SCHEDULE 14A
(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 the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
NORTHERN STATES POWER COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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 the
filing fee is calculated and state how it was determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
[LOGO] NSP
March 13, 1998
Dear Shareholder:
This is your invitation to attend the Annual Meeting of Shareholders of
Northern States Power Company on Wednesday, April 22, 1998, at 10:00 a.m., at
Minneapolis Convention Center, 1301 Second Avenue South, Minneapolis, Minnesota.
The Notice of Annual Meeting of Shareholders and Proxy Statement on the
following pages describe matters to be acted upon at the meeting. We will also
report on current operations and on our future plans. At the conclusion of
voting, you will have an opportunity to ask questions.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD PROMPTLY TO ASSURE THAT YOUR PROXY WILL BE VOTED.
YOUR VOICE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU HOLD.
IF YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN AND RETURN THE
ADMISSION CARD AND WE WILL SEND YOU DIRECTIONS AND PARKING INSTRUCTIONS.
Our annual meetings have been helpful in maintaining communications and
understanding between our Board of Directors and shareholders. We would like you
to join us.
Sincerely,
/s/ James J. Howard
James J. Howard
CHAIRMAN, PRESIDENT &
CHIEF EXECUTIVE OFFICER
<PAGE>
NORTHERN STATES POWER COMPANY
(A MINNESOTA CORPORATION)
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
The Annual Meeting of Shareholders of NORTHERN STATES POWER COMPANY, a
Minnesota corporation, will be held on Wednesday, April 22, 1998, at 10:00 a.m.,
at Minneapolis Convention Center, 1301 Second Avenue South, Minneapolis,
Minnesota for the following purposes:
(1) To elect three directors to Class III until the Annual Meeting of
Shareholders in 2001;
(2) To vote on a proposal to amend the Company's Restated Articles of
Incorporation to increase the number of shares of authorized common
stock from 160 million shares to 350 million shares;
(3) To approve amendments to the Company's Executive Long-Term Incentive
Award Stock Plan;
(4) To approve the Company's Executive Annual Incentive Award Plan;
(5) To ratify the appointment of Price Waterhouse, Certified Public
Accountants, as independent auditors of the Company for 1998;
(6) To vote on a shareholder proposal entitled, "Shareholder Resolution on
Conversion of Prairie Island Nuclear Plant to Natural Gas Plant," if
properly presented at the meeting; and
(7) To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on March 2, 1998, will be
entitled to notice of, and to vote at, this Annual Meeting.
Minneapolis, Minnesota By order of the Board of Directors
March 13, 1998 John P. Moore, Jr.
SECRETARY
PLEASE REMEMBER TO SIGN AND RETURN YOUR PROXY
<PAGE>
NORTHERN STATES POWER COMPANY
414 NICOLLET MALL
MINNEAPOLIS, MINNESOTA 55401
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of
the enclosed proxy by the Company's Board of Directors for use at the Annual
Meeting or any adjournment thereof. The proxy statement and the enclosed proxy
card were mailed on or about March 13, 1998.
When proxies are returned properly executed, the shares represented will be
voted according to shareholders' direction. A proxy may be revoked at any time
before it is exercised by giving written notice of the revocation to John P.
Moore, Jr., Secretary, Northern States Power Company, 414 Nicollet Mall,
Minneapolis, Minnesota 55401, by filing another proxy with him, or by attending
the meeting and voting in person.
Owners of record at the close of business on March 2, 1998 of each
outstanding share of NSP common stock are entitled to one vote and of each
outstanding share of NSP preferred stock are entitled to one vote (other than
NSP preferred stock of the series designated "Cumulative Preferred Stock, $3.60
Series" (the "$3.60 Series Preferred Stock"), which is entitled to three votes
per share) upon each matter presented at the Annual Meeting. On the Record Date,
there were _________ shares of common stock, ________ shares of $3.60 Series
Preferred Stock and _________ shares of other NSP preferred stock outstanding.
First Trust N.A., the Trustee for the Company's Employee Stock Ownership
Plan, holds approximately ________% of the Company's common stock for the
benefit of Plan participants, none of whom has a total beneficial interest of
more than ________% of the Company's outstanding voting securities. No other
person holds of record or, to the knowledge of management, owns beneficially
more than 5% of any class of the outstanding voting securities of the Company.
The cost of preparing, assembling and mailing proxies will be borne by the
Company. Officers and other employees of the Company may solicit proxies by
mail, personal interview, telephone and telegram. In addition, Georgeson &
Company, Inc. has been retained to assist in the solicitation of proxies for the
1998 Annual Meeting, at a fee of approximately $10,000 plus associated costs and
expenses. The Company will reimburse brokers and other custodians, nominees or
fiduciaries for their expenses in forwarding proxy material to principals and
obtaining their proxies.
The Company mailed its annual report for the year 1997 on or about March
13, 1998, to all shareholders of the Company of record on March 2, 1998. The
following portions of the Annual Report are incorporated herein and made a part
of this proxy statement. The information under the caption Management's
Discussion and Analysis of Results; and the consolidated financial statements
and notes thereto, including the Report of Management and the Report of
Independent Public Accountants.
1
<PAGE>
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
GENERAL INFORMATION
The Company's Bylaws currently provide that the Board of Directors shall
consist of at least seven, but no more than fifteen directors, as determined by
the Board. The Board of Directors is divided into three classes as nearly equal
in number as possible with staggered terms of office so that one class of
directors will be elected at each annual meeting for a term of three years.
At the Annual Meeting, the following three individuals are the nominees to
be elected to the Board of Directors to serve in Class III until the Annual
Meeting of Shareholders in the year 2001 and until their successors are elected
and have qualified: H. Lyman Bretting, David A. Christensen and Dr. Margaret R.
Preska. Each of these nominees is currently a director of the Company whose
term is scheduled to expire at this Annual Meeting.
All of the nominees have indicated a willingness to serve. Should any of
the nominees become unavailable prior to this Annual Meeting, your proxy will be
voted for such person or persons as shall be recommended by a proxy committee
appointed by the Board.
Shareholders are entitled to vote cumulatively for the election of
directors. Each shareholder is entitled to a number of votes for such election
equal to the number of votes entitled to be cast with respect to the shares held
by such shareholder multiplied by the number of directors of each class to be
elected, and may cast all votes for one nominee or distribute the votes among
the nominees. The election of each director shall be decided by plurality vote.
As a result, any shares not voted for a director (whether by withholding
authority, broker non-vote or otherwise) will have no impact on the election of
directors except to the extent that the failure to vote for an individual
results in another individual receiving a larger number of votes. With respect
to the election of the nominated directors, the persons named as proxies reserve
the right to cumulate votes represented by proxies which they receive and to
distribute such votes among one or more of the nominees at their discretion.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL OF THE
NOMINEES NAMED BELOW.
2
<PAGE>
CLASS III -- NOMINEES FOR TERMS EXPIRING IN 2001
[PHOTO]
DIRECTOR SINCE 1990 H. LYMAN BRETTING, age 61, is President and Chief
Executive Officer of C.G. Bretting Manufacturing Co. in
Ashland, Wisconsin. Mr. Bretting joined C.G. Bretting
Manufacturing Co., a family owned business, in 1958 and
shifted the scope of the business from repairing and
manufacturing mining equipment to manufacturing
automated paper tissue, towel and napkin folding
equipment.
In 1989, he was named "Wisconsin Small Business
Person of the Year" and also the nation's "Small
Business Person of the Year" by President George Bush.
A graduate of the University of Notre Dame in
South Bend, Indiana, Mr. Bretting is involved in
numerous community activities. He is also chairman of
the board and director of M&I National Bank of Ashland,
and a director of NSP-Wisconsin, a subsidiary of the
Company, and president and director of the Ashland
Foundation.
[PHOTO]
DIRECTOR SINCE 1976 DAVID A. CHRISTENSEN, age 62, is President, Chief
Executive Officer and a director of Raven Industries,
Inc. of Sioux Falls, South Dakota, a diversified
manufacturer that supplies plastics, electronics and
special apparel products to various markets. He has been
associated with Raven Industries since 1962. Before
joining Raven Industries, he worked at John Morrell &
Co. and served in the U.S. Army Corps of Engineers.
He received his bachelors degree in industrial
engineering from South Dakota State University, which
later honored him with its distinguished engineer,
distinguished service, and distinguished alumni awards.
He also was honored in 1993 as South Dakotan of the Year
by the University of South Dakota and South Dakota Sales
and Marketing Executive of the Year.
Mr. Christensen also serves as a director of
Norwest Corporation, Minneapolis; Beta Raven, Inc., St.
Louis, Missouri; Aerostar International, Inc., Sioux
Falls, South Dakota; and Glassite, Inc., Dunnell,
Minnesota.
A strong advocate for his community and state,
he has served in many volunteer activities. He is a past
director of the South Dakota Symphony and Sioux Falls
Downtown Development Corp., as well as a past chairman
of the Sioux Empire United Way.
[PHOTO]
DIRECTOR SINCE 1980 DR. MARGARET R. PRESKA, age 60, is the Distinguished
Senior Fellow for Academic Affairs of the Minnesota
State Colleges and Universities and the Distinguished
Service Professor for the Minnesota State Universities.
She was President of Mankato State University from 1979
until 1992. She had served as its Vice President for
Academic Affairs and Equal Opportunity Officer from 1975
until 1979. She previously was academic dean,
instructor, assistant and associate professor of history
and government at LaVerne College in LaVerne,
California.
Dr. Preska earned a bachelor of science degree
at SUNY Brockport, where she graduated SUMMA CUM LAUDE.
She earned a masters at The Pennsylvania State
University, a Ph.D. at Claremont Graduate University,
and further studied at Manchester College of Oxford
University.
She is an advisory board member of Norwest Bank
Minnesota South Central, N.A. in Mankato and a member of
Women Directors and Officers in Public Utilities. She
served as national president of Camp Fire Boys and
Girls, Inc., from 1985-87. She is a charter member of
the board of directors of Executive Sports, Inc., a
division of Golden Bear International. She is affiliated
with several organizations, including: the Retired
Presidents Association of the American Association of
State Colleges and Universities, the St. Paul/
Minneapolis Committee on Foreign Relations, Rotary,
Minnesota Women's Economic Roundtable and the American
Historical Association.
3
<PAGE>
CLASS II -- DIRECTORS WHOSE TERMS EXPIRE IN 2000
[PHOTO]
DIRECTOR SINCE 1997 GIANNANTONIO FERRARI, age 58, is a Director and
President and Chief Operating Officer of Honeywell, Inc.
From January 1992 to April 1997, he was President of
Honeywell Europe. From 1988 to 1992, Mr. Ferrari was
Vice President for Western Europe, the Middle East and
Africa. Prior thereto, he served as Controller and Vice
President of Finance and Director of Distribution of
Honeywell Europe.
Mr. Ferrari holds a degree as a chartered
accountant from the Catholic University of Milan, Italy.
He is on the Board of Governors of the National
Electrical Manufacturers Association and the European
American Industrial Council located in Belgium. He is
also a member of the Board of Directors of the National
Association of Manufacturers.
[PHOTO]
DIRECTOR SINCE 1990 RICHARD M. KOVACEVICH, age 54, is the Chairman and Chief
Executive Officer of Norwest Corporation, in
Minneapolis, a holding company for banking institutions.
Mr. Kovacevich joined Norwest Corporation as Vice
Chairman of the Board and Chief Operating Officer of the
Banking Group in March 1986, became President and Chief
Operating Officer of the Norwest Corporation on January
1, 1989, became President and Chief Executive Officer of
Norwest Corporation on January 1, 1993 and assumed the
additional position of Chairman on May 1, 1995.
Before joining Norwest Corporation, Mr.
Kovacevich was group executive and a member of the
policy committee of Citicorp in New York. Previously, he
was in charge of Citibank USA, including its nationwide
MasterCard and Visa division and its New York City
banking division.
Mr. Kovacevich holds a bachelors and a masters
degree in industrial engineering and a masters of
business administration degree, all from Stanford
University.
He also serves as a director of Dayton Hudson
Corporation, PETsMART, Inc., ReliaStar Financial Corp.
and The Bankers Roundtable. He also is vice chairman of
the American Bankers Council, vice chairman of the board
of the Greater Minneapolis Metropolitan Housing
Corporation, director and vice president of the Walker
Art Center, director and member of the executive
committee of the Minnesota Business Partnership, Inc.,
and 1998 vice chair of Leadership Giving for the United
Way of Minneapolis Area.
[PHOTO]
DIRECTOR SINCE 1991 DOUGLAS W. LEATHERDALE, age 61, is Chairman, President
and Chief Executive Officer of The St. Paul Companies,
Inc., a worldwide property and liability insurance
organization, having served in such capacity since 1990.
Mr. Leatherdale joined The St. Paul Companies in 1972
and has held numerous executive positions with the
Company, including President and Chief Executive
Officer, Executive Vice President and Senior Vice
President of Finance. Before joining The St. Paul
Companies, Mr. Leatherdale was employed by the Lutheran
Church of America in Minneapolis where he served as
Associate Executive Secretary on the Board of Pensions.
Prior to his four years at the Lutheran Church of
America, he served as Investment Analyst Officer at
Great West Life Assurance Company in Winnipeg.
A native of Canada, Mr. Leatherdale attended
United College in Winnipeg and later completed
additional studies at Harvard Business School and the
University of California-Berkeley.
Mr. Leatherdale also serves as a director of The
John Nuveen Company and United HealthCare Corporation.
He is also vice chairman of the board of directors and a
trustee of Carleton College. He is a member of the Twin
City Society of Security Analysts and the Financial
Executive Institute.
4
<PAGE>
[PHOTO]
DIRECTOR SINCE 1985 A. PATRICIA SAMPSON, age 49, currently operates The
Sampson Group, Inc., a management development and
strategic planning consulting business. Prior to that
she served as a consultant with Dr. Sanders and
Associates, a management and diversity consulting
company. Prior to her current endeavors, Ms. Sampson
served as Chief Executive Officer of the Greater
Minneapolis Area Chapter of the American Red Cross from
July 1993 until January 1, 1995. She also previously
served successively as Executive Director from October
1986 until July 1993, Assistant Executive
Director-Services (April 1985), and Assistant Manager
(July 1984) of the Greater Minneapolis Area Chapter.
Prior to the above, she served as the Director of
Service to Military Families and Veterans and Director
of Disaster Services for the St. Paul Area Chapter of
the American Red Cross.
Mrs. Sampson received a masters degree from the
University of Pennsylvania and a bachelors degree from
Youngstown State University.
She is a director on the Minnesota Women's
Economic Roundtable and the Utility Women's Conference
Board. She is active in Christian education. She
previously served on the boards of the Greater
Minneapolis Area United Way, Minneapolis Urban League
and the Minnesota Orchestral Association.
5
<PAGE>
CLASS I -- DIRECTORS WHOSE TERMS EXPIRE IN 1999
[PHOTO]
DIRECTOR SINCE 1974 W. JOHN DRISCOLL, age 68, was associated with the Rock
Island Co. in St. Paul, a private investment company,
from 1973 until his retirement as Chairman and Chief
Executive Officer in 1994. From 1978 to 1986, Mr.
Driscoll was Chairman and a director of First National
Bank in Palm Beach, Florida. In 1967, he was a
co-founder of the Minnesota North Stars National Hockey
League team and served as its Chairman until 1978.
Earlier, he was General Manager of the Rock Island
Corp., a retail lumber, wood millwork and particle board
manufacturer and distributor, and worked in sales and
sales management for the Weyerhaeuser Co., a wood
products firm.
He earned a bachelors degree at Yale University.
He served in the Marine Corps from 1951 to 1954, which
included a tour of duty in Korea.
Mr. Driscoll also serves as a director of
Comshare, Inc., The John Nuveen Company, The St. Paul
Companies, Inc., and Weyerhaeuser Co.
Also active in the community, he is a former
chairman of the Northwest Area Foundation; former
chairman and a life trustee of the Minneapolis Society
of Fine Arts; a former chairman and honorary trustee of
Macalester College, St. Paul; and a trustee and former
president of the Minnesota Landscape Arboretum
Foundation.
[PHOTO]
DIRECTOR SINCE 1978 DALE L. HAAKENSTAD, age 69, retired in 1989 as President
and Chief Executive Officer at Western States Life
Insurance. He began his career there in 1949, became
Executive Vice President and Actuary in 1963, President
in 1968, Chairman and Chief Executive Officer in 1981
and, in 1986, President and Chief Executive Officer.
Mr. Haakenstad attended North Dakota State
University at Fargo and earned a bachelors degree from
the University of Michigan.
