Red Scott — SDG&E board member who kept blowing the whistle

Merger most foul

Red Scott: "I believe in the free-enterprise system. I do not believe in golden parachutes and management contracts."
  • Red Scott: "I believe in the free-enterprise system. I do not believe in golden parachutes and management contracts."
  • Image by Barbara Martin

Charles (“Red”) Scott, a local businessman and civic leader, was a member of the board of directors of San Diego Gas & Electric Company until last December, when he resigned. Scott believed that the board’s decision to support the proposed merger with Southern California Edison was based upon the self-interest of board members, and he quit in protest.

Malin Burnham. "Mr. Burnham is — is not the least bashful. And at more than one board meeting, he sent a message to other directors that he was not in favor of it."

Malin Burnham. "Mr. Burnham is — is not the least bashful. And at more than one board meeting, he sent a message to other directors that he was not in favor of it."

As part of the fact-finding efforts by the California Public Utilities Commission, Scott and fellow board member O. Morris Sievert were deposed by an attorney representing the City of San Diego. (Morris also resigned his position on the board for reasons similar to Scott’s.) The following are excerpts from Charles Scott’s deposition. Most of the objections and interruptions of the attorneys representing SDG&E have been excised.

The attorney conducting the deposition for the city and asking most of the questions is Van Sinclair. James E. Lyons represents SDG&E. James S. Rood appears in behalf of the California Public Utilities Commission.. Others referred to in the transcript are SDG&E board members Clair Burgener, Malin Burnham, and Fred Stalder and the company’s president and CEO, Thomas Page.

— Ed.

Q: VAN SINCLAIR: Mr. Scott, you were a director of SDG&E from approximately when until when?

A: CHARLES SCOTT. I think I was elected a director in mid-1983, and I resigned about the first of December 1988.

O. Morris Sievert. "Mr. Sievert felt as strongly as I did from the very beginning. But we were rapidly being worked on by everybody because we were the holdouts."

O. Morris Sievert. "Mr. Sievert felt as strongly as I did from the very beginning. But we were rapidly being worked on by everybody because we were the holdouts."

Q: And what was the occasion for your resigning as a director of SDG&E?

A: I objected, as a director, to the sale of the company to Edison, Southern California Edison. And I had expressed that objection at the board level and in writing to my fellow directors. And I felt that I could no longer serve San Diego Gas & Electric and be a constructive force since I felt so strongly about the sale.

Tom Page. "He was trying to say to me, that they had — that Edison had sweetened the offer to the shareholders." "

Tom Page. "He was trying to say to me, that they had — that Edison had sweetened the offer to the shareholders." "

Q: Mr. Scott, based upon your observations as a board member, why did the board approve the SDG&E/Edison merger?

A: My observation would be that there may have been more than one reason why some of the various directors voted in favor of the sale. I think, clearly, there were some of the directors that were frightened; from their personal liability standpoint, that if they did not vote for it, they would be personally liable. I think perhaps one or more of the directors voted in favor of the merger perhaps because they felt they wouldhave an ongoing role at Edison if the merger were successful. Perhaps there were one or two of the directors that, in their own heart, thought it was a — it was a sound and good deal for the — for the San Diego Gas & Electric shareholders.

"There had been some sort of — of lower-echelon scuffling and fighting over SONGS, SONGS, San Onofre plant. That’s the slang name within the family for San Onofre."

"There had been some sort of — of lower-echelon scuffling and fighting over SONGS, SONGS, San Onofre plant. That’s the slang name within the family for San Onofre."

JAMES LYONS: I move to strike the witness’s response as not being based on personal knowledge.

SINCLAIR: Mr. Scott, can you give me the basis for your conclusion that you observed that some of the directors were frightened because they were concerned about their own personal liability?

South Bay power plant

South Bay power plant

A: Well, on more than one occasion, I heard two or more directors say that they genuinely were frightened or afraid that if they didn’t vote for it, that — that they would be sued and that — that our liability insurance, our directors’ D&O insurance, would not cover us.

"I thought we had been sort of spoon-fed and that you could feel  — you could feel the shifting of the winds."

"I thought we had been sort of spoon-fed and that you could feel — you could feel the shifting of the winds."

Q: Mr. Scott, are you able to tell us what was said in that conversation concerning directors and officers insurance without revealing any advice that may have been given by counsel? And if you are, please do so.

A: I had urged, or encouraged, this meeting between Mr. Sievert and Mr. Burnham and myself. And the purpose of the meeting was not to j discuss the D&O insurance. The A purpose of the meeting, as I felt that Mr. Sievert in particular and Mr. Burnham possibly shared my view that — that this train was moving pretty fast and that we were heading toward a vote that — a directors’ vote to sell San Diego to Edison. And I felt very strongly against that, and I was attempting to rally some support for my position to block that acquisition or sale.

And I think that, if memory serves me correctly, I had met Mr. Sievert perhaps at the — we both belonged-to the same golf club, and we had perhaps met at the golf club that previous weekend.

And — and I — and during those periods of time whenever I would see Mr. Sievert, naturally this was a very important subject on both of our minds. We would frequently, just in passing remarks, make comments. I urged that we get the three of us together and talk about whether or not we — we could muster enough votes to stop the sale.

And so we met at Mr. Burnham’s office. My memory tells me it was a Monday night, but I’m not positive of that. We met in his office at — it was almost dark. It was probably 5:30 or 6:00 or sometime in that time frame.

And his office had already been — I remember, when we went up to his office, most of the employees had left. And the three of us sat and discussed the situation and our own feelings about how we felt about the situation and whether or not we were in favor or not in favor of the sale.

I had been for some time suggesting that — that the independent directors should have separate independent counsel. And one of the things that — that — that we discussed that night in Mr. Burnham’s office was that subject. And the feeling — I believe I speak accurately — that Mr. Sievert and Mr. Burnham both agreed with my recommendation that — that we try and prevail upon the other directors in the company to provide us with independent counsel....

We talked about a lot of personal things at the meeting such as Mr. Burnham’s America’s Cup and things of that nature. The meeting was a very friendly, open, there-was-no-agenda type of meeting.

Q: Did Mr. Burnham indicate, during the course of that meeting, how he felt about the merger?

A: My belief is that he did.

Q: Can you tell me what he said?

A: He led me to believe that — at that point in the process — that he was not in favor of the sale of the company to Edison.

Q: Did he give any reasons?

A: I think we were somewhat all preaching to the choir. We all had pretty much the same reasons. And I don’t recall exactly whether I would suggest a point or Mr. Sievert would suggest or Mr. Burnham, but we — there was almost no disagreement among the three of us as to why we were not in favor of it and why we wanted to stay independent.

Q: Had you heard Mr. Burnham express in the past his feelings about the merger?

A: Yes. Mr. — Mr. Burnham is — is not the least bashful. And at more than one board meeting, he — he would speak out that clearly, I thought, sent a message to other directors that he was not in favor of it.

Q: To the best of your recollection, did you ever hear Mr. Burnham change his position with respect to the merger?

