SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
SEMCO Energy, Inc.
(Name of Registrant as Specified In Its Charter)
______________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
______________________________________________________________________
2) Aggregate number of securities to which transaction applies:
______________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
______________________________________________________________________
4) Proposed maximum aggregate value of transaction:
______________________________________________________________________
5) Total fee paid:
______________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
______________________________________________________________________
2) Form, Schedule or Registration Statement No.:
______________________________________________________________________
3) Filing Party:
______________________________________________________________________
4) Date Filed:
______________________________________________________________________
<PAGE>
PRELIMINARY COPY
SEMCOENERGY
___________
March 15, 1999
NOTICE OF ANNUAL MEETING OF COMMON SHAREHOLDERS
TO BE HELD ON APRIL 20, 1999
To the Common Shareholders of SEMCO ENERGY, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of SEMCO
Energy, Inc. (the Company) will be held at the McMorran Auditorium, 701
McMorran Boulevard, Port Huron, Michigan (see map on back), on Tuesday, April
20, 1999 at 2:00 p.m., for the following purposes:
I. To elect four members to the Board of Directors.
II. To vote on a proposal to increase the number of authorized
Common Shares from 20,000,000 to 40,000,000.
III. To transact any other business which properly comes before the
meeting.
Only Common Shareholders of record on February 22, 1999 may vote at the
meeting.
Whether or not you expect to attend the meeting, please sign, date and
return the accompanying proxy in the enclosed envelope, which requires no
postage if mailed in the United States. If you should attend, you may vote in
person, if you wish, whether or not you have sent in your proxy.
By order of the Board of Directors
Sherry L. Abbott, Secretary
405 Water Street P.O. Box 5026
Port Huron, Michigan 48061-5026
(810) 987-2200
<PAGE>
SEMCOENERGY
___________
405 Water Street, Port Huron, MI 48060
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of SEMCO
Energy, Inc. (the Company) for use at the Annual Meeting of Shareholders on
Tuesday, April 20, 1999, at 2:00 p.m., to be held at the McMorran Auditorium,
701 McMorran Boulevard, Port Huron, Michigan, and any adjournments. These
proxy materials are being mailed to shareholders approximately March 15, 1999.
A Shareholder giving the enclosed proxy may revoke it any time before it
is voted by executing a subsequent proxy, by notice to the Company, or by
voting in person at the meeting.
The Company will bear the cost of soliciting proxies, including charges
and expenses of brokerage firms and others for forwarding proxy material to
beneficial owners of stock. In addition to mailings, proxies may be solicited
by personal interview, telephone or otherwise by employees. The Company may
also retain outside organizations to assist in soliciting proxies.
A copy of the Company's 1998 Annual Report is enclosed.
STOCK OUTSTANDING, VOTING RIGHTS AND VOTES REQUIRED
Only Common Shareholders of record on February 22, 1999 (the record date)
may vote at the meeting.
The Company had approximately 17,500,000 shares of Common Stock (Common
Shares) outstanding on the record date. A majority of the Common Shares
constitutes a quorum.
To the Company's knowledge, no person owns beneficially more than 5% of
the Common Shares.
<PAGE>
<TABLE>
The following table reflects ownership, as of February 22, 1999, by
nominees, directors and executive officers.
<CAPTION>
Common Phantom
Name Shares<F1> Stock<F2>
---- ---------- ---------
<S> <C> <C>
Daniel A. Burkhardt ........................................ 3,777<F3> 1,776
Edward J. Curtis ........................................... 1,996<F3> 5,925
Robert J. Digan, II (4) .................................... 3,393 0
John T. Ferris ............................................. 55,351 0
Michael O. Frazer .......................................... 8,550 0
Barrett Hatches ............................................ 2,661 0
Marcus Jackson ............................................. 0 0
William L. Johnson ......................................... 26,712 0
Harvey I. Klein ............................................ 3,057<F3> 11,209
Stewart J. Kniff ........................................... 23,154 0
Bruce G. Macleod ........................................... 1,440 3,101
Frederick S. Moore ......................................... 2,613<F3> 6,672
Paul F. Naughton ........................................... 210 0
Carl W. Porter ............................................. 9,261 0
Edith A. Stotler ........................................... 3,209 0
Donald W. Thomason ......................................... 4,071 2,256
Common Shares of all nominees,
directors and executive officers as a group ................ 149,473<F5>
<FN>
<F1>
Each person has sole power to vote and sell the Common Shares shown, except those Shares held jointly
with spouses or directly by spouses, minor children, or certain other relatives, and except as
described in (3) below. This column also includes Common Shares for Mr. Hatches (2,445); Mr. Johnson
(15,750); Mr. Porter (4,892); and each non-employee director (700), except Mr. Kniff (350), which may
be acquired pursuant to stock options within 60 days.
