Filed pursuant to Rule 424(b)(5)
Registration No. 333-104150
PROSPECTUS SUPPLEMENT
(To the prospectus dated September 26, 2003)
--------------------------------------------------------------------------------
MDU RESOURCES GROUP, INC.
$30,000,000 5.98% SENIOR NOTES DUE 2033
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NOTES
o We are offering $30,000,000 aggregate principal amount of our 5.98% Senior
Notes due 2033.
o We will pay interest on the Senior Notes semi-annually in arrears on June
15 and December 15 of each year, beginning June 15, 2004.
o We may redeem the Senior Notes at our option, in whole or in part, at any
time at a make-whole redemption price, together with accrued and unpaid
interest, if any, to the redemption date.
o The Senior Notes will be our unsubordinated obligations and, initially,
will be secured by (1) the lien of a matching aggregate principal amount of
our First Mortgage Bonds that we will issue to the Indenture Trustee for the
benefit of the holders of the Senior Notes and (2) a junior lien on our
Electric and Gas Utility Property, as described in the accompanying
prospectus. On the Release Date, which is the date when the aggregate
principal amount of all First Mortgage Bonds (and other Class A Bonds, if
any), other than those held by the Indenture Trustee, does not exceed the
greater of (a) 5% of the net book value of our Electric and Gas Utility
Property or (b) 5% of our Capitalization, as described in the accompanying
prospectus, the Senior Notes will, at our request and subject to
satisfaction of specified conditions, become unsecured and rank equally with
all of our other unsecured and unsubordinated indebtedness.
o We do not intend to list the Senior Notes on any securities exchange.
PER NOTE TOTAL
-------------------------------------------- ----------- -----------------
Price to public (1) 100.000% $30,000,000
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Underwriting discount 0.875% $ 262,500
-------------------------------------------- ----------- -----------------
Proceeds, before expenses, to us (1) 99.125% $29,737,500
-------------------------------------------- ----------- -----------------
(1) Plus accrued interest from December 15, 2003 of $1.3289 per $1,000
principal amount of Senior Notes, plus additional accrued interest, if any,
for Senior Notes delivered after December 23, 2003.
INVESTING IN THE SENIOR NOTES INVOLVES RISKS. YOU SHOULD CAREFULLY READ THE
ENTIRE ACCOMPANYING PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT, INCLUDING THE
SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE S-7 OF THIS PROSPECTUS
SUPPLEMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UBS Securities LLC expects to deliver the Senior Notes through the book-entry
facilities of The Depository Trust Company on or about December 23, 2003.
UBS Investment Bank
The date of this prospectus supplement is December 16, 2003.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Important Notice About Information In
This Prospectus Supplement And
The Accompanying Prospectus...............................................S-2
About This Prospectus Supplement.............................................S-2
Summary......................................................................S-3
Risk Factors.................................................................S-7
Use Of Proceeds.............................................................S-10
Capitalization..............................................................S-10
Description Of The Senior Notes.............................................S-11
Underwriting................................................................S-15
Experts.....................................................................S-16
Legal Opinions..............................................................S-16
PROSPECTUS
Risk Factors...................................................................3
Forward-Looking Statements.....................................................5
Where You Can Find More Information About Us...................................6
MDU Resources Group, Inc.......................................................8
Ratio Of Earnings To Fixed Charges.............................................9
Use Of Proceeds................................................................9
Selected Consolidated Financial Data...........................................9
Description Of The Debt Securities............................................10
Description Of The First Mortgage Bonds.......................................27
Description Of The Common Stock...............................................30
Description Of The Preference Share
Purchase Rights............................................................34
Plan Of Distribution..........................................................36
Experts.......................................................................37
Legal Opinions................................................................38
IMPORTANT NOTICE ABOUT INFORMATION IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
You should rely only on the information incorporated by reference or
provided in this prospectus supplement or in the accompanying prospectus.
Neither we nor the underwriter has authorized anyone else to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. Neither we nor the underwriter is making
an offer of these securities in any jurisdiction where the offer is not
permitted. You should not assume that the information in this prospectus
supplement or in the accompanying prospectus is accurate as of any date other
than the date on the front of this prospectus supplement or that the information
incorporated by reference in the accompanying prospectus is accurate as of any
date other than the date of such documents incorporated by reference.
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus
supplement, which describes the specific terms of this offering. The second
part, the accompanying prospectus, gives more general information, some of which
may not apply to this offering. You should read this prospectus supplement and
the accompanying prospectus, including the documents incorporated by reference
which are described under "WHERE YOU CAN FIND MORE INFORMATION ABOUT US" in the
accompanying prospectus, in their entirety before making an investment decision.
If the information in this prospectus supplement is different from, or
inconsistent with, the information in the accompanying prospectus, you should
rely on the information contained in this prospectus supplement.
This prospectus supplement and the accompanying prospectus contain, or
incorporate by reference, forward-looking statements. These forward-looking
statements should be considered together with the cautionary statements
described under "FORWARD-LOOKING STATEMENTS" in the accompanying prospectus and
important factors included in the documents incorporated by reference which are
described under "WHERE YOU CAN FIND MORE INFORMATION ABOUT US" in the
accompanying prospectus.
S-2
SUMMARY
This summary highlights certain information appearing elsewhere in this
document. This summary is not complete and does not contain all of the
information that may be important to you. You should read the entire prospectus
supplement, the accompanying prospectus and the information incorporated by
reference in the accompanying prospectus before purchasing the Senior Notes.
MDU RESOURCES GROUP, INC.
We are a diversified natural resource company which was incorporated under
the laws of the State of Delaware in 1924. Our principal executive offices are
at the Schuchart Building, 918 East Divide Avenue, P.O. Box 5650, Bismarck,
North Dakota 58506-5650, telephone (701) 222-7900.
Montana-Dakota Utilities Co., one of our public utility divisions, through
the electric and natural gas distribution segments, generates, transmits and
distributes electricity and distributes natural gas in the northern Great
Plains. Great Plains Natural Gas Co., another one of our public utility
divisions, distributes natural gas in southeastern North Dakota and western
Minnesota. These operations also supply related value-added products and
services in the northern Great Plains.
Through our wholly owned subsidiary, Centennial Energy Holdings, Inc., we
own WBI Holdings, Inc., Knife River Corporation, Utility Services, Inc.,
Centennial Energy Resources LLC and Centennial Holdings Capital LLC.
WBI Holdings is comprised of the pipeline and energy services and the
natural gas and oil production segments. The pipeline and energy services
segment provides natural gas transportation, underground storage and gathering
services through regulated and nonregulated pipeline systems primarily in the
Rocky Mountain and northern Great Plains regions of the United States. The
pipeline and energy services segment also provides energy-related management
services, including cable and pipeline magnetization and locating. The natural
gas and oil production segment is engaged in natural gas and oil acquisition,
exploration and production activities primarily in the Rocky Mountain region of
the United States and in and around the Gulf of Mexico.
Knife River mines aggregates and markets crushed stone, sand, gravel and
other related construction materials, including ready-mixed concrete, cement,
asphalt and other value-added products, as well as performs integrated
construction services, in the north central and western United States and in the
states of Alaska, Hawaii and Texas.
Utility Services is a diversified infrastructure company specializing in
electric, gas and telecommunication utility construction, as well as industrial
and commercial electrical, exterior lighting and traffic signalization
throughout most of the United States. Utility Services also provides related
specialty equipment manufacturing, sales and rental services.
Centennial Resources owns electric generating facilities in the United
States and has an investment in an electric generating facility in Brazil.
Electric capacity and energy produced at these facilities are sold under
long-term contracts to nonaffiliated entities. Centennial Resources includes
investments in potential new growth opportunities that are not directly being
pursued by the other business units, as well as projects outside the United
States which are consistent with our philosophy, growth strategy and areas of
expertise.
Centennial Capital insures various types of risks as a captive insurer for
certain of our subsidiaries. The function of the captive program is to fund the
deductible layers of the insured companies' general liability and automobile
liability coverages. Centennial Capital also owns certain real and personal
property and contract rights.
S-3
THE OFFERING
For a more complete description of the terms of the Senior Notes, see
"DESCRIPTION OF THE SENIOR NOTES."
The Issuer..................... MDU Resources Group, Inc.
Offered Securities............. $30,000,000 aggregate principal amount
of 5.98% Senior Notes due 2033.
Maturity....................... The 5.98% Senior Notes will mature
on December 15, 2033.
Interest Payment Dates......... We will pay interest on the Senior
Notes semi-annually in arrears on
June 15 and December 15 of each year,
beginning June 15, 2004.
Optional Redemption............ The Senior Notes may be redeemed at
our option, in whole or in part, at
any time at a make-whole redemption
price, together with accrued and
unpaid interest, if any, to the
redemption date. See "DESCRIPTION OF
THE SENIOR NOTES -- Optional
Redemption."
Ranking........................ Until the Release Date, the Senior
Notes will be secured by (1) the lien
of a matching aggregate principal
amount of our First Mortgage Bonds
that we will issue to the Indenture
Trustee for the benefit of the holders
of the Senior Notes and (2) a junior
lien on our Electric and Gas Utility
Property (as defined under
"DESCRIPTION OF THE DEBT SECURITIES --
Lien of the Indenture" in the
accompanying prospectus).
Release Date................... On the Release Date, which is the date
when the aggregate principal amount
of all First Mortgage Bonds (and
other Class A Bonds, if any), other
than those held by the Indenture
Trustee, does not exceed the greater
of (a) 5% of the net book value of
our Electric and Gas Utility Property
or (b) 5% of our Capitalization (as
defined under "DESCRIPTION OF THE DEBT
SECURITIES -- Class A Bonds"), the
Senior Notes will, at our request and
subject to satisfaction of specified
conditions, become unsecured and rank
equally with all of our other
unsecured and unsubordinated
indebtedness.
Unless we purchase or defease some of
our outstanding First Mortgage Bonds
or increase the net book value of our
Electric and Gas Utility Property or
our Capitalization to at least $700
million, the Release Date is unlikely
to occur prior to April 1, 2012. See
"DESCRIPTION OF THE DEBT SECURITIES --
Discharge of Lien; Release Date" in
the accompanying prospectus.
Limitation on Secured Debt..... So long as any Debt Securities are
outstanding under the Indenture, we
will not issue, incur or assume any
debt secured by a lien upon any of our
property, except for certain permitted
secured debt, unless the Senior Notes
are also equally and ratably secured
by that lien or the holders of a
majority of all outstanding Debt
Securities issued under the Indenture,
S-4
including the Senior Notes, consent
to such incurrence or assumption.
See "DESCRIPTION OF THE DEBT
SECURITIES -- Limitation on Secured
Debt" in the accompanying prospectus.
Risk Factors................... An investment in the Senior Notes
involves risk. You should carefully
consider each of the risk factors
described in this prospectus
supplement and the accompanying
prospectus under "RISK FACTORS."
Use of Proceeds................ We estimate that the net proceeds of
the offering will be approximately
$29.5 million. We intend to use these
proceeds to repay approximately
$25 million of outstanding
indebtedness and for general
corporate purposes. The debt being
repaid was incurred primarily to
finance a 40-megawatt turbine located
at Glendive, Montana which supports
our public utility's electric
operations. See "USE OF PROCEEDS."
S-5
SUMMARY HISTORICAL FINANCIAL DATA
The following information, which is presented in this prospectus supplement
solely to furnish limited introductory information, is qualified in its entirety
by, and should be considered in conjunction with, the more detailed information
contained in or incorporated by reference in the accompanying prospectus. In our
opinion, all adjustments (constituting only normal recurring accruals) necessary
for a fair statement of the results of operations for the nine months ended
September 30, 2003 and 2002 have been made. The income statement data for the
nine months ended September 30, 2003 and September 30, 2002, respectively, are
not necessarily indicative of the results for the entire year.
NINE MONTHS ENDED
SEPTEMBER 30, FISCAL YEARS ENDED DECEMBER 31,
----------------- -------------------------------
2003 2002 2002 2001 2000
---- ---- ---- ---- ----
(UNAUDITED)
(MILLIONS OF DOLLARS)
CONSOLIDATED INCOME STATEMENT DATA:
Operating revenues................. $1,732.1 $1,474.6 $2,031.5 $2,223.6 $1,873.7
Operating income................... $243.3 $187.2 $266.1 $273.3 $217.0
Net income (a)..................... $129.1 $102.5 $148.4 $155.8 $111.0
--------------------
(a) Net income for the nine months ended September 30, 2003, includes the
effect of a $7.6 million after-tax noncash transition charge to
earnings reflecting the cumulative effect of the change in accounting
for asset retirement obligations as required by the adoption of
Statement of Financial Accounting Standards No. 143. Net income for the
fiscal year ended December 31, 2002, and the nine months ended
September 30, 2002, includes the effect of a compromise agreement
resulting in a $27.4 million ($16.6 million after-tax) gain realized in
the first quarter of 2002.
RATIO OF EARNINGS TO FIXED CHARGES
The following table shows our ratio of earnings to fixed charges for
the periods indicated:
NINE MONTHS ENDED FISCAL YEARS ENDED DECEMBER 31,
SEPTEMBER 30, 2003 2002 2001 2000 1999 1998
------------------ ---- ---- ---- ---- ----
4.9 4.9 5.4 4.2 4.5 2.5
For purposes of computing this ratio, earnings represent net income (excluding
undistributed income for equity investee) plus income taxes, fixed charges and
amortization of interest capitalized, less interest capitalized. Fixed charges
represent interest, amortization of debt discount and expense on all
indebtedness, and the interest portion of rents estimated at 33 1/3%, less
amortization of gains or losses on reacquired debt (which, under the Federal
Energy Regulatory Commission Uniform System of Accounts, is classified as a
reduction of, or increase in, interest expense in the Consolidated Statements of
Income).
S-6
RISK FACTORS
In considering whether to purchase the Senior Notes, you should carefully
consider all the information we have included or incorporated by reference in
this prospectus supplement and the accompanying prospectus. In particular, you
should carefully consider the risk factors described below. These are risks we
consider to be material to your decision whether to invest in the Senior Notes.
There may be risks that you view in a different way than we do, and we may omit
a risk that we consider immaterial, but you consider important. New risks may
emerge at any time and we cannot predict such risks or estimate the extent to
which they may affect our financial performance. If any of the following risks,
or any new risks, occurs, our business, financial condition or results of
operations could be materially harmed. In that case, the value or trading price
of the Senior Notes could decline.
ECONOMIC RISKS
THE RECENT EVENTS LEADING TO THE CURRENT ADVERSE ECONOMIC ENVIRONMENT MAY
HAVE A GENERAL NEGATIVE IMPACT ON OUR FUTURE REVENUES AND MAY RESULT IN A
GOODWILL IMPAIRMENT FOR INNOVATUM, INC., OUR INDIRECT WHOLLY OWNED SUBSIDIARY.
In response to the occurrence of several recent events, including the
September 11, 2001, terrorist attack on the United States, the ongoing war
against terrorism by the United States and the bankruptcy of several large
energy and telecommunications companies and other large enterprises, the
financial markets have been highly volatile. An adverse economy could negatively
affect the level of governmental expenditures on public projects and the timing
of these projects which, in turn, would negatively affect the demand for our
products and services.
Innovatum, which specializes in cable and pipeline magnetization and
locating, is subject to the economic conditions within the telecommunications
and energy industries. Innovatum could face a future goodwill impairment if
there is a continued downturn in these sectors. At September 30, 2003, the
goodwill amount at Innovatum was approximately $8.3 million. The determination
of whether an impairment will occur is dependent on a number of factors,
including the level of spending in the telecommunications and energy industries,
the success of a newly developed hand-held locating device at Innovatum, rapid
changes in technology, competitors and potential new customers.
WE RELY ON FINANCING SOURCES AND CAPITAL MARKETS. OUR INABILITY TO ACCESS
FINANCING MAY IMPAIR OUR ABILITY TO EXECUTE OUR BUSINESS PLANS, MAKE CAPITAL
EXPENDITURES OR PURSUE ACQUISITIONS THAT WE MAY OTHERWISE RELY ON FOR FUTURE
GROWTH.
We rely on access to both short-term borrowings, including the issuance of
commercial paper, and long-term capital markets as a source of liquidity for
capital requirements not satisfied by the cash flow from operations. If we are
not able to access capital at competitive rates, the ability to implement our
business plans may be adversely affected. Market disruptions or a downgrade of
our credit ratings may increase the cost of borrowing or adversely affect our
ability to access one or more financial markets. Such disruptions could include:
o A severe prolonged economic downturn
o The bankruptcy of unrelated industry leaders in the same line of
business
o Capital market conditions generally
o Volatility in commodity prices
o Terrorist attacks
o Global events
OUR NATURAL GAS AND OIL PRODUCTION BUSINESS IS DEPENDENT ON FACTORS,
INCLUDING COMMODITY PRICES, WHICH CANNOT BE PREDICTED OR CONTROLLED.
These factors include: price fluctuations in natural gas and crude oil
prices; availability of economic supplies of natural gas; drilling successes in
natural gas and oil operations; the ability to contract for or to secure
necessary drilling rig contracts and to retain employees to drill for and
develop reserves; the ability to acquire natural gas and oil properties; and
other risks incidental to the operations of natural gas and oil wells.
S-7
ENVIRONMENTAL AND REGULATORY RISKS
SOME OF OUR OPERATIONS ARE SUBJECT TO EXTENSIVE ENVIRONMENTAL LAWS AND
REGULATIONS THAT MAY INCREASE OUR COSTS OF OPERATIONS, IMPACT OR LIMIT OUR
BUSINESS PLANS, OR EXPOSE US TO ENVIRONMENTAL LIABILITIES. ONE OF OUR
SUBSIDIARIES HAS BECOME SUBJECT TO LITIGATION IN CONNECTION WITH ITS COALBED
NATURAL GAS DEVELOPMENT ACTIVITIES.
We are subject to extensive environmental laws and regulations affecting
many aspects of our present and future operations including air quality, water
quality, waste management and other environmental considerations. These laws and
regulations can result in increased capital, operating and other costs, as a
result of compliance, remediation, containment and monitoring obligations,
particularly with regard to laws relating to power plant emissions and coalbed
natural gas development. These laws and regulations generally require us to
obtain and comply with a wide variety of environmental licenses, permits,
inspections and other approvals. Public officials and entities, as well as
private individuals and organizations, may seek to enforce applicable
environmental laws and regulations. We cannot predict the outcome (financial or
operational) of any related litigation that may arise.
Existing environmental regulations may be revised and new regulations
seeking to protect the environment may be adopted or become applicable to us.
Revised or additional regulations, which result in increased compliance costs or
additional operating restrictions, particularly if those costs are not fully
recoverable from customers, could have a material affect on our results of
operations.
Fidelity Exploration & Production Company, our indirect wholly owned
subsidiary, has been named as a defendant in, and/or certain of its operations
are the subject of, several lawsuits filed in connection with its coalbed
natural gas development in the Powder River Basin in Montana and Wyoming. If the
plaintiffs are successful in these lawsuits, the ultimate outcome of the actions
could have a material effect on Fidelity's existing coalbed natural gas
operations and/or its future development of its coalbed natural gas properties.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATIONS THAT MAY HAVE A NEGATIVE
IMPACT ON OUR BUSINESS AND OUR RESULTS OF OPERATIONS.