A: No, sir.

Q: Even as of the day of the vote on the merger?

A: That’s not correct. That’s not correct. I — I — I misstated myself. Because I had a flashback of an incident that did happen.

I believe the day before the vote — and I think that was a Wednesday — Mr. — Mr. Sievert and myself and Mr. Stalder were in a meeting in the anteroom off of Mr. Tom Page’s presidential office. Mr. Page was there. I recall Steve Baum being there, but I — I’m pretty sure he was there. And we had Mr. Burnham hooked up to a conference call. He was somewhere in the Caribbean, and he had come ashore from his boat and was talking on a — I believe a pay phone is what he indicated to us. And he called in to a group of us.

And we were discussing the meeting that was coming up either the next day or in the subsequent couple of days. And I felt that — frankly, that Mr. Page had somewhat led the witness. But, at any rate, he asked Mr. Burnham at the end of this meeting how he felt.

And Mr. Burnham at that time — and this is where I needed to correct myself. Mr. Burnham, in that phone call, said something to the effect, “Well, given the facts as you present them, I guess if I were there, I would reluctantly vote for it.” And that surprised me and shocked me.

Q: Did you have occasion to discuss those comments with Mr. Burnham?

A: I’ve talked to Mr. Burnham one time since that conversation. When he returned from the trip, he called me by phone. We’re, I think, old and dear friends. I’m a great admirer of his. We’re warm friends.

And he — I picked up the phone, and it was Mr. Burnham. And he laughingly made some wisecrack remark about he was glad I gave them hell and that he was proud of me and that he had learned much of what had happened when he went to the barber that morning, because he had just come back to town and gone in to his barber and replayed to him what had happened. And then he called me.

And I — I recall asking him, “What are you going to do? I’ve resigned.” And he said, “I don’t really know right now what I’m going to do. I’m going to think about it.” That’s the only other time I’ve talked to Mr. Burnham since the phone call I relayed to you.... I — early in this entire transaction, going back into July, the — almost from the first moment the Tucson acquisition or merger came up and we were all quite friendly and warm to each other, I felt that we independent directors, being nonemployed directors, should have our own separate legal counsel and investment bankers.

I’ve been — I’ve served on a lot of boards. I’ve participated in a lot of acquisitions and mergers. And intuitively I felt that — that we should have independent counsel and — and bankers. And I solicited help from some of the other directors to support that position.

And the reason that I remember July so distinctly, Mr. Burnham, in July, received the — the San Diego Boy Scout award as a Distinguished Citizen of the Year. That was significant to Mr. Burnham and to me because I had nominated him for the award since I had been the recipient the previous year.

And at his award-winning night, which was in July, I was so exercised over this subject that I pulled him aside at the — from the — from the proceedings of the happy, formal, tux-affair-type thing and pleaded with him to support me in my position of obtaining separate counsel.

I struck a chord, because he the next day wrote a letter to Mr. Page and said, “Red Scott is advocating this position, and I support it.” And then Mr. Burnham left town, and it died for a lack of any support.

Q: If you can recall, what was Mr. Page’s response to the request for independent counsel at that time, in July?

A: There was no response.

Q: Did you discuss the matter with Mr. Page?

A: Yes.

Q: What did Mr. Page say?

A: He just tended to either ignore it or fluff it off or say something to the effect that he thought we were well represented.

Q: At that time SDG&E was represented by whom?

A: Skadden, Arps.

Q: Did you have any reason to believe at that point in time that Skadden, Arps had any kind of a conflict?

A: No, sir.

Q: Can you elaborate for us any further why you felt, then, that independent counsel for the independent directors would be advisable?

A: Well, this goes back — this is before Edison.... This is on Tucson. I just felt that when you’re dealing in such enormous amounts of money that affects so many people’s lives, all the employees and citizens of both our city and Tucson, and — and the size and scope of this — and I — once or twice earlier in my life I had been in situations where later on — these things always start off friendly and everybody’s on the same side. Later on the interests were similar but not identical. And I just had a feeling that — that we independent directors might be better served by counsel that did not also represent management. That was — that was the sole thing.

Q: Did you believe that management had interests that may differ from the interests of the corporation in general?

A: At that point I had no reason to think their interests were any different than mine.

Q: Did you come to a different conclusion later on?

A: Yes.

Q: When did you come to that conclusion?

A: When management told us that they were now in favor of a sale to Edison.

Q: Can you tell me the first time that you can recall being told that by management?

A: If I could get hold of my records, I could tell you almost specifically, but I don’t have any more records. It would have been mid-November. I was — I traveled a lot. I was out of town. And I came back from out of town to a meeting. And it seemed to me that the winds had — I left town thinking that — that we were going — “we,” the directors and management — were going to stand with our arms locked together and fight those bastards till the last drop of air was in us. And I came back to town, and we had broken ranks. And some people said, “No. We love them now.” Those are my words, not theirs.

Q: At that point did you come to any conclusions about potential differing interests among the various parties?

A: Well, of course I was shocked and surprised that — that some of the people who were leading the charge to fight the acquisition had switched and were now in favor of it. I mean, it came as a — it was an enormous shock to me.

Q: Who was it that was leading the fight against the acquisition?

A: Well, when it first was announced, Mr. Page was adamantly against it. He solicited our support to stand behind him and not let it happen. He had many convincing reasons why we should support him. I didn’t need a lot of help.

I thought it was a bum idea on my own from the beginning. But he clearly articulated and presented some documentation as to why it wasn’t a good idea, and he was supported by his staff.

Q: Now, as of mid-November, when you came back, you found that some of the positions had switched?

A: It was in that time frame of — of mid-November.

Q: Can you tell me specifically whose positions you can recall having switched?

A: Well, Mr. Page, primarily. Because he is the chief executive. He was the one that — that — that told me that — that they, the, quote, “so-called negotiating team,” had, in fact, been able to negotiate a much better deal out of Edison, and they now felt that it was in the best interest of San Diego to sell to Edison.

Q: Other than Mr. Page, are there other individuals who you perceived had switched their position?

A: Well, clearly, at that point, Mr. Page’s other — three other members of his so-called — there were certain officers from the very beginning. There were certain officers that were unofficially from the record standpoint, maybe officially from his standpoint, selected as the team that was going to work on both the Tucson acquisition and the — and the proposal from Edison. And I — these are my words, not theirs — I — I thought of them as our front line or our negotiating team for both the transactions.

Q: Were those the individuals, the people, whose positions that you perceived had switched?

A: One of the individuals — there were, early on, five. And one of them stopped coming to the meetings at some point along in there, and so I have no idea what his position was.

Q: Who was that?

A: Seems like his name was Jim Holcomb. The other three were Mr. Baum and Mr. Haney and Ms. Kyd.

Q: When you had your conversation with Mr. Page in which he told you of his position, did you ask him why he had switched?

A: Yes.

Q: What did he say?

