SCHEDULE 14A PRIVATE
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.)
Filed by registrant X
Filed by a party other than the registrant ___
Check the appropriate box:
_ Preliminary Proxy Statement
____ Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
X Definitive Proxy Statement
___ Definitive Additional Materials
___ Soliciting Material Pursuant to Rule 240.14a-11(c)
or Rule 240.14a-12
The Montana Power Company
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
X No fee required.
___ Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11
(Set forth the amount on which filing fee is calculated
and state how it was determined):
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid:
__ Fee paid previously with preliminary materials.
___ Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the
filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
____________________________________________________________
(2) Form, Schedule or Registration Statement No.:
____________________________________________________________
(3) Filing Party:
____________________________________________________________
(4) Date Filed:
___________________________________________________________
March 26, 1999
To Our Shareholders:
It is our pleasure to invite you to attend The Montana Power
Company Annual Meeting of Shareholders that will be held on
Tuesday, May 11, 1999, at 1:30 p.m. at the Mother Lode
Theatre, 316 W Park, Butte, Montana.
At this meeting, you will be asked to:
1. Elect four Directors for a term of three years;
2. Adopt amendments to The Montana Power Company
Long-Term Incentive Plan;
3. Approve a proposed amendment to the Company's Articles of
Incorporation to increase the authorized shares of Common Stock to
240,000,000; and
4. Transact such other business as may properly come before the
meeting.
We hope that you will be able to attend the meeting. Your
interest and cooperation in the affairs of the Company are considered
to be of the greatest importance by your Company's Board of Directors.
The Board of Directors has fixed the close of business
on March 5, 1999, as the record date for determination of
shareholders entitled to vote at this meeting.
To make certain your vote is counted, please sign and
date the enclosed proxy card and return it in the postage-paid
envelope. If you do so now, the Company will be saved the
expense of follow-up solicitations.
We look forward to seeing you on May 11th.
Sincerely,
Robert P. Gannon Pamela K. Merrell
Chairman of the Board of Directors Vice President and Secretary
Contents
Page
PURPOSE 3
VOTING SECURITIES AND PRINCIPAL HOLDERS 3
ITEM NO. 1 PROPOSAL. ELECTION OF DIRECTORS 4
Nominees for Election for Terms of Three Years Expiring
in 2002 5
Directors to Continue in Office with Terms Expiring in 2001 5
Directors to Continue in Office with Terms Expiring in 2000 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 7
MEETINGS AND STANDING COMMITTEES OF THE BOARD OF DIRECTORS 8
Audit Committee 8
Personnel Committee 8
Nominating Committee 8
Other Committees 9
DIRECTOR COMPENSATION 9
PERSONNEL COMMITTEE REPORT ON EXECUTIVE COMPENSATION 9
Introduction 9
Compensation Philosophy 9
Executive Officers 1998 Compensation Program 10
Base Salary 10
Annual Bonus Opportunities "EVA?" Bonus Plan 10
Long-Term Incentives - Options Awarded in 1998 11
Executive Officers' 1998 Incentive Compensation Payouts 11
Annual Bonus 1997 Interim Bonus Plan Amounts
Paid in 1998 11
1995 Dividend Equivalent Awards - Long-Term
Incentive Amounts Paid in 1997 12
Chief Executive Officer 12
1998 Compensation Program 12
1998 Payout Determinations 13
PERFORMANCE GRAPH 14
SUMMARY COMPENSATION TABLE 15
OPTION GRANTS IN LAST FISCAL YEAR 16
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES 16
RETIREMENT BENEFITS 17
Pension Plan Plus Benefit Restoration 17
Qualified Pension Plan 17
Non-Qualified Benefit Restoration Plan For Senior
Management Executives 18
EMPLOYMENT AGREEMENTS 18
SECTION 16(a) COMPLIANCE 19
ITEM NO. 2 PROPOSAL. AMENDMENT TO LONG-TERM INCENTIVE PLAN 19
Introductory Statement 19
Summary of the Plan Amendments 19
Summary of the Plan 20-24
ITEM NO. 3 PROPOSAL. AMEND THE ARTICLES OF INCORPORATION TO
INCREASE AUTHORIZED SHARES OF COMMON STOCK 25-27
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS 27
OTHER MATTERS 28
THE MONTANA POWER COMPANY 1998 LONG-TERM INCENTIVE PLAN -
EXHIBIT A 29-44
MAP TO THE MOTHER LODE THEATRE 45
THE MONTANA POWER COMPANY
40 EAST BROADWAY
BUTTE, MONTANA 59701-9394
March 26, 1999
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of The
Montana Power Company, a Montana corporation, for use at the Shareholders'
Annual Meeting on May 11, 1999, or at any adjournment thereof.
This proxy statement and the accompanying proxy were mailed on or about
March 26, 1999.
PURPOSE
As of this date, the only known business to be presented at the 1999
Annual Meeting of Shareholders is to elect four directors of the Company to
serve for a term of three years or until their successors are duly qualified
and elected, to adopt an amendment to the Company's Long-Term Incentive Plan
and to approve an amendment to the Company's Articles of Incorporation to
increase the authorized shares of Common Stock to 240,000,000.
VOTING SECURITIES AND PRINCIPAL HOLDERS:
The outstanding voting securities of the Company on March 5, 1999 (record
date) were:
(a) 55,076,719 shares of no par value Common Stock.
(b) 580,389 shares of no par value Preferred Stock, $6.00 Series,
$4.20 Series, and $6.875 Series.
Generally, shareholders will vote as a single class and are entitled to
one vote for each share held of Common Stock or Preferred Stock. With respect
to the election of Directors, each shareholder is entitled to one vote for each
share of Common Stock or Preferred Stock held, multiplied by the number of
Directors to be elected, and may cast all such votes for a single director or
may distribute such votes among the directors (cumulative voting); and may cast
all votes in person or by proxy. If a quorum is present, nominees for
Directors will be elected by a plurality of the votes cast at the meeting
(shareholders at record date). You may withhold your vote from any nominee for
Director by crossing out his or her name on the proxy card.
The proposal in Item 2 will be adopted by a majority of votes cast
provided that the total vote cast represents over 50% of all shares entitled to
vote at the meeting (shareholders at record date).
Once a quorum is established for the proposal in Item 3, an affirmative
vote is required by the majority of the votes cast from both the common
shareholders as a separate voting group and the common and preferred
shareholders combined as a voting group, to authorize the proposed amendment.
Where proxies are marked "withhold authority," these shares are included
to determine the number of shares present and voting. Abstentions and Broker
non-votes are counted in determining the presence of a quorum, but will not be
counted and have no effect on the results of any vote. If you return a signed
proxy card that does not indicate your voting preferences, your shares will be
voted for the election of the nominated Directors (cumulatively or otherwise)
and the Item 2 and Item 3 proposals.
A shareholder giving a proxy has the power to revoke it at any time
before it is exercised. A proxy may be revoked by filing with the Secretary of
the Company a revoking instrument or a duly executed proxy bearing a later
date. If you return a signed proxy card and later elect to vote in person at
the meeting, the proxy will be suspended.
Only shareholders of record at the close of business on March 5, 1999 are
entitled to vote at the meeting.
If you do not expect to be present at the meeting, kindly mark, sign and
date the accompanying proxy and return it promptly in the enclosed postage-paid
envelope so that your shares are represented at the meeting.
The cost of soliciting proxies will be borne by the Company.
Solicitation will be made by mail and may also be made by the Company's
Officers or other regular employees, personally or by telephone. Brokers and
other nominees will be requested to solicit proxies or authorizations from
beneficial owners.
The Company has selected Beacon Hill Partners, Inc. to assist in the
solicitation of proxies by personal interviews and telephone for a fee of
$4,000. The Company will also pay the customary broker or nominee charges for
forwarding proxy material to beneficial owners.
A copy of the Company's Annual Report to Shareholders accompanies this
Proxy Statement. The Company is required to file an Annual Report on Form 10-K
(the "Form 10-K") with the Securities and Exchange Commission (the
"Commission") for the Company's fiscal year ended December 31, 1998.
Shareholders may obtain a copy of the Form 10-K and the complete Exhibits
thereto by writing to The Montana Power Company, 40 East Broadway, Butte,
Montana, 59701-9394, Attention: Corporate and Shareholder Services Department.
ITEM NO. 1 PROPOSAL. ELECTION OF DIRECTORS
The Board of Directors currently consists of twelve members, divided into
three classes.
The Board of Directors, at its December 8, 1998 meeting, amended the By-
laws to reduce the number of Directors from thirteen to twelve. On February
4, 1999, Chase Hibbard resigned as a member of the Board, creating a vacancy.
The Board will consider whether it will act to fill the vacancy at its next
meetings.
Four Directors will be elected at the Annual Meeting of Shareholders for
terms of three years or until the election and qualification of their
respective successors. The four nominees for election are, at present, members
of the Board of Directors.
The names and certain information with respect to the nominees and the
seven other Directors whose terms do not expire this year are as follows:
NOMINEES FOR ELECTION FOR TERMS OF THREE YEARS EXPIRING IN 2002
Tucker Hart Adams - Dr. Adams, 60, a Director of the Company since
September 1, 1995. In January 1989, she became President and Chief Executive
Officer of The Adams Group Inc., a consulting firm which specializes in
economic research, analysis and forecasting. She publishes the newsletter,
Today's Economy. Dr. Adams is also a trustee for the Tax Free Fund of
Colorado, and for the Aquila Rocky Mountain Equity Fund. She is a resident of
Colorado Springs, CO.
Alan F. Cain - Mr. Cain, 59, a Director of the Company since
March 28, 1989. He has been President and Chief Executive Officer of BlueCross
BlueShield of Montana, Helena, MT, a health service corporation, since March
1986.
John G. Connors - Mr. Connors, 40, a Director of the Company since
January 1, 1998. He has been Vice President and Chief Information Officer of
Microsoft, a computer software business, since July 15, 1996. He was
Microsoft's Corporate Controller from April 4, 1994 to July 15, 1996 and was
General Manager, Worldwide Finance from October 1, 1993 to April 1, 1994. He
is a resident of Medina, WA.
Robert P. Gannon - Mr. Gannon, 54, a Director of the Company since
January 1, 1990, Chairman of the Board since January 1, 1998, Chief Executive
Officer since July 1, 1997 and President of the Company since January 23, 1990.
He was Vice Chairman of the Board from January 23, 1996 to December 31, 1997,
and was Chief Operating Officer responsible for utility operations from June
23, 1992 to January 23, 1996. Mr. Gannon was also a Director of Buttrey Food
and Drug Stores Company, a food and drug retailer, from May 1992 to October
1998.
DIRECTORS TO CONTINUE IN OFFICE WITH TERMS EXPIRING IN 2001
R. D. Corette - Mr. Corette, 58, a Director of the Company since July 1,
1990. He has been an Attorney, owner, and employee in the law firm of Corette,
Pohlman & Kebe, Butte, MT, since 1966.
Beverly D. Harris - Ms. Harris, 65, a Director of the Company since
December 1, 1992. She has been President since January 1971 and Director since
January 1972 of Empire Federal Savings Bank, Livingston, MT.
John R. Jester - Mr. Jester, 58, a Director of the Company since
September 1, 1995. He has been President of Bargain Street LLC, a retail firm,
since September 19, 1997 and was a private investor from June 1, 1997 to
September 18, 1997. He was President of Muzak Limited Partnership, a
telecommunications based business, from January 1, 1988 to May 31, 1997. He is
a resident of Seattle, WA.
Noble E. Vosburg - Mr. Vosburg, 57, a Director of the Company since
October 25, 1988. He has been President and Chief Executive Officer of Pacific
Steel & Recycling, Great Falls, MT, a steel service center and recycling
business, since May 1982.
DIRECTORS TO CONTINUE IN OFFICE WITH TERMS EXPIRING IN 2000
Kay Foster - Ms. Foster, 57, a Director of the Company since January 1,
1992. She has been the owner of Planteriors Unlimited, Billings, MT, an
interior foliage plant sales and maintenance business, since December 1980.
Carl Lehrkind, III - Mr. Lehrkind, 60, a Director of the Company since
July 1, 1984. He has been President of Lehrkind's, Inc., Bozeman, MT, a
beverage bottler and distributor, since February 1970, and President, Owner and
Operator of Yellowstone Country Food and Beverage, a restaurant, Livingston, MT
and Miles City, MT, since February 1993.
Jerrold P. Pederson - Mr. Pederson, 56, a Director of the Company since
July 1, 1993. On May 14, 1996, he was elected Vice President, Chief Financial
and Information Officer. He was Vice President and Chief Financial Officer of
the Company from May 14, 1991 to May 14, 1996.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
MANAGEMENT OWNERSHIP
The table below and information following provides the number of shares
beneficially owned on February 16 , 1999, by each of the directors and
each of the named executive officers in the Summary Compensation Table and all
of the directors and all executive officers as a group.
Number of Shares Beneficially Owned
% of
Name of Owner Common Preferred Class
Tucker Hart Adams 1,259 (9) 0 *
Alan F. Cain 2,422 (2) (9) 0 *
John G. Connors 10,983 0 *
R. D. Corette 4,322 (3) (9) 1 (3) *
Richard F. Cromer 45,819 (1) (4) (7) 250 (4) *
W. Stephen Dee 450 (1) 0 *
Kay Foster 3,373 (9) 0 *
Robert P. Gannon 31,528 (1) (7) (10) 0 *
Jack D. Haffey 23,034 (1) (7) 0 *
Beverly D. Harris 5,434 0 *
John R. Jester 4,253 (9) 0 *
Carl Lehrkind, III 6,493 (5) 0 *
Jerrold P. Pederson 41,048 (1) (7) 0 *
Noble E. Vosburg 3,166 (6) (9) 0 *
All Directors and
Executive Officers
as a group (26
in number) 327,323 (8) 279 *
*Less than one percent of each class of Common and Preferred.
(1) Includes shares in the Retirement Savings Plan (401(k)) attributable to
the Company's and the employee's contributions as follows: Mr. Cromer -
6,449 shares, Mr. Dee - 312 shares, Mr. Gannon -
8,485 shares, Mr. Haffey - 6,969 shares, and Mr. Pederson -
8,048 shares.
(2) Includes 13 shares owned by Mr. Cain's spouse of which Mr. Cain disclaims
beneficial ownership.
(3) Includes 88 shares of Common Stock and 1 share of the $6.00 Series
Preferred Stock owned by the estate of Mr. Corette's deceased father of
which estate Mr. Corette is Personal Representative. Mr. Corette
disclaims beneficial ownership. Also included are 200 shares owned by
Mr. Corette's mother of which Mr. Corette is Conservator and disclaims
beneficial ownership.
(4) Includes 1,308 shares held by Mr. Cromer's spouse of which he
disclaims beneficial ownership; and 86 shares held in a custodian
account for his granddaughter of which Mr. Cromer is the custodian and
with respect to which he has voting and investment power; and 250 units of
the quarterly income preferred stock, series A issued by Montana Power
Capital 1, a subsidiary of The Montana Power Company, which units do not
have voting rights with respect to The Montana Power Company.
