<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
PACIFIC ENTERPRISES
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] 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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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<PAGE> 2
PRELIMINARY COPY
LOGO
555 West Fifth Street
Los Angeles, CA 90013-1011
WILLIS B. WOOD, JR.
Chairman and
Chief Executive Officer
March , 1997
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 Los Angeles on May 8. I hope you
will find it convenient to attend.
At the Annual Meeting, shareholders will vote upon a bylaw amendment
reducing the minimum and maximum number of directors and will elect directors.
In addition, if properly presented at the Annual Meeting, shareholders will also
vote upon a shareholder proposal with respect to personal liability of
directors, officers and agents. 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,
/s/ WILLIS B. WOOD, JR.
-----------------------
Willis B. Wood, Jr.
<PAGE> 3
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The 111th Annual Meeting of Shareholders of Pacific Enterprises will be
held on Thursday, May 8, 1997 at 11:00 a.m. in The Westin Bonaventure Hotel, 404
South Figueroa Street, Los Angeles, California. At the Annual Meeting,
shareholders will consider the following items of business:
1. A bylaw amendment reducing the minimum and maximum number of
directors.
2. The election of directors.
3. If properly presented at the meeting, a shareholder proposal with
respect to personal liability of directors, officers and agents.
4. Such other business as may properly come before the meeting.
Shareholders of record at the close of business on March 17, 1997 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 10:00 a.m.
Thomas C. Sanger, Secretary
March , 1997
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pacific Enterprises................................................................. 1
Outstanding Shares and Voting Rights................................................ 2
Board of Directors.................................................................. 3
Proposed Bylaw Amendment............................................................ 4
Election of Directors............................................................... 5
Share Ownership of Directors and Executive Officers................................. 8
Financial Performance and Shareholder Returns....................................... 9
Report on the Compensation Committee................................................ 12
Executive Compensation.............................................................. 16
Shareholder Proposal................................................................ 21
Solicitation of Proxies and Voting Instructions..................................... 23
Independent Auditors................................................................ 24
Annual Reports...................................................................... 24
1988 Annual Meeting of Shareholders................................................. 24
</TABLE>
<PAGE> 5
LOGO
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PROXY STATEMENT
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Pacific Enterprises is providing this Proxy Statement to shareholders in
connection with its Annual Meeting of Shareholders to be held May 8, 1997. It is
being mailed to shareholders commencing March , 1997.
PACIFIC ENTERPRISES
Pacific Enterprises is a Los Angeles-based utility holding company engaged
in supplying natural gas throughout most of southern and part 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 4.8 million meters in a 23,000-square-mile service territory
with a population of 17.4 million. Through other subsidiaries, Pacific
Enterprises is also engaged in interstate and offshore natural gas transmission
to serve its utility operations, natural gas marketing, alternate energy
development, centralized heating and cooling for large building complexes,
energy management services and investments in foreign utility operations.
On October 14, 1996, Pacific Enterprises and Enova Corporation, the parent
company of San Diego Gas & Electric Company, announced that their Boards of
Directors had unanimously approved a business combination of the two companies
in a strategic merger of equals and a tax free transaction to be accounted for
as a pooling of interests. Upon completion of the combination, Pacific
Enterprises and Enova will become separate subsidiaries of a new holding company
and the holders of their common stock will become shareholders of the new
holding company. Holders of Pacific Enterprises Common Stock will receive 1.5038
shares of common stock of the new holding company for each of their shares and
holders of Enova Common Stock will receive one share of common stock of the new
holding company for each of their shares. Pacific Enterprises Preferred Stock
will remain outstanding and unaffected by the business combination.
The principal terms of the business combination of Pacific Enterprises and
Enova were approved by the shareholders of both companies at meetings held on
March 11, 1997. Completion of the combination remains subject to approval by
governmental and regulatory agencies, including the California Public Utilities
Commission. To pursue opportunities in unregulated energy markets pending the
expected completion of the combination at the end of 1997, Pacific Enterprises
and Enova have formed a joint venture to market energy products and services.
1
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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 Preferred Stock which they held of record on March 17, 1997. On that date
shares of Pacific Enterprises Common Stock and 800,253 shares of
Pacific Enterprises 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 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.
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<PAGE> 7
BOARD OF DIRECTORS
Pacific Enterprises' entire Board of Directors is elected at each Annual
Meeting of Shareholders. During 1996, the Board of Directors held sixteen
meetings. Director attendance at meetings of the Board of Directors and
Committees of the Board averaged 92% and each director attended at least 75% of
the combined number of meetings of the Board and Committees of the Board of
which the director was a member, except for Paul A. Miller who, due to travel
commitments, attended 63% of the combined number of meetings.
BOARD COMMITTEES
The Board of Directors maintains standing Audit, Compensation, Executive,
Nominating and Public Policy Committees.
The Audit Committee, which consists entirely of non-officer directors,
recommends to the Board of Directors the selection of independent auditors;
approves and reviews services and fees of independent auditors; and reviews
accounting and financial policies, internal accounting controls and the results
of audit engagements. During 1996, the Committee held three meetings.
The Compensation Committee reviews the performance and approves or
recommends the compensation of senior management and recommends the adoption of
and administers compensation plans in which senior management is eligible to
participate. The Committee also considers management succession plans. During
1996, the Committee held six meetings.
