SCHEDULE 14A PRIVATE
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.)
Filed by 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 Rule 240.14a-11(c) or Rule 240.14a-12
The Montana Power Company
(Name of Registrant as Specified in Its Charter)
Payment of filing fee (Check the appropriate box):
_ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
Previously paid.
___ $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
___ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction: N/A
___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.
N/A = NOT APPLICABLE
(1) Amount previously paid:
____________________________________________________________
(2) Form, schedule or registration statement no.:
____________________________________________________________
(3) Filing party:
____________________________________________________________
(4) Date filed:
___________________________________________________________
March 27, 1997
To Our Shareholders:
You are cordially invited to attend The Montana Power Company Annual
Meeting of Shareholders. The meeting will be held at the Civic Center,
1340 Harrison Avenue, Butte, Montana, on Tuesday, May 13, 1997, at 10:00 a.m.
At this meeting, you will be asked to elect five Directors to the Board
of Directors.
We hope that you will be able to attend the meeting. To make certain
your vote is counted, please sign and date the enclosed proxy card and return
it in the envelope provided. No postage is required. Sending in your proxy
at this time will not affect your right to vote in person, should you be
present at the meeting.
We look forward to seeing you on May 13. Thank you for your continued
confidence and support.
Sincerely,
Daniel T. Berube
Chairman of the Board of Director
THE MONTANA POWER COMPANY
_____________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
40 East Broadway
Butte, Montana 59701-9394
March 27, 1997
To the Shareholders of
THE MONTANA POWER COMPANY
You are invited to attend The Montana Power Company Annual Shareholders'
Meeting which will be held at the Civic Center, 1340 Harrison Avenue, Butte,
Montana, on Tuesday, May 13, 1997, at 10:00 a.m. for the following purposes:
1. To elect five Directors for a term of three years; and
2. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on
March 6, 1997, as the record date for the determination of shareholders
entitled to vote at this meeting.
Your attention is directed to the Proxy Statement and Proxy enclosed
herewith.
By Order of the Board of Directors
Pamela K. Merrell
Vice President and Secretary
THE INTEREST AND COOPERATION OF ALL SHAREHOLDERS IN THE AFFAIRS OF THE
MONTANA POWER COMPANY ARE CONSIDERED TO BE OF THE GREATEST IMPORTANCE BY
YOUR COMPANY'S BOARD OF DIRECTORS. IF YOU DO NOT EXPECT TO ATTEND THE
ANNUAL MEETING, IT IS URGENTLY REQUESTED THAT YOU PROMPTLY MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED HEREWITH. IF YOU DO
SO NOW, THE COMPANY WILL BE SAVED THE EXPENSE OF FOLLOW-UP SOLICITATIONS.
THE MONTANA POWER COMPANY
40 EAST BROADWAY, BUTTE, MONTANA 59701-9394
March 27, 1997
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of The
Montana Power Company, a Montana corporation, for use at the Shareholders'
Annual Meeting on May 13, 1997, or at any adjournment thereof.
This proxy statement and the accompanying proxy were mailed on or
about March 27, 1997.
VOTING SECURITIES AND PRINCIPAL HOLDERS:
The outstanding voting securities of the Company on March 6, 1997
(record date) were:
(a) 54,634,994 shares of no par value Common Stock.
(b) 580,389 shares of no par value Preferred Stock, $6.00 Series,
$4.20 Series, and $6.875 Series.
Generally, shareholders will vote as a single class and are entitled
to one vote for each share held of Common Stock and Preferred Stock. With
respect to the election of Directors, each shareholder is entitled to one
vote for each share of Common Stock and Preferred Stock held, multiplied by
the number of Directors to be elected, and may cast all such votes for a
single director or may distribute such votes among the directors (cumulative
voting); and may cast all votes in person or by proxy. If a quorum is
present, nominees for Directors will be elected by a plurality of the votes
cast by the shares entitled to vote at the meeting (shareholders at record
date). You may withhold your vote from any nominee for Director by writing
his or her name in the appropriate space on the proxy card. Where proxies
are marked "withhold authority," these shares are included to determine the
number of shares present and voting. Abstentions and Broker non-votes are
counted in determining the presence of a quorum, but will not be counted and
have no effect on the results of any vote. If you return a signed proxy
card that does not indicate your voting preferences, your shares will be
voted for the election of the nominated Directors (cumulatively or
otherwise).
A shareholder giving a proxy has the power to revoke it at any time
before it is exercised. A proxy may be revoked by filing with the Secretary
of the Company a revoking instrument or a duly executed proxy bearing a
later date. If you return a signed proxy card and later elect to vote in
person at the meeting, the proxy will be suspended.
Only shareholders of record at the close of business on March 6, 1997
are entitled to vote at the meeting.
If you do not expect to be present at the meeting, kindly mark, sign
and date the accompanying proxy and return it promptly in the enclosed
envelope so that your shares are represented at the meeting.
ITEM 1. ELECTION OF DIRECTORS
The Board of Directors, on August 27, 1996, amended the By-laws to
reduce the number of Directors from sixteen to fifteen.
Five Directors will be elected at the meeting for terms of three years
or until the election and qualification of their respective successors. The
five nominees for election are, at present, members of the Board of
Directors.
