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(1)

Represents 487,576 shares, the maximum number of shares of Black Hills Corporation common stock, par value $1.00 per share, issuable upon the conversion, pursuant to the merger described herein, of (i) 10,779,718 shares of common stock, par value $.01 per share, of Mallon Resources Corporation outstanding on November 21, 2002 and (ii) up to 301,548 shares of Mallon Resources Corporation common stock that may be issued upon the exercise of outstanding options and warrants to purchase Mallon Resources Corporation common stock between November 21, 2002 and the consummation of the merger, based upon the exchange ratio of .044 of a share of Black Hills Corporation common stock for each share of Mallon Resources Corporation common stock.

(2)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended, based upon the product of $1.03 (the average of the high and low prices of Mallon Resources Corporation’s common stock on November 21, 2002 on the OTC Bulletin Board) multiplied by (i) 10,779,718 shares of common stock of Mallon Resources Corporation common stock outstanding on November 21, 2002 plus (ii) 301,548 shares of Mallon Resources Corporation common stock that may be issued upon the exercise of outstanding options and warrants.

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Q:

WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?

A:

The proposed merger will combine the businesses of Black Hills and Mallon. Our companies are proposing the merger because we believe that the combined company, with its larger, more diverse asset base and expanded cash flow, will be better positioned to continue growing in the independent energy industry. We believe that the merger will, among other things:

•

support Black Hills’ integrated energy strategy by substantially increasing its current natural gas production and reserves;

•

increase Black Hills’ exploitation drilling potential;

•

result in administrative cost savings and operating efficiencies on a combined basis; and

•

improve the liquidity of Mallon’s shareholders.

Q:

HOW WILL THE MERGER WORK?

A:

Black Hills Acquisition Corp., a wholly-owned subsidiary of Black Hills, will merge with and into Mallon and Mallon will continue as the surviving corporation and will be a wholly-owned subsidiary of Black Hills. We refer to Black Hills Acquisition Corp. as “Merger Sub” in this document. Shareholders of Mallon will become shareholders of Black Hills.

Q:

WHAT WILL HAPPEN TO MALLON COMMON STOCK AND STOCK OPTIONS IN THE MERGER?

A:

Mallon shareholders will receive .044 of a share of Black Hills common stock for each share of Mallon common stock they own. Mallon shareholders will also receive cash for any fractional Black Hills shares they would otherwise receive in the merger. As of the close of business on the effective date of the merger, all outstanding options to purchase Mallon common stock that are not exercised will be cancelled and terminated automatically. Each holder of an option who exercises such option concurrently with the consummation of the merger will receive .044 of a share of Black Hills common stock for each share of Mallon common stock received upon exercise of such option.

Q:

WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?

A:

Subject to shareholder and regulatory approval, we hope to complete the merger in the first quarter of 2003.

Q:

WHEN IS THE SPECIAL SHAREHOLDERS’ MEETING?

A:

Mallon’s special meeting of shareholders will take place on                         , 2003. The time and location of the special meeting is specified on the cover page of this document.

Q:

WHAT WILL HAPPEN AT THE SPECIAL SHAREHOLDERS’ MEETING?

A:

Mallon’s shareholders will vote on whether to approve the merger agreement and the transactions contemplated by the merger agreement.

Q:

WHAT VOTE IS REQUIRED FOR THE PROPOSAL?

A:

At the Mallon special meeting, approval of the merger agreement requires the affirmative vote of a majority of the outstanding shares of Mallon common stock.

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Q:

WHAT DO I NEED TO DO TO VOTE?

A:

If you own Mallon common stock, after reading this document, indicate on the enclosed proxy how you want to vote, sign it and mail it in the enclosed return envelope as soon as possible so that your shares will be represented at the special meeting. If you sign and send in your proxy card and do not indicate how you want to vote, your proxy will be counted as a vote in favor of the proposals submitted at the special meeting. The failure to return your proxy card will have the same effect as voting against the merger.

You may attend the special meeting and vote your shares in person, rather than signing and mailing your proxy card. In addition, you may revoke your proxy on or before the day of the special meeting by following the instructions on page 22. You then may either change your vote or attend the special meeting and vote in person.

THE MEMBERS OF THE MALLON BOARD OF DIRECTORS HAVE UNANIMOUSLY APPROVED THE MERGER AND THE MERGER AGREEMENT AND RECOMMEND THAT MALLON SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE MERGER AGREEMENT.

Q:

IF MY SHARES ARE HELD IN “STREET NAME” BY MY BROKER, WILL MY BROKER VOTE THEM FOR ME?

A:

Your broker will not be able to vote your shares without instructions from you. You should instruct your broker to vote your shares, following the procedure provided by your broker.

Q:

SHOULD I SEND IN MY STOCK CERTIFICATES NOW?

A:

No. After the merger is completed, we will send you written instructions that explain how to exchange your stock certificates for certificates representing Black Hills common stock. Please do not send in any stock certificates until you receive these written instructions and the letter of transmittal.

Q:

WILL MALLON SHAREHOLDERS BE ABLE TO TRADE THE BLACK HILLS COMMON STOCK THAT THEY RECEIVE IN THE MERGER?

A:

Yes. Except for Black Hills common stock to be held by certain affiliates of Mallon, the Black Hills common stock received in the merger will be freely tradable. The Black Hills common stock issued in connection with the merger will be listed on the New York Stock Exchange under the symbol “BKH.”

Q:

AM I ENTITLED TO DISSENTERS’ RIGHTS?

A:

Yes. Holders of Mallon common stock are entitled to dissenters’ rights in connection with the merger. See the detailed description beginning on page 37.

Q:

WHAT ARE THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO BLACK HILLS AND MALLON COMMON SHAREHOLDERS?

A:

A summary of certain United States federal income tax consequences of the merger likely to be material to typical shareholders of Mallon and Black Hills is included in the section “Certain Material United States Federal Income Tax Consequences of the Merger” beginning on page 50.

Q:

ARE THERE RISKS ASSOCIATED WITH THE MERGER THAT I SHOULD CONSIDER IN DECIDING HOW TO VOTE?

A:

Yes. You should carefully read the detailed description of the risks associated with the merger and Black Hills beginning on page 11.

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Q:

WHO CAN HELP ANSWER MY QUESTIONS?

A:

If you have more questions about the merger you should contact:

Roy K. Ross

Mallon Resources Corporation

999 18th Street, Suite 1700

Denver, Colorado 80202

(303) 293-2333

Q:

WHERE CAN I FIND MORE INFORMATION ABOUT THE COMPANIES?

A:

Both of our companies file periodic reports with the SEC. You may read and copy this information at the SEC’s public reference room at 450 Fifth Street, N.W., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for information about the reference room. This information is also available through the Internet at the Edgar database maintained by the SEC at http://www.sec.gov and, with respect to Black Hills, at the offices of the New York Stock Exchange.

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approve the merger agreement and the transactions contemplated thereby; and

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act on other matters that may be submitted to a vote at the meeting.

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the merger and the merger agreement shall have been approved and adopted by the required vote of Mallon shareholders;

•

the waiting period applicable to the completion of the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, if any, shall be expired or terminated;

•

other than the articles of merger, all authorizations or orders or registrations, declarations or filings with, or expirations of waiting periods imposed by, any governmental authority shall have been filed, been obtained or occurred;

•

the registration statement, of which this proxy statement/prospectus is a part, shall have been declared effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order;

•

no governmental authority or court of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any law, regulation or order which is in effect and which has the effect of making the merger illegal or otherwise prohibiting completion of the merger;

•

all of the shares of Black Hills common stock to be issued in connection with the merger shall have been approved for listing in the NYSE, subject to official notice of issuance;

•

the Mallon employee royalty bonus pool shall have been terminated;

•

Black Hills and Mallon shall have received an opinion from their respective counsel to the effect that the merger will be treated for federal income tax purposes as a reorganization;

•

Black Hills shall have received a “comfort” letter from Mallon’s independent auditors;

•

holders of not more than 5% of the shares of Mallon common stock entitled to vote on the merger shall have dissented to the merger;

•

Mallon’s officers and directors shall have resigned their positions; and

•

Mallon shall have taken all such actions as have been reasonably requested by Black Hills to satisfy any outstanding liens and obligations to the Jicarilla Apache Indian Nation pursuant to the notice of lien for possessory interest taxes for the year 2002.

