Moody's Bond Rating do not fall within the same Level, the Offshore Rate Margin will be the rate opposite the lower Level (with Level III being the lowest Level) and provided, further, that in the event an S&P Bond Rating or a Moody's Bond Rating is not available from either rating agency, the Offshore Rate Margin will be the rate opposite Level III.
"Participant" shall have the meaning given such term in
Section 7.7 hereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.
"Person" means a corporation, an association, a partnership, an organization, a business, an individual or a government or political subdivision thereof or any governmental agency.
"Plan" means any multi-employer or single-employer plan as defined in Section 4001 of ERISA, which is maintained or contributed to, or, at any time during the five calendar years preceding the date of this Agreement, was maintained or contributed to, for employees of the Borrower or any Subsidiary or an ERISA Affiliate.
"Reference Rate" means the rate of interest publicly announced from time to time by the Bank in the Bank Home Town, as its commercial loan base rate. The Reference Rate is a rate set by the Bank based on various factors including the Bank's costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans. Loans may be priced at, above or below the Reference Rate. Any change in the fluctuating interest rate hereunder resulting from a change of the Reference Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Reference Rate, or if no such public announcement is made, on the date of such change.
"Reference Rate Loan" means a Loan for which interest is based on the Reference Rate.
"Repayment Date" means the due date for any Loan disbursed prior to the last day of the Availability Period and shall be no later than the last day of the Availability Period.
"Reportable Event" means an event described in Section 4043(b) of ERISA with respect to a Plan as to which the thirty (30) day notice requirement has not been waived by the PBGC.
"Subsidiary" means those Persons the decision-making process of which is controlled by the Borrower, its Subsidiaries or individuals who control the decision-making process of the Borrower.
"Unfunded Current Liability" of any Plan means the amount, if any, by which the present value of the accrued benefits under the Plan as of the close of its most recent Plan year exceeds the fair market value of the assets allocable thereto, determined in accordance with Section 412 of the Code.
1.2 Interpretation
(a) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof.
(b) The words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section or subdivision hereof.
1.3 Financial Requirements
Unless otherwise specified in this Agreement, all accounting terms used in this Agreement shall be interpreted, all financial information required under this Agreement shall be
prepared, and all financial computations required under this Agreement shall be made, in accordance with generally accepted accounting principles as in effect from time to time, and applied on a basis consistent with the most recent audited consolidated financial statements of the Borrower delivered to the Bank.
ARTICLE II
AMOUNT AND TERMS OF CREDIT
2.1 Commitment For Loans
(a) Commitment. Subject to the terms and conditions of this Agreement, the Bank agrees, from time to time during the Availability Period, to make Loans to the Borrower, which Loans shall be, at the option of the Borrower, CD Loans, Money Market Loans, Offshore Loans or Reference Rate Loans; provided, however, that the aggregate principal amount of Loans outstanding shall not at any time exceed the amount of the Commitment.
(b) Reduction of the Commitment. The Borrower may permanently reduce in whole or in part the unutilized portion of the Commitment by giving to the Bank written notice thereof, which notice shall specify the date and the amount of such reduction; provided, that, the Borrower shall, on or prior to the date of reduction or termination so specified, pay to the Bank the accrued Commitment Fee for the period up to such date of reduction or termination; and provided, further, that in no event shall the Commitment be reduced below the aggregate amount of all Loans outstanding on the date of such reduction.
2.2 Minimum Loan Amounts
(a) Each CD Loan and each Offshore Loan hereunder shall be in the amount of Five Hundred Thousand Dollars ($500,000) or integral multiples thereof.
(b) Each Reference Rate Loan shall be in a minimum aggregate principal amount of One Hundred Thousand Dollars ($100,000) or integral multiples thereof.
2.3 Notice of Borrowing
(a) The disbursement of each Loan shall be made upon
written or tested telex request or telephone notice ("Notice
of Borrowing") promptly followed by written confirmation,
which Notice of Borrowing shall be irrevocable, shall be
received by the Bank at least (a) two (2) Banking Days prior
to the date of the Loan in the case of an Offshore Loan, and
(b) one (1) Business Day prior to the date of the Loan in the
case of a CD Loan, or Reference Rate Loan, and shall specify:
(i) The date of such Loan, which shall be a Business Day;
(ii) The aggregate principal amount of such Loan;
(iii) Whether the Loan is to be a CD Loan, Offshore Loan or Reference Rate Loan; and
(iv) If such Loan is to be a CD Loan, or Offshore Loan, the duration of the relevant Interest Period.
(b) The Borrower may also request offers to make Money Market Loans. The Bank may, but shall have no obligation to make such offers and Borrower may, but shall have no obligation to, accept any such offers as set forth as follows:
(i) The date of such Loan, which shall be a Business Day;
(ii) The aggregate principal amount of such Loan;
(iii) The duration of the relevant Interest Period; and
(iv) The applicable Money Market Rate.
2.4 Disbursement of Funds
Not later than 11:00 a.m. (in time zone of Bank Home Town) on the date specified for each Loan, the Bank shall make available such Loan (in the case of a Money Market Loan, if an offer made by Bank has been accepted by Borrower), in immediately available funds credited to the Borrower's bank account identified in Annex 1 hereto.
2.5 Loan Account
The Bank shall open and maintain on its books a Loan Account in the Borrower's name and shall: (a) enter as debits thereto (i) each CD Loan, Money Market Loan, Offshore Loan and Reference Rate Loan made to the Borrower and interest accrued thereon; and (b) enter as credits thereto all repayments of principal and payments of interest received by the Bank. The Bank shall give confirming notice to the Borrower of each Loan made to the Borrower. The Banks' records showing such entries shall be presumed correct, absent manifest error. Failure to make any such entry or notice, however, shall not affect the obligations of the Borrower in respect of each Loan.
2.6 Prepayment or Conversion of Loans
(a) The Borrower may prepay, at any time, any or all Loans, in whole or in part, provided, that:
(i) The Bank has received irrevocable notice of such prepayment at least (A) one (1) Business Day prior to the date thereof in the case of a CD Loan, a Money Market Loan or a Reference Rate Loan, and (B) two (2) Banking Days prior to the date thereof in the case of an Offshore Loan;
(ii) The notice of prepayment specifies (A) the date of prepayment which shall be (x) a Business Day in the case of a CD Loan, a Money Market Loan or a Reference Rate Loan, and (y) a Banking Day in the case of an Offshore Loan, (B) the amount of the prepayment which shall be in an amount at least equal to (x) One Million Dollars ($1,000,000) or integral multiples thereof in the case of a CD Loan, a Money Market Loan or an Offshore Loan, or (y) Five Hundred Thousand Dollars ($500,000) or integral multiples thereof in the case of a Reference Rate Loan; and
(iii) On the date of prepayment, the Borrower pays to the Bank the principal amount of the Loans being prepaid together with all accrued interest thereon.
In addition, the Borrower shall pay to the Bank any amounts due under Section 2.11 hereof as a result of any prepayment in accordance with the terms of such Section 2.11.
(b) The Borrower may convert any or all outstanding loans of any type into a Loan or Loans of another type provided for herein, provided, that:
(i) The Bank has received irrevocable notice of such conversion at least (A) one (1) Business Day prior to the date thereof if a Loan will be converted into a CD Loan, a Money Market Loan or a Reference Rate Loan, and (B) two (2) Banking Days prior to the date thereof if a Loan will be converted into an Offshore Loan;
(ii) The notice of conversion specifies (A) the date of conversion which shall be both (x) if applicable, the last day of the Interest Period of the Loan to be converted, unless the Loan to be converted is a CD Loan, Money Market Loan or Offshore Loan affected by the circumstances described in Section 2.12(b) (i)(A) or (B), in which case the requirements of this clause (x) shall not apply and (y) a Business Day, or a Banking Day if the Loan is or will be converted into an Offshore Loan, (B) the Loan or Loans to be converted by amount and (C) the type of Loan
into which a Loan or Loans are to be converted and the Interest Period applicable thereto; and
(iii) On the date of conversion (A) the Borrower pays
to the Bank the accrued and unpaid interest due
on the Loan to be converted, (B) no Default or
Event of Default has occurred or is continuing,
(C) the Repayment Date for such Loan has not
occurred and (D), if the Loan to be converted is
a CD Loan, Money Market Loan or Offshore Loan
affected by the circumstances described in
Section 2.12(b) (i)(A), the Borrower also pays to
the Bank any additional amounts payable to the
Bank in respect of such Loan pursuant to Sections
2.11 and 2.12(b)(i) hereof.
(c) In the event the Borrower (i) does not provide the
Bank with a timely notice of conversion as required under
Section 2.6(b) hereof and (ii) either (A) does not repay to
the Bank the principal amount of a CD Rate Loan, a Money
Market Loan or an Offshore Loan at the end of the Interest
Period applicable thereto, or (B), if the Loan to be converted
is a CD Loan, Money Market Loan or Offshore Loan affected by
the circumstances described in Section 2.12(b)(i)(A), does not
pay the additional amounts required to be paid on the date of
conversion, then at the option of the Bank, in its sole and
absolute discretion, such Loan or Loans shall be converted
into Reference Rate Loans and shall bear interest as a
Reference Rate Loan until the earlier of repayment thereof or
conversion thereof pursuant to Section 2.6(b) hereof;
provided, that:
(i) No Default or Event of Default (other than the failure to repay the principal amount of a Loan at the end of an applicable Interest Period) has occurred or is continuing on the date of such conversion;
(ii) The Repayment Date has not occurred.
In addition, the Borrower shall pay to the Bank accrued
and unpaid interest due on any Loan converted pursuant to this
Section 2.6(c) within the grace period provided in Section 6.1(b)
hereof, and any additional amounts as referenced in Section
2.12(b)(i)(A) hereof,
(d) Upon any conversion of a Loan pursuant to Sections 2.6(b) or (c) hereof, the Bank shall make such entries in the loan account established in accordance with Section 2.5 hereof to effect such conversion.
2.7 Repayment of Principal and Payment of Interest
(a) CD Loans. The outstanding principal balance of each CD
Loan shall bear interest at a rate per annum equal to the sum
of the CD Rate and the CD Rate Margin (such interest being
computed daily on the basis of a three hundred sixty (360) day
year and actual days elapsed, which results in more interest
than if a three hundred sixty-five (365) day year were used).
Interest on each CD Loan shall be paid by the Borrower on the
last day of the CD Rate Interest Period for such CD Loan and,
in addition, (i) if such CD Rate Interest Period is one
hundred eighty (180) days, on the date falling ninety (90)
days after the commencement of such CD Rate Interest Period,
and (ii) if such CD Rate Interest Period is longer than one
hundred eighty (180) days, on each date occurring at ninety
(90) day intervals after the first date of the CD Rate
Interest Period. The entire outstanding principal amount of
each CD Loan shall be repaid by the Borrower on the last day
of the CD Rate Interest Period for such CD Loan.
(b) Money Market Loans. The outstanding principal balance of each Money Market Loan shall bear interest at a rate per annum equal to the Money Market Rate (as computed by the Bank). Interest on each Money Market Loan shall be paid, by the Borrower, on the last day of the Money Market Rate Interest Period, and, in addition, on such date or dates as the Bank, in its sole and absolute discretion, shall agree upon with the Borrower. The entire outstanding principal amount of each Money Market Loan shall be repaid by the Borrower on the last day of the Money Market Rate Interest Period.
(c) Offshore Loans. The outstanding principal balance of each Offshore Loan shall bear interest at a rate per annum equal to the sum of the Offshore Rate and the Offshore Rate Margin (such interest being computed daily on the basis of a three hundred sixty (360) day year and actual days elapsed, which results in more interest than if a three hundred sixty- five (365) day year were used). Interest on each Offshore Loan shall be paid, by the Borrower, on the last day of the Offshore Rate Interest Period for such Offshore Loan and, in addition, (i) if such Offshore Rate Interest Period is six (6) months, on the date falling three (3) months after the commencement of such Offshore Rate Interest Period, and (ii) if such Offshore Rate Interest Period is longer than six (6) months, on each date occurring at three (3) month intervals after the first day of the Offshore Rate Interest Period. The entire outstanding principal amount of each Offshore Loan shall be repaid by the Borrower on the last day of the Offshore Rate Interest Period for such Offshore Loan.
(d) Reference Rate Loans. The outstanding principal balance of each Reference Rate Loan shall bear interest at a rate per annum equal to the Reference Rate, (computed daily on the basis of a three hundred sixty-five (365) or three hundred
sixty-six (366) day year, as the case may be, and actual days elapsed) as such Reference Rate shall change from time to time until principal is paid in full to the Bank. Interest on each outstanding Reference Rate Loan shall be paid by the Borrower quarterly in arrears commencing on the first Business Day of the calendar quarter immediately following the quarter during which such Reference Rate Loan was made to the Borrower, and upon payment in full of the principal of the Reference Rate Loan. The entire outstanding principal amount of each Reference Rate Loan made to the Borrower shall be repaid by the Borrower on the Repayment Date.
2.8 Commitment Fee
The Borrower shall pay the Bank a fee (the "Commitment Fee"), computed at the per annum rate set forth opposite the applicable S&P Bond Rating and the Moody's Bond Rating in Annex 1 hereto as the "Commitment Fee Rate," provided that if the S&P Bond Rating and the Moody's Bond Rating do not fall within the same Level, the Commitment Fee Rate will be the rate opposite the lower Level (with Level III being the lowest Level) and provided, further, that in the event an S&P Bond Rating or a Moody's Bond Rating is not available from either rating agency, the Commitment Fee Rate will be the rate opposite Level III. The commitment Fee shall be computed on the difference, if any, between the Amount of Bank Commitment and the average daily total outstanding Loans. The Commitment Fee shall be calculated on the basis of a three hundred sixty- five (365) or three hundred sixty-six (366) day year, as the case may be, and actual days elapsed. The accrued Commitment Fee shall be payable quarterly in arrears with the first quarter commencing on the date hereof and ending on March 31, 1995. Each such payment shall be due and payable on the tenth day following receipt by the Borrower of notice from the Bank of the amount due, and, if the Commitment expires or is terminated or reduced, then on the tenth day following the date of such expiry, termination or reduction.
2.9 Type of Funds for Payment and Place of Payment
(a) The Borrower shall make each payment to the Bank of principal of, and interest on, the Loans, of the Commitment Fee and of other commissions or fees hereunder, without setoff or counterclaim, when due, in immediately available funds, not later than 11:00 A.M. (in time zone of Bank Home Town) on such due date and at its Domestic Lending Office (i) for the account of such office with respect to any CD Loan, Money Market Loan, or Reference Rate Loan, any payment related thereto, or any payment of the Commitment Fee or other commissions or fees hereunder, and (ii) for the account of the Offshore Lending Office with respect to any Offshore Loan or payment related thereto.
(b) All sums received after such time shall be deemed received on the next Banking Day in the case of a payment respecting an Offshore Loan, and the next Business Day in all other cases. Except in the case of Offshore Loans, whenever any payment to be made hereunder shall be due on a day which is not a Business Day, the payment shall be made on the next succeeding Business Day. In the case of Offshore Loans, the last day of the Offshore Rate Interest Period (and therefore the due date for repayment of principal and interest on Offshore Loans) shall be determined in accordance with the practices of the offshore Dollar interbank markets as from time to time in effect. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon and fees shall accrue and be payable on such extended time.
2.10 Past Due Payments
If any sum of principal, interest or other sum due hereunder in connection with a CD Loan, Money Market Loan or Offshore Loan is not paid when due, the Borrower shall, on demand, indemnify the Bank against any loss, cost or expense including any loss of profit and any loss, cost, or expense in liquidating or employing deposits acquired from third parties in connection with such Loan, incurred by the Bank as a consequence of any such failure to pay any sum of principal, interest, or other sum when due hereunder. In addition, loans which are not paid or converted, when due, shall bear interest until paid in full at the Reference Rate.
2.11 Indemnification for Breaking Deposits
If for any reason (including prepayment, conversion and acceleration) the Bank receives any payment of principal of any CD Loan, Money Market Loan or Offshore Loan on a day other than the last day of the Interest Period applicable to such Loan, then the Borrower shall reimburse the Bank on demand for any loss incurred by it as a result of the timing of such payment, including without limitation any loss incurred in liquidating or employing deposits from third parties and including loss of profit for the period after such payment. The Bank will provide the Borrower with a written statement of said costs, losses, or payments which certificate shall be presumed correct, absent manifest error. If as a result of prepayment, the Bank immediately redeploys the funds at a rate equal to or greater than the rate on the Loan prepaid, then the Borrower will not be obligated to reimburse the Bank for any cost.
2.12 Changes in Funding Circumstances
(a) Availability. In the event that the Bank shall determine, which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto,
on the date any Notice of Borrowing is made that, by reason of any changes arising after the date of this Agreement affecting the offshore Dollar interbank markets or the secondary certificate of deposit market, as the case may be, adequate and fair means do not exist for ascertaining the applicable interest rate, then the Bank shall promptly give notice (by telephone confirmed in writing) to the Borrower of such determination. Thereafter, CD Loans and Offshore Loans, as the case may be, shall no longer be available until such time as the Bank notifies the Borrower that the circumstances giving rise to such notice by the Bank no longer exist, and, at such time, the Bank's obligation to make CD Loans or Offshore Loans, as the case may be, shall be automatically reinstated.
(b) Increased Costs and Illegality of Loans
(i) In the event that the Bank shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon the Borrower):
(A) At any time, that the Bank shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any CD Loan, Money Market Loan or Offshore Loan, other than any such increased costs or reductions in the amounts received or receivable hereunder due to increased capital requirements as set forth in Section 2.12(c) below, because of (x) any change after the date of this Agreement in any applicable law or governmental rule, regulation, order or request (whether or not having the force of law) (or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, order or request), including, without limitation, (1) a change in the basis of taxation of payments to the Bank or its applicable Lending Office of the principal of or interest on the Loans or any other amounts payable hereunder (except for changes in the rate of tax on, or determined by reference to, the net income or profits of the Bank or its applicable Lending Office imposed by the jurisdiction in which its principal office or applicable Lending Office is located) or (2) a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D of the Board to the extent included in the computation of the CD Rate or Offshore Rate, as the case may be, or (y) other circumstances
affecting the Bank or the offshore Dollar interbank markets or the secondary certificate of deposit market, as the case may be, or the position of the Bank in such market; or
(B) At any time, that the making or
continuance of any CD Loan, Money Market Loan or
Offshore Loan has been made (x) unlawful by any
law or governmental rule, regulation or order,
(y) impossible by compliance by the Bank with any
governmental rule or request (whether or not
having force of law) or (z) impracticable as a
result of a contingency occurring after the date
of this Agreement which materially and adversely
affects the offshore Dollar interbank markets or
the secondary certificate of deposit market, as
the case may be;
then, and in any such event, the Bank shall promptly give notice (by telephone confirmed in writing) to the Borrower. Thereafter (x) in the case of clause (A) above, the Borrower shall pay to the Bank, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as the Bank in its sole discretion shall determine) as shall be required to compensate the Bank for such increased costs or reductions in amounts received or receivable hereunder (a written notice as to the additional amounts owed to the Bank, showing the basis for the calculation thereof, submitted to the Borrower by the Bank shall, absent manifest error, be final and conclusive and binding on the Borrower) and (y) in the case of clause (B) above, the Borrower shall take one of the actions specified in Section 2.12(b)(ii) hereof as promptly as possible and, in any event, within the time period required by law.
(ii) At any time that any CD Loan, Money Market Loan or Offshore Loan is affected by the circumstances described in Section 2.12(b)(i)(A) or (B) above, the Borrower may (and in the case of a CD Loan or Offshore Loan affected by the circumstances described in Section 2.12(b)(i)(B) hereof shall) either (x) if the affected CD Loan, Offshore Loan or Money Market Loan is then being made, cancel its Notice of Borrowing by giving the Bank telephonic notice (confirmed in writing) of the cancellation on the same date that the Borrower was notified by the Bank pursuant to Section
2.12(b)(i)(A) or (B) hereof or (y) if the affected CD Loan, Money Market Loan or Offshore Loan is then outstanding, request the Bank to convert such CD Loan, Money Market Loan or Offshore Loan under Section 2.6(b) hereof; provided, however, that if the Borrower fails to request conversion under such Section 2.6(b), then the Bank may convert the Loans under Section 2.6(c) hereof in accordance with the terms thereof.
(c) Capital Adequacy. If the Bank determines (which determination shall, absent manifest error, be final, conclusive and binding upon the Borrower) at any time that any applicable law or governmental rule, regulation, order or request after the date of this Agreement (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank based on the existence of the Commitment hereunder or its obligations hereunder to make Loans, the Borrower shall pay to the Bank upon its written demand therefore sent to the Borrower, such additional amounts as shall be required to compensate the Bank for the increased cost to the Bank as a result of such increase of capital. In determining such additional amounts (in the form of an increased commitment fee or such other form of compensation as the Bank shall, in its sole discretion determine) the Bank will act reasonably and in good faith and will use averaging and attribution methods which are reasonable, provided that the Bank's determination of compensation owing under this Section 2.12(c) shall, absent manifest error, be final and conclusive and binding on the Borrower. The Bank, upon determining that any additional amounts will be payable pursuant to this Section 2.12(c), will send prompt written notice thereof to the Borrower, which notice shall show the basis for calculation of such additional amounts.
ARTICLE III
CONDITIONS PRECEDENT
3.1 Conditions Precedent to the Loans
The obligation of the Bank to make any Loans hereunder is subject to the condition precedent that the Bank shall have received from the Borrower, on or prior to the date of this Agreement, all of the following in form and substance satisfactory to the Bank:
(a) A certified copy of the resolution of the Board of
Directors of the Borrower or the Executive Committee thereof (if such action by the Executive Committee is authorized by the Bylaws of the Borrower) evidencing the authorization for the Borrowings herein provided and other matters contemplated hereby and a certified copy of all documents evidencing necessary corporate action and any governmental approval, including but not limited to that of the California Public Utilities Commission, with respect to Borrowings under this Loan Agreement;
(b) A favorable written opinion, in form and substance satisfactory to the Bank, of the Vice President and General Counsel or Assistant General Counsel of the Borrower as to the matters referred to in Sections 4.1(b) through 4.1(d) hereof;
(c) A signed copy of a Certificate of the Secretary or an Assistant Secretary of the Borrower which shall certify the names of the officers of the Borrower authorized to sign this Agreement and the other documents or certificates to be delivered pursuant hereto by the Borrower or any of its officers, together with the true signatures of each such officer. The Bank may conclusively rely on such certificate until it shall receive a further certificate of the Secretary or an Assistant Secretary of the Borrower cancelling or amending the prior certificate and submitting the true signatures of the officers named in such further certificate; and
(d) Such additional information, document or instruments as may be reasonably requested by the Bank.
3.2 Conditions Precedent to Each Loan
The obligation to disburse any Loan at any time (including any Loan made on the date of this Agreement) is subject to the performance by the Borrower of all its obligations under this Agreement and to the satisfaction of the following further conditions:
(a) Timely receipt by the Bank of the appropriate Notice of Borrowing from the Borrower;
(b) The representations and warranties contained in Sections 4.1(a) through 4.1(g) hereof are true and accurate in all material respects as though made on and as of the date of the Notice of Borrowing and the date of the Loan requested therein;
(c) No Default or Event of Default has occurred and is continuing on the date of the Notice of Borrowing and the date of the Loan and no Default or Event of Default shall occur as a result of the making of the Loan; and
(d) Receipt by the Bank of such additional information concerning any of the matters set forth in Article IV hereof as may be reasonably requested by the Bank.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Borrower
The Borrower represents and warrants for the benefit of the Bank as follows:
(a) All financial statements, information and other data furnished by the Borrower to the Bank in connection with the Borrower's application for credit hereunder are, in all material respects, accurate and correct as of the date thereof and such financial statements have been prepared in accordance with generally accepted accounting principles and practices consistently applied and accurately represent the financial condition of the Borrower;
(b) The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California and has all requisite power and authority, corporate or otherwise, to conduct its business, to own its properties and to execute, deliver and to perform all of its obligations under this Agreement;
(c) The making and the performance by the Borrower of this Agreement have been duly authorized by all necessary corporate action and do not contravene any provision of law or of the Borrower's amended Articles of Incorporation or Bylaws or of any indenture or agreement or instrument to which the Borrower is a party or by which the Borrower or its properties may be bound or affected, and this Agreement is binding on the Borrower;
(d) The Loans have been duly authorized by an order of the Public Utilities Commission of the State of California, and any governmental authority, commission or entity whose authorization is required, or, if such authorization has not been obtained, such authorization is not required;
(e) No Default or Event of Default has occurred and is continuing or would result from the incurring of obligations by the Borrower under this Agreement;
(f) None of the proceeds of any Loan hereunder will be used directly or indirectly for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any "margin stock" (as defined Regulation U, as amended from time to time, of the Board). The Borrower is not engaged principally, as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stocks within the meaning of said Regulation U; and
(g) Each Plan is in substantial compliance with ERISA; no Plan is insolvent or in reorganization; no Plan has any material Unfunded Current Liability; no Plan has an accumulated or waived funding deficiency or permitted decreases in its funding standard account within the meaning of Section 412 of the Code; neither the Borrower, any Subsidiary nor any ERISA Affiliate has incurred any material liability to or on account of a Plan pursuant to Sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA or expects to incur any liability under any of the foregoing Sections on account of the termination of participation in or contributions to any such Plan; no proceedings have been instituted to terminate any Plan in a distressed termination; no condition exists which presents a material risk to the Borrower or any Subsidiary of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; no
lien imposed under the Code or ERISA on the assets of the Borrower or any Subsidiary exists or is likely to arise on account of any Plan; and the Borrower and each Subsidiary may terminate contributions to any other employee benefit plans maintained by them without incurring any material liability to any person interested therein.
ARTICLE V
COVENANTS OF THE BORROWER
5.1 Covenants of the Borrower
So long as this Agreement shall be in effect and the Commitment has not been terminated, and until the full and final payment of all principal of, and interest on, all Loans and all other obligations hereunder, the Borrower shall, unless the Bank shall otherwise consent in writing:
(a) Furnish the Bank with copies of the Borrower's 10-K statements, 10-Q statements, and other periodic statements, Registration Statements, 8-K reports and any and all other reports, statements, or documents filed with the Securities and Exchange Commission, promptly after such filings are made, and (i) with respect to the Borrower's 10-K statements, in no event later than one hundred twenty (120) days after the end of each year, and (ii) with respect to the Borrower's 10-Q statements, in no event later than sixty (60) days after the end of each quarter; and promptly after any request by the Bank such other information regarding the Borrower's activities as the Bank may reasonably request;
(b) Promptly upon demand by the Bank, pay to and reimburse the Bank for all costs and expenses incurred by the Bank, by reason of payment by the Bank of any governmental charges, taxes (other than taxes levied on earned income) and penalties imposed on this Agreement or any other instrument issued hereunder; and
(c) As soon as possible and, in any event, within ten
(10) days after the Borrower or any Subsidiary knows or has
reason to know of the occurrence of any of the following
events, the Borrower or such Subsidiary, as the case may be,
will deliver to the Bank a certificate of the chief financial
officer of the Borrower or such Subsidiary, as the case may
be, setting forth details as to such occurrence and such
action, if any, which the Borrower or such Subsidiary is
required or proposes to take, together with any notices
required or proposed to be given to or filed with or by the
Borrower or such Subsidiary, the PBGC, a Plan participant or
the Plan administrator with respect thereto: that a Reportable
Event has occurred; that an accumulated funding deficiency has
been incurred or an application may be or has been made to the
Secretary of the Treasury for a waiver or modification of the
minimum funding standard (including any required installment
payments) or an extension of any amortization period under
Section 412 of the Code with respect to a Plan; that a Plan
has been or may be terminated, reorganized, partitioned or
declared insolvent under Title IV of ERISA; that a Plan has an
Unfunded Current Liability giving rise to a lien under ERISA,
that proceedings may be or have been instituted to terminate
a Plan; that a proceeding has been instituted pursuant to
Section 515 of ERISA to collect a delinquent contribution to
a Plan; or that the Borrower or a Subsidiary or any ERISA
Affiliate will or may incur any liability (including any
contingent or secondary liability) to or on account of the
termination of or withdrawal from a Plan under Sections 4062,
4063, 4064, 4201 or 4204 of ERISA. The Borrower will deliver
to the Bank a complete copy of the annual report (Form 5500)
of each Plan required to be filed with the Internal Revenue
Service. In addition to any certificates or notices delivered
to the Bank pursuant to the first sentence hereof, copies of
annual reports and any other notices received by the Borrower
or Subsidiary required to be delivered to the Bank shall be
delivered to the Bank no later than ten (10) days after the
later of the date such report or notice has been filed with
the Internal Revenue Service or the PBGC, given to Plan
participants, or received by the Borrower or any Subsidiary.
(d) Promptly, upon any principal officer of the Company obtaining knowledge of the occurrence of an Event of Default, or an event which with the passage of time would create an Event of Default, the Borrower shall deliver to the Bank a certificate signed by the Chief Financial Officer, specifying the nature and period of existence thereof and what action the Company has taken or proposes to take with respect thereof.
ARTICLE VI
EVENTS OF DEFAULT
6.1 Default
Upon the occurrence of any of the following events (each an "Event of Default"):
(a) The Borrower shall fail to pay when due the principal
amount of any Loans; provided, however, that if a Loan is
converted pursuant to Section 2.6(b) or 2.6(c) hereof, then
the failure to pay the principal amount of such Loan, when
due, shall not be deemed an Event of Default under this
Section 6.1(a);
(b) The Borrower shall fail to pay, when due, any installment of interest or any Commitment Fee due under this Agreement and such failure continues for seven (7) days after written notice of such non-payment from the Bank to the Borrower or, if the giving of such notice is not permitted or it is otherwise restricted by law, then such failure continues for seven (7) days;
(c) Any representation or warranty herein or in any agreement, instrument or certificate executed pursuant hereto or in connection with any transactions contemplated hereby shall prove to have been false or misleading in any material respect when made or when deemed to have been made;
(d) The Borrower shall breach or default under any term or provision of this Agreement not otherwise provided for in this Article VI within thirty (30) days after written notice of breach or default from the Bank to the Borrower;
(e) Any default shall occur under any other agreement involving the borrowing of money or any extension of credit, in the aggregate of Ten Million Dollars ($10,000,000) or more, to which the Borrower may be a party as obligor, if such default gives, or with the giving of notice or the lapse of time or both would give, to the holder of the obligation the right to accelerate the obligation or if the Borrower fails to pay any such obligation when due (including any applicable cure periods) within seven (7) days after written notice from the Bank to the Borrower;
(f) The Borrower shall fail to pay debts generally as they come due, or admits in writing its inability to pay its debts as such debts become due, files any petition or action for relief under any bankruptcy, reorganization, insolvency, or moratorium law or any other law for the relief of, or relating to, debtors, now or hereafter in effect, makes any assignment for the benefit of creditors, or takes any corporate action in furtherance of any of the foregoing;
(g) An involuntary petition shall be filed under any bankruptcy statute against the Borrower, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) shall be appointed to take possession, custody or control of the properties of the Borrower, unless such petition or appointment is set aside or withdrawn or ceases to be in effect within sixty (60) days from the date of said filing or appointment;
(h) Any financial statements, profit and loss statements or other statements furnished by the Borrower to the Bank prove to be false or incorrect in any material respect;
(i) The Borrower shall not, nor shall it permit any of
its significant Subsidiaries to create, incur, assume or
suffer to exist any lien upon any of its property, assets or
revenues, whether now owned or hereafter acquired, except for
(i) liens permitted by the Borrower's indenture, (ii) existing
liens, (iii) liens associated with Califia Company or Enova
Corporation, and (iv) any future liens not exceeding an
aggregate amount of Ten Million Dollars ($10,000,000);
(j) The Borrower will not enter into any merger,
consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or
convey, sell, lease, assign, transfer or otherwise dispose of
substantially all of its property, business or assets, except
the Borrower may be merged or consolidated with another Person
provided that (x) Borrower is the surviving corporation, or
(y) (i) the survivor shall continue to use and operate the
Borrower's public utility business, (ii) the survivor shall
assume the Borrower's obligations hereunder in accordance with
documentation reasonably acceptable to the Bank and (iii)
after giving effect to such merger or consolidation no Default
or Event of Default shall have occurred or be continuing; or
(k) Any Plan shall fail to maintain the minimum funding standard required for any Plan year or part thereof or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code; any Plan is, shall have been or is likely to be terminated or the subject of termination proceedings under ERISA; any Plan shall have an Unfunded Current Liability; or the Borrower or any Subsidiary or any ERISA Affiliate has incurred or is likely to incur a liability to or on account of a Plan under Sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA; and there shall result from any such event or events the imposition of a lien upon the assets of the Borrower or any Subsidiary, the granting of a security interest, or a liability or a material risk of incurring a liability to the PBGC or a Plan or a trustee appointed under ERISA or a penalty under Section 4971 of the Code, which, in the opinion of the Bank, will have a material adverse effect upon the business, operations, condition (financial or otherwise) or prospects of the Borrower; then, and in any such event, and at any time thereafter if an Event of Default shall then be continuing, the Bank may take any or all of the following actions (provided, that, if an Event of Default specified in Sections 6.1(g) or 6.1(h) shall occur, the result which would occur upon the giving of written notice by the Bank to the Borrower as specified in clauses (i) and (ii) below shall occur without the giving of any such notice):
(i) Declare the Commitment terminated, whereupon any Commitment Fee shall forthwith become due and payable without any other notice of any kind;
(ii) Declare the principal of and any accrued interest in respect of all Loans and all other obligations owing hereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and
(iii) Pursue any other remedies available to the Bank under this Agreement or at law or equity.
ARTICLE VII
MISCELLANEOUS
7.1 Notice
All notices, requests or demands to or upon the Borrower shall be given or made at the address set forth below:
San Diego Gas & Electric Company
101 Ash Street
San Diego, California 92101
Attn: Cash Management Supv.
Or,
San Diego Gas & Electric Company
P.O. Box 1831
San Diego, California 92112
Attn: Cash Management Supv.
Fax: (619) 696-4899
All notices, requests or demands to or upon the Bank shall be given or made at the address set forth in Annex 1 hereto.
Except as otherwise provided herein, all such notices, requests and demands given or made in connection with the terms and provisions of this Agreement shall be deemed to have been given or made when sent overnight or via Federal Express, by registered mail, postage prepaid or, in case of telegraphic notice, when delivered to the telegraphic company, addressed as specified in this Section 7.1 or by telephonic contact followed by immediate written confirmation.
7.2 Payment of Expenses
The Borrower hereby agrees to pay all reasonable costs and expenses (including, without limitation, the fees and disbursements of outside counsel and the allocated costs, fees and disbursements for in-house legal services) of the Bank in connection with: (a) the preparation, execution, delivery and administration of this Agreement and the documents and instruments referred to herein and any amendment, waiver, amendment or consent relating hereto or thereto, (b) the enforcement of this Agreement and the documents and instruments referred to herein, and (c) any refinancing or restructuring of the Commitment in the nature of a "work-out".
7.3 Delay
No failure to exercise, and no delay in exercising, on the part of the Bank, of any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies otherwise provided by law.
7.4 Survival of Representations and Warranties
All representations, warranties, covenants and agreements of the Borrower contained herein shall survive the making of Loans hereunder and shall continue in full force and effect so long as any amount is outstanding hereunder.
7.5 Waiver
This Agreement and any term or provision hereof may be
changed, waived, discharged or terminated by an instrument in
writing executed by the Borrower and the Bank. Any such change,
waiver, discharge or termination effected as above provided in this
Section 7.5 shall be effective for all purposes even as against the
Bank and its successors or subsequent assigns who have not joined
therein.
7.6 Delivery of Documents
The Borrower agrees that any time or from time to time, upon the written request of the Bank, the Borrower will execute and deliver such further documents and do such further acts and things as the Bank may reasonably request in order to fully effect the purposes of this Agreement and to provide for the payment of the principal and the interest of any Loan made hereunder in accordance with the terms and provisions hereof.
7.7 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the Bank, the Borrower, and their respective successors and assigns. The Bank may at any time sell, assign, grant participations in, or otherwise transfer to any other person, firm, or corporation (a "Participant") all or part of the obligations of the Borrower under this Agreement. The Borrower agrees that each such disposition will give rise to a direct obligation of the Borrower to the Participant. The Borrower authorizes the Bank and each Participant, upon the occurrence of an Event of Default, to proceed directly by right of setoff or banker's lien against any property of the Borrower in the possession of or under the control of the Bank or such Participant, respectively. The Borrower authorizes the Bank to disclose to any prospective Participant and any Participant any and all information in the Bank's possession concerning the Borrower and this Agreement. The Participant shall, for the purposes of Section 2.12 of this Agreement, be considered to be a "Bank," and shall be entitled to the indemnity provided a Bank under Sections 2.10, 2.11, and 2.12 hereof; provided that, the Borrower shall not have to pay any additional amounts under Section 2.12 of this Agreement to such Participant unless such amount would have been payable to the Bank. The Borrower shall not assign its rights and obligations hereunder without the express written consent of the Bank.
7.8 Governing Law
This Agreement and all other agreements and instruments executed hereunder, and the rights and obligations of the parties hereunder, shall be governed by and construed and interpreted in accordance with the laws of the State of California.
7.9 Execution In Counterparts
This Agreement may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first hereinabove written.
SAN DIEGO GAS & ELECTRIC COMPANY
By:________________________________ Date:________________
Title: ____________________________
FIRST INTERSTATE BANK OF
CALIFORNIA
By:________________________________ Date:________________
Title:_____________________________
ANNEX 1
(Effective January 3, 1995 to January 3, 2000)
This Annex 1 is attached to and forms a part of the Loan Agreement, dated as of January 3, 1995, between First Interstate Bank of California and San Diego Gas and Electric Company (the "Borrower").
Name of Bank First Interstate Bank of California
(the "Bank")
Amount of Bank Fifty million dollars
Commitment ($50,000,000)
Expiration Date of
Availability Period January 3, 2000
Bond Rating Commitment CD Rate Offshore
(S&P/Moody's) Level Fee Rate Margin Rate Margin
A-/A3 or higher I .09% .375% .250%
BBB/Baa2 or higher II .15% .475% .350%
BBB-/Baa3 or lower III .30% .650% .525%
Bank Account of the Bank of America
Borrower 1850 Gateway Blvd., Concord, CA
ABA #121000358
San Diego Gas & Electric Company
Account #00506-00076
Domestic Lending Office First Interstate Bank of California
1055 Wilshire Boulevard (B10-6)
Los Angeles, CA 90017
Offshore Lending Office Same address as Domestic Lending
Office
Address for Notices
to Bank Corporate Loans Operations
1055 Wilshire Boulevard (B10-6)
Los Angeles, CA 90017
Fax: (213) 488-9909/9959
Phone: Matt Frey at (213) 614-5038
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FIRST INTERSTATE BANK OF CALIFORNIA
By:________________________________ Date:______________________
Title:_____________________________
SOCALGAS/SDG&E LONG-TERM STORAGE SERVICE AGREEMENT
THIS AGREEMENT (the "Agreement") is entered into as of the first day of January, 1994, by and between Southern California Gas Company ("SoCalGas") and San Diego Gas & Electric Company ("SDG&E") and sets forth the terms and conditions under which SoCalGas will provide gas storage injection, inventory and withdrawal services for SDG&E.
