SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO._1__)
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 240.14a-11(c) or 240.14a-12
_________Otter Tail Power Company_________
(Name of Registrant as Specified in its Charter)
____________Beverly A. Norlin_____________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rule 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 transaction applies:
_____________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11*/:
_____________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________
*/ Set forth the amount on which the filing fee is calculated and state
how it was determined.
[X] 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:
_____$125____________________________________________________________
(2) Form, Schedule or Registration Statement No.:
_____PRE 14a_________________________________________________________
(3) Filing Party:
_____Otter Tail Power Company________________________________________
(4) Date Filed:
_____02/01/94________________________________________________________
PRELIMINARY PROXY MATERIALS
March 9, 1994
To the Holders of Common Shares
of Otter Tail Power Company:
You are cordially invited to attend the Annual Meeting of Shareholders of
Otter Tail Power Company which will be held at the National Guard Armory,
421 East Cecil, Fergus Falls, Minnesota, at 10:00 a.m. on Monday, April 11,
1994. The Armory is located just off Friberg Avenue, north of the Senior High
School.
Enclosed is a formal Notice of Annual Meeting and Proxy Statement,
together with a Proxy and return envelope for the use of holders of Common
Shares who cannot be present in person at the meeting.
As discussed in the formal Notice and Proxy Statement, the Board of
Directors proposes the reelection, for three-year terms, of Mr. Thomas M.
Brown, Mr. Maynard D. Helgaas, and Mr. Robert N. Spolum, whose terms as
Directors expire at the time of the Annual Meeting.
In addition, holders of Common Shares are being asked to vote on a
proposed amendment to the Company's Restated Articles of Incorporation to
increase the authorized number of Common Shares from 15,000,000 to 25,000,000.
Although 1994 financing plans do not call for an additional public offering of
Common Shares, changing economic and market conditions make it advisable for
management to be in a position to issue additional Common Shares as future
corporate purposes may dictate.
At this Annual Meeting, shareholders will also be asked to ratify the
appointment of Deloitte & Touche as independent auditors of the Company for
1994.
In order to ensure that your shares may be represented at the meeting and
to save the Company additional expense of solicitation, we urge that you
promptly sign and return the enclosed Proxy card. If you attend the meeting,
as we hope you will, you may revoke your Proxy by written notice given to an
officer of the Company and vote in person.
A question slip is also enclosed with this Proxy Statement. If you have
any questions about Otter Tail Power Company that you would like to have
answered at the meeting or in writing, please return the question slip with
your Proxy.
Sincerely,
John C. MacFarlane
President and Chief
Executive Officer
Notice of Annual Meeting
Notice is hereby given to the holders of Common Shares of Otter Tail Power
Company that the Annual Meeting of Shareholders of the Company will be held in
the National Guard Armory, 421 East Cecil, Fergus Falls, Minnesota, on Monday,
April 11, 1994, at 10:00 a.m. to consider and act upon the following matters:
1. To elect three Directors to serve until the Annual Meeting in 1997, or
until their successors are elected and qualified;
2. To amend the Restated Articles of Incorporation to increase the number of
authorized Common Shares from 15,000,000 to 25,000,000 shares.
3. To approve the appointment by the Board of Directors of Deloitte & Touche
as independent auditors for the year 1994; and
4. To transact such other business as may properly be brought before the
meeting.
Dated: March 9, 1994 JAY D. MYSTER, Corporate Secretary
IMPORTANT - PLEASE MAIL YOUR PROXY PROMPTLY
In order that there may be a proper representation at the meeting, you are
urged, whether you own one share or many, to complete, sign, and mail your
Proxy in the enclosed envelope. No postage is required if mailed in the
United States.
PROXY STATEMENT
OTTER TAIL POWER COMPANY
ANNUAL MEETING OF SHAREHOLDERS
April 11, 1994
This Proxy Statement is furnished to shareholders in connection with the
solicitation by the Board of Directors of Otter Tail Power Company of Proxies
for use at the Annual Meeting of Shareholders to be held on April 11, 1994.
The mailing address of the principal executive office of the Company is
Box 496, Fergus Falls, Minnesota 56538-0496. The approximate date on which
the Proxy Statement and form of Proxy will be first sent to shareholders is
March 9, 1994.
Any shareholder giving a Proxy will have the right to revoke it by written
notice to an officer of the Company or by filing with an officer another Proxy
bearing a later date at any time before it is voted at the meeting. A
shareholder wishing to vote in person after giving a Proxy must first give
written notice of revocation to an officer of the Company.
All shares represented by valid, unrevoked Proxies will be voted at the Annual
Meeting. Shares voted as abstentions on any matter (or as "withhold
authority" as to Directors) will be counted as shares that are present and
entitled to vote for purposes of determining the presence of a quorum at the
meeting and as unvoted, although present and entitled to vote, for purposes of
determining the approval of each matter as to which the shareholder has
abstained. If a broker submits a proxy which indicates that the broker does
not have discretionary authority as to certain shares to vote on one or more
matters, those shares will be counted as shares that are present and entitled
to vote for purposes of determining the presence of a quorum at the meeting,
but will not be considered as present and entitled to vote with respect to
such matters.