•

by the mutual written consent of Black Hills and Mallon;

•

by either Black Hills or Mallon in certain circumstances if the effective time of the merger shall not have occurred by April 30, 2003;

•

by either Black Hills or Mallon if there has been a breach of any representation, warranty, covenant or agreement on the part of the other party set forth in the merger agreement, which breach would, if uncured as of the effective time, cause certain closing conditions not to be satisfied and shall not have been cured within 20 business days following the breaching party’s receipt of written notice of such breach from the other party;

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by either Black Hills or Mallon if a court of competent jurisdiction or other governmental authority shall have issued a nonappealable final order or taken any other nonappealable final action, in each case having the effect of permanently enjoining or otherwise permanently prohibiting the merger;

•

by Black Hills if (i) the board of directors of Mallon has withdrawn or modified, in a manner adverse to Black Hills, its recommendation of the merger agreement or the merger; or (ii) the board of directors of Mallon has recommended to the shareholders of Mallon a superior proposal;

•

by Mallon in connection with the execution of a definitive agreement providing for a superior proposal in accordance with requirements of the merger agreement, provided that Mallon has complied with all applicable provisions of the merger agreement and, concurrently with such termination, Mallon pays the termination fee required by the merger agreement;

•

by either Black Hills or Mallon if any of the conditions to such party’s obligation to consummate the transactions contemplated by the merger agreement will have become impossible to satisfy; or

•

by either Black Hills or Mallon if at the Mallon special meeting (including any adjournment or postponement thereof) the requisite shareholder approval is not obtained.

•

by Black Hills if (i) the board of directors of Mallon has withdrawn or modified, in a manner adverse to Black Hills, its recommendation of the merger agreement or the merger; or (ii) the board of directors of Mallon has recommended to the shareholders of Mallon a superior proposal; or

•

by Mallon in connection with the execution of a definitive agreement providing for a superior proposal as described in the merger agreement.

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•

Mallon may provide information to, and otherwise engage in discussions with, another person in response to an unsolicited acquisition proposal or an offer if Mallon’s board of directors determines in good faith that such action is legally advisable for the board to comply with its fiduciary duties, the offer or proposal is not subject to any financing contingencies or is, in the good faith judgment of Mallon’s board of directors, reasonably capable of being financed, and Mallon’s board of directors determines in good faith after consultation with its independent counsel and financial advisor that such offer or proposal constitutes or may reasonably be expected to result in a superior proposal. Mallon must obtain a confidentiality agreement from the interested third party prior to providing information in response to a proposal. Mallon must promptly notify Black Hills of such proposal.

•

The Mallon board of directors may approve or recommend an acquisition proposal but only if (i) a period of 24 hours has elapsed following the delivery of the required notice to Black Hills and (ii) the acquisition proposal is deemed to be a superior proposal by the affirmative vote of a majority of the Mallon board of directors, taking into account any adjustments to the terms of the merger proposed by Black Hills.

•

Mallon may enter into a definitive agreement with a third person regarding a superior proposal, provided that Mallon has complied with the provisions set forth above and has paid the termination fee.

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*

Excludes the non-cash acquisition of Indeck Capital, Inc.

**

Includes impact of $8.8 million after tax, or 41 cents per average share, write-down of certain oil and gas properties.

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*

Series B Mandatorily Redeemable Convertible Preferred Stock.

**

Because of Mallon’s loss position for all years presented, all common stock equivalents are anti-dilutive; therefore, only basic shares and loss per share data are presented.

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general economic conditions;

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regulatory authorizations and policies;

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its credit rating;

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the operations of the projects funded;

•

the credit ratings of project counterparties; and

•

the economics of the projects under construction.

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•

fuel prices;

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transmission constraints;

•

supply and demand;

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weather;

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economic conditions; and

•

the rules, regulations and actions of the system operators in those markets.

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•

the inability to obtain required governmental permits and approvals;

•

the unavailability of equipment;

•

supply interruptions;

•

work stoppages;

•

labor disputes;

•

social unrest;

•

weather interferences; and

•

unforeseen engineering, environmental and geological problems and unanticipated cost overruns.

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consumer demands;

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technological advances;

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deregulation; and

•

greater availability of natural gas-fired generation and other factors.

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unanticipated developments in the western power markets, including unanticipated governmental intervention, deterioration in the financial condition of counterparties, default on amounts due from counterparties, adverse changes in current or future litigation, adverse changes in the tariffs of the California Independent System Operator, market disruption and adverse changes in energy and commodity supply, volume and pricing and interest rates;

•

prevailing governmental policies and regulatory actions with respect to allowed rates of return, industry and rate structure, acquisition and disposal of assets and facilities, operation and construction of plant facilities, recovery of purchased power and other capital investments, and present or prospective wholesale and retail competition;

•

the State of California’s efforts to reform its long-term power purchase contracts and recover refunds for alleged price manipulation;

•

changes in and compliance with environmental and safety laws and policies;

•

weather conditions;

•

population growth and demographic patterns;

•

competition for retail and wholesale customers;

•

pricing and transportation of commodities;

•

market demand, including structural market changes;

•

changes in tax rates or policies or in rates of inflation;

•

changes in project costs;

•

unanticipated changes in operating expenses or capital expenditures;

•

capital market conditions;

•

technological advances by competitors;

•

competition for new energy development opportunities;

•

legal and administrative proceedings that influence our business and profitability;

•

the effects on our business, including the availability of insurance, resulting from the terrorist actions on September 11, 2001, or any other terrorist actions or responses to such actions;

•

the effects on our business resulting from the financial difficulties of Enron and other energy companies, including their effects on liquidity in the trading and power industry, and their effects on the capital markets views of the energy or trading industry, and our ability to access the capital markets on the same favorable terms as in the past;

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•

the effects on our business in connection with a lowering of our credit rating (or actions we may take in response to changing credit ratings criteria), including, increased collateral requirements to execute our business plan, demands for increased collateral by our current counterparties, refusal by our current or potential counterparties or customers to enter into transactions with us and our inability to obtain credit or capital in amounts or on terms favorable to us;

•

risk factors discussed in this proxy statement/prospectus; and

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other factors discussed from time to time in our filings with the SEC.

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(1)

Prior to October 1, 2002, Mallon’s common stock traded on the Nasdaq National Market. Mallon’s common stock was delisted from the Nasdaq National Market on that date and commenced trading on the OTC Bulletin Board.

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a proposal to approve the merger agreement and the transactions contemplated by the merger agreement; and

•

such other business incident to the conduct of the meeting as may properly come before the meeting or any adjournments or postponements thereof.

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•

in favor of the merger and the merger agreement;

•

against any acquisition proposal, as defined in the merger agreement, and against any proposal for action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of Mallon under the merger agreement, any change in the directors of Mallon, any change in the present capitalization of Mallon or any amendment to Mallon’s articles of incorporation or bylaws, which could reasonably be expected to impede, interfere with, delay, postpone or materially adversely affect the transactions contemplated by the merger agreement or the likelihood of such transactions being completed; and

•

in favor of any other matter necessary for completion of the merger which is considered at any such meeting of shareholders.

•

grant any proxies or enter into any voting trust or other agreement or arrangement with respect to the voting of the shares of Mallon common stock held by them;

•

sell, assign, transfer, encumber or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to the sale, assignment, transfer, encumbrance or other disposition of the shares of Mallon common stock held by them unless the purchaser, assignee, transferee or other recipient of the shares agrees to be bound by the same restrictions as contained in the voting agreements;

•

seek or solicit any such sale, assignment, transfer, encumbrance or other disposition or any contract, option or other arrangement or assignment or understanding with respect to the direct or indirect sale of the shares of Mallon common stock held by them;

•

initiate, solicit, encourage or otherwise facilitate any inquiries regarding or the making or implementation of any acquisition proposal; or

•

engage in any discussions or negotiations with, or provide any information to, any person relating to or that may reasonably be expected to lead to an acquisition proposal.

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submitting a new proxy with a later date;

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notifying Mallon’s secretary in writing before the special meeting that you have revoked your proxy; or

•

voting in person, or notifying Mallon’s secretary orally of your wish to revoke your proxy, at the special meeting.

