-----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, BawfqsaO7Eatm2zS91hEDhyq31qIzCWYBhSxbOu7QUIpQVNkdBfw2KpmSXrPxsEP BL5LWiiSqgpL7h7K2L0lBQ== 0000075129-01-500014.txt : 20020410 0000075129-01-500014.hdr.sgml : 20020410 ACCESSION NUMBER: 0000075129-01-500014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OTTER TAIL CORP CENTRAL INDEX KEY: 0000075129 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 410462685 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00368 FILM NUMBER: 1790195 BUSINESS ADDRESS: STREET 1: 215 S CASCADE ST STREET 2: PO BOX 496 CITY: FERGUS FALLS STATE: MN ZIP: 56538-0496 BUSINESS PHONE: 2187398200 MAIL ADDRESS: STREET 1: 215 S CASCADE ST STREET 2: P O BOX 496 CITY: FERGUS FALLS STATE: MN ZIP: 56538-0496 FORMER COMPANY: FORMER CONFORMED NAME: OTTER TAIL POWER CO DATE OF NAME CHANGE: 19920703 10-Q 1 tenq0901.txt 10-Q FOR PERIOD ENDED SEPTEMBER 30, 2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ___________ Commission file number 0-368 OTTER TAIL CORPORATION (Exact name of registrant as specified in its charter) Minnesota 41-0462685 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 215 South Cascade Street, Box 496, Fergus Falls, Minnesota 56538-0496 (Address of principal executive offices) (Zip Code) 218-739-8200 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date: October 31, 2001 - 24,622,527 Common Shares ($5 par value) OTTER TAIL CORPORATION ---------------------- INDEX ----- PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Financial Statements Consolidated Balance Sheets - September 30, 2001 and December 31, 2000 (Unaudited) 2 & 3 Consolidated Statements of Income - Three and Nine Months Ended September 30, 2001 and 2000 (Unaudited) 4 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2001 and 2000 (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-18 Item 3. Quantitative and Qualitative Disclosures about Market Risk 18 PART II. OTHER INFORMATION Item 2. Changes in Securities 19 Item 6. Exhibits and Reports on Form 8-K 19 SIGNATURES 19
PART I. FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS -------------------- OTTER TAIL CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) -ASSETS- SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------- ------------ (Thousands of dollars) CURRENT ASSETS: Cash and cash equivalents $ 2,311 $ 1,259 Accounts receivable: Trade - net 75,657 61,913 Other 5,793 6,813 Inventory, fuel, materials and supplies 41,134 42,263 Deferred income taxes 3,567 3,694 Accrued utility revenues 7,275 11,315 Other 8,746 6,468 --------- --------- TOTAL CURRENT ASSETS 144,483 133,725 INVESTMENTS 20,210 19,076 INTANGIBLES -- NET 50,287 43,532 OTHER ASSETS 14,041 10,126 DEFERRED DEBITS: Unamortized debt expense and reacquisition premiums 4,378 2,778 Regulatory assets 5,202 5,517 Other 1,814 1,183 --------- --------- TOTAL DEFERRED DEBITS 11,394 9,478 PLANT: Electric plant in service 804,139 795,357 Diversified operations 140,953 129,716 --------- --------- TOTAL PLANT 945,092 925,073 Less accumulated depreciation and amortization 434,708 416,419 --------- --------- 510,384 508,654 Construction work in progress 23,453 13,117 --------- --------- NET PLANT 533,837 521,771 --------- --------- TOTAL $ 774,252 $ 737,708 ========= ========= See accompanying notes to consolidated financial statements - 2 -
OTTER TAIL CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) -LIABILITIES- SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------- ------------ (Thousands of dollars) CURRENT LIABILITIES Short-term debt $ 28,093 $ - Sinking fund requirements and current maturities 29,213 14,288 Accounts payable 54,317 52,525 Accrued salaries and wages 7,530 9,476 Accrued federal and state income taxes 6,358 3,243 Other accrued taxes 8,431 10,585 Other accrued liabilities 5,390 6,524 --------- --------- TOTAL CURRENT LIABILITIES 139,332 96,641 NONCURRENT LIABILITIES 32,429 30,181 DEFERRED CREDITS Accumulated deferred income taxes 85,572 86,407 Accumulated deferred investment tax credit 14,247 15,112 Regulatory liabilities 10,358 10,618 Other 7,088 6,850 --------- --------- TOTAL DEFERRED CREDITS 117,265 118,987 CAPITALIZATION Long-term debt, net of sinking fund and current maturities 175,952 195,128 Cumulative preferred shares authorized 1,500,000 shares without par value; outstanding 2001 and 2000 -- 335,000 shares Subject to mandatory redemption 18,000 18,000 Other 15,500 15,500 Cumulative preference shares - authorized 1,000,000 shares without par value; outstanding - none - - Common shares, par value $5 per share authorized 50,000,000 shares; outstanding 2001 -- 24,618,589 and 2000 -- 24,574,288 123,093 122,871 Premium on common shares 451 50 Unearned compensation (151) (226) Retained earnings 152,601 140,796 Accumulated other comprehensive loss (220) (220) --------- --------- TOTAL 275,774 263,271 TOTAL CAPITALIZATION 485,226 491,899 --------- --------- TOTAL $ 774,252 $ 737,708 ========= ========= See accompanying notes to consolidated financial statements -3-
OTTER TAIL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2001 2000 2001 2000 ------------ ----------- ----------- ----------- (in thousands, except share and per share amounts) OPERATING REVENUES Electric $ 85,928 $ 65,514 $ 237,936 $ 185,259 Plastics 17,448 19,524 50,072 70,623 Health services 19,479 16,581 57,005 47,958 Manufacturing 31,898 26,737 90,452 71,278 Other business operations 22,919 21,642 59,195 56,570 ---------- ---------- ---------- ---------- Total operating revenues 177,672 149,998 494,660 431,688 OPERATING EXPENSES Production fuel 10,746 9,692 31,691 27,273 Purchased power 32,160 15,750 80,728 42,361 Other electric operation and maintenance expenses 19,584 19,077 53,984 52,737 Cost of goods sold 68,285 60,089 187,565 171,777 Other nonelectric expenses 13,445 12,960 43,418 41,531 Depreciation and amortization 10,610 10,023 31,148 29,604 Property taxes 2,532 2,611 7,658 7,888 ---------- ---------- ---------- ---------- Total operating expenses 157,362 130,202 436,192 373,171 OPERATING INCOME (LOSS) Electric 14,823 12,394 45,709 37,192 Plastics (369) 1,442 (1,583) 10,252 Health services 1,379 1,665 4,669 4,812 Manufacturing 2,722 2,163 9,050 5,314 Other business operations 1,755 2,132 623 947 ---------- ---------- ---------- ---------- Total operating income 20,310 19,796 58,468 58,517 OTHER INCOME AND DEDUCTIONS - NET 332 403 1,527 1,800 INTEREST CHARGES 3,860 4,376 12,050 12,815 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 16,782 15,823 47,945 47,502 INCOME TAXES 5,705 4,907 15,711 16,280 ---------- ---------- ---------- ---------- NET INCOME 11,077 10,916 32,234 31,222 Preferred dividend requirements 470 470 1,409 1,409 ---------- ---------- ---------- ---------- EARNINGS AVAILABLE FOR COMMON SHARES $ 10,607 $ 10,446 $ 30,825 $ 29,813 ========== ========== ========== ========== Basic earnings per common share: $ 0.43 $ 0.43 $ 1.25 $ 1.21 Diluted earnings per common share: $ 0.43 $ 0.42 $ 1.24 $ 1.21 Average number of common shares outstanding - basic 24,606,043 24,571,410 24,589,476 24,571,410 Average number of common shares outstanding - diluted 24,881,379 24,644,748 24,813,002 24,619,141 Dividends per common share $0.26 $0.255 $0.78 $0.765 See accompanying notes to consolidated financial statements -4-
OTTER TAIL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) NINE MONTHS ENDED SEPTEMBER 30, 2001 2000 --------- -------- (Thousands of dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 32,234 $ 31,222 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 31,148 29,604 Deferred investment tax credit - net (864) (864) Deferred income taxes (651) (1,398) Change in deferred debits and other assets (7,167) (1,743) Change in noncurrent liabilities and deferred credits 2,486 2,432 Allowance for equity (other) funds used during construction (632) (262) Losses from investments and disposal of noncurrent assets 447 492 Cash provided by (used for) current assets & current liabilities: Change in receivables, materials and supplies (9,239) (24,274) Change in other current assets 2,338 3,815 Change in payables and other current liabilities (4,190) 1,699 Change in interest and income taxes payable 1,735 (3,109) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 47,645 37,614 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (34,529) (34,482) Proceeds from disposal of noncurrent assets 1,021 1,383 Purchase of businesses, net of cash acquired (8,073) (34,194) (Purchase)/sale of other investments (1,147) 854 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (42,728) (66,439) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under line of credit 28,093 15,762 Proceeds from issuance of common stock 733 - Proceeds from issuance of long-term debt 31,358 18,727 Payments for retirement of long-term debt (42,173) (5,832) Payments for debt issuance expense (1,276) - Dividends paid (20,600) (19,903) -------- -------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (3,865) 8,754 NET CHANGE IN CASH AND CASH EQUIVALENTS 1,052 (20,071) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,259 24,908 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,311 $ 4,837 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest and income taxes: Interest $ 13,429 $ 11,488 Income taxes $ 13,762 $ 19,971 See accompanying notes to consolidated financial statements - 5 -
OTTER TAIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Unaudited) Otter Tail Corporation (the Company), in its opinion, has included all adjustments (including normal recurring accruals) necessary for a fair presentation of the consolidated results of operations for the periods presented. The consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes for the years ended December 31, 2000, 1999, and 1998 included in the Company's 2000 Annual Report to the Securities and Exchange Commission on Form 10-K. Because of seasonal and other factors, the earnings for the three-month and nine-month periods ended September 30, 2001, should not be taken as an indication of earnings for all or any part of the balance of the year. Acquisitions - ------------ On February 28, 2001 the Company acquired all of the outstanding common stock of T.O. Plastics, Inc. in exchange for 451,066 newly issued shares of the Company's common stock. T.O. Plastics, Inc. custom manufactures returnable pallets, material and handling trays and horticultural containers. It has three facilities in Minnesota and one facility in South Carolina. This acquisition has been accounted for as a pooling-of-interests. The Company's consolidated financial statements included with this filing have been restated to include T.O. Plastics, Inc. for all periods presented. On September 28, 2001 the Company acquired all of the outstanding common stock of St. George Steel Fabrication, Inc. in exchange for 270,370 newly issued shares of the Company's common stock. St. George Steel is a fabricator of steel products engaged in custom and proprietary operations located in Utah. This acquisition has been accounted for as a pooling-of-interests. Since this acquisition was initiated prior to June 30, 2001, pooling-of-interest accounting was allowed under the transition provision of Statement of Financial Accounting Standards No. 141. The Company's consolidated financial statements included with this filing have been restated to include St. George Steel Fabrication, Inc. for all periods presented. The impact of these acquisitions on the Company's consolidated statements of income and cash flows for the three-month and nine-month periods ending September 30, 2000 are presented in the table below:
Otter Tail T. O. St. George (in thousands) Corporation Plastics Steel Combined - -------------- ----------- -------- ---------- -------- For the three months ended September 30, 2000: Revenue $143,270 $ 3,359 $ 3,369 $149,998 Operating income 19,089 266 441 19,796 Net income 10,602 71 243 10,916 Basic earnings per share 0.42 -- -- 0.43 Diluted earnings per share 0.42 -- -- 0.42 For the nine months ended September 30, 2000: Revenue $410,898 $12,369 8,421 $431,688 Operating income 56,285 1,402 830 58,517 Net income 30,179 604 439 31,222 Basic earnings per share 1.21 -- -- 1.21 Diluted earnings per share 1.20 -- -- 1.21 Net cash provided by operating activities 37,504 363 (253) 37,614 Net cash provided by (used in) investing activities (66,202) (356) 119 (66,439) Net cash provided by (used in) financing activities 8,732 (63) 85 8,754
On September 4, 2001, the Company acquired the assets and operations of Interim Solutions and Sales, Inc. and Midwest Medical Diagnostics, Inc. of Minneapolis, Minnesota. These companies will function as a division of DMS Imaging, Inc. and will provide mobile diagnostic imaging services on a interim basis for computed tomography and magnetic resonance imaging, fee-per-exam options and sales of previously owned imaging equipment. Revenues for 2000 were approximately $3.1 million. The acquisition was accounted for using the purchase method and the excess of the purchase price over the net assets acquired was $2.2 million. On September 10, 2001, the Company acquired the assets and operations of Nuclear Imaging, Ltd., of Sioux Falls, South Dakota. Nuclear Imaging provides mobile nuclear medicine, positron emission tomography and bone densitometry services to more than 120 healthcare facilities in the Midwest. Nuclear Imaging is a subsidiary of DMS Imaging, Inc. Revenues for 2000 were approximately $6.9 million. The acquisition was accounted for using the purchase method and the excess of the purchase price over the net assets acquired was $4.8 million. Refinancing - ----------- On September 26, 2001, the Company sold $20.79 million of Pollution Control Refunding Revenue Bonds, Mercer County, ND 4.85% Series due September 1, 2022 and $5.185 million of Pollution Control Refunding Revenue Bonds, Grant County, SD 4.65% Series due September 1, 2017. As of September 30, the proceeds from these issuances were held by the trustee, together with funds deposited by the Company to provide for accrued interest and the redemption premium, to legally defease the 2019 Series Mercer County, ND Pollution Control Refunding Revenue Bonds and the 2006 Series Grant County, SD Pollution Control Refunding Revenue Bonds, which were redeemed on October 26, 2001. Common Shares and Earnings per Share - ------------------------------------ On April 9, 2001 the Company's Board of Directors granted 550,000 stock options to executives and key management employees and 16,000 stock options to outside directors under the 1999 Stock Incentive Plan (Incentive Plan). The exercise price of the stock options is equal to the fair market value per share at the date of the grant. The options granted to outside directors are exercisable immediately. All other options vest ratably over a four-year period. The options expire ten years after the date of the grant. As of September 30, 2001 a total of 1,291,632 options were outstanding and a total of 14,713 shares of restricted stock had been issued under the Incentive Plan. The Company accounts for the Incentive Plan under Accounting Principles Board Opinion No. 25. Basic earnings per common share are calculated by dividing earnings available for common shares by the average number of common shares outstanding during the period. Diluted earnings per common share are calculated by adjusting outstanding shares, assuming conversion of all potentially dilutive stock options. Comprehensive Income - -------------------- The only element of comprehensive income for the three and nine-months ended September 30, 2001 and September 30, 2000 was net income of $11.1 million and $32.2 million, and $10.9 million and $31.2 million, respectively. Segment Information - ------------------- The Company's business operations consist of five segments based on products and services. Electric includes the electric utility operating in Minnesota, North Dakota, and South Dakota. Plastics consists of businesses involved in the production of PVC pipe in the Upper Midwest and Southwest regions of the United States. Health services consists of businesses involved in the sale, service, rental, refurbishing and operation of medical imaging equipment and the sale of related supplies and accessories to various medical institutions located in 29 states. Manufacturing consists of businesses involved in the production of wind towers, agricultural equipment, frame- straightening equipment and accessories for the auto body shop industry, custom plastic pallets, material and handling trays, and horticultural containers, fabrication of steel products, contract machining, and metal parts stamping and fabrication located in the Upper Midwest and Utah. Other business operations consists of businesses in electrical and telephone construction contracting, transportation, telecommunications, entertainment, energy services, and natural gas marketing, as well as the portion of corporate administrative and general expenses that are not allocated to other segments. The electrical and telephone construction contracting companies and energy services and natural gas marketing business operate primarily in the Upper Midwest. The telecommunications companies operate in central and northeast Minnesota and the transportation company operates in 48 states and 6 Canadian provinces. The Company evaluates the performance of its business segments and allocates resources to them based on earnings contribution and return on total invested capital. Operating Income (Loss) ----------------------- Three months ended Nine months ended September 30, September 30, ------------------- ------------------ 2001 2000 2001 2000 (in thousands) (in thousands) Electric $14,823 $12,394 $45,709 $37,192 Plastics (369) 1,442 (1,583) 10,252 Health services 1,379 1,665 4,669 4,812 Manufacturing 2,722 2,163 9,050 5,314 Other business operation 1,755 2,132 623 947 ------- ------- ------- ------- Total $20,310 $19,796 $58,468 $58,517 ======= ======= ======= ======= Identifiable Assets ------------------- September 30, December 31, 2001 2000 ------------- ------------ (in thousands) Electric $521,198 $531,778 Plastics 47,379 49,831 Health services 54,870 32,909 Manufacturing 67,512 59,130 Other business operation 83,293 64,060 -------- -------- Total $774,252 $737,708 ======== ======== Substantially all sales and long-lived assets of the Company are within the United States. Reclassifications - ----------------- Certain prior year amounts have been reclassified to conform to 2001 presentation. Such reclassifications had no impact on net income or shareholders' equity. New Accounting Standards - ------------------------ As of January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) 133, Accounting for Derivative Instruments and Hedging Activities, as amended, which requires that all derivative instruments be reported on the consolidated balance sheet at fair value. The adoption of SFAS No. 133 did not have a material effect on the Company's consolidated financial statements. At the June 27, 2001 meeting of the Financial Accounting Standards Board (FASB), a number of electric utility industry issues related to the implementation of SFAS 133 were finalized. The interpretation of these issues by the FASB did not differ significantly from positions the Company had taken in connection with the initial adoption of SFAS 133. On October 10, 2001, the FASB revised criteria related to the exception for certain electricity contracts, with the revisions to be effective January 1, 2002. The Company does not expect these revisions to a have a material impact upon the Company's consolidated financial statements. In July 2001 the FASB issued SFAS 141, Business Combinations, which requires the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 141 also specifies that intangible assets acquired in a business combination, that meet certain criteria, be recognized and reported apart from goodwill. The Company has adopted this statement as of July 1, 2001. Adoption of this statement is not anticipated to have a material effect on the Company's consolidated financial statements. In July 2001 the FASB issued SFAS 142, Goodwill and Other Intangible Assets, which requires goodwill and intangible assets with indefinite useful lives no longer be amortized. Rather they will be tested for impairment, at least annually, in accordance with the provisions of SFAS 142. Intangible assets with finite useful lives will be amortized over their respective estimated useful lives and will be reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 142 is effective January 1, 2002, except for any goodwill arising in a purchase business combination completed on or after July 1, 2001 which would be subject immediately to the provisions of SFAS 142. The Company is reviewing this statement. As of September 30, 2001, the Company had net goodwill of $48.1 million. Included on the Company's consolidated statement of income for the nine months ended September 30, 2001 is $2.3 million in goodwill amortization expense. SFAS 142 requires the Company perform an assessment of goodwill impairment as of the date of adoption. Any impairment loss resulting from this transition to SFAS 142 would be recognized as a cumulative effect of a change in accounting principle in the Company's consolidated income statement at the time of adoption. The Company is assessing the statement for its impact on the Company's consolidated financial statements. In July 2001 the FASB issued SFAS 143, Accounting for Asset Retirement Obligations, which provides accounting requirements for retirement obligations associated with tangible long-lived assets. This statement is effective for fiscal years beginning after June 15, 2002. The Company is assessing this statement but has not yet determined the impact of SFAS 143 on its consolidated financial position or results of operations. The FASB issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets in October 2001. SFAS 144 replaces SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. This statement develops one accounting model for long-lived assets to be disposed of by sale and also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity in a disposal transaction. The statement is effective for fiscal years beginning after December 15, 2001. The Company is reviewing this statement and will adopt the accounting model for impairment or disposal of long-lived assets starting January 2002. Subsequent Event - ---------------- On November 1, 2001, the Company acquired the assets and operations of Titan Steel Corporation of Salt Lake City, Utah. Titan is a fabricator of steel products engaged in custom operations. Titan will be an operating division of St. George Steel Fabrication, Inc. Revenues for 2000 were approximately $9 million. The acquisition was accounted for using the purchase method and the excess of the purchase price over the net assets acquired was immaterial. Forward Looking Information - Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 - ---------------------------------------- In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 (the Act), the Company has filed cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those discussed in forward-looking statements made by or on behalf of the Company. When used in this Form 10-Q and in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases and in oral statements, words such as "may", "will", "expect", "anticipate", "continue", "estimate", "project", "believes" or similar expressions are intended to identify forward-looking statements within the meaning of the Act. Factors that might cause such differences include, but are not limited to, the Company's ongoing involvement in diversification efforts, the timing and scope of deregulation and open competition, growth of electric revenues, impact of the investment performance of the utility's pension plan, changes in the economy, governmental and regulatory action, weather conditions, fuel and purchased power costs, environmental issues, resin prices, and other factors discussed under "Factors affecting future earnings" on pages 26-28 of the Company's 2000 Annual Report to Shareholders, which is incorporated by reference in the Company's Form 10-K for the fiscal year ended December 31, 2000. These factors are in addition to any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statement or contained in any subsequent filings by the Company with the Securities and Exchange Commission. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ------------------------- MATERIAL CHANGES IN FINANCIAL POSITION - -------------------------------------- The Company estimates internally generated funds net of forecasted dividend payments, combined with funds on hand, will be sufficient to meet sinking fund payments on First Mortgage Bonds, to meet preferred stock redemption requirements in the next five years, and to provide for its estimated 2001-2005 consolidated capital expenditures. Additional short-term or long-term financing will be required in the period 2001-2005 in connection with the maturity of long-term debt, in the event the Company decides to refund or retire early any of its presently outstanding debt or cumulative preferred shares, to fund additional acquisitions, or for other corporate purposes. The Company has bank lines of credit totaling $46 million. As of September 30, 2001, $17.9 million was available in unused lines of credit which could be used to supplement cash needs. Cash provided by operating activities of $47.6 million for the nine months ended September 30, 2001 combined with cash on hand of $1.3 million as of December 31, 2000 allowed the Company to pay dividends and finance most of its capital expenditures. Net cash provided by operating activities increased $10.0 million for the nine months ended September 30, 2001 compared to the nine months ended September 30, 2000 primarily as a result of changes in working capital items and other long-term assets. From December 31, 2000 to September 30, 2001 trade accounts receivables increased $13.7 million reflecting increased sales levels in the construction, manufacturing, health services, and the plastics companies. Accrued utility revenues decreased $4.0 million reflecting the reduction in unbilled utility revenues due to the seasonal change in weather. Increases in costs in excess of billings in the construction and manufacturing businesses led to a majority of the $2.3 million increase in other current assets. The $3.1 million increase in accrued federal and state income taxes is related to the timing of estimated quarterly tax payments. The $2.2 million decrease in other taxes accrued relates to the timing of property tax payments. The $6.8 million increase in intangibles - net reflects the increase in goodwill recorded as the result of the acquisitions completed during September 2001. Other assets increased $3.9 million primarily reflecting an increase in the prepaid pension asset. Unamortized debt expense and reacquisition premiums increased $1.6 million, reflecting the refinancing of the Mercer and Grant County Pollution Control Bonds. Net cash used in investing activities was $42.7 million for the nine months ended September 30, 2001 compared with net cash used in investing activities of $66.4 million for the nine months ended September 30, 2000. The decreased of $23.7 million between the periods was primarily due to size of the acquisitions completed in 2000. Even though the Company has completed more acquisitions during the nine months ended September 30, 2001 as compared to the nine months ended September 30, 2000, two of the acquisitions completed in 2001 were accounted for under the pooling-of-interest method and the acquisition of Vinyltech Corporation that occurred during 2000 was significantly larger than the acquisitions that occurred under the purchase method of accounting during 2001. From December 31, 2000 to September 30, 2001, diversified plant increased $11.2 million reflecting plant expansions in the manufacturing segment along with additions from acquisitions completed during September. The $10.3 million increase in construction work in progress reflects the normal seasonal increase in work in progress at the electric utility and includes partial payments for a new combustion turbine peaking plant expected to be in service during 2003 and expenditures for a transmission project underway in North Dakota. Net cash used in financing activities was $3.9 million for the nine months ended September 30, 2001 compared with net cash provided by financing activities of $8.8 million for the nine months ended September 30, 2000. The decrease of $12.6 million between the periods is due to the following. Net borrowings under the line of credit increased $12.3 million in order to finance working capital needs and provide temporary financing to complete the September 2001 acquisitions. The Company received proceeds of $733,000 from the issuance of common stock as a result of the exercise of stock options. The increase in the issuance and retirement of long-term debt primarily relates to the refinancing of the Mercer and Grant County Pollution Control Refunding Revenue Bonds. In connection with the refinancing of these bonds $1.3 million in debt issuance expenses were paid. The final item affecting the change in financing activities was an increase of $697,000 in dividends paid. The increase in sinking fund requirements and current maturities and the decrease in long-term debt from December 31, 2000 to September 30, 2001 reflects the upcoming maturity in August 2002 of $18.2 million Series 2002 7.25% First Mortgage Bonds. MATERIAL CHANGES IN RESULTS OF OPERATIONS - ----------------------------------------- Comparison of the Three Months Ended September 30, 2001 and 2000 ---------------------------------------------------------------- Consolidated Results of Operations ---------------------------------- The Company recorded diluted earnings per share of $0.43 for the three months ended September 30, 2001 compared to $0.42 for the three months ended September 30, 2000. Total operating revenues were $177.7 million for the three months ended September 30, 2001, up $27.7 million (18.4%) from the $150.0 million for the three months ended September 30, 2000. Operating income was $20.3 million for the three months ended September 30, 2001 compared with $19.8 million for the three months ended September 30, 2000. Favorable results from the electric and manufacturing segments offset decreased operating income from the plastics, health services and other business operations segments. Electric -------- Three months ended September 30, 2001 2000 Change ------- ------- ------ (in thousands) Operating revenues $85,928 $65,514 $20,414 Production fuel 10,746 9,692 1,054 Purchased power 32,160 15,750 16,410 Other electric operation and maintenance expenses 19,584 19,077 507 Depreciation and amortization 6,083 5,990 93 Property taxes 2,532 2,611 (79) ------- ------- ------- Operating income $14,823 $12,394 $ 2,429 ======= ======= ======= The 31.2% increase in electric operating revenues for the three months ended September 30, 2001 compared with the three months ended September 30, 2000 is due to a $15.8 million (82.5%) increase in wholesale power revenues, a $3.7 million (8.3%) increase in retail revenues and a $938,000 (44.3%) increase in other electric revenues. The increase in wholesale power revenues resulted from a 22.0% increase in revenue per megawatt-hour (mwh) sold combined with a 49.6% increase in mwh sold. Gross margin per mwh sold on wholesale power sales decreased 24.2% as the prices paid for energy purchases rose. The increase in retail revenue resulted from a 6.3% increase in retail revenue per mwh sold combined with a 1.9% increase in retail mwh sold. The increase in revenue per mwh sold reflects an increase in 2001 costs of energy and the refund of fuel costs as part of the coal arbitration settlement recorded during the three months ended September 30, 2000. An increase in cooling degree-days between the quarters contributed to an increase in mwh sales primarily to residential and small commercial customers. Production fuel expenses for the three months ended September 30, 2000 included a $1.1 million reduction in fuel costs as a result of the coal arbitration settlement recorded in 2000. Excluding the impact of this settlement, production fuel expense for the three months ended September 30, 2001 decreased $61,000 from the three months ended September 30, 2000. Comparing the quarters, electricity produced by the electric utility's generating plants increased 1.2%. The cost of purchased power increased 104.2% due to a 60.7% increase in mwh purchased combined with a 27.1% increase in cost per mwh purchased. Mwh purchased for resale increased 76.3% and mwh purchased for system use increased 13.7%. The availability of the electric utility's generating plants to meet system use requirements allowed the utility to be an active participant in the wholesale power market during the three months ended September 30, 2001. Since activity in the short- term energy market is subject to change based on a number of factors, it is difficult to predict the quantity of wholesale power sales or prices for wholesale power. Increased storm-related expenses and repair work completed at one of the electric utility's combustion turbines contributed to the slight increase in other operation and maintenance expenses for the three months ended September 30, 2001 compared with the three months ended September 30, 2000. Plastics -------- Three months ended September 30, 2001 2000 Change ------- ------- ------- (in thousands) Operating revenues $17,448 $19,524 ($2,076) Cost of goods sold 16,240 16,287 (47) Operating expenses 782 951 (169) Depreciation and amortization 795 844 (49) ------- ------- ------- Operating (loss) income ($369) $ 1,442 ($1,811) ======= ======= ======= The 10.6% decrease in operating revenues for the three months ended September 30, 2001 compared with the three months ended September 30, 2000 is the result of a 29.1% decline in average sales price per pound offset by an 26.1% increase in pounds of PVC pipe sold. The reduction in cost of goods sold reflects a 20.9% reduction in cost per pound of pipe sold offset by increased freight costs. The 17.8% decrease in operating expenses reflects a reduction in employee incentives and selling expenses. As initially reported in the last half of 2000, demand for PVC pipe products has softened and gross margins have dropped. Reduced product prices because of an oversupply of finished goods and decreasing PVC resin costs (a raw material used in production) are the major factors contributing to the decrease in revenues. These trends are expected to continue for the remainder of 2001 and into the second quarter of 2002. Additional resin capacity that came online during 2000 also has had a negative impact on resin prices. Health Services --------------- Three months ended September 30, 2001 2000 Change ------- ------- ------ (in thousands) Operating revenues $19,479 $16,581 $2,898 Cost of goods sold 15,011 12,203 2,808 Operating expenses 2,205 1,986 219 Depreciation and amortization 884 727 157 ------- ------- ------ Operating income $ 1,379 $ 1,665 ($286) ======= ======= ====== Health services operating revenues increased 17.5% due primarily to increases in equipment sales, services and supplies during the three months ended September 30, 2001 compared with the three months ended September 30, 2000. The number of scans performed increased 7.4%, but the average fee per scan decreased 2.9% between the periods. Revenues from interim services increased due to the addition of positron emission tomography service, which is a new service that was not offered during 2000. The decrease in the average fee per scan was due to granting price reductions to certain customers due to a more competitive environment and customers achieving discounted price levels on incremental scan volume. The increase in cost of goods sold follows the increase in equipment sales combined with increases in costs of supplies and accessories sold in the diagnostic equipment imaging business and increased operating costs on mobile imaging equipment. The increase in operating expenses resulted from increased emphasis in fixed based imaging systems and upgrades in diagnostic imaging equipment technology to meet customer requests. Manufacturing ------------- Three months ended September 30, 2001 2000 Change ------- ------- ------ (in thousands) Operating revenues $31,898 $26,737 $5,161 Cost of goods sold 24,972 20,036 4,936 Operating expenses 2,899 3,581 (682) Depreciation and amortization 1,305 957 348 ------- ------- ------ Operating income $ 2,722 $ 2,163 $559 ======= ======= ====== Increases in the sales of wind towers combined with increased sales volumes of metal parts stamping and fabrication led to the increase of 19.3% in manufacturing operating revenues for the three months ended September 30, 2001 compared to the three months ended September 30, 2000. Offsetting these increases in operating revenues was a decrease of 34% in unit sales of frame-straightening equipment for the auto body shop industry. The increase in cost of goods sold reflects the increase in sales volumes. Operating expenses reflect a decrease in selling expenses and research and development costs. The increase in depreciation and amortization expense reflects the amortization of pre-production costs of molds, dies and tools that were capitalized during 2000 combined with an increase in equipment assets. Other Business Operations ------------------------- Three months ended September 30, 2001 2000 Change ------- ------- ------ (in thousands) Operating revenues $22,919 $21,642 $1,277 Cost of goods sold 12,062 11,563 499 Operating expenses 7,559 6,442 1,117 Depreciation and amortization 1,543 1,505 38 ------- ------- ------ Operating income (loss) $ 1,755 $ 2,132 ($377) ======= ======= ====== Increases in operating revenues at the construction, transportation and telecommunication subsidiaries were offset by decreased revenues from the energy services subsidiary. Certain jobs of the construction companies have not performed in accordance with expectations. Delays in construction, caused by a late spring thaw and wet conditions, pushed completion dates back into the fourth quarter of 2001. The increase in cost of goods sold follows the increase in revenues from the construction companies. The increase in transportation revenues is due to 5.4% increase in miles driven by owner-operators, which in turn led to an increase in operating expense as payments to owner- operators. Interest Charges and Income Taxes --------------------------------- The $516,000 (11.8%) decrease in interest charges is due to significantly lower interest rates combined with lower average balances under the lines of credit offset by slightly higher long-term debt balances for the three months ended September 30, 2001 compared with the three months ended September 30, 2000. Income tax expense of $5.7 million for the three months ended September 30, 2001 reflects income tax expense calculated based upon the effective tax rate for the annual period. Comparison of the Nine Months Ended September 30, 2001 and 2000 - --------------------------------------------------------------- Consolidated Results of Operations ---------------------------------- The Company recorded diluted earnings per share of $1.24 for the nine months ended September 30, 2001 compared with $1.21 for the nine months ended September 30, 2000. Total operating revenues were $494.7 million for the nine months ended September 30, 2001, up $63.0 million (14.6%) from the $431.7 million for the nine months ended September 30, 2000. Operating income decreased $49,000 between the periods. The negative results of the plastics segment were offset substantially by strong results from the electric segment combined with growth from the manufacturing segment. Electric -------- Nine months ended September 30, 2001 2000 Change --------- -------- ------- (in thousands) Operating revenues $237,936 $185,259 $52,677 Production fuel 31,691 27,273 4,418 Purchased power 80,728 42,361 38,367 Other electric operation and maintenance expenses 53,984 52,737 1,247 Depreciation and amortization 18,166 17,808 358 Property taxes 7,658 7,888 (230) -------- -------- ------- Operating income $ 45,709 $ 37,192 $ 8,517 ======== ======== ======= The 28.4% increase in electric operating revenues for the nine months ended September 30, 2001 compared with the nine months ended September 30, 2000 is primarily due to a $40.1 million (96.3%) increase in wholesale power revenues and an $11.4 million (8.3%) increase in retail revenues. The increase in wholesale power revenues from wholesale power pool sales resulted from a 38.3% increase in revenue per mwh sold combined with a 41.9% increase in mwh sold. Gross margins per mwh sold on wholesale power decreased 9.1% as prices for purchased power rose. The increase in retail revenue resulted from a 5.1% increase in retail mwh sold combined with a 3.0% increase in revenue per retail mwh sold. The increase in revenue per mwh sold reflects an increase in cost of energy for 2001 and the refund of fuel costs as part of the coal arbitration settlement recorded during the second and third quarters of 2000. Increases in retail mwh sold occurred in all customer categories except streetlighting, with residential having the largest increase. Both heating and cooling degree-days, which may influence the increase or decrease in usage by residential customers, were up a combined 10.2% between the two periods. Revenues per mwh sold increased due to an increase in cost-of-energy revenues. Production fuel expenses increased $4.4 million during the nine months ended September 30, 2001 compared with the nine months ended September 30, 2000. Production fuel expenses for the nine months ended September 30, 2000 included a $1.7 million reduction in fuel costs as a result of the coal arbitration settlement recorded in 2000. Excluding the impact of this settlement, production fuel expense increased $2.7 million (9.2%). Electricity produced at the Company's generating stations increased 8.4% during the nine months ended September 30, 2001. During the first quarter of 2000, both Coyote Station and Hoot Lake Plant Unit 3 were off-line for maintenance outages. The cost of purchased power increased 90.6% due to a 39.5% increase in the cost per mwh purchased and a 68.1% increase in mwh purchased for resale offset by a 22.2% decrease in mwh purchased for system use. Since generation was higher at the electric utility's generating stations, less power was purchased to meet retail customers' demands. Other operation and maintenance expenses for the nine months ended September 30, 2000 include a credit of $1.0 million that was recorded as part of the arbitration settlement that recovered previously recorded arbitration expenses. Eliminating the impact of this credit, other operation and maintenance expenses increased $247,000 period to period. Plastics -------- Nine months ended September 30, 2001 2000 Change ------- ------- -------- (in thousands) Operating revenues $50,072 $70,623 ($20,551) Cost of goods sold 46,677 54,176 (7,499) Operating expenses 2,549 3,690 (1,141) Depreciation and amortization 2,429 2,505 (76) ------- ------- -------- Operating (loss) income ($1,583) $10,252 ($11,835) ======= ======= ======== The 29.1% decrease in operating revenues for the nine months ended September 30, 2001 compared with the nine months ended September 30, 2000 is due to a 30.6% decline in average sales price per pound offset by a 2.2% increase in pounds of PVC pipe sold. The decrease in cost of goods sold reflects a 15.7% decrease in the average cost per pound of pipe sold combined with the reduction in pounds of PVC pipe sold. The selling price per pound of PVC pipe is affected directly by raw material cost of resin. Operating expenses decreased primarily due to a reduction in labor costs and selling expenses. Since the last half of 2000, demand for PVC pipe products has softened and gross margins have dropped. The continuing decline in PVC resin prices combined with an over supply of finished PVC pipe products have been the main factor in the decrease in average sales price per pound. These trends are expected to continue for the remainder of 2001 and into the second quarter of 2002. Additional resin capacity that came online during 2000 also has had a negative impact on resin prices. Health Services --------------- Nine months ended September 30, 2001 2000 Change ------- ------- ------ (in thousands) Operating revenues $57,005 $47,958 $9,047 Cost of goods sold 43,206 35,170 8,036 Operating expenses 6,741 5,716 1,025 Depreciation and amortization 2,389 2,260 129 ------- ------- ------ Operating income $ 4,669 $ 4,812 ($143) ======= ======= ====== Health services operating revenues increased 18.9% for the nine months ended September 30, 2001 compared with the nine months ended September 30, 2000 due to an increase in equipment sales, services and supplies combined with a 7.3% increase in the number of scans performed, offset by a decrease in other interim service revenues. The average fee per scan decreased 1.2%. The increase in cost of goods sold reflects increased costs in material and supplies used and sold in the diagnostic equipment imaging business and increased rent expense. Increases in selling expenses, labor costs, insurance expenses and promotion expenses contributed to the