-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MDgATSwAWuASt1+kItBZCGNRtlusKgEGr19SfM2ASRJBIK82VtOiklpGOR6RFgdB 4gfL1TKLd2k1ursOebBRsw== 0000073088-96-000009.txt : 19960402 0000073088-96-000009.hdr.sgml : 19960402 ACCESSION NUMBER: 0000073088-96-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWESTERN PUBLIC SERVICE CO CENTRAL INDEX KEY: 0000073088 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 460172280 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10499 FILM NUMBER: 96542402 BUSINESS ADDRESS: STREET 1: 33 THIRD ST SE STREET 2: PO BOX 1318 CITY: HURON STATE: SD ZIP: 57350-1318 BUSINESS PHONE: 6053528411 10-K 1 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, 1995 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 No. 0-692 NORTHWESTERN PUBLIC SERVICE COMPANY (Exact name of registrant as specified in its charter) Delaware 46-0172280 (State of Incorporation) (IRS Employer Identification No.) 33 Third Street SE Huron, South Dakota 57350-1318 (Address of principal office) (Zip Code) 605-352-8411 (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $3.50 par value New York Stock Exchange Company Obligated Mandatorily Redeemable New York Stock Exchange Security of Trust Holding Solely Parent Debentures, $25.00 liquidation amount (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: Preferred Stock, Par Value $100 (Title of Class) 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. ( X ) Yes ( ) No 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 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. ( ) State the aggregate market value of the voting stock held by nonaffiliated of the registrant: $258,181,300 as of February 15, 1996 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: Common Stock, Par Value $3.50 8,920,122 shares outstanding at February 15, 1996 DOCUMENTS INCORPORATED BY REFERENCE: 1995 Annual Report to Stockholders . . . . . . . . Parts I and II Proxy Statement for 1996 Annual Meeting . . . . . . . . Parts I and III PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS Northwestern Public Service Company (Company) is an energy distribution company with core operations engaged in the electric, natural gas, and propane businesses. The Company generates and distributes electric energy to 55,310 customers in more than 100 communities and adjacent rural areas located in eastern South Dakota. The Company also purchases, distributes, sells, and transports natural gas to 76,464 customers in four communities in Nebraska and more than 50 communities in eastern South Dakota. In August 1995, the Company acquired Synergy Group, Inc., a retail propane distributor with operations in the eastern and south-central regions of the United States. Late in 1995, two smaller propane companies were acquired: Myers Propane Gas Company and Western Gas. Propane complements the Company's electric and natural gas distribution businesses and adds geographical diversity to its operations with 184,500 customers in 17 states. Through its other subsidiaries, the Company is engaged in additional nonregulated operations as more fully discussed in the section entitled "Nonregulated Operations". The Company was incorporated under the laws of the State of Delaware in 1923 and is qualified to conduct its utility business in the states of South Dakota, Nebraska, Iowa, and North Dakota. The Company does not serve any utility customers in North Dakota or Iowa. The Company has its principal office at 33 Third Street SE, Huron, South Dakota 57350-1318. Its telephone number is 605-352-8411. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Financial information about industry segments is incorporated by reference to Note 11 of the "Notes to Consolidated Financial Statements" on page 17 of the financial section of the Company's 1995 Annual Report to Stockholders, filed as an Exhibit hereto. NARRATIVE DESCRIPTION OF BUSINESS Pursuant to the South Dakota Public Utilities Act, the South Dakota Public Utilities Commission (PUC) assigned as the Company's electric service territory the communities and adjacent rural areas in which the Company provides electric service in South Dakota. The Company has the right to provide electric service to present and future electric customers in its assigned service territory for so long as the service provided is deemed adequate. Under the South Dakota Public Utilities Act, effective July 1, 1976, the Company is not required to obtain or renew municipal franchises to provide electric service within its assigned service territory. The Company has nonexclusive municipal franchises to provide gas service in the Nebraska and South Dakota communities in which it provides such service. The maximum term permitted under Nebraska law for such franchises is 25 years while the maximum term permitted under South Dakota law is 20 years. The Company's policy is to seek renewal of a franchise in the last year of its term. The Company has never been denied the renewal of any of these franchises and does not anticipate that any future renewals would be withheld. Unlike the Company's electric and natural gas businesses, propane distribution rates and service areas are unregulated. In an unregulated business such as propane, the Company is competing against a number of other distributors. There are, however, certain inherent barriers for customers to overcome in switching from one propane delivery service provider to another. The Company believes that its ownership of propane storage tanks installed at customers' premises, together with safety regulations which prohibit other propane distributors from filling the propane tanks and cylinders at the customers' premises, promotes long- standing relationships which are typical in the retail propane industry. The cost and inconvenience of switching tanks tend to minimize the switching by customers among suppliers on the basis of minimal price variations. Conversely, it also makes it more difficult for the Company to acquire new customers, other than through acquisitions, in areas where there are existing relationships between potential customers and other distributors. Weather patterns have a material impact on the Company's operating performance for all three segments of its energy business. This impact is particularly relevant for natural gas and propane. Because natural gas and propane are heavily used for residential and commercial heating, the demand for these products depends upon weather patterns throughout the Company's service area. With a larger proportion of its operations related to seasonal natural gas and propane sales in the future, the distribution of the Company's quarterly operating performance will be different than in historical periods. A significantly greater portion of the Company's future operating income is expected to be recognized in the first and fourth quarters related to higher revenues from the heating season. Operating income for the second and third quarters is expected to be significantly less than historical periods. ELECTRIC BUSINESS ELECTRIC SALES. On a consolidated basis, 37% of the Company's 1995 operating revenues were from the sale of electric energy. All of the Company's electric revenues are derived from customers in South Dakota. The Company has relatively few large customers in its service territory. By customer category, 35% of 1995 total electric sales was from residential sales, 53% was from commercial and industrial sales, 1% was from street lighting and sales to public authorities, and 11% was from sales for resale. Sales for resale primarily include power pool sales to other utilities. Power pool sales fluctuate from year to year depending on a number of factors including the Company's availability of excess short-term generation and the ability to sell the excess power to other utilities in the power pool. The Company also sells power and energy at wholesale to certain municipalities for resale and to various governmental agencies. In 1995, these sales accounted for less than 1% of total electric sales. CAPABILITY AND DEMAND. The Company shares in the ownership of the Big Stone Generating Plant (Big Stone), located near Big Stone City in northeastern South Dakota. In North Dakota, the Company maintains transmission facilities to interconnect with electric transmission lines of other utilities and shares in the ownership of the Coyote I Electric Generating Plant (Coyote), located near Beulah, North Dakota. In Iowa, the Company shares in the ownership of Neal Electric Generating Unit #4 (Neal), located near Sioux City, Iowa. At December 31, 1995, the aggregate net summer peaking capacity of all Company-owned electric generating units was 308,912 kw, consisting of 105,043 kw from Big Stone (the Company's 23.4% share), 42,700 kw from Coyote (the Company's 10.0% share), 54,169 kw from Neal (the Company's 8.7% share), and 107,000 kw from internal combustion turbine units and small diesel units, used primarily for peaking purposes. In addition to those plant facilities, the Company entered into an agreement in 1995 to purchase up to 17,250 kw of firm capacity from Basin Electric Cooperative to assist in meeting peak capacity demands. The Company has also contracted with Nebraska Public Power District to purchase various amounts of firm capacity to further assist in supplying peak energy demands. The Company is a summer peaking utility. The 1995 peak demand of 272,722 occurred on August 8, 1995. Total system capability at the time of peak was 326,162 kw. The reserve margin for 1995 was 20%. The minimum reserve margin requirement as determined by the members of the Mid- Continent Area Power Pool (MAPP), of which the Company is a member, is 15%. MAPP is an area power pool arrangement consisting of utilities and power suppliers having transmission interconnections located in a 9-state area in the North Central region of the United States and in two Canadian provinces. The objective of MAPP is to accomplish coordination of planning and operation of generation and interconnecting transmission facilities to provide reliable and economical electric service to members' customers, consistent with reasonable utilization of natural resources and protection of the environment. While benefiting from the advantages of the planning, coordination, and operations of MAPP, each member has the right and obligation to own or otherwise provide the facilities to meet its own requirements. The terms and conditions of the MAPP agreement and transactions between MAPP members are subject to the jurisdiction of the Federal Energy Regulatory Commission (FERC). The MAPP agreement was accepted for filing by the FERC effective 1972. The Company also has interconnections with the transmission facilities of Otter Tail Power Company, Montana-Dakota Utilities Co., Northern States Power Company, and Western Area Power Administration; and has emergency interconnections with transmission facilities of East River Electric Cooperative, Inc. and West Central Electric Cooperative. These interconnections and pooling arrangements enable the Company to arrange purchases or sales of substantial quantities of electric power and energy with other pool members and to participate in the benefits of pool arrangements. The Company has finalized an integrated resource plan to identify how it will meet the energy needs of its customers. The plan includes estimates of customer usage and programs to provide for economic, reliable, and timely supplies of energy. The plan does not anticipate the need for additional baseload generating capacity for at least the next ten years. FUEL SUPPLY. Lignite and sub-bituminous coal were utilized by the Company as fuel for virtually all of the electric energy generated during 1995. North Dakota lignite is the primary fuel at Coyote. The Company burned North Dakota lignite coal at Big Stone for the majority of 1995. For the remainder of 1995, however, Big Stone was switched over to Montana sub-bituminous coal as a result of a new supply contract executed late in 1994. During 1995, the average heating value of lignite burned was 6,165 BTU per pound at Big Stone and 6,974 BTU per pound at Coyote. The sulfur content of this lignite is typically between 0.8% and 1.2%. The Montana sub-bituminous coal burned at Big Stone contained an average heating value of 8,825 BTU per pound and a sulfur content between 0.55% and 0.75%. Neal burned Wyoming sub-bituminous coal which had an average heating value of 8,491 BTU per pound during 1995. Typically, the sulfur content of this coal is between 0.30% and 0.40%. The Company's fuel costs have remained relatively stable. The average cost by type of fuel burned is shown below for the periods indicated: Cost Per Million BTU % of 1995 Year Ended December 31 Megawatt ---------------------- Hours Fuel Type 1993 1994 1995 Generated ----- ----- ---- --------- Lignite - Big Stone $1.12 $1.10 $1.09 33% Sub-bituminous-Big Stone - - 1.00 12% Lignite - Coyote** .84 .86 .83 25% Sub-bituminous-Neal .76 .74 .76 29% Natural Gas 2.37 2.21 1.80 * Oil 3.90 3.90 3.96 * *Combined for approximately one percent. **Includes pollution control reagent. During 1995, the average delivered cost per ton of lignite was $13.54 to Big Stone and $10.91 to Coyote. The average cost per ton of sub- bituminous coal received at Big Stone for the partial year 1995 was $18.01. The average cost for coal delivered to Neal was $12.49 per ton for 1995. Such amounts include severance taxes imposed by the states of North Dakota and Montana and a production tax imposed by the state of Wyoming. While the effect on the Company's fuel costs of future changes in severance or production taxes cannot be predicted, any changes in the Company's fuel costs may be passed on to its customers through the operation of the fuel adjustment clause. This feature of the Company's electric rates is more fully discussed in the section entitled "Regulation". The continued delivery of lignite and sub-bituminous coal to the three large steam generating units in which the Company is part owner is reasonably assured by contracts covering various periods of the operating lives of these units. Following bid evaluations of coal supplies for Big Stone, a contract for Montana sub-bituminous coal was executed late in 1994 for the period of mid-1995 through 1999. Further evaluations will be conducted during the contract term to select a coal supply for periods beyond 1999. The contract for delivery of lignite to Coyote, which expires in 2016, provides for an adequate fuel supply for the estimated economic life of that plant. Neal receives Wyoming sub-bituminous coal under a long- term contract which expires in 1998. In the near future, the Company, along with the other owners of Neal, will begin to study options for the supply of coal for periods beyond the expiration date. Following test burns in 1990 and 1991, the owners of the Big Stone Plant received approval from the South Dakota Department of Environment and Natural Resources to burn tire derived fuel (TDF) and refuse derived fuel (RDF). The quantity of TDF and RDF that was burned in 1995 and that is expected to be burned in 1996 is insignificant when compared to total coal consumption at the plant. The fossil fuel supplies for Big Stone and Neal are delivered via unit trains belonging to the respective plants' owners and locomotives of the Burlington Northern Railroad and the Union Pacific Railroad, respectively. The lignite supply for Coyote is delivered via conveyor at this "mine- mouth" plant. In early 1996, the Company and its partners at Big Stone executed a fifteen year operating lease agreement for unit train cars. This agreement will be effective late in 1996. The current unit train cars will ultimately be sold to another third party independent of the leasing transaction. While the Company has no firm contract for diesel fuel for its other electric generating plants, it has been able to purchase its diesel fuel requirements in recent years from local suppliers and currently has in storage an amount adequate to satisfy its normal requirements for such fuel. Additional information relating to jointly owned plants is incorporated by reference to Note 7 of the "Notes to Consolidated Statements" on page 15 of the financial section of the Company's 1995 Annual Report to Stockholders filed as an Exhibit hereto. NATURAL GAS BUSINESS NATURAL GAS SALES AND DEMAND. On a consolidated basis, 31% of the Company's 1995 operating revenues were from the sale of natural gas energy. During 1995, the Company derived 54% of its natural gas revenues from South Dakota and 46% from Nebraska. The Company's peak daily sendout was 108,700 MMBTU. CAPABILITY AND SUPPLY. The Company owns and operates natural gas distribution systems serving 37,330 customers in eastern South Dakota. In 1995, the Company executed a service agreement with Cibola Energy Services Corporation (Cibola) whereby Cibola coordinates supply and transportation services. The agreement with Cibola to provide capacity supplemented with peak shaving capacity allows the Company to meet its peak day system needs. This agreement provides for firm deliverable pipeline capacity of approximately 49,300 MMBTU per day in South Dakota. In Nebraska, the Company owns and operates natural gas distribution systems serving 39,134 retail customers in the village of Alda and the cities of Grand Island, Kearney, and North Platte, Nebraska. The Company purchases all of its natural gas for these systems through KN Gas Marketing, Inc. (KN) under a service agreement entered in 1995 whereby KN coordinates supply and transportation services. This agreement provides for firm deliverable pipeline capacity of approximately 58,000 MMBTU per day in Nebraska. In 1992, FERC issued Order 636. Order 636 requires, among other provisions, that all companies with natural gas pipelines separate natural gas supply or production services from transportation service and storage businesses. This allows gas distribution companies, such as the Company, and individual customers to purchase gas directly from producers, third parties, and various gas marketing entities and transport it through the suppliers' pipelines. The Company has operated under the restructured environment during the past three years. To supplement firm gas supplies, the Company's service agreements with Cibola and KN also provide for underground natural gas storage services to meet the heating season and peak day requirements of its gas customers. In addition, the Company also owns and operates six propane-air plants with a total rated capacity of 18,000 MMBTU per day, or approximately 17% of 1995's peak day requirements. The propane-air plants provide an economic alternative to pipeline transportation charges to meet the peaks caused by customer demand on extremely cold days. A few of the Company's industrial customers purchase their natural gas requirements directly from gas marketing firms for transportation and delivery through the Company's distribution system. The transportation rates have been designed to make the Company economically indifferent as to whether the Company sells and transports gas or only transports gas. PROPANE BUSINESS Effective August 15, 1995, the Company acquired Synergy Group, Inc. (Synergy), a retail propane distributor with operations in the eastern and south-central regions of the United States. Synergy was acquired through a subsidiary (SYN Inc.) formed for this purpose. Late in 1995, two smaller propane companies were acquired: Western Gas on November 20 and Myers Propane Gas Company on December 7. Propane complements the Company's electric and natural gas distribution businesses and adds geographical diversity to its operations. The acquisition of the propane properties was made in association with Empire Gas Corporation (Empire Gas), a large propane distribution company headquartered in Lebanon, Missouri, which has a management team experienced in the retail propane distribution business. With Northwestern, Empire Gas provides joint oversight and management of the properties acquired. Empire Gas provides administrative and operating management services to all propane properties including accounting, human resources, marketing, management information systems, and propane supply and transportation functions. In accordance with the Company's plans upon the acquisition of Synergy, substantial changes were made in the management and operation of the acquired business in order to achieve improvement in the results of operations. Among the cost efficiency measures put into place to reduce Synergy's operating, selling, and administrative expenses were the elimination of employee positions, and corporate overhead and field location operating expenses. The Synergy headquarters office operations in Farmingdale, New York were closed in late November with corporate functions consolidated with the Empire Gas corporate offices. Another significant expense reduction was the elimination of compensation and lease expenses previously paid to Synergy stockholders. As compensation for the management services, the Company pays Empire Gas a fixed fee and a management fee. The fixed fee is intended to cover Empire Gas' operating overhead in performing the management services and initially is $3,250,000 per annum, subject to adjustment annually based upon increases in the Consumer Price Index. The management fee will be at the rate of $500,000 per annum plus 10% of the amount by which the earnings before interest, taxes, depreciation and amortization of SYN Inc. and its subsidiaries, on a consolidated basis, exceed certain threshold amounts. Additional information regarding the acquisitions is incorporated by reference to Note 2 of the "Notes to Consolidated Statements" on page 13 of the financial section of the Company's 1995 Annual Report to Stockholders, filed as an Exhibit hereto. SALES. On a consolidated basis, 19% of the Company's 1995 operating revenues were from the sale of propane. Operating revenues recorded of $38.9 million on sales of 37.9 million gallons reflect a partial year of operations. Similar to its electric and natural gas businesses, no single customer accounts for a significant portion of the Company's propane sales. By customer category, propane sales were 55% residential, 28% commercial and industrial, 4% motor fuel, 14% agriculture related and 6% other. Agricultural uses of propane include tobacco curing, crop drying, and poultry breeding. Other customers include industrial customers who use propane to fire furnaces, as a cutting gas, and in other process applications. Other industrial customers include large scale heating accounts, local gas utility customers who maintain a standby propane capability for use during peak demand periods, and customers who use propane as a feedstock in manufacturing processes. SUPPLY AND DISTRIBUTION. In accordance with the management agreement executed with Empire Gas, Empire Gas is responsible for securing propane supply. During the partial year 1995, Empire Gas purchased propane from various suppliers, including major domestic oil companies and independent producers of gas liquid and oil and made occasional spot market transactions. Approximately 73% of the propane purchases were on a contractual basis under one-year agreements subject to annual renewal. The two largest suppliers provided approximately 30% of the total volumes purchased under contract. The percentage of contract purchases may vary from year to year depending on a number of factors. Supply contracts generally provide for pricing in accordance with posted prices at the time of delivery or contract prices established at major storage points, and some contracts include a pricing formula that typically is based on such market prices. Empire Gas has established relationships with a number of suppliers over the past few years and believes it will have ample sources of supply under comparable terms to draw upon to meet the necessary propane requirements if it were to discontinue purchasing propane from its two largest suppliers. Empire Gas has not experienced a shortage that has prevented it from satisfying its own customers' needs and does not foresee any significant shortage in the supply of propane that would cause a disruption in meeting the needs of the Company's customers as well. The Company owns a fleet of 40 over-the-road tractors and 50 transport trailers to transport propane from refineries, natural gas processing plants or pipeline terminals to the Company's bulk storage plants. A certain number of these tractors and trailers have been leased to an unaffiliated third party who under separate agreement provides transport services back to the Company. The Company also uses common carriers and railroad tank cars for these purposes. The Company believes that the combination of operating its own transport trucks and having access to such equipment through the transportation agreement enhances the reliability and dependability of propane supply deliveries at the Company's bulk storage plants. The transportation of propane requires specialized equipment. The trucks and railroad cars utilized for this purpose carry specialized steel tanks that maintain the propane in a liquefied state. Propane delivery to customers is made by means of 370 bulk delivery tank trucks owned by the Company. Propane is stored by the customers on their premises in stationary steel tanks generally ranging in capacity from 25 to 1,000 gallons, with large users having tanks with a capacity of 30,000 gallons. A majority of the propane storage tanks used by the Company's residential and commercial customers are owned by the Company. In addition, a certain number of Company owned tanks are provided to customers under a leasing agreement. COMPETITION Although the Company's electric service territory is assigned according to the South Dakota Public Utilities Act, and the Company has the right to provide electric service to present and future electric customers in its assigned service area for so long as the service provided is deemed adequate, the energy industry in general has become increasingly competitive. Electric service also competes with other forms of energy and the degree of competition may vary from time to time depending on relative costs and supplies of other forms of energy. The National Energy Policy Act of 1992 (Energy Act) was designed to promote energy efficiency and increased competition in the electric wholesale markets. The Energy Act also allows the FERC to order wholesale wheeling by public utilities to provide utility and nonutility generators access to public utility transmission facilities. The provision allows the FERC to set prices for wheeling, which will allow utilities to recover certain costs from the companies receiving the services, rather than the utilities' retail customers. Many states are currently considering retail wheeling, which aims to provide all customers with the right to choose their electricity supplier. No regulatory proposals with respect to retail wheeling have yet been formally introduced in South Dakota. Federal Energy Regulatory Commission Order 636 requires, among other provisions, that all companies with natural gas pipelines separate natural gas supply or production services from transportation service and storage businesses. This allows gas distribution companies, such as the Company, and individual customers to purchase gas directly from producers, third parties, and various gas marketing entities and transport it through the suppliers' pipelines. While Order 636 had positive aspects by providing for more diversified supply and storage options, it also required the Company to assume responsibility for the procurement, transportation, and storage of natural gas. The alternatives now available under Order 636 create additional pressure on all distribution companies to keep gas supply and transportation pricing competitive, particularly for large customers. Unlike the Company's electric and natural gas businesses, propane distribution rates and service areas are unregulated. The propane retail distribution industry is comprised of two categories of participants: large multi-state marketers, including the Company, and local independent distributors. Most of the Company's retail service centers compete with multiple marketers or distributors of propane. The Company competes with these marketers and distributors primarily on the basis of service and price, emphasizing reliability of service and responsiveness to its customers. Within its propane customer service area, the Company also competes with suppliers of other energy sources, including suppliers of electricity for sales to residential and commercial customers. The Company believes a moderate level of growth can be achieved by the conversion of homes to propane that currently use electricity or fuel oil products. Propane currently enjoys, and historically has enjoyed, a competitive advantage over electricity because of the higher cost of electricity. Fuel oil does not present a significant competitive threat in the Company's primary service areas due to the following factors: (i) propane is a residue-free, cleaner energy source, (ii) environmental concerns make fuel oil relatively unattractive, and (iii) fuel oil appliances are not as efficient as propane appliances. The Company competes with these same alternative forms of energy in its own regulated service areas. However, the distinction is that in many parts of its service territory, the Company provides both electricity and natural gas. Natural gas has traditionally been at a lower cost than propane on an equivalent unit of energy basis. REGULATION The Company is a "public utility" within the meaning of the Federal Power Act and the South Dakota Public Utilities Act and, as such, is subject to the jurisdiction of, and regulation by, FERC with respect to issuance of securities, the PUC with respect to electric service territories, and both FERC and the PUC with respect to rates, service, accounting records, and in other respects. The State of Nebraska has no centralized regulatory agency which has jurisdiction over the Company's operations in that state; however, the Company's natural gas rates are subject to regulation by the municipalities in which it operates. Under the South Dakota Public Utilities Act, effective July 1, 1976, a requested rate increase may be implemented by the Company 30 days after the date of its filing unless its effectiveness is suspended by the PUC and, in such event, can be implemented subject to refund with interest six months after the date of filing, unless sooner authorized by the PUC. The Company's electric rate schedules provide that it may pass along to all classes of customers qualified increases or decreases in the cost of fuel used in its generating stations and in the cost of fuel included in purchased power. A purchased gas adjustment provision in its gas rate schedules permits the Company to pass along to gas customers increases or decreases in the cost of purchased gas. The Company filed no electric rate cases in South Dakota during the three years ended December 31, 1995. During 1995, the Company realized the full year's effect of a natural gas increase implemented in South Dakota on November 15, 1994. The increase will produce additional annual natural gas revenues of $2.1 million, assuming normal weather, representing an overall increase of 6.2%. Effective April 1, 1995, the Company implemented increased rates related to its Nebraska natural gas service area as a result of a negotiated settlement with representatives of the four communities in which the Company operates. These new rates will generate additional annual revenues of $2.3 million, based on normal weather, or an overall increase of 8.3%. ENVIRONMENTAL MATTERS The Company is subject to regulation with regard to air and water quality, solid waste disposal, and other environmental considerations by Federal, state, and local governmental authorities. The application of governmental requirements to protect the environment involves or may involve review, certification, issuance of permits, or similar action by government agencies or authorities, including the United States Environmental Protection Agency (EPA), the South Dakota Department of Environment and Natural Resources (DENR), the North Dakota State Department of Health, and the Iowa Department of Environmental Quality, as well as compliance with decisions of the courts. CLEAN AIR ACT. The Clean Air Act Amendments of 1990 (the Clean Air Act) which stipulate limitations on sulfur dioxide and nitrogen oxide emissions from certain coal-fired power plants will require the purchase of additional emission allowances or a reduction in sulfur dioxide emissions beginning in the year 2000 from Big Stone. The Company believes Big Stone can most economically meet the sulfur dioxide emission requirements of the Clean Air Act by changing its fuel source from North Dakota lignite to low- sulfur western sub-bituminous coal available in the region as evidenced by the switch made to Montana sub-bituminous coal in August 1995. The Company's other baseload plants, Coyote and Neal, are expected to comply with the sulfur dioxide emission limitations through the use of existing flue gas scrubbing and low sulfur coal without the need for additional emission allowances. With regard to the Clean Air Act's nitrogen oxide emission requirements, the Neal wall-fired boiler is expected to meet the emission limitations for such boilers. The Clean Air Act does not yet specify nitrogen oxide limitations for boilers with cyclone burners such as those used at Big Stone and Coyote because practical low-nitrogen oxide cyclone burner technology does not exist. It requires the EPA to establish nitrogen oxide emission limitations before 1997 for cyclone boilers including taking into account that the cost to accomplish such limits be comparable to retrofitting low-nitrogen oxide burner technology to other types of boilers. In addition, it also requires future studies to determine what controls, if any, should be imposed on coal-fired boilers to control emissions of certain air toxics other than sulfur and nitrogen oxides. Because of the uncertain nature of cyclone boiler nitrogen oxide and air toxic emission limits, the Company cannot now determine the additional costs, if any, it may incur due to these provisions of the Clean Air Act. PCBs. The Company has met or exceeded the removal and disposal requirements of equipment containing polychlorinated biphenyls (PCBs) as required by state and Federal regulations. The Company will use some PCB- contaminated equipment for its remaining useful life, and dispose of the equipment according to pertinent regulations that govern that use and disposal of this equipment. PCB-contaminated oil is burned for energy recovery at a permitted facility. STORAGE TANKS. The South Dakota DENR and the EPA adopted regulations imposing requirements upon the owners and operators of above ground and underground storage tanks. The Company's fuel oil storage facilities at its generating plants in South Dakota are affected by the above ground tank regulations, and the Company has instituted procedures for compliance. SITE REMEDIATION. The Company conducted an investigation of a manufactured gas plant site and took remedial action during 1995 by removing the residue contained in the soil through a thermal desorption process. Adjustments of the Company's natural gas rates to reflect the costs associated with the remediation were approved through the regulatory process. The Company is pursuing recovery from insurance carriers. Any recovery in excess of costs incurred will be returned to customers. OTHER. In addition to the Clean Air Act, the Company is also subject to other environmental regulations. The Company believes that it is in compliance with all presently applicable environmental protection requirements and regulations. However, the Company is unable to forecast the effect which future environmental regulations may ultimately have upon the cost of its utility related facilities and operations. No administrative or judicial proceedings involving the Company are now pending or known by the Company to be contemplated under presently effective environmental protection requirements. SITING. The states of South Dakota, North Dakota, and Iowa have enacted laws with respect to the siting of large electric generating plants and transmission lines. The South Dakota PUC, the North Dakota Public Service Commission, and the Iowa Utilities Board have been granted authority in their respective states to issue site permits for nonexempt facilities. PROPANE TRANSPORTATION AND SAFETY MATTERS. The Company's propane operations are subject to various Federal, state, and local laws governing the transportation, storage and distribution of propane, occupational health and safety, and other matters. All states in which the Company operates have adopted fire safety codes that regulate the storage and distribution of propane. In some states, these laws are administered by state agencies, and in others they are administered on a municipal level. Certain municipalities prohibit the underground installation of propane furnaces and appliances, and certain states are considering the adoption of similar regulations. The Company currently meets and exceeds Federal regulations requiring that all persons employed in the handling of propane gas be trained in proper handling and operating procedures. All employees have participated, or will participate within 90 days of their employment date, in hazardous materials training. The Company has established ongoing training programs in all phases of product knowledge and safety including participation in the National Propane Gas Association's (NPGA) Certified Employee Training Program. CAPITAL SPENDING AND FINANCING The Company's primary ongoing capital requirements include the funding of its energy business construction and expansion programs, the funding of debt and preferred stock retirements and sinking fund requirements, and the funding of its corporate development and investment activities. The emphasis of the Company's construction activities is to undertake those projects that most efficiently serve the expanding needs of its customer base, enhance energy delivery capabilities, expand its current customer base, and provide for the reliability of energy supply. Capital expenditure plans are subject to continual review and may be revised as a result of changing economic conditions, variations in sales, environmental requirements, investment opportunities, and other ongoing considerations. Expenditures for construction activities for 1995, 1994, and 1993 were $29.6 million, $22.7 million, and $20.0 million. Construction expenditures during the last three years included expenditures related to an operations center expected to provide cost savings and operating efficiencies through consolidation of activities, the installation of an additional 43 mw of internal peaking capacity, and the expansion of the Company's natural gas system into additional communities in eastern South Dakota. In addition, 1995 included $4.7 million of capital expenditures related to propane. Construction expenditures for 1996, excluding propane, are estimated to be $16.0 million. The majority of the projected expenditures will be spent on enhancements of the electric and gas distribution systems. Estimated electric and natural gas related construction expenditures for the years 1996 through 2000 are expected to be $70.4 million. Nonregulated capital expenditures for 1996 are estimated to be $6.5 million. Estimated nonregulated capital expenditures for the years 1996 through 2000 are expected to be $20.5 million. Capital requirements for the mandatory retirement of long-term debt and mandatory preferred stock sinking fund redemption totaled $600,000, $600,000 and $180,000 for the years ended 1995, 1994, and 1993, respectively. It is expected that such mandatory retirements will be $580,000 in 1996, $570,000 in 1997, $20.6 million in 1998, $12.8 million in 1999, and $5.0 million in 2000. The Company anticipates that future capital requirements will be met by both internally generated cash flows and available external financing. During 1995, the Company made debt and preferred stock investments in SYN Inc., the entity created to acquire Synergy. Such investments were funded primarily by financings undertaken during the third quarter of 1995 that were comprised of $60 million of 7.10% series general mortgage bonds maturing in 2005, 1.3 million shares of preferred securities of subsidiary trust ($32.5 million) and 1.2 million shares of common stock ($31.35 million). In December, the Company issued 42,890 shares of common stock ($1.15 million)and 11,500 shares of redeemable cumulative preferred stock ($1.15 million) related to the acquisition of Myers Propane Gas Company. The Company plans to continue to evaluate and pursue opportunities to enhance shareholder return through nonregulated business investments. Nonregulated projects are expected to be financed from the existing investment portfolio and from other available financing options. Information relating to capital resources and liquidity is incorporated by reference to "Management's Discussion and Analysis" on pages 1 - 5 of the financial section of the Company's 1995 Annual Report to Stockholders, filed as an Exhibit hereto. NONREGULATED OPERATIONS GRANT, INC. Grant, Inc., which holds title to property not used in the Company's utility business, was incorporated in South Dakota in 1972. NORTHWESTERN GROWTH CORPORATION (NGC). NGC was incorporated under the laws of South Dakota in 1994 to pursue and manage nonutility investments and development activities. NGC owns majority common stock control of SYN Inc., the entity created to acquire Synergy and Western Gas. Other NGC assets include a portfolio of marketable securities and the investments of two subsidiaries: Northwestern Networks, Inc., which holds a common stock investment in LodgeNet Entertainment Corporation, a provider of television entertainment and information systems to hotels and motels, and Northwestern Systems, Inc., which owns 100% of the common stock of Lucht Inc., a firm that develops, manufactures, and markets multi-image photographic printers and other related equipment. Although the primary focus of NGC's investment program will be to continue to seek growth opportunities in the energy, energy equipment, and energy services industries, NGC will also continue to pursue opportunities in existing and emerging growth entities in non-energy industries that meet return and capital gain requirements. MYERS PROPANE GAS COMPANY (MYERS). Myers was incorporated in Delaware in 1995. Myers was created to hold the 100% common stock ownership of Myers Propane Gas Company following the acquisition in late 1995. The Company owns majority common stock control of Myers. Additional information relating to nonregulated business is incorporated by reference to "Management's Discussion and Analysis" on pages 1 - 5 of the financial section of the Company's 1995 Annual Report to Stockholders, filed as an Exhibit hereto. EMPLOYEES At December 31, 1995, the Company had 441 utility employees. A three- year collective bargaining agreement which expires June 30, 1998, covers 239 operating and clerical employees. The Company has never experienced a work stoppage or strike and considers its relationship with its employees to be very good. At December 31, 1995, the Company had 858 employees involved in its propane operations. None of these employees are represented by unions. The Company has not experienced any work stoppage or other significant labor problems and believes it has a good relationship with its employees. EXECUTIVE OFFICERS OF THE REGISTRANT R. A. Wilkens, Chairman of the Board, age 67 Chairman of the Board of Directors since February 1994. Formerly Chief Executive Officer from 1990-1994; President from 1980-1994. M. D. Lewis, President and Chief Executive Officer, age 48 President and Chief Executive Officer since February 1994; formerly Executive Vice President from May 1993, to February 1994; Executive Vice President-Corporate Services 1992-1993; Vice President-Corporate Services 1987-1992; Assistant Corporate Secretary 1982-1993. Mr. Lewis also serves as Chairman and Chief Executive Officer of Northwestern Growth Corporation since September 1994. R. R. Hylland, Executive Vice President - Strategic Development, age 35 Executive Vice President - Strategic Development since November 1995; formerly Vice President-Strategic Development from August 1995 to November 1995; Vice President Corporate Development from 1993-1995; Vice President-Finance from 1991-1995; Treasurer from 1990-1994; Mr. Hylland also serves as President and Chief Operating Officer of Northwestern Growth Corporation since September 1994. W. D. Craig, Vice President, age 59 - Retired Retired as Vice President effective July 1, 1995; Vice President since November 1994; formerly Vice President-Gas Operations September 1988- November 1994. A. D. Dietrich, Vice President - Corporate Services and Corporate Secretary, age 45 Vice President-Corporate Services since November 1994; Corporate Secretary since October 1989; formerly Vice President-Legal May 1990- November 1994. A. R. Donnell, Vice President - Energy Operations, age 52 Vice President-Energy Operations since November 1994; formerly Vice President-Electric Operations July 1987-November 1994. T. A. Gulbranson, Vice President - Energy Services, age 48 Vice President - Energy Services since January 1996; formerly Vice President November 1994-January 1996; Vice President-Corporate Services May 1993-November 1994; Vice President-Community Development 1988-1993. R. F. Leyendecker, Vice President - Market Development, age 50 Vice President-Market Development since January 1996; formerly Vice President-Energy Services November 1994-January 1996; Vice President- Rates & Regulation 1987-November 1994. W. K. Lotsberg, Vice President - Public Affairs, age 53 Vice President-Public Affairs since May 1994; formerly Vice President- Consumer Affairs March 1989-May 1994. D. K. Newell, Vice President - Finance, age 39 Vice President - Finance since July 1995. Joined the Company in July 1995. Formerly CFO, Vice President - Finance and Treasurer with Energy Fuels Corporation. Mr. Newell also serves as Executive Vice President of Northwestern Growth Corporation since July 1995. D. C. Oberlander, Assistant Vice President, age 50 Assistant Vice President since May 1994; formerly Controller April 1991-May 1994; Assistant Controller December 1990-April 1991; Manager- Information Systems 1979-1990. R. A. Thaden, Treasurer, age 44 Treasurer since November 1994; formerly Manager-Corporate Accounting 1987-November 1994. Ms. Thaden also serves as Vice President and Treasurer of Northwestern Growth Corporation since September 1995. All of the executive officers of the registrant serve at the discretion of the Board and are elected annually by the Board of Directors following the Annual Meeting of Stockholders. No family relationships exist between any officers of the Company. ITEM 2. PROPERTIES ELECTRIC PROPERTY The Company's electric properties consist of an interconnected and integrated system. The Company, Otter Tail Power Company (Otter Tail), and Montana-Dakota Utilities Co. (MDU) jointly own Big Stone, a 455,783 kilowatt (kw) nameplate capacity coal-fueled electric generating plant and related transmission facilities. Big Stone is operated by Otter Tail for the benefit of the owners. The Company owns 23.4% of the Big Stone Plant. The Company is one of four power suppliers which jointly own Coyote, a 455,782 kw nameplate capacity lignite-fueled electric generating plant and related transmission facilities located near Beulah, North Dakota. The Company has a 10% interest in Coyote, which is operated by MDU for the benefit of the owners. The Company is one of 14 power suppliers which jointly own Neal, a 639,999 kw nameplate capacity coal-fueled electric generating plant and related transmission facilities located near Sioux City, Iowa. MidAmerican Energy Company is principal owner of Neal and is the operator of the unit. The Company has an 8.7% interest in Neal. The Company has an undivided interest in these jointly owned facilities and is responsible for its proportionate share of the capital and operating costs while being entitled to its proportionate share of the power generated. Each participant finances its own investment. The Company's interest in each plant is reflected in the Consolidated Balance Sheet on a pro rata basis, and its share of operating expenses is reflected in the Consolidated Statement of Income and Retained Earnings. In addition to its interest in Big Stone, Coyote and Neal, the Company owns and operates 19 fuel oil and gas-fired units for peaking and reserve capacity. As of December 31, 1995, the aggregate nameplate capacity of all Company-owned electric generating units was 327,419 kw, with an aggregate net summer peaking capacity of 308,912 kw and a net winter peaking capacity of 328,137 kw. In addition to owned capacity, the Company entered into two contractual agreements to purchase firm capacity to assist in meeting peak energy needs. The Company's maximum peak hourly demand of 272,722 kw occurred on August 8, 1995, exceeding the previous peak of 251,493 kw set on July 17, 1991. The Company's interconnected transmission system consists of 321.8 miles operating at 115 kilovolts (kv) and 897.6 miles operating at 69 kv and 34.5 kv. The Company also owns three segments of transmission line, which are not tied to its internal system, in connection with its joint ownership in the three large steam generating plants. These lines consist of 18.2 miles of 230 kv line from Big Stone, 25.4 miles of 345 kv line from Neal, and 23.1 miles of 345 kv line from Coyote. In addition to these lines, the Company owns 1,732.3 miles of distribution lines serving customers in more than 100 communities and adjacent rural areas. The Company owns 38 transmission substations with a total rated capacity of 1,111,417 kilovolt amperes (kva), two mobile substations with a total rated capacity of 5,500 kva and 78 distribution substations with a total rated capacity of 350,949 kva. GAS PROPERTY On December 31, 1995, the Company owned 1,017 miles of distribution mains and appurtenant facilities in South Dakota. The Company also owns propane-air facilities in Aberdeen, Brookings, Huron, and Mitchell, South Dakota, having a total rated capacity of 15,280 MMBTU per day, which are operated for standby and peak shaving purposes only. On December 31, 1995, the Company owned 659 miles of distribution mains and appurtenant facilities in Nebraska. The Company also owns propane-air facilities at Kearney and North Platte, Nebraska, having a total rated capacity of 9,380 MMBTU per day, which are operated for standby and peak shaving purposes only. PROPANE PROPERTY The Company, in combination with Empire Gas, operates 125 service centers consisting of appliance showrooms, bulk storage plants, warehousing space, maintenance facilities, garages, and storage depots of large propane tanks with associated distribution equipment. These service center facilities are located in 17 states comprised of Texas, New Mexico, Oklahoma, Mississippi, Tennessee, Arkansas, Missouri, Vermont, New Hampshire, New York, Maryland, New Jersey, Virginia, North Carolina, South Carolina, Ohio, and Florida. CHARACTER OF OWNERSHIP All mortgage bonds issued under the Company's General Mortgage Indenture and Deed of Trust dated as of August 1, 1993 (the "Indenture") are secured by a first mortgage lien on the Company's properties used in the generation, production, transmission or distribution of electric energy or the distribution of natural gas in any form and for any purpose, with certain exceptions expressly provided in the Indenture. The principal offices and properties of the Company are held in fee and are free from other encumbrances, subject to minor exceptions, none of which is of such a nature as substantially to impair the usefulness to the Company of such properties. In general, the electric lines and natural gas lines and mains are located on land not owned in fee, but are covered by necessary consents of various governmental authorities or by appropriate rights obtained from owners of private property. These consents and rights are deemed adequate for the purposes for which they are being used. ITEM 3. LEGAL PROCEEDINGS The Company is a party to various pending proceedings and suits, but in the judgment of management after consultation with counsel for the Company, the nature of such proceedings and suits, and the amounts involved do not depart from the routine litigation and proceedings incident to the kind of business conducted by the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No issues were submitted to a vote of security holders during the last quarter of the period covered by this report. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this Item 5 is incorporated by reference to page 24 of the Company's 1995 Annual Report to Stockholders, filed as an Exhibit hereto. ITEM 6. SELECTED FINANCIAL DATA The information required by this Item 6 is incorporated by reference to "Financial Statistics" on page 20 of the financial section of the Company's 1995 Annual Report to Stockholders, filed as an Exhibit hereto. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The information required by this Item 7 is incorporated by reference to "Management's Discussion and Analysis" on pages 1 - 5 of the financial section of the Company's 1995 Annual Report to Stockholders, filed as an Exhibit hereto. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item 8 is incorporated by reference to the Company's financial statements and related footnotes on pages 12 - 17, of the financial section of the Company's 1995 Annual Report to Stockholders, filed as an Exhibit hereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in accountants or disagreements on accounting principles or practices or financial statement disclosures. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) IDENTIFICATION OF DIRECTORS The information regarding directors required by this Item 10 and paragraphs (a) and (e) of Item 401 of Regulation S-K is incorporated by reference to the information under "Election of Directors" in the Company's definitive Proxy Statement dated March 15, 1996, and filed with the Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days after the close of the Company's fiscal year ended December 31, 1995. The information relating to the Company's executive officers is set forth in Part I of this Annual Report on Form 10-K. Reports to the Securities and Exchange Commission The information required by Item 405 of Regulation S-K is incorporated by reference to the information under "Reports to the Securities and Exchange Commission" in the Company's definitive Proxy Statement dated March 15, 1996 and filed with the Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days after the close of the Company's fiscal year ended December 31, 1995. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 is incorporated by reference to the information under "Compensation of Directors and Executive Officers" in the Company's definitive Proxy Statement dated March 15, 1996, and filed with the Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days after the close of the Company's fiscal year ended December 31, 1995. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 is incorporated by reference to the information under "Securities Ownership by Directors and Officers" in the Company's definitive Proxy Statement dated March 15, 1996, and filed with the Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days after the close of the Company's fiscal year ended December 31, 1995. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has no relationships or transactions covered by this item. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) DOCUMENTS FILED AS PART OF THIS REPORT 1. Financial Statements The following items are included in this annual report by reference to the registrant's Annual Report to Stockholders for the year ended December 31, 1995: Page in financial section of Annual Report to Stockholders FINANCIAL STATEMENTS: Report of Independent Public Accountants 7 Consolidated Statement of Operations and Retained Earnings for the Three Years Ended December 31, 1995 8 Consolidated Statement of Cash Flows for the Three Years Ended December 31, 1995 9 Consolidated Balance Sheets, December 31, 1995 and 1994 10 Consolidated Statement of Capitalization, December 31, 1995 and 1994 11 Notes to Consolidated Financial Statements 12-17 Quarterly Unaudited Financial Data for the Two Years Ended December 31, 1995 17 2. Financial Statement Schedules The following supplemental financial data included herein should be read in conjunction with the financial statements referenced above: Page in Form 10-K ---------- Report of Independent Public Accountants 24 Schedule II - Valuation and Qualifying Accounts 25 Schedules other than those listed above 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. 3. Exhibits The exhibits listed on the Exhibit Index beginning on page 26 of this Annual Report on Form 10-K are filed herewith or are incorporated herein by reference to other filings. (b) REPORTS ON FORM 8-K No reports on Form 8-K have been filed during the quarter ended December 31, 1995. 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. NORTHWESTERN PUBLIC SERVICE COMPANY (Registrant) /s/ M. D. Lewis M. D. Lewis, Director and President and Chief Executive Officer March 29th, 1996 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. /s/ R. A. Wilkens - ------------------------------- R. A. Wilkens, Chairman of the Board of Directors /s/ M. D. Lewis - ------------------------------- M. D. Lewis, Director and President and Chief Executive Officer /s/ R. R. Hylland - ------------------------------- R. R. Hylland, Director and Executive Vice President-Strategic Development (Principal Financial Officer) /s/ Rogene A. Thaden - ------------------------------- Rogene A. Thaden, Treasurer (Principal Accounting Officer) /s/ Jerry W. Johnson - ------------------------------- Jerry W. Johnson, Director /s/ Aelred J. Kurtenbach - ------------------------------- Aelred J. Kurtenbach, Director /s/ Herman Lerdal - ------------------------------- Herman Lerdal, Director /s/ Larry F. Ness - ------------------------------- Larry F. Ness, Director /s/ Raymond M. Schutz - ------------------------------- Raymond M. Schutz, Director /s/ Bruce I. Smith - ------------------------------- Bruce I. Smith, Director /s/ W. W. Wood - ------------------------------- W. W. Wood, Director REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Northwestern Public Service Company: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Northwestern Public Service Company's annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 2, 1996. Our audit was made for the purpose of forming an opinion on those financial statements taken as a whole. The schedule listed in the table of contents of financial statements is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Minneapolis, Minnesota, February 2, 1996 NORTHWESTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Column A Column B Column C Column D Column E - ---------------------------- ----------- --------------------- --------- ----------- Additions Balance --------------------- Beginning Charged to Charged Balance of Period Costs and to Other Deductions End Description Expenses Expenses of Period - ---------------------------- --------- ---------- --------- --------- ----------- FOR THE YEAR ENDED DECEMBER 31, 1995 - ------------------------------------ RESERVES DEDUCTED FROM APPLICABLE ASSETS: Uncollectible accounts $ 5,907,675 $ 827,909 $ - $ (310,681) $ 6,424,903 =========== ========= ======== ========= =========== OTHER DEFERRED CREDITS: Reserve for decommissioning costs $ 7,278,173 $ 510,309 $ - $ - $ 7,788,482 =========== ========= ======== ========= =========== FOR THE YEAR ENDED DECEMBER 31, 1994 - ------------------------------------ RESERVES DEDUCTED FROM APPLICABLE ASSETS: Uncollectible accounts $ 400,000 $ 129,039 $ - $ (129,039) $ 400,000 =========== ========= ======== ========= =========== OTHER DEFERRED CREDITS: Reserve for decommissioning costs $ 6,769,631 $ 508,542 $ - $ - $ 7,278,173 =========== ========= ======== ========= =========== FOR THE YEAR ENDED DECEMBER 31, 1993 - ------------------------------------ RESERVES DEDUCTED FROM APPLICABLE ASSETS: Uncollectible accounts $ 300,000 $ 249,455 $ - $ (149,455) $ 400,000 =========== ========= ======== ========= =========== OTHER DEFERRED CREDITS: Reserve for decommissioning costs $ 6,264,998 $ 504,633 $ - $ - $ 6,769,631 =========== ========= ======== ========= =========== The beginning balance for 1995 was restated to reflect the propane acquisitions that occurred during the year. All deductions from reserves were for purposes for which such reserves were created.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1995 (3) ARTICLES OF INCORPORATION AND BY-LAWS 3(a)(1) Registrant's Restated Certificate of Incorporation, dated February 7, 1990, is incorporated by reference to Exhibit 3(a)(1) to Form 10-K for the year ended December 31, 1989, Commission File No. 0-692. 3(a)(2) Certificate of Retirement of Preferred Stocks, dated January 13, 1992, is incorporated by reference to Exhibit 3(a)(2) to Form 10-K for the year ended December 31, 1991, Commission File No. 0-692. 3(b) Registrant's By-Laws, as amended, dated November, 1995 are incorporated by reference to Exhibit 3(ii) of Form 10-Q for the quarter ended September 30, 1995, Commission File No. 0-692. (4) INDENTURES AND POLLUTION CONTROL FACILITY OBLIGATIONS 4(a)(1) General Mortgage Indenture and Deed of Trust, dated as of August 1, 1993, from the Company to The Chase Manhattan Bank (National Association), as Trustee, is incorporated by reference to Exhibit 4(a) of Form 8-K, dated August 16, 1993, Commission File No. 0-692. 4(a)(2) Supplemental Indenture, dated August 15, 1993, from the Company to The Chase Manhattan Bank (National Association), as Trustee, is incorporated by reference to Exhibit 4(b) of Form 8-K, dated August 16, 1993, Commission File No. 0-692. 4(a)(3) Letter Agreement, dated July 28, 1995, from the Company to The Chase Manhattan Bank (National Association), as Trustee, the Travelers Insurance Company, and Metropolitan Life Insurance Company pursuant to which each party agreed to amend the 1940 Mortgage Indenture and allow bonds issued under the 1940 Indenture be exchanged for comparable bonds under the 1993 General Mortgage Indenture and Deed of Trust. 4(a)(4) Supplemental Indenture, dated August 1, 1995, from the Company to The Chase Manhattan Bank (National Association), as Trustee, is incorporated by reference to Exhibit 4(b) of Form 8-K, dated August 30, 1995, Commission File No. 0-692. 4(a)(5) Supplemental Indenture, dated September 1, 1995, from the Company to The Chase Manhattan Bank (National Association), as Trustee, concerning the New Mortgage Bonds, 6.99% Series due 2002. 4(a)(6) Supplemental Indenture, dated September 1, 1995, from the Company to The Chase Manhattan Bank (National Association), as Trustee, concerning the New Mortgage Bonds, 8.824% Series due 1998. 4(a)(7) Supplemental Indenture, dated September 1, 1995, from the Company to The Chase Manhattan Bank (National Association), as Trustee, concerning the New Mortgage Bonds, 8.90% Series due 1999. 4(b)(1) Preferred Securities Guarantee Agreement, dated August 3, 1995, between the Company and Wilmington Trust Company is incorporated by reference to Exhibit 1(d) of Form 8-K, dated August 30, 1995, Commission File No. 0-692. 4(b)(2) Declaration of Trust of NWPS Capital Financing I is incorporated by reference to Exhibit 4(d) of Form 8-K, dated August 30, 1995, Commission File No. 0-692. 4(b)(3) Amended and Restated Declaration of Trust of NWPS Capital Financing I is incorporated by reference to Exhibit 4(e) of Form 8-K, dated August 30, 1995, Commission File No. 0-692. 4(b)(4) Subordinated Debt Securities Indenture, dated August 1, 1995, between the Company and The Chase Manhattan Bank (National Association), as Trustee, is incorporated by reference to Exhibit 4(f) of Form 8-K, dated August 30, 1995, Commission File No. 0-692. 4(b)(5) First Supplemental Indenture, dated August 1, 1995, to the Subordinated Debt Securities Indenture is incorporated by reference to Exhibit 4(g) of Form 8-K, dated August 30, 1995, Commission File No. 0-692. 4(c)(1) Copy of Sale Agreement between Company and Mercer County, North Dakota, dated June 1, 1993, related to issuance of Pollution Control Refunding Revenue Bonds (Northwestern Public Service Company Project) Series 1993, is incorporated by reference to Exhibit 4(b)(1) of Registrant's report on Form 10-Q for the quarter ending June 30, 1993, Commission File No. 0-692. 4(c)(2) Copy of Loan Agreement between Company and Grant County, South Dakota, dated June 1, 1993, related to issuance of Pollution Control Refunding Revenue Bonds (Northwestern Public Service Company Project) Series 1993A, is incorporated by reference to Exhibit 4(b)(2) of Registrant's report on Form 10-Q for the quarter ending June 30, 1993, Commission File No. 0-692. 4(c)(3) Copy of Loan Agreement between Company and Grant County, South Dakota, dated June 1, 1993, related to issuance of Pollution Control Refunding Revenue Bonds (Northwestern Public Service Company Project) Series 1993B, is incorporated by reference to Exhibit 4(b)(3) of Registrant's report on Form 10-Q for the quarter ending June 30, 1993, Commission File No. 0-692. 4(c)(4) Copy of Loan Agreement between Company and City of Salix, Iowa, dated June 1, 1993, related to issuance of Pollution Control Refunding Revenue Bonds (Northwestern Public Service Company Project) Series 1993, is incorporated by reference to Exhibit 4(b)(4) of Registrant's report on Form 10-Q for the quarter ending June 30, 1993, Commission File No. 0-692. (10) MATERIAL CONTRACTS 10(a)(1) Supplemental Income Security (Retirement) Plan for Directors, Officers and Managers, as amended July 1, 1986, is incorporated by reference to Exhibit 10(g)(1) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(a)(2) Deferred Compensation Plan for Non-employee Directors adopted November 6, 1985, is incorporated by reference to Exhibit 10(g)(2) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(a)(3) Pension Equalization Plan, dated August 5, 1987, is incorporated by reference to Exhibit 10(g)(4) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(a)(4) Director Retirement Plan, dated November 4, 1987, as amended May 3, 1995. 10(a)(5) Long-term Incentive Compensation Plan (Phantom Stock Unit Plan) for Directors and Officers, dated February 1, 1989, as amended May 3, 1995. 10(a)(6) Form of Severance Agreement for Officers, dated November 1, 1995. 10(a)(7) Annual Performance Incentive Plan (NorthSTAR Plan) for all eligible employees, dated May 3, 1995. (13) REPORT FURNISHED TO SECURITY HOLDERS 13(a) Annual Report for fiscal year ended December 31, 1995, furnished to stockholders of record on March 4, 1996 (exhibit filed herewith). (21) SUBSIDIARIES OF REGISTRANT State of Jurisdiction Name of Incorporation - ------------------------------------- --------------------- Northwestern Public Service Company Delaware Grant, Inc. South Dakota Myers Propane Gas Company (1) Delaware Northwestern Growth Corporation South Dakota Northwestern Networks, Inc. South Dakota Northwestern Systems, Inc. South Dakota Lucht Inc. Delaware SYN Inc. (2) Delaware Synergy Group Incorporated (3) Delaware Western Gas North Carolina (1) Northwestern Public Service Company owns 51% of the common stock of Myers Propane Gas Company. (2) Northwestern Growth Corporation owns 52.5% of the common stock of SYN Inc. (3) Synergy Group Incorporated has 54 wholly-owned subsidiaries operating in the United States, the majority of which are in the propane distribution business. EX-4 2 Exhibit 4(a)(3) NORTHWESTERN PUBLIC SERVICE COMPANY 33 Third Street S.E. Huron, South Dakota 57350-1318 July 28, 1995 The Travelers Insurance Company The Phoenix Insurance Company The Travelers Indemnity Company 205 Columbus Boulevard Hartford, CT 06183 Metropolitan Life Insurance Company One Lincoln Centre, Suite 800 Oakbrook, IL 60181 The Chase Manhattan Bank (National Association) 4 Chase MetroTech Center 3rd Floor Brooklyn, NY 11245 Re: Northwestern Public Service Company - Consent to Amendment to 1940 Indenture and Agreement to Exchange Bonds Ladies and Gentlemen: We refer to: (i) the Indenture dated August 1, 1940 (as the same has been amended from time to time, the "1940 Indenture") by and between Northwestern Public Service Company (the "Company") and The Chase Manhattan Bank (National Association), successor to The Chase National Bank of the City of New York (the "1940 Trustee"), and C. J. Heinzelmann, successor to Carl E. Buckley (the 1940 Trustee and said C. J. Heinzelmann being hereinafter called the "1940 Trustees"); (ii) the Supplemental Indenture dated November 1, 1989 by and between the Company and the 1940 Trustees, pursuant to which the Company issued $7,500,000 of its First Mortgage Bonds, 8.90% Series due 1999 (the "8.90% Bonds") to Metropolitan Life Insurance Company ("Metropolitan Life"); (iii) the Supplemental Indenture dated July 15, 1991 by and between the Company and the 1940 Trustees, pursuant to which the Company issued $15,000,000 of its First Mortgage Bonds, 8.824% Series due 1998 (the "8.824% Bonds"), $11,000,000 of which were issued to The Travelers Insurance Company ("Travelers") and the remaining $4,000,000 of which were issued to The Phoenix Insurance Company ("Phoenix"); (iv) the Supplemental Indenture dated September 1, 1992 by and between the Company and the 1940 Trustees, pursuant to which the Company issued $25,000,000 of its First Mortgage Bonds, 6.99% Series due 2002 (the "6.99% Bonds"), $22,000,000 of which were issued to Travelers and the remaining $3,000,000 of which were issued to The Travelers Indemnity Company ("Indemnity"); and (v) the Supplemental Indenture dated August 15, 1993 by and between the Company and the 1940 Trustees, pursuant to which the Company issued $55,000,000 of its First Mortgage Bonds, 7% Series due 2023 (the "7% Bonds") to The Chase Manhattan Bank (National Association), as Trustee (the "1993 Trustee") under the General Mortgage Indenture and Deed of Trust dated as of August 1, 1993 (the "1993 Indenture") by and between the Company and the 1993 Trustee. Unless otherwise defined herein, the terms defined in the 1940 Indenture shall be used herein as therein defined. As of the date of this letter, the only Bonds outstanding under the 1940 Indenture are the 8.90% Bonds, the 8.824% Bonds, the 6.99% Bonds and the 7% Bonds, and the only holders of the Bonds are Metropolitan Life, Travelers, Phoenix, Indemnity and the 1993 Trustee (collectively, the "Bondholders"). The Company has advised the Bondholders that it desires to enter into a Supplemental Indenture with the 1940 Trustees pursuant to which the Company would issue up to $75,000,000 of Bonds (the "New 1940 Bonds") to the 1993 Trustee to be used as "Pledged Bonds" under the 1993 Indenture for purposes of issuing to the public a like amount of bonds ("New Mortgage Bonds") under the 1993 Indenture (the "Public Offering"). At present, the Company is not able to issue the full amount of New 1940 Bonds under the 1940 Indenture, because of (a) the limitation in Section 3 of Article II of the 1940 Indenture that it may issue Bonds pursuant to such Section only to the extent in principal amount of sixty percent (60%) of all "net expenditures" (as defined in such Section), and (b) the prohibition in Section 3 of Article II of the 1940 Indenture on using as the basis for the issuance of Bonds any expenditures for property which has previously been used by the Company to satisfy its maintenance and renewal fund obligations under Article VII of the 1940 Indenture. The undersigned Bondholders have agreed (a) to consent to the amendment of Section 3 of Article II to the 1940 Indenture (i) to increase the percentage stated therein from sixty percent (60%) to seventy-five percent (75%), and (ii) to eliminate the restriction regarding the use of expenditures for property that has been used to satisfy the Company's obligations under Article VII of the 1940 Indenture, pursuant to a Supplemental Indenture to the 1940 Indenture in substantially the form of Exhibit A attached hereto, and (b) in the case of Metropolitan Life, Travelers, Phoenix and Indemnity (collectively, the "Exchanging Bondholders"), to exchange the Bonds held by each of them for bonds of like tenor to be issued pursuant to a Supplemental Indenture to the 1993 Indenture in substantially the form of Exhibit B-1, Exhibit B-2 or Exhibit B-3 (as applicable), in each case so long as the Company agrees to the conditions and other provisions set forth herein. 1. Accordingly, the Company and the undersigned Bondholders (including the 1993 Trustee) hereby agree as follows: (a) The actions set forth in clause (b) of this Paragraph 1 shall be effective as if the same had taken place at a meeting of Bondholders pursuant to Article XVIII (Meetings of Bondholders) of the 1940 Indenture (which provision was added to the 1940 Indenture by the Supplemental Indenture dated October 1, 1946), and the undersigned Bondholders hereby waive any and all notice of a meeting of the Bondholders provided for in said Article XVIII; and (b) The undersigned Bondholders hereby consent to the execution by the Company and the 1940 Trustees of the Supplemental Indenture to the 1940 Indenture in substantially the form of Exhibit A attached hereto, and the recording and filing thereof in the various jurisdictions in which the 1940 Indenture is recorded or filed. 2. The Company and the Exchanging Bondholders hereby agree as follows: (a) On a date not later than the last to occur of September 1, 1995 or the date of the Public Offering, the Company will issue: (i) to Metropolitan Life, and Metropolitan Life will accept, one or more bonds in the aggregate principal amount of $7,500,000 in exchange for all of the issued and outstanding 8.90% Bonds, which bonds shall bear interest at a rate of 8.90% per annum, shall mature on November 1, 1999, and shall be issued pursuant to a Supplemental Indenture to the 1993 Indenture in substantially the form of Exhibit B-1 attached hereto (as the same may be modified by mutual agreement of the Company and Metropolitan Life) and afforded the benefits set forth therein; (ii) to Travelers, and Travelers will accept, one or more bonds in the aggregate principal amount of $11,000,000 in exchange for a like amount of 8.824% Bonds held by it, and to Phoenix, and Phoenix will accept, one or more bonds in the aggregate principal amount of $4,000,000 in exchange for a like amount of 8.824% Bonds held by it, in each case which bonds shall bear interest at a rate of 8.824% per annum, shall mature on July 15, 1998, and shall be issued pursuant to a Supplemental Indenture to the 1993 Indenture in substantially the form of Exhibit B-2 attached hereto (as the same may be modified by mutual agreement of the Company, Travelers and Phoenix) and afforded the benefits set forth therein; and (iii) to Travelers, and Travelers will accept, one or more bonds in the aggregate principal amount of $22,000,000 in exchange for a like amount of 6.99% Bonds held by it, and to Indemnity, and Indemnity will accept, one or more bonds in the aggregate principal amount of $3,000,000 in exchange for a like amount of 6.99% Bonds held by it, in each case which bonds shall bear interest at a rate of 6.99% per annum, shall mature on September 1, 2002, and shall be issued pursuant to a Supplemental Indenture to the 1993 Indenture in substantially the form of Exhibit B-3 attached hereto (as the same may be modified by mutual agreement of the Company, Travelers and Indemnity) and afforded the benefits set forth therein. The bonds to be issued under the 1993 Indenture and the Supplemental Indentures thereto pursuant to this clause (a) are referred to herein as the "Exchanged Bonds." (b) At the time of the issue of the Exchanged Bonds pursuant to clause (a) of this Paragraph 2, each of the Exchanging Bondholders will surrender their respective Bonds in exchange for the Exchanged Bonds (which shall be stated to accrue interest from the date of the last interest payment date of the Bonds to be exchanged for the Exchanged Bonds), subject to satisfaction of the following conditions: (i) Each Exchanging Bondholder shall have received an opinion of counsel from Schiff Hardin & Waite in substantially the form (mutatis mutandis) of the opinion delivered pursuant to Paragraph 9(b) (or in the case of the Exchanged Bonds issued in exchange for the 8.90% Bonds, Paragraph 10(b)) of the Bond Purchase Agreements pursuant to which the Bonds were issued to such Exchanging Bondholder; (ii) Each Exchanging Bondholder shall have received an opinion of counsel from local counsel in the States of South Dakota and Nebraska in substantially the form (mutatis mutandis) of the opinions delivered pursuant to Paragraph 9(c) (or in the case of the Exchanged Bonds issued in exchange for the 8.90% Bonds, Paragraph 10(c)) of the Bond Purchase Agreements pursuant to which the Bonds were issued to such Exchanging Bondholder; (iii) Each Exchanging Bondholder shall have received an officer's certificate in substantially the form (mutatis mutandis) of the officer's certificate delivered pursuant to Paragraph 9(d) (or in the case of the Exchanged Bonds issued in exchange for the 8.90% Bonds, Paragraph 10(d)) of the Bond Purchase Agreements pursuant to which the Bonds were issued to such Exchanging Bondholder, which officer's certificate shall also include a representation by the Company to the effect that the issuance of the Exchanged Bonds and the compliance by the Company with the provisions thereof will not involve any prohibited transaction within the meaning of ERISA or Section 4975 of the Internal Revenue Code; (iv) Each Exchanging Bondholder shall be satisfied with the proceedings taken on or before the date of the exchange in connection with the transactions contemplated by this Paragraph 2, and with the form and substance of all instruments applicable to the issuance of the Exchanged Bonds; (v) The exchange shall, on the date of the exchange, be permitted by the laws and regulations of all jurisdictions to which each Exchanging Bondholder is then subject, and each Exchanging Bondholder shall have received such factual certificates, signed by officers of the Company, or such other evidence as it may request to establish compliance with this condition; and (vi) The obligation of each Exchanging Bondholder to surrender its respective Bonds is subject to the surrender by each of the other Exchanging Bondholders of their Bonds. (c) Concurrently with the issuance of the Exchanged Bonds in accordance with clause (a) of this Paragraph 2 and the surrender of the Bonds in accordance with clause (b) of this Paragraph 2, the Company will deliver to the 1993 Trustee the "Company Order" and the other documents and instruments referred to in Section 7.07 of the 1993 Indenture for purposes of causing the 1993 Trustee to surrender for cancellation to the 1940 Trustees all of the Pledged Bonds (including the 7% Bonds and the New 1940 Bonds) then held by the 1993 Trustee. (d) Promptly following the surrender by the 1993 Trustee of the Pledged Bonds in accordance with clause (c) of this Paragraph 2, the Company will deliver (i) to the 1940 Trustees the request of the Company and the other documents and instruments referred to in Article XII of the 1940 Indenture for purposes of causing the 1940 Trustees to cancel and discharge the lien of the 1940 Indenture as provided for in said Article XII, and (ii) to the Exchanging Bondholders a certificate to the effect that the 1940 Mortgage has been cancelled and discharged, together with an opinion of counsel from Schiff Hardin & Waite to the same effect. 3. As further consideration for the agreement of the Exchanging Bondholders to the consent to the amendment to the 1940 Indenture, the exchange of the Bonds for the Exchanged Bonds and the other matters provided for herein, the Company agrees that each Exchanging Bondholder (or its respective successors or assigns), with respect to the Exchanged Bonds then held by it, shall have the following rights, in addition to the rights provided for in the 1993 Indenture and the Supplemental Indentures pursuant to which the Exchanged Bonds were issued: (a) If, at any time subsequent to the earlier of (i) the date which is 120 days following the issuance of New Mortgage Bonds pursuant to the S-3 Registration Statement filed by the Company on June 21, 1995, as the same may be amended or supplemented, or (ii) January 1, 1996, an Exchanging Bondholder gives written notice to the Company (specifying that it is being given pursuant to this clause (a)) requesting the Company to file a registration statement to register under the 1933 Act all (but not less than all) of a series of Exchanged Bonds owned by the requesting person (provided, however, that (1) in the event that such request is made with respect to the Exchanged Bonds to be issued in exchange for the 8.824% Bonds, such request shall be submitted by both Travelers and Phoenix, and (2) in the event that such request is made with respect to the Exchanged Bonds to be issued in exchange for the 6.99% Bonds, such request shall be submitted by both Travelers and Indemnity), then the Company shall promptly notify each of the other Exchanging Bondholders of such request. Within 15 days after receipt by any such other Exchanging Bondholder of notice of such request, it may notify the Company that it too requests that all (but not less than all) of a series of Exchanged Bonds owned by such Exchanging Bondholder be included in such registration (all of the Exchanging Bondholders who at that point have requested the Company to include their Exchanged Bonds in the registration being hereinafter referred to as the "Selling Bondholders"); provided, however, that the failure by an Exchanging Bondholder to make such a request shall not preclude such Exchanging Bondholder from subsequently exercising its rights under this Paragraph 3. The Company shall then use its best efforts to cause to be registered under the 1933 Act all Exchanged Bonds that the Selling Bondholders have so requested to be registered. Notwithstanding the foregoing, the Company shall not be obligated to effect a registration pursuant to this clause (a) during the period starting with the date 45 days prior to the Company's estimated date of filing of, a registration statement pertaining to an underwritten public offering of New Mortgage Bonds for the account of the Company, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective and that the Company's estimate of the date of filing such registration statement is made in good faith. The Company shall be obligated to effect one registration pursuant to this clause (a) for each series of Exchanged Bonds. At any time prior to the effectiveness of the registration statement, any request for registration under this clause (a) may be withdrawn by a Selling Bondholder, whereupon, if such withdrawal affects all of the Exchanged Bonds that were to be the subject of the registration statement, the Company shall either not file or withdraw the filing of the registration statement, as applicable, and such withdrawal of the request for registration will not be deemed to have been the exercise of the registration right granted in this clause (a). (b) Whenever under clause (a) of this Paragraph 3 the Company is to use its best efforts to effect the registration of any Exchanged Bonds, that shall require the Company to do the following: (i) As expeditiously as reasonably possible (and in any event within 30 days following the delivery to the Company of the request by the first Selling Bondholder pursuant to clause (a) of this Paragraph 3), prepare and file with the Securities and Exchange Commission ("SEC," which term includes any successor agency) a registration statement with respect to such Exchanged Bonds, and use its best efforts to cause such registration statement to become and remain effective under the 1933 Act, except that the Company shall in no event be obligated to cause any such registration to remain effective for more than nine months. (ii) As expeditiously as reasonably possible, prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the 1933 Act with respect to the disposition of all securities covered by such registration statement. (iii) As expeditiously as reasonably possible, furnish to each Selling Bondholder such numbers of the copies of the prospectus used in connection with such registration statement (including all preliminary prospectuses and the final prospectus), and all amendments and supplements thereto, and such other documents as they may reasonably request in order to facilitate the distribution of the Exchanged Bonds owned by such Selling Bondholder. (iv) As expeditiously as reasonably possible, make a commercially reasonable effort to register and qualify the securities covered by such registration statement under such securities or Blue Sky laws of such jurisdictions as shall be reasonably appropriate or requested by each Selling Bondholder or by the underwriter (if any) for the distribution of the securities covered by the registration statement, except that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such jurisdiction, and except that (anything in this letter to the contrary notwithstanding with respect to the bearing of expenses) if any jurisdiction in which the Exchanged Bonds shall be qualified shall require that expenses incurred in connection with the registration or qualification of the Exchanged Bonds in that jurisdiction be borne by those selling the Exchanged Bonds, then such expenses shall be payable by the Selling Bondholders pro rata in accordance with the principal amount of the Exchanged Bonds being registered, to the extent required by such jurisdiction. (v) Advise each Selling Bondholder promptly after the Company shall receive notice or obtain knowledge thereof of (1) the issuance of any stop order by the SEC suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for that purpose, (2) any similar action by any regulatory agency of competent jurisdiction under the securities or Blue Sky laws of any jurisdiction, and in any such case promptly make a commercially reasonable effort to prevent the issuance of any stop order or the taking of any such similar action or to obtain its withdrawal if such stop order shall be issued or any such similar action shall be taken, and (3) the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of material fact or omits to state any fact necessary to make the statements therein not misleading. (vi) Furnish to each Selling Bondholder copies of all documents proposed to be filed with respect to any amendment or supplement to such registration statement or prospectus at a reasonable time prior to such filing, and not file any such amendment or supplement to which the Selling Bondholders of a majority of the Exchanged Bonds covered by such registration statement shall have reasonably objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the 1933 Act or the rules and regulations thereunder, unless in the opinion of counsel for the Company the filing of such amendment or supplement is reasonably necessary to protect the Company from any liabilities under any applicable federal or state law and such filing will not violate applicable law. (vii) Furnish on the effective date of the registration statement and, if such registration includes an underwritten public offering, at the closing provided for in the underwriting agreement: (1) an opinion, dated each such date, of the counsel representing the Company for the purposes of such registration, addressed to the underwriters, if any, and to the Selling Bondholders participating in such registration, stating that such registration statement has become effective under the 1933 Act and that (A) to the best of such counsel's knowledge, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the 1933 Act, (B) the registration statement, related prospectus and each amendment or supplement thereto comply as to form in all material respects with the requirements of the 1933 Act and the applicable rules and regulations of the SEC thereunder (except that such counsel need express no opinion as to financial statements and financial data contained therein), (C) such counsel have no reason to believe that the registration statement, the prospectus or any amendment or supplement thereto contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of circumstances under which they were made, not misleading (except that such counsel need express no belief as to the financial statements and financial data contained therein, nor as to any of the information provided by the Selling Bondholders pursuant to clause (c) of this Paragraph 3), (D) the description in the registration statement or prospectus or any amendment or supplement thereto of all legal and governmental proceedings and all contracts and other legal documents or instruments filed as exhibits to the registration statement are accurate and fairly present the information required to be shown, and (2) a letter dated each such date, from the independent certified public accountants of the Company, addressed to the underwriters, if any, and to the Selling Bondholders participating in such registration, covering such matters as such underwriters and such Selling Bondholders may reasonably request, in which letter such accountants shall state (without limiting the generality of the foregoing) that they are independent certified public accountants within the meaning of the 1933 Act and that in the opinion of such accountants the financial statements and other financial data of the Company included in the registration statement or the prospectus or any amendment or supplement thereto comply in all material respects with the applicable accounting requirements of the 1933 Act and applicable rules and regulations thereunder. (viii) Enter into such customary agreements and take all such other actions as the Selling Bondholders that are holders of a majority of the Exchanged Bonds covered by such registration statement or the managing underwriters for such registration, if any, may reasonably request in order to facilitate the distribution of such Exchanged Bonds (including, without limitation, to cause such Exchanged Bonds to be listed on such securities exchange on which similar securities issued by the Company are then listed, to cause such Exchanged Bonds to be eligible for quotation and transaction reporting through an automated inter-dealer quotation system operated by a national securities association, and to provide a transfer agent and registrar). (ix) Make available for inspection by, and cause the Company's officers, directors, employees and independent accountants to supply to, any Selling Bondholder, any underwriter participating in the distribution pursuant to such registration statement, and any attorney, accountant or other agent for any thereof, all financial and other records of the Company and all information reasonable requested in connection with such registration statement. (x) Enter into an indemnity agreement pursuant to which the Company agrees (to the extent permitted by law) to indemnify and hold harmless each Selling Bondholder, each of its directors, officers, employees and agents, each underwriter (if any), each other person who participates in the offering of such Exchanged Bonds, and each other person, if any, who controls (within the meaning of the 1933 Act) such Selling Bondholder, underwriter or participating person, against any losses, claims, damages or liabilities, joint or several, to which such Selling Bondholder, director, officer, employee, agent, underwriter, participating person or controlling person may become subject under the 1933 Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (A) any alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such Exchanged Bonds were registered under the 1933 Act, any preliminary prospectus or final prospectus contained therein, or any summary prospectus issued in connection with any Exchanged Bonds being registered, or any amendment or supplement thereto, or (B) any alleged omission to state in any such document a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse such Selling Bondholders, director, officer, employee, agent, underwriter, participating person or controlling person for any legal or other expenses reasonably incurred by such Selling Bondholder, director, officer, employee, agent, underwriter, participating person or controlling person in connection with investigating or defending any such loss, damage, liability or action; provided, however, that the Company shall not be liable to such Selling Bondholder, director, officer, employee, agent, underwriter, participating person or controlling person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any alleged untrue statement or alleged omission made in such registration statement, preliminary prospectus, final prospectus, summary prospectus or amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by such Selling Bondholder, specifically for use therein. Such indemnity agreement shall contain customary provisions with respect to the procedure to be followed in connection with the assertion of any right to indemnification, as well as customary provisions with respect to just and equitable contribution in the event where any such indemnity is unavailable. (c) It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Paragraph 3 that each Selling Bondholder shall furnish to the Company such information regarding such Selling Bondholder, the Exchanged Bonds held by such Selling Bondholder, and the intended method of disposition of such Exchanged Bonds (which may, but need not, involve an underwritten transaction) as the Company shall reasonably request and as shall be required in connection with the action to be taken by the Company. (d) All expenses incurred in connection with a registration pursuant to clause (a) of this Paragraph 3 (excluding underwriters' discounts and commissions (if any), fees of any counsel which the Selling Bondholder may separately engage and expenses expressly required by clause (b)(iv) of this Paragraph 3 to be paid by the Selling Bondholders), including without limitation all registration and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company, internal expenses of the Company (including, without limitation, salaries of officers and employees) and listing fees shall be borne by the Company. (e) In the event that, for any reason other than the failure by a Selling Bondholder to comply with the provisions of this Paragraph 3, the registration statement provided for in clause (a) of this Paragraph 3 is not declared effective by the SEC within 90 days following the filing thereof pursuant to clause (b)(i) of this Paragraph 3, the Company shall be obligated to pay to each Selling Bondholder a fee equal to fifteen basis points (.15%) per annum (calculated on the basis of a 360-day year) of the principal amount of the Exchanged Bonds owned by such Selling Bondholder that are subject to such registration statement for the period beginning on the 90th day following the filing of such registration statement and ending on the earlier of (i) the date that such registration statement is declared effective by the SEC, or (ii) the date on which the Exchanged Bonds with respect to which the fee applies are paid in full by the Company. The fee provided for under this clause (e) shall be payable semi-annually in arrears on the date on which interest on the Exchanged Bonds is due and payable and on the last day of the period referred to in the preceding sentence. (f) For purposes of this Paragraph 