<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.142-12
PACIFIC ENTERPRISES
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
PACIFIC ENTERPRISES
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
555 WEST FIFTH STREET
LOS ANGELES, CA 90013-1011
WILLIS B. WOOD, JR.
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
March 23, 1995
Dear Shareholder:
On behalf of the Board of Directors, it is a pleasure to invite you to our
Annual Meeting of Shareholders to be held in Universal City on May 4. I hope you
will find it convenient to attend.
At the Annual Meeting, shareholders will elect ten directors and vote upon
approval of incentive compensation performance goals. Approval of these goals is
intended to assure that dividend equivalent and bonus opportunities awarded to
executives under our Employee Stock Option Plan (which was approved last year by
shareholders) and our Executive Incentive Plan over the next five years will,
upon payment, be a deductible compensation expense to Pacific Enterprises for
federal income tax purposes. Confidential voting is provided for employee
shareholders voting through the company's employee benefit plans and other
shareholders may elect confidential voting if they so desire.
Whether you own a few or many shares and whether or not you plan to attend
in person, it is important that your shares be voted at the Annual Meeting. I
urge you to complete the enclosed proxy or voting instruction and return it
promptly. If you have any questions concerning the Annual Meeting, please call
Pacific Enterprises Shareholder Services, 1-800-722-5483.
Very truly yours,
Willis B. Wood, Jr.
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The 109th Annual Meeting of Shareholders of Pacific Enterprises will be held
on Thursday, May 4, 1995 at 9:30 a.m. in the Universal City Hilton & Towers, 555
Universal Parkway Terrace, Universal City, California. At the Annual Meeting,
shareholders will consider the following items of business:
1. The election of directors.
2. Approval of performance goals for dividend equivalents.
3. Approval of performance goals for Executive Incentive Plan.
4. Such other business as may properly come before the meeting.
Shareholders of record at the close of business on March 21, 1995 are
entitled to notice of and to vote at the Annual Meeting.
ONLY SHAREHOLDERS OF PACIFIC ENTERPRISES ARE ENTITLED TO ATTEND THE ANNUAL
MEETING.
AN ADMISSION TICKET TO THE ANNUAL MEETING IS PRINTED ON THE INSIDE BACK
COVER OF THIS PROXY STATEMENT. IF YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE
BRING THIS TICKET WITH YOU. IT WILL ADMIT YOU AND A GUEST OR FAMILY MEMBER TO
THE MEETING.
Shareholders who do not bring an admission ticket to the Annual Meeting must
have their share ownership verified to obtain admission. Shareholders of record
will be admitted upon verification of record share ownership at the admission
desk. Shareholders who own shares through banks, brokerage firms, nominees,
employee benefit plans or other account custodians, must present proof of
beneficial share ownership (such as a brokerage account or employee benefit plan
statement) at the admission desk.
If you expect to attend the Annual Meeting in person, please check the
attendance box provided on the enclosed proxy card or voting instruction.
Seating is limited and will be on a first-come, first-served basis. Doors will
open at 8:30 a.m.
Thomas C. Sanger, Secretary
March 23, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Pacific Enterprises........................................................................................ 1
Outstanding Shares and Voting Rights....................................................................... 1
Board of Directors......................................................................................... 3
Election of Directors...................................................................................... 4
Share Ownership of Directors and Executive Officers........................................................ 8
Financial Performance and Shareholder Returns.............................................................. 9
Report of the Compensation Committee....................................................................... 11
Executive Compensation..................................................................................... 16
Approval of Incentive Compensation Performance Goals....................................................... 20
Solicitation of Proxies and Voting Instructions............................................................ 24
Independent Auditors....................................................................................... 25
Annual Reports............................................................................................. 25
1996 Annual Meeting........................................................................................ 25
Other Business............................................................................................. 26
</TABLE>
<PAGE>
[LOGO]
------------------------
PROXY STATEMENT
------------------------
Pacific Enterprises is providing this Proxy Statement to shareholders in
connection with its Annual Meeting of Shareholders to be held May 4, 1995. It is
being mailed to shareholders commencing March 23, 1995.
PACIFIC ENTERPRISES
Pacific Enterprises is a Los Angeles-based utility holding company engaged
in supplying natural gas throughout most of Southern and portions of Central
California. These operations are conducted through Southern California Gas
Company, the nation's largest natural gas distribution utility, which provides
gas service through 4.7 million meters to 535 cities and communities in a
23,000-square-mile service territory with a population of 17 million. Through
other subsidiaries, Pacific Enterprises is also engaged in interstate and
offshore natural gas transmission to serve its utility operations and in
alternate energy development.
Pacific Enterprises was incorporated in California in 1907 as the successor
to a corporation organized in 1886. Its principal executive offices are located
at 555 West Fifth Street, Los Angeles, California and its telephone number is
(213) 895-5000.
OUTSTANDING SHARES AND VOTING RIGHTS
Shareholders who are present at the Annual Meeting in person or by proxy
will be entitled to one vote for each share of Pacific Enterprises Common Stock
and Voting Preferred Stock which they held of record on March 21, 1995. On that
date 84,541,892 shares of Pacific Enterprises Common Stock and 1,100,353 shares
of Pacific Enterprises Voting Preferred Stock were outstanding.
Pacific Enterprises' bylaws permit each shareholder who desires to do so to
elect that his or her identity and individual vote be held confidential.
Confidentiality will not apply to the extent that voting disclosure is required
by applicable law or is appropriate to assert or defend any claim relating to
shareholder voting. Confidentiality also will not apply with respect to any
matter for which shareholder votes are solicited in opposition to the nominees
or voting recommendations of the Board of Directors
1
<PAGE>
unless the persons engaged in the opposition solicitation provide shareholders
with voting confidentiality (which, if not otherwise provided, will be requested
by Pacific Enterprises) comparable to the voting confidentiality provided by
Pacific Enterprises. A shareholder desiring confidential voting must mark the
appropriate box and return the enclosed proxy card.
The employee benefit plans of Pacific Enterprises and its subsidiaries
automatically provide for confidential voting by employees participating in the
plans. Employees holding shares through these plans need not take any action to
obtain confidential voting and may vote their shares by returning the enclosed
voting instruction.
Proxies and voting instructions that are timely received will be voted in
the manner directed thereon. If no direction is given, they will be voted, as to
the shares for which they are authorized to be voted, in accordance with the
recommendations of the Board of Directors. Only votes for or against a
particular matter will be counted as votes cast in determining the outcome of
that matter.
2
<PAGE>
BOARD OF DIRECTORS
Pacific Enterprises' entire Board of Directors is elected at each Annual
Meeting of Shareholders. During 1994, the Board of Directors held eleven
meetings.
BOARD COMMITTEES
The Board of Directors maintains standing Audit, Compensation, Environmental
and Social Responsibility, Executive and Nominating Committees.
THE AUDIT COMMITTEE, which consists entirely of non-officer directors,
recommends to the Board of Directors the selection of independent auditors;
approves and reviews services and fees of independent auditors; and reviews
accounting and financial policies, internal accounting controls and the results
of audit engagements. During 1994, the Committee held three meetings.
THE COMPENSATION COMMITTEE reviews the performance and approves or
recommends the compensation of senior management and recommends the adoption of
and administers compensation plans in which senior management is eligible to
participate. The Committee also considers management succession plans. During
1994, the Committee held six meetings.
THE ENVIRONMENTAL AND SOCIAL RESPONSIBILITY COMMITTEE reviews and monitors
Pacific Enterprises' fulfillment of its responsibilities on environmental
matters and other matters of public policy. During 1994, the Committee held two
meetings.
THE EXECUTIVE COMMITTEE may act on all but certain major corporate matters
reserved to the Board of Directors. It meets when emergency issues or scheduling
make it difficult to assemble the Board of Directors. During 1994, the Committee
held one meeting.
THE NOMINATING COMMITTEE considers and makes recommendations regarding the
nominations of directors and the size and composition of the Board of Directors.
During 1994, the Committee held one meeting. The Committee will consider
shareholder suggestions for nominees for director. Suggestions may be submitted
to the Secretary of Pacific Enterprises, P.O. Box 60043, Los Angeles, California
90060-0043. Biographical information concerning the proposed nominee should also
be included to assist the Committee in its deliberations.