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the Mallon board of directors’ understanding of the current and anticipated environment in the independent exploration and production sector of the energy industry, and the continued consolidation within this sector;

•

information concerning the financial condition, results of operations, prospects and businesses of Mallon and Black Hills, including their cash flows from operations, the recent stock market performance of Mallon common stock and Black Hills common stock, and the ratio of Mallon’s common stock price to Black Hills’ common stock price over various periods;

•

economic and market conditions;

•

the fact that Black Hills has a larger market capitalization and a more liquid trading market for its common stock;

•

a review of other strategic options available to Mallon (including other potential transactions) and their relative advantages and disadvantages vis-à-vis the merger;

•

information indicating that the proposed exchange ratio represented a premium of 116.9% and 66.7% over the trading price of Mallon common stock over the 30-day trading period and the 60-day trading period, respectively, ending on the last trading date prior to execution of the merger agreement;

•

presentations from, and discussions with, senior executives of Mallon, representatives of its outside legal counsel and representatives of Waterous regarding the business, financial and legal due diligence with respect to Black Hills and the terms and conditions of the merger agreement; and

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the analysis of Waterous and the Mallon board of directors’ receipt of an opinion from Waterous dated October 1, 2002 that, as of such date and subject to the matters reviewed with the board of directors and set forth in the opinion, the exchange ratio was fair from a financial point of view to the Mallon shareholders.

1.

the draft merger agreement dated September 27, 2002;

2.

the audited financial statements of Mallon for each of the years ended December 31, 1999, December 31, 2000 and December 31, 2001;

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3.

the audited financial statements of Black Hills for each of the years ended December 31, 1999, December 31, 2000 and December 31, 2001;

4.

the unaudited interim reports of Mallon for each of the quarters ended March 31, 2001, June 30, 2001, September 30, 2001, March 31, 2002 and June 30, 2002;

5.

the unaudited interim reports of Black Hills for each of the quarters ended March 31, 2001, June 30, 2001, September 30, 2001, March 31, 2002 and June 30, 2002;

6.

the Annual Reports on Form 10-K of Mallon for each of the years ended December 31, 1999, December 31, 2000 and December 31, 2001;

7.

the Annual Reports on Form 10-K of Black Hills for each of the years ended December 31, 1999, December 31, 2000 and December 31, 2001;

8.

the Quarterly Reports on Form 10-Q of Mallon for each of the quarters ended March 31, 2001, June 30, 2001, September 30, 2001, March 31, 2002 and June 30, 2002;

9.

the Quarterly Reports on Form 10-Q of Black Hills for each of the quarters ended March 31, 2001, June 30, 2001, September 30, 2001, March 31, 2002 and June 30, 2002;

10.

the Notices of Annual Meeting of Shareholders and Proxy Solicitation Materials on Form 14A of Mallon, dated August 3, 2001;

11.

the Notices of Annual Meeting of Shareholders and Proxy Solicitation Materials on Form 14A of Black Hills, dated March 27, 2001 and April 15, 2002;

12.

an evaluation of Mallon’s petroleum and natural gas reserves prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineering consultants, effective December 31, 2001;

13.

discussions with senior management of Mallon regarding the past, current and projected operations and financial prospects of Mallon and anticipated benefits of the merger;

14.

certain discussions among representatives of Mallon and Black Hills;

15.

a summary of all hedging positions maintained by Mallon as of August 15, 2002;

16.

September 2002 NYMEX Futures prices for natural gas and oil;

17.

a schedule of all Mallon stock options granted and outstanding as set forth in the merger agreement;

18.

a summary of the current indebtedness and working capital position of Mallon, as prepared by Mallon management;

19.

a summary of the estimated net operating loss carryforwards for Mallon prepared by Mallon management as of June 30, 2002;

20.

discussions with Mallon’s outside legal counsel;

21.

the employment and severance agreements provided to Waterous by Mallon, to which Mallon is a party;

22.

information provided to Waterous by Mallon regarding the Mallon Employee Royalty Bonus Pool;

23.

public information relating to the business, operations, financial performance and stock trading history of Mallon and Black Hills, and other selected public companies considered by Waterous to be comparable to Mallon;

24.

public information with respect to other transactions of a comparable nature considered by Waterous to be relevant;

25.

public information regarding the industry in which Mallon operates;

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26.

representations made to Waterous by senior officers of Mallon as to the completeness and accuracy of the information provided by Mallon upon which the opinion is based; and

27.

such other corporate, industry and financial market information, investigations and analyses as Waterous considered necessary or appropriate in the circumstances.

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the amount, if any, by which the court finds the fair value of the dissenter’s shares, plus interest, exceeds the amount paid by Mallon; or

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the fair value, plus interest, of the dissenter’s shares for which the company elected to withhold payment under Section 7-113-208 of the CBCA, as determined by the court.

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state that the merger agreement and the merger were approved and the effective time of the merger;

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state where the shareholder must deliver a demand for payment and the address where stock certificates must be deposited;

•

supply a form for demanding payment, which form will require the dissenting shareholder to state an address to which payment is to be made and require the dissenting shareholder to certify whether or not he or she acquired beneficial ownership before October 1, 2002, the date of the first public announcement of the merger;

•

set a date by which the written payment demand and certificates must be received by Mallon, which date cannot be fewer than 30 nor more than 60 days after the date Mallon sends the written dissenters’ notice; and

•

include a copy of Article 113.

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certain financial information of Mallon;

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Mallon’s estimate of the fair value of the shares;

•

an explanation of how the interest was calculated;

•

a statement of the dissenter’s right to demand payment if he or she rejects Mallon’s estimate of the fair value of the shares; and

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a copy of Article 113.

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accelerate, amend or change the period of exercisability of stock options, restricted stock, warrants or other awards or authorize cash payments in exchange for stock options, restricted stock, warrants or other awards;

•

declare or pay any dividend or other distribution with respect to any equity securities of Mallon or its subsidiaries;

•

split, combine or reclassify any of its equity securities or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for its equity securities, or purchase or otherwise acquire any of its equity securities except from former employees, directors and consultants in accordance with agreements providing for the repurchase of such securities in connection with any termination of service to such party;

•

issue, or authorize the issuance of, any of its equity securities or options or rights to acquire any of its equity securities other than the issuance of shares of its common stock pursuant to the exercise of options or rights outstanding on the date the merger agreement was executed;

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merge or consolidate with any other person (other than pursuant to the merger agreement) or acquire assets (in excess of $20,000) of, or an equity interest in, any other person, enter into any farm-out or similar arrangement, sell or dispose of any assets or equity securities, or release or relinquish any contract rights;

•

except in accordance with the terms of existing agreements or in connection with non-discretionary contributions to Mallon’s 401(k) plan:

(i)

increase or agree to increase the compensation payable or to become payable to its employees or officers;

(ii)

grant any new or additional severance or termination pay to, or enter into any employment, severance or other agreement with any person not terminable at will or which creates an obligation on behalf of Mallon or Black Hills to make any payments prior to, upon or after the closing of the merger or upon the termination of such person;

(iii)

enter into any collective bargaining agreement;

(iv)

amend any Mallon employee plan or establish, adopt, enter into or amend any bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, trust, fund, policy or arrangement for the benefit of any directors, officers or employees;

(v)

pay any material benefit or amount not required by a plan or arrangement as in effect on the date of the merger agreement to any person;

•

adopt or propose any change to its articles of incorporation or bylaws;

•

incur, assume, guarantee or prepay any indebtedness for borrowed money;

•

modify or terminate any material contracts or waive or relinquish any right under any such contract, other than modifications not adverse to Mallon;

•

enter into any hedging transactions or fixed price commodity sales agreements;

•

settle or compromise any material tax liability or make any material tax election;

•

make or commit to make any capital expenditures except capital expenditures specifically authorized and capital expenditures not in excess of $15,000 in the aggregate for any single project, well or request for spending authorization, for any type of work, operations, materials, equipment or other spending pursuant to which Mallon would be obligated to make such expenditure;

•

change any method of accounting or accounting practices (except those required by applicable law or GAAP);

•

adopt or consent to a plan of complete or partial liquidation, dissolution or reorganization;

•

waive, release, assign or settle any material rights or claims on litigation matters;

•

enter into any contract, agreement, arrangement or understanding that materially limits or otherwise materially restricts Mallon or any of its subsidiaries, or that would, after the completion of the merger, limit or restrict Mallon or Black Hills from engaging in or competing in any line of business or in any geographic area (except for confidentiality agreements relating to specific prospects);

•

knowingly take any action not otherwise permitted by the merger agreement that is intended or is reasonably likely to result in (1) any of its representations and warranties set forth in the merger agreement being or becoming untrue in any material respect at any time at or prior to the effective time of the merger, (2) any of the conditions to the merger not being satisfied or (3) a material violation of any provision of the merger agreement except, in each case, as may be required by applicable law or regulation; or

•

agree or commit to do any of the foregoing.

