<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Black Hills Corporation
- --------------------------------------------------------------------------------
(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:
------------------------------------------------------------------------
<PAGE>
[LOGO]
625 NINTH STREET
RAPID CITY, SOUTH DAKOTA 57701
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 11, 1999
---------------------
To the Shareholders of
Black Hills Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the holders of Common
Stock of BLACK HILLS CORPORATION (herein called the Company) will be held at the
Journey Museum, 222 New York Street, Rapid City, South Dakota, on Tuesday, May
11, 1999, commencing at 9:30 A.M. local time, for the following purposes:
1. To elect three Class I Directors to serve until the Annual Meeting of
Shareholders in 2002;
2. To consider and act on a proposal authorizing the Black Hills
Corporation 1999 Stock Option Plan;
3. To ratify the appointment of Arthur Andersen LLP to serve as independent
auditors of the Company for the year 1999; and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record at the close of business on March 12, 1999, are
entitled to notice of and to vote at the meeting or any adjournment thereof.
All shareholders are cordially invited to attend the meeting. Please
complete, date, sign, and return the accompanying form of proxy. A return
envelope is enclosed which requires no postage if mailed in the United States.
We appreciate your giving this matter your prompt attention.
By Order of the Board of Directors
ROXANN R. BASHAM
VICE PRESIDENT -- FINANCE
AND CORPORATE SECRETARY/TREASURER
Dated: March 22, 1999
1
<PAGE>
[LOGO]
625 NINTH STREET
RAPID CITY, SOUTH DAKOTA 57701
------------------------
PROXY STATEMENT
---------------------
A proxy in the accompanying form is solicited by the Board of Directors of
Black Hills Corporation, a South Dakota corporation (the Company), to be voted
at the Annual Meeting of Shareholders of the Company to be held Tuesday, May 11,
1999, and at any adjournment thereof.
The enclosed form of proxy, when executed and returned, will be voted as set
forth therein. Any shareholder signing a proxy has the power to revoke the same
in writing, addressed to the Secretary of the Company, or in person at the
meeting at any time before the proxy is exercised.
All shares represented by valid, unrevoked proxies will be voted at the
Annual Meeting. Shares voted as abstentions on any matter (or as "withhold
authority" as to Directors) will be counted as shares that are present and
entitled to vote for purposes of determining the presence of a quorum at the
meeting and as unvoted, although present and entitled to vote, for purposes of
determining the approval of each matter as to which the shareholder has
abstained. If a broker submits a proxy which indicates that the broker does not
have discretionary authority as to certain shares to vote on one or more
matters, those shares will be counted as shares that are present and entitled to
vote for purposes of determining the presence of a quorum at the meeting, but
will not be considered as present and entitled to vote with respect to such
matters.
The Company will bear all costs of the solicitation. In addition to
solicitation by mail, officers and employees of the Company may solicit proxies
by telephone, fax, or in person. Kissel-Blake Inc. has been retained by the
Company to assist in the solicitation of proxies at an anticipated cost of
$3,000 plus out-of-pocket expenses. Also, the Company will, upon request,
reimburse brokers or other persons holding stock in their names or in the names
of their nominees for reasonable expenses in forwarding proxies and proxy
material to the beneficial owners of stock.
This Proxy Statement and the accompanying form of proxy are to be first
mailed on March 22, 1999. The Company's Annual Report to Shareholders and Form
10-K for the year 1998 is being mailed to shareholders with this proxy
statement.
VOTING RIGHTS AND PRINCIPAL HOLDERS
Only shareholders of record at the close of business on March 12, 1999, will
be entitled to vote at the meeting. The outstanding voting stock of the Company
as of such record date consisted of 21,447,315 shares of Common Stock.
Each outstanding share of Common Stock is entitled to one vote. Cumulative
voting is permitted in the election of Directors. Each share is entitled to
three votes, one each for the election of three Directors, and the three votes
may be cast for a single person or may be distributed among two or three
persons.
The Company is not aware of any person or group who is the beneficial owner
of more than five percent of the Company's Common Stock.
2
<PAGE>
ITEM I
ELECTION OF DIRECTORS
In accordance with the Bylaws and Article Fifth of the Restated Articles of
Incorporation, the Company's Directors are elected to three classes of staggered
terms consisting of three years each. At this Annual Meeting of Shareholders,
three Directors will be elected to Class I of the Board of Directors to hold
office for a term of three years until the Annual Meeting of Shareholders in
2002 and until their respective successors shall be duly elected and qualified.
Each of the nominees for Director is presently a member of the Board of
Directors of the Company. The proxy attorneys will vote your stock for the
election of the three nominees for Director listed below, unless otherwise
instructed. If, at the time of the meeting, any of such nominees shall be unable
to serve in the capacity for which they are nominated or for good cause will not
serve, an event which the Board of Directors does not anticipate, it is the
intention of the persons designated as Proxy Attorneys to vote, at their
discretion, for nominees to replace those who are unable to serve. The
affirmative vote of a majority of the common shares present and entitled to vote
with respect to the election of Directors is required for the election of the
nominees to the Board of Directors.
The following information, including principal occupation or employment for
the past five or more years, is furnished with respect to each of the following
persons who are nominated as Class I Directors, each to serve for a term of
three years to expire in 2002.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE FOLLOWING
NOMINEES:
<TABLE>
<CAPTION>
NOMINEES FOR ELECTION UNTIL 2002 ANNUAL MEETING -- CLASS I
NAME, AGE, PRINCIPAL OCCUPATION FOR DIRECTOR
LAST FIVE YEARS AND OTHER DIRECTORSHIPS SINCE
- ---------------------------------------------------------------------------- ---------
<S> <C>
GLENN C. BARBER, 65 1984
President and Chief Executive Officer, Glenn C. Barber & Associates Inc.
(a general construction company), Rapid City, South Dakota
BRUCE B. BRUNDAGE, 63 1986
President and Director, Brundage & Company (a firm specializing in
corporate financing), Englewood, Colorado; Director, Vicorp Restaurants,
Inc., Denver, Colorado
KAY S. JORGENSEN, 48 1992
Co-owner and Vice President, Jorgensen-Thompson Creative Broadcast
Services, Spearfish, South Dakota
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE AT 2000 ANNUAL MEETING -- CLASS II
NAME, AGE, PRINCIPAL OCCUPATION FOR DIRECTOR
LAST FIVE YEARS AND OTHER DIRECTORSHIPS SINCE
- ---------------------------------------------------------------------------- ---------
<S> <C>
DANIEL P. LANDGUTH, 52 1989
Chairman, President, and Chief Executive Officer of the Company; Director,
Rapid City Regional Hospital, Rapid City, South Dakota
JOHN R. HOWARD, 58 1977
President, Industrial Products, Inc. (an industrial parts distributor),
Rapid City, South Dakota
DAVID C. EBERTZ, 53 1998
President, Barlow Agency, Inc. (an insurance agency), Gillette, Wyoming
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE AT 2001 ANNUAL MEETING -- CLASS III
NAME, AGE, PRINCIPAL OCCUPATION FOR DIRECTOR
LAST FIVE YEARS AND OTHER DIRECTORSHIPS SINCE
- ---------------------------------------------------------------------------- ---------
<S> <C>
ADIL M. AMEER, 46 1997
President and Chief Executive Officer, Rapid City Regional Hospital, Rapid
City, South Dakota
EVERETT E. HOYT, 59 1991
President and Chief Operating Officer of Black Hills Power and Light
Company
THOMAS J. ZELLER, 51 1997
President, RE/SPEC Inc. (a technical consulting and services firm) since
December 1994; Vice President-Finance and Treasurer, RE/SPEC Inc. 1982
to 1994
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
As of February 28, 1999, the following table sets forth the beneficial
ownership of Common Stock of the Company for each Director, each Executive
Officer named in the Summary Compensation table herein, and all Directors and
Executive Officers of the Company as a group. Beneficial ownership includes
shares a Director or Executive Officer has the power to vote or transfer, and
stock options that are exercisable currently or within 60 days.
