-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SuQdAogM/M3GVkk3+ytBROIfNYRoNxpNzlXAca6tmseMbU/0sOdiK7tnubgetkgm ZEedEUQFIAwKNuDEeXH4ag== 0000950137-02-003097.txt : 20020515 0000950137-02-003097.hdr.sgml : 20020515 20020515151850 ACCESSION NUMBER: 0000950137-02-003097 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OTTER TAIL CORP CENTRAL INDEX KEY: 0000075129 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 410462685 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00368 FILM NUMBER: 02651594 BUSINESS ADDRESS: STREET 1: 215 S CASCADE ST STREET 2: PO BOX 496 CITY: FERGUS FALLS STATE: MN ZIP: 56538-0496 BUSINESS PHONE: 2187398200 MAIL ADDRESS: STREET 1: 215 S CASCADE ST STREET 2: P O BOX 496 CITY: FERGUS FALLS STATE: MN ZIP: 56538-0496 FORMER COMPANY: FORMER CONFORMED NAME: OTTER TAIL POWER CO DATE OF NAME CHANGE: 19920703 10-Q 1 c69656e10-q.txt FORM 10-Q FOR QUARTER ENDING MARCH 31, 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 2002 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------ ----------- Commission file number 0-368 ----- OTTER TAIL CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Minnesota 41-0462685 ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 215 South Cascade Street, Box 496, Fergus Falls, Minnesota 56538-0496 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) 218-739-8200 ---------------------------------------------------- (Registrant's telephone number, including area code) ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date: APRIL 30, 2002 - 24,799,369 COMMON SHARES ($5 PAR VALUE) OTTER TAIL CORPORATION INDEX
PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Financial Statements Consolidated Balance Sheets - March 31, 2002 2 & 3 and December 31, 2001 (Unaudited) Consolidated Statements of Income - Three Months 4 Ended March 31, 2002 and 2001 (Unaudited) Consolidated Statements of Cash Flows - Three Months 5 Ended March 31, 2002 and 2001 (Unaudited) Notes to Consolidated Financial Statements (Unaudited) 6-9 Item 2. Management's Discussion and Analysis of Financial 10-15 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures about 15 Market Risk PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OTTER TAIL CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) -ASSETS-
MARCH 31, DECEMBER 31, 2002 2001 --------- ------------ (Thousands of dollars) CURRENT ASSETS: Cash and cash equivalents $ -- $ 11,378 Accounts receivable: Trade - net 62,289 64,215 Other 6,128 5,047 Inventory, fuel, materials and supplies 42,216 39,301 Deferred income taxes 3,967 4,020 Accrued utility revenues 10,734 11,055 Other 13,219 8,878 -------- -------- TOTAL CURRENT ASSETS 138,553 143,894 INVESTMENTS 18,056 18,009 INTANGIBLES -- NET 49,678 49,805 OTHER ASSETS 17,617 15,687 DEFERRED DEBITS: Unamortized debt expense and reacquisition premiums 5,580 5,646 Regulatory assets 5,538 5,117 Other 524 1,406 -------- -------- TOTAL DEFERRED DEBITS 11,642 12,169 PLANT: Electric plant in service 811,445 810,470 Diversified operations 149,039 145,712 -------- -------- TOTAL PLANT 960,484 956,182 Less accumulated depreciation and amortization 450,113 441,863 -------- -------- 510,371 514,319 Construction work in progress 43,442 28,658 -------- -------- NET PLANT 553,813 542,977 -------- -------- TOTAL $789,359 $782,541 ======== ========
See accompanying notes to consolidated financial statements -2- OTTER TAIL CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) -LIABILITIES-
MARCH 31, DECEMBER 31, 2002 2001 ---------- ------------ (Thousands of dollars) CURRENT LIABILITIES Short-term debt $ 5,393 $ -- Sinking fund requirements and current maturities 28,641 28,946 Accounts payable 47,483 46,871 Accrued salaries and wages 9,561 17,397 Accrued federal and state income taxes 6,177 1,634 Other accrued taxes 10,189 9,854 Other accrued liabilities 7,459 6,090 --------- --------- TOTAL CURRENT LIABILITIES 114,903 110,792 NONCURRENT LIABILITIES 33,122 32,981 DEFERRED CREDITS Accumulated deferred income taxes 85,650 85,591 Accumulated deferred investment tax credit 13,647 13,935 Regulatory liabilities 9,749 9,914 Other 8,613 7,160 --------- --------- TOTAL DEFERRED CREDITS 117,659 116,600 CAPITALIZATION Long-term debt, net of sinking fund and current maturities 224,824 227,360 Cumulative preferred shares authorized 1,500,000 shares without par value; outstanding 2002 and 2001 -- 155,000 shares 15,500 15,500 Cumulative preference shares - authorized 1,000,000 shares without par value; outstanding - none -- -- Common shares, par value $5 per share authorized 50,000,000 shares; outstanding 2002 -- 24,693,672 and 2001 -- 24,653,490 123,468 123,267 Premium on common shares 2,130 1,526 Unearned compensation (225) (151) Retained earnings 159,953 156,641 Accumulated other comprehensive loss (1,975) (1,975) --------- --------- TOTAL 283,351 279,308 TOTAL CAPITALIZATION 523,675 522,168 --------- --------- TOTAL $ 789,359 $ 782,541 ========= =========
See accompanying notes to consolidated financial statements -3- OTTER TAIL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
THREE MONTHS ENDED MARCH 31, 2002 2001 ------------ ------------- (in thousands, except share and per share amounts) OPERATING REVENUES Electric $ 74,401 $ 82,631 Plastics 15,875 13,961 Health services 21,119 17,900 Manufacturing 31,328 28,265 Other business operations 15,010 16,897 ------------ ------------ Total operating revenues 157,733 159,654 OPERATING EXPENSES Production fuel 11,517 11,505 Purchased power 18,934 26,391 Other electric operation and maintenance expenses 19,972 15,565 Cost of goods sold 59,136 56,758 Other nonelectric expenses 16,520 14,039 Depreciation and amortization 10,184 10,174 Property taxes 2,535 2,784 ------------ ------------ Total operating expenses 138,798 137,216 OPERATING INCOME (LOSS) Electric 15,293 20,372 Plastics 1,892 (1,163) Health services 2,437 1,754 Manufacturing 1,906 3,025 Other business operations (2,593) (1,550) ------------ ------------ Total operating income 18,935 22,438 OTHER INCOME AND (DEDUCTIONS) - NET 51 318 INTEREST CHARGES 4,324 4,102 ------------ ------------ INCOME BEFORE INCOME TAXES 14,662 18,654 INCOME TAXES 4,630 6,654 ------------ ------------ NET INCOME 10,032 12,000 Preferred dividend requirements 184 470 ------------ ------------ EARNINGS AVAILABLE FOR COMMON SHARES $ 9,848 $ 11,530 ============ ============ Basic earnings per average common share: $ 0.40 $ 0.47 ============ ============ Diluted earnings per average common share: $ 0.40 $ 0.47 ============ ============ Average number of common shares outstanding - basic 24,667,956 24,576,808 Average number of common shares outstanding - diluted 24,919,068 24,776,034 Dividends per common share $ 0.265 $ 0.260
See accompanying notes to consolidated financial statements -4- OTTER TAIL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED MARCH 31, 2002 2001 --------- --------- (Thousands of dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 10,032 $ 12,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,184 10,174 Deferred investment tax credit - net (288) (288) Deferred income taxes (471) (94) Change in deferred debits and other assets (1,194) (1,730) Change in noncurrent liabilities and deferred credits 1,594 2,314 Allowance for equity (other) funds used during construction (432) (105) Losses from investments and disposal of noncurrent assets 358 173 Cash provided by (used for) current assets & current liabilities: Change in receivables, materials and supplies (2,070) (17,653) Change in other current assets (5,248) 1,195 Change in payables and other current liabilities (6,521) (1,305) Change in interest and income taxes payable 5,544 3,131 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 11,488 7,812 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (20,983) (9,518) Proceeds from disposal of noncurrent assets 808 333 (Purchase)/sale of other investments 1,016 (521) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (19,159) (9,706) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under line of credit 5,393 20,679 Proceeds from employee stock plans 485 2 Payments for retirement of long-term debt (2,865) (4,033) Dividends paid (6,720) (6,840) -------- -------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (3,707) 9,808 NET CHANGE IN CASH AND CASH EQUIVALENTS (11,378) 7,914 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,378 1,259 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ -- $ 9,173 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest and income taxes: Interest $ 2,920 $ 4,840 Income taxes $ 289 $ 2,427
See accompanying notes to consolidated financial statements -5- OTTER TAIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Otter Tail Corporation (the Company), in its opinion, has included all adjustments (including normal recurring accruals) necessary for a fair presentation of the consolidated results of operations for the periods presented. The consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes for the years ended December 31, 2001, 2000, and 1999 included in the Company's 2001 Annual Report to the Securities and Exchange Commission on Form 10-K. Because of seasonal and other factors, the earnings for the three-month period ended March 31, 2002, should not be taken as an indication of earnings for all or any part of the balance of the year. Common Shares and Earnings per Share Basic earnings per common share are calculated by dividing earnings available for common shares by the average number of common shares outstanding during the period. Diluted earnings per common share are calculated by adjusting outstanding shares, assuming conversion of all potentially dilutive stock options. Comprehensive Income The only element of comprehensive income for the three months ended March 31, 2002 and March 31, 2001 was net income of $10.0 million and $12.0 million, respectively. Goodwill and Other Intangible Assets - Adoption of Statement of Financial Accounting Standards No. 142 In June 2001 the Financial Accounting Standards Board (FASB) approved the issuance of Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. These standards, issued in July 2001, established accounting and reporting for business combinations. SFAS No. 141 requires that all business combinations entered into subsequent to June 30, 2001 be accounted for using the purchase method of accounting. SFAS No. 142 provides that goodwill and other intangible assets with indefinite lives will not be amortized, but tested for impairment on an annual basis. Intangible assets with finite useful lives will be amortized over their respective estimated useful lives and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Company adopted SFAS No. 142 on January 1, 2002. The Company has determined that as of January 1, 2002 goodwill is not impaired and therefore no write-off is necessary. The impact of not amortizing goodwill would have resulted in an increase in net income for the three months ended March 31, 2001 of $595,000. The following table presents the effects of not amortizing goodwill on reported net income and basic and diluted earnings per share.
Three months ended March 31, (in thousands, except per share amounts) 2002 2001 - ----------------------------------------------------------------------------- Net income: Reported net income $ 10,032 $ 12,000 Add back: goodwill amortization, net of tax -- 595 ---------- ---------- Adjusted net income $ 10,032 $ 12,595 ========== ==========
6 Basic and diluted earnings per share: Reported basic and diluted earnings per share $ 0.40 $ 0.47 Add back: goodwill amortization, net of tax -- 0.02 ---------- ---------- Adjusted basic and diluted earnings per share: $ 0.40 $ 0.49 ========== ==========
The carrying amount of goodwill by segment was
As of As of March 31, December 31, (in thousands) 2002 2001 - ------------------------------------------------------------------------- Plastics $19,302 $19,302 Health services 13,311 13,311 Manufacturing 1,667 1,627 Other business operations 13,981 13,981 ------- ------- Total $48,261 $48,221 ======= =======
The following is a summary of the Company's intangible assets with finite lives that are subject to amortization at March 31, 2002 and December 31, 2001.
March 31, 2002 December 31, 2001 -------------- ----------------- Gross Net Gross Net carrying Accumulated carrying carrying Accumulated carrying (in thousands) amount amortization amount amount amortization amount - ---------------------------------------------------------------------------------------------------------------------------- Amortized intangible assets: Covenants not to complete $1,568 $ 974 $ 594 $1,575 $ 933 $ 642 Organization costs 281 128 153 281 118 163 Other intangible assets including contracts 1,190 520 670 1,230 451 779 ------ ------ ------ ------ ------ ------ Total $3,039 $1,622 $1,417 $3,086 $1,502 $1,584 ====== ====== ====== ====== ====== ======
These intangibles are being amortized on a straight-line basis over a period of 5 years or less. The amortization expense for these intangible assets was $120,000 for the three months ended March 31, 2002 compared to $77,000 for the three months ended March 31, 2001. The estimated annual amortization expense for these intangible assets for the next five years is $480,000 for 2002, $440,000 for 2003, $290,000 for 2004, $200,000 for 2005, and $100,000 for 2006. Segment Information The Company's business operations consist of five segments based on products and services. Electric includes the electric utility operating in Minnesota, North Dakota, and South Dakota. Plastics consists of businesses involved in the production of PVC pipe in the Upper Midwest and Southwest regions of the United States. Health services include businesses involved in the sale of diagnostic medical equipment, supplies and accessories. In addition these businesses also provide service maintenance, mobile diagnostic imaging, mobile PET and nuclear medicine imaging, portable x-ray imaging and rental of diagnostic medical imaging equipment to various medical institutions located in 31 states. Manufacturing consists of businesses involved in the production of wind towers, frame-straightening equipment and accessories for the auto repair industry, custom plastic pallets, material and handling trays, and horticultural containers, fabrication of steel products, contract machining, and metal parts stamping and fabrication located in the Upper Midwest and Utah. Other business operations consists of businesses in electrical and telephone construction contracting, transportation, telecommunications, entertainment, energy services, and natural gas marketing, as well as the portion of corporate administrative and general expenses that are not allocated to other segments. The electrical and telephone construction contracting companies and energy 7 services and natural gas marketing business operate primarily in the Upper Midwest. The telecommunications companies operate in central and northeast Minnesota and the transportation company operates in 48 states and 6 Canadian provinces. The Company evaluates the performance of its business segments and allocates resources to them based on earnings contribution and return on total invested capital. Operating Income (Loss)
Three months ended March 31, 2002 2001 -------- -------- (in thousands) Electric $ 15,293 $ 20,372 Plastics 1,892 (1,163) Health services 2,437 1,754 Manufacturing 1,906 3,025 Other business operations (2,593) (1,550) -------- -------- Total $ 18,935 $ 22,438 ======== ========
Identifiable Assets
March 31, December 31, 2001 2001 --------- ------------ (in thousands) Electric $535,841 $523,948 Plastics 50,521 45,649 Health services 47,568 50,560 Manufacturing 76,790 67,033 Other business operations 78,639 95,351 -------- -------- Total $789,359 $782,541 ======== ========
Substantially all sales and long-lived assets of the Company are within the United States. Reclassifications Certain prior year amounts have been reclassified to conform to 2002 presentation. Such reclassifications had no impact on net income, shareholders' equity or cash provided by operating activities. New Accounting Standards In July 2001 the FASB issued SFAS 143, Accounting for Asset Retirement Obligations, which provides accounting requirements for retirement obligations associated with tangible long-lived assets. This statement is effective for fiscal years beginning after June 15, 2002. The Company is assessing this statement but has not yet determined the impact of SFAS 143 on its consolidated financial position or results of operations. The FASB issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets in October 2001. SFAS 144 replaces SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. This statement develops one accounting model for long-lived assets to be disposed of by sale and also broadens the reporting of discontinued operations to include all components of an entity with operations that can 8 be distinguished from the rest of the entity in a disposal transaction. The Company adopted the accounting model for impairment or disposal of long-lived assets on January 1, 2002. Adoption of this statement did not have a material effect on the Company's consolidated financial statements. Subsequent Events On April 8, 2002 the Company's Board of Directors granted 278,750 stock options to key management employees and 75,800 shares of restricted stock to executives and outside board directors under the 1999 Stock Incentive Plan (Incentive Plan). The exercise price of the stock options is equal to the fair market value per share at the date of the grant. Both the options and restricted stock vest ratably over a four-year period. The options expire ten years after the date of the grant. As of April 30, 2002 a total of 1,429,316 options were outstanding and a total of 100,513 shares of restricted stock had been issued under the Incentive Plan. The Company accounts for the Incentive Plan under Accounting Principles Board Opinion No. 25. On May 1, 2002 the Company acquired 100% of the outstanding stock of Computed Imaging Service, Inc. of Houston, Texas. Computed Imaging Service provides computed tomography and magnetic resonance imaging mobile services, interim rental, and sales and service of new, used, and refurbished diagnostic imaging equipment. Computed Imaging Service serves hospitals and other healthcare facilities in the south central United States. The acquisition will be accounted for as a purchase, in accordance with the guidance in SFAS No. 141, Business Combinations. On May 1, 2002 the Company established a new $50 million line of credit. This line of credit bears interest at the rate of LIBOR plus 0.5% and expires on April 30, 2003. The line of credit contains various covenants, including interest-bearing debt to total capitalization and interest charges coverage ratios. Forward Looking Information - Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 (the Act), the Company has filed cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those discussed in forward-looking statements made by or on behalf of the Company. When used in this Form 10-Q and in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases and in oral statements, words such as "may", "will", "expect", "anticipate", "continue", "estimate", "project", "believes" or similar expressions are intended to identify forward-looking statements within the meaning of the Act. Factors that might cause such differences include, but are not limited to, the Company's ongoing involvement in diversification efforts, the timing and scope of deregulation and open competition, growth of electric revenues, impact of the investment performance of the utility's pension plan, changes in the economy, governmental and regulatory action, weather conditions, fuel and purchased power costs, environmental issues, resin prices, and other factors discussed under "Factors affecting future earnings" on pages 26-27 of the Company's 2001 Annual Report to Shareholders, which is incorporated by reference in the Company's Form 10-K for the fiscal year ended December 31, 2001. These factors are in addition to any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statement or contained in any subsequent filings by the Company with the Securities and Exchange Commission. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations MATERIAL CHANGES IN FINANCIAL POSITION The Company estimates that funds internally generated net of forecasted dividend payments, combined with funds on hand at December 31, 2001, will be sufficient to meet scheduled debt retirements and almost completely provide for its estimated 2002-2006 consolidated capital expenditures. Reduced demand for electricity or in the products manufactured or sold by the Company could have an effect on funds internally generated. Additional short-term or long-term financing will be required in the period 2002-2006 in order to complete the planned capital expenditures, in the event the Company decides to refund or retire early any of its presently outstanding debt or cumulative preferred shares, to complete acquisitions, or for other corporate purposes. There can be no assurance that any additional required financing will be available through bank borrowings, debt or equity financing or otherwise, or that if such financing is available, it will be available on terms acceptable to the Company. If adequate funds are not available on acceptable terms, our business, results of operations, and financial condition could be adversely affected. As of March 31, 2002, $36.6 million was available in three separate unused lines of credit. On May 1, 2002 the Company established a new $50 million line of credit that replaced the three separate lines of credit. This new line of credit bears interest at the rate of LIBOR plus 0.5% and expires on April 30, 2003. The line of credit contains various covenants, including interest-bearing debt to total capitalization and interest charges coverage ratios. Cash provided by operating activities of $11.5 million for the three months ended March 31, 2002 combined with cash on hand of $11.4 million as of December 31, 2001 allowed the Company to pay dividends and partially fund its capital expenditures. Net cash provided by operating activities increased $3.7 million for the three months ended March 31, 2002 compared to the three months ended March 31, 2001 primarily as a result of changes in working capital items. Net cash used in investing activities was $19.2 million for the three months ended March 31, 2002 compared with net cash used in investing activities of $9.7 million for the three months ended March 31, 2001. Capital expenditures increased $11.5 million between the periods. The majority of this increase occurred in the electric segment reflecting ongoing construction expenditures for a gas-fired combustion turbine peaking plant and a new transmission line in North Dakota. In addition, building expansions at the companies that manufacture wind energy towers and perform metal parts stamping and fabrication contributed to the increase in capital expenditures. Net cash used in financing activities was $3.7 million for the three months ended March 31, 2002 compared with net cash provided by financing activities of $9.8 million for the three months ended March 31, 2001. This change primarily is caused by reduction in short-term borrowings between the periods. As a result of the financing that was done at the end of December 2001, the Company started the year with $11.4 million in cash reducing the need for short-term borrowing. There are no material changes in the Company's contractual obligations on long-term debt, coal contracts, construction program commitments, capacity and energy requirements, and operating leases from those reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. For more information on contractual obligations and commitments, see Item 7 in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. 10 MATERIAL CHANGES IN RESULTS OF OPERATIONS Comparison of the Three Months Ended March 31, 2002 and 2001 Consolidated Results of Operations Total operating revenues were $157.7 million for the three months ended March 31, 2002, down $2.0 million (1.2%) from the $159.7 million for the three months ended March 31, 2001. Operating income was $18.9 million for the three months ended March 31, 2002 compared with $22.4 million for the three months ended March 31, 2001. The Company recorded diluted earnings per share of $0.40 for the three months ended March 31, 2002 compared to $0.47 for the three months ended March 31, 2001. Mild winter weather during the three months ended March 31, 2002 impacted retail and wholesale energy sales and reduced revenues and earnings from the electric segment compared to record results for the electric segment during the three months ended March 31, 2001. Operating income from the health services segment increased 38.9% as a result of 2001 platform acquisitions and improved operating margins. The operating income from the plastics segment increased $3.1 million. Operating results from the manufacturing and other segments decreased between the quarters reflecting the effects of a slower economy on some of the businesses in those segments. The benefit resulting solely from the discontinuance of goodwill amortization is $0.02 per common share during the quarter. Electric
