def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box: |
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o Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)) |
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þ Definitive Proxy Statement |
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o Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
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þ No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11. |
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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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o Fee paid previously with preliminary materials. |
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o 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. |
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1) Amount Previously Paid: |
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2) Form, Schedule or Registration Statement No.: |
2010
Proxy Statement and
Annual Meeting Notice
Otter
Tail Corporation
Annual Meeting
of Shareholders
Monday, April 12,
2010
10:00 a.m., CT
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.
Contact
Shareholder
Services for Information
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E-mail
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sharesvc@ottertail.com
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Internet
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www.ottertail.com
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Fax
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218-998-3165
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Phone
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800-664-1259
or
218-739-8479
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Mail
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Otter Tail Corporation
PO Box 496
Fergus Falls, Minnesota
56538-0496
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March 5,
2010
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 12, 2010.
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 elect
Mr. Arvid R. Liebe, Mr. John C. MacFarlane and
Mr. Gary J. Spies for three-year terms on the Board of
Directors.
Shareholders will be asked to ratify the appointment of
Deloitte & Touche LLP as our independent registered
public accounting firm for 2010.
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 of
record in a brokerage account, please follow the instructions
that you receive from your broker. Your broker will submit a
proxy card to Otter Tail Corporation reflecting the votes it
receives. ESOP participants should follow the instructions
provided by Wells Fargo Bank, N.A.
For those shareholders who have not consented to electronic
delivery of proxy materials, I have enclosed a copy of Otter
Tail Corporations 2009 Annual Report.
Sincerely,
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 at the Bigwood Event Center,
Best Western Motel, Highway 210 West and Interstate 94,
Fergus Falls, Minnesota, on Monday, April 12, 2010, at
10:00 a.m. to consider and act upon the following matters:
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To elect three Directors to Otter Tail Corporations Board
of Directors to serve terms of three years.
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2.
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To ratify the appointment of Deloitte & Touche LLP as
our independent registered public accounting firm for the year
2010.
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3.
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To transact such other business as may properly be brought
before the meeting.
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March 5, 2010
GEORGE A. KOECK
Corporate Secretary and General Counsel
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, date,
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 of record in a brokerage account, please follow
the instructions that you receive from your broker. Your broker
will submit a proxy card to Otter Tail Corporation reflecting
the votes it receives. ESOP participants should follow the
instructions provided by Wells Fargo Bank, N.A.
Shareholders who are currently receiving a paper copy of the
Proxy Statement and Annual Report can elect to receive future
reports over the Internet. If you are interested in this option,
please contact Shareholder Services by calling our toll free
number
800-664-1259,
or by e-mail
at sharesvc@ottertail.com. To obtain directions to attend the
Annual Meeting and vote in person contact Shareholder Services
at our toll free number
800-664-1259.
Important
Notice Regarding the Availability of Proxy Materials for
the
Shareholder
Meeting to be held on April 12, 2010
The Proxy Statement, form of Proxy and Annual Report,
including Otter Tail Corporations Annual Report on
Form 10-K
are available online at
http://www.ottertail.com/investors/annual.cfm.
Table
of Contents
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1
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2
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2
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6
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8
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8
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10
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11
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16
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17
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24
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26
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27
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27
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Proxy
Statement Questions and Answers
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1.
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Q:
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Why am I receiving these materials?
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A:
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The Board of Directors of Otter Tail Corporation is soliciting
proxies and provides these materials in connection with its
solicitation of proxies for use at the Annual Meeting of
Shareholders to be held on April 12, 2010. 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 first sent to shareholders on or about
March 5, 2010.
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2.
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Q:
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Who is entitled to vote at the
Annual Meeting?
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A:
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Only common shareholders of record at the close of business on
February 15, 2010 are entitled to vote at the Annual
Meeting. As of the record date, 35,835,553 common shares of
Otter Tail Corporation were issued and outstanding. Each
shareholder is entitled to one vote per share.
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3.
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Q:
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What issues may I vote on at the
Annual Meeting?
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A:
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You may vote on (1) the election of three nominees to serve
on the Board of Directors; (2) the ratification of the
appointment of Deloitte & Touche LLP as our
independent registered public accounting firm for 2010; and
(3) on any other business that is properly brought before
the meeting.
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4.
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Q:
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How do I vote my shares?
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A:
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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:
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by telephone
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by Internet
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by proxy card
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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.
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5.
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Q:
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May I change my vote?
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A:
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You have the right to revoke your proxy any time before the
Annual Meeting by:
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providing written notice to an officer of Otter Tail Corporation and voting in person at the Annual Meeting;
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submitting another proper proxy by telephone or the Internet; or
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submitting a new written proxy bearing a later date at any time before the proxy is voted at the meeting.
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6.
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Q:
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How are the votes counted?
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A:
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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 and FOR the ratification of the
appointment of Deloitte & Touche LLP as our
independent registered public accounting firm.
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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.
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If your shares are held in the name of a brokerage firm and you
do not provide voting instructions to your broker, your shares
will not be voted on any proposal for which your broker does not
have discretionary authority to vote. 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 proposals,
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 proposals. Brokers have
discretionary authority to vote on the ratification of the
appointment of Deloitte & Touche LLP as our
independent registered public accounting firm.
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7.
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Q:
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Where and when will I be able to
find the results of the voting?
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A:
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Preliminary results will be announced at the Annual Meeting of
Shareholders. Otter Tail Corporation will publish the final
results in a current report on
Form 8-K
to be filed with the Securities and Exchange Commission
(SEC) within four business days following the Annual
Meeting. You may also find the results on our website
www.ottertail.com.
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8.
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Q:
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Who bears the cost of soliciting
votes for the Annual Meeting?
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A:
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Otter Tail Corporation will pay the cost of preparing,
assembling, printing, mailing, and distributing these proxy
materials. In addition to soliciting proxies by mail, employees
of Otter Tail Corporation may solicit them by telephone or in
person. Employees receive no additional compensation for these
solicitation activities.
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Outstanding
Voting Shares
The total outstanding voting shares of Otter Tail Corporation
stock as of February 15, 2010 is 35,835,553. Only common
shareholders of record as of February 15, 2010 are entitled
to vote at the Annual Meeting of Shareholders. The only persons
known to Otter Tail Corporation to own beneficially (as defined
by the SEC for proxy statement purposes) more than 5% of the
outstanding common shares of Otter Tail Corporation as of
February 15, 2010, are as follows.
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Name
and Address of
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Amount
and Nature of
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Beneficial
Owner
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Beneficial
Ownership
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Percent
of Class
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Cascade Investment, L.L.C.
2365 Carillon Point
Kirkland, WA 98033
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3,406,499
shs.1
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9.5
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%
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Lord, Abbett & Co. LLC
90 Hudson Street
Jersey City, NJ 07302
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2,173,731
shs.2
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6.1
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%
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BlackRock, Inc.
40 East 52nd Street
New York, NY 10022
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1,894,426
shs.3
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5.3
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%
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(1)
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Based on information in an Amendment No. 4 to
Schedule 13D jointly filed by Cascade Investment, L.L.C.
(Cascade) and William H. Gates, III with the
SEC on October 7, 2009 with respect to their holdings as of
October 2, 2009. According to the filing, the common shares
owned by Cascade may be deemed to be beneficially owned by
Mr. Gates, as the sole member of Cascade. Michael Larson,
the Business Manager of Cascade, has voting and investment power
with respect to the common shares beneficially owned by Cascade.
Mr. Larson disclaims beneficial ownership of the common
shares beneficially owned by Cascade and Mr. Gates.
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(2)
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Based on information in a Schedule 13G filed by Lord,
Abbett & Co. LLC (Lord Abbett) with the
SEC on February 12, 2010 for its holdings as of
December 31, 2009. Lord Abbett reported that it has sole
voting power with respect to 1,929,731 shares and sole
investment power with respect to 2,173,731 shares.
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(3)
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Based on information in a Schedule 13G filed by BlackRock,
Inc. (BlackRock) with the SEC on January 29,
2010 for its holdings as of December 31, 2009. BlackRock
reported that it has sole power to vote and to dispose of all
1,894,426 shares.
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Election
of Directors
The Board of Directors of Otter Tail Corporation is comprised of
nine Directors divided into three classes. The members of each
class are elected to serve three-year terms with the term of
office of each class ending in successive years. The terms of
Mr. Arvid R. Liebe, Mr. John C. MacFarlane and
Mr. Gary J. Spies expire at the time of the 2010 Annual
Meeting of Shareholders. The Board of Directors, upon
recommendation of the Corporate Governance Committee, nominates
Mr. Liebe, Mr. J. MacFarlane and Mr. Spies for
election to serve a three-year term ending at the time of the
Annual Meeting of Shareholders in 2013.
2
Under Minnesota law, the affirmative vote of a plurality 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. Proxies, unless otherwise
directed thereon, will be voted in favor of all nominees. 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.
Biographies of the Director nominees and of the continuing
Directors are found below. These biographies include the age of
each Director (as of the 2010 Annual Meeting of Shareholders),
an outline of his or her business experiences and the reasons
for his or her selection for the Board. Each Director and
Director nominee has held the same position or another executive
position with the same employer for the past five years.
The Board of Directors has determined that, with the exception
of Mr. John D. Erickson and Mr. J. MacFarlane, all of
the Directors and Director nominees are independent (as defined
by the NASDAQ Listing Standards). Mr. Charles S.
MacFarlane, President, Otter Tail Power Company, is the son of
Mr. J. MacFarlane.
The Board of Directors recommends a vote FOR the election of all
nominees to the Board of Directors.
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Background, Basis for
Selection,
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Name
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Board
Committees
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Age
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Director
Since
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Nominees for election for three year terms expiring in April
2013:
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Arvid R. Liebe
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Milbank, South Dakota
Retired President
Liebe Drug, Inc.
(retail business)
Owner
Liebe Farms, Inc.
Mr. Liebe provides the Board
with the benefit of his small business expertise relevant to the
non-utility operating companies of Otter Tail Corporation. The
Board also benefits from Mr. Liebes familiarity with the
South Dakota service territory of Otter Tail Power Company.
Mr. Liebe serves on the Compensation, Corporate Governance, and
Executive Committees.
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68
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1995
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John C. MacFarlane
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Fergus Falls, Minnesota
Chairman of the Board
Retired Chief Executive Officer
and President
Otter Tail Corporation
The Board benefits from the leadership skills and extensive
knowledge of Otter Tail Corporation and the utility industry
acquired by Mr. MacFarlane over his years of service as Chairman
of the Board, and as Otter Tail Corporations former Chief
Executive Officer.
Mr. MacFarlane serves on the Executive Committee.
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70
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1983
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3
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Background, Basis for
Selection,
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Name
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Board
Committees
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Age
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Director
Since
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Gary J. Spies
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Fergus Falls, Minnesota
Chairman
Service Food, Inc.
(retail business)
Vice President
Fergus Falls Development Company,
Midwest Regional Development Company, LLC (land and housing
development)
Mr. Spies provides the Board with the benefit of his small
business expertise relevant to the non-utility operating
companies of Otter Tail Corporation. The Board also benefits
from Mr. Spies familiarity with the Minnesota service
territory of Otter Tail Power Company.
Mr. Spies serves on the Audit and Corporate Governance
Committees.
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68
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2001
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Directors with terms expiring in April 2012:
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Karen M. Bohn
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Edina, Minnesota
President
Galeo Group, LLC
(management consulting firm)
Director, Gander Mountain Company, Resigned, January 14, 2010
Director, Ameriprise Certificate Company
Ms. Bohn provides the Board with her business and financial
expertise developed over the course of her career in the
financial services sector, as well as her insight gained from
providing consulting services in the areas of governance,
management effectiveness, and strategy to a variety of large and
small companies.
Ms. Bohn serves on the Audit, Corporate Governance, and
Executive Committees.
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56
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2003
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Edward J. McIntyre
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White Salmon, Washington
Retired Vice President and Chief Financial Officer
Xcel Energy, Inc.
(energy company)
Mr. McIntyre provides the Board with the benefit of his business
and financial expertise developed over the course of his career,
as well as his experience in the utility industry acquired
during his years of service with Xcel Energy, Inc.
Mr. McIntyre serves on the Audit and Compensation Committees.
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59
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2006
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4
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Background, Basis for
Selection,
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Name
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Board
Committees
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Age
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Director
Since
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Joyce Nelson Schuette
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Walker, Minnesota
Retired Managing Director and Investment Banker
Piper Jaffray & Co.