The Executive Committee may act on all but certain major corporate matters
reserved to the Board of Directors. It meets when emergency issues or scheduling
make it difficult to assemble the Board of Directors. During 1996, the Committee
did not meet.
The Nominating Committee considers and makes recommendations regarding the
nominations of directors and the size and composition of the Board of Directors.
During 1996, the Committee held two meetings. The Committee will consider
shareholder suggestions for nominees for director. Suggestions may be submitted
to the Secretary of 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.
The Public Policy Committee reviews and monitors Pacific Enterprises'
fulfillment of its responsibilities on matters of public policy and corporate
governance. During 1996, the Committee held three meetings.
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.
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<PAGE> 8
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 or Committee of the Board which they attend.
Directors may defer the receipt of their compensation and earn interest on the
amounts deferred.
Non-officer directors receive retirement benefits commencing upon the later
of retirement or attaining age 65. The annual retirement benefit is the sum of
the then current annual base retainer and the then current Board of Directors
meeting fee multiplied by ten and adjusted upward for subsequent increases in
the retainer or meeting fee. The benefit continues for a maximum period equal to
the director's years of service as a non-officer director.
PROPOSED BYLAW AMENDMENT
Pacific Enterprises' bylaws currently provide for a Board of Directors
consisting of not less than nine nor more than seventeen members, with the exact
number fixed (within that range) from time to time by the Board. Upon the
completion of the business combination of Pacific Enterprises and Enova
Corporation, the Board of Directors of the new holding company for Pacific
Enterprises and Enova will also consist of between nine and seventeen members,
with the exact number to be fixed (within that range) from time to time by the
Board of the new holding company.
The Board of the new holding company for Pacific Enterprises and Enova will
be comprised of an equal number of directors designated by each of Pacific
Enterprises and Enova, including Richard D. Farman, President and Chief
Operating Officer of Pacific Enterprises, and Steven L. Baum, President and
Chief Executive Officer of Enova. To date, Pacific Enterprises and Enova have
not decided who, in addition to Messrs. Farman and Baum, will be designated to
serve on the Board of the new holding company.
Pacific Enterprises' Board of Directors currently consists of nine
directors but one director will retire at the Annual Meeting of Shareholders. In
view of the pending business combination of Pacific Enterprises and Enova, the
Board has determined that it would be inadvisable to fill the vacancy that would
be created by this retirement. Instead of filing this vacancy, the Board
believes it is in the best interests of Pacific Enterprises and its shareholders
to reduce the size of the Board.
Consequently, Pacific Enterprises' Board of Directors is proposing and
recommends that shareholders approve an amendment to Pacific Enterprises' bylaws
to provide for a Board consisting of not less than seven nor more than thirteen
directors. The exact number of directors would continue to be fixed (within this
reduced range) from time to time by the Board. Subject to and effective
immediately upon shareholder approval of this amendment, the Board has fixed the
number of directors at eight.
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<PAGE> 9
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR APPROVAL OF THE BYLAW AMENDMENT
Approval of the proposed bylaw amendment requires the affirmative vote of a
majority of the outstanding shares of Pacific Enterprises Common and Preferred
Stock.
ELECTION OF DIRECTORS
At the Annual Meeting of Shareholders, directors will be elected to hold
office until the next Annual Meeting and until their successors have been
elected and qualified. The director candidates receiving the highest number of
affirmative votes (up to the number of directors to be elected) will be elected
as directors.
The Board of Directors currently consists of nine directors, one of whom
will retire at the Annual Meeting. Subject to and effective immediately upon
shareholder approval of the bylaw amendment described under "Proposed Bylaw
Amendment," the Board will consist of eight directors.
The names of the Board of Directors' eight nominees for election as
directors, and biographical 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 and, unless otherwise noted, 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. They may not be voted for more than eight nominees. If any nominee
should become unavailable to serve, they may be voted for a substitute nominee
designated by the Board of Directors or the authorized number of directors may
be further reduced.
5
<PAGE> 10
HYLA H. BERTEA,
COMMUNITY LEADER.
Mrs. Bertea, 56, 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 area. She was a co-comissioner of gymnastics and member of the executive
staff for the 1984 Olympics.
Committees: Audit, Nominating, Shares:
and Public Policy
HERBERT L. CARTER,
EXECUTIVE VICE CHANCELLOR EMERITUS AND TRUSTEE PROFESSOR OF
PUBLIC ADMINISTRATION OF THE CALIFORNIA STATE UNIVERSITY
SYSTEM.
Dr. Carter, 63, 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.
Committees: Audit, Nominating, Shares:
and Public Policy
RICHARD D. FARMAN
PRESIDENT AND CHIEF OPERATING OFFICER OF PACIFIC
ENTERPRISES.
Mr. Farman, 61, has been a director of Pacific Enterprises
since 1992. He is a director and executive committee member
of the Los Angeles Area Chamber of Commerce, and director
of Union Bank, Sentinel Group Funds, Inc. and the National Business-Higher
Education Forum. He is a past chairman of KCET Public Service Television,
Progress L.A., Inc., the American Gas Association and the Natural Gas Council,
and a member of the Pacific Coast Gas Association and the National Petroleum
Council.
Committees: Executive and Public Policy Shares:
WILFORD D. GODBOLD, JR.,
PRESIDENT, CHIEF EXECUTIVE OFFICER AND A DIRECTOR OF -ZERO
CORPORATION, AN INTERNATIONAL MANUFACTURER OF ENCLOSURES
AND COOLING EQUIPMENT FOR THE ELECTRONICS MARKET, AND OF
AIR CARGO AND AIR FREIGHT ENCLOSURES.