The names and certain information with respect to the nominees and the
ten other Directors whose terms do not expire this year are as follows:
NOMINEES FOR ELECTION FOR TERMS OF THREE YEARS EXPIRING IN 2000
Kay Foster - Ms. Foster, 55, a Director of the Company since
January 1, 1992. She has been the owner of Planteriors Unlimited, Billings,
MT, an interior foliage plant sales and maintenance business, since December
1980.
Chase T. Hibbard - Mr. Hibbard, 48, a Director of the Company since
October 1, 1993. He has been a Montana State Representative since January
1, 1993, President of the Sieben Live Stock Co., MT, a sheep and cattle
ranch, since January 1981 and President of Hibbard Management Company,
Helena, MT, which provides consulting services to agriculture, since January
1984.
Daniel P. Lambros - Mr. Lambros, 65, a Director of the Company since
November 24, 1987. He has been President of Lambros Realty, Missoula, MT, a
real estate firm, since August 1961.
Carl Lehrkind, III - Mr. Lehrkind, 58, a Director of the Company since
July 1, 1984. He has been President of Lehrkind's, Inc., Bozeman, MT, a
beverage bottler and distributor, since February 1970, and President, Owner
and Operator of Yellowstone Country Food and Beverage, restaurant businesses
in Livingston and Miles City, MT, since February 1993.
Jerrold P. Pederson - Mr. Pederson, 54, a Director of the
Company since July 1, 1993. On May 14, 1996, he was elected Vice President,
Chief Financial and Information Officer. He was Vice President and Chief
Financial Officer of the Company from May 14, 1991 to May 14, 1996, and was
Vice President of Corporate Finance and Controller from June 1, 1990 to May
14, 1991.
DIRECTORS TO CONTINUE IN OFFICE WITH TERMS EXPIRING IN 1999
Tucker Hart Adams - Dr. Adams, 58, a Director of the Company since
September 1, 1995. In January 1989, she became President and Chief
Executive Officer of The Adams Group Inc., a consulting firm which
specializes in economic research, analysis and forecasting. She publishes
the newsletter, Today's Economy. Dr. Adams is also a Director of Guarantee
National Corporation, an insurance company, a Director for ROC Communities,
a real estate investment trust, and a trustee for the Tax Free Fund of
Colorado, and for the Aquila Rocky Mountain Equity Fund. She is a resident
of Colorado Springs, Colorado.
Daniel T. Berube - Mr. Berube, 63, a Director of the Company since
January 1, 1992. He has been Chief Executive Officer of the Company since
January 1, 1992 and Chairman of the Board since July 1, 1992.
Alan F. Cain - Mr. Cain, 57, a Director of the Company since
March 28, 1989. He has been President and Chief Executive Officer of Blue
Cross Blue Shield of Montana, Helena, MT, a health service corporation,
since March 1986.
Robert P. Gannon - Mr. Gannon, 52, a Director of the Company since
January 1, 1990. On January 23, 1996, he was elected Vice Chairman of the
Board and President of the Company. He was President and Chief Operating
Officer responsible for utility operations from June 23, 1992 to
January 23, 1996, and served as President from January 1, 1990 to
January 23, 1996. Mr. Gannon also has been a Director of Buttrey Food and
Drug Stores Company, a food and drug retailer, since May 1992.
James P. Lucas - Mr. Lucas, 69, a Director of the Company since
March 1, 1982. He has been President of and Senior Attorney in Lucas and
Monaghan, P.C., a law firm, Miles City, MT, since January 1977.
DIRECTORS TO CONTINUE IN OFFICE WITH TERMS EXPIRING IN 1998
R. D. Corette - Mr. Corette, 56, a Director of the Company since
July 1, 1990. He has been an Attorney, owner, and employee in the law firm
of Corette, Pohlman, and Kebe, Butte, MT, since 1966.
Beverly D. Harris - Ms. Harris, 63, a Director of the Company since
December 1, 1992. She has been President since January 1971 and Director
since January 1972 of Empire Federal Savings Bank, Livingston, MT.
John R. Jester - Mr. Jester, 56, a Director of the Company since
September 1, 1995. He has been President of Muzak Limited Partnership, a
telecommunications based business, since January 1, 1988. He is a resident
of Seattle, Washington.
Arthur K. Neill - Mr. Neill, 59, a Director of the Company since
January 1, 1990. On May 14, 1996, he was elected Executive Vice President -
Utility Energy Supply. He was Executive Vice President - Generation and
Transmission from January 1, 1994 to May 14, 1996 and was Executive Vice
President - Utility Services of the Company from January 1987 to January
1994.
Noble E. Vosburg - Mr. Vosburg, 55, a Director of the Company since
October 25, 1988. He has been President and Chief Executive Officer of
Pacific Steel & Recycling, Great Falls, MT, a steel service center and
recycling business, since May 1982.
SECURITY OWNERSHIP OF MANAGEMENT
The table below and information following provides the number of
shares beneficially owned on February 17, 1997, by each of the directors and
each of the named executive officers in the Summary Compensation Table and
all of the directors and all executive officers as a group. The shares
beneficially owned by any director or named executive officer, or by all
directors and executive officers as a group, do not exceed one percent of
the Common and Preferred shares outstanding.