Three months ended March 31, 2002 2001 Change ------- ------- ------- (in thousands) Operating revenues $74,401 $82,631 ($8,230) Production fuel 11,517 11,505 12 Purchased power 18,934 26,391 (7,457) Other electric operation and maintenance expenses 19,972 15,565 4,407 Depreciation and amortization 6,150 6,014 136 Property taxes 2,535 2,784 (249) ------- ------- ------- Operating income $15,293 $20,372 ($5,079) ======= ======= =======
The 10.0% decrease in electric operating revenues for the three months ended March 31, 2002 compared with the three months ended March 31, 2001 is due to an $8.4 million (34.3%) decrease in wholesale power revenues, a $2.7 million (4.7%) decrease in retail electric revenues and a $2.8 million (142.1%) increase in other operating revenues. The decrease in wholesale power revenues primarily resulted from a 36.4% decrease in revenue per megawatt-hour (mwh) sold reflecting the soft wholesale power market during the three months ended March 31, 2002 compared with the three months ended March 31, 2001. Gross margin per mwh sold on wholesale power sales decreased 35.2%. The decrease in retail electric revenue resulted from a 4.3% reduction in retail mwh sold between the periods combined with a 0.5% reduction in revenue per mwh sold. Retail mwh sold decreased due to the mild winter weather during 2002 compared with the winter of 2001. Sales were down in all customer categories. Heating degree-days in the area served by the electric utility decreased 7.9% between the periods. The increase in other operating revenues reflects revenues from the construction of a transmission line for another utility. 11 The cost of purchased power decreased 28.3% due to a 24.1% decrease in cost per mwh purchased combined with a 5.5% decrease in mwh purchased. Mwh purchased for resale decreased 7.4% and mwh purchased for system use increased 0.6%. The reduction in the cost per mwh purchased is due to the mild weather and the availability of power within the power pool. Activity in the short-term energy market is subject to change based on a number of factors and it is difficult to predict the quantity of wholesale power sales or prices for wholesale power, although it does appear that market conditions for wholesale power transactions will be depressed during part of 2002. The 28.3% increase in other electric operating and maintenance expenses for the three months ended March 31, 2002 compared with the three months ended March 31, 2001 reflects an increase in expenses related to construction work performed for other utilities, in addition to increased labor costs and an increase in professional services expenses. Plastics
Three months ended March 31, 2002 2001 Change -------- -------- -------- (in thousands) Operating revenues $ 15,875 $ 13,961 $ 1,914 Cost of goods sold 12,688 13,432 (744) Operating expenses 856 873 (17) Depreciation and amortization 439 819 (380) -------- -------- -------- Operating income (loss) $ 1,892 ($1,163) $ 3,055 ======== ======== ========
The 13.7% increase in operating revenues for the three months ended March 31, 2002 compared with the three months ended March 31, 2001 is the result of a 35.5% increase in pounds of PVC pipe sold offset by a 16.1% decline in average sales price per pound. Cost of goods sold decreased 5.5% due to a $1.0 million decrease in material costs offset by a $265,000 increase in overhead costs primarily resulting from an increase in freight expense. The $1.0 million decrease in material costs reflects a 32.3% reduction in the cost per pound of resin, the raw material used to produce PVC pipe. The 46.3% decrease in depreciation and amortization is due to the accounting change that eliminated the amortization of goodwill beginning in 2002. Health Services
Three months ended March 31, 2002 2001 Change ------- ------- ------- (in thousands) Operating revenues $21,119 $17,900 $ 3,219 Cost of goods sold 14,687 13,109 1,578 Operating expenses 3,051 2,306 745 Depreciation and amortization 944 731 213 ------- ------- ------- Operating income $ 2,437 $ 1,754 $ 683 ======= ======= =======
Health services operating revenues for the three months ended March 31, 2002 compared with the three months ended March 31, 2001 increased 18.0% due to added revenues from the acquisitions that occurred during the third quarter of 2001 combined with increases in the number of scans performed and revenue per scan. The number of 12 scans increased due to the addition of positron emission tomography service. The increase in cost of goods sold, operating expenses and depreciation and amortization are due in part to the 2001 acquisitions. The 38.9% increase in the net operating margin reflects the operating results from the 2001 acquisitions, an increase in margins on service sales provided and lower maintenance expense on equipment. Manufacturing
Three months ended March 31, 2002 2001 Change ------- ------- ------- (in thousands) Operating revenues $31,328 $28,265 $ 3,063 Cost of goods sold 23,789 21,217 2,572 Operating expenses 4,186 2,821 1,365 Depreciation and amortization 1,447 1,202 245 ------- ------- ------- Operating income $ 1,906 $ 3,025 ($1,119) ======= ======= =======
The 10.8% increase in operating revenues for the three months ended March 31, 2002 compared with the three months ended March 31, 2001 came from sales of wind towers and steel fabrication offset by a reduction in sales volumes of metal parts stamping and fabrication. The 12.1% increase in cost of goods sold primarily reflects the material costs for the construction of the wind towers and steel fabrication. The increase in operating expenses reflects an increase in labor costs and other general and administrative expenses. Other Business Operations
Three months ended March 31, 2002 2001 Change -------- -------- -------- (in thousands) Operating revenues $ 15,010 $ 16,897 ($ 1,887) Cost of goods sold 7,972 9,000 (1,028) Operating expenses 8,427 8,039 388 Depreciation and amortization 1,204 1,408 (204) -------- -------- -------- Operating loss ($ 2,593) ($ 1,550) ($ 1,043) ======== ======== ========
The 11.2% decrease in operating revenues for the three months ended March 31, 2002 compared with the three months ended March 31, 2001 occurred primarily at the transportation and energy services subsidiaries. Total miles driven in the transportation business decreased 10.8% between the quarters and revenue per mile was down 5.7%. This is due to a difficult freight environment that caused rates to be extremely competitive. The transportation business has also been hampered by recent spikes in insurance premiums. Both operating revenues and cost of goods sold decreased significantly for the energy services company due to the high cost of natural gas during the three months ended March 31, 2001. Increased operating expenses relating to developing a new line of business within the energy services company also contributed to the lower results in this segment. 13 Interest Charges and Income Taxes The $222,000 (5.4%) increase in interest charges is due to higher long-term debt balances outstanding for the three months ended March 31, 2002 compared to the three months ended March 31, 2001, offset by significantly lower interest rates and lower average balances under the lines of credit between the periods. The $2.0 million decrease in income tax expense between the quarters is primarily the result of lower income before income tax. Critical Accounting Policies The discussion and analysis of the Company's consolidated financial condition and results of operations are based on consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States. Preparation of these consolidated financial statements requires the use of estimates and judgments that affect the reported results. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are those that require significant management judgments and business uncertainties and could result in materially different results using different assumptions and conditions. The following accounting policies meet the criteria of a critical accounting policy. Revenue recognition--Due to the diverse business operations of the Company, revenue recognition depends on the product produced and sold. In general, the Company recognizes revenue when the earnings process is complete, evidenced by an agreement with the customer, there has been delivery and acceptance and the price is fixed or determinable. In cases where significant obligations remain after delivery, revenue is deferred until such obligations are fulfilled. Provisions for sale returns and warranty costs are recorded at the time of the sale based on historical information and current trends. Electric customers' meters are read and bills are rendered on a cycle basis. Revenue is accrued for electricity consumed but not yet billed. Rate schedules applicable to substantially all customers include a cost of energy adjustment clause, under which the rates are adjusted to reflect changes in average cost of fuels and purchased power, and a surcharge for recovery of conservation-related expenses. Revenues on almost all wholesale sales are recognized when energy is delivered. The majority of revenue is the result of bilateral agreements with individual counter-parties. Plastics operating revenues are recorded when the product is shipped. Health services operating revenues on major equipment and installation contracts are recorded when the equipment is delivered. Amounts received in advance under customer service contracts are deferred and recognized on a straight-line basis over the contract period. Revenues generated in the mobile imaging operations are recorded on a fee for scan basis. Manufacturing operating revenues are recorded when products are shipped and on a percentage-of-completion basis for construction type contracts. Other business operations operating revenues are recorded when services are rendered or products are shipped. In the case of construction contracts, the percentage-of-completion method is used. Inventory valuation--The majority of the Company's inventory is stated at the lower of cost (first in, first out) or market. Changes in the market conditions could require a write down of inventory values. Use of estimates--The Company uses estimates based on the best information available in recording transactions and balances resulting from business operations. Estimates are used for such items as depreciable lives, tax provisions, collectability of trade accounts receivable, self insurance programs, environmental liabilities, unbilled electric revenues, unscheduled power exchanges, service contract maintenance costs, percentage-of-completion and actuarially determined benefits costs. As better information becomes available or actual amounts are known, estimates are revised. Operating results can be affected by changes made to prior accounting estimates. 14 The Company's significant accounting policies are more fully described in note 1 of the notes to consolidated financial statements included under Item 8 in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company has limited exposure to market risk associated with interest rates and commodity prices. The majority of the Company's long-term debt obligations bear interest at a fixed rate. Variable rate long-term debt bears interest at a rate that is reset on a periodic basis reflecting current market conditions. The Company manages its interest rate risk through the issuance of fixed-rate debt with varying maturities, through economic refunding of debt through optional refundings, limiting the amount of variable interest rate debt, and utilization of short-term borrowings to allow flexibility in the timing and placement of long-term debt. As of March 31, 2002, the Company had $16.6 million of long-term debt subject to variable interest rates. Assuming no change in the Company's financial structure, if variable interest rates were to average 1 percent higher (lower) than what the average variable rate was on March 31, 2002, interest expense and pre-tax earnings would change by approximately $166,000. The Company has short-term borrowing arrangements to provide financing for working capital and general corporate purposes. The level of borrowings under these arrangements vary from period to period, depending upon, among other factors, operating needs and capital expenditures. The electric utility's retail portion of fuel and purchased power costs are subject to cost of energy adjustment clauses that mitigate the commodity price risk by allowing a pass through of most of the increase or decrease in energy costs to retail customers. In addition, the electric utility participates in an active wholesale power market providing access to commodity transactions that may serve to mitigate price risk. The Company has in place an energy risk management policy whose primary goal is to manage, through the use of defined risk management practices, price risk and credit risk associated with wholesale power purchases and sales. The Company through its energy services subsidiary markets natural gas to approximately 150 retail customers. A portion of these customers are served under fixed-price contracts. There is price risk associated with these limited number of fixed-price contracts since the corresponding cost of natural gas is not immediately locked in. This price risk is not considered material to the Company. The plastics companies are exposed to market risk related to changes in commodity prices for PVC resins, the raw material used to manufacture PVC pipe. The PVC pipe industry is highly sensitive to commodity raw material pricing volatility. Currently, margins are very tight due to aggressive competition in a period of soft demand. The Company does not use derivative financial instruments for speculative or trading purposes. 15 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. a) Exhibits: 10-A Form of Executive Employment Agreement.* 10-B Nonqualified Retirement Savings Plan, as amended.* 10-C Executive Survivor and Supplemental Retirement Plan, as amended.* 10-D Deferred Compensation Plan for Directors, as amended.* 10-E Form of Change in Control Severance Agreement.* *Management contract or compensatory plan or arrangement required to be filed pursuant to Item 601(b) (10) (iii) (A) of Regulation S-K. b) Reports on Form 8-K. No reports on Form 8-K were filed during the fiscal quarter ended March 31, 2002. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OTTER TAIL CORPORATION By: /s/ Kevin G. Moug ----------------- Kevin G. Moug Chief Financial Officer and Treasurer (Chief Financial Officer/Authorized Officer) Dated: May 15, 2002 ------------ 17 EXHIBIT INDEX Exhibit Number Description - -------------- ----------- 10-A Form of Executive Employment Agreement.* 10-B Nonqualified Retirement Savings Plan, as amended.* 10-C Executive Survivor and Supplemental Retirement Plan, as amended.* 10-D Deferred Compensation Plan for Directors, as amended.* 10-E Form of Change in Control Severance Agreement.* *Management contract or compensatory plan or arrangement required to be filed pursuant to Item 601(b) (10) (iii) (A) of Regulation S-K. EX-10.A 3 c69656ex10-a.txt FORM OF EXECUTIVE EMPLOYMENT AGREEMENT EXHIBIT 10-A OTTER TAIL CORPORATION EXECUTIVE EMPLOYMENT AGREEMENT [ NAME ] This Executive Employment Agreement (the "Agreement") is entered into this ___ day of ________________, 2001, by and between Otter Tail Corporation, a Minnesota corporation (the "Corporation") and [ Name ] ("You"). Corporation agrees to employ You and You agree to be employed consistent with the terms of this Agreement as follows: 1. Employment. Corporation agrees to employ You and You agree to be employed as [Title] consistent with the terms and conditions set forth in this Agreement. 2. Duties. You shall have such duties as are assigned or delegated to You by the Corporation's Board of Directors or its designee. Except as provided for in Section 7 of this Agreement or subsequently agreed upon by You and the Corporation, You agree to devote Your entire business time, attention, skill, and energy exclusively to the business of the Corporation, to use Your best efforts to promote the success of the Corporation's business, and to cooperate fully with the Board of Directors in the advancement of the best interests of the Corporation. 3. Compensation and Benefits. a. Base Pay. You shall be paid an annual salary ("Base Pay") of [$ ], which shall be payable in equal periodic installments according to the Corporation's customary payroll practices, but no less frequently than monthly, and subject to such withholdings and deductions as required by law. Your Base Pay shall be reviewed in April of each year by the Board of Directors, and any change in Base Pay approved by the Board shall become effective April 1 of the year in which it is approved. b. Incentive Compensation. You shall be paid an annual incentive payment based on the Corporation's Management Incentive Plan, or its successor plan, as approved by the Corporation's Board of Directors, and based on the rules of the plan. Your incentive payment shall be paid to You as soon as administratively possible upon approval of the Corporation's financial results after the close of each calendar year. c. Benefits. In addition to the compensation described above and subject to rules of eligibility, You shall be permitted to participate in the benefit plans and long-term incentive plans available to full time executive level employees of the Corporation as they now exist and may from time to time be modified or established by the Corporation. The plan documents shall govern Your participation in any benefit plan. 4. Expenses. The Corporation shall pay Your dues in such professional societies and organizations as are appropriate for Your position, and shall pay on Your behalf (or reimburse the You for) reasonable expenses incurred by You on behalf of the Corporation in the performance of the Your duties pursuant to this Agreement, including reasonable expenses incurred by the You in attending conventions, seminars, and other business meetings, in appropriate business entertainment activities, and for promotional expenses. You shall file such expense reports as are required by the Corporation's policies and federal income tax laws and regulations. 5. Confidentiality of Information. a. You acknowledge that the Corporation possesses and will continue to develop and acquire valuable Confidential Information (as defined below), including information that You may develop or discover as a result of your employment with the Corporation. The value of that Confidential Information depends on it remaining confidential. The Corporation depends on You to maintain the confidentiality, and You accept that position of trust. b. As used in this Agreement, "Confidential Information" means any information (including any formula, pattern, compilation, program, device, method, technique or process) that derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use and includes information of the Corporation, its customers, suppliers, joint ventures, licensors, distributors and other persons and entities with whom the Corporation does business. c. You shall not disclose or use at any time, either during or after your employment with the Corporation, any Confidential Information except for the exclusive benefit of the Corporation as required by your duties or as the Corporation expressly may consent to in writing. You shall cooperate with the Corporation to implement reasonable measures to maintain the secrecy of, and use your best efforts to prevent the unauthorized disclosure, use or reproduction of all Confidential Information. d. Upon leaving employment with the Corporation for any reason, You shall deliver to the Corporation all tangible, written, graphical, machine readable and other materials (including all copies) in your possession or under your control containing or disclosing Confidential Information. 6. Termination/Severance. Either party may terminate the employment relationship as evidenced by this Agreement at any time and for any reason upon ninety days written notice to the other. a. If You elect to terminate the employment relationship, or if You are terminated by the Company for Cause, You shall receive Base Pay and benefits through the date of termination. Cause means your termination of employment with the Corporation based upon embezzlement or other intentional misconduct which is materially injurious to the Corporation, monetarily or otherwise. b. If the Corporation elects to terminate the employment relationship or if You elect to resign for Good Reason, You shall receive a severance payment equal 2 to one and one-half (1-1/2) times the sum of your present Base Pay plus your most recent annual incentive payment (the "Severance Payment"), in full satisfaction of the Corporation's obligations to You as an employee. The Severance Payment will be paid within fifteen (15) days of the date of termination and shall be subject to payroll taxes and any withholding obligations. Good Reason means the occurrence of any of the following events: (1) a material change in your responsibilities or title which are not of comparable responsibility and status as those held upon execution of this Agreement; (2) a reduction in your Base Pay, or a modification of the Corporation's incentive compensation program or benefits in a manner materially adverse to You; (3) a breach or alteration of any material term of this contract without your consent. c. If You are terminated in connection with a Change in Control, as defined by the Change in Control Severance Agreement entered into by You and the Corporation (the "Severance Agreement"), and You receive payment of the severance benefits under Section 4 of the Severance Agreement, no Severance Payment shall be due to You under this Agreement. 7. Entire Agreement. This Agreement and the Change in Control Severance Agreement represent the entire agreement between You and the Corporation concerning the employment relationship of the parties commencing on _______________, 2002 and following and, thus, supersedes any and all previous written or oral employment agreements or understandings concerning such matter. 8. Disputes. Disputes under this Agreement shall be determined by arbitration consistent with rules of the American Arbitration Association. The costs of Arbitration shall be borne equally between You and the Corporation and You shall bear your own attorney fees; provided, however, if You are the prevailing party in Arbitration, all costs and attorney fees shall be paid by the Corporation. 9. Amendment/Governing Law. This Agreement may only be modified or amended by a writing signed by both parties. This Agreement is made in and shall be governed by the substantive laws of the State of Minnesota. 3 FOR THE CORPORATION: - ------------------------------- ------------------------ Date ACKNOWLEDGED AND ACCEPTED BY: - ------------------------------- ----------------------- Date 4 EX-10.B 4 c69656ex10-b.txt NONQUALIFIED RETIREMENT SAVINGS PLAN EXHIBIT 10-B OTTER TAIL CORPORATION NONQUALIFIED RETIREMENT SAVINGS PLAN RESTATED EFFECTIVE JANUARY 1, 2002 PREPARED BY: LEONARD, STREET AND DEINARD PROFESSIONAL ASSOCIATION/AMB 150 S. FIFTH STREET #2300 MINNEAPOLIS, MN 55402 (612) 335-1500 TABLE OF CONTENTS ARTICLE 1. DEFINITIONS, GENDER, AND NUMBER.................................1 Section 1.1. Definitions................................................1 Section 1.2. Gender and Number.........................................10 ARTICLE 2. DEFERRED COMPENSATION ACCOUNTS.................................10 Section 2.1. Establishment of Accounts.................................10 Section 2.2. Property of Company.......................................10 ARTICLE 3. PARTICIPATION..................................................10 Section 3.1. Who May Participate.......................................10 Section 3.2. Time and Conditions of Participation......................10 Section 3.3. Termination of Participation..............................11 Section 3.4. Missing Persons...........................................11 Section 3.5. Relationship to Other Plans...............................12 ARTICLE 4. ENTRIES TO THE ACCOUNT.........................................12 Section 4.1. Deferrals.................................................12 Section 4.2. Company Contributions.....................................14 Section 4.3. Disability................................................15 Section 4.4. Change in Eligibility Status..............................15 Section 4.5. Allocation to Accounts....................................15 Section 4.6. Earnings Crediting........................................16 ARTICLE 5. DISTRIBUTION OF BENEFITS.......................................17 Section 5.1. Election of Benefit Commencement..........................17 Section 5.2. Benefit Commencement......................................18
