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 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
[LOGO]
SEMCOENERGY
March 1, 2000
NOTICE OF ANNUAL MEETING OF COMMON SHAREHOLDERS
TO BE HELD ON APRIL 18, 2000
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 Haworth Conference & Learning
Center, 225 College Avenue, Holland, Michigan (see map on back), on Tuesday,
April 18, 2000 at 2:00 p.m. (EDT), for the following purposes:
I. To elect four members to the Board of Directors.
II. To approve an increase in the number of authorized Preferred
Shares from 500,000 to 4,500,000 and to amend the Articles of Incorporation.
III. To transact any other business which properly comes before
the meeting.
Only Common Shareholders of record on February 22, 2000 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
1
<PAGE>
TABLE OF CONTENTS
Notice of Annual Meeting of Stockholders 1
Proxy Statement 3
Stock Outstanding and Voting Rights 3
Election of Directors 5
Increase in Number of Authorized Preferred Shares and Change in Articles of
Incorporation 5
Information About Directors 6
Committees of the Board of Directors and Meeting Attendance 8
Certain Business Relationships of Directors 8
Compensation of Directors and Executive Officers 9
Summary compensation table 9
Option grants in 1999 10
Options outstanding at December 31, 1999 10
Employment and related agreements 10
Pension plan 11
Supplemental pension 11
Director compensation 12
Compensation Committee Interlocks and Insider Participation 12
Compensation Committee Report on Executive Compensation 13
Performance Graph 14
Independent Public Accountants 14
Shareholder Proposals 14
Other Business 14
Meeting Location Map 16
2
<PAGE>
[LOGO]
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 18, 2000, at 2:00 p.m., to be held at the Haworth Conference & Learning
Center, 225 College Avenue, Holland, Michigan, and any adjournments. These
proxy materials are being mailed to shareholders approximately March 1, 2000.
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 1999 Annual Report is enclosed.
STOCK OUTSTANDING AND VOTING RIGHTS
Only Common Shareholders of record on February 22, 2000 (the record date)
may vote at the meeting.
The Company had approximately 17,900,000 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, only the following person owns beneficially
more than 5% of the Common Shares as of the record date.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICALLY OWNED OF CLASS
- ------------------ ------------------- ----------------- --------
<S> <C> <C> <C>
Common Stock, Jimmy C. Foster 905,202 5.05%
$1 Par Value 3838 N. Sam Houston Parkway E., Ste. 280
Houston, TX 77032
</TABLE>
3
<PAGE>
The following table reflects ownership, as of February 22, 2000, by
nominees, directors and executive officers. [The table currently reflects
ownership as of 2/11/00]
<TABLE>
<CAPTION>
(A) (B)
Exercisable Columns
Common Stock A and B
Name Shares<1> Options<2> Combined
---- ---------- ----------- --------
<S> <C> <C> <C>
John M. Albertine <3> 0 0 0
Daniel A. Burkhardt 12,077 <4> 1,734 13,811 <4>
Rudolfo D. Cifolelli 3,325 2,723 6,048
Sebastian Coppola 3,582 3,500 7,082
Edward J. Curtis 12,055 <4> 1,734 13,789 <4>
John T. Ferris 72,281 1,734 74,015
Michael O. Frazer 6,576 1,734 8,310
Barrett Hatches <5> 1,484 7,224 8,708
Marcus Jackson 232 <4> 334 566 <4>
William L. Johnson 16,805 87,779 104,584
Harvey I. Klein 16,499 <4> 1,734 18,233 <4>
Frederick S. Moore 9,516 <4> 1,734 11,250 <4>
Carl W. Porter 6,558 12,118 18,676
Edith A. Stotler 2,624 1,734 4,358
Donald W. Thomason 13,848 <4> 1,734 15,582 <4>
Common Shares of all nominees,
directors and executive officers
as a group (20 persons including
those named above) 188,436 <6> 133,001 321,437
<FN>
<1> 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 (4) below.
<2> This column includes Common Shares which may be acquired pursuant to
stock options within 60 days.
<3> Mr. Albertine joined the Board as of January 1, 2000.