A: Well, I — I think what he was trying to say to me, that they had — that Edison had sweetened the offer to the shareholders, had agreed to — to provide civic and charitable contributions for a set period of time to the communities in which San Diego served; that there were going to be certain directors elected to Edison’s board and they would have a voice; that — there was a whole litany of things of why they thought it was a — it was a good — good situation. I — I recall that I — I left town thinking that — that — seems my recollection — I’m here without my notes.

May I go off record for just a minute?

Q: Sure.

A: I may be a little fuzzy on my numbers because I haven’t looked at my own notes for some time. I felt like — that I left town, and a 1.250 of Edison for each one of — of — maybe it was 1.225 — of Edison for each one of San Diego was, quote, “a bum deal,” a bad deal. We did not want to do that. And I came back, and — and they had negotiated a 1.3 exchange.

And what I couldn’t understand, and don’t till this day, is how a deal could be bad at — at one number and good at the other one when they were so — such a slight difference between the two. And that was — that was the thing that — that I guess till this day still haunts me, why we all were so much against a 1.225 and suddenly some of us were now so much in favor of a 1.3.

Q: Did you raise that question at any board meeting?

A: Yes, sir. Yes, sir.

Q: Did anybody answer it?

A: Yes, sir.

Q: Who answered it?

A: Well, Mr. Page and — and the investment bankers and some of his staff and some of the directors now had become in favor of the deal. And they — it’s a funny feeling to be the odd man out in the peer pressure of a large group that was in the room, but I was rapidly being separated and was the rotten egg in the group that — although I want to say Mr. Sievert felt as strongly as I did from the very beginning. But we were rapidly being worked on by everybody because we were the holdouts, so to speak.

Q: How did Mr. Page explain the difference between the two numbers?

A: Well, he, first of all, said that he felt that — that 1.3 was absolutely, positively the top dollar we would ever get out of Edison. I remarked, I remember, that they had said that at 1.15 and they had set it at 1.225. And I had no reason to think that this was the top offer, although I had never met with the Edison people. I was not part of the negotiating team. I never talked with them. But that they had extracted from Edison these agreements that so many of our people would be directors. I recall that Edison had offered that other — all the rest of the San Diego directors an advisory role, that they would — for five years would — would not change the name. They would do some things that I felt were cosmetic. And he thought that all of this was a compelling reason to go ahead.

And it was during those conversations that I first became aware that at the same time that they had agreed upon the 1.3 — or, I don’t know, I wasn’t there — that four of our officers had accepted contracts, or an agreement to accept a contract, from Edison.

Q: Well get back to that in a few minutes.

Did Mr. Page attempt to explain the difference as to why a 1.3 deal would be compelling and a 1.225 deal was unacceptable?

A: Yes.

Q: And what did he say about that?

A: Well, I recall that he handed out some charts or some figures or — that showed that with our 50-odd million shares of stock outstanding, that this — this new offer was X million dollars more for the shareholders than the other offer.

They had elaborate — that’s an exaggeration, counsel. They had several presentations that I believe had been prepared by our investment bankers that were showing that the yield on the securities, that was the most we could hope for; and that this was a good deal, book value; and there was some supporting documentations that — that was meant to — to convince the board that this was, in fact, a good deal.

Q: And the supporting documentation was prepared by Salomon Brothers?

A: I don’t know that for a fact. It was given to us, and I was led to believe that, but I don’t know that they did.

Q: Did Salomon Brothers make a presentation on the merits of the 1.3 offer as opposed to the 1.225 offer?

A: My recollection is that Mr. — Mr. Ron Freeman of Salomon Brothers did indeed talk at this meeting and present some information to that effect, yes, sir.

Q: Did you know at that time that Salomon Brothers had also done work for Edison?

A: I didn’t know it until this second.

Q: Mr. Scott, I'd like to go back again to the conversation between Mr. Burnham, Mr. Sievert, and yourself. You had indicated that you had all shared with one another the reasons that were had at that time for opposing the merger. Could you outline those reasons that were discussed for me?

A: Some of them I can recall. One of the things we talked about was the — the tremendous strides that San Diego had made in the past five or six years under the very able leadership of Mr. Page to reduce rates, to get its capitalization in good shape, to get its bond ratings up, to improve employee morale, and that the company was really doing quite well, and that there was no reason to think that it wouldn’t — it was on an upward slope, and there was no reason to think that that upward slope would not continue, and that it seemed like there was some very good times ahead for San Diego Gas & Electric, was my feeling. And I think I — with the other two people.

We were all torn and grievously concerned as to whom, in fact, we really had a duty to. It was our duty only and solely and strictly to the shareholders, or did we have any obligations to consider the communities and consider the employees and consider the suppliers and consider the rate payers. And we talked about those duties and responsibilities.

Q: Was it your feeling that not enough attention had been paid to those factors?

A: Well, I stated, in a letter to the directors in earlier November and again at the time I — of my resignation, that I thought we directors had a duty and obligation to all of the constituencies and not just one. And I felt that then, eg and I still do.

Q: Did you feel that the deliberations concerning the merger focused too extensively on the interests of the shareholders as opposed to the remainder of the constituencies?

A: Well, at the close — and, of course, you have to keep in mind we were all over on this side of the room fighting to beat them off, and suddenly some of us were on that side and some of us on the other side. And so it was a very bewildering experience to me.

And I think that — there was — I think, in all fairness, that there was some consideration given to the other constituencies. I don’t think that — I think that would be an unfair statement on my part to say that the only consideration was the price of the stock.

I think — I think that — that the negotiating team, if that was their official title — and I don’t know that it was — did attempt to — to do something to benefit the San Diego Gas & Electric employees that didn’t have a contract, that did not get a contract, but I think — I thought an undue amount of attention was paid just to the price of shares. But to say that there wasn’t other considerations would not be a correct statement.

Q: Back to your conversation with Mr. Burnham and Mr. Sievert, did you talk about the rates of electricity that the rate payers might be forced to pay in the future?

A: Yes, we discussed rates.

Q: Can you tell me what you discussed on that subject?

A: Well, we all were feeling, I think, proud and good that San Diego’s rates were coming down and had been on a slope for some period of time and that Edison’s rates were coming up; and that only two or three weeks before, management had shown us charts and figures that showed that very likely in 1989 or maybe 1990, that Edison’s rates would be more expensive than San Diego’s. And so we were — we felt good about that. We felt that we were on the winning side. We felt that our rate payers could well be served better by San Diego than they could by — by Edison.

And I — I also interjected and thought then that Edison’s offer to reduce the rates of San Diego by 10 percent were, I thought, cruel and inhumane to the citizens of San Diego, because I never believed they could do it, and I don’t believe they could do it today. I cannot imagine the other communities served by Edison standing by and letting them give a favored rate to San Diego to the exclusion of the other people.

Q: Mr. Scott, before our break you were describing to me your perception that there had been a change in the position of members of the board prior to mid-November and at some time during the mid-November time frame... Can you tell me whether or not you have any belief as to why the positions of those persons changed?

