SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 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 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(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:
[GRAPHIC OMITTED]
March 10, 2003
NOTICE OF ANNUAL MEETING OF COMMON SHAREHOLDERS
TO BE HELD ON APRIL 15, 2003
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
15, 2003 at 10:00 a.m. (EDT), for the following purposes:
1. To elect four members to the Board of Directors.
2. To transact any other business which properly comes before the
meeting.
Only Common Shareholders of record at the close of business on February
18, 2003 may vote at the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU CAN ENSURE YOUR SHARES
ARE REPRESENTED AT THE MEETING BY PROMPTLY COMPLETING, SIGNING, DATING AND
RETURNING YOUR PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR YOU MAY
SUBMIT YOUR PROXY WITH VOTING INSTRUCTIONS BY TELEPHONE OR VIA THE INTERNET IN
ACCORDANCE WITH THE INSTRUCTIONS ON THE ACCOMPANYING PROXY CARD. TO PREVENT
DUPLICATION, PLEASE SUBMIT YOUR PROXY ONLY ONCE, EITHER BY MAIL, BY PHONE OR
VIA THE INTERNET. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON WHETHER OR
NOT YOU HAVE SUBMITTED YOUR PROXY.
By order of the Board of Directors
Sherry L. Abbott, Corporate Secretary
28470 13 Mile Road, Suite 300, Farmington Hills, Michigan 48334 (248) 702-6000
TABLE OF CONTENTS
Notice of Annual Meeting of Stockholders ............................ 1
Proxy Statement ..................................................... 3
Electronic Delivery of Proxy Statement and Annual Report ............ 3
Householding Information ............................................ 4
Stock Outstanding and Voting Rights ................................. 4
Answers to commonly asked questions relating to stock ownership
and voting rights ............................................. 4
Beneficial ownership ............................................. 6
Item 1--Election of Directors ....................................... 7
Information About Directors and Executive Officers .................. 8
Committees of the Board of Directors and Meeting Attendance ......... 9
Section 16(a) Beneficial Ownership Reporting Compliance ............. 10
Compensation of Executive Officers and Directors .................... 11
Summary compensation table ....................................... 11
Option grants in 2002 ............................................ 12
Options outstanding at December 31, 2002 ......................... 12
Employment and related agreements ................................ 12
Employee pension plan ............................................ 13
Supplemental pension plan for executives ......................... 13
Total pension benefits ........................................... 13
Director compensation ............................................ 14
Compensation Committee Report on Executive Compensation ............. 15
Performance Graph ................................................... 16
Report of the Audit Committee ....................................... 16
Independent Public Accountants ...................................... 17
Shareholder Proposals ............................................... 17
Other Business ...................................................... 17
Appendix--Charter of the Audit Committee ............................ A-1
Meeting Location Map ................................................ Back Cover
2
[GRAPHIC OMITTED]
28470 13 Mile Road, Suite 300, Farmington Hills, MI 48334
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 Common Shareholders on
Tuesday, April 15, 2003, at 10:00 a.m. (EDT), to be held at the McMorran
Auditorium, 701 McMorran Boulevard, Port Huron, Michigan, and any adjournments
thereof. These proxy materials are being mailed to shareholders on or about
March 10, 2003.
A Shareholder giving the enclosed proxy may revoke it any time before it
is voted by submitting a subsequent proxy (by telephone, internet or mail), by
written notice to the Corporate Secretary of 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 2002 Annual Report is enclosed.
ELECTRONIC DELIVERY OF PROXY STATEMENT AND ANNUAL REPORT
This proxy statement and the 2002 annual report are available at
www.proxyvote.com. Most shareholders can elect to view future proxy statements
and annual reports over the Internet instead of receiving paper copies in the
mail.
Shareholders of record (see question below: "What is the difference
between holding shares as a shareholder of record and as a beneficial owner?")
may choose this option to save the Company the cost of producing and mailing
these documents by:
o following the instructions provided when you vote over the Internet; or
o writing to:
SEMCO Energy, Inc. Investor Relations
28470 13 Mile Road, Suite 300
Farmington Hills, MI 48334
Shareholders of record who choose to view future proxy statements and
annual reports over the Internet will receive an e-mail message next year
containing the Internet address to use to access the Company's proxy statement
and annual report. The e-mail will also include instructions for voting over
the Internet. Electronic delivery instructions will remain in effect until
revoked in writing. It is not necessary to elect Internet access each year.
3
Beneficial owners (see question below: "What is the difference between
holding shares as a shareholder of record and as a beneficial owner?") should
refer to information provided by their broker, bank or nominee for instructions
on how to elect to view the Company's future proxy statements and annual
reports over the Internet if their broker or nominee participates in the
service. Beneficial owners who choose electronic delivery will receive an
e-mail message next year containing the Internet address to use to access the
Company's proxy statement and annual report.
HOUSEHOLDING INFORMATION
Q: WHAT IS "HOUSEHOLDING"?
A: We have adopted a procedure called "householding", which has been approved
by the Securities and Exchange Commission. Under this procedure, a single
copy of the annual report and proxy statement will be sent to any household
at which two or more shareholders reside if they appear to be members of
the same family, unless one of the shareholders at that address notifies us
that they wish to receive individual copies. This procedure reduces our
printing costs and fees.
Shareholders who participate in householding will continue to receive
separate proxy cards.
Householding will not affect dividend check mailings in any way.
In future years, if a single copy of the annual report and proxy statement
is delivered to an address that you share with another stockholder, at
your request, we will promptly deliver a separate copy.
Q: HOW DO I WITHHOLD MY CONSENT TO THE HOUSEHOLDING PROGRAM?
A: If you are a shareholder of record and share an address and last name with
one or more other shareholders of record, and you wish to continue to
receive separate annual reports, proxy statements and other disclosure
documents, you must withhold your consent by checking the appropriate box
on the enclosed proxy card and returning it by mail in the enclosed
envelope. Even if you vote by telephone or Internet, the enclosed proxy
card must be returned and marked appropriately to withhold your consent to
householding.
If you do not return the proxy card to withhold your consent to the
householding program, you may revoke your consent at a future date. Please
contact Automatic Data Processing, Inc. ("ADP"), either by calling toll
free (800) 542-1061 or by writing to ADP, Householding Department, 51
Mercedes Way, Edgewood, New York 11717. You will be removed from the
householding program within 30 days of receipt of the revocation of your
consent.
If you are receiving multiple copies of annual reports and proxy
statements at an address shared with another shareholder, you may also
contact ADP to participate in the householding program.
A number of brokerage firms have instituted householding. If you are a
beneficial owner (see question below: "What is the difference between
holding shares as a shareholder of record and as a beneficial owner?"),
please contact your broker, bank or nominee to request information about
householding.
STOCK OUTSTANDING AND VOTING RIGHTS
ANSWERS TO COMMONLY ASKED QUESTIONS
RELATING TO STOCK OUTSTANDING AND VOTING RIGHTS
- -----------------------------------------------
Q: WHO IS ENTITLED TO VOTE?