The Common Stock interest of each named person and all Directors and
Executive Officers as a group represents less than one percent of the aggregate
amount of Common Stock issued and outstanding. Except as indicated by footnote
below, the beneficial owner possesses sole voting and investment powers with
respect to the shares shown.
<TABLE>
<CAPTION>
DIRECTORS
SHARES OPTIONS COMMON STOCK
BENEFICIALLY EXERCISABLE EQUIVALENTS
NAME OF BENEFICIAL OWNER OWNED WITHIN 60 DAYS (1) TOTAL
- ----------------------------------------------- ----------- --------------- -------------- ---------
<S> <C> <C> <C> <C>
Adil M. Ameer.................................. 715(2) 346 1,061
Glenn C. Barber................................ 7,630 5,363 12,993
Bruce B. Brundage.............................. 5,422(3) 5,363 10,785
David C. Ebertz................................ 499 97 596
Gary R. Fish................................... 6,051(4) 13,000 19,051
John R. Howard................................. 16,864 4,220 21,084
Everett E. Hoyt................................ 9,106 11,000 20,106
Kay S. Jorgensen............................... 1,964 1,359 3,323
Daniel P. Landguth............................. 13,767 26,400 40,167
James M. Mattern............................... 4,136 11,000 15,136
Thomas M. Ohlmacher............................ 2,902 11,000 13,902
Thomas J. Zeller............................... 790(5) 346 1,136
All Directors and executive officers as
a group....................................... 81,772 98,450 17,094 197,316
</TABLE>
- ------------------------
(1) Includes Common Stock allocated to the Directors' accounts in the Directors'
Stock Based Compensation Plan of which the Trustee has sole voting and
investment authority.
(2) Includes 150 shares owned jointly with Mr. Ameer's spouse as to which he
shares voting and investment authority.
(3) Includes 5,400 shares owned by Brundage & Co. Pension Plan and Trust of
which Mr. Brundage is the Trustee with sole voting and investment authority.
4
<PAGE>
(4) Includes 4,173 shares owned jointly with Mr. Fish's spouse to which he
shares voting and investment authority.
(5) Includes 225 shares owned jointly with Mr. Zeller's spouse as to which he
shares voting and investment authority.
Based solely upon a review of Company records and copies of reports on Form
3, 4 and 5 furnished to the Company, the Company believes that during 1998 all
persons subject to the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934, as amended, filed the required reports on a timely basis.
THE BOARD AND COMMITTEES
The Executive Committee is comprised of Adil M. Ameer, Glenn C. Barber, John
R. Howard, Daniel P. Landguth, and Thomas J. Zeller with Mr. Landguth serving as
Chairperson. The Committee exercises the authority of the Board of Directors in
the interval between meetings of the Board, recommends to the Board of Directors
persons to be elected as officers, and recommends persons to be appointed to
Board Committees. The Executive Committee held three meetings during 1998.
The Compensation Committee is comprised of Adil M. Ameer, Glenn C. Barber,
Bruce B. Brundage, David C. Ebertz, John R. Howard, Kay S. Jorgensen, and Thomas
J. Zeller with Mr. Zeller serving as Chairperson. The Committee performs
functions required by the Board of Directors in the administration of all
federal and state statutes relating to employment and compensation, recommends
to the Board of Directors compensation for officers, and considers and approves
the Company's compensation program including benefits, stock option plans and
stock ownership plans. The Compensation Committee held three meetings in 1998.
The Audit Committee is comprised of Adil M. Ameer, David C. Ebertz, John R.
Howard, and Kay S. Jorgensen, with Mr. Ameer serving as Chairperson. The
Committee annually recommends to the Board of Directors an independent
accounting firm to be appointed by the Board for ratification by the
shareholders, reviews the scope and results of the annual audit including
reports and recommendations of the firm, reviews the Company's internal audit
function, and periodically confers with the internal audit group, management of
the Company, and its independent accountants. The Audit Committee held two
meetings in 1998.
The Nominating Committee is comprised of Glenn C. Barber, Bruce B. Brundage,
Kay S. Jorgensen, Daniel P. Landguth, and Thomas J. Zeller with Mr. Brundage
serving as Chairperson. The Committee recommends to the Board of Directors
persons to be nominated as Directors or to be elected to fill vacancies on the
Board. The Bylaws require that an Outside Director serve as Chairperson of the
Committee. The Nominating Committee held two meetings in 1998.
Pursuant to the Company's Bylaws, nominations from shareholders for Board
membership will be considered by the Nominating Committee. Shareholders who wish
to submit names for future consideration for Board membership should do so in
writing prior to November 22, 1999, addressed to Nominating Committee, c/o
Corporate Secretary, Black Hills Corporation, P.O. Box 1400, Rapid City, South
Dakota 57709.
Members of the Committees referred to herein are designated by the Board of
Directors upon recommendation of the Executive Committee each year at a meeting
held following the Annual Meeting of Shareholders.
The Board of Directors held sixteen meetings during 1998. Each Director
attended no less than 80 percent of the aggregate of the total number of Board
meetings and Committee meetings on which the Director served.
5
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is solely comprised of the following Outside
Directors, Adil M. Ameer, Glenn C. Barber, Bruce B. Brundage, David C. Ebertz,
John R. Howard, Kay S. Jorgensen, and Thomas J. Zeller.
Mr. Ameer is a Director of Black Hills Corporation and serves as a member of
its Compensation Committee. Mr. Landguth, Chairman, President and Chief
Executive Officer of the Company, is also a director of Rapid City Regional
Hospital, a non-profit organization of which Mr. Ameer is President and Chief
Executive Officer. Mr. Landguth is serving a six year term on the Rapid City
Regional Hospital Board of which one year is remaining. Mr. Ameer and Mr.
Landguth do not participate in any compensation decisions involving each other.
DIRECTORS' FEES
Directors who are not officers of the Company receive an annual fee of
$12,000 plus a fee of $600 for each board meeting and committee meeting attended
providing such committee meetings are substantive in nature and content.
In addition, each Outside Director receives Common Stock Equivalents equal
to $3,500 per year divided by the market price of the Company's Common Stock.
The Common Stock Equivalents are payable in stock or cash at retirement or can
be deferred at the election of the Director.
The Board of Directors are required to beneficially own 100 shares of Common
Stock when they are initially elected a Director and to apply at least 50
percent of his or her retainer toward the purchase of additional shares until
the Director has accumulated at least 2,000 shares of Common Stock.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
developing and making recommendations to the Board on executive compensation.
The components of the Company's executive compensation program consists of a
base salary, short-term incentive compensation and long-term incentive
compensation in the form of stock options. The mix of base salary, short-term
incentive bonus and stock options reflects the Company's goals of attracting and
retaining highly qualified and motivated managers, recognizing and rewarding
outstanding performance, fostering a cohesive management team, and having a
portion of compensation contingent upon the performance of the Company and
linked to the mutual interest of the Company's shareholders.