A: It’s a subject I’ve thought a lot about many times, and it’s a subject that I’m bothered about greatly. I do not know for certain why other people switched their stance; people who were against the sale to Edison suddenly were for it. I would have to say that I questioned then, and will always question, whether or not the four senior members of our management negotiating team, having accepted a contract from Edison, influenced their feelings. My logic tells me that it must have.

Some of our directors who were not for it and then became for it reportedly had had discussions with Edison that they would become directors of Edison. I felt that our entire deliberating process had somehow or another been poisoned or tainted with these proceedings, and that was my greatest and is my greatest concern.

Q: Can you identify any other directors who reportedly had discussions with Edison concerning the possibility of sitting on Edison's board?

A: Yes. Mr. Burnham said something to the effect at some occasion that either Howard Allen, the president of Edison, or one of his people had mentioned that Malin would be an outstanding director of Edison, and Malin Burnham denied any interest or desire of doing that, but it was as — from those two incidents, as an independent director, it was obvious to me that Edison was, indeed, attempting to “poison the well” or coerce some of our people, something of that nature. Not that they would be successful at it, but it was clear that there was some — there was somebody attempting to influence the proceedings.

Q: Did you perceive any other instances in which Edison was attempting to influence the proceedings?

A: Edison wrote at least two letters to the board, one in which they suggested that all of the San Diego Gas & Electric directors would be — could be, could be, advisory board members, and I felt that that was clearly an attempt on their part to buy our vote in plain black and white language.

In another instance they talked about four — I believe it was four — of our people would be directors of Edison.

And I also felt that was an attempt on their part to influence our people.

Q: Any other instances come to mind, as you sit here?

A: No, sir.

Q: Have you heard of any other financial inducements that may have been offered by Edison to anyone on the SDG&E board in connection with the vote on the merger?

A: Well, your question was restricted to the directors. Mr. Page was a director, and I felt that the contract that he was reportedly going to receive from them, a copy of which I never saw and haven’t until this day — and it may not be in existence, I don’t know — was clearly an inducement to influence Mr. Page.

Q: Can you tell me what the — on average a board member of SDG&E makes from SDG&E over the course of a year?

A: I think we got a reduction in pay in 1988. We were paid, I believe, $24,000 in 1988. And I say that because the prior year we were paid so much per month and we got so-much-per-meeting fee, and in 1988 we met so many times that if we had kept the old meeting fee, we would have done better. We laughed about that on numerous occasions.

Q: Do you know what the average board member at Edison makes for a period of a year?

A: I’ve been told it was $50,000.

Q: Did you ever calculate what a five-year membership on this advisory board would mean in terms of compensation to an individual serving on that board?

A: Yes, sir.

Q: And what is that number?

A: I calculated it in my own mind two ways; that if they continued to pay the advisory board members the same rate they were paying San Diego, it would be 5 times 24, which would -be $120,000. If they paid 5 times 50, which was reported to be the pay of Edison, that would be $250,000. So I assumed it was somewhere in that range.

Q: Was it ever elaborated as to what duties members of the advisory board would fill?

A: Never discussed.

Q: Since your resignation have you spoken to any of the other directors at SDG&E [aside from Mr. Sievert] about the merger situation?...

A: I reported the one conversation with Mr. Burnham, and I saw Mr. Page one time at a Christmas cocktail party.

I have seen Mr. Burgener on two or three occasions, but to Mr. Burgener I have not uttered one word about the transaction.

Q: What did you say to Mr. Page and what did he say to you concerning the transaction at that one meeting or that

one occasion?

A: Mrs. Page — as my wife Kathy and I walked into this party, Mrs. Page was in her wheelchair with a big grin on her face, and she rolled over in the wheelchair toward Kathy and said, “No matter what happens between the boys, you all are still my friends, and I intend to keep it that way.” And then I saw Tom, and we shook hands, and I think I said something to the effect that, “Tom, I’m sorry it had to end this way. I admire you greatly.” And he said, “I hope you’re through making press releases.” And I said, “I am. Unless I’m forced to say something, I’m through talking.” It was a stiff but cordial exchange, and that was about all that was said. I can’t remember anything else.

Q: Has anyone from SDG&E [other than Mr. Page] requested that you not make statements to the public or to the press?

A: Well, at the time I was going to — I resigned, and then the next day I made the press statement. And as a courtesy to Mr. Page, as Mr. Jenkins, my lawyer, and I finished my resignation letter and the statement to the press, I, as a courtesy, had a copy of that faxed to Mr. Page.

I then called his secretary to see that, indeed, he had received it. He then called back some minutes later and said, “I don’t want you to make that press statement.” And I said, “Well, I think I have to make it. I want to make it. I think it’s the only fair thing to do, Tom.” And he said, “I demand you not make that statement.” And I said, “I’m going to do it, Tom, one way or the other”

And he said, “Can we talk to your lawyer?” I said, “Of course.” And so I, then, heard later from Mr. Jenkins that, in fact, they had — and I don’t know who “they” were. If he told me, I have forgotten. But he was contacted.... He had been contacted. And I think he told them it was too late. It had already been released.

And then I got one other call that day — because I thought it was so funny, and I can’t remember who the call came from. I’m embarrassed that I don’t remember — that said they wanted me to call the various newspapers and TV stations and retract my resignation and 'ask for copies back. And I laughed because I thought that would be the sheerest form of folly. That would really incite the TV and newspapers, to tell them to give me back my statement. So I laughed and said, “That’s just not possible.”

Q: Mr. Scott, do you [recognize] Exhibit No. 2 in front of you?

A: Yes, sir.

Q: Was this letter sent by you to the Board of Directors of San Diego Gas & Electric on or about December 1, 1988?

A: Yes, sir.

Q: There is a document that’s attached to the cover letter. Did you prepare that also?

A: Yes, sir.

Q: What did you do with that attached document?

A: I instructed my attorney, Mr. William Jenkins, to distribute my letter and the attached document to the press and media of San Diego.

Q: Let me ask you, on the first page of the press release there is mention made of uninsured risks to SDG&E. Could you explain what you meant by that?

A: Yes, sir. I felt from almost the beginning that a hostile acquisition by Edison would never take place. I felt there were just too many groups of people who would find it offensive and not in the best interests of the people of Southern California to let these two giants merge together and leave just one company,

I mentioned that on several occasions at the board meetings, that I thought that we would be taking a risk on behalf of the shareholders to embark upon any kind of arrangement with Edison, because it likely would never happen and that our company, which had been aggressively moving ahead and has been growing and cutting rates and becoming a really good utility, would lay dormant and virtually become stagnant, stand still, for the next period of time while this was going on.

I was concerned as it became apparent — there was a period of about ten days or two weeks before December 1 that it appeared that this was going to take place. You could just feel it, that the winds were moving that way. And I felt that we had some — if it was going to happen, that the shareholders of San Diego were being left naked on several scores.

