UPPER PENINSULA ENERGY CORPORATION
600 Lakeshore Drive
Houghton, Michigan 49931
(906) 487-5000
FAX: (906) 487-5199
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held April 22, 1997
March 19, 1997
To the Common Shareholders of
UPPER PENINSULA ENERGY CORPORATION
NOTICE is hereby given that the Annual Meeting of the Shareholders of
Upper Peninsula Energy Corporation will be held at the Corporate Office of the
Corporation, 600 Lakeshore Drive, Houghton, Michigan, on Tuesday, April 22,
1997, at 2 p.m. (EDT), for the following purposes:
1. To elect two Class II Directors for three-year terms expiring in
2000;
2. To transact such other business as may properly come before the
meeting and any adjournments thereof;
all as set forth in the Proxy Statement accompanying this notice.
Further information regarding voting rights and the business to be
transacted at the meeting is given in the accompanying Proxy Statement.
Only holders of record of common stock on the stock transfer books of the
Corporation at the close of business on February 28, 1997 will be entitled to
vote at the meeting and any adjournments thereof.
By order of the Board of Directors
B. C. Arola
Secretary
IF YOU ARE A HOLDER OF COMMON STOCK OF THE CORPORATION AND DO NOT EXPECT TO
ATTEND THE ANNUAL MEETING OF SHAREHOLDERS, PLEASE FILL IN, SIGN, DATE, AND
RETURN THE ENCLOSED PROXY IN THE BUSINESS REPLY ENVELOPE PROVIDED, AS EARLY AS
POSSIBLE. NO POSTAGE IS REQUIRED.
UPPER PENINSULA ENERGY CORPORATION
600 Lakeshore Drive
Houghton, Michigan 49931
(906) 487-5000
PROXY STATEMENT
The enclosed proxy, which is being mailed on or about March 19, 1997, is
solicited on behalf of the Board of Directors of Upper Peninsula Energy
Corporation (the "Corporation") for use at the Annual Meeting of the
Shareholders of the Corporation to be held at the Corporate Office of the
Corporation, 600 Lakeshore Drive, Houghton, Michigan, on Tuesday, April 22,
1997, at 2 p.m. (EDT) and any adjournments thereof.
A shareholder giving the enclosed proxy has the power to revoke it at any
time before it is exercised by written notice to the Secretary of the
Corporation, or by sending a later dated proxy, or in person at the April 22,
1997 meeting.
The Corporation will bear the cost of the solicitation of proxies,
including the charges and expenses of brokerage firms and others for forwarding
solicitation material to beneficial owners of stock. In addition to the use of
the mails, proxies may be solicited by personal interview, telephone or other
electronic means by certain of the Corporation's employees without additional
compensation therefor. The Corporation may also retain and compensate one or
more outside organizations to assist in the solicitation of proxies.
STOCK OUTSTANDING, VOTING RIGHTS AND VOTES REQUIRED
Only holders of common stock of record on the stock transfer books of the
Corporation at the close of business on February 28, 1997, (the "record date")
will be entitled to vote at the meeting. The Corporation had 2,969,215 shares of
common stock outstanding on the record date, and a majority of such shares
constitutes a quorum for transaction of business at the meeting.
Directors will be elected by a plurality of votes of common shareholders
cast for the election of Directors at the meeting. For election of Directors and
on all other matters, the holders of the common stock are entitled to one vote
for each share of stock held and owned by them.
SECURITY OWNERSHIP OF MANAGEMENT
To the knowledge of the Corporation, no person, firm, corporation or group
owned, of record or beneficially, more than five percent of the outstanding
common stock of the Corporation on February 28, 1997.
The following table sets forth certain information regarding the
beneficial ownership of the Corporation's common stock as of February 28, 1997
by: (a) Corporation Directors; (b) the Corporation's Chief Executive Officer and
the other executive officers named in the SUMMARY COMPENSATION TABLE and (c) the
Corporation's executive officers and Directors as a group. Except as otherwise
described in the notes below, the following beneficial owners have sole voting
power and sole investment power with respect to all common stock set forth
opposite their names.
