UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal period from to
------------- ------------
Commission file number 0-8503
SEMCO Energy, Inc.
(formerly Southeastern Michigan Gas Enterprises, Inc.)
(Exact name of registrant as specified in its charter)
Michigan 38-2144267
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
405 Water Street, Port Huron, Michigan 48060
(Address of principal executive offices)
810-987-2200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of common stock outstanding as of April 30, 1997, is
12,368,135.
<PAGE>
INDEX TO FORM 10-Q
------------------
For Quarter Ended March 31, 1997
Page
Number
------
COVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 15
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
SEMCO ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars Except Per Share Amounts)
<CAPTION>
Three Twelve
Months Ended Months Ended
March 31, March 31,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUE
Gas sales $ 89,795 $ 87,963 $221,203 $202,703
Gas marketing 157,756 83,463 385,677 174,137
Transportation 3,952 3,518 12,792 12,423
Other operations 1,232 1,184 4,565 5,098
-------- -------- -------- --------
$252,735 $176,128 $624,237 $394,361
-------- -------- -------- --------
OPERATING EXPENSES
Cost of gas sold $ 64,276 $ 61,525 $153,886 $135,718
Cost of gas marketed 152,492 81,774 376,113 170,153
Operations and maintenance 12,681 11,068 42,282 37,996
Depreciation 3,112 2,863 11,566 11,912
Income taxes 5,082 4,795 6,658 6,961
Taxes other than income taxes 2,351 2,244 8,755 7,995
-------- -------- -------- --------
$239,994 $164,269 $599,260 $370,735
-------- -------- -------- --------
OPERATING INCOME $ 12,741 $ 11,859 $ 24,977 $ 23,626
Write-down of NOARK investment,
net of income taxes of $11,308 -- -- (21,000) --
OTHER INCOME (LOSS), NET 79 (274) (460) (243)
-------- -------- -------- --------
INCOME BEFORE INCOME DEDUCTIONS $ 12,820 $ 11,585 $ 3,517 $ 23,383
-------- -------- -------- --------
INCOME DEDUCTIONS
Interest on long-term debt $ 2,129 $ 2,128 $ 8,515 $ 8,517
Other interest 961 572 2,555 1,625
Amortization of debt expense 93 94 372 430
Dividends on preferred stock 48 49 193 195
-------- -------- -------- --------
$ 3,231 $ 2,843 $ 11,635 $ 10,767
-------- -------- -------- --------
NET INCOME (LOSS) $ 9,589 $ 8,742 $ (8,118) $ 12,616
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE $ .74 $ .67 $ (.62) $ .97
======== ======== ======== ========
CASH DIVIDENDS PER SHARE $ .19 $ .18 $ .75 $ .72
======== ======== ======== ========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (IN THOUSANDS) 13,021 13,014 13,019 13,028
======== ======== ======== ========
</TABLE>
The notes to the consolidated financial statements are an integral part of
these statements.
-3-
<PAGE>
<TABLE>
SEMCO ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
A S S E T S
<CAPTION>
(Unaudited) (Unaudited)
March 31, December 31, March 31,
1997 1996 1996
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
UTILITY PLANT
Plant in service, at cost $345,156 $342,778 $319,845
Less - Accumulated depreciation 98,099 96,391 90,558
-------- -------- --------
$247,057 $246,387 $229,287
OTHER PROPERTY, net 9,582 9,585 11,091
-------- -------- --------
$256,639 $255,972 $240,378
-------- -------- --------
CURRENT ASSETS
Cash and temporary cash investments,
at cost $ 8,006 $ 10,232 $ 4,100
Receivables, less allowances of
$1,291 at March 31, 1997, $1,247
at December 31, 1996 and $883
at March 31, 1996 47,929 43,585 52,779
Accrued revenue 47,671 76,549 47,352
Materials and supplies, at average cost 2,799 3,025 3,548
Gas in underground storage 5,314 33,596 4,735
Gas charges, recoverable from customers 10,586 13,791 5,131
Accumulated deferred income taxes 363 364 2,346
Other 5,837 10,040 3,375
-------- -------- --------
$128,505 $191,182 $123,366
-------- -------- --------
DEFERRED CHARGES
Unamortized debt expense $ 5,235 $ 5,328 $ 5,620
Deferred gas charges, recoverable
from customers 203 290 552
Advances to equity investees 5,910 5,062 4,218
Other 21,277 20,445 19,567
-------- -------- --------
$ 32,625 $ 31,125 $ 29,957
-------- -------- --------
$417,769 $478,279 $393,701
======== ======== ========
</TABLE>
The notes to the consolidated financial statements are an integral part of
these statements.
-4-
<PAGE>
<TABLE>
SEMCO ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
STOCKHOLDERS' INVESTMENT AND LIABILITIES
<CAPTION>
(Unaudited) (Unaudited)
March 31, December 31, March 31,
1997 1996 1996
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
COMMON STOCK EQUITY
Common stock-par value $1 per share,
20,000,000 shares authorized;
12,390,303, 12,400,331 and
11,806,066 shares outstanding $ 12,390 $ 12,400 $ 11,806
Capital surplus 79,299 79,489 80,035
Retained earnings (deficit) 5,645 (1,507) 23,514
-------- -------- --------
$ 97,334 $ 90,382 $115,355
-------- -------- --------
CUMULATIVE CONVERTIBLE PREFERRED STOCK
Convertible preferred stock - par value
$1 per share; authorized 500,000
shares issuable in series; each
convertible to 4.11 common shares $ 7 $ 7 $ 7
Capital surplus 162 162 165
-------- -------- --------
$ 169 $ 169 $ 172
-------- -------- --------
CUMULATIVE PREFERRED STOCK OF SUBSIDIARY
$100 par value (redemption price
$105 per share); authorized
50,000 shares issuable in series;
31,000 shares outstanding $ 3,100 $ 3,100 $ 3,100
-------- -------- --------
LONG-TERM DEBT INCLUDING CAPITAL LEASES $106,041 $106,468 $105,819
-------- -------- --------
CURRENT LIABILITIES
Notes payable to banks $ 61,400 $ 91,100 $ 42,500
Current portion of long-term debt
and capital leases 1,561 1,644 1,569
Accounts payable 49,746 91,360 52,617
Customer advance payments 1,893 5,612 1,596
Accrued taxes 6,014 243 6,742
Accrued interest 2,706 1,272 2,649
Other 6,939 6,998 5,319
-------- -------- --------
$130,259 $198,229 $112,992
-------- -------- --------
DEFERRED CREDITS
Reserve for equity investment $ 32,942 $ 32,942 $ --
Accumulated deferred income taxes 10,365 10,113 19,274
Unamortized investment tax credit 2,718 2,782 2,982
Customer advances for construction 8,483 8,621 9,251
Other 26,358 25,473 24,756
-------- -------- --------
$ 80,866 $ 79,931 $ 56,263
-------- -------- --------
$417,769 $478,279 $393,701
======== ======== ========
</TABLE>
The notes to the consolidated financial statements are an integral part of
these statements.
-5-
<PAGE>
<TABLE>
SEMCO ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $276,058 $142,595 $621,785 $339,807
Cash paid for payrolls and to suppliers (238,264) (121,573) (574,465) (302,748)
Interest paid (1,655) (1,266) (10,932) (10,259)
Income taxes paid -- -- (3,275) (4,169)
Taxes other than income taxes paid (980) (285) (8,892) (7,624)
Other cash receipts and payments, net 259 1,405 1,753 1,100
-------- -------- -------- --------
NET CASH FROM OPERATING ACTIVITIES $ 35,418 $ 20,876 $ 25,974 $ 16,107
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Natural gas distribution property additions $ (4,295) $ (4,931) $(29,533) $(28,290)
Other property additions (102) (107) (335) (744)
Property retirement costs, net of proceeds (14) 145 706 843
Proceeds from sale and leaseback of capital assets -- -- -- 3,737
Advances to equity investees (848) -- (1,692) (2,552)
-------- -------- -------- --------
NET CASH FROM INVESTING ACTIVITIES $ (5,259) $ (4,893) $(30,854) $(27,006)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock $ 1,273 $ 1,360 $ 5,045 $ 5,512
Repurchase of common stock (see note 3) (1,473) (1,902) (5,200) (6,931)
Net change in notes payable to banks (29,700) (9,200) 18,900 23,300
Repayment of long-term debt -- -- (15) (1,290)
Payment of dividends (2,485) (2,405) (9,944) (9,523)
-------- -------- -------- --------
NET CASH FROM FINANCING ACTIVITIES $(32,385) $(12,147) $ 8,786 $ 11,068
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS $ (2,226) $ 3,836 $ 3,906 $ 169
-------- -------- -------- --------
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of Period $ 10,232 $ 264 $ 4,100 $ 3,931
-------- -------- -------- --------
End of Period $ 8,006 $ 4,100 $ 8,006 $ 4,100
======== ======== ======== ========
RECONCILIATION OF NET INCOME TO
NET CASH FROM OPERATING ACTIVITIES
Net income (loss) $ 9,589 $ 8,742 $ (8,118) $ 12,616
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation 3,112 2,863 11,566 11,912
Write-down of NOARK investment, net -- -- 21,000 --
Deferred taxes and investment tax credits 189 30 4,117 476
Equity (income) loss, net of distributions 18 1,746 2,012 2,320
Receivables (4,344) (20,459) 4,850 (25,047)
Accrued revenue 28,878 (8,498) (319) (23,939)
Materials and supplies and gas in underground storage 28,508 15,169 170 2,843
Gas charges, recoverable from customers 3,205 723 (5,455) (1,550)
Other current assets 4,203 2,452 (3,088) 4,517
Accounts payable (41,614) 14,599 (2,871) 34,720
Customer advances and amounts payable to customers (3,857) (4,925) (471) (3,576)
Accrued taxes 5,771 6,038 (728) 2,449
Other, net 1,760 2,396 3,309 (1,634)
-------- -------- -------- --------
NET CASH FROM OPERATING ACTIVITIES $ 35,418 $ 20,876 $ 25,974 $ 16,107
======== ======== ======== ========
</TABLE>
The notes to the consolidated financial statements are an integral part of
these statements.
-6-
<PAGE>
SEMCO ENERGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES
Under the rules and regulations of the Securities and Exchange Commission
for Form 10-Q Quarterly Reports, certain footnotes and other financial
statement information normally included in SEMCO Energy, Inc.'s (the
Company's), formerly Southeastern Michigan Gas Enterprises, Inc.'s, year-end
financial statements have been condensed or omitted in the accompanying
unaudited financial statements. These financial statements prepared by the
Company should be read in conjunction with the financial statements and notes
thereto included in the Company's 1996 Annual Report on Form 10-K filed with
the Securities and Exchange Commission. The information in the accompanying
financial statements reflects, in the opinion of the Company's management, all
adjustments (which include only normal recurring adjustments) necessary for a
fair statement of the information shown, subject to year-end and other
adjustments, as later information may require.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Earnings Per Share. In February 1997 the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" ("SFAS 128"). In general, this statement requires replacement of
Primary EPS, which the company currently uses to calculate EPS, with Basic
EPS. Basic EPS is computed by dividing reported earnings available to
common share holders by weighted average shares outstanding. No dilution
for any potentially dilutive securities is included in the Basic EPS
calculation. Due to the fact that the Compan-y- has an immaterial amount
of dilutive securities, calculation of Basic EPS under the new standard
will not differ from the Company's current calculation.
Fully diluted EPS, now referred to as diluted EPS, is still required.
SFAS 128 is effective for financial statements for periods ending after
December 15, 1997. As of March 31, 1996, the Company did not have a
material amount of dilutive securities which would require the disclosure of
fully diluted EPS. Therefore, this statement does not have any impact on the
Company's current earnings per share calculation.
Stock-Based Compensation. In October 1995 the FASB issued SFAS 123,
"Accounting for Stock-Based Compensation." In general, SFAS 123 recommends
that all stock-based compensation given to employees in exchange for their
services be expensed based on the fair value of the stock instrument.
Companies may choose to continue accounting for these transactions under
previously existing accounting standards, however those companies must
disclose, in a footnote, net income and earnings per share as if SFAS 123
accounting had been applied.
-7-
<PAGE>
As of March 31, 1997, the Company did not have any material stock-based
compensation plans in effect. At the the Company's 1997 annual meeting in
April, however, shareholders approved a Long-Term Incentive Plan providing for
stock-based awards to key management personnel and directors. Awards would
take the form of one or more of the following: stock options, restricted
stock, stock appreciation rights, performance units and other stock incentives
deemed appropriate. Up to 500,000 shares of the Company's common stock would
be available for this plan.
(2) CAPITALIZATION
Common Stock Equity
- -------------------
On April 15, 1997, the Company's Board of Directors declared a regular
quarterly cash dividend on common stock of $.20 per share. In addition, the
Board declared a 5% common stock dividend. Both dividends are payable on
May 15 to shareholders of record on May 5. Earnings per common share, cash
dividends per common share and weighted average number of shares outstanding
give retroactive effect for all periods presented to the 5% stock dividends in
May 1997 and 1996.
