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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Sempra Energy
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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 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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Notice of 1999 Annual Meeting of Shareholders and Proxy Statement
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SEMPRA
ENERGY
[LOGO OF SEMPRA ENERGY] 1999
ANNUAL
MEETING
May 4, 1999
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 4, 1999
----------------
To our shareholders:
The Annual Meeting of Shareholders of Sempra Energy will be held on Tuesday,
May 4, 1999 at 10:00 a.m. at the Mission Tower Building, Del Mar Fairgrounds,
2260 Jimmy Durante Boulevard, Del Mar, California. The following items of
business will be discussed and voted upon at the meeting:
1. The election of five directors for a term of three years.
2. Approval of the 1998 Non-Employee Directors' Stock Plan.
3. Approval of the Executive Incentive Plan.
4. Approval of the 1998 Long Term Incentive Plan.
5. Such other matters that may properly come before the meeting.
The Board of Directors has fixed March 8, 1999 as the record date for the
determination of the shareholders entitled to notice of, and to vote at, the
meeting or any adjournment.
Only shareholders are entitled to attend the Annual Meeting. An admission
ticket is attached to the enclosed proxy card together with directions to the
meeting site. If you plan to attend the meeting, please bring this ticket with
you. It will admit you and a guest or family member.
If you do not bring your admission ticket, you must establish share
ownership at the admission desk to be admitted. If your shares are registered
in your own name, our admission attendants will be able to verify your share
ownership from the Company's share register upon presentation of proper
identification. If your shares are not registered in your name (which is
likely to be the case if they are held by a bank, brokerage firm, employee
benefit plan or other account custodian), your name will not appear in our
share register and you must present proof of beneficial share ownership (such
as a brokerage account or employee benefit plan statement showing shares held
in your account) and proper identification to our admission attendants.
To help us plan for the Annual Meeting, please check the attendance box on
the enclosed proxy card if you plan to attend the meeting in person. Seating
is limited and will be on a first-come, first-served basis. Doors will open at
9:00 a.m.
Thomas C. Sanger
Corporate Secretary
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE FILL IN, SIGN, DATE AND
PROMPTLY MAIL THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Proxy Statement............................................................. 1
About Sempra Energy......................................................... 1
Voting Information.......................................................... 2
Shares Outstanding........................................................ 2
Proxy Card................................................................ 2
Voting of Shares.......................................................... 2
Confidential Voting....................................................... 3
Required Votes............................................................ 3
How You Can Vote.......................................................... 3
Revocation of Proxies..................................................... 3
Other Information......................................................... 4
Proposal 1: Election of Directors........................................... 5
Governance of the Company................................................... 9
Share Ownership of Directors and Executive Officers......................... 12
Proposal 2: Approval of 1998 Non-Employee Directors' Stock Plan............. 13
Proposal 3: Approval of Executive Incentive Plan............................ 15
Proposal 4: Approval of 1998 Long Term Incentive Plan....................... 17
Compensation Committee Report on Executive Compensation..................... 22
Executive Compensation...................................................... 26
Comparative Stock Performance............................................... 34
General Information......................................................... 35
Appendix--1998 Long Term Incentive Plan..................................... A-1
</TABLE>
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SEMPRA ENERGY
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PROXY STATEMENT
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Sempra Energy's Board of Directors is soliciting proxies to be used at the
1999 Annual Meeting of Sempra Energy Shareholders to be held on May 4, 1999.
Proxies are being solicited to give all shareholders an opportunity to vote on
matters to be considered at the Annual Meeting. This Proxy Statement and the
accompanying proxy card are being mailed to shareholders beginning March 19,
1999.
ABOUT SEMPRA ENERGY
Sempra Energy, based in San Diego, is a Fortune 500 energy services company.
It was formed in connection with a business combination of Pacific Enterprises
and Enova Corporation in which the shareholders of the two companies became
shareholders of Sempra Energy. The combination was completed and Sempra Energy
shares began trading in June 1998.
Through two regulated utility subsidiaries, Southern California Gas Company
and San Diego Gas & Electric Company, Sempra Energy serves over 21 million
consumers, the largest customer base of any gas, electric or combination gas
and electric utility in the United States. Natural gas service is provided
throughout Southern California and portions of Central California through over
5.5 million active meters. Electric service is provided throughout San Diego
County and portions of Orange County, both in Southern California, through
over 1.2 million active meters.
Through its other subsidiaries, Sempra Energy also provides other energy-
related products and services. These subsidiaries include Sempra Energy
Solutions, Sempra Energy Trading, Sempra Energy International, Sempra Energy
Resources and Sempra Energy Utility Ventures.
In February 1999, the Boards of Directors of Sempra Energy and KN Energy
unanimously agreed to a business combination of the two companies. Sempra
Energy will acquire all of the outstanding shares of KN Energy in exchange for
a combination of cash and shares of Sempra Energy Common Stock. KN Energy is
the nation's sixth-largest integrated natural gas company, with 3,300
employees and $9 billion in total assets, and the second-largest pipeline
operator with more than 25,000 miles of pipe. The completion of the
combination is subject to regulatory approvals and to shareholder approval of
both companies. Shareholders of Sempra Energy will be asked to approve the
combination at a Special Meeting of Shareholders expected to be held around
mid-year.
Sempra Energy has more than 200,000 shareholders, with about 60% of the
shares held by individuals. Its shares are traded on the New York and Pacific
Stock Exchanges under the symbol "SRE".
Sempra Energy is headquartered at:
101 Ash Street
San Diego, California 92101-3017
Telephone (Toll-Free):..... (877) 736-7721
In San Diego:.............. (619) 696-2034
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VOTING INFORMATION
SHARES OUTSTANDING
A majority of the outstanding shares of Sempra Energy Common Stock must be
present, either in person or represented by proxy, to conduct the Annual
Meeting. On March 8, 1999, there were 240,112,304 shares of Sempra Energy
Common Stock outstanding. We do not know of any shareholder who at that date
beneficially owned more than 5% of Sempra Energy's shares.
PROXY CARD
If you sign and return the enclosed proxy card but do not specify how you
want your shares to be voted, your shares will be voted in favor of the
election of all director nominees listed on the card and in accordance with
the directors' recommendations on the other subjects listed on the card. The
proxy holders will vote at their discretion on any matter that may properly
come before the meeting that is not listed on the proxy card.
VOTING OF SHARES
All registered holders of Sempra Energy Common Stock at close of business of
March 8, 1999 are entitled to vote at the Annual Meeting.
Each share is entitled to one vote on each matter properly brought before
the Annual Meeting. All shares represented by properly signed proxy cards that
are timely received, and not revoked or superseded, will be voted in
accordance with the instructions indicated on the cards.
If you own shares that are registered in your own name, you may vote them by
signing and returning the enclosed proxy card or by attending the Annual
Meeting and voting in person.
If you own shares that are not registered in your name, you may vote them by
instructing the registered owner to do so on your behalf. The enclosed proxy
card will instruct the registered owner as to how to vote your shares.
Shares that you own that are held through a bank or brokerage firm are
usually registered in the name of an account custodian. If you do not instruct
the custodian as to how you want such shares to be voted by returning the
enclosed proxy card or providing other proper voting instructions, the
registered owner may be authorized to vote the shares in its own discretion on
some or all of the other matters to be considered at the meeting.
If you participate in the Sempra Energy Direct Stock Purchase Plan, your
proxy card represents shares that you hold in the plan as well as any other
shares that are registered in the same name.
If you participate in the Sempra Energy Savings Plan, Sempra Energy Trading
Retirement Savings Plan, Pacific Enterprises Retirement Savings Plan, Southern
California Gas Company Retirement Savings Plan or the CES/Way Savings Plan,
the proxy card represents the number of full and fractional shares held in
your plan account, as well as any other shares that are registered in the same
name. The proxy card will instruct the plan trustees as to how to vote your
plan shares. If voting instructions are not timely received for your plan
shares, they will be voted in the same proportion as shares for which voting
instructions are received from other participants for your respective plans.
If you are a participant in the San Diego Gas & Electric Savings Plan, the
proxy card represents the number of full shares held in your plan account, as
well as any other shares registered in the same name. The proxy card will
serve as a voting instruction for the trustee of the plan where all accounts
are registered in the same name. If voting instructions are not timely
received for your plan shares, they will be voted by the plan trustee in its
own discretion. The trustee will also vote in its own discretion any shares
not allocated, or conditionally allocated, to participants' accounts.
2
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CONFIDENTIAL VOTING
If you desire to do so, you may elect that your identity and individual vote
be held confidential from Sempra Energy. Confidentiality will not apply to the
extent that voting disclosure is required by law or is appropriate to assert
or defend any claim relating to shareholder voting. It also will not apply
with respect to any matter for which shareholder votes are solicited in
opposition to the director nominees or voting recommendations of the Board of
Directors unless the persons engaged in the opposing solicitation provide
shareholders with comparable voting confidentiality. If you want your shares
to be voted confidentially, you should mark the appropriate box provided on
the enclosed proxy card.
The Employee Savings Plans of Sempra Energy and its subsidiaries
automatically provide for confidential voting. If you hold shares in these
plans you do not need to take any action to obtain confidential voting. Your
shares in the plans will be confidentially voted by returning the enclosed
proxy card, which will instruct the plan trustees as to how to vote your plan
shares.
REQUIRED VOTES
Directors are elected by a plurality of votes. Consequently, the nominees
for the five director positions who receive the greatest number of votes will
be elected as directors. Each share is entitled to one vote for each of the
five director positions, but cumulative voting is not permitted. Shares that
are represented by proxy cards that are marked to withhold votes for the
election of one or more director nominees will not be counted in determining
the number of votes cast for those nominees.
Approval of the other matters listed on the proxy card requires the
favorable vote of a majority of the votes cast on the proposal. In addition,
the approving majority vote must also represent more than 25% of the total
outstanding shares. The outcome of other matters that may properly come before
the meeting will be determined in the same manner.
Under certain circumstances, brokers and other registered owners are
prohibited from exercising discretionary voting authority for beneficial
owners who have not returned proxies or provided other voting instructions to
the registered owner. In cases of these "broker non-votes" and in cases where
the shareholder abstains from voting on a matter, these shares will be counted
only for the purpose of determining if a quorum is present and not as votes
cast on any matter.
HOW YOU CAN VOTE
Please vote your choices by marking the appropriate boxes on the enclosed
proxy card and sign, date and promptly return the card in the enclosed
postage-paid envelope. YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR CARD
PROMPTLY EVEN IF YOU PLAN TO ATTEND THE MEETING IN PERSON.
REVOCATION OF PROXIES
If you own shares that are registered in your own name, you may revoke your
proxy for these shares at any time before it is voted by delivering to Sempra
Energy a proxy card bearing a later date or by attending the meeting in person
and casting a ballot.
If your shares are not registered in your own name, you may revoke or change
your voting instructions to the registered owner of your shares only by timely
providing a new proxy card or other proper voting instructions to the
registered owner.
3
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OTHER INFORMATION
Attendance at Annual Meeting.
If you plan to attend the meeting, please retain the admission ticket and
map attached to the enclosed proxy card and bring it with you to the meeting.
If you do not bring your admission ticket, you must establish share ownership
at the admission desk to be admitted. If your shares are registered in your
own name, our admission attendants will be able to verify your share ownership
from the Company's share register upon presentation of proper identification.
If your shares are not registered in your own name (which is likely to be the
case if they are held by a bank, brokerage firm, employee benefit plan or
other account custodian), your name will not appear in our share register and
you must present proof of beneficial share ownership (such as a brokerage or
employee benefit plan statement showing shares held for your account) and
proper identification to our admission attendants.
Duplicate Annual Reports.
If you hold shares in more than one shareholder account, you may be
receiving multiple copies of our Annual Report to Shareholders. You can save
the Company money by directing us to discontinue mailing multiple reports by
marking the appropriate box on the enclosed proxy card. Eliminating redundant
mailings will not affect your receipt of future Proxy Statements and proxy
cards. To resume the mailing of an Annual Report to a particular account, you
may call Sempra Energy Shareholder Services at 1-877-736-7727.
4
<PAGE>
PROPOSAL 1: ELECTION OF DIRECTORS
Sempra Energy's Board of Directors consists of 16 members, 14 of whom are
non-employee directors. Eight of the directors were directors of Enova
Corporation and eight were directors of Pacific Enterprises at the time the
business combination of the two companies was completed.
The board is divided into three classes whose terms are staggered so that
the term of one class expires at each Annual Meeting of Shareholders. Five
director nominees have been nominated for election at the 1999 Annual Meeting
for a three-year term expiring in 2002.
NOMINEES
The Corporate Governance Committee has selected and the Board of Directors
has approved the following five individuals as nominees for election as
directors:
Hyla H. Bertea
Ann L. Burr
Richard A. Collato
Daniel W. Derbes
Ignacio E. Lozano, Jr.
All of the nominees are currently directors. Mr. Lozano has attained
customary director retirement age but, to provide board continuity, has been
requested by the Corporate Governance Committee and the Board of Directors to
stand for re-election. He has consented to do so but has advised the board
that he currently expects to retire at the Annual Meeting in the year 2000.
The proxies the board is soliciting will be voted for these five nominees
unless other instructions are specified on the proxy card. If any nominee
should become unavailable to serve, the proxies may be voted for a substitute
nominee designated by the board or the authorized number of directors may be
reduced. If you do not want your shares to be voted for one or more of the
nominees, you may so indicate in the space provided on your proxy card.
Information concerning each director nominee and the directors serving
unexpired terms that will continue after the Annual Meeting is set forth
below. The year shown as first election as a director is that of election as a
director of Enova Corporation or Pacific Enterprises. Unless otherwise
indicated, each director has held the principle occupation set forth below or
other positions with the same or predecessor organizations for at least five
years.
5
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NOMINEES FOR ELECTION AT THE ANNUAL MEETING FOR TERMS EXPIRING IN 2002:
[PHOTO OF HYLA H. BERTEA]
HYLA H. BERTEA, 58, has been a director since 1988. She is a
realtor with Prudential California, a real estate sales company.
She is a trustee of Lewis & Clark College, a director of Orange
County Community Foundation, and a former commissioner of the
California Horse Racing Board. For a number of years she has been
involved in leadership positions with various other cultural,
educational and health organizations in the Orange County and Los
Angeles areas. Mrs. Bertea was a co-commissioner of gymnastics and
a member of the executive staff for the 1984 Olympics.
[PHOTO OF ANN L. BURR]
ANN L. BURR, 52, has been a director since 1993. She is an
Executive Vice President for Residential Telephony of Time Warner
Cable. She is the former President of Time Warner Communications
in Rochester, New York and Time Warner Cable in San Diego. Ms.
Burr is a trustee of Rochester Institute of Technology, the RIT
Research Corporation and George Eastman House.
[PHOTO OF RICHARD A. COLLATO]
RICHARD A. COLLATO, 55, has been a director since 1993. He is
President and Chief Executive Officer of the YMCA of San Diego
County. He is a former director of Y-Mutual Ltd., a reinsurance
company, and The Bank of San Diego. Mr. Collato is a trustee of
Springfield College, YMCA Retirement Fund and Bauce Foundation,
and a director of Project Design Consultants.
[PHOTO OF DANIEL W. DERBES]
DANIEL W. DERBES, 68, has been a director since 1983. He is
President of Signal Ventures. From 1985 until 1988, he was
President of Allied-Signal International Inc. and Executive Vice
President of Allied-Signal Inc., a multi-national advanced
technologies company. Mr. Derbes is a director of Oak Industries,
Inc. and WD-40 Company and a trustee of the University of San
Diego.
[PHOTO OF IGNACIO E. LOZANO, JR.]
IGNACIO E. LOZANO, JR., 72, has been a director since 1978. He is
Chairman of the Board of La Opinion, a Spanish language daily
newspaper. During 1976 and 1977 he served as United States
Ambassador to El Salvador. He is a director of The Walt Disney
Company, Pacific Mutual Life Insurance Company, the Santa Anita
Foundation and the Youth Opportunities Foundation. Mr. Lozano is a
trustee of the University of Notre Dame and a member of the
California Press Association.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THESE NOMINEES.
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DIRECTORS WHOSE TERMS CONTINUE UNTIL 2000:
[PHOTO OF HERBERT L. CARTER]
HERBERT L. CARTER, PH.D., 65, has been a director since 1991. He
is President of California State University, Dominguez Hills, and
Executive Vice Chancellor Emeritus and Trustee Professor of Public
Administration of the California State University System. 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 1987 until 1992.
Dr. Carter is a director of Golden State Mutual Insurance Company,
and a member of the Board of Councilors of the School of Public
Administration, University of Southern California.
[PHOTO OF WILFORD D GODBOLD, JR.]
WILFORD D GODBOLD, JR., 60, has been a director since 1990. He is
the retired President and Chief Executive Officer of ZERO
Corporation, an international manufacturer primarily of enclosures
and thermal management equipment for the electronics market. He is
a director of K2, Inc., and the California State Chamber of
Commerce (past Chairman). Mr. Godbold is a trustee of the Wellness
Community, a member of the Council on California Competitiveness
and a past President of the Board of Trustees of Marlborough
School.