<TABLE>
<CAPTION>
Number of Common
Stock Shares Percent (3)
Name of Beneficial Owner Beneficially Owned (1) of Class
------------------------ ---------------------- -----------
<S> <C> <C>
Clarence R. Fisher 10,361 (2) *
Samuel S. Benedict 850 *
Rodger T. Ederer 502 *
Thomas M. Strong 330 *
Leonard Angeli 190 *
Robert A. Ubbelohde 150 *
Neil D. Nelson 3,879 (2) (4) *
Burton C. Arola 4,306 (2) *
All Executive Officers and Directors
as a Group - - - - (8 persons) 20,568 *
<FN>
<F1> (1) Each of the beneficial owners identified above has sole voting and
investment power as to all of the shares shown in this column as
beneficially owned, with the exception of those held by certain Officers
and Directors jointly with their spouses or directly by their spouses,
minor children, or certain other relatives or relatives of their spouses.
<F2> (2) Includes restricted stock held by executive officers. See SUMMARY
COMPENSATION TABLE below.
<F3> (3) Asterisk indicates less than one percent.
<F4> (4) Mr. Nelson's spouse owns sole voting and investment power as to 1,292
shares. Mr. Nelson disclaims any beneficial interest in said shares.
</FN>
</TABLE>
ELECTION OF DIRECTORS
The shares represented by the proxies which are executed and returned will
be voted at the Annual Meeting for the election, as Class II Directors, of the
two nominees named in the table set forth below, unless authority to vote for
individual nominees, or the nominees as a group, is expressly withheld.
The Articles of Incorporation of the Corporation provide that the Board of
Directors shall be divided into three classes, with each class to be as nearly
equal in number as shall be possible, and that one class shall be elected each
year for a term of three years. Accordingly, it is proposed that Messrs.
Benedict and Fisher, who are presently Class II Directors whose terms expire at
this meeting, be elected to serve three-year terms until their successors are
duly elected and qualify.
Listed below, by Class, are the names of those persons nominated for
election as Directors of the Corporation (each is currently a Director), and of
the continuing Directors of the Corporation, their principal occupations, ages
as of the date of this proxy statement, the year in which each first became a
Director of the Corporation or the Corporation's predecessor in interest, and
the year in which each such Director's term as a Director will expire:
<TABLE>
<CAPTION>
Name, Principal Occupation Age at First Became
for Last Five Years 4/22/97 a Director
-------------------------- ------- ------------
NOMINEES FOR DIRECTORS -- CLASS II (Term Expiring in 2000)
<S> <C> <C>
SAMUEL S. BENEDICT (2) 67 1986 (1)
Retired. Formerly President & Chief Operating
Officer, Mead Corporation
CLARENCE R. FISHER 57 1992
Chairman of the Board, Chief Executive Officer and President
of the Corporation and Upper Peninsula Power Company
CONTINUING DIRECTORS -- CLASS I (Term Expiring in 1999)
RODGER T. EDERER (2) 66 1978 (1)
Practicing Attorney, 1784 Hamilton Road Okemos,
Michigan since July 1995. Prior thereto a shareholder
in the Lansing, Michigan, law firm of Loomis,
Ewert, Ederer, Parsley, Davis & Gotting, P. C.
THOMAS M. STRONG (3) 59 1989
President & Chief Executive Officer,
Citizens State Bank of Ontonagon, Michigan
CONTINUING DIRECTORS -- CLASS III (Term Expiring in 1998)
LEONARD ANGELI (2) 65 1989
Retailer, Leonard Angeli, Inc.
ROBERT A. UBBELOHDE Ph.D. (3) 54 1995
Dean of the Faculty, 1988-1991 and President 1991 to
present, Suomi College, Hancock, Michigan
<FN>
NOTES:
<F1> (1) Includes period of service as a Director of the Corporation's Principal
subsidiary Upper Peninsula Power Company (UPPCO).
<F2> (2) Member of Compensation Committee; Samuel S. Benedict, Chairman.
<F3> (3) Member of Audit Committee; Thomas M. Strong, Chairman.
</FN>
</TABLE>
There are no family relationships among the Directors.
Should any of the nominees become unavailable for any reason (which is not
anticipated), the shares represented by the enclosed proxy may be voted for such
other person or persons as may be selected by the Board of Directors of the
Corporation.
DIRECTORS' COMPENSATION
During 1996, the Corporation's Directors, except Directors who are
employees, received an annual retainer of $7,200; $500 for each directors'
meeting; $500 for each committee meeting attended; and 50 shares of the
Corporation's common stock. Such common stock is issued as of the annual
shareholders meetings to such Directors who have served continuously from the
previous shareholders meeting.
DIRECTORS AND COMMITTEE MEETINGS AND FUNCTIONS
During 1996, the Directors held a total of six (6) meetings.