Section 5.3. Form of Benefit Payment...................................19 Section 5.4. Death Benefits............................................20 Section 5.5. Minimum Amount and Frequency of Payments..................22 Section 5.6. Section 162(m) of the Code................................22 Section 5.7. Acceleration of Distributions.............................23 Section 5.8. Withdrawals...............................................23 Section 5.9. Distributions on Plan Termination.........................25 Section 5.10. Claims Procedure.........................................25 ARTICLE 6. FUNDING........................................................26 Section 6.1. Source of Benefits........................................26 Section 6.2. No Claim on Specific Assets...............................26 ARTICLE 7 ADMINISTRATION AND FINANCES.....................................27 Section 7.1. Administration............................................27 Section 7.2. Powers of Committee.......................................27 Section 7.3. Actions of the Committee..................................27 Section 7.4. Delegation................................................28 Section 7.5. Reports and Records.......................................28 ARTICLE 8. AMENDMENTS AND TERMINATION.....................................28 Section 8.1. Amendments................................................28 Section 8.2. Termination...............................................29 ARTICLE 9. MISCELLANEOUS..................................................29 Section 9.1. No Guarantee of Employment................................29 Section 9.2. Release...................................................30 Section 9.3. Notices...................................................30
ii Section 9.4. Nonalienation.............................................30 Section 9.5. Tax Liability.............................................31 Section 9.6. Parachute Payments........................................31 Section 9.7. Indemnification...........................................31 Section 9.8. Captions..................................................31 Section 9.9. Applicable Law............................................31
iii OTTER TAIL CORPORATION NONQUALIFIED RETIREMENT SAVINGS PLAN RESTATED EFFECTIVE JANUARY 1, 2002 Effective January 1, 2002, Otter Tail Corporation restates its Nonqualified Retirement Savings Plan for the benefit of certain executive employees of the Company. The Plan is intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, as described in Sections 201(2), 301(a)(3) and 401(a)(1) of Title I of ERISA. ARTICLE 1. DEFINITIONS, GENDER, AND NUMBER. Section 1.1. Definitions. Whenever used in the Plan, the following words and phrases shall have the meanings set forth below unless the context plainly requires a different meaning, and when a defined meaning is intended, the term is capitalized. 1.1.1. "Account" means the bookkeeping account used to measure and determine the amount of deferred compensation to be paid to a Participant or Beneficiary under the Plan, consisting of one or both of the Retirement Account or the Scheduled Withdrawal Account. 1.1.2. "Affiliate," for all purposes other than Section 1.1.13, means any entity affiliated with the Company that joins this Plan with the consent of the Company. 1.1.3. "Base Salary" of a Participant for any Plan Year means the total annual salary and wages paid by the Company or an Affiliate to such individual for such Plan Year, including any amount which would be included in the definition of Base Salary but for the individual's election to defer some of the individual's compensation pursuant to this Plan or any other deferred compensation plan established by the Company or an Affiliate; but excluding any other remuneration paid by the Company or an Affiliate, such as bonuses, commissions, overtime, Incentive Compensation, stock options, distributions of compensation previously deferred, restricted stock, allowances for expenses (including moving expenses, travel expenses, and automobile allowances), and fringe benefits, whether payable in cash or in a form other than cash. In the case of an individual who is a participant in a plan sponsored by the Company or an Affiliate which is described in Section 401(k), 125, or 132(f) of the Code, the term Base Salary shall include any amount which would be included in the definition of Base Salary but for the individual's election to reduce the individual's compensation and have the amount of the reduction contributed to or used to purchase benefits under such plan. 1.1.4. "Beneficiary" or "Beneficiaries" means the persons or trusts designated by a Participant in writing pursuant to Section 5.4.1 of the Plan as being entitled to receive any benefit payable under the Plan by reason of the death of a Participant, or, in the absence of such designation, the persons specified in Section 5.4.2 of the Plan. 1.1.5. "Board" means the Board of Directors of the Company as constituted at the relevant time. 1.1.6. "Cause" means the occurrence of one of the following: (a) a Participant's violation in any material respect of any agreement or representation set forth in any employment or other agreement, if any, between the Company or an Affiliate and the Participant; (b) the occurrence of an event that would constitute "cause" (or any similar concept) under any employment or other agreement, plan, or program that governs the Participant or by which the Participant is bound; (c) a Participant's willful violation of 2 any material rule or policy of the Company or an Affiliate or any theft or defalcation of property committed against the Company or an Affiliate; (d) any continual willful or material failure by a Participant to comply with a reasonable and lawful direction of the Board or any duly authorized committee of the Board or the chief executive officer of the Company or an Affiliate, or the willful misconduct by Participant in the responsibilities reasonably assigned to the Participant; or (e) conviction of or plea of nolo contendere by a Participant to a felony or other actions or omissions that reflect moral turpitude or threaten to materially and adversely reflect on the Company or an Affiliate in the conduct of its business. 1.1.7. "Change in Control" of the Company means: (a) A change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or successor provision thereto, whether or not the Company is then subject to such reporting requirement; (b) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company's then outstanding securities; (c) The Continuing Directors cease to constitute a majority of the Company's Board of Directors; provided that such change is the direct or indirect 3 result of a proxy fight and contested election or elections for positions on the Board of Directors; or (d) The majority of the Continuing Directors determine in their sole and absolute discretion that there has been a change in control of the Company. 1.1.8. "Code" means the Internal Revenue Code of 1986, as amended from time to time and any ----- successor statute. References to a Code section shall be deemed to be to that section or to any successor to that section. 1.1.9. "Committee" means the Committee of one or more persons appointed by the Company's Board, or any person or entity designated by the Committee, to administer the Plan pursuant to Section 7.4. In the absence of an appointed Committee, the Board shall serve as the Committee. As of the Restated Effective Date, the Pension Committee of the Company shall be the Committee under this Plan. 1.1.10. "Company" means Otter Tail Corporation, a Minnesota corporation. 1.1.11. "Company Contribution" means the contribution of the Company to a Participant's Retirement Account under Section 4.2. 1.1.12. "Compensation" with respect to a Participant for any period means the sum of such Participant's Base Salary paid and Incentive Compensation accrued with respect to such period. 1.1.13. "Continuing Director" means any person who is a member of the Board of Directors of the Company, while such person is a member of the Board of Directors, who is not an Acquiring Person (as hereinafter defined) or an Affiliate or Associate (as hereinafter defined) of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who (a) was a member of the Board of Directors 4 on the Restated Effective Date or (b) subsequently becomes a member of the Board of Directors, if such person's nomination for election or initial election to the Board of Directors is recommended or approved by a majority of the Continuing Directors. For purposes of this Section 1.1.13: "Acquiring Person" shall mean any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) who or which, together with all Affiliates and Associates of such person, is the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the shares of common stock of the Company then outstanding, but shall not include the Company, any subsidiary of the Company or any employee benefit plan of the Company or of any subsidiary of the Company or any entity holding shares of common stock organized, appointed or established for, or pursuant to the terms of, any such plan; and "Affiliate" (for purposes of this Section 1.1.13 only) and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act. 1.1.14. "Crediting Rate" with respect to any Plan Year means the rate or rates established by the Company in its sole discretion to determine earnings and losses with respect to an Account. The Company may select any investment index (i.e., mutual funds, annuities or bank collective funds) as a Crediting Rate to be applied to amounts credited to a Participant's Accounts as set forth in Section 4.6. The Company may change such indices at any time or from time to time and can restrict or limit at any time and from time to time the Account(s) eligible for any Crediting Rate. The Company has the discretion to determine the exact manner in which any Crediting Rate shall be calculated and applied to an Account. 5 1.1.15. "Disabled" or "Disability" with respect to a Participant shall have the same definition as in the then existing group long term disability plan of the Participant's Employer that covers the Participant; or if there is no group long term disability plan covering the Participant, but there is one (and only one) such plan under which the Participant could have elected coverage as an employee of the Employer, then Disability shall have the same definition as in such group long term group disability plan. If the conditions of the previous sentence are not met, then Disability shall have the same definition as in such group long term group disability plan as selected by the Company. Disability shall be determined by a physician selected by the Company. A Participant shall cooperate with the Company, including making the Participant reasonably available for examination by physicians at the Company's request and at the Company's expense to determine whether or not the Participant is Disabled. "Disabled" or "Disability" with respect to a Participant shall also mean such impairment as qualifies the Participant for federal Social Security Disability Income (SSDI) benefits. 1.1.16. "Dividend Rate" means the annual dividend rate for its life insurance products announced by Northwestern Mutual Life Insurance Company as of the June 30 preceding the Plan Year, compounded daily. The Company has the discretion to determine the exact manner in which the Dividend Rate shall be calculated and applied to an Account. 1.1.17. "Effective Date" means January 1, 1994, the date on which this Plan originally became effective. The "Restated Effective Date" shall be January 1, 2002, the date on which this restatement of the Plan becomes effective. 6 1.1.18. "Eligible Executive" means any employee of the Company or an Affiliate who is designated by the Committee, in its sole discretion, as an Eligible Executive. An employee shall cease to be an Eligible Executive if the Committee, in its sole discretion, determines not to designate the employee as an Eligible Executive for the year; or if the Committee, in its sole discretion, determines at any time that the employee should no longer participate in the Plan. The Committee shall notify any employee who has been an Eligible Executive and who is no longer an Eligible Executive. 1.1.19. "Employer" means with respect to a Participant the Company or Affiliate that employs that Participant. 1.1.20. "Enrollment Period" means the period during each Plan Year (ending no later than December 31st of the Plan Year) designated by the Committee during which new Accounts may be opened and deferral elections may be changed for Compensation accrued with respect to the immediately succeeding Plan Year. "Enrollment Period" includes the Enrollment Period that immediately precedes the Restated Effective Date. 1.1.21. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time and any successor statute. References to an ERISA section shall be deemed to be to that section or to any successor to that section. 1.1.22. "Incentive Compensation" of a Participant for any Plan Year means the total remuneration paid to such Participant under the various incentive compensation programs maintained by the Company or an Affiliate with respect to that Plan Year, including any amount which would be included in the definition of Incentive Compensation but for the Participant's election to defer some or all of the Participant's Incentive Compensation pursuant to this Plan or some other deferred compensation plan 7 established by the Company or an Affiliate; but excluding any other remuneration paid by the Company or an Affiliate, such as Base Salary, overtime, net commissions, stock options, distributions of compensation previously deferred, restricted stock, allowances for expenses (including moving expenses, travel expenses, and automobile allowances), and fringe benefits whether payable in cash or in a form other than cash. In the case of an individual who is a participant in a plan sponsored by the Company or an Affiliate which is described in Section 401(k), 125, or 132(f) of the Code, the term Incentive Compensation shall include any amount which would be included in the definition of Incentive Compensation but for the individual's election to reduce the individual's compensation and have the amount of the reduction contributed to or used to purchase benefits under such plan. 1.1.23. "Maximum Annual Deferral" with respect to a Participant for a Plan Year means the sum of (a) 50% of the Participant's Base Salary for such Plan Year; and (b) 100% of the Participant's Incentive Compensation for such Plan Year. 1.1.24. "Participant" means an Eligible Executive who has satisfied the requirements of Article 3. 1.1.25. "Plan" means the Otter Tail Corporation Nonqualified Retirement Savings Plan, as restated herein and as amended or restated from time to time. 1.1.26. "Plan Year" means January 1 through December 31. 1.1.27. "Retirement" means a Participant's termination of employment with the Company on or after age 65; a Participant's termination of employment with the Company on or after age 55 with at least 10 Years of 8 Service with the Company; or a Participant's termination of employment on or after age 55 with less than 10 Years of Service with the Company's specific written approval of the termination as a Retirement under the Plan. For purposes of this Section 1.1.27, a Participant shall be considered to have completed the same number of Years of Service under this Plan as the Participant has completed for vesting purposes under the 401(k) plan of the Company or Affiliate in which the Participant is eligible to participate. Provided, however, that a Participant will not be considered to have attained "Retirement" if the Participant is or could have been terminated from employment for Cause. 1.1.28. "Retirement Account" means a bookkeeping account that a Participant may have established for deferral of Compensation made to the Plan under Section 4.1.3 and to which may be credited Company Contributions under Section 4.2. As of the Restated Effective Date, the "Nonqualified Account" of a Participant under the Plan as in effect before its restatement shall become the "Retirement Account" of that Participant under the restated Plan. 1.1.29. "Sale" means the occurrence of an event pursuant to which the Participant's Employer is sold or transferred to an entity that is not the Company or an Affiliate. 1.1.30. "Scheduled Withdrawal Account" means a bookkeeping account that a Participant may have established for deferral of Compensation made to the Plan under Section 4.1.3. When a Participant opens a Scheduled Withdrawal Account, the Participant shall specify the date on which benefits are to commence pursuant to Section 5.1.2. A Participant may open a Scheduled Withdrawal Account only if a previously opened Scheduled Withdrawal Account (if any) has a zero balance. 9 1.1.31. "Specified Date" means the date on which the Participant wishes to receive distributions from the Scheduled Withdrawal Account, as specified at the time that the Participant opens the Account. 1.1.32. "Trust" means the Trust under the Otter Tail Corporation Nonqualified Retirement Savings Plan as amended from time to time. Section 1.2. Gender and Number. Except as otherwise indicated by context, masculine terminology used herein also includes the feminine and neuter, and terms used in the singular may also include the plural. ARTICLE 2. DEFERRED COMPENSATION ACCOUNTS. Section 2.1. Establishment of Accounts. The Company shall establish one or two Accounts for each Participant which shall be utilized solely as a device to measure and determine the amount of deferred compensation to be paid under the Plan to the Participant or the Participant's Beneficiaries. Section 2.2. Property of Company. Any amounts set aside for benefits payable under the Plan are the property of the Company, except, and to the extent, provided in the Trust. ARTICLE 3. PARTICIPATION. Section 3.1. Who May Participate. Participation in the Plan is limited to those Eligible Executives selected by the Committee for participation in the Plan. Section 3.2. Time and Conditions of Participation. An Eligible Executive shall become a Participant only upon the Eligible Executive's compliance with such terms and conditions as the Committee may from time to time establish for the implementation of the Plan, including but not 10 limited to, any condition the Committee may deem necessary or appropriate for the Company to meet its obligations under the Plan. The Company may, in its sole discretion, purchase insurance on the lives of each Participant. The Committee may, in its sole discretion, reject for participation in the Plan Eligible Executives who fail or refuse to cooperate with the Company in obtaining insurance on their lives. Section 3.3. Termination of Participation. Once an individual has become a Participant in the Plan, participation shall continue until the first to occur of (a) payment in full of all benefits to which the Participant or the Participant's Beneficiary is entitled under the Plan, or (b) the occurrence of the event specified in Section 3.4 which results in loss of benefits. Except as otherwise specified in the Plan, the Company may not terminate an individual's participation in the Plan; provided, however, that if the Committee, in its discretion, determines that it is likely that a Participant would not be considered for any period to be a member of a select group of management or highly compensated employees, within the meaning of Sections 201(2), 301(a)(3) and 401(a)(l) of ERISA, the Committee may require that no contributions be made to the Plan by or on behalf of such Participant during such period. Section 3.4. Missing Persons. If the Company is unable to locate the Participant or the Participant's Beneficiary for purposes of making a distribution, the amount of a Participant's benefits under the Plan that would otherwise be considered as nonforfeitable shall be forfeited on the first to occur of the following dates: (a) effective four years after the last date a payment of said benefit was made, if at least one such payment was made; (b) effective four years after the first date a payment of said benefit was directed to be made by the Company pursuant to the terms of the Plan, if no payments have been made; or (c) effective on the date of termination of 11 the Plan. If a person is located after the date of such forfeiture, the benefits for such Participant or Beneficiary shall not be reinstated under the Plan. Section 3.5. Relationship to Other Plans. Participation in the Plan shall not preclude participation of the Participant in any other fringe benefit program or plan sponsored by the Company for which such Participant would otherwise be eligible. ARTICLE 4. ENTRIES TO THE ACCOUNT. Section 4.1. Deferrals. 4.1.1. Deferral Elections. Each Participant wishing to defer Compensation under the Plan shall enter into a deferral election, which shall specify the amount of Compensation the Participant wishes to have deducted from the Participant's pay and contributed to the Plan. Deferral elections with respect to Base Salary must specify the percentage (stated as an integer) of the Compensation that the Participant wishes to have deducted from Base Salary. Deferral elections with respect to Incentive Compensation must specify either the percentage (stated as an integer) or the dollar amount, or a combination of percentage and dollar amount, as determined by the Committee in its discretion, of the Compensation that the Participant wishes to have deducted from Incentive Compensation. 4.1.2. Timing of Elections. For Eligible Executives who first become eligible to participate in the Plan as of the Restated Effective Date, the deferral election shall be entered into before the Restated Effective Date. For Eligible Executives who first become eligible to participate in the Plan after the Restated Effective Date, the deferral election may be entered into during any Enrollment Period, which election shall then be effective 12 for the Plan Year following the Enrollment Period. A Participant's deferral election shall remain in effect unless and until changed by the Participant. A Participant may change a deferral election only during an Enrollment Period, in which case the change shall be effective for Compensation earned and accrued during the immediately following Plan Year. A deferral election will be effective to defer Compensation earned after the deferral election is entered into, and not before, except that for Eligible Executives who are eligible to participate in the Plan as of the Restated Effective Date, the deferral election with respect to Incentive Compensation may also apply to Incentive Compensation earned before the date that the Eligible Executive elects to participate in the Plan but paid after the Restated Effective Date, but only if the Eligible Executive elects to defer such payment during the Enrollment Period immediately preceding the Restated Effective Date. A deferral election shall be suspended during any period of time that such suspension is required in connection with a hardship withdrawal under any Plan of the Company or an Affiliate qualified under Section 401(a) of the Code. The Participant may not enter into a new deferral election after such suspension until a Plan Year that begins after the suspension has concluded. 4.1.3. Allocation Between Accounts. At the time a Participant makes the Participant's initial deferral election, the Participant shall specify the Account(s) the Participant wishes to open in the Plan. A Participant with a deferral election shall always have at least one Account in the Plan and may, at the Participant's election, have up to two Accounts, specifically, a Retirement Account and a Scheduled Withdrawal Account. A Participant may open a new Account (up to a total of the two Accounts) during an Enrollment Period. A Participant shall specify in the Participant's deferral election the 13 proportions in which the Participant's deferrals are to be allocated between the Participant's Retirement Account and the Participant's Scheduled Withdrawal Account. Provided, however, that no deferrals may be contributed to a Participant's Scheduled Withdrawal Account in the calendar year in which a distribution is to be made from said Account. 