I recall asking — and it may have been at the December 1 meeting, or it may have been a meeting just a few days before that — I recall asking the question as an illustration, okay. We’re going to get 1.3 shares of Edison for each of our shares, and with Edison at $30 a share, that means that we would get $39. What if, under what-if conditions, what if there was a terrible earthquake that wiped out two or three of Edison’s plants but didn’t affect San Diego, and Edison stock went from 30 to 15, was my illustration, do we get what is called the collar, which in securities-firm lingo would mean that there would be an adjustment, or do we just still get 1.3 shares of Edison? And the answer was, we would only get 1.3 shares of Edison.

And so I said that means — our stock is currently trading at $32 or $33 or whatever it was trading at — that we could, under — I agree it’s a one-in-a-million shot, but we could be forced to accept their stock and take a great loss.

I felt that was an uninsured risk. I felt like that we would spend — we, San Diego, could spend several million dollars in attempting to cooperate and pull this merger off and that we might not be reimbursed for that if Edison decided not to go through with it.

And I specifically asked Mr. Haney at a meeting — I think it was the December 1 meeting — let’s assume we go ahead and Edison has certain conditions they can back out on, right? Right. And if they back out, then we’re stuck with having spent all these legal and accounting fees.

And, as I point out in my letter there, under the paragraph where I say uninsured risks, the next sentence there are numerous scenarios under which the transaction could be derailed or abandoned, each of which would leave us out-of-pocket, as the illustration I just gave you, several million dollars, and any substantial forward progress would have been halted.

Q. Can you give us the order of magnitude of that fee that Salomon Brothers stood to get if the transaction was consummated?

A. It's a magnitude number only, but my recollection is it was somewhere between $3 and $7 million.

So I felt there were three separate, distinct uninsured risks. That some of our good people — but then again, I, having been in the acquisition and merger business for many years, when two companies are going through this marriage process, frequently good people leave. I felt that there was a chance that several of the good executives of San Diego could leave not knowing what their future would be and, indeed, that’s happened. So that’s what I meant by all of that.

Q: Let’s look at the second sentence “Given the upward trend of Edison’s rate, I am not persuaded that San Diego ratepayers will benefit from the sale”

What was the basis for your statement that there had been an upward trend of Edison’s rates?

A: Well, the management had furnished us, earlier in the proceedings when we were all standing together, had furnished us with some documentational charts that showed that over the last several periods that Edison’s rates had indeed gone up as ours were coming down.

Q: And as of the time of the vote, did anyone attempt to persuade you that that statement was not correct?

A: No, sir.

Q: Did anyone attempt to persuade the members of the board that San Diego ratepayers would benefit from the merger?

A: I can’t tell you who, but I do have a recollection that one or two people gave halfhearted — what I thought was halfhearted lip service that there could be some reductions if these two companies were put together.

Q: Was there any documentation given to the board in connection with those statements?

A: I don’t recall getting such documentation.

Q: At any of these board meetings, did anyone attempt to persuade the board that the merger would be good for the community that SDG&E serves?

A: Well, Edison came out, either in a letter or a press release early in the game, when they first proposed that they would — they would effect a ten percent reduction for the citizens of San Diego — or for the users — or not the citizens of San Diego, the customers of San Diego.

At the time they first made that, pretty much everybody at San Diego laughed at that and pooh-poohed it. Later, when the winds of time had changed or swayed to where it looked like we were going to do this transaction, there were some people who at that time were saying, well, maybe they can do that. Maybe they can come through with this ten percent reduction.

Q: What did you mean when you referred to your evaluation of the bias of certain advisors who told you that you had no choice?

A: Well, what I was trying to say there was that I thought that my own common sense, my own judgment, was telling me that the people who were advising us that we should vote in favor of this merger, I felt that they were biased. I did not feel that they were independent.

Q: And the advisors that you were referring to were whom?

A: The management, the negotiating team, the investment bankers, and our counsel.

Q: And counsel refers to Skadden, Arps?

A: Yes.

Q: Why did you feel that Skadden, Arps was biased?

A: I have no conclusive evidence why I thought that. I just felt it. In the pit of my stomach, I somehow or another felt like that they had supported the management instead of the independent directors.

Q: Do you know what the financial arrangements between Skadden, Arps and SDG&E was for legal service?

A: No, sir. I asked but do not know.

Q: Who did you ask?

A: Mr. Page.

Q: When did you ask Mr. Page?

A: If I can refer to my notes — I wrote him a letter sometime in the fall and said that I thought all the directors should be advised as to how much we were spending with outside counsel and outside investment bankers, and I did not get a response to the letter.

C?: Was there any response whatsoever to that letter?

A: Yes. At the same meeting where I was called into the comer room, it was a — it was a very hostile environment, and it was obvious that I was being spanked for having asked such a naughty question. Mr. Freeman answered on behalf of Salomon an answer that was a non-answer, I thought, and so I got up and went into the board room quite angry.

Q: What did Mr. Freeman say?

A: I can’t even remember what it was. It was such a non-answer, I didn’t think it was an answer.

Q: Were you aware of any contingencies in Salomon Brothers’ fees as of the time the vote on the merger was taken?

A: Yes.

Q: What contingencies were you aware of?

A: You are asking the question and it flashed into my memory more clearly now. It seems our arrangement with Salomon — I could act halfway intelligent if I could get ahold of my notes. It seems our arrangement with Salomon that we paid them a fee up front to represent us. We paid them an additional fee for getting a contract, getting Tucson to agree to a marriage. And then there was still a third fee upon the successful consummation of a merger with Tucson.

My frustration and anger was that I felt I had been led to believe that this fee only related to Tucson, and much to my shock and horror, it also related if we got bought out by Edison. So it became apparent late in the day that, in fact, Salomon profited by our being involved with Edison.

Q: Can you give us the order of magnitude of that fee that Salomon Brothers stood to get if the transaction was consummated?

A: It’s a magnitude number only, but my recollection is it was somewhere between $3 and $7 million.

Q: Did you view that as a conflict of interest by Salomon Brothers?

A: Certainly.

Q: Let me return for just a minute to the press release that you issued, which I believe is Exhibit No. 2....The last sentence says, “Indeed, Edison already seems to be reconsidering its previously announced pledge to reduce SDG&E customer rates by ten percent.” What was the basis behind that statement in this letter, sir?

A: Well, I think it’s pretty articulately written. It almost says exactly what I meant it to say, was that Edison had first come out and, in, to me, a black and white statement, said they were going to reduce rates of San Diego ten percent if San Diego would go along with the acquisition. And subsequent to that, as we directors were saying to management, “Put their feet to the fire; let’s get that in black and white so there is no way they can wiggle off that” — and then there were numerous reports in the paper, and I believe Mr. Allen appeared publicly — Mr. Allen being the president of Edison — appeared publicly, and some of the reporters questioned him. And there was — he seemed to be backing away from the position; that it wasn’t quite so black and white. And that’s what I was saying here, he seemed to be reconsidering that pledge.

Q: Did the board direct the negotiating team to present that to Edison, to get it in writing?

A: I don’t think they directed it in a formal sense, no, sir.

Q: Was there ever any indication back to the board as to what Edison’s position on putting that ten percent in writing was?

