SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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Commission only (as permitted by
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[ ] Definitive additional materials.
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Otter Tail Corporation
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0-11.
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OTTER TAIL CORPORATION
ANNUAL MEETING OF
SHAREHOLDERS
MONDAY, APRIL 14, 2003
10 A.M., CST
BIGWOOD EVENT CENTER
921 Western Avenue
(Highway 210 West and Interstate 94)
Fergus Falls, Minnesota
Coffee will be served at 9:15 A.M., and lunch will
follow the meeting. No reservation is necessary.
Please present your admission ticket, which is
attached to your proxy.
FOR INFORMATION:
Email sharesvc@ottertail.com
Internet www.ottertail.com
Fax 218-739-8003
Phone 800-664-1259 or 218-739-8479
Mail Otter Tail Corporation
Box 496
Fergus Falls, Minnesota 56538-0496
[LOGO] OTTER TAIL CORPORATION
March 6, 2003
To the Holders of Common Shares
of Otter Tail Corporation:
You are cordially invited to attend the Annual Meeting of Shareholders of Otter
Tail Corporation, which will be held at the Bigwood Event Center, Best Western
Motel, Highway 210 West and Interstate 94, Fergus Falls, Minnesota, at 10:00
A.M. on Monday, April 14, 2003.
Enclosed are a formal Notice of Annual Meeting and the Proxy Statement, which
describe the business to be conducted at the meeting. The Board of Directors
proposes that shareholders reelect Mr. Thomas M. Brown, Mr. Maynard D. Helgaas,
and Mr. Robert N. Spolum for three-year terms on the Board of Directors.
Shareholders will be asked to ratify the appointment of Deloitte & Touche LLP as
independent auditors of Otter Tail Corporation for 2003. Finally, the Board of
Directors will ask shareholders to reject a proposal requiring Otter Tail
Corporation to change its method of accounting for stock options.
Your vote is important. Whether or not you attend the meeting, we encourage you
to vote your shares. You may vote your shares on the Internet or by using a
toll-free telephone number. Instructions for using these convenient services are
provided with your proxy card. Of course, you may vote your shares by marking
your votes on the proxy card, signing and dating it, and mailing it in the
envelope provided. If your shares are held beneficially in a brokerage account,
please follow the instructions that you receive from your broker. ESOP
participants should follow the instructions provided by Strong Retirement Plan
Services.
I enclose a copy of Otter Tail Corporation's 2002 Annual Report.
Sincerely,
/s/ John C. MacFarlane
John C. MacFarlane
Chairman of the Board
NOTICE OF ANNUAL MEETING
Notice is hereby given to the holders of common shares of Otter Tail Corporation
that the Annual Meeting of Shareholders of Otter Tail Corporation will be held
in the Bigwood Event Center, Best Western Motel, Highway 210 West and Interstate
94, Fergus Falls, Minnesota, on Monday, April 14, 2003, at 10:00 A.M. to
consider and act upon the following matters:
1. To elect three Directors to Otter Tail Corporation's Board of Directors to
serve terms of three years.
2. To approve the appointment of Deloitte & Touche LLP as independent
auditors for the year 2003.
3. To consider a proposal to require Otter Tail Corporation to change its
method of accounting and reporting of stock options.
4. To transact such other business as may properly be brought before the
meeting.
/s/ George A. Koeck
March 6, 2003 GEORGE A. KOECK
Corporate Secretary and General Counsel
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YOUR VOTE IS IMPORTANT
Please vote your proxy by telephone or the Internet as described in the
instructions on the enclosed proxy card. Or sign and return the proxy card in
the enclosed envelope, which does not require postage if mailed in the United
States. If your shares are held beneficially in a brokerage account, please
follow the instructions that you receive from your broker. ESOP participants
should follow the instructions provided by Strong Retirement Plan Services.
TABLE OF CONTENTS
Questions and Answers ..................................................... 1
Outstanding Voting Shares ................................................. 2
Election of Directors
Nominees .............................................................. 3
Continuing Directors .................................................. 4
Meetings and Committees of the Board ...................................... 5
Director Compensation ..................................................... 6
Management's Security Ownership ........................................... 6
Executive Compensation
Compensation Committee Report on Executive Compensation ............... 8
Summary Compensation Table ............................................ 10
Aggregated Option/SAR Exercises in Last Fiscal and
Fiscal Year-End Options/SAR Values .................................... 11
Pension and Supplemental Retirement Plans ............................. 11
Severance and Employment Agreements ................................... 13
Report of Audit Committee ................................................. 14
Stock Performance Graph ................................................... 15
Approval of Auditors ...................................................... 15
Shareholder Proposal ...................................................... 16
Otter Tail Corporation's Opposition to the Shareholder Proposal ........... 17
Shareholder Proposals for the 2004 Annual Meeting of Shareholders ......... 18
Other Business ............................................................ 18
PROXY STATEMENT QUESTIONS AND ANSWERS
1. Q: Why am I receiving these materials?
A: The Board of Directors of Otter Tail Corporation provides these
proxy materials for use at the Annual Meeting of Shareholders to be
held on April 14, 2003. As a shareholder you are invited to attend
the annual meeting and are entitled to vote on the proposals
described in this proxy statement. These materials were sent to
shareholders on or about March 6, 2003.
2. Q: Who is entitled to vote at the annual meeting?
A: Only common shareholders of record at the close of business on
February 14, 2003 are entitled to vote at the annual meeting. As of
the record date, 25,593,524 common shares of Otter Tail Corporation
were issued and outstanding. Each shareholder is entitled to one
vote per share.
3. Q: What issues may I vote on at the annual meeting?
A: You may vote on the election of three nominees to serve on the Board
of Directors, to approve Deloitte & Touche LLP as independent
auditors for 2003, and on any other business that is properly
brought before the meeting, including shareholder proposals.
4. Q: How do I vote my shares?
A: You may vote either in person at the annual meeting or by granting a
proxy. If you desire to grant a proxy, then you have three voting
options:
- Telephone
- Internet
- Mailing the proxy card
If you intend to vote by proxy, please refer to the instructions
included on your proxy card. Voting by proxy will not affect your
right to vote your shares if you attend the annual meeting and
desire to vote in person.
5. Q: May I change my vote?
A: You have the right to revoke your proxy any time before the annual
meeting by:
- Providing written notice to an officer of Otter Tail Corporation
and voting in person at the annual meeting.
- Submitting another proper proxy by telephone or the Internet.