4.1.4. Limitation on Deferral Elections. A Participant may make a deferral election for any Plan Year provided that: (a) in no event may the amount deferred by a Participant for a Plan Year under both the Participant's Accounts exceed the Maximum Annual Deferral; and (b) the Participant's remaining Compensation, after all deferrals, is sufficient to enable the Employer to withhold from the Participant's Compensation (i) any amounts necessary to satisfy withholding requirements under applicable tax law; (ii) the amount of any contributions which the Participant may be required to make or may have elected to make under the various benefit plans of the Company or an Affiliate; and (iii) any other payroll deduction from Compensation required by law or authorized by the Participant. Section 4.2. Company Contributions. For each Plan Year that commences on or after the Restated Effective Date, the Company may, but shall but not be obligated to make a contribution to the Plan in such amount as the Company shall determine in its sole discretion. If a contribution is made for a Plan Year, it shall be credited as of such day in the Plan Year and to such Participant or Participants, whether employed by the Company or an Affiliate, as the Company shall determine in its sole discretion. The contribution on behalf of a Participant pursuant to this Section 4.2 shall be allocated to the Retirement Account of that Participant, to be credited to a Company Contributions subaccount under the Retirement Account. A Participant's 14 Company Contributions subaccount will be credited using such Crediting Rate as the Company shall determine in its sole discretion for a Plan Year, which rate is not required to be uniform among all Company Contributions subaccounts. Distribution of a Participant's Company Contributions subaccount will be made to a Participant only if the Participant remains employed with the Company or an Affiliate until death, Disability, Retirement, Sale, or a Change in Control, and shall thereupon be made in accordance with the applicable provisions of Article 5 in the same manner as the balance of the Participant's Retirement Account. If the Participant does not remain employed with the Company or an Affiliate until death, Disability, Retirement, Sale, or a Change in Control, then the amount in the Company Contributions subaccount shall be forfeited in favor of the Company. Section 4.3. Disability. If a Participant becomes Disabled, deferrals and Company Contributions (if any) shall continue to be allocated as described in Sections 4.1 and 4.2 during the period in which the Participant is entitled to receive Compensation from the Company or an Affiliate, other than compensation under a long term disability plan. If a Participant continues to be Disabled after such period, deferrals and other Plan contributions will cease. Section 4.4. Change in Eligibility Status. If a Participant in the Plan ceases to be an Eligible Executive, the Participant's deferrals to the Plan shall cease. No further Company Contributions under Section 4.2 shall be made to the Plan unless and until the employee again becomes an Eligible Executive. The Participant's Account shall continue to be credited with earnings and losses under Section 4.6 and shall be paid in accordance with Article 5. Section 4.5. Allocation to Accounts. During each Plan Year, the Company shall post to the appropriate Account(s) of each Participant the amount of Base Salary and Incentive Compensation to be deferred under such Account(s) as designated by the Participant in the 15 Participant's deferral election in effect for that Plan Year. Such allocation shall occur as of the dates that the Base Salary and Incentive Compensation would have been paid to the Participant. The Company shall also post to the Retirement Account amounts to be allocated to the Participant pursuant to Sections 4.2 and 4.3. Section 4.6. Earnings Crediting. 4.6.1 Earnings Credits for Accounts. Each Participant may request that the Scheduled Withdrawal Account or the Retirement Account be allocated to one or more investment indices selected by the Committee and credited or debited, as the case may be, with such earnings or losses as the Account would have been credited or debited had it been actually invested in such investment indices. The initial allocation request may be made at the time of opening of an Account, or for Nonqualified Accounts in existence immediately prior to the Restated Effective Date the initial request may be made during the Enrollment Period preceding the Restated Effective Date, to be effective as of the Restated Effective Date. The Committee shall in its discretion determine the Crediting Rate for a Participant who fails to make an initial allocation for a Plan Year. Once made, an investment allocation request shall remain in effect for all subsequent contributions until changed by the Participant. The Participant may change the investment allocation election by submitting a written request to the Committee. Participants may change elections no more than once in any calendar quarter. Such changes shall become effective as of the first day of the quarter after the Committee receives such written request. Crediting Rates shall continue to be credited or debited until the first to occur of (a) the Participant's termination of employment that is not the result of death, Disability or Retirement under the Plan; or (b) payment of all amounts owed to the Participant under 16 all Account(s). Provided, however, that during the Plan Year in which a final distribution of a Participant's Account is expected to occur, the Committee may apply to that Account the Dividend Rate for that Plan Year, rather than the Crediting Rate. Allocation requests shall be subject to such other requirements as established by the Committee. 4.6.2. No Guarantee of Account Value. The Participant agrees on behalf of the Participant and any Beneficiary to assume all risk in connection with any decrease in value of the Accounts resulting from the Participant's request and selection of any particular investment index under the Plan. 4.6.3. No Actual Investment. The Company is under no obligation to make investments or change investments in a manner consistent with the investment indices available under the Plan. The elections made by the Participant are for purposes of determining earnings and losses to be credited to the Accounts and not for the purpose of determining any actual investment of the assets of the Company or the Trust, if any. 4.6.4. Participant Statements. At least annually, the Company shall provide each Participant with a statement of the Participant's Account(s). ARTICLE 5. DISTRIBUTION OF BENEFITS. Section 5.1. Election of Benefit Commencement. 5.1.1. Distribution on Change in Control. During a Participant's first Enrollment Period under this Plan (and for Participants in the Plan immediately prior to the Restated Effective Date, during the Enrollment Period preceding the Restated Effective Date), the Participant may elect to commence distribution of all Accounts upon a Change in Control, if such a Change in Control should occur before the Account would otherwise be 17 payable under this Plan. If such election is not made at such time, then no acceleration of any Account shall occur upon a Change in Control under the Plan. 5.1.2. Scheduled Withdrawal Account. At the time a Participant opens a Scheduled Withdrawal Account under the Plan, the Participant shall establish the Specified Date for that Account. The Specified Date must be at least two years following the beginning of the Plan Year in which deferrals under the Scheduled Withdrawal Account commence. Section 5.2. Benefit Commencement. 5.2.1. Scheduled Withdrawal Account. Distribution of a Scheduled Withdrawal Account will be made in a lump sum during the calendar year in which the Specified Date occurs unless any of the following occurs before the Specified Date: (a) the Participant terminates employment (other than by reason of death, Disability or Retirement), in which case distributions will be made in a lump sum within 90 days following the Participant's termination of employment, or at the Company's discretion, in annual installments over no more than three years commencing within 90 days of Participant's termination of employment; (b) the Participant dies, in which case distributions will commence in the manner specified in Section 5.4.4; (c) the Participant terminates employment as a result of Disability or Retirement, in which case distribution will be made in a lump sum within 90 days following the Participant's termination of employment; (d) there occurs a Sale, in which case distribution will be made in a lump sum within 90 days following the Sale; or (e) there occurs a Change in Control and the Participant requested distribution to commence upon the Change in Control (as described 18 in Section 5.1.1), in which case distribution will be made in a lump sum within 90 days following the Change in Control. 5.2.2. Retirement Account. Distribution of a Retirement Account will commence in accordance with the following: (a) during January of the Plan Year following Retirement unless death, Disability, Sale or termination of employment occurs before such Retirement; (b) if the Participant dies before Retirement, in the manner specified in Section 5.4.4; (c) if the Participant terminates employment for reasons other than death, Disability or Retirement, in a lump sum within 90 days following the Participant's termination of employment, or at the Company's discretion, in annual installments over no more than three years commencing within 90 days of the Participant's termination of employment; (d) if there occurs a Sale before Retirement in a lump sum within 90 days following the Sale; (e) if there occurs a Change in Control and the Participant requested distribution to commence upon the Change in Control (as described in Section 5.1.1), in a lump sum within 90 days following the Change in Control, regardless of whether distribution had otherwise commenced in accordance with other provisions of this Plan; or (f) if the Participant is Disabled, within 90 days following the determination of Disability. Section 5.3. Form of Benefit Payment. At the time a Participant opens a Retirement Account under the Plan (or during the Enrollment Period immediately preceding the Restated Effective Date, for a Participant who was a Participant in the Plan before its restatement), the Participant shall select the period over which payments from the Account will be made. The Participant may elect to receive payment in the form of a lump sum or in monthly installments over 10, 15 or 20 years, or in a combination of lump sum and installments except that a 19 distribution upon a Change in Control or Sale, or a distribution upon termination of employment (other than death, Retirement, or Disability) will be made as set forth in Section 5.2.2(c). If no election is made, the Participant shall be deemed to have made an election to receive payments from the Retirement Account in monthly installments over 15 years. Provided, however, that the election by a Participant who was a Participant under the Plan before its restatement of a form of benefit payment other than a lump sum (if made during the Enrollment Period immediately preceding the Restated Effective Date) shall not be effective until January 1, 2003, and, anything hereinelsewhere to the contrary notwithstanding, all distributions made as a result of Disability or Retirement that would otherwise have occurred during 2002 shall be deferred until at least January 1, 2003, and shall thereafter be paid in accordance with the election made during said Enrollment Period. The Participant's selection of a method of benefit payment may be changed with an election filed with the Committee at least 13 months in advance of the date that benefit payments commence to the Participant. A Participant's Account will continue to be credited during the payment period with earnings and losses as set forth in Section 4.6, except that earnings and losses shall not be credited after termination of employment other than by reason of death, Disability, Retirement, Sale, or Change in Control. Section 5.4. Death Benefits. 5.4.1. Beneficiary Designation. At the time a Participant begins participation in the Plan, the Participant may designate primary and contingent Beneficiaries for death benefits payable under the Plan. Such Beneficiaries may be individuals or trusts for the benefit of individuals. If the Participant is married at the time of the Participant's death, the designation of a primary Beneficiary other than the Participant's spouse as sole primary Beneficiary shall be valid only if the Participant's spouse has consented in 20 writing to the naming of such primary Beneficiary and only if the spouse's consent has been notarized. A Beneficiary designation by a Participant shall be in writing on a form acceptable to the Committee and shall only be effective upon delivery to the Committee. A Beneficiary designation may be revoked by a Participant at any time by delivering to the Company a new Beneficiary designation form. The Beneficiary designation form last delivered to the Committee before the death of a Participant, if valid, shall control. 5.4.2. Failure to Designate. If there is no valid Beneficiary designation on file with the Company, or if all Beneficiaries designated by a Participant have predeceased the Participant, the benefits payable under the Plan by reason of the death of the Participant shall be paid to the Participant's spouse, if living; if the Participant does not leave a surviving spouse, to the Participant's issue by right of representation; or, if there are no such issue then living, to the Participant's estate. If there are benefits remaining unpaid at the death of a sole Beneficiary (who died after the Participant) under the Plan and if no successor Beneficiary has been designated, the remaining balance of the benefits under the Plan shall be paid to the deceased Beneficiary's estate, unless the Beneficiary designation form provides to the contrary. If there are benefits remaining unpaid at the death of a Beneficiary (who died after the Participant) who is one of multiple concurrent Beneficiaries, such remaining benefits shall be paid proportionally to the surviving Beneficiaries, unless the Beneficiary designation form provides to the contrary. 21 5.4.3. Death After Benefit Commencement. If a Participant dies after benefits have commenced pursuant to Section 5.2, the Participant's Account balance(s), if any, shall be paid to the Participant's Beneficiary in the same manner that benefits would have been paid to the Participant had the Participant survived. The Committee may, at its sole discretion, accelerate the timing of payments to the Beneficiary. Any Beneficiary may request such acceleration in writing to the Committee. 5.4.4. Death Before Benefit Commencement. If the Participant dies before distribution has commenced to the Participant, distribution to the Beneficiary shall be in the form of a lump sum. Distribution shall be made as soon as administratively practicable following the Participant's death. 5.4.5. Marital Deduction. If any benefits are payable under the Plan to the surviving spouse of a deceased Participant, the estate of the Participant's spouse shall be entitled to all remaining benefits, if any, at the spouse's death, unless specifically directed to the contrary by an effective Beneficiary designation. Section 5.5. Minimum Amount and Frequency of Payments. Notwithstanding anything in this Article 5 to the contrary, the Committee may adjust the length of the distribution period under this Article 5 in order to assure that any monthly installment is not less than $500. If the value of all Accounts at the date of initial distribution is less than $30,000, then, notwithstanding any other provision of the Plan to the contrary, the Committee may pay the Account in a lump sum. Section 5.6. Section 162(m) of the Code. Notwithstanding anything to the contrary in this Plan, a Participant's Employer may defer payment of any amounts otherwise required to be 22 paid under this Plan in order to preserve the deduction for such payment under Section 162(m) of the Code. Section 5.7. Acceleration of Distributions. If the Internal Revenue Service determines that a Participant or Beneficiary has received an economic benefit or is in constructive receipt of a benefit under the Plan and has made a final assessment of an income tax deficiency with respect to such benefit or if a final judicial determination has been entered that an income tax deficiency exists, the Committee shall distribute to such Participant an amount equal to the taxable income recognized. Section 5.8. Withdrawals. 5.8.1. Hardship Withdrawal. Upon the application of any Participant, the Committee may permit such Participant to withdraw some or all of the amount in one or more of the Participant's Accounts. A Participant must provide the Committee with a written petition of the intent to withdraw from the Participant's Account at least 60 days (or such shorter time as permitted by the Committee in its discretion) before the date of withdrawal. No withdrawal shall be made under the provisions of this Section except for the purpose of enabling a Participant to meet immediate needs created by a severe financial hardship to the Participant or resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant's property due to casualty, the Participant's Disability, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances that will constitute a severe financial hardship will depend upon the facts of each case, but, in any case, payment may not be made to the extent that such hardship is or may be relieved: (a) through reimbursement or compensation through 23 insurance or otherwise; (b) by liquidation of the Participant's assets, to the extent such liquidation would not itself cause a severe financial hardship; or (c) by cessation of deferrals under the Plan, to the extent permitted under the terms of the Plan. If a withdrawal is permitted, the amount of the withdrawal shall be distributed to the Participant in a lump sum as soon as is administratively practicable following the requested withdrawal date. In addition, (a) the deferral election of the Participant for the remainder of the Plan Year shall be terminated and (b) the Participant may not enter into a new deferral election until a Plan Year that begins at least twelve months following the date of the withdrawal. 5.8.2. Early Distribution. Upon the application of any Participant made after the Participant's Retirement, the Committee shall permit such Participant to receive a distribution of some or all of the amounts in an Account before the time otherwise specified in the Plan for reasons other than financial hardship. Provided, however, that a request for a distribution of 75% or more of an Account shall be deemed to be and shall be treated as a request for a distribution of 100% of the Account. A Participant must give a written petition of the Participant's intent to receive such a distribution at least 60 days (or such shorter time as permitted by the Committee in its discretion) before the date of the distribution. Such a request may be made no more than once during any Plan Year. If a Participant elects to receive such a distribution a penalty shall be imposed such that the amount of the requested distribution shall be reduced by 10% (5% if the request is made within the 24-month period following a Change in Control), which reduction shall be permanently forfeited by the Participant to the Company. 24 Section 5.9. Distributions on Plan Termination. Notwithstanding anything in Article 5 to the contrary, if the Plan is terminated, distributions shall be made in accordance with Section 8.2. Section 5.10. Claims Procedure. 5.10.1. Initial Claim for Benefits. The following shall apply with respect to claims of Participants for benefits under the Plan. The Committee shall give notice to a Participant within 90 days of the Participant's written application for benefits of the Participant's eligibility or noneligibility for benefits under the Plan. If the Committee determines that a Participant is not eligible for benefits or full benefits, the notice shall set forth (i) the specific reasons for such denial, (ii) a specific reference to the provision of the Plan on which the denial is based, (iii) a description of any additional information or material necessary for the claimant to perfect the claim, and a description of why it is needed, and (iv) an explanation of the Plan's claims review procedure and other appropriate information as to the steps to be taken if the Participant wishes to have the claim reviewed. If the Committee determines that there are special circumstances requiring additional time to make a decision, the Committee shall give notice to the Participant of the special circumstances and the date by which a decision is expected to be made, and may extend the time for up to an additional 90-day period. 5.10.2. Appeal of Claim Denial. If a Participant is determined by the Committee to be not eligible for benefits, or if the Participant believes that the Participant is entitled to greater or different benefits, the Participant shall have the opportunity to have the claim reviewed by filing a petition for review within 60 days after the Participant has been given the notice issued by the Committee. If there is no Trust in place with respect to the Participant's benefit, or if there is a Trust, but the Trustee has not agreed to determine 25 appeals from denials of claims for benefits under the Plan, then the petition shall be filed with the Committee. If there is a Trust in place with respect to the Participant's benefit and if the Trustee has agreed to determine appeals from denials of claims for benefits under the Plan, then the petition shall be filed with the Trustee of the Trust. A petition shall state the specific reasons the Participant believes that the Participant is entitled to benefits or greater or different benefits. Within 60 days after the petition has been filed, the Committee or the Trustee, as the case may be, shall afford the Participant an opportunity to present the Participant's position to the Committee or the Trustee, as the case may be, in writing, and the Participant shall have the right to review pertinent documents. The Committee or the Trustee, as the case may be, shall give notice to the Participant of its decision in writing within said 60-day period, stating specifically the basis of the decision written in a manner calculated to be understood by the Participant and the specific provisions of the Plan on which the decision is based. If because of special circumstances, the 60-day period is not sufficient, the decision may be deferred for up to another 60-day period at the election of the Committee or the Trustee, as the case may be, but notice of this deferral shall be given to the Participant. ARTICLE 6. FUNDING Section 6.1. Source of Benefits. All benefits under the Plan shall be paid when due by the Company out of its assets or from the Trust. Section 6.2. No Claim on Specific Assets. No Participant shall be deemed to have, by virtue of being a Participant in the Plan, any claim on any specific assets of the Company such that the Participant would be subject to income taxation on the Participant's benefits under the 26 Plan before distribution. The rights of Participants and Beneficiaries to benefits to which they are otherwise entitled under the Plan shall be those of an unsecured general creditor of the Company. ARTICLE 7. ADMINISTRATION AND FINANCES Section 7.1. Administration. The Plan shall be administered by the Committee. The Company shall bear all administrative costs of the Plan other than those specifically charged to a Participant or Beneficiary. Section 7.2. Powers of Committee. In addition to the other powers granted under the Plan, the Committee shall have all powers necessary to administer the Plan, including, without limitation, powers (i) to interpret the provisions of the Plan; (ii) to establish and revise the method of accounting for the Plan; (iii) to maintain the Accounts; (iv) to determine Crediting Rates for the Accounts; (v) to establish rules for the administration of the Plan; and (vi) to prescribe any forms required to administer the Plan. Section 7.3. Actions of the Committee. Except as modified by the Board, the Committee (including any person or entity to whom the Committee has delegated duties, responsibilities or authority, to the extent of such delegation) has total and complete discretionary authority to determine conclusively for all parties all questions arising in the administration of the Plan, to interpret and construe the terms of the Plan, and to determine all questions of eligibility and status of employees, Participants and Beneficiaries under the Plan and their respective interests. Subject to the claims procedures of Section 5.10, all determinations, interpretations, rules and decisions of the Committee (including those made or established by any person or entity to whom the Committee has delegated duties, responsibilities or authority, if made or established pursuant to such delegation) are conclusive and binding upon all persons having or claiming to 27 have any interest or right under the Plan. A Participant or Beneficiary is entitled to benefits under this Plan only if the Committee in its discretion has determined the Participant or Beneficiary to be so entitled. Section 7.4. Delegation. The Committee, or any officer designated by the Committee, shall have the power to delegate specific duties and responsibilities to officers or other employees of the Company or other individuals or entities. Any delegation may be rescinded by the Committee at any time. Each person or entity to whom a duty or responsibility has been delegated shall be responsible for the exercise of such duty or responsibility and shall not be responsible for any act or failure to act of any other person or entity. Section 7.5. Reports and Records. The Committee, and those to whom the Committee has delegated duties under the Plan, shall keep records of all their proceedings and actions and shall maintain books of account, records, and other data as shall be necessary for the proper administration of the Plan and for compliance with applicable law. ARTICLE 8. AMENDMENTS AND TERMINATION. Section 8.1. Amendments. The Company, by action of the Board, or the Committee to the extent authorized by the Board, may amend the Plan, in whole or in part, at any time and from time to time. Provided, however, that for a period of 24 months following a Change in Control, no amendment shall be effective without the approval of a majority of the Participants in the Plan. Any amendment shall be filed with the Plan documents. No amendment, however, may be effective to eliminate or reduce any Account balance, determined as of the date of such amendment, of any Participant or of any Beneficiary then eligible for benefits, without such Participant's or Beneficiary's consent. 