The Audit Committee held two meetings in 1996. On February 7, 1997, the
Corporation's Audit Committee met with representatives of Deloitte & Touche LLP
to review the financial statements for the year ended December 31, 1996, and
will report their findings to the Board of Directors and management.
The functions of the Audit Committee are to: (1) recommend the selection,
retention and termination of the Corporation's external auditors; (2) approve,
in advance, the types of professional services for which the Corporation would
retain the external auditors and consider whether any such service would impair
the independence of the external auditors; (3) review the overall scope of the
audit with external auditors, the financial statements and external audit
results and recommendations of the independent audit with management; and (4)
provide whatever additional function it deems necessary in connection with the
internal accounting and reporting practices of the Corporation.
The Compensation Committee held three meetings in 1996. The functions of
the Compensation Committee are to: (1) recommend compensation levels for
Directors of this Corporation; (2) recommend the annual salary level and
employee fringe provisions, as well as any special compensation program of all
officers of the Corporation; (3) to review and approve the salary administration
program of the Corporation; (4) to set performance goals and to establish
eligibility for the various incentive plans; (5) to prepare and submit for
inclusion in the annual proxy statement a Compensation Committee Report on
Executive Compensation; and (6) to keep informed of union settlement terms
negotiated.
The Corporation does not have a nominating or any similar committee.
Each Director attended all of the meetings of the Board of Directors and
committees of which he was a member during 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
IN COMPENSATION DECISIONS
The relationship between Compensation Committee member Rodger T. Ederer
and the Corporation is described in TRANSACTIONS WITH MANAGEMENT below.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of Upper Peninsula
Power Company (the "Committee") is pleased to present its report on executive
compensation. This Committee report documents the components of the
Corporation's executive officer compensation programs and describes the basis on
which 1996 compensation determinations were made by the Committee with respect
to the executive officers of the Corporation, including the executive officers
that are named in the SUMMARY COMPENSATION TABLE.
Compensation Philosophy and Overall Objectives of Executive Compensation
Programs
It is the philosophy of the Corporation to ensure that executive
compensation be directly linked to improvements in corporate performance and
increases in shareholder value. The following objectives have been adopted by
the Committee as guidelines for compensation decisions:
1. Provide a competitive total compensation package that enables the
Corporation to attract and retain key executives.
2. Integrate all pay programs with the Corporation's annual and long-term
business objectives and strategy, and focus executive behavior on the
fulfillment of those objectives.
3. Provide variable compensation opportunities that are directly linked with
the performance of the Corporation and that align executive remuneration
with the interests of shareholders.
Compensation Program Components
The Committee regularly reviews the Corporation's annual compensation
program to ensure that pay levels and incentive opportunities are competitive
and reflect the performance of the Corporation's Chief Executive Officer (CEO)
and other executive officers. The specific elements of the compensation program
are further explained below.
Base Salary. Base pay levels are largely determined through comparisons
with companies of similar size and complexity of the Corporation. In arriving at
actual salaries, the Committee considers the earnings per share, other operating
results and individual performance contributions, all within a competitive
salary range for each position that is established through job evaluation and
market comparisons. Base pay levels for the executive officers are competitive
within a range that the Committee considers to be reasonable and necessary. With
the exception of salary mid-point attainment adjustments, the named executive
officers received average base salary increases of 3% effective July 1, 1996.
Base salaries will be reviewed in July, 1997.
Incentive Compensation. The Committee considers long-term incentive
opportunities to be an integral part of the Company's executive compensation
program. The 1995 Corporate Performance Incentive Plan and the 1995 Long-Term
Stock Incentive Plan are discussed below, as part of the SUMMARY COMPENSATION
TABLE and under OTHER COMPENSATION PLANS.
The 1995 Performance Incentive Plan allows the Committee to make cash
awards, Corporate common stock awards or a combination of cash or stock
(including restricted stock) to the ten positions selected by the Committee as
being eligible to participate. These ten positions include the three executive
officers named in the SUMMARY COMPENSATION TABLE below, another officer and key
management positions in grades 17 and above.
Performance incentive awards are made based on the Corporation's previous
years performance measurements of shareholder related and customer related
criteria compared to the same measurements of a group of upper midwest
utilities. From this data a mandatory minimum of 50 performance points must be
earned out of a maximum of 100 performance points. These performance points
become a "performance multiplier" which is then applied to maximum performance
award opportunities (being 30% of the base salary of the Chairman of the Board
and Chief Executive Officer and President, 25% for the other officers and 20%
for the non-officer participants).