A: Well, my recollection of the conversation from management, our negotiating team, was that it was a very difficult thing to reduce to black and white that — that would be ironclad and that we might have to have some faith on that subject.

Q: Mr. Scott, at the time of the vote on the merger, was the board fully informed of all material facts relating to that merger as far as you’re concerned?

A: In light of what has become public since December 1,1 would say my answer would be no to that.

Q: Can you tell me what you have learned since November 30th that leads you to that conclusion?

A: Well, there’s been several facts reported in the papers that I was not privy to prior to their being reported in the papers, such as the — I’m at a loss for words. I’m trying to use the word — there’s so many strange words in the utility business — where they had undercollected and then later were going to catch up on the collections, where there were — there were some problems with the trust justice department with certain — where there had — they had a number of suits apparently from some cities, some of their smaller — “they,” Edison — the fact that — that some of their directors felt perhaps they were in violation of some FERC rules and regulations.

There have been, consequently — there continues to be, seems like, another peel peeled off the onion almost every week in some public announcement. And every time I read that I say, “Ah, I wish I had known that,” or, “I wish the other directors had known that.” So I think the answer to your question is yes.

Q: Are there any other facts that come to mind that you have since found out that you think were material?

A: It doesn’t jump at me, but if you refresh my memory, I might.

Q: Have you learned anything about the employment contracts for the four individuals that you didn’t know at the time the vote was taken?

A: The only thing that I — I — that I have any information on is that — that — that the local San Diego Union ran a fairly extensive story after the proxy was released that was disclosing that — the dollar amounts of some of the contracts. And I guess I was both shocked and surprised at the size of some of those. They were not — those were not made clear to me as the director or I was inept at understanding them when they were presented to me.

Q: At the time of the vote, had the board been given copies of the proposed employment contracts?

A: I can’t answer that. I don’t have a copy and never received a copy.

Q: Was there any attempt made during the board deliberations to quantify the benefits to the four individuals under the employment contracts?

A: The — most of — all of the compensation matters — this may be important for the record to understand the procedures: the senior officers’ compensation was handled by a senior compensation committee, which I was not a member of. And the style would be that that committee would meet and decide whatever the issues were and then come to the board and report and ask for ratification by the board. And I felt somewhat like a mushroom in much of those cases and so expressed myself as I — I was being kept in the dark, because it — we were left — we were left as sort of have to bore in and find out what some of these were.

And I voted against it, and the record reflects that. And I wrote some letters, and the record reflects that, my objection to some of the compensation matters and the so-called employment agreements and so on. And I took great umbrage that I was being asked — and I thought it was a key part of this whole transaction. And I didn’t feel like I had — I had been dealt with and had all the decks on top — all the cards on top of my table. I felt I was having to make decisions with partial information. So — and I voted against the — the employment agreements. But — but, to do that, I had to vote against the committee report instead of the employment agreements because they weren’t given to us to discuss. They weren’t put on the table and things of that nature.

Q: In any of the reports given by the committee, did anyone lay out the numbers that would represent compensation to the officers under these various agreements?

A: Yes. But I thought they were done in a — a devious way.

Q: In what sense?

A: Well, we were given a recap of the four management employment costs. And they were stated to the company in after-tax numbers. And they were stated to the employees in after-tax numbers. And I felt like that was trying to change, because the numbers would be much bigger if they were taken in the raw form. And I complained about that. I said, you know, why wouldn’t you just show us what the number is instead of convoluting them up and making them after tax. And I was met with less than a warm reception to that question.

Q: Tell me how you were first informed about the employment contracts.

A: It was at the same meeting that we were told that the negotiating team had, in fact, struck a deal with Edison at 1.30 for one. And to say I was shocked was an understatement. And — but I was trying to — I had missed the prior meeting. There was a special board meeting prior to that that I had missed.

I think the meeting that I’m referring to was about the 20th of the — of the month. And I believe I missed the meeting prior to that.

Q: Tell me how the subject was presented to the board.

A: Well, the first — the discussion of the 1.30, that was the first official news that I knew that management had recommended and had struck a deal at 1.30. And there was —

Q: Let me stop you right there You said management had struck a deal for 1.30?

A: Yes, sir.

Q: Is that what you were told?

A: Those were my words. I was told that — that management had — had met again with Edison and that they had arrived finally at a satisfactory exchange rate.

Q: Did the negotiating team have the authority from the board to agree upon an exchange rate?

A: That’s a subject of great debate. Apparently at the meeting before, which I was not present — and I have never received the minutes of that meeting, and I don’t know what transpired at the meeting. But in listening to other directors, apparently at that meeting — apparently at that meeting there was a game of “what if’ played. And the “what if’ was, “What if we could go back to Edison and get a deal at 1.30, would you directors support it and not chop our legs out from under us? If we go back and beat and hammer and demand the 1.3, will you support us?” And apparently the board members did say that. I was not there.

So at the — at the November 21st meeting, which I was present, it was reported that the negotiating team, which I was led to believe was composed of our four officers, Salomon Brothers, and Skadden, Arps were represented — our negotiating team had gone to Edison, met with Edison, and had — had struck a deal and reached an agreement, had an understanding, whatever the right word is, at a 1.30 exchange and that “You directors said you would support this, and now it has come time to support it, and I don’t want you to chop our legs out from under us.”

Well, I had not supported it. I would not have supported it had I been there. I would have never — I can’t imagine that I would ever, in my right sense, agree to such an agreement. And so I began to take exception to that and voiced great concern at how could we have so quickly gone from a bad deal to a good deal with — with the exchange ratio, and how could so many of the people that were over here defending it suddenly say we’re in favor of it. And — and my great concern was — was both of the way the 1.3 had slipped in and then the employment contracts.

Q: Mr. Scott, I’d like to go back in time a little bit. As a board member of SDG&E, when was the first time that you can recall actively discussing the subject of a major merger in connection with SDG&E?

A: With Edison?

Q: With anyone.

A: I thought that — I thought that — that on many important subjects, that management would often warm the directors up to it over a period of several meetings. And — and it was a — and I didn’t find it neither offensive nor bad. It was just, as you serve on lots of boards, you leam the cadence or the style or the step of management.

And it seems to me, over a period of time since I watched this management operate, that if they had something really they wanted — important they wanted to bring to you, they would not come and bring it frontally the first time. They would start dropping bread crumbs along the trail, and you would begin to talk on these subjects.

And maybe because I’m active in the merger and acquisition business and maybe because I’m suspicious, but early in the spring of — of ’88, there were — there would be parts of each board meeting devoted to, “The utility industry is going to go through an upheaval, and there’s going to be mergers, and there’s going to be acquisitions, and we need to be very careful and think about this.”

Frankly, I thought most of that was — was a prelude to enticing us to sign up some golden parachutes, but that was never mentioned. That was just my own suspicious nature. And then, after several of those such kind of events, there was, in fact, the introduction of Skadden and introduction of Salomon Brothers at a board meeting, that they had been retained by the company. And then either at that meeting or the next meeting was the subject that, “We think Tucson would be receptive to — to a marriage.” And so it sort of backed in there that way. And that would have all taken place in the spring of ’88.