We are subject to regulation by federal, state and local regulatory
agencies with respect to, among other things, allowed rates of return,
financings, industry rate structures, and recovery of purchased power and
purchased gas costs. These governmental regulations significantly influence our
operating environment and may affect our ability to recover costs from our
customers. We are unable to predict the impact on operating results from the
future regulatory activities of any of these agencies.
Changes in regulations or the imposition of additional regulations could
have an adverse impact on our results of operations.
RISKS RELATING TO OUR INDEPENDENT POWER PRODUCTION BUSINESS
THE OPERATION OF POWER GENERATION FACILITIES INVOLVES MANY RISKS, INCLUDING
START-UP RISKS, BREAKDOWN OR FAILURE OF EQUIPMENT, COMPETITION, INABILITY TO
OBTAIN REQUIRED GOVERNMENTAL PERMITS AND APPROVALS AND INABILITY TO NEGOTIATE
ACCEPTABLE ACQUISITION, CONSTRUCTION, FUEL SUPPLY, OFF-TAKE, TRANSMISSION OR
OTHER MATERIAL AGREEMENTS, AS WELL AS THE RISK OF PERFORMANCE BELOW EXPECTED
LEVELS OF OUTPUT OR EFFICIENCY.
We are finalizing plans for the construction of a 113-megawatt coal-fired
development project in Hardin, Montana. Based on demand and power pricing in the
Northwest, the plant will be built on a merchant basis. Unanticipated events
could delay completion of construction, start-up and/or operation of the
project. Changes in the market price for power from our projections could also
negatively impact earnings to be derived from the project.
S-8
RISKS RELATING TO FOREIGN OPERATIONS
THE VALUE OF OUR INVESTMENT IN FOREIGN OPERATIONS MAY DIMINISH DUE TO
POLITICAL, REGULATORY AND ECONOMIC CONDITIONS AND CHANGES IN CURRENCY EXCHANGE
RATES IN COUNTRIES WHERE WE DO BUSINESS.
We are subject to political, regulatory and economic conditions and changes
in currency exchange rates in foreign countries where we do business.
Significant changes in the political, regulatory or economic environment in
these countries could negatively affect the value of our investments located in
these countries. Also, since we are unable to predict the fluctuations in the
foreign currency exchange rates, these fluctuations may have an adverse impact
on our results of operations.
Our 49 percent equity-method investment in a 220-megawatt natural gas-fired
electric generation project in Brazil includes a power purchase agreement that
contains an embedded derivative. This embedded derivative derives its value from
an annual adjustment factor that largely indexes the contract capacity payments
to the U.S. dollar. In addition, from time to time, other derivative instruments
may be utilized. The valuation of these financial instruments, including the
embedded derivative, can involve judgments, uncertainties and the use of
estimates. As a result, changes in the underlying assumptions could affect the
reported fair value of these instruments. These instruments could recognize
financial losses as a result of volatility in the underlying fair values, or if
a counterparty fails to perform.
OTHER RISKS
COMPETITION IS INCREASING IN ALL OF OUR BUSINESSES.
All of our businesses are subject to increased competition. The independent
power industry includes numerous strong and capable competitors, many of which
have greater resources and more experience in the operation, acquisition and
development of power generation facilities. Utility services' competition is
based primarily on price and reputation for quality, safety and reliability. The
construction materials products are marketed under highly competitive conditions
and are subject to such competitive forces as price, service, delivery time and
proximity to the customer. The electric utility and natural gas industries are
also experiencing increased competitive pressures as a result of consumer
demands, technological advances, deregulation, greater availability of natural
gas-fired generation and other factors. Pipeline and energy services competes
with several pipelines for access to natural gas supplies and gathering,
transportation and storage business. The natural gas and oil production business
is subject to competition in the acquisition and development of natural gas and
oil properties as well as in the sale of its production output.
WEATHER CONDITIONS CAN ADVERSELY AFFECT OUR OPERATIONS AND REVENUES.
Our results of operations can be affected by changes in the weather.
Weather conditions directly influence the demand for electricity and natural
gas, affect the wind-powered operation at the independent power production
business, affect the price of energy commodities, affect the ability to perform
services at the utility services and construction materials and mining
businesses and affect ongoing operation and maintenance activities for the
pipeline and energy services and natural gas and oil production businesses. In
addition, severe weather can be destructive, causing outages and/or property
damage, which could require additional costs to be incurred. As a result,
adverse weather conditions could negatively affect our results of operations and
financial condition.
S-9
USE OF PROCEEDS
The net proceeds from the offering will be approximately $29.5 million,
after deducting underwriting discounts and commissions and estimated offering
expenses payable by us. We intend to use the aggregate net proceeds from this
offering to (1) repay approximately $25 million of outstanding indebtedness
having, as of December 15, 2003, an annual interest rate of 1.12 % and maturing
on December 24 and December 30, 2003, and (2) for general corporate purposes.
The debt being repaid was incurred primarily to finance a 40-megawatt turbine
located at Glendive, Montana which supports our public utility's electric
operations.
CAPITALIZATION
The following table sets forth our long-term debt, preferred stock (without
mandatory redemption provisions) and common stockholders' equity at September
30, 2003, and as adjusted to reflect the issuance of the Senior Notes and the
use of approximately $25 million of the proceeds from such issuance to repay
outstanding indebtedness. Our information set forth in the table below is
reported on a consolidated basis and is only a summary and should be read
together with our consolidated financial statements and the related notes, in
each case incorporated by reference in this prospectus supplement and the
accompanying prospectus.
In addition, you should note that the term "Capitalization," as used in the
Indenture and in connection with the Release Date for the Senior Notes, is a
separate measure of our capitalization that is calculated on an unconsolidated
basis. See "DESCRIPTION OF THE SENIOR NOTES - General" in this prospectus
supplement and "DESCRIPTION OF THE DEBT SECURITIES - Class A Bonds" in the
accompanying prospectus.
At September 30, 2003
---------------------
Actual As Adjusted
---------- -----------
(unaudited)
(In thousands)
CAPITALIZATION:
Long-Term Debt $ 988,804 $ 993,804
Preferred Stock (without mandatory 15,000 15,000
redemption provisions)
Common Stockholders' Equity 1,403,737 1,403,737
Total Capitalization $ 2,407,541 $2,412,541
S-10
DESCRIPTION OF THE SENIOR NOTES
The following is a description of the terms of the Senior Notes. This
description supplements and to the extent inconsistent, replaces, and should be
read together with, the description of the general terms and provisions of the
Debt Securities and the First Mortgage Bonds set forth in the accompanying
prospectus under "DESCRIPTION OF THE DEBT SECURITIES" and "DESCRIPTION OF THE
FIRST MORTGAGE BONDS." The following description is subject to and qualified in
its entirety by reference to the provisions of the Indenture, to be dated as of
December 15, 2003, between us and The Bank of New York as Indenture Trustee,
under which the Senior Notes will be issued.
GENERAL
The Senior Notes will be issued as a series of debt securities under the
Indenture, initially in an aggregate principal amount of $30,000,000. Subject to
the conditions set forth in the accompanying prospectus under "DESCRIPTION OF
THE DEBT SECURITIES -- Issuance of Additional Debt Securities," we may, without
the consent of the holders, issue additional Senior Notes of the same series on
the same terms and conditions and with the same CUSIP number as the Senior Notes
being offered hereby, except for issue date, issue price and, if applicable, the
initial interest payment on those additional Senior Notes.
The Senior Notes will be issued only in fully-registered form in
denominations of $1,000 and its integral multiples. The Senior Notes will be
issued through the facilities of The Depository Trust Company, or DTC. Transfers
or exchanges of beneficial interests in the Senior Notes may be effected only
through records maintained by DTC or its nominee. Settlement and secondary
trading in the Senior Notes will be in same-day funds. Payments of principal,
premium, if any, and interest will be made to DTC in immediately available funds
as described under "Book-Entry Only Issuance" below.
As of October 31, 2003, we had $995.3 million of total indebtedness
outstanding. None of this indebtedness will rank senior to the Senior Notes.
While we may issue additional debt in the future, we have no present plan to do
so.
The Senior Notes will be our general unsubordinated obligations. None of
our subsidiaries has any obligation with respect to the Senior Notes. To the
extent that payment on the Senior Notes may be dependent upon the earnings of
our subsidiaries, these payments would be effectively subordinated to the
indebtedness and other liabilities of our subsidiaries. Holders of the Senior
Notes should not rely on the earnings and operations of our subsidiaries with
respect to their investment in the Senior Notes. As of September 30, 2003, our
subsidiaries had total debt outstanding of $813.1 million.
Until the Release Date referred to below, the Senior Notes will be secured
by (1) the lien of a matching aggregate principal amount of our First Mortgage
Bonds that we will issue to the Indenture Trustee for the benefit of the holders
of the Senior Notes and (2) a junior lien on our Electric and Gas Utility
Property, as described in the accompanying prospectus under "DESCRIPTION OF THE
DEBT SECURITIES -- Security" and "--Discharge of Lien; Release Date." The
Release Date may occur at any time when the aggregate amount of all outstanding
First Mortgage Bonds (and other Class A Bonds, if any), other than those held by
the Indenture Trustee, does not exceed the greater of:
o 5% of the net book value of our Electric and Gas Utility Property (as
described in the accompanying prospectus under "DESCRIPTION OF THE
DEBT SECURITIES -- Lien of the Indenture") or;
o 5% of our Capitalization (as described in the accompanying prospectus
under "DESCRIPTION OF THE DEBT SECURITIES -- Class A Bonds").
As of September 30, 2003, we had outstanding $35 million aggregate principal
amount of First Mortgage Bonds due April 1, 2012 that are not redeemable prior
to maturity. Unless we purchase or defease some of this series of First Mortgage
Bonds or increase the net book value of our Electric and Gas Utility Property or
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our Capitalization to at least $700 million, the Release Date is unlikely to
occur prior to April 1, 2012. As of September 30, 2003, the net book value of
our Electric and Gas Utility Property was $364.9 million, and our Capitalization
was $355.6 million.
MATURITY AND INTEREST
The Senior Notes will mature on December 15, 2033, and will bear interest
at the rate of 5.98% per annum. Interest will accrue from December 15, 2003, or
the most recent interest payment date to which interest has been paid or duly
provided for. Interest on the Senior Notes will be payable, semi-annually in
arrears on June 15 and December 15 of each year, beginning on June 15, 2004, to
holders of record at the close of business on the date (whether or not such day
is a business day) fifteen calendar days immediately preceding the corresponding
interest payment date, except that interest payable at maturity will be paid to
the person to whom principal is paid. If an interest payment date or the
maturity date falls on a day that is not a business day, the related payment of
interest or principal will be made on the next business day as if made on the
date payment was due and no interest will accrue on the amount payable for the
period from and after that interest payment date or the maturity date. The
amount of interest payable will be computed on the basis of a 360-day year of
twelve 30-day months, and with respect to any period less than a full month, on
the basis of the actual number of days elapsed during such period.
ISSUANCE OF ADDITIONAL FIRST MORTGAGE BONDS
As of September 30, 2003, we had $130.9 million aggregate principal amount
of First Mortgage Bonds outstanding. First Mortgage Bonds may be issued against
property additions, refunded First Mortgage Bonds and/or deposit of cash. Prior
to this offering and as of September 30, 2003, we could have issued
approximately $174 million of First Mortgage Bonds based upon available Property
Additions and approximately $164 million of First Mortgage Bonds based upon
refunded First Mortgage Bonds. See "DESCRIPTION OF THE FIRST MORTGAGE BONDS --
Issuance of Additional First Mortgage Bonds" in the accompanying prospectus. In
connection with this offering, we will issue $30 million of First Mortgage Bonds
and deliver them to the Indenture Trustee to be held for the benefit of the
holders of the Senior Notes as described above.
OPTIONAL REDEMPTION
We may redeem the Senior Notes at our option, in whole or in part, at any
time, at a redemption price equal to the greater of:
o 100% of the principal amount of the Senior Notes to be redeemed, and
o a "make-whole" amount, which will be calculated as described below,
plus, in each case, accrued and unpaid interest on such redeemed Senior Notes
to, but excluding, the date of redemption.
The "make-whole" amount will equal the sum of the present values of the
Remaining Scheduled Payments (as defined below) discounted, on a semiannual
basis (assuming a 360-day year consisting of twelve 30-day months), at a rate
equal to the Treasury Rate (as defined below) plus 12.5 basis points.
"Remaining Scheduled Payments" means the remaining scheduled payments of
the principal and interest that would be due if the Senior Notes selected for
redemption were not redeemed. However, if the redemption date is not a scheduled
interest payment date, the amount of the next succeeding scheduled interest
payment on those Senior Notes will be reduced by the amount of interest accrued
on those Senior Notes to the redemption date.
"Treasury Rate" means an annual rate equal to the semiannual equivalent
yield to maturity of the Comparable Treasury Issue (as defined below), assuming
a price for the Comparable Treasury Issue (expressed as a percentage of its
principal amount) equal to the Comparable Treasury Price (as defined below) for
the redemption date. The semiannual equivalent yield to maturity will be
computed as of the third business day immediately preceding the redemption date.
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"Comparable Treasury Issue" means the United States Treasury security
selected by UBS Securities LLC or its successor (or, if UBS Securities LLC or
any of its successors ceases to be a primary U.S. Government securities dealer,
another nationally recognized investment banking firm that is a primary U.S.
Government securities dealer appointed by us) as having a maturity comparable to
the remaining term of the Senior Notes that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt of comparable maturity to the remaining term of the
Senior Notes.
"Comparable Treasury Price" means the average of three reference Treasury
Dealer Quotations (as defined below) obtained by the Independent Investment
Banker (as defined below) for the redemption date.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by us.
"Reference Treasury Dealers" means UBS Securities LLC and its successors,
so long as it or any of its successors continues to be a primary U.S. Government
securities dealer, and any two other primary U.S. Government securities dealers
chosen by us. If UBS Securities LLC or any of its successors ceases to be a
primary U.S. Government securities dealer, we will appoint in its place another
nationally recognized investment banking firm that is a primary U.S. Government
securities dealer.
"Reference Treasury Dealer Quotation" means the average, as determined by
the Indenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Indenture Trustee by a Reference Treasury Dealer at 3:30 p.m.,
New York City time, on the third business day preceding the redemption date.
We will give notice to holders of Senior Notes to be redeemed by
first-class mail at least 30 days prior to the date fixed for redemption. At our
option, any notice of redemption may state that such redemption will be
conditional upon receipt by the Indenture Trustee (or a Paying Agent), on or
prior to the date fixed for such redemption, of money sufficient to pay the
principal of and premium, if any, and interest on the Senior Notes and that if
such money has not been so received, such notice will be of no force and effect
and we will not be required to redeem the Senior Notes.
On and after the redemption date, interest will cease to accrue on the
Senior Notes or any portion thereof called for redemption (unless we do not
deposit the money for the payment of the redemption price and accrued interest
pursuant to the next preceding paragraph). If less than all of the Senior Notes
are to be redeemed, the Indenture Trustee will select the Senior Notes to be
redeemed by such method as it shall deem fair and appropriate.
BOOK-ENTRY ONLY ISSUANCE
The Senior Notes will be issued in book-entry only form and will be
represented by one or more registered global securities that will be deposited
with, or on behalf of, DTC (or another depository which may replace DTC as
depository for the book-entry Senior Notes) and registered in the name of a
nominee of the depository.
DTC is a New York clearing corporation and a clearing agency registered
under Section 17A of the Securities Exchange Act of 1934. DTC holds securities
for its participants. DTC also facilitates settlement of securities transactions
among its participants through electronic computerized book-entry changes in the
participants' accounts. This eliminates the need for physical movement of
securities certificates. The participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
corporations. DTC is a wholly owned subsidiary of The Depository Trust &
Clearing Corporation, or DTCC. DTCC, in turn, is owned by a number of
participants of DTC, members of other clearing corporations and by the New York
Stock Exchange, Inc., the American Stock Exchange LLC, and the National
Association of Securities Dealers, Inc. Others who maintain a custodial
relationship with a participant can use the DTC system. The rules that apply to
DTC and those using its systems are on file with the Securities and Exchange
Commission.
Purchases of the Senior Notes within the DTC system must be made through
participants, which will receive a credit for the Senior Notes on DTC's records.
The beneficial ownership interest of each purchaser will be recorded on the
participants' records. Beneficial owners will not receive written confirmation
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from DTC of their purchases, but beneficial owners should receive written
confirmations of the transactions, as well as periodic statements of their
holdings, from the participants through which they purchased Senior Notes.
Beneficial owners will not receive certificates for their Senior Notes, except
if use of the book-entry system for the Senior Notes is discontinued.
To facilitate subsequent transfers, all Senior Notes deposited by
participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of the Senior Notes with DTC and their registration in the name of
Cede & Co. effects no change in beneficial ownership. DTC has no knowledge of
the actual beneficial owners of the Senior Notes. DTC's records reflect only the
identity of the participants to whose accounts such Senior Notes are credited.
These participants may or may not be the beneficial owners. Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to participants, and
by participants to beneficial owners, will be governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time. Beneficial owners of Senior Notes may wish to take certain
steps to augment transmission to them of notices of significant events with
respect to the Senior Notes, such as redemptions, tenders, defaults and proposed
amendments to the Senior Note documents.
Redemption notices will be sent to Cede & Co., as registered holder of the
Senior Notes. If less than all of the Senior Notes are being redeemed, DTC's
practice is to determine by lot the amount of Senior Notes of each participant
to be redeemed.
Neither DTC nor Cede & Co. will itself consent or vote with respect to
Senior Notes. Under its usual procedures, DTC would mail an omnibus proxy to us
as soon as possible after the record date. The omnibus proxy assigns the
consenting or voting rights of Cede & Co. to those participants to whose
accounts the Senior Notes are credited on the record date.
Payments of redemption proceeds, principal of, and interest on the Senior
Notes will be made to Cede & Co., or such other nominee as may be requested by
DTC. DTC's practice is to credit participants' accounts on the relevant payment
date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payments on that payment
date. Payments by participants to beneficial owners will be governed by standing
instructions and customary practices. Payments will be the responsibility of
participants and not DTC, The Bank of New York or us, subject to any statutory
or regulatory requirements as may be in effect from time to time. Payment of
redemption proceeds, principal and interest to Cede & Co. (or such other nominee
as may be requested by DTC) is our responsibility. Disbursement of payments to
participants is the responsibility of DTC, and disbursement of payments to the
beneficial owners is the responsibility of participants.
Except as provided in this prospectus supplement, a beneficial owner will
not be entitled to receive physical delivery of the Senior Notes. Accordingly,
each beneficial owner must rely on the procedures of DTC to exercise any rights
under the Senior Notes.
DTC may discontinue providing its services as securities depositary with
respect to the Senior Notes at any time by giving reasonable notice to us. In
the event no successor securities depositary is obtained, certificates for the
Senior Notes will be printed and delivered. We may decide to replace DTC or any
successor depositary. Additionally, we may decide to discontinue use of the
system of book-entry transfers through DTC (or a successor depositary) with
respect to the Senior Notes. In that event, certificates for the Senior Notes
will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable, but we do not
take responsibility for the accuracy of this information.