The Committee makes annual recommendations to the Board concerning the base
salary and short-term incentive bonus for the Chief Executive Officer and each
of the other executive officers of the Company. Recognizing a market based
compensation structure, the Committee strives to ensure that competitive salary
ranges and base salaries are being maintained. The Committee also grants stock
options to key employees and determines the amount, terms and conditions of each
of the awards.
The Committee retains the services of the internationally known firm, Hewitt
Associates, to review and evaluate the Company's compensation program as
compared with companies within its own industry including data from the Edison
Electric Institute, the trade association of investor-owned electric utilities,
and with companies of comparable size and capitalization.
The Company's position is to establish a market salary level for each salary
range that is at or near the median (50th percentile) of the range of salaries
of comparable companies surveyed. A performance matrix system is used in
determining the percentage of salary increase taking into
6
<PAGE>
account the performance rating for the individual officer and the relationship
of the officer's current salary to market. An outstanding performance rating is
given when there is extraordinary and exceptional accomplishment, results are
far in excess of requirements, and demanding objectives are attained. A superior
performance rating indicates results are well above the expected level and the
individual was successful in accomplishing challenging objectives. Competent
performance ratings are given when all position requirements are met, the
individual consistently performs the job in a satisfactory manner, and realistic
objectives are obtained.
In April 1998, the Compensation Committee granted the Chief Executive
Officer a superior rating for meeting the goals and objectives of the strategic
plan which include a target return on equity, earnings growth and common stock
performance. Consolidated earnings per share increased 7 percent in 1997 to
$1.49 compared to $1.40 in 1996. The Company's 1997 consolidated return on
equity was 15.8 percent, dividends increased 5.6 percent (2.5 times the utility
industry average) and total shareholder return was 31 percent. The Compensation
Committee approved a 4.2 percent base salary increase in the amount of $9,300
for the Chief Executive Officer. The increase to the base salary brought the
Chief Executive Officer's base salary to market as determined by wage surveys.
The Company currently maintains a variety of employee benefit plans and
programs in which its executive officers may participate, including the
short-term annual incentive compensation program, the retirement savings (401k)
plan, the pension plan, and the Pension Equalization Plan. With the exception of
the Short-Term Annual Incentive Plan and the Pension Equalization Plan (PEP),
these benefit plans and programs are generally available to all employees within
the Company.
The Short-Term Annual Incentive Compensation Program was designed to
recognize and reward the contribution that group performance makes to corporate
success. Only Executive Officers are eligible to participate in the Plan at this
time. The program has a corporate goal that is based upon the percentage of
consolidated earnings per share which exceeds targeted amounts. Target award
levels are a percentage of each Executive Officers base salary. The percentage
for the Chief Executive Officer was 35 percent and for the other Executive
Officers ranged from 20 percent to 25 percent. Individual awards may be greater
or lesser than target amounts based upon an assessment of individual
performance. Awards can range from 0 percent to 150 percent of the target
amount. As a result of strong 1998 actual earnings (excluding the noncash
special charge related to abnormally low oil prices) and the furtherance of the
Company's corporate goals, cash awards were made to all nine executive officers
in the aggregate amount of $153,654. The awards ranged from 11 percent of base
salary to 20 percent of base salary. The Chief Executive Officer received
$47,683 or 20 percent of his base salary for the year 1998. The Executive
Officers are required to purchase Common Stock of the Company with 50 percent of
the Short-Term Annual Incentive Bonus.
It is the objective of the Company to pay its executives a fair salary,
based on the comparable pay of similar types of companies in relation to
achieving corporate, business unit, and individual performance objectives.
COMPENSATION COMMITTEE
<TABLE>
<S> <C> <C>
Thomas J. Zeller,
Chairperson Adil M. Ameer Glenn C. Barber
Bruce B. Brundage David C. Ebertz John R. Howard
Kay S. Jorgensen
</TABLE>
7
<PAGE>
The following table is furnished for the fiscal year ended December 31,
1998, with respect to the Chief Executive Officer of the Company and the four
other most highly compensated executive officers for 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) GRANTED (2)
- ----------------------------------------------------------- --------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
Daniel P. Landguth......................................... 1998 $ 237,550 $ 47,683 18,000
Chairman, President, and Chief Executive 1997 222,675 26,399 18,000
Officer of the Company and subsidiaries 1996 208,127 17,320 21,600
Everett E. Hoyt............................................ 1998 $ 158,100 $ 18,135 7,500
President and Chief Operating Officer of 1997 147,600 15,930 7,500
Black Hills Power and Light Company 1996 137,540 11,705 9,000
Gary R. Fish............................................... 1998 $ 123,350 $ 18,154 10,500
Vice President -- Development of 1997 105,012 12,349 10,500
the Company and subsidiaries 1996 86,871 7,253 9,000
Thomas M. Ohlmacher........................................ 1998 $ 112,350 $ 12,825 7,500
Vice President -- Power Supply 1997 101,452 11,997 7,500
of the Company and Black Hills 1996 89,561 7,614 9,000
Generation, Inc. (a subsidiary)
James M. Mattern........................................... 1998 $ 104,350 $ 11,970 7,500
Vice President -- Administration 1997 93,001 10,987 7,500
of the Company and subsidiaries 1996 80,967 6,882 9,000
</TABLE>
- ------------------------
(1) Bonus amounts include amounts earned under the Short-Term Annual Incentive
Plan in 1998 and the Results Compensation Program and the Executive
Gainshare Program in 1997 and 1996, cash bonus programs for Company
employees based on the attainment of predetermined profitability measures.
(2) Reflects the 3-for-2 stock split on March 10, 1998.
BLACK HILLS CORPORATION STOCK OPTION GRANTS IN 1998 (1)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS GRANT DATE
UNDERLYING GRANTED TO EXERCISE EXPIRATION PRESENT
NAME OPTIONS GRANTED EMPLOYEES PRICE DATE VALUE (2)
- ---------------------------------------------- --------------- --------------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Daniel P. Landguth............................ 18,000 15.9% $ 22.00 04/21/08 $ 6,840
Everett E. Hoyt............................... 7,500 6.6% $ 22.00 04/21/08 $ 2,850
Gary R. Fish.................................. 10,500 9.3% $ 22.00 04/21/08 $ 3,990
Thomas M. Ohlmacher........................... 7,500 6.6% $ 22.00 04/21/08 $ 2,850
James M. Mattern.............................. 7,500 6.6% $ 22.00 04/21/08 $ 2,850
</TABLE>
- ------------------------
(1) Options vest annually in installments of 33 percent per year beginning on
the first anniversary of the date of grant. All options become fully vested
if a change in control occurs.
(2) The Black-Scholes option pricing model was used in determining the present
value of the options granted. The assumptions utilized in the Black-Scholes
model are as follows: 16.81 percent for expected volatility; 4.7 percent for
risk free rate of return; 4.6 percent for dividend yield and 10 years for
the time of exercise.