The cost of soliciting Proxies will be borne by the Company. In addition to
solicitation by mail, officers and regular employees of the Company may
solicit Proxies by telephone, telegraph, or in person.
The record date for the determination of shareholders entitled to vote at the
meeting is the close of business on February 15, 1994.
A copy of the Company's 1993 Annual Report, including financial statements,
was mailed to each shareholder of record on or about March 4, 1994.
Outstanding Voting Shares
The outstanding voting shares of the Company at the close of business on
February 15, 1994, the record date for shareholders entitled to notice of and
to vote at said meeting, consisted of Common Shares. Each holder
of record at the close of business on that day is entitled to one vote per
share.
The only person known to the Company to own beneficially (as defined by the
Securities and Exchange Commission for proxy statement purposes) more than 5%
of the outstanding Common Shares of the Company as of December 31, 1993, is as
follows:
Amount and
Name and Address Nature of Percent
of Beneficial Beneficial of
Owner Ownership Class
Otter Tail Power 930,997 shs. 8.33%
Company Employee
Stock Ownership Plan
c/o Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258-0001
The Common Shares owned by the Employee Stock Ownership Plan (ESOP) are held
in trust for the benefit of participants in the ESOP for which Mellon Bank is
Trustee, subject to the direction of the ESOP Retirement Committee. The ESOP
has sole investment power over the Common Shares held in trust. Participants
are entitled to instruct the ESOP Trustee on how to vote all Company Common
Shares allocated to their accounts (930,997 Common Shares as of December 31,
1993) and will receive a separate Proxy for voting such Shares. All Common
Shares allocated to the participants for which no voting instructions are
received and all unallocated Common Shares held by the ESOP (NONE as of
December 31, 1993) will be voted by the Trustee in proportion to the
instructed shares.
Nominees for Election as Directors
The terms of Mr. Brown, Mr. Helgaas, and Mr. Spolum expire at the time of the
1994 Annual Meeting. The Board of Directors nominates for reelection Mr.
Thomas M. Brown, Mr. Maynard D. Helgaas, and Mr. Robert N. Spolum to serve a
three-year term ending at the time of the Annual Meeting in 1997.
It is the intention of the proxies named to vote for the three nominees named
below, but in case any of them should become unavailable due to unforeseen
causes, the proxies will vote for the remainder of such nominees and may also
vote for other nominees not named herein in lieu of those unable or unwilling
to serve. The affirmative vote of a majority of the Common Shares present and
entitled to vote with respect to the election of Directors is required for the
election of the nominees to the Board of Directors.
The following information is furnished with respect to each nominee for
election as a Director and for each Director whose term of office will
continue after the meeting:
Principal Director
Name Occupation (1) Age Since
Nominees for election for a term
of three years expiring April 1997:
Thomas M. Brown */*** Retired Partner 63 1991
Dorsey & Whitney
Minneapolis, Minnesota (2)
Maynard D. Helgaas */*** Owner/Manager 59 1985
Midwest Agri-Development Corp.
(Farm Equipment and Supplies)
Jamestown, North Dakota
Robert N. Spolum ** Retired Chairman, President and CEO 63 1991
Melroe Company
(Industrial Equipment Manufacturer)
Fargo, North Dakota (3)
Directors whose terms expire April 1996:
Dennis R. Emmen Senior Vice President-Finance, 60 1984
Treasurer and Chief Financial Officer
Otter Tail Power Company
Fergus Falls, Minnesota
Kenneth L. Nelson ** Owner/President, Kenny's Candy Co. Inc. 52 1990
Part Owner/President, Barrel O'Fun Snack Foods Co.
Owner/President, Nelson's Confectionary
(Production of Snack Foods)
Perham, Minnesota
Nathan I. Partain ** Executive Vice President, Utility 37 1993
Analyst and Director of Equity
Research, Duff & Phelps
Investment Research Co.
(Financial Consulting, Money Management
and Investment Research)
Chicago, Illinois
Directors whose terms expire April 1995:
Dayle Dietz ** Department Chair 65 1983
Marketing & Management
North Dakota State College of Science
Wahpeton, North Dakota
John C. MacFarlane * Chairman, President and 54 1983
Chief Executive Officer
Otter Tail Power Company
Fergus Falls, Minnesota
James L. Stengel */*** Chairman 68 1965
Dakota Granite Co.
(Quarrying and Granite Finishing)
Milbank, South Dakota
* Member of Nominating Committee of the Board of Directors
** Member of Audit Committee of the Board of Directors
*** Member of Compensation Committee of the Board of Directors
(1) Except as indicated by footnotes below, each of the nominees and
Directors has had the same position or another executive position with
the same employer for the past five years.
(2) Mr. Brown was a partner in the law firm of Dorsey & Whitney from 1963
until his retirement on January 1, 1991, at which time he became of
counsel to the firm. On November 29, 1993, his status in the firm
changed to that of Retired Partner. Dorsey & Whitney performed legal
services for the Company prior to and during 1993. It is expected that
the Company's relationship with Dorsey & Whitney will continue in the
future.