3: (i) the term "1933 Act" means the Securities Act of 1933, as amended; and (ii) the terms "register," "registered" and "registration" refer to a registration effected by filing a registration statement in compliance with the 1933 Act (a "registration statement") and such registration statement becoming effective under the 1933 Act. In order to induce the Bondholders to execute and deliver this letter, the Company represents and warrants to the Bondholders that: (a) This letter is the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors rights in general and by general principles of equity; (b) No "default" or "event of default" (as such terms are defined in the 1940 Indenture) or "Event of Default" (as such term is defined in the 1993 Indenture) exists, in each case both before and after giving effect to the consents and other matters contemplated hereby; and (c) Upon the discharge of the lien of the 1940 Indenture in accordance with clause (d) of Paragraph 2, the lien of the 1993 Indenture on the property formerly subject to the lien of the 1940 Indenture, to the extent the same is part of the "Mortgaged Property" under the 1993 Indenture, will be subject to no lien prior to the lien of the 1993 Indenture except "Permitted Liens" under the 1993 Indenture and liens of the character permitted to exist or to be created under Section 6.06 of the 1993 Indenture. Nothing contained in this letter shall affect in any manner the Company's obligations under the Bond Purchase Agreements pursuant to which the 8.90% Bonds, the 8.824% Bonds or the 6.99% Bonds, respectively, were issued, except to the extent that any such obligations relate to the "New Bonds" or the "Indenture" (as such terms are defined in such Bond Purchase Agreements), in which case such obligations shall relate to the applicable series of Exchanged Bonds and the 1993 Indenture (mutatis mutandis), respectively, and such Bond Purchase Agreements shall otherwise remain in full force and effect. This letter shall be construed and enforced as an agreement in accordance with, and the rights of the parties shall be governed by, the law of the State of New York (without giving effect to principles of conflicts of law). This letter may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this letter and return the same to the Company, whereupon this letter shall become a binding agreement among you and the Company. Very truly yours, NORTHWESTERN PUBLIC SERVICE COMPANY By: Title: The foregoing letter is hereby accepted as of the date first above written. METROPOLITAN LIFE INSURANCE COMPANY By: Title: THE TRAVELERS INSURANCE COMPANY By: Title: THE PHOENIX INSURANCE COMPANY By: Title: THE TRAVELERS INDEMNITY COMPANY By: Title: THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), in its capacity as Trustee under the 1993 Indenture By: Title: EXHIBIT A TO CONSENT Supplemental Indenture, dated the _____ day of July, nineteen hundred and ninety-five (1995), made by and between Northwestern Public Service Company, a corporation organized and existing under the laws of the State of Delaware (hereinafter called the "Company"), party of the first part, and The Chase Manhattan Bank (National Association), a national banking association organized and existing under the laws of the United States of America and having its principal office or place of business in the Borough of Manhattan, The City of New York, State of New York, successor to The Chase National Bank of the City of New York (hereinafter called the "Trustee"), and C. J. Heinzelmann, of Nassau County, New York, successor to Carl E. Buckley (the Trustee and said C. J. Heinzelmann being hereinafter called the "Trustees," which term where the context requires may also designate their respective predecessors in trust, the post office address of the Trustees being Corporate Trust Administration Division, 4 Chase MetroTech Center - 3rd Floor, Brooklyn, New York 11245), as Trustees under the Indenture dated August 1, 1940, hereinafter mentioned, parties of the second part. Whereas the Company has heretofore executed and delivered its Indenture (hereinafter referred to as the "Original Indenture"), dated August 1, 1940, to the Trustees for the security of the bonds of the Company issued and to be issued thereunder; and Whereas the Company, from time to time, has heretofore duly made and delivered to the Trustees certain indentures supplemental to the Original Indenture, including supplemental indentures dated January 15, 1941, August 18, 1945, September 23, 1946, October 1, 1946, July 24, 1947, June 1, 1948, September 1, 1948, June 1, 1949, August 16, 1950, March 1, 1952, May 1, 1953, February 1, 1955, August 27, 1955, October 1, 1956, July 1, 1957, August 1, 1959, July 1, 1961, July 1, 1966, September 1, 1970, August 1, 1972, July 1, 1973, November 14, 1974, May 1, 1975, June 1, 1977, July 1, 1978, December 1, 1978, May 6, 1987, November 1, 1989, July 15, 1991, November 15, 1991, September 1, 1992 and August 15, 1993 (the Original Indenture as supplemented and amended by the aforementioned supplemental indentures and by this Supplemental Indenture being hereinafter referred to as the "Indenture"); and Whereas pursuant to the terms and provisions of the Original Indenture and a Supplemental Indenture dated November 1, 1989, the Company created a new series of bonds, to be issued under the Original Indenture, and to be known as First Mortgage Bonds, 8.90% Series due 1999, of which Bonds of the 8.90% Series there are issued and outstanding, as of the date of this Supplemental Indenture, $7,500,000 principal amount; and Whereas pursuant to the terms and provisions of the Original Indenture and a Supplemental Indenture dated July 15, 1991, the Company created a new series of bonds, to be issued under the Original Indenture, and to be known as First Mortgage Bonds, 8.824% Series due 1998, of which Bonds of the 8.824% Series there are issued and outstanding, as of the date of this Supplemental Indenture, $15,000,000 principal amount; and Whereas pursuant to the terms and provisions of the Original Indenture and a Supplemental Indenture dated September 1, 1992, the Company created a new series of Bonds, to be issued under the Original Indenture, and to be known as First Mortgage Bonds, 6.99% Series due 2002, of which Bonds of the 6.99% Series there are issued and outstanding, as of the date of this Supplemental Indenture, $25,000,000 principal amount; and Whereas pursuant to the terms and provisions of the Original Indenture and a Supplemental Indenture dated August 15, 1993, the Company created a new series of Bonds, to be issued under the Original Indenture, and to be known as First Mortgage Bonds, 7% Series due 2023, of which Bonds of the 7% Series there are issued and outstanding, as of the date of this Supplemental Indenture, $55,000,000 principal amount; and Whereas the Company desires to modify the Indenture in certain respects; and Whereas the holders of all of the Bonds issued and outstanding under the Original Indenture as of the date hereof (being the Bonds of the 8.90% Series, the Bonds of the 8.824% Series, the Bonds of the 6.99% Series and the Bonds of the 7% Series) have consented to the modifications reflected herein, and to the execution by the Company and the Trustees of this Supplemental Indenture; and Whereas the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Original Indenture, and pursuant to appropriate resolutions of its Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustees a Supplemental Indenture in the form hereof for the purposes herein provided; and Whereas all conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized; Now, Therefore, This Indenture Witnesseth: That Northwestern Public Service Company, in consideration of the premises and of One Dollar to it duly paid by the Trustees at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, hereby covenants and agrees to and with the Trustees and their successors in the trust under the Indenture, for the benefit of those who shall hold the bonds and coupons, or any of them, to be issued thereunder as hereinafter amended, as follows: Article I Amendment of Original Indenture Section 1. Section 3 of Article II of the Indenture (referred to on pages 17-26 of the Supplemental Indenture dated October 1, 1946) is hereby amended by deleting the figure "sixty per centum (60%)" and inserting in lieu thereof the figure "seventy-five per centum (75%)" in both places where it appears. Section 2. Section 3 of Article II of the Indenture (referred to on pages 17-26 of the Supplemental Indenture dated October 1, 1946) is hereby amended further amended by: (a) Deleting the phrase "or which shall have been certified or used to comply with any requirement of Article VII of this Indenture" in the first paragraph thereof; (b) Deleting the phrase "the greater of (a) the aggregate amount of such gross expenditures, if any, certified to the Trustee for or during such period pursuant to the provisions of Section 1 of Article VII hereof as expended for the purposes stated in sub-paragraph (b) of said Section or (b)" in the first paragraph of the definition of "net expenditures" contained therein; (c) Deleting the phrase "(1) were certified to the Trustee pursuant to the provisions of Section 1 of Article VII hereof as expended by the Company for the purpose stated in sub-paragraph (c) of Section 1 of Article VII hereof, (2) were paid to the Trustee to comply with the requirements of Section 1 of Article VII hereof, and (3)" in the first paragraph of the definition of "net expenditures" contained therein; (d) Deleting the phrase "or the certification of net expenditures to the Trustee under the provisions of Section 2 of Article VII of this Indenture" in the second paragraph of the definition of "net expenditures" contained therein; (e) Deleting clauses (3), (4)(b) and (4)(c) of sub-paragraph (b) thereof (referred to on page 24 of the Supplemental Indenture dated October 1, 1946); and (f) Deleting the phrase "or has been certified or used to comply with any requirement of Article VII of this Indenture" in sub-paragraph (b) thereof (referred to on page 25 of the Supplemental Indenture dated October 1, 1946). Article II The Trustees The Trustees hereby accept the trusts hereby declared and provided and agree to perform the same upon the terms and conditions in the Original Indenture set forth and upon the following terms and conditions: The Trustees shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or the due execution hereof by the Company or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general each and every term and condition contained in Article XV of the Original Indenture, as amended by Section 15 of Article IV of the Supplemental Indenture dated October 1, 1946, shall apply to this Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to this Supplemental Indenture. In Witness Whereof, said Northwestern Public Service Company has caused this instrument to be executed in its corporate name by its President or one of its Vice Presidents, and its corporate seal to be hereunto affixed and to be attested by its Corporate Secretary or an Assistant Secretary, and said The Chase Manhattan Bank (National Association), to evidence its acceptance of the trust hereby created, has caused this instrument to be executed in its corporate name by its President or one of its Second Vice Presidents and its corporate seal to be hereunto affixed and to be attested by one of its Assistant Secretaries, and said C.J. Heinzelmann, to evidence his acceptance of the trust hereby created, has signed this instrument, in several counterparts, all as of the day and year first above written. NORTHWESTERN PUBLIC SERVICE By (Title) ATTEST: By (Title) Executed by Northwestern Public Service Company in the presence of: Witnesses (BANK SEAL) THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) By (Title) ATTEST: By Assistant Secretary Executed by the Chase Manahttan Bank (National Association) in the presence of: Witnesses By C. J. Heinzelmann Executed by C. J. Heinzelmann in the presence of: Witnesses State Of South Dakota ) ) SS County Of Beadle ) On this _____th day of July, in the year 1995, before me, ___________, a Notary Public in and for said County and State, personally appeared __________ and __________, known to me to be the _______________ and the _______________, respectively, of Northwestern Public Service Company, a Delaware corporation, and one of the corporations that is described in and that executed the within instrument, and to be officers of said corporation authorized to execute said instrument on its behalf, and acknowledged to me that said corporation executed the same, and further acknowledged to me that they had executed said instrument as such officers and on behalf of said corporation, thereunto duly authorized. In Witness Whereof, I have hereunto set my hand and affixed my seal of office this _____th day of July, 1995. (Notarial Seal) Notary Public [Name] Notary Public, Beadle County, S.D. My Commission expires __________, _____ State Of South Dakota ) ) SS County Of Beadle ) On this _____th day of July, in the year 1995, before me, ___________, a Notary Public in and for said County and State, personally appeared __________ and __________, known to me to be the _______________ and the _______________, respectively, of the within named Northwestern Public Service Company, a Delaware corporation, and to be the same persons whose names are signed to the foregoing instrument as such _______________ and such _______________, respectively, of said corporation, and acknowledged said instrument to be the voluntary act and deed of said corporation, and further acknowledged that they had signed, sealed and delivered said instrument as their voluntary act and deed as the _______________ and the _______________, respectively, of said corporation and that the seal of said corporation affixed to said instrument is the common seal of said corporation. In Witness Whereof, I have hereunto set my hand and affixed my seal of office this _____th day of July, 1995. (Notarial Seal) Notary Public [Name] Notary Public, Beadle County, S.D. My Commission expires __________, ____ State Of New York ) ) SS County Of Kings ) On this _____th day of July, in the year 1995, before me, __________, a Notary Public in and for said County and State, personally appeared __________ and __________ to me personally known and known to me to be a _______________ and an Assistant Secretary, respectively, of THE CHASE MANHATTAN BANK (National Association), a national banking association organized and existing under the laws of the United States of America and one of the corporations described in and which executed the foregoing instrument, who, being by me severally duly sworn, each for himself did depose, and say and acknowledge that he, said __________, resides at _________________, and is a _______________ of said Bank and that she, said __________, resides at _______________, and is an Assistant Secretary of said Bank; that they respectively know the seal of said Bank and that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said Bank, and that they, respectively, signed their names thereto by like order; and that said instrument is the voluntary act and deed of said Bank, by it voluntarily executed. In Witness Whereof, I have hereunto subscribed my name and affixed my official seal this _____th day of July, 1995. (Notarial Seal) Notary Public Notary Public, State of New York No. __________ Qualified in Kings County Commission expires __________, ____ State Of New York ) ) SS County Of New York ) On this _____th day of July, in the year 1995, before me, __________, a Notary Public in and for said County and State, personally appeared C. J. HEINZELMANN, to me personally known and known by me to be the person described in and who executed the foregoing instrument, who, being by me duly sworn, did depose, say and acknowledge that he resides at 15 Boylston Street, Garden City, New York, and that said instrument is his voluntary act and deed, by him voluntarily executed. In Witness Whereof, I have hereunto subscribed my name and affixed my official seal this _____th day of July, 1995. (Notarial Seal) Notary Public Notary Public, State of New York No. __________ Qualified in New York County Commission expires __________, _____ ACKNOWLEDGMENT The undersigned acknowledges the delivery to it and the receipt by it of a full, true and complete copy of the foregoing Supplemental Indenture dated July, 1995. Northwestern Public Service Company [Title] (Corporate Seal) By [Title] EXHIBIT B-1 TO CONSENT Supplemental Indenture, dated as of __________, 1995 (the "Supplemental Indenture"), made by and between Northwestern Public Service Company, a corporation organized and existing under the laws of the State of Delaware (the "Company"), the post office address of which is 33 Third Street, S.E., Huron, South Dakota 57350, and The Chase Manhattan Bank (National Association), a national banking association organized and existing under the laws of the United States of America (the "Trustee"), as Trustee under the General Mortgage Indenture and Deed of Trust dated as of August 1, 1993, hereinafter mentioned, the post office address of which is 4 Chase MetroTech Center, 3rd Floor, Brooklyn, New York 11245; Whereas, the Company has heretofore executed and delivered its General Mortgage Indenture and Deed of Trust dated as of August 1, 1993 (the "Original Indenture"), to the Trustee, for the security of the Bonds of the Company issued and to be issued thereunder (the "Bonds"); and Whereas, the Company has heretofore executed and delivered to the Trustee a certain indenture supplemental to the Original Indenture dated August 15, 1993 (the Original Indenture, as supplemented and amended by the aforementioned supplemental indenture and by this Supplemental Indenture being hereinafter referred to as the "Indenture"); and Whereas, the Company desires to create a new series of Bonds to be issued under the Indenture, to be known as New Mortgage Bonds, 8.90% Series due 1999 (the "New Mortgage Bonds of the 8.90% Series"), which New Mortgage Bonds of the 8.90% Series are to be issued in exchange for certain other bonds of the Company of like tenor and amount that were issued pursuant to a supplemental indenture to the Company's Indenture dated August 1, 1940; and Whereas, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Indenture, and pursuant to appropriate resolutions of the Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a Supplemental Indenture in the form hereof for the purposes herein provided; and Whereas, all conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized; Now, Therefore, This Indenture Witnesseth: That Northwestern Public Service Company, in consideration of the exchange referred to above and ownership from time to time of the Bonds and the service by the Trustee, and its successors, under the Indenture and of One Dollar to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, hereby covenants and agrees to and with the Trustee and its successors in the trust under the Indenture, for the benefit of those who shall hold the Bonds as follows: Article I Description Of Bonds Of The 8.90% Series Due 1999 Section 1. The Company hereby creates a new series of Bonds to be known as "New Mortgage Bonds, 8.90% Series due 1999." The New Mortgage Bonds of the 8.90% Series shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, all of the terms, conditions and covenants of the Indenture, as supplemented and modified. The commencement of the first interest period for the New Mortgage Bonds of the 8.90% Series shall be May 1, 1995. The New Mortgage Bonds of the 8.90% Series shall mature November 1, 1999, and shall bear interest at the rate of 8.90% per annum, payable semi-annually on the first day of May and the first day of November in each year; provided, however, that if the Company shall default in the payment of principal of, premium, if any, or interest on, any New Mortgage Bond of the 8.90% Series when the same shall have become due and such default shall continue for more than five days, then the Company covenants and agrees that it will pay to the holder thereof, to the extent permitted by applicable law, interest on the outstanding principal amount of such New Bond at the rate of 9.90% per annum commencing on the due date of such payment and continuing until such overdue amount is paid. The person in whose name any of the New Mortgage Bonds of the 8.90% Series are registered at the close of business on any record date (as hereinafter defined) with respect to any interest payment date shall be entitled to receive the interest payable on such interest payment date notwithstanding the cancellation of such New Mortgage Bonds of the 8.90% Series upon any transfer or exchange subsequent to the record date and prior to such interest payment date; provided, however, that if and to the extent the Company shall default in the payment of the interest due on such interest payment date, such defaulted interest shall be paid as provided in Section 3.07(b) of the Indenture. The term "record date" as used in this Section with respect to any interest payment date shall mean April 15 or October 15, as the case may be, next preceding the semi-annual interest payment date, or, if such April 15 or October 15 shall be a legal holiday or a day on which banking institutions in the Borough of Manhattan, The City of New York, State of New York, are authorized by law to close, then the next preceding day which shall not be a legal holiday or a day on which such institutions are so authorized to close. Section 2. The New Mortgage Bonds of the 8.90% Series shall be issued only as registered Bonds without coupons of the denomination of $1,000, or any integral multiple of $1,000, appropriately numbered. The New Mortgage Bonds of the 8.90% Series may be exchanged, upon surrender thereof, at the agency of the Company in the Borough of Manhattan, The City of New York, State of New York, for one or more new New Mortgage Bonds of the 8.90% Series of other authorized denominations, for the same aggregate principal amount, subject to the terms and conditions set forth in the Indenture. New Mortgage Bonds of the 8.90% Series may be exchanged or transferred without expense to the registered owner thereof except that any taxes or other governmental charges required to be paid with respect to such transfer or exchange shall be paid by the registered owner requesting such transfer or exchange as a condition precedent to the exercise of such privilege. Section 3. The New Mortgage Bonds of the 8.90% Series and the Trustee's Certificate of Authentication shall be substantially in the following forms respectively: [Form Of Bond Of The 8.90% Series Due 1999] Northwestern Public Service Company (Incorporated under the laws of the State of South Dakota) New Mortgage Bond, 8.90% Series Due 1999 No. R- $______________ Northwestern Public Service Company, a corporation organized and existing under the laws of the State of Delaware (the "Company", which term shall include any successor corporation as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to __________ or registered assigns, the sum of __________ dollars on the first day of November, 1999, in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, and to pay interest thereon in like coin or currency from May 1, 1995, payable semi-annually, on the first days of May and November in each year, at the rate of 8.90% per annum, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Indenture hereinafter mentioned; provided, however, that if the Company shall default in the payment of principal of, premium, if any, or interest on, this Bond when the same shall have become due and such default shall continue for more than five days, then the Company covenants and agrees that it will pay to the holder hereof, to the extent permitted by applicable law, interest on the outstanding principal amount of this Bond at the rate of 9.90% per annum commencing on the due date of such payment and continuing until such overdue amount is paid. The interest so payable on any May 1 or November 1 will, subject to certain exceptions provided in the Supplemental Indenture dated as of __________, 1995, be paid to the person in whose name this Bond is registered at the close of business on the immediately preceding April 15 or October 15, as the case may be. Both principal of, and interest on, this Bond are payable at the agency of the Company in the Borough of Manhattan, The City of New York, State of New York. This Bond shall not be entitled to any benefit under the Indenture or any indenture supplemental thereto, or become valid or obligatory for any purpose, until the form of certificate endorsed hereon shall have been signed by or on behalf of The Chase Manhattan Bank (National Association), the Trustee under the Indenture, or a successor trustee thereto under the Indenture, or by an authenticating agent duly appointed by the Trustee in accordance with the terms of the Indenture. The provisions of this New Mortgage Bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. In Witness Whereof, Northwestern Public Service Company has caused this New Mortgage Bond to be signed (manually or by facsimile signature) in its name by an Authorized Executive Officer, as defined in the Indenture, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested (manually or by facsimile signature) by an Authorized Executive Officer, as defined in the Indenture. Dated: Northwestern Public Service Company By Authorized Executive Officer ATTEST: Authorized Executive Officer [Form of Trustee's Certificate] This is one of the Bonds of the series designated therein referred to in the within-mentioned Indenture and Supplemental Indenture dated as of _________, 1995. The Chase Manhattan Bank (National Association), as Trustee By Authorized Officer [FORM OF REVERSE OF BOND] This New Mortgage Bond of the 8.90% Series is one of a duly authorized issue of Bonds of the Company (the "Bonds"), of the series hereinafter specified, all issued and to be issued under and equally secured by a General Mortgage Indenture and Deed of Trust (the "Indenture"), dated as of August 1, 1993, executed by the Company to The Chase Manhattan Bank (National Association) (the "Trustee"), as Trustee, to which Indenture and all indentures supplemental thereto reference is hereby made for a description to the properties mortgaged and pledged, the nature and extent of the security, the rights of registered owners of the Bonds and of the Trustee in respect thereof, and the terms and conditions upon which the Bonds are, and are to be, secured. The Bonds may be issued in series, for various principal sums, may mature at different times, may bear interest at different rates and may otherwise vary as provided in the Indenture. This New Mortgage Bond of the 8.90% Series is one of a series designated as the "New Mortgage Bonds, 8.90% Series Due 1999" (the "New Mortgage Bonds of the 8.90% Series") of the Company issued under and secured by the Indenture and described in the supplemental indenture dated as of __________, 1995 (the "Supplemental Indenture dated as of __________, 1995"), between the Company and the Trustee, supplemental to the Indenture. New Mortgage Bonds of the 8.90% Series, of which this is one, are subject to redemption as follows: At the option of the Company and upon the notice and in the manner and with the effect provided in the Indenture, any or all of the New Mortgage Bonds of the 8.90% Series may be redeemed by the Company at any time and from time to time prior to maturity, upon payment of the Yield Maintenance Price (as defined in Section 1 of Article III of the Supplemental Indenture dated as of __________, 1995) for each of the New Mortgage Bonds of the 8.90% Series to be redeemed, together in each case with principal and accrued interest to the redemption date. To the extent permitted by, and as provided in, the Indenture, modifications or alterations of the Indenture, or of any indenture supplemental thereof, and of the rights and obligations of the Company and of the holders of the Bonds may be made with the consent of the Company by an affirmative vote of the holders of a majority in aggregate principal amount of the Bonds entitled to vote then outstanding, at a meeting of the holders of the Bonds called and held as provided in the Indenture, and by an affirmative vote of the holders of a majority in aggregate principal amount of the Bonds of any series or any tranche or tranches of any series entitled to vote then outstanding and affected by such modification or alteration, in case one or more but less than all of the series of Bonds or of any tranche or tranches of any series of Bonds then outstanding under the Indenture are so affected; provided, however, that no such modification or alteration shall be made which will affect the terms of payment of the principal of, or interest or premium, if any, on this Bond. In case an Event of Default, as defined in the Indenture, shall occur, the principal of all the New Mortgage Bonds of the 8.90% Series at any such time outstanding under the Indenture may be declared or may become due and payable, upon the conditions and in the manner and with the effect provided in the Indenture. The Indenture provides that such declaration may be rescinded under certain circumstances. Article II Issue Of New Mortgage Bonds Of The 8.90% Series Section 1. The Company hereby exercises the right to obtain the authentication of $7,500,000 principal amount of Bonds pursuant to the terms of Section 4.03 of the Indenture. All such Bonds shall be New Mortgage Bonds of the 8.90% Series. Section 2. Such New Mortgage Bonds of the 8.90% Series may be authenticated and delivered prior to the filing for recordation of this Supplemental Indenture. Article III Redemption Section 1. The New Mortgage Bonds of the 8.90% Series shall, upon the notice and in the manner and with the effect provided in Article Five of the Original Indenture, as amended by Section 2 of this Article III, be redeemable at any time and from time to time prior to maturity, at the option of the Company, as a whole, upon payment of the Yield Maintenance Price (as hereinafter defined) for each of the New Mortgage Bonds of the 8.90% Series to be redeemed, together with accrued interest to the redemption date; provided however, the Company shall not redeem any New Mortgage Bonds of the 8.90% Series in a principal amount less than $100,000 or a multiple thereof. If the notice of redemption shall have been given by the Company as provided in the Indenture, the Computing Holder shall deliver written notice to the Company on the fifth business day prior to such redemption date, of the amount of the Yield Maintenance Price for the principal amount of the New Mortgage Bonds of the 8.90% Series held by such Computing Holder so to be redeemed, which notice shall set forth in reasonable detail the computation thereof. The Yield Maintenance Price set forth in such notice shall be binding on the Company absent manifest error. The Company shall deliver to each holder of the New Mortgage Bonds of the 8.90% Series to be redeemed on or before such redemption date a certificate signed by a principal financial officer of the Company setting forth the Yield Maintenance Price of the principal amount of the New Mortgage Bonds of the 8.90% Series held by such holder so to be redeemed, and setting forth in reasonable detail the calculation thereof accompanied by a copy of the written notice given by the Computing Holder which sets forth the computation of the Yield Maintenance Price of the New Mortgage Bonds of the 8.90% Series held by the Computing Holder. The Company covenants and agrees that it will on such redemption date redeem the New Mortgage Bonds of the 8.90% Series held by each holder so to be redeemed by payment to such holder the Yield Maintenance Price therefor, together with interest accrued thereon to the date fixed for redemption. As used in this Section 1: "Computing Holder" shall mean the holder who holds bonds of the New Mortgage Bonds of the 8.90% Series with an aggregate principal amount outstanding higher than that of New Mortgage Bonds of the 8.90% Series held by any other holder, or in the event two or more holders hold an equal amount which constitutes the highest principal amount of the New Mortgage Bonds of the 8.90% Series, any holder designated by the other holders. For purposes of determining the Computing Holder, the New Mortgage Bonds of the 8.90% Series then held by Metropolitan Life Insurance Company and its subsidiaries shall be aggregated. "Weighted Average Life to Final Maturity" of any of the New Mortgage Bonds of the 8.90% Series to be redeemed, shall mean the number of years (rounded to the nearest one-twelfth of a year) which will elapse between the scheduled date of redemption thereof and the scheduled date of maturity of the New Mortgage Bonds of the 8.90% Series. "Yield Maintenance Price" shall mean the higher of (1) the entire unpaid principal amount of the New Mortgage Bonds of the 8.90% Series to be redeemed and (2) the sum of the respective Payment Values of each prospective interest payment and the principal payment as maturity in respect of the principal amount of the New Mortgage Bonds of the 8.90% Series to be redeemed (the amount of each such payment being herein referred to as a "Payment"). The Payment Value of each Payment shall be determined by discounting such Payment at the Reinvestment Rate, for the period from the scheduled date on which such Payment is due to be made to the applicable date of redemption. The Reinvestment Rate is the yield which shall be imputed from the yields of those actively traded "On The Run" United States Treasury securities having maturities as close as practicable to the Weighted Average Life to Final Maturity of the New Mortgage Bonds of the 8.90% Series to be redeemed. The yields of such United States Treasury securities shall be determined as of 10 A.M. Eastern Time on the date on which the Yield Maintenance Price is determined. Section 2. Notice of redemption of any New Mortgage Bonds of the 8.90% Series shall be given as provided in Section 5.04 of the Original Indenture. If given by mail, the mailing of such notice shall be a condition precedent to redemption, provided that any notice which is mailed in the manner provided in Section 5.04 of the Original Indenture shall be conclusively presumed to have been duly given whether or not the holders receive such notice, and failure to give such notice by mall, or any defect in such notice, to the holder of any such bond designated for redemption shall not affect the validity of the redemption of any other such bond. Except for the changes in the giving of notice of redemption as provided in this Section, the procedures for redemption of the New Mortgage Bonds of the 8.90% Series shall be as provided in Article Five of the Original Indenture. Section 3. The Company, with the approval of the Trustee, may enter into a written agreement with the holder of any New Mortgage Bonds of the 8.90% Series providing that payment of such bonds called for redemption in part only be made directly by mail, wire transfer or in any other manner to the holder thereof without presentation or surrender thereof if there shall be delivered to the Trustee an agreement (which may be a composite with other such agreements) between the Company and such holder (or other person acting as agent for such holder or for whom such holder is a nominee) that payment shall be so made, and that in the event the holder thereof shall sell or transfer any such bonds (a) it will, prior to the delivery of such bonds, either (i) surrender such bonds to the Trustee to make a proper notation of the amount of principal paid thereon or (ii) surrender such bonds to the Trustee against receipt of one or more New Mortgage Bonds of the 8.90% Series in an aggregate principal amount equal to the unpaid principal portion of the bonds so surrendered, and (b) it will promptly notify the Company of the name and address of the transferee of any New Mortgage Bonds of the 8.90% Series so transferred. The Trustee shall not be liable or responsible to any such holder or transferee or to the Company or to any other person for any act or omission to act on the part of the Company or any such holder in connection with any such agreement. The Company will indemnify and save the Trustee harmless against any liability resulting from any such act or omission and against any liability resulting from any action taken by the Trustee in accordance with the provisions of any such agreement. Article IV The Trustee The Trustee hereby accepts the trusts hereby declared provided, and agrees to perform the same upon the terms and conditions in the Indenture set forth and upon the following terms and conditions: The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or the due execution hereof by the Company or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article Eleven of the Indenture shall apply to this Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to this Supplemental Indenture. Article VI Miscellaneous Provisions This Supplemental Indenture may be simultaneously executed in any number of counterparts, each of which when so executed shall be deemed to be an original; but such counterparts shall together constitute but one and the same instrument. In Witness Whereof, said Northwestern Public Service Company has caused this Indenture to be executed on its behalf by an Authorized Executive Officer as defined in the Indenture, and its corporate seal to be hereto affixed and said seal and this Indenture to be attested by an Authorized Executive Officer as defined in the Indenture; and The Chase Manhattan Bank (National Association), in evidence of its acceptance of the trust hereby created, has caused this Indenture to be executed on its behalf by its President or one of its Vice Presidents and its corporate seal to be hereto affixed and said seal and this Indenture to be attested by its Secretary or one of its Assistant Secretaries; all as of the _____ day of __________, 1995. Northwestern Public Service Company By Vice President (CORPORATE SEAL) ATTEST: [Assistant] Secretary The Chase Manhattan Bank (National Association) By Vice President (CORPORATE SEAL) ATTEST: Assistant Secretary State Of South Dakota ) ) SS County Of Beadle ) Be it Remembered, that on this _____th day of __________, 1995, before me, ___________, a Notary Public within and for the County and State aforesaid, personally came _________, Vice President, and __________, [Assistant] Corporate Secretary of Northwestern Public Service Company, a Delaware corporation, who are personally known to me to be such officers, and who are personally known to me to be the same persons who executed as such officers the within instrument of writing, and such persons duly acknowledged that they signed, sealed and delivered the said instrument as their free and voluntary act as such Vice President and [Assistant] Corporate Secretary, respectively, and as the free and voluntary act of Northwestern Public Service Company for the uses and purposes therein set forth. In Witness Whereof, I have hereunto subscribed my name and affixed my official seal on the day and year last above written. (Notarial Seal) Notary Public [Name] Notary Public, Beadle County, S.D. My Commission expires __________, _____ State Of New York ) ) SS County Of Kings ) Be it Remembered, that on this _____th day of __________, 1995, before me, ___________, a Notary Public within and for the County and State aforesaid, personally came _________, Vice President, and __________, Assistant Secretary of The Chase Manhattan Bank (National Association), a national banking association, who are personally known to me to be such officers, and who are personally known to me to be the same persons who executed as such officers the within instrument of writing, and such persons duly acknowledged that they signed, sealed and delivered the said instrument as their free and voluntary act as such Vice President and Assistant Secretary, respectively, and as the free and voluntary act of The Chase Manhattan Bank (National Association) for the uses and purposes therein set forth. In Witness Whereof, I have hereunto subscribed my name and affixed my official seal on the day and year last above written. (Notarial Seal) Notary Public Notary Public, State of New York No. __________ Qualified in Kings County Commission expires __________, ____ EXHIBIT B-2 TO CONSENT Supplemental Indenture, dated as of __________, 1995 (the "Supplemental Indenture"), made by and between Northwestern Public Service Company, a corporation organized and existing under the laws of the State of Delaware (the "Company"), the post office address of which is 33 Third Street, S.E., Huron, South Dakota 57350, and The Chase Manhattan Bank (National Association), a national banking association organized and existing under the laws of the United States of America (the "Trustee"), as Trustee under the General Mortgage Indenture and Deed of Trust dated as of August 1, 1993, hereinafter mentioned, the post office address of which is 4 Chase MetroTech Center, 3rd Floor, Brooklyn, New York 11245; Whereas, the Company has heretofore executed and delivered its General Mortgage Indenture and Deed of Trust dated as of August 1, 1993 (the "Original Indenture"), to the Trustee, for the security of the Bonds of the Company issued and to be issued thereunder (the "Bonds"); and Whereas, the Company has heretofore executed and delivered to the Trustee a certain indenture supplemental to the Original Indenture dated August 15, 1993 (the Original Indenture, as supplemented and amended by the aforementioned supplemental indenture and by this Supplemental Indenture being hereinafter referred to as the "Indenture"); and Whereas, the Company desires to create a new series of Bonds to be issued under the Indenture, to be known as New Mortgage Bonds, 8.824% Series due 1998 (the "New Mortgage Bonds of the 8.824% Series"), which New Mortgage Bonds of the 8.824% Series are to be issued in exchange for certain other bonds of the Company of like tenor and amount that were issued pursuant to a supplemental indenture to the Company's Indenture dated August 1, 1940; and Whereas, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Indenture, and pursuant to appropriate resolutions of the Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a Supplemental Indenture in the form hereof for the purposes herein provided; and Whereas, all conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized; Now, Therefore, This Indenture Witnesseth: That Northwestern Public Service Company, in consideration of the exchange referred to above and ownership from time to time of the Bonds and the service by the Trustee, and its successors, under the Indenture and of One Dollar to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, hereby covenants and agrees to and with the Trustee and its successors in the trust under the Indenture, for the benefit of those who shall hold the Bonds as follows: Article I Description Of Bonds Of The 8.824% Series Due 1998 Section 1. The Company hereby creates a new series of Bonds to be known as "New Mortgage Bonds, 8.824% Series due 1998." The New Mortgage Bonds of the 8.824% Series shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, all of the terms, conditions and covenants of the Indenture, as supplemented and modified. The commencement of the first interest period for the New Mortgage Bonds of the 8.824% Series shall be July 15, 1995. The New Mortgage Bonds of the 8.824% Series shall mature July 15, 1998, and shall bear interest at the rate of 8.824% per annum, payable semi-annually on the fifteenth day of January and the fifteenth day of July in each year. The person in whose name any of the New Mortgage Bonds of the 8.824% Series are registered at the close of business on any record date (as hereinafter defined) with respect to any interest payment date shall be entitled to receive the interest payable on such interest payment date notwithstanding the cancellation of such New Mortgage Bonds of the 8.824% Series upon any transfer or exchange subsequent to the record date and prior to such interest payment date; provided, however, that if and to the extent the Company shall default in the payment of the interest due on such interest payment date, such defaulted interest shall be paid as provided in Section 3.07(b) of the Indenture. The term "record date" as used in this Section with respect to any interest payment date shall mean January 1 or July 1, as the case may be, next preceding the semi-annual interest payment date, or, if such January 1 or July 1 shall be a legal holiday or a day on which banking institutions in the Borough of Manhattan, The City of New York, State of New York, are authorized by law to close, then the next preceding day which shall not be a legal holiday or a day on which such institutions are so authorized to close. Section 2. The New Mortgage Bonds of the 8.824% Series shall be issued only as registered Bonds without coupons of the denomination of $1,000, or any integral multiple of $1,000, appropriately numbered. The New Mortgage Bonds of the 8.824% Series may be exchanged, upon surrender thereof, at the agency of the Company in the Borough of Manhattan, The City of New York, State of New York, for one or more new New Mortgage Bonds of the 8.824% Series of other authorized denominations, for the same aggregate principal amount, subject to the terms and conditions set forth in the Indenture. New Mortgage Bonds of the 8.824% Series may be exchanged or transferred without expense to the registered owner thereof except that any taxes or other governmental charges required to be paid with respect to such transfer or exchange shall be paid by the registered owner requesting such transfer or exchange as a condition precedent to the exercise of such privilege. Section 3. The New Mortgage Bonds of the 8.824% Series and the Trustee's Certificate of Authentication shall be substantially in the following forms respectively: [Form Of Bond Of The 8.824% Series Due 1998] Northwestern Public Service Company (Incorporated under the laws of the State of South Dakota) New Mortgage Bond, 8.824% Series Due 1998 No. R- $______________ Northwestern Public Service Company, a corporation organized and existing under the laws of the State of Delaware (the "Company", which term shall include any successor corporation as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to __________ or registered assigns, the sum of __________ dollars on the fifteenth day of July, 1998, in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, and to pay interest thereon in like coin or currency from July 15, 1995, payable semi-annually, on the fifteenth days of January and July in each year, at the rate of 8.824% per annum, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Indenture hereinafter mentioned. The interest so payable on any January 15 or July 15 will, subject to certain exceptions provided in the Supplemental Indenture dated as of __________, 1995, be paid to the person in whose name this Bond is registered at the close of business on the immediately preceding January 1 or July 1, as the case may be. Both principal of, and interest on, this Bond are payable at the agency of the Company in the Borough of Manhattan, The City of New York, State of New York. This Bond shall not be entitled to any benefit under the Indenture or any indenture supplemental thereto, or become valid or obligatory for any purpose, until the form of certificate endorsed hereon shall have been signed by or on behalf of The Chase Manhattan Bank (National Association), the Trustee under the Indenture, or a successor trustee thereto under the Indenture, or by an authenticating agent duly appointed by the Trustee in accordance with the terms of the Indenture. The provisions of this New Mortgage Bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. In Witness Whereof, Northwestern