SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
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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)
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(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total Fee Paid:
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[ ] 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:
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(4) Date Filed:
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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 13, 1998, 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 2001, 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
1998; and
3. To transact such other business as may properly be brought
before the meeting.
Dated: March 13, 1998 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 13, 1998
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 13, 1998.
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 13, 1998.
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 13, 1998.
A copy of the Company's 1997 Annual Report, including financial
statements, was mailed to each shareholder of record on or about
March 6, 1998.
Outstanding Voting Shares
The outstanding voting shares of the Company at the close of
business on February 13, 1998, the record date for shareholders
entitled to notice of and to vote at said meeting, consisted of
11,734,916 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 13, 1998, is as follows:
Amount and
Name and Address Nature of Percent
of Beneficial Beneficial of
Owner Ownership Class
Otter Tail Power 1,032,272 shs. 8.8%
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 (1,032,272 Common Shares as of
December 31, 1997) 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, 1997) will
be voted by the Trustee in proportion to the instructed shares.
Nominees for Election as Directors
The terms of Ms. Dietz, Mr. Liebe, and Mr. MacFarlane expire at
the time of the 1998 Annual Meeting. The Board of Directors
nominates for reelection Ms. Dayle Dietz, Mr. Arvid Liebe, and Mr.
John MacFarlane to serve a three-year term ending at the time of
the Annual Meeting in 2001.
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 2001:
Dayle Dietz * Retired Associate Professor 69 1983
and Department Chair
Marketing & Management
North Dakota State College of Science
Wahpeton, North Dakota (2)
Arvid R. Liebe *** President, Liebe Drug, Inc. 56 1995
(Retail Business)
Milbank, South Dakota
John C. MacFarlane * Chairman, President and 58 1983
Chief Executive Officer
Otter Tail Power Company
Fergus Falls, Minnesota
Directors whose terms expire April 2000:
Thomas M. Brown */*** Retired Partner 67 1991
Dorsey & Whitney LLP
Minneapolis, Minnesota (3)
Maynard D. Helgaas *** Chairman of the Board 63 1985
Midwest Agri-Development
Corp.
(Farm Equipment and Supplies)
Jamestown, North Dakota
Robert N. Spolum ** Retired Chairman, 67 1991
President and CEO
Melroe Company
(Industrial Equipment Manufacturer)
Owner, R. N. Spolum & Associates
(Business Consulting)
Fargo, North Dakota (4)
Directors whose terms expire April 1999:
Dennis R. Emmen **/*** Retired Senior Vice 64 1984
President-Finance,
Treasurer and Chief
Financial Officer
Otter Tail Power Company
Fergus Falls, Minnesota (5)
Kenneth L. Nelson ** President, Barrel O'Fun, 56 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, 41 1993
Phoenix Duff & Phelps
Duff & Phelps Investment
Management Co.
(Investment Management)and
Senior Vice President and
Chief Investment Officer
Duff & Phelps Utilities Income Inc.
(Closed-end Utility Income Fund)
Chicago, Illinois
* 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) Ms. Dietz retired from her position as Associate Professor
and Department Chair of Marketing and Management at the
North Dakota State College of Science on July 1, 1997. She
had been on the faculty of the school since September 1969,
and served as Department Chair since September 1985 and
Associate Professor since September 1994.
(3) 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.
(4) 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 continued to serve
as a consultant for Clark Equipment Company until February
28, 1996.
(5) 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 1997, were Dennis R. Emmen, Kenneth L.
Nelson, Nathan I. Partain, and Robert N. Spolum. In 1997 this
committee held three meetings.
The Compensation Committee is composed of four members of the
Board of Directors who, for 1997, were Thomas M. Brown, Dennis R.
Emmen, 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 1997.
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 1997, were Thomas M. Brown, Dayle
Dietz, John C. MacFarlane, and Nathan I. Partain. 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 1997
this committee held one meeting.
During 1997 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 $12,000 per year for all services as Directors,
including service on committees. A fee of $500 is also paid for
attendance at each board and committee meeting, and the committee
chair is paid an additional $250 per committee 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 U. S. Bank National Association (formerly First
Bank National Association).
