SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) (X) Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (fee required)
For the fiscal year ended December 31, 1996
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (no fee required)
For the transition period from _______to_______
Commission File Number 0-368
OTTER TAIL POWER COMPANY
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0462685
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
215 S. CASCADE ST., BOX 496, FERGUS FALLS, MN 56538-0496
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (218)739-8200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON SHARES, par value $5.00 per share
PREFERRED SHARE PURCHASE RIGHTS
CUMULATIVE PREFERRED SHARES, without par value
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
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 )
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant.
$365,961,842 as of February 28, 1997
Indicate the number of shares outstanding of each of the registrant's classes
of Common Stock, as of the latest practicable date:
11,417,647 Common Shares ($5 par value) as of February 28, 1997
Documents Incorporated by Reference:
1996 Annual Report to Shareholders - Portions incorporated by reference into
Parts I and II
Proxy Statement dated March 14, 1997 - Portions incorporated by reference
into Part III
PART I
Item 1. BUSINESS
--------
(a) General Development of Business
-------------------------------
Otter Tail Power Company (the "Company") is an operating public utility
incorporated in 1907 under the laws of the State of Minnesota. The Company's
principal executive office is located at 215 South Cascade Street, Box 496,
Fergus Falls, Minnesota 56538-0496; its telephone number is (218)739-8200.
The Company's primary business is the production, transmission,
distribution and sale of electric energy. The Company, through its
subsidiaries, is also engaged in other businesses which are referred to as
Health Services, Manufacturing and Other Business Operations. Health Services
Operations consists of certain businesses acquired beginning in 1993, that
sell, service, lease and operate diagnostic medical imaging equipment and
associated supplies and accessories. Manufacturing Operations includes
businesses acquired beginning in 1990 in such areas as metal parts stamping
and fabrication, agricultural equipment, and plastic pipe extrusion. Other
Business Operations include businesses involved in such areas as electrical
and telephone construction contracting, radio broadcasting, waste
incinerating, and telephone/cable TV utility.
The Company continues to investigate acquisitions of additional
non-electric businesses and expects continued growth in this area. In
February 1996, the Company's subsidiary, Mid-States Development, Inc.
("Mid-States"), acquired a Montana-based supplier of X-ray supplies and
accessories. In April 1996, Mid-States acquired a mobile medical diagnostic
services company located in Bemidji, Minnesota. In 1996, Mid-States also
acquired four radio stations in the Fargo, North Dakota/Moorhead, Minnesota,
market. The Company's telecommunications subsidiary, North Central
Utilities, Inc. ("NCU"), acquired two small cable TV systems in 1996 that
serve the communities of Milbank, South Dakota, and Carlos, Minnesota. The
total acquisition price for all these businesses was $11,060,000.
On January 2, 1997, NCU acquired The Peoples Telephone Co. of Bigfork
("Peoples") to be accounted for under the pooling-of-interests method.
Peoples, with 1,903 access lines serving five communities in Northern
Minnesota, had 1996 revenues of $1.6 million.
For a discussion of the Company's results of operations, see
"Management's discussion and analysis of financial condition and results of
operations," which is incorporated by reference to pages 25 through 32 of the
Company's 1996 Annual Report to Shareholders, filed as an Exhibit hereto.
(b) Financial Information About Industry Segments
---------------------------------------------
The Company and its subsidiaries are engaged in businesses that have
been classified into four segments: Electric, Health Services, Manufacturing,
and Other Business Operations. Financial information about the Company's
industry segments is incorporated by reference to note 2 of "Notes to
consolidated financial statements" on page 41 of the Company's 1996 Annual
Report to Shareholders, filed as an Exhibit hereto.
(c) Narrative Description of Business
---------------------------------
ELECTRIC OPERATIONS
-------------------
General
- -------
The Company derived 55% of its consolidated operating revenues from the
electric segment during 1996; 62% during 1995; and 69% during 1994. During
1996 the Company derived approximately 53.0% of its electric revenues from
Minnesota, 39.3% from North Dakota, and 7.7% from South Dakota.
The territory served by the Company is predominantly agricultural,
including a part of the Red River Valley. Although there are relatively few
large customers, sales to commercial and industrial customers are significant.
By customer category, 35.5% of 1996 electric revenue was derived from
commercial customers, 33.5% from residential customers, 18.8% from industrial
customers, and 12.2% from other sources, including municipalities, farms and
power pools.
No customer accounted for more than 10% of electric revenues in 1996.
Power pool sales to other utilities, which accounted for 15.3% of total 1996
kwh sales, decreased from 25.3% in 1995. Activity in short-term energy sales
is subject to change based on a number of factors and the Company is unable to
predict the 1997 level of activity. The Company's other sales of electricity
for resale are insignificant.
The aggregate population of the Company's retail service area is
approximately 230,000. In this service area of 423 communities and adjacent
rural areas and farms, approximately 123,600 people lived in communities
having a population of more than 1,000, according to the 1990 census. The
only communities served which have a population in excess of 10,000 are
Jamestown, North Dakota (15,571); Fergus Falls, Minnesota (12,362); and
Bemidji, Minnesota (11,245). Since 1990 when the customer count was at a low
of 121,277, the Company has experienced an increase in customers. By year end
1996 total customers had increased to 124,782. During 1996, the Company
experienced a net increase of 711 customers, with the majority of growth in
residential and commercial customers.
Competition
- -----------
The Company's electric sales are subject to competition in some areas
from municipally owned systems, rural cooperatives and, in certain respects,
from on-site generators and cogenerators. The Company's electricity also
competes with other forms of energy. The degree of competition may vary from
time to time depending on relative costs and supplies of other forms of
energy. The Company may also face competition as the restructuring of the
electric industry evolves. Proposals that are being considered by various
states and at the federal level, along with the National Energy Policy Act of
1992 ("NEPA"), are expected to bring more competition into the electric
business. The NEPA reduces restrictions on operation and ownership of
independent power producers ("IPPs"). It also allows IPPs and other wholesale
suppliers and purchasers increased access to transmission lines. The NEPA
prohibits retail wheeling ordered by the Federal Energy Regulatory Commission,
but it does not address the states' authority to order retail wheeling.
In 1996 the Federal Energy Regulatory Commission ("FERC") issued two
closely related final rules and a Notice of Proposed Rulemaking ("NOPR").
Order No. 888 opened wholesale power sales to competition by requiring public
utilities who own, control, or operate transmission lines, to file
nondiscriminatory proforma open access tariffs that offer others the same
transmission service they provide themselves. Order 889 requires utilities to
obtain information about their transmission system for their own wholesale
power transactions, such as capacity availability, by the same means as their
competitors would--via an Open Access Same-time Information System ("OASIS"),
as well as separate the wholesale marketing and transmission operation
functions. The NOPR proposes that each public utility will replace the Open
Access rule proforma tariff with a capacity reservation tariff by December 31,
1997. As of year-end 1996, the company had taken the necessary steps to
comply with these orders.
The Company is taking a number of steps to position itself for success
in a competitive marketplace. It has initiated the process of functionally
unbundling its generation, transmission, distribution and energy services
operations by setting up distinct separate business units in each of these
areas. The Company is developing the necessary accounting systems to capture
costs and determine the profitability of each of these units and to identify
areas for improvement and opportunities for increased profitability. The
Company is establishing an energy services business unit to promote the energy
related products and services that have always been offered to its customers
and to develop new products and services to be offered to current and
potential customers in order to distinguish itself from the competition.
As the electric industry evolves, the Company may also have
opportunities to increase its market share. The Company's generation capacity
appears well positioned for competition due to unit heat rate improvements and
reductions in fuel and freight costs. A comparison of the Company's electric
retail rates to the rates of other investor-owned utilities, cooperatives, and
municipals in the states the Company serves indicates that the Company's rates
are competitive. In addition, the Company would attempt more flexible pricing
strategies under an open, competitive environment.
Capability and Demand
- ---------------------
At December 31, 1996, the Company had base load net plant capability
totaling 552,134 kw, consisting of 241,256 kw from the Big Stone Plant (the
Company's 53.9% share), 156,203 kw from the Hoot Lake Plant, 149,450 kw from
the Coyote Plant (the Company's 35% share), and under contract 5,225 kw from
the Potlatch Co-generation Plant near Bemidji, Minnesota. In addition to its
base load capability, the Company has combustion turbine and small diesel
units, used chiefly for peaking and standby purposes, with a total capability
of 91,123 kw, and 4,353 kw of hydroelectric capability. During 1996, the
Company generated about 61% of its total kwh sales and purchased the balance.
The Company has made arrangements to help meet its future base load
requirements, and continues to investigate other means for meeting such
requirements. The Company has an exchange agreement with another utility for
the annual exchange of 75,000 kw of seasonal diversity capacity which runs
through 2004. In addition, for the 1996-1997 winter season, the Company has
50,000 kw capacity available for purchase from other utilities. The Company
also has agreements to purchase 60,000 kw of capacity for the summers of 1997-
1999 and 50,000 kw of year-round capacity for the May 1, 1997 through April 30,
2005 period. The Company also has a direct control load management system
which provides some flexibility to the Company to effect reductions of peak
load.
The Company is a member of the Mid-Continent Area Power Pool ("MAPP").
On November 1, 1996, the MAPP Agreement expired and was replaced by the MAPP
Restated Agreement which resulted in a new organization. A Regional
Transmission Group ("RTG") and power and energy market functions were added.
RTGs, as proposed by the FERC, coordinate planning of transmission grids on
regional levels. Through its Restated Agreement, MAPP opened its membership to
organizations outside the Upper Midwest boundaries first established in 1972.
The objective of MAPP is to coordinate planning and operation of generating and
interconnecting transmission facilities to provide reliable and economic
electric service to members' customers. Customers served by MAPP members may,
therefore, benefit from the regional high voltage interconnections which are
capable of transferring large blocks of energy between systems. Also, high
voltage interconnections permit companies to engage in power transactions with
each other.
The Company traditionally experiences its peak system demand during the
winter season. For the calendar year 1996, the Company established a new
system peak demand of 614,961 kw on February 1, 1996. The highest previous
sixty-minute peak demand was 594,350 kw on December 11, 1995. Taking into
account additional capacity available to it in February 1996 under power
purchase contracts (including short-term arrangements), as well as its own
generating capacity, the Company's capability of then meeting system demand,
including reserve requirements computed in accordance with accepted industry
practice, amounted to 723,875 kw. In 1997 the Company expects moderate growth
in peak demand as compared to 1996. The Company's additional capacity
available under power purchase contracts (as described above), combined with
the Company's generating capability and load management control capabilities,
is expected to meet 1997 system demand, including industry reserve
requirements.
Fuel Supply
- -----------
Coal is the principal fuel burned by the Company at its Big Stone,
Coyote, and Hoot Lake generating plants. Hoot Lake has burned primarily
western subbituminous coal since 1988, and Big Stone switched from North Dakota
lignite to western subbituminous coal in August of 1995. The following table
shows for 1996 the sources of energy used to generate the Company's net output
of electricity:
Net Kilowatt % of Total
Hours Kilowatt
Generated Hours
Sources (Thousands) Generated
------- ------------ ----------
Lignite Coal . . . . . . . . . . . . . 1,630,601 61.9%
Subbituminous Coal . . . . . . . . . . 981,841 37.3
Hydro . . . . . . . . . . . . . . . . . 21,890 .8
Oil . . . . . . . . . . . . . . . . . . 1,073 -
--------- -----
Total . . . . . . . . . . . . . . . . . 2,635,405 100.0%
========= =====
The Company has a coal supply agreement with Westmoreland Resources, Inc.
of Billings, Montana, for supply of subbituminous coal to Big Stone Plant from
mid-1995 through 1999. The coal comes from the Absaloka Mine near Hardin,
Montana. The Company replaced the Big Stone Plant's coal stockpile in 1995
with subbituminous coal from Kennecott Energy's Spring Creek Mine. The Company
has purchase agreements for fixed quantities of subbituminous coal with
Kennecott Energy as needed for Hoot Lake Plant. The lignite coal contract with
Knife River Coal Mining Company for the Coyote Plant expires in 2016, with a
15-year renewal option subject to certain contingencies, and is expected to
provide the plant's lignite coal requirements during the term of the contract.
Knife River Coal Mining Company is an affiliate of Montana-Dakota Utilities
Co., which is a co-owner of the Big Stone and Coyote Plants.
In September 1996 three of the four co-owners of the Coyote generating
plant filed a Demand and Notice of Arbitration complaint against Knife River
Coal Mining Company and MDU Resources Group, Inc. The three co-owners contend
that the 14-year-old pricing mechanism outlined in the original coal supply
contract has been abandoned by all parties over the past 7 years and no longer
results in fair, equitable, and competitive prices for the lignite coal used to
generate electricity at the plant.
It is the Company's practice to maintain minimum 30-day inventories (at
full output) of coal at Big Stone, a 20-day inventory at Coyote Plant, and a
10-day inventory at Hoot Lake Plant.
In November 1996, Big Stone Plant put new aluminum coal cars, leased by
the three plant owners, into service transporting coal to the plant. The steel
coal cars owned by the plant's joint owners were sold in September 1996. The
Company has a coal transportation agreement with Burlington Northern Railroad
for transportation services to the Big Stone Plant. This contract began in
1995 and runs through 1999. The new coal cars and new coal and freight
agreements result in lower delivered coal prices at the Big Stone Plant being
returned to the Company's retail customers through the Cost of Energy
Adjustment clause.
The Company has a subbituminous coal transportation agreement with
Northern Coal Transportation Company, effective January 1993, covering coal
moved from Kennecott Energy's Spring Creek mine to Hoot Lake Plant. That
agreement was renewed in January 1996 for an additional three years.
Coyote Plant is a mine-mouth plant located in western North Dakota.
There are no coal transportation costs, giving Coyote Plant the lowest
delivered fuel costs on a per tonnage basis as compared to other Company units.
North Dakota imposes a severance tax on lignite at a flat rate of $.75
per ton, plus an additional $.02 per ton which is deposited in a lignite
research fund. The lignite coal used by the Company at its plants is surface
mined. The North Dakota laws relating to surface mining and the Federal
Surface Mining Control and Reclamation Act will continue to adversely affect
the price of lignite to the Company. Any changes in fuel costs result in
adjustments to retail rates through the provisions in the Company's rate
schedules.
The average cost of coal consumed (including handling charges to the
plant sites) per million BTU for each of the three years 1996, 1995, and 1994,
was $.944, $.969, and $1.003, respectively.
The Company is permitted by the State of South Dakota to burn some
alternative fuels, including tire and refuse derived fuel, at its Big Stone
Plant. The quantity of alternative fuel burned during 1996, 3.0% of total fuel
burned at Big Stone Plant, and expected to be burned in 1997, is insignificant
when compared to the total annual coal consumption at Big Stone Plant.
General Regulation
- ------------------
The Company is subject to electric rate regulation as follows:
Year Ended
December 31, 1996
---------------------
% of
Electric % of kwh
Rates Regulation Revenues Sales
----- ---------- -------- --------
MN retail sales MN Public Utilities
Commission 48.6% 45.2%
ND retail sales ND Public Service
Commission 38.3 32.7
SD retail sales SD Public Utilities
Commission 7.6 6.5
Transmission & sales FERC
for resale 5.5 15.6
----- -----
100.0% 100.0%
===== =====
The following table summarizes the electric rate proceedings with the
Minnesota and the South Dakota Public Utilities Commissions, the North Dakota
Public Service Commission, and the Federal Energy Regulatory Commission since
January 1, 1992:
Increase (Decrease)
Granted
-------------------
Commission Date Amount %
- ---------- ---- ---------- ------
(Thousands)
Minnesota Last Proceeding was July 1, 1987
North Dakota (1)September 9, 1992 ($1,000) (1.5%)
(2)September 22, 1993 ($ 449) (0.6%)
South Dakota Last Proceeding was November 1, 1987
FERC Last Proceeding was July 1, 1987
(1) A voluntary settlement agreement reached between the Company and the
North Dakota Commission pursuant to which the Company made a refund of
$1,000,000 to its North Dakota customers. This settlement does not
require a permanent reduction in rates charged by the Company to
customers in North Dakota.
(2) An agreement for incentive regulation reached between the Company and the
North Dakota Commission provided for sharing equally between ratepayers
and shareholders any amount earned in 1993 over or under a benchmark
overall rate of return. A liability of $449,000 resulting from sharing
earnings above this benchmark for 1993 was returned to customers in 1994.
In 1994 the Company filed a petition with the Minnesota Public Utilities
Commission for approval of an annual recovery mechanism for demand-side
management related costs, under Minnesota's Conservation Improvement Programs.
An intervenor, on behalf of the Large General Service Group, filed comments
against the petition and requested the Commission to order a general rate case
to review the Company's earnings levels. In the interest of rate stability the
Company reached an agreement, which was approved by the Commission, resulting
in costs of approximately $2,200,000 each year for three years which must be
absorbed in current rates starting in 1995.
Under Minnesota law, the Minnesota Commission must allow implementation
of an interim rate increase, subject to refund with interest, 60 days after the
initial filing date of a rate increase request, except that the Commission is
not required to allow implementation of the interim rate increase until four
months after the effective date of a previous rate order. The amount of the
interim rate increase will be calculated using the proposed test year cost of
capital, the rate of return on common equity most recently granted to the
Company by the Commission, and rate base and expense items allowed by a
currently effective Commission order. In addition, if the Commission fails to
make a final determination regarding any rate request within ten months after
the initial request is filed, then the requested rate is deemed to be approved,
except if (I) an extension of the procedural schedule (in case of a contested
rate increase request) has been granted, in which case the schedule of rates
will be deemed to have been approved by the Commission on the last day of the
extended period of suspension of the rate increase, or (ii) a settlement has
been submitted to and rejected by the Commission, and the Commission does not
make a final determination concerning the schedule of rates, in which case the
schedule of rates will be deemed to have been approved 60 days after the
initial or, if applicable, the extended period of suspension of the rate
increase.
Rate requests filed with the North Dakota Public Service Commission
become effective 30 days after the date of filing unless suspended by the
Commission. Within seven months after the date of suspension, the North Dakota
Commission must act on the request, and during the period of consideration by
the Commission a suspended rate can be implemented only with the approval of
the Commission.
South Dakota law provides that a requested rate increase can be
implemented 30 days after the date of filing, unless its effectiveness is
suspended by the South Dakota Public Utilities Commission. The Commission may
suspend the effectiveness of the proposed rate change for a period not longer
than 90 days beyond the time when the rate change would otherwise go into
effect, unless the Commission finds that a longer time is required, in which
case the Commission may extend the suspension for a period not to exceed a
total of 12 months. A public utility may not put a proposed rate change into
effect until at least 45 days after the Commission has made a determination
concerning any previously filed rate change. In the event that a requested
rate change is suspended by the Commission, such requested rate change can be
implemented by the public utility six months after the date of filing (unless
previously authorized by the Commission), subject to refund with interest.
The Company's wholesale power sales and transmission rates are subject to
the jurisdiction of the Federal Energy Regulatory Commission under the Federal
Power Act of 1935. Filed rates are effective after a one-day suspension
period, subject to ultimate approval by the FERC. Power pool sales are
conducted continuously through the Mid-Continent Area Power Pool ("MAPP") on
the basis of generating costs, in accordance with schedules filed by MAPP with
the FERC.
In rate cases, a forward test year procedure enables cost increases to be
recovered more promptly than use of an historic test year. The Minnesota
Public Utilities Commission has established by regulation a forward test year
procedure. North Dakota law allows a forward test year. The South Dakota
Public Utilities Commission uses an historic test year with adjustments for
known and measurable changes occurring within 24 months of the last month of
the test year.
The Company has obtained approval from the regulatory commissions in all
three states which it serves for lower rates for residential demand control and
controlled service, and in North Dakota and South Dakota for bulk interruptible
rates. Each of these special rates is designed to improve efficient use of
Company facilities, while encouraging use of electricity instead of other fuels
and giving customers more control over the size of their electric bill.
All of the Company's electric rate schedules now in effect, except for
wheeling, certain municipal and area lighting services and certain
interruptible rates, provide for adjustments in rates based upon the cost of
fuel delivered to the Company's generating plants, as well as for adjustments
based upon the cost of the energy charge for electric power purchased by the
Company. Such adjustments are presently based upon a two-month moving average
in Minnesota and under the FERC, a three-month moving average in South Dakota,
and a four-month moving average in North Dakota and are applied to the next
billing after becoming applicable.
Under the Minnesota Public Utilities Act, the Company is subject to the
jurisdiction of the Minnesota Public Utilities Commission ("MPUC") with respect
to rates, issuance of securities, depreciation rates, public utility services,
construction of major utility facilities, establishment of exclusive assigned
service areas, contracts and arrangements with subsidiaries and other
affiliated interests, and other matters. The MPUC has the authority to assess
the need for large energy facilities and to issue or deny certificates of need,
after public hearings, within six months of an application to construct such a
facility.
The Minnesota Department of Public Service ("DPS") is responsible for
investigating all matters subject to the jurisdiction of the DPS or the MPUC,
and for the enforcement of MPUC orders. Among other things, the DPS is
authorized to collect and analyze data on energy and the consumption of energy,
develop recommendations as to energy policies for the Governor and the
Legislature of Minnesota and evaluate policies governing the establishment of
rates and prices for energy as related to energy conservation. The DPS acts as
a state advocate in matters heard before the MPUC. The DPS also has the power
to prepare and adopt regulations to conserve and allocate energy in the event
of energy shortages and on a long-term basis.
Under Minnesota law, every public utility that furnishes electric service
must make annual investments and expenditures in energy conservation
improvements, or make a contribution to the State's energy and conservation
account, in an amount equal to at least 1.5% of its gross operating revenues
from service provided in Minnesota. The DPS may require the Company to make
investments and expenditures in energy conservation improvements whenever it
finds that the improvement will result in energy savings at a total cost to the
utility less than the cost to the utility to produce or purchase an equivalent
amount of a new supply of energy. Such DPS orders are appealable to the MPUC.
Investments made pursuant to such orders generally are recoverable costs in
rate cases, even though ownership of the improvement may belong to the property
owner rather than the utility. In 1995 the MPUC approved an automatic recovery
mechanism which allows the Company to begin collecting from customers any
conservation-related expenditures not included in base rates.
The MPUC requires the submission of a 15-year advance integrated resource
plan by jurisdictional utilities. The most recent plan was submitted to the
MPUC in 1996. The Company is presently awaiting a decision on that plan. The
Minnesota legislature has enacted a statute that favors conservation over the
addition of new resources. In addition, it has mandated the use of renewable
resources where new supplies are needed, unless the utility proves that a
renewable energy facility is not in the public interest. It has effectively
prohibited the building of new nuclear facilities. The environmental
externality law requires the MPUC, to the extent practicable, to quantify the
environmental costs of each type of generation, and to use such monetized
values in evaluating resource plans. The MPUC must disallow any nonrenewable
rate base additions (whether within or without the state) or any rate recovery
therefrom, and shall not approve any nonrenewable energy facility in an
integrated resource plan, unless the utility proves that a renewable energy
facility is not in the public interest. The state has prioritized the
acceptability of new generation with wind and solar ranked first and coal and
nuclear ranked fifth, the lowest ranking. Whether these state policies are
preempted by federal law has not been determined.
Pursuant to the Minnesota Power Plant Siting Act, the Minnesota
Environmental Quality Board ("EQB") has been granted the authority to regulate
the siting in Minnesota of large electric power generating facilities in an
orderly manner compatible with environmental preservation and the efficient use
of resources. To that end, the EQB is empowered, after study, evaluation, and
hearings, to select or designate in Minnesota sites for new electric power
generating plants (50,000 kw or more) and routes for transmission lines (200 kv
or more) and to certify such sites and routes as to environmental
compatibility.
The Company is subject to the jurisdiction of the Public Service
Commission of North Dakota with respect to rates, services, certain issuances
of securities and other matters. The North Dakota Energy Conversion and
Transmission Facility Siting Act grants the North Dakota Commission the
authority to approve sites in North Dakota for large electric generating
facilities and high voltage transmission lines. This Act is similar to the
Minnesota Power Plant Siting Act described above and affects new electric power
generating plants of 50,000 kw or more and new transmission lines of more than
115 kv. The Company is required to submit a ten-year plan to the North Dakota
Commission annually.
The South Dakota Public Utilities Act subjects the Company to the
jurisdiction of the South Dakota Public Utilities Commission with respect to
rates, public utility services, establishment of assigned service areas, and
other matters. The Company is currently exempt from the jurisdiction of the
Commission with respect to the issuance of securities. Under the South Dakota
Energy Facility Permit Act, the South Dakota Commission has the authority to
approve sites in South Dakota for large energy conversion facilities (100,000
kw or more) and transmission lines of 115 kv or more.
The state utility commissions in Minnesota and North Dakota are currently
investigating the impact of electric utility industry restructuring and the
prospects for reregulation and retail competition in their respective
jurisdictions. To date, the MPUC and the NDPSC have issued no new policies or
rulemakings regarding this issue. The South Dakota PUC has not taken any
action with regards to industry restructuring or retail competition.
The Company is also subject to regulation by the Federal Energy
Regulatory Commission, successor to the Federal Power Commission, created
pursuant to the Federal Power Act of 1935, as amended. The FERC is an
independent agency which has jurisdiction over rates for sales for resale,
transmission and sale of electric energy in interstate commerce,
interconnection of facilities, and accounting policies and practices.
The Company is subject to various federal and state laws, including the
Federal Public Utility Regulatory Policies Act and the Energy Policy Act of
1992, which are intended to promote the conservation of energy and the
development and use of alternative energy sources.
The Company is unable to predict the impact on its operations resulting
from future regulatory activities by any of the above agencies, from any
future legislation or from any future tax which may be imposed upon the source
or use of energy.
Environmental Regulation
- ------------------------
Impact of Environmental Laws: The Company's existing generating plants
are subject to stringent standards and regulations regarding, among other
things, air, water and solid waste pollution, by agencies of the federal
government and the respective states where the Company's plants are located.
The Company estimates that it has expended in the five years ended December
31, 1996, approximately $3,059,000 for environmental control facilities
(excluding allowance for funds used during construction). Included in the
1997-2001 construction budget are approximately $3,079,000 for environmental
improvements for existing and new facilities, including $504,000 for 1997.
Air Quality: Pursuant to the Federal Clean Air Act of 1970, the Clean
Air Act Amendments of 1990 and other amendments thereto (collectively the
"Act"), the United States Environmental Protection Agency ("EPA") has
promulgated national primary and secondary standards for certain air
pollutants.
All primary fuel burned by the Company at its steam generating plants is
North Dakota lignite or western subbituminous coal with sulfur content
averaging less than one percent. Electrostatic precipitators have been
installed at the Company's principal units at the Hoot Lake Plant and at the
Big Stone Plant. A fabric filter to collect particulates from stack gases has
been installed on a smaller unit at Hoot Lake Plant. As a result, the
Company's units at Big Stone and Hoot Lake currently meet all federal and
state air quality and emission standards presently applicable.
The Coyote Plant is substantially the same design as the Big Stone
Plant, except for site-related items and the inclusion of sulfur dioxide
removal equipment. The removal equipment--referred to as a dry scrubber--
consists of a spray dryer, followed by a fabric filter, and is designed to
desulphurize hot gases from the stack without producing sludge, an unwanted
by-product of the conventional wet scrubber system. The Coyote Plant is
currently operating within all presently applicable federal and state air
quality and emission standards.
The Clean Air Act Amendments of 1990, in addressing acid deposition,
will impose new requirements on power plants in an effort to reduce national
emissions of sulfur dioxide ("SO2") and nitrogen oxide ("NOx").
The national SO2 emission reduction goals are to be achieved through a
new market-based system under which power plants are to be allocated
"emissions allowances" that will require plants to either reduce their
emissions or acquire allowances from others to achieve compliance. The SO2
emission reduction requirements will be imposed in two phases, the first phase
in 1995 and the second phase in 2000.
The phase one requirements do not apply to any of the Company's plants.
The phase two standards apply to the Company's plants in the year 2000. The
Company believes that its current use of low sulfur coal at the Hoot Lake
Plant and the dry scrubbers installed at the Coyote Plant will enable the
facilities to comply with anticipated phase two limitations with regards to
SO2. The Company has a new subbituminous coal contract for Big Stone Plant
which runs through December 1999. The subbituminous coal replaced lignite,
which had been used since inception of plant operation in 1975 as the primary
fuel. The Company intends that the Big Stone Plant will maintain current
levels of operation and meet phase two requirements by burning low sulfur
subbituminous coal. The cost of subbituminous coal in 2000 and beyond may be
higher than the current market price but would likely not adversely affect the
Company's power plant operations.
The national NOx emission reduction goals are to be achieved by imposing
mandatory emissions standards on individual sources. The NOx emissions
regulations that were issued by the EPA in 1995 apply to phase one boilers of
the same design as those used at the Company's Hoot Lake Plant units 2 and 3.
The Act allowed EPA to either retain the standard as it currently applies to
phase one boilers or adopt more stringent standards for such phase two boilers
by January 1, 1997. More stringent standards were adopted on December 19,
1996. The Company had the option to either comply with the phase one
standards beginning on January 1, 1997, under EPA's early opt-in provision, or
comply with any revised standard for phase two units. The Company elected the
early opt-in provision for Hoot Lake Plant unit 2. The unit is governed by
the phase one standard until January 1, 2008. The Company has not elected the
early opt-in provision for Hoot Lake Plant unit 3. The Company currently
anticipates that the cost of complying with the limitations applicable to Hoot
Lake Plant unit 3 will not be material.
On December 19, 1996, the EPA also adopted NOx emissions regulations
that would be applicable to cyclone-fired boilers such as those used at Big
Stone and Coyote. The regulations require that the emission standard be met
by cyclone boilers beginning on January 1, 2000. The Utility Air Regulatory
Group ("UARG") has filed a Petition for Review in the Court of Appeals for the
District of Columbia. As a member of UARG, the Company is participating in
the Petition. The Company is currently evaluating the Big Stone and Coyote
NOx emissions with respect to the December 19, 1996 rules. Existing emissions
monitoring data indicates that Coyote meets the emission requirements. At Big
Stone, emissions are currently above the required level. During 1997, the
Company will be conducting tests at Big Stone to determine if emissions can be
reduced through modifications to existing equipment. Future modifications may
be required at an undetermined cost, since compliance costs will depend on the
regulations that are ultimately adopted and the cost of available
technologies.
The Clean Air Act Amendments of 1990 contain a list of toxic air
pollutants to be regulated. The list includes certain substances believed to
be emitted by the Company's plants. The Act calls for EPA studies of the
effects of emissions of the listed pollutants by electric utility steam
generating plants. Because promulgation of rules by the EPA has not been
completed, it is not possible to assess at this time whether, or to what
extent, this legislation will ultimately impact the Company.
Water Quality: The Federal Water Pollution Control Act Amendments of
1972, and amendments thereto, provide for, among other things, the imposition
of effluent limitations to regulate discharges of pollutants, including
thermal discharges, into the waters of the United States, and the EPA has
established effluent guidelines for the steam electric power generating
industry. Discharges must also comply with state water quality standards.
The Company has all federal and state water permits presently necessary
for the operation of its Big Stone Plant. A water discharge permit for the
Hoot Lake Plant was renewed in 1992 for a five-year term. A permit for the
Coyote Plant was renewed in 1993 also for a five-year term. The Company owns
five small dams on the Otter Tail River which are subject to FERC licensing
requirements. A license for all five dams was issued on December 5, 1991.
Total nameplate rating of the five dams is 3,450 kw (net unit capability of
3,493 kw at December 31, 1996).
Solid Waste: Permits for disposal of ash and other solid wastes have
been issued for the Company's Big Stone and Coyote Plants. A renewal permit
is pending for the Company's Hoot Lake Plant and the Company anticipates that
it will obtain this renewal in due course. The EPA has promulgated various
solid and hazardous waste regulations and guidelines pursuant to, among other
laws, the Resource Conservation and Recovery Act of 1976, the Solid Waste
Disposal Act Amendments of 1980, and the Hazardous and Solid Waste Amendments
of 1984, which provide for, among other things, the comprehensive control of
various solid and hazardous wastes from their generation to final disposal.
The states of Minnesota, North Dakota and South Dakota have also adopted rules
and regulations pertaining to solid and hazardous waste. The total impact on
the Company of the various solid and hazardous waste statutes and regulations
enacted by the Federal Government or the states of Minnesota, North Dakota and
South Dakota is not certain at this time. To date the Company has incurred no
significant costs as a result of these laws.
In 1980 the United States enacted the Comprehensive Environmental
Response, Compensation and Liability Act, commonly known as the Federal
Superfund law, and in 1986 reauthorized and amended the 1980 Act. In 1983
Minnesota adopted the Minnesota Environmental Response and Liability Act,
commonly known as the Minnesota Superfund law. In 1988 South Dakota enacted
the Regulated Substance Discharges Act, commonly called the South Dakota
Superfund law. In 1989 North Dakota enacted the Environmental Emergency Cost
Recovery Act. Among other requirements the federal and state acts establish
environmental response funds to pay for remedial actions associated with the
release or threatened release of certain regulated substances into the
environment. These federal and state Superfund laws also establish liability
for cleanup costs and damage to the environment resulting from such release or
threatened release of regulated substances. The Minnesota Superfund law also
creates liability for personal injury and economic loss under certain
circumstances. The Company is unable to determine the total impact of the
Superfund laws on its operations at this time but has not incurred any
significant costs to date related to these laws.
The Federal Toxic Substances Control Act of 1976 regulates, among other
things, polychlorinated byphenyls ("PCBs"). The EPA has enacted regulations
concerning the use, storage and disposal of PCBs. The Company completed a
program for removal of all PCB-filled transformers and capacitors by the end
of 1987 and received Certificates of Disposal in 1989. The Company completed
removal of PCB-contaminated mineral oil dielectric fluid from all substation
transformers in 1991 and continues to remove such oil from voltage regulators
as well as other electrical equipment.
Health Effects of Electric and Magnetic Fields ("EMF"): In 1996 the
National Research Council of the National Academy of Sciences, after
evaluating more than 500 studies on the effects of EMF, found insufficient
evidence to consider electric and magnetic fields a threat to human health.
Although research conducted to date has found no conclusive evidence that
electric and magnetic fields affect health, a few studies have suggested a
possible connection with cancer. The utility industry continues to fund
studies. The ultimate impact, if any, of this issue on the Company and the
utility industry is impossible to predict.
Capital Expenditures
- --------------------
The Company is continually expanding, replacing and improving its
electric utility facilities. During 1996 the Company invested approximately
$36,221,000 (including allowance for funds used during construction) for
additions to its electric utility properties. During the five years ended
December 31, 1996, the Company had gross electric property additions,
including construction work in progress, of approximately $135,666,000 and
gross retirements of approximately $36,859,000.
The Company estimates that during the five years 1997 through 2001 it
will invest for electric utility construction approximately $127,000,000
(including allowance for funds used during construction). The Company
continuously reviews options for increasing its generating capacity, but at
this time has no firm plans for additional base load generating plant
construction. The majority of electric utility expenditures for the five-year
period 1997 through 2001 will be for work related to the Company's
transmission and distribution system.
Franchises
- ----------
At December 31, 1996, the Company had franchises in all of the 371
incorporated municipalities which it serves. All franchises are nonexclusive
and generally were obtained for 20-year terms, with varying expiration dates.
No franchises are required to serve unincorporated communities in any of the
three states which the Company serves.
HEALTH SERVICES OPERATIONS
--------------------------
General
- -------
Health Services Operations consists of businesses acquired beginning in
1993 involved in the sale, service, rental, refurbishing and operation of
medical imaging equipment and the sale of related supplies and accessories to
various medical institutions primarily in the Midwest United States. Two
mobile diagnostic medical services companies were acquired in 1996.. The
Company derived 17% of its consolidated operating revenues from this segment
in 1996, 16% in 1995, and 16% in 1994.
Subsidiaries comprising Health Services Operations include the
following:
Diagnostic Medical Systems, Inc. ("DMS"), located in Fargo, ND, sells,
services and refurbishes diagnostic medical imaging equipment
manufactured primarily by Philips Medical Systems ("Philips"), including
fluoroscopic, radiographic and mammography equipment, along with
ultrasound, computerized tomography ("CT") scanners, magnetic resonance
imaging ("MRI") scanners, cardiac cath labs, and radiation therapy
equipment for the treatment of cancer. DMS subsidiaries are DMS
Leasing, Inc. and Radiographic Supply, Inc. In 1994 DMS entered into a
five-year dealer agreement with Philips, which can be terminated by
Philips upon eighteen months' notice and certain other circumstances.
DMS is also a supplier for Kodak, DuPont, and Fuji in the medical film
and accessory business. DMS markets mainly to hospitals, clinics and
mobile service companies in North Dakota, South Dakota, Minnesota,
Montana and Wyoming. Almost 80% of the hospitals served by DMS have 50
or fewer beds. DMS also offers, through its subsidiaries, mobile CT and
MRI service in the Upper Midwest and Central United States.
DMS Imaging, Inc., a subsidiary of DMS located in Fargo, ND and Bemidji
MN, provides mobile diagnostic medical services, including use of
diagnostic nuclear medicine, diagnostic ultrasound, diagnostic
mammography, computerized axial tomography, and magnetic resonance
imaging, and is a distributor of x-ray supplies and accessories to
health care facilities throughout the Midwest and Pacific Northwest.
Northern Medical Imaging, Inc., acquired in April 1996 and Imaging Plus,
Inc. were combined in 1996 to form DMS Imaging, Inc.
Combined, the Health Service subsidiaries cover the three basics of the
medical imaging industry: (1) operating technologists who do the imaging of
patients of hospitals and clinics; (2) the equipment function that sells,
owns, rents, refurbishes and maintains the imaging machines; and (3) central
office specialists who provide scheduling, billing and administrative support.
Competition
- -----------
The market for selling, servicing and operating diagnostic imaging
services and imaging systems is highly competitive. In addition to direct
competition from other contract providers, the Company competes with free-
standing imaging centers and health care providers that have their own
diagnostic imaging systems and with equipment manufacturers that sell imaging
equipment to health care providers for full-time installation. Some of the
Company's direct competitors which provide contract MRI services have access
to greater financial resources than the Company. In addition, some of the
Company's customers are capable of providing the same services to their
patients directly, subject only to their decision to acquire a high-cost
diagnostic imaging system, assume the financial risk, and employ the necessary
technologies. The Company competes against other contract providers on the
basis of quality of services, quality and magnetic field strength of imaging
systems, price, availability and reliability.
Capital Expenditures
- --------------------
During 1996 capital expenditures of approximately $16,000,000 were made
in Health Services. These capital expenditures were primarily for diagnostic
imaging equipment purchased to service mobile imaging routes. Total capital
expenditures during the five-year period 1997-2001 are estimated to be
$18,000,000.
MANUFACTURING OPERATIONS
------------------------
General
- -------
Manufacturing Operations consists of businesses involved in the
production of agricultural equipment, plastic pipe extrusion, and metal parts
stamping and fabrication. Initial acquisitions of businesses in this segment
were made in 1990. No additional companies were acquired in 1996. The Company
derived 16% of its consolidated operating revenues from this segment in 1996,
12% in 1995, and 5% in 1994.