increase in operating expenses. Manufacturing ------------- Nine months ended September 30, 2001 2000 Change ------- ------- ------- (in thousands) Operating revenues $90,452 $71,278 $19,174 Cost of goods sold 66,918 53,177 13,741 Operating expenses 10,697 9,907 790 Depreciation and amortization 3,787 2,880 907 ------- ------- ------- Operating income $ 9,050 $ 5,314 $ 3,736 ======= ======= ======= Operating income for the manufacturing segment increased 70.3% as a result of increased sales of wind towers combined with increased sales volumes of metal parts stamping and fabrication. Offsetting these increases in operating revenues was a decrease of 24% in unit sales of frame-straightening equipment for the auto body shop industry. The increase in cost of goods sold follows the increase in operating revenues. Reductions in research, development and selling expenses led to the decline in operating expenses. The increase in depreciation and amortization expense reflects the amortization of pre-production costs of molds, dies and tools that were capitalized during 2000 and an increase in capital expenditures. Other Business Operations ------------------------- Nine months ended September 30, 2001 2000 Change ------- ------- ------ (in thousands) Operating revenues $59,195 $56,570 $2,625 Cost of goods sold 30,764 29,254 1,510 Operating expenses 23,431 22,218 1,213 Depreciation and amortization 4,377 4,151 226 ------- ------- ------ Operating (loss) $ 623 $ 947 ($324) ======= ======= ====== Increases in operating revenues of approximately $3.9 million from the energy services company and $1.8 million from the transportation subsidiaries were partially offset by decreases in revenues from the construction subsidiaries. Both operating revenues and cost of goods sold increased for the energy services company as a result of the higher cost of natural gas. Increases in brokerage revenue combined with a 0.5% increase in revenue per mile and a 0.9% increase in miles driven were the primary reasons for the increase in transportation revenues. Certain jobs of the construction companies have not performed in accordance with expectations. Delays in construction, caused by a late spring thaw and wet conditions, pushed completion dates into the fourth quarter of 2001. If inclement weather conditions occur in the fourth quarter, this could delay some jobs into 2002. There have been less construction projects to bid on in 2001 compared with 2000 due to the current economic conditions. This has resulted in a lower backlog of work for the construction companies in 2001. Interest Charges and Income Taxes ---------------------------------- The $765,000 (6.0%) decrease in interest charges is primarily due to declining interest rates and average borrowing levels under the lines of credit between the periods. Income tax expense of $15.7 million for the nine months ended September 30, 2001 is based upon the annual effective tax rate. Item 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- The Company has limited exposure to market risk associated with interest rates and commodity prices. The majority of the Company's long-term debt obligations bear interest at a fixed rate. Variable rate long-term debt bears interest at a rate that is reset on a periodic basis reflecting current market conditions. The Company manages its interest rate risk through the issuance of fixed-rate debt with varying maturities, through economic refunding of debt through optional refundings, limiting the amount of variable interest rate debt, and utilization of short-term borrowings to allow flexibility in the timing and placement of long-term debt. As of September 30, 2001, the Company had $28.5 million of long-term debt subject to variable interest rates. Assuming no change in the Company's financial structure, if variable interest rates were to average 1 percent higher (lower) than what the average variable rate was on September 30, 2001, interest expense and pre-tax earnings would change by approximately $285,000. The Company has short-term borrowing arrangements to provide working capital and general corporate funds. The level of borrowings under these arrangements vary from period to period, depending upon, among other factors, operating needs and capital expenditures. The electric utility's retail portion of fuel and purchased power costs are subject to cost of energy adjustment clauses that mitigate the commodity price risk by allowing a pass through of most of the increase or decrease in energy costs to retail customers. In addition, the electric utility participates in an active wholesale power market providing access to commodity transactions that may serve to mitigate price risk. The Company has in place an energy risk management policy whose primary goal is to manage, through the use of defined risk management practices, price risk and credit risk associated with wholesale power purchases and sales. The Company through its energy services subsidiary markets natural gas to approximately 150 retail customers. A portion of these customers are served under fixed-price contracts. There is price risk associated with these limited number of fixed-price contracts since the corresponding cost of natural gas is not immediately locked in. This price risk is not considered material to the Company. The plastics companies are exposed to market risk related to changes in commodity prices for PVC resins, the raw material used to manufacture PVC pipe. The PVC pipe industry is highly sensitive to commodity raw material pricing volatility. Currently, margins are very tight due to aggressive competition in a period of soft demand. The Company does not use derivative financial instruments for speculative or trading purposes. PART II. OTHER INFORMATION -------------------------- Item 2. Changes in Securities --------------------- On September 28, 2001, the Company issued 270,370 shares of common stock in connection with the acquisition of St. George Steel Fabrication, Inc. The issuance of such shares did not involve a public offering and therefore was exempt from registration pursuant to section 4(2) of the Securities Act of 1933, as amended. Item 6. Exhibits and Reports on Form 8-K. --------------------------------- a) Exhibits: 10-A Amendment dated June 14, 2001, to Agreement for Sharing Ownership of Coyote Generating Unit No. 1. 10-B Big Stone Plant Coal Agreements by and between the Company, Northwestern Public Service, Montana-Dakota Utilities Co., and RAG Coal West, Inc., dated September 28, 2001. * *Confidential information has been omitted from such exhibit and filed separately with the Commission pursuant to confidential treatment request under Rule 24b-2. b) Reports on Form 8-K. No reports on Form 8-K were filed during the fiscal quarter ended September 30, 2001. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OTTER TAIL CORPORATION By: /s/Kevin G. Moug ------------------------------- Kevin G. Moug Chief Financial Officer and Treasurer (Chief Financial Officer/Authorized Officer) Dated: November 14, 2001 ----------------- EX-10 3 ex10a.txt COYOTE STATION AMENDMENT Exhibit 10-A AMENDMENT TO COYOTE STATION AGREEMENT FOR SHARING OWNERSHIP OF GENERATING UNIT NO. 1 This Agreement is made as of the 14 day of June, 2001, by and between Otter Tail Power Company, a division of Otter Tail Corporation, a Minnesota corporation ("Otter Tail"), Northern Municipal Power Agency, a political subdivision and municipal corporation of the State of Minnesota ("Agency"), Montana-Dakota Utilities Co., a division of MDU Resources Group, Inc., a Delaware corporation ("Montana-Dakota"), Northwestern Public Service Company, a division of Northwestern Corporation, a Delaware corporation ("Northwestern"). Recitals WHEREAS, Otter Tail, Agency, Montana-Dakota, and Northwestern have entered into an agreement entitled "Coyote Station Agreement for Sharing Ownership of Generating Unit No. 1," dated as of July 1, 1977, ("the Agreement for Sharing Ownership") providing for the joint ownership and operation of the Coyote Generating Unit No. 1 ("Coyote"); and WHEREAS, Section 7.1 of the Agreement for Sharing Ownership established a Coordination Committee to be maintained during the term of the Agreement; and WHEREAS, Section 7.4(d) of the Agreement for Sharing Ownership authorizes Coordination Committee "action by oral or written consent of the representatives of that number of owners required to authorize action for the particular committee, . . ."; and WHEREAS, Section 11.3 of the Agreement for Sharing Ownership provides that the Coyote Coordination Committee has the authority to appoint an owner as Operating Agent; and WHEREAS, the Coordination Committee on May 4, 1998, appointed a different owner as Operating Agent and pursuant to Section 7.4(d) of the Agreement for Sharing Ownership caused minutes of the meeting and the action taken to accept the Otter Tail/Minnkota operating proposal; and WHEREAS, no amendment reflecting the change in Operating Agent has been made since that time, even though the change in Operating Agent has taken effect; and WHEREAS, Otter Tail, Agency, Montana-Dakota, and Northwestern wish to amend the Agreement for Sharing Ownership to reflect the action taken by the Coordination Committee on May 4, 1998; and WHEREAS, the change of Operating Agent has created cost sharing issues related to certain Pension benefits, Post- Retirement Medical benefits, and Post-Employment benefits; and WHEREAS, Otter Tail, Agency, Montana-Dakota, and Northwestern wish to amend the Agreement for Sharing Ownership to reflect agreements they have reached regarding cost sharing of Pension benefits, Post-Retirement Medical benefits, and Post- Employment benefits. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: Exhibit B of the Agreement for Sharing Ownership shall be amended to change the appointment of the designated Agent to that of Otter Tail. Article 11, Section 11.3 of the Agreement for Sharing Ownership shall be amended to read as follows: "11.3 One of the owners shall act as Operating Agent. The owners hereby appoint Otter Tail, and Otter Tail hereby accepts such appointment, as the Operating Agent to serve as such until the termination of this Agreement, or until a different owner shall be appointed as Operating Agent by the Coordination Committee, whichever first shall occur." Exhibit C of the Agreement for Sharing Ownership shall be amended pursuant to the Audit Committee's approved amendment to Exhibit C for Coyote Station Benefit Expense Guidelines related to issues of Pension benefits, Post-Retirement Medical benefits, and Post-Employment benefits, adopted in accordance with Section 12.3 of the Agreement for Sharing Ownership. Otter Tail, as operating agent for the Coyote Station, pursuant to Section 12.3 of Article 12 of said Agreement hereby consents to the attached amendment to Exhibit C for Coyote Station Benefit Expense Guidelines related to issues of Pension benefits, Post-Retirement Medical benefits, and Post-Employment benefits. The Audit Committee's amendment to Exhibit C is attached hereto as a part of this Amendment to the Agreement for Sharing Ownership and shall become part of Exhibit C, provided that Exhibit C may be amended from time to time by the Audit Committee in accordance with Article 12, Section 12.3. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and sealed by their authorized representatives on the date appearing next to their signature block, intending thereby that this Agreement shall be effective as of its date, namely June 14, 2001. Dated: August 1, 2001 OTTER TAIL POWER COMPANY, -------------- A DIVISION OF OTTER TAIL CORPORATION By: /s/John MacFarlane ----------------------- Dated: August 3, 2001 NORTHERN MUNICIPAL POWER AGENCY, -------------- BY AND THROUGH ITS AGENT AND REPRESENTATIVE FOR THE COYOTE COAL PLANT, MINNKOTA POWER COOPERATIVE, INC. By: /s/David Loer ----------------------- Dated: August 9, 2001 MONTANA-DAKOTA UTILITIES CO. -------------- A DIVISION OF MDU RESOURCES GROUP, INC. By: /s/Ronald D. Tipton ----------------------- Dated: August 14, 2001 NORTHWESTERN PUBLIC SERVICE --------------- A DIVISION OF NORTHWESTERN CORPORATION By: /s/Michael J. Hanson /s/Jana Hanson ----------------------- Amendment dated June 14, 2001 To Exhibit C Amended July 29, 1982 To Coyote Station Agreement For Sharing Ownership of Generating Unit No. 1 dated July 1, 1977 COYOTE STATION BENEFIT EXPENSE GUIDELINES The goal in this process is to develop a methodology that will be fair and reasonable for all Owners in an effort to keep all Owners whole in the operating of the Coyote Station. PENSION BENEFITS Pension benefit liability for Coyote Station personnel will be calculated separately reflecting the Otter Tail Corporation Pension Plan provisions, including the agreed upon 6% escalation adjustment offset from the MDU Resources Group Inc. Pension plan. Pension plan expenses will be charged to the Coyote Station owners based on Statement of Financial Accounting Standard ("FAS") 87 accounting rules. Otter Tail Power Company will establish a separate pension reconciliation account assuming an adoption date of July 1, 1998. ANNUAL EXPENSE CALCULATIONS - --------------------------- Annual FAS 87 expense will consist of the following items for Coyote Station personnel: 1. Service cost 2. Interest cost 3. Estimated return on the hypothetical asset (as defined below) at the discount rate as used in the Otter Tail Corporation Pension Plan for the plan year. 4. Amortization of transition prior service cost base. The transition prior service cost base was determined by amortizing Coyote Station liabilities under the Otter Tail Corporation plans as of July 1, 1998 over the future working lifetime of Coyote Station employees. This period is approximately 15 years. 5. Amortization of gains and losses. The amount of gain or loss to be recognized in annual expense will be based on the methodology set forth under FAS rules, including: a) use of a 10% gain / loss corridor for Coyote related demographics and actuarial assumptions, and b) amortization over the future working lifetime of active employees; but excluding: c) gain or losses on hypothetical asset returns. Assumptions for Coyote Station expense will mirror assumptions Otter Tail Corporation and its actuaries select for annual FAS 87 reporting purposes, except that: a) the expected return on assets shall equal the discount rate and b) amortization of gains / losses as outlined in 5.above. HYPOTHETICAL ASSET ACCOUNT - -------------------------- The hypothetical asset is designed to represent the accumulated net value of contributions made by the Coyote Station owners. The hypothetical asset account will be determined as if a contribution equal to the annual FAS 87 accounting expense (as specified above) is made to a hypothetical asset account during the plan year. Earnings on the hypothetical asset will be credited at a rate equal to the discount rate employed for actuarial valuations of the Otter Tail Corporation Pension Plan for the plan year. The hypothetical asset will be reduced to reflect benefit payments to plan participants who retired from active service at Coyote Station after July 1, 1998, and reasonable expense related to the operation of the plan. These expenses will be allocated to Coyote Station using a ratio of plan participants located at Coyote Station to the total plan participants as of the end of the year. These expenses include legal and actuarial fees directly related to Coyote Station operations along with an allocation of other fees. The amount of the annual FAS 87 accounting expense related to participants located at Coyote Station will be included in the hypothetical asset for Coyote Station each year, regardless of whether Otter Tail Corporation makes any contribution to the Pension Plan for the year. If there is a year when the FAS 87 expense determination results in plan income for the year, this will be handled as a negative contribution and will reduce the hypothetical asset. Contributions are assumed to be made to the hypothetical asset account during the year. Allocated earnings on the hypothetical asset will be calculated on an annual basis but it will be assumed contributions and benefit payments are made 13/24 of the way through the year. This is the standard way of recognizing monthly contributions. See sample pension calculation below. When an Otter Tail Power Company employee transfers to Coyote Station with past Otter Tail Power Company service, the hypothetical asset will be increased by the amount of the employee's Projected Benefit Obligation (PBO). Likewise, when an employee transfers from Coyote Station to another Otter Tail Power Company location, the hypothetical asset will be reduced by the amount of their PBO, which includes any related unamortized transition amounts. This PBO will be net of the liability, if any, retained in the MDU Resources Inc. plan.
COYOTE STATION PENSION CARVE OUT ESTIMATED DATA Half Year ESTIMATED DATA 1998 1999 2000 ------------------------------------ -------- ------ ------ A Projected Benefit Obligation $348,346 $575,067 $626,332 Net of MDU assumed liability B Service Cost $ 64,355 $156,931 $137,655 C Benefit Payments $ - $ - $ 2,000 D Discount Rate 7.25% 6.50% 7.75% E Return on Hypothetical Asset 7.25% 6.50% 7.75% Same as Discount Rate F Amortization Period 15.1 15.1 15.1 FAS 87 EXPENSE ------------------------------------ G Service Cost $ 64,355 $156,931 $137,655 Includes wage changes H Interest 12,628 37,379 48,541 A * D I Expected Return on Assets (1,689) (13,662) (34,162) E * (13/24 * beginning & ending balances) J Prior Service Cost 11,535 23,069 23,069 Greater benefits under OTP plan K (Gains) / losses (see below) - 6,110 - Calculated below L Annual True-Up - (5,000) 5,000 ---------------------------------- M EXPENSE $ 86,829 $204,828 $180,103 HYPOTHETICAL ASSET ------------------------------------ N Hypothetical Asset Beginning Balance $ - $ 86,018 $302,007 O Plus Earnings on Hypothetical Asset 1,689 13,662 34,162 E * 13/24 * beginning & ending balances P Less Benefits Paid - - (2,000) Q Less Plan Operating Expenses (2,500) (2,500) (2,500) R Plus Annual Accounting Expense 86,829 204,828 180,103 Line M above ---------------------------------- S HYPOTHETICAL ASSET ENDING BALANCE $ 86,018 $302,007 $511,772 (GAINS) / LOSSES SCHEDULE ------------------------------------ T Actual Returns on Avg. Asset $ - $ - $ - (E-D) * (N+S)* 13/24 (one year lag) U Demographics & Assumptions Fluctuations - 149,768 (584) Net Accumulated Unrecognized Amounts V Corridor at 10% 34,835 57,507 62,633 A * 10% (10% of PBO or asset, whichever is larger) W Amount to Amortize - 92,261 - (T + U) - V ,else zero X Amortization Amount - 6,110 - W / F
POST-RETIREMENT MEDICAL BENEFITS Post-Retirement Medical benefit liability for Coyote Station employees will be calculated separately reflecting the Otter Tail Corporation Retiree Medical Plan provisions. Plan expenses will be charged to the partners based on FAS 106 accounting rules. Otter Tail Power Company will establish a separate post-retirement medical benefit reconciliation account assuming an adoption date of July 1, 1998. ANNUAL EXPENSE CALCULATIONS - --------------------------- Future FAS 106 expense will consist of the following items for Coyote Station personnel: 1. Service cost 2. Interest cost 3. Estimated return on the hypothetical asset account (as defined below) 4. Amortization of transition prior service cost base. The transition prior service cost base was determined by amortizing Coyote Station liabilities under the Otter Tail Corporation plans as of July 1, 1998 over the future working lifetime of Coyote Station employees. This period is approximately 11 years. 5. Amortization of gains and losses. The amount of gain or loss to be recognized in annual expense will be based on the methodology set forth under FAS rules, including: a) use of a 10% gain / loss corridor, and b) amortization over the future working lifetime of active employees. The gain or loss determination will recognize actual Coyote liabilities and hypothetical assets (as defined below) as of the beginning of the plan year. Assumptions for Coyote Station expense will mirror assumptions Otter Tail Corporation and its actuaries select for annual FAS 106 reporting purposes, except that: a) the expected return on assets shall equal the discount rate and b) amortization of gains / losses as outlined in 5.above. HYPOTHETICAL ASSET ACCOUNT - -------------------------- The hypothetical asset is designed to represent the accumulated net value of contributions made by the Coyote Station owners. The hypothetical asset account will be determined as if a contribution equal to the annual FAS 106 accounting expense (as specified above) is made to a hypothetical asset account during the plan year. Earnings on the hypothetical asset will be credited at a rate equal to the discount rate employed for actuarial valuations of the Plan for the plan year. The hypothetical asset will be reduced to reflect benefit payments to plan participants who retired from active service at Coyote Station after July 1, 1998, and reasonable expense related to the operation of the plan. These expenses will be allocated to Coyote Station using a ratio of plan participants located at Coyote Station to the total plan participants as of the end of the year. These expenses include legal and actuarial fees directly related to Coyote Station operations along with an allocation of other fees. The hypothetical asset will be increased or decreased, in an amount equal to the annual FAS 106 accounting expense related to participants located at Coyote Station, each year, regardless of whether Otter Tail Power Company elects to fund Post Retirement Medical Benefits. If there is a year when the expense determination results in plan income for the year, this will be handled as a negative contribution and will reduce the hypothetical asset. Contributions are assumed to be made to the hypothetical asset account during the year. Allocated earnings on the hypothetical asset will be calculated on an annual basis but it will be assumed contributions and benefit payments are made 13/24 of the way through the year. This is the standard way of recognizing monthly contributions. When an Otter Tail Power Company employee transfers to Coyote Station with past Otter Tail Power Company service, the hypothetical asset will be increased by the amount of their Accumulated Post Retirement Benefit Obligation (APBO). Likewise, when an employee transfers from Coyote Station to another Otter Tail Power Company location, the hypothetical asset will be reduced by the amount of their APBO, which includes any related unamortized transition amounts. See sample post retirement benefit calculation below.