(3) Mr. Spolum held the office of President and Chief Executive Officer of
Melroe Company from 1972 until he became Chairman in September 1992. He
retired as Chairman on February 28, 1993. He also retired as Senior
Vice President of Clark Equipment Company, South Bend, Indiana, of which
Melroe is a business unit, on February 28, 1993. He continues to serve
as a consultant for Clark Equipment Company.
The Company has a standing Audit Committee, Compensation Committee, and
Nominating Committee. The Company's Audit Committee reviews accounting and
control procedures of the Company. The committee is composed of four members
of the Board of Directors who, for 1993, were Dayle Dietz, Nathan I. Partain,
Kenneth L. Nelson, and Robert N. Spolum. In 1993 this committee held two
meetings.
The Compensation Committee is composed of three members of the Board of
Directors who, for 1993, were Thomas M. Brown, Maynard D. Helgaas, and
James L. Stengel. The committee reviews the compensation of the officers and
fees of Directors of the Company and makes recommendations on such
compensation and fees to the Board of Directors. This committee held two
meetings in 1993.
The Nominating Committee identifies qualified nominees to succeed to Board
membership. The committee is composed of four members of the Board of
Directors who, for 1993, were James L. Stengel, Maynard D. Helgaas, Thomas M.
Brown, and John C. MacFarlane. Any shareholder may submit recommendations for
membership on the Board of Directors by sending a written statement of the
qualifications of the recommended individual to the President, Otter Tail
Power Company, Box 496, Fergus Falls, Minnesota 56538-0496. In 1993 this
committee held one meeting.
During 1993 the Board of Directors held a total of five regularly scheduled
and special meetings. Each incumbent Director attended at least 75% of the
total of (i) all meetings of the Board of Directors held during the period for
which he or she was a Director, and (ii) all meetings of the committees during
the periods he or she served on such committees.
Directors' Compensation
All Directors of the Company (other than officers of the Company) are
compensated $7,800 per year for all services as Directors, including service
on committees. In addition, nonofficer Directors receive an actual expense or
a $100 travel allowance if they are required to furnish their own
transportation to Directors' or any committee meetings outside their city of
residence. Nonemployee Directors may elect to defer the receipt of all or
part of the fees pursuant to the Company's Deferred Compensation Plan for
Directors. Interest accrues on any deferred amounts at a rate equal to
one-half of 1% over the prime commercial rate of First Bank National
Association.
Compensation Committee Interlocks and Insider Participation
Mr. Brown, Mr. Helgaas and Mr. Stengel served on the Compensation Committee
during 1993. Mr. Brown, a Retired Partner of the law firm of Dorsey &
Whitney, served as of counsel to Dorsey & Whitney until November 29, 1993.
Dorsey & Whitney provided legal services to the Company prior to and during
1993. It is expected that the Company's relationship with Dorsey & Whitney
will continue in the future.
Security Ownership of Management
The following table sets forth information, as of December 31, 1993, with
respect to beneficial ownership of Common Shares of the Company for each
Director and nominee, each executive officer named in the Summary Compensation
Table herein, and all Directors and executive officers of the Company as a
group.
Amount and
Nature of
Beneficial
Name of Beneficial Owner Ownership (1)(2)
Thomas M. Brown 274
Dayle Dietz 1,534
Dennis R. Emmen 7,740 (3)
Maynard D. Helgaas 1,333 (4)
Douglas L. Kjellerup 3,175
John C. MacFarlane 13,892 (5)
Richard W. Muehlhausen 5,727 (6)
Jay D. Myster 6,842 (7)
Kenneth L. Nelson 1,319
Nathan I. Partain 400 (8)
Robert N. Spolum 850
James L. Stengel 2,858 (9)
All Directors and executive officers
as a group 65,342
(1) Represents outstanding Common Shares beneficially owned both directly
and indirectly as of December 31, 1993. The Common Share interest of
each named person and all Directors and executive officers as a group
represents less than 1% of the aggregate amount of Common Shares issued
and outstanding. Except as indicated by footnote below, the beneficial
owner possesses sole voting and investment powers with respect to the
shares shown.
(2) Includes Common Shares held by the Trustee of the Company's Employee
Stock Ownership Plan for the account of executive officers of the
Company with respect to which such persons have sole voting power and no
investment power, as follows: Mr. Emmen, 5,276 shares; Mr. Kjellerup,
3,175 shares; Mr. MacFarlane, 5,994 shares; Mr. Muehlhausen, 5,037
shares; Mr. Myster, 4,910 shares; and all Directors and executive
officers as a group, 42,562 shares.
(3) Includes 2,382 shares owned jointly with Mr. Emmen's wife as to which he
shares voting and investment power.
(4) Excludes 1,817 shares owned by Mr. Helgaas' wife as to which he
disclaims beneficial ownership.
(5) Includes 6,546 shares owned jointly with Mr. MacFarlane's wife. Also
includes 1,352 shares owned directly by Mr. MacFarlane's minor child.
(6) Includes 690 shares owned jointly with Mr. Muehlhausen's wife as to
which he shares voting and investment power.