<F2>
Phantom Stock has a value equal to Common Shares, but Phantom Stock has no voting rights or other
shareholder rights (see "Director Compensation" below for further information concerning Deferred
Compensation and Phantom Stock Purchase Agreements). Therefore, Phantom Stock suffers all the risks,
and enjoys all the rewards, of changes in the price of Common Shares.
<F3>
Includes Common Shares held in a Directors' Deferred Compensation Plan Account as follows:
Directors Deferred
Name Compensation Shares
---- -------------------
Daniel A. Burkhardt ............................ 168
Edward J. Curtis ............................... 193
Harvey I. Klein ................................ 193
Frederick S. Moore ............................. 168
All directors, nominees and
executive officers as a group .................. 722
The stock in this Account may not be voted by the individual directors, but may be voted by the full
Board (see "Director Compensation" below for further information concerning the Directors Deferred
Compensation Account).
<F4>
Mr. Digan resigned effective October 30, 1998.
<F5>
Less than one percent of outstanding Common Shares.
</FN>
</TABLE>
<PAGE>
RESPECTING THE ELECTION OF DIRECTORS
Common Shareholders are entitled to cumulative voting for directors.
Each Common Shareholder may cast a number of votes equal to the number of
Common Shares owned multiplied by the number of directors to be elected.
Votes may be cast for a single nominee or distributed among nominees.
The Articles of Incorporation provide for three classes of directors.
The term of office of each class is three years and the term of one class
expires each year. The Bylaws provide for a Board with eleven members.
Approximately one-third of the Board will be elected at each Annual Meeting of
Shareholders. A vacancy can be filled by a vote of the shareholders or by the
Board.
Four directors are to be elected at this Annual Meeting. Proxies are
being solicited to vote for the election of the following four persons:
Daniel A. Burkhardt
Edward J. Curtis
Marcus Jackson
Harvey I. Klein
The Board does not expect that any nominee will become unavailable.
Should that occur, however, proxies will be voted for another person selected
by the Board.
The persons named in the enclosed proxy reserve the right to vote proxies
cumulatively, but do not intend to do so unless other persons are nominated at
the meeting. As shown on the proxy, shareholders may direct that their shares
be voted for less than all four of the above-named nominees.
<PAGE>
INFORMATION ABOUT DIRECTORS
<TABLE>
<CAPTION>
Name, Position with the Company<F1> and Director
Business Experience During Past Five Years Age Since
------------------------------------------ --- --------
<S> <C> <C>
NOMINEES (terms expiring 2002)
- ------------------------------
Daniel A. Burkhardt ............................................................. 51 1993
Associated with Edward Jones, a securities brokerage firm, since 1978;
Principal in Investment Banking Department of Jones; Member of Jones'
Investment Policy Committee; Director of: St. Joseph Light & Power Co.
Edward J. Curtis ................................................................ 56 1995
President of E.J. Curtis Associates, Inc., a professional management
consulting firm.
Marcus Jackson .................................................................. 47 --
Executive Vice President and Chief Financial Officer of Kansas City
Power & Light Company since January 1999. Prior to January 1999, he held
the following positions at Kansas City Power & Light Company: Executive
Vice President and Chief Operating Officer from November 1996 to January
1999, Senior Vice President of Power Supply from July 1994 to November 1996,
and Vice President of Power Production from May 1989 to July 1994. Also,
since October 1995, Chairman of the Board of KLT Power, Inc., a second-tier
subsidiary of Kansas City Power & Light Company, and from August 1993 to
October 1995, KLT Power, Inc. President.
Harvey I. Klein ................................................................. 59 1993
President of Global Strategies Group L.C., a private consulting firm,
since 1995. Retired from Ford Motor Company in January 1995. Held
positions of increasing responsibility with the last position being Manager
of Advanced Vehicle/Safety and Fuel Economy Planning.
OTHER DIRECTORS (terms expiring 2000)
- -------------------------------------
John T. Ferris .................................................................. 48 1994
Senior Partner in law firm of Ferris & Schwedler, P.C. in Bad Axe, Michigan,
former prosecutor for Huron County, Michigan.
Michael O. Frazer ............................................................... 60 1986
Attorney practicing in Battle Creek, Michigan.
Frederick S. Moore .............................................................. 60 1995
President and Chairman of DSLT Inc., a holding company with subsidiaries
engaging in the real estate development business; Chairman of Diamond
Crystal Specialty Foods, Inc. (Diamond Crystal), a subsidiary of DSLT Inc.,
until Diamond Crystal's sale in November 1998.