COYOTE STATION POST RETIREMENT BENEFITS PENSION CARVE OUT ESTIMATED DATA Half Year ESTIMATED DATA 1998 1999 2000 ------------------------------------ -------- ------ ------ A Accum. Projected Benefit Obligation $376,075 $534,599 $526,642 B Service Cost $ 31,811 $ 77,571 $ 68,043 C Benefit Payments $ - $ - $ 2,000 D Discount Rate 7.25% 6.50% 7.75% E Return on Hypothetical Asset 7.25% 6.50% 7.75% Same as Discount Rate F Amortization Period 11.5 11.5 11.5 FAS 106 EXPENSE ------------------------------------ G Service Cost $ 31,811 $ 77,571 $ 68,043 H Interest 13,633 34,749 40,815 A * D I Expected Return on Assets (1,420) (11,035) (27,299) Line O below J Prior Service Cost 29,381 58,762 58,762 Greater benefits under OTP plan K (Gains) / losses (see below) - 5,184 - Calculated below L Annual True-Up - (5,000) 5,000 ---------------------------------- M EXPENSE $ 73,405 $160,231 $145,321 HYPOTHETICAL ASSET ------------------------------------ N Hypothetical Asset Beginning Balance $ - $ 72,325 $241,091 O Plus Earnings on Hypothetical Asset 1,420 11,035 27,299 E * 13/24 * beginning & ending balances P Less Benefits Paid - - (2,000) Q Less Plan Operating Expenses (2,500) (2,500) (2,500) R Plus Annual Accounting Expense 73,405 160,231 145,321 Line M above ---------------------------------- S HYPOTHETICAL ASSET ENDING BALANCE $ 72,325 $241,091 $409,211 (GAINS) / LOSSES SCHEDULE ------------------------------------ T Actual Returns on Avg. Asset $ - $ - $ - (E-D) * (N+S)* 13/24 (one year lag) U Demographics & Assumptions Fluctuations - 113,080 (13,309) Net Accumulated Unrecognized Amounts V Corridor at 10% 37,608 53,460 52,664 A * 10% (10% of APBO or asset, whichever is larger) W Amount to Amortize - 59,620 - (T + U) - V ,else zero X Amortization Amount - 5,184 - W / X
POST EMPLOYMENT BENEFITS Post Employment Benefits (FAS 112) expenses will be charged to Coyote Station on a cash basis as costs are incurred. These charges will be in a ratio of Coyote Station post employment benefits participants to total participants included in FAS 112 expense. SPECIAL RULES Treatment of Benefit Assets and Liabilities in the event of a change in operating agent Otter Tail Power Company is the current operating agent of Coyote Station. At the time of a change in operating agent, Coyote Station liabilities would be compared to the hypothetical assets using the plan curtailment/settlement rules of FAS 88 and 106 or other applicable accounting standards. This methodology compares assets and liabilities at the time of the event and adjusts for any remaining unrecognized expense or income, such as prior service cost bases and accumulated gains and losses. Under this methodology, if hypothetical assets exceed liabilities at the time of the curtailment/settlement event, a net amount would be due to the Coyote Station owners from Otter Tail Power Company. If hypothetical assets are less than liabilities at the time of the curtailment/settlement event, a net amount would be due from the Coyote Station owners to Otter Tail Power Company. A method for actual exchange of funds or reimbursement, cognizant of the then current business environment and income tax implications of the owners, will be determined at the time of the curtailment/ settlement event, which would be mutually acceptable to all Coyote Owners. The amount of gain or loss to be recognized in annual expense will be based on the methodology set forth under FAS rules, as calculated for participants located at Coyote Station, including: a) use of a 10% gain/loss corridor, and b) amortization over future working lifetime of active Coyote Station personnel. The gain or loss determination will recognize actual Coyote liabilities and hypothetical assets as of the beginning of the plan year. This amount will be spread over future working lifetime of active personnel. In order to avoid a large curtailment/settlement adjustment at the time of a change in operator, the accumulated FAS 87 and 106 (gain)/loss will be closely monitored. If it grows too large, it will be amortized more quickly so that, if there were a change in operating agent, it would result in a relatively smaller curtailment/settlement adjustment. The amortization period shall be mutually acceptable to all Coyote Owners. The assumptions, which will be used to calculate the curtailment/settlement adjustment at the time of a change in operating agent, are important. The assumptions to be used to measure these liabilities will be based on expected future long- term funding assumptions. SEVERANCE PAY Otter Tail Power Company, as operating agent, will be responsible for severance pay issues on behalf of the owners. Costs of severance arrangements, including payments and benefits granted to severed full-time employees located at Coyote Station will be charged to the Coyote Station owners in proportion to their ownership of the facility. Any severance pay must be approved by the Owners prior to the inclusion of such costs in the Owners' Statement of Costs. SETTLEMENT OF ASSETS AND LIABILITIES AT THE TIME COYOTE STATION IS DECOMMISSIONED. This will be handled in a manner similar to a change in operating agent described above. PENSION AND RETIREE MEDICAL BENEFIT EXPENSE FOR THE OPERATOR'S GENERAL OFFICE EMPLOYEES The operating agent will include as payroll overheads, net periodic pension cost and net periodic post-retirement benefit cost for payroll allocated from the operating agent's General Office employees as defined under Article 12.3 of the Operating Agreement. The operating agent will assume all risk and rewards of the underlying assumptions used in determining the employee benefits with no subsequent true up. INCOME TAXES Any tax consequences, favorable or unfavorable, related to plan funding or timing of tax deductions or non-deductible amounts for the Owners or Operation Agent, shall not be shared by the Coyote Station Owners. OTHER EMPLOYEE BENEFITS The operator will charge for other employee benefits consistent with Article 12.3 of the Operating Agreement. In the event of a change in Coyote Station operating agents or the subsequent decommissioning of the station, the liability for such benefits would be recalculated and adjustments made to true up differences. ANNUAL TRUE-UP For the six months ended 12/31/98, and annually thereafter, the operating agent shall true-up any differences between Pension and Post Retirement Medical Benefits as calculated here, and costs included in the monthly Statement of Costs to the Coyote Station owners. Such true-up shall appear in the Statement of Costs, the month following the true-up calculation, and shall be shared by Coyote Station owners on the basis of ownership percentage. ACCOUNTING STANDARDS In the event of a change in Accounting Standards affecting benefits, the Operating Agent shall revise these guidelines to the mutual satisfaction of the Coyote Station owners. PERIODIC REVIEWS Reflecting the interests of all Coyote Owners and the Operating Agent, these Coyote Station Benefit Guidelines shall be in effect until December 31, 2003, and shall be reviewed at that time. This Amendment was approved by the Coyote Station Audit Committee, June 14, 2001. EX-10 4 ex10b.txt COAL SUPPLY AGREEMENT Exhibit 10-B (*) Confidential information has been omitted and filed separately with the Commission pursuant to Rule 24b-2. COAL SUPPLY AGREEMENT by and between OTTER TAIL POWER COMPANY, NORTHWESTERN PUBLIC SERVICE, MONTANA-DAKOTA UTILITIES CO. and RAG Coal West, Inc. THIS COAL SUPPLY AGREEMENT ("Agreement") is made and entered into as of September 28, 2001, (the "Effective Date"), by and between OTTER TAIL POWER COMPANY, A DIVISION OF OTTER TAIL CORPORATION, NORTHWESTERN PUBLIC SERVICE , A DIVISION OF NORTHWESTERN CORPORATION, MONTANA-DAKOTA UTILITIES CO., A DIVISION OF MDU RESOURCES INC., hereinafter together called "Buyers or Buyer" and RAG Coal West, Inc., hereinafter called "Seller." WHEREAS: A. Seller desires to sell coal from its Belle Ayr and Eagle Butte mines located in Campbell County, Wyoming ("the Mines"), under the terms and conditions herein set forth; and B. Buyers desire to secure an adequate supply of coal of the quality and quantity as set forth in this Agreement; and NOW, THEREFORE, for and in consideration of the mutual covenants and agreements of the parties contained herein, Seller agrees to sell and deliver to Buyers and Buyers agree to purchase, receive and pay for coal from Seller upon the following terms and conditions: 1. TERM ---- The term of this Agreement shall be for * commencing on * and continue through and include * unless sooner terminated as provided herein. 2. QUANTITY -------- (a.) Volume of coal to be purchased and sold during the Term Belle Ayr Eagle Butte** --------- ----------- * * **Seller shall have the unilateral right but not the obligation to deliver all or a portion of the tons stated above from the Belle Ayr Mine during the Term. Seller must notify Buyer by * of its intent to make this change in origin. If during the Term Seller desires to deliver additional tons from the Belle Ayr Mine, (other than those declared by *), such volume shall be transferred from the Eagle Butte Mine to the Belle Ayr Mine only by mutual agreement of the parties. If for reasons of Force Majeure as stated in Paragraph 9., the Belle Ayr Mine is unable to ship such tons, they shall be again originated from the Eagle Butte Mine. (b) Delivery Schedule: Deliveries from the Mines shall be scheduled to occur in monthly quantities during each calendar year. Buyer shall provide Seller with its written monthly schedule for the calendar year *. In providing the monthly schedules to Seller, Buyer shall use its best faith efforts to provide an accurate estimate of its projected need for coal on a monthly basis. Buyer shall use best efforts to keep monthly quantities approximately equal except for scheduled overhaul and test burns. However, the parties agree that the monthly schedules are for the convenience of the parties and in no way binding on the Buyer and that no penalty of any kind shall accrue to Buyer if for any reason the Buyer is (1) unable to take delivery of the amount of monthly coal scheduled or (2) takes delivery of more coal than scheduled in order to make-up for any previous months' deficiencies. Except as provided in Section 2(c) below, any variance in the amount of monthly coal scheduled and actually delivered shall not relieve either Seller or Buyer from their respective obligations to sell and purchase the minimum amounts of coal set forth in Section 2(a). (c) Reduction in Quantities Where, through fault of the Buyer, Buyer fails to take delivery of the amount of coal scheduled for any month because an appropriate amount of suitable and compatible unit trains is not provided to Seller, the following shall apply: Seller shall have the option at its discretion to reduce, in the affected calendar year, the amount of coal that it is obligated to provide under Section 2(a) in the amount that Buyer fails to take delivery. Seller may reduce its supply obligation only by giving Buyer written notice of its intent to do so within 10 days of the end of the calendar quarter in which the failure to take delivery occurs. When Seller provides such notice to Buyer, such notice shall also relieve Buyer of any further obligation with regard to purchasing or taking delivery of the coal previously not taken. Seller's option to reduce its supply obligation as provided above does not apply when the failure to provide an appropriate amount of suitable and compatible unit trains is not through any fault of Buyer. Failure by the rail car carrier to provide an appropriate amount of suitable and compatible unit trains to Seller shall not be considered the fault of the Buyer. Buyer agrees, however, to use its best efforts to assure that the railcar carrier provides the appropriate amount of suitable and compatible unit trains to the Seller. (d) Additional or Lesser Quantities Buyer and Seller may agree to increase or decrease the Annual Quantity as nominated by Buyer in Section 2(a) throughout the Term by designating any such increase or decrease in a written instrument signed by duly authorized representatives of the parties. Such increase or decrease shall become effective only through written mutual agreement of the parties. (e) Additional Cost to Buyer through Fault of Seller Where Seller fails, through no fault of the Buyer railcar carrier or event covered by Section 9, to load Buyer's rail cars with coal on a timely basis that causes coal to be delivered to Buyer on an untimely basis or not at all, and where, as a result, Buyer incurs additional costs in a commercially prudent and verifiable manner, either because Buyer must use coal in its outside storage stockpile, secure coal from other sources, or otherwise, Seller shall be responsible to Buyer for these prudent and verifiable additional costs. Seller shall have the right of first refusal to replenish Buyer's outside storage stockpile. 3. SOURCE ------ (a.) The source of coal to be sold pursuant to this Agreement shall be mined and supplied from the Mines. Seller represents and warrants that the Mines have coal of a quality and in quantities that are sufficient to satisfy the requirements of this Agreement. Seller further warrants that the title to all coal delivered under this Agreement shall be good and that such coal shall be free from any claim, lien or other encumbrance. (b.) From time to time, Seller shall have the right but not the obligation to deliver coal from another mine on an identical cents per million delivered basis. Seller must first gain Buyer's written permission. 4. COAL QUALITY ------------ Coal supplied hereunder will be substantially free from impurities and foreign matter such as, but not limited to, dirt, bone, slate, earth, rock, pyrite, wood, tramp metal and mine debris prior to leaving the Mine. Coal will be raw, run-of-mine, crushed to 2" x 0". Seller represents that typical values of BTUs, moisture, ash, sulfur, and the values for other quality characteristics are as set forth in Exhibit A to this Agreement. The coal to be delivered shall meet the following specifications on a quarterly, ton-weighted average as received basis of not less than six (6) trainload lots: "As Received" Belle Ayr Eagle Butte ------------- --------- ----------- Heating Value, BTU/lb. min * * Total Ash, % max. #SO2/mmBtu max. Total Moisture, % max. Seller shall provide Buyer with the analyses of each unit-train loading by facsimile prior to unloading of coal at the Plant. Buyer shall have the right but not the obligation to reject any trainload of coal that is over the maximums or under the minimums of the above specifications by more than * BTU, * % Ash, * #SO2/mmBtu and * % Moisture, by giving notice to Seller within two business days of receiving the analyses from Seller. In the event Buyer rejects such non-conforming coal, title to and risk of loss of the coal shall be considered to have never passed to Buyer and Buyer may, at its sole option, stop the affected shipment in route, prevent the unloading of the affected shipment, return the coal to Seller or mutually agree with Seller upon a disposition for such coal shipment, all at Seller's cost and risk. 5. PRICING ------- The price of coal supplied hereunder shall be based on the following schedule. Prices shall be per ton F.O.B. Buyer's railcars at the Mines (the "Base Price"). The Base Price includes all Governmental Impositions as of May 1, 2001. YEAR Belle Ayr Mine Eagle Butte Mine - ---- -------------- ---------------- * * * (a.) Base Price: The Base Price may be adjusted only in accordance with paragraph b and c of this Section. (b.) Governmental Impositions and Taxes: Seller represents that the Mine is in compliance with all governmental laws, rules and regulations in effect as of May 1, 2001 and that the cost of such compliance, including Mine closure and all reclamation costs, is included in the Base Price set forth in Section 5(a). If the imposition or repeal of any law, regulation or ruling (including changes in interpretations or administration of existing laws, regulations or rulings, or change in tax rates is adopted or becomes effective on or after May 1, 2001 (hereinafter called "Governmental Imposition") and the imposition, repeal, or change in tax rate was not known as of the effective date, Seller shall demonstrate to Buyer, to Buyer's satisfaction, that such Governmental Imposition has increased or decreased the cost of owning or operating the Mine as it relates to the production of coal from the Mine for sale to Buyer under this Agreement. Upon agreement of the parties, the then effective Base Price shall be adjusted by adding or subtracting the per ton cost of the Governmental Imposition to determine an adjusted Base Price. If the Government Imposition will continue for the life of this Agreement, then the Base Price, to be included in an extension of the term of this Agreement, if any, shall also be adjusted by the per ton amount of the Governmental Imposition. Seller shall submit to Buyer in writing, an analysis identifying the Governmental Imposition causing the cost impact and the extent of such cost impact on ownership or operation of the Mine or on the production of coal purchased hereunder and showing the calculation of the amount of change in the Base Price. The effective date of any price increase or decrease pursuant to this Section 5(b) shall be the effective date of the Governmental Imposition causing the cost increase or decrease but, in no event prior to the date of actual commencement of expenditure or accrual thereof by Seller. (c.) Adjustment for Calorific Value: The Base Price is calculated on the assumption of an average monthly calorific coal value of * BTUs per pound from the Belle Ayr Mine and * Btu per pound from the Eagle Butte Mine (the "Specified Average"); provided, however, the parties recognize that the calorific value of coal actually delivered hereunder may vary from such Specified Average. If the weighted average calorific value of the coal furnished in any month deviates from the Specified Average, then an adjustment will be made to the Base Price of coal according to the following equation: A = (B/C) X (D) Where: A - Adjusted Price rounded to the nearest mil ($.001) B - Weighted average (BTUs per pound) calorific value of coal delivered during the month from each Mine C - Applicable Specified Average (BTUs per pound) calorific value of coal. D - Applicable Base Price from the Mine. 6. BILLING AND PAYMENT ------------------- (a.) On or before the fifth (5th) and twentieth (20th) working day of each month, Seller shall render to Buyer at its Plant address provided in Section 14 a semi-monthly invoice which shall indicate the actual tonnage and ton-weighted average calorific value of coal shipped during the previous billing period and the Adjusted Price which takes calorific value into account as defined in Section 5(c) and changes resulting from the changes in Governmental Impositions, if any. (b.) Buyer shall electronically pay such invoice within ten (10) working days after receipt thereof. Unless advised in writing to send all payments to another address, payment shall be sent by electronic means to: LaSalle Bank, N. A. Chicago, Illinois ABA No. 071-000-505 Account No. 5800248527 Account Name: RAG Coal West, Inc. (c.) If Buyer defaults on any payment, Buyer shall pay simple interest thereon at the rate, not to exceed applicable State of Minnesota and Federal laws, that shall be equal to two percent (2%) over the base rate of interest charged by Citibank of New York or any successor bank on new ninety-day loans to responsible and substantial commercial borrowers on the date the interest charge begins. Such interest shall run from the date the payment was due until it is paid. (d.) If any invoice is in dispute, Buyer nevertheless shall pay the undisputed amount, and if Buyer or Seller is due any payment or credit pursuant to the resolution of the dispute, the simple interest on the payment or credit shall be paid by the party owing such payment or credit at the rate, not to exceed applicable State of Minnesota and Federal laws, that shall be equal to two percent (2%) over the base rate of interest charged by Citibank of New York or any successor bank on new ninety-day loans to responsible and substantial commercial borrowers on the date of Buyer's payment or credit from Seller of the disputed invoice and shall run until the date payment or credit is made following resolution of the dispute. (e.) Should Buyer fail to pay Seller for any amount due and owing in accordance with this Section 6 within thirty (30) days after its receipt of Seller's written demand for payment, then Seller shall also have the right, but not the obligation, to suspend deliveries under this Agreement by so notifying Buyer in writing. Should Buyer fail to pay Seller for any amount due and owing in accordance with this Section 6 within ninety (90) days after its receipt of Seller's written demand for payment, then Seller shall have the right, but not the obligation to terminate this Agreement by so notifying Buyer in writing. (f.) Such suspension or termination shall become effective as of the date written notice is received by Buyer. Neither Party shall accrue any additional rights against the other as a result of a suspension or termination permitted in this Section 6. Seller shall lose the right provided in this Section 6 to suspend or terminate if it has not sent written notice of such suspension or termination prior to Buyer's payment of the amount due and owing. Seller's failure to exercise its right to suspend or terminate as provided in this Section 6 shall not be deemed a waiver of its right to suspend or terminate for any subsequent default by Buyer to perform as provided in this Section 6. 7. SAMPLING AND ANALYSIS --------------------- (a.) Seller shall cause, at its expense, to be taken a representative sample of each unit train shipment of coal at the point of loading, to be sampled and analyzed in accordance with methods set forth in applicable American Society for Testing and Materials ("ASTM") standards. All samples shall be divided into at least four (4) parts and put in suitable airtight containers. One part shall be furnished to Buyer or its designee for its disposition, one part shall be retained for analysis by Seller, and two parts shall be retained by Seller or its designee in one of the aforesaid containers properly sealed and labeled for a period forty- five (45) days after the date of sample collection for use as a referee should a dispute arise and the other for a back-up for any unforeseeable qualitative issues. All parts are to be clearly labeled as to Mine, date of sampling, date of preparation, and other identification as to shipment (such as train identification number) and are to be sent within forty-eight (48) hours of train loading, or prior to arrival of train at destination, whichever comes first, to Buyer at the address provided in Section 14 hereof. Upon Buyer's written request and at Buyer's cost, Seller shall send the 4th part to Buyer's designated laboratory for mercury and chlorine content analysis. (b.) Seller shall perform at Seller's cost a "short proximate" analysis (for moisture, ash, sulfur, and calorific value) for each trainload sample and will forward such analysis to Buyer by a mutually agreed upon method of electronic communication. The results of such analysis shall be determinative of the quality of the unit train of coal represented by such sample unless a dispute arises due to a difference between Buyer's and Seller's analysis whereby such difference exceeds ASTM tolerances, (c.) If a dispute arises between Buyer and Seller concerning a trainload sample due to a difference outside ASTM tolerances, within forty-five (45) days of the date on which the subject trainload was loaded, an analysis of the third part shall be made by an independent commercial testing laboratory, mutually chosen by Buyer and Seller, in accordance with methods set forth in applicable ASTM standards. The results of such independent laboratory analysis shall be determinative for purposes of contract compliance and invoicing. Buyer and Seller shall share the cost of such analysis equally. (d.) The results of the sampling and analysis performed by Seller shall govern for purposes of determining any adjustments to the Base Price of coal set forth in Section 5(c) for variations in calorific value, except in the event a dispute arises under Section 7(c), in which event Section 7(c) shall control. (e.) Buyer shall have the right, at its own cost, risk and expense, to have a representative present at any and all times to observe the sampling and analysis, in a manner that does not interfere with Seller's operation of its Mine. 8. WEIGHING AND LOADING -------------------- (a.) Point of Delivery: Coal shall be delivered F.O.B. Buyer's railcars at Seller's railroad loadout facility at the Mines. Upon completion of the loading of each railcar, title and risk of loss for all coal loaded therein shall pass to Buyer. Buyer shall arrange for the provision of suitable and compatible unit trains of open-top railcars for the transportation of coal purchased by Buyer under this Agreement. (b.) Loading Facilities and Procedure: Seller shall operate its loading facilities twenty-four (24) hours per day, 365 days per year. Seller shall load each unit train at Seller's expense as closely as practicable to its capacity. Seller shall complete the loading of each unit train within four (4) hours after the first empty railcar is placed into position for loading. Unless excused by Force Majeure as provided below, Seller shall pay Buyer for any increased transportation charges incurred as a result of Seller's failure to comply with the freetime, overloading and underloading set forth in the excerpts from Buyer's transportation agreement provisions as set forth in Exhibit C. (c.) Weighing: The weight of coal sold and delivered under this Agreement shall be determined on a per shipment basis by certified commercial scales at Seller's train loading facility at the Mine. The weights thus determined shall be accepted as the quantity of coal for which invoices are to be rendered and payments made in accordance with Section 6. Seller shall furnish the railroad company transporting the coal with copies of the weights determined under this Agreement. Coal supplied under this Agreement shall be weighed at Seller's expense. Seller's scales used to determine such weight shall be tested, calibrated and certified in accordance with intervals of approximately every six (6) months by a qualified testing agency. Seller shall use its best efforts to give Buyer no less than ten (10) days notice of the anticipated time of scale test. Buyer shall also have the right, at Buyer's expense and upon reasonable notice, to have the scales checked for accuracy at any reasonable time or frequency. If the scales are found to be over or under the tolerance range allowable for the scale based on ASTM standards, either party shall pay to the other any amounts owed due to such inaccuracy for a period not to exceed thirty (30) days before the time any inaccuracy of scales is determined. Buyer shall have the right, at its own cost, risk and expense, to have a representative present at any and all times to observe the weighings or scale test, in a manner that does not interfere with Seller's operation of its Mine. (d.) Data Transmission: Seller shall provide to Buyer within two business days of completion of loading each train, a train loading manifest for each train by a mutually agreed upon method of electronic transmission. 