The following is a brief description of each of these businesses:
Precision Machine of North Dakota, Inc., located in West Fargo, ND, uses
computer numerically controlled lathes and milling machines to produce
parts for manufacturers.
Dakota Machine, Inc., located in West Fargo, ND, is primarily engaged in
metal fabrication of large equipment that handles or processes sugar
beets. Dakota Engineering, Inc., a subsidiary of Dakota Machine, Inc.,
was formed in 1995 and is engaged in design engineering and construction
management, primarily in the sugar industry.
Glendale Machining, Inc., located in Pelican Rapids, MN, uses computer
numerically controlled lathes and milling machines to produce parts for
manufacturers.
BTD Manufacturing, Inc. ("BTD"), located in Detroit Lakes, MN, is a
metal stamping and tool and die manufacturer. BTD stamps, machines, and
assembles metal parts according to manufacturers' specifications.
Northern Pipe Products, Inc., located in Fargo, ND, manufactures poly-
vinyl-chloride (PVC) pipe for municipal, rural water, irrigation and
other uses in a sixteen-state area.
Each of the subsidiaries described above under Health Services and
Manufacturing Operations are owned by Mid-States Development, Inc., which is a
wholly owned subsidiary of Minnesota Dakota Generating Company ("MDG"). MDG
is a wholly owned subsidiary of the Company.
Competition
- -----------
The markets in which the Company's manufacturing entities compete are
characterized by intense competition. The various markets the companies
compete in have many established manufacturers with broader product lines,
greater distribution capabilities, greater capital resources and larger
marketing, research and development staffs and facilities than the Company.
The Company believes the principal competitive factors in its manufacturing
segment are product performance, quality, price, ease of use, technical
innovation, cost effectiveness, customer service and breadth of product line.
The Company intends to continue to compete on the basis of its high
performance products, innovative technologies, cost effective manufacturing
techniques, close customer relations and support and its strategy to increase
offerings of products.
Capital Expenditures
- --------------------
During 1996 capital expenditures of approximately $4,600,000 were made
in Manufacturing. Total capital expenditures for Manufacturing during the
five-year period 1997-2001 are estimated to be approximately $12,000,000.
OTHER BUSINESS OPERATIONS
-------------------------
General
- -------
The Company's Other Business Operations consists of businesses that are
diversified in such areas as electrical and telephone construction
contracting, radio broadcasting, waste incinerating, and telephone/cable TV
utility. In 1996 Mid-States Development, Inc. acquired four radio stations in
the Fargo, North Dakota/Moorhead, Minnesota market area. The Company's
telecommunications subsidiary, North Central Utilities, Inc. ("NCU"), acquired
two small cable TV systems. On January 2, 1997, NCU acquired The Peoples
Telephone Co. of Bigfork in a pooling-of-interests transaction. The Company
derived 12% of its consolidated operating revenues from these diversified
businesses during 1996, 10% in 1995, and 10% during 1994.
The following is a brief description of each of these businesses:
Moorhead Electric, Inc., located in Moorhead, MN, provides commercial
and industrial wiring of large buildings, constructs and maintains
telecommunications and power distribution systems, and installs computer
network cable.
Aerial Contractors, Inc., located in West Fargo, ND, constructs and
maintains overhead and underground electric, telecommunications, and
cable television lines.
KFGO, Inc., located in Fargo, ND, operates an AM and FM commercial radio
station.
MSB, Inc., located in Fargo, ND, operates one AM and three FM commercial
radio stations along with a video production facility.
Western Minnesota Broadcasting Company, located in Morris, MN, operates
an AM and FM commercial radio station.
Quadrant Co. ("Quadrant") operates a municipal waste burning facility
located in Perham, MN. Quadrant continues to provide primary service to
one of its two steam customers under an agreement which can be
terminated by either party upon one year's prior written notice, and is
currently providing backup service to its other steam customer under an
agreement that commenced on June 1, 1996 and terminates on May 31, 1998,
subject to earlier termination by either party upon 90 days' written
notice. Quadrant also continues to burn municipal solid waste for three
Minnesota counties under a contract extension which expires April 1,
1997. Two Minnesota counties, representing about 40% of Quadrant's
processing capacity, did not renew or extend their contracts for waste
incineration which expired in September 1996. Quadrant is in the
process of negotiating new waste incineration agreements with the
remaining counties and is pursuing additional incineration contracts.
The Company has invested approximately $3.2 million in plant and
equipment in Quadrant. Quadrant represented approximately $2.5 million
in sales for 1996 and an insignificant impact on consolidated operating
income for the Company. The outcome of current incineration contract
negotiations could result in an impairment issue under SFAS 121. The
Company is working to obtain prospects for new incineration contracts.
The price ranges being considered for the contracts result in a wide
variance in estimates of future cash flows, making it difficult to
accurately calculate an impairment value at this time. See
"Environmental Regulation" below.
Midwest Information Systems, Inc.("MIS"), headquartered in Parkers
Prairie, MN, owns two operating telephone companies serving over 4,000
customers and a cable television company serving approximately 600
customers. MIS is also involved in long-distance transport, fiber-optic
transmission facilities, and the sale of direct broadcast satellite
television programming and equipment.
With the exception of Quadrant, which was founded by the Company in
1985, each of these businesses was acquired by the Company since 1989.
Quadrant is a wholly owned subsidiary of MDG, which in turn is a wholly owned
subsidiary of the Company. MIS is a wholly owned subsidiary of North Central
Utilities, Inc., a subsidiary of MDG formed for the purpose of acquiring
utility companies. Each of the other subsidiaries described above are owned
by Mid-States Development, Inc., which is also a wholly owned subsidiary of
MDG.
General Regulation
- ------------------
The Company's operating telephone subsidiaries are subject to the
regulatory authority of the MPUC regarding rates and charges for telephone
services, as well as other matters. The operating telephone subsidiaries must
keep on file with the Minnesota DPS schedules of such rates and charges, and
any requests for changes in such rates and charges must be filed for approval
by the MPUC. The telephone industry is also subject generally to rules and
regulations of the Federal Communications Commission ("FCC"). The Company's
operating cable television subsidiary is regulated by federal and local
authorities. The Company's radio broadcasting subsidiaries are regulated by
the FCC.
Environmental Regulation
- ------------------------
In recent years, facilities such as Quadrant that burn municipal solid
waste have been subjected to increasing state and federal environmental
regulation. The Minnesota Pollution Control Agency promulgated rules relating
to ash in 1993 and air emissions in 1994. In late 1996, the U.S. Court of
Appeals for the District of Columbia Circuit vacated air emission regulations
recently adopted by the EPA. EPA has petitioned for a rehearing of the case.
Quadrant continues to operate under an expired air emission permit with the
permission of the Minnesota Pollution Control Agency and submitted its
application for a new air emission permit in April of 1995. Historically the
terms of Quadrant's contacts with customers have enabled Quadrant to pass on
to its customers much of the cost of environmental compliance. The increasing
cost of environmental compliance may adversely affect Quadrant's ability to
successfully negotiate the renewal of the contracts discussed above.
Competition
- -----------
Each of the businesses in Other Business Operations is subject to
competition, as well as the effects of general economic conditions, in their
respective industries.
Capital Expenditures
- --------------------
During 1996 capital expenditures of approximately $5,000,000 were made in
Other Business Operations. Capital expenditures during the five-year period
1997-2001 are estimated to be approximately $12,000,000 for Other Business
Operations.
FINANCING
---------
The Company estimates that funds internally generated, combined with
funds on hand will be sufficient to meet all sinking fund payments for First
Mortgage Bonds in the next five years and to provide for the majority of its
estimated 1997-2001 consolidated capital project expenditures. Additional
short-term or long-term financing will be required in the period 1997-2001 in
connection with a portion of the Company's estimated capital project
expenditures, maturity of First Mortgage Bonds ($18,800,000 in 1997) and a
Long-Term Lease Obligation ($2,200,000 in 1998), in the event the Company
decides to refund or retire early any of its presently outstanding debt or
Cumulative Preferred Shares, or for other corporate purposes.
The foregoing estimates of capital expenditures and funds internally
generated may be subject to substantial changes due to unforeseen factors,
such as changed economic conditions, competitive conditions, technological
changes, new environmental and other governmental regulations, tax law
changes, and rate regulation.
As of December 31, 1996, the Company had unutilized net fundable
property available for the issuance of more than $36,000,000 principal amount
of additional First Mortgage Bonds and also was entitled to issue in excess of
$102,000,000 principal amount of additional Bonds on the basis of Bonds
theretofore retired.
The Company's operating subsidiaries have been responsible for obtaining
their own financing after the Company's initial equity investment and have
developed financing arrangements with various banks. Historically, the
Company has not made or guaranteed loans to its subsidiaries, loaned any
subsidiary money or cosigned on any of their borrowing.
The Company has access to short-term borrowing resources. As of December
31, 1996, the Company and subsidiaries had unused credit lines totaling
$21,700,000. The Company had $25,600,000 in short-term borrowings as of
December 31, 1996. The subsidiary companies had $7,000,000 of credit lines in
use at December 31, 1996, a portion classified as current maturities and a
portion classified as long-term debt depending on the terms and nature of use.
EMPLOYEES
---------
The Company and its subsidiaries had approximately 1,629 full-time
employees at December 31, 1996. A total of 505 employees are represented by
local unions of the International Brotherhood of Electrical Workers, of which
430 are employees of the Electrical Operations segment and are covered by a
three-year labor contract that was renewed in 1996 and expires November 1,
1999. The Company has never experienced any strike, work stoppage, or strike
vote, and regards its present relations with employees as very good.
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-K
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 factors discussed under
"Factors affecting future earnings" on pages 30 through 32 of the Company's
1996 Annual Report to Shareholders, filed as an exhibit hereto. 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.
Item 2. PROPERTIES
----------
The Coyote Station, which commenced operation in 1981, is a 414,000 kw
(nameplate rating) mine-mouth plant located in the lignite coal fields near
Beulah, North Dakota and is jointly owned by the Company, Northern Municipal
Power Agency, Montana-Dakota Utilities Co. and Northwestern Public Service
Company. The Company has a 35% interest in the plant and was the project
manager in charge of construction. Montana-Dakota Utilities Co., in whose
service territory the plant is located, is the operating manager of the plant.
The Company, jointly with Northwestern Public Service Company and
Montana-Dakota Utilities Co., owns the 414,000 kw (nameplate rating) Big Stone
Plant in northeastern South Dakota which commenced operation in 1975. The
Company, for the benefit of all three utilities, was in charge of construction
and is now in charge of operations. The Company owns 53.9% of the plant.
Located near Fergus Falls, Minnesota, the Hoot Lake Plant is comprised
of three separate generating units with a combined rating of 127,000 kw. The
oldest Hoot Lake Plant generating unit was constructed in 1948 (7,500 kw
nameplate rating) and a subsequent unit was added in 1959 (53,500 kw nameplate
rating). A third unit was added in 1964 (66,000 kw nameplate rating) and
later modified during 1988 to provide cycling capability, allowing this unit
to be more efficiently brought on-line from a standby mode.
At December 31, 1996, the Company's transmission facilities, which are
interconnected with lines of other public utilities, consisted of 48 miles of
345 kv lines; 363 miles of 230 kv lines; 573 miles of 115 kv lines; and 4,272
miles of lower voltage lines, principally 41.6 kv. The Company owns the
uprated portion of the 48 miles of the 345 kv line, with Minnkota Power
Cooperative retaining title to the original 230 kv construction.
All of the Company's electric utility properties, with minor exceptions,
are subject to the lien of the Company's Indenture of Mortgage dated July 1,
1936, as amended and supplemented, securing its First Mortgage Bonds.
Item 3. LEGAL PROCEEDINGS
-----------------
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the three
months ended December 31, 1996.
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF MARCH 1, 1997)
----------------------------------------------------------
Set forth below is a summary of the principal occupations and business
experience during the past five years of executive officers of the Company:
DATES ELECTED
NAME AND AGE TO OFFICE PRESENT POSITION AND BUSINESS EXPERIENCE
- ------------ ------------- ----------------------------------------
John C. MacFarlane (57) 4/8/91 Present: Chairman, President and Chief
Executive Officer
Andrew E. Anderson (57) 4/8/96 Present: Vice President, Finance and
Treasurer
4/10/95 Vice President, Finance
Prior to
4/10/95 Controller
Marlowe E. Johnson (52) 4/12/93 Present: Vice President, Customer
Service, North Dakota
Prior to
4/12/93 Division Manager, Jamestown
Douglas L. Kjellerup (55) 4/12/93 Present: Vice President, Marketing and
Development
Prior to
4/12/93 Vice President, Planning and Development
LeRoy S. Larson (51) 4/12/93 Present: Vice President, Customer
Service, Minnesota and
South Dakota
4/13/92 Vice President, Division Operations,
Minnesota and South Dakota
Prior to
4/13/92 Division Manager, Morris
Richard W. Muehlhausen (58) 4/8/96 Present: Senior Vice President,
Corporate Services
Prior to
4/8/96 Vice President, Corporate Services
Jay D. Myster (58) 4/8/96 Present: Senior Vice President,
Governmental and Legal,
and Corporate Secretary
Prior to
4/8/96 Vice President, Governmental and Legal,
and Corporate Secretary
Rodney C.H. Scheel (47) 4/10/95 Present: Vice President, Electrical
Prior to
4/10/95 Director, Information Services
Ward L. Uggerud (47) 4/10/89 Present: Vice President, Operations
Jeffrey J. Legge(40) 4/10/95 Present: Controller
Prior to
4/10/95 Manager, Tax Department
The term of office of each of the officers is one year, and there are no
arrangements or understanding between individual officers or any other persons
pursuant to which he was selected as an officer.
No family relationships exist between any officers of the Company.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------
The information required by this Item is incorporated by reference to
the first sentence under "Stock listing" on Page 52, to "Selected consolidated
financial data" on Page 24 and to "Quarterly information" on Page 49, of the
Company's 1996 Annual Report to Shareholders, filed as an Exhibit hereto.
In the April 1, 1996, acquisition of Northern Medical Imaging, Inc.
("NMI"), a Company subsidiary exchanged 107,633 shares of the Company's common
stock acquired on the open market and $1,000,000 for all of the outstanding
voting common shares of NMI. The issuance of shares of common stock did not
involve a public offering and therefore was exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933, as amended.
Item 6. SELECTED FINANCIAL DATA
-----------------------
The information required by this Item is incorporated by reference to
"Selected consolidated financial data" on Page 24 of the Company's 1996 Annual
Report to Shareholders, filed as an Exhibit hereto.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The information required by this Item is incorporated by reference to
"Management's discussion and analysis of financial condition and results of
operations" on Pages 25 through 32 of the Company's 1996 Annual Report to
Shareholders, filed as an Exhibit hereto.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information required by this Item is incorporated by reference to
"Quarterly information" on Page 49 and the Company's audited financial
statements on Pages 33 through 49 of the Company's 1996 Annual Report to
Shareholders excluding "Report of Management" on Page 33, filed as an Exhibit
hereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
---------------------------------------------
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this Item is incorporated by reference from
the information under "Nominees for Election as Directors" in the Company's
definitive Proxy Statement dated March 14, 1997. The information regarding
executive officers is set forth in Item 4A hereto.
Item 11. EXECUTIVE COMPENSATION
----------------------
The information required by this Item is incorporated by reference from
the information under "Summary Compensation Table," "Pension and Supplemental
Retirement Plans," "Severance Agreements," and "Directors' Compensation" in
the Company's definitive Proxy Statement dated March 14, 1997.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this Item is incorporated by reference from
the information under "Outstanding Voting Shares" and "Security Ownership of
Management" in the Company's definitive Proxy Statement dated March 14, 1997.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) List of documents filed:
(1) and (2) See Table of Contents on Page 22 hereof.
(3) See Exhibit Index on Pages 23 through 29 hereof.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of
certain instruments defining the rights of holders of
certain long-term debt of the Company are not filed, and in
lieu thereof, the Company agrees to furnish copies thereof
to the Securities and Exchange Commission upon request.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the quarter ended
December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 POWER COMPANY
By A. E. Anderson
-------------------------------
A. E. Anderson
Vice President, Finance
and Treasurer
Dated: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature and Title
- -------------------
John C. MacFarlane )
Chairman, President and )
Chief Executive Officer )
(principal executive officer) )
and Director )
)
A. E. Anderson )
Vice President, Finance and Treasurer )
(principal financial officer) )
)
Jeffrey J. Legge )
Controller ) By A. E. Anderson
(principal accounting officer) ) ---------------------------
) A. E. Anderson
) Pro Se and Attorney-in-Fact
) Dated March 28, 1997
Thomas M. Brown, Director )
)
Dayle Dietz, Director )
)
Dennis R. Emmen, Director )
)
Maynard D. Helgaas, Director )
)
Arvid R. Liebe, Director )
)
Kenneth L. Nelson, Director )
)
Nathan I. Partain, Director )
)
Robert N. Spolum, Director )
OTTER TAIL POWER COMPANY
TABLE OF CONTENTS
-----------------
FINANCIAL STATEMENTS, SUPPLEMENTARY FINANCIAL DATA, SUPPLEMENTAL FINANCIAL
SCHEDULES INCLUDED IN ANNUAL REPORT (FORM 10-K) FOR THE YEAR ENDED
DECEMBER 31, 1996
The following items are included in this annual report by reference to the
registrant's Annual Report to Shareholders for the year ended December 31,
1996:
Page in
Annual
Report to
Shareholders
------------
Financial Statements:
Independent Auditors' Report ........................................ 33
Consolidated Balance Sheets, December 31, 1996 and 1995 ........ 34 & 35
Consolidated Statements of Income for the Three Years
Ended December 31, 1996 ............................................. 36
Consolidated Statements of Retained Earnings for the
Three Years Ended December 31, 1996 ................................. 36
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 1996 ............................................. 37
Consolidated Statements of Capitalization,
December 31, 1996 and 1995 .......................................... 38
Notes to Consolidated Financial Statements ....................... 39-49
Selected Consolidated Financial Data for the Five Years
Ended December 31, 1996 ............................................. 24
Quarterly Data for the Two Years Ended
December 31, 1996 ................................................... 49
Schedules are omitted because of the absence of the conditions under which
they are required or because the information required is included in the
financial statements or the notes thereto.
Exhibit Index
to
Annual Report
on Form 10-K
For Year Ended December 31, 1996
Previously Filed
-------------------------
As
Exhibit
File No. No.
-------- -------
3-A --Restated Articles of
Incorporation, as amended
(including resolutions
creating outstanding series
of Cumulative Preferred Shares).
3-C 33-46071 4-B --Bylaws as amended through
April 11, 1988.
4-D-1 2-14209 2-B-1 --Twenty-First Supplemental
Indenture from the Company to
First Trust Company of Saint
Paul and Russel M. Collins, as
Trustees, dated as of
July 1, 1958.
4-D-2 2-14209 2-B-2 --Twenty-Second Supplemental
Indenture dated as of
July 15, 1958.
4-D-3 33-32499 4-D-6 --Thirty-First Supplemental
Indenture dated as of
February 1, 1973.
4-D-4 33-32499 4-D-7 --Thirty-Second Supplemental
Indenture dated as of
January 18, 1974.
4-D-5 2-66914 2-L-13 --Thirty-Ninth Supplemental
Indenture dated as of
October 15, 1979.
4-D-6 33-46070 4-D-11 --Forty-Second Supplemental
Indenture dated as of
December 1, 1990.
4-D-7 33-46070 4-D-12 --Forty-Third Supplemental
Indenture dated as of
February 1, 1991.
4-D-8 33-46070 4-D-13 --Forty-Fourth Supplemental
Indenture dated as of
September 1, 1991
4-D-9 8-K dated 4-D-15 --Forty-Fifth Supplemental
7/24/92 Indenture dated as of
July 1, 1992
4-D-10 8-A dated 1 --Rights Agreement, dated as of
1/28/97 January 28, 1997, between the
Company and Norwest Bank Minnesota,
National Association
10-A 2-39794 4-C --Integrated Transmission
Agreement dated August 25,
1967, between Cooperative
Power Association and the
Company.
10-A-1 10-K for year 10-A-1 --Amendment No. 1, dated as
ended 12/31/92 of September 6, 1979, to
Integrated Transmission
Agreement, dated as of
August 25, 1967, between
Cooperative Power Association
and the Company.
10-A-2 10-K for year 10-A-2 --Amendment No. 2, dated as of
ended 12/31/92 November 19, 1986, to Integrated
Transmission Agreement between
Cooperative Power Association
and the Company.
10-C-1 2-55813 5-E --Contract dated July 1, 1958,
between Central Power Electric
Corporation, Inc., and the Company.
10-C-2 2-55813 5-E-1 --Supplement Seven dated
November 21, 1973.
(Supplements Nos. One through
Six have been superseded
and are no longer in effect.)
10-C-3 2-55813 5-E-2 --Amendment No. 1 dated
December 19, 1973, to
Supplement Seven.
10-C-4 10-K for year 10-C-4 --Amendment No. 2 dated
ended 12/31/91 June 17, 1986, to Supplement
Seven.
10-C-5 10-K for year 10-C-5 --Amendment No. 3 dated
ended 12/31/92 June 18, 1992, to Supplement
Seven.
10-C-6 10-K for year 10-C-6 --Amendment No. 4 dated
ended 12/31/93 January 18, 1994, to Supplement
Seven.
10-D 2-55813 5-F --Contract dated April 12, 1973,
between the Bureau of Reclamation
and the Company.
10-E-1 2-55813 5-G --Contract dated January 8, 1973,
between East River Electric Power
Cooperative and the Company.
10-E-2 2-62815 5-E-1 --Supplement One dated
February 20, 1978.
10-E-3 10-K for year 10-E-3 --Supplement Two dated
ended 12/31/89 June 10, 1983.
10-E-4 10-K for year 10-E-4 --Supplement Three dated
ended 12/31/90 June 6, 1985.
10-E-5 10-K for year 10-E-5 --Supplement No. Four, dated
ended 12/31/92 as of September 10, 1986.
10-E-6 10-K for year 10-E-6 --Supplement No. Five, dated
ended 12/31/92 as of January 7, 1993.
10-E-7 10-K for year 10-E-7 --Supplement No. Six, dated
ended 12/31/93 as of December 2, 1993.
10-F 10-K for year 10-F --Agreement for Sharing
ended 12/31/89 Ownership of Generating
Plant by and between the
Company, Montana-Dakota
Utilities Co., and
Northwestern Public Service
Company (dated as of
January 7, 1970).
10-F-1 10-K for year 10-F-1 --Letter of Intent for purchase
ended 12/31/89 of share of Big Stone Plant from
Northwestern Public Service Company
(dated as of May 8, 1984).
10-F-2 10-K for year 10-F-2 --Supplemental Agreement No. 1
ended 12/31/91 to Agreement for Sharing
Ownership of Big Stone Plant
(dated as of July 1, 1983).
10-F-3 10-K for year 10-F-3 --Supplemental Agreement No. 2
ended 12/31/91 to Agreement for Sharing
ownership of Big Stone Plant
(dated as of March 1, 1985).
10-F-4 10-K for year 10-F-4 --Supplemental Agreement No. 3
ended 12/31/91 to Agreement for Sharing
ownership of Big Stone Plant
(dated as of March 31, 1986).
10-F-5 10-K for year 10-F-5 --Amendment I to Letter of
ended 12/31/92 Intent dated May 8, 1984, for
purchase of share of Big Stone
Plant.
10-G 10-Q for quarter 10-A --Big Stone Plant Coal Agrmnt
ended 9/30/94 by and between the Company,
Montana-Dakota Utilities Co.,
Northwestern Public Service
Company, and Westmoreland
Resources, Inc. (dated as of
June 30, 1994).
10-G-1 10-Q for quarter 10-B --Big Stone Coal Transp.
ended 9/30/94 Agreement by and between the
Company, Montana-Dakota
Utilities, Northwestern Public
Service Co., and Burlington
Northern Railroad Company
(dated as of July 18, 1994).
10-G-2 10-K for year 10-G-2 --Amendment No. 1, dated as of
ended 12/31/95 December 27, 1995, to Big
Stone Coal Transportation
Agreement (dated as of
July 18, 1994).
10-G-3 10-Q for quarter 19-D --Big Stone Plant Tire Derived
ended 6/30/93 Fuel Agreement by and between
the Company and BFI Tire
Recyclers of Minnesota (dated
as of November 2, 1992).
10-G-4 10-Q for quarter 19-E --Big Stone Plant Tire Derived
ended 6/30/93 Fuel Agreement by and between
the Company and National Tire
Services (dated as of
November 2, 1992).
10-H 2-61043 5-H --Agreement for Sharing Owner-
ship of Coyote Station
Generating Unit No. 1 by and
between the Company, Minnkota
Power Cooperative, Inc.,
Montana-Dakota Utilities Co.,
Northwestern Public Service
Company, and Minnesota Power
& Light Company (dated as of
July 1, 1977).
10-H-1 10-K for year 10-H-1 --Supplemental Agreement No.
ended 12/31/89 One dated as of November 30, 1978,
to Agreement for Sharing
Ownership of Coyote Generating
Unit No. 1.
10-H-2 10-K for year 10-H-2 --Supplemental Agreement No.
ended 12/31/89 Two dated as of March 1, 1981,
to Agreement for Sharing
Ownership of Coyote Generating
Unit No. 1 and Amendment No. 2
dated March 1, 1981, to Coyote
Plant Coal Agreement.
10-H-3 10-K for year 10-H-3 --Amendment dated as of
ended 12/31/89 July 29, 1983, to Agreement
for Sharing Ownership of
Coyote Generating Unit No. 1.
10-H-4 10-K for year 10-H-4 --Agreement dated as of Sept. 5, 1985,
ended 12/31/92 containing Amendment No. 3 to Agreement
for Sharing Ownership of Coyote
Generating Unit No.1, dated as of
July 1, 1977, and Amendment No. 5 to
Coyote Plant Coal Agreement,
dated as of January 1, 1978.
10-I 2-63744 5-I --Coyote Plant Coal Agreement
by and between the Company,
Minnkota Power Cooperative,
Inc., Montana-Dakota
Utilities Co., Northwestern
Public Service Company,
Minnesota Power & Light
Company, and Knife River
Coal Mining Company (dated
as of January 1, 1978).
10-I-1 10-K for year 10-I-1 --Addendum, dated as of
ended 12/31/92 March 10, 1980, to Coyote Plant
Coal Agreement.
10-I-2 10-K for year 10-I-2 --Amendment (No. 3), dated as
ended 12/31/92 of May 28, 1980, to Coyote
Plant Coal Agreement.
10-I-3 10-K for year 10-I-3 --Fourth Amendment, dated as
ended 12/31/92 of August 19, 1985, to
Coyote Plant Coal Agreement.
10-I-4 10-Q for quarter 19-A --Sixth Amendment, dated as of
ended 6/30/93 February 17, 1993, to Coyote
Plant Coal Agreement.
10-K 10-K for year 10-K --Diversity Exchange Agreement
ended 12/31/91 by and between the Company
and Northern States Power
Company, (dated as of May 21, 1985)
and amendment thereto (dated as of
August 12, 1985).
10-K-1 10-Q for quarter 10 --Purchased Power and
ended 6/30/94 Interconnection Agreement
between the Company and
Potlatch Corporation dated
as of June 8, 1994.
10-K-2 10-K for year 10-K-4 --Capacity & Energy Agreement
ended 12/31/94 by and between the Company
and Minnkota Power Coop.
Inc. dated as of May 27, 1994.
10-K-3 10-K for year 10-K-5 --Interchange Agreement by and
ended 12/31/92 between the Company and
Wisconsin Power and Light
Company dated as of
February 21, 1992.
10-K-4 10-K for year 10-K-6 --Interchange Agreement by and
ended 12/31/92 between the Company and
Wisconsin Electric Power Co.
dated as of June 26, 1992.
10-K-5 10-Q for quarter 19-B --Interchange Agreement by and
ended 6/30/93 between the Company and
Wisconsin Public Service
Corp dated as of January 20, 1993.
10-L 10-K for year 10-L --Integrated Transmission
ended 12/31/91 Agreement by and between the
Company, Missouri Basin
Municipal Power Agency and
Western Minnesota Municipal
Power Agency (dated as of
March 31, 1986).
10-L-1 10-K for Year 10-L-1 --Amendment No. 1, dated as
ended 12/31/88 of December 28, 1988, to
Integrated Transmission
Agreement (dated as of
March 31, 1986).
10-M-1 10-K for year 10-M-1 --Hoot Lake Plant Coal
ended 12/31/89 Agreement dated as of
October 1, 1980, by and
between the Company and
Knife River Coal Mining
Company.
10-M-2 10-K for year 10-M-2 --First Amendment dated as of
ended 12/31/89 August 14, 1985, to Hoot
Lake Plant Coal Agreement.
10-M-3 10-K for year 10-M-10 --Hoot Lake Coal Transp.
ended 12/31/92 Agreement dated January 15, 1993
by and between the Company
and Northern Coal Transportation Co.
10-M-4 10-Q for quarter 19-C --First Amendment dated as of
ended 6/30/93 January 20, 1993 to Hoot Lake
Coal Transportation Agreement
dated January 15, 1993.
10-M-5 --Second Amendment dated as of
May 21, 1996 to Hoot Lake
Coal Transportation Agreement
dated January 15, 1993.*
10-N-1 10-K for year 10-N --Deferred Compensation Plan
ended 12/31/91 for Directors, dated
April 9, 1984.**
10-N-2 10-K for year 10-N-2 --Executive Survivor and
ended 12/31/94 Supplemental Retirement Plan,
as amended.**
10-N-3 10-K for year 10-P --Form of Severance Agrmnt.**
ended 12/31/92
10-N-4 10-K for year 10-N-5 --Nonqualified Profit Sharing
ended 12/31/93 Plan.**
10-N-5 10-K for year 10-N-6 --Nonqualified Retirement
ended 12/31/93 Savings Plan.**
10-O 10-K for year 10-O --Dealer Agreement by and
ended 12/31/93 between DMS and Philips
Medical Systems North
America Company dated
January 18, 1994.
13-A --Portions of 1996 Annual
Report to Shareholders
incorporated by reference
in this Form 10-K.
21-A --Subsidiaries of Registrant
23 --Consent of Deloitte & Touche LLP
24-A --Powers of Attorney.
27 --Financial Data Schedule.
- ------------
*Confidential information has been omitted from such Exhibit and filed
separately with the Commission pursuant to a confidential treatment request
under Rule 24b-2.
** Management contract or compensatory plan or arrangement required to be
filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.
RESTATED
ARTICLES OF INCORPORATION
OF
OTTER TAIL POWER COMPANY
(restated as of October 17, 1988)
ARTICLE I.
The name of the corporation shall be Otter Tail Power
Company.
ARTICLE II.
The purposes of the corporation shall be as follows:
(a) To generate, produce, buy or in any manner acquire, and
to sell, dispose of, and distribute electricity for light, heat
and power and other purposes, and to carry on the business of
furnishing, supplying, manufacturing, and selling light, heat,
power, gas, water, and steam, and any and all business incidental
thereto; and to build, construct, develop, improve, buy, acquire
by condemnation or otherwise, hold, own, lease, maintain and
operate plants, facilities, systems, and works for the
manufacture, generation, production, accumulation, transmission,
and distribution of electricity, gas, water, and steam, and to
exercise rights of condemnation and eminent domain in connection
with the doing of any of its purposes as herein set forth so far
as may be permissible by law.
(b) To produce, mine, buy, sell, store, market, deal in,
and prospect for, coal, oil and minerals of all kinds and the
products and by-products thereof.
(c) To manufacture, buy, sell, trade, and deal in goods,
wares, merchandise, property, and commodities of any and every
class and description.
(d) To purchase, acquire, and lease, and to sell, lease,
and dispose of water, water rights, and power privileges for
power, light, heat, mining, milling, irrigation, agricultural,
domestic or any other use or purpose.
(e) To acquire, hold, mortgage, pledge, or dispose of the
shares, bonds, securities, and other evidences of indebtedness of
any domestic or foreign corporation.
(f) To endorse or guarantee the promissory notes, checks,
drafts, evidences of indebtedness or obligations of whatsoever
nature of any corporation, domestic or foreign, of which the
corporation shall own or control, directly or indirectly a
majority of the stock then entitled to elect directors, or a
majority thereof.
(g) To do or perform any and all lawful business necessary,
essential or expedient to the proper conduct of any of the
purposes aforesaid.
ARTICLE III.
The period of duration of the corporation shall be
perpetual.
ARTICLE IV.
The location and post-office address of the registered
office of the corporation in Minnesota is 215 Cascade Street
South, Fergus Falls, Minnesota 56537.
ARTICLE V.
The total authorized number of shares of the corporation is
17,500,000, divided into three classes; namely, 1,500,000
Cumulative Preferred Shares without par value (the "Cumulative
Preferred Shares"); 1,000,000 Cumulative Preference Shares
without par value (the "Cumulative Preference Shares"); and
15,000,000 Common Shares of the par value of $5 per share (the
"Common Shares"). No fractional shares of any class or series
shall be issued by the corporation.
ARTICLE VI.
The designations, relative rights, voting power, preferences
and restrictions of the Cumulative Preferred Shares, the
Cumulative Preference Shares and the Common Shares, respectively,
shall be as set forth in Division I through Division VI,
inclusive, of this Article VI.
The term "subordinate shares," when hereinafter in this
Article VI used with reference to shares junior to the Cumulative
Preferred Shares, means the Cumulative Preference Shares, the
Common Shares and shares of any other class, which may hereafter
be authorized, ranking junior to the Cumulative Preferred Shares
with respect to the payment of dividends or the distribution of
assets; and when hereinafter used with reference to shares junior
to the Cumulative Preference Shares, means the Common Shares and
shares of any other class, which may hereafter be authorized,
ranking junior to the Cumulative Preference Shares with respect
to the payment of dividends or the distribution of assets.
DIVISION I
Provisions Relating to Cumulative Preferred Shares
A. Issue in Series. The Cumulative Preferred Shares may
be issued from time to time in one or more series, each of which
series shall have such designation and such relative rights,
voting power, preferences and restrictions as are hereinafter
provided and, to the extent hereinafter permitted, as are
determined and stated by the Board of Directors in the resolution
or resolutions authorizing the creation of shares of such series.
All Cumulative Preferred Shares shall be of equal rank and
shall be identical, except in respect of their relative voting
power (determined as hereinafter provided in Division IV) and the
particulars that may be determined by the Board of Directors as
hereinafter provided; and each share of each series shall be
identical in all respects with the other shares of such series,
except as to the dates from which dividends thereon shall be
cumulative. Cumulative Preferred Shares shall be issued only as
fully paid and nonassessable shares.
Subject to the provisions of the last paragraph of this
Subdivision A, authority is hereby expressly granted to the Board
of Directors to authorize the issuance of Cumulative Preferred
Shares in one or more series, and to determine and state, by the
resolution or resolutions authorizing the creation of each
series: (i) the designation of the series and the number of
shares which shall constitute such series, which number may be
altered from time to time by like action of the Board of
Directors in respect of shares then unallotted; (ii) the annual
rate of dividends payable on shares of such series; (iii) the
price or prices per share at which the shares of such series
shall be redeemable; (iv) the amount payable on shares of such
series in the event of any dissolution, liquidation or winding up
of the affairs of the corporation, which amount may differ in the
case of a voluntary or involuntary dissolution, liquidation or
winding up of such affairs; (v) the conversion rights, if any,
with respect to the conversion of shares of such series into
Common Shares of the corporation; and (vi) the sinking or
purchase fund provisions, if any, for the mandatory redemption or
purchase of shares of such series.
In the case of each series of Cumulative Preferred Shares
created after April 1, 1977, the amount (in addition to accrued
and unpaid dividends, if any) which the holders of shares of such
series shall be entitled to receive in the event of any
dissolution, liquidation or winding up of the affairs of the
corporation which shall be involuntary shall be equal to the
gross consideration received by the corporation upon the issuance
thereof (without regard to any premium received or any
underwriting discount or commission, private placement fee or
other expense incurred by the corporation in connection with the
issuance thereof).
B. Dividends. Before any dividends on any subordinate
shares shall be paid or declared and set apart for payment, the
holders of the Cumulative Preferred Shares of each series shall
be entitled to receive, when and as declared by the Board of
Directors, out of any funds legally available for such purpose,
cash dividends at the annual rate for such series theretofore
fixed by the Board of Directors as hereinbefore provided, and no
more, payable quarterly on such dates as may be fixed in the
resolution or resolutions adopted by the Board of Directors
authorizing the creation of such series. Such dividends shall be
paid to shareholders of record on the respective dates, not
exceeding twenty (20) days prior to such payment dates, fixed by
the Board of Directors for such purpose. Such dividends shall be
cumulative, in the case of shares of each particular series:
(1) if issued prior to the record date for the first
dividend on shares of such series, then from and including
the date fixed for such purpose by the Board of Directors in
the resolution or resolutions creating such series;
(2) if issued during the period commencing immediately
after the record date for a dividend on shares of such
series and terminating at the close of the payment date for
such dividend, then from and including such last mentioned
dividend payment date;
(3) otherwise from and including the quarterly
dividend payment date next preceding the date of issue of
such shares.
No dividend shall be paid, or declared and set apart for
payment, upon any Cumulative Preferred Shares of any series for
any quarterly dividend period unless at the same time a like
proportionate dividend for the same or comparable quarterly
period, ratable in proportion to the respective annual dividend
rates fixed therefor, shall be paid, or declared and set apart
for payment, upon all Cumulative Preferred Shares of all series
then issued and outstanding.
In no event shall any dividend be paid or declared, nor
shall any distribution be made, on any subordinate shares, nor
shall any subordinate shares be purchased, redeemed or otherwise
acquired by the corporation for value, nor shall any moneys be
paid to or set aside or made available for a purchase fund or
sinking fund for the purchase or redemption of any subordinate
shares, unless (i) all dividends on the Cumulative Preferred
Shares of all series for all past quarterly dividend periods and
for the then current quarterly dividend period shall have been
paid or declared and a sum sufficient for the payment thereof set
apart for payment; and (ii) the corporation shall not be in
default or deficient under any requirement of a sinking or
purchase fund established with respect to outstanding Cumulative
Preferred Shares of any series for any period then elapsed.
Subject to the provisions of this Article VI, and not
otherwise, dividends may be declared by the Board of Directors
and paid from time to time, out of any funds legally available
therefor, upon the then outstanding subordinate shares, and the
holders of the Cumulative Preferred Shares shall not be entitled
to participate in any such dividends.
