Washington, D.C. 20549
| Item 5.02. | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
On February 22, 2007, the Board of Directors (the “Board”) of SEMCO Energy, Inc. (the “Company”) approved the annual base salaries for the Company’s Chief Executive Officer, Chief Financial Officer and its three most highly compensated executive officers for the Company’s last completed fiscal year (the “named executive officers”). The Board also approved cash bonus awards under the Company’s Short-Term Incentive Plan, effective January 1, 2005 (the “STIP”), for certain executive officers, including all of the named executive officers, for the fiscal year ended December 31, 2006. Further, the Board approved the adoption of the Amended and Restated Short-Term Incentive Plan (the “Amended and Restated STIP”), effective January 1, 2007, as well as the Long-Term Incentive Plan (the “LTIP”), effective January 1, 2007, which outlines the manner in which awards are made under the Company’s 2004 Stock Award and Incentive Plan (the “2004 Plan”). The Board established the performance criteria to be used in establishing cash bonus awards and award grants for the fiscal year ending December 31, 2007 under the Amended and Restated STIP and the LTIP. Finally, the Board approved certain amendments to the severance agreements of its named executive officers. All of these actions were taken by the Board upon the recommendation of the Compensation Committee of the Board.
Base Salaries of Named Executive Officers
On February 22, 2007, the Board approved new annual base salaries (effective as of March 24, 2007) for the named executive officers. The following table sets forth the new annual base salary levels of the named executive officers:
Name and Position | Base Salary Effective March 24, 2007 |
George A. Schreiber, Jr. President and Chief Executive Officer | $575,000 |
Michael V. Palmeri Senior Vice President, Treasurer and Chief Financial Officer | $305,000 |
Eugene N. Dubay Senior Vice President of Operations | $295,000 |
Peter F. Clark Senior Vice President and General Counsel | $275,000 |
Lance S. Smotherman Senior Vice President of Human Resources and Administration | $253,000 |
Cash Bonus Awards under STIP for 2006 |
On February 22, 2007, the Board approved the following cash bonus awards for the named executive officers under the STIP for the fiscal year ended December 31, 2006:
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Name and Position | Cash Bonus Award under STIP for 2006 |
George A. Schreiber, Jr. President and Chief Executive Officer | $278,179 |
Michael V. Palmeri Senior Vice President, Treasurer and Chief Financial Officer | $110,000 |
Eugene N. Dubay Senior Vice President of Operations | $119,158 |
Peter F. Clark Senior Vice President and General Counsel | $90,000 |
Lance S. Smotherman Senior Vice President of Human Resources and Administration | $63,695 |
Adoption of Amended and Restated STIP
On February 22, 2007, the Board approved the Amended and Restated STIP to incorporate the changes to the STIP target opportunity level as a percent of base salary for supervisors and managers for 2007 to 3% and 6%, respectively, from 2% and 4%, respectively, which changes were initially approved by the Board on December 13, 2006. Further, the STIP was amended to incorporate the increase in the STIP target opportunities from 35% to 40% of base salary for each of Peter F. Clark and Lance S. Smotherman.
The foregoing description of the Amended and Restated STIP is qualified in its entirety by reference to the full text of the Amended and Restated STIP, a copy of which is filed as Exhibit 10.18 to this Form 8-K.
2007 Performance Criteria under the Amended and Restated STIP
Whether a participant obtains his or her target award under the Amended and Restated STIP depends on achievement of certain corporate financial results and then is further weighted based on the individual’s annual performance assessment ranking. Individual performance weighting varies based on employment level, as described in the Amended and Restated STIP. For 2007, the specific Amended and Restated STIP corporate financial results that will be measured are net income and net operating profit after tax, with each of these measures weighted equally when determining whether the corporate financial results were met.
In addition, the Board approved the target bonuses for each of the named executive officers in the following table, which may be decreased depending on each named executive officer’s performance and the corporate financial results of the Company, as permitted under the Amended and Restated STIP:
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Name and Position | Target Bonus That May be Granted Under Amended & Restated STIP for 2007 |
George A. Schreiber, Jr. President and Chief Executive Officer | 60% of Base Salary |
Michael V. Palmeri Senior Vice President, Treasurer and Chief Financial Officer | 40% of Base Salary |
Eugene N. Dubay Senior Vice President of Operations | 50% of Base Salary |
Peter F. Clark Senior Vice President and General Counsel | 40% of Base Salary |
Lance S. Smotherman Senior Vice President of Human Resources and Administration | 40% of Base Salary |
This explanation of the performance criteria under the Amended and Restated STIP is qualified in its entirety by reference to the full text of the Amended and Restated STIP, a copy of which is filed as Exhibit 10.18 to this Form 8-K.