<4> Includes Common Shares held in a Directors' Deferred Compensation Plan
Account as follows:
DIRECTORS DEFERRED
NAME COMPENSATION SHARES
---- --------------------
Daniel A. Burkhardt 4,035
Edward J. Curtis 8,451
Marcus Jackson 232
Harvey I. Klein 14,319
Frederick S. Moore 9,493
Donald W. Thomason 2,591
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).
<5> Mr. Hatches relocated to Alaska effective January 3, 2000 to become
President of the Company's ENSTAR Natural Gas Company division and is therefore
no longer an executive officer of the Company.
<6> The directors, nominees and executive officers as a group beneficially
owned 1.05% of the Company's outstanding Common Shares. Directors, nominees and
executive officers each individually hold less than one percent of outstanding
Common Shares.
</FN>
</TABLE>
4
<PAGE>
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. Each of the four
persons receiving the highest number of votes will be elected. Proxies are
being solicited to vote for the election of the following four persons:
John T. Ferris
Michael O. Frazer
Frederick S. Moore
Edith A. Stotler
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.
INCREASE IN NUMBER OF AUTHORIZED PREFERRED SHARES
AND CHANGE IN ARTICLES OF INCORPORATION
The Company proposes to amend its Articles of Incorporation in order to:
(1) increase the number of authorized shares of Preferred Stock ("Preferred
Shares") from the existing 500,000 authorized shares to 4,500,000 authorized
shares; and
(2) allow the Board of Directors to determine the relative rights and
preferences of each series of Preferred Shares.
The Company has embarked on a new strategic plan to more aggressively grow
its businesses through acquisitions. In recognition of this strategic plan, in
1999 Shareholders approved an increase in the number of authorized Common Shares
to 40,000,000. The Company believes that increasing the number of authorized
Preferred Shares will facilitate growing its business - especially through
acquisitions. For example, to finance an acquisition, the Company may deem it
appropriate to issue Preferred Shares possibly in conjunction with Common Shares
and/or debt.
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
Preferred Shares, thereby assuring that an ample number of authorized shares
will be available for issuance in order to facilitate its strategic goals. The
---
Company currently has no definitive plans to issue Preferred Shares, but would
- --------------------------------------------------------------------------------
issue such shares in the future if it is financially advantageous to do so.
- -------------------------------------------------------------------------------
Currently, there are 500,000 Preferred Shares authorized, but none
outstanding. The Articles of Incorporation presently provide the Board of
Directors with discretion to determine the relative rights and preferences of
each series of Preferred Shares, except for certain items. These items limit:
(1) the timing of the payment of dividends (the Board currently has
discretion to establish the amount of dividends);
(2) the Company's ability to repurchase Common Shares in certain
circumstances;
5
<PAGE>
(3) the Company's ability to repurchase or redeem some Preferred Shares
without repurchasing or redeeming all of them;
(4) the Company's ability to give preference on liquidation to any one
series of Preferred Shares over another series of Preferred Shares;
(5) the voting rights of Preferred Shares.
As a result of the proposed Amendment, these restrictions on Board
discretion will be removed to provide additional financial flexibility and
advantages to the Company. The authorized Preferred Shares would be issuable at
the Board's discretion, normally without further stockholder action, for any
proper corporate purposes.
The Company's Board of Directors and management have no definitive plans
for the issuance of any of the presently authorized and unissued Preferred
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 Preferred Shares in reserve for such corporate needs as may develop.
Thus, it is not possible to describe the specific terms of any series of
Preferred Shares at this time. If Common Shareholders approve the proposal, the
Board of Directors may determine all the terms of any series of Preferred Shares
including dividend rates, voting rights, prices for redemption by the Company,
conversion prices or rates, and similar matters.
No Shareholder of the Company has any preemptive rights to subscribe for or
to purchase any of the authorized and unissued Preferred Shares including the
additional shares to be authorized.
The financial statements of the Company as well as management's discussion
and analysis of financial condition and results of operations, included in the
1999 Annual Report to Shareholders, are incorporated by reference herein.
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, 2000), is
required to adopt the amendment.