C. Redemption of Cumulative Preferred Shares. Subject to
the limitations stated in Subdivision D of this Division I, the
Cumulative Preferred Shares of any or all series may be redeemed,
as a whole at any time or in part from time to time, at the
option of the corporation by resolution of the Board of
Directors, at the applicable redemption price for the shares of
such series as determined by the Board of Directors in the
resolution or resolutions authorizing the creation of such
series, together with an amount (hereinafter referred to as
"accrued dividends to the redemption date") in the case of each
share, computed at the annual dividend rate for the series of
which the particular share is a part, from and including the date
on which dividends on such shares become cumulative to and
including the date of redemption, less the aggregate amount of
all dividends which have theretofore been paid thereon or which
have been declared thereon and for which moneys for payment have
been set apart and remain available for payment. To the extent
that Cumulative Preferred Shares of any series are redeemed
through the operation of a sinking or purchase fund provided for
in the resolution or resolutions of the Board of Directors
creating such series, such shares shall be redeemed by resolution
of the Board of Directors at the time and at the applicable
redemption price specified for redemption of shares of such
series pursuant to such sinking or purchase fund by the
resolution or resolutions creating such series. If less than all
the outstanding Cumulative Preferred Shares of any series are to
be redeemed, the shares to be redeemed shall be determined by lot
in such manner as the Board of Directors may prescribe.
Notice of every redemption of Cumulative Preferred Shares
shall be mailed, addressed to the holders of record of the shares
to be redeemed at their respective addresses as they shall appear
on the stock books of the corporation, not less than thirty (30)
days and not more than sixty (60) days prior to the date fixed
for redemption.
If notice of redemption shall have been duly given as
aforesaid, and if, on or before the redemption date specified in
the notice, all funds necessary for the redemption shall have
been deposited in trust with a bank or trust company in good
standing and doing business at any place within the United
States, having capital, surplus and undivided profits aggregating
at least $1,000,000 and designated in the notice of redemption,
for the pro rata benefit of the holders of the shares so called
for redemption, so as to be and continue to be available
therefor, then from and after the date of such deposit,
notwithstanding that any certificate for Cumulative Preferred
Shares so called for redemption shall not have been surrendered
for cancellation, the shares represented thereby shall no longer
be deemed outstanding, the dividends thereon shall cease to
accumulate from and after the date fixed for redemption, and all
rights with respect to the Cumulative Preferred Shares so called
for redemption shall forthwith on the date of such deposit cease
and terminate, except only the right of the holders thereof to
receive the redemption price of the shares so redeemed, including
accrued dividends to the redemption date, but without interest.
Any funds deposited by the corporation pursuant to this paragraph
and unclaimed at the end of six (6) years after the date fixed
for redemption shall be repaid to the corporation upon its
request expressed in a resolution of its Board of Directors,
after which repayment the holders of the shares so called for
redemption shall look only to the corporation for the payment
thereof.
All Cumulative Preferred Shares converted, redeemed or
purchased voluntarily or pursuant to any sinking fund or purchase
fund for the mandatory redemption or purchase of shares shall be
retired and cancelled and shall have the status of authorized but
unissued Cumulative Preferred Shares of the corporation and may
be reissued in the same manner as authorized but unissued
Cumulative Preferred Shares undesignated as to series.
D. Limitations on Purchase and Redemption of Cumulative
Preferred Shares. No Cumulative Preferred Shares of any series
shall be purchased, redeemed or otherwise acquired by the
corporation for value, nor shall any moneys be paid to or set
aside or made available for a purchase fund or sinking fund for
the purchase or redemption of Cumulative Preferred Shares of any
series, unless all dividends on the Cumulative Preferred Shares
of all series for all past quarterly dividend periods and for the
current quarterly period shall have been paid or declared and a
sum sufficient for the payment thereof set apart for payment,
except in the event all of the Cumulative Preferred Shares shall
be called for redemption.
E. Liquidation Preferences. In the event of any
dissolution, liquidation or winding up of the affairs of the
corporation, before any distribution or payment shall be made to
the holders of any subordinate shares, the holders of the shares
of each series of Cumulative Preferred Shares shall be entitled
to be paid in full the respective amounts fixed by the Board of
Directors in the resolution or resolutions authorizing the issue
of such series, together with a sum, in the case of each share,
computed at the annual dividend rate for the series of which the
particular share is a part, from the date on which dividends on
such shares became cumulative to and including the date fixed for
such distribution or payment, less the aggregate amount of all
dividends which have theretofore been paid thereon or which have
been declared thereon and for which moneys have been set apart
and remain available for payment. If such distribution or
payment shall have been made to the holders of the Cumulative
Preferred Shares, or moneys made available for such payment in
full, the remaining assets and funds of the corporation shall be
distributed among the holders of the classes of subordinate
shares, according to their respective rights and preferences and
in each case according to their respective shares. If the assets
available are not sufficient to pay in full the amounts so
payable to the holders of all outstanding Cumulative Preferred
Shares, the holders of all series of such shares shall share
ratably in any distribution of assets in proportion to the full
amounts to which they would otherwise be respectively entitled.
The consolidation or merger of the corporation into or with any
other corporation or corporations pursuant to the statutes of the
State of Minnesota providing for consolidation or merger shall
not be deemed a liquidation, dissolution or winding up of the
affairs of the corporation within the meaning of any of the
provisions of this Subdivision E.
F. Voting and Restrictions on Certain Corporate Action.
The holders of the Cumulative Preferred Shares shall not be
entitled to vote at any meetings of the shareholders of the
corporation, except as required by law or as hereinafter
otherwise provided in this Subdivision F and in Division IV:
(1) So long as any Cumulative Preferred Shares of any
series are outstanding, the corporation shall not without
the consent (given by vote at a special meeting of
shareholders called for the purpose) of the holders of at
least two-thirds (2/3) of the aggregate voting power
(determined as hereinafter provided in Division IV) vested
in the Cumulative Preferred Shares of all series then
outstanding:
(a) Create, authorize or issue any shares of any
class ranking prior to, or any securities of any kind
or class convertible into shares of any class ranking
prior to, the Cumulative Preferred Shares as to
dividends or assets; or
(b) Amend the Articles of Incorporation so as to
affect adversely any of the preferences or other rights
of the holders of the Cumulative Preferred Shares,
provided, however, that if any such amendment would
affect adversely the holders of one or more, but not
all, of the series of Cumulative Preferred Shares at
the time outstanding, consent only of the holders of at
least two-thirds (2/3) of the aggregate voting power
(determined as hereinafter provided in Division IV)
vested in the shares of each series so adversely
affected shall be required.
(2) So long as any Cumulative Preferred Shares of any
series are outstanding, the corporation shall not without
the consent (given by vote at a special meeting of
shareholders called for the purpose) of the holders (i) of
at least a majority of the aggregate voting power
(determined as hereinafter provided in Division IV) vested
in the Cumulative Preferred Shares of all series then
outstanding, or (ii) in case of the negative vote at such
meeting of the holders of more than one-fourth (1/4) of the
aggregate voting power (determined as hereinafter provided
in Division IV) vested in the Cumulative Preferred Shares of
all series then outstanding, of at least two-thirds (2/3) of
aggregate voting power (determined as hereinafter provided
in Division IV) vested in the Cumulative Preferred Shares of
all series then outstanding:
(a) Increase the authorized number of Cumulative
Preferred Shares, or create, authorize or issue any
shares of any class ranking on a parity with the
Cumulative Preferred Shares as to dividends or assets,
or any securities of any kind or class convertible into
Cumulative Preferred Shares or shares of any class on a
parity with the Cumulative Preferred Shares; or
(b) Issue any Cumulative Preferred Shares of any
series if as a result thereof more than 60,000
Cumulative Preferred Shares of all series will then be
outstanding, unless:
(i) The corporation's "Adjusted Income
Available for Interest," as hereinafter defined,
shall be at least equal to one-and-one-half (1-
1/2) times the corporation's "Adjusted Interest
and Preferred Charges," as hereinafter defined;
and
(ii) The corporation's "Adjusted Income
Available for Preferred Dividends," as hereinafter
defined, shall be at least equal to two-and-one-
half (2-1/2) times the corporation's "Adjusted
Preferred Charges," as hereinafter defined; and
(iii) The corporation's "Common Share
Equity," as hereinafter defined, shall equal at
least one-fourth (1/4) of the corporation's "Total
Capitalization," as hereinafter defined; or
(c) Declare, pay or set apart for payment any
dividend on any subordinate shares, or purchase, redeem
or otherwise acquire for value any subordinate shares,
or pay or set aside or make available any moneys for a
purchase fund or sinking fund for the purchase or
redemption of any such subordinate shares, unless after
giving effect to the payment of such dividend or such
purchase, redemption or other acquisition of such
payment or setting aside of moneys in a purchase fund
or sinking fund,
(i) The "Common Share Equity," as
hereinafter defined, shall equal at least one-
fourth (1/4) of the "Total Capitalization," as
hereinafter defined; and
(ii) The earned surplus of the corporation
shall be not less than $831,398.
(d) Consolidate or merge into or with any other
corporation or corporations pursuant to the statutes of
the State of Minnesota providing for consolidation or
merger, unless, immediately after such consolidation or
merger shall become effective:
(i) The Cumulative Preferred Shares of the
corporation outstanding immediately prior to such
consolidation or merger shall remain outstanding
or be constituted as shares of the corporation
resulting from such consolidation or merger in the
same number and with the same relative rights,
voting power, preferences and restrictions as
theretofore, the authorized number thereof shall
not be increased, there shall be no shares of the
resulting corporation outstanding or authorized
ranking prior to or on a parity with the
Cumulative Preferred Shares, except shares of the
corporation outstanding or authorized immediately
prior to such consolidation or merger, and the
indebtedness for borrowed money of the resulting
corporation immediately after such consolidation
or merger shall be no greater than the
indebtedness for borrowed money of the corporation
immediately preceding such consolidation or
merger; or
(ii) (aa) The "Adjusted Income Available
for Interest," as hereinafter defined, of the
resulting corporation shall be at least equal to
one-and-one-half (1-1/2) times its "Adjusted
Interest and Preferred Charges," as hereinafter
defined; and
(bb) The "Adjusted Income Available
for Preferred Dividends," as hereinafter defined,
of the resulting corporation shall be at least
equal to two-and-one-half (2-1/2) times its
"Adjusted Preferred Charges," as hereinafter
defined; and
(cc) The "Common Share Equity," as
hereinafter defined, of the resulting corporation
shall equal at least one-fourth (1/4) of its
"Total Capitalization," as hereinafter defined.
(e) Sell, lease or exchange all or
substantially all of its property and assets, unless,
after the completion of such transaction, the fair
value of the assets of the corporation shall at least
equal the preference on voluntary liquidation of all
Cumulative Preferred Shares of all series then
outstanding and of all shares then outstanding of a
class on parity with the Cumulative Preferred Shares,
after first deducting an amount equal to all then
existing indebtedness of the corporation and an amount
equal to the preference on voluntary liquidation of all
shares ranking prior to the Cumulative Preferred
Shares.
(3) For the purposes of the foregoing provisions of
this Subdivision F:
(a) The term "Adjusted Income Available for
Interest" shall mean the gross income of the
corporation for a period of twelve (12) consecutive
calendar months selected by the corporation out of the
fifteen (15) calendar months immediately preceding the
proposed issuance of additional Cumulative Preferred
Shares, or the proposed consolidation or merger,
determined in accordance with such system of accounts
as may be prescribed by governmental authorities having
jurisdiction in the premises or, in the absence
thereof, in accordance with generally accepted
accounting practice, available for the payment of
interest, but after deduction of taxes of all kinds
(including taxes based on income) including for a like
period such gross income (similarly computed and with
similar deductions and eliminating any duplication of
income) of any property which was or will have been an
operating unit or a part of an operating unit preceding
its acquisition by the corporation and which has been
acquired within the past twelve (12) months immediately
preceding or is to be acquired by the corporation
substantially contemporaneously with the proposed
issuance of additional Cumulative Preferred Shares, or
the proposed consolidation or merger.
(b) The term "Adjusted Interest and Preferred
Charges" is hereby defined as the sum of (i) the
interest charges for one year upon all interest bearing
indebtedness of the corporation outstanding at the time
of issuance of such Cumulative Preferred Shares or of
the proposed consolidation or merger, including that,
if any, proposed to be issued or assumed substantially
contemporaneously, or to which property theretofore
acquired or to be acquired substantially
contemporaneously is or will be subject (adjusted for
all amortization of debt discount and expense, or of
premium on debt, as the case may be), and (ii) the
dividend requirements for one year on all outstanding
Cumulative Preferred Shares, and on all other shares of
a class ranking prior to or on a parity with the
Cumulative Preferred Shares as to dividends or assets,
outstanding at the time of issuance of such additional
Cumulative Preferred Shares, or of such consolidation
or merger, including all such shares proposed to be
issued, or all such shares of the resulting
corporation, as the case may be.
(c) The term "Adjusted Income Available for
Preferred Dividends" is hereby defined as the "Adjusted
Income Available for Interest" for the aforesaid twelve
(12) months' period, less the interest charges for one
year and the dividend requirements for one year on any
shares ranking prior to the Cumulative Preferred
Shares, included in determining the "Adjusted Interest
and Preferred Charges."
(d) The term "Adjusted Preferred Charges" is
hereby defined as the "Adjusted Interest and Preferred
Charges" for one year determined at the time of
issuance of such Cumulative Preferred Shares or of the
proposed consolidation or merger, less the interest
charges for one year and the dividend requirements for
one year on any shares ranking prior to the Cumulative
Preferred Shares, included in determining the "Adjusted
Interest and Preferred Charges."
(e) The term "Common Share Equity" is hereby
defined as the sum of (i) the stated capital of the
corporation applicable to its Common Shares and to all
other subordinate shares (including shares, if any,
proposed to be issued substantially contemporaneously
or any additional such shares of the resulting
corporation, as the case may be), (ii) capital surplus
to the extent of premium on Common Shares and on all
other subordinate shares (including premium, if any, on
shares proposed to be issued substantially
contemporaneously or any additional such shares of the
resulting corporation, as the case may be),
(iii) contributions in aid of construction, and
(iv) earned surplus, all determined in accordance with
such system of accounts as may be prescribed by
governmental authorities having jurisdiction in the
premises or, in the absence thereof, in accordance with
generally accepted accounting practice.
(f) The term "Total Capitalization" is hereby
defined as the sum of (i) the Common Share Equity,
(ii) the involuntary liquidation preference of all
Cumulative Preferred Shares and all other shares prior
to or on a parity with the Cumulative Preferred Shares
to be outstanding after the proposed event, and
(iii) the principal amount of all interest bearing debt
(including debt to which property theretofore acquired
or to be acquired substantially contemporaneously is or
will be subject) to be outstanding after the proposed
event, excluding, however, all indebtedness maturing by
its terms within one year from the time of creation
thereof unless the corporation, without the consent of
the lender, has the right to extend the maturity of
such indebtedness for a period or periods which, with
the original period of such indebtedness, aggregates
one year or more.
DIVISION II
Provisions Relating to Cumulative Preference Shares
A. Issue in Series. The Cumulative Preference Shares may
be issued from time to time in one or more series, each of which
series shall have such designation and such relative rights,
voting power, preferences and restrictions as are hereinafter
provided and, to the extent hereinafter permitted, as are
determined and stated by the Board of Directors in the resolution
or resolutions authorizing the creation of shares of such series.
All Cumulative Preference Shares shall be of equal rank and
shall be identical, except in respect of their relative voting
power (determined as hereinafter provided in Division IV) and the
particulars that may be determined by the Board of Directors as
hereinafter provided; and each share of each series shall be
identical in all respects with the other shares of such series,
except as to the dates from which dividends thereon shall be
cumulative. Cumulative Preference Shares shall be issued only as
fully paid and nonassessable shares.
Subject to the provisions of the last paragraph of this
Subdivision A, authority is hereby expressly granted to the Board
of Directors to authorize the issuance of Cumulative Preference
Shares in one or more series, and to determine and state, by the
resolution or resolutions authorizing the creation of each
series: (i) the designation of the series and the number of
shares which shall constitute such series, which number may be
altered from time to time by like action of the Board of
Directors in respect of shares then unallotted; (ii) the annual
rate of dividends payable on shares of such series; (iii) the
price or prices per share at which the shares of such series
shall be redeemable; (iv) the amount payable on shares of such
series in the event of any dissolution, liquidation or winding up
of the affairs of the corporation, which amount may differ in the
case of a voluntary or involuntary dissolution, liquidation or
winding up of such affairs, provided that the amount in the case
of an involuntary dissolution, liquidation or winding up of such
affairs shall be determined as provided in the following
paragraph; (v) the conversion rights, if any, with respect to the
conversion of shares of such series into Common Shares of the
corporation; and (vi) the sinking or purchase fund provisions, if
any, for the mandatory redemption or purchase of shares of such
series.
The amount (in addition to accrued and unpaid dividends, if
any) which the holders of Cumulative Preference Shares of each
series shall be entitled to receive in the event of any
dissolution, liquidation or winding up of the affairs of the
corporation which shall be involuntary shall be equal to the
gross consideration received by the corporation upon the issuance
thereof (without regard to any premium received or any
underwriting discount or commission, private placement fee or
other expense incurred by the corporation in connection with the
issuance thereof).
B. Dividends. Subject to the preferential rights of the
holders of Cumulative Preferred Shares with respect to payment of
dividends as set forth in Subdivision B of Division I, the
holders of the Cumulative Preference Shares of each series shall
be entitled to receive, when and as declared by the Board of
Directors, out of any funds legally available for such purpose,
cash dividends at the annual rate for such series theretofore
fixed by the Board of Directors as hereinbefore provided, and no
more, payable quarterly on such dates as may be fixed in the
resolution or resolutions adopted by the Board of Directors
authorizing the creation of such series. Such dividends shall be
paid to shareholders of record on the respective dates, not
exceeding twenty (20) days prior to such payment dates, fixed by
the Board of Directors for such purpose. Such dividends shall be
cumulative from and including the date or dates fixed for such
purpose by the Board of Directors in the resolution or
resolutions authorizing the creation of such series.
No dividend shall be paid, or declared and set apart for
payment, upon any Cumulative Preference Shares of any series for
any quarterly dividend period unless at the same time a like
proportionate dividend for the same or comparable quarterly
period, ratable in proportion to the respective annual dividend
rates fixed therefor, shall be paid, or declared and set apart
for payment, upon all Cumulative Preference Shares of all series
then issued and outstanding.
In no event shall any dividend be paid or declared, nor
shall any distribution be made, on any subordinate shares, other
than a dividend or distribution payable solely in subordinate
shares, nor shall any subordinate shares be purchased, redeemed
or otherwise acquired by the corporation for value, nor shall any
moneys be paid to or set aside or made available for a purchase
fund or sinking fund for the purchase or redemption of any
subordinate shares, unless (i) all dividends on the Cumulative
Preference Shares of all series for all past quarterly dividend
periods and for the then current quarterly dividend period shall
have been paid or declared and a sum sufficient for the payment
thereof set apart for payment; and (ii) the corporation shall not
be in default or deficient under any requirement of a sinking or
purchase fund established with respect to outstanding Cumulative
Preference Shares of any series for any period then elapsed.
Subject to the provisions of this Article VI, and not
otherwise, dividends may be declared by the Board of Directors
and paid from time to time, out of any funds legally available
therefor, upon the then outstanding subordinate shares, and the
holders of the Cumulative Preference Shares shall not be entitled
to participate in any such dividends.
C. Redemption of Cumulative Preference Shares. Subject to
the limitations stated in Subdivision B of Division I and in
Subdivision D of this Division II, the Cumulative Preference
Shares of any or all series may be redeemed, as a whole at any
time or in part from time to time, at the option of the
corporation by resolution of the Board of Directors, at the
applicable redemption price for the shares of such series as
determined by the Board of Directors in the resolution or
resolutions authorizing the creation of such series, together
with an amount (hereinafter referred to as "accrued dividends to
the redemption date") in the case of each share, computed at the
annual dividend rate for the series of which the particular share
is a part, from and including the date on which dividends on such
share became cumulative to and including the date of redemption,
less the aggregate amount of all dividends which have theretofore
been paid thereon or which have been declared thereon and for
which moneys for payment have been set apart and remain available
for payment. Each such redemption shall be effected upon the
same notice as provided in Subdivision C of Division I in respect
of the redemption of Cumulative Preferred Shares, and all other
provisions of said Subdivision C with respect to the method and
effect of redemption of Cumulative Preferred Shares shall be
applicable to the redemption of Cumulative Preference Shares in
the same manner and with the same force and effect as though such
provisions were set forth in full in this Subdivision C.
All Cumulative Preference Shares converted, redeemed or
purchased voluntarily or pursuant to any sinking fund or purchase
fund for the mandatory redemption or purchase of shares shall be
retired and cancelled and shall have the status of authorized but
unissued Cumulative Preference Shares of the corporation and may
be reissued in the same manner as authorized but unissued
Cumulative Preference Shares undesignated as to series.
D. Limitation on Purchase and Redemption of Cumulative
Preference Shares. No Cumulative Preference Shares of any series
shall be purchased, redeemed or otherwise acquired by the
corporation for value, nor shall any moneys be paid to or set
aside or made available for a purchase fund or sinking fund for
the purchase or redemption of Cumulative Preference Shares of any
series, unless all dividends on the Cumulative Preference Shares
of all series for all past quarterly dividend periods and for the
current quarterly period shall have been paid or declared and a
sum sufficient for the payment thereof set apart for payment,
except in event all of the Cumulative Preference Shares shall be
called for redemption.
E. Liquidation Preferences. In the event of any
dissolution, liquidation or winding up of the affairs of the
corporation, before any distribution or payment shall be made to
the holders of any class of subordinate shares, the holders of
the shares of each series of Cumulative Preference Shares shall
be entitled to be paid in full the respective amounts fixed by
the Board of Directors in the resolution or resolutions
authorizing the creation of such series together with an amount,
in the case of each share, computed at the annual dividend rate
for the series of which the particular share is a part, from and
including the date on which dividends on such share became
cumulative to and including the date fixed for such payment, less
the aggregate amount of all dividends which have theretofore been
paid thereon or which have been declared thereon and for which
moneys have been set apart and remain available for payment;
provided, however, that no such payment to the holders of
Cumulative Preference Shares shall be made until payment in full
shall have been made to the holders of Cumulative Preferred
Shares, or moneys made available for such payment in full, in
accordance with the provisions of Subdivision E of Division I.
If such payment shall have been made to the holders of the
Cumulative Preference Shares, or moneys made available for such
payment in full, the remaining assets and funds of the
corporation shall be distributed among the holders of the classes
of subordinate shares according to their respective rights and
preferences and in each case according to their respective
shares. If the assets available are not sufficient to pay in
full the amounts so payable to the holders of all outstanding
Cumulative Preference Shares, the holders of all series of such
shares shall share ratably in any distribution of assets in
proportion to the full amounts to which they would otherwise be
respectively entitled. The consolidation or merger of the
corporation into or with any other corporation or corporations
pursuant to the statutes of the State of Minnesota providing for
consolidation or merger shall not be deemed a liquidation,
dissolution or winding up of the affairs of the corporation
within the meaning of any of the provisions of this Subdivision
E.
F. Voting and Restrictions on Certain Corporate Action.
The holders of the Cumulative Preference Shares shall not be
entitled to vote at any meetings of the shareholders of the
corporation, except as required by law or as hereinafter
otherwise provided in this Subdivision F and in Division IV:
(1) So long as any Cumulative Preference Shares of any
series are outstanding, the corporation shall not, without
the consent (given by vote at a special meeting of
shareholders called for the purpose) of the holders of at
least two-thirds (2/3) of the aggregate voting power
(determined as hereinafter provided in Division IV) vested
in the Cumulative Preference Shares of all series then
outstanding:
(a) Create or authorize any shares of any class
(other than the Cumulative Preferred Shares, whether
now or hereafter authorized) ranking prior to the
Cumulative Preference Shares as to dividends or assets;
or
(b) Amend the Articles of Incorporation so as to
affect adversely any of the preferences or other rights
of the holders of the Cumulative Preference Shares,
provided, however, that if any such amendment would
affect adversely the holders of one or more, but not
all, of the series of Cumulative Preference Shares at
the time outstanding, consent only of the holders of at
least two-thirds (2/3) of the aggregate voting power
(determined as hereinafter provided in Division IV)
vested in the shares of each series so adversely
affected shall be required.
(2) So long as any Cumulative Preference Shares of any
series are outstanding, the corporation shall not, without
the consent (given by vote at a special meeting of
shareholders called for the purpose) of the holders (i) of
at least a majority of the aggregate voting power
(determined as hereinafter provided in Division IV) vested
in the Cumulative Preference Shares of all series then
outstanding, or (ii) in case of the negative vote at such
meeting of the holders of more than one-fourth (1/4) of the
aggregate voting power (determined as hereinafter provided
in Division IV) vested in the Cumulative Preference Shares
of all series then outstanding, of at least two-thirds (2/3)
of the aggregate voting power (determined as hereinafter
provided in Division IV) vested in the Cumulative Preference
Shares of all series then outstanding:
(a) Increase the authorized number of Cumulative
Preference Shares, or create or authorize any shares of
any class ranking on a parity with the Cumulative
Preference Shares as to dividends or assets; or
(b) Consolidate or merge into or with any other
corporation or corporations pursuant to the statutes of
the State of Minnesota providing for consolidation or
merger unless, immediately after such consolidation or
merger shall become effective, the Cumulative
Preference Shares of the corporation outstanding
immediately prior to such consolidation or merger shall
remain outstanding or be constituted as shares of the
corporation resulting from such consolidation or merger
in the same number and with the same relative rights,
voting power, preferences and restrictions as
theretofore, the authorized number thereof shall not be
increased, and there shall be no shares of the
resulting corporation outstanding or authorized ranking
prior to or on a parity with the Cumulative Preference
Shares, except shares of the corporation outstanding or
authorized immediately prior to such consolidation or
merger; or
(c) Sell, lease or exchange all or substantially
all of its property and assets, unless, after the
completion of such transaction, the fair value of the
assets of the corporation shall at least equal the
preference on voluntary liquidation of all Cumulative
Preference Shares of all series then outstanding and of
all shares then outstanding of a class on a parity with
the Cumulative Preference Shares, after first deducting
an amount equal to all then existing indebtedness of
the corporation and an amount equal to the preference
on voluntary liquidation of all shares ranking prior to
the Cumulative Preference Shares.
DIVISION III
Provisions Relating to Common Shares
A. Dividends. Subject to the preferential rights of the
holders of the Cumulative Preferred Shares and the Cumulative
Preference Shares with respect to the payment of dividends, as
set forth in Subdivision B of Division I and Subdivision B of
Division II, respectively, holders of the Common Shares shall be
entitled to receive dividends, out of any funds legally available
therefor, when and as declared by the Board of Directors.
B. Liquidation Preferences. In the event of any
dissolution, liquidation or winding-up of the affairs of the
corporation, whether voluntary or involuntary, holders of the
Common Shares shall be entitled to receive ratably, in accordance
with the numbers of shares held by them respectively, the assets
of the corporation available for payment to shareholders
remaining after payment in full shall have been made to holders
of the Cumulative Preferred Shares and the Cumulative Preference
Shares in accordance with the provisions of Subdivision E of
Division I and Subdivision E of Division II, respectively.
DIVISION IV
Voting Rights and Other Provisions
Relating to Cumulative Preferred Shares,
Cumulative Preference Shares and Common Shares
A. Voting Rights of Common Shares. Except as otherwise
expressly set forth in this Article VI and as provided by law,
the holders of Common Shares shall have the sole voting rights of
shareholders of the corporation and shall be entitled to one vote
for each share held, and the holders of a majority of the Common
Shares outstanding shall have power to authorize the sale, lease,
exchange or other disposal of all, or substantially all, of the
property and assets of the corporation, including its good will,
to adopt or reject an agreement of consolidation or merger and to
amend the Articles of Incorporation.
B. Voting Rights of Cumulative Preferred Shares.
(1) After an amount equivalent to four (4) full
quarterly dividend installments on the Cumulative Preferred
Shares of any series outstanding shall be in default, the
holders of Cumulative Preferred Shares of all series at the
time outstanding, voting separately as a class, shall, at
any annual meeting of the shareholders or any special
meeting of the shareholders called as herein provided
occurring during such period, elect three members of the
Board of Directors, and the holders of the Common Shares,
voting separately as a class, shall, subject to any rights
of the holders of Cumulative Preference Shares to elect
directors as provided in Subdivision C of this Division IV,
elect the remaining directors of the corporation.
(2) After an amount equivalent to twelve (12) full
quarterly dividend installments on the Cumulative Preferred
Shares of any series outstanding shall be in default, the
holders of Cumulative Preferred Shares of all series at the
time outstanding, voting separately as a class, shall at any
annual meeting of the shareholders or any special meeting of
the shareholders called as herein provided occurring during
such period, elect the smallest number of directors
necessary to constitute a majority of the full Board of
Directors, and the holders of the Common Shares, voting
separately as a class, shall, subject to any rights of the
holders of Cumulative Preference Shares to elect directors
as provided in Subdivision C of this Division IV, elect the
remaining directors of the corporation.
(3) At any annual meeting or special meeting of the
shareholders for the election of directors occurring after
all dividends then in default on the Cumulative Preferred
Shares then outstanding shall be paid (and such dividends
shall be declared and paid out of any funds legally
available therefor as soon as reasonably practical), the
Cumulative Preferred Shares shall thereupon be divested of
any special rights with respect to the election of directors
provided in paragraphs (1) and (2) of this Subdivision B,
but always subject to the same provisions for the vesting of
such voting power in the holders of the Cumulative Preferred
Shares in the case of a future like default or defaults in
dividends thereon.
(4) Voting power vested in the holders of the
Cumulative Preferred Shares as provided in paragraphs (1)
and (2) of this Subdivision B may be exercised at any annual
meeting of shareholders or at a special meeting of
shareholders held for such purpose, which special meeting of
shareholders shall be called by the proper officers of the
corporation at any time when such voting power shall be so
vested, within twenty (20) days after written request
therefor signed by the holders of not less than five percent
(5%) of the aggregate voting power (determined as
hereinafter provided in Subdivision D of this Division IV)
vested in the Cumulative Preferred Shares of all series then
outstanding, the date of such special meeting to be not more
than forty (40) days from the date of giving of notice
thereof.
(5) Notice of any annual or special meeting of
shareholders for the election of directors held when voting
powers as aforesaid shall be vested in the holders of
Cumulative Preferred Shares shall be given to all holders of
Cumulative Preferred Shares not less than fifteen (15) days
prior to said meeting, and such notice shall describe with
particularity the voting rights of the holders of each
series of Cumulative Preferred Shares.
(6) At any such annual or special meeting the presence
in person or by proxy of the holders of a majority of the
aggregate voting power (determined as hereinafter provided
in Subdivision D of this Division IV) vested in the
Cumulative Preferred Shares of all series then outstanding
shall be required to constitute a quorum of the holders of
the Cumulative Preferred Shares for the election by them of
the directors whom they are entitled to elect; provided,
however, that the holders of a majority of the aggregate
voting power (determined as hereinafter provided in
Subdivision D of this Division IV) vested in the Cumulative
Preferred Shares who are present in person or by proxy shall
have power to adjourn such meeting for the election of
directors by the holders of the Cumulative Preferred Shares
from time to time, without notice other than announcement at
the meeting.
C. Voting Rights of Cumulative Preference Shares.
(1) After an amount equivalent to four (4) full
quarterly dividend installments on the Cumulative Preference
Shares of any series outstanding shall be in default, the
holders of Cumulative Preference Shares of all series at the
time outstanding, voting separately as a class, shall, at
any annual meeting of the shareholders or any special
meeting of the shareholders called as herein provided
occurring during such period, elect two members of the Board
of Directors, and the holders of the Common Shares, voting
separately as a class, shall, subject to any rights of the
holders of Cumulative Preferred Shares to elect directors as
provided in Subdivision B of this Division IV, elect the
remaining directors of the corporation.
(2) At any annual meeting or special meeting of the
shareholders for the election of directors occurring after
all dividends then in default on the Cumulative Preference
Shares then outstanding shall be paid (and such dividends
shall be declared and paid out of any funds legally
available therefor as soon as reasonably practical), the
Cumulative Preference Shares shall thereupon be divested of
any special rights with respect to the election of directors
provided for in paragraph (1) of this Subdivision C, but
always subject to the same provisions for the vesting ofsuch
voting power in the holders of the Cumulative Preference
Shares in the case of a future like default or defaults in
dividends thereon.
(3) All provisions of paragraphs (4), (5) and (6) of
Subdivision B of this Division IV with respect to the method
of exercising the special voting rights of the holders of
Cumulative Preferred Shares shall be applicable to the
special voting rights of the holders of Cumulative
Preference Shares in the same manner and with the same force
and effect as though such provisions were set forth in full
in this Subdivision C.
D. Number of Votes Applicable to Each Cumulative Preferred
Share and to Each Cumulative Preference Share. For the purpose
of each vote or consent under the Articles of Incorporation or
pursuant to applicable law, the number of votes to which each
Cumulative Preferred Share and each Cumulative Preference Share
shall be entitled shall be determined as follows:
(a) In voting by holders of Cumulative Preferred
Shares, separately as a class, or by series, each Cumulative
Preferred Share entitled to receive the smallest fixed
amount (in addition to accrued and unpaid dividends, if any)
in the event of any dissolution, liquidation or winding-up
of the affairs of the corporation which shall be involuntary
shall have one vote, and each Cumulative Preferred Share
entitled to receive a greater fixed amount (in addition to
accrued and unpaid dividends, if any) in any such event
shall have the number of votes which is in the same
proportion as such greater amount shall be to such smallest
amount;
(b) In voting by holders of Cumulative Preference
Shares, separately as a class, or by series, each Cumulative
Preference Share entitled to receive the smallest fixed
amount (in addition to accrued and unpaid dividends, if any)
in the event of any dissolution, liquidation or winding up
of the affairs of the corporation which shall be involuntary
shall have one vote, and each Cumulative Preference Share
entitled to receive a greater fixed amount (in addition to
accrued and unpaid dividends, if any) in any such event
shall have the number of votes which is in the same
proportion as such greater amount shall be to such smallest
amount; and
(c) In voting by holders of Cumulative Preferred
Shares and/or Cumulative Preference Shares and/or holders of
Common Shares, together as a single class, each Common Share
shall have one vote, each Cumulative Preferred Share and
each Cumulative Preference Share entitled to receive $100
(in addition to accrued and unpaid dividends, if any) in the
event of any dissolution, liquidation or winding up of the
affairs of the corporation which shall be involuntary shall
have one vote and each Cumulative Preferred Share and each
Cumulative Preference Share entitled to receive a different
fixed amount (in addition to accrued and unpaid dividends,
if any) in such event shall be entitled to such greater or
lesser number of votes which is in the same proportion as
such different amount shall be to $100.
E. Number and Term of Directors and Manner of Election.
(1) Except at such times as the holders of
Cumulative Preferred Shares and/or Cumulative Preference
Shares shall have voting rights for the election of
directors, (a) the Board of Directors shall consist of such
number of persons, not less than seven (7) nor more than
nine (9), as may be determined by the shareholders from time
to time at annual meetings thereof (subject to the authority
of the Board of Directors to increase or decrease the number
of directors as permitted by law), (b) the term of office of
each director other than directors elected to fill vacancies
shall be for the period ending at the third annual meeting
following his election and until his successor is elected
and qualified, (c) vacancies in the Board of Directors
occurring by reason of death, resignation, removal or
disqualification shall be filled for the unexpired term of
the director with respect to whom the vacancy occurred by a
majority of the remaining directors of the Board of
Directors, although less than a quorum, and (d) vacancies in
the Board of Directors occurring by reason of newly created
directorships resulting from an increase in the authorized
number of directors by action of the Board of Directors as
permitted by these Articles of Incorporation and the Bylaws
of the corporation shall be filled by a majority vote of the
directors serving at the time of such increase, each
director so elected to a newly created directorship to serve
for the appropriate term so as to maintain, as near as may
be, an equal division between the classes of directors.
Notwithstanding any other provisions of these Articles of
Incorporation or the Bylaws of the corporation or the fact
that a lesser percentage may be specified by law, these
Articles of Incorporation or the Bylaws of the corporation,
the affirmative vote of the holders of at least 75% of the
voting power of the then outstanding Common Shares shall be
required to amend, alter, adopt any provision inconsistent
with or repeal this paragraph (1) of Subdivision E of this
Division IV unless the Board of Directors, if all such
directors are Continuing Directors, as defined in this
Article VI, shall unanimously recommend such amendment,
alteration, adoption or repeal.
(2) If at any time the holders of Cumulative Preferred
Shares and/or Cumulative Preference Shares of the
corporation shall, under the provisions of paragraph (1) of
Subdivision B of this Division IV or of paragraph (1) of
Subdivision C of this Division IV, become entitled to elect
any directors, then the terms of all incumbent directors
shall expire at the time of the first annual meeting
thereafter at which such holders of Cumulative Preferred
Shares and/or Cumulative Preference Shares are so entitled
to elect directors. If at any time the holders of
Cumulative Preferred Shares of the corporation shall, under
the provisions of paragraph (2) of Subdivision B of this
Division IV, become entitled to elect a majority of the
Board of Directors, the terms of all incumbent directors
shall expire whenever such majority has been duly elected
and qualified. During any period during which the holders
of Cumulative Preferred Shares and/or Cumulative Preference
Shares of the corporation shall have voting rights with
respect to directors under the provisions of this Division
IV, the Board of Directors shall consist of eleven (11)
persons and the entire number of persons composing such
Board shall be elected at each annual or special meeting of
shareholders for the election of directors and shall serve
until the next such annual or special meeting or until their
successors have been elected and qualified, provided,
however, that whenever the holders of Cumulative Preferred
Shares and/or Cumulative Preference Shares acquire voting
rights under paragraph (1) of Subdivision B of this Division
IV or under paragraph (1) of Subdivision C of this Division
IV, and exercise such rights at a special meeting called
therefor, the terms of office of directors theretofore
elected by the holders of Common Shares will not expire
until the next annual meeting. If a vacancy or vacancies in
the Board of Directors shall exist with respect to a
director or directors who shall have been elected by the
holders of either Cumulative Preferred Shares or Cumulative
Preference Shares, the remaining directors elected by the
holders of Cumulative Preferred Shares or Cumulative
Preference Shares, as the case may be, by affirmative vote
of a majority thereof, or the remaining director so elected
if there be but one, may elect a successor or successors to
hold office for the unexpired term of the director or
directors whose place or places shall be vacant. Likewise,
if a vacancy or vacancies shall exist with respect to a
director or directors who shall have been elected by the
holders of Common Shares, the remaining directors elected by
the holders of Common Shares, by affirmative vote of a
majority thereof, or the remaining director so elected if
there be but one, may elect a successor or successors to
hold office for the unexpired term of the director or
directors whose place or places shall be vacant.
(3) Whenever the Cumulative Preferred Shares shall be
divested of voting powers with respect to the election of
directors as provided in paragraph (3) of Subdivision B of
this Division IV, the terms of all incumbent directors,
other than directors elected by the holders of Cumulative
Preference Shares pursuant to Subdivision C of this
Division IV, shall expire upon the election of their
successors by the holders of the Common Shares at the next
annual or special meeting of shareholders for the election
of directors. A special meeting shall be called for such
purpose within twenty (20) days after the written request
therefor signed by the holders of not less than five percent
(5%) of the Common Shares outstanding, the date of such
special meeting to be not more than forty (40) days from the
date of giving of notice thereof. Upon the election and
qualification of directors by the holders of Common Shares
as aforesaid the provisions of paragraph (1) of Subdivision
E of this Division IV shall again control, unless at that
time the holders of Cumulative Preference Shares have voting
rights for the election of directors.