[PHOTO OF ROBERT H. GOLDSMITH]
ROBERT H. GOLDSMITH, 68, has been a director since 1992. He is a
management consultant. He is the former Chairman, President and
Chief Executive Officer of Exten Industries, Inc. and former
Chairman and Chief Executive Officer of Rohr, Inc. Mr. Goldsmith
also is the former Vice Chairman and Chief Operating Officer of
Precision Forge Company, Senior Vice President of Pneumo
Corporation's Aerospace and Industrial Group and Vice President of
General Electric Company and General Manager of GE's commercial
(aircraft) engine projects division and the gas turbine division.
[PHOTO OF WILLIAM D. JONES]
WILLIAM D. JONES, 43, has been a director since 1994. He is the
President and Chief Executive Officer and a director of CityLink
Investment Corporation. From 1989 to 1993, he served as General
Manager/Senior Asset Manager and Investment Manager with certain
real estate subsidiaries of The Prudential. Prior to joining The
Prudential, he served as a San Diego Council member from 1982 to
1987. Mr. Jones is a director of the Federal Reserve Bank of San
Francisco, Los Angeles Branch and a trustee of the University of
San Diego. He is a former director of The Price Real Estate
Investment Trust.
[PHOTO OF RALPH R. OCAMPO]
RALPH R. OCAMPO, M.D., 67, has been a director since 1983. He is a
San Diego physician and surgeon. Dr. Ocampo is a past President of
the California Medical Association.
[PHOTO OF WILLIAM G. OUCHI]
WILLIAM G. OUCHI, PH.D., 55, became a director in 1998. He is a
Vice Dean and Faculty Director of Executive Education Programs and
Sanford and Betty Sigoloff Professor of Management in the Anderson
Graduate School of Management at UCLA. Dr. Ouchi is a director of
Allegheny-Teledyne and First Financial Corporation.
7
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DIRECTORS WHOSE TERMS CONTINUE UNTIL 2001:
[PHOTO OF STEPHEN L. BAUM]
STEPHEN L. BAUM, 58, has been a director since 1996. He is Vice
Chairman of the Board, President and Chief Operating Officer of
Sempra Energy. Prior to the business combination of Enova
Corporation and Pacific Enterprises, he was Chairman and Chief
Executive Officer of Enova Corporation.
[PHOTO OF RICHARD D. FARMAN]
RICHARD D. FARMAN, 63, has been a director since 1992. He is
Chairman of the Board and Chief Executive Officer of Sempra
Energy. Prior to the business combination of Pacific Enterprises
and Enova Corporation, he was the Chief Executive Officer of
Pacific Enterprises. He is a director of Union Bank, Sentinel
Group Funds, Inc. and Catellus Development Corporation. He is 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.
[PHOTO OF RICHARD J. STEGEMEIER]
RICHARD J. STEGEMEIER, 70, has been a director since 1995. He is
Chairman Emeritus of the Board of Unocal Corporation. He is a
director of Foundation Health Systems, Inc., Halliburton Company,
Montgomery Watson, Inc., and Northrop Grumman Corporation.
[PHOTO OF THOMAS C. STICKEL]
THOMAS C. STICKEL, 49, has been a director since 1994. He is the
Chairman, Chief Executive Officer and founder of University
Ventures Network. He is the founder of Americana Partners Capital
Group, Inc. He previously was the Chairman, Chief Executive
Officer and President of TCS Enterprises, Inc. and the Bank of
Southern California, both of which he founded. Mr. Stickel is
Chairman of the Board of Onyx Acceptance Corporation, and a
director of Blue Shield of California, Scripps International,
Inc., Clair Burgener Foundation, Del Mar Thoroughbred Club and
Vice Chairman of the California Chamber of Commerce.
[PHOTO OF DIANA L. WALKER]
DIANA L. WALKER, 57, has been a director since 1989. Mrs. Walker
is a partner in the law firm of O'Melveny & Myers LLP. She is a
director of United Way of Greater Los Angeles, the former Chair of
the Board of Governors of the Institute for Corporate Counsel, a
former trustee of Marlborough School and a member of various
professional organizations. O'Melveny & Myers LLP provides legal
services to Sempra Energy and its subsidiaries.
----------------
8
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GOVERNANCE OF THE COMPANY
BOARD OF DIRECTORS
The business and affairs of Sempra Energy are managed under the direction of
the Board of Directors in accordance with the California General Corporation
Law as implemented by the Company's Articles of Incorporation and By-laws.
Members of the board are kept informed through various reports routinely sent
to them as well as by operating and financial presentations made at board and
committee meetings by officers and others.
All of the directors are independent, non-employee directors except Mr.
Farman and Mr. Baum. Mr. Farman is the Company's Chairman and Chief Executive
Officer and Mr. Baum is the Vice Chairman and President. Together they
comprise the Office of the Chairman.
Shareholders who wish to suggest qualified candidates for consideration by
the Corporate Governance Committee as directors of Sempra Energy should write
to: Corporate Secretary, Sempra Energy, 101 Ash Street, San Diego, CA 92101-
3017, stating in detail the qualifications of the suggested candidates.
During 1998, the Board of Directors held seven meetings following the June
26, 1998 completion of the business combination of Enova Corporation and
Pacific Enterprises. The standing committees listed below assisted the board
in carrying out its duties.
COMMITTEES OF THE BOARD
<TABLE>
<CAPTION>
AUDIT COMPENSATION CORPORATE GOVERNANCE EXECUTIVE FINANCE
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<S> <C> <C> <C> <C>
Richard A. Collato, Richard J. Stegemeier, Hyla H. Bertea, Richard D. Farman, Daniel W. Derbes,
Chair Chair Chair Chair Chair
Ann L. Burr Hyla H. Bertea Ann L. Burr Stephen L. Baum Richard A. Collato
Wilford D. Godbold, Jr. Ignacio E. Lozano, Jr. Daniel W. Derbes Herbert L. Carter Wilford D. Godbold, Jr.
Robert H.
Goldsmith Ralph R. Ocampo Robert H. Goldsmith Ignacio E. Lozano, Jr. William D. Jones
William G. Ouchi Thomas C. Stickel Richard J. Stegemeier Thomas C. Stickel Diana L. Walker
Diana L. Walker
<CAPTION>
AUDIT PUBLIC POLICY
- ------------------------ ------------------
<S> <C>
Richard A. Collato, Herbert L. Carter,
Chair Chair
Ann L. Burr Stephen L. Baum
Wilford D. Godbold, Jr. William D. Jones
Robert H.
Goldsmith Ralph R. Ocampo
William G. Ouchi William G. Ouchi
Diana L. Walker
</TABLE>
Audit Committee
The Audit Committee met three times in 1998. Its duties and responsibilities
include the following:
. Providing oversight of the financial reporting process and management's
responsibility for the integrity, accuracy and objectivity of financial
reports and accounting and financial reporting practices.
. Recommending to the board the selection of independent auditors.
. Reviewing and monitoring the compliance process for the Company's Code
of Business Ethics and Conduct.
Compensation Committee
The Compensation Committee met three times in 1998. The duties and
responsibilities of the Compensation Committee include the following:
. Establishing overall strategy with respect to compensation for directors
and senior officers.
. Evaluating the performance of the Chairman and Vice Chairman of the
Board for compensation purposes.
. Reviewing and approving individual salary adjustments and awards under
incentive plans for senior officers.
. Overseeing executive succession plans.
9
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Corporate Governance Committee
The Corporate Governance Committee met once in 1998. Its duties and
responsibilities include the following:
. Reviewing and recommending nominees for election as directors.
. Assessing the performance of the Board of Directors.
. Developing guidelines for board composition.
. Reviewing and administering the Company's Corporate Governance
Guidelines and considering other issues relating to corporate
governance.
Executive Committee
The Executive committee did not meet in 1998. The committee meets on call by
the Office of the Chairman during the intervals between board meetings and,
subject to the limitations imposed by law, has all the authority of the board.
Finance Committee
The Finance Committee met twice in 1998. Its duties and responsibilities
include the following:
. Reviewing long term and short term financial requirements and financing
plans.
. Reviewing trading operations, financial guarantees and derivatives
positions and exposure.
. Reviewing pension plan investment results and insurance coverages.
Public Policy Committee
The Public Policy Committee met once in 1998. Its duties and
responsibilities include the following:
. Reviewing public policy issues affecting the Company, including ethnic,
social and political trends.
. Reviewing employment and contracting policies, consumer issues and
community relations.
. Reviewing charitable and political contributions and programs.
10
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DIRECTORS' COMPENSATION
Directors who are not employees of Sempra Energy receive the following
retainer and fees:
<TABLE>
<S> <C>
Annual retainer.................................................. $26,000
Attendance fee for each Board meeting............................ $ 1,000
Attendance fee for each Committee meeting........................ $ 1,000
Annual retainer for each Committee chaired....................... $ 3,000
</TABLE>
Directors may elect to receive their annual fees in Sempra Energy Common
Stock or to defer their annual fees into an interest-bearing account or a
phantom share account in which the fees are deemed invested in Sempra Energy
Common Stock.
At the Annual Meeting, shareholders will vote upon the approval of a Non-
Employee Directors' Stock Plan that has been adopted, subject to shareholder
approval, by the Board of Directors. The plan and the non-employee director
options granted in 1998 (subject to shareholder approval of the plan) are
discussed in this Proxy Statement under the caption "Proposal 2: Approval of
1998 Non-Employee Directors' Stock Plan."
Non-employee directors who were directors of Enova Corporation or Pacific
Enterprises at the time of the business combination of the two companies
(currently all of the Company's non-employee directors) continue to accrue
retirement benefits (subject to certain maximum years of service credit) for
service as non-employee directors of Sempra Energy. Benefits commence upon the
later of retirement as a director or attaining age 65 and continue for a
maximum period equal to the director's combined years of service as a director
of Sempra Energy and Enova Corporation or Pacific Enterprises. The annual
benefit is the sum of Sempra Energy's then current annual retainer and ten
times the then current board meeting fee.
Directors who are also officers of the Company are not separately
compensated for their services as directors.
11
<PAGE>
SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of Sempra Energy Common
Stock beneficially owned by each director, by each of the five most highly
compensated executive officers and by all directors and executive officers as
a group, as of January 31, 1999. These shares, in the aggregate, represent
less than 1% of the outstanding shares.
<TABLE>
<CAPTION>
SHARES
CURRENT SUBJECT TO
BENEFICIAL EXERCISABLE PHANTOM
HOLDINGS OPTIONS(A) SHARES(B) TOTAL
---------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Stephen L. Baum.................... 79,898 -0- 52,747 132,645
Hyla H. Bertea..................... 9,274 15,000 -0- 24,274
Ann L. Burr........................ 2,200 15,000 -0- 17,200
Herbert L. Carter.................. 1,466 15,000 -0- 16,466
Richard A. Collato................. 3,907 15,000 -0- 18,907
Daniel W. Derbes................... 5,394 15,000 -0- 20,394
Richard D. Farman.................. 47,606 497,757 64,781 610,144
Donald E. Felsinger................ 58,790 -0- 31,060 89,850
Wilford D. Godbold, Jr............. 3,006 15,000 -0- 18,006
Robert H. Goldsmith................ 2,618 15,000 -0- 17,618
William D. Jones................... 2,172 15,000 -0- 17,172
Ignacio E. Lozano, Jr.............. 2,248 15,000 -0- 17,248
Warren I. Mitchell................. 15,812 103,009 33,028 151,849
Ralph R. Ocampo.................... 14,510 15,000 -0- 29,510
William G. Ouchi................... 10,000 15,000 -0- 25,000
Neal E. Schmale.................... 15,556 15,038 -0- 30,594
Richard J. Stegemeier.............. 1,503 15,000 -0- 16,503
Thomas C. Stickel.................. 2,006 15,000 -0- 17,006
Diana L. Walker.................... 866 15,000 -0- 15,866
Directors and Executive Officers as
a group (28 persons).............. 403,760 1,073,931 222,332 1,700,023
</TABLE>
- --------
(A) Shares which may be acquired through the exercise of stock options that
are exercisable on or before May 19, 1999.
(B) Represents deferred compensation deemed invested in shares of Sempra
Energy Common Stock. These phantom shares cannot be voted or transferred
but track the performance of Sempra Energy Common Stock.
12
<PAGE>
PROPOSAL 2: APPROVAL OF 1998 NON-EMPLOYEE DIRECTORS' STOCK PLAN
At the Annual Meeting, shareholders will vote upon the approval of a Non-
Employee Directors' Stock Plan. The plan provides for the automatic grant to
non-employee directors of stock options to purchase Sempra Energy Common
Stock. It also permits non-employee directors to receive the payment of annual
director fees in shares of Sempra Energy Common Stock and to defer the receipt
of annual director fees into phantom shares.
The Non-Employee Directors' Stock Plan has been approved, subject to
shareholder approval, by the Board of Directors upon the recommendation of its
Compensation Committee. The board and the committee believe that the plan will
assist Sempra Energy in retaining the services of qualified individuals as
non-employee directors and secure for Sempra Energy the benefits inherent in
increased director ownership of Sempra Energy Common Stock.
STOCK OPTIONS
The Non-Employee Directors' Stock Plan provides for annual automatic grants
to non-employee directors of stock options to purchase Sempra Energy Common
Stock.
Under the plan and subject to its approval by shareholders at the Annual
Meeting, the fourteen initial non-employee directors of Sempra Energy were
each granted a ten-year option to purchase 15,000 shares of Sempra Energy
Common Stock at an exercise price of $26-7/8 per share, the fair market value
of the shares on the July 13, 1998 date of the grant. If the plan is approved
by shareholders, each of these directors will also be granted an additional
ten-year option for 5,000 shares at the Annual Meeting and at each subsequent
annual meeting following which the director continues to serve as a non-
employee director.
Individuals who subsequently become non-employee directors will receive an
initial grant of an option to purchase 15,000 shares upon becoming a director.
Thereafter, each of these directors will receive an additional grant of an
option to purchase 5,000 shares at each annual meeting (other than the annual
meeting coinciding with or first succeeding the director's election to the
board) following which the director continues to serve as a non-employee
director.
All options are granted at an option price per share that equals the fair
market value of the option shares at the date the option is granted. They
become fully exercisable on and after the first annual meeting of shareholders
following the date of grant or upon the director's earlier death, disability,
retirement or involuntary termination of board service other than for cause.
All options are granted for a term of ten years subject to earlier
termination following the termination of board service. If a director's board
service is terminated for any reason, the option may be exercised (to the
extent exercisable at the date of termination of board service) at any time
within five years after the date of termination or the earlier expiration of
the ten-year term of the option.
No taxable income is realized by directors for federal income tax purposes
and no tax deduction is available to Sempra Energy upon the grant of stock
options under the plan. Upon the exercise of a stock option, the director will
realize taxable income at ordinary tax rates, and the Company will be entitled
to a corresponding tax deduction for compensation expense, in the amount by
which the fair market value of the shares purchased exceeds the exercise price
for the shares.
DIRECTORS FEES
The Non-Employee Directors' Stock Plan also permits non-employee directors
to elect to receive in shares of Sempra Energy Common Stock all or any portion
of the annual directors fees that would otherwise be paid to them in cash.
Shares received in payment of directors fees are valued at the fair market
value of the shares on the date that the fees would otherwise have been paid
in cash.
13
<PAGE>
The plan also permits non-employee directors to elect to defer the receipt
for such period as the director may elect of all or any portion of their
annual directors fees. Fees for which receipt is deferred are deemed to have
been invested in Sempra Energy Common Stock at its fair market value with
dividend equivalents on these phantom shares deemed similarly reinvested. At
the end of the deferral period and at the discretion of the board, the
director receives a number of shares of Sempra Energy Common Stock equal to
the number of phantom shares credited to the deferral account, an amount in
cash equal to the then fair market value of the shares or a combination of
cash and shares.
No taxable income is realized by directors for federal income tax purposes
and no tax deduction is available to Sempra Energy in respect of directors
fees for which receipt is deferred until the deferred amount is paid. Upon the
payment of deferred amounts, the director will realize taxable income at
ordinary tax rates and the Company will be entitled to a corresponding tax
deduction for compensation expense of the amount paid in cash and the then
fair market value of any shares received in payment.
GENERAL PROVISIONS
The number of shares of Sempra Energy Common Stock that may be issued under
the Non-Employee Directors' Stock Plan may not exceed 1.5 million shares. The
number of shares that may be issued, the number of shares covered by
outstanding options and the exercise price of the options, and the number of
phantom shares credited to director accounts are subject to adjustment to
prevent enlargement or diminution of rights in the event of any change in
Sempra Energy Common Stock by reason of a stock dividend, recapitalization,
merger, consolidation, stock split, combination or exchange of shares or any
other significant corporate event affecting Sempra Energy Common Stock.
