SCHEDULE 14C INFORMATION
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Pacific Enterprises
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Notes:
PACIFIC ENTERPRISES
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NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
----------------
The Annual Meeting of Shareholders of Pacific Enterprises will be held on
May 10, 2001 at 10:00 a.m. at the offices of Sempra Energy, 101 Ash Street,
San Diego, California, for the following purposes:
(1) To elect directors for the ensuing year.
(2) To transact any other business that may properly come before the
meeting.
Shareholders of record at the close of business on March 22, 2001 are
entitled to notice of and to vote at the Annual Meeting.
The Annual Meeting is a business-only meeting. It will not include any
presentations by management.
Only shareholders of Pacific Enterprises may attend the Annual Meeting.
Shareholders who own shares registered in their names will be admitted to the
meeting upon verification of record share ownership. Shareholders who own
shares through banks, brokerage firms, nominees or other account custodians
must present proof of beneficial share ownership (such as a brokerage account
statement) to be admitted.
By Order of the Board of Directors
San Diego, California
March 22, 2001
PACIFIC ENTERPRISES
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INFORMATION STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
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WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
Pacific Enterprises is providing this Information Statement in connection
with its Annual Meeting of Shareholders being held on May 10, 2001. It is
being mailed to shareholders commencing April 5, 2001.
PACIFIC ENTERPRISES
Pacific Enterprises is the parent corporation of Southern California Gas
Company, a public utility supplying natural gas throughout most of Southern
and portions of Central California. The Gas Company is the nation's largest
natural gas distribution utility.
On June 26, 1998, Pacific Enterprises and Enova Corporation (the parent
corporation of San Diego Gas & Electric Company) completed a business
combination in which the two companies became separate subsidiaries of Sempra
Energy, a newly formed holding company. In the combination, Pacific
Enterprises Common Stock and Enova Corporation Common Stock were converted
into Sempra Energy Common Stock. Pacific Enterprises Preferred Stock was
unaffected by the business combination and remains outstanding.
Pacific Enterprises' principal executive offices are located at 101 Ash
Street, San Diego, California. Its telephone number is (619) 696-2034.
OUTSTANDING SHARES AND VOTING RIGHTS
Shareholders who are present at the Annual Meeting will be entitled to one
vote for each Pacific Enterprises share which they held of record at the close
of business on March 22, 2001. At that date, the outstanding shares consisted
of 83,917,664 shares of Common Stock, all of which is owned by Sempra Energy,
and 800,253 shares of Preferred Stock, all of which is publicly held. The
shares owned by Sempra Energy represent over 99% of the outstanding shares.
In electing directors, each share is entitled to one vote for each of the
twelve director positions but cumulative voting is not permitted.
GOVERNANCE OF THE COMPANY
Board of Directors
The business and affairs of Pacific Enterprises are managed under the
direction of its 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 strategic, operating and financial
presentations made at board and committee meetings by officers and others.
Shareholders who wish to suggest qualified candidates for consideration by
the Corporate Governance Committee as directors of Pacific Enterprises should
write to: Corporate Secretary, Pacific Enterprises, 101 Ash Street, San Diego,
California, 92101-3017, stating in detail the qualifications of the suggested
candidates.
1
During 2000, the Board of Directors held eleven meetings. The standing
committees listed below assisted the board in carrying out its duties.
Committees Of the Board
Audit Compensation Corporate Governance Executive Finance Public Policy
----- ---------------------- --------------------- --------------------- ----------------------- ------------------
Richard A. Richard J. Stegemeier, Hyla H. Bertea, Stephen L. Baum, Daniel W. Derbes, Herbert L. Carter,
Collato, Chair Chair Chair Chair Chair
Chair
Ann L. Burr Hyla H. Bertea Ann L. Burr Herbert L. Carter Richard A. Collato Stephen L. Baum
Daniel W. Derbes Ralph R. Ocampo Richard J. Stegemeier Daniel W. Derbes Wilford D. Godbold, Jr. William D. Jones
Wilford D. Thomas C. Stickel Diana L. Walker Richard J. Stegemeier William D. Jones Ralph R. Ocampo
Godbold, Jr.
William G. Ouchi Thomas C. Stickel Diana L. Walker William G. Ouchi
Audit Committee
The Audit Committee met six times in 2000. Its duties and responsibilities
include:
. Assisting the Board of Directors in fulfilling its oversight
responsibilities for management's conduct of the financial reporting
processes.
. Recommending to the board the selection of independent auditors.
The charter of the Audit Committee is attached as the appendix to this Proxy
Statement.
Compensation Committee
The Compensation Committee met six times in 2000. Its duties and
responsibilities include:
. Establishing overall strategy with respect to compensation for directors
and senior officers.
. Evaluating the performance of the Chairman and Chief Executive Officer
for compensation purposes.