- Submitting a new written proxy bearing a later date at any time
before the proxy is voted at the meeting.
6. Q: How are the votes counted?
A: In the election of Directors, you may vote FOR all of the nominees
or your vote may be WITHHELD with respect to one or more nominees.
If you return your signed proxy card, but do not mark the boxes
showing how you wish to vote, your shares will be voted FOR all
nominees, FOR the appointment of Deloitte & Touche LLP as
independent auditors, and AGAINST the shareholder proposal.
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 that 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.
1
7. Q: Where and when will I be able to find the results of the voting?
A: The results will be announced at the Annual Meeting of Shareholders.
Otter Tail Corporation will publish the final results in its
quarterly report on Form 10-Q for the quarter ending June 30, 2003
to be filed with the Securities and Exchange Commission. You may
also find the results on our website, www.ottertail.com.
8. Q: Who bears the cost of soliciting votes for the annual meeting?
A: Otter Tail Corporation will pay the cost of preparing, assembling,
printing, mailing, and distributing these proxy materials. In
addition to soliciting proxies by mail, officers and employees of
Otter Tail Corporation may solicit them by telephone or in person.
Employees receive no additional compensation for these solicitation
activities.
OUTSTANDING VOTING SHARES
The only persons known to Otter Tail Corporation to own beneficially (as defined
by the Securities and Exchange Commission for proxy statement purposes) more
than 5 percent of the outstanding common shares of Otter Tail Corporation as of
February 14, 2003, are as follows:
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------- -------------------- ----------------
Otter Tail Corporation
Employee Stock Ownership Plan
c/o Strong Retirement Plan Services 1,755,102 6.86%
401 Woodland Prime
Menomonee Falls, WI 53051
Cascade Investment L.L.C. 1,503,200 5.87%
2365 Carillon Point
Kirkland, WA 98033
(1) 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 UMB
Bank is Trustee (Strong Retirement Plan Services), 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 common shares allocated to
their accounts (1,755,079 common shares as of December 31, 2002) and will
receive a separate proxy for voting such shares. All common shares
allocated to the participants for which no voting instructions are
received will be voted by the Trustee in proportion to the instructed
shares. All unallocated common shares held by the ESOP (none as of
December 31, 2002) will be voted as directed by the Retirement Committee.
(2) According to Form 13G dated February 12, 2003, the common shares owned by
Cascade Investment L.L.C. as of December 31, 2002 are deemed to be owned
beneficially by William H. Gates, III, as the sole member of Cascade
Investment L.L.C.
2
ELECTION OF DIRECTORS
The terms of Mr. Thomas M. Brown, Mr. Maynard D. Helgaas, and Mr. Robert N.
Spolum expire at the time of the 2003 Annual Meeting of Shareholders. The Board
of Directors nominates them for reelection to serve three-year terms ending at
the time of the Annual Meeting in 2006.
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 proxies solicited may be voted for a
substitute nominee or nominees in the event that any of the nominees is unable
to serve, or for good reason will not serve, which is a contingency not now
anticipated.
Brief biographies of the Director nominees and of the continuing Directors are
found below. These biographies include the ages of the Directors (as of the
2003 Annual Meeting of Shareholders) and outlines of their business experiences.
Each Director has held the same position or another executive position with the
same employer for the past five years.
NAME PRINCIPAL OCCUPATION AGE DIRECTOR SINCE
---- -------------------- --- --------------
NOMINEES FOR ELECTION FOR
THREE-YEAR TERMS EXPIRING
IN APRIL 2006:
Thomas M. Brown Retired Partner 72 1991
Dorsey & Whitney LLP
Minneapolis, Minnesota
Mr. Brown serves on the
Compensation and
Nominating Committees.
Maynard D. Helgaas General Partner 68 1985
MZB Technologies LLC
Jamestown, North Dakota
(Precision agronomy)
Chairman of the Board
Midwest Agri-Development Corporation
Jamestown, North Dakota
(Farm equipment and supplies)
Mr. Helgaas serves on the
Compensation and
Nominating Committees.
Robert N. Spolum Retired Chairman, President and 72 1991
Chief Executive Officer
Melroe Company
(Industrial equipment manufacturer)
Principal, Robert N. Spolum & Associates
(Business consulting)
Fargo, North Dakota
Mr. Spolum serves on the Audit and
Executive Committees.
3
NAME PRINCIPAL OCCUPATION AGE DIRECTOR SINCE
---- -------------------- --- --------------
DIRECTORS WITH TERMS THAT
EXPIRE IN APRIL 2005:
Dennis R. Emmen Retired Senior Vice President-Finance, 69 1984
Treasurer and Chief Financial Officer
Otter Tail Power Company
Fergus Falls, Minnesota
Mr. Emmen serves on the Audit and
Compensation Committees.
Kenneth L. Nelson President & 61 1990
Chief Executive Officer,
Barrel O'Fun, Inc.
President & Chief Executive Officer,
Kenny's Candy, Inc.
Owner, Nelson's Confections
(Production of snack foods)
President & Chief Executive Officer,
Tuffy's Pet Foods, Inc.
Perham, Minnesota
Mr. Nelson serves on the Audit Committee.
Nathan I. Partain President & Chief Executive Officer 46 1993
DNP Select Income Fund Inc.
(Closed-end Utility Income Fund)
Executive Vice President
Duff & Phelps Investment
Management Co.
Chicago, Illinois
Mr. Partain serves on the Audit,
Executive, and Nominating Committees.
DIRECTORS WITH TERMS THAT
EXPIRE IN APRIL 2004:
Arvid R. Liebe President, Liebe Drug, Inc. 61 1995
(Retail business)
Owner, Liebe Farms, Inc.
Milbank, South Dakota
Mr. Liebe serves on the Compensation
and Executive Committees.
John C. MacFarlane Chairman of the Board 63 1983
Retired Chief Executive Officer
and President
Otter Tail Corporation
Fergus Falls, Minnesota
Mr. MacFarlane serves on the
Executive Committee.
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NAME PRINCIPAL OCCUPATION AGE DIRECTOR SINCE
---- -------------------- --- --------------
Gary J. Spies Chairman and President 61 2001
Service Food, Inc.
(Retail business)
Partner, Fergus Falls Development
Company and Midwest Regional
Development Company LLC
(Land and housing development)
Fergus Falls, Minnesota
Chairman and President, Spies, Inc.
(Retail business)
Perham, Minnesota
Mr. Spies serves on the Audit and
Nominating Committees.