Mr. Haakenstad serves the Red River Valley
community as trustee and committee chairman of the North
Dakota State University Development Foundation. He is
also a director of the Pelican Group of Lakes
Improvement District. His professional associations
include the American Council of Life Insurance, Society
of Actuaries and American Academy of Actuaries.
6
<PAGE>
[PHOTO]
DIRECTOR SINCE 1987
JAMES J. HOWARD, age 62, is Chairman, President and
Chief Executive Officer of NSP and has served in such
capacity since December 1, 1994. Mr. Howard graduated
from the University of Pittsburgh, receiving a
bachelor's degree in 1957. He was awarded a Sloan
Fellowship to the Massachusetts Institute of Technology
and received a master of science degree in 1970.
Mr. Howard was president and chief operating
officer of Ameritech, the Chicago-based parent of the
Bell companies serving Illinois, Indiana, Michigan, Ohio
and Wisconsin, prior to joining NSP as its president and
chief executive officer in 1987. Mr. Howard has served
as NSP's chairman of the board and chief executive
officer since 1988, and in 1994, was also named
president.
Mr. Howard is also a director of Walgreen
Company, Ecolab Inc., Honeywell, Inc., ReliaStar
Financial and the Federal Reserve Bank of Minneapolis.
He also serves on the board of overseers for the Carlson
School of Management, University of Minnesota, the Board
of Trustees for the University of St. Thomas, and the
Board of Visitors for the University of Pittsburgh,
Joseph M. Katz School of Business.
Mr. Howard is former chairman and a board member
of the Edison Electric Institute and current chairman of
the Nuclear Energy Institute, both located in Washington
DC.
Mr. Howard serves the community as a board
member and past chairman (1994-1995) of the United Way
of Minneapolis Area; the Minnesota Business Partnership;
the Jeremiah Program; Capitol City Partnership; the
Minneapolis Center for Corporate Responsibility; and the
Danny Thompson Memorial Leukemia Foundation.
7
<PAGE>
INFORMATION CONCERNING THE BOARD OF DIRECTORS
COMMITTEES OF THE BOARD
There are four committees of the Board of Directors whose duties and
responsibilities are described below.
THE CORPORATE MANAGEMENT COMMITTEE has responsibility for Board
organization, director selection and compensation, senior management
organization, performance and compensation, corporate structure, mergers and
acquisitions, human resource policies, corporate ethics and long-range planning
and strategy for the Company. Current members of the Committee are W. John
Driscoll (Chairman), David A. Christensen, Douglas W. Leatherdale and Margaret
R. Preska. The Committee held three meetings during 1997.
Any shareholder may make recommendations to the Corporate Management
Committee for membership on the Board of Directors by sending a written
statement of the qualifications of the recommended individual to the Secretary,
Northern States Power Company, 414 Nicollet Mall, Minneapolis, Minnesota 55401.
THE AUDIT COMMITTEE has responsibility for overseeing internal and external
audit activities. In performing these functions, the Committee reviews auditing
activities by internal and external auditors; financial reporting, internal
controls and accounting policies and practices; matters affecting protection and
recovery of assets of the Company; and oversight of the management of assets of
dedicated funds, including ERISA plans and nuclear decommissioning funding.
Current members of the Committee are A. Patricia Sampson (Chairperson), H. Lyman
Bretting, Dale L. Haakenstad and Richard M. Kovacevich. The Committee held three
meetings during 1997.
THE POWER SUPPLY COMMITTEE has responsibility for oversight and
recommendations for all generation requirements for the Company, including
nuclear, hydro, coal and alternative sources of power supply; bulk power supply
planning; power supply permits and license compliance; major power supply
facility construction and construction budgets; nuclear plant safety,
reliability and operations. Current members of the Committee are David A.
Christensen (Chairman), W. John Driscoll, Giannantonio Ferrari, Douglas W.
Leatherdale and Margaret R. Preska. The Committee held three meetings during
1997.
THE FINANCE COMMITTEE has responsibility for oversight and recommendations
regarding the financial management of the Company. In performing these
functions, the Committee oversees corporate capital structure, capital budgets
and financial plans, dividend policy and dividend recommendations, insurance
coverages, banking relationships and investor relations. Current members of the
Committee are Richard M. Kovacevich (Chairman), H. Lyman Bretting, Giannantonio
Ferrari, Dale L. Haakenstad, and A. Patricia Sampson. The Committee held three
meetings during 1997.
DIRECTOR MEETINGS
There were 9 meetings of the Board of Directors in 1997. Each director
attended at least 80% of the total number of meetings of the Board and
Committees on which such director served during 1997.
DIRECTOR COMPENSATION
Employees of the Company receive no separate compensation for service as a
director. During 1997, directors not employed by the Company received a $20,000
annual retainer, or a pro rata portion thereof if service was less than 12
months, $1,200 for attendance at each Board meeting and $1,000 for each
Committee meeting attended, and a grant of stock equivalent units under the
Stock Equivalent Plan for Non-Employee Directors established in 1996 and
described below. A $2,500 annual retainer was paid to each elected Committee
Chairperson. Prior to January 1, 1998, directors also were eligible to
8
<PAGE>
participate in a retirement plan which continued payment of the director's
retainer at 1.2 times the rate in effect for the calendar quarter immediately
preceding the director's retirement. Effective January 1, 1998, certain changes
were made to the directors' compensation program, including an increase in the
amount of the annual retainer to $25,000 and an increase in the Committee
meeting fee to $1,200. The remaining changes in the directors' compensation
program are discussed below.
In 1996, a Stock Equivalent Plan for Non-Employee Directors (the "Stock
Equivalent Plan") was established to more closely align directors' interests
with those of NSP's shareholders. Under the Stock Equivalent Plan, directors may
receive an annual award of stock equivalent units with each unit having a value
equal to one share of common stock of the Company. Stock equivalent units do not
entitle a director to vote and are only payable as a distribution of whole
shares of the Company's common stock upon a director's termination of service.
The stock equivalent units fluctuate in value as the value of common stock of
the Company fluctuates. Additional stock equivalent units are accumulated upon
the payment of and at the same value as dividends declared on common stock of
the Company. On June 26, 1997, non-employee directors received an award of
97.859 stock equivalent units totaling approximately $5,000 in cash value.
Additional stock equivalent units were accumulated during 1997 as dividends were
paid on common stock of the Company. The number of stock equivalents for each
non-employee director is listed in the share ownership chart which is set forth
below. For 1998, each non-employee director will receive an award of stock
equivalent units totaling approximately $20,800 in cash value. This cash value
amount reflects the $5,000 award included in the Stock Equivalent Plan prior to
January 1, 1998, the amount of $9,700 which replaces the directors' retirement
plan compensation as discussed below, and an additional amount of $6,100 to
raise the overall compensation for directors to a competitive level.
As stated previously, prior to January 1, 1998, directors were eligible to
participate in a retirement plan which continued payment of the director's
retainer at 1.2 times the rate in effect for the calendar quarter immediately
preceding the director's retirement. Benefits under the retirement plan
continued for a period equal to the number of calendar quarters served on the
Board, up to 40 calendar quarters. As part of its continuing effort to align
directors' interests with those of NSP shareholders, effective January 1, 1998,
the Company suspended the retirement plan. Directors who retired prior to
January 1, 1998 will continue to receive their benefits under the retirement
plan. Active non-employee directors were given a one-time irrevocable option to
remain in the retirement plan and receive their accrued benefits under the
retirement plan or to cease participation in the retirement plan and instead
receive a one-time grant of stock equivalent units equal to the value of their
accrued benefits on December 31, 1997. Mr. Bretting, Mr. Christensen, Mr.
Driscoll, Mr. Kovacevich, Mr. Leatherdale, Dr. Preska and Mrs. Sampson elected
to convert the value of their accrued benefits under the retirement plan and
received 3101.774, 4652.662, 4652.662, 3101.774, 2688.204, 4135.699 and 4135.699
stock equivalents, respectively. Mr. Haakenstad elected to remain under the
retirement plan and will receive his retirement benefits in accordance with the
plan.
Finally, directors may participate in a deferred compensation plan which
provides for deferral of director retainers and meeting fees until after
retirement from the Board of Directors. Effective January 1, 1998, the Stock
Equivalent Plan has been amended to permit a director to defer director retainer
and meeting fees into the Stock Equivalent Plan.
9
<PAGE>
SHARE OWNERSHIP OF DIRECTORS, NOMINEES AND NAMED EXECUTIVE OFFICERS
The following table lists the beneficial ownership of NSP common stock
owned as of March 2, 1998, by (i) the Company's directors and nominees, (ii) the
executive officers named in the Summary Compensation Table that follows and
(iii) all the directors and executive officers of the Company as a group. None
of these individuals own any shares of NSP Preferred Stock.
<TABLE>
<CAPTION>
ACQUIRABLE
STOCK WITHIN RESTRICTED
NAME OF BENEFICIAL OWNER COMMON STOCK EQUIVALENTS(1) 60 DAYS(2) STOCK TOTAL
- --------------------------------- ------------ -------------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
H. Lyman Bretting ............... 1,416 3,101 -- -- 4,517
David A. Christensen ............ 500 4,870 -- -- 5,370
W. John Driscoll ................ 2,000 4,870 -- -- 6,870
Giannantonio Ferrari ............ -- 131 -- -- 131
Dale L. Haakenstad .............. 771 217 -- -- 988
James J. Howard ................. 25,934 -- 116,067 19,342 161,343
Richard M. Kovacevich ........... 1,000 3,319 -- -- 4,319
Douglas W. Leatherdale .......... 300 3,096 -- -- 3,396
Margaret R. Preska .............. 600 4,353 -- -- 4,953
A. Patricia Sampson ............. 433 4,353 -- -- 4,786
Paul E. Anders .................. -- -- -- --
Edward J. McIntyre .............. 9,397 -- 38,366 4,571 52,334
Loren L. Taylor ................. 5,796 -- 25,224 4,083 35,103
Edward L. Watzl ................. 5,434 -- 13,225 3,023 21,682
Directors and executive
officers as a group ............
</TABLE>
(1) Represents stock units awarded under the Stock Equivalent Plan for
Non-employee Directors as of March 2, 1998.
(2) Represents exercisable options and performance units under the current
Executive Long-Term Incentive Award Stock Plan (LTIP) as of March 2, 1998.
Options to purchase common stock of the Company which are exercisable
within the next 60 days are 114,071 option shares for Mr. Howard, 13,167
option shares for Mr. Watzl, 37,727 option shares for Mr. McIntyre, 24,969
option shares for Mr. Taylor and -0- option shares for Mr. Anders. The
number of shares that would have been payable upon the exercise of
performance units on March 2, 1998 are: 1,996 for Mr. Howard, 58 for Mr.
Watzl, 639 for Mr. McIntyre, 255 for Mr. Taylor and -0- for Mr. Anders.
10
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth cash and non-cash compensation for each of
the last three fiscal years ended December 31, 1997, for services in all
capacities to the Company and its subsidiaries, to the Chief Executive Officer
and the next four highest compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------------- ------------------------------------
AWARDS PAYOUTS
------------------------ --------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
NUMBER OF
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) ($)(2) ($)(3) AND SARS (#) ($)(4) ($)(5)
- --------------------------- ----- --------- ----------- ------------ ---------- ------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JAMES J. HOWARD 1997 672,000 197,000 11,705 477,120 17,708 0
Chairman, President & 1996 622,000 401,000 7,610 478,940 15,264 0 20,056
Chief Executive Officer 1995 565,000 400,000 8,476 328,830 15,522 0 5,930
EDWARD J. MCINTYRE 1997 260,000 58,000 961 109,200 5,755 0
Vice President & Chief 1996 241,000 105,000 985 108,450 4,968 0 4,378
Financial Officer 1995 222,000 102,000 3,165 75,369 5,123 0 3,274
LOREN L. TAYLOR 1997 232,000 65,000 1,134 97,440 5,135 0
President, NSP Electric 1996 215,000 84,000 1,312 96,750 4,432 0 5,201
1995 200,000 93,000 2,008 67,900 4,615 0 10,763
EDWARD L. WATZL 1997 223,667 63,000 3,077 92,068 3,351 0 12,954
President, NSP 1996 175,000 85,000 1,986 56,000 2,920 0 2,713
Generation 1995 160,000 82,000 818 38,800 2,989 0 2,733
PAUL E ANDERS(6) 1997 183,334 236,000 12,651 0 0 0
Vice President and
Chief Information
Officer
</TABLE>
- --------------------
(1) This column consists of awards made to each named executive under the
Company's current Annual Executive Incentive Compensation Plan and, with
respect to Mr. Anders, also includes an additional payment of $150,000 to
replace certain incentive compensation opportunities that Mr. Anders
forfeited when he left his previous employer and a $50,000 payment in lieu
of a restricted stock grant.
(2) This column consists of reimbursements for taxes on certain personal
benefits received by the named executives.
(3) Amounts shown in this column reflect the market value of the shares of
restricted stock awarded under the LTIP, and are based on the closing price
of the Company's common stock on the date that the awards were made.
Restricted shares earned for 1997 under the Company's LTIP were granted on
January 28, 1998 based on the performance period ending September 30, 1997.
As of December 31, 1997, the named executives held the following as a
result of grants under the LTIP: Mr. Howard held 14,302 restricted shares
at a market value of $833,091; Mr. McIntyre held 3,248 restricted shares at
a market value of $189,196; Mr. Anders held -0- restricted shares at a
market value of $0; Mr. Taylor held 2,905 restricted shares at a market
value of $169,216 and Mr. Watzl held 1,676 restricted shares at a market
value of $97,627. The restricted stock awards vest one year after the date
of grant with respect to fifty (50%) of the shares and two years after such
date with respect to the remaining shares, conditioned upon the continued
employment of the recipient with the Company. Regular dividends are paid on
the restricted shares.
Mr. Watzl received an additional 1,600 shares of restricted stock during
1994, which as of December 31, 1997, had a market value of $56,046. These
additional shares vested with respect to 50% of the shares on October 26,
1996. The remainder of the shares will vest on October 26, 1998.
The total number of restricted shares awarded during the years 1995, 1996
and 1997 are as follows: 21,909 shares for Mr. Howard, 5,135 shares for Mr.
McIntyre, -0- shares for Mr. Anders, 4,290 shares for Mr. Taylor and
2,179 shares for Mr. Watzl.
(4) The Company had no LTIP payouts in 1997.
(5) This column consists of the following: $________ was contributed by the
Company for the Employee Stock Ownership Plan (ESOP) for each named
executive officer (the Company contribution on behalf of all ESOP
participants, including the named executive officers, was equal to ______%
of their covered compensation); the value to each named executive of the
remainder of insurance premiums paid under the Officer Survivor Benefit
Plan by the Company: $15,656 for Mr. Howard, $679 for Mr. McIntyre, $3,000
for Mr. Watzl, $500 for Mr. Taylor and $-0- for Mr. Anders;
11
<PAGE>
imputed income as a result of life insurance paid by the Company on behalf
of each named executive: $3,417 for Mr. Howard, $519 for Mr. McIntyre, $943
for Mr. Watzl, $623 for Mr. Taylor and $473 for Mr. Anders; Company
matching 401(k) plan contribution of $900 to each named executive; and,
earnings accrued under the Company Deferred Compensation Plan to the extent
such earnings exceeded the market rate of interest (as prescribed pursuant
to the SEC rules), which was $1,506 for Mr. Howard, $7,461 for Mr.
McIntyre, $8,111 for Mr. Watzl, $12,202 for Mr. Taylor and $-0- for Mr.
Anders.
(6) Mr. Anders joined the Company in May 1997.
OPTIONS AND STOCK APPRECIATION RIGHTS (SARS)
The following table indicates for each of the named executives (i) the
extent to which the Company used stock options and SARs for executive
compensation purposes in 1997 and (ii) the potential value of such options and
SARs as determined pursuant to the SEC rules.
OPTIONS AND SARS GRANTED IN 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- -------------------------------------------------------------------------------- -----------------------
(a) (b) (c) (d) (e) (f) (g)
% OF TOTAL
OPTIONS AND
OPTIONS/ SARS EXERCISE
SARS GRANTED TO OR BASE
GRANTED(1) EMPLOYEES PRICE EXPIRATION
NAME (#) IN 1997 ($/Sh) DATE 5%($)(2) 10%($)(2)
- ----------- -------------- ----------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
J. Howard 17,708 options 6.18% 47.4375 01/22/07 528,286 1,338,781
E. McIntyre 5,755 options 2.01% 47.4375 01/22/07 171,690 435,096
E. Watzl 3,351 options 1.17% 47.4375 01/22/07 99,971 253,346
L. Taylor 5,135 options 1.79% 47.4375 01/22/07 153,193 388,222
P. Anders 0 options 0% N/A N/A N/A N/A
All Shareholders(3) N/A N/A N/A N/A 5,336,600,601 8,497,644,565
</TABLE>
- ------------------
(1) Options were granted on January 22, 1997 and vested on January 22, 1998. No
SARs were awarded for 1997.