Number of Shares Beneficially Owned
Deferred
Name of Owner Common Units(10) Preferred Total
Tucker Hart Adams 43 221 0 264
Daniel T. Berube 65,074 (1) (8) 0 0 65,074
Alan F. Cain 855 (2) 232 0 1,087
R. D. Corette 2,507 (3) 232 1 (3) 2,740
Richard F. Cromer 30,810 (1) (4) (8) 0 250 (4) 31,060
Kay Foster 1,437 231 0 1,668
Robert P. Gannon 39,322 (1) (8) 0 0 39,322
J. D. Haffey 20,141 (1) (8) 0 0 20,141
Beverly D. Harris 3,484 0 0 3,484
Chase T. Hibbard 2,117 (5) 0 0 2,117
John R. Jester 1,500 885 0 2,385
Daniel P. Lambros 1,039 232 0 1,271
Carl Lehrkind, III 4,107 (6) 0 0 4,107
James P. Lucas 1,708 0 0 1,708
Arthur K. Neill 32,901 (1) (8) 0 0 32,901
Jerrold P. Pederson 26,869 (1) (8) 0 0 26,869
Noble E. Vosburg 1,401 (7) 0 0 1,401
All Directors and
Executive Officers
as a group (29 in
number) 392,759 (9) 2,033 288 395,080
(1) Includes shares in the Retirement Savings Plan (401-K) attributable to
the Company's and the employee's contributions as follows: Mr. Berube
- - 9,906 shares, Mr. Cromer - 5,163 shares, Mr. Gannon - 6,988 shares,
Mr. Haffey - 5,612 shares, Mr. Neill - 5,803 shares, and Mr. Pederson -
6,569 shares.
(2) Includes 10 shares owned by Mr. Cain's spouse of which Mr. Cain
disclaims beneficial ownership.
(3) Includes 77 shares of Common Stock and 1 share of the $6.00 Series
Preferred Stock owned by the estate of Mr. Corette's deceased father of
which estate Mr. Corette is Personal Representative. Mr. Corette
disclaims beneficial ownership. Also included are 200 shares owned by
Mr. Corette's mother of which Mr. Corette is Conservator and disclaims
beneficial ownership.
(4) Includes 1,197 shares held by Mr. Cromer's spouse of which he disclaims
beneficial ownership; and 71 shares held in a custodian account for his
granddaughter of which Mr. Cromer is the custodian and with respect to
which he has voting and investment power; and 250 units of the
quarterly income preferred stock, series A issued by Montana Power
Capital I, a subsidiary of The Montana Power Company, which units do
not have voting rights with respect to The Montana Power Company.
(5) Includes 1,200 shares held by Margaret Sieben Hibbard Trust of which
Mr. Hibbard has one-third beneficial ownership; and 100 shares for his
son of which Mr. Hibbard's spouse is the custodian. Mr. Hibbard has
neither voting nor investment power.
(6) Includes 600 shares of Common Stock held by the Trustee for Lehrkind's,
Inc. Profit Sharing Plan #2 of which Mr. Lehrkind is a beneficiary and
with respect to which he has shared voting and investment power; and
2,731 shares of Common Stock held by Lehrkind's Inc., with respect to
which he has shared voting and investment power.
(7) Includes 134 shares held by Mr. Vosburg's spouse of which Mr. Vosburg
disclaims beneficial ownership.
(8) Includes option shares exercisable within 60 days in the following
amounts: 49,667 for Mr. Berube, 20,733 for Mr. Cromer, 32,334 for Mr.
Gannon, 11,567 for Mr. Haffey, 26,534 for Mr. Neill and 19,300 for Mr.
Pederson.
(9) Includes 83,378 shares held for executive officers in the Retirement
Savings Plan (401-K) described on page 8, 252,732 option shares
exercisable within 60 days, and 13,054 shares of restricted stock.
(10) This column represents deferred stock units held in the Non-Employee
Directors' Stock Compensation Plan which is described on page 6. The
holders of these units have no voting or investment power.
MEETINGS AND STANDING COMMITTEES OF THE BOARD OF DIRECTORS
There were ten Board of Directors meetings in 1996. Each Director
attended at least 86 percent or more of the aggregate of the Board and
Committee meetings of which he or she was a member.
AUDIT COMMITTEE
The Audit Committee is composed of Directors Vosburg (Chairman),
Adams, Harris, Hibbard, Jester, and Lucas, none of whom are employees of the
Company. The Audit Committee met four times during 1996. The duties of the
Audit Committee include recommending to the Board of Directors a firm of
independent certified public accountants to audit the books and records of
the Company, reviewing the audit with the independent accounting firm and
recommending its approval to the Board of Directors. The Committee also
reviews and approves major accounting policies, reviews the adequacy of
principal internal controls, reviews the adequacy of disclosure of
information essential to a fair presentation of the financial affairs of the
Company, and provides an avenue of communications between the Board of
Directors and accounting and financial personnel, both external and
internal. The Committee also reviews the scope and content of the Company's
Code of Business Conduct, and considers any significant irregularities or
exceptions reported to it.
PERSONNEL COMMITTEE
The Personnel Committee is composed of Directors Lucas (Chairman),
Corette, Hibbard, Jester, Lehrkind, and Vosburg, all of whom are non-
employee Directors. The Personnel Committee met eight times during 1996.
The duties of the Personnel Committee include recommending to the Board of
Directors a slate of Officers for election for the ensuing year, the
administration of all employee retirement and welfare plans and programs,
and the compensation of Officers of the Company. The Personnel Committee's
report on Executive Compensation begins on page 6.