MEETINGS AND COMMITTEES OF THE BOARD
The full Board of Directors of Otter Tail Corporation considers all major
decisions of Otter Tail Corporation. The Board has established a standing Audit
Committee, Compensation Committee, Nominating Committee, and Executive Committee
so that certain important matters can be addressed in more depth than may be
possible in a full Board meeting. Here is a brief description of each committee.
Audit Committee
The Audit Committee reviews financial results of Otter Tail Corporation,
accounting and control procedures, and supervises the audit function. This
committee is composed of five members of the Board of Directors who, for 2002,
were Dennis R. Emmen, Kenneth L. Nelson, Nathan I. Partain, Gary J. Spies, and
Robert N. Spolum. This committee held four meetings in 2002. For further
information on the actions of the Audit Committee, please refer to the Report of
the Audit Committee on page 14.
Compensation Committee
The Compensation Committee reviews the compensation of officers and the fees of
Directors of Otter Tail Corporation and makes recommendations on compensation
and fees to the Board of Directors. This committee administers the 1999 Employee
Stock Purchase Plan and 1999 Stock Incentive Plan. This committee is composed of
four members of the Board of Directors who, for 2002, were Thomas M. Brown,
Dennis R. Emmen, Maynard D. Helgaas, and Arvid R. Liebe. The committee held
three meetings in 2002.
Executive Committee
The Executive Committee exercises certain powers of the Board between normally
scheduled Board meetings and performs such duties as the Board may assign to it.
This committee is composed of four members of the Board of Directors who, for
2002, were Arvid R. Liebe, John C. MacFarlane, Nathan I. Partain, and Robert N.
Spolum. This committee held one meeting in 2002.
Nominating Committee
The Nominating Committee identifies qualified nominees to succeed to Board
membership. 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 and Chief Executive Officer, Otter Tail
Corporation, Box 496, Fergus Falls, Minnesota 56538-0496. The Nominating
Committee is composed of four members of the Board of Directors who, for 2002,
were Thomas M. Brown, Maynard D. Helgaas, Nathan I. Partain, and Gary J. Spies.
This committee held five meetings in 2002.
The full Board of Directors held a total of seven regularly scheduled and
special meetings in 2002. The Board of Directors also held a planning retreat
with senior management. Each incumbent Director attended at least 75 percent of
the total of all meetings of the Board of Directors held during the period for
which he was a Director and all meetings of the committees during the periods he
served on such committees.
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DIRECTOR COMPENSATION
All Directors of Otter Tail Corporation receive an annual retainer for their
services as a Director, including service on committees. All Directors, except
the Chairman, receive an annual retainer of $24,000. The Chairman receives an
annual retainer of $60,000. All Directors receive a fee of $1,000 for attendance
at each Board and committee meeting. Each committee chair receives an additional
retainer of $2,000 per year. In addition, Directors receive an actual expense
reimbursment or a $100 travel allowance if they are required to furnish their
own transportation to Board or committee meetings outside their city of
residence.
In 2002, Directors received 1,000 shares of Restricted Stock, granted under the
terms of the 1999 Stock Incentive Plan. The Restricted Stock shares, which were
granted on the date of the annual meeting, vest over a period of four years, at
the rate of 25% per year, and are eligible for full dividend and voting rights.
Directors may elect to receive their compensation (other than expense
reimbursements) in the form of cash, stock or a combination.
Directors may elect to defer the receipt of all or part of the payments pursuant
to the Otter Tail Corporation's Deferred Compensation Plan for Directors. The
deferral may be in the form of cash or stock. Cash deferrals receive interest at
a rate equal to 1% over the prime commercial rate of U.S. Bank National
Association. Stock is deferred in the form of Restricted Stock Units and is
credited quarterly with dividend equivalents equal to the dividend rate on the
Otter Tail Corporation's Common Stock.
MANAGEMENT'S SECURITY OWNERSHIP
Listed in the following table are the number of common shares of Otter Tail
Corporation beneficially owned by Directors and the executive officers named in
the Summary Compensation Table, as well as the number of shares owned by
Directors and executive officers of Otter Tail Corporation as a group as of
December 31, 2002:
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)(2)
------------------------ --------------------------
Thomas M. Brown ................................. 8,221
Dennis R. Emmen ................................. 8,000 (3)
John D. Erickson ................................ 91,538 (4)
Maynard D. Helgaas .............................. 4,593
Douglas L. Kjellerup ............................ 22,761 (5)
George A. Koeck ................................. 12,033
Arvid R. Liebe .................................. 6,085 (6)
John C. MacFarlane .............................. 200,968 (7)
Lauris N. Molbert ............................... 38,077
Kevin G. Moug ................................... 22,843 (8)
Kenneth L. Nelson ............................... 13,418
Nathan I. Partain ............................... 7,629 (9)
Gary J. Spies ................................... 4,481 (10)
Robert N. Spolum ................................ 20,259
All Directors and executive officers as a group . 460,906
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(1) Represents outstanding common shares beneficially owned both directly and
indirectly as of December 31, 2002. The common share interest of each
named person and all Directors and executive officers as a group
represents less than 2 percent 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 Otter Tail Corporation's
Employee Stock Ownership Plan for the account of executive officers of
Otter Tail Corporation with respect to which such persons have sole voting
power and no investment power, as follows: Mr. Erickson, 4,981 shares; Mr.
Kjellerup, 6,966 shares; Mr. Koeck, 599 shares; Mr. MacFarlane, 17,692
shares; Mr. Molbert, 177 shares; and Mr. Moug, 177 shares. Includes the
following common shares subject to options exercisable within 60 days of
December 31, 2002: Mr. Brown, 4,000 shares; Mr. Emmen, 4,000 shares; Mr.
Erickson, 47,250 shares; Mr. Helgaas, 2,000 shares; Mr. Kjellerup, 9,000
shares; Mr. Koeck, 5,000 shares; Mr. Liebe, 2,000 shares; Mr. MacFarlane,
145,750 shares; Mr. Molbert, 22,500 shares; Mr. Moug, 14,500 shares; Mr.
Nelson, 4,000 shares; Mr. Partain, 4,000 shares; Mr. Spies, 2,000 shares;
and Mr. Spolum, 4,000 shares.
(3) Includes 3,000 shares owned jointly with Mr. Emmen's wife as to which he
shares voting and investment power.
(4) Includes 4,906 shares owned jointly with Mr. Erickson's wife as to which
he shares voting and investment power.
(5) Excludes 30 shares owned by Mr. Kjellerup's wife as to which he disclaims
beneficial ownership.