(4) Whenever the Cumulative Preference Shares shall be
divested of voting powers with respect to the election of
directors as provided in paragraph (2) of Subdivision C of
this Division IV, the terms of all incumbent directors,
other than directors elected by the holders of Cumulative
Preferred Shares pursuant to Subdivision B of this
Division IV, shall expire on the election of their
successors by the holders of the Common Shares at the next
annual or special meeting of shareholders for the election
of directors. A special meeting shall be called for such
purpose within twenty (20) days after the written request
therefor signed by the holders of not less than five percent
(5%) of the Common Shares outstanding, the date of such
special meeting to be not more than forty (40) days from the
date of giving of notice thereof. Upon the election and
qualification of directors by the holders of Common Shares
as aforesaid, the provisions of paragraph (1) of Subdivision
E of this Division IV shall again control, unless at that
time the holders of Cumulative Preferred Shares have voting
rights for the election of directors.
F. Cumulative Voting. The holders of Common Shares of the
corporation shall have no right to cumulate votes in the election
of directors. If notice in writing is given by any holder of
Cumulative Preferred Shares or Cumulative Preference Shares to
any officer of the corporation before a meeting for the election
of directors at which such shareholder is entitled to vote, or to
the presiding officer at such meeting at any time before the
election of directors takes place, that he intends to cumulate
his votes in such election, each holder of shares of the class
with respect to which such notice has been given shall have the
right to multiply the number of votes to which he may be entitled
by the number of directors to be elected by the holders of shares
of such class, and he may cast all such votes for one candidate
or distribute them among any two or more candidates. In such
case, it shall be the duty of the presiding officer, before the
election of directors at the meeting, to announce that all
shareholders of the class with respect to which such notice has
been given shall cumulate their votes.
G. Preemptive Rights. No holder of shares of the
corporation of any class or of any security or obligation
convertible into, or of any warrant, option or right to purchase,
subscribe for or otherwise acquire, shares of any class of the
corporation, whether now or hereafter authorized, shall, as such
holder, have any preemptive or preferential right whatsoever to
purchase, subscribe for or otherwise acquire shares of any class
of the corporation or of any security or obligation convertible
into, or of any warrant, option or right to purchase, subscribe
for or otherwise acquire, shares of any class of the corporation,
whether now or hereafter authorized, other than such rights of
subscription, if any, as the Board of Directors may from time to
time determine.
DIVISION V
Voting Rights of Common Shares
Relating To Certain Business Combinations
A. In addition to any other affirmative vote required by
law or these Articles of Incorporation, and except as otherwise
expressly provided in Subdivision B of this Division V,
1. any merger or consolidation of the corporation or
any Subsidiary (as hereinafter defined) with (a) an
Interested Shareholder (as hereinafter defined) or (b) any
other corporation (whether or not itself an Interested
Shareholder) which is, or after such merger or consolidation
would be, an Affiliate or Associate (as such terms are
hereinafter defined) of an Interested Shareholder, or
2. any sale, lease, exchange, mortgage, pledge, grant
of a security interest, transfer or other disposition (in
one transaction or a series of transactions), other than in
the ordinary course of business, to or with (a) an
Interested Shareholder or (b) any other person (whether or
not itself an Interested Shareholder) which is, or after
such sale, lease, exchange, mortgage, pledge, grant of a
security interest, transfer or other disposition would be,
an Affiliate or Associate of an Interested Shareholder,
directly or indirectly, of all or any Substantial Part (as
hereinafter defined) of the assets of the corporation
(including, without limitation, any voting securities of a
Subsidiary) or any Subsidiary, or both, or
3. the issuance or transfer by the corporation or any
Subsidiary (in one transaction or a series of transactions)
of any securities (except pursuant to stock dividends, stock
splits or similar transactions which would not have the
effect of increasing the proportionate voting power of an
Interested Shareholder) of the corporation or any
Subsidiary, or both, to (a) an Interested Shareholder or
(b) any other person (whether or not itself an Interested
Shareholder) which is, or after such issuance or transfer
would be, an Affiliate or Associate of an Interested
Shareholder, or
4. the adoption of any plan or proposal for the
liquidation or dissolution of the corporation proposed by or
on behalf of an Interested Shareholder or any Affiliate or
Associate of an Interested Shareholder, or
5. any reclassification of securities (including any
reverse stock split), or recapitalization of the
corporation, or any merger or consolidation of the
corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise
involving an Interested Shareholder) which has the effect,
directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or
convertible securities of the corporation or any subsidiary
directly or indirectly beneficially owned by (a) an
Interested Shareholder or (b) any other person (whether or
not itself an Interested Shareholder) which is, or after
such reclassification, recapitalization, merger or
consolidation or other transaction would be, an Affiliate or
Associate of an Interested Shareholder,
shall not be consummated unless such consummation shall have been
approved by the affirmative vote of the holders of at least 75%
of the voting power of the then outstanding Common Shares. Such
affirmative vote shall be required notwithstanding the fact that
no vote may be required, or that a lesser percentage may be
specified, by law, in these Articles of Incorporation or in any
agreement with any national securities exchange or otherwise.
B. The provisions of Subdivision A of this Division V
shall not be applicable to any particular Business Combination
(as hereinafter defined) and such Business Combination shall
require only such affirmative vote as is required by law and any
other provision of these Articles of Incorporation, if the
Business Combination shall have been approved by a majority of
the Continuing Directors (as hereinafter defined) or all of the
following conditions shall have been met:
1. The transaction constituting the Business
Combination shall provide for a consideration to be received
by all holders of Common Shares in exchange for all their
Common Shares, and the aggregate amount of the cash and the
Fair Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to be
received per share by holders of Common Shares in such
Business Combination shall be at least equal to the higher
of the following:
(a) (if applicable) the highest per-share price
(including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid in order to acquire
any Common Shares beneficially owned by an Interested
Shareholder (i) within the two-year period immediately
prior to the Announcement Date (as hereinafter
defined), (ii) within the two-year period immediately
prior to the Determination Date (as hereinafter
defined) or (iii) in the transaction in which it became
an Interested Shareholder, whichever is highest; or
(b) the Fair Market Value per Common Share on the
Announcement Date or on the Determination Date,
whichever is higher.
2. The consideration to be received by holders of
Common Shares shall be in cash or in the same form as was
previously paid in order to acquire the Common Shares that
are beneficially owned by an Interested Shareholder and, if
an Interested Shareholder beneficially owns Common Shares
that were acquired with varying forms of consideration, the
form of consideration for such Common Shares shall be either
cash or the form used to acquire the largest number
beneficially owned by it. The price determined in
accordance with paragraph 1 of this Subdivision B shall be
subject to appropriate adjustment in the event of any
recapitalization, stock dividend, stock split, combination
of shares or similar event.
3. After such Interested Shareholder has become an
Interested Shareholder and prior to the consummation of such
Business Combination:
(a) except as approved by a majority of the
Continuing Directors, there shall have been no failure
to declare and pay at the regular date therefor the
full amount of any dividends (whether or not
cumulative) payable on any outstanding Cumulative
Preferred Shares or Cumulative Preference Shares;
(b) there shall have been (i) no reduction in the
annual rate of dividends paid on the Common Shares
(except as necessary to reflect any subdivision of the
Common Shares) other than as approved by a majority of
the Continuing Directors and (ii) an increase in such
annual rate of dividends as necessary to prevent any
such reduction in the event of any reclassification
(including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the
effect of reducing the number of outstanding Common
Shares, unless the failure so to increase such annual
rate is approved by a majority of the Continuing
Directors; and
(c) such Interested Shareholder shall not have
become the beneficial owner of any additional Common
Shares except as part of the transaction in which it
became an Interested Shareholder.
4. After such Interested Shareholder has become an
Interested Shareholder, such Interested Shareholder shall
not have received the benefit, directly or indirectly
(except proportionately as a shareholder), of any loans,
advances, guarantees, pledges or other financial assistance
or any tax credits or other tax advantages provided by the
corporation, whether in anticipation of or in connection
with such Business Combination or otherwise; and
5. A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934 and the
rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall
be mailed to the shareholders of the corporation, no later
than the earlier of (a) 30 days prior to any vote on the
proposed Business Combination or (b) if no vote on such
Business Combination is required, 60 days prior to the
consummation of such Business Combination (whether or not
such proxy or information statement is required to be mailed
pursuant to such Act or subsequent provisions). Such proxy
statement shall contain at the front thereof, in a prominent
place, any recommendations as to the advisability (or
inadvisability) of the Business Combination which the
Continuing Directors, or any of them, may have furnished in
writing and, if deemed advisable by a majority of the
Continuing Directors, an opinion of a reputable investment
banking firm as to the fairness (or lack of fairness) of the
terms of such Business Combination, from the point of view
of the holders of the Common Shares other than an Interested
Shareholder (such investment banking firm to be selected by
a majority of the Continuing Directors, to be furnished with
all information it reasonably requests and to be paid a
reasonable fee for its services upon receipt by the
corporation of such opinion).
C. For the purposes of this Division V:
1. "Business Combination" shall mean any transaction
that is referred to in any one or more of paragraphs 1
through 5 of Subdivision A of this Division V.
2. "Person" shall mean any individual, firm, trust,
partnership, association, corporation or other entity.
3. "Interested Shareholder" shall mean any person
(other than the corporation or any Subsidiary) who or which:
(a) is the beneficial owner, directly or
indirectly, of more than 10% of the voting power of the
then outstanding Common Shares; or
(b) is an Affiliate of the corporation and at any
time within the two-year period immediately prior to
the date in question was the beneficial owner, directly
or indirectly, of more than 10% of the voting power of
the then outstanding Common Shares; or
(c) is an assignee of or has otherwise succeeded
to the beneficial ownership of any Common Shares which
were, at any time within the two-year period
immediately prior to the date in question, beneficially
owned by an Interested Shareholder, unless such
assignment or succession shall have occurred pursuant
to a Public Transaction (as hereinafter defined) or any
series of transactions involving a Public Transaction.
For the purpose of determining whether a person is an
Interested Shareholder, the number of Common Shares deemed
to be outstanding shall include shares deemed owned through
application of paragraph 5 below, but shall not include any
other Common Shares that may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
4. "Public Transaction" shall mean any (a) purchase
of shares offered pursuant to an effective registration
statement under the Securities Act of 1933 or (b) open-
market purchase of shares on a national securities exchange
or in the over-the-counter market if, in either such case,
the price and other terms of sale are not negotiated by the
purchaser and the seller of the beneficial interest in the
shares.
5. A person shall be a "beneficial owner" of any
Common Shares:
(a) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly;
or
(b) which such person or any of its Affiliates or
Associates has (i) the right to acquire (whether such
right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement
or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or
otherwise or (ii) the right to vote or to direct the
voting thereof pursuant to any agreement, arrangement
or understanding; or
(c) which is beneficially owned, directly or
indirectly, by any other person with which such person
or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any
Common Shares.
6. "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of
the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on January 1, 1986.
7. "Subsidiary" shall mean any corporation of which a
majority of any class of equity security (as defined in Rule
3all-1 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on January 1,
1986) is owned, directly or indirectly, by the corporation;
provided, however, that, for purposes of the definition of
Interested Shareholder set forth in paragraph 3, the term
"Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly
or indirectly, by the corporation.
8. "Continuing Director" shall mean any member of the
Board of Directors of the corporation who (1) is not an
Affiliate or Associate of, and not a nominee of, an
Interested Shareholder having any interest, direct or
indirect, in the proposed Business Combination and (2) was a
member of the Board of Directors prior to the time that such
Interested Shareholder became an Interested Shareholder, and
any successor of a Continuing Director who is not an
Affiliate or Associate of, and not a nominee of, such
Interested Shareholder and is recommended to succeed a
Continuing Director by a majority of Continuing Directors
then on the Board of Directors.
9. "Announcement Date" shall mean the date of the
first public announcement of the proposed Business
Combination.
10. "Determination Date" shall mean the date on which
an Interested Shareholder became an Interested Shareholder.
11. "Fair Market Value" shall mean: (a) in the case
of stock, the highest closing sale price during the 30-day
period immediately preceding the date in question of a share
of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if such stock is not quoted on
the Composite Tape, on the New York Stock Exchange, or, if
such stock is not listed on such Exchange, on the principal
United States securities exchange registered under the
Securities Exchange Act of 1934 on which such stock is
listed, or, if such stock is not listed on any such
exchange, the highest closing bid quotation or last reported
sale price, whichever is applicable, with respect to a share
of such stock during the 30-day period preceding the date in
question on the National Association of Securities Dealers,
Inc. Automated Quotations System or any system then in use,
or if no such quotations are available, the fair market
value on the date in question of a share of such stock as
determined by a majority of the Continuing Directors in good
faith; and (b) in the case of property other than cash or
stock, the fair market value of such property on the date in
question as determined by a majority of the Continuing
Directors in good faith.
12. "Substantial Part" shall mean more than 30% of the
fair market value of the total assets of the corporation as
of the end of its most recent fiscal year ending prior to
the time the determination is being made.
D. A majority of the Continuing Directors shall have the
power and duty to determine for the purposes of this Division V,
on the basis of information known to them after reasonable
inquiry, all facts necessary to determine compliance with this
Division V, including, without limitation, (1) whether a person
is an Interested Shareholder, (2) the number of Common Shares
beneficially owned by any person, (3) whether a person is an
Affiliate or Associate of another, (4) whether the assets which
are the subject of any Business Combination constitute a
Substantial Part of the assets of the corporation or the
Subsidiary, or both, (5) whether the requirements of
Subdivision B of this Division V have been met, and (6) such
other matters with respect to which a determination is required
under this Division V. The good faith determination of a
majority of the Continuing Directors on such matters shall be
conclusive and binding for all purposes of this Division V.
E. Nothing contained in this Division V shall be construed
to relieve an Interested Shareholder from any fiduciary
obligation imposed by law.
F. Notwithstanding any other provisions of these Articles
of Incorporation or the Bylaws of the corporation or the fact
that a lesser percentage may be specified by law, these Articles
of Incorporation or the Bylaws of the corporation, the
affirmative vote of the holders of at least 75% of the voting
power of the then outstanding Common Shares, shall be required to
amend, alter, adopt any provision inconsistent with or repeal
this Division V unless the Board of Directors, if all such
directors are Continuing Directors, shall unanimously recommend
such amendment, alteration, adoption or repeal.
DIVISION VI
Provisions Relating to Purchases
Of Common Shares Of The Corporation
A. Except as otherwise expressly provided in this Division
VI, the corporation may not purchase any Common Shares at a per-
share price in excess of the Fair Market Price (as hereinafter
defined) as of the time of such purchase from a person known by
the corporation to be a Substantial Shareholder (as hereinafter
defined), unless such purchase has been approved by the
affirmative vote of the holders of at least two-thirds (2/3) of
the Common Shares voted thereon held by Disinterested
Shareholders (as hereinafter defined). Such affirmative vote
shall be required notwithstanding the fact that no vote may be
required or that a lesser percentage may be specified by law, in
these Articles of Incorporation or in any agreement with any
national securities exchange or otherwise.
B. The provisions of this Division VI shall not apply to
(1) any purchase pursuant to an offer to purchase which is made
on the same terms and conditions to the holders of all of the
outstanding Common Shares or (2) any open market purchase that
constitutes a Public Transaction (as hereinafter defined).
C. For the purposes of this Division VI:
1. The terms "Continuing Director," "Person," "Public
Transaction," "Affiliate" and "Associate" shall have the
meanings given to them in Division V of this Article VI.
2. "Substantial Shareholder" shall mean any person
(other than any employee benefit plan or trust of the
corporation or any similar entity) who or which:
(a) is the beneficial owner of more than 10% of
the voting power of the then outstanding Common Shares,
the acquisition of any shares of which has occurred
within the two-year period immediately prior to the
date on which the corporation purchases any such
shares; or
(b) is an assignee of or has otherwise succeeded
to the beneficial ownership of any Common Shares
beneficially owned by a Substantial Shareholder, unless
such assignment or succession shall have occurred
pursuant to a Public Transaction or any series of
transactions involving a Public Transaction and, with
respect to all Common Shares owned by such person, such
person has been the beneficial owner of any such shares
for a period of less than two years (including, for
these purposes, the holding period of the Substantial
Shareholder from whom such person acquired shares).
For the purposes of determining whether a person is a
Substantial Shareholder, the number of Common Shares deemed
to be outstanding shall include shares deemed owned through
application of paragraph 5 below, but shall not include any
other Common Shares which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
3. "Disinterested Shareholders" shall mean those
holders of Common Shares who are not Substantial
Shareholders.
4. "Fair Market Price" shall mean the highest closing
sale price on the Composite Tape for New York Stock
Exchange-Listed Stocks during the 30-day period immediately
preceding the date in question of a Common Share or, if such
Common Shares are not quoted on the Composite Tape, on the
New York Stock Exchange or, if such Common Shares are not
listed on such Exchange, on the principal United States
securities exchange registered under the Securities Exchange
Act of 1934 on which such Common Shares are listed, or, if
such Common Shares are not listed on any such exchange, the
highest closing bid quotation with respect to a Common Share
during the 30-day period preceding the date in question on
the National Association of Securities Dealers, Inc.
Automated Quotations System or any system then in use, or,
if no such quotations are available, the fair market value
on the date in question of a Common Share, as determined by
a majority of the Board of Directors in good faith.
5. A person shall be a "beneficial owner" of any
Common Shares:
(a) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly;
or
(b) which such person or any of its Affiliates or
Associates has (i) the right to acquire (whether such
right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement
or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or
otherwise or (ii) the right to vote or to direct the
voting thereof pursuant to any agreement, arrangement
or understanding; or
(c) which is beneficially owned, directly or
indirectly, by any other person with which such person
or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any
Common Shares.
D. A majority of the Board of Directors shall have the
power and duty to determine for the purposes of this Division VI,
on the basis of information known to them after reasonable
inquiry, all facts necessary to determine compliance with this
Division VI, including without limitation, (1) whether a person
is a Substantial Shareholder, (2) the number of Common Shares
beneficially owned by any person, (3) whether a person is an
Affiliate or Associate of another, (4) whether a price is in
excess of the Fair Market Price, (5) whether a purchase
constitutes a Public Transaction, and (6) such other matters with
respect to which a determination is required under this
Division VI. The good faith determination of a majority of the
Board of Directors on such matters shall be conclusive and
binding for all purposes of this Division VI.
E. Nothing contained in this Division VI shall be
construed to relieve a Substantial Shareholder from any fiduciary
obligation imposed by law.
F. Notwithstanding any other provisions of these Articles
of Incorporation or the Bylaws of the corporation or the fact
that a lesser percentage may be specified by law, these Articles
of Incorporation or the Bylaws of the corporation, the
affirmative vote of the holders of at least 75% of voting power
of the then outstanding Common Shares shall be required to amend,
alter, adopt any provision inconsistent with or repeal this
Division VI unless the Board of Directors, if all such directors
are Continuing Directors, shall unanimously recommend such
amendment, alteration, adoption or repeal.
ARTICLE VII.
The Board of Directors of the corporation shall have
authority to accept or reject subscriptions for shares.
ARTICLE VIII.
Except as herein otherwise limited or qualified, the
corporation reserves the right to amend, alter, change or repeal
any of the terms or provisions of these Articles of
Incorporation, all in the manner now or hereafter prescribed by
the laws of the State of Minnesota, and all rights conferred
herein upon officers, directors and shareholders of the
corporation are granted subject to this reservation.
ARTICLE IX.
The Board of Directors shall have the power, to the extent
permitted by law, to adopt, amend or repeal the Bylaws of the
corporation, subject to the power of the shareholders to adopt,
amend or repeal such Bylaws. Bylaws fixing the number of
directors or their classifications, qualifications, or terms of
office, or prescribing procedures for removing such directors may
be adopted, amended or repealed only by (i) the Board of
Directors, to the extent permitted by law, or (ii) the
affirmative vote of the holders of 75% of the outstanding Common
Shares of the corporation or such lesser percentage of the
outstanding Common Shares as may from time to time be provided in
such Bylaws.
Notwithstanding any other provisions of these Articles of
Incorporation or the Bylaws of the corporation or the fact that a
lesser percentage may be specified by law, these Articles of
Incorporation or the Bylaws of the corporation, the affirmative
vote of the holders of at least 75% of the voting power of the
then outstanding Common Shares shall be required to amend, alter,
adopt any provision inconsistent with, or repeal this Article IX
unless the Board of Directors, if all such directors are
Continuing Directors, as defined in Article VI of the Articles of
Incorporation, shall unanimously recommend such amendment,
alteration, adoption or repeal.
ARTICLE X.
A director of the corporation shall not be personally liable
to the corporation or its shareholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the
corporation or its shareholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Sections 302A.559 or 80A.23
of the Minnesota Statutes; (iv) for any transaction from which
the director derived an improper personal benefit; or (v) for any
act or omission occurring prior to the date when this Article X
became effective.
Any repeal or modification of the foregoing provisions of
this Article X shall not adversely affect any right or protection
of a director of the corporation existing at the time of such
repeal or modification.
RESOLUTIONS OF BOARD OF DIRECTORS
ESTABLISHING SERIES OF
CUMULATIVE PREFERRED SHARES
$3.60 Cumulative Preferred Shares
The Board of Directors of the corporation adopted the
following resolution on August 12, 1946, which was filed with the
Secretary of State of Minnesota on August 13, 1946:
Resolution
Pursuant to authority conferred on the Board of Directors of
Otter Tail Power Company, a Minnesota corporation, by Article VI
of the Articles of Incorporation, as amended, BE IT RESOLVED that
an initial series of Cumulative Preferred Shares be and it hereby
is created as follows:
A. The designation of such series shall be "$3.60
Cumulative Preferred Shares," and the number of shares of such
series shall be sixty thousand (60,000);
B. The rate of dividends payable on the $3.60 Cumulative
Preferred Shares shall be Three & 60/100 Dollars -- ($3.60) per
annum, payable quarterly on the first days of March, June,
September and December in each year and such dividends shall be
cumulative and accrue in the case of shares issued prior to the
record date for the first dividend thereon from and including
September 1, 1946;
C. The $3.60 Cumulative Preferred Shares shall be
redeemable at One Hundred Two & 25/100 dollars -- ($102.25) per
share, together, as provided in said Articles of Incorporation,
with accrued dividends to the redemption date;
D. The amount payable on $3.60 Cumulative Preferred
Shares, in the event of any dissolution, liquidation or winding
up of the affairs of the corporation which shall be voluntary,
shall be the sum of One Hundred Two & 25/100 Dollars ($102.25)
per share, and the amount payable on $3.60 Cumulative Preferred
Shares, in the event of any dissolution, liquidation or winding
up of the affairs of the corporation which shall be involuntary,
shall be One Hundred Dollars ($100) per share, together in either
event, as provided in said Articles of Incorporation, with a sum,
in the case of each share, computed at the annual dividend rate
for the $3.60 Cumulative Preferred Shares, from the date on which
dividends on such share become cumulative to and including the
date fixed for such distribution or payment, less the aggregate
amount of all dividends which have theretofore been paid thereon
or which have been declared thereon and for which moneys for
payment have been set apart and remain available for payment.
$4.40 Cumulative Preferred Shares
The Board of Directors of the corporation adopted the
following resolution on March 6, 1950, which was filed with the
Secretary of State of Minnesota on March 8, 1950:
Resolution
Pursuant to authority conferred on the Board of Directors of
Otter Tail Power Company, a Minnesota corporation, by Article VI
of its Articles of Incorporation, as amended, BE IT RESOLVED that
a second series of Cumulative Preferred Shares be and it hereby
is created as follows:
A. The designation of such series shall be "$4.40
Cumulative Preferred Shares," and the number of shares of such
series shall be twenty-five thousand (25,000);
B. The rate of dividends payable on the $4.40 Cumulative
Preferred Shares shall be $4.40 per share per annum, payable
quarterly on the first days of March, June, September and
December of each year and such dividends shall be cumulative and
accrue in the case of shares issued prior to the record date for
the first dividend thereon from and including March 15, 1950;
C. The $4.40 Cumulative Preferred Shares shall be
redeemable at $104 per share if redeemed on or before March 15,
1955; at $103 if redeemed thereafter and on or before March 15,
1960; and at $102 per share if redeemed thereafter, together, as
provided in said Articles of Incorporation, in each instance with
accrued dividends to the redemption date;
D. The amount payable on $4.40 Cumulative Preferred Shares
in the event of any dissolution, liquidation or winding up of the
affairs of the corporation which shall be voluntary, shall be the
price at which said shares are at the time redeemable, and the
amount payable on $4.40 Cumulative Preferred Shares in the event
of any dissolution, liquidation or winding up of the affairs of
the Company which shall be involuntary, shall be One Hundred
Dollars ($100.00) per share together in either event as provided
in said Articles of Incorporation, with a sum, in the case of
each share, computed at the annual dividend rate for the $4.40
Cumulative Preferred Shares from the date on which dividends on
such share become cumulative to and including the date fixed for
such distribution or payment, less the aggregate amount of all
dividends which have heretofore been paid thereon or which have
been declared thereon and for which moneys for payment have been
set apart and remain available for payment.
$4.65 Cumulative Preferred Shares
The Board of Directors of the corporation adopted the
following resolution on March 24, 1964, which was filed with the
Secretary of State of Minnesota on March 25, 1964:
Resolution
Pursuant to authority conferred on the Board of Directors of
Otter Tail Power Company, a Minnesota corporation, by Article VI
of its Articles of Incorporation, as amended, BE IT RESOLVED that
a third series of Cumulative Preferred Shares be, and it hereby
is, created as follows:
A. The designation of such series shall be "$4.65
Cumulative Preferred Shares," and the number of shares of such
series shall be thirty thousand (30,000);
B. The rate of dividends payable on the $4.65 Cumulative
Preferred Shares shall be $4.65 per share per annum, payable
quarterly on the first days of March, June, September and
December of each year, and such dividends shall be cumulative and
accrue in the case of shares issued prior to the record date for
the first dividend thereon from and including the date of
issuance thereof;
C. The $4.65 Cumulative Preferred Shares shall be
redeemable at $107.50 per share if redeemed on or before April 1,
1969; at $106.00 per share if redeemed thereafter and on or
before April 1, 1974; at $104.50 per share if redeemed thereafter
and on or before April 1, 1979; at $103.00 per share if redeemed
thereafter and on or before April 1, 1984; and at $101.50 per
share if redeemed thereafter together, as provided in said
Articles of Incorporation, in each instance, with accrued
dividends to the redemption date; and
D. The amount payable on $4.65 Cumulative Preferred Shares
in the event of any dissolution, liquidation or winding up of the
affairs of the corporation which shall be voluntary shall be the
price at which said shares are at the time redeemable, and the
amount payable on $4.65 Cumulative Preferred Shares in the event
of any dissolution, liquidation or winding up of the affairs of
the Company which shall be involuntary shall be One Hundred
Dollars ($100.00) per share together in either event as provided
in said Articles of Incorporation, with a sum, in the case of
each share, computed at the annual dividend rate for the $4.65
Cumulative Preferred Shares from the date on which dividends on
such share become cumulative to and including the date fixed for
such distribution or payment, less the aggregate amount of all
dividends which have heretofore been paid thereon or which have
been declared thereon and for which moneys for payment have been
set apart and remain available for payment.
$9.50 Cumulative Preferred Shares
The Board of Directors of the corporation adopted the
following resolution on August 9, 1971, which was filed with the
Secretary of State of Minnesota on August 20, 1971:
Resolution
Pursuant to authority conferred on the Board of Directors of
Otter Tail Power Company, a Minnesota corporation, by Article VI
of its Articles of Incorporation, as amended, BE IT RESOLVED that
a fourth series of Cumulative Preferred Shares be, and it hereby
is, created as follows:
A. The designation of such series shall be "$9.50
Cumulative Preferred Shares," and the number of shares of such
series shall be forty thousand (40,000);
B. The rate of dividends payable on the $9.50 Cumulative
Preferred Shares shall be $9.50 per share per annum, payable
quarterly on the first days of March, June, September and
December of each year, commencing December 1, 1971, and such
dividends shall be cumulative and accrue in the case of shares
issued prior to the record date for the first dividend thereon
from and including the date of issuance thereof;
C. The $9.50 Cumulative Preferred Shares shall be
redeemable at $109.50 per share if redeemed before September 1,
1979 and, if redeemed thereafter, at a redemption price which
shall decrease by $0.50 on September 1, 1979 and on each
succeeding September 1 to and including September 1, 1997, on and
after which date the redemption price shall be $100.00 per share,
together, as provided in said Articles of Incorporation, in each
instance, with accrued dividends to the redemption date;
provided, however, that the $9.50 Cumulative Preferred Shares
shall not be redeemable, in whole or in part, prior to
September 1, 1978 as a part of or in contemplation of any
refunding operation including the application, directly or
indirectly, of money borrowed or the proceeds of preferred stock
sold at an interest or dividend cost to the corporation
(calculated in accordance with generally accepted financial
practice) of less than 9 1/2% per annum; and
D. The amount payable on the $9.50 Cumulative Preferred
Shares in the event of any dissolution, liquidation or winding up
of the affairs of the corporation which shall be voluntary shall
be the price at which said shares are at the time redeemable, and
the amount payable on the $9.50 Cumulative Preferred Shares in
the event of any dissolution, liquidation or winding up of the
affairs of the corporation which shall be involuntary shall be
One Hundred dollars ($100.00) per share, together, as provided in
said Articles of Incorporation, in either event, with a sum, in
the case of each share, computed at the annual dividend rate for
the $9.50 Cumulative Preferred Shares from the date on which
dividends on such share became cumulative to and including the
date fixed for such distribution or payment, less the aggregate
amount of all dividends which shall have theretofore been paid
thereon or which shall have been declared thereon and for which
moneys for payment shall have been set apart and remain available
for payment.
<PAGE>
$11.50 Cumulative Preferred Shares 1
The Board of Directors of the corporation adopted the
following resolution on July 28, 1975, which was filed with the
Secretary of State of Minnesota on July 28, 1975:
Resolution
BE IT FURTHER RESOLVED That, pursuant to authority conferred
on the Board of Directors of Otter Tail Power Company, a
Minnesota corporation, by Article VI of its Articles of
Incorporation, as amended, a fifth series of Cumulative Preferred
Shares be, and it hereby is, created as follows:
A. The designation of such series shall be "$11.50
Cumulative Preferred Shares," and the number of shares of such
series shall be one hundred thousand (100,000).
B. The rate of dividends payable on the $11.50 Cumulative
Preferred Shares shall be $11.50 per share per annum, payable
quarterly on the first day of March, June, September and December
of each year, commencing September 1, 1975, and such dividends
shall be cumulative and accrue in the case of shares issued prior
to the record date for the first dividend thereon from and
including the date of issuance thereof.
C. The $11.50 Cumulative Preferred Shares shall be
redeemable (otherwise than with respect to any redemption
effected through or by the sinking funds hereafter described in
subdivision E below) at $111.50 per share if redeemed before June
1, 1976, and at the following redemption prices per share if
redeemed thereafter:
If redeemed during the twelve months' period beginning
Redemption Redemption
June 1 Price June 1 Price
1976 $110.86 1985 $105.11
1977 $110.22 1986 $104.48
1978 $109.58 1987 $103.83
1979 $108.94 1988 $103.19
1980 $108.31 1989 $102.56
1981 $107.77 1990 $101.92
1982 $107.03 1991 $101.28
1983 $106.39 1992 $100.64
1984 $105.75 1993 $100.00
together, as provided in said Articles of Incorporation, in each
instance, with accrued dividends to the redemption date;
____________________
1 The $11.50 Cumulative Preferred Shares were redeemed in
their entirety on March 1, 1986.
provided, however, that, except for redemptions effected through
or by the sinking funds described in subdivision E below, the
$11.50 Cumulative Preferred Shares shall not be redeemable, in
whole or in part, prior to July 15, 1985, as a part of or in
contemplation of any refunding operation including the
application, directly or indirectly, of (i) the proceeds from the
sale of common shares of the Company, or (ii) money borrowed or
the proceeds of preferred or preference shares of the Company
sold at an interest or dividend cost to the Company (calculated
in accordance with generally accepted financial practice) of less
than 11.5% per annum.
D. The amount payable on the $11.50 Cumulative Preferred
Shares in the event of any dissolution, liquidation or winding up
of the affairs of the Company which shall be voluntary shall be
the price at which said shares are at the time redeemable (as set
forth in subdivision C above), and the amount payable on the
$11.50 Cumulative Preferred Shares in the event of any
dissolution, liquidation or winding up of the affairs of the
Company which shall be involuntary shall be One Hundred Dollars
($100.00) per share, together, as provided in said Articles of
Incorporation, in either event, with a sum, in the case of each
share, computed at the annual dividend rate for the $11.50
Cumulative Preferred Shares from the date on which dividends on
such share became cumulative to and including the date fixed for
such distribution or payment, less the aggregate amount of all
dividends which shall have theretofore been paid thereon or
which shall have been declared thereon and for which moneys for
payment shall have been set apart and remain available for
payment.
E. So long as any of the $11.50 Cumulative Preferred
Shares remain outstanding, after all dividends on all Cumulative
Preferred Shares of all series for all past quarterly dividend
periods and for the current quarterly period shall have been paid
or declared and a sum sufficient for the payment thereof set
apart for payment, the Company shall, as and for a mandatory
sinking fund for the benefit of the $11.50 Cumulative Preferred
Shares, redeem, in the manner and upon the notice and with the
effect provided in Section C of Article VI of said Articles of
Incorporation, on June 1, 1979, and on each succeeding June 1 to
and including June 1, 1993 (each such June 1 being hereinafter
called a "sinking fund redemption date"), 6.50% of the maximum
number of $11.50 Cumulative Preferred Shares which shall
theretofore have been issued, and on June 1, 1994, the balance of
the $11.50 Cumulative Preferred Shares then outstanding (such
required redemptions being hereinafter called the "mandatory
sinking fund requirement"). The price at which the $11.50
Cumulative Preferred Shares shall be redeemed in satisfaction of
the mandatory sinking fund requirement shall be $100.00 per
share, together, as provided in said Articles of Incorporation,
in each instance, with accrued dividends to the redemption date.
The mandatory sinking fund requirement for the $11.50 Cumulative
Preferred Shares shall be cumulative so that if, in any year, the
Company shall not satisfy in full the sinking fund requirement
for such year, the amount of the deficiency shall be added to the
mandatory sinking fund requirement for succeeding years until the
deficiency shall have been fully satisfied.
In addition to the mandatory sinking fund requirement of the
immediately preceding paragraph, the Company may, at its option,
redeem, in the manner and upon the notice and with the effect
provided in Section C of Article VI of said Articles of
Incorporation, on any sinking fund redemption date $11.50
Cumulative Preferred Shares not in excess of 6.50% of the maximum
number of $11.50 Cumulative Preferred Shares which shall
theretofore have been issued at the mandatory sinking fund
redemption price hereinbefore specified in this subdivision E.
The privilege of so redeeming $11.50 Cumulative Preferred Shares
shall not be cumulative and shall not relieve the Company to any
extent from its obligation to redeem shares pursuant to the
mandatory sinking fund requirement.
$8.30 Cumulative Preferred Shares
The Board of Directors of the corporation adopted the
following resolution on March 30, 1977, which was filed with the
Secretary of State of Minnesota on March 30, 1977:
Resolution
BE IT FURTHER RESOLVED That, pursuant to authority conferred
on the Board of Directors of Otter Tail Power Company, a
Minnesota corporation, by Article VI of its Articles of
Incorporation, as amended, a sixth series of Cumulative Preferred
Shares be, and it hereby is, created as follows:
A. The designation of such series shall be "$8.30
Cumulative Preferred Shares," and the number of shares of such
series shall be forty-five thousand (45,000).
B. The rate of dividends payable on the $8.30 Cumulative
Preferred Shares shall be $8.30 per share per annum, payable
quarterly on the first day of March, June, September and December
of each year, commencing June 1, 1977, and such dividends shall
be cumulative and accrue in the case of shares issued prior to
the record date for the first dividend thereon from and including
the date of issuance thereof.
C. The $8.30 Cumulative Preferred Shares shall be
redeemable (otherwise than with respect to any redemption
effected through or by the sinking funds hereafter described in
subdivision E below) at $108.30 per share if redeemed before
March 1, 1978, and at the following redemption prices per share
if redeemed thereafter:
If redeemed during the twelve months' period beginning
Redemption Redemption
March 1 Price March 1 Price
1978 $107.95 1990 $103.80
1979 $107.61 1991 $103.46
1980 $107.26 1992 $103.11
1981 $106.92 1993 $102.77
1982 $106.57 1994 $102.42
1983 $106.23 1995 $102.08
1984 $105.88 1996 $101.73
1985 $105.53 1997 $101.38
1986 $105.19 1998 $101.04
1987 $104.84 1999 $100.69
1988 $104.50 2000 $100.35
1989 $104.15 2001 $100.00
together, as provided in said Articles of Incorporation, in each
instance, with accrued dividends to the redemption date;
provided, however, that, except for redemptions effected through
or by the sinking funds described in subdivision E below, the
$8.30 Cumulative Preferred Shares shall not be redeemable, in
whole or in part, prior to March 1, 1987 as a part of, or in
contemplation of, any refunding operation including the
application, directly or indirectly, of the proceeds of (i)
indebtedness for money borrowed by the Company or any affiliate
if such indebtedness (a) has an effective interest cost (computed
in accordance with generally accepted financial practice) of less
than 8.30% per annum or (b) has a Weighted Average Life to
Maturity, at the time of such redemption, of less than the
remaining Weighted Average Life to Maturity of the $8.30
Cumulative Preferred Shares or (ii) the issue or sale of
preferred or preference shares of the Company or any affiliate if
such shares have an effective dividend rate (based on the
proceeds to the Company or such affiliate from such issue or sale
net of any discount or commission to underwriters) of less than
8.30% per annum. The term "Weighted Average Life to Maturity"
shall mean, at any date, the number of years obtained by dividing
the then Remaining Dollar-years of such indebtedness or the $8.30
Cumulative Preferred Shares by the then outstanding principal
amount of such indebtedness or by the product of $100.00 times
the number of $8.30 Cumulative Preferred Shares which are then
outstanding, as the case may be; and for the purpose of this
definition, the term "Remaining Dollar-years" of any indebtedness
or the $8.30 Cumulative Preferred Shares shall mean, at any date,
the total of the products obtained by multiplying (i) the amount
of each then remaining installment, mandatory sinking fund,
serial maturity or other required payment, including payment at
final maturity, in respect thereof by (ii) the number of years
(calculated to the nearest one-twelfth) which will elapse between
such date and the date on which such payment is required to be
made.
