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:
X Preliminary proxy statement ____ Confidential, for Use
of the Commission Only (as permitted by Rule 14a-6(e)(2)
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):
X No fee required.
___ 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 (Set forth the amount on which filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction: N/A
(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:
___________________________________________________________
March 26, 1998
To Our Shareholders:
You are cordially invited to attend The Montana Power Company Annual
Meeting of Shareholders. The meeting will be held at the MOTHER LODE
THEATRE, 316 W. PARK, BUTTE, MONTANA, on Tuesday, May 12, 1998, at 1:30
p.m.
At this meeting, you will be asked to elect five Directors to the
Board of Directors; and to adopt The Montana Power Company Long-Term
Incentive Plan.
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 12. Thank you for your
continued confidence and support.
Sincerely,
Robert P. Gannon
Chairman of the Board of
Director
THE MONTANA POWER COMPANY
_____________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
40 East Broadway
Butte, Montana 59701-9394
March 26, 1998
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 MOTHER LODE THEATRE, 316 W. PARK, BUTTE,
MONTANA, on Tuesday, May 12, 1998, at 1:30 p.m. for the following
purposes:
1. To elect five Directors for a term of three years;
2. To adopt The Montana Power Company Long-Term Incentive Plan;
and
3. 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, 1998, 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 26, 1998
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 12, 1998, or at any adjournment thereof.
This proxy statement and the accompanying proxy were mailed on or
about March 26, 1998.
VOTING SECURITIES AND PRINCIPAL HOLDERS:
The outstanding voting securities of the Company on March 6, 1998
(record date) were:
(a) ____________ 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); and the Item 2 proposal will be adopted by
a majority of votes cast provided that the total vote cast represents over
50% of all securities 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) and the Item 2 proposal.
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, 1998
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 December 9, 1997, amended the By-laws to
reduce the number of Directors from fourteen to thirteen, and effective
January 1, 1998 appointed John G. Connors as a Director.
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 2001
R. D. Corette - Mr. Corette, 57, a Director of the Company since
July 1, 1990. He has been an Attorney, owner, and employee in the law
firm of Corette, Pohlman & Kebe, Butte, MT, since 1966.
Beverly D. Harris - Ms. Harris, 64, 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, 57, a Director of the Company since
September 1, 1995. He has been President of Bargain Street LLC, a retail
firm since September 19, 1997 and was a private investor from June 1, 1997
to September 18, 1997. He was President of Muzak Limited Partnership, a
telecommunications based business, from January 1, 1988 to May 31, 1997.
He is a resident of Seattle, WA.
Arthur K. Neill - Mr. Neill, 60, 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, 56, 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.
DIRECTORS TO CONTINUE IN OFFICE WITH TERMS EXPIRING IN 2000
Kay Foster - Ms. Foster, 56, 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, 49, 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.
Carl Lehrkind, III - Mr. Lehrkind, 59, 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, a
restaurant, Livingston, MT and Miles City, MT, since February 1993.
Jerrold P. Pederson - Mr. Pederson, 55, 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.
DIRECTORS TO CONTINUE IN OFFICE WITH TERMS EXPIRING IN 1999
Tucker Hart Adams - Dr. Adams, 59, 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 trustee for the Tax
Free Fund of Colorado, and for the Aquila Rocky Mountain Equity Fund. She
is a resident of Colorado Springs, CO.
John G. Connors - Mr. Connors, 39, a Director of the Company since
January 1, 1998. He has been Vice President and Chief Information Officer
of Microsoft, a computer software business, since July 15, 1996. He was
Microsoft's Corporate Controller from April 4, 1994 to July 15, 1996 and
was General Manager Worldwide Finance from October 1, 1993 to April 1,
1994. He is a resident of Medina, WA.
Alan F. Cain - Mr. Cain, 58, 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, 53, a Director of the Company since
January 1, 1990, Chairman of the Board since January 1, 1998, Chief
Executive Officer since July 1, 1997 and President of the Company since
January 23, 1990. He was Vice Chairman of the Board from January 23,
1996 to December 31, 1997, and was Chief Operating Officer responsible for
utility operations from June 23, 1992 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.
SECURITY OWNERSHIP OF MANAGEMENT
The table below and information following provides the number of
shares beneficially owned on February 4, 1998, 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 43 714 0 757
Daniel T. Berube 25,824 (1) (8) 0 0 25,824
Alan F. Cain 900 (2) 880 0 1,780
John G. Connors 480 0 0 480
R. D. Corette 2,870 (3) 691 1 (3) 3,562
Richard F. Cromer 44,145 (1) (4) (8) 0 250 (4) 44,395
Kay Foster 1,854 724 0 2,578
Robert P. Gannon 59,711 (1) (8) 0 0 59,711
J. D. Haffey 32,228 (1) (8) 0 0 32,228
Beverly D. Harris 4,452 0 0 4,452
Chase T. Hibbard 2,763 (5) 0 0 2,763
John R. Jester 1,500 2,037 0 3,537
Carl Lehrkind, III 4,895 (6) 0 0 4,895
Arthur K. Neill 33,547 (1) (8) 0 0 33,547
Jerrold P. Pederson 37,073 (1) (8) 0 0 37,073
Noble E. Vosburg 1,466 (7) 635 0 2,101
All Directors and
Executive Officers
as a group (29 in
number) 423,983 (9) 5,681 280 429,944
(1) Includes shares in the Retirement Savings Plan (401-K) attributable to
the Company's and the employee's contributions as follows: Mr.
Berube - 9,974 shares, Mr. Cromer - 5,887 shares, Mr. Gannon - 7,811
shares, Mr. Haffey - 6,381 shares, Mr. Neill - 5,679 shares, and Mr.
Pederson - 7,406 shares.
(2) Includes 12 shares owned by Mr. Cain's spouse of which Mr. Cain
disclaims beneficial ownership.
(3) Includes 83 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 1,236 shares held by Mr. Cromer's spouse of which he
disclaims beneficial ownership; and 77 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 1, 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 2,922 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: 32,357 for Mr. Cromer, 51,900 for Mr. Gannon, 22,733 for
Mr. Haffey, 26,467 for Mr. Neill and 28,667 for Mr. Pederson.
(9) Includes 88,392 shares held for executive officers in the Retirement
Savings Plan (401-K) described on page ___, 278,934 option shares
exercisable within 60 days, and 5,249 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 __.
The holders of these units have no voting or investment power.
MEETINGS AND STANDING COMMITTEES OF THE BOARD OF DIRECTORS
There were nine Board of Directors meetings in 1997. Each Director
attended at least 75 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, and Jester, all of whom are non-employee
Directors. The Audit Committee met three times during 1997. 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, oversees the Company's trading and risk management controls
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 Lehrkind (Chairman),
Corette, Foster, Hibbard, Jester, and Vosburg, all of whom are non-
employee Directors. The Personnel Committee met seven times during 1997.
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 __.
NOMINATING COMMITTEE
The Committee on Directors' Affairs, which serves as a Nominating
Committee, all of whom are non-employee Directors Cain (Chairman), Adams,
Corette, and Harris. The Committee on Directors' Affairs met five times
during 1997. 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, an Environment and Safety Committee, a Finance
Committee and a Special Committee on Mergers and Acquisitions. Note that
as Mr. Connors had just become a director on January 1, 1998, his
committee assignments had not been made as of the printing of this proxy.
DIRECTOR COMPENSATION
Non-employee Directors of the Company are paid an annual retainer of
$19,600 per year plus $500 for each meeting of a Committee of the Board
attended on days other than regular Board meeting days. They also receive
$850 for attending each special meeting of the Board held in addition to
the regularly scheduled Board meeting. The Company also has a Deferred
Compensation Plan for non-employee Directors which permits directors to
defer their annual retainer until their retirement from the Board of
Directors. During 1997, Mr. Lambros deferred $17,200.00. The deferred
compensation earned interest at the rate determined by the Company based
on Moody's Average Baa Corporate Bond rates.
Effective December 31, 1997 the Board curtailed its non-qualified
retirement plan provided to all Company Directors (Benefit Restoration
Plan). That Plan provided for annual benefit payments to vested
participants upon retirement or to beneficiaries in the event of the
Director's death. The Plan provided benefits dependent upon the
director's years of service with a maximum annual benefit at ten years of
$19,600, the annual retainer amount. The annual benefit is payable 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 participants'
retirement.
The Board curtailed the Plan by closing it to any additional
participants, by freezing the benefits of participants such that no
additional service will be credited to any participants, and by capping
the maximum annual benefit so that there will be no further increases as
the annual retainer is increased.
In a move to more directly tie its compensation to shareholder value
and to provide a replacement for the compensation represented by the
retirement plan, the Board amended its non-employee director stock
compensation plan to provide for annual grants of 480 shares of Company
common stock. The 480 shares issued to the ten non-employee directors is
roughly equivalent in value to the levelized annual cost savings to the
Company created by the curtailment of the retirement benefit.