(6) Includes 395 shares owned jointly with Mr. Liebe's wife as to which he
shares voting and investment power. Includes 27 shares owned by Mr.
Liebe's minor children as to which he, as custodian, has voting and
investment power.
(7) Includes 24,837 shares owned jointly with Mr. MacFarlane's wife as to
which he shares voting and investment power.
(8) Includes 703 shares owned jointly with Mr. Moug's wife as to which he
shares voting and investment power.
(9) Includes 1,000 shares owned jointly with Mr. Partain's wife as to which he
shares voting and investment power.
(10) Includes 1,000 shares owned jointly with Mr. Spies' wife as to which he
shares voting and investment power.
No Director or executive officer of Otter Tail Corporation owned beneficially,
directly, or indirectly, on December 31, 2002, any shares of any series of
cumulative preferred shares of Otter Tail Corporation 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 Otter Tail
Corporation is based on information furnished to Otter Tail Corporation by each
person included in the table.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires Otter
Tail Corporation's Directors and executive officers and holders of more than 10
percent of Otter Tail Corporation'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 Otter Tail
Corporation. With the exception of one late filing of a Form 4 on behalf of Mr.
Nelson during the month of September, Otter Tail Corporation believes that
during the year ended December 31, 2002 its Directors and executive officers
complied with all Section 16(a) filing requirements.
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EXECUTIVE C0MPENSATION
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors is composed solely of
Directors who are not current employees of Otter Tail Corporation. This
committee is responsible for developing Otter Tail Corporation's executive
compensation program and recommending it to the Board of Directors. The
components of the executive compensation program are base salary, annual
incentive bonus, and long-term incentive in the form of restricted stock.
The Compensation Committee develops annual recommendations for compensation for
the Chief Executive Officer and the other executive officers. The committee
reviews market-based data prepared by Otter Tail Corporation's Senior Manager,
Compensation and Benefits, in consultation with an independent executive
compensation consultant, Towers Perrin.
Towers Perrin prepared 2002 market-based compensation data for Otter Tail
Corporation. The Towers Perrin analysis established the market competitiveness
for the four top management positions of Otter Tail Corporation, providing
information on base salary, annual bonus, and total direct compensation.
Towers Perrin provided market data for both the 50th and 75th percentile. Otter
Tail Corporation utilized the 50th percentile as the midpoint for base salary
for each executive officer position and calculated salary ranges at 20 percent
above and below the midpoint. Midpoints and ranges were based on total
consolidated revenue of Otter Tail Corporation.
BASE SALARY
The Chief Executive Officer makes specific recommendations to the Compensation
Committee with respect to adjustments in base salary for executive officers
(other than himself) based upon the market data and analysis described above and
other factors, which typically are subjective and reflect individual
performances during the year or changes in corporate responsibilities. The
Compensation Committee reviews the recommendations of the Chief Executive
Officer for consistency with the market data analysis. The committee may adjust
base salaries, however, as it sees fit without respect to the analysis or any
other objective criteria.
ANNUAL INCENTIVE BONUS
In 2002, the Compensation Committee utilized an incentive bonus plan for Otter
Tail Corporation's four top executive officers. The Otter Tail Corporation
Management Incentive Plan provides incentives to these officers if Otter Tail
Corporation achieves certain performance targets. The Compensation Committee is
responsible for setting these performance targets near the end of the first
quarter each year and establishes total target payout percentages for each of
these officers. The performance targets are:
1. Corporate earnings per share. Each officer receives 25 percent of the
total target payout if Otter Tail Corporation achieves the targeted
earnings per share. Each officer receives 12 1/2 percent of the total
target payout if Otter Tail Corporation achieves the minimum performance
level, and additional increments for performance above the target. Otter
Tail Corporation did not meet the minimum performance level for earnings
per share in 2002.
2. Corporate return on equity. Each officer receives 25 percent of the total
target payout if Otter Tail Corporation achieves the targeted return on
equity. Each officer receives 12 1/2 percent of the total target payout if
Otter Tail Corporation achieves the minimum performance level, and
additional increments for performance above the target. Otter Tail
Corporation exceeded the targeted performance level for return on equity
in 2002.
8
3. Utility net income. Each officer, except Mr. Molbert, receives 25 percent
of the total target payout if the utility achieves its targeted net
income. Mr. Molbert receives 10 percent of the total target payout if the
utility achieves its targeted net income; he receives 5 percent of his
total target payout if the utility achieves the minimum performance level.
Each officer receives 12 1/2 percent of the total target payout if the
utility achieves the minimum performance level and additional increments
up to 200 percent of the target payout. Utility net income reached the
maximum performance level in 2002.
4. Varistar return on capital. Each officer, except Mr. Molbert, receives 25
percent of the total target payout if Varistar achieves its targeted
return on capital. Each officer receives 12 1/2 percent of the total
target payout if Varistar achieves the minimum performance level. Mr.
Molbert receives 40 percent of his total target payout if Varistar
achieves its targeted return on capital; he receives 20 percent of his
total target payout if Varistar achieves its minimum performance level for
return on capital. Each officer receives up to 175 percent of the total
target payout, if Varistar exceeds its targeted performance level for
return on capital. Otter Tail Corporation exceeded the targeted
performance level for Varistar return on capital in 2002.
The Compensation Committee has discretion over treatment of extraordinary gains,
write-offs, or other events in determining the amount of incentive bonus to be
paid to eligible employees. All incentive payments for 2002 were based upon
reported results, except for Corporate earnings per share.
LONG-TERM INCENTIVES
Long-term incentive compensation for executive officers is based on restricted
stock awards granted by the Compensation Committee under Otter Tail
Corporation's 1999 Stock Incentive Plan. The Stock Incentive Plan is designed to
attract and retain employees, officers, and nonemployee Directors capable of
assuring Otter Tail Corporation's future success. The Board of Directors has
designated the Compensation Committee to administer the plan.
In 2002 the Compensation Committee awarded restricted stock grants for 66,800
common shares to the named officers as a group. The size of the grant awarded to
each executive officer was intended to be competitive with awards to officers in
similar positions in comparable companies, based on market data derived from the
Towers Perrin analysis for the 50th percentile of long-term incentives and the
50th percentile of total direct compensation. The committee also considered
other criteria, such as years of service and individual performance. The
restricted shares vest at a rate of 25% per year.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Board of Directors, upon the Compensation Committee's recommendation, sets
the Chief Executive Officer's base salary. The committee determines the Chief
Executive Officer's base salary utilizing the same criteria as it utilizes to
determine the base salaries for the other executive officers, but without
recommendation from the Chief Executive Officer. The committee determines the
Chief Executive Officer's annual incentive bonus, if any, in the same manner
that it determines the bonus of the other executive officers. In 2002, the
committee granted the Chief Executive Officer an award of restricted stock of
34,400 common shares, based on the same criteria as the grants to the other
executive officers.
SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code imposes limits on tax deductions for
executive compensation in excess of $1 million paid to any of the top five
executive officers named in the Summary Compensation Table. It is the
committee's policy to take reasonable steps to preserve this tax deduction.
Maynard D. Helgaas, Chair
Thomas M. Brown
Dennis R. Emmen
Arvid R. Liebe
9
Summary Compensation Table
The following table contains information about compensation to Otter Tail
Corporation's Chief Executive Officer and its other four most highly compensated
executive officers for each of the last three fiscal years.
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------- -----------------------------
SECURITIES
RESTRICTED UNDERLYING ALL OTHER
NAME AND BONUS STOCK AWARDS OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR SALARY (1) ($)(2) (#) (3)
------------------ ---- -------- -------- ------------ ------------ ------------
John C. MacFarlane 2002 $150,000 $77,906 $329,840 0 $7,174
Chairman of the Board 2001 $430,002 $268,594 $0 125,000 $14,678
2000 $363,456 $151,970 $0 125,000 $13,790
John D. Erickson 2002 $320,000 $244,314 $1,078,096 0 $12,304
President and CEO 2001 $248,625 $146,115 $0 75,000 $10,261
2000 $163,350 $45,534 $0 25,000 $5,552
Lauris N. Molbert 2002 $254,000 $167,845 $448,162 0 $10,798
Executive Vice President 2001 $212,913 $152,250 $0 50,000 $7,500
and Chief Operating Officer 2000 $163,320 $191,423 $0 20,000 $9,500
Douglas L. Kjellerup 2002 $227,500 $112,700 $188,040 0 $10,568
President, Otter Tail 2001 $194,250 $74,063 $0 20,000 $8,937
Power Company 2000 $174,510 $48,645 $0 20,000 $7,390
Kevin G. Moug (4) 2002 $215,000 $79,984 $216,246 0 $9,907
Chief Financial Officer 2001 $191,250 $83,563 $0 25,000 $7,500
and Treasurer 2000 - - - - -
George A. Koeck 2002 $187,500 $59,209 $162,968 0 $8,968
General Counsel 2001 $180,000 $40,782 $0 20,000 $7,202
and Corporate Secretary 2000 $148,404 $10,837 $0 16,500 $4,534
(1) Includes awards under the incentive bonus programs for executive officers
described above in the Compensation Committee Report on Executive
Compensation.
(2) At year end 2002, the Named Officers had the following Restricted
Shares/Value: Mr. MacFarlane, 6,000/$161,100; Mr. Erickson,
34,400/$923,640; Mr. Molbert, 14,300/ $383,955; Mr. Kjellerup,
6,000/$161,100; Mr. Moug, 6,900/$185,265; Mr. Koeck, 6,118/ $164,268.
(3) Amounts of All Other Compensation for 2002 consist of (i) amounts
contributed by the Company under the Otter Tail Corporation Retirement
Savings Plan for 2002 as follows: Mr. MacFarlane, $3,750; Mr. Erickson,
$5,000; Mr. Molbert, $5,000; Mr. Kjellerup, $4,675; Mr. Moug, $5,000; Mr.
Koeck, $4,688, (ii) the amount of the Company's contribution under the
Employee Stock Ownership Plan for 2002 which was invested in Common Shares
for the account of each Named Officer: Mr. MacFarlane, $3,424; Mr.
Erickson, $4,565; Mr. Molbert, $4,565; Mr. Kjellerup, $4,565; Mr. Moug,
$4,565; Mr. Koeck, $4,280, (iii) amounts contributed by the Company under
the Nonqualified Profit Sharing Plan for 2002, as follows: Mr. Erickson,
$2,739; Mr. Molbert, $1,233; Mr. Kjellerup, $628; Mr. Moug, $342; (iv)
$700 for Mr. Kjellerup pursuant to the Company's program to reimburse
employees for unreimbursed medical expenses.
(4) Mr. Moug became an executive officer on 4/9/2001.
10
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Options/SAR Values
The following table provides information on option exercises in 2002 by the
officers named below and on the number and value of any unexercised options held
by these officers at the end of 2002.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS/SARS AT FISCAL MONEY OPTIONS/SARS AT
SHARES YEAR-END (#) FISCAL YEAR-END ($) (1)
ACQUIRED VALUE ----------------------------- ------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
John C. MacFarlane 0 $ 0 145,750 106,250 $868,238 $312,813
John D. Erickson 0 $ 0 47,250 68,750 $224,963 $125,938
Lauris N. Molbert 0 $ 0 22,500 47,500 $ 82,438 $ 95,875
Douglas L. Kjellerup 22,000 $302,125 9,000 25,000 $ 34,100 $ 81,250
Kevin G. Moug 8,250 $ 78,521 14,500 25,250 $ 65,863 $ 58,663
George A. Koeck 9,250 $ 84,863 5,000 25,750 $ 3,250 $ 81,613
(1) Based on $26.90 per share, which was the closing price of a share of the
Common Stock on NASDAQ on December 31, 2002
Pension and Supplemental Retirement Plans
The following table estimates the aggregate annual amount of lifetime benefits,
as of January 1, 2003, that would be payable under Otter Tail Corporation's tax
qualified defined benefit pension plan to participants in the final average
earnings and years of credited service categories indicated:
YEARS OF SERVICE
ANNUAL FINAL -----------------------------------------------------------------
AVERAGE EARNINGS 15 20 25 30 40 OR MORE
---------------- ------- ------- ------- ------- ----------
$40,000 $7,600 $10,133 $12,667 $15,200 $16,720
$60,000 $13,046 $17,395 $21,743 $26,092 $28,701
$80,000 $18,646 $24,861 $31,077 $37,292 $41,021
$100,000 $24,246 $32,328 $40,410 $48,492 $53,341
$120,000 $29,846 $39,795 $49,743 $59,692 $65,661
$140,000 $35,446 $47,261 $59,077 $70,892 $77,981
$160,000 $41,046 $54,728 $68,410 $82,092 $90,301
$180,000 $46,646 $62,195 $77,743 $93,292 $102,621
$200,000 or More* $52,246 $69,661 $87,077 $104,492 $114,941
* Compensation used for benefits is limited to $200,000 for qualified plans
11
A participant's 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, 2002,
the annual final average earnings and actual credited years of service for each
of the named officers were as follows: Mr. MacFarlane, $380,956 (40 years); Mr.