(financial services)
Ms. Schuette provides the Board with the benefit of the business
and financial expertise she has developed over the course of her
career, particularly in the area of investment banking.
Ms. Schuette serves on the Compensation and Corporate Governance
Committees.
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59
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2006
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Directors with terms expiring in April 2011:
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John D. Erickson
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Fergus Falls, Minnesota
President & CEO
Otter Tail Corporation
As Chief Executive Officer since 2002, Mr. Erickson
provides the Board his leadership experience, his financial
expertise and his knowledge of Otter Tail Corporation and the
utility industry developed over his years of service with Otter
Tail Corporation.
Mr. Erickson serves on no Committees.
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51
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2007
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Nathan I. Partain
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Chicago, Illinois
President and Chief Investment Officer
Duff & Phelps Investment Management Co.
President, Chief Executive Officer and Chief Investment Officer
DNP Select Income Fund, Inc.
(closed-end utility income fund)
Director, DNP Select Income Fund Inc.
Director, DTF Tax-Free Income Inc.
Director, Duff & Phelps Utility and Corporate Bond Trust
Inc.
The Board benefits from the financial expertise Mr. Partain
provides, as well as from the knowledge he has acquired
regarding the utility industry from over twenty years of
providing electric utility investment research and management
services to institutional clients of Duff & Phelps.
Mr. Partain serves on the Audit, Compensation, and Executive
Committees.
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53
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1993
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5
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Background, Basis for
Selection,
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Name
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Board
Committees
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Age
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Director
Since
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James B. Stake
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Edina, Minnesota
Retired Executive Vice President
Enterprise Services
3M Company
(diversified manufacturing) Director, C. H. Robinson
Worldwide, Inc.
Mr. Stake provides the Board with his business expertise with
diversified companies developed during his career at 3M Company
and which is particularly relevant to the non-utility operating
companies of Otter Tail Corporation.
Mr. Stake serves on the Audit and Compensation Committees.
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57
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2008
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Meetings
and Committees of the Board of Directors
The full Board of Directors of Otter Tail Corporation considers
all major decisions of Otter Tail Corporation. The Board of
Directors has established a standing Audit Committee,
Compensation Committee, Corporate Governance Committee, and
Executive Committee so that certain important matters can be
addressed in more depth than may be possible in a full Board of
Directors meeting. Each committee operates under a charter that
is reviewed annually by that committee and the Board of
Directors.
Pursuant to Otter Tail Corporations bylaws and governance
guidelines, the Board of Directors determines the best board
leadership structure for Otter Tail Corporation from time to
time. Otter Tail Corporation recognizes that different board
leadership structures may be appropriate for companies in
different situations. Since 2002 Otter Tail Corporation has had
a separate Chairman of the Board and Chief Executive Officer.
The Chairman and Chief Executive Officer are elected annually by
the Board. Mr. J. MacFarlane, Chairman of the Board, has
not held management responsibilities since 2002, when
Mr. Erickson was first elected as Chief Executive Officer.
Otter Tail Corporation believes that its current leadership
structure, with Mr. Erickson serving as Chief Executive
Officer and Mr. J. MacFarlane serving as Chairman of the
Board, is the optimal structure for Otter Tail Corporation at
this time. The Chief Executive Officer and the Chairman of the
Board have an excellent working relationship. That leadership
structure also provides the significant benefits that come from
Mr. J. MacFarlanes long tenure as Chairman of
the Board and his prior experience as Chief Executive Officer of
Otter Tail Corporation.
The Board of Directors retains responsibility for risk oversight
for Otter Tail Corporation. The Board of Directors is routinely
called upon in the exercise of its business judgment to assess
the risk involved in matters brought to it for consideration. As
a part of the strategic planning process the Directors assess
the risk involved in the strategic plan of Otter Tail
Corporation. The Board of Directors also engages in a risk
assessment process at least annually.
The full Board of Directors held a total of ten regularly
scheduled and special meetings in 2009. In addition, as a part
of Otter Tail Corporations corporate reorganization, the
Board of Directors of Otter Tail Holding Company, which became
Otter Tail Corporation in the reorganization, met on two
occasions. In addition to these meetings, the Board of Directors
also held a planning retreat with senior management in 2009.
During 2009, the Board of Directors met in executive session
without Mr. Erickson and management at each meeting. It
also met in executive session without Chairman Mr. J.
MacFarlane present at certain meetings. Each Director attended
at least 75% of the total meetings of the Board of Directors and
the meetings of the committees on which he or she served. Each
Director attended the Annual Meeting of Shareholders in 2009.
Although Otter Tail Corporation does not have a formal policy,
it is expected that its Directors and executive officers will
attend the Annual Meeting of Shareholders in 2010.
6
Audit
Committee
The Audit Committee reviews the financial results of Otter Tail
Corporation, reviews accounting, audit and control procedures,
and retains and supervises the independent registered public
accounting firm. The Audit Committee has oversight
responsibility for Otter Tail Corporations Code of
Conduct. This committee is composed of five members of the Board
of Directors who, for 2009, were Ms. Bohn,
Mr. McIntyre, Mr. Partain (Chair), Mr. Spies and
Mr. Stake. All committee members are independent Directors
(as defined by the NASDAQ Listing Standards). The Board of
Directors has determined that Mr. McIntyre and
Mr. Partain meet the SEC definition of an audit committee
financial expert and all members of the committee are
financially literate. The Audit Committee routinely meets in
executive session with internal audit and the independent
registered public accounting firm without management present.
During the course of 2009 the committee received training on new
financial issues affecting Otter Tail Corporation. The Audit
Committee held seven meetings in 2009. For further information
on the actions of the Audit Committee, please refer to the
Report of the Audit Committee on page 24. The Audit
Committee Charter may be reviewed at www.ottertail.com.
Compensation
Committee
The Compensation Committee reviews, recommends, and reports to
the Board of Directors on all compensation programs, plans and
policies involving Otter Tail Corporations Board of
Directors and certain executive officers and it develops,
evaluates, and recommends for approval all equity based
compensation plans of Otter Tail Corporation. The Compensation
Committee oversees the administration of the 1999 Employee Stock
Purchase Plan, the 1999 Stock Incentive Plan, and the Executive
Annual Incentive Plan. Historically, the Compensation Committee
has retained an outside consultant to advise it in its decision
making process. That consultant has not been used by management
to an extent that would require disclosure under SEC rules.
Subject to approval by the Board of Directors, this committee
sets compensation for the Directors, the Chief Executive
Officer, the Chief Financial Officer, and certain other
executive officers. This committee is composed of five members
of the Board of Directors who, for 2009, were Mr. Liebe
(Chair), Mr. McIntyre, Mr. Partain, Ms. Schuette
and Mr. Stake, all of whom are independent Directors (as
defined by the NASDAQ Listing Standards). The Compensation
Committee held four meetings in 2009. For further information on
the actions of the Compensation Committee, please refer to the
Compensation Discussion and Analysis (CD&A) on
page 11 and the Report of Compensation Committee on
page 16. The Compensation Committee Charter may be reviewed
at www.ottertail.com.
Corporate
Governance Committee
The Corporate Governance Committee identifies and recommends to
the Board of Directors qualified candidates for election as
Directors, recommends Director committee assignments, and
recommends actions necessary for the proper governance of Otter
Tail Corporation, and for the evaluation of the performance of
the Board of Directors and Chief Executive Officer. With input
from the Chief Executive Officer, the Corporate Governance
Committee recommends certain executive officers for annual
election. The Corporate Governance Committee reviews issues and
developments related to corporate governance practices and makes
recommendations to the Board of Directors on changes in
structure, rule or practice necessary for compliance and for
good corporate governance.
Otter Tail Corporations Corporate Governance Committee
Charter provides that the skills and characteristics required
generally of Directors include diversity, age, business
background and experience, accomplishments, experiences in Otter
Tail Corporations business and a willingness to make the
requisite commitment of time and effort. Accordingly, the Board
of Directors has not set minimum standards for Director
candidates. Rather, it seeks highly qualified individuals with
diverse backgrounds, business and life experiences that will
enable them to constructively review and guide management of
Otter Tail Corporation. Otter Tail Corporation has successfully
obtained highly qualified candidates for Directors without
utilizing a paid outside consultant. The Corporate Governance
Committee considers and evaluates potential Director candidates
and makes its recommendations to the full Board of Directors.
Any shareholder may submit a recommendation for nomination to
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 Corporate Governance Committee will utilize the same process
for evaluating all nominees, regardless of whether the nominee
recommendation is submitted by a shareholder or some other
source.
7
If a shareholder wishes to nominate a candidate for election to
the Board of Directors, in order for the nomination to be
properly made the shareholder must give written notice to the
Secretary of Otter Tail Corporation. Notice must be received at
Otter Tail Corporations principal executive offices at
least 90 days before the date that is one year after the
prior years regular meeting. The notice must set forth:
(i) the name and address of the shareholder who intends to
make the nomination and of the nominee or nominees, (ii) a
representation that the shareholder is a holder of record of
shares of Otter Tail Corporation entitled to vote at the meeting
and that the shareholder intends to appear in person or by proxy
at the meeting to nominate the person or persons specified in
the notice, (iii) a description of all arrangements or
understanding between the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant
to which the nomination or nominations are to be made by the
shareholder, (iv) such other information regarding each
nominee proposed by the shareholder as would have been required
to be included in a proxy statement filed pursuant to the proxy
rules of the SEC had each nominee been nominated, or intended to
be nominated, by the Board of Directors, and (v) the
consent of each nominee to serve as a Director of Otter Tail
Corporation if so elected.
The Corporate Governance Committee is composed of four members
of the Board of Directors who, for 2009, were Ms. Bohn
(Chair), Mr. Liebe, Ms. Schuette, and Mr. Spies,
all of whom are independent Directors (as defined by the NASDAQ
Listing Standards). The Corporate Governance Committee held two
meetings in 2009. The Corporate Governance Committee Charter may
be reviewed at www.ottertail.com.
Executive
Committee
The Executive Committee exercises certain powers of the Board of
Directors between normally scheduled Board of Directors meetings
and performs such duties as the Board of Directors may assign to
it. The Executive Committee is composed of four members of the
Board of Directors who, for 2009, were Ms. Bohn,
Mr. Liebe, Mr. J. MacFarlane, and Mr. Partain
(Chair). The Executive Committee did not meet in 2009.
Contact
with the Board of Directors
Shareholders may contact the Board of Directors by either mail
or e-mail.
Questions may be sent to the entire Board of Directors, to a
particular committee, or to an individual Director. The mailing
address is Otter Tail Corporation, Board of Directors, Box 9156,
Fargo, North Dakota
58106-9156
and the
e-mail
address is boardofdirectors@ottertail.com. Although reviewed by
the General Counsel, all questions are forwarded to the Board of
Directors or to the appropriate committee or Director as
determined by the General Counsel.
Director
Compensation
Compensation for non-employee Directors is described below.
Mr. Erickson does not receive Director compensation for his
service as a member of the Board of Directors.
The Compensation Committee last retained Towers Perrin to assess
the competitiveness of the compensation provided to Directors of
Otter Tail Corporation in 2007. The Compensation Committee
referred to that study in both 2008 and 2009. In 2007 Towers
Perrin utilized data from a general industry compensation survey
performed by it. From that group it established a market median
for compensation in the categories of retainers, committee chair
retainers, meeting and committee fees, and equity compensation.
Towers Perrin made recommendations to the Compensation Committee
that would place Director compensation at or near market median
for Director compensation. Towers Perrin also presented to the
Committee information on compensation structure. Based in part
on the information provided by Towers Perrin the Compensation
Committee determined in 2008 to utilize a simple retainer
structure for Director compensation and set overall compensation
near median for comparable companies in general industry. The
simple retainer structure was retained in 2009.
Non-employee Directors of Otter Tail Corporation receive an
annual retainer for their services as a Director. Non-employee
Directors, except the Chairman, receive an annual retainer of
$60,000. The Chairman receives an annual retainer of $84,000.
Each committee chair receives an additional retainer of $7,000
per year. These
8
fees were unchanged from 2008. Directors do not receive a
meeting fee for attending either committee or Board of Director
meetings. In addition, non-employee Directors receive actual
expense reimbursement or a $100 travel allowance if they are
required to furnish their own transportation to Board of
Directors or committee meetings outside their city of residence.