NOW THEREFORE, in consideration of the promises and mutual understandings set forth below, the parties agree as follows:
Section 1 - Supersedes Prior Arrangements
This Agreement supersedes and replaces the provisions regarding gas storage in (a) the "Restated Long-Term Wholesale Natural Gas Service Contract" between the parties dated September 1, 1990 (the "Contract"), including without limitation Section 1.6 and Article 7 of the Contract, and (b) the "Storage Agreement" between the parties dated July 19, 1993. The Contract shall not be utilized in interpreting this Agreement, or any actions or inactions of the parties related hereto. This Agreement shall cover all storage matters between the parties during the term hereof; provided, however, this Agreement shall not be deemed to amend or modify the Mutual Assistance Agreement between the parties dated June 8, 1993, as it may be amended by mutual agreement from time to time, or any reference to storage gas therein.
Section 2 - Independent Entities
(a)Separate Service Territory - SoCalGas and SDG&E each have separate service territories for which the applicable entity shall be solely responsible, subject to CPUC regulation, for providing gas service. SDG&E shall be solely responsible for determining the storage requirements of its customers in SDG&E's service territory, and SoCalGas shall have no responsibility or liability regarding SDG&E's storage determinations and the effect thereof, with SDG&E being solely responsible for defending or discharging and holding SoCalGas harmless from and against any claims or liabilities or costs (including, reasonable attorneys fees for in-house or retained counsel) attributable to SDG&E's storage determinations. Neither party shall be required to curtail any of its third party firm storage arrangements to satisfy any obligation to the other party (this includes any request for assistance by either party under the Mutual Assistance Agreement, although such third party curtailment will occur prior to a request by the requesting party under the Mutual Assistance Agreement).
(b)Exceptions - Notwithstanding the provisions of Section 2(a):
(i)SDG&E - SDG&E may transfer all or a portion of its storage rights hereunder to on-system or off-system third parties so long as SDG&E remains primarily liable and SoCalGas' obligations hereunder are not increased materially; provided, however, that this provision shall be subject to all rules, regulations, orders and decisions issued by the Public Utilities Commission of the State of California related to marketing of storage rights, and SoCalGas' related Tariff Rate Schedules and Tariff Rules approved by the CPUC. SoCalGas shall, subject to SoCalGas' Tariff Rate Schedules and Tariff Rules, as in effect from time to time, cooperate in facilitating timely gas deliveries to third parties.
(ii)SoCalGas - SoCalGas may offer to provide storage services to any and all third parties doing business in SDG&E's service territory; provided, however, that this provision shall be subject to all rules, regulations, orders and decisions issued by the Public Utilities Commission of the State of California related to marketing of storage rights, and SDG&E's related Tariff Rate Schedules and Tariff Rules approved by the CPUC. SDG&E shall, subject to SDG&E's Tariff Rate Schedules and Tariff Rules, as in effect from time to time, cooperate in facilitating timely gas deliveries to such third parties.
Section 3 - Services/Operations
(a)Storage Service - SDG&E has elected firm storage services at the levels specified below:
_ Annual Firm Inventory: 8,280,000 Dth
_ Firm Withdrawal: 241,155 Dth per Day
_ Firm Injection: 31,437 Dth per Day
(April-October)
SDG&E may, without additional
cost, vary the above daily firm
injection schedule upwards or
downwards by up to fifteen
percent (15%) in any month
provided that written notice of
such change is sent by SDG&E to
SoCalGas not later than seven
(7) business days prior to the
start of the month during which
such daily change is to apply.
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_ Drive Gas: 2,070,000 Dth (See
Section 3(c)(iv) below).
_ "As Available" Injection SDG&E may request "as
and Withdrawal: available" injection and
withdrawal consistent with
SoCalGas' applicable Tariff
Rates Schedules and Tariff
Rules as in effect from time to
time.
(b) Future Services - This Agreement is not intended to
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foreclose SDG&E from obtaining any additional or different storage services for which it qualifies under SoCalGas' Tariff Rate Schedules and Tariff Rules, as in effect from time to time, as set forth therein; provided, however, the availability of such additional or different services shall not act or be deemed to relieve SoCalGas and/or SDG&E from any obligation hereunder or to modify the terms of this Agreement.
(c) Operating Conditions - The following operating conditions shall apply to storage services:
(i) Operator - SoCalGas shall be solely responsible for carrying out all storage operations and making all determinations in connection therewith, e.g., the availability of "as available" injection.
(ii) Withdrawal - Firm withdrawal service for SDG&E, including intrastate transportation of firm gas withdrawals of SDG&E's storage inventory, to the delivery points specified in SDG&E's current transportation agreement with SoCalGas shall not be curtailed (1) other than in accordance with the Mutual Assistance Agreement between the parties dated June 6, 1993, or (2) in the event of Force Majeure.
(iii) Storage Cycling - During any Contract Year, subject to the limitations on monthly firm injection variances and the retention of Drive Gas in November, December and January of each Contract Year, SDG&E may utilize the injection and withdrawal rights provided herein to cycle its gas inventory. SDG&E shall pay SoCalGas the applicable variable costs, including fuel, but no additional reservation charges shall be payable.
(iv) Drive Gas - The first 2,070,000 decatherms of gas injected for SDG&E in any Contract Year shall be deemed to be "Drive Gas" (any gas retained in storage for SDG&E at the end of any Contract Year and continued as inventory in the following Contract Year shall be deemed to be "injected" for purposes of such calculation). For purposes of the Agreement, "Drive Gas" shall mean gas injected and stored in SoCalGas'
underground storage facilities which will permit increased firm withdrawal by SDG&E of other gas from the same underground storage facilities. Such Drive Gas shall be retained in SoCalGas' gas storage facilities at all times during the period November 1 through January 31 of each Contract Year, and shall be subject to the provisions of Section 7(d) of this Agreement. Subject to the obligation to retain such Drive Gas in SoCalGas' Gas Storage facilities through each January 31, SDG&E shall receive the additional firm withdrawal rights in MMdecatherms per Day which are equal to the amount in MMdecatherms of SDG&E's Drive Gas actually stored in SoCalGas' gas storage facilities at the beginning of the Day of withdrawal times 0.033.
(d) Heating Value Factor - To the extent that it is necessary to convert gas volumetric measurements or calculations to heating values (or vice versa), the heating factor of 1035 shall be utilized.
Section 4 - Effective Date/Conditions
(a) CPUC Approval - This Agreement shall be filed with the CPUC promptly after execution, and shall become effective ("Effective Date") as of the date that both of the following conditions have been satisfied: (i) receipt of approval hereof by the CPUC on terms and conditions satisfactory to each party in its sole opinion (each party shall provide the other party with written notice as to whether or not the CPUC approval is in satisfactory form not later than ten (10) days after the applicable CPUC decision; provided, however, this condition precedent shall be deemed waived if either party's notice is not received within such period), and (ii) implementation of SoCalGas' 1994-1995 BCAP.
(b) Governmental Actions - Subject to Sections 5(b)(iii) and 11(a) below, the parties shall, notwithstanding any other provision hereof, comply with all valid laws, statutes, ordinances, decisions, orders, rules and regulations of any governmental entity having jurisdiction.
Section 5 - Contract Term
(a) Initial Term - This Agreement shall continue in effect from the Effective Date through March 31, 1998. A "Contract Year", with respect to the first "Contract Year", shall mean the period from the Effective Date through March 31, 1995, and with respect to any succeeding "Contract Year" shall mean the period of twelve (12) consecutive months from the end of the preceding "Contract Year" through the following March 31.
(b) Early Termination - Notwithstanding any other provision hereof, this Agreement may be terminated by either party on thirty
(30) days prior written notice to the other party in the event that:
(i) BCAP Allocation Changes - If as a result of the CPUC BCAP decision, which is no longer subject to rehearing, it is reasonably apparent that upon the implementation date of SoCalGas' 1994-1995 BCAP, which was submitted to the CPUC on September 1, 1993, storage costs will not be allocated in a manner consistent herewith, including the accounting treatment contemplated by each party after acceptance of the CPUC authorization under Section 4(a); provided, however, this provision shall be deemed waived if a party's termination notice under this provision is not sent within fourteen (14) days after such CPUC decision; or
(ii) BCAP Implementation Date - If for any reason the 1994- 1995 BCAP implementation date is on or after January 1, 1995; or
(iii) Material Adverse CPUC Decision - At any time after the Effective Date, if the CPUC issues a final order, decision or regulation, no longer subject to rehearing, which modifies this Agreement in a material way, adversely affecting either party by altering the reasonable economic and/or operating expectations of such party in its sole reasonable opinion in a manner unacceptable to such party; provided, however, prior to either party sending termination notice, the parties shall meet to discuss in good faith whether this Agreement can be restructured under the then- existing circumstances in a mutually acceptable fashion to avoid early termination; provided, further, that rate increases or decreases approved by the CPUC and not inconsistent with then-effective ratemaking principles being applied generally in California shall not be deemed either "material" or "adverse"; or
(iv) "Hinshaw Exemption" - Either party believes in good faith that its continued performance hereunder could reasonably be determined to jeopardize continuance of its Hinshaw Exemption under 15 U.S.C. 717(C).
(c) Winding Up - In the event of early termination pursuant to Section 4(b) hereof, SDG&E will continue to pay all applicable storage charges until SDG&E has (i) withdrawn all gas which has accrued to its storage account under this Agreement as of the date of such termination on a schedule as mutually agreed in good faith, and (ii) paid all monies owed to SoCalGas which accrued prior to such termination, or during any period of "winding up"; provided, however, in no event shall such withdrawal rights extend beyond the end of the current Contract Year.
(d) Extensions of Term - This Agreement may be extended as follows:
(i) First Extension - The term of this Agreement may be extended at SDG&E's option from April 1, 1998, through March 31, 2003 on the same terms and conditions by notice from SDG&E to SoCalGas which is received not later than September 30, 1997.
(ii) Second Extension - A second extension of the term of this Agreement at SDG&E's option from April 1, 2003, through March 31, 2008, on the same terms and conditions by notice from SDG&E to SoCalGas which is received not later than September 30, 2002.
Section 6 - Definitions
In addition to the terms defined in this Agreement, the applicable definitions of SoCalGas' Tariff Rule No. 1, as in effect from time to time, are incorporated by reference herein.
Section 7 - Rates & Charges
The firm storage services provided hereunder shall be subject to the following charges:
(a) Tariff Rates - Storage Reservation and variable storage charges, including transportation charges for gas injected into storage, and fuel, shall be as established by the CPUC and set forth in the SoCalGas' applicable Tariff Rate Schedules, currently Tariff Rate Schedule G- LTS, as in effect from time to time.
(b) Monthly Billings - SoCalGas shall bill SDG&E for the firm storage services under this Agreement in twelve (12) equal amounts, subject to necessary adjustments. SoCalGas, to the extent feasible, shall bill SDG&E for variable charges in the month immediately succeeding the month in which such charges are incurred, or as soon thereafter as reasonably possible, subject to necessary adjustments.
(c) "As Available "Storage Injection - SoCalGas shall bill SDG&E for any "as available" storage injection used at the rates as set forth in SoCalGas' applicable Tariff Rate Schedules, as in effect from time to time.
(d) Drive Gas - SoCalGas shall not bill SDG&E for reservation charges for any additional firm withdrawal capacity SDG&E obtains by injecting Drive Gas (as defined in Section 3(c)(iv) of this Agreement) in SoCalGas' gas storage facilities so long as SDG&E maintains 2,070,000 decatherms of Drive Gas in inventory during the months of November, December and January of each Contract Year.
(e) BCAP Implementation/Transition Period - It is recognized that a transition treatment may be needed for the storage charges under the Contract, which will continue to be paid to the implementation of SoCalGas' 1994-1995 BCAP Decision. Implementation of such BCAP Decision may not occur in time to accommodate the applicable changes hereunder for SDG&E by April 1, 1994. Any delay in such implementation will result in SDG&E paying for increased storage services based on SoCalGas' applicable Tariff Rate Schedules during the period from April 1, 1994 to the Effective Date ("Transition Period") which could not be utilized by SDG&E pursuant to Section 3(a) hereof. To facilitate an orderly transition, and to provide SDG&E an opportunity to use the storage services paid for, the following rules shall apply:
(i) Transition Injection - SDG&E shall be entitled to firm injection of 61,423 decatherms per Day during the Transition Period.
(ii) Transition Inventory - In addition to the firm
storage inventory provided under Section 3(a),
during the period from April 1, 1994 through March
31, 1995, SDG&E shall be entitled to increased firm
storage inventory equal to the additional costs
that SDG&E pays for firm gas inventory and firm gas
withdrawal under SoCalGas' applicable Tariff Rate
Schedules in effect during the Transition Period
which could not otherwise be utilized under this
Agreement but for the transition provisions of this
Section 7(e), divided by SoCalGas' applicable
tariff rate for firm inventory in effect on the
Effective Date. For purposes of clarification, it
should be noted that the "additional costs"
referred to reflect the difference between what
SDG&E is actually paying during the Transition
Period and the applicable charges under this
Agreement. The storage inventory under Section
3(a) plus the storage inventory determined under
this Section 7(e)(ii) shall be referred to
collectively as the "Transition Inventory".
(iii) Transition Inventory Shortfall - To the extent that any portion of SDG&E's Transition Inventory is not injected in storage by November 1, 1994, SDG&E may inject any "shortfall" (the difference between actual storage injections and the total Transition Inventory) in the second Contract Year (starting April 1, 1995); provided, however, (1) SDG&E is responsible for obtaining separate injection rights for such shortfall, on an "as available" or other basis, since
such injection is not covered by this Agreement, and (2) the applicable variable costs, including fuel, shall be assessed on the withdrawal of the shortfall by SDG&E.
(iv) Excess Inventory - In the event that on the Effective Date SDG&E's actual storage inventory exceeds the Transition Inventory, the amount of inventory, if any, in excess of the Transition Inventory ("Excess Inventory") shall be paid for by SDG&E at SoCalGas applicable tariff rates for inventory until withdrawal; provided, however, since any Excess Inventory is attributable to the uncertainty of the 1994-1995 BCAP implementation and the transition from the Contract, such tariff rate shall be applied to Excess Inventory on a daily basis for only those days when Excess Inventory remains in storage.
Section 8 - Deliveries
SDG&E shall be solely responsible for delivering to SoCalGas all gas, including "Drive Gas", to be stored. Such delivery shall occur at existing points of interconnection with SoCalGas' facilities, and shall be subject to priorities, nomination and confirmation procedures and access or other charges, if any, applicable thereto.
Section 9 - Billing and Payment
(a) Payments - The storage services provided pursuant to
Section 3(a) shall be billed and paid for consistent with SoCalGas'
Tariff Rate Schedules as in effect from time to time; provided,
however, any storage services referenced in Section 7(e) shall be
billed and paid for consistent therewith. Invoices are due and
payable on receipt. Payment shall be considered past due if full
payment has not been received by SoCalGas within nineteen (19)
calendar days following the mailing date of each SoCalGas monthly
invoice.
(b) Suspension of Service - In addition to any remedies provided under SoCalGas' Tariff Rate Schedules and Tariff Rules, or elsewhere in this Agreement, in the event that SDG&E fails to timely pay any amounts payable in connection with the services provided herein, and if such amounts are not paid in full within seven (7) days following notice by SoCalGas that such payment is in arrears, SoCalGas may immediately suspend performance herein until SDG&E pays all amounts unpaid.
(c) Disputes - In the event of a billing dispute, the bill must be paid in full by SDG&E pending resolution of the dispute. Such payment shall not be deemed a waiver of SDG&E's right to a refund with interest, compounded monthly from the payment date to
the date of the refund. The interest rate used shall be as set forth in subsection 9(d)(iii).
(d) Late Payments -
(i) Interest - In the event of late payment of any invoice by SDG&E, the unpaid amount shall be subject to interest, compounded monthly, from the date due until paid.
(ii) Adjusted Billings - In the event of an adjusted billing, the affected entity shall also be entitled to interest, compounded monthly, on the under-or-over collected amount from the payment due date to the date of payment in full.
(iii) Interest Calculation - The interest rate used herein shall be equal to one hundred twenty-five percent (125%) of the prime rate being charged by Bank of America (NT&SA) to its best class of customers as in effect on the first banking day in the applicable period during which payment was outstanding, and as thereafter revised during such period; provided, however, that the interest assessed shall never exceed the maximum lawful rate in California.
(d) Billing Location - All bills shall be sent to SDG&E at the following location:
San Diego Gas & Electric Co.
P. O. Box 1803
San Diego, California 92112
Attn: Supervisor of Corporate Accounting
Section 10 - Notices
All notices between the parties shall be sent by telefax, with confirming original copy thereof being sent by prepaid certified mail to the following and addressed as specified below:
SDG&E
Contract Matters Operating Matters
Contact Title: Manager Contact Title: Manager Gas
Fuels Department Operations
Fax. No.: (619) 696-1838 Fax No.: (619) 696-2857
Telephone:(619) 696-1876 Telephone: (619) 696-2095
|
Confirmation Address:
Fuel Transportation Supervisor
P. O. Box 1831
San Diego, California 92112
SOCALGAS
Contract Matters Operating Matters Contact: Perssy M. Mergeanian Contact Title: Gas Control Fax No.: (213) 244-8262 Fax No.: (213) 266-5812 Telephone: (213) 244-3701 Telephone: (213) 266-5958 |
Confirmation Address:
P. O. Box 3249
Los Angeles, CA 90051-1249
Attn: UEG Whole. Mgr.
The above designations may be changed by either party (by either the party's representative with the title identified, or any corporate officer of such party) upon at least seven (7) days prior written notice. The party receiving any notice hereunder may rely thereon as coming from an authorized representative of the sending party.
Section 11 - Miscellaneous
(a) Interpretation - The interpretation and performance of any contracts for gas storage service shall be in accordance with the laws of the State of California, and the orders, rules and regulations of the CPUC, and SoCalGas' Tariff Rate Schedules and Tariff Rules, as each may be in effect from time to time. To the extent of any conflict between the terms of this Agreement and the terms of SoCalGas' Tariff Rate Schedules and Tariff Rules, the terms of this Agreement shall be deemed to control.
(b) Covenant of Assurances - Each party shall do all necessary acts, and execute and deliver such written instruments, as shall be reasonably required from time to time to carry out the intent and terms of this Agreement, including without limitation any non-material changes to this Agreement necessary to make it enforceable consistent with the intent of the parties and to conform to law.
(c) Limited Storage Liability - SoCalGas shall not be responsible for any loss of gas in storage attributable to the inherent qualities of gas, including leakage or migration, or for pilferage or theft of gas by third parties, or due to a physical or legal inability to withdraw gas from storage, unless such loss is caused by failure of SoCalGas to exercise the ordinary care and diligence required by law. In the event of any such loss, the portion of such loss which is attributable to SDG&E shall be determined based on SDG&E's pro rata share of the total recoverable working gas inventory in SoCalGas' storage facilities at the time of the loss.
(d) Damages - No party under this Agreement shall be assessed any special, punitive, consequential, incidental, or indirect damages, whether in contract or tort, for any actions or inaction's arising from or related to this Agreement, including
without limitation any actions or inactions related to an assignee or transferee hereunder.
(e) Force Majeure - Notwithstanding any other provision hereunder, performance under this Agreement shall be excused to the extent a party is prevented from performing due to the existence of a condition of Force Majeure. The term "Force Majeure" for the purpose of this Agreement shall mean acts of God, strikes, lockouts or other industrial disturbances, acts of public enemy, wars, blockades, insurrections, riots, landslides, lighting, earthquakes, explosions, fires, civil disturbances, mechanical breakdowns, and other similar or dissimilar conditions or circumstances which by the exercise of due diligence such party is unable to prevent or overcome. Nothing in this Agreement shall require a party to settle any strike or labor dispute in which it may be involved.
(f) Binding Arbitration - Any dispute or need for
interpretation arising out of this Agreement which cannot be
resolved after good faith discussion between the parties and which
is not cognizable by the CPUC, shall be submitted to binding
arbitration by one (1) arbitrator with over fifteen (15) years of
diverse professional experience in various segments of the natural
gas industry who has not previously been employed by either party,
and who has no direct or indirect interest in either party, the
Agreement or the subject matter of the dispute. Such arbitrator
shall either be as mutually agreed by the parties within thirty
(30) days after notice from either party requesting arbitration,
or, failing agreement, shall be selected under the expedited rules
of the American Arbitration Association. Unless otherwise
mutually agreed, no arbitrator shall handle more than one (1)
proceeding under the Agreement. Such arbitration shall be held at
a location to be mutually agreed, or, failing agreement, in San
Clemente, California. Such binding arbitration shall be in lieu
of litigation in any state or federal court.
Arbitration Process: Time shall be of the essence in any arbitration, which shall be subject to the following rules:
1) The hearing shall be held as expeditiously as reasonably possible, but in no event shall it commence more than one hundred twenty (120) days from the date the arbitrator is selected.
2) A written arbitrator's decision determining all the issues submitted shall be entered no more than forty- five (45) days following submission of the matter for decision (no arbitration decision shall provide for "continuing jurisdiction" as to future matters).
3) In the event that the arbitration requires a decision
(a) as to the allocation or payment of any monetary
amounts, or (b) the methodology or accuracy of any
calculation, the arbitrator shall select the position of
that party which the arbitrator believes most
appropriate under the circumstances. No "compromise" determination or alternate calculations shall be made by the arbitrator, who is bound to adopt the position of one party to the exclusion of the other on such matters.
4) Such arbitrator's decision shall thereafter be deemed to be a part of the Agreement and incorporate by reference herein.
5) Pending such decision, the parties shall continue to operate under the Agreement as on the date the arbitration is requested; however, the arbitrator should consider specifically the appropriateness of retroactive adjustments proposed by the parties.
6) The arbitrator shall establish such rules for discovery and submission of evidence (including compelling testimony, information, documents or evidence) as deemed appropriate under the circumstances of the dispute, having due regard to a timely resolution of the matter.
7) The arbitrator shall consider the failure of any party to provide evidence, participate in the hearing or otherwise fail to facilitate completion of the hearing; provided, however, no actions or inactions of a party shall be permitted to delay or prevent the arbitrator from rendering a timely decision, or the subsequent enforcement of such decision.
8) The allocation of the costs of arbitration shall be considered by the arbitrator to balance the equities between the parties, and, for example, the entire costs of the proceeding, including reasonable attorneys fees (for in-house and retained counsel), may be awarded to the prevailing party.
9) The parties hereby waive any and all rights to a "stay" of the arbitration pending litigation under Section 1281.2 of the California Code of Civil Procedure or otherwise.
10) An arbitration award shall be final, conclusive and binding on the parties and may be filed in any appropriate court for enforcement. In the event that it is necessary to enforce such award, all costs of enforcement, including reasonable attorneys fees (for in-house and retained counsel), shall be payable by the party against whom such award is enforced.
11) The parties may agree on such other rules as they deem necessary, but in the event a subject is not covered in this Section 8(f), and if the parties fail to agree thereon, the rules of the American Arbitration Association shall apply to the extent not inconsistent with the rules specified above; provided, however, in no
event shall this provision on arbitration be construed to mean that an arbitration will be held under the auspices of the American Arbitration Association, and/or subject to any payments of fees to such organization, unless agreed to in writing by both parties.
(g) Audit - SDG&E has the right to audit SoCalGas' accounting records to the extent reasonably necessary to verify any invoices submitted by SoCalGas herein, including without limitation the applicable operating records related thereto. Any such audit(s) shall be undertaken at reasonable times at the location selected by SoCalGas and in conformance with generally accepted auditing principles. SDG&E shall be solely responsible for its costs of audit. The right to audit shall extend during the length of this Agreement and for a period of two (2) years following the date of final payment under this Agreement. SoCalGas shall retain all necessary records and documentation for the entire audit period. SoCalGas shall not claim that any such records are confidential; provided, however, SDG&E's audit rights shall not extend to SoCalGas transactions with third parties or as to any technical "know-how" or trade secret related to operating techniques, procedures, devices or processes. SoCalGas shall be notified in writing of any exception taken as a result of an audit. In the event of a dispute which cannot be resolved between the parties the binding arbitration procedure contained in Section 10(b) may be utilized.
(h) Entire Agreement - This Agreement sets forth the entire understanding of the parties on the matters set forth herein and supersedes any prior correspondence, discussions, conversation or understandings, whether written or oral. This Agreement shall only be modified or amended by an instrument in writing executed by both parties, and shall not be modified or amended by course of performance, course of dealing or usage of trade.
(i) Governing Law - This Agreement shall be governed in all respects, including validity, interpretation and effect by the laws of the State of California and, the orders rules and regulations of the CPUC, as in effect from time to time.
(j) No Waiver - No waiver by any party of one or more defaults under this Agreement shall operate or be construed as a waiver of any other default or defaults, whether of a like or different character.
(k) Preparation - This Agreement was prepared by both parties hereto with advice of counsel, and not by any party to the exclusion of the other, and accordingly, should not be construed against either party by reason of its preparation.
(l) Assignment - Except as provided in Section 2(b) of this Agreement, unless consented to in writing by the non-assigning party, the rights of either party hereunder may only be transferred or assigned to a successor in interest to all, or substantially all, of the assets of a party hereto.
(m) Tax Indemnity - Notwithstanding any other provision hereof, SDG&E shall indemnify and hold harmless SoCalGas from and against any and all Federal and California taxes, levies and assessments imposed on the SoCalGas, not otherwise reflected or to be reflected in SoCalGas' Tariff Rate Schedules, and measured by the amount of gas that is owned by SDG&E and held in SoCalGas' storage facilities for SDG&E's account (or by the amount of gas injected into or withdrawn from such facilities for SDG&E's account) to the extent not previously taxed. SDG&E's responsibility for such taxes, levies and assessments shall be proportional to the quantity of SDG&E's gas, including "Drive Gas", held in SoCalGas' storage (or SDG&E's injections into or withdrawals from SoCalGas' storage) compared to the total quantity of gas held in SoCalGas' storage (or the total quantity of injections into or withdrawals from SoCalGas' storage) which is subject to such taxes, levies and assessments.
IN WITNESS WHEREOF, the authorized representatives of the parties have executed two (2) duplicate original copies of this Agreement as of the date written above.
SAN DIEGO GAS & ELECTRIC COMPANY SOUTHERN CALIFORNIA GAS COMPANY By: _____________________________ By: ___________________________ Title: __________________________ Title: ________________________ |
Amendment No. 1 To The Qualified CPUC Decommissioning Master Trust Agreement
Pursuant to Section 2.12 of the Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement dated June 29, 1992 (the "Agreement") between San Diego Gas & Electric Company (the "Company") and the State Street Bank and Trust Company, as Trustee, the Company hereby amends the Agreement as follows (additions are underlined, deletions are struck through):
1. Amend the last sentence of Section 4.06 as follows:
Shown as:
"The Trustee shall advise the Company and the Committee if any of the investments, in the Trustee's opinion, may constitute a violation of the restrictions on investment of trust assets outlined in Code Section 501(c)(21) or successor provision, applicable to the Master Trust."
Amend to:
"The Trustee shall advise the Company and the Committee, by
means of such monthly report, if any of the investments, in
the Trustee's opinion, may constitute a violation of the
restrictions on investment of trust assets outlined in Code
Section 468A(e)(4)(C), or successor provision, or any CPUC
Order filed with the Trustee by the Committee which contains
investment restrictions applicable to the Master Trust. In
addition, prior to provision of the monthly report, if the
Trustee has knowledge of an investment, and knows that such
investment violates investment restrictions applicable to the
Trust, the Trustee shall notify the Company and the Committee
as soon as reasonably possible."
2. Amend the second paragraph of Section 4.07 as follows:
Shown as:
"Notwithstanding the foregoing, the Trustee (and not the Master Trust) shall be liable for (a) any tax imposed pursuant to Section 4951 of the Code (or any applicable successor provision) as such section is made applicable to the Master Trust or the Trustee and/or (b) any consequences flowing from violation of the restrictions on the investment of trust assets outlined in Code Section 501(c)(21) (or applicable successor Code sections) where the act giving rise to the imposition of any tax pursuant to Section 4951 of the Code or the decision to invest trust assets in investments not meeting the restrictions outlined in Code Section 501(c)(21) was made by or was in the power and control of the Trustee as provided by this Agreement."
Amend to:
"Notwithstanding the foregoing, the Trustee (and not the
Master Trust) shall be liable for any tax imposed pursuant to
Section 4951 of the Code (or any applicable successor
provision) as such section is made applicable to the Master
Trust or the Trustee where the act giving rise to the
imposition of any tax pursuant to Section 4951 of the Code was
made by or was in the power and control of the Trustee as
provided by this Agreement."
3. Amend Subsection (1) of Section 7.02 as follows:
Shown as:
"(1) unless such investment is permitted to be made by Code Sections 501(c)(21)(B)(ii) and 468(e)(4)(C), the regulations thereunder, and any applicable successor provisions; or"
Amended to:
"(1) unless such investment is permitted to be made by Code
Section 468(e)(4)(C), the regulations thereunder, and any
applicable successor provisions and any CPUC Order filed with
the Trustee by the Committee which contains investment
restrictions applicable to the Master Trust; or"
4. Amend the second paragraph of Article 7.03 as follows:
Shown as:
"Notwithstanding anything contained in this Agreement to the
contrary, the Trustee may not authorize or carry out (a) any
sale, exchange, or other transaction which would constitute an
act of "self-dealing" within the meaning of Section 4951 of
the Code, as such section is made applicable to the Funds by
Section 468(e)(5) of the Code, any regulations thereunder, and
any applicable successor provision or (b) any investment which
would violate the restrictions on investment of trust assets
outlined in Code Section 501(c)(21) and any applicable
successor provision."
Amend to:
"Notwithstanding anything contained in this Agreement to the
contrary, the Trustee may not authorize or carry out any sale,
exchange, or other transaction which would constitute an act
of "self-dealing" within the meaning of Section 4951 of the
Code, as such section is made applicable to the Funds by
Section 468(e)(5) of the Code, any regulations thereunder, and
any applicable successor provision".
IN WITNESS WHEREOF, the Company, the California Public Utilities Commission, and the Trustee have set their hands and seals to this Amendment to the Agreement as of _______________, 1994.
SAN DIEGO GAS & ELECTRIC COMPANY
By: /s/ D. E. Felsinger Title: Executive Vice President Attest: /s/ L. E. Klein Title: Acting Treasurer |
CALIFORNIA PUBLIC UTILITIES COMMISSION
By: /s/ Neal Shulman
Title: Executive Director
Attest: /s/ Phyllis White
Title: Public Utility Regulatory
Analyst V
|
Accepted:
STATE STREET BANK AND TRUST COMPANY
By: /s/ John S. Connolly Title: Vice President Attest: /s/ Catha Hays Title: Assistant Secretary |
This Amendment is entered into as of the ____ day of _______________, 1994, by and between San Diego Gas & Electric Company, a corporation duly organized and existing under the laws of the State of California, and having its principal office at 101 Ash Street, San Diego, California 92101-3017 (the "Company"), and State Street Bank and Trust Company, as Trustee, having its principal office at 1 Enterprise Drive, Quincy, Massachusetts 01171 (the "Trustee").
WHEREAS, the Company and the Trustee have entered into that certain Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Stations dated June 29, 1992 (the "Qualified Trust Agreement"), pursuant to which, among other things, the Company established the Funds for the exclusive purpose of providing for the decommissioning of the Plants and to constitute qualified nuclear decommissioning reserve funds;
WHEREAS, in section 2.12 of the Qualified Trust Agreement, the parties specifically reserve the right to amend the Qualified Trust Agreement;
WHEREAS, the parties wish to reaffirm their intention that the term "Master Trust," as used throughout the Qualified Trust Agreement, shall refer simply to the aggregation of the Funds; and
WHEREAS, the parties desire to ensure that any pooling of assets of the Funds, in accordance with Section 2.06(1) of the Qualified Trust Agreement, does not create an association taxable as a corporation within the meaning of Treasury Regulations (26 C.F.R.) Section 301.7701-2(a);
NOW, THEREFORE, the parties hereby agree as follows:
1. Paragraph 20 of Section 1.01 is amended to read as
follows:
"(20) 'Master Trust' shall be used merely to refer to the
Funds in the aggregate and is not intended nor should it be
construed to constitute a separate entity."
2. Paragraph (a) of Section 1.04 shall be deleted and
Paragraph (b) shall be redesignated as Paragraph (a).
3. Paragraph (c) of Section 1.04 shall be designated as
Paragraph (b) and amended to read as follows:
"(b) appoints State Street Bank and Trust Company as
Trustee of each of the Funds."
4. Section 2.06(1) of the Qualified Trust Agreement is
hereby amended to read as follows:
"The Trustee shall not be precluded from pooling
Decommissioning Contributions (or other contributions as described
in Section 2.02) with respect to each of the Fund Accounts for
investment purposes, and may treat each Fund Account's
Decommissioning Contributions (or other contributions as described
in Section 2.02) as having received or accrued a ratable portion of
the Master Trust income in any year. Any pooling arrangement
undertaken as permitted in this Section 2.06(1) can be terminated
at any time by any Fund. No Fund in a pooling arrangement may
substitute for itself in such arrangement any person that is not a
member of that pooling arrangement.
5. Except as expressly amended hereby, the Qualified Trust Agreement is hereby restated, confirmed and ratified in all respects and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto, each intending to be legally bound hereby, have executed this Amendment as of the date first above written.
SAN DIEGO GAS & ELECTRIC COMPANY
STATE STREET BANK & TRUST COMPANY
30012820.01
LEASE AGREEMENT
DATED: March 25, 1992
TENANT: SAN DIEGO GAS & ELECTRIC COMPANY,
a California corporation
LANDLORD: AMERICAN NATIONAL INSURANCE COMPANY,
a Texas insurance corporation
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TABLE OF CONTENTS
PAGE
BASIC LEASE PROVISIONS iv
1. DEMISE AND PREMISES 1
2. TERM OF LEASE 2
3. RENT 4
4. IMPROVEMENTS TO THE PREMISES 12
5. TENANT'S ACCEPTANCE OF THE PREMISES,
ADDITIONAL ALLOWANCES 17
6. EVIDENCE OF TITLE, COVENANT OF TITLE
AND QUIET POSSESSION 18
7. USE OF PREMISES; POSSESSION 19
8. REAL ESTATE TAXES 20
9. MAINTENANCE AND REPAIRS 23
10. ALTERATIONS, ADDITIONS AND IMPROVEMENTS 25
11. SIGNS 25
12. INSURANCE 26
13. RELEASE AND WAIVER OF SUBROGATION 28
14. UTILITIES 29
15. ASSIGNMENTS AND SUBLEASING 30
16. FIRE AND CASUALTY DAMAGE 33
17. CONDEMNATION 36
18. DEFAULT 38
19. BANKRUPTCY OR INSOLVENCY 43
I
|
20. WAIVER 44
21. NOTICES TO TENANT 44
22. NOTICES TO LANDLORD 44
23. PARTIES BOUND 45
24. ENTIRE AGREEMENT; MODIFICATION;
SEVERABILITY 45
25. SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT 45
26. NUMBER AND GENDER 46
27. EXHIBITS 46
28. LIENS 46
29. LICENSE 47
30. LAST EXECUTION AND EFFECTIVE DATE 47
31. NO PARTNERSHIP FORMED 47
32. AUTHORITY TO EXECUTE LEASE 48
33. FORCE MAJEURE 48
34. ATTORNEYS' FEES 48
35. LANDLORD'S NON-RESPONSIBILITY 48
36. RIGHT OF FIRST REFUSAL TO PURCHASE 49
37. LANDLORD'S BUY-BACK RIGHTS 50
38. EXPANSION ALLOWANCE OPTION 51
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Exhibits
A Legal Description of Premises
B Rules and Regulations
C-1 Memorandum of Lease
C-2 Amendment No. 1 to Memorandum of Lease
D LANDLORD's Services to Premises
E Exclusions From Building Operating Expenses
F LANDLORD's Building Work Prior to Tenant Improvements
G TENANT's Plans and Construction Schedule
H Title Report
BASIC LEASE PROVISIONS
1. TENANT: SAN DIEGO GAS & ELECTRIC COMPANY, a California corporation
2. PREMISES:
Buildings 4, 5 and 6 of Century Park Phase II
8306, 8316 and 8326 Century Park Court
San Diego, California
3. PREMISES RENTABLE AREA: approximately 198,306 rentable square feet
4. FIXED RENT:
(a) Initial Annual Fixed Rent:
$2,022,721.20 ($10.20 per rentable
square foot);
(b) Initial Monthly Fixed Rent: $168,560.10 ($0.85 per rentable square foot).
5. BUILDING OPERATING EXPENSE PASSTHROUGHS:
Increases over calendar year 1993 with a real property tax
increase cap of 2% per year (except as otherwise provided in
Paragraph 8.2(a) hereof).
6. TERM:
(a) Length of term: 15 years;
(b) Estimated Commencement Date: November 1, 1992.
7. OPTIONS TO EXTEND TERM: Two five-year options to extend the term at 90% of the Fair Market Rental Rate (as defined in Paragraph 3.7(a) as of the commencement of each option period).
8. TENANT IMPROVEMENT ALLOWANCES: Up to $28 per rentable square foot as provided in Paragraph 4.1(b)(i) plus certain supplemental allowances as provided in Paragraph 5.2 hereof.
9. PERMITTED USE: Administration and general office purposes (and otherwise as provided in Paragraph 7.1).
10. ADDRESSES FOR PAYMENTS AND NOTICES:
(a) If to Landlord:
American National Insurance Company, a Texas insurance corporation One Moody Plaza Galveston, Texas 77550 Attn: Mortgage and Real Estate Investment Department
(b) If to Tenant:
San Diego Gas & Electric Company, a California corporation 101 Ash Street San Diego, CA 92101 Attn: Manager, Land Services Dept.
LEASE AGREEMENT
This Lease Agreement is made and entered into as of the
25th day of March, 1992, by and between AMERICAN NATIONAL
INSURANCE COMPANY, a Texas insurance corporation, whose
address is One Moody Plaza, Galveston, Texas 77550, Attn:
Mortgage and Real Estate Investment Department, hereinafter
referred to as LANDLORD, and SAN DIEGO GAS & ELECTRIC
COMPANY, a California corporation, whose address is 101 Ash
Street, San Diego, California 92101, hereinafter referred to
as TENANT.
1. DEMISE AND PREMISES
1.1 LANDLORD, in consideration of the rents hereinafter reserved and agreed to be paid by TENANT and the other obligations of TENANT provided for herein, hereby lets, leases and demises to TENANT, and TENANT hereby takes from LANDLORD the following described premises, hereinafter referred to as the "Premises", situated within the City of San Diego, County of San Diego, State of California, being that certain development commonly known as Century Park Phase II, Building 4, containing floor space of which the parties agree totals 77,280 rentable square feet, Building 6, containing floor space which the parties agree totals 70,303 rentable square feet, and Building 5 containing floor space which the parties agree totals 50,723 rentable square feet, with mailing addresses of 8306 Century Park Court, San Diego, California, 8326 Century Park Court, San Diego, California, and 8316 Century Park Court, San Diego, California, respectively; together with the non-exclusive right to all of LANDLORD's rights, privileges, easements, and appurtenances in, over and upon adjoining and adjacent public and private land, highways, roads and streets reasonably required for ingress and egress to or from the Premises. Subject to any existing easements and contractual rights relating thereto, TENANT shall have the exclusive right to utilize all available underground conduit serving the Buildings comprising the Premises. TENANT shall have the right to install additional underground conduit under the surface of the real property comprising the Premises for its fiber optic cable located under the surface of the real property comprising the Premises.