. Reviewing and approving individual salary adjustments and awards under
incentive plans for senior officers.
. Overseeing executive succession plans.
Corporate Governance Committee
The Corporate Governance Committee met three times in 2000. Its duties and
responsibilities include:
. 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 2000. The committee meets on call by
the Chairman of the Board during the intervals between board meetings and,
subject to some limitations, has all the authority of the board.
2
Finance Committee
The Finance Committee met five times in 2000. Its duties and
responsibilities include:
. 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 twice in 2000. Its duties and
responsibilities include:
. 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.
Directors' Compensation
All of the directors of Pacific Enterprises are also directors or officers
of Sempra Energy. They are not separately compensated for services as
directors of Pacific Enterprises.
Directors of Sempra Energy who are not also employees receive the following
retainer and fees for services as directors of Sempra Energy and its
subsidiaries:
Annual retainer................................................... $35,000
Attendance fee for each Board meeting............................. $ 1,000
Attendance fee for each Committee meeting......................... $ 1,000
Additional meeting fee for each Committee meeting chaired......... $ 1,000
Each director must elect to receive an annual minimum of $9,000 of his or
her director's fees in shares of Sempra Energy Common Stock or to defer that
amount into phantom shares of Sempra Energy Common Stock. Directors also may
elect to receive the balance of their fees in shares of Sempra Energy Common
Stock instead of cash or to defer the balance into an interest-bearing
account, a phantom investment fund, or phantom shares of Sempra Energy Common
Stock.
Upon becoming a director, each non-employee director of Sempra Energy is
granted a ten-year option to purchase 15,000 shares of Sempra Energy Common
Stock. At each annual meeting of Sempra Energy (other than the annual meeting
that coincides with or first follows the director's election to the board)
each non-employee director who continues to serve as a director is granted an
additional ten-year option for 5,000 shares. Each option is granted at an
option exercise price equal to the fair market value of the option shares at
the date the option is granted and becomes fully exercisable commencing with
the first annual meeting of Sempra Energy following the date of the grant or
the director's earlier death, disability, retirement or involuntary
termination of board service other than for cause.
Non-employee directors of Sempra Energy who were directors of Pacific
Enterprises or Enova Corporation at the time of the business combination of
the two companies (currently all of the 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 Pacific Enterprises or Enova
Corporation. The annual benefit is the sum of Sempra Energy's then current
annual retainer and ten times the then current board meeting fee.
3
INDEPENDENT AUDITORS
Representatives of Deloitte & Touche LLP, independent auditors for Pacific
Enterprises, 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.
Audit Fees
Fees of Deloitte & Touche LLP for the audit of Pacific Enterprises' 2000
financial statements were $436,900.
All Other Fees
Fees of Deloitte & Touche LLP for all other services provided to Pacific
Enterprises and its subsidiaries for 2000 were $15,694. The Audit Committee of
the Board of Directors has considered whether the provision of these services
is compatible with maintaining the independence of Deloitte & Touche LLP.
AUDIT COMMITTEE REPORT
In accordance with its written charter adopted by the Board of Directors,
the Audit Committee of the Board assists the Board in fulfilling its oversight
responsibilities for management's conduct of the Company's financial reporting
processes. The Committee consists of five independent directors.
The Audit Committee reviewed the audited financial statements of Pacific
Enterprises for the year ended December 31, 2000 with management and Deloitte
& Touche LLP, Pacific Enterprises' independent auditors.
The Audit Committee has discussed and reviewed with Deloitte & Touche LLP
all the matters required to be discussed by Statement on Auditing Standards
No. 61 (Communication with Audit Committees). It has also received and
reviewed the written disclosures and the letter from Deloitte & Touche LLP
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees) and has discussed with Deloitte & Touche
LLP their independence.
Based on this review and discussions, the Audit Committee recommended to the
Board of Directors that Pacific Enterprises' audited financial statements be
included in its Annual Report on Form 10-K for the year ended December 31,
2000, for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
Richard A. Collato, Chair
Ann L. Burr
Daniel W. Derbes
Wilford D. Godbold, Jr.
William G. Ouchi
March 6, 2001
4
SHARE OWNERSHIP
All of the outstanding Pacific Enterprises Common Stock is owned by Sempra
Energy and none of Pacific Enterprises' directors or executive officers owns
any Pacific Enterprises Preferred Stock. The following table sets forth the
number of shares of Sempra Energy Common Stock beneficially owned at February
15, 2000 by each director, by each of the current executive officers of
Pacific Enterprises named in the executive compensation tables of this
Information Statement and by all directors and executive officers of Pacific
Enterprises as a group. These shares, in the aggregate, represent less than 1%
of Sempra Energy's outstanding shares.