The 1995 Long-Term Stock Incentive Plan, in furtherance of the incentive
program, provides for the award of stock options, restricted stock and
unrestricted stock awards as determined by the Committee. See OTHER COMPENSATION
PLANS below and the tables on OPTION GRANTS IN LAST FISCAL YEAR.
Discussion of 1996 Compensation for the Chairman of the Board and Chief
Executive Officer
The Chief Executive Officer's base salary is established based largely on
the same policy applicable to executive officers and discussed above, except
that salary decisions are made with a significant emphasis on earnings,
operating results and quality of management.
Executive compensation reviews are made annually with adjustments
effective July 1 of each year. Effective July 1, 1996, Mr. Fisher's salary upon
review, was increased from $187,100 to $199,250.
After review of base compensation, other benefits and the incentive
program, the Committee believes that the total compensation program for
executives of the Corporation will be competitive with the compensation programs
provided by other corporations of comparative size and nature. The Committee
also believes that any amounts paid under the incentive program will be
appropriately related to corporate and individual performance, yielding awards
that are directly linked to the annual financial and operational results of the
Corporation.
Compensation Committee of the Board of Directors
Samuel S. Benedict, Chairman
Leonard Angeli
Rodger T. Ederer
SUMMARY COMPENSATION TABLE
The following tabulation sets forth total compensation during 1994, 1995
and 1996 for the Chief Executive Officer and two executive officers of the
Corporation and its subsidiaries whose total annual compensation exceeded
$100,000:
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
- ----------------------------------------------------------- ----------------------
Base Restricted All Other
Name and Salary Bonus Stock Awards (1) Compensation (2)
Principal Position Year ($) ($) ($) ($)
- ------------------------------- ---- ------- ----- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Clarence R. Fisher, Chairman of 1996 192,957 0 42,098 5,095
the Board, Chief Executive 1995 181,198 0 40,845 2,764
Officer and President 1994 163,466 0 852
Neil D. Nelson 1996 118,604 0 21,469 4,332
Vice President - Operations 1995 110,400 0 20,650 2,333
1994 102,891 0 744
Burton C. Arola 1996 111,150 0 20,325 4,826
Vice President - Finance 1995 105,504 0 19,915 2,715
Treasurer and Secretary 1994 101,271 0 647
<FN>
<F1> (1) The amounts appearing in this column are the dollar values of restricted
stock awards granted during each reporting year beginning in 1995 when the
Corporation's 1995 Performance Incentive Plan was adopted by the
Corporation's Directors. Each value is determined by multiplying the
number of shares in each award by the closing market price of common stock
on the award date. Dividends, as and when payable to stockholders
generally of common stock, are paid on the restricted stock. The aggregate
number of restricted stock holdings of each named executive as of December
31, 1996, and the value of such holdings (determined by taking the number
of shares multiplied by the common stock closing market price of $17.25 on
December 31, 1996) are, Mr. Fisher, 4,672 shares, valued at $80,592, Mr.
Nelson, 2,372 shares, valued at $40,917 and Mr. Arola, 2,267 shares valued
at $39,106.
<F2> (2) Amounts appearing in this column represent Company paid life and
disability insurance premiums, auto insurance premium allowance and
contributions made to the UPPCO 401(k) plan for salaried employees.
</FN>
</TABLE>
Stock option grants under the 1995-Long-Term Stock Incentive Plan, to the
individuals named in the SUMMARY COMPENSATION TABLE, were made on October 9,
1996 and have an exercise price equal to the fair market value as of October 9,
1996.
The following tables set forth information relating to stock options
granted as 1996 compensation to the executive officers named in the SUMMARY
COMPENSATION TABLE above, option exercises in 1996, and year-end option values
of unexercised options.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% of
Total Potential Realizable Value
Number of Options Exercise (1) at Assumed Annual Rates
Securities Granted to or of Stock Price Appreciation
Underlying Employees Base for Option Term (2)(3)
Grant Options in Fiscal Price Expiration ---------------------------
Name Date Granted Year ($/Sh) Date 5 % 10 %
---- ------ ---------- ---------- ------------ ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Clarence R. Fisher 7/9/96 2,338 25.1% $18.00 7/10/2006 $26,466 $67,071
Neil D. Nelson 7/9/96 1,192 12.8% $18.00 7/10/2006 $13,494 $34,195
Burton C. Arola 7/9/96 1,129 12.1% $18.00 7/10/2006 $12,780 $32,388
<FN>
<F1> (1) For each grant, 100% of the options become exercisable on July 10, 1999
<F2> (2) These amounts, based on assumed appreciation of 5% and 10% being rates
prescribed by Securities and Exchange Commission rule, are not intended to
forecast possible future appreciation, if any.