1.2 The Premises are more particularly described with the full legal description in Exhibit A.
1.3 TENANT agrees to abide by and conform to the rules and regulations attached hereto as Exhibit B with respect to the Premises, and to cause its employees, suppliers, shippers, customers and invitees to so abide and conform.
1.4 So long as the TENANT is not in default, and subject to the rules and regulations attached hereto, and as established by LANDLORD from time to time, and as acceptable to TENANT, TENANT shall be entitled to utilize the parking areas included within the Premises.
2. TERM OF LEASE
2.1 TENANT shall have and hold the same for an
initial term commencing on the Commencement Date, as that
term is hereinafter defined, and ending on the last day of
the calendar month following the expiration of the fifteenth
(15th) Lease Year, as that term is defined in Paragraph 3.5
hereof, upon the terms, conditions, and covenants of this
Lease. The term "Commencement Date" is defined as the
earlier of (i) the date LANDLORD'S construction manager,
Bilbro & Giffen, certifies to LANDLORD and TENANT that the
Tenant Improvements (as that term is defined in Paragraph
4.1 hereof) for the entire Premises are substantially
complete and the Premises are in move-in condition, or (ii)
the date TENANT occupies any portion of any Building
comprising the Premises after LANDLORD'S construction
manager, Bilbro & Giffen, has certified to LANDLORD and
TENANT that the Tenant Improvements for such Building are
substantially complete and such Building is in move-in
condition. Notwithstanding the foregoing, prior to the
Commencement Date, TENANT shall have the right to enter upon
the Premises to install TENANT's furniture, fixtures and
equipment and other leasehold improvements and to inspect
the construction more particularly described in Article 4
hereof, without being deemed to have occupied the Premises.
During the period of such entry the provisions of Article 12
hereof shall apply.
2.2 LANDLORD and TENANT agree to sign upon execution hereof, a memorandum of lease in the form set forth in Exhibit C-1. Further, LANDLORD and TENANT agree to sign, on or before the Commencement Date an amendment to the memorandum of lease in the form set forth in Exhibit C-2, reciting the Commencement Date and termination date of the Lease term and the commencement of TEN @ 's liability for
the payment of rent and other charges specified herein, which document shall be conclusive as to the Lease term. The provisions of this Lease shall control, however, in regard to any omissions from the memorandum of lease, or with respect to any provisions hereof which may be in conflict with the memorandum of lease.
2.3 Should TENANT continue to occupy the Premises, or any part thereof, after expiration of the term of this Lease, unless otherwise agreed in writing, such occupancy shall constitute and be construed as a tenancy from month to month only, and not a renewal hereof or an extension for any further term. In such event, TENANT shall pay to LANDLORD rent at a rate equal to 125% of the rate payable prior to such holding over and other monetary sums due hereunder shall be payable in the amount and at the time specified in this Lease, and such month to month tenancy shall be on the same terms and conditions of this Lease then in effect. This paragraph shall not be construed as granting any grace period for vacating the Premises.
2.4 TENANT is hereby given the option to extend
the term on all of the provisions contained in this Lease,
except for monthly Fixed Rent, for one five (5) year period
following the expiration of the initial term (the "First
Extended Term"), by giving notice of exercise of the option
(the 'First Option Notice") to LANDLORD not less than one
hundred eighty (180) days and not more than two hundred
seventy (270) days prior to the expiration of the initial
term of this Lease. TENANT shall have the additional option
to extend the term of this Lease on all the provisions
contained in this Lease, except for the monthly Fixed Rent,
for an additional five (5) year period (the 'Second Extended
Term") following expiration of the First Extended Term, by
giving notice of the exercise of the option (the "Second
Option Notice") to LANDLORD not less than one hundred eighty
(180) days and not more than two hundred seventy (270) days
prior to the expiration of the First Extended Term.
Provided that, if TENANT is in default under this Lease on
the date of giving either the First Option Notice, or the
Second Option Notice, the First Option Notice, or the Second
Option Notice, shall be totally ineffective, or if TENANT is
in default under this Lease on the date the First Extended
Term or the Second Extended Term is to commence, the First
Extended Term, or the Second Extended Term, as applicable,
shall not commence and this Lease shall expire at the end of the initial term or the First Extended Term, as applicable.
3. RENT
3.1 During the first Lease Year, TENANT agrees and covenants to pay to LANDLORD, or to such other persons or entities at such place or places as LANDLORD may from time to time designate in writing, without offset, abatement, deduction, prior notice or demand of any kind, except as otherwise specifically set forth herein, a monthly fixed rent in the sum equal to EIGHTY-FIVE CENTS ($0.85) per rentable square foot (hereinafter 'Fixed Rent"). Fixed Rent shall be payable in advance on the first day of each month in equal monthly installments of ONE HUNDRED SIXTY-EIGHT THOUSAND FIVE HUNDRED SIXTY AND 10/100 DOLLARS ($168,560.10), and shall not be increased, abated or diminished unless expressly set forth herein.
3.2 Monthly Fixed Rent for the second Lease Year and for each Lease Year thereafter shall be increased to an amount determined by multiplying the total rentable square feet in the Premises (approximately 198,306 rentable square feet) by the following amounts:
LEASE YEAR $ PER RENTABLE SQUARE FOOT PER MONTH
2 $ 0.91
3 $ 0.94
4 $ 0.96
5 $ 0.98
6 $ 1.01
7 $ 1.03
8 $ 1.055
9 $ 1.08
10 $ 1.11
11 $ 1.135
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12 $ 1.165
13 $ 1.195
14 $ 1.225
15 $ 1.25
3.3 Provided TENANT is not in default hereunder,
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upon not less than thirty (30) days, prior written notice to LANDLORD, TENANT shall have the right to elect to defer payment to LANDLORD of an amount of the monthly Fixed Rent payable during the calendar year 1993 equal to an amount not to exceed fifty percent (50%) of any such monthly Fixed Rent. Any rent so deferred by TENANT shall hereinafter be referred to as the 'Deferred Rent". Such Deferred Rent shall accrue interest at the rate of ten percent (lot) per annum commencing upon the date such Deferred Rent would have been payable had the deferral election not been made by TENANT, with such interest compounding monthly. Commencing January 1, 1994, and on the first day of each and every month thereafter during the term of this Lease, TENANT shall pay to LANDLORD monthly installments sufficient to amortize the aggregate Deferred Rent, plus interest accrued thereon through December 31, 1993 (the 'Deferral Amount") over the remaining term of this Lease (without taking into account the extension terms), at an interest rate of ten percent (10*) per annum. TENANT shall have the right to prepay the Deferral Amount, plus interest accrued thereon, at any time without premium or bonus. Upon the occurrence of any default by TENANT hereunder, or upon any termination of this Lease without default by TENANT, the Deferral Amount, plus interest accrued thereon, shall immediately be due and payable by TENANT to LANDLORD. TENANT expressly acknowledges and agrees that the Deferral Amount, plus interest thereon, is in the nature of a loan from LANDLORD to TENANT, and in this regard, TENANT's obligations to pay such Deferral Amount, along with interest thereon, as herein provided, shall be absolute and unconditional and without offset, abatement or deduction, and TENANT hereby waives demand, presentment for payment, protest, notice of protest, notice of nonpayment of the Deferral Amount and all other notices of any kind or nature relating thereto.
3.4 TENANT's obligation to pay Fixed Rent, shall commence on the Commencement Date. Notwithstanding the foregoing, in the event the Commencement Date occurs prior
to the delivery by LANDLORD'S construction manager, Bilbro & Giffen, to LANDLORD and TENANT of a certification that the Tenant Improvements for the entire Premises are substantially complete and that the Premises are in move-in condition, TENANT's Fixed Rent obligations shall be pro-rated based upon the rentable square footage of the Building(s) occupied by TENANT. Further notwithstanding the foregoing and provided that LANDLORD's construction manager, Bilbro & Giffen, shall have provided to LANDLORD and TENANT a certification (or certifications) that the Tenant Improvements for the entire Premises are substantially complete and in move-in condition not later than sixty (60) days after the Commencement Date, TENANT's obligations to pay Fixed Rent for the entire Premises shall commence on the ninetieth (90th) day after the Commencement Date. In the event TENANT has not been provided with all such certifications within such sixty (60) day period TENANT's obligations to pay Fixed Rent for the entire Premises shall commence on the thirtieth (30th) day after TENANT is provided the final certification from Bilbro & Giffen that the Tenant Improvements in the entire Premises are complete and in move-in condition. The date upon which TENANT's obligation to pay Fixed Rent shall hereinafter be referred to as the 'Fixed Rent Commencement Date". If the Fixed Rent Commencement Date is not the first day of a calendar month, the first month's Fixed Rent shall be prorated on the basis of a thirty (30) day month, and shall be payable with the first full monthly rental due hereunder. TENANT's obligation to pay Additional Rent (as that term is defined in Paragraph 3.6 hereof) and other charges shall commence on the Commencement Date.
3.5 The term "Lease Year" is herein defined as the twelve full calendar month period following the Commencement Date of the term hereof, and any annual anniversary thereof.
3.6(a) In addition to the Fixed Rent, and all other sums due hereunder, TENANT shall pay to LANDLORD increases in Building Operating Expenses (as hereinafter defined and calculated) over those Building Operating Expenses for calendar year 1993. TENANT's obligations to pay to LANDLORD such increases in Building Operating Expenses, as well as all other amounts payable by TENANT to LANDLORD hereunder (other than Fixed Rent, the Deferral Amount, the amortization of the Additional Tenant Improvement Allowance described in Paragraph 4.1(a) or the
Expansion Loan Obligation described in Paragraph 3.8 hereof), together with any late charges or interest that may accrue thereon in the event of TENANT'S failure to timely pay the same, shall be deemed Additional Rent. The term "Building Operating Expense' as used herein shall mean any and all costs, charges, expenses and disbursements of every kind and nature which LANDLORD shall pay or become obligated to pay, during the term of the Lease, because of, or in connection with, the operation, ownership, maintenance, repair and management of the Premises in accordance with the terms of this Lease, including, but not limited to, the cost or charges for the following items: heating, air conditioning, water, steam and fuel, real estate taxes, general and special assessments, license fees, levies, charges, expenses and impositions (as defined in Paragraph 8.1(a) and as qualified by Paragraph 8.2 hereof), Environmental Surcharges (as defined in Paragraph 8.1(b) hereof), waste disposal, janitorial services, security services (if any), window cleaning, materials, supplies, equipment and tools, service agreements on equipment, insurance as required by Paragraph 12 hereof, the cost of compliance with any fire, safety or other governmental rule or regulation imposed upon LANDLORD with respect to the Premises (or any portion thereof), wages and salaries, employee benefits and payroll taxes, reasonable accounting and legal expenses, administrative fees and overhead expenses, management fees (provided that it LANDLORD manages the Premises, the amount included for management fees shall not exceed the amount typically charged by independent management companies in the San Diego metropolitan area), landscape and exterior maintenance for the grounds and parking area of the Premises, the cost to LANDLORD of maintenance and repair of the Premises, in accordance with LANDLORD's obligations herein, and the cost of contesting the validity or applicability of any governmental enactments which may affect Building Operating Expenses. LANDLORD shall furnish or cause to be furnished to the Premises the services set forth in exhibit D attached hereto and made a part hereof, at the times provided therein for the term of this Lease. Any services not expressly described in such Exhibit D or otherwise expressly described herein shall be voluntary and LANDLORD shall have the right to terminate such services at any time in its sole discretion. For the purposes of this Lease, Building Operating Expenses shall not include interest expenses, leasing commissions, depreciation on the buildings comprising the Premises, the matters set forth in Exhibit E attached hereto and made a
part hereof. Building Operating Expenses shall also not include the cost of capital expenditures, however, the costs of structural repairs, Required Capital Improvements and Costs Savings Improvement should be included to the extent of each year's amortization of such costs incurred by LANDLORD after the date any space in the Premises was first occupied by TENANT; such costs shall be amortized (with interest as paid by LANDLORD or if such costs are internally financed, with interest computed at a rate of ten percent (10%r) per annum over the useful life, as calculated pursuant to the provisions of Internal Revenue Code of the items for which such costs were incurred. For purposes hereof "structural repairs" included in Building Operating Expenses shall not include structural repairs which result from latent defects in, or significant design error relating to, the initial design or construction of the shell portion of any Building comprising the Premises; "Required Capital Improvements' shall be improvements or replacements made in or to the Premises in order to conform to changes, after the date any space in the Premises was first occupied by TENANT, in all applicable laws, ordinances, rules, regulations or orders of any governmental authority having jurisdiction over the Premises; "Costs Savings Improvements' shall mean any capital improvements or replacements which are intended to reduce or stabilize Building Operating Expenses, or to provide additional or increased services or facilities to the tenants of the Premises. Costs of structural repairs and Cost Saving improvements exceeding $50,000 which are installed after calendar year 1993 require the prior approval of TENANT before inclusion in Building operating Expenses.
(b) During December, 1993 and during December of each calendar year of the term of this Lease (or as soon thereafter as is reasonably practicable), LANDLORD shall give TENANT written notice of its reasonable estimate of amounts payable under this Section 3.6 for the ensuing calendar year. on or before the first day of each month during the ensuing calendar year, TENANT shall pay to LANDLORD one-twelfth (1/12) of such estimated amounts, provided that if such notice is not given in December, TENANT shall continue to pay on the basis of the prior year's estimate until the first day of the month after such notice is given.
(c) An annual adjustment reflecting the difference between the actual Building Operating Expenses
for such calendar year and the Projected Building Operating Expenses shall be made within sixty (60) days after issuance by LANDLORD of the statement of the actual Building Operating Expenses incurred for such calendar year, and payment shall be due thirty (30) days after the annual adjustment notice is received by TENANT. TENANT shall have the right to audit any LANDLORD'S statement of Building Operating ExPenses, including the statement for base year 1993 expenses at TENANT,s sole cost and expense, upon not less than five (5) business days, prior written notice to LANDLORD. Any such audit shall be undertaken by an employee of TENANT or its contracted representative from a Certified Public Accounting Firm at reasonable business hours and in conformance with generally accepted auditing standards. LANDLORD agrees to cooperate with any such audit provided that such cooperation shall be at no cost or expense to LANDLORD. TENANT's failure to either request an audit of any such statement of Building Operating Expenses within three (3) years after its receipt of any such statement, or to complete such audit within six (6) months of any request therefor, shall render such statement final and binding upon both LANDLORD and TENANT and such statement shall not be available for audit thereafter. In the event TENANT and LANDLORD dispute any audit exception discovered in connection with TENANT's exercise of its audit rights hereunder, the parties shall submit such dispute to their outside audit firm for resolution. In the event the resolution results in a credit to either party, such party shall have the right to elect to obtain such credit in a lump sum or by a credit from the next installment of Fixed Rent if such credit runs to TENANT, or an increase in the next installment of Fixed Rent if such credit runs to LANDLORD.
(d) Notwithstanding LANDLORD's obligations to provide TENANT with the services described in Exhibit D hereto, at any time after calendar year 1993 TENANT becomes dissatisfied with the level of any particular service provided by LANDLORD as described therein, TENANT shall have the right, upon not less than thirty (30) days prior written notice to LANDLORD, to elect to terminate LANDLORD's obligation to provide such service to TENANT and to secure such service for TENANT'S own account at TENANT's sole cost, expense and liability. Upon TENANT's exercise of such election, TENANT's obligations to pay Fixed Rent hereunder shall be reduced by the actual cost to LANDLORD of such service incurred during calendar year 1993. Further,
TENANT's obligations to pay Additional Rent shall be adjusted to exclude any increases in the cost of such service over calendar year 1993. After calendar year 1993, TENANT Shall have the additional right to request LANDLORD to consent to increase or decrease the level of any particular service described in Exhibit D hereto, which LANDLORD's consent shall not be unreasonably withheld, and in such event, upon the exercise of such right TENANT's obligations to pay Fixed Rent shall be increased, as a result of any request for an increase in such service, or decreased as a result of any request for a decrease in such service, by an amount equal to the cost to LANDLORD of any increase or decrease in the level of such service, and any further increases in the cost of such service shall continue to be passed through to TENANT in accordance with the provisions of Paragraph 3.6(a) hereof. In the event that the parties agree to both the scope and cost of any increase or decrease in such services, a similar adjustment to the services, Fixed Rent and Additional Rent may occur during calendar year 1993.
3.7 (a) LANDLORD and TENANT shall have thirty
(30) days after LANDLORD receives the First Option Notice in
which to agree on monthly Fixed Rent during the First
Extended Term. If the parties agree on the monthly Fixed
Rent for the First Extended Term during that thirty (30) day
period, they shall immediately execute an amendment to this
Lease stating the monthly Fixed Rent for such First Extended
Term. If the parties are unable to agree on the monthly
Fixed Rent for the First Extended Term within that thirty
(30) day period, then, within ten (10) days after the
expiration of such thirty (30) day period, each party, at
its cost and by giving notice to the other party, shall
appoint a real estate appraiser, with an MAI designation and
at least five (5) years full time commercial appraisal
experience in the area in which the Premises are located, to
appraise and set the fair market rental rate for the First
Extended Term, for a space of comparable size, quality and
location (the 'Fair Market Rental Rate"). The term "Fair
Market Rental Rate" for the purposes of this Lease, shall
mean the annual amount per rentable square foot that a
willing, comparable, new non-renewal, non-equity, non-
expansion tenant will pay for office space, and LANDLORD
would accept, at a=ls length, giving appropriate
consideration to annual rental rates per rentable square
foot, escalation (including type, gross or net, and if
gross, whether base year or expense 'stop"), and abatement
pro,visions reflecting free rent during the Lease term, brokerage commissions, if any, length of the Lease term, size and location of premises being leased, building standard work letters and/or tenant improvement allowance, if any, and other generally applicable terms and condition, of tenancy for comparable space in comparable buildings as evidenced where possible by recently consummated lease transactions. If a party does not appoint an appraiser within ten (10) days after the other party has given notice of the name of its appraiser, the single appraiser appointed shall be the sole appraiser and shall set the Fair Market Rental Rate for the First Extended Term. If the two appraisers are appointed by the parties as stated in this paragraph, they shall meet promptly and attempt to set the Fair Market Rental Rate for the First Extended Term. If they are unable to agree within thirty (30) days after the second appraiser has been appointed, they shall attempt to elect a third appraiser meeting the qualifications stated in this Section 3.7 (a) within ten (10) days after the last day the two appraisers are given to set the Fair Market Rental Rate. If they are unable to agree on the third appraiser, either of the parties to this Lease, by giving ten (10) days, notice to the other party, can file a petition with the American Arbitration Association solely for the purpose of selecting a third appraiser who meets the qualifications stated in this paragraph. Each party shall bear half the cost of the American Arbitration Association appointing the third appraiser and of paying the third appraiser's fee. The third appraiser, however selected, shall be a person who has not previously acted in any capacity for either party. within thirty (30) days after the selection of the third appraiser, a majority of the appraisers shall set the Fair Market Rental Rate for the First Extended Term. If the majority of the appraisers are unable to set the Fair Market Rental Rate within the stipulated period of time, the three appraisals shall be added together and their total divided by three; the resulting quotient shall be the Fair Market Rental Rate for the Premises during the First Extended Term. In setting the Fair Market Rental Rate for the First Extended Term, the appraiser or appraisers shall consider the use to which the Premises are restricted under this Lease and shall not consider the highest and best use for the Premises without regard to the restriction on use of the Premises contained in this Lease. If, however, the low appraisal and/or the high appraisal is/are more than ten percent (10*) lower and/or higher than the middle appraisal, the low appraisal and/or the high appraisal shall be
disregarded. If only one appraisal is disregarded, the remaining two appraisals should be added together and their total divided by two; the resulting quotient shall be the Fair Market Rental Rate for the Premises during the First Extended Term. If both the low appraisal and the high appraisal are disregarded as stated in this Section 3.7(a), the middle appraisal shall be Fair Market Rental Rate for the Premises during the First Extended Term. After the Fair Market Rental Rate for the First Extended Term has been set, the appraiser shall immediately notify the parties. The monthly Fixed Rent for the First Extended Term shall be ninety percent (90%) of the monthly Fair Market Rental Rate determined in the manner provided herein.
(b) The parties shall have thirty (30) days after LANDLORD receives the Second Option Notice in which to agree on a monthly Fixed Rent during the Second Extended Term. If the parties agree on the monthly Fixed Rent for the Second Extended Term during that thirty (30) day period, they shall immediately execute an amendment to this Lease stating the monthly Fixed Rent. If the parties are unable to agree on the minimum monthly rent for the Second Extended Term within that thirty (30) day period, then the parties shall exercise the appraisal procedure outlined in Section 3.7(a) of this Lease to determine the Fair Market Rental Rate for the Second Extended Term. The monthly Fixed Rent for the Second Extended Term shall be ninety percent (90%) of the monthly Fair Market Rental Rate for the Second Extended Term.
(c) Notwithstanding the foregoing subparagraphs (a) or (b) of this Section 3.7, in no instance will the monthly Fixed Rent for the First Extended Term be less than the monthly Fixed Rent provided for during the last year of the original term of this Lease, nor will the monthly Fixed Rent for the first year of the Second Extended Term, be less than the monthly Fixed Rent for the last year of the First Extended Term.
4. IMPROVEMENTS TO THE PREMISES
4.1 (a) Upon execution hereof, LANDLORD shall, in compliance with all
applicable codes, laws, regulations and ordinances, including, without
limitation, all applicable governmental requirements included within Title
24 Regulations, Handicapped Access and the Americans with Disability Act
(1988), complete all deferred maintenance items in the Buildings
comprising the Premises, including,
without limitation, existing HVAC systems, window systems
and roof systems, and provide reasonable documentation that
all necessary repairs have been effected to the roof and
HVAC systems such that such systems are in proper working
condition. Further LANDLORD shall replace all concrete
flooring on the second floor of each of the Buildings
comprising the Premises that do not meet TENANT's
specifications of 2,000 lbs. per square inch lightweight
concrete. LANDLORD shall demolish all existing tenant
improvements. All of the foregoing shall be at LANDLORD's
cost and expense. A schedule of LANDLORD's obligations to
prepare the Premises for TENANT's Tenant Improvements (as
that term is hereinafter defined) is attached hereto as
Exhibit F and made a part hereof. In addition to the
foregoing, LANDLORD agrees to spend $200,000 to upgrade
lobbies, rest rooms, loading docks in the buildings, or to
create an outside eating and gathering area in the Premises
for the exclusive use of TENANT's employees. These funds
shall be applied in LANDLORD's discretion after consultation
with TENANT for the reasonable enhancement of the Premises
as a "campus type" office project. Attached hereto as
Exhibit G is TENANT's current schedule for the preparation
of a space plan, working drawings and detailed
specifications (collectively the 'Plans") for TENANT's
improvements of the Premises (the "Tenant Improvements') and
for the commencement and completion of the construction of
such Tenant Improvements. LANDLORD and TENANT shall make
good faith efforts to meet the time frames set forth in such
schedule. LANDLORD shall, in compliance with all applicable
codes, laws, regulations and ordinances, construct such
Tenant Improvements at TENANT's sole cost and expense,
subject to LANDLORD's obligations under Paragraphs 4.1(a)
and (b) and 5.2 hereof, and subject to TENANT's right to
approve the construction contract relating thereto, which
consent shall not be unreasonably withheld or delayed. The
Plans submitted by TENANT to LANDLORD shall be reviewed by
LANDLORD which shall make modifications that may be
necessitated for structural purposes and LANDLORD shall
approve (and modify as required) such Plans within fifteen
(15) days of its receipt of same. Once approved by
LANDLORD, the Plans shall not be modified or amended without
LANDLORD's prior written consent. LANDLORD agrees that it
shall not unreasonably withhold its approval to the Plans or
to changes thereto, except as otherwise provided herein.
TENANT shall have the right to make reasonable requests for
changes to the Plans during the construction of the Tenant
Improvements, however any such changes shall be at TENANT's
sole cost and expense, subject to availability of the Tenant
Improvement Allowance or the Additional Tenant Improvement
Allowance. Further, any delays in the completion of the
Tenant Improvements which result from TENANT's delays in
completing the Plans or from modifications or changes to the
Plans requested by TENANT shall be deducted from the ninety
(90) day time period between the Commencement Date and the
Fixed Rent Commencement Date for the entire Premises
provided in Paragraph 3.4 hereof, to the end that LANDLORD
shall suffer no delay in its receipt of such Fixed Rent for
the entire Premises as a result of any such modifications or
changes to the Plans requested by TENANT. Subject to the
foregoing, and to Paragraph 4.2 hereof, LANDLORD shall
exercise reasonable efforts to complete such Tenant
Improvements in a reasonable period. TENANT shall accept
possession of the Premises upon its receipt of a
certification from LANDLORD's construction manager, Bilbro &
Giffen, that the Tenant Improvements are substantially
complete and in move-in condition.
(b) (i) LANDLORD shall provide TENANT with a tenant improvement allowance of $20.00 per rentable square foot, which sum shall be allocated to the cost of design and installation of the Tenant Improvements (the "Tenant Improvement Allowance"). In addition to the Tenant Improvement Allowance, LANDLORD agrees to make available to TENANT an additional sum of $8.00 per rentable square foot for such Tenant Improvements (the "Additional Tenant Improvement Allowance"). The parties acknowledge and agree that the Fixed Rent provided for herein is based upon the calculation that the Tenant Improvement Allowance will be sufficient to fund the Tenant Improvements. in the event that TENANT does not utilize the entire Tenant Improvement Allowance, the differential between the Tenant Improvement Allowance and the amount of monies actually expended in connection with the Tenant Improvements shall be credited against TENANT's Fixed Rent obligations based upon an amortization of such differential over the term of the Lease at an interest rate equal to the yield, as of the date of execution of this Lease, of TENANT's publicly traded 8.75t bonds due March 15, 2007. In the event TENANT utilizes any portion of the Additional Tenant Improvement Allowance, the full amount of the Additional Tenant Improvement Allowance utilized by TENANT shall be charged to TENANT upon completion of all such Tenant Improvements by an increase in the Fixed Rent payable by TENANT hereunder based upon an amortization of such Additional Tenant Improvement Allowance
over the term of the Lease (without considering any extension term) at a rate equal to the yield, as of the date of the execution of this Lease, of TENANT's publicly traded 8.75t bonds due March 15, 2007. TENANT's obligations to repay to LANDLORD any portion of the Additional Tenant Improvement Allowance utilized to fund Tenant Improvements shall be subject to and governed by the provisions of the last sentence of Paragraph 3.3 hereof. Any cash received by LANDLORD as a result of energy credits resulting from the installation of energy saving devices in the Tenant Improvements shall be credited to the Tenant Improvement Allowance.
(ii) During the construction of the Tenant Improvements by LANDLORD, LANDLORD shall, at its own cost and expense, retain Bilbro & Giffen to perform certain construction management services on behalf of LANDLORD. TENANT shall be responsible to reimburse LANDLORD at the substantial completion of the Tenant Improvements for any costs of construction management services incurred from Bilbro & Giffen for any services requested by TENANT beyond the scope of services set forth in Article 1 of the American Institute of Architects Standard Form of Agreement between Owner and Construction manager, AIA Document B801. Such construction management services shall not be deducted from either the Tenant Improvement Allowance or the Additional Tenant Improvement Allowance. TENANTS reimbursement obligations hereunder are subject to and governed by the provisions of the last sentence of Paragraph 3.3 hereof.
(c) In addition to the Tenant Improvement
Allowance and the Additional Tenant Improvement Allowance,
LANDLORD shall provide TENANT with a refurbishment allowance
of up to $3 per rentable square foot for repair, remodel
(subject to the provisions of Paragraph 10.1 hereof)
refurbishment and/or replacement in similar kind of Tenant
Improvements constructed by LANDLORD for TENANT at the
commencement of the term of this Lease (the "First
Refurbishment Allowance"), which First Refurbishment
Allowance may be utilized at any time by the TENANT during
the sixth (6th) through the tenth (10th) Lease Year hereof.
Further, LANDLORD shall provide TENANT with an additional
refurbishment allowance of up to $3 per rentable square foot
for repair, remodel (subject to the provisions of Paragraph
10.1) refurbishment and/or replacement in similar kind of
the Tenant Improvements in the Premises (the "Additional
Refurbishment Allowance,-), which Additional Refurbishment
Allowance can be utilized at any time during the eleventh
(llth) through the fifteenth (15th) Lease Year.
(d) In connection with the Tenant Improvement Allowance and the Additional Tenant Improvement Allowance, LANDLORD shall utilize such allowances in connection with its construction of the Tenant Improvements in accordance with the terms of Paragraph 4.1 hereof. In the event the costs of such Tenant Improvements exceed the SUM of such allowances, TENANT shall remit to LANDLORD, immediately upon LANDLORD's demand therefor, such additional amounts incurred by LANDLORD in connection with its construction of such Tenant Improvements. TENANT's obligations hereunder shall be subject to and governed by the last sentence of Paragraph 3.3 hereof. LANDLORD shall disburse the First Refurbishment Allowance and the Additional Refurbishment Allowance to TENANT only upon TENANT'S completion of the repair and refurbishment work relating thereto. All such billings against the Initial Refurbishment Allowance shall be made prior to the expiration of the tenth Lease Year and all billings against the Additional Refurbishment Allowance shall be made prior to the expiration of the fifteenth Lease Year.
4.2 If the time of commencement or completion of the repair and maintenance described in Paragraph 4.1 is delayed because of labor disruptions, war, insurrection, governmental restrictions, fire, flood, storm, or any other cause not reasonably within the control of LANDLORD, the time for commencement and completion shall be extended provided LANDLORD shall have notified TENANT in writing, in the manner provided in Paragraph 2.4 hereof, of the delay within five (5) business days of the onset of such delay. Such written notice from the LANDLORD to TENANT shall specify the number of days commencement or completion of such repair and maintenance is expected to be delayed by the event which caused the delay.
4.3 Both parties must perform their obligations under this Article 4 with reasonable skill and diligence and may not intentionally interfere with or prevent the other party's performance of its obligations under this Article 4.
5 TENANT'S ACCEPTANCE OF THE PREMISES, ADDITIONAL ALLOWANCES
5.1 Subject to LANDLORD'S obligations described in Paragraph 4.1 and 7.2 hereof, TENANT acknowledges that LANDLORD has made no representation or warranty to TENANT regarding the condition of the Premises or their present or future suitability for TENANT'S intended use, except as otherwise expressly set forth in this Lease.
5.2 In addition to the Tenant Improvement Allowance and the Additional Tenant Improvement Allowance, LANDLORD will provide TENANT with the following supplemental allowances (the "Supplemental Allowances,,):
(a) for space programming services for the Buildings comprising the Premises performed by the Austin Hansen Group up to $0.10 per rentable square foot;
(b) for space planning services and working drawings for the Tenant Improvements performed by the Austin Hansen Group up to $0.60 per rentable square foot; and
(c) for consulting services to be performed by Space Matters in connection with the move of TENANT into the Premises up to $0.20 per rentable square foot.
In connection with the foregoing Supplemental Allowances TENANT shall negotiate with the above consultants acceptable contracts for the foregoing services immediately after the execution of this Lease and will provide LANDLORD with such contracts which LANDLORD will execute within a reasonable period of time after its receipt thereof. TENANT agrees that LANDLORD's execution of such contracts is intended solely to expedite the performance of the services described therein and TENANT agrees to hold LANDLORD harmless from any claims that may arise under any such contract regarding the performance by any such consultant of such services. Further, TENANT agrees that it shall certify to LANDLORD, prior to LANDLORD's obligation to pay any portion of the Special Allowances relating thereto, that such amounts have been properly incurred thereunder. Any charges or fees incurred under any such contract which exceed the particular Special Allowance relating thereto shall, at TENANT's
option, (i) be offset against the Tenant Improvement Allowance or the Additional Tenant Improvement Allowance (to the extent sums remain available thereunder), or (ii) be reimbursed directly to LANDLORD.
5.3 In addition to the Tenant Improvement Allowance, the Additional Tenant Improvement Allowance and the Supplemental Reimbursement Allowances, LANDLORD shall provide to TENANT a relocation allowance in the amount of up to $2.00 per rentable square foot for reimbursement to TENANT for relocation expenses incurred by TENANT (the "Moving Allowance-). Not sooner than thirty (30) days after the Fixed Rent Commencement Date, TENANT shall submit to LANDLORD invoices approved by TENANT reflecting such relocation expenses, and LANDLORD shall pay any such invoices within thirty (30) days Of LANDLORD's receipt of any such approved invoices. LANDLORD shall have n, further obligation to disburse any Moving Allowance to TEN@ unless all invoices relating thereto have been submitted by TENANT to LANDLORD not later than six (6) months after the Fixed Rent Commencement Date.
5.4 The Premises shall be thoroughly cleaned, at LANDLORD's sole cost and expense, prior to, and immediately following, TENANT's move into the Premises.
6. EVIDENCE OF POSSESSION
6.1 Attached hereto as Exhibit H is a copy of the preliminary title report of Commonwealth Land Title Company dated March 10, 1992, Order No. 942369 relating to the Premises (the "Title Report').
6.2 LANDLORD covenants with TENANT that the LANDLORD owns the fee simple estate in the Premises and has full right and lawful authority to lease the Premises to TENANT. LANDLORD covenants with TENANT to keep TENANT in quiet possession of the Premises during the term of this Lease and any extension thereof, provided TENANT performs all of its duties and obligations under this Lease.
6.3 LANDLORD hereby represents and warrants to TENANT as follows:
(a) LANDLORD's title to the Premises is subject to certain liens, easements,
restrictions and encumbrances, as described in the Title Report, herein referred to as "Underlying Documents'-; but none of the foregoing prohibit the use of Premises for Purposes contemplated by TENANT and described in Paragraph 7.1 hereof;
(b) To the beet of LORD'S knowledge, its fee title to the Premises is subject only to those liens, easements, restrictions and encumbrances reflected in the Title Report;
(c) To the best of LANDLORD'S knowledge, no existing zoning ordinance or restrictive covenant prevents the use of the Premises for the specific purposes set forth in Paragraph 7.1 if the Premises are constructed in accordance with the space plan to be reviewed and approved by LANDLORD hereunder;
(d) To the best of LANDLORD's knowledge, the terms and conditions of this Lease, including the exhibits attached hereto, are in compliance with and do not violate the provisions of the Underlying Documents;
(e) To the best Of LANDLORD's knowledge, there is no asbestos containing material in the Premises.
7. USE OF PREMISES: POSSESSION
7.1 TENANT may use the Premises for administration and general office purposes, and for such incidental uses reasonably deemed to benefit its employees and invitees, including but not limited to food service, gym and childcare facilities, and for no other purpose without the prior written consent of LANDLORD, which shall not be unreasonably withheld.
7.2 LANDLORD shall be required to comply with legal requirements relating to the physical condition of the structural portions of the Premises, subject to the provisions of Paragraph 4.1 and except as otherwise provided in Paragraph 5 hereof. TENANT shall comply with all legal requirements which relate to the Premises, their physical condition and their use in all other respects.
8. REAL ESTATE TAXES
8.1 LANDLORD shall pay at the times and in the manner set forth below, subject to reimbursement by TENANT under Paragraph 3.6 hereof as more particularly qualified in Paragraph 8.2 hereof, all real estate taxes, general and special assessments, license fees, levies, charges, expenses, impositions and Environmental Surcharges, as more fully described below, including any real estate tax consultant expense incurred for the purpose of maintaining equitable tax assessments on the Premises, payable with respect to the Premises as follows:
(a) "Real estate taxes, general and special assessments, license fees, levies, charges, expenses, and impositions" shall not include any fines, charges, penalties, assessments or impositions incurred by LANDLORD, resulting from LANDLORD's failure to timely pay any such items, violations of law or other negligent or delinquent activities of LANDLORD, but shall mean such taxes, assessments, levies and charges levied, assessed or imposed:
(i) upon or with respect to, or which shall be or may become liens upon the Premises, or any portion thereof or any interest of LANDLORD in them or under this Lease, including any increases thereof resulting from the sale or other disposition of the Premises, or any portion thereof, or any interest therein; or
(ii) upon or against, or which shall be measured by, or shall be or may become liens upon, any rents or rent income, as such, payable to or on behalf of LANDLORD, in connection with the Premises or any portion of them or any interest of LANDLORD in them; or
(iii) upon or with respect to the ownership, possession, leasing operation, management, maintenance, alteration, repair, rebuilding, use or occupancy by TENANT of the Premises or any portion of
them or any building or improvement of which they are a part; or
(iv) upon any document to which TENANT is or becomes, a party creating or transferring an interest in or any estate in the Premises; or
(v) upon or against LANDLORD or any interest of LANDLORD in the Premises in any manner and for any reason whether similar or dissimilar to the foregoing, under or by virtue of any present or future law, ordinance, regulation or other requirement of any governmental or quasi-governmental authority, regardless of whether now customary or within the contemplation of the parties hereto and regardless of whether resulting from increased rate and/or valuation, or whether extraordinary or ordinary, general or special, unforeseen, or foreseen, or similar or dissimilar to any of the foregoing.
(b) "Environmental Surcharge" shall mean and include any and all expenses, taxes, charges or penalties imposed by the Federal Department of Energy, Federal Environmental Protection Agency, The Federal Clean Air Act, or any regulations promulgated thereunder, or by any other local, state or federal governmental agency or entity now or hereafter vested with the power to impose taxes, assessments, or other types of surcharges as a means of controlling or abating environmental pollution or the use of energy in regard to the use, operation or occupancy of the Premises, so long as such expenses, taxes, charges or penalties could not reasonably have been avoided by LANDLORD's reasonable conduct not involving the expenditure of money.
(c) All of the items set forth in subparagraphs (a) and (b) above are sometimes collectively referred to in this Lease as "taxes".
8.2 (a) For purposes of calculating TENANT's obligations to pay increases in ad valorem real estate taxes over such expenses for the calendar year 1993, the maximum
annual increase in such items to be passed through to TENANT under Paragraph 3.6 hereof shall be two percent (2k) per annum, cumulative. Notwithstanding the foregoing, in the event of a sale of the Premises by the LANDLORD executing this Lease, AMERICAN NATIONAL INSURANCE COMPANY ("ANTCO"), any increase in ad valorem real estate taxes resulting from any such change of ownership shall not be passed through to TENANT. Upon any subsequent sale of the Premises by a successor to ANICO, any increase in ad valorem real estate taxes resulting from any such change of ownership shall not be passed through to TENANT, however, LANDLORD shall have the right to exercise the "Buy-Back Right' provided for in Article 37 hereof, in which event such ad valorem real estate tax increases shall be passed through to TENANT. In the event the State of California or any applicable governmental agency changes the manner in which commercial real property is taxed at any time during the term of this Lease, as it may be extended as provided herein, any increase in such taxes shall be passed through to TENANT in its entirety under Paragraph 3.6 hereof, notwithstanding the fact that such increase may occur in calendar year 1993. As used herein, the term "ad valorem real estate tax" shall mean any tax imposed by the State of California, the County of San Diego, the City of San Diego and/or any agency thereof based upon the value of the Premises, any fixtures included therein, and the real property relating thereto.