(2) The hypothetical potential appreciation shown in columns (f) and (g) for
the named executives is required by the SEC rules. The amounts in these
columns do not represent either the historical or anticipated future
performance of the Company's common stock level of appreciation.
(3) Potential realizable values during the ten year period commencing January
22, 1997, are based on the market price ($47.4375) and the outstanding
shares (69,063,712) of common stock of the Company on that date.
The following table indicates for each of the named executives the number
and value of exercisable and unexercisable options and SARs as of December 31,
1997.
AGGREGATED OPTION AND SAR EXERCISES IN 1997
AND FY-END OPTION/SAR VALUE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AND SARS AT 12/31/97 OPTIONS AND SARS AT
ACQUIRED ON REALIZED (#) -- EXERCISABLE (ex)/ 12/31/97 ($) -- EXERCISABLE (ex)/
NAME EXERCISE(#) VALUE($) UNEXERCISABLE (unex) UNEXERCISABLE (unex)*
- ------------- ----------- -------- ---------------------------- ---------------------------------
<S> <C> <C> <C> <C>
J. Howard N/A N/A 98,359 (ex) 1,675,260 (ex)
17,708 (unex) 191,468 (unex)
E. McIntyre N/A N/A 32,611 (ex) 553,368 (ex)
5,755 (unex) 62,226 (unex)
E. Watzl N/A N/A 9,874 (ex) 125,610 (ex)
3,351 (unex) 36,233 (unex)
L. Taylor N/A N/A 20,089 (ex) 292,081 (ex)
5,135 (unex) 55,522 (unex)
P. Anders N/A N/A -- (ex) -- (ex)
-- (unex) -- (unex)
</TABLE>
- ------------------
*Share price on December 31, 1997 was $58.25. Unexercisable options were granted
on January 22, 1997 at a price of $47.4375. No SARs were granted in 1997.
12
<PAGE>
CORPORATE MANAGEMENT COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
CORPORATE MANAGEMENT COMMITTEE. The Committee is composed entirely of
outside directors of the Company and makes recommendations to the Board
concerning total compensation for executive officers of the Company. The
Committee is the sole administrator of the executive annual and long-term
incentive plans with full authority to establish and interpret the terms of the
plans and to make payment of the awards.
COMPENSATION STRATEGY. NSP's executive compensation goals for 1997 were:
(i) to provide a competitive compensation package that enables NSP to attract
and retain key executives and (ii) to align the executive's interests with those
of NSP's stockholders and with NSP's performance. The 1997 compensation of NSP's
executives was comprised primarily of base salary, annual incentive awards and
long-term incentive awards.
To achieve the compensation goal of providing a competitive compensation
package, the Committee seeks to set base salary and the target amounts of the
annual and long-term awards at the median of a combined group of major utilities
and industrial companies (the "Peer Group"). For 1997, the Peer Group consisted
of twelve industrial companies, with regional representation and average
revenues of $2.6 billion, and twelve utilities, all of which operate nuclear
facilities, with average revenues of $3.9 billion. The utilities included in
this group are also part of the Edison Electric Institute 100 utilities ("EEI
100") index used in the Total Shareholder Return Comparison in this proxy
statement, but all of the companies in such index are not included in the Peer
Group for purposes of compensation review. The twenty-four companies in the Peer
Group were selected primarily because they are viewed as representative of the
types of companies with which NSP competes in attracting and retaining executive
officers.
The annual and long-term portions of an executive's compensation are
intended to achieve NSP's goal of aligning an executive's interests with NSP's
shareholders and with NSP performance. These portions of an executive's
compensation are placed at risk and are limited to the accomplishment of
specific results that are designed to benefit NSP's shareholders and NSP, both
in the long and short term. As a result, during years of excellent performance,
executives are provided the opportunity to earn a highly-competitive level of
compensation and, conversely, in years of below-average performance, their
compensation may be below competitive levels. Generally, higher level executive
officers have a greater level of compensation placed at risk.
In 1993, a Federal tax law was passed which limits the deductibility of
executive compensation in excess of $1,000,000 unless certain exceptions are
met. Compensation increases that reflected market levels of compensation and the
regular operation of the Company's incentive plans, fully described below,
caused Mr. Howard's 1997 compensation to become partially non-deductible under
this law. It is the Committee's intent to maintain the deductibility of
executive compensation to the extent reasonably practicable and to the extent
consistent with its other compensation objectives. For this reason and the
reasons discussed in Proposal No. 3 and Proposal No. 4 herein, the Committee
determined that the Company should modify its long-term and annual incentive
plans beginning in 1998, so that certain compensation payable thereunder would
qualify for the "performance based compensation" exception to the $1,000,000
deduction limit, thereby ensuring that, beginning in 1998 for the annual plan
and beginning in 2001 for the long-term plan, such compensation will be
deductible under the Code.
Accordingly, the Board has amended, effective January 1, 1998, its current
long-term incentive plan and adopted, effective January 1, 1998, a new annual
incentive plan, in each case subject to shareholder approval at this Annual
Meeting.
BASE PAY. The level of base pay is not directly related to the Company's
financial performance. Instead, target levels for base pay are established for
each executive officer based on the median base
13
<PAGE>
pay level for that position within the Peer Group. The target level of base pay
is subject to some adjustment (15% either way) to reflect individual and
corporate performance. In deciding whether to make base pay adjustments, the
Corporate Management Committee considers the base pay target level established
for each officer, the general contribution of each officer to overall corporate
performance and the achievement level of specific annual goals established for
each officer. While individual, business area and corporate goals are considered
regarding base pay adjustments, achievement of these goals is primarily rewarded
through the Company's annual and long-term incentive programs. Generally, in
1997 base pay levels for executive officers, including Mr. Howard, were
increased in accordance with comparable market movement as reflected within the
Peer Group and solid individual and corporate performance results during 1996.
The 1997 base pay amounts for the named executives are reflected in the salary
column of the Summary Compensation Table.
ANNUAL INCENTIVE. For 1997, annual incentive awards for the executive
officers were made in accordance with the Company's Executive Incentive
Compensation Plan (the "Plan"). Under the Plan, annual incentive awards were
established with target awards (expressed as a percentage of base pay)
commensurate with annual incentive awards for comparable positions at the median
level within the Peer Group. In 1997, target awards for executive officers
ranged from 30% to 50% of their base pay. Individuals could realize from 0% to
188% of their target awards dependent on the performance of the Company, the
individual and the individual's group in certain predetermined areas. These
areas were Company financial performance (based on EPS), customer satisfaction,
service reliability, price of product, safety and individual performance. The
awards given to the CEO, the President-NSP Generation and the
Vice-President-Nuclear Generation also were dependent on performance
specifically with respect to nuclear safety. The weight accorded particular
performance areas varied by executive. Generally, financial performance
accounted for 20% to 25% of an executive's target incentive award. All of the
other areas accounted for between 10% and 30% of the target awards. Based on NSP
and individual performance, executives received from 35% to 85% of their
targeted incentive awards in 1997. The annual awards paid for 1997 are reflected
in the bonus column of the Summary Compensation Table.
Mr. Howard's annual incentive award payout for 1997 was $197,000, as shown
in the Summary Compensation Table. The determination of this amount was based on
the criteria set forth above for the other executive officers. In particular,
Mr. Howard's target incentive award was 50% of his base pay and was based 25% on
financial performance, 10% on safety, 10% on nuclear safety, 15% on customer
satisfaction, 15% on price of product, 15% on reliability and 10% on individual
performance.
LONG-TERM INCENTIVE. For 1997, long-term incentive awards for executive
officers were determined in accordance with the current Executive Long-Term
Incentive Award Stock Plan (the "LTIP") and were generally set at target levels
commensurate with the median level for comparable positions within the Peer
Group. The LTIP permits the granting of non-qualified stock options and
restricted common stock to key employees. One of the goals of the LTIP is to
align key employees' long-term interests with those of NSP's shareholders
through the use of stock ownership and long-term financial performance goals.
The Corporate Management Committee made one grant of stock options during
1997 to each of the named executive officers. Option grants were positioned at a
level which generally equated to the average grant levels awarded to executives
in comparable positions in the Peer Group. The number of shares subject to
option was not affected by the number of shares previously awarded to such
executives. These options were not exercisable until one year after their grant,
and will remain exercisable for nine years. Stock options were granted with an
exercise price of 100% of the fair market value of the stock on the date of
grant to ensure that executives can only be rewarded for appreciation in the
price of the Company's stock when the Company's shareholders are similarly
benefited.
14
<PAGE>
Target awards of restricted stock (measured as a percentage of base pay)
were established for each executive at levels consistent with median levels for
comparable positions within the Peer Group. In 1997, actual awards ranged from
30% to 71% of the executive's base pay. Restricted stock is actually granted,
however, only if the Company achieves a certain level of financial performance,
as measured by the Company's return on common equity ("ROE") for the three year
period then ending, as compared to the three year average ROE of the EEI 100
index (the same index used for purposes of comparing shareholder return.) No
restricted stock awards are made unless the Company's three year average ROE is
at least equal to the median of the EEI 100 index, thereby prohibiting
restricted stock awards when NSP performance does not surpass the median
performance of utilities in the index. If NSP's ROE is 0.5% or more above the
index median, 100% of the target will be granted. Partial payout of restricted
stock will be made for ROE levels between the median and 0.5% above the median.
For the 1997 performance period, NSP's ROE was .87% above the median, resulting
in a payout of 119% of the target award. The stock awards are restricted so that
50% of the shares awarded become available one year following the grant and the
remaining 50% becomes available after two years. The restricted stock awards
reinforce the tie to shareholder returns, and the restrictions encourage the
retention of qualified executives.
In 1997, Mr. Howard received an option for 17,708 shares. For 1997, Mr.
Howard also received 8,871 shares of restricted stock (71% of his base pay).
These amounts were determined as described above for other executive officers.
The terms of the options and restricted stock are the same as for other
executive officers.
OTHER BENEFITS. Other benefits provided to executives generally are not
tied to the Company's financial performance. Rather, these benefits are
primarily designed to attract and retain executives. Among the benefits provided
by the Company in 1997 to its executives are contributions to the Employee Stock
Ownership Plan (at % of the individual's covered compensation - the same rate
applied to all other ESOP participants), Company paid life insurance in an
amount equal to 2 times base pay and benefits provided under the NSP Deferred
Compensation Plan and the NSP Excess Benefit Plan that make up for pension
benefits that can not be paid under the Company's qualified defined benefit
pension plan due to Internal Revenue Code limitations and the exclusion of
certain elements of pay from pension-covered earnings. The level of retirement
benefits provided by these plans in the aggregate is reflected in the Pension
Plan Table.
Executive officers, including the named executive officers, may receive
severance benefits in accordance with the NSP Senior Executive Severance Policy,
which is described in more detail under the section below entitled "Severance
Arrangements."
CONCLUSION. The Committee believes that the Company's executive
compensation package, with the amendments to the LTIP and the adoption of the
new annual plan described in Proposal No. 3 and Proposal No. 4, effectively
serves the interests of the Company and its shareholders. The balance of base
pay, and annual and long-term incentives provides increased motivation to
executives to contribute to and participate in the Company's long-term success.
The Committee is dedicated to ensuring that the Company's total compensation
package continues to meet the needs of the Company and shall monitor and revise
compensation policies as necessary.
W. JOHN DRISCOLL, CHAIRMAN DOUGLAS W. LEATHERDALE
DAVID A. CHRISTENSEN MARGARET R. PRESKA
15
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
James J. Howard, Chairman and Chief Executive Officer of the Company is a
member of the Board of Directors of Honeywell, Inc. and serves on Honeywell's
Personnel Committee. Giannantonio Ferrari became a member of the Company's
Board of Directors in October 1997. Mr. Ferrari is the President and Chief
Operating Officer of Honeywell. Since Mr. Ferrari joined the Company's Board of
Directors, Mr. Howard has abstained from voting on all matters considered by
Honeywell's Personnel Committee dealing with Mr. Ferrari's compensation. Mr.
Ferrari is not a member of the Corporate Management Committee of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the federal securities laws, the Company's directors and executive
officers are required to report, within specified monthly and annual due dates,
their initial ownership in the Company's common and preferred stocks and certain
subsequent acquisitions, dispositions or other transfers of interest in such
securities. The Company is required to disclose whether it has knowledge that
any person required to file such a report may have failed to do so in a timely
manner. Based solely upon a review of these reports and written representations
that no additional reports were required to be filed in 1997, the Company
believes that all reports were filed on a timely basis except that Mr. Paul E.
Anders, Vice President and Chief Information Officer, filed his initial
ownership report late.
16
<PAGE>
TOTAL SHAREHOLDER RETURN COMPARISON
The graph below compares the cumulative total shareholder return on the
Company's common stock for the last five fiscal years with the cumulative total
return of the Standard & Poor's 500 Stock Index, the Edison Electric Institute
100 utilities index (EEI 100), and the Edison Electric Institute Combination Gas
and Electric index (EEI G&E) over the same period (assuming the investment of
$100 in each vehicle on December 31, 1992 and reinvestment of all dividends).
CUMULATIVE 5 YEAR VALUE
[PLOT POINTS GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
NSP ................................ $100 $105 $114 $135 $134 $179
EEI 100 ............................ $100 $111 $ 98 $129 $130 $166
EEI Combination Gas & Electric...... $100 $112 $ 97 $124 $123 $159
S&P 500 ............................ $100 $110 $112 $153 $188 $251
</TABLE>
The Company has elected to add the EEI G&E index to this return comparison
so that the Company's performance can be analyzed against other companies which
provide both electric and gas service, as does the Company. The EEI G&E index
consists of 40 companies, which are all included in the EEI 100 index of
companies. The remainder of the companies in the EEI 100 index provide electric
service only, but provide a broader measure of industry performance.
17
<PAGE>
PENSION PLAN TABLE
The following table illustrates the approximate retirement benefits payable
to employees retiring at the normal retirement age of 65 years:
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS FOR YEARS OF SERVICE INDICATED
---------------------------------------------------------------------------------
AVERAGE YEARS OF SERVICE
COMPENSATION ---------------------------------------------------------------------------------
(4 YEARS) 5 10 15 20 25 30
- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 3,500 $ 7,000 $ 10,500 $ 14,000 $ 17,500 $ 21,000
100,000 7,500 15,000 23,000 30,500 38,000 45,500
150,000 11,500 23,500 35,000 47,000 58,500 70,000
200,000 16,000 31,500 47,500 63,000 79,000 94,500
250,000 20,000 39,500 59,500 79,500 99,500 119,000
300,000 24,000 48,000 72,000 96,000 120,000 143,500
350,000 28,000 56,000 84,000 112,000 140,000 168,000
400,000 32,000 64,000 96,500 128,500 160,500 192,500
450,000 36,000 72,500 108,500 145,000 181,000 217,000
500,000 40,500 80,500 121,000 161,000 201,500 241,500
550,000 44,500 88,500 133,000 177,500 222,000 266,000
600,000 48,500 97,000 145,500 194,000 242,500 290,500
650,000 52,500 105,000 157,500 210,000 262,500 315,000
700,000 56,500 113,000 170,000 226,500 283,000 339,500
750,000 60,500 121,500 182,000 243,000 303,500 364,000
800,000 65,000 129,500 194,500 259,000 324,000 388,500
850,000 69,000 137,500 206,500 275,500 344,500 413,000
900,000 73,000 146,000 219,000 292,000 365,000 437,500
950,000 77,000 154,000 231,000 308,000 385,000 462,000
1,000,000 81,000 162,000 243,500 324,500 405,500 486,500
wage base: $ 65,400
</TABLE>
- ----------------------
After an employee has reached 30 years of service, no additional years are
used in determining pension benefits. The annual compensation used to
calculate the average compensation shown in this table is based on the
participant's base salary for the year (as shown on the Summary
Compensation Table at column (c)) and bonus compensation paid in that same
year (as shown on the Summary Compensation Table at column (d); see figure
for prior year). The benefit amounts shown are amounts computed in the form
of a straight-life annuity. The amounts are not subject to offset for
social security or otherwise, except as provided in the employment
agreement with Mr. Howard, as described below.