THE BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND THAT THE COMMON
SHAREHOLDERS VOTE FOR THE PROPOSAL TO INCREASE THE NUMBER OF AUTHORIZED
PREFERRED SHARES AND AMEND THE ARTICLES OF INCORPORATION.
INFORMATION ABOUT DIRECTORS
NAME, POSITION* AND DIRECTOR
BUSINESS EXPERIENCE DURING PAST FIVE YEARS AGE SINCE
----------------------------------------------- --- -----
NOMINEES (TERMS EXPIRING 2003)
- ---------------------------------
JOHN T. FERRIS 49 1994
Senior Partner in law firm of Ferris & Schwedler, P.C.
in Bad Axe, Michigan.
MICHAEL O. FRAZER 61 1986
Attorney practicing in Battle Creek, Michigan.
FREDERICK S. MOORE 61 1995
Chairman and President of DSLT Inc., a holding company with
subsidiaries engaging in the real estate development business;
since 1999, Chairman of Mardale Specialty Foods, LLC, a
producer of jams, jellies and condiments in individual
packages; until November 1998, Chairman of Diamond Crystal
Specialty Foods, Inc. (Diamond Crystal), which was a
subsidiary of DSLT Inc. until Diamond Crystal's sale in
November 1998.
EDITH A. STOTLER 53 1987
Partner, Stotler Grain Company; President, S&I Grain Company
(formerly Homer Grain Company).
6
<PAGE>
NAME, POSITION* AND DIRECTOR
BUSINESS EXPERIENCE DURING PAST FIVE YEARS AGE SINCE
----------------------------------------------- --- -----
OTHER DIRECTORS (TERMS EXPIRING 2001)
- -----------------------------------------
JOHN M. ALBERTINE 55 2000
Since 1990, Chairman and Chief Executive Officer of Albertine
Enterprises, Inc., an economic forecasting, public policy,
and full-service mergers and acquisitions firm based in
Washington, D.C. Chief Executive Officer of Jam Shoe
Concepts, Inc. Jam Shoe Concepts, Inc. owns 100% of the
assets of The Shoebilee Corporation, a retail family shoe
chain with over 50 stores in the midwest. Albertine is also
the largest individual shareholder in Jam Shoe Concepts, Inc.
Director of: American Precision Industries, Inc. and
Intermagnetics General Corporation.
WILLIAM L. JOHNSON 57 1996
Chairman of the Board of Directors since December 1997,
Chief Executive Officer since May 1996, and President from
May 1996 to September 1999; Chief Executive Officer, Northern
Pipeline Construction Company, Kansas City, Missouri, from 1994
to May 1996.
DONALD W. THOMASON 56 1995
Lead Director of the Company since November 1998; Retired in
1999 from the Kellogg Company as Executive Vice President
Services/Technology; Director of Triple S Plastics, Inc.
OTHER DIRECTORS (TERMS EXPIRING 2002)
- -----------------------------------------
DANIEL A. BURKHARDT 52 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 57 1995
President of E.J. Curtis Associates, Inc., a professional
management consulting firm.
MARCUS JACKSON 48 1999
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 60 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 than Mr. Johnson, each director's and nominee's principal employment
is and has been with a company not affiliated with SEMCO.
7
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
AND MEETING ATTENDANCE
Participation in Committees of the Board of Directors is as follows:
<TABLE>
<CAPTION>
NOMINATING AND
NAME AUDIT COMPENSATION FINANCE CORPORATE GOVERNANCE
<S> <C> <C> <C> <C>
JOHN M. ALBERTINE
DANIEL A. BURKHARDT x x
EDWARD J. CURTIS xx
JOHN T. FERRIS xx x
MICHAEL O. FRAZER x x
MARCUS JACKSON x
WILLIAM L. JOHNSON
HARVEY I. KLEIN x xx
FREDERICK S. MOORE x x
EDITH A. STOTLER x xx
DONALD W. THOMASON x x
x MEMBER.
xx CHAIR.
</TABLE>
The Board held 12 meetings during 1999. Each director attended more than
75% of the total number of meetings of the Board and Committees on which he or
she served in 1999.
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. Four Audit
Committee meetings were held in 1999.
