BLACK HILLS CORPORATION
625 Ninth Street
Rapid City, South Dakota 57701
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 29, 2002
April 15, 2002
Dear Shareholder:
You are invited to attend our annual meeting of shareholders of Black
Hills Corporation to be held on Wednesday, May 29, 2002 at 9:30 a.m. local time,
at The Journey Museum, 222 New York Street, Rapid City, South Dakota. The
purpose of our annual meeting is to consider and take action on the following:
1. Election of three Class II Directors to serve until the annual meeting of
shareholders in 2005: David S. Maney, Bruce B. Brundage, and Kay S.
Jorgensen.
2. Ratification of Arthur Andersen LLP to serve as Black Hills Corporation's
independent auditors for the year 2002.
3. Any other business that properly comes before the annual meeting.
The enclosed proxy statement and prospectus discuss the important
matters to be considered at this year's meeting. Our shareholders of record as
of April 9, 2002 can vote at the annual meeting.
Your vote is very important. Please sign, date and return the enclosed
proxy card in the envelope provided. If you own shares of common stock other
than the shares shown on the enclosed proxy, you will receive a proxy in a
separate envelope for each such holding. Please execute and return each proxy
received. To make sure that your vote is counted, you should allow enough time
for the postal service to deliver your proxy before the meeting.
Sincerely,
STEVEN J. HELMERS
General Counsel and Corporate Secretary
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BLACK HILLS CORPORATION
625 Ninth Street
Rapid City, South Dakota 57701
PROXY STATEMENT
A proxy in the accompanying form is solicited by the Board of Directors
of Black Hills Corporation, a South Dakota corporation, to be voted at the
annual meeting of our shareholders to be held Wednesday, May 29, 2002, and at
any adjournment of the annual meeting.
The enclosed form of proxy, when executed and returned, will be voted
as set forth therein. Any shareholder signing a proxy has the power to revoke
the proxy in writing, addressed to our secretary, or in person at the meeting at
any time before the proxy is exercised.
All shares represented by valid, unrevoked proxies will be voted at our
annual meeting. Shares voted as abstentions on any matter, or as "withhold
authority" as to votes for members of our Board of Directors, will be counted as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum at the meeting but will be counted as unvoted, although
present and entitled to vote, for purposes of determining the approval of each
matter as to which the shareholder has abstained. If a broker submits a proxy
which indicates that the broker does not have discretionary authority as to
certain shares to vote on one or more matters, those shares will be counted as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum at the meeting, but will not be considered as present and
entitled to vote with respect to such matters.
We will bear all costs of the solicitation. In addition to solicitation
by mail, our officers and employees may solicit proxies by telephone, fax, or in
person. Georgeson Shareholder Communications, Inc. has been retained to assist
in the solicitation of proxies at an anticipated cost of $4,500 plus
out-of-pocket expenses. Also, we will, upon request, reimburse brokers or other
persons holding stock in their names or in the names of their nominees for
reasonable expenses in forwarding proxies and proxy materials to the beneficial
owners of stock.
This proxy statement and the accompanying form of proxy are to be first
mailed on or about April 15, 2002. Our annual report to shareholders is being
mailed to shareholders with this proxy statement.
VOTING RIGHTS AND PRINCIPAL HOLDERS
Only our shareholders of record at the close of business on April 9,
2002, will be entitled to vote at the meeting. Our outstanding voting stock as
of such record date consisted of 26,803,893 shares of our common stock.
Each outstanding share of our common stock is entitled to one vote.
Cumulative voting is permitted in the election of our Board of Directors. Each
share is entitled to three votes, one each for the election of three directors,
and the three votes may be cast for a single person or may be distributed among
two or three persons.
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TABLE OF CONTENTS
COMMONLY ASKED QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING PROCESS.....4
ITEM I: ELECTION OF DIRECTORS.............................................7
Security Ownership of Management and Principal Shareholders......9
The Board and Committees........................................10
Related Party Transactions......................................11
Directors' Fees.................................................11
Executive Compensation..........................................11
Retirement Plans................................................15
Retirement Benefits.............................................16
Nonqualified Deferred Compensation Plan.........................17
Retirement Savings Plan.........................................17
Severance Agreements............................................17
Audit Committee Report..........................................18
Stock Performance Graph.........................................20
ITEM II: APPOINTMENT OF INDEPENDENT AUDITORS.............................20
ITEM III: TRANSACTION OF OTHER BUSINESS..................................20
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..........................21
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COMMONLY ASKED QUESTIONS AND ANSWERS ABOUT THE
ANNUAL MEETING PROCESS
- -------------------------------------------------------------------------------
Q: Who is soliciting my proxy?
A: The Board of Directors of Black Hills Corporation.
- -------------------------------------------------------------------------------
Q: Where and when is the annual meeting?
A: 9:30 a.m., Mountain Daylight Time, May 29, 2002 at The Journey Museum, 222
New York Street, Rapid City, South Dakota.
- -------------------------------------------------------------------------------
Q: What am I voting on?
A: Election of three Class II Directors: David S. Maney, Bruce B. Brundage,
and Kay S. Jorgensen.
Ratification of Arthur Andersen LLP as our independent auditors for 2002.
- -------------------------------------------------------------------------------
Q: Who can vote?
A: Holders of our common stock as of the close of business on the record date,
April 9, 2002, can vote at our annual meeting. Each share of our common
stock gets one vote. Cumulative voting is permitted in the election of
directors. Each share is entitled to three votes, one each for the election
of three directors, and the three votes may be cast for a single person or
may be distributed among two or three persons.
- -------------------------------------------------------------------------------
Q: How do I vote?
A: Sign and date each proxy card that you receive and return it in the prepaid
envelope. If we receive your signed proxy before the annual meeting, we
will vote your shares as you direct. You can specify on your proxy whether
your shares should be voted for all, some or none of the nominees for
director. You can also specify whether you approve, disapprove or abstain
from the other proposal.
If you do not mark any sections, your proxy card will be voted:
in favor of the election of the directors named in Proposal 1; and
in favor of Proposal 2.
You have the right to revoke your proxy any time before the meeting by:
notifying our secretary in writing; or
attending the meeting in person and revoking your proxy at any time
before the proxy is exercised.
- -------------------------------------------------------------------------------
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Q: Who will count the vote?
A: Representatives of Wells Fargo Bank Minnesota, N.A. will count the votes
and serve as judges of the election.
- -------------------------------------------------------------------------------
Q: What constitutes a quorum?
A: As of the record date, April 9, 2002, 26,803,893 shares of our common stock
were issued and outstanding. In order to conduct the annual meeting, more
than one-half of the outstanding shares must be present or be represented
by proxy. This is referred to as a "quorum." If you submit a properly
executed proxy card, you will be considered as part of the quorum. Proxies
marked as abstaining on any proposal to be acted on by shareholders will be
treated as present at the annual meeting for purposes of a quorum. Proxies
marked as abstaining, however, will not be counted as votes cast on that
proposal. Abstaining proxies include proxies containing broker non-votes.
- -------------------------------------------------------------------------------
Q: What vote is needed for these proposals to be adopted?
