<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
</TABLE>
<TABLE>
<S> <C>
MDU RESOURCES GROUP, INC.
- ------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- ------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
Common Stock, $1.00 par value
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
2,826,087
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
$20.2188 per share--average of the high and low prices as
reported in the consolidated reporting system on
February 4, 2000.
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$57,140,088
----------------------------------------------------------
(5) Total fee paid:
$11,428
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
</TABLE>
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
SCHUCHART BUILDING JOHN A. SCHUCHART
918 EAST DIVIDE AVENUE CHAIRMAN OF THE BOARD
MAILING ADDRESS:
P.O. BOX 5650
BISMARCK, ND 58506-5650
(701) 222-7900
March 10, 2000
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders to be
held on Tuesday, April 25, 2000, at 11:00 a.m., Central Daylight Savings Time,
at 909 Airport Road, Bismarck, North Dakota 58504. The other Directors and the
officers join me in extending this invitation.
The formal matters to be acted upon at the meeting are described in the
accompanying Notice of Annual Meeting of Stockholders and Proxy Statement. In
addition to the formal issues, a brief report on current matters of interest
will be presented. Lunch will be served following the meeting.
We were pleased with the response of our stockholders at the 1999 Annual
Meeting at which 87 percent of the Common Stock was represented in person or by
proxy. We hope that participation by our stockholders in the affairs of the
Company will increase and that there will be an even greater representation at
the 2000 meeting. If you are unable to attend the meeting but have questions or
comments on the Company's operations, we would like to hear from you.
This year, you may vote your shares by telephone, by the Internet or by
marking, dating, signing and returning the enclosed letter proxy. Representation
of your shares at the meeting is very important. Accordingly, whether or not you
plan to attend the meeting, we urge you to submit your proxy promptly by one of
the three methods offered. If you do attend the meeting, you may, if you wish,
withdraw your proxy and vote in person.
I hope you will find it possible to attend the meeting.
Sincerely,
[/S/ JOHN A. SCHUCHART]
JOHN A. SCHUCHART
<PAGE>
MDU RESOURCES GROUP, INC.
SCHUCHART BUILDING
918 EAST DIVIDE AVENUE
MAILING ADDRESS:
P.O. BOX 5650
BISMARCK, ND 58506-5650
(701) 222-7900
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 25, 2000
------------------------
March 10, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of MDU
Resources Group, Inc. will be held at 909 Airport Road, Bismarck, North Dakota
58504, on Tuesday, April 25, 2000, at 11:00 a.m., Central Daylight Savings Time,
for the following purposes:
(1) To elect four Directors to three year terms;
(2) To approve the Agreement and Plan of Reorganization and Merger, dated as
of January 24, 2000, pursuant to which MDU Resources Group, Inc. will
acquire all of the issued and outstanding capital stock of
Connolly-Pacific Co. and to approve the merger and the other transactions
contemplated in that agreement, including the issuance by MDU Resources
Group, Inc. of 2,826,087 shares of its common stock (subject to
adjustment) in exchange for all of the outstanding capital stock of
Connolly-Pacific Co.;
(3) To approve amendments to the 1992 Key Employee Stock Option Plan for
purposes of Section 162(m) of the Internal Revenue Code;
(4) To approve amendments to the 1997 Executive Long-Term Incentive Plan for
purposes of Section 162(m) of the Internal Revenue Code; and
(5) To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on February 28, 2000,
as the record date for the determination of common stockholders who will be
entitled to notice of, and to vote at, the meeting.
All stockholders who find it convenient to do so are cordially invited and
urged to attend the meeting in person.
By order of the Board of Directors,
[/S/ LESTER H. LOBLE, II]
LESTER H. LOBLE, II
SECRETARY
<PAGE>
MDU RESOURCES GROUP, INC.
SCHUCHART BUILDING
918 EAST DIVIDE AVENUE
MAILING ADDRESS:
P.O. BOX 5650
BISMARCK, ND 58506-5650
(701) 222-7900
------------------------
PROXY STATEMENT
---------------------
This Proxy Statement is furnished to the holders of Common Stock of MDU
Resources Group, Inc. (Company) on behalf of the Board of Directors of the
Company in connection with the solicitation of proxies to be used in voting at
the Annual Meeting of Stockholders to be held on April 25, 2000. The proxy
material was first forwarded to the holders of Common Stock on March 10, 2000.
Stockholders of record may vote their proxies by Touchtone telephone by
calling the toll free telephone number on the proxy, by using the Internet, or
by marking, dating, signing and returning the enclosed letter proxy in the
envelope provided (no postage is necessary if mailed in the United States). If
your shares are held in the name of a bank or broker, you MAY be able to vote by
telephone or the Internet. Follow the instructions you receive from your bank or
broker.
The Company has been advised by counsel that the procedures for Internet and
telephone voting are consistent with the requirements of applicable law.
Stockholders voting through the Internet should understand that there may be
costs associated with electronic access, such as usage charges from Internet
access providers and telephone companies, that must be borne by the stockholder.
Any stockholder giving a proxy may revoke it at any time prior to its use at
the meeting by filing with the Secretary either a written instrument of
revocation or a duly executed proxy bearing a later date. In addition, the
powers of a proxy holder are suspended if the person executing the proxy is
present at the meeting and informs the Secretary in open meeting that he wishes
to revoke his proxy and vote in person. Attendance at the meeting will not, in
and of itself, revoke a proxy.
The Company will bear the cost of the solicitation of proxies, including the
charges and expenses of brokerage firms and others, for forwarding solicitation
material to beneficial owners of shares of the Common Stock of the Company. In
addition to the use of the mails, proxies may be solicited by officers and
regular employees of the Company, by personal interview, by telephone, or other
electronic means. Banks, brokerage houses and other institutions, nominees, and
fiduciaries will be requested to forward the soliciting material to their
principals and to obtain authorizations for the execution of the letter proxies
and will, upon request, be reimbursed for reasonable expenses incurred.
Additional solicitation of proxies will be made in the same manner under the
special engagement and direction of Georgeson & Company, Inc. at an anticipated
cost to the Company of approximately $6,500 plus out-of-pocket expenses.
SUMMARY TERM SHEET FOR ACQUISITION OF CONNOLLY-PACIFIC CO.
This Proxy Statement solicits your proxy to vote on several matters at the
Company's Annual Meeting on April 25, 2000. The acquisition of Connolly-Pacific
Co. by the Company is one of the matters that will
1
<PAGE>
be voted on at the Annual Meeting. The Company proposes to acquire
Connolly-Pacific on the following terms:
- The Company will acquire all of the shares of capital stock of
Connolly-Pacific in a merger transaction in exchange for 2,826,087 shares
of the Company's Common Stock. These shares of the Company's Common Stock
have a value of approximately $57,765,218, based on the $20.44 per share
closing price of the Company's Common Stock on the date that the merger
agreement was signed (January 24, 2000). The number of shares of the
Company's Common Stock to be issued in the merger is subject to adjustment
depending upon the level of Connolly-Pacific's working capital at the time
of the closing of the merger. See "Proposal to Approve the Acquisition of
Connolly-Pacific Co. and the Issuance of Common Stock in Connection
Therewith--Material Terms of the Merger; the Merger Agreement--Merger
Consideration" in this Proxy Statement.
- After the closing of the merger, Connolly-Pacific will be a wholly-owned
subsidiary of the Company. See "Proposal to Approve the Acquisition of
Connolly-Pacific Co. and the Issuance of Common Stock in Connection
Therewith--Material Terms of the Merger; the Merger Agreement--General" in
this Proxy Statement.
- Before the closing of the merger can take place, Connolly-Pacific and its
current majority stockholder must enter into new leases, or amend existing
leases, under which Connolly-Pacific will lease some of the real property
that it currently uses in its business pursuant to terms negotiated at
"arm's length". See "Proposal to Approve the Acquisition of
Connolly-Pacific Co. and the Issuance of Common Stock in Connection
Therewith--Material Terms of the Merger; the Merger Agreement--Deliveries
at Closing" in this Proxy Statement.
- The Company and the other parties to the merger agreement have agreed to
customary representations, warranties, covenants and conditions in the
merger agreement. The Company and Connolly-Pacific's current majority
stockholder have also agreed to indemnify each other for certain matters
after the closing of the merger. See "Proposal to Approve the Acquisition
of Connolly-Pacific Co. and the Issuance of Common Stock in Connection
Therewith--Material Terms of the Merger; the Merger Agreement" in this
Proxy Statement.
THIS SUMMARY TERM SHEET IS A SUMMARY OF A FEW OF THE MOST MATERIAL TERMS OF
THE MERGER. YOU SHOULD READ THE INFORMATION UNDER "PROPOSAL TO APPROVE THE
ACQUISITION OF CONNOLLY-PACIFIC CO. AND THE ISSUANCE OF COMMON STOCK IN
CONNECTION THEREWITH" IN THIS PROXY STATEMENT FOR A MORE COMPLETE DISCUSSION OF
THE MERGER.
VOTING SECURITIES OUTSTANDING
Only holders of record of Common Stock at the close of business on
February 28, 2000, will be entitled to vote at the meeting. On such date there
were outstanding 57,056,646 shares of Common Stock. Each outstanding share of
Common Stock entitles the holder to one vote.
The Bylaws of the Company provide that a majority of the shares of Common
Stock issued and outstanding and entitled to vote in person or by proxy shall
constitute a quorum at a meeting of stockholders of the Company. Shares of
Common Stock represented by a properly submitted proxy are considered present
for purposes of determining a quorum. A proxy may be submitted by returning a
properly signed and dated letter proxy, by Touchtone telephone, or by the
Internet.
Under Delaware law, if a quorum is present, the nominees for election as
Directors who receive a plurality of the votes of shares present in person or
represented by proxy and entitled to vote shall be elected as Directors.
"Withheld" votes are not included in the total vote cast for a nominee for
purposes of determining whether a plurality was received and, therefore, have no
negative effect.
2
<PAGE>
Under Delaware law and the rules of The New York Stock Exchange, Inc.,
approval of the proposed Agreement and Plan of Reorganization and Merger, dated
as of January 24, 2000, pursuant to which the Company will acquire all of the
issued and outstanding capital stock of Connolly-Pacific Co. and approval of the
proposed merger and other transactions contemplated in that agreement, including
the issuance by the Company of 2,826,087 shares of its Common Stock (subject to
adjustment) in exchange for all of the outstanding capital stock of
Connolly-Pacific Co., requires the affirmative vote of a majority of the total
number of votes cast, provided that the number of votes cast represents more
than 50% of the total number of shares of Common Stock of the Company
outstanding. For the purpose of determining whether a majority of the total
number of votes cast are in favor of the transactions, abstentions will have the
effect of a vote against the transactions and broker non-votes will have no
effect. For the purpose of determining whether the number of votes cast
represents more than 50% of the shares of Common Stock of the Company
outstanding, abstentions will count as votes cast and broker non-votes will not
count as votes cast.
Under Delaware law, the proposed amendments to the 1992 Key Employee Stock
Option Plan and the 1997 Executive Long-Term Incentive Plan require the
affirmative vote of the holders of a majority of the shares present in person or
represented by proxy and entitled to vote. Abstentions will have the effect of a
vote against the amendments; broker non-votes will have no effect.
As of February 28, 2000, no person other than New York Life Trust Company
held of record, or, to the knowledge of the management of the Company, owned
beneficially, 5 percent or more of the outstanding shares of Common Stock of the
Company. New York Life Trust Company, Norwood, MA, held approximately
11.1 percent of the outstanding Common Stock of the Company as trustee of the
Company's Tax Deferred Compensation Savings Plans. New York Life Trust Company
disclaims all beneficial ownership of these shares.
ELECTION OF DIRECTORS
At the meeting, four Directors will be elected to serve for a term of three
years until 2003, and until their respective successors are elected and qualify.
All of the nominees are incumbent Directors and are nominated for reelection.
Unless otherwise specified when the proxy is submitted, shares of the Common
Stock represented by the proxy will be voted for the nominees named below. If
any nominee becomes unavailable for any reason, or if a vacancy should occur
before the election (which events are not anticipated), the shares represented
by the proxy will be voted for another person in the discretion of the persons
named in the proxy. Information concerning the nominees, including their ages,
periods of service
3
<PAGE>
as Directors, and business experience, according to information furnished to the
Company by the respective nominees, is set forth as follows:
<TABLE>
<CAPTION>
FIRST YEAR
OF SERVICE
NAME AGE AS DIRECTOR BUSINESS EXPERIENCE
- ---- -------- ----------- ---------------------------------------------
<S> <C> <C> <C>
San W. Orr, Jr. ..................... 58 1978 Mr. Orr is an attorney and is in the business
(to be elected for a term expiring in of financial and estate management. He is
2003) Chairman of the Board and a Director of
Wausau-Mosinee Paper Corporation and is
[PHOTO] Vice Chairman of the Board of M&I First
American Bank. He is a Director of
Marshall & Ilsley Corporation and M & I
Marshall & Ilsley Bank. Mr. Orr also serves
on various civic and charitable organiza-
tions in Wisconsin and is President of the
Board of Regents of the University of
Wisconsin System. He currently serves on
the Audit and Compensation Committees of
the Board of Directors and is Vice Chairman
of the Board.
Harry J. Pearce ..................... 57 1997 Mr. Pearce is the Vice Chairman and a
(to be elected for a term expiring in Director of General Motors Corporation. He is
2003) a Director of Hughes Electronics
Corporation, General Motors Acceptance
[PHOTO] Corporation, Marriott International Inc.,
Alliance of Automobile Manufacturers, the
Economic Strategy Institute, the Theodore
Roosevelt Medora Foundation, The Bone Mar-
row Foundation, and is a member of the
United States Air Force Academy's Board of
Visitors. He also serves on the Board of
Trustees of Howard University and
Northwestern University. He currently
serves on the Audit and Compensation
Committees of the Board of Directors.
Homer A. Scott, Jr. ................. 65 1981 Mr. Scott is engaged in the banking and
(to be elected for a term expiring in hospitality business in the states of Wyoming
2003) and Montana. He is a Director and Chairman
of the Board of First Interstate
[PHOTO] BancSystem, Inc., a Director of First
Interstate Bank-Montana, and Chairman of
the Board and a Director of First
Interstate Bank-Wyoming. Mr. Scott is the
principal owner, a Director and President
of Sugarland Enterprises, Inc., and the
managing partner of Sugarland Development
Company, a commercial property development
company in Sheridan, Wyoming. Sugarland
Enterprises, Inc. owns and manages four
Perkins Restaurants, a Holiday Inn, and
Powder Horn Ranch, a housing development
and golf course near Sheridan. He currently
serves on the Audit and Compensation
Committees of the Board of Directors.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FIRST YEAR
OF SERVICE
NAME AGE AS DIRECTOR BUSINESS EXPERIENCE
- ---- -------- ----------- ---------------------------------------------
<S> <C> <C> <C>
Sister Thomas Welder, O.S.B. ........ 59 1988 Sister Welder is the President of the
(to be elected for a term expiring in University of Mary, Bismarck, North Dakota.
2003) She is a Director of St. Alexius Medical
Center of Bismarck and Chair of its
[PHOTO] Marketing Committee. She is a Director of
the Bismarck-Mandan Development Asso-
ciation and is a member and past Director
of the Bismarck-Mandan Area Chamber of
Commerce. She is also a member of the
Theodore Roosevelt Medora Founder's Society
and the Consultant-Evaluator Corps for the
North Central Association of Colleges and
Schools. She currently serves on the
Finance and Nominating Committees of the
Board of Directors.
</TABLE>
Certain information concerning the remaining Directors, whose terms expire
in 2001 or in 2002, including their ages, periods of service as Directors, and
business experience, according to information furnished to the Company, is set
forth as follows:
<TABLE>
<CAPTION>
FIRST YEAR
OF SERVICE
NAME AGE AS DIRECTOR BUSINESS EXPERIENCE
- ---- -------- ----------- ---------------------------------------------
<S> <C> <C> <C>
Douglas C. Kane ..................... 50 1991 Mr. Kane was elected Executive Vice
(term expiring in 2001) President, Chief Administrative and Corporate
Development Officer in November 1997. He
[PHOTO] joined the Company as Executive Vice
President and Chief Operating Officer in
January 1991. Prior to that time he was
President and Chief Executive Officer of
Knife River Corporation from May 1990,
President from September 1987, and
previously had served as Senior Vice
President--Operations. During 1999,
Mr. Kane served as Director and/or officer
of principal subsidiaries of the Company
and as a member of the Managing Committee
of Montana-Dakota Utilities Co.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FIRST YEAR
OF SERVICE
NAME AGE AS DIRECTOR BUSINESS EXPERIENCE
- ---- -------- ----------- ---------------------------------------------
<S> <C> <C> <C>
Richard L. Muus ..................... 70 1985 Mr. Muus retired in April 1989 after 35 years
(term expiring in 2001) with Midwest Federal Savings Bank, Minot,
North Dakota. At the time of his
[PHOTO] retirement, Mr. Muus was the President and
a Director of the bank. Mr. Muus is a
member and past Director and Officer of the
Minot Area Chamber of Commerce and a past
Director of the Minot Area Development
Corporation. He has served as Chairman of
the North Dakota Housing Finance Agency
Advisory Board, as a Director of the
Federal Home Loan Bank of Des Moines, and
as a director of the U.S. League of Savings
Institutions. He is a member of the Board
of Regents of Minot State University. He
currently serves on the Audit and Finance
Committees of the Board of Directors.
John L. Olson ....................... 60 1985 Mr. Olson is President and owner of Blue Rock
(term expiring in 2001) Products Company and of Blue Rock
Distributing Company located in Sidney,
[PHOTO] Montana, a beverage bottling and
distributing company, respectively.
Mr. Olson also is Chairman of the Board and
a Director of Admiral Beverage Corporation,
Worland, Wyoming, and Ogden, Utah; he is
Chairman of the Board and Director of the
Foundation for Community Care, Sidney,
Montana; a member of the Executive
Committee of the University of Montana
Foundation; a Director of BlueCross
BlueShield of Montana; and is trustee for
Blue Rock Products Company Profit Sharing
Trust, Sidney, Montana. He currently serves
on the Audit and Nominating Committees of
the Board of Directors.
Joseph T. Simmons ................... 64 1984 Mr. Simmons retired in May 1997 as a
(term expiring in 2001) Professor of Accounting and Finance,
University of South Dakota, Vermillion and
[PHOTO] was Visiting Professor of Finance,
University of Warsaw, Warsaw, Poland
(February--July 1994). Mr. Simmons is the
Chairman and President of Simmons Financial
Management, Inc. He also serves on the
Boards of RE/SPEC in Rapid City, South
Dakota, and Dairilean, Inc. in Sioux Falls,
South Dakota. He currently serves on the
Finance and Nominating Committees of the
Board of Directors.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FIRST YEAR
OF SERVICE
NAME AGE AS DIRECTOR BUSINESS EXPERIENCE
- ---- -------- ----------- ---------------------------------------------
<S> <C> <C> <C>
Martin A. White ..................... 58 1998 Mr. White joined the Company in November 1991
(term expiring in 2001) as Vice President--Corporate Development
and was named Senior Vice
[PHOTO] President--Corporate Development in
November 1995. Effective April 1, 1998,
Mr. White became President and Chief
Executive Officer. He also serves as Chair-
man of the Board, a Director and/or an
Officer of all principal subsidiaries, and
as Chairman of the Managing Committee of
Montana-Dakota Utilities Co. Prior to
joining the Company, Mr. White was
Chairman and Chief Executive Officer of
White Resources Corporation (November
1989--October 1991); Executive Vice
President and Chief Operating Officer of
Consolidated TVX Mining Corporation of
Chile (January 1988--November 1989); and
Chairman, President, and Chief Operating
Officer of Entech Inc. (September
1986--December 1988), which comprise the
non-utility subsidiaries of The Montana
Power Company. He is a member of the
University of Mary Board of Regents, the
Missouri Slope Areawide United Way Board of
Trustees, the North Dakota Lewis & Clark
Bicentennial Foundation Board, and the
Western Regional Council Board of Trustees.
Thomas Everist ...................... 50 1995 Mr. Everist is President and a Director of L.
(term expiring in 2002) G. Everist, Inc., Sioux Falls, South Dakota,
an aggregate production company. He is Vice
[PHOTO] President and a Director of Spencer
Quarries, Spencer, South Dakota, a rock
quarry; a Director of Standard Ready Mix,
of Sioux City, Iowa; and a Director of
Raven Industries, Inc., a general manufac-
turer of electronics, sewn products, and
plastics, of Sioux Falls, South Dakota. He
currently serves on the Finance and
Nominating Committees of the Board of
Directors.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
FIRST YEAR
OF SERVICE
NAME AGE AS DIRECTOR BUSINESS EXPERIENCE
- ---- -------- ----------- ---------------------------------------------
<S> <C> <C> <C>
Robert L. Nance ..................... 63 1993 Mr. Nance is the President and Chief
(term expiring in 2002) Executive Officer of Nance Petroleum
Corporation, Billings, Montana, an oil and
[PHOTO] gas exploration and production company. He
also is a Director of First Interstate
Bank-Montana, and a Director of St. Mary
Land and Exploration Co. of Denver,
Colorado. He serves on the National Board
of Governors of the Independent Petroleum
Association of America and serves on the
Board, and is past Chairman of the
Petroleum Technology Transfer Council. He
currently serves on the Finance and
Nominating Committees of the Board of
Directors.
John A. Schuchart ................... 70 1976 Mr. Schuchart, Chairman of the Board, was
(term expiring in 2002) named Chief Executive Officer in June 1980
and Chairman in May 1983. He retired as
[PHOTO] Chief Executive Officer on December 31,
1994. Mr. Schuchart also serves as an ex
officio Director of the subsidiaries of the
Company, the Managing Committee of
Montana-Dakota Utilities Co., and the MDU
Resources Foundation. Mr. Schuchart serves
on various civic and charitable
organizations in Bismarck, North Dakota,
including the Board of Regents of the
University of Mary.
</TABLE>
Except where expressly noted, no corporation or organization named above is
a parent, subsidiary, or other affiliate of the Company.
During 1999, the Board of Directors had six meetings. The Board of Directors
has an Audit Committee, a Compensation Committee, a Finance Committee, and a
Nominating Committee. All Committees are composed entirely of outside Directors.
The Audit Committee, established in 1972, meets regularly with management,
internal auditors, and representatives of the Company's independent public
accountants. The independent accountants have free access to the Committee and
the Board of Directors. During 1999, the Committee met three times and reviewed
the scope, timing, and fees for the annual audit, other services provided by the
independent accountants, and the results of audit examinations completed by the
independent accountants. The Audit Committee reports the results of its
activities to the full Board of Directors. No member of the Audit Committee is
or has been an employee of the Company. The Compensation Committee, which met
four times during 1999, sets compensation levels for executive officers and
recommends to the full Board of Directors compensation for the Directors of the
Company. The Finance Committee, which met seven times during 1999, reviews
corporate financial plans, policies, budgets, investments and acquisitions, and
reviews and authorizes actions necessary to issue and sell Common Stock and debt
securities of the Company. The Nominating Committee, which met two times during
1999, recommends to the full Board of Directors nominees for Director. All
incumbent Directors, except Mr. Pearce who was absent from some meetings due to
illness, attended more than 75 percent of the combined total of the meetings of
the Board and of the Committees on which the Director served.
8
<PAGE>
PROPOSAL TO APPROVE THE ACQUISITION OF CONNOLLY-PACIFIC CO.
AND THE ISSUANCE OF COMMON STOCK IN CONNECTION THEREWITH
On January 24, 2000, the Company entered into an Agreement and Plan of
Reorganization and Merger (the Merger Agreement) with Connolly-Pacific Co., a
California corporation (CP), L.G. Everist Incorporated, an Iowa corporation
(LGE), and ConnPac Acquisition Corp., a California corporation and a wholly
owned subsidiary of the Company (Merger Subsidiary).
Under the Merger Agreement, the Company will acquire CP through the Merger
of Merger Subsidiary with and into CP (Merger). At the effective time of the
Merger, Merger Subsidiary will cease to exist and CP will continue to exist as a
wholly owned subsidiary of the Company. The address of CP's executive offices is
1925 Pier "D" Street, Long Beach, California, 90802.
The parties to the Merger Agreement agreed that the consideration to be
exchanged for all of the outstanding capital stock of CP would consist of
2,826,087 shares of Company Common Stock having a value of $57,765,218 based on
the $20.44 per share closing price of the Company's Common Stock on January 24,
2000, the date on which the Merger Agreement was executed, as reported in New
York Stock Exchange composite transactions. Because of the restrictions on
transfer by LGE of the shares of Company Common Stock that it receives pursuant
to the Merger, the value of such shares may, for financial accounting purposes,
be discounted below this amount. The number of shares of Company Common Stock to
be issued pursuant to the Merger is subject to adjustment after the closing of
the Merger, based upon the level of CP's net working capital (ratio of current
assets to current liabilities) as of the closing date, as discussed under "The
Merger Agreement--Consideration Adjustment" below.
CP'S BUSINESS
CP is a vertically integrated aggregate mining and marine construction
company. CP is engaged in the business of selling aggregate products and
providing marine construction services in Southern California, primarily from
Los Angeles to San Diego. CP specializes in furnishing and placing rock to
construct multi-lift dikes, enclosing new landfills and repairing existing
breakwaters and levees. CP leases two quarries from the Santa Catalina Island
Company under options extending until December 31, 2020. CP produces all sizes
of rock ranging from fine material to 25 ton rock for their own projects and for
sale to third parties.
CP'S CAPITAL STOCK
CP's common stock, $1.00 par value, is its only outstanding class of capital
stock, all of which will be acquired by the Company in the Merger. There is no
established public trading market for CP's common stock. There are only two
holders of CP's common stock. CP was a wholly-owned subsidiary of LGE until
January 24, 2000, when CP's President was issued 36.6826 shares of CP common
stock (3.8% of CP's outstanding common stock). From time to time, during the
period that CP was a wholly-owned subsidiary of LGE, CP made payments of
dividends and distributions to LGE. Because CP was a wholly-owned subsidiary of
LGE, these payments were made at the discretion of LGE. Payments made by CP to
LGE in respect of its shares are not indicative of future dividends that may be
paid by CP.
BACKGROUND OF THE MERGER
Over the past several years, the Company, through its wholly owned
subsidiary, KRC Holdings, Inc. (KRC), has sought to acquire leading
aggregate-focused construction materials businesses on the West Coast of the
United States, particularly in Oregon and California. During that period, KRC
has acquired, considered acquiring, or made inquiries with a view to acquiring,
numerous companies in the region.
As part of its general business development program, KRC conducts internal
ongoing general assessments of potential acquisition candidates, particularly
companies believed to be leaders in their
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markets. As a consequence of such assessment, KRC identified CP as a possible
candidate for acquisition. In addition, Mr. Thomas Everist, in his capacity as a
director of the Company, has visited many of the facilities of companies that
KRC had previously acquired and has become familiar with KRC's business
strategy.
As part of KRC's ongoing acquisition program, in January 1999, Mr. Terry
Hildestad, the President of KRC, telephoned Mr. Thomas Everist on an unsolicited
basis to inquire whether LGE would be interested in selling CP to KRC. Without
firmly confirming LGE's interest in pursuing the transaction, Mr. Everist agreed
that LGE would make available to KRC certain financial and operating data
relating to CP, and LGE provided such data in February 1999.
In early March 1999, representatives of the Company and KRC visited CP's
facilities accompanied by officers of LGE and CP. On March 29, 1999, LGE
confirmed by letter to the Company and KRC that it did not desire to pursue the
sale of CP to the Company at that time and the discussions between KRC and LGE
were terminated.
In October 1999, Mr. Hildestad telephoned Mr. Everist on an unsolicited
basis to inquire whether the situation had changed and whether LGE would be
interested in resuming discussions with the Company concerning the potential
sale of CP. On October 25, 1999, KRC and LGE executed a confidentiality
agreement to enable KRC to obtain information concerning CP on a confidential
basis.
KRC also engaged Rohrer & Associates, Inc. (Rohrer) to provide a valuation
report regarding CP. Rohrer provided its report to KRC in December 1999.
In early November 1999, KRC began its investigation of the finances and
operations of CP. This investigation continued until the Merger Agreement was
executed. At the Company's instruction, Thelen Reid & Priest LLP, outside
counsel to the Company, circulated an initial draft of the Merger Agreement.
Although representatives of the Company and KRC engaged in discussions with
CP from time to time during November and December 1999 regarding the terms,
including price, under which the Company would acquire CP, the parties did not
reach agreement on price until January 2000. At that time, the parties agreed
that the consideration to be exchanged for all of the outstanding capital stock
of CP would consist of 2,826,087 shares of Common Stock of the Company.
During January 2000, the parties and their counsel negotiated the terms of
the Merger Agreement. At a telephone meeting held on January 17, 2000, the
Company's Board of Directors (with Mr. Orr absent, and with Mr. Everist, because
of his interest in the transaction, not present or participating in the Board's
consideration of CP or the Merger) heard a presentation from Mr. Hildestad and
senior executive officers of the Company concerning CP's business and
operations, and the strategic merits of the acquisition of CP from the Company's
perspective. At that meeting, members of management responded to questions from
the directors. The materials circulated to the Company's directors at that time
included the report by Rohrer concerning the valuation of CP.
At a telephone meeting held on January 24, 2000, the Company's Board of
Directors (with Mr. Orr absent, and with Mr. Everist, because of his interest in
the transaction, not present or participating in the Board's consideration of CP
or the Merger) reviewed the Merger Agreement and documents in connection with
the Merger. Counsel also advised the Board concerning legal issues arising in
connection with the acquisition by the Company of a business in which a director
has a substantial interest. At the conclusion of the discussion, the Board of
Directors of the Company (with Mr. Orr absent, and with Mr. Everist, because of
his interest in the transaction, not present or participating in the
consideration of CP or the Merger) unanimously adopted resolutions approving the
acquisition of CP, including the Merger Agreement and the transactions
contemplated thereby, including the issuance by the Company of the shares of
Common Stock to the stockholders of CP pursuant to the Merger Agreement, and
recommended that the Company's stockholders vote "FOR" approval of the Merger
Agreement, the Merger and the transactions
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contemplated thereby, including the issuance of such shares. The Merger
Agreement was executed later that day.
THE COMPANY'S REASONS FOR THE MERGER
The Company is proposing to acquire CP because the Company believes that:
- CP is capable of providing immediate earnings and cash flow;
- CP is well managed, highly regarded in the markets it serves and has an
established reputation for quality;
- CP holds a strategic lease of permitted and unpermitted reserves in the
high growth Los Angeles and Long Beach, California markets; and
- In addition to CP's current contracts, CP may have the opportunity to
participate in several important future projects currently planned in its
market. These projects are discussed in more detail under "Valuation
Report" below.
MATERIAL TERMS OF THE MERGER; THE MERGER AGREEMENT
THE FOLLOWING DESCRIPTION IS A SUMMARY OF THE MATERIAL TERMS OF THE MERGER
AGREEMENT. IT IS QUALIFIED, IN ITS ENTIRETY, BY THE ACTUAL MERGER AGREEMENT, A
COPY OF WHICH IS ATTACHED AS EXHIBIT A TO THIS PROXY STATEMENT. WE URGE YOU TO
READ THE ACTUAL MERGER AGREEMENT.
GENERAL. The Merger Agreement provides that the Company will acquire CP
through the Merger of Merger Subsidiary with and into CP. CP will survive the
Merger as a wholly owned subsidiary of the Company.
The closing of the Merger will occur by the second business day immediately
following the date upon which all conditions to the Merger have been satisfied
or waived, or at such other time as the parties agree. Both CP and Merger
Subsidiary are California corporations. The parties will file a copy of the
Merger Agreement, together with any other documents required by law to give
effect to the Merger, with the Secretary of State of the State of California and
the California Franchise Tax Board. The Merger will become effective upon the
filing of these documents. We currently expect that the closing of the Merger
will take place before June 1, 2000.
MERGER CONSIDERATION. In the Merger Agreement, the parties agreed that the
consideration to be exchanged for all of the outstanding capital stock of CP
would consist of 2,826,087 shares of Common Stock of the Company. The number of
shares of the Company's common stock to be issued pursuant to the Merger is
subject to adjustment after the closing of the Merger, based upon the level of
CP's net working capital (ratio of current assets to current liabilities) as of
the closing date, as discussed below.
CORPORATE GOVERNANCE MATTERS. The Articles of Incorporation and By-laws of
CP in effect immediately prior to the Merger will remain in effect after the
Merger. Upon the effectiveness of the Merger, the people chosen by the Company
and identified on a schedule to the Merger Agreement will become the directors
and officers of CP.
CONVERSION OF SHARES. Each of the shares of CP common stock issued and
outstanding immediately prior to the effective time of the Merger shall, by
virtue of the Merger and without any action on the part of the shareholders, be
converted into and exchangeable for the right to receive shares of Company
Common Stock.
Each of the shares of common stock of Merger Subsidiary outstanding
immediately prior to the effective time of the Merger shall be converted into
and exchangeable for one share of common stock of CP. From and after the
effective time, each outstanding certificate representing shares of common stock
of
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Merger Subsidiary shall be deemed for all purposes to evidence ownership of, and
to represent the number of shares of, common stock of CP. Promptly after the
effective time of the Merger, CP shall issue a stock certificate to the Company
representing the appropriate number of shares of common stock of CP in exchange
for the certificate or certificates that formerly represented shares of common
stock of Merger Subsidiary, which shall be immediately canceled.
EXCHANGE AND PAYMENT PROCEDURES. At the effective time of the Merger, each
CP shareholder shall surrender its shares of CP stock in exchange for a
certificate or certificates representing Company Common Stock, which the Company
will make available for conversion and exchange promptly after the effective
time of the Merger.
CONSIDERATION ADJUSTMENT. Not later than sixty calendar days after the
closing date, the Company shall prepare an audited special purpose closing date
balance sheet of CP. The number of shares given to LGE for its shares of CP
stock may be increased after the closing, or LGE may be required to make a cash
payment to the Company, based on the level of CP's net working capital (ratio of
current assets to current liabilities) as of the closing date, as shown on the
closing date balance sheet.
LGE shall have a period of thirty calendar days after the delivery to it of
the closing balance sheet to examine the closing balance sheet, and to present
any objections that it may have to any of the matters contained in the closing
balance sheet. Thereafter, LGE and the Company shall meet to discuss any of the
objections raised by LGE, with a view to resolving such objections. If any
objections cannot be resolved by the Company and LGE within thirty calendar
days, then, not later than ten days later, either the Company or LGE shall have
the right, by the delivery of written notice to the other party, to cause
matters in dispute to be submitted to an arbitrating accountant for
determination. The arbitrating accountant shall be instructed to deliver a
decision with respect to the matters referred to it for determination within
thirty calendar days. The decision of the arbitrating accountant shall be
binding and conclusive upon the Company and LGE for all purposes under the
Merger Agreement. The Company and LGE each shall pay the fees and expenses of
its own accountants. The fees and expenses of the arbitrating accountant shall
be paid one half by the Company and one half by LGE.
If CP's current assets exceed its current liabilities on the closing date
the Company will deliver additional shares of common stock of the Company to LGE
with a value equal to the excess of the amount of such current assets over the
amount of such current liabilities. For the purposes of the consideration
adjustment, the value per share of the Company's Common Stock shall be
determined based on the average closing price of the Common Stock on the New
York Stock Exchange for the ten trading days preceding the tenth day before the
closing of the Merger. If CP's current liabilities exceed its current assets on
the closing date, LGE will pay the Company, in cash, an amount equal to the
excess of the amount of such current liabilities over the amount of such current
assets.
REPRESENTATIONS AND WARRANTIES. In the Merger Agreement, LGE and the
Company make representations and warranties about themselves and their
businesses, including the following:
(i) BY LGE AS TO:
- LGE's and CP's proper organization and existence, and CP's good standing
and qualification to do business in various states;
- CP's capital structure;
- the lawful ownership of CP shares by its shareholders, including the
number of shares each owns;
- CP's subsidiaries;
- CP's and LGE's power and authority to enter into the Merger Agreement and,
subject to the approval of LGE's shareholders, consummate the Merger;
- LGE's and CP's due execution and delivery of the Merger Agreement and the
validity and enforceability of the Merger Agreement;
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- conflicts with, breaches of or defaults under corporate documents of CP or
LGE, applicable laws, certain contracts of CP or LGE or applicable
government orders, permits, licenses or decrees;
- CP's financial statements and certain liabilities;
- the absence of certain adverse changes or events;
- the required governmental and third-party approvals, filings, consents and
permits and CP's compliance with applicable laws;
- CP's real and personal property;
- accounts and notes receivable and payable;
- CP's insurance, bonds and bank accounts;
- litigation;
- tax matters;
- employee benefit plans and other employee and labor matters;
- CP's material contracts and major customers;
- environmental matters;
- assets necessary for the operation of CP's business;
- broker's fees;
- investment representation, including each CP shareholder's status as an
"accredited investor" under the Securities Act of 1933;
- illegal or questionable payments by CP;
- no misstatements or omissions by CP in its representations and warranties
in the Merger Agreement, and the accuracy of information provided by CP
and its stockholders and representatives for inclusion in this proxy
statement;
- regulatory status of LGE and CP; and
- execution and enforceability of certain other agreements, and
(ii) BY THE COMPANY AS TO:
- the Company's and Merger Subsidiary's proper organization, existence and
good standing and qualification to do business in various states;
- the Company's and Merger Subsidiary's power and authority to enter into
the Merger Agreement and, subject to approval of the Company's
shareholders, consummate the Merger;
- the Company's and Merger Subsidiary's due execution and delivery of the
Merger Agreement and the validity and enforceability of the Merger
Agreement;
- conflicts with, breaches of or defaults under corporate documents of the
Company and Merger Subsidiary, applicable laws, certain contracts of the
Company or Merger Subsidiary or applicable government orders, permits,
licenses or decrees;
- the Company's capital structure;
- the Company's filings with the Securities and Exchange Commission;
- the accuracy of information provided by the Company or Merger Subsidiary,
or any of their representatives, for inclusion in the proxy;
- the valuation report received by the Company from Rohrer &
Associates, Inc.
- the required statutory, governmental and third party approvals and
consents;
- litigation;
- broker's fees;
- purpose, business, and assets of Merger Subsidiary; and
- the Company's preference share purchase rights.
CERTAIN COVENANTS. (i) CONDUCT OF CP'S BUSINESS PENDING CLOSING. CP and
LGE have agreed that, during the period from the date of the Merger Agreement
until the closing of the Merger except as
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otherwise permitted or contemplated in the Merger Agreement, or unless the
Company consents or approves in writing, that:
- CP shall carry on its business in the ordinary course;
- CP shall not amend or propose to amend CP's certificate of incorporation
or by-laws;
- CP shall preserve its corporate existence and certain business
relationships;
- CP shall abide by certain restrictions on and requirements with respect
to: (1) dividends, (2) issuances or reclassifications of shares,
(3) redemptions or repurchases of shares, (4) organization of any new
subsidiary or acquisition of any business, (5) borrowing funds,
(6) paying liabilities, (7) pledging assets, (8) canceling or waiving
debts or other rights of substantial value, (9) employment and
compensation matters, (10) capital expenditures, (11) dealings with
officers, directors or shareholders, (12) accounting policies or
procedures, (13) settlement or institution of claims or lawsuits, (14)
entering into, amending or terminating material contracts, (15) insurance,
(16) tax matters, and (17) collection of accounts receivable;
- Neither CP nor LGE shall intentionally take any action that would
reasonably be expected to result in a material breach of any provision of
the Merger Agreement or to make any representation or warranty of CP or
LGE under the Merger Agreement untrue in any material respect; and
- The Board of Directors of CP shall adopt a resolution terminating the
participation of CP in LGE's 401(k) Plan effective as of the closing of
the Merger.
(ii) ACCESS TO INFORMATION. Upon reasonable notice and during normal
business hours until the closing of the Merger or the termination of the Merger
Agreement, CP has agreed to provide the Company reasonable access to all of its
operations, offices, properties, books and records. In addition, CP has agreed
to permit two Company designees to attend senior management and board meetings
of CP, and that the Company will have the right to review any and all workpapers
of CP's accountants, upon reasonable notice and during normal business hours.
The Company is required to hold in strict confidence all information furnished
to it in connection with the Merger.
(iii) OBTAINING CONSENTS AND SATISFYING CONDITIONS. Each of LGE and CP
have agreed to use commercially reasonable efforts to obtain all necessary
consents and approvals necessary to the consummation of the transactions
contemplated by the Merger Agreement. Each of LGE, CP and the Company have
agreed to use commercially reasonable efforts to insure that its conditions to
closing the Merger, as set forth in the Merger Agreement, are satisfied.
(iv) SHAREHOLDER APPROVAL. The Company and LGE each agreed to take all
action necessary to convene the respective meeting of its stockholders to act on
the Merger Agreement and the Merger, and to use its reasonable best efforts to
secure the vote or consent of such stockholders to approve the Merger Agreement
and the Merger, subject to the fiduciary duties of their respective boards of
directors.
(v) PROXY STATEMENT. The Company agreed to prepare and file the proxy
statement with the Securities and Exchange Commission as promptly as practicable
after the execution of the Merger Agreement. CP and each stockholder of CP
agreed to provide all information reasonably requested in connection with the
preparation of this proxy statement, including the financial statements and
other financial information of CP included in this proxy statement.
(vi) REGULATORY FILINGS. The Company and LGE agreed that their respective
ultimate parent companies would file Notification and Report forms required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
(vii) CERTIFICATES. CP and LGE have agreed to provide the Company with any
reasonably requested certificates to evidence compliance with their covenants.
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(viii) OTHER TRANSACTIONS. CP and CP's stockholders have agreed to certain
restrictions on entering into or continuing discussions or transactions, and
certain other restrictions, relating to any Merger, consolidation, disposition
of assets or other business combination other than pursuant to the Merger
Agreement.
(ix) INFORMATION AS TO VIOLATION. LGE has agreed promptly to inform the
Company of any situation that could reasonably be expected to result in a
violation of any of LGE's representations or warranties under the Merger
Agreement.
(x) TAXES. The Company, Merger Subsidiary, CP and LGE have agreed to take,
or refrain from taking, certain actions intended to ensure that the Merger will
be treated as a tax-free reorganization under the Internal Revenue Code of 1986,
as amended. LGE also has agreed to inform the Company of any tax audits of LGE
that include any income or operations of CP and of certain proposed adjustments
or assessments relating to those audits and to provide the Company with certain
written materials relating to those audits for its review. In addition, LGE has
agreed to certain limitations on its rights to concede or settle any proposed
adjustments or assessments relating to those audits. LGE also has agreed to
retain certain books and records relating to CP for at least seven years after
the closing of the Merger and to allow the Company to have access to those books
and records if necessary in connection with any tax inquiry. LGE and the Company
have agreed that LGE will be responsible for filing tax returns covering CP for
periods ending on or before the closing of the Merger and that the Company will
file all tax returns covering CP that are due after the closing of the Merger.
(xi) INFORMATION AS TO MULTIEMPLOYER PLANS. LGE has agreed to provide the
Company with certain information as to multiemployer plans that was not
available at the time the Merger Agreement was signed.
CONDITIONS. (i) MUTUAL CONDITIONS. The obligations of each party to the
Merger Agreement to complete the Merger are subject to satisfaction of the
following conditions:
- The Company's stockholders and LGE's stockholders have approved the Merger
Agreement and the Merger.
- The parties to the Merger Agreement have obtained the requisite
governmental approvals and all applicable waiting periods must have
expired.
- No suit, action, investigation or other proceeding by any governmental
authority has been instituted which threatens the validity of the
transactions under the Merger Agreement.
- The shares of the Company's common stock representing the Merger
consideration have been authorized for listing on the New York Stock
Exchange and the Pacific Exchange.
(ii) ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate the transactions contemplated by the Merger
Agreement are contingent upon the satisfaction or waiver of the following
additional conditions:
- The representations and warranties of LGE set forth in the Merger
Agreement shall be true and correct in all material respects as of the
closing date as though such representations and warranties were made on
and as of the closing date (except to the extent any such representation
or warranty expressly speaks as of an earlier date); and the Company shall
have received a certificate executed by LGE to that effect.