The Compensation Committee held 4 meetings in 1999. The Compensation
Committee reviews the Company's general compensation strategy and recommends
compensation of executive officers and directors to the full Board. The
Compensation Committee monitors the CEO's officer succession plan and recommends
the election of officers to the full Board.
The Finance Committee serves as liaison between management and the Board on
important financial transactions and financial policy matters. The Committee
reviews and approves the capital budget, financing plan, and significant
securities offerings, prior to Board review. The Finance Committee has approval
power for certain categories of acquisitions and capital projects that are
consistent with the Board approved Strategic Plan. The Finance Committee held 8
meetings in 1999.
The Nominating and Corporate Governance Committee held 4 meetings in 1999.
The Nominating and Corporate Governance Committee recommends directors to serve
on Board committees, candidates for Board membership, personal qualifications
criteria for Board membership, general criteria regarding committee composition,
and changes to Board and Company policies. Recommendations by shareholders of
candidates for Board membership will be considered and should be sent to the
Nominating and Corporate Governance Committee, c/o Ms. Sherry L. Abbott,
Corporate Secretary, 405 Water Street, Port Huron, Michigan 48060.
CERTAIN BUSINESS RELATIONSHIPS OF DIRECTORS
In November 1999 the Company filed a shelf registration for the
registration of various securities in the aggregate amount of $500,000,000.
Edward D. Jones & Co., L.P. ("Jones") may act as an underwriter for the offering
and sale of a portion of the securities to be sold pursuant to such shelf
registration. Mr. Burkhardt is a Principal of Jones' Investment Banking
Department and a member of Jones' Investment Policy Committee.
8
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following executive officers had salary and bonus exceeding $100,000 in
1999.
<TABLE>
<CAPTION>
OTHER ANNUAL COMMON SHARE ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY<1> BONUS<2> COMPENSATION<3> OPTIONS<4> COMPENSATION
- --------------------------- ---- ---------- --------- ---------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
WILLIAM L. JOHNSON 1999 $317,154 $ 1,849 $ 792 20,000 $ 6,400 <5>
Chairman and CEO 1998 $295,931 $ 51,672 $ 717 25,000 $ 2,248 <6>
1997 $233,077 $175,500 $ 3,643 50,000 $ 6,843 <7>
SEBASTIAN COPPOLA <8> 1999 $186,346 $ 50,801 <9> $30,343 10,500 $ 6,400 <5>
Senior Vice President and CFO
CARL W. PORTER 1999 $181,879 $ 811 $ 348 7,000 $ 6,400 <5>
President and COO 1998 $171,008 $ 22,499 $ 317 6,979 $ 5,843 <10>
1997 $170,354 $ 81,726 $ 0 7,000 $ 8,851 <11>
RUDOLFO D. CIFOLELLI <12> 1999 $138,023 $ 1,175 $ 504 1,167 $ 4,455 <5>
Senior Vice President and CIO 1998 $ 15,577 $ 32,700 <13> $ 0 7,000 $ 0
BARRETT HATCHES <14> 1999 $132,617 $ 298 $ 128 7,000 $32,032 <15>
Senior Vice President of Human 1998 $106,635 $ 15,467 $ 114 3,486 $23,653 <16>
Resources and Public Affairs 1997 $ 88,125 $ 40,058 $ 0 3,500 $54,368 <17>
____________________
<FN>
<1> Actual salary earned during the year.
<2> 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.
<3> Bonus to pay taxes relating to life insurance premium discussed in
preceding note. For Mr. Coppola, this column also reflects the payment of
$17,257 in club initiation fees, $6,687 in club dues and $6,000 for vehicle
allowance. The aggregate amount of perquisites and other personal benefits,
securities or property, given to each of the other named executive officers
valued on the basis of aggregate incremental cost to the Company, was less than
$50,000 and less than 10% of the total of annual salary and bonus for that
executive officer during each of these years.
<4> Number of Common Shares underlying stock-option awards at date of grant.
<5> Company match contribution to 401(k) plan.
<6> Premiums paid for term life insurance.
<7> Company contribution to Employee Stock Ownership Trust ($3,042) and term
life insurance ($3,801).
<8> Mr. Coppola joined the Company in January 1999.