Each non-employee Director receives an annual grant of
restricted stock, which in 2009 was 3,600 shares granted
under the terms of the 1999 Stock Incentive Plan. The shares of
restricted stock, which were granted on the date of the Annual
Meeting, vest over a period of four years, at the rate of 25%
per year, and are eligible for full dividend and voting rights.
Directors may elect to receive their compensation (other than
expense reimbursements) in the form of cash, stock or a
combination. Directors may elect to defer the receipt of all or
part of their cash compensation pursuant to the Otter Tail
Corporation Deferred Compensation Plan for Directors. The
deferral may be in the form of cash or stock units. Cash
deferrals receive interest at a rate equal to 1% over the prime
commercial rate of U.S. Bank National Association.
Deferrals in the form of stock units are credited quarterly with
dividend equivalents equal to the dividend rate on Otter Tail
Corporations common shares and the deferred amount is paid
out in common shares.
Otter Tail Corporation has established a stock ownership
guideline for Directors. Directors are expected to hold
4,000 shares of Otter Tail Corporation stock to be obtained
within five years of beginning service on the Board of
Directors. The Directors meet the guidelines.
Director
Compensation Table
The following table provides summary compensation information
for each Director with the exception of Mr. Erickson for
the year ending December 31, 2009.
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Fees
Earned or
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Name
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Paid
in Cash
($)1
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Stock
Awards
($)2,3
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Total ($)
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John C.
MacFarlane4
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84,000
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79,740
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163,740
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Karen M.
Bohn5
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67,000
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79,740
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146,740
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John D.
Erickson6
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Arvid R.
Liebe7
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67,000
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79,740
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146,740
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Edward J. McIntyre
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60,000
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79,740
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139,740
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Nathan I.
Partain8
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74,000
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79,740
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153,740
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Joyce Nelson Schuette
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60,000
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79,740
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139,740
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Gary J.
Spies9
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60,000
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79,740
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139,740
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James B. Stake
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60,000
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79,740
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139,740
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(1) |
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Includes the aggregate dollar amount of all fees earned or paid
in cash for services as a Director (both paid and deferred)
including annual retainer and committee chair retainers. |
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(2) |
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Represents the aggregate grant-date fair value of restricted
stock awards granted to non-employee Directors in 2009 computed
in accordance with Financial Accounting Standards Board
Accounting Standards Codification (FASB ASC) Topic 718. The
aggregate grant-date fair value of the restricted stock award
for the 3,600 shares granted to each non-employee Director
on April 20, 2009 was $79,740.00. In accordance with FASB
ASC Topic 718, Otter Tail Corporation chose the grant-date fair
value of the restricted stock as the equivalent to the average
of the high and low price on the date of the grant ($22.15). |
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(3) |
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The number of shares of restricted stock and stock options held
by each non-employee Director at fiscal year end is as follows
(restricted/options): Mr. J. MacFarlane 6,975/125,000;
Ms. Bohn 6,975/0; Mr. Liebe 6,975/2,000;
Mr. McIntyre 6,975/0; Mr. Partain 6,975/2,000;
Ms. Schuette 6,975/0; Mr. Spies 6,975/2,000; and
Mr. Stake 5,475/0. No compensation expense was recognized
in 2009 related to stock options held by non-employee Directors. |
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(4) |
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Mr. J. MacFarlane is Chairman of the Board. Mr. J.
MacFarlane donates 100% of his retainer to charity. |
9
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(5)
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Ms. Bohn is Chair of the
Corporate Governance Committee.
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(6)
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Mr. Erickson does not receive
Director compensation for his service as a member of the Board
of Directors.
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(7)
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Mr. Liebe is Chair of the
Compensation Committee.
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(8)
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Mr. Partain is Chair of the
Audit Committee and Executive Committee.
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(9)
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Mr. Spies defers his retainer
and receives it in stock units.
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Security
Ownership of Directors and Officers
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, 2009.
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Amount
and Nature of
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Percent
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Name
of Beneficial Owner
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Beneficial
Ownership1,2
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Class
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Karen M. Bohn
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12,950
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John D. Erickson
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176,834
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3
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George A. Koeck
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13,576
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Arvid R. Liebe
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18,068
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Charles S. MacFarlane
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59,066
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4
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John C. MacFarlane
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207,739
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5
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Edward J. McIntyre
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10,948
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Lauris N. Molbert
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62,471
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6
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Kevin G. Moug
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36,616
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7
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Nathan I. Partain
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23,976
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8
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Joyce Nelson Schuette
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11,180
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Gary J. Spies
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39,304
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9
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James B. Stake
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6,465
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All Directors and executive officers as a group
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679,193
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1.9
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%
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(1) |
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Represents outstanding common shares beneficially owned both
directly and indirectly as of December 31, 2009. No
Director or executive officer beneficially owns more than 1% of
the total outstanding common shares as of December 31,
2009. Except as indicated by footnote below, the beneficial
owner possesses sole voting and investment powers with respect
to the shares shown. No shares owned by any Director or
executive officer were pledged as of December 31, 2009. The
information provided is based upon 35,812,280 common shares
outstanding as of December 31, 2009. |
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(2) |
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Includes common shares held by the Trustee of Otter Tail
Corporations 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, 4,982 shares;
Mr. Koeck, 798 shares; Mr. C. MacFarlane,
1,117 shares; Mr. J. MacFarlane, 23,657 shares;
Mr. Molbert, 236 shares; Mr. Moug,
217 shares; and all Directors and executive officers as a
group, 31,007 shares. |
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Includes the following common shares subject to options
exercisable within 60 days of December 31, 2009:
Mr. Erickson, 75,000 shares; Mr. Liebe,
2,000 shares; Mr. C. MacFarlane, 16,000 shares;
Mr. J. MacFarlane, 125,000 shares; Mr. Partain,
2,000 shares; Mr. Spies, 2,000 shares; and all
Directors and executive officers as a group, 222,000 shares. |
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(3) |
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Includes 8,199 shares owned jointly with
Mr. Ericksons wife as to which he shares voting and
investment power. |
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(4) |
|
Includes 2,698 shares owned by Mr. C.
MacFarlanes minor children as to which he, as custodian,
has voting and investment power. |
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(5) |
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Includes 31,055 shares owned jointly with Mr. J.
MacFarlanes wife as to which he shares voting and
investment power. |
10
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(6) |
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Includes 46,360 shares owned jointly with
Mr. Molberts wife as to which he shares voting and
investment power. |
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(7) |
|
Includes 936 shares owned jointly with Mr. Mougs
wife as to which he shares voting and investment power. Includes
239 shares owned by Mr. Mougs minor children as
to which he, as custodian, has voting and investment power. |
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(8) |
|
Includes 3,000 shares owned jointly with
Mr. Partains wife as to which he shares voting and
investment power. |
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(9) |
|
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, 2009
any shares of any series of cumulative preferred shares of Otter
Tail Corporation.
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 Corporations Directors and
executive officers and holders of more than 10% of Otter Tail
Corporations common shares to file with the SEC initial
reports of ownership and reports of changes in ownership of
common shares and other equity securities of Otter Tail
Corporation. Based on a review of the Section 16 reports
filed by the Directors and executive officers, Otter Tail
Corporation believes that during the year ended
December 31, 2009, its Directors and executive officers,
with the exception of Mr. Spies who filed one late report
related to one transaction, complied with all Section 16(a)
filing requirements.
Compensation
Discussion and Analysis
Purpose
and Philosophy
The Compensation Committee of the Board of Directors is
responsible for developing and recommending to the Board of
Directors Otter Tail Corporations executive compensation
program for the four principal executive officers:
Mr. Erickson, Chief Executive Officer and President;
Mr. Molbert, Chief Operating Officer and Executive Vice
President; Mr. Moug, Chief Financial Officer; and
Mr. Koeck, General Counsel and Corporate Secretary
(referred to in this CD&A as the executive
officers). Each of these executive officers is included in
the Summary Compensation Table and the related tables beginning
on page 17. The fifth individual found in the Summary
Compensation Table and the related tables is Mr. C.
MacFarlane, President, Otter Tail Power Company. Compensation
for Mr. C. MacFarlane is determined by Mr. Molbert,
the Chief Operating Officer of Otter Tail Corporation, to whom
he reports. Mr. C. MacFarlanes compensation is
discussed separately.
The Compensation Committee has adopted an Executive Compensation
Policy which outlines the overall executive compensation
philosophy of Otter Tail Corporation and describes the
components of executive compensation for the executive officers.
Otter Tail Corporation believes that strong, effective
leadership is the cornerstone of its continued growth and
success. To be successful, Otter Tail Corporation must be able
to attract, retain, and motivate highly qualified executive
officers with the competencies needed to excel in a rapidly
changing marketplace and to understand issues relating to a
diverse group of companies in several different industries.
Executive compensation at Otter Tail Corporation is focused on
results. Otter Tail Corporation provides fair and equitable
compensation to its executive officers by combining base pay,
annual cash incentive, stock-based long-term incentive,
retirement income, and competitive health, dental and other
benefits. The Executive Annual Incentive Plan is designed to
reward executives for Otter Tail Corporations current year
financial success and recognize the responsibilities of the
executive officers for meeting Otter Tail Corporations
financial performance goals. Stock-based incentives focus on
long-term performance by aligning the executive officers
long-term financial interests with Otter Tail Corporations
shareholders interest. Pension and retirement plans are
provided to encourage long tenure amongst the executive
officers. Health, dental, vacation,
11
and other benefits are designed to be competitive with companies
with whom Otter Tail Corporation competes for executive talent.
Total direct compensation which includes base pay, annual cash
incentive and stock-based long-term incentive is measured
against similarly sized organizations (based on revenue) in the
general industry and utility sectors. Otter Tail Corporation
targets total direct compensation for each executive officer
near median for similarly sized organizations in the general
industry and utility sectors. The mix of pay (base pay, annual
cash incentive and long-term incentive) is designed to reflect a
strong bias towards pay for performance by placing a majority of
target compensation at risk. The only element of total direct
compensation that is not performance based is base pay. Both
annual cash incentive and long-term incentive are performance
based.
The Compensation Committee last retained Towers Perrin in May
2007, to prepare market-based compensation data comparing
compensation information for the executive officers of Otter
Tail Corporation with that for executive officers of companies
of comparable size in the general industry and utility sectors.
Towers Perrin utilized data from a general industry compensation
survey they performed. The survey had 584 participants from a
wide variety of industries. The companies included in the
utility sector were drawn from the Towers Perrin general
industry compensation survey and included all 87 of the utility
companies participating in the survey. From the survey data
Towers Perrin completed a regression analysis to account for
Otter Tail Corporations size as measured by revenue. This
data was utilized by Towers Perrin in establishing market
medians for each executive officer related to base pay, annual
cash incentive, and stock-based long-term incentive. Because of
the diverse nature of Otter Tail Corporations operating
companies, the Compensation Committee benchmarks against both
the general industry and the utility sector data in making its
decisions. In addition to market data, the Compensation
Committee considers individual performance, historical
compensation, internal equity with other officers and the
broader work force, and regional considerations.
Management has a role in the compensation process. The Vice
President of Human Resources and Mr. Erickson make
compensation recommendations for Mr. Molbert,
Mr. Moug, and Mr. Koeck, which the Committee may, but
is not required to, consider. Management does not make an
initial recommendation on Mr. Ericksons compensation.
In 2009, the Compensation Committee did not retain Towers Perrin
to complete a comprehensive compensation study for Otter Tail
Corporation. Otter Tail Corporation did ask Towers Perrin to
provide it with information on market trends that were emerging
in the area of long-term incentives.
The Compensation Committee set base pay and annual cash
incentive for each executive officer based in part upon the
market data provided to it by Towers Perrin in May 2007, and
other factors including individual performance, historical
compensation, internal equity, regional considerations and the
difficult economy.
Base
Pay
Base pay is a traditional element of compensation provided
almost universally by corporations. Base pay for each executive
officer is set after considering market data for similar jobs in
the general industry and utility sectors as last provided by
Towers Perrin. The Compensation Committee also considers the
level of compensation at risk for the executive officer in Otter
Tail Corporations Executive Annual Incentive Plan. In
2008, base pay was increased for each executive officer,
however, all four executive officers remained below the market
median for general industry. In 2009, base pay for all four
executive officers was frozen at the level in effect on
April 1, 2008, due in large measure to the difficult
economy.