DIRECTOR COMPENSATION
Directors who are also officers of Pacific Enterprises or its subsidiaries
are not separately compensated for their services as directors or as members of
Committees of the Board of Directors. Non-officer directors receive annual
retainers of $25,000 and an additional $3,000 for each Committee which they
chair. Non-officer directors also receive $900 for each meeting of the Board of
Directors or Committee of the Board of Directors which they attend. Directors
may defer the receipt of their compensation and earn interest on the amounts
deferred.
3
<PAGE>
Non-officer directors receive retirement benefits commencing upon the later
of retirement or attaining age 65. The annual retirement benefit is the sum of
the then current annual base retainer and the then current Board meeting fee
multiplied by ten and adjusted upward for subsequent increases in the retainer
or meeting fee. The benefit continues for a maximum period equal to the
director's years of service as a non-officer director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of three members, all of whom are
non-officer directors. The members of the Committee are Wilford D. Godbold, Jr.,
Harold M. Messmer, Jr. and Ignacio E. Lozano, Jr. Throughout 1994, Paul A.
Miller also served as a member of the Compensation Committee. Mr. Miller is a
former officer of Pacific Enterprises who retired as Chairman of the Board and
Chief Executive Officer in 1989.
ELECTION OF DIRECTORS
At the Annual Meeting, ten directors (comprising the entire authorized
number of directors) will be elected to hold office until the next Annual
Meeting and until their successors have been elected and qualified. The ten
director candidates receiving the highest number of affirmative votes of the
shares entitled to be voted will be elected as directors.
The names of the Board of Directors' ten nominees for election as directors
and biographical and shareholding information (see also "Share Ownership of
Directors and Executive Officers") regarding each nominee are set forth below.
Each nominee is currently a director of both Pacific Enterprises and Southern
California Gas Company other than Mr. Stegemeier who is a nominee for election
as a director of both companies. Unless otherwise noted, each nominee has held
the position set forth beneath his or her name or various positions with the
same organization for at least the last five years.
The proxies and voting instructions solicited by this Proxy Statement will
be voted for the election of these nominees unless other instructions are
specified. If any nominee should become unavailable to serve, the proxies and
voting instructions may be voted for a substitute nominee designated by the
Board of Directors or the authorized number of directors may be reduced.
4
<PAGE>
[PHOTO OF HYLA H. BERTEA]
HYLA H. BERTEA,
COMMUNITY LEADER.
Mrs. Bertea, 54, has been a director of Pacific Enterprises
since 1988. She is a realtor with Grubb & Ellis, a real estate
sales company. She is Commissioner of the California Horse
Racing Board and a Trustee of Lewis & Clark College. For a
number of years she has been involved in leadership positions with various
cultural, educational and health organizations in the Orange County and Los
Angeles areas. She was a co-commissioner of gymnastics and member of the
executive staff for the 1984 Olympics.
<TABLE>
<S> <C> <C>
Committees: Audit, Shares: 11,527
Environmental and Social Responsibility, and
Nominating
</TABLE>
[PHOTO OF HERBERT L. CARTER]
HERBERT L. CARTER,
EXECUTIVE VICE CHANCELLOR EMERITUS AND TRUSTEE PROFESSOR OF
PUBLIC ADMINISTRATION OF THE CALIFORNIA STATE UNIVERSITY
SYSTEM.
Dr. Carter, 61, has been a director of Pacific Enterprises
since 1991. He was President and Chief Executive Officer of
United Way of Greater Los Angeles from 1992 until 1995 and Executive Vice
Chancellor of the California State University System from 1974 until 1992. He is
a director of Golden State Mutual Insurance Co.; a member of the Board of
Councilors of the School of Public Administration, University of Southern
California; and a member of the Board of Trustees of Loyola Marymount
University.
<TABLE>
<S> <C> <C>
Committees: Audit, Shares: 817
Environmental and Social Responsibility, and
Nominating
</TABLE>
[PHOTO OF RICHARD D. FARMAN]
RICHARD D. FARMAN,
PRESIDENT AND CHIEF OPERATING OFFICER OF PACIFIC ENTERPRISES.
Mr. Farman, 59, has been a director of Pacific Enterprises
since 1992. He currently serves as Chairman of KCET Public
Service Television and Co-Chair of Progress L.A., Inc. He is a
director and executive committee member of the Los Angeles Area Chamber of
Commerce, and director of Union Bank and Sentinel Group Funds, Inc. He is a past
chairman of the American Gas Association and of the Natural Gas Council, and
holds membership in the Pacific Coast Gas Association and the National Petroleum
Council.
<TABLE>
<S> <C> <C>
Committees: Environmental and Social Responsibility and Shares: 99,473
Executive
</TABLE>
[PHOTO OF WILFORD D. GODBOLD JR.]
WILFORD D. GODBOLD, JR.,
PRESIDENT, CHIEF EXECUTIVE OFFICER AND A DIRECTOR OF ZERO
CORPORATION, AN INTERNATIONAL MANUFACTURER OF ENCLOSURES AND
COOLING EQUIPMENT FOR THE ELECTRONICS MARKET, AND OF AIR CARGO
AND AIR FREIGHT ENCLOSURES.
Mr. Godbold, 56, has been a director of Pacific Enterprises since 1990. He is
also a director of Santa Fe Pacific Pipelines, Inc.; past Chairman of the Board
of Directors of the California State Chamber of Commerce; Chairman of the
Executive Committee of The Employer's Group; a member of the Board of Trustees
of the 4 A's Foundation and The Wellness Community; and a member of the Council
on California Competitiveness. He is past President of the Board of Trustees of
Marlborough School.
<TABLE>
<S> <C> <C>
Committees: Audit, Shares: 2,000
Compensation, and Executive
</TABLE>
5
<PAGE>
[PHOTO OF IGNACIO E. LOZANO JR.]
IGNACIO E. LOZANO, JR.,
EDITOR-IN-CHIEF OF LA OPINION, A SPANISH LANGUAGE DAILY
NEWSPAPER. DURING 1976 AND 1977 MR. LOZANO SERVED AS UNITED
STATES AMBASSADOR TO EL SALVADOR.
Mr. Lozano, 68, has been a director of Pacific Enterprises
since 1978. He is also a director of BankAmerica Corporation,
Bank of America NT&SA, The Walt Disney Company, Pacific Mutual Life Insurance
Company, the Santa Anita Foundation, the Youth Opportunities Foundation and
South Coast Repertory Theatre. He is a trustee of the University of Notre Dame.
He is a member of the California Press Association and the Los Angeles Press
Club.
<TABLE>
<S> <C> <C>
Committees: Audit, Shares: 1,337
Compensation, Environmental and Social
Responsibility, and Executive
</TABLE>
[PHOTO OF HAROLD M. MESSMER JR.]
HAROLD M. MESSMER, JR.,
CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF ROBERT HALF
INTERNATIONAL INC., A PERSONNEL SERVICE FIRM SPECIALIZING IN
THE ACCOUNTING, FINANCIAL, BANKING AND INFORMATION SYSTEMS
FIELDS.
Mr. Messmer, 49, has been a director of Pacific Enterprises
since 1991. He is also a director of Airborne Freight Corporation, Health Care
Property Investors, Inc., NationsBank of North Carolina, N.A., and Spieker
Properties, Inc. He is an active member of the Young Presidents' Organization
and serves on the board of several civic and educational groups, including the
San Francisco Bay Area Council and the San Francisco Boys and Girls Club. He is
a trustee of Sacred Heart School.
<TABLE>
<S> <C> <C>
Committees: Audit, Shares: 1,000
Compensation, and Nominating
</TABLE>
[PHOTO OF PAUL A. MILLER]
PAUL A. MILLER,
RETIRED CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER OF
PACIFIC ENTERPRISES; CHAIRMAN OF THE EXECUTIVE COMMITTEE OF
PACIFIC ENTERPRISES.
Mr. Miller, 70, has been a director of Pacific Enterprises
since 1952. He is also a director of Newhall Management
Corporation, Wells Fargo & Company, Wells Fargo Bank, N.A., and a trustee of
Mutual Life Insurance Company of New York and the University of Southern
California.