8.2(b) Notwithstanding anything that may be construed to the contrary in Paragraph 3.6 hereof, TENANT shall be fully responsible to reimburse LANDLORD for any and all additional tax liability resulting from any increase in the costs of the Tenant Improvements over $20.00 per rentable square foot, which obligations shall be subject to and governed by the provisions of the last sentence of Paragraph 3.3 hereof.
8.3 TENANT shall pay, or cause to be paid, prior
to delinquency, directly to the taxing authority, any and all taxes levied, assessed or which become payable during the lease term upon TENANT'S leasehold improvements, equipment, furniture, fixtures and other personal property located in the Premises. In the event any or all of TENANT'S leasehold improvements (other than the Tenant improvements), equipment, furniture, fixtures and other personal property shall be assessed and taxed with any |
building included within the Premises are a part, TENANT shall pay to such taxing authority directly its share of
such taxes within thirty (30) days after delivery to TENANT of a statement in writing setting forth the amount of such taxes applicable to TENANT'S property.
8.4 If any general or special assessment is
assessed against the Premises, the following shall apply:
Regardless of whether LANDLORD elects to pay the assessment
in installments, assessments shall be computed as if
LANDLORD had elected to pay the same in installments over
the longest period allowable by the taxing authority and
only those installments (or partial installments)
attributable to installment periods (or partial periods)
falling within the term of this Lease shall be considered in
determining TENANT'S tax liability under Paragraph 3.6
hereof.
9. MAINTENANCE AND REPAIRS
9.1 LANDLORD shall maintain in good repair and condition the interior and exterior walls, the roof, interior surfaces of the ceilings, walls and floors, the plumbing, window glass, plate glass and doors, heating, ventilation and air conditioning systems, and the electrical wiring, switches and fixtures in the Premises. Except as provided in the preceding sentence, LANDLORD shall not be obligated to paint, repair or replace wallcoverings or repair or replace any Tenant Improvements that are in addition to the improvements described in Exhibit "E" attached hereto. LANDLORD shall not be in default hereunder unless LANDLORD fails to perform obligations required of LANDLORD within a reasonable time, but in no event later than thirty (30) days after written notice by TENANT to LANDLORD (and to any lender holding a first mortgage or deed of trust on the property comprising the Premises) specifying the nature of any obligation LANDLORD has failed to perform, provided however if the nature of LANDLORD's obligation is such that more than thirty (30) days are required for performance, then LANDLORD shall not be in default if LANDLORD commences performance within such thirty (30) day period and thereafter diligently pursues the same to completion.
9.2 (a) Notwithstanding LANDLORD'S obligation to keep the Premises in good condition and repair, TENANT shall be responsible for payment of the costs thereof to LANDLORD as Additional Rent for that portion of the cost of any maintenance and repair of the Premises, or any equipment
(wherever located) that serves only TENANT or the Premises, to the extent that such cost is attributable to causes beyond normal wear and tear. TENANT shall be responsible for the costs of painting, repairing or replacing wallcoverings, and to repair and replace any Tenant Improvements that are in addition to the improvements described in Exhibit "El hereto. LANDLORD may, at its option, upon reasonable notice, elect to have TENANT perform any particulars such as maintenance or repairs, the cost of which is otherwise TENANT's responsibility hereunder.
(b) On the last day of the term hereof, as such term may be extended as herein provided, or on any sooner termination, TENANT shall surrender the Premises to LANDLORD in the same condition as received, ordinary wear and tear excepted, clean and free of debris. Any damage or deterioration of the Premises shall not be deemed ordinary wear and tear if the same could have been prevented by good operating practices by TENANT. TENANT shall repair any damage to the Premises occasioned by the installation or removal of TENANT's trade fixtures, alterations, furnishings and equipment. Except as otherwise stated in this Lease, TENANT shall leave the air lines, power panels (i.e. fuse boxes and/or electrical junction boxes), electrical distribution systems, lighting fixtures, air conditioning, window coverings, wall coverings, carpets, wall paneling, ceilings and plumbing on the Premises and in good operating condition. TENANT shall not be obligated to remove any Tenant Improvements or additional improvements that have been constructed in the Premises and approved by LANDLORD, unless LANDLORD's approval was reasonably conditioned upon TENANT's agreement to remove such additional improvements.
9.3 If TENANT fails or neglects to commence the repair of any of the items described in Paragraph 9.2 hereof within five (5) business days after receipt of LANDLORD's written notice stating the repairs required to be made, or TENANT fails to complete such repairs within thirty (30) days of such notice, or such longer period as is reasonably necessary, provided TENANT is pursuing such repairs with continuity and diligence, or in the event of an emergency, LANDLORD may make such repairs as it deems reasonably necessary for the account of TENANT. Following LANDLORD's completion of such repair work, TENANT shall promptly reimburse LANDLORD for all reasonable expenses incurred upon its receipt of paid invoices.
10. ALTERATIONS, ADDITIONS AND IMPROVEMENTS
10.1 TENANT shall not create any openings in the roof or exterior walls, nor make any structural alterations, additions or improvements to the Premises except in accordance with plans and specifications first approved in writing by LANDLORD, which approval shall not be unreasonably withheld. It shall be reasonable for LANDLORD to disapprove of such plans and specifications (i) if they result in unusual expense to re-adapt the Premises for normal office uses upon the termination of Lease, unless TENANT agrees to restore the Premises to its original configuration prior to Lease termination; or (ii) if such will result in an increase in the cost of insurance, taxes or services to be provided by LANDLORD, under this Lease, unless TENANT first agrees to pay such net increase in expenses or costs. Subject to the preceding sentence, TENANT shall have the right at all times to effect any and all interior non-structural improvements within the Premises costing in the aggregate less than $50,000 per Building provided, TENANT complies with all applicable governmental laws, ordinances and regulations, and that such improvements are of similar or better quality to those being replaced. Further, TENANT shall, at its sole cost, expense and liability, have the right to install satellite receiving equipment or antennas which shall be installed on or about the Premises, and properly shielded from view, in accordance with all applicable laws, codes and ordinances. TENANT shall be solely responsible for all costs associated with the installation and maintenance of such equipment and TENANT shall be responsible for any damage and for future maintenance of the roof systems of the Buildings as a result of the installation of such equipment.
10.2 All alterations, additions or improvements made by TENANT which are permanently attached to and made part of the Premises shall become the property of the LANDLORD at the expiration of the Lease term and any extensions thereof, except for signs, trade fixtures, display furnishings and equipment used on the Premises and furnished by TENANT and any alterations which TENANT has agreed to remove pursuant to Paragraph 9.2.
11. SIGNS
11.1 Subject to the local governing authorities LANDLORD hereby agrees that TENANT may, at its sole cost,
expense and liability and subject to all laws, codes, ordinances and regulations of the City of San Diego, erect and maintain plaques as may be reasonably approved by LANDLORD at the top of Buildings 4, 5 and 6, and shall have the right to construct monument signage as reasonably approved by LANDLORD. Such signage may be paid for out of the Tenant Improvement Allowance and the Additional Tenant Improvement Allowance. At the termination TENANT shall remove such signage at its sole cost and expense.
11.2 During the term hereof TENANT shall not be required to remove its signs unless required to do so by local codes enacted subsequent to the date hereof. TENANT may at any time remodel or replace the sign facia subject to LANDLORD'S prior written approval, which approval shall not be unreasonably withheld or delayed. Except as provided for in the Lease, no other attachments shall be made to the roof, windows, doors, or other exterior walls of the Premises without LANDLORD's prior reasonable consent.
12. INSURANCE
12.1 TENANT shall, at TENANT's expense, obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Broad Form Property Damage Insurance in an amount not less than $5,000,000 per occurrence of bodily injury and property damage combined or in a greater amount as reasonably determined by LANDLORD, and shall insure TENANT, with LANDLORD as an additional insured, against liability arising out of the use, occupancy or maintenance of the Premises. Compliance with the foregoing requirements shall not, however, limit the liability of TENANT hereunder. LANDLORD shall obtain and keep in force during the term of this Lease, subject to TENANT'S reimbursement as provided in Paragraph 3.6 hereof, a policy of Combined Single Limit Bodily Injury and Broad Form Property Damage Insurance, plus coverage against such other risks LANDLORD reasonably deems advisable from time to time, insuring LANDLORD, but not TENANT, against liability arising out of the ownership, use, occupancy or maintenance of the Complex in an amount not less than $5,000,000 per occurrence.
12.2 TENANT shall, at TENANT's expense, obtain and keep in force during the term of this Lease, for the benefit of TENANT, replacement costs, fire and extended coverage insurance, with vandalism and malicious mischief, sprinkler
leakage and earthquake sprinkler leakage coverage, in an amount sufficient to cover not less than 100% of the full replacement costs, as the same exists from time to time, of all of TENANT's personal property, fixtures, equipment and tenant improvements.
12.3 LANDLORD shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Premises, but not TENANT's personal property, fixtures, equipment or tenant improvements, in the amount of the full replacement costs thereof, as the same may exist from time to time, utilizing Insurance Services Office Standard Form, or equivalent, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, plate glass and such other perils as LANDLORD deems advisable, or may be required by a lender having a lien on the Premises, with a deductible amount not to exceed $25,000 without TENANT's prior consent. In addition, LANDLORD shall obtain and keep 'in force during the term of this Lease, a policy of rental value insurance covering a period of one year, with loss payable to LANDLORD, which insurance shall also cover all Building Operating Expenses for said period. TENANT shall not be named in any such policies carried by LANDLORD under Paragraphs 12.1 or 12.3 hereof, and shall have no right to any proceeds therefrom. The policies required to be obtained by the LANDLORD shall contain such deductibles as LANDLORD or its lender (if any) may determine. In the event that the Premises shall suffer any insured loss, the deductible amounts under the applicable insurance policies shall be deemed a Building Operating Expense. TENANT shall not do or permit to be done anything which shall invalidate the insurance policies carried by LANDLORD. TENANT shall pay the entirety of any increase in the property insurance premium for the Premises over what would reasonably be expected for normal office occupancy, if the increases specified by LANDLORD's insurance carrier is being caused by the nature of TENANT's occupancy, or any act or omission of TENANT.
12.4 TENANT shall deliver to LANDLORD certificates
evidencing the existence and amounts of liability insurance
policies required under Paragraphs 12.1 hereof, within seven
(7) days after the Commencement Date. No such policies
shall be cancellable or subject to reduction of coverage or
other modification below that or as otherwise required in
this Article 12, except after thirty (30) days prior written notice to LANDLORD. TENANT shall, at least thirty (30) days prior to the expiration of such policies, furnish Landlord with renewals thereof.
12.5 Except where LANDLORD's agents or employee's negligence has contributed, to any claims, demands or cause of action, TENANT will indemnify the LANDLORD against, and bold LANDLORD ha=less from all claims, demands or causes of action, including all reasonable expenses of the LANDLORD incidental thereto, for injury to or death of any person arising within or on the Premises, and caused by TENANT'S act or omission or the act or omission of anyone for whom TENANT shall be responsible. The liability of TENANT to indemnify LANDLORD as hereinabove set forth shall not extend to any matter arising out of LANDLORD's wilfull misconduct or to any matter against which LANDLORD shall be effectively protected by insurance, provided, however, that if any such liability shall exceed the amount of the effective and collectable insurance in question, the said liability of TENANT shall apply to such excess.
12.6 Any insurance required to be maintained by TENANT under this Lease may be maintained either under a plan of self-insurance or from a carrier which specializes in providing coverage to or for TENANT; provided, however, that TENANT shall be entitled to utilize such self-insurance or special coverage only so long as TENANT's credit standing, as rated by Moody's Investors Services, Inc., remains BBB or better, or an equivalent rating from a credit rating agency of equivalent stature.
13. RELEASE AND WAIVER OF SUBROGATION Except as otherwise expressly provided in Paragraph 12.5 hereof, LANDLORD and TENANT hereby waive and release each other of and from any and all rights of recovery, claim, action or cause of action against each other, their agents, officers, directors, partners and employees, for any loss or damage that may occur to the Premises, or any portion thereof, or personal property including building contents within the buildings included in the Premises, by reason of fire or the elements of nature regardless of cause or origin including negligence of LANDLORD or TENANT and their agents, officers, directors, partners and employees. Because this Article 13 will preclude the assignment of any claim mentioned in it by way of subrogation or otherwise to any insurance company or any other person, each party to this Lease agrees to (i)
immediately to give to each insurance company which has issued to it policies of insurance covering all risk of direct physical loss, written notice of the terms of mutual waivers contained in this paragraph, and to have the insurance policies properly endorsed to prevent the invalidation of such insurance coverage by reason of these waivers, or (ii) provide the other party with reasonably satisfactory evidence that the policies contain such waivers. Each party shall provide the other annually with evidence that its policies have been so endorsed or continue to contain such waivers.
14. UTILITIES
14.1 LANDLORD shall provide to the Premises, subject to TENANT's reimbursement as provided in Paragraph 3.6 hereof, the services described in Exhibit D hereto.
14.2 TENANT shall pay upon occupancy of the Premises for all light, power, telephone and other utilities and services (other than water, gas, heat and the services described in Exhibit D hereto) specially or exclusively supplied and/or metered exclusively to the Premises or to the TENANT, together with any taxes thereon. LANDLORD shall pay for all such utilities for that portion of the Premises under construction prior to the Fixed Rent Commencement Date for the entire Premises.
14.3 Said services and utilities shall be provided during generally accepted business days and hours or such other days or hours as may hereafter be set forth. Utilities and services required at other times shall be subject to advance requests and reimbursement by TENANT to LANDLORD of the costs thereof.
14.4 TENANT shall not make connection to the utilities except by or through existing outlets and shall not install or use machinery or equipment in or about the Premises that uses excess water, gas or heat, or suffer or permit any act that causes extra burden upon such utilities or services, including, but not limited to, security services and overstandard office usage for the Premises beyond that provided for in Exhibit "D' hereto. LANDLORD shall require TENANT to reimburse LANDLORD for any excess expenses or costs that may arise out of breach of this Paragraph 14.4 by TENANT. LANDLORD may, in its sole discretion, install at TENANT's expense, supplemental
equipment and/or separate metering applicable to TENANT's excess usage or loading. There shall be no abatement of rent, and LANDLORD shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond LANDLORD's reasonable control or in cooperation with governmental request or direction.
15. ASSIGNMENTS AND SUBLEASING
15.1 (a) TENANT may not assign or sublease this Lease, in whole or in part, without the express written consent of LANDLORD, which consent shall not be unreasonably withheld or delayed. Anything herein to the contrary notwithstanding, TENANT may assign or sublease this Lease, in whole or in part, without the express written consent of LANDLORD to:
(i) any corporation into which or with which TENANT merges or consolidates;
(ii) any parent, subsidiary, successor, or affiliated corporation of TENANT;
(iii) any corporation which acquires all or substantially all of the assets or issued and outstanding shares of capital stock of TENANT;
(iv) any partnership, the majority of which shall be owned by TENANT.
(b) Except as set forth herein, if TENANT complies with the following conditions, LANDLORD shall not unreasonably withhold its consent to the subletting of the Premises or any portion thereof or the assignment of this Lease. TENANT shall submit in writing to LANDLORD to (i) the name and legal composition of the proposed subtenant or assignee; (ii) the nature of the business proposed to be carried on in the Premises; (iii) the terms and provisions of the proposed sublease or assignment; and (iv) such reasonable financial information as LANDLORD may request concerning the proposed subtenant or assignee.
(c) No consent by LANDLORD to any assignment or subletting by TENANT shall relieve TENANT of any
obligation to be performed by TENANT under this Lease, whether occurring before or after such consent, assignment or subletting. The consent by LANDLORD to any assignment or subletting shall not relieve TENANT from the obligation to obtain LANDLORD's express written consent to any other assignment or subletting. The acceptance of rent by LANDLORD from any person other than TENANT shall not be deemed to be a waiver by LANDLORD of any provisions of this Lease or to be a consent to any assignment, subletting or other transfer. Consent to one assignment, subletting or other transfer shall not be deemed to constitute consent to any subsequent assignment, subletting or other transfer. For any assignment or sublease to be effective, the assignee or subtenant must assume the obligations of TENANT under this Lease and, upon request, shall execute any document reasonably requested by LANDLORD to evidence the same. No modification or amendment of the Lease between LANDLORD and any such assignee or sublessee, and no assignment or sublease shall relieve TENANT from any obligations to be performed by TENANT under this Lease, but no such modification or amendment shall be effective as to TENANT unless and until TENANT shall execute a written amendment or modification agreement, or a written consent to such modification or amendment.
15.2 Provided any assignee of LANDLORD assumes in writing all of LANDLORD'S obligations under this Lease and so notifies TENANT, LANDLORD may assign its interest in Lease during the term hereof; provided, however, TENANT shall make all payments required under this Lease to LANDLORD, or its successors in interest, unless and until TENANT is notified of such assignment, and TENANT is in no way liable to any assignee for any rentals due hereunder until TENANT is so notified. In the event of sale or conveyance by LANDLORD of LANDLORD's interest in the Premises, LANDLORD shall be relieved from and after the date specified in any such notice of transfer of all obligations and liabilities of LANDLORD under this Lease thereafter accruing. This release shall also apply to the sale or other conveyance by any successor landlord for the benefit of any such successor landlord.
15.3 (a) If TENANT shall receive or be entitled to receive any consideration (defined herein) for an assignment or sublease approved by LANDLORD pursuant to Paragraph 15.1 herein, which consideration is in excess of the Fixed Rent and the Additional Rent (which excess amount
is referred to herein as the "Bonus Rent"), the following shall apply:
(i) If, and for so long as TENANT shall remain liable hereunder following any such assignment or subletting, the net amount of any Bonus Rent (i.e., the total Bonus Rent less leasing commissions, attorney's fees, reasonable renovation expenses, other costs reasonably incurred by TENANT in connection with such assignment or @ lease) shall be divided equally between LANDLORD and TENANT, and LANDLORD's share shall be paid to LANDLORD as Additional Rent hereunder not later than ten (10) days following receipt by.TENANT;
(ii) If TENANT is released from liability hereunder with TENANT's consent, then, from and after the date of such release, LANDLORD shall be entitled to receive the full amount of the net Bonus Rent, which amount shall be paid directly to LANDLORD by the assignee or subtenant.
(b) The term "consideration" shall include consideration of any kind received, or to be received, by TENANT from the assignee or sublessee if such sums are related to TENANT'S interest in this Lease or in the Premises, including but not limited to, key money, bonus money, and payments in excess of the fair market value of TENANT's assets. TENANT's assets shall include, but not be limited to, TENANT's fixtures, inventory, accounts receivable, good will, equipment, furniture, general intangibles, and any capital stock or other equity ownership interest of TENANT.
(c) TENANT immediately and irrevocably assigns to LANDLORD as security for TENANT's obligations under this Lease, all rent from any subletting of all or any portion of the Premises as permitted under this Lease, and LANDLORD, as assignee and as attorney in fact for TENANT, or a receiver for TENANT appointed on LANDLORD's application may collect such rent and apply it toward TENANT's obligations under this Lease; except that, until the
occurrence of an act of default by TENANT, TENANT shall have the right to collect such rent.
16. FIRE AND CASUALTY DAMAGE
16.1 If all or any part of the Premises is damaged or destroyed by fire, tornado or other casualty, TENANT shall give immediate written notice thereof to LANDLORD.
16.2 If the Premises should be damaged by fire or other casualty required to be insured pursuant to the terms of the Lease ("Insured Cause"), except condemnation, and rebuilding or repairs cannot be completed within two hundred seventy (270) days from the date of such damage, TENANT may, within thirty (30) days of the date of the happening of such damage, terminate this Lease on written notice to LANDLORD and rent and all additional charges shall be abated as of the later of the date of the happening of the damage or the date TENANT ceases to do business at the Premises.
16.3 (a) If the Premises should be damaged and
such damage is an "Insured Cause" prior to the final twelve
(12) full calendar months of the Lease term to such extent
that rebuilding or repair can be completed within two
hundred seventy (270) days from t-he date of the happening of
such damage, LANDLORD shall, limited to the extent of
insurance proceeds, and deductibles payable by TENANT
(hereinafter "Deductibles"), at its sole cost and expense,
proceed forthwith to rebuild or repair the Premises to
substantially the condition which existed prior to such
damage, except that TENANT shall have the right to request
for LANDLORD to make changes to the Premises in the course
of such restoration, subject to the provisions of Article 10
herein (but no such changes shall be made without LANDLORD's
prior written approval which shall not be unreasonably
withheld). If the cost and expense of restoration of the
Premises is increased by any change or changes made by
TENANT, or if LANDLORD is damaged by any delay caused solely
by such change or changes, then TENANT shall pay LANDLORD,
as other charges, or changes promptly upon demand, the
amount or amounts by which the cost or expense of
restoration of the Premises was thereby increased and the
amount by which LANDLORD was damaged by such delay.
(b) If the Premises should be damaged and
Such damage is an "Insured Cause," during the final twelve
(12) full calendar months of the initial term hereof or any
extension term, LANDLORD may, but shall not be required to, rebuild or repair such damage and if LANDLORD does not rebuild, this Lease shall automatically terminate and rent and all additional charges shall be abated as of the later of the date of such damage or the date TENANT ceases to do business in the Premises, unless TENANT exercises its option to extend the term hereof, if any is contained herein, in which case LANDLORD shall at its sole cost and expense, limited to the extent of the insurance proceeds, proceed forthwith to rebuild or repair such damage.
(c) If the existing laws do not permit restoration of the Premises to substantially the same condition as they were in immediately before destruction, then TENANT at its option, may (i) require LANDLORD to restore the Premises so as to comply with the then existing laws or codes, subject to the provisions of Paragraph 16.7 hereof, or (ii) terminate this Lease immediately by giving written notice to LANDLORD, in which case the Lease shall cease as of the later of the date of destruction or the date TENANT ceases to do business on the Premises.
16.4 The determination of whether the Premises can be rebuilt or repaired within two hundred seventy (270) days from the date of any damage shall be in the mutual reasonable judgment of both LANDLORD and TENANT. If LANDLORD and TENANT cannot agree, the determination shall be made by an independent general contractor licensed by the state of California mutually acceptable to both LANDLORD and TENANT.
16.5 If at any time the Premises shall be damaged so that TENANT is unable to conduct business from the Premises, or any part thereof, in its reasonable judgment, TENANT may discontinue the conduct of business from the portion of the damaged Premises and all Fixed Rent shall abate thereafter. If any portion of the Premises is damaged, the Fixed Rent abated shall be pro-rated based upon the square footage of the damaged Premises. The Fixed Rent abatement shall end on the earlier to occur of the date on which the damage shall be repaired or replaced or the date on which the conduct of business from the Premises shall be resumed. If Fixed Rent abates in accordance with this Paragraph 16.5, no other charges, expenses or Additional Rent payable by TENANT to LANDLORD shall abate.
16.6 If LANDLORD is required to restore the Premises and does not commence such restoration within ninety (90) days from date of the damage or destruction, and with reasonable dispatch does not continue to restore the Premises, TENANT shall have the right, upon giving written notice to LANDLORD, in addition to other rights provided herein, to terminate this Lease, and all Fixed Rent and Additional Rent shall be abated as of the date of such notice. In the event that LANDLORD should fail to substantially complete any repairs or rebuilding as contemplated by the terms of this Article 16 within two hundred seventy (270) days from the date of written notification by TENANT to LANDLORD of the happening of the damage, subject to force majeure, TENANT may terminate this Lease on written notice at such time to LANDLORD, and Fixed Rent and Additional Rent shall be abated as of the date of such notice or the date TENANT delivers possession of the Premises to LANDLORD, whichever is later. The date on which rebuilding work or repairs are deemed to be complete shall be the earlier of date on which a certificate of occupancy is issued with respect to such repair or reconstruction or the date TENANT opens for business in the Premises.
16.7 If LANDLORD is required to restore or rebuild or elects to restore or rebuild the Premises, the insurance proceeds with respect to any damage or destruction of the Premises shall be applied solely to the cost of the repair or replacement of the damage or destruction. In the event available insurance funds and deductibles, are less than the insurance proceeds required and properly allocable to the Premises (i.e., insurance funds and deductibles up to the amount required to be insured under the terms of this Lease are insufficient to cover the costs of the repairs required to be insured under the terms of this Lease), the excess costs shall be borne by the TENANT but such amount shall not exceed the amount of insurance funds and deductibles TENANT is required to be insured hereunder pursuant to Paragraph 12.2, less any reasonable attorney's fees required to collect such funds.
16.8 Notwithstanding anything to the contrary herein, any time that LANDLORD is required or permitted to rebuild the Premises or any part thereof, pursuant to Articles 16 and 17, LANDLORD, at its sole cost and expense for the increases resulting from such changes, shall be permitted to update, modernize, and make such other changes which do not adversely affect TENANT's access to, visibility
of, or change TENANT's Tenant Improvements as specified herein without the consent of TENANT.
16.9 If the Premises are damaged by a casualty not required to be insured against hereunder ("Uninsured Cause',), LANDLORD shall not be obligated to repair or rebuild the Premises and may terminate the Lease within thirty (30) days of the damage by prior written notice, provided that upon such notice TENANT shall have the opportunity to reinstate the Lease and reimburse LANDLORD for the costs of such repairs for the Uninsured Cause.
16.10 (a) If (i) the Buildings included within the
Premises are damaged in whole or in part by an Insured
Cause, and more than fifty percent (50%) of the combined
gross floor area of all such Buildings is damaged, destroyed
or rendered untenantable; (ii) insurance funds and
deductibles pursuant to the terms and conditions of
Paragraph 16.7 are insufficient to rebuild the Premises; or
(iii) subject to the terms and conditions of Paragraph 16.9,
in the event of an Uninsured Cause; Landlord shall have the
right, upon thirty (30) days written notice to Tenant to
terminate the Lease, provided, however, that if Landlord
exercises its right to terminate the Lease, TENANT shall
have a right to elect to reinstate the Lease by giving
LANDLORD written notice of its election to reinstate the
Lease within ten (10) days of its receipt of LANDLORD's
notice of its election to terminate, and provided at such
time TENANT provides LANDLORD reasonably satisfactory
evidence that it has the financial ability to repair and/or
restore the Premises. The foregoing right to reinstate the
Lease shall survive Landlord's termination of the Lease.
17. CONDEMNATION
17.1 In the event a 'substantial portion of the Premises", as defined in Paragraph 17.4, is taken or condemned by any competent authority, TENANT shall have the right: (a) to terminate this Lease as of the earlier of the date of title transfer or the date of the taking of possession by the condemning authority, in which event the term hereof, Fixed Rent and all Additional Rent shall be abated and any unearned rent paid or credited will be refunded by LANDLORD to TENANT; or (b) to continue the Lease in full force and effect with a reduced Fixed Rent commensurate with the reduced area and/or reduced utility of the Premises, in lieu of the amount of Fixed Rent
hereinabove provided, which reduced rental will become effective upon the earlier of the date of title transfer or the date of such taking. TENANT shall elect among these rights and give notice to LANDLORD of its election within sixty (60) days after the date when possession of the portion of the Premises or Complex is required by the condemning authority.
17.2 If TENANT does not elect to terminate this Lease as set further herein, then the award or payment for the taking shall be paid to and used by LANDLORD to restore, and LANDLORD shall, except as otherwise provided in this paragraph, commence, and proceed with reasonable dispatch and diligence continue, out of the proceeds of the award, to restore the portion of the Premises remaining after the taking to substantially the same condition and tenantability (hereinafter called "Pre-Taking Condition') as existed immediately preceding the taking, except that TENANT shall have the right to request LANDLORD to make changes to the Premises in the course of such restoration, provided that if the cost and expense of restoration of the Premises is increased by any change or changes made by TENANT or if LANDLORD is damaged by any delay caused solely by such change or changes, then TENANT shall pay to LANDLORD, as other charges, promptly upon demand the amount by which the cost and expense of restoration of the Premises was thereby increased and the amount by which LANDLORD was damaged by such delay.
17.3 If LANDLORD does not commence within ninety
(90) days of- receipt of the award, and with reasonable
dispatch and diligence continue, to restore the portion of
the Premises, as aforesaid, TENANT shall have the right,
upon giving notice to LANDLORD, in addition to other rights
provided herein, terminate this Lease on written notice to
LANDLORD, and all Fixed Rent and all Additional Rent shall
be abated as of the date of such notice.
17.4 A 'substantial portion of the Premises" is defined to be any of the following: (a) twenty-five percent (25!k) or more of the parking areas of the Premises, (b) loss through the taking or condemnation of direct access from the Premises to any adjacent street or highway, or (c) a portion of land or improvements included within the Premises, the absence of which would have a substantial impact on TENANT's business conducted on or from the Premises.
17.5 The entire award of condemnation or compensation in such proceedings, whether for a total or partial taking or for diminution in the value of the leasehold or for the fee or for any other interest, except as hereinafter expressly provided, shall belong to and be the property of LANDLORD; provided, however, that TENANT shall be entitled to recover from the condemnor such compensation as may be separately awarded by the condemnor to TENANT, or recoverable from the condemnor by TENANT in its own right, for the taking of trade fixtures and equipment owned by TENANT (meaning personal property, excluding fixtures, whether or not attached to the real property, which may be removed without injury to the Premises) and for TENANT's relocation expenses. Each party waives any statutory right in conflict with the provisions of this Paragraph 17, including, without limitation, rights under California Code of Civil Procedure Section 1265.130.
18. DEFAULT
18.1 (a) TENANT shall be in default under this Lease if and only if one of the following events shall occur:
(i) If TENANT shall fail to pay Fixed Rent or Additional Rent when due and the failure shall continue for a (10) day period after LANDLORD shall have given written notice of TENANT's failure to pay.
(ii) If TENANT shall fail to pay any Deferral Amount installment, any installment to amortize the Additional Tenant Improvement Allowance or any Expansion Loan Obligation (as that term is defined in Article 38 hereof) installment, when due, and the failure shall continue for a three (3) day period after LANDLORD shall have given written notice of TENANT's initial failure to pay.
(iii) If TENANT shall fail to perform any of its other obligations under this Lease and the failure shall continue for a thirty (30) day period after LANDLORD shall have given TENANT written notice of its initial failure to perform.
(iv) Assignment or subletting in violation of the provisions of paragraph 15;
(v) A general assignment by TENANT for the benefit of creditors;
(vi) The filing of an involuntary petition by TENANT's creditors with such a petition remaining undischarged for a period of ninety (90) days;
(vii) The appointment of a receiver to take possession of substantially all of TENANT's assets or of the Premises, with receivership remaining undissolved for a period of ninety (90) days; and
(viii) The attachment, execution, or other judicial seizure of substantially all of TENANT's assets or the Premises, with such an attachment, execution or other seizure remaining undismissed or undischarged for a period of ninety (90) days after the levy thereof.
(b) However, if TENANT shall fail to
perform an obligation under this Lease, other than an
obligation to pay Fixed Rent or Additional Rent, and
the failure cannot be cured by TENANT within thirty
(30) days after LANDLORD shall have given written
notice of the failure, TENANT shall not be in default
if TENANT commences to cure the failure within the
thirty (30) day period and diligently thereafter
prosecutes the cure to completion.
18.1- Upon the occurrence of any of the above events of default or any other breach of this Lease by TENANT, then LANDLORD, besides other rights or remedies it may have under this Lease or by law, shall have the right to: (1) immediately terminate this Lease and TENANT's right to possession of the Premises by giving TENANT written notice that this Lease is terminated, in which event, upon such termination, LANDLORD Shall have the right to recover from TENANT the sum of (A) the worth at the time of the award of the unpaid rent which has been earned at the time of termination; (B) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that TENANT proves could have been reasonably avoided; (C) the worth at the time of award by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss
that TENANT proves could be reasonably avoided; (D) any other amount necessary to compensate LANDLORD for all the detriment proximately caused by TENANT'S failure to perform TENANT's obligations under this Lease or which in the ordinary course of things would be likely to result therefrom; and (E) all such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time under applicable law; or (ii) have this Lease continue in effect for so long as LANDLORD does not terminate this Lease and TENANT's right to possession of the Premises, in which event LANDLORD shall have the right to enforce all of LANDLORD's rights and remedies under this Lease, including the right to recover all rentals payable by TENANT under this Lease as they become due, or (iii) terminate TENANT's right to possession of the Premises (but without terminating this Lease) make such alterations and repairs as may be necessary or desirable in order to relet or attempt to relet the Premises. No re-entry or taking possession of the Premises by LANDLORD shall be construed as an election on its' part to terminate this Lease unless a written notice of such intention is given to TENANT or unless the termination thereof is decreed by a court of competent jurisdiction. Notwithstanding any such reletting or any attempt to relet without termination, LANDLORD may at any time thereafter elect to terminate this Lease for such previous breach. Should LANDLORD at any time terminate this Lease for any breach, in addition to any other remedies it may have, it may recover from TENANT all damages it may incur by reason of such breach, including the cost of recovering the Premises and reasonable attorneys' fees, all of which amounts shall be immediately due and payable from TENANT to LANDLORD. Efforts by the LANDLORD to mitigate damages caused by TENANT's breach of the Lease, which shall be a right but not an obligation of LANDLORD hereunder do not waive LANDLORD's right to recover damages hereunder. At its option, LANDLORD may request the appointment of a receiver for TENANT to take possession of the Premises and to exercise all rights of LANDLORD herein relating to the taking of possession of and reletting the Premises, and to apply any rent and other sums collected from the Premises accordingly. The terms "entry" and Ire-entry" are not limited to their technical meanings. For the purpose of this paragraph, "worth at the time of award" shall be computed (i) for purposes of subparagraphs (i)(A) and (B), by allowing interest at the rate of ten percent (lot) per annum, and (ii) for purposes of subparagraph (C), by discounting such amount by the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus three percent (3%). No act or omission of landlord hereunder, other than LANDLORD's express written notice of termination shall be deemed a termination of this Lease.
18.3 In the event this Lease is assigned or sublet by TENANT and TENANT remains liable for the performance of TENANT's obligations of this Lease, and should any default occur requiring notice as provided in this paragraph, LANDLORD agrees that it will furnish TENANT with a copy of the notice at the same time it is sent to the assignee or sublessee. TENANT shall have the right and option to resume actual possession of the Premises as TENANT for the unexpired term of this Lease under the terms of the Lease prior to any modifications made to this Lease pursuant to the sublet or assignment. If LANDLORD fails to give notice to TENANT after TENANT's assignment as provided herein, LANDLORD shall give subsequent notice to TENANT and TENANT's cure period shall be the period specified in the Lease for such default from the date of LANDLORD's notice to TENANT.
18.4 (a) Should there be any default or breach of this Lease on part of LANDLORD, TENANT shall give LANDLORD notice thereof, and should LANDLORD fail to correct the breach or default within thirty (30) days after the notice or such longer period of time as is required provided LANDLORD is pursuing the correction of such breach with diligence and continuity, TENANT may remedy the breach or default and deduct the reasonable cost, including interest at the rate of ten percent (lot) per annum on same, from rentals due or to become due LANDLORD.
(b) If LANDLORD shall fail to perform any
covenant, term or condition of this Lease on LANDLORD's part
to be performed, (other than a failure to apply insurance
proceeds, escrow funds or awards in accordance with the
terms of the Lease) and as a consequence of its default,
TENANT shall recover a money judgment against LANDLORD, such
judgment shall be satisfied solely out of (i) the proceeds
of sale received upon execution of such judgment levied
against the right, title and interest of LANDLORD in the
buildings and improvements from time to time constituting
the Premises, and its interest in the underlying realty;
(ii) the rents or other income from the Premises receivable
by LANDLORD; (iii) the consideration received by LANDLORD
from the sale or other disposition of all or any part of
LANDLORD'S right, title and interest in and to said
property; and (iv) any condemnation awards or insurance proceeds. It is expressly understood and agreed that neither LANDLORD nor any partner of LANDLORD shall be personally liable for any deficiency if the proceeds of the sale or disposition of LANDLORD's interest in the Premises is insufficient for the payment of any such judgment, and TENANT shall not institute any further action, suit, or similar demand against LANDLORD, or any partner of LANDLORD, for or on the account of such deficiency.
(c) TENANT agrees to give the holder of any mortgage or deed of trust encumbering the Premises, by certified mail, return receipt requested, a copy of any notice of default served upon LANDLORD, provided TENANT has previously been notified in writing of the identity and address of the holder of any such mortgage or deed of trust. TENANT further agrees that if LANDLORD has failed to cure any default giving rise to such notice within the time period provided for in the Lease, then the holder of such mortgage or deed of trust shall have the same notice and cure period as provided LANDLORD hereunder for those defaults that can be cured by the payment of money, and a reasonable time thereafter for any default which cannot, with the exercise of reasonable diligence be cured within such time period, (including time to obtain possession of the Premises by power of sale or judicial foreclosure, if such should be necessary to effect a cure) provided the holder of such mortgage or deed of trust has commenced and is diligently pursuing the remedies necessary to cure such default.
18.5 (a) If a dispute shall arise between the parties as to the performance of any obligation, a party contending that an obligation is the other party's duty may perform the obligation under protest. The performance of an obligation under protest shall not be regarded as voluntary performance. A party which shall have performed an obligation under protest shall have the right to bring suit for the recovery of the cost and expense of performance. It shall be determined that the other party as required to perform the obligation, the other party shall reimburse the party that shall have performed the obligation under protest for the cost and expense of performance.
(b) if TENANT is required to reimburse LANDLORD under subsection (a) and an invoice for reimbursement is not paid within thirty (30) days after it
is rendered, the amount of the invoice shall be added to the next installment of Fixed Rent. If LANDLORD is required to reimburse TENANT under subsection (a) and an invoice for reimbursement is not paid within thirty (30) days after it is rendered, the amount of the invoice may be deducted from installments of Fixed Rent that are due or that will become due provided that a final judgment which is not appealed or non appealable has been rendered.
18.6 If TENANT shall fail to pay its Fixed Rent or Additional Rent after ten (10) days written notice thereof from LANDLORD to TENANT or shall fail to pay any other monetary obligation hereunder three (3) days after written notice thereof from LANDLORD to TENANT, TENANT shall pay LANDLORD interest on such amounts from the due date until the date of payment at the reference rate (prime) rate of Bank of America N.T.& S.A., plus two percent (2%) per annum.