At the end of 1997, each of the executive officers named in the Summary
Compensation Table had the following credited service: Mr. Howard, 10.92
years, Mr. Anders, 0 years, Mr. Watzl, 30.58 years, Mr. McIntyre, 24.83
years and Mr. Taylor, 24.58 years.
An employment agreement with Mr. Howard provides that he and his spouse, if
she survives him, will receive a lump-sum payment equal to the present
value of combined benefits from the Pension Plan and supplemental Company
payments as though he had completed 30 years of service, less the pension
benefits earned from a former employer.
18
<PAGE>
SEVERANCE ARRANGEMENTS
The executive officers of the Company, including the named executives other
than Mr. Howard, are participants under the NSP Senior Executive Severance
Policy which provides for payment of severance benefits to any participant whose
employment is terminated after April 28, 1995, the effective date of the Policy,
and prior to April 28, 2000, if the participant's employment is terminated: (i)
by the employer, other than for cause, disability or retirement; (ii) as a
result of the sale of a business by the employer if the purchaser of the
business does not agree to employ the participant on the same terms and
conditions as were in effect before the sale, including comparable severance
protection; (iii) or by the participant within 90 days after a reduction in his
or her salary, a material and adverse diminishment of his or her duties and
responsibilities or of the program of incentive compensation and employee
benefits covering the participant, or a relocation of the participant by more
than 50 miles.
The severance benefits under the Policy consist of: (i) a cash lump sum
payment of three years' salary and annual incentive compensation; (ii) a cash
lump sum payment of the actuarial equivalent of the additional retirement
benefits the participant would have earned if he or she had remained employed
for three more years; (iii) continued medical, dental and life insurance
coverage for three years; (iv) outplacement services at a cost of not more than
$30,000 or the use of office space and support for up to one year; (v) financial
planning counseling for two years; and (vi) transfer of title of the
participant's company car, if any, at no cost to the participant. If the
foregoing benefits, when taken together with any other payments to the
participant, result in the imposition of the excise tax on excess payments under
Section 4999 of the Code, then the severance benefits will be reduced only if
the reduction results in a greater after-tax payment to the participant.
PROPOSAL NO. 2 -- PROPOSAL TO AMEND THE COMPANY'S
RESTATED ARTICLES OF INCORPORATION TO INCREASE
THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK
FROM 160 MILLION SHARES TO 350 MILLION SHARES
On January 28, 1998, the Board of Directors adopted, subject to shareholder
approval, an amendment to the Company's Restated Articles of Incorporation, as
amended, which provides for an increase in the number of shares of authorized
Company common stock, par value $2.50 per share ("Common Stock"), from 160
million shares to 350 million shares. As of March 1, 1998, ________ shares of
Common Stock were issued and outstanding. Of the ________ shares of Common Stock
available for issuance, approximately ________ shares are reserved for issuance
under the Company's dividend reinvestment plan, long-term incentive plan and
other employee benefit plans and shares having a market value of approximately
$19 million (approximately ________ shares based on the market value on March 2,
1998) have been authorized for issuance in connection with the previously
announced acquisition of Black Mountain Gas Company, leaving approximately
_______ shares authorized, unissued and unreserved.
The additional shares of Common Stock for which authorization is sought
would be part of the existing class of Common Stock and, if and when issued,
would have the same rights and privileges as the shares of Common Stock
presently outstanding. Adoption of the proposed amendment would not affect the
rights of the holders of currently outstanding Common Stock of the Company.
However, any issuance of additional authorized shares could result in the
dilution of each existing shareholder's voting power, and could have the effect
of diluting the earnings per share or book value per share of outstanding shares
of Common Stock. Holders of Common Stock do not have the preemptive right to
subscribe for the purchase of any part of any new or additional issue of stock
or securities convertible into stock.
The Board of Directors believes that it is in the best interest of the
Company to increase the authorized shares of Common Stock to provide the Company
with flexibility in structuring future
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financings and achieving other proper corporate purposes, including without
limitation, stock splits, stock dividends, financings, acquisitions, providing
additional equity incentives to employees, officers or directors, and/or
establishing strategic relationships with other companies. Other than the
dividend reinvestment plan and the employee benefit plans discussed above, the
Company has no current plans to issue shares of Common Stock relating to these
or other matters, although the Company from time to time evaluates such matters
and acknowledges that one or more could occur in the near term. In particular,
it should be noted that the Company evaluates potential stock splits from time
to time. If market conditions so warrant and the proposed amendment is approved,
the Board of Directors may authorize a stock split at or shortly after the 1998
Annual Meeting.
If the proposed amendment is approved, the Board of Directors could
generally issue such additional shares without further shareholder action,
unless such action is then required by applicable law or the rules of any stock
exchange on which the Company's securities may be listed. The proposed
amendment, if adopted, would cause the Company's authorized capital stock to
consist of: (i) 350,000,000 shares of Common Stock and (ii) 7,000,000 shares of
preferred stock, $100 par value (the "Preferred Stock"). Preferred Stock,
2,000,000 shares of which are currently outstanding, may be issued in the future
in such series as may be designated by the Board of Directors. In creating any
such series, the Board of Directors has the authority to fix the rights and
preferences of each such series with respect to, among other things, the
designation, dividend rates and times of payment, redemption price and
liquidation price or preference as to assets in voluntary liquidation. The
increase in the amount of authorized Common Stock was not proposed with the
intention of discouraging tender offers or takeover attempts of the Company.
However, the availability of additional authorized shares of Common Stock for
issuance, along with the power of the Board over the terms of the Preferred
Stock and certain other provisions, could render more difficult or discourage a
merger, tender offer, proxy contest or other attempt to obtain control of the
Company. These other provisions include certain provisions of its Restated
Articles of Incorporation and the Minnesota Business Corporation Act, which
provide for, among other things, cumulative voting for directors, a classified
board of directors, control share acquisition and fair price provisions.
The Company has no knowledge, however, of any effort to accumulate the
Company's Common Stock or to obtain control of the Company by means of a merger,
tender offer, solicitation in opposition to management or otherwise.
VOTE REQUIRED. The affirmative vote of the holders of a majority of (i) the
Common Stock, voting separately as a class and (ii) the total voting power
present in person or by proxy and entitled to vote is required for the approval
of the adoption of the amendment to the Restated Articles of Incorporation, as
amended. Abstentions from voting on this matter are treated as votes against,
while broker nonvotes are treated as shares not present and entitled to vote.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION, AS AMENDED.
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PROPOSAL NO. 3 -- PROPOSAL TO APPROVE AMENDMENTS
TO THE COMPANY'S EXECUTIVE LONG-TERM
INCENTIVE AWARD STOCK PLAN
On January 28, 1998, the Board approved amendments to the Long-Term
Incentive Award Stock Plan (the "Original Long-Term Plan"), which was initially
approved by the Board in January 1988 and by the shareholders at the 1989 Annual
Meeting. The amendments to the Original Long-Term Plan became effective January
1, 1998, subject to shareholder approval. Such Original Long-Term Plan as so
amended is hereinafter referred to as the "Amended Long-Term Plan". The
amendments, which are embodied in the Amended Long-Term Plan, include (i)
revisions to maintain the Company's tax deduction for certain performance-based
compensation, (ii) an increase in the number of shares available for issuance
per year from 0.5% of the outstanding Common Stock at the end of the prior year
to 1% of the outstanding Common Stock at the end of the prior year and (iii)
revisions to provide for accelerated vesting of options and stock appreciation
rights and the lapse of restrictions for restricted stock in the event of a
change in control of the Company. As with the Original Long-Term Plan, the
Amended Long-Term Plan permits a committee of the Board to grant non-qualified
stock options, incentive stock options, restricted stock ("Restricted Stock"),
stock appreciation rights ("SARs"), and performance awards to key employees.
The Amended Long-Term Plan has been designed to comply with Section 162(m)
of the Internal Revenue Code of 1986 (the "Code"), which generally denies a
corporate tax deduction for annual compensation exceeding $1,000,000 paid to the
chief executive officer and the four other most highly compensated officers of a
public company ("Covered Employees"). Certain types of compensation, including
performance-based compensation, are generally excluded from this deduction
limit. In an effort to ensure that stock awards under the plan will qualify as
performance-based compensation, the Amended Long-Term Plan is being submitted to
shareholders for approval at the Annual Meeting. While the Company believes that
compensation payable pursuant to the Amended Long-Term Plan generally will be
deductible for federal income tax purposes, under certain circumstances such as
death, disability and change in control, compensation not qualified under
Section 162(m) of the Code may be payable pursuant to the provisions of the
Amended Long-Term Plan. By approving the Amended Long-Term Plan, the
shareholders will be approving, among other things, the performance measures,
eligibility requirements and limits on various stock awards contained therein.
Set forth below is a summary of certain important features of the Amended
Long-Term Plan, which summary is qualified in its entirety by reference to the
actual plan attached as Exhibit A to this proxy statement. All capitalized terms
which are not defined herein are defined in the Amended Long-Term Plan.
DESCRIPTION OF THE AMENDED LONG-TERM PLAN
PURPOSE. The purpose of the Amended Long-Term Plan is to provide a portion
of compensation for executives in Common Stock of the Company to emphasize the
common interest between them and the shareholders and the need to balance
short-term and long-term goals in managing the Company. The total compensation
program is designed to be competitive with leading utilities and industry in
general to attract and retain key individuals with outstanding abilities.
ADMINISTRATION. The Amended Long-Term Plan will be administered by the
Corporate Management Committee of the Board of Directors of the Company (the
"Committee") which has the authority and discretion to select participants,
establish the criteria for making awards, determine the time at which awards
shall be granted, set the period, terms and conditions for each award, establish
the terms and conditions of any loans to participants for stock options and make
any other determinations which it believes necessary or advisable for the
administration of the Amended Long-Term Plan. The Committee always must have at
least three members and its members must be persons who are not eligible to
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participate in the Amended Long-Term Plan or any similar plan at the time
discretion under the Amended Long-Term Plan is exercised, and have not been
eligible to participate for at least one year prior thereto.
NUMBER OF SHARES. The maximum number of shares which may be awarded under
the Amended Long-Term Plan in any year is 1.0% of the outstanding Common Stock
at the end of the previous calendar year; provided that the number of shares
awarded to any participant in any calendar year may not exceed 100,000 shares.
Any shares forfeited by a participant after an award will not be counted as
shares awarded under the Amended Long-Term Plan until used in a subsequent
award. Any options and other awards under the Amended Long-Term Plan that either
expire or are settled in cash will not be counted in applying the aggregate
share limitation described above. If there is any change in the outstanding
Common Stock by reason of a stock dividend or distribution, stock split-up, or
by reason of merger, consolidation or other corporate reorganization in which
the Company is the surviving corporation, the number of shares of Common Stock
available for awards under the Plan shall be adjusted by the Committee to give
proper effect to such change.
ELIGIBILITY. All officers and key employees of the Company and its
subsidiaries are eligible for selection to participate in the Amended Long-Term
Plan. While the persons to whom awards will be made in future years and the
amounts and nature of such awards cannot be determined at this time, it is
anticipated that approximately 190 officers and key employees will be eligible
for participation in the Amended Long-Term Plan in any year. Participants may
receive successive awards under the Amended Long-Term Plan, while restrictions
on prior awards are still outstanding.
STOCK OPTIONS AND SARS. The exercise price for any stock options and SARs
will be determined by the Committee and may be granted at such price, including
cash, common stock, Restricted Stock, or any other consideration in kind, as may
be determined by the Committee. Options granted under the Amended Long-Term Plan
will be nontransferable, other than by will or the laws of descent and
distribution, and will be exercisable during the life of the optionee only by
such optionee. Options granted under the Amended Long-Term Plan will not be
exercisable more than 121 months after the date of grant.
The Plan provides for the issuance of SARs, which entitle the recipient to
receive, upon exercise, the excess of the fair market value of one share of
Common Stock over the exercise price of any option granted in conjunction
therewith, or the fair market value of such share at the time of grant. SARs
granted in conjunction with an option will have the same term as the underlying
option and the option to which the SAR relates will cease to be exercisable upon
the exercise of the related SAR.
An SAR may be granted under the Amended Long-Term Plan either in
conjunction with an option grant or separately. An SAR granted in conjunction
with an option enables the option holder to realize the value of the option
without having to provide what may be a substantial cash payment which would be
necessary to exercise the option. The exercise of SARs granted in conjunction
with options would require the surrender of the related options. Any amount
payable upon exercise of SARs may be paid in cash, in shares of Common Stock, or
a combination of cash and shares, as determined by the Committee. For the
purpose of the aggregate limitation on the number of shares that may be awarded
under the Amended Long-Term Plan, an exercise of an SAR will be treated as an
exercise of the related option.
RESTRICTED STOCK. The Amended Long-Term Plan also provides for the award of
Restricted Stock with such terms and conditions as may be established by the
Committee in its award; provided that Restricted Stock is not awarded unless
applicable performance goals established by the Committee within the time period
prescribed by Section 162(m) of the Code are satisfied. These performance goals
must be based on the attainment of specified levels of earnings per share,
market share, stock price, sales, costs, net operating income, cash flow,
retained earnings, return on equity, total shareholder return,
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shareholder value analysis, results of customer satisfaction surveys,
aggregate product price and other product price measures, safety record,
service reliability, demand-side management (including conservation and
load management), operating and maintenance cost management, energy
production availability, and individual performance measures. Such
performance goals also may be based on the attainment of specified levels
of the Company's performance under one or more of the measures described
above relative to the performance of other corporations. Performance goals
based on the foregoing factors are hereinafter referred to as "Performance
Goals." All Performance Goals must be objective performance goals
satisfying the requirements for "performance-based compensation" within the
meaning of Section 162(m)(4) of the Code. The Committee also may condition
the vesting of Restricted Stock awards to participants who are not Covered
Employees upon the satisfaction of these or other applicable performance
goals. The provisions of Restricted Stock awards (including any applicable
Performance Goals) need not be the same with respect to each participant.
Unless, otherwise limited by the Committee, the holders of Restricted Stock
have voting power for stock currently under restriction. If the recipient
of Restricted Stock shall cease to be continuously employed by the Company
during any restricted period, the recipient's rights to Restricted Stock
not yet vested will be forfeited except upon retirement or death.
PERFORMANCE AWARDS. Performance awards made pursuant to the Amended
Long-Term Plan entitle the recipient to receive future payments of cash or
distributions of shares of Common Stock upon the achievement of pre-established
performance goals, which may or may not be from among the objective performance
measures described above relating to Restricted Stock. Performance goals will be
established by the Committee. Performance awards may be granted in conjunction
with or separate from stock options granted under the Amended Long-Term Plan.
CHANGE IN CONTROL. The Plan provides that in the event of a change in
control (as defined in the Amended Long-Term Plan) of the Company (i) any SARs
and stock options outstanding as of the date of the change in control which are
not then exercisable and vested will become fully exercisable and vested, (ii)
the restrictions applicable to Restricted Stock will lapse and such Restricted
Stock shall become free of all restrictions and fully vested and (iii) all
performance awards will be considered to be earned and payable in full and any
restrictions will lapse and such performance awards will be settled in cash as
promptly as practicable.
AMENDMENT, SUSPENSION OR TERMINATION. The Board of Directors generally may
amend, suspend or terminate the Amended Long-Term Plan or any portion thereof at
any time. No amendment, suspension or termination of the Amended Long-Term Plan
by the Board may have the effect of impairing any awards previously granted to a
participant unless the participant consents to such impairment.
RIGHTS OF PARTICIPANTS. A participant in the Amended Long-Term Plan will
have no rights under the Amended Long-Term Plan greater than those of a general
creditor of the Company. The Committee may authorize the creation of trusts and
other arrangements to facilitate or ensure payment of the Company's obligations
under the Amended Long-Term Plan, provided that such trusts and arrangements are
consistent with the unfunded status of the Plan.
FEDERAL INCOME TAX CONSEQUENCES. The following discussion is intended only
as a brief discussion of the federal income tax rules relevant to stock options,
SARs, Restricted Stock and performance awards. The laws governing the tax
aspects of awards are highly technical and such laws are subject to change.
1. The award of a nonqualified stock option or SAR will not result in
income for federal tax purposes when the award is made. When nonqualified
stock options are exercised, the recipient will be deemed to have received
ordinary income in the amount equal to the difference between the option
price and the market price of the stock on the exercise date. When an SAR
is exercised, the
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recipient will be deemed to receive ordinary income in an amount equal to
any cash and/or the market price of any unrestricted shares received.
When any stock acquired by exercise of an option or SAR is sold, the
difference between the amount which was earlier deemed to be income and the
sale price of the stock will be treated as a capital gain or capital loss.