A: More than one-half of shares present either in person or by proxy and
entitled to vote at the annual meeting must vote for a proposal in order
for it to be adopted. For the election of directors, abstentions and votes
"withheld" will be considered votes against the directors. For all other
proposals, abstentions and broker non-votes will not be counted as "votes"
cast.
- -------------------------------------------------------------------------------
Q: What should I do now?
A: You should mail your signed and dated proxy card in the enclosed envelope
as soon as possible, so that your shares will be represented at the annual
meeting.
- -------------------------------------------------------------------------------
Q: Who conducts the proxy solicitation and how much will it cost?
A: We are asking for your proxy for the annual meeting and will pay all the
cost of asking for shareholder proxies. We have hired Georgeson Shareholder
Communications, Inc. to help us send out the proxy materials and ask for
proxies. Georgeson Shareholder Communications, Inc.'s fee for these
services is anticipated to be $4,500, plus out-of-pocket expenses. We can
ask for proxies through the mail or by telephone, fax, or in person. We can
use our directors, officers and regular employees to ask for proxies. These
people do not receive additional compensation for these services. We will
reimburse brokerage houses and other custodians, nominees and fiduciaries
for their reasonable out-of-pocket expenses for forwarding solicitation
material to the beneficial owners of our common stock.
- -------------------------------------------------------------------------------
Q: Can I change my vote after I have mailed my signed proxy card?
A: Yes. You can change your vote in one of three ways at any time before your
proxy is used. First, you can revoke your proxy by written notice. Second,
you can send a later dated proxy changing your vote. Third, you can attend
the meeting and vote in person.
- -------------------------------------------------------------------------------
Q: How will my shares be voted if they are held in a broker's name?
A: Your broker may vote shares nominally held in its name, or in what is
commonly called "street name", only if you provide the broker with written
instructions on how to vote.
- -------------------------------------------------------------------------------
Q: What happens if I do not give my broker instructions?
A: Absent your instructions, these shares will not be voted. Therefore, we
urge you to instruct your broker in writing to vote shares held in street
name.
- -------------------------------------------------------------------------------
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Q: Who should I call with questions?
A: If you have questions about the transaction, you should call Steven J.
Helmers, our General Counsel and Corporate Secretary, at (605) 721-1700.
- -------------------------------------------------------------------------------
Q: When are the shareholder proposals for the annual meeting held in the Year
2003 due?
A: In order to be considered, you must submit proposals for next year's annual
meeting in writing to our secretary at our home offices at 625 Ninth
Street, P.O. Box 1400, Rapid City, South Dakota 57709, prior to November
26, 2002.
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ITEM I: ELECTION OF DIRECTORS
In accordance with the Bylaws and Article Sixth of the Articles of
Incorporation, members of our Board of Directors are elected to three classes of
staggered terms consisting of three years each. At this annual meeting of our
shareholders, three Directors will be elected to Class II of the Board of
Directors to hold office for a term of three years until our annual meeting of
shareholders in 2005 and until their respective successors shall be duly elected
and qualified.
Each of the nominees for director is presently a member of our Board of
Directors. The proxy attorneys will vote your stock for the election of the
three nominees for director listed below, unless otherwise instructed. If, at
the time of the meeting, any of such nominees shall be unable to serve in the
capacity for which they are nominated or for good cause will not serve, an event
which the Board of Directors does not anticipate, it is the intention of the
persons designated as proxy attorneys to vote, at their discretion, for nominees
to replace those who are unable to serve. The affirmative vote of a majority of
the common shares present and entitled to vote with respect to the election of
directors is required for the election of the nominees to the Board of
Directors.
The following information, including principal occupation or employment for
the past five or more years, is furnished with respect to each of the following
persons who are nominated as Class II Directors, each to serve for a term of
three years to expire in 2005.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE FOLLOWING
NOMINEES:
Nominees for Election Until
2005 Annual Meeting - Class II
Name, Age, Principal Occupation for Director
Last Five Years and Other Directorships Since
- --------------------------------------- --------
David S. Maney, 38 1999
Managing Partner, Headwaters MB, LLC,
a middle market merchant banking firm, providing investment
banking services nationwide to companies with enterprise
values ranging from $10 million to $300 million, since
October 2001. Telecommunications Venture Capital Investor
and Consultant, since November 2000. Founder, Former
President and CEO, Worldbridge Broadband Services, Inc.
CEO, Open Access Broadband Networks, Inc., 1994 to November 2000.
Golden, Colorado
Bruce B. Brundage, 66 1986
President and Director, Brundage &
Company, a firm specializing in negotiation, appraisal
and arrangement of mergers and acquisitions for a
nationwide client base and in providing financial,
advisory and private placement financing to businesses
in the western United States, since 1973.
Englewood, Colorado
Kay S. Jorgensen, 51 1992
Co-Owner and Vice President, Jorgensen-Thompson
Creative Broadcast Services, Inc., providing radio
broadcast services in the western United States, since 1997.
Previously served in the South Dakota State Legislature and
on various state and local boards and commissions.
Spearfish, South Dakota
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Directors Whose Terms Expire at
2003 Annual Meeting - Class III
Name, Age, Principal Occupation for Director
Last Five Years and Other Directorships Since
- --------------------------------------- --------
Daniel P. Landguth, 55 1989
Chairman and Chief Executive
Officer of Black Hills Corporation, since 1989. Mr. Landguth
has over 30 years experience with Black Hills Corporation.
Rapid City, South Dakota
John R. Howard, 61 1977
President, Industrial Products, Inc., an
industrial parts distributor, providing equipment and supplies
to the mining and manufacturing industries, since 1992. Also,
Special Projects Manager for Linweld, Inc.
Rapid City, South Dakota
David C. Ebertz, 55 1998
President, Dave Ebertz Risk Management
Consulting, a firm specializing in insurance and risk
management services for schools and public entities, since
January 2000. Owner and President, Barlow Agency, Inc.,
an insurance agency, from 1976 to December 1999.
Gillette, Wyoming
Gerald R. Forsythe was a Director in Class III until his resignation on
September 4, 2001.
Directors Whose Terms Expire at
2004 Annual Meeting - Class I
Name, Age, Principal Occupation for Director
Last Five Years and Other Directorships Since
- --------------------------------------- --------
Adil M. Ameer, 49 1997
President and Chief Executive Officer,
Rapid City Regional Hospital, since 1991. The hospital system owns
and manages several healthcare facilities in Rapid City and the
Black Hills area, and in Nebraska and Wyoming.
Rapid City, South Dakota
Everett E. Hoyt, 62 1991
President and Chief Operating Officer of
Black Hills Corporation, since February 2001. President and
Chief Operating Officer of Black Hills Power, Inc., our regulated
electric utility from 1989 to February 2001.
Rapid City, South Dakota
Thomas J. Zeller, 54 1997
President, RESPEC, a technical consulting
and services firm with expertise in engineering, environmental
and information technologies, since 1995. Also, Chairman of
the Board, Teachmaster Technologies, Inc., an educational
software and consulting firm.