28 Section 8.2. Termination. The Company reserves the right to terminate the Plan at any time by action of the Board. Provided, however, that for a period of 24 months following a Change in Control, no termination shall be effective without the approval of a majority of the Participants in the Plan. Upon termination of the Plan, all deferrals and Company Contributions will cease and no future deferrals or Company Contributions will be made. Termination of the Plan shall not operate to eliminate or reduce any Account balance, determined as of the date of such termination, of any Participant or of any Beneficiary then eligible for benefits, without such Participant's or Beneficiary's consent. If the Plan is terminated, payments from the Accounts of all Participants and Beneficiaries shall be made as soon as administratively practicable following the termination in a lump sum or, in the discretion of the Company, in installments over a period of no more than three years, commencing within 90 days of the date of termination of the Plan. Provided, however, that if the termination occurs within 24 months following a Change in Control, distribution must be made in a lump sum as soon as administratively practicable (but in no event longer than 90 days) following the termination. Accounts shall be credited with earnings during the payment period in accordance with Section 4.6 and 5.3. ARTICLE 9. MISCELLANEOUS Section 9.1. No Guarantee of Employment. Neither the adoption and maintenance of the Plan nor the execution by the Company of a deferral or Account election with any Participant shall be deemed to be a contract of employment between the Company or any Affiliate and any Participant. Nothing contained herein shall give any Participant the right to be retained in the employ of the Company or any Affiliate or to interfere with the right of the Company or any Affiliate to discharge any Participant at any time, nor shall it give the Company or any Affiliate 29 the right to require any Participant to remain in its employ or to interfere with the Participant's right to terminate the Participant's employment at any time. Section 9.2. Release. Any payment of benefits to or for the benefit of a Participant or a Participant's Beneficiaries that is made in good faith by the Company in accordance with the Company's interpretation of its obligations hereunder shall be in full satisfaction of all claims against the Company or an Affiliate for benefits under this Plan to the extent of such payment. Section 9.3. Notices. Any notice or communication permitted or required under the Plan shall be in writing and shall be delivered personally, or sent by registered or certified mail, return receipt requested, postage prepaid, or sent by nationally recognized overnight carrier, postage prepaid, or sent by facsimile transmission to the principal office of the Company, if to the Company, or to the address last shown on the records of the Company or an Affiliate, if to a Participant or Beneficiary. Such notice or communication shall be deemed given (a) when delivered if personally delivered; (b) five mailing days after having been placed in the mail, if delivered by registered or certified mail; (c) the business day after having been placed with a nationally recognized overnight carrier, if delivered by nationally recognized overnight carrier, and (d) the business day after transmittal when transmitted with electronic confirmation of receipt, if transmitted by facsimile. Any party may change the address or facsimile number to which notices or communications are to be sent to it by giving notice of such change in the manner herein provided for giving notice. Section 9.4. Nonalienation. No benefit payable at any time under this Plan shall be subject in any manner to alienation, sale, transfer, assignment, pledge, levy, attachment, or encumbrance of any kind by any Participant or Beneficiary. 30 Section 9.5. Tax Liability. The Company may withhold or direct the trustee of the Trust to withhold from any payment of benefits (or from any other amounts to be paid to the Participant or Beneficiaries) such amounts as the Company determines are reasonably necessary to pay any taxes (and interest thereon) required to be withheld or for which the trustee of the Trust may become liable under applicable law. The Company may also forward or direct the trustee of the Trust to forward to the appropriate taxing authority any amounts required to be paid by the Company or the Trust under the preceding sentence. Section 9.6. Parachute Payments. No gross up or other recalculations of amounts owed under this Plan shall be made to avoid excess parachute payments under Section 280G of the Code or excise tax liability under Section 4999 of the Code. Section 9.7. Indemnification. The Company shall indemnify and defend to the fullest extent permitted by law any employee or former employee serving or formerly serving as a member of the Committee against all liabilities, damages, costs and expenses (including attorneys' fees and amounts paid in settlement of any claims approved by the Company) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith. Section 9.8. Captions. Article and section headings and captions are provided for purposes of reference and convenience only and shall not be relied upon to construe, define, modify, limit, or extend the scope of any provision of the Plan. Section 9.9. Applicable Law. The Plan and all rights hereunder shall be governed by and construed according to the laws of the State of Minnesota, except to the extent such laws are preempted by the laws of the United States of America. The Plan shall be interpreted in a manner consistent with all applicable laws, including the Americans with Disabilities Act. 31 IN WITNESS WHEREOF, Otter Tail Corporation has caused this Plan to be executed by its duly authorized officers this 6th day of December, 2001. OTTER TAIL CORPORATION By /s/ John MacFarlane ---------------------------- Its Chief Executive Officer ---------------------------- 32 EX-10.C 5 c69656ex10-c.txt EXECUTIVE SURVIVOR & SUPPLEMENTAL RETIREMENT PLAN EXHIBIT 10-C OTTER TAIL CORPORATION EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN Restated as of January 1, 2002 TABLE OF CONTENTS
PAGE ----------- ARTICLE I--PURPOSE; EFFECTIVE DATE.........................................................................1 ARTICLE II--DEFINITIONS....................................................................................1 2.1 Actuarial Equivalency...........................................................................1 2.2 Beneficiary.....................................................................................1 2.3 Board...........................................................................................1 2.4 Cause...........................................................................................1 2.5 Change in Control...............................................................................2 2.6 Committee.......................................................................................2 2.7 Continuing Director.............................................................................2 2.8 Disability......................................................................................3 2.9 Early Retirement Date...........................................................................3 2.10 Employer........................................................................................3 2.11 Executive Officer...............................................................................3 2.12 Final Annual Salary.............................................................................3 2.13 Final Average Earnings..........................................................................3 2.14 Good Reason.....................................................................................3 2.15 Normal Retirement Date..........................................................................4 2.16 Participant.....................................................................................4 2.17 Participation Agreement.........................................................................4 2.18 Qualified Retirement Plan.......................................................................4 2.19 Retirement......................................................................................5 2.20 Salary..........................................................................................5 2.21 Spouse..........................................................................................5 2.22 Supplemental Retirement Benefit.................................................................5 2.23 Target Retirement Percentage....................................................................5 2.24 Years of Credited Service.......................................................................5 2.25 Years of Participation..........................................................................5 ARTICLE III--PARTICIPATION AND VESTING.....................................................................6 3.1 Eligibility and Participation...................................................................6 3.2 Change in Employment Status.....................................................................6 3.3 Vesting.........................................................................................6 3.4 Suicide.........................................................................................7
(i) TABLE OF CONTENTS
PAGE ----------- ARTICLE IV--BENEFITS--EXECUTIVE OFFICERS...................................................................7 4.1 Eligibility.....................................................................................7 4.2 Preretirement Survivor Benefit..................................................................7 4.3 Postretirement Survivor Benefit.................................................................8 4.4 Posttermination Survivor Benefit................................................................8 ARTICLE V--SUPPLEMENTAL RETIREMENT BENEFITS................................................................8 5.1 Normal Retirement Benefit.......................................................................8 5.2 Early Retirement Benefit........................................................................9 5.3 Termination Benefit.............................................................................9 5.4 Disability Retirement Benefit...................................................................9 5.5 Payment of Benefits.............................................................................9 5.6 Withholding; Payroll Taxes.....................................................................10 5.7 Accelerated Distribution.......................................................................10 5.8 Supplemental Survivor Benefit..................................................................10 5.9 Payment to Guardian............................................................................11 ARTICLE VI--BENEFICIARY DESIGNATION.......................................................................11 6.1 Beneficiary Designation........................................................................11 6.2 Amendments.....................................................................................11 6.3 No Participant Beneficiary Designation.........................................................11 6.4 Effect of Payment..............................................................................12 ARTICLE VII--ADMINISTRATION...............................................................................12 7.1 Committee; Duties..............................................................................12 7.2 Agents.........................................................................................12 7.3 Binding Effect of Decisions....................................................................12 7.4 Indemnity of Committee.........................................................................12 ARTICLE VIII--CLAIMS PROCEDURE............................................................................13 8.1 Claim..........................................................................................13 8.2 Denial of Claim................................................................................13 8.3 Review of Claim................................................................................13 8.4 Final Decision.................................................................................13 ARTICLE IX--TERMINATION, SUSPENSION OR AMENDMENT..........................................................13 9.1 Termination, Suspension or Amendment of Plan...................................................13
(ii) TABLE OF CONTENTS
PAGE ----------- ARTICLE X--MISCELLANEOUS..................................................................................14 10.1 Unfunded Plan..................................................................................14 10.2 Unsecured General Creditor.....................................................................14 10.3 Trust Fund.....................................................................................14 10.4 Nonassignability...............................................................................14 10.5 Not a Contract of Employment...................................................................14 10.6 Protective Provisions..........................................................................14 10.7 Terms..........................................................................................15 10.8 Captions.......................................................................................15 10.9 Governing Law..................................................................................15 10.10 Validity.......................................................................................15 10.11 Notice.........................................................................................15 10.12 Successors.....................................................................................15
(iii) OTTER TAIL CORPORATION EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN ARTICLE I--PURPOSE; EFFECTIVE DATE The purpose of this Executive Survivor and Retirement Plan (the "Plan") is to provide survivor and retirement benefits for certain executive officers and retirement benefits for other key management employees as designated by the Board of Directors of Otter Tail Corporation (the "Corporation"). It is intended that the Plan will aid in securing the goodwill, loyalty and efficiency of the participating executive officers and other key management employees, and will attract and retain executive officers and other key management employees of outstanding competence. This Plan shall be effective as of November 1, 1983, and is restated as of January 1, 2002. Plan Participants will receive benefits under this Plan as restated January 1, 2002, or under the Plan as restated July 1, 1994. Some Participants will receive a portion of benefits from each restated Plan. See Article III--Participation and Vesting. ARTICLE II--DEFINITIONS For purposes of this Plan, the following terms shall have the meanings indicated, unless the context clearly indicates otherwise: 2.1 Actuarial Equivalency "Actuarial Equivalency" means an equivalent value or benefit determined by an actuary selected by Employer using the actuarial tables and assumptions being used to determine Actuarial Equivalency in the Qualified Retirement Plan at the time the determination is made. 2.2 Beneficiary "Beneficiary" means the person, persons or entity entitled under Article VII to receive any Plan benefits payable after a Participant's death. 2.3 Board "Board" means the Board of Directors of Employer. 2.4 Cause "Cause" shall mean termination by the Corporation of Employee's employment based upon (a) the willful and continued failure by Employee substantially to perform Employee's duties and obligations (other than any such failure resulting from Employee's incapacity due to physical or mental illness or any such actual or anticipated failure resulting from Employee's termination for Good Reason) or (b) the willful engaging by Employee in misconduct which is materially injurious to the Corporation, monetarily or otherwise. For purposes of this Section 2.4, no action or failure to act on Employee's part shall be considered "willful" unless done, or omitted to be done, PAGE 1 - EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN by Employee in bad faith and without reasonable belief that such action or omission was in the best interests of the Corporation. 2.5 Change in Control A "Change in Control" shall mean: (a) a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or successor provision thereto, whether or not the Corporation is then subject to such reporting requirement; (b) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Corporation representing 35% or more of the combined voting power of the Corporation's then outstanding securities; (c) the Continuing Directors (as defined at Section 2.7 hereof) cease to constitute a majority of the Corporation's Board of Directors; provided that such change is the direct or indirect result of a proxy fight and contested election or elections for positions on the Board of Directors; or (d) the majority of the Continuing Directors (as defined at Section 2.7 hereof) determine in their sole and absolute discretion that there has been a change in control of the Corporation. 2.6 Committee "Committee" means the Committee appointed to administer the Plan pursuant to Article VII. 2.7 Continuing Director "Continuing Director" shall mean any person who is a member of the Board of Directors of the Corporation, while such person is a member of the Board of Directors, who is not an Acquiring Person (as hereinafter defined) or an Affiliate or Associate (as hereinafter defined) of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who (a) was a member of the Board of Directors on the date of this Agreement as first written above or (b) subsequently becomes a member of the Board of Directors, if such person's nomination for election or initial election to the Board of Directors is recommended or approved by a majority of the Continuing Directors. For purposes of this Section 2.7: "Acquiring Person" shall mean any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) who or which, together with all Affiliates and Associates of such person, is the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the shares of Common Stock of the Corporation then outstanding, but shall not include the Corporation, any subsidiary of the Corporation or any employee benefit plan of the Corporation or of any subsidiary of the Corporation or any entity holding shares of Common Stock organized, appointed or established for, or pursuant to the terms of, any such plan; and "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act. PAGE 2 - EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN 2.8 Disability "Disability" means the Participant is eligible to receive benefits for permanent physical or mental disability under the Otter Tail Corporation's Long-Term Disability Plan, or under a plan providing comparable benefits sponsored by Employer, or under the Social Security rules for disability. Disability will be based upon medical reports and/or other evidence satisfactory to the Committee. In no event shall a Disability be deemed to occur or to continue after a Participant's Normal Retirement Date. 2.9 Early Retirement Date "Early Retirement Date" means the date on which a Participant terminates employment with Employer if such termination date occurs after the first day of the month coincidental with or next following a Participant's attainment of age fifty-five (55) and completion of ten (10) Years of Credited Service, but prior to the participant's Normal Retirement Date. 2.10 Employer "Employer" means Otter Tail Corporation, a Minnesota corporation, or any successor to the business thereof, and any affiliated or subsidiary corporations designated by the Board. 2.11 Executive Officer "Executive Officer" means a Corporation level officer and the chief operating officers of the Corporation's Energy Supply and Energy Delivery business units. 2.12 Final Annual Salary "Final Annual Salary" means the base salary and annual bonus paid to a Participant by Employer prior to a Participant's termination or death. 2.13 Final Average Earnings "Final Average Earnings" means the average of the Participants' total cash payments (salary and annual incentive bonus) paid to the Participant during the highest consecutive three and one-half (3.5) years in the ten (10) years prior to retirement or termination. 2.14 Good Reason "Good Reason" shall mean the occurrence of any of the following events, except for the occurrence of such an event in connection with the termination or reassignment of Employee's employment by the Corporation for Cause (as defined in Section 2.4 hereof), for Disability (as defined at Section 2.14 hereof) or for death: (a) the assignment to Employee of employment responsibilities which are not of comparable responsibility and status as the employment responsibilities held by Employee immediately prior to a Change in Control; (b) a reduction by the Corporation in Employee's base salary as in effect immediately prior to a Change in Control; PAGE 3 - EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN (c) an amendment or modification of the Corporation's incentive compensation program (except as may be required by applicable law) which affects the terms or administration of the program in a manner adverse to the interest of Employee as compared to the terms and administration of such program immediately prior to a Change in Control; (d) the Corporation's requiring Employee to be based anywhere other than within 50 miles of Employee's office location immediately prior to a Change in Control, except for requirements of temporary travel on the Corporation's business to an extent substantially consistent with Employee's business travel obligations immediately prior to a Change in Control; (e) except to the extent otherwise required by applicable law, the failure by the Corporation to continue in effect any benefit or compensation plan, stock ownership plan, stock purchase plan, stock incentive plan, bonus plan, life insurance plan, health-and-accident plan, or disability plan in which Employee is participating immediately prior to a Change in Control (or plans providing Employee with substantially similar benefits), the taking of any action by the Corporation which would adversely affect Employee's participation in, or materially reduce Employee's benefits under, any of such plans or deprive Employee of any material fringe benefit enjoyed by Employee immediately prior to such Change in Control, or the failure by the Corporation to provide Employee with the number of paid vacation days to which Employee is entitled immediately prior to such Change in Control in accordance with the Corporation's vacation policy as then in effect; or (f) the failure by the Corporation to obtain, as specified in Section 6(i) hereof, an assumption of the obligations of the Corporation to perform this Agreement by any successor to the Corporation. 