The stock compensation plan also allows a director to elect to
receive any portion of the annual retainer in the Company's common stock.
Directors may elect to defer receipt of the stock payment until they
cease to be a Director of the Company or until such other date the
Director elects. Deferred stock payments are 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 Company common
stock or the equivalent value in cash based upon the market value of the
Company's common stock at that time.
PERSONNEL COMMITTEE REPORT ON EXECUTIVE COMPENSATION
INTRODUCTION
The following is the Personnel Committee's report on the compensation of
the Company's Chief Executive Officer, the Company's retired Chief
Executive Officer and the four other most highly compensated officers of
the Company (named executive officers). The Personnel Committee is the
board committee responsible for overseeing compensation to officers. The
Committee was in 1997 and is now comprised solely of non-employee,
independent directors.
COMPENSATION PHILOSOPHY
The compensation philosophy for executive officers is to:
Provide compensation reasonably comparable with similar businesses
allowing the Company to successfully attract and retain the officers
necessary to its long-term success;
Provide a strong linkage between compensation and the creation of
shareholder value over the long-term;
Provide compensation which relates to the performance of the
individual officer; and
Provide internal equity among officers.
EXECUTIVE OFFICERS' COMPENSATION
Base Salaries
Competitive information concerning the base salaries (as well as total
compensation) of the Company's officers was gathered in 1997 for the
purpose of analyzing officer salaries. All of the named executive
officers were included in the group for which information was gathered.
The Edison Electric Institute (EEI) compensation survey was used as the
primary data source for base salary comparisons, as it has been for
several years. The EEI survey data of 85 electric utilities was used,
focusing on data from companies with similar revenue size. Many of the
companies in the Peer Group shown in the Performance Graph, the Standard &
Poor's 26 Electric Company Index, are included in this EEI database.
Other survey data were also used in instances where the EEI survey did not
have adequate position comparisons. Salaries of individual officers were
compared to salary averages in the survey for similar positions in
companies with comparable revenues.
Based upon the results of the base salary surveys comparisons 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 1996 performance, the Committee
adjusted base salaries to bring them closer to competitive levels.
However, salary levels for most officers, after adjustment, remained below
the average.
INCENTIVE COMPENSATION
1997 Interim Bonus Plan
In 1997 the Company engaged the consulting firm Stern Stewart & Co. to
help the Company implement an Economic Value Added (EVA? ) financial
measurement system. Simply described, EVA? is the additional value
created for shareholders after subtracting capital costs from net
operating profits after tax (NOPAT-capital charge).
An integral part of the EVA? system is an executive incentive compensation
plan. However, the EVA? plan could not be completed for implementation in
1997. Therefore, the Committee recommended and the Board approved an
interim bonus plan based upon 1997 performance. The interim plan was
necessary to assure that total compensation levels did not fall too far
below market compensation for retention purposes, to create incentives for
1997 performance and to end the historical incentive compensation plan
which was inconsistent with EVA? financial measures. Therefore, the Board
notified officers that they would be eligible for short-term bonuses for
1997 based upon the Board's subjective judgment concerning several
criteria: overall financial performance of the Company using EVA?
improvement, return on investment, earnings per share and other relevant
financial measures; for officers responsible for particular business
units, the financial performance of those business units using the same
measures as for the overall Company; and a determination of the particular
officer's performance. Amounts earned under this interim plan will not be
based upon a pre-established formula, but the criteria noted above will be
examined by the Committee and the Board to determine amounts earned for
each officer. The maximum bonus opportunity under this interim plan
ranged from 35% - 25% of base salary. The amounts earned for 1997 have
not been determined and approved by the Board in time to include those
amounts in this proxy statement. The total compensation for most company
officers, including the maximum interim bonus opportunity, is below total
compensation averages in the compensation surveys.
1998 Four Year EVA? Bonus Plan
While the EVA? based incentive plan referenced above was not adopted until
January 1998 and, thus, is not the subject of the report on 1997
compensation, the Committee is taking this opportunity to generally
describe the plan for shareholders since the Committee believes that the
plan is an important improvement in executive incentive compensation. The
EVA? plan is intended to tie compensation more closely to shareholder
value creation.
The EVA? plan creates cash bonus opportunities for executives and high
level managers based upon the Company's Expected Improvement in EVA?.
EVA? Expected Improvement is the improvement required for the Company's
investors to earn a cost of capital return on the market value of their
investment. EVA? Expected Improvement targets are determined through a
quantitative analysis of the Company's current operations value and
investor expectations for the future as reflected in the Company's stock
price. The Expected Improvement targets are established for each of the
four years, both for the overall company and for the various company
business units or "EVA? centers". Corporate officer bonuses are dependent
on the overall company EVA? improvement, and bonuses for officers and
managers in particular business units are dependent primarily on EVA?
improvement in their particular area of the Company. Target bonus levels
are established based upon averages of market survey data (largely using
the EEI compensation survey data and methodology described above for base
salary) for each plan participant. If the Company's EVA? improvement
precisely meets the target for the year, the participant will receive the
target level of bonus. If performance is less than the target, then less
of the bonus is earned. If performance is below a certain minimal level,
the bonus becomes negative. If performance is higher than the expected
improvement, then the bonus will be greater. However, two-thirds of any
bonus amount greater than target is placed in a bonus bank and is
available in future years, just as negative bonuses are placed in a bonus
bank which is a deduction from bonuses in future years.
The key objectives of the EVA? Incentive Plan are to align the
interests of the shareholder and managers of the Company, create strong
incentives for the Company's managers to maximize the Company's
shareholder value, retain the management team by providing attractive
compensation opportunities and limit shareholder cost to a reasonable
level.
Shareholders will hear more about this new incentive compensation plan in
coming years' proxy statements.
1994 DIVIDEND EQUIVALENT AWARDS - AMOUNTS PAID IN 1997
In 1994, as described in the 1995 Proxy Statement, Company officers were
awarded the opportunity to earn Dividend Equivalents to the extent certain
performance criteria were achieved over the three year period from 1994
through the end of 1996. In 1997, the Committee evaluated the extent to
which the performance criteria were achieved and determined the amounts
earned. The performance criteria to be achieved by officers responsible
for the overall corporation was a comparison of the Company's Total
Shareholder Return (TSR) to the TSR of the Peer Group used in the
performance graph in this Proxy Statement - the Standard & Poor's 26
Electric Power Company Index. For these corporate officers, in order to
achieve maximum payout, the Company's TSR had to be in at least the 90th
percentile of the TSR for the Peer Group. Payouts decreased
proportionately with the Company's decrease in TSR performance. Officers
responsible for the utility and independent power business had two
additional performance criteria, return on equity goals, and either a
utility rate competitiveness goal or a net income goal for the 1994-1996
time period. The Committee determined awards to be paid based upon these
criteria and the amounts awarded to the named executive officers are shown
in the Long-Term Compensation as LTIP payouts column of the Summary
Compensation Table, infra.
CHIEF EXECUTIVE OFFICER COMPENSATION
The base salary of the Chief Executive Officer (CEO), Robert P.
Gannon, was also the subject of the base salary analysis when he became
CEO in July of 1997. He replaced Daniel T. Berube who stepped down as CEO
effective June 30, 1997 and as Chairman of the Board, effective December
31, 1997. With respect to Mr. Gannon, the analysis showed that his base
salary was below the average in the salary surveys. Therefore, his salary
was increased to bring it closer to competitive levels for comparable CEO
positions. In December 1997, his salary was reviewed again based upon his
appointment as Chairman of the Board effective January 1, 1998 and
increased again to recognize these new duties and to bring his
compensation closer to competitive levels for comparable Chairman and CEO
positions.
Mr. Gannon's compensation determinations reflect the Committee's
assessment of his and the Company's performance. The Committee noted that
the Company's 1996 performance was an improvement on 1995 and the improved
performance had continued for the first months of 1997. The Committee was
also particularly pleased with the leadership shown by Mr. Gannon in the
passage of legislation to restructure the electric and natural gas
industries in Montana and in the completion of the Touch America fiber
optic network. Also, an internal reorganization begun in 1996 was
successfully completed under his leadership.
The Board's 1997 Interim Bonus Plan described above included Mr.
Gannon and his maximum opportunity was established as 35% of his base
salary. The Committee also approved a payout under Mr. Gannon's 1994
Dividend Equivalent Award in accordance with the performance criteria
described above. That award paid is shown in the LTIP payouts column of
the Summary Compensation table infra. As described for the other
officers, Mr. Gannon's total compensation, even after including the 1997
bonus opportunity, is below competitive levels as shown by the
compensation surveys previously described.