9. FORCE MAJEURE ------------- (a.) Definition: For purposes of this Agreement, the term "Force Majeure" is defined as any cause beyond the reasonable control and without the intentional fault or willful negligence of the party affected thereby which is the proximate cause of a party's whole or partial inability to perform its obligations under this Agreement. For purposes of this Agreement, Force Majeure includes, without limitation, Acts of God, unusual accumulations of snow or ice, floods, frozen coal, interruptions of transportation, interruptions or breakdowns of the power facilities connecting with Buyer or Seller's facilities, embargoes, acts of civil authority (including State and Federal agencies and courts of competent jurisdiction), acts of military authority, war, insurrections, riots, strikes, lockouts, work stoppages, labor or material shortages, or explosions, fires, adverse geological conditions, or unanticipated or non-routine mechanical breakdowns (including but not limited to shutdowns for emergency maintenance or the like which may be necessary to mitigate or eliminate the imminent threat of explosions, fires, or mechanical breakdowns) at the Mine or at Buyer's Plant . Force Majeure also includes other causes of a similar nature that wholly or partially prevent the mining, hauling, processing, or loading of coal by Seller or the receiving, transporting, storing, unloading or utilizing of coal by Buyer. (b.) Effect of Force Majeure: If, because of an event of Force Majeure, either Seller or Buyer is unable to carry out any of its obligations under this Agreement, except obligations to pay money to the other party due to coal already sold, and if such party shall promptly give to the other party written notice of such event of Force Majeure, then the obligations under this Agreement of the party giving such notice shall be suspended to the extent made necessary by such event of Force Majeure and will continue throughout the continuance of such event; provided, however, that the party giving such notice shall use good faith efforts to eliminate such event of Force Majeure or its effect insofar as possible with a minimum of delay. Nothing herein contained shall cause the party invoking Force Majeure to submit to what it considers to be unreasonable conditions or restrictions, to make an unreasonable expenditure of money or to submit to a labor Agreement it deems unfavorable, and it is agreed that any settlement of labor strikes or difference with workmen shall be entirely within the sole discretion of the affected party. Deficiencies in receiving coal caused by a Force Majeure event shall be made up only upon mutual consent between Buyer and Seller. 10. TITLE ----- Title, right of possession and risks of loss of the coal shall pass from Seller to Buyer upon loading into Buyer's owned or controlled railcar. Seller agrees to load railcars in accordance with industry standards or reasonable rail carrier's instructions as attached hereto. 11. TERMINATION AND CANCELLATION ---------------------------- Either party to this Agreement may cancel this Agreement upon written notice to the other party of such party's failure to comply with any of the material provisions or obligations in this Agreement, provided that notice of such failure has been given and not less than thirty (30) days have elapsed with no curative action having commenced. Seller and Buyer may terminate this Agreement immediately upon written notice to the other in the event the other becomes insolvent or files for protection under any applicable bankruptcy laws. Buyer shall remain obligated to pay for all coal delivered by Seller and accepted by Buyer prior to the date of termination or cancellation. 12. INDEMNITY AND LIABILITY ----------------------- Each party hereby agrees to indemnify, save and hold harmless the other, from and against all liability from damage to property or injury or death of any person or persons arising out of or resulting from the willful or negligent acts or omissions of such party, its agents and employees; provided however, that when employees or agents of either party hereto enter upon the premises of the other party, such entry shall be at the sole risk of the party who is the employer of such employee or agent, and such employer shall hold harmless the other party from all claims by its employees or agent, unless such injury or death or damage to property is a result of gross negligence of the other party. 13. LAWS AND REGULATIONS -------------------- The Seller and Buyer shall comply with all applicable federal, state and local laws, ordinances, statutes, codes, rules, and regulations in the performance of its obligations under this Agreement. 14. NOTICES ------- All notices required hereunder will be in writing and will be deemed properly given when sent by telecopy, to the addresses as provided below, or to such other addresses as Buyer or Seller may hereafter specify for such purpose, provided that all notices will be confirmed immediately by commercial delivery service, e.g., Federal Express or U.P.S. or registered certified mail. Buyer's address is: Seller's address is; - ------------------ ------------------- Big Stone Plant 94 Inverness Terrace East, Suite 120 c/o Otter Tail Power Company Englewood, Colorado 80112-5300 P.O. Box 218 Attn: Vice President Western Sales Big Stone City, SD 57216 Fax: 303/749-8449 Attn: Fuel Supervisor Fax (605) 862-6344 With a courtesy notice to: With a courtesy notice to: - ------------------------- ------------------------- Otter Tail Power Company RAG Coal West, Inc. 215 South Cascade Street 2273 Bishop Road Fergus Falls, MN 56537 Gillette, Wyoming 82718 Attn: Production Services Attention: President Fax: (218) 739-8629 15. CONFIDENTIALITY --------------- Except as hereinafter provided, the terms and conditions set forth in this Agreement, and all information supplied to the other party pursuant to this Agreement, are considered by both Buyer and Seller to be confidential, and neither party shall disclose any such information to any third party without the advance written consent of the other party, which consent shall not be unreasonably withheld, except where such disclosure may be required by law or in connection with the assertion of a claim or defense in judicial or administrative proceedings involving the parties hereto, in which event the party required to make such disclosure shall advise the other in advance in writing and shall cooperate to the extent practicable to minimize the disclosure of any such information. 16. WARRANTIES ---------- THE WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT ARE THE SOLE WARRANTIES GIVEN BY EITHER PARTY TO THE OTHER IN CONNECTION WITH THE SALE AND PURCHASE OF COAL PROVIDED HEREIN. THE PARTIES HEREBY EXPRESSLY WAIVE AND DISCLAIM ANY STATUTORY OR IMPLIED WARRANTIES THAT MAY BE APPLICABLE TO THE SUBJECT MATTER OF THIS AGREEMENT INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 17. DISPUTE RESOLUTION ------------------ (a.) No party to this Agreement shall be entitled to take legal action with respect to any dispute arising from or relating to the Agreement until it has complied, in good faith, with the procedures set forth in paragraph b and c below. (b.) Negotiation ----------- (1) The parties shall attempt promptly and in good faith to resolve any dispute arising out of or relating to this Agreement through negotiations between representatives who have the authority to settle the controversy. All negotiations pursuant to this clause shall be confidential and treated as compromise and settlement negotiations for the purpose of the federal and state rules of evidence. (2) Either party may give the other written notice of any dispute not resolved in the normal course of business. As soon as mutually agreeable after delivery of this notice, representatives of the parties shall meet at a mutually acceptable time and place (or by telephone), and thereafter as often as they reasonably may deem necessary to attempt to resolve the dispute. Unless the parties to the dispute agree that the dispute cannot be resolved through unassisted negotiation, negotiations shall not be deemed at an impasse until 60 days after the written notice of the dispute. (3) If a negotiator intends to be accompanied at a meeting by any attorney, the other negotiator(s) shall be given at least three working days' notice of such intention and may also be accompanied by an attorney. (c.) Alternative dispute resolution procedure ---------------------------------------- (1) If a dispute has reached impasse, either party may suggest use of alternative dispute resolution ("ADR") procedures. Once that party has notified the other of desire to initiate ADR, the parties may select the ADR method they may wish to use by mutual agreement. That ADR method may include arbitration, mediation, mini-trial, or any other method that best suits the circumstances of the dispute. The parties shall agree in writing to an ADR method selected and to the procedural rules to be followed as promptly as possible. To the extent the parties are unable to agree on a procedural rules in whole or in part, the current center for public resources ("CPR") model procedure for mediation of business disputes, CPR model mini- trial procedure, or CPR commercial arbitration rules-"whichever applies to the chosen ADR method-"shall control, to the extent such rules are consistent with the provisions of this section. (2) If the parties are unable to agree on an ADR method or unwilling to use ADR to resolve the dispute, either party shall be free to resort to litigation. (3) If the parties agree on an ADR method other than arbitration, the decision rendered in that proceeding shall not be binding on any party except by agreement of the parties, and either party may seek resolution of the dispute through litigation. If the parties agree on arbitration as an ADR method, the decision of the arbitrator(s) shall be binding on all parties, pursuant to the United States Arbitration Act 9 USCA Sec. 1 et seq. The arbitrator(s) shall not award punitive or exemplary damages against either party. 18. MISCELLANEOUS ------------- (a.) Governing Law. This Agreement shall be subject to and governed by the laws of the State of Minnesota. (b.) Binding Effect. This Agreement shall inure to the benefit of and be binding on the parties hereto, their successors and assigns. (c.) Assignment. Neither party hereto may assign this Agreement or any rights or obligations hereunder, in whole or in part, without the prior written consent of the other party, which consent shall not be unreasonable withheld or denied. However, consent shall not be required for merger, consolidation or sale of all or substantially all of the assets of a party. (d.) Severability. If any provision of this Agreement is found to be contrary to law or unenforceable by a court of competent jurisdiction, the remaining provisions shall be severable and enforceable in accordance with their terms, unless such unlawful or unenforceable provision is material to the transactions contemplated hereby, in which case the parties shall negotiate in good faith a substitute provision. (e.) Amendments. Except as otherwise provided herein, this Agreement may not be amended, supplemented or otherwise modified except by written instrument signed by duly authorized representatives of the parties hereto. (f.) Headings. The descriptive headings contained in this Agreement are for convenience only and do not constitute a part of this Agreement. (g.) Entire Agreement. This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and there are no representations, understandings or agreements, oral or written, expressed or implied, that are not included herein. (h.) Survival. At the time of termination of this Agreement or any cancellation hereof, the appropriate provisions hereof shall survive as necessary to complete any payment or credit provided for hereunder with respect to coal sold and delivered prior to the date of such termination or cancellation. (i.) Each Party Responsible for Actions. It is the intent of this Section 18 that each party be responsible for its own acts and omissions. WITNESS the signatures of the parties hereto this 17th day of October, 2001 OTTER TAIL POWER COMPANY NORTHWESTERN PUBLIC SERVICE, a Division of Otter Tail Corporation a Division of NorthWestern Corporation By: /s/Ward Uggerud By: /s/Curt Pohl ------------------------------ ------------------------------- Title: VP, COO Energy Supply Title: VP Energy Operations --------------------------- ---------------------------- MONTANA-DAKOTA UTILITIES CO., RAG Coal West, Inc a Division of MDU Resources Inc. By: /s/Bruce Imsdahl By: /s/Larry M. Deal ------------------------------ ------------------------------ Title: Vice President Energy Supply Title: V.P. Sales ---------------------------- -------------------------- EXHIBIT A --------- Mine: * Seam: * Date: * PROXIMATE ANALYSIS AVERAGE STD. DEV. RANGE As Received * * * Moisture Ash Volatile Fixed Carbon Sulfur Btu MAF Btu SULFUR FORMS Pyritic Organic Sulfate WATER SOLUBLE ALKALIS Water Soluble Na2O Water Soluble K2O FUSION Reducing Initial Deformation H=W H=1/2W Fluid Oxidizing Initial Deformation H=W H=1/2W Fluid ULTIMATE ANALYSIS Carbon Hydrogen Nitrogen Chlorine Sulfur Ash Oxygen Moisture EXHIBIT A --------- Mine: * Seam: * Date: * PROXIMATE ANALYSIS AVERAGE STD. DEV. RANGE As Received * * * Moisture Ash Volatile Fixed Carbon Sulfur Btu MAF Btu SULFUR FORMS Pyritic Organic Sulfate WATER SOLUBLE ALKALIS Water Soluble Na2O Water Soluble K2O FUSION Reducing Initial Deformation H=W H=1/2W Fluid Oxidizing Initial Deformation H=W H=1/2W Fluid ULTIMATE ANALYSIS Carbon Hydrogen Nitrogen Chlorine Sulfur Ash Oxygen Moisture EXHIBIT B --------- Belle Ayr Mine Mining Taxes Component As Of May 1, 2001 INPUT VARIABLE AMOUNT NAME DESCRIPTION ------ ---- ----------- * * * PRICE COMPONENT DESCRIPTION FORMULAS --------- ----------- -------- * * * EXHIBIT B --------- Eagle Butte Mine Mining Taxes Component As Of May 1, 2001 INPUT VARIABLE AMOUNT NAME DESCRIPTION ------ ---- ----------- * * * PRICE COMPONENT DESCRIPTION FORMULAS --------- ----------- -------- * * * EXHIBIT C - TRANSPORTATION AGREEMENT EXCERPTS SECTION 9. WEIGHING 9(A) Weighing. The parties agree that the weight of the Coal in the Coal Cars will be determined at Origins by UTILITIES' Origin Mine operator. BN shall not be responsible for such weight determinations. The weights ascertained by said operators pursuant to Section 11(J) shall be used for the assessment of the freight charges thereunder. Weighing shall be performed on scales inspected semi-annually at no cost to BN, in accordance with the then-current AAR Scale Handbook specifications for such scales, and subject to supervision and verification by BN or its agent. 9(B) Breakdown Of Scales. If weights cannot be determined due to a breakdown of the scales at Origins, the weight per Train to be used for the assessment of freight charges thereunder shall be determined by averaging the per car weights on the ten (10) immediately preceding weighed shipments from the same Origin to Destination, adjusted to any variance in the number of cars per shipment. 9(C) Gross Load Limit and Overloads. If a loaded Coal Car is found by BN to weigh in excess 270,000 pounds, BN shall, if necessary, switch said overloaded Coal Car and remove it from the Train. BN retains the right to refuse to accept or transport overloaded Car(s). BN is not be obligated to reduce the lading of such Car(s), which obligation is solely UTILITIES' under this Agreement. After UTILITIES, at no expense to BN, cause any excess Coal to be removed from the overloaded Coal Car, BN shall replace the Coal Car into the Train. For such services in removing and replacing each such Coal Car, UTILITIES shall pay a charge to BN of $372.00 per Coal Car. If the excess Coal is removed during the Free Time at Origin without removing the Coal Car from a Train, there shall be no charge to UTILITIES. BN reserves the right to increase the maximum gross weight on rail above 270,000 pounds. UTILITIES are not obligated to ship in excess of 270,000 pounds. SECTION 10. LOADING AND UNLOADING 10(A) Advance Notice and Loading. (1) BN will make Trains of empty Coal Cars available at Origins for loading. BN shall furnish the Origin Mine Operator not less than four (4) hours advance notice by radio, telex, telephone or other reasonable means of the arrival of such Trains of Coal Cars at Origin for loading. (2) UTILITIES and/or its Mine Operator shall be responsible for the loading of Coal Cars. The parties agree to cooperate with the Mine Operator to provide for the efficient loading of the Coal Cars at an Origin. BN shall provide Locomotives and Train crews to move Trains through the Loading Facility at a controlled speed as designated by UTILITIES Mine Operator; PROVIDED, HOWEVER, that BN will not be required to move Cars at a speed less than five/tenths (.5) mile per hour, but to the extent it is able to operate at a lesser speed, will upon request use its best efforts to do so. CONFIDENTIAL CONTRACT ICC-BN-C-2913 10(B) Placement and Free Time - Origin. (1) Four (4) hours free time will be allowed to load all empty Coal Cars in a Train, commencing after the Actual or Constructive Placement of the Train at the designated notification point at the Origin ready for loading ("Loading Free Time"); PROVIDED, HOWEVER, that Loading Free Time shall be extended for a period of time equivalent to that by which loading was prevented as a result of (i) a Loading Disability, or (ii) any occurrence attributable to BN which prevents loading. If BN fails to provide four (4) hours advance notice of arrival at Origin, a Train's Loading Free Time shall be extended by the additional amount of time (but not to exceed four (4) hours) that it takes to load a Train due to BN's failure to provide the required notice. If a Train is not loaded and released during the applicable Loading Free Time, BN may collect from UTILITIES an Origin Detention Charge of $308.00 per hour (including any fraction of an hour) until such time as the Train is loaded and released. (2) For purposes of this Section 10, "Actual Placement" is made when a Unit Train arrives at Origin Mine's designated notification point (as described in the BN timetable and the Train crew has requested loading instructions. In the event a Train cannot be Actually Placed at an Origin, notice shall be given immediately to Origin Mine Operator by radio, telex, telephone or other reasonable means, and BN may place the Train at an available hold point until such time as Origin Mine Operator notifies BN that Actual Placement can be made, whereupon it shall be moved to Origin. (3) For purposes of this Section 10, "Constructive Placement" begins when a Train is placed at an available hold point because it is prevented from being Actually Placed; PROVIDED, HOWEVER, that Constructive Placement shall not take place when Actual Placement is prevented (i) due to any cause that would extend Loading Free Time, or (ii) because the Loading Free Time for another Train ahead of the Train in question has not expired ("Origin Bunching"). The time required for the movement of a Constructively Placed Train from a hold point to an Origin will not be included in the computation of Free Time. (4) "Loading Disability" means any of the following events which directly result in the inability to load Coal into a Train at an Origin: (i) an Act of God; (ii) a strike or other labor disturbance; (iii) a riot or other civil disturbance; (iv) rain, snow and/or ice accumulation sufficient to immobilize Train or Mine operations or prevent loading of such Train; (v) an act of regulation of local, state or federal government authorities; or (vi) mechanical or electrical breakdown, explosion or fire (including shutdown for emergency maintenance or the like which may be necessary to mitigate or eliminate the imminent threat of explosion, fire or mechanical or electrical breakdown), or accident affecting a Loading Facility at the Origin then being utilized by UTILITIES or affecting BN's locomotives or other railroad equipment. UTILITIES or UTILITIES' Mine Operator shall notify BN by telephone, telegraph, or radio or other reasonable means (i) within one and one-half (1.5) hours of the commencement of a Loading Disability as to the nature and time of commencement of the Loading Disability, and (ii) within one and one-half (1.5) hours after the termination of a Loading Disability as to the time of termination of the Loading Disability, except that the notifications in (i) and (ii) above shall not be necessary if the Loading Disability lasts for a period of one and one-half (1.5) hours or less. Exhibit 10-B (Continued) (*) Confidential information has been omitted and filed separately with the Commission pursuant to Rule 24b-2. COAL SUPPLY AGREEMENT by and between OTTER TAIL POWER COMPANY, NORTHWESTERN PUBLIC SERVICE, MONTANA-DAKOTA UTILITIES CO. and RAG Coal West, Inc. THIS COAL SUPPLY AGREEMENT ("Agreement") is made and entered into as of September 28, 2001 (the "Effective Date"), by and between OTTER TAIL POWER COMPANY, A DIVISION OF OTTER TAIL CORPORATION, NORTHWESTERN PUBLIC SERVICE , A DIVISION OF NORTHWESTERN CORPORATION, MONTANA-DAKOTA UTILITIES CO., A DIVISION OF MDU RESOURCES INC., hereinafter together called "Buyers or Buyer" and RAG Coal West, Inc., hereinafter called "Seller." WHEREAS: A. Seller desires to sell coal from its Belle Ayr and Eagle Butte mines located in Campbell County, Wyoming ("the Mines"), under the terms and conditions herein set forth; and B. Buyers desire to secure an adequate supply of coal of the quality and quantity as set forth in this Agreement; and NOW, THEREFORE, for and in consideration of the mutual covenants and agreements of the parties contained herein, Seller agrees to sell and deliver to Buyers and Buyers agree to purchase, receive and pay for coal from Seller upon the following terms and conditions: 1. TERM ---- The term of this Agreement shall be for one * commencing on * and continue through and include * unless sooner terminated as provided herein. 2. QUANTITY -------- (a.) Volume of coal to be purchased and sold during the Term Belle Ayr Eagle Butte** --------- ----------- * * **Seller shall have the unilateral right but not the obligation to deliver all or a portion of the tons stated above from the Belle Ayr Mine during the Term. Seller must notify Buyer by * of its intent to make this change in origin. If during the Term Seller desires to deliver additional tons from the Belle Ayr Mine, (other than those declared by *), such volume shall be transferred from the Eagle Butte Mine to the Belle Ayr Mine only by mutual agreement of the parties. If for reasons of Force Majeure as stated in Paragraph 9., the Belle Ayr Mine is unable to ship such tons, they shall be again originated from the Eagle Butte Mine. (b) Delivery Schedule: Deliveries from the Mines shall be scheduled to occur in monthly quantities during each calendar year. Buyer shall provide Seller with its written monthly schedule for the calendar year *. In providing the monthly schedules to Seller, Buyer shall use its best faith efforts to provide an accurate estimate of its projected need for coal on a monthly basis. Buyer shall use best efforts to keep monthly quantities approximately equal except for scheduled overhaul and test burns. However, the parties agree that the monthly schedules are for the convenience of the parties and in no way binding on the Buyer and that no penalty of any kind shall accrue to Buyer if for any reason the Buyer is (1) unable to take delivery of the amount of monthly coal scheduled or (2) takes delivery of more coal than scheduled in order to make-up for any previous months' deficiencies. Except as provided in Section 2(c) below, any variance in the amount of monthly coal scheduled and actually delivered shall not relieve either Seller or Buyer from their respective obligations to sell and purchase the minimum amounts of coal set forth in Section 2(a). (c) Reduction in Quantities Where, through fault of the Buyer, Buyer fails to take delivery of the amount of coal scheduled for any month because an appropriate amount of suitable and compatible unit trains is not provided to Seller, the following shall apply: Seller shall have the option at its discretion to reduce, in the affected calendar year, the amount of coal that it is obligated to provide under Section 2(a) in the amount that Buyer fails to take delivery. Seller may reduce its supply obligation only by giving Buyer written notice of its intent to do so within 10 days of the end of the calendar quarter in which the failure to take delivery occurs. When Seller provides such notice to Buyer, such notice shall also relieve Buyer of any further obligation with regard to purchasing or taking delivery of the coal previously not taken. Seller's option to reduce its supply obligation as provided above does not apply when the failure to provide an appropriate amount of suitable and compatible unit trains is not through any fault of Buyer. Failure by the rail car carrier to provide an appropriate amount of suitable and compatible unit trains to Seller shall not be considered the fault of the Buyer. Buyer agrees, however, to use its best efforts to assure that the railcar carrier provides the appropriate amount of suitable and compatible unit trains to the Seller. (d) Additional or Lesser Quantities Buyer and Seller may agree to increase or decrease the Annual Quantity as nominated by Buyer in Section 2(a) throughout the Term by designating any such increase or decrease in a written instrument signed by duly authorized representatives of the parties. Such increase or decrease shall become effective only through written mutual agreement of the parties. (e) Additional Cost to Buyer through Fault of Seller Where Seller fails, through no fault of the Buyer railcar carrier or event covered by Section 9, to load Buyer's rail cars with coal on a timely basis that causes coal to be delivered to Buyer on an untimely basis or not at all, and where, as a result, Buyer incurs additional costs in a commercially prudent and verifiable manner, either because Buyer must use coal in its outside storage stockpile, secure coal from other sources, or otherwise, Seller shall be responsible to Buyer for these prudent and verifiable additional costs. Seller shall have the right of first refusal to replenish Buyer's outside storage stockpile. 