2.15 Normal Retirement Date "Normal Retirement Date" means the first day of the month coincident with or next following the Participant's attainment of age sixty-five (65). 2.16 Participant "Participant" means any employee who is participating or has participated in this Plan as provided in Article III. 2.17 Participation Agreement "Participation Agreement" means the agreement filed by a Participant which acknowledges assent to the terms of the Plan. 2.18 Qualified Retirement Plan "Qualified Retirement Plan" means the Otter Tail Corporation Pension Plan or any successor defined benefit retirement income plan or plans maintained by the Employer which qualifies under Section 401(a) of the Internal Revenue Code. For purposes of determining benefits and actuarial equivalencies under the Qualified Retirement Plan, the actuarial principles and assumptions which have consistently applied to such plan(s) shall continue to be applied. PAGE 4 - EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN 2.19 Retirement "Retirement" means a Participant's separation from employment with the Employer at the Participant's Early Retirement Date or Normal Retirement Date. 2.20 Salary "Salary" means the salary paid to a Participant during the calendar year, before reduction, for any Section 125 benefits, for amounts deferred under IRC Section 401(k) or any other deferral arrangement. Salary does not include expense reimbursements, any form of noncash compensation or benefits, Employer contributions to the Qualified Retirement Plan or the Corporation's 401(k) Plan, or any other payments or benefits other than normal compensation. 2.21 Spouse "Spouse" means a Participant's wife or husband who is lawfully married to the Participant at the time of the Participant's death. 2.22 Supplemental Retirement Benefit "Supplemental Retirement Benefit" means the benefit determined under Article V of this Plan. 2.23 Target Retirement Percentage "Target Retirement Percentage" means the percentage of Final Average Earnings which will be used as a target from which other forms of retirement benefits are subtracted, as provided in Article V, to arrive at the amount of the Supplemental Retirement Benefit actually payable to a Participant. This percentage shall equal sixty-five percent (65%) multiplied by a fraction, the numerator of which is the Participant's Years of Participation, not to exceed fifteen (15), and the denominator of which is fifteen (15). The adjusted Targeted Retirement Percentage shall be rounded to four (4) decimal places. 2.24 Years of Credited Service "Years of Credited Service" means the number of years of "Vesting Service," as defined and calculated in the Qualified Retirement Plan, and shall include all "Vesting Service" with the Corporation and affiliates. 2.25 Years of Participation "Years of Participation" means the number of complete years in which the Participant has participated in this Plan. If a Participant terminates for Good Reason (as defined at Section 2.14) within twenty-four (24) months of a Change in Control, the Participant shall be granted three (3) extra years of service. PAGE 5 - EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN ARTICLE III--PARTICIPATION AND VESTING 3.1 Eligibility and Participation (a) ELIGIBILITY. Eligibility to participate in the Plan shall be limited to certain executive officers and other key management employees of Employer who are designated by the Committee. (b) PARTICIPATION. An Employee's participation in the Plan shall be effective upon the employee's notification of eligibility to participate, the Participant's completion of a Participation Agreement, and the Committee's acceptance of the Participation Agreement. Participation in the Plan shall continue until such time as the Participant terminates employment with the Employer, and as long thereafter as the Participant is eligible to receive benefits under this Plan. (c) BENEFIT DETERMINATION. All new Participants joining the Plan on or after January 1, 2002 will receive benefits under the Plan as restated January 1, 2002. All Participants who are at least age fifty-five (55) and/or are fully vested in the Plan as of December 31, 2001 will receive benefits under the Plan as restated July 1, 1994. Participants, as of December 31, 2001, who are partially vested as of such date will receive combined benefits from the Plan as restated July 1, 1994 and from the Plan as restated January 1, 2002 based upon their vested percentage as of December 31, 2001. For example, a Participant with forty percent (40%) vesting at December 31, 2001 would have a benefit based on forty percent (40%) of the benefits provided under the Plan as restated July 1, 1994, and sixty percent (60%) of the benefits provided under the Plan as restated January 1, 2002. In addition, for such Participants, the denominator in determining the target benefit under Section 2.23 shall be the lesser of fifteen (15) or the number of years between the date the Participant began participation in this Plan and such Participant's sixty-second (62nd) birthday. However, in no case shall a vested or partially vested Participant's benefit be less than the benefit provided under this Plan's restated January 1, 2002 accrual formula. 3.2 Change in Employment Status If the Board determines that a Participant's employment performance is no longer at a level which deserves reward through participation in this Plan, but does not terminate the Participant's employment with the Employer, participation herein and eligibility to receive benefits hereunder shall be limited to the Participant's vested interest in such benefits as of the date designated by the Committee. 3.3 Vesting Participants shall vest in the benefits under this Plan for which they are eligible based on Years of Participation as follows: PAGE 6 - EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN
VESTED YEARS OF PERCENTAGE PARTICIPATION -------------------------------------------------------- 0% Less than 5 years 100 5 or more ========================================================
Regardless of Years of Participation, after a Change in Control, all Participants shall be one hundred percent (100%) vested. A Participant will also be one hundred percent (100%) vested if the Participant dies while actively employed by the Corporation. 3.4 Suicide The provisions of Article IV notwithstanding, no benefit shall be paid to a Beneficiary if the Participant's death occurs as a result of suicide during the twenty-four (24) successive calendar months beginning with the calendar month following the commencement of the employee's participation in this Plan. Similarly, no benefit shall be paid if death occurs within the twenty-four (24) successive calendar months following commencement of an employee's participation in the Plan if the Participant has made a material misrepresentation in any form or document provided by the Participant to or for the benefit of Employer. ARTICLE IV--BENEFITS--EXECUTIVE OFFICERS 4.1 Eligibility Survivor benefits under this Plan shall only be due and payable to Participants who are or were Executive Officers at the time they became Participants in the Plan, or who are later promoted to Executive Officer. For purposes of this Section, any Participant designated as an Executive Officer prior to January 1, 2002, shall remain an Executive Officer. In no event shall Participants who are other key management employees be eligible for a survivor benefit under this Article. 4.2 Preretirement Survivor Benefit (a) AMOUNT. If a Participant dies while employed by Employer or during a period of Disability, Employer shall pay a survivor benefit to the Participant's Beneficiary equal to four (4) times the Participant's Final Annual Salary. (b) FORM AND COMMENCEMENT OF BENEFIT PAYMENTS. The benefit payable under this Section shall be paid in monthly installments equal to one-sixth (1/6) of the Participant's Final Annual Salary until the benefit has been paid in full, without interest. Payments shall commence the first day of the month following the death of the Participant, or as soon thereafter as is practicable, and shall continue the first day of each month thereafter for the duration of the payment period. (c) COMMUTATION OF BENEFITS. The Committee may, in its sole discretion and at any time upon the request of a Beneficiary, provide for payment of the Actuarial Equivalent of the preretirement survivor benefit at such times and in such forms as it may deem appropriate. PAGE 7 - EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN 4.3 Postretirement Survivor Benefit (a) AMOUNT. If a Participant dies following Retirement, Employer shall pay a survivor benefit to the Participant's Beneficiary equal to the amount shown on the following schedule:
AGE AT DEATH BENEFIT ---------------------------------------------------------------------- 55 through 64 2 times Final Annual Salary 65 through 69 1-1/2 times Final Annual Salary 70 through 75 3/4 times Final Annual Salary Over 75 3/8 times Final Annual Salary ======================================================================
(b) FORM AND COMMENCEMENT OF BENEFIT PAYMENT. The benefit payable under this Section shall be paid to the Beneficiary in a lump sum form on the first day of the month following the Participant's death, or as soon as practicable thereafter. 4.4 Posttermination Survivor Benefit (a) AMOUNT. If a vested Participant dies following termination, Employer shall pay a survivor benefit to the Participant's Beneficiary equal to the amount shown on the following schedule times the Participant's vested percentage:
AGE AT DEATH BENEFIT ---------------------------------------------------------------------- Less than 65 2 times Final Annual Salary 65 through 69 1-1/2 times Final Annual Salary 70 through 75 3/4 times Final Annual Salary Over 75 3/8 times Final Annual Salary ======================================================================
(b) FORM AND COMMENCEMENT OF BENEFIT PAYMENT. The benefit payable under this Section shall be paid to the Beneficiary in a lump sum form on the first day of the month following the Participant's death, or as soon as practicable thereafter. ARTICLE V--SUPPLEMENTAL RETIREMENT BENEFITS 5.1 Normal Retirement Benefit If a Participant retires at the Normal Retirement Date, Employer shall pay to the Participant a monthly Supplemental Retirement Benefit equal to the Target Retirement Percentage multiplied by Final Average Earnings, less: PAGE 8 - EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN (a) The Participant's monthly primary Social Security benefit commencing at Retirement, and (b) The Participant's benefit in the form of a monthly single-life annuity under the Qualified Retirement Plan, calculated with a maximum of 30 Years of Credited Service, commencing at Retirement. This net amount shall be multiplied by the Participant's vested percentage under Section 3.3. PAGE 9 - EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN 5.2 Early Retirement Benefit If a Participant retires at an Early Retirement Date, Employer shall pay to the Participant the monthly Supplemental Retirement Benefit calculated under Section 5.1 except: (a) The Target Retirement Percentage shall be reduced by the following percentage based on the Participant's age at Retirement [(1 - Reduction) x Target Retirement Percentage]:
AGE REDUCTION -------------------------------------------------- 62 through 65 0% 61 5 60 10 59 15 58 20 57 25 56 32 55 39 ==================================================
(b) The offset required by 5.1(a) shall be determined at Retirement using the Social Security Act in effect at Retirement and assuming zero (0) future earnings from the Participant's Early Retirement Date to the later of Early Retirement Date or Participant's attainment of age sixty-two (62). 5.3 Termination Benefit If a vested Participant terminates, Employer shall pay to the Participant the monthly Supplemental Retirement Benefit calculated under Section 5.1 except: (a) The offset required by 5.1(a) shall be determined at termination using the Social Security Act in effect at termination and assuming earnings from the date of termination to the Participant's Normal Retirement Date are equal to the Participant's salary at termination; and (b) The offset required by 5.1(b) shall be the Participant's benefit under the Qualified Retirement Plan payable at age sixty-five (65). 5.4 Disability Retirement Benefit If a person terminates employment prior to Normal Retirement as a result of Disability, the Employer shall pay to the Participant a Supplemental Retirement Benefit commencing at the later of the Participant's sixty-second (62nd) birthday or suspension of benefits under the Otter Tail Long-Term Disability Program, equal to the amount the Participant would have received at such time under the Early Retirement provisions of this Article. For purposes of this calculation, Years of Credited Service and Years of Participation shall continue to accrue during the period of Disability and the Participant's Final Average Earnings will be calculated based on the Participant's earnings history as of the date of the disability. PAGE 10 - EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN 5.5 Payment of Benefits (a) FORM OF BENEFIT PAYMENT. The Supplemental Retirement Benefit shall be paid in the form of a monthly single life annuity with a fifteen (15) year certain period. If a Participant dies prior to completion of the fifteen (15) year payment period, any remaining payments shall be paid to the Participant's Beneficiary. Participants may select, as an alternative form, a fifty percent (50%) Joint and Survivor benefit which shall be the Actuarial Equivalent to the monthly single-life annuity with a fifteen (15) year certain period. For the Beneficiaries of executive officers, the remaining benefit, if any, shall be paid in addition to the benefits provided in 4.4. For Beneficiaries of other key management employees, this shall be the only benefit payable, if any. (b) COMMENCEMENT OF BENEFIT PAYMENTS. Benefits payable to a Participant under Sections 5.1 and 5.2 shall commence as soon as practicable after the appropriate application for benefits has been made but not later than sixty (60) days after all information necessary to calculate the benefit amount has been received by Employer. Benefits payable to a vested Participant under Section 5.3 shall commence on the first day of the month following the Participant's sixty-fifth (65th) birthday. All payments shall be made as of the first day of the month. (c) COMMUTATION OF BENEFITS. The Committee may, in its sole discretion and at any time upon the request of a Participant (or Beneficiary), provide for payment of the actuarial equivalent of the Supplemental Retirement Benefits at such times and in such form as it may deem appropriate. 5.6 Withholding; Payroll Taxes Employer shall withhold from payments made hereunder any taxes required to be withheld from a Participant's wages for the federal or any state or local government. However, a Beneficiary may elect not to have withholding for federal income tax purposes pursuant to Section 3405(a)(2) of the Internal Revenue Code, or any successor provision. 5.7 Accelerated Distribution Notwithstanding any other provision of the Plan, at any time within twenty four (24) months of a Change in Control or any time following termination of employment, a Participant shall be entitled to receive, upon written request to the Committee, a lump sum distribution equal to ninety percent (90%) of the Actuarial Equivalent of the Participant's unpaid benefits under this Plan on the date on which the Committee receives the written request. The remaining unpaid benefits shall be forfeited by the Participant and no benefit shall be payable under Section 5.8. The amount payable under this Section shall be paid in a lump sum within sixty-five (65) days following the receipt of the notice by the Committee from the Participant. 5.8 Supplemental Survivor Benefit Benefits payable under this Section shall be applicable to all Participants and shall be in addition to any benefit payable under Article IV. PAGE 11 - EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN (a) PRETERMINATION. If a Participant dies while employed by the Corporation, the Participant's Beneficiary shall receive the actuarial equivalent of the Participant's accrued benefit in fifteen (15) annual installments. (b) POSTTERMINATION. If a Participant has terminated employment with the Corporation but benefits have not commenced under this Plan, the Participant's Beneficiary shall receive the Actuarial Equivalent of the Participant's benefit in fifteen (15) annual installments. (c) AFTER BENEFITS COMMENCE. If a Participant dies after the commencement of benefits under this Plan, the beneficiary shall receive (if any) a monthly benefit based on the form of benefit elected by the Participant. 5.9 Payment to Guardian If a Plan benefit is payable to a minor or a person declared incompetent or to a person incapable of handling the disposition of his property, the Committee may direct payment of such Plan benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or person. The Committee may require proof of incompetency, minority, incapacity or guardianship as it may deem appropriate prior to distribution of the Plan benefit. Such distribution shall completely discharge the Committee and the Employer from all liability with respect to such benefit. ARTICLE VI--BENEFICIARY DESIGNATION 6.1 Beneficiary Designation Each Participant shall have the right, at any time, to designate any person or persons as Beneficiary (both primary as well as secondary) to whom benefits under this Plan shall be paid as a result of the Participant's death prior to complete distribution to Participant of the benefits due under the Plan. Each Beneficiary designation shall be in a written form prescribed by the Committee, and will be effective only when filed with the Committee during the Participant's lifetime. 6.2 Amendments Any Beneficiary designation may be changed by a Participant without the consent of any designated Beneficiary by the filing of a new Beneficiary designation with the Committee. The filing of a new Beneficiary designation form will cancel all Beneficiary designations previously filed. If a Participant's Compensation is community property, any Beneficiary Designation shall be valid or effective only as permitted under applicable law. 6.3 No Participant Beneficiary Designation In the absence of an effective Beneficiary Designation, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then Participant's designated Beneficiary shall be deemed to be the person or persons surviving the Participant in the first of the following classes in which there is a survivor, share and share alike: PAGE 12 - EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN (a) The surviving Spouse; (b) The Participant's children, except that if any of the children predecease the Participant but leave issue surviving, then such issue shall take by right of representation the share their parent would have taken if living; (c) The Participant's estate. 6.4 Effect of Payment The payment to the deemed Beneficiary shall completely discharge Employer's obligations under this Plan. ARTICLE VII--ADMINISTRATION 7.1 Committee; Duties This Plan shall be supervised by the Committee. The Committee shall consist of at least three (3) individuals appointed by the Board. The Committee shall have the authority to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and decide or resolve any and all questions, including interpretations of this Plan, as may arise in connection with the Plan. The Committee shall also have the authority to determine eligibility under the Plan. A majority vote of the Committee members shall control any decision. Members of the Committee may be Participants under this Plan. 7.2 Agents The Committee may, from time to time, employ other agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with counsel who may be counsel to the Corporation. 7.3 Binding Effect of Decisions The decision or action of the Committee in respect of any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 7.4 Indemnity of Committee The Corporation shall indemnify and hold harmless the members of the Committee against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to this Plan, except in the case of gross negligence or willful misconduct. PAGE 13 - EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN ARTICLE VIII--CLAIMS PROCEDURE 8.1 Claim Any person claiming a benefit, requesting an interpretation or ruling under the Plan, or requesting information under the Plan shall present the request in writing to the Committee which shall respond in writing within thirty (30) days. 8.2 Denial of Claim If the claim or request is denied, the written notice of denial shall state: (a) The reason for denial, with specific reference to the Plan provisions on which the denial is based. (b) A description of any additional material or information required and an explanation of why it is necessary. (c) An explanation of the Plan's claim review procedure. 8.3 Review of Claim Any person whose claim or request is denied or who has not received a response within thirty (30) days may request review by notice given in writing to the Committee. The claim or request shall be reviewed by the Committee who may, but shall not be required to, grant the claimant a hearing. On review, the claimant may have representation, examine pertinent documents, and submit issues and comments in writing. 8.4 Final Decision The decision on review shall normally be made within sixty (60) days. If an extension of time is required for a hearing or other special circumstances, the claimant shall be notified and the time limit shall be one hundred twenty (120) days. The decision shall be in writing and shall state the reason and the relevant plan provisions. All decisions on review shall be final and bind all parties concerned. ARTICLE IX--TERMINATION, SUSPENSION OR AMENDMENT 9.1 Termination, Suspension or Amendment of Plan The Board may, in its sole discretion, terminate or suspend this Plan at any time or from time to time, in whole or in part. The Board may amend this Plan at any time or from time to time. Any amendment may provide different benefits or amounts of benefits from those herein set forth. However, no such termination, suspension or amendment shall adversely affect the benefits of Participants which have accrued prior to such action or the benefits of any Beneficiary of a Participant who has previously died. PAGE 14 - EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN ARTICLE X--MISCELLANEOUS 10.1 Unfunded Plan This Plan is intended to be an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of management or highly compensated employees. 10.2 Unsecured General Creditor In the event of Employer's insolvency, Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interest or claims in any property or assets of Employer, nor shall they be Beneficiaries of, or have any rights, claims or interests in any life insurance policies, annuity contracts or the proceeds therefrom owned or which may be acquired by Employer. In that event, any and all of Employer's assets and policies shall be, and remain, the general, unpledged, unrestricted assets of Employer. Employer's obligation under the Plan shall be that of an unfunded and unsecured promise of Employer to pay money in the future. 10.3 Trust Fund Employer shall be responsible for the payment of all benefits provided under the Plan. At its discretion, Employer may establish one or more trusts, with such trustees as the Board may approve, for the purpose of providing for the payment of such benefits. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of Employer's creditors. To the extent any benefits provided under the Plan are actually paid from any such trust, Employer shall have no further obligation with respect thereto, but to the extent not so paid, such benefits shall remain the obligation of, and shall be paid by, Employer. 10.4 Nonassignability Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 10.5 Not a Contract of Employment The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between Employer and the Participant, and the Participant (or the Participant's Beneficiary) shall have no rights against Employer except as may otherwise be specifically provided herein. Moreover, nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of Employer or to interfere with the right of Employer to discipline or discharge the Participant at any time. PAGE 15 - EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN 10.6 Protective Provisions A Participant will cooperate with Employer by furnishing any and all information requested by Employer, in order to facilitate the payment of benefits hereunder, and by taking such physical examinations as Employer may deem necessary and taking such other action as may be requested by Employer. 10.7 Terms Wherever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. 10.8 Captions The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 10.9 Governing Law The provisions of this Plan shall be construed and interpreted according to the laws of the State of Minnesota. 10.10 Validity In case any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein. 10.11 Notice Any notice or filing required or permitted to be given to the Committee under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail to any member of the Committee or the Secretary of the Employer. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. 10.12 Successors The provisions of this Plan shall bind and inure to the benefit of Otter Tail Corporation and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of Otter Tail Corporation, and successors of any such corporation or other business entity. PAGE 16 - EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN IN WITNESS WHEREOF, and pursuant to resolution of the Board of Directors of Otter Tail Corporation, such corporation has caused this instrument to be executed by its duly authorized officers effective as of January 1, 2002. OTTER TAIL CORPORATION By: /s/ John MacFarlane ------------------------------ Its Chief Executive Officer Dated: December 17, 2001 ------------------------------ PAGE 17 - EXECUTIVE SURVIVOR AND SUPPLEMENTAL RETIREMENT PLAN EX-10.D 6 c69656ex10-d.txt DEFERRED COMPENSATION PLAN FOR DIRECTORS Exhibit 10-D OTTER TAIL CORPORATION DEFERRED COMPENSATION PLAN FOR DIRECTORS As Amended and Restated October 22, 2001 TABLE OF CONTENTS