Q: And it’s your recollection that Salomon Brothers and Skadden were identified to the board before Tuccson was?

A: Either at the same instant or maybe slightly before. I don’t know.

Q: Prior to that time had you heard any discussions at any board meetings concerning a possible hostile takeover of SDG&E?

A: Only to the degree I just spoke of a minute ago, that there was conversation that this industry’s going to consolidate. There was conversation that — that we need to be ever vigilant, that somebody could come in and go after San Diego Gas & Electric, and that — that — because, during this same period of time, San Diego and Edison were having what was referred to in the boardroom as these border skirmishes. And the border skirmishes, apparently some of the small communities on the north side of San Diego’s trade territory, their franchises were coming due. And Edison was in trying to get those franchises renewed with Edison, and so was San Diego.

And so Tom Page took great delight — and I give him high credit — took great delight in telling the board how in two or three of the border skirmishes that San Diego had kicked the hell out of Edison; and that how many people Edison had assigned to the project and how many people we had assigned; and if the city of XYZ had taken a vote, we would have won. And all of that — there would always be something, you know, “We’re — we’re really getting Edison mad at us, and so we want to keep in mind that Edison might get enough of this and come down and beat up on us a little bit.”

Q: In any of those discussions, did Mr. Page voice his personal opinion of Edison?

A: My image of what his feelings were at that time, that they were big and powerful and got their way on most everything and that they were a formidable foe with lots of capital and lots of assets.

Q: Other than engaging in border skirmishes, were there any other problems or difficulties between the two companies that were brought to the attention of the board?

A: Yes. There had been some sort of — of lower-echelon scuffling and fighting over SONGS, SONGS, San Onofre plant. That’s the slang name within the family for San Onofre. And there had been — I don’t even recall, but there had been some arguments back and forth that — that — “He said-I said” contest at lower levels, and then there had also been some — some — we — reported to us there had been some sort of scuffling — my words, not their words — scuffling over the power transmissions that were coming out — out of Arizona to Southern California.

Q: If you can, sir, tell me a little bit about how the board was first introduced to the concept of the Tucson deal.... Are there specific reasons that you can recall that the board was told as to why this deal made lots of sense?

A: Yes. The words that I recall were that San Diego is in an energy desert, and Tucson had an abundance of power and abundance of — because they had built some plants, and they had a great supply of coal, and that Tucson was energy rich, and we were energy poor, and that we had just finished building a few years earlier the Southwest powerlink. The Tucson economy had slowed down some and was rather flat, and they did not have — Tucson management had anticipated more growth in Tucson and had built over capacity. The San Diego community was growing faster than we had anticipated.

And so that here was one of riches, and the other one was adequate, but not riches, and that this would be a wonderful situation, and that we are — are — we would — and if you look at a map — which Salomon Brothers furnished us a map of all of the electric utilities of America and the trade territories — and you could look down and see how these two would form a union like two globs of water on a glass hooking together.

Q: At that meeting was the proposed transaction described as a merger?

A: I believe so.

Q: After the initial board meeting at which time the Tucson deal was discussed, was there any direction given to management in connection with the proposed deal?

A: I think so. One that I particularly gave — again, this was just based on experience. I was — I guess I — I was troubled by why Tucson and Mr. Einar Greve, who was the chief executive of Tucson — I was a little puzzled why they would be so willingly — such a willing marriage partner. It just —

And one of the things — I lecture on acquisitions and mergers in some of the business schools around the country, and one of the things I always talk about is it’s important to really know why the other person is willing to get married, not what they tell you. And so I made quite a speech, at one of the early Tucson board — one of the early board meetings when Tucson was being concerned, to Tom, and I — I went into great detail that “I’m not sure you know or any of us know all of the thinking behind Tucson’s willingness to do what looks like to be a marvelously — a marvelous marriage, and I worry about that. And I urge you to go get Einar Greve and go sit on a boulder or go up in the mountains and listen so hard you get a hernia for a couple of days and see if you can come back and really know why.”

And the reason that conversation stuck in my mind, when the — when the Edison thing exploded in our face, Catherine Wiggs reminded Tom Page, “Remember when Red Scott told you,” and she then repeated the very conversation when I had urged him to sit down and try to understand what was motivating Einar Greve.

Q: Did anyone find an answer to your question that was satisfactory to you?

A: I don’t think so. I don’t know that we know to this day.

Q: Mr. Scott, [in] Exhibit No. 3... both the cover letter as well as the attached letter... I note that on the sheet that we were given it’s indicated that there was a board of directors meeting on July 25th, 1988.... Can you tell me what the discussions at that board meeting were concerning Edison’s offer?

A: Well, I think it would — it could be best described as one of anger, of concern, of hostility, that they had no business — “they,” Edison — had no business interfering in this relationship with Tucson, and they’ve come along and “muckity-mucked” up the water, and we want to do the Tucson deal, and this is a bad deal.

Q: You’re referring to the Edison deal as a bad deal?

A: Yes, sir.

Q: Who expressed those opinions?

A: Everybody in the room.

Q: Including Mr. Page?

A: Yes.

Q: Were there any specifics that anyone gave as to why this proposed deal was a bad deal?

A: Well, that — I think the specifics that were discussed, that we were going to be more rate favorable than they; so it wouldn’t help our rate payers. It was not an attractive deal to our shareholders. It would decimate our employees and officers staff. It would hurt San Diego because we would lose one of our major businesses. It would become a Los Angeles business. And there were — I don’t recall anybody in the room having anything good to say about the transaction.

Q: The second paragraph says, “We have no intention of attempting to acquire your company other than in a transaction approved by your board of directors.” And I’m referring now to this second paragraph on the long letter to Mr. Page.

Was that sentence discussed by the board?

A: Yes.

Q: What did people have to say about that?

A: Well, I know what I had to say. And — and my attitude then and now was that I believe in the free-enterprise system. I do not believe in golden parachutes and management contracts. And that if — if Edison wanted to go buy our stock in the open market, our shareholders should be allowed to sell their stock to whomever they wanted at whatever the price. But I resented Edison wanting me, as a director, to sprinkle holy water on a transaction that I thought was wrong, that I would not lift one finger to entrench management or the directors....

Q: As a result of this proposal, can you tell me what was done by the board of SDG&E?

A: It was rejected, I believe, formally. The burner was turned up to proceed ahead with Tucson. There were press releases made. And I believe San Diego ran ads in the paper stating their opposition to this and why and that a general public relations campaign was mounted to try to influence the population at large.

Tom was encouraged to go see Mrs. Copley, the publisher of the paper, and try to persuade her to throw her weight against such an acquisition and to see Maureen O’Connor, our mayor, and persuade her to throw her opposition. We were busy little beavers getting organized to repel Big Brother from the north.

Q: Was Mr. Page reporting to the board the status of the Tucson deal in the face of the Edison proposals?

A: Yes.