A: Only Common Shareholders of record at the close of business on February 18,
2003 (the record date) may vote in person or by proxy at the meeting.
Q: WHAT SHARES MAY I VOTE?
A. You may vote all shares you owned as of the record date. These include (1)
shares owned directly in your name as shareholder of record and (2) shares
held for you as the beneficial owner through a stockbroker or bank or
shares purchased through the SEMCO Energy, Inc. 401(k) plan ("401(k)
Plan").
4
Q: WHAT IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A SHAREHOLDER OF RECORD
AND AS A BENEFICIAL OWNER?
A: Many shareholders of the Company hold their shares through a stockbroker,
bank or other nominee rather than directly in their own name. As summarized
below, there are some differences between shares held of record and those
beneficially owned.
Shareholders of Record. If your shares are registered directly in your
----------------------
name with our transfer agent, Wells Fargo Bank Minnesota, NA, you are
considered the shareholder of record with regard to those shares. As
the shareholder of record, you have the right to grant your proxy
directly to us to vote your shares on your behalf at the meeting or
the right to vote in person at the meeting. A proxy card is enclosed
for you to use to grant your proxy to us.
Beneficial Owner. If your shares are held in a stock brokerage account or
----------------
by a bank or other nominee, you are considered the beneficial owner of
shares held in street name, and these materials are being forwarded to
you by your broker or nominee, which is considered the shareholder of
record with respect to those shares. As the beneficial owner, you have
the right to direct your broker or nominee how to vote and are also
invited to attend the annual meeting. However, since you are not the
shareholder of record, you may not vote these shares in person at the
meeting unless you obtain a signed proxy from the shareholder of
record giving you the right to vote the shares. Your broker or nominee
has enclosed or provided a voting instruction card for you to use to
direct your broker or nominee how to vote these shares.
Q: HOW CAN I VOTE MY SHARES IN PERSON AT THE ANNUAL MEETING?
A: Shares held directly in your name as the shareholder of record may be voted
in person at the annual meeting. If you choose to do so, please bring the
enclosed proxy card or proof of identification. Even if you plan to attend
the annual meeting, the Company recommends that you vote your shares in
advance as described below so that your vote will be counted if you later
decide not to attend the meeting.
Shares held in street name (see beneficial owner explanation above) may be
voted in person by you only if you obtain a signed proxy from the record
holder giving you the right to vote the shares.
Q: HOW CAN I VOTE MY SHARES WITHOUT ATTENDING THE ANNUAL MEETING?
A: Whether you hold shares directly as the shareholder of record or
beneficially in street name, you may direct your vote without attending the
annual meeting by Internet, telephone or completing and mailing your proxy
card or voting instruction card in the enclosed pre-paid envelope. Please
refer to the enclosed materials for details.
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY OR VOTING INSTRUCTION
CARD?
A: It means your shares are registered differently or are in more than one
account. Please provide voting instructions for all proxy and voting
instruction cards you receive.
Q: CAN I CHANGE MY VOTE?
A: You may change your proxy instructions at any time prior to the vote at the
annual meeting. You may accomplish this by entering a new vote by Internet
or telephone or by granting a new proxy card or new voting instruction card
bearing a later date (which automatically revokes the earlier proxy
instructions) or by attending the annual meeting and voting in person.
Attendance at the annual meeting will not cause your previously granted
proxy to be revoked unless you specifically so request.
Q: HOW ARE VOTES COUNTED?
A: In the election of directors, you may vote "FOR" all of the nominees or
your vote may be "WITHHELD" with respect to one or more of the nominees. If
you sign your proxy card or broker voting instruction card with no further
instructions, your shares will be voted in accordance with the
recommendations of the Board.
5
Q: WHAT IS THE VOTING REQUIREMENT TO ELECT DIRECTORS?
A: In the election for directors, the four persons receiving the highest
number of "FOR" votes will be elected.
Q: WHAT IS THE QUORUM REQUIREMENT FOR THE ANNUAL MEETING?
A: The Company had approximately 18,828,000 shares of Common Stock (Common
Shares) outstanding on the record date. A majority of the Common Shares
constitutes a quorum.
BENEFICIAL OWNERSHIP
- --------------------
To the Company's knowledge, the following is the only person who owns
beneficially more than 5% of the Common Shares as of the record date.
- ---------------------------------------------------------------------
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF CLASS
- ---------------------------------------------------------------------
Pioneer Global Asset 1,351,834 7.22%
Management S.P.A.
Galleria San Carlo 6
20122 Milan, Italy
- ---------------------------------------------------------------------
Pioneer Global filed a Form 13-G with the SEC on December 26, 2001 stating
that they hold these shares of stock for investment and not with a view to
directing management policies. On February 13, 2003, Pioneer filed a Form 13-G
amendment to update their holdings.
The following table reflects ownership, as of February 18, 2003, of the
number of Common Shares beneficially owned by each director, nominee, and
current executive officer named in the Summary Compensation Table (see the
Compensation of Executive Officers and Directors section) and all directors,
nominees and current executive officers as a group.
(B)
(A) EXERCISABLE COLUMNS
COMMON STOCK A AND B
NAME SHARES(1) OPTIONS(2) COMBINED
- ----------------------------------------------- -------------------- ------------- ----------------
John M. Albertine ............................. 4,403 6,001 10,404
Lila R. Bradley ............................... 4,515 12,667 17,182
Edward J. Curtis .............................. 21,803(3) 8,101 29,904(3)
John T. Ferris ................................ 73,280 8,101 81,381
Michael O. Frazer ............................. 9,350 8,101 17,451
John R. Hinton ................................ 999 334 1,333
Marcus Jackson ................................ 2,651(3) 72,334 74,985(3)
Harvey I. Klein ............................... 30,821(3) 8,101 38,922(3)
Arnold R. Madigan ............................. 824 11,334 12,158
Frederick S. Moore ............................ 24,915(3) 8,101 33,016(3)
John E. Schneider ............................. 9,024 25,667 34,691
Thomas W. Sherman ............................. 4,991(3) 334 5,325(3)
Edith A. Stotler .............................. 6,354 8,101 14,455
Donald W. Thomason ............................ 17,716(3) 8,101 25,817(3)
Steven W. Warsinske ........................... 12,757 17,850 30,607
All directors, nominees and current executive
officers as a group (16 persons including
those named above) ........................... 226,435 (4) 203,228 429,663(4)
- --------------
(1) Each person has sole power to vote and sell Common Shares shown, except
Shares held jointly with spouses or directly by spouses, minor children,
or certain other relatives, and except as described in (3) below.
(2) This column includes Common Shares that may be acquired by exercising stock
options within 60 days of February 18, 2003.