8
<PAGE>
STOCK OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES (1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTION IN-THE-MONEY
AT 12/31/98 OPTIONS AT 12/31/98
NAME EXERCISABLE/UNEXERCISABLE (2) EXERCISABLE/UNEXERCISABLE (3)
- ----------------------------- ----------------------------- -------------------------------
<S> <C> <C>
Daniel P. Landguth........... 26,400/31,200 $181,800/$232,650
Everett E. Hoyt.............. 11,000/13,000 $75,750/$96,937
Gary R. Fish................. 13,000/17,000 $82,750/$124,062
Thomas M. Ohlmacher.......... 11,000/13,000 $75,750/$96,937
James M. Mattern............. 11,000/13,000 $75,750/$96,937
</TABLE>
- ------------------------
(1) No options were exercised by the above named individuals in 1998.
(2) The number of options have been adjusted to reflect the 3-for-2 stock split
on March 10, 1998.
(3) Value of unexercisable options is the market value of the shares at year end
minus the exercise price.
RETIREMENT PLANS
The Company has a defined benefit retirement plan (Pension Plan) for its
employees. The Pension Plan provides benefits at retirement based on length of
employment service and average monthly pay in the five consecutive calendar
years of highest earnings out of the last ten years. Employees do not contribute
to the Pension Plan. The amount of annual contribution by the employers to the
Pension Plan is based on an actuarial determination. Accrued benefits become 100
percent vested after an employee completes five years of service.
The Company also has a Pension Equalization Plan (the PEP), a nonqualified
(benefits are not tax deductible until paid) supplemental plan, which is
designed to provide the higher paid executive employee a retirement benefit
which, when added to social security benefits and the pension to be received
from the Pension Plan, will approximate retirement benefits being paid by other
employers to its employees with like executive positions. The employee's pension
from the qualified pension plan is limited under the current law to not exceed
$130,000 annually and the compensation taken into account in determining
contributions and benefits cannot exceed $160,000. The amounts of deferred
compensation paid under nonqualified plans such as the PEP are not subject to
the limits. A participant under the PEP does not qualify for benefits until the
benefits become vested under a vesting schedule--20 percent after three years of
employment under the plan increasing up to 100 percent vesting after eight years
of employment under the plan. No credit for past service is granted under the
PEP. The annual benefit is 25 percent of the employee's average earnings (if
salary was less than two times the Social Security Wage Base) or 30 percent (if
salary was more than two times the Social Security Wage Base) times the vesting
percentage. Average earnings are normally an employee's average earnings for the
five highest consecutive full years of employment during the ten full years of
employment immediately preceding the year of calculation. The annual PEP benefit
is paid on a monthly basis for 15 years to each participating employee and if
deceased to the employee's designated beneficiary or estate, commencing at the
earliest of death or when the employee is both retired and 62 years of age or
more.
In the event that at the time of a Participant's retirement from the Company
the Participant's salary level exceeds the qualified pension plan annual
compensation limitation of $160,000, then the Participant shall receive an
additional benefit which is measured by the difference between the monthly
benefit which would have been provided to the participant under the Company's
Pension Plan as if there were no annual compensation limitation and the monthly
benefit to be provided to the Participant under the Pension Plan.
9
<PAGE>
Participants in the PEP are designated by the Board of Directors upon
recommendation of the Chief Executive Officer. Selection is based on key
employees as determined by management and consideration of performance rather
than salary based only. The minimum salary component applied in the selection
process is the maximum annual Social Security taxable wage base which is
presently at $72,600.
RETIREMENT BENEFITS
The following table illustrates estimated annual benefits payable under the
Pension Plan and the PEP to employees who retire at the normal retirement date.
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
ANNUAL PAY 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ----------------------------------- --------- --------- --------- --------- ---------
$110,000........................... $ 52,032 $ 60,210 $ 68,387 $ 76,565 $ 84,742
125,000........................... 59,382 68,760 78,137 87,515 96,892
150,000........................... 79,132 90,510 101,887 113,265 124,642
175,000........................... 92,632 106,010 119,387 132,765 146,142
200,000........................... 106,132 121,510 136,887 152,265 167,642
225,000........................... 119,632 137,010 154,387 171,765 189,142
250,000........................... 133,132 152,510 171,887 191,265 210,642
</TABLE>
The years of credited service under the Pension Plan for the executive
officers shown in the preceding summary compensation table are as follows:
Daniel P. Landguth, 29 years; Everett E. Hoyt, 24 years; Gary R. Fish, 12 years;
James M. Mattern, 11 years; Thomas M. Ohlmacher, 23 years. Mr. Hoyt's benefits
will be reduced for service from prior employment.
The benefits in the foregoing table were calculated as a straight life
annuity. Amounts shown are exclusive of Social Security benefits and include
benefits from both the Pension Plan and from the PEP assuming a 100 percent
vested interest in the PEP.
EMPLOYEES' STOCK PURCHASE PLAN
Employees of the Company and its subsidiaries are eligible to participate in
the Employees' Stock Purchase Plan, as approved by the shareholders at the 1987
Annual Meeting under which offerings of the Company's Common Stock, at the
discretion of the Board, are made to employees at a price equal to 90 percent of
the closing sale price on the New York Stock Exchange on the date of the
offering. Employees may purchase up to 400 shares per offering. An offering was
extended to employees in 1998 at a price of $21.66 per share. Shares are held in
nominee name until subscriptions are paid for in full.
RETIREMENT SAVINGS PLAN
The Company has a Retirement Savings Plan under Section 401(k) of the
Internal Revenue Code of 1954, as amended, which permits employees of the
Company and its subsidiaries, including officers, to elect to invest up to 20
percent of their eligible earnings on a pre-tax basis into an investment fund
subject to limitations imposed by the Internal Revenue Code. The Company makes
no contributions to the Plan.
Distribution from the fund will be made to employees at termination of
employment, retirement, death, or in case of hardship. No amounts were paid or
distributed pursuant to the Retirement Savings Plan to the individuals named
herein nor to the officers as a group.
SEVERANCE AGREEMENTS
The Company has entered into change of control severance agreements
("Severance Agreements") with each of its Executive Officers ("Executive") and
certain key employees. The Severance
10
<PAGE>
Agreements provide for certain payments and other benefits to be payable upon a
Change in Control and a subsequent termination of employment, either involuntary
or for a Good Reason.
A Change in Control is defined as: (i) an acquisition of 30 percent or more
of the Common Stock of the Company (except for certain defined acquisitions,
such as acquisition by employee benefit plans, the Company itself, or any
subsidiary); or (ii) members of the Incumbent Board at the time the agreements
were executed cease to constitute at least two-thirds of the members of the
Board, with an Incumbent Board being defined as those individuals consisting of
the Board on the date the Agreement was executed and any other Directors elected
subsequently whose election was approved by the Incumbent Board; or (iii)
approval by the shareholders of the Company of a merger, consolidation, or
reorganization; liquidation or dissolution; or agreement for sale or other
disposition of all or substantially all of the assets of the Company (with
exceptions for transactions which do not involve an effective change in control
of voting securities or Board membership, and transfers to subsidiaries or sale
of subsidiaries); and (iv) all regulatory approvals required to effect a Change
in Control have been obtained.
A Good Reason for termination which would trigger payment of benefits is
defined to include (i) a change in the Executive's status, title, position or
responsibilities, (ii) a reduction in the Executive's annual compensation or any
failure to pay the Executive any compensation or benefits to which he or she is
entitled within 7 days of the date due, (iii) any material breach by the Company
of any provisions of the Severance Agreement, (iv) requiring the Executive to be
based outside a 50-mile radius from Rapid City, South Dakota; or (v) failure of
the Company to obtain an agreement from any successor company to assume and
agree to perform the Severance Agreement. The Severance Agreement with the Chief
Executive Officer ("CEO") also contains an optional Window Period, defined as a
30-day period of time beginning on the one-year anniversary after the Change in
Control, during which time the CEO may terminate for any reason and receive the
payments and benefits.