<9> Includes a signing bonus ($50,000).
<10> Company match contribution to 401(k) plan ($5,330) and term life
insurance ($513).
<11> Moving expenses ($4,778), Company contribution to Employee Stock
Ownership Trust ($3,042) and term life insurance ($1,031).
<12> Mr. Cifolelli joined the Company in November 1998.
<13> Includes a signing bonus ($30,000).
<14> Mr. Hatches joined the Company in February 1997.
<15> Home sale costs, etc., related to relocation to Michigan ($28,875.72)
and Company match contribution to 401(k) plan ($3,156).
<16> Moving expenses ($23,486) and term life insurance ($166.29).
<17> Moving expenses ($51,823), Company contribution to Employee Stock
Ownership Trust ($2,272) and term life insurance ($273).
</FN>
</TABLE>
9
<PAGE>
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
Value When Options
Number of Expire if 5% or 10%
Common % of Total Annual Stock Price
Shares Options Appreciation from
Underlying Granted to Date of Grant Value of
Options Employees Exercise Price Expiration -------------------- Options at
Name Granted in 1999 ($/Sh.) <1> Date <2> 5% <3> 10% <3> 12/31/99 <4>
---- ---------- ---------- -------------- ---------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William L. Johnson 20,000 19.7% $15.625 3/1/09 $196,529 $498,044 $ 0
Sebastian Coppola 10,500 10.3% $16.375 1/4/09 $108,130 $274,024 $ 0
Carl W. Porter 7,000 6.9% $15.625 3/1/09 $ 68,785 $174,315 $ 0
Rudolfo D. Cifolelli 1,167 1.1% $15.625 3/1/09 $ 11,467 $ 29,060 $ 0
Barrett Hatches 7,000 6.9% $15.625 3/1/09 $ 68,785 $174,315 $ 0
<FN>
<1> The exercise price is the market price of the Common Shares at the time
options were granted.
<2> 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.
<3> 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 will have depends entirely on increases or
decreases in the market price of Common Shares and when the options are
exercised.
<4> Based on the last trade price of Common Shares on December 31, 1999 of
$11.813. 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. This type of "anti-dilution" adjustment is
common to virtually all stock options by all companies.
</FN>
</TABLE>
OPTIONS OUTSTANDING AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
Number of Options at Value of Options at
December 31, 1999 <1> December 31, 1999 <2>
---------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William L. Johnson 39,287 77,575 $0 $0
Sebastian Coppola 0 10,500 $0 $0
Carl W. Porter 7,342 14,335 $0 $0
Rudolfo D. Cifolelli 2,334 5,833 $0 $0
Barrett Hatches 3,670 10,665 $0 $0
<FN>
<1> No options were exercised in 1999.
<2> 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 $11.813 per share on December 31, 1999.
</FN>
</TABLE>
EMPLOYMENT AND RELATED AGREEMENTS
Mr. Johnson's employment agreement, which is for a term of five years,
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 amount 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 to his employment agreement except severance amount equals 2.99 times
his annual base salary and average bonus. All named executive officers have
change-of-control employment agreements parallel to Mr. Johnson's. The
severance amount is subject to reduction to the extent required in order to
avoid unfavorable tax consequences to the Company and the executive officers.
10
<PAGE>
PENSION PLAN
The following 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 1999. This ceiling amount is set by law and will
increase over time.
<TABLE>
<CAPTION>
AVERAGE
COMPENSATION YEARS OF CREDITED SERVICE
- ------------ ----------------------------
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>
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 compensation 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, 2000, credited service was as follows: Messrs. Johnson
and Porter each had 3 years, Mr. Hatches had 2 years, and Messrs. Cifolelli and
Coppola each had 1 year.
SUPPLEMENTAL PENSION
[Each named executive officer above 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 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.]
or if the Board approves changes:
[Each named executive officer above 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 Executive Security Agreement, effective in the first quarter of 1998
and amended in the first quarter of 2000, replaced 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 was the term life insurance reflected in the All Other Compensation
column of that Table. The amended Executive Security Agreement provides pension
benefits which could not be provided by the Pension Plan because of the limit on
compensation ($170,000 in 2000) which can be considered by the Pension Plan. In
addition, the amended Executive Security Agreement provides protection for the
named officers in the event of a Change in Control by requiring the funding of a
Rabbi Trust (under certain circumstances) and early vesting of benefits (under
other circumstances).]
