APPENDIX A
PACIFIC ENTERPRISES
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EMPLOYEE STOCK OPTION PLAN
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I
PURPOSE
The purpose of this Plan is to further the growth and development of Pacific
Enterprises (the "Company") by strengthening the ability of the Company to
attract and retain outstanding employees upon whose judgment, initiative and
efforts the continued success of the Company is dependent, by providing
employees with additional incentives for high levels of performance and by
increasing the commonality of interests of employees and the Company's
shareholders. This Plan seeks to accomplish these purposes by providing
employees with a proprietary interest in the Company through the grant of stock
options to purchase shares of the Company's Common Stock.
II
ADMINISTRATION
This Plan shall be administered by the Compensation Committee of the
Company's Board of Directors.
The Compensation Committee shall, subject to the express provisions of this
Plan, have full and final authority in its sole discretion:
(a) To grant stock options to persons eligible for selection to
participate in this Plan provided that no employee may be granted in any
calendar year stock options to purchase more than an aggregate of 75,000
shares of the Company's Common Stock;
(b) To determine the terms and conditions (which need not be identical)
of each stock option;
(c) To modify or amend any stock option granted under this Plan (except
to reduce the option price thereof or increase the number of shares subject
thereto, other than as required or permitted pursuant to Article IV of this
Plan) or waive any restrictions or conditions applicable thereto or to the
exercise thereof, provided that an optionee's rights may not be adversely
affected in any material respect without the consent of the optionee.
(d) To construe and interpret this Plan and any related stock option and
define the terms employed herein and therein;
(e) To prescribe, amend and rescind rules, regulations and policies for
the administration of this Plan; and
(f) To make all other determinations necessary or advisable with respect
to this Plan and any stock option granted hereunder.
The Compensation Committee, in its sole discretion and upon such terms and
conditions as it may prescribe, may designate one or more officers or a
committee of officers of the Company or its subsidiaries to exercise any or all
of the foregoing authority of the Compensation Committee except authority with
respect to the grant of stock options to, or stock options held by, any person
who, at the time such authority is exercised, is subject to Section 16 of the
Securities Act of 1934 in respect of equity securities of the Company.
No member of the Board of Directors or the Compensation Committee or agent
or designee thereof will be liable for any action or inaction in respect of this
Plan or any stock option granted under this Plan.
III
PARTICIPATION
Officers and other employees of the Company or any of its subsidiaries (any
corporation of which 50% or more of the issued and outstanding stock having
ordinary voting rights is owned directly or indirectly by the Company or any
other business entity or association of which 50% or more of the outstanding
equity interest is so owned) shall be eligible for selection to participate in
this Plan. Directors who are not also employees of the Company or its
subsidiaries shall not be eligible for selection to participate in this Plan.
IV
SHARES SUBJECT TO STOCK OPTIONS
Stock options granted under this Plan shall be for the purchase of shares of
Common Stock of the Company. The maximum number of shares as to which stock
options may be granted under this Plan during 1994 shall be 830,000 shares.
During each subsequent year the maximum number of shares as to which stock
options may be granted under this Plan shall be a number of shares equal to 1%
of the number of shares of the Company's Common Stock outstanding at the
beginning of such year. If any stock option granted under this Plan shall for
any reason expire or terminate during the year in which it is granted without
having been exercised in full, then any unexercised shares which were subject to
such option shall again be available for the grant of stock options under this
Plan during such year.
If the outstanding shares of the Company's Common Stock are increased or
decreased as a result of split-up or consolidation thereof, stock dividend
thereon or a similar transaction, or are changed into or exchanged for a
different number or kind of securities as a result of a reclassification or
recapitalization or of a reorganization, merger or consolidation then, in each
such case, an appropriate and proportionate adjustment shall be made in the
number and the kind of securities as to which stock options may be granted under
this Plan and to any employee. A corresponding adjustment shall likewise be made
in the number and kind of securities to which stock options then outstanding
shall relate. Any such adjustment, however, in an outstanding stock option shall
be made without change in the total purchase price applicable to the securities
to which such stock option relates but with a corresponding adjustment in the
option price for each such security.