Annual
Cash Incentive
The Otter Tail Corporation Executive Annual Incentive Plan
provides financial incentives to the executive officers for
achieving Otter Tail Corporation annual performance targets. The
annual cash incentive is designed to place a significant portion
of each executive officers annual cash compensation
at risk depending upon the financial performance of
Otter Tail Corporation for that year. The target annual cash
incentive for each executive officer is measured as a percentage
of base pay. The target annual cash incentive for each executive
officer is measured against the market data which was last
provided by Towers Perrin. The target annual cash incentive is
greater for Mr. Erickson and Mr. Molbert in
recognition of their primary responsibility of delivering solid
financial results for Otter Tail Corporation and to correlate
highly with the philosophy of pay
12
for performance. To place more of the total compensation at risk
in accordance with this philosophy, a higher percentage of total
targeted compensation is paid through incentive compensation. As
a result, the targeted annual cash incentive percentage for 2008
was above the market median for each executive officer and
ranged from 50% of base pay to 95% of base pay. However, when
combining base pay with targeted annual cash incentive, the
executive officers were still below the market median for
targeted cash compensation in 2008; ranging from a low of 60%
(Mr. Erickson) of general industry market median to a high
of 90% of general industry market median. This deviation was
due, in part, to the deference given to the utility sector
market data provided by Towers Perrin, which is somewhat lower
overall; and, in Mr. Ericksons case, due to his
preference for compensation closer to that of the other
executive officers. In 2009, the target annual cash incentive
for all four executive officers was frozen at the level in
effect on April 1, 2008, due in large measure to the
difficult economy.
The financial targets for annual cash incentive are premised
upon the executive officers delivering on their financial
performance commitments to Otter Tail Corporation as reflected
in part, in the annual budget approved by the Board of
Directors. In 2009 targeted annual incentive compensation was
tied to the annual budget approved by the Board of Directors.
The Compensation Committee set the target for return on equity
at 7.5%, the target for corporate earnings per share at $1.45
and the target for cash flow from operations at $103,000,000.
Because a significant portion of compensation is at risk, the
threshold performance level is set so as to make it achievable
in most years. The target performance level is set to promote
solid performance. The maximum performance level is set high to
reward only exceptional performance. The financial targets for
annual cash incentive are divided into three components as
follows:
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1.
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Corporate earnings per share. Each executive
officer receives 33.33% of the total target payout if Otter Tail
Corporation achieves the targeted earnings per share. Each
officer receives 8.33% of the total target payout if Otter Tail
Corporation achieves the threshold performance level, and
additional increments for performance above the target. For
corporate earnings per share the threshold was $1.20, the target
was $1.45 and the maximum was $1.80. Otter Tail Corporation was
below the threshold performance level for earnings per share in
2009.
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2.
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Corporate return on equity. Each officer receives
33.33% of the total target payout if Otter Tail Corporation
achieves the targeted return on equity. Each officer receives
8.33% of the total target payout if Otter Tail Corporation
achieves the threshold performance level, and additional
increments for performance above the target. For corporate
return on equity the threshold was 6%, the target was 7.5% and
the maximum was 11%. Otter Tail Corporation was below the
threshold performance level for return on equity in 2009.
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Cash flow from operations. Each officer receives
33.33% of the total target payout if Otter Tail Corporation
achieves the targeted cash flow from operations. Each officer
receives 8.33% of the total target payout if Otter Tail
Corporation achieves the threshold performance level and
additional increments for performance above the target. For cash
flow from operations the threshold was $75,000,000, the target
was $103,000,000 and the maximum was $130,000,000. Otter Tail
Corporation exceeded the maximum performance level for cash flow
from operations in 2009. The executive officers recommended that
no annual cash incentives be awarded for 2009. The Compensation
Committee determined that annual cash incentives would not be
awarded.
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The Compensation Committee has discretion over the treatment of
extraordinary gains, write offs or other events in determining
the amount of annual cash incentive to be paid. After a
recommendation made by Mr. Erickson on behalf of the
executive officers that annual cash incentives not be paid for
2009, the Compensation Committee determined that the executive
officers would not be awarded annual cash incentives for 2009.
Long-Term
Incentives
Long-term incentive compensation for executive officers consists
of performance share awards and restricted stock awards granted
by the Compensation Committee under Otter Tail
Corporations 1999 Stock Incentive Plan.
The performance share awards are designed to tie the long-term
incentives for the executive officers to Otter Tail Corporation
stock performance and to further align the interests of the
executive officers with
13
shareholders. It does so in two ways. First, the number of
shares awarded to the executive officers is based upon total
shareholder return as compared to the total shareholder return
of companies in the Edison Electric Institute Index (EEI
Index) for the three year period beginning on the first
day of the year in which the grant is awarded. The EEI Index
provides total shareholder returns for 58 shareholder owned
electric utilities. Second, the value of the shares awarded
increases or decreases with value provided to shareholders.
The restricted stock awards are also designed to align the
interest of the executive officers with that of shareholders.
They do so by rewarding continuity of service of the executive
officers since the restricted stock awards vest over a period of
4 years and unvested, restricted stock is forfeited upon
voluntary termination. In addition, the value of shares awarded
increase or decrease with the value provided to shareholders.
The targeted long-term incentive for each executive officer was
set with reference to the market median for similarly sized
companies in the general industry and utility sectors as
determined by Towers Perrin in 2007. In 2009 Towers Perrin
provided information to the Compensation Committee on changes it
was seeing in long-term incentive awards as a result of the
significant downturn in the equity market. The long-term
incentive awards at target for the executive officers, with the
exception of Mr. Erickson, have historically been set near
the mid-point of a range determined by averaging the values for
the general industry and the utility sectors. The long-term
incentive award for Mr. Erickson has been set significantly
below this mid-point due primarily to his request. The
Compensation Committee has determined to split the long-term
incentive with 75% of value delivered through performance shares
and 25% of value delivered through restricted stock.
The grants of performance shares were approved by the
Compensation Committee on April 20, 2009. Whether the
performance shares become payable is based upon the total
shareholder return of Otter Tail Corporation as compared to the
total shareholder returns of the companies that comprise the EEI
Index over a three year period. For the grant awarded in 2009
the three year period is from January 1, 2009 through
December 31, 2011. The EEI Index is chosen because it is
the sector which includes Otter Tail Corporation common shares.
For purposes of this calculation, total shareholder return
equals stock appreciation plus the value of dividends
reinvested. The actual payment of common shares may range from
zero to 200% of the target amount and will be paid in 2012. The
target amount will be paid if the total shareholder return for
Otter Tail Corporation is at the 50th percentile of the total
shareholder returns of the companies that comprise the EEI Index
over the three year period. The threshold performance level is
set at the 25th percentile and the maximum performance level is
set at the 85th percentile. Otter Tail Corporation believes the
target is appropriate as it is indicative of performance
consistent with the sector over the three year measurement
period. Stronger than sector performance is awarded with
additional shares. Weaker than sector performance is penalized
with the executive officers receiving fewer or no shares. The
performance shares, to the extent they become payable, are paid
in common shares of Otter Tail Corporation.
The grants of restricted stock were approved by the Compensation
Committee on April 20, 2009. The shares vest at a rate of
25% per year over a four year period with the first quarter
vesting on April 8, 2010 and the remaining quarters on the
same date in 2011, 2012 and 2013. Upon the grant date the
executive officers are eligible for full dividend and voting
rights.
Other
Benefits
The executive officers and Mr. C. MacFarlane receive
health, dental, life, vacation and other traditional benefits
identical to or consistent with the non-executive employees of
Otter Tail Corporation.
Compensation
for Charles S. MacFarlane
The Compensation Committee does not set compensation for
Mr. C. MacFarlane, rather it is set by Mr. Molbert in
his role as Mr. C. MacFarlanes supervisor. The
components of Mr. C. MacFarlanes compensation consist
of base pay, annual cash incentive, stock-based long-term
incentive, retirement income, and competitive health, dental and
other benefits.
Mr. C. MacFarlanes compensation (including base
salary, short and long-term incentive) is determined based upon
several factors, including (1) market median compensation
for similar positions at similarly sized companies in the
utility sector; (2) job complexity; (3) tenure; and
(4) internal compensation equities with incumbent employees.
14
Consistent with the philosophy of Otter Tail Corporation,
Mr. C. MacFarlanes annual cash incentive is designed
to place a significant portion of his annual cash compensation
at risk depending upon the financial performance of
Otter Tail Power Company for that year. The targeted annual cash
incentive percentage for Mr. C. MacFarlane is 60% of base
pay. The targets for annual cash incentive for Mr. C.
MacFarlane are designed to reward Mr. C. MacFarlane for
providing demonstrated leadership, achieving budgeted financial
returns and meeting non-financial goals at Otter Tail Power
Company. The three components measured in determining annual
cash incentive are utility return on equity, utility net income
and individual performance. Individual performance is measured
by Mr. Molbert and is based upon Mr. C.
MacFarlanes performance against key performance
indicators, including safety, customer satisfaction, plant
availability, system reliability, strategy development and
implementation, and personal goals. Mr. Molbert has
discretion to vary positively or negatively from the results
dictated by performance. The financial targets for utility
return on equity and utility net income are based upon meeting
the financial goals of Otter Tail Power Company as determined in
the Otter Tail Power Company budgeting process with Otter Tail
Corporation.
The annual cash incentive targets for Mr. C. MacFarlane are
divided into three components:
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1.
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Utility Return on Equity. Mr. C. MacFarlane
receives 30% of the total target payout if Otter Tail Power
Company achieves targeted utility return on equity. The target
for utility return on equity was 9.80%. Otter Tail Power Company
achieved the targeted performance level in 2009.
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2.
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Utility Net Income. Mr. C. MacFarlane
receives 30% of his total target payout if Otter Tail Power
Company achieves the targeted utility net income. The target for
utility net income was $35,873,654. Otter Tail Power Company did
not achieve the targeted performance level in 2009.
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3.
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Individual Performance. Mr. C. MacFarlane
receives 40% of his total targeted payout based upon his
individual performance. Mr. C. MacFarlane met target
performance as determined by Mr. Molberts evaluation
of Mr. C. MacFarlanes performance in 2009.
|
Mr. C. MacFarlane receives long-term incentive compensation
in the form of restricted stock units granted by the
Compensation Committee under the Otter Tail Corporation 1999
Stock Incentive Plan. The restricted stock units, which were
granted on the date of the 2009 Annual Meeting of Shareholders
vest into Otter Tail Corporation common shares in their entirety
on April 8, 2013, provided Mr. C. MacFarlane is
employed by Otter Tail Power Company on that date. Until the
restricted stock units vest into Otter Tail Corporation common
shares, Mr. C. MacFarlane has no dividend or voting rights.
Stock
Ownership Guidelines
Otter Tail Corporation has established stock ownership
guidelines to ensure that the executive officers remain focused
on long-term shareholder value. The ownership guidelines are as
follows: Mr. Erickson, 70,000 shares;
Mr. Molbert, 35,000 shares; Mr. Moug,
20,000 shares; and Mr. Koeck, 10,000 shares.
Stock options are not considered as shares counting towards the
ownership guidelines. Each of the executive officers meets the
guidelines.
Retirement
Income and Deferred Compensation
Historically, the executive officers of Otter Tail Corporation
have provided Otter Tail Corporation with long-term service.
Otter Tail Corporation believes that this long-term service by
its executive officers has been fundamental to its success.
Accordingly, Otter Tail Corporation encourages long-term service
by providing executive officers security in retirement through
its pension and supplemental retirement plans. The executive
officers and Mr. C. MacFarlane, participate in the plans
related to retirement income and deferred compensation.
Central to providing retirement security and encouraging
long-term service by its executive officers are the Otter Tail
Corporation Pension Plan (Pension Plan) and
non-qualified Executive Survivor and Supplemental Retirement
Plan (ESSRP). Combined, these plans deliver a
defined pension benefit that increases with years of service and
compensation. A further description of the benefits under the
plan is found in the narrative description to the Pension
Benefits Table.