Rapid City, South Dakota
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Security Ownership of Management and Principal Shareholders
The following table sets forth the beneficial ownership of our common stock
as of March 15, 2002 for each director, each executive officer named in the
summary compensation table, all of our directors and executive officers as a
group, and each person or entity known by us to beneficially own more than 5
percent of our outstanding shares of common stock. Beneficial ownership includes
shares a director or executive officer has the power to vote or transfer, and
stock options that are exercisable currently or within 60 days of March 15,
2002.
Except as otherwise indicated by footnote below, we believe that each
individual or entity named has sole investment and voting power with respect to
the shares of common stock indicated as beneficially owned by that individual or
entity.
Shares of
Common Options Directors
Stock Exercisable Common
Name of Beneficially Within Stock
Beneficial Owner Owned 60 Days Equivalents(1) Total Percentage(2)
- ---------------- ----- ------- ----------- ----- -----------
Directors and Named
Executive Officers
Adil M. Ameer 1,728(3) 1,182 2,910
Bruce B. Brundage 5,422(4) 6,878 12,300 *
David C. Ebertz 2,698(5) 900 3,598 *
David R. Emery 7,565(6) 32,833 40,398 *
Gary R. Fish 4,000(7) 4,000 *
John R. Howard 16,864 5,581 22,445 *
Everett E. Hoyt 20,328 56,666 76,994 *
Kay S. Jorgensen 3,616 2,333 5,949 *
Daniel P. Landguth 66,345 28,000 94,345 *
David S. Maney 4,232(8) 664 4,896 *
Thomas M. Ohlmacher 12,924(9) 49,333 62,257 *
Mark T. Thies 7,961(10) 40,333 48,294 *
Thomas J. Zeller 1,853(11) 1,182 3,035 *
All directors and executive
officers as a group
(19 persons) 189,343 354,246 18,720 562,309 2.1%
Five Percent Shareholders
Gerald R. Forsythe; Michelle
R. Forsythe, et. al.
1111 S. Willis Avenue
Wheeling, IL 60090 1,738,091(12) 259 1,738,350 6.5%
* Represents less than 1% of the common stock outstanding.
(1)Represents common stock allocated to the directors' accounts in the
directors' stock based compensation plan, of which the trustee has sole voting
and investment authority.
(2)Shares of common stock which were not outstanding but could be acquired
by a person upon exercise of an option within sixty days of March 15, 2002, or
conversion of the Series 2000-A Convertible Preferred Stock are deemed
outstanding for the purpose of computing the percentage of outstanding shares
beneficially owned by such person. Such shares, however, are not deemed to be
outstanding for the purpose of computing the percentage of outstanding shares
beneficially owned by any other person.
(3)Includes 150 shares owned jointly with Mr. Ameer's spouse as to which he
shares voting and investment authority.
(4)Includes 5,400 shares owned by Brundage & Co. Pension Plan and Trust of
which Mr. Brundage is the trustee with sole voting and investment authority.
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(5)Shares owned jointly with Mr. Ebertz's spouse as to which he shares
voting and investment authority.
(6)Includes 6,282 shares owned jointly with Mr. Emery's spouse as to which
he shares voting and investment authority.
(7)Shares owned jointly with Mr. Fish's spouse as to which he shares voting
and investment authority.
(8)Includes 3,500 shares owned jointly with Mr. Maney's spouse as to which
he shares voting and investment authority.
(9)Includes 7,650 shares owned jointly with Mr. Ohlmacher's spouse as to
which he shares voting and investment authority, and 1,260 shares held by Mr.
Ohlmacher's son as to which he has no voting or investment authority.
(10)Includes 4,991 shares owned jointly with Mr. Thies' spouse as to which
he shares voting and investment authority.
(11)Includes 225 shares owned jointly with Mr. Zeller's spouse as to which
he shares voting and investment authority, and 50 shares held by Mr. Zeller's
son as to which he has no voting or investment authority.
(12)Represents shares held by the following individuals who became
shareholders as a result of the Indeck acquisition: Gerald R. Forsythe
(1,079,560 shares), Michelle R. Fawcett (112,508 shares), Marsha Fournier
(112,508 shares), Monica J. Breslow (112,619 shares), Melissa S. Forsythe
(112,619 shares) and John W. Salyer, Jr. (208,536 shares). The beneficial shares
include 5,177 shares of Series 2000-A Preferred Stock which are convertible into
147,907 shares of common stock at their option at any time and automatically
converted on July 7, 2005. Information relating to the shareholders is based on
the shareholders' Schedule 13D dated July 5, 2000, Mr. Forsythe's Form 4s filed
with the Securities and Exchange Commission and our shareholder records. The
Schedule 13D indicates that the shareholders may be deemed to be a group for
purposes of the Securities Exchange Act of 1934.
Based solely upon a review of our records and copies of reports on Form 3,
4 and 5 furnished to us, we believe that during 2001 all persons subject to the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934,
as amended, filed the required reports on a timely basis.
The Board and Committees
Our Executive Committee is comprised of Adil M. Ameer, John R. Howard,
Everett E. Hoyt, Daniel P. Landguth, David S. Maney and Thomas J. Zeller, with
Mr. Landguth serving as Chairperson. The Committee exercises the authority of
the Board of Directors in the interval between meetings of the Board, recommends
to the Board of Directors persons to be elected as officers, and recommends
persons to be appointed to Board Committees. The Executive Committee held two
meetings during 2001.
In 2001 the Board of Directors established the position of Lead Director.
John R. Howard was elected to hold this position. The responsibilities of Lead
Director, as provided in the Board's Governance Guidelines, will be to chair
executive sessions of the Independent Directors and communicate the Board's
annual evaluation of the Chairman and CEO to those individuals. The Lead
Director, together with the Independent Directors, will develop the agenda for
executive sessions, to be held at the end of each regular meeting. The Lead
Director shall chair regular meetings of the Board in the absence of the
CEO/Chairman.
Our Compensation Committee is comprised of Bruce B. Brundage, David C.
Ebertz, John R. Howard, Kay S. Jorgensen and David S. Maney, with Mr. Ebertz
serving as Chairperson. The Committee performs functions required by the Board
of Directors in the administration of all federal and state statutes relating to
employment and compensation, recommends to the Board of Directors compensation
for officers, and considers and approves the Company's compensation program
including benefits, stock option plans and stock ownership plans. The
Compensation Committee held five meetings in 2001.
Our Audit Committee is comprised of Adil M. Ameer, David C. Ebertz, John R.
Howard, Kay S. Jorgensen and Thomas J. Zeller, with Mr. Ameer serving as
Chairperson. The Committee annually recommends to the Board of Directors an
independent accounting firm to be appointed by the Board for ratification by our
shareholders, reviews the scope and results of the annual audit including
reports and recommendations of the firm, reviews our internal audit function,
and periodically confers with the internal audit group, our management, and our
independent accountants. The Audit Committee held three meetings in 2001.