Edith A. Stotler ................................................................ 52 1987
Partner, Stotler Grain Company; President, S&I Grain Company (formerly Homer
Grain Company).
OTHER DIRECTORS (terms expiring 2001)
- -------------------------------------
William L. Johnson .............................................................. 56 1996
Chairman of the Board of Directors since December 1997 and President and
Chief Executive Officer since May 1996; Chief Executive Officer, Northern
Pipeline Construction Company, Kansas City, Missouri, from 1994 to May 1996;
President, Gas Service Division, Western Resources, Inc., Topeka, Kansas,
from 1990 to 1994.
Bruce G. Macleod ................................................................ 46 1997
Chief Executive Officer of Beacon Home Direct, Inc., a leading interactive,
electronic grocery home shopping, meal solution and delivery company, since
1997; Chief Operating Officer of The Jel Sert Company, a global manufacturer
and marketer of food and beverage products, from 1995 to 1997; President of
various subsidiaries of The Quaker Oats Company, a manufacturer and retail
marketer of food and beverage products, from 1983 to 1995.
Donald W. Thomason .............................................................. 55 1995
Executive Vice President Services/Technology of the Kellogg Company.
_________________
<FN>
<F1>
Other than Mr. Johnson, each director's and nominee's principal employment is and has been with a
company not affiliated with SEMCO.
</FN>
</TABLE>
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
AND MEETING ATTENDANCE
<TABLE>
Participation in Committees of the Board of Directors is as follows:
<CAPTION>
Nominating and
Name Audit Compensation Finance Corporate Governance
---- ----- ------------ ------- --------------------
<S> <C> <C> <C> <C>
Daniel A. Burkhardt ................ x x
Edward J. Curtis ................... xx
John T. Ferris ..................... xx<F1> x
Michael O. Frazer .................. x x
William L. Johnson .................
Harvey I. Klein .................... x xx
Stewart J. Kniff ...................
Bruce G. Macleod ................... x x
Frederick S. Moore ................. x x
Edith A. Stotler ................... x xx
Donald W. Thomason ................. x
________________
x Member.
xx Chair.
<FN>
<F1>
Became Chairman March 1, 1999.
</FN>
</TABLE>
The Board held 11 meetings during 1998. Each director attended more than
75% of the total number of meetings of the Board and Committees on which he or
she served in 1998.
<PAGE>
The Audit Committee reviews the independent public accountants' reports
and audit findings, the scope and plans for future audit programs,
independence of the independent accountants, annual financial statements,
accounting, financial and internal controls of the Company, information
systems, risk management and compliance with codes of conduct. The Audit
Committee also recommends the choice of independent public accountants to the
full Board. Six Audit Committee meetings were held in 1998.
The Compensation Committee held 3 meetings in 1998. The Compensation
Committee reviews the Company's general compensation strategy and recommends
compensation of executive officers and directors to the full Board.
The Finance Committee serves as liaison between management and the Board
on important financial transactions and financial policy matters. The Finance
Committee held 7 meetings in 1998.
The Nominating and Corporate Governance Committee held 5 meetings in
1998. The Nominating and Corporate Governance Committee recommends directors
to serve on Board committees, candidates to fill Board vacancies, director
candidates for shareholder approval, personal qualifications criteria for
Board membership and general criteria regarding committee composition. The
committee also ensures that the Articles of Incorporation, Bylaws and Board of
Directors and its processes are structured in a way that b-est serve the
Company and its shareholders. Recommendations by shareholders of candidates
for Board membership will be considered by the committee and should be sent to
the Nominating and Corporate Governance Committee, c/o the Corporate Secretary
at 405 Water Street, Port Huron, Michigan 48060.
CERTAIN BUSINESS RELATIONSHIPS OF DIRECTORS
In August 1998 the Company issued 1,820,000 shares of Common Stock in a
public offering. Edward D. Jones & Co., L.P. acted as an underwriter for
this offering and sold 259,300 of these shares. Mr. Burkhardt is a Principal
of Jones' Investment Banking Department and a member of Jones' Investment
Policy Committee.
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
Summary Compensation Table
The following executive officers had salary and bonus exceeding $100,000
in 1998.