<TABLE>
<S> <C> <C>
Committees: Executive Shares: 12,586
</TABLE>
[PHOTO OF RICHARD J. STEGEMEIER]
RICHARD J. STEGEMEIER,
CHAIRMAN OF THE BOARD OF DIRECTORS OF UNOCAL CORPORATION.
Mr. Stegemeier, 66, is a direc-
tor of First Interstate Bancorp,
Foundation Health Corporation, Halliburton Company, Northrop
Grumman Corporation and Outboard Marine Corporation. He joined
Unocal in 1951 as a research engineer, holding increasingly important
operational responsibilities in petroleum exploration and production in
California and the Far East. He was named President and Chief Operating Officer
of Unocal in 1985, President and Chief Executive Officer in 1988, and Chairman
of the Board in 1989. He retired as an employee and executive officer of Unocal
in April 1994.
<TABLE>
<S> <C> <C>
Shares: 1,000
</TABLE>
6
<PAGE>
[PHOTO OF DIANA L. WALKER]
DIANA L. WALKER,
IS A PARTNER IN THE LOS ANGELES BASED LAW FIRM OF O'MELVENY &
MYERS.
Mrs. Walker, 53, has been a director of Pacific Enterprises
since 1989. She is a director of United Way of Greater Los
Angeles and a former trustee of Marlborough School. She has
served on various professional organizations. O'Melveny & Myers, of whom Mrs.
Walker is a partner, provides legal services to Pacific Enterprises.
<TABLE>
<S> <C> <C>
Committees: Audit, Environmental and Social Shares: 500
Responsibility, and Nominating
</TABLE>
[PHOTO OF WILLIS B. WOOD JR.]
WILLIS B. WOOD, JR.,
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER OF PACIFIC
ENTERPRISES.
Mr. Wood, 60, has been a director of Pacific Enterprises since
1989. He is also a director of Great Western Financial
Corporation, Great Western Bank, the California Medical Center
Foundation, the California State Chamber of Commerce,the National Association of
Manufacturers, the Los Angeles World Affairs Council and the Automobile Club of
Southern California; Vice Chairman of the Board of Trustees of Harvey Mudd
College and a trustee of the Southwest Museum; and a member of the California
Business Roundtable.
<TABLE>
<S> <C> <C>
Committees: Executive Shares: 184,344
</TABLE>
7
<PAGE>
SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of Pacific Enterprises
Common Stock beneficially owned as of March 21, 1995 by each director and
nominee, the chief executive officer and the four other most highly compensated
executive officers of Pacific Enterprises and, as a group, all such persons and
all other executive officers.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF COMMON STOCK
- ------------------------------------------------------------------- ------------------
<S> <C>
Hyla H. Bertea (#1)................................................ 11,527
Herbert L. Carter (#2)............................................. 817
Richard D. Farman (#3)............................................. 99,473
Wilford D. Godbold, Jr............................................. 2,000
Lloyd A. Levitin (#3).............................................. 109,240
Leslie E. LoBaugh, Jr. (#3)........................................ 36,803
Ignacio E. Lozano, Jr. (#1)........................................ 1,337
Harold M. Messmer, Jr.............................................. 1,000
Paul A. Miller (#4)................................................ 12,586
Warren I. Mitchell (#3)............................................ 49,001
Joseph R. Rensch (#5).............................................. 26,296
Richard J. Stegemeier.............................................. 1,000
Diana L. Walker.................................................... 500
Willis B. Wood, Jr. (#3)........................................... 184,344
All Directors and Executive Officers as a group
(19 persons) (#3)................................................. 640,999
<FN>
- ----------
#1 Includes shares held by spouse. Such shares total 4,100 shares for Mrs.
Bertea and 500 shares for Mr. Lozano.
#2 Includes 37 shares held as guardian.
#3 Includes shares issuable upon exercise of employee stock options that are
exercisable prior to May 31, 1995. Such option shares total 82,000 shares
for Mr. Farman, 94,000 shares for Mr. Levitin, 34,360 shares for Mr.
LoBaugh, 45,100 shares for Mr. Mitchell, 157,000 shares for Mr. Wood and
498,260 shares for all executive officers as a group.
#4 Includes 1,200 shares held as co-special administrator and co-executor.
#5 Mr. Rensch will retire as a director at the Annual Meeting.
</TABLE>
The shares of Pacific Enterprises Common Stock owned by all directors and
executive officers as a group represent less than 1% of the outstanding voting
shares.
8
<PAGE>
THE FOLLOWING INFORMATION CONTAINED UNDER THE CAPTIONS "FINANCIAL
PERFORMANCE AND SHAREHOLDER RETURNS" AND "REPORT OF THE COMPENSATION COMMITTEE"
SHALL NOT BE DEEMED TO BE "SOLICITING MATERIAL" OR TO BE "FILED" WITH THE
SECURITIES AND EXCHANGE COMMISSION AND SHALL NOT BE DEEMED TO BE INCORPORATED
INTO ANY FILING BY PACIFIC ENTERPRISES UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES EXCHANGE ACT OF 1934 IN THE ABSENCE OF SPECIFIC REFERENCE TO SUCH
INFORMATION AND CAPTIONS.
FINANCIAL PERFORMANCE AND SHAREHOLDER RETURNS
Pacific Enterprises' return to profitability continued in 1994 with
increased dividends but slightly lower earnings resulting primarily from the
absence of a one-time tax benefit that increased 1993 earnings. This was
accomplished through the continued strong performance of Southern California Gas
Company which achieved a return on equity of 12.3%, compared with 11% authorized
by the California Public Utilities Commission, marking the twelfth consecutive
year in which it has achieved or exceeded its authorized rate of return on rate
base.
Prior to 1993, Pacific Enterprises experienced several years of
unsatisfactory performance as a result of losses from non-utility operations.
Substantially all of these operations were sold during 1992 and early 1993 as
part of a new strategic plan to refocus on natural gas utility operations.
Proceeds from these sales and a public offering of Common Stock were applied to
retire substantially all non-utility debt and a quasi-reorganization was
effected for financial reporting purposes to adjust remaining non-utility assets
to fair value and eliminate an accumulated deficit in retained earnings.
Pacific Enterprises' financial results have been reflected in its stock
price performance and total return to shareholders as shown in the graphs on the
following page. These graphs compare the market value over the last two and five
years (assuming reinvestment of dividends) of an initial $100 investment in
Pacific Enterprises Common Stock at the beginning of each period with an
identical investment in a weighted basket of stocks comprising the Standard &
Poor's 500 Stock Index and indices of diversified/ integrated gas utilities and
gas distribution utilities developed by the American Gas Association. Pacific
Enterprises believes comparisons of its performance with that of the
diversified/integrated gas utilities index are appropriate for years prior to
1993 and comparisons with the gas distribution utilities index more appropriate
for 1993 and subsequent years.
9
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pacific Enterprises......................... $ 84 $ 61 $ 44 $ 58 $ 55
S & P 500................................... 97 123 136 150 152
AGA Gas Distribution Utilities.............. 101 126 147 170 155
AGA Diversified/Integrated Gas Utilities.... 89 78 82 93 81
</TABLE>
COMPARISON OF TWO YEAR CUMULATIVE TOTAL RETURN**
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Pacific Enterprises................... $ 131 $ 125
S & P 500............................. 110 111
AGA Gas Distribution Utilities........ 116 106
AGA Diversified/Integrated Gas
Utilities............................ 113 99
<FN>
- ---------
* Assumes $100 invested on January 1, 1990 and all dividends reinvested.
** Assumes $100 invested on January 1, 1993 and all dividends reinvested.
</TABLE>
10
<PAGE>
The companies comprising the American Gas Association's
diversified/integrated gas utilities group are Chesapeake Utilities, Columbia
Gas System, Consolidated Natural Gas, Eastern Enterprises, Energen Corporation,
Enserch Corporation, Equitable Resources, K N Energy, Inc., Nicor Inc., Noram
Energy, Oneok Inc., Pacific Enterprises, Pennsylvania Enterprises, Questar
Corporation, South Jersey Industries, Southwest Gas Corporation, UGI
Corporation, Valley Resources, Inc., Washington Energy and Wicor, Inc.