- CP and each of CP's stockholders, including LGE, shall have performed and
complied in all material respects with all covenants, obligations and
conditions required by the Merger Agreement to be performed or complied
with by any of them on or prior to the closing date.
- All consents, approvals and authorizations required to be obtained by CP
or any stockholder of CP, including LGE, pursuant to the Merger Agreement
shall have been obtained.
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- Since the date of the Merger Agreement, no change in the business,
financial condition, assets or liabilities or results of operations of CP
shall have occurred, which could reasonably be expected to result in a
material adverse effect on CP.
- At the effective time of the Merger, the stockholders of CP shall
surrender the certificate or certificates representing all of the issued
and outstanding shares of CP common stock.
- All documents required to have been delivered by or on behalf of CP or any
stockholder of CP, including LGE, as provided for in the Merger Agreement
shall have been delivered.
(iii) ADDITIONAL CONDITIONS TO OBLIGATIONS OF LGE AND CP. The obligations
of LGE and CP to consummate the transactions contemplated by the Merger
Agreement are subject to the satisfaction or waiver of the following additional
conditions:
- The representations and warranties of the Company set forth in the Merger
Agreement shall be true and correct in all material respects as of the
closing date as though such representations and warranties were made on
and as of the closing date (except to the extent any such representation
or warranty expressly speaks as of an earlier date); and LGE shall have
received a certificate executed by the Company to that effect.
- the Company and Merger Subsidiary shall have performed and complied in all
material respects with all covenants, obligations and conditions required
by the Merger Agreement to be performed or complied with by any of them on
or prior to the closing date.
- All consents and approvals required to be obtained by the Company or
Merger Subsidiary pursuant to the Merger Agreement, shall have been
obtained.
- LGE shall have received releases of liability for post-closing activities
with respect to certain agreements and performance bonds.
- All documents required to have been delivered by or on behalf of the
Company pursuant to the Merger Agreement shall have been delivered.
DELIVERIES AT CLOSING. In addition to all of the other certificates,
documents or other items required to be delivered at the closing of the Merger
pursuant to the Merger Agreement, the parties to the Merger Agreement will
deliver the following:
- LGE and CP, on the one hand, and the Company, on the other hand, will each
deliver to the other an opinion of counsel relating to the Merger
Agreement and the transactions contemplated by the Merger Agreement;
- an employment agreement between CP and Ralph Larison, the President of CP;
- a noncompetition agreement between the Company and LGE;
- a stockholder's agreement between the Company and LGE, pursuant to which
LGE agrees to certain restrictions on transfer of its shares of Common
Stock of the Company, including an agreement not to sell or dispose of
those shares, or specified portions of those shares, subject to certain
exceptions, over a specified period of time;
- an Amended and Restated Lease between LGE, as lessor, and CP, as lessee,
relating to the premises located at 1925 Pier "D" Street, Long Beach, in
the County of Los Angeles, State of California, duly executed and
delivered by, and reflecting "arm's length" negotiations between, LGE and
CP, expiring on December 31, 2009, subject to CP's option to extend the
term of the lease for a total of 26 years, until December 31, 2035, with a
rental price, which shall be abated through December 31, 2000, of $240,000
per annum, payable monthly, until December 31, 2002, as adjusted
thereafter in accordance with the terms of the lease, which adjustments
will cause the rental price to
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be at least $560,000 per annum during the period beginning January 1, 2003
and ending December 31, 2009 and, if extended, at least $500,000 per annum
for the period from January 1, 2010 and ending December 31, 2019, and, if
further extended, the rental price will be negotiated by the parties; and
- a Lease between LGE, as lessor, and CP, as lessee, relating to the
premises located at Berth 44, Pier "D" Street, Long Beach, in the County
of Los Angeles, State of California, duly executed and delivered by, and
reflecting "arm's length" negotiations between, LGE and CP, commencing on
January 1, 2001 and expiring on December 31, 2009, subject to CP's option
to extend the term of the lease for a total of 26 years, until
December 31, 2035, with a rental price of $100,000 per annum (as adjusted
in accordance with the terms of the lease), payable monthly, plus an
additional incremental rental amount equal to $0.50 (as adjusted in
accordance with the terms of the lease) for each ton of construction
material transported off of the premises, payable quarterly; PROVIDED,
that the maximum aggregate incremental rental payments will be $500,000
per annum (as adjusted in accordance with the terms of the lease) and,
beginning January 1, 2006, the minimum aggregate incremental rental
payments will be $450,000 per annum (as adjusted in accordance with the
terms of the lease).
INDEMNIFICATION. (i) INDEMNIFICATION BY LGE. LGE has agreed to indemnify
the Company, its subsidiaries and certain related parties for certain
liabilities arising out of any breach by LGE or CP of any representation,
warranty or covenant of LGE or CP in the Merger Agreement. In certain
circumstances, LGE may defer indemnification payments to the Company until such
time as it may sell shares of the Company's common stock to fund such payments.
(ii) INDEMNIFICATION BY THE COMPANY. The Company has agreed to indemnify
the stockholders of CP and certain related parties for certain liabilities
arising out of the Company's breach of any representation, warranty or covenant
of the Company in the Merger Agreement and any liabilities arising from the
ownership or operation of CP after the closing date. The Company has agreed to
take reasonable steps to make indemnification payments in common stock of the
Company.
(iii) LIMITATIONS ON INDEMNIFICATION. With certain exceptions relating to
taxes, employment matters, organization, ownership, and certain other matters,
the right of any party to indemnity under the Merger Agreement will expire two
years after the closing date. In addition, LGE generally will not be required to
make any payments for indemnification unless its aggregate indemnification
liabilities exceed $500,000, and then only to the extent that such liabilities
exceed $500,000. Furthermore, LGE will generally not be required to make any
payments for indemnification in an aggregate amount in excess of $15 million.
TERMINATION, AMENDMENT AND WAIVER. (i) TERMINATION. The Merger Agreement
may be terminated at any time before the effective time of the Merger, even
after the Company's shareholders have already approved it, as follows:
- by mutual written consent of the Company and LGE; or
- by either the Company or LGE if they have not completed the Merger by
June 1, 2000.
(ii) EFFECT OF TERMINATION. If the Merger Agreement is terminated, no
party will be liable to any other party to the Merger Agreement, except that:
- the Company shall be fully liable for any and all damages, costs and
expenses if such termination results from the willful failure to satisfy a
condition, or a material and willful breach, of the Merger Agreement by
the Company or Merger Subsidiary; and
- LGE and CP shall, jointly and severally, be fully liable for any damages,
costs and expenses if such termination results from the willful failure,
or a material and willful breach, of the Merger Agreement by LGE or CP.
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(iii) AMENDMENT AND WAIVER. The parties may amend the Merger Agreement or
waive any provision of the Merger Agreement at any time only by a writing signed
by all the parties which states specifically that it is intended to amend or
modify the Merger Agreement.
ACCOUNTING TREATMENT
The Merger will be treated as a purchase for accounting and financial
reporting purposes, in accordance with United States generally accepted
accounting principles. Under this method of accounting, the assets and
liabilities of CP will be recorded on the Company's books at their estimated
fair market value.
FEDERAL INCOME TAX CONSEQUENCES
Neither the Company nor the Company's stockholders will recognize gain or
loss for federal income tax purposes as a result of the Merger.
REGULATORY MATTERS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 may prohibit the
consummation of the Merger until certain information and materials have been
filed with the U.S. Federal Trade Commission and the Antitrust Division of the
U.S. Department of Justice and a required waiting period is observed. Even after
the waiting period expires or is terminated, the Federal Trade Commission or the
Antitrust Division could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking divestiture of
substantial assets of the Company or CP. Neither the Company, CP nor LGE
believes that the consummation of the Merger will result in a violation of any
applicable antitrust laws. However, there is no assurance that a challenge to
the Merger on antitrust grounds will not be made or, if such a challenge is
made, of the result. The Company, CP and LGE do not believe that any additional
material governmental filings in the United States, other than the filing of
certain materials relating to the Merger in California, are required in order to
consummate the Merger.
VALUATION REPORT
Under an engagement letter dated November 8, 1999, as amended and
supplemented on January 26, 2000, KRC engaged Rohrer to prepare and deliver a
valuation report on CP. KRC selected Rohrer based upon its qualifications,
expertise and reputation, and its specific knowledge of the aggregates industry.
The Board of Directors of the Company considered Rohrer's written valuation
report in considering the terms of the Merger.
The text of Rohrer's summary valuation report dated January 24, 2000 that is
attached to this Proxy Statement (the Rohrer Report) as Exhibit D sets forth the
material conclusions reached and the matters considered and the scope of the
review undertaken by Rohrer in providing its complete valuation report. Company
stockholders are urged to read the summary of the Rohrer Report carefully and in
its entirety. The Rohrer Report is directed to the Board of Directors of the
Company, confirms the conclusions previously expressed to the management of KRC,
and addresses only the theoretical valuation of CP based upon the analysis
contained in the valuation report. The Rohrer Report does not address any of the
specific terms of the Merger nor does it constitute an opinion as to the value
of the shares of the Company's Common Stock to be issued in the Merger or an
opinion as to the fairness of the terms of the Merger from a financial point of
view. Furthermore, the Rohrer Report does not constitute a recommendation to any
holder of the Company's Common Stock as to how to vote with respect to the
Merger at the Annual Meeting. The Rohrer Report, while materially complete, is
qualified in its entirety by its reference to the complete valuation report
provided to KRC and the Company's Board of Directors.
VALUATION SUMMARY. Based upon assumptions provided by KRC regarding planned
capital expenditures, future depreciation and amortization, Rohrer determined a
valuation for CP of $63.55 million, based
18
<PAGE>
upon projected future cash flows and utilizing a discount rate of 15% per year.
Based upon projected cash flows using higher quarry operating costs based upon
smaller drill shots in the rhyolite rock at CP's Pebbly Beach operation, and
again using a discount rate of 15% per year, Rohrer arrived at an alternative
valuation for CP of $60.768 million.
In reaching its conclusion, Rohrer observed that given the nature of CP's
primary business, major breakwater and pier construction, the potential timing
and nature of potential construction projects, a "complex time valued analytical
model" might be overly sophisticated. Rohrer observed that, based upon CP's five
year average earnings before interest, taxes, depreciation and amortization
(EBITDA), a valuation of $63.55 million would result in a multiple of EBITDA of
approximately 5 times, which Rohrer assessed to be a reasonable purchase price
multiple.
MARKET POSITION; POTENTIAL MARKET GROWTH. The Rohrer Report observed that
CP, with an active quarry at Pebbly Beach on the southern side of Santa Catalina
Island, has historically been the prime supplier of rock for Southern California
marine construction stretching from Santa Barbara to San Diego. The Rohrer
Report observed that CP possesses the only operating quarry on Santa Catalina
Island and operates more transportation and placement equipment than other
contractors in the Southern California marine construction market. The Rohrer
Report also noted that CP has the only other permitted quarry on Santa Catalina
Island, the Empire Quarry, which has been idle since 1976.
The Rohrer Report stated that Los Angeles and Long Beach harbors currently
dominate water transportation on the West Coast of the United States, with a
market share of 60% and trade volumes growing at a compound rate of 6-7% per
year. The Rohrer Report attributed the dominant position of these ports to deep
drafts, size of handling facilities and intermodal infrastructure. The Rohrer
Report cited a report prepared for the ports of Los Angeles and Long Beach by
Wharton Financial Associates in 1987 forecasting trade growth in Southern
California and the need for port handling facilities through 2020, and noted
that, to date, the growth of the two ports has considerably exceeded the
forecasts contained in the Wharton Financial Associates study.
The Rohrer Report noted that over the past five years, major construction
has taken place in the Los Angeles-Long Beach area with the construction of the
600 acre Los Angeles Pier 400 project alone requiring almost 11 million tons of
rock. The Rohrer Report noted that, based upon conversations with port
officials, although there will be several intermediate fill projects, the Port
of Long Beach's Pier W is the region's next projected major project, most likely
to begin in 2003 or shortly thereafter, and is forecasted to require a minimum
of 7 million tons of rock from 2003 to 2006.
Beyond the Pier W project is the Port of Los Angeles' Pier 500, which will
be constructed and filled outside of the existing port breakwater probably some
time after 2008. The Rohrer Report observed that the Pier 500 project should
require more rock than other fill projects not only because of its contemplated
size, but due to the depth of the drafts at the new terminal.
SALES ASSUMPTIONS. The Rohrer report noted that CP averaged approximately
1.6 million tons of rock sales during the past 12 years, and 2.7 million tons in
the last five years, with the largest calendar year at 4.8 million tons, when
work included Los Angeles Pier 400. The Rohrer Report noted that during this
five-year period, a minimum of 80% of CP's rock sales were to Los Angeles and
Long Beach port projects. In the Rohrer Report, CP's rock sales were forecasted
to be approximately 770,000 tons in 2000 increasing to approximately 3.42
million tons in 2005 when work on Long Beach's Pier W alone is estimated to
require approximately 2.7 million tons. The sales forecast developed by Rohrer
varied from the forecast prepared by KRC in anticipating lower sales in earlier
years, but increased the level of revenue anticipated by KRC to more
appropriately reflect CP's competitive position.
Rohrer based the sales forecasts included in the Rohrer Report on canvassing
government offices in Southern California. In the forecast of volumes over the
next five years included in the Rohrer Report valuation models, specific
projects and the timing of specific projects were based upon discussion with Los
19
<PAGE>
Angeles and Long Beach port officials, surrounding county planning departments
and United States Army Corps of Engineers representatives. Forecast volumes in
later years were cyclically averaged to reflect the projected growth of the
major port facilities that CP is anticipated to be serving.
Although Rohrer expressed the view that the sales volume for the Long Beach
Pier W project used in the valuation analysis could be conservative, a material
delay of the start of the project could adversely impact cash flows in the early
years covered by Rohrer's analysis, and consequently have an adverse effect on
calculated value of CP set forth in the Rohrer Report.
QUARRY OPERATIONS. The Rohrer Report included a description of the
operations of both the Pebbly Beach and the Empire Quarries, and the equipment
and facilities employed by CP.
The Rohrer Report noted that three types of rock are produced at the Pebbly
Quarry: Class A Rock, 4 tons and over in size, used for breakwater and wave
action walls; Class B rock, 500 pounds to 4 tons in size, used in channel lining
and wall formation; and Class C rock consisting of rock of smaller sizes. Rock
produced at the Pebbly Beach Quarry generally consists of 5% Class A Rock,
approximately 10% Class B rock and the remainder of approximately 85% consists
of Class C rock which is sold for base and fill. The Rohrer Report indicated
that historical CP sales appeared to be well balanced among size requirements.
CP operates 13 barges and 2 ocean tugs and one harbor tug, along with
derricks, to place rock on the marine projects. CP leases property in the Long
Beach harbor from LGE for use as an equipment and staging area.
RESERVES AND RESERVE CALCULATIONS. The Rohrer Report noted that as there
are not core drilling results available with which to calculate reserves at
either Pebbly Beach or Empire Quarries, it is difficult to determine the
reserves of the two quarries with certainty. In summary, Rohrer suggested that
probable reserves at Pebbly Beach Quarry could be as little as 28 to 44 million
tons of material similar to that currently being mined. The Rohrer Report also
noted that the lack of core data also raises questions concerning the quarry's
operating costs in later years if it becomes necessary to abandon the "coyote
hole" blasting methods of drilling and mining in favor of smaller, more
selective blasting shots and quarry benching.
The Rohrer Report noted that in the absence of test data, the Pebbly Beach
reserves could be as great as approximately 300 million tons with the potential
use of rhyolite. Reserves at Empire Quarry appeared to be approximately 71
million tons.
The Rohrer Report noted that the absence of quarry drilling data represented
a very significant vulnerability in the valuation analysis included in the
Rohrer Report.
COMPETITOR ANALYSIS. The Rohrer Report included a list of seven companies
capable of producing riprap in competition with CP. The Rohrer Report noted that
most of the competitors listed produce a full line of construction aggregates
and riprap, which is a special item that is more often a by-product of regular
operations. The Rohrer Report suggested that the Hubbs Group with quarries in
the Corona, Riverside and San Juan Capistrano, California vicinities appears to
be the closest direct competitor of CP for riprap materials. The Rohrer Report
included a summary assessment of the capabilities of the competitors identified.
The Rohrer report also included a forecast of Southern California marine
construction for the period 2000-2005, for which CP is the most logical riprap
and rock fill supplier and placement contractor. In the Rohrer Report, Rohrer
suggested that with its presently operating complement of tugs and barges and
derrick cranes, no other contractor is singularly able to match CP's ability to
perform. Rohrer concluded that although the potential entry of other
competitors, particularly Mexican concerns, was possible, CP should be able to
continue its leadership before the Mexican competitors could build the necessary
quarry and port facilities, and even then the focus of those quarries would be
to produce construction aggregate, rather than marine rock. Rohrer did note,
however, that the successful entry of a new competitor would constitute a
significant vulnerability in the valuation analysis provided by Rohrer.
20
<PAGE>
OPERATING COST ANALYSIS. In developing its projections of future operating
results for CP that formed part of the basis of the conclusion expressed in the
Rohrer Report, Rohrer utilized CP's five year historical cost data in reviewing
the costs. Based upon manpower and equipment requirement levels supplied by CP's
management, Rohrer developed its own pro forma cost estimates on specific
volumes of operation. Rohrer's calculated costs varied in some instances from
historical trends where appropriate due to Rohrer's perception of CP's fixed and
variable costs.
In particular, Rohrer noted that, assuming that drilling of the Pebbly Beach
rhyolite rock will require smaller drill shots and quarry benching, it was
appropriate to incorporate an alternate set of quarry cost assumptions in the
analysis that add $0.20 per ton in 2006 and increase costs $0.20 per ton per
year through 2010 to cover these added costs, resulting in a cumulative cost
increase of $1.00 per ton per year from 2006 through 2010. The effect of these
added costs is reflected in the lower alternate valuation of $60.768 million
discussed above.
Rohrer independently provided forecast assumptions for the rock volumes and
quarry costs and, after review of the assumptions made by KRC concerning
transportation costs, placement costs, and related costs and selling, general
and administrative costs corresponding to the volumes predicted by Rohrer, found
no reason to alter such assumptions.
Rohrer noted, however, that mining requirements provided by management
indicated a departure from historical cost levels with considerable unused
capacity on a daily basis, and noted that the discrepancy suggested that further
analysis was required.
POTENTIAL OPPORTUNITIES BEYOND FORECAST LEVELS. The Rohrer Report also
identified factors with respect to CP, which, if realized, would indicate a
valuation greater than the amounts included in the Rohrer Report. For example,
greater rock requirement on the Long Beach Pier W project and the possible use
of rock produced by CP for runway extensions at the Los Angeles and San
Francisco International Airports would increase the value of CP. Rohrer also
identified the use of quarry rock from Santa Catalina Island for asphalt and
base for the LA Basin as another potential business opportunity for CP as
mainland quarries closer in to the LA Basin deplete over the next five to ten
years.
KRC has agreed to pay Rohrer a cash fee of $40,000 for its services in
connection with the Rohrer report, and to reimburse Rohrer for out of pocket
expenses incurred in connection with the preparation of the Rohrer Report. KRC
has agreed to indemnify Rohrer against certain liabilities, including
liabilities under the federal securities laws.
SELECTED HISTORICAL FINANCIAL INFORMATION
MDU RESOURCES GROUP, INC. SELECTED FINANCIAL INFORMATION. The following
table sets forth selected historical financial information for the Company for
each of the five fiscal years in the period ended December 31, 1999.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
Operating revenues................. $ 464,246 $ 514,701 $ 607,674 $ 896,627 $1,279,809
Earnings on common stock........... 40,841 44,683 53,835 33,330 83,308
Earnings per common share--basic... 0.96 1.05 1.24 0.66 1.53
Earnings per common
share--diluted................... 0.95 1.04 1.24 0.66 1.52
Dividends per common share......... 0.7188 0.7333 0.7534 0.7834 0.82
Total Assets....................... 1,056,479 1,089,173 1,113,892 1,452,775 1,766,303
Net long-term debt................. 237,352 280,666 298,561 413,264 563,545
Redeemable preferred stock......... 2,000 1,900 1,800 1,700 1,600
</TABLE>
21
<PAGE>
CONNOLLY-PACIFIC CO. SELECTED FINANCIAL INFORMATION. The following table
sets forth selected historical financial information for CP for each of the five
fiscal years in the period ended March 31, 1999 and for the nine month periods
ended December 31, 1998 and 1999.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
------------------------------------------------------------------ -------------------------
1995 1996 1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................. $26,247 $37,016 $51,861 $35,783 $26,977 $23,610 $16,367
Earnings on common
stock(b)................ 2,857 5,866 7,931 12,630 9,808 9,993 2,118
Earnings per common
share--basic and
diluted(a).............. N/M N/M N/M N/M N/M N/M N/M
Dividends per common
share(a)................ N/M N/M N/M N/M N/M N/M N/M
Total Assets.............. 10,711 15,133 24,683 20,616 5,022 15,641 8,190
Net long-term debt........ -- -- -- -- -- -- --
Redeemable preferred
stock................... -- -- -- -- -- -- --
</TABLE>
- --------------------------
(a) Not meaningful. CP was a wholly-owned subsidiary of LGE with a nominal
number of shares outstanding.
(b) From April 1, 1997 through December 31, 1998, CP was treated as a Qualified
Subchapter S Subsidiary for federal income tax purposes and was only subject
to state income taxes. See CP Management's Discussion and Analysis of
Financial Condition and Results of Operations and Notes 1 and 3 to the CP
financial statements.
HISTORICAL AND PRO FORMA PER SHARE DATA
COMPARATIVE PER SHARE DATA OF THE COMPANY AND CP (UNAUDITED). The following
tables present comparative per share information for the Company and CP on a
historical basis and on a pro forma basis assuming that the acquisition had
occurred at January 1, 1999 for cash dividends and earnings per common
share--diluted and as of December 31, 1999 for book value per common share.
The pro forma information was prepared using the purchase method of
accounting. The pro forma information presented reflects the results of pro
forma adjustments that are based on preliminary estimates of fair market value
and certain assumptions that the Company believes are reasonable under the
circumstances. The actual allocation of the consideration paid by the Company
for CP may differ from that reflected in this pro forma information after a more
extensive review of the fair market values of the assets acquired and
liabilities assumed has been completed. The unaudited pro forma information does
not purport to present the financial position or results of operations of the
Company had the transactions and events assumed therein occurred on the dates
specified, nor is it necessarily indicative of the results of operations that
may be achieved in the future. The unaudited pro forma information does not give
effect to any operating efficiencies or cost savings that may be realized as a
result of the merger, primarily related to reduction of duplicative operating,
general and administrative expenses.
22
<PAGE>
The tables should be read in conjunction with the Company's consolidated
financial statements and notes incorporated by reference in this Proxy Statement
and the financial statements and notes of CP included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL YEAR ENDED
YEAR ENDED DECEMBER 31,
DECEMBER 31, 1999 1999(B)
------------------ --------------
<S> <C> <C>
MDU RESOURCES GROUP, INC.:
Book value per common share................. $11.74 $11.96
Dividends per common share.................. 0.82 0.82
Earnings per common share--diluted.......... 1.52 1.46
</TABLE>
<TABLE>
<CAPTION>
EQUIVALENT
HISTORICAL PRO FORMA
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1999(C)
------------- -------------
<S> <C> <C>
CP:
Book value per common share................... $5,189 $33,800
Dividends per common share(a)................. N/M N/M
Earnings per common share--diluted(a)......... N/M N/M
</TABLE>
- ------------------------
(a) Not meaningful. CP was a wholly-owned subsidiary of LGE with a nominal
number of shares outstanding.
(b) The Company's pro forma earnings per common share amount--diluted was
derived using the unaudited results of CP for the three months ended
March 31, 1999 and the nine months ended December 31, 1999. The combined pro
forma dividend per common share shown is the Company's historical dividend
per common share.
(c) The CP equivalent pro forma book value per common share amount has been
calculated by multiplying the Company's pro forma book value per common
share amount by 2,826.087. This represents the number of shares of the
Company's Common Stock that a holder of one share of CP Common Stock will
receive.
CP FINANCIAL STATEMENTS
CP's financial statements appear on pages F-1 through F-12 of this Proxy
Statement.
CP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
RESULTS OF OPERATIONS--OVERVIEW. Many of CP's projects are large,
multi-year projects. These projects are bid at unpredictable times, have varied
starting and completion dates and usually have different product mixes and
profit margins. These factors all contribute to the timing of CP's revenues and
profits varying significantly from period to period. Revenue from construction
contracts is recognized using the percentage of completion method of accounting
based upon costs incurred and projected costs. Cost of sales consists of direct
costs on contracts, including labor and materials, amounts payable to sub-
contractors, direct overhead costs, equipment expense and insurance costs.
23
<PAGE>
The following table shows CP's net sales, broken down to show net sales
derived from CP's largest customers, during the fiscal years and nine-month
periods described below and illustrates CP's sensitivity to the revenues of the
large projects that are ongoing during a given fiscal period:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31 DECEMBER 31
--------------------------------------- -------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Pier 400 Constructors
(Phase 1--City of Los Angeles).... $21,301,000 $10,765,000 $ -- $ -- $ --
Dutra Construction.................. 18,154,000 454,000 -- -- --
Manson Construction................. 6,663,000 529,000 -- -- --
Pier 400 Constructors
(Phase 2--US Corp of Engineers)... -- 19,567,000 23,541,000 20,967,000 1,799,000
Pier T Constructors
(City of Long Beach).............. -- -- -- -- 9,228,000
Southern California Edison.......... -- -- -- -- 2,608,000
Other customers..................... 5,743,000 4,468,000 3,436,000 2,643,000 2,732,000
----------- ----------- ----------- ----------- -----------
Total............................... $51,861,000 $35,783,000 $26,977,000 $23,610,000 $16,367,000
=========== =========== =========== =========== ===========
</TABLE>
RESULTS OF OPERATIONS--FISCAL YEAR 1999 VERSUS 1998. Net sales of
$26,977,000 for fiscal 1999 decreased 24.6% from net sales of $35,783,000 for
fiscal 1998. The decrease is a result of a reduction of the volume of work in
fiscal 1999 due to the completion of three significant multi-year contracts in
fiscal 1998, while working on only one significant contract in fiscal 1999.
Gross profit was $11,817,000, or 43.8% of total revenues, in fiscal 1999 as
compared to gross profit of $15,068,000, or 42.1% of total revenues, in fiscal
1998. Gross profit margins are substantially consistent due to a large
multi-year project that was in progress during both fiscal periods.
Selling, general and administrative (SG&A) expenses of $1,741,000 for fiscal
1999 decreased 3.7% from $1,808,000 in fiscal 1998. CP's SG&A expenses are
comprised largely of fixed costs for items such as insurance, management
personnel and rents. The decrease in fiscal 1999 was primarily due to lower
workers' compensation insurance costs.
Income tax expense was $322,000 in fiscal 1999 as compared to income tax
expense of $631,000 in fiscal 1998, resulting in an effective tax rate of 3.2%
in fiscal 1999 and 4.8% in fiscal 1998. The low effective tax rate for both
years results from CP's being treated as a Qualified Subchapter S Subsidiary
(QSSS) in fiscal 1998 and the first nine months of 1999. The lower effective
rate in fiscal 1999 as compared to fiscal 1998 results primarily from the
non-recurring effects of the conversion of CP from a QSSS to a corporation
subject to tax under subchapter C of the Internal Revenue Code of 1986, as
amended, as of January 1, 1999. See Notes 1 and 3 to the CP financial
statements.
Net earnings of $9,808,000 for fiscal 1999 decreased 22.3% from net earnings
of $12,630,000 in fiscal 1998. This decrease reflects the net effect of the
foregoing factors.
RESULTS OF OPERATIONS--FISCAL YEAR 1998 VERSUS 1997. Net sales of
$35,783,000 for fiscal 1998 decreased 31.0% from net sales of $51,861,000 for
fiscal 1997. This decrease is due to CP working on three large multi-year
projects in fiscal 1997 while CP completed these projects and started only one
other large project in fiscal 1998.
Gross profit was $15,068,000, or 42.1% of total revenues, in fiscal 1998 as
compared to gross profit of $14,269,000, or 27.5% of total revenues, in fiscal
1997. This significant increase in profit margin in fiscal 1998 is the result of
the large project in progress during fiscal 1998 having a higher margin than the
three large projects that were in progress in fiscal 1997 and were completed
during fiscal 1998.
24
<PAGE>
SG&A expenses of $1,808,000 for fiscal 1998 decreased 9.3% from $1,993,000
in fiscal 1997. The factors that contributed to the decrease were lower workers'
compensation insurance costs and lower pre-bid costs on potential projects in
fiscal 1998.
Income tax expense was $631,000 in fiscal 1998 as compared to $4,417,000 in
fiscal 1997, resulting in an effective tax rate of 4.8% in fiscal 1998 and 35.8%
in fiscal 1997. This large reduction in the effective tax rate was due to the
change in the treatment of CP for federal income tax purposes from treatment as
a corporation subject to tax under subchapter C of the Internal Revenue Code of
1986, as amended, to treatment as a QSSS on April 1, 1997. See Notes 1 and 3 to
the CP financial statements.
Net earnings of $12,630,000 in fiscal 1998 increased 59.2% from $7,931,000
in fiscal 1997. This increase reflects the net effect of the foregoing factors.
RESULTS OF OPERATIONS--NINE MONTHS ENDED DECEMBER 31, 1999 VERSUS DECEMBER
31, 1998. Net sales of $16,367,000 for the nine-month period ended
December 31, 1999 decreased 30.7% from net sales of $23,610,000 for the same
period in the prior year. This decrease is a result of CP's having a large
project ongoing during fiscal 1998 in contrast to having only moderately sized
projects in process during fiscal 1999.
Gross profit for the nine-month period ended December 31,1999 was
$5,229,000, or 31.9% of total revenues, a decrease of 55.1% from gross profits
of $11,655,000, or 49.4% of total revenues, for the same period of the prior
year. The primary factors contributing to this decrease are product mix of the
projects in process during those nine-month periods and margin variability on
those projects.
SG&A expenses increased 40.0% to $1,794,000 from $1,281,000 for the
nine-month periods ended December 31, 1999 and 1998, respectively. This increase
can be attributed to the addition of administrative employees and increased
insurance costs during the 1999 period.
Income tax expense was $1,305,000 and $435,000, resulting in an effective
tax rate of 38.1% and 4.2%, for the nine months ended December 31, 1999 and
1998, respectively. This large increase in the effective tax rate was due to
CP's treatment for federal income tax purposes as a QSSS from April 1, 1997
until its QSSS election was revoked effective January 1, 1999. See Notes 1 and 3
to the CP financial statements.
Net earnings for the nine-month period ended December 31, 1999 were
$2,118,000, a decrease of 78.8% from net earnings of $9,993,000 during the same
period in the prior year. This decrease reflects the net effect of the factors
described above.
LIQUIDITY AND CAPITAL RESOURCES. During fiscal 1999, net cash provided by
operating activities was $11,013,000 as compared with $13,111,000 in fiscal 1998
and $14,679,000 in fiscal 1997. The decrease was primarily due to the
fluctuations in earnings discussed above and changes in operating assets and
liabilities. Cash provided by operating activities in fiscal 1999 was primarily
used to make payments to LGE.
During fiscal 1999, net cash used in investing activities was $195,000 as
compared with $1,139,000 in fiscal 1998 and $2,577,000 in fiscal 1997. The
decrease was due primarily to the decrease in equipment purchased during each
fiscal year. As of December 31, 1999, CP has minimal purchase commitments as it
believes it has the equipment levels necessary to conduct normal business
operations for the foreseeable future.
During fiscal 1999, net cash used in financing activities was $24,462,000 as
compared with $16,348,000 in fiscal 1998 and $2,539,000 in fiscal 1997. The
increases are due primarily to the payments made to the parent in each fiscal
year.
CP believes that cash flows from operations together with working capital
support from its parent, if necessary, will be sufficient to fund operations and
capital expenditures for the foreseeable future.
25
<PAGE>
Capital expenditures for the nine-month period ended December 31, 1999 were
primarily for the acquisition of marine equipment to reduce transportation costs
by enhancing volume capacity for future work.
IMPACT OF YEAR 2000 ISSUE. The Year 2000 issue is the risk that systems,
products and equipment utilizing date-sensitive software or computer chips with
two-digit date fields will fail to properly recognize dates during the year
2000. Such failures in CP's software and hardware or that of government
entities, service providers, suppliers or customers could result in
interruptions of CP's business that could have a material adverse impact on the
result of CP's operations.
CP's information technology systems consist primarily of hardware and
software purchased or licensed from third parties, and certain of its equipment
contains embedded computer chips. Since January 1, 2000, CP has not experienced
any material malfunctions in its equipment or software programs relating to the
Year 2000 issue, and has not experienced any disturbances in its business due to
any Year 2000 problems experienced by third parties. The cost of CP's compliance
efforts and remediation steps has been less than $5,000, and CP does not have
current plans to make any further expenditures, barring unanticipated future
Year 2000 issue impact.
INFLATION. Many of CP's operating expenses are sensitive to the effects of
inflation, which could result in higher operating costs. The effects of
inflation on CP's business have not been significant during the last three
years.
FORWARD LOOKING STATEMENTS. The discussion of CP's financial position and
results of operations contain forward-looking statements. These statements
contain words such as "believe," "anticipate," "plan," "expect," "estimate,"
"will" and similar expressions. CP has based these forward-looking statements on
its current expectations and projections about future events, but does not
represent these forward-looking statements to be guarantees of future
performance or results. CP's actual results may vary materially from those
indicated in the forward-looking statements as a result of a number of risks and
uncertainties, including unanticipated project delays on CP's projects or
changes in project costs, unanticipated changes in operating expenses or capital
expenditures, weather conditions and labor negotiations or disputes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL
The Board of Directors (with Mr. Orr absent and with Mr. Everist, because of
his interest in the transaction, not present or participating in the Board's
consideration of CP or the Merger) has voted unanimously to recommend to the
Company's stockholders the approval of the Merger Agreement, the Merger and the
transactions contemplated thereby, including the issuance by the Company of
2,826,087 shares of its Common Stock (subject to adjustment) in exchange for all
of the outstanding capital stock of CP. Such approval requires the affirmative
vote of a majority of the total number of votes cast, provided that the number
of votes cast represents more than 50% of the total number of shares of Common
Stock of the Company outstanding. If a choice has been specified by a
stockholder by means of the proxy, the shares of Common Stock will be voted
accordingly. If no choice has been specified, the shares will be voted "FOR" the
proposal.
PROPOSAL TO AMEND THE 1992 KEY EMPLOYEE STOCK OPTION PLAN
The 1992 Key Employee Stock Option Plan (the "KESOP") was approved by the
stockholders at the 1992 Annual Meeting. On February 17, 2000, the Board of
Directors approved amendments to the plan to qualify grants under the plan as
"performance-based" compensation under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). In accordance with the provisions of
Section 162(m) of the Code, the stockholders must also approve the KESOP
amendments.
26
<PAGE>
The amendments provide a limit on the number of stock options and dividend
equivalents that may be granted in any calendar year to a covered employee. The
amendments also establish a menu of performance goals from which the
Compensation Committee may select specific goals for each performance period.
The complete text of the KESOP as amended is set forth as Exhibit "B"
hereto. The following is a summary of the material features of the KESOP and is
qualified in its entirety by reference to Exhibit "B".
PURPOSE OF THE KESOP
The purpose of the KESOP is to motivate key employees of the Company and its
business units to achieve specified long-term performance goals and to encourage
ownership by them of Company common stock.
EFFECTIVE DATE AND DURATION
The KESOP became effective on April 28, 1992, and remains in effect, subject
to the right of the Board of Directors to terminate the KESOP at any time, until
all shares subject to the KESOP shall have been purchased or acquired.
AMENDMENTS
The Board may, at any time and from time to time, amend, suspend or
terminate the KESOP in whole or in part, subject to certain restrictions as
stated in the KESOP.
ADMINISTRATION OF THE KESOP
The KESOP is administered by the Compensation Committee of the Board or by
any other committee appointed by the Board of Directors (the "Committee").
SHARES SUBJECT TO THE KESOP
When it became effective, the KESOP authorized the grant of up to 800,000
shares of MDU Resources Group, Inc. common stock. At December 31, 1999, after
giving effect to stock splits and grants pursuant to the KESOP, 285,675 shares
remained available for issuance. Shares underlying options that lapse or are
forfeited may be reused for subsequent awards. Shares may be authorized but
unissued shares of common stock, treasury stock or shares purchased on the open
market. The market value of a share of Company common stock as of December 31,
1999 was $20.
If a stock split, stock dividend or other corporate transaction occurs that
causes a change in the capitalization of the Company, the Committee shall make
appropriate adjustments to the number of shares that may be granted under the
KESOP and the number and/or price of shares of common stock subject to
outstanding options under the KESOP.
ELIGIBILITY AND PARTICIPATION
Employees eligible to participate in the KESOP include all key employees of
the Company and its business units, as determined by the Committee. The
approximate number of employees who are currently eligible to participate under
the KESOP is 72.
GRANTS UNDER THE KESOP
SECTION 162(m). Stock options and dividend equivalents are intended to
qualify for deductibility under Section 162(m) of the Code. The total number of
shares with respect to which options may be granted in any calendar year to any
covered employee under Section 162(m) shall not exceed 150,000, and
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the aggregate number of dividend equivalents that a covered employee may receive
in any calendar year shall not exceed $1,500,000.
A covered employee means those persons specified in Section
162(m)--generally the chief executive officer and the next four most
highly-compensated officers.
GRANTS. The KESOP permits only the grant of nonqualified stock options and
dividend equivalents. The exercise price for stock options is the average of the
high and low sale prices of Company common stock on the date of grant.
The option exercise price is payable in cash, in shares of common stock of
the Company having a fair market value equal to the exercise price, by cashless
exercise, share withholding or any combination of the foregoing. Share
withholding for taxes is also permitted.
Subject to the general discretion of the Committee to determine the terms
and provisions of all option grants, options generally are granted as
performance-accelerated options with a ten-year term. The Committee establishes
performance cycles and goals for each grant. Options automatically vest in full
in nine years, but vesting may be accelerated if performance goals are met.
Dividend equivalents are also accrued on the options and may be earned, at the
end of each performance cycle, at amounts from 0% to 150% based on achievement
of performance goals. Any dividend equivalents not earned are forfeited.
PERFORMANCE GOALS
Performance goals, which are established by the Committee, will be based on
one or more of the following measures: sales or revenues, earnings per share,
shareholder return and/or value, funds from operations, operating income, gross
income, net income, cash flow, return on equity, return on capital, earnings
before interest, operating ratios, stock price, customer satisfaction,
accomplishment of mergers, acquisitions, dispositions or similar extraordinary
business transactions, profit returns and margins, financial return ratios
and/or market performance. Performance goals may be measured solely on a
corporate, subsidiary or business unit basis, or a combination thereof.
Performance goals may reflect absolute entity performance or a relative
comparison of entity performance to the performance of a peer group of entities
or other external measure.
TERMINATION OF EMPLOYMENT
Subject to the Committee's discretion to determine otherwise, upon any
termination of employment, unvested options and all accrued dividend equivalents
are forfeited. Vested options may be exercised for periods ranging from three
months to one year, depending upon the reason for termination, except if the
termination was for cause, in which case the options and dividend equivalents
are forfeited.
TRANSFERABILITY
Options may not be transferred, pledged or assigned other than by will or by
the laws of descent and distribution.
CHANGE IN CONTROL
Upon a change in control, as defined below, all options vest immediately and
all amounts accrued as dividend equivalents are paid out at 100%.
A change in control of the Company means the earliest of the following
events to occur: (i) the public announcement by the Company or by any person
(which shall not include the Company, any subsidiary of the Company, or any
employee benefit plan of the Company or of any subsidiary of the Company)
("Person") that such Person, who or which, together with all Affiliates and
Associates (within the meanings ascribed to such terms in the Rule 12b-2 of the
General Rules and Regulations under the Securities
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Exchange Act of 1934, as amended) of such Person, shall be the beneficial owner
of twenty percent (20%) or more of the voting stock of the Company outstanding;
(ii) the commencement of, or after the first public announcement of any Person
to commence, a tender or exchange offer the consummation of which would result
in any Person becoming the beneficial owner of voting stock aggregating thirty
percent (30%) or more of the then outstanding voting stock of the Company;
(iii) the announcement of any transaction relating to the Company required to be
described pursuant to the requirements of Item 6(e) of Schedule 14A of
Regulation 14A under the Exchange Act; (iv) a proposed change in constituency of
the Board such that, during any period of two (2) consecutive years, individuals
who at the beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election or nomination for
election by the stockholders of the Company of each new Director was approved by
a vote of at least two-thirds ( 2/3) of the Directors then still in office who
were members of the Board at the beginning of the period; or (v) any other event
which shall be deemed by a majority of the Committee to constitute a "change in
control".
AWARD INFORMATION
It is not possible at this time to determine awards that will be made in the
future pursuant to the KESOP. Options that have been granted in the past are set
forth in the table below.
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OPTION GRANTS UNDER 1992 KEY EMPLOYEE STOCK OPTION PLAN
(ALL GRANTS ADJUSTED FOR SUBSEQUENT STOCK SPLITS)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES EXERCISE
UNDERLYING PRICE PER
OPTIONS SHARE EXPIRATION
NAME & POSITION GRANTED ($) DATE
- --------------- ---------- --------- ----------
<S> <C> <C> <C>
Martin A. White ............................................ 13,792 10.5000 5/5/02
President & C.E.O. 13,387 12.3333 2/8/05
122,760 21.1250 2/10/08
Douglas C. Kane ............................................ 30,915 10.5000 5/5/02
Executive Vice President, Chief Administrative & Corporate 41,928 12.3333 2/8/05
Development Officer 55,800 21.1250 2/10/08
Ronald D. Tipton ........................................... 22,027 10.5000 5/5/02
President & C.E.O. of Montana-Dakota Utilities Co. 49,432 12.3333 2/8/05
49,125 21.1250 2/10/08
Warren L. Robinson ......................................... 8,100 10.5000 5/5/02
Executive Vice President, Treasurer & Chief Financial 22,950 12.3333 2/8/05
Officer 37,950 21.1250 2/10/08
Lester H. Loble, II ........................................ 13,792 10.5000 5/5/02
Vice President, Secretary & General Counsel 14,850 12.3333 2/8/05
27,900 21.1250 2/10/08
All current executive officers as a group................... 117,043 10.5000 5/5/02
178,264 12.3333 2/8/05
331,485 21.1250 2/10/08
All current directors who are not executive officers as a 0 0 0
group.....................................................
Each nominee for election as a director..................... 0 0 0
Each associate of such persons.............................. 0 0 0
Each other person who receives 5% of such options........... 0 0 0
All employees, including all current officers who are not
executive
officers, as a group...................................... 90,807 10.5000 5/5/02
159,180 12.3333 2/8/05
426,675 21.1250 2/10/08
24,000 23.8438 8/1/08
49,250 19.9688 1/1/10
</TABLE>
All options granted to date under the KESOP have been
performance-accelerated options with a ten-year term, which vest nine years
after date of grant, but vesting may be accelerated upon achievement of
performance goals established by the Committee over a three-year performance
period. Dividend equivalents were also granted. All grants under the KESOP for
the named executive officers have been previously reported as required in prior
proxy statements.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief description of the principal federal income tax
consequences relating to options awarded under the KESOP. This summary is based
on the Company's understanding of present federal income tax law and
regulations. The summary does not purport to be complete or applicable to every
specific situation.
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<PAGE>
CONSEQUENCES TO THE OPTIONHOLDER
GRANT. There are no federal income tax consequences to the optionholder
solely by reason of the grant of an option under the KESOP.
EXERCISE. Upon the exercise of an option, the optionholder will generally
recognize ordinary income in an amount equal to the excess of the fair market
value of the shares of Company common stock at the time of exercise over the
amount paid therefor by the optionholder as the exercise price. The ordinary
income, if any, recognized in connection with the exercise will be subject to
both wage and employment tax withholding.