INFORMATION ABOUT THE INDENTURE TRUSTEE
The Indenture Trustee is The Bank of New York. In addition to acting as
Indenture Trustee, The Bank of New York also acts as the Mortgage Trustee. The
Bank of New York also acts, and may in the future act, as trustee under various
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other of our and our affiliates' indentures, trusts and guarantees. We and our
affiliates maintain deposit accounts and conduct other banking transactions with
The Bank of New York and its affiliates in the ordinary course of our respective
businesses.
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date hereof, UBS Securities LLC, as underwriter, has agreed
to purchase, and we have agreed to sell to them, $30,000,000 principal amounts
of the Senior Notes.
The underwriting agreement provides that the obligation of the underwriter
to pay for and accept delivery of the Senior Notes is subject to the approval of
certain legal matters by their counsel and to certain other conditions. The
underwriter is obligated to take and pay for all of the Senior Notes offered
hereby if any are taken.
The underwriter initially proposes to offer the Senior Notes to the public
at the initial public offering price set forth on the cover page of this
prospectus supplement. The underwriter may sell Senior Notes to securities
dealers at a discount from the initial public offering price of up to 0.50% of
the principal amount of the Senior Notes. The underwriter may allow, and any
dealer may reallow, a concession not in excess of 0.25% of the principal amount
of the Senior Notes to certain other brokers or dealers. After the initial
offering of the Senior Notes, the offering price and other selling terms of any
Senior Notes may from time to time be varied by the underwriter.
Prior to this offering, there has been no public market for the Senior
Notes. The underwriter has advised us that it presently intends to make a market
in the Senior Notes. The underwriter is not obligated to make a market in the
Senior Notes, however, and may cease market-making activities at any time. We
cannot give any assurance as to the liquidity of any trading market for the
Senior Notes.
In order to facilitate the offering of the Senior Notes, the underwriter
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Senior Notes. Specifically, the underwriter may over-allot in
connection with the offering, creating a short position in the Senior Notes for
its own account. In addition, to cover over-allotments or to stabilize the price
of the Senior Notes, the underwriter may bid for and purchase the Senior Notes
in the open market. Finally, the underwriter may reclaim selling concessions
allowed to a dealer for distributing the Senior Notes in the offering if the
underwriter repurchases previously distributed Senior Notes in transactions to
cover short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Senior Notes above
independent market levels. The underwriter is not required to engage in these
activities and may end any of these activities at any time. The underwriter may
effect these transactions in the over-the-counter market or otherwise.
We expect that delivery of the Senior Notes will be made against payment
therefore on or about the closing date specified on the cover page of this
prospectus supplement, which will be the fifth business day following the date
of pricing of the Senior Notes (this settlement cycle being referred to as
"T+5"). Under Rule 15c6-1 under the Exchange Act, trades in the secondary market
generally are required to settle in three business days, unless the parties to
that trade expressly agree otherwise. Accordingly, purchasers who wish to trade
Senior Notes on the date of pricing or the next succeeding business day will be
required, by virtue of the fact that the Senior Notes initially will settle in
T+5, to specify an alternate settlement cycle at the time of any such trade to
prevent a failed settlement and should consult their own advisor.
We estimate that we will incur offering expenses of approximately $260,000.
We have agreed to indemnify the underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
We and our affiliates have in the past entered into, and may in the future
enter into, investment banking transactions with the underwriter and/or its
affiliates for which they in the past received, and may in the future receive,
customary fees. In addition, we may also engage the underwriter or its
affiliates in respect of financial advisory services for which they have in the
past received, and may in the future receive, customary fees.
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EXPERTS
The consolidated financial statements and consolidated financial statement
schedule incorporated by reference from our Annual Report on Form 10-K for the
year ended December 31, 2002, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports which are incorporated herein
by reference (which expresses an unqualified opinion and includes an explanatory
paragraph relating to the application of certain procedures relating to certain
other disclosures and reclassifications of financial statement amounts related
to the 2001 and 2000 consolidated financial statements that were audited by
other auditors for which Deloitte & Touche LLP has expressed no opinion or other
form of assurance other than with respect to such disclosures and
reclassifications), and have been so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
Our consolidated financial statements and schedule as of December 31, 2001,
and for the years ended December 31, 2001 and 2000 incorporated in this
prospectus by reference from our Annual Report on Form 10-K for the year ended
December 31, 2002 were audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto (which expresses
an unqualified opinion and includes an explanatory paragraph relating to the
adoption of a new accounting principle), and have been so incorporated in
reliance upon the report and upon the authority of that firm as experts in
accounting and auditing in giving the report. On February 14, 2002, we dismissed
Arthur Andersen LLP as our independent public accounting firm, and on March 25,
2002, we hired Deloitte & Touche LLP as our independent auditors for the 2002
fiscal year. Since that time, Arthur Andersen LLP was convicted on federal
charges of obstruction of justice, and in August 2002, Arthur Andersen LLP
ceased performing auditing services worldwide. These events may materially and
adversely affect the ability of Arthur Andersen LLP to satisfy all of their
existing and future obligations, including claims under the federal securities
laws. Accordingly, purchasers of our securities may be limited in their ability
to recover damages from Arthur Andersen LLP for any claims that may arise out of
Arthur Andersen LLP's audit of our financial statements. In addition, we were
not able to obtain the consent of Arthur Andersen LLP as required by Section 7
of the Securities Act to the incorporation by reference of their report on the
audited financial statements into the registration statement. As a result of
Arthur Andersen LLP not having provided a consent, the ability of purchasers of
our securities to assert claims and seek remedies against Arthur Andersen LLP
may be limited with respect to their report, particularly those remedies arising
under Section 11 of the Securities Act.
LEGAL OPINIONS
The validity of the Senior Notes will be passed upon for us by Lester H.
Loble, II, Esq., our General Counsel, and also by Thelen Reid & Priest LLP, New
York, New York. Certain legal matters relating to the Senior Notes will be
passed upon for the underwriter by Shearman & Sterling LLP, New York, New York.
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PROSPECTUS
$500,000,000
MDU RESOURCES GROUP, INC.
DEBT SECURITIES
COMMON STOCK
AND
PREFERENCE SHARE PURCHASE RIGHTS
We may offer from time to time up to an aggregate of $500,000,000 of our
securities. We will provide the specific terms of our securities, including
their offering prices, in supplements to this prospectus. The supplements may
also add, update or change information contained in this prospectus. The names
of any underwriters or agents will also be stated in an accompanying prospectus
supplement. You should read this prospectus and any supplements carefully before
you invest.
Our common stock is listed on the New York Stock Exchange and the Pacific
Exchange under the symbol "MDU." Any common stock sold in this offering will be
listed on the New York Stock Exchange and the Pacific Exchange.
See "Risk Factors" beginning on page 3 to read about certain factors you
should consider before investing in the securities.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Our principal executive offices are located at MDU Resources Group, Inc.,
Schuchart Building, 918 East Divide Avenue, P.O. Box 5650, Bismarck, North
Dakota 58506-5650, and our telephone number is (701) 222-7900.
We may offer our securities directly or through agents, underwriters or
dealers. If an agent or any underwriter is involved in the sale of any of our
securities covered by this prospectus, the names of those agents or
underwriters, any applicable discounts, commissions or allowances and a
description of any indemnification arrangements will be contained in a
prospectus supplement. The "Plan of Distribution" section beginning on page 36
of this prospectus provides more information on this topic.
The date of this Prospectus is September 26, 2003.
TABLE OF CONTENTS
Page
RISK FACTORS...................................................................3
FORWARD-LOOKING STATEMENTS.....................................................5
WHERE YOU CAN FIND MORE INFORMATION ABOUT US...................................6
MDU RESOURCES GROUP, INC.......................................................8
RATIO OF EARNINGS TO FIXED CHARGES.............................................9
USE OF PROCEEDS................................................................9
SELECTED CONSOLIDATED FINANCIAL DATA...........................................9
DESCRIPTION OF THE DEBT SECURITIES............................................10
DESCRIPTION OF THE FIRST MORTGAGE BONDS.......................................27
DESCRIPTION OF THE COMMON STOCK...............................................30
DESCRIPTION OF THE PREFERENCE SHARE PURCHASE RIGHTS...........................34
PLAN OF DISTRIBUTION..........................................................36
EXPERTS.......................................................................37
LEGAL OPINIONS................................................................38
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RISK FACTORS
In considering whether to purchase any of the securities being offered, you
should carefully consider all the information we have included or incorporated
by reference in this prospectus. In particular, you should carefully consider
the risk factors described below.
ECONOMIC RISKS
THE RECENT EVENTS LEADING TO THE CURRENT ADVERSE ECONOMIC ENVIRONMENT MAY
HAVE A GENERAL NEGATIVE IMPACT ON OUR FUTURE REVENUES AND MAY RESULT IN A
GOODWILL IMPAIRMENT FOR INNOVATUM, INC., OUR INDIRECT WHOLLY OWNED SUBSIDIARY.
In response to the occurrence of several recent events, including the
September 11, 2001, terrorist attack on the United States, the ongoing war
against terrorism by the United States and the bankruptcy of several large
energy and telecommunications companies and other large enterprises, the
financial markets have been highly volatile. An adverse economy could negatively
affect the level of governmental expenditures on public projects and the timing
of these projects which, in turn, would negatively affect the demand for our
products and services.
Innovatum, which specializes in cable and pipeline magnetization and
locating, is subject to the economic conditions within the telecommunications
and energy industries. Innovatum could face a future goodwill impairment if
there is a continued downturn in these sectors. At June 30, 2003, the goodwill
amount at Innovatum was approximately $8.3 million. The determination of whether
an impairment will occur is dependent on a number of factors, including the
level of spending in the telecommunications and energy industries, rapid changes
in technology, competitors and potential new customers.
WE RELY ON FINANCING SOURCES AND CAPITAL MARKETS. OUR INABILITY TO ACCESS
FINANCING MAY IMPAIR OUR ABILITY TO EXECUTE OUR BUSINESS PLANS, MAKE CAPITAL
EXPENDITURES OR PURSUE ACQUISITIONS THAT WE MAY OTHERWISE RELY ON FOR FUTURE
GROWTH.
We rely on access to both short-term borrowings, including the issuance of
commercial paper, and long-term capital markets as a source of liquidity for
capital requirements not satisfied by the cash flow from operations. If we are
not able to access capital at competitive rates, the ability to implement our
business plans may be adversely affected. Market disruptions or a downgrade of
our credit ratings may increase the cost of borrowing or adversely affect our
ability to access one or more financial markets. Such disruptions could include:
o A severe prolonged economic downturn
o The bankruptcy of unrelated industry leaders in the same lines of
business
o Capital market conditions generally
o Volatility in commodity prices
o Terrorist attacks
o Global events
OUR NATURAL GAS AND OIL PRODUCTION BUSINESS IS DEPENDENT ON FACTORS,
INCLUDING COMMODITY PRICES, WHICH CANNOT BE PREDICTED OR CONTROLLED.
These factors include: price fluctuations in natural gas and crude oil
prices; availability of economic supplies of natural gas; drilling successes in
natural gas and oil operations; the ability to contract for or to secure
necessary drilling rig contracts and to retain employees to drill for and
develop reserves; the ability to acquire natural gas and oil properties; and
other risks incidental to the operations of natural gas and oil wells.
ENVIRONMENTAL AND REGULATORY RISKS
SOME OF OUR OPERATIONS ARE SUBJECT TO EXTENSIVE ENVIRONMENTAL LAWS AND
REGULATIONS THAT MAY INCREASE OUR COSTS OF OPERATIONS, IMPACT OR LIMIT OUR
BUSINESS PLANS, OR EXPOSE US TO ENVIRONMENTAL LIABILITIES. ONE OF OUR
SUBSIDIARIES HAS BEEN SUED IN CONNECTION WITH ITS COALBED NATURAL GAS
DEVELOPMENT ACTIVITIES.
3
We are subject to extensive environmental laws and regulations affecting
many aspects of our present and future operations including air quality, water
quality, waste management and other environmental considerations. These laws and
regulations can result in increased capital, operating and other costs, as a
result of compliance, remediation, containment and monitoring obligations,
particularly with regard to laws relating to power plant emissions and coalbed
natural gas development. These laws and regulations generally require us to
obtain and comply with a wide variety of environmental licenses, permits,
inspections and other approvals. Both public officials and private individuals
may seek to enforce applicable environmental laws and regulations. We cannot
predict the outcome (financial or operational) of any related litigation that
may arise.
Existing environmental regulations may be revised and new regulations
seeking to protect the environment may be adopted or become applicable to us.
Revised or additional regulations, which result in increased compliance costs or
additional operating restrictions, particularly if those costs are not fully
recoverable from customers, could have a material affect on our results of
operations.
Fidelity Exploration & Production Company, our indirect wholly owned
subsidiary, has been named as a defendant in several lawsuits filed in
connection with its coalbed natural gas development in the Powder River Basin in
Montana and Wyoming. If the plaintiffs are successful in these lawsuits, the
ultimate outcome of the actions could have a material effect on Fidelity's
future development of its coalbed natural gas properties.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATIONS THAT MAY HAVE A NEGATIVE
IMPACT ON OUR BUSINESS AND OUR RESULTS OF OPERATIONS.
We are subject to regulation by federal, state and local regulatory
agencies with respect to, among other things, allowed rates of return,
financings, industry rate structures, and recovery of purchased power and
purchased gas costs. These governmental regulations significantly influence our
operating environment and may affect our ability to recover costs from our
customers. We are unable to predict the impact on operating results from the
future regulatory activities of any of these agencies.
Changes in regulations or the imposition of additional regulations could
have an adverse impact on our results of operations.
RISKS RELATING TO OUR INDEPENDENT POWER PRODUCTION BUSINESS
THERE ARE RISKS INVOLVED WITH THE GROWTH STRATEGIES OF OUR INDEPENDENT
POWER PRODUCTION BUSINESS. IF WE ARE UNABLE TO ACCESS MARKETS PREVIOUSLY
UNAVAILABLE TO A PROPOSED 113-MEGAWATT COAL-FIRED ELECTRIC GENERATION STATION IN
MONTANA, WE MAY NOT COMPLETE CONSTRUCTION OR COMMENCE OPERATION OF THAT
FACILITY, WHICH MAY RESULT IN AN ASSET IMPAIRMENT.
The operation of power generation facilities involves many risks, including
start up risks, breakdown or failure of equipment, competition, inability to
obtain required governmental permits and approvals and inability to negotiate
acceptable acquisition, construction, fuel supply or other material agreements,
as well as the risk of performance below expected levels of output or
efficiency.
Our plans to construct a 113-megawatt coal-fired electric generation
station in Montana are pending. We purchased plant equipment and obtained all
permits necessary to begin construction. NorthWestern Energy terminated the
power purchase agreement for the energy from this plant in July 2002; however,
we are in the process of accessing markets previously unavailable to this
project and plan to resume construction in the near future to the extent access
to such markets is secured. We have suspended construction activities except for
those items of a critical nature. At June 30, 2003, our investment in this
project was approximately $29.6 million. If it is not economically feasible for
us to construct and operate this facility or if alternate markets cannot be
identified, an asset impairment may occur.
4
RISKS RELATING TO FOREIGN OPERATIONS
THE VALUE OF OUR INVESTMENT IN FOREIGN OPERATIONS MAY DIMINISH DUE TO
POLITICAL, REGULATORY AND ECONOMIC CONDITIONS AND CHANGES IN CURRENCY EXCHANGE
RATES IN COUNTRIES WHERE WE DO BUSINESS.
We are subject to political, regulatory and economic conditions and changes
in currency exchange rates in foreign countries where we do business.
Significant changes in the political, regulatory or economic environment in
these countries could negatively affect the value of our investments located in
these countries. Also, since we are unable to predict the fluctuations in the
foreign currency exchange rates, these fluctuations may have an adverse impact
on our results of operations.
Our 49 percent equity method investment in a 220-megawatt natural gas-fired
electric generation project in Brazil includes a power purchase agreement that
contains an embedded derivative. This embedded derivative derives its value from
an annual adjustment factor that largely indexes the contract capacity payments
to the U.S. dollar. In addition, from time to time, other derivative instruments
may be utilized. The valuation of these financial instruments, including the
embedded derivative, can involve judgments, uncertainties and the use of
estimates. As a result, changes in the underlying assumptions could affect the
reported fair value of these instruments. These instruments could recognize
financial losses as a result of volatility in the underlying fair values, or if
a counterparty fails to perform.
OTHER RISKS
COMPETITION IS INCREASING IN ALL OF OUR BUSINESSES.
All of our businesses are subject to increased competition. The independent
power industry includes numerous strong and capable competitors, many of which
have greater resources and more experience in the operation, acquisition and
development of power generation facilities. Utility services' competition is
based primarily on price and reputation for quality, safety and reliability. The
construction materials products are marketed under highly competitive conditions
and are subject to such competitive forces as price, service, delivery time and
proximity to the customer. The electric utility and natural gas industries are
also experiencing increased competitive pressures as a result of consumer
demands, technological advances, deregulation, greater availability of natural
gas-fired generation and other factors. Pipeline and energy services competes
with several pipelines for access to natural gas supplies and gathering,
transportation and storage business. The natural gas and oil production business
is subject to competition in the acquisition and development of natural gas and
oil properties.
WEATHER CONDITIONS CAN ADVERSELY AFFECT OUR OPERATIONS AND REVENUES.
Our results of operations can be affected by changes in the weather.
Weather conditions directly influence the demand for electricity and natural
gas, affect the price of energy commodities, affect the ability to perform
services at the utility services and construction materials and mining
businesses and affect ongoing operation and maintenance activities for the
pipeline and energy services and natural gas and oil production businesses. In
addition, severe weather can be destructive, causing outages and/or property
damage, which could require additional costs to be incurred. As a result,
adverse weather conditions could negatively affect our results of operations and
financial conditions.
FORWARD-LOOKING STATEMENTS
We are including these cautionary statements in this prospectus to make
applicable and to take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statements made
by us or on our behalf. Forward-looking statements include statements concerning
plans, objectives, goals, strategies, future events or performance, and
underlying assumptions (many of which are based, in turn, upon further
assumptions) and other statements which are other than statements of historical
facts. From time to time, we may publish or otherwise make available
forward-looking statements of this nature. All these subsequent forward-looking
statements, whether written or oral and whether made by us or on our behalf, are
also expressly qualified by these cautionary statements.
5
Forward-looking statements involve risks and uncertainties, which could
cause actual results or outcomes to differ materially from those expressed. Our
expectations, beliefs and projections are expressed in good faith and are
believed by us to have a reasonable basis, including without limitation
management's examination of historical operating trends, data contained in our
records and other data available from third parties. Nonetheless, our
expectations, beliefs or projections may not be achieved or accomplished.
Any forward-looking statement contained in this document or any document
incorporated by reference into this document speaks only as of the date on which
the statement is made, and we undertake no obligation to update any
forward-looking statement or statements to reflect events or circumstances that
occur after the date on which the statement is made or to reflect the occurrence
of unanticipated events. New factors emerge from time to time, and it is not
possible for management to predict all of the factors, nor can it assess the
effect of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statement.