19. BANKRUPTCY OR INSOLVENCY
19.1 If at any time during the term hereof
proceedings in bankruptcy shall be instituted by or against
TENANT that result in an adjudication of bankruptcy, or if
TENANT shall file, or any creditor of TENANT shall file any
petition under any provision of the United States Bankruptcy
Code, as the same is now in force or may hereafter be
amended and TENANT be adjudicated bankrupt, or if a receiver
of the business or assets of TENANT be adjudicated bankrupt,
or if a receiver of the business or assets of TENANT be
appointed and this appointment not be vacated within sixty
(60) days after notice of TENANT, or TENANT makes an
assignment for the benefit of creditors, or any sheriff,
marshall, constable, or keeper takes possession of any
assets of TENANT by virtue of any attachment or execution
proceedings and offers same for sale publicly, then LANDLORD
may, at its option, in either or any of these events,
immediately take possession of the Premises and terminate
this Lease or exercise any of its rights pursuant to Article
19. Upon this termination, all installments of rent earned
to the date of termination and unpaid shall at once become
due and payable, and in addition thereto LANDLORD shall have
all rights provided by the bankruptcy laws relative to the
proof of claims on an anticipatory breach of an executory
contract. If a successor tenant is brought in by a Trustee
such successor must satisfy standards for assignment herein.
19.2 Notwithstanding the foregoing Paragraph 19.1, neither bankruptcy, insolvency, nor the appointment of a receiver of trustee shall affect this Lease so long as the obligations of TENANT are being performed by the TENANT or successors in interest.
20. WAIVER. The failure of LANDLORD or TENANT to insist upon prompt and strict performance of any of the terms, conditions or undertakings of this Lease, or to exercise any option herein conferred, in any one or more instances, except as to the option to extend or renew the term, shall not be construed as a subsequent waiver of the same or any other term, condition, undertaking or option. The subsequent acceptance of rent by LANDLORD shall not be deemed to be a waiver of any preceding breach by TENANT of any term, covenant or condition of this Lease, other than the failure of TENANT to pay particular rent so accepted, regardless of LANDLORD's knowledge of such preceding breach at the time of acceptance of such rent.
21. NOTICES TO TENANT. Any notice required to be given to TENANT under the terms of this Lease shall be effective upon receipt by TENANT, provided such notices is in writing and mailed via registered or certified mail or guaranteed overnight delivery to 101 Ash Street, San Diego, California 92101, Attn: Manager, Land Services Department at the address given on page one of this Lease, or to such other address as TENANT may furnish to LANDLORD in writing, with a copy to the Legal Department at the same address.
22. NOTICES TO LANDLORD. Any notice required to be given to LANDLORD under the terms of this Lease shall be effective upon receipt by LANDLORD provided such notice is in writing and mailed via registered or certified mail or guaranteed overnight delivery to LANDLORD at the address given on page one of this Lease, or to such other address as LANDLORD may furnish to TENANT in writing. Rental payments shall be forwarded to LANDLORD at the referenced address via first class mail. If at any time or from time to time, there shall be more than one LANDLORD, the LANDLORDS shall designate a party to receive all notices and rent payments, and service upon or payment to the designated party shall constitute service upon or payment to all. TENANT shall not be required to issue multiple checks for any single payment of rent or other charges hereunder.
23. PARTIES BOUND. The terms, covenants, agreements, conditions and undertakings contained herein shall be binding upon and shall inure to the benefit of the heirs, successors in interest and assigns of the parties hereto. Where more than one party shall be the LANDLORD in this Lease, the word "LANDLORD" whenever used in this Lease, shall include all landlords jointly and severally.
24. ENTIRE AGREEMENT; MODIFICATION: SEVERABILITY. This Lease contains the entire agreement between the parties hereto and no representations, inducements, promises or agreements, oral or otherwise, entered into prior to the execution of this Lease, will alter the covenants, agreements and undertakings herein set forth. This Lease shall not be modified in any manner, except by an instrument in writing executed by the parties. If any term or provision of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law.
25. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT
25.1 LANDLORD shall have the right to subject and subordinate this Lease to the lien of any loans or mortgages hereafter upon LANDLORD's interest in the Premises and upon the lands and buildings of which the Premises is part, provided LANDLORD shall have first secured for TENANT's benefit a written non-disturbance agreement, providing that the holder will recognize TENANT's Lease of the Premises and will not disturb the TENANT's quiet possession of the Premises as long as TENANT is not in default of any of the provisions of this Lease, and TENANT will then execute and deliver any instrument reasonably requested by LANDLORD subjecting this Lease to the lien of any such loan or mortgage.
25.2 In the event LANDLORD herein is the tenant under the terms of any Senior Lease, LANDLORD agrees that as soon hereafter as reasonably practicable it shall secure from any such Senior Landlord an agreement satisfactory to TENANT in recordable form whereby Senior Landlord, upon default of LANDLORD herein or termination of LANDLORD's
lease, and for so long as TENANT herein shall not be in default, shall not deprive or disturb TENANT's use and possession of the Premises so long as TENANT attorns to such Senior Landlord which TENANT herein agrees it may do.
26. NUMBER AND GENDER. All of the terms and words used in this Lease, regardless of the number and gender in which they were used, shall be deemed and construed to include any other number (singular or plural), and any other gender (masculine, feminine or neuter), as the context or sense of this Lease or any paragraph or clause hereof may require, the same as if the words had been fully and properly written in the number and gender.
27. EXHIBITS. All exhibits, attachments and addenda referred to herein shall be considered a part hereof for all purposes with the same force and effect as if copied at full length herein. The Exhibits attached hereto are listed as follows:
Exhibit A - LEGAL DESCRIPTION
Exhibit B -RULES AND REGULATIONS
Exhibit C-1 - MEMORANDUM OF LEASE
Exhibit C-2 - AMENDMENT TO MEMORANDUM OF LEASE
Exhibit D -LANDLORD'S SERVICES TO PREMISES
Exhibit E -EXCLUSIONS FROM BUILDING OPERATING
EXPENSES
Exhibit F -LANDLORD'S BUILDING WORK PRIOR TO
TENANT IMPROVEMENTS
Exhibit G -TENANT'S PLANS AND CONSTRUCTION
SCHEDULE
Exhibit H -TITLE REPORT
28. LIENS. If, because of any act or omission of TENANT, a mechanic's or other lien or order for the payment of money shall be filed against the Premises or lands of which the Premises is a part, TENANT shall, at TENANT's own cost and expense, within thirty (30) days after notice of
the filing thereof, cause the same to be cancelled and discharged of record, or furnish LANDLORD with a surety bond issued by a surety company, protecting LANDLORD from any loss because of non-payment of such lien claim. In the event TENANT does post bond, TENANT shall be entitled to contest any such lien claim by appropriate judicial proceedings. If TENANT fails to post bond, LANDLORD shall have the right to obtain bond and TENANT shall reimburse LANDLORD for the cost of the bond immediately upon demand of LANDLORD.
29. LICENSE
29.1 LANDLORD grants TENANT, its employees and agents a license to enter the Premises for purpose of inspecting the LANDLORD's work as well as for inspecting the construction of TENANT's leasehold improvements, all as described in Article 4 hereof, prior to the commencement of the term hereof.
29.2 This license to enter before commencement of the term is conditioned upon TENANT's employees and agents working in harmony and not interfering with the workmen, mechanics and contractors of LANDLORD and of any other tenant.
29.3 Such entry shall be deemed to be under all the terms, covenants, provisions and conditions of this Lease except the covenant to pay rent. All TENANT's materials, work, installations and decorations of any nature brought upon or installed in the Premises before the commencement of the term of this Lease shall be at TENANT's risk, and neither LANDLORD nor any party acting on LANDLORD's behalf shall be responsible for any damage thereto or loss or destruction thereof.
30. LAST EXECUTION AND EFFECTIVE DATE. This Lease shall become effective on the date hereof. Any reference contained in this Agreement to the "date of last execution" or "date hereof" shall mean the last date on which any party required to execute or initial this Agreement does so, and such date shall be set forth in the first paragraph of this Lease were indicated.
31. NO PARTNERSHIP FORMED. LANDLORD does not become a partner of TENANT in the conduct of its business or
otherwise, or a joint venturer or a member of a joint enterprise with TENANT by virtue of this Lease.
32. AUTHORITY TO EXECUTE LEASE,. TENANT and LANDLORD each warrant and represents that the party signing this Lease on behalf of each has authority to enter into this Lease and to bind TENANT and LANDLORD respectively to the terms, covenants and conditions contained herein. Each shall deliver to the other upon request, all documents reasonably requested by the other evidencing such authority including, without limitation, a copy of all corporate resolution, consents or minutes reflecting the authority of persons or parties to enter into agreements on behalf of TENANT or LANDLORD.
33. FORCE MAJEURE. LANDLORD and TENANT shall be excused for the period of any delay in performance of any obligations hereunder prevented from doing so by cause or causes beyond either party's control which shall include, without limitation, all labor disputes, civil disturbances, war, war-like operations, invasions, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, fires or other casualty, inability to obtain material or service or acts of God. Nothing contained in this Paragraph 33 shall excuse TENANT from paying in a timely fashion any payments due under the terms of this Lease.
34. ATTORNEYS' FEES. If any action at law or in equity is brought between LANDLORD and TENANT to enforce any of the provisions and/or rights under this Lease, LANDLORD and TENANT agree to pay to the other party all costs and expenses, including attorneys' fees set by the court in such action or proceeding. If any amount payable to the other party is not paid when due (after the expiration of any grace period), the other party shall pay the reasonable costs of collection, including reasonable attorneys's fees whether or not the suit is instituted.
35. LANDLORD's NONRESPONSIBILITY. Prior to and during construction, remodeling or other work of improvement undertaken by TENANT in or to the Premises, LANDLORD shall have the right to enter upon the Premises and post notices of nonresponsibility thereon and to otherwise notify, actually or constructively, any contractor or subcontractor, laborer, materialman or other entity or person directly or indirectly supplying labor, equipment or materials to the
Premises that LANDLORD is not responsible for the costs thereof.
36. RIGHT OF FIRST REFUSAL TO PURCHASE. If LANDLORD receives an offer from a third party in connection with the sale of all or any part of the Premises, and LANDLORD desires to accept such offer (the "Purchase Offer") LANDLORD shall notify TENANT of the terms of the Purchase Offer. if TENANT, within ten (10) business days after receipt of LANDLORD's notice, indicates in writing its agreement to purchase the Premises, or the part of the Premises to be conveyed by LANDLORD, on the terms stated in the Purchase Offer, LANDLORD shall sell and convey the Premises, or such part of the Premises, to TENANT on the terms stated in the Purchase Offer. If TENANT does not indicate its agreement within such ten (10) business day period, LANDLORD thereafter shall have the right to sell and convey the Premises, or the part of the Premises to a third party under the same terms stated in the Purchase Offer. If LANDLORD does not sell and convey the Premises, or the part of the Premises, within one hundred eighty (180) days thereafter, any further transaction shall be deemed a new determination by LANDLORD to sell and convey the Premises, or a part of the Premises, and the provisions of this Paragraph 36 shall be applicable. If TENANT purchases &11 of the Premises, this Lease shall terminate on the date title vests in TENANT, and LANDLORD shall remit to TENANT all of the prepaid and unearned interest. If TENANT purchases a part of the Premises, this Lease, as to the part purchased, shall terminate on the date title vests in TENANT, and Fixed Rent @ 11 be reduced in the same ratio that the value of the Premises before the purchase bears to the value of the Premises covered by the Lease immediately after the purchase. In the event TENANT exercises its right of first refusal to purchase, and then TENANT fails to consummate the purchase upon the terms and conditions set forth in the Purchase Offer, TENANT shall be obligated to pay to LANDLORD immediately upon demand therefore the sum of Fifty Thousand and No/100 Dollars ($50,000.00) (the "Right of First Refusal Termination Feel) to compensate LANDLORD for TENANT'S default in the exercise of its right of first refusal. The parties acknowledge that LANDLORD's actual damages in the event of a default by TENANT in connection with the exercise of its right of first refusal would be extremely difficult or impracticable to determine. Therefore, by their execution hereof, the parties acknowledge that such Right of First Refusal Termination Fee has been agreed upon, after
negotiation, as the party's reasonable estimate of LANDLORD's damages and as LANDLORD's exclusive remedy against TENANT in the event TENANT fails to complete the purchase of the Premises on the terms and conditions set forth in LANDLORD's notice after the exercise of TENANT's right of first refusal. TENANT'S right of first refusal shall not apply to a transfer between any of the persons who constitute LANDLORD, the blood relatives of any of those persons, either outright or in trust, or to a legal entity (i.e., partnership, corporation, trust or like entity) when the majority of interest is owned by all or some of those persons who constitute LANDLORD, or to transfer to any legal entity which controls, is controlled by or is under common control with LANDLORD, or to any corporation resulting from the merger or consolidation with LANDLORD, or to any person or entity which acquires all, or substantially all of the assets of LANDLORD. LANDLORD agrees, as an accommodation and not as a legal obligation, to exercise good faith efforts to provide TENANT with thirty (30) days advance notice prior to the commencement of marketing efforts for the Premises.
37. LANDLORD'S BUY-BACK RIGHTS.
37.1 The purpose of this Article 37 is to provide LANDLORD (other than ANICO) the right and option to liquidate the provision in this Lease which relieves TENANT of certain future payment obligations with respect to ad valorem real estate taxes as more particularly provided in Paragraph 8.2 hereof. LANDLORD requires such a provision in order to facilitate any future sale, financing or refinancing of the Premises.
37.2 At any time, and from time to time, during the term of this Lease, upon at least thirty (30) days' prior written notice ("Buy-Back Notice") to TENANT, any successor-in-interest to the LANDLORD named in this Lease shall have the right ('Buy-Back Right") to liquidate the Economic Benefit inuring to TENANT under the terms of Paragraph 8.2 hereof this Lease upon the terms and conditions set forth below. The term "Economic Benefit" shall mean and refer to the agreement set forth in Paragraph 8.2 of this Lease to relieve TENANT of certain future obligations to pay money to LANDLORD for increases in ad valorem real estate taxes.
37.3 LANDLORD's Buy-Back Notice shall include a schedule indicating the extent of the Economic Benefit to be
repurchased by LANDLORD pursuant to LORD's Buy-Back Right and which Lease Years during the term of this Lease such Economic Benefit is scheduled to inure to TENANT. The "Effective Date" shall be the date which is thirty (30) days after the date of LANDLORD's Buy-Back Notice. The Buy-Back Notice shall indicate the present value of the Economic Benefit to be repurchased by LANDLORD as of the Effective Date (assuming such Economic Benefit would apply as of the end of the relevant Lease Year), using the "Discount Rates" for each such Lease Year. The 'Discount Rates, shall be two percent (296) over the average yield in effect as of the Effective Date for United States Treasury obligations with maturity dates as close as possible to the end of each Lease Year during which the portions of the Economic Benefit would have benefitted TENANT. The sum of such present value amounts as of the Effective Date may be referred to herein as the "Liquidated Amount'.
37.4 The Liquidated Amount shall be paid by LANDLORD to TENANT either by check from LANDLORD to TENANT delivered to TENANT no later than the Effective Date or, at LANDLORD's option (which must be exercised by LANDLORD by written notice to TENANT on or before the Effective Date), by a rent credit; provided, however, that LANDLORD may only elect to pay the Liquidation Amount by way of a rent credit if TENANT's total rental obligation under the Lease for the period which is ninety (90) days after the Effective Date, exceeds the Liquidation Amount.
37.5 As soon as reasonably possible after an exercise by LANDLORD of its Buy-Back Right, but no later than the Effective Date, LANDLORD and TENANT shall execute an amendment to this Lease or shall execute a Restated and Revised Lease which reflects the elimination from this Lease of the Economic Benefit which was repurchased by LANDLORD pursuant to LANDLORD's Buy-Back Right.
38. EXPANSION ALLOWANCE OPTION. In order to facilitate the possible future expansion of TENANT's operations into one of the buildings comprising Phase I ("Phase 11) of the Century Park office development (of which the Premises comprise Phase II), LANDLORD shall make available to TENANT, for a twenty-four (24) month period commencing on the Commencement Date, a loan of up to ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) (the "Expansion Allowance Loan") the proceeds of which shall be utilized by TENANT to finance the construction of tenant improvements in
a single building in such Phase I leased by TENANT pursuant
to a lease executed by TENANT during such twenty-four (24)
month period. Such Expansion Allowance Loan shall be
disbursed during such twenty-four (24) month period by
LANDLORD to TENANT not more frequently than monthly upon
TENANT's submission of invoices and lien releases, along
with such other information as may be reasonably requested
by LANDLORD to substantiate the expenditures for such tenant
improvements, and such loan will be funded for no more than
six (6) consecutive months. The Expansion Allowance Loan
will bear interest, as such funds are disbursed, at the rate
equal to the greater of (i) ten percent (10*) per annum, or
(ii) the sum of (a) the difference between ten percent (10t)
per annum and the yield, as of the date of this Lease, of
TENANT's publicly traded 8.75% bonds due March 15, 2007,
plus (b) the yield, at the time of such disbursement, of
TENANT's publicly traded 8.75%- bonds due March 15, 2007. At
such time as the final Expansion Allowance Loan has been
funded, or upon the expiration of seven (7) months after the
initial disbursement of such loan proceeds, whichever first
occurs (but not later than the expiration of such twenty-
four (24) mont-@ after the commencement Date), the full
amount of the Expansion Allowance Loan funded, plus interest
accrued thereon (collectively the 'Expansion Loan
obligation") shall be amortized by payment to LANDLORD in
equal monthly installments over the remaining term of this
Lease (without giving effect to the extension options) at an
interest rate equal to, as of the date of the last
disbursement of funds under the Expense Allowance Loan, the
greater of (i) ten percent (10%) per annum, or (ii) the sum
of (a) the difference between ten percent (10%) per annum
and the yield, as of the date of this Lease, of TENANT's
publicly traded 8.75% bonds due March 15, 2007, plus (b) the
yield of TENANT's publicly traded 8.75% bonds due March 15,
2007. Notwithstanding the foregoing, upon TENANT's default
under this Lease, or upon termination of this Lease without
default by TENANT, the Expansion Loan Obligation, along with
interest accrued but unpaid thereon, shall become
immediately due and payable to LANDLORD. TENANT
acknowledges and agrees that its repayment obligations
hereunder are subject to and governed by the last sentence of Paragraph 3.3 hereof.
IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed as of the dates set forth below for LANDLORD and TENANT.
LANDLORD:
AMERICAN NATIONAL INSURANCE
COMPANY, a Texas insurance
corporation
BY ________________________
Its ________________________
TENANT:
SAN DIEGO GAS & ELECTRIC
COMPANY, a California
corporation
By _________________________
Its _________________________
EXHIBIT A
LEGAL DESCRIPTION
LOT 2 OF CENTURY PARK, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO THE MAP THEREOF NO. 11082, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY NOVEMBER 14, 1984 AS DOCUMENT NO. 84-429352
EXHIBITS
Exhibit A
Legal Description
LOT 2 OF CENTURY PARK, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO THE MAP THEREOF NO. 11082, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY NOVEMBER 14, 1984 AS DOCUMENT NO. 84-429352
Exhibit B
RULES AND REGULATIONS FOR CENTURY PARK PHASE II LEASE
Dated: March 25, 1992
By and Between: AMERICAN NATIONAL INSURANCE COMPANY, a
Texas insurance corporation ("LANDLORD")
and SAN DIEGO GAS & ELECTRIC COMPANY, a
California corporation ("TENANT,)
GENERAL RULES
1. TENANT shall not suffer or permit the obstruction of any common areas, including driveways, walkways and stairways.
2. LANDLORD reserves the right to refuse access to any persons LANDLORD in good faith judges to be a threat to the safety, reputation, or property of the Premises and its occupants.
3. TENANT shall not keep animals or birds within the Premises, and shall not bring bicycles, motorcycles or other vehicles into areas not designated as authorized for same.
4. TENANT shall not make, suffer or permit litter except in appropriate receptacles for that purpose.
5. TENANT shall have the right to alter any lock or install new or additional locks or bolts, provided that immediately upon such alteration or installation, TENANT shall so advise LANDLORD and shall furnish copies of all keys and/or combinations for such locks or bolts, at TENANT's sole cost and expense.
6. TENANT shall be responsible for the inappropriate use of any toilet rooms, plumbing or other utilities. No foreign substances of any kind are to be inserted therein.
7. TENANT shall not deface the walls, partitions or other surfaces of the Premises.
8. TENANT shall not suffer or permit any thing in or around the Premises or the Buildings comprising the Premises that causes excessive vibration or floor loading in any part of the Premises or the Buildings comprising the Premises.
9. TENANT shall be responsible for any damage to the Premises arising from the moving of any furniture, significant freight and equipment.
10. TENANT shall be responsible for all costs, expenses and liabilities arising out of TENANT's employment of any service or contractor for services or work to be performed in the Premises, or any part thereof.
ii. TENANT shall return all keys at the termination of its tenancy.
12. No TENANT, employee or invitee shall go upon the roof of any of the Buildings comprising the Premises.
13. TENANT shall not suffer or permit smoking or carrying of lighted cigars or cigarettes in areas reasonably designated by LANDLORD or by applicable governmental agencies as non-smoking areas.
14. TENANT shall not use any method of heating or air conditioning other than as provided by LANDLORD.
15. The Premises shall not be used for lodging or manufacturing.
16. TENANT shall comply with all safety, fire protection and evacuation regulations established by LANDLORD or any applicable governmental agency.
17. LANDLORD reserves the right to waive any one of these rules or regulations, and any such waiver shall not constitute a waiver of any other rule or regulation or any sequent application thereof to such tenant.
18. TENANT assumes all risks from theft or vandalism and agrees to keep its Premises locked as may be required.
19. LANDLORD, with TENANT's consent (not to be unreasonably withheld or delayed), may make such other reasonable rules and regulations as it may from time to time deem necessary for the appropriate operation and safety of the Premises and its occupants. TENANT agrees to abide by these and such rules and regulations.
EXHIBIT C-1
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
SAN DIEGO GAS & ELECTRIC COMPANY
101 Ash Street
San Diego, California 92101
Attn: manager, Land Services
MEMORANDUM OF LEASE
This Memorandum of Lease is made as of the 25th day of March, 1992 between AMERICAN NATIONAL INSURANCE COMPANY, a Texas insurance corporation, as Landlord, and SAN DIEGO GAS & ELECTRIC COMPANY, a California corporation, as Tenant, who agree as follows:
1. Term and Premises. Landlord leases to Tenant, and Tenant leases from Landlord, the real property located in the City of San Diego, County of San Diego, State of California described in Exhibit A attached to this Memorandum of Lease, for a term of fifteen (15) years commencing on the Commencement Date (as that term is described in the Lease hereinafter described) and subject to extension by Tenant, on the terms and conditions of the lease between the parties, which lease is dated as of March 25, 1992 (the 'Lease"). The provisions of the Lease are incorporated in this Memorandum of Lease by reference.
2. Tenant's Right of First Refusal. Reference is made to paragraph 36 of the Lease, in which Landlord gives Tenant a right of first refusal to acquire the Premises (as that term is defined in the lease).
3. Provisions Binding on Lan r . The provisions of the Lease to be performed by Landlord, whether to be performed at the Premises or at any portion of the Premises, and whether affirmative or negative in nature, are intended to and shall bind Landlord and its successors and tenants at any time, and shall inure to the benefit of Tenant and its successors.
4. Purposes of Memorandum of Lease. This Memorandum of Lease is prepared for the purpose of
recordation, and in no way modifies the provisions of the Lease referred to in paragraph 1 hereof.
LANDLORD
AMERICAN NATIONAL INSURANCE
COMPANY, a Texas insurance
corporation
By ________________________
Its ________________________
By ________________________
Its ________________________
TENANT
SAN DIEGO GAS & ELECTRIC
COMPANY, a California
corporation
By ________________________
Its ________________________
STATE OF TEXAS )
) ss.
COUNTY OF _____________ )
|
On this ___ day of March, 1992, before me, the undersigned, a Notary Public in and for said State, personally appeared ________________ I personally known to me or proved to me on the basis of satisfactory evidence to be the person who executed the within instrument as the __________________ of AMERICAN NATIONAL INSURANCE COMPANY, the corporation that executed the within instrument and acknowledged to me that such corporation executed the within instrument pursuant to its bylaws or a resolution of its board of directors.
WITNESS my hand and official seal.
(SEAL)
STATE OF TEXAS )
) ss.
COUNTY OF )
On this day of March, 1992, before me, the
|
undersigned, a Notary Public in and for said State, personally appeared ________________ , personally known to me or proved to me on the basis of satisfactory evidence to be the person who executed the within instrument as the _________________ of AMERICAN NATIONAL INSURANCE COMPANY, the corporation that executed the within instrument and acknowledged to me that such corporation executed the within instrument pursuant to its bylaws or a resolution of its board of directors.
WITNESS my hand and official seal.
STATE OF CALIFORNIA )
) ss.
COUNTY OF _____________ )
|
On this ___ day of March, 1992, before me, the undersigned, a Notary Public in and for said State, personally appeared ________________, personally known to me or proved to me on the basis of satisfactory evidence to be the person who executed the within instrument as the __________________ of SAN DIEGO GAS & ELECTRIC COMPANY, the corporation that executed the within instrument and acknowledged to me that such corporation executed the within instrument pursuant to its bylaws or a resolution of its board of directors.
WITNESS my hand and official seal.
(SEAL)
EXHIBIT C-2
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
HILL, FARRER & BURRILL
445 South Figueroa Street
35th Floor
Los Angeles, California 90071
Attn: ALFRED M. CLARK, III, ESQ.
AMENDMENT NO. I TO MEMORANDUM OF LEASE
This Amendment No. 1 to Memorandum of Lease is made as of the ______ day of _________, 1992 between AMERICAN NATIONAL INSURANCE COMPANY, a Texas insurance corporation, as Landlord, and SAN DIEGO GAS & ELECTRIC COMPANY, a California corporation, as Tenant, who agree as follows:
1. Landlord and Tenant entered into a Lease dated March 25, 1992.(the "Lease'), pursuant to which Landlord leased to Tenant and Tenant leased from Landlord the Premises described therein. To further evidence the Lease, Landlord and Tenant have entered into that certain Memorandum of Lease dated March 25, 1992 and recorded ______________, 1992 as Instrument No. _______________ in the Official Records of San Diego County.
2. Pursuant to paragraph 2.2 of the Lease, Landlord and Tenant agreed to confirm the commencement and expiration dates of the term and the commencement date for payment of rent which are as follows:
(a) ____________ 1 1992 is the Commencement Date, as that term is defined in paragraph 3.4 of the Lease.
(b) ____________ 20__ is the expiration date of the term of the Lease; and
(c) __________________ 199- is the Fixed Rent Commencement Date as that term is defined in paragraph 3.4 of the Lease.
3. Tenant confirms that:
(a) It has accepted possession of the Premises as provided in the Lease;
(b) The Tenant Improvements required to be furnished by Landlord under the Lease have been furnished;
(c) Landlord has fulfilled all of its duties of an inducement nature;
(d) The Lease has not been modified, altered or amended except as follows: ______________________________
(e) There are no setoffs or credits against rent, and no security deposit has been paid, except as provided by the Lease; and
(f) The Lease is in full force and effect.
4. The provisions of the Amendment No. 1 to Memorandum of Lease shall inure to the benefit, or bind, as the case may require, the parties and their respective successors, subject to the restrictions or assignments and subleasing contained in the Lease.
LANDLORD
AMERICAN NATIONAL INSURANCE
COMPANY, a Texas insurance
corporation
By ________________________
Its ________________________
By ________________________
Its ________________________
(SIGNATURES CONTINUED]
(SIGNATURES CONTINUED]
TENANT
SAN DIEGO GAS & ELECTRIC
COMPANY, a California
corporation
By _________________________
Its _________________________
STATE OF TEXAS )
) ss.
COUNTY OF _____________ )
|
On this ___ day of March, 1992, before me, the undersigned, a Notary Public in and for said State, personally appeared ________________ I personally known to me or proved to me on the basis of satisfactory evidence to be the person who executed the within instrument as the __________________ of AMERICAN NATIONAL INSURANCE COMPANY, the corporation that executed the within instrument and acknowledged to me that such corporation executed the within instrument pursuant to its bylaws or a resolution of its board of directors.
WITNESS my hand and official seal.
(SEAL)
STATE OF TEXAS )
) ss.
COUNTY OF )
On this day of March, 1992, before me, the
|
undersigned, a Notary Public in and for said State, personally appeared ________________ , personally known to me or proved to me on the basis of satisfactory evidence to be the person who executed the within instrument as the _________________ of AMERICAN NATIONAL INSURANCE COMPANY, the corporation that executed the within instrument and acknowledged to me that such corporation executed the within instrument pursuant to its bylaws or a resolution of its board of directors.
WITNESS my hand and official seal.
STATE OF CALIFORNIA )
) ss.
COUNTY OF _____________ )
|
On this ___ day of March, 1992, before me, the undersigned, a Notary Public in and for said State, personally appeared ________________, personally known to me or proved to me on the basis of satisfactory evidence to be the person who executed the within instrument as the __________________ of SAN DIEGO GAS & ELECTRIC COMPANY, the corporation that executed the within instrument and acknowledged to me that such corporation executed the within instrument pursuant to its bylaws or a resolution of its board of directors.
WITNESS my hand and official seal.
(SEAL)
EXHIBIT "D"
LANDLORD'S SERVICES TO THE PREMISES
CENTURY PARK PHASE 11
These service specifications are considered to be the minimum level of service to be provided by the LANDLORD. The LANDLORD has the responsibility to maintain and operate the project in a first class manner by providing the following service consistent with other s@ buildings in the Kearny Mesa area of the City of San Diego, County of San Diego, at the time of the execution of this Lease.
I. PROPERTY MANAGER
The property management company shall be a licensed real estate company in the State of California. The property manager shall be a professional with a minimum of five year's experience with similar type office buildings.
II. BUILDING ENGINEER
The premises will have an on-site Building Engineer whose responsibility is to upgrade and maintain all mechanical, electrical, plumbing and other equipment located on the property.
The following responsibilities should be performed by the Building
Engineer
or in conjunction with the Property Manager to achieve both high-quality
maintenance and economical operation:
- Assign and supervise duties performed by all utility workers
- Enforce established, preventive maintenance program
- Maintain and check engineer's daily work report
- Maintain and check operating logs daily on the following:
* Air conditioning compressors
* Pumps
* Graphic panel
* Utility meters
* Air conditioning complaints
* General complaints
- Order supplies and materials
- Supervise storage and maintain records of supplies and materials
- Maintain monthly inventory of expendable supplies and frequently used materials
- Inventory permanent tools and equipment annually
- Form an effective program for maintaining building facilities and equipment
* Preventive maintenance program
* Handle all building or equipment problems
- Evaluate all major systems to ensure continuous maximum efficiency
- Establish emergency procedures for fire, bomb threat, or power failure with Property Manager
- Form an effective cleaning program to maintain a first-class building
- Inspect building in regard to performance of janitorial contractor
* Periodically inspect public areas, tenant spaces, and windows
* Inform Property Manager of irregularities or poor personnel performance
* Maintain communication system with janitorial supervisor and supervise special and tenant-requested cleaning
* Maintain a high quality window washing program as economically as possible
* Design emergency clean-up procedures for flood, fire, civil disorder, etc.
- Review and approve products used by janitorial contractor to ensure use of quality items
- Review janitorial contractor's specifications and procedures when necessary
- Follow up on transmittal of drawings and matters affecting construction of tenant areas
* Meeting with tenant coordinator so that proper locks, keys, directory listings, and signs are ordered
* Inform tenant coordinator of move-in dates and/or changes
- Contact tenants to aid their move whenever possible
* Coordinate with moving company
Inspect tenant area before move-in to verify that space is ready for occupancy
- Establish a procedure with bookkeeper to accurately and promptly invoice tenants for the following items:
* After-hours HVAC charges
* Special cleaning services for tenants performed by janitorial staff
* Special work performed by engineering staff
- Establish an adequate security system for tenants and building
* Determine number of guards and assigned shifts
* Establish surveillance measure both inside and outside the building
* Set up procedures for guards and building personnel to maintain security
* Take adequate measures, as deemed necessary, to protect tenants and their property
- Conduct building tours as needed
- Assist tenant coordinator in arranging for special events
- Assist tenant coordinator in housing tenants in temporary quarters while permanent space is constructed
III. DAY PORTER
The Premises shall have a Day Porter on site during normal business hours (8 hour day) Monday through Friday. The Day Porter shall be responsible for cleaning, sweeping and vacuuming the common areas, replacing rest room supplies and attending to tenants' general needs.
IV. JANITORIAL SERVICE
A. ENTRIES AND LOBBIES
Daily Services: Sweep and clean immediate entry area outside all
entrances and all emergency exits
Spot clean entry door glass and frames Vacuum
entry mats
Clean glass and frame of building
directories
Clean and polish all drinking fountains
Clean all bright metal
Vacuum fabric wait covering
Empty trash receptacles, replacing liners
as needed
Empty and polish all ashtrays and urns
vacuum all carpeting (5 times per week)
Spot clean carpeting as needed
Dust and mop afl hard surface floor
covering
Damp mop all hard floor surfaces
Replace burned out lights
Weekly Services: Dust all flat surfaces Wash entry door glass, frames and handles Damp clean ceiling diffuses Spot clean walls Edge vacuum all carpets with crevice tool Dust baseboards
Monthly Services: Machine scrub and recoat hard floor surfaces
B. CORRIDORS AND STAIRWELLS, INCLUDING PARKING STRUCTURE STAIRWELLS
Daily Services: Clean and polish drinking fountains
Vacuum hallways and corridors (5 times
per week)
Spot clean all carpeting as needed
Empty and wash ashtrays and urns
Police stairwells for litter
Replace burned out lights
Weekly Services: Dust all railings Clean doors, frames and push plates Dust all flat surfaces, including ledges and window sills Sweep/damp mop stairwells Vacuum edge of carpets with crevice tool
Monthly Services: Wet mop as needed
C. OFFICE AREAS
Daily Services: Empty all waste baskets, replacing liners
as needed Empty and clean ashtrays and sand urns, replace sand as necessary Sweep and/or dust mop non-carpeted floors Damp mop non-carpeted traffic areas (5 times per week) |
Pick up paper and trash under desks
Dust all flat work and furniture surfaces,
when tops are free and clear of work
papers
Spot clean interior partition glass
Spot clean doors and light switches
Properly arrange all office furniture
Leave on only designated lights
Check and lock designated doors upon
completion of work
Replace burned out lights
Weekly Services: Clean door kick plates and thresholds
Whisk broom all upholstered furniture
Low dust all flat surfaces to hand height
High dust all flat surfaces above hand
height
Damp wipe and dry horizontal metal
partition molding
Vacuum carpet under desks and furniture
Spot clean doors, frames and jambs, dust
baseboards, vacuum carpeting at
baseboards with crevice tool
Dust ledges and window sills
Monthly Services: Vacuum upholstered furniture
Damp clean and/or vacuum ceiling
diffuses
Wax and spray buff tile floors
Pile lift vacuum all carpet
Sponge and wipe leather/plastic furniture
Wash glass doors and partitions and
remove water marks and stains from
adjoining areas.
D. ELEVATORS
Daily Services: Clean and polish bright metal as needed Damp clean walls and doors Vacuum and spot clean all carpeting
Dust and mop/damp mob flooring Clean door tracks and thresholds
Weekly Services: Dust or damp clean air vents Clean entire wall and door surfaces Damp clean light diffuses
Monthly Services: Polish thresholds
E. REST ROOMS
Daily Services: Clean and sanitize all fixtures, wash
basins, chrome fittings, and dispensers.
Clean and sanitize all toilets, toilet seats,
urinals and napkin receptacles
Clean and polish all bright metal surfaces
spot clean all mirrors
Restock/refill all dispensers as needed
Dust/wet mop floors with disinfectant
cleaner
Empty all waste container/disposal,
replacing liners as needed
Spot clean doors, push plates, kick plates
and light switches
Damp clean toilet compartment partitions
and doors
Remove scale from urinals and toilet
bowls
Scrub seams, cracks, grout and edges of
floors and walls so as to prevent any soil
buildup
Replace burned out lights
Weekly Services: Wash down and sanitize partitions, walls,
and doors
Low dust all flat surfaces to hand height
Monthly Services: Clean and sanitize inside of waste
receptacles
Dust/damp clean all ceiling vents and
grills
High dust all flat surfaces above hand
height
Damp clean exterior of refilling light
diffuses
Pour clean water down floor drains to
prevent sewer gases from escaping
F. GYM/SHOWER FACILITY
Daily Services: Clean door glass and metal hardware, including gym locker fronts
Spot clean mirrors
Sanitize floor mats and equipment
Dust mop wooden floor
Damp mop and dry wooden floor with
disinfectant
Clean and disinfect shower walls and
floors
Clean restrooms according to
specifications
Refill all paper and soap dispensers
Wipe down equipment
Weekly Services: Wash mirrors Scrub shower walls to remove soap and body oil residue Machine scrub restroom and shower floors
G. EMPLOYEE LOUNGE/COFFEE AREAS/CAFETERIA
Daily Services: Empty and damp clean waste containers,
replacing liners as needed
Vacuum all carpeted areas (5 times per
week)
Spot clean all carpeted areas
Dust mop and damp mop all tile floors
Damp clean and sanitize all table tops and
chairs
Empty and polish all ashtrays
Damp clean all doors, frames, handles,
push plates and light switches
Spot clean door and partition glass
Refill all paper and soap dispensers
Clean and polish all dispensers
Damp clean counter tops, sinks (except in
Kitchen area) and fixtures
Weekly Services: Damp clean cupboard faces, doors and
handles
Damp clean walls and appliance exteriors
Low dust all flat surfaces to hand height
Semi-Monthly: Machine scrub and rinse floors (moving
tables and chairs)
Monthly Services: High dust all flat surfaces above hand
height
Machine scrub, re-wax and high speed
buff tile flooring
|
H. PATIOS/OUTSIDE DINNING AREA
Daily Services: Empty and damp clean waste containers as
needed
Empty and clean ashtrays and sand urns;
replace sand as necessary
Sweep patios and police for litter
Spot mop as required
Damp clean sanitize all table tops and
chairs
Weekly Services: Damp mop and sweep
Monthly Services: Hose wash patios
I. JANITORIAL CLOSETS
Daily Services: Closets are to be kept clean and orderly Clean sinks Sweep and mop floor Maintain adequate supply of restroom supplies
J. TRASH REMOVAL
Daily Services: Remove afl trash to designated area Police trash storage area, sweep as needed Empty waste containers surrounding buildings and damp clean as needed
V. TRASH DISPOSAL SERVICE
Provided on a three times per week basis for general trash and a once per week basis for recycled trash.
VI. HVAC MAINTENANCE SERVICE (TO BE PROVIDED BY BUILDING ENGINEER)
Provided on a quarterly basis as an on-going maintenance program to include:
Testing and inspecting of all equipment for operating condition and efficiency.
Preventative maintenance program to clean, align, calibrate, tighten, adjust, lubricate and paint equipment for purposes of extending equipment life and assuring proper operating condition and efficiency.
Replace any and all components that do
not function properly.
Changing all filters as necessary.
Providing minor adjustments and repairs.
Providing coil cleaning once yearly for all units. All equipment to be maintained at or better than manufacturer's recommended maintenance.
VII. PEST CONTROL SERVICES
Provided on a minimum of a quarterly basis using pesticides in accordance with State of California laws.
VIII. PARKING AREA & DRIVEWAY SWEEPING SERVICES
Sweeping services to be provided on an after-business hours once per week basis to include: cleaning debris from curbs, comers and the area behind tire stops, followed by a general sweeping of parking areas, Parking garage and all driveways.