The optionholder's tax basis in the shares acquired pursuant to the exercise
of an option will be the amount paid upon exercise plus the amount of ordinary
income, if any, recognized by the optionholder upon exercise.
DISPOSITION OF SHARES ACQUIRED UNDER AN OPTION. If an optionholder disposes
of shares of Company common stock acquired upon exercise of an option in a
taxable transaction, the optionholder will recognize capital gain or loss in an
amount equal to the difference between the optionholder's basis (as discussed
above) in the shares sold and the total amount realized upon disposition. Any
such capital gain or loss will be short-term or long-term depending on whether
the shares of Company common stock were held for more than one year from the
date such shares were transferred to the optionholder.
CONSEQUENCES TO THE COMPANY
There are no federal income tax consequences to the Company by reason of the
grant of options.
At the time the optionholder recognizes ordinary income from the exercise of
an option, the Company will be entitled to a federal income tax deduction in the
amount of the ordinary income so recognized (as described above), provided that
the Company satisfies its reporting obligations described below.
The Company will be required to report to the Internal Revenue Service any
ordinary income recognized by any optionholder by reason of the exercise of an
option. The Company will be required to withhold income and employment taxes
(and pay the employer's share of employment taxes) with respect to ordinary
income recognized by the optionholder upon the exercise of options.
OTHER TAX CONSEQUENCES
The foregoing discussion is not a complete description of the federal income
tax aspects of options granted under the KESOP. In addition, administrative and
judicial interpretations of the application of the federal income tax laws are
subject to change. Furthermore, the foregoing discussion does not address state
or local tax consequences.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
Approval of the amendments to the KESOP requires the affirmative vote of the
holders of a majority of the common stock present or represented and entitled to
vote. If a choice has been specified by a stockholder by means of the proxy, the
shares of common stock will be voted accordingly. If no choice has been
specified, the shares will be voted "FOR" the proposal.
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<PAGE>
PROPOSAL TO AMEND THE 1997 EXECUTIVE LONG-TERM INCENTIVE PLAN
The 1997 Executive Long-Term Incentive Plan (the "LTIP") was approved by the
stockholders at the 1997 Annual Meeting. On February 17, 2000, the Board of
Directors approved amendments to the plan to qualify grants under the plan as
"performance-based" compensation under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). In accordance with the provisions of
Section 162(m) of the Code, the stockholders must also approve the LTIP
amendments.
The amendments provide a limit on the number of awards that may be granted
in any calendar year to a covered employee. The amendments also establish a menu
of performance goals from which the Compensation Committee may select specific
goals for each performance period.
The complete text of the LTIP as amended is set forth as Exhibit "C" hereto.
The following is a summary of the material features of the LTIP and is qualified
in its entirety by reference to Exhibit "C".
PURPOSE OF THE LTIP
The purpose of the LTIP is to promote the success and enhance the value of
the Company by linking the personal interests of officers and key employees to
those of the Company's stockholders and customers. The LTIP is further intended
to assist the Company in its ability to motivate, attract and retain highly
qualified individuals to serve as officers and key employees of the Company.
EFFECTIVE DATE AND DURATION
The LTIP became effective on April 22, 1997, and remains in effect, subject
to the right of the Board of Directors to terminate the LTIP at any time, until
all shares subject to the LTIP shall have been purchased or acquired; provided,
however, that no awards may be made after the tenth anniversary of the effective
date.
AMENDMENTS
The Board may, at any time and from time to time, alter, amend, suspend or
terminate the LTIP in whole or in part, subject to certain restrictions as
stated in the LTIP.
ADMINISTRATION OF THE LTIP
The LTIP is administered by the Compensation Committee of the Board or by
any other committee appointed by the Board of Directors (the "Committee").
SHARES SUBJECT TO THE LTIP
When it became effective, the LTIP authorized the grant of up to 1,200,000
shares of MDU Resources Group, Inc. common stock. At December 31, 1999, after
giving effect to stock splits and grants pursuant to the LTIP, 1,677,615 shares
remain available for issuance. Shares underlying awards that lapse or are
forfeited may be reused for subsequent awards. Shares may be authorized but
unissued shares of common stock, treasury stock or shares purchased on the open
market. The market value of a share of Company common stock as of December 31,
1999 was $20.
If a stock split, stock dividend or other corporate transaction occurs that
causes a change in the capitalization of the Company, the Committee shall make
appropriate adjustments to the number and class of shares of common stock that
may be granted under the LTIP and the number and class and/or price of shares of
common stock subject to outstanding awards under the LTIP, as it deems
appropriate and equitable to prevent dilution or enlargement of participants'
rights.
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<PAGE>
ELIGIBILITY AND PARTICIPATION
Employees eligible to participate in the LTIP include all officers and key
employees of the Company and its business units, as determined by the Committee,
including employees who are members of the Board of Directors, but excluding
directors who are not employees. The approximate number of employees who are
currently eligible to participate under the LTIP is 41.
GRANTS UNDER THE LTIP
SECTION 162(m). Stock options, SARs and performance unit/performance share
awards are intended to qualify for deductibility under Section 162(m) of the
Code. Dividend equivalents, restricted stock, restricted stock units and other
awards may qualify for deductibility.
The total number of shares with respect to which options or SARs may be
granted in any calendar year to any covered employee under Section 162(m) of the
Code shall not exceed 300,000 shares; (ii) the total number of shares of
restricted stock that are intended to qualify for deduction that may be granted
in any calendar year to any covered employee shall not exceed 300,000 shares;
(iii) the total number of performance shares or performance units that may be
granted in any calendar year to any covered employee shall not exceed 300,000
shares or units, as the case may be; (iv) the total number of shares that are
intended to qualify for deduction granted pursuant to Article 10 of the Plan in
any calendar year to any covered employee shall not exceed 300,000 shares;
(v) the total cash award that is intended to qualify for deduction that may be
paid pursuant to Article 10 of the Plan in any calendar year to any covered
employee shall not exceed $1,500,000; and (vi) the aggregate number of dividend
equivalents that are intended to qualify for deduction that a covered employee
may receive in any calendar year shall not exceed $1,500,000.
A covered employee means those persons specified in Section 162(m) of the
Code--generally the chief executive officer and the next four most
highly-compensated officers.
STOCK OPTIONS. The Committee may grant incentive stock options ("ISOs"),
nonqualified stock options ("NQSOs") or a combination thereof under the LTIP.
The exercise price for each such award shall be not less than the average of the
high and low sale prices of Company common stock on the date of grant. Options
shall expire at such times and shall have such other terms and conditions as the
Committee may determine at the time of grant, provided, however, that no ISO
shall be exercisable later than the tenth anniversary of its grant. Dividend
equivalents may also be granted.
The option exercise price is payable in cash, in shares of common stock of
the Company having a fair market value equal to the exercise price, by share
withholding, cashless exercise or any combination of the foregoing.
STOCK APPRECIATION RIGHTS. SARs granted under the LTIP may be in the form
of freestanding SARs, tandem SARs or a combination thereof. The base value of a
freestanding SAR shall be equal to the average of the high and low sale prices
of a share of Company common stock on the date of grant. The base value of a
tandem SAR shall be equal to the option exercise price of the related option.
Freestanding SARs may be exercised upon such terms and conditions as are
imposed by the Committee and as set forth in the SAR award agreement. A tandem
SAR may be exercised only with respect to the shares of common stock of the
Company for which its related option is exercisable.
Upon exercise of an SAR, a participant will receive the product of the
excess of the fair market value of a share of Company common stock on the date
of exercise over the base value multiplied by the number of shares with respect
to which the SAR is exercised. Payment due to the participant upon exercise may
be made in cash, in shares of Company common stock having a fair market value
equal to such cash amount, or in a combination of cash and shares, as determined
by the Committee.
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<PAGE>
RESTRICTED STOCK. Restricted stock may be granted in such amounts and
subject to such terms and conditions as determined by the Committee. The
Committee may establish performance goals, as described below, for restricted
stock.
Participants holding restricted stock may exercise full voting rights with
respect to those shares during the restricted period and, subject to the
Committee's right to determine otherwise at the time of grant, will receive
regular cash dividends. All other distributions paid with respect to the
restricted stock shall be credited subject to the same restrictions on
transferability and forfeitability as the shares of restricted stock with
respect to which they were paid.
PERFORMANCE UNITS AND PERFORMANCE SHARES. Performance units and performance
shares may be granted in the amounts and subject to such terms and conditions as
determined by the Committee. The Committee shall set performance goals, which,
depending on the extent to which they are met during the performance periods
established by the Committee, will determine the number and/or value of
performance units/shares that will be paid out to participants.
Participants shall receive payment of the value of performance units/shares
earned after the end of the performance period. Payment of performance
units/shares shall be made in cash and/or shares of common stock which have an
aggregate fair market value equal to the value of the earned performance
units/shares at the end of the applicable performance period, in such
combination as the Committee determines. Such shares may be granted subject to
any restrictions deemed appropriate by the Committee.
OTHER AWARDS. The Committee may make other awards which may include,
without limitation, the grant of shares of common stock based upon attainment of
performance goals established by the Committee as described below, the payment
of shares in lieu of cash or cash based on performance goals and the payment of
shares in lieu of cash under other Company incentive or bonus programs.
PERFORMANCE GOALS
Performance goals, which are established by the Committee, will be based on
one or more of the following measures: sales or revenues, earnings per share,
shareholder return and/or value, funds from operations, operating income, gross
income, net income, cash flow, return on equity, return on capital, earnings
before interest, operating ratios, stock price, customer satisfaction,
accomplishment of mergers, acquisitions, dispositions or similar extraordinary
business transactions, profit returns and margins, financial return ratios
and/or market performance. Performance goals may be measured solely on a
corporate, subsidiary or business unit basis, or a combination thereof.
Performance goals may reflect absolute entity performance or a relative
comparison of entity performance to the performance of a peer group of entities
or other external measure.
TERMINATION OF EMPLOYMENT
Each award agreement shall set forth the participant's rights with respect
to each award following termination of employment with the Company.
TRANSFERABILITY
Except as otherwise determined by the Committee at the time of grant and
subject to the provisions of the LTIP, awards may not be sold, transferred,
pledged, assigned or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution, and a participant's rights shall be
exercisable only by the participant or the participant's legal representative
during his or her lifetime.
34
<PAGE>
CHANGE IN CONTROL
Upon a change in control, as defined below,
(a) Any and all options and SARs granted under the LTIP shall become
immediately exercisable;
(b) Any restriction periods and restrictions imposed on restricted stock
shall be deemed to have expired; any performance goals shall be deemed to
have been met at the target level; and such restricted stock shall become
immediately vested in full; and
(c) The target payout opportunity attainable under all outstanding awards of
performance units, performance shares and other awards shall be deemed to
have been fully earned for the entire performance period(s) as of the
effective date of the change in control. The vesting of all awards
denominated in shares shall be accelerated as of the effective date of
the change in control, and there shall be paid out in cash to
participants immediately following the effective date of the change in
control the full amount of the targeted cash payout opportunities
associated with outstanding cash-based awards.
A change in control of the Company means the earliest of the following
events to occur: (i) the public announcement by the Company or by any person
(which shall not include the Company, any subsidiary of the Company, or any
employee benefit plan of the Company or of any subsidiary of the Company)
("Person") that such Person, who or which, together with all Affiliates and
Associates (within the meanings ascribed to such terms in the Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended) of such Person, shall be the beneficial owner of twenty percent (20%)
or more of the voting stock of the Company outstanding; (ii) the commencement
of, or after the first public announcement of any Person to commence, a tender
or exchange offer the consummation of which would result in any Person becoming
the beneficial owner of voting stock aggregating thirty percent (30%) or more of
the then outstanding voting stock of the Company; (iii) the announcement of any
transaction relating to the Company required to be described pursuant to the
requirements of Item 6(e) of Schedule 14A of Regulation 14A under the Exchange
Act; (iv) a proposed change in constituency of the Board such that, during any
period of two (2) consecutive years, individuals who at the beginning of such
period constitute the Board cease for any reason to constitute at least a
majority thereof, unless the election or nomination for election by the
stockholders of the Company of each new Director was approved by a vote of at
least two-thirds ( 2/3) of the Directors then still in office who were members
of the Board at the beginning of the period; (v) the sale or other disposition
of all or substantially all of the assets of Montana-Dakota Utilities Co., other
than to a subsidiary of the Company or (vi) any other event which shall be
deemed by a majority of the Committee to constitute a "change in control".
AWARD INFORMATION
It is not possible at this time to determine awards that will be made in the
future pursuant to the LTIP. No options have been granted under the LTIP.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief description of the principal federal income tax
consequences relating to options awarded under the LTIP. This summary is based
on the Company's understanding of present federal income tax law and
regulations. The summary does not purport to be complete or applicable to every
specific situation.
CONSEQUENCES TO THE OPTIONHOLDER
GRANT. There are no federal income tax consequences to the optionholder
solely by reason of the grant of ISOs or NQSOs under the LTIP.
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<PAGE>
EXERCISE. The exercise of an ISO is not a taxable event for regular federal
income tax purposes if certain requirements are satisfied, including the
requirement that the optionholder generally must exercise the ISO no later than
three months following the termination of the optionholder's employment with the
Company. However, such exercise may give rise to alternative minimum tax
liability (see "Alternative Minimum Tax" below).
Upon the exercise of a NQSO, the optionholder will generally recognize
ordinary income in an amount equal to the excess of the fair market value of the
shares of Company common stock at the time of exercise over the amount paid
therefor by the optionholder as the exercise price. The ordinary income, if any,
recognized in connection with the exercise by an optionholder of a NQSO will be
subject to both wage and employment tax withholding.
The optionholder's tax basis in the shares acquired pursuant to the exercise
of an option will be the amount paid upon exercise plus, in the case of a NQSO,
the amount of ordinary income, if any, recognized by the optionholder upon
exercise thereof.
QUALIFYING DISPOSITION. If an optionholder disposes of shares of Company
common stock acquired upon exercise of an ISO in a taxable transaction, and such
disposition occurs more than two years from the date on which the option was
granted and more than one year after the date on which the shares were
transferred to the optionholder pursuant to the exercise of the ISO, the
optionholder will recognize long-term capital gain or loss equal to the
difference between the amount realized upon such disposition and the
optionholder's adjusted basis in such shares (generally the option exercise
price).
DISQUALIFYING DISPOSITION. If the optionholder disposes of shares of
Company common stock acquired upon the exercise of an ISO (other than in certain
tax-free transactions) within two years from the date on which the ISO was
granted or within one year after the transfer of shares to the optionholder
pursuant to the exercise of the ISO, at the time of disposition the optionholder
will generally recognize ordinary income equal to the lesser of (i) the excess
of each such share's fair market value on the date of exercise over the exercise
price paid by the optionholder or (ii) the optionholder's actual gain (I.E., the
excess, if any, of the amount realized on the disposition over the exercise
price paid by the optionholder). If the total amount realized on a taxable
disposition (including return of capital and capital gain) exceeds the fair
market value on the date of exercise of the shares of Company common stock
purchased by the optionholder under the option, the optionholder will recognize
a capital gain in the amount of such excess. If the optionholder incurs a loss
on the disposition (i.e., if the total amount realized is less than the exercise
price paid by the optionholder), the loss will be a capital loss.
OTHER DISPOSITION. If an optionholder disposes of shares of Company common
stock acquired upon exercise of a NQSO in a taxable transaction, the
optionholder will recognize capital gain or loss in an amount equal to the
difference between the optionholder's basis (as discussed above) in the shares
sold and the total amount realized upon disposition. Any such capital gain or
loss (and any capital gain or loss recognized on a disqualifying disposition of
shares of Company common stock acquired upon exercise of ISOs as discussed
above) will be short-term or long-term depending on whether the shares of
Company common stock were held for more than one year from the date such shares
were transferred to the optionholder.
ALTERNATIVE MINIMUM TAX. Alternative minimum tax ("AMT") is payable if and
to the extent the amount thereof exceeds the amount of the taxpayer's regular
tax liability, and any AMT paid generally may be credited against future regular
tax liability (but not future AMT liability). AMT applies to alternative minimum
taxable income; generally, regular taxable income, subject to certain
adjustments and increased by items of tax preference, is treated differently
under the AMT.
For AMT purposes, the spread upon exercise of an ISO (but not a NQSO) will
be included in alternative minimum taxable income, and the taxpayer will receive
a tax basis equal to the fair market value of the shares of Company common stock
at such time for subsequent AMT purposes. However, if the
36
<PAGE>
optionholder disposes of the ISO shares in the year of exercise, the AMT income
cannot exceed the gain recognized for regular tax purposes, provided that the
disposition meets certain third-party requirements for limiting the gain on a
disqualifying disposition. If there is a disqualifying disposition in a year
other than the year of exercise, the income on the disqualifying disposition is
not considered alternative minimum taxable income.
CONSEQUENCES TO THE COMPANY
There are no federal income tax consequences to the Company by reason of the
grant of ISOs or NQSOs or the exercise of an ISO (other than disqualifying
dispositions).
At the time the optionholder recognizes ordinary income from the exercise of
a NQSO, the Company will be entitled to a federal income tax deduction in the
amount of the ordinary income so recognized (as described above), provided that
the Company satisfies its reporting obligations described below. To the extent
the optionholder recognizes ordinary income by reason of a disqualifying
disposition of the stock acquired upon exercise of an ISO, the Company will be
entitled to a corresponding deduction in the year in which the disposition
occurs.
The Company will be required to report to the Internal Revenue Service any
ordinary income recognized by any optionholder by reason of the exercise of a
NQSO. The Company will be required to withhold income and employment taxes (and
pay the employer's share of employment taxes) with respect to ordinary income
recognized by the optionholder upon the exercise of NQSOs.
OTHER TAX CONSEQUENCES
The foregoing discussion is not a complete description of the federal income
tax aspects of options granted under the LTIP. In addition, administrative and
judicial interpretations of the application of the federal income tax laws are
subject to change. Furthermore, the foregoing discussion does not address state
or local tax consequences.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
Approval of the amendments to the LTIP requires the affirmative vote of the
holders of a majority of the common stock present or represented and entitled to
vote. If a choice has been specified by a stockholder by means of the proxy, the
shares of common stock will be voted accordingly. If no choice has been
specified, the shares will be voted "FOR" the proposal.
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EXECUTIVE COMPENSATION
Shown below is information concerning the annual and long-term compensation
for services in all capacities to the Company for the calendar years ending
December 31, 1999, 1998, and 1997, for those persons who (i) served as the Chief
Executive Officer during 1999, and (ii) were the other four most highly
compensated executive officers of the Company at December 31, 1999 (the "Named
Officers"). Footnotes supplement the information contained in the Tables.
TABLE 1: SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- -------------------------- ----------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
NAME AND SALARY BONUS(2) SATION(3) AWARDS SARS PAYOUTS SATION(8)
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ------------------ -------- -------- -------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Martin A. White 1999 323,077 203,960 229,063(4) -- -- 4,872
--President & C.E.O. 1998 254,808 139,461 54,157(5) 122,760(6) 43,937(7) 5,484
1997 147,316 54,450 -- -- -- 4,875
Douglas C. Kane 1999 210,220 79,146 114,532(4) -- -- 5,100
--Executive Vice 1998 210,185 63,032 62,689(5) 55,800(6) 137,605(7) 4,800
President, 1997 201,772 92,250 -- -- -- 4,750
Chief Administrative &
Corporate Development
Officer
Ronald D. Tipton 1999 235,508 70,327 114,532(4) -- -- 4,863
--President & C.E.O. of 1998 223,491 103,500 -- 49,125(6) 142,827(7) 4,998
Montana-Dakota Utilities 1997 200,655 92,250 -- -- -- 4,948
Co.
Warren L. Robinson 1999 172,396 86,591 91,625(4) -- -- 4,872
--Executive Vice 1998 150,865 57,855 43,771(5) 37,950(6) 75,320(7) 4,526
President, 1997 128,843 63,750 -- -- -- 3,865
Treasurer & Chief
Financial Officer
Lester H. Loble, II 1999 150,750 55,355 5,741 68,719(4) -- -- 4,523
--Vice President, 1998 139,694 43,848 3,963 41,916(5) 27,900(6) 48,737(7) 4,191
Secretary 1997 127,473 54,450 3,620 -- -- -- 3,824
and General Counsel
</TABLE>
- ------------------------------
(1) All share amounts in the table are adjusted to reflect the Company's
three-for-two stock split on July 13, 1998.
(2) Granted pursuant to the Executive Incentive Compensation Plan.
(3) Above-market interest on deferred compensation.
(4) Valued at fair market value on the date of grant. The restricted stock will
vest nine years from the date of grant, assuming continued employment.
Vesting of some or all shares may be accelerated if total shareholder
return equals or exceeds the 50th percentile of the proxy peer group over a
three year performance cycle. Nonpreferential dividends are paid on the
restricted stock.
At December 31, 1999, the Named Officers held the following amounts of
restricted stock: Mr. White--12,190 shares ($243,420);
Mr. Kane--7,535 shares ($150,465); Mr. Tipton--7,250 shares ($144,774);
Mr. Robinson--5,770 shares ($115,220); and Mr. Loble--4,695 shares
($93,754).
(5) Valued at fair market value on the date of grant. Nonpreferential dividends
are paid on the restricted stock.
(6) Options granted pursuant to the 1992 KESOP for the 1998-2000 performance
cycle.
(7) Dividend equivalents paid with respect to options granted pursuant to the
1992 KESOP for the 1995-97 performance cycle.
(8) Totals shown are the Company contributions to the Tax Deferred Compensation
Savings Plan, with the following exceptions: the total includes insurance
premiums of $72 for Mr. White, $300 for Mr. Kane, $72 for Mr. Robinson, and
$63 for Mr. Tipton.
38
<PAGE>
TABLE 2: AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
SHARES NUMBER OF
ACQUIRED SECURITIES UNDERLYING VALUE OF UNEXERCISED, IN-THE-
ON VALUE UNEXERCISED OPTIONS MONEY OPTIONS
EXERCISE REALIZED AT FISCAL YEAR-END(1) AT FISCAL YEAR-END
(#) ($) (#) ($)
-------- -------- --------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Martin A. White................ -- -- -- 122,760 -- --
Douglas C. Kane................ -- -- 46,343 55,800 361,946 --
Ronald D. Tipton............... -- -- -- 49,125 -- --
Warren L. Robinson............. 7,912 95,521 -- 37,950 -- --
Lester H. Loble, II............ -- -- 14,850 27,900 113,387 --
</TABLE>
- ------------------------
(1) Vesting is accelerated upon a change in control.
TABLE 3: PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000.................................. $ 79,494 $ 88,111 $ 96,729 $105,347 $113,965
150,000.................................. 95,611 106,041 116,472 126,902 137,332
175,000.................................. 108,466 119,621 130,776 141,931 153,086
200,000.................................. 121,066 132,221 143,376 154,531 165,686
225,000.................................. 132,046 143,201 154,356 165,511 176,666
250,000.................................. 142,966 154,121 165,276 176,431 187,586
300,000.................................. 179,206 190,361 201,516 212,671 223,826
350,000.................................. 226,786 237,941 249,096 260,251 271,406
400,000.................................. 267,766 278,921 290,076 301,231 312,386
450,000.................................. 307,666 318,821 329,976 341,131 352,286
500,000.................................. 347,866 359,021 370,176 381,331 392,486
</TABLE>
The Table covers the amounts payable under the Salaried Pension Plan and
non-qualified Supplemental Income Security Plan (SISP). Pension benefits are
determined by the step-rate formula which places emphasis on the highest
consecutive 60 months of earnings within the final 10 years of service. Benefits
for single participants under the Salaried Pension Plan are paid as straight
life amounts and benefits for married participants are paid as actuarially
reduced pensions with a survivorship benefit for spouses, unless participants
choose otherwise. The Salaried Pension Plan also permits preretirement
survivorship benefits upon satisfaction of certain conditions. Additionally,
certain reductions are made for employees electing early retirement.
The Internal Revenue Code places maximum limitations on the amount of
benefits that may be paid under the Salaried Pension Plan. The Company has
adopted a non-qualified SISP for senior management personnel. In 1999, 81 senior
management personnel participated in the SISP, including the Named Officers.
Both plans cover salary shown in column (c) of the Summary Compensation Table
and exclude bonuses and other forms of compensation.
Upon retirement and attainment of age 65, participants in the SISP may elect
a retirement benefit or a survivors' benefit with the benefits payable monthly
for a period of 15 years.
As of December 31, 1999, the Named Officers were credited with the following
years of service under the plans: Mr. White: Pension, 8, SISP, 8; Mr. Kane:
Pension, 28, SISP, 18; Mr. Tipton: Pension, 16, SISP,
39
<PAGE>
16; Mr. Robinson: Pension 11, SISP 11; and Mr. Loble: Pension, 12, SISP, 12. The
maximum years of service for benefits under the Pension Plan is 35 and under the
SISP vesting begins at 3 years and is complete after 10 years. Benefit amounts
under both plans are not subject to reduction for offset amounts.
CHANGE-OF-CONTROL ARRANGEMENTS
The Company entered into Change of Control Employment Agreements with the
Named Officers in November 1998, which would become effective for a three-year
period (with automatic annual extension if the Company does not provide
nonrenewal notice at least 60 days prior to the end of each 12-month period)
only upon a change of control of the Company. If a change of control occurs, the
agreements provide for a three-year employment period from the date they become
effective, with base salary not less than the highest amount paid within the
preceding twelve months, an annual bonus not less than the highest bonus paid
within the preceding three years, and participation in the Company's incentive,
savings, retirement and welfare benefit plans.
The agreements also provide that specified payments and benefits would be
paid in the event of termination of employment of the Named Officer by the
Company, other than for cause or disability, or by the Named Officer for good
reason at any time when the agreements are in effect. In such event, each of the
Named Officers would receive payment of an amount equal to three times his
annual base pay plus three times his highest annual bonus (as defined therein).
In addition, under these agreements, each of the officers would receive (i) an
immediate pro-rated cash-out of his bonus for the year of termination based on
the highest annual bonus and (ii) an amount equal to the excess of (a) the
actuarial equivalent of the benefit under Company qualified and nonqualified
retirement plans that the executive would receive if he continued employment
with the Company for an additional three years over (b) the actual benefit paid
or payable under these plans. All benefits of each executive officer under the
Company's welfare benefit plans would continue for at least three years. These
arrangements also provide for certain gross-up payments to compensate these
executive officers for any excise taxes incurred in connection with these
benefits and reimbursement for certain outplacement services.
For these purposes, "cause" means the Named Officer's willful and continued
failure to substantially perform his duties or willfully engaging in illegal
conduct or misconduct materially injurious to the Company, and "good reason"
includes the Company's termination of the Named Officer without cause, the
assignment to the Named Officer of duties inconsistent with his prior status and
position, certain reductions in compensation or benefits, and relocation or
increased travel obligations.
A "change of control" is defined as (i) the acquisition by a party or
certain related parties of 20% or more of the Company's voting securities;
(ii) a turnover in a majority of the Board of Directors without the approval of
a majority of the members of the Board as of November 1998; (iii) a merger or
similar transaction after which the Company's stockholders hold 60% or less of
the voting securities of the surviving entity; or (iv) the stockholders'
approval of the liquidation or dissolution of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
INTRODUCTION
The Compensation Committee of the Board of Directors is responsible for
determining the compensation of the Company's executive officers. Composed
entirely of non-employee Directors, the Committee meets several times each year
to review and determine compensation for the executive officers, including the
Chief Executive Officer.
EXECUTIVE COMPENSATION
The Committee firmly believes that appropriate compensation levels succeed
in both attracting and motivating high quality employees. To implement this
philosophy, the Committee analyzes trends in
40
<PAGE>
compensation among comparable companies participating in the oil and gas
industry, segments of the energy and mining industries, the peer group of
companies used in the graph following this report, and similar companies from
general industry. The Committee then sets compensation levels that it believes
are competitive within the industry and structured in a manner that rewards
successful performance on the job. There are three components of total executive
compensation: base salary, annual incentive compensation, and long-term
incentive compensation.
In setting base salaries, the Committee does not use a particular formula.
In addition to the data referenced above, other factors the Committee uses in
its analysis include the executive's current salary in comparison to the
competitive industry standard as well as individual performance. Using this
system, the Committee granted to Mr. White, the President and Chief Executive
Officer, a 28.9% increase in base salary for 1999. This increase took into
account Mr. White's personal performance during 1999, his time as chief
executive officer, and comparative industry data. Mr. White became chief
executive officer in April 1998. During 1999, only approximately 33.6% of
Mr. White's compensation was base pay. The remainder was performance-based. This
reflects the Committee's belief in the importance of having substantial at risk
compensation to provide a direct and strong link between performance and
executive pay. The other Named Officers received base salary increases averaging
10.68% for 1999.
In keeping with the Committee's belief that compensation should be directly
linked to successful performance, the Company employs both annual and long-term
incentive compensation plans. The annual incentive compensation is determined
under the Executive Incentive Compensation Plan. The Committee makes awards
based upon the level of corporate earnings, cost efficiency, and individual
performance. Mr. White received a total of $203,960 (or 114.7% of the targeted
amount) in annual incentive compensation for 1999; the other Named Officers
received an average of $72,855, or 97.9% of the targeted amount, based upon
achievement of corporate earnings and individual performance near the maximum
level.
Long-term incentive compensation serves to encourage successful strategic
management and is determined through two different vehicles: the 1992 Key
Employee Stock Option Plan and the 1997 Executive Long-Term Incentive Plan.
Since options and related dividend equivalents were granted in 1998 and the
three-year performance cycle (1998-2000) is still running, the Compensation
Committee determined that it was not necessary to grant further options in 1999.
Restricted stock awards were made in 1999 to Mr. White and the other Named
Officers under the 1997 Executive Long-Term Incentive Plan. The restricted stock
is performance accelerated; it vests automatically within nine years; however,
vesting may be accelerated if total shareholder return on MDU Resources stock
meets or exceeds the 50th percentile of the peer group (as shown in the
performance graph). The number of shares granted was to raise overall
compensation levels closer to the median (although still slightly below) level
of compensation within the industry. The restricted stock serves to motivate
long-term performance and to align the interests of the executives with those of
stockholders.
In 1994, the Board of Directors adopted Stock Ownership Guidelines under
which executives are required to own Company Common Stock valued from one to
four times their annual salary.
The 1999 compensation paid to the Company's executive officers qualified as
fully deductible under federal tax laws. The Committee continues to review the
impact of federal tax laws on executive compensation, including Section 162(m)
of the Internal Revenue Code. Stockholders are being asked at the 2000 Annual
Meeting to approve amendments to the 1992 Key Employee Stock Option Plan and the
1997 Executive Long-Term Incentive Plan to permit deductibility of certain
grants under the plans under Section 162(m).
San W. Orr, Jr., Chairman Harry J. Pearce, Member Homer A. Scott, Jr., Member
41
<PAGE>
MDU RESOURCES GROUP, INC.
COMPARISON OF FIVE YEAR TOTAL STOCKHOLDER RETURN (1)
Total Stockholder Return Index (1994=100)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MDU S&P 500 PEER GROUP
<S> <C> <C> <C>
1994 100.00 100.00 100.00
1995 116.07 137.58 125.72
1996 141.09 169.17 149.42
1997 202.65 225.60 196.57
1998 260.84 290.08 223.22
1999 205.78 351.12 211.84
</TABLE>
(1) All data is indexed to December 31, 1994, for the Company, the S&P 500, and
the peer group. Total stockholder return is calculated using the December 31
price for each year. It is assumed that all dividends are reinvested in stock
at the frequency paid, and the returns of each component peer issuer of the
group is weighted according to the issuer's stock market capitalization at
the beginning of the period. Peer Group issuers are Black Hills Corporation,
Coastal Corporation, Equitable Resources, Inc., LG&E Energy Corp., Minnesota
Power, Inc., The Montana Power Company, Northwestern Corporation, ONEOK,
Inc., Otter Tail Power Company, Questar Corporation, and UGI Corporation.
DIRECTORS' COMPENSATION
Each Director who is not an officer of the Company (except the Chairman of
the Board) receives $13,000 and 450 shares of Company Common Stock as an annual
retainer for Board service. The Chairman receives $52,000 and 450 shares of
Company Common Stock. Audit and Nominating Committee Chairmen each receive a
$2,500 annual retainer, and Finance and Compensation Committee Chairmen each
receive a $4,000 annual retainer. Additionally, each Director who is not an
officer of the Company receives $1,000 for each meeting of the Board of
Directors attended and each Committee member who is not an officer of the
Company receives $1,000 for each Committee meeting attended. All Directors
except the Chairman of the Board must defer $1,000 of the retainer, which amount
is credited to a deferral account quarterly. The deferral amount is divided by
the market price of Company Common Stock and converted to investment units. If
dividends are paid on Company Common Stock then an equivalent amount is credited
for each investment unit and the resulting amount is converted to investment
units and credited to such Directors' accounts. After a participating Director
leaves the Board, dies, or becomes disabled, then the investment units credited
to that Director's account are multiplied times the market price of the Company
Common Stock, converted to a dollar value, and paid to the Director or named
beneficiary in equal monthly payments (with interest) over a five year period.
Of the remaining cash
42
<PAGE>
retainer, each Director may direct the retainer be paid in one or a combination
of the following forms: (1) deferred into the account described, (2) Company
stock, or (3) cash. Each Director who is not an officer of the Company received
on June 3, 1999, an option to purchase 2,250 shares of Company Common Stock. The
option award vested immediately and is exercisable for 10 years from the date of
grant. The exercise price is $23.3125, the fair market value of the stock on the
date of the grant.
The Company also has a post-retirement arrangement for Directors who are not
officers or retired officers of the Company which provides that after retirement
from the Board, a Director is entitled to receive an annual amount equal to the
sum of all annual retainers in effect at the time of retirement. Such amount
will be paid to the Director or named beneficiary in equal monthly installments
over a period of time equal to the period of service on the Board.
The Company also has a program whereby past Directors of the Company may be
chosen each year as "Director Emeritus" and each such past Director so chosen
may be invited to participate as a nonvoting member of the Company's Board of
Directors. Each such "Director Emeritus" serves for five years and receives no
compensation, other than reimbursement by the Company for reasonable travel
expenses in connection with attendance at meetings of the Company's Board of
Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As set forth above in the proxy statement, stockholders are being asked to
approve the Merger Agreement pursuant to which the Company will acquire all of
the outstanding capital stock of Connolly-Pacific Co. (CP) in exchange for
common stock of the Company, and to approve the Merger and the other
transactions contemplated by the Merger Agreement, including the issuance of
2,826,087 shares of common stock of the Company (subject to adjustment) in
exchange for all of the outstanding stock of CP. One of the Company's directors,
Mr. Thomas Everist, is President and Director, and owns 50% of the outstanding
voting stock, and 26.5% of the outstanding total equity, of LGE, which owns
96.5% of the capital stock of CP. Members of Mr. Everist's family and trusts for
their benefit own or control the remaining 50% of the outstanding voting stock,
and the remaining 73.5% of the total outstanding equity, of LGE.
INFORMATION CONCERNING EXECUTIVE OFFICERS
Executive officers of the Company are elected by the Board of Directors and
serve until the next annual meeting of the Board. Any executive officer so
elected may be removed at any time by the affirmative vote of a majority of the
Board. Certain information concerning such executive officers, including their
ages, present corporate positions, and business experience, is set forth below.
<TABLE>
<CAPTION>
PRESENT CORPORATE POSITION
NAME AGE AND BUSINESS EXPERIENCE
- ---- -------- -----------------------------------------------------
<S> <C> <C>
Martin A. White................. 58 President and Chief Executive Officer. For
information about Mr. White, see "Election of
Directors."
Cathleen M. Christopherson...... 55 Ms. Christopherson was elected Vice
President-Corporate Communications effective
November 1989. Prior to that she served as
Assistant Vice President-Corporate Communications
effective September 1989 and Division Manager of
Montana-Dakota Utilities Co., a Division of the
Company, from August 1984.
Douglas C. Kane................. 50 Executive Vice President, Chief Administrative and
Corporate Development Officer. For information
about Mr. Kane, see "Election of Directors."
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
PRESENT CORPORATE POSITION
NAME AGE AND BUSINESS EXPERIENCE
- ---- -------- -----------------------------------------------------
<S> <C> <C>
Lester H. Loble, II............. 58 Mr. Loble was elected Vice President, General Counsel
and Secretary of the Company effective May 1999.
Prior to that he served as General Counsel and
Secretary of the Company effective May 1987.
Mr. Loble also serves as a Director and/or General
Counsel and Secretary of the principal subsidiaries
of the Company. Mr. Loble is also a member and the
Secretary of the Managing Committee of
Montana-Dakota Utilities Co., a Division of the
Company.
Vernon A. Raile................. 55 Mr. Raile was elected Vice President, Controller and
Chief Accounting Officer effective August 1992. Prior
to that he was Controller and Chief Accounting
Officer from May 1989, Assistant Treasurer from
December 1987, and Tax Manager from March 1980.
Warren L. Robinson.............. 49 Mr. Robinson was elected Executive Vice President,
Treasurer and Chief Financial Officer of the
Company effective May 1999. Prior to that he served
as Vice President, Treasurer and Chief Financial
Officer of the Company effective August 1992. He is
also Vice President, Vice President and Chief
Financial Officer, Treasurer and Assistant
Secretary, or Treasurer, of subsidiaries of the
Company. Mr. Robinson also serves as a Director of
the principal subsidiaries of the Company.
Mr. Robinson also is a member of the Managing
Committee of Montana-Dakota Utilities Co., a
Division of the Company. Prior to 1992 he served as
Treasurer and Assistant Secretary from
December 1989, Manager of Corporate Development and
Assistant Treasurer from May 1989 to
December 1989, and Manager of Corporate Development
from October 1988.
Ronald D. Tipton................ 53 Mr. Tipton was elected President and Chief Executive
Officer of Montana-Dakota Utilities Co. effective
January 1995. Prior to that time he served
Williston Basin Interstate Pipeline Company in the
following capacities: President and Chief Executive
Officer from May 1994, President from May 1990,
Executive Vice President from May 1989, and Vice
President-Gas Supply from January 1985. From
January 1983 to January 1985 he was the Assistant
Vice President-Gas Supply of Montana-Dakota
Utilities Co.
Robert E. Wood.................. 57 Mr. Wood was elected Vice President-Public Affairs
and Environmental Policy of the Company effective
August 1991. Before that he was Vice
President-Public Affairs from June 1986. For five
years prior thereto he served as Manager of
Legislative Affairs for the Company.
</TABLE>
44
<PAGE>
SECURITY OWNERSHIP
The Table below sets forth the number of shares of capital stock of the
Company owned beneficially as of December 31, 1999, by each Director and each
nominee for Director, each Named Officer and by all Directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE
OWNERSHIP OF CLASS
----------------- ----------
NAME COMMON(1) COMMON
- ---- ----------------- ----------
<S> <C> <C>
Thomas Everist.............................................. 13,300 *
Douglas C. Kane............................................. 97,648(2) *
Lester H. Loble, II......................................... 48,831(2) *
Richard L. Muus............................................. 19,672 *
Robert L. Nance............................................. 14,085(3) *
John L. Olson............................................... 31,500 *
San W. Orr, Jr.............................................. 56,014(4) *
Harry J. Pearce............................................. 24,455 *
Warren L. Robinson.......................................... 29,000(2)(5) *
John A. Schuchart........................................... 209,431(6) *
Homer A. Scott, Jr.......................................... 16,545(7) *
Joseph T. Simmons........................................... 19,486 *
Ronald D. Tipton............................................ 55,712(2) *
Sister Thomas Welder........................................ 20,434(8) *
Martin A. White............................................. 40,782(2) *
All Directors and executive officers of the Company as a
group (18 in number)...................................... 787,805(2) 1.4%
</TABLE>
- ------------------------
* Less than one percent of the class.
(1) The totals include beneficial ownership of shares which may be acquired
within 60 days pursuant to stock options: Mr. Everist 4,500 shares,
Mr. Kane 46,343 shares, Mr. Loble 14,850 shares, Mr. Muus 6,750 shares,
Mr. Nance 6,750 shares, Mr. Olson 4,500 shares, Mr. Orr 6,750 shares,
Mr. Pearce 4,500 shares, Mr. Schuchart 4,500 shares, Mr. Scott 6,750 shares,
Mr. Simmons 6,750 shares, Sister Thomas Welder: see footnote 8, and all
Directors and all executive officers of the Company as a group 142,740
shares.
(2) Includes full shares allocated to the officer's account in the Tax Deferred
Compensation Savings Plan.
(3) Includes 2,250 shares owned by Mr. Nance's wife. Mr. Nance disclaims all
beneficial ownership of the shares owned by his wife.
(4) Mr. Orr serves as a co-trustee with shared voting and investment power of
various trusts and as an officer and Director of the corporate trustee for
various other trusts holding these shares. Mr. Orr disclaims beneficial
ownership of all but 6,008 shares held by the trusts.
(5) Includes 320 shares owned by Mr. Robinson's children and 225 shares by his
wife.
(6) Includes 118,099 shares owned by Mr. Schuchart's wife. Mr. Schuchart
disclaims all beneficial ownership of the shares owned by his wife.
(7) Shares held by Homer A. Scott, Jr. Trust. Mr. Scott is a co-trustee of the
trust and shares voting and investment power with respect to these shares.
(8) The total includes shares held by the Annunciation Monastery (of which
community Sister Welder is a member) and by the University of Mary (of which
Sister Welder is the president). The Monastery owns 450 shares and it may
acquire 6,750 shares within 60 days pursuant to stock options. The
University owns 13,234 shares. Sister Welder disclaims all beneficial
ownership of the shares owned by the Monastery and the University.
45
<PAGE>
ACCOUNTING AND AUDITING MATTERS
Upon recommendation of the Audit Committee, the Board of Directors has
selected and employed the firm of Arthur Andersen LLP as the Company's
independent certified public accountants to audit its financial statements for
the fiscal year 1999. The Audit Committee is presently composed of
Messrs. Richard L. Muus, John L. Olson, San W. Orr, Jr., Harry J. Pearce, and
Homer A. Scott, Jr. (Chairman). This will be the fourteenth year in which the
firm has acted in this capacity. A representative of Arthur Andersen will be
present at the Annual Meeting of Stockholders. It is not anticipated that the
representative will make a prepared statement at the meeting. However, he or she
will be free to do so if he or she so chooses, as well as responding to
appropriate questions.
OTHER BUSINESS
The management of the Company knows of no other matter to come before the
meeting. However, if any matter requiring a vote of the stockholders should
arise, it is the intention of the persons named in the enclosed proxy to vote in
accordance with their best judgment.
2001 ANNUAL MEETING OF STOCKHOLDERS
Under the Company's Bylaws, nominations for Director may be made only by the
Board or the Nominating Committee, or by a stockholder entitled to vote who has
delivered written notice to the Secretary of the Company (containing certain
information specified in the Bylaws) not less than 120 days prior to the
anniversary of the date on which the Company first mailed its proxy materials
for the prior year's annual meeting. The Bylaws also provide that no business
may be brought before an annual meeting of the stockholders except as specified
in the notice of the meeting or as otherwise properly brought before the meeting
by or at the direction of the Board or by a stockholder entitled to vote who has
delivered written notice to the Secretary of the Company (containing certain
information specified in the Bylaws) not less than 120 days prior to the
anniversary of the date on which the Company first mailed its proxy materials
for the prior year's annual meeting.
Rule 14a-4 of the Securities and Exchange Commission's proxy rules allows
the Company to use discretionary voting authority to vote on matters coming
before an annual meeting of stockholders, if the Company does not have notice of
the matter at least 45 days before the anniversary of the date on which the
Company first mailed its proxy materials for the prior year's annual meeting of
stockholders or the date specified by an advance notice provision in the
Company's Bylaws. The Company's Bylaws contain such an advance notice provision
as decribed above. For the Company's Annual Meeting of Stockholders expected to
be held on April 24, 2001, stockholders must submit such written notice to the
Secretary of the Company on or before November 10, 2000.