In February 1997, the Company paid a quarterly cash dividend of $.20 per
share to its common shareholders. Of the total cash dividend of $2,437,000,
$863,000 was reinvested by shareholders into common stock through participation
in the Dividend Reinvestment and Common Stock Purchase Plan (DRIP). This
portion of the quarterly dividend and shareholders' optional cash payments of
$410,000, resulted in 64,138 new shares issued to existing shareholders during
the quarter pursuant to the DRIP.
The Company purchases shares of its own common stock in the open market
for reissuance pursuant to the DRIP. In the first quarter of 1997, the Company
purchased 74,166 shares for $1,473,000.
(3) COMMITMENTS AND CONTINGENCIES
SEMCO Arkansas Pipeline Company, a wholly-owned subsidiary of SEMCO Energy
Ventures, Inc. (Energy Ventures), has a 32% interest in a partnership which
operates the NOARK Pipeline System. NOARK is a 302-mile intrastate natural gas
pipeline, originating in northwest Arkansas and extending northeast across the
state.
The Company, SEMCO Arkansas Pipeline Company and Energy Ventures have
guaranteed 40% of the principal and interest payments on approximately
$80,912,500 of debt used to finance the pipeline. Of the total debt,
$52,762,500 is outstanding pursuant to a long-term arrangement requiring annual
principal payments of approximately $3,150,000 together with interest on the
unpaid balance. This arrangement matures in 2009 and has a fixed interest rate
of 9.7375%. The remaining debt is pursuant to a $30,000,000 multibank
revolving line of credit which currently matures April 26, 1998. Under the
terms of the credit agreement, NOARK may request, on an annual basis, a
one-year extension of the then-effective termination date. At March 31, 1997,
NOARK had $28,150,000 outstanding under the agreement with interest payments at
a variable interest rate.
-8-
<PAGE>
NOARK has been operating below capacity and generating losses since it was
placed in service. Operating cash flows have been insufficient to meet
principal and interest payments on the debt. The Company contributed $906,000
to NOARK in October 1994, $760,000 in January 1995, $800,000 in April 1995,
$880,000 in July 1995 and $872,000 in October 1995, in connection with its
guarantee.
In December 1995, NOARK received $6,000,000 in settlement of litigation
between Vesta Energy Company and the NOARK partners. Vesta paid the settlement
in consideration of termination of a firm transportation agreement with NOARK,
including all related contracts, and release from all obligations related to
the NOARK Pipeline System.
NOARK used the Vesta settlement to temporarily reduce outstanding
borrowings on its revolving line of credit. Therefore, the Company was not
required to make another contribution to NOARK until October 1996, when the
Company contributed $844,000. In January and April 1997, the Company
contributed an additional $848,000 and $816,000, respectively, and estimates
its required contributions to NOARK for the balance of 1997 to approximate
$1,600,000.
In December 1996, the Company recorded a one-time non-cash after-tax
charge against earnings of $21,000,000 on its investment and participation as a
general partner in NOARK. On a pre-tax basis, the charge against earnings
represents a significant portion of the Company's current investment, including
loan guarantees, in NOARK. The Company recorded this write-down due to its
inability to recover the carrying amount of its investment in NOARK, including
the loan guarantees. The Company recognized a loss in value of its NOARK
investment due to recurring losses generated by NOARK and NOARK's continued
inability to meet principal and interest payments on the partnership debt.
The Company's short-term credit arrangements, note agreements and
long-term debt indentures contain restrictive covenants requiring certain
levels of earnings and the maintenance of certain financial ratios. Because of
the NOARK write-down, the Company would have been in violation of certain of
these covenants, however the Company has received waivers or amendments for all
affected covenants.
The Company will continue to explore opportunities to improve the project,
but the write-down is expected to eliminate the need for significant NOARK
operating losses being recorded in the Company's future income statements and
will not affect the Company's cash or stock dividend.
The Company will continue to try to sell its interest in NOARK.
-9-
<PAGE>
PART I - FINANCIAL INFORMATION - (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Net income for the quarter ended March 31, 1997 was $9,589,000 ($.74 per
share) compared to $8,742,000 ($.67 per share) for the quarter ended March 31,
1996.
For the twelve months ended March 31, 1997, the Company recorded a net
loss of $8,118,000 ($.62 per share), which includes the December 1996
$21,000,000 after-tax write-down of the Company's investment in the NOARK
Pipeline System (NOARK). Excluding the NOARK write-down, the Company's net
income was $12,882,000 ($.99 per share). This compares to net income of
$12,616,000 ($.97 per share) for the twelve months ended March 31, 1996.
Since the Company's primary business of natural gas distribution depends
upon the winter months for the majority of its operating revenue, a substantial
portion of the annual results of operations is earned during the first quarter
of the year. Therefore, the Company's results of operations for the
three-month periods ended March 31, 1997 and 1996 are not necessarily
indicative of results for a full year.
See Note 3 in the notes to the consolidated financial statements for a
discussion of commitments and contingencies.
A comparison of quarterly and twelve-month-to-date revenues, margins and
system throughput follows on the next page.
-10-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
--------------------- ---------------------
1997 1996 1997 1996
-------- ------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C> <C>
Operating Revenue
Gas Sales
Residential $ 57,063 $55,319 $140,388 $127,256
Commercial 27,614 26,576 66,547 60,305
Industrial 5,118 6,068 14,268 15,142
-------- ------- -------- --------
$ 89,795 $87,963 $221,203 $202,703
Cost of Gas Sold 64,276 61,525 153,886 135,718
-------- ------- -------- --------
Gross Margin $ 25,519 $26,438 $ 67,317 $ 66,985
======== ======= ======== ========
Gas Marketing $157,756 $83,463 $385,677 $174,137
Cost of Gas Marketed 152,492 81,774 376,113 170,153
-------- ------- -------- --------
$ 5,264 $ 1,689 $ 9,564 $ 3,984
======== ======= ======== ========
Transportation Revenue $ 3,952 $ 3,518 $ 12,792 $ 12,423
======== ======= ======== ========
Other $ 1,232 $ 1,184 $ 4,565 $ 5,098
======== ======= ======== ========
<CAPTION>
(in millions of cubic feet)
<S> <C> <C> <C> <C>
Gas Volumes
Gas Sales
Residential 11,489 12,096 26,096 26,369
Commercial 5,886 6,103 13,453 13,487
Industrial 1,149 1,544 2,990 3,588
-------- ------- -------- --------
18,524 19,743 42,539 43,444
======== ======= ======== ========
Gas Marketing 54,245 30,274 153,399 85,609
======== ======= ======== ========
Gas Transported 6,270 5,947 20,855 22,311
======== ======= ======== ========
Degree Days - Actual 3,168 3,546 6,721 7,457
- Percent of Normal 96% 108% 99% 110%
Gas Sales Customers-Average 235,515 227,558 230,790 223,887
</TABLE>
QUARTER RESULTS
Gross margin on gas sales from the Company's gas utility operations
decreased by $919,000 (3.5%) as gas volumes sold for the three month period
ended March 31, 1997 decreased 6% from the same period in 1996. Volumes
decreased, despite the addition of over 7,900 customers (3.5%), primarily due
to 11% warmer temperatures.
-11-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
SEMCO Energy Services, Inc. (Energy Service), a wholly owned subsidiary of
the Company, posted increased gas marketing revenue of $74,293,000 (89%) on
increased volumes totaling 23,971,000 thousand cubic feet (Mcf) (79%). This
resulted in an increase in gas marketing margin of $1,721,000, net of gas
marketer incentive compensation. The improved performance of the Company's
marketing operations are attributable to the new Northeast and Mid-Atlantic
marketing offices opened in late 1995 and late 1996, respectively, and the
Midwest office, which was expanded to include the Chicago and Wisconsin markets
in late 1995.
Operations and maintenance expense increased by $1,613,000 (15%) in the
first quarter compared to a year ago due primarily to a $1,854,000 increase in
gas marketer incentive compensation.
Depreciation and taxes other than income taxes increased by $249,000 (9%)
and $107,000 (5%), respectively, due primarily to utility plant additions. The
increase in income taxes is due to higher pre-tax earnings.
Other income (loss), net, improved to income of $79,000 in the first
quarter of 1997 from a loss of $274,000 in the first quarter of 1996. This
improvement highlights the impact of the Company's December 1996 write-down of
its investment in the NOARK Pipeline System. Due to the write-down, the
Company did not record any loss for NOARK in the first quarter of 1997. In the
first quarter of 1996, the Company recorded a loss of $426,000 on its
investment in NOARK.
Other interest increased $389,000 (68%), over the prior year, due to
higher borrowings on the Company's lines of credit. The increased borrowings
were primarily for utility plant additions and increased working capital to
support the higher marketing activity.
The Company utilizes its short-term lines, along with operating cash
flows, to finance its growth in utility plant. When appropriate, the Company
will refinance its short-term lines with long-term debt, common stock or other
long-term financing instruments. In 1997, the Company expects to refinance a
portion of its $61,400,000 outstanding short-term credit facilities.
TWELVE-MONTH RESULTS
Gas sales margin generated by the Company's utilities increased $332,000
(.5%) for the twelve month period ended March 31, 1997, compared to the same
period a year earlier. Ten percent warmer weather offset most of the impact of
adding over 6,900 gas sales customers.
Transportation volumes decreased by 1,456,000 MMcf (7%) while
transportation revenue declined by $369,000 (3%). The decrease in volumes was
primarily due to less transportation for customers who have alternative fuel
sources--primarily coal. During the twelve months ended March 31, 1997,
"coal-displacement" transportation volumes were significantly lower than the
prior twelve-month period. Transportation revenues declined at only 3%,
despite the larger volume decline, because coal-displacement volumes generally
contribute a lower revenue per unit.
-12-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
Gas marketing revenues and volumes increased $211,540,000 (121%) and
67,790,000 Mcf (79%), respectively, from the prior period, generating a
$2,307,000 increase in marketing margin, net of gas marketer incentive
compensation. The twelve-month comparison of marketing activities highlights
the increased volumes from Energy Services' establishment of new marketing
offices in late-1995 and 1996.
Operations and maintenance increased $4,286,000 (11%) in the current
period compared to the same period a year ago. Higher gas marketer incentive
compensation ($3,273,000) was the primary reason for the increase. In
addition, a December 1995 change in the classification of the Company's vehicle
fleet from depreciation to operations expense and higher benefit costs,
including pension and retiree medical, also contributed to the increase.
The December 1995 change in the classification of the Company's vehicle
fleet, offset partially by the impact of utility plant additions, was also the
primary reason why depreciation decreased by $346,000 (2.9%) between the
twelve-month periods.
Other income (loss), net, decreased from a loss of $243,000 for the twelve
months ended March 31, 1996 to a loss of $460,000 in the same period ending
March 31, 1997. The twelve-month results for 1996 include a non-recurring gain
of $1,251,000, net of tax, on the settlement of a lawsuit involving NOARK.
Excluding this gain, the loss from NOARK, net of tax, was $1,276,000 for the
twelve-month period ended March 31, 1997 compared to $1,870,000 for the same
period ended March 31, 1996.
Other interest increased by $930,000 (6%) due to higher average borrowings
on short-term lines. The higher borrowings were used primarily to support
utility plant additions.
LIQUIDITY AND CAPITAL RESOURCES
Net cash from operating activities for the three and twelve month periods
ended March 31, 1997, as compared to the same periods last year, increased
$14,542,000 and $9,867,000, respectively. The changes in operating cash flows
between the periods is primarily due to the timing of cash receipts and cash
payments and its effect on working capital.
The Company anticipates spending approximately $25,000,000 for capital
items during the remainder of 1997. These estimated amounts will primarily
relate to customer additions and system replacement in the gas distribution
operations.
See Note 3 for a discussion of contributions to the NOARK Pipeline System
pursuant to the Company's guarantees of the pipeline's debt.
-13-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
Financing activities used $32,385,000 in funds during the first quarter of
1997, primarily to reduce notes payable to banks.
FUTURE FINANCING SOURCES
The remainder of the Company's operating cash flow needs, as well as
dividend payments and capital expenditures for the balance of 1996, is expected
to be generated primarily through operating activities and short-term
borrowings, although the Company does expect to issue long-term financing
during 1997 to pay-down some of its short-term lines.
At March 31, 1997, the Company had $38,500,000 in unused lines of credit.
Cash inflows from a reduction in receivables from heating season sales will
also provide the Company with funds during the second quarter of the year.
-14-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
The Company has short-term credit arrangements, note agreements and
long-term debt indentures which contain restrictive financial covenants
including, among others, limits on the payment of dividends beyond certain
levels. Because of the NOARK write-down in December 1996, the Company would
not have been in compliance with certain of these covenants. However, the
Company has received waivers or amendments with respect to the affected credit
arrangements and expects no deviation from its historical dividend payment
record in 1997.
Item 3. Not applicable.
Item 4. Not applicable.
Item 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits - (See page 18 for the Exhibit Index.)
--Articles of Incorporation of SEMCO Energy, Inc. (formerly
Southeastern Michigan Gas Enterprises, Inc.), as restated
July 11, 1989.
--Certificate of Amendment to Article III of the Articles of
Incorporation dated May 16, 1990.
--Certificate of Amendment to Articles I, III and VI of the Articles
of Incorporation dated April 16, 1997.
--Bylaws--last revised March 1, 1995.
--Trust Indenture dated April 1, 1992, with NBD Bank, N.A. as
Trustee.
--Note Agreement dated as of June 1, 1994, relating to issuance of
$80,000,000 of long-term debt.