11
<PAGE>
DIRECTOR COMPENSATION
Annual Compensation
--------------------
A portion of Mr. Johnson's base compensation during 1999 was for service as
Chairman of the Board.
For their services on the Board, non-employee directors are paid a retainer
of $1,000 per month. The Chairmen of the Audit, Compensation, Finance, and
Nominating and Corporate Governance Committees each receive an additional
retainer of $200 per month. The Lead Director receives an additional retainer
$1,250 per month. Each non-employee director receives $700 per meeting
attended. The Chairmen of the Audit, Compensation, Finance, and Nominating and
Corporate Governance Committees each receive an additional $175 per meeting
chaired. Directors are reimbursed for expenses incurred in attending Board and
Committee meetings.
Non-employee directors who were members of the Board prior to 1996 may
participate in the Company's medical program. Directors who join the Board
after 1995 cannot participate in the medical program. Directors who do not
participate in the Company's medical program receive a grant of $3,500 worth of
Common Shares each year.
Non-employee directors also accrue $3,000 per year under a non-qualified
defined contribution plan, which is payable after leaving the Board. Interest
accrues at 8% per annum.
Deferred Compensation
----------------------
Under Deferred Compensation and Common Stock Purchase Agreements for
Outside Directors, directors' cash compensation may be deferred for each
upcoming year. If deferred, compensation accrues interest at the prime rate or
is invested in Common Shares with dividends reinvested through the dividend
reinvestment plan. Five directors deferred some or all cash compensation for
1999, which was used to purchase Common Shares. Six directors have chosen to
purchase Common Shares by deferring some or all cash compensation for 2000.
Stock Options
--------------
Each non-employee director also receives an annual grant of non-qualified
stock options exercisable at fair market value on date of grant to acquire 1,000
shares of Company Common Stock under the Long-Term Incentive Plan. Upon joining
the Board, new non-employee directors also receive such a grant. Thus, a
non-employee director joining the Board prior to the date options are granted to
all directors for the year will receive two grants within the same year.
However, no grant of stock options will be made to directors who are known to be
leaving the Board within six months after the grant date. Such stock options
become exercisable one-third each year for three years and expire ten years from
the date of grant.
Stock Ownership Guidelines
----------------------------
In 1999, the Board increased its stock ownership guidelines for
non-employee directors. Each non-employee director is expected to own, within
five years, Company Common Stock equal in value to five times the director's
annual retainer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Membership on the Compensation Committee ("Committee") for 1999 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.
12
<PAGE>
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 other utility companies (Peer Group).
Incentive plans provide each executive with an opportunity for above-average
total compensation, if financial targets or other performance goals are
exceeded.
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 make incentive awards in lieu of bonuses under the
Short-Term Incentive Plan in unusual circumstances. Only unusual circumstances
outside the control of executive officers are 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."
All decisions of the Committee regarding executive compensation are
reviewed by the full Board.
COMPENSATION COMMITTEE
John T. Ferris, Chairman
Harvey I. Klein
Edith A. Stotler
Donald W. Thomason
13
<PAGE>
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 Edward
Jones (EJ) index and the stocks representing the S&P 500 index on December 31,
1994.
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG STOCK OF SEMCO ENERGY, INC.,
S&P 500 INDEX AND
EDWARD JONES NATURAL GAS DIVERSIFIED COMPANY INDEX
<CAPTION>
Measurement Period
(Fiscal Year Covered) SEMCO Energy, Inc. Edward Jones Index S&P 500 Index
<S> <C> <C> <C>
Measurement Pt-12/31/94 $100 $100 $100
FYE 12/31/95 $107 $132 $138
FYE 12/31/96 $121 $166 $170
FYE 12/31/97 $130 $208 $227
FYE 12/31/98 $129 $192 $292
FYE 12/31/99 $ 99 $202 $353
</TABLE>
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 2000. 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 2001 annual meeting of shareholders must be received at the
Company's principal executive office no later than December 31, 2000; and in any
event if the Company has not received written notice of any matter to be
proposed at that meeting by January 15, 2001, the Proxy holders may use their
discretionary voting authority on any such matter. The proposals should be
addressed to: Ms. Sherry L. Abbott, Corporate Secretary, 405 Water Street, Port
Huron, Michigan 48060.