These requirements are separate and apart from and in addition to the
Securities and Exchange Commission's requirements that a stockholder must meet
in order to have a stockholder proposal included in the Company's Proxy
Statement under Rule 14a-8 of the Exchange Act. For purposes of the Company's
Annual Meeting of Stockholders expected to be held on April 24, 2001, any
stockholder who wishes to submit a proposal for inclusion in the Company's proxy
materials must submit such proposal to the Secretary of the Company on or before
November 10, 2000.
46
<PAGE>
A copy of the full text of the Bylaw provisions discussed above may be
obtained by writing to the Secretary of the Company.
------------------------
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Securities and Exchange Commission (SEC) pursuant to the Securities Exchange Act
of 1934, as amended (1934 Act), are incorporated herein by reference:
(i) the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 (Form 10-K);
(ii) [pages through of the Annual Report to Stockholders for 1999,
incorporated in Part II, Items 6 and 8 of the Form 10-K and filed as
Exhibit 13 to the Form 10-K]
(iii) the description of the Company's common stock contained in the
registration statement on Form 8-A, dated September 20, 1994, of the
Company, filed under the 1934 Act, including any amendment or report filed
for the purpose of updating such description; and
(iv) the description of the Company's Preference Share Purchase Rights
contained in the registration statement on Form 8-A, dated November 12,
1998, of the Company, including any amendment or report filed for the
purpose of updating such description.
All reports subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the 1934 Act prior to the date of the Annual Meeting to
which this Proxy Statement relates, which is scheduled for April 25, 2000, shall
be deemed to be incorporated by reference in this Proxy Statement and to be a
part hereof from the respective dates of filing of such documents.
Any statement contained in a document incorporated by reference in this
Proxy Statement shall be deemed to be modified or superseded for purposes of
this Proxy Statement to the extent that a statement contained herein or in any
other subsequently filed document which is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement.
The consolidated financial statements of the Company included in its Form
10-K for the year ended December 31, 1999 have been audited by Arthur Andersen
LLP, independent public accountants, as stated in their report included therein
and incorporated by reference in this Proxy Statement.
A COPY OF THE FORM 10-K AND THE OTHER DOCUMENTS INCORPORATED BY REFERENCE
HEREIN (EXCLUDING EXHIBITS), WILL BE MADE AVAILABLE TO STOCKHOLDERS TO WHOM THIS
PROXY STATEMENT IS MAILED, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST TO THE
OFFICE OF THE TREASURER OF MDU RESOURCES GROUP, INC., SCHUCHART BUILDING, 918
EAST DIVIDE AVENUE, MAILING ADDRESS: P.O. BOX 5650, BISMARCK, ND 58506-5650,
TELEPHONE NUMBER: (701) 222-7900.
By order of the Board of Directors,
[/S/ LESTER H. LOBLE, II]
Lester H. Loble, II
SECRETARY
March 10, 2000
47
<PAGE>
CONNOLLY-PACIFIC CO.
(WHOLLY-OWNED SUBSIDIARY OF L.G. EVERIST, INCORPORATED)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets.............................................. F-3
Statements of Earnings...................................... F-4
Statements of Stockholder's Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
L.G. Everist, Incorporated:
We have audited the accompanying balance sheet of Connolly-Pacific Co. (the
Company), a wholly-owned subsidiary of L.G. Everist, Incorporated, as of
March 31, 1999 and the related statements of earnings, stockholder's equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As discussed in note 6, on January 24, 2000 the Company entered into an
agreement with MDU Resources Group, Inc. (MDU) to merge the Company with a
subsidiary of MDU in a stock-for-stock merger.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Connolly-Pacific Co. as of
March 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
KPMG LLP
Minneapolis, Minnesota
February 4, 2000
F-2
<PAGE>
CONNOLLY-PACIFIC CO.
(WHOLLY-OWNED SUBSIDIARY OF L.G. EVERIST, INCORPORATED)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
-------------------------- ------------
1998 1999 1999
----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......................... $13,775,277 130,803 --
Receivables........................................ 3,795,659 1,408,123 1,922,632
Deferred tax asset (note 3)........................ -- 248,000 17,000
Prepaid expenses and other......................... 87,332 109,526 71,546
----------- ------------ ------------
Total current assets............................. 17,658,268 1,896,452 2,011,178
Property, plant and equipment:
Lease rights....................................... 83,434 83,434 83,434
Plant and equipment................................ 10,721,668 26,980,699 31,626,336
----------- ------------ ------------
10,805,102 27,064,133 31,709,770
Less accumulated depreciation...................... (7,847,486) (23,938,608) (25,530,865)
----------- ------------ ------------
Net property, plant and equipment................ 2,957,616 3,125,525 6,178,905
Total assets......................................... $20,615,884 5,021,977 8,190,083
=========== ============ ============
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable................................... $ 920,500 793,195 640,608
Checks written in excess of cash balances.......... -- -- 1,463,763
Accrued workers' compensation...................... 328,512 310,589 43,771
Accrued public liability insurance................. 293,823 116,043 12,008
Accrued payroll.................................... 106,678 133,121 59,757
Other accrued expenses............................. 175,467 99,256 93,961
Due to parent company (note 5)..................... 624,098 -- --
Income taxes payable............................... -- 124,000 687,000
Billings in excess of costs and estimated earnings
on uncompleted contracts (note 2)................ 2,657,701 411,033 --
----------- ------------ ------------
Total current liabilities........................ 5,106,779 1,987,237 3,000,868
Stockholder's equity:
Common stock, at $1 stated value:.................. 1,000 1,000 1,000
Additional paid-in capital......................... 6,969,094 3,321,968 3,357,968
Retained earnings (accumulated deficit)............ 8,539,011 (288,228) 1,830,247
----------- ------------ ------------
Total stockholder's equity....................... 15,509,105 3,034,740 5,189,215
Commitments (note 5)
Total liabilities and stockholder's equity........... $20,615,884 5,021,977 8,190,083
=========== ============ ============
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE>
CONNOLLY-PACIFIC CO.
(WHOLLY-OWNED SUBSIDIARY OF L.G. EVERIST, INCORPORATED)
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31 DECEMBER 31
--------------------------------------- -------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................... $51,861,074 35,782,937 26,976,874 23,610,070 16,367,156
Cost of sales....................... 37,592,106 20,714,670 15,160,189 11,955,403 11,138,291
----------- ----------- ----------- ----------- -----------
Gross profit...................... 14,268,968 15,068,267 11,816,685 11,654,667 5,228,865
Selling, general and administrative
expenses.......................... 1,993,219 1,807,994 1,740,540 1,280,520 1,794,016
----------- ----------- ----------- ----------- -----------
Operating income.................. 12,275,749 13,260,273 10,076,145 10,374,147 3,434,849
----------- ----------- ----------- ----------- -----------
Other income (expense):
Gain (loss) on sale of property,
plant and equipment............. 57,831 (2,724) (1,545) (1,545) (14,351)
Interest income................... -- 4,555 26,204 27,025 800
Miscellaneous income (expense).... 14,028 (1,007) 28,743 28,148 2,177
----------- ----------- ----------- ----------- -----------
Total other income (expense),
net........................... 71,859 824 53,402 53,628 (11,374)
----------- ----------- ----------- ----------- -----------
Earnings before income taxes.... 12,347,608 13,261,097 10,129,547 10,427,775 3,423,475
Income tax expense (note 3)......... 4,417,000 631,000 322,000 435,000 1,305,000
----------- ----------- ----------- ----------- -----------
Net earnings.................... $ 7,930,608 12,630,097 9,807,547 9,992,775 2,118,475
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE>
CONNOLLY-PACIFIC CO.
(WHOLLY-OWNED SUBSIDIARY OF L.G. EVERIST, INCORPORATED)
STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED MARCH 31, 1999, 1998 (UNAUDITED) AND 1997 (UNAUDITED) AND
THE NINE MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS TOTAL
COMMON PAID-IN (ACCUMULATED STOCKHOLDER'S
STOCK CAPITAL DEFICIT) EQUITY
-------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Balance as of March 31, 1996.................... $1,000 1,921,094 9,978,306 11,900,400
Capital contributed by parent................. -- 4,417,000 -- 4,417,000
Payments to parent............................ -- -- (7,000,000) (7,000,000)
Net earnings.................................. -- -- 7,930,608 7,930,608
------ ---------- ----------- -----------
Balance as of March 31, 1997.................... $1,000 6,338,094 10,908,914 17,248,008
Capital contributed by parent................. -- 631,000 -- 631,000
Payments to parent............................ -- -- (15,000,000) (15,000,000)
Net earnings.................................. -- -- 12,630,097 12,630,097
------ ---------- ----------- -----------
Balance as of March 31, 1998.................... $1,000 6,969,094 8,539,011 15,509,105
Capital contributed by parent................. -- 446,000 -- 446,000
Net fixed assets transferred from parent...... -- 942,437 -- 942,437
Transfer of due to parent..................... -- 521,883 -- 521,883
Payments to parent............................ -- (5,557,446) (18,634,786) (24,192,232)
Net earnings.................................. -- -- 9,807,547 9,807,547
------ ---------- ----------- -----------
Balance as of March 31, 1999.................... $1,000 3,321,968 (288,228) 3,034,740
Capital contributed by parent................. -- 36,000 -- 36,000
Net earnings.................................. -- -- 2,118,475 2,118,475
------ ---------- ----------- -----------
Balance as of December 31, 1999................. $1,000 3,357,968 1,830,247 5,189,215
====== ========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE>
CONNOLLY-PACIFIC CO.
(WHOLLY-OWNED SUBSIDIARY OF L.G. EVERIST, INCORPORATED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31 DECEMBER 31
----------------------------------------- --------------------------
1997 1998 1999 1998 1999
----------- ------------ ------------ ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net earnings............................. $ 7,930,608 12,630,097 9,807,547 9,992,775 2,118,475
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation, amortization and
depletion............................ 2,098,727 1,857,853 1,582,047 1,269,483 1,840,734
Provision for deferred income taxes.... -- -- (248,000) -- 231,000
(Gain) loss on sale of property, plant
and equipment........................ (57,831) 2,724 1,545 1,545 14,351
Changes in operating assets and
liabilities:
Receivables.......................... 1,044,401 (713,142) 2,387,536 1,966,021 (174,824)
Prepaid expenses and other........... 70,471 (55,197) (22,193) (96,255) 37,980
Costs and estimated earnings in
excess of costs on uncompleted
contracts.......................... 448,307 -- -- -- --
Accounts payable..................... 125,906 (475,320) (127,305) (112,717) (152,587)
Accrued expenses..................... 465,459 77,083 (245,471) (132,582) (449,512)
Income taxes payable................. -- -- 124,000 -- 563,000
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... 2,552,557 (213,260) (2,246,668) (2,055,241) (750,718)
----------- ------------ ------------ ------------ -----------
Net cash provided by operating
activities....................... 14,678,605 13,110,838 11,013,038 10,833,029 3,277,899
----------- ------------ ------------ ------------ -----------
Investing activities:
Purchase of property, plant and
equipment.............................. (2,673,819) (1,139,886) (250,138) (228,066) (4,909,615)
Proceeds from sale of property, plant and
equipment.............................. 96,993 500 55,000 55,000 1,150
----------- ------------ ------------ ------------ -----------
Net cash used in investing
activities....................... (2,576,826) (1,139,386) (195,138) (173,066) (4,908,465)
----------- ------------ ------------ ------------ -----------
Financing activities:
Checks written in excess of cash
balances............................... -- -- -- -- 1,463,763
Capital contributed from parent.......... 4,417,000 631,000 446,000 435,000 36,000
Due to parent company.................... 44,169 (1,979,165) (716,142) (638,008) --
Payments to parent....................... (7,000,000) (15,000,000) (24,192,232) (13,000,000) --
----------- ------------ ------------ ------------ -----------
Net cash provided by (used in)
financing activities............. (2,538,831) (16,348,165) (24,462,374) (13,203,008) 1,499,763
----------- ------------ ------------ ------------ -----------
Increase (decrease) in cash and
cash equivalents................. 9,562,948 (4,376,713) (13,644,474) (2,543,045) (130,803)
Cash and cash equivalents at beginning of
period................................... 8,589,042 18,151,990 13,775,277 13,775,277 130,803
----------- ------------ ------------ ------------ -----------
Cash and cash equivalents at end of
period................................... $18,151,990 13,775,277 130,803 11,232,232 --
=========== ============ ============ ============ ===========
Non-cash financing activity:
Net fixed assets transferred from
parent................................. -- -- 942,437 -- --
Contribution to capital of due to parent
company................................ -- -- 521,883 -- --
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE>
CONNOLLY-PACIFIC CO.
(WHOLLY-OWNED SUBSIDIARY OF L. G. EVERIST, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1997 AND 1998
AND FOR THE YEARS THEN ENDED AND AS OF DECEMBER 31, 1998 AND 1999
AND FOR THE NINE MONTH PERIODS THEN ENDED IS UNAUDITED)
(1) NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL INFORMATION AND BASIS OF PRESENTATION
Connolly-Pacific Co. (the Company) is a wholly-owned subsidiary of L. G.
Everist, Incorporated (LGE) and is principally in the business of quarrying and
processing of rock and gravel and marine construction.
The financial statements are presented as if the Company had existed as a
corporation separate from LGE for the periods presented and include the
historical assets, liabilities, revenues and expenses that are directly related
to the business that comprises the Company's operations.
For the periods presented, selling, general and administrative expenses
reflected in the financial statements include a management fee for an allocation
of certain corporate expenses from LGE. These allocations are for general
management, treasury, payroll, financial reporting, benefits administration,
communication and other miscellaneous services. Management believes that the
foregoing allocations were made on a reasonable basis and that they are
indicative of what such expenses would have been had the Company operated as a
stand-alone entity (See note 5).
The accompanying financial statements of the Company may not necessarily
reflect the financial position and results of operations of the Company in the
future.
The financial information as of and for the years ended March 31, 1997 and
1998 and as of and for the nine months ended December 31, 1998 and 1999 is
unaudited. In the opinion of management, such information contains all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of property,
plant and equipment is calculated using straight-line and accelerated methods
over the estimated lives of the assets.
INCOME TAXES
Prior to April 1, 1997 the Company filed a consolidated federal income tax
return with its parent, LGE. Income taxes are reflected in the accompanying
financial statements as if the Company had always reported and filed its tax
returns on a separate company basis.
Prior to April 1, 1997, as a corporation subject to tax under Subchapter C
of the Internal Revenue Code of 1986, as amended (Internal Revenue Code),
deferred tax assets and liabilities were recognized for
F-7
<PAGE>
CONNOLLY-PACIFIC CO.
(WHOLLY-OWNED SUBSIDIARY OF L. G. EVERIST, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND 1998
AND FOR THE YEARS THEN ENDED AND AS OF DECEMBER 31, 1998 AND 1999
AND FOR THE NINE MONTH PERIODS THEN ENDED IS UNAUDITED)
(1) NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
the future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities were measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences were expected to be recovered or settled.
Effective April 1, 1997, LGE elected, for federal income tax purposes, to be
treated as a corporation taxable under Subchapter S of the Internal Revenue
Code. At the same date, LGE made an election to treat the Company as a Qualified
Subchapter S Subsidiary ("QSSS"). The effect of this election for federal income
tax purposes was to treat the Company as if it had been liquidated tax-free into
its parent, LGE. Effective April 1, 1997, the Company was treated, for federal
income tax purposes, as a division of LGE. LGE is required to file annual
information returns, as an entity taxable under Subchapter S of the Internal
Revenue Code, which summarizes the taxable income resulting from its operations.
The operations of the Company subsequent to April 1, 1997 and prior to
January 1, 1999 are included in the annual information returns that are filed by
LGE. LGE's income, investment, and other credits are included in the individual
tax returns of the stockholders who are responsible for the related taxes, and
therefore the financial statements do not include any provision for federal
income taxes.
For California purposes, LGE did not make the equivalent election to be
treated as an entity taxable under Subchapter S of the Internal Revenue Code;
therefore the Company has maintained its status as a corporation taxable under
Subchapter C of the Internal Revenue Code for California purposes. Accordingly,
the financial statements include a provision for state income taxes for all
periods presented in the accompanying financial statements.
Effective January 1, 1999, LGE revoked the QSSS election for the Company.
Accordingly, the Company is now subject to corporate level federal and state
taxation under Subchapter C of the Internal Revenue Code and as a result the
accompanying financial statements include a provision for federal and state
income taxes for earnings after December 31, 1998.
REVENUE AND COST RECOGNITION
Revenue and related costs on contract construction are recognized on a
percentage-of-completion basis as measured using the cost-to-cost method. This
method is used because management believes costs incurred as a comparison to
total anticipated costs to be the best available measure of progress on
contracts. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in estimated
profitability may result in revisions to costs and income and are recognized in
the period in which the revisions are determined.
Contract costs include all direct material and labor costs and all those
indirect costs related to contract performance, such as indirect labor,
supplies, repairs, and depreciation. General and administrative costs are
charged to expense as incurred.
Costs and estimated earnings in excess of amounts billed on uncompleted
contracts are classified as current assets. Billings in excess of costs and
estimated earnings on uncompleted contracts are classified as current
liabilities.
F-8
<PAGE>
CONNOLLY-PACIFIC CO.
(WHOLLY-OWNED SUBSIDIARY OF L. G. EVERIST, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND 1998
AND FOR THE YEARS THEN ENDED AND AS OF DECEMBER 31, 1998 AND 1999
AND FOR THE NINE MONTH PERIODS THEN ENDED IS UNAUDITED)
(1) NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Revenue and related costs on "supply contracts" and other sales are
recognized as aggregates or other materials are delivered to or picked up by the
customer.
CONCENTRATION OF RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company's parent places its cash investments with high
quality financial institutions.
The Company's customers are concentrated in a specific geographical region
in southern California and are primarily governmental entities. Due to the size
of the contracts awarded and specific nature of the projects, the Company has
only a few major customers. For fiscal 1999, the Company had one project with
the Department of the Army, Los Angeles District COE that accounted for 87.6% of
the revenues. In fiscal 1998, two projects, the same one with the Department of
the Army, Los Angeles District COE and one other with the City of Los Angeles,
accounted for 84.9% of total revenues. These customers, due to their status as
governmental entities, pay their balances in full and have never been credit
risks nor has the Company incurred any bad debts in relation to any of its
customers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative costs are expensed as incurred and not
included in costs of uncompleted contracts.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months or less
to be cash equivalents.
RECOVERABILITY OF LONG-LIVED ASSETS
The Company reviews for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net undiscounted cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
F-9
<PAGE>
CONNOLLY-PACIFIC CO.
(WHOLLY-OWNED SUBSIDIARY OF L. G. EVERIST, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND 1998
AND FOR THE YEARS THEN ENDED AND AS OF DECEMBER 31, 1998 AND 1999
AND FOR THE NINE MONTH PERIODS THEN ENDED IS UNAUDITED)
(2) COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
Costs and billings on uncompleted contracts consist of the following:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
-------------------------- -----------
1998 1999 1999
------------ ----------- -----------
<S> <C> <C> <C>
Costs incurred on uncompleted
contracts........................... $ 12,635,225 26,263,032 5,113,306
Estimated earnings.................... 6,932,182 16,845,410 1,341,694
Progress billings on uncompleted
contracts........................... (22,225,108) (43,519,475) (6,455,000)
------------ ----------- -----------
Billings in excess of costs and
estimated earnings on uncompleted
contracts........................... $ (2,657,701) (411,033) --
------------ ----------- -----------
</TABLE>
(3) INCOME TAXES
As discussed in note 1, prior to April 1, 1997, the Company was subject to
corporate level federal and state tax on its earnings.
Effective April 1, 1997, LGE elected QSSS status for the Company, and
accordingly the Company was not subject to corporate level federal tax on its
earnings.
Effective January 1, 1999, LGE revoked the QSSS election for the Company,
and accordingly, the Company is subject to corporate level federal and state
income tax on its earnings.
The provision (benefit) for income tax expense consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- -------- ---------
<S> <C> <C> <C>
For the year ended March 31, 1997
Federal................................... 3,503,500 (66,000) 3,437,500
State..................................... 998,500 (19,000) 979,500
---------- -------- ---------
$4,502,000 (85,000) 4,417,000
========== ======== =========
For the year ended March 31, 1998
Federal................................... $ -- -- --
State..................................... 631,000 -- 631,000
---------- -------- ---------
$ 631,000 -- 631,000
========== ======== =========
For the year ended March 31, 1999
Federal................................... 72,000 (220,500) (148,500)
State..................................... 498,000 (27,500) 470,500
---------- -------- ---------
$ 570,000 (248,000) 322,000
========== ======== =========
</TABLE>
F-10
<PAGE>
CONNOLLY-PACIFIC CO.
(WHOLLY-OWNED SUBSIDIARY OF L. G. EVERIST, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND 1998
AND FOR THE YEARS THEN ENDED AND AS OF DECEMBER 31, 1998 AND 1999
AND FOR THE NINE MONTH PERIODS THEN ENDED IS UNAUDITED)
(3) INCOME TAXES (CONTINUED)
The actual income tax expense differs from the "expected" tax expense
(computed by applying the U.S. federal corporate tax rate of 34%) as follows:
<TABLE>
<CAPTION>
MARCH 31
--------------------------------
1997 1998 1999
---------- -------- --------
<S> <C> <C> <C>
Federal tax expense at statutory rates........ $4,198,000 -- 12,000
Increase (reduction) in taxes resulting from:
State income taxes, net of federal
benefit................................... 646,000 631,000 498,000
Excess of tax over book deduction for
depletion................................. (443,000) -- (22,000)
Effect of conversion from S to C
corporation............................... -- -- (166,000)
Other, net.................................. 16,000 -- --
---------- ------- --------
Total income tax expense.................. $4,417,000 631,000 322,000
========== ======= ========
</TABLE>
The Company's deferred tax asset is as follows at March 31, 1999:
<TABLE>
<S> <C>
Deferred tax asset:
Alternative minimum tax credit............................ $100,000
Workers' compensation accrual............................. 124,000
Net operating loss carryover.............................. 24,000
--------
Deferred tax asset...................................... $248,000
========
</TABLE>
(4) PENSION PLANS
LGE provides a qualified defined contribution plan under Section 401(k) of
the Internal Revenue Code to eligible Company employees, as defined by the plan,
which allows employee contributions through salary reductions. The Company may
elect to contribute to the plan a discretionary matching contribution equal to a
percentage of the amount of the employee elected salary reduction. Discretionary
matching contributions are determined monthly. Total expense under this plan was
approximately $27,000, $23,000, $21,000, $9,000 and $10,000 for the years ended
March 31, 1997, 1998 and 1999 and for the nine months ended December 31, 1998
and 1999, respectively.
The Company contributes to multi-employer pension plans based upon a fixed
rate contribution per hour worked for union employment. Amounts charged to
pension expense and contributed to these plans the years ended March 31, 1997,
1998 and 1999 and for the nine months ended December 31, 1998 and 1999 were
approximately $825,000, $531,000, $387,000, $301,000 and $333,000, respectively.
(5) RELATED PARTY TRANSACTIONS
The Company has a rental agreement with LGE for the Company's offices and
for land used for the storage of certain equipment that expires in 2009. Rental
expense under this agreement for the years ended March 31, 1997, 1998 and 1999
and for the nine months ended December 31, 1998 and 1999 was
F-11
<PAGE>
CONNOLLY-PACIFIC CO.
(WHOLLY-OWNED SUBSIDIARY OF L. G. EVERIST, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND 1998
AND FOR THE YEARS THEN ENDED AND AS OF DECEMBER 31, 1998 AND 1999
AND FOR THE NINE MONTH PERIODS THEN ENDED IS UNAUDITED)
(5) RELATED PARTY TRANSACTIONS (CONTINUED)
$482,000, $490,000, $506,000, $366,000 and $374,000, respectively, and is
included in selling, general and administrative expenses. Annual minimum lease
payments under this agreement are as follows:
<TABLE>
<CAPTION>
AMOUNT
YEARS ENDING MARCH 31: ----------
<S> <C>
2000........................................................ $ 498,720
2001........................................................ 498,720
2002........................................................ 498,720
2003........................................................ 498,720
2004........................................................ 498,720
Thereafter.................................................. 2,493,600
----------
$4,987,200
==========
</TABLE>
Additionally, the Company pays LGE a management fee of $60,000 per year for
the Company's portion of general management, treasury, payroll, financial
reporting, benefits administration, communication and other miscellaneous
service expenses.
In fiscal 1999, LGE made a contribution to the Company's capital for the
amounts then due to parent of $521,883. Additionally, LGE has reflected on the
Company's books the ownership of certain equipment that was used in the
Company's ongoing operations. These entries were made at net book value of
$942,437, resulting in no gain or loss. Previously, deprecation expense was
allocated to the Company by LGE with respect to this equipment in the amount of
$1,034,000, $793,000, $614,000 and $536,000 for the years ended March 31, 1997,
1998 and 1999 and for the nine months ended December 31, 1998, respectively.
(6) SUBSEQUENT EVENTS (UNAUDITED)
On January 24, 2000 the Company entered into an agreement with MDU Resources
Group, Inc. (MDU) to merge the Company with a subsidiary of MDU in a
stock-for-stock merger. The merger assumes a one-to one working capital ratio.
Any shortfall of the ratio will be funded by LGE and any excess will be paid to
LGE in shares of MDU common stock.
F-12
<PAGE>
EXHIBIT A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
BY AND AMONG
MDU RESOURCES GROUP, INC.,
CONNPAC ACQUISITION CORP.,
L.G. EVERIST, INCORPORATED,
AND
CONNOLLY-PACIFIC CO.
DATED AS OF JANUARY 24, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1. DEFINITIONS; HEADINGS......................................... A-1
1.01 DEFINED TERMS............................................... A-1
1.02 OTHER DEFINITIONAL PROVISIONS............................... A-6
1.03 TITLES; HEADINGS............................................ A-6
ARTICLE 2. THE MERGER; CLOSING........................................... A-6
2.01 MERGER...................................................... A-6
2.02 SURVIVING CORPORATION IN THE MERGER; EFFECT OF THE MERGER... A-6
2.03 GOVERNING DOCUMENTS OF SURVIVING CORPORATION................ A-6
2.04 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION......... A-6
2.05 ADDITIONAL ACTIONS.......................................... A-6
2.06 CONVERSION OF SHARES........................................ A-7
2.07 CONSIDERATION ADJUSTMENT.................................... A-7
2.08 CLOSING..................................................... A-8
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF LGE......................... A-8
3.01 ORGANIZATION AND EXISTENCE OF LGE AND CP.................... A-8
3.02 CAPITAL STOCK............................................... A-9
3.03 OWNERSHIP OF SHARES......................................... A-9
3.04 SUBSIDIARIES................................................ A-9
3.05 AUTHORITY OF LGE AND CP..................................... A-9
3.06 DUE EXECUTION AND ENFORCEABILITY AS TO LGE.................. A-9
3.07 NO RESTRICTIONS AGAINST PERFORMANCE......................... A-9
3.08 HISTORICAL FINANCIAL INFORMATION............................ A-9
3.09 NO UNDISCLOSED LIABILITIES.................................. A-10
3.10 NO ADVERSE EFFECTS OR CHANGES............................... A-10
3.11 THIRD-PARTY AND GOVERNMENTAL CONSENTS....................... A-10
3.12 REAL AND PERSONAL PROPERTY.................................. A-12
3.13 ACCOUNTS AND NOTES RECEIVABLE............................... A-12
3.14 PAYABLES AND PROMISSORY NOTES............................... A-13
3.15 INSURANCE AND BONDS......................................... A-13
3.16 BANK ACCOUNTS............................................... A-13
3.17 COMPLIANCE WITH LAWS........................................ A-13
3.18 LITIGATION.................................................. A-14
3.19 PERMITS..................................................... A-14
3.20 TAXES....................................................... A-14
3.21 EMPLOYEE BENEFIT PLANS AND EMPLOYMENT AGREEMENTS............ A-14
3.22 CERTAIN EMPLOYEES AND SALARIES.............................. A-15
3.23 MATERIAL CONTRACTS.......................................... A-18
3.24 INTELLECTUAL PROPERTY....................................... A-19
3.25 LABOR MATTERS............................................... A-20
3.26 CUSTOMERS AND SUPPLIERS..................................... A-20
3.27 ENVIRONMENTAL MATTERS....................................... A-21
3.28 NECESSARY PROPERTY.......................................... A-21
3.29 MINUTE BOOKS AND CHARTER DOCUMENTS.......................... A-21
3.30 BROKER'S FEES............................................... A-21
3.31 INVESTMENT REPRESENTATION................................... A-21
3.32 QUESTIONABLE PAYMENTS....................................... A-22
</TABLE>
A-i
<PAGE>
<TABLE>
<S> <C> <C>
3.33 NO MISSTATEMENTS OR OMISSIONS............................... A-22
3.34 PROXY STATEMENT............................................. A-22
3.35 REGULATORY STATUS........................................... A-22
3.36 THOMAS EVERIST STOCKHOLDER'S AGREEMENT...................... A-22
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF MDU......................... A-22
4.01 ORGANIZATION; GOOD STANDING................................. A-22
4.02 AUTHORITY................................................... A-23
4.03 DUE EXECUTION AND ENFORCEABILITY............................ A-23
4.04 NO RESTRICTIONS AGAINST PERFORMANCE......................... A-23
4.05 CAPITAL STOCK OF MDU........................................ A-23
4.06 SEC FILINGS; FINANCIAL STATEMENTS OF MDU.................... A-23
4.07 PROXY STATEMENT............................................. A-24
4.08 VALUATION REPORT............................................ A-24
4.09 THIRD-PARTY AND GOVERNMENTAL CONSENTS....................... A-24
4.10 LITIGATION.................................................. A-24
4.11 BROKER'S FEES............................................... A-25
4.12 ACQUISITION SUBSIDIARY...................................... A-25
4.13 PREFERENCE SHARE PURCHASE RIGHTS............................ A-25
ARTICLE 5. CERTAIN COVENANTS............................................. A-25
5.01 CONDUCT OF CP'S BUSINESS PENDING CLOSING.................... A-25
5.02 FULL ACCESS................................................. A-27
5.03 OBTAINING CONSENTS.......................................... A-27
5.04 COVENANT TO SATISFY CONDITIONS.............................. A-28
5.05 MDU STOCKHOLDERS' MEETING................................... A-28
5.06 LGE STOCKHOLDERS' MEETING................................... A-28
5.07 PROXY STATEMENT............................................. A-28
5.08 UPDATED CP FINANCIAL STATEMENTS............................. A-28
5.09 HSR FILING.................................................. A-28
5.10 CERTIFICATES................................................ A-29
5.11 OTHER TRANSACTIONS.......................................... A-29
INFORMATION AS TO VIOLATION OF REPRESENTATIONS AND
5.12 WARRANTIES................................................ A-29
5.13 TAX-FREE REORGANIZATION..................................... A-29
5.14 TAX AUDITS OR CONTROVERSIES................................. A-30
5.15 BOOKS AND RECORDS; TAX MATTERS.............................. A-30
5.16 TAX REPORTS................................................. A-30
5.17 AMENDMENT OF SCHEDULE 3.21(f)............................... A-30
ARTICLE 6. CONDITIONS TO CLOSING......................................... A-31
6.01 CONDITIONS TO EACH PARTY'S OBLIGATIONS...................... A-31
6.02 ADDITIONAL CONDITIONS TO OBLIGATIONS OF MDU................. A-31
6.03 ADDITIONAL CONDITIONS TO OBLIGATIONS OF LGE AND CP.......... A-32
ARTICLE 7. ADDITIONAL DELIVERIES......................................... A-32
7.01 DELIVERIES BY LGE AND CP.................................... A-32
7.02 DELIVERIES BY MDU........................................... A-34
7.03 JOINT DELIVERIES............................................ A-34
ARTICLE 8. TERMINATION................................................... A-35
8.01 TERMINATION................................................. A-35
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
8.02 EFFECT OF TERMINATION....................................... A-35
8.03 CONFIDENTIALITY FOLLOWING TERMINATION....................... A-35
ARTICLE 9. INDEMNIFICATION............................................... A-35
9.01 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS....... A-35
9.02 INDEMNIFICATION BY AND ON BEHALF OF LGE..................... A-35
9.03 INDEMNIFICATION BY MDU...................................... A-35
9.04 LIMITATIONS ON INDEMNIFICATION.............................. A-35
9.05 SUPPLEMENTS TO DISCLOSURE SCHEDULES......................... A-36
9.06 REMEDIES EXCLUSIVE.......................................... A-36
9.07 NOTICE OF CLAIMS............................................ A-37
ARTICLE 10. GENERAL PROVISIONS........................................... A-38
10.01 EXPENSES.................................................... A-38
10.02 SUCCESSORS AND ASSIGNS...................................... A-38
10.03 WAIVER...................................................... A-38
10.04 ENTIRE AGREEMENT............................................ A-39
10.05 FURTHER ASSURANCES.......................................... A-39
10.06 NOTICES..................................................... A-39
10.07 AMENDMENTS, SUPPLEMENTS, ETC................................ A-40
10.08 SEVERABILITY................................................ A-40
10.09 GOVERNING LAW............................................... A-40
10.10 EXECUTION IN COUNTERPARTS................................... A-40
10.11 ATTORNEY FEES............................................... A-40
10.12 DISCLOSURE SCHEDULES........................................ A-40
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this "Agreement"), dated as
of the 24(th) day of January, 2000, by and among MDU RESOURCES GROUP, INC., a
Delaware corporation ("MDU"), CONNOLLY-PACIFIC CO., a California corporation
("CP"), CONNPAC ACQUISITION CORP., a California corporation and a wholly-owned
subsidiary of MDU ("Acquisition Subsidiary"), and L.G. EVERIST, INCORPORATED, an
Iowa corporation and holder of a majority of the capital stock of CP ("LGE").
LGE and RALPH LARISON, an individual resident of the State of California and a
holder of capital stock of CP ("Larison"), are sometimes referred to herein each
as a "Stockholder" and together as the "Stockholders".
WHEREAS, MDU, CP, Acquisition Subsidiary, and LGE desire to enter into a
business combination transaction pursuant to which MDU will acquire all of the
issued and outstanding capital stock of CP through the merger of Acquisition
Subsidiary with and into CP, with CP being the surviving corporation in such
merger and with each issued and outstanding share of capital stock of CP being
converted into the right to receive shares of common stock, par value $1.00 per
share, of MDU, and the associated preference share purchase rights, subject to
the terms and conditions contained herein.
WHEREAS, MDU, CP, and LGE intend for the transactions provided for herein to
qualify as a reorganization pursuant to Section 368(a) of the Internal Revenue
Code of 1986, as amended.
NOW, THEREFORE, in consideration of the covenants and agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
ARTICLE 1.
DEFINITIONS; HEADINGS
1.01 DEFINED TERMS. As used in this Agreement, terms defined in the
preamble and recitals of this Agreement have the meanings set forth therein, and
the following terms have the meanings set forth below:
(1) "Adjusted Current Liabilities" means Current Liabilities excluding
the current portion of Long Term Debt and capital leases payable.
(2) "Arbitrating Accountants" means a nationally recognized firm of
independent public accountants with offices in California mutually selected
by MDU and LGE.
(3) "Business Day" means any day other than Saturday, Sunday and any day
that is a legal holiday or a day on which banking institutions in New York
are authorized or required by law or other action of a Governmental
Authority to close.
(4) "Closing" has the meaning ascribed to such term in SECTION 2.08.
(5) "Closing Balance Sheet" means the audited special purpose balance
sheet of CP as of the Closing Date.
(6) "Closing Date" has the meaning ascribed to such term in
SECTION 2.08.
(7) "Code" means the Internal Revenue Code of 1986, as amended.
(8) "Consideration" means 2,826,087 shares of MDU Common Stock.
(9) "CP Common Stock" means the common stock, $1.00 par value of CP.
(10) "CP Financial Statements" means the Existing CP Financial Statements
and the Updated CP Financial Statements.
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<PAGE>
(11) "Consideration Adjustment" means the amount, if any, that, when
added to Current Assets, would increase a Current Ratio of less than 1.0:1.0
to 1.0:1.0, or, when subtracted from Current Assets would decrease a Current
Ratio of greater than 1.0:1.0 to 1.0:1.0. If the Current Ratio, as computed
based upon the Current Assets and Adjusted Current Liabilities on the
Closing Balance Sheet, is greater than 1.0:1.0, then the Consideration
Adjustment shall be deemed to be a positive amount. If the Current Ratio, as
computed based upon the Current Assets and Adjusted Current Liabilities on
the Closing Balance Sheet, is less than 1.0:1.0, then the Consideration
Adjustment shall be deemed to be a negative amount.
(12) "Controlled Group" has the meaning ascribed to such term in
SECTION 3.21(A).
(13) "Current Assets" means those assets determined to be current in
accordance with GAAP.
(14) "Current Liabilities" means those liabilities determined to be
current in accordance with GAAP.
(15) "Current Ratio" means an amount, expressed as a ratio, equal to
Current Assets divided by Adjusted Current Liabilities.
(16) "Debt" means the amount of the aggregate principal and accrued or
unpaid interest on indebtedness for borrowed money or capital lease
obligations of CP outstanding on the Closing Date, other than the current
portion of long-term indebtedness for borrowed money and capitalized lease
obligations included in Current Liabilities.
(17) "Effective Time" has the meaning ascribed to such term in
SECTION 2.01.
(18) "Employee Benefit Plan" has the meaning ascribed to such term in
SECTION 3.21(A).
(19) "Employment Agreement" means that certain Employment Agreement dated
as of the Closing Date, between CP and Larison substantially in the form of
EXHIBIT 7.03(A) hereof.
(20) "Environmental Laws" means all Laws relating to pollution or
protection of human health or the environment (including, without
limitation, ambient air, threatened or endangered species surface water,
groundwater, land surface or subsurface strata), including, without
limitation, laws and regulations relating to Releases or threatened Releases
of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.
(21) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(22) "Existing CP Financial Statements" means the unaudited income
statements of CP for each of the years ended March 31, 1995, March 31, 1996,
March 31, 1997, March 31, 1998, and March 31, 1999 and the unaudited balance
sheets of CP as of March 31, 1998, March 31, 1999 and December 31, 1999.
(23) "GAAP" means generally accepted accounting principles consistently
applied.
(24) "Governmental Authority" means any federal, state or local court,
arbitration tribunal or governmental department, board, commission, bureau,
agency, authority or instrumentality.
(25) "HSR Act" means the Hart-Scott Rodino Antitrust Improvements Act of
1976, as amended.
(26) "Hazardous Materials" means (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is friable,
urea-formaldehyde foam insulation, and transformers or other equipment that
contain dielectric fluid containing polychlorinated biphenyls (PCBs);
(b) any chemicals, materials or substances which are now defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," or words of similar import,
under any
A-2
<PAGE>
Environmental Law; and (c) any other chemical, material, substance or waste,
exposure to which is prohibited, limited or regulated by any Governmental
Authority in a jurisdiction in which the Company operates.
(27) "Indemnified Purchaser Group" means MDU, any subsidiary or affiliate
thereof (including, without limitation, CP), and each of their respective
successors, assigns, directors, officers, employees, attorneys, accountants
and other affiliates, representatives and controlling persons.
(28) "Indemnified Seller Group" means Larison, LGE, any subsidiary or
affiliate of LGE, and each of their respective successors, assigns
directors, officers, employees, attorneys, accountants and other affiliates,
representatives and controlling persons.
(29) "Intellectual Property" means all trademarks, trademark
registrations and trademark applications, trade names, assumed names,
service marks, service names, copyrights, copyright registrations, patents
and patent applications, patent, trademark and copyright licenses,
proprietary business techniques and non-public customer information, and
rights relating thereto, including without limitation all rights to sue for
past infringements, owned by CP or used by CP in the conduct of its
business.
(30) "IRS" means the United States Internal Revenue Service.
(31) "Knowledge" as used with respect to (i) MDU, LGE or CP, as the case
may be, shall mean those facts that are actually known to an officer or
director of MDU, LGE or CP, as the case may be, or those facts that, after
due inquiry in the exercise of reasonable diligence, taking into account the
scope and nature of the responsibilities of the officer or director in
question, should have been know to such officer or director and
(ii) Larison shall mean those facts that are actually known by Larison or
those facts that, after due inquiry in the exercise of reasonable diligence,
taking into account the scope and nature of Larison's responsibilities as an
officer and as a shareholder of CP, should have been known to Larison.
(32) "KRC" means KRC Holdings, Inc, a wholly-owned subsidiary of MDU.
(33) "Laws" means all (i) federal, state, or local or foreign laws, rules
and regulations, (ii) orders, (iii) Permits, and (iv) agreements with
federal, state, local or foreign regulatory authorities to which MDU, either
Stockholder or CP, as the case may be, is a party or by which any of them is
bound.
(34) "LGE's Accountants" means independent public accountants selected by
LGE.
(35) "LGE Stockholder Approval" means the affirmative vote of a majority
of the total number of votes cast by holders of shares of issued and
outstanding voting stock of LGE with respect to the transactions
contemplated by this Agreement at the LGE Stockholders' Meeting.
(36) "LGE Stockholders' Meeting" has the meaning ascribed to such term in
SECTION 5.06.
(37) "Long Term Debt" means all Debt reflected, or required to be
reflected, as long term debt, including capitalized lease obligations, on
the Closing Balance Sheet, determined in accordance with GAAP and, in each
case, including the current portion thereof.
(38) "Liens" means all liens, liabilities, claims, security interests,
mortgages, pledges, agreements, obligations, restrictions, or other
encumbrances of any nature whatsoever, whether absolute, legal, equitable,
accrued, contingent or otherwise, including, without limitation, any rights
of first refusal.
(39) "Major Customers" means the ten (10) largest customers of CP.
(40) "Material Adverse Effect" with respect to CP or MDU shall mean a
material adverse effect upon the assets, liabilities, condition (financial
or other), business or operations of such entity and its subsidiaries
(including, with respect to MDU, CP) taken as a whole or on the ability of
such entity to consummate the Merger.
A-3
<PAGE>
(41) "Material Contracts" has the meaning ascribed to such term in
SECTION 3.23.
(42) "MDU's Accountants" means MDU's independent public accountants
and/or MDU's internal auditors.
(43) "MDU Common Stock" means the common stock, par value $1.00 per
share, of MDU and the associated preference share purchase rights.
(44) "MDU Preference Stock" means the Cumulative Preference Stock,
without par value, of MDU.
(45) "MDU Preferred Stock" means the Cumulative Preferred Stock, par
value $100 per share, of MDU.
(46) "MDU Preferred Stock A" means the Cumulative Preferred Stock A,
without par value, of MDU.
(47) "MDU SEC Reports" has the meaning ascribed to such term in
SECTION 4.06.
(48) "MDU Stockholders' Meeting" has the meaning ascribed to such term in
SECTION 5.05.
(49) "MDU Stockholder Approval" means the affirmative vote of a majority
of the total number of votes cast with respect to the proposal to approve
this Agreement and the Merger and the transactions contemplated thereby at
the MDU Stockholders' Meeting, provided that the total number of votes cast
with respect to the proposal represents more than 50% of the total number of
outstanding shares of MDU Common Stock.
(50) "MDU Stock Price" means the sum of the closing prices of the MDU
Common Stock in New York Stock Exchange Composite Transactions as reported
in The Wall Street Journal for the ten (10) trading days preceding the tenth
(10th) day preceding the day of the Closing, divided by ten (10),
appropriately adjusted, in any case, for any stock split, reverse stock
split, stock dividend, or like event. The parties to this Agreement
acknowledge that this definition applies only to SECTION 2.07 hereof.
(51) "Merger" means the merger of Acquisition Subsidiary with and into
CP, as contemplated by SECTION 2.01.
(52) "1933 Act" means the Securities Act of 1933, as amended.
(53) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(54) "Noncompetition Agreement" means that certain Noncompetition and
Proprietary Information Agreement, dated as of the Closing Date, by and
between LGE and MDU, substantially in the form of EXHIBIT 7.03(B) hereto.
(55) "NYSE" means The New York Stock Exchange, Inc.
(56) "PBGC" means the Pension Benefit Guaranty Corporation.