Erickson, $229,193 (22 years), Mr. Molbert, $254,000 (1 year), Mr. Kjellerup,
$194,223 (40 years), Mr. Moug, $215,000 (1 year) and Mr. Koeck, $164,533
(3 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 table on page 11 reflect the limits imposed by
Sections 415 or 401(a)(17) of the Internal Revenue Code.
Otter Tail Corporation maintains the Executive Survivor and Supplemental
Retirement Plan, which was amended, and restated effective January 1, 2002. 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 who is deemed to be an executive
officer under the Plan dies while employed by Otter Tail Corporation, Otter Tail
Corporation will pay the participant's beneficiary an amount equal to four times
the participant's annual salary and bonus at the time of death. If an executive
officer under the Plan dies after retirement or dies after termination for other
reasons with a vested benefit, Otter Tail Corporation will pay the executive's
beneficiary a lesser amount, depending on the participant's age at death and his
or her vested percentage.
In addition to these survivor benefits, the Executive Survivor and Supplemental
Retirement Plan provides retirement benefits to Mr. MacFarlane, Mr. Erickson,
Mr. Kjellerup and Mr. Koeck, equal to 70% of the executive's salary and bonuses
during the 12 months before retirement offset by the executive's Social Security
benefit and the amount of the executive's benefit from Otter Tail Corporation's
qualified pension plan if it were paid in the form of a single life annuity. The
retirement benefit is paid in the form of a 15-year certain or life annuity or a
50% joint and survivor annuity. The benefit vests over five years. Mr. Koeck's
benefit amount accrues over a 15-year period beginning with his date of hire.
Mr. Molbert and Mr. Moug are also participants in the Executive Survivor and
Supplemental Retirement Plan. The benefit for Mr. Molbert and Mr. Moug is equal
to 65% of the executive's Final Average Earnings as defined by the Plan, with
the same offsets as shown above. The benefit amount vests after five years of
service under the Plan, with the full benefit amount accruing over 15 years. The
retirement benefit is paid in the form of a 15-year certain or life annuity or a
50% joint and survivor annuity.
All participants who retire early (after 10 years of service and age 55) or who
terminate 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. Upon a Change in Control as defined by the Plan, or
in the event of the death of the participant while actively employed by Otter
Tail Corporation, the participant becomes 100% vested in his or her accrued
benefit. In the event of disability, Years of Credited Service and Years of
Participation continue to accrue under the Plan until such time as payments
under Otter Tail Corporation's Long Term Disability Plan end. 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.
12
The Board of Directors has the right to amend, suspend, or terminate the plan,
but no such action can reduce the benefits already accrued. Otter Tail
Corporation has purchased insurance on the lives of many of the participants to
provide sufficient funding 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 2002,
and bonus determined by actuarial assumptions based on past financial
performance, is as follows: Mr. Erickson, $289,284; Mr. Molbert, $166,196; Mr.
Kjellerup, $115,960; Mr. Moug, $82,902; and Mr. Koeck, $97,460. Mr. MacFarlane
retired on May 1, 2002 and is currently receiving retirement benefits under the
Plan.
Severance and Employment Agreements
Otter Tail Corporation 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, Otter Tail Corporation 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 sum of the officer's salary (at the highest annual rate in
effect during the three years prior to the termination) and average annual bonus
(for the three years prior to the termination); (ii) three years of continued
life, health and disability insurance; (iii) the payment of legal fees and
expenses relating to the termination; (iv) the termination of any noncompetition
arrangement between Otter Tail Corporation 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 Otter Tail Corporation; "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 Otter Tail
Corporation, a proxy fight or contested election which results in Continuing
Directors (as defined) not constituting a majority of Otter Tail Corporation's
Board of Directors, or another event the majority of the Continuing Directors
determines to be a change in control.
Otter Tail Corporation has entered into employment agreements with Mr. Erickson,
Mr. Molbert, Mr. Moug, and Mr. Koeck. The agreements provide that if Otter Tail
Corporation terminates the employment of one of the officers for cause or if one
of the officers terminates the employment relationship without good reason that
the officer shall receive base pay and benefits through the date of termination.
Alternatively, if Otter Tail Corporation terminates the employment of one of the
officers for any other reason, or if one of the officers terminates the
employment relationship for good reason, Otter Tail Corporation shall pay a
severance payment equal to one and one-half times the sum of the officer's base
pay plus his most recent annual incentive payment in full satisfaction of Otter
Tail Corporation's obligations to the officer.
13
REPORT OF AUDIT COMMITTEE
The Audit Committee of Otter Tail Corporation's Board of Directors is composed
of five independent Directors, as defined under Rule 4200 of the National
Association of Securities Dealers, and operates under a written charter
adopted by the Board of Directors. The Audit Committee recommends to the Board
of Directors, subject to shareholder ratification, the selection of Otter Tail
Corporation's independent accountants, currently Deloitte & Touche LLP.
Management is responsible for Otter Tail Corporation's internal controls and the
financial reporting process. The independent accountants are responsible for
performing an independent audit of Otter Tail Corporation's consolidated
financial statements in accordance with generally accepted auditing standards
and to issue a report thereon. The Audit Committee's responsibility is to
monitor and oversee these processes.
In this context, the Audit Committee met and held discussions with management
and the independent accountants. Management represented to the Audit Committee
that Otter Tail Corporation's consolidated financial statements were prepared in
accordance with generally accepted accounting principles, and the Audit
Committee reviewed and discussed the consolidated financial statements with
management and the independent accountants. The Audit Committee discussed with
the independent accountants matters required to be discussed by Statement on
Auditing Standards No. 61 (Communications with Audit Committees).
Otter Tail Corporation's independent accountants also provided to the Audit
Committee the written disclosures required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), and the Audit
Committee discussed with the independent accountants that firm's independence.
Based on the Audit Committee's discussion with management and the independent
accountants and the Audit Committee's review of the representation of management
and the report of the independent accountants to the Audit Committee, the Audit
Committee recommended that the Board of Directors include the audited
consolidated financial statements in Otter Tail Corporation's Annual Report on
Form 10-K for the year ended December 31, 2002, filed with the Securities and
Exchange Commission.