D. The amount payable on the $8.30 Cumulative Preferred
Shares in the event of any dissolution, liquidation or winding up
of the affairs of the Company which shall be voluntary shall be
the price at which said shares are at the time redeemable (as set
forth in subdivision C above), and the amount payable on the
$8.30 Cumulative Preferred Shares in the event of any
dissolution, liquidation or winding up of the affairs of the
Company which shall be involuntary shall be $100.00 per share,
together, as provided in said Articles of Incorporation, in
either event, with a sum, in the case of each share, computed at
the annual dividend rate for the $8.30 Cumulative Preferred
Shares from the date on which dividends on such share became
cumulative to and including the date fixed for such distribution
or payment, less the aggregate amount of all dividends which
shall have theretofore been paid thereon or which shall have been
declared thereon and for which moneys for payment shall have been
set apart and remain available for payment.
E. So long as any of the $8.30 Cumulative Preferred Shares
remain outstanding, after all dividends on all Cumulative
Preferred Shares of all series for all past quarterly dividend
periods and for the current quarterly dividend period shall have
been paid or declared and a sum sufficient for the payment
thereof set apart for payment, the Company shall, as and for a
mandatory sinking fund for the benefit of the $8.30 Cumulative
Preferred Shares, redeem, in the manner and upon the notice and
with the effect provided in Section C of Article VI of said
Articles of Incorporation, (i) on March 1, 1983, and on each
succeeding March 1 to and including March 1, 1997, 4% of the
maximum number of $8.30 Cumulative Preferred Shares which shall
theretofore have been issued, (ii) on March 1, 1998, and on each
succeeding March 1 to and including March 1, 2001, 8% of the
maximum number of $8.30 Cumulative Preferred Shares which shall
theretofore have been issued (each March 1 referred to in clause
(i) or (ii) above of this sentence being hereinafter called a
"sinking fund redemption date") and (iii) on March 1, 2002, the
balance of the $8.30 Cumulative Preferred Shares then outstanding
(such required redemptions being hereinafter called the
"mandatory sinking fund requirement"). The price at which the
$8.30 Cumulative Preferred Shares shall be redeemed in
satisfaction of the mandatory sinking fund requirement shall be
$100.00 per share, together, as provided in said Articles of
Incorporation, in each instance, with accrued dividends to the
redemption date. The mandatory sinking fund requirement for the
$8.30 Cumulative Preferred Shares shall be cumulative so that if,
in any year, the Company shall not satisfy in full the mandatory
sinking fund requirement for such year, the amount of the
deficiency shall be added to the mandatory sinking fund
requirement for succeeding years until the deficiency shall have
been fully satisfied.
In addition to the mandatory sinking fund requirement, the
Company may, at its option, redeem, in the manner and upon the
notice and with the effect provided in Section C of Article VI of
said Articles of Incorporation, on any sinking fund redemption
date $8.30 Cumulative Preferred Shares in an amount not to exceed
the number of $8.30 Cumulative Preferred Shares which shall be
redeemed on such sinking fund redemption date through the
mandatory sinking fund requirement at the mandatory sinking fund
redemption price hereinbefore specified in this subdivision E.
The privilege of so redeeming $8.30 Cumulative Preferred Shares
shall not be cumulative and shall not relieve the Company to any
extent from its obligation to redeem shares pursuant to the
mandatory sinking fund requirement.
$8.375 Cumulative Preferred Shares
The Board of directors of the corporation adopted the
following resolution on March 6, 1978, which was filed with the
Secretary of State of Minnesota on March 21, 1978:
Resolution
BE IT FURTHER RESOLVED That, pursuant to authority conferred
on the Board of Directors of Otter Tail Power Company, a
Minnesota corporation, by Article VI of its Articles of
Incorporation, as amended, a seventh series of Cumulative
Preferred Shares be, and it hereby is, created as follows:
A. The designation of such series shall be "$8.375
Cumulative Preferred Shares," and the number of shares of such
series shall be one hundred thousand (100,000).
B. The rate of dividends payable on the $8.375 Cumulative
Preferred Shares shall be $8.375 per share per annum, payable
quarterly on the first day of March, June, September and December
of each year, commencing June 1, 1978. Such dividends shall be
cumulative and accrue in the case of each share from and
including the date of original issuance thereof; and the amount
of the dividend for any period of less than a full quarter shall
be computed on the basis of a 360-day year of twelve 30-day
months.
C. The $8.375 Cumulative Preferred Shares shall be
redeemable (otherwise than with respect to any redemption
effected through or by the sinking funds hereafter described in
subdivision E below) at $108.375 per share if redeemed on or
before June 1, 1979, and at the following redemption prices per
share if redeemed thereafter:
If redeemed during the twelve months' period ending
Redemption Redemption
June 1 Price June 1 Price
1980 $108.026 1992 $103.839
1981 $107.677 1993 $103.490
1982 $107.329 1994 $103.141
1983 $106.979 1995 $102.792
1984 $106.630 1996 $102.443
1985 $106.281 1997 $102.094
1986 $105.932 1998 $101.745
1987 $105.583 1999 $101.396
1988 $105.234 2000 $101.047
1989 $104.886 2001 $100.698
1990 $104.537 2002 $100.349
1991 $104.188 2003 $100.000
together, as provided in said Articles of Incorporation, in each
instance, with accrued dividends to the redemption date;
provided, however, that, except for redemptions effected through
or by the sinking funds described in subdivision E below, the
$8.375 Cumulative Preferred Shares shall not be redeemable, in
whole or in part, prior to June 1, 1988 as a part of, or in
contemplation of, any refunding operation including the
application, directly or indirectly, of the proceeds of (i)
indebtedness for money borrowed by the Company or any affiliate
if such indebtedness (a) has an effective interest cost (computed
in accordance with generally accepted financial practice) of less
than 8.375% per annum or (b) has a Weighted Average Life to
Maturity, at the time of such redemption, of less than the
remaining Weighted Average Life to Maturity of the $8.375
Cumulative Preferred Shares or (ii) the issue or sale of shares
of the Company ranking prior to or on a parity with the $8.375
Cumulative Preferred Shares as to dividends or on liquidation if
such shares have an effective dividend rate (based on the
proceeds to the Company from such issue or sale net of any
discount or commission to underwriters) of less than 8.375% per
annum. The term "Weighted Average Life to Maturity" shall mean,
at any date, the number of years obtained by dividing the then
Remaining Dollar-years of such indebtedness or the $8.375
Cumulative Preferred Shares by the then outstanding principal
amount of such indebtedness or by the product of $100.00 times
the number of $8.375 Cumulative Preferred Shares which are then
outstanding, as the case may be; and for the purpose of this
definition, the term "Remaining Dollar-years" of any indebtedness
or the $8.375 Cumulative Preferred Shares shall mean, at any
date, the total of the products obtained by multiplying (i) the
amount of each then remaining installment, mandatory sinking
fund, serial maturity or other required payment, including
payment at final maturity, in respect thereof by (ii) the number
of years (calculated to the nearest one-twelfth) which will
elapse between such date and the date on which such payment is
required to be made.
D. The amount payable on the $8.375 Cumulative Preferred
Shares in the event of any dissolution, liquidation or winding up
of the affairs of the Company which shall be voluntary shall be
the price at which said shares are at the time redeemable (as set
forth in subdivision C above), and the amount payable on the
$8.375 Cumulative Preferred Shares in the event of any
dissolution, liquidation or winding up of the affairs of the
Company which shall be involuntary shall be $100.00 per share,
together, as provided in said Articles of Incorporation, in
either event, with a sum, in the case of each share, computed at
the annual dividend rate for the $8.375 Cumulative Preferred
Shares from the date on which dividends on such share became
cumulative to and including the date fixed for such distribution
or payment, less the aggregate amount of all dividends which
shall have theretofore been paid thereon or which shall have been
declared thereon and for which moneys for payment shall have been
set apart and remain available for payment.
E. So long as any of the $8.375 Cumulative Preferred
Shares remain outstanding, after all dividends on all Cumulative
Preferred Shares of all series for all past quarterly dividend
periods and for the current quarterly dividend period shall have
been paid or declared and a sum sufficient for the payment
thereof set apart for payment, the Company shall, as and for a
mandatory sinking fund for the benefit of the $8.375 Cumulative
Preferred Shares, redeem, in the manner and upon the notice and
with the effect provided in Section C of Article VI of said
Articles of Incorporation (i) on June 1, 1984, and on each
succeeding June 1 to and including June 1, 1993, 2% of the
maximum number of $8.375 Cumulative Preferred Shares which shall
theretofore have been issued, (ii) on June 1, 1994, and on each
succeeding June 1 to and including June 1, 2002, 6.67% of the
maximum number of $8.375 Cumulative Preferred Shares which shall
theretofore have been issued (each June 1 referred to in clause
(i) or (ii) above of this sentence being hereinafter called a
"sinking fund redemption date") and (iii) on June 1, 2003, the
balance of the $8.375 Cumulative Preferred Shares then
outstanding (such required redemptions being hereinafter called
the "mandatory sinking fund requirement"). The price at which
the $8.375 Cumulative Preferred Shares shall be redeemed in
satisfaction of the mandatory sinking fund requirement shall be
$100.00 per share, together, as provided in said Articles of
Incorporation, in each instance, with accrued dividends to the
redemption date. The mandatory sinking fund requirement for the
$8.375 Cumulative Preferred Shares shall be cumulative so that
if, in any year, the Company shall not satisfy in full the
mandatory sinking fund requirement for such year, the amount of
the deficiency shall be added to the mandatory sinking fund
requirement for succeeding years until the deficiency shall have
been fully satisfied.
In addition to the mandatory sinking fund requirement, the
Company may, at its option, redeem, in the manner and upon the
notice and with the effect provided in Section C of Article VI of
said Articles of Incorporation, on any sinking fund redemption
date $8.375 Cumulative Preferred Shares in an amount not to
exceed the number of $8.375 Cumulative Preferred Shares which
shall be redeemed on such sinking fund redemption date through
the mandatory sinking fund requirement at the mandatory sinking
fund redemption price hereinbefore specified in this
subdivision E. The privilege of so redeeming $8.375 Cumulative
Preferred Shares shall not be cumulative and shall not relieve
the Company to any extent from its obligation to redeem shares
pursuant to the mandatory sinking fund requirement.
$8.90 Cumulative Preferred Shares
The Board of directors of the corporation adopted the
following resolution on July 23, 1979, which was filed with the
Secretary of State of Minnesota on July 26, 1979:
Resolution
BE IT FURTHER RESOLVED That, pursuant to authority conferred
on the Board of Directors of Otter Tail Power Company, a
Minnesota corporation, by Subdivision A of Division I of
Article VI of its Articles of Incorporation, as amended, an
eighth series of Cumulative Preferred Shares be, and it hereby
is, created as follows:
A. The designation of such series shall be "$8.90
Cumulative Preferred Shares," and the number of shares of such
series shall be seventy thousand (70,000).
B. The rate of dividends payable on the $8.90 Cumulative
Preferred Shares shall be $8.90 per share per annum, payable
quarterly on the first day of March, June, September and December
of each year, commencing September 1, 1979. Such dividends shall
be cumulative and accrue in the case of each share from and
including the date of original issuance thereof; and the amount
of the dividend for any period of less than a full quarter shall
be computed on the basis of a 360-day year of twelve 30-day
months.
C. The $8.90 Cumulative Preferred Shares shall be
redeemable (otherwise than with respect to any redemption
effected through or by the sinking funds hereafter described in
subdivision E below) at $108.90 per share if redeemed on or
before September 1, 1980, and at the following redemption prices
per share if redeemed thereafter:
If redeemed during the twelve months' period ending
Redemption Redemption
September 1 Price September 1 Price
1981 $108.529 1993 $104.079
1982 $108.158 1994 $103.708
1983 $107.788 1995 $103.338
1984 $107.417 1996 $102.967
1985 $107.046 1997 $102.596
1986 $106.675 1998 $102.225
1987 $106.304 1999 $101.854
1988 $105.933 2000 $101.483
1989 $105.563 2001 $101.113
1990 $105.192 2002 $100.742
1991 $104.821 2003 $100.371
1992 $104.450 2004 $100.000
together, as provided in subdivision C of said Division I, in
each instance, with accrued dividends to the redemption date;
provided, however, that, except for redemptions effected through
or by the sinking funds described in subdivision E below, the
$8.90 Cumulative Preferred Shares shall not be redeemable, in
whole or in part, prior to September 1, 1989 as a part of, or in
contemplation of, any refunding operation including the
application, directly or indirectly, of the proceeds of (i)
indebtedness for money borrowed by the Company or any affiliate
if such indebtedness (a) has an effective interest cost (computed
in accordance with generally accepted financial practice) of less
than 8.90% per annum or (b) has a Weighted Average Life to
Maturity, at the time of such redemption, of less than the
remaining Weighted Average Life to Maturity of the $8.90
Cumulative Preferred Shares or (ii) the issue or sale of shares
of the Company ranking prior to the Common Shares of the Company
as to dividends or on liquidation if such shares have an
effective dividend rate (based on the proceeds to the Company
from such issue or sale net of any discount or commission to
underwriters) of less than 8.90% per annum. The term "Weighted
Average Life to Maturity" shall mean, at any date, the number of
years obtained by dividing the then Remaining Dollar-years of
such indebtedness or the $8.90 Cumulative Preferred Shares by the
then outstanding principal amount of such indebtedness or by the
product of $100.00 times the number of $8.90 Cumulative Preferred
Shares which are then outstanding, as the case may be; and for
the purpose of this definition, the term "Remaining Dollar-years"
of any indebtedness or the $8.90 Cumulative Preferred Shares
shall mean, at any date, the total of the products obtained by
multiplying (i) the amount of each then remaining installment,
mandatory sinking fund, serial maturity or other required
payment, including payment at final maturity, in respect thereof
by (ii) the number of years (calculated to the nearest one-
twelfth) which will elapse between such date and the date on
which such payment is required to be made.
D. The amount payable on the $8.90 Cumulative Preferred
Shares in the event of any dissolution, liquidation or winding up
of the affairs of the Company which shall be voluntary shall be
the price at which said shares are at the time redeemable (as set
forth in subdivision C above), and the amount payable on the
$8.90 Cumulative Preferred Shares in the event of any
dissolution, liquidation or winding up of the affairs of the
Company which shall be involuntary shall be $100.00 per share,
together, as provided in subdivision E of said Division I, in
either event, with a sum, in the case of each share, computed at
the annual dividend rate for the $8.90 Cumulative Preferred
Shares from the date on which dividends on such share became
cumulative to and including the date fixed for such distribution
or payment, less the aggregate amount of all dividends which
shall have theretofore been paid thereon or which shall have been
declared thereon and for which moneys for payment shall have been
set apart and remain available for payment.
E. So long as any of the $8.90 Cumulative Preferred Shares
remain outstanding, after all dividends on all Cumulative
Preferred Shares of all series for all past quarterly dividend
periods and for the current quarterly dividend period shall have
been paid or declared and a sum sufficient for the payment
thereof set apart for payment, the Company shall, as and for a
mandatory sinking fund for the benefit of the $8.90 Cumulative
Preferred Shares, redeem, in the manner and upon the notice and
with the effect provided in subdivision C of said Division I, (i)
on September 1, 1985, and on each succeeding September 1 to and
including September 1, 1994, 2 1/2% of the maximum number of
$8.90 Cumulative Preferred Shares which shall theretofore have
been issued, (ii) on September 1, 1995, and on each succeeding
September 1 to and including September 1, 2003, 7.5% of the
maximum number of $8.90 Cumulative Preferred Shares which shall
theretofore have been issued (each September 1 referred to in
clause (i) or (ii) above of this sentence being hereinafter
called a "sinking fund redemption date") and (iii) on
September 1, 2004, the balance of the $8.90 Cumulative Preferred
Shares then outstanding (such required redemptions being
hereinafter called the "mandatory sinking fund requirement").
The price at which the $8.90 Cumulative Preferred Shares shall be
redeemed in satisfaction of the mandatory sinking fund
requirement shall be $100.00 per share, together, as provided in
subdivision C of said Division I, in each instance, with accrued
dividends to the redemption date. The mandatory sinking fund
requirement for the $8.90 Cumulative Preferred Shares shall be
cumulative so that if, in any year, the Company shall not satisfy
in full the mandatory sinking fund requirement for such year, the
amount of the deficiency shall be added to the mandatory sinking
fund requirement for succeeding years until the deficiency shall
have been fully satisfied.
In addition to the mandatory sinking fund requirement, the
Company may, at its option, redeem, in the manner and upon the
notice and with the effect provided in subdivision C of said
Division I, on any sinking fund redemption date $8.90 Cumulative
Preferred Shares in an amount not to exceed the number of $8.90
Cumulative Preferred Shares which shall be redeemed on such
sinking fund redemption date through the mandatory sinking fund
requirement at the mandatory sinking fund redemption price
hereinbefore specified in this subdivision E; provided that not
more than 30% of the maximum number of $8.90 Cumulative Preferred
Shares which shall theretofore have been issued may be so
redeemed. The privilege of so redeeming $8.90 Cumulative
Preferred Shares shall not be cumulative and shall not relieve
the Company to any extent from its obligation to redeem shares
pursuant to the mandatory sinking fund requirement.
<PAGE>
$11.50 Cumulative Preferred Shares (Series A) 1
The Board of Directors of the corporation adopted the
following resolution on June 18, 1980, which was filed with the
Secretary of State of Minnesota on June 20, 1980:
Resolution
BE IT FURTHER RESOLVED That, pursuant to authority conferred
on the Board of Directors of Otter Tail Power Company, a
Minnesota corporation, by subdivision A of Division I of
Article VI of its Articles of Incorporation, as amended, a ninth
series of Cumulative Preferred Shares be, and it hereby is,
created as follows:
A. The designation of such series shall be "$11.50
Cumulative Preferred Shares (Series A)," and the number of shares
of such series shall be eighty thousand (80,000).
B. The rate of dividends payable on the $11.50 Cumulative
Preferred Shares (Series A) shall be $11.50 per share per annum,
payable quarterly on the first day of March, June, September and
December of each year, commencing September 1, 1980. Such
dividends shall be cumulative and accrue in the case of each
share from and including the date of original issuance thereof;
and the amount of the dividend for any period of less than a full
quarter shall be computed on the basis of a 360-day year of
twelve 30-day months.
C. The $11.50 Cumulative Preferred Shares (Series A) shall
be redeemable (otherwise than with respect to any redemption
effected through or by the sinking funds hereafter described in
subdivision E below) at $111.50 per share if redeemed on or
before June 1, 1981, and at the following redemption prices per
share if redeemed thereafter:
If redeemed during the twelve months' period ending
Redemption Redemption
June 1 Price June 1 Price
1982 $111.02 1994 $105.27
1983 $110.54 1995 $104.79
1984 $110.06 1996 $104.31
1985 $109.58 1997 $103.83
1986 $109.10 1998 $103.35
1987 $108.63 1999 $102.88
1988 $108.15 2000 $102.40
1989 $107.67 2001 $101.92
1990 $107.19 2002 $101.44
1991 $106.71 2003 $100.96
________________
2 The $11.50 Cumulative Preferred Shares (Series A) were
redeemed in their entirety on March 1, 1996
1992 $106.23 2004 $100.48
1993 $105.75 2005 $100.00
together, as provided in subdivision C of said Division I, in
each instance, with accrued dividends to the redemption date;
provided, however, that, except for redemptions effected through
or by the sinking funds described in subdivision E below, the
$11.50 Cumulative Preferred Shares (Series A) shall not be
redeemable, in whole or in part, prior to June 1, 1990 as a part
of, or in contemplation of, any refunding operation including the
application, directly or indirectly, of the proceeds of (i)
indebtedness for money borrowed by the Company or any affiliate
if such indebtedness (a) has an effective interest cost (computed
in accordance with generally accepted financial practice) of less
than 11.50% per annum or (b) has a Weighted Average Life to
Maturity, at the time of such redemption, of less than the
remaining Weighted Average Life to Maturity of the $11.50
Cumulative Preferred Shares (Series A) or (ii) the issue or sale
of shares of the Company ranking prior to the Common Shares of
the Company as to dividends or on liquidation if such shares have
an effective dividend rate (based on the proceeds to the Company
from such issue or sale net of any discount or commission to
underwriters) of less than 11.50% per annum. The term "Weighted
Average Life to Maturity" shall mean, at any date, the number of
years obtained by dividing the then Remaining Dollar-years of
such indebtedness or the $11.50 Cumulative Preferred Shares
(Series A) by the then outstanding principal amount of such
indebtedness or by the product of $100.00 times the number of
$11.50 Cumulative Preferred Shares (Series A) which are then
outstanding, as the case may be; and for the purpose of this
definition, the term "Remaining Dollar-years" of any indebtedness
or the $11.50 Cumulative Preferred Shares (Series A) shall mean,
at any date, the total of the products obtained by multiplying
(i) the amount of each then remaining installment, mandatory
sinking fund, serial maturity or other required payment,
including payment at final maturity, in respect thereof by (ii)
the number of years (calculated to the nearest one-twelfth) which
will elapse between such date and the date on which such payment
is required to be made.
D. The amount payable on the $11.50 Cumulative Preferred
Shares (Series A) in the event of any dissolution, liquidation or
winding up of the affairs of the Company which shall be voluntary
shall be the price at which said shares are at the time
redeemable (as set forth in subdivision C above), and the amount
payable on the $11.50 Cumulative Preferred Shares (Series A) in
the event of any dissolution, liquidation or winding up of the
affairs of the Company which shall be involuntary shall be
$100.00 per share, together, as provided in Subdivision E of said
Division I, in either event, with a sum, in the case of each
share, computed at the annual dividend rate for the $11.50
Cumulative Preferred Shares (Series A) from the date on which
dividends on such share became cumulative to and including the
date fixed for such distribution or payment, less the aggregate
amount of all dividends which shall have theretofore been paid
thereon or which shall have been declared thereon and for which
moneys for payment shall have been set apart and remain available
for payment.
E. So long as any of the $11.50 Cumulative Preferred
Shares (Series A) remain outstanding, after all dividends on all
Cumulative Preferred Shares of all series for all past quarterly
dividend periods and for the current quarterly dividend period
shall have been paid or declared and a sum sufficient for the
payment therof set apart for payment, the Company shall, as and
for a mandatory sinking fund for the benefit of the $11.50
Cumulative Preferred Shares (Series A), redeem, in the manner and
upon the notice and with the effect provided in subdivision C of
said Division I, (i) on June 1, 1986, and on each succeeding
June 1 to and including June 1, 2004 (each such June 1 being
hereinafter called a "sinking fund redemption date"), 5% of the
maximum number of $11.50 Cumulative Preferred Shares (Series A)
which shall theretofore have been issued and (ii) on June 1,
2005, the balance of the $11.50 Cumulative Preferred Shares
(Series A) then outstanding (such required redemptions being
hereinafter called the "mandatory sinking fund requirement").
The price at which the $11.50 Cumulative Preferred Shares
(Series A) shall be redeemed in satisfaction of the mandatory
sinking fund requirement shall be $100.00 per share, together, as
provided in subdivision C of said Division I, in each instance,
with accrued dividends to the redemption date. The mandatory
sinking fund requirement for the $11.50 Cumulative Preferred
Shares (Series A) shall be cumulative so that if, in any year,
the Company shall not satisfy in full the mandatory sinking fund
requirement for such year, the amount of the deficiency shall be
added to the mandatory sinking fund requirement for succeeding
years until the deficiency shall have been fully satisfied.
In addition to the mandatory sinking fund requirement, the
Company may, at its option, redeem, in the manner and upon the
notice and with the effect provided in subdivision C of said
Division I, on any sinking fund redemption date $11.50 Cumulative
Preferred Shares (Series A) in an amount not to exceed the number
of $11.50 Cumulative Preferred Shares (Series A) which shall be
redeemed on such sinking fund redemption date through the
mandatory sinking fund requirement at the mandatory sinking fund
redemption price hereinbefore specified in this subdivision E;
provided that not more than 25% of the maximum number of $11.50
Cumulative Preferred Shares (Series A) which shall theretofore
have been issued may be so redeemed. The privilege of so
redeeming $11.50 Cumulative Preferred Shares (Series A) shall not
be cumulative and shall not relieve the Company to any extent
from its obligation to redeem shares pursuant to the mandatory
sinking fund requirement.
CERTIFICATE
The undersigned, D. R. EMMEN and JAY D. MYSTER, do hereby
certify that we are duly elected, qualified and acting as the
Senior Vice President, Finance and Treasurer and the Vice
President, Governmental and Legal and Secretary, respectively, of
Otter Tail Power Company, a Minnesota corporation (the
"Company"), and that the following is a true and correct copy of
a resolution duly adopted at a meeting of the Board of Directors
of the Company duly called and held on April 13, 1992, at which a
quorum was present and acted throughout:
BE IT RESOLVED That, pursuant to authority conferred on the
Board of Directors of Otter Tail Power Company, a Minnesota
corporation, by subdivision A of Division I of Article VI of its
Articles of Incorporation, as amended, a tenth series of
Cumulative Preferred Shares be, and it hereby is, created as
follows:
A. The designation of such series shall be "$9.00
Exchangeable Cumulative Preferred Shares," and the number of
shares of such series shall be fifty-three thousand three hundred
eleven (53,311).
B. The rate of dividends payable on the $9.00 Exchangeable
Cumulative Preferred Shares shall be $9.00 per share per annum,
payable quarterly on the first day of March, June, September and
December of each year, commencing on the first day of the first
such month following the date of original issuance of the $9.00
Exchangeable Cumulative Preferred Shares. Such dividends shall
be cumulative and accrue in the case of each share from and
including the date of original issuance thereof; and the amount
of the dividend for any period of less than a full quarter shall
be computed on the basis of a 360-day year of twelve 30-day
months.
C. The $9.00 Exchangeable Cumulative Preferred Shares
shall be redeemable at any time on or after the seventh
anniversary of the date of original issuance thereof at $100.00
per share together, as provided in subdivision C of said
Division I, in each instance, with accrued dividends to the
redemption date; provided, however, that the holder of any $9.00
Exchangeable Cumulative Preferred Shares to be redeemed pursuant
to this Section C shall have the right, at such holder's option,
to exchange any or all of the $9.00 Exchangeable Cumulative
Preferred Shares held by such holder and so to be redeemed into
Common Shares (as defined below) pursuant to, and subject to and
upon compliance with, the provisions of Section E hereof.
D. The amount payable on the $9.00 Exchangeable Cumulative
Preferred Shares in the event of any dissolution, liquidation or
winding up of the affairs of the Company, whether voluntary or
involuntary, shall be $100.00 per share, together, as provided in
subdivision E of said Division I, with a sum, in the case of each
share, computed at the annual dividend rate for the $9.00
Exchangeable Cumulative Preferred Shares from the date on which
dividends on such share became cumulative to and including the
date fixed for such distribution or payment, less the aggregate
amount of all dividends which shall have theretofore been paid
thereon or which shall have been declared thereon and for which
moneys for payment shall have been set apart and remain available
for payment.
E. (1) Subject to and upon compliance with the provisions
of this Section E, each holder of $9.00 Exchangeable Cumulative
Preferred Shares shall have the right, at each such holder's
option, at any time on or after the seventh anniversary of the
date of original issuance thereof, to exchange any or all of the
$9.00 Exchangeable Cumulative Preferred Shares held by each such
holder into either (a) cash in the amount of $100.00 per each
$9.00 Exchangeable Cumulative Preferred Share so exchanged,
together, in each instance, with accrued dividends to the
Exchange Date (as defined below), or (b) the number of fully paid
and nonassessable Common Shares obtained by dividing (i) the sum
of (A) the $100.00 liquidation value of a $9.00 Exchangeable
Cumulative Preferred Share and (B) any accrued dividends to the
Exchange Date with respect to the $9.00 Exchangeable Cumulative
Preferred Share to be exchanged, by (ii) the Fair Market Value
(as defined below) of a Common Share, and multiplying such
resulting number by the number of $9.00 Exchangeable Cumulative
Preferred Shares to be so exchanged (rounding such product, for
the purpose of determining the amount of any cash payments
provided for under subsection (3) of this Section E, to the
nearest 1/100 Common Share, with 1/200 of a Common Share being
rounded upward), and in the case of either clause (a) or (b), by
surrender of such $9.00 Exchangeable Cumulative Preferred Shares
to be so exchanged, such surrender to be made in the manner
provided in subsection (2) of this Section E.
For purposes of this Section E, the term "Common Shares"
shall mean the Common Shares of the Company as the same exists at
the date of original issue of the $9.00 Exchangeable Cumulative
Preferred Shares or as such shares may be constituted from time
to time thereafter.
For purposes of this Section E, the term "Exchange Date"
shall mean (x), if the $9.00 Exchangeable Cumulative Preferred
Shares are being exchanged for cash, the date which is 10
calendar days after the date such shares have been duly
surrendered to the Registrar or (y), if the $9.00 Exchangeable
Cumulative Preferred Shares are being exchanged for Common
Shares, the date which is 60 Trading Days (as defined below)
after the date such shares have been duly surrendered to the
Registrar, or, in the case of either clause (x) or (y), if such
day is not a business day, the next succeeding business day.
For purposes of this Section E, the term "Fair Market Value"
with respect to the Common Shares shall mean the average of the
reported last sale prices for the 60 consecutive Trading Days
immediately preceding the relevant Exchange Date. The reported
last sale price for each Trading Day shall be the reported last
sale price, regular way, or, in case no sale takes place on such
day, the average of the reported closing bid and asked prices,
regular way, in either case as reported on the New York Stock
Exchange Composite Tape or, if the Common Shares are not listed
or admitted to trading on the New York Stock Exchange, in the
principal national securities exchange on which the Common Shares
are listed or admitted to trading or, if not listed or admitted
to trading on any national securities exchange, on the National
Market System of the National Association of Securities Dealers,
Inc. Automated Quotations System ("NASDAQ") or, if the Common
Shares are not quoted on such National Market System, the average
of the closing bid and asked prices on such day in the over-the-
counter market as reported by NASDAQ or, if bid and asked prices
for Common Shares on each such day shall not have been reported
through NASDAQ, the average of the bid and asked prices for such
day as furnished by any New York Stock Exchange member firm
regularly making a market in the Common Shares selected for such
purpose by the Company and if no such quotations are available,
the fair market value of the Common Shares as determined by a New
York Stock Exchange member firm regularly making a market in the
Common Shares selected for such purpose by the Company.
For purposes of this Section E, the term "Trading Day" means
(x), if the Common Shares are listed or admitted for trading on
the New York Stock Exchange or another national securities
exchange, a day on which the New York Stock Exchange or such
other national securities exchange is open for business or (y),
if the Common Shares are quoted on the National Market System of
NASDAQ, a day on which trades may be made on such National Market
System or (z), otherwise, any day other than a Saturday or Sunday
or a day on which banking institutions in the State of New York
are authorized or obligated by law or executive order to close.
(2) In order to validly exercise the exchange privilege
pursuant to this Section E, the holder of each $9.00 Exchangeable
Cumulative Preferred Share to be exchanged shall surrender the
certificate representing such share at the office of the
Registrar for the $9.00 Exchangeable Cumulative Preferred Shares
in Fergus Falls, Minnesota, appointed for such purpose by the
Company (which may be the Company), with the Notice of Election
to Exchange on the back of such certificate completed and signed.
Unless the shares issuable on exchange are to be issued in the
same name as the name in which the share to be exchanged is
registered, each share surrendered for exchange shall be
accompanied by instruments of transfer, in form satisfactory to
the Registrar, duly executed by the holder or the holder's duly
authorized attorney, and by an amount sufficient to pay any
transfer or similar tax. If the $9.00 Exchangeable Cumulative
Preferred Shares have been called for redemption and are being
surrendered for exchange pursuant to the proviso contained in
Section C hereof, then the certificate representing such shares
must be duly surrendered, as aforesaid, to the Registrar on or
before the twentieth day following the date of the notice of
redemption relating to such shares in order for the exchange
privilege to be validly exercised, and any such shares with
respect to which the exchange privilege is not validly exercised
shall be redeemed on the redemption date.
On or before the Exchange Date, the Company shall deliver at
the office of the Registrar, for the account of each holder of
$9.00 Exchangeable Cumulative Preferred Shares surrendered for
exchange on such Exchange Date, (i) if such $9.00 Exchangeable
Cumulative Preferred Shares are being exchanged for cash, funds
in the amount provided in clause (a) of subsection (1) of this
Section E, or (ii) if such $9.00 Exchangeable Cumulative
Preferred Shares are being exchanged for Common Shares, a
certificate or certificates for the number of full Common Shares
issuable upon the exchange of such shares in accordance with the
provisions of clause (b) of subsection (1) of this Section E, and
funds for the settlement of any fractional interest in respect of
a Common Share arising upon such exchange as provided in
subsection (3) of this Section E. At the option of the Company,
the Common Shares so delivered may be newly issued shares,
treasury shares or shares reacquired by or on behalf of the
Company, including shares purchased in the open market at any
time in the sole discretion of the Company.
Each holder of $9.00 Exchangeable Cumulative Preferred
Shares acknowledges by acceptance thereof that (i) the Common
Shares deliverable upon any exchange of $9.00 Exchangeable
Cumulative Preferred Shares will not be registered under the
Securities Act of 1933, as amended, or any applicable state
securities laws and that any such Common Shares may not be resold
except pursuant to an exemption from such Act and all such
applicable laws or pursuant to registrations thereunder; (ii)
such Common Shares may not be sold, transferred or otherwise
disposed of in any manner without first obtaining (a) an opinion
of counsel reasonably acceptable to the Company, both as to
opinion and as to counsel, that such proposed sale, transfer or
other disposition can lawfully be made without registration
pursuant to the Securities Act of 1933, as then amended, and
applicable state securities laws, or (b) such registrations (it
being expressly understood that the Company shall not have any
obligation to register such securities for such purpose); (iii)
certificates representing such Common Shares may bear a legend
stating that such Common Shares have not been registered under
the Securities Act of 1933, as amended, and applicable state
securities laws and referring to the foregoing restrictions on
transferability of such Common Shares; and (iv) the Company may
place stop transfer orders or notations on the Company's stock
record referring to such restrictions on transferability.
All Common Shares delivered upon exchange of the $9.00
Exchangeable Cumulative Preferred Shares pursuant to this Section
E will, upon delivery, be duly and validly issued and fully paid
and nonassessable, free of all liens and charges and not subject
to any preemptive rights.
Each exchange of $9.00 Exchangeable Cumulative Preferred
Shares pursuant to this Section E shall be deemed to have been
effected immediately prior to the close of business on the
Exchange Date. Until such time on the Exchange Date, any $9.00
Exchangeable Cumulative Preferred Shares which have been
surrendered for exchange with respect to such Exchange Date shall
be treated as outstanding and the person or persons in whose name
or names a certificate for any such shares is registered (or any
prior holder who was the holder of record of such shares on the
relevant record date) shall remain the holder of record for the
purpose of voting such shares and receiving any dividends paid
with respect to such shares prior to such time on the Exchange
Date, notwithstanding that such shares might have been redeemed
on a date prior to the Exchange Date but for the exercise of the
right to exchange such shares pursuant to the proviso contained
in Section C hereof. At such time on such Exchange Date, the
person or persons in whose name or names any certificate or
certificates for Common Shares shall be deliverable upon such
exchange shall be deemed to have become the holder or holders of
record of the Common Shares represented thereby unless the stock
transfer books of the Company are closed on such date, in which
event such person or persons shall be deemed to have become such
holder or holders of record at the close of business on the next
succeeding day on which such stock transfer books are open.
(3) In connection with the exchange of any $9.00
Exchangeable Cumulative Preferred Shares for Common Shares
pursuant to this Section E, no fractional Common Share or scrip
representing fractions of a Common Share shall be issued.
Instead of any fractional interest in a Common Share which would
otherwise be deliverable upon the exchange of $9.00 Exchangeable
Cumulative Preferred Shares, the Company shall pay to the holder
of such $9.00 Exchangeable Cumulative Preferred Shares an amount
in cash (computed to the nearest cent, with one-half cent being
rounded upward) equal to the Fair Market Value of a Common Share
multiplied by the fraction of a Common Share represented by such
fractional interest.
(4) The number of $9.00 Exchangeable Cumulative Preferred
Shares which may be exchanged pursuant to this Section E in any
twelve-month period shall be limited to a total of 10,662 $9.00
Exchangeable Cumulative Preferred Shares, and the Company shall
have no obligation to exchange any shares surrendered in excess
of that amount; provided, however, that $9.00 Exchangeable
Cumulative Preferred Shares called for redemption and surrendered
for exchange pursuant to the proviso contained in Section C
hereof shall not be subject to the limitation set forth in this
subsection (4) and shall not be counted for purposes of
determining the limitation set forth in this subsection (4) as it
applies to shares otherwise surrendered for exchange.
(5) On any Exchange Date, the Company shall have no
obligation to exchange for Common Shares, whether pursuant to the
proviso contained in Section C hereof or otherwise, $9.00
Exchangeable Cumulative Preferred Shares held by any holder
unless either (i) the total number of $9.00 Exchangeable
Cumulative Preferred Shares surrendered for exchange by such
holder with respect to such Exchange Date equals or exceeds 500
or (ii) the total number of $9.00 Exchangeable Cumulative
Preferred Shares surrendered for exchange by all holders of $9.00
Exchangeable Cumulative Preferred Shares with respect to such
Exchange Date equals or exceeds 500.
IN WITNESS WHEREOF, the undersigned have hereunto set their
hands as the Senior Vice President, Finance and Treasurer and the
Vice President, Governmental and Legal and Secretary,
respectively, of Otter Tail Power Company and have affixed the
seal of Otter Tail Power Company this 10th day of August, 1992.
D. R. Emmen
D. R. Emmen
Senior Vice President, Finance and
Treasurer
Jay D. Myster
Jay D. Myster
Vice President, Governmental and
Legal and Secretary
[CORPORATE SEAL]
STATE OF MINNESOTA )
) SS
COUNTY OF OTTER TAIL)
ON this 10th day of August, 1992 before me a Notary Public
and for said County and State, personally appeared D. R. EMMEN
and JAY D. MYSTER, to me personally known to be the Senior Vice
President, Finance and Treasurer and the Vice President,
Governmental and Legal and Secretary, respectively, of Otter Tail
Power Company, who, being by me duly sworn, did say that they
are, respectively, the Senior Vice President, Finance and
Treasurer and the Vice President, Governmental and Legal and
Secretary of said corporation, and that the seal affixed to the
within certificate is the corporate seal of said corporation, and
that said certificate was signed and sealed in behalf of said
corporation by authority of its Board of Directors, and said D.
R. EMMEN and JAY D. MYSTER acknowledged said certificate to be
the free act and deed of said corporation.
Raymond J. Holmgren
[NOTARIAL SEAL]<PAGE>
CERTIFICATE
The undersigned, D. R. EMMEN and JAY D. MYSTER, do hereby
certify that we are duly elected, qualified and acting as the
Senior Vice President, Finance and Treasurer and the Vice
President, Governmental and Legal and Secretary, respectively, of
Otter Tail Power Company, a Minnesota corporation (the
"Company"), and that the following is a true and correct copy of
a resolution duly adopted by a Written Action of the Pricing
Committee of the Board of Directors of the Company, dated
September 29, 1992, executed by all the members of said Pricing
Committee, duly established by the Board of Directors of the
Company at a meeting thereof duly called and held on February 3,
1992, at which a quorum was present and acted throughout, to act
for the Board of Directors with respect to the matters set forth
in said Written Action:
RESOLUTION
BE IT RESOLVED That, pursuant to authority conferred on the
Board of Directors of Otter Tail Power Company, a Minnesota
corporation, by subdivision A of Division I of Article VI of its
Articles of Incorporation, as amended, an eleventh series of
Cumulative Preferred Shares be, and it hereby is, created as
follows:
A. The designation of such series shall be "$6.35
Cumulative Preferred Shares," and the number of shares of such
series shall be one hundred eighty thousand (180,000).