--Rights Agreement dated as of April 15, 1997 with Continental Stock
Transfer & Trust Company, as Rights Agent.
--Guaranty Agreement dated October 10, 1991, relating to financing of
NOARK.
--Short-Term Incentive Plan.
--Deferred Compensation and Phantom Stock Purchase Agreement (for
outside directors only).
--Supplemental Retirement Plan for Certain Officers.
--1997 Long-Term Incentive Plan.
--Stock Option Certificate and Agreement dated October 10, 1996 with
William L. Johnson.
--Stock Option Certificate and Agreement dated February 26, 1997 with
William L. Johnson.
-15-
<PAGE>
PART II - OTHER INFORMATION - (Continued)
Item 6. Exhibits and Reports on Form 8-K - (Continued).
(a) List of Exhibits - (Continued)
--Employment Agreement dated October 10, 1996, with William L.
Johnson.
--Change of Control Employment Agreement dated October 10, 1996, with
William L. Johnson.
--Proxy Statement dated March 7, 1997.
(b) Reports on Form 8-K.
On February 18, 1997, the Company filed Form 8-K to report on the
write-down of the Company's investment in the NOARK asset, adoption of a
shareholder rights plan, adoption of a long-term incentive plan and approval of
a change in the name of the Company.
Preference Stock
- ----------------
In January 1997, the Board of Directors adopted a shareholder rights plan
("the Plan"). At the Company's Annual Meeting of Shareholders in April 1997,
shareholders approved 3,000,000 shares of a new class of Preference Stock,
2,000,000 shares of which is reserved under the Plan for sale to common
shareholders at a 50% discount to its value pursuant to the Plan. Common
shareholders will be able to purchase the Preference Stock under limited
conditions involving an attempt to take over the Company by means deemed by the
Board of Directors to be coercive or unfair. Under such circumstances, the
person or group trying to take over the Company do not have the right to
purchase Preference Stock even if they are common shareholders. The purpose of
the Plan is to preserve for the Company's shareholders the long-term value of
the Company in the event of a potential takeover which appears to the Board to
be coercive or unfair. At the present time the Company knows of no attempt or
plan by anyone to take over the Company. The other 1,000,000 authorized shares
can be used for other corporate purposes as deemed appropriate by the Board of
Directors of the Company.
The information appearing under the caption "Proposal To Create Preference
Stock" in the Company's definitive proxy statement (filed pursuant to
Regulation 14A) with respect to Registrant's April 15, 1997 Annual Meeting of
Shareholders is incorporated by reference herein.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEMCO ENERGY, INC.
(Registrant)
Dated: May 15, 1997
By: /s/Robert F. Caldwell
-------------------------------------
Robert F. Caldwell
Executive Vice President and
Principal Accounting and Financial
Officer
-17-
<PAGE>
EXHIBIT INDEX
Form 10-Q
First Quarter 1997
Filed
--------------------
Exhibit By
No. Description Herewith Reference
- -------- ----------- -------- ---------
2 Plan of Acquisition, etc. NA NA
3.(i).1 Articles of Incorporation of SEMCO Energy, Inc.
(formerly Southeastern Michigan Gas
Enterprises, Inc.), as restated
July 11, 1989.(e) x
3.(i).2 Certificate of Amendment to Article III
of the Articles of Incorporation dated
May 16, 1990.(f) x
3.(i).3 Certificate of Amendment to Articles I,
III and VI of the Articles of Incorporation
dated April 16, 1997. x
3.(ii) Bylaws--last revised March 1, 1995.(g) x
4.1 Trust Indenture dated April 1, 1992, with
NBD Bank, N.A. as Trustee.(b) x
4.2 Note Agreement dated as of June 1, 1994,
relating to issuance of $80,000,000 of
long-term debt.(d) x
4.3 Rights Agreement dated as of April 15, 1997
with Continental Stock Transfer & Trust Company,
as Rights Agent.(k) x
10 Material Contracts.
10.1 Guaranty Agreement dated October 10, 1991,
relating to financing of NOARK.(a) x
10.2 Short-Term Incentive Plan.(c) x
10.3 Deferred Compensation and Phantom Stock
Purchase Agreement (for outside
directors only).(h) x
10.4 Supplemental Retirement Plan for Certain
Officers.(i) x
10.5 1997 Long-Term Incentive Plan.(k) x
10.6 Stock Option Certificate and Agreement
dated October 10, 1996 with
William L. Johnson.(l) x
10.7 Stock Option Certificate and Agreement
dated February 26, 1997 with
William L. Johnson.(l) x
10.8 Employment Agreement dated October 10, 1996,
with William L. Johnson. x
10.9 Change of Control Employment Agreement dated
October 10, 1996, with William L. Johnson. x
11 Statement re computation of per share earnings. NA NA
15 Letter re unaudited interim financial
information. NA NA
18 Letter re change in accounting principle. NA NA
-18-
<PAGE>
EXHIBIT INDEX
(Continued)
Form 10-Q
First Quarter 1997
Filed
--------------------
Exhibit By
No. Description Herewith Reference
- -------- ----------- -------- ---------
19 Report furnished to security holders. NA NA
22 Published report regarding matters submitted
to a vote of security holders. NA NA
23 Consent of Independent Public Accountants. NA NA
24 Power of Attorney. NA NA
27 Financial Data Schedule. x
99.1 Proxy Statement dated March 7, 1997.(j) x
Key to Exhibits Incorporated by Reference
(a) Filed with SEMCO Energy, Inc.'s (formerly Southeastern Michigan Gas
Enterprises, Inc.'s) Registration Statement, Form S-2, No. 33-46413,
filed March 16, 1992.
(b) Filed with SEMCO Energy, Inc.'s Form 10-Q for the quarter ended March
31, 1992, File No. 0-8503.
(c) Filed with SEMCO Energy, Inc.'s Form 10-K for 1992, dated March 30,
1993, File No. 0-8503.
(d) Filed with SEMCO Energy, Inc.'s Form 10-Q for the quarter ended
June 30, 1994, File No. 0-8503.
(e) Filed with SEMCO Energy, Inc.'s Form 10-K for 1989, dated March 29,
1990, File No. 0-8503.
(f) Filed with SEMCO Energy, Inc.'s Form 10-K for 1990, dated March 28,
1991, File No. 0-8503.
(g) Filed with SEMCO Energy, Inc.'s Form 10-K for 1994, dated March 28,
1995, File No. 0-8503.
(h) Filed with SEMCO Energy, Inc.'s Form 10-Q for the quarter ended
September 30, 1994, File No. 0-8503.
(i) Filed with SEMCO Energy, Inc.'s Form 10-Q for the quarter ended
March 31, 1996, File No. 0-8503.
(j) Filed March 6, 1997, pursuant to Rule 14a-6 of the Exchange Act, File
No. 0-8503.
(k) Filed as part of SEMCO Energy, Inc.'s 1997 Proxy Statement, dated
March 7, 1997, File No. 0-8503.
(l) Filed with SEMCO Energy, Inc.'s Form 10-K for 1996, dated March 27,
1997, File No. 0-8503.
-19-
Exhibit 3.(i).3
MICHIGAN DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES
CORPORATION, SECURITIES AND LAND DEVELOPMENT BUREAU
Date Received
APR 21 1997
FILED
APR 24 1997
Administrator
MI DEPT. OF CONSUMER & INDUSTRY SERVICES
CORPORATION, SECURITIES & LAND DEVELOPMENT BUREAU
EFFECTIVE DATE:
Name
Sherry L. Abbott
Address
405 Water Street
City State Zip Code
Port Huron MI 48060
Document will be returned to the name and address you enter above
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
For use by Domestic Profit and Nonprofit Corporations
(Please read information and instructions on the last page)
Pursuant to the provisions of Act 284, Public Acts of 1972
(profit corporations), or Act 162, Public Acts of 1982 (nonprofit
corporations), the undersigned corporation executes the following
Certificate:
1. The present name of the corporation is:
Southeastern Michigan Gas Enterprises, Inc.
2. The identification number assigned by the Bureau
is: 065-723
3. The location of the registered office is:
405 Water Street Port Huron, Michigan 48060
(Street Address) (City) (Zip Code)
4. Article I of the Articles of Incorporation is hereby amended
to read as follows:
The name of the corporation is SEMCO Energy, Inc.
5. Article III of the Articles of Incorporation is hereby
amended to read as shown on Attachment 1 hereto.
6. Article VI of the Articles of Incorporation is hereby
amended to read as shown on Attachment 2 hereto.
5. (For amendments adopted by unanimous consent of
incorporators before the first meeting of the board of
directors or trustees.)
The foregoing amendment to the Articles of Incorporation was
duly adopted on the ______ day of _______________, 19____,
in accordance with the provisions of the Act by the
unanimous consent of the incorporator(s) before the first
meeting of the Board of Directors or Trustees.
Signed this ______ day of ___________, 19____
_________________________ ______________________________
(Signature) (Signature
_________________________ ______________________________
(Type or Print Name) (Type or Print Name)
_________________________ ______________________________
(Signature) (Signature
_________________________ ______________________________
(Type or Print Name) (Type or Print Name)
6. (For profit corporations, and for nonprofit corporations
whose articles state the corporation is organized on a stock
or on a membership basis.)
The foregoing amendment to the Articles of Incorporation was
duly adopted on the 15th day of April, 1997 by the
shareholders if a profit corporation, or by the shareholders
or members if a nonprofit corporation (check one of the
following)
[X] at a meeting. The necessary votes were cast in favor
of the amendment.
[ ] by written consent of the shareholders or members
having not less than the minimum number of votes
required by statute in accordance with Section 407(1)
and (2) of the Act if a nonprofit corporation, or
Section 407(1) of the Act if a profit corporation.
Written notice to shareholders or members who have not
consented in writing has been given. (Note: Written
consent by less than all of the shareholders or members
is permitted only if such provision appears in the
Articles of Incorporation.)
[ ] by written consent of all the shareholders or members
entitled to vote in accordance with section 407(3) of
the Act if a nonprofit corporation, or Section 407(2)
of the Act if a profit corporation.
Signed this 16th day of April, 1997
By Carl W. Porter
(Signature of President, Vice-President,
Chairperson or Vice-Chairperson)
Carl W. Porter Senior Vice President
(Type or Print Name) (Type or Print Title)
7. (For a nonprofit corporation whose articles state the
corporation is organized on a directorship basis.)
The foregoing amendment to the Articles of Incorporation was
duly adopted on the _____ day of ____________, 19____ by the
directors of a nonprofit corporation whose articles of
incorporation state it is organized on a directorship basis
(check one of the following)
[ ] at a meeting. The necessary votes were cast in favor
of the amendment.
[ ] by written consent of all directors pursuant to Section
525 of the Act.
Signed this _____ day of ___________, 19____
By________________________________________________
(Signature of President, Vice-President,
Chairperson or Vice-Chairperson)
__________________________________________________
(Type of Print Name) (Type or Print Title)
<PAGE>
ATTACHMENT 1
TO
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
(hereafter SEMCO Energy, Inc.)
ARTICLE III.
SECTION 1.
The total authorized capital stock is $23,500,000 consisting
of
(a) 500,000 shares Cumulative Preferred Stock of the par
value of $1 per share, issuable in series as
hereinafter provided, designated "Cumulative Preferred
Stock, $1 Par Value",
(b) 3,000,000 shares of Preference Stock designated
"Preference Stock, $1 Par Value", and
(c) 20,000,000 shares of stock of the par value of $1 per
share, designated "Common Stock, $1 Par Value."
SECTION 2.
The following is a description of each class of shares of
the Corporation, with the voting powers, preferences and rights
and qualifications, limitations or restrictions thereof.
DIVISION A. Cumulative Preferred Stock, $1 Par Value
(1) Issuable in Series: The Cumulative Preferred Stock may
be divided into and issued in series. Each series shall be so
designated as to distinguish the shares thereof from the shares
of all other series and classes of shares. All shares of the
Cumulative Preferred Stock shall be identical except as to the
following relative rights and preferences as to which there may
be variations between the series:
(a) The rate of dividends and the extent of further
participation in dividend distribution, if any;
(b) The price at and the terms and conditions on which the
shares are redeemable;
(c) The amount payable upon shares in event of voluntary or
involuntary liquidation;
(d) Sinking fund provisions for the redemption or purchase
of shares;
(e) The terms and conditions on which shares are
convertible.
The Board of Directors is hereby expressly vested with
authority and shall have authority by resolution or resolutions
from time to time adopted to divide the shares of the Cumulative
Preferred Stock into series and, within the limitations set
forth in the laws of the State of Michigan and in these
articles, fix and determine the relative rights and preferences
of the shares of any series so established.