V
TERMS OF STOCK OPTIONS
Each stock option granted under this Plan shall be subject to the following
terms and conditions:
(a) OPTION PRICE. The option price of each share purchasable upon exercise
of a stock option shall be determined by the Compensation Committee but shall be
not less than 100% of the fair market value of the shares subject to the stock
option on the date the stock option is granted. Unless a higher option price is
specified by the Compensation Committee, the option price of each share
purchasable upon exercise of a stock option shall be 100% of the fair market
value on the date the stock option is granted.
(b) OPTION TERM. The term of each stock option shall be determined by the
Compensation Committee. Unless a different term is specified by the Compensation
Committee, the term of a stock option shall be for ten years from the date the
stock option is granted.
(c) EXERCISABILITY. Each stock option shall be exercisable either
immediately or at such time or times as may be determined by the Compensation
Committee. Unless a different determination is specified by the Compensation
Committee, a stock option shall become and remain exercisable in cumulative
installments of 20% of the shares originally subject thereto on each of the
first five anniversaries of the date the stock option is granted.
(d) DIVIDEND EQUIVALENTS. Each stock option may provide for the payment
upon the exercise of the stock option of dividend equivalents (the amount of
dividends that would have been paid on the shares as to
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which a stock option is exercised had the shares been outstanding from the date
the stock option was granted) as may be determined by the Compensation
Committee. Unless a different determination is specified by the Compensation
Committee, full dividend equivalents shall be paid by the Company in cash to the
employee upon the exercise of a stock option.
(e) TERMINATION OF EMPLOYMENT. Each option shall expire at such times
following the optionee's termination of employment with the Company and its
subsidiaries as may be determined by the Compensation Committee. Unless a
different determination is specified by the Compensation Committee:
(1) Upon the termination of employment by reason of the retirement by
the optionee after having attained age 60, a stock option shall expire on
the earlier of (a) three years from the date of retirement or (b) the date
on which it would otherwise have expired, and during that period shall be
exercisable only as to the shares as to which it was exercisable on the last
day of employment.
(2) Upon the termination of employment by reason of the death of the
optionee, a stock option shall expire on the earlier of (a) three years from
the date of the employee's death or (b) the date on which it would otherwise
have expired, and during that period shall be exercisable only as to the
shares as to which it was exercisable on the last day of employment.
(3) Upon the termination of employment for any other reason, a stock
option shall expire on the earlier of (a) three months from the date of
termination of employment or (b) the date on which it would otherwise have
expired, and during that period shall be exercisable only as to the shares
as to which it was exercisable on the last day of employment.
(f) NON-TRANSFERABILITY. Each stock option shall be non-transferable by
the optionee other than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Internal
Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income
Security Act, or the rules thereunder.
(g) ADDITIONAL TERMS AND CONDITIONS. Each stock option shall be subject to
such additional terms and conditions, not inconsistent with the terms of this
Plan, as may be determined by the Compensation Committee including, without
limitation, provisions for increases in the option price or changes in the term
of the stock option, individual or corporate performance conditions to the
exercisability of the stock option or the payment of dividend equivalents and
limitations on amounts payable as dividend equivalents.
VI
CHANGE IN CONTROL
Upon the occurrence of a change in control of the Company:
(a) Any time periods relating to the exercise of any stock option
granted under this Plan and held by any optionee who is an employee of the
Company or its subsidiaries at the time of the change of control shall be
accelerated and any conditions to exercise shall immediately terminate so
that the stock option may be immediately exercised in full; and
(b) The Company shall, upon the request of any optionee granted a stock
option under this Plan who is an employee of the Company or its subsidiaries
at the time of the change of control, purchase the stock option for an
amount of cash which could have been obtained upon the exercise of the stock
option and sale of the shares subject thereto as if such option had been
fully exercisable as to all such shares.