Public Service Company has caused this New Mortgage Bond to be signed (manually or by facsimile signature) in its name by an Authorized Executive Officer, as defined in the Indenture, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested (manually or by facsimile signature) by an Authorized Executive Officer, as defined in the Indenture. Dated: Northwestern Public Service Company By Authorized Executive Officer ATTEST: Authorized Executive Officer [Form of Trustee's Certificate] This is one of the Bonds of the series designated therein referred to in the within-mentioned Indenture and Supplemental Indenture dated as of _________, 1995. The Chase Manhattan Bank (National Association), as Trustee By Authorized Officer [FORM OF REVERSE OF BOND] This New Mortgage Bond of the 8.824% Series is one of a duly authorized issue of Bonds of the Company (the "Bonds"), of the series hereinafter specified, all issued and to be issued under and equally secured by a General Mortgage Indenture and Deed of Trust (the "Indenture"), dated as of August 1, 1993, executed by the Company to The Chase Manhattan Bank (National Association) (the "Trustee"), as Trustee, to which Indenture and all indentures supplemental thereto reference is hereby made for a description to the properties mortgaged and pledged, the nature and extent of the security, the rights of registered owners of the Bonds and of the Trustee in respect thereof, and the terms and conditions upon which the Bonds are, and are to be, secured. The Bonds may be issued in series, for various principal sums, may mature at different times, may bear interest at different rates and may otherwise vary as provided in the Indenture. This New Mortgage Bond of the 8.824% Series is one of a series designated as the "New Mortgage Bonds, 8.824% Series Due 1998" (the "New Mortgage Bonds of the 8.824% Series") of the Company issued under and secured by the Indenture and described in the supplemental indenture dated as of __________, 1995 (the "Supplemental Indenture dated as of __________, 1995"), between the Company and the Trustee, supplemental to the Indenture. New Mortgage Bonds of the 8.824% Series, of which this is one, are subject to redemption at the option of the Company and upon the notice and in the manner and with the effect provided in the Indenture, all, but not less than all, of the New Mortgage Bonds of the 8.824% Series may be redeemed by the Company at any time, on or after July 15, 1996 and prior to maturity, upon payment of the following percentages of the principal amounts thereof: If redeemed during the twelve month period beginning the fifteenth day of July of the year: 1996 ---------- 101.471% 1997 ---------- 100.000% together with accrued interest to the redemption date. To the extent permitted by, and as provided in, the Indenture, modifications or alterations of the Indenture, or of any indenture supplemental thereof, and of the rights and obligations of the Company and of the holders of the Bonds may be made with the consent of the Company by an affirmative vote of the holders of a majority in aggregate principal amount of the Bonds entitled to vote then outstanding, at a meeting of the holders of the Bonds called and held as provided in the Indenture, and by an affirmative vote of the holders of a majority in aggregate principal amount of the Bonds of any series or any tranche or tranches of any series entitled to vote then outstanding and affected by such modification or alteration, in case one or more but less than all of the series of Bonds or of any tranche or tranches of any series of Bonds then outstanding under the Indenture are so affected; provided, however, that no such modification or alteration shall be made which will affect the terms of payment of the principal of, or interest or premium, if any, on this Bond. In case an Event of Default, as defined in the Indenture, shall occur, the principal of all the New Mortgage Bonds of the 8.824% Series at any such time outstanding under the Indenture may be declared or may become due and payable, upon the conditions and in the manner and with the effect provided in the Indenture. The Indenture provides that such declaration may be rescinded under certain circumstances. Article II Issue Of New Mortgage Bonds Of The 8.824% Series Section 1. The Company hereby exercises the right to obtain the authentication of $15,000,000 principal amount of Bonds pursuant to the terms of Section 4.03 of the Indenture. All such Bonds shall be New Mortgage Bonds of the 8.824% Series. Section 2. Such New Mortgage Bonds of the 8.824% Series may be authenticated and delivered prior to the filing for recordation of this Supplemental Indenture. Article III Redemption Section 1. The New Mortgage Bonds of the 8.824% Series shall, upon the notice and in the manner and with the effect provided in Article Five of the Original Indenture, as amended by Section 2 of this Article III, be redeemable at any time, on or after July 15, 1996 and prior to maturity, at the option of the Company, as a whole, upon payment of the following percentages of the principal amounts thereof: If redeemed during the twelve month period beginning the fifteenth day of July of the year: 1996 ---------- 101.471% 1997 ---------- 100.000% together with accrued interest to the redemption date. Section 2. Notice of redemption of any New Mortgage Bonds of the 8.824% Series shall be given as provided in Section 5.04 of the Original Indenture. If given by mail, the mailing of such notice shall be a condition precedent to redemption, provided that any notice which is mailed in the manner provided in Section 5.04 of the Original Indenture shall be conclusively presumed to have been duly given whether or not the holders receive such notice, and failure to give such notice by mall, or any defect in such notice, to the holder of any such bond designated for redemption shall not affect the validity of the redemption of any other such bond. Except for the changes in the giving of notice of redemption as provided in this Section, the procedures for redemption of the New Mortgage Bonds of the 8.824% Series shall be as provided in Article Five of the Original Indenture. Section 3. The Company, with the approval of the Trustee, may enter into a written agreement with the holder of any New Mortgage Bonds of the 8.824% Series providing that payment of such bonds called for redemption in part only be made directly by mail, wire transfer or in any other manner to the holder thereof without presentation or surrender thereof if there shall be delivered to the Trustee an agreement (which may be a composite with other such agreements) between the Company and such holder (or other person acting as agent for such holder or for whom such holder is a nominee) that payment shall be so made, and that in the event the holder thereof shall sell or transfer any such bonds (a) it will, prior to the delivery of such bonds, either (i) surrender such bonds to the Trustee to make a proper notation of the amount of principal paid thereon or (ii) surrender such bonds to the Trustee against receipt of one or more New Mortgage Bonds of the 8.824% Series in an aggregate principal amount equal to the unpaid principal portion of the bonds so surrendered, and (b) it will promptly notify the Company of the name and address of the transferee of any New Mortgage Bonds of the 8.824% Series so transferred. The Trustee shall not be liable or responsible to any such holder or transferee or to the Company or to any other person for any act or omission to act on the part of the Company or any such holder in connection with any such agreement. The Company will indemnify and save the Trustee harmless against any liability resulting from any such act or omission and against any liability resulting from any action taken by the Trustee in accordance with the provisions of any such agreement. Article IV The Trustee The Trustee hereby accepts the trusts hereby declared provided, and agrees to perform the same upon the terms and conditions in the Indenture set forth and upon the following terms and conditions: The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or the due execution hereof by the Company or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article Eleven of the Indenture shall apply to this Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to this Supplemental Indenture. Article V Miscellaneous Provisions This Supplemental Indenture may be simultaneously executed in any number of counterparts, each of which when so executed shall be deemed to be an original; but such counterparts shall together constitute but one and the same instrument. In Witness Whereof, said Northwestern Public Service Company has caused this Indenture to be executed on its behalf by an Authorized Executive Officer as defined in the Indenture, and its corporate seal to be hereto affixed and said seal and this Indenture to be attested by an Authorized Executive Officer as defined in the Indenture; and The Chase Manhattan Bank (National Association), in evidence of its acceptance of the trust hereby created, has caused this Indenture to be executed on its behalf by its President or one of its Vice Presidents and its corporate seal to be hereto affixed and said seal and this Indenture to be attested by its Secretary or one of its Assistant Secretaries; all as of the _____ day of __________, 1995. Northwestern Public Service Company By Vice President (CORPORATE SEAL) ATTEST: [Assistant] Secretary The Chase Manhattan Bank (National Association) By Vice President (CORPORATE SEAL) ATTEST: Assistant Secretary State Of South Dakota ) ) SS County Of Beadle ) Be it Remembered, that on this _____th day of __________, 1995, before me, ___________, a Notary Public within and for the County and State aforesaid, personally came _________, Vice President, and __________, [Assistant] Corporate Secretary of Northwestern Public Service Company, a Delaware corporation, who are personally known to me to be such officers, and who are personally known to me to be the same persons who executed as such officers the within instrument of writing, and such persons duly acknowledged that they signed, sealed and delivered the said instrument as their free and voluntary act as such Vice President and [Assistant] Corporate Secretary, respectively, and as the free and voluntary act of Northwestern Public Service Company for the uses and purposes therein set forth. In Witness Whereof, I have hereunto subscribed my name and affixed my official seal on the day and year last above written. (Notarial Seal) Notary Public [Name] Notary Public, Beadle County, S.D. My Commission expires __________, _____ State Of New York ) ) SS County Of Kings ) Be it Remembered, that on this _____th day of __________, 1995, before me, ___________, a Notary Public within and for the County and State aforesaid, personally came _________, Vice President, and __________, Assistant Secretary of The Chase Manhattan Bank (National Association), a national banking association, who are personally known to me to be such officers, and who are personally known to me to be the same persons who executed as such officers the within instrument of writing, and such persons duly acknowledged that they signed, sealed and delivered the said instrument as their free and voluntary act as such Vice President and Assistant Secretary, respectively, and as the free and voluntary act of The Chase Manhattan Bank (National Association) for the uses and purposes therein set forth. In Witness Whereof, I have hereunto subscribed my name and affixed my official seal on the day and year last above written. (Notarial Seal) Notary Public Notary Public, State of New York No. __________ Qualified in Kings County Commission expires __________, ____ EXHIBIT B-3 TO CONSENT Supplemental Indenture, dated as of __________, 1995 (the "Supplemental Indenture"), made by and between Northwestern Public Service Company, a corporation organized and existing under the laws of the State of Delaware (the "Company"), the post office address of which is 33 Third Street, S.E., Huron, South Dakota 57350, and The Chase Manhattan Bank (National Association), a national banking association organized and existing under the laws of the United States of America (the "Trustee"), as Trustee under the General Mortgage Indenture and Deed of Trust dated as of August 1, 1993, hereinafter mentioned, the post office address of which is 4 Chase MetroTech Center, 3rd Floor, Brooklyn, New York 11245; Whereas, the Company has heretofore executed and delivered its General Mortgage Indenture and Deed of Trust dated as of August 1, 1993 (the "Original Indenture"), to the Trustee, for the security of the Bonds of the Company issued and to be issued thereunder (the "Bonds"); and Whereas, the Company has heretofore executed and delivered to the Trustee a certain indenture supplemental to the Original Indenture dated August 15, 1993 (the Original Indenture, as supplemented and amended by the aforementioned supplemental indenture and by this Supplemental Indenture being hereinafter referred to as the "Indenture"); and Whereas, the Company desires to create a new series of Bonds to be issued under the Indenture, to be known as New Mortgage Bonds, 6.99% Series due 2002 (the "New Mortgage Bonds of the 6.99% Series"), which New Mortgage Bonds of the 6.99% Series are to be issued in exchange for certain other bonds of the Company of like tenor and amount that were issued pursuant to a supplemental indenture to the Company's Indenture dated August 1, 1940; and Whereas, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Indenture, and pursuant to appropriate resolutions of the Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a Supplemental Indenture in the form hereof for the purposes herein provided; and Whereas, all conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized; Now, Therefore, This Indenture Witnesseth: That Northwestern Public Service Company, in consideration of the exchange referred to above and ownership from time to time of the Bonds and the service by the Trustee, and its successors, under the Indenture and of One Dollar to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, hereby covenants and agrees to and with the Trustee and its successors in the trust under the Indenture, for the benefit of those who shall hold the Bonds as follows: Article I Description Of Bonds Of The 6.99% Series Due 2002 Section 1. The Company hereby creates a new series of Bonds to be known as "New Mortgage Bonds, 6.99% Series due 2002." The New Mortgage Bonds of the 6.99% Series shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, all of the terms, conditions and covenants of the Indenture, as supplemented and modified. The commencement of the first interest period for the New Mortgage Bonds of the 6.99% Series shall be [March 1] [September 1], 1995. The New Mortgage Bonds of the 6.99% Series shall mature September 1, 2002, and shall bear interest at the rate of 6.99% per annum, payable semi-annually on the first day of March and the first day of September in each year. The person in whose name any of the New Mortgage Bonds of the 6.99% Series are registered at the close of business on any record date (as hereinafter defined) with respect to any interest payment date shall be entitled to receive the interest payable on such interest payment date notwithstanding the cancellation of such New Mortgage Bonds of the 6.99% Series upon any transfer or exchange subsequent to the record date and prior to such interest payment date; provided, however, that if and to the extent the Company shall default in the payment of the interest due on such interest payment date, such defaulted interest shall be paid as provided in Section 3.07(b) of the Indenture. The term "record date" as used in this Section with respect to any interest payment date shall mean February 15 or August 15, as the case may be, next preceding the semi-annual interest payment date, or, if such February 15 or August 15 shall be a legal holiday or a day on which banking institutions in the Borough of Manhattan, The City of New York, State of New York, are authorized by law to close, then the next preceding day which shall not be a legal holiday or a day on which such institutions are so authorized to close. Section 2. The New Mortgage Bonds of the 6.99% Series shall be issued only as registered Bonds without coupons of the denomination of $1,000, or any integral multiple of $1,000, appropriately numbered. The New Mortgage Bonds of the 6.99% Series may be exchanged, upon surrender thereof, at the agency of the Company in the Borough of Manhattan, The City of New York, State of New York, for one or more new New Mortgage Bonds of the 6.99% Series of other authorized denominations, for the same aggregate principal amount, subject to the terms and conditions set forth in the Indenture. New Mortgage Bonds of the 6.99% Series may be exchanged or transferred without expense to the registered owner thereof except that any taxes or other governmental charges required to be paid with respect to such transfer or exchange shall be paid by the registered owner requesting such transfer or exchange as a condition precedent to the exercise of such privilege. Section 3. The New Mortgage Bonds of the 6.99% Series and the Trustee's Certificate of Authentication shall be substantially in the following forms respectively: [Form Of Bond Of The 6.99% Series Due 2002] Northwestern Public Service Company (Incorporated under the laws of the State of South Dakota) New Mortgage Bond, 6.99% Series Due 2002 No. R- $______________ Northwestern Public Service Company, a corporation organized and existing under the laws of the State of Delaware (the "Company", which term shall include any successor corporation as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to __________ or registered assigns, the sum of __________ dollars on the first day of September, 2002, in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, and to pay interest thereon in like coin or currency from [March 1] [September 1], 1995, payable semi-annually, on the first days of March and September in each year, at the rate of 6.99% per annum, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Indenture hereinafter mentioned. The interest so payable on any March 1 or September 1 will, subject to certain exceptions provided in the Supplemental Indenture dated as of __________, 1995, be paid to the person in whose name this Bond is registered at the close of business on the immediately preceding February 15 or August 15, as the case may be. Both principal of, and interest on, this Bond are payable at the agency of the Company in the Borough of Manhattan, The City of New York, State of New York. This Bond shall not be entitled to any benefit under the Indenture or any indenture supplemental thereto, or become valid or obligatory for any purpose, until the form of certificate endorsed hereon shall have been signed by or on behalf of The Chase Manhattan Bank (National Association), the Trustee under the Indenture, or a successor trustee thereto under the Indenture, or by an authenticating agent duly appointed by the Trustee in accordance with the terms of the Indenture. The provisions of this New Mortgage Bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. In Witness Whereof, Northwestern Public Service Company has caused this New Mortgage Bond to be signed (manually or by facsimile signature) in its name by an Authorized Executive Officer, as defined in the Indenture, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested (manually or by facsimile signature) by an Authorized Executive Officer, as defined in the Indenture. Dated: Northwestern Public Service Company By Authorized Executive Officer ATTEST: Authorized Executive Officer [Form of Trustee's Certificate] This is one of the Bonds of the series designated therein referred to in the within-mentioned Indenture and Supplemental Indenture dated as of _________, 1995. The Chase Manhattan Bank (National Association), as Trustee By Authorized Officer [FORM OF REVERSE OF BOND] This New Mortgage Bond of the 6.99% Series is one of a duly authorized issue of Bonds of the Company (the "Bonds"), of the series hereinafter specified, all issued and to be issued under and equally secured by a General Mortgage Indenture and Deed of Trust (the "Indenture"), dated as of August 1, 1993, executed by the Company to The Chase Manhattan Bank (National Association) (the "Trustee"), as Trustee, to which Indenture and all indentures supplemental thereto reference is hereby made for a description to the properties mortgaged and pledged, the nature and extent of the security, the rights of registered owners of the Bonds and of the Trustee in respect thereof, and the terms and conditions upon which the Bonds are, and are to be, secured. The Bonds may be issued in series, for various principal sums, may mature at different times, may bear interest at different rates and may otherwise vary as provided in the Indenture. This New Mortgage Bond of the 6.99% Series is one of a series designated as the "New Mortgage Bonds, 6.99% Series Due 2002" (the "New Mortgage Bonds of the 6.99% Series") of the Company issued under and secured by the Indenture and described in the supplemental indenture dated as of __________, 1995 (the "Supplemental Indenture dated as of __________, 1995"), between the Company and the Trustee, supplemental to the Indenture. New Mortgage Bonds of the 6.99% Series, of which this is one, are subject to redemption as follows: (I) At the option of the Company and upon the notice and in the manner and with the effect provided in the Indenture, all, but not less than all, of the New Mortgage Bonds of the 6.99% Series may be redeemed by the Company at any time, on or after September 1, 1997 and prior to maturity, upon payment of the Make-Whole Amount (as defined in Section 1 of Article III of the Supplemental Indenture dated as of __________, 1995) for each of the New Mortgage Bonds of the 6.99% Series to be redeemed, together in each case with principal and accrued interest to the redemption date. (II) New Mortgage Bonds of the 6.99% Series shall be redeemed by the Company in the amounts required by the Supplemental Indenture dated as of __________, 1995 on September 1 of each year, commencing in 1998, through the operation of the sinking fund for such bonds, upon payment of the principal amount thereof together with accrued interest to the redemption date. To the extent permitted by, and as provided in, the Indenture, modifications or alterations of the Indenture, or of any indenture supplemental thereof, and of the rights and obligations of the Company and of the holders of the Bonds may be made with the consent of the Company by an affirmative vote of the holders of a majority in aggregate principal amount of the Bonds entitled to vote then outstanding, at a meeting of the holders of the Bonds called and held as provided in the Indenture, and by an affirmative vote of the holders of a majority in aggregate principal amount of the Bonds of any series or any tranche or tranches of any series entitled to vote then outstanding and affected by such modification or alteration, in case one or more but less than all of the series of Bonds or of any tranche or tranches of any series of Bonds then outstanding under the Indenture are so affected; provided, however, that no such modification or alteration shall be made which will affect the terms of payment of the principal of, or interest or premium, if any, on this Bond. In case an Event of Default, as defined in the Indenture, shall occur, the principal of all the New Mortgage Bonds of the 6.99% Series at any such time outstanding under the Indenture may be declared or may become due and payable, upon the conditions and in the manner and with the effect provided in the Indenture. The Indenture provides that such declaration may be rescinded under certain circumstances. Article II Issue Of New Mortgage Bonds Of The 6.99% Series Section 1. The Company hereby exercises the right to obtain the authentication of $25,000,000 principal amount of Bonds pursuant to the terms of Section 4.03 of the Indenture. All such Bonds shall be New Mortgage Bonds of the 6.99% Series. Section 2. Such New Mortgage Bonds of the 6.99% Series may be authenticated and delivered prior to the filing for recordation of this Supplemental Indenture. Article III Redemption Section 1. The New Mortgage Bonds of the 6.99% Series shall, upon the notice and in the manner and with the effect provided in Article Five of the Original Indenture, as amended by Section 3 of this Article III, be redeemable (otherwise than out of moneys specified in Section 2 of this Article III), at any time, on or after September 1, 1997 and prior to maturity, at the option of the Company, as a whole, upon payment of the principal amount of each of the New Mortgage Bonds of the 6.99% Series to be redeemed, and accrued interest thereon to the redemption date, together with the applicable Make-Whole Amount (as hereinafter defined). On or before the redemption date specified in the notice of redemption given by the Company as provided in the Indenture, the Company shall deliver to each holder of the New Mortgage Bonds of the 6.99% Series to be redeemed, a certificate signed by a principal financial officer of the Company setting forth the Make-Whole Amount (determined in good faith by the Company as of the date five business days prior to the date of such redemption), if any, applicable to the New Mortgage Bonds of the 6.99% Series held by such holder so to be redeemed. In the event the Company shall incorrectly compute the Make-Whole Amount payable in connection with any New Mortgage Bond of the 6.99% Series, the holder of such Bond shall not be bound by such incorrect computation, but shall instead be entitled to receive an amount equal to the correct Make-Whole Amount, if any, computed in compliance with the terms hereof. As used in this Section 1: "Make-Whole Amount" shall mean the excess, if any, of (i) the aggregate present value as of the date of such redemption of each dollar of principal being prepaid and the amount of interest (exclusive of interest accrued to the date of redemption) that would have been payable in respect of such dollar if such redemption had not been made, determined by discounting such amounts at the Reinvestment Rate from the respective dates on which they would have been payable, over (ii) 100% of the principal amount of the outstanding New Mortgage Bonds of the 6.99% Series being redeemed. If the Reinvestment Rate is equal to or higher than 6.99%, the Make-Whole Amount shall be zero. For purposes of any determination of the Make-Whole Amount: "Reinvestment Rate" shall mean the arithmetic mean of the yields under the respective headings "This Week" and "Last Week" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the Weighted Average Life to Maturity of the principal amount of the New Mortgage Bonds of the 6.99% Series being redeemed. If no maturity exactly corresponds to such Weighted Average Life to Maturity, yields for the two published maturities most closely corresponding to such Weighted Average Life to Maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straightline basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" shall mean the then most recently published statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded U.S. Government Securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination hereunder, then such other reasonably comparable index which shall be designated by the holders of 66-2/3% in aggregate principal amount of the outstanding New Mortgage Bonds of the 6.99% Series. "Weighted Average Life to Maturity" of any of the New Mortgage Bonds of the 6.99% Series to be redeemed shall mean the number of years (rounded to the nearest one-twelfth of a year) obtained by dividing the then Remaining Dollar-Years of the New Mortgage Bonds of the 6.99% Series by the then outstanding principal amount of such Bonds. For the purposes of this definition, "Remaining Dollar-Years" means the sum of the amounts obtained by multiplying the amount of each then remaining sinking fund or other required repayment, including repayment at final maturity, by the number of years (calculated to the nearest one-twelfth of a year) which will elapse between the time of such determination and the date of such repayment. Section 2. Upon the notice and in the manner and with the effect provided in Article Five of the Original Indenture, as amended by Section 3 of this Article III, any of the New Mortgage Bonds of the 6.99% Series shall be redeemable on the first day of September in each year, commencing in 1998, by operation of the sinking fund provided for by Section 1 of Article IV hereof, upon payment of the principal amount thereof together with accrued interest to the redemption date. Section 3. Whenever the Company shall propose to redeem less than all of the outstanding New Mortgage Bonds of the 6.99% Series on any redemption date, the Trustee, instead of selecting by lot, shall select the serial numbers of the New Mortgage Bonds of the 6.99% Series to be redeemed (in whole or in part) by prorating, as nearly as may be, the aggregate principal amount of the New Mortgage Bonds of the 6.99% Series to be redeemed among the registered owners of the New Mortgage Bonds of the 6.99% Series according to the principal amount thereof registered in their respective names. In any such proration, the Trustee shall make such adjustments, reallocations and eliminations as it shall deem proper to the end that the principal amount of the New Mortgage Bonds of the 6.99% Series so prorated to any registered owner of the New Mortgage Bonds of the 6.99% Series shall be $1,000 or a multiple thereof, by increasing or decreasing or eliminating the amount which would be allocable to any such registered owner on the basis of exact proportion by an amount not exceeding $1,000. The Trustee in its discretion may determine the particular New Mortgage Bonds of the 6.99% Series (if there are more than one) registered in the name of any registered owner which are to be redeemed, in whole or in part. In any determination by proration pursuant to this Section, New Mortgage Bonds of the 6.99% Series held by the Company shall not be considered outstanding and shall be excluded in making the determination of the New Mortgage Bonds of the 6.99% Series to be redeemed. Notice of redemption of any New Mortgage Bonds of the 6.99% Series shall be given as provided in Section 5.04 of the Original Indenture, except that, in the case of redemption by operation of the sinking fund for such bonds, the notice shall state that the redemption is for the account of the sinking fund. If given by mail, the mailing of such notice shall be a condition precedent to redemption, provided that any notice which is mailed in the manner provided in Section 5.04 of the Original Indenture shall be conclusively presumed to have been duly given whether or not the holders receive such notice, and failure to give such notice by mall, or any defect in such notice, to the holder of any such bond designated for redemption in whole or in part shall not affect the validity of the redemption of any other such bond. Except for the determination of the serial numbers of the New Mortgage Bonds of the 6.99% Series to be redeemed (in whole or in part) by proration as provided in this Section when less than all of the New Mortgage Bonds of the 6.99% Series are to be redeemed on any redemption date and except for the changes in the giving of notice of redemption as provided in this Section, the procedures for redemption of the New Mortgage Bonds of the 6.99% Series shall be as provided in Article Five of the Original Indenture. Section 4. The Company, with the approval of the Trustee, may enter into a written agreement with the holder of any New Mortgage Bonds of the 6.99% Series providing that payment of such bonds called for redemption in part only be made directly by mail, wire transfer or in any other manner to the holder thereof without presentation or surrender thereof if there shall be delivered to the Trustee an agreement (which may be a composite with other such agreements) between the Company and such holder (or other person acting as agent for such holder or for whom such holder is a nominee) that payment shall be so made, and that in the event the holder thereof shall sell or transfer any such bonds (a) it will, prior to the delivery of such bonds, either (i) surrender such bonds to the Trustee to make a proper notation of the amount of principal paid thereon or (ii) surrender such bonds to the Trustee against receipt of one or more New Mortgage Bonds of the 6.99% Series in an aggregate principal amount equal to the unpaid principal portion of the bonds so surrendered, and (b) it will promptly notify the Company of the name and address of the transferee of any New Mortgage Bonds of the 6.99% Series so transferred. The Trustee shall not be liable or responsible to any such holder or transferee or to the Company or to any other person for any act or omission to act on the part of the Company or any such holder in connection with any such agreement. The Company will indemnify and save the Trustee harmless against any liability resulting from any such act or omission and against any liability resulting from any action taken by the Trustee in accordance with the provisions of any such agreement. Article IV Additional Covenants The Company covenants and agrees, subject to the terms and of this Section, that it will pay to the Trustee on or before the last day of August, 1998 and on or before the last day of August in each calendar year thereafter so long as any New Mortgage Bonds of the 6.99% Series shall be outstanding (each such last day of August being referred to herein as a "sinking fund payment date") as and for a cash sinking fund for the retirement of New Mortgage Bonds of the 6.99% Series, a sum in cash sufficient to redeem on the first day of September next following such sinking fund payment date, at the redemption price for the redemption of New Mortgage Bonds of the 6.99% Series by operation of the sinking fund, a principal amount of bonds of said series at least equal to twenty per centum of the greatest principal amount of bonds of said series outstanding at any time (determined as in this Section provided) between September 1, 1992, and the end of the calendar year immediately preceding such sinking fund payment date. Cash paid to the Trustee by the Company pursuant to this Section shall be applied by the Trustee to the redemption on the next following the first day of September of the specified principal amount of New Mortgage Bonds of the 6.99% Series in accordance with provisions of this Section; and the Company shall carry out the procedures required of it for such redemption. On or before the first day of July in each year beginning with the calendar year 1998, so long as any New Mortgage Bonds of the 6.99% Series shall be outstanding, the Company shall deliver to the Trustee a certificate, signed in the name of the Company by its President or one of its Vice Presidents and by its Treasurer or an Assistant Treasurer, containing the statements required by Section 1.05 of the Original Indenture, and showing the greatest principal amount of New Mortgage Bonds of the 6.99% Series outstanding at any time between September 1, 1992 and the end of the preceding calendar year, determined in accordance with the provisions of this Section, which certificate shall include, or be accompanied by, the notice from the Company to the Trustee pursuant to Section 5.04 of the Original Indenture, as amended by Section 3 of Article III hereof, specifying the principal amount of the New Mortgage Bonds of the 6.99% Series to be redeemed on the first day of September next following by operation of the sinking fund provided for by this Section. In determining under the provisions of this Section the principal amount of New Mortgage Bonds of the 6.99% Series outstanding under the Indenture, there shall be excluded the principal amount of any bonds of said series authenticated under the Indenture which are owned by the Company. Any and all New Mortgage Bonds of the 6.99% Series received by the Trustee pursuant to any provision of this Section shall thereupon be canceled and destroyed by the Trustee. If the first day of September in the calendar year 1998, or in any calendar year thereafter so long as any New Mortgage Bonds of the 6.99% Series shall be outstanding, is a legal holiday or day on which banking institutions which act as paying agents hereunder are authorized by law to close, then payment of the redemption price (including interest payable upon redemption) for purposes of redemption of New Mortgage Bonds of the 6.99% Series by operation of the sinking fund provided for by this Section may be made on the next succeeding day which is not a legal holiday or a day on which such banking institutions are authorized by law to close with the same force and effect as if made on the nominal redemption date, and no interest shall accrue for the period after the nominal redemption date. Article V The Trustee The Trustee hereby accepts the trusts hereby declared provided, and agrees to perform the same upon the terms and conditions in the Indenture set forth and upon the following terms and conditions: The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or the due execution hereof by the Company or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article Eleven of the Indenture shall apply to this Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to this Supplemental Indenture. Article VI Miscellaneous Provisions This Supplemental Indenture may be simultaneously executed in any number of counterparts, each of which when so executed shall be deemed to be an original; but such counterparts shall together constitute but one and the same instrument. In Witness Whereof, said Northwestern Public Service Company has caused this Indenture to be executed on its behalf by an Authorized Executive Officer as defined in the Indenture, and its corporate seal to be hereto affixed and said seal and this Indenture to be attested by an Authorized Executive Officer as defined in the Indenture; and The Chase Manhattan Bank (National Association), in evidence of its acceptance of the trust hereby created, has caused this Indenture to be executed on its behalf by its President or one of its Vice Presidents and its corporate seal to be hereto affixed and said seal and this Indenture to be attested by its Secretary or one of its Assistant Secretaries; all as of the _____ day of __________, 1995. Northwestern Public Service Company By Vice President (CORPORATE SEAL) ATTEST: [Assistant] Secretary The Chase Manhattan Bank (National Association) By Vice President (CORPORATE SEAL) ATTEST: Assistant Secretary State Of South Dakota ) ) SS County Of Beadle ) Be it Remembered, that on this _____th day of __________, 1995, before me, ___________, a Notary Public within and for the County and State aforesaid, personally came _________, Vice President, and __________, [Assistant] Corporate Secretary of Northwestern Public Service Company, a Delaware corporation, who are personally known to me to be such officers, and who are personally known to me to be the same persons who executed as such officers the within instrument of writing, and such persons duly acknowledged that they signed, sealed and delivered the said instrument as their free and voluntary act as such Vice President and [Assistant] Corporate Secretary, respectively, and as the free and voluntary act of Northwestern Public Service Company for the uses and purposes therein set forth. In Witness Whereof, I have hereunto subscribed my name and affixed my official seal on the day and year last above written. (Notarial Seal) Notary Public [Name] Notary Public, Beadle County, S.D. My Commission expires __________, _____ State Of New York ) ) SS County Of Kings ) Be it Remembered, that on this _____th day of __________, 1995, before me, ___________, a Notary Public within and for the County and State aforesaid, personally came _________, Vice President, and __________, Assistant Secretary of The Chase Manhattan Bank (National Association), a national banking association, who are personally known to me to be such officers, and who are personally known to me to be the same persons who executed as such officers the within instrument of writing, and such persons duly acknowledged that they signed, sealed and delivered the said instrument as their free and voluntary act as such Vice President and Assistant Secretary, respectively, and as the free and voluntary act of The Chase Manhattan Bank (National Association) for the uses and purposes therein set forth. In Witness Whereof, I have hereunto subscribed my name and affixed my official seal on the day and year last above written. (Notarial Seal) Notary Public Notary Public, State of New York No. __________ Qualified in Kings County Commission expires __________, ____ EX-4 3 Exhibit 4(a)(5) Supplemental Indenture, dated as of September 1, 1995 (the "Supplemental Indenture"), made by and between Northwestern Public Service Company, a corporation organized and existing under the laws of the State of Delaware (the "Company"), the post office address of which is 33 Third Street, S.E., Huron, South Dakota 57350, and The Chase Manhattan Bank (National Association), a national banking association organized and existing under the laws of the United States of America (the "Trustee"), as Trustee under the General Mortgage Indenture and Deed of Trust dated as of August 1, 1993, hereinafter mentioned, the post office address of which is 4 Chase MetroTech Center, 3rd Floor, Brooklyn, New York 11245; Whereas, the Company has heretofore executed and delivered its General Mortgage Indenture and Deed of Trust dated as of August 1, 1993 (the "Original Indenture"), to the Trustee, for the security of the Bonds of the Company issued and to be issued thereunder (the "Bonds"); and Whereas, the Company has heretofore executed and delivered to the Trustee certain indentures supplemental to the Original Indenture dated as of August 15, 1993 and as of August 1, 1995 and, contemporaneously herewith, the Company has executed and delivered to the Trustee two certain indentures dated as of September 1, 1995 relating to New Mortgage Bonds of the 8.90% Series and New Mortgage Bonds of the 8.824% Series, respectively (the Original Indenture, as supplemented and amended by the aforementioned supplemental indentures and by this Supplemental Indenture being hereinafter referred to as the "Indenture"); and Whereas, the Company desires to create a new series of Bonds to be issued under the Indenture, to be known as New Mortgage Bonds, 6.99% Series due 2002 (the "New Mortgage Bonds of the 6.99% Series"), which New Mortgage Bonds of the 6.99% Series are to be issued in exchange for certain other bonds of the Company of like tenor and amount that were issued pursuant to a supplemental indenture to the Company's Indenture dated August 1, 1940; and Whereas, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Indenture, and pursuant to appropriate resolutions of the Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a Supplemental Indenture in the form hereof for the purposes herein provided; and Whereas, all conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized; Now, Therefore, This Indenture Witnesseth: That Northwestern Public Service Company, in consideration of the exchange referred to above and ownership from time to time of the Bonds and the service by the Trustee, and its successors, under the Indenture and of One Dollar to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, hereby covenants and agrees to and with the Trustee and its successors in the trust under the Indenture, for the benefit of those who shall hold the Bonds as follows: Article I Description Of Bonds Of The 6.99% Series Due 2002 Section 1. The Company hereby creates a new series of Bonds to be known as "New Mortgage Bonds, 6.99% Series due 2002." The New Mortgage Bonds of the 6.99% Series shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, all of the terms, conditions and covenants of the Indenture, as supplemented and modified. The commencement of the first interest period for the New Mortgage Bonds of the 6.99% Series shall be September 1, 1995. The New Mortgage Bonds of the 6.99% Series shall mature September 1, 2002, and shall bear interest at the rate of 6.99% per annum, payable semi-annually on the first day of March and the first day of September in each year. The person in whose name any of the New Mortgage Bonds of the 6.99% Series are registered at the close of business on any record date (as hereinafter defined) with respect to any interest payment date shall be entitled to receive the interest payable on such interest payment date notwithstanding the cancellation of such New Mortgage Bonds of the 6.99% Series upon any transfer or exchange subsequent to the record date and prior to such interest payment date; provided, however, that if and to the extent the Company shall default in the payment of the interest due on such interest payment date, such defaulted interest shall be paid as provided in Section 3.07(b) of the Indenture. The term "record date" as used in this Section with respect to any interest payment date shall mean February 15 or August 15, as the case may be, next preceding the semi-annual interest payment date, or, if such February 15 or August 15 shall be a legal holiday or a day on which banking institutions in the Borough of Manhattan, The City of New York, State of New York, are authorized by law to close, then the next preceding day which shall not be a legal holiday or a day on which such institutions are so authorized to close. Section 2. The New Mortgage Bonds of the 6.99% Series shall be issued only as registered Bonds without coupons of the denomination of $1,000, or any integral multiple of $1,000, appropriately numbered. The New Mortgage Bonds of the 6.99% Series may be exchanged, upon surrender thereof, at the agency of the Company in the Borough of Manhattan, The City of New York, State of New York, for one or more new New Mortgage Bonds of the 6.99% Series of other authorized denominations, for the same aggregate principal amount, subject to the terms and conditions set forth in the Indenture. New Mortgage Bonds of the 6.99% Series may be exchanged or transferred without expense to the registered owner thereof except that any taxes or other governmental charges required to be paid with respect to such transfer or exchange shall be paid by the registered owner requesting such transfer or exchange as a condition precedent to the exercise of such privilege. Section 3. The New Mortgage Bonds of the 6.99% Series and the Trustee's Certificate of Authentication shall be substantially in the following forms respectively: [Form Of Bond Of The 6.99% Series Due 2002] Northwestern Public Service Company (Incorporated under the laws of the State of South Dakota) New Mortgage Bond, 6.99% Series Due 2002 No. R- $______________ Northwestern Public Service Company, a corporation organized and existing under the laws of the State of Delaware (the "Company", which term shall include any successor corporation as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to __________ or registered assigns, the sum of __________ dollars on the first day of September, 2002, in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, and to pay interest thereon in like coin or currency from September 1, 1995, payable semi-annually, on the first days of March and September in each year, at the rate of 6.99% per annum, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Indenture hereinafter mentioned. The interest so payable on any March 1 or September 1 will, subject to certain exceptions provided in the Supplemental Indenture dated as of September 1, 1995, be paid to the person in whose name this Bond is registered at the close of business on