Page Number ------ 1. PURPOSE 3 2. PLAN PERIODS 3 3. ADMINISTRATION 3 4. PARTICIPATION 3 5. DEFERRED COMPENSATION ACCOUNTS 4 6. PAYMENT 7 7. ASSIGNMENT 11 8. TERMINATION AND AMENDMENT 11 SCHEDULE A SCHEDULE B
2 OTTER TAIL CORPORATION DEFERRED COMPENSATION PLAN FOR DIRECTORS As Amended and Restated October 22, 2001 1. PURPOSE. The Plan is designed to provide a method of deferring payment to non-employee Directors of all or part of their retainer and/or meeting fees, as fixed from time to time by the Board of Directors, until termination of their services on the Board. 2. PLAN PERIODS. The first Plan Period shall commence upon the election of Directors at the 1984 Annual Stockholders' Meeting and terminate on December 31, 1984. An additional Plan Period will commence on July 1, 2000 and continue through December 31, 2000 for which a Director may elect to defer all or part of his or her retainer and/or meeting fees for that period in the form of restricted stock units, as provided in Section 5 hereof. Subsequent Plan Periods shall relate to successive calendar years. 3. ADMINISTRATION. The Plan shall be administered by a committee of the Board of Directors designated by the Board to administer the Plan (the "Committee"). The Committee shall be composed solely of two or more "Non-Employee Directors," within the meaning of Rule 16b-3 under Section 16 of the Securities Exchange Act of 1934. The Committee shall have the power to interpret the Plan and, subject to its provisions, to make all determinations necessary or desirable for the Plan's administration. 4. PARTICIPATION. (a) An individual who serves as Director and is not otherwise employed by the Corporation or any of its subsidiaries shall be eligible to participate in the Plan if the Director elects to have payment of his or her retainer and/or meeting fees in respect of a Plan Period deferred as provided herein. 3 (b) The election shall be made by written notice on Schedule A to the Plan filed with the Committee prior to the first day of such Plan Period or, in the case of a Director who first becomes eligible during a Plan Period, not later than 30 days after the Director first becomes eligible. In the case of a Director who first becomes eligible during a Plan Period, the election to participate shall apply only to compensation subsequent to making the election. Each such election shall be irrevocable. An election on Schedule A shall remain in effect until changed or rescinded. Prior to the beginning of any subsequent Plan Period, a Participant may irrevocably elect in writing, by completing a new Schedule A, to change an earlier election. Such new election shall become effective on the first business day of the Plan Period following receipt by the Committee of the new Schedule A. Notwithstanding the foregoing, a Participant may elect, prior to July 1, 2000, to convert all or part of his or her Deferred Cash Account into the Deferred Stock Account, as such Accounts are described in Section 5 below. The number of whole and fractional restricted stock units (computed to four decimal places) shall be determined as of July 3, 2000 by dividing the amount of the Deferred Cash Account to be converted by the average of the high and low sale prices of a Common Share of Otter Tail Corporation as reported on the NASDAQ National Market System on July 3, 2000. 5. DEFERRED COMPENSATION ACCOUNTS. (a) An account shall be established for each eligible, electing Director (a "Participant") which shall be designated as the Participant's Deferred Compensation Account. A Participant's Deferred Compensation Account shall include a Deferred Cash Account and/or a Deferred Stock Account. The Deferred Cash Account means the bookkeeping account of this Plan to which a Participant's deemed cash allocations are credited and the Deferred Stock Account means the bookkeeping account of this Plan to which a Participant's deemed restricted stock unit 4 allocations are credited pursuant to this Plan. If a Participant elects to have payment deferred of his or her retainer and/or meeting fees, the amount of the retainer and/or meeting fees payable with respect to a Plan Period shall be credited, (i) in monthly installments as of the last day of each month in the Plan Period to which such retainer and/or meeting fees relate, for amounts credited to the Participant's Deferred Cash Account and (ii) in quarterly installments as of the last day of each calendar quarter in the Plan Period to which such retainer and/or meeting fees relate, for amounts credited to the Participant's Deferred Stock Account, subject to the provisions of Section 5(d). The Corporation shall not be required to segregate any amounts credited to the Deferred Compensation Accounts, which shall be established merely as an accounting convenience. Amounts credited to the Deferred Compensation Accounts shall at all times remain solely the property of the Corporation subject to the claims of its general creditors and available for the Corporation's use for whatever purpose desired. (b) The amounts credited to a Deferred Cash Account shall, in order to alleviate the adverse effects of an inflationary economy, accrue interest each month at an annual rate equal to the rate charged for prime commercial loans of 90-day maturity (based on actual numbers of days, 360 days to the year), plus 1% as of the last business day of the month. Such interest shall be computed on the average daily balance in the Deferred Cash Account during such month and shall be credited to such Account and compounded as of the last day of such month. Interest shall continue to accrue and be compounded on the unpaid balance in the Deferred Cash Account until such Account is fully distributed. (c) The amounts credited to a Deferred Stock Account shall be credited in the form of restricted stock units as of the last day of the calendar quarter. The number of whole and fractional restricted stock units (computed to four decimal places) credited to the Account shall 5 be determined by dividing the amount deferred to the Deferred Stock Account during the quarter by the average of the high and low sale prices of a Common Share of Otter Tail Corporation as reported on the NASDAQ National Market System on the last business day of the quarter. At such times as cash dividends are declared by the Corporation on its outstanding Common Shares, an amount shall be credited to the Participant's Deferred Stock Account on the record date for such dividend equal to the amount of dividends that would be paid if the restricted stock units (including a fractional unit) were outstanding Common Shares on such date ("Dividend Equivalents"). At the end of the calendar quarter in which such Dividend Equivalents are credited to the Participant's Deferred Stock Account, the Dividend Equivalents shall be converted to additional whole and fractional restricted stock units (computed to four decimal places) in an amount determined by dividing the amount of the Dividend Equivalents by the average of the high and low sale prices of a Common Share of the Corporation as reported on the NASDAQ National Market System on the last business day of the quarter. In the event of a stock dividend or other distribution, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Common Shares or other securities of the Corporation, issuance of warrants or other rights to purchase Common Shares or other securities of the Corporation or other similar corporate transaction or event that affects the Common Shares, the Committee shall make such adjustments as it deems appropriate in the number of restricted stock units credited to a Participant's Deferred Stock Account in order to prevent dilution or enlargement of the Participant's benefits under the Plan. (d) If, prior to the end of a Plan Period, a Participant becomes an employee of the Corporation or one of its subsidiaries or dies or ceases for any reason to be a Director, or if the 6 effective date of participation by a Participant for any Plan Period shall be other than the first day thereof, the Participant will be entitled to be credited with that proportion of the annual retainer for the full Plan Period which the number of days of his or her participation in the Plan during such Plan Period bears to the total number of days in such Plan Period. 6. PAYMENT. (a) Following termination of a Participant's service on the Board, the Corporation shall distribute the entire amount accumulated in the Participant's Deferred Compensation Account. (b) By written notice on Schedule A to the Plan filed with the Committee, a Participant may elect to have distribution of his or her Deferred Cash Account commence either (i) within 30 days after the date the Participant ceases to be a Director of the Corporation, (ii) 12 months after the Participant ceases to be a Director of the Corporation, or (iii) 24 months after the Participant ceases to be a Director of the Corporation. Any such election, or any change in such election (by such subsequent written notice to the Committee), shall apply only to future deferrals. In the event no election is made as to the commencement of a distribution, such distribution shall commence within 30 days after the date the Participant ceases to be a Director of the Corporation. The actual date that distribution shall commence shall be a date within the appropriate period determined by the Committee in its sole discretion. (c) By written notice on Schedule A to the Plan filed with the Committee, a Participant may choose to receive the distribution of his or her Deferred Cash Account in the form of (i) one lump-sum payment or (ii) monthly distributions over a period selected by the Participant of up to 10 years. In the event a lump-sum payment is made under the Plan, the amount then standing to the Participant's credit in his or her Deferred Cash Account, including interest at the rate provided in Section 5(b) to the date of distribution, shall be paid to the Participant on the date 7 determined under Section 6(b). In the case of a distribution over a period of years, the Corporation shall pay to the Participant, commencing on the date determined under Section 6(b), monthly installments from the amount then standing to the Participant's credit in his or her Deferred Cash Account, including interest on the unpaid balance at the rate provided in Section 5(b) to the date of distribution. The amount of each installment shall be determined by dividing the then unpaid balance, plus accrued interest, in the Participant's Deferred Cash Account by the number of installments remaining to be paid. If a Participant does not make a choice as to the manner of distribution of his or her Deferred Cash Account, such distribution shall be made in the form of monthly installments paid over a five-year period. Notwithstanding the above and subject to approval by the Committee, a Participant may at any time request, by written notice to the Committee, to have the monthly payments scheduled to be made to him or her within a tax year paid to him or her in one installment within such year. (d) Distributions from the Deferred Stock Account shall be in Common Shares of the Corporation. The Common Shares available for issuance under this Plan shall be issued under, and in accordance with the terms of, the Otter Tail Corporation 1999 Stock Incentive Plan. Upon distribution, one Common Share shall be issued for each restricted stock unit, except that no fractional shares shall be issued, and the Participant shall receive a cash payment in lieu of any fractional share. By written notice on Schedule A to the Plan filed with the Committee, a Participant may elect to have a distribution of his or her Deferred Stock Account commence (i) within 30 days after the date the Participant ceases to be a Director of the Corporation, (ii) 12 months after the Participant ceases to be a Director of the Corporation or (iii) 24 months after the Participant ceases to be a Director of the Corporation. Any such election, or any change in such election (by subsequent written notice to the Committee), shall apply only to future deferrals. In 8 the event no election is made as to the commencement of the distribution, such distribution shall commence within 30 days after the date the Participant ceases to be a Director of the Corporation. The actual date that the distribution shall commence shall be a date within the appropriate period determined by the Committee in its sole discretion. (e) By written notice on Schedule A to the Plan filed with the Committee, a Participant may choose to receive the distribution of his or her Deferred Stock Account in the form of (i) one lump-sum payment or (ii) annual distributions over a period selected by the Participant of up to 10 years. If a Participant does not make a choice as to the manner of distribution of his or her Deferred Stock Account, such distribution shall be made in the form of a lump-sum payment. In the event a lump-sum payment is made under the Plan, a certificate representing the Common Shares payable for the whole number of restricted stock units credited to the Participant's Deferred Stock Account shall be delivered to the Participant or the Participant's Beneficiary, as the case may be, along with cash in payment of any fractional share, on the date determined under Section 6(d). In the case of a distribution over a period of years, the Corporation shall pay to the Participant, commencing on the date determined under Section 6(d), annual installments from the number of restricted stock units then credited to the Participant's Deferred Stock Account, including additional restricted stock units credited as a result of the deemed reinvestment of Dividend Equivalents credited to the Participant's account. The amount of each installment shall be determined by dividing the then unpaid balance of restricted stock units by the number of installments remaining to be paid. A certificate representing the whole number of Common Shares payable for such installment shall be delivered to the Participant or the Participant's Beneficiary, as the case may be, along with cash in payment of any fractional share. The value of any fractional share shall be based upon the average of the high and low sale prices 9 of a Common Share of the Corporation as reported on the NASDAQ National Market System on the business day preceding the payment date. The Participant or the Participant's Beneficiary, as the case may be, shall have no rights as a holder of Common Shares unless and until a certificate for the shares is issued by the Corporation. (f) In the event of a Participant's death, the balance of a Participant's Deferred Cash Account or Deferred Stock Account, as the case may be, shall be distributed to the Participant's Beneficiary(ies) over a period of not more than five years or in a lump sum, in accordance with the Participant's choice on Schedule B to the Plan filed with the Committee. Such distribution shall commence within 30 days after the Participant's death, on a date within such month to be determined by the Committee in its sole discretion. Additional annual payments for distributions made over a period of more than one year shall be made on the yearly anniversaries of such date. In the event of a Participant's death after distribution of the Deferred Cash Account or Deferred Stock Account, as the case may be, has commenced, any choice under this Section 6(f) shall not extend time of payment of such Account beyond the time when distribution would have been completed if the Participant had lived. A Participant may change Beneficiary designations by filing a subsequent Schedule B with the Committee. If a Participant does not make a choice as to the manner of distribution of his or her Deferred Cash Account or Deferred Stock Account, as the case may be, in the event of death, any such distribution shall be made as a lump-sum payment to his or her estate within 30 days after the Participant's death. (g) Notwithstanding any other provision of the Plan, if the Committee shall determine in its sole discretion that the time of payment of a Participant's Deferred Compensation Account should be advanced because of protracted illness or other undue hardship, then the Committee may advance the time or times of payment (whether before or after the Director's retirement 10 date) only if the Committee determines that an emergency beyond the control of the Participant exists and which would cause such Participant severe financial hardship if the payment of such benefits were not approved. Any such distribution for hardship shall be limited to the amount needed to meet such emergency. A Participant who receives a hardship distribution may not reenter the Plan for 12 months after the date of such distribution. Any distribution for hardship under this Section 6(g) shall commence or be made within 30 days after the Committee determines to make such hardship distribution. 7. ASSIGNMENT. No benefit under the Plan shall in any manner or to any extent be assigned, alienated, or transferred by any Participant or Beneficiary or subject to attachment, garnishment, or other legal process. 8. TERMINATION AND AMENDMENT. The Committee may terminate the Plan at any time so that no further amounts shall be credited to Deferred Compensation Accounts or may, from time to time, amend the Plan, without the consent of Participants or Beneficiaries; provided, however, that no such amendment or termination shall impair any rights which have accrued under the Plan. 11 SCHEDULE A IRREVOCABLE ELECTION under the Otter Tail Corporation Deferred Compensation Plan for Directors As Amended and Restated October 22, 2001 THIS IRREVOCABLE ELECTION is being made pursuant to the Otter Tail Corporation Deferred Compensation Plan for Directors, As Amended and Restated October 22, 2001 (the "Plan"). Any election under any Section specified below which changes a prior election under the Plan shall apply only to subsequent Plan Periods, as defined in the Plan. Terms used herein shall have the meanings given to them in the Plan. SECTION 1. DEFERRAL ELECTION. I hereby irrevocably elect to defer receipt of all or part of my retainer and/or meeting fees pursuant to the terms of the Plan and this Irrevocable Election, as indicated below: % of retainer ---------- % of meeting fees ---------- SECTION 2. FORM OF PAYMENT. I hereby irrevocably elect to receive payment of the amounts deferred in accordance with my election above and the terms of the Plan, in the form indicated below: Cash ---------- Common Shares of Otter Tail Corporation. I ---------- understand that no actual shares will be issued in my name until I receive a distribution from the Plan and, until such time, my Deferred Stock Account will be credited with restricted stock units and Dividend Equivalents, which will be converted into additional restricted stock units, as described in the Plan. SECTION 3. TIMING OF DISTRIBUTION. I hereby irrevocably elect, in accordance with the terms of the Plan, to have the distribution from my Deferred Cash Account and/or Deferred Stock Account to commence or be made as follows: within 30 days after I cease to be a Director of ---------- the Corporation 12 months after I cease to be a Director of the ---------- Corporation 12 24 months after I cease to be a Director of the ---------- Corporation I understand that if no election is made, my distribution will commence or be made within 30 days after I cease to be a Director of the Corporation. SECTION 4. NUMBER OF DISTRIBUTIONS FROM DEFERRED CASH ACCOUNT. I hereby elect, in accordance with the terms of the Plan, to receive my cash distributions from my Deferred Cash Account under the Plan, as indicated below: In one lump sum ---------- In monthly installments over a period of ______ ---------- years (not to exceed 10 years) I understand that if no election is made, my cash distribution will be made in monthly installments over a period of five years. SECTION 5. NUMBER OF DISTRIBUTIONS FROM DEFERRED STOCK ACCOUNT. I hereby elect, in accordance with the terms of the Plan, to receive my stock distributions from my Deferred Stock Account under the Plan, as indicated below: In one lump sum ---------- In annual installments over a period of ______ ---------- years (not to exceed 10 years) I understand that if no election is made, my stock distribution will be made in one lump-sum payment. I further understand that payment from my Deferred Stock Account will be in the form of Common Shares of the Corporation. SECTION 6. SIGNATURE. I understand that the above elections are subject to the terms of the Plan. I acknowledge receipt of a copy of the Plan. I certify that my elections are not being made in reliance upon any financial or tax advice given by the Corporation. I understand that I should consult my own tax advisor as to the tax consequences of my elections. - --------------------------------- --------------------------------- Witness Participant's Signature --------------------------------- Date 13 SCHEDULE B OTTER TAIL CORPORATION DEFERRED COMPENSATION PLAN FOR DIRECTORS As Amended and Restated October 22, 2001 SECTION 1. METHOD OF DISTRIBUTION IN CASE OF DEATH. In case of my death, I hereby elect, in accordance with the terms of the Plan, to have the distribution of my Deferred Compensation Account paid to my Beneficiary(ies) designated in Section 2 hereof as indicated below: In one lump sum ---------- In annual installments over a period of ___ years (not to ---------- exceed five years) I understand that if no election is made, a lump-sum payment will be made to my Beneficiary(ies) or estate within 30 days of my death. I further understand that payments from my Deferred Stock Account, if any, will be in the form of Common Shares of Otter Tail Corporation. SECTION 2. DESIGNATION OF BENEFICIARY(IES). In the event of my death, I hereby designate the following individuals, fiduciaries or other entities, either in their own right or in their representative capacity, in the proportions and in the priority of interest designated, to be the beneficiaries of any benefits owing to me, under the Plan. PRIMARY BENEFICIARIES - The following beneficiary(ies) shall receive all benefits payable under the Plan in the event of my death in the proportions designated hereunder. If any one or more of the primary beneficiaries designated hereunder shall predecease me, such beneficiary's share(s) shall be divided equally among the remaining primary beneficiaries.
PROPORTIONATE NAME AND PRESENT ADDRESS INTEREST OF PRIMARY RELATIONSHIP TO OF PRIMARY BENEFICIARY(IES) BENEFICIARY(IES) EMPLOYEE % ------------------------------ ----------------- ----------------- % ------------------------------ ----------------- ----------------- % ------------------------------ ----------------- ----------------- % ------------------------------ ----------------- ----------------- % ------------------------------ ----------------- ----------------- % ------------------------------ ----------------- -----------------
- ------------------------- ------------------------------ Date Participant's Initials 14 SECONDARY BENEFICIARIES - The following beneficiary(ies) shall receive all benefits payable under the Plan in the event of my death in the proportions designated hereunder only if all of my Primary Beneficiaries have predeceased me. If all Primary Beneficiaries have predeceased me and if any one or more of the Secondary Beneficiaries designated hereunder shall predecease me, such Secondary Beneficiary's share(s) shall be divided equally among the Secondary Beneficiaries.