(2) Dividends: The holders of Cumulative Preferred Stock
shall be entitled to receive out of the surplus of the
Corporation, if, when and as declared by the Board of Directors
in its discretion, preferential dividends at the rate fixed for
each series payable quarterly on the 15th day of February, May,
August and November in each year (the periods between such
dates, commencing on such dates, are hereby designated as
"dividend periods") before any dividends shall be declared or
paid upon or set apart for, or other distribution shall be
ordered or made in respect of, the Common Stock or Preference
Stock. Such dividends on the Cumulative Preferred Stock, shall
commence to accrue and be cumulative from the first day of the
quarterly dividend period in which such Cumulative Preferred
Stock are issued or at such other date in said quarterly
dividend period as shall be fixed in the resolution of the Board
of Directors establishing any series. No dividends shall be
declared on the shares of Cumulative Preferred Stock of any
series for any quarterly dividend period unless for the same
quarterly dividend period there shall likewise be declared upon
all shares of Cumulative Preferred Stock of all other series at
the time outstanding like dividends in proportion to the annual
dividend rates fixed for such series, respectively, to the
extent that such shares are entitled to receive dividends for
such quarterly dividend period. If full cumulative dividends on
the outstanding Cumulative Preferred Stock at the rate aforesaid
for all past dividend periods to the end of the then current
dividend period shall not have been paid or declared and a sum
sufficient for the payment thereof set apart, the amount of the
deficiency shall be fully paid, but without interest, or
dividends upon the Cumulative Preferred Stock in such amount
shall be declared and a sum sufficient for the payment thereof
set apart, before any dividends shall be declared or paid upon
or set apart, for, or any other distribution shall be ordered or
made in respect of, the Common Stock or Preference Stock and
before any sums shall be paid or set apart for the redemption of
less than all of the Cumulative Preferred Stock then outstanding
or for the purchase or other retirement of any Cumulative
Preferred Stock.
(3) Preference Upon Liquidation: In the event of any
liquidation, dissolution or winding up of the Corporation, or any
reduction of its capital, resulting in any distribution of its
assets to its stockholders, the holders of Cumulative Preferred
Stock shall be entitled to receive, for each share thereof, out
of the assets of the Corporation, whether from capital, surplus
or earnings, available for distribution to its shareholders, an
amount fixed for each series as, or in the manner, hereinabove
provided before any distribution of assets of the Corporation
shall be made to the holders of Common Stock or Preference Stock;
but the holders of Cumulative Preferred Stock shall be entitled
to no further participation in such distribution. If, upon any
such liquidation, dissolution, winding up or reduction, the
assets of the Corporation distributable as aforesaid among the
holders of Cumulative Preferred Stock shall be insufficient to
permit the payment to them of the full preferential amounts, then
the entire assets of the Corporation to be so distributed shall
be distributed ratably among all the holders of Cumulative
Preferred Stock in proportion to the full preferential amounts to
which they are respectively entitled. Nothing in this paragraph
shall be deemed to prevent the purchase or redemption of
Cumulative Preferred Stock or the purchase of Common Stock or
purchase or redemption of Preference Stock in any manner
permitted by law or herein provided for; provided, however, that
anything herein to the contrary notwithstanding, the Corporation
shall not, so long as any Cumulative Preferred Stock remain
outstanding, purchase any of its Common Stock or purchase or
redeem any of its Preference Stock. A consolidation or merger of
the Corporation, or a sale or transfer of substantially all of
its assets as an entirety, shall not be regarded as a
liquidation, dissolution or winding up of the Corporation or as a
reduction of its capital.
(4) Redemption and Purchase: The Corporation may, at its
option, expressed by resolution of its Board of Directors, at any
time or from time to time, redeem the whole or any part of any
series of Cumulative Preferred Stock at the redemption price for
each share fixed for such series. Notice of any proposed
redemption of Cumulative Preferred Stock shall be given by the
Corporation, by mailing a copy of such notice at least 30 days
prior to the date fixed for such redemption to the holders of
record of the Cumulative Preferred Stock to be redeemed, at
their respective addresses appearing on the books of the
Corporation. If less than all of any series of the Cumulative
Preferred Stock are to be redeemed as herein provided, the
redemption shall be made in such amount, at such place, by such
method, either by lot or pro rata, and subject to such
provisions of convenience as shall from time to time be provided
by bylaws of the Corporation or be determined by resolution of
the Board of Directors. From and after the date fixed in any
such notice as the date of redemption, unless default shall be
made by the Corporation in providing moneys at the time and
place specified for the payment of the redemption price pursuant
to said notice, all dividends on the Cumulative Preferred Stock
thereby called for redemption shall cease to accrue; and from
and after the date so fixed (unless the default be made as
aforesaid) or the date of the earlier deposit by the
Corporation, in a special account with a solvent bank or trust
company doing business in the City of Chicago, Illinois, of
funds sufficient for such redemption (a statement of the
intention so to deposit having been included in said notice),
all rights of the holders of said Cumulative Preferred Stock so
called for redemption as shareholders of the Corporation, except
only the right to receive the redemption price without interest,
shall cease and determine, and such shares shall be deemed no
longer to be outstanding; but the making of said deposit with
any such bank or trust company shall not relieve the Corporation
of liability for payment of the redemption price. Any moneys so
deposited which shall remain unclaimed by the holders of such
Cumulative Preferred Stock at the end of six (6) years after the
redemption date, together with any interest thereon that shall
have been allowed by the bank or trust company with which the
deposit shall have been made, shall be paid by it to the
Corporation. The Corporation may also, from time to time,
purchase any of its Cumulative Preferred Stock with any funds
available for such purpose at not exceeding the price at which
the same may be redeemed. No redemption or purchase of
Cumulative Preferred Stock as herein provided shall be made or
ordered (i) unless full cumulative dividends at the appropriate
dividend rate upon all of the Cumulative Preferred Stock then
outstanding which is not to be redeemed or purchased, from the
date from which dividends on such Cumulative Preferred Stock
became cumulative to the end of the then current dividend period
for such Cumulative Preferred Stock, shall have been paid or
declared and a sum sufficient for the payment thereof set apart
and (ii) unless provision shall have been made for the
satisfaction of any obligations then or theretofore matured in
respect of any sinking fund for the benefit of Cumulative
Preferred Stock which is then outstanding and is not to be
redeemed or purchased. Any amounts applied out of the surplus
of the Corporation to the purchase or redemption of any of its
Cumulative Preferred Stock shall be charged against paid-in
surplus or earned surplus, as the Board of Directors may in its
discretion determine. The redemption, purchase or acquiring by
the Corporation of any shares of Cumulative Preferred Stock,
shall not be deemed to reduce the authorized number of shares of
stock of the Corporation. Any shares of the Cumulative
Preferred Stock redeemed, retired, purchased or otherwise
acquired (including shares acquired by conversion) shall be
cancelled and shall assume the status of authorized but unissued
Cumulative Preferred Stock in the same manner as if the shares
had never been issued as shares of any series of the Cumulative
Preferred Stock and be undesignated as to future series.
(5) Restriction on Certain Corporate Action and Voting
Power: The holders of the Cumulative Preferred Stock shall be
entitled to vote only as in this paragraph (5) provided, or as
otherwise required by law. In any case where the holders of the
Cumulative Preferred Stock shall not be entitled to vote, they
shall not be entitled to notice of any shareholders' meeting
except as otherwise provided by law.
If at any time the Corporation shall fail to declare and pay
or set apart for payment in full eight quarterly dividends
(whether or not consecutive) on all of the outstanding Cumulative
Preferred Stock, then the holders of the outstanding Cumulative
Preferred Stock shall, thereupon, have the right, voting as a
single class irrespective of series, to elect such number of
directors of the Corporation as shall constitute one less than
the smallest number of directors necessary to constitute a
majority of the full Board of Directors, and such right shall
continue (and may be exercised at any annual or other meeting of
shareholders for the election of Directors) until the
Corporation shall have paid or declared and set apart for
payment all accrued dividends on the Cumulative Preferred Stock
for all past quarterly dividend periods. The term of office of
all persons who may be Directors of the Corporation at any time
when such right shall accrue to the holders of the Cumulative
Preferred Stock, shall terminate upon the election of their
successors at a special meeting of shareholders of the
Corporation, which shall be held, at any time after the accrual
of such right, upon the notice provided in the bylaws of the
Corporation for the annual meeting of shareholders at the
request in writing of the holders of record of at least 5% of
the number of Cumulative Preferred Stock then outstanding. In
default of the calling of said meeting by a proper officer of
the Corporation within five days after the making of such
request, such meeting may be called on like notice by the
holders of record of at least 5% of the number of Cumulative
Preferred Stock then outstanding, for which purpose such holders
of the Cumulative Preferred Stock shall have the right to have
access to the stock books of the Corporation. If such special
meeting is not called prior to the next annual meeting, the
holders of the Cumulative Preferred Stock, voting as a single
class irrespective of series, shall elect the minority of the
Board of Directors at such annual meeting, unless previously
thereto all such dividend defaults shall have been cured. Upon
the termination at any time of such right of the holders of the
Cumulative Preferred Stock to elect a minority of the Board of
Directors, the term of office of all Directors then in office
shall end upon the election of their successors, which election
may be held on like notice at a special meeting called at the
request in writing of the holders of record of at least 5% of
the number of shares of stock entitled to vote then outstanding.
If such special meeting is not called within five (5) days
after the making of such request by a proper officer of the
Corporation, such meeting may be called on like notice by the
holders of record of at least 5% of such outstanding stock, for
which purpose such holders shall have access to the stock books
of the Corporation. If such special meeting is not called prior
to the next annual meeting, a Board of Directors shall be
elected at such annual meeting.
In addition to any other approvals or consents herein
required, the Corporation shall not, without the consent of the
holders of record of at least two-thirds of the Cumulative
Preferred Stock, at the time outstanding, voting as a single
class irrespective of series, given by their affirmative vote at
an annual or special meeting called for that purpose, (i)
authorize or issue any other class of stock having a priority or
preference over or ranking on a parity with the Cumulative
Preferred Stock as to dividends or assets, or (ii) amend the
provisions hereof so as to affect adversely any of the powers,
preferences or special rights hereby given to the Cumulative
Preferred Stock.
(6) The following resolution was duly adopted by the
Directors of the Corporation on the 1st day of December, 1978,
pursuant to Article III, Section 2, Division A, paragraph (1) of
these Articles:
RESOLVED, that 80,000 Shares of Cumulative Preferred
Stock are hereby established as a series of the Cumulative
Preferred Stock and are designated "$2.3125, Series A,
Convertible Cumulative Preferred Stock". All shares of this
series shall be identical and shall possess the preferences,
rights and privileges and voting powers of the Cumulative
Preferred Stock and shall have the following relative rights
and preferences:
(a) Dividend Rights. The rate of dividend which the
holders of shares of this series shall be entitled to
receive shall be $2.3125 per share per annum and no
more, and such dividends shall accrue from the date of
original issue and be payable commencing February 15,
1979.
(b) Redemption. The amount per share which the holders of
said shares of this series shall be entitled to receive
if said shares are redeemed shall be $25 per share plus
all dividends accrued or in arrears thereon.
(c) Rights on Liquidation. The preferential amount payable
upon the shares of this series in the event of any
voluntary or involuntary liquidation, dissolution or
winding up of the Company or reduction of capital
resulting in the distribution of assets to the
shareholders, shall be equal to $25 per share together
with an amount equal to dividends accrued or in arrears
thereon.
(d) Sinking Fund. There are no sinking fund or purchase
fund provisions provided for the redemption or purchase
of shares of this series.
(e) Conversion Privilege. The holders of shares of this
series shall have the right, at their option, to
convert such shares into shares of Common Stock of the
Company at any time subject to the following terms and
conditions:
(1) The shares of this series shall be convertible at
the office of any transfer agent or at the offices
of the Company, and at such other office or
offices, if any, as the Board of Directors may
designate, into fully paid and nonassessable
shares (calculated as to each conversion to the
nearest 1/100th of a share) of Common Stock of the
Company, at the Conversion Price, determined as
hereinafter provided, in effect at the time of
conversion, each share of this series being valued
at $25.00 for the purpose of such conversion. The
price at which shares of Common Stock shall be
delivered upon conversion (as adjusted from time
to time as herein provided, herein called the
"Conversion Price") shall be initially $20.00 per
share of Common Stock. The conversion price shall
be reduced in certain instances as provided in
paragraphs (3), (9) and (10) below, and shall be
increased in certain instances as provided in
paragraph (10) below.
No payment or adjustment shall be made upon any
conversion on account of any dividends accrued on
the shares of this series surrendered for
conversion or on account of any dividends on the
Common Stock issued upon such conversion.
(2) In order to convert shares of this series into
Common Stock, the holder thereof shall surrender
at any office hereinabove mentioned the
certificate or certificates therefor, duly
endorsed to the Company or in blank, and give
written notice to the Company at said office that
he elects to convert such shares. Shares of this
series shall be deemed to have been converted
immediately prior to the close of business on the
day of the surrender of such shares for conversion
as provided above, and the person or persons
entitled to receive the Common Stock issuable upon
such conversion shall be treated for all purposes
as the record holder or holders of such Common
Stock at such time. As promptly as practicable on
or after the conversion date, the Company shall
issue and shall deliver at said office a
certificate or certificates for the number of full
shares of Common Stock issuable upon such
conversion, together with cash in lieu of any
fraction of a share, as hereinafter provided, to
the person or persons entitled to receive the
same. In case shares of this series are called
for redemption, the right to convert such shares
shall cease and terminate at the close of business
on the day preceding the date fixed for
redemption, unless default shall be made in
payment of the redemption price.