the immediately preceding February 15 or August 15, as the case may be. Both principal of, and interest on, this Bond are payable at the agency of the Company in the Borough of Manhattan, The City of New York, State of New York. This Bond shall not be entitled to any benefit under the Indenture or any indenture supplemental thereto, or become valid or obligatory for any purpose, until the form of certificate endorsed hereon shall have been signed by or on behalf of The Chase Manhattan Bank (National Association), the Trustee under the Indenture, or a successor trustee thereto under the Indenture, or by an authenticating agent duly appointed by the Trustee in accordance with the terms of the Indenture. The provisions of this New Mortgage Bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. In Witness Whereof, Northwestern Public Service Company has caused this New Mortgage Bond to be signed (manually or by facsimile signature) in its name by an Authorized Executive Officer, as defined in the Indenture, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested (manually or by facsimile signature) by an Authorized Executive Officer, as defined in the Indenture. Dated: Northwestern Public Service Company By Authorized Executive Officer ATTEST: Authorized Executive Officer [Form of Trustee's Certificate] This is one of the Bonds of the series designated therein referred to in the within-mentioned Indenture and Supplemental Indenture dated as of September 1, 1995. The Chase Manhattan Bank (National Association), as Trustee By Authorized Officer [FORM OF REVERSE OF BOND] This New Mortgage Bond of the 6.99% Series is one of a duly authorized issue of Bonds of the Company (the "Bonds"), of the series hereinafter specified, all issued and to be issued under and equally secured by a General Mortgage Indenture and Deed of Trust (the "Indenture"), dated as of August 1, 1993, executed by the Company to The Chase Manhattan Bank (National Association) (the "Trustee"), as Trustee, to which Indenture and all indentures supplemental thereto reference is hereby made for a description to the properties mortgaged and pledged, the nature and extent of the security, the rights of registered owners of the Bonds and of the Trustee in respect thereof, and the terms and conditions upon which the Bonds are, and are to be, secured. The Bonds may be issued in series, for various principal sums, may mature at different times, may bear interest at different rates and may otherwise vary as provided in the Indenture. This New Mortgage Bond of the 6.99% Series is one of a series designated as the "New Mortgage Bonds, 6.99% Series Due 2002" (the "New Mortgage Bonds of the 6.99% Series") of the Company issued under and secured by the Indenture and described in the supplemental indenture dated as of September 1, 1995 (the "Supplemental Indenture dated as of September 1, 1995"), between the Company and the Trustee, supplemental to the Indenture. New Mortgage Bonds of the 6.99% Series, of which this is one, are subject to redemption as follows: (I) At the option of the Company and upon the notice and in the manner and with the effect provided in the Indenture, all, but not less than all, of the New Mortgage Bonds of the 6.99% Series may be redeemed by the Company at any time, on or after September 1, 1997 and prior to maturity, upon payment of the Make-Whole Amount (as defined in Section 1 of Article III of the Supplemental Indenture dated as of September 1, 1995) for each of the New Mortgage Bonds of the 6.99% Series to be redeemed, together in each case with principal and accrued interest to the redemption date. (II) New Mortgage Bonds of the 6.99% Series shall be redeemed by the Company in the amounts required by the Supplemental Indenture dated as of September 1, 1995 on September 1 of each year, commencing in 1998, through the operation of the sinking fund for such bonds, upon payment of the principal amount thereof together with accrued interest to the redemption date. To the extent permitted by, and as provided in, the Indenture, modifications or alterations of the Indenture, or of any indenture supplemental thereof, and of the rights and obligations of the Company and of the holders of the Bonds may be made with the consent of the Company by an affirmative vote of the holders of a majority in aggregate principal amount of the Bonds entitled to vote then outstanding, at a meeting of the holders of the Bonds called and held as provided in the Indenture, and by an affirmative vote of the holders of a majority in aggregate principal amount of the Bonds of any series or any tranche or tranches of any series entitled to vote then outstanding and affected by such modification or alteration, in case one or more but less than all of the series of Bonds or of any tranche or tranches of any series of Bonds then outstanding under the Indenture are so affected; provided, however, that no such modification or alteration shall be made which will affect the terms of payment of the principal of, or interest or premium, if any, on this Bond. In case an Event of Default, as defined in the Indenture, shall occur, the principal of all the New Mortgage Bonds of the 6.99% Series at any such time outstanding under the Indenture may be declared or may become due and payable, upon the conditions and in the manner and with the effect provided in the Indenture. The Indenture provides that such declaration may be rescinded under certain circumstances. Article II Issue Of New Mortgage Bonds Of The 6.99% Series Section 1. The Company hereby exercises the right to obtain the authentication of $25,000,000 principal amount of Bonds pursuant to the terms of Section 4.03 of the Indenture. All such Bonds shall be New Mortgage Bonds of the 6.99% Series. Section 2. Such New Mortgage Bonds of the 6.99% Series may be authenticated and delivered prior to the filing for recordation of this Supplemental Indenture. Article III Redemption Section 1. The New Mortgage Bonds of the 6.99% Series shall, upon the notice and in the manner and with the effect provided in Article Five of the Original Indenture, as amended by Section 3 of this Article III, be redeemable (otherwise than out of moneys specified in Section 2 of this Article III), at any time, on or after September 1, 1997 and prior to maturity, at the option of the Company, as a whole, upon payment of the principal amount of each of the New Mortgage Bonds of the 6.99% Series to be redeemed, and accrued interest thereon to the redemption date, together with the applicable Make-Whole Amount (as hereinafter defined). On or before the redemption date specified in the notice of redemption given by the Company as provided in the Indenture, the Company shall deliver to each holder of the New Mortgage Bonds of the 6.99% Series to be redeemed, a certificate signed by a principal financial officer of the Company setting forth the Make-Whole Amount (determined in good faith by the Company as of the date five business days prior to the date of such redemption), if any, applicable to the New Mortgage Bonds of the 6.99% Series held by such holder so to be redeemed. In the event the Company shall incorrectly compute the Make-Whole Amount payable in connection with any New Mortgage Bond of the 6.99% Series, the holder of such Bond shall not be bound by such incorrect computation, but shall instead be entitled to receive an amount equal to the correct Make-Whole Amount, if any, computed in compliance with the terms hereof. As used in this Section 1: "Make-Whole Amount" shall mean the excess, if any, of (i) the aggregate present value as of the date of such redemption of each dollar of principal being prepaid and the amount of interest (exclusive of interest accrued to the date of redemption) that would have been payable in respect of such dollar if such redemption had not been made, determined by discounting such amounts at the Reinvestment Rate from the respective dates on which they would have been payable, over (ii) 100% of the principal amount of the outstanding New Mortgage Bonds of the 6.99% Series being redeemed. If the Reinvestment Rate is equal to or higher than 6.99%, the Make-Whole Amount shall be zero. For purposes of any determination of the Make-Whole Amount: "Reinvestment Rate" shall mean the arithmetic mean of the yields under the respective headings "This Week" and "Last Week" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the Weighted Average Life to Maturity of the principal amount of the New Mortgage Bonds of the 6.99% Series being redeemed. If no maturity exactly corresponds to such Weighted Average Life to Maturity, yields for the two published maturities most closely corresponding to such Weighted Average Life to Maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straightline basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" shall mean the then most recently published statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded U.S. Government Securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination hereunder, then such other reasonably comparable index which shall be designated by the holders of 66-2/3% in aggregate principal amount of the outstanding New Mortgage Bonds of the 6.99% Series. "Weighted Average Life to Maturity" of any of the New Mortgage Bonds of the 6.99% Series to be redeemed shall mean the number of years (rounded to the nearest one-twelfth of a year) obtained by dividing the then Remaining Dollar-Years of the New Mortgage Bonds of the 6.99% Series by the then outstanding principal amount of such Bonds. For the purposes of this definition, "Remaining Dollar-Years" means the sum of the amounts obtained by multiplying the amount of each then remaining sinking fund or other required repayment, including repayment at final maturity, by the number of years (calculated to the nearest one-twelfth of a year) which will elapse between the time of such determination and the date of such repayment. Section 2. Upon the notice and in the manner and with the effect provided in Article Five of the Original Indenture, as amended by Section 3 of this Article III, any of the New Mortgage Bonds of the 6.99% Series shall be redeemable on the first day of September in each year, commencing in 1998, by operation of the sinking fund provided for by Section 1 of Article IV hereof, upon payment of the principal amount thereof together with accrued interest to the redemption date. Section 3. Whenever the Company shall propose to redeem less than all of the outstanding New Mortgage Bonds of the 6.99% Series on any redemption date, the Trustee, instead of selecting by lot, shall select the serial numbers of the New Mortgage Bonds of the 6.99% Series to be redeemed (in whole or in part) by prorating, as nearly as may be, the aggregate principal amount of the New Mortgage Bonds of the 6.99% Series to be redeemed among the registered owners of the New Mortgage Bonds of the 6.99% Series according to the principal amount thereof registered in their respective names. In any such proration, the Trustee shall make such adjustments, reallocations and eliminations as it shall deem proper to the end that the principal amount of the New Mortgage Bonds of the 6.99% Series so prorated to any registered owner of the New Mortgage Bonds of the 6.99% Series shall be $1,000 or a multiple thereof, by increasing or decreasing or eliminating the amount which would be allocable to any such registered owner on the basis of exact proportion by an amount not exceeding $1,000. The Trustee in its discretion may determine the particular New Mortgage Bonds of the 6.99% Series (if there are more than one) registered in the name of any registered owner which are to be redeemed, in whole or in part. In any determination by proration pursuant to this Section, New Mortgage Bonds of the 6.99% Series held by the Company shall not be considered outstanding and shall be excluded in making the determination of the New Mortgage Bonds of the 6.99% Series to be redeemed. Notice of redemption of any New Mortgage Bonds of the 6.99% Series shall be given as provided in Section 5.04 of the Original Indenture, except that, in the case of redemption by operation of the sinking fund for such bonds, the notice shall state that the redemption is for the account of the sinking fund. If given by mail, the mailing of such notice shall be a condition precedent to redemption, provided that any notice which is mailed in the manner provided in Section 5.04 of the Original Indenture shall be conclusively presumed to have been duly given whether or not the holders receive such notice, and failure to give such notice by mall, or any defect in such notice, to the holder of any such bond designated for redemption in whole or in part shall not affect the validity of the redemption of any other such bond. Except for the determination of the serial numbers of the New Mortgage Bonds of the 6.99% Series to be redeemed (in whole or in part) by proration as provided in this Section when less than all of the New Mortgage Bonds of the 6.99% Series are to be redeemed on any redemption date and except for the changes in the giving of notice of redemption as provided in this Section, the procedures for redemption of the New Mortgage Bonds of the 6.99% Series shall be as provided in Article Five of the Original Indenture. Section 4. The Company, with the approval of the Trustee, may enter into a written agreement with the holder of any New Mortgage Bonds of the 6.99% Series providing that payment of such bonds called for redemption in part only be made directly by mail, wire transfer or in any other manner to the holder thereof without presentation or surrender thereof if there shall be delivered to the Trustee an agreement (which may be a composite with other such agreements) between the Company and such holder (or other person acting as agent for such holder or for whom such holder is a nominee) that payment shall be so made, and that in the event the holder thereof shall sell or transfer any such bonds (a) it will, prior to the delivery of such bonds, either (i) surrender such bonds to the Trustee to make a proper notation of the amount of principal paid thereon or (ii) surrender such bonds to the Trustee against receipt of one or more New Mortgage Bonds of the 6.99% Series in an aggregate principal amount equal to the unpaid principal portion of the bonds so surrendered, and (b) it will promptly notify the Company of the name and address of the transferee of any New Mortgage Bonds of the 6.99% Series so transferred. The Trustee shall not be liable or responsible to any such holder or transferee or to the Company or to any other person for any act or omission to act on the part of the Company or any such holder in connection with any such agreement. The Company will indemnify and save the Trustee harmless against any liability resulting from any such act or omission and against any liability resulting from any action taken by the Trustee in accordance with the provisions of any such agreement. Article IV Additional Covenants The Company covenants and agrees, subject to the terms and of this Section, that it will pay to the Trustee on or before the last day of August, 1998 and on or before the last day of August in each calendar year thereafter so long as any New Mortgage Bonds of the 6.99% Series shall be outstanding (each such last day of August being referred to herein as a "sinking fund payment date") as and for a cash sinking fund for the retirement of New Mortgage Bonds of the 6.99% Series, a sum in cash sufficient to redeem on the first day of September next following such sinking fund payment date, at the redemption price for the redemption of New Mortgage Bonds of the 6.99% Series by operation of the sinking fund, a principal amount of bonds of said series at least equal to twenty per centum of the greatest principal amount of bonds of said series outstanding at any time (determined as in this Section provided) between September 1, 1992, and the end of the calendar year immediately preceding such sinking fund payment date. Cash paid to the Trustee by the Company pursuant to this Section shall be applied by the Trustee to the redemption on the next following the first day of September of the specified principal amount of New Mortgage Bonds of the 6.99% Series in accordance with provisions of this Section; and the Company shall carry out the procedures required of it for such redemption. On or before the first day of July in each year beginning with the calendar year 1998, so long as any New Mortgage Bonds of the 6.99% Series shall be outstanding, the Company shall deliver to the Trustee a certificate, signed in the name of the Company by its President or one of its Vice Presidents and by its Treasurer or an Assistant Treasurer, containing the statements required by Section 1.05 of the Original Indenture, and showing the greatest principal amount of New Mortgage Bonds of the 6.99% Series outstanding at any time between September 1, 1992 and the end of the preceding calendar year, determined in accordance with the provisions of this Section, which certificate shall include, or be accompanied by, the notice from the Company to the Trustee pursuant to Section 5.04 of the Original Indenture, as amended by Section 3 of Article III hereof, specifying the principal amount of the New Mortgage Bonds of the 6.99% Series to be redeemed on the first day of September next following by operation of the sinking fund provided for by this Section. In determining under the provisions of this Section the principal amount of New Mortgage Bonds of the 6.99% Series outstanding under the Indenture, there shall be excluded the principal amount of any bonds of said series authenticated under the Indenture which are owned by the Company. Any and all New Mortgage Bonds of the 6.99% Series received by the Trustee pursuant to any provision of this Section shall thereupon be canceled and destroyed by the Trustee. If the first day of September in the calendar year 1998, or in any calendar year thereafter so long as any New Mortgage Bonds of the 6.99% Series shall be outstanding, is a legal holiday or day on which banking institutions which act as paying agents hereunder are authorized by law to close, then payment of the redemption price (including interest payable upon redemption) for purposes of redemption of New Mortgage Bonds of the 6.99% Series by operation of the sinking fund provided for by this Section may be made on the next succeeding day which is not a legal holiday or a day on which such banking institutions are authorized by law to close with the same force and effect as if made on the nominal redemption date, and no interest shall accrue for the period after the nominal redemption date. Article V The Trustee The Trustee hereby accepts the trusts hereby declared provided, and agrees to perform the same upon the terms and conditions in the Indenture set forth and upon the following terms and conditions: The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or the due execution hereof by the Company or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article Eleven of the Indenture shall apply to this Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to this Supplemental Indenture. Article VI Miscellaneous Provisions This Supplemental Indenture may be simultaneously executed in any number of counterparts, each of which when so executed shall be deemed to be an original; but such counterparts shall together constitute but one and the same instrument. In Witness Whereof, said Northwestern Public Service Company has caused this Indenture to be executed on its behalf by an Authorized Executive Officer as defined in the Indenture, and its corporate seal to be hereto affixed and said seal and this Indenture to be attested by an Authorized Executive Officer as defined in the Indenture; and The Chase Manhattan Bank (National Association), in evidence of its acceptance of the trust hereby created, has caused this Indenture to be executed on its behalf by its President or one of its Vice Presidents and its corporate seal to be hereto affixed and said seal and this Indenture to be attested by its Secretary or one of its Assistant Secretaries; all as of the 1st day of September, 1995. Northwestern Public Service Company By Vice President (CORPORATE SEAL) ATTEST: Corporate Secretary The Chase Manhattan Bank (National Association) By Vice President (CORPORATE SEAL) ATTEST: Assistant Secretary State Of South Dakota ) ) SS County Of Beadle ) Be it Remembered, that on this _____ day of August, 1995, before me, Susan M. Anderson, a Notary Public within and for the County and State aforesaid, personally came D. K. Newell, Vice President - Finance, and Alan D. Dietrich, Corporate Secretary of Northwestern Public Service Company, a Delaware corporation, who are personally known to me to be such officers, and who are personally known to me to be the same persons who executed as such officers the within instrument of writing, and such persons duly acknowledged that they signed, sealed and delivered the said instrument as their free and voluntary act as such Vice President - Finance and Corporate Secretary, respectively, and as the free and voluntary act of Northwestern Public Service Company for the uses and purposes therein set forth. In Witness Whereof, I have hereunto subscribed my name and affixed my official seal on the day and year last above written. (Notarial Seal) Susan M. Anderson Notary Public, Beadle County, S.D. My Commission expires June 8, 2000 State Of New York ) ) SS County Of Kings ) Be it Remembered, that on this _____ day of August, 1995, before me, _______________, a Notary Public within and for the County and State aforesaid, personally came _________________, Vice President, and _________________, Assistant Secretary of The Chase Manhattan Bank (National Association), a national banking association, who are personally known to me to be such officers, and who are personally known to me to be the same persons who executed as such officers the within instrument of writing, and such persons duly acknowledged that they signed, sealed and delivered the said instrument as their free and voluntary act as such Vice President and Assistant Secretary, respectively, and as the free and voluntary act of The Chase Manhattan Bank (National Association) for the uses and purposes therein set forth. In Witness Whereof, I have hereunto subscribed my name and affixed my official seal on the day and year last above written. (Notarial Seal) Notary Public, State of New York No. __________ Qualified in Kings County Commission expires ________, ____ EX-4 4 Exhibit 4(a)(6) Supplemental Indenture, dated as of September 1, 1995 (the "Supplemental Indenture"), made by and between Northwestern Public Service Company, a corporation organized and existing under the laws of the State of Delaware (the "Company"), the post office address of which is 33 Third Street, S.E., Huron, South Dakota 57350, and The Chase Manhattan Bank (National Association), a national banking association organized and existing under the laws of the United States of America (the "Trustee"), as Trustee under the General Mortgage Indenture and Deed of Trust dated as of August 1, 1993, hereinafter mentioned, the post office address of which is 4 Chase MetroTech Center, 3rd Floor, Brooklyn, New York 11245; Whereas, the Company has heretofore executed and delivered its General Mortgage Indenture and Deed of Trust dated as of August 1, 1993 (the "Original Indenture"), to the Trustee, for the security of the Bonds of the Company issued and to be issued thereunder (the "Bonds"); and Whereas, the Company has heretofore executed and delivered to the Trustee certain indentures supplemental to the Original Indenture dated as of August 15, 1993 and as of August 1, 1995 and, contemporaneously herewith, the Company has executed and delivered to the Trustee two certain indentures dated as of September 1, 1995 relating to New Mortgage Bonds of the 8.90% Series and New Mortgage Bonds of the 6.99% Series, respectively (the Original Indenture, as supplemented and amended by the aforementioned supplemental indentures and by this Supplemental Indenture being hereinafter referred to as the "Indenture"); and Whereas, the Company desires to create a new series of Bonds to be issued under the Indenture, to be known as New Mortgage Bonds, 8.824% Series due 1998 (the "New Mortgage Bonds of the 8.824% Series"), which New Mortgage Bonds of the 8.824% Series are to be issued in exchange for certain other bonds of the Company of like tenor and amount that were issued pursuant to a supplemental indenture to the Company's Indenture dated August 1, 1940; and Whereas, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Indenture, and pursuant to appropriate resolutions of the Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a Supplemental Indenture in the form hereof for the purposes herein provided; and Whereas, all conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized; Now, Therefore, This Indenture Witnesseth: That Northwestern Public Service Company, in consideration of the exchange referred to above and ownership from time to time of the Bonds and the service by the Trustee, and its successors, under the Indenture and of One Dollar to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, hereby covenants and agrees to and with the Trustee and its successors in the trust under the Indenture, for the benefit of those who shall hold the Bonds as follows: Article I Description Of Bonds Of The 8.824% Series Due 1998 Section 1. The Company hereby creates a new series of Bonds to be known as "New Mortgage Bonds, 8.824% Series due 1998." The New Mortgage Bonds of the 8.824% Series shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, all of the terms, conditions and covenants of the Indenture, as supplemented and modified. The commencement of the first interest period for the New Mortgage Bonds of the 8.824% Series shall be July 15, 1995. The New Mortgage Bonds of the 8.824% Series shall mature July 15, 1998, and shall bear interest at the rate of 8.824% per annum, payable semi-annually on the fifteenth day of January and the fifteenth day of July in each year. The person in whose name any of the New Mortgage Bonds of the 8.824% Series are registered at the close of business on any record date (as hereinafter defined) with respect to any interest payment date shall be entitled to receive the interest payable on such interest payment date notwithstanding the cancellation of such New Mortgage Bonds of the 8.824% Series upon any transfer or exchange subsequent to the record date and prior to such interest payment date; provided, however, that if and to the extent the Company shall default in the payment of the interest due on such interest payment date, such defaulted interest shall be paid as provided in Section 3.07(b) of the Indenture. The term "record date" as used in this Section with respect to any interest payment date shall mean January 1 or July 1, as the case may be, next preceding the semi-annual interest payment date, or, if such January 1 or July 1 shall be a legal holiday or a day on which banking institutions in the Borough of Manhattan, The City of New York, State of New York, are authorized by law to close, then the next preceding day which shall not be a legal holiday or a day on which such institutions are so authorized to close. Section 2. The New Mortgage Bonds of the 8.824% Series shall be issued only as registered Bonds without coupons of the denomination of $1,000, or any integral multiple of $1,000, appropriately numbered. The New Mortgage Bonds of the 8.824% Series may be exchanged, upon surrender thereof, at the agency of the Company in the Borough of Manhattan, The City of New York, State of New York, for one or more new New Mortgage Bonds of the 8.824% Series of other authorized denominations, for the same aggregate principal amount, subject to the terms and conditions set forth in the Indenture. New Mortgage Bonds of the 8.824% Series may be exchanged or transferred without expense to the registered owner thereof except that any taxes or other governmental charges required to be paid with respect to such transfer or exchange shall be paid by the registered owner requesting such transfer or exchange as a condition precedent to the exercise of such privilege. Section 3. The New Mortgage Bonds of the 8.824% Series and the Trustee's Certificate of Authentication shall be substantially in the following forms respectively: [Form Of Bond Of The 8.824% Series Due 1998] Northwestern Public Service Company (Incorporated under the laws of the State of South Dakota) New Mortgage Bond, 8.824% Series Due 1998 No. R- $______________ Northwestern Public Service Company, a corporation organized and existing under the laws of the State of Delaware (the "Company", which term shall include any successor corporation as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to __________ or registered assigns, the sum of __________ dollars on the fifteenth day of July, 1998, in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, and to pay interest thereon in like coin or currency from July 15, 1995, payable semi-annually, on the fifteenth days of January and July in each year, at the rate of 8.824% per annum, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Indenture hereinafter mentioned. The interest so payable on any January 15 or July 15 will, subject to certain exceptions provided in the Supplemental Indenture dated as of September 1, 1995, be paid to the person in whose name this Bond is registered at the close of business on the immediately preceding January 1 or July 1, as the case may be. Both principal of, and interest on, this Bond are payable at the agency of the Company in the Borough of Manhattan, The City of New York, State of New York. This Bond shall not be entitled to any benefit under the Indenture or any indenture supplemental thereto, or become valid or obligatory for any purpose, until the form of certificate endorsed hereon shall have been signed by or on behalf of The Chase Manhattan Bank (National Association), the Trustee under the Indenture, or a successor trustee thereto under the Indenture, or by an authenticating agent duly appointed by the Trustee in accordance with the terms of the Indenture. The provisions of this New Mortgage Bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. In Witness Whereof, Northwestern Public Service Company has caused this New Mortgage Bond to be signed (manually or by facsimile signature) in its name by an Authorized Executive Officer, as defined in the Indenture, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested (manually or by facsimile signature) by an Authorized Executive Officer, as defined in the Indenture. Dated: Northwestern Public Service Company By Authorized Executive Officer ATTEST: Authorized Executive Officer [Form of Trustee's Certificate] This is one of the Bonds of the series designated therein referred to in the within-mentioned Indenture and Supplemental Indenture dated as of September 1, 1995. The Chase Manhattan Bank (National Association), as Trustee By Authorized Officer [FORM OF REVERSE OF BOND] This New Mortgage Bond of the 8.824% Series is one of a duly authorized issue of Bonds of the Company (the "Bonds"), of the series hereinafter specified, all issued and to be issued under and equally secured by a General Mortgage Indenture and Deed of Trust (the "Indenture"), dated as of August 1, 1993, executed by the Company to The Chase Manhattan Bank (National Association) (the "Trustee"), as Trustee, to which Indenture and all indentures supplemental thereto reference is hereby made for a description to the properties mortgaged and pledged, the nature and extent of the security, the rights of registered owners of the Bonds and of the Trustee in respect thereof, and the terms and conditions upon which the Bonds are, and are to be, secured. The Bonds may be issued in series, for various principal sums, may mature at different times, may bear interest at different rates and may otherwise vary as provided in the Indenture. This New Mortgage Bond of the 8.824% Series is one of a series designated as the "New Mortgage Bonds, 8.824% Series Due 1998" (the "New Mortgage Bonds of the 8.824% Series") of the Company issued under and secured by the Indenture and described in the supplemental indenture dated as of September 1, 1995 (the "Supplemental Indenture dated as of September 1, 1995"), between the Company and the Trustee, supplemental to the Indenture. New Mortgage Bonds of the 8.824% Series, of which this is one, are subject to redemption at the option of the Company and upon the notice and in the manner and with the effect provided in the Indenture, all, but not less than all, of the New Mortgage Bonds of the 8.824% Series may be redeemed by the Company at any time, on or after July 15, 1996 and prior to maturity, upon payment of the following percentages of the principal amounts thereof: If redeemed during the twelve month period beginning the fifteenth day of July of the year: 1996 ---------- 101.471% 1997 ---------- 100.000% together with accrued interest to the redemption date. To the extent permitted by, and as provided in, the Indenture, modifications or alterations of the Indenture, or of any indenture supplemental thereof, and of the rights and obligations of the Company and of the holders of the Bonds may be made with the consent of the Company by an affirmative vote of the holders of a majority in aggregate principal amount of the Bonds entitled to vote then outstanding, at a meeting of the holders of the Bonds called and held as provided in the Indenture, and by an affirmative vote of the holders of a majority in aggregate principal amount of the Bonds of any series or any tranche or tranches of any series entitled to vote then outstanding and affected by such modification or alteration, in case one or more but less than all of the series of Bonds or of any tranche or tranches of any series of Bonds then outstanding under the Indenture are so affected; provided, however, that no such modification or alteration shall be made which will affect the terms of payment of the principal of, or interest or premium, if any, on this Bond. In case an Event of Default, as defined in the Indenture, shall occur, the principal of all the New Mortgage Bonds of the 8.824% Series at any such time outstanding under the Indenture may be declared or may become due and payable, upon the conditions and in the manner and with the effect provided in the Indenture. The Indenture provides that such declaration may be rescinded under certain circumstances. Article II Issue Of New Mortgage Bonds Of The 8.824% Series Section 1. The Company hereby exercises the right to obtain the authentication of $15,000,000 principal amount of Bonds pursuant to the terms of Section 4.03 of the Indenture. All such Bonds shall be New Mortgage Bonds of the 8.824% Series. Section 2. Such New Mortgage Bonds of the 8.824% Series may be authenticated and delivered prior to the filing for recordation of this Supplemental Indenture. Article III Redemption Section 1. The New Mortgage Bonds of the 8.824% Series shall, upon the notice and in the manner and with the effect provided in Article Five of the Original Indenture, as amended by Section 2 of this Article III, be redeemable at any time, on or after July 15, 1996 and prior to maturity, at the option of the Company, as a whole, upon payment of the following percentages of the principal amounts thereof: If redeemed during the twelve month period beginning the fifteenth day of July of the year: 1996 ---------- 101.471% 1997 ---------- 100.000% together with accrued interest to the redemption date. Section 2. Notice of redemption of any New Mortgage Bonds of the 8.824% Series shall be given as provided in Section 5.04 of the Original Indenture. If given by mail, the mailing of such notice shall be a condition precedent to redemption, provided that any notice which is mailed in the manner provided in Section 5.04 of the Original Indenture shall be conclusively presumed to have been duly given whether or not the holders receive such notice, and failure to give such notice by mall, or any defect in such notice, to the holder of any such bond designated for redemption shall not affect the validity of the redemption of any other such bond. Except for the changes in the giving of notice of redemption as provided in this Section, the procedures for redemption of the New Mortgage Bonds of the 8.824% Series shall be as provided in Article Five of the Original Indenture. Section 3. The Company, with the approval of the Trustee, may enter into a written agreement with the holder of any New Mortgage Bonds of the 8.824% Series providing that payment of such bonds called for redemption in part only be made directly by mail, wire transfer or in any other manner to the holder thereof without presentation or surrender thereof if there shall be delivered to the Trustee an agreement (which may be a composite with other such agreements) between the Company and such holder (or other person acting as agent for such holder or for whom such holder is a nominee) that payment shall be so made, and that in the event the holder thereof shall sell or transfer any such bonds (a) it will, prior to the delivery of such bonds, either (i) surrender such bonds to the Trustee to make a proper notation of the amount of principal paid thereon or (ii) surrender such bonds to the Trustee against receipt of one or more New Mortgage Bonds of the 8.824% Series in an aggregate principal amount equal to the unpaid principal portion of the bonds so surrendered, and (b) it will promptly notify the Company of the name and address of the transferee of any New Mortgage Bonds of the 8.824% Series so transferred. The Trustee shall not be liable or responsible to any such holder or transferee or to the Company or to any other person for any act or omission to act on the part of the Company or any such holder in connection with any such agreement. The Company will indemnify and save the Trustee harmless against any liability resulting from any such act or omission and against any liability resulting from any action taken by the Trustee in accordance with the provisions of any such agreement. Article IV The Trustee The Trustee hereby accepts the trusts hereby declared provided, and agrees to perform the same upon the terms and conditions in the Indenture set forth and upon the following terms and conditions: The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or the due execution hereof by the Company or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article Eleven of the Indenture shall apply to this Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to this Supplemental Indenture. Article V Miscellaneous Provisions This Supplemental Indenture may be simultaneously executed in any number of counterparts, each of which when so executed shall be deemed to be an original; but such counterparts shall together constitute but one and the same instrument. In Witness Whereof, said Northwestern Public Service Company has caused this Indenture to be executed on its behalf by an Authorized Executive Officer as defined in the Indenture, and its corporate seal to be hereto affixed and said seal and this Indenture to be attested by an Authorized Executive Officer as defined in the Indenture; and The Chase Manhattan Bank (National Association), in evidence of its acceptance of the trust hereby created, has caused this Indenture to be executed on its behalf by its President or one of its Vice Presidents and its corporate seal to be hereto affixed and said seal and this Indenture to be attested by its Secretary or one of its Assistant Secretaries; all as of the 1st day of September, 1995. Northwestern Public Service Company By Vice President (CORPORATE SEAL) ATTEST: Corporate Secretary The Chase Manhattan Bank (National Association) By Vice President (CORPORATE SEAL) ATTEST: Assistant Secretary State Of South Dakota ) ) SS County Of Beadle ) Be it Remembered, that on this 1st day of September, 1995, before me, Susan M. Anderson, a Notary Public within and for the County and State aforesaid, personally came D. K. Newell, Vice President - Finance, and Alan D. Dietrich, Corporate Secretary of Northwestern Public Service Company, a Delaware corporation, who are personally known to me to be such officers, and who are personally known to me to be the same persons who executed as such officers the within instrument of writing, and such persons duly acknowledged that they signed, sealed and delivered the said instrument as their free and voluntary act as such Vice President - Finance and Corporate Secretary, respectively, and as the free and voluntary act of Northwestern Public Service Company for the uses and purposes therein set forth. In Witness Whereof, I have hereunto subscribed my name and affixed my official seal on the day and year last above written. (Notarial Seal) Susan M. Anderson Notary Public, Beadle County, S.D. My Commission expires June 8, 2000 State Of New York ) ) SS County Of Kings ) Be it Remembered, that on this _____ day of August, 1995, before me, _______________, a Notary Public within and for the County and State aforesaid, personally came _________________, Vice President, and _________________, Assistant Secretary of The Chase Manhattan Bank (National Association), a national banking association, who are personally known to me to be such officers, and who are personally known to me to be the same persons who executed as such officers the within instrument of writing, and such persons duly acknowledged that they signed, sealed and delivered the said instrument as their free and voluntary act as such Vice President and Assistant Secretary, respectively, and as the free and voluntary act of The Chase Manhattan Bank (National Association) for the uses and purposes therein set forth. In Witness Whereof, I have hereunto subscribed my name and affixed my official seal on the day and year last above written. (Notarial Seal) Notary Public, State of New York No. __________ Qualified in Kings County Commission expires ________, ____ EX-4 5 Exhibit 4(a)(7) Supplemental Indenture, dated as of September 1, 1995 (the "Supplemental Indenture"), made by and between Northwestern Public Service Company, a corporation organized and existing under the laws of the State of Delaware (the "Company"), the post office address of which is 33 Third Street, S.E., Huron, South Dakota 57350, and The Chase Manhattan Bank (National Association), a national banking association organized and existing under the laws of the United States of America (the "Trustee"), as Trustee under the General Mortgage Indenture and Deed of Trust dated as of August 1, 1993, hereinafter mentioned, the post office address of which is 4 Chase MetroTech Center, 3rd Floor, Brooklyn, New York 11245; Whereas, the Company has heretofore executed and delivered its General Mortgage Indenture and Deed of Trust dated as of August 1, 1993 (the "Original Indenture"), to the Trustee, for the security of the Bonds of the Company issued and to be issued thereunder (the "Bonds"); and Whereas, the Company has heretofore executed and delivered to the Trustee certain indentures supplemental to the Original Indenture dated as of August 15, 1993 and as of August 1, 1995 and, contemporaneously herewith, the Company has executed and delivered to the Trustee two certain indentures dated as of September 1, 1995 relating to New Mortgage Bonds of the 8.824% Series and New Mortgage Bonds of the 6.99% Series, respectively (the Original Indenture, as supplemented and amended by the aforementioned supplemental indentures and by this Supplemental Indenture being hereinafter referred to as the "Indenture"); and Whereas, the Company desires to create a new series of Bonds to be issued under the Indenture, to be known as New Mortgage Bonds, 8.90% Series due 1999 (the "New Mortgage Bonds of the 8.90% Series"), which New Mortgage Bonds of the 8.90% Series are to be issued in exchange for certain other bonds of the Company of like tenor and amount that were issued pursuant to a supplemental indenture to the Company's Indenture dated August 1, 1940; and Whereas, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Indenture, and pursuant to appropriate resolutions of the Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a Supplemental Indenture in the form hereof for the purposes herein provided; and Whereas, all conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized; Now, Therefore, This Indenture Witnesseth: That Northwestern Public Service Company, in consideration of the exchange referred to above and ownership from time to time of the Bonds and the service by the Trustee, and its successors, under the Indenture and of One Dollar to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, hereby covenants and agrees to and with the Trustee and its successors in the trust under the Indenture, for the benefit of those who shall hold the Bonds as follows: Article I Description Of Bonds Of The 8.90% Series Due 1999 Section 1. The Company hereby creates a new series of Bonds to be known as "New Mortgage Bonds, 8.90% Series due 1999." The New Mortgage Bonds of the 8.90% Series shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, all of the terms, conditions and covenants of the Indenture, as supplemented and modified. The commencement of the first interest period for the New Mortgage Bonds of the 8.90% Series shall be May 1, 1995. The New Mortgage Bonds of the 8.90% Series shall mature November 1, 1999, and shall bear interest at the rate of 8.90% per annum, payable semi-annually on the first day of May and the first day of November in each year; provided, however, that if the Company shall default in the payment of principal of, premium, if any, or interest on, any New Mortgage Bond of the 8.90% Series when the same shall have become due and such default shall continue for more than five days, then the Company covenants and agrees that it will pay to the holder thereof, to the extent permitted by applicable law, interest on the outstanding principal amount of such New Bond at the rate of 9.90% per annum commencing on the due date of such payment and continuing until such overdue amount is paid. The person in whose name any of the New Mortgage Bonds of the 8.90% Series are registered at the close of business on any record date (as hereinafter defined) with respect to any interest payment date shall be entitled to receive the interest payable on such interest payment date notwithstanding the cancellation of such New Mortgage Bonds of the 8.90% Series upon any transfer or exchange subsequent to the record date and prior to such interest payment date; provided, however, that if and to the extent the Company shall default in the payment of the interest due on such interest payment date, such defaulted interest shall be paid as provided in Section 3.07(b) of the Indenture. The term "record date" as used in this Section with respect to any interest payment date shall mean April 15 or October 15, as the case may be, next preceding the semi-annual interest payment date, or, if such April 15 or October 15 shall be a legal holiday or a day on which banking institutions in the Borough of Manhattan, The City of New York, State of New York, are authorized by law to close, then the next preceding day which shall not be a legal holiday or a day on which such institutions are so authorized to close. Section 2. The New Mortgage Bonds of the 8.90% Series shall be issued only as registered Bonds without coupons of the denomination of $1,000, or any integral multiple of $1,000, appropriately numbered. The New Mortgage Bonds of the 8.90% Series may be exchanged, upon surrender thereof, at the agency of the Company in the Borough of Manhattan, The City of New York, State of New York, for one or more new New Mortgage Bonds of the 8.90% Series of other authorized denominations, for the same aggregate principal amount, subject to the terms and conditions set forth in the Indenture. New Mortgage Bonds of the 