Upon the occurrence of a change of control of Sempra Energy and subject to
certain limitations, all outstanding stock options will become fully vested
and exercisable and deferred director fees will be paid out in a cash lump
sum. In addition, in the event of certain types of changes in control, each
outstanding option may be converted into options of the surviving entity
subject to the right of the board to cancel all outstanding options for a cash
payment equal to the excess of the fair market value of the shares subject to
the option over its exercise price. The plan defines a change of control to
include the acquisition by one person or group of 20% or more of the voting
power of Sempra Energy's shares; the election of a new majority of the board
comprised of individuals who are not recommended for election by two-thirds of
the current directors or successors to the current directors who were so
recommended for election; certain mergers, consolidations or sales of assets
that result in the shareholders of the Company owning less than 60% of the
voting power of the Company or of the surviving entity or its parent; and
shareholder approval of the liquidation or dissolution of the Company.
The plan is administered by the entire board subject to the board's
authority to delegate administrative authority to one or more officers of
Sempra Energy. The board is authorized to adopt rules to carry out the
provisions of the plan and to interpret and construe the plan and any
agreements made under the plan. Each interpretation, determination or action
made or taken by the board pursuant to the plan is final and binding on all
persons.
The Non-Employee Directors' Stock Plan became effective upon the June 26,
1998 completion of the business combination of Enova Corporation and Pacific
Enterprises, subject to approval by shareholders at the Annual Meeting. It
will terminate on the tenth anniversary of its effective date.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2.
14
<PAGE>
PROPOSAL 3: APPROVAL OF EXECUTIVE INCENTIVE PLAN
At the Annual Meeting, shareholders will vote upon the approval of an
Executive Incentive Plan permitting the payment of performance-based bonuses
to executive officers.
BACKGROUND
Sempra Energy maintains incentive compensation programs designed to
encourage high levels of employee performance on both a short term and long
term basis. Shorter term incentives are provided through an Executive
Incentive Plan permitting the payment of bonuses based upon the attainment of
financial and strategic objectives. Longer term incentives are provided
through stock and other equity-based incentive awards under the 1998 Long Term
Incentive Plan which is also being submitted to shareholders for approval at
the Annual Meeting.
The Internal Revenue Code limits the annual amount that a publicly held
corporation may deduct for federal income tax purposes as compensation paid to
each of certain executive officers to $1 million. However, this limitation
does not apply to compensation that qualifies as performance-based
compensation. To so qualify, the material terms under which the compensation
is to be paid and the related performance goals must be periodically disclosed
to and approved by shareholders. Shareholder approval of the Executive
Incentive Plan and the related performance goals is intended to assure that
bonus opportunities awarded under the plan over the next five years will, upon
payment, be tax deductible compensation expense to Sempra Energy for federal
income tax purposes.
EXECUTIVE INCENTIVE PLAN
The Executive Incentive Plan permits the payment of bonuses to officers of
Sempra Energy and its subsidiaries based upon the attainment of corporate
financial and strategic objectives. There are currently 31 officers whose
positions and responsibilities result in their consideration for participation
in the plan.
The 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 is substantially uncertain, and a related performance period (typically
a fiscal year) to measure 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 net revenues, net
earnings, operating earnings or income, absolute and/or relative return on
equity or assets, earnings per share, cash flow, pre-tax profits, earnings
growth, revenue growth, book value per share, stock price, economic value
added, total shareholder return, operating goals (including safety,
reliability, maintenance expenses, customer satisfaction and employee
satisfaction), and performance relative to peer companies. Each of these goals
may be established on a corporate-wide basis or established with respect to
one or more operating units, divisions, acquired businesses, minority
investments, partnerships or joint ventures.
For each performance goal, the Compensation Committee also establishes
performance levels and related bonus opportunities for officers selected to
participate in the plan. Bonus opportunities vary with the individual
officer's position and prospective contribution to the attainment of
performance objectives.
No bonuses are paid under the Executive Incentive Plan unless a threshold
performance level pre-established by the Compensation Committee is attained
for the related performance period. Bonus opportunities increase for
performance above the threshold performance level to a maximum bonus that may
not exceed $3 million. Bonuses are paid promptly following the committee's
certification of attainment of the related performance level.
BONUS AMOUNTS
The amount of bonuses that will be paid under the Executive Incentive Plan
is not now determinable. However, for 1999, the Compensation Committee has
established target and maximum bonus opportunities of
15
<PAGE>
80% and 160%, respectively, of base salary for the Chairman and Chief
Executive Officer and the Vice Chairman and President. Target and maximum
bonus opportunities for other executives for 1999 (as a percentage of base
salary) range from 70% and 140%, respectively, for Group Presidents, to 45%
and 90%, respectively, for Vice Presidents.
The following table shows the amount of bonuses paid for 1998 under the
Executive Incentive Plan to each of the five most highly compensated executive
officers who participated in the plan and to all executive officers
participating in the plan as a group.
<TABLE>
<CAPTION>
EXECUTIVE INCENTIVE
NAME PLAN BONUS
---- -------------------
<S> <C>
Richard D. Farman................................... $ 497,640
Stephen L. Baum..................................... $ 422,136
Donald E. Felsinger................................. $ 230,230
Warren I. Mitchell.................................. $ 230,230
Neal E. Schmale..................................... $ 171,600
All participating executive officers as a group (14
persons)........................................... $2,332,618
</TABLE>
The bonus amounts shown in the table are for the period subsequent to the
June 26, 1998 completion of the business combination of Pacific Enterprises
and Enova Corporation and represent bonuses paid at 143% of targeted levels.
These bonuses relate only to the second half of 1998 and, consequently,
amounts paid in 1999 under the plan may be substantially greater.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 3.
16
<PAGE>
PROPOSAL 4: APPROVAL OF 1998 LONG TERM INCENTIVE PLAN
At the Annual Meeting, shareholders will vote upon the approval of a Long
Term Incentive Plan. The plan provides for the grant to officers and other key
employees of Sempra Energy and its subsidiaries of stock and other equity-
based incentive awards.
The Long Term Incentive Plan has been approved, subject to shareholder
approval, by the Board of Directors upon the recommendation of its
Compensation Committee. The purposes of the plan are to attract, retain and
motivate officers and other key employees of Sempra Energy and its
subsidiaries, to compensate them for their contribution to the growth and
profits of the Company and to encourage ownership by them of stock of the
Company.
The material features of the Long Term Incentive Plan are briefly described
below. This description is not intended to be complete and is qualified in its
entirety by reference to the full text of the plan, which is reprinted as the
Appendix to this Proxy Statement.
SHARES SUBJECT TO THE PLAN
Incentive awards granted under the Long Term Incentive Plan relate to shares
of Sempra Energy Common Stock. The maximum number of shares as to which
incentive awards may be granted was 3.4 million shares for 1998. In each year
thereafter, the annual number of shares as to which awards may be granted is
1.5% of the outstanding shares of Sempra Energy Common Stock at the beginning
of the year increased by the number of shares that were available for but not
made subject to awards during the previous year; the number of shares received
in payment of the exercise price of an award; the number of shares withheld
from issuance to satisfy tax withholding obligations or to pay the exercise
price of an award; and the number of shares subject to an award which lapses,
expires or is otherwise terminated or is settled other than by the issuance of
shares. As discussed below, the number of shares subject to certain types of
awards is subject to additional limitations, and no employee may receive
awards with respect to more than 1 million shares in any year. The number of
shares that may be issued, the number of shares covered by outstanding
incentive awards and the exercise price of the awards are subject to
adjustment to prevent enlargement or dilution of rights in the event of any
change in Sempra Energy Common Stock by reason of a stock dividend,
recapitalization, merger, consolidation, stock split, combination or exchange
of shares or any other significant corporate event affecting Sempra Energy
Common Stock.
ADMINISTRATION
The Long Term Incentive Plan is administered by the Compensation Committee
of the Board of Directors. The committee has the authority to grant incentive
awards to employees eligible for selection to participate in the plan, to
determine the terms and conditions of each incentive award (including those
related to vesting, forfeiture, payment and exercisability and the effect of a
termination of employment) and to accelerate the payment, vesting,
exercisability or lapse of restrictions on any incentive award. It is also
authorized to construe and interpret the plan and related award agreements and
to prescribe administrative rules and procedures and make all other
determinations necessary or advisable with respect to the plan. The committee
may, subject to certain limitations, delegate some or all of its authority
under the plan to an administrator consisting of one or more members of the
committee or one or more officers of the Company.
PARTICIPATION
The Compensation Committee may grant incentive awards under the Long Term
Incentive Plan to officers and other key employees of Sempra Energy or its
subsidiaries who have the potential to contribute to the future success of the
Company or its subsidiaries and have a significant effect on the Company's
growth and profitability. For these purposes the term subsidiary includes
corporations or other entities in which the Company has an equity or similar
interest that are designated as such by the committee as well as majority-
owned subsidiaries. The committee estimates that there are now approximately
235 employees whose positions and responsibilities would result in their
consideration for the grant of incentive awards under the plan.
17
<PAGE>
During 1998 and subject to the approval of the Long Term Incentive Plan by
shareholders at the Annual Meeting, the Compensation Committee awarded
performance-based restricted stock under the plan to a total of 31 employees
covering an aggregate of 102,640 shares of Sempra Energy Common Stock,
including awards to 13 executive officers relating to 74,908 shares. A summary
of the performance goals and forfeiture and transfer restrictions applicable
to these awards is set forth under the caption "Executive Compensation--
Restricted Stock Grants" together with a table showing the number of shares
awarded to the five most highly compensated executive officers.
Incentive Awards
Under the Long Term Incentive Plan, the Compensation Committee may grant
employees incentive awards consisting of stock options, stock appreciation
rights, restricted stock awards, restricted stock units, performance shares,
stock awards and other equity awards. The committee may make any of these
awards subject to terms and conditions that are intended to assure that
payment of the award will be tax deductible to the Company as compensation
expense for federal income tax purposes.
The vesting, exercisability, payment and other restrictions applicable to an
incentive award are determined by the Compensation Committee and set forth in
a related award agreement. The committee may also provide for awards to earn
dividend equivalents (the amount of dividends that would have been paid on the
shares as to which an award relates had the shares been outstanding) and
provide for their current payment or deemed reinvestment in Sempra Energy
Common Stock.
Stock Options
The Compensation Committee may grant employees stock options which entitle
them, at their election, to purchase shares of Sempra Energy Common Stock at
the prices and during the term specified by the committee in the related stock
option agreement. The number of shares subject to each option and the term and
exercise price of the option is determined by the committee but the exercise
price may not be less than 100% of the fair market value of the shares subject
to the option on the date of grant. Stock options are subject to such other
terms and conditions as the committee may establish in connection with the
grant and specify in the related stock option agreement.
Subject to the terms of the related stock option agreement, the exercise
price of each stock option is payable by the employee in cash, shares of
Sempra Energy Common Stock (valued at then fair market value) previously owned
by the employee or in a combination of cash and shares. The committee may also
permit the payment of the exercise price of an option through the withholding
of shares of Sempra Energy Common Stock (valued at then fair market value)
that would otherwise be issued upon the exercise of the option and may also
establish "cashless exercise" procedures that permit a concurrent sale of
option shares by the employee with proceeds sufficient to pay the exercise
price remitted to the Company.
No taxable income will be realized by an employee for federal income tax
purposes and no tax deduction will be available to Sempra Energy upon the
grant of a stock option. However, the tax consequences of the exercise of the
option and subsequent disposition of the shares received upon exercise will
depend upon whether the option qualifies as an "incentive stock option" as
defined in the Internal Revenue Code of 1986. The committee may grant options
that are intended to so qualify as incentive stock options as well as options
that are not intended to so qualify, but the number of shares as to which
incentive stock options may be granted under the plan may not exceed 1million
shares.
No taxable income will be realized by an employee for federal income tax
purposes upon the exercise of an incentive stock option if the holding period
and other requirements of the Internal Revenue Code are met. Under the holding
period requirements the employee must not dispose of the shares subject to the
option within two years of the date the option was granted or within one year
from the date it was exercised. Upon the satisfaction
18
<PAGE>
of these and other requirements of the code, any gain or loss realized by the
employee upon the disposition of the option shares will be long term capital
gain or loss in an amount equal to the difference between the sales price
received for the shares and the exercise price paid for them. The Company will
not be entitled to any income tax deduction in respect of options that qualify
as incentive stock options.
At the time of exercise of an option which does not qualify as an incentive
stock option, the employee will realize taxable income at ordinary income tax
rates for federal income tax purposes, and the Company will be entitled to a
corresponding tax deduction for compensation expense, in the amount by which
the fair market value of the shares purchased exceeds the exercise price for
the shares. Upon the subsequent disposition of the shares, the employee will
realize short or long term capital gain or loss in an amount equal to the
difference between the sales price of the shares and their fair market value
at the time the option was exercised.
Stock Appreciation Rights
The Compensation Committee may also grant employees stock appreciation
rights which entitle them to receive all or a portion of the appreciation on
shares of Sempra Energy Common Stock. Upon the satisfaction of the conditions
to payment specified by the committee in the related award agreement, each
stock appreciation right that is exercised or settled will entitle the
employee to receive an amount by which the fair market value of a share of
Sempra Energy Common Stock exceeds the exercise price specified in the award.
At the discretion of the committee, payments to an employee upon the exercise
or settlement of a stock appreciation right may be made in cash, shares of
Sempra Energy Common Stock (valued at then fair market value) or a combination
of cash and shares.
Stock appreciation rights may be granted independently or in tandem with
stock options. If granted in tandem with a stock option, the stock
appreciation right will cover the same or a fewer number of shares as covered
by the related stock option, will have the same term and exercise price as the
related stock option, and will be exercisable only to the extent the related
stock option is exercisable. Upon the exercise of a stock appreciation right
granted in tandem with a stock option, the stock option automatically will be
canceled to the extent of the number of shares covered by the exercise of the
tandem stock appreciation right. Conversely, if the stock option is exercised,
the tandem stock appreciation right will be canceled to the extent of the
number of shares covered by the option exercise.
No taxable income will be realized by an employee for federal income tax
purposes and no tax deduction will be available to Sempra Energy upon the
grant of a stock appreciation right. Upon the exercise or settlement of a
stock appreciation right, the employee will realize taxable income at ordinary
income tax rates for federal income tax purposes, and the Company generally
will be entitled to a corresponding tax deduction for compensation expense for
amounts paid upon exercise or settlement. Payments in shares of Sempra Energy
Common Stock will be valued at the fair market value of the shares at time of
payment and upon the subsequent disposition of the shares the employee will
realize short term or long term capital gain or loss in an amount equal to the
difference between the sales price of the shares and their fair market value
on the date they were acquired upon exercise or settlement of the stock
appreciation right.
Restricted Stock and Restricted Stock Units
The Compensation Committee may grant employees restricted stock and
restricted stock units which entitle them, subject to the terms and conditions
of the award, to receive shares or the value of shares of Sempra Energy Common
Stock.
Restricted stock consists of shares of Sempra Energy Common Stock that are
issued to employees (typically for a nominal sum) and are subject to
forfeiture or vesting conditions and restrictions on transferability specified
by the committee in the award agreement. Unless otherwise provided by the
committee, a holder of shares of restricted stock has all of the rights of a
shareholder with respect to the shares including the right to vote and to
receive cash dividends. The plan limits the number of shares that may be made
subject to awards of restricted stock in any year to .5% of the outstanding
shares of Sempra Energy Common Stock at the beginning of the year.
19
<PAGE>
Restricted stock units consist of rights to receive shares of Sempra Energy
Common Stock, subject to the terms and conditions established by the
Compensation Committee in connection with the grant of the award. Upon
satisfaction of the conditions to vesting and payment specified in the award,
the shares subject to the award are issued to the employee or, at the
discretion of the committee, the value of the shares is paid in cash or in a
combination of cash and shares.
Generally, no taxable income will be realized by an employee for federal
income tax purposes and no tax deduction will be available to Sempra Energy
upon the grant of an award of restricted stock or restricted stock units.
However, any dividends received by the employee with respect to shares of
restricted stock will be treated as compensation taxable to the employee as
ordinary income and the Company generally will be entitled to a corresponding
deduction for compensation expense for any dividends paid prior to the
termination of the restrictions on the shares. Upon the termination of
restrictions on restricted stock or the payment of restricted stock units, the
employee will realize taxable income, and the Company generally will be
entitled to a corresponding deduction for compensation expense, in the case of
restricted shares equal to the excess of the then fair market value of the
shares over any amount paid for them and in the case of restricted stock units
to the amount paid to the employee in respect of the units.
Performance Shares, Stock Awards and Other Equity Awards
Performance shares represent shares of Sempra Energy Common Stock to be
earned by an employee upon the satisfaction of performance criteria and other
terms and conditions specified by the committee in granting the awards. Shares
represented by the award are issued to the employee following the conclusion
of the applicable performance period and satisfaction of the related
performance goals or, in the discretion of the committee, the value of the
shares is paid in cash or in a combination of cash and shares.
Stock awards consist of one or more shares of Sempra Energy Common Stock
granted to an employee and are subject to terms and conditions established by
the committee in connection with the award as specified in the applicable
award agreement. The shares subject to the stock award may, among other
things, be subject to vesting requirements and restrictions on
transferability.