The companies comprising the American Gas Association's gas distribution
utilities group are Atlanta Gas Light Co., Atmos Energy Corporation, Bay State
Gas Company, Brooklyn Union Gas Co., Cascade Natural Gas Corp., Colonial Gas
Company, Connecticut Energy Corp., Connecticut Natural Gas, Delta Natural Gas
Co., Inc., Energynorth, Inc., Energywest, Essex County Gas Company, Indiana
Energy, Inc., MCN Corporation, Mobile Gas Service Corp., New Jersey Resources
Corp., North Carolina Natural Gas, Northwest Natural Gas Co., NUI Corporation,
Peoples Energy Corporation, Piedmont Natural Gas Co., Providence Energy Corp.,
PS Co of North Carolina, Southern Union Company, United Cities Gas Company,
Washington Gas Light Co., and Yankee Energy System, Inc.
The factors affecting Pacific Enterprises future performance are discussed
under the caption "Financial Review -- Management's Discussion and Analysis" in
Pacific Enterprises 1994 Annual Report to Shareholders and in the financial
statements appearing on pages 20 through 47 of the Annual Report.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee reviews management compensation levels, evaluates
management performance, and considers management succession and related matters.
The Committee also administers Pacific Enterprises' various executive incentive
plans.
Each year the Compensation Committee reviews and approves a compensation
plan for Pacific Enterprises' executive officers. The plan is developed in
conjunction with independent compensation consultants and includes a review of
compensation practices of large gas and electric utilities (including several
companies included in the American Gas Association's index of gas distribution
utilities) and gas transmission companies throughout the United States, a review
of the performance of these companies and Pacific Enterprises, and subjective
judgments as to the past and expected future contributions of Pacific
Enterprises' individual executives.
Base salaries are reviewed annually and adjustments are also considered upon
changes in executive responsibilities. Annual bonus opportunity levels are
developed and payment of bonuses tied to Pacific Enterprises' success in
achieving a rate of return on equity derived from that authorized for Southern
California Gas Company by the California Public Utilities Commission. Longer
term incentive compensation is provided by annual grants of employee stock
options which closely relate compensation to shareholder returns.
11
<PAGE>
COMPENSATION CONSULTANTS
To assist in performing its functions, the Compensation Committee retains
Hewitt Associates, a nationally recognized consulting firm specializing in
executive compensation issues. Hewitt Associates assists the Committee in
formulating executive compensation policies and advises the Committee on
programs and practices to implement policies adopted by the Committee. In doing
so, Hewitt Associates prepares and reviews with the Committee surveys and other
materials reflecting executive compensation policies of other companies and
other factors (including relative performance and general economic conditions)
which they deem relevant.
COMPENSATION POLICY
Throughout 1992 and in prior years, Pacific Enterprises owned major
non-utility operations in retailing and in oil and gas exploration and
production. Consequently, in previous years, the Compensation Committee
implemented policies intended to provide levels of executive compensation
competitive with general industry levels for other California companies. These
levels were, in general, above those for energy utility companies and reflected
the diversified nature of Pacific Enterprises' business.
Substantially all non-utility operations were sold in 1992 and early 1993 as
part of a strategic plan to refocus on natural gas utility operations.
Consequently, the Compensation Committee has adopted a policy that overall
compensation (salary, targeted annual bonuses and the grant-date estimated value
of annual employee stock option awards) for executive officers generally should
approximate the mid-point of overall compensation for similar levels of
responsibility and performance at large energy utilities and gas transmission
companies. However, consistent with its goal of aligning compensation with
performance, the committee has adopted programs which afford the flexibility to
compensate executives at competitive levels and recognize exceptional results
through incentive-based compensation.
Comparable levels for salaries and annual bonuses have been achieved through
salary freezes and reductions in bonus opportunities. However, long-term
incentive compensation (the grant-date estimated value of annual employee stock
option grants) is currently somewhat below comparable levels.
The Compensation Committee believes its policies appropriately align the
financial interests of Pacific Enterprises' executives with those of
shareholders. All elements of executive compensation are now at or below levels
comparable to other large energy utilities and gas transmission companies for
comparable levels of performance in 1994. In addition, amounts paid as annual
bonuses and the realized value of stock options is highly variable and closely
tied to corporate performance. As a consequence, much of an executive officer's
compensation is "at risk" with the targeted value of annual bonuses and the
grant-date estimated value of annual employee stock option awards intended to
contribute from about 25% to 50% of total annual compensation.
As one of the factors in its consideration of compensation matters, the
Compensation Committee considers the anticipated tax consequences to Pacific
Enterprises and its executives of the form and
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<PAGE>
amount of executive compensation and considers various alternatives for
preserving the tax deductibility of executive compensation to Pacific
Enterprises to the extent reasonably practicable and consistent with the
Committee's other compensation objectives. Consequently, the Committee is
requesting that shareholders approve performance goals for the payment of
bonuses and dividend equivalents (see "Approval of Incentive Compensation
Performance Goals"). Shareholder approval is intended to assure that bonus and
dividend equivalent opportunities awarded over the next five years will, upon
payment, be a tax deductible compensation expense to Pacific Enterprises.
The tax consequences of various forms and amounts of executive compensation,
including tax deductibility to Pacific Enterprises, may depend upon the timing
of payment or vesting or exercise of previously granted rights and
interpretations of and changes in the tax laws and other factors beyond the
Compensation Committee's control. Consequently, for these and other reasons, the
Committee will not necessarily and in all circumstances limit executive
compensation to forms and amounts which may be deductible to Pacific Enterprises
for tax purposes.
COMPENSATION AWARDS
Pacific Enterprises' return to profitability, which commenced in 1993,
continued in 1994 with increased dividends but slightly lower earnings resulting
primarily from the absence of a one-time tax benefit that increased 1993
earnings. Prior to 1993, Pacific Enterprises experienced several years of
unsatisfactory performance as a result of losses from non-utility operations.
These financial results and a related financial restructuring (including the
divestiture of non-utility operations) have been reflected in Pacific
Enterprises returns to shareholders (see "Financial Performance and Shareholder
Returns") and in the compensation of Pacific Enterprises' executives.
SALARIES
Through 1993, salaries for executive officers were generally frozen at 1991
levels except for adjustments to reflect changes in executive responsibilities.
Mr. Wood received a 10% salary increase upon becoming Chairman of the Board in
September of 1992. Reflecting a policy to place more chief executive
compensation "at risk", he was awarded an 80,000-share stock option grant in
1993, but he did not receive a salary increase for 1993 or 1994.
Messrs. Farman and Mitchell, whose performance was evaluated based upon that
of Southern California Gas Company of which they were the Chief Executive
Officer and President, respectively, received salary increases for 1992 and 1993
based upon the superior performance of utility operations. Mr. Farman (who
received a promotional increase in September 1993 upon becoming President of
Pacific Enterprises) did not receive a salary increase for 1994. Other executive
officers were awarded salary increases for 1994 averaging 5.3%.
13
<PAGE>
BONUSES
The Compensation Committee establishes annual target bonus award
opportunities for executive officers at the midpoint for bonuses for comparable
levels of responsibility and performance at other large energy utilities and gas
transmission companies. Target award levels for superior corporate and
individual performance for 1994 ranged from 45% of base salary for the Chief
Executive Officer and the President to 30% of base salary for Vice Presidents
with maximum award levels for extraordinary performance ranging from 67.5% to
45% of base salary.
In evaluating performance and determining annual bonuses for 1992 and 1993,
the Compensation Committee took particular note of Pacific Enterprises' success
in developing and implementing a strategic plan and financial restructuring
program that in 1993 returned Pacific Enterprises to profitability and permitted
the resumption of dividends.
The development and initial implementation of the strategic restructuring
program in 1992 resulted in the Compensation Committee paying annual bonuses to
Mr. Wood and other executive officers for that year based upon their superior
individual performance but in amounts substantially below target levels due to
Pacific Enterprises' unsatisfactory financial performance for the year. In
addition, the continued superior performance of Southern California Gas Company
for 1992 resulted in paying maximum annual bonuses to Messrs. Farman and
Mitchell.