Sempra Energy Common Stock
Shares
Current Subject To
Beneficial Exercisable Phantom
Name Holdings Options(A) Shares(B) Total
- ---- ---------- ----------- --------- ---------
Frank H. Ault...................... 23,042 31,855 1,257 56,154
Stephen L. Baum.................... 90,704 328,525 106,579 525,808
Hyla H. Bertea..................... 9,630 25,000 5,256 39,886
Ann L. Burr........................ 2,315 25,000 -0- 27,315
Herbert L. Carter.................. 1,604 25,000 8,373 34,977
Richard A. Collato................. 4,566 25,000 -0- 29,566
Daniel W. Derbes................... 6,145 25,000 114 31,259
Wilford D. Godbold, Jr. ........... 3,006 25,000 3,195 31,201
William D. Jones................... 2,690 25,000 -0- 27,690
John R. Light...................... 19,521 114,660 11,695 145,876
Charles A. McMonagle............... 5,305 23,597 819 29,721
Ralph R. Ocampo.................... 14,702 25,000 9,463 49,165
William G. Ouchi................... 10,000 25,000 114 35,114
Neal E. Schmale.................... 21,416 159,774 38,230 219,420
Richard J. Stegemeier(C)........... 1,618 25,000 -0- 26,618
Thomas C. Stickel.................. 2,059 25,000 114 27,173
Diana L. Walker.................... 986 25,000 114 26,100
Directors and Executive Officers as
a group (17 persons).............. 219,309 958,411 185,323 1,363,043
- --------
(A) Shares which may be acquired through the exercise of stock options that
are exercisable on or before May 15, 2001.
(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.
(C) Mr. Stegemeier will retire as director before the Annual Meeting and the
authorized number of directors will be reduced to twelve to reflect his
retirement.
Share ownership guidelines have been established for directors and officers
to further strengthen the link between performance and officer/director
compensation. For non-employee directors the guideline is ownership of a
number of shares having a market value equal to four times the annual
retainer. For officers, the guidelines are:
Sempra Energy
Pacific Enterprises Executive Level Share Ownership Guidelines
----------------------------------- --------------------------
Chief Executive Officer......................... 4 x Base Salary
President....................................... 4 x Base Salary
Executive Vice Presidents....................... 3 x Base Salary
Senior Vice Presidents.......................... 2 x Base Salary
Other Vice Presidents........................... 1 x Base Salary
5
In setting the guidelines the board considered then current share ownership
levels and the desirability of encouraging further share ownership. The
officer guidelines were established in 1998 and the director guidelines in
2000. They are expected to be met or exceeded within five years from adoption.
For purposes of the guidelines, shares owned include phantom shares into which
compensation is deferred and the vested portion of certain in-the-money stock
options as well as shares owned directly or through benefit plans.
Sempra Energy has approximately 185,000 shareholders. The only person known
to Sempra Energy to own more than 5% of its shares is Barclays Trust and
Banking Company (Japan) Ltd. (Ebisu Prime Square Tower, 1-1-39 Hiroo, Shibuya-
Ku, Tokyo, Japan 150-8402), which on February 14, 2001 reported that it and
related entities held 10,326,404 shares of Sempra Energy Common Stock as to
which they had sole dispositive power (including 9,456,885 shares as to which
they had sole voting power) in trust accounts for the economic benefit of the
beneficiaries of those accounts. These shares represent approximately 5% of
the outstanding Sempra Energy Common Stock.
Employee savings and stock ownership plans of Sempra Energy and its
subsidiaries held 24,325,246 shares of Sempra Energy Common Stock
(approximately 12% of the outstanding shares) for the benefit of employees at
February 15, 2001.
6
ELECTION OF DIRECTORS
Pacific Enterprises' Board of Directors will consist of twelve directors
upon giving effect to the retirement of one director who will retire prior to
the Annual Meeting of Shareholders and a corresponding reduction in the
authorized number of directors.
At the Annual Meeting of Shareholders, twelve directors (comprising the
entire authorized number of directors) will be elected to hold office until
the next Annual Meeting and until their successors have been elected and
qualified. The twelve director candidates receiving the greatest number of
votes will be elected as directors.
The names of the Board of Directors' twelve nominees for election as
directors and biographical information regarding each nominee are set forth
below. Each nominee is a director of Sempra Energy. Unless otherwise noted,
each nominee has held his or her principal position or other positions with
the same or predecessor organizations for at least the last five years.
[PHOTO OF STEPHEN L. BAUM]
Stephen L. Baum, 60, is Chairman of the Board, President and Chief
Executive Officer of Sempra Energy and Pacific Enterprises. He is
a director of Computer Sciences Corporation.