<CAPTION>
Name and Other Annual Common Share All Other
Principal Position Year Salary<F1> Bonus<F2> Compensation<F3> Options<F4> Compensation
------------------ ---- ---------- -------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
William L. Johnson,
Chairman, President
and CEO .................. 1998 $295,931 $ 1,672 $ 717 25,000 $ 2,248<F5>
1997 $233,077 $175,500 $3,643 50,000 $ 6,843<F6>
1996 $130,846 $ 8,500 $3,643 15,000 $71,275<F7>
Carl W. Porter,
Senior Vice President
and COO .................. 1998 $171,008 $ 739 $ 317 6,979 $ 5,843<F8>
1997 $170,354 $ 81,726 $ 0 7,000 $ 8,851<F9>
Barrett Hatches,
Vice President of
Human Resources and
Public Affairs ........... 1998 $106,635 $ 267 $ 114 3,486 $23,653<F10>
1997 $ 88,125 $ 40,058 $ 0 3,500 $54,368<F11>
Robert J. Digan, II,
Senior Vice President
and CFO <F12> ............ 1998 $142,885 $ 398 $ 171 7,000 $ 5,625<F13>
1997 $ 70,769 $ 92,400 $ 0 7,000 $51,989<F14>
Paul F. Naughton,
Vice President of
Corporate
Development <F15> ........ 1998 $169,100 $ 0 $ 0 0 $ 0
1997 $ 62,550 $ 0 $ 0 0 $ 0
____________________
<FN>
<F1>
Actual salary earned during the year. Mr. Johnson began employment on May 1, 1996. Mr. Porter began
employment in July 1996 and did not earn more than $100,000 in 1996. Mr. Hatches began employment in
February 1997. Mr. Digan was employed by the Company from July 1997 through October 1998.
<F2>
Bonuses earned during the year pursuant to the short-term incentive plan (but paid in following year) and
bonus paid to reimburse the premium of a life insurance policy.
<F3>
Bonus to pay taxes relating to life insurance premium discussed in preceding note.
<F4>
Number of Common Shares underlying stock-option awards at date of grant.
<F5>
Term life insurance ($2,248).
<F6>
Company contribution to Employee Stock Ownership Trust ($3,042) and term life insurance ($3,801).
<F7>
Moving expenses ($69,939) and term life insurance ($1,336).
<F8>
Company match contribution to 401(k) plan ($5,330) and term life insurance ($513).
<F9>
Moving expenses ($4,778), Company contribution to Employee Stock Ownership Trust ($3,042) and term life
insurance ($1,031).
<F10>
Moving expenses ($23,486) and term life insurance ($166.29).
<F11>
Moving expenses ($51,823), Company contribution to Employee Stock Ownership Trust ($2,272) and term life
insurance ($273).
<F12>
Mr. Digan resigned effective October 30, 1998.
<F13>
Company match contribution to 401(k) plan ($5,330) and term life insurance ($295).
<F14>
Moving expenses ($51,772) and term life insurance ($217).
<F15>
Mr. Naughton is an independent contractor and not an employee of the Company. He served as the Company's
interim Chief Financial Officer from October 1998 to January 1999.
</FN>
</TABLE>
<TABLE>
Option Grants in 1998
<CAPTION>
Value When Options
Number of Expire if 5% or 10%
Common % of Total Annual Stock
Shares Options Price Appreciation
Underlying Granted to Exercise from Date of Grant Value of
Options Employees Price Expiration ------------------- Options at
Name Granted in 1998 ($/Sh.)<F1> Date<F2> 5%<F3> 10%<F3> 12/31/98<F4>
---- ------- ------- ----------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William L. Johnson 25,000 28.4% $16.750 3/2/08 $263,349 $667,379 $9,476
Carl W. Porter 6,979 7.9% $16.750 3/2/08 $ 73,517 $186,307 $2,645
Barrett Hatches 3,486 4.0% $16.750 3/2/08 $ 36,721 $ 93,059 $1,321
Robert J. Digan, II 7,000 8.0% $16.750 3/2/08 $ 73,738 $186,866 $ 0<F5>
<FN>
<F1>
The exercise price is the market price of the Common Shares at the time options were granted.
<F2>
One-third of the options become exercisable each of the three years following the date granted. Each option
expires ten years after it was granted.
<F3>
These two columns show what the value of the options would be after ten years if the market price of the Common
Shares increased 5% or 10% each year for the ten years from the date the options were granted until the options
expired. This table is required by the Securities and Exchange Commission and does not mean that the Company
predicts that these options will have any such value nor that the market price of Common Shares will increase
by any specific amount. The actual value that these options w-ill have depends entirely on increases or
decreases in the market price of Common Shares and when the options are exercised.
<F4>
Based on the last trade price of Common Shares on December 31, 1998 of $16.313. The number of Common Shares
and exercise price will change if there is a stock dividend, stock split or similar action which requires an
adjustment to maintain the value of the option. For example, Mr. Johnson was awarded an option to purchase
25,000 Common Shares in March 1998 at $16.750 per share which was later adjusted for the May 1998 5% stock
dividend to become an option to purchase 26,250 Common Shares at $15.952. This type of "anti-dilution"
adjustment is common to virtually all stock options by all companies.