Said contractor shall have an adequate general liability policy of insurance which shall be on file with the property manager.
IX. WINDOW CLEANING
Provided on a minimum of a quarterly basis to include: washing exterior windows and cleaning window frames.
On a once per year basis: wash all
interior windows.
Said contractor shall have an adequate general liability policy of insurance which shall be on file with Property Manager.
X. ELEVATOR SERVICE
Provided on a monthly basis to keep all elevators properly adjusted and maintained in proper and sate operating condition.
The service shag include a 24 hour call
back service for emergency minor
adjustments.
Said contractor shag have an adequate
general liability policy of insurance which
shall be on file with the Property Manager.
XI. SECURITY SERVICE
Provided on an after operating hours basis to include one security officer on site.
Officers will perform duties as specified in the post orders. These include, but are not limited to, the following:
Patrol sidewalk, driveways and parking
structures.
Enforce parking regulations.
Maintain high visibility as a deterrent to
theft, loitering and vagrancy.
Check all common areas for unauthorized
personnel.
Investigate and report all suspicious
activities.
Complete Daily Security Report Log for
SDG&E's review each day for each shift.
Follow post orders as directed.
LANDLORD will provide the foregoing security services on a 24-hour a day basis to the Premises as required by TENANT, provided however TENANT agrees to reimburse LANDLORD on a monthly basis as Additional Rent from the Commencement Date the cost to LANDLORD of any such services which exceed $750.00 per month.
XII. LANDSCAPE SERVICES
Maintenance of plant material shall be provided on a weekly basis to include, but not be limited to, mowing, trimming, pruning, watering, fertilization, aeration, thatching, weed control, cultivation, pest control and clean-up. It is the intent to provide a plant material maintenance method to keep the site in a state of perpetual growth and repair. Irrigation maintenance shall include operating of system, adjustments, and minor repairs.
The walkways shall be cleaned to prevent
impairment of walking surface from plant materials.
In addition, the landscape services contractor shall:
Be responsible for periodic inspection of surface drains located within the landscaped areas. These drains shall be checked to assure proper functioning.
Remove any debris or vegetation that
might accumulate at the inlet to prevent
flow of water.
Exercise due care in protecting from damage all existing facilities, structures, and utilities, both above surface and underground.
Have and maintain a valid C-27 contractors license.
Be licensed or have a subcontractor who is licensed by the State of California and registered with the County of San Diego as a Pest Control Operator in compliance with governmental requirements. Landscape services contractor must ensure that all pesticides are applied and stored in strict accordance with all applicable codes and regulations which apply.
Remove and dispose of all debris resulting from landscape services contractor's operations. No debris will be allowed to remain at the end of any work day.
Be responsible for removing weeds in all hardscape areas.
EXHIBIT "E"
EXCLUSIONS FROM BUILDING OPERATING EXPENSES
In the Lease, there shall be excluded from Building Operating Expenses the following, except to the extent specifically permitted by a specific exception to the following:
(a) Costs incurred in connection with the original construction of any Building or in connection with any major change in any Building, such as adding or deleting floor, adding stairwells, or modifications required per title 24 and/or ADA or any other governmental regulations;
(b) Costs of alterations or improvements to the Premises or any surrounding common areas or the premises of other tenants;
(c) Interest and principal payments or mortgages, and other debt costs, if any;
(d) Costs of correcting major and/or latent defects in or significant design error relating to the initial design or construction of the shell portion of the Buildings;
(e) Legal fees, space planners' fees and advertising expenses incurred in connection with the original development or original leasing of the Buildings or future leasing of the Buildings;
(f) Costs for which the LANDLORD is reimbursed by any tenant or occupant of the Buildings or by insurance by its carrier or any tenant's carrier or by anyone else;
(g) Any bad debt loss, or reserves for bad debts or rent loss;
(h) The expense of extraordinary service provided to other tenants in the Buildings which are made available to the TENANT at cost or for which the TENANT is separately charged and collected;
Costs associated with the operating of the business of the partnership or entity which constitutes the LANDLORD, as the same are distinguished from the costs of operation of the Building, including partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of the TENANT may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of the LANDLORD's interest in the Building, costs (including attorneys, fees and costs of settlement judgments and payments in lieu thereof) arising from claims, disputes or potential disputes in connection with potential or actual claims, litigation or arbitrations pertaining to the LANDLORD and/or the Buildings and/or the site upon which the Buildings are situated;
(j) The wages and benefits of any employee who does not devote substantially all of his or her employed time to the Buildings unless such wages and benefits are prorated to reflect time spent on operating and managing the Buildings vis-a-vis time spent on matters unrelated to operating and managing the Building;
(k) Fines, penalties, and interest (provided such items do not arise from TENANT's failure to timely pay or perform any obligation on TENANT's part under the Lease);
(m) Any recalculation of or additional Building operating Expenses actually incurred prior to lease commencement and prior to the year in which LANDLORD proposes that such costs be included, except as otherwise provided in Paragraph 3.6(c) of the Lease;
(n) Costs incurred by the LANDLORD with respect to goods and services (including utilities sold and supplied to tenants and occupants of the Building) to the extent that the LANDLORD would be entitled to separate and specific reimbursement for such costs if such goods or services are provided to the TENANT pursuant to this Lease;
(o) Costs, including permit, license and inspection costs, incurred with respect to
the installation of tenant improvements made for new tenants in the Buildings or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Building (excluding, however, such costs relating to any common areas of the Building or parking facilities); it being understood and agreed that the cost of any fees, assessments or requirements imposed upon LANDLORD or the Premises by any governmental agency in connection with approvals or permits for the Tenant Improvements (as that term is defined in Paragraph 4.1 of the Lease) shall be shared equally by LANDLORD and TENANT;
(p) Expenses in connection with services or other benefits which are not offered and/or provided to the TENANT or for which the TENANT is charged directly but which are provided to another tenant or occupant of the Building without a separate charge;
(q) Overhead and profit increment paid to the LANDLORD or to subsidiaries or affiliates of the LANDLORD for services in the Building to the extent the same exceeds the costs of such services rendered by qualified, first class, unaffiliated third parties on a competitive basis;
(r) Rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment ordinarily considered to be of a capital nature if purchased, except equipment not affixed to the Building which is used in providing janitorial or similar services and, further excepting from this excluding such equipment rented or leased to remedy or ameliorate an emergency condition in the Buildings;
(s) All items and services for which the TENANT or any other tenant in the Building reimburses the LANDLORD or which the LANDLORD provides selectively to one or more tenants (other than the TENANT) without reimbursement;
(t) Electric power costs for which any tenant directly contracts with the local public services company;
(u) Costs arising from the LANDLORD's political or charitable contributions;
(v) Costs, other than those incurred in ordinary maintenance and repair, for sculpture, painting, fountains or other objects of art;
(aa) Costs for which the LANDLORD had been compensated by a management fee to the extent that the including of such costs in Building Operating Expenses would result in a double charge to the TENANT;
(ab) Tax penalties incurred as a result of the LANDLORD's negligence, inability or unwillingness to make payments when due;
(ac) The LANDLORD's general corporate overhead and general and administrative expenses provided, however, nothing herein should be deemed to prohibit the LANDLORD from charging a reasonable management fee computed in accordance with industry custom and otherwise subject to the limitations in this Exhibit E. Such fee not to be in excess of a fee that would be charged by an independent management company not involved in brokerage
or leasing activities for the Building;
(ad) Costs (including attorney's fees) incurred by the LANDLORD due to the violation by the LANDLORD or any tenant other than TENANT of the terms and conditions of any lease of space in the Building; and
(ae) Any other expenses which, in accordance with generally accepted accounting principles, consistently applied, would not normally be treated as Building Operating Expense by landlords of comparable buildings; and to the extent that an expense is not specifically included or excluded as a component of Building Operating Expense pursuant to the Lease, whether such expenses shall be treated as Building Operating Expense shall be determined in accordance with generally accepted accounting principles, consistently applied; and to the extent that an expense is
included as Building Operating Expense under the Lease, but a method for the treatment or calculation of such expense is not specifically set forth in the Lease, then the treatment and calculation of such expense shall be done in accordance with generally accepted accounting principles, consistently applied.
EXHIBIT F
LANDLORD BUILDING WORK PRIOR TO TENANT IMPROVEMENTS
In addition to LANDLORD's responsibilities to
construct the Tenant Improvements as provided in the Lease,
LANDLORD, at its sole cost and expense, shall provide to the
Premises, prior to the construction of the Tenant
Improvements, the following items for each of the Buildings
comprising the Premises:
1. Men's and Women's toilet rooms.
2. A drinking fountain on each floor at the building core.
3. Electrical/telephone closets (including the
racks for the telephone systems).
4. Building stairways and elevators for exiting.
5. mechanical equipment rooms with fan units.
6. Sheetrock core walls (including elevator
lobby), perimeter and interior columns and exterior walls
above and below the windows, taped and spackled, ready for
painting.
7. Primary HVAC duct loops for the mechanical
equipment room around the building core.
8. Sprinklers for temporary protection
consisting if main lines, lateral lines and uprights,
installed according to local building codes.
9. Fire protection alarm and fire communication
systems installed according to local building codes.
Amendment To Lease Agreement
EXHIBIT B
TO
SECURED LOAN AGREEMENT
This Amendment to Lease Agreement (this "Amendment"), dated as of July 1, 1993, is entered into between SAN DIEGO GAS & ELECTRIC COMPANY ("Lessee") and SANWA BANK CALIFORNIA, as Owner Trustee ("Lessor") with reference to the following:
RECITALS
A. Lessee and Lessor's predecessor, LLOYD'S BANK CALIFORNIA, are parties to that certain Lease Agreement dated as of June 15, 1978 (the "Lease Agreement"), as supplemented by Lease Supplement No. 1, dated August 1, 1978, between the parties; and
B. Contemporaneously with the execution of this Amendment (i) First Interstate Bank of California (formerly known as United California Bank), as Indenture Trustee, and Lessor, as Owner Trustee, are entering into the Second Supplemental Indenture providing for the creation and issuance of Loan Certificates of Series B and (ii) Lessor, Lessee, The Prudential Insurance Company of America, Prudential Property and Casualty Insurance Company and Prudential Reinsurance Company, as Secured Loan Agreement Participants, BA Leasing & Capital Corporation (formerly known as BameriLease, Inc.), as Owner Participant, and the Indenture Trustee are entering into the Secured Loan Agreement pursuant to which the Secured Loan Agreement Participants will receive Loan Certificates of Series B to evidence loans by the Secured Loan Agreement Participants to the Owner Trustee, the proceeds of which will be used by the Owner Trustee simultaneously to refinance all of the outstanding Loan Certificates of Series A;
C. In order to effect the transactions contemplated by the Second Supplemental Indenture and the Secured Loan Agreement, the parties desire to amend the Lease Agreement as set forth heroin.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which are hereby specifically acknowledged, the Parties hereto agree as follows:
1. Amendments to Lease Agreement. Lessee and Lessor agree that the Lease Agreement is hereby amended as follows:
Exhibit B - Page 1
(a) The definition of "Documents" contained in
Section l(a) of the Lease Agreement is amended in its entirety to
read as follows:
"'Documents' shall mean the Financing Agreement, the Secured Loan Agreement, the Trust Agreement, the Trust Agreement Amendment, this Lease, the Lease Supplement, the Lease Amendment, the Facilities Agreement, the Consent, the Indenture, the Indenture Supplement, the Second Supplemental indenture, the Contracts, the Consents to Assignment of Contract Rights, the Deed and the Bill of Sale."
(b) The following new definitions are added to
Section l(a) of the Lease Agreement:
"'Lease Amendment' shall mean the Amendment to Lease Agreement entered into between Lessor and Lessee as of July 1, 1993."
"'Trust Agreement Amendment' shall mean the Amendment to Trust Agreement entered into between Owner Participant and Owner Trustee as of June 29, 1993."
(c) Section l(e) of the Lease Agreement is amended in its entirety to read as follows:
"Reference to Indenture. For all purposes of this Lease, the following terms shall have the meanings given them in the Indenture: 'Affiliate', 'Indenture Supplement', 'Second Supplemental Indenture', 'Indenture Trustee Office', 'Loan Certificate', 'Loan Certificates of Series A', 'Loan Certificates of Series B', 'Majority in Interest of Participants', 'Person', 'Secured Loan Agreement', 'Secured Loan Agreement Participants' and 'Trust Indenture Estate',"
(d] Section 5(b) of the Lease Agreement is amended in its entirety to read as follows:
Basic Rent. Lessee agrees to pay Basic Rent in fifty semi- annual installments on the Semi-Annual Rent Payment Dates during the Basic Term (i) in an amount equal to $5,051,209.87 for each installment due from July 1, 1979 through July 1, 1993, plus any increase therein required pursuant to Section 10(a) of the Financing Agreement if the aggregate of Fees and Expenses under the Financing Agreement exceed $1,650,000 and (ii) in the amount set forth on Schedule 4 hereto for each installment due from January 1, 1994 through January 1, 2004; provided that the amount of Basic Rent payable on any Semi-Annual Rent Payment Date shall in no event be less than the aggregate amount of principal and interest due and payable on the [loan certificates on such Semi-Annual Rent Payment Date.
Exhibit B - Page 2
(e) Section 5(c) of the Lease Agreement is amended to delete the words "Section 9(a) of the Financing Agreement" in the second and third lines thereof and substitute therefor the words "Section 8(a) of the Secured Loan Agreement."
(f) Section 5(d) of the Lease Agreement is amended
to delete the words Section 9(a) of the Financing Agreement" in
the ninth and tenth lines thereof and substitute therefor the words
Section 8(a) of the Secured Loan Agreement.
(g) Section 5(e) of the Lease Agreement is amended to delete the words "Section 9(a) of the Financing Agreement" in the fourth and fifth lines thereof and substitute therefor the words "section 8(a) of the Secured Loan Agreement."
(h) Section 5(f)(vi) of the Lease Agreement is amended to add the words "or the holder of any Loan Certificates" immediately following the words "or any Participant" in each place where they appear therein.
(i) Section 5(f)(vii) of the Lease Agreement is amended to add the words "or the holder of any Loan Certificates" at the end thereof.
(j) section 5(f) of the Lease Agreement is amended to delete the words "Section 10(a) of the Financing Agreement" in the fortieth and forty first lines thereof and substitute therefor the words "Section 9(a) of the Secured Loan Agreement."
(k) Section 6 of the Lease Agreement is amended to add the words ", the Secured Loan Agreement Participants" immediately following the word "Participant" in the twenty fifth and twenty ninth lines thereof.
(1) Section 15(d)(iii) of the Lease Agreement is amended to delete the words "Section 11fd)(vi) of the Financing Agreement" in the thirty third line thereof and substitute therefor the words "section 10fd)(vi) of the Secured Loan Agreement.,,
(m) Section 16(a) of the Lease Agreement is amended to add the words "or Section 3.04(b) of the Second Supplemental Indenture" at the end of the first sentence thereof.
(n) Section 20(a) of the Lease Agreement is amended to delete the words "Section 12 of the Financing Agreement" in the eighth line thereof and substitute therefor the words "Section 11 of the Secured Loan Agreement."
(o) Section 21(a) of the Lease Agreement is amended to add the words "the Secured Loan Agreement
Exhibit B - Page 3
participants," immediately following the words "the participants," in each place where they appear therein.
(p) Sections 21(b) and (c) of the Lease Agreement are each amended to add the words "the Secured Loan Agreement participants," immediately following the words "each participant," in each place where they appear therein.
(q) Section 21(d) of the Lease Agreement is amended
(i) to delete the words "Financing Agreement" in the sixth line
thereof and substitute therefor the words "Secured Loan Agreement"
and (ii) to add the words "the Lease Amendment," immediately
following the words "the Lease Supplement," in the sixth and
fifteenth lines thereof.
(r) Section 21(e) of the Lease Agreement is amended to add the words "and the Secured Loan Agreement participants" immediately following the words "any Participant" in the first line thereof.
(s) Sections 22(e) and (f) of the Lease Agreement are amended to delete the words "the Financing Agreement" and substitute therefor the words "Secured Loan Agreement" in each place where they appear therein.
(t) Annex 1 to this Amendment hereby replaces Schedule 1 to the Lease Agreement.
(u) Annex 2 to this Amendment is hereby added to the Lease Agreement as new Schedule 4 thereto.
2. Consent to Second Supplemental Indenture. In order to further secure and provide for the payment of the indebtedness evidenced by the Loan Certificates, the Owner Trustee provides in the Second Supplemental Indenture, among other things, for the grant, conveyance, assignment, transfer, mortgage and pledge of, and the creation of a first priority perfected security interest for the benefit of the indenture Trustee in and to, all of the right, title and interest of the Owner Trustee in, to and under this Amendment as provided in the Assignment Clause of the Second Supplemental Indenture. Lessee hereby consents to the terms of the Second Supplemental Indenture, including, without limitation, the issuance to the Secured Loan Agreement Participants of Lean Certificates of Series B thereunder, and such grant, conveyance, assignment, transfer, mortgage, pledge and creation.
3. Continued Effectiveness. Except as expressly modified by this Amendment, the provisions of the Lease Agreement shall remain in full force and effect and are hereby ratified and confirmed. The parties hereto agree that the terms of this Amendment, to the extent inconsistent with the terms of any
Exhibit B - Page 4
operative Document, shall control and supersede the terms of such Operative Document.
4. Effectiveness. This Amendment Shall be effective as of the date first above written, provided that on or before such date the Loan Certificates of Series B have been issued to the Secured Loan Agreement Participants as provided in the Second Supplemental Indenture.
5. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of such separate counterparts shall together constitute but one and the same instrument.
Exhibit B - Page 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.
SAN DIEGO GAS & ELECTRIC COMPANY
SANWA BANK CALIFORNIA
Exhibit B - Page 6
STATE OF CALIFORNIA )
) SS.
COUNTY OF SAN DIEGO )
On July 1, 1993 before me,
_________________________________________ , personally appeared
M.K. Malquist, Vice President - Finance and Treasurer of San Diego
Gas & Electric Company personally known to me (or proved to me on
the basis of satisfactory evidence) to be the persons whose names
are subscribed to the within instrument and acknowledged to me that
they executed the same in their authorized capacities, and that by
their signatures on the instrument the persons or the entity upon
behalf of which the persons acted, executed the instrument.
WITNESS my hand and official seal.
Signature ______________________________
(notarial seal)
STATE OF CALIFORNIA )
) SS.
COUNTY OF SAN FRANCISCO )
|
On July 1, 1993 before me,
___________________________________, personally appeared
____________________________________________, Vice Presidents of
Sanwa Bank California personally known to me (or proved to me on
the basis of satisfactory evidence) to be the persons whose names
are subscribed to the within instrument and acknowledged to me that
they executed the same in their authorized capacities, and that by
their signatures on the instrument the persons or the entity upon
behalf of which the persons acted, executed the instrument.
WITNESS my hand and official seal.
Signature ___________________________________
(notarial seal)
Exhibit B - Page 7
ANNEX 1
TO
AMENDMENT TO LEASE AGREEMENT
SCHEDULE 1
TO
LEASE AGREEMENT
STIPULATED LOSS VALUES
The Stipulated Loss Value of the Equipment as of a
particular date shall mean the product derived from multiplying
(i) the percentage figure opposite the appropriate Semi-Annual
Rent Payment Date set forth in the table appearing below by (ii)
Lessor's Cost. Stipulated Loss Value does not include any Rent
unpaid as of or due on such Date, or any amounts for which Lessee
may be obligated for indemnification under Sections 12, 13 and 24
of the Lease.
Semi-Annual Semi-Annual Percentage of Rent Payment No. Rent Payment No. Lessor's Cost - ---------------- ---------------- ------------- 30 01/01/1994 74.64639139 31 07/01/1994 70.68790928 32 01/01/1995 70.36526851 33 07/01/1995 66.27903401 34 01/01/1996 65.83777900 35 07/01/1996 61.63310228 36 01/01/1997 61.08070334 37 07/01/1997 56.76701751 38 01/01/1998 56.10895047 39 07/01/1998 51.68997695 40 01/01/1999 50.92809675 41 07/01/1999 46.40596936 42 01/01/2000 45.54251785 43 07/01/2000 40.91956147 44 01/01/2001 39.95697961 45 07/01/2001 35.23572462 46 01/01/2002 34.16997374 47 07/01/2002 29.33823085 48 01/01/2003 28.14517621 49 07/01/2003 23.18499171 50 01/01/2004 20.00000000 |
Exhibit B - Page 8
ANNEX 2
TO
AMENDMENT TO LEASE AGREEMENT
SCHEDULE 4
TO
LEASE AGREEMENT
RENT PAYMENT SCHEDULE
Semi-Annual Semi-Annual Rent Amount Rent Payment No. Rent Payment Date - ---------------- ----------------- ------------ 3O 01/01/1994 $2,509,015.62 31 07/01/1994 7,527,046.87 32 01/01/1995 2,509,015.62 33 07/01/1995 7,527,046.87 34 01/01/1996 2,509,015.62 35 07/01/1996 7,527,046.87 36 01/01/1997 2,509,015.62 37 07/01/1997 7,527,046.87 38 01/01/1998 2,509,015.62 39 07/01/1998 7,527,046.87 40 01/01/1999 2,509,015.62 41 07/01/1999 7,527,046.87 42 01/01/2000 2,509,015.62 43 07/01/2000 7,527,046.87 44 01/01/2001 2,509,015.62 45 07/01/2001 7,527,046.87 46 01/01/2002 2,509,015.62 47 07/01/2002 7,527,046.87 48 01/01/2003 2,509,015.62 49 07/01/2003 7,527,046.87 50 01/01/2004 4,990,153.30 |
Exhibit B - Page 9
RECORDED AT THE REQUEST OF THE ORIGINAL OF
THIS DOCUMENT
CHICAGO TITLE CO. WAS RECORDED ON
19-NOV-1993,
DOCUMENT NUMBER
1993-0780594.
ANNETTE EVANS, COUNTY
RECORDER SAN DIEGO COUNTY
RECORDER'S OFFICE
WHEN RECORDED MAIL TO:
SHAPERY DEVELOPERS GAS & ELECTRIC PROPERTY, L.P.
402 W. Broadway, Suite 1200
San Diego, California 92101
Attention: Sandor W. Shapery
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT AND ASSUMPTION OF LEASE is made by and between NEW
ENGLAND MUTUAL LIFE INSURANCE COMPANY, a Massachusetts corporation
(hereinafter referred to as "Assignor") and SHAPERY DEVELOPERS GAS
& ELECTRIC PROPERTY, L.P., a California limited partnership
(hereinafter referred to as "Assignee")
WITNESSETH:
WHEREAS, Assignor has this day conveyed to Assignee certain improvements located on but severed from the real property more particularly described on Exhibit "A" attached hereto and incorporated herein by reference (collectively, the "Property").
WHEREAS, Assignor has entered into that certain Lease dated July 14, 1975, as amended, supplemented, or modified through the date hereof, (the "Lease") with San Diego Gas and Electric Company ("Lessee"), whereby Assignor has leased the Property to Lessee; and
WHEREAS, Assignor desires to convey to Assignee all of Assignor's right, title and interest in and to the Lease.
NOW. THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Assignor does hereby GRANT, BARGAIN, SELL, CONVEY, ASSIGN, TRANSFER, SET OVER and DELIVER unto Assignee, its successors and assigns, all of Assignor's right, title and interest in and to the Lease.
TO HAVE AND TO HOLD the above rights, and interest unto Assignee, its successors and assigns, forever, and Assignor does hereby hind itself and its successors to WARRANT and FOREVER DEFEND, all and singular, title to the interests herein assigned unto Assignee, its successors, legal representatives and assigns, against every person whosoever
lawfully claiming or to claim the same, or any, part hereof by, through or through Assignor, but not otherwise; provided, however that this sale, assignment and conveyance is made and accepted expressly subject to the exceptions contained in that certain Grant Deed of even date herewith, executed by Assignor, conveying said improvements to Assignee, all to be effective as of the recordation of said Grant Deed.
It is understood and agreed that, by its execution hereof, Assignee hereby assumes and agrees to perform all of the terms, covenants and conditions of the Lease herein assigned arising from and after the effective date hereof.
This document may he executed in one or more counterparts, each of which shall be an original, and all of which together shall constitute a single instrument. All of the covenants. terms and conditions set forth herein shall be binding upon and inure to the benefit of the parties hereto, their respective successors and assigns.
EXECUTED this 19th day of November, 1993
"ASSIGNOR"
NEW ENGLAND MUTUAL LIFE
INSURANCE COMPANY, a Massachusetts
corporation
By: Copley Real Estate
Advisors, Inc., a
Massachusetts corporation, its asset
manager and advisor hereunder duly
authorized
By: K.M. Mahoney
Its: MANAGING DIRECTOR
"ASSIGNEE"
SHAPERY DEVELOPERS GAS &
ELECTRIC .PROPERTY, L. P. a
California
limited partnership
By: Shapery Developers Gas &
Electric
Corp , a California corporation,
its
general partner
By: Sandor W. Shapery
its President
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK
On November 17, 1993, before me, Linda J. Barove, a
Notary Public in and for said state, personally appeared KEVIN M.
MAHONY, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to
the within instrument and acknowledged to me that he executed the
same in his authorized capacity, and that by his signature on the
instrument, the person, or the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
Linda J. Barove
Notary Public in and for said State
STATE OF CALIFORNIA
COUNTY OF SAN DIEGO
November 19, 1993, before me, Buneva M. Deuel, a Notary Public in and for said state, personally appeared Sandor W. Shapery, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Buneva M. Deuel
Notary Public in and for said State
LEGAL DESCRIPTION
PARCEL 1:
ALL BUILDINGS AND IMPROVEMENTS SITUATED ON
LOTS A, B, C, D, E, F, G, H, I, J, AND K, IN BLOCK 195 OF HORTON'S ADDITION, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF MADE BY L. L. LOCKLING, ON FILE IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY.
EXCEPTING FROM SAID LOT K, THE NORTHERLY ONE-HALF THEREOF.
WHICH BUILDINGS AND IMPROVEMENTS ARE AND SHALL REMAIN REAL PROPERTY.
PARCEL 2:
ALL BUILDINGS AND IMPROVEMENTS SITUATED ON
LOT L AND THE NORTHERLY ONE-HALF OF LOT K IN BLOCK 195 OF HORTON'S ADDITION, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF MADE BY L. L. LOCKLING, ON FILE IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY.
WHICH BUILDINGS AND IMPROVEMENTS ARE AND SHALL REMAIN REAL PROPERTY.
EXHIBIT A
EXHIBIT 12.1
SAN DIEGO GAS & ELECTRIC COMPANY
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
1990 1991 1992 1993 1994
---------- ---------- ---------- ---------- ------------
Fixed Charges:
Interest:
Long-Term Debt $ 97,894 $ 98,802 $100,776 $ 93,402 $ 93,076
Short-Term Debt 12,301 8,234 6,242 7,980 10,322
Amortization of Debt
Discount and Expense,
Less Premium 2,465 2,471 2,881 4,162 4,604
Interest Portion of
Annual Rentals 20,898 18,067 14,677 19,206 21,998
---------- ---------- ----------- ---------- ----------
Total Fixed
Charges 133,558 127,574 124,576 124,750 130,000
---------- ---------- ----------- ---------- ----------
Preferred Dividends
Requirements 10,863 10,535 9,600 8,565 7,663
Ratio of Income Before
Tax to Net Income 1.75499 1.63017 1.72369 1.67794 1.90447
---------- ---------- ----------- ---------- ----------
Preferred Dividends
for Purpose of Ratio 19,064 17,174 16,547 14,372 14,594
---------- ---------- ---------- ---------- ----------
Total Fixed Charges
and Preferred
Dividends for
Purpose of Ratio $152,622 $144,748 $141,123 $139,122 $144,594
========== ========== ========== ========== ==========
Earnings:
Net Income (before
preferred dividend
requirements) $207,841 $208,060 $210,657 $218,715 $143,477
Add:
Fixed Charges
(from above) 133,558 127,574 124,576 124,750 130,000
Less: Fixed Charges
Capitalized 3,306 2,907 2,242 5,789 6,792
Taxes on Income 156,917 131,114 152,451 148,275 129,771
---------- ---------- ---------- ---------- -----------
Total Earnings for
Purpose of Ratio $495,010 $463,841 $485,442 $485,951 $396,456
========== ========== ========== ========== ===========
Ratio of Earnings
to Combined Fixed
Charges and Preferred
Dividends 3.24 3.20 3.44 3.49 2.74
========== ========== ========== ========== ==========
|
EXCERPT FROM TEN-YEAR SUMMARY PAGES 16-17
In millions of dollars except per share amounts
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
For the years ended December 31
Operating revenues $1,982.0 $1,980.1 $1,870.9 $1,789.0 $1,771.9
Operating income $321.9 $293.7 $296.3 $315.5 $314.0
Net income (before preferred
dividend requirements) $143.5 $218.7 $210.7 $208.1 $207.8
Earnings per common share $1.17 $1.81 $1.77 $1.76 $1.76
Dividends declared per common share $1.52 $1.48 $1.44 $1.3875 $1.35
At December 31
Total assets $4,642.5 $4,702.2 $4,494.6 $4,046.7 $3,945.2
Long-term debt and preferred stock
subject to mandatory redemption
(excludes current portion)* $1,480.2 $1,525.0 $1,651.9 $1,331.2 $1,337.1
|
*Includes long-term debt redeemable within one year.
This summary should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements contained elsewhere in this report.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
San Diego Gas & Electric Company is an operating public utility engaged in the electric and gas businesses. SDG&E generates and purchases electric energy and distributes it to 1.1 million customers in San Diego County and an adjacent portion of Orange County, California. It also purchases and distributes natural gas to 696,000 customers in San Diego County. SDG&E also transports electricity and gas for others. SDG&E has diversified into other businesses. Enova Corporation invests in limited partnerships representing approximately 550 affordable-housing projects located throughout the United States. Califia Company leases computer equipment. The investments in Enova and Califia are expected to provide income tax benefits over the next several years. Enova Energy Management is an energy management consulting firm offering services to utilities and large consumers. Pacific Diversified Capital is a holding company for non-utility subsidiaries, Phase One Development, Inc. which is engaged in real estate development and Wahlco Environmental Systems, Inc. (80 percent owned). Wahlco designs and manufactures air-pollution control and power-efficiency equipment for electric utilities and other power producers, refineries and other manufacturers. Additional information regarding SDG&E's subsidiaries is described in Notes 1 through 3 of the notes to consolidated financial statements.
Revenues
Electric revenues did not change significantly in 1994 and
increased 5 percent in 1993. The 1993 increase reflects higher
authorized costs and increased sales to other utilities.
Gas revenues did not change significantly in 1994 and increased 3 percent in 1993. Gas revenues in 1994 reflect higher authorized costs offset by lower sales volumes as a result of customers' purchases of gas directly from other suppliers. The 1993 increase reflects higher authorized costs, partially offset by lower sales volume as a result of customers' purchases of gas directly from other suppliers.
Revenues from diversified operations increased in 1994 and 1993 primarily due to Califia's leasing activities. Wahlco's revenues declined in 1994 as a result of the continuing poor market for air pollution control products. There was no significant change in Wahlco's revenues in 1993. Additional information concerning Wahlco is described in Notes 1 through 3 of the notes to consolidated financial statements.
Operating Expenses
Electric fuel expense decreased 18 percent in 1994 and did not
change significantly in 1993. The decrease in 1994 was primarily
due to lower prices for natural gas and the replacement of fossil
fuel generation with lower-cost nuclear generation as a result of
San Onofre Nuclear Generating Station Units 2 and 3 completing
their refueling cycles.
Purchased-power expenses increased 5 percent in 1994 and 1993. The increase in 1994 is primarily due to increased purchases from higher-cost independent power producers. The increase in 1993 reflects increased purchases of short-term energy as a result of the refueling of the SONGS Units 2 and 3 in 1993 and the permanent shutdown of Unit 1 in late 1992.
Gas purchased for resale decreased 12 percent in 1994 and did not change significantly in 1993. The decrease in 1994 was primarily due to lower prices for natural gas and lower sales volumes due to customers' purchases of gas directly from others.
Other operating expenses did not change significantly in 1994. The increase in 1993 is primarily due to higher utility operating and maintenance expenses, higher subsidiary operating expenses arising from Califia's increased leasing activities and higher depreciation as a result of the accelerated recovery of SDG&E's remaining investment in SONGS Unit 1.
Other Income and Deductions
Other income and deductions decreased in 1994 and did not change
significantly in 1993. The decrease in 1994, including the decrease
in "Other - net," was primarily due to the writedowns described in
Note 3 of the notes to consolidated financial statements.
Earnings
In 1994 earnings per common share were $1.17, compared to earnings
of $1.81 in 1993 and $1.77 in 1992. The decrease in 1994 was
primarily due to the writedowns described in Note 3 of the notes to
consolidated financial statements. The increase in earnings in 1993
is due primarily to the increase in the investment activities of
Califia and Enova. Califia and Enova's contributions to earnings
were 15 cents in 1994, 9 cents in 1993 and 1 cent in 1992.
Liquidity and Capital Resources
Utility operations continue to be a major source of liquidity for SDG&E. In addition, SDG&E's financing needs are met primarily through issuances of short-term and long-term debt and of common and preferred stock. These capital resources are expected to remain available. Cash requirements include plant construction and other capital expenditures, subsidiaries' affordable-housing and leasing investments, and retirements of long-term debt. In addition to changes described elsewhere, major changes in cash flows are described below.
Cash Flows from Operating Activities
The major changes in cash flows from operations among the three
years result from changes in regulatory balancing accounts, income
taxes, and accounts payable and other current liabilities. The
changes in cash flows related to regulatory balancing accounts were
due primarily to changes in prices for natural gas and the
replacement of lower-cost nuclear generation with purchased power
and gas-fired generation in 1993 due to the refuelings of SONGS
Units 2 and 3 and the shutdown of SONGS Unit 1 in late 1992. The
changes in cash flows related to income taxes were due primarily to
the differences in timing of income tax payments related to
regulatory balancing account activity in 1994 and due to higher
income tax payments in 1992 in connection with a preliminary
settlement with the Internal Revenue Service on the timing of
certain deductions in prior years. The changes in accounts payable
and other current liabilities were
(page>
primarily due to higher construction activity and higher employee
compensation in 1993.
Cash Flows from Financing Activities
SDG&E had only short-term financing needs during 1994. SDG&E did
not issue additional stock or long-term debt in 1994 and does not
plan any issuances in 1995 other than refinancings. SDG&E's utility
capital structure is one factor that has enabled it to obtain
long-term financing at attractive rates. The following table shows
the percentages of capital represented by the various components.
The capital structures are net of the construction funds held by a
trustee in 1992 and 1993.
1990 1991 1992 1993 1994 Goal
Common equity 45% 47% 47% 47% 48% 45-48%
Preferred stock 6 5 5 4 4 5-7
Debt and leases 49 48 48 49 48 46-49
Total 100% 100% 100% 100% 100% 100%
|
During 1994 the major credit-rating agencies placed the three large California electric utilities under review following an announcement by the California Public Utilities Commission of its plan to restructure California's electric utility industry. The review lead to an affirmation of SDG&E's A+ long-term bond rating by Standard & Poor's and a downgrade in SDG&E's long-term bond rating from Aa3 to A1 by Moody's Investors Service. The rating agencies indicated that the outlook for the California utilities would remain negative due to the long-term risk associated with the CPUC's proposal and due to the concerns about the burden the CPUC has placed on California utilities to buy high-cost power from independent power producers. Additional information concerning electric industry restructuring and SDG&E's purchased-power commitments is described under "Competition" and "Resource Planning" below and in Notes 10 and 11 of the notes to consolidated financial statements.
SDG&E periodically enters into interest rate swap and cap agreements to moderate its exposure to interest rate changes and to lower its overall cost of borrowing. SDG&E would be exposed to interest rate fluctuations on the underlying debt should other parties to the agreement not perform. Such nonperformance is not anticipated. Additional information on derivative financial instruments is provided in Note 9 of the notes to consolidated financial statements.
Cash Flows from Investing Activities
Sources of cash for investing activities in 1994 included the
withdrawal of the remaining $58 million in the construction trust
fund. Cash used in investing activities in 1994 included utility
construction expenditures and payments to the nuclear
decommissioning trust. Construction expenditures, excluding nuclear
fuel and the allowance for equity funds used during construction,
were $264 million in 1994 and are estimated to be about $240
million in 1995. SDG&E continuously reviews its construction,
investment and financing programs and revises them in response to
changes in competition, customer growth, inflation, customer rates,
the cost of capital, and environmental and regulatory requirements.
Among other things, the level of expenditures in the next few years
after 1995 will depend heavily on the impacts of the CPUC's
industry restructuring proposal, on the timing of expenditures to
comply with air emission reduction and other environmental
requirements, and on whether SDG&E proceeds with its plan to
transport natural gas to Mexico. These matters are discussed below.
Payments to the nuclear decommissioning trust are expected to continue until SONGS is decommissioned, which is not expected to occur before 2014. Although Unit 1 was permanently shut down in 1992, it is expected to be decommissioned concurrently with Units 2 and 3.
Regulatory Matters
Base Rates
On August 3, 1994 the CPUC adopted the base-rate component of
SDG&E's performance-based ratemaking mechanism for an experimental
period beginning in 1994 and ending in 1998, thereby replacing the
traditional general rate case process. The base-rate mechanism
includes a formula similar to the traditional attrition mechanism
used to determine SDG&E's annual revenue requirement for operating,
maintenance and capital costs. It also sets performance standards
for customer rates, employee safety, electric system reliability
and customer satisfaction. Each indicator specifies a range of
possible shareholder benefits and risks. Finally, the mechanism
provides for revenue sharing with customers should SDG&E earn one
percent or more above its authorized rate of return.
On December 21, 1994 the CPUC authorized a $48 million increase in electric and gas rates. The increase is based on the PBR base-rate mechanism's formula for operating and maintenance expenses, SONGS refueling costs, and capital-related costs (including depreciation).
On November 22, 1994 the CPUC issued its decision on the 1995 Cost of Capital proceeding, authorizing returns on equity ranging from 11.30 percent to 12.10 percent for the six California investor-owned utilities. This is an increase from their 1994 authorized returns, which ranged from 10.85 percent to 11.10 percent. The Commission indicated that the higher returns were authorized to maintain the utilities' financial integrity, to compensate investors for the increased costs of doing business, and to recognize the increased levels of risk arising from industry restructuring. SDG&E was authorized a return on equity of 12.05 percent for an overall rate of return of 9.76 percent and an increase in electric and gas rates of $36 million. SDG&E's 1994 authorized return on equity and rate of return were 10.85 percent and 9.03 percent, respectively.
Although the revenue increases for base rates and cost of capital are effective January 1, 1995, the electric portion of the increases will be combined with SDG&E's request for a rate decrease in its Energy Cost Adjustment Clause application (as described in "Electric Fuel and Energy Rates" below) and included in rates effective May 1, 1995. The gas portion of the increases was included in rates on January 1, 1995 (as described in "Gas Rates" below).