Q: What was he telling the board?

A: I believe he was saying — I recall him saying, my recollection is, that he thought that the Tucson deal was very doable and that it would — it would — it was going to be a tough fight but that we should stick with the Tucson and go ahead and do that deal.

Q: Were there analyses prepared for the board of the relative merits between the Tucson deal and an SDG&E/Edison deal?

A: Yes, sir.

Q: Who prepared those?

A: Salomon Brothers prepared some. And I don’t know whether management prepared any or not.

Q: As each new proposal was — excuse me. As each new offer was sent by Edison, were these documents prepared by Salomon Brothers updated for the board?

A: Generally, yes.

Q: Can you recall the Edison offers being increased during August, modifying the exchange ratio up?

A: I can recall the Edison offers being modified. I cannot identify that it was all in the month of August.

Q: Can you tell me what you can recall as to the exchange ratios being modified up, what was the board told?

A: The dates and numbers that are indelible in my mind was what I called the 1.15 offer of July 25th. Then sometime after that the offer was increased to 1.20. Then the offer was increased to 1.225. And the final offer of 1.30 was somewhere around November 15th to November 20.

Q: Did the Salomon Brothers analyze the 1.15 ratio?

A: I believe so.

Q: Can you recall what the conclusion was?

A: That it was not a favorable transaction.

Q: Did Salomon Brothers analyze the 1.20 transaction?

A: I believe so.

Q: Can you recall what that conclusion was?

A: That it was not a favorable transaction.

Q: Did Salomon Brothers analyze the 1.225 proposal?

A: I believe so.

Q: Was it a similar conclusion?

A: Yes, sir.

Q: Did those analyses Salomon Brothers prepared, did Salomon Brothers point out any ratio — any threshold ratio that they deemed sufficient?

A: There was some discussion by some board members and Salomon as to what would be a favorable offer, and I recall Ms. Wiggs talking about that she would get interested at 1.40. And I don’t remember which one, but there were some other directors that talked about more than 1.35, up into the 1.4 area.

Q: Mr. Scott, [in] the August 31 letter to Mr. Page... in the left-hand margin of both pages there is some handwriting. Is that yours?

A: Yes, sir.

Q: Below the word final, there are some question marks. Can you tell me why you put those there?

A: Yes. I became aware that — apparently at that time, those question marks, I was saying to myself, is this possible? I did not focus — I did not realize that we had doubled and tripled the severance packages. And as I testified to you earlier today, that sometimes the compensation committee recommended things to the board and we were asked to ratify in a quick hurry without always due deliberation.

And I thought, uh-oh, here we go again. I must have voted for something that I didn’t even realize what I was voting for. Or it had been — and I was shocked to read that. I was particularly shocked that Howard Allen was telling me what we were doing.

Q: Look at the next page, if you would. There are also some question marks there.

A: I think I was saying to myself on those question marks, baloney. He told us that 1.15 was a good offer, and then he raised it to 1.20. And then he raised it to 1.25. And here he says, “Your board can also rest assured that it has extracted from us the highest price we are willing to pay.” But it turned out not to be so at all. And I think I was saying right here, I don’t think it’s so.

Q: Do you recall Mr. Page taking a position at the meeting as to whether the merger proposal with Edison should be accepted?

A: My recollection is that at 1.225, Mr. Page was still adamantly against it.

Q: Can you recall when you first heard the fixed ratio of 1.3 in connection with the Edison proposals?

A: Yes. My recollection is San Diego Gas & Electric has a subsidiary called Pacific Diversified Corp., and I was on the board of Pacific Diversified along with Mr. Page. I had been out of town, and I came back in town and attended that meeting of Pacific Diversified. Just before the meeting started — I got there five minutes early — Mr. Page was there, and he indicated to me that the offer was being moved from 1.225 to 1.3 and that he thought maybe that was a good offer. And then at about that same time the other meeting started.

Q: When Mr. Page said to you that he thought maybe the 1.3 would be a good offer, did you have any response for him?

A: Yes. I said, “I’m dead set against it.”

Q: Did that comment by him take you by surprise?

A: Yes.

Q: Can you narrow the time frame down as to when he made that —

A: Not without my notes.

Q: ... Was that the first indication you had that Mr. Page may be shifting his position?

A: Yes, sir.

Q: Did you have any conversations with any of the other board members about that conversation you had with Mr. Page?

A: On the board of Pacific Diversified was Mr. Sievert, Mr. Burnham, myself, and Mr. Derbes. The original three against the proposal were Burnham, Sievert, and Scott... but I think within the next day or two I talked to some of the other members. I basically said, “What’s going on? What has happened here? What have I missed? What don’t I understand?”

Q: Did you ever find out whether the 1.3 number came from Mr. Page or Mr. Allen?

A: No, sir. I don’t know to this day.

Q: The proxy material states that on November 3rd, 1988, it was announced that SDG&E and Tucson had terminated the Tucson merger. How did you learn that that agreement was to be terminated?

A: Well, again, I thought we had been sort of spoon-fed and that you could feel — and we met a number of times during this period — you could feel the shifting of the winds, things being said, that the Tucson merger was in serious trouble. Yet if you asked the question, “Was it still alive?” the answer was, “Yes.” And I don’t recall specifically “the final blow that killed the cock robin” that ended the transaction.

Q: The proxy materials indicate that on November 9, 1988, the SDG&E board authorized SDG&E management and legal and financial advisors to explore the possible terms of a merger agreement with Edison on certain terms and conditions.... And the document indicates that you were not present at that board meeting. After that board meeting, did you receive any minutes as to what had occurred?

A: No, sir.... Because I had been the most strenuous objector almost from the beginning, I think Mr. Page and some of the other directors felt a need to pacify me or neutralize me or something. Somewhere along in that time frame,

Mr. Page called and wanted to know if he could come see me at my office, which I thought was unusual. But we welcomed him with open arms. He came out and he sat in our office for a considerable period of time, maybe up to an hour, and we talked about the whole transaction. And he was very warm and very friendly. I recall being adamantly against the Edison offer, and I recall he was beginning to explain why it might not be so bad after all, and I had the feeling after he left my office that, indeed, the winds had changed....

JAMES ROOD: Mr. Scott, do you have a copy of the SDG&E proxy?

A: No, sir.

Q: Are you generally familiar with the language in the proxy on page 44 which was attributable to you?

A: I’ve never read the proxy or seen it.

Q: Mr. Scott, have you reviewed the language at page 44?

A: I just now did. Yes.

Q: Does that language accurately reflect your opinion regarding the proposed merger?

A: No, sir.

Q: Would you explain how it does not reflect your opinion?

A: This information was submitted to myself and Mr. Jenkins, my attorney at that time, and it is a condensation or a reduction or an abbreviation of my statement, which had been very carefully worded and crafted, the December 1 statement. We asked, at that time, that San Diego Gas & Electric repeat my entire statement, that we didn’t think it could be reduced or we would have done it ourselves. They chose to ignore that and run this this way, and we disclaim any ownership in this.

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