Mr. Godbold, 58, has been a director of Pacific Enterprises since 1990. He is
also a director of Santa Fe Pacific Pipelines, Inc.; the California State
Chamber of Commerce (past chairman); The Employer's Group (past chairman); a
member of the Board of Trustees of the 4 A's Foundation and The Wellness
Community; and a member of the Council on California Competitiveness. He is a
past President of the Board of Trustees of Marlborough School.
Committees: Audit, Compensation, and Shares: 2,000
Executive
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IGNACIO E. LOZANO, JR.,
CHAIRMAN OF THE BOARD OF LA OPINION, A SPANISH LANGUAGE
DAILY NEWSPAPER. DURING 1976 AND 1977 MR. LOZANO SERVED AS
UNITED STATES AMBASSADOR TO EL SALVADOR.
Mr. Lozano, 70, 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 and the Youth Opportunities Foundation. He is a trustee of the
University of Notre Dame and a member of the California Press Association.
Committees: Audit, Compensation, Shares:
Executive and Public
Policy
RICHARD J. STEGEMEIER,
CHAIRMAN EMERITUS OF THE BOARD OF UNOCAL CORPORATION, AN
INTEGRATED PETROLEUM COMPANY.
Mr. Stegemeier, 68, has been a director of Pacific
Enterprises since 1995. He is also a director of Foundation
Health Corporation, Halliburton Company, Northrop Grumman Corporation, Outboard
Marine Corporation and Wells Fargo Bank.
Committees: Audit, Compensation Shares: 1,000
and Nominating
DIANA L. WALKER,
PARTNER IN THE LOS ANGELES BASED LAW FIRM OF O'MELVENY &
MYERS.
Mrs. Walker, 55, 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 various
professional organizations. O'Melveny & Myers, of whom Mrs. Walker is a partner,
provides legal services to Pacific Enterprises.
Committees: Audit, Nominating, Shares:
and Public Policy
WILLIS B. WOOD, JR.,
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER OF
PACIFIC ENTERPRISES.
Mr. Wood, 62, has been a director of Pacific Enterprises
since 1989. He is also a director of Great Western
Financial Corporation and Great Western Bank. He is the
Chairman of the California Medical Center Foundation; a director of the
California State Chamber of Commerce, the 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, a
trustee of the University of Southern California and the Southwest Museum; and a
member of the California Business Roundtable.
Committee: Executive Shares:
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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 17, 1997 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...............................................
Herbert L. Carter (#1).......................................
Larry J. Dagley (#2).........................................
Richard D. Farman (#2).......................................
Wilford D. Godbold, Jr....................................... 2,000
Frederick E. John (#2).......................................
Ignacio E. Lozano, Jr. (#3)..................................
Paul A. Miller (#4).......................................... 11,386
Warren I. Mitchell (#2)......................................
Richard J. Stegemeier........................................ 1,000
Diana L. Walker..............................................
Willis B. Wood, Jr. (#2).....................................
All Directors and Executive Officers as a group
(18 persons) (#2)..........................................
</TABLE>
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#1 Includes shares held as guardian.
#2 Includes shares issuable upon exercise of employee stock options that are
exercisable prior to May 31, 1997. Such option shares total 15,000 shares for
Mr. Dagley, 284,000 shares for Mr. Farman, 66,300 shares for Mr. John,
115,100 shares for Mr. Mitchell, 421,200 shares for Mr. Wood and
shares for all executive officers as a group.
#3 Includes 500 shares held by spouse.
#4 Mr. Miller will retire as a director at the Annual Meeting.
The shares of Pacific Enterprises Common Stock owned by all directors and
executive officers as a group represent less than 1% of the outstanding shares.
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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
During 1996, Pacific Enterprises earned $203 million ($2.37 per share of
Common Stock) compared to $185 million ($2.12 per share of Common Stock) during
1995. It also increased dividends on Common Stock by 6% to an annual rate of
$1.44 per share, redeemed $210 million of Preferred Stock and repurchased
shares of Common Stock.
These improvements in financial performance were achieved in spite of a
reduction from 12% to 11.6% in the return on common equity authorized for
Southern California Gas Company by the California Public Utilities Commission
and lower rates to reflect 3% of productivity savings for operating and
maintenance expenses. Nonetheless, the Gas Company achieved a return on equity
of % for 1996.
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 four 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 when it was engaged in significant non-utility operations. Substantially
all of these operations were sold during 1992 and early 1993 as part of a
strategic plan to refocus on natural gas utility operations. Accordingly Pacific
Enterprises believes that comparisons with the gas distribution utilities index
are more appropriate for 1993 and subsequent years.
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COMPARISON OF FIVE YEAR CUMULATIVE
TOTAL RETURN*
COMPARISON OF FOUR YEAR CUMULATIVE
TOTAL RETURN**
* Assumes $100 invested on January 1, 1992 and all dividends reinvested.