NOMINATING COMMITTEE
The Committee on Directors' Affairs, which serves as a Nominating
Committee, is composed of non-employee Directors Lambros (Chairman), Adams,
Cain, Corette, Foster, and Harris, and Director Berube, the Company's Chief
Executive Officer and Chairman of the Board. The Committee on Directors'
Affairs met six times during 1996. The purpose of the Committee is to
recommend to the Board of Directors persons to be elected to the Board when
vacancies exist or when any additions to the Board may be authorized. The
Committee will consider as potential nominees persons recommended by
shareholders. Recommendations should be submitted to the Committee in care
of the Secretary of the Company. This Committee is also responsible for
evaluating the performance of the Board and for other corporate governance
matters.
The Board of Directors also has an Executive Committee, a Contributions
Committee, a Public Policy Committee, a Finance Committee and a Special
Committee on Mergers and Acquisitions.
NON-EMPLOYEE DIRECTOR COMPENSATION
Non-employee Directors of the Company are paid an annual retainer fee
of $19,600 per year plus $500 for each meeting of a Committee of the Board
attended, except those held in conjunction with regular Board meetings.
They also receive $850 for attending each special meeting of the Board held
in addition to the regularly scheduled Board meeting.
Effective for 1997, the Board has approved and implemented a Non-
Employee Directors' Stock Compensation Plan. The Plan provides that: (a) at
least one-quarter of the directors' annual retainer fees shall be paid in
the Company's Common Stock; (b) a director may elect to receive a greater
portion of the annual retainer fee in the Company's Common Stock; and (c) a
director may elect to defer receipt of the stock payment until he or she
ceases to be a Director of the Company or until such other date the director
elects. Deferred Stock payments will be credited as stock units to a
separate deferred compensation account. At the end of the deferral period,
the director will be paid for the stock units in stock or the equivalent
value in cash based on the market value of the Company's Common Stock at
that time.
The Company's Deferred Compensation Plan for non-employee Directors
permits such directors to defer their compensation until their retirement
from the Board of Directors. During 1996, Mr. Vosburg deferred $10,971 and
Mr. Lambros deferred $20,442. The deferred compensation earns interest at
the rate determined by the Company based on Moody's Average Baa Corporate
Bond rates. In addition, Directors are eligible to participate in the
Non-Qualified Benefit Restoration Plan described on page 14.
PERSONNEL COMMITTEE REPORT ON EXECUTIVE COMPENSATION
INTRODUCTION
In accordance with Securities and Exchange Commission (SEC) rules, the
Company provides certain information concerning compensation of the Company's
Chairman and Chief Executive Officer and its four other most highly compensated
officers (named executive officers). This information includes the tables set
forth herein and this report of the Personnel Committee of the Board of
Directors which explains the rationale and considerations that led to the
reported compensation.
The Personnel Committee makes recommendations to the Board of Directors
concerning the salaries of officers and oversees other forms of compensation
and benefits to officers, as well as to the employees of the Company generally.
The Personnel Committee was in 1996 and is now comprised solely of non-employee
directors.
COMPENSATION PHILOSOPHY
The compensation philosophy for executive officers conforms to the
compensation philosophy of the Company. The Company endeavors to:
- - provide compensation comparable to that offered by companies with similar
businesses, allowing the Company to successfully attract and retain the
employees necessary to its long-term success;
- - provide compensation which is based upon the performance of the
individual;
- - provide an appropriate linkage between compensation and the creation of
shareholder value through awards tied to the Company's performance and
through facilitating employee stock ownership; and
- - provide internal equity among employees.
EXECUTIVE OFFICERS' COMPENSATION
BASE SALARIES
In 1996, competitive information concerning the base salaries of the
Company's officers was gathered. All of the named executive officers were
included in the group for which the information was gathered. The Edison
Electric Institute (EEI) compensation survey was used as the primary data base
for base salary comparisons, as it has been for several years. The EEI survey
data of 98 electric utilities was adjusted for company revenue size using
regression analysis. Many of the companies in the Peer Group shown in the
Performance Graph, the Standard and Poor's 26 Electric Company Index, are
included in this EEI data base. Other survey data, including private Towers
Perrin surveys, were also used in a few instances where the EEI survey did not
have adequate position comparisons. Comparisons for each position were made to
the median compensation for the EEI revenue adjusted data base, and to the
other surveys where necessary. The methodology for determining market base
salaries was consistent with the methodology used in a 1994 comprehensive
compensation study conducted under the auspices of the Personnel Committee by
the consulting firm, Towers Perrin.
Based upon the results of the base salary surveys, as well as
consideration of other subjective factors, such as the performance of the
individual officer, an assessment of the officer's value to the Company,
changes in positions and responsibilities, internal equity among officers and
employees, and the Company's 1995 performance, the Committee adjusted some base
salaries to bring them closer to competitive levels. However, even the
adjusted base salaries remain at or below median base salary levels in the
surveys.
INCENTIVE COMPENSATION
In addition to adjusting salaries in 1996, the Committee continued its
program of awarding long-term incentive opportunities. The Committee made the
awards based upon its belief that compensation should include an incentive
component which objectively relates compensation to Company performance. It is
also consistent with the Committee compensation philosophy of linking
compensation and the creation of shareholder value, and providing compensation
comparable to that offered by similar companies.
The Committee awarded options under the Long-Term Incentive Plan and the
right to receive the equivalent, in cash, of the dividends on the options.