Adoption of LTIP
On February 22, 2007, the Board approved the LTIP to incorporate the incentive level changes and executive level classifications that were approved by the Board on December 13, 2006. These included increasing George A. Schreiber, Jr.’s long-term incentive opportunity level from 95% to 100% of base salary and increasing Lance S. Smotherman’s long-term incentive opportunity level from 50% to 55% of his base salary. Additionally, the LTIP describes other aspects of the manner in which awards are made under the 2004 Plan.
The foregoing description of the LTIP is qualified in its entirety by reference to the full text of the LTIP, a copy of which is filed as Exhibit 10.9.9 to this Form 8-K.
2007 Performance Criteria under the LTIP
Whether a participant will obtain a target award for 2007 under the LTIP depends on (i) the growth of earnings per share compared to a peer group of gas utility companies, and (ii) achieving a certain target return on invested capital. These two factors are measured over a cumulative three-year period, such that these LTIP performance measures for 2007 will be evaluated as of December 31, 2009. In addition, these two factors are weighted equally in determining the LTIP award.
This explanation of the performance criteria under the LTIP is qualified in its entirety by reference to the full text of (i) the LTIP, a copy of which is filed as Exhibit 10.9.8 to this Form 8-K; (ii) the Form of Employee Performance Share Unit Award Agreement, a copy of which is filed as Exhibit 10.9.8 to this Form 8-K; (iii) the Form of Agreement to Amend Prior Employee Performance Share Unit Award Agreement, a copy of which is filed as Exhibit 10.9.7 to this Form 8-K; (iv) the Forms of Restricted Stock Grant Agreements (for chairmen and directors), copies of which are filed as exhibits to the Company’s Form 8-K filed July 1, 2005; and (v) the Form of Restricted Stock Unit Award Agreement, a copy of which is filed as an exhibit to the Company’s Form 8-K filed July 1, 2005.
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Amendments to Severance Agreements
On February 22, 2007, the Board approved amendments to the severance agreements of Peter F. Clark and Lance S. Smotherman to reflect the 2007 incentive level changes described in the section of this Form 8-K entitled “Adoption of Amended and Restated STIP.” The Board also approved amendments to the severance agreements of George A. Schreiber, Jr., Michael V. Palmeri, Eugene N. Dubay and Lance S. Smotherman to reflect changes in their long-term incentive opportunity levels from 95% to 100% of base salary for Mr. Schreiber and from 50% to 65%, 70% and 55%, respectively, of base salary for each of Messrs. Palmeri, Dubay and Smotherman.
Each named executive officer’s severance agreement was further amended to provide that any future increases to incentive levels under the Amended & Restated STIP and to the long-term incentive opportunity levels under the LTIP to reflect market changes in the compensation paid to similarly situated executives may be made without having to expressly amend each named executive officer’s agreement, but may not be decreased without the named executive officer’s express written consent.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
| | 10.9.7 | Form of Agreement to Amend Prior Employee Performance Share Unit Award Agreements |
| | 10.9.8 | Form of Employee Performance Share Unit Award Agreement, effective for grants on or after January 1, 2007 |
| | 10.9.9 | Long-Term Incentive Plan effective as of January 1, 2007 |
| | 10.10.2 | First Amendment dated February 22, 2007, to the Severance Agreement dated June 29, 2005, between SEMCO Energy, Inc. and George A. Schreiber, Jr. |
| | 10.11.1 | First Amendment dated February 22, 2007, to the Severance Agreement dated June 29, 2005, between SEMCO Energy, Inc. and Peter F. Clark |
| | 10.12.1 | First Amendment dated February 22, 2007, to the Severance Agreement dated June 29, 2005, between SEMCO Energy, Inc. and Eugene N. Dubay |
| | 10.13.1 | First Amendment dated February 22, 2007, to the Severance Agreement dated June 29, 2005, between SEMCO Energy, Inc. and Michael V. Palmeri |
| | 10.14.1 | First Amendment dated February 22, 2007, to the Severance Agreement dated June 29, 2005, between SEMCO Energy, Inc. and Lance S. Smotherman |
| | 10.18 | Short-Term Incentive Plan Amended and Restated effective January 1, 2007 |