6
(3) Includes Common Shares held in a Directors' Deferred Compensation Plan
Account as follows:
DIRECTORS' DEFERRED
NAME COMPENSATION SHARES
--------------------------- ---------------------
Edward J. Curtis .......... 16,672
Marcus Jackson ............ 2,651
Harvey I. Klein ........... 13,769
Frederick S. Moore ........ 23,892
Thomas W. Sherman ......... 3,991
Donald W. Thomason ........ 4,334
Shares in this Account may not be voted by the individual directors, but
may be voted by the full Board.
(4) The directors, nominees and current executive officers as a group
beneficially own 1.20% of outstanding Common Shares. Including options
exercisable within 60 days of February 18, 2003, the same group
beneficially owns 2.28% of outstanding Common Shares. Each individual
holds less than one percent of outstanding Common Shares. In 1999, the
Board established new stock ownership guidelines for directors. Within
five years of adoption of the guidelines or within five years of joining
the Company, whichever is later, each non-employee director is expected to
own Common Shares equal in value to five times the director's annual
retainer.
ITEM 1--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. Shareholders may vote
their shares cumulatively at the meeting by indicating on the ballot how the
votes are to be distributed among the directors.
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 persons, each of whom
is currently a director of the Company:
John T. Ferris
Michael O. Frazer
Frederick S. Moore
Edith A. Stotler
The Board does not expect that any nominee will become unavailable to
serve as a director. 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 to the extent not inconsistent with shareholder direction. As
shown on the proxy, shareholders may direct that their shares be voted for less
than all four of the above-named nominees.
7
INFORMATION ABOUT NOMINEES, DIRECTORS AND EXECUTIVE OFFICERS
NAME, POSITION* AND DIRECTOR
BUSINESS EXPERIENCE DURING PAST FIVE YEARS AGE SINCE
-------------------------------------------- ----- ----------
NOMINEES (TERMS EXPIRING 2006)
- ------------------------------
JOHN T. FERRIS ........................................................................... 52 1994
Senior Partner in law firm of Ferris & Schwedler, P.C. in Bad Axe, Michigan.
MICHAEL O. FRAZER ........................................................................ 64 1986
Attorney practicing in Battle Creek, Michigan.
FREDERICK S. MOORE ....................................................................... 64 1995
Chairman and President of DSLT Inc., a company engaging in the real estate development
business. Since 1999, Chairman of Mardale Specialty Foods, LLC., a producer of individual
portion control jams, jellies, condiments, and salt and pepper packets. 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 ......................................................................... 56 1987
Personal family financial manager. Partner of Stotler Grain Company until the
partnership was dissolved in December 2001. President of S&I Grain Company (formerly
Homer Grain Company) until the assets of S&I were sold in July 2000.
OTHER DIRECTORS (TERMS EXPIRING 2004)
- ------------------------------------
JOHN M. ALBERTINE ........................................................................ 58 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 a retail family shoe chain with 46 stores in
the midwest. Mr. Albertine holds a Ph.D. in economics from the University of
Virginia. Director of Intermagnetics General Corporation and Kadant Inc.
JOHN R. HINTON ........................................................................... 57 2002
Retired in 1999 from the Kellogg Company as Executive Vice President Administration--
Chief Financial Officer.
DONALD W. THOMASON ....................................................................... 59 1995
Lead Director of the Company since November 1998. Retired in 1999 from the Kellogg
Company as Executive Vice President Corporate Services/Technology.
OTHER DIRECTORS (TERMS EXPIRING 2005)
- -------------------------------------
EDWARD J. CURTIS ......................................................................... 60 1995
President of E.J. Curtis Associates, Inc., a professional management consulting firm
founded in 1972 with concentration in the natural gas and electric utility industries.
Mr. Curtis is a member of the Society of Gas Lighting, the Guild of Gas Managers, the
American Gas Association, the American Institute of Chemical Engineers, the Association
of Energy Engineers and the International Association for Energy Economics.
MARCUS JACKSON ........................................................................... 51 1999
Chairman of the Company since March 1, 2002. President and CEO of the Company since
June 2001. Executive Vice President of Kansas City Power & Light Company (KCPL) from
November 1996 to June 2001. From May 2000 to June 2001, President of KCPL Power, a
wholly-owned subsidiary of KCPL. From October 1995 to June 2001, Chairman of the Board
of KLT Power, Inc., a second-tier subsidiary of KCPL. Also held the following positions
at KCPL during the past five years: Chief Financial Officer from January 1999 to December
2000, and Chief Operating Officer from November 1996 to January 1999.
HARVEY I. KLEIN .......................................................................... 63 1993
President of Global Strategies Group L.C., a private consulting firm, since 1995.
THOMAS W. SHERMAN ........................................................................ 62 2002
Former Director of Bay State Gas Company, a wholly-owned subsidiary of NiSource, Inc.,
from 1975 through 2002. NiSource, Inc., an Indiana corporation providing gas
distribution services in nine states, acquired Bay State Gas Company in 1999. Acted
as a consultant to NiSource, Inc., from June 2000 to June 2001. Former Executive Vice
President and Chief Financial Officer of Bay State Gas Company from 1975 to June 2000.
- --------------
* Other than Mr. Jackson, each director's and nominee's principal employment is
and has been with a company not affiliated with SEMCO.
8
EXECUTIVE OFFICERS
- ------------------
Information about Mr. Jackson is included with the directors above. Below
is information (age, present position with the Company and business experience
during the past five years) for the other Executive Officers, the most highly
compensated of whom are included in the Summary Compensation Table in the
section entitled Compensation of Executive Officers and Directors.
LILA R. BRADLEY (age 58)--Vice President of Human Resources and Public Affairs
since January 2000. Director of Human Resources from March 1998 to January
2000. Manager of Labor Relations for Burlington Northern Santa Fe Railway from
1988 to 1998.
EUGENE N. DUBAY (age 54)--Vice President and Senior Vice President and Chief
Operating Officer of SEMCO Energy Gas Company (a division of SEMCO) since
October 2002. President, Kansas Gas Service Division of ONEOK, Inc. from 1997
to October 2002.
ARNOLD R. MADIGAN (age 64)--Vice President and General Counsel since August
2000. Served as outside General Counsel to the Company from September 1996 to
August 2000.
JOHN E. SCHNEIDER (age 54)--Senior Vice President, Treasurer and Chief
Financial Officer since January 2002. Vice President from April 2001 to January
2002 and SEMCO Energy Gas Company Division Executive Vice President and Chief
Operating Officer from March 2001 to January 2002. Senior Vice President of
Corporate Development from September 1999 to March 2001. Senior Vice President
and Chief Operating Officer of SEMCO Energy Ventures, Inc. (a subsidiary of the
Company) from May 1998 to September 1999. Prior to joining the Company, he was
self-employed as a management and business consultant from 1994 to May 1998.
STEVEN W. WARSINSKE (age 47)--Vice President and Controller since April 2000.
SEMCO Energy Gas Company Division Vice President and Chief Accounting Officer
from February 1998 to April 2000. SEMCO Energy Gas Company Division Vice
President of Accounting and Controller from 1996 to February 1998.