These awards made in 1996 were very similar to those made in 1994 and 1995.
The dividend equivalent awards are subject to the achievement of certain
performance criteria over the three years from January 1, 1996 to December 31,
1998. The amount of the awards for each officer was determined by comparison
of the value of the awards to total compensation market information provided by
Towers Perrin, using the same market surveys described above under Base
Salaries, with the goal of bringing the total compensation opportunity closer
to the median for the survey groups. The options were granted at the Fair
Market Value on the date of grant. One-third of the options are exercisable
after March 10, 1997, one-third after December 31, 1997 and one-third after
December 31, 1998; all have an exercise period of ten years from the date of
grant. The dividend equivalent performance criteria for all officers is a
comparison of the performance of the Company to the same Peer Group used in the
performance graph in this Proxy Statement--the Standard and Poor's 26 Electric
Company Index. In order to receive maximum payout (125%) of the dividend
equivalent opportunity, the Company's total shareholder return (TSR) for the
years 1996 through 1998 must be in at least the 90th percentile of the TSR for
the Standard and Poor's 26 Electric Companies. Payout decreases
proportionately with the Company's decrease in TSR performance and no payout
will be made if the Company's TSR is less than the 50th percentile of the Index
companies. Payout of any of the dividend equivalents will not be determined or
made until after the 1996-1998 period is over and the Committee determines the
extent to which the goals have been achieved. Because the first dividend
equivalent awards were made in 1994, no payouts were possible until 1997 and,
thus, there were no payouts in 1996.
The option grants to the named executive officers are shown on the Option
Grant Table on page 11, and the dividend equivalent awards are shown on the
Long-Term Incentive Plan Table on page 12.
CHIEF EXECUTIVE OFFICER COMPENSATION
BASE SALARY
The base salary of the Chief Executive Officer (CEO) was also the subject
of the base salary analysis which showed that his base salary continued to be
below the median in the salary surveys. However, the Committee did not
increase his base salary in 1996, deferring to the recommendation of the CEO
that, given the Company's performance in 1995, it was not appropriate to
increase his salary.
INCENTIVE COMPENSATION
Mr. Berube, however, was given an award of options and the right to
receive the equivalent of dividends on the options if the TSR performance
measure is achieved over the three years - 1996 through 1998. The purpose
of the award was the same as described above for the officers generally: to
tie his compensation more closely and objectively to the creation of
shareholder value and to provide compensation comparable to that offered by
similar companies. The amount of his award was determined based upon the
goal of bringing his total compensation closer to total compensation as
determined in the 1996 Towers Perrin market survey.
LONG-TERM INCENTIVE PLAN
The Long-Term Incentive Plan approved by the shareholders in May 1992 is
intended to reward employees who make important contributions to the continued
growth, development and financial success of the Company, or its subsidiaries,
and, thereby, to attract and retain such employees. It is the vehicle used for
making the awards.
The Plan also includes stock options granted under a prior plan which were
outstanding at the time the Plan became effective. Grants of options under
that prior Plan were made to executive officers and other key employees at 100%
of the closing price on the New York Stock Exchange Composite Transactions at
the date of grant and the options could not be exercised for two years from the
date of grant.
BENEFITS ENCOURAGING OWNERSHIP OF COMPANY STOCK
The executive officers also receive other benefits which are designed to
facilitate stock ownership and which are available to all employees. The
Montana Power Company's Retirement Savings Plan (401-K) is available to all
regular employees of the Company including officers. The Company's match
(between 60% and 70% of the employee's contribution) is in the form of the
Company's Common stock. Thus, all participating employees, including executive
officers, are beneficial owners of the Company's Common Stock.
The Company also facilitates employee stock ownership through its
Dividend Reinvestment and Stock Purchase Plan, which enables employees,
including executive officers, to purchase the Company's Common Stock at market
prices regularly through payroll deductions.
Personnel Committee
J. P. Lucas, Chairman R. D. Corette
C. T. Hibbard J. R. Jester
C. Lehrkind, III N. E. Vosburg
PERFORMANCE GRAPH
The following performance graph shows the five-year cumulative total
return for the Company, the Standard & Poor's 500 and a group of utilities
which comprise the Standard & Poor's 26 Electric Power Company Index:
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG MONTANA POWER COMPANY (MTP), THE S & P ELECTRIC CO. INDEX AND
THE S & P 500 INDEX
Indexed\Cumulative Returns
Base
Period Return Return Return Return Return
Company\Index 1991 1992 1993 1994 1995 1996
- ------------------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
MONTANA POWER CO 100 99.12 102.57 97.90 103.26 104.96
ELECTRIC COMPANIES - 500 100 105.88 119.23 103.65 135.87 135.65
S&P 500 INDEX 100 107.62 118.46 120.03 165.13 203.05
*$100 INVESTED ON 12/31/91 IN STOCK OR INDEX, INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
</TABLE>
SUMMARY COMPENSATION TABLE
The following table shows compensation paid by the Company for services
rendered during the fiscal years 1996, 1995 and 1994 for named executive
officers.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Other Securities
Annual Under- All Other
Name and Compen- Lying Compen-
Principal Year Salary sation(2) Options sation(3)
Position ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
D. T. Berube 1996 333,000(1) 16,010 31,000 6,650
CEO & Chairman of 1995 322,500 26,800 6,468
the Board 1994 305,100 26,800 6,300
R. P. Gannon
Vice Chairman 1996 265,935 10,385 21,000 6,650
of the Board 1995 249,800 7,385 16,700 6,468
& President 1994 237,800 16,700 6,247
R. F. Cromer
Executive VP 1996 180,500 7,062 14,000 6,650
& COO - Energy 1995 169,700 9,700 6,468
Supply Division 1994 152,000 9,700 6,219
A. K. Neill
Executive VP - 1996 173,000 10,000 6,650
Utility Energy 1995 165,300 8,300 6,468
Supply 1994 156,800 8,300 6,300
J. D. Haffey
Executive VP
& COO - Energy & 1996 172,440 20,538 14,000 6,650
Communications 1995 134,550 8,094 5,500 6,104
Services Division 1994 121,901 5,500 5,120
</TABLE>
_________________
(1)Although this figure is greater than the 1995 salary, Mr. Berube's
salary was not increased in 1996. The figure is greater because officers'
salaries are adjusted mid-year.