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adopt a plan of complete or partial liquidation, dissolution or reorganization;

•

change any method of accounting or accounting practices (except those required by applicable law or GAAP); or

•

agree or commit to do any of the foregoing.

•

Mallon’s board of directors, after consultation with its independent legal counsel, determines in good faith that such action is legally advisable for the board of directors to comply with its fiduciary duties to its shareholders under applicable law;

•

such acquisition proposal is not subject to any financing contingencies or is, in the good faith judgment of Mallon’s board of directors, after consultation with its financial advisor, reasonably capable of being financed by the party making such acquisition proposal; and

•

Mallon’s board of directors determines in good faith after consultation with its independent legal counsel and financial advisor that the acquisition proposal constitutes or may reasonably be expected to result in a superior proposal (as defined below), provided that no information shall be furnished to such party until Mallon obtains a confidentiality agreement from such party with terms substantially similar to those contained in the confidentiality agreement executed between Mallon and Black Hills.

•

approve or recommend an acquisition proposal, if (1) at least 24 hours have elapsed following the delivery to Black Hills of the written notice of the acquisition proposal from Mallon (as required by the merger agreement within 24 hours after receipt of such proposal) and (2) the board of directors of Mallon determines in good faith by affirmative vote of a majority of its members, that such acquisition proposal is a superior proposal (taking into account any adjustment to the terms and conditions of the merger proposed by Black Hills in response to such acquisition proposal); and

•

enter into a definitive agreement with respect to a superior proposal, if Mallon shall have complied with certain provisions contained in the merger agreement, including without limitation the payment of the termination fee as required under the merger agreement.

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•

approval by Mallon shareholders of the merger and the merger agreement;

•

any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended has expired or terminated;

•

all approvals and filings with any governmental authority that, if not made or received, would have a material adverse effect on Black Hills or Mallon, will have been obtained or filed;

•

the SEC shall have declared the registration statement effective under the Securities Act and no stop order or proceedings seeking a stop order will have been made or commenced;

•

no governmental authority or court will have issued any law, regulation or order which has the effect of making the merger illegal or otherwise prohibiting consummation of the merger;

•

the Black Hills common shares to be issued in the merger shall have been approved for listing on the NYSE, subject to official notice of issuance; and

•

the Mallon employee royalty bonus pool will have been terminated.

•

each of the representations and warranties of Mallon set forth in the merger agreement shall be true and correct as of the closing date of the merger, except for such failures of such representations and warranties to be true that would not have a material adverse effect on Mallon;

•

Mallon shall have performed in all material respects all obligations required to be performed by it under the merger agreement prior to the completion date of the merger;

•

Black Hills shall have received the written opinion of counsel to the effect that, subject to certain assumptions and limitations, (1) the merger will be treated for United States federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code, (2) Black Hills, Merger Sub and Mallon will each be a party to that reorganization within the meaning of Section 368(b) of the Code, (3) except to the extent that cash is received in lieu of fractional shares of Black Hills common stock, no

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gain or loss will be recognized by shareholders of Mallon that are United States persons (as defined in Section 7701(a)(3) of the Code), and (4) no gain or loss will be recognized by a shareholder of Mallon that is not a United States person (as defined in Section 7701(a)(3) of the Code) provided that such shareholder has not owned (either directly or indirectly after the application of the constructive ownership rules of Section 318 of the Code as modified by Section 897(c)(6)(C) of the Code) more than five percent (5% of the outstanding common stock of Mallon at any time during the shorter of (a) the five-year period preceding the effective time of the merger or (b) the period during which such shareholder held Mallon common stock;

•

Black Hills shall have received from Mallon a letter or letters from Mallon’s independent auditors in form and substance customary for “comfort” letters delivered by independent accountants in accordance with Statement of Accounting Standards No. 72 and reasonably satisfactory to Black Hills;

•

holders of not more than 5% of the Mallon common stock entitled to vote on the merger agreement and the merger will have dissented to the merger in accordance with Article 113 of the CBCA;

•

all officers and directors of Mallon immediately prior to the completion date of the merger will have executed and delivered to Mallon resignations acceptable to Black Hills; and

•

Mallon shall have taken all actions as have been reasonably requested by Black Hills in order to satisfy any outstanding obligations to the Jicarilla Apache Indian Nation pursuant to the Notice of Lien for Possessory Interest Taxes for the year 2002.

•

the representations and warranties of Black Hills and Merger Sub set forth in the merger agreement shall be true and correct as of the completion date of the merger, except for changes specifically permitted by the merger agreement;

•

Black Hills and Merger Sub shall have performed in all material respects all obligations required to be performed by them under the merger agreement prior to the closing date of the merger; and

•

Mallon shall have received the written opinion of counsel to the effect that, subject to certain assumptions and limitations, (1) the merger will be treated for United States federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code, (2) Black Hills, Merger Sub and Mallon will each be a party to that reorganization within the meaning of Section 368(b) of the Code, (3) except to the extent that cash is received in lieu of fractional shares of Black Hills common stock, no gain or loss will be recognized by shareholders of Mallon that are United States persons (as defined in Section 7701(a)(30) of the Code), and (4) no gain or loss will be recognized by a shareholder of Mallon that is not a United States person (as defined in Section 7701(a)(3) of the Code) provided that such shareholder has not owned (either directly or indirectly after the application of the constructive ownership rules of Section 318 of the Code as modified by Section 897(c)(6)(C) of the Code) more than five percent (5%) of the outstanding common stock of Mallon at any time during the shorter of (a) the five-year period preceding the effective time of the Merger or (b) the period during which such shareholder held Mallon common stock.

•

by our mutual written consent;

•

by either of us in certain circumstances if the effective time of the merger has not occurred on or before April 30, 2003;

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•

by either of us if any governmental authority or court of competent jurisdiction has issued or entered any final nonappealable order or taken any other nonappealable final action, in each case having the effect of permanently enjoining or otherwise permanently prohibiting the merger;

•

by either of us if the requisite shareholder approval is not obtained upon a vote at a duly held meeting of Mallon’s shareholders or at any adjournment or postponement thereof;

•

by Black Hills if the Mallon board of directors (1) withdraws or modifies in a manner adverse to Black Hills its recommendation of the merger agreement or the merger or (2) has recommended to the shareholders of Mallon a superior proposal;

•

by Mallon following the execution of a definitive agreement providing for a superior proposal, provided that Mallon has met all its obligations in connection with such a termination as set forth in the merger agreement, including without limitation the payment of a $1,500,000 termination fee;

•

by either of us if there has been a breach of any representation, warranty, covenant or agreement on the part of the other party set forth in the merger agreement, and which breach would, if uncured, cause certain closing conditions not to be satisfied and will not have been cured within 20 business days following receipt by the breaching party of written notice of such breach from the other party; or

•

by either of us if any of the conditions to such party’s obligations to consummate the merger becomes impossible to satisfy.

•

by Black Hills if the Mallon board of directors (1) withdraws or modifies in a manner adverse to Black Hills its recommendation of the merger agreement or the merger or (2) has recommended to the shareholders of Mallon a superior proposal; or

•

by Mallon, if Mallon enters into a definitive agreement for a superior proposal in accordance with certain provisions of the merger agreement.