** Assumes $100 invested on January 1, 1993 and all dividends reinvested.
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The companies comprising the American Gas Association's
diversified/integrated gas utilities group are Chesapeake Utilities Corporation,
The Columbia Gas System, Inc., Consolidated Natural Gas Company, Eastern
Enterprises, Energen Corporation, Enserch Corporation, Equitable Resources,
Inc., K N Energy, Inc., National Fuel Gas Company, National Gas & Oil Company,
NorAm Energy Corp., ONEOK Inc., Pennsylvania Enterprises, Questar Corporation,
South Jersey Industries, Inc., Southwest Gas Corporation, Southwestern Energy
Company, UGI Corporation, Valley Resources, Inc., Washington Energy Company and
WICOR, Inc.
The companies comprising the American Gas Association's gas distribution
utilities group are Atlanta Gas Light Company, Atmos Energy Corporation, Bay
State Gas Company, The Berkshire Gas Company, Brooklyn Union Gas Company,
Colonial Gas Company, Connecticut Energy Corporation, Connecticut Natural Gas
Corporation, Delta Natural Gas Company, Inc., EnergyNorth, Inc., EnergyWest,
Essex County Gas Company, Fall River Gas Company, Indiana Energy, Inc., Laclede
Gas Company, MCN Corporation, Mobile Gas Service Corporation, New Jersey
Resources Corporation, NICOR, Inc., North Carolina Natural Gas Corporation,
Northwest Natural Gas Company, NUI Corporation, Pacific Enterprises, Peoples
Energy Corporation, Piedmont Natural Gas Company, Inc., Providence Energy
Corporation, Public Service Company of North Carolina, Incorporated, Southern
Union Company, United Cities Gas Company, Washington Gas Light Company, 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 1996 Annual Report to Shareholders and in the financial
statements appearing on pages through of the Annual Report.
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<PAGE> 16
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors reviews management
compensation levels, evaluates management performance, and considers management
succession and related matters. The Committee also administers 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 utilities throughout the United States
(including several companies in the American Gas Association's index of gas
distribution utilities) as well as California-based general industry companies,
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 performance 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.
COMPENSATION CONSULTANTS
To assist in performing its functions, the Compensation Committee retains
Hewitt Associates and other nationally recognized consulting firms specializing
in executive compensation issues. These consultants assist the Committee in
formulating executive compensation policies and advise the Committee on programs
and practices to implement policies adopted by the Committee. In doing so, they
prepare and review with the Committee surveys and other materials reflecting
executive compensation policies of other companies and other factors (including
relative performance and general economic conditions) which they deem relevant.
COMPENSATION POLICY
The policy of the Compensation Committee is to establish total compensation
levels competitive with companies with which Pacific Enterprises competes for
executives. Base salaries are set at levels comparable to those of other large
utilities. To provide incentives for exceptional performance, the Committee is
increasingly providing opportunities for performance-based compensation (annual
bonuses and stock option awards as a percentage of base salary) at somewhat
higher levels that bring total compensation (salary and performance-based
compensation) closer to California-based general industry levels.
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<PAGE> 17
The Compensation Committee believes these policies appropriately align the
financial interests of Pacific Enterprises' executives with those of
shareholders. Base salaries are at levels competitive with other large utilities
and amounts paid as annual bonuses and the realized value of stock options is
highly variable and closely tied to corporate performance. As a consequence,
much of an executive officer's compensation is "at risk" with the targeted value
of annual bonuses and the grant-date estimated value of annual employee stock
option awards intended to contribute from about 40% to 60% of total annual
compensation.
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 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.
Pacific Enterprises has obtained shareholder approval of performance goals for
the payment of bonuses and dividend equivalents that is intended to assure that
bonus and dividend equivalent opportunities awarded over the next several years
will, upon payment, be a tax deductible compensation expense to Pacific
Enterprises.
COMPENSATION AWARDS
Salaries
Willis B. Wood, Jr., Chairman of the Board and Chief Executive Officer, and
Richard D. Farman, President and Chief Operating Officer have not received
salary increases since 1992 and 1993, respectively. Reflecting a policy of the
Compensation Committee to place more of their compensation at risk, in lieu of
salary increases they received greater opportunities for performance-based
compensation.
Performance Bonuses
The Compensation Committee establishes annual performance bonus
opportunities for executive officers based upon the attainment of objective
financial goals. Performance at targeted levels is intended to compensate
executive officers with bonuses somewhat above the midpoint for bonuses for
comparable levels of responsibility at other large utilities. Target award
levels for 1996 ranged from 50% of base salary for the Chief Executive Officer
and the President to 25% of base salary for Vice Presidents, with maximum award
levels for excellent performance ranging from 100% to 50% of base salary.
During 1996, the continued superior performance of Southern California Gas
Company resulted in Pacific Enterprises achieving a return on equity of 14.7%.
This return was substantially above the rate of return authorized for Southern
California Gas Company by the California Public Utilities
13
<PAGE> 18
Commission and the target return established by the Compensation Committee for
the payment of annual performance bonuses. This excellent return, together with
favorable assessments of their contributions to achieving it, resulted in paying
maximum performance bonuses to Messrs. Wood and Farman for 1996.
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-year period with vesting and
exercisability subject only to continuing employment.
Since 1995, stock options also typically have been granted with
performance-based dividend equivalents. These provide executive officers with
the opportunity to receive, upon the exercise of an option, all or a portion of
the cash dividends that would have been paid on the shares as to which the
option is exercised as if the shares had been outstanding from the date the
option was granted. No dividend equivalents are payable unless Pacific
Enterprises meets a threshold performance goal and the percentage of dividends
paid as dividend equivalents (to a maximum of all of the dividends that would
have been paid on the shares) depends upon the extent to which the threshold
performance goal is exceeded. In addition, no dividend equivalents are payable
in respect of the exercise of any "out-of-the-money" option -- an option for
which the exercise price exceeds the market value of the shares purchased.