For 1993 and 1994, the success of the restructuring and continued superior
performance of Southern California Gas Company resulted in Pacific Enterprises
achieving returns on equity of 19.1% and 14.3%, respectively. These returns were
substantially above the rates of return for Southern California Gas Company
authorized by the California Public Utilities Commission and the target returns
established by the Compensation Committee for the payment of annual bonuses.
These superior returns, together with favorable assessments of the contributions
of individual executive officers to achieving them, resulted in paying to Mr.
Wood and other executive officers maximum or near maximum bonuses for each of
these two years.
STOCK OPTIONS
To provide long-term incentive compensation and in lieu of cash
compensation, the Compensation Committee relies exclusively upon awards of stock
options, the ultimate realizable value of which closely equates compensation to
shareholder returns. Stock options are granted with an exercise price that is
not less than the fair market value of the option shares at the date of the
grant. They are typically granted for a ten-year term and vest in equal
cumulative annual installments over a three to five-year period with vesting and
exercisability subject only to continuing employment.
In awarding stock options, the Compensation Committee sizes option grants to
provide a grant-date estimated value at the approximate midpoint for option and
other long-term incentive awards
14
<PAGE>
provided by large energy utilities and gas transmission companies for comparable
levels of responsibility. Since the Compensation Committee uses only stock
options to provide long-term incentive compensation, option awards are typically
larger than those at otherwise comparable companies that provide additional
forms of long-term compensation.
During 1994, Messrs. Wood and Farman were awarded options having a
grant-date estimated value of $179,400 (60,000 shares) and $104,650 (35,000
shares), respectively. They each received somewhat larger valued annual stock
option awards in 1993 and 1992. Mr. Farman also received an additional award of
50,000 option shares with a grant-date estimated value of $148,500 upon becoming
President of Pacific Enterprises in 1993. In each of these years smaller option
awards were also made to other executive officers.
COMPENSATION COMMITTEE
Harold M. Messmer, Jr., Chairman
Wilford D. Godbold, Jr.
Ignacio E. Lozano, Jr.
Paul A. Miller
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<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by Pacific Enterprises
and its subsidiaries to those persons who were, at December 31, 1994, Pacific
Enterprises' chief executive officer and its other four most highly compensated
executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------ -------------------------------
AWARDS PAYOUTS
---------------------- -------
SHARES
RESTRICTED UNDERLYING ALL OTHER
STOCK OPTIONS/ LTIP COMPENSATION
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS AWARDS SARS PAYOUTS (#1)(#2)
- --------------------------------------------------------- ---- -------- -------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Willis B. Wood, Jr.
Chairman and Chief 1994 $641,000 $428,626 $ -0- 60,000 $ -0- $ 72,658
Executive Officer of Pacific 1993 $641,000 $511,438 $ -0- 80,000 $ -0- $ 57,808
Enterprises and Presiding Director of Southern 1992 $601,000 $164,000 $ -0- 100,000 $ -0- $ 66,100
California Gas Company (#3)
Richard D. Farman
President of Pacific 1994 $436,000 $290,250 $ -0- 35,000 $ -0- $ 62,134
Enterprises and Chief 1993 $412,000 $267,525 $ -0- 90,000 $ -0- $ 50,153
Executive Officer of Southern 1992 $381,000 $254,000 $ -0- 35,000 $ -0- $ 56,694
California Gas Company (#3)
Lloyd A. Levitin
Executive Vice President 1994 $356,000 $210,000 $ -0- -0- $ -0- $ 51,469
and Chief Financial Officer 1993 $341,000 $226,126 $ -0- 40,000 $ -0- $ 63,009
of Pacific Enterprises and Southern California Gas 1992 $341,000 $ 75,000 $ -0- 50,000 $ -0- $ 72,110
Company (#4)
Warren I. Mitchell
President of 1994 $291,000 $171,000 $ -0- 25,000 $ -0- $ 6,803
Southern California 1993 $271,000 $154,200 $ -0- 32,000 $ -0- $ 8,243
Gas Company 1992 $251,000 $147,000 $ -0- 25,000 $ -0- $ 7,649
Leslie E. LoBaugh, Jr.
Vice President and 1994 $251,000 $110,250 $ -0- 10,000 $ -0- $ 7,698
General Counsel of Pacific 1993 $241,000 $141,000 $ -0- 24,000 $ -0- $ 3,863
Enterprises and Southern California Gas Company 1992 $241,000 $ 35,000 $ -0- 30,000 $ -0- $ 11,809
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
<FN>
- ---------
#1 Consists of interest accruals on deferred compensation above 120% of the
applicable federal rate, the dollar value of insurance premiums paid with
respect to the term portion of life insurance and employer contributions
to defined contribution plans. Such interest accruals, insurance premiums
and contributions for 1994 were, respectively, $65,966, $2,192 and $4,500
for Mr. Wood; $56,117, $1,517 and $4,500 for Mr. Farman; $45,752, $1,217
and $4,500 for Mr. Levitin; $1,291, $1,012 and $4,500 for Mr. Mitchell;
and $4,590, $858 and $2,250 for Mr. LoBaugh.
#2 Life insurance policies have been purchased for each of the executive
officers named above (other than Mr. Mitchell) under arrangements
providing for offsets of supplemental pension benefits by the cash
surrender value of the policies. If Mr. LoBaugh had become entitled to the
cash surrender value of his policy at December 31, 1994, he would have
received benefits which would have exceeded his supplemental pension
benefits by $621,305.
#3 Mr. Wood and Mr. Farman subsequently relinquished their positions at
Southern California Gas Company to devote full-time to their
responsibilities at Pacific Enterprises.
#4 Mr. Levitin will retire during the second quarter of 1995. Upon
retirement, he will receive a payment of $1,027,000, his supplemental
medical benefits will be continued for 18 months and all stock options
previously granted to him will become fully vested. For six months
thereafter, he will provide consulting services to Pacific Enterprises of
up to 40 hours per month for which he will not be additionally compensated
and, upon the request of Pacific Enterprises, additional consulting ser-
vices for which he would be compensated at his rate in effect at
retirement.
</TABLE>
17
<PAGE>
STOCK OPTIONS
The following table sets forth information regarding stock options granted
during 1994.
OPTION/SAR GRANTS (#1)
<TABLE>
<CAPTION>
PERCENT OF GRANT DATE
NUMBER OF TOTAL OPTIONS/ BLACK-SCHOLES
SHARES SARS GRANTED ESTIMATED
UNDERLYING TO EMPLOYEES EXERCISE EXPIRATION PRESENT
NAME OPTIONS/SARS IN 1994 PRICE DATE VALUE(#2)
- ----------------------------------------- -------------- -------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Willis B. Wood, Jr....................... 60,000 11% $ 21.50 2/29/04 $ 179,400
Richard D. Farman........................ 35,000 7% $ 21.50 2/29/04 $ 104,650
Lloyd A. Levitin......................... -0- -0- -0-
Warren I. Mitchell....................... 25,000 5% $ 21.50 2/29/04 $ 74,750
Leslie E. LoBaugh, Jr. .................. 10,000 2% $ 21.50 2/29/04 $ 29,900
<FN>
- ---------
#1 All options are to purchase shares of Pacific Enterprises Common Stock;
were granted at an exercise price of 100% of the fair market value of the
option shares on the date of grant; are for a ten-year term, subject to
earlier expiration upon termination of employment; and become exercisable
in cumulative annual installments of 20% of the shares initially subject
to the option on each of the first five anniversaries of the date of
grant. The Compensation Committee of the Board of Directors may, in its
discretion, permit alternative settlement of stock options by payment to
the optionee of an amount (in cash or shares of Pacific Enterprises Common
Stock of equivalent market value) not exceeding the difference between the
exercise price and the then fair market value of the option shares. Upon a
change in control in Pacific Enterprises, the time periods relating to the
exercise of stock options will be accelerated and, upon the request of the
optionee, Pacific Enterprises will purchase the option for an amount in
cash equal to the amount which could be realized upon the exercise
thereof.