(5) Includes 600 shares of Common Stock held by the Trustee for Lehrkind's,
Inc. Profit Sharing Plan #2 of which Mr. Lehrkind is a beneficiary and
with respect to which he has shared voting and investment power; and
3,901 shares of Common Stock held by Lehrkind's, Inc., with respect
to which he has shared voting and investment power.
(6) Includes 134 shares held by Mr. Vosburg's spouse of which Mr. Vosburg
disclaims beneficial ownership.
(7) Includes option shares exercisable within 60 days in the following
amounts: 28,300 for Mr. Cromer, 7,000 for Mr. Gannon, 9,667 for
Mr. Haffey, and 32,000 for Mr. Pederson.
(8) Includes 79,660 shares held for executive officers in the
Retirement Savings Plan (401(k)), 152,296 option shares exercisable
within 60 days, and 4,891 shares of restricted stock.
(9) Includes deferred stock units held in the Non-Employee Directors' Stock
Compensation Plan in the following accounts: 1,216 for Ms. Adams, 1,475
for Mr. Cain, 1,311 for Mr. Corette, 1,296 for Ms. Foster, 2,753 for Mr.
Jester and 1,222 for Mr. Vosburg. The Stock Compensation Plan is
described on page 9. The holders of these units have no voting or
investment power.
(10) Includes 16,043 shares held by Mr. Gannon's spouse of which Mr. Gannon
disclaims beneficial ownership.
5% BENEFICIAL OWNER
Lehman Brothers Holding Inc., a Broker/Dealer registered under Section
15 of the Securities Exchange Act of 1934, reported on a Schedule 13G filed
with the Securities and Exchange Commission that it was the beneficial owner
of the following shares of Montana Power Company $6.875 Series Preferred Stock
at December 31, 1998.
AMOUNT AND
TITLE OF NATURE OF PERCENT OF
CLASS BENEFICIAL OWNER OWNERSHIP(1) CLASS
6.875 Series Lehman Brothers Holdings Inc. 32,200 shares 5.548%
Preferred 3 World Financial Center of 6.875 series
New York, NY 10285
(1)The securities were acquired by Lehman Brothers Holdings Inc., a
parent holding company in accordance with Section 240.13d1(b)(ii)(G) in the
ordinary course of business and were not acquired for the purpose of and do
not have the effect of changing or influencing the control of The Montana
Power Company of such securities and were not acquired in connection with or
as a participant in any transaction having such purpose or effect as reported
on Schedule 13G.
MEETINGS AND STANDING COMMITTEES OF THE BOARD OF DIRECTORS
There were nine Board of Directors meetings in 1998. Each Director
attended at least 75 percent or more of the aggregate of the Board and
Committee meetings of which he or she was a member, except for
Beverly D. Harris.
AUDIT COMMITTEE
The Audit Committee is composed of Directors Vosburg (Chairman),
Adams, Connors, Harris, and Jester, all of whom are non-employee Directors. The
Audit Committee met five times during 1998. The duties of the Audit Committee
include recommending to the Board of Directors a firm of independent certified
public accountants to audit the books and records of the Company, reviewing the
audit with the independent accounting firm and recommending its approval to the
Board of Directors. The Committee also reviews and approves major accounting
policies, reviews the adequacy of principal internal controls and oversees the
internal audit function, reviews the adequacy of disclosure of information
essential to a fair presentation of the financial affairs of the Company,
oversees the Company's trading and risk management controls and provides an
avenue of communications between the Board of Directors and accounting and
financial personnel, both external and internal. The Committee also reviews
the scope and content of the Company's Code of Business Conduct, and considers
any significant irregularities or exceptions reported to it.
PERSONNEL COMMITTEE
The Personnel Committee is composed of Directors Lehrkind (Chairman),
Corette, Foster, Jester, and Vosburg, all of whom are non-employee Directors.
The Personnel Committee met eight times during 1998. The duties of the
Personnel Committee include recommending to the Board of Directors a slate of
Officers for election for the ensuing year, the oversight of benefit plans and
programs, and the compensation of Officers of the Company. The Personnel
Committee's report on Executive Compensation begins on page 9.
NOMINATING COMMITTEE
The Committee on Directors' Affairs, which serves as a Nominating
Committee, is composed of Directors Cain (Chairman), Adams, Connors, Corette,
and Harris, all of whom are non-employee Directors. The Committee on
Directors' Affairs met four times during 1998. The purpose of the Committee is
to recommend to the Board of Directors persons to be elected to the Board when
vacancies exist or when any additions to the Board may be authorized. The
Committee will consider as potential nominees persons recommended by
shareholders. Recommendations should be submitted to the Committee in care of
the Secretary of the Company. This Committee is also responsible for
evaluating the performance of the Board and for other corporate governance
matters.
OTHER COMMITTEES
The Board of Directors also has an Executive Committee, a Contributions
Committee, an Environment and Safety Committee, a Finance Committee and a
Special Committee on Mergers and Acquisitions.
DIRECTOR COMPENSATION
Non-employee Directors of the Company are paid an annual retainer of
$19,600 per year plus $500 for each meeting of a Committee of the Board
attended on days other than regular Board meeting days. They also receive
$850 for attending each special meeting of the Board held in addition to the
regularly scheduled Board meeting. The Company also has a Deferred
Compensation Plan for non-employee Directors which permits directors to defer
their annual retainer until their retirement from the Board of Directors. No
compensation was deferred in 1998. The deferred compensation earns interest
at the rate determined by the Company based on Moody's Average Baa Corporate
Bond rates.
In addition to the Deferred Compensation Plan, the non-employee
Directors have a stock compensation plan that provides for annual grants of
480 shares of the Company's common stock. The plan also allows a Director to
elect to receive any portion of their annual retainer in the Company's common
stock. Directors may elect to defer receipt of the stock payment until they
cease to be a Director of the Company or until such other date the Director
elects. Deferred stock payments are credited as stock units to a separate
deferred compensation account. At the end of the deferral period, the
Director will be paid for the stock units in Company common stock or the
equivalent value in cash based upon the market value of the Company's common
stock at that time.
PERSONNEL COMMITTEE REPORT ON EXECUTIVE COMPENSATION
INTRODUCTION
The following is the Personnel Committee's report on the compensation of
the Company's Chief Executive Officer and the four other most highly
compensated officers of the Company (named executive officers). The Personnel
Committee is the board committee responsible for overseeing compensation to
officers. The Committee was in 1998 and is now comprised solely of non-
employee, independent directors.
COMPENSATION PHILOSOPHY
The compensation philosophy for executive officers is to:
Provide compensation that allows the company to successfully attract and
retain the officers necessary to its long-term success;
Provide a strong linkage between compensation and the creation of
shareholder value over the long term;
Provide compensation which relates to the performance of the individual
officer; and
Provide internal equity among officers.
In 1997 and 1998, the Committee conducted a fundamental review of
officer compensation, with the help of Stern Stewart & Co., a consulting firm
engaged to help the Company implement an Economic Value Added (EVA?)
financial management system, which includes an executive incentive
compensation program consistent with that system. Total compensation was
evaluated as part of that effort. The effort resulted in the Committee's
establishment of three components of executive compensation: base salary;
EVA is a registered trademark of Stern Stewart & Co.
annual incentives; and long-term incentives. Historically, officer total
compensation had not included both annual incentive and long-term incentive
components; therefore, total compensation had lagged market survey data. By
establishing a compensation program which uses all three components, executive
total compensation was moved, in 1998, to market averages for total
compensation for most executive positions, as described below. The
compensation of the Chief Executive Officer was included in this examination.
EXECUTIVE OFFICERS' 1998 COMPENSATION PROGRAM
Base Salary
Competitive information concerning base salaries (as well as total
compensation) of the Company's officers was gathered in 1998 for the purpose
of analyzing officer salaries. Executive officers' base salaries were
determined based on an analysis of this information, as described below, which
does not have any specific relationship to the corporate performance of the
Company. All of the named executive officers were included in the group for
which information was gathered. The Edison Electric Institute (EEI)
compensation survey of 95 electric utilities was used as the principal data
source for base salary comparisons for officers responsible for the utility
business, as it has been for several years. Use of this data focused on
companies with similar revenue size. Many of the Companies in the Peer Group
shown in the Performance Graph, the Standard & Poor's 27 Electric Company
Index, are included in this EEI data base. For officers with broader or
different responsibilities than the utility business, other survey data were
also used including surveys of other specific industries (e.g., oil and gas
company surveys) and for industry in general. Salaries of individual officers
were compared to salary averages in the surveys for similar positions in
companies with similar revenues. In most cases, base salaries of the Company
officers were below the averages in the comparable survey data.
In 1998, as explained below, the Personnel Committee took substantial
action in moving incentive compensation opportunities to bring total officer
compensation closer to market averages. Because of these actions in annual
bonus opportunities and in long-term incentive opportunities, the Board made
only small adjustments to the base salary of most officers. The base salary
of most officers was increased by 2%. A few officers salaries were increased
more than 2% where the base salary survey data suggested that their salaries
were too far below competitive averages to assure that retention goals would
be met.
Annual Bonus Opportunities-EVA? Bonus Plan
As explained in last year's proxy statement, in 1998, the Personnel
Committee approved an EVA? (Economic Value Added) Bonus Plan for senior
management, including all Company officers. The Plan creates cash bonus
opportunities for executives and high level managers based upon the Company
increasing shareholder value as measured by EVA?. Accordingly, there exists
a specific relationship between the amount of the cash bonus paid and the
corporate performance of the Company, as described below. As defined in the
Plan, EVA? equals the Company's net operating profit after taxes (NOPAT),
less the Company's capital charge. NOPAT is defined as the Company's profit
after taxes from the Company's audited financial statements with specific
EVA? adjustments. The adjustments are intended to convert the Company's
accounting based after-tax profits to an economic basis. The Company's
capital charge is defined as the Company's cost of capital, multiplied by its
aggregate capital.
Bonuses under the EVA? Bonus plan are based upon the Company achieving
specific improvement in year over year EVA?. The specific year over year
EVA? improvement goal, known as "Expected EVA? Improvement", was established
by the Committee by a quantitative analysis intended to reflect the stock
market's expectation of annual EVA? growth, based upon the share price of the
Company's common stock. A target bonus is earned if Expected EVA? Improvement
is achieved. The plan provides for achievement in excess of or below the
target bonus, based upon bonus intervals, as established in the Plan. The
upside bonus interval is the amount of EVA? growth above Expected EVA?
Improvement that is required to double the target bonus. The downside bonus
interval (which is the same EVA? value differential between the upside bonus
interval and the Expected EVA? Improvement) represents the EVA? growth or
diminution below Expected EVA? Improvement that would result in no target
bonus.
The Expected EVA? Improvement was established for each of the four
years of the Plan, both for the overall Company and for business units.
Corporate Officers' bonuses are dependent on the overall Company EVA?
improvement as measured against Expected EVA? Improvement for the Company.
Bonuses for officers and managers in particular business units are dependent
primarily on the Business Units EVA? improvement as measured against the
Expected EVA? Improvement for that particular business unit. The total of
Expected EVA? Improvements for all business units essentially equals the
Expected EVA? Improvement for the overall Company.
Target bonus levels were established with the market survey data
averages (using the EEI compensation and other survey data described above
which includes total compensation data as well as base salary data) serving as
a reference for each officer. The target bonus opportunities for individual
officers ranged from 60% to 10% of base salary. If the Company's actual EVA?
improvement precisely meets Expected EVA? Improvement for the year, the
participant will receive the target bonus. If the Company's actual
performance is less than the Expected EVA? Improvement, then less of the
bonus is earned. If actual EVA? improvement is below a certain level (the
downside bonus interval described above), the bonus becomes negative. If
performance is higher than the Expected EVA? Improvement, then the bonus will
be greater. However, two-thirds of any bonus amount greater than target is
placed in a "bonus bank" and is available for pay out in future years, just as
negative bonuses are placed in a bonus bank reducing bonuses in future years.
The key objectives of the EVA? Bonus Plan are to align the interests of
the shareholders and managers of the Company, create strong incentives for the
Company's managers to maximize shareholder value by linking annual bonus pay
directly to the performance of the Company and its particular business units,
retain the management team by providing competitive compensation opportunities
and limit shareholder cost to a reasonable level.
The amounts earned for 1998 under the EVA? Bonus Plan were not
determined and approved by the Committee in time to include those amounts in
this proxy statement.
Long Term Incentives - Options Awarded in 1998
As part of the Personnel Committee's review of total compensation for
executives, including the market analysis using survey data, and the
development of the EVA? Bonus Plan, the Personnel Committee concluded that
stock options should be granted to provide direct long-term incentives to
officers to increase shareholder value, providing the third component of its
executive compensation program. Therefore, the Committee awarded options to
executives of the Company. The options were granted under the Company's Long-
Term Incentive Plan at Fair Market Value, with a two year vesting period and
term of 10 years. The amounts of the grants were determined by comparison of
the value of the awards to the total compensation market information gleaned
from the same market surveys described above under Base Salaries and, thus,
the size of the grants had no specific relationship to the Company's
performance. The Committee used average total compensation survey data as a
target when setting both the EVA? target bonus and the option award for each
executive. That is, while the mix of annual bonus opportunities and long-term
incentives might differ from survey data, the Committee attempted to bring
total compensation to survey averages for each executive, and that goal was
achieved in most cases.
EXECUTIVE OFFICERS' - 1998 INCENTIVE COMPENSATION PAYOUTS
Annual Bonus - 1997 Interim Bonus Plan Amounts Paid in 1998
As described in the 1998 Proxy Statement, in 1997 the Personnel
Committee implemented a one year interim bonus plan to bridge the gap between
the historical incentive compensation plan of the company to the new EVA?
Bonus Plan described above. Grants under the old plan were not made in 1997,
but the new EVA? Bonus Plan was not complete, so the Committee instituted a
one year plan to assure that total compensation remained competitive during
1997. The 1997 bonuses were available to officers based upon the Board's
subjective judgment concerning several criteria: overall financial
performance of the Company using return on investment, earnings per share,
EVA? performance and other relevant financial measures; for officers
responsible for particular business units, the financial performance of those
business units using the same measures as for the overall Company; and a
determination of the particular officers' performance. Maximum payout ranged
from 35% of base salary for the Chief Executive Officer to 25% of base salary
for other officers.
In 1998, the Committee considered these factors and made decisions
concerning payout to Company officers. The Committee noted that 1997 had very
good financial results. Earnings per share had exceeded analyst estimates;
real earnings growth had occurred for the first time in several years and
shareholder return was among the highest in the utility industry for 1997. In
addition, most of the Company's various business units performed well in 1997.
The Committee also reviewed the individual performance evaluations for each of
the officers. The payouts approved by the Committee ranged from 17% of base
salary to 32% of base salary.