[PHOTO OF HYLA H. BERTEA]
Hyla H. Bertea, 60, 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, 54, has been a director since 1998. She is an
Executive Vice President 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 the
Rochester Institute of Technology. She served as Chair of the
Board of Directors of the California Cable Television Association
and chaired its Telecommunications Policy Committee. She is a
former Chair of the Greater San Diego Chamber of Commerce Board of
Directors and the founder and former Chair of the Chamber's
Business Roundtable for Education and the San Diego Communications
Council.
[PHOTO OF HERBERT L. CARTER]
Herbert L. Carter, DPA, 67, has been a director since 1991. He has
served as 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 has served as a member of the
Board of Councilors of the School of Public Administration,
University of Southern California and the Board of Regents of
Loyola Marymount University.
[PHOTO OF RICHARD A. COLLATO]
Richard A. Collato, 57, has been a director since 1998. 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 former
trustee of Springfield College, and currently is a trustee of the
YMCA Retirement Fund and Bauce Foundation, and a director of Micro
Vision Optical, Inc. and Project Design Consultants.
7
[PHOTO OF DANIEL W. DERBES]
Daniel W. Derbes, 70, has been a director since 1998. 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 Chairman of the Board of
Directors of WD-40 Company and a trustee of the University of San
Diego.
[PHOTO OF WILFORD D. GODBOLD, JR.]
Wilford D. Godbold, Jr., 62, 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 Ceradyne, Inc. and K2, Inc., a trustee of the
Wellness Community, a past President of the Board of Trustees of
Marlborough School and a past Chairman of the Board of Directors
of the California Chamber of Commerce and The Employers Group.
[PHOTO OF WILLIAM D. JONES]
William D. Jones, 45, has been a director since 1998. 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 City Council member from 1982
to 1987. Mr. Jones is Chairman of the Board of the Los Angeles
Branch of the Federal Reserve Bank of San Francisco, 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., F.A.C.S., 69 has been a director since
1998. He is a practicing surgeon, Governor of the American College
of Surgeons, past President of the California Medical Association
and a Clinical Professor of Surgery at the University of
California, San Diego.
[PHOTO OF WILLIAM G. OUCHI]
William G. Ouchi, Ph.D., 57, has been a director since 1998. He is
the Sanford and Betty Sigoloff Professor in Corporate Renewal in
the Anderson Graduate School of Management at UCLA. Dr. Ouchi is a
director of Allegheny Technologies, EduVoice, FirstFed Financial
Corp., and Water-Pik Technologies. He is a trustee of Williams
College and a director of KCET Public Service Television.
[PHOTO OF THOMAS C. STICKEL]
Thomas C. Stickel, 51, has been a director since 1998. 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, a director
of Blue Shield of California and Del Mar Thoroughbred Club and
Vice Chairman of the California Chamber of Commerce.
[PHOTO OF DIANA L. WALKER]
Diana L. Walker, 59, has been a director since 1989. Mrs. Walker
is a partner and General Counsel of the law firm of O'Melveny &
Myers LLP. She is a former director of United Way of Greater Los
Angeles, and Emeritus Governor and 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
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Pacific Enterprises became a subsidiary of Sempra Energy in connection with
a business combination with Enova Corporation that was completed on June 26,
1998. All of its officers are also officers of Sempra Energy. They are
compensated by Sempra Energy and are not separately compensated for their
services as officers of Pacific Enterprises.
The Boards of Directors of Pacific Enterprises and Sempra Energy each
maintain a Compensation Committee comprised of independent directors. The
directors comprising the two committees are identical and the committees
typically meet in joint session.
The Compensation Committees have the responsibility for establishing
compensation principles and strategies, as well as designing a compensation
program for executive officers. Their responsibilities also include
administering a base salary program, executive annual and long term incentive
plans, and executive benefit and perquisite programs.
During 2000, the Compensation Committees conducted a review of the executive
compensation programs and policies of Sempra Energy and its subsidiaries that
were originally developed in 1998 in connection with the business combination
of Pacific Enterprises and Enova Corporation and were designed to assist the
companies in realizing the key objective of creating superior shareholder
value in a rapidly changing and increasingly competitive business environment.
The committees engaged nationally recognized compensation and benefit
consultants to assist with this review. The committees, also with the
assistance of a nationally recognized compensation firm, also reviewed board
compensation during 2000.
Compensation Principles and Strategies
In developing compensation principles and strategies, the Compensation
Committees considered the current and prospective business environment for
Sempra Energy and its subsidiaries and took into account numerous factors,
including:
. The rapidly changing and increasingly competitive environment in which
Sempra Energy and its subsidiaries 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 Committees approved the
continuation of the compensation program that had been developed in 1998 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.
. 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.
9
. 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 Committees also considered provisions of the Internal
Revenue Code limiting to $1 million the annual amount of compensation, other
than compensation that qualifies as "qualified performance-based
compensation," that publicly held corporations may deduct for federal income
tax purposes as compensation expense for each of certain executive officers.