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•

a financial institution or insurance company;

•

a tax-exempt organization, retirement plan or mutual fund;

•

a dealer, broker or trader in securities;

•

a shareholder that holds its Mallon common stock as part of a hedge, appreciated financial position, straddle or conversion transaction;

•

a shareholder that is a foreign person and that holds its Mallon common stock in connection with a trade or business conducted in the United States or in connection with an office or fixed place of business located in the United States;

•

a shareholder that is a nonresident alien individual and that either is present in the United States for 183 days or more in the taxable year or is subject to provisions of the Code applicable to expatriates; or

•

a shareholder that is affected by the provisions of an income tax treaty to which the United States is a party.

•

a citizen or resident of the United States;

•

a corporation or partnership created or organized in the United States or under the laws of the United States or of any state or political subdivision thereof;

•

an estate the income of which is subject to United States federal income taxation regardless of its source; or

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•

a trust if its administration is subject to the primary supervision of a United States court and if one or more United States persons have the authority to control all substantial decisions of the trust.

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•

a Non-U.S. Holder will not recognize any gain or loss upon its exchange of shares of Mallon common stock for shares of Black Hills common stock in the merger;

•

if a Non-U.S. Holder receives cash instead of a fractional share of Black Hills common stock, any gain realized by that Non-U.S. Holder will not be subject to United States federal income tax;

•

a Non-U.S. Holder will have a tax basis in the Black Hills common stock received in the merger equal to (1) the tax basis of the Mallon common stock surrendered by that Non-U.S. Holder in the merger, less (2) any tax basis of the Mallon common stock surrendered that is allocable to any fractional share of Black Hills common stock for which cash is received; and

•

a Non-U.S. Holder’s holding period for shares of Black Hills common stock received in exchange for shares of Mallon common stock in the merger will include the holding period for the shares of Mallon common stock surrendered by that Non-U.S. Holder in the merger.

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•

file a United States federal income tax return reporting the gain subject to the FIRPTA Tax as income effectively connected with the conduct of a trade or business within the United States and taxable as either ordinary income or capital gain; and

•

pay any FIRPTA Tax due upon the filing of such return or, depending upon the circumstances, earlier through estimated payments.

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•

is a corporation or other exempt recipient and, when required, establishes this exemption; or

•

provides a correct taxpayer identification number, certifies that it is not currently subject to backup withholding and otherwise complies with the applicable requirements of the backup withholding rules.

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•

During the year ended December 31, 2001 and the nine month period ended September 30, 2002, Mallon recognized pre tax impairments related to its oil and gas properties totaling $16.4 million and $1.0 million, respectively. Additionally, during the year ended December 31, 2001, Mallon recognized a pre tax loss on the sale of certain of its properties of $3.1 million.

•

We have not reflected as adjustments to the historical data annual pre tax cost savings and synergies of approximately $5.0 to $8.0 million annually that Black Hills expects to result from operational efficiencies and synergies to be gained after the merger is completed.

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(a)

Reflects adjustment to fair market value of oil and gas reserves and property and equipment.

(b)

Reflects adjustment to deferred tax assets as a result of expected utilization of certain historical Mallon net operating losses in future Black Hills consolidated tax returns.

(c)

Reflects the debt acquisition and hedge settlement costs of $30,528 related to Aquila (see “Credit Agreement” on page 49), an additional $3,200 loaned to Mallon, and $100 in accelerated mortgage payment due on a change in control, all financed through Black Hills’ credit facility.

(d)

Reflects additional liabilities assumed plus acquisition costs.

(e)

In conjunction with the transaction with Aquila, all derivative related amounts have been eliminated.

(f)

Mallon’s long-term debt has been adjusted to reflect the remaining third party long-term debt obligations that will exist upon completion of the merger.

(g)

Reflects Aquila’s release of Mallon’s obligation to redeem 490 shares of Mallon common stock, and elimination of accretion related thereto.

(h)

Changes to common stock equity reflect the retirement of approximately 10,950 shares of $0.01 par value Mallon common stock ($109 equity) and the addition to common stock equity of approximately 482 shares of $1.00 par value Black Hills common stock ($482 equity). Changes to additional paid-in

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capital reflect $12,018 for Black Hills common stock issued with the merger plus the elimination of Mallon’s $92,973 in additional paid in capital. Mallon’s retained earnings are also eliminated.

(i)

Reflects revision of historical depreciation and depletion to account for the adjustment of Mallon’s historical book value of assets to fair value, and the combining of Mallon’s and Black Hills’ reserves for the full cost method calculation of reserve depletion as follows:

(j)

Reflects reduction to interest expense due to lower interest rates that would have been realized by borrowing under Black Hills’ credit facility as follows:

(k)

During the year ended December 31, 2001 and the nine month period ended September 30, 2002, Mallon recognized no tax benefit related to the losses it had incurred as it recognized a full valuation allowance against the deferred tax benefits that would have been recognized for the net operating loss carry forwards available to offset future taxable income. Pro forma reflects tax benefits that Mallon would have realized under Black Hills’ tax structure:

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grow its power generation segment by developing and acquiring power projects in targeted western markets, and, in particular, by expanding the generation capacity of its existing sites through a strategy known as “brownfield development;”

•

sell a large percentage of its production from new projects through long-term contracts in order to secure revenue stability at attractive returns;

•

increase its reserves of natural gas and crude oil and expand its fuel production;

•

manage the risks inherent in energy marketing by maintaining position limits that minimize price risk exposure;

•

conduct business with a diversified group of counterparties of high credit quality;

•

exploit its fuel cost advantages and its operating and marketing expertise to remain a low-cost power producer;

•

increase margins from its coal production through an expansion of mine mouth generation and increased coal sales;

•

build and maintain strong relationships with wholesale energy customers; and

•

capitalize on its utility’s established market presence, relationships and customer loyalty to expand its integrated energy businesses.

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*	includes a 90 MW plant under a lease arrangement

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*

External revenue is revenue from Black Hills’ broadband communications business. Intersegment revenue is primarily revenue from its information services company derived from providing services to its other business segments. This intersegment revenue and associated expenses are eliminated in the consolidation process.

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Represents less than 1% of the common stock outstanding.

(1)

Represents common stock allocated to the directors’ accounts in the directors’ stock-based compensation plan, of which the trustee has sole voting and investment authority.

(2)

Shares of common stock which were not outstanding but could be acquired by a person upon exercise of an option within 60 days of November 20, 2002, or conversion of the Series 2000-A Convertible Preferred Stock are deemed outstanding for the purpose of computing the percentage of outstanding shares beneficially owned by such person. Such shares, however, are not deemed to be outstanding for the purpose of computing the percentage of outstanding shares beneficially owned by any other person.

(3)

Includes 150 shares owned jointly with Mr. Ameer’s spouse as to which he shares sole voting and investment authority.

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(4)

Shares owned jointly with Mr. Ebertz’s spouse as to which he shares voting and investment authority.

(5)

Includes 6,445 shares owned jointly with Mr. Emery’s spouse as to which he shares voting and investment authority.

(6)

Includes 3,500 shares owned jointly with Mr. Maney’s spouse as to which he shares voting and investment authority.

(7)

Includes 7,599 shares owned jointly with Mr. Ohlmacher’s spouse as to which he shares voting and investment authority, and 1,260 shares held by Mr. Ohlmacher’s son as to which he has no voting or investment authority.

(8)

Includes 4,991 shares owned jointly with Mr. Thies’ spouse as to which he shares voting and investment authority.

(9)

Includes 4,602 shares owned jointly with Mr. White’s spouse as to which he shares voting and investment authority and 90 shares held by Mr. White’s spouse as to which he has no voting or investment authority.

(10)

Includes 225 shares owned jointly with Mr. Zeller’s spouse as to which he shares voting and investment authority, and 50 shares held by Mr. Zeller’s son as to which he has no voting or investment authority.

(11)

Represents shares held by the following individuals who became shareholders as a result of the Indeck acquisition: Gerald R. Forsythe (1,079,560 shares), Michelle R. Fawcett (112,508 shares), Marsha Fournier (112,508 shares), Monica J. Breslow (112,619 shares), Melissa S. Forsythe (112,619 shares) and John W. Salyer, Jr. (208,536 shares). The beneficial shares include 5,177 shares of Series 2000-A Preferred Stock which are convertible into 147,907 shares of common stock at their option at any time and automatically converted on July 7, 2005. Information relating to the shareholders is based on the shareholders’ Schedule 13D dated July 5, 2000, Mr. Forsythe’s Form 4s filed with the Securities and Exchange Commission and Black Hills’ shareholder records. The Schedule 13D indicates that the shareholders may be deemed to be a group for purposes of the Securities Exchange Act of 1934.