Upon a Change in Control, the Executive will have an employment contract for
a three-year period (but not beyond age 65), denominated the "Employment Term."
During the Employment Term, the Executive shall receive annual compensation at
least equal to the highest rate in effect at any time during the one-year period
preceding the Change in Control and shall also receive employment welfare
benefits, pension benefits, and supplemental retirement benefits on a basis no
less favorable than those received prior to the Change in Control.
If the Executive's employment with the Company is terminated during the
Employment Term, involuntarily or for a Good Reason (or by the CEO for any
reason during a Window Period), then the Executive is entitled to the following
benefits: (i) severance pay equal to 2.99 times Executive's five-year average
taxable compensation; provided that the foregoing payment is subject to
proportionate reduction based upon when termination takes place during the
Employment Term and based upon a ratio of Executive's Employment Term to 36
months; and (ii) continuation of employee welfare benefits for the remainder of
the Employment Term (with an offset for similar benefits received) along with
additional credited service under the Pension Equalization Plan and Pension Plan
equal to the remainder of the Employment Term.
The Severance Agreement contains a "cap" provision which reduces any amounts
payable to an amount which would prevent any payments from being nondeductible
under the Internal Revenue Code. The Severance Agreements provide for
reimbursement of legal fees and expenses of the Executive incurred after the
Change in Control by the Executive in seeking to obtain or enforce any benefits
provided by the Severance Agreement. The Executive is not required to mitigate
the amount of any payment or benefit by seeking other employment or otherwise,
and the payments or benefits are not reduced whether or not the Executive
obtains other employment and/or benefits (except for employee welfare benefits).
11
<PAGE>
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative shareholder return on the Company's
Common Shares for the last five fiscal years with the cumulative total return of
the S&P 500 Index and the Edison Electric Institute Electric Index, (EEI
Electric Index) over the same period (assuming the investment of $100 on
December 31, 1993, and the reinvestment of all dividends).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
<S> <C> <C> <C>
AMONG BLACK HILLS CORPORATION, THE S&P 500 INDEX
AND THE EEI 100 INDEX OF INVESTOR-OWNED ELECTRICS INDEX
BLACK HILLS EEI 100 INDEX OF INVESTOR-
CORPORATION S&P 500 OWNED ELECTRICS
1994 $100 $101 $88
1995 $123 $139 $116
1996 $148 $171 $117
1997 $195 $229 $149
1998 $228 $294 $170
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Black Hills Corporation................................................. $ 100 $ 123 $ 148 $ 195 $ 228
S&P 500................................................................. $ 101 $ 139 $ 171 $ 229 $ 294
EEI Electric............................................................ $ 88 $ 116 $ 117 $ 149 $ 170
</TABLE>
12
<PAGE>
ITEM II
PROPOSAL TO APPROVE THE BLACK HILLS CORPORATION
1999 STOCK OPTION PLAN
BACKGROUND
The Board of Directors adopted, subject to shareholder approval, the Black
Hills Corporation 1999 Stock Option Plan (the "Plan"). Shareholders approved a
similar Plan at the 1996 Annual Meeting of Shareholders. Key differences in the
1999 Plan are: the 1999 Plan authorizes an additional 700,000 shares of Common
Stock to be issued under the Plan (less than 5 percent of the outstanding Common
Stock when added to the unexercised options under the 1996 Plan); the 1999 Plan
allows the shares to be issued to be authorized and unissued shares, treasury
shares or shares purchased on the open market; and the 1999 Plan specifically
prohibits the repricing of stock options. A full copy of the Plan is attached as
Addendum A.
The purpose of the Plan is to enable the Company to offer certain officers
and other key employees of the Company and its subsidiaries options to acquire
shares of Common Stock of the Company, thereby attracting, retaining and
rewarding such employees and strengthening the mutuality of the interest between
such employees and the Company's shareholders. In addition, the Board of
Directors believes that the Plan will provide the participants therein with an
incentive for excellence in individual performance and will promote teamwork
among the participants.
DURATION
The Plan shall commence on May 11, 1999, and shall remain in effect, subject
to the right of the Board of Directors to amend or terminate the Plan at any
time, until all shares subject to it shall have been purchased or acquired, but
in no event shall any awards be granted on or after May 11, 1999.
SHARES AVAILABLE
The Board of Directors has reserved an aggregate of 700,000 shares
("Shares") of the Company's authorized but unissued Common Stock for issuance
under the Plan. All of the Shares may, but need not, be issued pursuant to the
exercise of "Incentive Stock Options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). If there is a lapse,
expiration, termination or cancellation of any option prior to the issuance of
Shares thereunder, those Shares may again be used for new awards under the Plan.
ADMINISTRATION
The Plan provides for administration by a committee (the "Committee"), to be
comprised of either the Compensation Committee of the Board or another committee
designated by the Board. Initially, the Company's Compensation Committee,
composed of all outside (nonemployee) Directors, will administer the Plan. Among
the Committee's powers are the authority to interpret the Plan, establish rules
and regulations for its operation, select officers and other key employees of
the Company and its subsidiaries to receive awards, and consistent with the Plan
determine the form, amount and other terms and conditions of each of the awards.
The Committee also has the power to make adjustments in the terms and conditions
of any of the awards in recognition of unusual or nonrecurring events whenever
the Committee determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential intended to be made
available under the Plan.
13
<PAGE>
ELIGIBILITY FOR PARTICIPATION
Officers and other full-time employees of the Company or any of its
subsidiaries, including subsidiaries of subsidiaries, are eligible to
participate in the Plan. The selection of participants from eligible employees
is within the discretion of the Committee. Members of the Board of Directors who
are not employees of the Company and part-time employees of the Company are not
eligible to participate under the Plan.
STOCK OPTIONS
Under the Plan, the Committee is authorized to award two types of options,
(i) Incentive Stock Options ("ISO") and (ii) Nonqualified Stock Options
("NQSO"). The difference in these two types of options is explained in the
following paragraph. The Option Price for every award issued for either an ISO
or an NQSO shall be equal to 100 percent of the Fair Market Value (the closing
price on the New York Stock Exchange) on the date the award is made, or the
Committee may set a higher Option Price. No repricing of options is allowed
under the Plan. Each such option shall expire at the time the Committee shall
determine but in no event shall be exercisable later than the tenth anniversary
date of its grant. Payment to exercise for any of said options shall be in cash,
by cashless exercise, or, if permitted by the award, by tendering previously
acquired shares having an aggregate Fair Market Value at the time of exercise to
total the Option Price and which shares have been held by the participant for at
least six months, or a combination of the foregoing. The Plan does not authorize
the Company to make employees loans with which to exercise options.
FEDERAL TAX TREATMENT
Under current law, the following are the United States federal income tax
consequences generally arising with respect to awards under the Plan.
A participant who is granted an ISO within the meaning of Section 422 of the
Code does not recognize any taxable income at the time of the grant or at the
time of exercise. Similarly, the Company is not entitled to any deduction at the
time of grant or at the time of exercise. If the participant makes no
disposition of the Shares acquired pursuant to an ISO before the later of two
years from the date of grant and one year from the date of exercise, any gain or
loss realized on a subsequent disposition of the Shares shall be treated as a
long-term capital gain or loss. Under such circumstances, the Company will not
be entitled to any deduction for federal income tax purposes.