Security Ownership of Management
The following table sets forth information, as of December 31,
1997, 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 1,500 (3)
Maynard D. Helgaas 626
Douglas L. Kjellerup 4,269
Arvid R. Liebe 1,106 (4)
John C. MacFarlane 17,230 (5)
Richard W. Muehlhausen 5,785 (6)
Jay D. Myster 7,504 (7)
Kenneth L. Nelson 2,238
Nathan I. Partain 1,000 (8)
Rodney C. H. Scheel 3,994
Robert N. Spolum 2,780
All Directors and executive officers
as a group 70,763
(1) Represents outstanding Common Shares beneficially owned both
directly and indirectly as of December 31, 1997. 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, 4,269 shares; Mr. MacFarlane, 7,938 shares;
Mr. Muehlhausen, 5,785 shares; Mr. Myster, 5,402 shares;
Mr. Scheel, 3,989 shares; and all Directors and executive
officers as a group, 45,885 shares.
(3) Includes 1,500 shares owned jointly with Mr. Emmen's wife as
to which he shares voting and investment power.
(4) Includes 51 shares owned jointly with Mr. Liebe's wife as to
which he shares voting and investment power.
(5) Includes 9,293 shares owned jointly with Mr. MacFarlane's
wife as to which he shares voting and investment power.
(6) Excludes 864 shares owned by Mr. Muehlhausen's wife as to
which he disclaims beneficial ownership.
(7) Includes 2,102 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.
No Director, nominee or executive officer of the Company owned
beneficially, directly or indirectly, on December 31, 1997, 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, 1997, 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 bonuses 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 1996 Executive
Compensation Survey of March 1996 ("General Industry Survey");
Towers Perrin/Edison Electric Institute 1996 Executive
Compensation Survey of March 1996 ("EEI Survey"); and Watson
Wyatt Data Services, Inc./ECS 1996-97 Top Management Report of
April 1996 ("ECS Survey"). The data of all such surveys was
updated to reflect April 1, 1997 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 certain
targeted corporate performance objectives set by the Board of
Directors, upon the recommendation of the Committee, near the end
of the first fiscal quarter of each year. Incentive bonuses are
paid in cash following the close of the fiscal year after it has
been determined whether the targeted corporate performance
objectives have been exceeded. The corporate performance
objectives in place for 1997 were as follows:
* Operating results as indicated by earnings per share for 1997.
The amount of the bonus equals a fixed amount for each $0.01
per share that actual earnings per share exceeds the targeted
earnings per share. Each executive officer receives the same
dollar amount if the target is exceeded. The target for
earnings per share was exceeded in 1997.
* Average quarterly cumulative total return to the Company's
common shareholders during 1997. The amount of the bonus
equals a fixed amount for each one percent that the Company's
average quarterly cumulative total return exceeds that of
the EEI Index for the same year, with an additional fixed
amount for each percent above five percent. Each executive
officer receives the same dollar amount if the target is
exceeded. The target for total return was not exceeded in 1997.
* Total corporate rate of return ("ROE") for 1997. The amount of
the bonus equals a fixed percentage of the executive officer's
base salary for each one percent that the Company's ROE for
the year exceeds the national average of ROEs for electric
companies as reported by C.A. Turner Utility Reports. The
target for ROE was exceeded in 1997.
In addition to the incentive bonuses paid to all executive
officers, Mr. Kjellerup, the Company's Vice President of Marketing
and Development, and Mr. Scheel, the Company's Vice President of
Electrical Operations, were eligible to receive a special bonus
based on their responsibiity for and participation in the
Company's diversification efforts. Mr. Kjellerup serves as the
Company's liaison to Mid-States Development, Inc. ("Mid-States"),
a subsidiary of the Company that owns various businesses engaged
in construction, manufacturing, health services and
communications. Mr. Scheel serves as President of North Central
Utilities, Inc. ("NCU"), a subsidiary of the Company that owns
various telecommunications businesses. Their special bonus awards
for 1997 were based on the respective contributions made by Mid-
States and NCU to the Company's earnings per share for 1997, and
were calculated pursuant to a formula set by the Board of
Directors, upon the recommendation of the Committee, near the end
of the first fiscal quarter of 1997. The special bonuses were paid
in cash following the close of the fiscal year.
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 and depends on whether the Company
exceeds the targeted performance objectives discussed above.
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 Dennis R. Emmen 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 1997 exceeded
$100,000 (the "Named Officers").