(57) "Permits" means all permits, licenses, franchises, orders,
certificates and approvals.
(58) "Permitted Liens" means all (a) liens for Taxes or governmental
assessments, charges or claims the payment of which is not yet due,
(b) liens imposed by applicable law, rule or regulation such as mechanics',
materialmen's, landlords', warehousemen's and carriers' liens, and other
similar liens, securing obligations incurred in the ordinary course of
business consistent with past practice, (c) liens under workers'
compensation unemployment insurance, Social Security, or similar legislation
and (d) liens incurred in the ordinary course of business consistent with
past practice for sums not yet delinquent or immaterial in amount and being
contested in good faith.
(59) "PE" means the Pacific Exchange, Inc.
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<PAGE>
(60) "Proxy Statement" has the meaning ascribed to such term in
SECTION 5.07.
(61) "PUHCA" means the Public Utility Holding Company Act of 1935, as
amended.
(62) "Quarry Agreement" means that certain Quarry Agreement, dated as of
March 30, 1992, between Santa Catalina Island Co. and CP, as amended by
Amendment No. 1, dated as of August 31, 1994, Amendment No. 2, dated as of
December 31, 1995, Amendment No. 3, dated as of July 1, 1997 and Amendment
No. 4, dated as of January 24, 2000, including the sublease contained
therein of Tidelands Lease No. PRC 7030.1 between the State of California
State Lands Commission and the Santa Catalina Island Co.
(63) "Real Property" has the meaning ascribed to such term in
Section 3.12(a).
(64) "Related Agreements" means all of the other agreements to be
executed in connection with and pursuant to this Agreement, including,
without limitation, the Restricted Stock Agreement, the Noncompetition
Agreement and the Stockholder's Agreement.
(65) "Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing
into the environment.
(66) "Restricted Stock Agreement" means that certain Restricted Stock
Agreement, dated as of January 24, 2000, between CP and Larison.
(67) "SEC" means the United States Securities and Exchange Commission.
(68) "SEC Documents" means all registration statements, proxy statements,
periodic reports and schedules filed by MDU or any of its subsidiaries with
the SEC under the Securities Laws.
(69) "Securities Laws" means the 1933 Act, the 1934 Act, the Investment
Company Act of 1940, as amended, the Trust Indenture Act of 1939, as
amended, and the rules and regulations of the SEC promulgated thereunder.
(70) "Stockholder's Agreement" means that certain Stockholder's
Agreement, dated as of the Closing Date, by and between MDU and LGE,
substantially in the form of EXHIBIT 7.03(C) hereto.
(71) "Surviving Corporation" has the meaning ascribed to that term in
SECTION 2.02.
(72) "Taxes" means (i) any and all federal, state, local, foreign and
other taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, gains, franchise, capital stock, severance, withholding, payroll,
recapture, employment, excise, unemployment insurance, social security,
business license, occupation, business organization, stamp, environmental
and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts; (ii) any liability for the payment of
any amounts described in clause (i) as a result of being a successor to or
transferee of any individual or entity or a member of an affiliated,
consolidated or unitary group for any period (including pursuant to Treas.
Reg. Section 1.1502-6 or comparable provisions of state, local or foreign
tax law); and (iii) any liability for the payment of amounts described in
clause (i) or clause (ii) as a result of any express or implied obligation
to indemnify any person or entity or as a result of any obligations under
agreements or arrangements with any person or entity.
(73) "Tax Reports" means all returns, estimates, information statements
and reports relating to Taxes.
(74) "Thomas Everist Stockholder's Agreement" means that certain
Stockholder's Agreement, dated the date hereof, between MDU and Thomas
Everist, an individual resident of the State of South Dakota, pursuant to
which Thomas Everist agrees, among other things, to vote the shares of LGE
beneficially owned by him as set forth in such Stockholder's Agreement.
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<PAGE>
(75) "Updated CP Financial Statements" means the following financial
statements prepared after the date hereof and to be included in the Proxy
Statement: (i) the unaudited financial statements of CP for the years ended
March 31, 1997 and March 31, 1998 and the nine months ended December 31,
1998 and December 31, 1999 and (ii) the audited financial statements of CP
for the year ended March 31, 1999.
1.02 OTHER DEFINITIONAL PROVISIONS. Wherever the context so requires,
words used herein in the masculine gender shall be deemed to include the
feminine and neuter. A definition of any term shall be equally applicable to
both the singular and plural forms of the term defined.
1.03 TITLES; HEADINGS. All titles and headings appearing in this Agreement
are for identification only and are not to be used for interpretive purposes.
ARTICLE 2.
THE MERGER; CLOSING
2.01 MERGER. The acquisition of CP shall be effected through the merger of
Acquisition Subsidiary with and into CP (the "Merger"). The Merger shall be
effective upon the filing of the agreement of merger and an officers'
certificate of each constituent corporation, consistent with the terms of this
Agreement and the provisions of the General Corporation Law of the State of
California, together with any other documents required by law to effectuate the
Merger with the Secretary of State of the State of California and the California
Franchise Tax Board. Unless otherwise agreed, the Merger shall become effective
on the Closing Date. The time at which the Merger becomes effective pursuant to
the terms of this Agreement is hereinafter referred to as the "Effective Time."
2.02 SURVIVING CORPORATION IN THE MERGER; EFFECT OF THE MERGER. CP shall
be the surviving corporation in the Merger. CP, as the surviving corporation in
the Merger, is referred to herein as the "Surviving Corporation". At the
Effective Time (i) the separate existence of Acquisition Subsidiary shall cease
and Acquisition Subsidiary shall be merged into CP, and (ii) the Merger shall
have the effects provided in Section 1108 of the General Corporation Law of the
State of California. The Surviving Corporation shall continue its existence
under the laws of the state of its incorporation from and after the Effective
Time.
2.03 GOVERNING DOCUMENTS OF SURVIVING CORPORATION. The Articles of
Incorporation of CP, as in effect immediately prior to the Effective Time, shall
be the Articles of Incorporation of the Surviving Corporation, without change or
amendment until thereafter amended as provided therein or in accordance with the
laws of the state of incorporation of the Surviving Corporation. The By-laws of
CP, as in effect immediately prior to the Effective Time, shall be the By-laws
of the Surviving Corporation, without change or amendment until thereafter
amended as provided therein or in accordance with the laws of the state of
incorporation of the Surviving Corporation.
2.04 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. From and after
the Effective Time, the individuals identified on SCHEDULE 2.04 as Post-Merger
Directors of the Surviving Corporation shall be the directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation. From and after the
Effective Time, the individuals identified on SCHEDULE 2.04 as Post-Merger
Officers of the Surviving Corporation shall be the officers of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation.
2.05 ADDITIONAL ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation shall consider, or be advised that, any further
assignments or assurances in law or any other acts are necessary or desirable to
vest, perfect or confirm, of record or otherwise, in the Surviving Corporation,
title to and possession of any property or right of Acquisition Subsidiary
acquired by reason of, or as a result of, the Merger, Acquisition Subsidiary
shall be deemed to have granted to the Surviving Corporation an irrevocable
power of attorney to execute and deliver all such deeds, assignments and
assurances in law and
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to do all acts necessary or proper to vest, perfect or confirm title to, and
possession of, such property or rights in the Surviving Corporation, and the
proper directors and officers of the Surviving Corporation are fully authorized
in the name of Acquisition Subsidiary to take any and all such actions.
2.06 CONVERSION OF SHARES.
(a) MDU shall make available for conversion and exchange, by delivery to
LGE and to Larison or, if and to the extent required pursuant to the
Restricted Stock Agreement or the Employment Agreement, to the Escrow Agent,
as defined in the Restricted Stock Agreement or the Employment Agreement,
the Consideration provided for herein.
(b) Each of the shares of common stock of Acquisition Subsidiary
outstanding immediately prior to the Effective Time shall be converted into
and exchangeable for one share of common stock of the Surviving Corporation.
From and after the Effective Time, each outstanding certificate representing
shares of common stock of Acquisition Subsidiary shall be deemed for all
purposes to evidence ownership of, and to represent the number of shares of,
common stock of the Surviving Corporation. Promptly after the Effective
Time, the Surviving Corporation shall issue to MDU a stock certificate
representing the appropriate number of shares of common stock of the
Surviving Corporation in exchange for the certificate or certificates that
formerly represented shares of common stock of Acquisition Subsidiary which
shall be immediately canceled.
(c) Each of the shares of CP Common Stock issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the Stockholders, be converted into and
exchangeable for the right to receive a pro-rata share of the Consideration,
subject to adjustment with respect to LGE pursuant to SECTION 2.07 hereof,
as provided herein.
(d) At the Effective Time, LGE shall surrender the certificate or
certificates representing all of the issued and outstanding shares of CP
Common Stock owned, beneficially or of record, by LGE as set forth on
SCHEDULE 3.03 in exchange for a certificate or certificates, registered in
the name of LGE representing LGE's share of the Consideration as set forth
on SCHEDULE 3.03. Each certificate representing CP Common Stock owned by LGE
shall be duly endorsed in blank by LGE, with all necessary transfer tax and
other revenue stamps, acquired at LGE's expense, affixed and canceled. LGE
agrees to cure any deficiencies with respect to the endorsement of the
certificates representing the CP Common Stock owned by LGE or with respect
to the stock power accompanying any such certificate. As promptly as
practicable after the Closing, MDU shall deliver to each Stockholder (or, if
and to the extent required pursuant to the Restricted Stock Agreement or the
Employment Agreement, to the Escrow Agent, as defined in the Restricted
Stock Agreement or the Employment Agreement) the certificates representing
such Stockholder's share of the Consideration, as set forth on
SCHEDULE 3.03.
2.07 CONSIDERATION ADJUSTMENT.
(a) Not later than sixty (60) calendar days after the Closing Date, MDU
shall cause to be prepared and delivered via overnight courier, to LGE and
LGE's Accountants the Closing Balance Sheet, prepared in accordance with
GAAP. LGE's Accountants may, at the sole cost and expense of LGE, observe
any physical count of the inventory when taken and participate in its
evaluation.
(b) LGE and LGE's Accountants shall have a period of thirty
(30) calendar days after the delivery to LGE of the Closing Balance Sheet to
examine the Closing Balance Sheet, and to present any objections that LGE
may have to any of the matters set forth therein, which objections shall be
set forth in writing and in reasonable detail. Thereafter, LGE and
representatives of MDU shall meet to discuss any of the objections raised by
LGE, with a view to resolving such objections. If LGE does not deliver any
written objection to MDU within such thirty (30) calendar day period, LGE
shall be deemed to have accepted the Closing Balance Sheet and waived any
objection thereto.
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(c) If all of such objections cannot be resolved by MDU and LGE within
thirty (30) calendar days after the commencement of the discussions pursuant
to SECTION 2.07(B), then, not later than forty (40) calendar days after the
commencement of such discussions, either MDU or LGE shall have the right, by
the delivery of written notice to the other party to such effect, to cause
matters in dispute to be submitted to an Arbitrating Accountant for
determination. The Arbitrating Accountant shall be instructed to deliver a
decision with respect to the matters referred to it for determination within
thirty (30) calendar days after the submission of such matters. Unless
otherwise agreed, any meetings or proceedings deemed necessary by the
Arbitrating Accountant in order to resolve the matters referred to the
Arbitrating Accountant for determination will be conducted in California.
The decision of the Arbitrating Accountant shall be binding and conclusive
upon MDU and LGE for all purposes under this Agreement. MDU shall pay the
fees and expenses of MDU's Accountants, and LGE shall pay the fees and
expenses of LGE's Accountants. The fees and expenses of the Arbitrating
Accountant shall be paid one half by MDU and one half by LGE.
(d) If the Consideration Adjustment is a positive amount, then not later
than ten (10) calendar days after the amount of the Consideration Adjustment
has been finally determined, MDU shall deliver to LGE a certificate or
certificates, issued in the name of LGE, representing a number of shares of
MDU Common Stock (rounded to the nearest whole share, with 0.5 of a share
being rounded upward) equal to the quotient of (A) the Consideration
Adjustment divided by (B) the MDU Stock Price; provided, that, in no event
shall the aggregate number of shares of MDU Common Stock comprising the
Consideration Adjustment, determined as set forth herein, exceed the
aggregate number of shares of MDU Common Stock issued to the Stockholders on
the Closing Date. If the Consideration Adjustment is a negative amount, then
not later than ten (10) calendar days after the Consideration Adjustment has
been finally determined, LGE shall deliver to MDU an aggregate amount in
cash equal to the Consideration Adjustment, by wire transfer of immediately
available funds to an account designated by MDU in writing.
2.08 CLOSING. Upon the terms and subject to the satisfaction of the
conditions contained in ARTICLE 6, the closing of the transactions provided for
herein (the "Closing") shall take place at the offices of Faegre & Benson LLP,
2200 Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota, at
11:00 A.M., local time, as soon as practicable, but no later than two Business
Days, following the date on which all of the conditions set forth in ARTICLE 6
have been satisfied or waived, or such other date as may be mutually agreed upon
by the parties hereto (the "Closing Date").
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF LGE
LGE represents, warrants and covenants to MDU, as follows:
3.01 ORGANIZATION AND EXISTENCE OF LGE AND CP.
(a) LGE is a corporation duly organized and validly existing under the
laws of its jurisdiction of incorporation, with all requisite corporate
power and authority to own, operate and lease its properties and assets and
to carry on its business as now being conducted.
(b) CP is a corporation duly organized and validly existing under the
laws of its jurisdiction of incorporation, with all requisite corporate
power and authority to own, operate and lease its properties and assets and
to carry on its business as now being conducted. CP is duly qualified to do
business and is in good standing in each jurisdiction where the conduct of
its business or the ownership of its property requires such qualification,
except where the failure to so qualify would not have a Material Adverse
Effect on CP. The jurisdictions in which CP is qualified to do business, and
the names and addresses of CP's registered agents in such jurisdictions, are
set forth on SCHEDULE 3.01
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hereto. SCHEDULE 3.01 hereto sets forth all names under which CP has
conducted or purported to conduct business since the date of its
incorporation.
3.02 CAPITAL STOCK. CP has an authorized capitalization consisting solely
of 10,000 shares of CP Common Stock of which 1,036.6826 shares are issued and
outstanding. Other than the CP Common Stock, there is no class or series of
equity security of CP authorized, issued or outstanding. All such outstanding
shares of CP Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable. There are no outstanding options, warrants,
rights, calls, commitments, conversion rights, rights of exchange, plans or
other agreements of any character providing for the purchase, issuance or sale
of any shares of any equity security of CP, including any CP Common Stock, other
than as contemplated by this Agreement.
3.03 OWNERSHIP OF SHARES.
(a) Each Stockholder is the lawful owner, beneficially and of record, of
all of the issued and outstanding shares of CP Common Stock set forth
opposite such Stockholder's name on SCHEDULE 3.03, free and clear of all
Liens (other than restrictions imposed by Securities Laws applicable to
unregistered securities generally and other than restrictions on transfer
pursuant to the Restricted Stock Agreement),
(b) the aggregate number of shares of CP Common Stock set forth opposite
Stockholders' names on SCHEDULE 3.03 constitutes all of the issued and
outstanding shares of CP Common Stock,
(c) SCHEDULE 3.03 sets forth the address and tax identification number
of each Stockholder,
(d) Each Stockholder's share of the Consideration is set forth next to
such Stockholder's name on SCHEDULE 3.03.
3.04 SUBSIDIARIES. CP does not have any subsidiaries or hold any equity or
ownership interest of any kind, whether beneficially or of record, in any
corporation, partnership, limited liability company, joint venture, or other
enterprise or entity of any nature whatsoever.
3.05 AUTHORITY OF LGE AND CP. Each of LGE and CP has the corporate power
and authority to execute, deliver, and perform its obligations under this
Agreement and the Related Agreements to which it is a party and to consummate
the transactions contemplated hereby and thereby. Each of CP and, subject to the
LGE Stockholder Approval, LGE has taken all necessary corporate action to
authorize the execution, delivery and performance of this Agreement and the
consummation of the Merger. The LGE Stockholder Approval constitutes the only
vote of any class or series of LGE capital stock necessary to approve this
Agreement and the Merger.
3.06 DUE EXECUTION AND ENFORCEABILITY AS TO LGE. This Agreement has been
duly executed and delivered by each of LGE and CP and is a valid and binding
obligation of each of LGE and CP, enforceable against each of LGE and CP in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
referring to or affecting enforcement of creditors' rights and general
principles of equity.
3.07 NO RESTRICTIONS AGAINST PERFORMANCE. Except as set forth on
SCHEDULE 3.07 hereto, neither the execution, delivery nor performance of this
Agreement or the Related Agreements, nor the consummation of the transactions
contemplated in this Agreement or in the Related Agreements will, with or
without the giving of notice or the passage of time, or both, violate any
provisions of, conflict with, result in a breach of, constitute a default under,
or result in the creation or imposition of any Lien on any property or asset of
CP under:
(i) the Articles of Incorporation or By-Laws of LGE or CP;
(ii) any Law which is applicable to either Stockholder or CP or any of their
respective properties or assets;
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(iii) (x) any Material Contract of CP or (y) any contract, indenture,
instrument, agreement, mortgage, lease, right or other obligation or
restriction to which LGE is a party or by which LGE or any of its
properties or assets is or may be bound; or
(iv) any order, judgment, writ, injunction, decree, license, franchise,
permit or other authorization of any Governmental Authority by which
either CP, either Stockholder or any of their respective properties or
assets is or may be bound;
except, in the case of clauses (ii) through (iv) above, for circumstances that,
taken in the aggregate, could not reasonably be expected to have a Material
Adverse Effect on CP.
3.08 HISTORICAL FINANCIAL INFORMATION. (a) True and complete copies of the
Existing CP Financial Statements are attached hereto as EXHIBIT 3.08. The
Existing CP Financial Statements present fairly the financial position, assets
and liabilities of CP as of the dates thereof and the revenues, expenses and
results of operations of CP for the periods covered thereby. The Existing CP
Financial Statements are in accordance with the books and records of CP and do
not reflect any transactions which are not bona fide transactions. The books and
records of CP have been maintained in accordance with applicable laws, rules and
regulations, and in the ordinary course of business. The accounts and notes
receivable of CP reflected in the Existing CP Financial Statements are valid,
existing and genuine and represent sales actually made or services actually
delivered by CP in bona fide transactions in the ordinary course of business
consistent with past practice; and there is no material right of set-off or
counterclaim or threat thereof that would jeopardize the collectability of such
accounts and notes receivable at the aggregate recorded amounts thereof.
(b) The Updated CP Financial Statements will be prepared in accordance
with GAAP. The Updated CP Financial Statements will present fairly the
financial position, assets and liabilities of CP as of the dates thereof and
the revenues, expenses, results of operations and cash flows of CP for the
periods covered thereby, all in accordance with GAAP (subject, in the case
of interim financial statements, to normal recurring year end adjustments
and the absence of footnotes). The Updated CP Financial Statements will be
in accordance with the books and records of CP and will not reflect any
transactions which are not bona fide transactions. Between the date hereof
and the Closing Date, the books and records of CP will be maintained in
accordance with applicable laws, rules and regulations, and in the ordinary
course of business. The accounts and notes receivable of CP reflected in the
Updated CP Financial Statements will be valid, existing and genuine and will
represent sales actually made or services actually delivered by CP in bona
fide transactions in the ordinary course of business consistent with past
practice; and there will be no material right of set-off or counterclaim or
threat thereof that would jeopardize the collectability of such accounts and
notes receivable at the aggregate recorded amounts thereof.
3.09 NO UNDISCLOSED LIABILITIES. CP has no liabilities or obligations of
any nature (whether absolute, accrued, contingent or otherwise) that would be
required to be accrued or reflected on the CP Financial Statements in accordance
with GAAP, that are not (i) reflected or reserved against in the CP Financial
Statements, (ii) incurred in the ordinary course of business consistent with
past practice since the respective dates thereof, or (iii) disclosed in this
Agreement. To the Knowledge of LGE and CP, no basis exists on the date hereof
for assertions against CP of any material claim or liability of any nature other
than those which have been disclosed in the CP Financial Statements. For
purposes of this SECTION 3.09, a claim or liability shall be deemed to be
"material" if it involves an amount in excess of $50,000, individually or in the
aggregate, as the context requires.
3.10 NO ADVERSE EFFECTS OR CHANGES. Except as listed and described in
detail on SCHEDULE 3.10, since December 31, 1999, CP has not experienced an
event that reasonably could be expected to have had a Material Adverse Effect on
it or:
(a) made any change in its authorized capital or outstanding securities;
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(b) issued, sold or delivered, or agreed to issue, sell or deliver, any
capital stock, bonds or other corporate securities (whether authorized and
unissued or held in the treasury), or granted or agreed to grant any
options, warrants or other rights calling for the issue, sale or delivery
thereof;
(c) borrowed or agreed to borrow any funds, guaranteed the repayment of
any indebtedness or incurred any other contingent financial obligations,
including any counter-claim, cross-complaint or set-off raised in any action
to collect receivables outstanding at the Closing Date, except borrowings
incurred in the ordinary course of business consistent with past practice;
(d) satisfied any obligation or liability (absolute or contingent),
other than obligations and liabilities incurred in the ordinary course of
business consistent with past practice that are in excess of $50,000
individually or $50,000 in the aggregate;
(e) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kind whatsoever in respect
of its capital stock, or purchased, redeemed or otherwise acquired, or
agreed to purchase, redeem or otherwise acquire, any of its outstanding
capital stock;
(f) sold, transferred or otherwise disposed of, or agreed to sell,
transfer or otherwise dispose of, any material assets, properties or rights,
except inventory and equipment in the ordinary course of business consistent
with past practice, or canceled or otherwise terminated, or agreed to cancel
or otherwise terminate, any debts or claims other than accounts receivable
write-offs and writedowns in the ordinary course of business consistent with
past practice;
(g) other than in the ordinary course of business consistent with past
practice, entered, or agreed to enter, into any agreement or arrangements to
sell any of its assets, properties or rights, including inventories and
equipment, or requiring the consent of any party to the transfer or
assignment of any of its assets, properties or rights;
(h) other than change orders on construction contracts made in the
ordinary course of business consistent with past practice, made or permitted
any amendment or termination of any Material Contract, agreement, permit or
license to which it is a party or by which it or any of its properties are
bound;
(i) made, directly or indirectly, any accrual or arrangement for or
payment of any bonuses or special compensation of any kind or any severance
or termination pay to any present or former officer, director or executive
employee;
(j) except for customary raises granted in the ordinary course of
business consistent with past practice, increased the rate of compensation
payable, or to become payable, by it to any of its officers, directors or
employees or adopted any new, or made any increase in, any profit sharing,
bonus, deferred compensation, savings, insurance, pension, retirement or
other employee benefit plan payment or arrangement made to, for or with any
present or former such officers, directors or executive employees;
(k) incurred, or become subject to, any uninsured claim or liability of
any damages in excess of $50,000 individually or in the aggregate for any
negligence or other tort or breach of contract;
(l) made any capital expenditures (or commitments therefor) which in the
aggregate exceed $100,000;
(m) suffered any damages, destruction or casualty losses in excess of
$50,000 individually or in the aggregate; or
(n) entered into any other transaction involving more than $50,000
individually or in the aggregate, other than in the ordinary course of
business consistent with past practice.
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3.11 THIRD-PARTY AND GOVERNMENTAL CONSENTS. Except for the filing of the
agreement of merger and an officers' certificate of each constituent
corporation, together with any other documents required by law to effectuate the
Merger, with the Secretary of State of the State of California and the
California Franchise Tax Board, as contemplated under SECTION 2.01, and except
for the LGE Stockholder Approval, and except for filings required under the HSR
Act with respect to (i) the acquisition by LGE of the shares of MDU Common Stock
constituting its share of the Consideration and (ii) the Merger, and except as
set forth on SCHEDULE 3.11 hereto, no approval, consent, waiver, order or
authorization of, or registration, qualification, declaration, or filing with,
or notice to, any Governmental Authority or other third party is required on the
part of any Stockholder or CP in connection with the execution and delivery of
this Agreement or the Related Agreements by any Stockholder or CP or the
consummation of the transactions contemplated hereby or thereby, including,
without limitation, the Merger.
3.12 REAL AND PERSONAL PROPERTY.
(a) REAL PROPERTY. CP does not own any real property. SCHEDULE 3.12(A)
sets forth a list and a description of all real properties leased or subject
to any contract or purchase and sale or lease commitment by CP, written or
oral (collectively "Real Property"). Except as set forth in
SCHEDULE 3.12(A), the buildings, premises and equipment that are leased by
CP are in good operating condition and repair, subject only to ordinary wear
and tear customary within the local trade. Except as set forth on
SCHEDULE 3.12(A) there is not any pending or, to the Knowledge of LGE or CP,
threatened change in the zoning or building ordinances affecting the Real
Property or leasehold interests of CP or the real property subject to the
Quarry Agreement. To the Knowledge of LGE or CP, none of the Real Property,
or the operation and maintenance thereof as now operated or maintained,
contravenes any zoning ordinance or other similar governmental or
administrative regulation (whether or not permitted because of a prior
nonconforming use) or violates any restrictive covenant, the effect of which
in any material respect would interfere with or prevent the continued use of
any of the Real Property or any of the real property subject to the Quarry
Agreement for the purposes for which it is now being used or would
materially affect the value thereof. There is no pending or, to the
Knowledge of LGE or CP, contemplated eminent domain or similar proceeding
pursuant to which any portion of any Real Property or any real property
subject to the Quarry Agreement would be acquired for public use or the
right of CP to use such property as presently used would be restricted in
any material respect.
(b) REAL PROPERTY LEASES. SCHEDULE 3.12(B) sets forth a true, correct
and complete list of all real property leases to which CP is a party,
whether as lessor or lessee. The Quarry Agreement and all leases listed on
such Schedule are valid and subsisting and in full force and effect, and all
rent and other payments now due have been paid. CP enjoys and is in peaceful
and undisturbed possession under the Quarry Agreement and under each lease
so listed in which it is a lessee. Except as set forth on SCHEDULE 3.12(B),
CP has not received any notice of, and there does not exist any event of
default or, to the Knowledge of LGE or CP, any event, occurrence or act
which, with the giving of notice or the lapse of time or both, would become
a default, under the Quarry Agreement or under any such lease and CP has not
violated any of the terms or conditions under the Quarry Agreement or under
any such lease in any material respect. Such real property and the
buildings, fixtures and equipment situated thereon or attached or
appurtenant thereto are in good operating condition and repair, are adequate
and suitable for the purposes for which they are presently being used, and,
to the Knowledge of LGE or CP, are in compliance with all applicable Laws,
except for such matters which in the aggregate would not have a Material
Adverse Effect on CP. SCHEDULE 3.12(B) also sets forth a true, correct and
complete list of all notices issued pursuant to the Quarry Agreement or
pursuant to such leases within the six months prior to the date hereof by CP
regarding the Quarry Agreement or such leases. Except as set forth in
SCHEDULE 3.12(B), such notices were timely made and in accordance with the
Quarry Agreement or the applicable lease agreement, as the case may be.
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(c) PERSONAL PROPERTY. CP has good, valid, marketable, legal and
beneficial title to all of its owned assets, free and clear of all Liens,
other than Permitted Liens. There are no outstanding options, warrants,
commitments, agreements or any other rights of any character entitling any
person or entity other than MDU or any of its subsidiaries to acquire any
interest in all, or any part of, the assets of CP.
3.13 ACCOUNTS AND NOTES RECEIVABLE. SCHEDULE 3.13 sets forth a list as of
December 31, 1999 of all accounts and notes receivable of CP, together with:
(i) an aging schedule setting forth all such accounts receivable (other than
intercompany receivables);
(ii) the identity of any asset in which CP holds a security interest to
secure payment of the underlying indebtedness; and
(iii) a description of the nature and amount of any liens on or security
interest in such accounts and notes receivable.
3.14 PAYABLES AND PROMISSORY NOTES. Schedule 3.14 sets forth a list of
(i) all accounts payable of as of December 31, 1999 together with an
appropriate aging schedule;
(ii) all long-term and short-term promissory notes, installment contracts,
loan agreements and credit agreements to which CP is a party or to
which any of its properties are subject; and
(iii) all indentures, mortgages, security agreements, pledges, and any other
agreements, pledges, and any other agreements of CP relating thereto or
with respect to collateral securing the same.
3.15 INSURANCE AND BONDS. SCHEDULE 3.15 sets forth a list of all insurance
policies and bonds (except group health and life policies listed on
SCHEDULE 3.21(A) and any title insurance policies), held by CP, including those
covering its properties, buildings, equipment, fixtures, employees and
operations. Such list specifies with respect to each such policy:
(i) the insurer and agent,
(ii) the amount of coverage,
(iii) the dates of premiums or payments due thereunder, and
(iv) the expiration date, as applicable.
Each such policy identified is currently in full force and effect. All
insurance premiums due according to the applicable payment schedules reflected
in such policies have been timely paid. Except as set forth on SCHEDULE 3.15, to
the Knowledge of LGE or CP, there are no facts or circumstances under which any
claims for uninsured losses or damages are likely to be asserted against CP in
an amount in excess of $50,000 nor are there any such claims pending against CP.
The insurance policies currently maintained by CP provide coverage believed by
LGE and CP to be adequate for its properties, assets, products and operations.
CP has not requested cancellation of any material policy of insurance at any
time during the previous two years. CP has not sought and been denied any
insurance coverage during the two-year period prior to the Closing Date. All
bonds issued to secure performance of or payment by CP under any Material
Contract in progress or yet to be completed are in force and effect and are
identified on SCHEDULE 3.15. Neither LGE nor CP has made any representations or
undertaken any other act which would give rise to a viable claim that any such
existing bond is invalid or unenforceable. To the Knowledge of LGE or CP, there
are no facts or circumstances under which the validity or enforceability by CP
of any such existing bond could be successfully challenged. The transactions
contemplated by this Agreement will have no adverse effect on any such existing
bond.
3.16 BANK ACCOUNTS. SCHEDULE 3.16 sets forth a list of: (i) the name of
each bank or other financial institution in which CP has an account or safe
deposit box; (ii) the names of all persons authorized to draw
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thereon or to have access thereto; and (iii) the names of all persons other than
the officers of CP who are authorized to incur liabilities on behalf of CP for
borrowed funds.
3.17 COMPLIANCE WITH LAWS. CP has complied with and is not in default
under any Laws the violation of which could reasonably be expected to have a
Material Adverse Effect on CP.
3.18 LITIGATION. Except as set forth in SCHEDULE 3.18, there is no
judicial or administrative claim, action, suit, proceeding or, to the Knowledge
of LGE or CP, investigation pending or, to the Knowledge of LGE or CP,
threatened, against or relating to either Stockholder or CP or the officers or
directors of LGE or CP in their capacities as officers or directors, the
business, properties or assets of CP or the transactions contemplated by this
Agreement or the Related Agreements, including, but not limited to, actions or
proceedings alleging any violation of any Environmental Law, before any federal,
state or local court, arbitration tribunal or Governmental Authority, which
could reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect on CP, or to materially adversely effect the
transactions contemplated by this Agreement or the Related Agreements and to the
Knowledge of LGE or CP there does not exist any valid basis for any such claim,
action, suit, proceeding or investigation. There are no claims, actions, suits,
proceedings or, to the Knowledge of LGE or CP, investigations pending or, to the
Knowledge of LGE or CP, threatened, by or against either Stockholder or CP with
respect to this Agreement or the Related Agreements, or in connection with the
transactions contemplated hereby or thereby and to the Knowledge of LGE or CP
there does not exist any valid basis for any such claim, action, suit,
proceeding or investigation.
3.19 PERMITS. SCHEDULE 3.19 hereto sets forth a true, correct and complete
list of all material Permits of any federal, state or local regulatory or
Governmental Authority relating to the business properties or assets of CP. The
Permits constitute all material permits, licenses, franchises, orders,
certificates and approvals which are required for the lawful operation of the
business, properties and assets of CP. CP is in compliance in all material
respects with all such Permits and owns or has owned or had valid Permits to use
all properties, tangible or intangible, necessary for the conduct of its
business and the operation of its properties and assets in the manner in which
they are now conducted and operated.
3.20 TAXES. Except as described in SCHEDULE 3.20, which SCHEDULE 3.20 also
lists all jurisdictions in which Tax Reports are required to be filed by CP (or
have been required since the inception of CP) and the types of Tax Reports
required to be filed in each such jurisdiction:
(a) CP has filed all material Tax Reports required to be filed prior to
the Closing Date, and such Tax Reports are true and correct and completed in
accordance with applicable law and no claim has been made by a taxing
authority in any jurisdiction in which CP does not file Tax Reports that CP
is or may be subject to taxation by that jurisdiction;
(b) CP has (i) timely paid all Taxes due and payable as shown on the Tax
Reports, (ii) timely paid all Taxes for which a notice of assessment or
collection has been received (other than amounts properly accrued on the CP
Financial Statements and described on SCHEDULE 3.20), (iii) accrued on the
CP Financial Statements all Taxes attributable to periods covered by such
statements that are not yet due and payable, and (iv) properly reserved, in
accordance with GAAP, for all Taxes not yet due but which are expected to
become due and payable in the future;
(c) Neither the IRS nor any other taxing authority has asserted any
claim for Taxes in writing, or to the Knowledge of CP or LGE, is threatening
to assert any claims for Taxes;
(d) No Tax deficiency notice or notice of assessment or collection has
been received in writing by CP;
(e) No audit or other examination of any Tax Report of CP is presently
in progress, nor has CP been notified in writing of any request for such an
audit or other examination;
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(f) No power of attorney to deal with Tax matters or waiver of any
statute of limitations with respect to Taxes has been granted by CP;
(g) The relevant statute of limitations for the assessment or proposal
of a deficiency against CP for Taxes has expired for all years before 1996;
(h) CP has not availed itself of any tax amnesty, tax holiday or similar
relief in any jurisdiction;
(i) CP has withheld or collected and paid over to the appropriate
governmental authorities (or is properly holding for such payment) all Taxes
required by law to be withheld or collected with respect to its operations,
including withholdings on payments to CP for sales and use taxes or payments
by CP to employees or independent contractors on account of federal, state,
and foreign income Taxes, the Federal Insurance Contribution Act, and the
Federal Unemployment Tax Act;
(j) There are no liens for Taxes upon the assets of CP (other than
Permitted Liens);
(k) There is no contract, agreement, plan or arrangement, including but
not limited to the provisions of this Agreement, covering any employee or
former employee of CP that, individually or collectively, could give rise to
the payment of any amount that would not be deductible pursuant to Sections
280G, 404 or 162 of the Code;
(l) CP has not filed any consent agreement under Section 341(f) of the
Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by CP;
(m) CP is not and has not been a member of an affiliated group of
corporations filing a consolidated federal income tax return (or a group of
corporations filing a consolidated, combined or unitary income tax return
under comparable provisions of state, local or foreign tax law);
(n) CP has no obligation under any agreement or arrangement with any
other person or entity with respect to Taxes of such other person or
(including pursuant to Treas. Reg. Section1.1502-6 or comparable provisions
of state, local or foreign tax law) and including any liability for Taxes of
any predecessor entity;
(o) CP has made available to MDU true copies of all Tax Reports that CP
has filed since December 31, 1993 and true copies of all correspondence and
other written submissions to or communications with any Tax authorities;
(p) None of the assets of CP is "tax-exempt use property" within the
meaning of Section 168(h) of the Code;
(q) CP has not agreed to make, nor is it required to make, any
adjustment under Section 481 of the Code by reason of a change in accounting
method or otherwise;
(r) CP is not and has not been a member of a limited liability company
or a party to any joint venture, partnership, or other arrangement or
contract that is or could be treated as a partnership for federal income tax
purposes;
(s) CP has not indemnified any person against Taxes in connection with
any arrangement for the leasing of real or personal property, except for
indemnity with respect to acts of CP; and
(t) Neither Stockholder nor any of LGE's shareholders is a "foreign
person" within the meaning of Section 1445 of the Code.
3.21 EMPLOYEE BENEFIT PLANS AND EMPLOYMENT AGREEMENTS.
(a) Set forth on SCHEDULE 3.21(A) is a list of each employee benefit
plan (within the meaning of Section 3(3) of ERISA), written or oral
employment or consulting agreement, severance pay plan or agreement,
employee relations policy (or practice, agreement or arrangement),
agreements with
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respect to leased or temporary employees, vacation plan or arrangement, sick
pay plan, stock purchase plan, stock option plan, fringe benefit plan,
incentive plan, bonus plan, cafeteria or flexible spending account plan and
any deferred compensation agreement (or plan, program, or arrangement)
covering any present or former employee of CP and which is, or at any time
during the six year period preceding the Closing Date was, sponsored or
maintained by (or to which contributions are, were, or at any time during
the six year period preceding the Closing Date were required to have been,
made by) either (1) CP or (2) any other organization which is a member of a
controlled group of organizations (within the meaning of Code Sections
414(b), (c), (m) or (o)) of which CP is a member (the "Controlled Group").
Each and every such plan, program, policy, practice, arrangement and
agreement included on the list set forth under SCHEDULE 3.21(A) is
hereinafter referred to as an "Employee Benefit Plan".
(b) With respect to each Employee Benefit Plan that is not a
multi-employer plan as defined under 3(37) or Section 4001(a)(3) of ERISA,
there has been delivered to MDU, (i) current, accurate and complete copies
of each such Employee Benefit Plan (including all trust agreements,
insurance or annuity contracts, summary plan descriptions, general notices
to employees or beneficiaries and any other material documents or
instruments relating thereto); (ii) the most recent audited financial
statement with respect to each such Employee Benefit Plan that is required
to have an audited financial statement; (iii) copies of the most recent
determination letters with respect to any such Employee Benefit Plan which
is an employee pension benefit plan (as such term is defined in
Section 3(2) of ERISA) intended to qualify under the Code; and (iv) copies
of the three most recent actuarial reports with respect to each such
Employee Benefit Plan that is required to have an actuarial report; and
(v) copies of the three most recent annual reports (Forms 5500) with respect
to each LGE Employee Benefit Plan in which any CP employee participates and
which is required to file an annual report.
(c) With respect to each Employee Benefit Plan that is not a
multi-employer plan as defined under 3(37) or Section 4001(a)(3) of ERISA:
(i) each such Employee Benefit Plan which is an employee pension benefit
plan (as such term is defined in ERISA Section 3(2)) intended to qualify
under the Code so qualifies and has received a favorable determination
letter as to its qualification under the Code, and no event has occurred
that will or could be expected to give rise to disqualification or loss
of tax-exempt status of any such plan or related trust;
(ii) Each Stockholder, CP and each member of the Controlled Group has
complied with all provisions of ERISA, the Code and other applicable
law, and no act or omission by any Stockholder, CP, each member of the
Controlled Group, or any fiduciary of any Employee Benefit Plan, has
occurred that will or could be expected to give rise to liability to CP
for a breach of fiduciary responsibilities under ERISA or to any fines
or penalties under ERISA Section 502(l);
(iii) no Employee Benefit Plan provides for any post-retirement life,
medical, dental or other welfare benefits (whether or not insured) for
any current or former employee of CP except as required under Code
Section 4980B, Part 6 of Title I of ERISA or applicable state or local
Law or as set forth in SCHEDULE 3.21(C);
(iv) all contributions, insurance and annuity premiums and salary deferrals
elected by an employee or required to have been made by CP, any
Stockholder or any member of the Controlled Group under law or under
the terms of any contract, agreement or Employee Benefit Plan for all
complete and partial periods up to and including the Closing Date have
been made or will be made to the appropriate plan on or before such
date;
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(v) the transactions contemplated by this Agreement will not be the direct
or indirect cause of any amount paid or payable from such Employee
Benefit Plan being classified as an excess parachute payment under Code
Section 280G;
(vi) there are no matters pending before the IRS, the United States
Department of Labor or the PBGC;
(vii) there have been no claims or notice of claims filed under any fiduciary
liability insurance policy covering any Employee Benefit Plan; and
(viii) each and every such Employee Benefit Plan which is a group health plan
(as such term is defined under the Code or ERISA Section 607(1))
complies, and in each and every case has complied in all material
respects with the applicable requirements of Code Section 4980B,
Part 6 of Title I of ERISA, the applicable requirements of the Health
Insurance Portability and Accountability Act of 1996, and all other
applicable federal, state or local Laws or ordinances requiring the
provision or continuance of health or medical benefits.
(d) With respect to any Employee Benefit Plan that is an employee
benefit plan within the meaning of Section 3(3) of ERISA, stock purchase
plan, stock option plan, fringe benefit plan, bonus plan or any deferred
compensation agreement, plan or program (whether or not any such plan,
program or agreement is currently in effect):
(i) there are no actions, suits or claims (other than routine claims for
benefits in the ordinary course) pending or, to the Knowledge of LGE or
CP, threatened, and neither LGE nor CP has any Knowledge of any facts
which could give rise to any such actions, suits or claims (other than
routine claims for benefits in the ordinary course), which could subject
CP to any liability;
(ii) neither Stockholder, nor CP, nor any member of the Controlled Group or
any other person has engaged in a prohibited transaction, as such term
is defined in Code Section 4975 or ERISA Section 406, which would
subject CP to any taxes, penalties or other liabilities resulting from
prohibited transactions under Code Section 4975 or under ERISA Sections
409 or 502(i);
(iii) no event has occurred and no condition exists that could subject CP to
any tax or penalty under Code Sections 511, 4971, 4972, 4976, 4977,
4978, 4979, 4979A, 4980B, or 5000, or to a fine under ERISA
Section 502(c);
(iv) CP is not subject to (1) any liability, lien or other encumbrance under
any agreement imposing secondary liability on CP as a seller of the
assets of a business in accordance with Section 4204 of ERISA or under
any other provision of Title IV of ERISA or Code Section 412,
(2) contingent liability under Title IV of ERISA to the PBGC or to any
plan, participant, or other person or (3) a lien or other encumbrance
under Section 4068 of ERISA; and
(v) CP is not subject to any liability pursuant to Section 4069 of ERISA.
(e) (i) CP is not subject to any legal, contractual, equitable, or other
obligation to (1) establish as of any date any employee benefit plan of any
nature, including, without limitation, any pension, profit sharing, welfare,
post-retirement welfare, stock option, stock or cash award, non-qualified
deferred compensation or executive compensation plan, policy or practice or
(2) continue any employee benefit plan of any nature, including, without
limitation any Employee Benefit Plan that is not a multi-employer plan as
defined under 3(37) or Section 4001(a)(3) of ERISA or any other pension,
profit sharing, welfare, or post-retirement welfare plan, or any stock
option, stock or cash award, non-qualified deferred compensation or
executive compensation plan, policy or practice (or to continue their
participation in any such benefit plan, policy or practice) on or after the
Closing Date except in connection with any collective bargaining agreement;
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(ii) CP and each member of the Controlled Group may, in any manner, subject
to the limitations imposed by applicable law or restrictions imposed
under any collective bargaining agreement or by the collective
bargaining process, and without the consent of any employee,
beneficiary or other person, prospectively terminate, modify or amend
any such Employee Benefit Plan or any other plan, program or practice
(or its participation in such Employee Benefit Plan that is not a
multi-employer plan as defined under 3(37) or Section 4001(a)(3) of
ERISA or any other plan, program or practice) effective as of any date
on or after the Closing Date; and
(iii) no representations or communications by LGE or CP (directly or
indirectly, orally, in writing or otherwise) with respect to
participation, eligibility for benefits, vesting, benefit accrual
coverage or other material terms of any Employee Benefit Plan have been
made prior to the Closing to any employee, beneficiary or other person
other than those which are in accordance with the terms and provisions
of each such Employee Benefit Plan as in effect immediately prior to
the Closing.