(7) Includes 1,829 shares owned jointly with Mr. Myster's wife as to which
he shares voting and investment power.
(8) Includes 200 shares owned jointly with Mr. Partain's wife as to which he
shares voting and investment power.
(9) Excludes 468 shares owned by Mr. Stengel's wife as to which he disclaims
beneficial ownership.
No Director, nominee or executive officer of the Company owned beneficially,
directly or indirectly, on December 31, 1993, any shares of any series of
Cumulative Preferred Shares of the Company except for Mr. Emmen, who owned 100
Cumulative Preferred Shares of the $3.60 series.
The information with respect to beneficial ownership of securities of the
Company is based on information furnished to the Company by each person
included in the table.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's Directors and executive officers and holders of more than 10% of the
Company's Common Shares to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of Common
Shares and other equity securities of the Company. The Company believes that
during the year ended December 31, 1993, its Directors and executive officers
complied with all Section 16(a) filing requirements except that Mr. Helgaas
filed a late Form 4 report for the purchase of 14 Common Shares in August 1993
and the purchase of 61 Common Shares in November 1993, and the purchase of 20
Common Shares in August 1993 and the purchase of 85 Common Shares in November
1993 by his wife.
Executive Compensation
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for developing and making recommendations to the Board with
respect to the Company's executive compensation program. The components of
the Company's executive compensation program consist of a base salary and an
incentive bonus.
The Committee develops annual recommendations for the Board concerning the
base salary and incentive bonus for the Chief Executive Officer and each of
the other executive officers of the Company. In order to develop its
recommendations to the Board, the Committee reviews and evaluates an analysis
of executive compensation for each of the Company's executive officers
prepared for the Committee by the Chief Executive Officer. The analysis
reflects for each of the Company's executive officers his or her current base
salary and cash bonus. A listing of the average base salaries and bonus
awards for similar executive positions in companies comparable to the Company
in size and capitalization, both within and outside the utility industry, as
set forth in a market survey performed for the Company by the independent
consulting firm of Hewitt & Associates in 1992 (adjusted upward by 5% for
1993), and a similar list from the Edison Electric Institute ("EEI") Salary
Survey (as of April 1, 1993) for average base salaries and cash bonuses for
similar executive positions in utility companies whose revenues were under
$300 million annually are included. The analysis also sets forth each
executive officer's current base salary adjusted upward by a percentage factor
recommended by the Chief Executive Officer (5% for 1993). The Chief Executive
Officer then makes specific recommendations to the Committee with respect to
adjustments in base salary for certain executive officers (other than himself)
based on various factors which are typically subjective and reflect individual
performances by such officers during the year or changes in their corporate
responsibilities. These recommendations for officer base salaries are then
reviewed by the Committee against the base salaries shown on the lists of
average salaries compiled from the Hewitt & Associates and EEI Salary Surveys
to determine if the Company's executive base salaries for the current year are
in proximity to those in the lists of average salaries taken from the Surveys.
Thereafter, further upward or downward adjustments in base salary may be made
by the Committee from those recommended by the Chief Executive Officer;
however, the final base salaries so determined by the Committee are primarily
subjective and not targeted specifically to either the Hewitt & Associates or
EEI lists, nor are they set in accordance with any other objective criteria.
It should be noted that the groups of companies which make up the Hewitt &
Associates and EEI Surveys are not the same as those included in the EEI Index
in the Stock Performance Graph appearing in this Proxy Statement.
Incentive bonuses for executive officers (including the Chief Executive
Officer) are awarded only if the Company exceeds a targeted year-end corporate
performance objective. This performance objective is based on the Company's
operating results as indicated by year-end earnings per share. The earnings
per share objective for each fiscal year is set by the Board of Directors,
upon the recommendation of the Committee, near the end of the first fiscal
quarter of such year. The incentive bonus is paid in cash following the close
of the fiscal year, after it has been determined whether the targeted earnings
per share has been exceeded. The amount of the incentive bonus increases by a
fixed amount for each $0.01 per share that actual earnings per share exceeds
targeted earnings per share. Each executive officer receives the same dollar
amount of incentive bonus. Targeted performance was exceeded in 1993. In
addition to the incentive bonus paid to all executive officers, Mr. Kjellerup,
the Company's Vice President of Marketing and Development, is eligible to
receive a special bonus based on targeted earnings realized by a Company
subsidiary. This special bonus is tied to Mr. Kjellerup's responsibility for
and participation in the Company's diversification efforts and is determined
by the Board of Directors of a Company subsidiary and is paid from earnings of
that subsidiary. No other executive officer receives or participates in this
special bonus award.
The base salary of the Chief Executive Officer is set by the Board upon the
recommendation of the Committee. The Chief Executive Officer's base salary is
determined generally in accordance with the criteria discussed above
pertaining to other executive officers; however, the Chief Executive Officer's
base salary is determined solely by the Committee without any recommendation
by the Chief Executive Officer. The Chief Executive Officer's incentive
bonus, if any, is determined in the same manner as the other executive
officers. If the Company exceeds the targeted performance objective for per
share earnings, the Chief Executive Officer receives an incentive bonus in the
same amount as the incentive bonus awarded to the other executive officers.
