SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Otter Tail 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 transaction applies:
________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the filing
fee is calculated and state how it was determined):
_________________________________________________________
(4) Proposed maximum aggregate value of transaction:
_________________________________________________________
(5) Total Fee Paid:
______________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
________________________________________________
(2) Form, Schedule or Registration Statement No.:
________________________________________________
(3) Filing Party:
________________________________________________
(4) Date Filed:
________________________________________________
March 14, 1997
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 14, 1997.
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.
At this Annual Meeting, shareholders will also be asked to ratify the
appointment of Deloitte & Touche LLP as independent auditors of the Company for
1997.
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
John C. MacFarlane
President & 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 14, 1997, 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 2000, or
until their successors are elected and qualified;
2. To approve the appointment by the Board of Directors of Deloitte &
Touche LLP as independent auditors for the year 1997; and
3. To transact such other business as may properly be brought before the
meeting.
Dated: March 14, 1997 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 14, 1997
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 14, 1997.
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
14, 1997.
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 14, 1997.
A copy of the Company's 1996 Annual Report, including financial statements,
was mailed to each shareholder of record on or about March 7, 1997.
Outstanding Voting Shares
The outstanding voting shares of the Company at the close of business on
February 14, 1997, the record date for shareholders entitled to notice of and
to vote at said meeting, consisted of 11,417,647 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 February 14, 1997, is
as follows:
Amount and
Name and Address Nature of Percent
of Beneficial Beneficial of
Owner Ownership Class
Otter Tail Power 1,030,571 shs. 9.03%
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 (1,030,571 Common Shares as of December
31, 1996) 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, 1996) 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
1997 Annual Meeting. The Board of Directors nominates for reelection Mr.
Thomas Brown, Mr. Maynard Helgaas, and Mr. Robert Spolum to serve a three-
year term ending at the time of the Annual Meeting in 2000.
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 2000:
Thomas M. Brown */*** Retired Partner 66 1991
Dorsey & Whitney LLP
Minneapolis, Minnesota (2)
Maynard D. Helgaas */*** Owner/Manager 62 1985
Midwest Agri-Development Corp.
(Farm Equipment and Supplies)
Jamestown, North Dakota
Robert N. Spolum ** Retired Chairman, 66 1991
President and CEO
Melroe Company
(Industrial Equipment Manufacturer)
Owner, R. N. Spolum & Associates
(Business Consulting)
Fargo, North Dakota (3)
Directors whose terms expire April 1999
Dennis R. Emmen * Retired Senior Vice 63 1984
President-Finance,
Treasurer and Chief
Financial Officer
Otter Tail Power Company
Fergus Falls, Minnesota (4)
Kenneth L. Nelson ** President, Barrel O'Fun, 55 1990
President, Kenny's Candy
Owner, Bec-Lin Foods
Owner, Nelson's Confections
(Production of Snack Foods)
Perham, Minnesota
Nathan I. Partain ** Executive Vice President, 40 1993
Phoenix Duff & Phelps
Duff & Phelps Investment
Management Co.
(Financial Consulting, Money Management
and Investment Research)
Chicago, Illinois
Directors whose terms expire April 1998:
Dayle Dietz */** Associate Professor 68 1983
Department Chair
Marketing & Management
North Dakota State College of Science
Wahpeton, North Dakota
John C. MacFarlane * Chairman, President and 57 1983
Chief Executive Officer
Otter Tail Power Company
Fergus Falls, Minnesota
Arvid R. Liebe *** President, Liebe Drug, Inc. 55 1995
(Retail Business)
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.
(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, 1994. 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 continued to serve as a
consultant for Clark Equipment Company until February 28, 1996.
(4) Mr. Emmen held the office of Senior Vice President-Finance, Treasurer and
Chief Financial Officer from April 13, 1981, until his retirement on June 30,
1995.
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 1996, were Dayle Dietz, Nathan I. Partain,
Kenneth L. Nelson, and Robert N. Spolum. In 1996 this committee held two
meetings.
The Compensation Committee is composed of three members of the Board of
Directors who, for 1996, were Thomas M. Brown, Maynard D. Helgaas, and Arvid
R. Liebe. 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 1996.
The Nominating Committee identifies qualified nominees to succeed to Board
membership. The committee is composed of five members of the Board of
Directors who, for 1996, were Thomas M. Brown, Dayle Dietz, Dennis R. Emmen,
Maynard D. Helgaas, 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 1996 this committee held one meeting.