Following are some specific factors that should be considered for a better
understanding of our financial condition. These factors are important factors
that could cause our actual results or outcomes to differ materially from those
discussed in the forward-looking statements included elsewhere in this
prospectus.
o Acquisition and disposal of assets or facilities
o Changes in operation and construction of plant facilities
o Changes in present or prospective generation
o Changes in anticipated tourism levels
o The availability of economic expansion or development opportunities
o Population growth rates and demographic patterns
o Market demand for energy from plants or facilities
o Changes in tax rates or policies
o Unanticipated project delays or changes in project costs
o Unanticipated changes in operating expenses or capital expenditures
o Labor negotiations or disputes
o Inflation rates
o Inability of various counterparties to meet their contractual
obligations
o Changes in accounting principles and/or the application of such
principles to us
o Changes in technology and legal proceedings
o The ability to effectively integrate the operations of acquired
companies
o Variations in weather
o Unanticipated increases in competition
o Changes in currency exchange rates
o Increased governmental regulation
o Fluctuations in natural gas and crude oil prices
o Decline in general economic environment
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and other reports and other information with the
Securities and Exchange Commission. You can read and copy any information filed
by us with the Securities and Exchange Commission at the Securities and Exchange
Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. You can obtain additional information about the Public Reference Room by
calling the Securities and Exchange Commission at 1-800-SEC-0330.
In addition, the Securities and Exchange Commission maintains an Internet
site (http://www.sec.gov) that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the Securities and Exchange Commission, including MDU Resources.
The Securities and Exchange Commission allows us to "incorporate by
reference" the information that we file with the Securities and Exchange
Commission which means that we may disclose important information to you by
6
referring you to those documents in this prospectus. The information
incorporated by reference is an important part of this prospectus. We are
incorporating by reference the documents listed below and any future filings we
make with the Securities and Exchange Commission under Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 until we terminate this
offering. Any of those future filings will update, supersede and replace the
information contained in any documents incorporated by reference in this
prospectus at the time of the future filings.
1. MDU Resources' Annual Report on Form 10-K for the year ended December
31, 2002 (including portions of the Annual Report to Stockholders),
filed February 28, 2003 (SEC File No. 1-3480);
2. MDU Resources' Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003, filed May 14, 2003 (SEC File No. 1-3480);
3. MDU Resources' Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, filed August 13, 2003 (SEC File No. 1-3480);
4. MDU Resources' Current Report on Form 8-K, filed January 29, 2003 (SEC
File No. 1-3480);
5. MDU Resources' Current Report on Form 8-K, filed March 13, 2003 (SEC
File No. 1-3480);
6. MDU Resources' Current Report on Form 8-K, filed September 10, 2003
(SEC File No. 1-3480);
7. MDU Resources' Registration Statement on Form 8-A, filed September 21,
1994, Amendment No. 1 thereto, filed March 23, 2000 and Amendment No.
2 thereto, filed March 10, 2003 (SEC File No. 1-3480);
8. MDU Resources' Registration Statement on Form 8-A filed November 12,
1998, and Amendment No. 1 thereto, filed March 23, 2000 (SEC File No.
1-3480); and
9. Proxy Statement for an annual meeting of stockholders held on April
22, 2003, filed March 6, 2003 (SEC File No. 1-3480).
You may request a copy of these documents, at no cost to you, by writing or
calling Office of the Treasurer, MDU Resources Group, Inc., Schuchart Building,
918 East Divide Avenue, P.O. Box 5650, Bismarck, North Dakota 58506-5650,
telephone (701) 222-7900.
You should rely only on the information contained in, or incorporated by
reference in, this prospectus and the prospectus supplement. We have not, and
any underwriters, agents or dealers have not, authorized anyone else to provide
you with different information. We are not, and any underwriters, agents or
dealers are not, making an offer of these securities in any state where the
offer is not permitted. You should not assume that the information contained in
this prospectus and the prospectus supplement is accurate as of any date other
than the date on the front of the prospectus supplement or that the information
incorporated by reference in this prospectus is accurate as of any date other
than the date on the front of those documents.
Our consolidated financial statements for the year ended December 31, 2001,
incorporated into this document by reference were audited by Arthur Andersen
LLP. After reasonable efforts, we have not been able to obtain Arthur Andersen
LLP's consent to the incorporation by reference of its audit report dated
January 23, 2002 into the registration statement of which this prospectus is a
part. Rule 437a under the Securities Act of 1933 permits us to file the
registration statement and this prospectus without Arthur Andersen LLP's written
consent, but as a result of the lack of Arthur Andersen LLP's consent, you may
not be able to sue Arthur Andersen LLP pursuant to Section 11(a)(4) of the
Securities Act of 1933 and your right of recovery under that section may be
limited.
Upon the recommendations of the audit committee, our Board of Directors, in
February 2002, approved the dismissal of Arthur Andersen LLP as our independent
public accountants following the 2001 audit and, in March 2002, approved the
selection of Deloitte & Touche LLP as independent public accountants for the
2002 fiscal year.
7
MDU RESOURCES GROUP, INC.
We are a diversified natural resource company which was incorporated under
the laws of the state of Delaware in 1924. Our principal executive offices are
at the Schuchart Building, 918 East Divide Avenue, P.O. Box 5650, Bismarck,
North Dakota 58506-5650, telephone (701) 222-7900.
Montana-Dakota Utilities Co., one of our public utility divisions, through
the electric and natural gas distribution segments, generates, transmits and
distributes electricity and distributes natural gas in the northern Great
Plains. Great Plains Natural Gas Co., another one of our public utility
divisions, distributes natural gas in southeastern North Dakota and western
Minnesota. These operations also supply related value-added products and
services in the northern Great Plains.
Through our wholly owned subsidiary, Centennial Energy Holdings, Inc., we
own WBI Holdings, Inc., Knife River Corporation, Utility Services, Inc.,
Centennial Energy Resources LLC and Centennial Holdings Capital LLC.
WBI Holdings is comprised of the pipeline and energy services and the
natural gas and oil production segments. The pipeline and energy services
segment provides natural gas transportation, underground storage and
gathering services through regulated and nonregulated pipeline systems
primarily in the Rocky Mountain and northern Great Plains regions of the
United States. The pipeline and energy services segment also provides
energy-related management services, including cable and pipeline
magnetization and locating. The natural gas and oil production segment is
engaged in natural gas and oil acquisition, exploration and production
activities primarily in the Rocky Mountain region of the United States and
in the Gulf of Mexico.
Knife River mines aggregates and markets crushed stone, sand, gravel and
other related construction materials, including ready-mixed concrete,
cement, asphalt and other value-added products, as well as performs
integrated construction services, in the north central and western United
States and in the states of Alaska, Hawaii and Texas.
Utility Services is a diversified infrastructure company specializing in
electric, gas and telecommunication utility construction, as well as
industrial and commercial electrical, exterior lighting and traffic
signalization throughout most of the United States. Utility Services also
provides related specialty equipment manufacturing, sales and rental
services.
Centennial Resources owns electric generating facilities in the United
States and has an investment in an electric generating facility in Brazil.
Electric capacity and energy produced at these facilities are sold under
long-term contracts to nonaffiliated entities. Centennial Resources
includes investments in potential new growth opportunities that are not
directly being pursued by the other business units, as well as projects
outside the United States which are consistent with our philosophy, growth
strategy and areas of expertise. These activities are reflected in
independent power production and other.
Centennial Capital insures and reinsures various types of risks as a
captive insurer for certain of our subsidiaries. The function of the
captive program is to fund the deductible layers of the insured companies'
general liability and automobile liability coverages. Centennial Capital
also owns certain real and personal property and contract rights. These
activities are reflected in independent power production and other.
RECENT DEVELOPMENTS
On August 14, 2003, the Company's Board of Directors voted to split the
common stock of the Company on a three-for-two basis subject to obtaining the
approval of the appropriate regulatory agencies. The stock split will be
effected in the form of a 50 percent stock dividend. It is expected that the
necessary regulatory approvals can be obtained so the split can be effective on
October 29, 2003, for shareholders of record on October 10, 2003.
8
RATIO OF EARNINGS TO FIXED CHARGES
The following table shows our ratio of earnings to fixed charges for the
periods indicated:
Fiscal Quarter
Ended June 30, Fiscal Years Ended December 31,
2003 2002 2001 2000 1999 1998
-----------------------------------------------------------------
5.0 4.9 5.4 4.2 4.5 2.5
USE OF PROCEEDS
Except as may otherwise be set forth in the prospectus supplement, the net
proceeds from the sale of the securities may be used for the refunding of
outstanding debt obligations, for corporate development purposes (including the
potential acquisition of businesses and/or assets), and for other general
business purposes.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below was derived from
our audited consolidated financial statements and related notes. This
information is qualified in its entirety by and should be read together with our
audited consolidated financial statements and related notes incorporated by
reference in this prospectus. See "Where You Can Find More Information About
Us."
Year Ended December 31, 2002 2001 2000
---- ---- ----
Proforma amounts assuming retroactive application of accounting change:
Net income (1) $146,052 $152,933 $108,951
Earnings per common share -- basic (1) $ 2.05 $ 2.26 $ 1.77
Earnings per common share -- diluted (1) $ 2.04 $ 2.24 $ 1.76
(1) On January 1, 2003, we adopted Statement of Financial Accounting Standards
(SFAS) No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. When the
liability is initially recorded, the entity capitalizes a cost by
increasing the carrying amount of the related long-lived asset. Over time,
the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset.
Upon settlement of the liability, an entity either settles the obligation
for the recorded amount or incurs a gain or loss upon settlement.
Upon adoption of SFAS No. 143, we recorded obligations related to the
plugging and abandonment of natural gas and oil wells; decommissioning of
certain electric generating facilities; reclamation of certain aggregate
properties and certain other obligations associated with leased properties.
Removal costs associated with certain natural gas distribution,
transmission, storage and gathering facilities have not been recognized as
these facilities have been determined to have indeterminate useful lives.
In addition, upon adoption of SFAS No. 143, we recorded an additional
discounted liability of $22.5 million and a regulatory asset of $493,000,
increased net property, plant and equipment by $9.6 million and recognized
a one-time cumulative effect charge of $7.6 million (net of deferred income
tax benefits of $4.8 million). We believe that any expenses under SFAS No.
143 as they relate to regulated operations will be recovered in rates over
time and accordingly, deferred such expenses as a regulatory asset upon
adoption. We will continue to defer those SFAS No. 143 expenses that we
believe will be recovered in rates over time. In addition to the $22.5
million liability recorded upon the adoption of SFAS No. 143, we had
previously recorded a $7.5 million liability related to retirement
obligations.
9
If SFAS No. 143 had been in effect during 2002 and 2001, our liability
would have been approximately $27.0 million and $31.4 million at January 1,
2002 and January 1, 2001, respectively, including previously recorded
liabilities of $6.1 million and $15.1 million related to retirement
obligations at January 1, 2002 and January 1, 2001, respectively.
DESCRIPTION OF THE DEBT SECURITIES
The following description sets forth the general terms and provisions of
the Debt Securities that we may offer by this prospectus. We will describe the
particular terms of the Debt Securities, and provisions that vary from those
described below, in one or more prospectus supplements.
We may issue the Debt Securities from time to time in the future, in one or
more series, under an indenture as it may be supplemented from time to time
(Indenture) between us and The Bank of New York, as trustee, or the Indenture
Trustee. A form of the Indenture is filed as an exhibit to the registration
statement relating to the Debt Securities.
This section of the prospectus contains a summary of all material
provisions of the Indenture. The Indenture and its associated documents contain
the full legal text of the matters described in this section. Because this
section is a summary, it does not describe every aspect of the Debt Securities
or the Indenture. This summary is subject to and qualified in its entirety by
reference to all the provisions of the Indenture, including definitions of some
of the terms used in the Indenture. We also include references in parentheses to
some of the sections of the Indenture. Whenever we refer to particular sections
or defined terms of the Indenture in this prospectus or in a prospectus
supplement, these sections or defined terms are incorporated by reference into
this document or in the prospectus supplement. This summary also is subject to
and qualified by reference to the description of the particular terms of each
series of Debt Securities described in the applicable prospectus supplement or
supplements. The Indenture has been qualified under the Trust Indenture Act, and
you should also refer to the Trust Indenture Act for provisions that apply to
the Debt Securities.
There is no requirement under the Indenture that future issuances of debt
securities be issued exclusively under the Indenture, and we will be free to
employ other indentures or agreements containing provisions different from those
included in the Indenture or applicable to one or more issues of debt
securities, in connection with future issues of the other debt securities.
GENERAL
The Indenture permits us to issue an unlimited amount of Debt Securities
from time to time. All Debt Securities of any one series need not be issued at
the same time, and a series may be reopened for issuances of additional Debt
Securities of that series. This means that we may from time to time, without the
consent of the existing holders of the Debt Securities of any series, create and
issue additional Debt Securities of a series having the same terms and
conditions as the previously-issued Debt Securities of that series in all
respects, except for issue date, issue price and, if applicable, the initial
interest payment on those additional Debt Securities. Additional Debt Securities
issued in this manner will be consolidated with, and will form a single series
with, the previously-issued Debt Securities of that series. For more
information, see the discussion below under "Issuance of Additional Debt
Securities."
Until the Release Date (described below), the Debt Securities will be
issued on the basis of, and primarily secured by, (a) the lien of one or more
series of First Mortgage Bonds issued by us under the Mortgage (as these terms
are defined below under DESCRIPTION OF THE FIRST MORTGAGE BONDS) and any other
Class A Bonds issued by us and delivered by us to the Indenture Trustee and (b)
the lien of the Indenture on our Electric and Gas Utility Property (as defined
below under "Lien of the Indenture"). On the Release Date, the Debt Securities
will cease to be secured and will become our unsecured general obligations,
ranking on a parity with our other senior unsecured indebtedness. For more
information, see the discussions below under "Security," "Issuance of Additional
Debt Securities" and "Discharge of Lien; Release Date").
10
A prospectus supplement and an officer's certificate relating to any series
of Debt Securities being offered will include specific terms relating to that
offering. These terms will include some or all of the following terms that apply
to that series:
o the title of the Debt Securities;
o any limit upon the total principal amount of the Debt Securities;
o the dates, or the method to determine these dates, on which the principal
of the Debt Securities will be payable and how it will be paid;
o the interest rate or rates which the Debt Securities will bear, or how the
rate or rates will be determined, the interest payment dates for the Debt
Securities and the regular record dates for interest payments;
o any right to delay the interest payments for the Debt Securities;
o the percentage, if less than 100%, of the principal amount of the Debt
Securities that will be payable if the maturity of the Debt Securities is
accelerated;
o any date or dates on which the Debt Securities may be redeemed at our
option and any restrictions on those redemptions;
o any sinking fund or other provisions that would obligate us to repurchase
or otherwise redeem the Debt Securities;
o any additions to the events of default under the Indenture or additions to
our covenants under the Indenture for the benefit of the holders of Debt
Securities;
o if the Debt Securities will be issued in denominations other than multiples
of $1,000;
o if payments on the Debt Securities may be made in a currency or currencies
other than United States dollars; and, if so, the means through which the
equivalent principal amount of any payment in United States dollars is to
be determined for any purpose;
o any rights or duties of another entity to assume our obligations with
respect to the Debt Securities;
o any collateral, security, assurance or guarantee for the Debt Securities;
and
o any other terms of the Debt Securities not inconsistent with the terms of
the Indenture.
(Indenture, Section 301.)
We may sell Debt Securities at a discount below their principal amount.
United States federal income tax considerations applicable to Debt Securities
sold at an original issue discount will be described in the prospectus
supplement if we sell Debt Securities at an original issue discount. In
addition, important United States federal income tax or other tax considerations
applicable to any Debt Securities denominated or payable in a currency or
currency unit other than United States dollars will be described in the
prospectus supplement if we sell Debt Securities denominated or payable in a
currency or currency unit other than United States dollars.
Except as may otherwise be described in the applicable prospectus
supplement, the covenants contained in the Indenture will not afford holders of
Debt Securities protection in the event of a highly-leveraged transaction
involving us.
11
REDEMPTION
We will set forth any terms for the redemption of Debt Securities of any
series in the applicable prospectus supplement. Unless we indicate differently
in a prospectus supplement, and except with respect to Debt Securities
redeemable at the option of the holder of those Debt Securities, Debt Securities
will be redeemable upon notice to holders by mail at least 30 days prior to the
redemption date. (Indenture, Section 504.) If less than all of the Debt
Securities of any series or any tranche thereof are to be redeemed, the
Indenture Trustee will select the Debt Securities to be redeemed. In the absence
of any provision for selection, the Indenture Trustee will choose a method of
random selection as it deems fair and appropriate. (Indenture, Section 503.)
Debt securities will cease to bear interest on the redemption date. We will
pay the redemption price and any accrued interest to the redemption date upon
surrender of any Debt Security for redemption. (Indenture, Section 505.) If only
part of a Debt Security is redeemed, the Indenture Trustee will deliver to the
holder of the Debt Security a new Debt Security of the same series for the
remaining portion without charge. (Indenture, Section 506.)
We may make any redemption at our option conditional upon the receipt by
the paying agent, on or prior to the date fixed for redemption, of money
sufficient to pay the redemption price. If the paying agent has not received the
money by the date fixed for redemption, we will not be required to redeem the
Debt Securities. (Indenture, Section 504.)
PAYMENT AND PAYING AGENTS
Except as may be provided in the applicable prospectus supplement,
interest, if any, on each Debt Security payable on any interest payment date
will be paid to the person in whose name that Debt Security is registered at the
close of business on the regular record date for that interest payment date.
However, interest payable at maturity will be paid to the person to whom the
principal is paid. If there has been a default in the payment of interest on any
Debt Security, the defaulted interest may be paid to the holder of that Debt
Security as of the close of business on a date between 10 and 15 days before the
date proposed by us for payment of the defaulted interest or in any other manner
permitted by any securities exchange on which that Debt Security may be listed,
if the Indenture Trustee finds it workable. (Indenture, Section 307.)
Unless otherwise specified in the applicable prospectus supplement,
principal, premium, if any, and interest on the Debt Securities at maturity will
be payable upon presentation of the Debt Securities at the corporate trust
office of The Bank of New York, in the city of New York, as our paying agent.
However, we may choose to make payment of interest by check mailed to the
address of the persons entitled to payment. We may change the place of payment
on the Debt Securities, appoint one or more additional paying agents (including
MDU) and remove any paying agent, all at our discretion. (Indenture, Section
702.)
REGISTRATION AND TRANSFER
Unless otherwise specified in the applicable prospectus supplement, the
transfer of Debt Securities may be registered, and Debt Securities may be
exchanged for other Debt Securities of the same series or tranche, of authorized
denominations and with the same terms and principal amount, at the offices of
the Indenture Trustee in New York, New York. (Indenture, Section 305.) We may
designate one or more additional places, or change the place or places
previously designated, for registration of transfer and exchange of the Debt
Securities. (Indenture, Section 702.) Unless otherwise specified in the
applicable prospectus supplement, no service charge will be made for any
registration of transfer or exchange of the Debt Securities. However, we may
require payment to cover any tax or other governmental charge that may be
imposed in connection with a registration of transfer or exchange. We will not
be required to execute or to provide for the registration, transfer or exchange
of any Debt Security
o during the 15 days before an interest payment date;
o during the 15 days before giving any notice of redemption; or
o selected for redemption except the unredeemed portion of any Debt Security
being redeemed in part.
12
(Indenture, Section 305.)