2. When cash or shares of stock are received by a recipient as a
performance award, the recipient will be deemed to have received ordinary
income equal to any cash and the market value of any stock received at the
time of receipt.
3. A recipient of Restricted Stock normally will not recognize taxable
income at the time the stock is granted, unless his rights to part or all
of the Restricted Stock are immediately vested. Thereafter, the recipient
will recognize ordinary income as the restrictions lapse. The amount of
such ordinary income will be equal to the market value of the Restricted
Stock (in excess of any amount paid by the recipient) at the time of the
lapse. However, the recipient may elect pursuant to Section 83(b) of the
Code to recognize ordinary income in an amount equal to the market value of
the Restricted Stock (in excess of any amount paid by the recipient) at the
time the stock is granted. Any subsequent change in the value of the
Restricted Stock would then be treated as capital gain or loss when the
stock is sold.
4. In each of the foregoing cases, the Company will be entitled to a
deduction for federal income tax purposes at the same time and in the same
amount as the receipt of cash and stock is initially treated as ordinary
income to the recipient.
Under generally accepted accounting principles, there will be no charge to
the income of the Company in connection with the grant or exercise of a stock
option that is granted at market value. In the case of below-market options and
any SARs, compensation expense would be recorded ratably over the vesting
period, with further charges or credits to income based on increases or
decreases in the market value of the stock while the option or SAR is
outstanding. Compensation expense for Restricted Stock would be recorded ratably
over the restricted period.
NEW PLAN BENEFITS. It cannot be determined at this time what benefits or
amounts, if any, will be received by or allocated to any persons or group of
persons under the Amended Long-Term Plan if such plan is approved. Such
determinations are subject to the discretion of the Committee. However, the
benefits and amounts that were paid or allocated under the Original Long-Term
Plan with respect to 1998 are described below and for 1997 and prior years are
described in the Summary Compensation Table, Option and SAR Grants Table and
Aggregated Option and SAR Exercises and FY-End Option/SAR Value Table on pages
11 and 12 of this proxy statement.
1998 AWARDS. The Committee in January 1998 awarded nonqualified stock
options under the Original Long-Term Plan to the following individuals and
groups described on page 10 that are presently employees of the Company: Mr.
Howard, 16,279 shares; Mr. McIntyre, 6,642 shares; Mr. Taylor, 4,688 shares; Mr.
Watzl, 5,470 shares, Mr. Anders, 5,567 shares; all executive officers as a
group, 38,646 shares; and all employees (excluding executive officers) 215,834
shares. The nonqualified stock options will become exercisable one year from the
date of grant at a purchase price of $53.75 per share. The Committee also
decided to make Restricted Stock awards to the following individuals and groups
described on page 10 who are currently employees of the Company: Mr. Howard,
8,871 shares, $477,120; Mr. McIntyre, 2,030 shares, $109,200; Mr. Taylor, 1,811
shares, $97,440; Mr. Watzl, 1,711 shares, $92,068; Mr. Anders, 0 shares, $0; all
executive officers as a group, ________ shares, $_______ ; and all employees
(excluding executive officers), 0 shares, $0. The dollar value of the awards is
based on the fair market value of the Common Stock on the date of grant
($53.7813 per share).
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VOTE REQUIRED. The affirmative vote of the holders of a majority of the
total voting power present in person or by proxy and entitled to vote at the
Annual Meeting will be required for approval of the Amended Long-Term Plan.
Abstentions from voting on this matter are treated as votes against, while
broker non-votes are treated as shares not present and entitled to vote. Proxies
solicited by the Board of Directors will be voted in favor of the proposal
unless a different vote is specified.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL OF AMENDMENTS TO THE COMPANY'S EXECUTIVE LONG-TERM INCENTIVE AWARD
STOCK PLAN.
PROPOSAL NO. 4 -- PROPOSAL TO APPROVE THE COMPANY'S
EXECUTIVE ANNUAL INCENTIVE AWARD PLAN
In January 1998, the Board adopted, effective January 1, 1998, the Northern
States Power Company Executive Annual Incentive Award Plan (the "Annual Plan").
The Annual Plan is intended to replace the Company's existing Executive
Incentive Compensation Plan. The Annual Plan will not become effective with
respect to individuals who are subject to Section 162(m) of the Code unless the
shareholder approval described below is obtained.
The purpose of the Annual Plan is to provide a significant and flexible
economic opportunity to selected officers and salaried employees of the Company
and its subsidiaries and other Affiliates (as defined in the Annual Plan) in an
effort to reward their individual and group contributions to the Company and
more closely link the financial interests of management, shareholders and
customers.
The Annual Plan is designed to take into account Section 162(m) of the
Code, which generally denies a corporate tax deduction for annual compensation
exceeding $1,000,000 paid to the chief executive officer and the four other most
highly compensated officers of a public company. Certain types of compensation,
including performance-based compensation, are excluded from this deduction
limit. In an effort to ensure that compensation payable under the Annual Plan to
certain executives will qualify as performance-based compensation that is
generally tax-deductible, the Annual Plan is being submitted to shareholders of
the Company for approval at the Annual Meeting. While the Company believes
compensation payable pursuant to the Annual Plan will be deductible for federal
income tax purposes, under certain circumstances such as death, disability and
change in control (all as defined in the Annual Plan), compensation not
qualified under Section 162(m) of the Code may be payable. By approving the
Annual Plan, the shareholders will be approving, among other things, the
performance measures, eligibility requirements and annual incentive award limits
contained therein.
Set forth below is a summary of certain important features of the Annual
Plan, which summary is qualified in its entirety by reference to the actual plan
attached as Exhibit B to this Proxy Statement:
ADMINISTRATION. The Annual Plan will be administered by the Corporate
Management Committee, or such other committee of the Company's Board as the
Company's Board may from time to time designate (the "Committee"), which, unless
the Company's Board determines otherwise, will be composed solely of not less
than two "disinterested persons" who qualify as "outside directors" for purposes
of Section 162(m) of the Code. The Committee will have sole authority to make
rules and regulations relating to the administration of the Annual Plan, and any
interpretations and decisions of the Committee with respect to the Annual Plan
will be final and binding.
ELIGIBILITY. The Committee will, in its sole discretion, determine those
officers and salaried employees of the Company who shall be eligible to
participate in the Annual Plan for a given period of 12 months or less (an
"Incentive Period"). These participants will be selected based upon their
opportunity to have a substantial impact on the Company's results. Participation
in the Annual Plan by
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a participant during a given Incentive Period does not require continued
participation by such participant in any subsequent Incentive Period.
PLAN FEATURES. The Annual Plan provides for the payment of cash incentive
awards to participants designated by the Committee, which payments may be
conditioned upon the attainment of pre-established performance goals or upon
such other factors or criteria as the Committee shall determine. Such
performance goals may be different for each participant. Bonus amounts are
determined by multiplying a participant's "Target Incentive Award" by a
percentage which varies depending on the extent to which the performance goals
or other factors or criteria are satisfied. A participant's Target Incentive
Award, in turn, is determined by multiplying such participant's base salary as
of the last day of the applicable Incentive Period by a percentage designated by
the Committee, in its sole discretion, which percentage need not be the same for
each participant (and which may exceed 100%). The Committee may, in its sole
discretion, increase or decrease the amount of any incentive awards payable to a
participant and may, in recognition of special circumstances, pay incentive
awards even if not earned, provided that the Committee cannot increase the
amount of any incentive awards payable to certain designated "Covered
Employees." Incentive awards payable under the Annual Plan to certain designated
"Covered Employees" are subject to special restrictions described in the
following section.
DESIGNATED COVERED EMPLOYEES. The Committee will have the authority, in its
sole discretion, to designate certain participants as "Covered Employees" for a
specified Incentive Period upon determining that such participants are or are
expected to be "covered employees" within the meaning of Section 162(m) of the
Code for such Incentive Period. Not more than 90 days after the beginning of the
Incentive Period, and, in any event, before 25% or more of the Incentive Period
has elapsed, the Committee will establish the performance goals for the bonus
award opportunities of these Covered Employees. Such performance goals are to be
comprised of one or more of the following measures: earnings per share, market
share, stock price, sales, costs, net operating income, cash flow, retained
earnings, return on equity, total shareholder return, shareholder value
analysis, results of customer satisfaction surveys, aggregate product price and
other product price measures, safety record, service reliability, demand-side
management (including conservation and load management), operating and
maintenance cost management, energy production availability, and individual
performance measures. Such performance goals also may be based on the attainment
of specified levels of performance by the Company under one or more of the
measures described above relative to the performance of other corporations. With
respect to Covered Employees, all Performance Goals must be objective
performance goals satisfying the requirements for "performance-based
compensation" within the meaning of Section 162(m) of the Code. Incentive awards
payable to Covered Employees are to be calculated in the same manner described
in the "PLAN FEATURES" section above, except that subjective individual
performance ratings cannot be used to increase the amount of incentive awards
payable to Covered Employees. No incentive awards will be paid to Covered
Employees if the minimum applicable pre-established Performance Goals are not
satisfied, unless the Covered Employee's employment is terminated because of
death, disability or change in control. Furthermore, the Committee will have the
authority to decrease, but not to increase, the amount of incentive awards
otherwise payable to Covered Employees pursuant to pre-established performance
goals and payment formulas. The maximum amount payable to any Covered Employee
of the Company for any calendar year will be $1,000,000.
AMENDMENT AND DISCONTINUANCE. The Board will have the right to amend,
alter, discontinue or otherwise modify the Annual Plan from time to time, but no
amendment will, without the consent of the participant affected, impair any
award made prior to the effective date of the modification.
NEW PLAN BENEFITS. It cannot be determined at this time what benefits or
amounts, if any, will be received by or allocated to any persons or group of
persons under the Annual Plan if such Plan is approved. Such determinations as
to allocations are at the discretion of the Committee and as to receipt of
payouts is dependent on future performance. However, the target incentive award
levels under the
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Annual Plan for 1998 are described below and amounts payable under the existing
Executive Annual Incentive Compensation Plan for 1995, 1996 and 1997 are set
forth in the bonus column of the Summary Compensation Table on page 11.
1998 AWARDS. The Committee in January 1998 established target incentive
award levels (expressed as a percentage of base salary) under the Annual Plan
for the following individuals and groups described on page 10 that are presently
employees of the Company: Mr. Howard in an aggregate amount equal to 55% of base
salary; for Messrs. McIntyre, Taylor, Watzl and Anders each in an amount equal
to 35% of their respective base salaries; and all executive officers as a group
in an aggregate amount ranging from 30% to 55% of base salary. These awards were
established for the incentive period commencing January 1, 1998 and ending
December 31, 1998, and their payout is dependent upon Company performance.
Individuals can realize from 0% to 188% of their target awards dependent on the
performance of the Company, the individual and the individual's group in certain
predetermined areas. These areas are company financial performance (based on
EPS), customer satisfaction, price of product, safety, service reliability, and
(except for the CEO) individual performance. The awards for the CEO, the
President-NSP Generation and the Vice President-Nuclear Generation also are
dependent on performance specifically with respect to nuclear safety. The weight
accorded particular performance areas varies by executive. Generally, financial
performance accounts for 20-50% of an executive's target incentive award. All of
the other areas account for between 10-30% of the target awards.
VOTE REQUIRED. The affirmative vote of a majority of the total voting power
present in person or by proxy and entitled to vote at the Annual Meeting is
required to approve the Annual Plan. Abstentions from voting on this matter are
treated as votes against, while broker non-votes are treated as shares not
present and entitled to vote. Proxies solicited by the Board of Directors will
be voted in favor of the proposal unless a different vote is specified.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF
THE COMPANY'S EXECUTIVE ANNUAL INCENTIVE AWARD PLAN.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
Subject to ratification by the shareholders, the Board of Directors has
appointed Price Waterhouse LLP as independent auditors of the Company for the
year 1998. Price Waterhouse has performed this function for the Company
commencing with the fiscal year 1995. Members of the firm will be available at
the Annual Meeting of Shareholders to answer questions and to make a statement
if they desire to do so.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
RATIFICATION OF THE APPOINTMENT OF AUDITORS.
PROPOSAL NO. 6 - SHAREHOLDER PROPOSAL
Marlys Weber, 4657 Colfax Avenue South, Minneapolis, MN 55409, beneficial
owner of 89.881 shares of NSP common stock, and Bruce Drew, 4425 Abbott Avenue
South, Minneapolis, MN 55410, beneficial owner of 1.378 shares of NSP common
stock, have given notice that they intend to present for action at the Annual
Meeting the following resolution:
Shareholder Resolution on Conversion of Prairie Island
Nuclear Plant to Natural Gas Plant
Whereas: The Prairie Island plant occupies a vital location in the power grid of
NSP, and is important to the local and state economy as well as to NSP's
shareholders;
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Whereas: The continued operation and repair of steam generators at the Prairie
Island Nuclear plant has resulted in high maintenance and facility costs to NSP;
Whereas: The inventory of spent nuclear fuel continues to increase through
nuclear power operation, and as a result, continues to cause storage issues with
the local community as well as the state of Minnesota;
Whereas: NSP has successfully converted the Pathfinder plant in South Dakota
from a nuclear power facility to a natural gas power facility;
Whereas: Electricity produced from natural gas can be more cost effective with
lower maintenance and waste costs than electricity produced with nuclear
reactors;
Therefore be it resolved that the shareholders recommend that the Board of
Directors commission a study of the economic feasibility of converting the
Prairie Island Nuclear Power Plant to a natural gas power plant, and make
available to shareholders such a study with recommendations of Board actions
before the next annual meeting.
THE NSP BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND A VOTE AGAINST THIS
PROPOSAL.
No formal study is needed to conclude that the conversion of the Prairie
Island Nuclear Generating Plant to a natural gas plant would not be economically
feasible for your Company.
The Company estimates that it would incur in excess of $500 million in
capital costs to convert the Prairie Island plant facilities to a natural gas
facility. During the conversion process, the cost of replacement power could be
as high as $200 million per year. Following the conversion, the Company
estimates that it would incur more than $100 million annually to supply fuel to
a converted facility -- that's more than 3 times the current annual cost of fuel
to Prairie Island. Other costs likely would be incurred due to the advancement
of decommissioning of the nuclear portions of the plant, the acceleration of
depreciation expenses and ongoing spent fuel management expenses.
The Company has successfully converted its Pathfinder Plant to a fossil
fuel plant. The Pathfinder Plant had previously operated as a nuclear plant from
1964 until 1967, after which it was converted to an oil and gas-fired plant.
However, there are great differences between the Pathfinder facility and Prairie
Island. First of all, Pathfinder was converted at the end of its useful life;
therefore, the economic feasibility was much more favorable for conversion of
that plant than for a premature Prairie Island conversion. Second, Pathfinder
was a small facility with a maximum capacity output of 90 megawatts; thus, it
was much more cost effective to replace that plant's small capacity output with
natural gas.
Since conversion, Pathfinder has been used as a "peaking" facility to
supply extra capacity when needed. Pathfinder operates annually at less than 1
percent of the total available hours to produce this peak capacity. Prairie
Island, on the other hand, is a "baseload" facility, fundamental to NSP's total
energy output. Prairie Island operates in excess of 90% of available hours on an
annual basis, with a total output of 1100 megawatts. The replacement of Prairie
Island's baseload capacity would require approximately 67 MILLION mcf of natural
gas per year -- that's more than 15-20% of the total annual gas usage in the
state of Minnesota, as compared to an annual 50 THOUSAND mcf of natural gas used
at the Pathfinder plant per year.
The Prairie Island Nuclear Generating facility is indeed vital to the total
energy output at your Company. In 1997, Prairie Island supplied 21.8% of the
Company's total energy. And, while storage of nuclear spent fuel from our
nuclear operations remains an issue, your Company continues to lead the way to
finding a permanent solution and to look for interim alternatives until a
permanent solution is found. The costs of maintaining Prairie Island, including
its steam generators, have been diligently managed to avoid large expenses over
the plant's life. Further,
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even with those maintenance costs, Prairie Island has proven to be one of the
lowest cost producers in the U.S., as confirmed by the September 1997 Utility
Data Institute's report on the 1996 Production Costs Operating Steam-Electric
Plants.