(f) With respect to each pension plan that is a multi-employer plan
(within the meaning of Section 3(37) or 4001(a)(3) of ERISA) in which CP or
any member of the Controlled Group participates or has participated: (i) no
such company has withdrawn, partially withdrawn, or received any notice of
any claim or demand for withdrawal liability or partial withdrawal
liability, (ii) no such company has received any notice that any such plan
is in reorganization, that increased contributions may be required to avoid
a reduction in plan benefits or the imposition of any excise tax, or that
any such plan is or may become insolvent, (iii) no such company has failed
to make any required contributions, (iv) to the Knowledge of LGE or CP, no
such multi-employer plan is a party to any pending merger or asset or
liability transfer, (v) to the Knowledge of LGE or CP, there are no
proceedings of the PBGC against or affecting any such multi-employer plan,
(vi) no such company has (or will have as a result of the transactions
contemplated hereby) any withdrawal liability by reason of a sale of assets
pursuant to Section 4204 of ERISA; and (vii) SCHEDULE 3.21(F) includes for
each such multi-employer plan, as of its last valuation date, an estimate of
the amount of potential withdrawal liability of each such company,
calculated according to the information made available pursuant to ERISA
Section 4221(e), and identifies the specific obligor, and nothing has
occurred or is expected to occur that would materially increase the amount
of the total potential withdrawal liability of a specified obligor for any
such plan over the amount shown in SCHEDULE 3.21(F), in each case, to the
extent such information is available on the date hereof.
(g) With respect to each and every Employee Benefit Plan that is not a
multi-employer plan as defined under 3(37) or Section 4001(a)(3) of ERISA
subject to Title IV of ERISA other than a multiemployer pension plan:
(i) no such Employee Benefit Plan or related trust has been terminated or
partially terminated; (ii) no liability to the PBGC has been or is expected
to be incurred with respect to such a Employee Benefit Plan; (iii) the PBGC
has not instituted and is not expected to institute any proceedings to
terminate such a Employee Benefit Plan; (iv) there has been no reportable
event (within the meaning of Section 4043 of ERISA); (v) there exists no
condition or set of circumstances that presents a material risk of the
termination of such a Employee Benefit Plan by the PBGC; (vi) no accumulated
funding deficiency (as defined in Section 302 of ERISA and Section 412 of
the Code), whether or not waived, exists with respect to such a Employee
Benefit Plan; and (vii) the current value of all vested accrued benefits
under each such Employee Benefit Plan did not as of the last day of the most
recently ended fiscal year of such Employee Benefit Plan, and will not as of
the Closing, exceed the current value of the assets of each such Employee
Benefit Plan allocable to such vested accrued benefits.
3.22 CERTAIN EMPLOYEES AND SALARIES. SCHEDULE 3.22 sets forth a list of
the names and salary rates of all present officers and executive employees of CP
whose current regular annual salary rate is $100,000 or more, together with any
bonuses paid or payable to each such officer or executive employee of CP for the
preceding or current fiscal year, and, to the extent existing on the Closing
Date, all arrangements with respect to any bonuses or other payments to be paid
to such officers and executive employees by CP from
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and after the Closing Date. SCHEDULE 3.22 also identifies the company cars, club
memberships and other like benefits, if any, paid or payable by CP on behalf of
such officers and executive employees.
3.23 MATERIAL CONTRACTS. SCHEDULE 3.23 lists all contracts and
arrangements, written, electronic, oral or otherwise, of the following types
("Material Contracts") to which CP is a party or by which it is bound, or to
which any of its assets or properties is subject:
(a) any contract or arrangement of any kind with either Stockholder or
with any employee, officer or director of CP or LGE or any of their
affiliates;
(b) any contract or arrangement with a sales representative, dealer,
broker, marketing, sales agency, advertising agency or other person engaged
in sales, distributing, marketing, servicing or promotional activities, or
any contract to act as one of the foregoing on behalf of any person;
(c) any contract or arrangement of any nature which involves the payment
or receipt of cash or other property, an unperformed commitment, or goods or
services, having a value in excess of $50,000;
(d) any contract or arrangement pursuant to which CP has made or will
make loans or advances, or has or will have incurred debts or become a
guarantor or surety or pledged its credit on or otherwise become responsible
with respect to any undertaking of another (except for the negotiation or
collection of negotiable instruments in transactions in the ordinary course
of business consistent with past practice);
(e) any indenture, credit agreement, loan agreement, note, mortgage,
security agreement, lease of real property (to the extent not addressed in
SECTION 3.12) or personal property or agreement or arrangement for
financing;
(f) any contract or arrangement involving a partnership, joint venture
or other cooperative undertaking;
(g) any contract or arrangement involving any restrictions with respect
to the geographical area of operations or scope or type of business of CP;
(h) any power of attorney or agency agreement or arrangement with any
person pursuant to which such person is granted the authority to act for or
on behalf of CP, or CP is granted the authority to act for or on behalf of
any person;
(i) any real property leases or licenses, or similar arrangements, to
which CP is a party, whether as lessor, lessee, licensor or licensee, which
relate to the business of CP;
(j) any contract or arrangements, other than this Agreement and the
Related Agreements, not made in the ordinary course of business consistent
with past practice which is to be performed at or after the date of this
Agreement;
(k) any contract or arrangement providing for guaranteed maximum prices,
guaranteed completion time, guaranteed general conditions, a lump sum price
or surety bond contract; and
(l) any contract or arrangement not specified above that is material to
the business, properties, prospects or assets of CP.
There has been delivered to MDU, true, correct and complete copies of each
document listed on SCHEDULE 3.23 and a written description of each oral
arrangement so listed. There has been delivered to MDU accurate copies of each
form which has been used in the business of CP and is in effect with respect to
any third party on the Closing Date.
Except as set forth on SCHEDULE 3.23 hereto, each Material Contract is valid
and in full force and effect and constitutes the legal, valid and binding
obligation of CP and the other parties thereto, enforceable
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against CP and the other parties thereto in accordance with their respective
terms, and there are no existing material violations or defaults by CP
(including, but not limited to, the subcontracting or delegation by CP of duties
to third parties) or, to the Knowledge of LGE or CP, by any other party thereto
and, to the Knowledge of LGE or CP, no event, act or omission has occurred which
(with or without notice, lapse of time or the happening or occurrence of any
other event) would result in a material violation or default thereunder. No
other party to any such contract has in writing or, to the Knowledge of LGE or
CP, otherwise asserted the right, and, to the Knowledge of LGE or CP, no basis
exists for the assertion of any enforceable right, to renegotiate, or cancel or
terminate prior to the full term thereof, any of the terms or conditions of any
such contract, nor do LGE or CP have any Knowledge that any party to any such
contract intends to not renew any such contract upon termination of its current
term. Except as set forth on SCHEDULE 3.11 hereto, no consent of any party to
such contracts is required for the execution, delivery or performance of this
Agreement or the Related Agreements or the consummation of the transactions
contemplated hereby or thereby.
3.24 INTELLECTUAL PROPERTY. SCHEDULE 3.24 hereto sets forth a true,
correct and complete list of all Intellectual Property. Except as disclosed on
SCHEDULE 3.24 hereto:
(a) all of the Intellectual Property owned by CP is owned free and clear
of all Liens and is not subject to any license, royalty or other agreement;
(b) none of the Intellectual Property owned by CP has been or is the
subject of any pending litigation or claim of infringement and, to the
Knowledge of LGE or CP, none of the Intellectual Property has been or is the
subject of any pending or threatened litigation or claim of infringement;
(c) no license or royalty agreement to which CP is a party is in breach
or default by any party thereto or the subject of any notice of termination
given or, to the Knowledge of LGE or CP, threatened;
(d) CP has not received any written or, to the Knowledge of LGE or CP,
other notice contesting its right to use any Intellectual Property and, to
the Knowledge of LGE and CP, the properties and assets of CP do not infringe
any confidential or proprietary rights of any other person or entity,
(e) CP has not granted any license or agreed to pay or receive any
royalty in respect of any Intellectual Property; and
(f) CP owns or possesses adequate rights in and to all Intellectual
Property necessary to conduct its business.
(g) CP has taken all actions, including any filings, necessary to
perfect its interests and rights in and to the Intellectual Property, except
for such actions the failure to take which, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect CP.
3.25 LABOR MATTERS. CP has conducted, and currently is conducting its
business in full compliance with all applicable federal and state laws relating
to employment and employment practices, terms and conditions of employment,
wages and hours, and nondiscrimination in employment, except for violations
which in the aggregate could not reasonably be expected to have a Material
Adverse Effect on CP. Except as set forth on SCHEDULE 3.25, the relationships of
CP with its employees are good and there is, and during the past five years
there has been, no labor strike, dispute, slow-down, work stoppage or other
labor difficulty actually pending or threatened against or involving CP. Except
as set forth on SCHEDULE 3.25, to the Knowledge of LGE or CP, there are no facts
or circumstances that could give rise to a claim for wrongful termination or
discrimination on any basis. Except as set forth on SCHEDULE 3.25, none of the
employees of CP is covered by any collective bargaining agreement, no collective
bargaining agreement is currently being negotiated and, to the Knowledge of LGE
or CP, no attempt is currently being made or during the past three years has
been made to organize any employees of CP to form or enter a labor union
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or similar organization. LGE has have delivered to MDU a true and complete copy
of each collective bargaining agreement to which CP is a party or by which CP is
bound.
3.26 CUSTOMERS AND SUPPLIERS
(a) SCHEDULE 3.26 sets forth a list of the Major Customers in terms of
revenue during each of the years ended March 31, 1998 and 1999 showing the
approximate total revenue received in each such period from each such Major
Customer.
(b) Except as set forth on SCHEDULE 3.26, no customer represented in
excess of 5% of the total revenue of CP during the year ended March 31,
1999. Except to the extent set forth in SCHEDULE 3.26, since March 31, 1999,
there has not been any adverse change in the business relationship, and
there has been no dispute involving more than $100,000 individually or in
the aggregate, between CP and any Major Customer, and neither LGE nor CP has
any Knowledge of any indications that any Major Customer intends to
adversely change its servicing arrangements with CP.
3.27 ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 3.27:
(a) CP is currently in compliance with all applicable Environmental
Laws, has cured any past violations or alleged violations of Environmental
Laws to the satisfaction of Governmental Authorities, is not currently in
receipt of any notice of violation, is not currently in receipt of any
notice of any potential liability for cleanup of Hazardous Materials and is
not now subject to any investigation or information request by a
Governmental Authority concerning Hazardous Materials or any Environmental
Laws. CP holds and is in compliance with all governmental permits, licenses,
and authorizations necessary to operate those aspects of its business that
relate to siting, zoning, wetlands, coastal zone management, threatened or
endangered species, air emissions, discharges to surface or ground water,
discharges to any sewer or septic system, noise emissions, solid waste
disposal or the generation, use, transportation or other management of
Hazardous Materials. CP has never generated, manufactured, refined,
recycled, discharged, emitted, released, buried, processed, produced,
reclaimed, stored, treated, transported, or disposed of any Hazardous
Materials except in compliance with all applicable Laws, including
applicable Permit requirements;
(b) No assets of CP are subject to any Lien in favor of any person as a
result of any Hazardous Material or response thereto;
(c) To the actual knowledge of LGE or CP, all facilities where any
person has treated, stored, disposed of, reclaimed, or recycled any
Hazardous Material on behalf of CP are in compliance with Environmental
Laws.
3.28 NECESSARY PROPERTY. The assets of CP include all of the tangible and
intangible assets (including goodwill) which are required for the operation by
CP of its business as now conducted.
3.29 MINUTE BOOKS AND CHARTER DOCUMENTS. All corporate records and books
(including stock transfer ledgers) of CP have been made available to MDU for its
review.
3.30 BROKER'S FEES. Other than any fees or commission payable to KPMG LLP,
which fees or commission shall be the responsibility solely of LGE, no agent,
broker or other person is or may be entitled to a commission or finder's fee in
connection with the transactions contemplated by this Agreement, or is or may be
entitled to make any claim against either Stockholder or CP or against MDU or
any of its subsidiaries or affiliates as a result of any actions by either
Stockholder or CP. LGE shall indemnify MDU and its subsidiaries against any
claim for any such commission or finder's fee made by any agent, broker or other
person as a result of any actions by either Stockholder or CP.
3.31 INVESTMENT REPRESENTATION. LGE acknowledges that the issuance to each
Stockholder by MDU of the shares of MDU Common Stock constituting the
Consideration pursuant to this Agreement has not been registered under the 1933
Act or any state securities Law, and that such shares may not be sold or
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transferred other than pursuant to an effective registration statement under the
1933 Act or pursuant to an available exemption from such registration, and
further acknowledges that the certificates representing the Consideration will
bear a restrictive legend to the foregoing effect. Each Stockholder is acquiring
such shares of MDU Common Stock for investment purposes only, for its or his own
account (and not for the account(s) of others) and not with a view to the
distribution thereof. LGE confirms that each Stockholder (i) is familiar with
the business of MDU and has had the opportunity to ask questions of appropriate
executive officers of MDU (and has received responses thereto to his or its
satisfaction) and to obtain such information about the business and financial
condition of MDU as it or he has reasonably requested, and (ii) has such
knowledge and experience in financial and business matters that it or he is
capable of evaluating the merits and risks of an investment in MDU Common Stock.
LGE represents that each Stockholder is an "accredited investor" as such term is
defined in Regulation D under the 1933 Act.
3.32 QUESTIONABLE PAYMENTS. Neither CP nor any executive, employee,
shareholder, agent, or representative of CP (including each Stockholder) has
made, directly or indirectly, any (a) bribes, kickbacks or illegal payments,
(b) payments that were falsely recorded on the books and records of CP, or
(c) payments to governmental officials for improper purposes.
3.33 NO MISSTATEMENTS OR OMISSIONS. No representation or warranty made in
this Agreement or on any Schedule hereto by either LGE or CP is false or
misleading as to any material fact, or omits to state a material fact required
to make any of the statements made herein or therein not misleading in any
material respect. Notwithstanding the foregoing, except as set forth or
contemplated in this Agreement, neither LGE nor CP makes any representation or
warranty with respect to any projections, estimates or budgets previously
delivered or made available to MDU or Acquisition Subsidiary or any of their
affiliates concerning future revenues, expenses, expenditures, or results of
operations.
3.34 PROXY STATEMENT. None of the information to be supplied by either
Stockholder or CP or any of their accountants, counsel or other authorized
representatives for inclusion in the Proxy Statement will, at the time of the
mailing of the Proxy Statement and any amendments or supplements thereto, and at
the time of the MDU Stockholders' Meeting contain any untrue statement of a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Closing Date any event with respect to
either Stockholder or CP, or their officers and directors or any of the
subsidiaries of LGE or CP shall occur which is or should be described in an
amendment of, or a supplement to, the Proxy Statement, LGE will notify MDU in
writing of such event.
3.35 REGULATORY STATUS. Neither Stockholder nor CP is a "public utility"
or a "holding company" or a "subsidiary company" for purposes of PUHCA.
3.36 THOMAS EVERIST STOCKHOLDER'S AGREEMENT. The Thomas Everist
Stockholder's Agreement has been duly and validly executed and delivered by
Thomas Everist as of the date hereof and is enforceable against Thomas Everist
in accordance with its terms.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF MDU
MDU represents and warrants to LGE as follows:
4.01 ORGANIZATION; GOOD STANDING. Each of MDU and Acquisition Subsidiary
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation with all requisite corporate power and
authority and legal right to own, operate and lease its properties and assets
and to carry on its business as now being conducted and to enter into this
Agreement and perform its obligations hereunder, and is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
where the conduct of its business or the ownership of its property requires such
qualification, except where the failure to so qualify would not have a Material
Adverse Effect on MDU.
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4.02 AUTHORITY. Each of MDU and Acquisition Subsidiary has the corporate
power and authority to execute, deliver, and perform its obligations under this
Agreement and the Related Agreements to which it is a party and to consummate
the transactions contemplated hereby and thereby, and, subject to the MDU
Stockholder Approval, has taken all necessary corporate action to authorize the
execution, delivery and performance of this Agreement. MDU has the power and
authority to deliver the Consideration, and, subject to the MDU Stockholder
Approval, all necessary corporate action to authorize the delivery of the
Consideration has been taken. The MDU Stockholder Approval constitutes the only
vote of any class or series of MDU capital stock necessary to approve the
issuance and delivery of the Consideration.
4.03 DUE EXECUTION AND ENFORCEABILITY. This Agreement has been duly
executed and delivered by each of MDU and Acquisition Subsidiary and constitutes
a valid and binding obligation of each of MDU and Acquisition Subsidiary,
enforceable in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application referring to or affecting enforcement of creditors' rights and
general principles of equity.
4.04 NO RESTRICTIONS AGAINST PERFORMANCE. Neither the execution, delivery,
authorization or performance of this Agreement, nor the consummation of the
transactions contemplated hereby will, with or without the giving of notice or
the passage of time, or both, violate any provisions of, conflict with, result
in a breach of, constitute a default under, or result in the creation or
imposition of any Lien on any property or asset of MDU or Acquisition Subsidiary
under (i) the respective Certificates of Incorporation or By-Laws of MDU or
Acquisition Subsidiary; (ii) any federal, state or local Law, which is
applicable to MDU or Acquisition Subsidiary; (iii) any material contract,
indenture, instrument, agreement, mortgage, lease, right or other obligation or
restriction to which MDU or Acquisition Subsidiary is a party or by which either
of them is bound; or (iv) any order, judgment, writ, injunction, decree,
license, franchise, permit or other authorization of any Governmental Authority
by which MDU or Acquisition Subsidiary is bound, any of which, when taken as a
whole, would have a Material Adverse Effect upon MDU.
4.05 CAPITAL STOCK OF MDU. The authorized capital stock of MDU consists of
(i) 150,000,000 shares of MDU Common Stock, (ii) 500,000 shares of MDU Preferred
Stock, (iii) 1,000,000 shares of MDU Preferred Stock A, and (iv) 500,000 shares
of MDU Preference Stock. The issued and outstanding shares of each class or
series of capital stock of MDU as of January 1, 2000, are set forth on
SCHEDULE 4.05 hereto. All of the issued and outstanding shares of MDU Common
Stock are, and all of the shares of MDU Common Stock, when issued in accordance
with the terms of this Agreement are or will be, duly and validly authorized and
issued and outstanding, fully paid and nonassessable. None of the outstanding
shares of MDU Common Stock to be issued pursuant to this Agreement will be
issued in violation of any preemptive rights of the current or past holders of
MDU Common Stock.
Except as disclosed on SCHEDULE 4.05 hereto, as of the date of this
Agreement, there are no shares of capital stock or other equity securities of
MDU outstanding and no outstanding options, warrants, rights, calls,
commitments, conversion rights, rights of exchange, plans or other agreements of
any character providing for the purchase, issuance or sale of any shares of the
capital stock of MDU, other than as contemplated by this Agreement
4.06 SEC FILINGS; FINANCIAL STATEMENTS OF MDU. MDU has timely filed and
made available to the Stockholders all SEC Documents required to be filed by MDU
since December 31, 1996 (the "MDU SEC Reports"). Since the date of the most
recent MDU SEC Report, MDU has not experienced an event that reasonably could be
expected to have a Material Adverse Effect on MDU. The MDU SEC Reports (i) at
the time filed, complied in all material respects with the applicable
requirements of the Securities Laws and other applicable laws, and (ii) did not,
at the time they were filed (or, if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such filing), contain any untrue
statement of a material fact or omit to state a material fact required to be
stated in such MDU SEC Reports, or necessary in order to make the statements in
such MDU SEC Reports in light of the circumstances under which they were made,
not misleading.
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Each of the MDU financial statements (including, in each case, any related
notes) contained in the MDU SEC Reports complied as to form in all material
respects with the applicable published rules and regulations of the SEC with
respect thereto, was prepared in accordance with GAAP (except to the extent
required by changes in GAAP, as may be indicated in the notes to such financial
statements or, in the case of unaudited interim statements, as permitted by
Form 10-Q under the 1934 Act, as amended), and fairly presented in all material
respects the consolidated financial positions of MDU and its subsidiaries as at
the respective dates and the consolidated results of operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount or effect.
4.07 PROXY STATEMENT. None of the information to be supplied by MDU or
Acquisition Subsidiary or any of their accountants, counsel or other authorized
representatives for inclusion in the Proxy Statement will, at the time of the
mailing of the Proxy Statement and any amendments or supplements thereto, and at
the time of the MDU Stockholders' Meeting contain any untrue statement of a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading, it being understood and agreed that no representation or warranty is
made by MDU with respect to any information supplied by either Stockholder or CP
or their accountants, counsel or other authorized representatives. If at any
time prior to the Closing Date any event with respect to MDU or Acquisition
Subsidiary, or their officers and directors or any of its subsidiaries shall
occur which is or should be described in an amendment of, or a supplement to,
the Proxy Statement, such event shall be so described and the presentation in
such amendment or supplement of such information will not contain any statement
which, at the time and in light of the circumstances under which it is made, is
false or misleading in any material respect or omits to state any material fact
required to be stated therein or necessary in order to make the statements
therein in light of the circumstances under which they were made, not false or
misleading. The Proxy Statement will comply as to form in all material respects
with all applicable laws, including the provisions of the 1934 Act and the rules
and regulations promulgated thereunder.
4.08 VALUATION REPORT. MDU has received the written report of Rohrer &
Associates, Inc., consultant to KRC, which report sets forth a current business
value for CP, and such report has not been withdrawn as of the date hereof. MDU
has delivered a copy of such report to LGE.
4.09 THIRD-PARTY AND GOVERNMENTAL CONSENTS. Except for the filing of the
agreement of merger and an officers' certificate of each constituent
corporation, together with any other documents required by law to effectuate the
Merger, with the Secretary of State of the State of California and the
California Franchise Tax Board, as contemplated under Section 2.01, and except
for the MDU Stockholder Approval, and except for filings required under the HSR
Act with respect to (i) the acquisition by LGE of the shares of MDU Common Stock
constituting its portion of the Consideration, and (ii) the Merger, and except
for the authorization for listing of MDU Common Stock constituting the
Consideration on the NYSE and the PE, and except as set forth on SCHEDULE 4.09
hereto, and other than the delivery by MDU of notice to the Federal Energy
Regulatory Commission not later than 30 days after the date hereof of the
issuance of shares of MDU Common Stock constituting the Consideration, no
approval, consent, waiver, order or authorization of, or registration,
qualification, declaration, or filings with, or notice to, any Governmental
Authority or other third party is required on the part of MDU or Acquisition
Subsidiary in connection with the execution of this Agreement, the Related
Agreements, or the consummation of the transactions contemplated hereby or
thereby, including, but not limited to, the Merger.
4.10 LITIGATION. There are no claims, actions, suits, proceedings or, to
the Knowledge of MDU, investigations pending or, to the Knowledge of MDU,
threatened, by or against MDU with respect to this Agreement or the Related
Agreements, or in connection with the transactions contemplated hereby or
thereby and, to the Knowledge of MDU, there does not exists any valid basis for
any such claim, action, suit, proceeding or investigation.
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4.11 BROKER'S FEES. No agent, broker or other person is or may be entitled
to a commission or finder's fee in connection with the transactions contemplated
by this Agreement, or is or may be entitled to make any claim against either
Stockholder or CP or against MDU or any of its subsidiaries or affiliates as a
result of any actions by MDU. MDU shall indemnify Stockholders against any claim
for any such commission or finder's fee made by any agent, broker or other
person as a result of any actions by MDU.
4.12 ACQUISITION SUBSIDIARY.
(a) Acquisition Subsidiary was organized for the purpose of effectuating
the Merger and at no time has engaged in the conduct of any business.
(b) The assets of Acquisition Subsidiary consist solely of a nominal
amount of cash. Acquisition Subsidiary has no liabilities.
4.13 PREFERENCE SHARE PURCHASE RIGHTS. The preference share purchase
rights (the "Rights") described in the agreement dated as of November 12, 1998
between MDU Resources Group, Inc., and Norwest Bank Minnesota, N.A., as Rights
Agent ("Rights Agreement"), are not currently represented by separate Rights
certificates and are not currently exercisable or separately tradable. Further,
at the Effective Time, no event will have occurred that would result in a
"Distribution Date" being established under the Rights Agreement or require the
issuance of separate certificates for the Rights.
ARTICLE 5.
CERTAIN COVENANTS
5.01 CONDUCT OF CP'S BUSINESS PENDING CLOSING. From the date hereof until
the Closing, except as otherwise expressly permitted or contemplated by this
Agreement or specifically disclosed in the Schedules hereto, and except as
otherwise expressly consented to or approved by MDU in writing:
(a) REGULAR COURSE OF BUSINESS. CP shall, and LGE shall cause CP to,
carry on its business in the ordinary course of business consistent with
past practice, including without limitation, the performance by CP of its
obligations under Material Contracts.
(b) AMENDMENTS. CP shall not, and LGE shall cause CP not to, change,
amend or propose any changes or amendments to its Certificate of
Incorporation or By-Laws.
(c) CAPITAL CHANGES; DIVIDENDS; REDEMPTIONS. Except as provided in
SCHEDULE 5.01(C), CP shall not, and LGE shall cause CP not to, issue or sell
any shares of its capital stock or other securities; acquire directly or
indirectly, by redemption or otherwise, any such capital stock; reclassify
or split-up any such capital stock; declare or pay any dividends thereon in
cash, securities or other property or make any other distribution with
respect thereto; grant or enter into any options, warrants, calls or
commitments of any kind with respect thereto; or amend any material term of
any outstanding securities.
(d) SUBSIDIARIES. CP shall not, and LGE shall cause CP not to,
organize any new subsidiary, acquire any capital stock or other equity
securities of any other corporation or acquire any entity or ownership
interest in any business.
(e) ORGANIZATION. CP shall use its reasonable best efforts to, and LGE
shall use its reasonable best efforts to cause CP to, preserve its corporate
existence and business organization substantially intact, including its
present relationships with material customers, suppliers and other third
parties and keep available the services of its present officers and
employees.
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(f) CERTAIN CHANGES. Except as expressly provided for elsewhere in
this Agreement, CP shall not, and LGE shall cause CP not to:
(i) Borrow or agree to borrow any funds or incur, or assume or become
subject to, whether directly or by way of guarantee or otherwise, any
obligation or liability (absolute or contingent), except obligations and
liabilities incurred in the ordinary course of business consistent with
past practice;
(ii) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business consistent
with past practice;
(iii) Prepay any obligation having a fixed maturity of more than
90 days from the date such obligation was issued or incurred;
(iv) Permit or allow any of its property or assets (personal or
mixed, tangible or intangible) to be subjected to any pledge, lien or
encumbrance in an amount exceeding $50,000 in the aggregate, other than
inchoate liens incurred in the ordinary course of business consistent
with past practice;
(v) Cancel any debts or waive any claims or rights of substantial
value or sell, transfer, or otherwise dispose of any of its properties or
assets, except in the ordinary course of business consistent with past
practice;
(vi) Except as required by contractual commitments set forth on
SCHEDULE 5.01(F)(VI), (A) increase the compensation payable or to become
payable to its officers or employees (except for increases in the
ordinary course of business consistent with past practice in salaries or
wages of officers or employees of CP), (B) establish, adopt, enter into
or amend any collective bargaining, bonus, profit sharing, thrift,
compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee, (C) increase the benefits payable under
any existing severance or termination pay policies or employment or other
agreements or (D) take any affirmative action to accelerate the vesting
of any stock based compensation;
(vii) Make any single capital expenditure or commitment in excess of
$50,000 for additions to its property, plant or equipment or make
aggregate capital expenditures and commitments in excess of $100,000 for
additions to its property, plant or equipment;
(viii)Pay, loan or advance any amount to, or sell, transfer or lease
its properties or assets to, or enter into any agreement or arrangement
with or for the benefit of, any of its officers, directors or
shareholders or any affiliate or associate of any of its officers,
directors or shareholders, except for directors' fees and compensation to
officers and employees at rates not exceeding the rates of compensation
paid during the fiscal year ended March 31, 1999 and except as otherwise
permitted in clause (vi) above;
(ix) Take any action with respect to accounting policies or
procedures, other than actions in the ordinary course of business
consistent with past practice or except as required by changes in GAAP;
(x) Settle or compromise any claim or lawsuit or institute any action
or proceeding involving CP or any of its properties or assets in excess
of $50,000; or
(xi) Agree, whether in writing or otherwise, to do any of the
foregoing.
(g) CONTRACTS. CP shall not, and LGE shall cause CP not to, terminate,
cancel, waive any rights under or request any material change in, or agree
to any change in, any Material Contract or, except
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in the ordinary course of business consistent with past practice, or enter
into any contract or arrangement of the type that would constitute a
Material Contract.
(h) INSURANCE; PROPERTY. CP shall use its reasonable best efforts to,
and LGE shall use its reasonable best efforts to cause CP to, continue to
insure, at individual and aggregate limits and scope of coverage not less
than those contained in CP's current insurance policies, its business and
operations and all property, real, personal and mixed, owned or leased by
CP, with financially responsible insurance companies against all ordinary
and insurable risks consistent with past practice. All such property shall
be used, operated, maintained and repaired in a customary manner. CP shall
not, and LGE shall cause CP not to, terminate, cancel, waive any rights
under or request any material change in, or agree to any material change in,
any material insurance policy.
(i) TAXES. CP shall not, and LGE shall cause CP not to, make any
material election relating to Taxes or take any position on any Tax Report
filed on or after the date of this Agreement or adopt any method therefor
that is inconsistent with elections made, positions taken or methods used in
preparing or filing similar Tax Reports in prior periods. For the period
from the date of this Agreement to the Closing Date, CP shall, and LGE shall
cause CP to, timely file all material tax returns and other material reports
required to be filed by it and duly and timely pay in all material respects
all Taxes for such period.
(j) COLLECTION OF ACCOUNTS RECEIVABLE. CP shall use its reasonable
best efforts to, and LGE shall use its reasonable best efforts to cause CP
to, collect its accounts receivable outstanding as of December 31, 1999 in
the ordinary course of business, consistent with past practice.
(k) REPRESENTATIONS AND WARRANTIES. Neither CP nor any Stockholder
shall intentionally take any action that, individually or in the aggregate
would reasonably be expected to result in a material breach of any provision
of this Agreement or to make any representation and warranty of CP or LGE
hereunder untrue in any material respect at or as of any time prior to the
Closing, as though such representation or warranty were made at and as of
such time.
(l) AGREEMENTS. CP shall not, and LGE shall cause CP not to, agree or
commit to do anything that would be prohibited under this SECTION 5.01.
(m) TERMINATION OF 401(K) PLAN. The Board of Directors of CP shall
adopt resolutions terminating the participation of CP in the L.G. Everist,
Incorporated and Subsidiaries 401(k) Plan effective as of the Closing Date.
5.02 FULL ACCESS. CP shall, and LGE shall cause CP to, until the earlier
to occur of the Closing Date or the termination of this Agreement pursuant to
SECTION 8.01 hereof, afford to MDU, its counsel, accountants and other
representatives and advisors full access to the operations, offices, properties,
books and records of CP. CP shall, and LGE shall cause CP to, permit two MDU
designees to attend senior management and board meetings of CP. MDU shall have
the right to review any and all work papers of CP's accountants, and shall have
full opportunity to make such investigations as it shall desire to make of the
affairs of CP; PROVIDED, however, that any such investigation shall occur upon
reasonable notice and during normal business hours and shall be conducted in a
manner as not to interfere unreasonably with operation of CP's business; LGE and
CP shall cause the officers and accountants of CP to furnish such additional
financial, operating and other information as MDU shall from time to time
reasonably request.
5.03 OBTAINING CONSENTS. Each of LGE and CP shall use commercially
reasonable efforts to obtain, prior to the Closing, all consents, approvals and
authorizations required to be obtained by either LGE or CP necessary to the
consummation of the transactions contemplated by this Agreement or the Related
Agreements and will deliver to MDU copies of each such consent, approval and
authorization promptly after it is obtained.
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5.04 COVENANT TO SATISFY CONDITIONS. (a) Each of LGE and CP shall use its
commercially reasonable efforts to insure that the conditions set forth in
SECTIONS 6.01 AND 6.03 of this Agreement are satisfied.
(b) MDU shall use its commercially reasonable efforts to insure that the
conditions set forth in SECTIONS 6.01 AND 6.02 of this Agreement are
satisfied.
5.05 MDU STOCKHOLDERS' MEETING. MDU shall, promptly after the date of this
Agreement, take all action necessary in accordance with the Delaware General
Corporation Law and its Restated Certificate of Incorporation and By-Laws to
convene a meeting of MDU's stockholders to act on the Agreement and the Merger
and the transactions contemplated thereby (the "MDU Stockholders' Meeting"), and
MDU shall consult with LGE in connection therewith. MDU shall use its reasonable
best efforts to solicit from shareholders of MDU proxies in favor of the
approval and adoption of the Agreement and the Merger and the transactions
contemplated thereby and to secure the vote or consent of stockholders to
approve this Agreement and the Merger and the transactions contemplated thereby
unless otherwise required by the applicable fiduciary duties of the directors of
MDU, as determined by such directors in good faith after consultation with
independent legal counsel (which may include MDU's regularly engaged legal
counsel).
5.06 LGE STOCKHOLDERS' MEETING. LGE shall, promptly after the date of this
Agreement, take all action necessary in accordance with the General Corporation
Law of the State of Iowa and its Restated Articles of Incorporation and By-Laws
to convene a meeting of LGE's stockholders to act on the Agreement and the
Merger (the "LGE Stockholders' Meeting"), and LGE shall consult with the MDU in
connection therewith. LGE shall use its reasonable best efforts to secure the
vote or consent of stockholders to approve this Agreement and the Merger unless
otherwise required by the applicable fiduciary duties of the directors of LGE,
as determined by such directors in good faith after consultation with
independent legal counsel (which may include LGE's regularly engaged legal
counsel).
5.07 PROXY STATEMENT. As promptly as practicable after the execution of
this Agreement, MDU shall prepare and file with the SEC a proxy statement and
form of proxy, in connection with the vote of MDU's stockholders with respect to
this Agreement and the Merger (such proxy statement, together with any
amendments thereof or supplements thereto, in each case in the form or forms
mailed to MDU's stockholders, being the "Proxy Statement"). Each of MDU, on the
one hand, and each Stockholder and CP, on the other hand, shall furnish all
information concerning it and the holders of its capital stock, if any, as the
other may reasonably request in connection with such actions. As promptly as
practicable MDU shall mail the Proxy Statement to its stockholders. The Proxy
Statement shall include the recommendation of MDU's Board of Directors in favor
of the approval of this Agreement and the Merger unless otherwise required by
the applicable fiduciary duties of the Board of Directors of MDU, as determined
by such directors in good faith after consultation with legal counsel.
5.08 UPDATED CP FINANCIAL STATEMENTS. CP shall, and LGE shall cause CP to,
as soon as practicable after the date of execution of this Agreement, prepare
the Updated CP Financial Statements, which shall be prepared in accordance with
GAAP and shall contain all of the information required to be contained in
financial statements furnished pursuant to paragraph (b)(3)(ii) of Item 14 of
Rule 14A-101 under the 1934 Act and shall comply as to form with the applicable
requirements under Rule 14A-101 under the 1934 Act. CP shall, and LGE shall
cause CP to, deliver copies of the Updated CP Financial Statements to MDU as
soon as practicable after the preparation thereof and, in any case, before the
Closing Date.
5.09 HSR FILING. To the extent required by law, the respective ultimate
parent entities of MDU and LGE shall file Notification and Report Forms under
the HSR Act with the Federal Trade Commission and the Antitrust Division of the
Department of Justice. The parties shall cooperate and consult with each other
with respect to the preparation of the Notification and Report Forms and any
other submissions, including, but not limited to, responses to written or oral
comments or requests for additional information or documenting material by the
Federal Trade Commission or the Antitrust Division of the Department of Justice,
required to be made pursuant to the HSR Act in connection with the transactions
contemplated hereby. The filing fee associated with such filings shall be borne
equally by MDU and LGE.
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5.10 CERTIFICATES. At the Closing, LGE and CP will furnish MDU with such
certificates to evidence compliance with the covenants set forth in this
ARTICLE 5 as MDU may reasonably request.
5.11 OTHER TRANSACTIONS. Neither Stockholder nor CP, or any of their
representatives, agents, officers, employees, shareholders or boards of
directors, shall enter into or continue any discussions or transactions
concerning, or approve or recommend to the holders of any shares of capital
stock of CP or LGE, any merger, consolidation, disposition of any significant
portion of CP's business, properties or assets, acquisition or other business
combination or like transaction or proposal therefor relating to CP (other than
pursuant to this Agreement), or furnish or cause to be furnished any information
concerning the business, properties or assets of CP to any party in connection
with any transaction or proposed transaction involving the merger, consolidation
or acquisition of CP or any substantial part of its business by or with any
person other than MDU.
5.12 INFORMATION AS TO VIOLATION OF REPRESENTATIONS AND WARRANTIES. LGE
shall promptly inform and advise MDU of any fact or situation that, after
reasonable inquiry, is or could be reasonably expected to result in a violation
of any representation or warranty contained in ARTICLE 3 of this Agreement.
5.13 TAX-FREE REORGANIZATION. (a) MDU, CP, Acquisition Subsidiary and each
Stockholder shall each use its best efforts to cause the Merger to be treated as
a reorganization within the meaning of Section 368(a) of the Code (a
"Reorganization").
(b) To the extent permitted under applicable tax laws, the Merger shall
be reported as a Reorganization in all federal, state, and local tax returns
filed after the Effective Time.
(c) Following the Merger and for a period sufficient to qualify the
Merger as a Reorganization, MDU will cause the Surviving Corporation to hold
at least 90% of the fair market value of CP's net assets and 70% of the fair
market value of CP's gross assets held by CP immediately prior to the Merger
and at least 90% of the fair market value of Acquisition Subsidiary's net
assets and at least 70% of the fair market value of Acquisition Subsidiary's
gross assets held by Acquisition Subsidiary immediately prior to the Merger.
(d) Following the Merger and for a period sufficient to qualify the
Merger as a Reorganization, MDU will cause the Surviving Corporation to
continue the historic business of CP or use a significant portion of CP's
historic business assets in a business.
(e) Following the Merger and for a period sufficient to qualify the
Merger as a Reorganization, MDU will retain control of the Surviving
Corporation, within the meaning of Section 368(c) of the Code; provided,
that MDU may transfer some or all of the stock of the Surviving Corporation
to the extent permitted by Treasury Regulation Section 1.368-2(k).
(f) Following the Merger and for a period sufficient to qualify the
Merger as a Reorganization, MDU will not reacquire any of its stock issued
in the Merger, whether directly or through a partnership, successor, or a
person related to MDU within the meaning of Treasury Regulation
Section 1.368-1(e)(3) if such reacquisition would cause the Merger to fail
to qualify as a Reorganization.
(g) Following the Merger and for a period sufficient to qualify the
Merger as a Reorganization, MDU will not liquidate the Surviving
Corporation, merge the Surviving Corporation with or into another
corporation. sell or dispose of the stock of the Surviving Corporation
(except for transfers described in Section 368(a)(2)(C) of the Code), or
cause the Surviving Corporation to sell or dispose of any of its assets,
except for dispositions in the ordinary course of business.
(h) At the Effective Time, none of MDU, CP or Acquisition Subsidiary
will be an investment company as defined in Sections 368(a)(2)(F)(iii) and
(iv) of the Code.
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(i) At the Effective Time, no indebtedness between MDU and CP or between
Acquisition Subsidiary and CP will have been issued, acquired, or settled at
a discount.
(j) At the Effective Time, MDU will own all of the issued and
outstanding shares of stock of Acquisition Subsidiary, and Acquisition
Subsidiary will have no liabilities.
(k) As contemplated by SECTION 10.01 of this Agreement, each of the
parties will pay its own expenses, if any, incurred in connection with the
Merger.
5.14 TAX AUDITS OR CONTROVERSIES. LGE shall promptly notify and advise MDU
of the beginning of any audit or examination by any tax authority of any tax
Report of LGE in which any of the income or operations of CP have been included.
LGE shall also advise MDU if in the course of any such audit a tax authority
proposes any adjustments or assessments ("Proposed Adjustments") that, if
accepted, could have, in the aggregate, a material effect on the tax liabilities
of the Surviving Corporation or of MDU with respect to the Surviving Corporation
for periods after the Closing Date. MDU shall have the right to receive copies
of any written materials that LGE received from the taxing authority with
respect to the Proposed Adjustments and, at MDU's own expense, to review any
written materials proposed to be submitted to a taxing authority with respect to
any such Proposed Adjustments. LGE shall not concede or settle any such Proposed
Adjustments without the written consent of MDU, which shall not be unreasonably
withheld. In the event that LGE desires to settle or concede such Proposed
Adjustments, but MDU shall withhold its written consent, MDU shall bear the
expense of contesting such Proposed Adjustments. MDU shall in such event be
entitled to control the contest of the Proposed Adjustments and be present at
any conferences with tax authorities with respect to such Proposed Adjustments;
provided however, that MDU shall have no right to participate in the contest of
any adjustment or assessment that is not a Proposed Adjustment. For the purpose
of this Section, Proposed Adjustments shall be considered to have a material
effect on the tax liability of the Surviving Corporation or MDU if the present
value (using a discount rate equal to the applicable Federal mid-term rate
determined under Code Section 1274(d) in effect on the date of notice of the
beginning of the audit or examination) of the additional taxes that could be
imposed on the Surviving Corporation or MDU for periods after the Closing Date
as a result of the Proposed Adjustments is more than $500,000.
5.15 BOOKS AND RECORDS; TAX MATTERS. LGE will retain its books and records
relating to CP for at least seven (7) years following the Closing Date. LGE will
cooperate with and make available to MDU or its designated representative,
during normal business hours, the books and records relating to CP retained by
LGE and remaining in existence after the Effective Time that are necessary or
useful in connection with any tax inquiry, audit, investigation or any other
matter reasonably requiring the use of any books and records for any reasonable
business purpose.
5.16 TAX REPORTS. LGE will prepare and file all consolidated, combined or
unitary Tax Reports that will include the operations of CP with LGE's operations
for periods ending on or before the Closing Date and that are due after the
Closing Date. LGE will furnish MDU with a schedule of such returns at the
Closing. MDU will, or will cause CP to, prepare and file all other Tax Reports
that are due after the Closing Date with respect to Taxes for CP for any taxable
period ending on or before the Closing Date. LGE and MDU will each prepare and
file such Tax Reports on a basis that is consistent with the basis upon which
similar Tax Reports for prior periods have been prepared and filed (including
any material elections on such Tax Reports), unless the party preparing the Tax
Report obtains an opinion from a reputable national law firm or accounting firm
to the effect that continued reporting on such basis would be contrary to law.
5.17 AMENDMENT OF SCHEDULE 3.21(F). As soon as practicable after the date
hereof, and in any case at least two (2) Business Days prior to the Closing
Date, LGE shall supplement or amend SCHEDULE 3.21(F) hereto to include all
information that would have been required to be included on such
SCHEDULE 3.21(F) on the date of execution of this Agreement had such information
been available at that time.
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ARTICLE 6.
CONDITIONS TO CLOSING
6.01 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations of
each party to this Agreement to consummate the transactions contemplated by this
Agreement and the Related Agreements shall be subject to the satisfaction or
waiver of the following conditions:
(a) STOCKHOLDER APPROVALS. The MDU Stockholder Approval and the LGE
Stockholder Approval shall have been obtained.
(b) WAITING PERIODS; APPROVALS. The waiting periods applicable to the
consummation of the transactions contemplated by this Agreement under the
HSR Act shall have expired or been terminated and all other approvals
required under applicable laws shall have been obtained, except where the
failure to obtain such approval would not, individually or in the aggregate,
be reasonably expected to have a Material Adverse Effect on MDU.
(c) NO GOVERNMENTAL PROCEEDING OR LITIGATION. No suit, action,
investigation, inquiry or other proceeding by any Governmental Authority
shall have been instituted or, to the Knowledge of any party, threatened,
which questions the validity or legality of the transactions contemplated by
this Agreement and the Related Agreements.
(d) LISTING ON NYSE AND PE. The shares of MDU Common Stock comprising
the Consideration shall have been authorized for listing on the NYSE and the
PE, subject to official notice of issuance.
6.02 ADDITIONAL CONDITIONS TO OBLIGATIONS OF MDU. The obligations of MDU
to consummate the transactions contemplated by this Agreement and the Related
Agreements shall be subject to the satisfaction or waiver of the following
additional conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of LGE set forth in this Agreement shall be true and correct in all material
respects as of the Closing Date as though such representations and
warranties were made on and as of the Closing Date (except to the extent any
such representation or warranty expressly speaks as of an earlier date); and
MDU shall have received a certificate executed by LGE to such effect.