SECURITY
Except as described below under this heading and under "Issuance of
Additional Debt Securities," and subject to the exceptions discussed under
"Discharge of Lien; Release Date," all Debt Securities will be secured, equally
and ratably, by:
(1) the first lien of an equal principal amount of First Mortgage Bonds
delivered by us to the Indenture Trustee, and other Class A Bonds as
described below; as discussed under DESCRIPTION OF THE FIRST MORTGAGE
BONDS - "Security and Priority," the Mortgage constitutes a first
mortgage lien on the Mortgaged Property; and
(2) the lien of the Indenture, which is junior to the lien of the
Mortgage, upon our Electric and Gas Utility Property (as defined below
under Lien of the Indenture). If we acquire any property that is
subject to a Class A Mortgage (as described below), the lien of the
Indenture would be junior to the lien of that Class A Mortgage with
respect to any of our Electric and Gas Utility Property subject to the
lien of that Class A Mortgage.
See "Discharge of Lien; Release Date" for a discussion of provisions of the
Indenture pursuant to which, subject to the satisfaction of the specified
conditions, the lien of the Indenture would be discharged and the Debt
Securities would become our unsecured obligations.
CLASS A BONDS
As discussed below under "Consolidation, Merger and Conveyance of Assets,"
we will be permitted to merge or consolidate with another company upon meeting
specified requirements. Following a merger or consolidation of another company
into us, we could deliver to the Indenture Trustee first mortgage bonds issued
under an existing mortgage on the properties of the other company as the basis
for the issuance of additional Debt Securities. In this event, the Debt
Securities would be secured, additionally, by the first lien of the first
mortgage bonds and by the lien of the Indenture on the mortgaged property
acquired from the other company, which would be junior to the lien of the
existing mortgage. The Mortgage and all the other mortgages are collectively
referred to in this document as the "Class A Mortgages," and all first mortgage
bonds issued under the Class A Mortgages are collectively referred to in this
document as the "Class A Bonds." (Indenture, Section 1706.)
Class A Bonds, including First Mortgage Bonds, that are the basis for the
authentication and delivery of Debt Securities (a) will be delivered to, and
registered in the name of, the Indenture Trustee or its nominee and will be
owned and held by the Indenture Trustee, subject to the provisions of the
Indenture, for the benefit of the holders of all Debt Securities outstanding
from time to time; (b) will mature or be subject to mandatory redemption on the
same dates, and in the same principal amounts, as the Debt Securities; and
(c)(i) may, but need not, bear interest and (ii) may, but need not, contain
provisions for their redemption at our option, any redemption to be made at a
redemption price or prices not less than the principal amount of the Class A
Bonds. (Indenture, Sections 1602 and 1701.) To the extent that Class A Bonds do
not bear interest, holders of Debt Securities will not have the benefit of the
lien of a Class A Mortgage in respect of an amount equal to accrued interest, if
any, on the Debt Securities; however, the holders will nevertheless have the
benefit of the lien of the Indenture in respect of the amount of accrued
interest.
Any payment by us of principal of or premium or interest on the Class A
Bonds delivered to and held by the Indenture Trustee will be applied by the
Indenture Trustee to the payment of any principal, premium or interest, as the
case may be, in respect of the Debt Securities which is then due. Our obligation
under the Indenture to make payment in respect of the Debt Securities will be
deemed satisfied and discharged to the extent of the payment. If, at the time of
any payment of principal of Class A Bonds, there is no principal then due in
respect of the Debt Securities, the proceeds of the payment will constitute
"Funded Cash" and will be held by the Indenture Trustee as part of the
collateral for the Debt Securities, to be withdrawn, used or applied as provided
in the Indenture. If, at the time of any payment of premium or interest on Class
13
A Bonds, there is no premium or interest then due on the Debt Securities, the
payment will be remitted to us at our request; except that, if any event of
default under the Indenture, as described below, has occurred and is continuing,
the payment will be held as part of the collateral for the Debt Securities until
the event of default under the Indenture has been cured or waived. (Indenture,
Section 1702.) See "Withdrawal of Cash" below.
Any payment by us on Debt Securities authenticated and delivered on the
basis of the delivery to the Indenture Trustee of Class A Bonds (other than by
application of the proceeds of a payment in respect of the Class A Bonds) will,
to that extent, be deemed to satisfy and discharge our obligations, if any, to
make a corresponding payment, in respect of the Class A Bonds which is then due.
(Indenture, Section 1702.)
The Indenture Trustee may not sell, assign or otherwise transfer any Class
A Bonds except to a successor trustee under the Indenture. (Indenture, Section
1704.) At the time any Debt Securities that have been authenticated and
delivered upon the basis of Class A Bonds cease to be outstanding (other than as
a result of the application of the proceeds of the payment or redemption of the
Class A Bonds), the Indenture Trustee will surrender to us, or upon our order,
an equal principal amount of the Class A Bonds. (Indenture, Section 1703.)
When the aggregate principal amount of all Class A Bonds outstanding under
all Class A Mortgages, other than those held by the Indenture Trustee, does not
exceed the greater of 5% of the net book value of our Electric and Gas Utility
Property (as described below) or 5% of our Capitalization (as described below),
then, at our request and subject to satisfaction of specified conditions, the
Class A Bonds held by the Indenture Trustee will be deemed satisfied and
discharged, the Indenture Trustee will surrender the Class A Bonds for
cancellation, and the Debt Securities will become our senior unsecured debt,
subject to Permitted Secured Debt and the exceptions described below.
(Indenture, Section 1811.) See "Discharge of Lien; Release Date" below.
At the date of this prospectus, the only Class A Mortgage is the Mortgage,
and the only Class A Bonds issuable at this time are First Mortgage Bonds
issuable under the Mortgage. When all of the outstanding First Mortgage Bonds
which are not held by the Indenture Trustee do not exceed the greater of 5% of
the net book value of our Electric and Gas Utility Property or 5% of our
Capitalization, and assuming no other Class A Mortgage exists at the time, the
Indenture may become unsecured.
"Capitalization" means the total of all the following items appearing on,
or included in, our unconsolidated balance sheet: (i) liabilities for
indebtedness maturing more than 12 months from the date of determination, and
(ii) common stock, common stock expense, accumulated other comprehensive income
or loss, preferred stock, preference stock, premium on common stock and retained
earnings (however the foregoing may be designated), less, to the extent not
otherwise deducted, the cost of shares of our capital stock held in our
treasury, if any. Capitalization is determined in accordance with generally
accepted accounting principles and practices applicable to the type of business
in which we are engaged, and may be determined as of the date not more than 60
days prior to the happening of the event for which the determination is being
made.
LIEN OF THE INDENTURE
The Indenture creates a lien on substantially all of our real and fixed
electricity generation, transmission and distribution, and natural gas
distribution, properties owned by us immediately prior to July 1, 2000, together
with improvements, extensions and additions to, and renewals, replacements and
substitutions of or for, any part or parts of these properties, other than
Excepted Property (as defined below). At the date of this prospectus, these
properties are located in the states of North Dakota, South Dakota, Montana and
Wyoming. These properties, regardless of whether the Release Date has occurred,
are sometimes referred to as our "Electric and Gas Utility Property." At the
date of this prospectus, substantially all of this property is included within
the category of property, plant and equipment on our balance sheet, this
property had a net book value as of June 30, 2003 of approximately $364.6
million, and this property, while subject to the lien of the Indenture, is also
subject to the prior lien of the Mortgage. For so long as the Release Date has
not occurred, the Debt Securities will have the benefit of the first mortgage
lien of the Mortgage on the Mortgaged Property to the extent of the aggregate
principal amount of First Mortgage Bonds held by the Indenture Trustee, and also
the benefit of the lien of any additional Class A Mortgage on any property
subject to that Class A Mortgage to the extent of the aggregate principal amount
of Class A Bonds, issued under that Class A Mortgage, held by the Indenture
Trustee.
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PERMITTED LIENS
The lien of the Indenture is subject to Permitted Liens described in the
Indenture. These Permitted Liens include, among others, liens existing at the
execution date of the Indenture such as the lien of the Mortgage, liens on
property at the time we acquire the property such as the lien of any other Class
A Mortgage, tax liens and other governmental charges which are not delinquent or
which are being contested in good faith, mechanics', construction and
materialmen's liens, specified judgment liens, easements, reservations and
rights of others (including governmental entities) in, and defects of title in,
our property, specified leases and leasehold interests, liens to secure public
obligations, rights of others to take minerals, timber, electric energy or
capacity, gas, water, steam or other products produced by us or by others on our
property, rights and interests of Persons other than us arising out of
agreements relating to the common ownership or joint use of property, and liens
on the interests of those Persons in the property, liens which have been bonded
or for which other security arrangements have been made, liens created in
connection with the issuance of tax-exempt bonds, purchase money liens and liens
related to the construction or acquisition of property, or the development or
expansion of property, liens which secure specified Debt Securities equally and
ratably with other obligations, liens securing debt which matures within one
year from date of issuance, and additional liens on any of our property (other
than Excepted Property, as described below) to secure debt for borrowed money in
an aggregate principal amount not exceeding the greater of 10% of our Net
Tangible Assets (as described below) or 10% of our Capitalization. (Indenture,
Granting Clauses and Sections 101 and 707.)
The Indenture provides that the Indenture Trustee will have a lien, prior
to the lien on behalf of the holders of Debt Securities, upon the collateral for
the Debt Securities for the payment of its reasonable compensation and expenses
and for indemnity against specified liabilities. (Indenture, Section 1007.) This
lien would be a Permitted Lien under the Indenture.
EXCEPTED PROPERTY
The lien of the Indenture does not cover, among other things, the following
types of property:
o all properties acquired by us on or after July 1, 2000, including the
properties acquired in the merger with Great Plains Energy Corp. and Great
Plains Natural Gas Co. (which include all our gas distribution properties
located in the state of Minnesota and certain gas distribution properties
located in the southeastern part of North Dakota), but excluding
improvements, extensions and additions to, and renewals, replacements and
substitutions of or for, any part or parts of the fixed electricity
generation, transmission and distribution, and natural gas distribution,
properties owned by us immediately prior to July 1, 2000 unless otherwise
excepted from the lien of the Indenture;
o all property of subsidiaries, including Centennial Energy Holdings, Inc.,
WBI Holdings, Inc., Knife River Corporation, Utility Services, Inc.,
Centennial Energy Resources LLC, Centennial Holdings Capital LLC,
Centennial Energy Resources International Inc, Fidelity Exploration &
Production Company and any other subsidiaries;
o all cash and securities (including the capital stock of the subsidiaries
mentioned in the preceding bullet and any other subsidiaries) not paid,
deposited or held under the Indenture, and all policies of insurance on the
lives of our officers;
o all contracts, leases and other agreements of all kinds, contract rights,
bills, notes and other instruments, accounts receivable, transition
property, claims, demands and judgments;
o all governmental and other licenses, permits, franchises, consents and
allowances; intellectual property rights and other general intangibles;
o all vehicles, movable equipment, aircraft and vessels;
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o all merchandise and appliances acquired for the purpose of resale in the
ordinary course and conduct of our business, and all materials and supplies
held for consumption in operation or held in advance of use thereof for
fixed capital purposes;
o all electric energy, gas, steam and other materials and products generated,
manufactured, produced or purchased by us for sale, distribution or use in
the ordinary course and conduct of our business;
o all property which is the subject of a lease agreement designating us as
lessee, and all our right, title and interest in and to the property and
in, to and under the lease agreement, whether or not the lease agreement is
intended as security;
o all property which prior to the execution date of the Indenture has been
released from the lien of the Mortgage;
o all property which subsequent to the execution date of the Indenture has
been released from the lien of the Indenture; and
o any and all property not acquired or constructed by us for use in our
electricity generation, transmission and distribution, and natural gas
distribution business.
We sometimes refer to property of ours not covered by the lien of the Indenture
as "Excepted Property." (Indenture, Granting Clauses.)
We may enter into supplemental indentures with the Indenture Trustee,
without the consent of the holders, in order to subject additional property
(including property that would otherwise be excepted from the lien) to the lien
of the Indenture. (Indenture, Section 1301.) This property would then constitute
Property Additions and part of the collateral for the Debt Securities, and would
be available as a basis for the issuance of Debt Securities. See "Issuance of
Additional Debt Securities."
The Indenture provides that after-acquired properties (other than Excepted
Property) that are improvements, extensions or additions to, or renewals,
replacements or substitutions of or for, any part or parts of our Electric and
Gas Utility Property will be subject to the lien of the Indenture. (Indenture,
Second Granting Clause.) We may also elect to subject additional property to the
lien of the Indenture by amending the Indenture.
See "Discharge of Lien; Release Date" for a discussion of provisions of the
Indenture pursuant to which, subject to the satisfaction of specified
conditions, all the collateral for the Debt Securities would be released from
the lien of the Indenture, the Class A Bonds held by the Indenture Trustee would
be surrendered for cancellation, and Debt Securities would become our unsecured
obligations.
ISSUANCE OF ADDITIONAL DEBT SECURITIES
Subject to the issuance restrictions described below, the maximum principal
amount of Debt Securities that may be authenticated and delivered under the
Indenture is unlimited. (Indenture, Section 301.) Prior to the Release Date,
Debt Securities of any series may be issued from time to time on the basis of,
and in an aggregate principal amount not exceeding:
o the aggregate principal amount of Class A Bonds delivered to the Indenture
Trustee;
o 70% of the Cost or Fair Value to us (whichever is less) of Property
Additions (as described below) which do not constitute Funded Property
(generally, Property Additions to the extent that they are subject to the
lien of a Class A Mortgage or which have been made the basis of the
authentication and delivery of Debt Securities, the release of collateral
for the Debt Securities or the withdrawal of cash, which have been
substituted for retired Funded Property or which have been used for other
specified purposes (Indenture, Section 102)) after specified deductions and
additions, primarily including adjustments to offset property retirements;
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o the aggregate principal amount of retired Debt Securities, but if Class A
Bonds had been made the basis for the authentication and delivery of the
retired Debt Securities, only after the discharge of the related Class A
Mortgage; or
o an amount of cash deposited with the Indenture Trustee.
(Indenture, Sections 1601 through 1605.)
Property Additions generally include any property that is owned by us and
is subject to the lien of the Indenture. (Indenture, Section 103.)
We expect that, until the Release Date, we will issue Debt Securities
primarily on the basis of First Mortgage Bonds. However, we have the right to
issue additional Debt Securities on the basis of Property Additions, retired
Debt Securities and cash deposits, and Class A Bonds not issued under the
Mortgage.
RELEASE OF PROPERTY
Unless an event of default under the Indenture has occurred and is
continuing, we may obtain the release from the lien of the Indenture of any
collateral for the Debt Securities, except for cash held by the Indenture
Trustee, upon delivery to the Indenture Trustee of an amount in cash equal to
the amount, if any, by which the Cost of the property to be released (or, if
less, the Fair Value to us of the property at the time it became Funded
Property) exceeds the aggregate of:
o an amount equal to the aggregate principal amount of obligations secured by
Purchase Money Liens upon the property to be released and delivered to the
Indenture Trustee;
o an amount equal to the Cost or Fair Value to us (whichever is less) of
certified Property Additions not constituting Funded Property after
specified deductions and additions, primarily including adjustments to
offset property retirements (except that these adjustments need not be made
if the Property Additions were acquired or made within the 90-day period
preceding the release);
o the aggregate principal amount of Debt Securities that we would be entitled
to issue on the basis of retired Debt Securities (with the entitlement
being waived by operation of the release);
o any amount of cash and/or an amount equal to the aggregate principal amount
of obligations secured by Purchase Money Liens upon the property released
delivered to the trustee or other holder of a lien prior to the lien of the
Indenture, subject to specified limitations described below;
o the aggregate principal amount of Debt Securities delivered to the
Indenture Trustee (with the Debt Securities to be canceled by the Indenture
Trustee); and
o any taxes and expenses incidental to any sale, exchange, dedication or
other disposition of the property to be released.
(Indenture, Section 1803.)
Property that is not Funded Property may generally be released from the
lien of the Indenture without depositing any cash or property with the Indenture
Trustee as long as (a) the aggregate amount of Cost or Fair Value to us
(whichever is less) of all Property Additions which do not constitute Funded
Property (excluding the property to be released) after some deductions and
additions, primarily including adjustments to offset property retirements, is
not less than zero or (b) the Cost or Fair Value (whichever is less) of property
to be released does not exceed the aggregate amount of the Cost or Fair Value to
us (whichever is less) of Property Additions acquired or made within the 90-day
period preceding the release. (Indenture, Section 1804.)
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The Indenture provides simplified procedures for the release of property
which has been released from the lien of a Class A Mortgage, minor properties
and property taken by eminent domain, and provides for dispositions of certain
obsolete property and grants or surrender of certain rights without any release
or consent by the Indenture Trustee. (Indenture Sections 1802, 1805, 1807 and
1808.)
If we retain any interest in any property released from the lien of the
Indenture, the Indenture will not become a lien on the property or the interest
in the property or any improvements, extensions or additions to, or any
renewals, replacements or substitutions of or for, any part or parts of the
property. (Indenture, Section 1810.)
WITHDRAWAL OF CASH
Unless an event of default under the Indenture has occurred and is
continuing, and subject to specified limitations, cash held by the Indenture
Trustee may, generally, (1) be withdrawn by us (a) to the extent of the Cost or
Fair Value to us (whichever is less) of Property Additions not constituting
Funded Property, after specified deductions and additions, primarily including
adjustments to offset retirements (except that these adjustments need not be
made if the Property Additions were acquired or made within the 90-day period
preceding the withdrawal) or (b) in an amount equal to the aggregate principal
amount of Debt Securities that we would be entitled to issue on the basis of
retired Debt Securities (with the entitlement to the issuance being waived by
operation of the withdrawal) or (c) in an amount equal to the aggregate
principal amount of any outstanding Debt Securities delivered to the Indenture
Trustee, or (2) upon our request, be applied to (a) the purchase of Debt
Securities or (b) the payment (or provision for payment) at stated maturity of
any Debt Securities or the redemption (or provision for payment) of any Debt
Securities which are redeemable (Indenture, Section 1806); except that cash
deposited with the Indenture Trustee as the basis for the authentication and
delivery of Debt Securities, as well as cash representing a payment of principal
of Class A Bonds, may, in addition, be withdrawn in an amount equal to the
aggregate principal amount of Class A Bonds delivered to the Indenture Trustee.
(Indenture, Sections 1605 and 1702.)
DISCHARGE OF LIEN; RELEASE DATE
At any time when the aggregate principal amount of all Class A Bonds
outstanding under all Class A Mortgages, other than those held by the Indenture
Trustee, does not exceed the greater of 5% of the net book value of our Electric
and Gas Utility Property or 5% of our Capitalization, the Indenture may be
amended and supplemented, without the consent of the holders of Debt Securities,
to eliminate all terms and conditions relating to collateral for the Debt
Securities, with the result that our obligations under the Indenture and the
Debt Securities would be entirely unsecured. We refer to the date on which the
elimination of collateral occurs as the "Release Date."