<F5>
Mr. Digan resigned before these options vested and therefore the options were forfeited.
</FN>
</TABLE>
<TABLE>
Options Outstanding at December 31, 1998
<CAPTION>
Number of Options at Value of Options at
December 31, 1998<F1> December 31, 1998<F2>
-------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William L. Johnson .......... 7,000 89,862 $ 0 $31,752
Carl W. Porter .............. 2,450 12,227 $ 0 $ 2,645
Barrett Hatches ............. 1,225 6,110 $ 0 $ 1,321
Robert J. Digan, II ......... 2,450 0 $884 $ 0
<FN>
<F1>
No options were exercised in 1998.
<F2>
Option values are based on the difference between the grant prices of all options adjusted for
stock dividends and the closing price for the Company's stock of $16.313 per share on December 31, 1998.
</FN>
</TABLE>
Employment and Related Agreements
Mr. Johnson's employment agreement provides for a severance payment if
the Company terminates his employment other than for "cause" or "disability"
or if Mr. Johnson resigns due to a required relocation of personal residence
or a demotion in position, authority, etc. The severance payment will equal
Mr. Johnson's annual salary. The Company will also continue insurance and
similar benefit plans for twelve months, subject to certain limitations.
Mr. Johnson's change-of-control employment agreement has parallel
provisions except severance equals 2.99 times his annual salary. All
executive officers have parallel change-in-control agreements except that
severance equals 1.0 times their highest annual W-2 compensation during the
last three years.
Mr. Kniff has a four-year consulting agreement with the Company so that
he can use his expertise to help grow the utility-related construction
business. Mr. Kniff will be paid $100,000 per year.
<PAGE>
<TABLE>
Pension Plan
<CAPTION>
Average Years of Credited Service
Compensation -----------------------------------------------------------------------------
- ------------ 5 10 15 20 25 30 35 40
------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
90,000 6,300 12,600 18,900 25,200 31,500 37,800 44,100 50,400
110,000 7,700 15,400 23,100 30,800 38,500 46,200 53,900 61,600
130,000 9,100 18,200 27,300 36,400 45,500 54,600 63,700 72,800
150,000 10,500 21,000 31,500 42,000 52,500 63,000 73,500 84,000
160,000 11,200 22,400 33,600 44,800 56,000 67,200 78,400 89,600
180,000 12,600 25,200 37,800 50,400 63,000 75,600 88,200 100,800
</TABLE>
The above table sets forth the estimated annual benefits payable at
normal retirement age (65) under the Pension Plan based on the formula in
effect beginning January 1, 1999 described below. Only salary up to $160,000
is counted for the Pension in 1998. This ceiling amount is set by law and
will increase over time.
At age 65, a participant can receive an annual pension equal to 1.75% of
his average annual base salary for any consecutive three years multiplied by
years of credited service after October 31, 1970 (but before 1999) plus 1.4%
of his average five-year adjusted compensation multiplied by years of credited
service after 1998. If greater, a participant will receive an annual pension
equal to 1.4% of his average five-year adjusted compensation multiplied by all
his credited years of service. Adjusted compe-nsation includes salary and
bonus, but excludes fringe benefits, expense reimbursements, bonuses to pay
taxes on fringe benefits, and similar types of compensation. These benefits
are not subject to any deduction for Social Security or other offset.
As of January 1, 1999, Mr. Johnson and Mr. Porter each had 2 years of
credited service. Mr. Hatches had 1 year of credited service.
Supplemental Pension
Each named executive officer is a party to an Executive Security
Agreement which provides for additional retirement benefits for 15 years. If
the executive officer retires at age 65, yearly payments will equal 50% of his
last base salary. An executive officer retiring before age 65, but after 55,
can receive from 30% (age 55) to 48% (age 64) of base salary.
This new Executive Security Agreement, effective in the first quarter of
1998, replaces certain benefits previously provided. These replaced benefits
include bonuses for a life insurance policy disclosed in the Bonus column of
the above Summary Compensation Table. Also replaced is the term life
insurance reflected in the All Other Compensation column of that Table. In
addition, the Company's Supplemental Retirement Plan is no longer applicable
to these officers. That Plan provided pension benefits wh-ich could not be
provided by the Pension Plan because of the limit on compensation ($160,000 in
1998) which can be considered by the Pension Plan. The adoption of these
Executive Security Agreements was part of a reconfiguration of benefits which
effected a small annual expense reduction for the Company.