(3) In case the Conversion Price in effect immediately
prior to the close of business on any day after
November 16, 1978 shall exceed by 25 cents or more
the amount determined at the close of business on
such date by dividing:
(i) a sum equal to (a) 649,683 multiplied by
$20.00 (being the initial conversion price),
plus (b) the aggregate of the amounts of all
consideration received by the Company upon
the issuance of Additional Shares of Common
Stock (as hereinafter defined), minus (c) the
aggregate of the amounts of all dividends and
other distributions which have been paid or
made after November 16, 1978 on Common Stock,
other than in cash out of its earned surplus
or in Common Stock, by
(ii) the sum of (a) 649,683 and (b) the number of
Additional Shares of Common Stock which shall
have been issued,
the conversion price shall be reduced, effective
immediately prior to the opening of business on
the next succeeding day, to the amount so
determined. The foregoing amount of 25 cents (or
such amount as theretofore adjusted) shall be
subject to adjustment as provided in paragraphs
(9) and (10) below, and such amount (or such
amount as theretofore adjusted) is referred to in
such paragraphs as the "Differential Amount."
(4) The term "Additional Shares of Common Stock" as
used herein shall mean, without duplication, all
shares of Common Stock issued after November 16,
1978 (including shares deemed to be Additional
Shares of Common Stock pursuant to paragraph (10)
below), whether or not subsequently reacquired or
retired by the Company, other than:
(i) shares issued upon conversion of shares of
this series;
(ii) shares issued by way of dividend or other
distribution on shares of Common Stock
excluded from the definition of Additional
Shares of Common Stock by the foregoing
clause (i) or this clause (ii) or on shares
of Common Stock resulting from any
subdivision or combination of shares of
Common Stock so excluded.
The sale or other disposition of any shares of
Common Stock or other securities held in the
treasury of the Company shall not be deemed an
issuance thereof.
(5) In case of the issuance of Additional Shares of
Common Stock for a consideration, part or all of
which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the
amount of cash received by the Company for such
shares (or, if such Additional Shares of Common
Stock are offered by the Company for subscription,
the subscription price, or, if such Additional
Shares of Common Stock are sold to underwriters or
dealers for public offering without a subscription
offering, the initial public offering price),
without deducting therefrom any compensation or
discount in the sale, underwriting or purchase
thereof by underwriters or dealers or others
performing similar services or for any expenses
incurred in connection therewith.
(6) In case of the issuance (otherwise than as a
dividend or other distribution on any stock of the
Company or upon conversion or exchange of other
securities of the Company) of Additional Shares of
Common Stock for a consideration, part or all of
which shall be other than cash, the amount of the
consideration therefor other than cash shall be
deemed to be the value of such consideration as
determined by the Board of Directors, irrespective
of the accounting treatment thereof. The
reclassification of securities other than Common
Stock into securities including Common Stock shall
be deemed to involve the issuance for a
consideration other than cash of such Common Stock
immediately prior to the close of business on the
date fixed for the determination of shareholders
entitled to receive such Common Stock.
(7) Additional Shares of Common Stock issuable by way
of dividend or other distribution on any class of
capital stock of the Company shall be deemed to
have been issued without consideration, and shall
be deemed to have been issued immediately prior to
the close of business on the date fixed for the
determination of shareholders entitled to receive
such dividend or other distribution, except that
if the total number of shares constituting such
dividend or other distribution exceeds five
percent of the total number of shares of Common
Stock outstanding at the close of business on the
date fixed for the determination of shareholders
entitled to receive such dividend or other
distribution, such Additional Shares of Common
Stock shall be deemed to have been issued
immediately after the opening of business on the
day following the date fixed for the determination
of shareholders entitled to receive such dividend
or other distribution.
A dividend or other distribution in cash or in
property (including any dividend or other
distribution in securities other than Common
Stock) shall be deemed to have been paid or made
immediately prior to the close of business on the
date fixed for the determination of shareholders
entitled to receive such dividend or other
distribution and the amount of such dividend or
other distribution in property shall be deemed to
be the value of such property as of the date of
the adoption of the resolution declaring such
dividend or other distribution, as determined by
the Board of Directors at or as of that date. In
the case of any such dividend or other
distribution of Common Stock which consists of
securities which are convertible into or
exchangeable for shares of Common Stock, such
securities shall be deemed to have been issued for
a consideration equal to the value thereof as so
determined.
If, upon the payment of any dividend or other
distribution in cash or in property (excluding
Common Stock but including all other securities),
outstanding shares of Common Stock are cancelled
or required to be surrendered for cancellation, on
a pro rata basis, the number of shares of Common
Stock outstanding immediately prior thereto in
excess of the number to be outstanding immediately
thereafter (less that portion of such excess
attributable to the cancellation of shares
excluded from the definition of Additional Shares
of Common Stock by clause (i) or (ii) of paragraph
(4) above), shall be deducted from the sum
computed pursuant to clause (ii) of paragraph (3)
above for the purpose of all determinations under
such paragraph (3) made immediately prior to the
close of business on the date fixed for the
determination of shareholders entitled to receive
such dividend or other distribution and at any
time thereafter.
The reclassification (including any
reclassification upon a consolidation or merger in
which the Company is the continuing corporation)
of Common Stock into securities including other
than Common Stock shall be deemed to involve (a) a
distribution on Common Stock of such securities
other than Common Stock made immediately prior to
the close of business on the effective date of the
reclassification, and (b) a combination or
subdivision, as the case may be, of the number of
shares of Common Stock outstanding immediately
prior to such reclassification into the number of
shares of Common Stock outstanding immediately
thereafter.
The issuance by the Company of rights or warrants
to subscribe for or purchase securities of the
Company shall not be deemed to be a dividend or
distribution of any kind.
(8) In case of the issuance of Additional Shares of
Common Stock upon conversion or exchange of other
securities of the Company, the amount of the
consideration received by the Company for such
Additional Shares of Common Stock shall be deemed
to be the total of (a) the amount of the
consideration, if any, received by the Company
upon the issuance of such other securities, plus
(b) the amount of the consideration, if any, other
than such other securities, received by the
Company (except in adjustment of interest or
dividends) upon such conversion or exchange. In
determining the amount of the consideration
received by the Company upon the issuance of such
other securities (i) the amount of the
consideration in cash and other than cash shall be
determined pursuant to paragraphs (5), (6) and (7)
above, and (ii) if securities of the same class or
series of a class as such other securities were
issued for different amounts of consideration, or
if some were issued for no consideration, then the
amount of the consideration received by the
Company upon the issuance of each of the
securities of such class or series, as the case
may be, shall be deemed to be the average amount
of the consideration received by the Company upon
the issuance of all the securities of such class
or series, as the case may be.
(9) In case at any time after November 16, 1978
Additional Shares of Common Stock are issued as a
dividend or other distribution on any class of
capital stock of the Company and the total number
of shares constituting such dividend or other
distribution exceeds five per cent of the total
number of shares of Common Stock outstanding at
the close of business on the date fixed for the
determination of shareholders entitled to receive
such dividend or other distribution, the
conversion price and the Differential Amount in
effect at the opening of business on the day
following the date fixed for such determination
shall be reduced by multiplying each of them by a
fraction of which the numerator shall be the
number of shares of Common Stock outstanding at
the close of business on the date fixed for such
determination and the denominator shall be the sum
of such number of shares and the total number of
shares constituting such dividend or other
distribution, such reductions to become effective
immediately after the opening of business on the
day following the date fixed for such
determination. For the purposes of this paragraph
(9), the number of shares of Common Stock at any
time outstanding shall not include shares held in
the treasury of the Company but shall include any
shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common
Stock (other than shares of Common Stock which,
upon issuance, would not constitute Additional
Shares of Common Stock). The Company will not pay
any dividend or make any distribution on shares of
Common Stock held in the treasury of the Company.
(10) In case at any time after November 16, 1978
outstanding shares of Common Stock shall be
subdivided into a greater number of shares of
Common Stock, the conversion price and the
Differential Amount in effect at the opening of
business on the day following the day upon which
such subdivision becomes effective shall each be
proportionately reduced, and, conversely, in case
at any time after the above stated date,
outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common
Stock, the conversion price and the Differential
Amount in effect at the opening of business on the
day following the day upon which such combination
becomes effective shall each be proportionately
increased, such reductions or increases, as the
case may be, to become effective immediately after
the opening of business on the day following the
day upon which such subdivision or combination
becomes effective. In the event of any such
subdivision, the number of shares of Common Stock
outstanding immediately thereafter, to the extent
of the excess thereof over the number outstanding
immediately prior thereto (less that portion of
such excess attributable to the subdivision of
shares excluded from the definition of Additional
Shares of Common Stock by clause (i) or (ii) of
paragraph (4) above), shall be deemed to be
Additional Shares of Common Stock and to have been
issued immediately after the opening of business
on the day following the day upon which such
division shall have become effective and without
consideration. In the event of any such
combination, the excess of the number of shares of
Common Stock outstanding immediately prior thereto
over the number outstanding immediately thereafter
(less that portion of such excess attributable to
the combination of shares excluded from the
definition of Additional Shares of Common Stock by
clause (i) or (ii) of paragraph (4) above), shall
be deducted from the sum computed pursuant to
clause (ii) of paragraph (3) above for the
purposes of all determinations under such
paragraph (3) made on any day after the day upon
which such combination becomes effective. Shares
of Common Stock held in the treasury of the
Company and shares issuable in respect of any
scrip certificates issued in lieu of fractions of
shares of Common Stock (other than shares of
Common Stock which, upon issuance, would not
constitute Additional Shares of Common Stock)
shall be considered outstanding for the purposes
of this paragraph (10).
(11) Whenever the conversion price is adjusted as
herein provided:
(a) the Company shall compute the adjusted
conversion price in accordance with this
subdivision (e) and shall prepare a
certificate signed by the Secretary or an
Assistant Secretary of the Company setting
forth the adjusted conversion price and
showing in reasonable detail the facts upon
which such adjustment is based, including a
statement of the consideration received or to
be received by the Company for, and the
amount of, any Additional Shares of Common
Stock issued since the last such adjustment,
and such certificate shall forthwith be filed
with the transfer agents for this series, if
any; and
(b) a notice stating that the conversion price
has been adjusted and setting forth the
adjusted conversion price shall forthwith be
required, and as soon as practicable after it
is required, such notice shall be mailed to
the holders of record, of the outstanding
shares of this series; provided, however,
that if within ten days after the completion
of mailing of such a notice, an additional
notice is required, such additional notice
shall be deemed to be required pursuant to
this clause (b) as of the opening of business
on the tenth day after such completion of
mailing and shall set forth the conversion
price as adjusted at such opening of
business, and upon the mailing of such
additional notice no other notice need be
given of any adjustment in the conversion
price occurring at or prior to such opening
of business and after the time that the next
preceding notice given by mail became
required.
(12) In case at any time after November 16, 1978:
(a) the Company shall declare a dividend (or any
other distribution) in its Common Stock
payable otherwise than in cash out of its
earned surplus; or
(b) the Company shall authorize the granting to
the holders of its Common Stock of rights to
subscribe for or purchase any shares of
capital stock of any class or of any other
rights; or
(c) any reclassification of the capital stock of
the Company (other than a subdivision or
combination of its outstanding shares of
Common Stock), or any consolidation or merger
to which the Company is a party and for which
approval of any shareholders of the Company
is required, or the sale or transfer of all
or substantially all of the assets of the
Company occurs; or
(d) the voluntary or involuntary dissolution,
liquidation, or winding up of the Company
occurs;
then the Company shall cause to be mailed to the
transfer agent or agents for this series, if any,
and to the holders of record of the outstanding
shares of this series, at least twenty days (or
ten days in any case specified in clause (a) or
(b) above) prior to the applicable record date
hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the
purpose of such dividend, distribution or rights,
or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be
entitled to such dividend, distribution or rights
are to be determined, or (y) the date on which
such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or
winding up is expected to become effective, and
the date as of which it is expected that holders
of Common Stock of record shall be entitled to
exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up.
(13) The Company shall at all times reserve and keep
available free from preemptive rights, out of its
authorized but unissued Common Stock, for the
purpose of effecting the conversion of the shares
of this series, the full number of shares of
Common Stock then deliverable upon the conversion
of all shares of this series then outstanding and,
if at any time the number of authorized but
unissued shares of Common Stock (including shares
held in the treasury) shall be less than the
number of shares of Common Stock into which the
shares then outstanding of this series shall be
convertible, the Company shall take such action as
is necessary to increase the number of shares
which the Company is authorized to issue so that
the Company will have a sufficient number of
authorized but unissued shares available for the
conversion of the shares of this series. Under no
circumstances will the Company take any action
which could cause the conversion price to be
reduced below the par value, if any, of the Common
Stock unless the Company first restricts a surplus
account or accounts (in an amount at least equal
to the product of the number of shares of Common
Stock into which the shares of this series are
convertible, on the effective date of such action,
times the par value of a share of Common Stock,
less the amount in the stated capital account for
the shares of this series) to use only for the
purpose of serving as consideration for shares of
Common Stock issuable upon conversion of shares of
this series.
(14) No fractional shares of Common Stock shall be
issued upon conversion, but instead of any
fraction of a share which would otherwise be
issuable, the Company shall pay a cash adjustment
in respect of such fraction in an amount equal to
the same fraction of the conversion price per
share of Common Stock immediately prior to the
close of business on the day of conversion.