The occurrence of the Release Date is subject to our delivery of the
following documents to the Indenture Trustee:
o a company order requesting execution and delivery by the Indenture Trustee
of a supplemental indenture and other instruments necessary to discharge,
cancel, terminate or satisfy the lien of the Indenture;
o an officer's certificate stating that
(1) to the knowledge of the officer, no event of default under the
Indenture has occurred and is continuing; and
(2) the aggregate principal amount of all Class A Bonds outstanding under
all Class A Mortgages, other than those held by the Indenture Trustee,
does not exceed the greater of 5% of the net book value of our
Electric and Gas Utility Property or 5% of our Capitalization; and
o an opinion of counsel to the effect that none of our Electric and Gas
Utility Property, other than Excepted Property, is subject to any lien
other than the lien of the Indenture and Permitted Liens.
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Upon the execution and delivery of the amendment of the Indenture as
contemplated above, the lien of the Indenture will be deemed to have been
satisfied and discharged and the Indenture Trustee will release the collateral
for the Debt Securities from the lien of the Indenture and surrender all Class A
Bonds held by the Indenture Trustee under the Indenture to the respective Class
A Trustee for cancellation. (Indenture, Section 1811.)
As of June 30, 2003, we had $35 million aggregate principal amount
outstanding of a series of First Mortgage Bonds that is not redeemable prior to
maturity and matures on April 1, 2012. Unless we purchase or defease some of
this series of First Mortgage Bonds or increase the net book value of our
Electric and Gas Utility Property or our Capitalization to at least $700
million, a Release Date is unlikely to occur prior to April 1, 2012.
LIMITATION ON SECURED DEBT
So long as any of the Debt Securities remain outstanding, we will not issue
any Secured Debt other than Permitted Secured Debt (in each case as defined
below) without the consent of the holders of a majority in principal amount of
the outstanding Debt Securities of all series with respect to which this
covenant is made, considered as one class; provided, however, that this covenant
will not prohibit the creation or existence of any Secured Debt if either:
o we make effective provision whereby all Debt Securities then outstanding
will be secured equally and ratably with the Secured Debt; or
o we deliver to the Indenture Trustee bonds, notes or other evidences of
indebtedness secured by the lien which secures the Secured Debt in an
aggregate principal amount equal to the aggregate principal amount of the
Debt Securities then outstanding and meeting other requirements set forth
in the Indenture.
"Secured Debt" means Debt created, issued, incurred or assumed by us which
is secured by a lien upon any of our property (other than Excepted Property).
For purposes of this covenant, any Capitalized Lease Liabilities will be deemed
to be Debt secured by a lien on our property.
"Debt" means:
o our indebtedness for borrowed money evidenced by a bond, debenture, note or
other written instrument or agreement by which we are obligated to repay
the borrowed money;
o any guaranty by us of any indebtedness of another person; and
o any Capitalized Lease Liabilities.
"Debt" does not include, among other things:
o indebtedness under any installment sale or conditional sale agreement or
any other agreement relating to indebtedness for the deferred purchase
price of property or services;
o any trade obligations (including any obligations under power or other
commodity purchase agreements and any associated hedges or derivatives) or
other obligations in the ordinary course of business;
o obligations under any lease agreement that are not Capitalized Lease
Liabilities; or
o any liens securing indebtedness, neither assumed nor guaranteed by us nor
on which we customarily pay interest, existing upon real estate or rights
in or relating to real estate acquired by us for substation, transmission
line, transportation line, distribution line or right of way purposes.
"Permitted Secured Debt" means, as of any particular time:
o Class A Bonds and Debt Securities issued prior to the Release Date;
19
o Secured Debt which matures less than one year from the date of the issuance
or incurrence and is not extendible at the option of the issuer; and any
refundings, refinancings and/or replacements of any the Secured Debt by or
with Secured Debt that matures less than one year from the date of the
refunding, refinancing and/or replacement and is not extendible at the
option of the issuer;
o Secured Debt secured by Purchase Money Liens or any other liens existing or
placed upon property at the time of, or within one hundred eighty (180)
days after, the acquisition thereof by us, and any refundings, refinancings
and/or replacements of any the Secured Debt; provided, however, that no
Purchase Money Lien or other Lien of this type will extend to or cover any
of our property other than (1) the property so acquired and improvements,
extensions and additions to the property and renewals, replacements and
substitutions of or for the property or any part or parts of the property
and (2) with respect to Purchase Money Liens, other property subsequently
acquired by us;
o Secured Debt relating to governmental obligations the interest on which is
not included in gross income for purposes of federal income taxation
pursuant to Section 103 of the Internal Revenue Code of 1986, as amended
(or any successor provision of law), for the purpose of financing or
refinancing, in whole or in part, costs of acquisition or construction of
property to be used by us, to the extent that the lien which secures the
Secured Debt is required either by applicable law or by the issuer of the
governmental obligations or is otherwise necessary in order to establish or
maintain the exclusion from gross income; and any refundings, refinancings
and/or replacements of any Secured Debt by or with similar Secured Debt;
o Secured Debt (i) which is related to the construction or acquisition of
property not previously owned by us or (ii) which is related to the
financing of a project involving the development or expansion of our
property and (iii) in either case, the obligee in respect of which has no
recourse to us or any of our property other than the property constructed
or acquired with the proceeds of the transaction or the project financed
with the proceeds of the transaction (or the proceeds of the property or
the project); and any refundings, refinancings and/or replacements of any
Secured Debt by or with Secured Debt described in clause (iii) above; and
o in addition to the Permitted Secured Debt described above, Secured Debt not
otherwise so permitted in an aggregate principal amount not exceeding the
greater of 10% of our Net Tangible Assets or 10% of our Capitalization.
"Net Tangible Assets" means the amount shown as total assets on our
unconsolidated balance sheet, less (i) intangible assets including, but without
limitation, such items as goodwill, trademarks, trade names, patents,
unamortized debt discount and expense and other regulatory assets carried as
assets on our unconsolidated balance sheet and (ii) appropriate adjustments, if
any, on account of minority interests. Net Tangible Assets will be determined in
accordance with generally accepted accounting principles and practices
applicable to the type of business in which we are engaged.
"Capitalized Lease Liabilities" means the amount, if any, shown as
liabilities on our unconsolidated balance sheet for capitalized leases of
electric transmission and distribution property not owned by us, which amount
will be determined in accordance with generally accepted accounting principles
and practices applicable to the type of business in which we are engaged.
(Indenture, Section 707.)
DEFEASANCE
We will be discharged from our obligations on the Debt Securities of a
particular series if we irrevocably deposit with the Indenture Trustee or any
paying agent, other than us, sufficient cash or government securities to pay the
principal, interest, any premium and any other sums when due on the stated
maturity date or a redemption date of that series of Debt Securities.
(Indenture, Section 801.)
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CONSOLIDATION, MERGER AND CONVEYANCE OF ASSETS
Under the terms of the Indenture, we may not consolidate with or merge into
any other entity or convey, transfer or lease as, or substantially as, an
entirety to any entity our Electric and Gas Utility Property, unless:
o the surviving or successor entity, or an entity which acquires by
conveyance or transfer or which leases our Electric and Gas Utility
Property as, or substantially as, an entirety, is organized and
validly existing under the laws of any domestic jurisdiction and it
expressly assumes our obligations on all Debt Securities then
outstanding under the Indenture and if the consolidation, merger,
conveyance, sale or other transfer occurs prior to the Release Date,
confirms the lien of the Indenture on the collateral for the Debt
Securities;
o in the case of a lease, the lease is made expressly subject to
termination by us or by the Indenture Trustee and by the purchaser of
the property so leased at any sale thereof at any time during the
continuance of an event of default under the Indenture;
o we shall have delivered to the Indenture Trustee an officer's
certificate and an opinion of counsel as provided in the Indenture;
and
o immediately after giving effect to the transaction, no event of
default under the Indenture, or event which, after notice or lapse of
time or both, would become an event of default under the Indenture,
shall have occurred and be continuing.
(Indenture, Section 1201.) In the case of the conveyance or other transfer of
the Electric and Gas Utility Property as, or substantially as, an entirety to
any other person, upon the satisfaction of all the conditions described above,
we would be released and discharged from all our obligations under the Indenture
and on the Debt Securities then outstanding unless we elect to waive release and
discharge. (Indenture, Section 1204.)
The Indenture does not prevent or restrict:
o any conveyance or other transfer, or lease, of any part of our Electric and
Gas Utility Property that does not constitute the entirety, or
substantially the entirety, of our Electric and Gas Utility Property; or
(Indenture, Section 1205.)
o any conveyance, transfer or lease of any of our properties where we retain
Electric and Gas Utility Property with a fair value in excess of 143% of
the aggregate principal amount of all outstanding Debt Securities, and any
other outstanding debt securities that rank equally with, or senior to, the
Debt Securities with respect to the Electric and Gas Utility Property,
other than any Class A Bonds held by the Indenture Trustee. This fair value
will be determined within 90 days of the conveyance, transfer or lease by
an independent expert that we select and that is approved by the Indenture
Trustee. (Indenture, Section 1206.)
The terms of the Indenture do not restrict us in a merger in which we are the
surviving entity. (Indenture, Section 1205.)
EVENTS OF DEFAULT
"Event of default," when used in the Indenture with respect to Debt
Securities, means any of the following:
o failure to pay interest on any Debt Security for 30 days after it is due;
o failure to pay the principal of or any premium on any Debt Security when
due;
o failure to perform any other covenant in the Indenture that continues for
90 days after we receive written notice from the Indenture Trustee, or we
and the Indenture Trustee receive a written notice from the holders of at
least 33% in aggregate principal amount of the outstanding Debt Securities,
unless the Trustee, or the Trustee and the holders of a principal amount of
Debt Securities not less than the principal amount of Debt Securities the
21
holders of which gave such notice, as the case may be, agree in writing to
an extension of such period prior to its expiration; provided, however,
that the Trustee, or the Trustee and the holders of such principal amount
of Debt Securities, as the case may be, shall be deemed to have agreed to
an extension of such period if corrective action is initiated by us within
such period and is being diligently pursued;
o events of bankruptcy, insolvency or our reorganization as specified in the
Indenture;
o as long as the Indenture Trustee holds any outstanding Class A Bonds which
were delivered as the basis for the authentication and delivery of
outstanding Debt Securities, the occurrence of a matured event of default
under the related Class A Mortgage (other than a matured event of default
which (i) is not a failure to make payments on Class A Bonds and is not of
similar kind or character to the event of default relating to events of
bankruptcy, insolvency or reorganization, referred to above, and (ii) has
not resulted in the acceleration of the outstanding Class A Bonds under the
Class A Mortgage); provided, however, that the waiver or cure of the event
of default under a Class A Mortgage will constitute a waiver and cure of
the corresponding event of default under the Indenture, and the rescission
and annulment of the consequences thereof will constitute a rescission and
annulment of the corresponding consequences under the Indenture; or
o any other event of default included in any supplemental indenture, board
resolution or officer's certificate establishing that series of Debt
Securities.
(Indenture, Sections 301, 901 and 1301.)
REMEDIES
If an event of default under the Indenture occurs and is continuing, then
the Indenture Trustee or the holders of at least 33% in aggregate principal
amount of the outstanding Debt Securities may declare the principal amount of
all of the Debt Securities to be due and payable immediately.
At any time after a declaration of acceleration has been made and before a
judgment or decree for payment of the money due has been obtained by the
Indenture Trustee, the event of default under the Indenture giving rise to the
declaration of acceleration will be considered cured, and the declaration and
its consequences will be considered rescinded and annulled, if:
o we have paid or deposited with the Indenture Trustee a sum sufficient to
pay:
(1) all overdue interest on all outstanding Debt Securities;
(2) the principal of and premium, if any, on the outstanding Debt
Securities that have become due otherwise than by the declaration
of acceleration and overdue interest thereon;
(3) interest on overdue interest to the extent lawful; and
(4) all amounts due to the Indenture Trustee under the Indenture; and
o any other event of default under the Indenture with respect to the Debt
Securities of that series has been cured or waived as provided in the
Indenture.
(Indenture, Section 902.)
There is no automatic acceleration, even in the event of our bankruptcy,
insolvency or reorganization.
Subject to the Indenture, under specified circumstances and to the extent
permitted by law, if an event of default under the Indenture occurs and is
continuing prior to the Release Date, the Indenture Trustee has the power to
appoint a receiver of the collateral for the Debt Securities, and is entitled to
all other remedies available to mortgagees and secured parties under the Uniform
Commercial Code or any other applicable law. (Indenture, Section 917.)
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Upon the occurrence and continuance of an event of default under the
Indenture after the Release Date, the remedies of the Indenture Trustee and the
holders under the Indenture would be limited to the rights of unsecured
creditors.
In addition to every other right and remedy provided in the Indenture, the
Indenture Trustee may exercise any right or remedy available to the Indenture
Trustee in its capacity as owner and holder of Class A Bonds which arises as a
result of a default or matured event of default under any Class A Mortgage,
whether or not an event of default under the Indenture has occurred and is
continuing. (Indenture, Section 916.)
Other than its duties in case of an event of default under the Indenture,
the Indenture Trustee is not obligated to exercise any of its rights or powers
under the Indenture at the request, order or direction of any of the holders,
unless the holders offer the Indenture Trustee a reasonable indemnity.
(Indenture, Section 1003.) If they provide this reasonable indemnity, the
holders of a majority in principal amount of the outstanding Debt Securities
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Indenture Trustee, or exercising any
power conferred upon the Indenture Trustee. The Indenture Trustee is not
obligated to comply with directions that conflict with law or other provisions
of the Indenture. (Indenture, Section 912.)
No holder of Debt Securities will have any right to institute any
proceeding under the Indenture, or any remedy under the Indenture, unless:
o the holder has previously given to the Indenture Trustee written notice of
a continuing event of default under the Indenture;
o the holders of a majority in aggregate principal amount of the outstanding
Debt Securities of all series have made a written request to the Indenture
Trustee, and have offered reasonable indemnity to the Indenture Trustee to
institute proceedings; and
o the Indenture Trustee has failed to institute any proceeding for 60 days
after notice and has not received during that period any direction from the
holders of a majority in aggregate principal amount of the outstanding Debt
Securities, inconsistent with the written request of holders referred to
above.
(Indenture, Section 907.) However, these limitations do not apply to a suit by a
holder of an Debt Security for payment of the principal, premium, if any, or
interest on the Debt Security on or after the applicable due date.
(Indenture, Section 908.)
We will provide to the Indenture Trustee an annual statement by an
appropriate officer as to our compliance with all conditions and covenants under
the Indenture. (Indenture, Section 705.)
MODIFICATION AND WAIVER
Without the consent of any holder of Debt Securities, we and the Indenture
Trustee may enter into one or more supplemental indentures for any of the
following purposes:
o to evidence the assumption by any permitted successor of our covenants in
the Indenture and in the Debt Securities;
o to permit an entity acquiring a substantial portion of our Electric and Gas
Utility Property to assume a pro rata share of the outstanding Debt
Securities based upon the net book value of the Electric and Gas Utility
Property acquired by that entity and to release us and our properties from
any obligations or liens under the Indenture with respect to those assumed
Debt Securities, provided that the assumed Debt Securities will be secured
by a lien on the acquired Electric and Gas Utility Property to
substantially the same extent and upon substantially the same terms as
provided in the Indenture except for the substitution of the acquiring
entity for us;
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o to add one or more covenants or other provisions for the benefit of the
holders of all or any series or tranche of Debt Securities, or to surrender
any right or power conferred upon us;
o to add additional events of default under the Indenture for all or any
series of Debt Securities;
o to change or eliminate or add any provision to the Indenture; provided,
however, if the change will adversely affect the interests of the holders
of Debt Securities of any series in any material respect, the change,
elimination or addition will become effective only:
(1) when the consent of the holders of Debt Securities of such series has
been obtained in accordance with the Indenture; or
(2) when no Debt Securities of the affected series remain outstanding
under the Indenture;
o to provide additional security for any Debt Securities;
o to establish the form or terms of Debt Securities of any other series as
permitted by the Indenture;
o to provide for the authentication and delivery of bearer securities with or
without coupons;
o to evidence and provide for the acceptance of appointment by a separate or
successor Trustee or co-trustee;
o to provide for the procedures required for use of a noncertificated system
of registration for the Debt Securities of all or any series;
o to change any place where principal, premium, if any, and interest shall be
payable, Debt Securities may be surrendered for registration of transfer or
exchange and notices to us may be served;
o to amend and restate the Indenture as originally executed and as amended
from time to time, with additions, deletions and other changes that do not
adversely affect the interests of the holders of Debt Securities of any
series in any material respect;
o to cure any ambiguity or inconsistency; or
o after the Release Date, to amend the Indenture to eliminate any provisions
related to the lien of the Indenture, collateral for the Debt Securities
and Class A Bonds which are no longer applicable.
(Indenture, Section 1301.)
The holders of at least a majority in aggregate principal amount of the
Debt Securities of all series then outstanding may waive compliance by us with
some restrictive provisions of the Indenture. (Indenture, Section 706.) The
holders of not less than a majority in principal amount of the outstanding Debt
Securities may waive any past default under the Indenture, except a default in
the payment of principal, premium, if any, or interest and certain covenants and
provisions of the Indenture that cannot be modified or be amended without the
consent of the holder of each outstanding Debt Security of any series affected.
(Indenture, Section 913.)
Except as provided below, the consent of the holders of a majority in
aggregate principal amount of the Debt Securities of all series then
outstanding, considered as one class, is required for all other modifications to
the Indenture. However, if less than all of the series of Debt Securities
outstanding are directly affected by a proposed supplemental indenture, then the
consent only of the holders of a majority in aggregate principal amount of the
outstanding Debt Securities of all series that are directly affected, considered
as one class, will be required. Notwithstanding the foregoing, no amendment or
modification may without the consent of the holders of each Debt Security of all
directly affected series then outstanding:
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o change the stated maturity of the principal of, or any installment of
principal of or interest on, any Debt Security, or reduce the principal
amount of any Debt Security or its rate of interest or change the method of
calculating that interest rate or reduce any premium payable upon
redemption, or change the currency in which payments are made, or impair
the right to institute suit for the enforcement of any payment on or after
the stated maturity of any Debt Security;
o create any lien ranking prior to the lien of the Indenture with respect to
more than 10% of the collateral for the Debt Securities or, except as
provided in the Indenture in connection with releases, the withdrawal of
cash held by the Indenture Trustee and the Release Date, terminate the lien
of the Indenture on more than 10% of the collateral for the Debt Securities
or deprive any holder of the benefits of the security of the lien of the
Indenture;
o reduce the percentage in principal amount of the outstanding Debt
Securities of any series the consent of the holders of which is required
for any supplemental indenture or any waiver of compliance with a provision
of the Indenture or any default thereunder and its consequences, or reduce
the requirements for quorum or voting; or
o modify some of the provisions of the Indenture relating to supplemental
indentures, waivers of some covenants and waivers of past defaults with
respect to the Debt Securities of any series.
A supplemental indenture that changes the Indenture solely for the benefit
of one or more particular series of Debt Securities, or modifies the rights of
the holders of Debt Securities of one or more series, will not affect the rights
under the Indenture of the holders of the Debt Securities of any other series.
(Indenture, Section 1302.)
The Indenture provides that Debt Securities owned by us or anyone else
required to make payment on the Debt Securities shall be disregarded and
considered not to be outstanding in determining whether the required holders
have given a request or consent. (Indenture, Section 101.)