<PAGE>
<TABLE>
Director Compensation
A portion of Mr. Johnson's base compensation during 1998 was for service
as Chairman of the Board. All other directors received the following during
1998:
<CAPTION>
Cash<F1> Stock Options
--------------------- ---------------------------- Medical/
Annual Meeting Number of Year-End Phantom Retirement
Name Retainer Fees Common Shares<F2> Value<F3> Stock<F4> Plan<F5>
---- -------- ------- ----------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Daniel A. Burkhardt $12,000 $16,400 1,000 $379 $6,454 $3,000
Edward J. Curtis $14,400 $13,950 1,000 $379 $3,500 $3,000
John T. Ferris $12,000 $13,800 1,000 $379 $6,454 $3,000
Michael O. Frazer $12,000 $17,100 1,000 $379 $5,471 $3,000
Harvey I. Klein $14,400 $16,925 1,000 $379 $3,500 $3,000
Stewart J. Kniff $10,000 $ 6,700 1,000 $379 $3,500 $2,500
Bruce G. Macleod $12,000 $16,400 1,000 $379 $3,500 $3,000
Frederick S. Moore $12,000 $17,100 1,000 $379 $3,500 $3,000
Edith A. Stotler $14,400 $17,800 1,000 $379 $2,604 $3,000
Donald W. Thomason $16,900<F6> $14,825 1,000 $379 $3,500 $3,000
<FN>
<F1>
Under the Deferred Compensation and Phantom Stock Purchase Agreements, directors' cash compensation may be
deferred for each upcoming year. If deferred, compensation accrues interest at the prime rate or is
treated as if it were invested in Common Shares (Phantom Stock) through the dividend reinvestment plan.
Six directors deferred some or all cash compensation for 1998, which was used to purchase Phantom Stock.
Beginning with the 1999 compensation year, deferred compensation may either accrue inte-rest at the prime
rate or purchase Common Stock. Five directors have chosen to purchase Common Stock by deferring some or
all cash compensation for 1999.
<F2>
Under the Long-Term Incentive Plan, directors are granted options for 1,000 Common Shares each year.
Directors were granted the option to purchase 1,000 Common Shares at $16.75 per share on March 2, 1998.
One-third of these options become exercisable each year for three years and all expire March 2, 2008. The
number of shares and the exercise price have been adjusted to 1,050 and $15.952, respectively, to reflect
the 5% stock dividend in May 1998.
<F3>
Option values are based on the difference between the grant prices of the options adjusted for stock
dividends and the closing price for the Company's stock of $16.313 per share on December 31, 1998.
<F4>
Directors who were members of the Board prior to 1996 may participate in the medical program or receive
Common Shares or Phantom Stock under a Deferred Compensation and Phantom Stock Agreement as described
above. Directors who join the Board after 1995 cannot receive medical coverage, but do have the choice
each year to receive Common Shares or Phantom Stock.
<F5>
Payable after leaving the Board. Interest accrues at 8% per annum.
<F6>
Mr. Thomason was elected to the newly created Lead Director position as of November 1, 1998. As the Lead
Director, he receives an additional monthly retainer of $1,250. The Lead Director chairs meetings of
outside Directors and acts as the principal liaison between outside Directors and the Chief Executive
Officer.
</FN>
</TABLE>
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Membership on the Compensation Committee for 1998 was as follows: Ms.
Stotler and Messrs. Ferris, Klein and Thomason. None of these Committee
members are Company officers or served on other Boards with Company officers.
None of the Company's executive officers served on a board of directors of a
company which had an employee serving on the Company's Board of Directors.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee ("Committee") is responsible for recommending
to the full Board the compensation of Executive Officers. The Committee is
composed of four non-employee directors. The Committee intends to provide
salary and other non-incentive compensation for an executive, equal to the
average of that paid to executives with similar experience, responsibilities
and authority in a peer group including 16 other utility companies (Peer
Group). Incentive plans provide each executive with an oppo-rtunity for
above-average total compensation.
All base salaries of officers, including those shown in the "Salary"
column of the above Compensation Table, were approved by the Committee.
Under the Company's Short-Term Incentive Plan, Mr. Johnson is eligible
for a cash bonus of up to 40% of his base salary if the Company meets target
earnings for the year. If the Company achieves 108% or more of target
earnings, Mr. Johnson is eligible for a cash bonus of up to a maximum of 72%
of his base salary. Bonuses for Mr. Johnson are based on the Company's
performance (80%) and on his individual performance (20%). Bonuses for other
Executive Officers range from 25% of base salary if the Company achieves
target earnings to 63% of base salary if the Company achieves at least 108% of
target earnings. Bonuses for other Executive Officers are based on the
Company's performance, their individual performance and a discretionary
amount.