The executive officers and Mr. C. MacFarlane may elect to
participate in a non-qualified deferred compensation plan. The
plan offers a relatively low cost, competitive benefit
consistent with plans offered by other
15
employers. Participation in the plan is limited to the executive
officers of Otter Tail Corporation and certain other employees
of Otter Tail Corporation and its subsidiaries. Under the plan,
participants may defer up to 50% of their base pay and 100% of
their annual cash incentive compensation. The amounts deferred
are segregated into one or more accounts chosen by the
participant and earn a return based upon the performance of the
investment option chosen by the participant. One account under
the plan has a beginning distribution date coinciding with
retirement. Other accounts may have distribution dates
determined by the participant. Deferred contributions are made
pre-tax. Each participant makes his or her own investment
decisions on the amounts deferred and is solely at risk for
investment returns. There are no Otter Tail Corporation
contributions to the plan for executive officers and it is not
at risk for individual investment returns.
Otter Tail Corporation also provides a 401(k) retirement savings
plan in which the employees of Otter Tail Corporation, including
the executive officers and Mr. C. MacFarlane, may
participate. The plan permits all employees to set aside a
portion of their income into the 401(k) retirement savings plan
and Otter Tail Corporation matches 50% of the first 5% set aside
by an employee up to the statutory maximum. The participation of
the executive officers is on precisely the same terms as other
participants in the plan.
Severance
Benefits
Otter Tail Corporation has entered into change in control
severance agreements with each of the executive officers which
provide financial protection in the event of a change in control
that disrupts the executive officers career. These
agreements are designed to attract and retain high caliber
executive officers, recognizing that change in control
protections are commonly provided at comparable companies with
which Otter Tail Corporation competes for executive talent. In
addition, the change in control protections will enhance the
impartiality and objectivity of the executive officers in the
event of a change in control situation and better ensure that
shareholder interests are protected. The protections contained
in the change in control agreements provide for a double
trigger which means that there must be both a change in
control and a termination of employment for the provisions to
apply. A more complete description of the change in control
agreements is found in the tabular disclosure in this Proxy
Statement found at page 23.
Otter Tail Corporation has also entered into executive
employment agreements with the executive officers, but not with
Mr. C. MacFarlane. These agreements have been entered into
by Otter Tail Corporation to clearly define the obligations of
Otter Tail Corporation and the benefits to the executive officer
upon termination from employment. These agreements are more
fully described in the tabular disclosure in this Proxy
Statement found at page 23.
Deductibility
of Executive Compensation
Section 162(m) of the Internal Revenue Code imposes limits
on tax deductions for executive compensation in excess of
$1,000,000 paid to certain executive officers. It is the
Compensation Committees policy to take reasonable steps to
preserve this tax deduction.
Report
of Compensation Committee
The Compensation Committee of Otter Tail Corporations
Board of Directors is composed of five independent directors as
defined by the NASDAQ Listing Standards, and operates under a
written charter adopted by the Board of Directors. The
Compensation Committee reviewed and discussed with management
the foregoing CD&A. Based upon that review and discussion
with management and its independent review of the CD&A, the
Compensation Committee has recommended to the Board of Directors
that the CD&A be included in this Proxy Statement and in
Otter Tail Corporations Annual Report on
Form 10-K
for the year ended December 31, 2009, filed with the SEC.
Arvid R.
Liebe, Chair
Edward J. McIntyre
Nathan I. Partain
Joyce Nelson Schuette
James B. Stake
16
Executive
Compensation
The following tables and accompanying narrative disclosure and
footnotes should be read in conjunction with the CD&A,
which sets forth the objectives of Otter Tail Corporations
executive compensation and benefit program.
Summary
Compensation Table
The table below contains information about compensation for the
last three fiscal years paid to the individuals who served as
Chief Executive Officer and Chief Financial Officer and each of
the other three most highly compensated executive officers who
were serving as executive officers at the end of 2009
(Named Executive Officers).
Summary
Compensation Table
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Change in
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Pension Value
&
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Non-Equity
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Non-Qualified
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Incentive
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Deferred
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Stock
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Plan
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Compensation
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All Other
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Name
&
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Awards
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Compensation
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Earnings
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Compensation
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Total
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Principal
Position
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Year
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Salary
($)1
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Bonus
($)2
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($)3
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($)4
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($)5
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($)6
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($)
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John D. Erickson
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2009
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490,000
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1,214,157
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662,376
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6,125
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2,372,658
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President & CEO
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2008
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482,000
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1,274,843
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34,394
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5,750
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1,796,987
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2007
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453,500
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1,227,452
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408,016
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534,915
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13,625
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2,637,508
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Kevin G. Moug
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2009
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337,000
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510,523
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390,996
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16,925
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1,255,444
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Chief Financial Officer
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2008
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327,750
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538,567
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117,183
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16,550
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1,000,050
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2007
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295,000
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514,267
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168,798
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226,222
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16,425
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1,220,712
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Lauris N. Molbert
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2009
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390,000
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1,010,503
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671,588
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15,725
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2,087,816
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Executive Vice
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2008
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383,500
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1,064,321
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201,524
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15,350
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1,664,695
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President & COO
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2007
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360,500
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1,019,152
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324,274
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484,722
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15,225
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2,203,873
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George A. Koeck
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2009
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287,000
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391,213
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413,870
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15,725
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1,107,808
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General Counsel &
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2008
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279,000
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407,128
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181,040
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|
|
15,350
|
|
|
|
|
882,518
|
|
Corporate Secretary
|
|
|
|
2007
|
|
|
|
|
252,500
|
|
|
|
|
|
|
|
|
|
394,252
|
|
|
|
|
119,563
|
|
|
|
|
296,078
|
|
|
|
|
15,225
|
|
|
|
|
1,077,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles S. MacFarlane
|
|
|
|
2009
|
|
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
75,440
|
|
|
|
|
64,800
|
|
|
|
|
280,693
|
|
|
|
|
9,229
|
|
|
|
|
790,162
|
|
President,
|
|
|
|
2008
|
|
|
|
|
353,250
|
|
|
|
|
86,400
|
|
|
|
|
109,376
|
|
|
|
|
64,800
|
|
|
|
|
75,984
|
|
|
|
|
8,682
|
|
|
|
|
698,492
|
|
Otter Tail Power Company
|
|
|
|
2007
|
|
|
|
|
313,250
|
|
|
|
|
119,880
|
|
|
|
|
103,742
|
|
|
|
|
59,940
|
|
|
|
|
90,789
|
|
|
|
|
8,537
|
|
|
|
|
696,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The 2009 base pay for each Named Executive Officer was frozen at
the salary level in effect on April 1, 2008. |
|
(2) |
|
In each year Mr. C. MacFarlanes bonus was based upon
his performance measured against certain financial and
non-financial key performance indicators and personal goals as
discussed in the CD&A and evaluated by Mr. Molbert. In
2009 consideration was also given to the overall economic
conditions and wage freeze that was instituted at Otter Tail
Power Company. Each bonus was awarded at the discretion of
Mr. Molbert. Except with respect to Mr. C. MacFarlane,
Otter Tail Corporation awards cash bonuses based solely on the
achievement of certain performance targets and such bonuses are
thus reflected in the Non-Equity Incentive Plan Compensation
column of this table. |
|
(3) |
|
The amounts shown represent the aggregate grant-date fair values
of: performance award grants (2009 $27.76/share,
2008 $46.39/share, 2007 $46.91/share)
and restricted stock grants (2009 $22.15/share,
2008 $35.35/share, 2007 $35.84/share)
and, for Mr. C. MacFarlane, restricted stock units
(2009 $18.86/share, 2008 $30.81/share,
and 2007 $30.07/share), as determined in accordance
with FASB ASC Topic 718 and using the same assumptions as are
described at Note 7 to the consolidated financial
statements in the Annual Report on
Form 10-K
of Otter Tail Corporation for 2009. The estimated maximum payout
value of the performance awards based on the per share
grant-date fair value of the awards are as follows:
Mr. Erickson (2009 $1,954,304, 2008
$2,068,994, 2007 $1,988,984); Mr. Moug
(2009 $821,896, 2008 $872,132,
2007 $834,998); Mr. Molbert (2009
$1,626,736, |
17
|
|
|
|
|
2008 $1,725,708, 2007 $1,651,232); and
Mr. Koeck (2009 $627,376, 2008
$658,738, 2007 $637,976). Because the amounts
indicated primarily reflect the value ascribed to performance
shares, which are awarded only if Otter Tail Corporation meets
certain share price benchmarks over a three year period as
compared to peers and described in the CD&A, the amount may
not represent the value actually received by the Executive
Officers. See CD&A for a more detailed description. |
|
|
|
The actual number of Otter Tail Corporation common shares
awarded by the Compensation Committee on February 8, 2010
based upon the performance of Otter Tail Corporation for the
period January 1, 2007 through December 31, 2009 and
their corresponding value based upon the average of the high and
low price of Otter Tail Corporations common shares on
February 8, 2010 were as follows: Mr. Erickson
(13,524 shares, $278,256); Mr. Moug
(5,678 shares; $116,825); Mr. Molbert
(11,228 shares, $231,016); and Mr. Koeck
(4,338 shares, $89,254). The actual number of Otter Tail
Corporation restricted common shares that vested on
April 8, 2009 and their corresponding value based upon the
average of the high and low price of Otter Tail
Corporations common shares on April 8, 2009 was as
follows: Mr. Erickson (3,325 shares, $76,176);
Mr. Moug (1,400 shares; $32,074); Mr. Molbert
(2,775 shares, $63,575); and Mr. Koeck
(1,075 shares, $24,628). |
|
(4) |
|
Non-Equity Incentive Plan Compensation represents awards earned
during 2007, 2008 and 2009 for achieving cash based performance
goals under the Executive Annual Incentive Plan. In 2008 and
2009 Otter Tail Corporation exceeded the target performance
level for cash flow from operations under the Executive Annual
Incentive Plan. The executive officers recommended that no
annual cash incentives be awarded for 2008 and 2009. The
Compensation Committee determined the annual cash incentives
would not be awarded. The amounts of such annual cash incentives
that would have been paid for 2009 are as follows:
Mr. Erickson $310,334, Mr. Moug $134,800,
Mr. Molbert $247,000 and Mr. Koeck $95,667. In 2008,
the amounts of annual cash incentive payments forgone were as
follows: Mr. Erickson $116,364, Mr. Moug $50,550,
Mr. Molbert $92,620 and Mr. Koeck $35,871. In 2009
Mr. C. MacFarlane achieved the performance goal for utility
return on equity. See the CD&A for a more detailed
description. |
|
(5) |
|
This column represents the change in pension value and was
determined utilizing the same assumptions as are described at
Note 12 to the consolidated financial statements in the
Annual Report on
Form 10-K
of Otter Tail Corporation for each of 2007, 2008 and 2009. |
|
(6) |
|
Amounts reflected in All Other Compensation for 2009 consists of
(i) amounts contributed by Otter Tail Corporation under the
Otter Tail Corporation 401(k) retirement savings plan for 2009
as follows: Mr. Erickson, $6,125; Mr. Moug, $6,125;
Mr. Molbert, $6,125; Mr. Koeck, $6,125; Mr. C.
MacFarlane, $6,125; (ii) a car allowance as follows:
Mr. Moug, $10,800; Mr. Molbert, $9,600;
Mr. Koeck, $9,600; Mr. Erickson is entitled to a car
allowance in the amount of $9,600, but does not take it; and
(iii) the amount of Otter Tail Corporations
contribution under the Employee Stock Ownership Plan for 2009
which was invested in common shares for the account of
Mr. C. MacFarlane, $3,104. |
Grants
of Plan-Based Awards
The following table summarizes the 2009 grants of equity and
non-equity awards to the Named Executive Officers.
