Shareholders in a closely held former independent power producer bought six years ago by South Dakota-based Black Hills Corp. received a Chicago federal judge’s permission to continue pursuing $27.5 million they allege the diversified energy holding company owes them. The case involves a disputed part of the transaction involving “earn-out” provisions of the acquired unit, Indeck Capital, Inc., that sparked the initial lawsuit Aug. 11, 2004.

The lawsuit names several current and former senior executives at Rapid City, SD-based Black Hills, alleging they “fraudulently” represented that a successor company after the merger incurred what the plaintiffs’ described as “hundreds of million of dollars in inter-company debt,” none of which was true, as a means of determining that the former shareholders were not entitled to a full $35 million “earn-out” payment based on the performance of the acquired assets over a four-year period that ended in 2004.

Blacks Hills called the arrangement a “contingent merger consideration,” in explaining its side of the issue in its annual report filed last March with the federal Securities and Exchange Commission. As of the end of 2004, Black Hills paid out, or offered to pay $11.3 million of “earn-out” proceeds.

“Unfortunately, we must now ask a court to help us keep the promise Black Hills made back in 2000 — simply, to pay the full purchase price to us,” said Gerald Forsythe, one of the unpaid shareholder plaintiffs, along with former COO John Salyer and Forsythe’s four daughters, each of whom had an ownership interest in the independent power producer.

Black Hills denied the allegations in its SEC filing, contending it “has fully and in good faith performed all of its obligations under the agreement and merger plan for acquiring Indeck Capital.” The original agreement called for mandatory arbitration for resolving all disputes related to the payment of contingent merger consideration, Black Hills told the SEC.

“The federal court agreed, in part, with the company’s views concerning arbitration, and ordered that certain issues be determined in that forum,” Black Hills said. The arbitration is ongoing on a separate dual track, and Black Hills executives would not comment on those proceedings beyond confirming they were still active.

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