B. The rate of dividends payable on the $6.35 Cumulative
Preferred Shares shall be $6.35 per share per annum, payable
quarterly on the first day of March, June, September and December
of each year, commencing December 1, 1992. Such dividends shall
be cumulative and accrue in the case of each share from and
including the date of original issuance thereof; and the amount
of the dividend for any period of less than a full quarter shall
be computed on the basis of a 360-day year of twelve 30-day
months.
C. The $6.35 Cumulative Preferred Shares shall be
redeemable (otherwise than with respect to any redemption
effected through or by the sinking fund hereafter described in
subdivision E below), at the option of the Company, in whole or
in part, at $103.175 per share if redeemed before December 1,
1998, and at the following redemption prices per share if
redeemed thereafter:
If redeemed during the twelve months' period beginning:
Redemption
December 1 Price
1998 . . . . . . . . . . . . . . . . . $102.540
1999 . . . . . . . . . . . . . . . . . $101.905
2000 . . . . . . . . . . . . . . . . . $101.270
2001 . . . . . . . . . . . . . . . . . $100.635
2002 and thereafter . . . . . . . . . $100.000
together, as provided in subdivision C of said Division I, in
each instance, with accrued dividends to the redemption date;
provided, however, that the $6.35 Cumulative Preferred Shares
shall not be redeemable, in whole or in part, prior to December
1, 1997.
D. The amount payable on the $6.35 Cumulative Preferred
Shares in the event of any dissolution, liquidation or winding up
of the affairs of the Company which shall be voluntary shall be
$106.350 per share prior to December 1, 1993, and will decrease
by $0.635 per share on December 1, 1993 and on each December 1
thereafter to $100.00 per share on December 1, 2002, and the
amount payable on the $6.35 Cumulative Preferred Shares in the
event of any dissolution, liquidation or winding up of the
affairs of the Company which shall be involuntary shall be
$100.00 per share, together, as provided in subdivision E of said
Division I, in either event, with a sum, in the case of each
share, computed at the annual dividend rate for the $6.35
Cumulative Preferred Shares from the date on which dividends on
such share became cumulative to and including the date fixed for
such distribution or payment, less the aggregate amount of all
dividends which shall have theretofore been paid thereon or which
shall have been declared thereon and for which moneys for payment
shall have been set apart and remain available for payment.
E. So long as any of the $6.35 Cumulative Preferred
Shares remain outstanding, after all dividends on all Cumulative
Preferred Shares of all series for all past quarterly dividend
periods and for the current quarterly dividend period shall have
been paid or declared and a sum sufficient for the payment
thereof set apart for payment, the Company shall, as and for a
mandatory sinking fund for the benefit of the $6.35 Cumulative
Preferred Shares, redeem, in the manner and upon the notice and
with the effect provided in subdivision C of said Division I, (i)
on December 1, 2002, and on each succeeding December 1 to and
including December 1, 2006, 5% of the maximum number of $6.35
Cumulative Preferred Shares which shall theretofore have been
issued and (ii) on December 1, 2007, the balance of the $6.35
Cumulative Preferred Shares then outstanding (such required
redemptions being hereinafter called the "mandatory sinking fund
requirement"). The price at which the $6.35 Cumulative Preferred
Shares shall be redeemed in satisfaction of the mandatory sinking
fund requirement shall be $100.00 per share, together, as
provided in subdivision C of said Division I, in each instance,
with accrued dividends to the redemption date. The mandatory
sinking fund requirement for the $6.35 Cumulative Preferred
Shares shall be cumulative so that if, in any year, the Company
shall not satisfy in full the mandatory sinking fund requirement
for such year, the amount of the deficiency shall be added to the
mandatory sinking fund requirement for succeeding years until the
deficiency shall have been fully satisfied.
IN WITNESS WHEREOF, the undersigned have hereunto set their
hands as the Senior Vice President, Finance and Treasurer and the
Vice President, Governmental and Legal and Secretary,
respectively, of Otter Tail Power Company and have affixed the
seal of Otter Tail Power Company this 1st day of October, 1992.
D. R. Emmen
D. R. Emmen
Senior Vice President, Finance
and Treasurer
Jay D. Myster
Vice President, Governmental
and Legal and Secretary
[CORPORATE SEAL]
STATE OF MINNESOTA )
)SS
COUNTY OF OTTER TAIL)
On this 1st day of October, 1992, before me a Notary Public
within and for said County and State, personally appeared D. R.
EMMEN and JAY D. MYSTER, to me personally known to be the Senior
Vice President, Finance and Treasurer and the Vice President,
Governmental and Legal and Secretary, respectively, of Otter Tail
Power Company, who, being by me duly sworn, did say that they
are, respectively, the Senior Vice President, Finance and
Treasurer and the Vice President, Governmental and Legal and
Secretary of said corporation, and that the seal affixed to the
within certificate is the corporate seal of said corporation, and
that said certificate was signed and sealed in behalf of said
corporation by authority of its Board of Directors, and said D.
R. EMMEN and JAY D. MYSTER acknowledged said certificate to be
the free act and deed of said corporation.
Larry W. Marquard
[NOTARIAL SEAL]
CERTIFICATE
The undersigned, D. R. EMMEN and JAY D. MYSTER, do hereby
certify that we are duly elected, qualified and acting as the
Senior Vice President, Finance and Treasurer and the Vice
President, Governmental and Legal and Secretary, respectively, of
Otter Tail Power Company, a Minnesota corporation (the
"Company"), and that the following is a true and correct copy of
a resolution duly adopted by a Written Action of the Pricing
Committee of the Board of Directors of the Company, dated October
11, 1993, executed by all the members of said Pricing Committee,
duly established by the Board of Directors of the Company at a
meeting thereof duly called and held on February 3, 1992, at
which a quorum was present and acted throughout, to act for the
Board of Directors with respect to the matters set forth in said
Written Action:
RESOLUTION
BE IT RESOLVED That, pursuant to authority conferred on the
Board of Directors of Otter Tail Power Company, a Minnesota
corporation, by subdivision A of Division I of Article VI of its
Articles of Incorporation, as amended, a twelfth series of
Cumulative Preferred Shares be, and it hereby is, created as
follows:
A. The designation of such series shall be "$6.75
Cumulative Preferred Shares," and the number of shares of such
series shall be forty thousand (40,000).
B. The rate of dividends payable on the $6.75 Cumulative
Preferred Shares shall be $6.75 per share per annum, payable
quarterly on the first day of March, June, September and December
of each year, commencing December 1, 1993. Such dividends shall
be cumulative and accrue in the case of each share from and
including the date of original issuance thereof; and the amount
of the dividend for any period of less than a full quarter shall
be computed on the basis of a 360-day year of twelve 30-day
months.
C. The $6.75 Cumulative Preferred Shares shall be
redeemable at the option of the Company, in whole or in part, at
$103.375 per share if redeemed before December 1, 2004, and at
the following redemption prices per share if redeemed thereafter:
If redeemed during the twelve months' period beginning:
Redemption
December 1 Price
2004 . . . . . . . . . . . . . . . . . $103.0375
2005 . . . . . . . . . . . . . . . . . $102.7000
2006 . . . . . . . . . . . . . . . . . $102.3625
2007 . . . . . . . . . . . . . . . . . $102.0250
2008 . . . . . . . . . . . . . . . . . $101.6875
2009 . . . . . . . . . . . . . . . . . $101.3500
2010 . . . . . . . . . . . . . . . . . $101.0125
2011 . . . . . . . . . . . . . . . . . $100.6750
2012 . . . . . . . . . . . . . . . . . $100.3375
2013 and thereafter . . . . . . . . . $100.0000
together, as provided in subdivision C of said Division I, in
each instance, with accrued dividends to the redemption date;
provided, however, that the $6.75 Cumulative Preferred Shares
shall not be redeemable, in whole or in part, prior to December
1, 2003.
D. The amount payable on the $6.75 Cumulative Preferred
Shares in the event of any dissolution, liquidation or winding up
of the affairs of the Company which shall be voluntary shall be
$106.75 per share prior to December 1, 1994, and will decrease by
$0.3375 per share on December 1, 1994 and on each December 1
thereafter to $100.00 per share on December 1, 2013, and the
amount payable on the $6.75 Cumulative Preferred Shares in the
event of any dissolution, liquidation or winding up of the
affairs of the Company which shall be involuntary shall be
$100.00 per share, together, as provided in subdivision E of said
Division I, in either event, with a sum, in the case of each
share, computed at the annual dividend rate for the $6.75
Cumulative Preferred Shares from the date on which dividends on
such share became cumulative to and including the date fixed for
such distribution or payment, less the aggregate amount of all
dividends which shall have theretofore been paid thereon or which
shall have been declared thereon and for which moneys for payment
shall have been set apart and remain available for payment.
IN WITNESS WHEREOF, the undersigned have hereunto set
their hands as the Senior Vice President, Finance and Treasurer
and the Vice President, Governmental and Legal and Secretary,
respectively, of Otter Tail Power Company and have affixed the
seal of Otter Tail Power Company this 11th day of October, 1993.
D. R. Emmen
D. R. Emmen
Senior Vice President, Finance
and Treasurer
Jay D. Myster
Jay D. Myster
Vice President, Governmental
and Legal and
Secretary
[CORPORATE SEAL]
STATE OF MINNESOTA )
)SS
COUNTY OF OTTER TAIL)
On this 11th day of October, 1993, before me a Notary Public
within and for said County and State, personally appeared D. R.
EMMEN and JAY D. MYSTER, to me personally known to be the Senior
Vice President, Finance and Treasurer and the Vice President,
Governmental and Legal and Secretary, respectively, of Otter Tail
Power Company, who, being by me duly sworn, did say that they
are, respectively, the Senior Vice President, Finance and
Treasurer and the Vice President, Governmental and Legal and
Secretary of said corporation, and that the seal affixed to the
within certificate is the corporate seal of said corporation, and
that said certificate was signed and sealed in behalf of said
corporation by authority of its Board of Directors, and said D.
R. EMMEN and JAY D. MYSTER acknowledged said certificate to be
the free act and deed of said corporation.
Larry W. Marquard
[NOTARIAL SEAL]
ARTICLES OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
OTTER TAIL POWER COMPANY
1. The name of the corporation is Otter Tail Power Company, a
Minnesota corporation.
2. The following is the full text of the amendment to the
Restated Articles of Incorporation of Otter Tail Power
Company:
BE IT RESOLVED That Article V of the Restated Articles
of Incorporation of Otter Tail Power Company, a Minnesota
corporation, as heretofore amended, shall be amended in its
entirety to read as follows:
ARTICLE V.
The total authorized number of shares of the
corporation is 27,500,000, divided into three classes;
namely, 1,500,000 Cumulative Preferred Shares without par
value (the "Cumulative Preferred Shares"); 1,000,000
Cumulative Preference Shares without par value (the
"Cumulative Preference Shares"); and 25,000,000 Common
Shares of the par value of $5 per share (the "Common
Shares"). No fractional shares of any class or series shall
be issued by the corporation.
3. The amendment was adopted by the shareholders pursuant to
Section 302A.135 of the Minnesota Business Corporation Act
on April 11, 1994.
IN WITNESS WHEREOF, the undersigned, the Vice
President, Governmental and Legal and Secretary of Otter Tail
Power Company, being duly authorized on behalf of Otter Tail
Power Company, has executed this document this 11th day of April,
1994.
Jay D. Myster
Jay D. Myster
Vice President, Governmental and
Legal and Secretary
CERTIFICATE OF DESIGNATION
OF
SERIES A JUNIOR PARTICIPATING PREFERRED SHARES
OF
OTTER TAIL POWER COMPANY
The undersigned hereby certifies that the Board of Directors
of Otter Tail Power Company (the "Corporation"), a corporation organized
and existing under the Minnesota Business Corporation Act, duly adopted
the following resolution on January 27, 1997:
RESOLVED, that a series of preferred shares of the
Corporation is hereby created, and the designation and amount thereof
and the relative rights and preferences of the shares of such series,
are as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Shares"
(the "Preferred Shares") and the number of shares constituting the
Preferred Shares shall be 250,000. Such number of shares may be
increased or decreased by resolution of the Board of Directors and any
necessary shareholder approval; provided, however, that no decrease
shall reduce the number of Preferred Shares to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the
Corporation convertible into Preferred Shares.
Section 2. Dividends and Distributions.
(a) Subject to the rights of the holders of any series of
preferred shares (or any similar stock) ranking prior and superior to
the Preferred Shares with respect to dividends, the holders of Preferred
Shares, in preference to the holders of common shares, par value $5.00
per share (the "Common Shares"), of the Corporation, and of any other
junior stock, shall be entitled to receive, when, as and if declared by
the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a Preferred
Share or fraction of a Preferred Share, in an amount per share (rounded
to the nearest cent) equal to the greater of (i) $0.01 or (ii) subject
to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions, other than a dividend payable in Common Shares
or a subdivision of the outstanding Common Shares (by reclassification
or otherwise), declared on the Common Shares since the immediately
preceding Quarterly Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any
Preferred Share or fraction of a Preferred Share. In the event the
Corporation shall at any time after February 7, 1997, declare or pay any
dividend on the Common Shares payable in Common Shares, or effect a
subdivision or combination or consolidation of the outstanding Common
Shares (by reclassification or otherwise) into a greater or lesser
number of Common Shares, then in each such case the amount to which
holders of Preferred Shares were entitled immediately prior to such
event under clause (ii) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the
number of Common Shares outstanding immediately after such event and the
denominator of which is the number of Common Shares that were
outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution
on the Preferred Shares as provided in paragraph (a) of this Section-
immediately after it declares a dividend or distribution on the Common
Shares (other than a dividend payable in Common Shares or a subdivision
of the outstanding Common Shares); provided that, in the event no
dividend or distribution shall have been declared on the Common Shares
during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $0.01 per
share on the Preferred Shares shall nevertheless be payable, out of
funds legally available for such purpose, on such subsequent Quarterly
Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding Preferred Shares from their date of issue. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the
Preferred Shares in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for
the determination of holders of Preferred Shares entitled to receive
payment of a dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date fixed for the
payment thereof.
Section 3. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Preferred Shares as provided in Section2
are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on Preferred Shares
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Preferred Shares;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up)
with the Preferred Shares, except dividends paid ratably on the
Preferred Shares and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Preferred Shares; provided, however, that the Corporation may at
any time redeem, purchase or otherwise acquire shares of any such
junior stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Preferred Shares;
or
(iv) redeem or purchase or otherwise acquire for
consideration any Preferred Shares, or any stock ranking on a
parity with the Preferred Shares, except in accordance with a
purchase offer made in writing or by publication (as determined by
the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine
in good faith will result in fair and equitable treatment among
the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (a) of this Section3, purchase or otherwise acquire such
shares at such time and in such manner.
Section 4. Reacquired Shares. Any Preferred Shares purchased
or otherwise acquired by the Corporation in any manner whatsoever shall
be retired and canceled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued
shares of preferred stock and may be reissued as part of a new series of
preferred shares subject to the conditions and restrictions on issuance
set forth herein, in the Articles of Incorporation, or in any other
certificate of designation creating a series of preferred stock or any
similar stock or as otherwise required by law.
Section 5. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (1) to the holders of shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Preferred Shares unless, prior thereto, the holders
of Preferred Shares shall have received the greater of (i) $100 per
share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such
payment, or (ii) an aggregate amount per share, subject to the provision
for adjustment hereinafter set forth, equal to 100 times the aggregate
amount to be distributed per share to holders of Common Shares, or (2)
to the holders of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Preferred Shares,
except distributions made ratably on the Preferred Shares and all such
parity stock in proportion to the total amounts to which the holders of
all such shares are entitled upon such liquidation, dissolution or
winding up. In the event the Corporation shall at any time after
February 7, 1997, declare or pay any dividend on the Common Shares
payable in shares of Common Shares, or effect a subdivision or
combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise) into a greater or lesser number of Common
Shares, then in each such case the aggregate amount to which holders of
shares of Preferred Shares were entitled immediately prior to such event
under clause (1)(ii) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the
number of Common Shares outstanding immediately after such event and the
denominator of which is the number of Common Shares that were
outstanding immediately prior to such event.
Section 6. Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger, combination or
other transaction in which the Common Shares are exchanged for or
changed into other stock or securities, cash and/or any other property,
then in any such case each Preferred Share shall at the same time be
similarly exchanged or changed into an amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100 times the
aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each
Common Share is changed or exchanged. In the event the Corporation
shall at any time after February 7, 1997, declare or pay any dividend on
the Common Shares payable in Common Shares, or effect a subdivision or
combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise) into a greater or lesser number of Common
Shares, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of Preferred Shares
shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of Common Shares outstanding
immediately after such event and the denominator of which is the number
of Common Shares that were outstanding immediately prior to such event.
Section 7. No Redemption. The Preferred Shares shall not be
redeemable.
Section 8. Rank. The Preferred Shares shall rank, with
respect to the payment of dividends and the distribution of assets,
junior to all other series of the Corporation's preferred shares.
Section 9. Fractional Shares. Preferred Shares may be issued
in fractions of a share which are integral multiples of one
one-hundredth of a share which shall entitle the holder, in proportion
to such holder's fractional shares, to receive dividends, participate in
distributions and to have the benefit of all other rights of holders of
Preferred Shares.
Section 11. Amendment. The Articles of Incorporation of the
Corporation shall not be amended in any manner which would materially
alter or change the powers, preferences or rights of the Preferred
Shares so as to affect them adversely without the affirmative vote of
the holders of at least two-thirds of the outstanding Preferred Shares,
voting together as a single class.
IN WITNESS WHEREOF, I have subscribed my name this 27th day of
January 1997.
OTTER TAIL POWER COMPANY
By A. E. Anderson____________
Its Vice President, Finance and Treasurer
SECOND AMENDMENT
TO
COAL TRANSPORTATION AGREEMENT
This Second Amendment to Coal Transportation Agreement on this
____21st________ day of May 1996 (this "Second Amendment), by
NORTHERN COAL TRANSPORTATION COMPANY ("NCTC") and OTTER TAIL POWER COMPANY
("OTP").
WHEREAS, OTP and NCTC are parties to a Coal Transportation Agreement
dated January 14, 1993; and
WHEREAS, OTP and NCTC desire to extend the term of the Original
Agreement; and
WHEREAS, OTP and NCTC desire to amend the Original Agreement to provide
for revised coal transportation rates and minimum volume requirements to Otter
Tail Power Company's Hoot Lake Plant located near Fergus Falls, MN; and
WHEREAS, OTP and NCTC desire to amend the Original Agreement to include
provisions for dispatch-based pricing designed to increase electrical
generation at the Hoot Lake plant; and
WHEREAS, NCTC is providing its railcars for coal haulage to OTP and will
purchase rail transportation services from the Burlington Northern Santa Fe
Railroad Company ("BNSF") and is, in turn, selling these rail transportation
services to OTP.
NOW, THEREFORE, in consideration of the premises, covenants, and
considerations set out herein, the parties hereto agree as follows:
ARTICLE I
Effective Date and Term of Agreement
Section 1. Effective Date and Term of the Second Amendment
This Second Amendment shall be effective on the date entered above which
will be the date last signed. In accordance with agreement of the parties,
the terms of this Second Amendment shall apply on all trains of coal tendered
on or after January 1, 1996.
The term of this Second Amendment shall end on December 31, 1998.
Section 2. Extension of Original Agreement
Section 1. Term, of the Original Agreement shall be amended to change
the expiration date from January 15, 1996 to December 31, 1998.
Article II
Definitions
As used throughout this Second Amendment, the terms noted below shall be
defined as follows.
1. "Dispatch-Based Discount"
A predetermined discount, expressed as dollars per net ton, which OTP
may apply against its Contract Rates for purposes of varying its generating
costs at the Hoot Lake Plant. This discount may be used, if necessary, to
assist OTP in avoiding energy purchases from other utilities or in making
wholesale sales to other utilities.
2. "Dispatch-Based Tons"
Any tons of coal purchased by OTP as a result of OTP utilizing the
Dispatch-Based Discount. Such tons shall be determined on a monthly basis
subject to verification by NCTC and BNSF.
3. "Dispatch-Based Credit"
A credit applicable to monthly billings for coal and coal
transportation, determined as the product of the Dispatch-Based Discount and
the Dispatch-Based Tons for that month.
4. "Avoided Energy Purchase"
Electrical energy generated at OTP's Hoot Lake Plant which allowed OTP
to avoid purchasing energy from another utility.
5. "Wholesale Energy Sales"
Electrical energy generated at OTP's Hoot Lake Plant which was sold to
another utility for resale to the purchasing utility's customers.
Article III
Modification of Transportation Rates, Calculation of the Dispatch-Based Credit
and
Minimum Volume Requirement
Section 1. Modification of Transportation Rates
The rates shown in Section 3.01., Transportation costs, of the Original
Agreement shall be deleted in its entirety and will be changed to the
following.
1. For Base Tons: $(*) per net ton in NCTC and BNSF Railcars
2. Dispatch-Based Discount $(*) per net ton
Base Tons shall be defined as those tons shipped to satisfy the Minimum
Volume Requirement as noted below in Section 3. The rates shown above for
Base Tons shall be subject to quarterly adjustment as described in Section
3.03 of the Original Agreement, with the first such quarterly adjustment to
become effective on April 1, 1996. The adjusted rate shall then be the
Contract Rate for billing purposes, provided that at no time will the Contract
Rate fall below the Base Rates shown above.
The Contract Rates will normally be utilized as a component in
determining OTP's generation costs at its Hoot Lake plant for purposes of
ongoing comparisons and evaluations of energy purchases from other suppliers
and wholesale power transactions to other utilities. NCTC and BNSF agree,
however, that OTP may evaluate its generation costs at its Hoot Lake plant
incorporating the Dispatch-Based Discount shown above. Any tons of coal
shipped under this Second Amendment as a result of OTP utilizing the Dispatch-
Based Discount to generate energy at its Hoot Lake Plant rather than make
energy purchases from others, or to make a wholesale power sale to another
utility, shall be referred to as "Dispatch-Based Tons." OTP shall be required
to provide documentation on a monthly basis to support the amounts of
Dispatch-Based Tons for which OTP determined the discount was required. This
documentation shall be in the form as shown in Exhibit 1 to this Second
Amendment. OTP agrees to provide the documentation, including OTP's
calculation of the applicable credit, to NCTC within 10 days after the end of
a calendar month in which Dispatch-Based Tons were shipped. Any credit
supported by such documentation will be paid to OTP by check within 20 days of
receipt of such documentation. The total number of OTP tons available to OTP
for designation as Dispatch-Based Tons shall be limited as noted below in
Section 2.
The amount of the Dispatch-Based Discount, including the necessity of a
Dispatch-Based Discount, if any, for the following year shall be determined
through negotiation between NCTC, OTP, and BNSF by November 1 of each year of
this Second Amendment.
Section 2. Calculation of the Dispatch-Based Credit
A credit for Dispatch-Based Tons will be calculated and paid by NCTC to
OTP based upon documentation provided by OTP to NCTC and the following
formula:
Dispatch-Based Tons = (Avoided Energy Purchases + Wholesale Energy
Sales) x 0.60
Dispatch-Based Credit = (Dispatch-Based Tons) x (Dispatch-Based
Discount)
For purposes of the above calculations, Avoided Energy Purchases and
Wholesale Energy Sales shall be expressed in megawatt hours ("MWh"). The
conversion factor for MWh of electrical energy to tons of coal (0.60) is
derived as the reciprocal of the ratio of the defined heating value for Spring
Creek coal (18.70 MMbtu/ton) and the defined heat rate for the Hoot Lake Plant
(11.20 MMbtu/MWh). This conversion factor shall remain fixed for the term of
this Second Amendment.
Section 3. Minimum Volume Requirement
Section 3.04, Minimum Tonnage - Base Freight Component of the Original
Agreement and Section 3.05 Tonnage - Base Railcar Cost of the First Amendment
of the Original Agreement shall be deleted in their entirety and replaced with
the following.
This Agreement is subject to a Minimum Volume Requirement of 600,000
tons to be shipped during the term of this Agreement. In addition to the
Minimum Volume Requirement, 400,000 additional tons may be tendered and
shipped as Dispatch-Based Tons as defined in Article II, Section 1 of the
Second Amendment. Any tons tendered and shipped above an aggregate total of
1,000,000 tons shall be considered to be Base Tons for billing purposes. OTP
will use reasonable efforts to tender tons to NCTC in even increments during
the term of this Agreement. If, at the end of this Agreement, OTP has been
prevented from tendering the coal in quantities sufficient to meet the Minimum
Volume Requirement other than due to an event of Force Majeure, OTP shall pay
to NCTC an amount equal to twenty-five percent (25%) of the last effective
rate in place at the time this Agreement expires.
Article IV
General
Nothing is this Second Amendment shall alter the rights or obligations
of the parties except as specifically set forth above.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be executed by their duly authorized representatives on the day and year
first written above.
OTTER TAIL POWER COMPANY
By Ward Uggerud
Its V.P. Operations
NORTHERN COAL TRANSPORTATION CO.
By Malcolm R. Thomas
Its V.P. Marketing & Sales
(*) Confidential information has been omitted and filed separately with
the Commission pursuant ot Rule 24b-2.
<TABLE>
<CAPTION>
Selected consolidated financial data
- ----------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1986
-------- -------- -------- -------- -------- -------- --------
(thousands except per-share data)
Revenues
Electric
<S> <C> <C> <C> <C> <C> <C> <C>
Residential $ 66,295 $ 64,355 $ 62,687 $ 62,167 $ 59,038 $ 61,844 $ 64,123
Commercial and farms (1) 74,355 71,487 69,060 66,286 63,257 64,122 64,019
Industrial (1) 37,453 37,952 38,354 36,442 35,607 34,408 29,981
Sales for resale 10,238 19,110 19,066 18,107 11,126 11,330 6,330
Other electric 11,004 11,021 9,645 9,288 8,077 7,752 7,768
-------- -------- -------- -------- -------- -------- --------
Total electric $199,345 $203,925 $198,812 $192,290 $177,105 $179,456 $172,221
Health services 61,697 50,896 45,555 32,068 -- -- --
Manufacturing 56,868 38,690 13,083 8,473 -- -- --
Other business operations 43,829 32,818 29,276 32,396 32,433 20,389 --
-------- -------- -------- -------- -------- -------- --------
Total operating revenues $361,739 $326,329 $286,726 $265,227 $209,538 $199,845 $172,221
Net income $ 29,955 $ 28,945 $ 28,475 $ 27,369 $ 26,538 $ 26,096 $ 24,013
Cash flow from operations $ 67,145 $ 58,077 $ 51,832 $ 53,255 $ 44,866 $ 46,667 N/A
Total assets $662,287 $609,196 $578,972 $563,905 $530,456 $491,633 $480,621
Long-term debt $160,492 $168,261 $162,196 $166,563 $159,295 $146,326 $130,032
Redeemable preferred $ 18,000 $ 18,000 $ 18,000 $ 18,000 $ 18,000 $ 13,150 $ 18,145
Common shares outstanding
(2) (thousands) 11,215 11,180 11,180 11,180 11,180 11,185 11,961
Number of common
shareholders (3) 13,829 13,933 14,115 13,634 13,812 13,928 14,994
Earnings per common share (4) $2.47 $2.38 $2.34 $2.23 $2.17 $2.15 $1.78
Dividends per common share $1.80 $1.76 $1.72 $1.68 $1.64 $1.60 $1.42
- ----------------------------------------------------------------------------------------------------------
Notes:
(1) Customer classifications were redefined in 1996. Customers with demand less than
1000 kw previously classified as industrial are now classified as commercial.
(2) Number of shares outstanding at year-end.
(3) Holders of record at year-end.
(4) Based on average number of shares outstanding.
</TABLE>
Management's discussion and analysis of
financial condition and results of operations
Management's major financial objective is to increase shareholder value by
continuing to earn a reasonable return on the Company's capital. This will
enable the Company to preserve and enhance its financial capability by
maintaining acceptable capitalization ratios, maintaining a strong interest
coverage position, providing a reasonable return to the common shareholder,
maintaining an above average level of internal cash generation, and
preserving strong credit ratings on outstanding securities to the benefit
of both the Company's customers and its shareholders.
Liquidity: Liquidity is the ability to generate adequate amounts of cash
to meet the Company's needs, both short-term and long-term. Historically,
the Company's liquidity has been a function of its capital project
expenditures and debt service requirements, its net internal funds
generation and its access to long-term securities markets and credit
facilities for external capital.
Over the years, the Company has achieved a high degree of long-term
liquidity by maintaining desired capitalization ratios and strong bond
ratings, implementing cost-containment programs, evaluating operations and
projects on a cost-benefit approach, investing in projects that enhance
shareholder value, and obtaining adequate depreciation rates.
Cash provided by operating activities of $67,145,000 along with net
proceeds from the issuance of short-term debt of $25,600,000 as shown on
the Consolidated Statement of Cash Flows for the year ended December 31,
1996, combined with funds on hand of $4,075,000 at December 31, 1995,
allowed the Company to finance its capital expenditures, pay dividends, and
provide for a majority of its investments in additional nonutility
businesses. Proceeds from the issuance of long-term debt net of payments
for the retirement of long-term debt of $5,700,000 for the year ended
December 31, 1996, were used to finance equipment purchases at the
Company's medical and manufacturing subsidiaries and to finance a portion
of the investments in additional nonutility businesses. The Company had
$1.2 million in cash, cash equivalents and temporary cash investments at
December 31, 1996, along with $21,725,000 available in unused lines of
credit which could be used to supplement cash needs.
The Company estimates that funds internally generated net of forecasted
dividend payments, combined with funds on hand, will be sufficient to meet
all sinking fund payments for First Mortgage Bonds in the next five years
and to provide for a majority of its estimated 1997-2001 consolidated
capital project expenditures.
Additional short-term or long-term financing will be required in the period
1997-2001 in connection with the following items:
- - A portion of the Company's estimated capital project expenditures.
- - Maturity of First Mortgage Bonds, $18,800,000 in 1997, and Long-Term
Lease Obligation, $2,200,000 in 1998.
- - In the event the Company decides to refund or retire early any of its
presently outstanding debt or cumulative preferred shares.
- - Other corporate purposes.
Capital Requirements: The Company has a construction and capital
investment program to provide facilities necessary to meet forecasted
customer demands and provide reliable service in the capital intensive
electric utility business. This includes improvements to existing power
plants, acquisition or construction of additional generating capacity, and
upgrading or replacing portions of the distribution and transmission
systems and other buildings and equipment. The construction program is
subject to continuing review and is revised annually in light of changes in
demands for energy, environmental laws, technology affecting the electric
utility industry, the costs of labor, materials and equipment, and the
Company's financial condition (including cash flow and earnings).
The subsidiaries capital requirements include periodic and timely
replacement of technically obsolete or worn out equipment, new equipment
purchases, and plant upgrades to accommodate anticipated growth.
Capital project expenditures for the years 1996, 1995, and 1994 were $64
million, $37 million, and $30 million, respectively. Actual 1996 cash
expenditures in excess of previously reported accrual-based estimates, and
1995 actual expenditures reflect: 1)reductions in capital related payables
at year-end 1996, compared to year-end 1995, at the electric utility,
2)$8 million in diagnostic medical equipment purchases by the health services
subsidiary acquired in April 1996, 3)accelerated replacement of equipment
at another of the Company's health services subsidiaries, 4)the purchase
and expansion of a building formerly being leased by a manufacturing
subsidiary and, 5)the purchase of a building by the Company's radio
broadcasting subsidiary.
The estimated capital expenditures for 1997 are $39 million, and the total
expenditures for the five-year period 1997-2001 are expected to be
approximately $169 million. The breakdown of 1996 actual and 1997-2001
estimated capital project expenditures by segment is as follows:
1996 1997 1997-2001
---- ---- ---------
(in millions)
Electric utility $38 $25 $127
Health services 16 6 18
Manufacturing 5 4 12
Other business operations 5 4 12
In addition to these capital requirements, funds totaling approximately
$84,808,000 will be needed during the five-year period 1997 through 2001 to
retire First Mortgage Bonds and other long-term obligations, including
subsidiary long-term obligations, at maturity and through sinking fund
payments.
Capital Resources: Financial flexibility is provided by unused lines of
credit, financial coverages in excess of the minimum levels required for
issuance of securities, and strong credit ratings.
On August 30, 1996, the Company filed a shelf registration statement with
the Securities and Exchange Commission for the issuance of up to
$50,000,000 of its debt securities, which may be sold from time to time in
one or more series, the proceeds of which will be used to repay short-term
and other indebtedness, to redeem one or more of the outstanding series of
the Company's First Mortgage Bonds and for general corporate purposes.
On August 30, 1996, the Company also filed a shelf registration statement
with the Securities and Exchange Commission for the issuance of up to
1,000,000 common shares pursuant to the Company's Automatic Dividend
Reinvestment and Share Purchase Plan (the Plan), which will permit shares
purchased by shareholders, employees, or customers who participate in the
Plan to be either new issue common shares or common shares purchased on the
open market. In December 1996 the Company began issuing newly issued
common shares to fulfill the requirements of the Plan, resulting in the
issuance of 34,516 common shares and proceeds to the Company of $1,130,000
in 1996. The Company estimates that it could raise approximately $6 million
per year in new capital if new issue common shares are used to fulfill all
requirements of the Plan in 1997 and beyond. Proceeds from newly issued
common shares will be used for general corporate purposes.
The Company also plans to fulfill part of the share purchase requirements
of its leveraged employee stock ownership plan (ESOP) in 1997, and possibly
in 1998, and 1999, with newly issued common shares, which could provide the
Company with up to $2.8 million of capital each year.
As of December 31, 1996, unused credit lines totaling $21.7 million were
available to meet interim financing of working capital and other capital
requirements, if needed. The Company had $25,600,000 in short-term
borrowings outstanding as of December 31, 1996. The subsidiary companies
had $7 million of credit lines in use at December 31, 1996, classified as
current maturities and long-term debt. (See note 9 to financial statements
for further information.)
During 1996 the Company's coverage ratios declined slightly from 1995
levels. The fixed charge coverage ratio after taxes was 3.0 for 1996, as
compared to 3.2 in 1995. The long-term debt interest coverage ratio before
taxes was 3.9 for 1996, as compared to 4.3 in 1995. The Company expects
these coverages to increase slightly in 1997.
The Company's credit ratings affect its access to the capital market. The
current credit ratings for the Company's First Mortgage Bonds are as
follows:
Moody's Investors Service Aa3
Duff and Phelps AA
Fitch Investors Service AA
Standard and Poor's AA-
The Company's disclosure of these security ratings is not a recommendation
to buy, sell, or hold the Company's securities.
As of December 31, 1996, the Company had the capacity under its Indenture
of Mortgage to issue an additional $138 million principal amount of First
Mortgage Bonds.
Results of operations:
Electric operations:
Otter Tail Power Company provides electrical service to nearly 125,000
customers in a service territory of over 50,000 square miles.
Operating revenues
- ------------------
The change in revenues may be summarized as follows:
Revenue increase(decrease)
from prior year
1996 1995 1994
------ ------ ------
(in thousands)
Volume variance (1) $ (499) $ 5,419 $ 6,979
Price variance (2) (3,985) (1,517) (492)
Other (96) 1,211 35
------- ------- -------
Total Electric $(4,580) $ 5,113 $ 6,522
(1) Derived for each customer class by multiplying year-to-year change in
units sold by the average revenue per kwh for the prior year.
(2) Derived for each customer class by multiplying the year-to-year change
in average revenue per kwh by the units sold during the year.
The 1996 volume variance was mainly due to a decrease in noncontractual
power pool kwh sales partially offset by a 4% increase in retail kwh sales.
A number of factors contributed to the decrease in noncontractual power
pool sales. Midcontinent Area Power Pool (MAPP) transmission service
charges have made it less economical to ship energy over long distances.
The summer of 1996 was milder than the summer of 1995 and high water levels
in the summer of 1996 furnished MAPP's hydro generators with an excess of
low-priced electricity to market. In addition to external factors, lower
plant availability in 1996 due to scheduled outages at both Hoot Lake Unit
3 and Big Stone Plant also contributed to the decrease in noncontractual
power pool sales.
The 1995 volume variance was due to a 3.4% increase in retail kwh sales.
The increase in retail kwh sales was due to increased sales in each
customer class: residential, commercial, and industrial. Total power pool
sales decreased by 1% from the previous year. Noncontractual power pool
sales increased due to a combination of warmer weather and greater plant
availability in 1995 which resulted in more opportunity sales. This
increase was offset by a 53.7% decrease in contractual power pool sales.
The 1994 volume variance was due to a 3.6% increase in retail kwh sales.
The increase in retail kwh sales was principally due to increased sales to
commercial and industrial customers. Power pool sales remained at the same
level as in the previous year. Noncontractual power pool sales declined in
1994 because of the exceptionally high level of sales in 1993. However,
contractual power pool sales were up significantly in 1994 because of a
large sale to another utility.
Heating degree days, which generally correlate to increases or decreases in
usage by residential customers, were 10,349 for 1996, 9,326 for 1995, and
9,204 for 1994. The average revenue per retail kilowatt-hour was 5.35 cents in
1996, 5.45 cents in 1995, and 5.50 cents in 1994.
The 1996 price variance relates to lower fuel costs at Big Stone Plant
being passed on to customers through the cost of energy adjustment clause
and lower rates charged to one of the Company's largest industrial
customers under the Company's recently developed Large General Service
Time-of-Use Rider.
The 1995 price variance was primarily attributed to residential and
commercial sales, sales to a large industrial customer, and the cost of
energy adjustment clause. The negative variance in these categories was
partially offset by a positive price variance in contractual power pool
sales. The increase in contractual power pool sales revenue per kwh sold
resulted from spreading a fixed demand charge over a decrease in kwh sales.
The 1994 price variance was essentially due to increased sales to
industrial customers and increased contractual power pool sales. The
decrease in contractual power pool sales revenue per kwh sold resulted from
spreading a fixed demand charge over an increase in kwh sales.
The change in electric revenue attributed to factors other than price and
volume variances in 1996 reflects an increase in conservation program
revenues recognized in 1996, offset by a decrease of $614,000 in North
Dakota unbilled revenues as a result of the three year phase-in period for
the initial recognition of these revenues ending in 1995. (See note 1 to
financial statements for further information.) The increase in electric
revenue related to other factors in 1995 reflects an increase in unbilled
revenue of $388,000 over 1994 and the initial recognition of conservation
program revenues and wheeling service fees in 1995.