1995 Dividend Equivalent Awards - Long-Term Incentive Amounts Paid in
1997
In 1995, as described in the 1996 Proxy Statement, certain Company
officers were awarded the opportunity to earn Dividend Equivalents to the
extent certain objective performance criteria were achieved over the three
year period from 1995 through the end of 1997. In 1998, the Committee
evaluated the performance criteria and determined the amounts earned. The
objective performance criterion to be achieved by officers responsible for the
overall corporation was a comparison of the Company's Total Shareholder Return
(TSR) to the TSR of the Peer Group used in the performance graph in this Proxy
Statement-the Standard & Poor's 27 Electric Power Company Index. For these
corporate officers, in order to achieve maximum payout, the Company's TSR had
to be in at least the 90th percentile of the TSR for the Peer Group. Payouts
decreased proportionately with the Company's decrease in TSR performance.
Officers responsible for the utility and independent power business had two
additional performance criteria, return on equity, and either utility rate
competitiveness or net income for the award period. The Committee determined
awards to be paid based upon these objective criteria and the amounts awarded
to the named executive officers are shown in the Long-term Compensation as
LTIP payouts column of the Summary Compensation Table.
CHIEF EXECUTIVE OFFICER
1998 Compensation Program
As described above for the Executive Officers, the total compensation of
the Chief Executive Officer, Robert P. Gannon, was examined as part of the
Stern Stewart & Co. review of overall executive compensation in relation to
the EVA? financial management system. Each element of Mr. Gannon's
compensation was examined and compared to both the EEI salary survey
information and general industry survey information described earlier.
With regard to Mr. Gannon's base salary, it was increased 2% in 1998,
consistent with the increases to most other officers described above. The
purpose of the increase was to keep base salary within a reasonable range of
the average base salaries for CEO's of comparable companies, while recognizing
that the increases in incentive compensation in 1998 were sufficient to move
his total compensation close to market survey information for total
compensation, and thus, this base salary decision had no specific relationship
to Company performance.
In 1998, an annual bonus incentive compensation opportunity was provided
to Mr. Gannon in the form of the EVA? Annual Bonus Plan described above. As
described earlier, this plan uses an objective measurement of the Company's
performance - the Company's improvement in Economic Value Added (EVA?) - and
effectively links a significant portion of Mr. Gannon's total compensation to
the Company's overall corporate performance. As noted previously, the
Committee has established an annual target for improvement in the Company's
EVA?. If this objectively determined goal is fully achieved, then Mr. Gannon
will receive a bonus of 60% of his base salary. If performance is less than
the EVA? improvement target established by the Committee, then less of the
bonus is earned. If performance is below certain levels, the bonus becomes
negative. If performance exceeds the improvement target, then the bonus will
be greater. However, two-thirds of any bonus greater than target is placed in
a bonus bank and is available for payout in future years, just as negative
bonuses are placed in a bonus bank reducing bonuses in future years. The bonus
level opportunity was established by reference to the survey data described
earlier.
Long-term incentives were also provided to Mr. Gannon in 1998 in the
form of options. Again, the number of options granted were based upon the
value which moved his total compensation towards survey averages for total
compensation, and not upon any aspect of corporate performance. Given the
increase in total compensation from the EVA? bonus plan and the stock option
grants, his total compensation was moved closer to, while still lagging,
market survey averages.
1998 PAYOUT DETERMINATIONS
The Committee approved a payout for the CEO under the 1997 Interim Bonus
Plan using the same subjective evaluation of Company financial performance in
1997 described earlier in the discussion of compensation for Executive
Officers. With regard to the personal performance criterion, the Committee
described Mr. Gannon's 1997 performance as exemplary; he addressed and
resolved difficult issues and accepted responsibility for difficult positions
which were necessary for the Company's long-term future. The resulting amount
paid under this Plan is shown in the annual bonus column of the Summary
Compensation Table.
The Committee also approved a payout under Mr. Gannon's 1995 Dividend
Equivalent Award in accordance with the objective performance criteria
described earlier - principally the Company's total shareholder return
compared to the total shareholder return of the peer group in this Proxy
Statement for the three year period 1995 through 1997. The amount paid for
this award is shown in the LTIP payouts column of the Summary Compensation
table.
PERSONNEL COMMITTEE
C. Lehrkind, III, Chairman R. D. Corette
K. Foster N. E. Vosburg
J. R. Jester
PERFORMANCE GRAPH
The following five-year cumulative total return graph compares the
performance of Montana Power with Standard and Poor's (S&P) 500 Index and
S&P's Electric Companies' Index (which includes 27 companies). The cumulative
total return graph assumes that $100 is invested at year-end 1993, and from
that date forward, all dividends are re-invested monthly. Then, at the end of
each year, the value of the $100 initial investment is calculated based on the
current stock price. As shown on the graph, at the end of 1998, the initial
$100 investment grew to $303 for Montana Power; to $294 for the S&P 500; and
to $166 for the S&P Electric Companies.
FIVE-YEAR CUMULATIVE TOTAL RETURN
THE MONTANA POWER COMPANY (MTP)COMPARED TO THE S&P ELECTRIC COMPANIES'
INDEX AND THE S&P 500 INDEX*
Indexed\Cumulative Returns
Base
Period Return Return Return Return Return
Company\Index 1993 1994 1995 1996 1997 1998
- ------------------ ------ ------ ------ ------ ------ ------
MONTANA POWER CO 100 95.44 100.67 102.33 162.75 303.13
S&P 500 INDEX 100 101.32 139.40 171.40 228.59 293.91
ELECTRIC COMPANIES - 500 100 86.93 113.96 113.77 143.63 165.86
*$100 INVESTED ON December 31, 1993 IN STOCK OR INDEX, INCLUDING REINVESTMENT
OF DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
SUMMARY COMPENSATION TABLE
The following table shows compensation paid by the Company for services
rendered during the fiscal years 1998, 1997, and 1996 for named executive
officers.
Annual Long-Term Compensation
Compensation Awards Payouts
Securities
Name and Underlying LTIP All Other
Principal Year Salary Bonus(2) Options Payouts(3)
Compensation(4)
Position ($) ($) (#) ($) ($)
R. P. Gannon
CEO, Chairman 1998 362,523 115,920 42,000 51,757 6,400
of the Board 1997 297,500 0 0 32,242 6,653
& President 1996 265,935 0 21,000 0 17,035
W. S. Dee
Vice 1998 215,423(1) 25,988 12,000 0 6,400
President, 1997 124,444 (1) 0 0 0 1,485
Marketing 1996 0 0 0 0 0
R. F. Cromer
Executive VP
& COO - 1998 193,920 48,960 21,000 48,976 16,192
Energy Supply 1997 187,800 0 0 38,796 21,145
Division 1996 180,500 0 14,000 0 13,712
J. D. Haffey
Executive VP &
COO - Energy 1998 190,890 48,195 21,000 16,771 28,644
Services 1997 183,500 0 0 10,210 28,460
Division 1996 172,440 0 14,000 0 27,180
J. P. Pederson
VP, Chief
Financial & 1998 186,850 48,563 21,000 25,505 21,641
Information 1997 179,500 0 0 0 27,998
Officer 1996 172,000 0 13,900 0 26,704
_________________
(1)Includes $33,623 for 1998 and $20,968 for 1997 for Mr. Dee, who has a
non-funded deferred compensation arrangement with the Company that became
effective May 27, 1997.
(2)Awards earned in 1997 and paid in 1998 under the 1997 Interim Bonus Plan.
Awards earned under the 1998 EVA? Bonus Plan have not been determined and
approved by the Personnel Committee in time to include their amounts herein.
(3)This column represents dividend equivalent awards on options awarded in
1995. These awards, approved by the Personnel Committee, were based on
certain objective performance criteria including a comparison of the Company's
total shareholder return for the years 1995-1997 to Peer Companys' as
described in the performance graph in the Personnel Committee Report supra.
(4)This column represents the value of the Company's matching contribution
of stock made under the Company's Retirement Savings Plan (401(k)). And, also
represents compensation received for selling unused vacation time back to the
Company, which is available to all employees, in the following amounts: $9,792
for Mr. Cromer, $22,244 for Mr. Haffey, $15,241 for Mr. Pederson. The
amounts may include vacation accrued in prior years.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information with respect to the named executive
officers, concerning individual grants of stock options at fiscal year-end.
INDIVIDUAL GRANTS
Number of Percent of
Securities Total Options
Underlying Granted to Grant Date
Options Employees in Exercise Expiration Present
Name Granted(1) Fiscal Year Price(2) Date Value(3)
(#) (%) ($/SH) ($)
R. P. Gannon 42,000 3.7 38.3438 08-27-2008 224,683
W. S. Dee 12,000 1.0 38.3438 08-27-2008 64,195
R. F. Cromer 21,000 1.8 38.3438 08-27-2008 112,342
J. D. Haffey 21,000 1.8 38.3438 08-27-2008 112,342
J. P. Pederson 21,000 1.8 38.3438 08-27-2008 112,342
(1)The options granted will be exercisable on August 27, 2000 and
thereafter during a period of ten years from date of grant.
(2)The exercise price was based on the average of the high and low price
as reported on the New York Stock Exchange Composite Transaction Tape (fair
market value) on the date of grant, August, 27, 1998.
(3)The Binomial option pricing model was used to determine the present
value of the options granted for the named executive officers. The assumptions
used in the Binomial equation to determine the present value are as
follows: market price of stock - $38.3438; exercise price of option -
$38.3438; stock volatility - 18.5884%; annualized risk free interest rate -
5.3%; 10-year option term; a stock dividend yield of 6.6129%, and a $5.3496 per
option binomial value.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information with respect to the named executive
officers, concerning exercise of stock options at fiscal year-end.
Value Number of
Realized Securities
(Aggregate Underlying
Market Unexercised
Price at Options Value of Unexercised
Shares Exercise At Fiscal In-the-Money-Options at
Acquired Less Aggregate Year-End Fiscal Year-End
on Exercise (#) ($56.5625(2)) ($)
Exercise Price(1)) Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
R. P. Gannon 51,900<R/>
756,468 7,000/42,000 244,563/765,185
W. S. Dee 0 0 0/12,000 0/218,624
R. F. Cromer 8,534 132,653 28,490/21,000 981,478/382,593
J. D. Haffey 17,733 175,983 9,667/21,000 336,441/382,593
J. P. Pederson 0 0 32,000/21,000 1,106,100/382,593
(1)Based on the closing price of the Company's Common Stock as reported
on the New York Stock Exchange Composite Transaction Tape, on date of
exercise.
(2)Based on the closing price of the Company's Common Stock as reported
on the New York Stock Exchange Composite Transaction Tape, on December 31,
1998.
RETIREMENT BENEFITS
The table below illustrates the estimated annual benefits payable to
executives under the Company's Pension Plan (a qualified defined benefit plan)
and under the Company's Benefit Restoration Plan for Senior Management
Executives (a non-qualified defined benefit plan). The estimated annual
benefits payable upon retirement are shown at age 65 based on the listed
remuneration and years of service classifications calculated upon accrued
benefits to January 1999. These benefits may be reduced if the executive
retires before reaching age 65. The amounts presented assume the executive
elects a single life annuity benefit payment.
PENSION PLAN PLUS BENEFIT RESTORATION
Years of Service
Remuneration 15 20 25 30 35
$150,000 $ 91,056 $101,910 $112,839 $123,887 $135,333
$175,000 $106,488 $119,289 $132,144 $145,120 $158,552
$200,000 $121,924 $136,672 $151,454 $166,358 $181,778
$225,000 $137,359 $154,056 $170,764 $197,198 $205,000
$250,000 $152,794 $171,439 $190,074 $208,837 $228,230
$275,000 $168,230 $188,822 $209,385 $230,076 $251,457
$300,000 $183,665 $206,206 $228,695 $251,315 $274,695
$325,000 $199,102 $223,589 $248,006 $272,554 $297,910
$350,000 $214,537 $240,972 $267,316 $ 293,796 $321,136
$375,000 $229,972 $258,356 $286,626 $315,032 $344,362
$400,000 $245,408 $275,739 $305,936 $343,831 $367,589
$425,000 $258,660 $289,452 $325,236 $357,516 $390,816
$450,000 $275,224 $310,504 $344,560 $378,748 $414,040
QUALIFIED PENSION PLAN
Effective January 1, 1998 the Company amended its Qualified Pension Plan
to allow for a change in the method of benefit determination from a Final
Average Pay method to a Cash Balance method. As of January 1, 1999, all
executive officers will have their benefits determined under the Cash Balance
method.
The Cash Balance method of benefit accrual establishes eligible
participant notional accounts that are credited by the Company each year.
Credits include:
- A fixed interest rate of 6% each year
- An employer contribution of 3% - 12% of base pay (plus commissions
not to exceed 100% of base pay); plus
- An additional credit of 1.5% - 6% of eligible pay above 1/2 of the
Social Security Wage Base.
The employer contributions are predicated upon the number of "points"
(age + service) respective of each eligible participant. When an eligible
participant elects to begin retirement pay, the accrued Cash Balance is
converted to a monthly annuity payment.
The Cash Balance provisions allow eligible participants retiring within
5 years to choose the better of the Final Pay benefits or Cash Balance
Benefits. The Company has estimated the benefits for the named executive
officers, and, based upon these estimates, does not believe that any of the
named executive officers would receive a better benefit under the Final
Average Pay calculation.
The Pension Plus Benefit Restoration table found on page 17 includes
pension benefits calculated under the Cash Balance method.
As of March 1, 1999, credited years of service for executive officers is
as follows: 2 years for Mr. Dee, age 58; 31 years for Mr. Cromer, age 53;
24 years for Mr. Gannon, age 54; 26 years for Mr. Haffey, age 53; and 34 years
for Mr. Pederson, age 56.
NON-QUALIFIED BENEFIT RESTORATION PLAN FOR SENIOR MANAGEMENT EXECUTIVES
Through December 31, 1998, executive officers also participated in a non-
qualified Benefit Restoration Plan for executive officers and certain other key
employees. The named executive officers participated in the Benefit
Restoration Plan. This plan provided for annual benefit payments upon
retirement to the participant over the participant's lifetime or, in the event
of the participant's death, to the participant's beneficiary for the remainder
of a 15-year period commencing on the date of the participant's retirement.
This benefit is in addition to the Pension Plan benefit.
Life insurance which is carried on Benefit Restoration Plan participants
is owned by a Rabbi trust. This life insurance helps fund the Benefit
Restoration Plan. Participants in the Benefit Restoration Plan contributed
toward the funding of the plan. All death proceeds are specifically directed
to the Benefit Restoration Plan trust for the sole purpose of paying for plan
benefits and premium costs.
The Board of Directors approved the curtailment of the Benefit
Restoration Plan for Senior Officers effective December 31,1998. All active
participants, including the named officers, became vested in the Plan
immediately upon curtailment. The Plan will be closed to additional
participants. Existing Plan participants are entitled to receive a frozen
accrued benefit established as of the date of curtailment with no further
benefit accrual. The frozen benefit will become payable upon retirement or
death.
Benefit determination under the curtailed plan will include a "make-up"
amount equal to any decrease in the executive's Retirement Plan benefit as a
result of limitation imposed upon the Retirement Plan by Sections 415 and
401(a)(17) of the Internal Revenue Code. The statutory limitation "make-up"
will be based on the executive's actual compensation and years of service at
retirement.