(15) The Company will pay any and all taxes, other than
any income taxes, that may be payable in respect
of the issue or delivery of shares of Common Stock
on conversion of shares of this series pursuant
hereto. The Company shall not, however, be
required to pay any tax which may be payable in
respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other
than that in which the shares of this series so
converted were registered, and no such issue or
delivery shall be made unless and until the person
requesting such issue has paid to the Company the
amount of any such tax, or has established, to the
satisfaction of the Company, that such tax has
been paid.
(16) For the purpose of this subdivision (e), the term
"Common Stock" shall include any stock of any
class of the Company which has no preference in
respect to dividends or to amounts payable in the
event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, and
which is not subject to redemption by the Company.
However, shares issuable on conversion of shares
of this series shall include only shares of the
class designated as Common Stock of the Company as
of November 16, 1978, or shares of any class or
classes resulting from any reclassification or
reclassifications thereof and which have no
preference in respect to dividends or to amounts
payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up
of the Company and which are not subject to
redemption by the Company; provided that if at any
time there shall be more than one such resulting
class, the shares of each such class then so
issuable shall be substantially in the proportion
which the total number of shares of such class
resulting from all such reclassifications bears to
the total number of shares of all such classes
resulting from all such reclassifications.
(17) If any shares issuable upon the conversion of
shares of this series require registration with or
approval of any governmental authority under any
Federal or State law before such shares may be
validly issued upon conversion, then the Company
shall in good faith and as expeditiously as
possible endeavor to secure such registration or
approval as the case may be.
(f) Dividends Accrued. The amount of dividends
accrued or in arrears as used in these
resolutions as of any date shall mean an
amount equal to simple interest on the sum of
$25 at the rate of 9.25% per annum, from the
date on which dividends on shares of this
series first became cumulative (i.e. the date
of original issue) to the date as
of which the computation is made, less the
aggregate amount, without interest, of all
dividends theretofore paid or declared and
set apart for payment upon said series. Any
shares of said series at any time owned by
the Company shall, for the purpose of this
definition, be deemed to have received in
dividends an amount per share equal to that
which, during the time such shares were so
owned, was paid upon or became payable to
holders of record of the outstanding shares
of this series then not so owned by the
Company.
DIVISION B. Preference Stock, $1 Par Value
(7) Issuable in Series: The Preference Stock may be
divided into and issued in series. Each series shall be so
designated as to distinguish the shares thereof from the shares
of all other series and classes of shares.
The Board of Directors is hereby expressly vested with
authority and shall have authority by resolution or resolutions
from time to time adopted to divide the shares of the
Preference Stock into series and, within the limitations set
forth in the laws of the State of Michigan and in these
articles, fix and determine the relative rights and preferences
of the shares of any series so established.
(8) Rank: Preference Stock ranks junior to all series of
Preferred Stock as to the payment of dividends and the
distribution of assets, except to the extent that a specific
series of Preferred Stock provides otherwise.
(9) On January 16,1997, the Board of Directors approved
adoption of the following resolution creating a series of
Preference Stock designated as Series A Preference Stock:
RESOLVED that, immediately following shareholder
approval of an amendment to the Articles providing for a new
class of Preference Stock, a series of Preference Stock be
created, with the following characteristics:
(a) Designation and Amount. The shares of such series
shall be designated as "Series A Preference Stock"
and the number of shares constituting such series
shall initially be 2,000,000.
(b) Dividends and Distributions.
(A) Preference Stock is entitled to receive
dividends on the fifteenth day of March,
June, September and December each year (each
a "Quarterly Dividend Payment Date") in an
amount per share (rounded to the nearest
cent) equal to the greater of (a) $10.00 or
(b) the Adjustment Number times the per share
amount of all cash dividends, and the
Adjustment Number times the per share amount
(payable in kind) of all non-cash dividends
or other distributions (other than a dividend
payable in shares of Common Stock or a
subdivision of the shares of Common Stock),
declared on the Common Stock since the
preceding Quarterly Dividend Payment Date,
or, if later, since the issuance of such
Series A Preference Stock.
(B) The Corporation shall declare any dividend
required by Paragraph (A) immediately after
it declares the triggering dividend or
distribution on the Common Stock.
(C) Dividends shall accrue and be cumulative on
Series A Preference Stock from the Quarterly
Dividend Payment Date next preceding the date
of issue. If the date of issue is prior to
the first Quarterly Dividend Payment Date,
dividends shall accrue from the date of
issue. However, if the date of issue is
after a record date and before a Quarterly
Dividend Payment Date, dividends shall accrue
from such Quarterly Dividend Payment Date.
Unpaid dividends shall not bear interest.
Dividends less than the total amount payable
shall be allocated pro rata. The Board may
fix a record date no more than 30 days prior
to the date fixed for the payment of
dividends.
(c) Voting Rights. Series A Preference Stock has the
following voting rights:
(A) Series A Preference Stock are entitled to a
number of votes equal to the Adjustment
Number times the number of votes to which
Common Stock is entitled.
(B) Except as otherwise provided herein or by
law, Series A Preference Stock and Common
Stock shall vote together as one class on all
matters submitted to a vote of Common
Stockholders.
(C) (i) If dividends on Series A Preference
Stock shall be in arrears by six (6) or
more quarterly dividends, a "default
period" shall begin. The default period
shall end when all accrued dividends
shall have been paid or set apart for
payment. During a default period,
Series A Preference Stock shall have the
right to elect two (2) Directors. This
vote shall be as a class for all series
of Preference Stock entitled to vote.
(ii) During any default period, such voting
right may be exercised initially at a
special meeting or at any annual meeting
of stockholders, and thereafter at
annual meetings of stockholders. Such
voting shall not occur unless ten
percent (10%) of Preference Stock
entitled to vote is present in person or
by proxy. A quorum for Common Stock
votes need not be present. At any
special meeting, Preference stockholders
shall have the right to increase the
number of Directors to permit their
election of two Directors. In any
default period, the number of Directors
shall not otherwise be changed except
pursuant to the rights of any securities
ranking senior to or equal with the
Series A Preference Stock.
(iii) The Board of Directors may order, or
any stockholders owning not less than
ten percent (10%) of the Preference
Stock entitled to vote may request, the
calling of a special meeting. The
meeting shall thereupon be called by the
President, a Vice-President or the
Secretary. Notice of any meeting at
which Preference Stock is entitled to
vote shall be given to each holder of
record of Preference Stock by mail.
Such meeting shall be called not earlier
than 20 days and not later than 60 days
after such order or request. In default
of the timely calling of such meeting,
such meeting may be called on similar
notice by stockholders owning not less
than ten percent (10%) of the Preference
Stock entitled to vote. No special
meeting shall be called less than 60
days preceding the date fixed for the
next annual meeting of Common
Stockholders.
(iv) In any default period, other classes of
stock shall continue to be entitled to
elect the whole number of Directors if
the holders of Preference Stock do not
exercise their right to elect two (2)
Directors. Directors elected by
Preference Stock shall continue in
office until their successors are
elected or until the expiration of the
default period. Otherwise, any vacancy
in the Board may be filled by a majority
of the remaining Directors elected by
the class of stock which elected the
Director whose office is vacant.
(v) Upon the expiration of a default period,
(x) the right of Preference Stock to
elect Directors shall cease, (y) the
term of Directors elected by Preference
Stock shall terminate, and (z) the
number of Directors shall be unaffected
by any increase made pursuant to
Paragraph (C)(ii). Any vacancies in the
Board effected by clauses (y) and (z)
may be filled by a majority of the
remaining Directors.
(D) Except as set forth herein or provided by
law, Series A Preference Stock shall have no
voting rights or consent requirement for any
corporate action.
(d) Certain Restrictions.
(A) Whenever dividends on Series A Preference
Stock are in arrears, the Corporation shall
not
(i) make any distributions on, or acquire
for consideration, any stock ranking
junior (either as to dividends or
assets) to the Series A Preference
Stock;
(ii) make any distributions on stock ranking
on a parity (either as to dividends or
assets) with the Series A Preference
Stock, except dividends paid ratably on
all such parity stock;
(iii) acquire for consideration any stock
ranking on a parity (either as to
dividends or assets) with the Series A
Preference Stock, provided that the
Corporation may acquire stock in
exchange for stock ranking junior (as to
dividends and assets) to the Series A
Preference Stock; or
(iv) acquire for consideration Series A
Preference Stock, or any stock ranking
on a parity with the Series A Preference
Stock, except in accordance with a
purchase offer made in writing to all
holders of such shares upon such terms
as the Board, after consideration of the
respective dividend rates and other
relative rights and preferences, shall
determine in good faith will result in
fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any
subsidiary to acquire stock unless the
Corporation could, under Paragraph (A), so
acquire such stock.
(e) Reacquired Shares. Series A Preference Stock
acquired by the Corporation in any manner shall be
retired and canceled promptly after its
acquisition. All such shares shall be authorized
but unissued shares and may be reissued as part of
any series of Preference Stock.
(f) Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation, dissolution or winding
up, no distribution shall be made for shares
ranking junior (either as to dividends or
assets) to the Series A Preference Stock
unless, prior thereto, the Series A
Preference Stockholders shall receive $100
per share, plus an amount equal to accrued
and unpaid dividends to the date of such
payment (the "Series A Liquidation
Preference"). No additional distributions
shall be made for Series A Preference Stock
unless, prior thereto, Common Stockholders
shall have received an amount per share (the
"Common Adjustment") equal to the quotient
obtained by dividing (i) the Series A
Liquidation Preference by (ii) the Adjustment
Number. Series A Preference Stockholders and
Common Stockholders shall receive their
ratable share of the remaining assets to be
distributed in the ratio of the Adjustment
Number to 1.
(B) If there are not sufficient assets available
to permit payment in full of the liquidation
preferences of all series of Preference Stock
ranking on a parity, remaining assets shall
be distributed ratably in proportion to
respective liquidation preferences. If there
are not sufficient assets available to permit
payment in full of the Common Adjustment,
then remaining assets shall be distributed
ratably to Common Stockholders.
(g) Consolidation, Merger, etc. If the Corporation
shall enter into any transaction in which the
shares of Common Stock are exchanged for, or
changed into, any other property, Series A
Preference Stock shall at the same time be
similarly exchanged, or changed, in an amount per
share equal to the Adjustment Number times the
amount of property into which, or for which, each
share of Common Stock is changed or exchanged.
(h) No Redemption. Series A Preference Stock is not
redeemable.
(i) Ranking. The Series A Preference Stock ranks
junior to all series of Preferred Stock as to the
payment of dividends and the distribution of
assets, unless the terms of any series shall
provide otherwise.
(j) Amendment. The Articles of Incorporation shall
not be amended in any manner which would
materially adversely affect the powers,
preferences or special rights of the Series A
Preference Stock without the affirmative vote of a
majority of the Series A Preference Stock.
(k) Fractional Shares. Series A Preference Stock may
be issued in fractions of a share.
(l) Adjustment Number. The Adjustment Number shall be
100 initially. If the Corporation shall, (i) pay
any dividend on Common Stock in shares of Common
Stock, (ii) subdivide the Common Stock, or (iii)
combine the Common Stock into a smaller number of
shares, the Adjustment Number shall be modified by
multiplying it by a fraction, the numerator of
which is the number of shares of Common Stock
outstanding immediately after such event and the
denominator of which is the number of shares of
Common Stock outstanding immediately prior to such
event.
DIVISION C. Common Stock, $1 Par Value
(10) Dividends: After full cumulative dividends on the
Cumulative Preferred Stock and Preference Stock shall have been
paid or set apart for payment in accordance with paragraph (2) of
Division A above and if provision has been made for the
satisfaction of any obligations then or theretofore matured in
respect of any sinking fund provided for each series of the
Cumulative Preferred Stock and Preference Stock then
outstanding, dividends may be declared and paid upon the Common
Stock if, when and as declared by the Board of Directors in its
discretion, out of the surplus of the Corporation.
(11) Distribution of Assets: In the event of any
liquidation, dissolution or winding up of the Corporation, or any
reduction of its capital, resulting in a distribution of its
assets to its shareholders, whether voluntary or involuntary,
after there shall have been paid to or set apart for the holders
of the Cumulative Preferred Stock the full preferential amounts
to which they are respectively entitled under the provisions of
paragraph (3) of Division A above, the holders of the Common
Stock shall be entitled to receive as a class, pro rata, the
remaining assets of the Corporation available for distribution
to its shareholders subject to the rights of holders of
Preference Stock.
(12) Voting Power: Except as provided in paragraph (5) of
Division A above, the holders of the Common Stock shall possess
full voting power for the election of directors and for all
other purposes subject to the rights of holders of Preference
Stock.
DIVISION D. General Provisions
(13) Preemptive Rights: No holder of shares of capital
stock of any class of the Corporation shall have any preemptive
right to subscribe for or acquire any additional shares of
capital stock of the Corporation of the same or of any other
class or any obligations or securities of any kind which may be
convertible into capital stock, whether such shares of capital
stock or obligations or other securities are authorized or
created at the date of filing of these Articles or thereafter;
nor shall any holder of capital stock of any class of the
Corporation have any preemptive right to acquire any shares of
capital stock of the Corporation of the same or of any other
class or any obligations or any securities of any kind of the
Corporation which may be held in the treasury of the
Corporation, and all such shares of capital stock of any class
or obligations or other securities, whether authorized and
unissued or held in the treasury of the Corporation may, with
respect to the holders of shares of capital stock of the
Corporation, be sold for such lawful considerations, at such
times and to such persons or entities as the Board of Directors
may from time to time determine.