A participant who is granted a NQSO will not have taxable income at the time
of the grant but will have taxable income at the time of exercise equal to the
difference between the exercise price of the Shares and the market value of the
Shares on the date of exercise. The Company will be entitled to a tax deduction
at that time for the same amount.
REGULATORY APPROVAL
The Plan is subject to the approval of the South Dakota Public Utilities
Commission and the Wyoming Public Service Commission. Until such approvals are
received, the Committee will make no awards under the Plan.
VOTE REQUIRED
An affirmative vote of the holders of the majority of all issued and
outstanding shares of Common Stock is required to approve the Plan.
14
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THE ADOPTION OF THE FOLLOWING RESOLUTION:
RESOLVED, THAT THE SHAREHOLDERS OF THE COMPANY DO HEREBY APPROVE THE
BLACK HILLS CORPORATION 1999 STOCK OPTION PLAN.
A vote FOR is a vote in favor of adopting the resolution and the Plan.
ITEM III
APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Arthur Andersen LLP, independent public accountants, conducted
the audit of the Company and its subsidiaries for 1998. Representatives of
Arthur Andersen LLP will be present at the Annual Meeting and will have the
opportunity to make a statement, if they desire to do so, and to respond to
appropriate questions.
Audit services performed by Arthur Andersen LLP during 1998 included audits
of the financial statements of the Company and its subsidiaries and analysis of
interim financial information.
The Board of Directors, on recommendation of the Audit Committee and subject
to ratification by shareholders, has appointed Arthur Andersen LLP to perform an
audit of the consolidated financial statements of the Company and its
subsidiaries for the year 1999 and to render their opinion thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF
THE APPOINTMENT OF ARTHUR ANDERSEN LLP TO SERVE AS
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR 1999
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Shareholder proposals intended to be presented at the 2000 Annual Meeting of
Shareholders must be received by the Secretary of the Company in writing at its
home offices at 625 Ninth Street, P.O. Box 1400, Rapid City, South Dakota 57709,
prior to November 22, 1999. Any proposal submitted must be in compliance with
Rule 14a-8 of Regulation 14A of the Securities and Exchange Commission.
ITEM IV
TRANSACTION OF OTHER BUSINESS
The Board of Directors does not intend to present any business for action by
the shareholders at the meeting except the matters referred to in this Proxy
Statement. If any other matters should be properly presented at the meeting, it
is the intention of the persons named in the accompanying form of proxy to vote
thereon in accordance with the recommendations of the Board of Directors.
Please complete and sign the accompanying form of proxy whether or not you
expect to be present at the meeting and promptly return it in the enclosed
postage paid envelope.
By Order of the Board of Directors
ROXANN R. BASHAM
VICE PRESIDENT -- FINANCE
AND CORPORATE SECRETARY/TREASURER
Dated: March 22, 1999
15
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The information required by Item 13, Financial and Other Information, of
Regulation 14-A is provided in the Company's Annual Report to Shareholders and
Form 10-K for the year ended December 31, 1998, which is incorporated by
reference into this Proxy Statement.
The Company's 1998 Annual Report to Shareholders and Form 10-K is being
mailed to Shareholders with this Proxy Statement.
PLEASE COMPLETE, SIGN AND RETURN PROMPTLY
THE ENCLOSED PROXY SO THAT YOUR STOCK MAY
BE REPRESENTED AND VOTED AT THE ANNUAL MEETING.
16
<PAGE>
BLACK HILLS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, MAY 11, 1999
9:30 A.M., LOCAL TIME
JOURNEY MUSEUM
222 NEW YORK STREET
RAPID CITY, SD 57701
BLACK HILLS CORPORATION
PO BOX 1400, RAPID CITY, SD 57709 PROXY
- -------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL
MEETING ON MAY 11, 1999.
The shares of stock you hold in your account or in a dividend reinvestment
account will be voted as you specify below.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEMS 1, 2 AND 3.
By signing the proxy, you revoke all prior proxies and appoint Daniel P.
Landguth, Roxann Basham, and John K. Nooney, and each of them, with full power
of substitution, to vote your shares on the matters shown on the reverse side
and any other matters which may come before the Annual Meeting and all
adjournments.
SEE REVERSE FOR VOTING INSTRUCTIONS
<PAGE>
HOW TO VOTE YOUR PROXY
Mark, sign and date your proxy card and return it in the postage-paid
envelope we've provided or return it to Black Hills Corporation, c/o
Shareowner Services, P.O. Box 64873, St. Paul, MN 55164-9397.
PLEASE DETACH HERE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
<TABLE>
<S> <C> <C> <C> <C>
1. Election of 01 Glenn C. Barber 02 Bruce B. Brundage / / Vote FOR / / Vote WITHHELD
Class I Directors: 03 Kay S. Jorgensen all nominees from all nominees
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, ------------------------------------
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.
TO CUMULATE VOTES SO INDICATE.) ------------------------------------
2. Approve the Black Hills Corporation 1999 / / For / / Against / / Abstain
Stock Option Plan.
3. Ratify the appointment of Arthur Andersen LLP / / For / / Against / / Abstain
to serve as the Company's independent
auditors in 1999.
</TABLE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
---
Address change? Mark Box / / Dated:
Indicate changes below: --------------------------
------------------------------------------
------------------------------------------
Signature(s) in Box
(If there are co-owners both must sign)
PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR ON
PROXY. IF HELD IN JOINT TENANCY, ALL PERSONS
MUST SIGN. TRUSTEES, ADMINISTRATORS, ETC.,
SHOULD INCLUDE TITLE AND AUTHORITY.
CORPORATIONS SHOULD PROVIDE FULL NAME OR
CORPORATION AND TITLE OF AUTHORIZED OFFICER
SIGNING THE PROXY.
<PAGE>
ADDENDUM A
BLACK HILLS CORPORATION 1999
STOCK OPTION PLAN
ARTICLE 1. ESTABLISHMENT, OBJECTIVES, DURATION
1.1 ESTABLISHMENT OF PLAN. Black Hills Corporation (hereinafter referred
to as the "Company"), hereby establishes an incentive compensation plan to be
known as the "Black Hills Corporation 1999 Stock Option Plan" (hereinafter
referred to as the "Plan"), as set forth in this document. The Plan permits the
grant of Nonqualified Stock Options and Incentive Stock Options.
Subject to approval by the Company's shareholders, the Plan shall become
effective as of May 11, 1999 (the "Effective Date") and shall remain in effect
as provided in Section 1.3 hereof.
1.2 OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize the
profitability and growth of the Company through incentives which are consistent
with the Company's objectives and which link the interests of Participants to
those of the Company's shareholders; to provide Participants with an incentive
for excellence in individual performance; and to promote teamwork among
Participants.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Participants who make
significant contributions to the Company's success and to allow Participants to
share in the success of the Company.
1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective Date,
as described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 11 hereof, until all Shares subject to it shall have been
purchased or acquired according the Plan's provisions. However, in no event may
an Award be granted under the Plan on or after May 11, 2009.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized:
2.1 "AWARD" means, individually or collectively, a grant under this Plan of
Nonqualified Stock Options or Incentive Stock Options.
2.2 "AWARD AGREEMENT" means an agreement entered into by the Company and
each Participant setting forth the terms and provisions applicable to Awards
granted under this Plan.