<F3> (3) No gain to the optionees is possible without an increase in stock price,
which will benefit all stockholders.
</FN>
</TABLE>
OPTION EXERCISES IN 1966 AND VALUE OF OPTIONS AT END OF FISCAL 1996
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Shares Options at End of In-the-Money Options
Acquired Value Fiscal 1996 at End of Fiscal 1996 (2)
on Realized ---------------------------- ----------------------------
Name Exercise (1) Exercisable Unexercisable Exercisable Unexercisable
---- -------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Clarence R. Fisher -0- N/A -0- 2,338 -0- -0-
Neil D. Nelson -0- N/A -0- 1,192 -0- -0-
Burton C. Arola -0- N/A -0- 1,129 -0- -0-
<FN>
<F1> (1) Value based on market value of UPEN's Common Stock on date of exercise
less the exercise price.
<F2> (2) No options were In-the-Money as of end of fiscal 1996.
</FN>
</TABLE>
PERFORMANCE GRAPH
The following performance graph compares the performance of Upper
Peninsula Energy Corporation's Common Stock to the Nasdaq Stock Market Total
Return Index (United States Companies) and Edison Electric Institute Index of
100 investor-owned electrics (which includes UPEN) for the last five fiscal
years. The graph assumes that the value of the investment in the Corporation's
Common Stock and each index was $100 at December 31, 1991 and that all dividends
were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Upper Peninsula Energy Corporation $100.00 $116.47 $128.56 $111.43 $141.81 $141.86
NASDAQ Stock Market Total Return
Index - U.S. Companies $100.00 $116.38 $133.59 $130.59 $184.67 $227.16
EEI Index 100 Investor - Owned
Electronis $100.00 $107.59 $119.58 $105.74 $138.55 $140.22
</TABLE>
PENSION PLANS
Upper Peninsula Power Company (UPPCO), a subsidiary of Upper Peninsula
Energy Corporation, maintains a Pension Plan applicable to all full-time
employees. Benefits are determined under the Plan by taking the employee's
monthly base rate of pay at July 1, 1980, and multiplying by 2%. This sum is
then multiplied by the number of years and fractions thereof of credited service
prior to July 1, 1980, which develops the employee's monthly past-service
benefit. This monthly past-service benefit is then added to the employee's
monthly future-service benefit, which is derived by adding, for each year and
fractions thereof of credited service after July 1, 1980, 2% of the employee's
monthly base rate of pay at each July 1. The Plan provides for optional early
retirement payments based on a 3% reduction of base benefits for each year of
early retirement prior to normal retirement age of 65 or, under the Rule of 85
formula, 100% of base benefits at the time of early retirement for all employees
accumulating 85 or more points from the sum of their age plus years of service.
The estimated annual pension benefit, taking into consideration the limitations
imposed by Internal Revenue Code Section 401(a)(17), payable to the three
executive officers named in the SUMMARY COMPENSATION TABLE upon retirement at
age 65 (normal retirement age under the Plan) based on the assumption that they
will continue their salary rates at December 31, 1996, until their normal
retirement date is: Mr. Fisher $65,558, Mr. Nelson $24,946 and Mr. Arola
$76,366.
An unfunded Supplemental Retirement Plan is maintained by UPPCO for a
select group of management employees as designated by the Board of Directors and
provides an annual retirement supplement for life, but not to exceed 15 years.
The amount of the annual supplemental benefit is equal to 0.5% times final
annual salary times years of service. A minimum of 25 years and a maximum of 40
years of service are used in the benefit calculation, but not for purposes of
eligibility. Under normal conditions the employee must continue their employment
to age 60 to qualify for this annual supplemental benefit. The Plan provides its
participants with immediate eligibility for full benefits upon a Change in
Control occurrence (as such term is defined within the Plan) and also provides
to any participant who retired after a Change in Control occurrence, with
reduced UPPCO Pension Plan benefits because of their failure to meet the Rule of
85 eligibility requirements, an additional benefit payment equal to any reduced
Pension Plan benefit. In 1994 the Board of Directors amended this Plan to
provide supplemental benefits for a participant, and the surviving spouse, who
participates in the Company's Pension Plan and whose benefit under the pension
plan is reduced due to the limitations imposed by Internal Revenue Code Section
401(a)(17). The supplemental benefit will be an amount equal to the difference
between the amount the participant would have received pursuant to the terms of
the Pension Plan but for the limitations imposed and the amount actually
received.