3. SOURCE ------ (a.) The source of coal to be sold pursuant to this Agreement shall be mined and supplied from the Mines. Seller represents and warrants that the Mines have coal of a quality and in quantities that are sufficient to satisfy the requirements of this Agreement. Seller further warrants that the title to all coal delivered under this Agreement shall be good and that such coal shall be free from any claim, lien or other encumbrance. (b.) From time to time, Seller shall have the right but not the obligation to deliver coal from another mine on an identical cents per million delivered basis. Seller must first gain Buyer's written permission. 4. COAL QUALITY ------------ Coal supplied hereunder will be substantially free from impurities and foreign matter such as, but not limited to, dirt, bone, slate, earth, rock, pyrite, wood, tramp metal and mine debris prior to leaving the Mine. Coal will be raw, run-of-mine, crushed to 2" x 0". Seller represents that typical values of BTUs, moisture, ash, sulfur, and the values for other quality characteristics are as set forth in Exhibit A to this Agreement. The coal to be delivered shall meet the following specifications on a quarterly, ton-weighted average as received basis of not less than six (6) trainload lots: "As Received" Belle Ayr Eagle Butte ----------- --------- ----------- Heating Value, BTU/lb. min. * * Total Ash, % max. #SO2/mmBtu max. Total Moisture, % max. Seller shall provide Buyer with the analyses of each unit-train loading by facsimile prior to unloading of coal at the Plant. Buyer shall have the right but not the obligation to reject any trainload of coal that is over the maximums or under the minimums of the above specifications by more than * BTU, * % Ash, * #SO2/mmBtu and * % Moisture, by giving notice to Seller within two business days of receiving the analyses from Seller. In the event Buyer rejects such non-conforming coal, title to and risk of loss of the coal shall be considered to have never passed to Buyer and Buyer may, at its sole option, stop the affected shipment in route, prevent the unloading of the affected shipment, return the coal to Seller or mutually agree with Seller upon a disposition for such coal shipment, all at Seller's cost and risk. 5. PRICING ------- The price of coal supplied hereunder shall be based on the following schedule. Prices shall be per ton F.O.B. Buyer's railcars at the Mines (the "Base Price"). The Base Price includes all Governmental Impositions as of May 1, 2001. YEAR Belle Ayr Mine Eagle Butte Mine - ---- -------------- ---------------- * * * (a.) Base Price: The Base Price may be adjusted only in accordance with paragraph b and c of this Section. (b.) Governmental Impositions and Taxes: Seller represents that the Mine is in compliance with all governmental laws, rules and regulations in effect as of May 1, 2001 and that the cost of such compliance, including Mine closure and all reclamation costs, is included in the Base Price set forth in Section 5(a). If the imposition or repeal of any law, regulation or ruling (including changes in interpretations or administration of existing laws, regulations or rulings, or change in tax rates is adopted or becomes effective on or after May 1, 2001 (hereinafter called "Governmental Imposition") and the imposition, repeal, or change in tax rate was not known as of the effective date, Seller shall demonstrate to Buyer, to Buyer's satisfaction, that such Governmental Imposition has increased or decreased the cost of owning or operating the Mine as it relates to the production of coal from the Mine for sale to Buyer under this Agreement. Upon agreement of the parties, the then effective Base Price shall be adjusted by adding or subtracting the per ton cost of the Governmental Imposition to determine an adjusted Base Price. If the Government Imposition will continue for the life of this Agreement, then the Base Price, to be included in an extension of the term of this Agreement, if any, shall also be adjusted by the per ton amount of the Governmental Imposition. Seller shall submit to Buyer in writing, an analysis identifying the Governmental Imposition causing the cost impact and the extent of such cost impact on ownership or operation of the Mine or on the production of coal purchased hereunder and showing the calculation of the amount of change in the Base Price. The effective date of any price increase or decrease pursuant to this Section 5(b) shall be the effective date of the Governmental Imposition causing the cost increase or decrease but, in no event prior to the date of actual commencement of expenditure or accrual thereof by Seller. (c.) Adjustment for Calorific Value: The Base Price is calculated on the assumption of an average monthly calorific coal value of * BTUs per pound from the Belle Ayr Mine and * Btu per pound from the Eagle Butte Mine (the "Specified Average"); provided, however, the parties recognize that the calorific value of coal actually delivered hereunder may vary from such Specified Average. If the weighted average calorific value of the coal furnished in any month deviates from the Specified Average, then an adjustment will be made to the Base Price of coal according to the following equation: A = (B/C) X (D) Where: A - Adjusted Price rounded to the nearest mil ($.001) B - Weighted average (BTUs per pound) calorific value of coal delivered during the month from each Mine C - Applicable Specified Average (BTUs per pound) calorific value of coal. D - Applicable Base Price from the Mine. 6. BILLING AND PAYMENT ------------------- (a.) On or before the fifth (5th) and twentieth (20th) working day of each month, Seller shall render to Buyer at its Plant address provided in Section 14 a semi-monthly invoice which shall indicate the actual tonnage and ton-weighted average calorific value of coal shipped during the previous billing period and the Adjusted Price which takes calorific value into account as defined in Section 5(c) and changes resulting from the changes in Governmental Impositions, if any. (b.) Buyer shall electronically pay such invoice within ten (10) working days after receipt thereof. Unless advised in writing to send all payments to another address, payment shall be sent by electronic means to: LaSalle Bank, N. A. Chicago, Illinois ABA No. 071-000-505 Account No. 5800248527 Account Name: RAG Coal West, Inc. (c.) If Buyer defaults on any payment, Buyer shall pay simple interest thereon at the rate, not to exceed applicable State of Minnesota and Federal laws, that shall be equal to two percent (2%) over the base rate of interest charged by Citibank of New York or any successor bank on new ninety-day loans to responsible and substantial commercial borrowers on the date the interest charge begins. Such interest shall run from the date the payment was due until it is paid. (d.) If any invoice is in dispute, Buyer nevertheless shall pay the undisputed amount, and if Buyer or Seller is due any payment or credit pursuant to the resolution of the dispute, the simple interest on the payment or credit shall be paid by the party owing such payment or credit at the rate, not to exceed applicable State of Minnesota and Federal laws, that shall be equal to two percent (2%) over the base rate of interest charged by Citibank of New York or any successor bank on new ninety-day loans to responsible and substantial commercial borrowers on the date of Buyer's payment or credit from Seller of the disputed invoice and shall run until the date payment or credit is made following resolution of the dispute. (e.) Should Buyer fail to pay Seller for any amount due and owing in accordance with this Section 6 within thirty (30) days after its receipt of Seller's written demand for payment, then Seller shall also have the right, but not the obligation, to suspend deliveries under this Agreement by so notifying Buyer in writing. Should Buyer fail to pay Seller for any amount due and owing in accordance with this Section 6 within ninety (90) days after its receipt of Seller's written demand for payment, then Seller shall have the right, but not the obligation to terminate this Agreement by so notifying Buyer in writing. (f.) Such suspension or termination shall become effective as of the date written notice is received by Buyer. Neither Party shall accrue any additional rights against the other as a result of a suspension or termination permitted in this Section 6. Seller shall lose the right provided in this Section 6 to suspend or terminate if it has not sent written notice of such suspension or termination prior to Buyer's payment of the amount due and owing. Seller's failure to exercise its right to suspend or terminate as provided in this Section 6 shall not be deemed a waiver of its right to suspend or terminate for any subsequent default by Buyer to perform as provided in this Section 6. 7. SAMPLING AND ANALYSIS --------------------- (a.) Seller shall cause, at its expense, to be taken a representative sample of each unit train shipment of coal at the point of loading, to be sampled and analyzed in accordance with methods set forth in applicable American Society for Testing and Materials ("ASTM") standards. All samples shall be divided into at least four (4) parts and put in suitable airtight containers. One part shall be furnished to Buyer or its designee for its disposition, one part shall be retained for analysis by Seller, and two parts shall be retained by Seller or its designee in one of the aforesaid containers properly sealed and labeled for a period forty-five (45) days after the date of sample collection for use as a referee should a dispute arise and the other for a back-up for any unforeseeable qualitative issues. All parts are to be clearly labeled as to Mine, date of sampling, date of preparation, and other identification as to shipment (such as train identification number) and are to be sent within forty- eight (48) hours of train loading, or prior to arrival of train at destination, whichever comes first, to Buyer at the address provided in Section 14 hereof. Upon Buyer's written request and at Buyer's cost, Seller shall send the 4th part to Buyer's designated laboratory for mercury and chlorine content analysis. (b.) Seller shall perform at Seller's cost a "short proximate" analysis (for moisture, ash, sulfur, and calorific value) for each trainload sample and will forward such analysis to Buyer by a mutually agreed upon method of electronic communication. The results of such analysis shall be determinative of the quality of the unit train of coal represented by such sample unless a dispute arises due to a difference between Buyer's and Seller's analysis whereby such difference exceeds ASTM tolerances, (c.) If a dispute arises between Buyer and Seller concerning a trainload sample due to a difference outside ASTM tolerances, within forty-five (45) days of the date on which the subject trainload was loaded, an analysis of the third part shall be made by an independent commercial testing laboratory, mutually chosen by Buyer and Seller, in accordance with methods set forth in applicable ASTM standards. The results of such independent laboratory analysis shall be determinative for purposes of contract compliance and invoicing. Buyer and Seller shall share the cost of such analysis equally. (d.) The results of the sampling and analysis performed by Seller shall govern for purposes of determining any adjustments to the Base Price of coal set forth in Section 5(c) for variations in calorific value, except in the event a dispute arises under Section 7(c), in which event Section 7(c) shall control. (e.) Buyer shall have the right, at its own cost, risk and expense, to have a representative present at any and all times to observe the sampling and analysis, in a manner that does not interfere with Seller's operation of its Mine. 8. WEIGHING AND LOADING -------------------- (a.) Point of Delivery: Coal shall be delivered F.O.B. Buyer's railcars at Seller's railroad loadout facility at the Mines. Upon completion of the loading of each railcar, title and risk of loss for all coal loaded therein shall pass to Buyer. Buyer shall arrange for the provision of suitable and compatible unit trains of open-top railcars for the transportation of coal purchased by Buyer under this Agreement. (b.) Loading Facilities and Procedure: Seller shall operate its loading facilities twenty-four (24) hours per day, 365 days per year. Seller shall load each unit train at Seller's expense as closely as practicable to its capacity. Seller shall complete the loading of each unit train within four (4) hours after the first empty railcar is placed into position for loading. Unless excused by Force Majeure as provided below, Seller shall pay Buyer for any increased transportation charges incurred as a result of Seller's failure to comply with the freetime, overloading and underloading set forth in the excerpts from Buyer's transportation agreement provisions as set forth in Exhibit C. (c.) Weighing: The weight of coal sold and delivered under this Agreement shall be determined on a per shipment basis by certified commercial scales at Seller's train loading facility at the Mine. The weights thus determined shall be accepted as the quantity of coal for which invoices are to be rendered and payments made in accordance with Section 6. Seller shall furnish the railroad company transporting the coal with copies of the weights determined under this Agreement. Coal supplied under this Agreement shall be weighed at Seller's expense. Seller's scales used to determine such weight shall be tested, calibrated and certified in accordance with intervals of approximately every six (6) months by a qualified testing agency. Seller shall use its best efforts to give Buyer no less than ten (10) days notice of the anticipated time of scale test. Buyer shall also have the right, at Buyer's expense and upon reasonable notice, to have the scales checked for accuracy at any reasonable time or frequency. If the scales are found to be over or under the tolerance range allowable for the scale based on ASTM standards, either party shall pay to the other any amounts owed due to such inaccuracy for a period not to exceed thirty (30) days before the time any inaccuracy of scales is determined. Buyer shall have the right, at its own cost, risk and expense, to have a representative present at any and all times to observe the weighings or scale test, in a manner that does not interfere with Seller's operation of its Mine. (d.) Data Transmission: Seller shall provide to Buyer within two business days of completion of loading each train, a train loading manifest for each train by a mutually agreed upon method of electronic transmission. 9. FORCE MAJEURE ------------- (a.) Definition: For purposes of this Agreement, the term "Force Majeure" is defined as any cause beyond the reasonable control and without the intentional fault or willful negligence of the party affected thereby which is the proximate cause of a party's whole or partial inability to perform its obligations under this Agreement. For purposes of this Agreement, Force Majeure includes, without limitation, Acts of God, unusual accumulations of snow or ice, floods, frozen coal, interruptions of transportation, interruptions or breakdowns of the power facilities connecting with Buyer or Seller's facilities, embargoes, acts of civil authority (including State and Federal agencies and courts of competent jurisdiction), acts of military authority, war, insurrections, riots, strikes, lockouts, work stoppages, labor or material shortages, or explosions, fires, adverse geological conditions, or unanticipated or non-routine mechanical breakdowns (including but not limited to shutdowns for emergency maintenance or the like which may be necessary to mitigate or eliminate the imminent threat of explosions, fires, or mechanical breakdowns) at the Mine or at Buyer's Plant . Force Majeure also includes other causes of a similar nature that wholly or partially prevent the mining, hauling, processing, or loading of coal by Seller or the receiving, transporting, storing, unloading or utilizing of coal by Buyer. (b.) Effect of Force Majeure: If, because of an event of Force Majeure, either Seller or Buyer is unable to carry out any of its obligations under this Agreement, except obligations to pay money to the other party due to coal already sold, and if such party shall promptly give to the other party written notice of such event of Force Majeure, then the obligations under this Agreement of the party giving such notice shall be suspended to the extent made necessary by such event of Force Majeure and will continue throughout the continuance of such event; provided, however, that the party giving such notice shall use good faith efforts to eliminate such event of Force Majeure or its effect insofar as possible with a minimum of delay. Nothing herein contained shall cause the party invoking Force Majeure to submit to what it considers to be unreasonable conditions or restrictions, to make an unreasonable expenditure of money or to submit to a labor Agreement it deems unfavorable, and it is agreed that any settlement of labor strikes or difference with workmen shall be entirely within the sole discretion of the affected party. Deficiencies in receiving coal caused by a Force Majeure event shall be made up only upon mutual consent between Buyer and Seller. 10. TITLE ----- Title, right of possession and risks of loss of the coal shall pass from Seller to Buyer upon loading into Buyer's owned or controlled railcar. Seller agrees to load railcars in accordance with industry standards or reasonable rail carrier's instructions as attached hereto. 11. TERMINATION AND CANCELLATION ---------------------------- Either party to this Agreement may cancel this Agreement upon written notice to the other party of such party's failure to comply with any of the material provisions or obligations in this Agreement, provided that notice of such failure has been given and not less than thirty (30) days have elapsed with no curative action having commenced. Seller and Buyer may terminate this Agreement immediately upon written notice to the other in the event the other becomes insolvent or files for protection under any applicable bankruptcy laws. Buyer shall remain obligated to pay for all coal delivered by Seller and accepted by Buyer prior to the date of termination or cancellation. 12. INDEMNITY AND LIABILITY ----------------------- Each party hereby agrees to indemnify, save and hold harmless the other, from and against all liability from damage to property or injury or death of any person or persons arising out of or resulting from the willful or negligent acts or omissions of such party, its agents and employees; provided however, that when employees or agents of either party hereto enter upon the premises of the other party, such entry shall be at the sole risk of the party who is the employer of such employee or agent, and such employer shall hold harmless the other party from all claims by its employees or agent, unless such injury or death or damage to property is a result of gross negligence of the other party. 13. LAWS AND REGULATIONS -------------------- The Seller and Buyer shall comply with all applicable federal, state and local laws, ordinances, statutes, codes, rules, and regulations in the performance of its obligations under this Agreement. 14. NOTICES ------- All notices required hereunder will be in writing and will be deemed properly given when sent by telecopy, to the addresses as provided below, or to such other addresses as Buyer or Seller may hereafter specify for such purpose, provided that all notices will be confirmed immediately by commercial delivery service, e.g., Federal Express or U.P.S. or registered certified mail. Buyer's address is: Seller's address is; - ------------------ ------------------- Big Stone Plant 94 Inverness Terrace East, Suite 120 c/o Otter Tail Power Company Englewood, Colorado 80112-5300 P.O. Box 218 Attn: Vice President Western Sales Big Stone City, SD 57216 Fax: 303/749-8449 Attn: Fuel Supervisor Fax (605) 862-6344 With a courtesy notice to: With a courtesy notice to: - ------------------------- ------------------------- Otter Tail Power Company RAG Coal West, Inc. 215 South Cascade Street 2273 Bishop Road Fergus Falls, MN 56537 Gillette, Wyoming 82718 Attn: Production Services Attention: President Fax: (218) 739-8629 15. CONFIDENTIALITY --------------- Except as hereinafter provided, the terms and conditions set forth in this Agreement, and all information supplied to the other party pursuant to this Agreement, are considered by both Buyer and Seller to be confidential, and neither party shall disclose any such information to any third party without the advance written consent of the other party, which consent shall not be unreasonably withheld, except where such disclosure may be required by law or in connection with the assertion of a claim or defense in judicial or administrative proceedings involving the parties hereto, in which event the party required to make such disclosure shall advise the other in advance in writing and shall cooperate to the extent practicable to minimize the disclosure of any such information. 16. WARRANTIES ---------- THE WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT ARE THE SOLE WARRANTIES GIVEN BY EITHER PARTY TO THE OTHER IN CONNECTION WITH THE SALE AND PURCHASE OF COAL PROVIDED HEREIN. THE PARTIES HEREBY EXPRESSLY WAIVE AND DISCLAIM ANY STATUTORY OR IMPLIED WARRANTIES THAT MAY BE APPLICABLE TO THE SUBJECT MATTER OF THIS AGREEMENT INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 17. DISPUTE RESOLUTION ------------------ (a.) No party to this Agreement shall be entitled to take legal action with respect to any dispute arising from or relating to the Agreement until it has complied, in good faith, with the procedures set forth in paragraph b and c below. (b.) Negotiation (1) The parties shall attempt promptly and in good faith to resolve any dispute arising out of or relating to this Agreement through negotiations between representatives who have the authority to settle the controversy. All negotiations pursuant to this clause shall be confidential and treated as compromise and settlement negotiations for the purpose of the federal and state rules of evidence. (2) Either party may give the other written notice of any dispute not resolved in the normal course of business. As soon as mutually agreeable after delivery of this notice, representatives of the parties shall meet at a mutually acceptable time and place (or by telephone), and thereafter as often as they reasonably may deem necessary to attempt to resolve the dispute. Unless the parties to the dispute agree that the dispute cannot be resolved through unassisted negotiation, negotiations shall not be deemed at an impasse until 60 days after the written notice of the dispute. (3) If a negotiator intends to be accompanied at a meeting by any attorney, the other negotiator(s) shall be given at least three working days' notice of such intention and may also be accompanied by an attorney. (c.) Alternative dispute resolution procedure ---------------------------------------- (1) If a dispute has reached impasse, either party may suggest use of alternative dispute resolution ("ADR") procedures. Once that party has notified the other of desire to initiate ADR, the parties may select the ADR method they may wish to use by mutual agreement. That ADR method may include arbitration, mediation, mini-trial, or any other method that best suits the circumstances of the dispute. The parties shall agree in writing to an ADR method selected and to the procedural rules to be followed as promptly as possible. To the extent the parties are unable to agree on a procedural rules in whole or in part, the current center for public resources ("CPR") model procedure for mediation of business disputes, CPR model mini-trial procedure, or CPR commercial arbitration rules- whichever applies to the chosen ADR method-shall control, to the extent such rules are consistent with the provisions of this section. (2) If the parties are unable to agree on an ADR method or unwilling to use ADR to resolve the dispute, either party shall be free to resort to litigation. (3) If the parties agree on an ADR method other than arbitration, the decision rendered in that proceeding shall not be binding on any party except by agreement of the parties, and either party may seek resolution of the dispute through litigation. If the parties agree on arbitration as an ADR method, the decision of the arbitrator(s) shall be binding on all parties, pursuant to the United States Arbitration Act 9 USCA Sec. 1 et seq. The arbitrator(s) shall not award punitive or exemplary damages against either party. 