The Compensation Committee also has the authority to specify the terms and
provisions of other forms of equity-based or equity-related awards which the
committee determines to be consistent with the purposes of the Long Term
Incentive Plan and the interests of Sempra Energy. These awards may provide
for cash payments based in whole or in part on the value or future value of
shares of Sempra Energy Common Stock, for the acquisition or future
acquisition of shares, or any combination thereof.
Generally, an employee will not realize any income for federal income tax
purposes and the Company will not be entitled to a tax deduction upon the
grant of these awards. Upon payment or settlement of the award, the employee
will realize compensation taxable as ordinary income, and the Company
generally will be entitled to a corresponding deduction for compensation
expense, in an amount equal to the sum of any cash and the fair market value
of any shares received by the employee. However, if any shares are subject to
substantial restrictions such as a requirement of continued employment or the
attainment of certain performance objectives, the employee will not recognize
income (unless the employee elects otherwise) and the Company will not be
entitled to a deduction until the restrictions lapse.
PERFORMANCE-BASED COMPENSATION
The Internal Revenue Code limits the annual amount that a publicly held
corporation may deduct for federal income tax purposes for compensation paid
to each of certain executive officers to $1 million. However, this limitation
does not apply to compensation that qualifies as performance-based
compensation for which the material terms under which the compensation is to
be paid and the related performance goals have been periodically disclosed to
and approved by shareholders.
20
<PAGE>
Accordingly, the Long Term Incentive Plan also permits the Compensation
Committee to make awards that are intended to qualify as performance-based
compensation for federal income tax purposes. These awards may consist of
stock options, stock appreciation rights, restricted stock, restricted stock
units, performance shares, stock awards or other equity awards, the vesting,
exercisability or payment of which is conditioned upon the attainment of
performance goals selected by the committee. These awards will be made in
accordance with procedures specified in applicable Treasury regulations for
compensation intended to be "qualified performance-based compensation."
The performance goals which may be selected by the committee for
performance-based awards will include one or more of net revenues, net
earnings, operating earnings or income, absolute and/or relative return on
equity or assets, earnings per share, cash flow, pre-tax profits, earnings
growth, revenue growth, book value per share, stock price, economic value
added, total shareholder return, operating goals (including, without
limitation, safety, reliability, maintenance expenses, capital expenses,
customer satisfaction and employee satisfaction) and performance relative to
peer companies. Each of these goals may be established on a corporate-wide
basis or established with respect to one or more operating units, divisions,
acquired businesses, minority investments, partnerships or joint ventures.
Shareholder approval of the Long Term Incentive Plan will also constitute
approval of these performance goals and is intended to assure that incentive
awards granted under the plan over the next five years that are intended to
qualify as performance-based compensation will so qualify and will, upon
payment, be a tax deductible compensation expense to Sempra Energy for federal
income tax purposes.
CHANGE IN CONTROL
Upon the occurrence of a change in control of Sempra Energy and subject to
certain limitations, all stock options and stock appreciation rights then
outstanding automatically will become fully vested and exercisable, all
restrictions and conditions on shares subject to restricted stock awards will
lapse, and all performance shares will be deemed to have been earned in the
manner set forth in the applicable award agreement. In addition, in the event
of certain types of changes of control, the plan provides for the conversion
of stock options granted under the plan into options of the acquiring or
surviving entity subject to the right of the committee to cancel all
outstanding options in exchange for a cash payment in an amount equal to the
excess of the fair market value of the shares subject to the option over the
exercise price. A change in control is defined in the same manner as in the
Non-Employee Directors' Stock Plan and the definition is summarized in this
Proxy Statement under the caption "Proposal 2: Approval of 1998 Non-Employee
Directors' Stock Plan--General Provisions."
AMENDMENT AND TERMINATION
The Long Term Incentive plan is subject to termination, modification,
suspension or amendment at any time by the Board of Directors or the
Compensation Committee. However, no termination, modification, suspension or
amendment will be effective without shareholder approval if such approval is
required to comply with any applicable law or stock exchange rule and no
amendment, without shareholder approval, may increase the number of shares
subject to the plan.
The Long Term Incentive Plan became effective upon the June 26, 1998
completion of the business combination of Pacific Enterprises and Enova
Corporation subject to approval of the plan by shareholders at the Annual
Meeting. It automatically will terminate unless it is ratified by shareholders
every ten years following its effective date.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 4
21
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Sempra Energy was formed in connection with a business combination of
Pacific Enterprises and Enova Corporation that was completed on June 26, 1998.
Its executive officers are, for the most part, former officers of the
combining companies. Richard D. Farman, previously the Chief Executive Officer
of Pacific Enterprises, serves as Chairman and Chief Executive Officer of
Sempra Energy. Stephen L. Baum, previously Chairman and Chief Executive
Officer of Enova Corporation, serves as Vice Chairman and President of Sempra
Energy. Together, Messrs. Farman and Baum comprise Sempra Energy's Office of
the Chairman.
The Compensation Committee of the Board of Directors has the responsibility
for establishing Sempra Energy's compensation principles and strategies, as
well as designing a compensation program for the Chairman and Chief Executive
Officer, the Vice Chairman and President and other senior executive officers
of the Company. Its responsibilities also include administering the Company's
base salary program, executive annual and long term incentive plans, and
executive benefit programs. The committee is comprised of five independent
non-employee directors, all but one of whom had previously served as members
of the compensation committee of either Pacific Enterprises or Enova
Corporation.
The Compensation Committee concluded that the formation of Sempra Energy
would require a comprehensive review of the compensation programs and policies
of both Enova Corporation and Pacific Enterprises and the development of new
policies and programs appropriate to a combined company with a significantly
broader scope and substantially larger size than either of the two combining
companies. Accordingly, prior to the completion of the business combination
and with the assistance of nationally recognized compensation and benefit
consultants, the Compensation Committee formulated compensation principles and
strategies and developed compensation policies and practices intended to
enable Sempra Energy to realize the objectives of the business combination and
to create superior shareholder value in a rapidly changing and increasingly
competitive business environment.
COMPENSATION PRINCIPLES AND STRATEGIES
In developing compensation principles and strategies, the Compensation
Committee considered the current and prospective business environment for
Sempra Energy and took into account numerous factors including:
. The substantially larger size and broader scope of Sempra Energy's
operations over those of either of its two predecessors.
. The rapidly changing and increasingly competitive environment in which
Sempra Energy would operate.
. The need to retain experienced executives of outstanding ability and to
motivate them to achieve superior performance.
. The need to attract executive talent from broader markets as the utility
and energy industries continue to rapidly evolve.
. The need to strongly link executive compensation to both annual and long
term corporate, business unit and individual performance.
. The need to strongly align the interests of executives with those of
shareholders.
As a result of this review, the Compensation Committee approved a
compensation program designed to meet these objectives and encourage
executives to achieve superior shareholder returns. The program includes the
following elements.
. An emphasis on "pay-for-performance" with a substantial portion of total
compensation reflecting corporate, business unit and individual
performance.
. An emphasis on stock incentives closely aligning the interests of
executives with those of shareholders.
22
<PAGE>
. An emphasis on total compensation with base salaries generally targeted
at or near median general industry levels for comparable sized companies
and with annual cash and long term equity incentives providing
opportunities to earn total compensation at significantly higher levels
for superior corporate, business unit and individual performance.
. An appropriate balance of short term and long term compensation to
retain talented executives, reward effective long term strategic results
and encourage share ownership.
. An emphasis on placing at risk, through equity and other performance-
based incentives, a greater portion of an executive's total compensation
as levels of responsibility increase.
The Compensation Committee also considered provisions of the Internal
Revenue Code limiting to $1 million the annual amount of compensation that
does not qualify as "qualified performance-based compensation" that Sempra
Energy and other publicly held corporations may deduct for federal income tax
purposes as compensation expense for each of certain executive officers. The
committee considers tax deductibility to be an important factor but only one
factor to be considered in evaluating any executive officer compensation
program. Accordingly, the committee intends to design programs that will
maximize the Company's federal income tax deductions for compensation expense
to the extent that doing so is consistent with the Company's compensation
principles and strategies. The committee believes, however, that there are
circumstances in which the interests of the Company and its shareholders may
be best served by providing compensation that is not fully tax deductible, and
may exercise discretion to provide compensation (including incentive awards
under the Long Term Incentive Plan) that will not qualify as a tax deductible
compensation expense.
Consistent with this approach, the Company is seeking shareholder approval
at the Annual Meeting for its Executive Incentive Plan to ensure that bonus
opportunities awarded under the plan over the next five years will, upon
payment, be a tax deductible compensation expense. The Company is also seeking
shareholder approval for its 1998 Long Term Incentive Plan to ensure that
incentive awards granted under the plan over the next five years that the
committee intends to be qualified as performance-based compensation will be so
qualified and will, upon payment, be a tax deductible compensation expense.
COMPENSATION PROGRAM
The primary components of Sempra Energy's compensation program are base
salaries, annual cash incentive opportunities and long term equity and equity-
based incentive opportunities.
Base Salaries
Base salaries for executives are reviewed annually by the Compensation
Committee and, in general, are targeted at the median of salaries for
similarly sized general industry companies. The committee believes that this
strategy, along with annual and long term incentive opportunities at general
industry levels, will allow the Company to retain and attract top quality
executive talent. However, the committee will continue to monitor this
strategy as the markets for executive talent intensify. In determining base
salary adjustments, the committee will also take into account such factors as
individual performance, executive responsibilities and market characteristics.
Survey data for assessing base salaries are based upon companies in the
Fortune 1000 and size-adjusted based upon Sempra Energy's revenues using
regression analysis. This group is broader than that used for the peer group
index reflected in the stock performance graph shown under the caption
"Comparative Stock Performance" in this Proxy Statement. The Compensation
Committee believes that Sempra Energy's most direct competitors for executive
talent will not be limited to companies used as the peer group to compare
shareholder returns and the Fortune 1000 appropriately reflects a broader
group with which the Company competes to retain and attract highly skilled and
talented executives.
The Compensation Committee established initial base salaries for Sempra
Energy executive officers at the approximate mid-point of these salary data.
An annual base salary of $870,000 was established for Mr. Farman
23
<PAGE>
and $738,000 for Mr. Baum. These salaries became effective in June 1998 and
were adjusted effective January 1, 1999 to $915,000 and $763,000,
respectively, in connection with the committee's annual salary review to
reflect changing market conditions and individual and corporate performance.
Annual Incentives
Annual cash bonus performance-based incentive opportunities are provided to
executive officers through the Executive Incentive Plan. The plan is
summarized in this Proxy Statement under the caption "Proposal 3: Approval of
Executive Incentive Plan." Performance at targeted levels is intended to
provide bonuses for executive officers at the mid-point for bonuses at Fortune
1000 companies.
For the six-month period of 1998 during which the Executive Incentive Plan
was in effect, award levels were based on attainment of earnings per share
goals with target award levels ranging from 80% of base salary (for the six-
month period) for the Chairman and Chief Executive Officer and the Vice
Chairman and President to 45% of base salary (for the six-month period) for
Vice Presidents, with maximum award levels ranging from 160% to 90% of six-
month base salary. Performance for the six months exceeded targeted
performance and resulted in cash bonuses of 114% of six-month base salary for
the Chairman and Chief Executive Officer and the Vice Chairman and President
($497,640 and $422,136, respectively), with corresponding lesser amounts for
other executive officers.
For the first half of 1998, Mr. Farman and Mr. Baum were senior executive
officers of Pacific Enterprises and Enova Corporation, respectively. The
performance of Pacific Enterprises and Enova Corporation for these six months
substantially exceeded performance goals for annual cash bonuses and resulted
in Messrs. Farman and Baum receiving maximum cash bonuses for the six-month
period of $522,000 and $469,000, respectively.
Long Term Incentives
Long term incentive opportunities are provided by equity and equity-based
awards under Sempra Energy's 1998 Long Term Incentive Plan. This plan is being
submitted to shareholders for approval at the Annual Meeting and is described
in this Proxy Statement under the caption "Proposal 4: Approval of 1998 Long
Term Incentive Plan." The plan permits a wide variety of equity and equity-
based incentive awards to permit the Compensation Committee to respond to
changes in the market conditions and compensation practices. The committee
expects, however, that most awards under the plan will be in the form of non-
qualified stock options and, to a lesser and declining extent, restricted
stock.
During the second half of 1998, Sempra Energy granted to executives and
other employees non-qualified stock options to purchase Sempra Energy Common
Stock under stock option plans of Pacific Enterprises and Enova Corporation
that were assumed by Sempra Energy in the business combination of the two
companies. During the first half of 1998, Pacific Enterprises also granted
stock options to Mr. Farman and other executive officers of Pacific
Enterprises. These Sempra Energy and Pacific Enterprises option grants are
described in this Proxy Statement under the caption "Executive Compensation--
Stock Options and Stock Appreciation Rights."
During 1998, the Compensation Committee also awarded grants of performance-
based restricted shares under the 1998 Long Term Incentive Plan. These awards
and related total shareholder return vesting standards are discussed in this
Proxy Statement under the caption "Executive Compensation--Restricted Stock
Grants." They are subject to shareholder approval of the plan at the Annual
Meeting.
The Sempra Energy grants of options and restricted shares, consistent with
general industry practices, have a value of approximately 170% of base salary
and for Messrs. Farman and Baum reflect long term incentives expected to be
granted for 1999.
24
<PAGE>
STOCK OWNERSHIP GUIDELINES
The Compensation Committee believes that a commitment to increased share
ownership by Sempra Energy executives is an important element in aligning the
interests of executives with those of shareholders. This belief has influenced
the design of the Company's compensation plans and, in addition, the Board of
Directors has established stock ownership guidelines to further strengthen the
link between Company performance and compensation.
In setting stock ownership guidelines, consideration was given to current
share ownership levels of senior executives and the desire to encourage
further share ownership in the new company. The guidelines are as follows:
<TABLE>
<CAPTION>
STOCK OWNERSHIP GUIDELINES
EXECUTIVE LEVEL (AS A MULTIPLE OF SALARY)
--------------- --------------------------
<S> <C>
Chief Executive Officer 4 x Base Salary
President 4 x Base Salary
Group Presidents 3 x Base Salary
Executive Vice Presidents 3 x Base Salary
Senior Vice Presidents 2 x Base Salary
Other Vice Presidents 1 x Base Salary
</TABLE>
Executives are expected to meet or exceed these share ownership levels over
a five-year period. For purposes of the guidelines, shares owned will include
phantom shares into which compensation has been deferred and the vested
portion of certain in-the-money employee stock options as well as shares owned
directly or through employee benefit plans.
COMPENSATION COMMITTEE
Richard J. Stegemeier, Chairman
Hyla H. Bertea
Ignacio E. Lozano, Jr.
Ralph R. Ocampo
Thomas C. Stickel
March 2, 1999
25
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND OTHER COMPENSATION
The table below summarizes, for the last three years, the compensation paid
or accrued by Sempra Energy and its predecessors and subsidiaries to each of
the six named executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------------
AWARDS PAYOUTS
---------------- -----------
SECURITIES LTIP ALL OTHER
SALARY UNDERLYING PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($) OPTIONS/SARS (#) ($ )(A) (B) ($) (C)
- --------------------------- ---- -------- ---------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard D. Farman........... 1998 $728,718 $1,019,640 274,593 $ -0- $1,689,295
Chairman and Chief 1997 $478,208 $ 500,000 45,000 $ -0- $ 108,049
Executive Officer 1996 $429,999 $ 430,000 2,000 $ -0- $ 76,309
Stephen L. Baum............. 1998 $681,577 $ 891,136 167,900 $247,746 $1,494,258
Vice Chairman 1997 $554,872 $ 509,000 -0- $259,778 $ 138,230
and President 1996 $455,489 $ 322,000 -0- $146,940 $ 107,603
Donald E. Felsinger......... 1998 $453,269 $ 565,230 86,160 $178,956 $ 862,045
Group President-Unregulated 1997 $414,387 $ 364,000 -0- $206,531 $ 56,266
Business Units 1996 $356,546 $ 228,000 -0- $129,758 $ 67,701
Warren I. Mitchell.......... 1998 $480,122 $ 506,230 140,296 $ -0- $ 816,659
Group President-Regulated 1997 $363,939 $ 280,000 27,000 $ -0- $ 27,446
Business Units 1996 $326,618 $ 249,600 21,000 $ -0- $ 23,831
Neal E. Schmale (D)......... 1998 $414,731 $ 371,600 109,334 $ -0- $ 107,932
Executive Vice President
and Chief Financial Officer
Willis B. Wood, Jr. (E)..... 1998 $613,167 $ 556,266 112,785 $ -0- $ 970,146
Chairman and Chief 1997 $682,201 $ 700,000 60,000 $ -0- $ 132,762
Executive Officer of
Pacific 1996 $635,000 $ 635,000 55,200 $ -0- $ 95,439
Enterprises
</TABLE>
- --------
(A) Long term incentive plan payouts represent the fair market value of shares
of restricted stock for which forfeiture and transfer restrictions
terminated during the year based upon satisfaction of long term
performance goals. Restricted stock awarded in 1998 is reported below
under the caption "Restricted Stock Grants."