SUPPLEMENTAL RETIREMENT PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
Annual -------------------------------------------
Remuneration 25 30 35 40
------------ ------- ------- ------- -------
<C> <C> <C> <C> <C>
100,000 $12,500 $15,000 $17,500 $20,000
110,000 13,750 16,500 19,250 22,000
120,000 15,000 18,000 21,000 24,000
130,000 16,250 19,500 22,750 26,000
140,000 17,500 21,000 24,500 28,000
150,000 18,750 22,500 26,250 30,000
160,000 20,000 24,000 28,000 32,000
170,000 21,250 25,500 29,750 34,000
180,000 22,500 27,000 31,500 36,000
190,000 23,750 28,500 33,250 38,000
200,000 25,000 30,000 35,000 40,000
210,000 26,250 31,500 36,750 42,000
220,000 27,500 33,000 38,500 44,000
</TABLE>
The amounts under the heading Annual Remuneration are the amounts
reportable under the heading Salary in the SUMMARY COMPENSATION TABLE, not
annualized. As of December 31, 1996, Messrs. Fisher, Nelson and Arola were
credited with 33, 25 and 25 years of service, respectively.
The increased benefit due Mr. Fisher to offset the Internal Revenue Code
Section 401(a)(17) restriction discussed above is not reflected in the above
table. Assuming normal retirement at age 65 and present salary rate, Mr. Fisher
would be entitled to an additional $8,224.
Increased benefits that may result from a Change in Control occurrence are
not reflected in the above table.
TERMINATION OF EMPLOYMENT AND "CHANGE OF CONTROL" ARRANGEMENTS
Termination Agreements have been entered into between UPPCO and a select
group of management personnel. These Agreements are only effective under certain
conditions following a "Change of Control" occurrence of Upper Peninsula Energy
Corporation (as such terms are defined in such Agreements, as amended). The
Agreements would pay a severance payment of up to three times average annual
wage if, under certain conditions, employment was terminated by UPPCO, or by the
participant for good cause.
OTHER COMPENSATION PLANS
An Employee Stock Purchase Plan is available to all full-time employees
who have more than six (6) months of service with UPPCO. This Plan allows
employees, through payroll deductions up to 15% of their gross pay, to purchase
common stock of the Corporation twice each year (June 1 and December 1) at a
price equal to 90% of the average price which was in effect six (6) months prior
to the purchase date. Directors who are not employees are not eligible to
participate in this Plan. During 1996, the difference between the option price
of common stock purchased under this Plan and the fair market value of the
shares purchased amounted to $378 for Mr. Fisher, $107 for Mr. Nelson and $54
for Mr. Arola. Future amounts will be based on the number of shares purchased,
option price and the fair market value.
UPPCO 401(k) plans are available for all employees who have more than six
(6) months of service. Voluntary employee contributions, through payroll
deductions from 1 % to 15 % of annual income, can be made by all eligible
employees. All participating union employees receive a 35% matching contribution
(up to a maximum of 3% of gross pay). All participating salaried employees
receive a 50% matching contribution (up to a maximum of 3% of the employee's
salary). A 1996 lump sum contribution to the 401(k) for the benefit of certain
salaried employees was approved by the Board of Directors. Such contributions
are to be made in amounts equal to 1% of base salary if performance goals are
met. The 1996 applicable performance goal was a 12.25% return on common equity.
It is expected that the required return on common equity will be reviewed in
subsequent years. Withdrawals from the Plan can only be made upon death,
retirement, disability, termination of employment, serious financial hardship or
upon reaching age 59 1/2. Directors who are not employees are not eligible to
participate in this Plan.