Our Governance Committee (formerly the Nominating Committee) is comprised
of Bruce B. Brundage, Kay S. Jorgensen, David S. Maney, Thomas J. Zeller, and
John R. Howard, with Mr. Howard serving as Lead Director and Chairperson. The
Committee recommends to the Board of Directors persons to be nominated as
directors or to be elected to fill vacancies on the Board. The Bylaws require
that an outside director serve as Chairperson of the Committee. The Charter of
the Governance Committee provides that the Lead Director shall serve as
Chairperson. The Governance Committee held one meeting in 2001.
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Pursuant to our Bylaws, nominations from our shareholders for membership on
the Board of Directors will be considered by the Governance Committee. Our
shareholders who wish to submit names for future consideration for Board
membership should do so in writing prior to November 26, 2002, addressed to
Governance Committee, c/o Corporate Secretary, Black Hills Corporation, P.O. Box
1400, Rapid City, South Dakota 57709.
Members of the Committees referred to herein are designated by our
Directors upon recommendation of the Executive Committee each year at a meeting
held following our annual meeting of shareholders.
Our Board of Directors held nine meetings during 2001. All Directors
attended at least 75 percent of the combined total of Board meetings and
Committee meetings on which the Director served.
Related Party Transactions
Western Health, a division of Rapid City Regional Hospital, is a third
party administrator for our healthcare plans. Adil M. Ameer, Director, is
President and Chief Executive Officer of Rapid City Regional Hospital. We paid
approximately $135,000 to Western Health in 2001 for its services.
Gerald R. Forsythe, a member of the group owning more than 5 percent of our
stock, owns two companies providing services to Black Hills Energy Capital,
Inc., a subsidiary of the Company. Forsythe Building Fund leases an office
building to Black Hills Energy Capital, Inc. for approximately $8,000 per month.
Mr. Forsythe owns one company that provided services to Black Hills Power, Inc.,
a subsidiary of the Company. Indeck Power and Equipment Company, Inc. leased ten
diesel generators from March 15, 2001 to September 15, 2001, for approximately
$25,000 per month/per unit. The leases were terminated on September 15, 2001.
Although the leases contained a cancellation fee of $125,000 per generator, the
parties are negotiating their respective rights and obligations upon termination
of the leases.
Directors' Fees
Directors who are not officers receive an annual fee of $15,500 plus a fee
of $600 for each board meeting and committee meeting attended, provided such
committee meetings are substantive in nature and content.
In addition, each outside director receives common stock equivalents equal
to $7,000 per year divided by the market price of our common stock. The common
stock equivalents are payable in stock or cash at retirement or can be deferred
at the election of the director.
Members of our Board of Directors are required to beneficially own 100
shares of common stock when they are initially elected a director and to apply
at least 50 percent of his or her retainer toward the purchase of additional
shares until the director has accumulated at least 2,000 shares of common stock.
Executive Compensation
Compensation Committee Report
The Compensation Committee of our Board of Directors is composed entirely
of directors who are not employees of Black Hills Corporation. The Compensation
Committee is responsible for developing and making recommendations to the Board
of Directors on the executive compensation program. The components of our
executive compensation program consist of a base salary, annual incentive plan
and a long-term incentive award program. The committee oversees and administers
the incentive compensation programs including the determination of the annual
and long-term incentive awards.
The executive compensation strategy is based on principles designed to:
Promote the relationship between pay and performance;
Attract, retain and encourage the development of highly qualified and
motivated executives;
Recognize and reward outstanding performance;
Provide compensation that is competitive;
Promote overall corporate performance linked to the interest of our
shareholders.
11
The Committee retains the services of an independent international
consulting firm, Hewitt Associates, to review and evaluate our compensation
program as compared to compensation practices of other companies with similar
characteristics, including size, type of business and compensation philosophy.
In addition, the Committee also engaged an independent consultant in 2001 to
review and provide guidance regarding Black Hills Corporation's executive
compensation philosophy and practices and trends in compensation programs. In
response to the increased competition in the energy industry and changes in the
size and mix of our business, the comparative groups are comprised of both
utility and general industry companies. (The companies included in the
comparative group are not identical to those included in the EEI Index in the
Stock Performance Graph included in this proxy statement). The Committee seeks
to establish a market based level for each salary range that is at or near the
median, 50th percentile, of the comparative groups surveyed. Recommendations
made by the Committee are based upon the market analysis, company performance
and achievement of individual performance objectives. The 2001 compensation
analysis indicated that the market values increased significantly due to our
growth in revenue size and in industry wide executive compensation levels.
In May 2001, the Compensation Committee reviewed the base salary of our
Chief Executive Officer. In determining the base salary, the Committee
considered the recommendations from the Hewitt Associates study as well as the
goals and objectives of the strategic plan which included a target return on
equity, earnings growth and common stock performance. Consolidated earnings per
share increased 37 percent in 2000 to $2.37 compared to $1.73 in 1999. Our 2000
consolidated return on equity was 19 percent and dividends increased 3.9
percent. The Compensation Committee recommended and the Board of Directors
approved a base wage increase for the Chief Executive Officer to $501,100, in
recognition of performance achievements. The increase to base salary more
closely aligned the Chief Executive Officer's base salary to the market.
We currently maintain a variety of employee benefit plans and programs in
which our executive officers may participate, including the Short-Term Annual
Incentive Compensation Program, the Retirement Savings Plan, the Pension Plan,
and the Pension Equalization Plan. With the exception of the Short-Term Annual
Incentive Plan and the Pension Equalization Plan, these benefit plans and
programs are generally available to all of our employees.
The Short-Term Annual Incentive Compensation Program was designed to
recognize and reward the contribution that group performance makes to corporate
success. Only our executive officers are eligible to participate in the plan at
this time. The program has a corporate goal that is based upon the percentage of
consolidated earnings per share that exceeds targeted amounts. Target award
levels are a percentage of each executive officer's base salary. The target
percentage for our Chief Executive Officer was 55 percent and for the other
executive officers ranged from 30 percent to 45 percent with one business unit
executive eligible to receive 100 percent. Individual awards may be greater or
less than target amounts based on an assessment of individual performance.
Awards can range from 0 percent to 250 percent of the target amount. As a result
of strong 2001 actual earnings and the furtherance of our corporate goals, cash
awards were made to ten executive officers in the aggregate amount of
$1,799,443. The Chief Executive Officer received $551,210, the maximum amount
for the year 2001, all of which was paid in stock. The other executive officers
are required to purchase our common stock with 50 percent of the Short-Term
Annual Incentive Bonus.
Long-term incentive compensation is based on long-term incentives granted
by the Compensation Committee under our 1999 Stock Option Plan ("Stock Option
Plan") and 2001 Omnibus Incentive Compensation Plan ("Omnibus Incentive Plan").
Both of these plans were previously approved by our shareholders. The Stock
Option Plan and Omnibus Incentive Plan are intended to promote our goals and
link the personal interests of participants to those of our shareholders; to
provide participants with an incentive for excellence in individual performance;
to provide teamwork among participants; and to provide flexibility to us in our
ability to motivate, attract, and retain the services of participants who make
significant contributions to our success and allow participants to share in such
success. The Compensation Committee oversees the administration of the Stock
Option Plan and Omnibus Incentive Plan with full power and authority to
determine when and to whom awards will be granted and the type, amount and other
terms and conditions of each award. The Compensation Committee believes that
executive compensation tied to stock price appreciation is an effective way to
align the interests of management with those of our shareholders.