(B) The aggregate holdings/value of restricted stock held on December 31, 1998
by the individuals listed in the table are: 17,124 shares/$434,607 for Mr.
Farman; 37,229 shares/$944,872 for Mr. Baum; 23,296 shares/$591,252 for
Mr. Felsinger; 7,456 shares/$189,233 for Mr. Mitchell; 5,556
shares/$141,011 for Mr. Schmale; and 0 shares/$0 for Mr. Wood. Regular
quarterly dividends are paid on restricted stock held by these
individuals.
(C) All other compensation includes amounts paid as (i) interest on deferred
compensation above 120% of the applicable federal rate, (ii) life
insurance premiums, (iii) financial and estate planning services,
(iv) contributions to defined benefit plans and related supplemental
plans, and (v) car allowances. The respective amounts paid in 1998 were
$76,476, $9,556, $7,763, $22,763 and $6,737 for Mr. Farman; $2,346,
$113,211, $4,313, $38,717, and $7,671 for Mr. Baum; $3,672, $31,290,
$10,000, $27,685 and $7,398 for Mr. Felsinger; $1,772, $5,490, $6,900,
$13,760 and $6,737 for Mr. Mitchell; $925, $2,077, $-0-, $1,385 and $3,545
for Mr. Schmale; and $91,055, $6,544, $7,841, $20,628 and $3,577 for Mr.
Wood.
26
<PAGE>
Amounts for 1998 also include incentive/retention bonus accruals for
Messrs. Farman and Mitchell under agreements with Pacific Enterprises and
for Messrs. Baum and Felsinger under agreements with Enova Corporation.
These agreements were entered into in 1997 in connection with the business
combination of the two companies and provide that each executive becomes
entitled to an incentive/retention bonus upon the completion of the
business combination (which was completed on June 26, 1998) and continued
employment with Sempra Energy for a period of twenty-four months
thereafter. Under the agreements, deferral accounts were established for
Messrs. Farman, Baum, Felsinger and Mitchell upon the completion of the
business combination and credited with incentive/retention bonus amounts of
$1,566,000, $1,328,000, $782,000 and $782,000, respectively, which were
deemed invested in shares of Sempra Energy Common Stock. Dividend
equivalents on these phantom shares similarly are deemed reinvested to
purchase additional shares at then fair market value. Upon becoming
entitled to his incentive/retention bonus, the executive will be paid in
cash an amount based upon the number of phantom shares then credited to his
account and the then fair market value of Sempra Energy Common Stock.
Amounts for 1998 for Mr. Schmale also include $100,000 paid to him as a
signing bonus upon the completion of six-months of service.
Amounts for 1998 for Mr. Wood also include $840,500 paid to him by Pacific
Enterprises upon his retirement in recognition of his life-long service and
contributions to the company.
(D) Mr. Schmale became an executive officer in December 1997.
(E) Mr. Wood retired as Chief Executive Officer of Pacific Enterprises in
April 1998 and as Chairman of the Board in July 1998. His salary amount
includes $133,335 paid during 1998 under a six-month consulting agreement
that expired January 31, 1999.
27
<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table contains information concerning the grant of stock
options during 1998 to the executive officers named in the Summary
Compensation Table. All options were granted at an exercise price of 100% of
the fair market value of the option shares on the date of the grant and for a
ten-year term subject to earlier expiration following termination of
employment.
OPTION / SAR GRANTS IN 1998
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF SHARES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE PRICE EXPIRATION GRANT DATE
NAME GRANTED (#) 1998 ($/SH) DATE PRESENT VALUE
- ---- ---------------- ------------ -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Richard D. Farman....... 76,693(A) 2.28% $24.27 3/3/08 $ 852,826
63,900(B) 1.90% $26.31 7/23/08 $ 591,714
134,000(C) 3.98% $26.31 7/23/08 $ 443,540
Stephen L. Baum......... 54,200(B) 1.61% $26.31 7/23/08 $ 501,892
113,700(C) 3.38% $26.31 7/23/08 $ 376,347
Donald E. Felsinger..... 27,800(B) 0.83% $26.31 7/23/08 $ 257,428
58,360(C) 1.73% $26.31 7/23/08 $ 193,172
Warren I. Mitchell...... 54,136(A) 1.61% $24.27 3/3/08 $ 601,992
27,800(B) 0.83% $26.31 7/23/08 $ 257,428
58,360(C) 1.73% $26.31 7/23/08 $ 193,172
Neal E. Schmale......... 45,114(A) 1.34% $24.27 3/3/08 $ 501,668
20,720(B) 0.62% $26.31 7/23/08 $ 191,867
43,500(C) 1.29% $26.31 7/23/08 $ 143,985
Willis B. Wood, Jr. .... 112,785(A)(D) 3.35% $24.27 (D) $1,254,169(D)
</TABLE>
- --------
(A) Granted by Pacific Enterprises and assumed by Sempra Energy in connection
with the business combination of Pacific Enterprises and Enova
Corporation. Exercisable in cumulative installments of one-third of the
shares initially subject to the option on each of the first three
anniversaries of the grant date. Granted with performance-based dividend
equivalents payable upon option exercise for the entire period the option
is outstanding. No dividend equivalents will be paid unless Pacific
Enterprises meets a threshold performance goal based on cash-flow for the
three-year period ending December 31, 2000, and the percentage of
dividends paid as dividend equivalents (to a maximum of all dividends that
would have been paid on the option shares) depends upon the extent to
which the threshold performance goal is exceeded.
(B) Exercisable in cumulative installments of one-fourth of the shares
initially subject to the option on each of the first four anniversaries of
the grant date. Granted with performance-based dividend equivalents on
unexercised shares for the four-year period ending December 31, 2002. No
dividend equivalents will be paid unless Sempra Energy meets annual or
four-year threshold performance goals based on total return to
shareholders relative to the peer group of companies listed under the
caption "Comparative Stock Performance" or the Standard & Poor's 500 and
the percentage of dividends paid as dividend equivalents (to a maximum of
all dividends that would have been paid on the shares for the four-year
period) will depend upon the extent to which the threshold goals are
exceeded.
(C) Exercisable in cumulative annual installments of one-fourth of the shares
initially subject to the option on each of the first four anniversaries of
the grant date. Granted without dividend equivalents.
(D) Mr. Wood's options expired unexercised following his retirement in July
1998.
28
<PAGE>
The Company used a modified Black-Scholes option pricing model to develop
the theoretical values set forth under the "Grant Date Present Value" column,
but the executive will realize value from the stock options only to the extent
that the price of Sempra Energy Common Stock on the exercise date exceeds the
price of the stock on the grant date. Consequently, there is no assurance the
value realized by an executive will be at or near the theoretical value, and
these amounts should not be used to predict stock performance.
The options granted at an exercise price of $24.27 were granted by Pacific
Enterprises and assumed by Sempra Energy in connection with the business
combination of Pacific Enterprises and Enova Corporation. Grant date present
values were based on an option value of $2.98 and a dividend equivalent value
of $10.06. These use the following assumptions: share volatility-11.9%;
dividend yield-4.94%; risk-free rate of return-5.98%; and outstanding term-10
years.
The options granted at an exercise price of $26.31 were granted by Sempra
Energy following the business combination of Pacific Enterprises and Enova
Corporation. Grant date present values were based on an option value of $4.30
and, for options granted with dividend equivalents, a dividend equivalent
value of $4.79. These use the following assumptions: share volatility-15.8%;
dividend yield-4.35%; risk-free rate of return-5.62%; and outstanding term-10
years.
The following table contains information with respect to the executive
officers named in the Summary Compensation Table concerning the exercise of
options and stock appreciation rights during 1998 and unexercised options and
stock appreciation rights held on December 31, 1998.
OPTION / SAR EXERCISES AND HOLDINGS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS
ACQUIRED ON AT YEAR-END (#) AT YEAR-END ($)(A)
EXERCISE VALUE ------------------------- -------------------------
NAME (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard D. Farman....... -0- $ -0- 449,635 319,707 $3,755,698 $310,992
Stephen L. Baum......... -0- $ -0- -0- 167,900 $ -0- $ -0-
Warren I. Mitchell...... 40,602 $ 311,006 71,429 167,364 $ 302,347 $195,566
Donald E. Felsinger..... -0- $ -0- -0- 86,160 $ -0- $ -0-
Neal E. Schmale......... -0- $ -0- -0- 109,334 $ -0- $ 49,851
Willis B. Wood, Jr...... 360,912 $3,740,000 212,335 -0- $1,685,731 $ -0-
</TABLE>
- --------
(A) The exercise price of outstanding options ranges from $12.80 to $31.00.
29
<PAGE>
RESTRICTED STOCK GRANTS
The following table contains information concerning grants of restricted
stock during 1998 to those executive officers named in the Summary
Compensation Table who received grants.
RESTRICTED STOCK GRANTS IN 1998
<TABLE>
<CAPTION>
ESTIMATED FUTURE
PAYOUTS UNDER
NON-STOCK
NUMBER OF PERFORMANCE PERIOD PRICE-BASED
NAME RESTRICTED SHARES UNTIL PAYOUT PLANS (A)
- ---- ----------------- ------------------- ----------------
<S> <C> <C> <C>
Richard D. Farman........ 17,124 Four Annual Periods $443,683
Stephen L. Baum.......... 14,524 Four Annual Periods $376,317
Donald E. Felsinger...... 7,456 Four Annual Periods $193,185
Warren I. Mitchell....... 7,456 Four Annual Periods $193,185
Neal E. Schmale.......... 5,556 Four Annual Periods $143,956
</TABLE>
- --------
(A) The payout amount represents the fair market value on July 23, 1998 grant
date of the restricted shares that will become vested upon the achievement
of all performance goals. The actual payout (if any) will depend upon the
achievement of performance goals and upon the then fair market value of
Sempra Energy Common Stock.
Restricted shares awarded to executives are subject to forfeiture and
transfer restrictions that terminate upon the satisfaction of long term
objective corporate performance criteria. During the performance period, the
executive receives dividends on the restricted shares and is entitled to vote
them but the shares cannot be sold or otherwise transferred. If the
performance criteria are not satisfied or the executive's employment is
terminated during the performance period, the shares are forfeited to the
Company and canceled.
The restricted shares shown in the table were awarded under the Sempra
Energy 1998 Long Term Incentive Plan. The Board of Directors is submitting
this plan for approval by shareholders at the Annual Meeting and these awards
were made subject to approval of the plan being obtained at the meeting. The
plan is summarized in this Proxy Statement under the caption "Proposal 4:
Approval of 1998 Long Term Incentive Plan."
The forfeiture and transfer restrictions on one-quarter of the shares
initially subject to each of these awards will terminate at the end of years
1999, 2000, 2001 and 2002 if the executive is then employed by Sempra Energy
and the Company has achieved a total return to shareholders for the year that
places it among the top 25% of a peer group comprised of the Company and the
19 other energy and energy services companies used for the peer group index
reflected in the stock performance graph shown under the caption "Comparative
Stock Performance" in this Proxy Statement. If these annual performance
criteria are not met, the forfeiture and transfer restrictions on all or a
portion of the shares remaining subject to these restrictions may be
terminated based upon the satisfaction of cumulative shareholder return
performance criteria for the four years ending December 31, 2002.
The restrictions on all remaining shares will terminate at the end of the
year 2002 if the executive is then employed by Sempra Energy and the Company
has achieved a four-year cumulative total return to shareholders that either
places it among the top 50% of the peer group companies or equals or exceeds
the four-year cumulative return of the companies then comprising the Standard
& Poor's 500 Composite Stock Price Index. If neither of these performance
criteria is satisfied, the restrictions may be terminated as to a portion of
the shares if the Company's four-year cumulative total shareholder return is
among the top 70% of the peer group. Restrictions will terminate as to 80% of
the shares for performance among the top 55% of the peer group with the
percentage of shares as to which the restrictions may terminate declining
ratably to 20% for performance among the top 70% of the peer group. Any
restricted shares for which forfeiture and transfer restrictions are not
terminated by or as of the end of year 2002 will be forfeited to the Company
and canceled.
30
<PAGE>
PENSION PLANS
The following table shows the estimated single life annual pension annuity
benefit provided to executive officers under the Sempra Energy Supplemental
Executive Retirement Plan (combined with benefits payable under the Company's
other pension plans in which the officers also participate) based on the
specified compensation levels and years of credited service and retirement at
age 65.
PENSION PLAN TABLE
($000'S)
<TABLE>
<CAPTION>
YEARS OF SERVICE
PENSION PLAN ---------------------------------------------------------------------------
COMPENSATION 5 10 20 30 40
------------ ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C>
$ 400 $ 80 $160 $ 240 $ 260 $ 260
$ 600 $120 $240 $ 360 $ 375 $ 390
$ 800 $160 $320 $ 480 $ 500 $ 520
$1,000 $200 $400 $ 600 $ 625 $ 650
$1,200 $240 $480 $ 720 $ 750 $ 780
$1,400 $280 $560 $ 840 $ 875 $ 910
$1,600 $320 $640 $ 960 $1,000 $1,040
$1,800 $360 $720 $1,080 $1,125 $1,170
</TABLE>
Pension benefits are based on average salary for the highest two years of
service and the average of the three highest annual bonuses during the last
ten years of service. Years of service for the five most highly compensated
executive officers are 20 years for Mr. Farman, 14 years for Mr. Baum, 26
years for Mr. Felsinger, 40 years for Mr. Mitchell and one year for Mr.
Schmale. Mr. Wood retired as Chairman and Chief Executive Officer of Pacific
Enterprises during 1998 with 38 years of service.
Stephen L. Baum and Donald E. Felsinger are entitled to pension benefits at
the greater of that provided by Sempra Energy's pension plans or that to which
they would have been entitled under the Enova Corporation pension plans
(including a supplemental pension plan) had those plans remained in effect.
Under the Enova Corporation plans and retirement after attaining age 62,
Messrs. Baum and Felsinger would each be entitled to a monthly pension benefit
of 60% of his final pay. Final pay is defined as the monthly base pay rate in
effect during the month immediately preceding retirement, plus 1/12 of the
average of the highest three years' gross bonus awards. The plans provide for
reduced pension benefits for retirement between the ages of 55 and 61, and
surviving spouse and disability benefits equal to 50% and 100%, respectively,
of pension benefits.
EMPLOYMENT AND EMPLOYMENT-RELATED AGREEMENTS
Employment Agreements
In connection with the business combination of Pacific Enterprises and Enova
Corporation, Sempra Energy entered into employment agreements with Richard D.
Farman, Stephen L. Baum, Donald E. Felsinger and Warren I. Mitchell. Prior to
the completion of the business combination, Mr. Farman was the Chief Executive
Officer and President and Mr. Mitchell was an Executive Vice President of
Pacific Enterprises, and Mr. Baum was the Chairman and Chief Executive Officer
and Mr. Felsinger was an Executive Vice President of Enova Corporation.
Each agreement provides for an initial employment term of five years
(subject to earlier mandatory retirement at age 65) which commenced on the
June 26, 1998 completion of the business combination of Pacific Enterprises
and Enova Corporation. The term of each agreement is automatically extended by
one year on June 26, 2002 and on each June 26 thereafter unless the executive
or Sempra Energy elects not to extend the term.
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Mr. Farman's employment agreement provides that he will serve as the
Chairman of the Board and Chief Executive Officer of Sempra Energy and as a
member of its Office of the Chairman until June 26, 2000, the second
anniversary of the business combination. Thereafter, until September 1, 2000,
he will serve as the Chairman of the Board. For these services he will receive
an annual base salary of not less than $760,000 and be entitled to participate
in (i) annual incentive compensation plans providing him with annual bonus
opportunities of not less than 60% of his annual base salary at target
performance and 120% of his annual base salary at maximum performance, (ii)
long term compensation plans and (iii) all retirement and welfare benefit
plans applicable generally to employees or senior executives of Sempra Energy.
Mr. Baum's employment agreement provides that he will serve as the Vice
Chairman of the Board, President and Chief Operating Officer of Sempra Energy
and as a member of its Office of the Chairman until June 26, 2000, the second
anniversary of the business combination; as the Vice-Chairman of the Board,
Chief Executive Officer and President from June 26, 2000 until September 1,
2000; and thereafter as the Chairman, Chief Executive Officer and President.
For these services, Mr. Baum will receive an annual base salary of not less
than $645,000 until June 26, 2000 (the period during which he serves as the
President and Chief Operating Officer) and thereafter (during the period in
which he will serve as the Chief Executive Officer and President) will receive
an annual base salary of no less than that of his predecessor as Chief
Executive Officer. He also will be entitled to participate in (i) annual
incentive compensation plans and long term compensation plans and awards
providing him with the opportunity to earn on a year-by-year basis, short term
and long term compensation at least equal (in terms of target, maximum and
minimum awards, expressed as a percentage of annual base salary) to the
greater of his opportunities in effect at Enova Corporation prior to the
completion of the business combination and the awards granted to the Chief
Executive Officer during the period in which he serves as the President and
Chief Operating Officer and (ii) all retirement and welfare benefit plans
applicable to employees or senior executives of Sempra Energy.