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•

for 30 consecutive trading days, the bid price for Mallon’s common stock closed below $1.00 per share,

•

Mallon’s net tangible assets were less than $4 million and its shareholders’ equity was less than $10 million, and

•

Mallon’s audit committee had fewer than three independent directors.

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Includes effects of hedging.

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Includes effects of hedging.

(2)

Lease operating expense in 2001 includes assessments for possessory interest taxes, interest and penalties of $2.2 million for 1998-2000 and $1.1 million for 2001, which Mallon is protesting.

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(1)

Includes effects of hedging.

(2)

Lease operating expense in 2001 includes assessments for possessory interest taxes, interest and penalties of $2.2 million for 1998-2000 and $1.1 million for 2001 which Mallon is protesting.

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(1)

The Grant Date Present Value of the options was determined using the Black-Scholes option-pricing model, using the following assumptions: risk-free interest rate—4.6%; expected life in years—6; expected volatility—99%; expected dividends—0.0%.

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(1)

Amounts shown represent aggregated fair market value at the share price on December 31, 2001 of $3.02 per share, less the aggregate exercise price of the unexercised “in the money” options held. These values have not been, and may never be, realized. Actual gains, if any, on exercise will depend on the value of the common stock on the date of exercise.

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Excludes securities to be issued upon exercise of outstanding options.

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*

Less than 1%

(1)

The address of Messrs. Mallon, Ross, and Blum is 999 18th Street, Suite 1700, Denver, CO 80202. The address of Mr. Mitchell is 113 Cypress Cove Lane, Mooresville, NC 28117. The address of Mr. Reinhardt is 650 Madison Ave., 23rd Floor, New York, NY 10022. The address of Rutabaga Capital Management is 64 Broad Street, 3rd Floor, Boston, MA 02109. The address of Mr. Mills and of J.O. Hambro Capital Management Limited is Ryder Court, 14 Ryder Street, London SW1Y 6QB, England.

(2)

Includes 8,666 shares owned by Mr. Mallon’s wife. Includes 6,666 shares that could be acquired by Mr. Mallon upon the exercise of immediately exercisable warrants that he holds.

(3)

Includes 62,788 shares that could be acquired by Mr. Ross upon the exercise of immediately exercisable stock options and warrants that he holds.

(4)

Includes 11,735 shares that could be acquired by Mr. Blum upon the exercise of immediately exercisable stock options that he holds.

(5)

Includes 23,736 shares that could be acquired by Mr. Mitchell upon the exercise of immediately exercisable stock options that he holds.

(6)

Includes 26,401 shares that could be acquired by Mr. Reinhardt upon the exercise of immediately exercisable stock options and warrants that he holds.

(7)

Does not reflect shares held by J. O. Hambro Capital Management Limited, of which Mr. Mills is a director.

(8)

Based on information contained in SEC filings.

(9)

Based upon information supplied by J.O. Hambro Capital Management Limited.

(10)

Includes 153,326 shares that could be acquired upon the exercise of immediately exercisable stock options and warrants.

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The affirmative vote of the holders of the majority of all outstanding shares entitled to vote, including all shares held by the acquiring person; and

•

The affirmative vote of the holders of the majority of all outstanding shares entitled to vote, excluding all interested shares.

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—

incorporated documents are considered part of this prospectus;

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Black Hills can disclose important information to you by referring you to those documents; and

—

information that Black Hills files with the SEC will automatically update and supersede this incorporated information.

(1)

Its Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2001 excluding portions which are superceded by its Current Report on Form 8-K dated November 25, 2002;

(2)

Its Quarterly Reports on Form 10-Q and 10–QA for the quarters ended March 31, 2002, June 30, 2002 and September 30, 2002;

(3)

Its Current Reports on Form 8-K filed May 31, 2002, August 13, 2002, October 10, 2002 and November 25, 2002;

(4)

The description of its common stock included in its Registration Statement on Form S-1 (Registration No. 333-57440) filed on March 22, 2001; and

(5)

Its Proxy Statement filed April 15, 2002.

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Reports filed under Sections 13(a) and (c) of the Exchange Act;

—

Definitive proxy or information statements filed under Section 14 of the Exchange Act in connection with any subsequent shareholders meeting;

—

Any reports filed under Section 15(d) of the Exchange Act; and

—

Any reports filed under the Exchange Act after the initial filing date of this Registration Statement and prior to effectiveness of the registration statement.

—

incorporated documents are considered part of this prospectus; and

—

Mallon can disclose important information to you by referring you to those documents.

(1)

Its Annual Report on Form 10-K for the year ended December 31, 2001;

(2)

Its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002, June 30, 2002 and September 30, 2002; and

(3)

Its Current Reports on Form 8-K filed February 2, 2002; April 11, 2002; May 2, 2002; June 30, 2002; July 22, 2002; July 25, 2002; July 30, 2002; and October 2, 2002.

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1.

the draft Merger Agreement dated September 27, 2002;

2.

the audited financial statements of Mallon for each of the years ended December 31, 1999, December 31, 2000 and December 31, 2001;

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3.

the audited financial statements of Black Hills for each of the years ended December 31, 1999, December 31, 2000 and December 31, 2001;

4.

the unaudited interim reports of Mallon for each of the quarters ended March 31, 2001, June 30, 2001, September 30, 2001, March 31 2002 and June 30, 2002;

5.

the unaudited interim reports of Black Hills for each of the quarters ended March 31, 2001, June 30, 2001, September 30, 2001, March 31 2002 and June 30, 2002;

6.

the Annual Reports on Form 10-K of Mallon for each of the years ended December 31, 1999, December 31, 2000 and December 31, 2001;

7.

the Annual Reports on Form 10-K of Black Hills for each of the years ended December 31, 1999, December 31, 2000 and December 31, 2001;

8.

the Quarterly Reports on Form l0-Q of Mallon for each of the quarters ended March 31, 2001, June 30, 2001, September 30, 2001, March 31 2002 and June 30, 2002

9.

the Quarterly Reports on Form 10-Q of Black Hills for each of the quarters ended March 31, 2001, June 30, 2001, September 30, 2001, March 31, 2002 and June 30, 2002;

10.

the Notices of Annual Meeting of Shareholders and Proxy Solicitation Materials on Form 14A of Mallon, dated August 3, 2001;

11.

the Notices of Annual Meeting of Shareholders and Proxy Solicitation Materials on Form 14A of Black Hills, dated March 27, 2001 and April 15, 2002;

12.

an evaluation of Mallon’s petroleum and natural gas reserves prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineering consultants, effective December 31, 2001;

13.

discussions with senior management of Mallon regarding the past, current and projected operations and financial prospects of Mallon and anticipated benefits of the Merger;

14.

certain financial forecasts of Mallon, including information relating to certain strategic, financial and operational benefits anticipated from the Merger;

15.

certain discussions among representatives of Mallon and Black Hills;

16.

a summary of all hedging positions maintained by Mallon as of August 15, 2002;

17.

September 2002 NYMEX Futures prices for natural gas and oil;

18.

a schedule of all Mallon stock options granted and outstanding as set forth in the Merger Agreement;

19.

a summary of the current indebtedness and working capital position of Mallon, as prepared by Mallon management;

20.

a summary of the estimated net operating loss carryforwards for Mallon prepared by Mallon management as of June 30, 2002;

21.

discussions with Mallon’s outside legal counsel;

22.

the employment and severance agreements provided to us by Mallon, to which Mallon is a party;

23.

information provided to us by Mallon regarding the Mallon Employee Loyalty Bonus Pool revised February 1998;

24.

public information relating to the business, operations, financial performance and stock trading history of Mallon and Black Hills, and other selected public companies considered by us to be comparable to Mallon;

25.

public information with respect to other transactions of a comparable nature considered by us to be relevant;

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26.

public information regarding the industry in which Mallon operates;

27.

representations made to us by senior officers of Mallon as to the completeness and accuracy of the information provided by Mallon upon which this Fairness Opinion is based; and

28.

such other corporate, industry and financial market information, investigations and analyses as Waterous considered necessary or appropriate in the circumstances.