In 2001, awards of 16,689 shares of restricted stock were granted to all
executive officers as a group. Our Chief Executive Officer received an award of
5,354 restricted shares and awards for our other executive officers ranged from
180 restricted shares to 4,512 restricted shares. The size of the grant awarded
to each executive officer was intended to be competitive with awards to officers
in similar positions in comparable companies, based on market data prepared by
Hewitt Associates. All restricted shares vest one-third a year over a three-year
period. Dividends are paid on the restricted shares, however, any unvested
restricted shares are forfeited if an officer's employment is terminated for any
reason other than death, disability, retirement or vesting in connection with a
change of control.
Also in 2001, awards totaling 26,500 shares of non-qualified stock options
were granted to three executive officers, none of which were the Chief Executive
Officer. All non-qualified stock option awards were granted with an exercise
price equal to the market price of our common stock on the date of grant and
vest one-third a year over a three-year period. All the options expire in ten
years.
12
Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended,
limits the tax deductibility by a corporation of compensation in excess of $1
million paid to its Chief Executive Officer and any of its four most highly
compensated executive officers. However, compensation, which qualifies as
"performance-based" is excluded from the $1 million limit, if, among other
requirements, the compensation is payable only upon attainment of
pre-established, objective performance goals under a plan approved by the
corporation's stockholders.
It is our policy to qualify, to the extent reasonable, our executive
officers' compensation for deductibility under applicable tax law. However, we
intend to retain the flexibility necessary to provide total cash compensation in
line with competitive practice, our compensation philosophy, and our best
interests and may from time to time pay compensation to our executive officers
that may not be deductible for tax purposes.
COMPENSATION COMMITTEE
David C. Ebertz, Chairperson Bruce B. Brundage John R. Howard
Kay S. Jorgensen David S. Maney
- --------------
13
The following table sets forth the compensation we paid for the fiscal year
ended December 31, 2001, to our Chief Executive Officer, the four other most
highly compensated executive officers who were serving as executive officers at
the end of 2001 and one individual who is no longer serving as an executive
officer.
- ------------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------- -------- --------------------------- --------------------------------- -------------------
Annual Compensation Long-Term All Other
Compensation Compensation(3)
- ----------------------------------- -------- --------------------------- --------------------------------- -------------------
Restricted Securities
Name and Principal Position Year Salary Bonus(1) Stock Awards Underlying
(2) Options Granted
- ----------------------------------- -------- ------------ -------------- ---------------- ---------------- -------------------
- ----------------------------------- -------- ------------ -------------- ---------------- ---------------- -------------------
Daniel P. Landguth 2001 $440,901 $551,210 $296,397 - -
Chairman and 2000 314,800 233,955 - 84,000 -
Chief Executive Office 1999 262,600 127,350 - 23,500 -
- ----------------------------------- -------- ------------ -------------- ---------------- ---------------- -------------------
Everett E. Hoyt 2001 $302,847 $282,150 $153,956 - -
President and 2000 191,200 92,430 - 41,000 -
Chief Operating Officer 1999 169,100 53,100 - 8,000 -
- ----------------------------------- -------- ------------ -------------- ---------------- ---------------- -------------------
Thomas M. Ohlmacher 2001 $229,904 $430,560 $61,782 2,500 $5,100
President and Chief 2000 137,000 269,750 - 30,000 3,335
Operating Officer of 1999 126,500 35,700 - 8.000 -
Integrated Energy
- ----------------------------------- -------- ------------ -------------- ---------------- ---------------- -------------------
Gary R. Fish 2001 $249,500 $322,920 $249,784 - $286,088
Former President and 2000 190,050 107,677 - 41,000 4,025
Chief Operating Officer of 1999 142,300 61,250 - 10,500 -
Integrated Energy
- ----------------------------------- -------- ------------ -------------- ---------------- ---------------- -------------------
Mark T. Thies 2001 $201,923 $168,000 $93,669 - $5,100
Senior Vice President and 2000 145,035 81,000 - 30,000 5,100
Chief Financial Officer 1999 102,300 31,800 - 8,000 -
- ----------------------------------- -------- ------------ -------------- ---------------- ---------------- -------------------
David R. Emery 2001 $151,574 $179,743 $9,965 5,000 $5,100
Vice President - Fuel 2000 127,411 60,390 - 30,000 4,967
Resources 1999 118,081 34,200 - 8,000 -
- ----------------------------------- -------- ------------ -------------- ---------------- ---------------- -------------------
(1)Bonus amounts include amounts earned under the Short-Term Annual
Incentive Plan. Mr. Ohlmacher's bonus in 2001 and 2000 includes a $269,100 and
$200,000 energy-marketing bonus, respectively. Mr. Emery's bonus in 2001
includes $29,000 of deal bonuses.
(2)Valued at fair market value on the date of grant. The restricted stock
vests one-third a year for three years from date of grant, assuming continued
employment. Dividends are paid on the restricted stock.
At December 31, 2001, the Named Officers had the following amounts of
restricted stock: Mr. Landguth - 5,354 shares ($181,179); Mr. Hoyt - 2,781
shares ($94,109); Mr. Ohlmacher - 1,116 shares ($37,765); Mr. Fish - 0 shares;
Mr. Thies - 1,692 shares ($57,257); Mr. Emery - 180 shares ($6,091).
(3)All other compensation includes amounts allocated under the 401k match.
Mr. Fish's amount in 2001 also includes $282,118 of severance compensation (see
Severance Agreements).
14
The following table sets forth information with respect to options granted
during 2001.
- ----------------------------------------------------------------------------------------------------------------------
BLACK HILLS CORPORATION STOCK OPTION GRANTS IN 2001(1)
- ----------------------------------------------------------------------------------------------------------------------
- --------------------------------------- ---------------- ---------------- -------------- ------------- ---------------
Number of Percent
Securities of Total Exercise Expiration
Underlying Options Price Date Grant Date
Name Options Granted to Exercise Expiration Present
Granted Employees Price Date Value(2)
- --------------------------------------- ---------------- ---------------- -------------- ------------- ---------------
- --------------------------------------- ---------------- ---------------- -------------- ------------- ---------------
Thomas M. Ohlmacher 2,500 1.3% $55.36 05/30/11 $48,825
- --------------------------------------- ---------------- ---------------- -------------- ------------- ---------------
David R. Emery 5,000 2.5% $55.36 05/30/11 $97,650
- --------------------------------------- ---------------- ---------------- -------------- ------------- ---------------
(1)Options vest annually in installments of 33 percent per year beginning
on the first anniversary of the date of grant. All options become fully vested
if a change in control occurs.
(2)The Black-Scholes option-pricing model was used in determining the
present value of the options granted. The assumptions utilized in the
Black-Scholes model are as follows: 28.91 percent for expected volatility; 5.50
percent for risk free rate of return; 2.0 percent for dividend yield; and 10
years for the time of exercise.
The following table provides information on stock option exercises by the
named executive officers and the value of such officers' unexercised options at
December 31, 2001.