The committees consider tax deductibility to be an important factor but only
one factor to be considered in evaluating any executive officer compensation
program. Accordingly, the committees intend to design programs that will
maximize federal income tax deductions for compensation expense to the extent
that doing so is consistent with the compensation principles and strategies of
Sempra Energy and its subsidiaries. The committees believe, however, that
there are circumstances in which the interests of shareholders may be best
served by providing compensation that is not fully tax deductible, and may
exercise discretion to provide compensation that will not qualify as a tax
deductible compensation expense.
Compensation Program
The primary components of the compensation program of Sempra Energy and its
subsidiaries 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 and, in general, are
targeted at the median of salaries for general industry companies of similar
size to Sempra Energy. This strategy, along with annual and long term
incentive opportunities at general industry levels, is intended to allow
Sempra Energy and its subsidiaries to retain and attract top quality executive
talent. However, the committees will continue to monitor this strategy as the
markets for executive talent change. In determining base salary adjustments,
the committees also take into account individual performance, executive
responsibilities, market characteristics and other factors.
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. The Compensation Committees believe that the Fortune 1000
appropriately reflects the broad group with which Sempra Energy and its
subsidiaries compete to retain and attract highly skilled and talented
executives.
Annual base salaries for executive officers of Sempra Energy and its
subsidiaries have been set at the approximate mid-point of these salary data.
For 2000, annual base salaries for Richard D. Farman, Chairman and Chief
Executive Officer, and Stephen L. Baum, Vice Chairman, President and Chief
Operating Officer were initially set at $975,000 and $855,000, respectively.
Following Mr. Farman's retirement, Mr. Baum became Chairman, President and
Chief Executive Officer and his annual base salary was increased to $975,000.
Annual Incentives
Annual cash bonus performance-based incentive opportunities are provided to
executive officers through the Sempra Energy Executive Incentive Plan. This
plan permits the payment of bonuses based upon the attainment of objective
financial performance goals. Bonus opportunities vary with the individual
officer's position and prospective contribution to the attainment of these
goals and no bonuses are paid unless a threshold performance level is attained
for the related performance period. Bonus opportunities increase for
performance above the threshold level. Performance at targeted levels is
intended to compensate executive officers with bonuses at the mid-point for
bonuses for comparable levels of responsibility at Fortune 1000 companies.
Executive Incentive Plan award levels for 2000 were based on attainment of
earnings per share goals with target award levels ranging from 80% of base
salary for Messrs. Farman and Baum to 45% of base salary for Vice Presidents,
with maximum award levels ranging from 160% to 90% of base salary. Upon his
retirement in
10
September 2000, Mr. Farman received a cash bonus of 80% of base salary
($780,000) based upon targeted performance for the year. Performance for the
year was at maximum bonus levels and resulted in a cash bonus of 160% of base
salary ($1,560,000) for Mr. Baum, with corresponding lesser amounts for other
executive officers.
Long Term Incentives
Long term incentive opportunities are provided by equity and equity-based
awards under Sempra Energy's Long Term Incentive Plan. The plan permits a wide
variety of awards to allow the Compensation Committees to respond to changes
in market conditions and compensation practices.
During 2000, Sempra Energy granted to executives and other employees of
Sempra Energy and its subsidiaries non-qualified stock options to purchase
Sempra Energy Common Stock. These option grants are described in this Proxy
Statement under the caption "Executive Compensation--Stock Options and Stock
Appreciation Rights."
Stock Ownership Guidelines
The Compensation Committees believe that a commitment to increased share
ownership by executives of Sempra Energy and its subsidiaries is an important
element in aligning the interests of executives with those of shareholders.
This belief has influenced the design of compensation plans and, in addition,
stock ownership guidelines have been established to further strengthen the
link between corporate performance and compensation. These guidelines are
discussed under the caption "Share Ownership."
COMPENSATION COMMITTEE
Richard J. Stegemeier, Chair
Hyla H. Bertea
Ralph R. Ocampo
Thomas C. Stickel
March 6, 2001
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EXECUTIVE COMPENSATION
Summary of Cash and Other Compensation
The table below summarizes, for the periods indicated, the compensation paid
or accrued by Sempra Energy and its predecessors and subsidiaries to each of
the executive officers of Pacific Enterprises named in the table.