EMPLOYMENT AGREEMENTS
The Company has entered into severance benefit agreements with the named
executive officers to provide benefits under certain circumstances after a
change of control of the Company if their employment is subsequently
terminated without cause by the Company or with good reason by the employee.
These agreements will expire December 31, 1999.
The agreements with the named executive officers provide that if, after
a change of control, within the meaning of change of control provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the employee is
terminated by the Company without cause (as defined in the agreement), or if
the employee terminates employment for good reason (as defined in the
agreements), the employee is entitled to (i) a lump sum payment in the amount
of 299.9 percent of base amount compensation, (ii) calculation of retirement
benefits as if the employee had continued employment to Normal Retirement Date
(as defined in the Retirement Plan for Employees of The Montana Power Company)
subject to certain reductions and (iii) continued participation in the
Company's (or substantially equal substitute) life insurance, health
insurance, dental insurance and disability insurance plan and other welfare
benefit plans for a period of three years following termination. In the event
that any amounts paid to the named executive officers under their agreements
are subject to excise tax imposed under the Code in connection with a change
of control, the Company shall pay an additional amount (the "Gross-Up
Payment") equal to the amount of any such excise taxes and any state or
federal taxes on the Gross-Up Payment.
SECTION 16(a) COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and
Securities and Exchange Commission ("SEC") regulations, the Company's
directors, certain officers, and greater than 10 percent shareholders are
required to file reports of ownership and changes in ownership with the SEC
and the New York Stock Exchange and to furnish the Company with copies of all
reports they file.
To the Company's knowledge, based solely on review of copies of such
reports furnished to the Company and written representations from the
Company's executive officers and directors that no other reports were
required. The Company believes that during the fiscal year ended December 31,
1998, all Section 16(a) filing requirements were complied with, except for one
report that was filed late for Mr. Lehrkind due to an administration error on
the part of the Company.
ITEM NO. 2 PROPOSAL. AMENDMENT TO THE LONG-TERM INCENTIVE PLAN
Introductory Statement:
The Montana Power Company Long-Term Incentive Plan (the "Plan") was
approved and authorized by the Board of Directors of the Company in January
1998, and became effective upon receiving shareholder approval at the 1998
Annual Meeting. The Company now proposes to amend the Plan, as explained
below. The proposed amendment (the "Amendment") was approved and authorized by
the Board of Directors of the Company at its January 26, 1999 meeting, and will
become effective upon receiving shareholder approval. The purpose of the Plan
is to reward employees who make important contributions to the continued
growth, development and financial success of the Company or its subsidiaries
and to attract and retain such employees. The Plan is not a qualified plan
under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
The statements made herein concerning the Amendment are summaries and do
not purport to be complete. Such statements are qualified by express reference
to the Plan. A copy of the Plan, as amended by the Amendment (as proposed) is
attached as Exhibit A hereto.
Summary of the Plan Amendments:
The Amendment (if approved by the Company's shareholders) will effect
the following changes to the Plan:
- - Eligibility to participate in the Plan and receive Awards (as
defined below) will be expanded to include part-time employees.
- - The discretionary authority of the Plan's administrative
committee ("Committee") will be expanded to permit the
committee to provide in each optionee's Stock Option Agreement
a post-termination option exercise period that exceeds the
standard default period set forth in the Plan.
- - Each optionee will be allowed at least one month after
termination to exercise Stock Options which are exercisable on
the date of termination.
- - The discretionary authority of the Committee will be expanded
to permit the committee to provide in each Award agreement for
different employment termination forfeiture consequences in
respect of awards of Restricted Stock, Stock Appreciation
Rights, Performance Shares and Dividend Equivalent Shares.
- - The Company will no longer be required by the Plan to obtain
shareholder approval for changes to the Plan that (i) increase
the benefits accruing to Participants (as defined below), (ii)
increase the number of shares of Common Stock which may be
issued under the Plan, (iii) extend the period for granting
Awards under the Plan, or (iv) modify the Plan's eligibility
requirements. Of course, under current tax law and regulations
and New York Stock Exchange listing requirements, the Company
will be required, notwithstanding the above-described
amendment, to submit to the Company's shareholders for approval
any proposed increase in the number of shares of Common Stock
available for awards under the Plan to obtain (i) the listing
of those shares on the Exchange, and (ii) the favorable tax
consequences available to both the Company and the participants
under Sections 422 and 162(m) of the Code. Other changes, if
proposed in the future, to increase benefits, to extend the
term of the Plan, or to modify the Plan's eligibility
requirements may also require shareholder approval to obtain or
preserve those favorable tax consequences.
- - The Committee will have the discretion to grant transferable
stock options (to facilitate estate and gift tax planning).
- - The Committee will be authorized to suspend and replace any
cash payment otherwise required to be made to a participant
with a substitute in-kind payment of equivalent value if the
cash payment would preclude the Company from accounting for a
merger as a "pooling-of-interests".
- - The Committee will be authorized to "cash-out" the holders of
Stock Options and Stock Appreciation Rights in the event of
certain mergers (where "pooling-of-interests" accounting is not
desired).
- - A new definition of "change of control" will be included to
conform the Plan to the definition utilized in other "change of
control" agreements to which the Company is a party.
- - If a "change of control" occurs Awards of Restricted Stock will
vest, Awards of Stock Options and Stock Appreciation Rights
will become fully exercisable and Awards of Performance Shares
and Dividend Equivalent Shares will be fully earned as of the
date of the "change of control."
Summary of the Plan:
In general. The Plan provides for the granting of Restricted Stock,
Stock Options, Stock Appreciation Rights, Performance Shares and Dividend
Equivalent Shares (the "Awards") during the ten-year period following its
approval by the Company's shareholders (which approval occurred on May 12,
1998), and permits a total of 2,000,000 shares of Common Stock of the Company
to be subject to Awards under the Plan (subject to adjustment in the event of
a merger, consolidation reorganization, recapitalization, stock dividend,
stock split, or other similar event). Shares subject to canceled, lapsed, or
forfeited Awards or Awards paid in cash may be reissued under the Plan. The
shares to be issued under the Plan may consist of authorized but unissued
shares, shares issued and reacquired by the Company or shares purchased in the
open market. The fair market value of the Company's Common Stock was $50.1563
per share as of February 8, 1999.
Administration and Eligibility. A Committee of the Board of Directors,
comprised of outside directors (the "Committee"), administers the Plan and
from time-to-time will grant Awards under the Plan to selected eligible
employees (the "Participants"). In addition to any other powers and, subject
to the provisions of the Plan, the Committee has the following specific
powers: (i) to determine the terms and conditions upon which Awards may be
made and exercised; (ii) to determine the Participants to whom Awards will be
made; (iii) to determine all terms and provisions of each Award agreement,
which need not be identical for different types of Awards nor for the same
type of Award to different Participants; (iv) to construe and interpret all
terms, conditions and provisions of the Plan and all agreements; (v) to
establish, amend, or waive rules or regulations for the Plan's administration;
and (vi) to make all other determinations and take all other actions necessary
or advisable for the administration or interpretation of the Plan. The
Committee may seek the assistance or advice of any persons or entities it
deems necessary to the proper administration of the Plan.
Under the existing Plan only full-time employees of the Company are
eligible to receive Awards under the Plan. If the proposed Amendment to the
Plan is approved by the Company's shareholders, any employee (not just a full-
time employee) who, in the opinion of the Committee, contributes to the
continued growth, development and financial and other successes of the Company
or its subsidiaries will be eligible to participate in the Plan and receive
Awards.
Number of Employees. As of January 31 , 1999, there were
approximately 2,934 employees of the Company and its subsidiaries. The
actual employees to be awarded grants as Participants will be determined by
the Committee from time-to-time and will probably be substantially less than
the total number of employees.
Restricted Stock. Awards of Restricted Stock are made subject to a
restriction period during which the occurrence of some event, such as the
passage of time or achievement of a particular performance standard, must
occur. Restricted Stock is issued without payment by the Participant and,
upon the completion of the restriction period and the fulfillment of the
required conditions, restrictions upon the restricted Common Stock expire and
new certificates representing unrestricted shares of Common Stock are issued
to the Participant. If authorized by the Committee, the Participant will
receive cash dividends payable with respect to the Restricted Stock or the
Committee may direct that those dividends be retained by the Company. If the
conditions of the Restricted Stock are not satisfied within the restriction
period, the Participant's right to the Restricted Stock generally terminates.
Stock Options. Stock Options are granted at an exercise price set by
the Committee, but in the case of an Incentive Stock Option, the exercise
price is not less than the fair market value of the Company's Common Stock on
the date of the grant of the Stock Option. In the case of non-qualified Stock
Options, the exercise price per share of Common Stock set in the Award by the
Committee may not be less than 85% of the fair market value of the Common
Stock on the date of grant. Each Stock Option is granted pursuant to a
written Stock Option Agreement, which, together with the Plan, set forth the
terms of the Stock Option. Each Stock Option becomes exercisable within a
period set by the Committee and expires no later than ten years from the date
of grant.
Under the existing Plan, a Participant's Stock Option (and the attendant
right to exercise it) expires immediately upon the Participant's termination
of employment (other than due to retirement, death or disability) and the
Committee does not have any discretionary authority to alter this result. In
the case of retirement, the Participant can exercise the Stock Option for
three months, and if the Participant dies or becomes disabled, the Stock
Option remains exercisable for one year after such death or disability.
Pursuant to the proposed Amendment (if approved by the Company's
shareholders), the Committee will have the authority to establish at the time
of grant different post-termination exercise periods for each Stock Option
granted and each optionee Participant will have no less than one month after
termination of employment to exercise Stock Options that are exercisable as of
the date of such termination.
Finally, under the existing Plan Stock Options are not transferable by a
Participant. If the Amendment is approved by the Company's shareholders, the
Committee will have the discretionary authority to grant Stock Options that
may be transferred by a Participant.
SARs. Awards of Stock Appreciation Rights, which may only be issued in
conjunction with a Stock Option, give Participants the right to receive
payment of the greater of the increase in the fair market value or the book
value of a share of Common Stock from the date of the grant of the Stock
Appreciation Right to the date of its exercise. The Stock Appreciation
Rights would be granted without payment by the Participant, would be
exercisable during a period established by the Committee and would expire no
later than ten years from the date of grant. Upon exercise, Participants are
paid in cash, Common Stock or a combination of both, as determined by the
Committee. If not exercised by the expiration of the Award (other than deemed
expiration by virtue of exercise of a related Stock Option), the Stock
Appreciation Rights are deemed to have been exercised on the expiration date.
Performance Shares. Performance Share grants give the Participant the
right to receive payment of an amount equal to the fair market value of a
share of Common Stock at the end of an Award period if the terms and
conditions set by the Committee are satisfied. These Awards are granted
without any payment on the part of the Participant and are paid either in
cash, Common Stock or a combination of both, as determined by the Committee.
Termination of Employment. Under the existing Plan, if a Participant
terminates employment with the Company, other than pursuant to retirement or
death or disability, the Participant's Award of Stock Appreciation Rights,
Performance Shares, Restricted Stock and Dividend Equivalent Shares will be
forfeited and, in the case of retirement, death or disability, the Participant
will receive a pro-rata payment based on the length of the Participant's
service during the relevant Award period prior to any such termination of
employment. If the Amendment proposed is approved by the Company's
shareholders, the Committee will be authorized to exercise discretion at the
time of grant to provide in the Participant's Award agreement for different
termination forfeiture consequences.
Dividend Equivalent Shares. A Participant may be granted, in
conjunction with an Award of Stock Appreciation Rights or Performance Shares,
at no cost, the right to receive Dividend Equivalent Shares based on the
dividends declared on the Common Stock for record dates occurring during the
Award period set by the Committee for the related Stock Appreciation Rights or
Performance Shares. Payment for Dividend Equivalent Shares in cash, Common
Stock or both, as determined by the Committee, are made in conjunction with
the payment for the related Stock Appreciation Rights or Performance Shares.
Amendment. Under the existing Plan, the Board may not (i) increase the
benefits to Participants pursuant to the Plan, (ii) increase the number of
shares of Common Stock which could be issued under the Plan, (iii) extend the
period for granting Awards, or (iv) modify the eligibility requirements of the
Plan without shareholder approval of such changes. Pursuant to the proposed
Amendment (if approved by the Company's shareholders), the Board will be
empowered to amend, suspend or terminate the Plan in any manner at any time
and from time-to-time, without shareholder approval and subject only to
Participant rights under outstanding Awards. Of course, under current tax law
and regulations and New York Stock Exchange listing requirements, the Company
will be required, notwithstanding the above-described amendment, to submit to
the Company's shareholders for approval any proposed increase in the number of
shares of Common Stock available for awards under the Plan to obtain (i) the
listing of those shares on the Exchange, and (ii) the favorable tax
consequences available to both the Company and the participants under Sections
422 and 162(m) of the Code. Other changes, if proposed in the future, to
increase benefits, to extend the term of the Plan, or to modify the Plan's
eligibility requirements may also require shareholder approval to obtain or
preserve those favorable tax consequences.
Change of Control. Under the existing Plan, a "change of control" was
deemed to occur upon a public tender for all or any portion of the Company's
Common Stock or upon any proposal to merge or consolidate the Company with
another corporation. In such cases, the Committee has broad authority to
change or eliminate the terms and conditions, including any restrictions and
forfeiture events, of any outstanding Award. The proposed Amendment would
eliminate this existing Committee discretion. Pursuant to the Amendment (if
approved by the Company's shareholders), upon the occurrence of a "change of
control" (as defined below), (i) all Stock Options and Stock Appreciation
Rights will become fully vested and exercisable, (ii) all outstanding shares
of Restricted Stock shall become fully vested, and (iii) all Performance
Shares and Dividend Equivalent Shares will be deemed to be fully earned. The
Amendment proposes to define "change of control" as including a shareholder-
approved liquidation or dissolution of the Company, a reorganization, merger
or consolidation of the Company pursuant to which the Company's shareholders
prior to the reorganization, merger or consolidation do not own more than 80%
of the Company's voting securities, a sale, exchange or other transfer of more
than 20% of the Company's voting securities, a proxy contest pursuant to which
a majority of the Company's directors are replaced by individuals not approved
of by at least two-thirds of the Company's incumbent directors, and/or a sale
of all or substantially all of the Company's assets.
Stock Option and SAR Cash-Outs. Under the existing Plan, the Company
does not have the right to "cash-out" Stock Options in connection with a
merger or sale of the Company, for which pooling-of-interests accounting is
not desired. Moreover, the existing Plan does not expressly preclude cash
payments to Participants even if the effect of those payments is to prevent a
merger or consolidation from being accounted for as a "pooling" by the
Company's accountants. The proposed Amendment, if approved by the Company's
shareholders, would change the Plan to provide this "cash-out" flexibility to
the Committee, in cases where "pooling-of-interests" accounting treatment is
not desired, and, where such accounting treatment is desirable, would give the
Committee the authority to preclude and replace any such cash payout of an
Award that would jeopardize that treatment with a substitute in-kind payment
of equivalent value.