(2)This column represents compensation received for selling unused
vacation time back to the Company which is available to all employees. The
amounts may include vacation accrued in prior years.
(3)This column represents the value of the Company's matching contribution
of stock made under the Company's Retirement Savings Plan (401-K).
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information with respect to the named
executive officers, concerning individual grants of stock options at fiscal
year-end.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
Number of Percent of
Securities Total Options
Underlying Granted to Grant Date
Options Employees in Exercise of Expiration Present
Name Granted(1) Fiscal Year Base Price(2) Date Value(3)
(#) (%) ($/SH) ($)
<S> <C> <C> <C> <C> <C>
D. T. Berube 31,000 18.8 21.625 09-09-2006 26,660(4)
R. P. Gannon 21,000 12.8 21.625 09-09-2006 40,530
R. F. Cromer 14,000 8.5 21.625 09-09-2006 27,020
A. K. Neill 10,000 6.1 21.625 09-09-2006 19,300
J. D. Haffey 14,000 8.5 21.625 09-09-2006 27,020
</TABLE>
(1)The options granted will be exercisable as follows: one-third beginning
on March 10, 1997, one-third beginning on January 1, 1998 and one-third
beginning on January 1, 1999, and thereafter during a period of ten years from
the date of grant.
(2)The Exercise price was based on the average of the high and low prices as
reported in the Wall Street Journal as New York Stock Exchange Composite
Transaction (fair market value) on date of grant, September 9, 1996.
(3)The Binomial option pricing model was used to determine the present
value of the options granted. The assumptions used in the Binomial equation
to determine the present value are as follows: market price of stock -
$21.625; exercise price of option - $21.625; stock volatility - 10.46%;
annualized risk free interest rate - 7.05%; 10-year option term; a stock
dividend yield of 6.83%, and a $1.93 per option binomial value.
(4)Mr. Berube's present value was calculated by taking into consideration
that his retirement will occur approximately fifteen (15) months from the
date of grant, and that the option exercise must occur within three months
of his retirement. The same assumptions for this shorter exercise period
were used except that 6.07% was used for the risk free interest rate, and a
binomial option value of $.86 per option.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information with respect to the named
executive officers, concerning exercise of stock options at fiscal year-end.
<TABLE>
<CAPTION>
Number of
Securities
Underlying
Value Unexercised
Realized Options Value of Unexercised
(Market At Fiscal In-the-Money-Options at
Shares Price at Year-End Fiscal Year-End
Acquired Exercise (#) ($21.375(2)) ($)
on Less Exercise Exercisable/ Exercisable/
Name Exercise(#) Price(1))($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
D. T. Berube 0 0 31,800/57,800 0/0
R. P. Gannon 0 0 21,200/37,700 0/0
R. F. Cromer 350 678 14,266/23,700 2,974/0
A. K. Neill 0 0 21,000/18,300 21,969/0
J. D. Haffey 0 0 7,900/19,500 0/0
</TABLE>
(1)Based on the closing price as reported in The Wall Street Journal as
New York Stock Exchange - Composite Transactions, of the Company's Common
Stock on date of exercise.
(2)Based on the closing price as reported in The Wall Street Journal as
New York Stock Exchange - Composite Transactions, of the Company's Common
Stock on December 31, 1996.
LONG TERM INCENTIVE PLAN ("LTIP") - AWARDS IN LAST FISCAL YEAR
The following table provides information with respect to the named executive
officers, regarding each award made in the last completed fiscal year.
<TABLE>
<CAPTION>
Performance Estimated Future Payouts Under
or Other Non-Stock Price Based Plans(2)
Number of Period Until
Shares, Units Maturation Threshold Target Maximum
or Rights (1) or Payout $ $ $
Name (#)
<S> <C> <C> <C> <C> <C>
01/01/96
thru
D. T. Berube 31,000 12/31/97 44,640 99,200 124,000
01/01/96
thru
R. P. Gannon 21,000 12/31/98 45,360 100,800 126,000
01/01/96
thru
R. F. Cromer 14,000 12/31/98 30,240 67,200 84,000
01/01/96
thru
A. K. Neill 10,000 12/31/98 21,600 48,000 60,000
01/01/96
thru
J. D. Haffey 14,000 12/31/98 30,240 67,200 84,000
</TABLE>
(1)Dividend equivalents. The named executive officers were also awarded
the right to receive the equivalent, in cash, of the value of the dividends
on the number of options granted for the period January 1, 1996 through
December 31, 1998, to the extent that certain performance criteria are
achieved as described under Executive Officers Compensation in the Personnel
Committee Report on Executive Compensation, beginning on page 6.