Summary Compensation Table
Long Term Compensation
------------------------------
Annual Compensation Awards Payouts
------------------- ------------------ -----------
Securities LTIP All Other
Salary Underlying Payouts ($) Compensation
Name and Principal Position Year ($) Bonus ($) Options / SARS (#) (A) (B) ($) (C)
- --------------------------- ---- -------- ---------- ------------------ ----------- ------------
Stephen L. Baum............... 2000 $913,231 $1,560,000 982,500 $174,643 $ 234,177
Chairman, President and 1999 $762,616 $ 915,600 297,900 $179,465 $ 144,516
Chief Executive Officer 1998 $681,577 $ 891,136 167,900 $247,746 $1,494,258
John R. Light (D)............. 2000 $432,672 $ 519,600 136,800 $ 32,618 $ 158,383
Executive Vice President 1999 $415,754 $ 374,400 96,700 $ 29,308 $ 118,971
and General Counsel 1998 $292,308 $ 431,600 64,220 $ 35,539 $ 155,045
Neal E. Schmale............... 2000 $432,912 $ 519,600 136,800 $ -0- $ 79,653
Executive Vice President 1999 $415,754 $ 374,400 96,700 $ -0- $ 51,461
and Chief Financial Officer 1998 $414,731 $ 371,600 109,334 $ -0- $ 107,932
Frank H. Ault................. 2000 $227,948 $ 205,300 36,100 $ 25,154 $ 33,958
Vice President and Controller 1999 $217,964 $ 148,568 28,800 $ 33,079 $ 41,399
1998 $206,250 $ 168,568 16,860 $ 54,407 $ 343,070
Charles A. McMonagle.......... 2000 $184,712 $ 166,500 29,300 $ -0- $ 24,945
Vice President and Treasurer 1999 $167,885 $ 114,750 19,700 $ -0- $ 19,513
1998 $132,009 $ 70,344 12,844 $ -0- $ 128,436
Richard D. Farman (E)......... 2000 $670,095 $ 780,000 436,200 $ -0- $ 295,179
Chairman and Chief 1999 $914,307 $1,098,000 301,200 $ -0- $ 199,288
Executive Officer 1998 $728,718 $1,019,640 274,593 $ -0- $1,689,295
- --------
(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. No shares of restricted stock were granted in 2000.
(B) The aggregate holdings/value of restricted stock held on December 31, 2000
by the individuals listed in the table are: 32,229 shares/$749,324 for Mr.
Baum; 11,551 shares/$268,561 for Mr. Light; 9,956 shares/$231,477 for Mr.
Schmale; 3,351 shares/$77,911 for Mr. Ault; 1,908 shares/$44,361 for
Mr. McMonagle and 30,724 shares/$714,333 for Mr. Farman. 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 2000 were
$11,076, $151,269, $8,908, $55,424 and $7,500 for Mr. Baum; $-0-,
$111,971, $14,000, $25,412 and $7,000 for Mr. Light; $33,891, $1,670,
$12,880, $24,212 and $7,000 for Mr. Schmale; $2,212, $5,977, $6,274,
$12,495 and $7,000 for Mr. Ault; $728, $344, $7,330, $9,543 and $7,000 for
Mr. McMonagle; and $170,339, $56,450, $8,908, $54,367 and $5,115 for Mr.
Farman.
Amounts for 1998 also include incentive/retention bonus accruals under
agreements entered into in 1997 in connection with the business combination
of Pacific Enterprises and Enova Corporation. These amounts are
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$1,328,000 for Mr. Baum, $305,000 for Mr. Ault, $116,700 for Mr. McMonagle,
and $1,566,000 for Mr. Farman.
Amounts for Messrs. Light and Schmale for 1998 also include $150,000 and
$100,000, respectively, paid as signing bonuses.
(D) Mr. Light became an executive officer in April 1998.
(E) Mr. Farman retired as Chief Executive Officer in June and as Chairman of
the Board in September 2000.
Stock Options and Stock Appreciation Rights
The following table contains information concerning the grant of stock
options during 2000 to the executive officers of Pacific Enterprises named in
the Summary Compensation Table. All options are to purchase Sempra Energy
Common Stock, were granted at an exercise price of 100% of the fair market
value of the option shares on the date of the grant and are for a ten-year
term subject to earlier expiration following termination of employment.
OPTION / SAR GRANTS IN 2000
Number of % of Total
Shares Options / SARs
Underlying Granted to Exercise
Options / SARs Employees Price Expiration Grant Date
Name Granted (#) in 2000 ($/Sh) Date Present Value
- ---- -------------- -------------- -------- ---------- -------------
Stephen L. Baum......... 382,500(A) 8.82% $19.06 2/8/10 $1,453,500
600,000(B) 13.83% $18.19 6/26/10 $1,872,000
John R. Light........... 136,800(A) 3.15% $19.06 2/8/10 $ 519,840
Neal E. Schmale......... 136,800(A) 3.15% $19.06 2/8/10 $ 519,840
Frank H. Ault........... 36,100(A) 2.49% $19.06 2/8/10 $ 137,800
Charles A. McMonagle.... 29,300(A) 2.02% $19.06 2/8/10 $ 111,340
Richard D. Farman....... 436,200(A) 10.05% $19.06 2/8/10 $1,657,560
- --------
(A) Exercisable in cumulative installments of one-fourth of the shares
initially subject to the option on each of the first four anniversaries of
date of grant.