======================================================================================================================
STOCK OPTION EXERCISES IN 2001 AND YEAR-END OPTION VALUES
- ---------------------------- ------------- ------------ --------------------------- ---------------------------------
Number of Securities
Shares Underlying Value of Unexercised
Acquired Unexercised Option at In-the-Money Options at
on Value 12/31/01 Exercisable/ 12/31/01
Name Exercise Realized Inexercisable Exercisable/Unexercisable(1)
- ---------------------------- ------------- ------------ --------------------------- ---------------------------------
Daniel P. Landguth - $ - 101,266/63,834 $1,332,628/$746,637
- ---------------------------- ------------- ------------ --------------------------- ---------------------------------
Everett E. Hoyt - $ - 42,999/30,001 $567,504/$353,128
- ---------------------------- ------------- ------------ --------------------------- ---------------------------------
Thomas M. Ohlmacher - $ - 39,333/25,167 $523,640/$265,377
- ---------------------------- ------------- ------------ --------------------------- ---------------------------------
Gary R. Fish 54,166 $455,494 - / - $ - /$ -
- ---------------------------- ------------- ------------ --------------------------- ---------------------------------
Mark T. Thies - $ - 30,333/22,667 $369,081/$265,377
- ---------------------------- ------------- ------------ --------------------------- ---------------------------------
David R. Emery 10,200 $145,267 22,833/27,667 $260,593/$265,377
============================ ============= ============ =========================== =================================
(1)Value of unexercisable options is the market value of the shares at
year-end minus the exercise price.
Retirement Plans
We have a defined benefit retirement plan, a pension plan, covering
approximately 65 percent of our employees. The plan provides benefits at
retirement based on length of employment service and average monthly pay in the
five consecutive calendar years of highest earnings out of the last ten years.
Our employees do not contribute to the plan. The amount of annual contribution
by us to the plan is based on an actuarial determination. Accrued benefits
become 100 percent vested after an employee completes five years of service.
We also have a Pension Equalization Plan, a nonqualified supplemental plan,
in which benefits are not tax deductible until paid. The plan is designed to
provide the higher paid executive employee a retirement benefit which, when
added to social security benefits and the pension to be received under the
defined benefit retirement plan, will approximate retirement benefits being paid
by other employers to its employees in similar executive positions. The
employee's pension from the qualified pension plan is limited under current law
to $160,000 annually and the compensation taken into account in determining
contributions and benefits cannot exceed $200,000 and cannot include
nonqualified deferred compensation. The amount of deferred compensation paid
under nonqualified plans such as the Pension Equalization Plan is not subject to
these limits. A participant under the Pension Equalization
15
Plan does not qualify for benefits until the benefits become vested under a
vesting schedule -- 20 percent after three years of employment under the plan
increasing up to 100 percent vesting after eight years of employment under the
plan. No credit for past service is granted under the Pension Equalization Plan.
The annual benefit is 25 percent of the employee's average earnings, if salary
was less than two times the Social Security Wage Base, or 30 percent, if salary
was more than two times the Social Security Wage Base, multiplied by the vesting
percentage. Average earnings are normally an employee's average earnings for the
five highest consecutive full years of employment during the ten full years of
employment immediately preceding the year of calculation. The annual Pension
Equalization Plan benefit is paid on a monthly basis for 15 years to each
participating employee and, if deceased, to the employee's designated
beneficiary or estate, commencing at the earliest of death or when the employee
is both retired and 62 years of age or more. A participant with vested benefits
who is 55 years of age or more and no longer an employee of the Company may
elect to be paid benefits beginning at age 55 or older, subject to a discount of
such benefits.
In the event that at the time of a participant's retirement, the
participant's salary level exceeds the qualified pension plan annual
compensation limitation of $200,000 or includes nonqualified deferred
compensation, then the participant shall receive an additional benefit which is
measured by the difference between (i) the monthly benefit which would have been
provided to the participant under the defined benefit retirement plan as if
there were no annual compensation limitation and no exclusion on nonqualified
deferred compensation, and (ii) the monthly benefit to be provided to the
participant under the defined benefit retirement plan.
We amended the Pension Equalization Plan, effective January 30, 2001, to
provide for an additional benefit to compensate for the $160,000 annual defined
benefit pension limitation. The additional benefit is measured by the difference
between the monthly benefit which would have been provided to the participant
under the defined benefit retirement plan as if there were no annual defined
benefit pension limitation and the monthly benefit to be provided to the
participant under the defined benefit retirement plan.
Participants in the Pension Equalization Plan are designated by our Board
of Directors upon recommendation of the Chief Executive Officer. Selection is
based on key employees as determined by management and consideration of
performance rather than being based solely on salary. The minimum salary
component applied in the selection process is the maximum annual Social Security
taxable wage base that is presently at $84,900.
Retirement Benefits
The following table illustrates estimated annual benefits payable under the
defined benefit retirement plan and the Pension Equalization Plan to our
employees who retire at the normal retirement date.
Years of Service
===================== ================== ================== ================== ================== ==================
Annual Pay 15 20 25 30 35
Years Years Years Years Years
===================== ================== ================== ================== ================== ==================
$200,000 $104,567 $119,823 $135,079 $150,335 $165,590
250,000 131,267 150,523 169,779 189,035 208,290
300,000 157,967 181,223 204,479 227,735 250,990
350,000 184,667 211,923 239,179 266,435 293,690
400,000 211,367 242,623 273,879 305,135 336,390
450,000 238,067 273,323 308,579 343,835 379,090
500,000 264,767 304,023 343,279 382,535 421,790
550,000 291,467 334,723 377,979 421,235 464,490
600,000 318,167 365,423 412,679 459,935 507,190
650,000 344,867 396,123 447,379 498,635 549,890
700,000 371,567 426,823 482,079 537,335 592,590
The years of credited service under the defined benefit retirement plan for
the executive officers shown in the preceding summary compensation table are as
follows: Daniel P. Landguth, 32 years; Everett E. Hoyt, 28 years; Gary R. Fish,
15 years; Mark T. Thies, 4 years; Thomas M. Ohlmacher, 27 years; David R. Emery,
12 years. Mr. Hoyt's benefits will be reduced for service from prior employment.
16
The benefits in the foregoing table were calculated as a straight life
annuity. Amounts shown are exclusive of Social Security benefits and include
benefits from both the defined benefit retirement plan and from the Pension
Equalization Plan assuming a 100 percent vested interest in the Pension
Equalization Plan.
Nonqualified Deferred Compensation Plan
We have a Nonqualified Deferred Compensation Plan for a select group of
management or highly compensated employees. Eligibility is determined by the
Compensation Committee. Eligible employees may elect to defer up to 50 percent
of their base salary and up to 100 percent of their Short-Term Annual Incentive
Plan Award, including Company stock. The deferrals are deposited into a trust
account where the participants may direct the investment of the deferrals
(except for Company stock deferrals) as allowed by the plan. Investment earnings
are credited to the participants' accounts. Upon retirement, the Company will
distribute the account balance to the participant according to the distribution
election filed with the Compensation Committee. The participants may elect
either a lump sum payment to be paid within 30 days of retirement, or annual or
monthly installments over a period of years designated by the participant, but
not to exceed 15 years.