(2)The dividend equivalent estimates for the named executive officers are
based upon the current $1.60 per share annual dividend. Mr. Berube's
estimated payout was prorated assuming that he will retire at year-end 1997.
<TABLE>
<CAPTION>
RETIREMENT BENEFITS
The table below illustrates the estimated annual benefits payable to
executives under the Company's Retirement Plan (a qualified defined benefit
plan) and under the Company's Benefit Restoration Plan for Senior Management
Executives (a non-qualified defined benefit plan).
The table shows the estimated annual benefits payable upon retirement
at age 65 based on the listed remuneration and years of service
classifications calculated upon accrued benefits to January 1997.
These benefits may be reduced if such persons retire before reaching
age 65. The amounts presented in the table are based upon single life
annuity calculations.
PENSION PLAN PLUS BENEFIT RESTORATION
Years of Service
<S> <C> <C> <C> <C> <C>
Remuneration 15 20 25 30 35
150,000 92,332 102,777 113,221 123,665 134,109
175,000 107,957 120,277 132,596 144,915 157,234
200,000 123,582 137,777 151,971 166,165 180,359
225,000 139,207 155,277 171,346 187,415 203,484
250,000 154,832 172,777 190,721 208,665 226,609
275,000 170,457 190,277 210,096 229,915 249,734
300,000 186,082 207,777 229,471 251,165 272,859
325,000 201,707 225,277 248,846 272,415 295,984
350,000 217,332 242,777 268,221 293,665 319,109
375,000 232,957 260,277 287,596 314,915 342,234
400,000 248,582 277,777 306,971 336,165 365,359
</TABLE>
QUALIFIED PENSION PLAN
The Retirement Plan (Plan) of the Company applies to all eligible
regular employees including officers. Benefits are computed for all
eligible employees by using the following formula: .95 of 1% of the highest
consecutive three year average annual base compensation within the last ten
years (Final Average Compensation) up to the appropriate Social Security
Integration Level, plus 1.5 of 1% of the Final Average Compensation in
excess of the Social Security Integration Level ($27,576 for a normal
retiree (age 65) in 1997) times the number of credited years of service up
to 35 years maximum. Remuneration covered by the Plan corresponds to that
reported in the Cash Compensation Column of the Annual Compensation Table,
less payments in lieu of vacation and payments made to the non-qualified
retirement plan. As of March 1, 1997, credited years of service under the
Plan are: 32 years for Mr. Berube, 29 years for Mr. Cromer, 22 years for
Mr. Gannon, 38 years for Mr. Neill, and 24 years for Mr. Haffey.
NON-QUALIFIED BENEFIT RESTORATION PLAN FOR SENIOR MANAGEMENT EXECUTIVES
Executive officers also participate in a non-qualified Benefit
Restoration Plan for executive officers and certain other key employees.
The named executive officers participate in the Plan. This Plan provides
for annual benefit payments upon retirement to the participant over the
participant's lifetime or, in the event of the participant's death, to the
participant's beneficiary for the remainder of a 15-year period commencing
on the date of the participant's retirement. This benefit is in addition to
the pension plan benefit.
Life insurance which is carried on Plan participants is owned by a
Rabbi trust. This life insurance helps fund the Plan. Participants in the
Plan contribute to the cost of life insurance carried by the Company. All
death proceeds are specifically directed to the Plan trust for the sole
purpose of paying for Plan benefits and premium costs.
NON-QUALIFIED BENEFIT RESTORATION PLAN FOR DIRECTORS
All Company Directors participated in a non-qualified retirement plan
(Benefit Restoration Plan for Directors). This Plan provides for annual
benefit payments to vested participants upon retirement. It is intended to
allow for supplemental income to the Director at the time of retirement or
to beneficiaries in the event of the Director's death. The duration of the
benefit payments will be over the lifetime of the participant or, in the
event of the participant's death, the participant's designated beneficiary
will be paid for the remainder of a 15-year period commencing on the date of
the participant's retirement. A schedule of Director's benefits is as
follows:
Years of Service Annual Benefit Years of Service Annual Benefit
1 $ 1,400 6 $ 9,400
2 $ 2,700 7 $11,400
3 $ 4,000 8 $13,400
4 $ 5,700 9 $15,800
5 $ 7,400 10 $18,500
EMPLOYMENT AGREEMENTS
The Company has entered into severance benefit agreements with the
named executive officers to provide benefits under certain circumstances
after a change of control of the Company if their employment is subsequently
terminated without cause by the Company or with good reason by the employee.
The initial term of the agreements runs through December 31, 1998, with the
potential of year by year extensions thereafter.