In awarding stock options, the Compensation Committee sizes option grants
to provide a grant-date estimated value somewhat above the midpoint for option
and other long-term incentive awards provided by large utilities. Since the
Compensation Committee uses only stock options to provide long-term incentive
compensation, option awards are typically larger than those at companies that
provide additional forms of long-term compensation. During 1996, Messrs. Wood
and Farman were awarded options having a grant-date estimated value of $431,664
(55,200 shares) and $328,440 (42,000 shares), respectively.
Employment and Employment-Related Agreements
In connection with the business combination of Pacific Enterprises and
Enova Corporation, the Compensation Committee and the Board of Directors have
approved employment agreements for the four senior officers of the new holding
company that will result from the combination. These agreements are with Mr.
Farman and Warren I. Mitchell, President of Southern California Gas Company, and
two senior executives of Enova. In reviewing these agreements, the Committee and
the Board received advice from their independent compensation consultants that,
based upon a
14
<PAGE> 19
review of employment agreements in other utility combinations, the agreements
were reasonable in order to provide an orderly transition of management for the
combined companies.
The Compensation Committee also considered the effect of the business
combination upon Pacific Enterprises' ability to attract and retain executives
and to motivate them to act diligently and objectively with respect to the
business combination in spite of the personal uncertainties that it presents.
Consequently, with the assistance of independent compensation consultants and
merger and acquisition experts and other advisors, the Committee reviewed its
existing executive severance benefit and retention policies and practices.
Following this review and upon receiving advice that its proposed arrangements
were reasonable and consistent with relevant competitive practices, the
Committee and the Board of Directors approved agreements between Pacific
Enterprises and each of its executive officers (other than Mr. Wood who will
retire upon the completion of the business combination and requested that he not
be considered for these agreements) to memorialize past severance practices and
to provide compensation for services in connection with the business combination
and an incentive to continue employment with the combined companies.
See "Executive Compensation -- Employment and Employment-Related
Agreements."
COMPENSATION COMMITTEE
Richard J. Stegemeier, Chairman
Wilford D. Godbold, Jr.
Ignacio E. Lozano, Jr.
15
<PAGE> 20
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by Pacific Enterprises
and its subsidiaries to those persons who were, at December 31, 1996, Pacific
Enterprises' chief executive officer and its other four most highly compensated
executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
AWARDS
-------------------------
SHARES PAYOUTS
ANNUAL COMPENSATION RESTRICTED UNDERLYING -------- ALL OTHER
-------------------------- STOCK OPTIONS/ LTIP COMPENSATION
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS AWARDS SARS PAYOUTS (#1)
----- -------- -------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Willis B. Wood, Jr.
Chairman and Chief 1996 $641,000 $ -$0- 55,200 $-0- $67,197
Executive Officer of Pacific 1995 $641,000 $603,250 -$0- 66,000 $-0- $63,728
Enterprises 1994 $641,000 $428,626 -$0- 60,000 $-0- $72,658
Richard D. Farman
President and Chief 1996 $436,000 $ -$0- 42,000 $-0- $57,133
Operating Officer 1995 $436,000 $408,500 -$0- 50,000 $-0- $54,587
of Pacific Enterprises 1994 $436,000 $290,250 -$0- 35,000 $-0- $62,134
Warren I. Mitchell
President of 1996 $318,000 $ -$0- 21,000 $-0- $ 5,721
Southern California 1995 $306,000 $180,000 -$0- 27,000 $-0- $ 5,836
Gas Company 1994 $291,000 171,000 -$0- 25,000 $-0- $ 6,803
Larry J. Dagley
Senior Vice President
and Chief Financial 1996 $300,000 $ -$0- 15,000 $-0- $ 4,046
Officer of Pacific 1995 $115,384 $ 75,000 (#2) -0- $-0- $ 428
Enterprises (#2)
Frederick E. John
Senior Vice President 1996 $261,000 $ -$0- 15,000 $-0- $ 5,540
of Pacific Enterprises 1995 $251,000 $128,625 -$0- 15,000 $-0- $ 5,751
1994 $212,600 $ 92,970 -$0- 10,000 $-0- $ 5,650
</TABLE>
- ------------------------
#1 Consists of interest accruals on deferred compensation above 120% of the
applicable federal rate, the dollar value of insurance premiums paid with
respect to the term portion of life insurance and employer contributions to
defined contribution plans. Such interest accruals, insurance premiums and
contributions for 1996 were, respectively, $60,505, $2,192, and $4,500 for
Mr. Wood; $51,142, $1,491, and $4,500 for Mr. Farman; $125, $1,096, and
$4,500 for Mr. Mitchell; $60, $1,026, and $2,960 for Mr. Dagley, and $140,
$900, and $4,500 for Mr. John.
#2 Mr. Dagley joined Pacific Enterprises in August 1995. As a $500,000 signing
bonus, he was credited with 20,833 shares of Pacific Common Stock vesting,
subject to continued employment, in equal installments (together with deemed
reinvested dividends) over a five year period. At December 31, 1996, his
unvested share balance was 17,734 shares having a fair market value (absent
vesting restrictions) of $538,670.