Code Section 162(m). The Committee will establish in writing prior to
the beginning of a performance period (or by such other later date as may be
permitted under Section 162(m) of the Code) all performance criteria which the
chief executive officer and the four highest compensated officers of the
Company (each, a "Covered Participant") must satisfy in order to receive
performance-based compensation. Such performance criteria are based on
business or financial goals of the Company, including economic value added,
absolute or relative levels of total shareholder return, revenues, sales, net
income, or net worth of the Company, any of its subsidiaries, divisions,
business units or other areas of the Company. The aggregate maximum Awards
that may be paid (in cash or in shares of Common Stock or a combination
thereof) to any Covered Participant during any calendar year would be an
amount equivalent to the fair market value of 100,000 shares of Common Stock
subject to Options and Stock Appreciation Rights made to any Covered
Participant during any calendar year would be 150,000. In the case of
performance-based compensation for Covered Participants, the exercise price of
a Stock Option will not be less than 100% of the fair market value of Common
Stock on the date of grant. A Stock Appreciation Right granted to a Covered
Participant will be the right to receive payment of an amount equal to the
increase, if any, in the fair market value of one share of Common Stock at the
date of exercise over the fair market value of one share of Common Stock at
the date of grant.
Federal Tax Consequences.
The following is a brief and general summary of the federal income tax
consequences of the various forms of Awards that may be granted under the
Plan.
Restricted Stock. The grant of a Restricted Stock award does not
immediately produce taxable income to a recipient or an income tax deduction
to the Company. At the time the restrictions lapse, however, a recipient will
recognize ordinary income in an amount equal to the fair market value of the
Common Stock on the date the restrictions on such Common Stock lapse, and
(subject to Section 162(m) of the Code) the Company will be entitled to a
corresponding income tax deduction. However, a recipient who elects under
Section 83(b) of the Code, within thirty days of the date of grant (an "83(b)
Election"), will recognize ordinary income on the date of grant equal to the
fair market value of the shares of Restricted Stock as if the shares were
unrestricted and could be disposed of immediately. During the restriction
period, a recipient will be taxed on the dividends, if any, paid with respect
to the Restricted Stock. The Company will be entitled to a corresponding
income tax deduction for such dividends (subject to Section 162(m) of the
Code) paid unless the recipient has made an 83(b) Election with respect to the
shares upon which such dividends are paid. With respect to a disposition of
unrestricted shares, the holding period to determine whether the recipient has
long or short-term capital gain or loss begins when the restriction period
lapses. However, if the recipient has made an 83(b) Election, the holding
period commences on the date of the grant and the tax basis will be equal to
the fair market value of the shares on the date of grant as if the shares were
unrestricted and could be disposed of immediately.
Non-Statutory Stock Options. The grant of a non-statutory Stock Option
that does not have a readily ascertainable fair market value at the time of
grant does not result in taxable income to a recipient or an income tax
deduction for the Company. Upon exercise, a recipient will recognize ordinary
income in an amount equal to the excess of the fair market value of the Common
Stock acquired on the date of exercise over the Stock Option's exercise price.
The Company will be entitled to a corresponding income tax deduction (subject
to Code Section 162(m)). Upon a taxable exchange of the Common Stock, the
recipient will recognize long or short-term capital gain or loss equal to the
difference between the amount realized on the sale and the tax basis of the
shares sold or exchanged.
Incentive Stock Options. Neither the grant nor the exercise of an
Incentive Stock Option will have immediate tax consequences to a recipient or
the Company. If a recipient exercises an Incentive Stock Option and does not
dispose of the acquired Common Stock within two years after the date of the
grant of the option or within one year after the date of the transfer of the
Common Stock to the recipient, the Company will not be entitled to a tax
deduction, the recipient will realize no ordinary income, and any gain or loss
that is realized on a subsequent sale or taxable exchange of the Common Stock
will be treated as a long-term capital gain or loss. The exercise of an
Incentive Stock Option gives rise to an adjustment to the Participant's
alternative minimum taxable income which may subject the recipient to the
alternative minimum tax.
If a recipient exercises an Incentive Stock Option and disposes of the
acquired Common Stock within two years after the date of the grant of the
option or within one year after the date of the transfer of the Common Stock
to the recipient, the recipient's and the Company's tax treatment will be the
same as if the recipient had exercised a non-statutory Stock Option.
Stock Appreciation Rights. A recipient of a Stock appreciation Right
will not recognize taxable income at the time the right is granted, and the
Company will not be entitled to an income tax deduction. However, ordinary
income will be recognized by a recipient, and a corresponding deduction
(subject to Code Section 162(m)) will be taken by the Company, at the time of
exercise is an amount equal to any cash, and the fair market value of any
Common stock, received.
Performance Share Awards/Dividend Equivalent Shares. A recipient of a
Performance Share Award or Dividend Equivalent Share will not recognize
taxable income at the time granted, and the Company will not be entitled to an
income tax deduction. However, ordinary income will be recognized by a
recipient, and a corresponding deduction (subject to Code Section 162(m))
will be taken by the Company, at the time of payment for any such Performance
Share Award of Dividend Equivalent Share in an amount equal to any cash, and
the fair market value of any Common Stock, received.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE PROPOSED AMENDMENT
AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR ADOPTION OF THE AMENDMENT.
To adopt the Amendment, the affirmative vote of a majority of the shares
of Common Stock and the shares of the Preferred Stock cast at the meeting,
voting as a single class, is required, provided that the total vote cast
represents over 50% of all shares entitled to vote at the meeting.
ITEM NO. 3 PROPOSAL. AMEND THE ARTICLES OF INCORPORATION TO INCREASE
AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has unanimously approved and proposed for
submission to shareholders an amendment to the Company's Restated Articles of
Incorporation, pursuant to which the aggregate number of shares of Common
Stock which the Company shall have the authority to issue would be increased
from 120,000,000 to 240,000,000 shares. If the above amendment is approved,
the first sentence of Article VII of the Company's Restated Articles of
Incorporation would be amended to read as follows:
"The aggregate number of shares which the Corporation has
authority to issue is 245,000,000 shares without nominal or par
value, consisting of 5,000,000 Preferred shares and
240,000,000 Common shares."
Subject to favorable shareholder action, the proposed amendment would
become effective upon the filing of Articles of Amendment with the Secretary
of the State of Montana, which would be expected to occur shortly after
shareholder approval of the amendment.
After taking into account the 55,064,437 shares of Common Stock
outstanding as of February 8, 1999 and the 4,907,933 shares reserved for
issuance under various shareholder and employee stock plans, the number of
authorized but unissued shares of Common Stock available for issuance is only
60,027,630. A significant number of shares of Common and Preferred Stock
might also be required to be reserved for issuance upon exercise of rights
("Rights") outstanding under the Company's Shareholder Protection Rights Plan
("Rights Plan"), established in June 1989 and amended in January 1999 (see
additional information regarding the Rights Plan below).
The Board of Directors believes that the increased number of authorized
shares of Common Stock contemplated by the proposed amendment is desirable to
provide shares for the Rights Plan, as well as to provide additional shares
for issuance from time-to-time, without further action or authorization by the
shareholders, if needed for such proper corporate purposes as may be
determined by the Board of Directors. Such purposes might include stock
splits , the raising of additional capital through the sale of additional
shares and acquisitions by the Company. The Company has no immediate plans,
nor are there any existing or proposed agreements or understandings (other
than pursuant to the plans mentioned above) to issue any of the additional
shares of the Common Stock which are the subject of this proposal.
Accordingly, the increase in authorized Common Stock will not have any
immediate effect on the rights of existing stockholders. However, the Board
will have the authority to issue authorized Common Stock without requiring
future stockholder approval of such issuances, except as may be required by
applicable law. To the extent that additional authorized shares are issued in
the future, they may decrease the percentage equity ownership of existing
stockholders and, depending on the price at which they are issued, could be
dilutive to the existing stockholders. Shareholders have no preemptive rights
to subscribe to newly issued shares. The Company may not issue authorized but
unissued shares of its Common Stock without the prior approval of the Montana
Public Service Commission. The additional shares of Common Stock would be
part of the existing class of Common Stock and, if and when issued, would have
the same rights and privileges as shares of Common Stock currently
outstanding.
The Board of Directors has adopted the Rights Plan which is designed to
protect the interests of shareholders in the event the Company is confronted
with coercive or unfair takeover tactics, which the Board believes are not in
the best interests of all shareholders. Pursuant to the Rights Plan, each
Right, evidenced by and traded with the shares of Common Stock, entitles the
shareholder to purchase one one-hundreth of a share of Participating Preferred
Shares, A Series, at an exercise price of $200, subject to certain
adjustments. The Rights will be exercisable only if a person or group acquires
20% or more of the Company's voting shares or announces a tender offer, the
consummation of which would result in the beneficial ownership by a person or
group of 20% or more of the Company's voting shares.
The Rights may be redeemed, at a redemption price of $.01 per Right, by
the Board of Directors of the Company at any time until any person or group
has acquired 20% or more of the outstanding voting shares of the Company.
The description and terms of the Rights are set forth in a Rights
Agreement dated as of June 6, 1989, as amended, between the Company and First
Chicago Trust Company of New York, a division of EquiServe, the Rights agent
appointed by the Company. The statements and descriptions of the Rights
Agreement contained herein do not purport to be complete as they are intended
only to outline such provisions in general terms. The Rights agreement has
been filed with the Securities and Exchange Commission as an exhibit to the
Company's Registration Statement on Form 8-A with respect to the Rights
covered by the Rights Plan.
The Restated Articles of Incorporation and Bylaws contain provisions
which are intended to provide protection against coercive takeover tactics
deemed by the Board of Directors not to be in the best interests of all
shareholders. These provisions, which may have the effect of discouraging
attempts to acquire control of the Company, include (i) the classification of
the Board into three classes of directors serving staggered three-year terms
and (ii) a "fair price" provision that provides, in the event of certain
business combinations, including mergers, consolidations, recapitalizations,
sales or hypothecations of assets, liquidations and certain issuances of
securities, involving a person or entity who is or may become the beneficial
owner of 10% or more of the outstanding shares of the capital stock of the
Company entitled to vote generally in the election of Directors (the "Voting
Shares"), the amount of cash or other consideration to be paid to holders of
the Common Stock must be at least equal to the higher of the highest price
paid by the 10% shareholder in connection with the acquisition of certain of
its shares of Common Stock or the highest quoted price of the Common Stock on
certain dates related to such acquisition. Similar provisions apply to the
acquisition of the Preferred Stock. The fair price provision does not apply
in the event that such a business combination shall have been approved by
either two-thirds of certain directors who are not affiliated with the 10%
shareholder (the "Continuing Directors") or the holders of 70% of the voting
shares. In addition, unless a proposed business combination has been approved
by two-thirds of the Continuing Directors, certain other requirements must be
met, including the requirement that a proxy or information statement
describing the proposed business combination be mailed to shareholders at
least 30 days prior to its consummation. The fair price provisions may not be
amended or repealed except by the vote of holders of at least 70% of the
voting shares unless the amendment or repeal is recommended by two-thirds of
the Continuing Directors. The proposal and the Company's other anti-takeover
provisions described above may have the overall effect of (i) limiting
shareholder participation in and discouraging or making more difficult certain
transactions such as mergers or tender offers and (ii) making more difficult
the removal of incumbent management, including the Board, and thus increasing
the likelihood that incumbent management will retain their position. While
the Company may from, time-to-time consider other proposals which may under
certain circumstances be deemed to have anti-takeover implications, the
proposed amendment is not part of a plan by management to adopt a series of
anti-takeover provisions.
The Common Stock of the Company is currently listed on the New York
Stock Exchange and the Company intends to apply for listing of any additional
shares of Common Stock when such shares are issued. The New York Stock
Exchange currently requires shareholder approval as a prerequisite to listing
shares in several instances, including acquisition transactions, when the
issuance or potential issuance of shares could result in an increase by at
least 20% in the number of shares of Common Stock outstanding.
Financial statements are omitted from this Proxy Statement as not being
material for the exercise of prudent judgment by the shareholders in regard to
the proposed amendment. The Company's consolidated financial statements and
management's discussion and analysis of results of operations and financial
condition are included in the Company's Annual Report to Shareholders for the
year ended December 1998.
It is the intention of the persons named as proxies to vote the shares
to which the proxy relates to approve the proposed amendment to the Company's
Restated Articles of Incorporation, unless instructed to the contrary. If the
proposed amendment is not approved by the shareholders, the increase in
authorized Common Stock will not take effect.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE PROPOSED AMENDMENT
AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR ADOPTION OF THE AMENDMENT.
Once a quorum is established for the proposal in Item 3, an affirmative
vote by the majority of the votes cast is required, from both the common
shareholders as a separate voting group and the common and preferred
shareholders combined as a voting group, to authorize the proposed amendment.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
PriceWaterhouseCoopers has been selected by the Board of Directors upon
recommendation of its Audit Committee as the independent accountants for the
Company and its subsidiaries for the year 1999.
A representative of PriceWaterhouseCoopers will be present at the
shareholders' meeting to make a statement if he or she desires, and to respond
to questions. The same firm has audited the Company's accounts for many
years.
OTHER MATTERS
The Company does not intend to present any other business for action at
the Annual Meeting and does not know of any other business intended to be
presented by others. If any matters other than the matters described in this
Proxy Statement should be presented for stockholder action at the Meeting, it
is the intention of the persons designated in the proxy to vote thereon
according to their best judgment.
Proposals of shareholders intended to be presented at next year's
Annual Meeting, including nominations of Directors to be elected at such
meeting, must be received by the Office of the Secretary, The Montana Power
Company, 40 East Broadway, Butte, Montana 59701-9394, no later than
November 26, 1999. Such proposals may be included in next year's proxy
statement if they comply with certain rules and regulations promulgated by the
Securities and Exchange Commission.
By Order of the Board of Directors
Pamela K. Merrell
Vice President and Secretary
EXHIBIT A
THE MONTANA POWER COMPANY
1998 LONG-TERM INCENTIVE PLAN
(AS APPROVED MAY 12, 1998 INCLUDING PROPOSED AMENDMENTS)
SECTION ONE.
PURPOSE OF PLAN
The purpose of The Montana Power Company Long-Term Incentive Plan is to
reward employees who make important contributions to the continued growth,
development and financial success of The Montana Power Company or one or more
of its subsidiaries, and to attract and retain such employees. The Plan is
intended to stimulate individual performance by eligible employees so that
specific long-term goals increasing the profitability of the Company and its
subsidiaries may be achieved for the benefit of customers and shareholders.
SECTION TWO.
DEFINITIONS
The following definitions are applicable herein:
"Award" means the award to a Participant of Restricted Stock, an Option,
a Stock Appreciation Right, a Performance Share or a Dividend Equivalent Share.
"Award Period" means the period of time specified by the Committee with
respect to an Award during which (i) Restricted Shares will remain restricted,
or (ii) the conditions precedent to the right to receive payment with respect
to Performance Shares must be met.