2.3 "BENEFICIAL OWNER" OR "BENEFICIAL OWNERSHIP" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
2.4 "BOARD" OR "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
2.5 "CHANGE IN CONTROL" of the Company shall be deemed to have occurred (as
of a particular day, as specified by the Board) upon the occurrence of any event
described in this Section 2.5 as constituting a Change in Control.
(a) An acquisition (other than directly from the Company) of any Shares of
the Company by any person immediately after which such Person has Beneficial
Ownership of thirty percent (30%) or more of the Shares of the Company;
provided, however, in determining whether a Change in Control has occurred,
Shares which are acquired in a "Non-Control Acquisition" (as hereinafter
defined) shall not constitute an acquisition which would cause a Change in
Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an
employee benefit plan (or a trust forming a part thereof) maintained by
17
<PAGE>
(A) the Company; or (B) a Subsidiary; (ii) the Company or its Subsidiaries; or
(iii) any Person in connection with a "Non-Control Transaction" (as hereinafter
defined);
(b) The individuals who, as of the Effective Date hereof, are members of the
Board (the "Incumbent Board") cease for any reason to constitute at least
two-thirds ( 2/3) of the members of the Board; provided, however, that if the
election, or nomination for election by the Company's common shareholders, of
any new director was approved by a vote of at least two-thirds ( 2/3) of the
Incumbent Board, such new director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board; provided further, however, that
no individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board (a "Proxy Contest") including
by reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(c) Approval by shareholders of the Company of:
(i) A merger, consolidation, or reorganization involving the Company,
unless such merger, consolidation, or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a merger,
consolidation, or reorganization of the Company where:
(A) the shareholders of the Company, immediately before such merger,
consolidation, or reorganization, own directly or indirectly, immediately
following such merger, consolidation, or reorganization, at least seventy
percent (70%) of the combined voting power of the outstanding Voting
Securities of the corporation resulting from such merger or consolidation
or reorganization (the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities immediately before
such merger, consolidation, or reorganization;
(B) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such
merger, consolidation, or reorganization constitute at least two-thirds
( 2/3) of the members of the board of directors of the Surviving
Corporation, or a corporation beneficially directly or indirectly owning
a majority of the Voting Securities of the Surviving Corporation; and
(C) no Person other than (i) the Company; (ii) any Subsidiary; (iii)
any employee benefit plan (or any trust forming a part thereof)
maintained by the Company, the Surviving Corporation, or any Subsidiary;
or (iv) any Person who, immediately prior to such merger, consolidation,
or reorganization had Beneficial Ownership of thirty percent (30%) or
more of the then outstanding Voting Securities), has Beneficial Ownership
of thirty percent (30%) or more of the combined voting power of the
Surviving Corporation's then outstanding Voting Securities.
(ii) A complete liquidation or dissolution of the Company; or
(iii) An agreement for the sale of other disposition of all or
substantially all of the assets of the Company to any Person other than (x)
a transfer to a Subsidiary; or (y) a sale or transfer of a Subsidiary by the
Company except if such sale or transfer would be a sale or other disposition
of all or substantially all of the assets of the Company.
(d) Notwithstanding the foregoing, (i) a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then outstanding
Common Stock as a result of the acquisition of Shares by the Company which, by
reducing the number of Shares then outstanding, increases the proportional
number of shares beneficially owned by the Subject Persons, provided that if a
Change in Control
18
<PAGE>
would occur (but for the operation of this sentence) as a result of the
acquisition of Shares by the Company, and after such stock acquisition by the
Company, the Subject Person becomes the Beneficial Owner of any additional
Shares which increases the percentage of the then outstanding Shares
beneficially owned by the Subject Person, then a Change in Control shall occur;
and (ii) a Change in Control shall not be deemed to occur unless and until all
regulatory approvals required to effect a Change in Control of the Company have
been obtained.
2.6 "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
2.7 "COMMITTEE" means the Compensation Committee of the Board, as specified
in Article 3 herein, or such other Committee appointed by the Board to
administer the Plan with respect to grants of Awards.
2.8 "COMPANY" means Black Hills Corporation, together with any and all
Subsidiaries, and any successor thereto as provided in Article 14 herein.
2.9 "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company.
2.10 "DISABILITY" shall have the meaning ascribed to such term in the
Participant's governing long-term disability plan.
2.11 "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.12 "EMPLOYEE" means any full-time, active employee of the Company.
Directors who are not employed by the Company shall not be considered Employees
under this Plan.
2.13 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.14 "FAIR MARKET VALUE" shall be determined on the basis of the closing
sale price on the principal securities exchange on which the Shares are traded
or, if there is no such sale on the relevant date, then on the last previous day
on which a sale was reported.
2.15 "INCENTIVE STOCK OPTION" OR "ISO" means an option to purchase Shares
granted under Article 6 herein and which is designated as an Incentive Stock
Option and which is intended to meet the requirements of Code Section 422.
2.16 "INSIDER" shall mean an individual who is, on the relevant date, an
officer, director or ten percent (10%) beneficial owner of any class of the
Company's equity securities that is registered to Section 12 of the Exchange
Act, all as defined under Section 16 of the Exchange Act.
2.17 "NONEMPLOYEE DIRECTOR" means an individual who is a member of the
Board of Directors of the Company but who is not an Employee of the Company.
2.18 "NONQUALIFIED STOCK OPTION" OR "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended to meet the
requirements of Code Section 422.
2.19 "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option, as described in Article 6 herein.
2.20 "OPTION PRICE" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
2.21 "PARTICIPANT" means an Employee who has outstanding an Award granted
under the Plan. The term "Participant" shall not include Nonemployee Directors.
2.22 "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
19
<PAGE>
2.23 "RETIREMENT" shall have the meaning ascribed to such term in the
Company's tax-qualified defined benefit retirement plan.
2.24 "SHARES" means the shares of Common Stock of the Company.
2.25 "SUBSIDIARY" means any corporation or other Person of which a majority
of its voting power or its voting equity securities ("Voting Securities") or
equity interest is owned, directly or indirectly, by the Company.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Compensation
Committee of the Board, or by any other Committee appointed by the Board, which
Committee shall satisfy the "disinterested administration" rules of Rule 16b-3
under the Exchange Act, or any successor provision. The members of the Committee
shall be appointed from time to time by, and shall serve at the discretion of,
the Board of Directors.
3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions herein, the
Committee shall have full power to select Employees who shall participate in the
Plan; determine the sizes and types of Awards; determine the terms and
conditions of Awards in a manner consistent with the Plan; construe and
interpret the Plan and any agreement or instrument entered into under the Plan
as they apply to Employees; establish, amend, or waive rules and regulations for
the Plan's administration as they apply to Employees; and (subject to the
provisions of Article 11 herein) amend the terms and conditions of any
outstanding Award to the extent such terms and conditions are within the
discretion of the Committee as provided in the Plan. Further, the Committee
shall make all other determinations which may be necessary or advisable for the
administration of the Plan, as the Plan applies to Employees. As permitted by
law, the Committee may delegate its authority as identified herein.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its shareholders, Employees, Participants, and their
estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as
provided in Section 4.3 herein, the number of Shares which may be issued on
exercise of Options shall be 700,000. Such Shares may be authorized but unissued
Shares, treasury Shares, Shares acquired on the open market specifically for
distribution under this Plan, or any combination thereof, as the Committee may
from time to time determine.