The phrase "change in control of the Company" shall have such meaning as
from time to time ascribed thereto by the Compensation Committee and set forth
in any agreement relating to any incentive award granted under this Plan or by
resolution of the Compensation Committee; provided, however, that
notwithstanding the foregoing, a "change in control of the Company" shall be
deemed to have occurred if:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934 but excluding any benefit plan for
employees of the Company or its subsidiaries or any
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trustee, agent or other fiduciary for any such plan acting in such person's
capacity as such fiduciary), directly or indirectly, becomes the beneficial
owner of securities of the Company representing 20% or more of the combined
voting power of the Company's then outstanding securities;
(b) During any two consecutive years, individuals who at the beginning
of such period constitute the Board of Directors of the Company cease for
any reason to constitute at least a majority thereof unless the election, or
the nomination for election by the Company's shareholders, of each new
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period; or
(c) The shareholders of the Company shall have approved (i) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the
Company's Common Stock are converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger, (ii) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company, or (iii) any plan or
proposal for the liquidation or dissolution of the Company.
The Compensation Committee may make such further provisions with respect to
a change in control of the Company as it shall deem equitable and in the best
interests of the Company. Such provision may be made in any agreement relating
to a stock option granted under this Plan, by amendment to any such option or by
resolution of the Compensation Committee.
VII
TERMINATION OF 1988 INCENTIVE PLAN
Upon the approval of this Plan by shareholders of the Company, the Company's
Stock Incentive Plan approved by the Company's Board of Directors and
shareholders in 1988 shall terminate as to the grant of additional incentive
awards.
VIII
GENERAL PROVISIONS
(a) Nothing in this Plan or in related agreement will confer upon any
employee any right to continue in the employ of the Company or any of its
subsidiaries or affect the right of the Company to terminate the employment of
any employee at any time with or without cause.
(b) No employee (individually or as a member of a group) and no beneficiary
or other person claiming under or through such employee will have any right,
title, or interest in or to any shares allocated or reserved under this Plan or
subject to any stock option except as to such shares, if any, that have been
issued to such employee.
(c) The Company may make such provisions as it deems appropriate to
withhold any taxes which it determines it is required to withhold in connection
with the exercise of any stock option.
(d) No stock option and no right under this Plan, contingent or otherwise,
will be assignable or subject to any encumbrance, pledge or charge of any nature
except that, under such rules and regulations as the Company may establish
pursuant to the terms of the Plan, a beneficiary may be designated with respect
to a stock option in the event of death of the employee granted the stock
option.
(e) No shares will be issued under this Plan or any stock option granted
under this Plan unless and until all then applicable requirements imposed by
federal and state securities and other laws, rules and regulations and by any
regulatory agencies having jurisdiction, and by any stock exchanges upon which
the shares may be listed, have been fully met.
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(f) In the event that any member of the Compensation Committee shall fail
to be a "disinterested person" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934 or an "outside director" within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, the Board of Directors of
the Company may appoint a committee of two or more directors, each of whom shall
be a disinterested director and an outside director, to administer this Plan
and, upon such appointment, such committee shall become the administrator of
this Plan and shall succeed to all of the authority vested in the Compensation
Committee by this Plan.
IX
AMENDMENT AND TERMINATION
The Board of Directors of the Company may at any time, suspend, amend,
modify or terminate this Plan, provided that no amendment or modification shall
become effective which, within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, would:
(i) materially increase the benefits accruing to participants in this
Plan,
(ii) materially increase the number of shares which may be issued under
this Plan, or
(iii) materially modify the requirements as to eligibility for
participation in this Plan
unless approved by the affirmative vote of the holders of a majority of the
Company's shares present, or represented, and entitled to vote at a meeting duly
held in accordance with applicable law. No such suspension, amendment,
modification or termination of this Plan shall alter or impair any rights or
obligations under any stock option theretofore granted under this Plan.
X
EFFECTIVE DATE
This Plan shall be effective upon the adoption thereof by the Board of
Directors of the Company subject to approval by the affirmative vote of the
holders of a majority of the Company's shares present, or represented, and
entitled to vote at a meeting of shareholders duly held in accordance with the
laws of the State of California within twelve months following the date of the
adoption of this Plan by the Board of Directors of the Company. Any stock option
granted under this Plan prior to such approval shall be granted subject to such
approval being so obtained.
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