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(1)

“Beneficial shareholder” means the beneficial owner of shares held in a voting trust or by a nominee as the record shareholder.

(2)

“Corporation” means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring domestic or foreign corporation, by merger or share exchange of that issuer.

(3)

“Dissenter” means a shareholder who is entitled to dissent from corporate action under section 7-113-102 and who exercises that right at the time and in the manner required by part 2 of this article.

(4)

“Fair value”, with respect to a dissenter’s shares, means the value of the shares immediately before the effective date of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action except to the extent that exclusion would be inequitable.

(5)

“Interest” means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at the legal rate as specified in section 5-12-101, C.R.S.

(6)

“Record shareholder” means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares that are registered in the name of a nominee to the extent such owner is recognized by the corporation as the shareholder as provided in section 7-107-204.

(7)

“Shareholder” means either a record shareholder or a beneficial shareholder.

(1)

A shareholder, whether or not entitled to vote, is entitled to dissent and obtain payment of the fair value of the shareholder’s shares in the event of any of the following corporate actions:

(a)

Consummation of a plan of merger to which the corporation is a party if:

(I)

Approval by the shareholders of that corporation is required for the merger by section 7-111-103 or 7-111-104 or by the articles of incorporation; or

(II)

The corporation is a subsidiary that is merged with its parent corporation under section 7-111-104;

(b)

Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired;

(c)

Consummation of a sale, lease, exchange, or other disposition of all, or substantially all, of the property of the corporation for which a shareholders’ vote is required under section 7-112-102 (1); and

(d)

Consummation of a sale, lease, exchange, or other disposition of all, or substantially all, of the property of an entity controlled by the corporation if the shareholders of the corporation were entitled to vote upon the consent of the corporation to the disposition pursuant to section 7-112-102 (2).

(1.3)

A shareholder is not entitled to dissent and obtain payment, under subsection (1) of this section, of the fair value of the shares of any class or series of shares which either were listed on a national securities exchange registered under the federal “Securities Exchange Act of 1934”, as amended, or on the national market

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system of the national association of securities dealers automated quotation system, or were held of record by more than two thousand shareholders, at the time of:

(a)

The record date fixed under section 7-107-107 to determine the shareholders entitled to receive notice of the shareholders’ meeting at which the corporate action is submitted to a vote;

(b)

The record date fixed under section 7-107-104 to determine shareholders entitled to sign writings consenting to the corporate action; or

(c)

The effective date of the corporate action if the corporate action is authorized other than by a vote of shareholders.

(1.8)

The limitation set forth in subsection (1.3) of this section shall not apply if the shareholder will receive for the shareholder’s shares, pursuant to the corporate action, anything except:

(a)

Shares of the corporation surviving the consummation of the plan of merger or share exchange;

(b)

Shares of any other corporation which at the effective date of the plan of merger or share exchange either will be listed on a national securities exchange registered under the federal “Securities Exchange Act of 1934”, as amended, or on the national market system of the National Association of Securities Dealers automated quotation system, or will be held of record by more than two thousand shareholders;

(c)

Cash in lieu of fractional shares; or

(d)

Any combination of the foregoing described shares or cash in lieu of fractional shares.

(2)

(Deleted by amendment, L. 96, p. 1321, § 30, effective June 1, 1996)

(2.5)

A shareholder, whether or not entitled to vote, is entitled to dissent and obtain payment of the fair value of the shareholder’s shares in the event of a reverse split that reduces the number of shares owned by the shareholder to a fraction of a share or to scrip if the fractional share or scrip so created is to be acquired for cash or the scrip is to be voided under section 7-106-104.

(3)

A shareholder is entitled to dissent and obtain payment of the fair value of the shareholder’s shares in the event of any corporate action to the extent provided by the bylaws or a resolution of the board of directors.

(4)

A shareholder entitled to dissent and obtain payment for the shareholder’s shares under this article may not challenge the corporate action creating such entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation.

(1)

A record shareholder may assert dissenters’ rights as to fewer than all the shares registered in the record shareholder’s name only if the record shareholder dissents with respect to all shares beneficially owned by any one person and causes the corporation to receive written notice which states such dissent and the name, address, and federal taxpayer identification number, if any, of each person on whose behalf the record shareholder asserts dissenters’ rights. The rights of a record shareholder under this subsection (1) are determined as if the shares as to which the record shareholder dissents and the other shares of the record shareholder were registered in the names of different shareholders.

(2)

A beneficial shareholder may assert dissenters’ rights as to the shares held on the beneficial shareholder’s behalf only if:

(a)

The beneficial shareholder causes the corporation to receive the record shareholder’s written consent to the dissent not later than the time the beneficial shareholder asserts dissenters’ rights; and

(b)

The beneficial shareholder dissents with respect to all shares beneficially owned by the beneficial shareholder.

(3)

The corporation may require that, when a record shareholder dissents with respect to the shares held by any one or more beneficial shareholders, each such beneficial shareholder must certify to the corporation that the

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beneficial shareholder and the record shareholder or record shareholders of all shares owned beneficially by the beneficial shareholder have asserted, or will timely assert, dissenters’ rights as to all such shares as to which there is no limitation on the ability to exercise dissenters’ rights. Any such requirement shall be stated in the dissenters’ notice given pursuant to section 7-113-203.

(1)

If a proposed corporate action creating dissenters’ rights under section 7-113-102 is submitted to a vote at a shareholders’ meeting, the notice of the meeting shall be given to all shareholders, whether or not entitled to vote. The notice shall state that shareholders are or may be entitled to assert dissenters’ rights under this article and shall be accompanied by a copy of this article and the materials, if any, that, under articles 101 to 117 of this title, are required to be given to shareholders entitled to vote on the proposed action at the meeting. Failure to give notice as provided by this subsection (1) shall not affect any action taken at the shareholders’ meeting for which the notice was to have been given, but any shareholder who was entitled to dissent but who was not given such notice shall not be precluded from demanding payment for the shareholder’s shares under this article by reason of the shareholder’s failure to comply with the provisions of section 7-113-202 (1).

(2)

If a proposed corporate action creating dissenters’ rights under section 7-113-102 is authorized without a meeting of shareholders pursuant to section 7-107-104, any written or oral solicitation of a shareholder to execute a writing consenting to such action contemplated in section 7-107-104 shall be accompanied or preceded by a written notice stating that shareholders are or may be entitled to assert dissenters’ rights under this article, by a copy of this article, and by the materials, if any, that, under articles 101 to 117 of this title, would have been required to be given to shareholders entitled to vote on the proposed action if the proposed action were submitted to a vote at a shareholders’ meeting. Failure to give notice as provided by this subsection (2) shall not affect any action taken pursuant to section 7-107-104 for which the notice was to have been given, but any shareholder who was entitled to dissent but who was not given such notice shall not be precluded from demanding payment for the shareholder’s shares under this article by reason of the shareholder’s failure to comply with the provisions of section 7-113-202 (2).

(1)

If a proposed corporate action creating dissenters’ rights under section 7-113-102 is submitted to a vote at a shareholders’ meeting and if notice of dissenters’ rights has been given to such shareholder in connection with the action pursuant to section 7-113-201(1), a shareholder who wishes to assert dissenters’ rights shall:

(a)

Cause the corporation to receive, before the vote is taken, written notice of the shareholder’s intention to demand payment for the shareholder’s shares if the proposed corporate action is effectuated; and

(b)

Not vote the shares in favor of the proposed corporate action.

(2)

If a proposed corporate action creating dissenters’ rights under section 7-113-102 is authorized without a meeting of shareholders pursuant to section 7-107-104 and if notice of dissenters’ rights has been given to such shareholder in connection with the action pursuant to section 7-113-201(2) a shareholder who wishes to assert dissenters’ rights shall not execute a writing consenting to the proposed corporate action.

(3)

A shareholder who does not satisfy the requirements of subsection (1) or (2) of this section is not entitled to demand payment for the shareholder’s shares under this article.