4.2 LAPSED AWARDS. If any Award granted under this Plan is canceled,
terminates, expires, or lapses for any reason any Shares subject to such Award
again shall be available for the grant of an Award under the Plan.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of Shares which may be delivered under
Section 4.1, in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan, as may be determined to be
appropriate and equitable by the Committee, in its sole discretion, to prevent
dilution or enlargement of rights; provided, however, that the number of Shares
subject to any Award shall always be a whole number.
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ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in this Plan include all
Employees of the Company, including Employees who are members of the Board.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees, those to
whom Awards shall be granted and shall determine the nature and amount of each
Award.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Committee.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specific the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Committee shall determine. The Award Agreement also shall specify whether the
Option is intended to be an ISO within the meaning of Code Section 422, or an
NQSO whose grant is intended not to fall under the provisions of Code Section
422.
6.3 OPTION PRICE. The Option Price for each grant of an Option under this
Plan shall be at least equal to one hundred percent (100%) of the Fair Market
Value of a Share on the date the Option is granted or a higher amount. No
repricing of Options by any method shall be allowed, including, without
limitation, cancellation and reissuance.
6.4 DURATION OF OPTIONS. Each Option granted to an Employee shall expire
at such time as the Committee shall determine at the time of the grant;
provided, however, that no Option shall be exercisable later than the tenth
(10th) anniversary date of its grant.
6.5 EXERCISE OF OPTIONS. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, which need not be the same for
each grant or for each Participant.
6.6 PAYMENT. Options granted under this Article 6 shall be exercised by
the delivery of a written notice of exercise to the Company, setting forth the
number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the Company
in full either (a) in cash or its equivalent; (b) if permitted in the governing
Award Agreement, by tendering previously acquired Shares having an aggregate
Fair Market Value at the time of exercise equal to the total Option Price
(provided that the Shares which are tendered must have been held by the
Participant for at least six (6) months prior to their tender to satisfy the
Option Price); or (c) if permitted in the governing Award Agreement, by a
combination of (a) and (b).
In addition, if permitted in the Award Agreement, the Participant may also
be permitted to exercise Options pursuant to a "cashless exercise" procedure as
permitted under the Federal Reserve Board's Regulation T, subject to securities
law restrictions. In the event the Participant exercises pursuant to a "cashless
exercise" procedure, any net gain on the "cashless exercise," after appropriate
tax withholdings, shall be distributed to the Participant in the form of Shares.
As soon as practicable after receipt of a written notification of exercise
and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased under the Option(s). If either the purchase price or
the Shares of Common Stock upon exercise of any Option or the tax withholding
requirement is satisfied by tendering or withholding of Shares of Common Stock,
only the number of Shares of
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Common Stock to be issued net of the Shares of Common Stock tendered or withheld
shall be delivered.
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable Federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Shares.
6.8 TERMINATION OF EMPLOYMENT. Each Participant's Option Award Agreement
shall set forth the extent to which the Participant shall have the right to
exercise the Option following termination of the Participant's employment with
the Company. Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the Award Agreement entered into with each
Participant, need not be uniform among all Options issued pursuant to this
Article 6, and may reflect distinctions based on the reasons for termination of
employment.
6.9 NONTRANSFERABILITY OF OPTIONS.
(A) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, all ISOs
granted to a Participant under the Plan shall be exercisable during his or her
lifetime only by such Participant.
(B) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in a
Participant's Award Agreement, no NQSO granted under this Article 6 may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, except as
otherwise provided in a Participant's Award Agreement, all NQSOs granted to a
Participant under this Article 6 shall be exercisable during his or her lifetime
only by such Participant.
ARTICLE 7. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any beneficiary
or beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his or her death before he or
she received any or all of such benefit. Each such designation shall revoke all
prior designations by the same Participant, shall be in a form prescribed by the
Company, and will be effective only when filed by the Participant in writing
with the Company during the Participant's lifetime. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be paid
to the Participant's estate.
ARTICLE 8. DEFERRALS
The Committee may permit or require a Participant to defer such
Participant's receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant by virtue of the exercise of an
Option. If any such deferral election is required or permitted, the Committee
shall, in its sole discretion, establish rules and procedures for such payment
deferrals.
ARTICLE 9. RIGHTS OF EMPLOYEES
9.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company.
9.2 PARTICIPATION. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected to
receive a future Award.
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ARTICLE 10. CHANGE IN CONTROL
10.1 TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges, any and all Options granted hereunder shall become
immediately exercisable, and shall remain exercisable throughout their entire
term.
10.2 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL
PROVISIONS. Notwithstanding any other provision of this Plan or any Award
Agreement provision, the provisions of this Article 10 may not be terminated,
amended, or modified on or after the date of a Change in Control to affect
adversely any Award theretofore granted under the Plan without the prior written
consent of the Participant with respect to said Participant's outstanding
Awards.
ARTICLE 11. AMENDMENT, MODIFICATION, AND TERMINATION
11.1 AMENDMENT, MODIFICATION, AND TERMINATION. Subject to Section 10.2
herein, the Board may at any time and from time to time, alter, amend, suspend
or terminate the Plan in whole or in part; provided, however, that no amendment
which requires shareholder approval in order for the Plan to continue to comply
with Rule 16b-3 under the Exchange Act, including any successor to such Rule,
shall be effective unless such amendment shall be approved by the requisite vote
of shareholders of the Company entitled to vote thereon.
The Committee shall not have the authority to cancel outstanding Awards and
issue substitute Awards in replacement thereof.
11.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation the events described in
Section 4.3 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan.
11.3 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification
of the Plan shall adversely affect in any material way any Award previously
granted under the Plan, without the written consent of the Participant holding
such Award.
ARTICLE 12. WITHHOLDING
12.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan.
12.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options, Participants may elect, subject to the approval of the
Committee, to satisfy the withholding requirement, in whole or in part, by
having the Company withhold Shares having a Fair Market Value on the date the
tax is to be determined equal to the minimum statutory total tax which could be
withheld on the transaction. All such elections shall be irrevocable, made in
writing, signed by the Participant, and shall be subject to any restrictions or
limitations that the Committee, in its sole discretion, deems appropriate.
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ARTICLE 13. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit, or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof,
with the Company's approval, or paid by him or her in satisfaction of any
judgment in any such action, suit, or proceeding against him or her provided he
or she shall give the Company an opportunity, at its own expense, to handle and
defend the same before he or she undertakes to handle and defend it on his or
her own behalf. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such persons may be entitled under
the Company's Articles of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
ARTICLE 14. SUCCESSORS
All obligations of the Company under the Plan with respect to Awards granted
hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase, of
all or substantially all of the business and/or assets of the Company, or a
merger, consolidation, or otherwise.
ARTICLE 15. MISCELLANEOUS PROVISIONS
15.1 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
15.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
15.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
15.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. To the extent any provision of
the plan or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.
15.5 GOVERNING LAW. To the extent not preempted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and governed
by the laws of the state of South Dakota.
15.6 UNFUNDED STATUS OF THE PLAN. The Plan is intended to constitute an
"unfunded" Plan. With respect to any payments or deliveries of Shares not yet
made to a Participant by the Company, nothing contained herein shall give any
rights that are greater than those of a general creditor of the Company.
15.7 PURCHASE FOR INVESTMENT. The Committee may require each Participant
purchasing or receiving Shares pursuant to an Option to represent to and agree
with the Company in writing that such person is acquiring the Shares for
investment and without a view to distribution or resale.
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