(14) Issuance of Capital Stock: Except as may be provided
herein and by law, the shares of capital stock of any class or
series may be issued by the Corporation from time to time without
action by the stockholders, for such lawful considerations as may
from time to time be fixed by the Board of Directors to such
persons, firms and/or corporations as the Board of Directors in
its discretion may determine.
(15) Cumulative Voting: At all elections of directors of
the Corporation by the stockholders, except as expressly provided
herein, each stockholder of the Corporation entitled to vote
thereat shall be entitled to as many votes as shall equal the
number of his shares multiplied by the number of directors to be
elected and for which he is then entitled to vote, and each such
stockholder may cast all of such votes for a single director or
may distribute them among the total number of directors for
which he is then entitled to vote or among any two or more of
such directors, as such stockholder may see fit, which right,
when exercised, shall be termed cumulative voting.
<PAGE>
ATTACHMENT 2
TO
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
(hereafter SEMCO Energy, Inc.)
ARTICLE VI.
The Board of Directors of the Corporation shall be divided
into three classes: Class I, Class II and Class III. Such
classes shall be as nearly equal in number as possible. The term
of office of the initial Class I Directors shall expire at the
annual meeting of shareholders in 1989; the term of office of the
initial Class II Directors shall expire at the annual meeting of
shareholders in 1990; and the term of office of the initial Class
III Directors shall expire at the annual meeting of shareholders
in 1991; or in each case thereafter when their respective
successors are elected and have qualified. At each annual
election held after the initial election of Directors according
to classes, the Directors chosen to succeed those whose terms
then expire, shall be identified as being of the same class as
the Directors they succeed and shall be elected for a term
expiring at the third succeeding annual meeting of shareholders
or in each case thereafter when their respective successors are
elected and have qualified. If the number of Directors is
changed, any increase or decrease in Directors shall be
apportioned among the classes so as to maintain all classes as
nearly equal in number as possible, but in no case shall a
decrease in number of Directors shorten the term of any incumbent
Director.
A director may be removed by shareholders, but only for
cause, at an annual meeting of shareholders and by the
affirmative vote of a majority of the shares then entitled to
vote for the election of directors. For purposes of this
Article, cause for removal shall be construed to exist only if a
director whose removal is proposed has been convicted of a felony
by a court of competent jurisdiction and such conviction is no
longer subject to appeal or has been adjudged by a court of
competent jurisdiction to be liable for willful misconduct in the
performance of his or her duty to the Corporation in a matter of
substantial importance to the Corporation and such adjudication
is no longer subject to appeal.
The provisions set forth in this Article may not be repealed
or amended in any respect unless such repeal or amendment is
approved by the affirmative vote or consent of the holders of not
less than two-thirds (2/3) of all shares of stock of the
Corporation entitled to vote in elections of directors,
considered for purposes of this Article as one class.
The provisions set forth in this Article are subject to the
rights of Cumulative Preferred Stockholders and Preference
Stockholders which may accrue under Article III.
Exhibit 10.8
EMPLOYMENT AGREEMENT
AGREEMENT by and between Southeastern Michigan Gas
Enterprises, Inc., a Michigan corporation (the "Company") and
William L. Johnson (the "Executive"), dated as of the 10 day of
October, 1996.
The Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and
its shareholders to assure that the Company will have the
exclusive dedication of the Executive for a reasonable period of
time to provide for continuity of Company management. Therefore,
in order to accomplish these objectives, the Board had caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall be May 1,
1996.
2. Employment Period. The Company hereby agrees to employ
the Executive, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and
ending on the date sixty (60) months thereafter (the "Employment
Period").
3. Terms of Employment. (a) Position and Duties. (i)(A)
During the Employment Period, the Executive shall serve as
President and Chief Executive Officer, with such authority,
duties and responsibilities as are commensurate with such
position and as may be consistent with such position as may be
assigned to him by the Board, and (B) the Executive shall be
elected a member of the Company's Board of Directors, and (C) the
Executive's services shall be performed at Port Huron, Michigan.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote substantially all of his
attention and time during normal business hours to the business
and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During
the Employment Period it shall not be a violation of this
Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill
speaking engagements or teach at educational institutions and (C)
manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to
the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature
and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary
("Annual Base Salary"), which shall be paid at a monthly rate, at
least equal to $210,000. During the Employment Period, the
Annual Base Salary shall be reviewed at least annually. Any
increase in Annual Base Salary shall not serve to limit or reduce
any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "affiliated companies" shall include any
company controlled by or under common control with the Company.
(ii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be (A) eligible for an
annual incentive bonus in an amount not to exceed forty percent
(40%) of the Executive's Annual Base Salary and payable upon the
attainment of specific targets as agreed to annually by the
Executive and the Board, and (B) entitled to participate in all
other incentive, savings and retirement plans, practices,
policies and programs (including the Company's Supplemental
Retirement Plan for Certain Officers) applicable generally to
other senior executives of the Company and its affiliated
companies.
(iii) Welfare Benefit Plans. During the Employment Period,
the Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent
applicable generally to other senior executives of the Company
and its affiliated companies.
(iv) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with
the Company's policies.
(v) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including,
without limitation, payment of the initiation fee (not to exceed
$5,000) for a country club membership of the Executive's choice
and use of a new natural gas automobile at the Crown Victoria
level and payment of related expenses, to the extent applicable
generally to other senior executives of the Company and its
affiliated companies.
(vi) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices
of a size and with furnishings and other appointments as provided
generally at any time thereafter with respect to other senior
executives of the Company and its affiliated companies and as are
commensurate with his position.
(vii) Vacation. During the Employment Period, the
Executive shall be entitled to four (4) weeks' paid vacation or
such longer period of paid vacation as warranted by the
Executive's seniority in accordance with the plans, policies,
programs and practices of the Company and its affiliated
companies as in effect generally at any time with respect to
other senior executives of the Company and its affiliated
companies.
(viii) Relocation Benefits. The Executive shall be
entitled to reimbursement of an after-tax equivalent amount for
ordinary and usual moving costs to move household furnishings and
personal effects to the Port Huron, Michigan metropolitan area,
and for the reasonable costs of house hunting trips, realtor
fees, and ordinary and usual temporary living expenses. For
these purposes, the term "after-tax equivalent amount" means such
amount that will provide the Executive with a reimbursement
amount, after the payment of federal income tax, equal to the
amount of reimbursement the Executive would have received if the
reimbursement were not subject to federal income taxation when
made.
(ix) Additional Life Insurance Benefit. During the
Employment Period, the Company shall provide additional term life
insurance on the life of the Executive in whatever face amount as
is available from a life insurance company as mutually agreed to
by the Company and the Executive, and as may be purchased with an
annual premium payment of $8,500, plus gross up costs.
4. Termination of Employment. (a) Death or Disability.
The Executive's employment shall terminate automatically upon the
Executive's death during the Employment Period. If the Company
determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition
of Disability set forth below), it may give to the Executive
written notice in accordance with Section 10(b) of this Agreement
of its intention to terminate the Executive's employment. In
such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided
that, within the 30 days after such receipt, the Executive shall
not have returned to full-time performance of the Executive's
duties. For purposes of this Agreement, "Disability" shall mean
the absence of the Executive from the Executive's duties with the
Company on a full-time basis for 180 consecutive business days as
a result of incapacity due to mental or physical illness which is
determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Executive or
the Executive's legal representative.
(b) Cause. the Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes
of this Agreement, "Cause" shall mean:
(i) the continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of
its affiliates (other than any such failure resulting from
incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive
by the Board which specifically identifies the manner in which
the Board believes that the Executive has not substantially
performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Company, or
(iii) conviction of a felony or guilty or nolo contendere
plea by the Executive with respect thereto, or
(iv) a material breach of the covenants contained in
Section 8.
For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is
done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive's action or omission
was in the best interests of the Company. Any act, or failure to
act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests
of the Company. The cessation of employment of the Executive
shall not be deemed to be for Cause unless and until there shall
have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds of
the outside members of the Board at a meeting of the Board called
and held for such purpose (after reasonable notice is provided to
the Executive and the Executive is given an opportunity, together
with counsel, to be heard before the Board) finding that, in the
good faith opinion of the Board, the Executive is guilty of the
conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be
terminated by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean in the absence of a
written consent of the Executive:
(i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's
position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as
contemplated by Section 3(a) of this Agreement, or any other
action by the Company which results in a material diminution in
such position, authority, duties or responsibilities, excluding
for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive;
(ii) any material failure by the Company to comply with any
of the provisions of Section 3(b) of this Agreement, other than
an isolated, insubstantial and inadvertent failure not occurring
in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at
any office or location more than 35 miles from that provided in
Section 3(a)(i)(C) hereof or the Company's requiring the
Executive to travel on Company business to a substantially
greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by
this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 9(c) of this Agreement.
For purposes of this Section 3(c), any good faith determination
of "Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company
for Cause, or by the Executive for Good Reason, shall be
communicated by Notice of Termination to the other party hereto
given in accordance with Section 10(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii)
if the Date of Termination (as defined below) is other than the
date of receipt of such notice, specifies the termination date
(which date shall be not more than thirty days after the giving
of such notice). The failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively,
hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i)
if the Executive's employment is terminated by the Company for
Cause, or by the Executive for Good Reason, the date of receipt
of the Notice of Termination or any later date specified therein
within 30 days of such notice, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than
for Cause or Disability, the Date of Termination shall be the
date on which the Company notifies the Executive of such
termination and (iii) if the Executive's employment is terminated
by reason of death or Disability, the Date of Termination shall
be the date of death of the Executive or the Disability Effective
Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Good
Reason; Other Than for Cause, Death or Disability. If, during
the Employment Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or the
Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 60 days after the Date of Termination the aggregate
of the following amounts:
A. the sum of (1) the Executive's Annual Base salary
through the Date of Termination to the extent not theretofore
paid, and (2) any compensation previously deferred (other than
pursuant to a qualified plan) by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation
pay, in each case to the extent not theretofore paid (the sum of
the amounts described in clauses (1) and (2) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. an amount equal to the Executive's Annual Base Salary.
(ii) for twelve months after the Executive's Date of
Termination the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans,
programs, practices and policies described in Section 3(b)(iii)
of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other senior
executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes
reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer-provided
plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during
such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be
considered to have remained employed until twelve months after
the Date of Termination and to have retired on the last day of
such period; and
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other
amounts or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program, policy
or practice or contract or agreement of the Company and its
affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period,
this Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other
than for payment of Accrued Obligations and the timely payment or
provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 60 days of the Date of Termination. With
respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 5(b) shall include death
benefits as in effect on the date of the Executive's death with
respect to other senior executives of the Company and its
affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is
terminated by reason of the Executive's Disability during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive, other than for payment of Accrued
Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in
a lump sum in cash within 60 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 5(c) shall include, and the
Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits as in effect at any
time thereafter generally with respect to other senior executives
of the Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause or the Executive
terminates his employment without Good Reason during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to
the Executive (i) his Annual Base Salary through the Date of
Termination, (ii) the amount of any compensation previously
deferred by the Executive, and (iii) Other Benefits, in each case
to the extent theretofore unpaid.
6. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided
by the Company or any of its affiliated companies and for which
the Executive may qualify, nor, subject to Section 10(f), shall
anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are
vested benefits or which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program
or contract or agreement except as explicitly modified by this
Agreement.
7. Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform
its obligations hereunder may be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive or others.
8. Confidential Information. (a) The Executive shall hold
in a fiduciary capacity for the benefit of the Company all secret
or confidential information, knowledge or data relating to the
Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives
of the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the
Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this
Section 8 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
(b) In the event of a breach or threatened breach of this
Section 8, the Executive agrees that the Company shall be
entitled to injunctive relief in a court of appropriate
jurisdiction to remedy any such breach or threatened breach, and
the Executive acknowledges that damages would be inadequate and
insufficient.
(c) Any termination of the Executive's employment or of
this Agreement shall have no effect on the continuing operation
of this Section 8.
9. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company
shall not be assignable by the Executive otherwise than by will
or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement
in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
10. Miscellaneous. (a) This Agreement shall be governed
by and construed in accordance with the laws of the State of
Michigan. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
William L. Johnson
2645 Whitney Place
Fort Gratiot, Michigan 48059
If to the Company:
Frank G. Andreoni
Chairman of the Board of Directors
Southeastern Michigan Gas Enterprises, Inc.
405 Water Street
Port Huron, Michigan 48060
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as
shall be required to be withheld pursuant to any applicable law
or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the
failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason pursuant to
Section 4(c)(i)-(v) of this Agreement, shall not be deemed to be
a waiver of such provision or right or any other provision or
right of this Agreement.
(f) The Executive and the Company acknowledge that, except
as may otherwise be provided under any other written agreement
between the Executive and the Company, the employment of the
Executive by the Company is "at will". Either the Company or the
Executive may terminate the Executive's employment at any time,
with or without cause, subject to the provisions of this
Agreement. From and after the Effective Date this Agreement
shall supersede any other employment agreement, arrangement or
understanding between the parties with respect to the subject
matter hereof other than the Change of Control Employment
Agreement dated October 10, 1996 between the parties, which
shall, upon a Change of Control (as defined therein) supersede
this Agreement.