Personnel Committee
C. Lehrkind, III, Chairman R. D. Corette
K. Foster C. T. Hibbard
J. R. Jester 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 1992 1993 1994 1995 1996 1997
- ------------------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
MONTANA POWER CO 100 103.48 98.77 104.18 105.89 168.42
S&P 500 INDEX 100 110.08 111.53 153.45 188.68 251.63
ELECTRIC COMPANIES - 500 100 112.60 97.89 128.32 128.11 161.74
*$100 INVESTED ON 12/31/92 IN STOCK OR INDEX, INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
</TABLE>
SUMMARY COMPENSATION TABLE
The following table shows compensation paid by the Company for services
rendered during the fiscal years 1997, 1996, and 1995 for named executive
officers.
<TABLE>
<CAPTION>
Annual Compensation(1) Long-Term Compensation
Awards Payouts
Other Securities
Annual Under- All Other
Name and Compen- Lying LTIP Compen-
Principal Year Salary sation(2) Options Payouts(3) sation(4)
Position ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
D. T. Berube,
retired 1997 346,500 32,885 0 6,654
CEO & Chairman of 1996 333,000 16,010 31,000 6,650
the Board 1995 322,500 0 26,800 6,468
R. P. Gannon
CEO, Chairman 1997 297,500 0 0 32,242 6,653
of the Board 1996 265,935 10,385 21,000 6,650
& President 1995 249,800 7,385 16,700 6,468
R. F. Cromer
Executive VP 1997 187,800 14,493 0 38,796 6,652
& COO - Energy 1996 180,500 7,062 14,000 6,650
Supply Division 1995 169,700 0 9,700 6,468
J. D. Haffey
Executive VP
& COO - Energy & 1997 183,500 21,808 0 10,210 6,652
Communications 1996 172,440 20,538 14,000 6,650
Services Division 1995 134,550 8,094 5,500 6,104
J. P. Pederson
VP, Chief
Financial & 1997 179,500 21,346 0 6,652
Information 1996 172,000 20,077 13,900 6,627
Officer 1995 163,850 0 8,100 7,014
A. K. Neill
Executive VP - 1997 179,500 0 0 15,409 6,652
Utility Energy 1996 173,000 0 10,000 6,650
Supply 1995 165,300 0 8,300 6,468
</TABLE>
_________________
(1)Awards earned under the 1997 Interim Bonus Plan have not been
determined and approved by the Board in time to include their amounts
herein.
(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 dividend equivalent awards on options awarded
in 1994. These awards, approved by the Personnel Committee, were based on
certain performance criteria as described in the Personnel Committee Report
supra.
(4)This column represents the value of the Company's matching
contribution of stock made under the Company's Retirement Savings Plan
(401-K).
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
Value Underlying
Realized Unexercised
(Market Options Value of Unexercised
Shares Price at At Fiscal In-the-Money-Options at
Acquired Exercise Year-End Fiscal Year-End
on Less Exercise (#) ($31.75(2)) ($)
Exercise Price(1)) Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
D. T. Berube 0 0 79,267/10,333 727,953/104,622
R. P. Gannon 0 0 51,900/7,000 369,565/193,236
R. F. Cromer 942 3,927 32,357/4,667 233,187/124,412
J. D. Haffey 0 0 22,733/4,667 154,451/111,462
J. P. Pederson 0 0 28,667/3,333 219,622/92,478
A. K. Neill 9,500 54,688 26,467/3,333 191,474/93,089
</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, 1997.
RETIREMENT BENEFITS
The table below illustrates the estimated annual benefits payable to
executives under the Company's Pension 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 1998.
These benefits may be reduced if such persons retire before reaching
age 65. The amounts presented in the table assumes the executive elects a
single life annuity benefit payment.
<TABLE>
<CAPTION>
PENSION PLAN PLUS BENEFIT RESTORATION
Years of Service
<S> <C> <C> <C> <C> <C>
Remuneration 15 20 25 30 35
150,000 92,182 102,576 112,970 123,364 133,758
175,000 107,807 120,076 132,345 144,614 156,883
200,000 123,432 137,576 151,720 165,864 180,008
225,000 139,057 155,076 171,095 187,114 203,133
250,000 154,682 172,576 190,470 208,364 226,258
275,000 170,307 190,076 209,845 229,614 249,383
300,000 185,932 207,576 229,220 250,864 272,508
325,000 201,557 225,076 248,595 272,114 295,633
350,000 217,182 242,576 267,970 293,364 318,758
375,000 232,807 260,076 287,345 314,614 341,883
400,000 248,432 277,576 306,720 335,864 365,008
</TABLE>
QUALIFIED PENSION PLAN
At the beginning of 1998, the Company amended its Pension Plan to allow
for a change from a Final Average Pay method of benefit determination to a
Cash Balance method of benefit determination. As of January 1, 1998,
participants in the Cash Balance method include all executive officers and
others, nonunion employees and those union employees who have included it
in their bargaining agreement. All union employees that have not
bargained for the Cash Balance method will continue to participate
utilizing the Final Average Pay Plan.
Final Average Pay benefits are computed accordingly:
.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 which is in excess of the Social Security
Integration Level ($31,128 for a normal retiree (age 65) in 1998) 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.
Cash Balance benefits are computed as follows:
The Cash Balance method of benefit accrual establishes eligible
participant notional accounts that are credited by the Company each year.
Credits include:
- - A fixed interest rate of 6% each year
- - An employer contribution of 3% - 12% of base pay (plus commissions
not to exceed 100% of base pay); plus
- - An additional credit of 1.5% - 6% of eligible pay above 1/2 of the
Social Security Wage Base.
The employer contributions are predicated upon the number of "points" (age
+ service) respective of each eligible participant. When an eligible
participant elects to begin retirement pay, the accrued Cash Balance is
converted to a monthly annuity payment.
The Cash Balance provisions allow eligible participants retiring within 5
years to choose the better of the Final Pay benefits or Cash Balance
Benefits.
The beginning balance determination formula, for the Cash Balance, has not
yet been completed. Therefore, the Pension Plus Benefit Restoration table
found on page 17 includes pension benefits calculated under Final Average
Pay provisions.
As of March 1, 1998, credited years of service for executive
officers: 33 years for Mr. Berube, 30 years for Mr. Cromer, 23 years for
Mr. Gannon, 39 years for Mr. Neill, 33 years for Mr. Pederson, and 25
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 Benefit Restoration 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 Benefit Restoration Plan
participants is owned by a Rabbi trust. This life insurance helps fund
the Benefit Restoration Plan. Participants in the Benefit Restoration
Plan contribute toward the funding of the plan. All death proceeds are
specifically directed to the Benefit Restoration Plan trust for the sole
purpose of paying for plan benefits and premium costs.
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 base amount compensation, within the meaning of change
of control provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), (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 Code in connection with a change
of control, the Company shall pay an additional amount (the "Gross-Up
Payment") equal to the amount of any such excise taxes and any state or
federal taxes on the Gross-Up Payment.
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, 1997, all
Section 16(a) filing requirements were complied with.
ITEM 2 LONG-TERM INCENTIVE PLAN
INTRODUCTORY STATEMENT
The Montana Power Company Long-Term Incentive Plan (the "Plan") was approved
and authorized by the Board of Directors of the Company in January, 1998, and
will become effective upon receiving shareholder approval. The purpose of
the Plan is to reward employees who make important contributions to the
continued growth, development and financial success of the Company or its
subsidiaries and to attract and retain such employees. The Plan is not a
qualified plan under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
Upon adoption by the shareholders and regulatory approval, the Plan will
supersede the Company's Long-Term Incentive Plan adopted by vote of the
shareholders in 1992 (the "1992 Plan"). Outstanding awards granted under the
1992 Plan will be recognized, although no additional awards will be granted
under the 1992 Plan.
The statements made herein concerning terms and provisions of the Plan are
summaries and do not purport to be complete. Such statements are qualified
by express reference to the Plan. A copy of the Plan is attached as Exhibit
A hereto.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE ADOPTION
OF THE PLAN.
THE PLAN
The Plan would provide for the granting of Restricted Stock, Stock Options,
Stock Appreciation Rights, Performance Shares and Dividend Equivalent Shares
(the "Awards") during the ten-year period following its approval by the
shareholders, and would permit a total of 2,000,000 shares of Common Stock of
the Company to be subject to Award under the Plan subject to adjustment in
the event of a merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, or other similar event. Shares subject to previously
canceled, lapsed, or forfeited Awards or Awards paid in cash may be reissued
under the Plan. The shares to be issued under the Plan may consist of
authorized but unissued shares, shares issued and reacquired by the Company
or shares purchased in the open market. The fair market value of the
Company's Common Stock was $__________ per share as of ___________, 1998.