18. MISCELLANEOUS ------------- (a.) Governing Law. This Agreement shall be subject to and governed by the laws of the State of Minnesota. (b.) Binding Effect. This Agreement shall inure to the benefit of and be binding on the parties hereto, their successors and assigns. (c.) Assignment. Neither party hereto may assign this Agreement or any rights or obligations hereunder, in whole or in part, without the prior written consent of the other party, which consent shall not be unreasonable withheld or denied. However, consent shall not be required for merger, consolidation or sale of all or substantially all of the assets of a party. (d.) Severability. If any provision of this Agreement is found to be contrary to law or unenforceable by a court of competent jurisdiction, the remaining provisions shall be severable and enforceable in accordance with their terms, unless such unlawful or unenforceable provision is material to the transactions contemplated hereby, in which case the parties shall negotiate in good faith a substitute provision. (e.) Amendments. Except as otherwise provided herein, this Agreement may not be amended, supplemented or otherwise modified except by written instrument signed by duly authorized representatives of the parties hereto. (f.) Headings. The descriptive headings contained in this Agreement are for convenience only and do not constitute a part of this Agreement. (g.) Entire Agreement. This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and there are no representations, understandings or agreements, oral or written, expressed or implied, that are not included herein. (h.) Survival. At the time of termination of this Agreement or any cancellation hereof, the appropriate provisions hereof shall survive as necessary to complete any payment or credit provided for hereunder with respect to coal sold and delivered prior to the date of such termination or cancellation. (i.) Each Party Responsible for Actions. It is the intent of this Section 18 that each party be responsible for its own acts and omissions. WITNESS the signatures of the parties hereto this 17th day of October, 2001 OTTER TAIL POWER COMPANY NORTHWESTERN PUBLIC SERVICE, a Division of Otter Tail Corporation a Division of NorthWestern Corporation By: /s/Ward Uggerud By: /s/Curt Pohl ------------------------------ ------------------------------- Title: VP, COO Energy Supply Title: VP Energy Operations --------------------------- ---------------------------- MONTANA-DAKOTA UTILITIES CO., RAG Coal West, Inc a Division of MDU Resources Inc. By: /s/Bruce Imsdahl By: /s/Larry M. Deal ------------------------------ ------------------------------ Title: Vice President Energy Supply Title: V.P. Sales ---------------------------- -------------------------- EXHIBIT A --------- Mine: * Seam: * Date: * PROXIMATE ANALYSIS AVERAGE STD. DEV. RANGE As Received * * * Moisture Ash Volatile Fixed Carbon Sulfur Btu MAF Btu SULFUR FORMS Pyritic Organic Sulfate WATER SOLUBLE ALKALIS Water Soluble Na2O Water Soluble K2O FUSION Reducing Initial Deformation H=W H=1/2W Fluid Oxidizing Initial Deformation H=W H=1/2W Fluid ULTIMATE ANALYSIS Carbon Hydrogen Nitrogen Chlorine Sulfur Ash Oxygen Moisture EXHIBIT A --------- Mine: * Seam: * Date: * PROXIMATE ANALYSIS AVERAGE STD. DEV. RANGE As Received * * * Moisture Ash Volatile Fixed Carbon Sulfur Btu MAF Btu SULFUR FORMS Pyritic Organic Sulfate WATER SOLUBLE ALKALIS Water Soluble Na2O Water Soluble K2O FUSION Reducing Initial Deformation H=W H=1/2W Fluid Oxidizing Initial Deformation H=W H=1/2W Fluid ULTIMATE ANALYSIS Carbon Hydrogen Nitrogen Chlorine Sulfur Ash Oxygen Moisture EXHIBIT B --------- Belle Ayr Mine Mining Taxes Component As Of May 1, 2001 INPUT VARIABLE AMOUNT NAME DESCRIPTION ------ ---- ----------- * * * PRICE COMPONENT DESCRIPTION FORMULAS --------- ----------- -------- * * * EXHIBIT B --------- Eagle Butte Mine Mining Taxes Component As Of May 1, 2001 INPUT VARIABLE AMOUNT NAME DESCRIPTION ------ ---- ----------- * * * PRICE COMPONENT DESCRIPTION FORMULAS --------- ----------- -------- * * * EXHIBIT C - TRANSPORTATION AGREEMENT EXCERPTS SECTION 9. WEIGHING 9(A) Weighing. The parties agree that the weight of the Coal in the Coal Cars will be determined at Origins by UTILITIES' Origin Mine operator. BN shall not be responsible for such weight determinations. The weights ascertained by said operators pursuant to Section 11(J) shall be used for the assessment of the freight charges thereunder. Weighing shall be performed on scales inspected semi-annually at no cost to BN, in accordance with the then-current AAR Scale Handbook specifications for such scales, and subject to supervision and verification by BN or its agent. 9(B) Breakdown Of Scales. If weights cannot be determined due to a breakdown of the scales at Origins, the weight per Train to be used for the assessment of freight charges thereunder shall be determined by averaging the per car weights on the ten (10) immediately preceding weighed shipments from the same Origin to Destination, adjusted to any variance in the number of cars per shipment. 9(C) Gross Load Limit and Overloads. If a loaded Coal Car is found by BN to weigh in excess 270,000 pounds, BN shall, if necessary, switch said overloaded Coal Car and remove it from the Train. BN retains the right to refuse to accept or transport overloaded Car(s). BN is not be obligated to reduce the lading of such Car(s), which obligation is solely UTILITIES' under this Agreement. After UTILITIES, at no expense to BN, cause any excess Coal to be removed from the overloaded Coal Car, BN shall replace the Coal Car into the Train. For such services in removing and replacing each such Coal Car, UTILITIES shall pay a charge to BN of $372.00 per Coal Car. If the excess Coal is removed during the Free Time at Origin without removing the Coal Car from a Train, there shall be no charge to UTILITIES. BN reserves the right to increase the maximum gross weight on rail above 270,000 pounds. UTILITIES are not obligated to ship in excess of 270,000 pounds. SECTION 10. LOADING AND UNLOADING 10(A) Advance Notice and Loading. (1) BN will make Trains of empty Coal Cars available at Origins for loading. BN shall furnish the Origin Mine Operator not less than four (4) hours advance notice by radio, telex, telephone or other reasonable means of the arrival of such Trains of Coal Cars at Origin for loading. (2) UTILITIES and/or its Mine Operator shall be responsible for the loading of Coal Cars. The parties agree to cooperate with the Mine Operator to provide for the efficient loading of the Coal Cars at an Origin. BN shall provide Locomotives and Train crews to move Trains through the Loading Facility at a controlled speed as designated by UTILITIES Mine Operator; PROVIDED, HOWEVER, that BN will not be required to move Cars at a speed less than five/tenths (.5) mile per hour, but to the extent it is able to operate at a lesser speed, will upon request use its best efforts to do so. CONFIDENTIAL CONTRACT ICC-BN-C-2913 10(B) Placement and Free Time - Origin. (1) Four (4) hours free time will be allowed to load all empty Coal Cars in a Train, commencing after the Actual or Constructive Placement of the Train at the designated notification point at the Origin ready for loading ("Loading Free Time"); PROVIDED, HOWEVER, that Loading Free Time shall be extended for a period of time equivalent to that by which loading was prevented as a result of (i) a Loading Disability, or (ii) any occurrence attributable to BN which prevents loading. If BN fails to provide four (4) hours advance notice of arrival at Origin, a Train's Loading Free Time shall be extended by the additional amount of time (but not to exceed four (4) hours) that it takes to load a Train due to BN's failure to provide the required notice. If a Train is not loaded and released during the applicable Loading Free Time, BN may collect from UTILITIES an Origin Detention Charge of $308.00 per hour (including any fraction of an hour) until such time as the Train is loaded and released. (2) For purposes of this Section 10, "Actual Placement" is made when a Unit Train arrives at Origin Mine's designated notification point (as described in the BN timetable and the Train crew has requested loading instructions. In the event a Train cannot be Actually Placed at an Origin, notice shall be given immediately to Origin Mine Operator by radio, telex, telephone or other reasonable means, and BN may place the Train at an available hold point until such time as Origin Mine Operator notifies BN that Actual Placement can be made, whereupon it shall be moved to Origin. (3) For purposes of this Section 10, "Constructive Placement" begins when a Train is placed at an available hold point because it is prevented from being Actually Placed; PROVIDED, HOWEVER, that Constructive Placement shall not take place when Actual Placement is prevented (i) due to any cause that would extend Loading Free Time, or (ii) because the Loading Free Time for another Train ahead of the Train in question has not expired ("Origin Bunching"). The time required for the movement of a Constructively Placed Train from a hold point to an Origin will not be included in the computation of Free Time. (4) "Loading Disability" means any of the following events which directly result in the inability to load Coal into a Train at an Origin: (i) an Act of God; (ii) a strike or other labor disturbance; (iii) a riot or other civil disturbance; (iv) rain, snow and/or ice accumulation sufficient to immobilize Train or Mine operations or prevent loading of such Train; (v) an act of regulation of local, state or federal government authorities; or (vi) mechanical or electrical breakdown, explosion or fire (including shutdown for emergency maintenance or the like which may be necessary to mitigate or eliminate the imminent threat of explosion, fire or mechanical or electrical breakdown), or accident affecting a Loading Facility at the Origin then being utilized by UTILITIES or affecting BN's locomotives or other railroad equipment. UTILITIES or UTILITIES' Mine Operator shall notify BN by telephone, telegraph, or radio or other reasonable means (i) within one and one-half (1.5) hours of the commencement of a Loading Disability as to the nature and time of commencement of the Loading Disability, and (ii) within one and one-half (1.5) hours after the termination of a Loading Disability as to the time of termination of the Loading Disability, except that the notifications in (i) and (ii) above shall not be necessary if the Loading Disability lasts for a period of one and one-half (1.5) hours or less. Exhibit 10-B (Continued) (*) Confidential information has been omitted and filed separately with the Commission pursuant to Rule 24b-2. COAL SUPPLY AGREEMENT by and between OTTER TAIL POWER COMPANY, NORTHWESTERN PUBLIC SERVICE, MONTANA-DAKOTA UTILITIES CO. and RAG Coal West, Inc. THIS COAL SUPPLY AGREEMENT ("Agreement") is made and entered into as of September 28, 2001 (the "Effective Date"), by and between OTTER TAIL POWER COMPANY, A DIVISION OF OTTER TAIL CORPORATION, NORTHWESTERN PUBLIC SERVICE , A DIVISION OF NORTHWESTERN CORPORATION, MONTANA-DAKOTA UTILITIES CO., A DIVISION OF MDU RESOURCES INC., hereinafter together called "Buyers or Buyer" and RAG Coal West, Inc., hereinafter called "Seller." WHEREAS: A. Seller desires to sell coal from its Belle Ayr and Eagle Butte mines located in Campbell County, Wyoming ("the Mines"), under the terms and conditions herein set forth; and B. Buyers desire to secure an adequate supply of coal of the quality and quantity as set forth in this Agreement; and NOW, THEREFORE, for and in consideration of the mutual covenants and agreements of the parties contained herein, Seller agrees to sell and deliver to Buyers and Buyers agree to purchase, receive and pay for coal from Seller upon the following terms and conditions: 1. TERM ---- The term of this Agreement shall be for * commencing on * and continue through and include * unless sooner terminated as provided herein. 2. QUANTITY -------- (a.) Volume of coal to be purchased and sold during the Term Belle Ayr Eagle Butte** --------- ----------- * * **Seller shall have the unilateral right but not the obligation to deliver all or a portion of the tons stated above from the Belle Ayr Mine during the Term. Seller must notify Buyer by * of its intent to make this change in origin. If during the Term Seller desires to deliver additional tons from the Belle Ayr Mine, (other than those declared by *), such volume shall be transferred from the Eagle Butte Mine to the Belle Ayr Mine only by mutual agreement of the parties. If for reasons of Force Majeure as stated in Paragraph 9., the Belle Ayr Mine is unable to ship such tons, they shall be again originated from the Eagle Butte Mine. (b) Delivery Schedule: Deliveries from the Mines shall be scheduled to occur in monthly quantities during each calendar year. Buyer shall provide Seller with its written monthly schedule for the calendar year *. In providing the monthly schedules to Seller, Buyer shall use its best faith efforts to provide an accurate estimate of its projected need for coal on a monthly basis. Buyer shall use best efforts to keep monthly quantities approximately equal except for scheduled overhaul and test burns. However, the parties agree that the monthly schedules are for the convenience of the parties and in no way binding on the Buyer and that no penalty of any kind shall accrue to Buyer if for any reason the Buyer is (1) unable to take delivery of the amount of monthly coal scheduled or (2) takes delivery of more coal than scheduled in order to make-up for any previous months' deficiencies. Except as provided in Section 2(c) below, any variance in the amount of monthly coal scheduled and actually delivered shall not relieve either Seller or Buyer from their respective obligations to sell and purchase the minimum amounts of coal set forth in Section 2(a). (c) Reduction in Quantities Where, through fault of the Buyer, Buyer fails to take delivery of the amount of coal scheduled for any month because an appropriate amount of suitable and compatible unit trains is not provided to Seller, the following shall apply: Seller shall have the option at its discretion to reduce, in the affected calendar year, the amount of coal that it is obligated to provide under Section 2(a) in the amount that Buyer fails to take delivery. Seller may reduce its supply obligation only by giving Buyer written notice of its intent to do so within 10 days of the end of the calendar quarter in which the failure to take delivery occurs. When Seller provides such notice to Buyer, such notice shall also relieve Buyer of any further obligation with regard to purchasing or taking delivery of the coal previously not taken. Seller's option to reduce its supply obligation as provided above does not apply when the failure to provide an appropriate amount of suitable and compatible unit trains is not through any fault of Buyer. Failure by the rail car carrier to provide an appropriate amount of suitable and compatible unit trains to Seller shall not be considered the fault of the Buyer. Buyer agrees, however, to use its best efforts to assure that the railcar carrier provides the appropriate amount of suitable and compatible unit trains to the Seller. (d) Additional or Lesser Quantities Buyer and Seller may agree to increase or decrease the Annual Quantity as nominated by Buyer in Section 2(a) throughout the Term by designating any such increase or decrease in a written instrument signed by duly authorized representatives of the parties. Such increase or decrease shall become effective only through written mutual agreement of the parties. (e) Additional Cost to Buyer through Fault of Seller Where Seller fails, through no fault of the Buyer railcar carrier or event covered by Section 9, to load Buyer's rail cars with coal on a timely basis that causes coal to be delivered to Buyer on an untimely basis or not at all, and where, as a result, Buyer incurs additional costs in a commercially prudent and verifiable manner, either because Buyer must use coal in its outside storage stockpile, secure coal from other sources, or otherwise, Seller shall be responsible to Buyer for these prudent and verifiable additional costs. Seller shall have the right of first refusal to replenish Buyer's outside storage stockpile. 3. SOURCE ------ (a). The source of coal to be sold pursuant to this Agreement shall be mined and supplied from the Mines. Seller represents and warrants that the Mines have coal of a quality and in quantities that are sufficient to satisfy the requirements of this Agreement. Seller further warrants that the title to all coal delivered under this Agreement shall be good and that such coal shall be free from any claim, lien or other encumbrance. (b.) From time to time, Seller shall have the right but not the obligation to deliver coal from another mine on an identical cents per million delivered basis. Seller must first gain Buyer's written permission. 4. COAL QUALITY ------------ Coal supplied hereunder will be substantially free from impurities and foreign matter such as, but not limited to, dirt, bone, slate, earth, rock, pyrite, wood, tramp metal and mine debris prior to leaving the Mine. Coal will be raw, run-of-mine, crushed to 2" x 0". Seller represents that typical values of BTUs, moisture, ash, sulfur, and the values for other quality characteristics are as set forth in Exhibit A to this Agreement. The coal to be delivered shall meet the following specifications on a quarterly, ton- weighted average as received basis of not less than six (6) trainload lots: "As Received" Belle Ayr Eagle Butte ----------- --------- ----------- Heating Value, BTU/lb. min. * * Total Ash, % max. #SO2/mmBtu max. Total Moisture, % max. Seller shall provide Buyer with the analyses of each unit-train loading by facsimile prior to unloading of coal at the Plant. Buyer shall have the right but not the obligation to reject any trainload of coal that is over the maximums or under the minimums of the above specifications by more than * BTU, * % Ash, * #SO2/mmBtu and * % Moisture, by giving notice to Seller within two business days of receiving the analyses from Seller. In the event Buyer rejects such non-conforming coal, title to and risk of loss of the coal shall be considered to have never passed to Buyer and Buyer may, at its sole option, stop the affected shipment in route, prevent the unloading of the affected shipment, return the coal to Seller or mutually agree with Seller upon a disposition for such coal shipment, all at Seller's cost and risk. 5. PRICING ------- The price of coal supplied hereunder shall be based on the following schedule. Prices shall be per ton F.O.B. Buyer's railcars at the Mines (the "Base Price"). The Base Price includes all Governmental Impositions as of May 1, 2001. YEAR Belle Ayr Mine Eagle Butte Mine - ---- -------------- ---------------- * * * (a.) Base Price: The Base Price may be adjusted only in accordance with paragraph b and c of this Section. (b.) Governmental Impositions and Taxes: Seller represents that the Mine is in compliance with all governmental laws, rules and regulations in effect as of May 1, 2001 and that the cost of such compliance, including Mine closure and all reclamation costs, is included in the Base Price set forth in Section 5(a). If the imposition or repeal of any law, regulation or ruling (including changes in interpretations or administration of existing laws, regulations or rulings, or change in tax rates is adopted or becomes effective on or after May 1, 2001 (hereinafter called "Governmental Imposition") and the imposition, repeal, or change in tax rate was not known as of the effective date, Seller shall demonstrate to Buyer, to Buyer's satisfaction, that such Governmental Imposition has increased or decreased the cost of owning or operating the Mine as it relates to the production of coal from the Mine for sale to Buyer under this Agreement. Upon agreement of the parties, the then effective Base Price shall be adjusted by adding or subtracting the per ton cost of the Governmental Imposition to determine an adjusted Base Price. If the Government Imposition will continue for the life of this Agreement, then the Base Price, to be included in an extension of the term of this Agreement, if any, shall also be adjusted by the per ton amount of the Governmental Imposition. Seller shall submit to Buyer in writing, an analysis identifying the Governmental Imposition causing the cost impact and the extent of such cost impact on ownership or operation of the Mine or on the production of coal purchased hereunder and showing the calculation of the amount of change in the Base Price. The effective date of any price increase or decrease pursuant to this Section 5(b) shall be the effective date of the Governmental Imposition causing the cost increase or decrease but, in no event prior to the date of actual commencement of expenditure or accrual thereof by Seller. (c.) Adjustment for Calorific Value: The Base Price is calculated on the assumption of an average monthly calorific coal value of * BTUs per pound from the Belle Ayr Mine and * Btu per pound from the Eagle Butte Mine (the "Specified Average"); provided, however, the parties recognize that the calorific value of coal actually delivered hereunder may vary from such Specified Average. If the weighted average calorific value of the coal furnished in any month deviates from the Specified Average, then an adjustment will be made to the Base Price of coal according to the following equation: A = (B/C) X (D) Where: A - Adjusted Price rounded to the nearest mil ($.001) B - Weighted average (BTUs per pound) calorific value of coal delivered during the month from each Mine C - Applicable Specified Average (BTUs per pound) calorific value of coal. D - Applicable Base Price from the Mine. 6. BILLING AND PAYMENT ------------------- (a.) On or before the fifth (5th) and twentieth (20th) working day of each month, Seller shall render to Buyer at its Plant address provided in Section 14 a semi-monthly invoice which shall indicate the actual tonnage and ton-weighted average calorific value of coal shipped during the previous billing period and the Adjusted Price which takes calorific value into account as defined in Section 5(c) and changes resulting from the changes in Governmental Impositions, if any. (b.) Buyer shall electronically pay such invoice within ten (10) working days after receipt thereof. Unless advised in writing to send all payments to another address, payment shall be sent by electronic means to: LaSalle Bank, N. A. Chicago, Illinois ABA No. 071-000-505 Account No. 5800248527 Account Name: RAG Coal West, Inc. (c.) If Buyer defaults on any payment, Buyer shall pay simple interest thereon at the rate, not to exceed applicable State of Minnesota and Federal laws, that shall be equal to two percent (2%) over the base rate of interest charged by Citibank of New York or any successor bank on new ninety-day loans to responsible and substantial commercial borrowers on the date the interest charge begins. Such interest shall run from the date the payment was due until it is paid. (d.) If any invoice is in dispute, Buyer nevertheless shall pay the undisputed amount, and if Buyer or Seller is due any payment or credit pursuant to the resolution of the dispute, the simple interest on the payment or credit shall be paid by the party owing such payment or credit at the rate, not to exceed applicable State of Minnesota and Federal laws, that shall be equal to two percent (2%) over the base rate of interest charged by Citibank of New York or any successor bank on new ninety-day loans to responsible and substantial commercial borrowers on the date of Buyer's payment or credit from Seller of the disputed invoice and shall run until the date payment or credit is made following resolution of the dispute. (e.) Should Buyer fail to pay Seller for any amount due and owing in accordance with this Section 6 within thirty (30) days after its receipt of Seller's written demand for payment, then Seller shall also have the right, but not the obligation, to suspend deliveries under this Agreement by so notifying Buyer in writing. Should Buyer fail to pay Seller for any amount due and owing in accordance with this Section 6 within ninety (90) days after its receipt of Seller's written demand for payment, then Seller shall have the right, but not the obligation to terminate this Agreement by so notifying Buyer in writing. (f.) Such suspension or termination shall become effective as of the date written notice is received by Buyer. Neither Party shall accrue any additional rights against the other as a result of a suspension or termination permitted in this Section 6. Seller shall lose the right provided in this Section 6 to suspend or terminate if it has not sent written notice of such suspension or termination prior to Buyer's payment of the amount due and owing. Seller's failure to exercise its right to suspend or terminate as provided in this Section 6 shall not be deemed a waiver of its right to suspend or terminate for any subsequent default by Buyer to perform as provided in this Section 6. 