The Company currently maintains a variety of employee benefit plans and
programs, which are generally available to all employees of the Company,
including executive officers, such as the Gain Share Program, Performance
Incentive Program, Retirement Savings (401k) Plan, Employee Stock Ownership
Plan (ESOP), Pension Plan, Life and Living Plans, and Employee Stock Purchase
Plan. The Company also maintains an Executive Survivor and Supplemental
Retirement Plan and nonqualified pension, profit-sharing and retirement
savings plans for certain senior executives.
Thomas M. Brown Maynard D. Helgaas James L. Stengel
Summary Compensation Table
The following table sets forth information concerning compensation for
services in all capacities to the Company and its subsidiaries for each of the
last three fiscal years of the Chief Executive Officer of the Company and the
other four most highly compensated executive officers whose salary and bonus
for 1993 exceeded $100,000 (the "Named Officers").
Annual Compensation All Other
Name and Principal Position Year Salary Bonus(1) Compensation(2)
John C. MacFarlane 1993 $197,300 $14,708 $9,835
Chairman of the Board, 1992 181,150 14,608 8,912
President and Chief 1991 171,250 21,590 9,138
Executive Officer
Dennis R. Emmen 1993 126,850 12,313 6,573
Senior Vice President- 1992 120,650 12,067 6,169
Finance, Treasurer and 1991 114,750 18,426 6,346
Chief Financial Officer
Richard W. Muehlhausen 1993 110,735 11,765 5,826
Vice President, Corporate 1992 105,275 11,422 5,216
Services 1991 99,750 17,586 5,604
Jay D. Myster 1993 103,750 11,528 5,504
Vice President, 1992 98,750 11,148 5,177
Governmental & Legal, 1991 94,000 17,264 5,321
and Corporate Secretary
Douglas L. Kjellerup 1993 82,300 24,701 4,510
Vice President, 1992 75,900 32,648 4,140
Marketing & Development 1991 69,000 23,364 4,085
(1) Included (i) awards under the incentive bonus program for executive
officers described above in the Compensation Committee Report on
Executive Compensation, (ii) awards under the Gain Share program, a
fixed-formula bonus program adopted in 1988 which provides for payment of
an annual cash bonus to all Company employees to the extent that actual
earnings per share for the year exceeds targeted earnings per share, and
(iii) the special bonus award to Mr. Kjellerup described above in the
Compensation Committee Report.
(2) Amounts of All Other Compensation for 1993 consist of (i) amounts
contributed by the Company under the Retirement Savings Plan for 1993, as
follows: Mr. MacFarlane, $3,354; Mr. Emmen, $2,156; Mr. Muehlhausen,
$1,882; Mr. Myster, $1,764; and Mr. Kjellerup, $1,399; (ii) the amount of
the Company's contribution under the Employee Stock Ownership Plan which
was invested in Common Shares for the account of each Named Officer for
1993, as follows: Mr. MacFarlane, $5,781; Mr. Emmen, $3,717;
Mr. Muehlhausen, $3,244; Mr. Myster, $3,040; and Mr. Kjellerup, $2,411;
and (iii) $700 for each Named Officer pursuant to the Company's program
to reimburse employees for unreimbursed medical expenses. All employees
of the Company who have satisfied minimum service requirements are
eligible to participate in each of these plans.
Pension and Supplemental Retirement Plans
The following table estimates the aggregate annual amount of lifetime
benefits, as of January 1, 1994, that would be payable under the combination
of the Company's tax-qualified defined benefit pension plan and the Company's
nonqualified defined benefit pension plan (maintained for certain highly
compensated employees) to participants in the final average earnings and years
of credited service categories indicated:
Annual Final Years of Service
Average Earnings 15 20 25 30 40 or more
$ 40,000 $ 8,756 $11,674 $14,593 $ 17,511 $ 19,262
60,000 14,156 18,874 23,593 28,311 31,142
80,000 19,556 26,074 32,593 39,111 43,022
100,000 24,956 33,274 41,593 49,911 54,902
120,000 30,356 40,474 50,593 60,711 66,782
140,000 35,756 47,674 59,593 71,511 78,662
160,000 41,156 54,874 68,593 82,311 90,542
180,000 46,556 62,074 77,593 93,911 102,422
200,000 51,956 69,274 86,593 103,911 114,302
220,000 57,356 76,474 95,593 114,711 126,182
240,000 62,756 83,674 104,593 125,511 138,062
A participant's annual final average earnings is determined using the 42
consecutive months out of the last 10 consecutive years prior to the
participant's retirement which produces the highest average salary. As of
December 31, 1993, the annual final average earnings and actual credited years
of service for each of the Named Officers were as follows: Mr. MacFarlane,
$179,914 (32.5 years); Mr. Emmen, $119,357 (29 years); Mr. Muehlhausen,
$103,931 (29.5 years); Mr. Myster, $97,714 (20 years); Mr. Kjellerup, $73,078
(31 years).