A Committee of the Board of Directors, comprised of outside directors (the
"Committee"), would administer the Plan and from time to time grant Awards
under the Plan to selected eligible employees (the "Participants"). Full-
time employees who, in the opinion of the Committee, contribute to the
continued growth, development and financial and other successes of the
Company or its subsidiaries are eligible to participate in the Plan. As of
February 5, 1998, there were approximately 3,000 full-time employees of the
Company and its subsidiaries. The actual employees to be awarded grants as
Participants will be determined by the Committee from time to time and will
probably be substantially less than the number of full-time employees. In
addition to any other powers and, subject to the provisions of the Plan, the
Committee would have the following specific powers: (i) to determine the
terms and conditions upon which Awards may be made and exercised; (ii) to
determine the Participants to whom Awards shall be made; (iii) to determine
all terms and provisions of each agreement, which need not be identical for
types of Awards nor for the same type of Award to different Participants;
(iv) to construe and interpret all terms, conditions and provisions of the
Plan and all agreements; (v) to establish, amend, or waive rules or
regulations for the Plan's administration; (vi) to accelerate the
exercisability of any Award, the length of a performance period or the
termination of any performance restriction; and (vii) to make all other
determinations and take all other actions necessary or advisable for the
administration or interpretation of the Plan. The Committee may seek the
assistance or advice of any persons or entities it deems necessary to the
proper administration of the Plan.
Awards of Restricted Stock would be made subject to a restriction period
during which the occurrence of some event, such as the achievement of a
particular performance standard, must occur. Restricted Stock would be
issued without payment by the Participant and, upon the completion of the
restriction period and the fulfillment of the required conditions,
restrictions upon such restricted Common Stock would expire and new
certificates representing unrestricted shares of Common Stock would be issued
to the Participant. If authorized by the Committee, the Participant would
receive cash dividends payable with respect to the Restricted Stock or the
Committee may direct that such dividends be retained by the Company. If the
conditions of the Restricted Stock were not satisfied within the restriction
period, the Participant's right to the Restricted Stock would terminate.
Stock Options would be granted at a price set by the Committee, but in the
case of an Incentive Stock Option, the price would not be less than the fair
market value of the Company's Common Stock on the date of the grant of such
Stock Option. In the case of a non-qualified Stock Option, the option price
per share of Common Stock set in the Award by the Committee may not be less
than 85% of the fair market value of the Common Stock on the date of grant.
Each Stock Option would be granted pursuant to a written Stock Option
Agreement, which, together with the Plan, would set forth the terms of the
Stock Option. Each Stock Option would become exercisable within a period set
by the Committee and would expire no later than ten years from the date of
grant.
Awards of Stock Appreciation Rights, which may only be issued in conjunction
with a Stock Option, would give Participants the right to receive payment of
the greater of the increase in the fair market value or the book value of a
share of Common Stock from the date of the grant of the Stock Appreciation
Right to the date of its exercise. The Stock Appreciation Rights would be
granted without payment by the Participant, would be exercisable during a
period established by the Committee, and would expire no later than ten years
from the date of grant. Upon exercise, Participants would be paid in cash,
Common Stock or a combination of both, as determined by the Committee. If
not exercised by the expiration of the Award (other than expiration by virtue
of exercise of a related Stock Option), the Stock Appreciation Rights would
be deemed to have been exercised on the expiration date.
Performance Share grants would give the Participant the right to receive
payment of an amount equal to the fair market value of a share of Common
Stock at the end of an Award period if the terms and conditions set by the
Committee were satisfied. They would be granted without any payment on the
part of the Participant and would be paid either in cash, Common Stock or a
combination of both, as determined by the Committee.
The Committee responsible for Plan administration would establish in writing
prior to the beginning of a performance period (or by such other later date
as may be permitted under Section 162(m) of the Code) all performance
criteria which the chief executive officer and the four highest compensated
officers of the Company (each, a "Covered Participant") must satisfy in order
to receive performance-based compensation. Such performance criteria are
based on business or financial goals of the Company, including economic value
added, absolute or relative levels of total shareholder return, revenues,
sales, net income, or net worth of the Company, any of its subsidiaries,
divisions, business units or other areas of the Company. The aggregate
maximum Awards that may be paid (in cash or in shares of Common Stock or a
combination thereof) to any Covered Participant during any calendar year
would be an amount equivalent to the fair market value of 100,000 shares of
Common Stock, such fair market value to be determined as of the first days of
such calendar year. The aggregate maximum number of shares of Common Stock
subject to Options and Stock Appreciation Rights made to any Covered
Participant during any calendar year would be 150,000. In the case of
performance-based compensation for Covered Participants, the exercise price
of an Option would not be less than 100% of the fair market value of Common
Stock on the date of grant. A Stock Appreciation Right granted to a Covered
Participant would be the right to receive payment of an amount equal to the
increase, if any, in the fair market value of one share of Common Stock at
the date of exercise over the fair market value of one share of Common Stock
at the date of grant.
A Participant could be granted, in conjunction with an Award of Stock
Appreciation Rights or Performance Shares, at no cost, the right to receive
Dividend Equivalent Shares based on the dividends declared on the Common
Stock for record dates occurring during the Award period set by the Committee
for the related Stock Appreciation Rights or Performance Shares. Payment for
Dividend Equivalent Shares in cash, Common Stock or both, as determined by
the Committee, would be made in conjunction with the payment for the related
Stock Appreciation Rights or Performance Shares.
Awards under the Plan would not be assignable except in the event of death.
In the event of death, disability or retirement, Awards would be prorated and
Stock Options would be exercisable for certain specified periods.
AMENDMENT OF THE PLAN
The Board would be empowered to amend, suspend or terminate the Plan, subject
to Participant rights under outstanding Awards. However, the Board could not
increase the benefits to Participants pursuant to the Plan, increase the
number of shares of Common Stock which could be issued under the Plan, extend
the period for granting Awards, or modify the eligibility requirements of the
Plan without shareholder approval.
FEDERAL TAX CONSEQUENCES
The following is a summary of the federal income tax consequences of the
various forms of awards that may be granted under the Plan.
Restricted Stock. The grant of a Restricted Stock award does not immediately
produce taxable income to a recipient or an income tax deduction to the
Company. At the time the restrictions lapse, however, a recipient will
recognize ordinary income in an amount equal to the fair market value of the
Common Stock on the date the restrictions on such Common Stock lapse, and the
Company will be entitled to a corresponding income tax deduction. However, a
recipient who elects under Section 83(b) of the Code, within thirty days of
the date of grant (an "83(b) Election"), will recognize ordinary income on
the date of grant equal to the fair market value of the shares of Restricted
Common Stock as if the shares were unrestricted and could be disposed of
immediately. During the restriction period, a recipient will be taxed on the
dividends, if any, paid with respect to the restricted shares. The Company
will be entitled to a corresponding income tax deduction for such dividends
paid unless the recipient has made an 83(b) Election with respect to the
shares upon which such dividends are paid. With respect to a disposition of
unrestricted shares, the holding period to determine whether the recipient
has long or short-term capital gain or loss begins when the restriction
period lapses. However, if the recipient has made an 83(b) Election, the
holding period commences on the date of the grant and the tax basis will be
equal to the fair market value of the shares on the date of grant as if the
shares were unrestricted and could be disposed of immediately.
Non-Statutory Stock Options. The grant of a non-statutory Stock Option that
does not have a readily ascertainable fair market value at the time of grant
does not result in taxable income to a recipient or an income tax deduction
for the Company. Upon exercise, a recipient will recognize ordinary income
in an amount equal to the excess of the fair market value of the Common Stock
acquired on the date of exercise over the Option price. The Company will be
entitled to a corresponding income tax deduction provided the applicable
withholding requirements are met. Upon a subsequent sale or taxable exchange
of the Common Stock, the recipient will recognize long or short-term capital
gain or loss equal to the difference between the amount realized on the sale
and the tax basis of the shares sold or exchanged.
Incentive Stock Options. Neither the grant nor the exercise of an Incentive
Stock Option will have immediate tax consequences to a recipient or the
Company. If a recipient exercises an Incentive Stock Option and does not
dispose of the acquired Common Stock within two years after the date of the
grant of the option or within one year after the date of the transfer of the
Common Stock to the recipient, the Company will not be entitled to a tax
deduction, the recipient will realize no ordinary income, and any gain or
loss that is realized on a subsequent sale or taxable exchange of the Common
Stock will be treated as a long-term capital gain or loss. The exercise of
an Incentive Stock Option gives rise to alternative minimum taxable income
which may subject the recipient to the alternative minimum tax.
If a recipient exercises an Incentive Stock Option and disposes of the
acquired Common Stock within two years after the date of the grant of the
option or within one year after the date of the transfer of the Common Stock
to the recipient, the recipient's and the Company's tax treatment will be the
same as if the recipient had exercised a non-statutory Stock Option, except
the recipient must treat the difference between the Option price and the fair
market value of the Common Stock on the date of exercise as an adjustment to
alternative minimum taxable income, unless such disposition occurs in the
same tax year as the year in which the Incentive Stock Option is exercised.
Stock Appreciation Rights. A recipient of a Stock Appreciation Right will
not recognize taxable income at the time the right is granted, and the
Company will not be entitled to an income tax deduction. However, ordinary
income will be recognized by a recipient, and a corresponding deduction will
be taken by the Company, at the time of exercise is an amount equal to any
cash, and the fair market value of any Common Stock, received.