(B) Fully exercisable five years after the date of grant. Exercisability is
accelerated if certain price increases for Common Stock are attained.
The Company used a modified Black-Scholes option pricing model to develop
the theoretical values set forth under the "Grant Date Present Value" column.
Grant date present value for the options granted at $19.06 was $3.80 based on
the following assumptions: share volatility--19.35%; dividend yield--5.26%;
risk-free rate of return--6.71%; and outstanding term--10 years. Grant date
present value for the options granted at $18.19 was $3.12 based on the
following assumptions: share volatility--21.05% dividend yield--5.50%; risk-
free rate of return--6.32%; and outstanding term--10 years.
The following table shows information as to the exercise of options and
stock appreciation rights during 2000 and unexercised options and stock
appreciation rights held on December 31, 2000 by the executive officers named
in the Summary Compensation Table.
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Option / SAR Exercises and Holdings
Number of Securities
Underlying Unexercised Value of Unexercised
Options / SARs at In-the-Money Options /
Shares Year-End (#) SARs at Year-End ($)(A)
Acquired Value ------------------------- -------------------------
Name on Exercise(#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------------- -------- ----------- ------------- ----------- -------------
Stephen L. Baum......... -0- $ -0- 158,425 1,289,875 $ 167,569 $5,141,925
John R. Light........... -0- $ -0- 56,285 241,435 $ 54,394 $ 736,031
Neal E. Schmale......... -0- $ -0- 86,361 256,473 $ 54,394 $ 736,031
Frank H. Ault........... -0- $ -0- 15,630 66,130 $ 16,200 $ 199,769
Charles A. McMonagle.... -0- $ -0- 11,347 50,497 $ 11,081 $ 155,938
Richard D. Farman....... -0- $ -0- 702,803 761,050 $3,202,286 $2,334,863
- --------
(A) The exercise price of outstanding options ranges from $12.80 to $27.92.
Pension Plans
The following table shows the estimated single life annual pension annuity
benefit provided to the executive officers of Pacific Enterprises named in the
Summary Compensation Table under the Sempra Energy Supplemental Executive
Retirement Plan (combined with benefits payable under the other pension plans
of Pacific Enterprises and its affiliates 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)
Years of Service
Pension Plan ------------------------------------------------------------------
Compensation 5 10 20 30 40
------------ ---- ---- ------ ------ ------
$ 400 $ 80 $160 $ 240 $ 250 $ 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
$2,000 $400 $800 $1,200 $1,250 $1,300
$2,200 $440 $880 $1,320 $1,375 $1,430
$2,400 $480 $960 $1,440 $1,500 $1,560
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 includes service with subsidiaries and
number 16 years for Mr. Baum, three years for Mr. Schmale, three years for Mr.
Light, 31 years for Mr. Ault, 18 years for Mr. McMonagle and 22 years for Mr.
Farman.
Messrs. Baum, Light and Ault are each entitled to pension benefits at the
greater of that provided by Sempra Energy's pension plans or that to which he
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, upon retirement after attaining age 62 and having
completed ten years of service, Messrs. Baum and Ault would each be entitled
to a monthly pension benefit of 60% of his final pay and Mr. Light to a
monthly pension benefit of 50% of his final pay. Final pay is defined as the
monthly base pay rate in effect during the month immediately preceding
retirement, plus one-twelfth 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 62 and for between 5 and 10 years of service, and
surviving spouse and disability benefits equal to 50% and 100%, respectively,
of pension benefits.
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Employment and Employment-Related Agreements
Employment Agreement
Sempra Energy has an employment agreement with Stephen L. Baum providing 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
the agreement is automatically extended by one year on June 26, 2002 and on
each June 26 thereafter unless Mr. Baum or Sempra Energy elects not to extend
it.
The employment agreement provides that Mr. Baum will serve as the Chairman
of the Board, President, and Chief Executive Officer of Sempra Energy at an
annual base salary of not less than that of his predecessor as Chief Executive
Officer. It also provides that he is 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 his
predecessor as Chief Executive Officer and (ii) all retirement and welfare
benefit plans applicable to employees or senior executives of Sempra Energy.
The employment agreement also provides that if Sempra Energy or its
subsidiaries terminates Mr. Baum's employment (other than for cause, death or
disability) or he terminates his employment for good reason, he 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 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 the
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 him in the
five years preceding the year of termination; and (iii) certain additional
retirement benefits. The additional retirement benefit is the present 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.
The 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 agreement also provides for a gross-up payment to offset the
effects of any excise taxes imposed on him under Section 4999 of the Internal
Revenue Code.