8.90% Series may be exchanged or transferred without expense to the registered owner thereof except that any taxes or other governmental charges required to be paid with respect to such transfer or exchange shall be paid by the registered owner requesting such transfer or exchange as a condition precedent to the exercise of such privilege. Section 3. The New Mortgage Bonds of the 8.90% Series and the Trustee's Certificate of Authentication shall be substantially in the following forms respectively: [Form Of Bond Of The 8.90% Series Due 1999] Northwestern Public Service Company (Incorporated under the laws of the State of South Dakota) New Mortgage Bond, 8.90% Series Due 1999 No. R- $______________ Northwestern Public Service Company, a corporation organized and existing under the laws of the State of Delaware (the "Company", which term shall include any successor corporation as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to __________ or registered assigns, the sum of __________ dollars on the first day of November, 1999, in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, and to pay interest thereon in like coin or currency from May 1, 1995, payable semi-annually, on the first days of May and November in each year, at the rate of 8.90% per annum, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Indenture hereinafter mentioned; provided, however, that if the Company shall default in the payment of principal of, premium, if any, or interest on, this Bond when the same shall have become due and such default shall continue for more than five days, then the Company covenants and agrees that it will pay to the holder hereof, to the extent permitted by applicable law, interest on the outstanding principal amount of this Bond at the rate of 9.90% per annum commencing on the due date of such payment and continuing until such overdue amount is paid. The interest so payable on any May 1 or November 1 will, subject to certain exceptions provided in the Supplemental Indenture dated as of September 1, 1995, be paid to the person in whose name this Bond is registered at the close of business on the immediately preceding April 15 or October 15, as the case may be. Both principal of, and interest on, this Bond are payable at the agency of the Company in the Borough of Manhattan, The City of New York, State of New York. This Bond shall not be entitled to any benefit under the Indenture or any indenture supplemental thereto, or become valid or obligatory for any purpose, until the form of certificate endorsed hereon shall have been signed by or on behalf of The Chase Manhattan Bank (National Association), the Trustee under the Indenture, or a successor trustee thereto under the Indenture, or by an authenticating agent duly appointed by the Trustee in accordance with the terms of the Indenture. The provisions of this New Mortgage Bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. In Witness Whereof, Northwestern Public Service Company has caused this New Mortgage Bond to be signed (manually or by facsimile signature) in its name by an Authorized Executive Officer, as defined in the Indenture, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested (manually or by facsimile signature) by an Authorized Executive Officer, as defined in the Indenture. Dated: Northwestern Public Service Company By Authorized Executive Officer ATTEST: Authorized Executive Officer [Form of Trustee's Certificate] This is one of the Bonds of the series designated therein referred to in the within-mentioned Indenture and Supplemental Indenture dated as of September 1, 1995. The Chase Manhattan Bank (National Association), as Trustee By Authorized Officer [FORM OF REVERSE OF BOND] This New Mortgage Bond of the 8.90% Series is one of a duly authorized issue of Bonds of the Company (the "Bonds"), of the series hereinafter specified, all issued and to be issued under and equally secured by a General Mortgage Indenture and Deed of Trust (the "Indenture"), dated as of August 1, 1993, executed by the Company to The Chase Manhattan Bank (National Association) (the "Trustee"), as Trustee, to which Indenture and all indentures supplemental thereto reference is hereby made for a description to the properties mortgaged and pledged, the nature and extent of the security, the rights of registered owners of the Bonds and of the Trustee in respect thereof, and the terms and conditions upon which the Bonds are, and are to be, secured. The Bonds may be issued in series, for various principal sums, may mature at different times, may bear interest at different rates and may otherwise vary as provided in the Indenture. This New Mortgage Bond of the 8.90% Series is one of a series designated as the "New Mortgage Bonds, 8.90% Series Due 1999" (the "New Mortgage Bonds of the 8.90% Series") of the Company issued under and secured by the Indenture and described in the supplemental indenture dated as of September 1, 1995 (the "Supplemental Indenture dated as of September 1, 1995"), between the Company and the Trustee, supplemental to the Indenture. New Mortgage Bonds of the 8.90% Series, of which this is one, are subject to redemption as follows: At the option of the Company and upon the notice and in the manner and with the effect provided in the Indenture, any or all of the New Mortgage Bonds of the 8.90% Series may be redeemed by the Company at any time and from time to time prior to maturity, upon payment of the Yield Maintenance Price (as defined in Section 1 of Article III of the Supplemental Indenture dated as of September 1, 1995) for each of the New Mortgage Bonds of the 8.90% Series to be redeemed, together in each case with principal and accrued interest to the redemption date. To the extent permitted by, and as provided in, the Indenture, modifications or alterations of the Indenture, or of any indenture supplemental thereof, and of the rights and obligations of the Company and of the holders of the Bonds may be made with the consent of the Company by an affirmative vote of the holders of a majority in aggregate principal amount of the Bonds entitled to vote then outstanding, at a meeting of the holders of the Bonds called and held as provided in the Indenture, and by an affirmative vote of the holders of a majority in aggregate principal amount of the Bonds of any series or any tranche or tranches of any series entitled to vote then outstanding and affected by such modification or alteration, in case one or more but less than all of the series of Bonds or of any tranche or tranches of any series of Bonds then outstanding under the Indenture are so affected; provided, however, that no such modification or alteration shall be made which will affect the terms of payment of the principal of, or interest or premium, if any, on this Bond. In case an Event of Default, as defined in the Indenture, shall occur, the principal of all the New Mortgage Bonds of the 8.90% Series at any such time outstanding under the Indenture may be declared or may become due and payable, upon the conditions and in the manner and with the effect provided in the Indenture. The Indenture provides that such declaration may be rescinded under certain circumstances. Article II Issue Of New Mortgage Bonds Of The 8.90% Series Section 1. The Company hereby exercises the right to obtain the authentication of $7,500,000 principal amount of Bonds pursuant to the terms of Section 4.03 of the Indenture. All such Bonds shall be New Mortgage Bonds of the 8.90% Series. Section 2. Such New Mortgage Bonds of the 8.90% Series may be authenticated and delivered prior to the filing for recordation of this Supplemental Indenture. Article III Redemption Section 1. The New Mortgage Bonds of the 8.90% Series shall, upon the notice and in the manner and with the effect provided in Article Five of the Original Indenture, as amended by Section 2 of this Article III, be redeemable at any time and from time to time prior to maturity, at the option of the Company, as a whole, upon payment of the Yield Maintenance Price (as hereinafter defined) for each of the New Mortgage Bonds of the 8.90% Series to be redeemed, together with accrued interest to the redemption date; provided however, the Company shall not redeem any New Mortgage Bonds of the 8.90% Series in a principal amount less than $100,000 or a multiple thereof. If the notice of redemption shall have been given by the Company as provided in the Indenture, the Computing Holder shall deliver written notice to the Company on the fifth business day prior to such redemption date, of the amount of the Yield Maintenance Price for the principal amount of the New Mortgage Bonds of the 8.90% Series held by such Computing Holder so to be redeemed, which notice shall set forth in reasonable detail the computation thereof. The Yield Maintenance Price set forth in such notice shall be binding on the Company absent manifest error. The Company shall deliver to each holder of the New Mortgage Bonds of the 8.90% Series to be redeemed on or before such redemption date a certificate signed by a principal financial officer of the Company setting forth the Yield Maintenance Price of the principal amount of the New Mortgage Bonds of the 8.90% Series held by such holder so to be redeemed, and setting forth in reasonable detail the calculation thereof accompanied by a copy of the written notice given by the Computing Holder which sets forth the computation of the Yield Maintenance Price of the New Mortgage Bonds of the 8.90% Series held by the Computing Holder. The Company covenants and agrees that it will on such redemption date redeem the New Mortgage Bonds of the 8.90% Series held by each holder so to be redeemed by payment to such holder the Yield Maintenance Price therefor, together with interest accrued thereon to the date fixed for redemption. As used in this Section 1: "Computing Holder" shall mean the holder who holds bonds of the New Mortgage Bonds of the 8.90% Series with an aggregate principal amount outstanding higher than that of New Mortgage Bonds of the 8.90% Series held by any other holder, or in the event two or more holders hold an equal amount which constitutes the highest principal amount of the New Mortgage Bonds of the 8.90% Series, any holder designated by the other holders. For purposes of determining the Computing Holder, the New Mortgage Bonds of the 8.90% Series then held by Metropolitan Life Insurance Company and its subsidiaries shall be aggregated. "Weighted Average Life to Final Maturity" of any of the New Mortgage Bonds of the 8.90% Series to be redeemed, shall mean the number of years (rounded to the nearest one-twelfth of a year) which will elapse between the scheduled date of redemption thereof and the scheduled date of maturity of the New Mortgage Bonds of the 8.90% Series. "Yield Maintenance Price" shall mean the higher of (1) the entire unpaid principal amount of the New Mortgage Bonds of the 8.90% Series to be redeemed and (2) the sum of the respective Payment Values of each prospective interest payment and the principal payment as maturity in respect of the principal amount of the New Mortgage Bonds of the 8.90% Series to be redeemed (the amount of each such payment being herein referred to as a "Payment"). The Payment Value of each Payment shall be determined by discounting such Payment at the Reinvestment Rate, for the period from the scheduled date on which such Payment is due to be made to the applicable date of redemption. The Reinvestment Rate is the yield which shall be imputed from the yields of those actively traded "On The Run" United States Treasury securities having maturities as close as practicable to the Weighted Average Life to Final Maturity of the New Mortgage Bonds of the 8.90% Series to be redeemed. The yields of such United States Treasury securities shall be determined as of 10 A.M. Eastern Time on the date on which the Yield Maintenance Price is determined. Section 2. Notice of redemption of any New Mortgage Bonds of the 8.90% Series shall be given as provided in Section 5.04 of the Original Indenture. If given by mail, the mailing of such notice shall be a condition precedent to redemption, provided that any notice which is mailed in the manner provided in Section 5.04 of the Original Indenture shall be conclusively presumed to have been duly given whether or not the holders receive such notice, and failure to give such notice by mall, or any defect in such notice, to the holder of any such bond designated for redemption shall not affect the validity of the redemption of any other such bond. Except for the changes in the giving of notice of redemption as provided in this Section, the procedures for redemption of the New Mortgage Bonds of the 8.90% Series shall be as provided in Article Five of the Original Indenture. Section 3. The Company, with the approval of the Trustee, may enter into a written agreement with the holder of any New Mortgage Bonds of the 8.90% Series providing that payment of such bonds called for redemption in part only be made directly by mail, wire transfer or in any other manner to the holder thereof without presentation or surrender thereof if there shall be delivered to the Trustee an agreement (which may be a composite with other such agreements) between the Company and such holder (or other person acting as agent for such holder or for whom such holder is a nominee) that payment shall be so made, and that in the event the holder thereof shall sell or transfer any such bonds (a) it will, prior to the delivery of such bonds, either (i) surrender such bonds to the Trustee to make a proper notation of the amount of principal paid thereon or (ii) surrender such bonds to the Trustee against receipt of one or more New Mortgage Bonds of the 8.90% Series in an aggregate principal amount equal to the unpaid principal portion of the bonds so surrendered, and (b) it will promptly notify the Company of the name and address of the transferee of any New Mortgage Bonds of the 8.90% Series so transferred. The Trustee shall not be liable or responsible to any such holder or transferee or to the Company or to any other person for any act or omission to act on the part of the Company or any such holder in connection with any such agreement. The Company will indemnify and save the Trustee harmless against any liability resulting from any such act or omission and against any liability resulting from any action taken by the Trustee in accordance with the provisions of any such agreement. Article IV The Trustee The Trustee hereby accepts the trusts hereby declared provided, and agrees to perform the same upon the terms and conditions in the Indenture set forth and upon the following terms and conditions: The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or the due execution hereof by the Company or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article Eleven of the Indenture shall apply to this Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to this Supplemental Indenture. Article VI Miscellaneous Provisions This Supplemental Indenture may be simultaneously executed in any number of counterparts, each of which when so executed shall be deemed to be an original; but such counterparts shall together constitute but one and the same instrument. In Witness Whereof, said Northwestern Public Service Company has caused this Indenture to be executed on its behalf by an Authorized Executive Officer as defined in the Indenture, and its corporate seal to be hereto affixed and said seal and this Indenture to be attested by an Authorized Executive Officer as defined in the Indenture; and The Chase Manhattan Bank (National Association), in evidence of its acceptance of the trust hereby created, has caused this Indenture to be executed on its behalf by its President or one of its Vice Presidents and its corporate seal to be hereto affixed and said seal and this Indenture to be attested by its Secretary or one of its Assistant Secretaries; all as of the 1st day of September, 1995. Northwestern Public Service Company By Vice President (CORPORATE SEAL) ATTEST: Corporate Secretary The Chase Manhattan Bank (National Association) By Vice President (CORPORATE SEAL) ATTEST: Assistant Secretary State Of South Dakota ) ) SS County Of Beadle ) Be it Remembered, that on this 5th day of September, 1995, before me, Susan M. Anderson, a Notary Public within and for the County and State aforesaid, personally came D. K. Newell, Vice President - Finance, and Alan D. Dietrich, Corporate Secretary of Northwestern Public Service Company, a Delaware corporation, who are personally known to me to be such officers, and who are personally known to me to be the same persons who executed as such officers the within instrument of writing, and such persons duly acknowledged that they signed, sealed and delivered the said instrument as their free and voluntary act as such Vice President - Finance and Corporate Secretary, respectively, and as the free and voluntary act of Northwestern Public Service Company for the uses and purposes therein set forth. In Witness Whereof, I have hereunto subscribed my name and affixed my official seal on the day and year last above written. (Notarial Seal) Susan M. Anderson Notary Public, Beadle County, S.D. My Commission expires June 8, 2000 State Of New York ) ) SS County Of Kings ) Be it Remembered, that on this _____ day of August, 1995, before me, _______________, a Notary Public within and for the County and State aforesaid, personally came _________________, Vice President, and _________________, Assistant Secretary of The Chase Manhattan Bank (National Association), a national banking association, who are personally known to me to be such officers, and who are personally known to me to be the same persons who executed as such officers the within instrument of writing, and such persons duly acknowledged that they signed, sealed and delivered the said instrument as their free and voluntary act as such Vice President and Assistant Secretary, respectively, and as the free and voluntary act of The Chase Manhattan Bank (National Association) for the uses and purposes therein set forth. In Witness Whereof, I have hereunto subscribed my name and affixed my official seal on the day and year last above written. (Notarial Seal) Notary Public, State of New York No. __________ Qualified in Kings County Commission expires ________, ____ EX-10 6 Exhibit 10(a)(4) NORTHWESTERN PUBLIC SERVICE COMPANY DIRECTORS' RETIREMENT PLAN WHEREAS, Northwestern Public Service Company (the "Company") desires to recognize the service of certain persons who have acted as outside Directors of the Company and to provide for the security of such Directors after their service with the Company ends; and WHEREAS, the Board of Directors of Northwestern Public Service Company did on November 4, 1987, adopt the Directors' Retirement Plan (the "Plan"); and WHEREAS, on February 1, 1989, the Board of Directors adopted Amendment No. 1, which amended the benefit reduction provisions of the Plan, effective May 3, 1989; and WHEREAS, on August 7, 1991, the Board of Directors adopted Amendment No. 2, which amended and clarified the method of payment of benefits under the Plan; WHEREAS, on February 2, 1994, the Board of Directors adopted Amendment No. 3, which amended the retirement benefit provisions, effective May 1, 1994. WHEREAS, on May 3, 1995, the Board of Directors adopted Amendment No. 4, which amended the normal retirement benefit provisions, effective May 1, 1995. NOW THEREFORE, the Northwestern Public Service Company Directors' Retirement Plan provides as follows: ARTICLE I DEFINITIONS The following words and phrases as used herein shall have the meanings indicated below, unless a different meaning is required by the context: 1.01 "Board" means the Board of Directors of the Company as constituted from time to time. 1.02 "Committee" means the Northwestern Public Service Company Board of Directors' Nominating and Compensation Committee. 1.03 "Company" means Northwestern Public Service Company. 1.04 "Director" means a duly elected and qualified member of the Board who either: (a) on his Termination Date has never been an employee of the Company; or (b) has been an employee of the Company, but on his Termination Date is not an employee of the Company and has then completed ten Years of Service as a member of the Board after the date of his termination of employment with the Company. 1.05 "Effective Date" means January 1, 1988. 1.06 "Participant" means an individual who serves actively as a Director at any time on or after the Effective Date and who has completed at least five Years of Service as a Director on or prior to his Termination Date. 1.07 "Plan" means the Northwestern Public Service Company Directors' Retirement Plan. 1.08 "Plan Year" means the calendar year. 1.09 "Retirement Benefit" means the series of monthly payments made to a Participant in accordance with the provisions of Section 2.01 or 2.02. 1.10 "Termination Date" means the date on which a Participant ceases to be a Director, and a successor has been elected and qualifies. 1.11 "Years of Service" means the number of Plan Years (computed to the nearest one-twelfth) during which a person has been a Director, including Plan Years before the Effective Date. For purposes of making the foregoing computation, a Director's Years of Service need not be consecutive and all periods of service as a Director shall be aggregated. 1.12 "Quarter" means the three-month period May-July, August-October, November-January, or February-April. ARTICLE II RETIREMENT BENEFITS 2.01 Normal Retirement Benefit. The amount of the annual Normal Retirement Benefit payable to a Participant shall be an annual fee, calculated as of the time Termination Date occurs according to the schedule in Exhibit I to this Plan. 2.02 Early Retirement Benefit. A Participant whose Termination Date occurs before the date he attains the age of seventy years shall be entitled to receive an annual Early Retirement Benefit from the Company, reduced as provided in the next sentence. The amount of the annual Early Retirement Benefit payable to a Participant hereunder shall be equal to the annual Normal Retirement Benefit that would have been payable under Section 2.01, reduced by five percent for each year, or part thereof, up to a maximum of twenty-five percent by which the Participant's age at his Termination Date is less than sixty-five years. 2.03 Time and Method of Payment. A Retirement Benefit payable to a Participant pursuant to Section 2.01 or 2.02 shall be payable in monthly installments commencing the first month of the quarter immediately following the later to occur of his Termination Date and the date he attains the age of sixty-five years and ending the month in which the Participant has received benefits under the Plan for the same number of months as he served as a Director. Should a Participant die before such benefits have been fully paid, a surviving spouse of such Participant shall receive the remaining benefits under the Plan until the earlier to occur of the death of such surviving spouse or the termination of benefits according to the prior sentence. In no event is any Retirement Benefit payable to or with respect to a Participant prior to the later to occur of his Termination Date and the date he attains the age of sixty-five years. A Retirement Benefit is payable only in the form of an annuity as described in this Section and may not be paid in any optional form. 2.04 Facility of Payment. Whenever, in the Committee's opinion, a Participant is under a legal disability or is incapacitated in any way so as to be unable to manage his financial affairs, the Committee may make payments of his Retirement Benefit to the Participant or to his legal representative or to a relative or friend of the Participant for his benefit, or the Committee may apply the same for the benefit of the Participant in such manner as the Committee considers advisable. Any payment of a Benefit or installment thereof in accordance with the provisions of this Section shall be a complete discharge of any liability for the making of such payment under the provisions of the Plan. ARTICLE III ADMINISTRATION 3.01 Company's Obligation. The Company's obligation hereunder at any time is to pay Retirement Benefits under the Plan as they become due to Participants in accordance with the terms of the Plan. The Company need not segregate any of its assets or otherwise fund in advance for obligations likely to be incurred hereunder. Retirement Benefits specified under the Plan shall be payable from the general assets of the Company at the time they are due. 3.02 Committee. (a) The Plan shall be administered by the Committee, which shall have such duties and powers as may be necessary to discharge its duties under the Plan, including but not limited to the following: (i) To construe and interpret the Plan, to decide all questions of eligibility, and to determine the amount, manner, and time of payment of any Retirement Benefits hereunder. (ii) To appoint or employ individuals to assist in the administration of the Plan and any other agents deemed advisable, including legal counsel. (iii) To prescribe procedures to be followed by Participants for filing applications for Retirement Benefits. (iv) To receive from the Company and from Participants such information as shall be necessary for the proper administration of the Plan. (b) The Committee shall have no power to add to, subtract from, or modify any of the terms of the Plan, or to change or add to any Retirement Benefits provided by the Plan, or to waive or fail to apply any requirements of eligibility for a Retirement Benefit under the Plan. 3.03 Expenses. Reasonable expenses of the Committee incurred in the administration of the Plan shall be reimbursed by the Company. The members of the Committee shall receive no compensation for their services in connection with the administration of the Plan. 3.04 Committee Member as Participant. A member of the Committee may also be a Participant, but may not make any discretionary decision or take any action affecting his own interest as a Participant under the Plan unless that decision or action is upon a matter that affects all other Participants similarly situated and confers no special right, benefit, or privilege not simultaneously conferred upon all other such Participants. 3.05 Indemnification of Committee Members. The members of the Committee shall be indemnified by the Company against any and all liabilities arising by reason of any act or failure to act in good faith in connection with the Plan, including expenses reasonably incurred in the defense of any claim relating thereto. ARTICLE IV AMENDMENT AND TERMINATION 4.01 Amendment and Voluntary Termination. The Company reserves the right at any time and from time to time to modify or amend in whole or in part any or all of the provisions of the Plan, or to terminate the Plan. Except as provided below, no such modification, amendment, or termination, however, shall have the effect of reducing the amount of the Retirement Benefit that a Participant has received prior to, is receiving on, or would become entitled to (except for adjustments to such amounts following the date a Participant terminates his service as a Director as provided in Section 2.01) if his Termination Date occurred on, the effective date of such modification, amendment, or termination. For any Participant who was serving on the Board of Directors at the time of the adoption of Amendment No. 3, when benefits become payable under Section 2.03 the Participant shall elect, upon retirement, to receive the lifetime benefit payable under the Plan prior to the adoption of such Amendment or the limited term and surviving spouse survivorship benefit payable under the Amendment. 4.02 Corporate Successors. The Plan shall not be terminated by a transfer or sale of assets of the Company or by the merger or consolidation of the Company into or with any other corporation or other entity. ARTICLE V MISCELLANEOUS 5.01 No Guarantee. Nothing contained in this Plan shall be construed as a contract of employment between the Company and any Director or as a right of any Director to be continued in such capacity by the Company or as a guarantee by the Company that any Director shall be continued in such capacity. 5.02 Interest Nontransferable. Benefits payable under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, including any such liability that is for alimony or other payments for the support of a spouse or former spouse, or for any other relative of the person entitled to such benefits hereunder, prior to actual receipt by such person. Any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, or otherwise dispose of any right to benefits payable hereunder shall be void. 5.03 Exclusions and Separability. Each provision hereof shall be independent of each other provision hereof, and, if any provision of this Plan proves to be, or is held by any court, or tribunal, board, or authority of competent jurisdiction to be void or invalid with respect to a Participant, such provision shall be disregarded and shall be deemed to be null and void and not part of this Plan with respect to such Participant. The invalidation of any such provision, however, shall not otherwise impair or affect the Plan or any of the other provisions or terms hereof. 5.04 Unclaimed Funds. Each Participant shall keep the Committee informed of his current address. Neither the Company nor the Committee shall be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Committee within three years after the date on which the first payment of the Participant's Retirement Benefit is to be made, the Participant will be deemed to have died at the end of the three-year period and the Retirement Benefit will be forfeited. Notwithstanding the foregoing, if the Participant subsequently makes a claim for any Retirement Benefit that has been forfeited under this Section, such Retirement Benefit shall be reinstated, without interest. 5.05 Federal Tax Status. The Plan is not intended to be qualified or tax exempt under Section 401 or Section 501(a), respectively, of the Internal Revenue Code of 1986. 5.06 Governing Law. The provisions of the Plan shall be construed, administered, and governed under the laws of South Dakota. 5.07 Successors. Subject to Article IV, the Plan shall be binding upon and inure to the benefit of any successors of the Company. 5.08 Gender and Number. Except when otherwise required by the context, any masculine terminology in this document shall include the feminine and any singular terminology shall include the plural. 5.09 Headings. The headings in this Plan are inserted for convenience of reference only and are not to be considered in construction of the provisions hereof. IN WITNESS WHEREOF, the Company has executed this revised Directors' Retirement Plan as of the 3rd day of May, 1995. NORTHWESTERN PUBLIC SERVICE COMPANY By_____________________________________ M. D. Lewis President & CEO By_____________________________________ Raymond M. Schutz, Chairman Nominating and Compensation Committee EXHIBIT I NORMAL RETIREMENT BENEFIT (ANNUAL) Termination Date Benefit May 1, 1995 - April 30, 1996 $11,600 May 1, 1996 - April 30, 1997 $12,000 May 1, 1997 - April 30, 1998 $12,400 May 1, 1998 - April 30, 1999 $12,800 May 1, 1999 - April 30, 2000 $13,200 EX-10 7 Exhibit 10(a)(5) NORTHWESTERN PUBLIC SERVICE COMPANY PHANTOM STOCK UNIT PLAN 1. Objectives The objective of the Northwestern Public Service Company Phantom Stock Unit Plan (the "Plan") is to assist officers and directors ("Eligible Individuals") in building financial security through capital accumulation by providing them with deferred remuneration based upon the award of Phantom Stock Units, the value of which is related to the value of the common stock ("Common Stock") of Northwestern Public Service Company ("Company"). The Plan is also intended to: (1) create incentives to participating Eligible Individuals related to the long-term performance of the Common Stock, (2) encourage continued employment with, or service on the Board of Directors ("Board") of, the Company, and (3) promote awareness of the performance of the Common Stock. 2. Administration The Plan shall be administered by the Company. Subject to the provisions of the Plan, the Board shall have exclusive power to select the Eligible Individuals to be granted Phantom Stock Units, to determine the number of Phantom Stock Units to be granted as described in Section 3, to determine the time or times when Phantom Stock Units will be granted and to determine such terms and conditions, in addition to the terms and conditions set forth in the Plan, that shall apply to the grant of Phantom Stock Units. The authority granted to the Board by the preceding sentence will be exercised based upon annual recommendations received from the Nominating and Compensation Committee ("Committee") of the Board. In determining the number of Phantom Stock Units to be granted to an Eligible Individual, the Board shall consider an Eligible Individual's position and responsibilities, the nature and value to the Company of an Eligible Individual's services, an Eligible Individual's present and potential contribution to the Company's success, and the Company's financial performance. Determinations by the Board shall be made by majority vote and shall be final and binding on all parties with respect to all matters relating to the Plan. The Committee shall have authority to interpret the Plan, to adopt and revise rules and regulations relating to the Plan, and to make any other determinations which it believes necessary or advisable for the administration of the Plan. 3. Grants Eligible Individuals to whom Phantom Stock Units are granted shall hereafter be referred to as "Participants." Phantom Stock Units shall be granted at the meeting of the Board in May, 1989, and at the May meeting each year thereafter, to and including May, 1999, to Participants who are Executive Officers of the Company in such amounts as the Board shall determine based on the recommendations of the Committee. The Committee shall recommend awards, in amounts based upon the criteria set forth in paragraph 2 above, up to a maximum of 35% of base salary for the Chairman of the Board and the President and Chief Executive Officer and up to a maximum of 15% of base salary for the other Executive Officer Participants. The award shall be made in Phantom Stock units at the closing price of the Company's Common Stock on the date of the award. Annual awards of 200 units shall be made to each of the Director Participants who are not Executive Officers of the Company. 4. Phantom Stock Units and Dividend Equivalents (a) Phantom Stock Units granted to a Participant shall be credited to a Phantom Stock Unit Account ("Account") established and maintained for such Participant on the books of the Company. The Account of a Participant, which shall be the record of Phantom Stock Units granted to him under the Plan, and dividend equivalents related thereto, is solely for accounting purposes and shall not require a segregation of any Company assets. Each grant of Phantom Stock Units under the Plan to a Participant shall be communicated by the Board in writing to the Participant within thirty (30) days after the date of grant. (b) Additional credits will be made to each Participant's Account in amounts equal to the dividends the Participant would have received from time to time had he been the owner on the record dates with respect thereto of the number of shares of Common Stock equal to the number of Phantom Stock Units in his Account on such dates. Such dividend credit amounts shall be converted to Phantom Stock Units at the closing price of the Common Stock on the New York Stock Exchange on the date that dividends are paid. 5. Vesting (a) A Participant shall have a nonforfeitable right to the Phantom Stock Units granted in a given year and dividend equivalents thereon on May 1st of the year five years following the date that such Phantom Stock Units were granted (the "Fifth Anniversary Date"). (b) A Participant shall have a nonforfeitable right to one hundred percent (100%) of the Phantom Stock Units and other amounts credited to his Account upon the Participant's termination of employment with the Company due to death, permanent disability or retirement on or after the age of sixty-five (65) years or such earlier date as the Board, in its discretion, shall designate. The Participant or his Beneficiary may choose vesting under paragraph 5(a) or the full vesting under the preceding sentence. (c) For purposes of this Section 5 a Participant will be considered to terminate employment by reason of "permanent disability" if, in the determination of the Board, he is subject to a physical or mental condition which is expected to render the Participant unable to perform his usual duties or any comparable duties for the Company. 6. Payment for Phantom Stock Units (a) Upon a Fifth Anniversary Date the Participant shall be entitled to receive from the Company an amount equal to the sum of (1) the total value (as determined by the Board pursuant to Section 7) of the Phantom Stock Units credited to his Account that vest on such Date and (2) related reinvested dividend equivalents credited to his Account pursuant to Section 4 as of such Date. Upon the date the Participant vests in 100% of the Phantom Stock Units and related amounts credited to his Account pursuant to paragraph 5(b) (the "Automatic Vesting Date"), the Participant shall be entitled to receive from the Company an amount equal to the sum of (1) the total value (as determined by the Board pursuant to Section 7) of the Phantom Stock Units credited to the Participant's Account as of the Automatic Vesting Date, and (2) the value of dividend equivalents thereon credited to his Account pursuant to Section 4, as of the Automatic Vesting Date. (b) Payment to a Participant of any amount set forth in paragraph 6(a) shall be made in cash in a lump sum within thirty (30) days after the applicable Fifth Anniversary Date and, unless otherwise elected by the Participant or his Beneficiary, after the Automatic Vesting Date. (c) Notwithstanding any other provision of the Plan, all Phantom Stock Units and other amounts credited to the Account of a Participant, and all right to any payment hereunder to the Participant, will be forfeited, and the Company will have no further obligation hereunder to such Participant, if any of the following circumstances occur: (i) The Participant at any time is discharged from employment with the Company for cause ("Cause"). "Cause" shall mean (A) a Participant's conviction of any criminal violation involving dishonesty, fraud, or breach of trust, or (B) a Participant's willful engagement in any misconduct in the performance of his duty that materially injures the Company, or (C) failure to adequately perform his duties; or (ii) The Participant at any time prior to the Fifth Anniversary Date or the Automatic Vesting Date voluntarily terminates employment with the Company. The Board shall have sole discretion with respect to the application of the provisions of this paragraph (c) and such exercise of discretion shall be conclusive and binding upon the Participant, and all other persons. (d) Notwithstanding any other provision of the Plan, one-half of the payment under paragraph 6(a) for Participants who are active Executive Officers of the Company will be used to purchase Common Stock of the Company. Those Participants may elect to make such purchase in a lump sum at the time of award payout each year, through payroll deduction during the year, or a combination thereof. 7. Valuation of Phantom Stock Units For all purposes of the Plan other than for the purposes of paragraph 4(b), the value of a Phantom Stock Unit upon a Fifth Anniversary Date or the Automatic Vesting Date for purposes of Section 6 will be an amount equal to the average of the closing prices of the Common Stock on the Composite Tape of the New York Stock Exchange for the ten (10) consecutive trading days immediately preceding such Date; or 8. Changes in Capital and Corporate Structure In the event of any change in the outstanding shares of Common Stock of the Company by reason of an issuance of additional shares, recapitalization, reclassification, reorganization, stock split, reverse stock split, combination of shares, stock dividend or similar transaction, the Board shall proportionately adjust, in an equitable manner, the number of Phantom Stock Units held by Participants under the Plan. The foregoing adjustment shall be made in a manner that will cause the relationship between the aggregate appreciation in outstanding Common Stock and earnings per share of the Company and the increase in value of each Phantom Stock Unit granted hereunder to remain unchanged as a result of the applicable transaction. 9. Non-Transferability Phantom Stock Units granted under the Plan, and other amounts credited to a Participant's Account, and any rights and privileges pertaining thereto, may not be transferred, assigned, pledged or hypothecated in any manner, by operation of law or otherwise, other than by will or by the laws of descent and distribution, and shall not be subject to execution, attachment or similar process. 10. Death of a Participant In the event of a Participant's death, payment of any amount due under the Plan shall be made to the Participant's designated Beneficiary. In the event the Participant has not designated a Beneficiary, or if no designated Beneficiary is living at the date of death of the Participant, payment of any amount due under the Plan shall be paid as promptly as practicable to the duly appointed and qualified executor or administrator of the Participant's estate. "Beneficiary" shall mean the individual, corporation, partnership, association, trust or unincorporated organization designated by a Participant in writing filed with the Company as the recipient of any payment to be made to a Participant hereunder in the event of the Participant's death prior to payment. Such designation may be changed by a Participant at any time by writing filed with the Company without the consent of or notice to any Beneficiary previously designated. 11. Withholding The Company shall have the right to deduct from all amounts paid pursuant to the Plan any taxes required by law to be withheld with respect to such amounts. 12. Voting and Dividend Rights Except as provided in Sections 4, 6, and 8, no Participant shall be entitled to any voting rights or to receive any dividends or other distributions with respect to the Common Stock of the Company as a result of his participation in the Plan. 13. Miscellaneous Provisions (a) No Participant or other person shall have any claim or right to be granted an award under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ of the Company or to continue to serve as a member of the Board. (b) The Plan shall at all times be entirely unfunded and no provisions shall at any time be made with respect to segregating assets of the Company for payment of any benefits hereunder. No Participant or other person shall have any interest in any particular assets of the Company by reason of the right to receive a benefit under the Plan and any such Participant or other person shall have only the rights of a general unsecured creditor of the Company with respect to any rights under the Plan. (c) Except when otherwise required by the context, any masculine terminology in this document shall include the feminine, and any singular terminology shall include the plural. (d) This Plan shall be governed by the laws of the State of South Dakota. 14. Effectiveness and Term of Plan The effective date of the Plan shall be May 3, 1989, and the Plan shall terminate with awards made in May, 1999. No Phantom Stock Units shall be granted pursuant to the Plan after the date of termination of the Plan, although after such date payments shall be made with respect to Phantom Stock Units granted prior to the date of termination. IN WITNESS WHEREOF, the Company has executed this Plan as of the 3rd day of May, 1995. NORTHWESTERN PUBLIC SERVICE COMPANY By______________________________________ M. D. Lewis President & CEO By______________________________________ Raymond M. Schutz, Chairman Nominating and Compensation Committee EX-10 8 Exhibit 10(a)(6) AGREEMENT BETWEEN NORTHWESTERN PUBLIC SERVICE COMPANY AND ______________________________ November 1, 1995 TABLE OF CONTENTS Page 1. Defined Terms 1 2. Term of Agreement 2 3 Company's Covenants Summarized 2 4. The Executive's Covenants 3 5. Compensation Other Than Severance Payments 3 6. Severance Payments 4 7. Termination Procedures and Compensation During Dispute 12 8. No Mitigation 14 9. Successors; Binding Agreement 15 10. Notices 16 11. Miscellaneous 16 12. Validity 17 13. Counterparts 17 14. Settlement of Disputes; Arbitration 17 15. Definitions 18 AGREEMENT THIS AGREEMENT dated November 1, 1995, is made by and between Northwestern Public Service Company, a Delaware Corporation (the "Company"), and ______________________________ (the "Executive"). WHEREAS the Company considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel; and WHEREAS the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly-held companies, the possibility of a Change in Control or a Major Transaction (as defined in the last Section hereof) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders; and WHEREAS the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the management of the Company, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control or a Major Transaction; NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. Defined Terms. The definition of capitalized terms used in this Agreement is provided in the last Section hereof. 2. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 1997; provided, however, that commencing on January 1, 1996 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend this Agreement or a Change in Control or a Major Transaction shall have occurred prior to such January 1; provided, however, if a Change in Control or a Major Transaction shall have occurred during the term of this Agreement, this Agreement shall continue in effect for a period of thirty-six (36) months beyond the month in which such Change in Control or Major Transaction occurred. 3. Company's Covenants Summarized. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the "Severance Payments" described in Section 6.1 hereof and the other payments and benefits described herein in the event the Executive's employment with the Company is terminated following a Change in Control or a Major Transaction and during the term of this Agreement. No amount or benefit shall be payable under this Agreement unless there shall have been (or, under the terms hereof, there shall be deemed to have been) a termination of the Executive's employment with the Company following a Change in Control or a Major Transaction. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 4. The Executive's Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control or a Potential Major Transaction during the term of this Agreement, the Executive will remain in the employ of the Company until the earliest of (i) a date which is twelve (12) months from the date of such Potential Change of Control or Potential Major Transaction, (ii) the date of a Change in Control or a Major Transaction, (iii) the date of termination by the Executive of the Executive's employment for Good Reason (determined by treating the Potential Change in Control or Potential Major Transaction as a Change in Control or a Major Transaction, as applicable, in applying the definition of Good Reason), by reason of death or Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason. 5. Compensation Other Than Severance Payments. 5.1 Following a Change in Control or a Major Transaction and during the term of this Agreement, during any period that the Executive fails to perform the Executive's full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall provide the Executive with disability benefits equivalent to those under the Company's disability insurance plan (without regard to any amendment to such plan made subsequent to the Change in Control or Major Transaction which amendment adversely affects the Executive's rights thereunder) until the Executive's employment is terminated by the Employer for Disability. 