Performance Share Awards/Dividend Equivalent Shares. A recipient of a
Performance Share Award or Dividend Equivalent Share will not recognize
taxable income at the time granted, and the Company will not be entitled to
an income tax deduction. However, ordinary income will be recognized by a
recipient, and a corresponding deduction will be taken by the Company, at the
time of payment for any such Performance Share Award or Dividend Equivalent
Share in an amount equal to any cash, and the fair market value of any Common
Stock, received.
RECOMMENDATION OF THE BOARD OF DIRECTORS
To adopt the Plan, the affirmative vote of a majority of the shares of Common
Stock and the shares of the Preferred Stock cast at the meeting, voting as a
single class, is required, provided that the total vote cast represents over
50% of all shares entitled to vote at the meeting.
The Board of Directors has carefully considered the Plan and recommends that
the shareholders vote FOR adoption of the Plan.
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 1998.
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 26, 1998.
By Order of the Board of Directors
Pamela K. Merrell
Vice President and Secretary
EXHIBIT A
THE MONTANA POWER COMPANY
1998 LONG-TERM INCENTIVE PLAN
SECTION ONE.
PURPOSE OF PLAN
The purpose of The Montana Power Company Long-Term Incentive Plan is to
reward employees who make important contributions to the continued growth,
development and financial success of The Montana Power Company or one or more
of its subsidiaries, and to attract and retain such employees. The Plan is
intended to stimulate individual performance by eligible employees so that
specific long-term goals increasing the profitability of the Company and its
subsidiaries may be achieved for the benefit of customers and shareholders.
SECTION TWO.
DEFINITIONS
The following definitions are applicable herein:
"Award" means the award to a Participant of Restricted Stock, an Option,
a Stock Appreciation Right, a Performance Share or a Dividend Equivalent
Share.
"Award Period" means the period of time specified by the Committee with
respect to an Award during which (i) Restricted Shares will remain
restricted, or (ii) the conditions precedent to the right to receive payment
with respect to Performance Shares must be met.
"Board" means the Board of Directors of the Company.
"Book Value" means the book value of a share of Common Stock determined
in accordance with the Company's regular accounting practices. Any such
determination, in the absence of manifest error, shall be conclusive.
"Code" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to such section and any regulations
promulgated thereunder.
"Committee" means the committee, consisting of two or more members of
the Board who are not Eligible Employees and who are otherwise qualified, to
the extent required, to administer the Plan for purposes of Section 16 of the
Exchange Act and the rules thereunder.
"Common Stock" means the common stock, without par value, of the
Company.
"Company" means The Montana Power Company and its successors, including
any company specified in Section Sixteen I.
"Covered Participant" means a Participant who is a "covered employee" as
defined in Section 162(m)(3) of the Code.
"Date of Disability" means the date on which a Participant is classified
as under a Disability.
"Date of Grant" means the date on which an Award is granted by the
Committee or such later date as may be specified by the Committee in making
such grant.
"Date of Retirement" means the date of Retirement or Earlier Than Normal
Retirement.
"Disability" means a physical or mental impairment that prevents a
Participant from performing the essential functions of the Participant's
regular occupation and which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than
twelve months.
"Dividend Equivalent Shares" has the meaning assigned in Section Eleven
A.
"Earlier than Normal Retirement" means the retirement, with the consent
of the Company, of an employee prior to that employee's Normal Retirement
Date.
"Eligible Employee" means any person employed by the Company or a
Subsidiary on a regularly scheduled basis during any portion of a period for
which an Award is made (including employees who are members of the Board or
of the Board of Directors of any Subsidiary, but excluding any such director
who is not otherwise so regularly employed) and who satisfies the
requirements of Section Six.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means as follows: (i) for Options, and Stock
Appreciation Rights, the average of the high and low prices for the Common
Stock as reported on the New York Stock Exchange Composite Tape on a
specified date, or, if the Common Stock shall not have traded on any
specified date, the next preceding date on which it shall have traded; and
(ii) for Performance Shares, the average of the reported closing prices of
the Common Stock on the New York Stock Exchange for 30 consecutive trading
days prior to a specified date.
"Incentive Stock Option" means an incentive stock option within the
meaning of Section 422 of the Code.
"Normal Retirement Date" is the retirement date as described in the
Company's or a Subsidiary's retirement or pension plan.
"Option" has the meaning assigned in Section Eight A.
"Option Holder" means a Participant who has received an Award of an
Option.
"Participant" means an Eligible Employee who has been granted an Award
under this Plan.
"Performance Criteria" means the objectives established by the Committee
for a Performance Period, for the purpose of determining when an Award
subject to such objectives has been earned.
"Performance Period" means the time period designated by the Committee
during which performance goals must be met in order for a Participant to
obtain a performance-based Award.
"Plan" means The Montana Power Company 1998 Long-Term Incentive Plan, as
it may be amended from time-to-time.
"Performance Share" has the meaning assigned in Section Ten A.
"Restricted Stock" has the meaning assigned in Section Seven A.
"Retirement" means retirement on or after the Normal Retirement Date.
"Stock Appreciation Right" has the meaning assigned in Section Nine A.
"Subsidiary" means any corporation of which 50% or more of its
outstanding voting stock or voting power is beneficially owned, directly or
indirectly, by the Company.
"Termination" means resignation or discharge from employment with the
Company or any of its Subsidiaries, except in the event of death, Disability,
retirement or Earlier than Normal Retirement.
SECTION THREE.
EFFECTIVE DATE AND DURATION
A. Effective Date.
The Plan shall be effective as of May 12, 1998, subject to shareholder
approval.
B. Period for Grants of Awards.
Awards may be granted on and after the effective date through the period
ending May 12, 2008.
C. Termination
The Plan shall continue in effect until all matters relating to the
payment of Awards and administration of the Plan have been settled.
SECTION FOUR.
ADMINISTRATION
The Plan shall be administered by the Committee which still have all of
the powers respecting the Plan (other than amending the Plan as provided in
Section Fifteen); provided, however, that the Committee, in its discretion,
may delegate to one or more of its members or to one or more agents such
administrative duties as it may deem advisable. The Committee or any person
to whom it has delegated duties may employ attorneys, consultants,
accountants or other persons and the Committee shall be entitled to rely upon
the advice, opinions or evaluations of any such persons. Notwithstanding the
foregoing, the Committee may not delegate its authority if such delegation
would cause a violation of the requirements of Section 16 of the Exchange Act
and the rules thereunder. All questions of interpretation and application of
the Plan, or of the terms and conditions pursuant to which Awards are
granted, exercised or forfeited under the provisions hereof, shall be subject
to the determination of the Committee. Any such determination shall be final
and binding upon all parties affected thereby.
SECTION FIVE.
GRANT OF AWARDS AND LIMITATION OF NUMBER OF SHARES AWARDED
The Committee may, from time to time, grant Awards to one or more
Eligible Employees, provided that (i) subject to any adjustment pursuant to
Section Sixteen H., the aggregate number of shares of Common Stock subject to
Award under the Plan (including those constituting the basis for Awards) may
not exceed 2,000,000 shares; and (ii) to the extent that an Award shall
expire without either being exercised or the benefits thereof paid, the
shares of Common Stock pertaining to such Award shall again be available for
the grant of an Award to the maximum extent permissible under Section 16 of
the Exchange Act. Shares delivered by the Company under the Plan may be
authorized but unissued Common Stock, Common Stock held in the treasury of
the Company or Common Stock purchased on the open market (including private
purchases). In granting Awards, the Committee shall establish criteria, such
as the growth, financial and other performance and achievement of specified
goals of the Company and/or one or more of its Subsidiaries, against which
the performance of the Participant shall be measured, and shall take into
account such matters as each Participant's position and compensation, the
Fair Market Value of the Common Stock at the Date of Grant, economic
conditions and such other matters as in shall deem to be appropriate.
Participants subject to Section 16 of the Exchange Act shall sell stock
acquired pursuant to the Plan in accordance with the rules promulgated under
Section 16 of the Exchange Act.
SECTION SIX.
ELIGIBILITY
Eligible Employees are full-time employees who, in the opinion of the
Committee, contribute to the continued growth, development and financial and
other successes of the Company or one or more of its Subsidiaries. The
Committee, from time-to-time, shall select from the Eligible Employees those
to whom Awards shall be granted and determine the size of such Awards. No
Eligible Employee of the Company or any of its Subsidiaries shall have any
right to an Award.
SECTION SEVEN.
RESTRICTED STOCK
A. Grants of Restricted Stock.
Restricted Stock shall mean shares of Common Stock awarded pursuant to
this Section Seven. Shares of Restricted Stock shall be issued to
Participants without payment of cash consideration. A Certificate for
Restricted Stock shall be issued in the name of each Participant receiving
such an Award and shall bear a restrictive legend prohibiting the sale,
transfer, pledge or hypothecation of the Restricted Stock evidenced thereby
until the expiration of the restricted period.