COMMITTEES OF THE BOARD OF DIRECTORS
AND MEETING ATTENDANCE
Participation in Committees of the Board of Directors as of
December 31, 2002, was as follows:
NOMINATING AND
NAME AUDIT COMPENSATION FINANCE CORPORATE GOVERNANCE
- --------------------------------- ------- -------------- --------- ---------------------
John M. Albertine ............... x xx
Edward J. Curtis ................ x xx
John T. Ferris .................. x x
Michael O. Frazer ............... x x
John R. Hinton .................. x x
Harvey I. Klein ................. xx x
Frederick S. Moore .............. xx x
Thomas W. Sherman ............... x x
Edith A. Stotler ................ x x
Donald W. Thomason .............. x
- --------------
x Member
xx Chairman
The Board held 7 meetings during 2002. Each director attended more than
75% of the total number of meetings of the Board and Committees on which he or
she served in 2002.
9
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 hires
the independent public accountants. Eleven Audit Committee meetings were held
in 2002. During the year, the Board examined the composition of the Audit
Committee in light of New York Stock Exchange rules governing audit committees
and confirmed that all members of the Audit Committee are "independent" within
the meaning of the Exchange's rules. For additional information about the
responsibilities of the Audit Committee, see the revised and restated Audit
Committee Charter, which is included in the Appendix to this proxy statement
beginning at page A-1.
The Compensation Committee held 4 meetings in 2002. 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 6
meetings in 2002.
The Nominating and Corporate Governance Committee held 3 meetings in 2002.
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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934,
directors and officers must file a form with the Securities and Exchange
Commission to report changes in their ownership of Company stock during the
prior month or year. All such reports were filed timely for 2002.
10
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the
compensation of the "named executive officers."
NAME AND PRINCIPAL OTHER ANNUAL COMMON SHARE ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(2) OPTIONS(3) COMPENSATION(4)
- ------------------------------ ------ ----------- ----------------- ----------------- -------------- ------------------
MARCUS JACKSON(1) ............ 2002 $360,000 $ 0 $14,075 0 $ 0
Chairman, President 2001 $262,154 $ 160,000(5) $ 7,000 201,000 $ 30,617(6)
and CEO
ARNOLD R. MADIGAN(1) ......... 2002 $189,000 $ 0 $ 2,760 0 $ 0
Vice President and 2001 $184,327 $ 0 $ 2,429 7,000 $ 0
General Counsel 2000 $ 72,692 $ 0 $ 1,536 10,000 $ 0
JOHN E. SCHNEIDER ............ 2002 $185,000 $ 0 $ 7,568 0 $ 7,400
Senior Vice President, 2001 $183,887 $ 0 $ 7,351 7,000 $ 6,800
Treasurer and CFO 2000 $177,227 $ 0 $ 7,399 7,000 $ 6,800
STEVEN W. WARSINSKE .......... 2002 $131,000 $ 0 $ 6,142 0 $ 5,640
Vice President and 2001 $127,885 $ 10,000(7) $ 6,011 3,500 $ 5,187
Controller 2000 $120,242 $ 0 $ 5,983 5,250 $ 5,884
LILA R. BRADLEY .............. 2002 $128,000 $ 0 $ 6,485 0 $ 5,120
Vice President of 2001 $125,071 $ 0 $ 6,326 7,000 $ 43,149(8)
Human Resources and 2000 $120,250 $ 0 $ 6,387 7,000 $ 5,570
Public Affairs
JON A. KOSHT(1) .............. 2002 $202,596 $ 0 $ 7,325 0 $ 8,000
Vice President and 2001 $209,615 $ 0 $ 8,423 8,000 $ 6,800
President and CEO, 2000 $175,187 $ 0 $ 8,254 4,000 $ 6,800
SEMCO Energy Gas
Company Division (until
10/31/02)
RUDOLFO D. CIFOLELLI(1) ...... 2002 $175,000 $ 0 $ 8,223 0 $ 7,000
Vice President and CIO 2001 $172,308 $ 0 $ 7,927 7,000 $ 6,800
(until 12/20/02) 2000 $158,326 $ 0 $ 8,226 8,000 $ 6,800
- --------------
(1) Mr. Jackson joined the Company in June 2001. Mr. Madigan joined the Company
in August 2000. Mr. Kosht retired effective October 31, 2002. Mr.
Cifolelli left the Company effective December 20, 2002.
(2) Includes the premium and income tax gross up for a life insurance policy.
Also includes stipends in lieu of use of company-provided auto. The annual
stipend ranged from $5,000 to $12,000 in 2002 for the named executive
officers.
(3) Number of Common Shares underlying stock-option awards granted in the
respective year.
(4) Includes Company matching contribution to 401(k) plan and to non-qualified
deferred compensation plan.
(5) Includes a signing bonus of $60,000.
(6) Includes moving expenses of $28,682 for relocation from Kansas.
(7) Bonus paid for additional services while performing interim CFO duties.
(8) Includes moving expenses of $38,074 for relocation from the Port Huron area
to the Farmington Hills area.
11
OPTION GRANTS IN 2002
There were no stock options granted to the named executive officers during
2002.
OPTIONS OUTSTANDING AT DECEMBER 31, 2002
NUMBER OF OPTIONS AT VALUE OF OPTIONS AT
DECEMBER 31, 2002(1) DECEMBER 31, 2002(2)
------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ------------- --------------- ------------- --------------
Marcus Jackson ............... 70,668 135,332 $0 $0
Arnold R. Madigan ............ 9,001 7,999 $0 $0
John E. Schneider ............ 21,001 6,999 $0 $0
Steven W. Warsinske .......... 14,934 4,666 $0 $0
Lila R. Bradley .............. 8,001 6,999 $0 $0
Jon A. Kosht ................. 22,850 0 $0 $0
Rudolfo D. Cifolelli ......... 15,835 0 $0 $0
- --------------
(1) No options were exercised in 2002 by the named executive officers.
(2) Option values are based on the difference between the exercise price and
the closing price for the Company's stock of $6.10 per share on December
31, 2002. Because each exercise price was greater than $6.10 for each
option, the option values are zero.
EMPLOYMENT AND RELATED AGREEMENTS
Mr. Jackson's employment agreement, which is for a term of five years
ending May 31, 2006, provides for an annual base salary of at least $360,000, a
one-time cash signing bonus of $60,000, a guaranteed cash bonus for 2001 of
$100,000, and thereafter, eligibility for an annual cash incentive bonus with
an annual target of 60% of his annual base salary payable upon attainment of
specific targets. In addition, the agreement provides for options to purchase
200,000 Common Shares at the market value on June 1, 2001. Thereafter, Mr.
Jackson will have an annual target of 50,000 options, based on performance. The
agreement also provides for a severance payment if the Company terminates his
employment other than for "cause", "death" or "disability" or if Mr. Jackson
resigns due to a required relocation of personal residence or a demotion in
position, authority, etc. The severance amount will equal two times Mr.
Jackson's annual salary. The Company will also continue insurance and similar
benefit plans for 24 months, subject to certain limitations.