"Board" means the Board of Directors of the Company.
"Book Value" means the book value of a share of Common Stock determined
in accordance with the Company's regular accounting practices. Any such
determination, in the absence of manifest error, shall be conclusive.
"Code" means the Internal Revenue Code of 1986, as amended. Reference in
the Plan to any section of the Code shall be deemed to include any amendments
or successor provisions to such section and any regulations promulgated
thereunder.
"Committee" means the committee, consisting of two or more members of the
Board who are not Eligible Employees and who are otherwise qualified, to the
extent required, to administer the Plan for purposes of Section 16 of the
Exchange Act and the rules thereunder.
"Common Stock" means the common stock, without par value, of the Company.
"Company" means The Montana Power Company and its successors, including
any company specified in Section Sixteen I.
"Covered Participant" means a Participant who is a "covered employee" as
defined in Section 162(m)(3) of the Code.
"Date of Disability" means the date on which a Participant is classified
as under a Disability.
"Date of Grant" means the date on which an Award is granted by the
Committee or such later date as may be specified by the Committee in making
such grant.
"Date of Retirement" means the date of Retirement or Earlier Than Normal
Retirement.
"Disability" means a physical or mental impairment that prevents a
Participant from performing the essential functions of the Participant's
regular occupation and which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than
twelve months.
"Dividend Equivalent Shares" has the meaning assigned in Section Eleven
A.
"Earlier than Normal Retirement" means the retirement, with the consent
of the Company, of an employee prior to that employee's Normal Retirement Date.
"Eligible Employee" means any person employed by the Company or a
Subsidiary on a regularly scheduled basis during any portion of a period for
which an Award is made (including employees who are members of the Board or of
the Board of Directors of any Subsidiary, but excluding any such director who
is not otherwise so regularly employed) and who satisfies the requirements of
Section Six.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means as follows: (i) for Options, and Stock
Appreciation Rights, the average of the high and low prices for the Common
Stock as reported on the New York Stock Exchange Composite Tape on a specified
date, or, if the Common Stock shall not have traded on any specified date, the
next preceding date on which it shall have traded; and (ii) for Performance
Shares, the average of the reported closing prices of the Common Stock on the
New York Stock Exchange for 30 consecutive trading days prior to a specified
date.
"Incentive Stock Option" means an incentive stock option within the
meaning of Section 422 of the Code.
"Normal Retirement Date" is the retirement date as described in the
Company's or a Subsidiary's retirement or pension plan.
"Option" has the meaning assigned in Section Eight A.
"Option Holder" means a Participant who has received an Award of an
Option.
"Participant" means an Eligible Employee who has been granted an Award
under this Plan.
"Performance Criteria" means the objectives established by the Committee
for a Performance Period, for the purpose of determining when an Award subject
to such objectives has been earned.
"Performance Period" means the time period designated by the Committee
during which performance goals must be met in order for a Participant to obtain
a performance-based Award.
"Plan" means The Montana Power Company 1998 Long-Term Incentive Plan, as
it may be amended from time-to-time.
"Performance Share" has the meaning assigned in Section Ten A.
"Restricted Stock" has the meaning assigned in Section Seven A.
"Retirement" means retirement on or after the Normal Retirement Date.
"Stock Appreciation Right" has the meaning assigned in Section Nine A.
"Subsidiary" means any corporation of which 50% or more of its
outstanding voting stock or voting power is beneficially owned, directly or
indirectly, by the Company.
"Termination" means resignation or discharge from employment with the
Company or any of its Subsidiaries, except in the event of death, disability,
retirement or earlier than normal retirement.
SECTION THREE.
EFFECTIVE DATE AND DURATION
A. Effective Date.
The Plan shall be effective as of May 12, 1998, subject to shareholder
approval.
B. Period for Grants of Awards.
Awards may be granted on and after the effective date through the period
ending May 12, 2008.
C. Termination
The Plan shall continue in effect until all matters relating to the
payment of Awards and administration of the Plan have been settled.
SECTION FOUR.
ADMINISTRATION
The Plan shall be administered by the Committee which still have all of
the powers respecting the Plan (other than amending the Plan as provided in
Section Fifteen); provided, however, that the Committee, in its discretion, may
delegate to one or more of its members or to one or more agents such
administrative duties as it may deem advisable. The Committee or any person to
whom it has delegated duties may employ attorneys, consultants, accountants or
other persons and the Committee shall be entitled to rely upon the advice,
opinions or evaluations of any such persons. Notwithstanding the foregoing,
the Committee may not delegate its authority if such delegation would cause a
violation of the requirements of Section 16 of the Exchange Act and the rules
thereunder. All questions of interpretation and application of the Plan, or of
the terms and conditions pursuant to which Awards are granted, exercised or
forfeited under the provisions hereof, shall be subject to the determination of
the Committee. Any such determination shall be final and binding upon all
parties affected thereby.
SECTION FIVE.
GRANT OF AWARDS AND LIMITATION OF NUMBER OF SHARES AWARDED
The Committee may, from time-to-time, grant Awards to one or more
Eligible Employees, provided that (i) subject to any adjustment pursuant to
Section Sixteen H, the aggregate number of shares of Common Stock subject to
Award under the Plan (including those constituting the basis for Awards) may
not exceed 2,000,000 shares; and (ii) to the extent that an Award shall expire
without either being exercised or the benefits thereof paid, the shares of
Common Stock pertaining to such Award shall again be available for the grant of
an Award to the maximum extent permissible under Section 16 of the Exchange
Act. Shares delivered by the Company under the Plan may be authorized but
unissued Common Stock, Common Stock held in the treasury of the Company or
Common Stock purchased on the open market (including private purchases). In
granting Awards, the Committee shall establish criteria, such as the growth,
financial and other performance and achievement of specified goals of the
Company and/or one or more of its Subsidiaries, against which the performance
of the Participant shall be measured, and shall take into account such matters
as each Participant's position and compensation, the Fair Market Value of the
Common Stock at the Date of Grant, economic conditions and such other matters
as it shall deem to be appropriate. Participants subject to Section 16 of the
Exchange Act shall sell stock acquired pursuant to the Plan in accordance with
the rules promulgated under Section 16 of the Exchange Act.
SECTION SIX.
ELIGIBILITY
Eligible Employees are employees who, in the opinion of the Committee,
contribute to the continued growth, development and financial and other
successes of the Company or one or more of its Subsidiaries. The Committee,
from time-to-time, shall select from the Eligible Employees those to whom
Awards shall be granted and determine the size of such Awards. No Eligible
Employee of the Company or any of its Subsidiaries shall have any right to an
Award.
SECTION SEVEN.
RESTRICTED STOCK
A. Grants of Restricted Stock.
Restricted Stock shall mean shares of Common Stock awarded pursuant to
this Section Seven. Shares of Restricted Stock shall be issued to Participants
without payment of cash consideration. A Certificate for Restricted Stock
shall be issued in the name of each Participant receiving such an Award and
shall bear a restrictive legend prohibiting the sale, transfer, pledge or
hypothecation of the Restricted Stock evidenced thereby until the expiration of
the restricted period.
Holders of Restricted Stock shall have the right to vote such Stock. In
granting a Restricted Stock Award, the Committee may authorize the Participant
to receive the cash dividends payable with respect to such Stock or may direct
that they be retained by the Company.
B. Restriction Period.
At the time of each grant of a Restricted Stock Award, the Committee
shall establish the restriction period applicable to such Award. Each
restriction period shall be a period within which must be accomplished the
achievement of such Company or Subsidiary performance standards or the
fulfillment of such other terms and conditions as may be determined, in its
sole discretion, by the Committee. Notwithstanding the other provisions of
this Section Seven B: the Committee, in its sole discretion, may change or
eliminate the Award Period with respect to any Restricted Stock Award whenever
it shall determine that changes in tax or other laws, or in rules or
regulations promulgated thereunder, or material and unforeseen events or
circumstances arising after the Date of Grant of such Restricted Stock Award
make such action appropriate.
C. Removal of Restrictions; Forfeiture of Shares.
Upon completion of the restriction period pertaining to an Award of
Restricted Stock and the fulfillment of the terms and conditions with respect
thereto, all restrictions upon such Restricted Stock will expire and a new
certificate representing such Stock will be issued without the restrictive
legend described in Section Seven A. In the event of the disability or death
of a Participant prior to the issuance of such new certificate, such
certificate will be issued to such Participant's guardian, executor,
administrator or heir.
Should the terms and conditions with respect to an Award of Restricted
Stock not be satisfied, the Participant shall have no further right, title or
interest in or to such Restricted Stock and shall surrender the certificate
representing shares of such Stock to the Committee.
SECTION EIGHT.
STOCK OPTIONS
A. Grants of Options.
An Option shall mean the Award of the right to purchase shares of Common
Stock pursuant to this Section Eight, and may be either an Incentive Stock
Option or a non-statutory stock option.
B. Stock Option Agreement.
Each Award of an Option shall be evidenced by a written option agreement
containing the terms and conditions set forth in this Section Eight and such
other terms and conditions as may be determined, in its sole discretion, by the
Committee, including, without limitation, provisions to qualify such Option as
an Incentive Stock Option. Each such option agreement shall be subject to the
provisions applicable to Options set forth in the Plan, whether or not such
provisions shall be set forth in such agreement.
C. Option Price.
The Option Price per share of Common Stock shall be set in the Award by
the Committee, and in the case of non-statutory stock option the price may not
be less than 85% of the Fair Market Value at the Date of Grant, but, in the
case of an Incentive Stock Option, shall be not less than 100% of the Fair
Market Value at the Date of Grant.
D. Form of Payment.
At the time of the exercise of an Option, the Option price shall be
payable in full, in U.S. dollars, or in other shares of Common Stock (whether
already owned or pursuant to a cashless exercise) or in a combination of both;
and if Common Stock shall constitute payment of all or a portion of the Option
Price, it shall be valued at the Fair Market Value on the date the Option is
exercised. To the extent required, such exercise and payment shall be effected
in accordance with Section 16 of the Exchange Act and the rules thereunder.
E. Right to Exercise.
Each Option shall become exercisable within such period as the Committee,
in its sole discretion, shall determine. Unless the Committee shall determine
that an Option may only be exercised in whole, it may be exercised in whole at
any time or in part from time-to-time.
The Committee, in its sole discretion, may declare any Option to be
immediately exercisable whenever it shall determine that changes in tax or
other laws, or in rules or regulations promulgated thereunder, or material and
unforeseen events or circumstances arising after the Date of Grant of such
Option make such action appropriate.
An Option may be exercised only by the Option Holder or, in the event of
the legal disability or death of such Option Holder, by such Option Holder's
legal guardian, executor, administrator or heir.
F. Expiration of Options.
Except as otherwise provided in the Option Holder's Award, an Option, to
the extent vested and exercisable on the date of termination, will expire upon
the first to occur of the following: (i) the expiration of the period within
which it may be exercised as determined by the Committee at the time of grant;
(ii) the tenth anniversary of its Date of Grant; (iii) the lapse of three
months following the Option Holder's Date of Retirement; (iv) the lapse of one
month following the Option Holder's Termination; (v) the lapse of a period of
one year following the date of the Option Holder's disability or death; or
(vi) to the extent of the exercise of related Stock Appreciation Rights, upon
the exercise of such Rights. Except as otherwise provided in the Option
Holder's Award, an Option, to the extent not vested and exercisable on the
date of termination, will expire immediately upon any such termination of
employment.
G. Rights as a Stockholder.
An Option Holder shall have no rights as a stockholder with respect to
any shares of Common Stock covered by an Option until the date, following the
exercise of the Option, of the issuance of either a certificate for the Common
Stock or a book entry of the Common Stock with respect to which the Option has
been exercised. No adjustment shall be made for dividends, distributions or
other rights for which the record date occurs prior to the date such
certificate shall be issued, except as provided in Section Sixteen H.
H. Modification, Extension and Renewal of Options.
The Committee, in its sole discretion, may modify, extend or renew
outstanding Options, or exchange outstanding Options for new Options; provided,
however, that no modification of an outstanding Option, without the consent of
the Option Holder, shall adversely effect the rights of such Option Holders
under such Option.
I. Early Disposition of Common Stock.
If a Participant shall dispose of any Common Stock purchased pursuant to
an Incentive Stock Option within one year from the date on which such Stock was
acquired or within two years from the Date of Grant of such Option, then, to
provide the Company with the opportunity to claim the benefit of any income tax
deduction which may be available to it under the circumstances, such
Participant, within ten days of such disposition, shall notify the Company of
the dates of acquisition and disposition of such Stock, the number of shares so
disposed of and the consideration, if any, received therefore.
J. Individual Dollar Limitations.
The aggregate Fair Market Value (determined at the time of Award) of the
Common Stock with respect to which an Incentive Stock Option shall be
exercisable for the first time during any calendar year (whether under this
Plan or another plan or arrangement of the Company or any of its Subsidiaries)
shall not exceed $100,000 (or such other limit as may be in effect under the
Code on the date of Award).
SECTION NINE.
STOCK APPRECIATION RIGHTS
A. Grants of Stock Appreciation Rights.
A Stock Appreciation Right is the right to receive payment of an amount
equal to the greater of the increase, if any, in the Fair Market Value or the
Book Value of a share of Common Stock over the period of time between the Date
of Grant of such Right and its exercise.
Stock Appreciation Rights may be granted in conjunction with an Option,
either at the time of Award or thereafter. Stock Appreciation Rights shall be
subject to such terms and conditions as the Committee, in its sole discretion,
shall determine. Stock Appreciation Rights may be granted only in conjunction
with an Option, and may not be granted separately from the grant of an Option.
Stock Appreciation Rights shall be credited to a Stock Appreciation Rights
account to be maintained for each Participant. Stock Appreciation Rights shall
be granted without the payment of consideration by Participants. The Award of
Stock Appreciation Rights shall not entitle the Participant to any dividend,
voting or other rights of a stockholder of the Company.
B. Right to Exercise
Stock Appreciation Rights issued in conjunction with an Option shall be
exercisable to the extent that such Option shall be exercisable and in lieu of
the exercise of such Option which, to the extent of the exercise of such Stock
Appreciation Rights, shall lapse.
The Committee, in its sole discretion, may change or eliminate the Award
Period with respect to any Stock Appreciation Rights Award whenever it shall
determine that changes in tax or other laws, or in rules or regulations
promulgated thereunder, or material or unforeseen events or circumstances
arising after the Date of Grant of such Stock Appreciation Right Award make
such action appropriate.
A Stock Appreciation Right may be exercised only by the Participant or,
in the event of the legal disability or death of such Participant, by such
Participant's legal guardian, executor, administrator or heir.
C. Expiration of Stock Appreciation Rights.
A Stock Appreciation Right granted in conjunction with an Option will
expire upon the exercise or expiration of the related Option.
D. Deemed Exercise.
If on the date of expiration of any Stock Appreciation Right (other than
an expiration by virtue of the exercise of the related Option) such Stock
Appreciation Right shall not have been exercised, such Stock Appreciation Right
shall be deemed to have been exercised on such date.