16
<PAGE> 21
STOCK OPTIONS
The following table sets forth information regarding stock options granted
during 1996 to each of the executive officers named under "Executive
Compensation -- Summary Compensation Table."
OPTION/SAR GRANTS (#1)
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
NUMBER OF OPTIONS/ GRANT DATE
SHARES SARS GRANTED ESTIMATED
UNDERLYING TO EMPLOYEES EXERCISE EXPIRATION PRESENT
NAME OPTIONS/SARS IN 1996 PRICE DATE VALUE(#2)
- ------------------------------------- ------------ ------------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Willis B. Wood, Jr................... 55,200 8.0% $ 27 3/5/06 $ 431,664
Richard D. Farman.................... 42,000 6.1% $ 27 3/5/06 $ 328,440
Warren I. Mitchell................... 21,000 3.1% $ 27 3/5/06 $ 164,220
Larry J. Dagley...................... 15,000 2.2% $ 27 3/5/06 $ 117,300
Frederick E. John.................... 15,000 2.2% $ 27 3/5/06 $ 117,300
</TABLE>
- ---------------
#1 All options were granted with performance-based dividend equivalents (see
"Report of the Compensation Committee -- Compensation Awards -- Stock
Options"); at an exercise price of 100% of the fair market value of the
option shares on the date of grant; for a ten-year term, subject to earlier
expiration upon termination of employment; and exercisable in cumulative
annual installments of one-third of the shares initially subject to the
option on each of the first three anniversaries of the date of grant. Upon
the March 11, 1997 approval by shareholders of the principal terms of the
business combination of Pacific Enterprises and Enova Corporation, all
options became and remain fully exercisable.
#2 Estimated present value is based on the Black Scholes Model and consists of
an option value of $3.41 and a dividend equivalent value of $4.41. The
following assumptions were used in the Black Scholes Model: stock price
volatility of 18.91%, a risk-free rate of return of 6.27%, and an annual
dividend yield of 5.04%. Further adjustments were made based on actuarial
assumptions regarding the termination of employment prior to option vesting
and prior to expiration of the ten-year option term, reducing estimated
values by 17.57% and 9.29% respectively. The dividend equivalent value is
based on a $1.36 annual dividend (the rate in effect at the grant date), and
the volatility of the cash flow measures which determine the amount of
dividend equivalents paid. At target levels of performance, 67% of the
dividends are paid. Options will have no actual value unless the stock price
appreciates from the date of grant to the exercise date. If the named
officers realize the estimated grant date values, total shareholder value
(dividends and stock price appreciation) will have increased by approximately
$659 million and the value of the named officers options will be .14% of the
total increase.
17
<PAGE> 22
The following table sets forth as to each executive officer named under
"Executive Compensation -- Summary Compensation Table" information regarding
stock options exercised in 1996 and the value of stock options outstanding at
December 31, 1996.
OPTION/SAR EXERCISES AND OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS/SARS SHARES UNDERLYING VALUE OF UNEXERCISED
EXERCISED IN 1996 UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
--------------------- AT DECEMBER 31, 1996(#1) AT DECEMBER 31, 1996
SHARES VALUE ------------------------------- -------------------------------
NAME ACQUIRED REALIZED EXERCISABLE UNEXERCISABLE(#2) EXERCISABLE UNEXERCISABLE(#2)
- -------------------- -------- ---------- ----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Willis B. Wood,
Jr. ............... -0- $ -0- 234,000 187,200 $ 1,657,750 $ 1,277,800
Richard D. Farman... -0- $ -0- 144,667 139,333 $ 856,585 $ 822,625
Warren I.
Mitchell.......... 16,400 $ 126,750 43,300 71,800 $ 117,513 $ 431,813
Larry J. Dagley..... -0- $ -0- -0- 15,000 $ -0- $ 50,625
Frederick E. John... -0- $ -0- 30,100 36,200 $ 84,625 $ 215,375
</TABLE>
- ---------------
#1 The exercise price of outstanding options ranges from $19 1/4 to $47 1/4.
#2 Upon the March 11, 1997 approval by shareholders of the principal terms of
the business combination of Pacific Enterprises and Enova Corporation, all
unexercisable options became and remain fully exercisable.
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
1,400,000.............................. 693,000 833,000 850,000 868,000 885,000
</TABLE>
18
<PAGE> 23
- ---------------
#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 36 for Mr. Wood, 18 for Mr. Farman, 38 for Mr.
Mitchell, 1 for Mr. Dagley and 15 for Mr. John.
EMPLOYMENT AND EMPLOYMENT-RELATED AGREEMENTS
Pacific Enterprises has entered into a Severance Agreement and an
Incentive/Retention Bonus Agreement with each of its executive officers named
under "Executive Compensation -- Summary Compensation Table," other than with
Mr. Wood who requested that he not be considered for these agreements. The
Severance Agreements memorialize past severance practices and provide benefits
in the event of the actual or constructive termination of employment (other than
for cause, death or disability) that generally consist of a lump sum cash
payment equal to either 2.0 or 1.5 times annual base salary; continuation of
welfare benefits for 18 months; payment of deferred compensation at a preferred
rate; payout of accrued vacation benefits; and financial planning and
outplacement services.