Also, the Board may grant bonuses in lieu of bonuses under the Short-Term
Incentive Plan in unusual circumstances. Only unusual circumstances outside
the control of executive officers would be considered. Such circumstances may
include, for example, significantly warmer than normal weather.
In addition, under the Long-Term Incentive Plan, Mr. Johnson may be
granted stock options for up to 30,000 shares each year if the Company's
performance and his performance are outstanding. The Long-Term Incentive Plan
was approved by the shareholders at the Annual Meeting held April 15, 1997.
Awards to Mr. Johnson and other Executive Officers are based primarily on
company performance. However, business unit performance and individual
performance are also considered. Maximum awards of stock options -to other
Executive Officers range from 5,250 to 10,500 shares.
Further detail regarding compensation is shown under "Compensation of
Directors and Executive Officers."
<PAGE>
All decisions of the Committee regarding executive compensation are
reviewed by the full Board.
COMPENSATION COMMITTEE
Donald W. Thomason, Chairman
John T. Ferris
Harvey I. Klein
Edith A. Stotler
PERFORMANCE GRAPH
The following graph compares cumulative total returns (assuming
reinvestment of dividends). The stock price performance shown is not
necessarily indicative of future price performance. The graph assumes the
investment of $100 in the Company's stock, the stocks representing the EDJ
index and the stocks representing the S&P 500 index on December 31, 1993.
<TABLE>
Comparison of Five Year Cumulative Total Return
Among stock of SEMCO Energy, Inc.,
S&P 500 Index and
Edward D. Jones & Co. Natural Gas Diversified Company Index
<CAPTION>
Measurement Period
(Fiscal Year Covered) SEMCO Energy, Inc. Edward D. Jones Index S&P 500 Index
<S> <C> <C> <C>
Measurement Pt-12/31/93 $100 $100 $100
FYE 12/31/94 $ 89 $ 89 $101
FYE 12/31/95 $ 95 $118 $139
FYE 12/31/96 $107 $149 $171
FYE 12/31/97 $115 $187 $228
FYE 12/31/98 $114 $172 $293
</TABLE>
INCREASE IN NUMBER OF AUTHORIZED COMMON SHARES
The Board of Directors of the Company at their meeting held December 17,
1998, voted that the annual meeting of Common Shareholders scheduled for
Tuesday, April 20, 1999, would be called for, in addition to other purposes,
the purpose of considering and acting upon a proposed amendment to the
Articles of Incorporation of the Company so as to increase the number of
authorized Common Shares from the existing 20,000,000 authorized shares to
40,000,000 authorized shares.
<PAGE>
As of February 22, 1999, of the 20,000,000 shares authorized, the Company
has approximately 17,400,000 shares outstanding and 25,556 shares reserved for
issuance upon conversion of the outstanding $2.3125, Series A, Convertible
Cumulative Preferred Stock. Another approximately 1,575,000 shares are
reserved to be issued, from time to time, to participating Common Shareholders
under the Direct Stock Purchase and Dividend Reinvestment Plan. Approximately
575,000 shares are reserved for conversion of stock options under the
Company's Long-Term Incentive Plan. From time to time, additional authorized
but unissued Common Shares may be issued to the 401(k) in a Company match
program. The Company has also embarked on a new strategic plan to more
aggressively grow its businesses through acquisitions, which may require
additional common stock capital. Finally, the Company may agree to use shares
of the Company to acquire the shares of another corporation in an exchange.
No such agreement with another corporat-ion currently exists. However, such an
agreement may not be possible unless the Shareholders approve an amendment to
the Articles increasing the authorized number of shares.
In light of these circumstances, the Board of Directors believes it would
be in the best interest of the Company to increase the authorized number of
Common Shares, thereby assuring that an ample number of authorized shares will
be available for issuance in order to facilitate its strategic goals.
The additional authorized Common Shares would be issuable at the Board's
discretion, normally without further stockholder action, for any proper
corporate purposes. The authorization of additional shares may have an
anti-takeover effect. For example, such additional authorized shares could be
used to dilute the stock ownership of persons seeking to obtain control of the
Company. The Board of Directors has no present plans to use such shares to
inhibit any takeover and the Board knows of no plans to at-tempt to take over
the Company. If authorization of the proposal is postponed until a specific
situation arises, the time and expense incident to obtaining Shareholder
approval at that time might disadvantage the Company by depriving it of the
flexibility which could be important in facilitating effective use of the
shares.