#2 Options are valued using a Black-Scholes based model. The model assumes a
ten-year option term, a stock price volatility of .228, a risk-free rate
of return of 6.48%, and an annual dividend yield of 5.58%. Adjustments
were made based on actuarial assumptions regarding termination of employ-
ment both prior to option vesting and prior to the expiration of the
ten-year option term. These modifications reduce estimated values by
approximately 13% and 10% respectively. Options will have no actual value
unless, and then only to the extent that, the stock price appreciates from
the grant date to the exercise date. If the named officers realize the
grant date values, total shareholder value will have appreciated by
approximately $253 million, and the value of the named officers' options
will be 0.15% of the total shareholder appreciation.
</TABLE>
18
<PAGE>
The following table sets forth information regarding stock options exercised
in 1994 and the value of stock options outstanding at December 31, 1994.
OPTION/SAR EXERCISES AND OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS/SARS SHARES UNDERLYING VALUE OF UNEXERCISED
EXERCISED IN 1994 UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTION/SARS
---------------------- AT DECEMBER 31, 1994(#1) AT DECEMBER 31, 1994
SHARES VALUE ---------------------------- ----------------------------
NAME ACQUIRED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- --------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Willis B. Wood, Jr............ -0- -0- 109,000 191,000 $ 80,000 $ 120,000
Richard D. Farman............. -0- -0- 60,600 131,400 $ 28,000 $ 42,000
Lloyd A. Levitin.............. -0- -0- 49,600 72,400 $ 40,000 $ 60,000
Warren I. Mitchell............ -0- -0- 35,200 66,100 $ 10,000 $ 30,000
Leslie E. LoBaugh, Jr......... -0- -0- 32,560 50,200 $ 24,000 $ 36,000
<FN>
- ---------
#1 The exercise price of outstanding options ranges from $19 1/4 to $50 7/8.
</TABLE>
PENSION BENEFITS
The following table sets forth estimated annual pension benefits, including
supplemental pension benefits, payable upon retirement at age 65 to Pacific
Enterprises' executive officers (based upon payment of benefits as a straight
life annuity after maximum offset for social security benefits but without
offset for any other benefits) in various compensation and years-of-service
classifications.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE (#2)
---------------------------------------------------------------
REMUNERATION (#1) 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
---------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 200,000............................. $ 93,000 $ 115,000 $ 117,500 $ 120,000 $ 122,500
400,000............................. 195,000 235,000 240,000 245,000 250,000
600,000............................. 295,000 355,000 362,500 370,000 377,500
800,000............................. 395,000 475,000 485,000 495,000 505,000
1,000,000............................ 495,000 595,000 607,500 620,000 632,500
1,200,000............................ 595,000 715,000 730,000 745,000 760,000
<FN>
- ---------
#1 Average salary for highest three consecutive years of service and average
of three highest annual bonuses during the last ten years of service.
#2 Years of service number 34 for Mr. Wood, 16 for Mr. Farman, 22 for Mr.
Levitin, 36 for Mr. Mitchell, and 19 for Mr. LoBaugh.
</TABLE>
19
<PAGE>
APPROVAL OF INCENTIVE COMPENSATION PERFORMANCE GOALS
At the Annual Meeting, shareholders will be requested to approve the
material terms of performance goals for the payment of dividend equivalents upon
the exercise of stock options granted under Pacific Enterprises' Employee Stock
Option Plan (which was approved last year by shareholders) and the payment of
bonuses under Pacific Enterprises' Executive Incentive Plan. Shareholder
approval of these performance goals is intended to assure that bonus and
dividend equivalent opportunities awarded under these plans over the next five
years will, upon payment, be a tax deductible compensation expense to Pacific
Enterprises for federal income tax purposes.
THE BOARD OF DIRECTORS AND ITS
COMPENSATION COMMITTEE RECOMMEND A VOTE
FOR APPROVAL OF THE PERFORMANCE GOALS
FOR THE EXECUTIVE INCENTIVE PLAN
AND DIVIDEND EQUIVALENTS
Approval of these performance goals, which will be voted upon separately
with respect to the Executive Incentive Plan and dividend equivalents, requires
the favorable vote of the holders of a majority of the votes cast.
BACKGROUND
For many years, Pacific Enterprises has maintained incentive compensation
programs designed to encourage high levels of employee performance on both a
short-term and long-term basis. Shorter-term incentives have been provided
through an Executive Incentive Plan permitting the payment of bonuses based upon
the attainment of corporate and individual performance goals. For longer-term
incentives, increasing reliance has been placed upon employee stock options with
shareholders last year approving an Employee Stock Option Plan permitting the
payment of dividend equivalents upon the exercise of options granted under the
plan.
Last year amendments to the federal income tax laws became effective which
limit to $1 million the annual amount that publicly-held corporations may deduct
for compensation paid to certain executive officers. However, this limitation
does not apply with respect to compensation that qualifies as performance based
compensation.
Consequently, Pacific Enterprises has adopted amendments to its Executive
Incentive Plan and adopted an administrative guide for its Employee Stock Option
Plan that are intended to qualify bonus and dividend equivalent compensation
paid under these plans as performance based and thus deductible to Pacific
Enterprises for federal income tax purposes. To qualify as performance based,
the material
20
<PAGE>
terms of performance goals for the payment of bonus and dividend equivalent
compensation also must periodically be disclosed to and approved by
shareholders. Shareholder approval of these goals, the material terms of which
are set forth below, will be considered at the Annual Meeting.
EXECUTIVE INCENTIVE PLAN
Pacific Enterprises' Executive Incentive Plan permits the payment of bonuses
to senior officers of Pacific Enterprises and its subsidiaries based upon the
attainment of corporate financial objectives. There are currently approximately
ten officers whose positions and responsibilities result in their consideration
for participation in the plan.
The Executive Incentive Plan is administered by the Compensation Committee
of the Board of Directors. The Committee selects those officers who are to
participate in the plan and establishes objective financial performance goals,
the outcome of which are substantially uncertain, and a related performance
period (typically a fiscal year) to measure corporate, business unit or
individual performance and to determine the extent, if any, to which bonuses for
the performance period will be paid under the plan. These performance goals may
consist of any one or more of earnings; cash flow; return on equity, assets,
investment or capital; economic value added; shareholder returns; equity;
indebtedness; revenues; sales; costs; or stock price.
For each performance goal, the Committee also establishes performance levels
and related bonus opportunities for employees participating in the plan.
Performance levels and bonus opportunities may vary with the individual
officer's level of responsibility and other factors that the Committee considers
to be appropriate. The Committee may also retain the authority to terminate an
officer's bonus opportunity at any time during the related performance period
and, at the end of the performance period, to reduce (but not to increase) the
amount of any bonus that would otherwise become payable under the plan based
upon the Committee's assessment of the officer's individual performance and
other factors.
No bonuses are paid under the plan unless the minimum performance level
pre-established by the Committee is attained for the related performance period.
Bonus opportunities increase for performance above the minimum performance level
to a maximum bonus that may not exceed the lesser of 150% of the officer's base
salary for the performance period or $75,000 multiplied by the number of months
in the performance period. Bonuses are paid promptly following the Committee's
certification of attainment of the related performance levels and its
determination under any previously reserved authority to reduce bonus amounts.
The amount of bonuses that will be paid under the plan is not now
determinable. However, for 1995, the Compensation Committee has established for
the Chief Executive Officer and the President a maximum bonus opportunity under
the Executive Incentive Plan of 95% of base salary at April 1, 1995. Performance
goals and levels vary for other officers with maximum bonus opportunities
ranging from 52.5% to 60% of such base salary.
21
<PAGE>
DIVIDEND EQUIVALENTS
Last year, shareholders approved an Employee Stock Option Plan that permits
the grant of options (together with dividend equivalents) to purchase shares of
Pacific Enterprises Common Stock to officers and other employees of Pacific
Enterprises and its subsidiaries. The maximum number of shares as to which
options may be granted under the plan in any calendar year is limited (subject
to adjustments to reflect recapitalizations, reorganizations and similar
transactions) on an individual employee basis to 75,000 shares and on an
aggregate basis to 1% of the shares of Pacific Enterprises Common Stock
outstanding at the beginning of the year. There are currently approximately 120
employees whose positions and responsibilities result in their consideration for
the grant of options under the plan.