We may fix in advance a record date to determine the required number of
holders entitled to give any request, demand, authorization, direction, notice,
consent, waiver or similar act of the holders, but we have no obligation to do
so. If we fix a record date, that request, demand, authorization, direction,
notice, consent, waiver or other act of the holders may be given before or after
that record date, but only the holders of record at the close of business on
that record date will be considered holders for the purposes of determining
whether holders of the required percentage of the outstanding Debt Securities
have authorized or agreed or consented to the request, demand, authorization,
direction, notice, consent, waiver or other act of the holders. For that
purpose, the outstanding Debt Securities will be computed as of the record date.
Any request, demand, authorization, direction, notice, consent, election,
waiver or other act of a holder of any Debt Security will bind every future
holder of that Debt Security and the holder of every Debt Security issued upon
the registration of transfer of or in exchange for that Debt Security. A
transferee will also be bound by acts of the Indenture Trustee or us in reliance
thereon, whether or not notation of that action is made upon the Debt Security.
(Indenture, Section 106.)
VOTING OF CLASS A BONDS
The Indenture provides that the Indenture Trustee will, as holder of Class
A Bonds delivered as the basis for the issuance of Debt Securities, attend
meetings of bondholders under the related Class A Mortgage, or deliver its proxy
in connection with those meetings, that relate to matters with respect to which
it, as a holder, is entitled to vote or consent. The Indenture provides that, so
long as no event of default under the Indenture has occurred and is continuing,
the Indenture Trustee will, as holder of the Class A Bonds, vote or consent
(without any consent or other action by the holders of the Debt Securities,
except as described in the proviso of paragraph (7) below) in favor of any
amendments or modifications to the Class A Mortgage of substantially the same
tenor and effect as follows:
(1) to modify any Class A Mortgage to allow us to issue Class A Bonds up
to 70% of the lower of (a) the fair value to us of the property
subject to the lien of that Class A Mortgage as of a valuation date
specified by us and (b) the cost of that property as of the valuation
date;
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(2) to make certain technical amendments to the Mortgage;
(3) to delete the net earnings test for the issuance of Class A Bonds and
all references to it in any Class A Mortgage;
(4) to amend any Class A Mortgage so we may pay dividends and
distributions to our common stockholders and repurchase our common
stock so long as our shareholders' equity is positive;
(5) to amend any Class A Mortgage to permit an entity acquiring a
substantial portion of the property subject to the lien of that Class
A Mortgage to assume a pro rata share of the outstanding Class A Bonds
issued under that Class A Mortgage based upon the net book value of
that property acquired by that entity and to release us and our
properties from any obligations or liens under that Class A Mortgage
with respect to those assumed Class A Bonds, provided that the assumed
Class A Bonds will be secured by a first lien on that acquired
property to substantially the same extent and upon substantially the
same terms as provided in that Class A Mortgage except for the
substitution of the acquiring entity for us;
(6) to conform any provision of a Class A Mortgage in all material
respects to the correlative provision of the Indenture, to add to a
Class A Mortgage any provision not otherwise contained therein which
conforms in all material respects to a provision contained in the
Indenture, to delete from a Class A Mortgage any provision to which
the Indenture contains no correlative provision and any combination of
the foregoing; and/or
(7) with respect to any amendments or modifications to any Class A
Mortgage other than those amendments or modifications referred to in
clauses (1) through (6) above, vote all the Class A Bonds delivered
under the Class A Mortgage, or consent with respect thereto,
proportionately with the vote or consent of holders of all other Class
A Bonds outstanding under the Class A Mortgage the holders of which
are eligible to vote or consent, as evidenced by a certificate
delivered by the trustee under the Class A Mortgage; provided,
however, that the Indenture Trustee will not vote in favor of, or
consent to, any amendment or modification of a Class A Mortgage which,
if it were an amendment or modification of the Indenture, would
require the consent of holders of Debt Securities as described under
"Modification and Waiver," without the prior consent of holders of
Debt Securities which would be required for an amendment or
modification of the Indenture. (Indenture, Section 1705.)
As described more fully in DESCRIPTION OF THE FIRST MORTGAGE BONDS -
"Modification" below, we may make amendments to, or eliminate some of the
covenants in, the Mortgage with the consent of the holders of 60% of the
outstanding First Mortgage Bonds issued under the Mortgage. A holder of Debt
Securities would no longer benefit from the covenants contained in the Mortgage
should the Indenture Trustee vote these First Mortgage Bonds to amend or
eliminate the covenants as described above.
RESIGNATION OF A TRUSTEE
The Indenture Trustee may resign at any time by giving written notice to us
or may be removed at any time by an act of the holders of a majority in
principal amount of all series of Debt Securities then outstanding delivered to
the Indenture Trustee and us. No resignation or removal of the Indenture Trustee
and no appointment of a successor trustee will be effective until the acceptance
of appointment by a successor trustee. So long as no event of default or event
which, after notice or lapse of time, or both, would become an event of default
has occurred and is continuing and except with respect to a trustee appointed by
act of the holders, if we have delivered to the Indenture Trustee a resolution
of our Board of Directors appointing a successor trustee and the successor has
accepted the appointment in accordance with the terms of the Indenture, the
Indenture Trustee will be deemed to have resigned and the successor will be
deemed to have been appointed as trustee in accordance with the Indenture.
(Indenture, Section 1010.)
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NOTICES
Notices to holders of Debt Securities will be given by mail to the
addresses of the holders as they may appear in the security register for Debt
Securities. (Indenture, Section 108.)
TITLE
We, the Indenture Trustee, and any of our or the Indenture Trustee's
agents, may treat the person in whose name Debt Securities are registered as the
absolute owner thereof, whether or not the Debt Securities may be overdue, for
the purpose of making payments and for all other purposes irrespective of notice
to the contrary. (Indenture, Section 308.)
GOVERNING LAW
The Indenture is, and the Debt Securities will be, governed by, and
construed in accordance with, the laws of the state of New York except where
otherwise required by law. (Indenture, Section 114.)
INFORMATION ABOUT THE INDENTURE TRUSTEE
The Indenture Trustee will be The Bank of New York. In addition to acting
as Indenture Trustee, The Bank of New York also acts as the Mortgage Trustee.
The Bank of New York also acts, and may act, as trustee under various other of
our and our affiliates' indentures, trusts and guarantees. We and our affiliates
maintain deposit accounts and credit and liquidity facilities and conduct other
banking transactions with the trustee and its affiliates in the ordinary course
of our respective businesses.
DESCRIPTION OF THE FIRST MORTGAGE BONDS
As discussed above under DESCRIPTION OF THE DEBT SECURITIES - "Security"
and "Discharge of Lien; Release Date," the Debt Securities will be issued on the
basis of, and primarily secured by, one or more series of first mortgage bonds
issued by us under the Indenture of Mortgage, dated as of May 1, 1939, made by
and between MDU (formerly Montana-Dakota Utilities Co.) and The New York Trust
Company (The Bank of New York, as successor Corporate Trustee (the "Mortgage
Trustee")) and all indentures supplemental thereto (including the (Forty-Fifth)
Supplemental Indenture, dated as of April 21, 1992, which contains, in Part II
thereof, a Restatement of Indenture) (collectively, the "Mortgage") and
delivered by us to the Indenture Trustee. In this prospectus we refer to all
first mortgage bonds issued or to be issued under the Mortgage, including the
first mortgage bonds to be delivered to the Indenture Trustee, as, collectively,
the "First Mortgage Bonds."
We will issue First Mortgage Bonds in an aggregate principal amount equal
to the aggregate principal amount of the Debt Securities, in one or more series,
under the Mortgage, in fully registered form. First Mortgage Bonds are, or will
be, secured by a first mortgage lien on the Mortgaged Property as described
below under "Security and Priority." All First Mortgage Bonds are equally
secured and rank equally with respect to each other.
The Mortgage is filed as an exhibit to the registration statement. This
section of the prospectus contains a summary of all material provisions of the
Mortgage. The Mortgage and its associated documents contain the full legal text
of the matters described in this section. Because this section is a summary, it
does not describe every aspect of the First Mortgage Bonds or the Mortgage. This
summary is subject to and qualified in its entirety by reference to all the
provisions of the Mortgage, including definitions of terms used in the Mortgage,
which may be used in this document without definition. We also include
references in parentheses to sections of the Mortgage. Whenever we refer to
particular sections or defined terms of the Mortgage in this prospectus or in a
prospectus supplement, the references are to the Restatement of Indenture
described above, and all amendments or modifications to the Restatement of
Indenture, if any; and the sections or defined terms are incorporated by
reference into this document or in the prospectus supplement. This summary also
is subject to and qualified by reference to the description of the particular
terms of the First Mortgage Bonds described in the applicable prospectus
supplement or supplements. The Mortgage has been qualified under the Trust
Indenture Act, and you should refer to the Trust Indenture Act for provisions
that apply to the First Mortgage Bonds.
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SECURITY AND PRIORITY
In the opinion of our General Counsel, the First Mortgage Bonds now or
hereafter issued will be secured, together with all other First Mortgage Bonds,
by a valid and direct first mortgage lien on substantially all of the real and
fixed properties owned and all franchises held by us immediately prior to July
1, 2000, together with improvements, extensions and additions to, and renewals,
replacements and substitutions of or for, any part or parts of these properties,
other than property expressly excepted or released from the Mortgage (as
described below), subject to the lien of taxes for the current year and the lien
of taxes and assessments not yet delinquent and to specified exceptions and
reservations which do not, in the opinion of counsel, materially affect our
title to or right to use the properties. This property, other than property
excepted and released from the Mortgage, is sometimes referred to as the
"Mortgaged Property." There are excepted from Mortgaged Property all properties
acquired by us on or after July 1, 2000, including the properties acquired in
the merger with Great Plains Energy Corp. and Great Plains Natural Gas Co.
(which include all properties of the Company located in the state of Minnesota
and all gas distribution properties located in the southeastern part of North
Dakota), but excluding improvements, extensions and additions to, and renewals,
replacements and substitutions of or for, any part or parts of the Mortgaged
Property owned by us immediately prior to July 1, 2000 unless otherwise excepted
from the lien of the Mortgage. There are also excepted from Mortgaged Property
all cash, receivables and securities (including the capital stock of Centennial
Energy Holdings, Inc., WBI Holdings, Inc., Knife River Corporation, Utility
Services, Inc., Centennial Energy Resources LLC, Centennial Holdings Capital
LLC, Centennial Energy Resources International Inc, Fidelity Exploration &
Production Company and any other subsidiaries); some contracts; merchandise,
appliances, materials or supplies; electric energy, gas, steam and other
products; and automobiles, tractors, ships, railroad cars and aircraft and
various other transportation equipment. The property of subsidiaries, including
Centennial Energy Holdings, Inc., WBI Holdings, Inc., Knife River Corporation,
Utility Services, Inc., Centennial Energy Resources LLC, Centennial Holdings
Capital LLC, Centennial Energy Resources International Inc, Fidelity Exploration
& Production Company and any other subsidiaries), is not subject to the lien of
the Mortgage. We have released and transferred certain properties from the lien
of the Mortgage since July 1, 2000, and may release additional property subject
to the lien of the Mortgage against various credits, including:
o cash deposited with the Mortgage Trustee,
o the principal amount of bonds or other obligations deposited with the
Mortgage Trustee secured by a purchase money mortgage on the property
released up to 70% of the fair value to us of that property, or
o the fair value in cash of bonds or other obligations of municipal
corporations or other governmental subdivisions possessing taxing
power.
We may withdraw cash held by the Mortgage Trustee against various credits,
including
o the principal amount of refundable bonds not previously used under the
Mortgage,
o 70% of the net bondable value of property additions, or
o the lesser of cost or fair value to us of property which is already
subject to the lien of the Mortgage, but which has not yet been used
as a credit under any provisions of the Mortgage.
Property not used as the basis for the issuance of First Mortgage Bonds or
otherwise as a credit under the Mortgage may in effect be released without
substitution of equivalent property.
The Mortgage provides that after-acquired properties (other than the
excepted property and released property described above) that are improvements,
extensions or additions to, or renewals, replacements or substitutions of or
for, any part or parts of the Mortgaged Property will be subject to the lien of
the Mortgage. (Mortgage, Forty-Ninth Supplemental Indenture.) We also may elect
to subject additional property to the lien of the Mortgage by amending the
Mortgage.
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ISSUANCE OF ADDITIONAL FIRST MORTGAGE BONDS
We may issue additional First Mortgage Bonds ranking equally with
outstanding First Mortgage Bonds in a principal amount equal to:
(1) 70% of the net bondable value of property additions we acquire;
(2) the amount of cash deposited with the Mortgage Trustee; and
(3) the amount of refundable First Mortgage Bonds surrendered to the
Mortgage Trustee.
(Mortgage, Sections 3.04 through 3.06.)
The First Mortgage Bonds will be issued against property additions,
refunded First Mortgage Bonds and/or the deposit of cash. On June 30, 2003, we
had approximately $251 million of available Property Additions and $163 million
of refunded First Mortgage Bonds. See the discussion above under "Security and
Priority."
With some exceptions in the case of (3) above, additional First Mortgage
Bonds may be issued only if our net earnings available for interest after
depletion, as defined in the Mortgage, for any twelve consecutive calendar
months within the fifteen calendar months immediately preceding the month in
which the application for the additional First Mortgage Bonds is made, are in
the aggregate equal to at least two times the amount of the annual stated
interest charges on all First Mortgage Bonds thereafter to be outstanding, and
on all permitted equal or prior lien debt, if any. (Mortgage, Sections 1.01 and
3.03.) For the twelve months ended June 30, 2003, our net earnings available for
interest after depletion were $79 million or 8.1 times the annual stated
interest charges on all First Mortgage Bonds and permitted equal or prior lien
debt outstanding on that date, which would have permitted us to issue
approximately $339 million of additional First Mortgage Bonds.
Property available for use as property additions includes property useful
in the energy business in any form (other than gas but including gas
distribution property) and water and steam heat property. The property may be
located anywhere in the United States of America or its coastal waters and may
also include space satellites (including solar power satellites), space stations
and other analogous facilities. (Mortgage, Section 1.01.)
Any additional First Mortgage Bonds issued by us would not be included as
Debt Securities covered by this prospectus or the registration statement that
this prospectus is included within.
DIVIDEND RESTRICTIONS
So long as any of the First Mortgage Bonds are outstanding, we may declare
and pay dividends in cash or property on our common stock only out of Surplus,
as defined in the Mortgage, or out of net profits for the fiscal year or the
preceding fiscal year. However, we may not pay dividends out of net profits if
the Capital of the Company, as defined in the Mortgage, has been diminished to a
specified extent. (Mortgage, Section 2.01.)
MAINTENANCE AND DEPRECIATION PROVISIONS
We are required to make expenditures necessary to maintain the mortgaged
property in good repair, except that we may abandon any property, and to make
provisions for depreciation and for depletion of depletable fixed assets in
accordance with good accounting practices and in accordance with any applicable
rules of any regulatory authority having jurisdiction. (Mortgage, Section 6.06.)
MODIFICATION
Modifications of the terms of the Mortgage may be made with our consent by
an affirmative vote of at least 60% in principal amount of outstanding First
Mortgage Bonds and of at least 60% in principal amount of outstanding First
Mortgage Bonds of any series especially affected by the modification; but no
modification may be made which will affect the terms of payment of the principal
at maturity of, or interest on, any First Mortgage Bond. (Mortgage, Article XV.)
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VOTING OF FIRST MORTGAGE BONDS HELD BY THE INDENTURE TRUSTEE
The Indenture Trustee will, as holder of the First Mortgage Bonds, attend
meetings of bondholders under the Mortgage, or deliver its proxy in connection
with those meetings, as to matters with respect to which it is entitled to vote
or consent. See DESCRIPTION OF THE DEBT SECURITIES - "Voting of Class A Bonds."
DEFAULTS AND NOTICE OF DEFAULTS
"Events of default" include the failure to pay principal, failure for 30
days to pay interest or to make any required deposit in any fund for the
purchase or redemption of First Mortgage Bonds (including any sinking fund or
improvement and sinking fund), failure for 90 days after written notice to
perform any other covenant, and various events in bankruptcy or insolvency.
(Mortgage, Article IX.)
The Trustees under the Mortgage are required to give notice to Bondholders
of any continuing event of default known to them, but other than for a default
in the payment of principal or interest or a sinking fund installment, the
Trustees may withhold notice if the responsible officers of the Corporate
Trustee in good faith determine that the withholding is in the interests of the
Bondholders. (Mortgage, Section 13.03.)
SATISFACTION AND DISCHARGE
Once we make due provision for the payment of all of the First Mortgage
Bonds and paying all other sums due under the Mortgage, the Mortgage will cease
to be of further effect and may be discharged. (Mortgage, Article XVI.)
ANNUAL REPORT TO THE MORTGAGE TRUSTEE
We must give the Mortgage Trustee an annual statement as to whether or not
we have fulfilled our obligations under the Mortgage throughout the preceding
calendar year.
DESCRIPTION OF THE COMMON STOCK
COMMON STOCK - GENERAL
The following is a description of all material attributes of our common
stock. This description is not complete, and we qualify it by referring to the
laws of the state of Delaware and our restated certificate of incorporation,
amended bylaws and Mortgage. The restated certificate of incorporation, amended
bylaws and Mortgage are exhibits 3(a), 3(b) and 4(a), respectively, to the
registration statement that this prospectus is included within and all of these
documents are incorporated into this prospectus by reference. We also refer you
to the rights agreement, dated as of November 12, 1998, between us and Norwest
Bank Minnesota, NA (now, Wells Fargo Bank Minnesota, N.A.), as rights agent,
that we incorporate into this document by reference to Exhibit 4(c) to the
registration statement that this prospectus is included within.
Our restated certificate of incorporation authorizes us to issue
252,000,000 shares of stock, divided into four classes:
o 500,000 shares of preferred stock, $100 par value;
o 1,000,000 shares of preferred stock A, without par value;
o 500,000 shares of preference stock, without par value; and
o 250,000,000 shares of common stock, $1.00 par value.
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DIVIDEND RIGHTS
Under our restated certificate of incorporation, we may declare and pay
dividends on our common stock, out of surplus or net profits, only if we have
paid or provided for full cumulative dividends on all outstanding shares of
preferred and preference stock. As of June 30, 2003, we had no preference stock
outstanding.
In addition to these provisions, our first mortgage bond indenture includes
a covenant generally to the effect that we may declare and pay dividends in cash
or property on our common stock only either (1) out of "surplus" or (2) in case
there is no "surplus," out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. For purposes of this
test, "surplus" means the excess of our net assets over our "capital"; and
"capital" means that part of the consideration received by us for any of our
shares of common stock which has been determined to be "capital."
VOTING RIGHTS
Our common stock has one vote per share. The holders of our common stock
are entitled to vote on all matters to be voted on by stockholders. The holders
of our common stock do not have cumulative voting rights.
The holders of our preferred stock, preferred stock A and preference stock
do not have the right to vote, except as our board of directors establishes or
as provided in our restated certificate of incorporation or bylaws or as
determined by state law.
Our restated certificate of incorporation gives the holders of our
preferred stock, preferred stock A or the preference stock the right to vote if
dividends are unpaid, in whole or in part, on their shares for one year. The
holders have one vote per share until we pay the dividend arrearage, declare
dividends for the current dividend period and set aside the funds to pay the
current dividends. In addition, the holders of some series of our preferred
stock and preferred stock A, and/or the holders of our preference stock, must
approve amendments to the restated certificate of incorporation in some
instances.