Robert N. Spolum (Chair)
Dennis R. Emmen
Kenneth L. Nelson
Nathan I. Partain
Gary J. Spies
14
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on Otter Tail
Corporation'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, 1996, and reinvestment of all dividends).
Comparison of 5-year cumulative total return among Otter Tail Corporation,
Nasdaq Market Index, and Edison Electric Institute Index
[COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN GRAPH]
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
OTC $100.00 $110.86 $109.42 $169.42 $184.73 $177.03
EEI $100.00 $113.89 $92.71 $137.18 $125.12 $106.69
NASDAQ $100.00 $141.04 $248.76 $156.35 $124.64 $86.94
APPROVAL OF AUDITORS
At the Annual Meeting, the Board of Directors will propose that shareholders
approve the appointment of the firm of Deloitte & Touche LLP as the certified
public accountants to audit the consolidated financial statements of Otter Tail
Corporation for 2003. This firm has no direct or indirect financial interest in
Otter Tail Corporation. 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 or she desires to do so. Proxies, unless otherwise
directed thereon, will be voted in favor of this proposal.
AUDIT FEES
Audit fees that Deloitte & Touche LLP billed to Otter Tail Corporation for audit
of Otter Tail Corporation's annual consolidated financial statements for 2002
and the consolidated financial statements included in Otter Tail Corporation's
quarterly reports on Form 10-Q for 2002 totaled $410,875.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
Otter Tail Corporation did not engage Deloitte & Touche LLP to provide advice
regarding financial information systems design and implementation during 2002.
ALL OTHER FEES
Fees that Deloitte & Touche LLP billed to Otter Tail Corporation for all other
nonaudit services rendered to Otter Tail Corporation during 2002, totaled
$145,035, primarily for tax-related services. The Audit Committee considered and
confirmed that the provision of these nonaudit services was compatible with
maintaining the independence of Deloitte & Touche LLP as Otter Tail
Corporation's independent auditors.
15
SHAREHOLDER PROPOSAL FOR 2003 ANNUAL MEETING
The following shareholder proposal was received by Otter Tail Corporation for
consideration by shareholders. It is presented below in the exact form it was
received.
BACKGROUND INFORMATION: THIS RESOLUTION CONCERNS EXPENSING STOCK OPTIONS. BELOW
IS PERTINENT RELATED INFORMATION.
Whereas: Excessive executive compensation has become a reality in corporate
America. Included are increased executive compensation plans, severance and
employment agreements, special executive pensions and reduced cost stock option
plans. Directors are now participating also.
Regarding Otter Tail, those provisions are referred to in the Proxy Statement.
Their wording makes it virtually impossible for the average person to decipher.
In addition to attractive stock option provisions, the Board of Directors
compensation has risen from $7,800 in 1993 to around $28,000 in 2002.
An example of executive compensation: The 1991 total compensation of CEO John
MacFarlane was $192,800. The 2001 total compensation was $713,000 plus options
at reduced pricing on 125,000 shares. To show the increasing value of stock
options to management, if Mr. MacFarlane purchased and sold his year 2000
granted options on the same day, he would have a guaranteed profit of over
$950,000. This assumes the selling price of $27.50 as this resolution is written
on November 14, 2002.
In 2001 a number of officers exercised options, purchasing and selling the
shares at the same time. One executive officer sold 13,500 shares in August for
an immediate gain of $120,000+.
In 2002 the same trend increased. A number of directors and officers did
simultaneous transactions with instant profits of from $19,000 to well over
$100,000.
These examples show that stock options are increasing as a component of total
compensation. We feel the Company should expense them when granted.
In 1999 Otter Tail initiated the Stock Incentive Plan authorizing 2.6 Million
shares. At year-end 2001 there were 24.7 Million common shares outstanding.
Those original shares in the Plan amount to over 10% of all outstanding shares.
In the 2001 Otter Tail annual report, management explained they would not
expense them when granted. The footnotes indicate that had they been expensed,
earnings per share would have decreased from $1.68 reported to $1.64.
With the numerous scandals in corporate America, conservative reporting of stock
options should be initiated, even though not mandatory.
Recognizing the same concern we are making, most large companies see the wisdom
of that and are reporting and expensing them when granted.
RESOLVED:
1. That the Board of Directors initiate expensing all options when granted.
2. All future stock option grants be reporting in the financial statements
and not in the footnotes.
SHARES
HELD STOCKHOLDERS:
4 /S/GERALD BENSON
32449 260TH AVENUE, ERHARD, MN 56534
2,145 /S/ DUANE OLSON
8350 49TH ST. NE, DEVILS LAKE, ND 58301
350 /S/ KEN OXTRA
606 3RD ST. SE, JAMESTOWN, ND 58401
16
OTTER TAIL CORPORATION'S OPPOSITION TO THE
SHAREHOLDER PROPOSAL
The Board of Directors strongly opposes the shareholder proposal and urges you
to vote AGAINST it. Otter Tail Corporation accounts for stock options using the
"intrinsic value" method of accounting. Contrary to the assertion in the
proposal, the intrinsic value method used by Otter Tail Corporation is the
method used by the vast majority of U.S. public companies and is an acceptable
method under generally acceptable accounting principles. The proposal would
require Otter Tail Corporation to shift to the "fair value" method of
accounting, used by relatively few U.S. public companies.
The intrinsic value method of accounting for stock options measures compensation
cost as the excess of the market price of the stock at the grant date over the
exercise price, and generally results in no recorded expense for stock option
awards at the time the awards are granted. When the intrinsic value method is
used, accounting rules require that the impact of the fair value method of
accounting be disclosed in the footnotes to the financial statements. Otter Tail
Corporation has followed these rules in our financial statements.
We believe it is in the best interest of shareholders to follow the most widely
used industry practice when given a choice under the accounting rules. Although
some public companies have announced plans to expense employee stock options on
the grant date, the vast majority of U.S. public companies account for options
using the intrinsic value method and disclose in the notes to the financial
statements the estimated impact on earnings as if employee stock options had
been expensed when granted. These pro forma disclosures, which are included in
the Notes to our 2002 financial statements, provide a reasonable indication to
shareholders of the estimated cost of employee stock options.
The proposal would require Otter Tail Corporation to shift to the "fair value"
method of accounting for stock options. The "fair value" method typically
measures compensation cost at the grant date based on the fair value of the
stock option award and recognizes it as an expense on the income statement,
usually over the vesting period of the option. However, under the fair value
method, there are at least three distinct methods prescribed by current
accounting rules for computing "fair value," and the existing guidance related
to "fair value" calculations is subject to varying interpretations. We believe
these factors detract from the reliability of the fair value method and can lead
to inconsistency and incomparability even among the relatively few public
companies that have adopted this method.