In addition, Mr. Jackson's Employment Agreement provides for an early
retirement "Bridge", designed to compensate Mr. Jackson for the difference
between (a) his projected KCPL pension at the KCPL pension plan early
retirement date and (b) the KCPL pension projected at the KCPL pension plan
early retirement date based on employment termination at May 31, 2001. The
Agreement accordingly provides that the Company shall pay Mr. Jackson an
incremental monthly pension of $5,416.37 per month beginning the first day of
the month coincident with or next following the later of his 55th birthday or
the last day of his employment with the Company.
Mr. Jackson's change-of-control employment agreement has parallel
provisions to his employment agreement except that the severance amount equals
2.99 times his annual base salary and average bonus. Ms. Bradley, Mr. Madigan
and Mr. Schneider have change-of-control employment agreements parallel to Mr.
Jackson's, but without the retirement "Bridge" discussed above. The agreements
also provide for the grossed-up payment of any Federal excise taxes due from
the executive officers as a result of any payments received under the
agreements and provide up to three years of continued participation in the
Company's benefit programs. Each of such agreements has an indefinite term. Mr.
Warsinske has a change in control agreement that provides for a severance
amount equal to one year's salary, computed as his highest annual W-2
compensation from the Company during the last three years. Mr. Warsinske's
change in control agreement expires April 1, 2003 unless extended by the Board
of Directors.
12
EMPLOYEE PENSION PLAN
Each named executive officer above, except Mr. Cifolelli, participates in
an Employee Pension Plan, which is available to non-union employees generally.
Mr. Cifolelli left the Company before his benefits vested in the Pension Plan.
At age 65, a Pension Plan participant can receive an annual pension equal
to 1.4% of his average five-year adjusted compensation multiplied by his years
of service. Thus, after 25 years, the Pension Plan provides a benefit based on
35% of such average compensation. 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, 2003, years of service earned were as follows: Mr.
Jackson--1.6 years, Mr. Madigan--2.4 years, Mr. Schneider--4.6 years, Mr.
Warsinske--24.7 years, and Ms. Bradley--4.8 years. At the time of his
retirement, Mr. Kosht had 15.4 years of service earned.
SUPPLEMENTAL PENSION PLAN FOR EXECUTIVES
Each named executive officer above, except for Mr. Cifolelli, is a party
to the Supplemental Executive Retirement Plan ("SERP"), which provides for
additional retirement benefits for fifteen years after five years of service.
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.
The SERP also provides pension benefits which could not be provided by an
Employee Pension Plan because of the limit on compensation ($200,000 in 2002).
In addition, the SERP 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 vesting of benefits (under other circumstances) before age
55 and before 5 years of service.
In an effort to reduce the Company's liability under the SERP, the Company
has offered "buy-outs", or is in the process of making offers, to certain
participants in the SERP. Messrs. Madigan and Warsinske have accepted buy-outs
in lieu of continued participation in the SERP.
TOTAL PENSION BENEFITS
The following table sets forth the estimated annual benefits payable at
normal retirement age (65) under the Pension Plan and SERP combined. Benefits
under the SERP are paid for 15 years. Benefits under the Employee Pension Plan
last for the life of the executive.
YEARS OF SERVICE
FINAL BASE -------------------------------------------------------------------
SALARY* 5 10 15 20 25
- ------------- ----------- ----------- ----------- ----------- -----------
$100,000 $ 57,000 $ 64,000 $ 71,000 $ 78,000 $ 85,000
150,000 85,500 96,000 106,500 117,000 127,500
200,000 114,000 128,000 142,000 156,000 170,000
250,000 142,500 160,000 177,500 195,000 212,500
300,000 171,000 192,000 213,000 234,000 255,000
350,000 199,500 224,000 248,500 273,000 297,500
400,000 228,000 256,000 284,000 312,000 340,000
450,000 256,500 288,000 319,500 351,000 382,500
500,000 285,000 320,000 355,000 390,000 425,000
- --------------
* Final Base Salary means the base salary for the executive at time of
retirement. The SERP benefit is based on final base salary. The smaller
benefit from an Employee Pension Plan is based on five-year average
compensation (salary plus bonus). This table assumes that an executive's
final base salary will approximate his five-year average compensation.
13
DIRECTOR COMPENSATION
Annual Compensation
-------------------
For their services on the Board, non-employee directors are paid a
retainer of $1,000 per month. Board Committee Chairmen receive an additional
retainer of $400 per month. The Lead Director receives an additional retainer
of $1,700 per month.
Meeting Fees
------------
Each non-employee director received $1,000 for each Board meeting attended
and $800 for each Board Committee meeting attended by Committee members. Board
Committee Chairmen each received an additional meeting fee of $200 per
Committee meeting chaired. Directors are reimbursed for expenses incurred in
attending Board and Committee meetings.
In addition to the Board and Committee meetings, the Board held 4 strategy
planning sessions during 2002 for which they were compensated as regular Board
meetings.
Other Compensation
------------------
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 may not participate in the medical program. Directors who do not
participate in the Company's medical program receive a grant of $3,850 worth of
Common Shares each year.
In 2001, the Board adopted a Stock Grant Plan for Non-Employee Directors,
pursuant to which each non-employee director receives a grant of 500 Common
Shares each year while a member of the Board.
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 the Deferred Compensation and Common Stock Purchase Plan for
Non-Employee Directors, directors' cash compensation may be deferred for each
upcoming year. If deferred, compensation accrues interest at the prime rate or
is invested in newly issued Common Shares with dividends reinvested through the
dividend reinvestment plan. Four directors deferred some or all cash
compensation for 2002, which was used to purchase Common Shares. Five directors
have chosen to purchase Common Shares by deferring some or all cash
compensation for 2003.
Stock Options
-------------
Each non-employee director also receives an annual grant on each March 1
of non-qualified stock options exercisable at fair market value on date of
grant to acquire 1,000 Common Shares 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.
14
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 five non-employee directors. The Committee intends to provide
salary and other non-incentive compensation for an executive comparable to that
paid to executives with similar experience, responsibilities and authority in
other comparably sized companies in the same line of business. Incentive plans
provide each executive with an opportunity for additional 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.
Pursuant to the terms of Mr. Jackson's employment agreement, he has an
annual target bonus of up to 60% of base salary, based on performance.
Bonuses under the Company's Short-Term Incentive Plan 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.
Incentive awards in lieu of bonuses under the Short-Term Incentive Plan
may be granted by the Board 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.
Pursuant to the terms of Mr. Jackson's employment, he has an annual target
of 50,000 stock options, based on performance. Such options are subject to the
provisions of the Company's Long-Term Incentive Plan (LTIP) and Stock Option
Plan of 2000 (SOP) and successor plans in effect at the date of grant.
The LTIP was approved by the shareholders at the Annual Meeting held April
15, 1997. Awards to Mr. Jackson 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 under the LTIP range from 5,250 to 10,500 shares.