Mr. Mitchell's employment agreement provides that he will serve as President
and the principal executive officer of the businesses of Sempra Energy and its
subsidiaries that are economically regulated by the California Public
Utilities Commission. Mr. Felsinger's employment agreement provides that he
will serve as the President and principal executive officer of the businesses
of Sempra Energy and its subsidiaries that are not so regulated. As
compensation for these services, Messrs. Mitchell and Felsinger will each
receive an annual base salary of not less than $440,000 and be entitled to
participate in (i) annual incentive compensation plans and long term
compensation plans and awards providing them with an annual bonus opportunity
at least equal (in terms of target, maximum and minimum awards expressed as a
percentage of annual base salary) to their opportunities in effect at Pacific
Enterprises and Enova Corporation, respectively, prior to the completion of
the business combination and (ii) in all retirement and welfare benefit plans
applicable generally to employees or senior executive officers of Sempra
Energy.
The employment agreement of each of the four executives also provides that
if Sempra Energy terminates the executive's employment (other than for cause,
death or disability) or the executive terminates his employment for good
reason, the executive will be entitled to receive an amount equal to (i) the
sum of his annual base salary and annual incentive compensation (equal to the
greater of his target bonus for the year of termination or the average of the
three years' highest gross bonus awards in the five years preceding
termination) multiplied by two (or, in the case of Messrs. Baum and Felsinger,
the number of years remaining in the term of his agreement but in no event
less than two) provided that in the event of termination following a change in
control such multiplier will be three; (ii) a pro rata portion of the target
amount payable under any annual incentive compensation awards for the year or,
if greater, the average of the three years' highest gross bonus awards paid to
the executive in the five years preceding the year of termination; and (iii)
certain additional retirement benefits. In the case of Messrs. Farman and
Mitchell, the additional retirement benefit is the present value of the
benefits to which he would be entitled under Sempra Energy's defined benefit
pension and retirement plans if he continued working for an additional two
years and had increased his age by two years as of termination (in each case
three years in the event of a termination following a change of control), but
not beyond mandatory retirement age of 65. In the case of Messrs. Baum and
Felsinger, the additional retirement benefit is the present
32
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value of the benefits attributable to additional years of age and service
credit (but in no event less than two years) for purposes of the calculation
of retirement benefits under the Enova Corporation Supplemental Executive
Retirement Plan as if he had remained employed for the remainder of the term
of his agreement. Each agreement also provides for immediate vesting and
exercisability 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 three years;
payment of compensation previously deferred; and financial planning and
outplacement services. The agreements also provide for a gross-up payment to
offset the effects of any excise taxes imposed on the executive under Section
4999 of the Internal Revenue code.
Good reason is defined in the employment agreements to include an adverse
change in the executive's title, authority, duties, responsibilities or
reporting lines; a reduction in the executive's base salary or aggregate
annualized compensation and benefit opportunities; the relocation of the
executive's principal place of employment; and a substantial increase in
business travel obligations. A change in control is defined in the same manner
as in the Non-Employee Directors' Stock Plan and the definition is summarized
in this Proxy Statement under the caption "Proposal 2: Approval of 1998 Non-
Employee Directors' Stock Plan--General Provisions."
Severance Agreements
Sempra Energy has entered into severance agreements with each of its
executive officers, other than Messrs. Farman, Baum, Felsinger and Mitchell
for whom severance arrangements are contained in their respective employment
agreements summarized above. The severance agreements provide for the payment
of benefits in the event Sempra Energy terminates the executive's employment
(other than for cause, death or disability) or the executive terminates his or
her employment for good reason.
The benefits payable under the severance agreements include (i) a lump sum
cash payment equal to the executive's annual base salary and average annual
bonus for the two years prior to termination which, in certain cases depending
upon the officer's position is multiplied by as much as two; (ii) continuation
of health benefits for a period of two years; and (iii) financial planning and
outplacement services. In addition, if the termination occurs within two years
after a change in control of Sempra Energy, (i) the lump sum cash payment
multiple is increased to as much as three; (ii) all equity-based incentive
awards immediately vest and become exercisable or payable and all restrictions
on such awards immediately lapse; (iii) all deferred compensation is paid out
in a lump sum; (iv) a lump sum cash payment is made equal to the present value
of the executive's benefits under the Supplemental Executive Retirement Plan
calculated as if the executive had attained age 62 (or, if the executive is
older than 62, based on the executive's actual age) and applying certain early
retirement factors; and (v) continued life, disability, accident and health
insurance for three years. The agreements also provide for a gross up payment
to offset the effects of any excise tax imposed on the executive under Section
4999 of the Internal Revenue Code.
Good reason is defined in the severance agreements to include the assignment
to the executive of duties materially inconsistent with those appropriate for
an executive of the Company, a material reduction in the executive's overall
standing and responsibilities within the Company and a material reduction in
the executive's annualized compensation and benefit opportunities other than
across-the-board reductions affecting all similarly situated executives of
comparable rank. In addition, following a change in control of the Company,
good reason also includes an adverse change in the executive's title,
authority, duties, responsibilities or reporting lines, a 10% or greater
reduction in the executive's annualized compensation and benefit
opportunities, relocation of the executive's principal place of employment by
more than 30 miles or a substantial increase in business travel obligations. A
change in control is defined in the same manner as in the Non-Employee
Directors' Stock Plan and the definition is summarized in this Proxy Statement
under the caption "Proposal 2: Approval of 1998 Non-Employee Directors' Stock
Plan--General Provisions."
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<PAGE>
COMPARATIVE STOCK PERFORMANCE
Sempra Energy was formed in connection with a business combination of Pacific
Enterprises and Enova Corporation that was completed on June 26, 1998. In the
combination, the common shares of the combining companies were converted into
shares of Sempra Energy which began trading on June 29, 1998.
The following graph compares the percentage change in the cumulative total
shareholder return on Sempra Energy Common Stock during 1998 with the
performance over the same period of the Standard & Poor's 500 Composite Stock
Price Index and an Energy Company Peer Group Index comprised of energy and
energy-related companies selected by Sempra Energy. These returns were
calculated assuming an initial investment of $100 in Sempra Energy Common
Stock, the S&P 500 and the Energy Company Peer Group on June 29, 1998 (the date
on which Sempra Energy Common Stock became publicly traded) and the
reinvestment of all dividends.
[PERFORMANCE CHART APPEARS HERE]
TOTAL RETURN
Measurement Period SEMPRA S&P 500 PEER
(Fiscal Year Covered) ENERGY INDEX GROUP
- ------------------------ ------ ------- -----
Measurement Pt- 06/29/98 $100 $100 $100
FYE 07/31/98 $ 88 $ 99 $ 95
FYE 08/31/98 $ 89 $ 84 $ 97
FYE 09/30/98 $ 93 $ 90 $104
FYE 10/31/98 $ 92 $ 97 $101
FYE 11/30/98 $ 88 $103 $102
FYE 12/31/98 $ 92 $109 $104
The companies comprising the Energy Company Peer Group are Cinergy Corp., CMS
Energy Corporation, Columbia Energy Group, Consolidated Natural Gas Company,
Dominion Resources, Inc., Duke Energy Corporation, Edison International, Enron
Corp., FPL Group, Inc., KN Energy, Inc., MCN Energy Group, Inc., Nicor, Inc.,
Nipsco Industries, Inc., PacifiCorp, PG&E Corporation, Reliant Energy, Inc.,
The Southern Company, Texas Utilities Company, and Western Resources, Inc.
Cumulative total returns for companies comprising the Energy Company Peer Group
Index have been weighted according to the companies' market capitalizations at
the beginning of the comparison period.
34
<PAGE>
GENERAL INFORMATION
OTHER MATTERS TO COME BEFORE THE MEETING
A shareholder has advised the Company that he intends at the Annual Meeting
"to ask management to report as a 500-word presentation on steps Sempra Energy
is taking to make its corporate governance more competitive . . . ." The
Company's Chairman and Chief Executive Officer intends to address corporate
governance matters in his remarks at the meeting. It is unclear, however, if
the shareholder intends to bring a proposal for shareholder action at the
meeting or the specific actions that would be the subject of any such
proposal. The holders of the proxies are authorized to vote the shares
represented by the proxies in accordance with their best judgment on any
shareholder proposal or any other business that may come before the meeting
and on matters incident to the conduct of the meeting.
SHAREHOLDER PROPOSALS FOR THE 2000 PROXY STATEMENT
Any shareholder satisfying Securities and Exchange Commission requirements
and wishing to submit a proposal to be included in the Proxy Statement for the
2000 Annual Meeting of Shareholders should submit the proposal in writing to
the Corporate Secretary, Sempra Energy, 101 Ash Street, San Diego, California
92101-3017. The Company must receive the proposal by November 19, 1999 in
order to consider it for inclusion in the Proxy Statement for the meeting.
DIRECTOR NOMINEES OR OTHER BUSINESS FOR PRESENTATION AT ANNUAL MEETINGS
Shareholders who wish to present director nominations or other business at
an Annual Meeting are required to notify the Corporate Secretary of their
intention to do so at least 60 days, but not more than 120 days, before the
date corresponding to the date of the last Annual Meeting and the notice must
provide information as required in the By-laws. A copy of these By-law
requirements will be provided upon request in writing to the Corporate
Secretary, Sempra Energy, 101 Ash Street, San Diego, California 92101-3017.
The deadline for notification of these matters for the 1999 Annual Meeting has
passed and the period for notification for the 2000 Annual Meeting will begin
on January 5 and end on March 5, 2000. This requirement does not apply to the
deadline for submitting shareholder proposals for inclusion in the Proxy
Statement that is described above or to questions a shareholder may wish to
ask at the meeting.
INDEPENDENT AUDITORS
Representatives of Deloitte & Touche LLP, independent auditors for Sempra
Energy, are expected to be present at 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.
SHARE OWNERSHIP REPORTING COMPLIANCE
Sempra Energy's directors and executive officers are required to file with
the Securities and Exchange Commission reports regarding their ownership of
Sempra Energy Common Stock. Based solely on a review of copies of the reports
that have been furnished to it and written representations from directors and
officers that no other reports were required, the Company believes that all
filing requirements were met during 1998.
OTHER INFORMATION
Sempra Energy's consolidated financial statements are included in the Annual
Report to Shareholders that is being mailed to shareholders together with this
Proxy Statement. Other information regarding the Company is included in the
Annual Report on Form 10-K filed by the Company with the Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
New York and Pacific Stock Exchanges.
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<PAGE>
A copy of the 1998 Form 10-K (excluding exhibits) will be furnished, without
charge, to any shareholder who requests the report by writing to the Corporate
Secretary, Sempra Energy, 101 Ash Street, San Diego, California 92101-3017.
The Form 10-K, as well as other reports filed by the Company with the SEC and
other information regarding the company is also available at Sempra Energy's
home page on the internet's World Wide Web at http://sempra.com.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be paid by Sempra Energy. The company
has retained D. F. King & Co., Inc. to solicit proxies by mail, in person or
by telephone at an estimated cost of $12,500 plus reimbursement of reasonable
out-of-pocket expenses. In addition, employees of Sempra Energy may likewise
solicit proxies on behalf of the Company.
----------------
This Notice of Annual Meeting and Proxy Statement are sent by order of the
Sempra Energy Board of Directors.
Thomas C. Sanger
Corporate Secretary
Dated March 12, 1999
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APPENDIX
TO
PROXY STATEMENT
SEMPRA ENERGY
1998 LONG TERM INCENTIVE PLAN
1. Purpose. The purposes of the Sempra Energy 1998 Long Term Incentive Plan
(the "Plan") are to attract, retain and motivate officers and other key
employees of SEMPRA ENERGY, a California corporation (the "Company"), and its
Subsidiaries (as hereinafter defined), to compensate them for their
contributions to the growth and profits of the Company and to encourage
ownership by them of stock of the Company.
2. Definitions. For purposes of the Plan, the following terms shall be
defined as follows:
"Administrator" means the individual or individuals to whom the Committee
delegates authority under the Plan in accordance with Section 3(d).
"Affiliate" and "Associate" have the respective meanings ascribed to such
terms in Rule l2b-2 promulgated under the Exchange Act.
"Award" means an award made pursuant to the terms of the Plan to an
Eligible Individual in the form of Stock Options, Stock Appreciation
Rights, Restricted Stock Awards, Restricted Stock Units, Performance Share
Awards, Stock Awards, Section 162(m) Awards, dividend equivalents or other
awards determined by the Committee.
"Award Agreement" means a written agreement or certificate granting an
Award. An Award Agreement shall be executed by an officer on behalf of the
Company and shall contain such terms and conditions as the Committee deems
appropriate and that are not inconsistent with the terms of the Plan. The
Committee may, in its discretion, require that an Award Agreement be
executed by the Participant to whom the relevant Award is made.
"Beneficial Owner" has the meaning set forth in Rule 13d-3 under the
Exchange Act.
"Board" means the Board of Directors of the Company.
A "Change in Control" of the Company shall be deemed to have occurred
when:
(i) Any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing twenty percent
(20%) or more of the combined voting power of the Company's then
outstanding securities; or
(ii) The following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on
the Effective Date, constitute the Board and any new director (other
than a director whose initial assumption of office is in connection
with an actual or threatened election contest, including, but not
limited to, a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by the Board or
nomination for election by the Company's shareholders was approved or
recommended by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors on the date hereof or
whose appointment, election or nomination for election was previously
so approved or recommended; or
(iii) There is consummated a merger or consolidation of the Company
or any direct or indirect subsidiary of the Company with any other
corporation, other than (A) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior to such merger or consolidation continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any subsidiary of the Company,
at least sixty percent (60%) of the combined voting power of the
securities
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of the Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or (B) a
merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its affiliates other
than in connection with the securities acquired directly from the
Company or its affiliates other than in connection with the acquisition
by the Company or its affiliates of a business) representing twenty
percent (20%) or more of the combined voting power of the Company's
then outstanding securities; or
(iv) The shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the Company's
assets to an entity, at least sixty percent (60%) of the combined
voting power of the voting securities of which are owned by
shareholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale.
"Code" means the Internal Revenue Code of 1986, as amended, and the
applicable rulings and regulations thereunder.
"Committee" means the Compensation Committee of the Board, any successor
committee thereto or any other committee appointed by the Board to
administer the Plan.
"Common Stock" means the common stock, with no par value, of the Company.
"Eligible Individuals" means the individuals described in Section 6 who
are eligible to receive Awards under the Plan.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the applicable rulings and regulations thereunder.
"Fair Market Value" means, in the event that the Common Stock is traded
on a recognized securities exchange, the closing price of the Common Stock
on the date set for valuation, or in the event that the Common Stock is
quoted by the National Association of Securities Dealers Automated
Quotations on National Market Issues system, an amount equal to the average
of the high and low prices of the Common Stock on such quotations system on
the date set for valuation or, if no sales of Common Stock were made on
said exchange or so quoted such system on that date, the average of the
high and low prices of the Common Stock on the next preceding day on which
sales were made on such exchange or quotations system; or, if the Common
Stock is not so traded or quoted, that value determined, in its sole
discretion, by the Committee.
"Incentive Stock Option" means a Stock Option which is an "incentive
stock option" within the meaning of Section 422 of the Code and designated
by the Committee as an Incentive Stock Option in an Award Agreement.
"Nonqualified Stock Option" means a Stock Option which is not an
Incentive Stock Option.
"Parent" means any corporation which is a "parent corporation" within the
meaning of Section 424(e) of the Code with respect to the relevant entity.
"Participant" means an Eligible Individual to whom an Award has been
granted under the Plan.
"Performance Period" means a fiscal year of the Company or such other
period that may be specified by the Committee in connection with the grant
of a Section 162(m) Award.
"Performance Share Award" means a conditional Award of shares of Common
Stock granted to an Eligible Individual pursuant to Section 12 hereof.
"Person" means any person, entity or "group" within the meaning of
Section 13(d)(3) or Section14(d)(2) of the Exchange Act, except that such
term shall not include (i) the Company or any of its
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Subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, (iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company, or (v) a person or group as used in Rule
13dl(b) under the Exchange Act.
"Restricted Stock Award" means an Award of restricted shares of Common
Stock granted to an Eligible Individual pursuant to Section 10 hereof.
"Restricted Stock Units" means an Award of restricted share units as
described in Section 11 hereof.
"Section 162(m) Participant" means, for a given fiscal year of the
Company, any Participant who is a "covered employee" within the meaning of
the regulations promulgated under Section 162(m) of the Code.
"Stock Appreciation Right" means an Award to receive all or some portion
of the appreciation on shares of Common Stock granted to an Eligible
Individual pursuant to Section 9 hereof.
"Stock Award" means an Award of shares of Common Stock granted to an
Eligible Individual pursuant to Section 13 hereof.
"Stock Option" means an option to purchase shares of Common Stock granted
to an Eligible Individual pursuant to Section 8 hereof.
"Subsidiary" means (i) any majority-owned subsidiary of the Company and
(ii) any other corporation or other entity in which the Company, directly
or indirectly, has an equity or similar interest and which the Committee
designates as a Subsidiary for the purposes of the Plan.