During 1996 the Board of Directors held a total of six 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. A fee of $250 is also paid for attendance at a board meeting.
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.
Security Ownership of Management
The following table sets forth information, as of December 31, 1996, 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
Name of Beneficial Owner Beneficial Ownership(1)(2)
Thomas M. Brown 574
Dayle Dietz 1,708
Dennis R. Emmen 2,629 (3)
Maynard D. Helgaas 3,704 (4)
Douglas L. Kjellerup 3,951
Arvid R. Liebe 1,052 (5)
John C. MacFarlane 15,803 (6)
Richard W. Muehlhausen 6,207 (7)
Jay D. Myster 7,067 (8)
Kenneth L. Nelson 2,238
Nathan I. Partain 1,000 (9)
Robert N. Spolum 2,027
Ward L. Uggerud 4,151 (10)
All Directors and executive officers
as a group 69,816
(1) Represents outstanding Common Shares beneficially owned both directly and
indirectly as of December 31, 1996. 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. Kjellerup, 3,951 shares; Mr. MacFarlane, 7,388 shares; Mr.
Muehlhausen, 6,207 shares; Mr. Myster, 5,013 shares; Mr. Uggerud, 4,128
shares; and all Directors and executive officers as a group, 43,466 shares.
(3) Includes 1,500 shares owned jointly with Mr. Emmen's wife as to which he
shares voting and investment power. Also includes 1,129 shares which are held
in trust for Mr. Emmen's wife.
(4) Includes 2,136 shares held by Mrs. Helgaas' estate as to which Mr.
Helgaas shares investment power.
(5) Includes 53 shares owned jointly with Mr. Liebe's wife as to which he
shares voting and investment power.
(6) Includes 8,415 shares owned jointly with Mr. MacFarlane's wife as to
which he shares voting and investment power.
(7) Excludes 800 shares owned by Mr. Muehlhausen's wife as to which he
disclaims beneficial ownership.
(8) Includes 2,054 shares owned jointly with Mr. Myster's wife as to which he
shares voting and investment power.
(9) Includes 200 shares owned jointly with Mr. Partain's wife as to which he
shares voting and investment power.
(10) Excludes 46 shares owned by Mr. Uggerud'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, 1996, any shares of any series of
Cumulative Preferred Shares of the Company except for Mr. Emmen, who owned
115 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, 1996, its Directors and
executive officers complied with all Section 16(a) filing requirements.
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 for 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 "Company
Analysis"). The Company Analysis is based upon a compensation analysis
performed for the Company by the independent consulting firm of Towers Perrin
(the "TP Analysis"). The TP Analysis established the market competitiveness
for twelve top management positions of the Company by listing for each
management position the median base salaries obtained from three primary
sources: Towers Perrin/Compensation Data Bank 1995 Executive Compensation
Survey of March 1995 ("General Industry Survey"); Towers Perrin/Edison
Electric Institute 1995 Executive Compensation Survey of March 1995 ("EEI
Survey"); and Watson Wyatt Data Services, Inc./ECS 1995-96 Top Management
Report of April 1995 ("ECS Survey"). The data of all such surveys was
updated to reflect April 1, 1996 levels, using a 4% annual update factor. All
data was adjusted to take into account the relative size (based on sales) of
each company reporting data in the surveys. In preparing the Company
Analysis, the Company used the TP Analysis in arriving at a competitive
mid-point for base salaries in each of the listed management positions.
Since it was believed that the EEI Survey most nearly reflected the market in
which the Company competes, the competitive mid-point in the Company Analysis
was based 80% on the EEI survey median salaries and 20% on the ECS Survey
median salaries. The Company Analysis showed, in addition to the
competitive mid-points so determined, salary ranges for each management
position of 20% below and 20% above the mid-points. These salary ranges and
mid-points were weighted (based on either total consolidated revenues or
total electric revenues) for each management position, depending on the
individual involvement in generating Company revenues. The Company
Analysis also reflected the years of service of each of the executive
officers along with their current base salaries.
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 ranges (minimum/mid-point/maximum) shown on the Company Analysis
to determine if the Company's executive base salaries are within
the ranges in the Company Analysis. 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 any of the salary levels reflected in the TP Analysis, nor
are they set in accordance with any other objective criteria. It should be
noted that the groups of companies which make up the TP Analysis, the General
Industry Survey, the EEI Survey and the ECS Survey 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 1996. 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.