In 1995, the Directors of the Corporation adopted the 1995 Corporate
Performance Incentive Plan and 1995 Long-Term Stock Incentive Plan. Both plans
are designed to attract and retain capable employees and to provide them with
long-term incentives to continue their services to the Corporation, to maximize
the value of the Corporation to its stockholders and to permit such officers and
key employees to acquire a continuing ownership interest in the Corporation. For
1996, restricted stock awards were made based on the Corporation's previous
years performance measurements of shareholder related and customer related
criteria compared to the same measurements of a group of upper midwest
utilities. From this data, it was determined that a total of 75 performance
points out of a maximum of 100 had been earned, resulting in a .75 "performance
multiplier". This .75 performance multiplier was then applied to maximum
performance award opportunities (being 30% of the base salary of the Chairman of
the Board and Chief Executive Officer and President, 25% for the other officers
and 20% for the non-officer participants). At the discretion of the Compensation
Committee future awards may be cash, Corporate common stock or a combination of
cash or stock (including restricted stock). On October 9, 1996, the Compensation
Committee granted Incentive Stock Options to the plan's ten eligible
participants. From this date of grant, all options expire after ten years,
cannot be exercised for three years and have an option price of $18.00 which
equals the fair market value at time of grant.
TRANSACTIONS WITH MANAGEMENT
Mr. Rodger T. Ederer, a Class I Director, rendered various legal services
in 1996 to the Corporation and its subsidiaries as a private practicing
attorney. During 1996, in the ordinary course of its business, an aggregate of
$99,181 was paid to Mr. Ederer. Mr. Ederer has also been retained for the year
1997.
ANNUAL REPORT
The financial statements and auditors' opinion are contained in Upper
Peninsula Energy Corporation's 1996 Annual Report to Shareholders, copies of
which have been separately mailed to all Shareholders of the Corporation.
SHAREHOLDER PROPOSALS
Shareholder proposals intended for inclusion in the 1998 proxy and proxy
statement must be received by the Secretary of the Corporation, 600 Lakeshore
Drive, P. O. Box 130, Houghton, Michigan 49931-0130, not later than November 19,
1997.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Deloitte & Touche LLP (or an associated predecessor) has been
retained by the Corporation or its subsidiary, UPPCO, as auditors since 1947 and
are considered for appointment in the month of July each year. Representatives
of Deloitte & Touche LLP are not expected to be available at the Annual Meeting
of Shareholders.
DISCRETIONARY AUTHORITY
The Board of Directors of the Corporation has no knowledge of any business
to be brought before the Annual Meeting of Shareholders of the Corporation other
than that which is specified in the notice of such meeting or may arise in
connection with or for the purpose of effecting the same. Should any other
business properly come before the meeting, it is intended that proxies will be
voted in respect thereof in accordance with the judgment of the person or
persons voting the proxies.
UPPER PENINSULA ENERGY CORPORATION
600 Lakeshore Drive
P.O. Box 130
Houghton, MI 49931-0130
SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS ON APRIL 22, 1997
The undersigned hereby appoints Clarence R. Fisher and Burton C. Arola as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated on the reverse side, all the
shares of common stock of UPPER PENINSULA ENERGY CORPORATION held on record by
the undersigned on February 28, 1997, at the Annual Meeting of Shareholders to
be held on Tuesday, April 22, 1997, or at any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS GIVEN WITH
RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE VOTED "FOR" SUCH
PROPOSAL.
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| PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY USING THE |
| ENCLOSED ENVELOPE. |
| |
| NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES OF AMERICA. |
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HAS YOUR ADDRESS CHANGED? D0 YOU HAVE ANY COMMENTS?
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[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
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UPPER PENINSULA
ENERGY CORPORATION
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For All
1. Election of Directors. For Withhold Except
Samuel S. Benedict [ ] [ ] [ ]
Clarence R. Fisher
NOTE: If you do not wish your shares voted "For" a particular nominee, mark
the "For All Except" box and strike a line through the nominee's name. Your
shares will be voted for the remaining nominee.
For Against Abstain
2. In their discretion, the proxies are authorized [ ] [ ] [ ]
to vote upon such other business as may properly
come before the meeting, including voting for
substitute nominees if any director nominee is
not available.
If joint account, each owner must sign.
Shareholder, please sign this proxy exactly as your name(s) appear(s) to the
left, including the title "Executor", "trustee", etc., if the same is
indicated. If stock is held by a corporation, this proxy should be executed by
a proper officer thereof.
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Please be sure to sign and date this Proxy. | Date |
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-----Shareholder sign here------------------------Co-owner sign here---------
Mark box at right if an address change or comment has been noted on the
reverse side of this card [ ]
RECORD DATE SHARES