Holders of Restricted Stock shall have the right to vote such Stock. In
granting a Restricted Stock Award, the Committee may authorize the
Participant to receive the cash dividends payable with respect to such Stock
or may direct that they be retained by the Company.
B. Restriction Period.
At the time of each grant of a Restricted Stock Award, the Committee
shall establish the restriction period applicable to such Award. Each
restriction period shall be a period within which must be accomplished the
achievement of such Company or Subsidiary performance standards or the
fulfillment of such other terms and conditions as may be determined, in its
sole discretion, by the Committee. Notwithstanding the other provisions of
this Section Seven B: (i) in the event of a public tender for all or any
portion of the Common Stock or in the event that any proposal to merge or
consolidate the Company with another company is submitted to the stockholders
of the Company for a vote, the Committee, in its sole discretion, may change
or eliminate the restriction period with respect to any and all Restricted
Stock Awards; and (ii) the Committee, in its sole discretion, may change or
eliminate the Award Period with respect to any Restricted Stock Award
whenever it shall determine that changes in tax or other laws, or in rules or
regulations promulgated thereunder, or material and unforeseen events or
circumstances arising after the Date of Grant of such Restricted Stock Award
make such action appropriate.
C. Removal of Restrictions; Forfeiture of Shares.
Upon completion of the restriction period pertaining to an Award of
Restricted Stock and the fulfillment of the terms and conditions with respect
thereto, all restrictions upon such Restricted Stock will expire and a new
certificate representing such Stock will be issued without the restrictive
legend described in Section Seven A. In the event of the Disability or death
of a Participant prior to the issuance of such new certificate, such
certificate will be issued to such Participant's guardian, executor,
administrator or heir.
Should the terms and conditions with respect to an Award of Restricted
Stock not be satisfied, the Participant shall have no further right, title or
interest in or to such Restricted Stock and shall surrender the certificate
representing shares of such Stock to the Committee.
SECTION EIGHT.
STOCK OPTIONS
A. Grants of Options.
An Option shall mean the Award of the right to purchase shares of Common
Stock pursuant to this Section Eight, and may be either an Incentive Stock
Option or a non-statutory stock option.
B. Stock Option Agreement.
Each Award of an Option shall be evidenced by a written option agreement
containing the terms and conditions set forth in this Section Eight and such
other terms and conditions as may be determined, in its sole discretion, by
the Committee, including, without limitation, provisions to qualify such
Option as an Incentive Stock Option. Each such option agreement shall be
subject to the provisions applicable to Options set forth in the Plan,
whether or not such provisions shall be set forth in such agreement.
C. Option Price.
The Option Price per share of Common Stock shall be set in the Award by
the Committee, and in the case of non-statutory stock option the price may
not be less than 85% of the Fair Market Value at the Date of Grant, but, in
the case of an Incentive Stock Option, shall be not less than 100% of the
Fair Market Value at the Date of Grant.
D. Form of Payment.
At the time of the exercise of an Option, the Option price shall be
payable in full in cash or in other shares of Common Stock (whether already
owned or pursuant to a cashless exercise) or in a combination of both. If
Common Stock shall constitute payment of all or a portion of the Option
Price, it shall be valued at the Fair Market Value on the date the Option is
exercised. To the extent required, such exercise and payment shall be
effected in accordance with Section 16 of the Exchange Act and the rules
thereunder.
E. Right to Exercise.
Each Option shall become exercisable within such period as the
Committee, in its sole discretion, shall determine. Unless the Committee
shall determine that an Option may only be exercised in whole, it may be
exercised in whole at any time or in part from time-to-time.
In the event of a public tender for all or any portion of the Common
Stock or in the event that any proposal to merge or consolidate the Company
with another company is submitted to the stockholders of the Company for a
vote, the Committee, in it sole discretion, may declare any Option to be
immediately exercisable.
The Committee, in its sole discretion, may declare any Option to be
immediately exercisable whenever it shall determine that changes in tax or
other laws, or in rules or regulations promulgated thereunder, or material
and unforeseen events or circumstances arising after the Date of Grant of
such Option make such action appropriate.
An Option may be exercised only by the Option Holder or, in the event of
the legal disability or death of such Option Holder, by such Option Holder's
legal guardian, executor, administrator or heir.
F. Expiration of Options.
An Option will expire upon the first to occur of the following: (i) the
expiration of the period within which it may be exercised as determined by
the Committee; (ii) the tenth anniversary of its Date of Grant; (iii) the
lapse of three months following the Option Holder's Date of Retirement; (iv)
the Option Holder's Termination; (v) the lapse of a period of one year
following the date of the Option Holder's Disability or death; or (vi) to the
extent of the exercise of related Stock Appreciation Rights, upon the
exercise of such Rights.
G. Rights as a Stockholder.
An Option Holder shall have no rights as a stockholder with respect to
any shares of Common Stock covered by an Option until the date, following the
exercise of the Option, of the issuance of either a certificate for the
Common Stock or a book entry of the Common Stock with respect to which the
Option has been exercised. No adjustment shall be made for dividends,
distributions or other rights for which the record date occurs prior to the
date such certificate shall be issued, except as provided in Section Sixteen
H.
H. Modification, Extension and Renewal of Options.
The Committee, in its sole discretion, may modify, extend or renew
outstanding Options, or exchange outstanding Options for new Options;
provided, however, that no modification of an outstanding Option, without the
consent of the Option Holder, shall adversely effect the rights of such
Option Holders under such Option.
I. Early Disposition of Common Stock.
If a Participant shall dispose of any Common Stock purchased pursuant to
an Incentive Stock Option within one year from the date on which such Stock
was acquired or within two years from the Date of Grant of such Option, then,
to provide the Company with the opportunity to claim the benefit of any
income tax deduction which may be available to it under the circumstances,
such Participant, within ten days of such disposition, shall notify the
Company of the dates of acquisition and disposition of such Stock, the number
of shares so disposed of and the consideration, if any, received therefore.
J. Individual Dollar Limitations.
The aggregate Fair Market Value (determined at the time of Award) of the
Common Stock with respect to which an Incentive Stock Option shall be
exercisable for the first time during any calendar year (whether under this
Plan or another plan or arrangement of the Company or any of its
Subsidiaries) shall not exceed $100,000 (or such other limit as may be in
effect under the Code on the date of Award).
SECTION NINE.
STOCK APPRECIATION RIGHTS
A. Grants of Stock Appreciation Rights.
A Stock Appreciation Right is the right to receive payment of an amount
equal to the greater of the increase, if any, in the Fair Market Value or the
Book Value of a share of Common Stock over the period of time between the
Date of Grant of such Right and its exercise.
Stock Appreciation Rights may be granted in conjunction with an Option,
either at the time of Award or thereafter. Stock Appreciation Rights shall
be subject to such terms and conditions as the Committee, in its sole
discretion, shall determine. Stock Appreciation Rights may be granted only
in conjunction with an Option, and may not be granted separately from the
grant of an Option. Stock Appreciation Rights shall be credited to a Stock
Appreciation Rights account to be maintained for each Participant. Stock
Appreciation Rights shall be granted without the payment of consideration by
Participants. The Award of Stock Appreciation Rights shall not entitle the
Participant to any dividend, voting or other rights of a stockholder of the
Company.
B. Right to Exercise
Stock Appreciation Rights issued in conjunction with an Option shall be
exercisable to the extent that such Option shall be exercisable and in lieu
of the exercise of such Option which, to the extent of the exercise of such
Stock Appreciation Rights, shall lapse.
In the event of a public tender for all or any portion of the Common
Stock or in the event that any proposal to merge or consolidate the Company
with another company is submitted to the stockholders of the Company for a
vote, the Committee, in its sole discretion, may declare any Stock
Appreciation Rights to be immediately exercisable. The Committee, in its
sole discretion, may change or eliminate the Award Period with respect to any
Stock Appreciation Rights Award whenever it shall determine that changes in
tax or other laws, or in rules or regulations promulgated thereunder, or
material or unforeseen events or circumstances arising after the Date of
Grant of such Stock Appreciation Right Award make such action appropriate.
A Stock Appreciation Right may be exercised only by the Participant or,
in the event of the legal disability or death of such Participant, by such
Participant's legal guardian, executor, administrator or heir.
C. Expiration of Stock Appreciation Rights.
A Stock Appreciation Right granted in conjunction with an Option will
expire upon the exercise or expiration of the related Option.
D. Deemed Exercise.
If on the date of expiration of any Stock Appreciation Right (other than
an expiration by virtue of the exercise of the related Option) such Stock
Appreciation Right shall not have been exercised, such Stock Appreciation
Right shall be deemed to have been exercised on such date.