Grants
of Plan-Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Grant-Date
|
|
|
|
|
|
|
Estimated Future
Payouts Under
|
|
|
Estimated Future
Payouts Under
|
|
|
No. of
|
|
|
Fair Value
|
|
|
|
|
|
|
Non-Equity
Incentive Plan
Awards2
|
|
|
Equity Incentive
Plan
Awards3
|
|
|
Shares of
|
|
|
of Stock
|
|
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Stock or
|
|
|
and Option
|
Name
|
|
|
Grant
Date1
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
Units
(#)4
|
|
|
Awards
($)5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John D. Erickson
|
|
|
20-April-09
|
|
|
|
116,375
|
|
|
|
|
465,500
|
|
|
|
|
931,000
|
|
|
|
|
17,600
|
|
|
|
|
35,200
|
|
|
|
|
70,400
|
|
|
|
|
10,700
|
|
|
|
|
1,214,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin G. Moug
|
|
|
20-April-09
|
|
|
|
50,550
|
|
|
|
|
202,200
|
|
|
|
|
404,400
|
|
|
|
|
7,400
|
|
|
|
|
14,800
|
|
|
|
|
29,600
|
|
|
|
|
4,500
|
|
|
|
|
510,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lauris N. Molbert
|
|
|
20-April-09
|
|
|
|
92,625
|
|
|
|
|
370,500
|
|
|
|
|
741,000
|
|
|
|
|
14,650
|
|
|
|
|
29,300
|
|
|
|
|
58,600
|
|
|
|
|
8,900
|
|
|
|
|
1,010,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George A. Koeck
|
|
|
20-April-09
|
|
|
|
35,875
|
|
|
|
|
143,500
|
|
|
|
|
287,000
|
|
|
|
|
5,650
|
|
|
|
|
11,300
|
|
|
|
|
22,600
|
|
|
|
|
3,500
|
|
|
|
|
391,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles S. MacFarlane
|
|
|
20-April-09
|
|
|
|
|
|
|
|
|
216,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
75,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The grant date of all awards is the date of the Board of
Directors action in which such award is approved. |
18
|
|
|
(2) |
|
Represents awards granted to Mr. Erickson, Mr. Moug,
Mr. Molbert and Mr. Koeck under the Executive Annual
Incentive Plan. The awards are contingent upon Otter Tail
Corporation reaching performance targets in three categories of
performance: corporate earnings per share, return on equity and
cash flow from operations. Each executive is entitled to receive
an award in an amount of 25% to 200% of the target for each
category based upon the performance of Otter Tail Corporation in
the category, provided Otter Tail Corporation meets the
threshold performance level. |
|
|
|
This plan and targets are more fully described in the CD&A.
The amount actually paid in 2009 is reported under
Non-Equity Incentive Plan Compensation in the
Summary Compensation Table. |
|
|
|
Represents an incentive award granted to Mr. C. MacFarlane
as determined on a basis consistent with the plan described in
the CD&A. There are two formula-driven measures, utility
return on equity and utility net income. The third measure is
individual performance and is based primarily upon performance
against key performance indicators as described in the
CD&A. This plan and targets are more fully described in the
CD&A. The amount actually paid in 2009 is reported under
Non-Equity Incentive Plan Compensation in the
Summary Compensation Table. |
|
(3) |
|
Represents grants of performance shares to each of
Mr. Erickson, Mr. Moug, Mr. Molbert and
Mr. Koeck that vest dependent upon the three year total
shareholder return as compared to the total shareholder returns
for the companies comprising the EEI Index. The awards of
performance shares are more fully described in the CD&A. |
|
(4) |
|
Represents restricted stock grants to Mr. Erickson,
Mr. Moug, Mr. Molbert and Mr. Koeck that vest
ratably on April 8, 2010, April 8, 2011, April 8,
2012 and April 8, 2013 provided they are employed by Otter
Tail Corporation on those dates. The executive officers have
voting and dividend rights in the restricted shares. |
|
|
|
Represents a restricted stock unit grant to Mr. C.
MacFarlane received in 2009. The restricted stock units vest
into Otter Tail Corporation common shares on April 8, 2013
provided Mr. C. MacFarlane is employed by Otter Tail Power
Company on that date. Mr. C. MacFarlane does not have
dividend or voting rights for the restricted stock units until
they vest. |
|
(5) |
|
The amounts shown represent the aggregate grant-date fair value
of the stock awards as determined in accordance with FASB ASC
Topic 718. Because the amounts indicated include the value
ascribed to performance shares, which are awarded only if Otter
Tail Corporation meets certain share price benchmarks as
compared to peers and described in the CD&A, the amount may
not reflect the value actually provided to the executive
officers. See the CD&A for a more detailed description. |
Outstanding
Equity Awards at Fiscal Year End
The following table summarizes the total outstanding equity
awards as of December 31, 2009 for the Named Executive
Officers.
Outstanding
Equity Awards at Fiscal Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Awards
|
|
|
|
|
|
Option
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
Plan Awards:
|
|
|
|
|
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
Market
|
|
Plan Awards:
|
|
Market or
|
|
|
|
Number of
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
|
Value of
|
|
Number of
|
|
Payout Value
|
|
|
|
Securities
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
Number of
|
|
Shares or
|
|
Unearned
|
|
of Unearned
|
|
|
|
Underlying
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
|
Shares or
|
|
Units of
|
|
Shares, Units
|
|
Shares, Units
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
Option
|
|
|
Units of Stock
|
|
Stock That
|
|
or Other Rights
|
|
or Other Rights
|
|
|
|
Options (#)
|
|
Options (#)
|
|
Unearned
|
|
Exercise
|
|
Expiration
|
|
|
That Have Not
|
|
Have Not
|
|
That Have Not
|
|
That Have Not
|
Name
|
|
|
Exercisable
|
|
Unexercisable
|
|
Options (#)
|
|
Price ($)
|
|
Date
|
|
|
Vested
(#)1
|
|
Vested
($)1
|
|
Vested
(#)2
|
|
Vested
($)2
|
John D. Erickson
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
26.25
|
|
|
|
09-Apr-11
|
|
|
|
|
19,050
|
|
|
|
472,821
|
|
|
|
11,150
|
|
|
|
276,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,600
|
|
|
|
436,832
|
|
|
Kevin G. Moug
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,025
|
|
|
|
199,181
|
|
|
|
4,700
|
|
|
|
116,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,400
|
|
|
|
183,668
|
|
|
Lauris N. Molbert
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,875
|
|
|
|
394,018
|
|
|
|
9,300
|
|
|
|
230,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,650
|
|
|
|
363,613
|
|
|
George A. Koeck
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,200
|
|
|
|
153,884
|
|
|
|
3,550
|
|
|
|
88,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,650
|
|
|
|
140,233
|
|
|
Charles S. MacFarlane
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
29.74
|
|
|
|
10-Dec-11
|
|
|
|
|
15,300
|
|
|
|
379,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
26.50
|
|
|
|
12-Apr-14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
24.93
|
|
|
|
11-Apr-15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The unvested shares of restricted stock for Mr. Erickson,
Mr. Moug, Mr. Molbert and Mr. Koeck vest ratably
on April 8, 2010, April 8, 2011, April 8, 2012
and April 8, 2013. The restricted stock units of
Mr. C. MacFarlane vest on April 8, 2010, April 8,
2011, April 8, 2012, and April 8, 2013. |
19
|
|
|
(2) |
|
The unvested performance shares for Mr. Erickson,
Mr. Moug, Mr. Molbert and Mr. Koeck are reported
at threshold as determined by rule. The actual number of shares
paid, which may range from zero to maximum, shall be determined
by the Compensation Committee after it determines whether the
performance goals have been met at the conclusion of 2010 and
2011. This typically occurs in February of each year. |
Option
Exercises and Stock Vested in Last Fiscal Year
The following table provides information on option exercises and
stock vested in 2009 related to the Named Executive Officers and
the resulting value realized.
Option
Exercises & Stock Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
|
|
Number of Shares
|
|
|
Value Realized on
Exercise
|
|
|
Number of Shares
|
|
|
Value Realized on
|
Name
|
|
|
Acquired on
Exercise (#)
|
|
|
($)1
|
|
|
Acquired on Vesting
(#)
|
|
|
Vesting
($)1
|
John D. Erickson
|
|
|
|
20,000
|
|
|
|
|
74,750
|
|
|
|
|
14,725
|
|
|
|
|
289,356
|
|
Kevin G. Moug
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,750
|
|
|
|
|
132,119
|
|
Lauris N. Molbert
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,675
|
|
|
|
|
230,005
|
|
George A. Koeck
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,775
|
|
|
|
|
93,818
|
|
Charles S. MacFarlane
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750
|
|
|
|
|
17,183
|
|
|
|
|
|
(1) |
|
The value realized on the exercise of stock options is the
difference between the fair market value of Otter Tail
Corporations common shares at the time of exercise and the
exercise price contained in the award agreement of the stock
option. The value realized on the vesting of stock awards is the
fair market value of Otter Tail Corporations common shares
at the time of vesting. The fair market value as used in this
table is the average of the high and low price of Otter Tail
Corporations common shares on the date of exercise or
vesting. |
Pension
and Supplemental Retirement Plans
The Pension Plan is a tax-qualified defined benefit pension
plan. All employees of Otter Tail Corporation, including Otter
Tail Power Company employees hired prior to September 1,
2006, are eligible to participate in the Pension Plan. Benefits
for Mr. Erickson, Mr. Moug, Mr. Molbert, and
Mr. Koeck are determined by multiplying 37% of final
average earnings (as defined in the Plan) by a fraction the
numerator of which is the number of years of benefit accrual
service up to 30 years and the denominator of which is 30.
For these executive officers, final average earnings is
determined using the 42 consecutive months out of the last
10 consecutive years prior to the participants
retirement which produces the highest average salary. In
addition, for each year of benefit accrued service earned in
excess of 30 years, the executives benefit shall
increase by 1% up to a maximum of 110% of the benefit. For
Mr. C. MacFarlane, the benefit is determined by multiplying
38% of his final average earnings by a fraction the numerator of
which is the number of years of benefit accrual service up to
30 years and the denominator of which is 30. Final average
earnings for Mr. C. MacFarlane is determined by using the
30 consecutive months out of the last 10 years prior to the
participants retirement that produces the highest average
salary. A full pension benefit is paid if the executive officer
retires after he or she reaches age 62. If the executive
officer commences payment prior to age 62, there is a
reduction in pension benefit on a scale beginning at 5% at
age 61 and ending at 39% at age 55, the earliest age
at which the pension benefit may be received. The plan does not
provide for a lump sum distribution. The plan does not
contemplate, nor have there been granted, additional years of
credited service.
Each of the Named Executive Officers participates in the ESSRP.
Participation in the ESSRP is determined by the Board of
Directors. Mr. Erickson and Mr. Koeck will receive
retirement benefits under the ESSRP equal to the greater of the
following:
|
|
(1) |
A benefit equal to 70% of the participants final average
earnings (as defined in the ESSRP) offset by the
participants social security benefit and the amount of the
participants benefit from Otter Tail Corporations
tax-qualified defined benefit Pension Plan; provided the amount
of this benefit will not increase after December 31, 2010.
If this benefit is applicable, it will be paid for 15 years
to the participant or the participants beneficiary, or for
such longer period of time as the participant lives. Final
average earnings under the ESSRP is the average of the
participants total cash payments (base salary and bonus)
paid to the participant during the highest consecutive
42 months in the 10 years prior to the date as of
which final average earnings is determined.
|
20
|
|
(2) |
The benefit calculated under Otter Tail Corporations
tax-qualified defined benefit Pension Plan, modified to include
the participants bonus in the computation of covered
compensation and to exclude any statutory compensation and
benefits limit, and offset by the participants benefit
from the tax-qualified defined benefit Pension Plan. If this
benefit is applicable, it will be paid in the same form as the
participants tax-qualified defined benefit Pension Plan
benefit.
|
Mr. Moug, Mr. Molbert and Mr. C. MacFarlane will
receive retirement benefits under the ESSRP equal to the greater
of the following:
|
|
(1)
|
A benefit equal to 65% of the participants final average
earnings (as defined in the ESSRP) offset by the
participants social security benefit and the amount of the
participants benefit from Otter Tail Corporations
tax-qualified defined benefit Pension Plan; provided that the
amount of this benefit will not increase after December 31,
2010. The benefit amount accrues over a 15 year period. If
this benefit is applicable, it will be paid for 15 years to
the participant or the participants beneficiary, or for
such longer period of time as the participant lives. Final
average earnings for Mr. Moug and Mr. Molbert is
defined in the same manner as for Mr. Erickson and
Mr. Koeck. Final average earnings for Mr. C.
MacFarlane is defined as the average of the total cash payments
(base salary and bonus) paid to the participant during the
highest consecutive 30 months in the 10 years prior to
the date as of which final average earnings is determined.
|
|
(2)
|
The benefit calculated under Otter Tail Corporations
tax-qualified defined benefit Pension Plan, modified to include
the participants bonus in the computation of covered
compensation and to exclude any statutory compensation and
benefit limits, and offset by the participants benefit
from the tax-qualified defined Pension Plan. If this benefit is
applicable, it will be paid in the same form as the
participants tax-qualified defined benefit Pension Plan
benefit.
|
The executive officers are all vested in their benefits under
the ESSRP. Mr. Moug, Mr. Molbert and Mr. Koeck
were granted an additional 5, 6.5 and 3.6 years of service,
respectively, under the ESSRP as of January 1, 2005. These
increases were designed to more equitably apply the reduction in
benefits caused by the January 1, 2005 Amendment to the
ESSRP. The ESSRP does not provide for a lump sum distribution.