PROPORTIONATE NAME AND PRESENT ADDRESS INTEREST OF OF SECONDARY SECONDARY RELATIONSHIP BENEFICIARY(IES) BENEFICIARY(IES) TO EMPLOYEE % ------------------------------ ----------------- ----------------- % ------------------------------ ----------------- -----------------
ESTATE - In the event I have declined to designate a Beneficiary hereunder or if all of the Beneficiaries that I have designated predecease me, then all benefits payable under the Plan shall be payable to my Estate. - ------------------------- ------------------------------ Witness Participant's Signature ------------------------------ Date 15 OTTER TAIL CORPORATION DEFERRED COMPENSATION PLAN FOR DIRECTORS As Amended and Restated October 22, 2001 ONE-TIME ELECTION TO RECEIVE ANNUAL DISTRIBUTIONS FROM DEFERRED STOCK ACCOUNT SECTION 1. ELECTION FOR ANNUAL INSTALLMENTS. I hereby irrevocably elect to receive my distributions from my Deferred Stock Account in annual installments rather than in a lump-sum payment, over a period of __ years, not to exceed 10 years, in accordance with the terms of the Otter Tail Corporation Deferred Compensation Plan for Directors, As Amended and Restated October 22, 2001. I understand that this election will apply to the amount credited to my Deferred Stock Account on December 31, 2001 and amounts credited thereafter, provided, however, that such election to receive annual installments shall apply only to distributions from my Deferred Stock Account that occur after January 1, 2003 (and, therefore, any distribution from my Deferred Stock Account prior to that date shall be made in one lump-sum payment). SECTION 2. SIGNATURE. I understand that the above election is subject to the terms of the Plan. I acknowledge receipt of a copy of the Plan. I certify that my election is not being made in reliance upon any financial or tax advice given by the Corporation. I understand that I should consult my own tax advisor as to the tax consequences of my election. - ------------------------- ------------------------------ Witness Participant's Signature , 2001 ---------------- 16 EX-10.E 7 c69656ex10-e.txt FORM OF CHANGE IN CONTROL SEVERANCE AGREEMENT Exhibit 10-E CHANGE IN CONTROL SEVERANCE AGREEMENT This Agreement is made as of the ________ day of ____________________, between Otter Tail Corporation , a Minnesota corporation, with its principal offices at 215 South Cascade Street, P.O. Box 496, Fergus Falls, Minnesota 56538-0496 (the "Corporation ") and _____________________ ("Employee"), residing at _____________________________. WITNESSETH THAT: WHEREAS, this Agreement is intended to specify the financial arrangements that the Corporation will provide to Employee upon Employee's separation from employment with the Corporation under any of the circumstances described herein; and WHEREAS, this Agreement is entered into by the Corporation in the belief that it is in the best interests of the Corporation and its shareholders to provide stable conditions of employment for Employee notwithstanding the possibility, threat or occurrence of certain types of change in control, thereby enhancing the Corporation 's ability to attract and retain highly qualified people. NOW, THEREFORE, to assure the Corporation that it will have the continued dedication of Employee notwithstanding the possibility, threat or occurrence of a bid to take over control of the Corporation , and to induce Employee to remain in the employ of the Corporation , and for other good and valuable consideration, the Corporation and Employee agree as follows: 1. Term of Agreement. The term of this Agreement shall commence on the date hereof as first written above and shall continue through April 1, 2003; provided that commencing on March 31, 2003 and each March 31 thereafter, the term of this Agreement shall automatically be extended for one additional year unless 360 days prior to March 31, the Corporation shall have given notice that it does not wish to extend this Agreement, and provided, further, that notwithstanding any such notice by the Corporation not to extend, this Agreement shall continue in effect for a period of 36 months beyond the term provided herein if a Change in Control (as defined in Section 3(i) hereof) shall have occurred during such term. 2. Termination of Employment. (i) Prior to a Change in Control. Employee's rights upon termination of employment prior to a Change in Control (as defined in Section 3(i) hereof) shall be governed by the Corporation 's standard employment termination policy applicable to Employee in effect at the time of termination or the Employee's Employment Agreement. (ii) After a Change in Control. (a) From and after the date of a Change in Control (as defined in Section 3(i) hereof) during the term of this Agreement, the Corporation shall not terminate Employee from employment with the Corporation except as provided in this Section 2(ii) or as a result of Employee's Disability (as defined in Section 3(iv) hereof) or death. (b) From and after the date of a Change in Control (as defined in Section 3(i) hereof) during the term of this Agreement, the Corporation shall have the right to terminate Employee from employment with the Corporation at any time during the term of this Agreement for Cause (as defined in Section 3(iii) hereof), by written notice to Employee, specifying the particulars of the conduct of Employee forming the basis for such termination. (c) From and after the date of a Change in Control (as defined in Section 3(i) hereof) during the term of this Agreement: (x) the Corporation shall have the right to terminate Employee's employment without Cause (as defined in Section 3(iii) hereof), at any time; and (y) Employee shall, upon the occurrence of such a termination by the Corporation without Cause, or upon the voluntary termination of Employee's employment by Employee for Good Reason (as defined in Section 3(ii) hereof), be entitled to receive the benefits provided in Section 4 hereof. Employee shall evidence a voluntary termination for Good Reason by written notice to the Corporation given within 60 days after the date of the occurrence of any event that Employee knows or should reasonably have known constitutes Good Reason for voluntary termination. Such notice need only identify Employee and set forth in reasonable detail the facts and circumstances claimed by Employee to constitute Good Reason. Any notice given by Employee pursuant to this Section 2 shall be effective five business days after the date it is given by Employee. 3. Definitions (i) A "Change in Control" shall mean: (a) a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or successor provision thereto, whether or not the Corporation is then subject to such reporting requirement; (b) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Corporation representing 35% or more of the combined voting power of the Corporation 's then outstanding securities; (c) the Continuing Directors (as defined in Section 3(v) hereof) cease to constitute a majority of the Corporation 's Board of Directors; provided that such change is the 2 direct or indirect result of a proxy fight and contested election or elections for positions on the Board of Directors; or (d) the majority of the Continuing Directors (as defined in Section 3(v) hereof) determine in their sole and absolute discretion that there has been a change in control of the Corporation . (ii) "Good Reason" shall mean the occurrence of any of the following events, except for the occurrence of such an event in connection with the termination or reassignment of Employee's employment by the Corporation for Cause (as defined in Section 3(iii) hereof), for Disability (as defined in Section 3(iv) hereof) or for death: (a) the assignment to Employee of employment responsibilities which are not of comparable responsibility and status as the employment responsibilities held by Employee immediately prior to a Change in Control; (b) a reduction by the Corporation in Employee's base salary as in effect immediately prior to a Change in Control; (c) an amendment or modification of the Corporation 's incentive compensation program (except as may be required by applicable law) which affects the terms or administration of the program in a manner adverse to the interest of Employee as compared to the terms and administration of such program immediately prior to a Change in Control; (d) the Corporation 's requiring Employee to be based anywhere other than within 50 miles of Employee's office location immediately prior to a Change in Control, except for requirements of temporary travel on the Corporation 's business to an extent substantially consistent with Employee's business travel obligations immediately prior to a Change in Control; (e) except to the extent otherwise required by applicable law, the failure by the Corporation to continue in effect any benefit or compensation plan, stock ownership plan, stock purchase plan, stock incentive plan, bonus plan, life insurance plan, health-and-accident plan, or disability plan in which Employee is participating immediately prior to a Change in Control (or plans providing Employee with substantially similar benefits), the taking of any action by the Corporation which would adversely affect Employee's participation in, or materially reduce Employee's benefits under, any of such plans or deprive Employee of any material fringe benefit enjoyed by Employee immediately prior to such Change in Control, or the failure by the Corporation to provide Employee with the number of paid vacation days to which Employee is entitled immediately prior to such Change in Control in accordance with the Corporation 's vacation policy as then in effect; or (f) the failure by the Corporation to obtain, as specified in Section 6(i) hereof, an assumption of the obligations of the Corporation to perform this Agreement by any successor to the Corporation . 3 (iii) "Cause" shall mean termination by the Corporation of Employee's employment based upon (a) the willful and continued failure by Employee substantially to perform Employee's duties and obligations (other than any such failure resulting from Employee's incapacity due to physical or mental illness or any such actual or anticipated failure resulting from Employee's termination for Good Reason) or (b) the willful engaging by Employee in misconduct which is materially injurious to the Corporation , monetarily or otherwise. For purposes of this Section 3(iii), no action or failure to act on Employee's part shall be considered "willful" unless done, or omitted to be done, by Employee in bad faith and without reasonable belief that such action or omission was in the best interests of the Corporation . (iv) "Disability" shall mean any physical or mental condition which would qualify Employee for a disability benefit under the Corporation 's long-term disability plan. (v) "Continuing Director" shall mean any person who is a member of the Board of Directors of the Corporation , while such person is a member of the Board of Directors, who is not an Acquiring Person (as hereinafter defined) or an Affiliate or Associate (as hereinafter defined) of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who (a) was a member of the Board of Directors on the date of this Agreement as first written above or (b) subsequently becomes a member of the Board of Directors, if such person's nomination for election or initial election to the Board of Directors is recommended or approved by a majority of the Continuing Directors. For purposes of this Section 3(v): "Acquiring Person" shall mean any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) who or which, together with all Affiliates and Associates of such person, is the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the shares of Common Stock of the Corporation then outstanding, but shall not include the Corporation , any subsidiary of the Corporation or any employee benefit plan of the Corporation or of any subsidiary of the Corporation or any entity holding shares of Common Stock organized, appointed or established for, or pursuant to the terms of, any such plan; and "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act. 4 4. Benefits upon Termination under Section 2(ii)(c) (i) Upon the termination (voluntary or involuntary) of the employment of Employee pursuant to Section 2(ii)(c) hereof, Employee shall be entitled to receive the benefits specified in this Section 4. The amounts due to Employee under subparagraph (a) of this Section 4(i) shall be paid to Employee, at Employee's election as specified in a written notice delivered by Employee to the Corporation on the date of this Agreement and which is attached hereto as Exhibit A and made a part hereof, either (a) in a lump sum not later than one business day prior to the date that the termination of Employee's employment becomes effective or (b) in 36 equal installments payable monthly, on the last business day of the month, for 36 consecutive months following the date that the termination of Employee's employment becomes effective. The amounts due to Employee under subparagraphs (b), (c) and (d) of this Section 4(i) shall be paid to Employee not later than one business day prior to the date that the termination of Employee's employment becomes effective. Subject to the provisions of Section 4(ii) hereof, all benefits to Employee pursuant to this Section 4(i) shall be subject to any applicable payroll or other taxes required by law to be withheld. (a) The Corporation shall pay as severance pay to Employee an amount equal to three times the sum of (1) Employee's highest annual rate of salary from the Corporation in effect at any time during the 36 months preceding the date that the termination of Employee's employment became effective and (2) the average of the annual bonus paid or to be paid to Employee in respect of each of the three fiscal years preceding the fiscal year when the termination of Employee's employment became effective. (b) For a period of 36 months following the date that the termination of Employee's employment became effective or until Employee reaches age 65 or dies, whichever is the shorter period, the Corporation shall continue for Employee, at the Corporation 's expense, the health, disability and life insurance coverage in effect for Employee immediately prior to the date that the termination of Employee's employment became effective under the plans provided by the Corporation for its executive personnel generally or, if such coverage cannot by the terms of such plans be provided thereunder, then the Corporation shall provide equivalent insurance coverage for Employee for such period under specially obtained policies of insurance. (c) The Corporation shall pay to Employee (1) any amount earned by Employee as a bonus with respect to the fiscal year of the Corporation preceding the termination of Employee's employment if such bonus has not theretofore been paid to Employee, and (2) an amount representing credit for any vacation earned or accrued by him but not taken. (d) The Corporation shall also pay to Employee all legal fees and expenses incurred by Employee as a result of such termination of employment (including all fees and expenses, if any, incurred by Employee in seeking to obtain or enforce any right or benefit provided to Employee by this Agreement whether by arbitration or otherwise); and 5 (e) Any and all contracts, agreements or arrangements between the Corporation and Employee prohibiting or restricting Employee from owning, operating, participating in, or providing employment or consulting services to, any business or company competitive with the Corporation at any time or during any period after the date the termination of Employee's employment becomes effective, shall be deemed terminated and of no further force or effect as of the date the termination of Employee's employment becomes effective, to the extent, but only to the extent, such contracts, agreements or arrangements so prohibit or restrict Employee; provided that the foregoing provision shall not constitute a license or right to use any proprietary information of the Corporation and shall in no way affect any such contracts, agreements or arrangements insofar as they relate to nondisclosure and nonuse of proprietary information of the Corporation notwithstanding the fact that such nondisclosure and nonuse may prohibit or restrict Employee in certain competitive activities. (ii) In the event that any payment or benefit received or to be received by Employee in connection with a Change in Control of the Corporation or termination of Employee's employment (whether payable pursuant to the terms of this Agreement or any other plan, contract, agreement or arrangement with the Corporation , with any person whose actions result in a Change in Control of the Corporation or with any person constituting a member of an "affiliated group" as defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended (the "Code"), with the Corporation or with any person whose actions result in a Change in Control of the Corporation (collectively, the "Total Payments")) would be subject to the excise tax imposed by Section 4999 of the Code or any interest, penalties or additions to tax with respect to such excise tax (such excise tax, together with any such interest, penalties or additions to tax, are collectively referred to as the "Excise Tax"), then Employee shall be entitled to receive from the Corporation an additional cash payment (a "Gross-Up Payment") within thirty business days of such determination in an amount such that after payment by Employee of all taxes (including any interest, penalties or additions to tax imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. All determinations required to be made under this Section 4(ii), including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by the independent accounting firm retained by the Corporation on the date of the Change in Control (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Corporation and Employee within 15 business days of the date that the termination of Employee's employment becomes effective, or such earlier time as is requested by the Corporation . If the Accounting Firm determines that no Excise Tax is payable by Employee, it shall furnish Employee with an opinion that Employee has substantial authority not to report any Excise Tax on Employee's federal income tax return. Any uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder shall be resolved in favor of Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that at a later time there will be a determination that the Gross-Up Payments made by the Corporation were less than the Gross-Up Payments that should have been made by the Corporation ("Underpayment"), consistent with the 6 calculations required to be made hereunder. In the event that Employee is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment, if any, that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that at a later time there will be a determination that the Gross-Up Payments made by the Corporation were more than the Gross-Up Payments that should have been made by the Corporation ("Overpayment"), consistent with the calculations required to be made hereunder. Employee agrees to refund to the Corporation the amount of any Overpayment that the Accounting Firm shall determine has occurred hereunder. Any determination by the Accounting firm as to the amount of any Gross-Up Payment, including the amount of any Underpayment or Overpayment, shall be binding upon the Corporation and Employee. (iii) Any payment not made to Employee when due hereunder shall thereafter, until paid in full, bear interest at the rate of interest equal to the reference rate announced from time to time by U.S. Bank National Association, plus two percent, with such interest to be paid to Employee upon demand or monthly in the absence of a demand. (iv) Employee shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise. The amount of any payment or benefit provided in this Section 4 shall not be reduced by any compensation earned by Employee as a result of any employment by another employer. 5. Employee's Agreements. Employee agrees that: (i) Without the consent of the Corporation , Employee will not terminate employment with the Corporation without giving 60 days prior notice to the Corporation , and during such 60-day period Employee will assist the Corporation , as and to the extent reasonably requested by the Corporation , in training the successor to Employee's position with the Corporation . The provisions of this Section 5(i) shall not apply to any termination (voluntary or involuntary) of the employment of Employee pursuant to Section 2(ii)(c) hereof. (ii) Without the consent of the Corporation or except as may be required by law, Employee will not at any time after termination of his employment with the Corporation disclose to any person, corporation, firm, or other entity, confidential information concerning the Corporation of which Employee has gained knowledge during employment with the Corporation . (iii) In the event that Employee has received any benefits from the Corporation under Section 4 of this Agreement, then, during the period of 36 months following the date that the termination of Employee's employment became effective, Employee, upon request by the Corporation: 7 (a) Will consult with one or more of the executive officers concerning the business and affairs of the Corporation for not to exceed four hours in any month at times and places selected by Employee as being convenient to him, all without compensation other than what is provided for in Section 4 of this Agreement; and (b) Will testify as a witness on behalf of the Corporation in any legal proceedings involving the Corporation which arise out of events or circumstances that occurred or existed prior to the date that the termination of Employee's employment became effective (except for any such proceedings relating to this Agreement), without compensation other than what is provided for in Section 4 of this Agreement, provided that all out-of-pocket expenses incurred by Employee in connection with serving as a witness shall be paid by the Corporation . Employee shall not required to perform Employee's obligations under this Section 5(iii) if and so long as the Corporation is in default with respect to performance of any of its obligations under this Agreement. 6. Successors and Binding Agreement. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Corporation ), by agreement in form and substance satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Employee to compensation from the Corporation in the same amount and on the same terms as Employee would be entitled hereunder if employee terminated employment after a Change in Control for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the date that the termination of Employee's employment becomes effective. As used in this Agreement, "Corporation " shall mean the Corporation and any successor to its business and/or assets which executes and delivers the agreement provided for in this Section 6(i) or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (ii) This Agreement is personal to Employee, and Employee may not assign or transfer any part of Employee's rights or duties hereunder, or any compensation due to him hereunder, to any other person. Notwithstanding the foregoing, this Agreement shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, heirs, distributees, devisees, and legatees. 7. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the Fergus Falls area, in accordance with the applicable rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 8 8. Modification; Waiver. No provisions of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in a writing signed by Employee and such officer as may be specifically designated by the Board of Directors of the Corporation . No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 9. Notice. All notices, requests, demands, and all other communications required or permitted by either party to the other party by this Agreement (including, without limitation, any notice of termination of employment and any notice of an intention to arbitrate) shall be in writing and shall be deemed to have been duly given when delivered personally or received by certified or registered mail, return receipt requested, postage prepaid, at the address of the other party, as first written above (directed to the attention of the Board of Directors and Corporate Secretary in the case of the Corporation ). Either party hereto may change its address for purposes of this Section 9 by giving 15 days' prior notice to the other party hereto. 10. Severability. If any term or provision of this Agreement or the application hereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 11. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 12. Governing Law. This Agreement has been executed and delivered in the State of Minnesota and shall, in all respects, be governed by, and construed and enforced in accordance with, the laws of the State of Minnesota, including all matters of construction, validity and performance. 13. Effect of Agreement; Entire Agreement. The Corporation and Employee understand and agree that this Agreement is intended to reflect their agreement only with respect to payments and benefits upon termination in certain cases and is not intended to create any obligation on the part of either party to continue employment. This Agreement supersedes any and all other oral or written agreements or policies made relating to the subject matter hereof and constitutes the entire agreement of the parties relating to the subject matter hereof; provided that this Agreement shall not supersede or limit in any way Employee's rights under any benefit plan, program or arrangements in accordance with their terms. 14. ERISA. For purposes of the Employee Retirement Income Security Act of 1974, this Agreement is intended to be a severance pay employee welfare benefit plan, and not an employee pension benefit plan, and shall be construed and administered with that intention. 9 IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed in its name by a duly authorized director and officer, and Employee has hereunto set his or her hand, all as of the date first written above. OTTER TAIL CORPORATION By ----------------------------------------- Its -------------------------------------- EMPLOYEE ------------------------------------------- 10 EXHIBIT A NOTICE The undersigned ("Employee") does hereby notify Otter Tail Corporation (the "Corporation ") pursuant to Section 4(i) of that certain Severance Agreement dated as of the date hereof between the Corporation and Employee (the "Agreement") that Employee has elected to be paid any amounts which become payable under Section 4(i)(a) of the Agreement as follows: (check one) ______ in a lump sum not later than one business day prior to the date that the termination of Employee's employment becomes effective. ______ in 36 equal installments payable monthly, on the last business day of the month, for 36 consecutive months following the date that the termination of Employee's employment becomes effective. Dated: ------------------------ --------------------------------------- Employee 11 -----END PRIVACY-ENHANCED MESSAGE-----