Expenses
- --------
The percentage changes in operating expenses may be summarized as follows:
Percentage increase (decrease)
from prior year
1996 1995 1994
---- ---- ----
Production fuel (12) (2) 3
Purchased power (7) 7 5
Electric operation expenses 3 13 2
Electric maintenance 8 (11) 6
Depreciation and amortization 2 3 4
Property taxes 8 (6) 6
Production fuel and purchased power expense
- -------------------------------------------
The 12% decrease in production fuel expense in 1996 was the result of
declines in fuel expenses at all three of the Company's major power plants
due to decreases in fuel costs per kwh at Big Stone and Hoot Lake and
decreases in net generation at Big Stone and Coyote. Two factors
contributing to the decrease in system wide generation in 1996 were lower
demand as a result of fewer noncontractual power pool sales and scheduled
maintenance shutdowns at Hoot Lake and Big Stone Plants. In 1995 the cost
of steam production fuel per kwh generated decreased by 4.1% while the
total kwhs generated increased by 1.6%, which, in combination, contributed
to the 2% decrease in 1995 production fuel expense compared to 1994. The
decrease in fuel cost per unit of generation in 1996 and 1995 resulted
mainly from switching fuels at Big Stone Plant from lignite to higher-Btu
subbituminous coal in August 1995. The 3% increase in production fuel in
1994 resulted chiefly from a 3.2% increase in generation.
The 7% decrease in purchased power in 1996 reflects a 45% decrease in kwh
purchases for resale partially offset by a 21% increase in purchases for
system use. The decrease in purchases for resale correlates to the
decrease in noncontractual power pool sales. The purchase of replacement
generation for planned plant outages was the major factor contributing to
the increase in purchases for system use. The 7% increase in purchased
power in 1995 was due to increased kwh purchases for system use, which
correlates to the increase in retail sales. Purchased power increased 5%
in 1994 essentially because of an increase in cost per kwh purchased. The
bulk of the increase in cost per kwh purchased resulted from an increase in
replacement generation cost for plant outages.
The increase or decrease in fuel and purchased power costs arising from
changing prices results in adjustments to the Company's rate schedules
through the cost of energy adjustment clause. Over the last five years
this has resulted in savings of nearly $39 million to the Company's
customers.
Electric operation and maintenance expenses
- -------------------------------------------
The 3% increase in electric operation expenses for 1996 was mainly due to
increased benefit costs resulting from revised actuarial assumptions for
the Company's Executive Survivor and Supplemental Retirement Plan (see note
8 to financial statements for further information) and increased payments
for contracted services offset by a decrease in economic development
expenditures that were lower than the increased levels recorded in 1995.
The increase in electric operating expense of 13% in 1995 was primarily due
to a settlement with the Minnesota Public Utilities Commission requiring
recovery of Conservation Improvement Program costs in current rates
starting in 1995 and an increase in postretirement health-care benefit
costs resulting from a plan amendment which reduces the health insurance
contribution requirements for surviving spouses of retired employees. (See
notes 3 and 8 to financial statements for further information.) Storm-
related expenses in the summer and fall of 1995 along with 1995 economic
development expenditures and wage and salary increases also contributed to
the increase in electric operating expense.
The 1994 increase of 2% in electric operating expense resulted principally
from increases in customer account expenses and payroll expenses.
The majority of the increase in electric maintenance expense of 8% in 1996
was due to increased production plant maintenance expenses. Hoot Lake Unit
3 was down for scheduled maintenance in February and March of 1996 and had
a turbine rebuild and steam chest replacement in July 1996. Big Stone
Plant underwent a scheduled ten-week major overhaul in September, October
and November of 1996.
The 11% decrease in electric maintenance expense in 1995 was mainly due to
significant reductions in power plant maintenance expenses. Coyote Plant,
which had a major overhaul in the spring of 1994 but no major overhauls in
1995, was the primary contributor to the reduction in maintenance expenses.
Lower maintenance expenses on Hoot Lake Plant Unit 2, which underwent major
repairs in the summer of 1994, also contributed to the decrease.
The increase in electric maintenance expense of 6% in 1994 was due to
increases in production and distribution maintenance. Production
maintenance increased because of boiler repairs at Coyote Plant.
Distribution maintenance increased due to more tree-trimming expenses.
Depreciation and amortization
- -----------------------------
The increases in depreciation and amortization expense of 2% in 1996, 3% in
1995 and 4% in 1994 were attributable to additions to plant in service from
capital expenditures.
Property taxes
- --------------
The 8% increase in property taxes in 1996 was due to a 10% increase in the
assessed value of the Company's South Dakota utility property compounded by
a 14% increase in the mill rates applied to that property. The 6% decrease
in property taxes in 1995 was mainly due to decreased property tax rates in
Minnesota and valuation decreases in South Dakota. The increase in
property taxes of 6% for 1994 was due to property additions and increased
mill rates.
Health services operations:
Health services operations include businesses which are involved in the
sale, service, rental, refurbishing, and operation of medical imaging
equipment and the sale of related supplies and accessories to various
medical institutions, primarily in the Midwest. Initial acquisitions of
businesses in this segment were made in 1993. Two companies were acquired
in 1996: one in February, and a second more significant acquisition in
April. (See note 2 to financial statements for more information.)
1996 1995 1994
------ ------ ------
(in thousands)
Operating revenues $61,697 $50,896 $45,555
Cost of goods sold 40,224 31,576 28,690
Operating expenses 16,336 15,739 14,379
------- ------- -------
Operating income $ 5,137 $ 3,581 $ 2,486
The increases in health services revenue of 21% and cost of goods sold of
27% in 1996, as compared to 1995, were due to acquisitions of two health
services companies. The 12% increase in health services operating revenues
in 1995 was due to increased sales of medical equipment in 1995 compared to
1994. The acquisition of three additional diagnostic imaging companies in
January 1995 also contributed to the increase in operating revenues. The
increase in cost of goods sold in 1995 compared to 1994 was directly
related to the 1995 increase in equipment sales.
Manufacturing operations:
Manufacturing operations is made up of businesses involved in the
production of agricultural equipment, plastic pipe extrusion, and metal
parts stamping and fabrication. Initial acquisitions of businesses in this
segment were made in 1990. No additional companies were acquired in 1996.
1996 1995 1994
------ ------ ------
(in thousands)
Operating revenues $56,868 $38,690 $13,083
Cost of goods sold 43,745 29,884 9,167
Operating expenses 7,700 5,536 1,475
------- ------- -------
Operating income $ 5,423 $ 3,270 $ 2,441
The 47% increase in manufacturing operating revenues in 1996 reflects
revenues from Northern Pipe Products, acquired in October of 1995, and
increased sales at BTD Manufacturing. The 46% increase in manufacturing
cost of goods sold and 39% increase in operating expenses in 1996 were
directly related to the increase in manufacturing revenue. The increases
in 1995 operating revenues and 1995 cost of goods sold and operating
expenses resulted principally from the acquisitions of Northern Pipe
Products and BTD Manufacturing in 1995 and sales in expanded product lines
of companies acquired prior to 1995.
Other business operations:
The Company's other business operations include a telephone utility and
businesses involved in electrical and telephone construction contracting,
radio broadcasting, and waste incinerating. In 1996 the Company's
subsidiary, Mid-States Development, Inc., acquired four radio stations, and
the Company's telecommunications subsidiary, North Central Utilities, Inc.
(NCU), acquired two small cable TV systems. On January 2, 1997, NCU
acquired The Peoples Telephone Co. of Bigfork (Peoples) in a pooling-of-
interests transaction. Peoples, with 1,903 access lines serving five
communities in Northern Minnesota, had 1996 revenues of $1.6 million. (See
note 2 to financial statements for more information.)
1996 1995 1994
------ ------ ------
(in thousands)
Operating revenues $43,829 $32,818 $29,276
Cost of goods sold 28,297 18,954 16,903
Operating expenses 13,145 10,333 9,247
------- ------- -------
Operating income $ 2,387 $ 3,531 $ 3,126
The 34% increase in operating revenue in 1996, as compared to 1995,
reflects material cost pass through billings by the Company's construction
subsidiaries on material intensive jobs. The increase in material costs
billed is also reflected in the 49% increase in cost of goods sold from
other business operations. The increase of 27% in 1996 operating expenses
as compared to 1995 was due to increased construction activity and non-
recurring expenses associated with the acquisition of four radio stations
in 1996. (See note 2 to financial statements for more information.)
Operating revenues increased 12% in 1995, of which half was attributable to
increased construction revenues related to material cost billings on large
projects with a commensurate increase in cost of goods sold. The remaining
increases in revenues and operating income were due to modest contributions
from all other businesses in 1995.
Consolidated other income and deductions--net:
The increase in other income and deductions--net in 1996, as compared to
1995, reflects a reduction in miscellaneous expenses at the health services
subsidiaries in 1996 and losses on marketable securities recognized in 1995
related to the Company's preferred stock investment program which ended in
October of 1995.
Consolidated interest charges:
Interest charges increased 10% in 1996 as a result of increased debt at the
Company's subsidiaries due to acquisitions and growth and to an increase in
the use of short-term debt at the parent-company level. Interest charges
increased 11% in 1995 due to new business acquisitions.
Consolidated income taxes:
The 13% decrease in income taxes in 1996, compared to 1995, was the result
of net capital losses realized in 1995 on the sale of marketable securities
not generating tax savings, the initial recording of affordable housing
tax credits in 1996, and reversal of taxes previously deferred at rates
higher than current tax rates. (See note 11 and "Investments" under note 1
to financial statements for more information.)
Impact of inflation:
For an electric utility, the regulatory process limits the amount of
depreciation expense included in the Company's revenue allowance and limits
electric utility plant in the rate base to original cost. Such amounts
produce cash flows that are inadequate to replace such property in the
future or preserve the purchasing power of common equity capital previously
invested. Under continuation of the current regulatory process, the
Company expects that it will be able to establish rates that will cover the
increased costs of new plant when such costs are incurred. The Company
operates under regulatory provisions that allow price increases in the cost
of fuel and purchased power to be passed to customers through automatic
adjustments to its rate schedules under the cost of energy adjustment
clause. For the past eight years this has resulted in lower retail
electric rates. Other increases in the cost of electric service must be
recovered through timely filings for rate relief with the appropriate
regulatory agency.
The Company's health services, manufacturing and other business operations
consist almost entirely of unregulated businesses. Increased operating
costs are reflected in product or services pricing with any limitations on
price increases determined by the marketplace.
Factors affecting future earnings:
Growth of electric revenue
- --------------------------
The results of operations discussed above are not necessarily indicative of
future earnings. Anticipated higher operating costs and carrying charges
on increased investment in plant, if not offset by proportionate increases
in operating revenues and other income (either by appropriate rate
increases, increases in unit sales, or increases in nonelectric
operations), will affect future earnings.
Growth in electric sales will be subject to a number of factors, including
the volume of power pool sales to other utilities, the effectiveness of
demand-side management programs, weather, competition, and the rate of
economic growth or decline in the Company's service area. The Company's
electric business is primarily dependent upon the use of electricity by
customers in our service area. Percentage changes in the Company's
electric kwh sales to retail customers over the prior year for the last
three years were increases of 4.0% in 1996, 3.4% in 1995, and 3.6% in 1994.
Market factors beyond the Company's control such as mergers and
acquisitions, geographical location, transmission costs and uncertainty
about the impact of deregulation may contribute to a continued decline in
noncontractual power pool sales. However, the relative effect of the
decrease in noncontractual power pool sales on earnings is less than its
proportionate effect on the decrease in electric revenues due to the
relatively low margin of profits on these sales.
Rates of return earned on utility operations are subject to review by the
various state commissions that have jurisdiction over the electric rates
charged by the Company. These reviews may result in future revenue
reductions when actual rates of return are deemed by regulators to be in
excess of allowed rates of return.
Demand-side management
- ----------------------
Demand-side management (DSM) efforts will continue in all jurisdictions
served by the Company. The goal of DSM is to encourage the wise and
efficient use of electricity by customers. Currently, Minnesota is the
only jurisdiction that mandates investments in DSM.
In 1994 the Company filed a petition with the Minnesota Public Utilities
Commission (MPUC) for approval of an annual recovery mechanism for DSM-
related costs under Minnesota's Conservation Improvement Programs (CIP).
An intervenor on behalf of the Large General Service Group filed comments
against the petition and requested the MPUC to order a general rate case to
review the Company's earnings levels. In the interest of rate stability
the Company reached an agreement, which was approved by the MPUC, resulting
in costs to the Company of approximately $2.2 million each year for three
years being absorbed in current rates starting in 1995.
In 1996 the MPUC approved the Company's 1995 financial incentive filing
along with a 1.25% surcharge on all Minnesota customers' bills starting on
July 1, 1996, for the recovery of conservation-related costs over and above
those being recovered in current rates. The approved surcharge in effect
from July 1, 1995, through June 30, 1996, was .5030%. The surcharge
approvals resulted in earnings of approximately $655,000 in 1996 and
$620,000 in 1995 due to recognition of revenue related to CIP impacts on
1996, 1995, and 1994 energy consumption. The current surcharge rate will
be in place until June 30, 1997, when it will be revised for subsequent
years' program results.
Energy adjustment clause
- ------------------------
The Company began purchasing subbituminous coal for Big Stone Plant in
August 1995 under a new coal contract that runs through December 1999.
Price reductions, in addition to plant efficiency gains due to switching
from lignite to higher-Btu subbituminous coal, have resulted in cost
reductions. The majority of these reductions have been, and continue to
be, passed on to retail electric customers through the cost of energy
adjustment clause, which enhances the Company's competitive position.
In November 1995 the Company and two other Coyote Plant partners initiated
a lawsuit against Knife River Coal Mining Company and its parent, MDU
Resources Group, in an attempt to resolve disputes over the pricing
mechanism included in the Coyote coal agreement. The case has been
remanded to arbitration to determine if the items under dispute are
arbitrable. Any fuel cost savings that may result from resolution of this
dispute will be passed on to customers through the cost of energy
adjustment clause.
Environmental regulation
- ------------------------
Under current regulations the Federal Clean Air Act (the Act) is not
expected to have a significant impact on future capital requirements or
operating costs. However, proposed or future regulations under the Act,
changes in the future coal supply market, and/or other laws and regulations
could impact such requirements or costs. It is anticipated that, under
current regulatory principles, any such costs could be recovered through
rates.
The Company's plants are not subject to the Act's phase one requirements.
Phase two standards of the Act must be met by the year 2000. The Company
intends that Big Stone Plant will maintain current levels of operation and
meet phase two requirements for sulfur dioxide emissions by burning
subbituminous coal, which is much lower in sulfur emissions than lignite.
As stated previously, Big Stone Plant's new coal contract expires at the
end of 1999. The cost of subbituminous coal in 2000 and beyond will
probably be higher than the current market price but will likely not
adversely affect the Company's power plant operations. Under recently
proposed regulations, modifications would be required at Big Stone Plant by
2000 to satisfy proposed nitrogen oxide emission standards. The Company is
a member of the Utility Air Regulatory Group (UARG), which has filed a
petition in Federal Court for reconsideration of the standards based on
inconsistencies in current laws. Compliance costs will depend on the
regulations that are ultimately adopted and the cost of available
technologies.
The Company's Coyote Plant is equipped with sulfur dioxide removal
equipment. Compliance with the phase two requirements is not expected to
significantly impact operations at that plant. Hoot Lake Plant already
uses low-sulfur subbituminous coal. Minor modifications may be required at
Hoot Lake Plant to meet the phase two nitrogen oxide emission requirements
by 2000.
Competition
- -----------
In 1995 the Federal Energy Regulatory Commission (FERC) issued a Notice of
Proposed Rulemaking (NOPR) to promote competition and deregulation in
wholesale electric markets by requiring owners of transmission facilities
to offer nondiscriminatory open-access transmission and ancillary services
to wholesale sellers and purchasers of electric energy in interstate
commerce. On April 24, 1996, the FERC issued two final rules, Order Nos.
888 and 889, which may have a potentially significant impact on wholesale
markets.
Order No. 888, effective July 9, 1996, requires electric utilities and
other transmission users to abide by comparable terms, conditions and
pricing in transmitting power. The Company filed its initial transmission
tariff on July 9, 1996, as required by Order No. 888. A revised rate
schedule will become effective in the first quarter of 1997.
Order No. 889, which became effective January 3, 1997, requires public
utilities to implement Standards of Conduct and an Open Access Same-Time
Information System (OASIS). These rules require transmission personnel to
provide information about their transmission systems to all customers,
including their associates within their respective companies, through the
OASIS.
The state utility commissions in Minnesota and North Dakota are currently
investigating the impact of electric utility industry restructuring and the
prospects for reregulation and retail competition in their respective
jurisdictions. To date, the MPUC and the NDPSC have issued no new policies
or rulemakings regarding this issue. The South Dakota PUC has not taken
any action with regards to industry restructuring or retail competition.
The Company is taking a number of steps to position itself for success in a
competitive marketplace. It has initiated the process of functionally
unbundling its generation, transmission, distribution and energy services
operations by setting up distinct separate business units in each of these
areas. The Company is developing the necessary accounting systems to
capture costs and determine the profitability of each of these units and to
identify areas for improvement and opportunities for increased
profitability. The Company is establishing an energy services business
unit to promote the energy related products and services that have always
been offered to its customers and to develop new products and services to
be offered to current and potential customers in order to distinguish
itself from the competition.
As the electric industry evolves and becomes more competitive, the Company
believes it is well positioned to maintain its customer base and may have
opportunities to increase its market share. The Company's generation
capacity appears poised for competition due to unit heat rate improvements
and reductions in fuel and freight costs. A comparison of the Company's
electric retail rates with the rates of other investor-owned utilities,
cooperatives, and municipals in the states the Company serves indicates
that its rates are competitive. In addition, the Company would attempt
more flexible pricing strategies under an open, competitive environment.
The year 2000 (millennium) bug
- ------------------------------
The Company does not expect to incur significant costs over the next three
years to modify software programs to accommodate the year 2000 because
coding standards used when the programs were written have enabled the
Company to programmatically identify and locate the code that needs to be
changed on all programs written in-house. The Company anticipates that it
will be able to cover any conversion costs within current operating budget
levels. Additionally, the Company has replaced or is in the process of
updating or replacing a number of its financial application and other
operating programs within the normal course of business. The new software
will accommodate the millennium change.
Diversification
- ---------------
The Company continues to investigate acquisitions of additional businesses
(both utility and nonutility) and expects continued growth in this area.
The success of these businesses and any future business purchases will
affect future earnings.
Quadrant Co., the Company's waste incineration subsidiary, continues to
provide primary service to one of its two steam customers under an
agreement which can be terminated by either party upon one year's prior
written notice. Quadrant is currently providing backup service to its
other steam customer under an agreement that commenced on June 1, 1996 and
terminates on May 31, 1998, subject to earlier termination by either party
upon 90 days' written notice. Quadrant also continues to burn municipal
solid waste for three Minnesota counties under a contract extension which
expires April 1, 1997. Two Minnesota counties, representing about 40% of
Quadrant's processing capacity, did not renew or extend their contracts for
waste incineration which expired in September 1996.
Quadrant is in the process of negotiating new waste incineration agreements
with the remaining counties and is pursuing additional incineration
contracts. New pollution rules for Minnesota municipal waste incinerators
have recently been issued. The costs to be in compliance with the new
rules by the year 2000, combined with a decline in future revenues from
decreased steam sales and the loss of the two counties' waste streams
threaten the economic viability of the plant. Quadrant is currently
generating positive cash flows from the operation of its plant, which had a
net undepreciated book value of approximately $3.2 million on December 31,
1996. However, the outcome of current incineration contract negotiations
could result in an impairment issue under SFAS 121. Prospects for new
incineration contracts are positive but the range of prices being
considered results in a wide variance in estimates of future cash flows,
making it impossible to accurately calculate an impairment value at this
time.
The majority of the subsidiary companies' long-term debt is variable
interest rate debt. Any increase in prime lending rates would result in
increased interest expense and have a negative impact on future earnings.
Accounting pronouncements
- -------------------------
In March 1995 the Financial Accounting Standards Board issued SFAS 121 -
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which became effective for the Company's
financial statements in 1996. The nature of utility regulation generally
provides for the recovery of amounts invested in utility assets used to
serve customers, over a specified period of time, through approved service
rates and allowed rates of return on rate base. Currently, most of the
Company's utility revenues are subject to regulation. The Company has
determined that the carrying amounts of all its long-lived assets and
identifiable intangibles at December 31, 1996, for both its utility and
subsidiary operations are recoverable through expected future cash flows
from the use of those assets.
In October 1995 the Financial Accounting Standards Board issued SFAS 123 -
Accounting for Stock-Based Compensation, which became effective for the
Company's financial statements in 1996. The statement establishes
financial accounting and reporting standards for stock-based employee
compensation. As of December 31, 1996, the Company had no stock-based
employee compensation programs that are subject to SFAS 123 reporting
requirements.
Cautionary Statements for Purposes of the Safe Harbor
Provisions of the Private Securities Litigation Reform Act of 1995
- ------------------------------------------------------------------
The information in this annual report includes forward-looking statements.
Important risks and uncertainties that could cause actual results to differ
materially from those discussed in such forward-looking statements are set
forth above under "Factors affecting future earnings." Other risks and
uncertainties may be detailed from time to time in the Company's future
Securities and Exchange Commission filings.
Independent Auditors' Report
To the Shareholders of Otter Tail Power Company:
We have audited the accompanying consolidated balance sheets and statements
of capitalization of Otter Tail Power Company and its subsidiaries (the
Company) as of December 31, 1996, and 1995, and the related consolidated
statements of income, retained earnings, and cash flows for each of the
three years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December
31, 1996, and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
January 29, 1997
Minneapolis, Minnesota
Otter Tail Power Company
<TABLE>
<CAPTION>
<S> <C> <C>
Consolidated Balance Sheets, December 31 1996 1995
- ----------------------------------------------------------------------------------------
(in thousands)
Assets
Plant:
<S> <C> <C>
Electric plant in service $742,065 $715,305
Subsidiary companies 93,975 54,266
-------- --------
Total 836,040 769,571
Less accumulated depreciation and amortization 327,672 308,174
-------- --------
508,368 461,397
Construction work in progress 11,470 16,285
-------- --------
Net plant 519,838 477,682
-------- --------
Investments 19,880 12,716
-------- --------
Intangibles--net 21,954 18,902
-------- --------
Other assets 6,553 7,732
-------- --------
Current assets:
Cash and cash equivalents 1,229 1,867
Temporary cash investments -- 2,208
Accounts receivable:
Trade (less accumulated provision for uncollectible accounts:
1996, $690,000; 1995, $398,000) 32,590 31,184
Other 5,018 8,276
Materials and supplies:
Fuel 3,220 3,322
Inventory, materials and operating supplies 23,778 19,408
Deferred income taxes 4,550 3,754
Accrued utility revenues 5,349 4,328
Other 4,537 4,427
-------- --------
Total current assets 80,271 78,774
-------- --------
Deferred debits:
Unamortized debt expense and reacquisition premiums 4,270 4,687
Regulatory assets 5,866 5,727
Other 3,655 2,976
-------- --------
Total deferred debits 13,791 13,390
-------- --------
Total $662,287 $609,196
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Otter Tail Power Company
<TABLE>
<CAPTION>
<S> <C> <C>
Consolidated Balance Sheets, December 31 1996 1995
- ----------------------------------------------------------------------------------------
(in thousands)
Liabilities
Capitalization (page 38):
Common shares, par value $5 per share -- authorized, 25,000,000
<S> <C> <C>
shares; outstanding, 1996 11,214,652; 1995 11,180,136 shares $ 56,073 $ 55,901
Premium on common shares 31,271 30,335
Retained earnings 105,882 98,006
-------- --------
Total 193,226 184,242
Cumulative preferred shares:
Subject to mandatory redemption 18,000 18,000
Other 20,831 20,831
Long-term debt 160,492 168,261
-------- --------
Total capitalization 392,549 391,334
-------- --------
Current liabilities:
Short-term debt 25,600 --
Sinking fund requirements and current maturities 42,136 13,733
Accounts payable 26,587 27,828
Accrued salaries and wages 3,847 3,703
Federal and state income taxes accrued 2,031 393
Other taxes accrued 12,043 11,356
Interest accrued 3,622 3,509
Other 2,822 6,752
-------- --------
Total current liabilities 118,688 67,274
-------- --------
Noncurrent liabilities 16,688 13,498
-------- --------
Commitments (note 6) -- --
-------- --------
Deferred credits:
Accumulated deferred income taxes 98,498 99,398
Accumulated deferred investment tax credit 19,818 20,994
Regulatory liabilities 13,283 14,500
Other 2,763 2,198
-------- --------
Total deferred credits 134,362 137,090
-------- --------
Total $662,287 $609,196
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Otter Tail Power Company
<TABLE>
<CAPTION>
Consolidated Statements of Income
<S> <C> <C> <C>
For the Years Ended December 31 1996 1995 1994
- ----------------------------------------------------------------------------------------
(in thousands, except per share amounts)
Operating revenues:
<S> <C> <C> <C>
Electric $199,345 $203,925 $198,812
Health services 61,697 50,896 45,555
Manufacturing 56,868 38,690 13,083
Other business operations 43,829 32,818 29,276
-------- -------- --------
Total operating revenues 361,739 326,329 286,726
Operating expenses:
Production fuel 27,913 31,559 32,311
Purchased power 28,378 30,591 28,717
Electric operation and maintenance expenses 66,401 63,777 59,409
Cost of goods sold 112,266 80,414 54,760
Other nonelectric expenses 34,126 29,111 22,842
Depreciation and amortization 22,904 21,909 21,190
Property taxes 11,525 10,670 11,318
-------- -------- --------
Total operating expenses 303,513 268,031 230,547
Operating income:
Electric 45,279 47,916 48,126
Health services 5,137 3,581 2,486
Manufacturing 5,423 3,270 2,441
Other business operations 2,387 3,531 3,126
-------- -------- --------
Total operating income 58,226 58,298 56,179
Other income and deductions -- net 2,370 1,881 1,864
Interest charges 16,601 15,075 13,687
-------- -------- --------
Income before income taxes 43,995 45,104 44,356
Income taxes 14,040 16,159 15,881
-------- -------- --------
Net income 29,955 28,945 28,475
Preferred dividend requirements 2,358 2,358 2,358
-------- -------- --------
Earnings available for common shares $ 27,597 $ 26,587 $ 26,117
======== ======== ========
Average number of common shares outstanding 11,182 11,180 11,180
Earnings per average common share $2.47 $2.38 $2.34
Dividends per common share $1.80 $1.76 $1.72
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Consolidated Statements of Retained Earnings
<S> <C> <C> <C>
For the Years Ended December 31 1996 1995 1994
- ----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Retained earnings at beginning of year $ 98,006 $ 90,412 $ 84,209
Net income 29,955 28,945 28,475
Other 403 684 (684)
-------- -------- --------
Total 128,364 120,041 112,000
-------- -------- --------
Dividends paid:
Cumulative preferred shares at required annual rates 2,358 2,358 2,358
Common shares 20,124 19,677 19,230
-------- -------- --------
Total 22,482 22,035 21,588
-------- -------- --------
Retained earnings at end of year $105,882 $ 98,006 $ 90,412
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Otter Tail Power Company
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
<S> <C> <C> <C>
For the Years Ended December 31 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 29,955 $ 28,945 $ 28,475
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 34,788 28,602 25,899
Deferred investment tax credit--net (1,177) (1,177) (1,347)
Deferred income taxes (5,276) 751 1,386
Change in deferred debits and other assets 3,679 (1,792) (1,016)
Change in noncurrent liabilities and deferred credits 3,389 4,560 1,016
Allowance for equity (other) funds used during construction (325) (229) (146)
(Gain)/loss on investments in and disposal of noncurrent assets 308 946 (201)
Cash provided by (used for) current assets and current liabilities:
Change in receivables, materials, and supplies 660 (1,035) (10,712)
Change in other current assets (957) (1,349) (339)
Change in payables and other current liabilities 548 1,436 6,720
Change in interest and income taxes payable 1,553 (1,581) 2,097
-------- -------- --------
Net cash provided by operating activities 67,145 58,077 51,832
-------- -------- --------
Cash flows from investing activities:
Gross capital expenditures (63,951) (37,134) (30,411)
Proceeds from disposal of noncurrent assets 4,649 2,417 2,574
Purchase of subsidiaries, net of cash acquired (10,006) (5,808) (286)
Change in temporary cash investments 2,208 (1,817) 60
Change in marketable securities and other investments (10,609) 13,151 (1,630)
-------- -------- --------
Net cash used in investing activities (77,709) (29,191) (29,693)
-------- -------- --------
Cash flows from financing activities:
Change in short-term debt---net issuances 25,600 (2,900) 2,900
Proceeds from issuance of long-term debt 117,083 54,482 6,433
Proceeds from issuance of common stock 1,130 -- --
Payments for debt and common stock issuance expense (22) -- (56)
Payments for retirement of long-term debt (111,383) (58,418) (11,784)
Dividends paid (22,482) (22,035) (21,588)
-------- -------- --------
Net cash used In financing activities 9,926 (28,871) (24,095)
-------- -------- --------
Net change in cash and cash equivalents (638) 15 (1,956)
Cash and cash equivalents at beginning of year 1,867 1,852 3,808
-------- -------- --------
Cash and cash equivalents at end of year $ 1,229 $ 1,867 $ 1,852
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 16,375 $ 14,160 $ 13,160
Income taxes $ 18,759 $ 18,286 $ 14,058
</TABLE>
See accompanying notes to consolidated financial statements.
Otter Tail Power Company
<TABLE>
<CAPTION>
<S> <C> <C>
Consolidated Statements of Capitalization, December 31 1996 1995
- ----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Total common shareholders' equity $193,226 $184,242
Cumulative preferred shares -- without par value (stated and
liquidating value $100 a share) -- authorized 1,500,000 shares;
outstanding:
Series subject to mandatory redemption
$6.35, 180,000 shares; 9,000 shares due 2002-06;
135,000 shares due 2007 18,000 18,000
-------- --------
Total 18,000 18,000
-------- --------
Other series:
$3.60, 60,000 shares 6,000 6,000
$4.40, 25,000 shares 2,500 2,500
$4.65, 30,000 shares 3,000 3,000
$6.75, 40,000 shares 4,000 4,000
$9.00, 53,311 shares 5,331 5,331
-------- --------
Total other preferred 20,831 20,831
-------- --------
Cumulative preference shares -- without par value, authorized
1,000,000 shares; outstanding: none
Long-term debt:
First mortgage bond series:
8.75%, due December 15, 1997 18,800 19,000
7.25%, due August 1, 2002 19,200 19,400
7.625%, due February 1, 2003 9,240 9,360
8.75%, due September 15, 2021 19,000 19,200
8.25%, due August 1, 2022 28,800 29,100
Pollution control series:
6.10-6.80%, due February 1, 2006, Big Stone project 5,427 5,487
8.125%, due August 1, 2009, Coyote project, series B 830 840
6.10-6.90%, due February 1, 2019, Coyote project 21,734 21,969
-------- --------
Total 123,031 124,356
Subsidiary and other long-term debt:
Long-term lease obligation (5.625% pollution control revenue
bonds due July 1, 1998) 2,200 2,200
Industrial development refunding revenue bonds
5.00% due December 1, 2002 3,010 3,010
Pollution control refunding revenue bonds
variable 4.20% at December 31, 1996, due December 1, 2012 10,400 10,400
Industrial development revenue bond (Quadrant Co. project) -- 200
Obligations of Mid-States Development, Inc.
rates 2.90% to 11.38% at December 31, 1996 56,606 33,496
Obligations of North Central Utilities, Inc.
variable 6.90% to 7.05% at December 31, 1996 8,026 9,013
Other 1 8
-------- --------
Total 203,274 182,683
Less:
Current maturity 41,011 12,408
Sinking fund requirement 1,125 1,325
Unamortized debt discount and premium -- net 646 689
-------- --------
Total long-term debt 160,492 168,261
-------- --------
Total capitalization $392,549 $391,334
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Otter Tail Power Company
Notes to consolidated financial statements
For the three years ended December 31, 1996
1. Summary of accounting policies
System of accounts -- The accounting records of the Company conform to the
Uniform System of Accounts prescribed by the Federal Energy Regulatory
Commission (FERC), the Public Service Commission of North Dakota, and
the Public Utilities Commissions of Minnesota and South Dakota.
Principles of consolidation -- The consolidated financial statements
include the accounts of the Company and all wholly owned subsidiaries.
All significant intercompany transactions have been eliminated.
Plant, retirements, and depreciation -- Utility plant is stated at
original cost. The cost of additions includes contracted work, direct
labor and materials, allocable overheads, and allowance for funds used
during construction. The cost of depreciable units of property retired
plus removal costs less salvage is charged to the accumulated provision
for depreciation. Maintenance, repairs, and replacement of minor items
of property are charged to operating expenses. Repairs to property made
necessary by storm damage are charged to the reserve therefor. The
provisions for utility depreciation for financial reporting purposes are
made on the straight-line method based on the estimated service lives of
the properties. Such provisions as a percent of the average balance of
depreciable property were 3.00% in 1996, 2.97% in 1995, and 2.98% in
1994.
Property and equipment of nonutility and subsidiary operations are
carried at historical cost, or at the current appraised value if
acquired in a business combination, and are depreciated on a
straight-line basis over the useful lives (3 to 40 years) of the related
assets. Upon sale or retirement of property and equipment, the cost and
related accumulated depreciation are eliminated from the respective
accounts and the resulting gain or loss is included in the consolidated
financial statements.
Jointly owned plants -- The consolidated financial statements include the
Company's 53.9% and 35% ownership interests in the assets, liabilities
and expenses of Big Stone and Coyote Plants, respectively. Amounts at
December 31, 1996 and 1995, included in Plant in Service for Big Stone
were $109,251,000 and $108,577,000, respectively, and the accumulated
provision for depreciation and amortization was $59,078,000 and
$62,486,000, respectively. Amounts at December 31, 1996 and 1995,
included in Plant in Service for Coyote were $145,542,000 and
$143,748,000, respectively, and the accumulated provision for
depreciation and amortization was $58,436,000 and $54,441,000,
respectively. The Company's share of direct expenses of the jointly
owned plants in service is included in the corresponding operating
expenses in the statement of income.
Allowance for funds used during construction (AFC) -- AFC, a noncash item,
is included in construction work in progress based on a composite rate
that assumes that funds used for construction were provided by borrowed
funds and equity funds. The AFC so included in construction work in
progress will ultimately be included in the rate base used in
establishing rates for utility services. The composite rate for AFC was
8.50% for 1996, 9.50% for 1995, and 10.25% for 1994.
Income taxes -- Comprehensive interperiod income tax allocation is used
for substantially all book and tax temporary differences. Deferred
income taxes arise for all temporary differences between the book and
tax basis of assets and liabilities. Deferred taxes are recorded using
the tax rates scheduled by tax law to be in effect when the temporary
differences reverse. The Company amortizes the investment tax credit
over the estimated lives of the related property.
Operating revenues -- Electric customers' meters are read and bills are
rendered on a cycle basis. Prior to 1993 the Company in all of its
jurisdictions recorded electric revenues based on billing dates.
Effective January 1, 1993, due to a North Dakota Public Service
Commission (NDPSC) order, the Company changed its method of revenue
recognition in North Dakota from billing dates to energy delivery dates.
(See note 3 for further information on the order.) The North Dakota
unbilled revenue amount as of January 1, 1993, ($4.4 million) was
amortized to electric revenues over 36 months as required by the order.
The change in method of revenue recognition resulted in additional net
income of $984,000 in 1995 and $751,000 in 1994. The impact on
earnings per share was $.09 in 1995 and $.07 in 1994.
The Company's 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. Since July 1, 1995, rate schedules applicable to Minnesota
customers also include a surcharge for recovery of conservation-related
expenses: 1.25% as of July 1, 1996 and .5030% from July 1, 1995, through
June 30, 1996. (See further discussion under note 3.)
Health services' operating revenues on major equipment and installation
contracts are recorded using the percentage-of-completion method.
Amounts received in advance under customer service contracts are
deferred and recognized on a straight-line basis over the contract
period.
Manufacturing operating revenues are recorded when products are shipped,
when services are rendered, and on a percentage-of-completion basis for
large items that are assembled over several months.
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.
Storm damage reserve -- The Company is required under its Indenture of
Mortgage to make annual provisions for storm damage of not less than .5%
of gross electric operating revenues. Provisions for loss have been
used in determining rates approved by the applicable regulatory
commissions. Provisions for 1996, 1995, and 1994 were $1,247,000,
$1,800,000, and $995,000, respectively; repairs charged to these
reserves were $1,304,000, $1,597,000, and $1,269,000, respectively.
Accrued liabilities included $1,003,000 and $1,060,000 for storm damage
at December 31, 1996 and 1995, respectively.
Employee incentive plan -- The Company has a gain sharing plan for the
benefit of all electric utility company employees. The totals received
by all electric utility company employees for 1996, 1995, and 1994 were
$778,000, $870,000, and $1,314,000, respectively.
Use of estimates -- In recording transactions and balances resulting from
business operations, the Company uses estimates based on the best
information available. Estimates are used for such items as plant
depreciable lives, tax provisions, uncollectible accounts, environmental
loss contingencies, unbilled revenues and actuarially determined benefit
costs. As better information becomes available (or actual amounts are
determinable) the recorded estimates are revised. Consequently,
operating results can be affected by revisions to prior accounting
estimates. Recent changes in anticipated retirement ages have resulted
in changes to actuarial assumptions used in the cost calculations for
postretirement benefits related to the Company's Executive Survivor and
Supplemental Retirement Plan. Also, the depreciable lives of certain
plant assets are reviewed and, if appropriate, revised each year, as
discussed previously. (See note 8 for more information on the effects
of these changes in estimates.)
Reclassifications -- Certain prior year amounts have been reclassified to
conform to the 1996 presentation format. Such reclassification had no
impact on net income and shareholders' equity.
Cash equivalents -- The Company considers all highly liquid debt
instruments purchased with a maturity of 90 days or less to be cash
equivalents.
Consolidated Statements of Cash Flows -- Excluded from the Consolidated
Statements of Cash Flows, are the following noncash transactions. In
September 1995 the Company recorded a $3.5 million passive investment in
the form of a delayed equity contribution to a limited liability
company. As of December 31, 1996 and 1995, $13,000 and $3,033,000,
respectively, remained to be paid on the obligation. In 1995 the
Company recorded an investment of $2 million in the form of a delayed
equity contribution in a limited partnership that invests in tax-credit
qualifying affordable housing. The $780,000 balance of the obligation
remaining to be paid at December 31, 1995, was paid in the second
quarter of 1996.
Debt reacquisition premiums -- In accordance with regulatory treatment,
the Company defers debt redemption premiums and amortizes such costs
over the original life of the reacquired bonds.