Retirement Savings Plan
We have a Retirement Savings Plan under Section 401(k) of the Internal
Revenue Code of 1986, as amended, which permits our employees and those of our
subsidiaries, including officers, to elect to invest up to 20 percent of their
eligible earnings on a pre-tax basis into an investment fund subject to
limitations imposed by the Internal Revenue Code.
Effective January 1, 2000 (effective May 1, 2000 for union employees), we
provide a matching contribution of 100 percent of the employee's tax deferred
contribution, subject to a maximum of three percent of the employee's
compensation. Employees may invest the contribution provided by the Company in
any of the investment choices offered in the Retirement Savings Plan.
Distribution from the fund will be made to employees at termination of
employment, retirement, death, or in case of hardship. No amounts were paid or
distributed pursuant to the Retirement Savings Plan to the individuals named
herein nor to the officers as a group.
Severance Agreements
We have entered into change of control severance agreements with each of
our executive officers and certain key employees. The change of control
severance agreements provide for certain payments and other benefits to be
payable upon a change in control and a subsequent termination of employment,
either involuntary or for a good reason.
A change in control is defined in the agreements as:
an acquisition of 30 percent or more of our common stock, except for
certain defined acquisitions, such as acquisition by employee benefit
plans, us, or any of our subsidiaries; or
members of our incumbent Board of Directors at the time the agreements
were executed cease to constitute at least two-thirds of the members
of the Board of Directors, with the incumbent Board of Directors being
defined as those individuals consisting of the Board of Directors on
the date the agreement was executed and any other directors elected
subsequently whose election was approved by the incumbent Board of
Directors; or
approval by our shareholders of:
a merger, consolidation, or reorganization;
liquidation or dissolution;
or agreement for sale or other disposition of all or
substantially all of our assets, with exceptions for transactions
which do not involve an effective change in control of voting
securities or Board of Directors membership, and transfers to
subsidiaries or sale of subsidiaries; and
all regulatory approvals required to effect a change in control have
been obtained.
17
In the change of control severance agreements, a good reason for
termination which would trigger payment of benefits is defined to include:
a change in the executive's status, title, position or
responsibilities;
a reduction in the executive's annual compensation or any failure to
pay the executive any compensation or benefits to which he or she is
entitled within seven days of the date due;
any material breach by us of any provisions of the change of control
severance agreement;
requiring the executive to be based outside a 50-mile radius from
Rapid City, South Dakota; or
our failure to obtain an agreement from any successor company to
assume and agree to perform the change of control severance agreement.
The agreement with the Chief Executive Officer also contains an optional window
period, a 30-day period of time beginning on the one-year anniversary after the
change in control, during which time the Chief Executive Officer may terminate
for any reason and receive the payments and benefits.
Upon a change in control, the executive will have an employment contract
for a three-year period, but not beyond age 65. During this employment term, the
executive shall receive annual compensation at least equal to the highest rate
in effect at any time during the one-year period preceding the change in control
and shall also receive employment welfare benefits, pension benefits, and
supplemental retirement benefits on a basis no less favorable than those
received prior to the change in control.
If the executive's employment is terminated during the three-year
employment term involuntarily, for a good reason, or by the Chief Executive
Officer for any reason during a window period, then the executive is entitled to
the following benefits:
severance pay equal to 2.99 times executive's five-year average
taxable compensation, provided that the foregoing payment is subject
to proportionate reduction based upon when termination takes place
during the three-year employment term and based upon a ratio of the
executive's employment term to 36 months; and
continuation of employee welfare benefits for the remainder of the
employment term, with an offset for similar benefits received, along
with additional credited service under the Pension Equalization Plan
and defined benefit retirement plan equal to the remainder of the
employment term.
The change of control severance agreements contain a "cap" provision which
reduces any amounts payable to an amount which would prevent any payments from
being nondeductible under the Internal Revenue Code. The change of control
severance agreements provide for reimbursement of legal fees and expenses of the
executive incurred after the change in control by the executive in seeking to
obtain or enforce any benefits provided by the change of control severance
agreement. The executive is not required to mitigate the amount of any payment
or benefit by seeking other employment or otherwise, and the payments or
benefits are not reduced whether or not the executive obtains other employment
and/or benefits, except for employee welfare benefits.
In addition, in 2001 we entered into a Severance, Confidentiality,
Non-Disclosure and Release Agreement with Gary R. Fish who resigned from the
Company on October 30, 2001. Under the terms of the agreement, Mr. Fish was paid
$322,920 under the 2001 Short-Term Annual Incentive Compensation Program,
$201,825 severance pay equal to nine months of regular pay, $20,700 for unused
personal time hours, $80,294 for consideration for an unvested stock option and
six months of medical/health insurance coverage.
Audit Committee Report
In accordance with our written charter adopted by the Board of Directors,
the Audit Committee assists the Board in fulfilling its responsibility for
oversight of the quality and integrity of our accounting, auditing and financial
reporting practices. Under the rules of the New York Stock Exchange, all of the
members of the Audit Committee are independent. During the current year, the
Audit Committee held four meetings, and the Committee chairperson, as
representative of the Committee, discussed the interim financial information
contained in each quarterly earnings announcement with the Chief Financial
Officer, Vice President - Controller and our independent auditors, Arthur
Andersen LLP, prior to public release.
The Audit Committee oversees our financial process on behalf of the Board
of Directors. Management has the primary responsibility for the financial
statements and the reporting process including the systems of internal controls.
In fulfilling its oversight responsibilities, the Audit Committee reviewed the
audited financial statements in the Annual Report with management including a
discussion of the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments, and the clarity of
disclosures in the financial statements.
18
The Audit Committee obtained from Arthur Andersen LLP a formal written
statement describing all relationships between the auditors and us that might
bear on the auditors' independence consistent with Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," discussed with
Arthur Andersen LLP any relationships that may impact their objectivity and
independence and satisfied itself as to their independence. The Committee also
discussed the quality and adequacy of the Company's internal controls with
management, the internal auditors and Arthur Andersen LLP. In addition the
Committee reviewed with both the internal auditors and Arthur Andersen LLP their
audit plans, audit scope and identification of risks.
The Audit Committee reviewed and discussed with Arthur Andersen LLP all
communications required by generally accepted auditing standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees," and, with and without management present
discussed and reviewed the results of the internal audit examinations and Arthur
Andersen LLP's examination of the financial statements.
Based on the above-mentioned review and discussions with management and
Arthur Andersen LLP, the Audit Committee recommended to the Board that our
audited financial statements be included in its Annual Report on Form 10-K for
the year ended December 31, 2001, for filing with the Securities and Exchange
Commission. The Audit Committee also recommended the reappointment of Arthur
Andersen LLP as the independent auditors and the Board of Directors concurred
with the recommendation.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including in respect of auditor independence. Members of
the Audit Committee rely without independent verification on the information
provided to them and on the representations made by management and the
independent accountants. Accordingly, the Audit Committee's oversight does not
provide an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or appropriate
internal control and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. Furthermore, the Audit
Committee's considerations and discussions referred to above do not assure that
the audit of the Company's financial statements has been carried out in
accordance with generally accepted auditing standards, that the financial
statements are presented in accordance with generally accepted accounting
principles or that the Company's auditors are in fact "independent".