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, and Life and Living Plans. The Gain Share
Program provides for the payment of an annual cash bonus to all Company
employees, including executive officers, to the extent that actual earnings
per share exceeds targeted earnings per share for the year. Awards under the
Gain Share Program are based on a fixed formula agreed to in the context of
prior union negotiations and are computed as a percent of base pay. The
Compensation Committee does not set the performance objectives or make awards
under the Gain Share Program. The Company also maintains an Executive
Survivor and Supplemental Retirement Plan and nonqualified profit-sharing and
retirement savings plans for certain senior executives.
Thomas M. Brown Maynard D. Helgaas Arvid R. Liebe
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 1996 exceeded $100,000 (the "Named Officers").
Annual Compensation
All Other
Name and Principal Position Year Salary Bonus(1) Compensation(2)
John C. MacFarlane 1996 $259,375 $19,669 $11,713
Chairman of the Board, 1995 $241,250 $16,308 $11,182
President and Chief 1994 $211,750 $18,623 $ 9,706
Executive Officer
Richard W. Muehlhausen 1996 $134,900 $17,428 $ 6,612
Sr. Vice President, 1995 $127,500 $13,804 $ 6,448
Corporate Services 1994 $115,770 $15,168 $ 5,602
Douglas L. Kjellerup 1996 $107,025 $31,926 $ 5,391
Vice President, 1995 $ 89,250 $42,964 $ 4,724
Marketing & Development 1994 $ 86,250 $44,306 $ 4,352
Jay D. Myster 1996 $118,750 $17,138 $ 5,905
Sr. Vice President, 1995 $113,500 $13,497 $ 5,817
Governmental & Legal, 1994 $108,000 $14,888 $ 5,373
Corporate Secretary
Ward L. Uggerud 1996 $111,525 $17,007 $ 4,696
Vice President, Operations 1995 $105,750 $13,327 $ 4,727
1994 $ 97,650 $30,635 $ 4,151
(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 bonus program for all Company
employees described above in the Compensation Committee Report, and (iii) the
special bonus award to Mr. Kjellerup described above in the Compensation
Committee Report.
(2) Amounts of All Other Compensation for 1996 consist of (i) amounts
contributed by the Company under the Retirement Savings Plan for 1996, as
follows: Mr. MacFarlane, $3,800; Mr. Muehlhausen, $2,158; Mr. Kjellerup,
$1,712; Mr. Myster, $1,900; and Mr. Uggerud, $892; (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 1996, as
follows: Mr. MacFarlane, $4,175; Mr. Muehlhausen, $3,754; Mr. Kjellerup,
$2,979; Mr. Myster, $3,305; and Mr. Uggerud, $3,104; (iii) amounts
contributed by the Company under the nonqualified Profit Sharing Plan for
1996, as follows: Mr. MacFarlane, $3,038; and (iv) $700 for each Named
Officer pursuant to the Company's program to reimburse employees for
unreimbursed medical expenses.
Pension and Supplemental Retirement Plans
The following table estimates the aggregate annual amount of lifetime benefits,
as of January 1, 1997, that would be payable under the Company's tax-
qualified defined benefit pension plan 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 $8,518 $11,358 $14,197 $17,036 $18,740
60,000 14,018 18,691 23,364 28,036 30,840
80,000 19,518 26,024 32,530 39,036 42,940
100,000 25,018 33,358 41,697 50,036 55,040
120,000 30,518 40,691 50,864 61,036 67,140
140,000 36,018 48,024 60,030 72,036 79,240
160,000 or more* 41,518 55,358 69,197 83,036 91,340
* Compensation used for benefits is limited to $150,000 from the qualified plan
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, 1996, the annual final average earnings and actual credited
years of service for each of the Named Officers were as follows: Mr.
MacFarlane, $232,392 (35.5 years); Mr. Muehlhausen, $124,068 (32.5 years);
Mr. Kjellerup, $92,724 (34 years); Mr. Myster, $111,499 (23 years); Mr.
Uggerud, $103,356 (25.5 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 reflect the
limits imposed by Sections 415 or 401(a)(17) of the Internal Revenue Code.
The Company maintains the Executive Survivor and Supplemental Retirement Plan
which was amended effective July 1, 1994. This Plan is designed to provide
survivor and retirement benefits for certain executive officers and other key
management employees in order to attract and retain employees of outstanding
competence. Each of the Named Officers is a participant in this Plan.