While it is technically feasible to convert a nuclear facility into a
natural gas facility and while it generally may be more cost effective to
construct a NEW gas facility than it is to construct a NEW nuclear plant, your
Company's management believes that it is not more cost effective to change an
existing, well-managed nuclear facility, like Prairie Island, to a natural gas
plant. Information compiled by the Utility Data Institute supports this
position, showing that based on 1996 data, combined fuel, maintenance and
operational expenses for a U.S. nuclear plant were only $19.25 per megawatt hour
(MWhr), as compared to $34.21 per MWhr for a gas plant. (September 1997 Utility
Data Institute's report on the 1996 Production Costs Operating Steam-Electric
Plants). What's more, Prairie Island's production costs are well below that
national average, with production expenses during 1996 totaling only $13.84 per
MWhr.
The bottom line is if we burden the Prairie Island plant with the
additional costs of a conversion to natural gas, the plant will no longer be
cost competitive. As described above, the premature conversion of Prairie Island
would unnecessarily increase costs by hundreds of millions of dollars annually.
A premature conversion of Prairie Island would likely cause NSP to lose its
position as a low-cost supplier of electricity and could seriously impair the
Company's ability to compete against other electric suppliers in the years
ahead, substantially lessening shareholder value. Therefore, based on what is
presently known about the costs to the Company to convert Prairie Island, a
commissioned study is not necessary to conclude that such a conversion would not
be economically feasible for this Company.
AGAIN, THE NSP BOARD AND MANAGEMENT URGE YOU TO VOTE "NO" ON THIS PROPOSAL.
QUORUM AND VOTE REQUIRED
The presence in person or by proxy, of the holders of a majority of the
voting power of the shares of common stock and cumulative preferred stock
issued, outstanding and entitled to vote at a meeting for the transaction of
business is required to constitute a quorum. The election of each director shall
be decided by plurality vote. As a result, any shares not voted for a director
(whether by withholding authority, broker non-vote or otherwise) have no impact
on the election of directors except to the extent the failure to vote for an
individual results in another individual receiving a larger number of votes. The
proposal for amendments of the Articles of Incorporation to increase the
authorized Common Stock
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requires the approval of a majority of the Common Stock, voting separately as a
class, and a majority of the total voting power present in person or by proxy
and entitled to vote. Each of the proposals for approval of amendments to the
Executive Long-Term Incentive Award Stock Plan, adoption of the Executive Annual
Incentive Award Plan, the shareholder proposal and ratification of the selection
of outside auditors requires the affirmative vote of the holders of a majority
of the total voting power present in person or by proxy and entitled to vote.
Abstentions from voting on these matters are treated as votes against, while
broker non-votes are treated as shares not present and entitled to vote.
1999 SHAREHOLDER PROPOSALS
Any proposal by a shareholder for the annual shareholder meeting in 1999
must be received by the Secretary of the Company at 414 Nicollet Mall,
Minneapolis, Minnesota 55401, not later than the close of business on November
13, 1998. Proposals received by that date will be included in the 1999 Proxy
Statement if the proposals are proper for consideration at an annual meeting and
are required for inclusion in the proxy statement by, and conform to, the rules
of the SEC.
For a proposal not included in the proxy statement to be properly brought
before an annual meeting by a shareholder, the Company's Bylaws provide that the
Secretary of the Company must have received written notice thereof not less than
20 or more than 90 days prior to the meeting. The notice must contain (i) a
description of the proposed business and the reasons for conducting such
business at the annual meeting, (ii) the shareholder's name and record address,
(iii) the class and number of shares beneficially owned by the shareholder, and
(iv) any material interest of the shareholder in such business.
OTHER BUSINESS
Management does not know of any business, other than that described herein,
that may be presented for action at the Annual Meeting of Shareholders. If any
other matters are properly presented at the meeting for action, the persons
named in the accompanying proxy will vote upon them in accordance with their
best judgment.
Minneapolis, Minnesota By order of the Board of Directors
March 13, 1998 John P. Moore, Jr.
SECRETARY
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EXHIBIT A
AMENDED AND RESTATED
EFFECTIVE AS OF JANUARY 1, 1998
NORTHERN STATES POWER COMPANY
EXECUTIVE LONG-TERM INCENTIVE AWARD STOCK PLAN
SECTION 1. PURPOSE. The general purpose of the Northern States Power
Company Executive Long-Term Incentive Award Plan (the "Plan") is to create a
compensation environment which will attract and retain talented officers and key
employees of Northern States Power Company, a Minnesota corporation (the
"Company") and its subsidiaries, by providing to employees determined to be
eligible ("Participants") with common stock of the Company ("Common Stock")
pursuant to awards ("Awards") described herein.
The specific purposes of the Plan are to:
(a) Provide a total compensation program which is competitive with general
industry programs and also those emerging in the leading utility
companies.
(b) Use a stock based long-term incentive plan to more closely align the
interest of NSP's executives with those of the shareholders and to
maintain NSP's long-term financial strength so that NSP can take
advantage of opportunities that will allow it to provide quality
service at the lowest cost possible.
(c) Provide another element of compensation beyond base salary and annual
incentive pay to focus attention on long-term business goals and to
reward superior company performance.
(d) Encourage teamwork and the spirit of cooperation along the executive
group.
SECTION 2. COMMITTEE. The Plan shall be administered by the Corporate
Management Committee of the Company's Board of Directors ( the "Committee" ) or
any committee designated as its successor for purposes of this Plan. The
Committee shall consist of not less than three members of the Board of Directors
who are not employees of the Company and all members of the Committee shall be
"disinterested persons" as defined in Rule 16b-3 of the General Rules and
Regulations under the Security Exchange Act of 1934. To the extent required to
comply with the performance-based compensation exemption under Internal Revenue
Code ("Code") Section 162(m) and the related regulations, each member of the
Committee shall qualify as an "outside director" as defined therein.
SECTION 3. COMMITTEE POWERS AND DUTIES. The Committee shall have the
authority to make rules and regulations governing the administration of the
Plan; to select the eligible employees to whom Awards shall be granted; to
determine the type, amount, size and terms of Awards; to determine the time when
Awards shall be granted; to determine whether any restrictions shall be placed
on shares of Common Stock granted pursuant to any Awards; to authorize the
Company to make available loans, on specified terms, to Participants for the
purpose of providing funds for the use of Participants in exercising options
granted under the Plan; and to make all other determinations necessary or
advisable for the administration of the Plan. The Committee's determination need
not be uniform, and may be made selectively among persons who are eligible to
receive Awards under the Plan, whether such persons are similarly situated. All
interpretations, decisions, or determinations made by the Committee pursuant to
the Plan shall be final and conclusive.
SECTION 4. PARTICIPANTS. Participants will consist of such key employees
(including officers) of the Company or any of its present or future
subsidiaries as the Committee, in its sole discretion, determines
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to be mainly responsible for the success and future growth and profitability of
the Company and whom the Committee may designate from time to time to receive
Awards under the Plan. Awards may be granted under this Plan to persons who have
previously received Awards or other benefits under this or other plans of the
Company.
SECTION 5. AWARDS. Awards may consist of Common Stock transferred to
Participants, subject to restrictions as described in Section 6, as additional
compensation for service rendered to the Company without any other payment
therefor provided that the value of the Common Stock awarded by the Committee to
any Participant in a calendar year shall not exceed $1,000,000. The Committee
also may make Awards in the form of stock options, stock appreciation rights,
performance awards, or any combination of the foregoing provided that the
Committee shall not award rights or options to purchase more than 100,000 shares
to any Participant in a calendar year. Awards granted under the Plan in any
calendar year cannot exceed one percent (1%) of the number of outstanding shares
of Common Stock at the end of the previous calendar year. Solely for the purpose
of computing the number of shares of Common Stock granted under this Plan, there
shall not be counted any shares that have been forfeited. The stock awarded may
be previously unissued or stock repurchased by the Company for purposes of this
Plan as designated by the Board of Directors. If there is any change in the
outstanding Common Stock by reason of a stock dividend or distribution, stock
split-up, recapitalization, combination or exchange of shares, or by reason of
merger, consolidation or other corporate reorganization in which the Company is
the surviving corporation, the number of shares of Common Stock available for
Awards under the Plan shall be adjusted by the Committee to give proper effect
to such change.
SECTION 6. RESTRICTED STOCK.
(a) AWARDS. All Awards shall consist of restricted shares of Common Stock
granted pursuant to the Plan and shall entitle the Participant to
receive the shares of Common Stock, subject to forfeiture if specified
conditions are not satisfied, at the end of a specified period. The
shares of Common Stock awarded shall be subject to such terms and
conditions as the Committee shall from time to time approve; provided,
that each Award shall be subject to the requirements of this Section
6. Awards of restricted stock shall be determined by the Committee
utilizing performance goals based on one or more of the following:
earnings per share, market share, stock price, sales, costs, net
operating income, cash flow, retained earnings, return on equity,
total shareholder return, shareholder value analysis, results of
customer satisfaction surveys, aggregate product price and other
product price measures, safety record, service reliability,
demand-side management (including conservation and load management),
operating and maintenance cost management, energy production
availability, and individual performance measures; provided, that all
Performance Goals shall be objective performance goals satisfying the
requirements for "performance-based compensation" within the meaning
of Section 162(m)(4) of the Code. Such Performance Goals also may be
based on the attainment of specified levels of performance of the
Company and/or any Affiliates under one or more of the measures
described above relative to the performance of other corporations.
(b) RESTRICTED PERIOD. The Committee shall establish a period (the
"Restricted Period") of not less than one year nor more than five
years, commencing on the date of award, during which the Participant
will not be permitted to sell, transfer, pledge, encumber, or assign
the Common Stock subject to the Award. Within these limits, the
Committee may provide for the lapse of restrictions in installments or
upon the occurrence of certain events where deemed appropriate. Any
attempt by a Participant to dispose of restricted shares of Common
Stock in a manner contrary to the applicable restrictions shall be
void, and of no force and effect.
(c) RIGHTS DURING RESTRICTED PERIOD. Except to the extent otherwise
provided in this Section 6 or under the terms of any restricted stock
agreement during the Restricted Period, the Participant
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shall have all of the rights of a stockholder in the Company with
respect to the restricted shares of Common Stock, including the right
to vote the shares and to receive dividends and other distributions
with respect to the shares unless the Committee shall otherwise
determine; provided, that all stock dividends, stock rights, and stock
issued upon split-ups or reclassification of shares shall be subject
to the same restrictions as the rights, or additional stock are
issued, and may be held in custody as provided hereafter in this
Section 6 until the restrictions thereon shall have lapsed.
(d) FORFEITURES. Except to the extent otherwise provided in the restricted
stock agreement, if the Participant shall cease to be an employee of
the Company or any subsidiary, or if any condition established by the
Committee for the release of any restrictions shall not have occurred,
prior to the expiration of the Restricted Period, all shares of Common
Stock then subject to any restrictions shall be forfeited to the
Company without any further obligations of the Company to the
Participant, and all rights of the Participant with respect to such
shares shall terminate.
(e) CUSTODY. Restricted shares may be held in custody by the Company in an
account allocated to the Participant until restrictions applicable to
thereto have expired. The Committee may require that any certificates
evidencing restricted shares of Common Stock be held in custody by a
bank or other institution, or by the Company or any subsidiary, until
the restrictions thereon have lapsed. If any certificates are issued
for shares still subject to restrictions, the Participant awarded such
shares shall deliver to the Company a stock power, endorsed in blank,
relating to the restricted shares as a condition of receiving the
Award.
(f) CERTIFICATES. Subject to paragraph (e) above, if a recipient of
restricted shares pursuant to an Award shall be issued a certificate
or certificates evidencing the shares of Common Stock subject to the
restrictions provided as to the applicable Award, such certificates
shall bear an appropriate legend referring to the terms, conditions,
and restrictions applicable to the Award, which legend shall be
substantially in the following form:
"The transferability of this certificate and the shares
represented hereby are subject to the terms and
conditions (including forfeiture) of the Northern
States Power Company Executive Long-Term Incentive
Award Stock Plan and an Agreement entered into between
the registered owner and Northern States Power Company,
a Minnesota corporation. Copies of such Plan and
Agreement are on file in the office of the Secretary,
Northern States Power Company, 414 Nicollet Mall,
Minneapolis, Minnesota."
(g) GIFT TO DEPENDENT. Notwithstanding any provision of this Section 6,
the Committee may permit a gift of restricted shares to the
Participant's spouse, child, stepchild, grandchild, or legal
dependent, or to a trust whose sole beneficiary or beneficiaries shall
be the Participant and/or any one or more of such persons; provided,
that the donee shall have entered into an agreement with the Company
pursuant to which the donee agrees that the restricted shares of
Common Stock shall be subject to the same restrictions as they were
prior to the donation by the Participant.
SECTION 7. STOCK OPTIONS. A stock option granted pursuant to the Plan shall
entitle the optionee, upon exercise, to purchase shares of Common Stock at a
specified price during a specified period. Such options will be "nonqualified"
for the purposes of Section 422A of the Internal Revenue Code. Options shall be
subject to such terms and conditions as the Committee shall from time to time
approve; provided, that each option shall be subject to the following
requirements:
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(a) TYPE OF OPTION. Each option shall be identified in the agreement
pursuant to which it is granted as a nonqualified option.
(b) TERM. No option shall be exercisable more than 121 months after the
date on which it is granted.
(c) PAYMENT. The purchase price of shares of Common Stock subject to an
option shall be payable in full at the time the option is exercised.
Payment may be made in cash, in shares of Common Stock having a fair
market value which is not less than the option price on the date of
exercise, or by a combination of cash and such shares, or any other
consideration in kind, including shares of restricted stock, as the
Committee may determine, and subject to such terms and conditions as
the Committee deems appropriate.
(d) OPTIONS NOT TRANSFERABLE. Options shall not be transferable except to
the extent permitted by the agreement evidencing such option;
provided, that in no event shall any option be transferable by the
optionee, other than by will or the laws of descent and distribution,
and shall be exercisable during an optionee's lifetime only by such
optionee. If, pursuant to the agreement evidencing any option, such
option remains exercisable after the optionee's death, to the extent
permitted by such agreement, it may be exercised by the personal
representative of the optionee's estate or by any person who acquired
the right to exercise such option by bequest, inheritance, or
otherwise by reason of the optionee's death. Subject to the foregoing,
options may be made exercisable in one or more installments, upon the
happening of certain events, upon the fulfillment of certain
conditions, or upon such other terms and conditions as the Committee
shall determine.
SECTION 8. STOCK APPRECIATION RIGHTS. A stock appreciation right granted
pursuant to the Plan shall entitle the holder, upon exercise, to receive a
payment equal to the amount by which the fair market value of one share of
Common Stock (as determined by the Committee) on the date the right is exercised
exceeds the "base amount" established by the Committee for such right on the
date it was granted. Stock appreciation rights shall be subject to such terms
and conditions as the Committee shall from time to time approve; provided, that
each right shall be subject to the following requirements:
(a) TYPE OF RIGHT. A stock appreciation right may be granted in tandem
with an option granted pursuant to the Plan, or as a "freestanding"
right not in tandem with an option.
(b) TANDEM RIGHTS. Any option granted in tandem with a stock appreciation
right shall become nonexercisable upon the exercise of the related
right, and any right granted in tandem with an option shall become
nonexercisable upon exercise of the related option. Shares of Common
Stock subject to an option which becomes nonexercisable by virtue of
the exercise of a tandem right shall not be available for subsequent
awards under the Plan.
(c) TERM. No stock appreciation right shall be exercisable more than 121
months after the date on which it is granted.
(d) PAYMENT. Any amount payable upon the exercise of a stock appreciation
right may be paid in cash, in shares of Common Stock having a fair
market value which is not more than the amount payable on the date of
exercise, or in a combination of cash and such shares, or any other
consideration in kind, including shares of restricted stock, as the
Committee, in its sole discretion, shall determine.
(e) RIGHTS NOT TRANSFERABLE. A stock appreciation right shall not be
transferable by the holder except to the extent permitted by the
agreement evidencing such right; provided, that in no event shall any
right be transferable by the holder, other than by will or the laws of
descent and distribution, and such right shall be exercisable during
the holder's lifetime only by the
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holder. If, pursuant to the agreement evidencing a stock appreciation
right, the right remains exercisable after the holder's death, to the
extent permitted by such agreement, it may be exercised by the
personal representative of the holder's estate or by any person who
acquired the right to exercise such right by bequest, inheritance, or
otherwise by reason of the holder's death.
Subject to the foregoing, stock appreciation rights may be made exercisable in
one or more installments, upon the happening of certain events, upon the
fulfillment of certain conditions, or upon such other terms and conditions as
the Committee shall determine.