5.2 If the Executive's employment shall be terminated for any reason following a Change in Control or a Major Transaction and during the term of this Agreement, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect at the time the Notice of Termination is given, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period; except to the extent that the Executive is receiving payments with respect to such period, or a portion thereof, in accordance with Section 5.1. 5.3 If the Executive's employment shall be terminated for any reason following a Change in Control or a Major Transaction and during the term of this Agreement, the Company shall pay to the Executive the normal post- termination compensation and benefits due the Executive as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's applicable retirement, insurance and other compensation or benefit plans, programs and arrangements. 6. Severance Payments. 6.1 Subject to Section 6.2(b) hereof, the Company shall pay the Executive the payments described in this Section 6.1 (the "Severance Payments") upon the termination of the Executive's employment following a Change in Control or a Major Transaction and during the term of this Agreement, in addition to the payments and benefits described in Section 5 hereof, unless such termination is (i) by the Company for Cause, (ii) by reason of death, Disability or Retirement, or (iii) by the Executive without Good Reason. The Executive's employment shall be deemed to have been terminated following a Change in Control or a Major Transaction by the Employer without cause or by the Executive with Good Reason if the Executive's employment is terminated prior to a Change in Control or a Major Transaction without Cause at the direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control or a Major Transaction, or if the Executive terminates his employment with Good Reason prior to a Change in Control or a Major Transaction (determined by treating a Potential Change in Control or Potential Major Transaction as a Change in Control or a Major Transaction, as applicable, in applying the definition of Good Reason) if the circumstance or event which constitutes Good Reason occurs at the direction of such Person. (A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to three times the sum of (i) the higher of the Executive's annual base salary in effect as of the Date of Termination or in effect immediately prior to the Change in Control or Major Transaction, and (ii) the higher of the average amount paid to the Executive pursuant to the Company's annual bonus plan with respect to the three years preceding the year in which the Date of Termination occurs or the average amount so paid with respect to the three years preceding the year in which the Change in Control or Major Transaction occurs. (B) In addition to the retirement benefits to which the Executive is entitled under each Pension Plan or any successor plan thereto, the Company shall pay the Executive a lump sum amount, in cash, equal to the excess of (x) the actuarial equivalent of the retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at Normal Retirement Age or any earlier date, but in no event earlier than the third anniversary of the Date of Termination, whichever annuity the actuarial equivalent of which is greatest) which the Executive would have accrued under the terms of each such Pension Plan (without regard to any amendment to such Pension Plan made subsequent to a Change in Control or a Major Transaction, which amendment adversely affects in any manner the computation of retirement benefits thereunder), determined as if the Executive were fully vested thereunder and had accumulated (after the Date of Termination) thirty-six (36) additional months of service credit thereunder and had been credited under each such Pension Plan during such period with compensation at the higher of (a) Executive's compensation (as defined in such Pension Plan) during the twelve (12) months immediately preceding the Date of Termination or (b) Executive's compensation (as defined in such Pension Plan) during the twelve (12) months immediately preceding the Change in Control or Major Transaction, over (y) the actuarial equivalent of the retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at Normal Retirement Age or any earlier date, but in no event earlier than the Date of Termination, whichever annuity the actuarial equivalent is greatest) which the Executive had accrued pursuant to the provisions of each such Pension Plan as of the Date of Termination. For purposes of this Section 6.1(B), "actuarial equivalent" shall be determined using the same methods and assumptions utilized under each of the Pension Plans, as applicable, immediately prior to the Date of Termination (without regard to any amendment of such methods and assumptions made subsequent to a Change in Control or a Major Transaction, which amendment results in a lower payment under this Section 6.1(B)). To the extent additional actuarial assumptions are required for the purpose of calculating benefits under this Section 6.1(B), such assumptions shall be as set forth in Schedule I hereto. (C) If the Executive would have become entitled to benefits under the Company's post-retirement health care or life insurance plans had his employment terminated at any time during the period of thirty-six (36) months after the Date of Termination, the Company shall pay such benefits to the Executive commencing on the later of (a) the date that such coverage would have first become available and (b) the date the benefits described in (D) below terminate. (D) For the thirty-six (36) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control or a Major Transaction which reduction constitutes Good Reason). Benefits otherwise receivable by the Executive pursuant to this Section 6.1(D) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). If the benefits provided to the Executive under this Section 6.1(D) shall result in a decrease, pursuant to Section 6.2(b), in the Severance Payments and these Section 6.1(D) benefits are thereafter reduced pursuant to the immediately preceding sentence because of the receipt of comparable benefits, the Company shall, at the time of such reduction, pay to the Executive the lesser of (a) the amount of the decrease made in the Severance Payments pursuant to Section 6.2(b), or (b) the maximum amount which can be paid to the Executive without being, or causing any other payment to be, nondeductible by reason of section 28OG of the Code. 6.2 (a) In the event that any payment or benefit received or to be received by the Executive in connection with a Change in Control or the termination of the Executive's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments and benefits, including the Severance Payments, being hereinafter called "Total Payments") will be subject (in whole or part) to the Excise Tax, then, subject to the provisions of subsection (b) of this Section 6.2, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income tax and Excise Tax upon the payment provided for by this Section 6.2, shall be equal to the Total Payments. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (b) In the event that, after giving effect to any redeterminations described in subsection (d) below, a reduction in the Severance Payments, to the largest amount that would result in no portion of the Total Payments being subject to the Excise Tax (after taking into account any reduction in the Total Payments provided by reason of section 28OG of the Code in such other plan, arrangement or agreement), would produce a net amount (after deduction of the net amount of federal, state and local income tax on such reduced Total Payments) that would be greater than the net amount of unreduced Total Payments (after deduction of the net amount of federal, state and local income tax and the amount of Excise Tax to which the Executive would be subject in respect of such Total Payments), then subsection (a) of this Section 6.2 shall not apply and the Severance Payments shall be so reduced. (c) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" within the meaning of section 28OG(b)(2) of the Code, unless in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive ("Tax Counsel"), such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 28OG(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 28OG(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of Tax Counsel such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of section 28OG(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of sections 28OG(d)(3) and (4) of the Code. Prior to the payment date set forth in Section 6.3 hereof, the Company shall provide the Executive with its calculation of the amounts referred to in this Section 6.2(b) and such supporting .materials as are reasonably necessary for the Executive to evaluate the Company's calculations. If the Executive disputes the Company's calculations (in whole or in part), the reasonable opinion of Tax Counsel with respect to the matter in dispute shall prevail. (d) In the event that (i) the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment and (ii) after giving effect to such redetermination, the Severance Payments are not reduced pursuant to Section 6.2(b) hereof, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in the Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code. In the event that (x) the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment) and (y) after giving effect to such redetermination, the Severance Payments are not reduced pursuant to Section 6.2(b) hereof, the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. 6.3 The payments provided for in Section 6.1 (other than Section 6.1(C) and Section 6.1(D)) and Section 6.2 hereof shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments, and the limitation on such payments set forth in Section 6.2(b) hereof, cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Executive, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). 6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any termination of his employment hereunder or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 7. Termination Procedures and Compensation During Dispute. 7.1 Notice of Termination. After a Change in -Control or a Major Transaction and during the term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 Date of Termination. "Date of Termination", with respect to any purported termination of the Executive's employment after a Change in Control or a Major Transaction and during the term of this Agreement, shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 7.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. 7.4 Compensation During Dispute. If a purported termination occurs following a Change in Control or a Major Transaction and during the term of this Agreement, and such termination is disputed in accordance with Section 7.3 hereof, the Company shall pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement. 8. No Mitigation. The Company agrees that, if the Executive's employment with the Company terminates during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to this Agreement. Further, the amount of any payment or benefit provided for in this Agreement (other than in Section 6.1(D) hereof) shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. 9. Successors; Binding Agreement. 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control or a Major Transaction, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 10. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt: To The Company: Northwestern Public Service Company 33 Third Street SE P. O. Box 1318 Huron, South Dakota 57350-1318 Attention: General Counsel To the Executive: _________________________________ _________________________________ _________________________________ 11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition .or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of South Dakota. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under Sections 6 and 7 shall survive the expiration of the term of this Agreement. 12. Validity. The invalidity or unenforceability or any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 13. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 14. Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the State of South Dakota, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 15. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below: (A) "Base Amount" shall have the meaning defined in section 28OG(b)(3) of the Code. (B) "Beneficial Owner" shall have the meaning defined in Rule 13d-3 under the Exchange Act. (C) "Board" shall mean the Board of Directors of the Company. (D) "Cause" for termination by the Employer of the Executive's employment, after any Change in Control or Major Transaction, shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or( ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company. (E) A "Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing 20% or more of the combined voting power of the Company's then outstanding securities; or (II) during any period of not more than two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board and any new director (other than a director whose original assumption of office is in connection with an actual or threatened election of directors, as such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act) whose election by the Board or nomination for election by the Company's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended, cease for any reason to constitute a majority thereof. (F) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (G) "Company" shall mean Northwestern Public Service Company and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise (except in determining, under Section 15(E) or 15(0) hereof, whether or not any Change in Control or Major Transaction has occurred in connection with such succession). (H) "Date of Termination" shall have the meaning stated in Section 7.2 hereof. (I) "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties. (J) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (K) "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code. (L) "Executive" shall mean the individual named in the first paragraph of this Agreement. (M) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent) of any one of the following acts by the Company, or failures by the Company, to act, unless, in the case of any act or failure to act described in paragraph (V), (VI) or (VII) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (I) the assignment to the Executive of duties substantially inconsistent with the Executive's status as an executive officer of the Company; (II) a reduction in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (III) requiring the Executive to be based at a location more than 100 miles from Huron, South Dakota, except for required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations; (IV) the failure by the Company, to pay to the Executive any portion of the Executive's compensation within seven (7) days of the date such compensation is due; (V) the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control or the Major Transaction which is material to the Executive's total compensation, including but not limited to the Supplemental Income Security Plan, the Phantom Stock Unit Plan and the Family Protector Plan, or any substitute plans adopted prior to the Change in Control or Major Transaction, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not substantially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, as existed at the time of the Change in Control or Major Transaction; (VI) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, life insurance, medical, health and accident, or disability plans in which the Executive was participating at the time of the Change in Control or the Major Transaction, the taking of any action by the company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control or Major Transaction, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect at the time of the Change in Control or Major Transaction; or (VII) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. (N) A "Gross-up Payment" shall have the meaning given in Section 6.02 hereof. (0) A "Major Transaction" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) the shareholders of the Company approve a merger or consolidation of the Company with any corporation or business trust, other than (i) a merger or consolidation which would result in the individuals who prior to such merger or consolidation constitute the Board constituting at least two- thirds (2/3) of the board of directors of the Company or the surviving or succeeding entity immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires more than 20% of the combined voting power of the Company's then outstanding securities; or (II) the shareholders of the Company approve a plan of complete liquidation of the Company; or (III) the shareholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all the Company's assets, other than a sale or disposition which would result in the individuals who prior to such sale or disposition constitute the Board constituting at least two-thirds (2/3) of the board of directors of the Person purchasing such assets immediately after such sale or disposition. (P) "Normal Retirement Age" shall mean the earliest age at which the Executive may commence Retirement and become entitled to an unreduced pension under the IRS qualified Pension Plan. (Q) "Notice of Termination" shall have the meaning stated in Section 7.1 hereof. (R) "Pension Plan" shall mean the Company's IRS Qualified Plan and any successor thereto and any other agreement entered into between the Executive and the Company which is designed to provide the Executive with supplemental retirement benefits. (S) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) the Company, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of shares of the Company. (T) "Potential Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (III) any Person who is or becomes the Beneficial owner, directly or indirectly, of securities of the Company representing 10%. or more of the combined voting power of the Company's then outstanding securities, increases such Person's beneficial ownership of such securities by 5% or more over the percentage so owned by such Person on the date hereof unless such Person has reported or is required to report such ownership (but less than 25%) on Schedule 13G under the Exchange Act (or any comparable or successor report) or on Schedule 13D under the Exchange Act (or any comparable or successor report) which Schedule 13D does not state any intention to or reserve the right to control or influence the management or policies of the Company or engage in any of the actions specified in Item 4 of such Schedule (other than the disposition of the common shares) and, within 10 business days of being requested by the Company to advise it regarding the same, certifies to the Company that such Person acquired such securities of the Company in excess of 14.9% inadvertently and who, together with its affiliates, thereafter does not acquire additional securities while the Beneficial Owner of 15% or more of the securities then outstanding; provided, however, that if the Person requested to so certify fails to do so within 10 business days, then such occurrence shall become a Potential Change in Control immediately after such 10 business day period; or (IV) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (U) "Potential Major Transaction" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Major Transaction; (II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Major Transaction; or (III) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Major Transaction has occurred. (V) "Retirement" shall be deemed the reason for the termination by the Company or the Executive of the Executive's employment if such employment is terminated in accordance with the Company's written mandatory retirement policy, if any, as in effect immediately prior to the Change in Control or Major Transaction, or in accordance with any retirement arrangement established with the Executive's written consent with respect to the Executive. (W) "Severance Payments" shall mean those payments described in Section 6.1 hereof. (X) "Total Payments" shall mean those payments described in Section 6.2 hereof. NORTHWESTERN PUBLIC SERVICE COMPANY By______________________________________ M. D. Lewis President & CEO ________________________________________ Executive EX-10 9 Exhibit 10(a)(7) NORTHWESTERN PUBLIC SERVICE COMPANY NorthSTAR PLAN I. Objective The Northwestern Public Service Company NorthSTAR Plan ("Plan") is established to accomplish the following objectives: (1) to motivate and reward outstanding performance by Northwestern Public Service Company (the "Company") and its employees by providing additional compensation to eligible employees who influence the profitability of the Company; (2) to compare the Company's performance with a group of regional utilities; (3) to compare the Company's performance to established annual objectives; (4) to compare individual performance to established annual objectives; (5) to focus on stockholder and ratepayer interests and (6) to support long-term objectives by achieving short-term goals. II. Administration The Plan shall be administered by the Company. The Compensation Committee ("Committee") of the Company's Board of Directors ("Board"), shall have responsibility and authority with respect to the Plan, including the following: (1) approving performance measures, the measurement scale used, and the comparison utilities selected; (2) reviewing eligibility for Plan participation; (3) approving the size of the performance fund ("Performance Fund") and individual levels of award opportunities; and (4) reviewing and approving awards for all Executive Officers. III. Eligibility for Participation Employees eligible to participate in the Plan are those full-time employees who have completed one year of service with the Company. To be eligible for an award, an employee must be employed with the Company on December 31st of the year for which the award is based, except as hereafter provided in Subsection (b). All Participants will be eligible to participate in the Plan for that calendar year unless any of the following circumstances occur: (a) The Participant at any time is discharged from employment with the Company for cause ("Cause"). "Cause" shall mean (i) a Participant's conviction of any criminal violation involving dishonesty, fraud, or breach of trust, or (ii) a Participant's willful engagement in any misconduct in the performance of his duty that materially injures the Company, or (iii) failure to adequately perform his duties; or (b) The Participant's employment with the Company has terminated for any reason other than death, permanent disability, or retirement on or after the age of sixty-five (65) years or such earlier date as the Board, in its discretion, shall designate. For the purposes of this Section, a Participant will be considered to terminate employment by reason of "permanent disability" if, in the determination of the Board, he is subject to a physical or mental condition which is expected to render the Participant unable to perform his usual duties or any comparable duties for the Company. In the event that an eligible Participant is not employed for an entire plan year, or for the first year of eligibility, his award shall be pro-rated to reflect the proportionate part of the plan year during which he was actually employed or eligible. IV. Determination of Performance Award Amounts (a) A Performance Award ("Award") shall be awarded under the Plan to each Participant, within the Range of Award Opportunities set forth on Exhibit I attached hereto, based on performance for the applicable calendar year which shall be determined by reference to the measures of performance for that year and weighting as set forth on Exhibit II attached hereto and detailed as follows: (i) Company Performance vs. Peer Utilities (50% weight) The Company will compare itself against peer utilities set forth on Exhibit II for (1) Change in Average Rates, defined as total retail revenues, divided by retail sales in kilowatt-hours, for electric operations, and total revenue from ultimate customers, divided by volume of gas sold to ultimate customers, for gas operations, and for (2) Change in Operating Expenses, defined as total operating expenses per unit of energy furnished to customers. The results of both electric and gas computations, in relation to a peer group, will be weighted in proportion to the Company's operating income from each source. The Company will rank itself percentile-wise against the peer utilities in terms of each of the above two measures. The average percentile ranking will determine the overall degree of achievement of peer-based goals and the degree to which this portion of the annual incentive is earned. If the average percentile ranking is fifty percent (50%), the target award level will be earned on the peer-based measures. If the Company ranks first among peers in terms of both measures (100th percentile), then the maximum award will be earned. If the average percentile ranking is twenty-five percent (25%), then the threshold award level will be earned with respect to the peer-based portion of the annual incentive. A ranking below the twenty-fifth percentile will eliminate this portion of the bonus. (ii) Company Performance vs. Annual Objective (25% Weight) Under this objective, Earnings Per Share, will be the primary earnings per share of the Company as it appears in the approved budget for the Company. Company management will develop a schedule for translating results of the objective into threshold, target and maximum achievement levels. This schedule must be approved by the Compensation Committee. (iii) Performance vs. Individual Objectives (25% Weight) Each year, Participants will establish three or four major individual and department goals for review and approval by their supervisor and by the Chief Executive Officer. At the end of each year, Participants will provide to their supervisor and to the Chief Executive Officer an explanation regarding the degree to which each goal has been achieved. The supervisor and the Chief Executive Officer will review the Participant's explanations and will then determine the achievement level for each Participant. (b) At the end of each calendar year, percentages will be computed and totaled for each Participant for each of the Measures of Performance in Exhibit II. Each Participant will receive an Award for the applicable calendar year equal to a percentage of his base salary as shown on Exhibit I. Threshold is defined as a composite twenty-five percentage level, Target as a composite fifty percentage level, and Maximum as a composite one hundred percentage level. The total amount of all awards made to Participants shall not exceed seven percent (7%) of the Company's net after tax income for that year. (c) All Executive Officer Awards shall be reviewed, and must be approved, by the Compensation Committee. All Awards for other Company employees shall be reviewed, and must be approved, by the Chief Executive Officer of the Company. (d) Annual base salary adjustments, as appropriate, will continue to be made by the Company to individual employees predicated on merit, performance, cost-of-living and such other factors as the Company normally has considered without regard to Awards awarded under the Plan. (e) Awards shall be paid to each Participant in a single sum as promptly as practicable after approved. V. Participant's Death (a) In the event of the death of the Participant, any unpaid Award held for the Participant shall be paid as promptly as practicable in a single sum to the Participant's designated Beneficiary. (b) In the event the Participant has not designated a Beneficiary, or if no designated Beneficiary is living at the date of death of the Participant, the unpaid Award shall be paid as promptly as practicable in a single sum to the duly appointed executor or administrator of the Participant's estate. (c) For purposes of this Section, "Beneficiary" shall mean any individual, corporation, partnership, association, trust or unincorporated organization designated by a Participant in writing filed with the Company as the recipient of the Participant's Award in the event of the Participant's death prior to its payment. Such designation may be changed by the Participant at any time in writing filed with the Company without the consent of or notice to any Beneficiary previously designated. VI. Continuity of the Plan Although it is the present intention of the Company to continue the Plan in effect for an indefinite period of time, the Board reserves the right to terminate the Plan in its entirety as of the end of any calendar year or other fiscal year of the Company or to modify the Plan as it exists from time to time, provided that no such action shall adversely affect any Awards previously awarded under the Plan. VII. Miscellaneous Provisions (a) No Award payable under the Plan shall be subject in any manner to transfer, assignment, pledge, or hypothecation in any manner by operation of law or otherwise, other than by will or by the laws of descent and distribution nor be subject to execution, attachment or similar process. (b) Neither the Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ of the Company. (c) The Plan shall at all times be entirely unfunded and no provision shall at any time be made with respect to segregating assets of the Company for payment of any Awards hereunder. No Participant or any other person shall have any interest in any particular assets of the Company by reason of the right to receive an Award under the Plan and any such Participant or any other person shall have only the rights of a general unsecured creditor of the Company with respect to any rights under the Plan. (d) Except when otherwise required by the context, any masculine terminology in this document shall include the feminine, and any singular terminology shall include the plural. (e) This Plan shall be governed by the laws of the State of South Dakota. IN WITNESS WHEREOF, the Company has executed this revised Annual Performance Incentive Plan as of the 3rd day of May, 1995. NORTHWESTERN PUBLIC SERVICE COMPANY By______________________________________ M. D. Lewis President & CEO By______________________________________ Raymond M. Schutz, Chairman Nominating and Compensation Committee EXHIBIT I May 3, 1995 Range of Award Opportunities (% of Base Salary) Position Threshold Target Maximum Group I: President & CEO 20% 25% 30% Group II: Senior Executive Officers* 15% 20% 25% Group III: Other Executive Officers 10% 15% 20% Group IV: Manager Level Employees 5% 10% 15% Group V: Salaried-Non Manager 2.5% 5% 7.5% Group VI: Hourly 2% 4% 6% * Vice President - Energy Services, Vice President - Energy Operations, Vice President - Corporate Services, and Vice President - Finance and Corporate Development EXHIBIT II May 3, 1995 MEASURES OF PERFORMANCE Performance will be measured in the following three ways for purposes of determining awards under the Plan, with weightings placed on each as indicated. 1. Company performance vs. peer utilities* (50% weight) 2. Company performance vs. annual objectives (25% weight) 3. Individual performance vs. objectives (25% weight) * Peer Utility Companies Black Hills Corporation IES Industries, Inc. Interstate Power Company Madison Gas & Electric Company MDU Resources Group, Inc. Midwest Resources Minnesota Power Otter Tail Power Company St. Joseph Light & Power Company Southern Indiana Gas & Electric Company EX-13 10 Management's Discussion and Analysis Northwestern Public Service is an energy distribution company with core operations engaged in the electric, natural gas, and propane businesses. The Company generates and distributes electric energy to 55,000 customers in eastern South Dakota. It also purchases and distributes natural gas to 76,000 customers in eastern South Dakota and four communities in Nebraska. In August 1995, the Company acquired Synergy Group, Inc., a retail propane distributor in the eastern and south-central regions of the United States. Late in 1995, two smaller propane companies were acquired: Myers Propane Gas Company and Western Gas. Propane complements the Company's electric and natural gas distribution businesses and adds geographical diversity to its operations with more than 180,000 customers and operations in 17 states. Unlike the Company's electric and natural gas businesses, propane distribution rates and service areas are unregulated. Weather Weather patterns have a material impact on the Company's operating performance. Because natural gas and propane are heavily used for residential and commercial heating, the demand for these products depends upon weather patterns throughout the Company's service area. With a larger proportion of its operations related to seasonal natural gas and propane sales in 1996, the distribution of the Company's quarterly operating performance will be different than in historical periods. A significantly greater portion of the Company's future operating income is expected to be recognized in the first and fourth quarters related to higher revenues from the heating season. Operating income for the second and third quarters is expected to be less than historical periods. Earnings Growth Earnings for 1995 were $18.0 million or $2.21 per share, compared to $15.3 million or $2.00 per share for 1994. The 10.5% earnings per share increase in 1995 was primarily due to an increase in retail electric sales, modest gas rate relief, and increased contributions from nonregulated operations, principally propane. The Company issued 1.2 million additional shares of common stock in 1995 related to the propane acquisitions. Earnings per share for 1995 reflect 6% more average shares outstanding. Earnings in 1994 were $2.00 compared to $1.96 in 1993. The increase was primarily due to greater electric retail sales and increased contributions from nonregulated businesses. Dividend Enhancement In November 1994, the Company's Board of Directors elected to increase dividends four cents a share to $1.70. Subsequently, in November 1995, the Board approved an increase in annual dividends per share from $1.70 to $1.76. The Company's Certificate of Incorporation provides for the payment of dividends on Common Stock out of retained earnings provided common equity remains at least 25% of capitalization after payment of dividends. The Company's financial strength, the success of its growth strategies, and competitive changes in the industry will be factors to be considered when evaluating future dividend payments. Business Segment Summary Increase Increase Year Ended December 31 1995 1994 (Decrease) 1993 (Decrease) ------- ------- ------------ ------ ------------ REVENUES Electric $74,857 $73,077 $ 1,780 2.4% $70,105 $2,972 4.2% Gas 64,483 62,141 2,342 3.8% 65,018 (2,877) (4.4%) Propane 38,883 - 38,883 - - - - Manufacturing 26,747 22,047 4,700 21.3% 18,134 3,913 21.6% OPERATING INCOME Electric $26,003 $25,662$ 341 1.3% $21,752 $3,910 18.0% Gas 3,862 2,540 1,322 52.0% 3,903 (1,363)(34.9%) Propane 5,604 - 5,604 - - - - Manufacturing 2,628 2,334 294 12.6% 1,618 716 44.3% OPERATING DATA Electric sales- retail (mwh) 1,071 1,019 52 5.1% 964 55 5.7% Gas throughput (000 mmbtu) 15,204 14,750 454 3.1% 14,811 (61) (0.4%) Propane sales (000 gallons) 37,805 - 37,805 - - - - - -------------------- Result of Operations - -------------------- Electric (graph of information in following table) Electric Retail Sales (000'S) ----------------------- 1991 936,368 1992 894,077 1993 964,477 1994 1,018,509 1995 1,071,328 (end of graph) Increases in electric revenues reflect the effects of a warmer summer. The Company set a new record for peak electric demand during the summer of 1995 exceeding the previous peak record set in 1991 by 8%. Retail electric kwh sales increased by 5.1% in 1995, and residential customers' average annual kwh use increased 5.2% from 8,859 kwh in 1994 to 9,316 kwh in 1995. Fuel- related costs were comparable in 1995 with the increase in electric revenue. Customers began to realize benefits from a new lower-cost sub- bituminous coal contract for the Company's jointly owned Big Stone Plant which became effective in August 1995. Combined with plant efficiency improvements, the annual fuel cost savings are expected to be in excess of $2.2 million. These savings are passed back to customers through the operation of the fuel adjustment clause. The increase in electric operating income reflects the higher retail sales, offset by slightly higher operating expenses. Other operating expenses increased primarily due to growth-related costs in expanded energy services and marketing functions. The operating expense increase also includes the initiation of incentive compensation programs for all employees which links pay to performance. Maintenance expense declined slightly while depreciation and property taxes reflect the increase in depreciable plant. 1994 vs. 1993. In 1994, revenue increases were related to a 5.7% increase in retail kwh sales over 1993. The increase in electric operating income was related to increased sales and lower operating costs. Maintenance decreased due primarily to lower electric transmission and distribution expenditures. Depreciation increases were attributed to an increase in construction activity. Natural Gas (graph of information in following table) Gas Throughput 000mmbtu --------------------- 1991 13,236 1992 12,340 1993 14,811 1994 14,750 1995 15,204 (end of graph) One of the predominant factors affecting the Company's gas operations is weather patterns during the winter heating season. Because natural gas is heavily used for residential and commercial heating, the demand for this product depends upon weather conditions. In 1995, the increase in natural gas revenues over 1994 reflects the effects of rate increases, growth in the number of customers and slightly cooler weather. Gas revenues include a 6.2% overall rate increase in South Dakota implemented on November 15, 1994, and an 8.3% overall increase in Nebraska effective April 1, 1995. Customers increased 2% over 1994. The increase in gas operating income reflects a 3.1% increase in throughput, effects of rate increases, offset by slightly higher operating expenses. As discussed above, the increase in other operating expenses was primarily due to growth-related costs in the expanded energy services and marketing functions and incentive compensation programs. Maintenance expense declined slightly while depreciation and property taxes reflect the increase in depreciable plant. 1994 vs. 1993. Warmer weather patterns during the heating season resulted in a 4.4% decrease in gas revenues offset slightly by a rate increase implemented in South Dakota late in 1994. The decrease in operating income was related to higher gas production and distribution expenses. Depreciation increases were attributed to an increase in construction activity. Propane (graph of information in following table) Revenue Growth (000's) Electric Natural Gas Manufacturing Propane -------- ----------- ------------- ------- 1991 67,958 54,942 - - 1992 65,628 52,216 1,353 - 1993 70,105 65,018 18,134 - 1994 73,077 62,141 22,047 - 1995 74,858 64,483 26,747 38,883 (end of graph) Propane revenues include Synergy Group, Inc. acquired August 15, 1995, Myers Propane Gas Company acquired on December 7, 1995, and Western Gas acquired November 20, 1995. Since August, weather throughout the Company's propane service area was 3% cooler than normal and 19% cooler than the same period in 1994. Because of the heavy use of propane for heating, propane sales are extremely weather sensitive. Synergy was acquired in the summer which traditionally is a net loss period in the industry; the majority of propane revenues occur in the first and fourth quarters when propane is heavily sold for residential and commercial heating. Operating revenue from propane sales was $38.9 million on sales of 37.8 million gallons. Propane revenues and earnings are consolidated with Northwestern's utility and other diversified businesses. The acquisition of the propane properties was made in association with Empire Gas Corporation, a large propane distribution company headquartered in Lebanon, Missouri, which has a management team experienced in the retail propane distribution business. With Northwestern, Empire Gas provides joint oversight and management of the properties acquired. Empire Gas provides administrative and operating management services to all propane properties including accounting, human resources, marketing, management information systems, and propane supply and transportation functions. In accordance with the Company's plans upon the acquisition of Synergy, substantial changes were made in the management and operation of the acquired business in order to achieve improvement in the results of operations. Among the cost efficiency measures put into place to reduce Synergy's operating, selling, and administrative expenses were the elimination of employee positions, and corporate overhead and field location operating expenses. The Synergy headquarters office operations in Farmingdale, New York were closed in late November with corporate functions consolidated with the Empire Gas corporate offices. Another significant expense reduction was the elimination of compensation and lease expenses previously paid to Synergy stockholders. Manufacturing Manufacturing revenues and operating income are related to the Company's ownership interest in Lucht Inc., a company that manufactures photographic processing and imaging equipment used by high-volume photo processing laboratories. Operating income in 1995 increased by 12.6% over 1994 primarily due to acquisitions and an increase in sales of existing product lines. Operating income in 1994 increased by 44.3% over 1993 when the Company acquired the remaining 40% ownership interest not included in the original acquisition. Other Income Statement Items Other income increased in 1995 over 1994 primarily due to greater investment income related to the gain recognized from the sale of common shares held by one of the Company's subsidiaries. The increase in interest expense is primarily related to the issuance of $60 million general mortgage bonds issued in August 1995 as a part of the Synergy acquisition financing. Income taxes increased as the result of higher taxable income. The increase in preferred dividends and the addition of minority interest on preferred securities is related to the issuance of preferred securities to finance the propane transactions. - ------------------------------- Liquidity and Capital Resources - ------------------------------- During 1995, cash flow from operations, net of dividends paid, together with proceeds from external financing activities provided the funds for construction expenditures, acquisitions, and other requirements. Operating Activities (graph of information in following table) Cash Flows From Operating Activities ------------------------ 1991 24,874,754 1992 23,056,432 1993 24,262,799 1994 26,268,921 1995 35,366,960 (end of graph) Cash flow from operating activities in 1995 increased 35% from 1994 primarily due to growth in the Company's earnings and propane acquisitions. Liquidity is also increased through the availability of substantial cash and investment balances. Cash equivalents and marketable securities totaled $44.7 million, $39.2 million, and $39.1 million at December 31, 1995, 1994, and 1993. Investment Activities - Financing Activities The Company's principal investments and capital requirements in 1995 were related to the acquisition of propane properties. During the third quarter of 1995, the Company issued $60 million of 7.10% series general mortgage bonds, maturing in 2005, 1.3 million shares of preferred securities of subsidiary trust and 1.2 million shares of common stock. The proceeds were used primarily for the acquisition of Synergy. In December, the Company issued 42,890 shares of common stock and 11,500 shares of redeemable cumulative preferred stock related to the acquisition of Myers Propane. In August 1995, the holders of all series of the Company's First Mortgage Bonds under the 1940 Mortgage Indenture (the 8.824% series due 1998, the 8.90% series due 1999, and the 6.99% series due 2002) agreed to exchange those bonds for equivalent bonds under the 1993 General Mortgage Indenture. The provisions of that indenture result in an increase in the amount of bonds that can be issued on the basis of bonded property and increased financing flexibility. The Company will continue to review the economics of retiring or refunding long-term debt and preferred stock to minimize long-term financing costs. The Company's financial coverages are at levels in excess of those required for the issuance of debt and preferred stock. Working capital and other financial resources are also provided by unused lines of credit, which are generally used to support commercial paper borrowings, a primary source of short-term financing. At December 31, 1995, unused short-term lines of credit totaled $24 million. In addition, the Company's nonregulated businesses maintain credit agreements with various banks for revolving and term loans. The consolidated capital structure at December 31, 1995 was 53% debt, 1% preferred stock, 8% preferred securities of subsidiary trust, and 38% common equity as compared to 52% debt, 1% preferred stock, and 47% common equity at year-end 1994. The Company's capital structure at December 31, 1995 includes the consolidation of $29 million of non-recourse debt of its subsidiaries. - -------------------- Capital Requirements - -------------------- The Company's primary capital requirements include the funding of its energy business construction and expansion programs, the funding of debt and preferred stock retirements and sinking fund requirements, and the funding of its corporate development and investment activities. The emphasis of the Company's construction activities is to undertake those projects that most efficiently serve the expanding needs of its customer base, enhance energy delivery and reliability capabilities through system replacement, expand its current customer base, and provide for the reliability of energy supply. Capital expenditure plans are subject to continual review and may be revised as a result of changing economic conditions, variations in sales, environmental requirements, investment opportunities, and other ongoing considerations. Expenditures for construction activities for 1995, 1994, and 1993 were $29.6 million, $22.7 million, and $20.0 million. Construction expenditures during the last three years included expenditures related to an operations center expected to provide cost savings and operating efficiencies through consolidation of activities, the installation of an additional 43 mw of internal peaking capacity, and the expansion of the Company's natural gas system into additional communities in eastern South Dakota. In addition, 1995 included $4.7 million of capital expenditures related to propane. Construction expenditures for 1996, excluding propane, are estimated to be $16.0 million. The majority of the projected expenditures will be spent on enhancements of the electric and gas distribution systems. Estimated electric and natural gas related construction expenditures for the years 1996 through 2000 are expected to be $70.4 million. Nonregulated capital expenditures for 1996 are estimated to be $6.5 million. Estimated nonregulated capital expenditures for the years 1996 through 2000 are expected to be $20.5 million. Capital requirements for the mandatory retirement of long-term debt and mandatory preferred stock sinking fund redemption totaled $600,000, $600,000, and $180,000, for the years ended 1995, 1994, and 1993, respectively. It is expected that such mandatory retirements will be $580,000 in 1996, $570,000 in 1997, $20.6 million in 1998, $12.8 million in 1999, and $5.0 million in 2000. The Company anticipates that future capital requirements will be met by both internally generated cash flows and available external financing. - ----------------------------- Competition and Business Risk - ----------------------------- The electric and natural gas utility businesses continue to undergo numerous transformations and the Company is operating in a rapidly developing competitive marketplace. The passage of the National Energy Policy Act of 1992 has accelerated competition in the electric business by promoting competition in the industry at the wholesale level. Competition in the Company's gas business was accelerated with the passage of the Federal Energy Regulatory Commission's (FERC) Order 636 which resulted in an unbundling of gas supply and services to customers, or separately- priced, sale and transportation services. The changes in the electric business are expected to be similar to those experienced in the natural gas business over the last few years. The FERC, which regulates interstate and wholesale electric transactions, has opened up transmission grids and mandated that utilities must allow others equal access to utility transmission systems. Various state regulatory bodies are also supporting initiatives to redefine the electric energy market and are experimenting with retail wheeling which gives some retail customers the ability to choose their supplier of electricity. Traditionally, utilities have been vertically integrated, providing bundled energy services to customers. The potential for continued unbundling of energy services exists, allowing customers to buy their own electricity and natural gas on the open market and having it delivered by the local utility. The growing pace of competition in the energy industry has been a primary focus of management over the last few years. The Company's future financial performance will be dependent on the effective execution of operating strategies to address a more competitive and changing energy marketplace. Business strategies focus on enhancing the Company's competitive position, on expanding energy sales and markets with new products and services for customers, and increasing shareholder value. The Company has realigned all areas of the business to support energy services and marketing functions. A new marketing plan, an expanded line of energy products and services, additional staff and new technologies are part of the Company's strategy for providing responsive and superior customer service. To strengthen the Company's competitive position, new technology was added that enables employees to better serve customers, costs are being reduced by centralizing activities to improve efficiency and customer responsiveness, and business processes are being reengineered to apply best- practices methodology. Long-term supply contracts have been renegotiated to lower customers' energy costs and new alliances help reduce expenses and add innovative work approaches. Energy distribution growth will be increasingly important to the Company in the future. In addition to maintaining a strong competitive position in electric, natural gas, and propane distribution businesses, the Company intends to seek new investments and acquisitions that have long-term growth potential. While such investments and acquisitions can involve increased risk in comparison to the Company's energy distribution businesses, they offer the potential for enhanced investment returns. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: The statements included in this Annual Report to Shareholders which are not historical facts and which are forward looking statements involve risks and uncertainties detailed in the Company's Securities and Exchange Commission filings. Report of Management The management of Northwestern Public Service Company is responsible for the integrity and objectivity of the financial information contained in this annual report. The consolidated financial statements, which necessarily include some amounts which are based on informed judgments and estimates of management, have been prepared in conformity with generally accepted accounting principles. In meeting this responsibility, management maintains a system of internal accounting controls which is designed to provide reasonable assurance that the assets of the Company are safeguarded and that transactions are executed in accordance with management's authorization and are recorded properly for the preparation of financial statements. This system is supported by written policies, selection and training of qualified personnel, an appropriate segregation of responsibilities within the organization, and a program of internal auditing. The Board of Directors, through its Audit Committee which is comprised entirely of outside directors, oversees management's responsibilities for financial reporting. The Audit committee meets regularly with management, the internal auditors, and the independent public accountants to make inquiries as to the manner in which each is performing its responsibilities. The independent public accountants and the internal audit staff have unrestricted access to the Audit committee, without management's presence, to discuss auditing, internal accounting control, and financial reporting matters. Arthur Andersen LLP, an independent public accounting firm, has been engaged annually to perform an audit of the Company's financial statements. Their audit is conducted in accordance with generally accepted auditing standards and includes examining, on a test basis, supporting evidence, assessing the Company's accounting principles and significant estimates made by management, and evaluating the overall financial statement presentation to the extent necessary to allow them to report on the fairness, in all material respects, of the operating results and financial condition of the Company. Merle D. Lewis President and Chief Executive Officer Richard R. Hylland Executive Vice President-Strategic Development Report of Independent Public Accountants To the Stockholders and Board of Directors of Northwestern Public Service Company: We have audited the accompanying consolidated balance sheets and statement of capitalization of NORTHWESTERN PUBLIC SERVICE COMPANY (a Delaware corporation) AND SUBSIDIARIES as of December 31, 1995 and 1994, and the related consolidated statements of operations and retained earnings, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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, the financial statements referred to above present fairly, in all material respects, the financial position of Northwestern Public Service Company and Subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Minneapolis, Minnesota February 2, 1996 CONSOLIDATED STATEMENT OF CAPITALIZATION December 31 1995 1994 ----------------- ----------------- Common Stock Equity: Common stock, $3.50 par value, 20,000,000 shares authorized; 8,920,122 and 7,677,232 shares outstanding, respectively $ 31,220,427 $ 26,870,312 Additional paid-in capital 56,594,914 29,922,847 Retained earnings 59,159,042 55,373,112 Unrealized gain on investments, net 5,703,808 2,538,669 ----------------- ----------------- 152,678,191 38% 114,704,940 47% ----------------- ----------------- Cumulative Preferred Stock: $100 par value, 300,000 shares authorized; 37,600 shares outstanding: Nonredeemable - 4 1/2% Series 2,600,000 2,600,000 Redeemable - 5 1/4% Series 10,000 40,000 6 1/2% Series 1,150,000 - Preferred Stock of Subsidiary: No par value, 2,500 shares outstanding: Redeemable - 2,500,000 - ----------------- ----------------- 6,260,000 1% 2,640,000 1% ----------------- ----------------- Company obligated mandatorily redeemable security of trust holding solely parent debentures: 8 1/8% Series due 2023 32,500,000 8% - Long-Term Debt: Series Due - --------------------------------- General mortgage bonds- 8.824% 1998 15,000,000 15,000,000 8.9% 1999 7,500,000 7,500,000 6.99% 2002 25,000,000 25,000,000 7.10% 2005 60,000,000 - 7% 2023 55,000,000 55,000,000 Pollution control obligations- 5.85%, Mercer Co., ND 2023 7,550,000 7,550,000 5.90%, Salix, IA 2023 4,000,000 4,000,000 5.90%, Grant Co., SD 2023 9,800,000 9,800,000 ----------------- ----------------- 183,850,000 46% 123,850,000 51% Nonrecourse debt of subsidiaries 29,560,224 7% 3,772,500 1% Less-Due within one year (570,000) - (570,000) - ----------------- ----------------- 212,840,224 53% 127,052,500 52% ----------------- ----------------- Total Capitalization $ 404,278,415 100% $ 244,397,440 100% See Notes to Consolidated Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS Years Ended December 31 1995 1994 1993 ------------- ------------ Operating Activities: Net income $ 19,305,569 $ 15,440,208 $ 15,191,073 Items not affecting cash: Depreciation and amortization 14,633,154 12,438,501 11,805,763 Deferred income taxes 2,540,385 1,509,619 (1,398,578) Investment tax credit (563,311) (564,801) (566,498) Changes in current assets and liabilities net of effects from acquisitions: Trade accounts receivable (3,897,932) (1,057,563) (2,145,693) Inventories (327,160) (1,447,191) (111,703) Other current assets (2,641,018) (259,826) (1,056,726) Accounts payable (1,718,666) 2,699,294 (1,565,245) Accrued taxes 937,553 (1,487,575) 2,393,850 Accrued interest 1,741,160 (30,991) 193,772 Other current liabilities 3,328,632 421,690 898,638 Other, net 2,028,594 (1,392,444) 624,146 ------------- ------------ ------------ Cash flows from operating activities 35,366,960 26,268,921 24,262,799 ------------- ------------ ------------ Investment Activities: Property additions (29,636,745) (22,680,856) (19,974,072) Purchase of noncurrent investments, net (5,669,229) (1,386,178) (6,923,488) Purchase of net assets, net of cash acquired (109,528,168) - (2,850,000) Purchase of working capital, net (10,607,114) - - Acquisition related costs (5,405,328) - - ------------- ------------ ------------ Cash flows for investment activities (160,846,584) (24,067,034) (29,747,560) ------------- ------------ ------------ Financing Activities: Dividends on common and preferred stock (14,463,389) (12,940,868) (12,635,351) Minority interest on preferred securities of subsidiary trust (1,056,250) - - Issuance of long-term and nonrecourse subsidiary debt 86,599,820 1,100,000 76,453,842 Repayment of long-term debt (3,156,699) (677,500) (58,900,200) Issuance of preferred securities of subsidiary trust 31,213,261 - - Issuance of preferred stock 3,650,000 - - Retirement of preferred stock (30,000) (30,000) (30,000) Issuance of common stock 31,022,182 - - Commercial paper borrowings (repayments) (6,300,000) 9,800,000 - ------------- ------------ ------------ Cash flows from (for) financing activities 127,478,925 (2,748,368) 4,888,291 ------------- ------------ ------------ Increase (Decrease) in Cash and Cash Equivalents 1,999,301 (546,481) (596,470) Cash and Cash Equivalents, beginning of year 2,552,612 3,099,093 3,695,563 ------------- ------------ ------------ Cash and Cash equivalents, end of year $ 4,551,913 $ 2,552,612 $ 3,099,093 ============= ============ ============ Supplemental Cash Flow Information: Cash paid during the year for: Income taxes $ 5,972,200 $ 7,382,119 $ 6,338,293 Interest 8,381,217 8,887,901 8,771,595 Noncash transactions during the year for: Assumption of debt as part of acquisition $ 2,344,603 $ - $ - See Notes to Consolidated Financial Statements CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS Years Ended December 31 1995 1994 1993 ------------- ------------- ------------- Operating Revenues: Electric $ 74,857,501 $ 73,077,431 $ 70,104,822 Gas 64,482,943 62,141,382 65,017,964 Propane 38,883,031 - - Manufacturing 26,746,847 22,047,241 18,134,456 ------------- ------------- ------------- 204,970,322 157,266,054 153,257,242 ------------- ------------- ------------- Operating Expenses: Fuel and purchased power 14,304,791 14,552,637 13,961,306 Purchased gas sold 46,430,023 46,351,422 48,153,861 Other operating expenses 23,428,509 21,728,387 23,285,277 Propane costs 31,716,415 - - Manufacturing costs 23,735,000 19,385,349 16,269,766 Maintenance 6,019,601 6,169,895 6,368,346 Depreciation and amortization 14,633,154 12,438,501 11,805,763 Property and other taxes 6,605,660 6,103,903 6,139,613 ------------- ------------- ------------- 166,873,153 126,730,094 125,983,932 ------------- ------------- ------------- Operating Income: Electric 26,003,006 25,661,632 21,752,231 Gas 3,861,608 2,540,091 3,903,313 Propane 5,604,307 - - Manufacturing 2,628,248 2,334,237 1,617,766 ------------- ------------- ------------- 38,097,169 30,535,960 27,273,310 Investment Income and Other 3,029,376 2,443,420 4,430,466 Interest Expense, net (11,694,483) (9,669,829) (8,944,584) ------------- ------------- ------------- Income Before Income Taxes 29,432,062 23,309,551 22,759,192 Income Taxes (10,126,493) (7,869,343) (7,568,119) ------------- ------------- ------------- Net Income 19,305,569 15,440,208 15,191,073 Minority Interest on Preferred Securities of Subsidiary Trust (1,056,250) - - Dividends on Cumulative Preferred Stock (258,939) (119,888) (121,463) ------------- ------------- ------------- Earnings on Common Stock 17,990,380 15,320,320 15,069,610 Retained Earnings, beginning of year 55,373,112 52,873,772 50,318,050 Dividends on Common Stock (14,204,450) (12,820,980) (12,513,888) ------------- ------------- ------------- Retained Earnings, end of year $ 59,159,042 $ 55,373,112 $ 52,873,772 ============= ============= ============= Average Shares Outstanding 8,130,581 7,677,232 7,677,232 Earnings Per Average Common Share $ 2.21 $ 2.00 $ 1.96 ============= ============= ============= Dividends Declared Per Average Common Share $ 1.746 $ 1.670 $ 1.630 ============= ============= ============= See Notes to Consolidated Financial Statements CONSOLIDATED BALANCE SHEETS December 31 1995 1994 --------------- ---------------- ASSETS Property: Electric $ 336,961,117 $ 321,153,724 Gas 73,546,150 67,213,487 Propane 74,815,533 - Manufacturing 2,048,725 1,558,484 --------------- ---------------- 487,371,525 389,925,695 Less-Accumulated depreciation (150,469,310) (139,381,075) --------------- ---------------- 336,902,215 250,544,620 Current Assets: Cash and cash equivalents 4,551,913 2,552,612 Trade accounts receivable, net 28,190,389 12,255,483 Receivables related to acquisition 23,357,538 - Inventories Coal and fuel oil 3,600,474 4,886,572 Materials and supplies 4,097,484 4,686,771 Manufacturing 5,660,357 5,064,859 Propane 8,287,443 - Deferred gas costs 2,925,865 3,029,688 Other 9,948,238 3,694,912 --------------- ---------------- 90,619,701 36,170,897 --------------- ---------------- Other Assets: Investments 51,907,141 46,237,912 Deferred charges and other 30,240,083 22,881,641 Goodwill and other intangibles, net 49,052,343 3,230,570 --------------- ---------------- 131,199,567 72,350,123 --------------- ---------------- $ 558,721,483 $ 359,065,640 =============== ================ CAPITALIZATION AND LIABILITIES Capitalization: Common stock equity $ 152,678,191 $ 114,704,940 Nonredeemable cumulative preferred stock 2,600,000 2,600,000 Redeemable cumulative preferred stock 3,660,000 40,000 Company obligated mandatorily redeemable security of trust holding solely parent debentures 32,500,000 - Long-term debt 212,840,224 127,052,500 --------------- ---------------- 404,278,415 244,397,440 --------------- ---------------- Commitments and Contingencies (Notes 7, 8, 9) Current Liabilities: Commercial Paper 3,500,000 9,800,000 Long-term debt due within one year 570,000 570,000 Accounts payable 15,564,985 13,139,557 Accrued taxes 7,689,592 6,740,035 Accrued interest 4,738,243 2,915,084 Accrued Liabilities related to acquisition 12,750,424 - Other 13,947,990 6,039,430 --------------- ---------------- 58,761,234 39,204,106 --------------- ---------------- Deferred Credits: Accumulated deferred income taxes 43,666,229 37,328,539 Unamortized investment tax credits 10,021,519 10,584,830 Other 41,994,086 27,550,725 --------------- ---------------- 95,681,834 75,464,094 --------------- ---------------- $ 558,721,483 $ 359,065,640 See Notes to Consolidated Financial =============== ================ Statements Notes to Consolidated Financial Statement - --------------------------- 1. Significant Accounting Policies - - --------------------------- Nature of Operations: Northwestern Public Service Company is an investor-owned combination electric and natural gas utility with nonregulated propane and manufacturing operations. The Company is engaged in the production, purchase, transmission, distribution and sale of electricity and the delivery of natural gas. The Company serves 55,310 electric customers in eastern South Dakota and 76,464 natural gas customers in eastern South Dakota and central Nebraska. To provide baseload electric power, the Company jointly owns three coal-fired generating plants with other utilities. The Company has various long-term supply agreements with its natural gas suppliers for the purchase of natural gas in the normal course of its gas operations. Through the acquisitions of Synergy Group, Inc., Western Gas, and Myers Propane Gas Company, the Company provides propane delivery service to 184,500 customers located principally in the eastern and south-central regions of the United States. The Company's manufacturing operations are comprised of Lucht Inc., a wholly owned subsidiary that develops, manufactures, and markets multi-image photographic printers and other related equipment. Basis of Consolidation: The accompanying consolidated financial statements include the accounts of Northwestern Public Service Company and all wholly and majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated from the consolidated financial statements. The Company's regulated businesses are subject to various state and federal agency regulation. The accounting policies followed by these businesses are generally subject to the Uniform System of Accounts of the Federal Energy Regulatory Commission (FERC) which differ in some respects from those used by nonregulated businesses. Manufacturing revenues and costs reflect the operations of Lucht Inc. Propane revenues and costs reflect the operations of Synergy Group, Inc. which was acquired effective August 15, 1995, Western Gas, which was acquired effective November 20, 1995, and Myers Propane Gas Company, which was acquired effective December 7, 1995. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition and Gas Costs: Electric and natural gas revenues are based on billings rendered to customers rather than on meters read or energy delivered. Customers are billed monthly on a cycle basis. Revenues from sales of propane are recognized principally as fuel products are shipped or delivered to customers. Manufacturing revenue is recognized as equipment is shipped or delivered to customers. The commodity cost portion of natural gas purchased from wholesale suppliers but not yet billed to customers is charged to deferred gas costs. This account is subsequently credited in future periods as customers are billed for natural gas used in prior periods. This method has the approximate effect of matching costs with revenues in any financial reporting period. The demand cost portion of natural gas costs, which is comprised of numerous components, is expensed as incurred. The Company has various long-term gas supply agreements with its natural gas suppliers for the purchase of natural gas in the normal course of its gas operations. An agreement with Cibola Energy Services Corporation provides supply, storage and transportation services of natural gas in South Dakota, while an agreement with KN Gas Marketing, Inc. provides similar services in Nebraska. Allowance for Funds Used During Construction: The allowance for funds used during construction includes the costs of equity and borrowed funds used to finance construction which are capitalized in accordance with rules prescribed by the FERC. In 1995, 1994, and 1993, allowance for equity funds was $134,000, $17,000, and $32,000. Allowance for borrowed funds for 1995, 1994, and 1993 was $362,000, $39,000, and $50,000. Cash Equivalents: The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Depreciation and Maintenance: Depreciation is computed using the straight-line method based on the estimated useful lives of the various classes of property. Depreciation provisions, as a percentage of the average balance of depreciable property, were 3.61% in 1995, 3.39% in 1994, and 3.37% in 1993. The percentage for 1995 includes a propane-related depreciation provision and depreciable property whose estimated useful lives range from 5 to 33 years. Depreciation rates include a provision for the Company's share of the estimated costs to decommission three coal-fired generating plants at the end of the useful life of each plant. The annual provision for such costs is included in depreciation expense, while the accumulated provisions are included in other deferred credits. The costs of maintenance, repairs, and replacements of minor property items are charged to maintenance expense accounts. Costs of renewals and betterments of electric and natural gas property units are charged to property accounts. The costs of units of electric and natural gas property removed from service, net of removal costs and salvage, are charged to accumulated depreciation. No profit or loss is recognized in connection with ordinary retirements of depreciable electric and natural gas property. Goodwill and Other Intangibles: The excess of the cost of businesses acquired over the fair market value of all tangible and intangible assets acquired, net of liabilities assumed has been recorded as goodwill which is being amortized on a straight-line basis over 40 years. Other intangibles, consisting principally of costs of covenants not to compete, are being amortized over the estimated periods benefited which do not exceed 10 years. Goodwill and other intangibles are reflected net of accumulated amortization recorded at December 31, 1995 and 1994, of $1,188,000 and $567,000, respectively. It is the Company's policy to review goodwill and other intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount is not recoverable, it is the Company's policy to reduce the carrying amount of these assets to fair value. Investments and Fair Value of Financial Instruments: The Company's investments consist primarily of corporate preferred and common stocks. In addition, the Company has investments in privately held entities and ventures, safe harbor leases, and various money market and tax exempt investment programs. These investments are accounted for in accordance with Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities". SFAS 115 requires that certain investments in debt and equity securities be reported at fair value. The Company's securities are classified under the provisions of SFAS 115. As of December 31, 1995, the fair value, cost, and the gross unrealized gain of the Company's preferred stock investments, classified as available for sale, were $37,746,000, $37,592,000, and $154,000, respectively. The fair value, cost, and the gross unrealized gains on the Company's marketable equity securities, classified as available for sale, were $9,892,000, $1,271,000, and $8,621,000, respectively. As of December 31, 1994, the fair value, cost, and the gross unrealized holding loss of the Company's preferred stock, classified as available for sale, were $31,742,000, $34,948,000, and $3,206,000, respectively. The fair value, cost, and the gross unrealized gains on the Company's marketable securities, classified as available for sale, were $8,480,000, $1,368,000, and $7,112,000, respectively. The unrealized gain, net of tax, at December 31, 1995 and 1994 was $5,704,000 and $2,539,000, respectively. Held to maturity securities are reported at cost, which approximated fair value and at December 31, 1995 and 1994 was $4,269,000 and $6,016,000, respectively. The Company uses the specific identification method for determining the cost basis of its investments in available for sale securities. Gross proceeds and realized gains and losses on sales of its available for sale securities were not material in 1995 and 1994. Based on current market rates for debt of similar credit quality and remaining maturities or quoted market prices for certain issues, the face value of the Company's long-term debt approximates its market value. Income Taxes: Deferred income taxes relate primarily to the difference between book and tax methods of depreciating property, taxable income derived from safe harbor leases, the difference in the recognition of revenues for book and tax purposes, and natural gas costs which are deferred for book purposes but expensed currently for tax purposes. For book purposes, investment tax credits were deferred and are being amortized as a reduction of income tax expense over the useful lives of the property which generated the credits. Statement of Financial Accounting Standards No. 121: In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which establishes new accounting standards for the impairment of long-lived assets. The statement is effective for fiscal years beginning after December 15, 1995. While the Company has not performed a detailed analysis of the impact of the statement, management does not expect that the adoption, which will occur in 1996, will have a material effect on financial position or results of operations. Statement of Financial Accounting Standards No. 123: Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation", was issued in October 1995 and effective for fiscal years beginning after December 15, 1995. This statement will have no impact on the Company's results of operations or financial position. Reclassifications: Certain 1994 and 1993 amounts have been reclassified to conform to the 1995 presentation. Such reclassifications had no impact on net income and common stock equity as previously reported. - --------------------------- 2. Business Acquisitions - - --------------------------- On August 15, 1995, the Company completed its acquisition of Synergy Group Incorporated (Synergy), a retail distributor of propane. Synergy maintained 152 retail branches serving approximately 200,000 customers in 23 states, primarily in suburban and rural areas of the eastern and south-central regions of the United States. In conjunction with the acquisition, the Company sold certain retail property outlets to an unrelated third party. The transaction represented an initial cash investment by the Company of approximately $137.5 million, but after the sale of certain retail property outlets, the total net cash acquisition investment by the Company was $104.9 million. The Company made debt and preferred stock investments in SYN Inc., the entity created to acquire Synergy, and Northwestern Growth Corporation, one of the Company's wholly owned subsidiaries, owns control of SYN Inc. common stock. The acquisition was accounted for under the purchase method of accounting. The total net purchase price was comprised of consideration paid of $104.9 million cash, certain securities issued, certain liabilities assumed including long-term debt of $2.3 million, and transaction related costs of $5.4 million. The cost in excess of the fair value of the net tangible and intangible assets acquired of $50.6 million has been classified as goodwill and is being amortized on a straight-line method over 40 years. The allocation of the purchase price to the acquired assets and liabilities of Synergy was based on preliminary estimated fair value of the related assets and liabilities and is subject to adjustment as further information becomes available. The Company has asserted claims under the acquisition agreement for post-closing adjustments to reduce the total consideration paid for the acquisition of Synergy. If these claims are successful, an adjustment in the consideration paid for the acquisition could result. The Company's investments in SYN Inc. were funded primarily by financings undertaken in 1995. During the third quarter of 1995, the Company issued $60 million of 7.10% general mortgage bonds due August 1, 2005, 1.3 million shares of 8 1/8% preferred securities of subsidiary trust, and 1.2 million shares of common stock. Effective November 20, 1995, SYN Inc. acquired control of Western Gas (Western) for $2 million plus the value of certain current assets. Western is a retail distributor of propane serving approximately 3,500 customers in and around Edenton, North Carolina. The purchase price was comprised of cash and a certain amount of seller financing. Effective December 7, 1995, the Company acquired majority control of Myers Propane Gas Company (Myers) through the issuance of 42,890 shares of common stock and 11,500 shares of 6 1/2% redeemable cumulative preferred stock. Myers is a retail distributor of propane serving approximately 4,500 customers in and around Sandusky, Ohio. The total purchase price of $4.8 million was comprised of the securities issued by the Company and a certain amount of seller financing. The acquisitions were accounted for under the purchase method of accounting.The cost in excess of fair value of the net assets acquired of $1.9 million has been classified as goodwill and is being amortized on a straight-line method over 40 years. The acquisitions of Synergy, Western, and Myers were made in association with Empire Gas Corporation (Empire Gas), a large propane distribution company headquartered in Lebanon, Missouri, which has a management team experienced in the retail propane distribution business. Empire Gas has a 30% common stock ownership interest in SYN Inc. (after debt and preferred stock obligations to the Company) and a management agreement between SYN Inc. and Empire Gas has been executed whereby Empire Gas performs the planning and management of the assets and business operations. Had the acquisition of Synergy occurred on January 1, 1994 (the effect of the Myers and Western acquisitions are immaterial), combined unaudited pro forma results for the years ended December 31, 1995 and 1994 as prescribed under Accounting Principles Board Opinion No. 16 (APB 16), "Business Combinations", would have been: Revenues $262,239,000 and $256,645,000, net income $19,993,000 and $9,674,000 and earnings per share $2.25 and $1.09. The pro forma disclosures required under APB 16 are not indicative of past or future operating results. Since the acquisition, the Company has implemented significant cost reduction measures principally related to elimination of certain employee positions, corporate administrative expenses and other specifically identified operating expenses that have not been reflected in the pro forma information under the provisions of APB 16. - --------------------------- 3. Short-Term Borrowings - - --------------------------- The Company may issue short-term debt in the form of bank loans and commercial paper as interim financing for general corporate purposes. The bank loans may be obtained under short-term lines of credit which totaled $24 million at December 31, 1995. The Company pays an annual fee equivalent to 1/4% of the unused lines. There were no borrowings outstanding at December 31, 1995 and 1994. At December 31, 1995, the Company had outstanding $3.5 million of commercial paper. - -------------------- 4. Long-Term Debt - - -------------------- Substantially all of the Company's utility plant is subject to the lien of the indentures securing its general mortgage bonds and pollution control obligations. General mortgage bonds of the Company may be issued in amounts limited by property, earnings, and other provisions of the mortgage indenture. Lucht Inc. has a credit agreement with a bank whereby it may borrow up to $8 million in revolving and term loans. A balance of $4,802,500 was outstanding under the revolving and term loan as of December 31, 1995 at a weighted average interest rate of 8.5%. Borrowings under the agreement are collateralized by all receivables, inventories, property, and other assets of Lucht, and are nonrecourse to the Company. SYN Inc. has a credit agreement with a bank whereby it may borrow up to $25 million in revolving loans. A balance of $21,342,320 was outstanding under the facility as of December 31, 1995, at a variable interest rate tied to a certain Eurodollar index plus 2%. Borrowings under the agreement are collateralized by SYN Inc. receivables and inventories and are nonrecourse to the Company. The term of the facility ends December 31, 1997. The balance of nonrecourse debt to subsidiaries is comprised of the remaining debt assumed from the Synergy acquisition of $615,404 and securities issued of $2 million as part of the Myers acquisition. In addition, there was $800,000 of other subsidiary debt outstanding. Annual scheduled retirements of the Company's long-term bond debt during the next five years are $20,000,000 in 1998, $12,500,000 in 1999, and $5,000,000 in 2000. Scheduled retirements of the Lucht long-term debt are $570,000 in 1996, $570,000 in 1997, $570,000 in 1998, and $292,500 in 1999. - ------------------------------- 5. Capital Stock Transactions and Retained Earnings Availability - - ------------------------------- As part of financing the Synergy acquisition, the Company issued 1.2 million shares of common stock and 1.3 million shares of 8 1/8% preferred securities of subsidiary trust. In financing the Myers acquisition, the Company issued 42,890 shares of common stock and 11,500 shares of redeemable cumulative preferred stock. Preferred stock transactions for the three years ended December 31, 1995, have also included redemptions to satisfy mandatory sinking fund requirements. With the release of the 1940 Mortgage Indenture in 1995, the only restriction on the Company's ability to pay dividends on common stock is limited by the Company's Restated Certificate of Incorporation whereby no dividend declared shall cause common stock equity to be less than 25% of total capitalization. Under its credit agreement, SYN Inc. is limited in the payment of dividends and interest related to the preferred stock and debt investments held by the Company. Such payments may be made to the Company provided they do not render SYN Inc. in default, as defined, of the credit agreement executed with the bank and are subordinate to any indebtedness outstanding under the credit agreement. The following table summarizes the capital stock transactions that occurred during the year (in thousands): Paid-in Preferred Common Capital ----------- -------- -------- Balance, 12/31/94 $2,640 $26,870 $29,923 Private placement* 1,150 150 1,000 Public offering* - 4,200 25,672 Mandatory sinking fund redemption (30) - - Subsidiary issuance 2,500 - - ----------- -------- -------- Balance, 12/31/95 $6,260 $31,220 $56,595 ----------- -------- -------- *See Footnote 2. - ------------------ 6. Income Taxes - - ------------------ Income tax expense is comprised of the following (in thousands): 1995 1994 1993 ------- ------ ------ Federal income - Current tax expense $ 7,849 $6,522 $9,038 Deferred tax (benefit) expense 2,540 1,509 (1,399) Investment tax credit (563) (565) (566) State income 300 403 495 ------- ------ ------ $10,126 $7,869 $7,568 ------- ------ ------ The following table reconciles the Company's effective income tax rate to the federal statutory rate: 1995 1994 1993 ------- ------ ------ Federal statutory rate 35% 35% 35% Amortization of investment tax credit (2) (2) (2) Dividends received deduction (5) (3) (2) Other, net 6 4 2 ------- ------ ------ 34% 34% 33% ------- ------ ------ The components of the net deferred federal income tax liability recognized in the Company's Consolidated Balance Sheet are related to the following temporary differences at December 31 (in thousands): 1995 1994 --------- ---------- Excess tax depreciation $(26,252) $(24,592) Safe harbor leases (7,060) (8,233) Property basis and life differences (7,526) (7,526) Asset sales (4,366) (4,766) Regulatory asset (4,052) (4,052) Regulatory liability 4,189 4,189 Unbilled revenue 3,857 3,882 Unamortized investment tax credit 3,491 3,491 Unrealized gain on investments (3,071) (1,367) Other, net (2,876) 1,645 --------- ---------- $(43,666) $(37,329) --------- ---------- - -------------------------- 7. Jointly Owned Plants - - -------------------------- The Company has an ownership interest in three major electric generating plants, all of which are operated by other utility companies. The Company has an undivided interest in these facilities and is responsible for its proportionate share of the capital and operating costs while being entitled to its proportionate share of the power generated. The Company's interest in each plant is reflected in the Consolidated Balance Sheet on a pro rata basis, and its share of operating expenses is reflected in the Consolidated Statement of Income and Retained Earnings. The participants each finance their own investment. The Company has long-term coal contracts for delivery of lignite coal to Coyote I and sub-bituminous coal to Neal #4. The lignite coal contract for Big Stone expired in mid-1995, and the plant owners have negotiated and secured a contract for Montana sub-bituminous coal for the period of mid- 1995 through 1999. The new sub-bituminous coal contract for Big Stone requires minimum annual purchases of 1.2 million tons. The lignite contract for Coyote I is a total requirements contract with a minimum obligation of 30,000 tons per week except during scheduled or forced outages. Neal #4 has a contract for delivery of sub-bituminous coal with an annual minimum purchase requirement of 1.8 million tons. Information relating to the Company's ownership interest in these facilities at December 31, 1995, is as follows (dollars in thousands): Big Stone Neal #4 Coyote I ---------- -------- --------- Utility plant in service $47,150 $35,011 $45,502 Accumulated depreciation $26,076 $15,945 $17,968 Construction work in progress $1,583 $272 $232 Total plant capacity - mw 449 624 427 Company's share 23.4% 8.7% 10.0% In-service date 1975 1979 1981 Coal contract expiration date 1999 1998 2016 - ------------------------ 8. Employee Retirement Benefits - - ------------------------ The Company maintains a noncontributory defined benefit pension plan covering substantially all employees. The benefits to which an employee is entitled under the plan are derived using a formula based on the number of years of service and compensation levels as defined. The Company determines the annual funding for its plan using the frozen initial liability cost method. The Company's annual contribution is funded in accordance with the requirements of ERISA. Assets of the plan consist primarily of debt and equity securities. The components of net periodic pension cost for the years ended December 31, 1995, 1994, and 1993 were as follows (in thousands): 1995 1994 1993 --------- --------- --------- Service cost $ 755 $ 948 $ 985 Interest cost on projected benefit obligation 3,144 3,176 3,048 Actual return on assets (10,082) 586 (2,970) Net amortization and deferral 6,475 (4,391) (886) --------- --------- --------- Net periodic pension cost $ 292 $ 319 $ 177 --------- --------- --------- The following table reflects the funded status of the Company's pension plan as of December 31, 1995, 1994, and 1993 (in thousands): 1995 1994 1993 --------- --------- --------- Actuarial present value of Accumulated benefit obligation Vested $ 39,946 $ 34,436 $ 34,052 Nonvested 1,417 1,197 1,528 --------- --------- --------- 41,363 35,633 35,580 --------- --------- --------- Provision for future pay increases 5,488 3,993 5,515 --------- --------- --------- Projected benefit obligation 46,851 39,626 41,095 Plan assets at fair value 52,762 44,501 46,912 --------- --------- --------- Projected benefit oblication less than plan assets (5,911) (4,875) (5,817) Unrecognized transition obligation (1,547) (1,702) (1,856) Unrecognized net gain 5,381 5,365 6,941 --------- --------- --------- Prepaid pension cost $ (2,077) $ (1,212) $ ( 732) --------- --------- --------- The assumptions used in calculating the projected benefit obligation for 1995, 1994, and 1993 were as follows: 1995 1994 1993 --------- --------- --------- Discount rate 7 3/4% 8 1/2% 8% Expected rate of return on assets 8 1/2% 8 1/2% 8 1/2% Long-term rate of increase in compensation levels 3% 4% 5% The Company provides an employee savings plan which permits all employees to defer receipt of compensation as provided in Section 401(k) of the Internal Revenue Code. Under the plan, any employee may elect to direct up to twelve percent of their gross compensation be contributed to the plan. The Company contributes 50 cents for every one dollar contributed by the employee, up to a maximum Company contribution of three percent of the employee's gross compensation. Costs incurred under the plan were $479,000, $468,000, and $442,000 in 1995, 1994, and 1993.The Company also provides an Employee Stock Ownership Plan (ESOP) for full-time employees. The ESOP is funded primarily with federal income tax savings which arise from tax laws applicable to such employee benefit plans. Certain Company contributions and shares of stock acquired by the ESOP are allocated to participants' accounts in proportion to the compensation of employees during the particular year for which allocation is made. Costs incurred under the plan were $810,000, $705,000, and $757,000 in 1995, 1994, and 1993. The Company also has various supplemental retirement plans for outside directors and selected management employees. The plans are nonqualified defined benefit plans that provide for certain amounts of salary continuation in the event of death before or after retirement, or certain supplemental retirement benefits in lieu of any death benefits. In addition, the Company provides life insurance benefits to beneficiaries of all eligible employees who represent a reasonable insurable risk. To minimize the overall cost of plans providing life insurance benefits, the Company has obtained life insurance coverage that is sufficient to fund benefit obligations. Costs incurred under the plans were $648,000, $552,000, and $544,000 in 1995, 1994, and 1993, respectively. SYN Inc. provides an employee savings plan which permits all employees to defer receipt of compensation as provided in Section 401(k) of the Internal Revenue Code. Under the plan, any employee may elect to direct up to fifteen percent of their gross compensation be contributed to the plan. SYN Inc. contributes 25 cents for every one dollar contributed by the employee, up to a maximum SYN Inc. contribution of four percent of the employee's gross compensation. Costs incurred under the plan for the partial year 1995 were $31,000. - --------------------------- 9. Environmental Matters - - --------------------------- The Company is subject to environmental regulations from numerous entities. The Clean Air Act Amendments of 1990 (the Act) stipulate limitations on sulfur dioxide and nitrogen oxide emissions from coal-fired power plants. The Company believes it can economically meet such sulfur dioxide emission requirements at its generating plants by the required compliance dates and that it is in compliance with all presently applicable environmental protection requirements and regulations. The Company is also subject to other environmental regulations including matters related to former manufactured gas plant sites. During 1995, the Company remediated a site located at Huron, South Dakota through thermal desorption of residues in the soil. Adjustments of the Company's natural gas rates to reflect the costs associated with the remediation were approved through the regulatory process. The Company is pursuing recovery from insurance carriers. No administrative or judicial proceedings involving the Company are now pending or known by the Company to be contemplated under present environmental protection requirements. - -------------------------------- 10. Cumulative Preferred Stock and Preference Stock - - -------------------------------- The Company's cumulative preferred stock, 5 1/4% Series, is subject to mandatory redemption at par through an annual sinking fund requirement through 1996. The provisions of the 6 1/2% Series stock contain a 5 year put option exercisable by the holders of the securities and a 10 year redemption option exercisable by the Company. In any event, redemption will occur at par value. The preferred stock of subsidiary is redeemable beginning July 1, 1999 at a redemption price of $1,075.00 per share. The cumulative preferred stock, 4 1/2% Series, may be redeemed in whole or in part at the option of the Board of Directors at any time upon at least 30 days notice at $110.00 per share, plus accrued dividends. In the event of involuntary dissolution, all Company preferred stock outstanding would have a preferential interest of $100 per share, plus accumulated dividends, before any distribution to common stockholders. The Company is also authorized to issue a maximum of 200,000 shares of preference stock at a par value of $50 per share. No preference shares have ever been issued. - --------------------------- 11. Segments of Business - - --------------------------- The four primary segments of the Company's business are its electric, natural gas, propane, and manufacturing operations. The following table summarizes certain information specifically identifiable with each segment as of or for the years ended December 31 (in thousands): 1995 1994 1993 ---------- --------- --------- Depreciation and Amortization: Electric $ 10,503 $ 10,115 $ 9,841 Gas 2,185 1,996 1,718 Propane 1,562 - - Manufacturing 383 328 247 ---------- --------- --------- $ 14,633 $ 12,439 $ 11,806 ---------- --------- --------- Capital Expenditures: Electric $ 17,868 $ 16,023 $ 11,225 Gas 6,521 6,425 8,483 Propane 4,726 - - Manufacturing 522 233 266 --------- --------- --------- $ 29,637 $ 22,681 $ 19,974 --------- --------- --------- Assets: Identifiable - Electric $218,006 $210,872 $206,962 Gas 59,384 52,008 45,296 Propane 173,665 - - Manufacturing 16,409 13,843 11,352 Corporate assets 91,257 82,343 79,964 --------- --------- --------- $558,721 $359,066 $343,574 --------- --------- --------- Identifiable assets include all assets that are used directly in each business segment. Corporate assets consist of assets not directly assignable to a business segment, i.e., cash, investments, certain accounts receivable, prepayments, and other miscellaneous current and deferred assets. - ------------------------------ 12. Quarterly Financial Data (unaudited) - - ------------------------------ First Second Third Fourth (thousands except per share amounts) 1995: Operating revenues $50,754 $40,107 $45,548 $68,561 Operating income 12,929 6,679 6,908 11,581 Net income 7,103 3,049 3,140 6,014 Average shares 7,677 7,677 8,277 8,889 Earnings per average common share $ .92 $ .39 $ .32 $ .59 ------------------------------------- 1994: Operating revenues $55,464 $33,757 $30,195 $37,850 Operating income 14,163 4,783 3,793 7,797 Net income 8,017 2,244 1,330 3,849 Average shares 7,677 7,677 7,677 7,677 Earnings per average common share $ 1.04 $ .29 $ .17 $ .50 ------------------------------------- The 1995 quarterly earnings per average common share do not total to 1995 annual earnings per average common share due to the effect of common stock issuances during the year. EX-27 11
UT 12-MOS DEC-31-1995 DEC-31-1995 PER-BOOK 336,902,215 51,907,141 90,619,701 79,292,426 0 558,721,483 31,220,427 56,594,914 64,862,850 152,678,191 0 6,260,000 212,840,224 0 0 3,500,000 570,000 0 0 0 182,873,068 558,721,483 204,970,322 10,126,493 166,873,153 176,999,646 27,970,676 3,029,376 31,000,052 11,694,483 19,305,569 1,315,189 17,990,380 14,204,450 10,536,642 35,366,960 2.21 0
-----END PRIVACY-ENHANCED MESSAGE-----