The benefits in the foregoing table were calculated as a straight life
annuity. Because covered compensation takes into account an average of annual
Social Security benefits, there is no deduction for Social Security under the
Pension Plan. The amounts shown in the above table do not reflect the limits
imposed by Sections 415 or 401(a)(17) of the Internal Revenue Code because the
Company's nonqualified pension plan allows for payments of additional benefits
so that retiring employees may receive, in the aggregate, the benefits they
would have been entitled to receive had such Code Sections not imposed maximum
limitations.
The Company has an unfunded Executive Survivor and Supplemental Retirement
Plan designed to provide survivor and retirement benefits for certain senior
executives in order to attract and retain persons of outstanding competence in
the Company's employ. Each of the Named Officers is presently a fully vested
participant in this Plan. Under the Plan, if a participant dies while
employed, the Company will pay to the participant's beneficiary an amount
equal to four times the participant's annual salary at the time of death. If
a participant dies after retirement or dies after termination of employment
for other reasons and is vested, the participant's beneficiary will receive a
lesser amount, depending upon the participant's age at the time of death and
his or her vested percentage. In addition to these survivor benefits, the
Plan provides retirement benefits. Under the Plan, if a participant retires
after age 65, the Company will pay to the participant an annual retirement
benefit equal to 10% of the participant's annual salary at the time of
retirement for a period of 15 years. A participant who retires early (after
10 years of service and age 55) will receive a reduced amount. A vested
participant who terminates employment before retirement will receive at age 62
his or her vested percentage of the normal annual retirement benefit.
Participants in this Plan are not eligible to receive life insurance benefits
under any group term life insurance policies (other than group travel or
accident policies) purchased by the Company until retirement. A participant
with no vested percentage who resigns or is terminated for reasons other than
death, retirement, or permanent disability ceases to be covered under this
Plan. The Board of Directors has the right to amend, modify, suspend, or
terminate the Plan, but no such change can affect the right of a beneficiary
to receive a benefit as a result of the death of a participant that occurred
prior to such change. The Company has purchased insurance on the lives of
most of the participants, naming the Company as sole beneficiary. The amount
of the coverage is designed to provide sufficient revenues to satisfy the
benefit obligations payable under this Plan. The estimated annual benefits
payable under the Plan upon retirement at age 65 for each of the Named
Officers, assuming salary upon retirement is unchanged from 1993, is as
follows: Mr. MacFarlane, $20,200; Mr. Emmen, $12,840; Mr. Muehlhausen,
$11,208; Mr. Myster, $10,500; and Mr. Kjellerup, $8,400.
Severance Agreements
The Company has entered into change of control severance agreements (the
"Severance Agreements") with each of its executive officers, including the
Named Officers. The Severance Agreements provide for certain payments and
other benefits if, following a Change in Control, the Company terminates the
officer's employment without Cause or the officer terminates his employment
for Good Reason. Such payments and benefits include: (i) severance pay equal
to three times the officer's salary (at the highest annual rate in effect
during the three years prior to the termination) and benefits; (ii) a lump-sum
payment equal to the difference between (a) the actuarial equivalent of the
benefit the officer would have received under the Company's Pension Plan if he
had remained employed by the Company at the compensation level provided by the
Severance Agreement for three years following the date of termination and
(b) the actuarial equivalent of the benefit to which he is otherwise then
entitled under the Pension Plan; (iii) the payment of legal fees and expenses
relating to the termination; (iv) the termination of any noncompetition
arrangement between the Company and the officer; and (v) a gross-up payment
for any excise tax imposed on such payments or benefits and for any tax
imposed on such gross-up. Under the Severance Agreements, "Cause" is defined
as willful and continued failure to perform duties and obligations or willful
misconduct materially injurious to the Company; "Good Reason" is defined to
include a change in the employee's responsibility or status, a reduction in
salary or benefits, or a mandatory relocation; and "Change in Control" is
defined to include a change in control of the type required to be disclosed
under Securities and Exchange Commission proxy rules, acquisition by a person
or group of 35% of the outstanding voting stock of the Company, a proxy fight
or contested election which results in Continuing Directors (as defined) not
constituting a majority of the Company's Board of Directors, or another event
the majority of the Continuing Directors determines to be a change in control.
Stock Performance Graph
The graph below compares the cumulative total shareholder return on the
Company's Common Shares for the last five fiscal years with the cumulative
total return of the NASDAQ Market Index and the Edison Electric Institute
Index over the same period (assuming the investment of $100 in each vehicle on
December 30, 1988, and reinvestment of all dividends).
Comparison of five-year cumulative total return among Otter Tail Power, NASDAQ
Market Index, and Edison Electric Institute Index.