If a participant dies while employed or disabled, the Company will pay 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 for other reasons with a vested benefit, the Company
will pay the participant's beneficiary a lesser amount, depending upon the
participant's age at death and his or her vested percentage. 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.
In addition to these survivor benefits, the Plan provides retirement benefits.
Under the Plan, the Company will pay a participant who retires at age 65 an
annual retirement benefit for life (or, if more, for 15 years) equal to 70%
of the participant's salary and bonuses during the 12 months before
retirement offset by the participant's Social Security benefit and the amount
of the participant's benefit from the Company's qualified pension plan if it
were paid in the form of a single life annuity. A participant who retires
early (after 10 years of service and age 55) or who terminates before
retirement with a vested benefit in the Plan will be paid a reduced amount.
If a participant dies while still employed, his or her beneficiary will be
paid the actuarial equivalent of the participant's benefit in 15 annual
installments. At any time after a change in control or following termination
of employment, a participant is entitled to receive upon request a lump sum
distribution of 90% of his or her benefits in the Plan with forfeiture of the
remaining benefits. The Board of Directors has the right to amend, suspend,
or terminate the Plan, but no such action can reduce the benefits already
accrued. The Company has purchased insurance on the lives of most
of the participants 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 other Named
Officers, assuming salary is unchanged from 1996, and bonus determined by
actuarial assumptions based on past financial performance, is as follows:
Mr. MacFarlane, $100,501, Mr. Kjellerup, $30,930, Mr. Muehlhausen, $23,275,
Mr. Myster, $22,428, and Mr. Uggerud, $22,079.
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 31, 1991, and reinvestment of all dividends).
Comparison of five-year Cumulative total return among Otter Tail Power,
NASDAQ Market Index, and Edison Electric Institute Index.
1992 1993 1994 1995 1996
Otter Tail Power 114.37 121.87 123.77 143.22 135.55
NASDAQ 100.98 121.13 127.17 164.96 204.98
EEI Index 107.59 119.58 105.74 138.55 140.22
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 LLP as
the Certified Public Accountants to audit the accounts of the Company for
1997. This firm has no direct or indirect financial interest in the Company.
A partner of the certified public accounting firm of Deloitte & Touche LLP 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 1998 Annual Meeting
Any holder of Common Shares of the Company who intends to present a proposal
which may properly be acted upon at the 1998 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 14, 1997, 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, 1996, 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 14, 1997 By order of the Board of Directors
JAY D. MYSTER, Corporate Secretary
PROXY
Solicited on Behalf of the Board of Directors of
OTTER TAIL POWER COMPANY
The undersigned hereby appoints DAYLE DIETZ, NATHAN I. PARTAIN, and JAY D.
MYSTER (each with power to act alone and with full power of substitution) the
proxies of the undersigned to vote all Common Shares which the undersigned is
entitled to vote at the Annual Meeting of Otter Tail Power Company to be held
April 14, 1997, and at any adjournment thereof, and hereby directs that this
proxy be voted as follows:
1. ELECTION OF DIRECTORS FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to to vote for all
the contrary below) nominees listed below
Thomas M. Brown Maynard D. Helgaas Robert N. Spolum
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
_________________________________________________________________
2. PROPOSAL TO APPROVE THE APPOINTMENT OF DELOITTE & TOUCHE LLP as
auditors.
FOR__ AGAINST__ ABSTAIN__
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
SEE OTHER SIDE
This proxy will be voted as directed. In the absence of specific directions,
the proxy will be voted for the election of Directors and for Item 2.
Please sign exactly as name appears hereon. When signing as attorney,
administrator, trustee, or guardian, please give your full title.
Dated:
______________________, 1997
_________________________________ _______________________________
Signature Signature, if held jointly
WHAT IS YOUR QUESTION?
Otter Tail management welcomes the questions of all shareholders--whether or
not they can attend the annual meeting. Questions of general interest will
be answered at the meeting. All questions will be answered by letter. This
blank is for your use in submitting your question. It may be mailed to the
Company with your Proxy.
I wish to ask:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Name _____________________________________
Street or P.O. Box _____________________________________
City __________________State ____ Zip_____
1997
(over)
PLEASE SEND IN YOUR PROXY . . . NOW!
You are urged to date and sign the enclosed Proxy and return it promptly.
This will help save the expense of follow-up letters to stockholders who have
not responded.
(over)