The Financial Accounting Standards Board and other rulemaking bodies are
currently studying the standards for accounting for employee stock options and
may at some time in the future adopt new rules. The Board of Directors does not
believe it to be in the best interests of Otter Tail Corporation to adopt a new
accounting method now that ultimately may be inconsistent with the new rules.
Furthermore, we believe that the choice between two permitted accounting
principles is an ordinary business decision that should be made by the Board of
Directors and management, with the advice of our independent auditors and legal
advisors. Accordingly, the Board of Directors urges you to vote AGAINST this
proposal.
The affirmative vote of a majority of the common shares present and entitled to
vote with respect to the shareholder proposal is required to approve the
proposal. The Board of Directors urges you to vote AGAINST the proposal.
17
SHAREHOLDER PROPOSALS FOR 2004 ANNUAL MEETING
Any holder of common shares of Otter Tail Corporation who intends to present a
proposal which may properly be acted upon at the 2004 Annual Meeting of
Shareholders of Otter Tail Corporation must submit such proposal to Otter Tail
Corporation so that it is received at Otter Tail Corporation's executive offices
at Box 496, Fergus Falls, Minnesota 56538-0496, on or before November 14, 2003,
for inclusion in Otter Tail Corporation's Proxy Statement and form of Proxy
relating to that meeting.
OTHER BUSINESS
As of the date hereof, the Board of Directors of Otter Tail Corporation is aware
of no other proposals to be presented to the meeting, in addition to the items
described above. If any other matters properly come before the meeting, the
proxies will vote thereon at their discretion.
A copy of Otter Tail Corporation's Annual Report on Form 10-K for the year ended
December 31, 2002, including financial statements and schedules thereto, filed
with the Securities and Exchange Commission, is available without charge to
shareholders. Address written requests to:
Corporate Secretary
Otter Tail Corporation
Box 496
Fergus Falls, MN 56538-0496
18
[LOGO] OTTER TAIL CORPORATION
215 South Cascade Street, Fergus Falls, MN 56537
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, FOR ITEM 2, AND AGAINST ITEM
3.
Please sign exactly as name appears hereon. When signing as attorney,
administrator, trustee, or guardian, please give your full title.
Total Shares
Proxy Nbr
Dated:
______________, 2003
_________________________________ ___________________________________
Signature Signature, if held jointly
--------------------------------------------------------------------------------
PLEASE RETURN UPPER PORTION IN ENVELOPE PROVIDED.
PLEASE VOTE YOUR PROXY.. .NOW!
Please vote your proxy promptly. This will help save the expense of
follow-up letters to shareholders who have not responded. If you vote by
the Internet or telephone, please do not mail your proxy card.
--------------------------------------------------------------------------------
OTTER TAIL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
MONDAY, APRIL 14, 2003
10:00 AM
ADMISSION TICKET
(OVER)
[LOGO] OTTER TAIL CORPORATION
ANNUAL MEETING
ADMISSION TICKET
Admission ticket for Otter Tail Corporation Annual Meeting of Shareholders,
April 14, 2003 at 10:00 a.m. at the Bigwood Event Center, 921 Western Avenue
(Highway 210 West and I-94), Fergus Falls, MN.
Number of individuals __________
PLEASE PRESENT THIS TICKET FOR ADMITTANCE OF SHAREHOLDER(S) NAMED ABOVE.
--------------------------------------------------------------------------------
VOTING INSTRUCTIONS
YOU MAY VOTE YOUR PROXY IN ONE OF THREE WAYS.
COMPANY NUMBER: 664
CONTROL NUMBER:
VOTE BY THE INTERNET -- http://secure.ottertail.com/proxy
- Use the Internet to vote your proxy 24 hours a day, 7 days a week.
- You will be prompted to enter the 3-digit company number and the 6-digit
control number, which you will find above.
- Internet voting will terminate at 12:00 noon C.S.T., April 11, 2003.
VOTE BY TELEPHONE-- 1-888-514-5365
- Use any touch-tone phone to vote your proxy 24 hours a day, 7 days a week.
- You will be prompted to enter the 3-digit company number and the 6-digit
control number which are located above.
- Please note the Following options:
-- To vote as the Board of Directors recommends on All proposals: Press 1
-- To vote on each item separately, press 0. You will then hear these
instructions:
Proposal 1: To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL
nominees, press 9; To WITHHOLD FOR AN INDIVIDUAL
nominee, press 0.
Proposals 2 and 3: To vote FOR, press 1; AGAINST, press 9; ABSTAIN,
press 0.
-- When asked, you must confirm your vote by pressing 1.
- Phone voting will terminate at 12:00 noon C.S.T., April 11, 2003.
VOTE BY MAIL
- Mark, sign, and date your proxy card and return it in the postage-paid
envelope provided.
Thank you for voting.
Please detach here
--------------------------------------------------------------------------------
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
OTTER TAIL CORPORATION
The undersigned hereby appoint ARVID R. LIEBE and GARY J. SPIES (each with power
to act alone and with full power of substitution) the proxies of the undersigned
to vote all common shares that the undersigned is entitled to vote at the Annual
Meeting of Otter Tail Corporation to be held April 14, 2003, and at any
adjournment hereof, and hereby directs that this proxy be voted as instructed
herein. The Board of Directors recommends voting FOR the election of Directors
(Item 1), FOR the appointment of Deloitte & Touche, LLP (Item 2) and AGAINST the
Shareholder Proposal (Item 3).
| | To vote as recommended by the Board of Directors on Items 1,2, and 3, simply
check here, sign, date and return this Proxy card.
1. ELECTION OF DIRECTORS
01) Thomas M. Brown 02) Maynard D. Helgaas 03) Robert N. Spolum
| | FOR | | FOR | | FOR
| | WITHHOLD | | WITHHOLD | | WITHHOLD
2. THE APPOINTMENT OF DELOITTE & TOUCHE LLP as auditors.
FOR | | AGAINST | | ABSTAIN | |
3. SHAREHOLDER PROPOSAL that the Board of Directors initiate expensing all
options when granted and all future stock option grants to be reporting (sic)
in the financial statements and not in the footnotes.
FOR | | AGAINST | | ABSTAIN | |
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
SEE OTHER SIDE