Annual Compensation
All Other
Name and Principal Position Year Salary Bonus(1) Compensation(2)
John C. MacFarlane 1997 $279,375 $ 40,143 $12,112
Chairman of the Board, 1996 $259,375 $ 19,669 $11,713
President and Chief 1995 $241,250 $ 16,308 $11,182
Executive Officer
Rodney C. H. Scheel 1997 $ 93,000 $156,712 $ 5,057
Vice President, Electrical 1996 $ 89,000 $ 21,602 $ 4,269
1995 $ 84,690 $ 12,863 $ 4,518
Richard W. Muehlhausen 1997 $140,250 $ 22,891 $ 7,270
Sr. Vice President, 1996 $134,900 $ 17,428 $ 6,612
Corporate Services 1995 $127,500 $ 13,804 $ 6,448
Douglas L. Kjellerup 1997 $115,250 $ 34,791 $ 6,099
Vice President, 1996 $107,025 $ 31,926 $ 5,391
Marketing & Development 1995 $ 89,250 $ 42,964 $ 4,724
Jay D. Myster 1997 $127,500 $ 21,310 $ 6,673
Sr. Vice President, 1996 $118,750 $ 17,138 $ 5,905
Governmental & Legal, 1995 $113,500 $ 13,497 $ 5,817
Corporate Secretary
(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 awards to Mr. Kjellerup and Mr.
Scheel described above in the Compensation Committee Report.
(2) Amounts of All Other Compensation for 1997 consist of (i)
amounts contributed by the Company under the Retirement
Savings Plan for 1997, as follows: Mr. MacFarlane, $3,563;
Mr. Scheel, $1,744; Mr. Muehlhausen, $2,630; Mr. Kjellerup,
$2,161; and Mr. Myster, $2,391; (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 1997, as follows: Mr. MacFarlane,
$4,496; Mr. Scheel, $2,613; Mr. Muehlhausen, $3,941; Mr.
Kjellerup, $3,238; and Mr. Myster, $3,583; (iii) amounts
contributed by the Company under the nonqualified Profit
Sharing Plan for 1997, as follows: Mr. MacFarlane, $3,354;
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, 1998, 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 $8,363 $11,150 $13,938 $16,725 $18,398
60,000 13,863 18,484 23,104 27,725 30,498
80,000 19,363 25,817 32,271 38,725 42,598
100,000 24,863 33,150 41,438 49,725 54,698
120,000 30,363 40,484 50,604 60,725 66,798
140,000 35,863 47,817 59,771 71,725 78,898
160,000 or more* 41,363 55,150 68,938 82,725 90,998
* Compensation used for benefits is limited to $160,000 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, 1997, the annual final average
earnings and actual credited years of service for each of the
Named Officers were as follows: Mr. MacFarlane, $253,572 (36.5
years); Mr. Scheel, $87,734 (24 years), Mr. Muehlhausen, $131,757
(33.5 years); Mr. Kjellerup, $101,436 (35 years); Mr. Myster,
$118,357 (24 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.
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 Named
Officers, assuming salary is unchanged from 1997, and bonus
determined by actuarial assumptions based on past financial
performance, is as follows: Mr. MacFarlane, $102,363, Mr. Scheel,
$20,977, Mr. Muehlhausen, $22,397, Mr. Kjellerup, $18,569, and Mr.
Myster, $20,164.
On January 15, 1998, the Company announced that it will offer a
voluntary early retirement program to all nonunion employees who
were at least age 55 as of December 31, 1997. Under the program,
early retirement reductions will be eliminated under the Pension
Plan and five years of additional service will be credited for
purposes of Pension Plan calculations and medical plan
eligibility. Eligible employees who elect early retirement will
receive, at their option, either a $750 monthly supplement and
medical coverage at current retiree rates until age 62 or a $500
monthly supplement with medical coverage at the current active
employee rates until age 62. In addition, the vesting
requirements, early retirement reductions and ten-year service
requirements will be waived under the Executive Survivor and
Supplemental Retirement Plan for participants who elect early
retirement. Retirement benefits under the Executive Survivor and
Supplemental Retirement Plan for participants who elect early
retirement will be calculated based on the enhanced Pension Plan
benefits discussed above and the expected Social Security benefit
at age 62. Enrollment period for the early retirement program is
February 5 to March 23, 1998.
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, 1992, and
reinvestment of all dividends).
Comparison of five-year Cumulative total return among Otter Tail
Power, NASDAQ Market Index, and Edison Electric Institute Index.
1993 1994 1995 1996 1997
Otter Tail Power 106.56 108.22 125.22 118.52 147.66
NASDAQ 119.95 125.94 163.35 202.99 248.30
EEI Index 111.15 98.29 128.78 130.32 166.00
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 1998. 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 1999 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 13, 1998, 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, 1997, 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 13, 1998 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 KENNETH L. NELSON, NATHAN I. PARTAIN, and
DENNIS R. EMMEN (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 13, 1998, 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 the to vote for all
contrary below) nominees listed below
Dayle Dietz Arvid R. Liebe John C. MacFarlane
(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:
______________________, 1998
_________________________________ _______________________________
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_____
1998
(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)