Other than as indicated above, the Company's Board of Directors and
management have no plans or agreements for the issuance of any of the
presently authorized and unissued Common Shares or of the additional shares to
be authorized. Rather, it is the intention of the Board of Directors and
management to hold such authorized and unissued Common Shares in reserve for
such corporate needs as may develop.
No Shareholder of the Company has any preemptive rights to subscribe for
or to purchase any of the authorized and unissued Common Shares including the
additional shares to be authorized.
<PAGE>
The Common Shareholders will be asked to adopt a resolution amending
section 1 of Article III of the Articles of Incorporation to read as follows:
The total authorized capital stock is $43,500,000 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) 40,000,000 shares of stock of the par value of $1 per share,
designated "Common Stock, $1 Par Value."
The affirmative vote of the holders of at least a majority of Common
Shares of the Company outstanding as of the Record Date (February 22, 1999),
is required to adopt the amendment.
The Board of Directors and management recommend that the Common
Shareholders vote FOR the proposal.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP have been the auditors for the Company and SEMCO
Energy Gas Company for over forty (40) years and have been appointed by the
Board of Directors to continue in that capacity during 1999. A member of
Arthur Andersen LLP will be available at the Shareholders Meeting to make a
statement if he so desires and to answer appropriate questions.
SHAREHOLDER PROPOSALS
A shareholder's proposal to be included in the proxy statement and proxy
for the year 2000 annual meeting of shareholders must be received at the
Company's principal executive office no later than December 31, 1999.
OTHER BUSINESS
Management knows of no matters other than those stated above which are to
be brought before the meeting. However, if any other matters are presented
for action, it is the intention of the persons named in the enclosed proxy to
vote in accordance with their judgment.
It is important that proxies be returned promptly to avoid unnecessary
expenses. Therefore, all Common Shareholders (even those planning to attend
the meeting) are urged, regardless of the number of Common Shares owned, to
sign, date and return the enclosed proxy in the business-reply envelope, also
enclosed. Shareholders attending in person may withdraw their proxies and
vote in person.
By order of the Board of Directors
Sherry L. Abbott, Secretary
<PAGE>
[MAP]
<PAGE>
APPENDIX
Map on back cover shows general area, specific street and specific building
where shareholders meeting will take place.
<PAGE>
PRELIMINARY COPY
SEMCO ENERGY
____________
Annual Meeting to be held at
McMorran Auditorium
701 McMorran Boulevard
Port Huron, Michigan 48060
April 20, 1999, at 2:00 p.m.
YOUR VOTE IS IMPORTANT.
Whether or not you plan to attend, you can be sure your shares are
represented at the meeting by promptly returning your completed proxy in the
enclosed postage-paid envelope
which is addressed to our tabulation service at
Corporate Election Services, P.O. Box 1150, Pittsburgh, PA 15230.
Detach Proxy Card Here
- ------------------------------------------------------------------------------
SEMCO ENERGY
------------
405 Water Street, Port Huron, MI 48060
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
The undersigned hereby appoints Steven W. Warsinske and Kurt A. Angermeier, or
either one of them, with power of substitution in each, proxies to vote, as
designated on the reverse side, all of the undersigned's shares of Common
Stock (held as of the February 22, 1999 date of record) of SEMCO ENERGY, INC.
at the Annual Meeting of Shareholders to be held on April 20, 1999, and any
and all adjournmen-ts thereof.
Please date, sign exactly as name
appears hereon, and mail promptly in
the enclosed envelope which requires no
postage if mailed in the United States.
When signing as attorney, executor,
administrator, trustee, guardian, etc.,
give full title as such. If shares are
held jointly, both owners must sign.
Dated ___________________________, 1999
Signature _____________________________
Signature _____________________________
(Continued on the other side)
<PAGE>
Detach Proxy Card Here
- ------------------------------------------------------------------------------
Properly executed proxies will be voted as marked and,
if not marked, will be voted FOR all of the nominees and FOR proposal 2.
Please Mark Your Choice Like This. [X]
- ------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS - The Board of Directors recommends a vote FOR the
nominees named below. (Check Only One Box)
A. For all nominees. [ ]
B. For no nominees. [ ]
C. For all nominees except names crossed out. [ ]
Daniel A. Burkhardt Edward J. Curtis Marcus Jackson Harvey I. Klein
2. PROPOSAL TO INCREASE THE AUTHORIZED NUMBER OF COMMON SHARES FROM
20,000,000 TO 40,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- ------------------------------------------------------------------------------
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTER AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENTS
THEREOF.
- ------------------------------------------------------------------------------
(To be Dated and Signed on Other Side)