The SOP allows stock options to be granted in excess of the LTIP maximum
number to the extent deemed appropriate by the Committee. However, no single
person may be issued SOP stock options relating to more than 1% of outstanding
stock at the time of grant and no more than 5% of outstanding stock may be
issued pursuant to exercises of options granted under any non-shareholder
approved option plan.
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
Harvey I. Klein, Chairman
Edward J. Curtis
John T. Ferris
Thomas W. Sherman
Donald W. Thomason
15
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 Common Shares, the stocks representing the
S&P 500 Gas Utilities index and the stocks representing the S&P 500 index on
December 31, 1997. The Company's Common Shares closed at $6.10 per share on
December 31, 2002. The Company formerly used the Edward Jones (EJ) index as a
comparator, however, the EJ index information is no longer available.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG STOCK OF SEMCO ENERGY, INC.,
S&P 500 INDEX AND
S&P 500 GAS UTILITIES INDEX
[GRAPHIC OMITTED]
TOTAL SHAREHOLDER RETURNS
Base Years Ending
Period ---------------------------------------------
Company / Index Dec97 Dec98 Dec99 Dec00 Dec01 Dec02
- --------------------------------------------------------------------------------
SEMCO ENERGY INC 100 99.31 76.30 106.71 78.36 47.49
S&P 500 INDEX 100 128.58 155.63 141.46 124.65 97.10
S&P 500 GAS UTILITIES 100 109.18 137.48 212.19 162.92 94.43
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors has oversight responsibility
for the Company's financial reporting processes and the quality of its
financial reporting. The specific responsibilities are outlined in the revised
and restated Audit Committee Charter, which was approved by the Board of
Directors on December 12, 2002 and is included in the Appendix to this proxy
statement beginning at page A-1. In connection with the December 31, 2002,
financial statements, the Audit Committee: (1) reviewed and discussed the
audited financial statements with management and the independent auditors, (2)
discussed with the independent auditors the matters required by Statement on
Auditing Standards No. 61, Communication with Audit Committees, as amended, by
the Auditing Standards Board of the American Institute of Certified Public
Accountants, and (3) received and reviewed the written disclosures and the
letter from the independent auditors required by Independence Standards Board
Statement No. 1, Independence Discussions with Audit Committees, as amended,
and discussed with the auditors the auditors' independence. Based upon these
reviews and discussions, the Audit Committee recommended to the Board of
Directors that the audited financial statements be included in the Annual
Report on Form 10-K filed with the SEC.
AUDIT COMMITTEE
Frederick S. Moore, Chairman
John M. Albertine
Thomas W. Sherman
Edith A. Stotler
16
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP (PwC) was appointed as the principal auditor
for the Company in May 2002. Arthur Andersen LLP (Andersen) had been the
principal auditor for the Company and its predecessor for over forty-five (45)
years and until they were replaced by PwC. During fiscal year 2002, the
principal auditors were retained to provide services in the following
categories and amounts:
ANDERSEN PWC
---------- -----------
AUDIT FEES ................................................................ $201,000 $230,000
FINANCIAL INFORMATION AND SYSTEMS DESIGN AND IMPLEMENTATION FEES .......... 0 0
ALL OTHER FEES:
Audit-related fees(a) .................................................... $ 0 $ 75,500
Other fees ............................................................... 0 0
-------- --------
Total all other fees ................................................... $ 0 $ 75,500
TOTAL FEES ............................................................ $201,000 $230,000
======== ========
- --------------
(a) Audit-related fees include benefit plan audits, accounting consultation,
various attest services under professional standards, assistance with
securities offerings and comfort letters.
A member of PwC 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 2004 annual meeting of shareholders must be received at the Company's
principal executive office no later than November 15, 2003.
For any shareholder proposal that is not submitted for inclusion in next
year's proxy statement, but is instead sought to be presented at the 2004
annual meeting, SEC rules will permit management to vote proxies in its
discretion if the Company: (1) receives notice of the proposal before the close
of business on January 29, 2004, and advises shareholders in the 2004 proxy
statement about the nature of the matter and how management intends to vote on
such matter; or (2) does not receive notice of the proposal prior to the close
of business on January 29, 2004.
Proposals and notices of intention to present 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 listed on page 1) 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, or submit proxy voting instructions by telephone in accordance with
the instructions on the enclosed proxy card. Shareholders attending in person
may withdraw their proxies and vote in person.
17
APPENDIX
REVISED AND RESTATED:
DECEMBER 12, 2002
SEMCO ENERGY, INC.
CHARTER
OF THE
AUDIT COMMITTEE
PURPOSE
The primary purpose of the Audit Committee of SEMCO Energy, Inc. (the
"Company") is to assist the Board of Directors in fulfilling its responsibility
to oversee (i) management's conduct of the Company's financial reporting
process, including oversight of financial reports and other financial
information provided by the Company to any governmental or regulatory body, the
public or other users thereof, (ii) the Company's systems of internal
accounting and financial controls, (iii) the annual independent audit of the
Company's financial statements and (iv) the Company's legal compliance and
ethics programs as established by management and the Board.
In discharging its oversight role, the Committee is empowered to investigate
any matter brought to its attention, with full access to all books, records,
facilities and personnel of the Company. The Board and the Committee are in
place to represent the Company's shareholders; accordingly, the Company's
independent auditors are ultimately accountable to the Board and the Committee.
The term "independent auditor(s)" as used in this charter refers to the public
accounting firm that performs for the Company audits required by the SEC.
I. MEMBERSHIP
The membership of the Audit Committee shall be comprised exclusively
of not less than four independent Directors. The Committee's
composition shall meet the requirements of the Audit Committee Policy
of the New York Stock Exchange and the requirements pursuant to the
Sarbanes-Oxley Act of 2002. Accordingly, all of the members shall be
directors:
(i) whose sole remuneration from the Company is from Director's
compensation;
(ii) who have no relationship to the Company that may interfere
with the exercise of their independence from management and
the Company as affirmatively determined by the Board;
(iii) who have undergone a five-year "cooling off" period if they
were (a) former employees of the Company, (b) former employees
of the Company's independent auditor, (c) former employees of
any company whose compensation committee includes an officer
of the Company, and (d) immediate family members of (a)
through (c) above; and
(iv) who are financially literate or who become financially
literate within a reasonable period of time after appointment
to the Committee. In addition, at least one member of the
Committee shall have accounting or related financial
management expertise.
Three members must be present at each meeting to constitute a quorum.
In the absence of a member, the Chairperson may select an alternate
member from the Board who meets the membership criteria established
above. Such alternate member to attend with full voting power. Members
of the Audit Committee shall be appointed annually by the Board. No
member may serve more than nine consecutive years.
A-1
II. COMMITTEE CHAIRPERSON
Annually, the Committee will appoint one of the Committee's members as
Chairperson. No Chairperson shall serve more than three consecutive
years. The Chairperson presides over the meetings of the Committee and
reports to the Board.
III. ADMINISTRATIVE SECRETARY
The Corporate Secretary of the Company shall be responsible, with the
Chairperson of the Committee, for preparation of agendas for and
minutes of Committee meetings.