E. Payment.
Upon the exercise of Stock Appreciation Rights, the Participant shall
receive, in respect of each such Right, payment, in cash or Common Stock or a
combination of both as the Committee, in its sole discretion, shall
determine, an amount equal to the greater of: (i) the excess of the Fair
Market Value of one share of Common Stock at the date of exercise over the
Fair Market Value of one share of Common Stock at the Date of Grant, or (ii)
the excess of the Book Value of one share of Common Stock determined as of
the end of the calendar month preceding the date of exercise over the Book
Value of one share of Common Stock determined as of the end of the calendar
month preceding the Date of Grant. The number of shares of Common Stock to
be received upon the exercise of Stock Appreciation Rights shall be
determined on the basis of the Fair Market Value of the Common Stock on the
day next preceding the date on which such Stock Appreciation Rights shall
have been exercised.
SECTION TEN.
PERFORMANCE SHARE AWARDS
A. Grants of Performance Shares.
A Performance Share is the right to receive payment of an amount equal
to the Fair Market Value of a share of Common Stock at the end of the Award
Period with respect to such Performance Share.
The right to receive payment for Performance Shares shall be subject to
satisfaction of such terms and conditions as the Committee, in its sole
discretion, may determine. Performance Shares shall be credited to a
Performance Share account to be maintained for each Participant. Performance
Shares shall be issued without the payment of consideration by Participants.
The Award of Performance Shares shall not entitle the Participant to any
dividend, voting or other rights of a stockholder of the Company.
B. Right to Payment.
Following the end of the award Period, payment for Performance Shares
shall be made only if the Committee, in its sole discretion, shall have
determined that the terms and conditions of such payment shall have been
fulfilled. The Committee, in its sole discretion, may change or eliminate
the Award Period or modify such terms and conditions with respect to any
Performance Shares whenever it shall determine that changes in tax or other
laws, or in rules or regulations promulgated thereunder, or material and
unforeseen events or circumstances arising after the Date of Grant of such
Performance Share Award make such action appropriate. In the event of a
public tender for all or any portion of the Common Stock or in the event that
any proposal to merge or consolidate the Company with another company is
submitted to the stockholders of the Company for a vote, the Committee, in
its sole discretion, may change or eliminate the terms and conditions with
respect to any and all Performance Share Awards.
C. Payment.
Payment in respect of Performance Shares shall be made as soon as
practicable after the receipt by the Committee of all information, including
financial statements, necessary to determine whether the terms and conditions
applicable to such Performance Shares shall have been fulfilled.
Payment in respect of each Performance Share shall be made in cash or
Common Stock, or a combination of both, as the Committee, in its sole
discretion, shall determine in an amount equal to the Fair Market Value, as
of the day following the end of the Award Period, of one share of Common
Stock. The number of shares of Common Stock to be received as payment with
respect to Performance shares shall be determined on the basis of the Fair
Market Value of the Common Stock on the day next preceding the day on which
such shares of Common Stock shall be issued.
SECTION ELEVEN.
DIVIDEND EQUIVALENT SHARES
A. Grants of Dividend Equivalent Shares.
A Dividend Equivalent Share is the right to receive payment of an amount
calculated as provided below.
A Participant in conjunction with an Award of Stock Appreciation Rights
or Performance Shares may be granted, at no cost, the right to accumulated
Dividend Equivalent Shares based on the dividends declared on the Common
Stock for record dates occurring during the Award Period for the related
Stock Appreciation Rights or Performance Shares. Dividend Equivalent Shares
shall be credited to a Dividend Equivalent Share Account maintained for each
recipient.
Dividend Equivalent Shares shall be calculated in terms of shares of
Common Stock as of each dividend record date as follows:
Number of Dividend Number of related Performance Per Share
Equivalent Shares Shares or Stock Appreciation x Dividend on
earned Rights awarded plus previously Common
Stock
earned Dividend Equivalent Shares
Book Value of Common Stock
Dividend Equivalent Shares shall be computed, as of each dividend record
date, both with respect to the number of related Performance Shares or Stock
Appreciation Rights awarded and with respect to the number of Dividend
Equivalent Shares previously earned and not paid during the period prior to
the dividend record date.
Book Value shall be determined as of the end of the month preceding any
dividend record date, unless any record date shall be the last day of the
month, in which case Book Value shall be determined as of such record date.
B. Right to Payment.
Payment with respect to Dividend Equivalent Shares granted in
conjunction with an Award of Stock Appreciation Rights shall be made at the
same time that payment shall be made upon the exercise of such Stock
Appreciation Rights. Payment with respect to Dividend Equivalent Shares
granted in conjunction with Performance Shares shall be made at the same time
that payment shall be made with respect to such Performance Shares.
C. Payment.
Payment in respect of Dividend Equivalent Shares shall be made in cash
or Common Stock, or a combination of both, as the Committee, in its sole
discretion, shall determine. The number of shares of Common Stock to be
received as payment with respect to Dividend Equivalent Shares shall be
determined on the same basis as the number of shares of Common Stock to be
received as payment with respect to the related Stock Appreciation Rights or
Performance Shares shall be determined.
SECTION TWELVE.
SPECIAL PROVISIONS APPLICABLE TO COVERED PARTICIPANTS
Awards to Covered Participants shall be governed by the conditions of
this Section Twelve in addition to the requirements of Sections Seven through
Eleven above. Should conditions set forth under this Section Twelve conflict
with the requirements of Sections Seven through Eleven, the conditions of
this Section Twelve shall prevail.
A. Performance Criteria.
All Performance Criteria relating to Covered Participants for a relevant
Performance Period shall be established by the Committee in writing prior to
the beginning of the Performance Period, or by such other later date for the
Performance Period as may be permitted under Section 162(m) of the Code.
Performance Criteria may include alternative and multiple Performance
Criteria and will be based on one or more of the following business criteria:
business or financial goals of the Company, including economic value added,
absolute or relative levels of total shareholder return, revenues, sales, net
income, or net worth of the Company, any of its Subsidiaries, divisions,
business units, or other areas of the Company.
The Performance Criteria must be objective and must satisfy third party
"objectivity" standards under Section 162(m) of the Code, and the regulations
promulgated thereunder.
The Performance Criteria shall not allow for any discretion by the
Committee as to an increase in any Award, but discretion to lower an Award is
permissible.
The Award and payment of any Award under this Plan to a Covered
Participant with respect to a relevant Performance Period shall be contingent
upon the attainment of the Performance Criteria that are applicable to such
Award. The Committee shall certify in writing prior to payment of any such
Award that such applicable Performance Criteria have been satisfied.
Resolutions adopted by the Committee may be used for this purpose.
B. Grants of Options.
The Option Price per share of Common Stock shall be set in the Award by
the Committee, and in the case of a non-statutory stock option or Incentive
Stock Option granted to a Covered Participant the price may not be less than
the Fair Market Value at the Date of Grant.
C. Grants of Stock Appreciation Rights.
A Stock Appreciation Right granted to a Covered Participant shall be the
right to receive payment of an amount equal to the increase, if any, in the
Fair Market Value of a share of Common Stock over the period of time between
the Date of Grant of such Right and its exercise. Upon the exercise of a
Stock Appreciation Right, a Covered Participant shall receive payment in cash
or Common Stock or a combination of both as the Committee, in its sole
discretion, shall determine, in an amount equal to the excess of the Fair
Market Value of one share of Common Stock at the date of exercise over the
Fair Market Value of one share of Common Stock at the Date of Grant.
D. Maximum Awards.
The aggregate maximum Awards that may be paid (in cash or in shares of
Common Stock or a combination thereof) to any Covered Participant under the
Plan during any calendar year shall be an amount equivalent to the Fair
Market Value of 100,000 shares of Common Stock, such Fair Market Value to be
determined as of the first day of such calendar year.
The aggregate maximum number of shares of Common Stock subject to
Options and Stock Appreciation Rights made to any Covered Participant during
any calendar year shall be 150,000.
All Awards to Covered Participants under this Plan shall be further
subject to such other conditions, restrictions, and requirements as the
Committee may determine to be necessary to carry out the purposes of this
Section Twelve.
SECTION THIRTEEN.
FORFEITURE
In the event a Participant ceases employment during an Award Period,
Restricted Stock, Stock Appreciation Rights, Performance Shares and Dividend
Equivalent Shares are subject to forfeiture as follows:
(i) Termination - the Award will be completely forfeited as of the
date of Termination.
(ii) Retirement - payout of the Award will be prorated for service
during the Award period.
(iii) Earlier Than Normal Retirement - payout of the Award will be
prorated for service during the Award period.
(iv) Disability - payout of the Award will be prorated for service
during the Award period as if the Participant had maintained active
employment until the Normal Retirement Date.
(v) Death - payout of the Award will be prorated for service during
the Award Period.
In any instance where payout of an Award is to be prorated, the
Committee, in its sole discretion, may choose to provide the Participant (or
the Participant's estate) with the entire payout rather than the prorated
portion thereof.