The agreements with the named executive officers provide that if, after
a change of control, the employee is terminated by the Company without
cause, or if the employee terminates his employment for good reason, the
employee is entitled to (i) a lump sum payment in the amount of
299.9 percent of the base amount of his compensation, (ii) calculation of
retirement benefits as if the employee had continued employment to Normal
Retirement Date (as defined in the Retirement Plan for Employees of The
Montana Power Company) subject to certain reductions and (iii) continued
participation in the Company's (or substantially equal substitute) life
insurance, health insurance, dental insurance and disability insurance plan
and other welfare benefit plans for a period of three years following
termination. In the event that any amounts paid to the named executive
officers under their agreements are subject to excise tax imposed under the
Internal Revenue Code of 1986, the Company shall pay an additional amount
(the "Gross-Up Payment") equal to the amount of any excise taxes and any
state or federal taxes on the Gross-Up Payment.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Blue Cross Blue Shield of Montana, a health service corporation of
which Alan F. Cain, a director of the Company, is CEO and President,
administers the Company's health plan for which it was paid $526,000 in
1996.
SECTION 16(A) COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and
Securities and Exchange Commission ("SEC") regulations, the Company's
directors, certain officers, and greater than 10 percent shareholders are
required to file reports of ownership and changes in ownership with the SEC
and the New York Stock Exchange and to furnish the Company with copies of
all reports they file.
To the Company's knowledge, based solely on review of copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1996, all
Section 16(a) filing requirements were complied with, except for two
reports. One report filed by Mr. Cromer was late. It reported the purchase
of 250 units of quarterly income preferred securities, series A, a series
issued through a subsidiary trust of the Company, Montana Power Capital I.
Because these securities are new and are not directly issued by the Company,
there was considerable uncertainty of the reporting obligations at the time
of the purchase. Additionally, in the initial report of Mr. Gatzemeier,
upon his becoming subject to the reporting requirements, 260 shares of
Common Stock owned by him were inadvertently not reported due to a clerical
error.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Price Waterhouse has been selected by the Board of Directors upon
recommendation of its Audit Committee as the independent accountants for the
Company and its subsidiaries for the year 1997.
A representative of Price Waterhouse will be present at the
shareholders' meeting to make a statement if he or she desires, and to
respond to questions. The same firm has audited the Company's accounts for
many years.
GENERAL
The cost of soliciting proxies will be borne by the Company.
Solicitation will be made by mail and may also be made by the Company's
Officers or other regular employees, personally or by telephone. Brokers
and other nominees will be requested to solicit proxies or authorizations
from beneficial owners.
The Company has selected Beacon Hill Partners, Inc. to assist in the
solicitation of proxies by personal interviews and telephone for a fee of
$4,000. The Company will also pay the customary broker or nominee charges
for forwarding proxy material to beneficial owners.
SUBMISSION OF SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at next year's
Annual Meeting, including nominations of Directors to be elected at such
meeting, must be received by the Office of the Secretary, The Montana Power
Company, 40 East Broadway, Butte, Montana 59701-9394, no later than November
28, 1997.
By Order of the Board of Directors
Pamela K. Merrell
Vice President and Secretary
MAP TO CIVIC CENTER
1340 Harrison Avenue, Butte, MT 59701
PREFERRED STOCK
In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting. This proxy when properly
executed will be voted in the manner directed herein by the undersigned
shareholder. If no specification is made, this proxy will be voted "FOR"
Item 1.
ACCOUNT NUMBER Dated _________________________, 1997
X ___________________________________
X ___________________________________
X ___________________________________
Signature(s) of Shareholder(s)
Please mark, date, sign and return this proxy in the accompanying envelope.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If stock is registered in joint tenancy,
all tenants must sign the proxy.
THE MONTANA POWER COMPANY - ANNUAL MEETING, MAY 13, 1997
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints D. T. Berube, R. P. Gannon and
P. K. Merrell, and each of them, with power of substitution, proxies to
represent, and to vote all stock of the undersigned at The Montana Power
Company Shareholders' Annual Meeting to be held in Butte, Montana, on
May 13, 1997 at 10:00 a.m., and at any and all adjournments thereof.
1. ELECTION OF DIRECTORS:
_ FOR all nominees listed below _ WITHHOLD AUTHORITY
(except as marked contrary below) to vote for all nominees
listed below
Foster, Hibbard, Lambros, Lehrkind, Pederson
INSTRUCTION: To withhold authority to vote for any nominee, write that
nominee's name here:
(Continue and to be filed in and signed on reverse side)
COMMON STOCK
In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting. This proxy when properly
executed will be voted in the manner directed herein by the undersigned
shareholder. If no specification is made, this proxy will be voted "FOR"
Item 1.
ACCOUNT NUMBER Dated _________________________, 1997
X ___________________________________
X ___________________________________
X ___________________________________
Signature(s) of Shareholder(s)
Please mark, date, sign and return this proxy in the accompanying envelope.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If stock is registered in joint tenancy,
all tenants must sign the proxy.
THE MONTANA POWER COMPANY - ANNUAL MEETING, MAY 13, 1997
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints D. T. Berube, R. P. Gannon and
P. K. Merrell, and each of them, with power of substitution, proxies to
represent, and to vote all stock of the undersigned at The Montana Power
Company Shareholders' Annual Meeting to be held in Butte, Montana, on
May 13, 1997 at 10:00 a.m., and at any and all adjournments thereof.
1. ELECTION OF DIRECTORS:
_ FOR all nominees listed below _ WITHHOLD AUTHORITY
(except as marked contrary below) to vote for all nominees
listed below
Foster, Hibbard, Lambros, Lehrkind, Pederson
INSTRUCTION: To withhold authority to vote for any nominee, write that
nominee's name here:
(Continued and to be filled in and signed on reverse side)