If an executive officer under the ESSRP dies while employed by
Otter Tail Corporation, Otter Tail Corporation will pay the
participants beneficiary an amount equal to four times the
participants annual salary and bonus at the time of death.
If an executive officer under the ESSRP dies after retirement or
dies after termination for other reasons with a vested benefit,
Otter Tail Corporation will pay the participants
beneficiary a lesser amount, depending upon the executive
officers age at death and his or her vested percentage.
If an executive officer retires prior to age 62 or
terminates prior to retirement, with a vested benefit in the
ESSRP, the executive officer will receive a reduced benefit
amount. If a participant dies while still employed, his or her
beneficiary will receive the actuarial equivalent of the
participants benefit in 15 annual installments. Upon a
change in control (as defined in the ESSRP), or in the event of
the death of the executive officer while actively employed by
Otter Tail Corporation, the executive officer 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 ESSRP until such time as payments
under Otter Tail Corporations long-term disability plan
end. The Board of Directors has the right to amend, suspend or
terminate the ESSRP, but no such action can reduce the benefits
already accrued.
21
The following table summarizes the number of years of credited
service and present accumulated value of the pension benefits
for the Named Executive Officers under the Otter Tail
Corporation Pension Plan and ESSRP.
Pension
Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present Value
of
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Years
|
|
|
Accumulated
|
|
|
Payments During
Last
|
|
|
Name
|
|
|
Plan
Name
|
|
|
Credited Service
(#)
|
|
|
Benefit
($)1
|
|
|
Fiscal
Year ($)
|
|
|
John D. Erickson
|
|
|
Pension Plan
|
|
|
|
29.50
|
|
|
|
|
691,000
|
|
|
|
|
|
|
|
|
|
|
|
ESSRP
|
|
|
|
15.00
|
|
|
|
|
3,175,575
|
|
|
|
|
|
|
|
|
Kevin G. Moug
|
|
|
Pension Plan
|
|
|
|
8.00
|
|
|
|
|
176,000
|
|
|
|
|
|
|
|
|
|
|
|
ESSRP
|
|
|
|
13.00
|
2
|
|
|
|
1,336,623
|
|
|
|
|
|
|
|
|
Lauris N. Molbert
|
|
|
Pension Plan
|
|
|
|
8.00
|
|
|
|
|
199,000
|
|
|
|
|
|
|
|
|
|
|
|
ESSRP
|
|
|
|
14.50
|
3
|
|
|
|
2,779,808
|
|
|
|
|
|
|
|
|
George A. Koeck
|
|
|
Pension Plan
|
|
|
|
10.33
|
|
|
|
|
331,000
|
|
|
|
|
|
|
|
|
|
|
|
ESSRP
|
|
|
|
13.60
|
4
|
|
|
|
1,613,945
|
|
|
|
|
|
|
|
|
Charles S. MacFarlane
|
|
|
Pension Plan
|
|
|
|
8.08
|
|
|
|
|
129,000
|
|
|
|
|
|
|
|
|
|
|
|
ESSRP
|
|
|
|
8.00
|
|
|
|
|
546,685
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The present value of the accumulated benefit is calculated in
accordance with FASB ASC Topic 715. See Note 12 to the
consolidated financial statements in the 2009 Annual Report on
Form 10-K
of Otter Tail Corporation for the policy and assumptions made in
the valuation of this accumulated benefit. |
|
(2) |
|
Includes 5 years of additional credited service which
results in an additional accumulated benefit at present value of
$635,513. |
|
(3) |
|
Includes 6.5 years of additional credited service which
results in an additional accumulated benefit at present value of
$1,407,925. |
|
(4) |
|
Includes 3.6 years of additional credited service which
results in an additional accumulated benefit at present value of
$414,521. |
Non-Qualified
Deferred Compensation
The following table presents information on non-qualified
deferred compensation for the Named Executive Officers.
Non-Qualified
Deferred
Compensation1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
Registrant
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
|
|
|
Contributions
in
|
|
|
Contributions
in
|
|
|
Earnings in
|
|
|
Withdrawals /
|
|
|
Balance at
Last
|
|
|
Name
|
|
|
Last FY
($)2
|
|
|
Last
FY ($)
|
|
|
Last FY
($)2
|
|
|
Distributions ($)
|
|
|
FYE
($)3
|
|
|
John D. Erickson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,024
|
|
|
|
|
|
|
|
|
|
557,643
|
|
|
|
Kevin G. Moug
|
|
|
|
23,590
|
|
|
|
|
|
|
|
|
|
18,719
|
|
|
|
|
|
|
|
|
|
234,918
|
|
|
|
Lauris N. Molbert
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,737
|
|
|
|
|
|
|
|
|
|
357,289
|
|
|
|
George A. Koeck
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles S. MacFarlane
|
|
|
|
51,840
|
|
|
|
|
|
|
|
|
|
100,547
|
|
|
|
|
|
|
|
|
|
460,697
|
|
|
|
|
|
|
|
(1) |
|
The terms of Otter Tail Corporations non-qualified
deferred compensation plan are described in the CD&A. |
|
(2) |
|
The amounts reported in the Executive Contributions column are
also reported as compensation to the Named Executive Officers in
the Summary Compensation Table while the amounts in the
Aggregate Earnings column are not. |
|
(3) |
|
The amounts related to Executive Contributions reported in this
column were previously reported in Summary Compensation Tables
of Otter Tail Corporation, while the amounts related to
Aggregate Earnings were not. |
Potential
Termination Payments Upon a Change in Control
Otter Tail Corporation has entered into change in control
severance agreements (the Severance Agreements) with
Mr. Erickson, Mr. Moug, Mr. Molbert, and
Mr. Koeck. The Severance Agreements provide for certain
payments and other benefits if, following a Change in Control,
Otter Tail Corporation terminates the executive officers
employment without Cause or the executive officer terminates his
employment for Good Reason.
22
Such payments and benefits include: (i) severance pay equal
to two times the sum of the executive officers salary (at
the highest annual rate in effect during the two years prior to
the termination) and average annual bonus (for the two years
prior to the termination); (ii) two years of continued
life, health, and disability insurance; (iii) the payment
of legal fees and expenses relating to the termination; and
(iv) the termination of any noncompetition arrangement
between Otter Tail Corporation and the executive officer. 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
material change in the employees 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 SEC 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 in the Agreements) not constituting a
majority of Otter Tail Corporations Board of Directors, or
another event the majority of the Continuing Directors
determines to be a Change in Control.
Potential
Termination Payments due Outside a Change in Control
Otter Tail Corporation has entered into employment agreements
(the Employment Agreements) with Mr. Erickson,
Mr. Moug, Mr. Molbert, and Mr. Koeck. The
Employment Agreements provide that if Otter Tail Corporation
terminates the employment of one of the executive officers for
Cause or if one of the executive officers terminates the
employment relationship without Good Reason (as defined in the
Employment Agreements) that the executive officer shall receive
base pay and benefits through the date of termination.
Alternatively, if Otter Tail Corporation terminates the
employment of one of the executive officers for any other
reason, or if one of the executive officers terminates the
employment relationship for Good Reason, Otter Tail Corporation
shall pay a severance payment equal to 1.5 times the sum of the
executive officers base pay plus his most recent annual
cash incentive payment in full satisfaction of Otter Tail
Corporations obligations to the executive officer.
The following table presents information regarding potential
payments pursuant to the agreements described above and the 1999
Stock Incentive Plan upon termination or change in control for
each of the executive officers named below assuming the event
took place on December 31, 2009.
Summary
of Termination
Provisions1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No Change in
Control
|
|
|
|
Change in
Control
|
|
|
|
|
For Cause ($)
|
|
Death/Disability ($)
|
|
Without Cause($)
|
|
($)
|
|
|
John D.
Erickson2
|
|
|
|
|
|
|
1,427,150
|
|
|
|
2,394,901
|
|
|
|
3,496,690
|
|
|
|
Kevin G.
Moug3
|
|
|
|
|
|
|
600,644
|
|
|
|
1,207,244
|
|
|
|
2,012,232
|
|
|
|
Lauris N.
Molbert4
|
|
|
|
|
|
|
1,188,878
|
|
|
|
1,959,128
|
|
|
|
2,975,222
|
|
|
|
George A.
Koeck5
|
|
|
|
|
|
|
456,688
|
|
|
|
958,938
|
|
|
|
1,510,446
|
|
|
|
Charles S.
MacFarlane6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294,432
|
|
|
|
|
|
|
|
(1) |
|
For purposes of these calculations, the price per share is the
closing price of Otter Tail Corporations common shares on
December 31, 2009. |
|
|
|
(2) |
|
For Mr. Erickson, Death/Disability consists of performance
shares vesting at target in the amount of $1,427,150; Without
Cause consists of performance shares vesting at target in the
amount of $1,427,150, and severance in the amount of $967,751;
Upon a Change in Control consists of performance shares vesting
at target in the amount of $1,427,150, severance in the amount
of $1,570,267, restricted stock vesting in the amount of
$472,821, and a health benefit in the amount of $26,452. |
|
(3) |
|
For Mr. Moug, Death/Disability consists of performance
shares vesting at target in the amount of $600,644; Without
Cause consists of performance shares vesting at target in the
amount of $600,644 and severance in the amount of $606,600; Upon
a Change in Control consists of performance shares vesting at
target in the amount of $600,644, severance in the amount of
$921,400, restricted stock vesting in the amount of $199,180,
three additional years of credited service under the ESSRP in
the amount of $254,205, and a health benefit in the amount of
$36,802. |
|
(4) |
|
For Mr. Molbert, Death/Disability consists of performance
shares vesting at target in the amount of $1,188,878; Without
Cause consists of performance shares vesting at target in the
amount of $1,188,878, and severance in |
23
|
|
|
|
|
the amount of $770,250; Upon a Change in Control consists of
performance shares vesting at target in the amount of
$1,188,878, severance in the amount of $1,249,300, restricted
stock vesting in the amount of $394,018, three additional years
of credited service under the ESSRP in the amount of $108,302,
and a health benefit in the amount of $34,724. |
|
(5) |
|
For Mr. Koeck, Death/Disability consists of performance
shares vesting at target in the amount of $456,688; Without
Cause consists of performance shares vesting at target in the
amount of $456,688, and severance in the amount of $502,250;
Upon a Change in Control consists of performance shares vesting
at target in the amount of $456,688, severance in the amount of
$749,333, restricted stock vesting in the amount of $153,844,
three additional years of credited service under the ESSRP in
the amount of $113,226, and a health benefit in the amount of
$37,315. |
|
(6) |
|
Mr. C. MacFarlane does not have a Change in Control
agreement, but he would receive three additional years of
credited service under the ESSRP in the event of a change in
control in the amount of $294,432. |
Compensation
Policies and Risk
Otter Tail Corporation does not believe that its compensation
policies and practices create risks that are reasonably likely
to have a material adverse effect on Otter Tail Corporation.
Report
of Audit Committee
The Audit Committee of Otter Tail Corporations Board of
Directors is composed of five independent Directors (as defined
by the NASDAQ Listing Standards), and operates under a written
charter adopted by the Board of Directors. The Audit Committee
retains and supervises Otter Tail Corporations independent
registered public accounting firm, currently
Deloitte & Touche LLP.
Management is responsible for Otter Tail Corporations
internal controls and the financial reporting process. The
independent registered public accounting firm is responsible for
performing an independent audit of Otter Tail Corporations
consolidated financial statements in accordance with generally
accepted auditing standards and to issue a report thereon. The
Audit Committees responsibility is to monitor and oversee
these processes.
In this context, the Audit Committee met and held discussions
with management and the independent registered public accounting
firm. Management represented to the Audit Committee that Otter
Tail Corporations 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 registered public accounting firm. The Audit
Committee discussed with the independent registered public
accounting firm the matters required to be discussed by
Statement on Auditing Standards No. 61, as amended (AICPA,
Professional Standards, Vol. 1. AU section 380), as adopted
by the Public Company Accounting Oversight Board
(PCAOB) in rule 3200T. Otter Tail
Corporations independent registered public accounting firm
also provided to the Audit Committee the written disclosures and
the letter required by the applicable requirements of the PCAOB
regarding the independent accountants communications with
the Audit Committee concerning independence and the Audit
Committee discussed with the independent registered public
accounting firm that firms independence.