"Substitute Award" means an Award granted upon assumption of, or in
substitution for, outstanding equity awards previously granted by a company
or other entity in connection with a corporate transaction, such as a
merger, combination, consolidation or acquisition of property or stock;
provided, however, that in no event shall the term "Substitute Award" be
construed to refer to an award made in connection with a cancellation and
repricing of a Stock Option.
3. Administration of the Plan.
(a) Power and Authority of the Committee. The Plan shall be administered
by the Committee, which shall have full power and authority, subject to the
express provisions hereof:
(i) to select Participants from among the Eligible Individuals;
(ii) to grant Awards in accordance with the terms of the Plan;
(iii) to determine the number of shares of Common Stock subject to
each Award or the cash amount payable in connection with an Award;
(iv) to determine the terms and conditions of each Award, including,
without limitation, those related to vesting, forfeiture, payment and
exercisability, and the effect, if any, of a Participant's termination
of employment with the Company or, subject to Section 19 hereof, of a
Change in Control on the outstanding Awards granted to such
Participant, and including the authority to amend the terms and
conditions of an Award after the granting thereof to a Participant in a
manner that is not prejudicial to the rights of such Participant;
(v) to accelerate the vesting or payment of any Award, the lapse of
restrictions on any Award or the date on which any Stock Option or
Stock Appreciation Right becomes exercisable;
(vi) to specify and approve the provisions of the Award Agreements
delivered to Participants in connection with their Awards;
(vii) to construe and interpret any Award Agreement delivered under
the Plan;
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(viii) subject to Section 20, to prescribe, amend and rescind
administrative rules and procedures relating to the Plan;
(ix) to vary the terms of Awards to take account of tax, securities
law and other regulatory requirements, including those of foreign
jurisdictions;
(x) subject to the provisions of the Plan and subject to such
additional limitations and restrictions as the Committee may impose, to
delegate to one or more officers of the Company some or all of its
authority under the Plan; and
(xi) to make all other determinations and to formulate such
procedures as may be necessary or advisable for the administration of
the Plan.
(b) Plan Construction and Interpretation. The Committee shall have full
power and authority, subject to the express provisions hereof, to construe
and interpret the terms of the Plan and any Award Agreement entered into
hereunder.
(c) Determinations of Committee Final and Binding. All determinations by
the Committee in carrying out and administering the Plan and in construing
and interpreting the Plan and any Award Agreement shall be final, binding
and conclusive for all purposes and upon all persons interested herein.
(d) Delegation of Authority. The Committee may, but need not, from time
to time delegate some or all of its authority under the Plan to an
Administrator consisting of one or more members of the Committee or of one
or more officers of the Company; provided, however, that the Committee may
not delegate its authority (i) to grant Awards to Eligible Individuals (A)
who are subject on the date of the grant to the reporting rules under
Section 16(a) of the Exchange Act, (B) who are Section 162(m) Participants
or (C) who are officers of the Company who are delegated authority by the
Committee hereunder, or (ii) under Sections 3(b) and 20 of the Plan. Any
delegation hereunder shall be subject to the restrictions and limits that
the Committee specifies at the time of such delegation or thereafter.
Nothing in the Plan shall be construed as obligating the Committee to
delegate authority to an Administrator, and the Committee may at any time
rescind the authority delegated to an Administrator appointed hereunder or
appoint a new Administrator. At all times, the Administrator appointed
under this Section 3(d) shall serve in such capacity at the pleasure of the
Committee. Any action undertaken by the Administrator in accordance with
the Committee's delegation of authority shall have the same force and
effect as if undertaken directly by the Committee, and any reference in the
Plan to the Committee shall, to the extent consistent with the terms and
limitations of such delegation, be deemed to include a reference to the
Administrator.
(e) Liability of Committee. No member of the Committee shall be liable
for anything whatsoever in connection with the administration of the Plan
except such person's own willful misconduct. Under no circumstances shall
any member of the Committee be liable for any act or omission of any other
member of the Committee. In the performance of its functions with respect
to the Plan, the Committee shall be entitled to rely upon information and
advice furnished by the Company's officers, the Company's accountants, the
Company's counsel and any other party the Committee deems necessary, and no
member of the Committee shall be liable for any action taken or not taken
in reliance upon any such advice.
4. Duration of Plan. The Plan shall remain in effect until it is terminated
by the Board of Directors (upon which Board action no further awards may be
granted hereunder) and thereafter until all Awards previously granted under
the Plan are satisfied by the issuance of shares of Common Stock or the
payment of cash or are terminated under the terms of the Plan or under the
Award Agreements entered into in connection with the grant thereof.
Notwithstanding the foregoing, the Plan shall automatically terminate unless
it is ratified by the Company's shareholders every ten years following the
Effective Date (as defined in Section 21 (j)).
5. Shares of Stock Subject to the Plan. Subject to adjustment as provided in
Section 15(b) hereof, the number of shares of Common Stock that may be granted
under the Plan pursuant to Awards during each full calendar year that the Plan
is in effect shall not exceed, in the aggregate, 1.5 % of the outstanding
shares of
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Common Stock as of the first day of the calendar year (the "Section 5 Limit").
Notwithstanding the foregoing, the number of shares of Common Stock available
for grant under the Plan during the 1998 calendar year shall be 3.4 million
shares. Such shares may be either authorized but unissued shares, treasury
shares or any combination thereof. For purposes of determining the number of
shares that remain available for issuance under the Plan, the following rules
shall apply:
(a) the number of Shares subject to outstanding Awards shall be charged
against the Section 5 Limit; and
(b) the Section 5 Limit shall be increased by:
(i) the number of shares subject to an Award (or portion thereof)
which lapses, expires or is otherwise terminated without the issuance
of such shares or is settled by the delivery of consideration other
than shares;
(ii) the number of shares tendered to pay the exercise price of a
Stock Option or other Award;
(iii) the number of shares withheld from any Award to satisfy a
Participant's tax withholding obligations or, if applicable, to pay the
exercise price of a Stock Option or other Award; and
(iv) the number of shares that were not made subject to Awards during
the previous year.
In addition, any shares underlying Substitute Awards shall not be counted
against the Section 5 Limit set forth in the first sentence of this Section
5.
6. Eligible Individuals.
(a) Eligibility Criteria. Awards may be granted by the Committee to
individuals ("Eligible Individuals") who are officers or other key
employees of the Company or a Subsidiary with the potential to contribute
to the future success of the Company or its Subsidiaries and have a
significant effect on the Company's growth and profitability. Members of
the Committee shall not be eligible to receive Awards under the Plan. An
individual's status as an Administrator will not affect his or her
eligibility to participate in the Plan.
(b) Maximum Number of Shares Per Eligible Individual. In accordance with
the requirements imposed under Section 162(m) of the Code, no Eligible
Individual shall receive grants of Awards with respect to an aggregate of
more than 1,000,000 shares of Common Stock in respect of any fiscal year of
the Company.
7. Awards Generally. Awards under the Plan may consist of Stock Options,
Stock Appreciation Rights, Restricted Stock Awards, Performance Share Awards,
Section 162(m) Awards or other awards determined by the Committee. The terms
and provisions of an Award shall be set forth in a written Award Agreement
that is approved by the Committee and delivered or made available to the
Participant as soon as practicable following the date of the Award. The
vesting, exercisability, payment and other restrictions applicable to an Award
(which may include, without limitation, restrictions on transferability or
provision for mandatory resale to the Company) shall be determined by the
Committee and set forth in the applicable Award Agreement. Notwithstanding the
foregoing, the Committee may accelerate (i) the vesting or payment of any
Award, (ii) the lapse of restrictions on any Award or (iii) the date on which
any Option or Stock Appreciation Right first becomes exercisable. The
Committee shall also have full authority to determine and specify in the
applicable Award Agreement the effect, if any, that a Participant's
termination of employment for any reason will have on the vesting,
exercisability, payment or lapse of restrictions applicable to an outstanding
Award. The date of a Participant's termination of employment for any reason
shall be determined in the sole discretion of the Committee.
8. Stock Options.
(a) Terms of Stock Options Generally. Subject to the terms of the Plan
and the applicable Award Agreement, each Stock Option shall entitle the
Participant to whom such Stock Option was granted to
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purchase the number of shares of Common Stock specified in the applicable
Award Agreement and shall be subject to the terms and conditions
established by the Committee in connection with the Stock Option and
specified in the applicable Award Agreement. Upon satisfaction of the
conditions to exercisability specified in the applicable Award Agreement, a
Participant shall be entitled to exercise the Stock Option in whole or in
part and to receive, upon satisfaction or payment of the exercise price or
an irrevocable notice of exercise in the manner contemplated by Section
8(d) below, the number of shares of Common Stock in respect of which the
Stock Option shall have been exercised. Stock Options may be either
Nonqualified Stock Options or Incentive Stock Options; provided, however,
that in no event shall the number of shares of Common Stock that may be
granted under the Plan pursuant to Incentive Stock Options exceed, in the
aggregate, 1,000,000 shares.
(b) Exercise Price. The exercise price per share of Common Stock
purchasable under a Stock Option shall be determined by the Committee at
the time of grant and set forth in the Award Agreement, provided, that the
exercise price per share of a Stock Option shall be no less than 100% of
the Fair Market Value per share on the date of grant. Notwithstanding the
foregoing, the exercise price per share of a Stock Option that is a
Substitute Award may be less than the Fair Market Value per share on the
date of grant, provided that the excess of:
(i) the aggregate Fair Market Value (as of the date such Substitute
Award is granted) of the shares subject to the Substitute Award; over
(ii) the aggregate exercise price thereof;
does not exceed the excess of:
(iii) the aggregate fair market value (as of the time immediately
preceding the transaction giving rise to the Substitute Award, such
fair market value to be determined by the Committee) of the shares of
the predecessor entity that were subject to the grant assumed or
substituted for by the Company; over
(iv) the aggregate exercise price of such shares.
(c) Option Term. The term of each Stock Option shall be fixed by the
Committee and set forth in the Award Agreement; provided, however, that a
Stock Option that is an Incentive Stock Option shall not be exercisable
after the expiration of ten (10) years after the date the Stock Option is
granted.
(d) Method of Exercise. Subject to the provisions of the applicable Award
Agreement, the exercise price of a Stock Option may be paid in cash or
previously owned shares or a combination thereof and, if the applicable
Award Agreement so provides, in whole or in part through the withholding of
shares subject to the Stock Option with a Fair Market Value equal to the
exercise price. In accordance with the rules and procedures established by
the Committee for this purpose, the Stock Option may also be exercised
through a "cashless exercise" procedure approved by the Committee involving
a broker or dealer approved by the Committee, that affords Participants the
opportunity to sell immediately some or all of the shares underlying the
exercised portion of the Stock Option in order to generate sufficient cash
to pay the Stock Option exercise price and/or to satisfy withholding tax
obligations related to the Stock Option.
(e) Deferral. In accordance with rules and procedures established by the
Committee, the Committee may permit a Participant at or after the time of
grant to defer receipt of the Common Stock underlying a Stock Option to one
or more dates elected by the Participant, subsequent to the date on which
such Stock Option is exercised. Shares that are deferred in accordance with
the preceding sentence shall be noted in a bookkeeping account maintained
by the Company for this purpose and may periodically be credited with
dividends, dividend equivalents, notional interest or earnings in
accordance with procedures established by the Committee in its discretion
from time to time. Deferred amounts shall be paid in cash, Common Stock or
other property, as determined by the Committee at or after the time of
deferral, on the date or dates elected by the Participant.
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9. Stock Appreciation Rights. Stock Appreciation Rights shall be subject to
the terms and conditions established by the Committee in connection with the
Award thereof and specified in the applicable Award Agreement. Upon
satisfaction of the conditions to the payment specified in the applicable
Award Agreement, each Stock Appreciation Right shall entitle a Participant to
an amount, if any, equal to the Fair Market Value of a share of Common Stock
on the date of exercise over the Stock Appreciation Right exercise price
specified in the applicable Award Agreement. At the discretion of the
Committee, payments to a Participant upon exercise of a Stock Appreciation
Right may be made in shares of Common Stock, cash or a combination thereof. A
Stock Appreciation Right may be granted alone or in addition to other Awards,
or in tandem with a Stock Option. If granted in tandem with a Stock Option, a
Stock Appreciation Right shall cover the same number of shares of Common Stock
as covered by the Stock Option (or such lesser number of shares as the
Committee may determine) and shall be exercisable only at such time or times
and to the extent the related Stock Option shall be exercisable, and shall
have the same term and exercise price as the related Stock Option. Upon
exercise of a Stock Appreciation Right granted in tandem with a Stock Option,
the related Stock Option shall be canceled automatically to the extent of the
number of shares covered by such exercise; conversely, if the related Stock
Option is exercised as to some or all of the shares covered by the tandem
grant, the tandem Stock Appreciation Right shall be canceled automatically to
the extent of the number of shares covered by the Stock Option exercised.
10. Restricted Stock Awards. Restricted Stock Awards shall consist of one or
more shares of Common Stock granted to an Eligible Individual, and shall be
subject to the terms and conditions established by the Committee in connection
with the Award and specified in the applicable Award Agreement. The shares of
Common Stock subject to a Restricted Stock Award may, among other things, be
subject to vesting requirements or restrictions on transferability. Except as
otherwise provided by the Committee in its sole discretion, a Participant
shall have all of the rights of a shareholder of the Company with respect to
the shares of Common Stock underlying a Restricted Stock Award, including the
right to vote the shares and the right to receive any cash dividends. Stock
dividends issued with respect to shares covered by a Restricted Stock Award
shall be treated as additional shares under the Restricted Stock Award and
shall be subject to the same terms and conditions that apply to the shares
with respect to which such dividends are issued. In no event shall the number
of shares of Common Stock granted in any calendar year under the Plan in
respect of Restricted Stock Awards exceed .5 % of the outstanding shares of
Common Stock as of the first day of the calendar year. Notwithstanding the
foregoing, the number of shares of Common Stock available for Restricted Stock
Awards under the Plan during the 1998 calendar year shall not exceed 1.1
million shares.
11. Restricted Stock Units. Restricted Stock Unit Awards shall consist of a
grant of units, each of which represents the right of the Participant to
receive one share of Common Stock, subject to the terms and conditions
established by the Committee in connection with the Award and set forth in the
applicable Award Agreement. Upon satisfaction of the conditions to vesting and
payment specified in the applicable Award Agreement, Restricted Stock Units
shall be payable, at the discretion of the Committee, in Common Stock, in cash
equal to the Fair Market Value of the shares subject to such Restricted Stock
Units, or in a combination of Common Stock and cash.
12. Performance Share Awards. Performance Share Awards shall be evidenced by
an Award Agreement in such form and containing such terms and conditions as
the Committee deems appropriate and which are not inconsistent with the terms
of the Plan. Each Award Agreement shall set forth the number of shares of
Common Stock to be earned by a Participant upon satisfaction of certain
specified performance criteria and subject to such other terms and conditions
as the Committee deems appropriate. Payment in settlement of a Performance
Share Award shall be made as soon as practicable following the conclusion of
the applicable performance period, or at such other time as the Committee
shall determine, in shares of Common Stock, in an equivalent amount of cash or
in a combination of Common Stock and cash, as the Committee shall determine.
13. Stock Awards. Stock Awards shall consist of one or more shares of Common
Stock granted to an Eligible Individual, and shall be subject to the terms and
conditions established by the Committee in connection
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with the Award and specified in the applicable Award Agreement. The shares of
Common Stock subject to a Stock Award may, among other things, be subject to
vesting requirements and restrictions on transferability.
14. Other Awards. The Committee shall have the authority to specify the
terms and provisions of other forms of equity-based or equity-related Awards
not described above which the Committee determines to be consistent with the
purpose of the Plan and the interests of the Company, which Awards may provide
for cash payments based in whole or in part on the value or future value of
Common Stock, for the acquisition or future acquisition of Common Stock, or
any combination thereof.
15. Section 162(m) Awards.
(a) Terms of Section 162(m) Awards Generally. In addition to any other
Awards under the Plan, the Company may make Awards that are intended to
qualify as "qualified performance-based compensation" for purposes of
Section 162(m) of the Code ("Section 162(m) Award"). Section 162(m) Awards
may consist of Stock Options, Stock Appreciation Rights, Restricted Stock
Awards, Restricted Stock Units, Performance Share Awards or Other Awards
the vesting, exercisability and/or payment of which is conditioned upon the
attainment for the applicable Performance Period of specified performance
targets related to designated performance goals for such period selected by
the Committee from among the performance goals specified in Section 15(b)
below. Section 162(m) Awards will be made in accordance with the procedures
specified in applicable Treasury regulations for compensation intended to
be "qualified performance-based compensation. "
(b) Performance Goals. For purposes of this Section 15, performance goals
shall be limited to one or more of the following: (i) net revenue; (ii) net
earnings; (iii) operating earnings or income; (iv) absolute and/or relative
return on equity or assets; (v) earnings per share; (vi) cash flow; (vii)
pretax profits; (viii) earnings growth; (ix) revenue growth; (x) book value
per share; (xi) stock price; (xii) economic value added; (xiii) total
shareholder return; (xiv) operating goals (including, but not limited to,
safety, reliability, maintenance expenses, capital expenses, customer
satisfaction and employee satisfaction); and (xv) performance relative to
peer companies, each of which may be established on a corporate-wide basis
or established with respect to one or more operating units, divisions,
acquired businesses, minority investments, partnerships or joint ventures.