(g) Notwithstanding any provision of this Agreement, the
Company shall have no obligation to make any payments to the
Executive if or to the extent such payments are prohibited by any
applicable law or regulation.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its
Board of Directors, the Company has caused these presents to be
executed in its name on its behalf, all as of the day and year
first above written.
SOUTHEASTERN MICHIGAN GAS
ENTERPRISES, INC.
By: Frank G. Andreoni
Chairman of the Board
William L. Johnson
Exhibit 10.9
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT by and between Southeastern Michigan Gas
Enterprises, Inc., a Michigan corporation (the "Company") and
William L. Johnson (the "Executive"), dated as of the 10 day of
October, 1996.
The Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and
its shareholders to assure that the Company will have the
exclusive dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is
imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to
encourage the Executive's full attention and dedication to the
Company currently and in the event of any threatened or pending
Change of Control, and to provide the Executive with compensation
and benefit arrangements upon a Change of Control which ensure
that the compensation and benefit expectations of the Executive
will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these
objectives, the Board had caused the Company to enter into this
Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall
mean the first date during the Change of Control Period (as
defined in Section 1(b)) on which a Change of Control (as defined
in Section 2) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to
the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of
employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii)
otherwise arose in connection with or anticipation of a Change of
Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior the date of such
termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary
of the date hereof; provided, however, that commencing on the
date one year after the date hereof, and on each annual
anniversary of such date (such date and each annual anniversary
thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall
be automatically extended so as to terminate three years from
such Renewal Date, unless at least 60 days prior to the Renewal
Date the Company shall give notice to the Executive that the
Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 30% or more of
either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"),
provided, however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change of Control:
(i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (iv) any
acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (c) of
this Section 2; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board, provided, however, that any
individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(c) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which
as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii)
no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 30% or
more of, the corporation resulting from such Business Combination
or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (iii) at
least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members
of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for
such Business Combination; or
(d) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to
continue the Executive in its employ, and the Executive hereby
agrees to remain in the employ of the Company, subject to the
terms and conditions of this Agreement, for the period commencing
on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i)
During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant
of those held, exercised and assigned at any time during the
120-day period immediately preceding the Effective Date and (B)
the Executive's services shall be performed at the location where
the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from such
location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote reasonable attention and
time during normal business hours to the business and affairs of
the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period
it shall not be a violation of this Agreement for the Executive
to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly
interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to
the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature
and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary
("Annual Base Salary"), which shall be paid at a monthly rate, at
least equal to $210,000. During the Employment Period, the
Annual Base Salary shall be reviewed at least annually. Any
increase in Annual Base Salary shall not serve to limit or reduce
any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "affiliated companies" shall include any
company controlled by or under common control with the Company.
(ii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be (A) eligible for an
annual incentive bonus in an amount not to exceed forty percent
(40%) of the Executive's Annual Base Salary and payable upon the
attainment of specific targets as agreed to annually by the
Executive and the Board, and (B) entitled to participate in all
other incentive, savings and retirement plans, practices,
policies and programs applicable generally to other senior
executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide
the Executive with incentive opportunities (measured with respect
to both regular and special incentive opportunities, to the
extent, if any, that such distinction is applicable), savings
opportunities and retirement benefit opportunities, in each case,
less favorable, in the aggregate, than the most favorable of
those provided by the Company and its affiliated companies for
the Executive under such plans, practices, policies and programs
as in effect at any time during the 120-day period immediately
preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the
Effective Date to other senior executives of the Company and its
affiliated companies.
(iii) Welfare Benefit Plans. During the Employment Period,
the Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent
applicable generally to other senior executives of the Company
and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with
benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in
effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to
the Executive, those provided generally at any time after the
Effective Date to other senior executives of the Company and its
affiliated companies.
(iv) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement of all
reasonable expenses incurred by the Executive in accordance with
the most favorable policies, practices and procedures of the
Company and its affiliated companies in effect for the Executive
at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other
senior executives of the Company and its affiliated companies.
(v) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including,
without limitation, payment of the initiation fee (not to exceed
$5,000) for a country club membership of the Executive's choice
and use of a new natural gas automobile at the Crown Victoria
level and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the
Company and its affiliated companies in effect for the Executive
at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other
senior executives of the Company and its affiliated companies.
(vi) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices
of a size and with furnishings and other appointments, and to
exclusive personal secretarial and other assistance, at least
equal to the most favorable of the foregoing provided to the
Executive by the Company and its affiliated companies at any time
during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive, as provided
generally at any time thereafter with respect to other senior
executives of the Company and its affiliated companies.
(vii) Vacation. During the Employment Period, the
Executive shall be entitled to four (4) weeks' paid vacation or
such longer period of paid vacation as warranted by the
Executive's seniority in accordance with the most favorable
plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time
during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other senior
executives of the Company and its affiliated companies.
(viii) Relocation Benefits. The Executive shall be
entitled to reimbursement of an after-tax equivalent amount for
ordinary and usual moving costs to move household furnishings and
personal effects to the Port Huron, Michigan metropolitan area,
and for the reasonable costs of house hunting trips, realtor
fees, and ordinary and usual temporary living expenses. For
these purposes, the term "after-tax equivalent amount" means such
amount that will provide the Executive with a reimbursement
amount, after the payment of federal income tax, equal the amount
of reimbursement the Executive would have received if the
reimbursement were not subject to federal income taxation when
made.
(ix) Additional Life Insurance Benefit. During the
Employment Period, the Company shall provide additional term life
insurance on the life of the Executive in whatever face amount as
is available from a life insurance company as mutually agreed to
by the Company and the Executive, and as may be purchased with an
annual premium payment of $8,500, plus gross up costs.
5. Termination of Employment. (a) Death or Disability.
The Executive's employment shall terminate automatically upon the
Executive's death during the Employment Period. If the Company
determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition
of Disability set forth below), it may give to the Executive
written notice in accordance with Section 11(b) of this Agreement
of its intention to terminate the Executive's employment. In
such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided
that, within the 30 days after such receipt, the Executive shall
not have returned to full-time performance of the Executive's
duties. For purposes of this Agreement, "Disability" shall mean
the absence of the Executive from the Executive's duties with the
Company on a full-time basis for 180 consecutive business days as
a result of incapacity due to mental or physical illness which is
determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Executive or
the Executive's legal representative.
(b) Cause. the Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes
of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or
one of its affiliates (other than any such failure resulting from
incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive
by the Board which specifically identifies the manner in which
the Board believes that the Executive has not substantially
performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is
done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive's action or omission
was in the best interests of the Company. Any act, or failure to
act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests
of the Company. The cessation of employment of the Executive
shall not be deemed to be for Cause unless and until there shall
have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters
of the outside members of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is
provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board)
finding that, in the good faith opinion of the Board, the
Executive is guilty of the conduct described in subparagraph (i)
or (ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be
terminated by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by Section
4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iii) The Company's requiring the Executive to be based at
any office or location other than as provided in Section
4(a)(i)(B) hereof or the Company's requiring the Executive to
travel on Company business to a substantially greater extent than
required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by
this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination
of "Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company
for Cause, or by the Executive for Good Reason, shall be
communicated by Notice of Termination to the other party hereto
given in accordance with Section 11(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii)
if the Date of Termination (as defined below) is other than the
date of receipt of such notice, specifies the termination date
(which date shall be not more than thirty days after the giving
of such notice). The failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively,
hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i)
if the Executive's employment is terminated by the Company for
Cause, or by the Executive for Good Reason, the date of receipt
of the Notice of Termination or any later date specified therein,
as the case may be, (ii) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may
be.
6. Obligations of the Company upon Termination. (a) Good
Reason; Other Than for Cause, Death or Disability. If, during
the Employment Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or the
Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 60 days after the Date of Termination the aggregate
of the following amounts:
A. the sum of (1) the Executive's Annual Base salary
through the Date of Termination to the extent not theretofore
paid, and (2) any compensation previously deferred by the
Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the extent
not theretofore paid (the sum of the amounts described in clauses
(1) and (2) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to the product of (1) two and
ninety-nine hundredths (2.99) and (2) the Executive's Annual Base
Salary;
(ii) for twelve months after the Executive's Date of
Termination the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans,
programs, practices and policies described in Section 4(b)(iii)
of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other senior
executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes
reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer-provided
plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during
such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be
considered to have remained employed until twelve months after
the Date of Termination and to have retired on the last day of
such period; and
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other
amounts or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program, policy
or practice or contract or agreement of the Company and its
affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period,
this Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other
than for payment of Accrued Obligations and the timely payment or
provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 60 days of the Date of Termination. With
respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(b) shall include, without
limitation, and the Executive's estate and/or beneficiaries shall
be entitled to receive, benefits at least equal to the most
favorable benefits provided by the Company and affiliated
companies to the estates and beneficiaries of senior executives
of the Company and such affiliated companies under such plans,
programs, practices and policies relating to death benefits, if
any, as in effect with respect to other senior executives and
their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to
the Executive's estate and/or the Executive's beneficiaries, as
in effect on the date of the Executive's death with respect to
other senior executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is
terminated by reason of the Executive's Disability during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive, other than for payment of Accrued
Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in
a lump sum in cash within 60 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(c) shall include, and the
Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its
affiliated companies to disabled executives and/or their families
in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with
respect to other senior executives and their families at any time
during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive and/or the
Executive's family, as in effect at any time thereafter generally
with respect to other senior executives of the Company and its
affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment
Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to
the Executive (i) his Annual Base Salary through the Date of
Termination, (ii) the amount of any compensation previously
deferred by the Executive, and (iii) Other Benefits, in each case
to the extent theretofore unpaid. If the Executive voluntarily
terminates employment during the Employment Period, excluding a
termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to
the Executive in a lump sum in cash within 60 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided
by the Company or any of its affiliated companies and for which
the Executive may qualify, nor, subject to Section 11(f), shall
anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are
vested benefits or which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program
or contract or agreement except as explicitly modified by this
Agreement.
8. Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform
its obligations hereunder may be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive or others.
9. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the
Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives
of the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the
Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this
Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
10. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company
shall not be assignable by the Executive otherwise than by will
or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement
in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed
by and construed in accordance with the laws of the State of
Michigan. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
William L. Johnson
2645 Whitney Place
Fort Gratiot, Michigan 48059
If to the Company:
Frank G. Andreoni
Chairman of the Board of Directors
Southeastern Michigan Gas Enterprises, Inc.
405 Water Street
Port Huron, Michigan 48060
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as
shall be required to be withheld pursuant to any applicable law
or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the
failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason pursuant to
Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be
a waiver of such provision or right or any other provision or
right of this Agreement.
(f) The Executive and the Company acknowledge that, except
as may otherwise be provided under any other written agreement
between the Executive and the Company, the employment of the
Executive by the Company is "at will". Either the Company or the
Executive may terminate the Executive's employment at any time,
with or without cause, subject to the provisions of this
Agreement. From and after the Effective Date this Agreement
shall supersede any other agreement between the parties with
respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its
Board of Directors, the Company has caused these presents to be
executed in its name on its behalf, all as of the day and year
first above written.
SOUTHEASTERN MICHIGAN GAS
ENTERPRISES, INC.
By: Frank G. Andreoni
Chairman of the Board
William L. Johnson
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statements of income, the consolidated balance sheets and the
consolidated statements of cash flows and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 247,057
<OTHER-PROPERTY-AND-INVEST> 9,582
<TOTAL-CURRENT-ASSETS> 128,505
<TOTAL-DEFERRED-CHARGES> 32,625
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 417,769
<COMMON> 12,390
<CAPITAL-SURPLUS-PAID-IN> 79,299
<RETAINED-EARNINGS> 5,645
<TOTAL-COMMON-STOCKHOLDERS-EQ> 97,334
0
3,269
<LONG-TERM-DEBT-NET> 103,573
<SHORT-TERM-NOTES> 61,400
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 2,468
<LEASES-CURRENT> 1,561
<OTHER-ITEMS-CAPITAL-AND-LIAB> 148,164
<TOT-CAPITALIZATION-AND-LIAB> 417,769
<GROSS-OPERATING-REVENUE> 252,735
<INCOME-TAX-EXPENSE> 5,082
<OTHER-OPERATING-EXPENSES> 234,912
<TOTAL-OPERATING-EXPENSES> 239,994
<OPERATING-INCOME-LOSS> 12,741
<OTHER-INCOME-NET> 79
<INCOME-BEFORE-INTEREST-EXPEN> 12,820
<TOTAL-INTEREST-EXPENSE> 3,227
<NET-INCOME> 9,593
4
<EARNINGS-AVAILABLE-FOR-COMM> 9,589
<COMMON-STOCK-DIVIDENDS> 2,437
<TOTAL-INTEREST-ON-BONDS> 2,129
<CASH-FLOW-OPERATIONS> 35,418
<EPS-PRIMARY> .74<F1>
<EPS-DILUTED> .74<F1>
<FN>
<F1>Adjusted to give retroactive effect to a 5% stock dividend payable in May
1997. Prior Financial Data Schedules have not been restated for this dividend.
</FN>
</TABLE>