1989 1990 1991 1992 1993
Otter Tail Power 132.05 149.73 190.93 218.45 232.54
NASDAQ 112.89 91.57 117.56 118.71 142.4
EEI Index 129.935 131.589 169.554 181.989 198.502
The EEI Index is composed of the following investor-owned utilities:
Allegheny Power System, Inc, American Electric Power, Inc, Atlantic Energy,
Inc, Baltimore Gas & Elec Co, Bangor Hydro-Elec Co, Black Hills Corp, Boston
Edison Co, Carolina Power & Light Co, Centerior Energy Corp, Central & South
West Corp, Central Hudson Gas & Elec, Central Louisiana Electric Co, Inc,
Central Maine Power Co, Central Vermont Pub Serv Corp, Cilcorp Inc, Cincinnati
Gas & Elec Co, Cipsco Inc, CMS Energy Corp, Commonwealth Edison Co,
Commonwealth Energy System, Consolidated Edison Co of NY, Delmarva Power &
Light Co, Detroit Edison Co, Dominion Resources, Inc, DPS Inc, DQE Inc., Duke
Power Co, Eastern Utilities Assoc, El Paso Electric Co, Empire District
Electric Co, Entergy Corp, Eselco Inc, Florida Progress Corp, FPL Group, Inc,
General Public Utilities Corp, Green Mountain Power Corp, Gulf States
Utilities Co, Hawaiian Electric Inds, Inc, Houston Industries, Inc, Idaho
Power Co, IES Industries Inc, Illinois Power Co, Interstate Power Co, Iowa-
Illinois Gas & Elec Co, Ipalco Enterprises Inc, Kansas City Power & Light Co,
KU Energy Corp, LG&E Energy Corp, Long Island Lighting Co, Madison Gas &
Electric Co, Maine Public Service Co, Midwest Resources Inc, Minnesota Power,
Montana Power Co, Nevada Power Co, New England Electric System, New York State
Elec & Gas Corp, Niagara Mohawk Power Corp, Nipsco Industries, Inc, Northeast
Utilities, Northern States Power Co, Northwestern Public Service Co, Ohio
Edison Co, Oklahoma Gas & Electric Co, Orange & Rockland Utilities, Inc, Otter
Tail Power Co, Pacific Gas & Electric Co, Pacificorp, Pennsylvania Power &
Light Co, Philadelphia Electric Co, Pinnacle West Capital Corp, Portland
General Corp, Potomac Electric Power Corp, PSI Resources, Inc, Public Service
Co of Colorado, Public Service Co of New Mexico, Public Service Enterprise
Group, Puget Sound Power & Light Co, Rochester Gas & Electric Corp, San Diego
Gas & Electric Co, SCANA Corp, SCECorp, Sierra Pacific Resources, Southern
Company, Southern Indiana Gas & Electric Co, Southwestern Public Service Co,
St. Joseph Light & Power Co, Teco Energy Inc, Texas Utilities Co, TNP
Enterprises Inc, Tucson Electric Power Co, Union Electric Co, United
Illuminating Co, UNITIL Corp, Upper Peninsula Energy Corp, Utilicorp United,
Washington Water Power Co, Western Resources, Wisconsin Energy Corp, Wisconsin
Public Service, WPL Holdings, Inc.
Proposal To Amend Restated Articles of Incorporation To Increase Authorized
Common Shares
General
The Restated Articles of Incorporation of the Company currently contain an
authorization of 15,000,000 Common Shares, $5.00 par value. The Board of
Directors recommends shareholder approval of an amendment to the Company's
Restated Articles of Incorporation, increasing the authorized Common Shares to
25,000,000 shares. If the amendment is approved by the Company's
shareholders, Article V of the Company's Restated Articles of Incorporation
would be amended to read as follows (with emphasis added to identify the
increased number of authorized Common Shares):
ARTICLE V.
The total authorized number of shares of the corporation is
27,500,000, divided into three classes; namely, 1,500,000 Cumulative
Preferred Shares without par value (the "Cumulative Preferred
Shares"); 1,000,000 Cumulative Preference Shares without par value
(the "Cumulative Preference Shares"); and 25,000,000 Common Shares
of the par value of $5 per share (the "Common Shares"). No
fractional shares of any class or series shall be issued by the
corporation.
As of December 31, 1993, there were 11,180,136 Common Shares outstanding and
157,959 Common Shares reserved for issuance upon exchange of the Company's
$9.00 Exchangeable Cumulative Preferred Shares (which number of reserved
shares will vary from time to time based on the fair market value of the
Common Shares). Accordingly, as of December 31, 1993, there were 3,661,905
Common Shares available for issuance for other purposes.
The additional Common Shares for which authorization is sought would be a part
of the existing class of Common Shares and, if and when issued, would have the
same rights and privileges as the Common Shares presently outstanding. Such
additional Common Shares would not (and the Common Shares presently
outstanding do not) entitle the holders thereof to preemptive rights to
subscribe for or purchase additional Common Shares of the Company or to
cumulative voting for the election of Directors.
Purposes and Effects of the Amendment
Except for shares reserved as noted above, the Company has no agreements or
understandings concerning the issuance of any additional Common Shares.
However, the Board of Directors believes that the increased authorization of
Common Shares is advisable at this time so that shares will be available for
issuance in the future on a timely basis if such need arises in connection
with stock splits or dividends, financings, acquisitions or other corporate
purposes. This will enable the Company to take advantage of market
conditions, the availability of favorable financing, and opportunities for
acquisitions without the delay and expense associated with convening a special
Shareholders' meeting.