Electric Fuel and Energy Rates
On March 9, 1994 the CPUC issued its Energy Cost Adjustment Clause
decision finding
SDG&E's electric fuel and purchased-power expenses to be reasonable for the year ended July 31, 1992. This decision included the finding that SDG&E's administration of its Portland General Electric purchased-power contract was reasonable during the three-year period ended July 31, 1992. In May 1994 the CPUC's Division of Ratepayer Advocates issued its report on SDG&E's 1993 Energy Cost Adjustment Clause reasonableness review for the year ended July 31, 1993. The DRA generally found SDG&E's expenses and operations reasonable. A CPUC decision is expected in the first quarter of 1995.
On April 20, 1994 the CPUC issued its decision on the forecast phase of SDG&E's 1994 Energy Cost Adjustment Clause proceeding, approving a $57 million increase in electric rates to cover higher expected fuel and purchased-power expenses and to recover prior undercollections from customers. The fuel and purchased-power portion of the forecast also established the generation and dispatch benchmark for shareholder gains and losses under the performance-based ratemaking mechanism for the year beginning May 1, 1994. The rate increase was effective May 1, 1994.
On October 17, 1994 SDG&E filed its 1995 Energy Cost Adjustment Clause application with the CPUC, requesting a decrease of $67 million in electric rates. The request reflects lower expected fuel and purchased-power costs, and the amortization of previous overcollections from customers, including a refund of $15 million of unspent revenues for demand-side management programs, partially offset by the two-year amortization of the Bayside cogeneration contract termination payment (for additional information see "Cogeneration" below). On December 20 the CPUC's Division of Ratepayer Advocates issued its report on SDG&E's 1995 ECAC application, recommending a $79 million rate decrease. The difference is primarily due to the DRA's assumptions concerning future prices for fuel and purchased power. A CPUC decision is expected in April 1995, with rates effective May 1, 1995.
Under SDG&E's performance-based ratemaking generation and dispatch mechanism and gas procurement mechanism, fuel and energy operations and expenses are not normally subject to CPUC reasonableness reviews. However, SDG&E's nuclear operations and gas storage operations remain subject to review. The current review will cover those operations for the period from August 1993 to July 1994. A CPUC decision is expected in August 1995.
On October 31, 1994 SDG&E filed reports with the CPUC on the results of the generation and dispatch and the gas procurement mechanisms for the year ended July 31, 1994. SDG&E's fuel and purchased-power expenses fell below the benchmarks for these mechanisms by $35 million. SDG&E's ECAC application (see above) and its current Biennial Cost Allocation Proceeding application request a shareholder reward of $8 million and that the remainder of these savings be given to customers through lower rates.
Gas Rates
On December 21, 1994 the CPUC issued its decision on SDG&E's 1993
Biennial Cost Allocation Proceeding, authorizing a $32 million
decrease in gas rates. The decrease reflects lower prices for
natural gas, transportation and storage, and the amortization of
prior over-collections from customers, partially offset by SDG&E's
share of a settlement with Southern California Gas Company and
others concerning SDG&E's obligation under long-term natural gas
supply contracts. SDG&E is recovering its remaining share of the
settlement costs over the two-year period ending in 1996. The
change in gas rates was effective on January 1, 1995.
San Onofre Nuclear Generating Station
SDG&E is currently recovering its investment in San Onofre Nuclear
Generating Station Unit 1 over a four-year period that began in
November 1992, when the CPUC issued a decision to permanently shut
down the unit. The decision authorized Southern California Edison
(majority owner and operator of SONGS) and SDG&E to recover their
investments in Unit 1, of which SDG&E's share was $111 million.
SDG&E is recovering its investment, earning a return of 9.1
percent.
On November 15, 1994 SDG&E, Edison and the CPUC's Division of Ratepayer Advocates signed a settlement agreement on the accelerated recovery of SONGS Units 2 and 3 capital costs. The agreement would allow SDG&E to recover more than $750 million over an eight-year period beginning in February 1996, rather than over the anticipated operational life of the units, which is expected to extend to 2013. During the eight-year period, the authorized rate of return would be reduced from 9.76 percent to 7.52 percent (SDG&E's 1995 authorized cost of debt). The agreement also includes a performance incentive plan that would encourage continued, efficient operation of the plant. However, continued operation of SONGS beyond the eight-year period would be at the owners' discretion. Under the plan, customers would pay about four cents per kilowatt-hour during the eight-year period. This pricing plan would replace the traditional method of recovering the units' operating expenses and capital improvements. This is intended to make the plants more competitive with other sources. SDG&E is unable to predict the impact of this proposal, if approved, on the results of its operations. However, it is expected to be considered in conjunction with the CPUC's industry restructuring proposal. A CPUC decision is expected in the first half of 1995. Additional information on industry restructuring is provided under "Competition" below, and in Note 11 of the notes to consolidated financial statements.
Competition
Electric
In April 1994 the CPUC announced its proposal to restructure
California's regulated electric utility industry to stimulate
competition and to lower rates. The proposed regulatory framework
would be phased in over a six-year period. Beginning in 1996, the
utilities' largest customers would be allowed to purchase their
energy from either utility or nonutility suppliers. Other
industrial and commercial customers would have this choice by
between 1997 and 1999, depending on their energy requirements.
Residential customers would have this choice by 2002. The utilities
would continue to provide transmission and distribution services to
customers that switch to other suppliers. The CPUC also proposed
that the cost of providing these services and the cost of serving
remaining utility customers would be recovered through a
performance-based ratemaking process, replacing traditional cost-of-service ratemaking.
The CPUC is holding several hearings to address comments on its proposal. These hearings involve discussions of whether the CPUC's proposal or some other form of a competitive market should be developed, whether direct access and retail competition would be necessary for the CPUC to achieve its industry restructuring objectives, how such a market would be structured, and how the cost of the transition to competition and the cost of the various utility-sponsored social programs should be shared.
Both the Federal Energy Regulatory Commission and the California legislature have raised the issue of whether the CPUC has the authority to unilaterally change the way rates are determined and power is sold, since several California statutes would need to be changed to accommodate the proposal and since the FERC has jurisdiction over interstate power sales and transmission involving California's network.
The California legislature has passed a resolution forming an oversight committee to ensure the legislature's involvement in the policies proposed by the CPUC, and that the policies comply with federal and state laws and achieve the objectives of both competition and the various social programs that are currently funded through utility rates.
On December 7, 1994 the CPUC issued an interim decision ordering the utilities and interested parties to form a working group to consider how existing social, economic, conservation and environmental programs could be sustained under three broad restructuring concepts and to indicate where applicable laws would need to be changed: 1) complete market reform, allowing all customers to choose any supplier; 2) market reform with a mandatory pool through which all business is transacted; and 3) wholesale-only reform through which the suppliers transact business and retail consumers purchase through their current utility provider.
SDG&E has proposed a multi-step process for the transition to competition, including: the establishment of a schedule for the transition to a competitive market that would allow the recovery of the above-market cost of existing generating plants (including the SONGS units), related regulatory assets, power-purchase contracts and other long-term commitments, decommissioning, and environmental-mitigation costs, without having a significant rate increase or an adverse impact on SDG&E's earnings; the development of a fully competitive, pool-based wholesale market with open access to the transmission system for all power generators; and, to avoid self-dealing concerns, the separation of fossil-fuel generation (power plants and cogeneration contracts), transmission, and distribution assets through the formation of a holding company (see "Holding Company" below). SDG&E's proposal also foresees: the renegotiation of long-term purchased-power contracts, including contracts with independent power producers, to lower the cost of those contracts to market price and to allow the recovery of any excess contract costs and other transition costs by allocating these costs to all utility customers through a distribution charge included in retail rates, which would not be subject to potential bypass; the replacement of mandated long-term resource commitments (such as the Biennial Resource Plan Update process) with short-term resource procurement; and, once the wholesale market is in place, the establishment of access to the competitive wholesale market for all customers at the same time through a local distribution company. SDG&E would make the necessary regulatory filings no later than January 1996 and implement its proposal as soon as regulatory approvals are granted, rather than over the phase-in period ending in 2002 as proposed by the CPUC.
Some interested participants in the proceedings support the CPUC's direct access proposal, but prefer a longer phase-in period to avoid stranded investments (those costs that are in excess of what will be recoverable via market-based pricing structures). Others, who are planning to enter the electric-generation business in California, favor retail wheeling whereby customers may purchase directly from any supplier and avoid paying utilities' fixed costs. They also suggest that a shorter period for the transition to a competitive market is possible.
On January 31, 1995 SDG&E filed with the CPUC its position
regarding certain legal issues. SDG&E asserted, among other things:
that federal law prohibits the CPUC from denying recovery of
prudently incurred costs; that the CPUC cannot constitutionally
compel retail wheeling or divestiture without compensation for
above-market assets; and that implementation of the CPUC's retail
wheeling proposal would require major changes to state law.
As the restructuring of the industry evolves, SDG&E will become more vulnerable to competition. However, many issues and complications still need to be resolved. California utilities' rates are significantly higher than the national average. However, among the investor-owned utilities in California, SDG&E has been the lowest-cost provider and has a lower concentration of industrial customers, which make its customers a less likely target for outside competitors. In addition, SDG&E has not built a power plant in over 10 years, which lowers the risk associated with the recovery of its power-plant investment.
Utility plant in service by major functional categories at December 31, 1994 are: electric generation $1.7 billion, electric distribution $2.0 billion, electric transmission $0.7 billion, gas $0.7 billion and other $0.2 billion. Accumulated depreciation and decommissioning at December 31, 1994 are $2.0 billion and $0.2 billion, respectively. The balances at December 31, 1993 were substantially the same.
If the CPUC proceeds with the move to a competitive environment, if the prices of competing suppliers are as anticipated, and if the regulatory process does not provide for complete recovery of stranded costs, SDG&E would have to incur a charge against earnings for a significant portion of its generating facilities, the related regulatory assets and the long-term commitments. Additional information on potential stranded costs and SDG&E's long-term purchased-power commitments is described below under "Resource Planning" and in Notes 10 and 11 of the notes to consolidated financial statements. Additional information concerning the recovery of SONGS is described under "San Onofre Nuclear Generating Station."
The CPUC plans to issue a preliminary recommendation setting forth policy conclusions on March 22, 1995, followed by a comment period and a full panel hearing on April 24, 1995. The CPUC has indicated that the implementation of a final policy decision would not occur before September 1995. SDG&E cannot predict the impact of the CPUC's final decision and the transition to a more competitive environment on SDG&E's financial condition and results of operations.
Holding Company
On November 7, 1994 SDG&E filed an application with the CPUC to
form a holding company. Under the proposed structure, SDG&E would
become a subsidiary of the parent company, as would SDG&E's
existing subsidiaries. SDG&E would exchange its outstanding common
shares for an equal number of holding company shares. Shareholders
will be asked to vote on the proposal at the annual shareholder
meeting on April 25, 1995. SDG&E has applied to other regulatory
bodies for approval of the proposal and hopes to have the holding
company in place by mid 1995. SDG&E believes that changes in the
California utility industry and the movement toward a more
competitive marketplace will require SDG&E to change its corporate
structure. Under the holding company structure the customers of its
remaining, regulated utility business would be shielded from the
financial effects of the holding company's non-utility or
competitive ventures.
Gas
The ongoing restructuring of the gas utility industry has allowed
customers to bypass utilities as suppliers and transporters of
natural gas. Currently nonutility electricity producers and other
large customers may use a utility's facilities to transport gas
purchased from nonutility suppliers. Also, smaller customers may
form groups to buy gas from another supplier. SDG&E would face
significant competition if a major pipeline were to operate in or
near SDG&E's service territory.
In 1993 SDG&E and SoCal Gas submitted a joint proposal to transport natural gas to the Rosarito Power Plant in Baja California, Mexico. The project involves the construction of an 80-mile pipeline from SoCal Gas' service territory to the Mexican border, and is competing with two other proposed pipelines. Mexico has postponed a decision on this project. In 1994 SDG&E and SoCal Gas began negotiations with Mexico for service to Mexicali in Baja California through SoCal Gas' existing system in the Imperial Valley. The recent economic unrest in Mexico has affected progress, and the full impact on the project is unknown.
Resource Planning
South Bay Repower
Project In 1994 the CPUC and the California Energy Commission
approved SDG&E's requests to withdraw its applications for the
proposed 500-mw South Bay Repower project. SDG&E indicated that the
long-term commitment needed for this project would create
significant risk, given the uncertainty of the impact of
competition resulting from the CPUC's proposed utility industry
restructuring.
Biennial Resource Plan Update Proceeding On December 21, 1994 the CPUC issued a decision ordering SDG&E, Pacific Gas and Electric, and Southern California Edison to proceed with the BRPU auction. SDG&E was ordered to begin negotiating contracts (ranging from 17 to 30 years) to purchase 500 mw of power from independent power producers at an estimated cost of $4.8 billion beginning in 1997. Final contracts must be filed with the CPUC for all firm bids by May 28, 1995. SDG&E expects that prices for BRPU energy will be significantly higher than market prices. However, the CPUC refused to let the utilities include contract provisions that would allow for adjustments to reflect changes in market prices or other economic effects of industry restructuring, contending that utilities already have such rights. The CPUC did not guarantee full recovery of BRPU costs and indicated that the recovery of potential stranded costs would be addressed in the electric industry restructuring proceedings. Additional information on potential stranded costs and SDG&E's purchased-power commitments is described under "Competition" above and in Notes 10 and 11 of the notes to consolidated financial statements.
On January 11, 1995 the Federal Energy Regulatory Commission found that states may not require utilities to purchase power at rates exceeding the purchasing utility's avoided cost. The FERC held that the Public Utility Regulatory Policies Act (PURPA) preempts a Connecticut statute that requires that state's utilities to purchase power from municipal power plants at rates exceeding the utilities' avoided cost. The FERC indicated that requiring utilities to pay cogenerators more than avoided cost in the new competitive environment conflicts with the Energy Policy Act of 1992. On January 17, 1995 SDG&E filed a petition with the FERC, contending that the CPUC's BRPU orders and auction rules do not comply with PURPA and that the FERC should require the CPUC to comply with PURPA. On February 22, 1995 the FERC ruled favorably on SDG&E's petition. A final order is expected shortly. Edison filed a similar petition with the FERC.
Cogeneration
On July 20, 1994 SDG&E entered into an agreement to terminate its
long-term power-purchase agreement with the owners of the 50-mw
Bayside cogeneration project proposed for development in San Diego.
SDG&E estimates that the termination of the agreement will result
in significant savings to SDG&E's customers over the life of the
contract. On December 21, 1994 the CPUC approved SDG&E's recovery
of the contract termination costs.
Sources of Fuel and Energy
SDG&E's primary sources of fuel and purchased power include natural
gas from Canada and the Southwest, surplus power from other
utilities in the Southwest and the Northwest, and uranium from
Canada. SDG&E expects its fuel and purchased-power costs to remain
relatively low in the next few years due to the continued
availability of surplus power in the Southwest and the continued
availability of natural gas. Although short-term natural gas
supplies and prices are volatile due to weather and other
conditions, these sources should provide SDG&E with an adequate
supply of low-cost natural gas. SDG&E is currently involved in
litigation concerning its long-term contracts for natural gas with
certain Canadian suppliers. SDG&E cannot predict the outcome of the
litigation but does not expect that an unfavorable outcome would
have a material effect on its financial condition or results of
operations.
Environmental Matters
SDG&E's operations are conducted in accordance with federal, state and local environmental laws and regulations governing hazardous wastes, air and water quality, land use, and solid waste disposal. SDG&E incurs significant costs to operate its facilities in compliance with these laws and regulations, and to clean up the environment as a result of prior operations of SDG&E or of others. The costs of compliance with environmental laws and regulations are normally recovered in customer rates. The CPUC is expected to continue allowing the recovery of such costs, subject to reasonableness reviews.
Capital expenditures to comply with environmental laws and regulations were $5 million in 1994 and $8 million in 1993, and are expected to be $90 million over the next 5 years. These expenditures primarily include the estimated cost of retrofitting SDG&E's power plants to reduce air emissions. They do not include potential expenditures to comply with water-discharge requirements for the Encina, South Bay and SONGS power plants, which are discussed below.
Hazardous Wastes
On May 4, 1994 the CPUC issued its decision on the Hazardous Waste
Collaborative, approving a mechanism for utilities to recover their
hazardous-waste costs, including those related to Superfund sites
or similar sites requiring cleanup. Basically, the decision allows
utilities to recover 90 percent of their cleanup costs and related
third party litigation costs and 70 percent of the related
insurance litigation expenses.
On December 6, 1993 SDG&E received notification that the California Department of Toxic Substances Control had assumed responsibility for remediation activities at the Rosen's Electrical Equipment Supply Company site in Pico Rivera, California. Contamination from polychlorinated biphenyls (PCBs) was previously found on and near the site. SDG&E sold transformers to Rosens in the early 1980s and has been identified as a Potentially Responsible Party (PRP) for the site under California law. SDG&E, seven other named PRPs and others may be held liable for the cost of assessment and remediation of the site. The state has indicated that SDG&E may be held responsible for about 7 percent of the hazardous waste at the site. SDG&E is investigating this matter. The state has received documentation and information regarding any possible dealings various PRPs may have had with Rosens, but is awaiting similar information from Rosens before determining whether it will issue a cleanup order to Rosens alone or to all PRPs including Rosens. Based on available information, SDG&E is unable to estimate the range of liability, if any, it may have for remediating this site.
SDG&E has identified or has been associated with various other sites that may require remediation under federal, state or local environmental laws. SDG&E may be held partially or indirectly responsible for remediation of some of these sites. However, SDG&E is unable to estimate the extent of its responsibility for remediation. Furthermore, the timing for assessing the costs of remediation at these sites and the number and identities of other parties that may also be responsible (and their respective ability to share in the cost of the remediation) are also unknown.
Electric and Magnetic Fields
SDG&E and other utilities are involved in litigation concerning
electric and magnetic fields. An unfavorable outcome of this
litigation could have a significant impact on the future operations
of the electric utility industry, especially if relocation of
existing power lines is ultimately required. To date, science has
demonstrated no cause-and-effect relationship between cancer and
exposure to the type of EMFs emitted by utilities' transmission
lines and generating facilities. To respond to public concerns, the
CPUC has directed the California utilities to adopt a low-cost
EMF-reduction policy that requires reasonable design changes to
achieve noticeable reduction of EMF field levels that are
anticipated from new projects. However, consistent with the major
scientific reviews of available research literature, the CPUC has
previously indicated that no health risk has been identified with
exposure to EMFs.
Air Quality
In 1996 SDG&E must begin to comply with nitrogen dioxide emission
limits imposed by the San Diego Air Pollution Control District.
Full compliance is required by 2001. The cost of compliance
includes retrofitting SDG&E's power plants and is estimated to be
$110 million in capital costs and increased operating costs.
Water Quality
In 1989 SDG&E submitted applications to the San Diego Regional
Water Quality Control Board to renew the discharge permits for its
South Bay and Encina power plants. Supplemental applications were
submitted in 1993. The Regional Board issued SDG&E a new discharge
permit for its Encina power plant in November 1994. SDG&E
anticipates that the Regional Board will make its determination in
1995 regarding SDG&E's South Bay power plant. The permits are
required to enable SDG&E to discharge its cooling water and its
treated in-plant waste water to the ocean and to San Diego Bay and
are, therefore, prerequisites to the continued operation of its
power plants.
In addition, increasingly stringent cooling-water and treated-waste-water discharge limitations may be imposed and SDG&E may be required to build additional facilities to comply with these requirements. Such facilities could include waste-water treatment facilities, cooling towers or offshore discharge pipelines.
The California Coastal Commission required a study of the offshore impact on the marine environment from the cooling-water discharge by SONGS Units 2 and 3. The study concluded that some environmental damage is caused by the discharge. To mitigate the environmental damage, the California Coastal Commission ordered Edison and SDG&E to improve the plant's fish-protection system, build a 300-acre artificial reef to help restore kelp beds, and restore 150 acres of coastal wetlands. SDG&E may be required to incur capital costs of up to $30 million to comply with this order.
Tree-Trimming Safety
The CPUC is investigating the adequacy of utilities' tree-trimming
safety precautions. As a result of a farmworker's death in 1992 in
SDG&E's service territory, the CPUC may require SDG&E to pay a fine
and implement safety programs. A CPUC decision is expected in
April 1995. SDG&E cannot predict the ultimate outcome of this
matter.
Responsibility Report for the Consolidated Financial Statements
SDG&E is responsible for the consolidated financial statements and other data in this annual report. To meet its responsibility for the reliability of the consolidated financial statements, SDG&E has developed a system of internal accounting controls and engages a firm of independent auditors. The board of directors of SDG&E carries out its responsibility for the consolidated financial statements through its audit committee, composed of directors who are not officers or employees of SDG&E.
Management maintains the system of internal accounting controls, which it believes is adequate to provide reasonable, but not absolute, assurance that its assets are safeguarded, that transactions are executed in accordance with its objectives, and that the financial records and reports are reliable for preparing the consolidated financial statements in accordance with generally accepted accounting principles.
The concept of reasonable assurance recognizes that the cost of a system of internal accounting controls should not exceed the benefits derived and that management makes estimates and judgments of these cost/benefit factors. The system of internal accounting controls is supported by an extensive program of internal audits, selection and training of qualified personnel, and written policies and procedures.
SDG&E's independent auditors, Deloitte & Touche LLP, are engaged to audit SDG&E's consolidated financial statements in accordance with generally accepted auditing standards for the purpose of expressing their opinion as to whether SDG&E's consolidated financial statements are presented fairly, in all material respects, in accordance with generally accepted accounting principles.
The audit committee discusses with SDG&E's internal auditors and the independent auditors the overall scope and specific plans for their respective audits. The committee also discusses SDG&E's consolidated financial statements and the adequacy of SDG&E's internal controls. The committee met twice during the fiscal year with the internal auditors, the independent auditors and management to discuss the results of their examinations, their evaluations of SDG&E's internal controls, and the overall quality of SDG&E's financial reporting. The internal auditors and the independent auditors have full and free access to the committee throughout the year.
SDG&E's management has prepared the consolidated financial statements and other data in this annual report. In the opinion of SDG&E, the consolidated financial statements, which include amounts based on estimates and judgments of management, have been prepared in conformity with generally accepted accounting principles.
Frank H. Ault
Vice President and Controller
Independent Auditors' Report
To the Shareholders and Board of Directors of San Diego Gas & Electric Company:
We have audited the accompanying consolidated balance sheets and the consolidated statements of capital stock and of long-term debt of San Diego Gas & Electric Company and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, changes in capital stock and retained earnings, cash flows, and financial information by segments of business for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of San Diego Gas & Electric Company and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company is considering alternative strategies related to its 80 percent-owned subsidiary, Wahlco Environmental Systems, Inc., which may result in a charge to the Company's future earnings.
DELOITTE & TOUCHE LLP
San Diego, California
February 27, 1995
STATEMENTS OF CONSOLIDATED INCOME
In thousands except per share amounts
For the years ended December 31 1994 1993 1992
----------- ----------- -----------
Operating Revenues
Electric . . . . . . . . . . . . . . $1,510,320 $1,514,608 $1,447,118
Gas . . . . . . . . . . . . . . . . . 346,183 346,658 336,992
Diversified operations . . . . . . . 125,534 118,849 86,790
----------- ----------- -----------
Total operating revenues . . . . . 1,982,037 1,980,115 1,870,900
----------- ----------- -----------
Operating Expenses
Electric fuel . . . . . . . . . . . . 143,339 174,444 174,849
Purchased power . . . . . . . . . . . 342,612 325,966 311,046
Gas purchased for resale . . . . . . 146,579 165,876 167,385
Maintenance . . . . . . . . . . . . . 70,776 81,788 73,040
Depreciation and decommissioning . . 265,244 250,619 213,661
Property and other taxes . . . . . . 44,746 44,902 45,769
Other . . . . . . . . . . . . . . . . 496,755 494,369 439,569
Income taxes . . . . . . . . . . . . 150,070 148,477 149,274
----------- ----------- -----------
Total operating expenses . . . . . 1,660,121 1,686,441 1,574,593
----------- ----------- -----------
Operating Income . . . . . . . . . . . 321,916 293,674 296,307
----------- ----------- -----------
Other Income and (Deductions)
Writedown of intangibles . . . . . . (59,116) -- --
Writedown of real estate . . . . . . (25,000) -- --
Allowance for equity funds used
during construction . . . . . . . . 6,274 17,909 7,547
Taxes on nonoperating income . . . . 20,299 202 (3,177)
Other - net . . . . . . . . . . . . . (15,552) 8,229 16,294
----------- ----------- -----------
Total other income and (deductions) (73,095) 26,340 20,664
----------- ----------- -----------
Income Before Interest Charges . . . . 248,821 320,014 316,971
----------- ----------- -----------
Interest Charges
Long-term debt . . . . . . . . . . . 93,076 93,402 100,776
Short-term debt and other . . . . . . 14,926 12,142 9,123
Allowance for borrowed funds used
during construction . . . . . . . . (2,658) (4,245) (3,585)
----------- ----------- -----------
Net interest charges . . . . . . . 105,344 101,299 106,314
----------- ----------- -----------
Net Income (before preferred dividend
requirements) . . . . . . . . . . . . 143,477 218,715 210,657
Preferred Dividend Requirements . . . . 7,663 8,565 9,600
----------- ----------- -----------
Earnings Applicable to Common Shares . $ 135,814 $ 210,150 $ 201,057
========== ========== ===========
Average Common Shares Outstanding . . . 116,484 116,049 113,806
Earnings Per Common Share . . . . . . . $ 1.17 $ 1.81 $ 1.77
Dividends Declared Per Common Share . . $ 1.52 $ 1.48 $ 1.44
|
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
In thousands of dollars
Balance at December 31 1994 1993
------------ ------------
ASSETS
Utility plant - at original cost . . . . . . . . $5,329,179 $5,134,251
Accumulated depreciation and decommissioning . . (2,180,087) (2,016,618)
------------ ------------
Utility plant-net . . . . . . . . . . . . . . 3,149,092 3,117,633
------------ ------------
Investments and other property . . . . . . . . . 466,864 464,101
------------ ------------
Current assets
Cash and temporary investments . . . . . . . . 32,526 17,450
Accounts receivable . . . . . . . . . . . . . 213,358 205,712
Notes receivable . . . . . . . . . . . . . . . 31,806 29,201
Inventories . . . . . . . . . . . . . . . . . 80,794 84,922
Other . . . . . . . . . . . . . . . . . . . . 36,010 40,810
------------ ------------
Total current assets . . . . . . . . . . . 394,494 378,095
------------ ------------
Construction funds held by trustee . . . . . . . -- 58,042
Goodwill . . . . . . . . . . . . . . . . . . . . -- 53,921
Deferred taxes recoverable in rates . . . . . . 305,717 311,564
Deferred charges and other assets . . . . . . . 326,284 318,880
------------ ------------
Total . . . . . . . . . . . . . . . . . . $4,642,451 $4,702,236
============ ============
CAPITALIZATION AND LIABILITIES
Capitalization (see Statements of Consolidated
Capital Stock and of Long-Term Debt)
Common equity . . . . . . . . . . . . . . . $1,474,430 $1,516,240
Preferred stock:
Not subject to mandatory redemption . . . 93,493 93,493
Subject to mandatory redemption . . . . . 25,000 25,000
Long-term debt . . . . . . . . . . . . . . . 1,340,237 1,411,948
------------ ------------
Total capitalization . . . . . . . . . . . 2,933,160 3,046,681
------------ ------------
Current liabilities
Short-term borrowings . . . . . . . . . . . . 89,325 131,197
Long-term debt redeemable within one year . . 115,000 88,000
Current portion of long-term debt . . . . . . 35,465 76,161
Accounts payable . . . . . . . . . . . . . . . 138,764 166,622
Dividends payable . . . . . . . . . . . . . . 46,200 44,962
Taxes accrued . . . . . . . . . . . . . . . . 5,641 24,844
Interest accrued . . . . . . . . . . . . . . . 23,627 20,396
Regulatory balancing accounts overcollected-net 111,731 33,179
Other . . . . . . . . . . . . . . . . . . . . 121,456 104,353
------------ ------------
Total current liabilities . . . . . . . . 687,209 689,714
------------ ------------
Customer advances for construction . . . . . . . 36,250 41,729
Accumulated deferred income taxes-net . . . . . 523,680 532,062
Accumulated deferred investment tax credits . . 109,161 114,159
Deferred credits and other liabilities . . . . . 352,991 277,891
Contingencies and commitments
(Notes 2, 10, and 11). . . . . . . . . . . . _ _
------------ ------------
Total . . . . . . . . . . . . . . . . . . $4,642,451 $4,702,236
============ ============
|
See notes to consolidated financial statements.
STATEMENTS OF CONSOLIDATED CASH FLOWS
In thousands of dollars
For the years ended December 31 1994 1993 1992
--------- -------- --------
Cash Flows from Operating Activities
Net Income . . . . . . . . . . . . . . . . . . . . . . . $143,477 $218,715 $210,657
Adjustments to reconcile net income to net cash
provided by operating activities
Writedown of intangibles and real property. . . . . . 96,116 -- --
Depreciation and decommissioning . . . . . . . . . . 265,244 250,619 213,661
Amortization of deferred charges and other assets . . 12,944 12,309 3,091
Amortization of deferred credits and other liabilities (30,370) (18,616) (1,168)
Allowance for equity funds used during construction . (6,274) (17,909) (7,547)
Deferred income taxes and investment tax credits . . (54,152) 45,606 (11,031)
Other-net . . . . . . . . . . . . . . . . . . . . . . 54,257 10,227 (2,752)
Changes in working capital components net
of effects from purchases of subsidiaries
Accounts and notes receivable . . . . . . . . . . . . (10,251) (10,479) (1,326)
Regulatory balancing accounts . . . . . . . . . . . . 78,552 (13,245) 24,647
Inventories . . . . . . . . . . . . . . . . . . . . . 4,128 4,616 7,401
Other current assets . . . . . . . . . . . . . . . . 4,800 5,039 (2,360)
Accrued interest and taxes . . . . . . . . . . . . . 18,661 (19,141) (30,682)
Accounts payable and other current liabilities . . . (10,755) 19,691 (16,952)
--------- --------- ---------
Net cash provided by operating activities . . . . . 566,377 487,432 385,639
--------- --------- ---------
Cash Flows from Financing Activities
Dividends paid . . . . . . . . . . . . . . . . . . . (183,492) (178,708) (172,211)
Short-term borrowings-net . . . . . . . . . . . . . . (41,872) 48,448 38,781
Issuance of long-term debt . . . . . . . . . . . . . -- 369,893 509,200
Repayment of long-term debt . . . . . . . . . . . . . (92,468) (531,526) (236,994)
Sale (redemption) of common stock . . . . . . . . . . (558) 38,850 58,176
Issuance of preferred stock . . . . . . . . . . . . . -- 50,636 24,733
Redemption of preferred stock . . . . . . . . . . . . -- (65,228) (40,195)
--------- --------- ---------
Net cash provided (used) by financing activities . (318,390) (267,635) 181,490
--------- --------- ---------
Cash Flows from Investing Activities
Utility construction expenditures . . . . . . . . . . (263,709) (354,391) (280,281)
Withdrawals from (contributions to)
construction trust funds-net . . . . . . . . . . . 58,042 190,225 (248,267)
Contributions to decommissioning funds . . . . . . . (22,038) (22,038) (22,038)
Leasing investments . . . . . . . . . . . . . . . . . -- (19,729) (13,353)
Other-net . . . . . . . . . . . . . . . . . . . . . . (5,206) (7,493) (9,027)
--------- --------- ---------
Net cash used by investing activities . . . . . . . (232,911) (213,426) (572,966)
--------- --------- ---------
Net increase (decrease) . . . . . . . . . . . . . . . . . 15,076 6,371 (5,837)
Cash and temporary investments beginning of period . . . . 17,450 11,079 16,916
--------- --------- ---------
Cash and temporary investments end of period . . . . . . . $ 32,526 $ 17,450 $ 11,079
========= ========= =========
Supplemental Schedule of Noncash Investing
and Financing Activities
Leasing investments . . . . . . . . . . . . . . . . . $ -- $150,880 $ 83,077
Real estate investments . . . . . . . . . . . . . . . 28,311 84,278 31,977
--------- --------- ---------
Total assets acquired . . . . . . . . . . . . . . . 28,311 235,158 115,054
Cash paid . . . . . . . . . . . . . . . . . . . . . (452) (28,209) (14,368)
--------- --------- ---------
Liabilities assumed . . . . . . . . . . . . . . . . $ 27,859 $206,949 $100,686
========= ========= =========
See notes to consolidated financial statements.
|
STATEMENTS OF CONSOLIDATED CHANGES IN CAPITAL STOCK AND RETAINED EARNINGS
In thousands of dollars
For the years ended December 31, 1992, 1993, 1994
Preferred Stock
---------------------------
Not Subject Subject to
to Mandatory Mandatory Common Premium on Retained
Redemption Redemption Stock Capital Stock Earnings
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 1991 $87,493 $52,000 $281,240 $480,519 $588,227
Net income 210,657
Common stock sold (2,491,284 shares) 6,228 50,728
Long-term incentive plan activity-net 117 1,103
Preferred stock sold (1,000,000 shares) 25,000 (267)
Preferred stock retired (1,070,000 shares) (25,000) (7,000) (2,597) (940)
Sinking fund requirement (1,800)
Dividends declared
Preferred stock (9,533)
Common stock (164,043)
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 62,493 68,200 287,585 529,486 624,368
Net income 218,715
Common stock sold (1,457,756 shares) 3,644 33,612
Long-term incentive plan activity-net 59 1,535
Preferred stock sold (2,040,000 shares) 51,000 (364)
Preferred stock retired (633,700 shares) (20,000) (43,200) 850 (2,878)
Dividends declared
Preferred stock (8,526)
Common stock (171,846)
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 93,493 25,000 291,288 565,119 659,833
Net income 143,477
Long-term incentive plan activity-net 53 (611)
Dividends declared
Preferred stock (7,663)
Common stock (177,066)
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 $93,493 $25,000 $291,341 $564,508 $618,581
============================================================================================================
See notes to consolidated financial statements.
|
STATEMENTS OF CONSOLIDATED CAPITAL STOCK
In thousands of dollars except call price
Balance at December 31 1994 1993
----------- -----------
COMMON EQUITY
Common stock, without par value, authorized
255,000,000 shares, outstanding: 1994,
116,536,535 shares; 1993, 116,515,073 shares $ 291,341 $ 291,288
Premium on capital stock 564,508 565,119
Retained earnings 618,581 659,833
----------- -----------
Total common equity $1,474,430 $1,516,240
=========== ===========
PREFERRED STOCK (A) Trading Call
Not subject to mandatory redemption Symbol(B) Price
$20 par value, authorized 1,375,000 shares --------- --------
5% Series, 375,000 shares outstanding SDOPrA $ 24.00 $ 7,500 $ 7,500
4 1/2% Series, 300,000 shares outstanding SDOPrB 21.20 6,000 6,000
4.40% Series, 325,000 shares outstanding SDOPrC 21.00 6,500 6,500
4.60% Series, 374,650 shares outstanding -- 20.25 7,493 7,493
Without par value (C)
$7.20 Series, 150,000 shares outstanding SDOPrG 101.00 15,000 15,000
$1.70 Series, 1,400,000 shares outstanding -- 25.85(D) 35,000 35,000
$1.82 Series, 640,000 shares outstanding SDOPrH 26.00(D) 16,000 16,000
-------- --------- -------- --------
Total not subject to mandatory redemption $93,493 $93,493
======== ========
Subject to mandatory redemption
Without par value (C)
$1.7625 Series, 1,000,000 shares outstanding (E) -- $ 25.00(D) $25,000 $25,000
-------- --------
Total subject to mandatory redemption $25,000 $25,000
======== ========
|
(A) All series of preferred stock have cumulative preferences as to dividends.
The $20 par value preferred stock has two votes per share, whereas the no
par value preferred stock is nonvoting. The $20 par value preferred stock
has a liquidation value at par. The no par value preferred stock has a
liquidation value of $25 per share, except for the $7.20 series, which has
a liquidation value of $100 per share.
(B) All listed shares are traded on the American and Pacific Stock Exchanges.
(C) Authorized 10,000,000 shares total (both subject to and not subject to mandatory redemption).
(D) The $1.70 and $1.7625 series are not callable until 2003; the $1.82 series is not callable until 1998.
(E) The $1.7625 series has a sinking fund requirement to redeem 50,000 shares per year from 2003 to 2007. The remaining 750,000 shares must be redeemed in 2008.
See notes to consolidated financial statements.
STATEMENTS OF CONSOLIDATED LONG-TERM DEBT
In thousands of dollars
Balance at December 31 First Call Date 1994 1993
--------------- ----------- -----------
First mortgage bonds
5 1/2% Series I, due March 1, 1997 . . . . . . $ 25,000 $ 25,000
5 1/2% Series U-2, due September 1, 1994. . . . -- 8,468
4.25 Series CC, due May 1, 2008(A). . . . . . . 53,000 53,000
4.25% Series DD, due December 1, 2008(A). . . . 27,000 27,000
9 1/4% Series EE, due September 1, 2020(B). . . 09/01/95 74,350 74,350
4.25% Series FF, due December 1, 2007(A). . . . 35,000 35,000
7 5/8% Series GG, due July 1, 2021(B) . . . . . 07/01/96 44,250 44,250
7 3/8% Series HH, due December 1, 2021(B) . . . 12/01/96 81,350 81,350
8 3/4% Series II, due March 1, 2023(B). . . . . 09/01/97 25,000 25,000
9 5/8% Series JJ, due April 15, 2020. . . . . . 04/15/00 100,000 100,000
6.8% Series KK, due June 1, 2015(A) . . . . . . 14,400 14,400
8.5% Series LL, due April 1, 2022 . . . . . . . 04/01/02 60,000 60,000
7 5/8% Series MM, due June 15, 2002 . . . . . . 80,000 80,000
6.1% and 6.4% Series NN, due September 1, 2018
and 2019(B) . . . . . . . . . . . . . . . . 09/01/02 118,615 118,615
Various % Series OO, due December 1, 2027(C). . 12/01/02 250,000 250,000
5.9% Series PP, due June 1, 2018(B) . . . . . . 06/01/03 70,795 70,795
Various % Series QQ, due June 1, 2018(B). . . . 14,915 14,915
5.85% Series RR, due June 1, 2021(A). . . . . . 06/01/03 60,000 60,000
5.9% Series SS, due September 1, 2018(B). . . . 09/01/03 92,945 92,945
----------- -----------
Total . . . . . . . . . . . . . . . . . . 1,226,620 1,235,088
Capitalized leases . . . . . . . . . . . . . . . 103,575 124,782
Debt incurred to acquire limited partnerships,
various rates, payable annually through 2003. . 109,473 94,301
Bank loans, various rates, due 1995-2000. . . . . 18,681 84,421
Other long-term debt. . . . . . . . . . . . . . . 40,264 45,837
Unamortized discount on long-term debt . . . . . (7,911) (8,320)
Long-term debt redeemable within one year . . . (115,000) (88,000)
Current portion of long-term debt . . . . . . . (35,465) (76,161)
----------- -----------
Total . . . . . . . . . . . . . . . . . . $1,340,237 $1,411,948
=========== ===========
(A) Issued to secure the company's obligation under a series of loan agreements with the California
Pollution Control Financing Authority under which the Authority loaned proceeds from the sale of $115
million of variable rate/demand and $74 million in fixed-rate pollution control revenue bonds to the
company to finance certain qualifying facilities associated with the company's 20 percent interest in
San Onofre Units 2 and 3.