(b) PERFORMANCE. Each Stockholder and CP shall have performed and
complied in all material respects with all covenants, obligations and
conditions required by this Agreement to be performed or complied with by it
on or prior to the Closing Date.
(c) CONSENTS OBTAINED. All consents, approvals and authorizations
required to be obtained by either Stockholder or CP pursuant to this
Agreement, including, without limitation, consents and approvals referred to
in SECTION 3.11, shall have been obtained, except to the extent the failure
to obtain any such consents, approvals and authorizations could not
reasonably be expected to have a Material Adverse Effect on CP.
(d) NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement, no
change in the business, financial condition, assets or liabilities or
results of operations of CP shall have occurred, which change could
reasonably be expected to result in a Material Adverse Effect on CP;
provided, that, for the purposes of this SECTION 6.02(D), the failure of LGE
to win any current bid on any project shall not be deemed to be a change
that could reasonably be expected to result in a Material Adverse Effect.
(e) LARISON. At the Effective Time, Larison shall surrender the
certificate or certificates representing all of the issued and outstanding
shares of CP Common Stock owned, beneficially or of record, by Larison as
set forth on SCHEDULE 3.03 in exchange for a certificate or certificates,
registered
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in the name of Larison representing Larison's share of the Consideration as
set forth on SCHEDULE 3.03. Each certificate representing CP Common Stock
owned by Larison shall be duly endorsed in blank by Larison, with all
necessary transfer tax and other revenue stamps, acquired at Larison's
expense, affixed and canceled. Larison shall have cured any deficiencies
with respect to the endorsement of the certificates representing the CP
Common Stock owned by Larison or with respect to the stock power
accompanying any such certificate. Larison shall have delivered to MDU, if
requested by MDU, a waiver of any dissenters or appraisal rights under the
laws of the State of California, in form and substance reasonably
satisfactory to MDU. Larison shall have delivered to MDU a waiver of any
rights to any portion of the Consideration Adjustment, in form and substance
reasonably satisfactory to MDU. By its execution of this Agreement, LGE
hereby consents to such waiver.
(f) ADDITIONAL DELIVERIES. All documents required to have been
delivered by or on behalf of either Stockholder or CP pursuant to
SECTION 7.01 or SECTION 7.03 shall have been delivered.
6.03 ADDITIONAL CONDITIONS TO OBLIGATIONS OF LGE AND CP. The obligations
of LGE and CP to consummate the transactions contemplated by this Agreement and
the Related Agreements shall be subject to the satisfaction or waiver of the
following additional conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of MDU set forth in this Agreement shall be true and correct in all material
respects as of the Closing Date as though such representations and
warranties were made on and as of the Closing Date (except to the extent any
such representation or warranty expressly speaks as of an earlier date); and
LGE shall have received a certificate executed by MDU to such effect.
(b) PERFORMANCE. Each of MDU and Acquisition Subsidiary shall have
performed and complied in all material respects with all covenants,
obligations and conditions required by this Agreement to be performed or
complied with by it on or prior to the Closing Date.
(c) CONSENTS OBTAINED. All consents, approvals and authorizations
required to be obtained by MDU or Acquisition Subsidiary pursuant to this
Agreement, including, without limitation, consents and approvals referred to
in SECTION 4.09, shall have been obtained, except to the extent the failure
to obtain any such consents, approvals and authorizations could not
reasonably be expected to have a Material Adverse Effect on MDU.
(d) RELEASES OF LGE'S LIABILITY. LGE shall have received releases of
liability for post-Closing activities with respect to the following
transactions: (i) the Quarry Agreement, including the sublease from the
Santa Catalina Island Company contained therein, and (ii) any performance
and payment bonds relating to post-Closing activities that are listed on
SCHEDULE 6.03, all of which are also listed on SCHEDULE 3.23. LGE shall
prepare and deliver SCHEDULE 6.03 to MDU as soon as practicable after the
execution of this Agreement, but in no case later than seven days preceding
the Closing Date.
(e) ADDITIONAL DELIVERIES. All documents required to have been
delivered by or on behalf of MDU pursuant to SECTION 7.02 or SECTION 7.03
shall have been delivered.
ARTICLE 7.
ADDITIONAL DELIVERIES
7.01 DELIVERIES BY LGE AND CP. At the Closing, in addition to any other
certificates, documents or items required to be delivered under the terms of
this Agreement, LGE and CP shall deliver the following:
(a) A certificate of the President of LGE and Thomas Everist, as a Vice
President of CP, dated the Closing Date, certifying that all consents,
approvals and authorizations required to be obtained by LGE or CP pursuant
to SECTION 6.02(C) have been obtained, together with copies of such consents
and approvals.
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(b) Copies of the Articles of Incorporation of (i) LGE and (ii) CP,
certified as of a recent date by the Secretary of State of the States of
Iowa and California, respectively.
(c) Copies of the By-Laws of (i) LGE and (ii) CP, including all
amendments thereto, certified by the Secretary or an Assistant Secretary of
LGE or CP, as the case may be.
(d) Certificates, dated not earlier than seven (7) calendar days prior
to the Closing Date, of the Secretary of State of the States of Iowa and
California, respectively, as to the valid existence of (i) LGE and (ii) CP,
together with other assurances reasonably acceptable to MDU dated the
Closing Date bringing down such certificates to the Closing Date.
(e) Certificates of authority, dated not earlier than seven
(7) calendar days prior to the Closing Date, of the Secretary of State of
each of the states in which CP is qualified to do business, as to the due
qualification or license of CP as a foreign corporation in such state.
(f) Resolutions adopted by the Board of Directors of LGE and resolutions
adopted by the Board of Directors and by the stockholders of CP, in each
case authorizing this Agreement and the transactions contemplated hereby,
including, without limitation, the Merger, certified by the Secretary or an
Assistant Secretary of LGE or CP, as the case may be.
(g) Resolutions adopted by the stockholders of LGE evidencing the LGE
Stockholder Approval, certified by the Secretary or an Assistant Secretary
of LGE
(h) A preliminary draft of the Closing Balance Sheet accompanied by a
certificate of Thomas Everist, as Vice President of CP, and by the Treasurer
of CP and by the President of LGE to the effect that such Closing Balance
Sheet has been prepared in accordance with GAAP, and is true, accurate and
complete in all material respects.
(i) A certificate of Thomas Everist, as Vice President of CP, and by the
Treasurer of CP and the President of LGE as to the amount of Debt.
(j) The opinions of Faegre & Benson LLP and Lillick & Charles LLP,
counsel to LGE and CP, substantially in the form of EXHIBIT 7.01(J)-1 and
EXHIBIT 7.01(J)-2 hereto.
(k) Evidence in form and substance satisfactory to MDU of the completion
of the notices described in SCHEDULE 3.12(B) hereto.
(l) A certificate from each Stockholder, substantially in the form of
EXHIBIT 7.01(L) hereto, stating that such Stockholder is not a nonresident
alien for purposes of U.S. federal income taxation.
(m) Duly executed resignations of each of the directors of CP, in form
and substance reasonably satisfactory to MDU.
(n) Each of LGE and CP shall deliver to MDU Uniform Commercial Code
financing statement searches for the State of California and any other state
in which CP does business, dated within 15 calendar days prior to the date
of the Closing, showing that there are no security interests, judgments,
taxes, other liens or encumbrances outstanding either Stockholder or CP or
their respective assets.
(o) Certificates of CP and LGE, in a form satisfactory to MDU,
evidencing incumbency of the officers of CP and LGE, respectively, executing
this Agreement, any Related Documents or any certificate or document in
connection with the Agreement or the Related Agreements or the transactions
contemplated thereby.
(p) The following documents or items:
(i) Amended and Restated Lease between LGE, as lessor, and CP, as
lessee, relating to the premises located at 1925 Pier "D" Street,
Long Beach, in the County of Los Angeles, State
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of California, substantially in the form attached here to as
EXHIBIT 7.01(P)(I), duly executed and delivered by LGE and CP;
(ii) Lease between LGE, as lessor, and CP, as lessee, relating to the
premises located at Berth 44, Pier "D" Street, Long Beach, in the
County of Los Angeles, State of California, substantially in the
form attached here to as EXHIBIT 7.01(P)(II), duly executed and
delivered by LGE and CP; and
(iii) a legal description of the real properties leased under, or subject
to, either of the documents referred to in SECTION 7.01(P)(I) OR
(II) above.
7.02 DELIVERIES BY MDU. At the Closing, in addition to any other
certificates, documents or items required to be delivered under the terms of
this Agreement, MDU shall have deliver the following:
(a) A certificate of the President or a Vice President of MDU, dated the
Closing Date, certifying that all consents and approvals referred to in
SECTION 4.09 have been obtained, together with copies of such consents and
approvals or evidence thereof.
(b) A copy of the Certificate of Incorporation of each of MDU and
Acquisition Subsidiary, certified as of a recent date by the Secretary of
State of the States of Delaware and California, respectively
(c) A copy of the By-Laws of MDU, including all amendments thereto,
certified by the Secretary or an Assistant Secretary of MDU.
(d) Certificate, dated as of a recent date, of the Secretary of State of
the State of Delaware, as to the valid existence and good standing of MDU,
together with other assurances reasonably acceptable to LGE dated the
Closing Date bringing down such certificate to the Closing Date.
(e) Resolutions adopted by the respective Boards of Directors of MDU and
Acquisition Subsidiary (or, to the extent applicable, a duly appointed and
authorized committee thereof) authorizing this Agreement and the
transactions contemplated hereby, including, without limitation, the Merger,
certified by the Secretary or an Assistant Secretary of MDU or Acquisition
Subsidiary, as the case may be.
(f) Resolutions adopted by the Board of Directors of MDU (or, to the
extent applicable, a duly appointed and authorized committee thereof),
authorizing the delivery of the Consideration, certified by the Secretary or
an Assistant Secretary of MDU.
(g) Resolutions adopted by the stockholders of MDU evidencing the MDU
Stockholder Approval, certified by the Secretary or an Assistant Secretary
of MDU.
(h) The opinions of Thelen Reid & Priest LLP, counsel to MDU, and Lester
H. Loble, II, Vice President and General Counsel of MDU, substantially in
the forms of EXHIBIT 7.02(H)-1 and EXHIBIT 7.02(H)-2 hereto.
(i) Certificate of MDU, in a form satisfactory to LGE, evidencing
incumbency of the officers of MDU executing this Agreement, any Related
Documents or any certificate or document in connection with the Agreement or
the Related Agreements or the transactions contemplated thereby.
7.03 JOINT DELIVERIES. At the Closing, in addition to any other
certificates, documents or items required to be delivered under the terms of
this Agreement, the following documents shall be delivered:
(a) Employment Agreement, dated as of the Closing Date, between CP and
Larison substantially in the form of EXHIBIT 7.03(A) hereto.
(b) A Noncompetition Agreement, dated as of the Closing Date, by and
between MDU and LGE, substantially in the form of EXHIBIT 7.03(B) hereto.
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(c) A Stockholder's Agreement, dated as of the Closing Date, by and
between MDU and LGE, substantially in the form of EXHIBIT 7.03(C) hereto.
ARTICLE 8.
TERMINATION
8.01 TERMINATION. This Agreement may be terminated at any time prior to
the Closing by written notice by the terminating party to the other parties:
(a) by mutual written consent of MDU and LGE; or
(b) by MDU or LGE after June 1, 2000, if the Closing Date has not
occurred on or prior to such date.
8.02 EFFECT OF TERMINATION. In the event of termination as provided in
this ARTICLE 8, such termination shall be without liability of any party to any
other party to this Agreement, except that (i) if such termination results from
the willful failure of MDU or Acquisition Subsidiary to fulfill a condition to
the Agreement or from a material and willful breach by MDU or Acquisition
Subsidiary, MDU shall be fully liable for any and all damages, costs and
expenses (including but not limited to reasonable counsel fees) sustained or
incurred by the other parties hereto, and (ii) if such termination results from
the willful failure of either Stockholder or CP to fulfill a condition to the
Agreement or from a material and willful breach by either LGE or CP, then LGE
and CP shall, jointly and severally, be fully liable for any and all damages,
costs and expenses (including but not limited to reasonable counsel fees)
sustained or incurred by MDU and Acquisition Subsidiary. The provisions of
SECTIONS 8.02, 10.06 AND 10.09 of this Agreement shall remain in full force and
effect and survive any termination of this Agreement.
8.03 CONFIDENTIALITY FOLLOWING TERMINATION. In the event of termination of
this Agreement for any reason, MDU shall immediately return to LGE all
information and data (regardless of the form in which such information or data
is kept) of LGE and MDU's use or disclosure of such information or data shall be
governed by the terms and provisions of the Confidentiality Agreement between
KRC and LGE. The confidentiality and other obligations of MDU contained in such
Confidentiality Agreement shall expire two (2) years after the termination of
this Agreement.
ARTICLE 9.
INDEMNIFICATION
9.01 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Regardless of
any investigation by any party hereto, the representations, warranties and
covenants contained in this Agreement or any document delivered hereunder shall
survive the Closing and remain in full force and effect until two (2) years
after the Closing Date, other than (i) any representation, warranty or covenant
by LGE contained herein which relates to Taxes or ERISA matters, including
without limitation, any representation, warranty or covenant contained in
SECTIONS 3.20 OR 3.21, which shall survive until the date on which the relevant
statute of limitations expires (giving effect to any waiver, mitigation or
extension thereof) and (ii) any representation, warranty or covenant contained
in Sections 3.01(a), 3.01(b) (first two sentences only), 3.02, 3.03, 3.05, 3.06,
3.07, 4.12, 4.13, 5.13, 5.14, 5.16 or 9.03(b) which shall survive indefinitely.
9.02 INDEMNIFICATION BY AND ON BEHALF OF LGE.
(a) LGE agrees to defend, indemnify and hold the Indemnified Purchaser
Group harmless from and against any and all losses, liabilities, damages,
costs or expenses (including reasonable attorneys'
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fees, penalties and interest) payable to or for the benefit of, or asserted
by, any party, resulting from, arising out of, or incurred as a result of:
(i) the breach of any representation made by either LGE or CP herein or
in accordance herewith; or
(ii) the breach of any warranty or covenant made by either LGE or CP
herein or in accordance herewith.
(b) If LGE, at the time it is required to make any payment for
indemnification pursuant to this SECTION 9.02, holds shares of MDU Common
Stock that are subject to the restrictions on transfer contained in the
Stockholder's Agreement, then LGE's obligations to make any such payment for
indemnification shall be deferred until such time as LGE holds shares of MDU
Common Stock that are not subject to the restrictions on transfer contained
in the Stockholder's Agreement; provided, that, if, at the time LGE is
required to make any payment for indemnification pursuant to this
SECTION 9.02, it holds any shares of MDU Common Stock that are not subject
to the restrictions on transfer contained in the Stockholder's Agreement,
then, to the extent of the then current market value of such MDU Common
Stock, LGE's obligations to make any such payment for indemnification shall
not be deferred.
9.03 INDEMNIFICATION BY MDU.
(a) MDU agrees to defend, indemnify and hold the Indemnified Seller
Group harmless from and against any and all losses, liabilities, damages,
costs, or expenses (including reasonable attorneys' fees, penalties and
interest) payable to or for the benefit of, or asserted by, any party,
resulting from, arising out of, or incurred as a result of (a) the breach of
any representation made by MDU herein or in accordance herewith; (b) the
breach of any warranty or covenant made by MDU herein or in accordance
herewith, and (c) any liabilities of CP or the Stockholders arising from
ownership or operation of CP or CP's business after the Closing Date
(including, without limitation, all actions, suits and claims of any nature
arising from such ownership or operation after the Closing Date).
(b) MDU will, to the extent required in order to assure that the Merger
will qualify as a tax-free reorganization, take all reasonable steps
necessary to pay the following amounts in MDU Common Stock: (x) any amounts
due for indemnification pursuant to this SECTION 9.03 in MDU Common Stock,
or (y) any attorneys' fees payable by MDU pursuant to SECTION 10.11 hereof,
in each case subject to MDU's receipt of (i) any necessary regulatory
approvals relating to the issuance of such MDU Common Stock,
(ii) authorization for listing of such MDU Common Stock on the NYSE and the
PE, (iii) the approval of the MDU Board of Directors relating to the
issuance of such MDU Common Stock and (iv) any necessary approval of the
stockholders of MDU relating to the issuance of such MDU Common Stock. For
the purposes of this SECTION 9.03(B), the value of the MDU Common Stock to
be issued to make any of the payments described in this SECTION 9.03(B),
shall be deemed to be the sum of the closing prices of the MDU Common Stock
in New York Stock Exchange Composite Transactions as reported in The Wall
Street Journal for the ten (10) trading days preceding the date on which all
of the authorizations and approvals referred to in (i) through (iv) above
have been obtained, divided by ten (10) (appropriately adjusted, in any
case, for any stock split, reverse stock split, stock dividend, or similar
event).
9.04 LIMITATIONS ON INDEMNIFICATION.
(a) Neither the Indemnified Seller Group, on the one hand, nor the
Indemnified Purchaser Group, on the other hand, shall be entitled to make
any claim for indemnification under this ARTICLE 9 with respect to (i) the
breach of any representation, warranty or covenant contained herein (other
than those representations, warranties or covenants by LGE that relate to
Taxes or ERISA matters, including without limitation, any representation,
warranty or covenant contained in SECTIONS 3.20 OR 3.21, and other than
those representations, warranties or covenants contained in Sections
3.01(a),
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3.01(b) (first two sentences only), 3.02, 3.03, 3.05, 3.06, 3.07, 4.12,
4.13, 5.13, 5.14, 5.16 or 9.03(b)) after two (2) years after the Closing
Date, or (ii) the breach by LGE of any representation and warranty contained
herein which relates to Taxes or ERISA matters, including without
limitation, any representation, warranty or covenant contained in
SECTIONS 3.20 OR 3.21, after the date on which the relevant statute of
limitations expires (giving effect to any waiver, mitigation or extension
thereof), unless the Indemnified Seller Group or the Indemnified Purchaser
Group, as the case may be, shall assert such claim for indemnification, and
shall specify, in reasonable detail to the extent known, the specific facts
constituting the basis for such claim for indemnification prior to the date
on which such representation and warranty cease to survive.
(b) Except as hereinafter expressly provided, no claim for
indemnification under SECTION 9.02 shall he made by members of the
Indemnified Purchaser Group unless and until the aggregate amount of all
losses, liabilities, damages, costs and expenses suffered by the members of
the Indemnified Purchaser Group exceeds $500,000 in the aggregate, and then
only to the extent that the aggregate amount of such losses, liabilities,
damages, costs and expenses exceeds $500,000. In addition, LGE shall not be
liable for indemnification under SECTION 9.02 in an aggregate amount in
excess of $15 million.
(c) In no event shall LGE have any liability hereunder for any breach of
a representation or warranty of either LGE or CP of which an officer or
director of MDU (other than Thomas Everist) or an employee of KRC who has
devoted substantial attention to the transactions contemplated hereby had
actual conscious awareness prior to the execution hereof or the Closing, as
the case may be.
(d) Notwithstanding the foregoing, there shall be no limitation on
indemnification under this ARTICLE 9 with respect to breach of any
representation, warranty or covenant contained in Sections 3.01(a), 3.01(b)
(first two sentences only), 3.02, 3.03, 3.05, 3.06, 3.07, 3.20, 3.21, 5.13,
5.14, 5.16 or 9.03(b).
(e) Notwithstanding the foregoing, (i) no indemnified party shall be
entitled to be indemnified hereunder for any portion of the amount of any
losses, liabilities, damages, costs, or expenses with respect to which such
party receives final, irrevocable payment from any insurer; and (ii) the
amount of any losses, liabilities, damages, costs, or expenses with respect
to which an indemnified party is entitled to indemnification hereunder shall
be reduced by an amount equal to the quantifiable tax benefits to such party
associated with such losses, liabilities, damages, costs or expenses.
9.05 SUPPLEMENTS TO DISCLOSURE SCHEDULES. Prior to the Closing Date, LGE
will promptly supplement or amend the Schedules delivered pursuant to ARTICLE 3
hereof with respect to any matter arising after the date hereof which if
existing or occurring at the date hereof would have been required to be set
forth or described in such Schedules. Any such supplement or amendment shall be
provided to MDU in writing and certified by the Secretary or an Assistant
Secretary of LGE before the Closing Date and shall not be effective unless and
until so provided. For purposes of the indemnifications set forth in ARTICLE 9
(but not for purposes of determining the accuracy of representations and
warranties of LGE contained in ARTICLE 3 hereof with respect to the fulfillment
of the conditions set forth in SECTION 6.02 for which the Schedules hereto shall
be deemed to include only that information contained therein on the date of this
Agreement), the Schedules hereto shall be deemed to include all information
contained in any supplement or amendment.
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9.06 REMEDIES EXCLUSIVE. Except as specifically provided for herein, each
of MDU, on behalf of the Indemnified Purchaser Group and LGE, on behalf of the
Indemnified Seller Group, acknowledge and agree that, should the Closing occur,
the sole and exclusive remedy of each party hereto against any other party
hereto with respect to any and all claims arising under this Agreement shall be
pursuant to the indemnification provisions set forth in this ARTICLE 9. In
furtherance of the foregoing, except as set forth in this Agreement (including
but not limited to ARTICLE 9 hereof) MDU, Acquisition Subsidiary and LGE, on
behalf of the Stockholders, hereby waive, from and after the Closing, to the
fullest extent permitted under applicable law, any and all rights, claims and
causes of action arising out of this Agreement that the members of the
Indemnified Purchaser Group may have against LGE or the members of the
Indemnified Seller Group may have against MDU, in each case arising under or
based upon any federal, state, local or foreign statute, law, ordinance, rule or
regulation or otherwise; provided, however, that no party waives its rights to
pursue any legal or equitable remedy available to it, whether by statute or at
common law, for intentional fraud or intentional misrepresentation.
9.07 NOTICE OF CLAIMS. LGE, on the one hand, and MDU, on the other hand,
agree to give prompt written notice to each other of any claim by any party
which might give rise to a claim by it or them against the other parties hereto
based upon the indemnity provisions contained herein, stating the nature and
basis of the claim and the actual or estimated amount thereof; PROVIDED,
HOWEVER, that failure to give such notice will not affect the obligation of the
indemnifying party to provide indemnification in accordance with the provisions
of this ARTICLE 9 unless, and only to the extent that, such indemnifying party
is actually prejudiced thereby. In the event that any action, suit or proceeding
is brought by a third party against any member of the Indemnified Seller Group
or the Indemnified Purchaser Group with respect to which any party hereto may
have liability under the indemnification provisions contained herein, the
indemnifying party shall have the right, at its sole cost and expense, to defend
such action in the name or on behalf of the indemnified party and, in connection
with any such action, suit or proceeding, the parties hereto agree to render to
each other such assistance as may reasonably be required in order to ensure the
proper and adequate defense of any such action, suit or proceeding; PROVIDED,
HOWEVER, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party
(subject to SECTION 9.03(B)), if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate because of
actual or potential differing interests between such indemnified party and any
other party represented by such counsel. No party hereto shall make any
settlement of any claim which might give rise to liability of any other party
under the indemnification provisions contained herein without the written
consent of such other party, which consent such other party covenants shall not
be unreasonably withheld.
ARTICLE 10.
GENERAL PROVISIONS
10.01 EXPENSES. Except as otherwise expressly provided herein, LGE and MDU
shall each pay their own expenses (including, without limitation, the fees and
expenses of its agents, representatives, counsel, and accountants) incurred in
connection with the negotiation, drafting, execution, delivery and performance
of this Agreement and the Related Agreements and the transactions contemplated
hereby and thereby, it being understood that any expenses incurred by CP in
connection with the negotiation, drafting, execution, delivery and performance
of this Agreement and the Related Agreements will be borne by LGE. LGE will
cause CP to estimate and accrue on the Closing Balance Sheet all such expenses
incurred by CP, to the extent not previously paid by CP.
10.02 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of LGE and MDU and their respective, successors,
representatives and assigns.
10.03 WAIVER. No provision of this Agreement shall be deemed waived by
course of conduct, including the act of closing, unless such waiver is made in a
writing signed by all then existing or surviving
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<PAGE>
parties hereto, stating that it is intended specifically to modify this
Agreement, nor shall any course of conduct operate or be construed as a waiver
of any subsequent breach of this Agreement, whether of a similar or dissimilar
nature.
10.04 ENTIRE AGREEMENT. This Agreement (together with the Schedules and
Exhibits hereto) supersedes any other agreement, whether written or oral, that
may have been made or entered into by MDU or any of its subsidiaries, either
Stockholder or CP (or by any director, officer, employee, shareholder, agent, or
other representative of such parties) relating to the matters contemplated
hereby. This Agreement (together with the Schedules and Exhibits hereto)
constitutes the entire agreement between the parties and there are no agreements
or commitments except as expressly set forth herein.
10.05 FURTHER ASSURANCES. Each of the parties hereto agrees to execute all
further documents and instruments and to take or to cause to be taken all
reasonable actions which are necessary or appropriate to complete the
transactions contemplated by this Agreement.
10.06 NOTICES. All notices, demands, requests, and other communications
hereunder shall be in writing and shall be deemed to have been duly given and
shall be effective upon receipt if delivered by hand, or sent by certified or
registered United States mail, postage prepaid and return receipt requested, or
by prepaid overnight express service or facsimile transmission (with receipt
confirmed). Notices shall be sent to the parties at the following addresses (or
at such other addresses for a party as shall be specified by like notice;
provided that such notice shall be effective only upon receipt thereof):
(a) If to LGE:
L. G. Everist, Incorporated
300 S. Phillips Avenue
Suite 200
P.O. Box 5829
Sioux Falls, South Dakota
57117-5829
Telephone: 605-334-5000
Facsimile: 605-334-3656
Attn: Thomas Everist, President
with a copy (which shall not constitute notice) to:
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
Telephone: 612-336-3000
Facsimile: 612-336-3026
Attn: Bruce M. Engler, Esq.
(b) If to MDU:
MDU Resources Group, Inc.
Schuchart Building
918 East Divide Avenue
P.O. Box 5650
Bismarck, North Dakota, 58506-5650
Telephone: (701) 222-7900
Facsimile: (701) 222-7607
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<PAGE>
Attn: Corporate Secretary
with a copy (which shall not constitute notice) to:
Thelen Reid & Priest LLP
40 West 57th Street
New York, New York 10019-4097
Telephone: (212) 603-2000
Facsimile: (212) 603-2001
Attn: Richard S. Green, Esq.
10.07 AMENDMENTS, SUPPLEMENTS, ETC. This Agreement may be amended or
modified only by a written instrument executed by all then existing or surviving
parties hereto which states specifically that it is intended to amend or modify
this Agreement.
10.08 SEVERABILITY. In the event that any provision contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision hereof and this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been contained herein
and, in lieu of each such illegal, invalid or unenforceable provision, there
shall be added automatically as a part of this Agreement a provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible
but still be legal, valid and enforceable.
10.09 GOVERNING LAW. This Agreement and the legal relations between the
parties hereto shall be governed by and construed in accordance with the
substantive laws of the State of California without giving effect to the
conflicts of laws principles thereof.
10.10 EXECUTION IN COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.11 ATTORNEY FEES. In any litigation, arbitration, or other proceeding
by which one party either seeks to enforce its rights under this Agreement
(whether in contract, tort, or both) or seeks a declaration of any rights or
obligations under this Agreement, the prevailing party shall be awarded
reasonable attorney fees, together with any costs and expenses, including expert
witness fees, to resolve the dispute and to enforce the final judgment.
10.12 DISCLOSURE SCHEDULES.
(a) Matters set forth in the Schedules to this Agreement may include matters
not required by this Agreement to be set forth in such Schedules. The inclusion
of any such non-required matter shall not of itself imply any obligation on the
part of MDU, LGE or CP to set forth any other non-required matter.
(b) A disclosure made by LGE, CP or MDU in any particular Section of this
Agreement or any particular Schedule to this Agreement that is set forth in
sufficient detail to reasonably inform the other parties of information required
to be disclosed in another Section of this Agreement or another such Schedule
(taking into account the context in which the disclosure was made) shall be
deemed, for the purposes of this Agreement to have been made with respect to
such other Section of this Agreement or such other Schedule. In no event shall
the mere listing in a Schedule to this Agreement (or the mere provision by LGE
or CP to MDU of a copy) of a document or other item be deemed adequate to
disclose an exception to a representation or warranty made herein, unless such
representation or warranty has to do with the existence of the document or other
item itself.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
<TABLE>
<S> <C> <C>
MDU RESOURCES GROUP, INC.
By:
-----------------------------------------
Name: Lester H. Loble, II
Title: Vice President, General Counsel and
Secretary
CONNPAC ACQUISITION CORP.
By:
-----------------------------------------
Name: Terry D. Hildestad
Title: President
L.G. EVERIST, INCORPORATED
By:
-----------------------------------------
Name: Thomas Everist
Title: President
CONNOLLY-PACIFIC CO.
By:
-----------------------------------------
Name: Thomas Everist
Title: Vice President
</TABLE>
A-41
<PAGE>
EXHIBIT B
MDU RESOURCES GROUP, INC
1992 KEY EMPLOYEE STOCK OPTION PLAN
(KESOP)
I. PURPOSE
The purpose of the MDU Resources Group, Inc. 1992 Key Employee Stock Option
Plan (the "Plan") is to motivate key employees of MDU Resources Group, Inc. and
its business units to achieve specified long-term performance goals of MDU
Resources Group, Inc. or its business units and to encourage ownership by them
of the Common Stock of MDU Resources Group, Inc. The Plan accomplishes these
objectives through the grant of performance accelerated Stock Options and the
opportunity to earn dividend equivalents.
II. DEFINITIONS
The following definitions shall be used for purposes of administering the
Plan:
"Agreement" means a written agreement evidencing each award of Options,
which shall contain such terms and be in such form as the Compensation
Committee may determine.
"Board" means the Board of Directors of the Company.
"Cause" means the (1) continued failure by a Participant to perform his/her
duties (except as a direct result of the Participant's Disability) after
receiving notification by the Chief Executive Officer of the Company or an
individual designated by the Chief Executive Officer (or the Board of
Directors of the Company in the case of the Chief Executive Officer)
identifying the manner in which the Participant has failed to perform
his/her duties, (2) engaging in conduct, which, in the opinion of a majority
of the Board of Directors of the Company or a business unit, is materially
injurious to the Company, or (3) conviction of any felony.
"Change of Control" means the earliest of the following to occur: (a) the
public announcement by the Company or by any person (which shall not include
the Company, any subsidiary of the Company, or any employee benefit plan of
the Company or of any subsidiary of the Company) ("Person") that such
Person, who or which, together with all Affiliates and Associates (within
the meanings ascribed to such terms in the Rule 12b-2 of the General
Rules and Regulations under the Exchange Act) of such Person, shall be the
beneficial owner of twenty percent (20%) or more of the voting stock of the
Company outstanding; (b) the commencement of, or after the first public
announcement of any Person to commence, a tender or exchange offer the
consummation of which would result in any Person becoming the beneficial
owner of voting stock aggregating thirty percent (30%) or more of the then
outstanding voting stock of the Company; (c) the announcement of any
transaction relating to the Company required to be described pursuant to the
requirements of Item 6(e) of Schedule 14A of Regulation 14A under the
Exchange Act; (d) a proposed change in constituency of the Board such that,
during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election or nomination
for election by the stockholders of the Company of each new Director was
approved by a vote of at least two-thirds (2/3) of the Directors then still
in office who were members of the Board at the beginning of the period; or
(e) any other event which shall be deemed by a majority of the Compensation
Committee to constitute a "change in control."
"Common Stock" means the Common Stock, $1.00 par value, of the Company.
"Company" shall refer to MDU Resources Group, Inc.
B-1
<PAGE>
"Companies" shall refer to MDU Resources Group, Inc. and its business units.
"Compensation Committee" or "Committee" shall be the Compensation Committee
of the Board of Directors of the Company or any Committee of the Board
performing similar functions as appointed from time to time by the Board.
"Covered Employee" means any Participant who would be considered a "Covered
Employee" for purposes of Section 162(m) of the Internal Revenue Code of
1986, as amended.
"Disability" means the inability of a Participant to perform each and every
duty pertaining to the Participant's regular occupation by reason of any
medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve months.
"Dividend Account" is defined in Section IV.D 6.
"Effective Date" means the date as of which the Plan is approved by the
stockholders of MDU Resources Group, Inc.
"Eligible Employee" means any key employee of any of the Companies who, in
the opinion of the Compensation Committee, has significant responsibility
for the continued growth, development and financial success of the Company
or any business unit thereof.
"Exchange" means the New York Stock Exchange.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the average of the high and low prices for shares
of Common Stock traded on the Exchange on the date of the grant of such
Option or if no shares are traded on that day, on the next preceding day on
which Common Stock was traded on the Exchange.
"Goals" means the performance goals established by the Committee, which
shall be based on one or more of the following measures: sales or revenues,
earnings per share, shareholder return and/or value, funds from operations,
operating income, gross income, net income, cash flow, return on equity,
return on capital, earnings before interest, operating ratios, stock price,
customer satisfaction, accomplishment of mergers, acquisitions, dispositions
or similar extraordinary business transactions, profit returns and margins,
financial return ratios and/or market performance. Performance goals may be
measured solely on a corporate, subsidiary or business unit basis, or a
combination thereof. Performance goals may reflect absolute entity
performance or a relative comparison of entity performance to the
performance of a peer group of entities or other external measure.
"Option" or "Stock Option" means an option to purchase Common Stock granted
pursuant to the Plan. Options may not be "incentive stock options" as that
term is defined in Section 422 of the Internal Revenue Code of 1986, as
amended.
"Participants" means those Eligible Employees selected by the Committee for
participation in the Plan and includes their beneficiaries as applicable.
"Performance Cycle" means a time frame established by the Committee pursuant
to Section IV.D 4 for the measurement of Goals.
"Plan" means this MDU Resources Group, Inc. 1992 Key Employee Stock Option
Plan, adopted by the Board on February 13, 1992, and approved by the
stockholders on April 28, 1992, and as amended from time to time.
"Termination of Service" means leaving the employ of the Companies for any
reason. Transfer between Companies is not a Termination of Service.
B-2
<PAGE>
"Trustee" means a trustee chosen by the Committee or any successor trustee
selected by the Committee.
III. ADMINISTRATION
Subject to and not inconsistent with the express provisions of the Plan the
Committee has the sole and complete discretion to administer and interpret the
Plan, including, but not limited to:
(a) designating the Participants to whom Options are granted under the Plan;
(b) authorizing the Trustee to grant Options, determining the time(s) when
Options are granted and fixing the number of shares of Common Stock
underlying each Option granted hereunder;
(c) determining the terms and conditions of an Option granted (including,
but not limited to, the exercise price, any restriction or limitation,
the vesting provisions, acceleration of vesting or forfeiture waiver
applicable to any Option) and the terms of the related Agreement;
(d) determining the conditions of the awarding of Dividend Equivalents;
(e) establishing Goals and fixing and adjusting the Goals;
(f) interpreting the terms and provisions of the Plan;
(g) adopting, amending, and rescinding rules and regulations relating to the
Plan; and
(h) making all determinations necessary or advisable for the administration
of the Plan.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Companies, the Trustee,
and the Plan's Participants.
The Committee may also revise or adjust the vesting provisions (except that
the Committee may not extend vesting beyond nine years), Goals and their levels
applicable to a Performance Cycle, at any time to take into account, among other
things, new Participants, promotions, transfers, terminations, changes in law
and accounting and tax rules and to make such adjustments as the Committee deems
necessary or appropriate to reflect the Companies' performances or the impact of
extraordinary or unusual items, events, or circumstances or in order to avoid
windfalls or hardships.
The Company and/or the Committee may consult with legal counsel, who may be
counsel for the Company or other counsel, with respect to its obligations and
duties hereunder or with respect to any claim, action, or proceeding or any
other matter.
No member or agent of the Committee shall be personally liable for any
action, determination, or interpretation made in good faith with respect to the
Plan or grants made hereunder, and all members and agents of the Committee shall
be fully protected by the Company in respect of any such action, determination,
or interpretation.
The Committee's determination under the Plan, including without limitation,
determinations as to the Participants to receive grants, the terms and
provisions of such grants and the Agreement(s) evidencing the same, need not be
uniform and may be made by it selectively among the Eligible Employees who
receive or are eligible to receive grants under the Plan, whether or not such
Eligible Employees are similarly situated.
IV. GENERAL PLAN DESCRIPTION
A. OVERVIEW
The Plan provides for each Participant to (a) receive grant(s) of Stock
Options, (b) have the opportunity to earn dividend equivalents, and
(c) have the opportunity to achieve accelerated vesting
B-3
<PAGE>
of Stock Options and receive additional grants of Stock Options based upon
the achievement of Goals established by the Committee over a designated
Performance Cycle.
B. ELIGIBILITY
On or after the Effective Date, subject to the provisions of the Plan,
the Committee shall, from time to time, select from eligible employees
Participants to whom options are to be granted. At the time of selection,
the Committee shall specify the terms and conditions of the Participant's
grant of Options.
C. AUTHORIZATION
The total number of shares of Common Stock as to which Options may be
granted may not exceed 800,000 shares; if any unexercised options lapse or
terminate for any reason, the shares underlying the Options may be made
subject to Options granted to other Participants. In the event of the
declaration of a Common Stock dividend and/or Common Stock split,
reclassification or analogous change in the capitalization or any
distributions (other than regular cash dividends) to holders of record of
Common Stock, an appropriate adjustment shall be made to the total number of
shares as to which Options may be granted under the Plan to any Participant,
to the number of shares subject to Options, and to the exercise price.
Shares of Common Stock delivered under this Plan may be authorized but
unissued shares of Common Stock, treasury stock, shares of Common Stock
purchased on the open market and held by the Trustee, or shares of Common
Stock from the 1983 Key Employees' Stock Option Plan.
D. INDIVIDUAL LIMITATIONS
Subject to adjustment as provided in Section IV(C), the total number of
shares of Common Stock with respect to which Options may be granted in any
calendar year to any Covered Employee shall not exceed 150,000 shares, and
the aggregate number of dividend equivalents that a Covered Employee may
receive in any calendar year shall not exceed $1,500,000.
E. STOCK OPTIONS AND DIVIDEND EQUIVALENTS
(1) GRANTS
Each Participant shall receive a grant of Options on the date she or
he becomes a Participant. The Committee shall determine the size of the
grant to each Participant. Participants may receive subsequent grants of
Options when and as directed by the Committee.
(2) EXERCISE PRICE AND TERM
The exercise price for an Option granted under the Plan is the Fair
Market Value of the Company's Common Stock on the date of the Option
grant. An Option granted shall generally have a term of ten years
commencing from the date of grant, subject to the provisions of Sections
V and VI and to the general discretion of the Committee set forth in
Section III.
(3) VESTING AND ACCELERATED VESTING PROVISIONS
No Option may be exercised before it has vested. Generally Option
grants have a vesting period (before accelerated vesting) of nine years
subject to the provisions of Section VI and to the general discretion of
the Committee set forth in Section III. The vesting period for all or a
portion of Options granted to a Participant may be accelerated by the
Committee subject to the achievement of Goals for a Performance Cycle.
B-4
<PAGE>
(4) PERFORMANCE CYCLE AND GOALS
The Committee shall fix the starting and ending dates of each
Performance Cycle. The minimum term shall be six months; the maximum term
shall be nine years. A Performance Cycle will be the time period used in
assessing the performance of each of the Companies in comparison to the
separate Goals established by the Committee for each of the Companies.
Performance Cycles and Goals may vary for each of the Companies.
(5) SUBSEQUENT GRANTS; ACCELERATED VESTING
Additional grants of Options may be made to Participants at any time.
In particular, but not by way of limitation, additional grants of
Options may be made to Participants at the beginning of a new Performance
Cycle based upon the appropriate Companies' achievement of Goals and the
results of accelerated vesting of all or a portion of previous grants.
The Committee will have the authority to determine the size and terms of
any new Option grant for each Participant.
(6) DIVIDEND EQUIVALENTS
At the beginning of each Performance Cycle, a Dividend Account (the
"Dividend Account") shall be established for each Participant. If a
dividend is declared by the Board on the Common Stock of the Company an
equivalent amount shall be accrued in the Dividend Account of each
Participant for each share of Common Stock underlying all unvested
Options held by the Participant. At the end of each Performance Cycle the
Committee in its sole discretion may award an amount between 0% and 150%
of a Participant's Dividend Account based on whether the Goals
established for that Performance Cycle were achieved. Any earned portion
of a Participant's Dividend Account is paid in cash to that Participant
at the end of each Performance Cycle at a date and time determined by the
Committee. Any portion of a Participant's Dividend Account not awarded to
the Participant by the Committee is forfeited. However, shares of Common
Stock underlying unvested Options retain a dividend equivalent and a
Participant can earn the value of these dividend equivalents in
subsequent Performance Cycles.
(7) EXERCISE OF OPTIONS
As provided in paragraph (3) of this section, generally all Options
granted to a Participant under the Plan shall vest on the ninth
anniversary of the date of grant; provided, however, that if and to the
extent the vesting of an Option is accelerated at the end of a
Performance Cycle, the Option may thereafter be exercised to the extent
that the Option has vested. Any vested Option may be exercised from time
to time in part or as a whole, at the discretion of the Participant, from
the date of vesting until termination of the Option; no Option shall be
exercisable after its expiration date; subject in either case to the
provisions set forth in Section V and to the general discretion of the
Committee set forth in Section III.
Options may be exercised by giving written notice of exercise as
directed by the Company specifying the number of shares to be purchased.
The notice shall be accompanied by provision for payment of the exercise
price. Payment may be made in part or in full in cash or by tendering
shares of Common Stock already owned by the Participant, based upon the
Fair Market Value of the Common Stock on the date the Option is
exercised, or through share withholding. Participants may also
simultaneously exercise Options and sell the shares of Common Stock
thereby acquired and use the proceeds from the sale as payment for the
purchase price of the shares.
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<PAGE>
(8) NONASSIGNABILITY OF OPTIONS
Options granted may not be assigned, transferred, or pledged by the
Participant other than by will or the laws of descent and distribution or
pursuant to a domestic relations order.
V. TERMINATION OF SERVICE
A. Upon any Termination of Service, unvested Options and any amounts
accrued in a Participant's Dividend Account shall be forfeited unless the
Committee decides otherwise pursuant to Section III.
B. DEATH
If the Participant dies while still employed, then any vested Options,
to the extent that they are then exercisable, may be fully exercised at any
time within one (1) year (even if this extends the term of the Options)
after the date of the Participant's death by the person designated in the
Participant's last will and testament or by the personal representative of
the Participant's estate.
C. DISABILITY
If the Participant suffers Disability, then any vested Options, to the
extent that they are then exercisable, may be fully exercised at any time
within one (1) year (even if this extends the terms of the Options) after
the date of Disability by the Participant or by a person qualified or
authorized to act on behalf of the Participant.
D. CAUSE
If a Participant's Termination of Service is for Cause, the right to
exercise any vested Option shall terminate with such termination of
employment. For this purpose, the determination of the Committee as to
whether employment was terminated for Cause shall be final.
E. OTHER TERMINATION OF SERVICE
In the event of the Participant's Termination of Service for reasons
other than Death, Disability, or Cause, to the extent that any vested
Options are then exercisable, the Participant shall be entitled to exercise
the Options for the three (3) month period following such Termination of
Service (even if this extends the term of the Options).
VI. CHANGE OF CONTROL
Upon a Change of Control of the Company, all Options previously granted
under the Plan shall become immediately vested and available for exercise. The
value of the amounts accrued in the Participant's Dividend Account shall be paid
in full at 100% of the amount thereof to the Participant in cash upon the Change
of Control.