Unless required by law, the Company's Restated Articles of Incorporation or
the rules of any stock exchange on which the Company's Common Shares may in
the future be listed, the Board of Directors will be able to provide for the
issuance of the additional Common Shares without further action by the
Company's Shareholders and no further authorization by the Shareholders will
be sought prior to such issuance. Under existing regulations of the National
Association of Securities Dealers, Inc. governing companies such as Otter Tail
that have shares admitted for trading on the NASDAQ National Market System,
approval by a majority of the holders of the Common Shares would be required
prior to the original issuance of additional Common Shares in certain
circumstances, including (a) in connection with certain stock plans, (b) in
connection with certain acquisitions if the number of Common Shares to be
issued (including securities convertible into or exercisable for Common
Shares) is or will be equal to or in excess of 20% of the number of shares
outstanding before the issuance of such Common Shares, or (c) if the issuance
would result in a change in control of the Company.
Although not designed or intended for such purposes, the effect of the
proposed increase in the authorized Common Shares might be to render more
difficult or to discourage a merger, tender offer, proxy contest or change in
control of the Company and the removal of management, which Shareholders might
otherwise deem favorable. The authority of the Board of Directors to issue
Common Shares might be used to create voting impediments or to frustrate an
attempt by another person or entity to effect a takeover or otherwise gain
control of the Company because the issuance of additional Common Shares would
dilute the voting power of the Common Shares then outstanding. Common Shares
could also be issued to purchasers who would support the Board of Directors in
opposing a takeover bid which the Board determines not to be in the best
interests of the Company and its Shareholders.
In addition to the proposed amendment, the Company's Restated Articles of
Incorporation (the "Articles") and Bylaws currently contain provisions
approved by the Company's Shareholders that may have the effect of
discouraging certain types of tender offers and other transactions that
involve a change of control of the Company. The Company's Directors are
elected for three-year staggered terms and cumulative voting in the election
of Directors is prohibited. A vote of 75% of the Common Shares is required to
remove Directors and to amend provisions of the Articles and Bylaws relating
to the staggered terms and the removal of Directors, unless approved by all
the continuing Directors as provided therein. In addition, the Articles
contain "fair price" provisions that require the affirmative vote of 75% of
the Common Shares to approve certain business combinations involving the
Company and a related Shareholder, unless specified price criteria and
procedural requirements are met or unless the transaction is approved by the
majority of the continuing Directors as provided therein. The Articles also
contain "anti-greenmail" provisions which preclude the Company from making
certain purchases of Common Shares from a substantial Shareholder at a price
above the fair market price unless approved by the affirmative vote of 66 2/3%
of the Common Shares held by the disinterested Shareholders. The "fair price"
and "anti-greenmail" provisions of the Articles may not be amended without the
affirmative vote of 75% of the Common Shares, unless approved by all of the
continuing Directors as provided therein.
The overall effect of the foregoing provisions of the Company's Articles and
Bylaws, together with the ability of the Board of Directors to issue
additional Common Shares, may be to delay or prevent attempts by other persons
or entities to acquire control of the Company without negotiations with the
Company's Board of Directors.
Board Recommendation and Shareholder Vote Required
The Board of Directors recommends that the Shareholders approve the proposal
to amend the Restated Articles of Incorporation to increase the number of
authorized Common Shares. The persons named in the accompanying Proxy intend
to vote the Proxies held by them in favor of such proposal, unless otherwise
directed. Adoption of the proposed amendment requires a favorable vote of the
holders of at least a majority of the outstanding Common Shares.
Approval of Auditors
There will be presented to the Annual Meeting a proposal to approve the
appointment by the Board of Directors of the firm of Deloitte & Touche as the
Certified Public Accountants to audit the accounts of the Company for 1994
This firm has no direct or indirect financial interest in the Company. A
partner of the certified public accounting firm of Deloitte & Touche will be
present at the Annual Meeting to answer questions and to make a statement if
he desires to do so. It is the intention that the Proxies, unless otherwise
directed thereon, will be voted in favor of said approval.
Shareholder Proposals for 1995 Annual Meeting
Any holder of Common Shares of the Company who intends to present a proposal
which may properly be acted upon at the 1995 Annual Meeting of Shareholders of
the Company must submit such proposal to the Company so that it is received at
the Company's principal executive offices at Box 496, Fergus Falls, Minnesota
56538-0496, on or before November 9, 1994, for inclusion in the Company's
Proxy Statement and form of Proxy relating to that meeting.
Other Business
As of the date hereof, the Board of Directors of the Company does not know of
any matters to be presented to the meeting other than as described above. If
any other matters properly come before the meeting, it is intended that the
Proxies will vote thereon at their discretion.
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 1993, including financial statements and schedules thereto, filed
with the Securities and Exchange Commission, is available without charge to
shareholders. Address written requests to:
The Corporate Secretary
Otter Tail Power Company
Box 496
Fergus Falls, MN 56538-0496
Dated: March 9, 1994 By order of the Board of Directors
JAY D. MYSTER, Corporate Secretary