IV. VACANCIES
If a vacancy occurs among the membership of the Committee, the Board
of Directors may appoint a Director to fill such vacancy for the
remaining term.
V. RESPONSIBILITIES
It is the responsibility of the Audit Committee to understand and
assess the financial reporting and internal controls of the Company.
The Committee's job is one of oversight. It recognizes that the
Company's management is responsible for preparing the Company's
financial statements and that the independent auditors are responsible
for auditing those statements. Additionally, the Committee recognizes
that financial management, as well as independent auditors, have more
time, knowledge and more detailed information regarding the Company
than do Committee members. Consequently, in carrying out its oversight
responsibilities, the Committee is not providing any expert or special
assurance as to the Company's financial statements or any professional
certification as to the independent auditors' work. This
responsibility entails the following:
A. Assessing the Company's accounting policies and reporting and
control procedures.
B. Evaluating the rationale for financial information presented to
shareholders and others, including principles followed, amounts
determined and disclosures made.
C. Overseeing the internal audit function.
D. Overseeing the adequacy and security of the Company's information
systems as they relate to the financial integrity of the Company.
E. Evaluating risk identification and management in the Company.
F. Overseeing compliance with legal, regulatory and other
requirements and Company policies.
G. Establishing procedures for:
o Receipt, retention and treatment of complaints received by the
Company regarding accounting, internal accounting controls, or
auditing matters; and
o The confidential, anonymous submission, by Company employees,
of concerns regarding questionable accounting or auditing
matters.
H. Providing the NYSE with written certification on an annual basis
(or upon a change in the composition of the Audit Committee)
that:
1. Addresses any determination that the Board of Directors has
made concerning the independence of Committee members;
2. Affirms the financial literacy of all Committee members;
3. Affirms the accounting or related financial management
expertise of one Committee member; and
A-2
4. Affirms the annual review and reevaluation of the adequacy of
the Committee Charter.
I. Requesting from the independent auditors annually a formal
written statement delineating all relationships between the
auditors and the Company consistent with Independence Standards
Board Standard Number 1; discussing with the independent auditors
any such disclosed relationships and their impact on the
independent auditors' independence; and recommending that the
Board take appropriate action in response to the independent
auditors' report to satisfy itself of the auditors' independence.
J. Preparing a report to be included in the annual proxy statement,
stating whether or not the Committee has:
1. Reviewed and discussed the Company's audited financial
statements with management;
2. Discussed with the independent auditors the matters required
to be discussed by Statement on Auditing Standards (SAS) No.
61, Communicating With Audit Committees;
3. Received the written disclosure and letter from the
independent accountants (delineating all relationships they
have with the company) and has discussed with them their
independence, as required by Independence Standards Board
("ISB") Standard No. 1; and
4. Recommended to the board of directors that the audited
financials be included in the Company's Annual Report on Form
10-K, based on the review and discussions referred to above.
K. Set clear hiring policies for employees or former employees of
the independent auditors.
VI. AUTHORITY
The Committee shall have the ultimate authority and responsibility to
select, evaluate, approve fees and, where appropriate, replace the
Company's independent auditor. If the internal audit function is
performed by an auditing firm rather than by employees of the Company,
the Committee shall have similar authority as it relates to the
internal auditors. If the internal audit function is performed by
employees of the Company, the Committee shall have the authority to
evaluate the performance of the function as a whole and determine
whether or not the function should be performed by employees or
outsourced.
Non-audit services to be performed by the Company's independent
auditor must be pre-approved by the Audit Committee.
The Committee shall have the authority to obtain advice and assistance
from independent legal, accounting or other advisors.
VII. ACTIVITIES OF THE COMMITTEE
The following functions shall be the common recurring activities of
the Committee in carrying out its oversight function. These functions
are set forth as a guide, with the understanding that the Committee
may diverge from this guide as appropriate given the circumstances. In
carrying out its responsibilities, the Committee shall:
A. Review with management and the independent auditors the audited
financial statements, including the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations", to be included in the Company's Annual
Report on Form 10-K and Annual Report to Shareholders, and review
and consider with the independent auditors the matters required
to be discussed by Statement of Accounting Standards ("SAS") No.
61.
A-3
B. Review with the independent auditors:
o the critical accounting policies and procedures to be used by
the Company;
o Alternative treatments of financial information within GAAP
discussed with management, ramifications of use, and the
treatment preferred by the audit firm;
o Written communications with management such as management
letters or schedule of unadjusted differences.
C. Review with management and the independent auditors the Company's
interim financial results, including the Company's disclosures
under "Management's Discussion and Analysis of Financial
Condition and Results of Operations", to be included in the
Company's quarterly reports to be filed with the Securities and
Exchange Commission and the matters required to be discussed by
SAS No. 61. This review shall occur prior to the Company's filing
of the Form 10-Q and prior to the quarterly release of earnings
to the public.
D. Discuss with management earnings press releases, as well as
financial information and earnings guidance provided to analysts
and rating agencies.
E. Report to the Board the results of audits by independent
auditors.
F. Meet periodically with and communicate directly with the
independent auditors.
1. Review the reports rendered by the independent auditors with
particular concern for any significant exceptions noted in
their reports.
2. Discuss with the independent auditors any unusual or
significant matters that developed during the course of their
procedures which should be communicated to the Board.
3. Annually approve and discuss the scope of their examination of
the Company with the independent auditors.
G. At least annually, obtain and review a report by the independent
auditors describing: the firm's internal quality-control
procedures; any material issues raised by the most recent
internal quality-control review, or peer review, of the firm, or
by any inquiry or investigation by governmental or professional
authorities, within the preceding five years, respecting one or
more independent audits carried out by the firm, and any steps
taken to deal with any such issues; and (to assess the auditor's
independence) all relationships between the independent auditor
and the Company.
H. Gain an understanding of the Company's business, including its
products, services, customers, distribution channels, market
characteristics, competitive factors, regulatory constraints and
requirements and accounting issues.
I. Review and evaluate management's responses to independent and
internal audit reports.
J. Oversee the internal audit function and assess management's
system of internal controls.
1. Approve the scope of internal audit plans and budgets.
2. Meet privately with the internal auditors at least annually.
3. Instruct the internal auditors to advise the Committee of any
areas requiring special attention.
4. Review and report to the Board where appropriate significant
findings of internal audit reports.
5. Discuss with management and the independent auditors the
quality and adequacy of the Company's internal controls.
A-4
K. Require independent auditors to provide their professional
judgment concerning appropriate accounting principles and
disclosure practices.
L. Focus the Committee's deliberations and inquiries of management
and auditors on key risks facing the Company, including:
1. Strategic risks--relating to doing the wrong things.
2. Operating risks--relating to doing the right things the wrong
way.
3. Financial risks--relating to losing financial resources or
incurring unacceptable liabilities.
4. Information risks--relating to inaccurate or non-relevant
information, unreliable systems and inaccurate or misleading
reports.