The Employee Stock Option Plan is administered by the Compensation Committee
of the Board of Directors. The option price of each share subject to an option
and the term of the option and any related vesting schedule are determined by
the Committee but the option price may not be less than 100% of the fair market
value of the shares on the date the option is granted. Each option may be
granted with or without dividend equivalents payable upon the exercise of the
option and is subject to such additional terms and conditions as may be imposed
by the Committee at the time the option is granted.
The Compensation Committee, upon granting an option under the Employee Stock
Option Plan, may provide for the payment of dividend equivalents upon the
exercise of the option. Dividend equivalents are amounts equal to the amount of
dividends that would have been paid on shares as to which an option is exercised
had the shares been outstanding from the date the option was granted. Dividend
equivalents, if granted, are paid only upon exercise of the related stock option
and the Committee, at the time of granting the option, may limit amounts payable
as dividend equivalents (for example, by limiting the maximum or per share
amount or the percentage of dividends as to which or the period during which
dividend equivalents may accrue) and may impose individual or corporate
performance conditions on their payment.
Stock options that are granted under the Employee Stock Option Plan without
dividend equivalents qualify as performance-based compensation without the
necessity for amendments to the plan or further shareholder approval. To qualify
dividend equivalents, and stock options with which they are granted, as
performance-based compensation, the Committee has adopted an administrative
guide with respect to the payment of dividend equivalents which is more
restrictive than otherwise required by the plan and is seeking shareholder
approval of related performance goals.
The Compensation Committee selects from employees who are to be granted
stock options those employees whose options are also to be granted with dividend
equivalents. It also establishes objective financial performance goals, the
outcome of which are substantially uncertain, and a related performance period
to measure corporate, business unit or individual performance and to determine
the extent, if any, to which dividend equivalents will be paid upon the exercise
of the related stock options. This
22
<PAGE>
performance period (typically three years) may be substantially shorter than the
term of the related option (typically ten years) and the period during which
dividend equivalents may accrue. The performance goals may consist of any one or
more of earnings; cash flow; return on equity, assets, investment or capital;
economic value added; shareholder returns; equity; indebtedness; revenues;
sales; costs; or stock price.
For each performance goal, the Committee also establishes performance levels
and related dividend equivalent opportunities for employees granted options with
dividend equivalents. Performance levels and dividend equivalent opportunities
may vary with the individual employee's level of responsibility and other
factors that the Committee considers to be appropriate. The Committee may also
retain the opportunity at the end of the performance period to reduce (but not
to increase) the amounts that would otherwise become payable as dividend
equivalents based upon the Committee's assessment of the participant's
individual performance and other factors.
No dividend equivalents are paid unless the minimum performance level
pre-established by the Committee is attained for the related performance period.
Dividend equivalent opportunities increase for performance above the minimum
performance level to a maximum equal to the full amount of dividends that would
have been paid on the shares as to which the related option is exercised had the
shares been outstanding from the date the option was granted until the date it
is exercised. Amounts payable as dividend equivalents are paid only upon
exercise of the related option and only in respect of shares as to which the
option is exercised after the Committee's certification of attainment of the
related performance goals and its determination under any previously reserved
authority to reduce the amounts payable.
The amounts that will be paid under the Employee Stock Option Plan as
dividend equivalents are not now determinable. However, for options granted thus
far in 1995, the Compensation Committee has provided a maximum dividend
equivalent opportunity equal to the full amount of dividends that would have
been paid on the related stock options had the shares subject to the option been
outstanding from the date the option was granted until the date it is exercised.
------------------------
The Board of Directors and its Compensation Committee believe that approval
of these performance goals is in the best interests of Pacific Enterprises and
its shareholders. Accordingly, they recommend a vote for approval.
23
<PAGE>
SOLICITATION OF PROXIES AND VOTING INSTRUCTIONS
The accompanying proxy or voting instruction is solicited on behalf of the
Board of Directors of Pacific Enterprises. All shares represented by each
properly executed proxy or voting instruction received in time for the Annual
Meeting will be voted in accordance with the instructions specified thereon. If
no instructions are specified, it will be voted, as to the shares for which it
is authorized to be voted, in accordance with the recommendations of the Board
of Directors.
A shareholder giving a proxy may revoke it at any time before it is voted by
delivering to Pacific Enterprises a written notice of revocation, presenting to
the Annual Meeting a valid proxy bearing a later date, or attending the Annual
Meeting and voting in person. Attendance at the Annual Meeting will not by
itself revoke a proxy.
Employee benefit plans of Pacific Enterprises and its subsidiaries held
12,365,684 shares of Pacific Enterprises Common Stock at March 21, 1995,
representing 14.4% of the outstanding voting shares. Participants in these plans
may direct the voting of shares allocated to their individual employee accounts
by providing timely voting instructions to the plan trustees. Instructions must
be received by the trustees, and may be revoked or changed only by new
instructions received by the trustees, at least two days before the Annual
Meeting.
Of the shares held by employee benefit plans 9,945,155 shares, representing
11.6% of the outstanding voting shares, are held by the Retirement Savings Plans
of Pacific Enterprises and its subsidiaries. Substantially all of these shares
have been allocated to individual employee accounts. To the extent consistent
with its fiduciary duties, Bankers Trust Company of California, N.A., as trustee
for the plans will vote unallocated shares and allocated shares for which voting
instructions are not timely received in the same manner and proportion as
allocated shares for which voting instructions are timely received.
The remaining shares held by employee benefit plans (2,420,529 shares,
representing 2.8% of the outstanding voting shares) are held by Pacific
Enterprises' employee stock ownership plan. None of these shares has been
allocated to individual employee accounts and will be voted by the plan trustee,
U.S. Trust Company of California, in accordance with instructions to be received
from Pacific Enterprises' Benefits Committee, all of the members of which are
officers or other employees of Pacific Enterprises and Southern California Gas
Company. The Benefits Committee has adopted a general guideline contemplating
that these shares will be voted in the same manner and proportion as shares held
in the Retirement Savings Plans are voted but meets shortly prior to each Annual
Meeting to determine whether the specific issues to be voted upon are
appropriate for the application of that guideline.
The expenses of soliciting proxies and voting instructions will be paid by
Pacific Enterprises and will include reimbursement of banks, brokerage firms,
nominees, fiduciaries, and other custodians for expenses of forwarding
solicitation materials to beneficial owners of voting shares. The solicitation
is being made by mail and may also be made in person or by letter, telephone,
telegraph or other means of
24
<PAGE>
communication by directors, officers and management employees of Pacific
Enterprises and its subsidiaries who will not be additionally compensated
therefor. In addition, D. F. King & Co., Inc. has been retained by Pacific
Enterprises to assist in the solicitation of proxies and will be paid a fee of
$11,000 plus reimbursement of expenses for these services.
INDEPENDENT AUDITORS
The Board of Directors, upon the recommendation of its Audit Committee, has
selected Deloitte & Touche LLP to serve as Pacific Enterprises' independent
auditors for 1995. Representatives of Deloitte & Touche LLP are expected to
attend the Annual Meeting. They will have the opportunity to make a statement if
they desire to do so and to respond to appropriate questions from shareholders.
ANNUAL REPORTS
Pacific Enterprises' 1994 Annual Report to Shareholders was mailed to
shareholders commencing March 9, 1995. Copies of Pacific Enterprises' Annual
Report to the Securities and Exchange Commission on Form 10-K will be provided
to shareholders, without charge, upon written request to the Secretary of
Pacific Enterprises addressed to P.O. Box 60043, Los Angeles, California
90060-0043.
1996 ANNUAL MEETING
Shareholders intending to bring any business before an Annual Meeting of
Shareholders of Pacific Enterprises, including nominations of persons for
election as directors, must give written notice to the Secretary of Pacific
Enterprises of the business to be presented. The notice must be received at
Pacific Enterprises' offices within the periods and must be accompanied by the
information and documents specified in Pacific Enterprises' bylaws, a copy of
which may be obtained by writing to the Secretary of Pacific Enterprises. The
period for notice of business to be brought by shareholders before the 1995
Annual Meeting of Shareholders has expired.