SECTION 9. PERFORMANCE AWARDS. Performance Awards made pursuant to the Plan
shall entitle the recipient to receive future payments of cash or distributions
of shares of Common Stock upon the achievement of pre-established, long-term
performance goals. All performance Awards shall be evidenced by agreements in
such form as the Committee shall from time to time approve; provided, that each
Award shall be subject to the following requirements:
(a) PERFORMANCE PERIOD. The Committee shall establish with respect to each
performance Award a performance period of not fewer than one year, nor
more than five years.
(b) AMOUNT OF AWARDS. The Committee shall establish a value for each
performance Award, which value may be expressed in terms of specified
dollar amounts or a specified number of shares of Common Stock. Any
such value may be fixed or variable in accordance with criteria
specified by the Committee at the time of the Award provided that the
value of the performance Award awarded by the Committee to any
Participant in a calendar year shall not exceed $1,000,000.
(c) PERFORMANCE OBJECTIVES. The Committee shall establish performance
objectives to be achieved with respect to each performance Award
during the applicable performance period, determining the extent to
which an employee shall be entitled to distributions with respect to
such performance Award.
(d) PERFORMANCE MEASURES. Performance objectives established by the
Committee may relate to corporate, subsidiary, unit, or individual
performance or any combination thereof, and may be established in
terms of growth in gross or net earnings, earnings per share, ratio of
earnings to equity or assets, share value, or such other measures or
standards as the Committee shall determine. Multiple objectives may be
used which have the same or different weighting, and such objectives
may relate to absolute performance or to relative performance measured
against other companies or businesses, or against other subsidiaries,
units, or individuals.
(e) ADJUSTMENTS. At any time prior to the end of a performance period, the
Committee may adjust previously established performance objectives to
reflect major unforeseen events such as changes in applicable laws,
regulations, or accounting practices; mergers, acquisitions, or
divestitures; or other unusual or nonrecurring items of events.
(f) DISTRIBUTIONS WITH RESPECT TO AWARDS. Following the end of each
performance period, the Committee shall determine the extent to which
the performance objectives established for such period have been
achieved and the amounts of cash or number of shares of Common Stock,
if any, that are payable or distributable with respect to performance
Awards made with respect to each period. Payments with respect to
performance Awards may be made in cash or in shares (based on fair
market value at the time of the distribution), or in any combination
thereof, as the Committee shall determine. Such payments or
distributions may be made in a lump sum or in installments, and shall
be subject to such vesting, deferral or other terms and conditions as
the Committee may determine.
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(g) NONTRANSFERABILITY. Performance Awards granted under this Plan shall
not be assignable or otherwise transferable by the recipient,
otherwise than by will or the laws of descent and distribution, and
shall be payable during the recipient's lifetime, only to the
recipient.
SECTION 10. AGREEMENTS. Each Award granted pursuant to the Plan shall be
evidenced by an agreement setting forth the terms and conditions upon which it
is granted. Multiple Awards may be evidenced by a single agreement. Subject to
the limitations set forth in the Plan, the Committee may, with the consent of
the Participant to whom an Award has been granted, amend any such agreement to
modify the terms or conditions governing the Award evidenced thereby.
SECTION 11. ADJUSTMENTS. In the event of any change in the outstanding
shares of Common Stock by reason of any stock dividend or split,
recapitalization, reclassification, combination, or exchange of shares or other
similar corporate change, then if the Committee shall determine, in its sole
discretion, that such change necessarily or equitably requires an adjustment in
the number of shares of Common Stock subject to an Award, in the option price or
value of an Award, or in the maximum number of shares subject to this Plan, such
adjustments shall be made by the Committee and shall be conclusive and binding
for all purposes of this Plan. No adjustment shall be made in connection with
the issuance by the Company of any warrants, rights, or options to acquire
additional shares of Common Stock or of securities convertible into shares of
Common Stock.
SECTION 12. TENURE. A Participant's right, if any, to continue to serve the
Company or its subsidiaries as an officer, employee or otherwise, shall not be
enlarged or otherwise affected by the Participant's designation as a Participant
under the Plan.
SECTION 13. MERGER, CONSOLIDATION, REORGANIZATION, LIQUIDATION, ETC.
Subject to the provisions of the agreement evidencing any Award, if the Company
shall become a party to any corporate merger, consolidation, major acquisition
of property for stock, reorganization, or liquidation, the Board of Directors of
the Company shall have the power to make any arrangement it deems advisable with
respect to outstanding Awards and in the number of shares of Common Stock
subject to this Plan, which shall be binding for all purposes of this Plan,
including, but not limited to, the substitution of new Awards for any Awards
then outstanding, the assumption of any such Awards, and the termination of such
Awards. Notwithstanding any other provision of the Plan to the contrary, in the
event of a Change in Control:
(i) Any Stock Options and Stock Appreciation Rights outstanding as of
the date such Change in Control is determined to have occurred and not
then exercisable and vested shall become fully exercisable and vested
to the full extent of the original grant.
(ii) The restrictions applicable to any Restricted Stock shall lapse,
and such Restricted Stock shall become free of all restrictions and
become fully vested and transferable to the full extent of the
original grant.
(iii) All Performance Awards shall be considered to be earned and
payable in full and any other deferral or other restriction shall
lapse and such Performance Awards shall be settled in cash as promptly
as practicable.
"Change in Control" shall mean the happening of any of the following
events:
(a) An acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (1) the
then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (2) the combined voting power
of the then outstanding voting securities of the
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Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however, the
following: (i) any acquisition directly from the Company, other than
an acquisition by virtue of the exercise of a conversion privilege
unless the security being so converted was itself acquired directly
from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the
Company or (iv) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of
subsection (b) of this definition; or
(b) The approval by the shareholders of the Company of a
reorganization, merger, consolidation, share exchange or sale or other
disposition of all or substantially all of the assets of the Company
("Corporate Transaction") or, if consummation of such Corporate
Transaction is subject, at the time of such approval by shareholders,
to the consent of any government or governmental agency, the obtaining
of such consent (either explicitly or implicitly by consummation);
excluding, however, such a Corporate Transaction pursuant to which (i)
all or substantially all of the individuals and entities who are the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to
such Corporate Transaction will beneficially own, directly or
indirectly, more than 60% of, respectively, the outstanding shares of
common stock, and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such
Corporate Transaction (including, without limitation, a corporation
which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Corporate Transaction, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (ii) no Person (other than the
Company, any employee benefit plan (or related trust) of the Company
or such corporation resulting from such Corporate Transaction) will
beneficially own, directly or indirectly, 20% or more of,
respectively, the outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the combined
voting power of the outstanding voting securities of such corporation
entitled to vote generally in the election of directors except to the
extent that such ownership existed prior to the Corporate Transaction
and (iii) individuals who were members of the board of directors of
the corporation resulting from such Corporate Transaction; or
(c) The approval by the shareholders of the Company of a complete
liquidation or dissolution of the company.
SECTION 14. EXPENSES OF PLAN. The expenses of administering this Plan
shall be borne by the Company and its subsidiaries.
SECTION 15. RIGHTS AS STOCKHOLDER. Except to the extent otherwise
specifically provided herein or in the agreement evidencing the Award, no
recipient of any Award shall have any rights as a stockholder with respect to
shares of Common Stock sold or issued pursuant to the Plan until certificates
for such shares have been issued to such person.
SECTION 16. GENERAL RESTRICTIONS. Each Award granted pursuant to the
Plan shall be subject to the requirement that if, in the opinion of the
Committee:
(a) the listing, registration, or qualification of any Common Stock
related thereto upon any securities exchange or any state or federal
law;
(b) the consent or approval of any regulatory body; or
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(c) an agreement by the recipient with respect to the disposition of any
such shares of Common Stock;
is necessary or desirable as a condition of the issuance or sale of such shares
of Common Stock, such Award shall not be consummated unless and until such
listing, registration, qualification, consent, approval, or agreement is
affected or obtained in form satisfactory to the Committee.
SECTION 17. WITHHOLDING. If the Company proposes or is required to
distribute shares of Common Stock pursuant to the Plan, it may require the
Participant to remit to it, or withhold from such Award or from the
participant's other compensation, an amount sufficient to satisfy any applicable
federal, state, or local tax withholding requirements prior to the delivery of
any certificates for such shares of Common Stock.
SECTION 18. AMENDMENTS. The Board of Directors of the Company may at any
time, and from time to time, amend or terminate the Plan provided, that no
amendment: (a) increasing the number of shares of Common Stock available for
Awards pursuant to the Plan previously established pursuant to shareholder
approval; (b) changing the classification of employees eligible to participate
in the Plan; or (c) materially increasing the benefits accruing to Participants
under the Plan; shall be made without approval by an affirmative vote of
shareholders representing at least the majority of the voting power at a duly
authorized meeting of shareholders if such affirmative vote is required as a
condition of continued exemption of the Plan under Securities and Exchange
Commission Rule 16b-3.
SECTION 19. SHAREHOLDER APPROVAL. This Agreement shall be submitted to the
shareholders of the Company for its approval by an affirmative vote of the
majority of the voting power at a meeting of the shareholders before
restrictions for any Award lapse. After initial approval, the Board of Directors
shall determine whether further submission is appropriate or necessary whenever
the Plan is amended, to satisfy Code Section 162(m), the Rules of the New York
Stock Exchange, regulatory or other legal requirements.
SECTION 20. EFFECTIVE DATE OF THE PLAN. This Plan shall be effective as
of January 1, 1998.
38
<PAGE>
EXHIBIT B
NORTHERN STATES POWER COMPANY
EXECUTIVE ANNUAL INCENTIVE AWARD PLAN
I
PURPOSE AND EFFECTIVE TIME
This Northern States Power Company ("Company") Executive Annual Incentive
Award Plan (the "Plan") is designed to provide a significant and flexible
economic opportunity to selected officers and employees of the Company and its
Affiliates as a reflection of their individual and group contributions to the
success of the Company and its Affiliates. Payments pursuant to Section IX of
the Plan are intended to qualify under Section 162(m)(4)(C) of the Internal
Revenue Code of 1986, as amended, as excluded from the term "applicable employee
remuneration" (such payments are hereinafter referred to as "Excluded Income").
The Plan shall be effective as of January 1, 1998, subject to the shareholder
approvals required by Section XII of the Plan for Covered Employees.
II
DEFINITIONS
"Affiliate" means (i) a corporation at least 50% of the common stock or
voting power of which is owned, directly or indirectly, by the Company and (ii)
any other corporation or other entity controlled by the Company and designated
by the Committee from time to time as such.
"Board" shall mean the Board of Directors of the Company.
"Change in Control" shall mean the happening of any of the following
events:
(a) An acquisition by an individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (1) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or
(2) the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however, the
following: (i) any acquisition directly from the Company, other than an
acquisition by virtue of the exercise of a conversion privilege unless the
security being so converted was itself acquired directly from the Company,
(ii) any acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or
any corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii)
and (iii) of subsection (b) of this definition; or
(b) The approval by the shareholders of the Company of a reorganization,
merger, consolidation, share exchange or sale or other disposition of all
or substantially all of the assets of the Company ("Corporate Transaction")
or, if consummation of such Corporate Transaction is subject, at the time
of such approval by shareholders, to the consent of any government or
governmental agency, the obtaining of such consent (either explicitly or
implicitly by consummation); excluding, however, such a Corporate
Transaction pursuant to which (i) all or substantially all of the
individuals and entities who are the beneficial owners, respectively, of
the Outstanding Company Common Stock
39
<PAGE>
and Outstanding Company Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or indirectly, more
than 60% of, respectively, the outstanding shares of common stock, and the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Corporate Transaction, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (other than the Company, any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Corporate Transaction) will beneficially own, directly
or indirectly, 20% or more of, respectively, the outstanding shares of
common stock of the corporation resulting from such Corporate Transaction
or the combined voting power of the outstanding voting securities of such
corporation entitled to vote generally in the election of directors except
to the extent that such ownership existed prior to the Corporate
Transaction and (iii) individuals who were members of the board of
directors of the corporation resulting from such Corporate Transaction; or
(c) The approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Corporate Management Committee of the Board, or
such other committee of the Board as the Board may from time to time determine,
which, except as specifically decided otherwise by the Board, is composed solely
of not less than two Disinterested Persons, each of whom shall be appointed by
and serve at the pleasure of the Board.
"Company" shall mean Northern States Power Company, a Minnesota
corporation.
"Covered Employees" shall mean the Participants designated by the Committee
prior to the award of an Incentive Award opportunity hereunder who are or are
expected to be "covered employees" within the meaning of Section 162(m)(3) of
the Code for the Incentive Period as to which an Incentive Award hereunder is
payable and for whom the Committee intends that amounts payable hereunder
constitute Excluded Income.
"Disinterested Person" shall mean a member of the Board who qualifies as an
"outside director" for purposes of Section 162(m) of the Code.
"Incentive Award" shall mean a cash award payable to a Participant pursuant
to the terms of the Plan, including a Special Incentive Award.
"Incentive Period" shall mean the period with respect to which a
Participant is eligible to earn an Incentive Award.
"Participant" shall have the meaning set forth in Article IV hereof.
"Payment Date" shall mean the date following the conclusion of a particular
Incentive Period on which the Committee certifies that applicable Performance
Goals have been satisfied and authorizes payment of corresponding Incentive
Awards.
"Performance Goals" shall have the meaning set forth in Article IX hereof.
"Special Incentive Award" shall have the meaning set forth in Article IX
hereof.
40
<PAGE>
"Target Incentive Award" shall mean the amount determined by multiplying a
Participant's base salary as of the last day of the applicable Incentive Period
by a percentage designated by the Committee in its sole discretion at the time
the award is granted, which percentage need not be the same for each
Participant.
III
ADMINISTRATION
The Plan shall be administered by the Committee. In administering the Plan,
the Committee may at its option employ compensation consultants, accountants and
counsel (who may be the compensation consultants, independent auditors and
outside counsel of the Company or an Affiliate) and other persons to assist or
render advice to the Committee, all at the expense of the Company. The Committee
shall have the sole authority to make rules and regulations relating to the
administration of the Plan, and any interpretations and decisions of the
Committee with respect to the Plan shall be final and binding.
IV
ELIGIBILITY
The Committee shall, in its sole discretion, determine for each Incentive
Period those officers and salaried employees of the Company and its Affiliates
who shall be eligible to participate in the Plan (the "Participants") for such
Incentive Period based upon such Participants' opportunity to have a substantial
impact on the operating results of the Company or an Affiliate. Nothing
contained in the Plan shall be construed as or be evidence of any contract of
employment with any Participant for a term of any length nor shall participation
in the Plan in any Incentive Period by any Participant require continued
participation by such Participant in any subsequent Incentive Period.
V
DETERMINATION OF INCENTIVE AWARDS
Subject to Article IX hereof, the amount and terms of each Incentive Award
to a Participant shall be determined by and in the discretion of the Committee.
The Committee may condition the earning of an Incentive Award upon the
attainment of specified Performance Goals, measured over a period ending no
later than the end of the applicable Incentive Period. Such performance goals
may relate to the Participant or the Company, or any Affiliate, division or
department of the Company for or within which the Participant is primarily
employed, or upon such other factors or criteria as the Committee shall
determine, and may be different for each Participant. Incentive Awards payable
under the Plan will consist of a cash award from the Company, based upon a
percentage (which may exceed 100%) of the Target Incentive Award and, if
applicable, the degree of achievement of such performance goals. Incentive
Awards under this Plan for Covered Employees shall be subject to preestablished
Performance Goals in accordance with Article IX hereof. Except with respect to
Covered Employees, the Committee may, in its sole discretion, increase or
decrease the amount of any Incentive Award payable to a Participant and, in
recognition of changed or special circumstances, may award Incentive Awards to
Participants even though the Incentive Awards are not earned. Incentive Awards
earned or otherwise awarded will be paid as soon as administratively feasible on
or after the Payment Date.
VI
TERMINATION OF EMPLOYMENT
In the event that a Participant's employment with the Company and its
Affiliates terminates for any reason during the Incentive Period with respect to
any Incentive Awards, the balance of any Incentive
41
<PAGE>
Award which remains unpaid at the time of such termination shall be payable to
the Participant, or forfeited by the Participant, in accordance with the terms
of the award granted by the Committee; provided, however, that in the case of a
Covered Employee, no amount shall be payable pursuant to the Plan unless the
Performance Goals are satisfied or the termination of employment of the Covered
Employee is due to death or disability. A Participant who remains employed
through the Incentive Period, but is terminated prior to the Payment Date, shall
be entitled to receive any Incentive Award payable to such Participant with
respect to such Incentive Period.
VII
AMENDMENT AND DISCONTINUANCE
The Board shall have the right to amend, alter, discontinue or otherwise
modify the Plan from time to time but no such modification shall, without the
consent of the Participant affected, impair any award made prior to the
effective date of the modification.