Investments -- At December 31, 1996 and 1995, the Company had noncurrent
investments of $6,163,000 and $4,491,000, respectively, in limited
partnerships that invest in tax-credit qualifying affordable housing
projects. These investments, accounted for under the equity method,
provided the Company with tax credits of $593,000 and $92,000, in 1996
and 1995, respectively. At December 31, 1996, the Company had $820,000
invested in marketable equity securities classified as available-for-
sale and recorded at market value. The balance of investments at
December 31, 1996, consists of $8,722,000 in additional investments
accounted for under the equity method, and $3,916,000 in financial
instruments, primarily related to participation in economic development
loan pools. The Company's temporary cash investments consist of money
market funds recorded at cost, which approximates market. (See further
discussion under note 10.)
Inventories -- The electric operation inventories are reported at average
cost. The health service, manufacturing and other business operation
inventories are stated at the lower of cost (first-in, first-out) or
market.
Short-term debt -- The composite interest rate on short-term debt
outstanding as of December 31, 1996, was 5.77%. The average interest
rate paid on short-term debt during 1996 was 5.65%.
Intangible assets -- The majority of the Company's intangible assets
consist of goodwill associated with the acquisition of subsidiaries.
Intangible assets are amortized on a straight-line basis over periods of
40 years for the telephone company and 15 years or less for all other
intangibles. The Company periodically evaluates the recovery of
intangible assets based on an analysis of undiscounted future cash
flows. Total intangibles as of December 31 are as follows:
1996 1995
-------- --------
(in thousands)
Goodwill on telephone company $ 7,749 $ 7,749
Other intangible assets 19,870 15,797
------- -------
Total 27,619 23,546
Less accumulated amortization 5,665 4,644
------- -------
Intangibles-net $21,954 $18,902
2. Segment information
The Company's wholly owned subsidiary Mid-States Development, Inc. (Mid-
States) purchased a Montana-based supplier of X-ray supplies and
accessories in February of 1996, a mobile medical diagnostic services
company located in Bemidji, MN in April of 1996, and four radio stations
located in the Fargo, North Dakota/Moorhead, Minnesota, market area, two
in June, one in October, and one in December 1996. Mid-States purchased
two additional manufacturing companies and three small diagnostic imaging
companies in 1995, and one additional business in 1994. Of the companies
purchased in 1995, one manufacturing company and all three diagnostic
imaging companies were purchased in January, and the other manufacturing
company was purchased in October. The Company's telecommunications
subsidiary North Central Utilities, Inc. (NCU) acquired two cable TV
systems in 1996 that serve the communities of Milbank, South Dakota, and
Carlos, Minnesota.
In all acquisitions, the purchase method of accounting was used and the
acquisitions would have had no significant pro forma effect on the
Company's operating revenues, net income, or earnings per share for
1996, 1995, and 1994. The total price for all businesses acquired was
$11,060,000 in 1996, $10,820,000 in 1995, and $575,000 in 1994.
On January 2, 1997, NCU completed the acquisition of The Peoples
Telephone Co. of Bigfork (Peoples). The acquisition will be accounted
for under the pooling-of-interests method. This acquisition will have
no significant pro forma effect on the Company's operating revenues, net
income, or earnings per share for 1996, 1995, and 1994.
The Company's business operations, which are based mainly in Minnesota,
North Dakota, and South Dakota, principally in the region known as the
"Red River Valley of the North," are broken down into four segments.
Electric operations includes the electric utility only. Health services
operations consists of businesses involved in the sale, service, rental,
refurbishing and operations of medical imaging equipment and the sale of
related supplies and accessories to various medical institutions
primarily in the Midwestern United States. Manufacturing operations
includes production of agricultural equipment, plastic pipe, and
fabricated metal parts. Other business operations consists of businesses
diversified in such areas as electrical and telephone construction
contracting, radio broadcasting, waste incinerating, and
telecommunications. Information for the business segments for 1996,
1995 and 1994 is presented in the table below:
1996 1995 1994
-------- -------- --------
(in thousands)
Operating revenue
Electric $199,345 $203,925 $198,812
Health services 61,697 50,896 45,555
Manufacturing 56,868 38,690 13,083
Other business operations 43,829 32,818 29,276
-------- -------- --------
Total $361,739 $326,329 $286,726
Operating income
Electric $ 45,279 $ 47,916 $ 48,126
Health services 5,137 3,581 2,486
Manufacturing 5,423 3,270 2,441
Other business operations 2,387 3,531 3,126
-------- -------- --------
Total $ 58,226 $ 58,298 $ 56,179
Depreciation and amortization
Electric $ 19,880 $ 19,448 $ 18,970
Health services 585 517 455
Manufacturing 551 344 227
Other business operations 1,888 1,600 1,538
-------- -------- --------
Total $ 22,904 $ 21,909 $ 21,190
Capital expenditures
Electric $ 38,224 $ 27,443 $ 25,693
Health services 16,230 4,020 2,544
Manufacturing 4,575 3,879 357
Other business operations 4,922 1,792 1,817
-------- -------- --------
Total $ 63,951 $ 37,134 $ 30,411
Identifiable assets
Electric $523,509 $509,588 $505,291
Health services 65,140 41,623 26,415
Manufacturing 32,474 27,270 7,215
Other business operations 41,164 30,715 40,051
-------- -------- --------
Total $662,287 $609,196 $578,972
3. Rate matters
On July 1, 1995, the Company began charging all Minnesota customers a
.5030% surcharge on their electric service statements for recovery of
conservation-related costs exceeding the amount already included in base
rates. On July 1, 1996 the rate was increased to 1.25%. The
conservation-related costs being recovered through the surcharge and in
base rates include Conservation Improvement Program (CIP) expenditures,
carrying charges on costs incurred in excess of costs currently being
recovered, lost margins on avoided kilowatt-hour sales, and bonus
incentives related to energy savings. The MPUC approved recovery of
1995 and 1994 lost margins and bonus incentives in 1996 and 1995,
respectively. The Company recorded revenues related to 1996, 1995, and
1994 lost margins and bonus incentives of $800,000, $766,000, and
$537,000, respectively. As these costs are recovered through the monthly
billing process, the amounts billed are offset by the amortization of
deferred CIP charges.
In 1994 the Company filed a petition with the MPUC for approval of an
annual recovery mechanism for DSM-related costs, under Minnesota's CIP.
An intervenor, on behalf of the large general service group, filed
comments against the petition and requested the MPUC to order a general
rate case to review the Company's earnings levels. In the interest of
rate stability the Company reached an agreement, which was approved by
the MPUC, resulting in costs of approximately $2.2 million each year for
three years being absorbed in current rates beginning in 1995.
4. Common shares
New issuances -- On August 30, 1996, the Company filed a shelf
registration statement with the Securities and Exchange Commission for
the issuance of up to 1,000,000 common shares pursuant to the Company's
Automatic Dividend Reinvestment and Share Purchase Plan (the Plan),
which will permit shares purchased by shareholders, employees, or
customers who participate in the Plan to be either new issue common
shares or common shares purchased on the open market. In December 1996
the Company began issuing newly issued common shares under the Plan,
which resulted in the issuance of 34,516 common shares in 1996. On
January 2, 1997, the Company issued 163,758 unregistered common shares
to effect the acquisition of Peoples. On February 7, 1997, the Company
issued 30,561 common shares to its leveraged employee stock ownership
plan.
Shareholder Rights Plan -- On January 27, 1997, the Company's Board of
Directors declared a dividend of one preferred share purchase right
(Right) for each outstanding common share held of record as of February
10, 1997. One Right was also issued with respect to each common share
issued after February 10, 1997. Each Right entitles the holder to
purchase from the Company one one-hundredth of a share of newly created
Series A Junior Participating Preferred Stock at a price of $70, subject
to certain adjustment. The Rights are exercisable when, and are not
transferable apart from the Company's common shares until, a person or
group has acquired 15% or more, or commenced a tender or exchange offer
for 15% or more, of the Company's common shares. If the specified
percentage of the Company's common shares is acquired, each right will
entitle the holder (other than the acquiring person or group) to
receive, upon exercise, common shares of either the Company or the
acquiring company having value equal to two times the exercise price of
the Right. The Rights are redeemable by the Company's Board of
Directors in certain circumstances and expire on January 27, 2007.
5. Retained earnings restriction
The Company's Indenture of Mortgage and Articles of Incorporation, as
amended, contain provisions that limit the amount of dividends that may
be paid to common shareholders. Under the most restrictive of these
provisions, retained earnings at December 31, 1996, were restricted by
$10,089,000.
6. Commitments
At December 31, 1996, the Company had commitments under contracts in
connection with construction programs aggregating approximately
$4,600,000. For capacity requirements the Company has agreements
extending through April 2005, at annual costs of approximately
$5,100,000 in 1997, $4,700,000 in 1998, $4,800,000 in 1999, $2,300,000
in each year of 2000 through 2004 and $760,000 in 2005.
The Company also has several long-term coal contracts in which it is
responsible for making payment only upon the delivery of the coal. The
risk of loss from nonperformance of the contracts is considered nominal
because of the availability of other suppliers and the expected
continued reliability of the current fuel suppliers. Furthermore, the
cost of energy adjustment provision in the rate-making process lessens
the risk of loss (in the form of increased costs) from market price
changes because it assures recovery of almost all fuel costs.
The Big Stone Plant joint owners entered into operating leases for 250
new aluminum coal cars for transporting coal to Big Stone Plant. The
terms of the leases are 15 years and the Company's share of lease
payments is approximately $539,000 per year. The new cars began
transporting coal in October 1996. The Company has no other significant
operating leases.
7. Long-term obligations
Preferred shares--The $6.35 cumulative preferred shares are redeemable
in whole or in part at the option of the Company after December 1, 1997,
at $103.175, declining linearly to $100.00 at December 31, 2002.
The $9.00 exchangeable cumulative preferred shares are redeemable in
whole or in part at the option of the Company after August 9, 1999, for
$100.00 per share payable in cash or, at the holder's election, common
shares. Subject to certain conditions, such shares are exchangeable at
the option of the holder after August 9, 1999, for $100.00 per share in
cash or common shares.
Long-term debt--All utility property, with certain minor exceptions, is
subject to the lien of the Indenture of Mortgage of the Company securing
its First Mortgage Bonds. The Company is required by the Indenture to
make annual payments (exclusive of redemption premiums) for sinking fund
purposes, except that the requirement with respect to certain series may
be satisfied by the delivery of bonds of such series of equal principal
amount. The Company issued First Mortgage Bonds of its pollution
control and industrial development series to secure payment of a like
principal amount of revenue bonds that were issued by local governmental
units to finance facilities leased or purchased and that the Company has
capitalized. The aggregate amounts of maturities and sinking fund
requirements on bonds outstanding and other long-term obligations at
December 31, 1996, for each of the next five years are $42,136,000 for
1997, $17,197,000 for 1998, $10,628,000 for 1999, $10,457,000 for 2000,
and $4,390,000 for 2001.
8. Pension plan and other postretirement benefits
The Company's noncontributory funded pension plan covers substantially
all electric utility employees. The plan provides 100% vesting after 5
vesting years of service and for retirement compensation at age 65, with
reduced compensation in cases of retirement prior to age 62. The
Company reserves the right to discontinue the plan, but no change or
discontinuance may affect the pensions theretofore vested. The
Company's policy is to fund pension costs accrued. All past service
costs have been provided for. The total pension cost was $1,292,000 for
1996, $1,009,000 for 1995, and $1,356,000 for 1994. A portion of the
pension cost is capitalized as a part of utility plant construction.
The pension plan has a trustee who is responsible for pension payments
to retirees. Five investment managers are responsible for managing the
plan's assets. In addition, an independent actuary performs the
necessary actuarial valuations for the plan.
Net periodic pension cost for 1996, 1995, and 1994 includes the
following components:
1996 1995 1994
-------- -------- --------
(in thousands)
Service cost--benefit earned during the period $ 2,273 $ 1,908 $ 2,076
Interest cost on projected benefit obligation 6,754 6,511 6,209
-------- -------- --------
$ 9,027 $ 8,419 $ 8,285
(Gain)/loss on return on assets (15,738) (26,509) 3,234
Plus/(less): net deferral and amortization 8,003 19,099 (10,163)
-------- -------- --------
Net periodic pension cost $ 1,292 $ 1,009 $ 1,356
======== ======== ========
The plan assets consist of common stock and bonds of public companies,
U.S. Government Securities, cash and cash equivalents.
The funded status of the plan and amounts recognized on the balance
sheet at December 31, 1996 and 1995, are as follows:
1996 1995
-------- --------
(in thousands)
Actuarial present value of benefit obligation:
Vested benefits $ 72,243 $ 69,340
Nonvested benefits 9,688 8,594
-------- --------
Accumulated benefit obligation $ 81,931 $ 77,934
======== ========
Projected benefit obligation $100,664 $ 95,359
Plan assets at fair value 121,506 110,728
-------- --------
Funded status $ 20,842 $ 15,369
Unrecognized transition asset (1,251) (1,486)
Unrecognized prior service cost 9,916 9,200
Unrecognized net actuarial (gain) or loss (25,773) (18,057)
-------- --------
Net pension asset $ 3,734 $ 5,026
======== ========
The assumptions used for actuarial valuations were:
1996 1995
-------- --------
Discount rate 7.25% 7.25%
Rate of increase in future compensation level 4.25% 4.25%
Long-term rate of return on assets 8.50% 8.50%
In addition to providing pension benefits to all electric utility
employees, the Company has an unfunded, nonqualified benefit plan for
executive officers and certain key management employees. This plan
provides defined benefit payments to these employees upon their
retirements or to their beneficiaries upon their deaths for a 15-year
period. Life insurance carried on the plan participants is payable to
the Company upon the employee's death. The net periodic pension cost of
this program in 1996, 1995 and 1994 was $485,000, $412,000, and
$271,000, respectively. In the second quarter of 1996 actuary reports
for the Company's Executive Survivor and Supplemental Retirement Program
amended July 1, 1994, were revised to reflect assumption changes
regarding expected retirement age and projected benefits under the July
1, 1994 plan amendment, which expanded the plan to include nonofficer
upper level management employees. The restatement resulted in an
expense adjustment of an additional $2,590,000, and a reduction in
earnings per share of $0.14 in 1996, along with a $711,000 reduction in
the $1,426,000 additional minimum liability reflected on the Company's
December 31, 1995, balance sheet.
The funded status of the plan and amounts recognized on the balance
sheet at December 31, 1996 and 1995, are as follows:
1996 1995
-------- --------
(in thousands)
Actuarial present value of benefit obligation:
Vested benefits $ 4,322 $ 3,067
Nonvested benefits 686 583
------- -------
Accumulated benefit obligation $ 5,008 $ 3,650
======= =======
Projected benefit obligation $ 6,636 $ 3,650
Plan assets at fair value -- --
------- -------
Funded Status $(6,636) $(3,650)
Unrecognized transition obligation 82 102
Unrecognized prior service cost 1,774 1,177
Unrecognized net actuarial (gain) or loss 487 1,018
Additional liability (715) (1,426)
------- -------
Accrued benefit liability $(5,008) $(2,779)
======= =======
The assumptions used for actuarial valuations for 1996 and 1995 were a
discount rate of 7.25%, and a salary scale rate increase of 5%.
In addition to providing pension benefits, the Company provides a
portion of health insurance benefits for retired employees.
Substantially all of the Company's electric utility employees may become
eligible for health insurance benefits if they reach age 55 and have 10
years of service. Upon adoption of Statement of Financial Accounting
Standards No. 106 - Employers' Accounting for Postretirement Benefits
Other Than Pensions - in January 1993, the Company elected to recognize
its transition obligation related to postretirement benefits earned of
approximately $14,964,000 over a period of twenty years.
During the second quarter of 1996 actuary valuations for postretirement
benefits other than pensions were computed to reflect a change in
assumptions related to group life insurance. The change in actuarial
assumptions resulted in a reduction in 1996 expenses related to a
reduction in expected postretirement benefit obligations. The plan was
amended during the fourth quarter of 1995 to reduce the contribution
required of an employee's surviving spouse for health insurance. This
amendment increased benefit costs by $2,155,000 in 1995 because most of
the prior service cost was related to retired employees' spouses for
which the Company has no current economic benefit. The Company
estimates this amendment will have a service cost of approximately
$200,000 per year in future years.
The net postretirement benefit cost for 1996, 1995, and 1994 includes
the following components:
1996 1995 1994
-------- -------- --------
(in thousands)
Service cost - benefit earned during the period $ 484 $ 411 $ 596
Interest cost on accumulated postretirement
benefit obligation 1,132 1,187 1,412
Amortization of transition obligation 748 881 881
Amortization of experience (gain)/loss (210) (311) --
Plan amendment prior service cost -- 2,155 --
Life insurance curtailment gain (749) -- --
------ ------ ------
Net postretirement benefit cost $1,405 $4,323 $2,889
====== ====== ======
The funded status of the plan and the amounts recognized on the balance
sheet at December 31, 1996 and 1995, are as follows:
1996 1995
-------- --------
(in thousands)
Actuarial present value of benefit obligation:
Retirees $ 9,096 $ 10,276
Fully eligible plan participants 4,582 5,000
Other active plan participants 2,645 2,607
-------- --------
Accumulated postretirement benefit obligation $ 16,323 $ 17,883
Plan assets at fair value -- --
-------- --------
Funded status $(16,323) $(17,883)
Unrecognized (gain)/loss (4,038) (4,662)
Unrecognized transitional obligation 11,971 14,976
-------- --------
Postretirement benefit liability $ (8,390) $ (7,569)
======== ========
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation as of December 31, 1996,
was 7.0% for 1997, decreasing linearly each successive year until it
reaches 5% in 2001, after which it remains constant. The assumed health
care cost trend rate used in measuring the accumulated postretirement
benefit obligation as of December 31, 1995, was 9.5% for 1996,
decreasing linearly each successive year until it reaches 5% in 2001,
after which it remains constant. The assumed discount rate used in
determining the accumulated postretirement benefit obligation as of
December 31, 1996 and 1995, was 7.25%. A one-percentage-point increase
in the assumed health care cost trend rate for each year would increase
the accumulated postretirement obligation as of December 31, 1996, by
approximately 11% and the service and interest cost components of the
net postretirement health care cost in 1996 by approximately 17%.
The Company has a leveraged employee stock ownership plan (ESOP) for the
benefit of all its employees. Contributions made by the Company were
$1,010,000 for 1996, $993,000 for 1995, and $970,000 for 1994.
9. Compensating balances and short-term borrowings
The Company maintains formal bank lines of credit for its electric
utility operations separate from lines and letters of credit maintained
by the subsidiary companies. They make available to the Company bank
loans for short-term financing and provide backup financing for
commercial paper notes. At December 31, 1996, the Company maintained no
compensating balances to support formal bank lines of credit. The
Company's bank lines of credit for electric utility operations totaled
$30,000,000 of which $25,600,000 was used at December 31, 1996. The
subsidiary companies' bank lines and letters of credit, which require no
compensating balances, totaled $24,357,000 of which $7,032,000 was used
at December 31, 1996. Based on the terms and nature of use of the
subsidiaries' lines, outstanding amounts are reflected in long-term debt
and current maturities on the Company's consolidated balance sheets.
10. Fair value of financial instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
Cash and short-term investments -- The carrying amount approximates fair
value because of the short-term maturity of those instruments.
Marketable securities -- The fair value of investments are estimated based
on quoted market prices.
Other investments -- The carrying amount approximates fair value. A
portion of other investments is in financial instruments that have
variable interest rates that reflect fair value. The remainder of other
investments is accounted for by the equity method which, in the case of
operating losses, results in a reduction of the carrying amount.
Redeemable preferred stock -- The fair value is estimated based on the
current rates available to the Company for the issuance of redeemable
preferred stock.
Long-term debt--The fair value of the Company's long-term debt is
estimated based on the current rates available to the Company for the
issuance of debt. About $42 million of the Company's long term debt,
which is subject to variable interest rates, approximates fair value.
1996 1995
-------------------- --------------------
(in thousands)
Carrying Fair Carrying Fair
amount value amount value
--------- --------- --------- ---------
Cash and short-term investments $ 1,229 $ 1,229 $ 4,075 $ 4,075
Marketable securities 820 820 -- --
Other investments 19,060 19,060 12,716 12,716
Redeemable preferred stock (18,000) (18,000) (18,000) (18,650)
Long-term debt (160,492) (167,799) (168,261) (183,099)
The Company's marketable securities are included in investments on the
balance sheet and are classified as available for sale. These
securities are recorded at fair value with any unrealized gain or loss
included as a separate component in the retained earnings on the balance
sheet. Realized gains and losses are computed on each specific
investment sold. The amounts recognized on the balance sheet as of
December 31, 1996 and 1995, and amounts sold for each year are as
follows:
1996 1995
-------- --------
(in thousands)
Available for sale - securities
Cost $ 133 $ --
Gross unrealized gain 687 --
Gross unrealized loss -- --
------- -------
Fair value $ 820 $ --
======= =======
Proceeds from sale $ -- $90,774
Gross realized gains -- 1,591
Gross realized losses -- (2,816)
11. Income tax expense
The total income tax expense differs from the amount computed by
applying the federal income tax rate (35% in 1996, 1995 and 1994) to net
income before total income tax expense for the following reasons:
1996 1995 1994
-------- -------- --------
(in thousands)
Tax computed at federal statutory rate $15,398 $15,786 $15,525
Increases (decreases) in tax from:
State income taxes net of federal income tax
benefit 1,835 2,097 2,088
Investment tax credit amortization (1,177) (1,177) (1,347)
Depreciation differences--flow-through
method reversal (137) 222 617
Differences reversing in excess of federal rates (1,030) (754) (707)
Dividend received/paid deduction (604) (872) (889)
Permanent and other differences
and affordable housing tax credits (245) 857 594
------- ------- -------
Total Income tax expense $14,040 $16,159 $15,881
======= ======= =======
Overall effective federal and state income tax rate 31.9% 35.8% 35.8%
Income tax expense includes the following:
Charged (credited) to operations:
Current federal income taxes $18,034 $13,840 $12,892
Current state income taxes 3,608 3,201 2,935
Deferred federal income taxes (4,656) 603 1,185
Deferred state income taxes (480) 117 266
Investment tax credit amortization (1,177) (1,177) (1,347)
------- ------- -------
Total $15,329 $16,584 $15,931
Charged (credited) to other income and deductions:
Current federal income taxes (1,023) (269) 115
Current state income taxes (103) (21) 50
Deferred federal and state income taxes (163) (135) (215)
------- ------- -------
Total Income tax expense $14,040 $16,159 $15,881
======= ======= =======
The Company's deferred tax assets and liabilities were composed of the
following on December 31, 1996 and 1995:
1996 1995
-------- --------
(in thousands)
Deferred tax assets
Amortization of tax credits $ 13,021 $ 13,782
Vacation accrual 1,039 953
Unbilled/unearned revenue 4,452 3,886
Reserves 6,872 5,137
Nondeductible land - plant abandonment 1,134 1,134
Transfer to regulatory asset (617) (689)
Other 1,646 1,364
--------- ---------
Total deferred tax assets $ 27,547 $ 25,567
Deferred tax liabilities
Differences related to property (113,450) (114,081)
Excess tax over book - pensions (1,481) (1,994)
Transfer to regulatory asset (4,012) (2,563)
Transfer to regulatory liability 204 649
Other (2,756) (3,222)
--------- ---------
Total deferred tax liabilities $(121,495) $(121,211)
--------- ---------
Deferred income taxes $ (93,948) $ (95,644)
========= =========
12. Property, plant and equipment
1996 1995
-------- --------
(December 31, in thousands)
Electric Plant:
Production $305,472 $302,601
Transmission 137,539 132,031
Distribution 217,825 207,248
General 81,229 73,425
-------- --------
742,065 715,305
Less accumulated depreciation and amortization 301,380 291,740
-------- --------
440,685 423,565
Construction work in progress 11,470 16,285
-------- --------
Net electric plant $452,155 $439,850
-------- --------
Subsidiary companies plant $ 93,975 $ 54,266
Less accumulated depreciation and amortization 26,292 16,434
-------- --------
Net subsidiary companies plant $ 67,683 $ 37,832
-------- --------
Net plant $519,838 $477,682
======== ========
13. Quarterly information (unaudited)
<TABLE>
<CAPTION>
The quarterly data shown below reflects seasonal and timing variations that are common in the
utility industry.
<S>
Three Months Ended
<C> <C> <C> <C>
March 31 June 30 September 30 December 31
-------------- -------------- -------------- --------------
<C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------ ------ ------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $88,390 $83,250 $89,588 $73,433 $92,866 $80,585 $90,895 $89,061
Operating income $18,831 $17,648 $12,293 $11,814 $12,273 $14,910 $14,829 $13,926
Net income $10,032 $ 8,707 $ 5,980 $ 5,337 $ 6,207 $ 7,147 $ 7,736 $ 7,754
Earnings available for common shares $ 9,442 $ 8,118 $ 5,391 $ 4,747 $ 5,617 $ 6,557 $ 7,147 $ 7,165
Earnings per common share $ .84 $ .73 $ .48 $ .42 $ .50 $ .59 $ .64 $ .64
Dividends paid per common share $ .45 $ .44 $ .45 $ .44 $ .45 $ .44 $ .45 $ .44
Price range:
High $38 5/8 $35 $38 5/8 $35 $34 1/2 $35 1/4 $34 1/4 $37 3/4
Low $35 1/4 $31 3/4 $32 $30 3/4 $31 3/4 $32 1/4 $32 $34 1/8
Average number of common shares
outstanding 11,180 11,180 11,180 11,180 11,180 11,180 11,187 11,180
</TABLE>
Exhibit 13-A
Stock listing
Otter Tail common stock is traded on The Nasdaq Stock Market's National
Market. (Nasdaq: National Association of Securities Dealers Automated
Quotation.)
Exhibit 21-A
OTTER TAIL POWER COMPANY
Subsidiaries of the Registrant
March 1, 1997
Company State of Organization
Minnesota Dakota Generating Company Minnesota
Otter Tail Realty Company Minnesota
Otter Tail Management Corporation* Minnesota
ORD Corporation* Minnesota
Quadrant Co. Minnesota
North Central Utilities, Inc. Minnesota
Midwest Information Systems, Inc. Minnesota
Midwest Telephone Co. Minnesota
Osakis Telephone Company Minnesota
Peoples Telephone of Bigfork Minnesota
Data Video Systems, Inc. Minnesota
Otter Tail Communications SD, Inc. South Dakota
MIS Investments, Inc. Minnesota
Mid-States Development, Inc. Minnesota
Glendale Machining, Inc. Minnesota
Precision Machine of North Dakota, Inc. North Dakota
Dakota Machine, Inc. North Dakota
Dakota Engineering, Inc. North Dakota
Aerial Contractors, Inc. North Dakota
Moorhead Electric, Inc. Minnesota
KFGO, Inc. North Dakota
MSB, Inc. North Dakota
Western Minnesota Broadcasting Company Minnesota
Diagnostic Medical Systems, Inc. North Dakota
DMS Imaging, Inc. North Dakota
DMS Leasing Corporation North Dakota
Radiographic Supply, Inc. Montana
BTD Manufacturing, Inc. Minnesota
Northern Pipe Products, Inc. North Dakota
Northern Micro, Inc. North Dakota
Fargo Baseball, LLC Minnesota
Fargo Sports Concession LLC Minnesota
*Inactive
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-46071 and 333-11145 of Otter Tail Power Company on Form S-3 of our report
dated January 29, 1997, incorporating by reference in this Annual Report on
Form 10-K of Otter Tail Power Company for the year ended December 31, 1996.
Deloitte & Touche LLP
Minneapolis, Minnesota
March 28, 1997
POWER OF ATTORNEY
__________
I, JEFFREY J. LEGGE, do hereby constitute and appoint JOHN C.
MAC FARLANE, A. E. ANDERSON, JAY D. MYSTER, C. E. BRUNKO, and BEVERLY A.
NORLIN, or any one of them, my Attorney-in-Fact for the purpose of
signing, in my name and on my behalf as Controller and Principal
Accounting Officer of Otter Tail Power Company, the Annual Report of
Otter Tail Power Company on Form 10-K for its fiscal year ended December
31, 1996, and any and all amendments to said Annual Report, and to
deliver on my behalf said Annual Report and any and all amendments
thereto, as each thereof is so signed, for filing with the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934,
as amended.
Date: _______1/2_____________, 1997.
_______Jeffrey J. Legge____________
Jeffrey J. Legge
In Presence of:
_______Cheryl Enderle____________
______Anita Anderson________________
<PAGE>
POWER OF ATTORNEY
__________
I, JOHN C. MAC FARLANE, do hereby constitute and appoint A. E.
ANDERSON, JAY D. MYSTER, C. E. BRUNKO, and BEVERLY A. NORLIN, or any one
of them, my Attorney-in-Fact for the purpose of signing, in my name and
on my behalf as President and Chief Executive Officer, Principal
Executive Officer and Director of Otter Tail Power Company, the Annual
Report of Otter Tail Power Company on Form 10-K for its fiscal year
ended December 31, 1996, and any and all amendments to said Annual
Report, and to deliver on my behalf said Annual Report and any and all
amendments thereto, as each thereof is so signed, for filing with the
Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934, as amended.
Date: ______1/2 _________, 1997.
_______John C. MacFarlane____________
John C. MacFarlane
In Presence of:
_______Dee Fletcher________________
_______Rodney C. H. Scheel_________
<PAGE>
POWER OF ATTORNEY
__________
I, ROBERT N. SPOLUM, do hereby constitute and appoint JOHN C.
MAC FARLANE, A. E. ANDERSON, JAY D. MYSTER, C. E. BRUNKO, and BEVERLY A.
NORLIN, or any one of them, my Attorney-in-Fact for the purpose of
signing, in my name and on my behalf as Director of Otter Tail Power
Company, the Annual Report of Otter Tail Power Company on Form 10-K for
its fiscal year ended December 31, 1996, and any and all amendments to
said Annual Report, and to deliver on my behalf said Annual Report and
any and all amendments thereto, as each thereof is so signed, for filing
with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
Date: _____1/6__________, 1997
______Robert N.Spolum________________
Robert N. Spolum
In Presence of:
_______Linda Brenzel_______________
_______Michele Pingel______________
<PAGE>
POWER OF ATTORNEY
__________
I, NATHAN I. PARTAIN, do hereby constitute and appoint JOHN C.
MAC FARLANE, A. E. ANDERSON, JAY D. MYSTER, C. E. BRUNKO, and BEVERLY A.
NORLIN, or any one of them, my Attorney-in-Fact for the purpose of
signing, in my name and on my behalf as Director of Otter Tail Power
Company, the Annual Report of Otter Tail Power Company on Form 10-K for
its fiscal year ended December 31, 1996, and any and all amendments to
said Annual Report, and to deliver on my behalf said Annual Report and
any and all amendments thereto, as each thereof is so signed, for filing
with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
Date: ______1/6___________, 1997.
______Nathan I. Partain______________
Nathan I. Partain
In Presence of:
______Karent Keating____________________
_______Ellen Reimts____________
<PAGE>
POWER OF ATTORNEY
__________
I, DAYLE DIETZ, do hereby constitute and appoint JOHN C. MAC
FARLANE, A. E. ANDERSON, JAY D. MYSTER, C. E. BRUNKO, and BEVERLY A.
NORLIN, or any one of them, my Attorney-in-Fact for the purpose of
signing, in my name and on my behalf as Director of Otter Tail Power
Company, the Annual Report of Otter Tail Power Company on Form 10-K for
its fiscal year ended December 31, 1996, and any and all amendments to
said Annual Report, and to deliver on my behalf said Annual Report and
any and all amendments thereto, as each thereof is so signed, for filing
with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
Date: ______1/13___________, 1997.
______Dayle Dietz____________________
Dayle Dietz
In Presence of:
_______Owen E. Jensen__________
________Diane Pederson_____________
<PAGE>
POWER OF ATTORNEY
__________
I, ARVID R. LIEBE, do hereby constitute and appoint JOHN C.
MAC FARLANE, A. E. ANDERSON, JAY D. MYSTER, C. E. BRUNKO, and BEVERLY A.
NORLIN, or any one of them, my Attorney-in-Fact for the purpose of
signing, in my name and on my behalf as Director of Otter Tail Power
Company, the Annual Report of Otter Tail Power Company on Form 10-K for
its fiscal year ended December 31, 1996, and any and all amendments to
said Annual Report, and to deliver on my behalf said Annual Report and
any and all amendments thereto, as each thereof is so signed, for filing
with the Securities and ExchangeCommission pursuant to the Securities
Exchange Act of 1934, as amended.
Date: ________1/6_______, 1997.
______Arvid R. Liebe_________________
Arvid R. Liebe
In Presence of:
_________Melogy Kunde_______________
_________Renee Thomas__________
<PAGE>
POWER OF ATTORNEY
__________
I, THOMAS M. BROWN, do hereby constitute and appoint JOHN C.
MAC FARLANE, A. E. ANDERSON, JAY D. MYSTER, C. E. BRUNKO, and BEVERLY A.
NORLIN, or any one of them, my Attorney-in-Fact for the purpose of
signing, in my name and on my behalf as Director of Otter Tail Power
Company, the Annual Report of Otter Tail Power Company on Form 10-K for
its fiscal year ended December 31, 1996, and any and all amendments to
said Annual Report, and to deliver on my behalf said Annual Report and
any and all amendments thereto, as each thereof is so signed, for filing
with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
Date: _______1/6________, 1997.
_____Thomas M. Brown_________________
Thomas M. Brown
In Presence of:
____Donna M. Hull__________________
_____Kimmy K. Schmidt_______________<PAGE>
POWER OF ATTORNEY
__________
I, MAYNARD D. HELGAAS, do hereby constitute and appoint JOHN
C. MAC FARLANE, A. E. ANDERSON, JAY D. MYSTER, C. E. BRUNKO, and BEVERLY
A. NORLIN, or any one of them, my Attorney-in-Fact for the purpose of
signing, in my name and on my behalf as Director of Otter Tail Power
Company, the Annual Report of Otter Tail Power Company on Form 10-K for
its fiscal year ended December 31, 1996, and any and all amendments to
said Annual Report, and to deliver on my behalf said Annual Report and
any and all amendments thereto, as each thereof is so signed, for filing
with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
Date: ________1/3_______, 1997.
______Maynard D. Helgaas_____________
Maynard D. Helgaas
In Presence of:
_______Ronald Herraas______________
_______Penny Mosher_____________
<PAGE>
POWER OF ATTORNEY
__________
I, KENNETH L. NELSON, do hereby constitute and appoint JOHN C.
MAC FARLANE, A. E. ANDERSON, JAY D. MYSTER, C. E. BRUNKO, and BEVERLY A.
NORLIN, or any one of them, my Attorney-in-Fact for the purpose of
signing, in my name and on my behalf as Director of Otter Tail Power
Company, the Annual Report of Otter Tail Power Company on Form 10-K for
its fiscal year ended December 31, 1996, and any and all amendments to
said Annual Report, and to deliver on my behalf said Annual Report and
any and all amendments thereto, as each thereof is so signed, for filing
with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
Date: ___1/8_____________, 1997
_____Kenneth L. Nelson_____
Kenneth L. Nelson
In Presence of:
_____Mike Holper___________________
_____Wayne Langley___________________
<PAGE>
POWER OF ATTORNEY
__________
I, DENNIS R. EMMEN, do hereby constitute and appoint JOHN C.
MAC FARLANE, A. E. ANDERSON, JAY D. MYSTER, C. E. BRUNKO, and BEVERLY A.
NORLIN, or any one of them, my Attorney-in-Fact for the purpose of
signing, in my name and on my behalf as Director of Otter Tail Power
Company, the Annual Report of Otter Tail Power Company on Form 10-K for
its fiscal year ended December 31, 1996, and any and all amendments to
said Annual Report, and to deliver on my behalf said Annual Report and
any and all amendments thereto, as each thereof is so signed, for filing
with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
Date: ______1/13___________, 1997
______Dennis R. Emmen________________
Dennis R.Emmen
In Presence of:
_______Becky Luhning_______________
_______Penny Mosher________________
<PAGE>
POWER OF ATTORNEY
__________
I, A. E. ANDERSON, do hereby constitute and appoint JOHN C.
MAC FARLANE, JAY D. MYSTER, C. E. BRUNKO, and BEVERLY A. NORLIN, or any
one of them, my Attorney-in-Fact for the purpose of signing, in my name
and on my behalf as Vice President, Finance of Otter Tail Power Company,
the Annual Report of Otter Tail Power Company on Form 10-K for its
fiscal year ended December 31, 1996, and any and all amendments to said
Annual Report, and to deliver on my behalf said Annual Report and any
and all amendments thereto, as each thereof is so signed, for filing
with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
Date: ______1/2___________, 1997.
_____A. E. Anderson__________________
A. E. Anderson
In Presence of:
______Penny Mosher_________________
______Lori D. Dawkins_____________<PAGE>
POWER OF ATTORNEY
__________
I, JAY D. MYSTER, do hereby constitute and appoint JOHN C. MAC
FARLANE, A. E. ANDERSON, BEVERLY A. NORLIN, and C. E. BRUNKO, or any one
of them, my Attorney-in-Fact for the purpose of signing, in my name and
on my behalf as Vice President, Governmental & Legal and Corporate
Secretary of Otter Tail Power Company, the Annual Report of Otter Tail
Power Company on Form 10-K for its fiscal year ended December 31, 1996,
and any and all amendments to said Annual Report, and to deliver on my
behalf said Annual Report and any and all amendments thereto, as each
thereof is so signed, for filing with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended.
Date: _______1/3__________, 1997.
______Jay D. Myster__________________
Jay D. Myster
In Presence of:
_______Becky Luhning_______________
_______Lori D. Dawkins________________
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of December 31, 1996, and the Consolidated
Statement of Income for the twelve months ended December 31, 1996, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 452,155
<OTHER-PROPERTY-AND-INVEST> 116,070
<TOTAL-CURRENT-ASSETS> 80,271
<TOTAL-DEFERRED-CHARGES> 13,791
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 662,287
<COMMON> 56,073
<CAPITAL-SURPLUS-PAID-IN> 31,271
<RETAINED-EARNINGS> 105,882
<TOTAL-COMMON-STOCKHOLDERS-EQ> 193,226
18,000
20,831
<LONG-TERM-DEBT-NET> 160,492
<SHORT-TERM-NOTES> 7,200
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 18,400
<LONG-TERM-DEBT-CURRENT-PORT> 42,136
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 202,002
<TOT-CAPITALIZATION-AND-LIAB> 662,287
<GROSS-OPERATING-REVENUE> 361,739
<INCOME-TAX-EXPENSE> 14,040
<OTHER-OPERATING-EXPENSES> 303,513
<TOTAL-OPERATING-EXPENSES> 317,553
<OPERATING-INCOME-LOSS> 44,186
<OTHER-INCOME-NET> 2,370
<INCOME-BEFORE-INTEREST-EXPEN> 46,556
<TOTAL-INTEREST-EXPENSE> 16,601
<NET-INCOME> 29,955
2,358
<EARNINGS-AVAILABLE-FOR-COMM> 27,597
<COMMON-STOCK-DIVIDENDS> 20,124
<TOTAL-INTEREST-ON-BONDS> 15,952
<CASH-FLOW-OPERATIONS> 67,145
<EPS-PRIMARY> 2.47
<EPS-DILUTED> 2.47
</TABLE>