Based on the Audit Committees discussions with management
and the independent registered public accounting firm and the
Audit Committees review of the consolidated financial
statements and the report of the independent registered public
accounting firm to the Audit Committee, the Audit Committee
recommended to the Board of Directors that the audited
consolidated financial statements be included in Otter Tail
Corporations Annual Report on
Form 10-K
for the year ended December 31, 2009, filed with the SEC.
Nathan I. Partain, Chair
Karen M. Bohn
Edward J. McIntyre
Gary J. Spies
James B. Stake
24
Ratification
of Independent Registered
Public Accounting Firm
At the Annual Meeting of Shareholders, the Board of Directors
will propose that shareholders ratify the appointment of the
firm of Deloitte & Touche LLP as the independent
registered public accounting firm to audit the consolidated
financial statements of Otter Tail Corporation for 2010. This
firm has no direct or indirect financial interest in Otter Tail
Corporation.
The Audit Committee of Otter Tail Corporations Board of
Directors has appointed Deloitte & Touche LLP as our
independent registered public accounting firm for 2010.
Shareholder ratification of the appointment of
Deloitte & Touche LLP as our independent registered
public accounting firm is not required by our bylaws or
otherwise. However, the Board of Directors is submitting the
appointment of Deloitte & Touche LLP to the
shareholders for ratification as a matter of good corporate
practice. If the shareholders fail to ratify the appointment,
the Audit Committee will reconsider whether or not to retain
that firm. Even if the appointment is ratified, the Audit
Committee, which is solely responsible for appointing and
terminating our independent registered public accounting firm,
may in its discretion, direct the appointment of a different
independent registered public accounting firm at any time during
the year if it determines that such a change would be in the
best interests of Otter Tail Corporation and its shareholders.
A partner of the independent registered 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. An affirmative vote of a majority of the
common shares present and entitled to vote with respect to the
ratification of the independent registered public accounting
firm is required for ratification. Proxies, unless otherwise
directed thereon, will be voted in favor of this proposal. The
Board of Directors recommends a vote FOR the ratification of
Deloitte & Touche LLP as the independent registered
public accounting firm for 2010.
Fees
Aggregate fees that Deloitte & Touche LLP, the member
firms of Deloitte Touche Tohmatsu, and their respective
affiliates (collectively, the Deloitte Entities)
billed to Otter Tail Corporation for 2009 and 2008 are as
follows.
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Fees for
Professional Services
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2009
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2008
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Total Audit Fees
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$
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1,080,000
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(a)
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$
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1,279,360
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(b)
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Audit-Related Fees
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116,000
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(c)
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102,120
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(d)
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Total Audit and Audit-Related Fees
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1,196,000
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1,381,480
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Tax Fees
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609,853
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(e)
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104,200
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(f)
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Other Fees
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2,000
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(g)
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|
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|
|
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Total Fees Paid to Deloitte Entities
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$
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1,807,853
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$
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1,485,680
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(a) |
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2009 audit fees, per engagement letter, of $1,000,000 and
estimated expenses for the 2009 audit of $80,000. |
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(b) |
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2008 audit fees, per engagement letter, of $1,190,000,
additional costs above engagement letter of $41,580 and expenses
for the 2008 audit of $47,780. |
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(c) |
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2009 fees of $52,000 related to Otter Tail Corporations
public debt offering, $25,000 for consents related to post
effective amendments to registration statements, $12,000 related
to a
Form S-3
shelf registration statement and $27,000 for the statutory audit
of Otter Tail Assurance Limited. |
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(d) |
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2008 fees of $62,000 related to Otter Tail Corporations
equity offering completed in September 2008, and $9,500 related
to a
Form S-3
filing with the SEC and $30,620 for the statutory audit of Otter
Tail Assurance Limited. |
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(e) |
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Includes fees for tax planning in the amount of $285,208, tax
advice in the amount of $47,130, and tax compliance in the
amount of $277,515. |
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(f) |
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Includes fees for tax planning in the amount of $34,490, tax
advice in the amount of $52,170, and tax compliance in the
amount of $17,540. |
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(g) |
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Fees related to use of Deloittes Accounting Research Tool. |
25
Pre-Approval
of Audit/Non-Audit Services Policy
Otter Tail Corporations Audit Committee has adopted, and
the Board of Directors has ratified, the Audit and Non-Audit
Services Pre-Approval Policy which sets forth the procedures and
the conditions pursuant to which services proposed to be
performed by the independent registered public accounting firm
may be pre-approved. The independent registered public
accounting firm has reviewed this policy and believes that
implementation of the policy will not adversely affect the
firms independence.
Four categories of services have been defined by Otter Tail
Corporation within the policy to provide a consistent framework
for assessment, decision-making, approval and reporting. The
following is a summary of the key provisions of the policy.
Audit services are specified services directly related to
performing the independent audit of Otter Tail Corporation and
its subsidiaries. The independent registered public accounting
firm will submit to the Audit Committee for pre-approval the
scope and estimated fees associated with the current year audit
at the August Audit Committee meeting.
Audit-related services are specified services that are related
extensions of audit services and are logically performed by the
independent registered public accounting firm. Additional
services exceeding the specified pre-approved limits require
specific Audit Committee approval.
Tax services are specified services related to tax matters.
Using the independent registered public accounting firm for
these matters creates efficiencies, minimizes disruption, or
preserves confidentiality. Additional services exceeding the
specified pre-approved limits, or adding service types to the
pre-approved list, requires specific Audit Committee approval.
Other services include (a) synergistic services
for which utilizing the independent registered public accounting
firm creates efficiencies, minimizes disruption, or preserves
confidentiality, or (b) unique qualifications
services for which management has determined that the
independent registered public accounting firm possesses unique
or superior qualifications to provide the services. Additional
services exceeding the specified pre-approved limits, or adding
service types to the pre-approved list, requires specific Audit
Committee approval.
Restricted non-audit services include nine specific
restricted services outlined in the SECs final rule on
auditor independence issued January 28, 2003. These
services are not to be performed by the independent registered
public accounting firm.
During 2008 and 2009, all of the services provided by Deloitte
Entities for the services described above under audit fees,
audit-related fees, tax fees, and all other fees were
pre-approved by the Audit Committee consistent with this
procedure.
Policy
and Procedures Regarding Transactions with Related
Persons
The Board of Directors of Otter Tail Corporation has adopted a
Policy and Procedures Regarding Transactions with Related
Persons. This policy delegates to the Audit Committee
responsibility for reviewing, approving, or ratifying
transactions with Related Persons that are required
to be disclosed under the rules of the SEC. Under the policy, a
Related Person includes any of the directors or
executive officers of Otter Tail Corporation, certain
shareholders, and their immediate families. The policy applies
to transactions in which Otter Tail Corporation is a participant
and a Related Person will have a direct or indirect material
interest, and where the amount involved exceeds $120,000. Under
the policy, management of Otter Tail Corporation is responsible
for disclosing to the Audit Committee all material information
related to any covered transaction in order to give the Audit
Committee an opportunity to authorize, approve, or ratify the
covered transaction based upon its determination that the
covered transaction is fair and reasonable and on terms no less
favorable to Otter Tail Corporation than could be obtained in a
comparable arms length transaction with an unrelated third
party. A copy of Policy and Procedures Regarding Transactions
with Related Persons can be found at www.ottertail.com.
26
Shareholder
Proposals for 2011 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 2011 Annual Meeting of Shareholders of Otter Tail
Corporation must submit such proposal to Otter Tail Corporation
so that it is received at Otter Tail Corporations
executive offices at 4334 18th Avenue SW, Suite 200,
Box 9156, Fargo, North Dakota
58106-9156,
on or before November 5, 2010, for inclusion in Otter Tail
Corporations Proxy Statement and form of Proxy relating to
that meeting.
If a holder of common shares wishes to present a proposal at the
2011 Annual Meeting of Shareholders, but does not wish to
include it in the Proxy Statement and form of Proxy relating to
that meeting, or wishes to nominate a candidate for Director,
the holder must submit notice of the proposal or nomination in
accordance with the procedures provided in the Otter Tail
Corporation Bylaws to Otter Tail Corporations executive
offices on or before January 5, 2011 in order for the
proposal to be considered timely.
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 Annual Meeting, in addition to the items described above. If
any other matters properly come before the Annual Meeting, the
proxies will vote thereon at their discretion.
A copy of Otter Tail Corporations Annual Report on
Form 10-K
for the year ended December 31, 2009, including financial
statements and schedules thereto, filed with the SEC, is
available without charge to shareholders. Address written
requests to:
Corporate Secretary
Otter Tail Corporation
Box 9156
Fargo, ND
58106-9156
27
215 South Cascade Street
Box 496
Fergus Falls, Minnesota
56538-0496
4334
18th
Avenue SW, Suite 200
Box 9156
Fargo, North Dakota
58106-9156
www.ottertail.com
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 and FOR Item 2.
P/N
Please return upper portion in envelope provided.
PLEASE VOTE YOUR PROXYNOW!
Please date and sign the attached proxy and return it promptly. This will help save the expense of
follow-up letters to shareholders who have not responded. If you vote by Internet or telephone,
please do not mail your proxy card.
If you elected to view proxy materials via the Internet, you will only receive this voting
instruction form. Please go to our website at www.ottertail.com/annual to view the annual report
and proxy statement online.
OTTER TAIL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
Monday, April 12, 2010
10:00 AM (CT)
ADMISSION TICKET
(OVER)
ANNUAL MEETING
ADMISSION TICKET
Admission ticket for Otter Tail Corporation Annual Meeting of Shareholders, April 12, 2010 at
10:00 a.m. (CT) 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
Number:
VOTE BY INTERNET https://secure.ottertail.com/proxy
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Use the Internet to vote your proxy 24 hours a day, 7 days a week. |
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You will be prompted to enter the 3-digit company number and the 6-digit number, which are
located in the box to the right. |
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Internet voting will terminate at 12:00 noon CT April 9, 2010. |
VOTE BY TELEPHONE 1-888-514-5365
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Use any touch-tone phone to vote your proxy 24 hours a day, 7 days a week. |
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You will be prompted to enter the 3-digit company number and the 6-digit number which are
located in the box to
the right. |
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Please note the following options: |
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Ø |
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To vote as the Board of Directors recommends on All proposals: press 1 |
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Ø |
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To vote on each item separately, press 0. You will then hear these instructions: |
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Proposal 1: |
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To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees, press 9; to
WITHHOLD FOR AN INDIVIDUAL nominee, press 0. |
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Proposal 2: |
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To vote FOR, press 1; AGAINST, press 9;
ABSTAIN, press 0. |
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Ø |
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When asked, you must confirm your vote by pressing 1. |
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Phone voting will terminate at 12:00 noon CT April 9, 2010. |
VOTE BY MAIL
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Mark, sign, and date your proxy card and return it in the
postage-paid envelope provided.
Do not mail the proxy card if you vote by phone or Internet. |
Thank you for voting.
PROXY
Solicited on behalf of the Board of Directors of
OTTER TAIL CORPORATION
The undersigned hereby appoint EDWARD J. MCINTYRE and JOYCE NELSON SCHUETTE (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 12, 2010, and at any adjournment thereof, and hereby directs that this proxy be voted
as instructed herein. The Board of Directors recommends voting for the election of Directors (Item
1), and for the ratification of Deloitte & Touche LLP as our independent registered public
accounting firm (Item 2).
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1. ELECTION OF DIRECTORS |
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01) Arvid R. Liebe
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02) John C. MacFarlane
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03) Gary J. Spies |
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o FOR
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o FOR
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o FOR |
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o WITHHOLD
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o WITHHOLD
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o WITHHOLD |
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2. THE RATIFICATION OF DELOITTE & TOUCHE LLP as our independent registered public accounting firm. |
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FOR o
AGAINST o
ABSTAIN o |
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3. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting. |
Dated:
, 2010
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Signature
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Signature, if held jointly |
Please sign exactly as the name appears hereon. When signing as attorney, administrator,
trustee, or guardian, please give your full title.