VII. MISCELLANEOUS PROVISIONS
A. UNSECURED GENERAL CREDITOR
Participants and their beneficiaries, heirs, successors, and assigns
shall have no legal or equitable rights, interests, or other claims in any
property or assets of the Company, nor shall they be beneficiaries of, or
have any rights, claims, or interests in any specified assets of the
Company. Any and all of the Company's assets shall be and remain general,
unpledged, unrestricted assets of the Company. The Company's obligation
under the Plan shall be that of an unfunded and unsecured promise of the
Company to cause shares of Common Stock to be available or to pay benefits
in the future.
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<PAGE>
B. NO CONTRACT OF EMPLOYMENT
Nothing contained in this Plan nor any related Agreement nor any action
taken in the administration of the Plan shall be construed as a contract of
employment or as giving a Participant any right to be retained in the
service of the Company.
C. WITHHOLDING TAXES
No later than the date on which a Participant receives Common Stock with
respect to any Option exercised or cash with respect to Dividend Equivalents
awarded under the Plan, the Participant shall pay in cash to the Company or
its delegate or make arrangements satisfactory to the Company regarding the
payment of any federal, state, or local taxes required by law to be withheld
with respect to any such amounts. The Participant may also make payment
(i) by tendering shares of the Common Stock already owned by the
Participant, based on the fair market value of the Common Stock on the date
the tax is owed or (ii) by having such amounts withheld from the shares of
the Common Stock otherwise distributable to him/her upon exercise of his/her
Options. The obligations of the Company under the Plan shall be conditioned
on such payment or arrangements. The Company or its delegate may deduct any
taxes from any payment due to the Participant from the Company to the extent
allowed by law.
D. TEN PERCENT LIMITATION
No Option shall be granted under this Plan to a Participant if at the
time the Option is granted the Participant shall own stock representing more
than 10% of the combined voting power of all classes of voting stock of the
Company.
E. SEVERABILITY
In the event that any provision of the Plan or any related Agreement is
held invalid, void or unenforceable, the same shall not affect, in any
respect whatsoever, the validity of any other provision of the Plan or any
related Agreement.
F. INUREMENT OF RIGHTS AND OBLIGATIONS
The rights and obligations under the Plan shall inure to the benefit of,
and shall be binding upon the Company, its successors and assigns, and the
Participants and their beneficiaries consistent with the terms of the Plan.
G. AMENDMENTS
The Board may at any time amend, suspend, or terminate the Plan
including, without limitation, modifications to take into account and comply
with any changes in applicable securities or federal income tax laws and
regulations, or other applicable laws and regulations; PROVIDED, that no
modification to the Plan shall increase the number of shares available under
the Plan by more than 10 percent without approval of the holders of the
Common Stock, except as otherwise permitted under Section IV.C; and PROVIDED
FURTHER, that any such amendment, suspension, or termination must be
prospective in that it may not deprive Participants of any Options or rights
previously granted under the Plan whether vested or not, without consent of
the Participant, except if required by statute or rules or regulations
promulgated thereunder.
H. RESTRICTIONS
Shares of Common Stock acquired by Participants pursuant to the exercise
of Options granted under the Plan shall be subject to such restrictions on
transferability and disposition as are required by
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<PAGE>
federal and state security laws and such Participants shall not sell or
transfer any shares acquired except in accordance with such laws.
I. LEGAL AND OTHER REQUIREMENTS
The obligation of the Company to cause Common Stock to be available
under the Plan shall be subject to all applicable laws, regulations,
rules and approvals, including, but not limited to the receipt of any
necessary approvals by state or federal regulatory bodies, and the
effectiveness of a registration statement under the Securities Act of 1933
if deemed necessary or appropriate by the Company. Certificates for shares
of Common Stock issued hereunder may be legended as the Committee shall deem
appropriate.
J. AGREEMENTS
Each grant of Options shall be evidenced by an Agreement which shall
contain such restrictions, terms and conditions as the Committee may
require. Notwithstanding anything to the contrary contained in the Plan, the
Company shall not be under any obligation to honor any grants under the Plan
to any Participant hereunder unless such Participant shall execute all
appropriate Agreements with respect to such Options in such form as the
Committee may determine from time to time.
K. APPLICABLE LAW
The Plan and any related Agreements shall be governed in accordance with
the laws of the State of North Dakota.
VIII. ESTABLISHMENT OF TRUST
The Company may establish with the Trustee a trust consisting of such sums
of money or other property acceptable to the Trustee as shall from time to time
be paid or delivered to the Trustee, all investments made therewith and proceeds
thereof and all earnings and profits thereon. The Trustee shall invest funds, if
any, advanced by the Company in shares of Common Stock. Upon the exercise of an
Option by a Participant, the Trustee shall take Common Stock from the trust or
shall purchase Common Stock on the open market or from the Company and deliver
certificates for such shares to the Participant.
The Company shall have the right at any time to terminate the trust but such
termination shall not affect the rights of any Participant to whom an Option has
been granted under the Plan. After effecting all purchases and transfers of
Common Stock as are required by the Plan pursuant to the exercise of Options by
Participants, the Trustee shall be relieved of all further liability.
Termination of the trust shall take effect as of the date the last such transfer
is made. Upon such termination any assets remaining in the trust shall be
returned to the Company unless other directions are given to the Trustee by the
Company.
B-8
<PAGE>
EXHIBIT C
MDU RESOURCES GROUP, INC
1997 EXECUTIVE LONG-TERM INCENTIVE PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. MDU Resources Group, Inc., a Delaware
corporation (hereinafter referred to as the "Company"), hereby establishes an
incentive compensation plan to be known as the "MDU Resources Group, Inc. 1997
Executive Long-Term Incentive Plan" (hereinafter referred to as the "Plan"), as
set forth in this document. The Plan permits the grant of Nonqualified Stock
Options (NQSO), Incentive Stock Options (ISO), Stock Appreciation Rights (SAR),
Restricted Stock, Performance Units, Performance Shares and other awards.
The Plan shall become effective when approved by the stockholders at the
annual meeting on April 22, 1997 (the "Effective Date"), and shall remain in
effect as provided in Section 1.3 herein.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to promote the success
and enhance the value of the Company by linking the personal interests of
Participants to those of Company stockholders and customers.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract and retain the services of Participants upon whose
judgment, interest and special effort the successful conduct of its operations
is largely dependent.
1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective Date,
as described in Section 1.1 herein, and shall remain in effect, subject to the
right of the Board of Directors to terminate the Plan at any time pursuant to
Article 15 herein, until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions. However, in no event may an Award
be made under the Plan on or after the day immediately preceding the tenth
anniversary of the Effective Date.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below and, when such meaning is intended, the initial letter of the word
is capitalized:
2.1 "AWARD" means, individually or collectively, a grant under the Plan of
NQSOs, ISOs, SARs, Restricted Stock, Performance Units, Performance Shares or
any other type of award permitted under Article 10 of the Plan.
2.2 "AWARD AGREEMENT" means an agreement entered into by each Participant
and the Company, setting forth the terms and provisions applicable to an Award
granted to a Participant under the Plan.
2.3 "BASE VALUE" of an SAR shall have the meaning set forth in Section 7.1
herein.
2.4 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
2.5 "CHANGE IN CONTROL" means the earliest of the following to occur: (a)
the public announcement by the Company or by any person (which shall not include
the Company, any subsidiary of the Company, or any employee benefit plan of the
Company or of any subsidiary of the Company) ("Person") that such Person, who or
which, together with all Affiliates and Associates (within the meanings ascribed
to such terms in the Rule 12b-2 of the General Rules and Regulations under the
Exchange Act) of such Person, shall be the beneficial owner of twenty percent
(20%) or more of the voting stock of the Company outstanding; (b) the
commencement of, or after the first public announcement of any Person to
commence, a tender or exchange offer the consummation of which would result in
any Person becoming the beneficial owner of voting stock aggregating thirty
percent (30%) or more of the then outstanding voting
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stock of the Company; (c) the announcement of any transaction relating to the
Company required to be described pursuant to the requirements of Item 6(e) of
Schedule 14A of Regulation 14A under the Exchange Act; (d) a proposed change in
constituency of the Board such that, during any period of two (2) consecutive
years, individuals who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority thereof, unless the
election or nomination for election by the stockholders of the Company of each
new Director was approved by a vote of at least two-thirds (2/3) of the
Directors then still in office who were members of the Board at the beginning of
the period; (e) the sale or other disposition of all or substantially all of the
assets of Montana-Dakota Utilities Co., other than to a subsidiary of the
Company; or (f) any other event which shall be deemed by a majority of the
Compensation Committee to constitute a "change in control".
2.6 "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
2.7 "COMMITTEE" means the Committee, as specified in Article 3, appointed
by the Board to administer the Plan with respect to Awards.
2.8 "COMPANY" means MDU Resources Group, Inc., a Delaware corporation, or
any successor thereto as provided in Article 17 herein.
2.9 "COVERED EMPLOYEE" means any Participant who would be considered a
"Covered Employee" for purposes of Section 162(m) of the Code.
2.10 "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company.
2.11 "DISABILITY" means "permanent and total disability" as defined under
Section 22(e)(3) of the Code.
2.12 "DIVIDEND EQUIVALENT" means, with respect to Shares subject to an
Award, a right to be paid an amount equal to dividends declared on an equal
number of outstanding Shares.
2.13 "ELIGIBLE EMPLOYEE" means an Employee who is eligible to participate
in the Plan, as set forth in Section 5.1 herein.
2.14 "EMPLOYEE" means any full-time or regularly-scheduled part-time
employee of the Company or of the Company's Subsidiaries, who is not covered by
any collective bargaining agreement to which the Company or any of its
Subsidiaries is a party. Directors who are not otherwise employed by the Company
shall not be considered Employees for purposes of the Plan. For purposes of the
Plan, transfer of employment of a Participant between the Company and any one of
its Subsidiaries (or between Subsidiaries) shall not be deemed a termination of
employment.
2.15 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.16 "EXERCISE PERIOD" means the period during which an SAR or Option is
exercisable, as set forth in the related Award Agreement.
2.17 "FAIR MARKET VALUE" shall mean the average of the high and low sale
prices as reported in the consolidated transaction reporting system or, if there
is no such sale on the relevant date, then on the last previous day on which a
sale was reported.
2.18 "FREESTANDING SAR" means an SAR that is granted independently of any
Option.
2.19 "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase Shares,
granted under Article 6 herein, which is designated as an Incentive Stock Option
and satisfies the requirements of Section 422 of the Code.
2.20 "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase
Shares, granted under Article 6 herein, which is not intended to be an Incentive
Stock Option under Section 422 of the Code.
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2.21 "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.22 "OPTION PRICE" means the price at which a Share may be purchased by a
Participant pursuant to an Option, as determined by the Committee and set forth
in the Option Award Agreement.
2.23 "PARTICIPANT" means an Employee of the Company who has outstanding an
Award granted under the Plan.
2.24 "PERFORMANCE GOALS" means the performance goals established by the
Committee, which shall be based on one or more of the following measures: sales
or revenues, earnings per share, shareholder return and/or value, funds from
operations, operating income, gross income, net income, cash flow, return on
equity, return on capital, earnings before interest, operating ratios, stock
price, customer satisfaction, accomplishment of mergers, acquisitions,
dispositions or similar extraordinary business transactions, profit returns and
margins, financial return ratios and/or market performance. Performance goals
may be measured solely on a corporate subsidiary or business unit basis, or a
combination thereof. Performance goals may reflect absolute entity performance
or a relative comparison of entity performance to the performance of a peer
group of entities or other external measure.
2.25 "PERFORMANCE UNIT" means an Award granted to an Employee, as described
in Article 9 herein.
2.26 "PERFORMANCE SHARE" means an Award granted to an Employee, as
described in Article 9 herein.
2.27 "PERIOD OF RESTRICTION" means the period during which the transfer of
Restricted Stock is limited in some way, as provided in Article 8 herein.
2.28 "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act, as used in Sections 13(d) and 14(d) thereof,
including usage in the definition of a "group" in Section 13(d) thereof.
2.29 "QUALIFIED RESTRICTED STOCK" means an Award of Restricted Stock
designated as Qualified Restricted Stock by the Committee at the time of grant
and intended to qualify for the exemption from the limitation on deductibility
imposed by Section 162(m) of the Code that is set forth in Section 162(m)(4)(C).
2.30 "RESTRICTED STOCK" means an Award of Shares granted to a Participant
pursuant to Article 8 herein.
2.31 "SHARES" means the shares of common stock of the Company.
2.32 "STOCK APPRECIATION RIGHT" or "SAR" means a right, granted alone or in
connection with a related Option, designated as an SAR, to receive a payment on
the day the right is exercised, pursuant to the terms of Article 7 herein. Each
SAR shall be denominated in terms of one Share.
2.33 "SUBSIDIARY" means any corporation that is a "subsidiary corporation"
of the Company as that term is defined in Section 424(f) of the Code.
2.34 "TANDEM SAR" means an SAR that is granted in connection with a related
Option, the exercise of which shall require forfeiture of the right to purchase
a Share under the related Option (and when a Share is purchased under the
Option, the Tandem SAR shall be similarly canceled).
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Compensation
Committee of the Board, or by any other Committee appointed by the Board. The
members of the Committee shall be appointed from time to time by, and shall
serve at the discretion of, the Board of Directors.
3.2 AUTHORITY OF THE COMMITTEE. The Committee shall have full power except
as limited by law, the Articles of Incorporation and the Bylaws of the Company,
subject to such other restricting limitations or
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directions as may be imposed by the Board and subject to the provisions herein,
to determine the size and types of Awards; to determine the terms and conditions
of such Awards in a manner consistent with the Plan; to construe and interpret
the Plan and any agreement or instrument entered into under the Plan; to
establish, amend or waive rules and regulations for the Plan's administration;
and (subject to the provisions of Article 15 herein) to amend the terms and
conditions of any outstanding Award. Further, the Committee shall make all other
determinations which may be necessary or advisable for the administration of the
Plan. As permitted by law, the Committee may delegate its authorities as
identified hereunder.
3.3 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on any Shares acquired pursuant to Awards under the Plan as it may
deem advisable, including, without limitation, restrictions to comply with
applicable Federal securities laws, with the requirements of any stock exchange
or market upon which such Shares are then listed and/or traded and with any blue
sky or state securities laws applicable to such Shares.
3.4 APPROVAL. The Board or the Committee shall approve all Awards made
under the Plan and all elections made by Participants, prior to their effective
date, to the extent necessary to comply with Rule 16b-3 under the Exchange Act.
3.5 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its stockholders, Employees, Participants and their
estates and beneficiaries.
3.6 COSTS. The Company shall pay all costs of administration of the Plan.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to Section 4.2 herein, the maximum number of
Shares available for grant under the Plan shall be 1,800,000. Shares underlying
lapsed or forfeited Awards, or Awards that are not paid in Shares, may be reused
for other Awards. Shares granted pursuant to the Plan may be (i) authorized but
unissued Shares of Common Stock, (ii) treasury shares, or (iii) shares purchased
on the open market.
4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation, stock
split, stock dividend, split-up, share combination or other change in the
corporate structure of the Company affecting the Shares, such adjustment shall
be made in the number and class of Shares which may be delivered under the Plan,
and in the number and class of and/or price of Shares subject to outstanding
Awards granted under the Plan, as may be determined to be appropriate and
equitable by the Committee, in its sole discretion, to prevent dilution or
enlargement of rights; provided, however, that the number of Shares subject to
any Award shall always be a whole number. Notwithstanding the foregoing,
(i) each such adjustment with respect to an Incentive Stock Option shall comply
with the rules of Section 424(a) of the Code and (ii) in no event shall any
adjustment be made which would render any Incentive Stock Option granted
hereunder to be other than an incentive stock option for purposes of Section 422
of the Code.
4.3 INDIVIDUAL LIMITATIONS. Subject to Section 4.2 herein, (i) the total
number of Shares with respect to which Options or SARs may be granted in any
calendar year to any Covered Employee shall not exceed 300,000 Shares; (ii) the
total number of shares of Qualified Restricted Stock that may be granted in any
calendar year to any Covered Employee shall not exceed 300,000 Shares;
(iii) the total number of Performance Shares or Performance Units that may be
granted in any calendar year to any Covered Employee shall not exceed 300,000
Shares or Units, as the case may be; (iv) the total number of Shares that are
intended to qualify for deduction under Section 162(m) of the Code granted
pursuant to Article 10 herein in any calendar year to any Covered Employee shall
not exceed 300,000 Shares; (v) the total cash Award that is intended to qualify
for deduction under Section 162(m) of the Code that may be paid
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pursuant to Article 10 herein in any calendar year to any Covered Employee shall
not exceed $1,500,000; and (vi) the aggregate number of Dividend Equivalents
that are intended to qualify for deduction under Section 162(m) of the Code that
a Covered Employee may receive in any calendar year shall not exceed $1,500,000.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in the Plan include all
officers and key employees of the Company and its Subsidiaries, as determined by
the Committee, including Employees who are members of the Board, but excluding
Directors who are not Employees.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees those to
whom Awards shall be granted and shall determine the nature and amount of each
Award.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and conditions of the Plan,
Options may be granted to an Eligible Employee at any time and from time to
time, as shall be determined by the Committee.
The Committee shall have complete discretion in determining the number of
Shares subject to Options granted to each Participant (subject to Article 4
herein) and, consistent with the provisions of the Plan, in determining the
terms and conditions pertaining to such Options. The Committee may grant ISOs,
NQSOs, or a combination thereof.
6.2 OPTION AWARD AGREEMENT. Each Option grant shall be evidenced by an
Option Award Agreement that shall specify the Option Price, the term of the
Option, the number of Shares to which the Option pertains, the Exercise Period
and such other provisions as the Committee shall determine, including but not
limited to any rights to Dividend Equivalents. The Option Award Agreement shall
also specify whether the Option is intended to be an ISO or an NQSO.
The Option Price for each Share purchasable under any Incentive Stock Option
granted hereunder shall be not less than one hundred percent (100%) of the Fair
Market Value per Share at the date the Option is granted; and provided, further,
that in the case of an Incentive Stock Option granted to a person who, at the
time such Incentive Stock Option is granted, owns shares of stock of the Company
or of any Subsidiary which possess more than ten percent (10%) of the total
combined voting power of all classes of shares of stock of the Company or of any
Subsidiary, the Option Price for each Share shall be not less than one hundred
ten percent (110%) of the Fair Market Value per Share at the date the Option is
granted. The Option Price will be subject to adjustment in accordance with the
provisions of Section 4.2 of the Plan.
No Incentive Stock Option by its terms shall be exercisable after the
expiration of ten (10) years from the date of grant of the Option; provided,
however, in the case of an Incentive Stock Option granted to a person who, at
the time such Option is granted, owns shares of stock of the Company or of any
Subsidiary possessing more than ten percent (10%) of the total combined voting
power of all classes of shares of stock of the Company or of any Subsidiary,
such Option shall not be exercisable after the expiration of five (5) years from
the date such Option is granted.
6.3 EXERCISE OF AND PAYMENT FOR OPTIONS. Options granted under the Plan
shall be exercisable at such times and be subject to such restrictions and
conditions as the Committee shall in each instance approve.
A Participant may exercise an Option at any time during the Exercise Period.
Options shall be exercised by the delivery of a written notice of exercise to
the Company or its designee, setting forth the number of Shares with respect to
which the Option is to be exercised, accompanied by provisions for full payment
for the Shares.
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The Option Price upon exercise of any Option shall be payable either:
(a) in cash or its equivalent, (b) by tendering previously acquired Shares
having an aggregate Fair Market Value at the time of exercise equal to the total
Option Price (provided that the Shares which are tendered must have been held by
the Participant for at least six (6) months prior to their tender to satisfy the
Option Price), (c) by share withholding, (d) by cashless exercise or (e) by a
combination of (a),(b),(c), and/or (d).
As soon as practicable after receipt of a written notification of exercise
of an Option and provisions for full payment therefor, there shall be delivered
to the Participant, in the Participant's name, Share certificates in an
appropriate amount based upon the number of Shares purchased under the
Option(s).
6.4 TERMINATION OF EMPLOYMENT. Each Option Award Agreement shall set forth
the extent to which the Participant shall have the right to exercise the Option
following termination of the Participant's employment with the Company and its
Subsidiaries. Such provisions shall be determined in the sole discretion of the
Committee (subject to applicable law), shall be included in the Option Award
Agreement entered into with Participants, need not be uniform among all Options
granted pursuant to the Plan or among Participants and may reflect distinctions
based on the reasons for termination of employment. If the employment of a
Participant by the Company or by any Subsidiary is terminated for any reason
other than death, any Incentive Stock Option granted to such Participant may not
be exercised later than three (3) months (one (1) year in the case of
termination due to Disability) after the date of such termination of employment.
6.5 TRANSFERABILITY OF OPTIONS. Except as otherwise determined by the
Committee and set forth in the Option Award Agreement, no Option granted under
the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution, and
all Incentive Stock Options granted to a Participant under the Plan shall be
exercisable during his or her lifetime only by such Participant.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 GRANT OF SARS. Subject to the terms and conditions of the Plan, an SAR
may be granted to an Eligible Employee at any time and from time to time as
shall be determined by the Committee. The Committee may grant Freestanding SARs,
Tandem SARs or any combination of these forms of SAR.
The Committee shall have complete discretion in determining the number of
SARs granted to each Participant (subject to Article 4 herein) and, consistent
with the provisions of the Plan, in determining the terms and conditions
pertaining to such SARs.
The Base Value of a Freestanding SAR shall equal the Fair Market Value of a
Share on the date of grant of the SAR. The Base Value of Tandem SARs shall equal
the Option Price of the related Option.
7.2 SAR AWARD AGREEMENT. Each SAR grant shall be evidenced by an SAR Award
Agreement that shall specify the number of SARs granted, the Base Value, the
term of the SAR, the Exercise Period and such other provisions as the Committee
shall determine.
7.3 EXERCISE AND PAYMENT OF SARS. Tandem SARs may be exercised for all or
part of the Shares subject to the related Option upon the surrender of the right
to exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
Notwithstanding any other provision of the Plan to the contrary, with
respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (ii) the value
of the payout with respect to the Tandem SAR may be for no more than one hundred
percent (100%) of the difference between the Option Price of the underlying ISO
and the Fair Market Value of the Shares subject to the underlying ISO at the
time the Tandem SAR is exercised; and
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(iii) the Tandem SAR may be exercised only when the Fair Market Value of the
Shares subject to the ISO exceeds the Option Price of the ISO.
Freestanding SARs may be exercised upon whatever terms and conditions the
Committee, in its sole discretion, imposes upon them.
A Participant may exercise an SAR at any time during the Exercise Period.
SARs shall be exercised by the delivery of a written notice of exercise to the
Company, setting forth the number of SARs being exercised. Upon exercise of an
SAR, a Participant shall be entitled to receive payment from the Company in an
amount equal to the product of:
(a) the excess of (i) the Fair Market Value of a Share on the date of
exercise over (ii) the Base Value multiplied by
(b) the number of Shares with respect to which the SAR is exercised.
At the sole discretion of the Committee, the payment to the Participant upon
SAR exercise may be in cash, in Shares of equivalent value, or in some
combination thereof.
7.4 TERMINATION OF EMPLOYMENT. Each SAR Award Agreement shall set forth
the extent to which the Participant shall have the right to exercise the SAR
following termination of the Participant's employment with the Company and its
Subsidiaries. Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the SAR Award Agreement entered into with
Participants, need not be uniform among all SARs granted pursuant to the Plan or
among Participants and may reflect distinctions based on the reasons for
termination of employment.
7.5 TRANSFERABILITY OF SARS. Except as otherwise determined by the
Committee and set forth in the SAR Award Agreement, no SAR granted under the
Plan may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution, and
all SARs granted to a Participant under the Plan shall be exercisable during his
or her lifetime only by such Participant or his or her legal representative.
ARTICLE 8. RESTRICTED STOCK
8.1 GRANT OF RESTRICTED STOCK. Subject to the terms and conditions of the
Plan, Restricted Stock may be granted to Eligible Employees at any time and from
time to time, as shall be determined by the Committee.
The Committee shall have complete discretion in determining the number of
shares of Restricted Stock granted to each Participant (subject to Article 4
herein) and, consistent with the provisions of the Plan, in determining the
terms and conditions pertaining to such Restricted Stock.
In addition, the Committee may, prior to or at the time of grant, designate
an Award of Restricted Stock as Qualified Restricted Stock, in which event it
will condition the grant or vesting, as applicable, of such Qualified Restricted
Stock upon the attainment of the Performance Goals selected by the Committee.
8.2 RESTRICTED STOCK AWARD AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the Period or
Periods of Restriction, the number of Restricted Stock Shares granted and such
other provisions as the Committee shall determine.
8.3 TRANSFERABILITY. Restricted Stock granted hereunder may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated until the
end of the applicable Period of Restriction established by the Committee and
specified in the Restricted Stock Award Agreement. All rights with respect to
the Restricted Stock granted to a Participant under the Plan shall be available
during his or her lifetime only to such Participant or his or her legal
representative.
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8.4 CERTIFICATE LEGEND. Each certificate representing Restricted Stock
granted pursuant to the Plan may bear a legend substantially as follows:
"The sale or other transfer of the shares of stock represented by this
certificate, whether voluntary, involuntary or by operation of law, is
subject to certain restrictions on transfer as set forth in MDU
Resources Group, Inc. 1997 Executive Long-Term Incentive Plan, and in a
Restricted Stock Award Agreement. A copy of such Plan and such Agreement
may be obtained from MDU Resources Group, Inc."
The Company shall have the right to retain the certificates representing
Restricted Stock in the Company's possession until such time as all restrictions
applicable to such Shares have been satisfied.
8.5 REMOVAL OF RESTRICTIONS. Restricted Stock shall become freely
transferable by the Participant after the last day of the Period of Restriction
applicable thereto. Once Restricted Stock is released from the restrictions, the
Participant shall be entitled to have the legend referred to in Section 8.4
removed from his or her stock certificate.
8.6 VOTING RIGHTS. During the Period of Restriction, Participants holding
Restricted Stock may exercise full voting rights with respect to those Shares.
8.7 DIVIDENDS AND OTHER DISTRIBUTIONS. Subject to the Committee's right to
determine otherwise at the time of grant, during the Period of Restriction,
Participants holding Restricted Stock shall receive all regular cash dividends
paid with respect to all Shares while they are so held. All other distributions
paid with respect to such Restricted Stock shall be credited to Participants
subject to the same restrictions on transferability and forfeitability as the
Restricted Stock with respect to which they were paid and shall be paid to the
Participant within forty-five (45) days following the full vesting of the
Restricted Stock with respect to which such distributions were made.
8.8 TERMINATION OF EMPLOYMENT. Each Restricted Stock Award Agreement shall
set forth the extent to which the Participant shall have the right to receive
unvested Restricted Stock following termination of the Participant's employment
with the Company and its Subsidiaries. Such provisions shall be determined in
the sole discretion of the Committee, shall be included in the Restricted Stock
Award Agreement entered into with Participants, need not be uniform among all
grants of Restricted Stock or among Participants and may reflect distinctions
based on the reasons for termination of employment.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1 GRANT OF PERFORMANCE UNITS AND PERFORMANCE SHARES. Subject to the
terms and conditions of the Plan, Performance Units and/or Performance Shares
may be granted to an Eligible Employee at any time and from time to time, as
shall be determined by the Committee.
The Committee shall have complete discretion in determining the number of
Performance Units and/ or Performance Shares granted to each Participant
(subject to Article 4 herein) and, consistent with the provisions of the Plan,
in determining the terms and conditions pertaining to such Awards.
9.2 PERFORMANCE UNIT/PERFORMANCE SHARE AWARD AGREEMENT. Each grant of
Performance Units and/or Performance Shares shall be evidenced by a Performance
Unit and/or Performance Share Award Agreement that shall specify the number of
Performance Units and/or Performance Shares granted, the initial value (if
applicable), the Performance Period, the Performance Goals and such other
provisions as the Committee shall determine, including but not limited to any
rights to Dividend Equivalents.
9.3 VALUE OF PERFORMANCE UNITS/PERFORMANCE SHARES. Each Performance Unit
shall have an initial value that is established by the Committee at the time of
grant. The value of a Performance Share shall be equal to the Fair Market Value
of a Share. The Committee shall set Performance Goals in its discretion which,
depending on the extent to which they are met, will determine the number and/or
value of
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Performance Units/Performance Shares that will be paid out to the Participants.
The time period during which the Performance Goals must be met shall be called a
"Performance Period."
9.4 EARNING OF PERFORMANCE UNITS/PERFORMANCE SHARES. After the applicable
Performance Period has ended, the holder of Performance Units/Performance Shares
shall be entitled to receive a payout with respect to the Performance
Units/Performance Shares earned by the Participant over the Performance Period,
to be determined as a function of the extent to which the corresponding
Performance Goals have been achieved.
9.5 FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/PERFORMANCE
SHARES. Payment of earned Performance Units/Performance Shares shall be made
following the close of the applicable Performance Period. The Committee, in its
sole discretion, may pay earned Performance Units/Performance Shares in cash or
in Shares (or in a combination thereof), which have an aggregate Fair Market
Value equal to the value of the earned Performance Units/Performance Shares at
the close of the applicable Performance Period. Such Shares may be granted
subject to any restrictions deemed appropriate by the Committee.
9.6 TERMINATION OF EMPLOYMENT. Each Performance Unit/Performance Share
Award Agreement shall set forth the extent to which the Participant shall have
the right to receive a Performance Unit/ Performance Share payment following
termination of the Participant's employment with the Company and its
Subsidiaries during a Performance Period. Such provisions shall be determined in
the sole discretion of the Committee, shall be included in the Award Agreement
entered into with Participants, need not be uniform among all grants of
Performance Units/Performance Shares or among Participants and may reflect
distinctions based on reasons for termination of employment.
9.7 TRANSFERABILITY. Except as otherwise determined by the Committee and
set forth in the Performance Unit/Performance Share Award Agreement, Performance
Units/Performance Shares may not be sold, transferred, pledged, assigned or
otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution, and a Participant's rights with respect to Performance
Units/Performance Shares granted under the Plan shall be available during the
Participant's lifetime only to such Participant or the Participant's legal
representative.
ARTICLE 10. OTHER AWARDS
The Committee shall have the right to grant other Awards which may include,
without limitation, the grant of Shares based on attainment of Performance Goals
established by the Committee, the payment of Shares in lieu of cash, or cash
based on attainment of Performance Goals established by the Committee, and the
payment of Shares in lieu of cash under other Company incentive or bonus
programs. Payment under or settlement of any such Awards shall be made in such
manner and at such times as the Committee may determine.
ARTICLE 11. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any beneficiary
or beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his or her death before he or
she receives any or all of such benefit. Each such designation shall revoke all
prior designations by the same Participant, shall be in a form prescribed by the
Company, and will be effective only when filed by the Participant in writing
with the Company during the Participant's lifetime. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be paid
to the Participant's estate.
The spouse of a married Participant domiciled in a community property
jurisdiction shall join in any designation of beneficiary or beneficiaries other
than the spouse.
C-9
<PAGE>
ARTICLE 12. DEFERRALS
The Committee may permit a Participant to defer the Participant's receipt of
the payment of cash or the delivery of Shares that would otherwise be due to
such Participant under the Plan. If any such deferral election is permitted, the
Committee shall, in its sole discretion, establish rules and procedures for such
payment deferrals.
ARTICLE 13. RIGHTS OF EMPLOYEES
13.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, for any reason or no reason in the Company's sole discretion, nor confer
upon any Participant any right to continue in the employ of the Company.
13.2 PARTICIPATION. No Employee shall have the right to be selected to
receive an Award under the Plan, or, having been so selected, to be selected to
receive a future Award.
ARTICLE 14. CHANGE IN CONTROL
The terms of this Article 14 shall immediately become operative, without
further action or consent by any person or entity, upon a Change in Control, and
once operative shall supersede and take control over any other provisions of
this Plan.
Upon a Change in Control
(a) Any and all Options and SARs granted hereunder shall become immediately
exercisable;
(b) Any restriction periods and restrictions imposed on Restricted Shares
and Qualified Restricted Shares shall be deemed to have expired and such
Restricted Shares and Qualified Restricted Shares shall become
immediately vested in full; and
(c) The target payout opportunity attainable under all outstanding Awards of
Performance Units, Performance Shares and other Awards shall be deemed to
have been fully earned for the entire Performance Period(s) as of the
effective date of the Change in Control. The vesting of all Awards
denominated in Shares shall be accelerated as of the effective date of
the Change in Control, and there shall be paid out in cash to
Participants immediately following the effective date of the Change in
Control the full amount of the targeted cash payout opportunities
associated with outstanding cash-based Awards.
ARTICLE 15. AMENDMENT, MODIFICATION AND TERMINATION
15.1 AMENDMENT, MODIFICATION AND TERMINATION. The Board may, at any time
and from time to time, alter, amend, suspend or terminate the Plan in whole or
in part, provided that no amendment shall be made which shall increase the total
number of Shares which may be issued and sold pursuant to Incentive Stock
Options, reduce the minimum exercise price in the case of an Incentive Stock
Option or modify the provisions of the Plan relating to eligibility with respect
to Incentive Stock Options unless such amendment is made by or with the approval
of the stockholders within 12 months of the effective date of such amendment,
but only if such approval is required by any applicable provision of law. The
Board of Directors of the Company is also authorized to amend the Plan and the
Options granted hereunder to maintain qualification as "incentive stock options"
within the meaning of Section 422 of the Code, if applicable.
15.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment or modification
of the Plan shall adversely affect in any material way any Award previously
granted under the Plan, without the written consent of the Participant holding
such Award, unless such termination, modification or amendment is required by
applicable law and except as otherwise provided herein.
C-10
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ARTICLE 16. WITHHOLDING
16.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to an
Award made under the Plan.
16.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock,
or upon any other taxable event arising out of or as a result of Awards granted
hereunder, Participants may elect to satisfy the withholding requirement, in
whole or in part, by tendering previously-owned Shares or by having the Company
withhold Shares having a Fair Market Value on the date the tax is to be
determined equal to the statutory total tax which could be imposed on the
transaction. All elections shall be irrevocable, made in writing and signed by
the Participant.
ARTICLE 17. SUCCESSORS
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company.
ARTICLE 18. LEGAL CONSTRUCTION
18.1 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular and the singular shall include the plural.
18.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
18.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
18.4 GOVERNING LAW. To the extent not preempted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with, and
governed by, the laws of the State of Delaware.
C-11
<PAGE>
EXHIBIT D
ROHRER & ASSOCIATES, INC.
January 24, 2000
The Board of Directors
MDU Resources Group, Inc.
Schuchart Building
918 East Divide Avenue
Bismarck, ND 58506
Dear Directors:
This is to confirm the conclusions concerning the valuation of
Connolly-Pacific Co. ("Connolly-Pacific") contained in the detailed report dated
December 1999 previously delivered to the management of KRC Holdings, Inc.
Although the Rohrer & Associates, Inc. ("R&A") Report was developed based upon
best efforts and the information reasonably available to R&A, no guarantees of
forecast or analytical data included in the report are made or implied, and the
opinions expressed herein and in the R&A Report are solely those of R&A.
R&A has been advised that you are reviewing R&A's Report in connection with
your consideration of the acquisition by MDU Resources Group, Inc. ("MDU"), of
Connolly-Pacific. The R&A Report represents a theoretical valuation of
Connolly-Pacific based upon the analysis contained in such report, and nothing
contained herein or in R&A's Report is to be deemed to constitute a
recommendation whether or not to proceed with the proposed acquisition of
Connolly-Pacific, or with respect to the terms of such acquisition, or an
opinion as to the fairness of the terms of any such acquisition from a financial
point of view. R&A wishes to advise you that R&A was not consulted with respect
to the terms of any potential acquisition by MDU of Connolly-Pacific.
Furthermore, the R&A Report does not constitute a recommendation to any holder
of MDU Common Stock as to how to vote on any transaction submitted to them for
their approval.
R&A is supplying the following summary of the material conclusions contained
in the R&A Report for convenience only and for ease of reference. Your attention
is respectfully directed to the full R&A Report for the information supporting
the summary conclusions expressed herein.
Connolly-Pacific with an active quarry at Pebbly Beach on the south side of
Santa Catalina Island has historically been the prime supplier of rock for
Southern California marine construction stretching from Santa Barbara to San
Diego. Connolly-Pacific has the only operating quarry on the island and operates
more transportation and placement equipment than other contractors in the
Southern California marine construction market. Connolly-Pacific also has the
only other permitted quarry on Santa Catalina Island, Empire Quarry, which has
been idle since 1976.
Los Angeles and Long Beach harbors currently dominate West Coast water
transportation trade with a market share of approximately 60% and trade growing
at the compound rate of 6-7% per year. This primary position and growth is based
on deep drafts, size of handling facilities and intermodal infrastructure. In
1987 Los Angeles and Long Beach Harbors commissioned Wharton Financial
Associates to forecast the trade growth in Southern California and the need for
port handling facilities through 2020. To date the growth of the ports has
considerably exceeded the forecasts contained in the Wharton Financial
Associates study referred to in our full report.
D-1
<PAGE>
Connolly-Pacific averaged approximately 1.6 million tons of rock sales in
the last twelve years and 2.7 million tons in the last five years with the
largest calendar year at 4.8 million tons when work included the new 600 acre
Los Angeles Pier 400. During this five year period a minimum of 80% of Connolly-
Pacific's rock sales were to Los Angeles and Long Beach Port projects. R&A's
forecast for Connolly-Pacific rock sales is for approximately 770,000 tons in
2000 increasing to 3.42 million tons in 2005 when work on Long Beach's Pier W is
estimated to require approximately 2.7 million tons alone. The R&A sales
forecast varied from management's in anticipating lower sales in earlier years,
but increased management's revenue expectations, to more appropriately reflect
Connolly-Pacific's competitive position.
R&A's geologist found no core drilling with which to definitively calculate
reserves at either quarry. The lack of the core data also raises questions of
quarry operating costs in later years if it becomes necessary for
Connolly-Pacific to abandon the "coyote hole" blasting methods of drilling and
mining in favor of smaller, more selective blasting shots and quarry benching.
In the absence of proper test data, the usability of the rhyolite rock in
the Pebbly Quarry is in some doubt. Without the rhyolite the reserves could be
as low as 28 to 44 million tons. If the rhyolite can be used this adds another
probable 300 million tons giving the quarry a virtual indefinite life. The
California Department of Mines and Geology was optimistic that the rhyolite
could be used for rip rap, base and asphalt if not for concrete. Three types of
rock are produced in the Pebbly Quarry: Class A rock, 4 tons and over is used
for breakwater and wave action walls; Class B rock, 500 lbs to 4 tons is used in
channel lining and wall formation; and Class C rock makes up the smaller rock
sizes. Rock at the quarry generally consists of approximately 5% Class A rock,
approximately 10% Class B rock and the balance of 85% consists of Class C rock
which is sold for base and fill. Connolly-Pacific sales historically have been
quite well balanced among size requirements.
Connolly-Pacific also operates 13 barges and 2 ocean tugs and one harbor tug
along with derricks to place rock on the marine projects. Connolly-Pacific
leases private property in the Long Beach harbor from L. G. Everist for use as
an equipment and staging area.
R&A analyzed Connolly-Pacific's historic operating costs and restructured
the costs including dividing fixed and variable costs. No exception was taken to
historical water transportation and derrick operating costs. R&A sales forecasts
were based on canvassing Southern California governmental offices.
While R&A considers the threat of a future Mexican competitor possible,
Connolly-Pacific should be able to continue its leadership position for at least
a period of five years before the Mexican entities could build the required
quarry and port facilities and even then, the focus of the new competitive
quarry(s) would be to produce construction aggregate rather than marine
construction rock.
Using the R&A forecast of sales volumes and revenues and the costs based on
continued quarrying practices, R&A calculated a value of $63.655 million using a
discounted cash flow of 15%. An alternative value based on quarry increased
blasting and benching costs escalating beginning in 2006, yielded a calculated
value of $60.768 million based on a 15% cash flow discount.
Other factors such as greater rock requirements on Long Beach's Pier W and
Los Angeles' Pier 500 projects and the possible use of Connolly-Pacific rock on
runway extensions at Los Angeles and San Francisco International Airports would
obviously add value. Use of the Santa Catalina Island quarry rock for asphalt
and base for the L.A. Basin is another potential as mainland quarries close in
to the L.A. Basin deplete in the next 5 to 10 years.
Very Truly Yours,
Rohrer & Associates, Inc.
By: /s/ John P. Rohrer
D-2
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COMPANY #
CONTROL #
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THERE ARE THREE WAYS TO VOTE YOUR PROXY
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, DATED, SIGNED AND RETURNED YOUR PROXY CARD.
THE VOTING DEADLINE FOR TELEPHONE OR INTERNET VOTING IS 11:00 A.M. (CDT) ONE
BUSINESS DAY PRIOR TO THE ANNUAL MEETING DATE.
VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK *** EASY *** IMMEDIATE
- - Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week.
- - You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
- - Follow the simple instructions the Voice provides you.
VOTE BY INTERNET -- http://www.eproxy.com/mdu/ -- QUICK *** EASY *** IMMEDIATE
- - Use the Internet to vote your proxy 24 hours a day, 7 days a week.
- - You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above to obtain your records and create an
electronic ballot.
The Company has been advised by counsel that the procedures for Internet and
Telephone voting are consistent with the requirements of applicable law.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to MDU RESOURCES GROUP, INC., c/o Shareowner
Services, P.O. Box 64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD
PLEASE DETACH HERE
- -------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 AND 4.
<TABLE>
<S> <C>
1. Election of directors: 01 San W. Orr, Jr. 03 Homer A. Scott, Jr. / / Vote FOR / / Vote WITHHELD
02 Harry J. Pearce 04 Sister Thomas Welder, O.S.B. all nominees from all nominees
(except as marked)
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(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE,
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.) ---------------------------------------
2. Approve acquisition of Connolly-Pacific Co. / / For / / Against / / Abstain
3. Approve amendments to 1992 Key Employee Stock Option Plan / / For / / Against / / Abstain
4. Approve amendments to 1997 Executive Long-Term Incentive Plan / / For / / Against / / Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box / /
Indicate changes below: Date
---------------------------
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---------------------------------------
Signature(s) in Box
Please sign exactly as your name(s)
appear on Proxy. If held in joint tenancy,
all persons must sign. Trustees,
administrators, etc., should include title
and authority. Corporations should provide
full name of corporation and title of
authorized officer signing the proxy.
</TABLE>
<PAGE>
MDU RESOURCES GROUP, INC.
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, APRIL 25, 2000
11:00 A.M. CENTRAL DAYLIGHT SAVINGS TIME
909 AIRPORT ROAD
BISMARCK, ND 58504
MDU RESOURCES GROUP, INC.
SCHUCHART BUILDING
918 EAST DIVIDE AVENUE
MAILING ADDRESS: P.O. BOX 5650 BISMARCK, ND 58506-5650 (701) 222-7900 PROXY
- -------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF STOCKHOLDERS ON APRIL 25, 2000.
This proxy will also be used to provide voting instructions to New York Life
Trust Company, as Trustee of the MDU Resources Group, Inc. 401(k) Retirement
Plan, for any shares of Company common stock held in the plan.
The undersigned hereby appoints John A. Schuchart, Martin A. White, and
Lester H. Loble, II, and each of them, proxies, with full power of
substitution, to vote all Common Stock of the undersigned at the Annual
Meeting of Stockholders to be held at 11:00 a.m. (CDT), April 25, 2000, at
909 Airport Road, Bismarck, ND 58504, and at any adjournment thereof, upon
all subjects that may properly come before the meeting, including the matters
described in the Proxy Statement furnished herewith, subject to any
directions indicated on the reverse side. Your vote is important! Ensure
that your shares are represented at the meeting. Either (1) submit your
proxy by Touchtone telephone, (2) submit your proxy by Internet, or (3) mark,
date, sign, and return this letter proxy in the envelope provided (no postage
is necessary if mailed in the United States). If no directions are given,
the proxies will vote in accord with the Directors' recommendation on all
matters listed on this proxy, and at their discretion on any other matters
that may properly come before the meeting.
SEE REVERSE FOR VOTING INSTRUCTIONS.