AUDIT COMMITTEE
Adil M. Ameer, Chairperson David C. Ebertz John R. Howard
Kay S. Jorgensen Thomas J. Zeller
Principal Accounting Firm Fees
The following table sets forth the aggregate fees billed to us for the
fiscal year ended December 31, 2001 by our principal accounting firm, Arthur
Andersen LLP.
Audit Fees $ 700,500
Financial Information Systems
Design and Implementation Fees $ 0
All Other Fees
Audit Related $ 422,000
Tax 984,000
Other 210,000
------------
$1,616,000
The Audit Committee and the Board of Directors determined that the scope of
services included within the heading "All Other Fees", is compatible with
maintaining the principal accounting firm's independence.
19
Stock Performance Graph
The graph below compares the cumulative shareholder return on our common
stock for the last five fiscal years with the cumulative total return of the S&P
500 Index and the Edison Electric Institute Electric Index over the same period,
assuming the investment of $100 on December 31, 1996, and the reinvestment of
all dividends.
(Picture of Stock Performance Chart)
Cumulative Total Return
-----------------------
12/96 12/97 12/98 12/99 12/00 12/01
Black Hills Corporation 100.00 131.76 154.25 135.67 285.41 222.27
S&P 500 100.00 133.36 171.47 207.56 188.66 166.24
EEI Investor-owned Electrics 100.00 127.37 145.06 118.08 174.72 159.37
ITEM II: APPOINTMENT OF INDEPENDENT AUDITORS
In January 2002, the Audit Committee and Board of Directors met with Arthur
Andersen LLP partners and senior managers about the current and potential future
impact of Enron events and its implications for Black Hills Corporation. Arthur
Andersen has served as our auditors since 1980. None of the Arthur Andersen
personnel who have been engaged as our auditors were involved with the Enron
account. After in depth discussions, the Audit Committee and Board of Directors
reaffirmed that Arthur Andersen is knowledgeable about our operations and
accounting practices and is well qualified to act in this capacity. Based on its
understanding at this time, the Audit Committee and Board of Directors retains
its confidence in Arthur Andersen as our independent auditors and recommends the
retention of Arthur Andersen as Black Hills Corporation's independent auditors
unless there is a new definitive reason to sever this business relationship. The
Audit Committee and Board of Directors, however, while recommending this
appointment, will continue to monitor Arthur Andersen's response to its recent
challenges. Management is currently working on contingency planning in the event
Arthur Andersen is unable to meet Black Hills Corporation's business needs.
The Board of Directors believes that it is a good practice to submit the
appointment of auditors for the approval of the shareholders, although such
approval is not required. The Board of Directors, in its discretion, may appoint
new independent auditors at any time during the year if the Board believes that
such a change would be in the best interest of Black Hills Corporation and its
shareholders. If shareholder approval for the appointment of Arthur Andersen LLP
is not obtained, the Audit Committee and the Board of Directors will reconsider
the appointment.
It is anticipated that a representative of Arthur Andersen LLP will be
present at the annual meeting to respond to appropriate questions. Such
representative will have an opportunity to make a statement at the annual
meeting if he desires.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION
OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP TO SERVE AS
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR 2002
SHAREHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
Shareholder proposals intended to be presented at our 2003 annual meeting
of shareholders must be received by our Secretary in writing at our home offices
at 625 Ninth Street, P.O. Box 1400, Rapid City, South Dakota 57709, prior to
November 26, 2002. Any proposal submitted must be in compliance with Rule 14a-8
of Regulation 14A of the Securities and Exchange Commission.
ITEM III: TRANSACTION OF OTHER BUSINESS
Our Board of Directors does not intend to present any business for action
by our shareholders at the meeting except the matters referred to in this proxy
statement. If any other matters should be properly presented at the meeting, it
is the intention of the persons named in the accompanying form of proxy to vote
thereon in accordance with the recommendations of our Board of Directors.
20
Please complete and sign the accompanying form of proxy whether or not you
expect to be present at the meeting and promptly return it in the enclosed
postage paid envelope.
By Order of the Board of Directors,
STEVEN J. HELMERS
General Counsel
and Corporate Secretary
Dated: April 15, 2002
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The information required by Item 13, Financial and Other Information, of
Regulation 14-A is provided in our annual report to our shareholders and Form
10-K for the year ended December 31, 2001, which is incorporated by reference
into this proxy statement.
Our 2001 Annual Report to Shareholders is being mailed with this Proxy
Statement.
================================================================================
PLEASE COMPLETE, SIGN AND RETURN PROMPTLY
THE ENCLOSED PROXY SO THAT YOUR STOCK MAY
BE REPRESENTED AND VOTED AT THE ANNUAL MEETING.
================================================================================
21
BLACK HILLS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
Wednesday, May 29, 2002
9:30 a.m., Local Time
The Journey Museum
222 New York Street
Rapid City, SD 57701
Black Hills Corporation
PO Box 1400, Rapid City, SD 57709 PROXY
- --------------------------------------------------------------------------------
This proxy is solicited by the Board of Directors for use at the Annual Meeting
on May 29, 2002.
The Shares of stock you hold in your account will be voted as you specify below.
If no choice is specified, the proxy will be voted "FOR" Items 1 and 2.
By signing the proxy, you revoke all prior proxies and appoint Daniel P.
Landguth, Mark T. Thies, and Steven J. Helmers, and each of them, with full
power of substitution, to vote your shares on the matters shown on the reverse
side and any other matters which may come before the Annual Meeting and all
adjournments.
22
HOW TO VOTE YOUR PROXY
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to Black Hills Corporation, c/o Shareowner Services,
P.O. Box 64873, St. Paul, MN 55164-9397.
- -----------------------------------------------------------------------------------------------------------------------------------
The Board of Directors Recommends a Vote FOR Items 1 and 2.
1. Election of Class II Directors: 01 David S. Maney Vote FOR Vote WITHHELD
02 Bruce B. Brundage all nominees from all nominees
03 Kay S. Jorgensen
(Instructions: To withhold authority to vote for any indicated
nominee, write the number(s) of the nominee(s) in the box
provided to the right. To cumulate votes so indicate.)
For Against Abstain
2. Ratify the appointment of Arthur Andersen LLP
to serve as Black Hills Corporation's independent
auditors in 2002.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address change? Mark Box
Indicate changes below: _______________________________
Date
Signature(s) Box
Please sign exactly as your name(s) appear on
Proxy. If held in joint tenancy, all persons
must sign. Trustees, administrators, etc., should include
title and authority. Corporations
should provide full name or corporation and
title of authorized officer signing the proxy.
- ---------------------------------------- -------------------------------------- --------------------------------------
Proxy # Account # Issue or Issuer #
- ---------------------------------------- -------------------------------------- --------------------------------------