E. Payment.
Upon the exercise of Stock Appreciation Rights, the Participant shall
receive, in respect of each such Right, payment, in cash or Common Stock or a
combination of both as the Committee, in its sole discretion, shall determine,
an amount equal to the greater of: (i) the excess of the Fair Market Value of
one share of Common Stock at the date of exercise over the Fair Market Value of
one share of Common Stock at the Date of Grant, or (ii) the excess of the Book
Value of one share of Common Stock determined as of the end of the calendar
month preceding the date of exercise over the Book Value of one share of Common
Stock determined as of the end of the calendar month preceding the Date of
Grant. The number of shares of Common Stock to be received upon the exercise
of Stock Appreciation Rights shall be determined on the basis of the Fair
Market Value of the Common Stock on the day next preceding the date on which
such Stock Appreciation Rights shall have been exercised.
SECTION TEN.
PERFORMANCE SHARE AWARDS
A. Grants of Performance Shares.
A Performance Share is the right to receive payment of an amount equal to
the Fair Market Value of a share of Common Stock at the end of the Award Period
with respect to such Performance Share.
The right to receive payment for Performance Shares shall be subject to
satisfaction of such terms and conditions as the Committee, in its sole
discretion, may determine. Performance Shares shall be credited to a
Performance Share account to be maintained for each Participant. Performance
Shares shall be issued without the payment of consideration by Participants.
The Award of Performance Shares shall not entitle the Participant to any
dividend, voting or other rights of a stockholder of the Company.
B. Right to Payment.
Following the end of the award Period, payment for Performance Shares
shall be made only if the Committee, in its sole discretion, shall have
determined that the terms and conditions of such payment shall have been
fulfilled. The Committee, in its sole discretion, may change or eliminate the
Award Period or modify such terms and conditions with respect to any
Performance Shares whenever it shall determine that changes in tax or other
laws, or in rules or regulations promulgated thereunder, or material and
unforeseen events or circumstances arising after the Date of Grant of such
Performance Share Award make such action appropriate.
C. Payment.
Payment in respect of Performance Shares shall be made as soon as
practicable after the receipt by the Committee of all information, including
financial statements, necessary to determine whether the terms and conditions
applicable to such Performance Shares shall have been fulfilled.
Payment in respect of each Performance Share shall be made in cash or
Common Stock, or a combination of both, as the Committee, in its sole
discretion, shall determine in an amount equal to the Fair Market Value, as of
the day following the end of the Award Period, of one share of Common Stock.
The number of shares of Common Stock to be received as payment with respect to
Performance shares shall be determined on the basis of the Fair Market Value of
the Common Stock on the day next preceding the day on which such shares of
Common Stock shall be issued.
SECTION ELEVEN.
DIVIDEND EQUIVALENT SHARES
A. Grants of Dividend Equivalent Shares.
A Dividend Equivalent Share is the right to receive payment of an amount
calculated as provided below.
A Participant in conjunction with an Award of Stock Appreciation Rights
or Performance Shares may be granted, at no cost, the right to accumulated
Dividend Equivalent Shares based on the dividends declared on the Common Stock
for record dates occurring during the Award Period for the related Stock
Appreciation Rights or Performance Shares. Dividend Equivalent Shares shall be
credited to a Dividend Equivalent Share Account maintained for each recipient.
Dividend Equivalent Shares shall be calculated in terms of shares of
Common Stock as of each dividend record date as follows:
Number of Dividend Number of related Performance Per Share
Equivalent Shares Shares or Stock Appreciation x Dividend on
earned Rights awarded plus previously Common Stock
earned Dividend Equivalent Shares
Book Value of Common Stock
Dividend Equivalent Shares shall be computed, as of each dividend record
date, both with respect to the number of related Performance Shares or Stock
Appreciation Rights awarded and with respect to the number of Dividend
Equivalent Shares previously earned and not paid during the period prior to the
dividend record date.
Book Value shall be determined as of the end of the month preceding any
dividend record date, unless any record date shall be the last day of the
month, in which case Book Value shall be determined as of such record date.
B. Right to Payment.
Payment with respect to Dividend Equivalent Shares granted in conjunction
with an Award of Stock Appreciation Rights shall be made at the same time that
payment shall be made upon the exercise of such Stock Appreciation Rights.
Payment with respect to Dividend Equivalent Shares granted in conjunction with
Performance Shares shall be made at the same time that payment shall be made
with respect to such Performance Shares.
C. Payment.
Payment in respect of Dividend Equivalent Shares shall be made in cash or
Common Stock, or a combination of both, as the Committee, in its sole
discretion, shall determine. The number of shares of Common Stock to be
received as payment with respect to Dividend Equivalent Shares shall be
determined on the same basis as the number of shares of Common Stock to be
received as payment with respect to the related Stock Appreciation Rights or
Performance Shares shall be determined.
SECTION TWELVE.
SPECIAL PROVISIONS APPLICABLE TO COVERED PARTICIPANTS
Awards to Covered Participants shall be governed by the conditions of
this Section Twelve in addition to the requirements of Sections Seven through
Eleven above. Should conditions set forth under this Section Twelve conflict
with the requirements of Sections Seven through Eleven, the conditions of this
Section Twelve shall prevail.
A. Performance Criteria.
All Performance Criteria relating to Covered Participants for a relevant
Performance Period shall be established by the Committee in writing prior to
the beginning of the Performance Period, or by such other later date for the
Performance Period as may be permitted under Section 162(m) of the Code.
Performance Criteria may include alternative and multiple Performance Criteria
and will be based on one or more of the following business criteria: business
or financial goals of the Company, including economic value added, absolute or
relative levels of total shareholder return, revenues, sales, net income, or
net worth of the Company, any of its Subsidiaries, divisions, business units,
or other areas of the Company.
The Performance Criteria must be objective and must satisfy third party
"objectivity" standards under Section 162(m) of the Code, and the regulations
promulgated thereunder.
The Performance Criteria shall not allow for any discretion by the
Committee as to an increase in any Award, but discretion to lower an Award is
permissible.
The Award and payment of any Award under this Plan to a Covered
Participant with respect to a relevant Performance Period shall be contingent
upon the attainment of the Performance Criteria that are applicable to such
Award. The Committee shall certify in writing prior to payment of any such
Award that such applicable Performance Criteria have been satisfied.
Resolutions adopted by the Committee may be used for this purpose.
B. Grants of Options.
The Option Price per share of Common Stock shall be set in the Award by
the Committee, and in the case of a non-statutory stock option or Incentive
Stock Option granted to a Covered Participant the price may not be less than
the Fair Market Value at the Date of Grant.
C. Grants of Stock Appreciation Rights.
A Stock Appreciation Right granted to a Covered Participant shall be the
right to receive payment of an amount equal to the increase, if any, in the
Fair Market Value of a share of Common Stock over the period of time between
the Date of Grant of such Right and its exercise. Upon the exercise of a Stock
Appreciation Right, a Covered Participant shall receive payment in cash or
Common Stock or a combination of both as the Committee, in its sole discretion,
shall determine, in an amount equal to the excess of the Fair Market Value of
one share of Common Stock at the date of exercise over the Fair Market Value of
one share of Common Stock at the Date of Grant.
D. Maximum Awards.
The aggregate maximum Awards that may be paid (in cash or in shares of
Common Stock or a combination thereof) to any Covered Participant under the
Plan during any calendar year shall be an amount equivalent to the Fair Market
Value of 100,000 shares of Common Stock, such Fair Market Value to be
determined as of the first day of such calendar year.
The aggregate maximum number of shares of Common Stock subject to Options
and Stock Appreciation Rights made to any Covered Participant during any
calendar year shall be 150,000.
All Awards to Covered Participants under this Plan shall be further
subject to such other conditions, restrictions, and requirements as the
Committee may determine to be necessary to carry out the purposes of this
Section Twelve.
SECTION THIRTEEN.
FORFEITURE
Except as otherwise provided in the Participant's Award, in the event a
Participant ceases employment during an Award Period, Restricted Stock, Stock
Appreciation Rights, Performance Shares and Dividend Equivalent Shares are
subject to forfeiture as follows:
(i) Termination - the Award to the extent not vested, exercisable,
earned or paid out as of the date of any such employment cessation
will be completely forfeited as of the date of Termination.
(ii) Retirement - payout of the Award will be prorated for service
during the Award period.
(iii) Earlier than Normal Retirement - payout of the Award will be
prorated for service during the Award period.
(iv) Disability - payout of the Award will be prorated for service
during the Award Period as if the Participant had maintained
active employment until the Normal Retirement Date.
(v) Death - payout of the Award will be prorated for service during
the Award Period.
In any instance where payout of an Award is to be prorated, the
Committee, in its sole discretion, may choose to provide the Participant (or
the Participant's estate) with the entire payout rather than the prorated
portion thereof.
Any Award which is forfeited, in whole or in part, will revert to the
Plan.
SECTION FOURTEEN.
DEFERRAL ELECTION
Upon the request of a Participant, the Committee may, in its sole
discretion, permit a Participant to elect to defer the payout of all or any
part of any Award which he or she is not entitled to receive during the
calendar year in which such deferral election is made under such conditions as
the Committee may establish, including the crediting of reasonable interest on
deferred amounts denominated in cash and Dividend Equivalent Shares on amounts
denominated in Common Stock.
SECTION FIFTEEN.
AMENDMENT OF PLAN
At any time from time-to-time, the board may alter, amend, suspend or
terminate the Plan, in whole or in part, except that no such action may be
taken without the consent of each Participant to whom any Award shall
theretofore have been granted, which adversely affects the rights of such
Participant concerning such Award, except, if such alteration, amendment,
suspension or termination is required by changes in tax or other laws, or by
rules or regulations promulgated thereunder.
SECTION SIXTEEN.
MISCELLANEOUS PROVISIONS
A. Nontransferability.
Except as otherwise provided in the Participant's Award, no Award under
this Plan shall be subject to alienation or assignment by a Participant (or by
any person entitled to such benefit pursuant to the terms of this Plan), nor,
to the fullest extent provided by law, shall it be subject to attachment or
other legal process of whatever nature. Except as otherwise provided in the
Participant's Award, any attempted alienation, assignment or attachment, to
the fullest extent provided by law, shall be void and of no effect whatsoever.
Payments, whether in cash or in shares of Common Stock, shall be made only into
the hands of the Participant entitled to receive the same or into the hands of
the Participant's authorized legal representative. Deposit of any sum in any
financial institution to the credit of any Participant (or of any other person
entitled to such sum pursuant to the terms of this Plan) shall constitute
payment into the hands of that Participant (or such person).
B. No Employment Right.
Neither this Plan nor any action taken hereunder shall be construed as
giving any right to be retained as an officer or other employee of the Company
or any of its subsidiaries.
C. Tax Withholding.
Either the Company or a Subsidiary, as appropriate, shall have the right
to deduct from all Awards paid in cash any federal, state or local taxes as it
shall deem to be required by law to be withheld with respect to such payments.
In the case of Awards paid in Common Stock, the employee or other person
receiving such Common Stock may be required to pay to the Company or a
Subsidiary, as appropriate, the amount of any such taxes which the Company or a
Subsidiary is required to withhold with respect to such Stock. The Company
shall have the right to withhold any amounts required to be withheld on account
of any Award from such Participant's compensation from the Company or any of
its Subsidiaries. At the request of a Participant, or as required by law, such
sums as may be required for the payment of any estimated or accrued income tax
liability may be withheld and paid over to the governmental entity entitled to
receive the same. Subject to approval by the Committee, a Participant may also
make payment by tendering shares of Common Stock already owned, by having such
amounts withheld from shares of Common Stock otherwise distributable to him or
her upon the exercise or vesting of any Award or pursuant to a cashless
exercise. Such payments shall, to the extent required, be effected in
accordance with Section 16 of the Exchange Act and the rules thereunder.
D. Fractional Shares.
Any fractional shares shall be eliminated at the time of payment or
payout by payment of cash.
E. Government and Other Regulations.
The obligation of the Company to make payment of Awards in Common Stock
or otherwise shall be subject to all applicable laws, rules and regulations,
and to such approvals by any government agencies as may be required. Except as
required by law, the Company shall be under no obligation to register under the
Securities Act of 1933, as amended ("Act"), any of the shares of Common Stock
issued, delivered or paid in settlement under the Plan. If Common Stock
awarded under the Plan may in certain circumstances be exempt from registration
under the Act, the Company may restrict its transfer in such manner as it deems
advisable to ensure such exempt status.
F. Indemnification.
Each person who is or at any time serves as a member of the Committee
(and each person to whom the Committee has delegated any of its authority or
power under this Plan pursuant to Section Four) shall be indemnified and held
harmless by the Company against and from (i) any loss, cost, liability, or
expenses that may be imposed upon or reasonably incurred by such person in
connection with or resulting from any claim, action, suit, or proceeding to
which such person may be a party or in which such person may be involved by
reason of any action or failure to act under the Plan; and (ii) any and all
amounts paid by such person in satisfaction of judgment in any such action,
suit or proceeding relating to the Plan. Each person covered by this
indemnification shall give the Company an opportunity, at its own expense, to
handle and defend the same before such person undertakes to handle and defend
it on such persons own behalf. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such persons
may be entitled under the restated Articles or By-laws of the Company or any of
its subsidiaries, as a matter of law, or otherwise, or any power that the
Company may have to indemnify such person or hold such person harmless.
G. Reliance on Reports.
Each member of the Committee (and each person to whom the Committee has
delegated any of its authority or power under this Plan pursuant to Section
Four) shall be fully justified in relying or acting in good faith upon any
report made by the independent public accountants of the Company and its
Subsidiaries and upon any other information furnished in connection with the
Plan. In no event shall any person who is or shall have been a member of the
Committee be liable for any determination made or other action taken or any
omission to act in reliance upon any such report or information or for any
action taken, including the furnishing of information, or failure to act, if in
good faith.
H. Changes in Capital Structure.
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, combination or
exchange of shares or other similar changes in the Common Stock, then
appropriate adjustments shall be made in Awards theretofore granted to the
Participants and in the aggregate number of shares of Common Stock (or cash
payment in lieu thereof) which may be granted pursuant to the Plan. Such
adjustments shall be conclusive and binding for all purposes. Additional
shares of Common Stock issued to a Participant as the result of any such change
shall bear the same restrictions as the shares of Common Stock to which they
relate.
I. Company Successors.
In the event the Company becomes a party to a merger, consolidation, sale
of substantially all of its assets or any other corporate reorganization in
which the Company will not be the surviving corporation or in which the holders
of the Common Stock will receive securities of another corporation, then such
company shall assume the rights and obligations of the Company under this Plan.
J. Governing Law.
All matters relating to the Plan or to Awards granted hereunder shall be
governed by the laws of the State of Montana, without regard to the principles
of conflict of laws.
K. Relationship to Other Benefits.
No payment under the Plan shall be taken into account in determining any
benefits under any pension, retirement, profit sharing or group insurance plan
of the Company or any Subsidiary, except as may be required by tax or other law
or by rules or regulations promulgated thereunder.