The Incentive/Retention Bonus Agreements provide compensation for services
in connection with the business combination of Pacific Enterprises and Enova
Corporation and an incentive for executives to continue employment with the
combined companies. They provide for the payment of bonuses at a specified
multiple (1.0 or less except for one executive officer for whom the multiple is
2.0) of the executive's base salary plus incentive bonus (at target) that are
conditioned upon the completion of the business combination (or another business
combination transaction) and the transition of the executive to employment with
the combined companies for a period of six to twelve months or actual or
constructive termination of employment (other than for cause, death or
disability. The bonuses payable to Messrs. Farman and Mitchell are also subject
to certain deferral provisions.
The new holding company for Pacific Enterprises and Enova Corporation that
will result from the business combination of the two companies has entered into
employment agreements with Messrs. Farman and Mitchell and two senior executives
of Enova. These agreements will become effective upon completion of the business
combination and the agreements with Messrs. Farman and Mitchell will supersede
their Severance Agreements with Pacific Enterprises.
Mr. Farman's employment agreement provides that he will serve as Chairman
of the Board and Chief Executive Officer of the new holding company for two
years following the completion of the business combination (or, if earlier,
until September 1, 2000) and thereafter until September 1, 2000 will serve as
Chairman of the Board. For these services, he will receive an annual base salary
of not less than $760,000; participate in annual incentive compensation plans
providing him with bonus opportunities (as a percentage of annual base salary)
of not less than 60% at target performance
19
<PAGE> 24
and 120% at maximum performance; and participate in long-term compensation and
retirement and welfare benefit plans.
Mr. Mitchell's employment agreement provides that he will serve as
President and principal executive officer of the businesses of the new holding
company and its subsidiaries that are economically regulated by the California
Public Utilities Commission. For these services, he will receive an annual base
salary of not less than $440,000; participate in annual and long-term incentive
compensation plans and awards providing him with an annual bonus opportunities
at least equal (as percentage of base salary) to his bonus opportunities in
effect prior to the completion of the business combination; and participate in
retirement and welfare benefit plans.
The employment agreements with Messrs. Farman and Mitchell also provide if
the executive's employment is terminated by the new holding company (other than
for cause, death or disability) or by the executive for good reason, he will
receive twice (three times in the event of termination following a change in
control) his annual base salary and annual incentive compensation (at the higher
of the target bonus for the year of termination or the average of the three
highest bonuses in the preceding five years); a pro rata portion of the target
annual incentive compensation award for the year or, if greater, the average of
the three highest bonus awards for the preceding five years; the present value
of retirement benefits to which he would have been entitled had his employment
continued for an additional two years (three years in the case of termination
following a change of control) and had increased his age by such additional
years as of termination, but not beyond mandatory retirement age of age 65;
immediate vesting of all equity-based, long-term incentive compensation awards;
pro rata payment of cash-based, long-term incentive awards at target
performance; continued participation in welfare benefit plans for two years; and
payment of compensation previously deferred. In certain circumstances, payments
under these agreements may be increased to offset excise taxes they may impose
upon the executive.
20
<PAGE> 25
SHAREHOLDER PROPOSAL
The resolution set forth below has been proposed by a shareholder for
inclusion in this Proxy Statement in accordance with the Shareholder Proposal
Rule of the Securities and Exchange Commission. The name and address and the
number of shares held by the shareholder proponent will be furnished by Pacific
Enterprises to any shareholder promptly upon receipt of any oral or written
request to the Corporate Secretary.
This resolution is required to be voted upon at the Annual Meeting of
Shareholders only if properly presented by the shareholder proponent or the
proponent's qualified representative. To be approved it must receive the
affirmative vote of a majority of the shares of Pacific Enterprises Common Stock
and Preferred Stock represented and voting at the Annual Meeting.
The resolution and related supporting statement of the shareholder
proponent are presented as received by Pacific Enterprises and the Board of
Directors disclaims any responsibility for their content. For the reasons set
forth below, the Board opposes and recommends a vote against the resolution.
Shareholder Proposed Resolution
Resolved, that the shareholders of Pacific Enterprises recommend that the
Board of Directors adopt to change the Articles of Incorporation to hold
Directors, Officers and agents of Directors and Officers personally liable to
the maximum amount allowed by California Corporate Law for act(s) or omissions
which constitute and are determined to be a breach of fiduciary duty to the
shareholder of the corporation. This resolution shall not limit nor exclude
personal liability authorized by statute.
Shareholder Supporting Statement
Pacific Enterprises' Articles of Incorporation currently limits personal
liability of the Directors, Officers, or agents of Officers or Directors to the
minimum required by California Corporate Law if they are found to be guilty of
act(s) or omissions which constitute and are determined to be a breach of their
fiduciary duties.
When adopted, this resolution will hold company officials personally liable
to the maximum amount allowed by law for any acts or omissions or breaches of
their fiduciary duties.
Board of Directors Opposition Statement
In 1988, shareholders approved amendments to Pacific Enterprises' Articles
of Incorporation eliminating, to the maximum extent permitted by law, the
personal liability of directors for monetary damages for a breach of their
duties to Pacific Enterprises and its shareholders and authorizing Pacific
Enterprises to provide indemnification and insurance to its directors, officers,
employees and
21
<PAGE> 26
other corporate agents to an extent and in a manner not otherwise permissible.
Shareholders also approved related indemnification agreements that, subject to
certain limited exceptions, obligate Pacific Enterprises to provide
indemnification for all expenses, liabilities and settlement amounts incurred by
a director or officer in connection with any proceeding by reason of being a
director or officer of Pacific Enterprises.