7. SAMPLING AND ANALYSIS --------------------- (a.) Seller shall cause, at its expense, to be taken a representative sample of each unit train shipment of coal at the point of loading, to be sampled and analyzed in accordance with methods set forth in applicable American Society for Testing and Materials ("ASTM") standards. All samples shall be divided into at least four (4) parts and put in suitable airtight containers. One part shall be furnished to Buyer or its designee for its disposition, one part shall be retained for analysis by Seller, and two parts shall be retained by Seller or its designee in one of the aforesaid containers properly sealed and labeled for a period forty-five (45) days after the date of sample collection for use as a referee should a dispute arise and the other for a back-up for any unforeseeable qualitative issues. All parts are to be clearly labeled as to Mine, date of sampling, date of preparation, and other identification as to shipment (such as train identification number) and are to be sent within forty-eight (48) hours of train loading, or prior to arrival of train at destination, whichever comes first, to Buyer at the address provided in Section 14 hereof. Upon Buyer's written request and at Buyer's cost, Seller shall send the 4th part to Buyer's designated laboratory for mercury and chlorine content analysis. (b.) Seller shall perform at Seller's cost a "short proximate" analysis (for moisture, ash, sulfur, and calorific value) for each trainload sample and will forward such analysis to Buyer by a mutually agreed upon method of electronic communication. The results of such analysis shall be determinative of the quality of the unit train of coal represented by such sample unless a dispute arises due to a difference between Buyer's and Seller's analysis whereby such difference exceeds ASTM tolerances, (c.) If a dispute arises between Buyer and Seller concerning a trainload sample due to a difference outside ASTM tolerances, within forty-five (45) days of the date on which the subject trainload was loaded, an analysis of the third part shall be made by an independent commercial testing laboratory, mutually chosen by Buyer and Seller, in accordance with methods set forth in applicable ASTM standards. The results of such independent laboratory analysis shall be determinative for purposes of contract compliance and invoicing. Buyer and Seller shall share the cost of such analysis equally. (d.) The results of the sampling and analysis performed by Seller shall govern for purposes of determining any adjustments to the Base Price of coal set forth in Section 5(c) for variations in calorific value, except in the event a dispute arises under Section 7(c), in which event Section 7(c) shall control. (e.) Buyer shall have the right, at its own cost, risk and expense, to have a representative present at any and all times to observe the sampling and analysis, in a manner that does not interfere with Seller's operation of its Mine. 8. WEIGHING AND LOADING -------------------- (a.) Point of Delivery: Coal shall be delivered F.O.B. Buyer's railcars at Seller's railroad loadout facility at the Mines. Upon completion of the loading of each railcar, title and risk of loss for all coal loaded therein shall pass to Buyer. Buyer shall arrange for the provision of suitable and compatible unit trains of open-top railcars for the transportation of coal purchased by Buyer under this Agreement. (b.) Loading Facilities and Procedure: Seller shall operate its loading facilities twenty-four (24) hours per day, 365 days per year. Seller shall load each unit train at Seller's expense as closely as practicable to its capacity. Seller shall complete the loading of each unit train within four (4) hours after the first empty railcar is placed into position for loading. Unless excused by Force Majeure as provided below, Seller shall pay Buyer for any increased transportation charges incurred as a result of Seller's failure to comply with the freetime, overloading and underloading set forth in the excerpts from Buyer's transportation agreement provisions as set forth in Exhibit C. (c.) Weighing: The weight of coal sold and delivered under this Agreement shall be determined on a per shipment basis by certified commercial scales at Seller's train loading facility at the Mine. The weights thus determined shall be accepted as the quantity of coal for which invoices are to be rendered and payments made in accordance with Section 6. Seller shall furnish the railroad company transporting the coal with copies of the weights determined under this Agreement. Coal supplied under this Agreement shall be weighed at Seller's expense. Seller's scales used to determine such weight shall be tested, calibrated and certified in accordance with intervals of approximately every six (6) months by a qualified testing agency. Seller shall use its best efforts to give Buyer no less than ten (10) days notice of the anticipated time of scale test. Buyer shall also have the right, at Buyer's expense and upon reasonable notice, to have the scales checked for accuracy at any reasonable time or frequency. If the scales are found to be over or under the tolerance range allowable for the scale based on ASTM standards, either party shall pay to the other any amounts owed due to such inaccuracy for a period not to exceed thirty (30) days before the time any inaccuracy of scales is determined. Buyer shall have the right, at its own cost, risk and expense, to have a representative present at any and all times to observe the weighings or scale test, in a manner that does not interfere with Seller's operation of its Mine. (d.) Data Transmission: Seller shall provide to Buyer within two business days of completion of loading each train, a train loading manifest for each train by a mutually agreed upon method of electronic transmission. 9. FORCE MAJEURE ------------- (a.) Definition: For purposes of this Agreement, the term "Force Majeure" is defined as any cause beyond the reasonable control and without the intentional fault or willful negligence of the party affected thereby which is the proximate cause of a party's whole or partial inability to perform its obligations under this Agreement. For purposes of this Agreement, Force Majeure includes, without limitation, Acts of God, unusual accumulations of snow or ice, floods, frozen coal, interruptions of transportation, interruptions or breakdowns of the power facilities connecting with Buyer or Seller's facilities, embargoes, acts of civil authority (including State and Federal agencies and courts of competent jurisdiction), acts of military authority, war, insurrections, riots, strikes, lockouts, work stoppages, labor or material shortages, or explosions, fires, adverse geological conditions, or unanticipated or non-routine mechanical breakdowns (including but not limited to shutdowns for emergency maintenance or the like which may be necessary to mitigate or eliminate the imminent threat of explosions, fires, or mechanical breakdowns) at the Mine or at Buyer's Plant . Force Majeure also includes other causes of a similar nature that wholly or partially prevent the mining, hauling, processing, or loading of coal by Seller or the receiving, transporting, storing, unloading or utilizing of coal by Buyer. (b.) Effect of Force Majeure: If, because of an event of Force Majeure, either Seller or Buyer is unable to carry out any of its obligations under this Agreement, except obligations to pay money to the other party due to coal already sold, and if such party shall promptly give to the other party written notice of such event of Force Majeure, then the obligations under this Agreement of the party giving such notice shall be suspended to the extent made necessary by such event of Force Majeure and will continue throughout the continuance of such event; provided, however, that the party giving such notice shall use good faith efforts to eliminate such event of Force Majeure or its effect insofar as possible with a minimum of delay. Nothing herein contained shall cause the party invoking Force Majeure to submit to what it considers to be unreasonable conditions or restrictions, to make an unreasonable expenditure of money or to submit to a labor Agreement it deems unfavorable, and it is agreed that any settlement of labor strikes or difference with workmen shall be entirely within the sole discretion of the affected party. Deficiencies in receiving coal caused by a Force Majeure event shall be made up only upon mutual consent between Buyer and Seller. 10. TITLE ----- Title, right of possession and risks of loss of the coal shall pass from Seller to Buyer upon loading into Buyer's owned or controlled railcar. Seller agrees to load railcars in accordance with industry standards or reasonable rail carrier's instructions as attached hereto. 11. TERMINATION AND CANCELLATION ---------------------------- Either party to this Agreement may cancel this Agreement upon written notice to the other party of such party's failure to comply with any of the material provisions or obligations in this Agreement, provided that notice of such failure has been given and not less than thirty (30) days have elapsed with no curative action having commenced. Seller and Buyer may terminate this Agreement immediately upon written notice to the other in the event the other becomes insolvent or files for protection under any applicable bankruptcy laws. Buyer shall remain obligated to pay for all coal delivered by Seller and accepted by Buyer prior to the date of termination or cancellation. 12. INDEMNITY AND LIABILITY ----------------------- Each party hereby agrees to indemnify, save and hold harmless the other, from and against all liability from damage to property or injury or death of any person or persons arising out of or resulting from the willful or negligent acts or omissions of such party, its agents and employees; provided however, that when employees or agents of either party hereto enter upon the premises of the other party, such entry shall be at the sole risk of the party who is the employer of such employee or agent, and such employer shall hold harmless the other party from all claims by its employees or agent, unless such injury or death or damage to property is a result of gross negligence of the other party. 13. LAWS AND REGULATIONS -------------------- The Seller and Buyer shall comply with all applicable federal, state and local laws, ordinances, statutes, codes, rules, and regulations in the performance of its obligations under this Agreement. 14. NOTICES ------- All notices required hereunder will be in writing and will be deemed properly given when sent by telecopy, to the addresses as provided below, or to such other addresses as Buyer or Seller may hereafter specify for such purpose, provided that all notices will be confirmed immediately by commercial delivery service, e.g., Federal Express or U.P.S. or registered certified mail. Buyer's address is: Seller's address is; - ------------------ ------------------- Big Stone Plant 94 Inverness Terrace East, Suite 120 c/o Otter Tail Power Company Englewood, Colorado 80112-5300 P.O. Box 218 Attn: Vice President Western Sales Big Stone City, SD 57216 Fax: 303/749-8449 Attn: Fuel Supervisor Fax (605) 862-6344 With a courtesy notice to: With a courtesy notice to: - ------------------------- ------------------------- Otter Tail Power Company RAG Coal West, Inc. 215 South Cascade Street 2273 Bishop Road Fergus Falls, MN 56537 Gillette, Wyoming 82718 Attn: Production Services Attention: President Fax: (218) 739-8629 15. CONFIDENTIALITY --------------- Except as hereinafter provided, the terms and conditions set forth in this Agreement, and all information supplied to the other party pursuant to this Agreement, are considered by both Buyer and Seller to be confidential, and neither party shall disclose any such information to any third party without the advance written consent of the other party, which consent shall not be unreasonably withheld, except where such disclosure may be required by law or in connection with the assertion of a claim or defense in judicial or administrative proceedings involving the parties hereto, in which event the party required to make such disclosure shall advise the other in advance in writing and shall cooperate to the extent practicable to minimize the disclosure of any such information. 16. WARRANTIES ---------- THE WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT ARE THE SOLE WARRANTIES GIVEN BY EITHER PARTY TO THE OTHER IN CONNECTION WITH THE SALE AND PURCHASE OF COAL PROVIDED HEREIN. THE PARTIES HEREBY EXPRESSLY WAIVE AND DISCLAIM ANY STATUTORY OR IMPLIED WARRANTIES THAT MAY BE APPLICABLE TO THE SUBJECT MATTER OF THIS AGREEMENT INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 17. DISPUTE RESOLUTION ------------------ (a.) No party to this Agreement shall be entitled to take legal action with respect to any dispute arising from or relating to the Agreement until it has complied, in good faith, with the procedures set forth in paragraph b and c below. (b.) Negotiation (1) The parties shall attempt promptly and in good faith to resolve any dispute arising out of or relating to this Agreement through negotiations between representatives who have the authority to settle the controversy. All negotiations pursuant to this clause shall be confidential and treated as compromise and settlement negotiations for the purpose of the federal and state rules of evidence. (2) Either party may give the other written notice of any dispute not resolved in the normal course of business. As soon as mutually agreeable after delivery of this notice, representatives of the parties shall meet at a mutually acceptable time and place (or by telephone), and thereafter as often as they reasonably may deem necessary to attempt to resolve the dispute. Unless the parties to the dispute agree that the dispute cannot be resolved through unassisted negotiation, negotiations shall not be deemed at an impasse until 60 days after the written notice of the dispute. (3) If a negotiator intends to be accompanied at a meeting by any attorney, the other negotiator(s) shall be given at least three working days' notice of such intention and may also be accompanied by an attorney. (c.) Alternative dispute resolution procedure ---------------------------------------- (1) If a dispute has reached impasse, either party may suggest use of alternative dispute resolution ("ADR") procedures. Once that party has notified the other of desire to initiate ADR, the parties may select the ADR method they may wish to use by mutual agreement. That ADR method may include arbitration, mediation, mini-trial, or any other method that best suits the circumstances of the dispute. The parties shall agree in writing to an ADR method selected and to the procedural rules to be followed as promptly as possible. To the extent the parties are unable to agree on a procedural rules in whole or in part, the current center for public resources ("CPR") model procedure for mediation of business disputes, CPR model mini-trial procedure, or CPR commercial arbitration rules-whichever applies to the chosen ADR method-shall control, to the extent such rules are consistent with the provisions of this section. (2) If the parties are unable to agree on an ADR method or unwilling to use ADR to resolve the dispute, either party shall be free to resort to litigation. (3) If the parties agree on an ADR method other than arbitration, the decision rendered in that proceeding shall not be binding on any party except by agreement of the parties, and either party may seek resolution of the dispute through litigation. If the parties agree on arbitration as an ADR method, the decision of the arbitrator(s) shall be binding on all parties, pursuant to the United States Arbitration Act 9 USCA Sec. 1 et seq. The arbitrator(s) shall not award punitive or exemplary damages against either party. 18. MISCELLANEOUS ------------- (a.) Governing Law. This Agreement shall be subject to and governed by the laws of the State of Minnesota. (b.) Binding Effect. This Agreement shall inure to the benefit of and be binding on the parties hereto, their successors and assigns. (c.) Assignment. Neither party hereto may assign this Agreement or any rights or obligations hereunder, in whole or in part, without the prior written consent of the other party, which consent shall not be unreasonable withheld or denied. However, consent shall not be required for merger, consolidation or sale of all or substantially all of the assets of a party. (d.) Severability. If any provision of this Agreement is found to be contrary to law or unenforceable by a court of competent jurisdiction, the remaining provisions shall be severable and enforceable in accordance with their terms, unless such unlawful or unenforceable provision is material to the transactions contemplated hereby, in which case the parties shall negotiate in good faith a substitute provision. (e.) Amendments. Except as otherwise provided herein, this Agreement may not be amended, supplemented or otherwise modified except by written instrument signed by duly authorized representatives of the parties hereto. (f.) Headings. The descriptive headings contained in this Agreement are for convenience only and do not constitute a part of this Agreement. (g.) Entire Agreement. This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and there are no representations, understandings or agreements, oral or written, expressed or implied, that are not included herein. (h.) Survival. At the time of termination of this Agreement or any cancellation hereof, the appropriate provisions hereof shall survive as necessary to complete any payment or credit provided for hereunder with respect to coal sold and delivered prior to the date of such termination or cancellation. (i.) Each Party Responsible for Actions. It is the intent of this Section 18 that each party be responsible for its own acts and omissions. WITNESS the signatures of the parties hereto this 17th day of October, 2001 OTTER TAIL POWER COMPANY NORTHWESTERN PUBLIC SERVICE, a Division of Otter Tail Corporation a Division of NorthWestern Corporation By: /s/Ward Uggerud By: /s/Curt Pohl ------------------------------ ------------------------------- Title: VP, COO Energy Supply Title: VP Energy Operations --------------------------- ---------------------------- MONTANA-DAKOTA UTILITIES CO., RAG Coal West, Inc a Division of MDU Resources Inc. By: /s/Bruce Imsdahl By: /s/Larry M. Deal ------------------------------ ------------------------------ Title: Vice President Energy Supply Title: V.P. Sales ---------------------------- -------------------------- EXHIBIT A --------- Mine: * Seam: * Date: * PROXIMATE ANALYSIS AVERAGE STD. DEV. RANGE As Received * * * Moisture Ash Volatile Fixed Carbon Sulfur Btu MAF Btu SULFUR FORMS Pyritic Organic Sulfate WATER SOLUBLE ALKALIS Water Soluble Na2O Water Soluble K2O FUSION Reducing Initial Deformation H=W H=1/2W Fluid Oxidizing Initial Deformation H=W H=1/2W Fluid ULTIMATE ANALYSIS Carbon Hydrogen Nitrogen Chlorine Sulfur Ash Oxygen Moisture EXHIBIT A --------- Mine: * Seam: * Date: * PROXIMATE ANALYSIS AVERAGE STD. DEV. RANGE As Received * * * Moisture Ash Volatile Fixed Carbon Sulfur Btu MAF Btu SULFUR FORMS Pyritic Organic Sulfate WATER SOLUBLE ALKALIS Water Soluble Na2O Water Soluble K2O FUSION Reducing Initial Deformation H=W H=1/2W Fluid Oxidizing Initial Deformation H=W H=1/2W Fluid ULTIMATE ANALYSIS Carbon Hydrogen Nitrogen Chlorine Sulfur Ash Oxygen Moisture EXHIBIT B --------- Belle Ayr Mine Mining Taxes Component As Of May 1, 2001 INPUT VARIABLE AMOUNT NAME DESCRIPTION ------ ---- ----------- * * * PRICE COMPONENT DESCRIPTION FORMULAS --------- ----------- -------- * * * EXHIBIT B --------- Eagle Butte Mine Mining Taxes Component As Of May 1, 2001 INPUT VARIABLE AMOUNT NAME DESCRIPTION ------ ---- ----------- * * * PRICE COMPONENT DESCRIPTION FORMULAS --------- ----------- -------- * * * EXHIBIT C - TRANSPORTATION AGREEMENT EXCERPTS SECTION 9. WEIGHING 9(A) Weighing. The parties agree that the weight of the Coal in the Coal Cars will be determined at Origins by UTILITIES' Origin Mine operator. BN shall not be responsible for such weight determinations. The weights ascertained by said operators pursuant to Section 11(J) shall be used for the assessment of the freight charges thereunder. Weighing shall be performed on scales inspected semi-annually at no cost to BN, in accordance with the then-current AAR Scale Handbook specifications for such scales, and subject to supervision and verification by BN or its agent. 9(B) Breakdown Of Scales. If weights cannot be determined due to a breakdown of the scales at Origins, the weight per Train to be used for the assessment of freight charges thereunder shall be determined by averaging the per car weights on the ten (10) immediately preceding weighed shipments from the same Origin to Destination, adjusted to any variance in the number of cars per shipment. 9(C) Gross Load Limit and Overloads. If a loaded Coal Car is found by BN to weigh in excess 270,000 pounds, BN shall, if necessary, switch said overloaded Coal Car and remove it from the Train. BN retains the right to refuse to accept or transport overloaded Car(s). BN is not be obligated to reduce the lading of such Car(s), which obligation is solely UTILITIES' under this Agreement. After UTILITIES, at no expense to BN, cause any excess Coal to be removed from the overloaded Coal Car, BN shall replace the Coal Car into the Train. For such services in removing and replacing each such Coal Car, UTILITIES shall pay a charge to BN of $372.00 per Coal Car. If the excess Coal is removed during the Free Time at Origin without removing the Coal Car from a Train, there shall be no charge to UTILITIES. BN reserves the right to increase the maximum gross weight on rail above 270,000 pounds. UTILITIES are not obligated to ship in excess of 270,000 pounds. SECTION 10. LOADING AND UNLOADING 10(A) Advance Notice and Loading. (1) BN will make Trains of empty Coal Cars available at Origins for loading. BN shall furnish the Origin Mine Operator not less than four (4) hours advance notice by radio, telex, telephone or other reasonable means of the arrival of such Trains of Coal Cars at Origin for loading. (2) UTILITIES and/or its Mine Operator shall be responsible for the loading of Coal Cars. The parties agree to cooperate with the Mine Operator to provide for the efficient loading of the Coal Cars at an Origin. BN shall provide Locomotives and Train crews to move Trains through the Loading Facility at a controlled speed as designated by UTILITIES Mine Operator; PROVIDED, HOWEVER, that BN will not be required to move Cars at a speed less than five/tenths (.5) mile per hour, but to the extent it is able to operate at a lesser speed, will upon request use its best efforts to do so. CONFIDENTIAL CONTRACT ICC-BN-C-2913 10(B) Placement and Free Time - Origin. (1) Four (4) hours free time will be allowed to load all empty Coal Cars in a Train, commencing after the Actual or Constructive Placement of the Train at the designated notification point at the Origin ready for loading ("Loading Free Time"); PROVIDED, HOWEVER, that Loading Free Time shall be extended for a period of time equivalent to that by which loading was prevented as a result of (i) a Loading Disability, or (ii) any occurrence attributable to BN which prevents loading. If BN fails to provide four (4) hours advance notice of arrival at Origin, a Train's Loading Free Time shall be extended by the additional amount of time (but not to exceed four (4) hours) that it takes to load a Train due to BN's failure to provide the required notice. If a Train is not loaded and released during the applicable Loading Free Time, BN may collect from UTILITIES an Origin Detention Charge of $308.00 per hour (including any fraction of an hour) until such time as the Train is loaded and released. (2) For purposes of this Section 10, "Actual Placement" is made when a Unit Train arrives at Origin Mine's designated notification point (as described in the BN timetable and the Train crew has requested loading instructions. In the event a Train cannot be Actually Placed at an Origin, notice shall be given immediately to Origin Mine Operator by radio, telex, telephone or other reasonable means, and BN may place the Train at an available hold point until such time as Origin Mine Operator notifies BN that Actual Placement can be made, whereupon it shall be moved to Origin. (3) For purposes of this Section 10, "Constructive Placement" begins when a Train is placed at an available hold point because it is prevented from being Actually Placed; PROVIDED, HOWEVER, that Constructive Placement shall not take place when Actual Placement is prevented (i) due to any cause that would extend Loading Free Time, or (ii) because the Loading Free Time for another Train ahead of the Train in question has not expired ("Origin Bunching"). The time required for the movement of a Constructively Placed Train from a hold point to an Origin will not be included in the computation of Free Time. (4) "Loading Disability" means any of the following events which directly result in the inability to load Coal into a Train at an Origin: (i) an Act of God; (ii) a strike or other labor disturbance; (iii) a riot or other civil disturbance; (iv) rain, snow and/or ice accumulation sufficient to immobilize Train or Mine operations or prevent loading of such Train; (v) an act of regulation of local, state or federal government authorities; or (vi) mechanical or electrical breakdown, explosion or fire (including shutdown for emergency maintenance or the like which may be necessary to mitigate or eliminate the imminent threat of explosion, fire or mechanical or electrical breakdown), or accident affecting a Loading Facility at the Origin then being utilized by UTILITIES or affecting BN's locomotives or other railroad equipment. UTILITIES or UTILITIES' Mine Operator shall notify BN by telephone, telegraph, or radio or other reasonable means (i) within one and one-half (1.5) hours of the commencement of a Loading Disability as to the nature and time of commencement of the Loading Disability, and (ii) within one and one-half (1.5) hours after the termination of a Loading Disability as to the time of termination of the Loading Disability, except that the notifications in (i) and (ii) above shall not be necessary if the Loading Disability lasts for a period of one and one-half (1.5) hours or less. -----END PRIVACY-ENHANCED MESSAGE-----