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.
14
<PAGE>
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
15
<PAGE>
[MAP]
DIRECTIONS TO HAWORTH CONFERENCE AND LEARNING CENTER
FROM GRAND RAPIDS/LANSING/DETROIT
Take I-96 (from Detroit) west to Grand Rapids. Follow I-196 west to Holland.
Take exit 55 (Holland/Zeeland exit) and go west (right). You will be on Chicago
Drive. As you enter downtown Holland, Chicago Drive turns into 8th Street.
Turn left on College Avenue. The Haworth Conference & Learning Center is one
block down, on College Avenue between 9th and 10th Streets.
FROM CHICAGO/NORTHWEST INDIANA
Take I-94 east to I-196 (exit 34) at Benton Harbor. Follow I-196 to US 31 north
to Holland (exit 44)-it will veer to the left. To get to downtown, stay on US
31 to 8th Street. Turn left (west) and follow it into downtown. At the
intersection of 8th and College, turn left. The Haworth Conference & Learning
Center is located one block down, on College Avenue between 9th and l0th
Streets.
FROM KALAMAZOO/BATTLE CREEK/TOLEDO
From Toledo, take US 23 to I-94 west. Take I-94 west to US 131 north. Follow
US 131 north to M-89 west. Take M-89 west to M-40 at Allegan and continue west.
M-40 will intersect with US 31. Make a right (north) on US 31. To get to
downtown, stay on US 31 to 8th Street and turn left (west). Follow 8th Street
into downtown. At the intersection of 8th and College, turn left. The Haworth
Conference & Learning Center is located one block down, on College Avenue
between 9th and 10th Streets.
<PAGE>
APPENDIX
Map showing general area, specific street and specific building where
shareholders meeting will take place.
<PAGE>
PRELIMINARY COPY
SEMCO ENERGY, INC.
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, APRIL 18, 2000
2:00 P.M.
HAWORTH CONFERENCE & LEARNING CENTER
225 COLLEGE AVENUE
HOLLAND, MI 49423
[LOGO] SEMCO ENERGY, INC.
405 WATER STREET, PORT HURON, MI 48060 PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON APRIL 18, 2000.
The shares of stock you hold in your account or in a dividend reinvestment
account will be voted as you specify below.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEMS 1 AND 2.
By signing the proxy, you revoke all prior proxies and appoint Sylvia G. Aman
and Francis R. Lieder, Jr., and each of them, with full power of substitution,
to vote your shares on the matters shown on the reverse side and any other
matters which may come before the Annual Meeting and all adjournments.
See reverse for voting instructions.
<PAGE>
Please detach here
THE BOARD OF DIRECTORS RECOMMEND A VOTE FOR ITEMS 1 AND 2.
1. Election of directors: 01 John T. Ferris 03 Frederick S. Moore
02 Michael O. Frazer 04 Edith A. Stotler
[ ] Vote FOR all nominees (except as marked)
[ ] Vote WITHHELD from all nominees
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO ---------------------------
VOTE FOR ANY INDICATED NOMINEE, WRITE THE [ ]
NUMBER(S) OF THE NOMINEE(S) IN THE BOX ---------------------------
PROVIDED TO THE RIGHT.)
2. Proposal to approve an increase in the number of authorized Preferred
Shares from 500,000 to 4,500,000 and to amend the Articles of
Incorporation.
[ ] For [ ] Against [ ] Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
---
Address Change? Mark Box [ ]
Indicate changes below:
Date____________________________________
--------------------------------------
[ ]
--------------------------------------
Signature(s) in Box
Please sign exactly as your name(s)
appear on Proxy. If held in joint
tenancy, all persons must sign.
Trustees, administrators, etc., should
include title and authority.
Corporations should provide full
name of corporation and title of
authorized officer signing the
proxy.