(c) Other Performance-Based Compensation. The Committee's decision to
make, or not to make, Section 162(m) Awards within the meaning of this
Section 15 shall not in any way prejudice the qualification of any other
Awards as performance-based compensation under Section 162(m). In
particular, Awards of Stock Options may, pursuant to applicable regulations
promulgated under Section 162(m), be qualified as performance-based
compensation for Section 162(m) purposes without regard to this Section 15.
16. Dividend Equivalents. The Committee may provide that Awards under the
Plan earn dividend equivalents. Such dividend equivalents may be paid
currently or may be deferred and deemed reinvested in Common Stock in the same
manner as dividends reinvested pursuant to the terms of the Sempra Dividend
Reinvestment Plan. Any deferral of dividend equivalents shall be subject to
such restrictions and conditions as the Committee may determine in its
discretion, including, but not limited to, performance-based vesting
requirements.
17. Non-transferability. No Award granted under the Plan or any rights or
interests therein shall be sold, transferred, assigned, pledged or otherwise
encumbered or disposed of except by will or by the laws of descent and
distribution or pursuant to a "qualified domestic relations order" ("QDRO") as
defined in the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, and the rules and regulations thereunder; provided,
however, that the Committee may, subject to such terms and conditions as the
Committee shall specify, permit the transfer of an Award to a Participant's
family members or to one or more trusts or partnerships established in whole
or in part for the benefit of one or more of such family members; provided
further, however, that the restrictions set forth in this sentence shall not
apply to the shares received in connection with an Award after the date that
the restrictions on transferability of such shares set forth in the applicable
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Award Agreement have lapsed. During the lifetime of a Participant, a Stock
Option or Stock Appreciation Right shall be exercisable only by, and payments
in settlement of Awards shall be payable only to, the Participant or, if
applicable, the "alternate payee" under a QDRO or the family member or trust
to whom such Stock Option, Stock Appreciation Right or other Award has been
transferred in accordance with the previous sentence.
18. Recapitalization or Reorganization.
(a) Authority of the Company and Shareholders. The existence of the Plan,
the Award Agreements and the Awards granted hereunder shall not affect or
restrict in any way the right or power of the Company or the shareholders
of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of stock or
of options, warrants or rights to purchase stock or of bonds, debentures,
preferred or prior preference stocks whose rights are superior to or affect
the Common Stock or the rights thereof or which are convertible into or
exchangeable for Common Stock, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
(b) Change in Capitalization. Notwithstanding any provision of the Plan
or any Award Agreement, in the event of any change in the outstanding
Common Stock by reason of a stock dividend, recapitalization,
reorganization, merger, consolidation, stock split, combination or exchange
of shares affecting the Common Stock, the Committee shall make (i) such
proportionate adjustments it considers appropriate (in the form determined
by the Committee in its sole discretion) to prevent diminution or
enlargement of the rights of Participants under the Plan with respect to
the aggregate number of shares of Common Stock for which Awards in respect
thereof may be granted under the Plan, the number of shares of Common Stock
covered by each outstanding Award, and the exercise prices in respect
thereof and/or (ii) such other equitable adjustments as it deems
appropriate in the interests of the holders of Awards. The Committee's
determination as to what, if any, adjustments shall be made shall be final
and binding on the Company and all Participants.
19. Change in Control. In the event of a Change in Control (i) all Stock
Options or Stock Appreciation Rights then outstanding shall automatically
become fully vested and exercisable as of the date of the Change in Control,
(ii) all restrictions and conditions of all Restricted Stock Awards then
outstanding shall lapse as of the date of the Change in Control, and (iii) all
Performance Share Awards shall be deemed to have been earned out in a manner
set forth in the applicable Award Agreement. In addition to the foregoing, in
the case of a Change in Control involving a merger of, or consolidation
involving, the Company in which the Company is (A) not the surviving
corporation (the "Surviving Entity") or (B) becomes a wholly owned subsidiary
of the Surviving Entity or any Parent thereof, each outstanding Stock Option
granted under the Plan and not exercised (a "Predecessor Option") will be
converted into an option (a "Replacement Option") to acquire common stock of
the Surviving Entity or its Parent, which Replacement Option will have
substantially the same terms and conditions as the Predecessor Option, with
appropriate adjustments as to the number and kind of shares and exercise
prices. Notwithstanding the foregoing, in the event of a Change in Control,
the Committee expressly reserves the discretion to cancel all outstanding
Stock Options, effective as of the date of the Change in Control, in exchange
for a cash payment to be made to each of the Participants within five business
days following the Change in Control in an amount equal to the excess of the
fair market value of the Company's Common Stock on the date of the Change in
Control over the exercise price of each such Stock Option, multiplied by the
number of shares that are subject to such option. Notwithstanding the
foregoing, in the event that the Company becomes a party to a transaction that
is intended to qualify for "pooling of interests" accounting treatment and,
but for one or more of the provisions of this Plan or any Award Agreement
would so qualify, then this Plan and any Award Agreement shall be interpreted
so as to preserve such accounting treatment, and to the extent that any
provision of the Plan or any Award Agreement would disqualify the transaction
from pooling of interests accounting treatment (including, if applicable, an
entire Award Agreement), then such provision shall be null and void. All
determinations to be made in connection with the preceding sentence shall be
made by the
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independent accounting firm whose opinion with respect to "pooling of
interests" treatment is required as a condition to the Company's consummation
of such transaction.
20. Amendment of the Plan. The Board or Committee may at any time and from
time to time terminate, modify, suspend or amend the Plan in whole or in part;
provided, however, that no such termination, modification, suspension or
amendment shall be effective without shareholder approval if such approval is
required to comply with any applicable law or stock exchange rule; and
provided further, that the Board or Committee may not, without shareholder
approval, increase the Section 5 Limit except as provided in Section 18(b)
above. No termination, modification, suspension or amendment of the Plan
shall, without the consent of a Participant to whom any Award shall previously
have been granted, adversely affect his or her rights under such Awards.
Notwithstanding any provision herein to the contrary, the Board or Committee
shall have broad authority to amend the Plan or any Award to take into account
changes in applicable tax laws, securities laws, accounting rules and other
applicable state and federal laws.
21. Miscellaneous.
(a) Tax Withholding. No later than the date as of which an amount first
becomes includable in the gross income of the Participant for applicable
income tax purposes with respect to any grant under the Plan, the
Participant shall pay to the Company or make arrangements satisfactory to
the Committee regarding the payment of any federal, state or local taxes of
any kind required by law to be withheld with respect to such amount. Unless
otherwise determined by the Committee, in accordance with rules and
procedures established by the Committee, the minimum required withholding
obligations may be settled with Common Stock, including Common Stock that
is part of the grant that gives rise to the withholding requirement. The
obligations of the Company under the Plan shall be conditioned upon such
payment or arrangements and the Company shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Participant.
(b) No Right to Grants or Employment. No Eligible Individual or
Participant shall have any claim or right to receive grants of Awards under
the Plan. Nothing in the Plan or in any Award Agreement shall confer upon
any employee of the Company or any Subsidiary any right to continued
employment with the Company or any Subsidiary, as the case may be, or
interfere in any way with the right of the Company or a Subsidiary to
terminate the employment of any of its employees at any time, with or
without cause.
(c) Unfunded Plan. The Plan is intended to constitute an unfunded plan
for incentive compensation. With respect to any payments not yet made to a
Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general creditor of
the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created
under the Plan to deliver Common Stock or payments in lieu thereof with
respect to grants hereunder.
(d) Other Employee Benefit Plans. Amounts received by a Participant with
respect to any Award made pursuant to the provisions of the Plan shall not
be included in, nor have any effect on, the determination of benefits under
any other employee benefit plan or similar arrangement provided by the
Company.
(e) Securities Law Restrictions. The Committee may require each Eligible
Individual purchasing or acquiring shares of Common Stock pursuant to a
Stock Option or other Award under the Plan to represent to and agree with
the Company in writing that such Eligible Individual is acquiring the
shares for investment and not with a view to the distribution thereof. All
certificates for shares of Common Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission or any exchange upon
which the Common Stock is then listed, and any applicable federal or state
securities law, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such
restrictions. No shares of Common Stock shall be issued hereunder unless
the
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Company shall have determined that such issuance is in compliance with, or
pursuant to an exemption from, all applicable federal and state securities
laws.
(f) Compliance with Rule 16b-3.
(i) The Plan is intended to comply with Rule 16b-3 under the Exchange
Act or its successor under the Exchange Act and the Committee shall
interpret and administer the provisions of the Plan or any Award
Agreement in a manner consistent therewith. To the extent any provision
of the Plan or Award Agreement or any action by the Committee fails to
so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Committee. Moreover, in the event the
Plan or an Award Agreement does not include a provision required by
Rule 16b-3 to be stated therein, such provision (other than one
relating to eligibility requirements, or the price and amount of
Awards) shall be deemed automatically to be incorporated by reference
into the Plan or such Award Agreement insofar as Participants subject
to Section 16 of the Exchange Act are concerned.
(ii) Notwithstanding anything contained in the Plan or any Award
Agreement to the contrary, if the consummation of any transaction under
the Plan would result in the possible imposition of liability on a
Participant pursuant to Section 16(b) of the Exchange Act, the
Committee shall have the right, in its sole discretion, but shall not
be obligated, to defer such transaction to the extent necessary to
avoid such liability.
(g) Award Agreement. In the event of any conflict or inconsistency
between the Plan and any Award Agreement, the Plan shall govern, and the
Award Agreement shall be interpreted to minimize or eliminate any such
conflict or inconsistency.
(h) Expenses. The costs and expenses of administering the Plan shall be
borne by the Company.
(i) Applicable Law. Except as to matters of federal law, the Plan and all
actions taken thereunder shall be governed by and construed in accordance
with the laws of the State of California without giving effect to conflicts
of law principles.
(j) Effective Date. The Plan shall be effective as of the Effective Time
of the business combination of Pacific Enterprises and Enova Corporation,
pursuant to which such corporations will become subsidiaries of the Company
(the "Effective Date"), subject to the approval by the Company's
shareholders of the Plan at or prior to the first annual meeting of the
Company's shareholders after the Effective Date. If shareholder approval is
not obtained at or prior to the first annual meeting of the shareholders of
the Company, the Plan and any Awards granted thereunder shall terminate ab
initio and be of no further force and effect.
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DIRECTIONS TO THE DEL MAR FAIRGROUNDS
(Solana Gate Entrance, Mission Tower Building)
[Map Appears Here]
FROM THE NORTH--DRIVING SOUTH ON INTERSTATE 5
Take I-5 South to Via de la Valle exit. Turn West (right) into Via de la Valle.
Pass the electronic sign and Jimmy Durante Blvd. Take the next left onto the
Solana Gate entrance. Once inside, follow the "Sempra Energy" signs to the
Mission Tower Building. Parking is adjacent to the building.
FROM THE EAST (ESCONDIDO)--DRIVING WEST ON HWY. 78
Take Hwy. 78 West to I-5 South. Take I-5 South to Via de la Valle exit. Turn
West (right onto Via de la Valle. Pass the electronic sign and Jimmy Durante
Blvd. Take the next left into the Solana Gate entrance. Once inside, follow the
"Sempra Energy" signs to the Mission Tower Building. Parking is adjacent to the
building.
FROM THE EAST--DRIVING WEST ON INTERSTATE 8
Take I-8 West to I-5 North. Take I-5 North to Via de la Valle exit. Turn West
(left) onto Via de la Valle. Pass the electronic sign and Jimmy Durante Blvd.
Take the next left into the Solana Gate entrance. Once inside, follow the
"Sempra Energy" signs to the Mission Tower Building. Parking is adjacent to the
building.
FROM THE SOUTH--DRIVING NORTH ON INTERSTATE 5
Take I-5 North to Via de la Valle exit. Turn West (left) onto Via de la Valle.
Pass the electronic sign and Jimmy Durante Blvd. Take the next left into the
Solana Gate entrance. Once inside, follow the "Sempra Energy" signs to the
Mission Tower Building. Parking is adjacent to the building.
<PAGE>
[LOGO OF SEMPRA ENERGY]
101 Ash Street
San Diego, CA 92101-3017
www.sempra.com
<PAGE>
PROXY
P
R Solicited on Behalf of the Board of Directors of
O
X SEMPRA ENERGY
Y
101 Ash Street, San Diego, California 92101-3017
Annual Meeting of Shareholders - May 4, 1999
STEPHEN L. BAUM, RICHARD D. FARMAN and THOMAS C. SANGER, jointly or individually
and with full power of substitution, are authorized to represent and vote the
shares of the undersigned at the 1999 Annual Meeting of Shareholders of Sempra
Energy, and at any adjournment or postponement thereof, as indicated on reverse
side.
This card also provides voting instructions for shares held in the Sempra Energy
Direct Stock Purchase Plan and Employee Savings Plans of Sempra Energy and its
subsidiaries as described under "Voting Information" in the accompanying Proxy
Statement.
(Continued and to be signed on other side)
[SEE REVERSE SIDE]
-- FOLD AND DETACH HERE --
DIRECTIONS TO THE DEL MAR FAIRGROUNDS
(Solana Gate Entrance, Mission Tower Building)
From the North--Driving South on Interstate 5
Take I-5 South to Via de la Valle exit. Turn West (right) onto Via de la Valle.
Pass the electronic sign and Jimmy Durante Blvd. Take the next left into the
Solana Gate entrance. Once inside, follow the "Sempra Energy" signs to the
Mission Tower Building. Parking is adjacent to the building.
From the East (Escondido)--Driving West on HWY. 78
Take Hwy. 78 West to I-5 South. Take I-5 South to Via de la Valle exit. Turn
West (right) onto Via de la Valle. Pass the electronic sign and Jimmy Durante
Blvd. Take the next left into the Solana Gate entrance. Once inside, follow
the "Sempra Energy" signs to the Mission Tower Building. Parking is adjacent to
the building.
From the East--Driving West on Interstate 8
Take I-8 West to I-5 North. Take I-5 North to Via de la Valle exit. Turn West
(left) onto Via de la Valle. Pass the electronic sign and Jimmy Durante Blvd.
Take the next left into the Solana Gate entrance. Once inside, follow the
"Sempra Energy" signs to the Mission Tower Building. Parking is adjacent to the
building.
From the South--Driving North on Interstate 5
Take I-5 North to Via de la Valle exit. Turn West (left) onto Via de la Valle.
Pass the electronic sign and Jimmy Durante Blvd. Take the next left into the
Solana Gate entrance. Once inside, follow the "Sempra Energy" signs to the
Mission Tower Building. Parking is adjacent to the building.
[MAP TO THE FAIRGROUNDS GOES HERE]
<PAGE>
[X] Please mark your 3278
votes as in this
example.
This Proxy when properly executed will be voted in the manner directed herein
by the undersigned shareholder(s). If no election is made, this Proxy will be
voted FOR each item.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends a vote "For" each item.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of [ ] [ ] 2. APPROVAL OF 1998 [ ] [ ] [ ]
Directors NOMINEES: NON-EMPLOYEE
DIRECTOR'S STOCK
For, except vote withheld from the Hyla H. Berisa PLAN
following nominee(s): Ann L. Burr
Richard A. Collato 3. APPROVAL OF EXECUTIVE [ ] [ ] [ ]
------------------------------------- Daniel W. Derbes INCENTIVE PLAN
Ignacio E. Lozano, Jr.
- -------------------------------------------------------------------------
4. APPROVAL OF 1998 LONG [ ] [ ] [ ]
TERM INCENTIVE PLAN
----------------------------------------------------
Please check here if you are planning to
attend the Annual Meeting in person. [ ]
Please check here if you want confidential
voting. [ ]
Please check here if you receive more than
one Annual Report and do not wish to receive
the extra copy(ies). This will not affect
the distribution of dividends or proxy
statements. [ ]
</TABLE>
SIGNATURE (S) DATE
----------------------------- ----------------------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
FOLD AND DETACH HERE
[LOGO FOR SEMPRA ENERGY]
1999 ANNUAL MEETING OF SHAREHOLDERS
-----------------------------------
ADMISSION TICKET
-----------------------------------
Tuesday, May 4, 1999. 10:00 A.M.
-----------------------------------
ADMIT ONE SHAREHOLDER AND GUEST
-----------------------------------
Del Mar Fairgrounds
Solana Gate Entrance . Mission Tower Building . Del Mar, CA
(See map on reverse side for directions)
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT:
Even if you plan to attend the Annual Meeting in person, please
complete, date and sign your proxy card and
promptly return it in the enclosed postage-paid envelope.
- --------------------------------------------------------------------------------
Doors will be open at 9:00 a.m. Cameras, tape recorders and similar devices
will not be allowed in the meeting room.