(1)

If a proposed corporate action creating dissenters’ rights under section 7-113-102 is authorized, the corporation shall give a written dissenters’ notice to all shareholders who are entitled to demand payment for their shares under this article.

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(2)

The dissenters’ notice required by subsection (1) of this section shall be given no later than ten days after the effective date of the corporate action creating dissenters’ rights under section 7-113-102 and shall:

(a)

State that the corporate action was authorized and state the effective date or proposed effective date of the corporate action;

(b)

State an address at which the corporation will receive payment demands and the address of a place where certificates for certificated shares must be deposited;

(c)

Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received;

(d)

Supply a form for demanding payment, which form shall request a dissenter to state an address to which payment is to be made;

(e)

Set the date by which the corporation must receive the payment demand and certificates for certificated shares, which date shall not be less than thirty days after the date the notice required by subsection (1) of this section is given;

(f)

State the requirement contemplated in section 7-113-103 (3), if such requirement is imposed; and

(g)

Be accompanied by a copy of this article.

(1)

A shareholder who is given a dissenters’ notice pursuant to section 7-113-203 and who wishes to assert dissenters’ rights shall, in accordance with the terms of the dissenters’ notice:

(a)

Cause the corporation to receive a payment demand, which may be the payment demand form contemplated in section 7-113-203 (2) (d), duly completed, or may be stated in another writing; and

(b)

Deposit the shareholder’s certificates for certificated shares.

(2)

A shareholder who demands payment in accordance with subsection (1) of this section retains all rights of a shareholder, except the right to transfer the shares, until the effective date of the proposed corporate action giving rise to the shareholder’s exercise of dissenters’ rights and has only the right to receive payment for the shares after the effective date of such corporate action.

(3)

Except as provided in section 7-113-207 or 7-113-209 (1) (b), the demand for payment and deposit of certificates are irrevocable.

(4)

A shareholder who does not demand payment and deposit the shareholder’s share certificates as required by the date or dates set in the dissenters’ notice is not entitled to payment for the shares under this article.

(1)

Upon receipt of a demand for payment under section 7-113-204 from a shareholder holding uncertificated shares, and in lieu of the deposit of certificates representing the shares, the corporation may restrict the transfer thereof.

(2)

In all other respects, the provisions of section 7-113-204 shall be applicable to shareholders who own uncertificated shares.

(1)

Except as provided in section 7-113-208, upon the effective date of the corporate action creating dissenters’ rights under section 7-113-102 or upon receipt of a payment demand pursuant to section 7-113-204, whichever is later, the corporation shall pay each dissenter who complied with section 7-113-204, at the address stated in the payment demand, or if no such address is stated in the payment demand, at the address

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shown on the corporation’s current record of shareholders for the record shareholder holding the dissenter’s shares, the amount the corporation estimates to be the fair value of the dissenter’s shares, plus accrued interest.

(2)

The payment made pursuant to subsection (1) of this section shall be accompanied by:

(a)

The corporation’s balance sheet as of the end of its most recent fiscal year or, if that is not available, the corporation’s balance sheet as of the end of a fiscal year ending not more than sixteen months before the date of payment, an income statement for that year, and, if the corporation customarily provides such statements to shareholders, a statement of changes in shareholders’ equity for that year and a statement of cash flow for that year, which balance sheet and statements shall have been audited if the corporation customarily provides audited financial statements to shareholders, as well as the latest available financial statements, if any, for the interim or full-year period, which financial statements need not be audited;

(b)

A statement of the corporation’s estimate of the fair value of the shares;

(c)

An explanation of how the interest was calculated;

(d)

A statement of the dissenter’s right to demand payment under section 7-113-209; and

(e)

A copy of this article.

(1)

If the effective date of the corporate action creating dissenters’ rights under section 7-113-102 does not occur within sixty days after the date set by the corporation by which the corporation must receive the payment demand as provided in section 7-113-203, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares.

(2)

If the effective date of the corporate action creating dissenters’ rights under section 7-113-102 occurs more than sixty days after the date set by the corporation by which the corporation must receive the payment demand as provided in section 7-113-203, then the corporation shall send a new dissenters’ notice, as provided in section 7-113-203, and the provisions of sections 7-113-204 to 7-113-209 shall again be applicable.

(1)

The corporation may, in or with the dissenters’ notice given pursuant to section 7-113-203, state the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action creating dissenters’ rights under section 7-113-102 and state that the dissenter shall certify in writing, in or with the dissenter’s payment demand under section 7-113-204, whether or not the dissenter (or the person on whose behalf dissenters’ rights are asserted) acquired beneficial ownership of the shares before that date. With respect to any dissenter who does not so certify in writing, in or with the payment demand, that the dissenter or the person on whose behalf the dissenter asserts dissenters’ rights acquired beneficial ownership of the shares before such date, the corporation may, in lieu of making the payment provided in section 7-113-206, offer to make such payment if the dissenter agrees to accept it in full satisfaction of the demand.

(2)

An offer to make payment under subsection (1) of this section shall include or be accompanied by the information required by section 7-113-206 (2).

(1)

A dissenter may give notice to the corporation in writing of the dissenter’s estimate of the fair value of the dissenter’s shares and of the amount of interest due and may demand payment of such estimate, less any

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payment made under section 7-113-206, or reject the corporation’s offer under section 7-113-208 and demand payment of the fair value of the shares and interest due, if:

(a)

The dissenter believes that the amount paid under section 7-113-206 or offered under section 7-113-208 is less than the fair value of the shares or that the interest due was incorrectly calculated;

(b)

The corporation fails to make payment under section 7-113-206 within sixty days after the date set by the corporation by which the corporation must receive the payment demand; or

(c)

The corporation does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares as required by section 7-113-207 (1).

(2)

A dissenter waives the right to demand payment under this section unless the dissenter causes the corporation to receive the notice required by subsection (1) of this section within thirty days after the corporation made or offered payment for the dissenter’s shares.

(1)

If a demand for payment under section 7-113-209 remains unresolved, the corporation may, within sixty days after receiving the payment demand, commence a proceeding and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the sixty-day period, it shall pay to each dissenter whose demand remains unresolved the amount demanded.

(2)

The corporation shall commence the proceeding described in subsection (1) of this section in the district court of the county in this state where the corporation’s principal office is located or, if the corporation has no principal office in this state, in the district court of the county in which its registered office is located. If the corporation is a foreign corporation without a registered office, it shall commence the proceeding in the county where the registered office of the domestic corporation merged into, or whose shares were acquired by, the foreign corporation was located.

(3)

The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unresolved parties to the proceeding commenced under subsection (2) of this section as in an action against their shares, and all parties shall be served with a copy of the petition. Service on each dissenter shall be by registered or certified mail, to the address stated in such dissenter’s payment demand, or if no such address is stated in the payment demand, at the address shown on the corporation’s current record of shareholders for the record shareholder holding the dissenter’s shares, or as provided by law.

(4)

The jurisdiction of the court in which the proceeding is commenced under subsection (2) of this section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend a decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to such order. The parties to the proceeding are entitled to the same discovery rights as parties in other civil proceedings.

(5)

Each dissenter made a party to the proceeding commenced under subsection (2) of this section is entitled to judgment for the amount, if any, by which the court finds the fair value of the dissenter’s shares, plus interest, exceeds the amount paid by the corporation, or for the fair value, plus interest, of the dissenter’s shares for which the corporation elected to withhold payment under section 7-113-208.

(1)

The court in an appraisal proceeding commenced under section 7-113-301 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation; except that the court may assess costs against all or some

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of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under section 7-113-209.

(2)

The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable:

(a)

Against the corporation and in favor of any dissenters if the court finds the corporation did not substantially comply with the requirements of part 2 of this article; or

(b)

Against either the corporation or one or more dissenters, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article.

(3)

If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to said counsel reasonable fees to be paid out of the amounts awarded to the dissenters who were benefited.

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Re:

Registration Statement on Form S-4 filed November 27, 2002

Re:

Tax Opinion Rendered In Connection With Registration Statement on Form S-4 Filed With the Securities and Exchange Commission on November 27, 2002

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Re:

Tax Opinion Rendered in Connection with Registration Statement on Form S-4 filed with the Securities and Exchange Commission on November 27th 2002

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