LIQUIDATION RIGHTS
If we were to liquidate, the holders of the preferred stock, preferred
stock A and the preference stock have the right to receive specified amounts, as
set forth in our restated certificate of incorporation, before we can make any
payments to the holders of our common stock. After the preferred and preference
stock payments are made, the holders of our common stock are entitled to share
in all of our remaining assets available for distribution to stockholders.
OTHER RIGHTS
Our common stock is not liable to further calls or assessment. The holders
of our common stock have no preemptive rights. Our common stock cannot be
redeemed, and it does not have any conversion rights or sinking fund provisions.
EFFECTS ON OUR COMMON STOCK IF WE ISSUE PREFERRED OR PREFERENCE STOCK
Our board of directors has the authority, without further action by the
stockholders, to issue up to 500,000 shares of preferred stock, 1,000,000 shares
of preferred stock A and 500,000 shares of preference stock, each in one or more
series. Our board of directors has the authority to determine the terms of each
series of any preferred or preference stock, within the limits of the restated
certificate of incorporation and the laws of the state of Delaware. These terms
include the number of shares in a series, dividend rights, liquidation
preferences, terms of redemption, conversion rights and voting rights.
If we issue any preferred or preference stock, we may negatively affect the
holders of our common stock. These possible negative effects include diluting
the voting power of shares of our common stock and affecting the market price of
31
our common stock. In addition, the ability of our board of directors to issue
preferred or preference stock may delay or prevent a change in control of MDU
Resources.
As of June 30, 2003, we had 163,000 shares of preferred stock outstanding,
and we have reserved 125,000 shares of Series B preference stock for issuance in
connection with our rights plan.
PROVISIONS OF OUR RESTATED CERTIFICATE OF INCORPORATION AND OUR BYLAWS THAT
COULD DELAY OR PREVENT A CHANGE IN CONTROL
Our restated certificate of incorporation and bylaws contain provisions
which will make it difficult to obtain control of MDU Resources if our board of
directors does not approve the transaction. The provisions include the
following:
PROVISIONS RELATING TO OUR BOARD OF DIRECTORS
CLASSIFIED BOARD
We have divided the members of our board of directors into three classes as
nearly equal in number as may be. Directors in each class are elected for a
three-year term.
This classification of our board of directors may prevent stockholders from
changing the membership of the entire board of directors in a relatively short
period of time. At least two annual meetings, instead of one, generally will be
required to change the majority of directors. The classified board provisions
could have the effect of prolonging the time required for a stockholder with
significant voting power to gain majority representation on our board of
directors. Where majority or supermajority board of directors approval is
necessary for a transaction, like in the case of an interested stockholder
business combination, the inability immediately to gain majority representation
on the board of directors could discourage takeovers and tender offers.
NUMBER OF DIRECTORS, VACANCIES, REMOVAL OF DIRECTORS
Our restated certificate of incorporation provides that our board of
directors will have at least six and at most 15 directors. Two-thirds of the
continuing directors decide the exact number of directors at a given time. Our
board fills any new directorships it creates and any vacancies.
Our directors may be removed only for cause and then only by a majority of
the shares entitled to vote.
MEETINGS OF STOCKHOLDERS
NO CUMULATIVE VOTING
Our restated certificate of incorporation does not provide for cumulative
voting.
ADVANCE NOTICE PROVISIONS
Our bylaws require that for a stockholder to nominate a director or bring
other business before an annual meeting, the stockholder must give notice not
less than 120 days prior to the date corresponding to the date on which we first
mailed our proxy materials for the prior year's annual meeting.
Our restated certificate of incorporation prevents stockholders from
calling a special meeting. In addition, our restated certificate of
incorporation provides that stockholder action may be taken only at a
stockholders' meeting.
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AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
Our restated certificate of incorporation requires the affirmative vote of
80% of the common stock entitled to vote in order to amend Articles Twelfth,
Thirteenth, Fourteenth, Fifteenth and Sixteenth of our restated certificate of
incorporation, unless two-thirds of the continuing directors approve the
amendment. Article Twelfth of our restated certificate of incorporation
specifies fair price and other requirements applicable to a business combination
involving an interested stockholder (e.g., a stockholder who is our affiliate).
Article Thirteenth of our restated certificate of incorporation contains
provisions relating to our board of directors, including provisions establishing
a classified board. Article Fourteenth of our restated certificate of
incorporation expressly permits our board of directors to consider the factors
described below under "Provisions Relating to the Authorization of Business
Combinations" in determining whether or not to approve some types of business
combinations. Article Fifteenth of our restated certificate of incorporation
contains the requirement described in the first sentence of this paragraph that
80% of the common stock entitled to vote must vote in favor of an amendment to
the articles specified above unless two-thirds of the continuing directors
approve the amendment. Finally, Article Sixteenth of the restated certificate of
incorporation prohibits stockholders from taking action by written consent and
describes the persons who may call special meetings of our stockholders.
PROVISIONS RELATING TO THE AUTHORIZATION OF BUSINESS COMBINATIONS
Our restated certificate of incorporation requires the affirmative vote of
80% of the common stock entitled to vote for directors in order to authorize
business combinations with interested stockholders. Any business combination
must also meet specified fair price and procedural requirements. However, if
two-thirds of our continuing directors approve the business combination, then
the vote of 80% of the common stock and the fair price provisions will not be
required.
There is also a provision in our restated certificate of incorporation
permitting our board of directors to consider the following factors in
determining whether or not to approve some types of business combinations:
o The consideration to be received by us or our stockholders in connection
with the business combination in relation not only to the then current
market price for our outstanding capital stock, but also to the market
price for our capital stock over a period of years, the estimated price
that might be achieved in a negotiated sale of us as a whole or in part
through orderly liquidation, the premiums over market price for the
securities of other corporations in similar transactions, current
political, economic and other factors bearing on securities prices and our
financial condition, future prospects and future value as an independent
corporation;
o The character, integrity and business philosophy of the other party or
parties to the business combination transaction and the management of that
party or those parties;
o The business and financial conditions and earnings prospects of the other
party or parties to the business combination transaction, including, but
not limited to, debt service and other existing or likely financial
obligations of that party or those parties, the intention of the other
party or parties to the business combination transaction regarding the use
of our assets to finance the acquisition, and the possible effect of the
conditions upon us and our subsidiaries and the other elements of the
communities in which we and our subsidiaries operate or are located;
o The projected social, legal and economic effects of the proposed action or
transaction upon us or our subsidiaries, employees, suppliers, customers
and others having similar relationships with us, and the communities in
which we and our subsidiaries do business;
o The general desirability of our continuance as an independent entity; and
o Such other factors as the continuing directors may deem relevant.
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PROVISIONS OF DELAWARE LAW THAT COULD DELAY OR PREVENT A CHANGE IN CONTROL
We are subject to the provisions of Section 203 of the General Corporation
Law of Delaware. With some exceptions, this law prohibits us from engaging in
some types of business combinations with a person who owns 15% or more of our
outstanding voting stock for a three-year period after that person acquires the
stock. This prohibition does not apply if our board of directors approved of the
business combination or the acquisition of our stock before the person acquired
15% of the stock. A business combination includes mergers, consolidations, stock
sales, asset sales and other transactions resulting in a financial benefit to
the interested stockholder.
TRANSFER AGENT; REGISTRAR
The transfer agent and registrar for our common stock is Wells Fargo Bank
Minnesota, N.A., Saint Paul, Minnesota.
DESCRIPTION OF THE PREFERENCE SHARE PURCHASE RIGHTS
GENERAL
On November 12, 1998, the board of directors declared a dividend of one
preference share purchase right for each outstanding share of common stock, par
value $1.00 per share. The dividend was paid on December 1, 1998 to the
stockholders of record on that date.
Our board of directors has adopted a rights agreement to protect our
stockholders from coercive or otherwise unfair takeover tactics. In general
terms, it works by imposing a significant penalty upon any person or group which
acquires 15% or more of our outstanding common stock without the approval of the
board of directors. The rights agreement should not interfere with any merger or
other business combination approved by our board of directors.
For those interested in the specific terms of the rights agreement between
us and Wells Fargo Bank Minnesota, N.A., as the rights agent, dated as of
November 12, 1998, we are providing the following summary description of all of
the material terms of the rights agreement. Please note, however, that this
description is only a summary, and is not complete, and should be read together
with the entire rights agreement, a copy of which is available from us free of
charge.
THE RIGHTS
Our board of directors authorized the issuance of a preference share
purchase right with respect to each issued and outstanding share of our common
stock on December 1, 1998. The preference share purchase rights will initially
trade with, and will be inseparable from, the common stock. The preference share
purchase rights are evidenced only by certificates that represent shares of
common stock. New preference share purchase rights will accompany any new shares
of common stock that we issue after December 1, 1998 until the distribution date
described below.
EXERCISE PRICE
Each preference share purchase right will allow its holder to purchase from
us one one-thousandth of a share of Series B preference stock for $125, once the
preference share purchase rights become exercisable. This portion of a share of
Series B preference stock will give the stockholder approximately the same
dividend and liquidation rights as would one share of common stock. Prior to
exercise, the preference share purchase right does not give its holder any
dividend, voting, or liquidation rights.
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EXERCISABILITY
The preference share purchase rights will not be exercisable until:
o 10 days after the public announcement that a person or group has become an
"acquiring person" by obtaining beneficial ownership of 15% or more of MDU
Resources' outstanding common stock, or, if earlier,
o 10 business days (or a later date determined by our board of directors
before any person or group becomes an acquiring person) after a person or
group begins a tender or exchange offer which, if consummated, would result
in that person or group becoming an acquiring person.
We refer to the date when the preference share purchase rights become
exercisable as the "distribution date." Until that date, the common stock
certificates will also evidence the preference share purchase rights, and any
transfer of shares of common stock will constitute a transfer of preference
share purchase rights. After that date, the preference share purchase rights
will separate from the common stock and be evidenced by book-entry credits or by
preference share purchase rights certificates that we would mail to all eligible
holders of common stock. Any preference share purchase rights held by an
acquiring person are void and may not be exercised.
Our board of directors may reduce the threshold at which a person or group
becomes an acquiring person from 15% to not less than 10% of the outstanding
common stock.
CONSEQUENCES OF A PERSON OR GROUP BECOMING AN ACQUIRING PERSON
Flip In. If a person or group becomes an acquiring person, all holders of
preference share purchase rights except the acquiring person may, for $125,
purchase shares of our common stock with a market value of $250, based on the
market price of the common stock prior to the acquisition.
Flip Over. If we are later acquired in a merger or similar transaction
after the "preference share purchase rights distribution date," all holders of
preference share purchase rights except the acquiring person may, for $125,
purchase shares of the acquiring corporation with a market value of $250, based
on the market price of the acquiring corporation's stock prior to the merger.
PREFERENCE SHARE PROVISIONS
Each one one-thousandth of a share of Series B preference stock, if issued:
o will not be redeemable.
o will entitle holders to quarterly dividend payments of $.001 per share, or
an amount equal to the dividend paid on one share of common stock,
whichever is greater.
o will entitle holders upon liquidation either to receive $1.00 per share or
an amount equal to the payment made on one share of common stock, whichever
is greater.
o will have no voting power, except as otherwise provided by Delaware law or
our restated certificate of incorporation.
o will entitle holders to a per share payment equal to the payment made on
one share of common stock, if shares of our common stock are exchanged via
merger, consolidation, or a similar transaction.
The value of one one-thousandth interest in a share of Series B preference stock
should approximate the value of one share of common stock.
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EXPIRATION
The preference share purchase rights will expire on December 31, 2008.
REDEMPTION
Our board of directors may redeem the preference share purchase rights for
$.01 per preference share purchase right at any time before any person or group
becomes an acquiring person. If the board of directors redeems any preference
share purchase rights, it must redeem all of the preference share purchase
rights. Once the preference share purchase rights are redeemed, the only right
of the holders of preference share purchase rights will be to receive the
redemption price of $.01 per preference share purchase right. The redemption
price will be adjusted if we have a stock split of, or stock dividends on, our
common stock.
EXCHANGE
After a person or group becomes an acquiring person, but before an
acquiring person owns 50% or more of our outstanding common stock, our board of
directors may extinguish the preference share purchase rights by exchanging one
share of common stock or an equivalent security for each preference share
purchase right, other than preference share purchase rights held by the
acquiring person.
ANTI-DILUTION PROVISIONS
Our board of directors may adjust the purchase price of a share of Series B
preference stock, the number of shares of Series B preference stock issuable and
the number of outstanding preference share purchase rights to prevent dilution
that may occur from a stock dividend, a stock split, a reclassification of the
Series B preference stock or common stock. No adjustments to the exercise price
of less than 1% will be made.
AMENDMENTS
The terms of the rights agreement may be amended by our board of directors
without the consent of the holders of the preference share purchase rights.
However, our board may not amend the rights agreement to lower the threshold at
which a person or group becomes an acquiring person to below 10% of our
outstanding common stock. In addition, our board may not cause a person or group
to become an acquiring person by lowering this threshold below the percentage
interest that the person or group already owns. After a person or group becomes
an acquiring person, the board may not amend the agreement in a way that
adversely affects holders of the preference share purchase rights.
PLAN OF DISTRIBUTION
We may sell the securities offered by this prospectus in one or more of the
following ways from time to time: (i) to underwriters for resale to the public
or to institutional investors; (ii) directly to institutional investors; or
(iii) through agents to the public or to institutional investors. The prospectus
supplement with respect to the securities being sold will set forth the terms of
the offering of those securities, including the name or names of any
underwriters or agents, the purchase price of the securities and the net
proceeds to us from the sale, any underwriting discounts or agency fees and
other items constituting underwriters' or agents' compensation, any initial
public offering price, and any discounts or concessions allowed or reallowed or
paid to dealers.
If underwriters participate in the sale, the securities will be acquired by
the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale.
If the securities are sold by agents, commissions payable by us to those
agents will be set forth in a related prospectus supplement. Unless otherwise
indicated in a prospectus supplement, any agent will be acting on a reasonable
efforts basis for the period of its appointment.
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Unless otherwise set forth in the prospectus supplement, the obligations of
the underwriters to purchase the securities will be subject to conditions
precedent and the underwriters will be obligated to purchase all the securities
being offered if any are purchased.
We may make sales of our common stock to or through one or more
underwriters or agents in at-the-market offerings, and, if we engage in such
transactions, we will do so pursuant to the terms of a distribution agreement
between us and the underwriters or agents. If we engage in at-the-market sales
pursuant to a distribution agreement, we will issue and sell shares of our
common stock to or through one or more underwriters or agents, which may act on
an agency basis or on a principal basis. During the term of any such
distribution agreement, we may sell shares on a daily basis in exchange
transactions or otherwise as we agree with the underwriters or agent. The
distribution agreement may provide that any shares of our common stock sold will
be sold at prices related to the then prevailing market prices for our
securities. Therefore, exact figures regarding net proceeds to us or commissions
to be paid are impossible to determine and will be described in a prospectus
supplement. Pursuant to the terms of the distribution agreement, we also may
agree to sell, and the relevant underwriters or dealers may agree to solicit
offers to purchase, blocks of our common stock. The terms of each such
distribution agreement will be set forth in more detail in a prospectus
supplement to this prospectus. To the extent that any named underwriter or agent
acts as principal pursuant to the terms of a distribution agreement, or if we
offer to sell shares of our common stock through another broker-dealer acting as
underwriter, then such named underwriter may engage in certain transactions that
stabilize, maintain or otherwise affect the price of our common stock. We will
describe any such activities in the prospectus supplement relating to the
transaction. To the extent that any named broker dealer or agent acts as agent
on a best efforts basis pursuant to the terms of a distribution agreement, such
broker dealer or agent will not engage in any such stabilization transactions.
Underwriters and agents may be entitled under agreements entered into with
us to indemnification against securities civil liabilities, including
liabilities under the Securities Act of 1933. Underwriters and agents may engage
in transactions with, or perform services for, us in the ordinary course of
business.
Each series of securities offered by this prospectus will be a new issue
and, except for the common stock, which is listed on the New York Stock Exchange
and the Pacific Exchange, will have no established trading market. We may elect
to list any series of new securities on an exchange, or in the case of the
common stock, on any additional exchange, but unless otherwise indicated in the
prospectus supplement, we have no obligation to cause any securities to be so
listed. Any underwriters that purchase securities for public offering and sale
may make a market in the securities, but such underwriters will not be obligated
to do so and may discontinue any market making at any time without notice. We
make no assurance as to the liquidity of, or the trading markets for, any
securities.
EXPERTS
The consolidated financial statements and consolidated financial statement
schedule incorporated by reference from our Annual Report on Form 10-K for the
year ended December 31, 2002, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports which are incorporated herein
by reference (which express an unqualified opinion and include an explanatory
paragraph relating to the application of certain procedures relating to certain
other disclosures and reclassifications of financial statement amounts related
to the 2001 and 2000 consolidated financial statements that were audited by
other auditors for which Deloitte & Touche LLP has expressed no opinion or other
form of assurance other than with respect to such disclosures and
reclassifications), and have been so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
Our consolidated financial statements and schedule as of December 31, 2001,
and for the years ended December 31, 2001 and 2000 incorporated in this
prospectus by reference from our Annual Report on Form 10-K for the year ended
December 31, 2002 were audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto (which expresses
an unqualified opinion and includes an explanatory paragraph relating to the
adoption of a new accounting principle), and have been so incorporated in
reliance upon the report and upon the authority of that firm as experts in
accounting and auditing in giving the report. On February 14, 2002, we dismissed
Arthur Andersen LLP as our independent public accounting firm, and on March 25,
2002, we hired Deloitte & Touche LLP as our independent auditors for the 2002
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fiscal year. Since that time, Arthur Andersen LLP was convicted on federal
charges of obstruction of justice, and in August 2002, Arthur Andersen LLP
ceased performing auditing services worldwide. These events may materially and
adversely affect the ability of Arthur Andersen LLP to satisfy all of their
existing and future obligations, including claims under the federal securities
laws. Accordingly, purchasers of our securities may be limited in their ability
to recover damages from Arthur Andersen LLP for any claims that may arise out of
Arthur Andersen LLP's audit of our financial statements. In addition, we were
not able to obtain the consent of Arthur Andersen LLP as required by Section 7
of the Securities Act to the incorporation by reference of their report on the
audited financial statements into the registration statement. As a result of
Arthur Andersen LLP not having provided a consent, the ability of purchasers of
our securities to assert claims and seek remedies against Arthur Andersen LLP
may be limited with respect to their report, particularly those remedies arising
under Section 11 of the Securities Act.
LEGAL OPINIONS
The validity of the securities has been passed upon for us by Lester H.
Loble, II, Esq., our General Counsel, and also by Thelen Reid & Priest LLP, 875
Third Avenue, New York, New York 10022.
________________________
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
AN OFFER TO SELL ONLY THE SECURITIES OFFERED HEREBY, BUT ONLY UNDER
CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
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$30,000,000
MDU RESOURCES GROUP, INC.
5.98% Senior Notes due 2033
____________________
PROSPECTUS SUPPLEMENT
December 16, 2003
____________________
UBS INVESTMENT BANK
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