L. Expenses.
The expenses of administering the Plan shall be borne by the Company and
its Subsidiaries.
M. Titles and Headings.
The titles and headings of the sections in the Plan are for convenience
of reference only, and in the event of any conflict, the text of the Plan,
rather than such titles or headings, shall control.
N. Certain Participants.
All Award agreements for Participants subject to Section 16(b) of the
Exchange Act shall be deemed to include any such additional terms, conditions,
limitations and provisions as Rule 16b-3 requires, unless the Committee, in its
sole discretion, determines that any such Award should not be governed by Rule
16b-3. All performance-based Awards to Covered Participants shall be deemed to
include any such additional terms, conditions, limitations and provisions as
are necessary to comply with the performance-based compensation exemption of
Section 162(m) of the Code, unless the Committee, in its sole discretion,
determines that any such Award is not intended to qualify for the exemption for
performance-based compensation under Section 162(m) of the Code.
O. Pooling of Interests.
Notwithstanding anything herein contained to the contrary, any cash
payment under any award granted hereunder shall be canceled immediately prior
to the effective time of a Change of Control pursuant to a written agreement
whereby the consummation of the transaction is conditioned upon the
availability of "pooling of interests" accounting treatment (within the
meaning of A.P.B. No. 16 or any successor thereto); provided, however, that
the cancellation of any cash payment under any award shall be subject in all
cases to the following conditions:
(i) the cash payment would (in the opinion of the firm of independent
certified public accountants regularly engaged to audit the
Company's financial statements) render the transaction ineligible
for pooling of interests accounting treatment;
(ii) the cancellation of the cash payment would (in the opinion of the
firm of independent certified public accountants regularly engaged
to audit the Company's financial statements) render the
transaction eligible for pooling of interests accounting
treatment;
(iii) the transaction is, in fact, consummated; and
(iv) the written agreement providing for the transaction also provides
for each such Participant (to whom a cash payment, but for this
Section Sixteen O., would have been made) to receive, upon the
effective date of such transaction, property with a fair market
value at least equal to the cash payment that would be made under
any such Award.
SECTION SEVENTEEN
MERGERS AND OTHER MATTERS.
A. No Corporate Action Restriction.
The existence of the Plan, and/or the Awards granted hereunder shall not
limit, affect or restrict in any way the right or power of the Board or the
shareholders of the Company to make or authorize (a) any adjustment,
recapitalization, reorganization or other change in the Company's or any
Subsidiary's capital structure or its business, (b) any merger, consolidation
or change in the ownership of the Company or any Subsidiary, (c) any issue of
bonds, debentures, capital, preferred or prior preference stocks ahead of or
affecting the Company's or any Subsidiary's capital stock or the rights
thereof, (d) any dissolution or liquidation of the Company or any Subsidiary,
(e) any sale or transfer of all or any part of the Company's or any
Subsidiary's assets or business, or (f) any other corporate act or proceeding
by the Company or any Subsidiary. No Participant, beneficiary or any other
person shall have any claim against any member of the Board or the Committee,
the Company or any Subsidiary, or any employees, officers or agents of the
Company or any subsidiary, as a result of any such action.
B. Certain Mergers.
If the Company enters into or is involved in any merger, reorganization
or other business combination with any person or entity (such merger,
reorganization or other business combination to be referred to herein as a
"Merger Event") and as a result of any such Merger Event will be or is the
surviving corporation, a Participant shall be entitled to receive, as of the
date of the execution of the agreement evidencing the Merger Event (the
"Execution Date") and with respect to both exercisable and unexercisable
Options and/or Stock Appreciation Rights (but only to the extent not
previously exercised), substitute stock options and/or stock appreciation
rights in respect of the shares of the surviving corporation on such terms and
conditions, as to the number of shares, pricing and otherwise, which shall
substantially preserve the value, rights and benefits of any affected Options
or Stock Appreciation Rights granted hereunder as of the date of the
consummation of the Merger Event. Notwithstanding anything to the contrary in
this Section Seventeen, if any Merger Event occurs, the Company shall have the
right to pay to each affected Participant an amount in cash or certified check
equal to the excess of the Fair Market Value of the Common Stock underlying
any affected unexercised Options or Stock Appreciation Rights as of the
consummation of the Merger Event (whether then exercisable or not) over the
aggregate exercise price of such unexercised Options and/or Stock Appreciation
Rights, as the case may be.
If, in the case of a Merger Event in which the Company will not be, or
is not, the surviving corporation, and the Company determines not to make the
cash or certified check payment described in this Section Seventeen of the
Plan, the Company shall compel and obligate, as a condition of the
consummation of the Merger Event, the surviving or resulting corporation
and/or the other party to the Merger Event, as necessary, or any parent,
subsidiary or acquiring corporation thereof, to grant substitute stock options
or stock appreciation rights in respect of the shares of common or other
capital stock of such surviving or resulting corporation on such terms and
conditions, as to the number of shares, pricing and otherwise, which shall
substantially preserve the value, rights and benefits of any affected Options
and/or Stock Appreciation Rights previously granted hereunder as of the date
of the consummation of the Merger Event.
Upon receipt by any affected Participant of any such cash, certified
check, or substitute stock options or stock appreciation rights as a result of
any such Merger Event, such Participant's affected Options and/or Stock
Appreciation Rights for which such cash, certified check or substitute awards
was received shall be thereupon cancelled without the need for obtaining the
consent of any such affected Participant. The foregoing adjustments and the
manner of application of the foregoing provisions, including, without
limitation, the issuance of any substitute stock options and/or stock
appreciation rights, shall be determined in good faith by the Committee in its
sole discretion. Any such adjustment may provide for the elimination of
fractional shares.
C. Change of Control.
Anything in the Plan to the contrary notwithstanding, if a Change of
Control (as defined below) of the Company occurs (a) all Options and/or Stock
Appreciation Rights then unexercised and outstanding shall become fully vested
and exercisable as of the date of the Change of Control, (b) all restrictions,
terms and conditions applicable to all Restricted Stock then outstanding shall
be deemed lapsed and satisfied as of the date of the Change of Control, and
(c) the Performance Period shall be deemed completed and all Performance
Shares shall be deemed to have been fully earned as of the date of the Change
of Control, and (d) Dividend Equivalents shall be earned. The immediately
preceding sentence shall apply to only those Participants (i) who are employed
by the Company and/or one of its Subsidiaries as of the date of the Change of
Control, or (ii) to whom the immediately succeeding sentence is applicable.
Anything in the Plan to the contrary notwithstanding, if a Change of Control
occurs and if the Participant's employment is terminated within six months
before such Change of Control and it is reasonably demonstrated by the
Participant that such employment termination (a) was at the request, directly
or indirectly, of a third party who has taken steps reasonably calculated to
effect the Change of Control, or (b) otherwise arose in connection with or in
anticipation of the Change of Control, then for purposes of this Section
Seventeen, the Change of Control shall be deemed to have occurred immediately
prior to such Participant's employment termination.
D. Definition of Change of Control.
For purposes of this agreement, a "Change of Control" means and shall be
deemed to occur if:
(i) the Shareholders of the Company approve the dissolution or
liquidation of the Company; or
(ii) there occurs a reorganization, merger or consolidation of the
Company, other than a reorganization, merger or consolidation with
respect to which all or substantially all of the individuals and
entities who were "beneficial owners" (as defined below),
immediately prior to such reorganization, merger or consolidation,
of the combined voting power of the Company's then outstanding
securities beneficially own, directly or indirectly, immediately
after any such reorganization, merger or consolidation, more than
eighty percent (80%) of the combined voting power of the
securities of the corporation resulting from such reorganization,
merger or consolidation in substantially the same proportions as
their respective ownership, immediately prior to any such
reorganization, merger or consolidation, of the combined voting
power of the Company's securities; or
(iii) there occurs the sale, exchange, transfer, or other disposition of
shares of stock of the Company (or shares of the stock of any
Person (as hereafter defined) that is a shareholder of the
Company) in one or more transactions, related or unrelated, to one
or more Persons if, as a result of such transactions, any Person
is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934 (the "Exchange Act")),
directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such Person(s)
any securities acquired directly from the Company) representing
more than 20% of the combined voting power of the then outstanding
stock of the Company; or
(iv) there occurs any transaction which the Company is required to
disclose pursuant to Item 1(a) of Form 8-K (as filed pursuant to
Rule 13a-11 or Rule 15d-11 of the Exchange Act); or
(v) during any period of twenty-four (24) consecutive months (not
including any period prior to December 31, 1998), individuals who
constitute the Board at the beginning of such period (the
"Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any individual becoming a director
(other than a director designated by a Person who has entered into
an agreement with the Company or an affiliate of the Company to
effect a transaction described in clauses (i), (ii), (iii), (iv),
or (vi) of this definition or any such individual whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitations of proxies or consents)
subsequent to the beginning of such period whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least two-thirds of the directors then
still in office and comprising the Incumbent Board at the
beginning of such period or whose election or nomination for
election was previously so approved (either by a specific vote or
by approval of the proxy statement of the Company in which such
individual is named as a nominee for director, without objection
to such nomination) shall be considered as though such individual
were a member of the Incumbent Board; or
(vi) there occurs the sale of all or substantially all the assets of
the Company.
Notwithstanding the foregoing, Section Seventeen C. shall not apply to
any Participant who actively participates in any Change of Control transaction
resulting from the action or actions (other than any employment activities of
such Participant on behalf of the Company or any of its subsidiaries) of any
person or group of persons which includes, is directly affiliated with or is
wholly or partly controlled by such Participant or one or more executive
officers of the Company.
MAP TO THE MOTHER LODE THEATRE
316 W. PARK, BUTTE, MT 59701
The Montana Power Company
The Annual Meeting of Shareholders will be held at the Mother Lode Theatre, 316
W. Park, Butte, Montana on May 11, 1999 at 1:30 p.m.
Please mark, sign, date and return the proxy card below in the envelope
provided. If you do so now, the Company will be saved the expense of follow-up
solicitations. Please see back for directions.
DETACH ALONG THIS LINE
- ----------------------------------------------------------------------------
___ PLEASE MARK VOTES THE MONTANA POWER COMPANY
AS IN THIS EXAMPLE The proxy is instructed to vote as follows:
PREFERRED STOCK
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2 AND 3.
2. AMENDMENT OF THE MONTANA POWER
WITH FOR ALL COMPANY LONG-TERM INCENTIVE PLAN
FOR HOLD EXCEPT FOR AGAINST ABSTAIN
1. ELECTION OF DIRECTORS __ __ __ __ __ __
3. Amendment of the Articles of
Incorporation to Amend the
Number of Shares of Common
Stock
FOR AGAINST ABSTAIN
__ __ __
Nominees: Tucker Hart Adams, Alan F. Cain,
John G. Connors, Robert P. Gannon, (To withhold your vote
for a particular nominee, mark the "For All Except" box and
strike a line through the nominee's name in the list above.)
Dated: ___________________________, 1999
________________________________________
SIGNATURE(S) OF SHAREHOLDER(S)
________________________________________
SIGNATURE(S) OF SHAREHOLDER(S)
________________________________________
SIGNATURE(S) OF SHAREHOLDER(S)
Please sign as your name appears hereon.
When signing as attorney, executor,
administrator, trustee or guardian, please
give full title as such. If stock is
registered in joint tenancy, all tenants
must sign the proxy.
IMPORTANT
Please send in your proxy today.
Please mark, sign, date and return the
proxy card below in the envelope pro-
vided. If you do so now, the Company
will be saved the expense of follow-up
solicitations.
DETACH ALONG THIS LINE
- ----------------------------------------------------------------------------
PROXY VOTING INSTRUCTIONS
The Montana Power Company
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF SHAREHOLDERS ON MAY 11, 1999
The undersigned hereby appoints R. P. Gannon, J. P. Pederson, and P. K. Merrell
and each of them, with power of substitution, proxies to represent, and to vote
all stock of the undersigned at The Montana Power Company's Annual Meeting of
Shareholders on May 11, 1999, and at any adjournments thereof. IN THEIR
DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING. THIS PROXY WHEN PROPERLY EXECUTED WILL BE
VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED "FOR" ITEMS 1, 2 AND 3.
Your vote for the election of Directors may be indicated on the reverse side.
The nominees are Tucker Hart Adams, Alan F. Cain, John G. Connors, Robert P.
Gannon.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
The Montana Power Company
The Annual Meeting of Shareholders will be held at the Mother Lode Theatre, 316
W. Park, Butte, Montana on May 11, 1999 at 1:30 p.m.
Please mark, sign, date and return the proxy card below in the envelope
provided. If you do so now, the Company will be saved the expense of follow-up
solicitations. Please see back for directions.
DETACH ALONG THIS LINE
- ----------------------------------------------------------------------------
___ PLEASE MARK VOTES THE MONTANA POWER COMPANY
AS IN THIS EXAMPLE The proxy is instructed to vote as follows:
COMMON STOCK
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2 AND 3.
2. AMENDMENT OF THE MONTANA POWER
WITH FOR ALL COMPANY LONG-TERM INCENTIVE PLAN
FOR HOLD EXCEPT FOR AGAINST ABSTAIN
1. ELECTION OF DIRECTORS __ __ __ __ __ __
3. Amendment of the Articles of
Incorporation to Amend the
Number of Shares of Common
Stock
FOR AGAINST ABSTAIN
__ __ __
Nominees: Tucker Hart Adams, Alan F. Cain,
John G. Connors, Robert P. Gannon, (To withhold your vote
for a particular nominee, mark the "For All Except" box and
strike a line through the nominee's name in the list above.)
Dated: ___________________________, 1999
________________________________________
SIGNATURE(S) OF SHAREHOLDER(S)
________________________________________
SIGNATURE(S) OF SHAREHOLDER(S)
________________________________________
SIGNATURE(S) OF SHAREHOLDER(S)
Please sign as your name appears hereon.
When signing as attorney, executor,
administrator, trustee or guardian, please
give full title as such. If stock is
registered in joint tenancy, all tenants
must sign the proxy.
IMPORTANT
Please send in your proxy today.
Please mark, sign, date and return the
proxy card below in the envelope pro-
vided. If you do so now, the Company
will be saved the expense of follow-up
solicitations.
DETACH ALONG THIS LINE
- ----------------------------------------------------------------------------
PROXY VOTING INSTRUCTIONS
The Montana Power Company
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF SHAREHOLDERS ON MAY 11, 1999
The undersigned hereby appoints R. P. Gannon, J. P. Pederson, and P. K. Merrell
and each of them, with power of substitution, proxies to represent, and to vote
all stock of the undersigned at The Montana Power Company's Annual Meeting of
Shareholders on May 11, 1999, and at any adjournments thereof. IN THEIR
DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING. THIS PROXY WHEN PROPERLY EXECUTED WILL BE
VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED "FOR" ITEMS 1, 2 AND 3.
Your vote for the election of Directors may be indicated on the reverse side.
The nominees are Tucker Hart Adams, Alan F. Cain, John G. Connors, Robert P.
Gannon.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.