Good reason is defined in the employment agreement to include an adverse
change in Mr. Baum's title, authority, duties, responsibilities or reporting
lines; a reduction in his base salary or aggregate annualized compensation and
benefit opportunities; the relocation of his principal place of employment;
and a substantial increase in his business travel obligations. A change in
control is defined 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 of Sempra Energy 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
Sempra Energy owning less than 60% of the voting power of Sempra Energy or of
the surviving entity or its parent; and shareholder approval of the
liquidation or dissolution of Sempra Energy.
Severance Agreements
Sempra Energy has a severance agreement with each of Pacific Enterprises'
executive officers, other than Mr. Baum for whom severance arrangements are
contained in his employment agreement summarized above. The severance
agreements provide for the payment of benefits in the event Sempra Energy or
its subsidiaries
15
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 multiplied, in certain cases
depending upon the officer's position, 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 the 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 Sempra Energy, a material reduction in the executive's overall
standing and responsibilities within Sempra Energy 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 Sempra Energy,
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, and a substantial increase in business travel obligations.
A change in control is defined in the same manner as in Mr. Baum's employment
agreement summarized above.
SHAREHOLDER PROPOSALS
Shareholders intending to bring any business before an Annual Meeting of
Shareholders of Pacific Enterprises, including nominations of persons for
election as directors, must give written notice to the Secretary of Pacific
Enterprises of the business to be presented. The notice must be received at
Pacific Enterprises' offices within the periods specified and must be
accompanied by the information required by the By-laws. A copy of these By-law
requirements will be provided upon request in writing to the Secretary of
Pacific Enterprises.
The period for notice of business to be brought by shareholders before the
2001 Annual Meeting of Shareholders has expired. The period for the receipt by
Pacific Enterprises of notice of business to be brought by shareholders before
the 2002 Annual Meeting of Shareholders will commence on January 10, 2002 and
end on March 11, 2002.
ANNUAL REPORTS
Pacific Enterprises' Annual Report to the Securities and Exchange Commission
on Form 10-K is being mailed to shareholders together with this Information
Statement.
16
Appendix to
Information Statement
Pacific Enterprises
Audit Committee Charter
Role
The primary purpose of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities for management's
conduct of the Company's financial reporting processes.
Membership and Meetings
The Audit Committee shall be comprised of not less than three members of the
Board of Directors. The Committee's composition will meet the requirements of
the New York Stock Exchange. Accordingly, the members of the Audit Committee
will be directors:
. None of whom have any relationship to the Company that may interfere
with the exercise of independence from management and the Company; and
. All of whom, as determined by the Board of Directors in its business
judgment, are financially literate or will become financially literate
within a reasonable period of time after appointment to the Committee
and at least one of whom, as so determined by the Board of Directors,
has accounting or related financial management expertise.
The Audit Committee will establish its meeting schedule, including executive
sessions with management, internal audit staff and the outside auditors.
Responsibilities
The Company's management is responsible for preparing the Company's
financial statements and the outside auditors are responsible for auditing the
financial statements. Additionally, the Company's financial management
including the internal audit staff, as well as the outside auditors, have more
time, knowledge and more detailed information of the Company than does the
Audit Committee. Consequently, the Audit Committee's role is one of oversight
and it does not provide any expert assurance or certification as to the
Company's financial statements or the work of the outside auditors or that of
the internal audit staff. However, the outside auditor and the director of
internal audit are ultimately accountable to the Board of Directors and the
Audit Committee.
The following functions are the common recurring activities of the Audit
Committee in carrying out its oversight function:
. The Audit Committee will review and discuss with management the audited
financial statements.
. The Audit Committee will discuss with the outside auditors the matters
required to be discussed by Statement of Auditing Standards No. 61.
. The Audit Committee will:
-- Annually request from the outside auditors, a formal written
statement delineating all relationships between the auditor and the
Company consistent with Independence Standards Board No. 1;
-- Discuss with the outside auditors any such disclosed relationships
and their impact on the outside auditors' independence; and
-- Recommend that the Board of Directors take appropriate action in
response to the outside auditors' report to satisfy itself of the
auditors' independence.
. The Audit Committee will discuss with management, the director of
internal audit and the outside auditors the adequacy of the Company's
internal controls.
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. The Audit Committee, based on the above review and discussions, will
make a recommendation to the Board of Directors as to the inclusion of
the Company's audited financial statements in the Company's Annual
Report to the Securities and Exchange Commission on Form 10-K.
. The Audit Committee has the responsibility to evaluate the outside
auditor and to recommend to the Board of Directors the retention of and,
where appropriate, replacement of the outside auditors.
. The Audit Committee will review the adequacy of this Charter on an
annual basis and recommend any changes believed to be appropriate to the
Board of Directors.
As adopted on March 7, 2000
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