5. Regulatory and other compliance risks.
M. Review the Company's Code of Conduct and recommend Board approval
of the Code or any amendments thereto. Review management's
program to monitor compliance therewith and compliance with
relevant laws and regulations.
N. Meet periodically with the Company's General Counsel to discuss
legal matters that may significantly affect the Company and its
financial statements.
O. Review the Company's income tax status and inquire as to the
status of related tax reserves.
P. Review officers' and directors' expenses, perquisites and use of
Company assets.
Q. Assess the adequacy of controls over the development and use of
information technology in the Company.
R. Review and assess annually the adequacy of this Charter.
S. Monitor compliance with SEC Staff Accounting Bulletin No. 99,
Materiality.
T. Prepare an annual Audit Committee Plan for review and approval by
the Board of Directors.
U. Annually conduct a performance evaluation of the Audit Committee.
VIII. MEETINGS--LOCATION AND NUMBER
The Committee shall meet at least three times during the year and as
otherwise scheduled by the Chairperson of the Committee or by the
Board of Directors.
A-5
[MAP OMITTED]
[LOGO OMITTED]
IMPORTANT NOTICE REGARDING DELIVERY OF
SHAREOWNER DOCUMENTS
March 10, 2003
Dear Shareowner,
The Securities and Exchange Commission has adopted a rule that allows us to send
a single copy of our annual reports, proxy statements, prospectuses and other
disclosure documents to two or more shareowners sharing the same address if they
consent to do so, subject to certain conditions. We believe this "Householding"
rule will provide greater convenience for our shareowners, as well as cost
savings for us by reducing the number of duplicate documents that are sent to
your home. PLEASE NOTE THAT IF YOU DO NOT RESPOND, YOU WILL BE DEEMED TO HAVE
CONSENTED, AND HOUSEHOLDING WILL START 60 DAYS AFTER THE MAILING OF THIS NOTICE.
The Householding election appears on the enclosed proxy card. If you wish to
participate in the Householding program, please mark "FOR" on the enclosed proxy
card and return it in the enclosed postage-paid envelope provided. Your
affirmative or implied consent will be perpetual unless you withhold it or
revoke it.
If you wish to continue to receive separate annual reports, proxy statements,
prospectuses and other disclosure documents for each account in your household,
you must withhold your consent to our Householding program by marking the
"AGAINST" box on the enclosed proxy card and returning it in the enclosed return
envelope. EVEN IF YOU VOTE BY TELEPHONE OR INTERNET, THE ENCLOSED PROXY CARD
MUST STILL BE RETURNED AND MARKED APPROPRIATELY IF YOU WISH TO WITHHOLD YOUR
CONSENT TO HOUSEHOLDING.
You may revoke your consent at any time by contacting ADP, either by calling
toll-free (800) 542-1061, or by writing to ADP, Householding Department, 51
Mercedes Way, Edgewood, New York 11717. If you revoke your consent, you will be
removed from the Householding program within 30 days of receipt of your
revocation and each shareowner at your address will receive individual copies of
our disclosure documents.
We strongly encourage your participation in the Householding program, and
believe that it will benefit both you and SEMCO. Not only will it reduce the
volume of duplicate information that you receive in your household, but it will
also reduce our printing and mailing costs.
Thank you.
[LOGO OMITTED] VOTE BY INTERNET - WWW.PROXYVOTE.COM
-----------------
SEMCO ENERGY Use the Internet to transmit your voting instructions up until 11:59 pm Eastern
C/O SHAREOWNER SERVICES Time on April 14, 2003. Have your proxy card in hand when you access the web
PO BOX 64854 site. You will be prompted to enter your 12-digit Control Number, which is
ST. PAUL, MN 55164-0854 located below.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until
11:59 pm Eastern Time on April 14, 2003. Have your proxy card in hand when you
call. You will be prompted to enter your 12-digit Control Number, which is
located below.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return to SEMCO Energy, Inc. c/o ADP, 51 Mercedes Way,
Edgewood, NY 11717 by April 14, 2003.
NOTE: IF YOU VOTE BY INTERNET OR TELEPHONE, YOU DO NOT NEED TO MAIL BACK YOUR
PROXY CARD, UNLESS YOU MARK "AGAINST" THE HOUSEHOLDING ELECTION. YOUR
INTERNET OR TELEPHONE INSTRUCTIONS WILL AUTHORIZE THE PROXY IN THE SAME
MANNER AS IF YOU RETURNED A SIGNED PROXY CARD.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: SEMCO1 KEEP THIS PORTION FOR YOUR RECORDS
- ------------------------------------------------------------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY
- ------------------------------------------------------------------------------------------------------------------------------------
SEMCO ENERGY, INC.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" ITEM 1
1. To elect as Directors the nominees listed below: FOR WITHHOLD FOR ALL To withhold authority to vote, mark
01) John T. Ferris ALL ALL EXCEPT "For All Except" and write the
02) Michael O. Frazer nominee's number on the line below.
03) Frederick S. Moore [ ] [ ] [ ]
04) Edith A. Stotler ------------------------------------
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS
DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED AS
RECOMMENDED BY THE BOARD OF DIRECTORS.
* HOUSEHOLDING ELECTION
-----------------------
Mark "FOR" to enroll this account to receive certain future investor
communications in a single package per household. Mark "AGAINST" if
you do not want to participate. See enclosed note.
To change your election in the future, call 1-800-542-1061.
Joint owners should each sign personally. Trustees and others signing in a By checking the box to the right, I consent to
representative capacity should indicate the capacity in which they sign. view Annual Reports and Proxy Statements
electronically via the Internet. I understand
For address changes and/or comments, please check this that the Company will send only the proxy card
box and write them on the back where indicated. [ ] to me for any future shareholder meetings
until my consent is revoked. The proxy card
will tell you how to access the Annual Report [ ]
and Proxy Statement each year. I understand
that I may revoke my consent at any time by
giving written notice to the company.
For Against
To view the Annual Report and Proxy Statement
* HOUSEHOLDING ELECTION [ ] [ ] via the Internet, go to www.proxyvote.com
-----------------
- -------------------------------------------- -----------------------------------------
- -------------------------------------------- -----------------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
- --------------------------------------------------------------------------------
SEMCO ENERGY, INC.
ANNUAL MEETING OF SHAREHOLDERS -- APRIL 15, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The shares of stock you hold in your account will be voted as you specify on the
reverse side.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEM 1.
By signing the proxy, you revoke all prior proxies and appoint Roberta S. Floyd
and Catherine P. Solomon (the Named Proxies), 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 of Shareholders
of SEMCO Energy, Inc., to be held April 15, 2003 at 10:00 a.m. EDT, in Port
Huron, Michigan, at the McMorran Auditorium, 701 McMorran Boulevard, and all
adjournments.
ADDRESS CHANGES/COMMENTS
-------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(If you noted any address changes/comments above,
please mark corresponding box on other side.)
See reverse for voting instructions.
- --------------------------------------------------------------------------------