VIII
MISCELLANEOUS
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the payment obligations created under the
Plan; provided, however, that, unless the Committee otherwise determines, the
existence of such trusts or other arrangements is consistent with the "unfunded"
status of the Plan. The Plan shall be governed by and construed in accordance
with the laws of the State of Minnesota.
IX
PROCEDURES FOR CERTAIN DESIGNATED PARTICIPANTS
Incentive Awards under the Plan to Participants who are Covered Employees
shall be subject to preestablished Performance Goals as set forth herein.
Notwithstanding Article V hereof, the Committee shall not have the discretion to
modify the terms of awards to such Participants except as specifically set forth
in this Article IX.
(a) TARGET BONUS. On or before the 90th day of each Incentive Period, and
in any event before 25% or more of the Incentive Period has elapsed, the
Committee shall establish in writing specific Performance Goals for the
Incentive Period, upon the attainment of which will be conditioned the payment
of Incentive Awards ("Special Incentive Awards") to such of the Participants who
may be Covered Employees. A Special Incentive Award shall consist of a cash
award from the Company to be based upon a percentage (which may exceed 100%) of
a Target Incentive Award. The extent, if any, to which a Special Incentive Award
will be payable will be based upon the degree of achievement of preestablished
Performance Goals over a specified Incentive Period; provided, however, that the
Committee may, in its sole discretion, reduce the amount which would otherwise
be payable with respect to an Incentive Period.
(b) INCENTIVE PERIOD. The Incentive Period will be a period of up to twelve
months, unless a shorter period is otherwise selected and established in writing
by the Committee at the time the Performance Goals are established with respect
to such Incentive Period.
42
<PAGE>
(c) PERFORMANCE GOALS. The Performance Goals established by the Committee
at the time a Special Incentive Award is granted will be based on one or more of
the following: earnings per share, market share, stock price, sales, costs, net
operating income, cash flow, retained earnings, return on equity, total
shareholder return, shareholder value analysis, results of customer satisfaction
surveys, aggregate product price and other product price measures, safety
record, service reliability, demand-side management (including conservation and
load management), operating and maintenance cost management, energy production
availability, and individual performance measures; provided, that all
Performance Goals shall be objective performance goals satisfying the
requirements for "performance-based compensation" within the meaning of Section
162(m)(4) of the Code. Such Performance Goals also may be based on the
attainment of specified levels of performance of the Company and/or any
Affiliates under one or more of the measures described above relative to the
performance of other corporations.
(d) PAYMENT OF AN INCENTIVE AWARD. At the time the Special Incentive Award
is granted, the Committee shall prescribe a formula to determine the percentage
of the Target Incentive Award which may be payable based upon the degree of
attainment of the Performance Goals during the Incentive Period. If the minimum
Performance Goals established by the Committee are not met, no payment will be
made to a Participant who is a Covered Employee. To the extent that the minimum
Performance Goals are satisfied or surpassed, and upon written certification by
the Committee that the Performance Goals have been satisfied to a particular
extent and any other material terms and conditions of the Special Incentive
Awards have been satisfied, payment shall be made on the Payment Date in
accordance with the prescribed formula based upon a percentage of the Target
Incentive Award unless the Committee determines, in its sole discretion, to
reduce the payment to be made.
(e) MAXIMUM PAYABLE. The maximum amount payable to a Covered Employee under
this Plan for any calendar year of the Company pursuant to this Plan shall be
$1,000,000.
X
CHANGE IN CONTROL
Notwithstanding any other provision of this Plan, (i) upon a Change in
Control, each Participant who is employed by the Company or an Affiliate
immediately before the Change in Control shall be entitled to receive a payment
equal to his or her Target Incentive Award for the Incentive Period that
includes the date of the Change in Control, and (ii) any additional Incentive
Award that becomes payable to such a Participant for that Incentive Period shall
be reduced (but not below zero) by the amount of the payment made to such
Participant pursuant to clause (i) of this Article X.
XI
DEFERRAL ELECTIONS
The Committee may at its option establish procedures pursuant to which
Participants are permitted to defer the receipt of Incentive Awards payable
hereunder.
XII
SHAREHOLDER APPROVAL
This Plan shall not become effective with respect to individuals who are
Covered Employees unless it shall have been approved by the affirmative vote of
a majority of the total voting power of the shares of common stock and preferred
stock of Northern States Power Company present in person or by proxy and
entitled to vote thereon.
43
<PAGE>
[LOGO] NSP NORTHERN STATES POWER COMPANY PROXY FORM
414 NICOLLET MALL, MINNEAPOLIS, MINNESOTA 55401
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Please sign EXACTLY as your name(s) appear(s) on this form. Attorneys,
executors, administrators, trustees, or guardians should so indicate when
signing. For joint accounts, one joint owner may sign.
Signature______________________________________ Date_____________________, 1998
Signature______________________________________ Date_____________________, 1998
IMPORTANT: THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING, PLEASE REVIEW THE ENCLOSED PROXY STATEMENT,
COMPLETE THIS PROXY FORM AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
IF YOU PLAN TO ATTEND THE MEETING, PLEASE REVIEW THE MEETING GUIDELINES, SIGN
THE TICKET REQUEST FORM BELOW AND RETURN IT WITH YOUR PROXY FORM.
(CONTINUED AND TO BE VOTED ON OTHER SIDE)
================================================================================
[LOGO] NSP 1998 ANNUAL MEETING GUIDELINES
In the interest of an orderly and constructive meeting, the following guidelines
will apply for NSP's Annual Meeting of Shareholders on Wednesday, April 22, 1998
at 10:00 a.m. at the Minneapolis Convention Center, 1301 Second Avenue South,
Minneapolis, Minnesota.
1. To gain entrance to the meeting, you must present an admission ticket or
evidence of ownership of NSP stock. To obtain an admission ticket, complete
the request form below and return it to NSP by April 10, 1998.
2. You will be required to pass through a metal detector similar to those at
airports. Briefcases, purses and parcels will be examined. The use of
cameras or sound recording equipment is prohibited, except those employed
by the Company to provide a record of the proceedings.
3. The business of the meeting is set forth in the Proxy Statement and will be
published on an Agenda that you will receive at the meeting. Whether or not
you plan to attend the meeting, please sign, date and return the proxy form
in the envelope provided. If you wish to change your vote or have not voted
by proxy, a ballot will be distributed to you at the meeting.
4. Time has been reserved at the end of the meeting for shareholder questions
that relate to the business of the Company. If you want to speak, please go
to the nearest microphone, state your name and confirm that you are a
shareholder before asking your question. Please direct all questions to the
Chairman. Questions from the floor are limited to three minutes to provide
an opportunity for as many shareholders as possible.
5. Although personal grievances and claims are not appropriate subjects for
the meeting, you may submit any grievance or claim in writing to any usher
or Company representative, and the Company will respond as soon as possible
after the meeting.
6. The Chairman in his sole discretion shall have authority to conduct the
meeting and rule on any questions or procedures that may arise.
================================================================================
[LOGO] NSP NORTHERN STATES POWER COMPANY
414 NICOLLET MALL, MINNEAPOLIS, MINNESOTA 55401
ANNUAL MEETING ADMISSION AND
PARKING TICKET REQUEST FORM
IMPORTANT: If you plan to attend the Annual Meeting, you must sign this form and
return it to NSP by April 10, 1998. NSP will mail Admission and Parking Tickets
with directions and parking instructions approximately one week prior to the
meeting.
- --------------------------------------------------------------------------------
THIS IS
NOT
A PROXY
- --------------------------------------------------------------------------------
I (We) will attend NSP's Annual Meeting, and I (we) have read and understand the
Meeting Guidelines and security procedures. NOTE: Sign and return ONLY if you
plan to attend the meeting.
Signature______________________________________ Date_____________________, 1998
Signature______________________________________ Date_____________________, 1998
- --------------------------------------------------------------------------------
<PAGE>
[LOGO] NSP NORTHERN STATES POWER COMPANY PROXY FORM
414 NICOLLET MALL, MINNEAPOLIS, MINNESOTA 55401
The undersigned appoints Edward J. McIntyre, John P. Moore, Jr. and Gary R.
Johnson, or any of them, each with full power of substitution, to represent and
vote the shares of stock held by the undersigned at the Annual Meeting of
Shareholders on Wednesday, April 22, 1998, at 10 a.m., and any adjournments
thereof, as follows. IF YOU WISH TO INDICATE YOUR VOTE, PLEASE MARK AN "X" IN
THE BOXES BELOW.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2, 3, 4 AND 5.
1. ELECTION OF THREE DIRECTORS IN CLASS III. (If you wish to withhold
authority to vote for any of the Directors, strike out the appropriate
name(s)):
H. Lyman Bretting David A. Christensen Margaret R. Preska
|_| FOR |_| WITHHOLD
2. APPROVAL TO AMEND THE COMPANY'S RESTATED ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK FROM 160
MILLION SHARES TO 350 MILLION SHARES.
|_| FOR |_| AGAINST |_| ABSTAIN
3. APPROVAL OF AMENDMENTS TO THE COMPANY'S EXECUTIVE LONG-TERM INCENTIVE
AWARD STOCK PLAN.
|_| FOR |_| AGAINST |_| ABSTAIN
4. APPROVAL OF THE COMPANY'S EXECUTIVE ANNUAL INCENTIVE AWARD PLAN.
|_| FOR |_| AGAINST |_| ABSTAIN
5. APPROVAL OF APPOINTMENT OF PRICE WATERHOUSE AS INDEPENDENT AUDITORS.
|_| FOR |_| AGAINST |_| ABSTAIN
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" PROPOSAL 6.
6. SHAREHOLDER RESOLUTION ON CONVERSION OF PRAIRIE ISLAND NUCLEAR PLANT.
|_| FOR |_| AGAINST |_| ABSTAIN
7. IN THEIR DISCRETION TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE MEETING.
THIS PROXY WILL BE VOTED AS INDICATED. IF NO INDICATION IS MADE, IT WILL BE
VOTED 'FOR' THE ELECTION OF DIRECTORS AND 'FOR' PROPOSALS 2, 3, 4, AND 5 AND
"AGAINST" PROPOSAL 6.
(TO BE SIGNED ON OTHER SIDE)
================================================================================
<PAGE>
[LOGO] NSP NORTHERN STATES POWER COMPANY ESOP VOTING
414 NICOLLET MALL, MINNEAPOLIS, MINNESOTA 55401 DIRECTIVE
THIS VOTING DIRECTIVE IS SOLICITED BY THE BOARD OF DIRECTORS
Please sign EXACTLY as your name appears on this form.
Signature______________________________________ Date_____________________, 1998
IMPORTANT: PLEASE MAIL PROMPTLY IN THE ENCLOSED ENVELOPE TO ASSURE THAT THE
VOTING RIGHTS REPRESENTED BY THE SHARES ALLOCATED TO YOUR ACCOUNT CAN BE
EXERCISED BY THE TRUSTEE.
IF YOU PLAN TO ATTEND THE MEETING, PLEASE REVIEW THE MEETING GUIDELINES, SIGN
THE TICKET REQUEST FORM BELOW AND RETURN IT WITH YOUR VOTING DIRECTIVE.
(CONTINUED AND TO BE VOTED ON OTHER SIDE)
================================================================================
[LOGO] NSP 1998 ANNUAL MEETING GUIDELINES
In the interest of an orderly and constructive meeting, the following guidelines
will apply for NSP's Annual Meeting of Shareholders on Wednesday, April 22, 1998
at 10:00 a.m. at the Minneapolis Convention Center, 1301 Second Avenue South,
Minneapolis, Minnesota.
1. To gain entrance to the meeting, you must present an admission ticket or
evidence of ownership of NSP stock. To obtain an admission ticket, complete
the request form below and return it to NSP by April 10, 1998.
2. You will be required to pass through a metal detector similar to those at
airports. Briefcases, purses and parcels will be examined. The use of
cameras or sound recording equipment is prohibited, except those employed
by the Company to provide a record of the proceedings.
3. The business of the meeting is set forth in the Proxy Statement and will be
published on an Agenda that you will receive at the meeting. Whether or not
you plan to attend the meeting, please sign, date and return the proxy form
in the envelope provided. If you wish to change your vote or have not voted
by proxy, a ballot will be distributed to you at the meeting.
4. Time has been reserved at the end of the meeting for shareholder questions
that relate to the business of the Company. If you want to speak, please go
to the nearest microphone, state your name and confirm that you are a
shareholder before asking your question. Please direct all questions to the
Chairman. Questions from the floor are limited to three minutes to provide
an opportunity for as many shareholders as possible.
5. Although personal grievances and claims are not appropriate subjects for
the meeting, you may submit any grievance or claim in writing to any usher
or Company representative, and the Company will respond as soon as possible
after the meeting.
6. The Chairman in his sole discretion shall have authority to conduct the
meeting and rule on any questions or procedures that may arise.
================================================================================
[LOGO] NSP NORTHERN STATES POWER COMPANY
414 NICOLLET MALL, MINNEAPOLIS, MINNESOTA 55401
ANNUAL MEETING ADMISSION AND
PARKING TICKET REQUEST FORM
IMPORTANT: Because of limited seating capacity at the Annual Meeting, employees
are urged to forego attending so that other shareholder groups may attend.
However, if you want to attend the meeting, the time away from your work would
be personal time. In keeping with Company policy you must obtain your
supervisor's permission to take a Vacation or MAT day. To request an Admission
Ticket and Parking Ticket, you and your supervisor must sign below. Return the
completed form to NSP by April 10, 1998 if you plan to attend the 1998 Annual
Meeting. We will send you the Admission Ticket for the Meeting and a Parking
Ticket with directions and parking instructions.
- --------------------------------------------------------------------------------
THIS IS
NOT
A VOTING
DIRECTIVE
I (We) will attend NSP's Annual Meeting, and have read and understand the
Meeting Guidelines and security procedures. NOTE: Sign and return ONLY if you
plan to attend the meeting.
Signature of ESOP Participant_______________________ Date________________, 1998
Signature of Supervisor_____________________________ Date________________, 1998
- --------------------------------------------------------------------------------
<PAGE>
[LOGO] NSP NORTHERN STATES POWER COMPANY ESOP VOTING
414 NICOLLET MALL, MINNEAPOLIS, MINNESOTA 55401 DIRECTIVE
The undersigned hereby instructs First Trust N.A. St. Paul, Minnesota, as
Trustee of the Northern States Power Company Employee Stock Ownership Trust to
vote the shares of common stock allocated to the Account of the undersigned in
said Trust, either directly or by designation of proxies, at the Annual Meeting
of Shareholders on Wednesday, April 22, 1998, at 10 a.m., and any adjournments
thereof, as follows. IF YOU WISH TO INDICATE YOUR VOTE, PLEASE MARK AN "X" IN
THE BOXES BELOW.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2, 3, 4 AND 5.
1. ELECTION OF THREE DIRECTORS IN CLASS III. (If you wish to withhold
authority to vote for any of the Directors, strike out the appropriate
name(s)):
H. Lyman Bretting David A. Christensen Margaret R. Preska
|_| FOR |_| WITHHOLD
2. APPROVAL TO AMEND THE COMPANY'S RESTATED ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK FROM 160
MILLION SHARES TO 350 MILLION SHARES.
|_| FOR |_| AGAINST |_| ABSTAIN
3. APPROVAL OF AMENDMENTS TO THE COMPANY'S EXECUTIVE LONG-TERM INCENTIVE
AWARD STOCK PLAN.
|_| FOR |_| AGAINST |_| ABSTAIN
4. APPROVAL OF THE COMPANY'S EXECUTIVE ANNUAL INCENTIVE AWARD PLAN.
|_| FOR |_| AGAINST |_| ABSTAIN
5. APPROVAL OF APPOINTMENT OF PRICE WATERHOUSE AS INDEPENDENT AUDITORS.
|_| FOR |_| AGAINST |_| ABSTAIN
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" PROPOSAL 6.
6. SHAREHOLDER RESOLUTION ON CONVERSION OF PRAIRIE ISLAND NUCLEAR PLANT.
|_| FOR |_| AGAINST |_| ABSTAIN
7. IN THEIR DISCRETION TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE MEETING.
THIS VOTING DIRECTIVE WILL BE VOTED AS INDICATED. IF NO INDICATION IS MADE, IT
WILL BE VOTED 'FOR' THE ELECTION OF DIRECTORS AND 'FOR' PROPOSALS 2, 3, 4, AND
5, AND "AGAINST" PROPOSAL 6.
(TO BE SIGNED ON OTHER SIDE)
================================================================================