The 1996 Annual Meeting of Shareholders is expected to be held on May 2,
1996. The period for the receipt by Pacific Enterprises of notice of business to
be brought by shareholders before the 1996 Annual Meeting will commence on
January 5, 1996 and end on March 5, 1996.
Proposals of shareholders that are intended to be included in Pacific
Enterprises' proxy materials for the 1996 Annual Meeting of Shareholders under
the Shareholder Proposal Rule of the Securities and Exchange Commission must be
received by the Secretary of Pacific Enterprises on or before November 23, 1995.
25
<PAGE>
OTHER BUSINESS
The Board of Directors does not know of any other business that may be
presented for consideration at the Annual Meeting other than a shareholder
proposal that has been omitted from this Proxy Statement in accordance with the
rules of the Securities and Exchange Commission. If this shareholder proposal or
any other business should properly come before the meeting, the shares
represented by the proxies and voting instructions solicited hereby may be
discretionarily voted on such business in accordance with the judgment of the
proxy holders.
By Order of the Board of Directors
THOMAS. C. SANGER, Secretary
March 23, 1995
26
<PAGE>
IF YOU ARE PLANNING TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE BRING THE
ADMISSION TICKET PRINTED ON THIS PAGE WITH YOU. IF YOU DO NOT HAVE AN ADMISSION
TICKET, VERIFICATION OF SHARE OWNERSHIP WILL BE NECESSARY TO OBTAIN ADMISSION TO
THE ANNUAL MEETING. SEE "NOTICE OF ANNUAL MEETING" FOR DETAILS.
[LOGO]
1995 ANNUAL MEETING ADMISSION TICKET
THE ANNUAL MEETING OF SHAREHOLDERS WILL BE HELD AT 9:30 A.M. ON MAY 4, 1995,
IN THE UNIVERSAL CITY HILTON & TOWERS, 555 UNIVERSAL TERRACE PARKWAY,
UNIVERSAL CITY, CALIFORNIA
ADMIT ONE SHAREHOLDER AND GUEST
(Doors open at 8:30 a.m. You may by-pass the registration area and present this
ticket to the hosts at the inside doors.)
NOTE: Cameras, tape recorders, etc., will not be allowed in the meeting room.
<PAGE>
[LOGO]
ANNUAL MEETING LOCATION
[MAP]
[LOGO]
ANNUAL MEETING OF
SHAREHOLDERS
UNIVERSAL CITY HILTON
& TOWERS
555 UNIVERSAL TERRACE PARKWAY
UNIVERSAL CITY, CALIFORNIA
MAY 4, 1995
NOTICE OF MEETING
AND
PROXY STATEMENT
[LOGO]
<PAGE>
[Pacific Enterprises Logo]
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS 1995
RICHARD D. FARMAN, THOMAS C. SANGER and WILLIS B. WOOD, JR., or any of them,
with full power of substitution, are authorized to vote the stock of the
undersigned at the Annual Meeting of Shareholders of Pacific Enterprises to be
held on Thursday, May 4, 1995, at 9:30 A.M. or at any adjournment.
Nominees for election as directors: Hyla H. Bertea, Herbert L. Carter,
Richard D. Farman, Wilford D. Godbold, Jr., Ignacio E. Lozano, Jr., Harold
M. Messmer, Jr., Paul A. Miller, Richard J. Stegemeier, Diana L. Walker,
Willis B. Wood, Jr.
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED ON THE REVERSE AND, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR ITEMS 1, 2 AND 3.
(Continued and to be dated and signed on the reverse side)
<PAGE>
/X/ PLEASE MARK
YOUR VOTES
AS THIS
SAMPLE
---------- ---------- ---------- ---------- ----------
$4.36 Pfd. $4.40 Pfd. $4.50 Pfd. $4.75 Pfd $7.64 Pfd.
PACIFIC ENTERPRISES' BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR ALL OF THE FOLLOWING:
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Approval of / / / / / /
Directors Dividend
Equivalent
Performance Goals
FOR AGAINST ABSTAIN
For, except vote withheld 3. Approval of / / / / / /
from the following nominee(s): Executive
Incentive Plan
______________________________ Performance Goals
Mark here if you desire confidential / /
voting in accordance with the policy
described in the accompanying proxy
statement.
Mark here if you expect to attend / /
the Annual Meeting in person.
Date:____________________________________,1995
_________________________________________
_________________________________________
Please sign exactly as name appears hereon.
<PAGE>
[Pacific Enterprises Logo]
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS 1995
RICHARD D. FARMAN, THOMAS C. SANGER and WILLIS B. WOOD, JR., or any of them,
with full power of substitution, are authorized to vote the stock of the
undersigned at the Annual Meeting of Shareholders of Pacific Enterprises to be
held on Thursday, May 4, 1995, at 9:30 A.M. or at any adjournment.
Nominees for election as directors: Hyla H. Bertea, Herbert L. Carter,
Richard D. Farman, Wilford D. Godbold, Jr., Ignacio E. Lozano, Jr., Harold
M. Messmer, Jr., Paul A. Miller, Richard J. Stegemeier, Diana L. Walker,
Willis B. Wood, Jr.
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED ON THE REVERSE AND, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR ITEMS 1, 2 AND 3.
(Continued and to be dated and signed on the reverse side)
<PAGE>
/X/ PLEASE MARK
YOUR VOTES
AS THIS
SAMPLE
PACIFIC ENTERPRISES' BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR ALL OF THE FOLLOWING:
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Approval of / / / / / /
Directors Dividend
Equivalent
Performance Goals
FOR AGAINST ABSTAIN
For, except vote withheld 3. Approval of / / / / / /
from the following nominee(s): Executive
Incentive Plan
______________________________ Performance Goals
Mark here if you desire confidential / /
voting in accordance with the policy
described in the accompanying proxy
statement.
Mark here if you expect to attend / /
the Annual Meeting in person.
Date:____________________________________,1995
_________________________________________
_________________________________________
Please sign exactly as name appears hereon.
<PAGE>
CONFIDENTIAL VOTING INSTRUCTIONS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PACIFIC ENTERPRISES
Bankers Trust Company of California, N.A., Trustee for the Retirement Savings
Plans of Pacific Enterprises and its subsidiaries, is authorized and instructed
to vote or appoint a proxy or proxies to vote all shares of stock of Pacific
Enterprises credited to my account in such Plans at the Annual Meeting of
Shareholders of Pacific Enterprises to be held on Thursday, May 4, 1995, at 9:30
A.M. or at any adjournment.
Nominees for election as directors: Hyla H. Bertea, Herbert L. Carter,
Richard D. Farman, Wilford D. Godbold, Jr., Ignacio E. Lozano, Jr., Harold M.
Messmer, Jr., Paul A. Miller, Richard J. Stegemeier, Diana L. Walker, Willis B.
Wood, Jr.
The Retirement Savings Plans of Pacific Enterprises and its subsidiaries make
provisions for you to give confidential instructions as to how you wish shares
held by you in the Plans to be voted at the Annual Meeting of Shareholders of
Pacific Enterprises. To the extent consistent with its fiduciary duties, the
Trustee will vote shares held in the Plans for which instructions are not
timely received and shares not allocated to individual accounts in the same
manner and ratio as shares for which voting instructions are timely received
from participants in the Plans. Revocation or change of vote can be made only
by new instructions received at least two days before the meeting.
THIS INSTRUCTION WILL BE VOTED IN THE MANNER DIRECTED ON THE REVERSE AND, IF
NO DIRECTION IS GIVEN, WILL BE VOTED FOR ITEMS 1, 2 AND 3.
(Continued and to be dated and signed on reverse side)
<PAGE>
/X/ Please mark
your votes as
this sample
THE PACIFIC ENTERPRISES BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE
FOLLOWING:
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Approval of / / / / / /
Directors. Dividend Equivalent
Performance Goals
FOR AGAINST ABSTAIN
For, except vote withheld 3. Approval of Executive / / / / / /
from the following nominee(s): Incentive Plan
Performance Goals
_______________________________
Voting instructions must be received by
trustee, and may be revoked or changed
only by new instructions received by the
trustees, at least two days before the
annual meeting.
SHARES
Date:___________________________________, 1995
_________________________________________
_________________________________________
Please sign exactly as name appears hereon.