(B) Issued to secure the company's obligation under a series of loan agreements with the City of San Diego
under which the City loaned the proceeds from the sale of $522 million in industrial development
revenue bonds to the company to finance certain qualifying facilities.
(C) Issued to secure the company's obligation under a loan agreement with the City of Chula Vista under
which the City loaned the proceeds from the sale of $250 million in tax-exempt industrial development
revenue bonds to the company to finance certain qualified facilities.
|
See notes to consolidated financial statements.
STATEMENTS OF CONSOLIDATED FINANCIAL INFORMATION BY SEGMENTS OF BUSINESS
In thousands of dollars
At December 31 or for the years then ended 1994 1993 1992
- --------------------------------------------------------------------------------
Operating Revenues (A), (B) $1,982,037 $1,980,115 $1,870,900
========== ========== ==========
Operating Income
Electric operations . . . . . . . . . . $ 255,768 $ 242,143 $ 270,172
Gas operations . . . . . . . . . . . . 50,375 46,071 37,234
Diversified operations (B). . . . . . . 15,773 5,460 (11,099)
---------- ---------- ----------
Total . . . . . . . . . . . . . . . $ 321,916 $ 293,674 $ 296,307
========== ========== ==========
Depreciation and Decommissioning
Electric operations . . . . . . . . . . $ 220,811 $ 210,890 $ 178,513
Gas operations . . . . . . . . . . . . 31,009 28,215 27,667
Diversified operations (B). . . . . . . 13,424 11,514 7,481
---------- ---------- ----------
Total . . . . . . . . . . . . . . . $ 265,244 $ 250,619 $ 213,661
========== ========== ==========
Utility Plant Additions (C)
Electric operations . . . . . . . . . . $ 203,887 $ 291,456 $ 236,918
Gas operations . . . . . . . . . . . . 59,822 62,935 43,363
---------- ---------- ----------
Total . . . . . . . . . . . . . . . $ 263,709 $ 354,391 $ 280,281
========== ========== ==========
Identifiable Assets
Utility plant-net
Electric operations . . . . . . . . . $2,725,624 $2,724,139 $2,623,058
Gas operations . . . . . . . . . . . 423,468 393,494 355,634
---------- ---------- ----------
Total . . . . . . . . . . . . . . . 3,149,092 3,117,633 2,978,692
---------- ---------- ----------
Inventories
Electric operations . . . . . . . . . 56,209 57,410 62,170
Gas operations . . . . . . . . . . . 19,398 18,703 14,056
Diversified operations (B). . . . . . 5,187 8,809 10,839
---------- ---------- ----------
Total . . . . . . . . . . . . . . . 80,794 84,922 87,065
---------- ---------- ----------
Other identifiable assets
Electric operations . . . . . . . . . 732,941 744,335 861,236
Gas operations . . . . . . . . . . . 149,199 139,631 175,156
Diversified operations (B). . . . . . 391,021 504,359 288,914
---------- ---------- ----------
Total . . . . . . . . . . . . . . . 1,273,161 1,388,325 1,325,306
---------- ---------- ----------
Other Assets . . . . . . . . . . . . . . 139,404 111,356 103,509
---------- ---------- ----------
Total Assets . . . . . . . . . . . . . . $4,642,451 $4,702,236 $4,494,572
========== ========== ==========
|
(A) The detail to operating revenues is provided in the Statements of Consolidated Income. The gas operating revenues shown therein include $18 million in 1994, $16 million in 1993 and $17 million in 1992, representing the gross margin on sales to the electric segment. These margins arose from interdepartmental transfers of $119 million in 1994, $141 million in 1993 and $142 million in 1992, based on transfer pricing approved by the California Public Utilities Commission in tariff rates.
(B) As discussed in Note 2, SDG&E is considering alternative strategies relative to its investment in Wahlco Environmental Systems, Inc. Included in the totals for diversified operations for 1994 are the following amounts for Wahlco: $70 million in operating revenues, $12 million in operating losses, $3 million in depreciation, $5 million in inventories and $43 million in other identifiable assets.
(C) Excluding allowance for equity funds used during construction.
Utility income taxes and corporate expenses are allocated between electric and gas operations in accordance with regulatory accounting requirements.
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
1 Summary of Accounting Policies
Nature of Operations
San Diego Gas & Electric is an operating public utility. The
principal market for SDG&E's electric and gas business is in San
Diego County and an adjacent portion of Orange County, California.
SDG&E has diversified into other businesses, including subsidiaries
Califia Company, Enova Corporation, Enova Energy Management, Inc.
and Pacific Diversified Capital Company. Califia and Enova are
engaged in non-utility investment activities throughout the United
States. Enova Energy Management is an energy management consulting
firm offering services to utilities and large consumers. Pacific
Diversified Capital is a holding company for non-utility
subsidiaries, Phase One Development, Inc., which is engaged in real
estate development in San Diego and Colorado Springs, and Wahlco
Environmental Systems, Inc. (80 percent owned). Wahlco designs and
manufactures air-pollution control and power-efficiency equipment
for electric utilities and other power producers, refineries and
other manufacturers throughout the world. In 1994 these diversified
operations contributed 5 percent to operating income (2 percent in
1993). See additional information regarding Wahlco in Notes 2 and 3.
Utility Plant and Depreciation
Utility plant represents the buildings, equipment and other
facilities used to provide electric and gas service. The cost of
utility plant includes labor, material, contract services and other
related items, and an allowance for funds used during construction.
The cost of retired depreciable utility plant, plus removal expenses
minus salvage value is charged to accumulated depreciation.
Information regarding industry restructuring and its effect on
utility plant is included in Note 11.
Depreciation expense reflects the straight-line remaining useful life method. The provisions for depreciation as a percentage of average depreciable utility plant (by major functional categories) are: electric generation 4.04 in 1994 (4.03 in 1993, 3.70 in 1992), electric distribution 4.35 in 1994 (4.35 in 1993, 4.13 in 1992), electric transmission 3.24 in 1994 (3.26 in 1993, 3.55 in 1992), gas 4.11 in 1994 (4.16 in 1993, 4.36 in 1992) and other 5.88 in 1994 (5.80 in 1993, 6.12 in 1992).
Inventories
At December 31, 1994 inventories include $49 million of materials
and supplies ($55 million in 1993), and $32 million of fuel oil and
natural gas ($30 million in 1993). Materials and supplies are valued
at average cost; fuel oil and natural gas are valued by the last-in
first-out (LIFO) method.
Other Current Assets
Included in other current assets at December 31, 1994 is $28 million
of investment in SONGS 1 which will be recovered in 1995. The
noncurrent portion of $17 million is included in "Deferred Charges
and Other Assets" on the Consolidated Balance Sheets.
Allowance for Funds Used During Construction The allowance represents the cost of funds used to finance the construction of utility plant and is added to the cost of utility plant. AFDC also increases income, partly as an offset to interest charges shown in the Statements of Consolidated Income, although it is not a current source of cash.
Revenues and Regulatory Balancing Accounts Revenues from utility customers consist of deliveries to customers and the changes in regulatory balancing accounts. Earnings fluctuations from changes in the costs of fuel oil, purchased energy and natural gas, and consumption levels for electricity and the majority of natural gas are eliminated by balancing accounts authorized by the California Public Utilities Commission. The balances of these accounts represent amounts that will be recovered from, or repaid to, customers by adjustments to future prices, generally over a one-year cycle.
Goodwill
Goodwill arose from the acquisition of certain businesses by Pacific
Diversified Capital. In 1994 the remaining balance of goodwill was
written off as a result of the depressed air pollution-control
market and increasing competition. See additional information in
Notes 2 and 3.
Deferred Charges and Other Assets
Deferred charges include unrecovered premium on early retirement of
debt and other regulatory-related expenditures that SDG&E expects to
recover in future rates. These items are amortized as recovered in
rates. Additional information is included in Note 11.
Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Statements of Consolidated Cash Flows
Temporary investments are highly liquid investments with original
maturities of three months or less.
Other
Certain prior year amounts have been reclassified for comparability.
2 Investment in Wahlco Environmental Systems, Inc.
SDG&E's investment in and advances to Wahlco aggregate $21 million at December 31, 1994 after the writedown of Wahlco's goodwill and other assets as described below and in Note 3. At December 31, 1994, Wahlco had consolidated net assets of $7 million. During the years ended December 31, 1992, 1993 and 1994, Wahlco's net loss was $13 million, $11 million and $66 million. During those years Wahlco's cash flow provided by (used in) operations was ($7 million), ($5 million) and $3 million.
Historically, Wahlco's primary and most profitable product line has been flue gas conditioning equipment, which is sold to utilities with coal-fired generating plants. Since the passage of the 1990
Clean Air Act Amendments, Wahlco's prospects for future profitability have been significantly associated with the size and timing of flue gas conditioning equipment orders from utilities responding to that legislation. Phase I of that legislation required certain utilities to be in compliance by January 1, 1995. Phase II requires the remaining utilities with coal-fired generation to be in compliance by January 1, 2000.
Thus far, sales of and orders for flue gas conditioning equipment have not reached anticipated levels in the United States as a result of many companies' delaying decisions on how to comply with the Clean Air Act, and as a result of increasing competition from the availability of federal pollution credits, aggressive pricing strategies by competitors, alternative methods of compliance, such as fuel blending, and other options. In late 1993 Wahlco recorded a restructuring charge to reflect the planned relocation of Wahlco's manufacturing operations in Canada and West Virginia to its other U.S. facilities. During 1994 Wahlco continued to close down various unprofitable operations. See discussion of writedowns in Note 3. Wahlco has also reduced its number of employees by one-third and reduced its manufacturing square footage by about one-half. SDG&E continues to consider alternative strategies relative to its investment in Wahlco. Continued operating losses or the implementation of other strategies could lead to the further writeoff of a significant portion of SDG&E's remaining investment in Wahlco.
3 Writedowns
In June 1994 SDG&E recorded writedowns related to the utility and its subsidiaries. The total amount of the writedowns was $96 million before income taxes. $59 million represents the writedown of goodwill and other intangible assets at Wahlco Environmental Systems as a result of the depressed air pollution-control market and increasing competition. SDG&E also recorded a $25 million writedown of various commercial properties, including $19 million of subsidiary properties in Colorado Springs and in San Diego, to reflect continuing declines in commercial real estate values. As a result of the California Public Utilities Commission's proposal to restructure the electric utility industry and the uncertainty concerning the impact of competition, SDG&E also recorded a $12 million writedown of various non-earning utility assets, including the South Bay Repower project. Additional information on the CPUC's proposed industry restructuring and its potential impacts on SDG&E is described in Note 11.
4 Long-Term Debt
Amounts and due dates of long-term debt are shown on the Statements of Consolidated Long-Term Debt. Excluding capital leases, which are described in Note 10, combined aggregate maturities and sinking fund requirements of long-term debt are $27 million for 1995, $34 million for 1996, $53 million for 1997, $25 million for 1998 and $21 million for 1999. SDG&E has CPUC authorization to issue an additional $263 million in debt.
First Mortgage Bonds
First mortgage bonds are secured by a lien on substantially all
utility plant. Additional first mortgage bonds may be issued upon
compliance with the provisions of the bond indenture. Certain of the
first mortgage bonds may be called at SDG&E's option.
First mortgage bonds totaling $305 million have variable interest rate provisions. On $115 million, bondholders may elect to redeem their bonds at the annual interest-adjustment dates. For purposes of determining the aggregate maturities listed above, it is assumed that these issues will not be redeemed before scheduled maturity.
During 1994 SDG&E retired $8 million of first mortgage bonds at scheduled maturity.
Other Debt
At December 31, 1994 SDG&E had two $50 million bank lines providing
a committed source of long-term borrowings, of which no debt was
outstanding. Bank lines, unless renewed by SDG&E, expire in 2000.
Commitment fees are paid on the unused portion of the lines and
there are no requirements for compensating balances.
Loans of $153 million and $149 million at December 31, 1994 and 1993, respectively, are secured by subsidiary equipment and real estate.
Interest
Interest payments, including those applicable to short-term
borrowings, amounted to $102 million in 1994, $106 million in 1993
and $108 million in 1992. Interest payments of $34 million in 1992
on income taxes in connection with a preliminary settlement with the
Internal Revenue Service are included with income taxes in Note 8.
SDG&E periodically enters into interest rate swap and cap agreements to moderate its exposure to interest rate changes and to lower its overall cost of borrowings. At December 31, 1994 SDG&E had such agreements, maturing in 1996 and 2002, with underlying debt aggregating $120 million. See additional information in Note 9.
5 Short-Term Borrowings
At December 31, 1994 and 1993 short-term borrowings and weighted
average interest rates thereon were:
In millions of dollars 1994 1993
Balance Interest Rate Balance Interest Rate
Bank loans $58 6.4% $ 91 3.4%
Subsidiaries' bank credit lines 31 7.1% 40 5.2%
Total $89 $131
|
At December 31, 1994 SDG&E had various bank lines, aggregating $170 million, available to support commercial paper and bank loans. SDG&E's subsidiaries had bank credit lines that provided for borrowings up to $31 million at the London Inter-Bank Offered Rate (LIBOR). Commitment fees are paid on the unused portion of the lines and there are no requirements for compensating balances.
6 Facilities Under Joint Ownership
The San Onofre nuclear power plant and the Southwest Powerlink
transmission line are jointly owned with other utilities. SDG&E's
interests at December 31, 1994 were:
In millions of dollars
- --------------------------------------------------------------------
Project San Southwest
Onofre Powerlink
Percentage ownership 20 89
Utility plant in service $1,102 $ 216
Accumulated depreciation $ 368 $ 74
Construction work in progress $ 22 $ -
Each participant in the projects must provide its own financing. The
amounts specified above for San Onofre include nuclear production,
transmission and other facilities.
SDG&E's share of operating expenses is included in its Statements of
Consolidated Income.
SDG&E's share of future dismantling and decontamination costs for
the San Onofre units is estimated to be $322 million in current
dollars and is based on studies performed by outside consultants
updated triennially. The most recent study was performed in 1993.
These costs are included in setting rates and are expected to be
fully recovered by 2014, the estimated last year of service. See
discussion on industry restructuring and stranded investment in Note
11.
The amount accrued each year is based on the amount allowed by
regulators and is currently being collected in rates. This amount is
considered sufficient to cover SDG&E's share of future
decommissioning costs. The depreciation and decommissioning expense
reflected on the Statements of Consolidated Income includes $22
million of decommissioning expense for each of the years 1994, 1993
and 1992.
Decontamination objectives, work scope and procedures must meet the
requirements of the Nuclear Regulatory Commission, the Environmental
Protection Agency, the California Public Utilities Code and the
requirements of other regulatory bodies.
SDG&E invests in externally managed trust funds the amounts
collected in rates. In accordance with SFAS 115, Accounting for
Certain Investments in Debt and Equity Securities, the securities
held by the trust are considered held for sale and are adjusted to
market value ($202 million at December 31, 1994, which is included
in "Investments and Other Property" on the Consolidated Balance
Sheets and which is net of a $10.1 million unrealized loss). The
corresponding accumulated accrual is included in accumulated
depreciation and decommissioning on the Consolidated Balance Sheets.
The Financial Accounting Standards Board is currently reviewing
accounting for the costs of decommissioning nuclear power plants,
including the recognition, measurement and classification of such
costs. The Board could require, among other things, that SDG&E's
future balance sheets include a liability for the estimated
decommissioning costs, and an offsetting regulatory asset reflecting
anticipated rate recovery of this liability to the extent not
already collected from customers. This would have no effect on
SDG&E's results of operations.
Additional information regarding San Onofre is included in Note 10.
7 Employee Benefit Plans
SDG&E has a defined-benefit pension plan, which covers substantially
all utility employees. Benefits are related to the employees'
compensation. Plan assets consist primarily of common stocks and
bonds.
SDG&E funds the plan based on the aggregate cost actuarial method.
Net pension cost consisted of the following for the year ended
December 31:
In thousands of dollars 1994 1993 1992
- --------------------------------------------------------------------------
Cost related to current service $18,733 $18,233 $17,838
Interest on projected benefit obligation 33,254 29,745 27,933
Return on plan assets (1,319) (39,351) (23,267)
------ ------ ------
Net amortization and deferral (34,253) 5,342 (9,124)
Cost pursuant to accounting standards 16,415 13,969 13,380
Regulatory adjustment (16,415) (13,969) (16,201)
------ ------ ------
Net benefit $ - $ - $(2,821)
======= ======= =======
The plan's status was as follows at December 31:
In thousands of dollars 1994 1993
- --------------------------------------------------------------------
Accumulated benefit obligation
Vested $308,672 $304,053
Nonvested 10,480 10,616
-------- --------
Total $319,152 $314,669
======== ========
Plan assets at fair value $424,455 $435,371
Projected benefit obligation 417,625 457,710
------- -------
Plan assets less projected
benefit obligation 6,830 (22,339)
Unrecognized effect of accounting change (1,328) (1,517)
Unrecognized prior service cost 12,956 14,043
Unrecognized actuarial gains (71,278) (26,592)
------- -------
Accrued liability $(52,820) $(36,405)
======== ========
|
The projected benefit obligation assumes an 8.25 percent actuarial discount rate in 1994 (7.5 percent in 1993) and a 5.0 percent average annual compensation increase (6.0 percent in 1993). The expected long-term rate of return on plan assets is 8.5 percent. The impact of increasing the actuarial discount rate and decreasing the average annual salary increase was to decrease the total accumulated benefit obligation and projected benefit obligation by approximately $35 million and $89 million, respectively.
Eligible employees may make a contribution of 1 percent to 15 percent of their base pay to SDG&E's savings plan for investment in mutual funds or in SDG&E common stock. SDG&E contributes amounts equal to up to 3 percent of participants' base compensation for investment in SDG&E common stock.
SDG&E's expense for the pension and the savings plans and a
supplemental retirement plan for a limited number of key employees
was approximately $6 million in 1994, $6 million in 1993 and $2
million in 1992.
SDG&E has a long-term incentive stock compensation plan that
provides for aggregate awards of up to 2,700,000 shares of common
stock over a 10-year period ending in 1996. The plan's term was
extended to April 2005 by the SDG&E board of directors, subject to
approval by SDG&E shareholders. In each of the last nine years SDG&E
issued approximately 40,000 shares to 60,000 shares of stock to
officers and key employees for $2.50 per share, subject to buy-back
over four years if certain corporate goals are not met.
SDG&E provides certain health and life insurance benefits to retired
utility employees. Prior to 1993, SDG&E expensed these benefits when
paid and such amounts were normally recovered in rates. Effective
January 1, 1993, SDG&E adopted SFAS 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, which requires that
these benefits be accrued during the employee's years of service, up
to the year of benefit eligibility. The unamortized transition
obligation of approximately $42 million is being amortized through
2012. SDG&E is recovering the cost of these benefits based upon
actuarial calculations and funding limitations. The amounts expensed
for these benefits were $5 million in 1994, $5 million in 1993 and
$4 million in 1992.
8 Income Taxes
SFAS 109, Accounting for Income Taxes, requires the use of the
balance sheet method of accounting for income taxes. Under this
method, a deferred tax asset or liability represents the tax effect
of temporary differences between the financial statement and tax
bases of assets and liabilities and is measured using the latest
enacted tax rates.
As a result of adopting SFAS 109, SDG&E recorded additional deferred
income taxes related to the allowance for funds used during
construction and other temporary differences for which deferred
income taxes had not been provided. Existing deferred income taxes
were reduced due to intervening income tax rate reductions, and a
deferred income tax asset related to unamortized investment tax
credits was recorded.
The net effect of these changes is almost entirely offset by a
regulatory asset of $306 million at December 31, 1994 ($312 million
at December 31, 1993). This regulatory asset is expected to be
recovered in future rates and will be adjusted as it is recovered
through the ratemaking process and as tax rates and laws change. See
additional discussion regarding regulatory assets in Note 11.
Effective January 1, 1993 the federal statutory tax rate increased
to 35 percent from 34 percent. This change increased SDG&E's net
deferred tax liability by approximately $14 million. The impact on
income tax expense was not significant.
Income tax payments totaled $167 million in 1994, $116 million in
1993 and $192 million in 1992.
Components of Accumulated Deferred Income Taxes
In thousands of dollars 1994 1993
- -------------------------------------------------------------------
Deferred tax liabilities
Differences in financial and tax bases
of utility plant $627,296 $631,250
Loss on reacquired debt 27,576 28,572
Other 60,222 86,126
-------- --------
Total deferred tax liabilities 715,094 745,948
-------- --------
Deferred tax assets
Unamortized investment tax credits 74,563 79,479
Equipment leasing activities 49,547 61,533
Other 134,761 99,494
-------- --------
Total deferred tax assets 258,871 240,506
-------- --------
Net deferred income tax liability 456,223 505,442
Current portion of deferred income taxes 67,457 26,620
-------- --------
Accumulated deferred income taxes-net $523,680 $532,062
======== ========
Components of Income Tax Expense
In thousands of dollars 1994 1993 1992
- --------------------------------------------------------------------
Current
Federal $149,117 $ 79,848 $134,635
State 34,806 22,821 28,847
--------- --------- ---------
Total current taxes 183,923 102,669 163,482
Deferred
Federal (37,697) 43,365 (2,248)
State (12,897) 7,001 (3,638)
--------- --------- ---------
Total deferred taxes (50,594) 50,366 (5,886)
Deferred investment
tax credits-net (3,558) (4,760) (5,145)
--------- --------- ---------
Total income tax expense $129,771 $148,275 $152,451
========= ========= =========
Federal and state income taxes are allocated between operating
income and other income.
Reconciliation of Statutory Federal Income Tax Rate to Effective
Income Tax Rate
1994 1993 1992
- --------------------------------------------------------------------
Statutory federal income tax rate 35.0% 35.0% 34.0%
Depreciation 8.3 5.0 3.7
Writedown of intangibles 8.2 _ _
State income taxes - net of
federal income tax benefit 4.6 5.3 4.3
Tax credits (6.7) (3.9) (2.8)
Equipment leasing activities (4.1) (1.8) -
Repair allowance (3.5) (2.1) (1.6)
Allowance for funds used
during construction (0.9) (1.9) (0.7)
Other-net 6.6 4.8 5.1
-------- -------- --------
Effective income tax rate 47.5% 40.4% 42.0%
======== ======== ========
|
9 Fair Value of Financial Instruments
Due to the nature of the regulatory process, gains and losses attributable to the fair value of financial instruments generally will accrue to SDG&E customers.
The carrying amounts and related estimated fair values of SDG&E's financial instruments are as follows:
In millions of dollars 1994 1993
- ------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ------------------------------------------------------------------------
Assets
Cash and temporary
investments $ 32.5 $ 32.5 $ 17.5 $ 17.5
Funds held in trust 201.9 201.9 249.4 251.2
Notes receivable 121.5 121.1 149.9 149.9
Investments in limited
partnerships and
other assets 170.2 182.5 150.1 158.7
Liabilities
Dividends payable 46.2 46.2 45.0 45.0
Short-term debt and
current portion
of long-term debt 231.4 230.5 247.2 247.2
Deposits from customers 56.2 50.2 60.4 55.0
Long-term debt 1,245.0 1,211.1 1,295.3 1,380.5
Preferred stock subject to
mandatory redemption 25.0 23.8 25.0 27.3
|
The estimated fair values may not be representative of actual amounts that could have been realized as of year end or that will be realized in the future.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments.
Cash and Temporary Investments, Short-Term Notes Receivable and
Dividends Payable
The carrying amount approximates fair value due to the short
maturity of these items.
Noncurrent Notes Receivable
The fair values of noncurrent notes receivable (included in
"Deferred Charges and Other Assets" on the Consolidated Balance
Sheets) are based on the present value of the estimated future cash
flows discounted at current rates available for similar notes.
Funds Held in Trust
Funds held in trust include the SONGS decommissioning trust
(included in "Investments and Other Property" on the Consolidated
Balance Sheets) and, in 1993, construction trust funds. The fair
values of the funds' assets are based on quoted market values.
Investments in Limited Partnerships and Other Assets The fair values of investments in limited partnerships and other assets (included in "Investments and Other Property" on the Consolidated Balance Sheets) acquired after 1992 are estimated to approximate carrying value due to the relatively short periods of time between the purchase dates and the valuation date, and the relative market stability during those periods. Fair values of investments acquired prior to 1993 are estimated based on the present value of the estimated future cash flows discounted at yields currently available for similar investments.
Deposits from Customers
Deposits from customers include deposits from residential and
commercial customers (included in "Other Current Liabilities" on the
Consolidated Balance Sheets) and customer advances for construction.
The carrying amounts of deposits from residential and commercial
customers approximate fair value due to the short maturity periods.
The fair values of customer advances for construction are based on
the present values of the estimated future cash flows discounted at
current rates of return.
Debt and Preferred Stock Subject to Mandatory Redemption The fair values of SDG&E's first mortgage bonds and preferred stock issues are estimated based on quoted market prices for them or for similar issues, or on the current rates offered to SDG&E for debt and stock of the same maturities. The fair values of notes payable are based on the present values of the future cash flows discounted at current rates available for similar notes with comparable maturities. The carrying amount of short-term loans and notes payable approximate fair value due to the short maturities.
Off-Balance-Sheet Interest Rate Cap and Swap Agreements The fair value of these derivative financial instruments is the estimated amount that would be realized or paid upon termination of the agreements based on quotes from dealers. These agreements, if terminated, would result in net proceeds to SDG&E of $2 million at December 31, 1994 compared to an obligation of $4 million at December 31, 1993.
SDG&E's policy is to utilize derivatives only in hedging situations. SDG&E periodically enters into interest rate swap and cap agreements to moderate its exposure to interest rate changes and to lower its overall cost of borrowing. These swap and cap agreements generally remain off the balance sheet as they involve the exchange of fixed- and variable-rate interest payments without the exchange of the underlying principal amounts. The related gains or losses are reflected in the income statement as part of the expense item applicable to what is being hedged (e.g., interest expense).
At December 31, 1994 SDG&E had two such agreements, including an index cap agreement on $75 million of bonds maturing in 1996, and a floating-to-fixed rate swap associated with another $45 million of variable-rate bonds maturing in 2002. SDG&E expects to hold these derivative financial instruments to their maturity. These agreements have effectively fixed interest rates on the underlying variable-rate debt at 5.4 percent to 6.3 percent. These financial instruments are with major investment firms and, along with cash and cash equivalents and accounts receivable, expose SDG&E to market and credit risks and may at times be concentrated with certain counterparties. SDG&E would be exposed to interest rate fluctuations on the underlying debt should counterparties to the agreement not perform. Such nonperformance is not anticipated.
10 Contingencies and Commitments
Purchased Power Contracts
SDG&E buys electric power under several short-term and long-term
contracts. Purchases are for 2 percent to 10 percent of plant output
under contracts with other utilities and up to 100 percent of plant
output under contracts with independent power producers and other
non-utility suppliers. No
one contract provides more than 4 percent of SDG&E's total system
requirements. The contracts expire on various dates between 1995 and
2024.
At December 31, 1994 the future minimum payments under the contracts
were:
In millions of dollars
- --------------------------------------------------------------------
1995 $ 351
1996 216
1997 185
1998 188
1999 187
Thereafter 2,969
------
Total minimum payments $4,096
These payments represent capacity charges and minimum energy
purchases. SDG&E is required to pay additional amounts for actual
purchases of energy under the contracts. Total payments, including
energy payments, under the contracts were $277 million in 1994, $258
million in 1993 and $253 million in 1992. See discussion of the
decision on the Biennial Resource Plan Update proceeding in Note 11.
Natural Gas Contracts
SDG&E has a contract with Southern California Gas Company that
provides SDG&E with intrastate transportation capacity on SoCal's
gas pipelines through August 1995. If a new agreement is not reached
by then, SoCal has a continuing obligation to deliver gas to SDG&E
under a CPUC-approved tariff. SDG&E's long-term contracts with
interstate pipelines for transportation capacity expire on various
dates between 1995 and 2023. In 1994 SDG&E signed an agreement with
SoCal for 8 billion cubic feet of natural gas storage capacity from
January 1, 1995 through March 31, 1998. SDG&E also has four
long-term gas supply contracts that expire between 2001 and 2004.
At December 31, 1994 the future minimum payments under natural gas
contracts were:
In millions of dollars
- --------------------------------------------------------------------
Transportation Natural
and Storage Gas
1995 $ 74 $ 25
1996 28 27
1997 27 31
1998 28 35
1999 21 38
Thereafter 279 179
---- ----
Total minimum payments $457 $335
Total payments under the contracts were $125 million in 1994, $86
million in 1993 and $80 million in 1992.
Leases
Nuclear fuel, office buildings, a generating facility and
other properties are financed by long-term capital leases. Utility
plant included $173 million at December 31, 1994 and $193 million at
December 31, 1993 related to these leases. The associated
accumulated amortization was $73 million and $74 million,
respectively. SDG&E also leases office facilities, computer
equipment and vehicles under operating leases. Certain leases on
office facilities contain escalation clauses requiring annual
increases in rent ranging from 2 percent to 7 percent.
The minimum rental commitments payable in future years under all
noncancellable leases were:
In millions of dollars
- --------------------------------------------------------------------
Operating Capitalized
Leases Leases
1995 $ 59 $ 24
1996 57 20
1997 53 12
1998 35 12
1999 11 12
Thereafter 52 57
---- -----
Total future rental commitments $267 137
Imputed interest (6% to 9%) (33)
-----
Net commitment $104
=====
|
Rental payments totaled $93 million in 1994, $91 million in 1993 and $57 million in 1992. The increase from 1992 to 1993 was due to Califia's leasing activities.
Environmental Issues
SDG&E's operations are conducted in accordance with federal, state
and local environmental laws and regulations governing hazardous
wastes, air and water quality, land use, and solid waste disposal.
SDG&E incurs significant costs to operate its facilities in
compliance with these laws and regulations. The costs of compliance
with environmental laws and regulations are normally recovered in
customer rates. The CPUC is expected to continue allowing the
recovery of such costs, subject to reasonableness reviews. Capital
expenditures to comply with environmental laws and regulations were
$5 million in 1994 and $8 million in 1993, and are expected to be
$90 million over the next 5 years. These expenditures primarily
include the estimated cost of retrofitting SDG&E's power plants to
reduce air emissions.
SDG&E has identified, or has been associated with, various sites which may require remediation under federal, state or local environmental laws. SDG&E may be partially or indirectly responsible for cleaning up these sites. SDG&E is unable to determine the extent of its responsibility for remediation for these sites until assessments are completed. Furthermore, the number of others who may be also responsible and their ability to share in the cost of the cleanup, is not known. Environmental liabilities that may arise from these assessments are recorded when environmental assessments and/or remedial efforts are probable, and when the minimum costs can be estimated.
In 1994 the CPUC approved a mechanism allowing utilities to recover their hazardous waste costs, including those related to Superfund sites or similar sites requiring cleanup. The decision allows recovery of 90 percent of cleanup costs and related third party litigation costs and 70 percent of the related insurance litigation expenses.
Nuclear Insurance
Public liability claims that could arise from a nuclear incident are
limited by law to $9 billion for each licensed nuclear facility. For
this exposure, SDG&E and the co-owners of the San Onofre units have
purchased primary insurance of $200 million, the maximum amount
available. The remaining coverage is provided by secondary financial
protection required by the Nuclear Regulatory Commission and
provides for loss sharing
among utilities owning nuclear reactors if a costly accident occurs. SDG&E could be assessed retrospective premium adjustments of up to $32 million in the event of a nuclear incident involving any of the licensed, commercial reactors in the United States, if the amount of the loss exceeds $200 million.
Insurance coverage is provided for up to $2.8 billion of property damage and decontamination liability. Coverage is also provided for the cost of replacement power, which includes indemnity payments for up to two years, after a waiting period of 21 weeks. Coverage is provided primarily through mutual insurance companies owned by utilities with nuclear facilities. If losses at any of the nuclear facilities covered by the risk-sharing arrangements were to exceed the accumulated funds available for these insurance programs, SDG&E could be assessed retrospective premium adjustments of up to $9 million.
Department of Energy Decommissioning
The Energy Policy Act of 1992 established a fund for the
decontamination and decommissioning of the Department of Energy
nuclear fuel enrichment facilities. Utilities using the DOE services
are contributing a total of $2.3 billion, subject to adjustment for
inflation, over a 15-year period ending in 2006. Each utility's
share is based on its share of enrichment services purchased from
the DOE. SDG&E's share of the contribution is $1 million per year.
Litigation
SDG&E is involved in various legal matters, including those arising
out of the ordinary course of business. Management believes that
these matters will not have a material adverse effect on SDG&E's
results of operations, financial condition or cash flows.
Distribution System Conversion
Under a CPUC-mandated program and through franchise agreements with
various cities, SDG&E is committed in varying amounts to convert
overhead distribution facilities to underground. As of December 31,
1994 the aggregate unexpended amount of this commitment was
approximately $95 million. SDG&E expended approximately $11 million
in 1994, $22 million in 1993 and $18 million in 1992 under this
program.
Concentration of Credit
Risk SDG&E grants credit to its utility customers, substantially all
of whom are located in its service territory, which covers all of
San Diego County and the southern portion of Orange County.
11 Industry Restructuring
In April 1994 the CPUC announced its proposal to restructure California's regulated electric utility industry to stimulate competition and to lower rates. The proposed regulatory framework would be phased in by 2002, allowing utility customers to purchase their energy from either utility or nonutility suppliers. The utilities would continue to provide transmission and distribution services to customers that chose to purchase their energy from other providers. The CPUC also proposed that the cost of providing these services and the cost of serving remaining utility customers would be recovered through a performance-based ratemaking process. SDG&E is currently participating in a performance-based ratemaking process on an experimental basis which commenced in 1993 and runs through 1998. The CPUC is holding several hearings to consider whether its proposal or some other form of a competitive market should be developed and how the cost of the transition to competition should be shared among utility shareholders and customers.
In connection with the proposed restructuring, SDG&E has applied to the CPUC for permission to form a holding company. SDG&E believes that changes in the California utility industry and the movement toward a more competitive marketplace will require SDG&E to change its corporate structure. SDG&E has applied to other regulatory bodies and to shareholders for approval of the proposal.
In addition to $306 million of deferred taxes recoverable in rates,
regulatory assets of $197 million are included in "Deferred Charges
and Other Assets" on the Consolidated Balance Sheets. They include
$60 million of unamortized loss on reacquired debt, $50 million of
pension regulatory assets, $38 million of unrecovered plant and
regulatory study costs, $17 million of unamortized debt expense and
$32 million of various other regulatory assets. Recovery periods
range from one to 30 years. It is estimated that at December 31,
1994 SDG&E had approximately $975 million of net utility plant
(including $750 million of nuclear facilities) and $75 million of
regulatory assets relating to generating facilities currently being
recovered in rates over various periods of time. The CPUC has stated
that the recovery of remaining amounts, if and when restructuring
occurs, will be provided for in the new environment. In addition, as
described in Note 10, SDG&E has entered into significant long-term
purchased-power commitments with various utilities and other
providers. The CPUC's recent Biennial Resource Plan Update decision
requires SDG&E to contract for an additional 500 megawatts of power
over 17-year terms at an estimated cost of $4.8 billion beginning in
1997. Prices under these contracts could significantly exceed the
future market price. SDG&E is challenging the decision and has
petitioned the Federal Energy Regulatory Commission to overrule the
CPUC's decision. On February 22, 1995 the FERC ruled favorably on
SDG&E's petition. A final order is expected shortly. If the CPUC
proceeds with the move to a competitive environment, if the prices
of competing suppliers are as anticipated, and if the regulatory
process does not provide for complete recovery of those costs that
are in excess of what will otherwise be recoverable via market-based
pricing structures, SDG&E would incur a charge against earnings for
a significant portion of its generating facilities, the related
regulatory assets and the long-term commitments. However, as
previously discussed, the CPUC has indicated that any unrecovered
amounts remaining will be provided for in the new environment. The
CPUC has stated its intention to issue a final decision by May 1995
and to require implementation by September 1995. SDG&E cannot
predict the impact of the CPUC's final decision and the transition
to a more competitive environment on SDG&E's financial condition and
results of operations.
Excerpt from page 39 Quarterly Common Stock Data (Unaudited)
Quarterly Common Stock Data (Unaudited)
1994 1993
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Market price
High 25 23 1/4 20 7/8 20 1/8 26 5/8 26 7/8 27 3/4 27 1/2
Low 21 1/2 17 1/2 18 18 5/8 23 1/4 24 1/2 25 5/8 23 1/2
Dividends declared $0.38 $0.38 $0.38 $0.38 $0.37 $0.37 $0.37 $0.37
|
| ARTICLE UT |
| MULTIPLIER: 1000 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1994 |
| PERIOD END | DEC 31 1994 |
| BOOK VALUE | PER BOOK |
| TOTAL NET UTILITY PLANT | 3,149,092 |
| OTHER PROPERTY AND INVEST | 466,864 |
| TOTAL CURRENT ASSETS | 394,494 |
| TOTAL DEFERRED CHARGES | 231,319 |
| OTHER ASSETS | 400,682 |
| TOTAL ASSETS | 4,642,451 |
| COMMON | 291,341 |
| CAPITAL SURPLUS PAID IN | 564,508 |
| RETAINED EARNINGS | 618,581 |
| TOTAL COMMON STOCKHOLDERS EQ | 1,474,430 |
| PREFERRED MANDATORY | 25,000 |
| PREFERRED | 93,493 |
| LONG TERM DEBT NET | 1,118,917 |
| SHORT TERM NOTES | 89,325 |
| LONG TERM NOTES PAYABLE | 126,118 |
| COMMERCIAL PAPER OBLIGATIONS | 0 |
| LONG TERM DEBT CURRENT PORT | 142,092 |
| PREFERRED STOCK CURRENT | 0 |
| CAPITAL LEASE OBLIGATIONS | 95,202 |
| LEASES CURRENT | 8,373 |
| OTHER ITEMS CAPITAL AND LIAB | 1,469,501 |
| TOT CAPITALIZATION AND LIAB | 4,642,451 |
| GROSS OPERATING REVENUE | 1,982,037 |
| INCOME TAX EXPENSE | 150,070 |
| OTHER OPERATING EXPENSES | 1,510,051 |
| TOTAL OPERATING EXPENSES | 1,660,121 |
| OPERATING INCOME LOSS | 321,916 |
| OTHER INCOME NET | (73,095) |
| INCOME BEFORE INTEREST EXPEN | 248,821 |
| TOTAL INTEREST EXPENSE | 105,344 |
| NET INCOME | 143,477 |
| PREFERRED STOCK DIVIDENDS | 7,663 |
| EARNINGS AVAILABLE FOR COMM | 135,814 |
| COMMON STOCK DIVIDENDS | 177,067 |
| TOTAL INTEREST ON BONDS | 83,701 |
| CASH FLOW OPERATIONS | 566,377 |
| EPS PRIMARY | 1.17 |
| EPS DILUTED | 1.17 |