Any Award which is forfeited, in whole or in part, will revert to the
Plan.
SECTION FOURTEEN.
DEFERRAL ELECTION
Upon the request of a Participant, the Committee may, in its sole
discretion, permit a Participant to elect to defer the payout of all or any
part of any Award which he or she is not entitled to receive during the
calendar year in which such deferral election is made under such conditions
as the Committee may establish, including the crediting of reasonable
interest on deferred amounts denominated in cash and Dividend Equivalent
Shares on amounts denominated in Common Stock.
SECTION FIFTEEN.
AMENDMENT OF PLAN
At any time and from time to time, the Board may alter, amend, suspend
or terminate the Plan, in whole or in part, except that: (i) no such action
may be taken, without stockholder approval, which increases the benefits
accruing to Participants pursuant to the Plan, increases the number of shares
of Common Stock which may be issued pursuant to the Plan (except as provided
in Section Sixteen H), extends the period for granting Awards under the Plan
or modifies the requirements as to eligibility for participation in the Plan;
and (ii) no such action may be taken without the consent of each Participant
to whom any Award shall theretofore have been granted, which adversely
affects the rights of such Participant concerning such Award, except, in each
case, as such alteration, amendment, suspension or termination is required by
changes in tax or other laws, or by rules or regulations promulgated
thereunder.
SECTION SIXTEEN.
MISCELLANEOUS PROVISIONS
A. Nontransferability.
No Award under this Plan shall be subject to alienation or assignment by
a Participant (or by any person entitled to such benefit pursuant to the
terms of this Plan), nor, to the fullest extent provided by law, shall it be
subject to attachment or other legal process of whatever nature. Any
attempted alienation, assignment or attachment, to the fullest extent
provided by law, shall be void and of no effect whatsoever. Payments,
whether in cash or in shares of Common Stock, shall be made only into the
hands of the Participant entitled to receive the same or into the hands of
the Participant's authorized legal representative. Deposit of any sum in any
financial institution to the credit of any Participant (or of any other
person entitled to such sum pursuant to the terms of this Plan) shall
constitute payment into the hands of that Participant (or such person).
B. No Employment Right.
Neither this Plan nor any action taken hereunder shall be construed as
giving any right to be retained as an officer or other employee of the
Company or any of its subsidiaries.
C. Tax Withholding.
Either the Company or a Subsidiary, as appropriate, shall have the right
to deduct from all Awards paid in cash any federal, state or local taxes as
it shall deem to be required by law to be withheld with respect to such
payments. In the case of Awards paid in Common Stock, the employee or other
person receiving such Common Stock may be required to pay to the Company or a
Subsidiary, as appropriate, the amount of any such taxes which the Company or
a Subsidiary is required to withhold with respect to such Stock. The Company
shall have the right to withhold any amounts required to be withheld on
account of any Award from such Participant's compensation from the Company or
any of its Subsidiaries. At the request of a Participant, or as required by
law, such sums as may be required for the payment of any estimated or accrued
income tax liability may be withheld and paid over to the governmental entity
entitled to receive the same. Subject to approval by the Committee, a
Participant may also make payment by tendering shares of Common Stock already
owned, by having such amounts withheld from shares of Common Stock otherwise
distributable to him or her upon the exercise or vesting of any Award or
pursuant to a cashless exercise. Such payments shall, to the extent
required, be effected in accordance with Section 16 of the Exchange Act and
the rules thereunder.
D. Fractional Shares.
Any fractional shares shall be eliminated at the time of payment or
payout by payment of cash.
E. Government and Other Regulations.
The obligation of the Company to make payment of Awards in Common Stock
or otherwise shall be subject to all applicable laws, rules and regulations,
and to such approvals by any government agencies as may be required. Except
as required by law, the Company shall be under no obligation to register
under the Securities Act of 1933, as amended ("Act"), any of the shares of
Common Stock issued, delivered or paid in settlement under the Plan. If
Common Stock awarded under the Plan may in certain circumstances be exempt
from registration under the Act, the Company may restrict its transfer in
such manner as it deems advisable to ensure such exempt status.
F. Indemnification.
Each person who is or at any time serves as a member of the Committee
(and each person to whom the Committee has delegated any of its authority or
power under this Plan pursuant to Section Four) shall be indemnified and held
harmless by the Company against and from (i) any loss, cost, liability, or
expenses that may be imposed upon or reasonably incurred by such person in
connection with or resulting from any claim, action, suit, or proceeding to
which such person may be a party or in which such person may be involved by
reason of any action or failure to act under the Plan; and (ii) any and all
amounts paid by such person in satisfaction of judgment in any such action,
suit or proceeding relating to the Plan. Each person covered by this
indemnification shall give the Company an opportunity, at its own expense, to
handle and defend the same before such person undertakes to handle and defend
it on such persons 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 restated Articles or Bylaws of the Company or any
of its subsidiaries, as a matter of law, or otherwise, or any power that the
Company may have to indemnify such person or hold such person harmless.
G. Reliance on Reports.
Each member of the Committee (and each person to whom the Committee has
delegated any of its authority or power under this Plan pursuant to Section
Four) shall be fully justified in relying or acting in good faith upon any
report made by the independent public accountants of the Company and its
Subsidiaries and upon any other information furnished in connection with the
Plan. In no event shall any person who is or shall have been a member of the
Committee be liable for any determination made or other action taken or any
omission to act in reliance upon any such report or information or for any
action taken, including the furnishing of information, or failure to act, if
in good faith.
H. Changes in Capital Structure.
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, combination or
exchange of shares or other similar changes in the Common Stock, then
appropriate adjustments shall be made in Awards theretofore granted to the
Participants and in the aggregate number of shares of Common Stock (or cash
payment in lieu thereof) which may be granted pursuant to the Plan. Such
adjustments shall be conclusive and binding for all purposes. Additional
shares of Common Stock issued to a Participant as the result of any such
change shall bear the same restrictions as the shares of Common Stock to
which they relate.
I. Company Successors.
In the event the Company becomes a party to a merger, consolidation,
sale of substantially all of its assets or any other corporate reorganization
in which the Company will not be the surviving corporation or in which the
holders of the Common Stock will receive securities of another corporation,
then such company shall assume the rights and obligations of the Company
under this Plan.
J. Governing Law.
All matters relating to the Plan or to Awards granted hereunder shall be
governed by the laws of the State of Montana, without regard to the
principles of conflict of laws.
K. Relationship to Other Benefits.
No payment under the Plan shall be taken into account in determining any
benefits under any pension, retirement, profit sharing or group insurance
plan of the Company or any Subsidiary, except as may be required by tax or
other law or by rules or regulations promulgated thereunder.
L. Expenses.
The expenses of administering the Plan shall be borne by the Company and
its Subsidiaries.
M. Titles and Headings.
The titles and headings of the sections in the Plan are for convenience
of reference only, and in the event of any conflict, the text of the Plan,
rather than such titles or headings, shall control.
N. Certain Participants.
All Award agreements for Participants subject to Section 16(b) of the
Exchange Act shall be deemed to include any such additional terms,
conditions, limitations and provisions as Rule 16b-3 requires, unless the
Committee, in its sole discretion, determines that any such Award should not
be governed by Rule 16b-3. All performance-based Awards to Covered
Participants shall be deemed to include any such additional terms,
conditions, limitations and provisions as are necessary to comply with the
performance-based compensation exemption of Section 162(m) of the Code,
unless the Committee, in its sole discretion, determines that any such Award
is not intended to qualify for the exemption for performance-based
compensation under Section 162(m) of the Code.
EXECUTED on this day of , 1998.
THE MONTANA POWER COMPANY
By:
MAP TO THE MOTHER LODE THEATRE
316 W. Park, 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"
ITEMS 1 AND 2.
ACCOUNT NUMBER Dated ____________________, 1998
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 12, 1998
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints R. P. Gannon, J. P. Pederson 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 12, 1998 at 1:30 p.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
Corette, Harris, Jester, Neill, Vosburg
INSTRUCTION: To withhold authority to vote for any nominee, write that
nominee's name here:
2. ADOPT THE MONTANA POWER COMPANY LONG-TERM INCENTIVE PLAN
__ FOR __ AGAINST __ ABSTAIN
(CONTINUED AND TO BE FILLED 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"
ITEMS 1 AND 2.
ACCOUNT NUMBER Dated ____________________, 1998
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 12, 1998
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints R. P. Gannon, J. P. Pederson 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 12, 1998 at 1:30 p.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
Corette, Harris, Jester, Neill, Vosburg
INSTRUCTION: To withhold authority to vote for any nominee, write that
nominee's name here:
2. ADOPT THE MONTANA POWER COMPANY LONG-TERM INCENTIVE PLAN
__ FOR __ AGAINST __ ABSTAIN
(CONTINUED AND TO BE FILLED IN AND SIGNED ON REVERSE SIDE)