The Board of Directors believes that these protective provisions permit
Pacific Enterprises to provide the appropriate level of protection against
personal liability that Pacific Enterprises should offer if it is to obtain and
retain the services of highly-qualified and capable individuals. Similar
protective provisions are common for large publicly held corporations. They
enable individuals to serve as directors and officers without unwarranted
concern that their personal assets will be subjected to liabilities
disproportionate to their compensation while still preserving appropriate
disincentives, among other things, for actions involving intentional misconduct
or an absence of good faith.
The Board of Directors also believes that the diligence and care exercised
by Pacific Enterprises' directors and officers stems primarily from their desire
to act in the best interests of Pacific Enterprises and its shareholders and not
from a fear of personal liability. Consequently, the Board does not believe that
the diligence and care of its directors or officers has been lessened by these
protections.
The shareholder resolution, if approved by shareholders and implemented by
Pacific Enterprises, would limit or eliminate these protections. Accordingly,
the Board of Directors believes that the shareholder resolution is not in the
best interests of Pacific Enterprises and its shareholders and recommends a vote
against the resolution.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE AGAINST THE SHAREHOLDER PROPOSAL
22
<PAGE> 27
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 properly
executed proxies and voting instructions received in time for the Annual Meeting
of Shareholders will be voted in accordance with the instructions specified
thereon. If no instructions are specified, the shares will be voted in
accordance with the recommendations of the Board. The holders of the proxies or
voting instructions are authorized to vote the shares in their discretion as to
any other business that may come before the Annual Meeting or any matters
incident to the conduct of the meeting.
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
shares of Pacific Enterprises Common Stock at March 17, 1997,
representing % 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, shares
(representing % 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. T. Rowe Price
Trust Company, 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 ( shares,
representing % 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
23
<PAGE> 28
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 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 $ 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 1997. Representatives of Deloitte & Touche LLP are expected to
attend the Annual Meeting of Shareholders. 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' 1996 Annual Report to Shareholders was mailed to
shareholders commencing March , 1997. 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.
1998 ANNUAL MEETING OF SHAREHOLDERS
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 1997
Annual Meeting of Shareholders has expired.
The 1998 Annual Meeting of Shareholders is expected to be held on May ,
1998. The period for the receipt by Pacific Enterprises of notice of business to
be brought by shareholders before the 1998 Annual Meeting will commence on
January 8, 1998 and end on March 9, 1998.
Proposals of shareholders that are intended to be included in Pacific
Enterprises' proxy materials for the 1998 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 , 1997.
------------------------------
24
<PAGE> 29
IF YOU ARE PLANNING TO ATTEND THE ANNUAL MEETING OF SHAREHOLDERS 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
1997 ANNUAL MEETING OF SHAREHOLDERS
ADMISSION TICKET
THE ANNUAL MEETING OF SHAREHOLDERS WILL BE HELD AT 11:00 A.M. ON MAY 8, 1997,
AT THE WESTIN BONAVENTURE HOTEL, 404 SOUTH FIGUEROA STREET
LOS ANGELES, CALIFORNIA
ADMIT ONE SHAREHOLDER AND GUEST
(Doors open at 10:00 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.
25
<PAGE> 30
CONFIDENTIAL VOTING INSTRUCTIONS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PACIFIC ENTERPRISES
T. Rowe Price Trust Company, 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 8, 1997, at
11:00 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., 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. The Trustee will vote shares 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 AND 2 AND AGAINST ITEM 3.
(Continued and to be dated and signed on reverse side)
<TABLE>
<S> <C>
The Pacific Enterprises Board of Directors recommends
a vote FOR the Amendment of Bylaws and the Election The Pacific Enterprises Board of Directors recommends a
of Directors vote AGAINST the following Shareholder Proposal.
- ----------------------------------------------------- ----------------------------------------------------------
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1. Amendment of Bylaws [ ] [ ] [ ] 3. Personal Liability [ ] [ ] [ ]
of Directors, Officers
and Agents.
----------------------------------------------------------
FOR WITHHELD Voting instructions must be received by the Trustee and
2. Election of [ ] [ ] may be revoked or changed only by new instructions received
Directors by the Trustee, at least two days before the Annual Meeting.
Mark here if you plan to
For, except vote withheld from the following attend the Annual Meeting
nominee(s): in person [ ]
Date: ____________________________________________, 1997
- -----------------------------------------------------
- ---------------------------------------------
Please sign exactly as name appears hereon
</TABLE>
<PAGE> 31
[PACIFIC ENTERPRISES LOGO]
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS 1997
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 8, 1997, at 11:00 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., 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 AND 2 AND AGAINST ITEM 3.
(Continued and to be dated and signed on reverse side.)
PLEASE MARK
X YOUR VOTES
AS THIS
EXAMPLE.
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PACIFIC ENTERPRISES' BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE AMENDMENT OF BYLAWS AND THE ELECTION OF DIRECTORS.
FOR AGAINST ABSTAIN FOR WITHHELD
[ ] [ ] [ ] [ ] [ ]
1. Amendment 2. Election of
of Bylaws. Directors.
For, except vote withheld from the
following nominee(s):
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- --------------------------------------------------------------------------------
PACIFIC ENTERPRISES' BOARD OF DIRECTORS RECOMMENDS A VOTE
AGAINST THE FOLLOWING SHAREHOLDER PROPOSAL.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Personal Liability of Directors,
Officers and Agents.
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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: , 1997
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON
