ALLETE has entered an agreement to be acquired by a partnership led by Canada Pension Plan Investment Board and Global Infrastructure Partners and start the process to become a private company. Learn more at www.ALLETEforward.com.

                    Securities and Exchange Commission
                          Washington, DC  20549
 




                                FORM 8-K
                             Current Report





   Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934






      Date of Report (Date of earliest event reported) - June 28, 1995





                     Minnesota Power & Light Company

                         A Minnesota Corporation
                       Commission File No. 1-3548
                IRS Employer Identification No. 41-0418150
                         30 West Superior Street
                         Duluth, Minnesota 55802
                        Telephone - (218) 722-2641




Item 2.  Acquisition or Disposition of Assets.

     On June 30, 1995, Minnesota Power & Light Company (Minnesota Power or 
Company) sold its interest in the pulp and paper business to Consolidated 
Papers, Inc. (CPI) for $118 million in cash, plus CPI's assumption of certain 
debt and lease obligations. CPI has agreed to indemnify the Company for any 
payments the Company may make as a result of the Company's existing obligation 
relating to the Lake Superior Paper Industries' operating lease. The sale 
price is subject to final audit adjustments.

     Effective July 1, 1995, Minnesota Power became an 80 percent owner of 
ADESA Corporation (ADESA) for $167 million in cash. ADESA, headquartered in 
Indianapolis, Indiana, owns and operates auto redistribution facilities and 
performs related services through which used cars and other vehicles are sold 
to franchised automobile dealers and licensed used car dealers. Sellers at 
ADESA's auctions include domestic and foreign auto manufacturers, car dealers, 
fleet/lease companies, banks and finance companies. Proceeds from the sale of 
the pulp and paper business combined with proceeds from the sale of securities 
investments were used to fund the purchase of ADESA.

     In February 1995 the Company signed a merger agreement with ADESA which 
includes employment agreements and put and call agreements with ADESA's four 
top managers. The put and call agreements provide ADESA management the right to 
sell to Minnesota Power, and Minnesota Power the right to purchase, ADESA 
management's 20 percent retained ownership interest in ADESA, in increments 
during the years 1997, 1998 and 1999, at a price based on ADESA's financial 
performance.

Item 5.  Other Events.

     On June 28, 1995, Southern States Utilities (SSU) filed with the Florida 
Public Service Commission (FPSC) a request for increased rates. SSU requested a 
final annual rate increase of $18.1 million, or 39 percent and an interim rate 
increase of $12.4 million, or 29.6 percent on an annual basis. The interim 
increase will become effective 60 days after the FPSC determines that the 
filing has met the minimum filing requirements. The Company anticipates interim 
rates to become effective in September 1995. The FPSC is expected to make its 
decision on final rates in mid 1996. Interim rates are subject to refund with 
interest.

                                   -1-


Item 7.  Financial Statements and Exhibits.

(a)  Financial statements of ADESA Corporation

     The consolidated financial statements of ADESA Corporation together with 
the report thereon of Ernst & Young LLP dated February 23, 1995, for the year 
ended December 31, 1994, are incorporated herein by reference and filed as 
exhibit 99(a) in this Form 8-K.

     The consolidated financial statements of ADESA Corporation for the quarter 
ended March 31, 1995, are incorporated herein by reference and filed as exhibit 
99(b) in this Form 8-K.

     The consolidated financial statements of ADESA Corporation for the period 
ended June 30, 1995, are anticipated to be filed in Minnesota Power's Quarterly 
Report on Form 10-Q for the period ended June 30, 1995. 

(b)  Pro forma financial information
     
     Pro forma financial statements reflecting the acquisition of ADESA 
Corporation for the year ended December 31, 1994, and the interim period ended 
June 30, 1995, are anticipated to be filed in Minnesota Power's Quarterly 
Report on Form 10-Q for the period ended June 30, 1995. 

(c)  Exhibits

     2(a)  Agreement for Sale and Purchase of Assets of LSPI Fiber Co. and 
           Stock of Superior Recycled Fiber Corporation dated May 8, 1995.

     2(b)  Agreement for Sale and Purchase of Stock of Pentair Duluth Corp. 
           and Minnesota Paper Incorporated dated May 8, 1995.

*    2(c)  Agreement and Plan of Merger by and among Minnesota Power & Light 
           Company, AC Acquisition Sub, Inc., ADESA Corporation and Certain 
           ADESA Management Shareholders dated February 23, 1995, (filed as 
           Exhibit 2 to Minnesota Power & Light Company's Current Report on 
           Form 8-K dated March 31, 1995, File No. 1-3548).

     99(a) Audited Financial Statements of ADESA Corporation for the year ended 
           December 31, 1994.

     99(b) Unaudited Financial Statements of ADESA Corporation for the quarter 
           ended March 31, 1995.
- -----------------
*    Incorporated herein by reference as indicated.

                                   -2-


                                Signatures


Pursuant to the requirements of the Securities Exchange Act of 1934, the 
Registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.



                                        Minnesota Power & Light Company
                                        -------------------------------
                                                  (Registrant)






July 12, 1995                                    D.G. Gartzke
                                        -------------------------------
                                                 D.G. Gartzke
                                        Senior Vice President - Finance
                                          and Chief Financial Officer

                                   -3-


                                                                 Exhibit 2(a)





                     AGREEMENT FOR SALE AND PURCHASE

                                    OF

                                ASSETS OF

                              LSPI FIBER CO.


                                   AND


                                 STOCK OF

                    SUPERIOR RECYCLED FIBER CORPORATION




                              TABLE OF CONTENTS

                                                                    Page
                                                                    ----

1.   Definitions                                                       1
2.   Purchase and Sale Transaction                                     6
     (a)  Purchase of Assets                                           6
     (b)  Assumed Liabilities and Obligations                          6
     (c)  Purchase of Stock                                            6
3.   Purchase Price                                                    6
4.   Payment                                                           7
5.   Assumption of Liabilities                                         8
6.   Closing                                                           9
7.   Parents' Representations, Warranties and Covenants                9
     (a)  Organization and Authority of Seller                         9
     (b)  Valid and Enforceable Agreement                              9
     (c)  Organization of Subsidiaries                                10
     (d)  Financial Statements                                        11
     (e)  No Material Change                                          11
     (f)  Leases                                                      12
     (g)  Title to Personal Property                                  12
     (h)  Real Estate                                                 12
     (i)  Plant and Equipment                                         14
     (j)  Intellectual Property                                       14
     (k)  Employee Matters                                            14
     (l)  Litigation                                                  14
     (m)  Compliance with Laws                                        14
     (n)  Material Contracts                                          15
     (o)  Licenses and Permits                                        15
     (p)  Insurance                                                   15
     (q)  Liabilities to PBGC or Multiemployer or 
          Multiple Employer Plans                                     15
     (r)  Transactions with Related Parties                           15
     (s)  Bank Accounts                                               16
     (t)  Tax Matters                                                 16
     (u)  Accounts Receivable                                         18
     (v)  Inventory                                                   18
     (w)  Motor Vehicles                                              19
     (x)  Product Warranty                                            19
8.   Buyer's Representations and Warranties                           19
     (a)  Organization                                                19
     (b)  Authority                                                   19
     (c)  Valid and Enforceable Agreement                             19
     (d)  No Insolvency                                               20
     (e)  Financial Statements                                        20
     (f)  Investment Intent                                           20
9.   Actions Pending Closing                                          20
     (a)  Operations                                                  20

                                     -i-

     (b)  Access to Records                                           21
     (c)  Access to Facilities                                        21
     (d)  Hart-Scott-Rodino Filings                                   21
     (e)  Notice of Developments                                      21
     (f)  SRFI Restrictions                                           22
     (g)  Best Efforts                                                22
10.  Conditions Precedent to Obligations of Buyer                     22
     (a)  No Errors; Performance of Obligations                       22
     (b)  Officer's Certificates                                      22
     (c)  Certified Copy of Resolutions                               22
     (d)  Opinion of Sellers' and Parent's Counsel                    22
     (e)  Injunctions                                                 23
     (f)  Clayton Act Matters                                         23
     (g)  Environmental Matters                                       23
     (h)  SRFI Restrictions                                           23
     (i)  Consents                                                    24
     (j)  Financing                                                   24
     (k)  FIRPTA Certificate                                          24
     (l)  Assignments of Contracts                                    24
     (m)  Purchase of LSPI and Niagara Paper                          24
     (n)  Real Estate Consents                                        24
     (o)  Title Insurance and Surveys                                 24
     (p)  Note Purchase Agreement                                     26
     (q)  Other Matters                                               26
11.  Conditions Precedent to Obligations of Sellers                   26
     (a)  No Errors; Performance of Obligations                       26
     (b)  Officer's Certificate                                       26
     (c)  Certified Copy of Resolutions                               27
     (d)  Opinion of Buyer's Counsel                                  27
     (e)  Injunctions                                                 27
     (f)  Clayton Act Matters                                         27
     (g)  Financing                                                   27
     (h)  Purchase of LSPI and Niagara Paper                          27
     (i)  Note Purchase Agreement                                     27
     (j)  Other Matters                                               27
12.  Broker                                                           28
13.  [Intentionally Left Blank]                                       28
14.  Confidential Information                                         28
15.  Indemnification                                                  29
16.  [Intentionally left blank]                                       31
17.  Expenses                                                         31
18.  Environmental Matters                                            31
     (a)  Warranty                                                    31
     (b)  Indemnity                                                   33
     (c)  Special Provisions                                          33
     (d)  Exclusive Remedy                                            34
     (e)  Inspection of Books and Records                             34

                                     -ii-

19.  Termination of Agreement                                         35
20.  Announcements                                                    35
21.  Records                                                          35
22.  Assistance after Closing                                         36
23.  Tax Matters; Payment of Taxes                                    36
     (a)  Tax Returns                                                 36
     (b)  Apportionment of Income                                     36
     (c)  Allocation of Taxes                                         36
     (d)  Indemnity                                                   37
     (e)  Post-Closing Elections                                      38
     (f)  Control of Contest                                          38
     (g)  General                                                     38
     (h)  Sales and Transfer Taxes                                    38
     (i)  Tax Effective Time                                          38
     (j)  Survival                                                    39
     (k)  Tax Agreements                                              39
24.  Section 338(h)(10) Election                                      39
25.  Limitations on Liability                                         40
26.  Amendment and Waiver                                             41
27.  Notices                                                          41
28.  Parties in Interest                                              43
29.  Further Assurances                                               43
30.  No Waivers                                                       43
31.  Governing Law                                                    43
32.  Severability                                                     43
33.  Miscellaneous                                                    43

                                     -iii-

THIS AGREEMENT is made and entered into as of the 8th day of May, 1995 by and 
among Pentair, Inc., a Minnesota corporation ("Pentair"), Minnesota Power & 
Light Company, a Minnesota corporation ("Minnesota Power"), Synertec, Inc., a 
Minnesota Corporation ("Synertec"), LSPI Fiber Co., a joint venture organized 
under the general partnership laws of the state of Minnesota ("LSPI Fiber"),  
and Consolidated Papers, Inc., a Wisconsin corporation ("Buyer").

     WHEREAS, Pentair is the owner of all of the issued and outstanding capital 
stock of Duluth Holdings (Paper) Corp., a Minnesota corporation ("Duluth 
Holdings") which owns all of the issued and outstanding stock of Pentair Duluth 
Pulp Corp., a Minnesota corporation ("Pentair Duluth Pulp"); and

     WHEREAS, Minnesota Power is the owner of all of the issued and outstanding 
capital stock of Minnesota Pulp Incorporated, a Minnesota corporation 
("Minnesota Pulp"), which owns all of the issued and outstanding stock of 
Minnesota Pulp Incorporated II, a Minnesota corporation ("Minnesota Pulp II"); 
and

     WHEREAS, Pentair Duluth Pulp and Minnesota Pulp II each own a 50% equity 
interest in LSPI Fiber; and

     WHEREAS, Minnesota Power is the owner of all of the issued and outstanding 
stock of Synertec which owns all of the issued and outstanding capital stock of 
Superior Recycled Fiber Corporation, a Minnesota corporation ("SRFC"); and

     WHEREAS, LSPI Fiber owns a 24% equity interest, and SRFC owns a 76% equity 
interest, in Superior Recycled Fiber Industries, a joint venture organized 
under the general partnership laws of the state of Minnesota ("SRFI"); and

     WHEREAS, Synertec and LSPI Fiber (collectively, "Sellers") desire to sell 
and Buyer desires to purchase from Sellers all of the issued and outstanding 
capital stock of SRFC and all of the assets of LSPI Fiber in accordance with 
the terms and provisions of this Agreement;


     NOW, THEREFORE, in consideration of the foregoing premises and of the 
mutual covenants and conditions herein contained, the parties agree as follows:

     1.   Definitions.  The terms below shall have the following 
meanings under this Agreement unless the context clearly requires otherwise:

     (a)  "Affiliates" means Duluth Holdings and Pentair Duluth Pulp, in the
case of Pentair; and Minnesota Pulp, Minnesota Pulp II, Synertec and SRFC, in   
the case of Minnesota Power; and all of the foregoing, in the case of Pentair
and Minnesota Power.

     (b)  "Allocations" shall have the meaning set forth in Section 24(b).



     (c)  "Assumed Liabilities and Obligations" means the liabilities set 
forth in Section 2(b).

     (d)  "CERCLA" shall have the meaning set forth in Section 18(a)(iii).

     (e)  "Clayton Act" means 15 U.S.C. Section 12, et seq., as amended, and
the rules and regulations promulgated thereunder from time to time.

     (f)  "Closing" means the actual transfer of the Purchased Interests, the 
delivery of documents providing for the assumption of the Assumed Liabilities 
and Obligations, and the exchange and delivery by the parties of the other 
documents and instruments contemplated by this Agreement.

     (g)  "Closing Date" means June 30, 1995, or such later month end date as 
mutually agreed upon by the parties.

     (h)  "Code" means the Internal Revenue Code of 1986, as amended.

     (i)  "Commitments" shall have the meaning set forth in Section 10(o)(i).

     (j)  "Confidential Information" means all information designated as 
"Evaluation Material" in the confidentiality letter agreement dated August 26, 
1994 between Buyer and CS First Boston Corp., acting as agent for Pentair and 
in the confidentiality letter agreement dated January 9, 1995 between Buyer and 
PaineWebber Incorporated, acting as agent for Minnesota Power, copies of which 
are attached as Schedule 1(j).

     (k)  "Election" shall have the meaning set forth in Section 24.

     (l)  "Election Form" shall have the meaning set forth in Section 24(c).

     (m)  "Environmental Cleanup" shall have the meaning set forth in Section 
18(c)(iii).

     (n)  "Environmental Laws" means federal, state, regional, county and 
local laws, statutes, rules, regulations and ordinances and common law 
requirements as of the Closing Date relating to the environment, including, 
without limitation, those relating to the public health or safety aspects 
thereof, or to nuisance, trespasses, releases, discharges, emissions or 
disposals to air, water, land or groundwater, to the withdrawal or use of 
groundwater, to the use, handling or disposal of polychlorinated biphenyls 
(PCB's), asbestos or urea formaldehyde, to the treatment, storage, disposal or 
management of Hazardous Material (including, without limitation, petroleum, its 
derivatives, by-products or other hydrocarbons), to exposure to toxic, 
hazardous or other controlled, prohibited or regulated substances, to the 
transportation, storage, disposal, management or release of gaseous or liquid 
substances, and any regulation, order, injunction, judgment, declaration, 
notice or demand issued thereunder.

                                     -2-

     (o)  "GAAP" means generally accepted accounting principles consistently 
applied and maintained throughout the period indicated and consistent with 
prior financial practice of LSPI Fiber, SRFC, SRFI, Pentair or Minnesota Power 
(and their respective Affiliates), as the case may be.

     (p)  [Intentionally left blank]

     (q)  "Hazardous Material" means and includes (a) petroleum or petroleum 
products, including crude oil, (b) any asbestos insulation or other material 
composed of or containing asbestos, and (c) any hazardous, toxic or dangerous 
waste, substance or material defined as such in (or for purposes of) the 
Comprehensive Environmental Response, Compensation and Liability Act, as 
amended, any so-called state or local "Superfund" or "Superlien" law, Section 
115B.02 of the Minnesota Statutes, or any other Environmental Laws.

     (r)  "Indemnitee" shall have the meaning set forth in Section 15(e).

     (s)  "Indemnitor" shall have the meaning set forth in Section 15(e).

     (t)  "Intellectual Property" means all patents, utility patents and 
design patents and registrations therefor, trademarks, trade names, trademark 
rights and trademark registrations, copyrights and licenses listed on Schedule 
1(t) attached, as well as all technical documentation reflecting engineering 
and production data, design data, plans, specifications, drawings, technology, 
know-how, trade secrets, software (whether owned or licensed), manufacturing 
processes and all documentary evidence thereof relating to the SRFI Group and 
its business.

     (u)  "Knowledge" of Sellers or the "best knowledge" of Sellers when 
modifying any representation or warranty shall mean that:  (i) no officer or 
other manager, reporting directly to the President of any of Sellers or the 
Parents (who are involved in or responsible for operations of the SRFI Group or 
the LSPI Group); and (ii) no officer or other manager of any member of the SRFI 
Group and the LSPI Group, including the chief financial officer and the manager 
of environmental affairs, if any, of Sellers, the Parents or of any member of 
the SRFI Group or the LSPI Group, has any knowledge that such representation 
and warranty is not true and correct to the same extent as provided therein and 
that:

          (i)  Sellers, the Parents and each member of the SRFI Group has 
     exercised due diligence and has made appropriate investigations and 
     inquiries of the officers and business records of each of Sellers, the 
     Parents, the SRFI Group and the LSPI Group; and

         (ii)  nothing has come to the attention of Sellers, the Parents or 
     of any member of the SRFI Group in the course of such investigation and 
     review or otherwise which would reasonably cause such party, in the 
     exercise of due diligence, to believe that such representation and 
     warranty is not true and correct.

                                     -3-

Such terms shall have a cognate meaning as applied to Buyer.

     (v)  "LSPI Group" means Pentair Duluth Corp., a Minnesota corporation, 
Minnesota Paper Incorporated, a Minnesota corporation and Lake Superior Paper 
Industries, a joint venture organized under the general partnership laws of the 
state of Minnesota.

     (w)  "LSPI Supply Contract" means the Pulp Supply Agreement dated as of 
August 9, 1993, between LSPI Fiber and Lake Superior Paper Industries, a joint 
venture organized under the general partnership laws of the state of Minnesota.

     (x)  "MADSP" shall have the meaning set forth in Section 24(b).

     (y)  "Material Contracts" means those contracts and arrangements listed 
on Schedule 7(n).

     (z)  "Net Book Value" means the sum of: (i) with respect to LSPI Fiber, 
the difference between (x) the Purchased Assets less (y) all of the liabilities 
of LSPI Fiber set forth on the balance sheet of LSPI Fiber as of December 31, 
1994 or the Closing Date, as appropriate; and (ii) with respect to the Stock, 
the difference between  (x) the assets of SRFC (including therein, its 
investments in the net assets of SRFI) less (y) all liabilities of SRFC 
excluding current income tax accruals, deferred tax accruals, and subordinated 
and other debt, whether current or long-term, owing to Sellers, Parents, or 
Affiliates, all as reflected on the balance sheet of SRFC as of December 31, 
1994 or the Closing Date, as appropriate.

     (aa)  "1933 Act" shall have the meaning set forth in Section 8(f).

     (ab)  "Note Purchase Agreement" means the Note Purchase Agreement between 
SRFC, SRFI and New York Life Insurance Company dated as of December 30, 1993, 
as amended and all of the Security Documents collateral thereto, as defined in 
the Note Purchase Agreement.

     (ac)  "Owned Real Estate" shall have the meaning set forth in Section 
7(h)(i).

     (ad)  "Parents" shall mean both of Pentair and Minnesota Power and 
"Parent" shall mean any one of them.

     (ae)  "Permitted Exceptions" shall have the meaning set forth in 
Section 10(o)(i).

     (af)  "Purchased Assets" shall have the meaning set forth in Section 2(a).

     (ag)  "Purchased Interests" means the Stock and the Purchased Assets.

     (ah)  "Real Estate" means all real property, whether owned, under contract 
to purchase, or leased by the SRFI Group, including all land, buildings, 
structures, easements, appurtenances and privileges relating thereto, and all 
leaseholds, leasehold 

                                     -4-

improvements, fixtures and other appurtenances and options, including options 
to purchase and renew, or other rights thereunder, used or intended for use in 
connection with the business of the SRFI Group.

     (ai)  "Report" shall have the meaning set forth in Section 24(b).

     (aj)  "Return(s)" means any return (including any consolidated or combined 
return), report, claim for refund, information return or statement, relating to 
any Tax, including any schedule or attachment thereto.

     (ak)  "SRFI Group" means all of LSPI Fiber, SRFC and SRFI.

     (al)  "SRFI Group Financial Statements" means (i) the audited financial 
statements (for the year ended December 31, 1994) of SRFI and SRFC, (ii) the 
unaudited financial statements (for the year ended December 31, 1993) of SRFI 
and SRFC, (iii) the unaudited internal financial statements of the other 
members of the SRFI Group for the fiscal years ended December 31, 1993 and 
1994, (iv) the combined unaudited balance sheet for the fiscal year ended 
December 31, 1994 reflecting the assets and liabilities of each member of the 
SRFI Group as of those dates, with all applicable adjustments and eliminations 
and as combined, and (v) the combined unaudited income statement for the year 
ended December 31, 1994 reflecting all items of income and expense for each 
member of the SRFI Group, with all applicable adjustments and eliminations and 
as combined.

     (am)  "SRFI Pledges" means the pledges by LSPI Fiber and all of the 
Affiliates of all of their interests, direct or indirect, including the stock 
of Pentair Duluth Pulp, Minnesota Pulp and SRFC, in SRFI and the entities which 
own such direct or indirect interests, all pursuant to the Note Purchase 
Agreement.

     (an)  "SRFI Put and Call Rights" means the rights of each Parent to put 
and the rights of the other Parent to call, each Parent's interest in its 
respective Affiliates and in LSPI Fiber pursuant to Section 2 of the Amended 
and Restated Agreement to Restrict Transfer of Stock dated January 19, 1994 and 
Section 12 of the LSPI Fiber Joint Venture Agreement dated May 28, 1993, as 
amended December 30, 1993 and January 18, 1994.

     (ao)  "SRFI Restrictions" means, with respect to the shares of SRFC and to 
LSPI Fiber, the SRFI Put and Call Rights, the SRFI Rights of First Refusal and 
the SRFI Pledges.

     (ap)  "SRFI Rights of First Refusal" means the right of first refusal 
granted by each Parent to the other to purchase its stock in Duluth Holdings 
and Minnesota Pulp, respectively, pursuant to Section 2 of the Restated 
Agreement to Restrict Transfer of Stock dated January 19, 1994.

     (aq)  "Statement of Net Book Value" means the combined audited balance 
sheet of the SRFI Group as of the Closing Date in substantially the form 
reflected in 

                                     -5-

Schedule 3.2 from which the calculation of the purchase price of the Purchased 
Interests will be made in accordance with Section 3 hereof.

     (ar)  "Stock" means all of the issued and outstanding capital stock of 
SRFC.

     (as)  "Surveys" shall have the meaning set forth in Section 10(o)(ii).

     (at)  "Survey Defect" shall have the meaning set forth in Section 
10(o)(iii).

     (au)  "Tax" or "Taxes"  means all income, gross receipts, sales, use, 
employment, franchise, profits, property or other taxes, fees, stamp taxes and 
duties, assessments or charges of any kind whatsoever (whether payable directly 
or by withholding), together with any interest and any penalties, additions to 
tax or additional amounts imposed by any taxing authority with respect thereto.

     (av)  "Title Company" shall have the meaning set forth in Section 
10(o)(i).

     (aw)  "Title Policy" shall have the meaning set forth in Section 
10(o)(i).

     (ax)  "Unpermitted Exception" shall have the meaning set forth in 
Section 10(o)(iii).

     2.   Purchase and Sale Transaction.  (a)  Purchase of Assets.  Subject to 
the terms and conditions herein stated, LSPI Fiber shall sell, transfer, assign 
and deliver to Buyer and Buyer shall purchase from LSPI Fiber, at the Closing, 
all of the assets of LSPI Fiber including, but not limited to, its 24%
partnership interest in SRFI (collectively, the "Purchased Assets").

          (b)  Assumed Liabilities and Obligations.  At the Closing, Buyer 
shall assume and agree to satisfy and perform to the extent not satisfied or 
performed prior to the Closing Date, without any cost or charge to Sellers, all 
obligations of LSPI Fiber as set forth on Schedule 5 and under the Material 
Contracts (collectively, the "Assumed Liabilities and Obligations").

          (c)  Purchase of Stock.  Subject to the terms and conditions 
herein stated, Synertec shall sell, transfer, assign and deliver to Buyer, and 
Buyer shall purchase from Synertec, at the Closing, all of Synertec's right, 
title and interest in the Stock.

     3.   Purchase Price.  The aggregate purchase price to be paid by Buyer to 
Sellers for the purchase of all the Stock and the Purchased Assets, shall be:

          (a)  $65,300,000;

          (b)  increased for any increase, or decreased for any decrease, in 
     the Net Book Value from December 31, 1994 to the Closing Date; and

                                     -6-

          (c)  the assumption by Buyer of the Assumed Liabilities and 
     Obligations.

The aggregate purchase price set forth above shall be paid to Sellers as set 
forth on Schedule 3.1.

     The Net Book Value shall be determined in accordance with GAAP as set 
forth on Schedule 3.2, which Schedule sets forth sample calculations of the Net 
Book Value as of December 31, 1994 and March 31, 1995 and the exceptions to 
GAAP used in calculating Net Book Value.

     Within sixty (60) days following the Closing Date, Sellers shall prepare 
and deliver to Buyer a Statement of Net Book Value, which shall be audited by 
SRFC's auditors based upon the audits of SRFI's, SRFC's and LSPI Fiber's books, 
including an inventory taken by the SRFI Group beginning at 7:00 a.m. on the 
Closing Date and a review of the liabilities as of the Closing Date.  The 
taking of such inventory may be observed by Buyer and Buyer's auditors.  The 
Statement of Net Book Value shall have attached thereto an auditor's report in 
the form attached as Schedule 3.3.  To the extent possible, Sellers will 
provide Buyer with a preliminary draft of the Statement of Net Book Value.  
Buyer and Parents will in good faith attempt to resolve any disputes with 
respect to such calculation before the final Statement of Net Book Value is 
rendered.

     Buyer may review the Statement of Net Book Value and Sellers shall make 
available the work papers of SRFC's auditors to Buyer and its accountants and 
Buyer and its accountants may make inquiries of representatives of Sellers' and 
SRFC's auditors.  Buyer shall give written notice to Parents of any objection 
to the Statement of Net Book Value within thirty (30) days after Buyer's 
receipt thereof.  The notice shall specify in reasonable detail the items in 
the Statement of Net Book Value to which Buyer objects and shall provide a 
summary of Buyer's reasons for such objections.

     Any dispute between Buyer and either or both Parents with respect to the 
Statement of Net Book Value which is not resolved within fifteen (15) business 
days after receipt by Parents of the written notice from Buyer shall be 
referred for decision to Ernst & Young LLP who shall cause an audit partner who 
is not engaged in providing services to Sellers or Buyer to decide the dispute 
within thirty (30) days of such referral.  The decision by the partner shall be 
final and binding on Parents and Buyer.  In resolving any disputed item, such 
audit partner may not assign a value to any item greater than the greatest 
value for such item claimed by either party or less than the smallest value for 
such item claimed by either party.  The cost of retaining the audit partner 
with respect to resolving disputes as to the Statement of Net Book Value shall 
be borne by Parents and Buyer equally, unless such partner determines, based on 
his or her evaluation of the good faith of the parties, that the fees should be 
borne unequally.

     4.   Payment.  The estimated purchase price shall be paid in U.S. dollars 
in immediately available funds on the Closing Date.  The amount to be paid on 
the Closing Date shall be based upon a preliminary Statement of Net Book Value 
delivered to Buyer at least five (5) business days prior to Closing, which 
shall be calculated based 

                                     -7-

on the unaudited combined balance sheet of the SRFI Group as of the month end 
prior to the Closing Date, prepared by Sellers on a basis consistent with 
Schedule 3.2.  Following delivery of the final Statement of Net Book Value 
under Section 3, any balance due to Sellers or refunds due to Buyer reflected 
thereon shall be paid within ten (10) days of such delivery, (unless there is 
an objection under Section 3, in which case the amount not in dispute shall be 
paid within ten (10) days of such delivery, and the balance in dispute shall be 
paid within ten (10) days of the resolution of such objection) together with 
interest on such amount from the Closing Date at the announced large business 
prime rate of Morgan Guaranty Trust Company of New York.

     Except as Buyer may be otherwise advised in writing by Sellers at least 
five (5) days prior to any payment, all payments of the purchase price by Buyer 
to Sellers at the Closing or any other amounts owed by Buyer to Sellers or 
Parents shall be by wire transfer to:

Parent and                                                  Bank Account
Affiliates               Bank and Routing Number               Number

Pentair             First Bank National Association
                    (091000022) to attention of Karen 
                    Johnson                                 xxx-xxxxxxx

Minnesota Pulp      First Bank National Association,
Incorporated II     (091000022) to attention of Russell
                    Arneson                                 xxx-xxxxxxx

Synertec            First Bank National Association,
                    (091000022) to attention of Russell
                    Arneson                                 xxx-xxxxxxx

Except as Parents may be otherwise advised in writing by Buyer at least five 
(5) days prior to any payment, payment of any refund to Buyer based on the 
final determination of the purchase price pursuant to Section 3 or any other 
amounts owed by Sellers or Parents to Buyer hereunder shall be made by wire 
transfer to Harris Trust and Savings Bank - Consolidated Papers, Inc., Account 
No. xxxxxxx (ABA wire transfer routing number xxxx-xxxx-x), marked to the 
attention of J.R. Matsch.  

     All wire transfers shall be sent by 10:00 a.m. Minneapolis time on the 
date of such payment, unless otherwise agreed by the parties.

     5.   Assumption of Liabilities.  At Closing, Buyer shall assume and agree 
to satisfy and perform, to the extent not satisfied or performed prior to the 
Closing Date, without any cost or charge to Sellers, all Assumed Liabilities 
and Obligations.  If the assumption of the Assumed Liabilities and Obligations 
by Buyer under this Section 5 requires the consent of any third party, Buyer 
and each respective Parent and/or Seller agree they will use their best efforts 
to obtain such written consent to such assumption; provided, however, that in 
no event shall Buyer be subject, without its consent, to terms and 

                                     -8-

conditions more restrictive than those set forth in the existing obligations of 
Parents being assumed.

     6.   Closing.  (a)  The Closing shall take place on the Closing Date at 
the offices of Henson & Efron, P.A. in Minneapolis, Minnesota, at 9:00 o'clock 
a.m., local time, or at such other time and place as may be mutually agreed 
upon.  Buyer and Sellers each agree they shall use their best efforts and shall 
cause all relevant affiliates to use their best efforts to obtain fulfillment 
of all conditions to Closing set forth in Sections 10 and 11 hereof.

     (b)  At the Closing, Sellers shall deliver to Buyer such documents and 
instructions as provided herein, including the assignment to Buyer of the LSPI 
Supply Contract, reasonably satisfactory in form and substance to Buyer and its 
counsel, as shall be required to vest in Buyer good and marketable title, free 
and clear of all liens, charges and encumbrances (except as specified in this 
Agreement, if any) in and to the Purchased Interests.  At the Closing, each 
Seller and Parent shall deliver to Buyer a release of all claims of such Seller 
and Parent and any person or entity affiliated therewith against all members of 
the SRFI Group, in substantially the form of Schedule 6.

     (c)  At the Closing, Buyer shall deliver to Parents such documents and 
instruments as provided herein and such undertakings, and other instruments as 
shall be required to cause Buyer to assume the obligations as provided in 
Section 5, all of which shall be reasonably satisfactory in form and substance 
to Parents and their respective counsel.

     7.   Parents' Representations, Warranties and Covenants.  Subject to the 
several liability of Parents provided for in Section 25 hereof, Parents 
represent, warrant and covenant to Buyer as follows:

     (a)  Organization and Authority of Seller.  Each of Pentair, Duluth 
Holdings, Pentair Duluth Pulp, Minnesota Power, Synertec, Minnesota Pulp, 
Minnesota Pulp II and SRFC is a duly organized and validly existing corporation 
in good standing under the laws of the state of Minnesota.  Each of SRFI and 
LSPI Fiber is a duly organized and validly existing joint venture organized as 
a general partnership under the laws of the state of Minnesota.  Sellers and 
Parents have the complete and unrestricted right, power and authority to sell, 
transfer and assign all of the Purchased Interests pursuant to this Agreement 
and to carry out the transactions contemplated hereby without the consent of 
any other person (except as otherwise set forth herein), subject only to the 
SRFI Restrictions.  The execution, delivery and performance of this Agreement 
and the consummation of the transactions contemplated hereby have been duly 
authorized by the Boards of Directors and the general partners of each Seller 
and Parent, respectively.

     (b)  Valid and Enforceable Agreement.  This Agreement constitutes a valid 
and binding agreement of each respective Seller and Parent, enforceable in 
accordance with its terms, except insofar as enforceability may be limited by 
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting 
the rights of creditors generally, and 

                                     -9-

by general equitable principles.  Neither the execution and delivery of this 
Agreement, nor the consummation of the transactions contemplated hereby, nor 
the performance of its obligations hereunder materially violates or conflicts 
with, results in a material breach of, or constitutes a material default under 
(i) to the best knowledge of each respective Seller and Parent, any law, rule, 
or regulation, or (ii) subject to the obtaining of necessary consents, which 
consents are listed on Schedule 7(b), under various loan agreements, 
guarantees, leases, and other agreements (including without limitation the SRFI 
Restrictions), any agreement or other restriction of any kind or character to 
which such Seller, Parent or any member of the SRFI Group is a party, by which 
such Seller, Parent or any member of the SRFI Group is bound, or to which any 
of the properties of Sellers, Parents or any member of the SRFI Group is 
subject.  Neither the execution or delivery of this Agreement, nor the 
consummation of the transactions contemplated hereby, nor the performance of 
its obligations hereunder violates or conflicts with, results in a breach of, 
or constitutes a default under, (i) any judgment or order, decree, award or 
ruling to which such Seller or Parent is subject, (ii) the Articles of 
Incorporation, By-Laws or Partnership Agreement of such Seller or Parent, 
excluding the SRFI Restrictions.

     (c)  Organization of Subsidiaries.

          (i)  Each member of the SRFI Group is a duly organized and validly 
     existing corporation or joint venture general partnership, as the case may 
     be, in good standing, to the extent applicable, in its respective state of 
     incorporation or organization, as set forth in Schedule 7(c).  Each member 
     of the SRFI Group has all requisite corporate or general partnership power 
     and authority, as the case may be, to carry on its respective business as 
     presently conducted in all states in which it currently does business.  
     Each member of the SRFI Group is duly licensed, registered and qualified 
     to do business as a foreign corporation, partnership or joint venture and, 
     to the extent applicable, is in good standing in all jurisdictions in 
     which the ownership, leasing or operation of its assets or the conduct of 
     its business requires such qualification, except where the failure to be 
     so licensed, registered or qualified would not have a material adverse 
     effect upon its business or assets.

         (ii)  All of the outstanding shares of capital stock or partnership 
     interests of SRFC and LSPI Fiber have been duly authorized and validly 
     issued, are fully paid and nonassessable, and are owned, beneficially and 
     of record, by Synertec and Minnesota Pulp II and Pentair Duluth Pulp, 
     respectively, and are free and clear of all liens, claims, encumbrances 
     and restrictions whatsoever, other than the SRFI Restrictions.  SRFC's 
     entire equity capital consists of 50 authorized shares of common stock, no 
     par value, of which 50 shares are issued and outstanding.  No shares of 
     capital stock of, or other ownership interest in, SRFC or LSPI Fiber are 
     reserved for issuance and there are no outstanding options, warrants, 
     rights, other than the SRFI Restrictions, subscriptions, claims of any 
     character, agreements, obligations, convertible or exchangeable 
     securities, or other commitments, contingent or otherwise, relating to the 
     capital stock of, or 

                                     -10-

     other ownership interest in, either of such corporation or partnership 
     pursuant to which either of such corporation or partnership is or may 
     become obligated to issue or exchange any shares of capital stock of, or 
     other ownership interest in, such corporation or partnership.

        (iii)  Except as set forth on Schedule 7(c), no member of the SRFI 
     Group owns, directly or indirectly, any capital stock or other equity or 
     ownership or proprietary interest in any other corporation, partnership, 
     association, trust, joint venture (other than in SRFI) or other entity.

         (iv)  True and complete copies of the agreements containing the SRFI 
     Restrictions have been furnished or made available to Buyer; each of those 
     agreements is currently in good standing and in full force and effect and 
     no default by any Seller, Parent or any member of the SRFI Group party 
     thereto, or to the best knowledge of Sellers, any other party thereto, 
     exists thereunder.

     (d)  Financial Statements.

          (i)  Attached hereto as Schedule 7(d) are the SRFI Group Financial 
     Statements.  The SRFI Group Financial Statements were (and the Statement 
     of Net Book Value will be) prepared in accordance with the books and 
     records of the respective members of the SRFI Group, which were used in 
     the preparation of each Parent's audited consolidated financial statements 
     for the fiscal years ended December 31, 1993 and December 31, 1994.

         (ii)  The SRFI Group Financial Statements were (and the Statement of 
     Net Book Value will be) prepared in accordance with GAAP consistently 
     applied, but, except for the audited financial statements of SRFI, do not 
     include all information and footnotes required by generally accepted 
     accounting principles for complete financial statements.  The Statement of 
     Net Book Value will adequately reflect all liabilities and obligations of 
     the SRFI Group required to be shown thereon in accordance with GAAP, 
     except for those exceptions to GAAP set forth on Schedule 3.2.

        (iii)  The SRFI Group Financial Statements as of such dates or for 
     the period ending on such dates present fairly the financial position and 
     the results of operations of the members of the SRFI Group for the periods 
     covered thereby.  All adjustments, consisting of normal recurring accruals 
     and eliminations and other similar adjustments, considered necessary for a 
     fair presentation have been included.

     (e)  No Material Change.  To the best knowledge of Sellers, since 
December 31, 1994 there has been no material adverse change in the business, 
financial position or results of operations of the SRFI Group taken as a whole.

                                     -11-

     (f)  Leases.  Sellers have furnished or made available to Buyer copies of 
all leases and subleases of any personal property used in the operations of the 
members of the SRFI Group to which any member of the SRFI Group is a party, all 
of which are listed on Schedule 7(f).  Except as set forth on Schedule 7(f), no 
consents or approvals are required in connection with the transactions 
contemplated hereby.  No event has occurred which is or, after the giving of 
notice or passage of time, or both, would constitute a default under or a 
material breach of any lease by any member of the SRFI Group or, to the best 
knowledge of Sellers, any other party to such leases.  As of the Closing Date, 
each lease shall be in full force and effect in accordance with its terms, as 
amended from time to time.

     (g)  Title to Personal Property.  Each member of the SRFI Group has 
good and marketable title to its respective owned personal property as 
reflected in the SRFI Group Financial Statements, free and clear of all liens, 
claims, encumbrances and restrictions, except (i) those reflected on 
Schedule 7(g), (ii) the lien of the Note Purchase Agreement and (iii) defects 
in title, and liens, charges and encumbrances, if any, as do not materially 
detract from the value of or otherwise materially impair the current operations 
or financial conditions of the SRFI Group, taken as a whole.

     (h)  Real Estate.

          (i)  Schedule 7(h) sets forth an accurate legal description of all 
     Real Estate owned by a member of the SRFI Group for which a member of the 
     SRFI Group has contracted to become the owner (the "Owned Real Estate"), 
     including identification of the current owner of fee simple title thereto. 
     The party identified as the owner on Schedule 7(h) is the legal and 
     equitable owner of good and marketable title in fee simple absolute to 
     such Owned Real Estate, including the buildings, structures, spurtracks 
     (as set forth on Schedule 7(h) and improvements situated thereon and 
     appurtenances thereto, in each case free and clear of all tenancies and 
     other possessory interests, security interests, conditional sale or other 
     title retention agreements, liens, encumbrances, mortgages, pledges, 
     assessments, easements, rights of way, covenants, restrictions, 
     reservations, options, rights of first refusal, defects in title, 
     encroachments and other burdens, except as disclosed on Schedule 7(h).  
     Except as disclosed on Schedule 7(h), a member of the SRFI Group is in 
     possession of the Owned Real Estate.  All contracts, agreements, options 
     and undertakings affecting the Owned Real Estate are set forth in Schedule 
     7(h) and are legally valid and binding and in full force and effect, and 
     to Seller's knowledge, there are no defaults, offsets, counterclaims or 
     defenses thereunder, and the SRFI Group has received no notice that any 
     default, offset, counterclaim or defense thereunder exists.  Sellers have 
     delivered or made available to Buyer correct and complete copies of all 
     such contracts, agreements, options and undertakings.

         (ii)  There is no Real Estate leased, subleased or occupied by a 
     member of the SRFI Group.

                                     -12-

        (iii)  To the knowledge of Sellers, except as set forth on the Flood 
     Insurance Rate Maps prepared by the Federal Emergency Management Agency 
     (Community/Parcel No. 270420/004B; revised as of November 1992), no Real 
     Estate is located within a flood or lakeshore erosion hazard zone for 
     which flood insurance is now required under the National Flood Insurance 
     Program.  Neither the whole nor any portion of any Real Estate has been 
     condemned, requisitioned or otherwise taken by any public authority, and 
     no notice of any such condemnation, requisition or taking has been 
     received.  To the knowledge of Sellers, no such condemnation, requisition 
     or taking is threatened or contemplated, except as set forth on Schedule 
     7(h).  Sellers have no knowledge of any public improvements which may 
     result in special assessments against or otherwise affect the Real Estate, 
     except as set forth on Schedule 7(h).

         (iv)  The Real Estate is in good operating condition and repair 
     (reasonable wear and tear excepted) and is suitable and adequate for the 
     purposes for which it is presently being used.

          (v)  To the knowledge of Sellers, except as set forth on Schedules 
     7(h) or 7(o), the Real Estate is in compliance with all applicable zoning, 
     building, health, fire, water, use or similar statutes, codes, ordinances, 
     laws, rules or regulations.  To the knowledge of Sellers, the zoning of 
     each parcel of Real Estate permits the existing improvements and the 
     continuation following consummation of the transaction contemplated hereby 
     of the business of the SRFI Group as presently conducted thereon.  The 
     SRFI Group has all certificates of occupancy and authorizations required 
     to utilize the Real Estate.  To Sellers' knowledge, the SRFI Group has all 
     easements and rights necessary to conduct its business, including 
     easements for all utilities, services, roadway, railway and other means of 
     ingress and egress.  To Sellers' knowledge, the SRFI Group holds such 
     rights to any off-site facilities as are necessary to ensure compliance in 
     all material respects with all zoning, building, health, fire, water, use 
     or similar statutes, codes, ordinances, laws, rules or regulations and all 
     such rights, to the extent held by the SRFI Group and Sellers, shall be 
     conveyed as directed by Buyer at Closing.  Except as disclosed on Schedule 
     7(h), to the knowledge of Sellers, no fact or condition exists which would 
     result in the termination or impairment of access to the Real Estate or 
     discontinuation of sewer, water, electric, gas, telephone, waste disposal 
     or other utilities or services.  Except as disclosed on Schedule 7(h), to 
     the knowledge of Sellers, the facilities servicing the Real Estate are in 
     full compliance with all codes, laws, rules and regulations.

          (vi) Sellers have delivered or made available to Buyer accurate, 
     correct and complete copies of all existing title insurance policies, 
     title reports and surveys, if any, with respect to each parcel of Real 
     Estate.

                                     -13-

     (i)  Plant and Equipment.  Sellers have furnished to Buyer an accurate 
list of all plant and equipment, attached as Schedule 7(i), owned by the SRFI 
Group.  To the best knowledge of Sellers, all plant, structures and equipment 
currently being used in the conduct of the operations of the SRFI Group are in 
all material respects in good operating condition and repair, subject to normal 
wear and tear, and to the best of each Seller's knowledge, are free from 
material structural or mechanical deficiencies, except as disclosed on Schedule 
7(i) attached.

     (j)  Intellectual Property.  Sellers have furnished to Buyer an accurate 
list of all Intellectual Property, attached as Schedule 1(t), owned or used by 
the SRFI Group.  To the best knowledge of Sellers, no one is infringing upon 
any rights of the SRFI Group with respect to any of the Intellectual Property, 
no member of the SRFI Group is infringing on or otherwise acting adversely to 
the rights of any person under, or in respect to, any patents, patent rights, 
copyrights, licenses, trademarks, trade names or trademark rights owned by any 
person or persons,  and there is no claim or action pending or threatened with 
respect thereto.  Except as set forth in Schedule 1(t), there are no royalty, 
commission or similar arrangements, and no licenses, sublicenses or agreements 
pertaining to any of the Intellectual Property.

     (k)  Employee Matters.  No member of the SRFI Group has, nor has any 
member of the SRFI Group ever had, any employees.

     (l)  Litigation.  Except as set forth on Schedule 7(l), there are no 
legal actions, suits, arbitrations or other legal, administrative or 
governmental proceedings or investigations (other than tax audits or 
investigations) pending or, to the best knowledge of Sellers, threatened 
against any member of the SRFI Group which might have a material adverse effect 
upon the operations or financial condition of the SRFI Group, taken as a whole. 
No member of the SRFI Group is subject to any judgment, order, writ, 
injunction, stipulation or decree of any court or any governmental agency or 
any arbitrator, except as may be set forth herein or in any Schedule 
hereto.

     (m)  Compliance with Laws.

          (i)  To the best knowledge of Sellers, the operations of the members 
     of the SRFI Group have been and are being conducted in accordance with all 
     applicable laws, rules and regulations of applicable governmental 
     authorities (other than those covered in Section 18 hereof), except for 
     such breaches that do not and cannot reasonably be expected to (either 
     individually or in the aggregate) materially and adversely affect the 
     financial condition or operations of the SRFI Group taken as a whole.

         (ii)  To the best knowledge of Sellers, no member of the SRFI Group 
     nor any of their officers or employees, has, directly or indirectly, 
     given, or agreed to give, any rebate, gift or similar benefit to any 
     supplier, customer, distributor, broker, governmental employee or other 
     person, who was, is or may be in a position to help or hinder the SRFI 
     Group's business (or assist in connection with any actual or proposed 
     transaction) which could subject Buyer or the SRFI 

                                     -14-

     Group's business to any penalty in any civil, criminal or governmental 
     litigation or proceeding or which would have a material adverse effect on 
     the SRFI Group's business.

     (n)  Material Contracts.  Sellers have furnished to Buyer a list, 
attached as Schedule 7(n), of all contracts and arrangements, written or oral, 
which alone or together with other contracts and arrangements with the same 
party are material to the SRFI Group's business taken as a whole.  All members 
of the SRFI Group have, in all material respects, performed all of the 
respective obligations required to be performed by them to date and are not, 
and will not be as of the Closing Date, in default under any material provision 
of such contracts or arrangements.  All such contracts and arrangements are and 
will be as of the Closing Date in good standing and full force and effect 
according to their terms.  For purposes of this Section 7(n), a contract shall 
be deemed to be material, (i) if it involves remaining payments of more than 
$300,000, or (ii) if it cannot by its terms be completed or terminated without 
penalty within 180 days from the Closing Date, or (iii) if the absence of such 
contract would have a material adverse effect on the business of the SRFI 
Group.

     (o)  Licenses and Permits.  Except as set forth on Schedule 7(o), each 
member of the SRFI Group has all requisite licenses and permits to operate its 
business as currently conducted and Sellers have not been advised of, nor to 
the best knowledge of Sellers is there any basis for, any revocation or 
anticipated revocation of any permits, licenses or zoning variances, or of any 
changes to existing or pending zoning or other regulations, permits or licenses 
which would materially and adversely affect the conduct of its operations as 
presently conducted.

     (p)  Insurance.  Schedule 7(p) contains an accurate and complete 
list and description of insurance policies (including the name of the insurer, 
coverage, premium and expiration date) which each member of the SRFI Group 
currently maintains, or is named as an additional insured or is entitled to 
benefits under (including coverage for events occurring under prior policies). 
To the best knowledge of Sellers, except as set forth on Schedule 7(p), all 
such policies are in full force and effect and shall survive the Closing for 
the benefit of SRFC, SRFI or Buyer.

     (q)  Liabilities to PBGC or Multiemployer or Multiple Employer Plans.  No 
liability to the Pension Benefit Guaranty Corporation or to any multiemployer 
or multiple employer plan has been incurred by the SRFI Group.

     (r)  Transactions with Related Parties.

          (i)  To the best knowledge of Sellers, except for interest and 
     corporate overhead and as set forth on Schedule 7(r), none of 
     the SRFI Group members are a party to any transaction or proposed 
     transaction, including, without limitation, the leasing of real or 
     personal property, the purchase or sale of raw materials or finished 
     goods, or the furnishing of services, with any Seller or Parent or with 
     any person who is related to or affiliated with Sellers or Parents 

                                     -15-

     (other than another member of the SRFI Group), involving the payment or 
     accrual of more than $1,000,000 during fiscal years 1993 or 1994.

         (ii)  Except as set forth on Schedule 7(r) or as reflected in the 
     SRFI Group Financial Statements dated December 31, 1994, neither Sellers 
     nor Parents nor any person who is related to or affiliated with Sellers or 
     Parents has any cause of action or other claim whatsoever against or owes 
     any material amount to, or is owed any material amount by, any member of 
     the SRFI Group.

     (s)  Bank Accounts.  Schedule 7(s) sets forth a true and complete list of 
all banks in which any member of the SRFI Group has an account, safe deposit 
box or line of credit, and the names and titles of all persons authorized to 
draw thereon or to have access thereto, and a summary description of the use 
thereof.

     (t)  Tax Matters.

          (i)  All Returns (including consolidated or combined Returns 
     including any member of the SRFI Group) required to be filed on or before 
     the Closing with respect to any member of the SRFI Group have been or will 
     be timely filed (within the time permitted by any timely filing extension) 
     by or on behalf of such member of the SRFI Group and all Taxes shown to be 
     due on such Returns have been timely paid.

         (ii)  No member of the SRFI Group has been a member of an affiliated 
     group (within the meaning of Section 1504 of the Code) filing a 
     consolidated federal Return, other than a group the common parent of which 
     is a Parent. 

        (iii)  Schedule 7(t) lists all Returns filed with respect to any of 
     the members of the SRFI Group for taxable periods which remain open, 
     indicates those Returns that have been audited and indicates those Returns 
     that are currently the subject of audit or scheduled for an examination by 
     any relevant taxing authority.

         (iv)  Except as disclosed in Schedule 7(t):

               (1)  no notice or claim has ever been made by a governmental 
                    authority in a jurisdiction where any member of the SRFI 
                    Group does not file Returns that it is or may be subject 
                    to Taxes in that jurisdiction; 

               (2)  no extension of the statute of limitations with respect to 
                    any assessment or claim for Taxes has been granted by or 
                    on behalf of any member of the SRFI Group; 

                                     -16-

               (3)  there are no liens for Taxes upon the assets of any member 
                    of the SRFI Group except liens for Taxes not yet due; 

               (4)  no amended Returns or refund claims have been or are 
                    scheduled to be filed by or on behalf of any member of the 
                    SRFI Group;

               (5)  all Taxes and other liabilities with respect to completed 
                    and settled audits, examinations or concluded litigation 
                    have been paid; and

               (6)  there are no pending appeals or other administrative 
                    proceeding with respect to any Return of any member of the 
                    SRFI Group, and there is no deficiency or refund 
                    litigation with respect to any Return of any member of the 
                    SRFI Group.  No material issues have been raised by any 
                    relevant taxing authorities on the audit of the Returns of 
                    any member of the SRFI Group.  No member of the SRFI Group 
                    has received any notice of any Tax deficiency or 
                    assessment.

          (v)  No member of the SRFI Group has filed or had filed on its 
     behalf a consent to the application of Section 341(f) of the Code.

         (vi)  Except as disclosed in Schedule 7(t), no member of the SRFI 
     Group is a party to any contractual obligation requiring the 
     indemnification or reimbursement of any person with respect to the payment 
     of any Taxes.  Except as disclosed in Schedule 7(t), no claim has been 
     asserted, which has not been resolved or satisfied, for any payment under 
     any agreement disclosed in Schedule 7(t).

        (vii)  Except as disclosed in Schedule 7(t), no member of the SRFI 
     Group is a party to or a beneficiary of any financing, the interest on 
     which is tax-exempt under the Code, and none of the assets of any member 
     of the SRFI Group is "tax-exempt use property."

       (viii)  As of the Closing Date, no member of the SRFI Group is a 
     party to any agreement, contract, arrangement, or plan that has resulted 
     or would result, separately or in the aggregate, in the payment of any 
     "excess parachute payments" within the meaning of Section 280G of the 
     Code.

         (ix)  Each member of the SRFI Group is a "United States person" 
     within the meaning of the Code.  No member of the SRFI Group has been a 
     United States real property holding corporation within the meaning of 
     Section 897(c)(2) of the Code during the applicable period specified in 
     Section 897(c)(1)(A)(ii) of the Code.  The transactions contemplated 

                                     -17-

     herein are not subject to the tax withholding provisions of Section 3406 
     of the Code, or of Subchapter A of Chapter 3 of the Code, or of any other 
     provision of law.  No member of the SRFI Group has nor had a branch in any 
     foreign country.

          (x)  No member of the SRFI Group is a party to any joint venture, 
     partnership, or other arrangement or contract that could be treated as a 
     partnership for federal income Tax purposes, except for SRFI or LSPI 
     Fiber.

         (xi)  Each member of the SRFI Group has withheld and paid all Taxes 
     required to have been withheld and paid including (1) amounts paid to any 
     employee or statutory employee or any foreign person or entity; and (2) 
     any backup withholding required under Section 3406 of the Code.

     (u)  Accounts Receivable.  Schedule 7(u) sets forth an accurate, correct 
and complete aging of all outstanding accounts and notes receivable of SRFC, 
SRFI and LSPI Fiber as of December 31, 1994.  All outstanding accounts and 
notes receivable reflected on the SRFI Group Financial Statements are, and on 
the Statement of Net Book Value will be, due and valid claims against account 
debtors for goods or services delivered or rendered and subject to no defenses, 
offsets or counterclaims. All receivables arose in the ordinary course of 
business.  No receivables are subject to prior assignment, claim, lien or 
security interest, except under the Note Purchase Agreement.  The books and 
records of SRFC, SRFI and LSPI Fiber reflect amounts taken as a reserve against 
noncollection of accounts receivable, which reserve has been established in 
accordance with SRFC's, SRFI's and LSPI Fiber's normal accounting policies 
consistently maintained for the fiscal years ended December 31, 1993 and 
December 31, 1994 and there is no reason to believe that such reserve will not 
be adequate for its purpose.  As of the Closing Date, neither SRFC, SRFI nor 
LSPI Fiber will have incurred any liabilities to customers for discounts, 
returns, promotional allowances or otherwise, except those granted in the 
ordinary course of SRFC's, SRFI's or LSPI Fiber's operations and reflected on 
the Statement of Net Book Value.  No other member of the SRFI Group has any 
business operations which would result in the establishment of any trade 
accounts receivable or the granting of any discounts, returns, promotional 
allowances or similar charges.

     (v)  Inventory.  All inventories reflected on the SRFI Group Financial 
Statements are, and on the Statement of Net Book Value will be, properly valued 
at the lower of cost or market value on a first-in, first-out basis in 
accordance with GAAP.  Inventories of finished goods are of good and 
merchantable quality, whether of first line, or off-quality pulp and contain no 
material amounts that are not salable in the ordinary course of business and 
meet the current standards and specifications of its business, except as 
reserved for on the SRFI Group Financial Statements.  Inventories of raw 
materials, stores and replacement parts are, to the best knowledge of Sellers, 
(i) of good and merchantable quality and contain no material amounts that are 
not  usable for the purposes intended in the ordinary course of the SRFI 
Group's operations; (ii) in conformity with warranties customarily given to 
purchasers of like products; and (iii) at 

                                     -18-

levels adequate for and not excessive in relation to the ordinary course of the 
SRFI Group's operations and in accordance with past inventory stocking 
practices.  Sales of inventories subsequent to December 31, 1994 have been made 
only in the ordinary course of business and at prices and under terms that are 
normal and consistent with past practice.

     (w)  Motor Vehicles.  Schedule 7(w) sets forth an accurate and complete 
list of all motor vehicles used in the business of the SRFI Group, whether 
owned or leased. All such vehicles are (i) properly licensed and registered in 
accordance with applicable law; (ii) insured as set forth on Schedule 7(p); 
(iii) in good operating condition and repair (reasonable wear and tear 
excepted) and (iv) not subject to any lien or other encumbrance, except as set 
forth on Schedule 7(w).

     (x)  Product Warranty.  The books and records of each member of SRFI 
Group reflect amounts taken as a reserve against claims and allowances for 
product warranties, which reserve has been established in accordance with the 
members of the SRFI Group's normal accounting policies consistently maintained 
for the fiscal years ended December 31, 1993 and December 31, 1994 and there is 
no reason to believe that such reserve will not be adequate for its purpose.  
As of the Closing Date, neither SRFC, SRFI nor LSPI Fiber will have incurred 
any unpaid liabilities to customers for such claims and allowances, except 
those granted in the ordinary course of business and reflected on the Statement 
of Net Book Value.

     Disclosure of any fact in any provision of this Agreement or in any 
Schedule attached hereto shall constitute disclosure thereof for the purposes 
of any other provision or Schedule.

     8.   Buyer's Representations and Warranties.  Buyer represents and 
warrants to Parents as follows:

     (a)  Organization.  Buyer is a duly organized and validly existing 
corporation in good standing under the laws of the state of Wisconsin.  Buyer 
has all requisite corporate power to own its property and carry on its business 
as presently conducted.

     (b)  Authority.  The execution, delivery and performance of this 
Agreement and the consummation of the transactions contemplated hereby have 
been duly authorized by the Board of Directors of Buyer.

     (c)  Valid and Enforceable Agreement.  This Agreement constitutes a valid 
and binding agreement of Buyer, enforceable in accordance with its terms, 
except insofar as enforceability may be limited by bankruptcy, insolvency, 
reorganization, moratorium or similar laws affecting the rights of creditors 
generally, and by general equitable principles.  Neither the execution and 
delivery of this Agreement, nor the consummation of the transactions 
contemplated hereby, nor the performance of Buyer's obligations hereunder 
materially violates or conflicts with, results in a material breach of, or 
constitutes a material default under (i) to the best knowledge of Buyer, any 
law, rule or regulation, or (ii) subject to the obtaining of necessary consents 
under various 

                                     -19-

agreements, any agreement or other restriction of any kind or character to 
which Buyer is a party, by which Buyer is bound, or to which any of the 
properties of Buyer is subject.  Neither the execution or delivery of this 
Agreement, nor the consummation of the transactions contemplated hereby, nor 
the performance of Buyer's obligations hereunder, violates or conflicts with, 
results in a breach of or constitutes a default under (i) any judgment or 
order, decree, award or ruling to which Buyer is subject, or (ii) the Articles 
of Incorporation or By-Laws of Buyer.

     (d)  No Insolvency.  Buyer is not currently insolvent, and neither the 
purchase of the Purchased Interests, the assumption of the Assumed Liabilities 
and Obligations pursuant to Section 5, nor any related transaction or event 
shall render Buyer insolvent or leave Buyer with assets which are unreasonably 
small in relation to the business of the SRFI Group and its own business 
operations, nor does Buyer intend to incur debts beyond its ability to pay them 
as they come due.

     (e)  Financial Statements.  Buyer's financial statements for the year 
ended December 31, 1994, as filed with the Securities and Exchange Commission 
(copies of which have been delivered to Seller) (i) were prepared in accordance 
with and accurately reflect its books and records, (ii) were prepared in 
accordance with generally accepted accounting principles, consistently applied, 
and (iii) present fairly the financial position and the results of operations 
of Buyer for the periods covered thereby.

     (f)  Investment Intent.  Buyer is purchasing the Stock for its own 
account and not with a view to, or present intention of, sale or distribution 
thereof in violation of the Securities Act of 1933, as amended (the "1933 Act") 
and such shares will not be disposed of in contravention of the 1933 Act.  
Buyer acknowledges that such shares are not and have not been registered with 
the Securities and Exchange Commission or any securities commission or agency 
of any state, including the state of Minnesota, and may not be transferred or 
disposed of without registration under the 1933 Act and applicable state 
securities laws or an exemption from such registration.

     Disclosure of any fact in any provision of this Agreement or in any 
Schedule attached hereto shall constitute disclosure thereof for the purposes 
of any other provision or Schedule.

     9.   Actions Pending Closing.  From the date hereof through the Closing 
Date, Sellers shall take, or cause their respective Affiliates to take, all 
actions necessary and appropriate to comply with, or to refrain from taking any 
action in breach of, the following provisions for the period between the 
execution of this Agreement and the termination hereof or the Closing Date:

     (a)  Operations.  Each member of the SRFI Group shall conduct its 
operations only in the ordinary course of business and shall not enter or 
permit any member of the SRFI Group to enter into any transaction or perform 
any act that would constitute a breach of the representations, warranties, or 
agreements contained herein.  Each member of the SRFI Group shall use its best 
efforts to preserve its business and its organization intact and to keep 
available the services of its present employees.  

                                     -20-

Attached as Schedule 9(a) is a list of capital expenditures and commitments to 
be initiated by the SRFI Group prior to the Closing Date.  No member of the 
SRFI Group shall initiate any capital expenditure or commitment other than as 
set forth on Schedule 9(a) or initiate any capital expenditure or commitment as 
set forth on Schedule 9(a) in excess of $25,000 without Buyer's approval, which 
approval shall not be unreasonably withheld; provided, however, that any member 
of the SRFI Group may initiate emergency capital expenditures or commitments 
consistent with the past practices of such SRFI Group member.  Sellers or 
Parents shall promptly notify Buyer of such emergency expenditures or 
commitments.

     (b)  Access to Records.  Sellers shall, and shall cause the members of 
the SRFI Group to, make available to Buyer, its agents and employees, all books 
and records in their possession relating to the business of the SRFI Group; 
provided, however, that Sellers have not made, and shall not be deemed to have 
made, any representations or warranties whatsoever with respect to any of such 
books or records or any other documents provided to or made available to Buyer, 
except as expressly set forth in this Agreement.

     (c)  Access to Facilities.  Buyer, its agents and employees, shall be 
given full access during regular business hours to the physical facilities of 
SRFI,  upon appointment with the President thereof and accompanied by such 
President or his or her designee(s).  Sellers and each member of the SRFI Group 
and their respective employees shall cooperate fully with Buyer in its 
examinations and inspections, but not to the detriment of the ongoing business 
operations of the SRFI Group prior to Closing.

     (d)  Hart-Scott-Rodino Filings.  Parents and Buyer shall cooperate in the 
prompt preparation and filing of all notifications and reports which may be 
required with respect to the transactions contemplated by this Agreement 
pursuant to Section 7A of the Clayton Act.  Parents and Buyer shall also 
cooperate in responding promptly to all inquiries from the Federal Trade 
Commission or the Department of Justice resulting from the filing of such 
notifications and reports.

     (e)  Notice of Developments.  At least ten (10) business days prior to 
the Closing Date, Sellers shall deliver to Buyer a complete update of the 
Schedules from the date hereof.  Each party hereto shall notify the other of 
any development(s) which shall constitute a breach of any of the 
representations and warranties in Sections 7 or 8 above.  The party so notified 
has the right to terminate this Agreement within the period of ten (10) 
business days from the date of receipt of such notification, if as a result of 
such development the financial condition, results of operations or prospects of 
the SRFI Group as a whole, on the one hand, or Buyer, on the other hand, have 
been materially and adversely affected.  If within such ten (10)-day period, 
the party notified shall not have exercised its right to terminate this 
Agreement, the written notice shall be deemed to have amended this Agreement 
and the relevant schedules attached thereto, to have qualified the 
representations and warranties contained in Sections 7 or 8 above and to have 
cured any misrepresentation or breach of warranty that otherwise might have 
existed hereunder by reason of such development, including for purposes of 
Section 15 hereof.

                                     -21-

     (f)  SRFI Restrictions.  Prior to the Closing Date, each Seller shall 
waive or abandon its right of first refusal with respect to the transfer of the 
other's interest in the entities that own indirectly an interest in LSPI Fiber, 
SRFC or SRFI pursuant to this Agreement.

     (g)  Best Efforts.  Sellers, Parents and Buyer shall use their best 
efforts to consummate the transactions contemplated by this Agreement and shall 
not take any other action inconsistent with their respective obligations 
hereunder or which could hinder or delay the consummation of the transactions 
contemplated hereby.  From the date hereof through the Closing Date, Sellers, 
Parents and Buyer shall use their best efforts to fulfill the conditions to 
their obligations hereunder and to cause their representations and warranties 
to remain true and correct as of the Closing Date.

     10.  Conditions Precedent to Obligations of Buyer.  The obligations of 
Buyer hereunder (unless expressly waived by Buyer) are subject to the 
fulfillment, prior to or at Closing, as the case may be, of each of the 
following conditions:

     (a)  No Errors; Performance of Obligations.  The representations and 
warranties of Parents herein shall be true and correct as of the Closing Date.  
Sellers and Parents shall have performed the obligations set forth in Section 9 
and in all material respects all of the other obligations to be performed by 
them hereunder in the time and manner herein stated.

     (b)  Officer's Certificates.  Sellers and Parents shall have delivered to 
Buyer certificates, dated as of the Closing Date, executed by their respective 
Secretaries, and in form and substance satisfactory to Buyer, certifying that 
the covenants and conditions specified in this Agreement to be met by Sellers 
and Parents have been performed or fulfilled and that the representations and 
warranties herein made by Sellers and Parents are true and correct as of such 
date.

     (c)  Certified Copy of Resolutions.  Sellers and Parents shall have 
delivered to Buyer a certified copy of resolutions adopted by their respective 
Boards of Directors authorizing the execution and delivery of this Agreement 
and the consummation of the transactions contemplated hereby.

     (d)  Opinion of Sellers' and Parent's Counsel.  Sellers and Parents shall 
have delivered to Buyer the opinion of their respective counsel, dated as of 
the Closing Date, in form and substance satisfactory to Buyer and its counsel, 
giving the following clean legal opinions:

          (1)  valid organization of Sellers, Parents and each of the members 
               of the SRFI Group;
          (2)  corporate power and authority of each Seller and Parent to 
               enter into the Agreement;
          (3)  necessary foreign qualification of members of the SRFI Group;

                                     -22-

          (4)  No Breach or Default Opinion with respect to members of the 
               SRFI Group;
          (5)  No Violation Opinion with respect to each Seller and Parent;
          (6)  Remedies Opinion with respect to each Seller and this 
               Agreement;
          (7)  Legal Proceedings Opinion with respect to each Seller, Parent 
               and members of the SRFI Group; 
          (8)  other legal matters agreed upon between Sellers, Parents and 
               Buyer; and
          (9)  no violation of registration provisions of the 1933 Act and 
               applicable state securities laws;

all in accordance with, and subject to the General Qualifications and other 
limitations and provisions contained in, the Legal Opinion Accord of the ABA 
Section of Business Law (1991).

     (e)  Injunctions.  No injunction shall have issued restricting or 
prohibiting the transactions contemplated by this Agreement.

     (f)  Clayton Act Matters.  The waiting period required by Section 7A of 
the Clayton Act shall have expired or been terminated.

     (g)  Environmental Matters.  The results of any inspections, soil test 
boring, soil tests, drainage tests, surveys, topographical analyses, 
engineering studies or other investigations performed or obtained by Buyer 
shall not have disclosed evidence of Hazardous Materials in, on or adjacent to 
any of the real properties owned or occupied by any member of the SRFI Group, 
other than those disclosed in any environmental studies or other information 
listed on Schedule 10(g) which would materially and adversely affect the 
operations of the SRFI Group taken as a whole.  Buyer shall not have received 
any evidence that there are existing violations of any Environmental Law, other 
than those described in Schedule 10(g), or that any requisite environmental 
license or permit or any occupance, use or building permits or other approvals 
from applicable governmental authorities are currently required for the 
continued operation of the facilities owned by the SRFI Group which have not 
been obtained or are not in effect.  In order to enable Buyer to conduct a due 
diligence investigation, Sellers, Parents, the SRFI Group, and any entity 
within the LSPI Group with relevant information on the environmental status of 
the operating facilities of the SRFI Group shall provide Buyer with access to 
the environmental files, licenses, permits, permit applications, consultant 
reports, notices from local, state and federal governmental entities, 
environmental audit and inspection reports, insurance files, and other 
information necessary for Buyer to assess the environmental status of the 
operating facilities of the SRFI Group, as well as permit or obtain permission 
for Buyer to conduct soil and groundwater testing on or beneath the real 
properties owned or occupied by any member of the SRFI Group.

     (h)  SRFI Restrictions.  Each Seller and Parent shall have waived or 
abandoned its right of first refusal with respect to the transfer of the 
other's interest in the entities 

                                     -23-

that own indirectly an interest in LSPI Fiber, SRFC or SRFI pursuant to this 
Agreement.

     (i)  Consents.  All consents and releases by third parties that are 
required for the transfer of the Purchased Interests or the Assumed Liabilities 
and Obligations, or that are required for the consummation of the transactions 
contemplated hereby, or that are required in order to prevent a breach of or a 
default under or a termination of any agreement to which any Seller or any 
member of the SRFI Group or Affiliates is a party or to which any portion of 
the property of any Seller or any member of the SRFI Group or Affiliates is 
subject, including, but not limited to, the consent of New York Life Insurance 
Company relating to the Note Purchase Agreement, shall have been obtained or 
provided for.

     (j)  Financing.  Buyer shall have used its best efforts to maintain an 
aggregate of at least $250 million available under Buyer's committed and 
uncommitted lines of credit until the Closing Date, and such lenders shall not 
have cancelled or revoked such lines of credit prior to the Closing Date.

     (k)  FIRPTA Certificate.  Sellers shall have furnished Buyer with 
certificates of non-foreign status signed by the appropriate party and 
sufficient in form and substance to relieve Buyer of all withholding 
obligations under Section 1445 of the Code.  If Sellers cannot furnish such 
certificates or Buyer is not entitled to rely upon such certificates under the 
provisions of Section 1445 of the Code and the regulations thereunder, Sellers 
shall take and/or permit Buyer to take any and all steps necessary to allow 
Buyer to satisfy the requirements of Section 1445 of the Code.

     (l)  Assignments of Contracts.  Sellers shall have assigned to Buyer 
the LSPI Supply Contract and all other Material Contracts.

     (m)  Purchase of LSPI and Niagara Paper.  On or prior to the Closing 
Date, Buyer shall have purchased all of the issued and outstanding capital 
stock of Pentair Duluth Corp., a Minnesota corporation, Minnesota Paper 
Incorporated, a Minnesota corporation and Niagara of Wisconsin Paper 
Corporation, a Wisconsin corporation.

     (n)  Real Estate Consents.  Sellers shall deliver to Buyer any consents 
or approvals of any parties required pursuant to the terms of any contract, 
agreement, option or undertaking affecting the Owned Real Estate.

     (o)  Title Insurance and Surveys.

          (i)  Buyer shall have obtained an ALTA Owners Policy of Title 
     Insurance Form B Owner's Form (the "Title Policy") for each parcel of 
     Owned Real Estate issued by a nationally recognized title company 
     reasonably acceptable to Buyer (the "Title Company").  The Title Policy 
     shall be in the amount of the purchase price allocated to the Owned Real 
     Estate by Buyer, showing fee simple title to the Real Estate in a member 
     of the SRFI Group (or if the member of the SRFI Group is a contract 

                                     -24-

     purchaser, the seller designated under the applicable sales contract), 
     subject only to current real estate taxes not yet due and payable as of 
     the Closing Date, liens and encumbrances reflected on Schedule 10(m) 
     hereto, and such other covenants, conditions, easements and exceptions to 
     title as Buyer may approve in writing (collectively, the "Permitted 
     Exceptions").  With reasonable promptness, after the date of this 
     Agreement, Buyer shall order commitments (the "Commitments") for the Title 
     Policy.  Copies of the Commitments shall be promptly delivered to Sellers. 
     The Commitments and the Title Policy to be issued by the Title Company 
     shall have all Standard and General Exceptions deleted so as to afford 
     full "extended form coverage" and shall contain an ALTA Zoning Endorsement 
     3.1, contiguity, non-imputation, and such other endorsements as may be 
     reasonably requested by Buyer.  At Closing, Sellers shall deliver to 
     Buyer, a seller's affidavit or similar instruments as the Title Company 
     may require.  Buyer shall be responsible for the cost of all title 
     insurance charges, premiums and endorsements, title abstracts and 
     attorneys' opinions, including all search, continuation and later-date 
     fees.  To the extent that any parcel of Owned Real Estate is registered 
     Torrens title, Sellers shall deliver the owner's duplicate certificates of 
     titles.

         (ii)  Buyer shall have obtained an as-built plat of survey of each 
     Copies of the Surveys shall be promptly delivered to Sellers.

        (iii)  If (i) any Commitment or owner's duplicate certificate of 
     title discloses a title exception other than a Permitted Exception that 
     represents a defect affecting the marketability of the title to any parcel 
     of Owned Real Estate (an "Unpermitted Exception") or (ii) any Survey 
     discloses that improvements located on the surveyed land encroach onto 
     adjoining land or onto any easements, building lines or set-back 
     requirements, or 

                                     -25-

     encroachments by improvements from adjoining land onto the surveyed land 
     or onto any easements for the benefit of the surveyed land or overlap or 
     reflects that any utility service to the improvements or access thereto 
     does not lie wholly within the Owned Real Estate or an unencumbered 
     easement for the benefit of the Owned Real Estate or reflects any other 
     matter, any of which materially and adversely affects the use or 
     improvements of such parcel of Owned Real Estate, or any other matter 
     which renders title to any Owned Real Estate unmarketable (a "Survey 
     Defect"), then, in any such event, Sellers shall have thirty (30) days 
     from the date of delivery thereof to have the Unpermitted Exception 
     removed from such Commitment and owner's duplicate certificate of title, 
     if applicable, or the Survey Defect corrected or insured over by an 
     appropriate title insurance endorsement, all at Sellers' cost in a manner 
     reasonably satisfactory to Buyer, and in any such event the Closing shall 
     be extended, if necessary, to the date which is five (5) business days 
     after the expiration of such 30-day period.  If Sellers fail to have any 
     Unpermitted Exception removed or any Survey Defect corrected or otherwise 
     insured over to the reasonable satisfaction of Buyer within the time 
     specified therefor, Buyer, at its sole option, upon not less than three 
     (3) days' prior written notice to Sellers, may terminate this Agreement 
     and all of Buyer's obligations hereunder.

     (p)  Note Purchase Agreement.  Sellers and Parents and their Affiliates 
shall have been released under the Note Purchase Agreement or the outstanding 
indebtedness under the Note Purchase Agreement shall have been repaid.

     (q)  Other Matters.  All corporate and other proceedings and actions 
taken in connection with the transactions contemplated hereby and all 
certificates, opinions, agreements, instruments and documents mentioned herein 
or incident to any such transaction shall be delivered to Buyer and be 
reasonably satisfactory in form and substance to Buyer and its counsel.

     11.  Conditions Precedent to Obligations of Sellers.  The obligations of 
Sellers and Parents hereunder (unless expressly waived by Sellers) are subject 
to fulfillment by Buyer, prior to or at Closing, as the case may be, of each of 
the following conditions:

     (a)  No Errors; Performance of Obligations.  The representations and 
warranties of Buyer herein shall be true and correct as of the Closing Date.  
Buyer shall have performed in all material respects all of the obligations to 
be performed by it hereunder in the time and manner herein stated.

     (b)  Officer's Certificate.  Buyer shall have delivered to Sellers a 
certificate, dated as of the Closing Date, executed by an officer of Buyer, and 
in form and substance satisfactory to Sellers, certifying that the covenants 
and conditions specified in this Agreement to be met by Buyer have been 
performed or fulfilled and that the representations and warranties herein made 
by Buyer are true and correct as of such date.

                                     -26-

     (c)  Certified Copy of Resolutions.  Buyer shall have delivered to 
Sellers a certified copy of resolutions adopted by the Board of Directors of 
Buyer authorizing the execution and delivery of this Agreement and the 
consummation of the transactions contemplated hereby.

     (d)  Opinion of Buyer's Counsel.  Buyer shall have delivered to Sellers 
the opinion of its counsel, dated as of the Closing Date, in form and substance 
satisfactory to Sellers, Parents and their counsel, giving the following clean 
legal opinions:

          (1)  valid organization of Buyer;
          (2)  corporate power and authority of Buyer to enter into the 
               Agreement;
          (3)  No Breach or Default Opinion;
          (4)  No Violation Opinion;
          (5)  Legal Proceedings Opinion;
          (6)  Remedies Opinion with respect to this Agreement; and
          (7)  other legal matters agreed upon between Sellers, Parents and 
               Buyer;

all in accordance with, and subject to the General Qualifications and other 
limitations and provisions contained in, the Legal Opinion Accord of the ABA 
Section of Business Law (1991).

     (e)  Injunctions.  No injunctions shall have issued restricting or 
prohibiting the transactions contemplated by this Agreement.

     (f)  Clayton Act Matters.  The waiting period required by Section 7A of 
the Clayton Act shall have expired or been terminated.

     (g)  Financing.  Buyer shall have used its best efforts to maintain an 
aggregate of at least $250 million available under Buyer's committed and 
uncommitted lines of credit until the Closing Date and such lenders shall not 
have cancelled or revoked such lines of credit prior to the Closing Date.

     (h)  Purchase of LSPI and Niagara Paper.  On or prior to the Closing 
Date, Buyer shall have purchased all of the issued and outstanding capital 
stock of Pentair Duluth Corp., a Minnesota corporation, Minnesota Paper 
Incorporated, a Minnesota corporation and Niagara of Wisconsin Paper 
Corporation, a Wisconsin corporation.

     (i)  Note Purchase Agreement.  Sellers and Parents and their Affiliates 
(except SRFC) shall have been released under the Note Purchase Agreement and 
the SRFI Pledges by Buyer's assumption of the Note Purchase Agreement or the 
repayment of the outstanding indebtedness under the Note Purchase Agreement 
shall have been made by Buyer.

     (j)  Other Matters.  All corporate and other proceedings and actions 
taken in connection with the transactions contemplated hereby and all 
certificates, opinions, 

                                     -27-

agreements, instruments and documents mentioned herein or incident to any such 
transaction shall be delivered to Sellers and be reasonably satisfactory in 
form and substance to Sellers and their counsel.

     12.  Broker.  Pentair represents and warrants that CS First Boston was 
retained by it to represent it in this transaction.  Minnesota Power represents 
and warrants that PaineWebber Incorporated was retained by it to represent it 
in this transaction.  Buyer represents and warrants that Dillon, Read & Co. 
Inc. has been retained by Buyer to represent it.  Each Parent shall be 
responsible for payment of all fees and expenses of its respective investment 
banker and Buyer shall be responsible for payment of all fees and expenses of 
Dillon, Read & Co. Inc.  Should any claims for commissions be made by any other 
person claiming an interest in this Agreement, or in the underlying 
transactions, by reason of any agreement, understanding or other arrangement 
with Buyer or with either Parent, or their respective agents, servants, 
employees, or other representatives, then the party through, or on account of, 
whom such claims are made shall indemnify and hold harmless the other parties 
from any and all liabilities and expenses in connection therewith in accordance 
with the provisions of Section 15 below.  The foregoing provisions of this 
Section 12 shall survive not only the Closing hereunder, but also any 
termination or cancellation of this Agreement.

     13.  [Intentionally Left Blank]. 

     14.  Confidential Information.  (a)  Buyer acknowledges that pursuant to 
its right to inspect Sellers' and the SRFI Group's records and facilities under 
Section 9, Buyer shall become privy to Confidential Information.  Buyer agrees 
that in the event the transaction contemplated by this Agreement is not 
completed, all Confidential Information disclosed to Buyer shall remain 
confidential, shall not be used for the benefit of Buyer or any of Buyer's 
affiliates or disclosed to any person or entity, and all recorded evidence 
thereof shall be delivered to Sellers together with an officer's certificate to 
the effect that no copies thereof or any extracts, derivatives or compilations 
thereof remain in possession of Buyer, its employees, affiliates, agents, 
counsel or auditors.  The confidentiality and nonuse provisions hereof shall 
survive any termination of this Agreement until August 26, 1997 with respect to 
Pentair and January 9, 1998 with respect to Minnesota Power.  Buyer 
acknowledges that it has entered into a confidentiality letter dated August 26, 
1994 between itself and CS First Boston on behalf of Pentair, and a 
confidentiality letter dated January 9, 1995 between itself and PaineWebber on 
behalf of Minnesota Power, and agrees that such confidentiality letters shall 
continue in full force and effect for the duration of their respective terms 
in addition to the provisions of this Section 14.

     (b)  Sellers and Parents agree that in the event the transaction 
contemplated by this Agreement is completed, all confidential and proprietary 
information related to the SRFI Group shall remain confidential, shall not be 
used for the benefit of Sellers, Parent or any of their affiliates or disclosed 
to any person or entity.  The confidentiality and nonuse obligations of Sellers 
and Parents hereunder shall be on the same terms and conditions as the 
confidentiality letters set forth in Section 14(a) and shall survive any 

                                     -28-

termination of this Agreement until August 26, 1997 with respect to Pentair and 
January 9, 1998 with respect to Minnesota Power.

     15.  Indemnification.

     (a)  Without limiting any remedy Buyer may have hereunder, Parents hereby 
agree to indemnify, defend and hold Buyer harmless from and against and in 
respect of any and all liabilities, losses, damages, claims, costs and 
expenses, including reasonable attorneys fees, suffered or incurred by Buyer, 
when so suffered or incurred, by reason of or relating to:

          (i)  any representation or warranty of Parents or Sellers contained 
     in this Agreement being breached or untrue;

         (ii)  any covenant or agreement of Sellers or Parents contained in 
     this Agreement being breached or not fulfilled in any material respect, 
     and not waived; 

        (iii)  the assertion against Buyer of any other liability of any 
     Seller or Parent not assumed by Buyer hereunder; or

         (iv)  the assertion against Buyer, SRFC or SRFI of any liability of 
     the SRFI Group assumed by Sellers or Parents;

provided, however, that any claim arising out of any breach of warranty or 
otherwise relating to (x) environmental conditions, permits or liabilities or 
obligations with respect to Hazardous Materials shall be dealt with solely in 
accordance with Section 18 hereof and (y) taxes shall be dealt with solely in 
accordance with Section 23 hereof. 

     (b)  Without limiting any remedy Parents and Sellers may have hereunder, 
Buyer hereby agrees to indemnify, defend, and hold Parents and Sellers harmless 
from and against and in respect of any and all liabilities, losses, damages, 
claims, costs and expenses, including reasonable attorneys fees, by reason of 
or relating to:

          (i)  any representation or warranty by Buyer contained in this 
     Agreement being breached or untrue;

         (ii)  any covenant or agreement of Buyer contained in this Agreement 
     being breached or not fulfilled in a material respect, and not waived; or

        (iii)  the failure of Buyer to pay, discharge, or perform any 
     guaranty, obligation or liability assumed by Buyer hereunder (including 
     without limitation the Assumed Liabilities and Obligations.

     (c)  Notice of any claim of indemnification under this Agreement (other 
than for claims pursuant to Sections 18 and 23) shall be effective only if such 
notice shall have been given in writing to the Indemnitor (as hereinafter 
defined) on or prior to

                                     -29-

December 31, 1997.  Notice of claims by the Parents against Buyer regarding 
Assumed Liabilities and Obligations shall be effective only if given in writing 
on or prior to the date six months following the date on which the liability of 
Parents is discharged with respect to the last outstanding Assumed Liabilities 
and Obligations.

     (d)  The first $1,500,000 in the aggregate of claims made by Buyer or by 
Parents and Sellers as a group (except claims against Parents under Sections 19 
or 23 or under subparagraphs 15 (a)(iii) and (iv) above, claims against Buyer 
under Section 19 or under subparagraphs 15 (b)(iii) above or claims against 
either Buyer or Parents under Sections 12 or 14 hereof) pursuant to this 
Section shall be borne by that party and shall not be indemnifiable.  The 
minimum amount of each such claim shall be not less than $50,000 in the 
aggregate.

     (e)  In the event that indemnification is sought with respect to any 
obligation of Buyer and Parents and Sellers under this Agreement, the party 
seeking indemnification (the "Indemnitee") shall give the party from whom 
indemnification is sought (the "Indemnitor") notice of any claim of the 
commencement of any action or proceeding promptly after the Indemnitee receives 
notice thereof, and shall permit the Indemnitor to assume the defense of any 
such claim or litigation resulting from such claim.

     If the Indemnitor assumes the defense of any such claim or litigation 
resulting therefrom, the obligations of Indemnitor as to such claim shall be 
limited to taking all steps necessary in the defense or settlement of such 
claim or litigation resulting therefrom and to holding the Indemnitee harmless 
from and against any and all losses, damages and liabilities caused by or 
arising out of any settlement approved by the Indemnitor or any judgment in 
connection with such claim or litigation resulting therefrom.

     The Indemnitee may participate, at its expense, in the defense of any such 
claim or litigation, provided that the Indemnitor shall direct and control the 
defense of such claim or litigation.

     Except with the written consent of the Indemnitee, the Indemnitor shall 
not, in the defense of such claim or any litigation resulting therefrom, 
consent to entry of any judgment or enter into any settlement which does not 
include as an unconditional term thereof, the giving by the claimant or the 
plaintiff to the Indemnitee of a release from all liability with respect to the 
claim or litigation.

     If the Indemnitor shall not assume the defense of any such claim or 
litigation resulting therefrom, the Indemnitee may defend against such claim or 
litigation in such manner as it may deem appropriate and, unless the Indemnitor 
shall deposit with the Indemnitee a sum equivalent to the total amount demanded 
in such claim or litigation, or shall deliver to Indemnitee a surety bond for 
such amount in form and substance reasonably satisfactory to Indemnitee, 
Indemnitee may settle such claim or litigation on such terms as it may 
reasonably deem appropriate, and the Indemnitor shall promptly reimburse  
Indemnitee for the amount of all costs and expenses, legal or otherwise, 
reasonably incurred by the Indemnitee in connection with the defense against or 

                                     -30-

settlement of such claims or litigation.  If no settlement of such claim or 
litigation is made, the Indemnitor shall promptly reimburse the Indemnitee for 
the amount of any final judgment rendered with respect to such claim or in such 
litigation and for all reasonable costs and expenses, legal or otherwise, 
incurred by the Indemnitee in the defense against such claim or litigation, but 
only to the extent that such amounts are actually paid.

     16.  [Intentionally left blank].

     17.  Expenses.  Parents, Sellers and Buyer shall each be responsible for 
all of their own expenses incurred in connection with the transactions 
contemplated hereby.  Parents and Sellers shall be responsible for the 
accounting and auditing fees and expenses related to the preparation of the 
Statement of Net Book Value.  Parents and Sellers shall cooperate and cause 
their accountants and SRFI's accountants to cooperate and assist Buyer and its 
accountants (including consenting to the use of the SRFI Group Financial 
Statements) with respect to any filings by Buyer with the Securities and 
Exchange Commission in connection with the transactions contemplated hereby.  
Parents and Sellers shall be responsible for any and all fees and expenses of 
Parents', Sellers' and SRFI's accountants with respect to the foregoing.  Buyer 
will pay the incremental costs and expenses of auditing the SRFI financial 
statements or other information required by Buyer, other than the Statement of 
Net Book Value as of the Closing Date.  Buyer will pay the cost of the 
Commitments, Title Policies and Surveys set forth in Section 10(o).

     18.  Environmental Matters.

     (a)  Warranty.  Parents warrant that, other than as disclosed to Buyer 
pursuant to Schedule 10(g) attached:

          (i)  Compliance with Environmental Laws.  The business and 
     operations of each member of the SRFI Group comply in all material 
     respects with all applicable Environmental Laws, except to the extent that 
     such noncompliance could not be reasonably expected to have a material 
     adverse effect on the business, operations, properties, assets or 
     condition (financial or otherwise) of the SRFI Group.

         (ii)  Notice/Receipt of Notice.  No member of the SRFI Group has 
     given, or is required to give, nor has any member of the SRFI Group 
     received, any written notice, letter, citation, or order, or any written 
     warning, complaint, inquiry, claim or demand (or if verbal, to the extent 
     the warning, complaint, inquiry, claim or demand is recorded in a written 
     log) that: (i) any member of the SRFI Group has violated, or is about to 
     violate, any Environmental Law; (ii) there has been a release, or there is 
     a threat of release, of a non-de minimis quantity of Hazardous Material 
     from any member of the SRFI Group's property, facilities, equipment or 
     vehicles or previously owned or leased properties; (iii) any member of the 
     SRFI Group may be or is liable, in whole or in part, for material costs of 
     cleaning up, remediating, restoring or responding to a release of 

                                     -31-

     Hazardous Material; (iv) any of the SRFI Group's property or assets or 
     previously owned or leased properties or assets are subject to a lien in 
     favor of any governmental entity for any liability, costs or damages, 
     under any Environmental Law; and (v) any member of the SRFI Group may be 
     or is liable in whole or in part, for natural resource damages; provided, 
     that for purposes of liability for natural resource damages such notice, 
     letter, citation, order, inquiry, claim or demand was made by a 
     governmental agency.

        (iii)  Property on Environmental Cleanup Lists.  No property now or 
     previously owned or leased by the SRFI Group is listed (or with respect to 
     Owned Real Estate proposed for listing) on the National Priorities List 
     pursuant to Comprehensive Environmental Response, Compensation and 
     Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.)
     ("CERCLA"), on the CERCLIS or on any similar state list of sites 
     requiring investigation or clean-up.

         (iv)  [Intentionally left blank.]

          (v)  Past Disposal -- On site.  Neither any member of the SRFI Group 
     nor to the best knowledge of Sellers any previous owner or other person, 
     has ever caused or permitted any material release or disposal of any 
     Hazardous Material on, under or at any of the facilities or properties of 
     the SRFI Group or any part thereof, and none of such facilities or 
     properties, nor any part thereof have ever been used (whether by any 
     member of the SRFI Group or to Sellers' best knowledge by any other 
     person) as a permanent storage facility or disposal site for any Hazardous 
     Material.

         (vi)  Underground Storage Tanks.  There are no underground storage 
     tanks, including any associated piping, active or abandoned, including 
     petroleum storage tanks, on or under any property now or previously owned 
     or leased by the SRFI Group that, singly or in the aggregate, have, or may 
     reasonably be expected to have, a material adverse effect on the financial 
     condition, operations, assets, business, or properties of the SRFI Group.

        (vii)  Off-Site Disposal.  No member of the SRFI Group has directly 
     transported or directly arranged for the transportation of any Hazardous 
     Material to any location which is listed, proposed for listing or, to the 
     best knowledge of Sellers, which if known to the state or federal 
     government would warrant listing on the National Priorities List pursuant 
     to CERCLA, on the CERCLIS or on any similar state list or which is or 
     reasonably could be the subject of federal, state or local enforcement 
     actions or other investigations which may reasonably be expected to lead 
     to material claims for any remedial work, damage to natural resources or 
     personal injury, including claims under CERCLA.

       (viii)  PCBs/Asbestos.  There are no PCB's or friable asbestos 
     present at any property now or previously owned or leased by the SRFI 
     Group that, singly or in the aggregate, have, or may reasonably be 
     expected to have, a material 

                                     -32-

     adverse effect on the financial condition, operations, assets, business or 
     properties of the SRFI Group.

         (ix)  Pollution Control Equipment.  All pollution control equipment 
     is in proper operating condition, has been properly maintained, and, in 
     the case of major ("end-of-pipe") wastewater treatment and air pollution 
     control facilities, has been designed to maintain compliance with 
     applicable Environmental Laws based upon the current production rates and 
     operating policies of SRFI in effect since January 1, 1995.  All material 
     actions necessary to maintain in force any original, as delivered, 
     manufacturer warranties have been taken with respect to all major 
     components of wastewater and air pollution control facilities.

          (x)  Other Environmental Conditions Off-Site.  To Sellers' best 
     knowledge there are no sites or locations currently owned or leased by the 
     SRFI Group where Hazardous Materials were disposed of which with the 
     passage of time, or the giving of notice or both could reasonably be 
     expected to give rise to any material liability under any Environmental 
     Law, to any member of the SRFI Group.

     (b)  Indemnity.  Subject to the provisions of Section 18(c) below and the 
limitations on indemnification set forth in Section 15(d) above, Parents shall 
indemnify and hold Buyer and the members of the SRFI Group harmless from and 
against any and all losses, liabilities, damages, injuries, penalties, fines, 
costs, expenses and claims of any and every kind whatsoever (including 
reasonable attorneys' and consultants' fees and expenses), paid, incurred or 
suffered by Buyer as a result of any breach of warranties set forth in Section 
18(a).  With respect to any liability for disposal or arranging for disposal of 
Hazardous Materials at sites or locations not currently owned or leased by the 
SRFI Group this indemnity shall apply notwithstanding the fact that Buyer may 
have received or obtained information before the Closing Date, other than that 
information disclosed on Schedule 10(g) indicating or otherwise showing that a 
claim exists or may exist under this indemnity, including, but not limited to, 
any information relating to a breach of the warranties set forth in Section 
18(a) above.

     (c)  Special Provisions.  The following provisions shall apply in the 
event of any breach of warranty under this Section 18.

          (i)  Notice.  Buyer shall promptly, and in no event later than 90 
     days from the date Buyer has knowledge, notify Parents in writing of any 
     claim, demand or action, situation or event covered by the warranty and 
     indemnification provisions of Section 18, with respect to any work or 
     activities undertaken by Buyer which is subject to this indemnity, Buyer 
     shall provide Parents in a timely manner, written documentation prepared 
     in the normal course of business describing the work or activities.

         (ii)  Disclosure of On-Site Environmental Matters.  Buyer agrees 
     that environmental matters associated with the Real Estate which are 
     contained in the environmental reports and documents listed on Schedule 
     10(g), as well as any 

                                     -33-

     information obtained by Buyer during its due diligence activities 
     conducted on the Real Estate between the signing of this Agreement and the 
     Closing Date, shall be considered disclosed to Buyer.

        (iii)  Election of Control Off-Site Work.  At Parents' option, to 
     the extent Parents are obligated to indemnify Buyer under this Section for 
     the costs of investigating, remediating, restoring, cleaning-up any site 
     where Hazardous Materials were disposed and the site is located on 
     property not currently owned, leased or otherwise used by the SRFI Group 
     (nor reasonably anticipated to be used by the SRFI Group), Parents may 
     elect to take control of the investigation, remediation, restoration 
     and/or clean-up ("Environmental Cleanup").  If they elect to do so, 
     Parents shall so notify Buyer and Parents thereafter shall be solely 
     responsible (as between the parties hereto) for managing and paying for 
     such Environmental Cleanup (to the extent it is obligated to indemnify 
     Buyer) including any fines, penalties or third-party actions associated 
     with the Environmental Cleanup.

         (iv)  Buyer's Control of Work.  Other than in connection with 
     off-site Environmental Cleanups, Buyer and/or the SRFI Group shall manage 
     and conduct any Environmental Cleanup work and shall manage and control 
     the repair and replacement of any pollution control equipment.  All such 
     work shall be done in a commercially reasonable, cost-effective manner 
     using good faith business judgment and without regard to the availability 
     of indemnification hereunder.

          (v)  Pollution Control Equipment.  In situations where the 
     installation of pollution control equipment is required in order to obtain 
     compliance with the Environmental Laws, Parents' liability under this 
     Section shall include both capital and reasonable operation and 
     maintenance costs (calculated on a reasonable present value basis).

         (vi)  Interference with Operations.  In situations where the 
     Environmental Cleanup or the installation, repair or replacement of the 
     pollution control equipment will materially interfere with the conduct of 
     the operations of the SRFI Group, Parents shall be responsible for the 
     reasonable costs, expenses or losses associated with or attributable to 
     any material business interruption losses, provided that Buyer shall do 
     the work or activities in a manner that is least disruptive of the SRFI 
     Group's ongoing operations.

     (d)  Exclusive Remedy.  This Section provides to Buyer, the respective 
SRFI Group members, and anyone claiming under or through Buyer the exclusive 
remedy against Parents with respect to any matter covered by this Section 18, 
and such exclusive remedy shall lapse and be of no further force or effect on 
and after the fifth anniversary of the Closing Date.

     (e)  Inspection of Books and Records.  In the event of any claims made by 
Buyer for indemnification under this Section 18, Sellers shall be entitled to 
access, at 

                                     -34-

times reasonably convenient to Buyer and the members of the SRFI Group, to such 
books, records and data related to such claim for indemnification hereunder, as 
Parents deem necessary to verify the basis or amount of such claim.

     19.  Termination of Agreement.  This Agreement may be terminated upon ten 
(10) business days prior written notice at any time prior to Closing without 
liability of any party to the other:

     (a)  by mutual consent of Parents and Buyer;

     (b)  by Buyer, if notice of a material adverse development with respect 
to the financial condition, results of operations or prospects of the SRFI 
Group has been given, in accordance with Section 9(e) hereof;

     (c)  by Buyer, if Closing has not occurred on or before September 30, 
1995 as a result of the nonfulfillment of any of the conditions to Buyer's 
obligation to perform contained in Section 10 of this Agreement;

     (d)  by Parents, if notice of a material adverse development with respect 
to the financial condition, results of operations or prospects of Buyer has 
been given, in accordance with Section 9(e) hereof;

     (e)  by Parents, if Closing has not occurred on or before September 30, 
1995 as a result of the nonfulfillment of any of the conditions to Sellers' 
obligation to perform contained in Section 11 of this Agreement; and

     (f)  by any party, if Closing has not occurred by October 31, 1995.  
Termination of this Agreement shall not affect in any way the continuing 
obligations of the parties hereto pursuant to Section 12 relating to brokers 
and Section 14 hereof relating to the treatment of confidential information.

     20.  Announcements.  Buyer and Parents shall cooperate in the 
preparation of any announcements regarding the transactions contemplated by 
this Agreement.  Except as required by law, no party shall issue any 
announcement regarding the transactions contemplated hereby without the prior 
consent of the other parties, which consents shall not be unreasonably 
withheld.  The covenants set forth in this Section shall be enforceable in law 
or at equity by either party.

     21.  Records.  After the Closing Date, Buyer shall retain the books, 
records or other data of each member of the SRFI Group existing at the Closing 
Date for a period of ten (10) years.  During the retention period specified 
above, Parents shall be entitled to access, at times reasonably convenient to 
Buyer, to such books, records and data in connection with the preparation or 
handling of Sellers' and Parents' tax returns, financial reports, tax audits, 
W-2 forms, litigation matters or any other reasonable need of any Seller or 
Parent.  If Buyer wishes to dispose of such material (whether during or 

                                     -35-

following the 10-year period), it shall give Parents prior notice and the 
opportunity to remove such material at the expense of the Parent(s) requesting 
the same.

     22.  Assistance after Closing.  Buyer shall furnish, at no cost to 
Parents and Sellers, such assistance to Parents and Sellers in the preparation 
of their respective fiscal 1994 and 1995 financial and tax reports as Parents 
and Sellers may reasonably request.  All such assistance shall be on a 
confidential basis and Parents and Sellers agree to comply with the 
confidentiality and limitation on use provisions of Section 14 hereof with 
respect to such confidential information.

     Buyer shall also provide Parents with reasonable assistance, including, 
without limitation, furnishing of documents and making available to Parents 
potential witnesses within its control or that of any member of the SRFI Group 
and the assistance of their respective engineers or experts, in the defense of 
any claim, lawsuit or tax examination arising out of the operations of SRFI 
prior to the Closing Date for which Parents or Sellers retain liability under 
this Agreement.  Parents shall reimburse Buyer or such member of the SRFI Group 
for its out of pocket expenses incurred in providing such assistance.

     23.  Tax Matters; Payment of Taxes.

     (a)  Tax Returns.  Parents and Sellers shall prepare or cause to be 
prepared and shall timely file all Returns (including any amendments thereto) 
relating to any Taxes of the members of the SRFI Group with respect to any tax 
period ending on or before the Closing.  Parents or Sellers shall pay or cause 
to be paid all Taxes of the members of the SRFI Group with respect to any 
period ending on or before the Closing as determined in accordance with 
Sections 23(b) and 23(c) hereof.

     (b)  Apportionment of Income.  Parents and Sellers will include the 
income of the SRFI Group (including any deferred income and any excess loss 
accounts pursuant to relevant rules and regulations of the Internal Revenue 
Service) on Parents' and Sellers' federal and state income tax Returns for all 
periods through the Closing Date and shall pay any federal and state income 
taxes attributable to such income.  The SRFI Group will furnish all tax 
information requested by Parents and Sellers to it for inclusion in Parents' 
and Sellers' income tax Returns for the period which includes the Closing Date 
in accordance with Parents' and Sellers' past custom and practice.  The income 
of the SRFI Group will be apportioned to the period up to and including the 
Closing Date and the period after the Closing Date by closing the books of the 
SRFI Group as of the end of the Closing Date.

     (c)  Allocation of Taxes.  For purposes of this Agreement, in the case of 
any Taxes that are imposed on a periodic basis and are payable for a period 
that begins before the Closing Date and ends after the Closing Date, Parents or 
Sellers shall reimburse Buyer for the portion of such Taxes payable for the 
period ending on the Closing Date to the extent such Taxes are not reflected on 
the Statement of Net Book Value as of the Closing Date.  For this purpose, the 
portion of such Tax payable for the period ending on the Closing Date shall in 
the case of any Taxes other than Taxes based 

                                     -36-

upon or related to income or sales or use taxes, be deemed to be the amount of 
such Taxes for the entire period multiplied by a fraction, the numerator of 
which is the number of days in the period ending on the Closing Date, and the 
denominator of which is the number of days in the entire period.  The preceding 
sentence shall be applied with respect to Taxes relating to capital (including 
net worth or long-term debt) or intangibles by reference to the level of such 
items on the Closing Date to the extent such Taxes are not reflected on the 
Statement of Net Book Value as of the Closing Date.

     (d)  Indemnity.  Notwithstanding anything to the contrary in this 
Agreement whether expressed or implied, Parents shall indemnify and hold 
harmless Buyer, and each member of the SRFI Group, against:

     (1)  all Taxes imposed on any member of the SRFI Group with respect to 
          any period ending on or before the Closing;

     (2)  all Taxes imposed on Buyer or on any member of the SRFI Group with 
          respect to any period which begins before the Closing Date and ends 
          after the Closing Date to the extent allocated to the portion of 
          such period ending on the Closing Date, determined in accordance 
          with Section 23 hereof;

     (3)  all Taxes imposed on Buyer or on any member of the SRFI Group with 
          respect to income earned by any member of the SRFI Group for the 
          period beginning January 1, 1995 and ending on the Closing Date, 
          determined in accordance with Section 23(b) hereof;

     (4)  all Taxes imposed on any member of the SRFI Group as a result of the 
          Section 338(h)(10) Elections contemplated by Section 24 hereof;

     (5)  all Taxes imposed on any member of an affiliated, consolidated, 
          combined or unitary group which includes or has included any member 
          of the SRFI Group with respect to any taxable period that ends on or 
          prior to the Closing; 

     (6)  all liability resulting from or attributable to a breach of the 
          representations, warranties and covenants contained in Section 7(t) 
          and this Section 23; and

     (7)  any claim under Treas. Reg. Section 1.1502-6 by the Internal Revenue 
          Service against any member of the SRFI Group which was a member of 
          Parents' respective consolidated groups prior to the Closing Date 
          with respect to any federal income tax liability of Parents and 
          Sellers for any period ending on or prior to December 31, 1995.

                                     -37-

     (e)  Post-Closing Elections.  Parents and Sellers will (or will cause 
members of the SRFI Group, as the case may be to) make or join, as necessary, 
with Buyer in making any election relating to income taxes, including, but not 
limited to, elections under Section 732(d) and Section 754 of the Code, for the 
year in which the Closing Date occurs.  Prior to Closing, Buyer shall retain an 
appraiser to appraise the assets of the SRFI Group.  Sellers and the members of 
the SRFI Group and their respective employees shall cooperate fully with Buyer 
and its appraiser in connection with the appraisal.  The cost of the appraisal 
shall be borne by Buyer.

     (f)  Control of Contest.  Parents shall have the right, at their own 
expense, to control any audit or determination by any taxing authority, 
initiate any claim for refund or amended Return and contest, resolve and defend 
against any assessment, notice of deficiency or other adjustment or proposed 
adjustment of Taxes for any taxable period for which any Seller or Parent (or 
any of their affiliates) is charged with responsibility for filing a Return 
under this Agreement.  Each party will allow the other and its counsel (at its 
or their own expense) to be represented during any audits of income tax Returns 
to the extent that disputed items therein relate to the SRFI Group.  Buyer 
shall, or shall cause its affiliates to, undertake or authorize actions in 
their capacity as tax matters partner of the SRFI Group as requested by Parents 
with respect to this Section 23(f).

     (g)  General.  Each of Buyer, Parents and Sellers shall provide the 
other, and Buyer shall following the Closing cause each member of the SRFI 
Group to provide to Parents and Sellers, with the right, at reasonable times 
and upon reasonable notice, to have access to personnel, and to copy and use, 
any records or information that may be relevant in connection with the 
preparation of any Returns, any audit or other examination by any taxing 
authority or any litigation relating to liability for Taxes.  Information 
required in the filing of any Return shall be provided to the other party not 
less than thirty (30) days before such Return is due.  Parents and Sellers will 
allow Buyer an opportunity to review and comment upon any Returns under 
Subsection 23(a) (including any amended returns) to the extent that they relate 
to any member of the SRFI Group.  Parents and Sellers will take no position on 
such Returns that relate to any member of the SRFI Group that would adversely 
affect any member of the SRFI Group after the Closing.  Parents, Sellers and 
Buyer shall retain all records relating to Taxes for as long as the statute of 
limitations with respect thereto shall remain open.

     (h)  Sales and Transfer Taxes.  All sales and transfer Taxes (including 
all stock transfer taxes, if any) incurred in connection with the transactions 
contemplated hereby will be borne by the statutorily responsible party.  If 
required by applicable law, Buyer or Parents or Sellers, as the case may be, 
will join in the preparation and execution of any Returns or other 
documentation related to the payment of any sales or transfer Taxes.

     (i)  Tax Effective Time.  For purposes of Taxes, the Closing shall be 
deemed to have occurred, and shall be effective, as of the close of business on 
the Closing.

                                     -38-

     (j)  Survival.  All of the representations, warranties, covenants and 
indemnities contained in this Agreement which relate to Taxes shall survive the 
Closing (even if the Indemnified Party knew or had reason to know of any 
misrepresentation or breach of warranty or covenant at the time of the Closing) 
and continue in full force and effect until the expiration of the applicable 
statute of limitations (including any extensions thereof).

     (k)  Tax Agreements.  Minnesota Power and Buyer agree that, upon Closing, 
the Tax Agreement dated October 5, 1993 and the State Tax Agreement dated 
October 5, 1993, both between Minnesota Power and its subsidiaries, including 
SRFC, shall terminate as to SRFC, and, that notwithstanding Section 7 of each 
such agreement, following termination of each agreement, SRFC and Buyer shall 
not be bound by the terms of the agreements and not be entitled to receive or 
obligated to make payments under the agreements attributable to any period 
during which SRFC was a party to each agreement.

     24.  Section 338(h)(10) Election.  Minnesota Power and Synertec agree to 
jointly file with Buyer the election (the "Election") provided for by Section 
338(h)(10) of the Code and the corresponding election under applicable state or 
local tax law with respect to the sale and purchase of the Stock.  In 
connection with the Election:

     (a)  Buyer and Minnesota Power and Synertec shall each provide to the 
other all necessary information, including information as to tax basis, to 
permit the Election to be made and its consequences to be accurately reflected 
for all relevant accounting and tax reporting purposes, and to take all other 
actions necessary to enable Buyer and Minnesota Power and Synertec to make the 
Election.

     (b)  Buyer shall retain at Buyer's cost an appraiser to prepare a report 
(a "Report") appraising the value of the assets of SRFC to determine the proper 
allocations (the "Allocations") of the "adjusted grossed-up basis" (within the 
meaning of Treasury Regulation Section 1.338(b)-1) and the modified adjusted 
deemed selling price ("MADSP") (within the meaning of Treasury Regulation 
Section 1.338(h)(10)-1) among the assets of SRFC in accordance with 
Section 338(b)(5) and (h)(10) of the Code and Treasury Regulations thereunder. 

     The Report shall be finalized no later than 120 days after the Closing 
Date.  At least thirty (30) days before such Report is finalized, Buyer shall 
provide Parents a copy of the appraiser's preliminary report or indication of 
the Allocations.  After receipt of such preliminary report or indication, 
Minnesota Power shall give to Buyer in writing any objections or questions 
which Minnesota Power may have to such preliminary report or indication, and 
the parties shall thereafter use their best efforts to resolve such objections 
or questions so that the Report is finalized no later than 120 days after the 
Closing Date and the Election is timely made.

     (c)  Buyer and Minnesota Power and Synertec shall jointly prepare a Form 
80-23A, together with all required attachments, and the corresponding forms 
required or 

                                     -39-

appropriate under state tax laws (collectively, an "Election Form") in a manner 
consistent with the Allocation.

     (d)  As promptly as practicable after the Closing Date, Buyer and 
Minnesota Power and Synertec shall take all action and file all documents to 
effect and preserve a timely Election.

     (e)  Minnesota Power and Synertec shall allocate the MADSP, if any, 
resulting from the Election in a manner consistent with the Allocations and 
shall not take any position inconsistent with the Election or the Allocations 
in connection with any Return; provided, however, that Minnesota Power and 
Synertec may take into account their transaction costs when calculating such 
MADSP.

     (f)  Buyer shall allocate the "adjusted grossed-up basis" of the capital 
stock of SRFC among the assets of SRFC in a manner consistent with the 
Allocations and shall not take any position inconsistent with the Election or 
the Allocations in any Return or otherwise; provided, however, that Buyer may 
add its transaction costs to the "adjusted grossed-up basis" of the capital 
stock of SRFC for purposes of allocating among the assets of SRFC.

     (g)  Synertec and Buyer acknowledge that for federal income tax purposes 
(and for state income tax purposes in those states whose income tax provisions 
follow the federal income tax treatment), the sale of the capital stock of SRFC 
from Synertec to Buyer will be treated as a sale of assets by SRFC to Buyer 
followed by a complete liquidation of SRFC with and into Synertec, and the 
parties agree to report the transaction in a manner consistent with this 
treatment and to take no positions inconsistent with this treatment.  The 
parties also agree that neither Buyer nor SRFC shall be liable for any Taxes 
resulting from the sale of the capital stock of SRFC or the Election.

     25.  Limitations on Liability.

     (a)  Any amount of indemnity payable by Parents under Sections 12, 14, 
15, 18, 19 or 23 of, or relating to the transactions contemplated by, this 
Agreement, or arising in connection with the operations, properties or 
financial condition of members of the SRFI Group shall be paid by Parents 
severally, and not jointly or jointly and severally, in accordance with the 
following principles:

          (i)  if the claim arises out of any misrepresentation or breach of 
     warranty made with respect to either Parent or its respective Affiliates, 
     the claim shall be the sole responsibility of such Parent;

         (ii)  if the claim arises out of any misrepresentation or breach of 
     warranty made with respect to LSPI Fiber, SRFI or SRFC, the claim shall be 
     the responsibility of both Parents, who shall each pay an amount of 
     indemnity with respect thereto in proportion to their respective equity 
     interests therein;

                                     -40-

        (iii)  if the claim arises out of the breach of any covenant or 
     agreement by either Parent or its respective Affiliates, the claim shall 
     be the sole responsibility of such Parent;

         (iv) if the claim arises out of the breach of any covenant or 
     agreement by LSPI Fiber, SRFI or SRFC, the claim shall be the 
     responsibility of both Parents, who shall each pay an amount of indemnity 
     with respect thereto in proportion to their respective equity interests 
     therein;

          (v)  if the claim arises out of assertion by any third party of any 
     claim (including tax claims), liability or obligation against or with 
     respect to any member of the SRFI Group which is assumed, or indemnified 
     against, by either Parent, with respect to its respective Affiliates, the 
     claim shall be the sole responsibility of such Parent;

         (vi)  if the claim arises out of assertion by any third party of any 
     claim (including tax claims), liability or obligation against or with 
     respect to any member of the SRFI Group which is assumed, or indemnified 
     against, by both Parents, with respect to LSPI Fiber, SRFI or SRFC, the 
     claim shall be the responsibility of both Parents, who shall each pay an 
     amount of indemnity with respect thereto in proportion to their respective 
     equity interests therein; and

        (vii)  if the claim arises from the termination of this Agreement, 
     compensation for which is provided in Section 19 hereof, the Parent(s) in 
     breach shall be solely responsible for such claim.

To the extent that any amount of indemnity is payable by Buyer to Parent(s), 
the foregoing principles shall apply to the determination of the Parent to whom 
such indemnity is payable, mutatis mutandis.

     (b)  No party is responsible for, and no party may recover from any other 
party, any amount of consequential (e. g., lost profits or the like) or 
punitive damages.  Notwithstanding the foregoing exclusion, to the extent any 
party hereto sustains any loss or incurs any expense compensable under this 
Agreement that contains or includes any measure of consequential or punitive 
damages awarded to a third party, then such indirect consequential and punitive 
damages may be recovered.

     (c)  Parents and Buyer specifically agree that the total amount of 
indemnification payable by Parents pursuant to Sections 15, 18 and 23 together 
shall not exceed the amount of the purchase price paid to each Parent in cash 
hereunder.

     26.  Amendment and Waiver.  This Agreement may not be amended or modified 
at any time or in any respect other than by an instrument in writing executed 
by Buyer and Parents.

     27.  Notices.  Any notice or communication provided for in this Agreement 
shall be in writing and shall be deemed given when delivered personally, 
against receipt, or 

                                     -41-

when deposited in the United States mail, registered or certified mail, return 
receipt requested to the following address:

     (a)  If to Pentair:

            Pentair, Inc.
            1500 County Road B2 West
            St. Paul, Minnesota  55113-3105
            Attention:  Ronald V. Kelly  
            Facsimile:  (612) 639-5209

     with a copy to:

            Henson & Efron, P.A.
            1200 Title Insurance Building
            400 Second Avenue South
            Minneapolis, Minnesota  55401
            Attention:  Louis L. Ainsworth
            Facsimile:  (612) 339-6364

     (b)  If to Minnesota Power:

            Minnesota Power & Light Company
            30 West Superior Street
            Duluth , Minnesota 55802
            Attention:  David G. Gartzke
            Facsimile:  (218) 723-3960

     with a copy to: 

            Minnesota Power & Light Company
            30 West Superior Street
            Duluth , Minnesota 55802
            Attention:  Steven W. Tyacke
            Facsimile:  (218) 723-3955

     (c)  If to Buyer:

            Consolidated Papers, Inc.
            231 First Avenue North
            P. O. Box 8050
            Wisconsin Rapids, WI 54495-8050
            Attention:  Carl H. Wartman
            Facsimile:  (715) 422-3203

                                     -42-

     with a copy to:

            McDermott, Will & Emery
            227 West Monroe Street
            Chicago, Illinois 60606-5096
            Attention:  Robert A. Schreck, Jr.
            Facsimile:  (312) 984-3669

Any party may change the above address for notice by written notice to the 
other parties in accordance with the provisions of this Section.

     28.  Parties in Interest.  All of the terms and provisions of this 
Agreement shall be binding upon and inure to the benefit of and be enforceable 
by Parents, Sellers and Buyer, their respective successors and permitted 
assigns.  No party may assign this Agreement without the express written 
consent of the other parties, except that Buyer may assign this Agreement to an 
affiliate of Buyer provided that no such assignment shall relieve Buyer of its 
obligations hereunder or otherwise prejudice Parents or Sellers.  This 
Agreement shall not confer any rights or remedies upon any person other than 
Buyer, Parents and Sellers and their respective successors and permitted 
assigns.

     29.  Further Assurances.  Each party shall from time to time execute and 
deliver such further documents and do such further acts as the other parties 
may reasonably require for carrying out the purposes and intent of this 
Agreement.

     30.  No Waivers.  No failure of any party to this Agreement to pursue any 
remedy resulting from a breach of this Agreement shall be construed as a waiver 
of that breach or as a waiver of any subsequent or other breach.

     31.  Governing Law.  This Agreement shall be construed in accordance with 
and governed by the substantive laws of the state of Minnesota without giving 
effect to the choice of law provisions thereof.  This Agreement shall be 
subject to the exclusive jurisdiction of the courts of, and United States 
federal courts sitting in, the state of Minnesota, and all parties hereby 
irrevocably submit to the jurisdiction of such courts with respect to any claim 
arising out of this Agreement.

     32.  Severability.  Should any provision of this Agreement be or become 
invalid in whole or in part or be incapable of performance for whatever reason, 
then the validity of the remaining provisions of this Agreement shall not be 
affected thereby.  In such event, the parties hereby undertake to substitute 
for any such invalid provision or for any provision incapable of performance, a 
provision which corresponds to the spirit and purpose of such invalid or 
unperformable provision as far as permitted under applicable law, so as to 
realize to the fullest extent possible the economic purpose and effect of this 
Agreement.

     33.  Miscellaneous.  This Agreement constitutes the entire agreement 
between the parties and supersedes all prior representations, understandings or 
agreements between them, written or oral, respecting the within subject matter. 
Headings are for 

                                     -43-

convenience only and are not intended to alter any of the provisions of this 
Agreement.  Words importing the singular number include the plural and vice 
versa.  This Agreement may be signed in multiple copies, each of which shall be 
considered an original, but all of which shall together constitute one and the 
same instrument.

                                     -44-

     IN WITNESS WHEREOF, each party has caused this Agreement to be executed by 
its authorized officer as of the date first above written.


                                   PENTAIR, INC.


                                   By:         Winslow H. Buxton
                                        --------------------------------------
                                   Its:        CEO
                                        --------------------------------------


                                   MINNESOTA POWER & LIGHT COMPANY


                                   By:         Arend J. Sandbulte
                                        --------------------------------------
                                   Its:        Chairman and President
                                        --------------------------------------


                                   SYNERTEC, INC.


                                   By:         Gerald B. Ostroski
                                        --------------------------------------
                                   Its:        President and General Manager
                                        --------------------------------------


                                   LSPI FIBER CO.


                                   By Pentair Duluth Pulp Corp.,
                                   its general partner


                                   By          Conrad V. Kelly
                                        --------------------------------------
                                   its         CEO
                                        --------------------------------------


                                   By Minnesota Pulp Incorporated II,
                                   its general partner


                                   By:  David G. Gartzke
                                        --------------------------------------
                                   Its: V. President & Chief Financial Officer
                                        --------------------------------------

                                     -45-

                                   CONSOLIDATED PAPERS, INC.


                                   By:            Patrick F. Brennan
                                        --------------------------------------
                                   Its:            President & CEO
                                        --------------------------------------

                                     -46-


                                                            Exhibit 2(b)

                         AGREEMENT FOR SALE AND PURCHASE


                                   OF STOCK


                                      OF

                              PENTAIR DULUTH CORP.

                                     AND

                         MINNESOTA PAPER INCORPORATED


                              TABLE OF CONTENTS
                                                                    Page
                                                                    ----

1.   Definitions                                                      1
2.   Purchase and Sale of Stock                                       6
3.   Purchase Price                                                   6
4.   Payment                                                          7
5.   Assumption of Liabilities                                        8
6.   Closing                                                          8
7.   Sellers' Representations, Warranties and Covenants               9
     (a)  Organization and Authority of Seller                        9
     (b)  Valid and Enforceable Agreement                             9
     (c)  Organization of Subsidiaries                               10
     (d)  Financial Statements                                       11
     (e)  No Material Change                                         11
     (f)  Leases                                                     11
     (g)  Title to Personal Property                                 12
     (h)  Real Estate                                                12
     (i)  Plant and Equipment                                        14
     (j)  Intellectual Property                                      14
     (k)  Employee Matters                                           14
     (l)  Litigation                                                 15
     (m)  Compliance with Laws                                       15
     (n)  Material Contracts                                         15
     (o)  Licenses and Permits                                       16
     (p)  Insurance                                                  16
     (q)  Employee Benefits                                          16
     (r)  Transactions with Related Parties                          18
     (s)  Bank Accounts                                              18
     (t)  Tax Matters                                                18
     (u)  Accounts Receivable                                        20
     (v)  Inventory                                                  21
     (w)  Motor Vehicles                                             21
     (x)  Product Warranty                                           21
8.   Buyer's Representations and Warranties                          22
     (a)  Organization                                               22
     (b)  Authority                                                  22
     (c)  Valid and Enforceable Agreement                            22
     (d)  No Insolvency                                              22
     (e)  Financial Statements                                       22
     (f)  Investment Intent                                          22
9.   Actions Pending Closing                                         23
     (a)  Operations                                                 23
     (b)  Access to Records                                          23

                                   -i-

     (c)  Access to Facilities                                       23
     (d)  Release of Guarantees                                      23
     (e)  Hart-Scott-Rodino Filings                                  24
     (f)  Notice of Developments                                     24
     (g)  LSPI Restrictions                                          24
     (h)  Best Efforts                                               24
     (i)  Allocation of Pulp                                         25
10.  Conditions Precedent to Obligations of Buyer                    25
     (a)  No Errors; Performance of Obligations                      25
     (b)  Officer's Certificates                                     25
     (c)  Certified Copy of Resolutions                              25
     (d)  Opinion of Sellers' Counsel                                25
     (e)  Injunctions                                                26
     (f)  Clayton Act Matters                                        26
     (g)  Environmental Matters                                      26
     (h)  LSPI Restrictions                                          26
     (i)  Financing                                                  26
     (j)  FIRPTA Certificate                                         27
     (k)  Purchase of SRFI and Niagara Paper                         27
     (l)  Real Estate Consents                                       27
     (m)  Title Insurance and Surveys                                27
     (n)  Provision of Documentation                                 29
     (o)  Other Matters                                              29
11.  Conditions Precedent to Obligations of Sellers                  29
     (a)  No Errors; Performance of Obligations                      29
     (b)  Officer's Certificate                                      29
     (c)  Certified Copy of Resolutions                              29
     (d)  Opinion of Buyer's Counsel                                 29
     (e)  Injunctions                                                30
     (f)  Clayton Act Matters                                        30
     (g)  Financing                                                  30
     (h)  Sale of SRFI and Niagara Paper                             30
     (i)  Other Matters                                              30
12.  Broker                                                          30
13.  Employees                                                       31
14.  Confidential Information                                        31
15.  Indemnification                                                 31
16.  Guaranteed Obligations                                          34
17.  Expenses                                                        35
18.  Environmental Matters                                           36
     (a)  Warranty                                                   36
     (b)  Indemnity                                                  37
     (c)  Special Provisions                                         38
     (d)  Exclusive Remedy                                           39
     (e)  Inspection of Books and Records                            39
19.  Termination of Agreement                                        39
20.  Announcements                                                   40

                                   -ii-


21.  Records                                                         40
22.   Assistance after Closing                                       40
     (a)  Retained Liabilities                                       40
     (b)  Allocation of Pulp                                         40
23.  Tax Matters; Payment of Taxes                                   41
     (a)  Tax Returns                                                41
     (b)  Apportionment of Income                                    41
     (c)  Allocation of Taxes                                        41
     (d)  Indemnity                                                  41
     (e)  Post-Closing Elections                                     42
     (f)  Control of Contest                                         42
     (g)  General                                                    43
     (h)  Sales and Transfer Taxes                                   43
     (i)  Tax Effective Time                                         43
     (j)  Survival                                                   43
     (k)  LSPI Leases Tax Rate Change Indemnity                      43
     (l)  Refund of Tax Indemnity Payment                            45
     (m)  Tax Agreements                                             45
24.  Section 338(h)(10) Election                                     45
25.  Limitations on Liability                                        46
26.  Amendment and Waiver                                            47
27.  Notices                                                         47
28.  Parties in Interest                                             49
29.  Further Assurances                                              49
30.  No Waivers                                                      49
31.  Governing Law                                                   49
32.  Severability                                                    49
33.  Miscellaneous                                                   49

                                   -iii-


     THIS AGREEMENT is made and entered into as of the 8th day of May, 1995 
between Pentair, Inc., a Minnesota corporation ("Pentair"), Minnesota Power & 
Light Company, a Minnesota corporation ("Minnesota Power") and Consolidated 
Papers, Inc., a Wisconsin corporation ("Buyer").

     WHEREAS, Pentair is the owner of all of the issued and outstanding capital 
stock of Pentair Duluth Corp., a Minnesota corporation ("Pentair Duluth"), and 
Minnesota Power is the owner of all of the issued and outstanding capital stock 
of Minnesota Paper Incorporated, a Minnesota corporation ("Minnesota Paper"); 
and

     WHEREAS, Pentair Duluth and Minnesota Paper each own a 50% equity interest 
in Lake Superior Paper Industries, a joint venture organized under the general 
partnership laws of the state of Minnesota ("LSPI"); and
     
     WHEREAS, Pentair and Minnesota Power (collectively, "Sellers") desire to 
sell and Buyer desires to purchase from Sellers all of the issued and 
outstanding capital stock of Pentair Duluth and Minnesota Paper in accordance 
with the terms and provisions of this Agreement;

     NOW, THEREFORE, in consideration of the foregoing premises and of the 
mutual covenants and conditions herein contained, the parties agree as follows:


     1.   Definitions.  The terms below shall have the following 
meanings under this Agreement unless the context clearly requires otherwise:

     (a)  "Allocations" shall have the meaning set forth in Section 24(b).

     (b)  "CERCLA" shall have the meaning set forth in Section 18(a)(iii).

     (c)  "Change of Control Date" means the date on which any one or more of 
the following events shall first have occurred:

          (i)  all or substantially all of the assets of Buyer are sold, 
     leased, exchanged or transferred in one transaction or a series of related 
     transactions;

         (ii)  beneficial ownership (as defined in Rule 13d-3 promulgated 
     under the Securities Exchange Act of 1934 (the "1934 Act") as amended from 
     time to time) of more than fifty percent (50%) of the issued and 
     outstanding voting stock of Buyer is acquired by any person, as such term 
     is used in Section 13(d) and 14(d) of the 1934 Act; or

        (iii)  Buyer merges with or into another corporation or is 
     consolidated with another corporation and Buyer is not the surviving 
     corporation or Buyer is the surviving corporation but all or part of its 
     issued and outstanding voting stock shall be changed into or exchanged for 


     stock or other securities of any other person or into cash or any other 
     property.

     (d)  "Clayton Act" means 15 U.S.C. Section 12, et seq., as amended, and 
the rules and regulations promulgated thereunder from time to time.

     (e)  "Closing" means the actual transfer and delivery of the certificates 
evidencing all of the LSPI Group Stock, the delivery of documents providing for 
the assumption of certain specified liabilities and the exchange and delivery 
by the parties of the other documents and instruments contemplated by this 
Agreement.

     (f)  "Closing Date" means June 30, 1995 or such later month end date as 
mutually agreed upon by the parties.

     (g)  "Code" means the Internal Revenue Code of 1986, as amended.

     (h)  "Commitments" shall have the meaning set forth in Section 10(m)(i).

     (i)  "Confidential Information" means all information designated as 
"Evaluation Material" in the confidentiality letter agreement dated August 26, 
1994 between Buyer and CS First Boston Corp., acting as agent for Pentair, and 
in the confidentiality letter agreement dated January 9, 1995, between Buyer 
and PaineWebber Incorporated, acting as agent for Minnesota Power, copies of 
which are attached as Schedule 1(i).

     (j)  "Election" shall have the meaning set forth in Section 24. 

     (k)  "Election Form" shall have the meaning set forth in Section 24(c).

     (l)  "Employee Benefits"  means, with respect to the employees of the 
LSPI Group, any and all pension or welfare benefit programs, plans, 
arrangements, agreements and understandings for employees generally or specific 
individual employees of the LSPI Group to which any member of the LSPI Group 
contributes or is a party, by which any of them may be bound, or under which 
any of them may have liability,  including, without limitation, pension or 
retirement plans, deferred compensation plans, bonus or incentive plans, early 
retirement programs, severance pay policies, support funds, medical, dental, 
life and disability insurance, and payment or reimbursement plans.

     (m)  "ERISA" means the Employee Retirement Income Security Act of 1974, 
as amended.

     (n)  "Environmental Cleanup" shall have the meaning set forth in Section 
18(c)(iii).

     (o)  "Environmental Laws" means federal, state, regional, county and 
local laws, statutes, rules, regulations and ordinances and common law 
requirements as of the Closing Date relating to the environment, including, 
without limitation, those relating to 

                                   -2-

the public health or safety aspects thereof or to nuisance, trespasses, 
releases, discharges, emissions or disposals to air, water, land or 
groundwater, to the withdrawal or use of groundwater, to the use, handling or 
disposal of polychlorinated biphenyls (PCB's), asbestos or urea formaldehyde, 
to the treatment, storage, disposal or management of Hazardous Material 
(including, without limitation, petroleum, its derivatives, by-products or 
other hydrocarbons), to exposure to toxic, hazardous or other controlled, 
prohibited or regulated substances, to the transportation, storage, disposal, 
management or release of gaseous or liquid substances, and any regulation, 
order, injunction, judgment, declaration, notice or demand issued thereunder.

     (p)  "GAAP" means generally accepted accounting principles consistently 
applied and maintained throughout the period indicated and consistent with 
prior financial practice of LSPI, or Pentair or Minnesota Power (and their 
respective wholly-owned affiliates), as the case may be.

     (q)  "Guaranteed Obligations" means those obligations and liabilities of 
Sellers, listed on Schedule 5 hereto, undertaken in respect of the LSPI Group, 
including, without limitation, the Keepwell Obligations of Sellers under the 
LSPI Leases.

     (r)  "Hazardous Material" means and includes (a) petroleum or petroleum 
products, including crude oil, (b) any asbestos insulation or other material 
composed of or containing asbestos, and (c) any hazardous, toxic or dangerous 
waste, substance or material defined as such in (or for purposes of) the 
Comprehensive Environmental Response, Compensation and Liability Act, as 
amended, any so-called state or local "Superfund" or "Superlien" law, Section 
115B.02 of the Minnesota Statutes or any other Environmental Laws.

     (s)  "Indemnitee" shall have the meaning set forth in Section 15(e).

     (t)  "Indemnitor" shall have the meaning set forth in Section 15(e).

     (u)  "Intellectual Property" means all patents, utility patents and 
design patents and registrations therefor, trademarks, trade names, trademark 
rights and trademark registrations, copyrights and licenses listed on Schedule 
1(u) attached, as well as all technical documentation reflecting engineering 
and production data, design data, plans, specifications, drawings, 
technology, know-how, trade secrets, software (whether owned or licensed), 
manufacturing processes and all documentary evidence thereof relating to the 
LSPI Group and its business.

     (v)  "Joint Venturers" means both of Pentair Duluth and Minnesota Paper, 
the joint venturers of LSPI, and "Joint Venturer" means any one of them.

     (w)  "Joint Venturer Stock" means all of the issued and outstanding 
capital stock of each of Pentair Duluth and Minnesota Paper, respectively.

                                   -3-

     (x)  "Keepwell Obligations" means the obligations of Sellers under their 
respective Keepwell Agreements and Assignments entered into in connection with 
the LSPI Leases.

     (y)  "Knowledge" of Sellers or the "best knowledge" of Sellers when 
modifying any representation or warranty shall mean that no officer or other 
manager reporting directly to the President of any of the Sellers (who are 
involved in or responsible for operations of LSPI or Superior Recycled Fiber 
Industries, a joint venture organized under the general partnership laws of the 
state of Minnesota) or of any member of the LSPI Group or the SRFI Group, 
including the chief financial officer and the manager of environmental affairs, 
if any, of Sellers or of any member of the LSPI Group or the SRFI Group, has 
any knowledge that such representation and warranty is not true and correct to 
the same extent as provided therein and that:

          (i)  Sellers and each member of the LSPI Group has exercised due 
     diligence and has made appropriate investigations and inquiries of the 
     officers and business records of each of Sellers, the LSPI Group and the 
     SRFI Group; and

         (ii)  nothing has come to the attention of Sellers or of any member 
     of the LSPI Group in the course of such investigation and review or 
     otherwise which would reasonably cause such party, in the exercise of due 
     diligence, to believe that such representation and warranty is not true 
     and correct.

     Such terms shall have a cognate meaning as applied to Buyer.

     (z)  "LSPI Group" means all of Pentair Duluth, Minnesota Paper and LSPI.

     (aa) "LSPI Group Financial Statements" means (i) the audited financial 
statements (for the years ended December 31, 1991 through 1994) of LSPI and 
(ii) the unaudited internal financial statements of the other members of the 
LSPI Group for the fiscal years ended December 31, 1991 through 1994.

     (ab) "LSPI Group Stock" means all of the issued and outstanding capital 
stock of Pentair Duluth and Minnesota Paper.

     (ac) "LSPI Leases" means the five separate Facility Leases dated December 
31, 1987 between LSPI and First National Bank of Minneapolis, as Owner Trustee, 
and all Transaction Documents (as defined in the Definition of Terms attached 
as Appendix A to the Facility Leases) listed on Schedule 7(n) hereto.

     (ad) "LSPI Restrictions" means, with respect to the shares of the Joint 
Venturers, the right of first refusal granted by Pentair and Minnesota Power to 
the other to purchase its stock in their respective Joint Venturer, 
respectively, pursuant to Section 2 of the Restated Agreement to Restrict 
Transfer of Shares dated April 25, 1986.

                                   -4-


     (ae) "Leased Real Estate" shall have the meaning set forth in Section 
7(h)(ii).  The LSPI Leases are specifically excluded from the definition of 
"Leased Real Estate."

     (af) "MADSP" shall have the meaning set forth in Section 24(b).

     (ag) "1933 Act" shall have the meaning set forth in Section 8(f).

     (ah) "Net Book Value" means, with respect to the stock of each Joint 
Venturer, the difference between (x) the assets of such Joint Venturer 
(including therein, without duplication, its respective investment in the net 
assets of LSPI), less (y) all liabilities of such Joint Venturer, excluding 
current income tax accruals, deferred tax accruals and subordinated and other 
debt, whether current or long-term, owing to Sellers, all as reflected on the 
balance sheet of the respective Joint Venturers as of either December 31, 1994 
or the Closing Date, as appropriate.

     (ai) "Owned Real Estate" shall have the meaning set forth in Section 
7(h)(i).

     (aj) "PBGC" shall have the meaning set forth in Section 7(q)(vi).

     (ak) "Pension Plans" shall have the meaning set forth in Section 7(q)(i).

     (al) "Permitted Exceptions" shall have the meaning set forth in 
Section 10(m)(i).

     (am) "Real Estate" means all real property, whether owned, under contract 
to purchase, or leased by the LSPI Group, including all land, buildings, 
structures, easements, appurtenances and privileges relating thereto, and all 
leaseholds, leasehold improvements, fixtures and other appurtenances and 
options, including options to purchase and renew, or other rights thereunder, 
used or intended for use in connection with the business of the LSPI Group, 
including the eight parcels of real property adjacent to LSPI, which are owned 
by Pentair Duluth and Minnesota Paper.

     (an) "Report" shall have the meaning set forth in Section 24(b).

     (ao) "Return(s)" means any return (including any consolidated or combined 
return), report, claim for refund, information return or statement, relating to 
any Tax, including any schedule or attachment thereto.

     (ap) "SRFC" shall have the meaning set forth in Section 10(k).

     (aq) "SRFI Group" means all of SRFC, LSPI Fiber Co., a joint venture 
organized under the general partnership laws of the state of Minnesota, 
Synertec, Inc., a Minnesota corporation, and Superior Recycled Fiber 
Industries, a joint venture organized under the general partnership laws of the 
state of Minnesota.

     (ar) "Statement of Net Book Value" means the audited balance sheet of 
each Joint Venturer as of the Closing Date in substantially the form reflected 
in Schedule 3.2 

                                   -5-

from which the calculation of the purchase price of the Joint Venturer Stock 
will be made in accordance with Section 3 hereof.

     (as) "Surveys" shall have the meaning set forth in Section 10(m)(ii).

     (at) "Survey Defect" shall have the meaning set forth in Section 
10(m)(iii).

     (au) "Tax" or "Taxes"  means all income, gross receipts, sales, use, 
employment, franchise, profits, property or other taxes, fees, stamp taxes and 
duties, assessments or charges of any kind whatsoever (whether payable directly 
or by withholding), together with any interest and any penalties, additions to 
tax or additional amounts imposed by any taxing authority with respect thereto.

     (av) "Tax Indemnity Agreements" means all of the tax indemnity agreements 
entered into in connection with the LSPI Leases.

     (aw) "Title Company" shall have the meaning set forth in Section 
10(m)(i).

     (ax) "Title Policy" shall have the meaning set forth in Section 10(m)(i).

     (ay) "Unpermitted Exception" shall have the meaning set forth in Section 
10(m)(iii).

     2.   Purchase and Sale of Stock.  Subject to the terms and conditions 
herein stated, Sellers shall sell, transfer and deliver to Buyer, and Buyer 
shall purchase from Sellers, at the Closing all of each Seller's right, title 
and interest in all of the issued and outstanding capital stock of its Joint 
Venturer.  Promptly following Closing, Buyer shall cause Pentair Duluth to 
change its name to exclude the word "Pentair" and shall promptly make all 
filings necessary to reflect such change.

     3.   Purchase Price.  The aggregate purchase price to be paid by Buyer to 
each Seller for the purchase of all of the issued and outstanding capital stock 
of its respective Joint Venturer, shall be:

     (a)  $58,800,000;

     (b)  increased for any increase, or decreased for any decrease, in the 
Net Book Value of such Joint Venturer from December 31, 1994 to the Closing 
Date; and

     (c)  less one-quarter of the aggregate amount of transition incentives to 
be paid by LSPI pursuant to Section 13 to certain LSPI employees, which amount 
is set forth on Schedule 3.1.

The Net Book Value shall be determined in accordance with GAAP as set forth on 
Schedule 3.2, which Schedule sets forth sample calculations of the Net Book 
Value as of 

                                   -6-

December 31, 1994 and March 31, 1995 and the exceptions to GAAP used in 
calculating Net Book Value.

     Within sixty (60) days following the Closing Date, each Seller shall 
prepare and deliver to Buyer a Statement of Net Book Value for its respective 
Joint Venturer, which shall be audited by such Seller's auditors based upon an 
audit of LSPI's books, including an inventory taken by LSPI beginning at 7:00 
a.m. on the Closing Date and a review of the liabilities as of the Closing 
Date.  The taking of such inventory may be observed by Buyer and Buyer's 
auditors.  Each Statement of Net Book Value shall have attached thereto an 
auditor's report in the form attached as Schedule 3.3.  To the extent 
possible, Sellers will provide Buyer with a preliminary draft of the Statement 
of Net Book Value.  Buyer and Sellers will in good faith attempt to resolve any 
disputes with respect to such calculation before the final Statements of Net 
Book Value are rendered.

     Buyer may review the Statements of Net Book Value and Sellers shall make 
available the work papers of Sellers' auditors to Buyer and its accountants and 
Buyer and its accountants may make inquiries of representatives of Sellers and 
their auditors.  Buyer shall give written notice to Sellers of any objection to 
their respective Statements of Net Book Value within thirty (30) days after 
Buyer's receipt thereof.  The notice shall specify in reasonable detail the 
items in such Statement of Net Book Value to which Buyer objects and shall 
provide a summary of Buyer's reasons for such objections.

     Any dispute between Buyer and either or both Sellers with respect to the 
respective Statements of Net Book Value which is not resolved within fifteen 
(15) business days after receipt by Sellers of the written notice from Buyer 
shall be referred for decision to Ernst & Young LLP who shall cause an audit 
partner who is not engaged in providing services to Sellers or Buyer to decide 
the dispute within thirty (30) days of such referral.  The decision by the 
partner shall be final and binding on Sellers and Buyer.  In resolving any 
disputed item such audit partner may not assign a value to any item greater 
than the greatest value for such item claimed by either party or less than the 
smallest value for such item claimed by either party.  The cost of retaining 
the audit partner with respect to resolving disputes as to the Statements of 
Net Book Value shall be borne by the respective Seller and Buyer equally, 
unless such partner determines, based on his or her evaluation of the good 
faith of the parties, that the fees should be borne unequally.

     4.   Payment.  The estimated purchase price shall be paid in U.S. dollars 
in immediately available funds on the Closing Date.  The amount to be paid on 
the Closing Date shall be based upon preliminary Statements of Net Book Value 
delivered to Buyer at least five (5) business days prior to Closing, which 
shall be calculated based on the unaudited balance sheets of the respective 
Joint Venturers as of the month end prior to the Closing Date, prepared by 
Sellers on a basis consistent with Schedule 3.2, plus any amounts advanced by, 
and less any distributions paid to each Seller or its respective Joint Venturer 
between one month prior to the Closing Date and the Closing Date.  Following 
delivery of the final Statements of Net Book Value under Section 3, any balance 
due to Sellers or refunds due to Buyer reflected thereon shall be paid within 
ten (10) days of such delivery, (unless there is an objection under Section 3, 
in 

                                   -7-

which case the amount not in dispute shall be paid within ten (10) days of 
such delivery, and the balance in dispute shall be paid within ten (10) days of 
the resolution of such objection) together with interest on such amount from 
the Closing Date at the announced large business prime rate of Morgan Guaranty 
Trust Company of New York.

     Except as Buyer may be otherwise advised in writing by Sellers at least 
five (5) days prior to any payment, all payments of the purchase price by Buyer 
to Sellers at the Closing or any other amounts owed by Buyer to Sellers shall 
be by wire transfer to:

Seller                 Bank and Routing Number            Bank Account Number

Pentair             First Bank National Association           xxx-xxxxxxx
                    (091000022) to attention of 
                    Karen Johnson

Minnesota Power     First Bank National Association           xxx-xxxxxxx
                    (091000022) to attention of
                    Russell Arneson

     Except as Sellers may be otherwise advised in writing by Buyer at least 
five (5) days prior to any payment, payment of any refund to Buyer based on the 
final determination of the purchase price pursuant to Section 3 or any other 
amounts owed by Sellers to Buyer hereunder shall be made by wire transfer to 
Harris Trust and Savings Bank - Consolidated Papers, Inc., Account No. xxxxxxx 
(ABA wire transfer routing number xxxx-xxxx-x), marked to the attention of J.R. 
Matsch.  

     All wire transfers shall be sent by 10:00 a.m. Minneapolis time on the 
date of such payment, unless otherwise agreed by the parties.

     5.   Assumption of Liabilities.  At Closing, Buyer shall assume and agree 
to satisfy and perform, to the extent not satisfied or performed prior to the 
Closing Date, without any cost or charge to Sellers, all obligations of Sellers 
as guarantor under any Guaranteed Obligation.  If the assumption of the 
Guaranteed Obligations by Buyer under this Section 5 requires the consent of 
any third party, Buyer and each respective Seller agree they will use their 
best efforts to obtain such written consent to such assumption; provided, 
however, that in no event shall Buyer be subject, without its consent, to terms 
and conditions more restrictive than those set forth in the existing 
obligations of Sellers being assumed.  Failing the consent of such creditor, 
Buyer shall indemnify Sellers in accordance with the provisions of Section 16 
hereof against any claim arising out of the Guaranteed Obligations.

     6.   Closing.  (a)  The Closing shall take place on the Closing Date at 
the offices of Henson & Efron, P.A. in Minneapolis, Minnesota, at 9:00 o'clock 
a.m., local time, or at such other time and place as may be mutually agreed 
upon.  Buyer and Sellers each agree they shall use their best efforts and shall 
cause all relevant affiliates to use their best efforts to obtain fulfillment 
of all conditions to Closing set forth in Sections 10 and 11 hereof.

                                   -8-

     (b)  At the Closing, Sellers shall deliver to Buyer certificates 
evidencing ownership of all of the LSPI Group Stock, in form ready for transfer 
and duly endorsed to Buyer, together with such other documents and instructions 
as provided herein, reasonably satisfactory in form and substance to Buyer and 
its counsel, as shall be required to vest in Buyer good and marketable title, 
free and clear of all liens, charges and encumbrances (except as specified in 
this Agreement, if any) in and to the LSPI Group Stock.  At the Closing, each 
Seller shall deliver to Buyer a release of all claims of such Seller and any 
person or entity affiliated therewith against all members of the LSPI Group, in 
substantially the form of Schedule 6.

     (c)  At the Closing, Buyer shall deliver to Sellers such documents and 
instruments as provided herein and such undertakings, and other instruments as 
shall be required to cause Buyer to assume the obligations as provided in 
Section 5, all of which shall be reasonably satisfactory in form and substance 
to Sellers and their respective counsel.

     7.   Sellers' Representations, Warranties and Covenants.  Subject to the 
several liability of Sellers provided for in Section 25 hereof, Sellers 
represent, warrant and covenant to Buyer as follows:

     (a)  Organization and Authority of Seller.  Each Seller is a duly 
organized and validly existing corporation in good standing in the state of 
Minnesota.  Sellers have the complete and unrestricted right, power and 
authority to sell, transfer and assign all of the issued and outstanding 
capital stock of their respective Joint Venturers pursuant to this Agreement 
and to carry out the transactions contemplated hereby without the consent of 
any other person (except as otherwise set forth herein), subject only to the 
LSPI Restrictions.  The execution, delivery and performance of this Agreement 
and the consummation of the transactions contemplated hereby have been duly 
authorized by the Boards of Directors of each Seller.

     (b)  Valid and Enforceable Agreement.  This Agreement constitutes a valid 
and binding agreement of each respective Seller, enforceable in accordance with 
its terms, except insofar as enforceability may be limited by bankruptcy, 
insolvency, reorganization, moratorium or similar laws affecting the rights of 
creditors generally, and by general equitable principles.  Neither the 
execution and delivery of this Agreement, nor the consummation of the 
transactions contemplated hereby, nor the performance of its obligations 
hereunder materially violates or conflicts with, results in a material breach 
of, or constitutes a material default under (i) to the best knowledge of each 
respective Seller, any law, rule or regulation, or (ii) subject to the 
obtaining of necessary consents, which consents are listed on Schedule 7(b), 
under various loan agreements, guarantees, leases, and other agreements 
(including without limitation the LSPI Leases and the LSPI Restrictions), any 
agreement or other restriction of any kind or character to which such Seller or 
any member of the LSPI Group is a party, by which such Seller or any member of 
the LSPI Group is bound, or to which any of the properties of any member of the 
LSPI Group is subject.  Neither the execution or delivery of this Agreement, 
nor the consummation of the transactions contemplated hereby, nor the 
performance of its obligations hereunder violates or conflicts with, results in 
a breach of, or constitutes a default under (i) any judgment or order, decree, 
award or ruling to which such Seller or 

                                   -9-

any member of the LSPI Group is subject, or (ii) the Articles of Incorporation 
or By-Laws of such Seller or its respective Joint Venturer, or the Joint 
Venture Partnership Agreement, excluding the LSPI Restrictions.

     (c)  Organization of Subsidiaries.

          (i)  Each member of the LSPI Group is a duly organized and validly 
     existing corporation or joint venture general partnership, as the case may 
     be, in good standing, to the extent applicable, in its respective state of 
     incorporation or organization, as set forth in Schedule 7(c).  Each member 
     of the LSPI Group has all requisite corporate or general partnership power 
     and authority, as the case may be, to carry on its respective business as 
     presently conducted in all states in which it currently does business.  
     Each member of the LSPI Group is duly licensed, registered and qualified 
     to do business as a foreign corporation, partnership or joint venture and, 
     to the extent applicable, is in good standing in all jurisdictions in 
     which the ownership, leasing or operation of its assets or the conduct of 
     its business requires such qualification, except where the failure to be 
     so licensed, registered or qualified would not have a material adverse 
     effect upon its business or assets.

         (ii)  All of the outstanding shares of capital stock of Pentair 
     Duluth and Minnesota Paper have been duly authorized and validly issued, 
     are fully paid and nonassessable, and are owned, beneficially and of 
     record, by Pentair and Minnesota Power respectively and are free and clear 
     of all liens, claims, encumbrances and restrictions whatsoever, other than 
     the LSPI Restrictions.  Pentair Duluth's entire equity capital consists of 
     25,000 authorized shares of common stock, par value $1.00 per share, of 
     which 1,000 shares are issued and outstanding.  Minnesota Paper's entire 
     equity capital consists of 1,000 authorized shares of common stock, no par 
     value, of which 1,000 shares are issued and outstanding.  No shares of 
     capital stock of, or other ownership interest in, either of the Joint 
     Venturers are reserved for issuance and there are no outstanding options, 
     warrants, rights (other than the LSPI Restrictions), subscriptions, claims 
     of any character, agreements, obligations, convertible or exchangeable 
     securities, or other commitments, contingent or otherwise (except for the 
     Keepwell Obligations), relating to the capital stock of, or other 
     ownership interest in, either of such corporations pursuant to which 
     either of such corporations is or may become obligated to issue or 
     exchange any shares of capital stock of, or other ownership interest in,
     such corporation.

        (iii)  Except as set forth on Schedule 7(c), no member of the LSPI 
     Group owns, directly or indirectly, any capital stock or other equity or 
     ownership or proprietary interest in any other corporation, partnership, 
     association, trust, joint venture (other than in LSPI) or other entity.

                                   -10-

         (iv)  True and complete copies of the LSPI Leases and the agreements 
     containing the LSPI Restrictions have been furnished to Buyer; each of 
     those agreements is currently in good standing and in full force and 
     effect and no default by either Seller or any member of the LSPI Group 
     party thereto, or to the best knowledge of Sellers, any other party 
     thereto, exists thereunder.

     (d)  Financial Statements.  

          (i)  Attached hereto as Schedule 7(d) are the LSPI Group Financial 
     Statements.  The LSPI Group Financial Statements were (and the Statements 
     of Net Book Value will be) prepared in accordance with the books and 
     records of the respective members of the LSPI Group which were used in the 
     preparation of each Seller's audited consolidated financial statements for 
     the fiscal years ended December 31, 1993 and December 31, 1994.

         (ii)  The LSPI Group Financial Statements were (and the Statements of 
     Net Book Value will be) prepared in accordance with GAAP, consistently 
     applied, but, except for the audited financial statements of LSPI, do not 
     include all information and footnotes required by generally accepted 
     accounting principles for complete financial statements.  The Statements 
     of Net Book Value will adequately reflect all liabilities and obligations 
     of the LSPI Group required to be shown thereon in accordance with GAAP 
     except for those exceptions to GAAP set forth on Schedule 3.2.

        (iii)  The LSPI Group Financial Statements as of such dates or for the 
     period ending on such dates present fairly the financial position and the 
     results of operations of the members of the LSPI Group for the periods 
     covered thereby.  All adjustments, consisting of normal recurring accruals 
     and eliminations and other similar adjustments, considered necessary for a 
     fair presentation have been included.

     (e)  No Material Change.  To the best knowledge of Sellers, since 
December 31, 1994 there has been no material adverse change in the business, 
financial position or results of operations of the LSPI Group, taken as a 
whole.

     (f)  Leases.  Sellers have furnished or made available to Buyer copies of 
all leases and subleases of any personal property used in the operations of 
members of the LSPI Group, including without limitation the LSPI Leases, to 
which any member of the LSPI Group is a party, all of which are listed on 
Schedule 7(f).  Except as set forth on Schedule 7(f), no consents or 
approvals are required in connection with the transactions contemplated 
hereby.  No event has occurred which is or, after the giving of notice or 
passage of time, or both, would constitute, a default under or a material 
breach of any lease by any member of the LSPI Group or, to the best knowledge 
of Sellers, any other party to such leases.  As of the Closing Date, each 
lease (including without limitation 

                                   -11-

the LSPI Leases) shall be in full force and effect in accordance with its 
terms, as amended from time to time.

     (g)  Title to Personal Property.  Each member of the LSPI Group has good 
and marketable title to its respective owned personal property as reflected in 
the LSPI Group Financial Statements, free and clear of all liens, claims, 
encumbrances and restrictions, except (i) those reflected on Schedule 7(d) 
attached and (ii) defects in title, and liens, charges and encumbrances, if 
any, as do not materially detract from the value of or otherwise materially 
impair the current operations or financial conditions of the LSPI Group, taken 
as a whole.

     (h)  Real Estate.

          (i)  Schedule 7(h)(i) sets forth an accurate legal description of 
     all Real Estate owned by a member of the LSPI Group or for which a member 
     of the LSPI Group has contracted to become the owner (the "Owned Real 
     Estate"), including identification of the current owner of fee simple 
     title thereto.  The party identified as the owner on Schedule 7(h)(i) is 
     the legal and equitable owner of good and marketable title in fee simple 
     absolute to such Owned Real Estate, including the buildings, structures, 
     spurtracks (as set forth on Schedule 7(h)(i)) and improvements situated 
     thereon and appurtenances thereto, in each case free and clear of all 
     tenancies and other possessory interests, security interests, conditional 
     sale or other title retention agreements, liens, encumbrances, mortgages, 
     pledges, assessments, easements, rights of way, covenants, restrictions, 
     reservations, options, rights of first refusal, defects in title, 
     encroachments and other burdens, except as disclosed on Schedule 7(h)(i).  
     Except as disclosed on Schedule 7(h)(i), a member of the LSPI Group is in 
     possession of the Owned Real Estate.  All contracts, agreements, options 
     and undertakings affecting the Owned Real Estate are set forth in Schedule 
     7(h)(i) and are legally valid and binding and in full force and effect, 
     and, to Sellers' knowledge, there are no defaults, offsets, counterclaims 
     or defenses thereunder, and the LSPI Group has received no notice that any 
     default, offset, counterclaim or defense thereunder exists.  Sellers have 
     delivered or made available to Buyer correct and complete copies of all 
     such contracts, agreements, options and undertakings.

          On Schedule 7(h)(i), certain parcels of Owned Real Estate are 
     identified as "Buffer Real Estate."  Such parcels are located across North 
     Central Avenue from the LSPI Mill, and are owned by either Pentair Duluth 
     or Minnesota Paper.  The particular Seller who holds title to a parcel of 
     Buffer Real Estate represents and warrants to Buyer that it has not made 
     or done any act or thing to impair the quality or marketability of title 
     to the Buffer Real Estate.  Except for the preceding sentence, none of the 
     representations, warranties or covenants of Section 7(h) shall apply to 
     the Buffer Real Estate.

                                   -12-

         (ii)  Schedule 7(h)(ii) sets forth an accurate, correct and complete 
     list of all Real Estate leased, subleased or occupied by a member of the 
     LSPI Group (such interests are the "Leased Real Estate"), including 
     identification of the lease or sublease and the parties thereto and list 
     of contracts, agreements, leases, subleases, options and commitments, oral 
     or written, affecting such Leased Real Estate or any interest therein to 
     which a member of the LSPI Group is a party or by which any of its 
     interest in the Leased Real Estate is bound.  The LSPI Group member 
     identified in the Real Estate Lease has been in peaceable possession of 
     the Leased Real Estate since the commencement of the original term of such 
     Real Estate Lease.  Sellers have delivered to Buyer correct and complete 
     copies of each Real Estate Lease.

        (iii)  To the knowledge of the LSPI Group, except as set forth on the 
     Flood Insurance Rate Map prepared by the Federal Emergency Management 
     Agency (Community/Panel No. 270420/004B; revised as of November 1992), no 
     Real Estate is located within a flood or lakeshore erosion hazard zone for 
     which flood insurance is now required under the National Flood Insurance 
     Program.  Neither the whole nor any portion of any Real Estate has been 
     condemned, requisitioned or otherwise taken by any public authority, and 
     no notice of any such condemnation, requisition or taking has been 
     received, other than the condemnations conducted in connection with 
     acquisitions of the Real Estate for use by LSPI.  To the knowledge of the 
     LSPI Group, no such condemnation, requisition or taking is threatened or 
     contemplated, except as set forth on Schedule 7(h)(iii).  The LSPI Group 
     has no knowledge of any public improvements which may result in special
     assessments against or otherwise affect the Real Estate, except as set 
     forth on Schedule 7(h)(iii).

         (iv)  The Real Estate is in good operating condition and repair 
     (reasonable wear and tear excepted) and is suitable and adequate for the 
     purposes for which it is presently being used.

          (v)  To the knowledge of the LSPI Group, except as set forth on 
     Schedules 7(h) or 7(o), the Real Estate is in compliance with all 
     applicable zoning, building, health, fire, water, use or similar statutes, 
     codes, ordinances, laws, rules or regulations.  To the knowledge of the 
     LSPI Group, the zoning of each parcel of Real Estate permits the existing 
     improvements and the continuation following consummation of the 
     transaction contemplated hereby of the business of the LSPI Group as 
     presently conducted thereon.  The LSPI Group has all certificates of 
     occupancy and authorizations required to utilize the Real Estate.  To the 
     knowledge of the LSPI Group, the LSPI Group has all easements and rights 
     necessary to conduct its business, including easements for all utilities, 
     services, roadway, railway and other means of ingress and egress.  To the 
     knowledge of the LSPI Group, the LSPI Group holds such rights to off-site 
     facilities as are necessary to ensure compliance in all material 

                                   -13-

     respects with all zoning, building, health, fire, water, use or similar 
     statutes, codes, ordinances, laws, rules or regulations and all such 
     rights, to the extent held by the LSPI Group or Sellers, shall be conveyed 
     as directed by Buyer at Closing.  Except as disclosed on Schedule 7(h)(i), 
     to the knowledge of the LSPI Group, no fact or condition exists which 
     would result in the termination or impairment of access to the Real Estate 
     or discontinuation of sewer, water, electric, gas, telephone, waste 
     disposal or other utilities or services.  Except as disclosed on Schedule 
     7(h)(i), to the knowledge of the LSPI Group, the facilities servicing the 
     Real Estate are in full compliance with all codes, laws, rules and 
     regulations.

         (vi)  Seller has delivered or made available to Buyer accurate, 
     correct and complete copies of all existing title insurance policies, 
     title reports and surveys, if any, with respect to each parcel of Real 
     Estate.

     (i)  Plant and Equipment.  Sellers have furnished to Buyer an accurate 
list of all plant and equipment, attached as Schedule 7(i), owned by LSPI.  
To the best knowledge of Sellers, all plant, structures and equipment, 
currently being used in the conduct of LSPI's operations are in all material 
respects in good operating condition and repair, subject to normal wear and 
tear, and to the best of each Seller's knowledge, are free from material 
structural or mechanical deficiencies, except as disclosed on Schedule 7(i) 
attached.

     (j)  Intellectual Property.  Sellers have furnished to Buyer an accurate 
list of all Intellectual Property, attached as Schedule 1(u), owned or used by 
the LSPI Group.  To the best knowledge of Sellers, no one is infringing upon 
any rights of the LSPI Group with respect to any of the Intellectual Property, 
no member of the LSPI Group is infringing on or otherwise acting adversely to 
the rights of any person under, or in respect to, any patents, patent rights, 
copyrights, licenses, trademarks, trade names or trademark rights owned by any 
person or persons, and there is no claim or action pending or threatened with 
respect thereto.  Except as set forth in Schedule 1(u), there are no royalty, 
commission or similar arrangements, and no licenses, sublicenses or agreements 
pertaining to any of the Intellectual Property.

     (k)  Employee Matters.  Except as set forth on Schedule 7(k),neither 
Sellers nor any member of the LSPI Group has any pending complaint filed with 
the National Labor Relations Board or any other governmental agency alleging 
unfair labor practices, human rights violations, employment discrimination 
charges or the like against any member of the LSPI Group which might have a 
material adverse effect upon the LSPI Group, its operations or financial 
condition, and to the best knowledge of Sellers, there are no existing facts 
which might result in any such complaint or charge.  Sellers have provided to 
Buyer a complete list of all employees of the LSPI Group, including name, 
title or position, present annual compensation, years of service and any 
interest in Employee Benefits.  Each member of the LSPI Group has complied in 
all material respects with all laws, rules and regulations relating to the 
employment of labor, including provisions related to wages, hours, equal 
opportunity, occupational health and safety, severance, collective bargaining 
and the payment of social security and other

                                   -14-

employment taxes.  No member of the LSPI Group has any retired employees who 
have elected to receive retiree medical benefits under any Employee Benefits.  
No member of the LSPI Group has any collective bargaining agreement or other 
such contracts.  Other than with respect to LSPI, no member of the LSPI Group 
has any employees.

     (l)  Litigation.  Except as set forth on Schedule 7(l), there are no 
legal actions, suits, arbitrations or other legal, administrative or 
governmental proceedings or investigations (other than tax audits or 
investigations) pending or, to the best knowledge of Sellers, threatened 
against any member of the LSPI Group which might have a material adverse effect 
upon the operations or financial condition of the LSPI Group, taken as a 
whole.  No member of the LSPI Group is subject to any judgment, order, writ, 
injunction, stipulation or decree of any court or any governmental agency or 
any arbitrator, except as may be set forth herein or in any Schedule hereto.

     (m)  Compliance with Laws.

          (i)  To the best knowledge of Sellers, the operations of the members 
     of the LSPI Group have been and are being conducted in accordance with all 
     applicable laws, rules and regulations of applicable governmental 
     authorities (other than those covered in Section 18 hereof), except for 
     such breaches that do not and cannot reasonably be expected to (either 
     individually or in the aggregate) materially and adversely affect the 
     financial condition or operations of the LSPI Group, taken as a whole.

         (ii)  To the best knowledge of Sellers, neither the LSPI Group, nor 
     any of their officers or employees, has, directly or indirectly, given or 
     agreed to give any rebate, gift or similar benefit to any supplier, 
     customer, distributor, broker, governmental employee or other person, who 
     was, is or may be in a position to help or hinder the business of the LSPI 
     Group (or assist in connection with any actual or proposed transaction) 
     which could subject Buyer or the business of the LSPI Group to any penalty 
     in any civil, criminal or governmental litigation or proceeding or which 
     would have a material adverse effect on the business of the LSPI Group.

     (n)  Material Contracts.  Sellers have furnished to Buyer a list, 
attached as Schedule 7(n), of all contracts and arrangements, written or oral, 
which alone or together with other contracts and arrangements with the same 
party are material to the LSPI Group taken as a whole.  All members of the 
LSPI Group have, in all material respects, performed all of the respective 
obligations required to be performed by them to date and are not, and will not 
be as of the Closing Date, in default under any material provision of such 
contracts or arrangements.  All such contracts and arrangements are and will be 
in good standing as of the Closing Date and in full force and effect according 
to their terms.  For purposes of this Section 7(n), a contract shall be deemed 
to be material, (i) if it involves remaining payments of more than $300,000, or 
(ii) if it cannot by its terms be completed or terminated without penalty 
within 180 days from the Closing Date, or (iii) if the absence of such contract 
would have a material adverse effect on the business of the LSPI Group.

                                   -15-

     (o)  Licenses and Permits.  Except as set forth on Schedule 7(o), each 
member of the LSPI Group has all requisite licenses and permits to operate its 
business as currently conducted and Sellers have not been advised of, nor to 
the best knowledge of Sellers is there any basis for, any revocation or 
anticipated revocation of any permits, licenses or zoning variances, or of any 
changes to existing or pending zoning or other regulations, permits or licenses 
which would materially and adversely affect the conduct of its operations as 
presently conducted.

     (p)  Insurance.  Schedule 7(p) contains an accurate and complete list and 
description of insurance policies (including the name of the insurer, coverage, 
premium and expiration date) which each member of the LSPI Group currently 
maintains, or is named as an additional insured or is entitled to benefits 
under (including coverage for events occurring under prior policies).  To the 
best knowledge of Sellers, except as set forth on Schedule 7(p), all such 
policies are in full force and effect and shall survive the Closing for the 
benefit of LSPI.

     (q)  Employee Benefits.  Schedule 7(q) contains a complete listing of 
Employee Benefits provided to employees of LSPI.  To the best knowledge of 
Sellers, except as set forth on Schedule 7(q), (i) the costs of all such 
Employee Benefits which are paid currently by LSPI are reflected as expenses in 
the LSPI Group Financial Statements; and (ii) the cost of such Employee 
Benefits which are, in whole or in part, not paid currently are adequately 
reserved for in the LSPI Group Financial Statements.  Sellers do not provide 
either directly or indirectly any Employee Benefits to the employees of LSPI.

          (i)  Pension Plans.  Sellers have delivered to Buyer accurate, 
     correct and complete copies of (i) any pension plan (as defined in Section 
     3(2) of ERISA) in which the employees of LSPI currently participate a list 
     of which is set forth on Schedule 7(q) (the "Pension Plans"), (ii) the 
     three most recent annual reports on Form 5500 and attached Schedule B, if 
     any,  filed with the Internal Revenue Service with respect to the Pension 
     Plans, (if any such report was required), (iii) each trust agreement and 
     group annuity contract relating to the Pension Plans, if any, and (iv) 
     certified financial statements, if any.  Sellers have disclosed to Buyer 
     the information set forth in the attorney's responses to auditor's 
     requests for information related to the Pension Plans.

         (ii)  Pension Plan Funding.  All contributions to, and payments from, 
     each Pension Plan that may have been required to be made in accordance 
     with each Pension Plan and, when applicable, Section 302 of ERISA or 
     Section 412 of the Code, have been timely made.  All such contributions 
     to, and payments from, the Pension Plans, except those payments to be made 
     from a trust qualified under Section 401(a) of the Code, for any period 
     ending on or before the Closing Date that are not yet, but will be, 
     required to be made, will be properly accrued and reflected in the 
     Statements of Net Book Value.  No employee of the LSPI 

                                   -16-

     Group participates in or has previously participated in any defined 
     benefit plan, as defined in Section 3(35) of ERISA, of LSPI.

        (iii)  Pension Plan Compliance With the Code and ERISA.  The Pension 
     Plans (and any related trust agreement or annuity contract or any other 
     funding instrument) materially comply currently, and have materially 
     complied in the past, both as to form and operation, with the provisions 
     of ERISA and the Code (including Section 410(b) of the Code relating to 
     coverage), where required in order to be tax-qualified under Section 
     401(a) of the Code, and all other applicable laws, rules and regulations; 
     all necessary governmental approvals for the Pension Plans have been 
     obtained.  Except as set forth in Schedule 7(q), each Pension Plan (and 
     any related trust agreements or annuity contracts or other funding 
     instrument) has received a determination letter from the Internal Revenue 
     Service to the effect that such Pension Plan (and any related trust 
     agreements or annuity contracts or other funding instrument) is qualified 
     and exempt from federal income taxes under Sections 401(a) and 501(a), 
     respectively, of the Code, and no such determination letter has been 
     revoked nor, to the knowledge of Sellers, has revocation been threatened, 
     nor has such Pension Plan been amended since the date of its most recent 
     determination letter or application therefor in any respect which would 
     adversely affect its qualification or materially increase its cost.

         (iv)  Employee Benefits Administration.  The Pension Plans and 
     Employee Benefits have been administered to date in material compliance 
     with the requirements of the Code and ERISA.  All legally required 
     reports, returns and similar documents with respect to the Pension Plans 
     and Employee Benefits required to be filed with any government agency or 
     distributed to any Pension Plans or Employee Benefits participant have
     been duly and timely filed or distributed.  Except as set forth in 
     Schedule 7(q), there are no investigations by any governmental agency, 
     termination proceedings or other claims (except claims for benefits 
     payable in the normal operation of the Pension Plans or Employee 
     Benefits), suits or proceedings against or involving the Pension Plans or 
     Employee Benefits or asserting any rights or claims to benefits under the 
     Pension Plans or Employee Benefits that could give rise to any material 
     liability, nor, to the knowledge of Sellers, are there any facts that 
     could give rise to any material liability in the event of any such 
     investigation, claim, suit or proceeding.  No event has occurred and no 
     condition exists under the Pension Plans or Employee Benefits that would 
     subject the LSPI Group or Buyer to any tax under Code Sections 4971, 4972, 
     4977 or 4979 or to a fine under ERISA Section 502(c).

          (v)  Prohibited Transactions.  No "prohibited transaction" (as 
     defined in Section 4975 of the Code or Section 406 of ERISA) has occurred 
     which involves the assets of the Pension Plans or other Employee Benefits 
     and which could subject the LSPI Group or any of their 

                                   -17-

     respective employees, or a trustee, administrator or other fiduciary of 
     any trusts created under the Pension Plans to the tax or penalty on 
     prohibited transactions imposed by Section 4975 of the Code or the 
     sanctions imposed under Title I of ERISA.  Neither the LSPI Group nor any 
     trustee, administrator or other fiduciary of the Pension Plans nor any 
     agent of any of the foregoing has engaged in any transaction or acted or 
     failed to act in a manner which could subject the LSPI Group, its business 
     or Buyer to any material liability for breach of fiduciary duty under 
     ERISA or any other applicable law.

         (vi)  Liabilities to PBGC or Multiemployer or Multiple Employer 
     Plans.  No liability to the Pension Benefit Guaranty Corporation or to any 
     multiemployer or multiple employer plan has been incurred by the LSPI 
     Group.  Sellers and LSPI are not under common control within the meaning 
     of Section 414(b) or 414(c) of the Code.

     (r)  Transactions with Related Parties.  

          (i)  To the best knowledge of Sellers, except for interest and 
     corporate overhead and as set forth on Schedule 7(r), none of the
     LSPI Group members are a party to any transaction or proposed 
     transaction, including, without limitation, the leasing of real or 
     personal property, the purchase or sale of raw materials or finished 
     goods, or the furnishing of services, with either Seller or with any 
     person who is related to or affiliated with Sellers (other than another 
     member of the LSPI Group), involving the payment or accrual of more than 
     $1,000,000 during fiscal years 1993 or 1994.  

          (ii) Except as set forth on Schedule 7(r) or as reflected in the 
     LSPI Group Financial Statements dated December 31, 1994, neither Sellers 
     nor any person who is related to or affiliated with Sellers has any cause 
     of action or other claim whatsoever against or owes any material amount 
     to, or is owed any material amount by, any member of the LSPI Group.

     (s)  Bank Accounts.  Schedule 7(s) sets forth a true and complete list of 
all banks in which any member of the LSPI Group has an account, safe deposit 
box or line of credit, and the names and titles of all persons authorized 
to draw thereon or to have access thereto, and a summary description of 
the use thereof.

     (t)  Tax Matters.

          (i)  All Returns (including consolidated or combined Returns 
     including any member of the LSPI Group) required to be filed on or before 
     the Closing with respect to each member of the LSPI Group have been or 
     will be timely filed (within the time permitted by any timely filed 

                                   -18-

     extension) by or on behalf of each member of the LSPI Group and all Taxes 
     shown to be due on such Returns have been timely paid.

         (ii)  No member of the LSPI Group has been a member of an affiliated 
     group (within the meaning of Section 1504 of the Code) filing a 
     consolidated federal Return, other than a group the common parent of which 
     is a Seller. 

        (iii)  Schedule 7(t) lists all Returns filed with respect to any of 
     the members of the LSPI Group for taxable periods which remain open, 
     indicates those Returns that have been audited and indicates those Returns 
     that are currently the subject of audit or scheduled for an examination by 
     any relevant taxing authority.

         (iv)  Except as disclosed in Schedule 7(t):

               (1)  no notice or claim has ever been made by a governmental 
          authority in a jurisdiction where any member of the LSPI Group does 
          not file Returns that it is or may be subject to Taxes in that 
          jurisdiction; 

               (2)  no extension of the statute of limitations with respect to 
          any assessment or claim for Taxes has been granted by or on behalf 
          of any member of the LSPI Group; 

               (3)  there are no liens for Taxes upon the assets of any member 
          of the LSPI Group except liens for Taxes not yet due; 

               (4)  no amended Returns or refund claims have been or are 
          scheduled to be filed by or on behalf of any member of the LSPI 
          Group;

               (5)  all Taxes and other liabilities with respect to completed 
          and settled audits, examinations or concluded litigation have been 
          paid; and

               (6)  there are no pending appeals or other administrative 
          proceeding with respect to any Return of any member of the LSPI 
          Group, and there is no deficiency or refund litigation with respect 
          to any Return of any member of the LSPI Group.  No material issues 
          have been raised by any relevant taxing authorities on audit of the 
          Returns of the LSPI Group.  No member of the LSPI Group has received 
          any notice of any Tax deficiency or assessment.

                                   -19-

          (v)  No member of the LSPI Group has filed or had filed on its 
     behalf a consent to the application of Section 341(f) of the Code.  

         (vi)  Except as disclosed in Schedule 7(t), no member of the LSPI 
     Group is a party to any contractual obligation requiring the 
     indemnification or reimbursement of any person with respect to the payment 
     of any Taxes.  Except as disclosed in Schedule 7(t), no claim has been 
     asserted, which has not been resolved or satisfied, for any payment under 
     any agreement disclosed in Schedule 7(t).

        (vii)  Except as disclosed in Schedule 7(t), no member of the LSPI 
     Group is a party to or a beneficiary of any financing, the interest on 
     which is tax-exempt under the Code, and none of the assets of any member 
     of the LSPI Group is "tax-exempt use property."

       (viii)  As of the Closing Date, no member of the LSPI Group is a party 
     to any agreement, contract, arrangement, or plan that has resulted or 
     would result, separately or in the aggregate, in the payment of any 
     "excess parachute payments" within the meaning of Section 280G of the 
     Code.

         (ix)  Each member of the LSPI Group is a "United States person" 
     within the meaning of the Code.  No member of the LSPI Group has been a 
     United States real property holding corporation within the meaning of 
     Section 897(c)(2) of the Code during the applicable period specified in 
     Section 897(c)(1)(A)(ii) of the Code.  The transactions contemplated 
     herein are not subject to the tax withholding provisions of Section 3406 
     of the Code, or of Subchapter A of Chapter 3 of the Code, or of any other 
     provision of law.  No member of the LSPI Group has nor had a branch in any 
     foreign country.

          (x)  No member of the LSPI Group is a party to any joint venture, 
     partnership, or other arrangement or contract that could be treated as a 
     partnership for federal income Tax purposes, except for LSPI. 

         (xi)  Each member of the LSPI Group has withheld and paid all Taxes 
     required to have been withheld and paid, including (1) amounts paid to any 
     employee or statutory employee or any foreign person or entity and (2) any 
     backup withholding required under Section 3406 of the Code.

     (u)  Accounts Receivable.  Schedule 7(u) sets forth an accurate, correct 
and complete aging of all outstanding accounts and notes receivable of LSPI as 
of December 31, 1994.  All outstanding accounts and notes receivable reflected 
on the LSPI Group Financial Statements are, and on the Statements of Net Book 
Value will be, due and valid claims against account debtors for goods or 
services delivered or rendered and subject to no defenses, offsets or 
counterclaims. All receivables arose in the ordinary course of business.  No 
receivables are subject to prior assignment, claim, lien or security interest, 
except under the Credit Agreement dated April 19, 1991, as 

                                   -20-

amended.  The books and records of LSPI reflect amounts taken as a reserve 
against noncollection of accounts receivable, which reserve has been 
established in accordance with LSPI's normal accounting policies consistently 
maintained for the fiscal years ended December 31, 1993 and December 31, 1994 
and there is no reason to believe that such reserve will not be adequate for 
its purpose.  As of the Closing Date, LSPI will not have incurred any 
liabilities to customers for discounts, returns, promotional allowances or 
otherwise, except those granted in the ordinary course of LSPI's operations and 
reflected on the Statements of Net Book Value.  No other member of the LSPI 
Group has any business operations which would result in the establishment of 
any trade accounts receivable or the granting of any discounts, returns, 
promotional allowances or similar charges.

     (v)  Inventory.  All inventories reflected on the LSPI Group Financial 
Statements are, and on the Statements of Net Book Value will be, properly 
valued at the lower of cost or market value on a first-in, first-out basis in 
accordance with GAAP.  Inventories of finished goods are of good and 
merchantable quality, whether of first line or job lot paper, contain no 
material amounts that are not salable in the ordinary course of business and 
meet the current standards and specifications of its business, except as 
reserved for on the LSPI Group Financial Statements.  Inventories of raw 
materials, stores and replacement parts are, to the best knowledge of Sellers, 
(i) of good and merchantable quality and contain no material amounts that are 
not  usable for the purposes intended in the ordinary course of LSPI's 
operations; (ii) in conformity with warranties customarily given to purchasers 
of like products; and (iii) at levels adequate for and not excessive in 
relation to the ordinary course of LSPI's operations and in accordance with 
past inventory stocking practices.  Sales of inventories subsequent to December 
31, 1994 have been made only in the ordinary course of business and at prices 
and under terms that are normal and consistent with past practice.

     (w)  Motor Vehicles.  Schedule 7(w) sets forth an accurate and complete 
list of all motor vehicles used in the business of the LSPI Group, whether 
owned or leased. All such vehicles are (i) properly licensed and registered in 
accordance with applicable law; (ii) insured as set forth on Schedule 7(p); 
(iii) in good operating condition and repair (reasonable wear and tear 
excepted) and (iv) not subject to any lien or other encumbrance, except as set 
forth on Schedule 7(w).

     (x)  Product Warranty.  The books and records of LSPI reflect amounts 
taken as a reserve against claims and allowances for product warranties, which 
reserve has been established in accordance with LSPI's normal accounting 
policies consistently maintained for the fiscal years ended December 31, 1993 
and December 31, 1994 and there is no reason to believe that such reserve will 
not be adequate for its purpose.  As of the Closing Date, LSPI will not have 
incurred any unpaid liabilities to customers for such claims and allowances, 
except those granted in the ordinary course of business and reflected on the 
Statements of Net Book Value.  

     Disclosure of any fact in any provision of this Agreement or in any 
Schedule attached hereto shall constitute disclosure thereof for the purposes 
of any other provision or Schedule.

                                   -21-

     8.   Buyer's Representations and Warranties.  Buyer represents and 
warrants to Sellers as follows:

     (a)  Organization.  Buyer is a duly organized and validly existing 
corporation in good standing under the laws of the state of Wisconsin.  Buyer 
has all requisite corporate power to own its property and carry on its business 
as presently conducted.

     (b)  Authority.  The execution, delivery and performance of this 
Agreement and the consummation of the transactions contemplated hereby have 
been duly authorized by the Board of Directors of Buyer.

     (c)  Valid and Enforceable Agreement.  This Agreement constitutes a valid 
and binding agreement of Buyer, enforceable in accordance with its terms, 
except insofar as enforceability may be limited by bankruptcy, insolvency, 
reorganization, moratorium or similar laws affecting the rights of creditors 
generally, and by general equitable principles.  Neither the execution and 
delivery of this Agreement, nor the consummation of the transactions 
contemplated hereby, nor the performance of Buyer's obligations hereunder 
materially violates or conflicts with, results in a material breach of, or 
constitutes a material default under (i) to the best knowledge of Buyer, any 
law, rule or regulation, or (ii) subject to the obtaining of necessary consents 
under various agreements, any agreement or other restriction of any kind or 
character to which Buyer is a party, by which Buyer is bound, or to which any 
of the properties of Buyer is subject.  Neither the execution or delivery of 
this Agreement, nor the consummation of the transactions contemplated hereby, 
nor the performance of Buyer's obligations hereunder violates or conflicts 
with, results in a breach of or constitutes a default under (i) any judgment or 
order, decree, award or ruling to which Buyer is subject, or (ii) the Articles 
of Incorporation or By-Laws of Buyer.

     (d)  No Insolvency.  Buyer is not currently insolvent, and neither the 
purchase of the LSPI Group Stock, the assumption of the Guaranteed Obligations 
of Sellers pursuant to Section 5, nor any related transaction or event shall 
render Buyer insolvent or leave Buyer with assets which are unreasonably small 
in relation to the business of the LSPI Group and its own business operations, 
nor does Buyer intend to incur debts beyond its ability to pay them as they 
come due.

     (e)  Financial Statements.  Buyer's financial statements for the year 
ended December 31, 1994, as filed with the Securities and Exchange Commission 
(copies of which have been delivered to Sellers) (i) were prepared in 
accordance with, and accurately reflect, its books and records, (ii) were 
prepared in accordance with generally accepted accounting principles, 
consistently applied, and (iii) present fairly the financial position and the 
results of operations of Buyer for the periods covered thereby.

     (f)  Investment Intent.  Buyer is purchasing the LSPI Group Stock for its 
own account and not with a view to, or present intention of, sale or 
distribution thereof in violation of the Securities Act of 1933, as amended 
(the "1933 Act") and such shares will not be disposed of in contravention of 
the 1933 Act.  Buyer acknowledges that the LSPI Group Stock is not and has not 
been registered with the Securities and Exchange 

                                   -22-

Commission or any securities commission or agency of any state, including the 
state of Minnesota, and may not be transferred or disposed of without 
registration under the 1933 Act and applicable state securities laws or an 
exemption from such registration.

     Disclosure of any fact in any provision of this Agreement or in any 
Schedule attached hereto shall constitute disclosure thereof for the purposes 
of any other provision or Schedule.

     9.   Actions Pending Closing.  From the date hereof through the Closing 
Date, Sellers shall take, or cause their respective Joint Venturers and LSPI to 
take, all actions necessary and appropriate to comply with, or to refrain from 
taking any action in breach of, the following provisions for the period between 
the execution of this Agreement and the termination hereof or the Closing Date:

     (a)  Operations.  Each member of the LSPI Group shall conduct its 
operations only in the ordinary course of business and shall not enter or 
permit any member of the LSPI Group to enter into any transaction or perform 
any act that would constitute a breach of the representations, warranties, or 
agreements contained herein.  Each member of the LSPI Group shall use its best 
efforts to preserve its business and its organization intact and to keep 
available the services of its present employees.  Attached as Schedule 9(a) is 
a list of capital expenditures and commitments to be initiated by the LSPI 
Group prior to the Closing Date.  No member of the LSPI Group shall initiate 
any capital expenditure or commitment, other than as set forth on Schedule 9(a) 
or initiate any capital expenditure or commitment as set forth on Schedule 9(a) 
in excess of $25,000, without Buyer's approval, which approval shall not be 
unreasonably withheld; provided, however, that any member of the LSPI Group may 
initiate emergency capital expenditures or commitments consistent with the past 
practices of such LSPI Group member.  Sellers shall promptly notify Buyer of 
such emergency expenditures or commitments.

     (b)  Access to Records.  Sellers shall, and shall cause each member of 
the LSPI Group to, make available to Buyer, its agents and employees, all books 
and records in its possession relating to the businesses of each member of the 
LSPI Group; provided, however, that Sellers have not made, and shall not be 
deemed to have made, any representations or warranties whatsoever with respect 
to any of such books or records or any other documents provided to or made 
available to Buyer, except as expressly set forth in this Agreement.

     (c)  Access to Facilities.  Buyer, its agents and employees, shall be 
given full access during regular business hours to the physical facilities of 
LSPI upon appointment with the President thereof and accompanied by such 
President or his designee(s).  Sellers and each member of the LSPI Group and 
their respective employees shall cooperate fully with Buyer in its examinations 
and inspections, but not to the detriment of the ongoing business operations of 
the LSPI Group prior to Closing.

     (d)  Release of Guarantees.  Sellers and Buyer shall agree on the actions 
to be taken with respect to the release of each Seller from, and the 
substitution (as required) 

                                   -23-

of Buyer as, the guarantor of the LSPI Leases and other Guaranteed 
Obligations.  Each party shall pay its own costs in connection with seeking and 
obtaining such releases, but if any additional or different payments or terms
are imposed by any lease participants in connection therewith, the costs or the
performance thereof shall be borne as agreed upon by Sellers and Buyer.

     (e)  Hart-Scott-Rodino Filings.  Sellers and Buyer shall cooperate in the 
prompt preparation and filing of all notifications and reports which may be 
required with respect to the transactions contemplated by this Agreement 
pursuant to Section 7A of the Clayton Act.  Sellers and Buyer shall also 
cooperate in responding promptly to all inquiries from the Federal Trade 
Commission or the Department of Justice resulting from the filing of such 
notifications and reports.

     (f)  Notice of Developments.  At least ten (10) business days prior to 
the Closing Date, Sellers shall deliver to Buyer a complete update of the 
Schedules from the date hereof.  Each party hereto shall notify the others of 
any development(s) which shall constitute a breach of any of the 
representations and warranties in Sections 7 or 8 above.  The party so notified 
has the right to terminate this Agreement within the period of ten (10) 
business days from the date of receipt of such notification, if as a result of 
such development the financial condition, results of operations or prospects of 
the LSPI Group as a whole, on the one hand, or Buyer, on the other hand, have 
been materially and adversely affected.  If within such ten (10) day period, 
the party notified shall not have exercised its right to terminate this 
Agreement, the written notice shall be deemed to have amended this Agreement 
and the relevant schedules attached thereto, to have qualified the 
representations and warranties contained in Sections 7 or 8 above and to have 
cured any misrepresentation or breach of warranty that otherwise might have 
existed hereunder by reason of such development, including for purposes of 
Section 15 hereof.

     (g)  LSPI Restrictions.  Prior to the Closing Date, each Seller shall 
waive or abandon its right of first refusal with respect to the transfer of the 
other's interest in its respective Joint Venturer pursuant to this Agreement.

     (h)  Best Efforts.  Buyer and Sellers shall use their best efforts to 
consummate the transactions contemplated by this Agreement and shall not take 
any other action inconsistent with their respective obligations hereunder or 
which could hinder or delay the consummation of the transactions contemplated 
hereby.  From the date hereof through the Closing Date, Buyer and Sellers shall 
use their best efforts to fulfill the conditions to their obligations hereunder 
and to cause their representations and warranties to remain true and correct as 
of the Closing Date.

                                   -24-

     (i)  Allocation of Pulp.  Pentair and Buyer shall take all necessary 
action to transfer all contracts for purchase of kraft pulp currently in the 
name of Pentair and allocated to LSPI into the name of LSPI or Buyer, as Buyer 
may direct.  Until such contracts are transferred or terminated, Pentair shall 
continue to perform such contracts or direct delivery of pulp thereunder to 
LSPI in the same manner as currently performed, and LSPI shall pay for such 
kraft pulp delivered to the seller thereof, or if Pentair has paid therefor, 
promptly to Pentair upon delivery.

     10.  Conditions Precedent to Obligations of Buyer.  The obligations of 
Buyer hereunder (unless expressly waived by Buyer) are subject to the 
fulfillment, prior to or at Closing, as the case may be, of each of the 
following conditions:

     (a)  No Errors; Performance of Obligations.  The representations and 
warranties of Sellers herein shall be true and correct as of the Closing Date.  
Sellers shall have performed the obligations set forth in Section 9 and in all 
material respects all of the other obligations to be performed by them 
hereunder in the time and manner herein stated.

     (b)  Officer's Certificates.  Sellers shall have delivered to Buyer 
certificates, dated as of the Closing Date, executed by their respective 
Secretaries, and in form and substance satisfactory to Buyer, certifying that 
the covenants and conditions specified in this Agreement to be met by Sellers 
have been performed or fulfilled and that the representations and warranties 
herein made by Sellers are true and correct as of such date.

     (c)  Certified Copy of Resolutions.  Sellers shall have delivered to 
Buyer a certified copy of resolutions adopted by their respective Boards of 
Directors authorizing the execution and delivery of this Agreement and the 
consummation of the transactions contemplated hereby.

     (d)  Opinion of Sellers' Counsel.  Sellers shall have delivered to Buyer 
the opinion of their respective counsel, dated as of the Closing Date, in form 
and substance satisfactory to Buyer and its counsel, giving the following clean 
legal opinions:

          (1)  valid organization of Sellers and each of the members of the 
               LSPI Group;
          (2)  corporate power and authority of each Seller to enter into the 
               Agreement;
          (3)  necessary foreign qualification of members of the LSPI Group;
          (4)  No Breach or Default Opinion with respect to members of the 
               LSPI Group;
          (5)  No Violation Opinion with respect to each Seller;
          (6)  Remedies Opinion with respect to each Seller, this Agreement
               and the LSPI Leases;
          (7)  Legal Proceedings Opinion with respect to each Seller and 
               members of the LSPI Group; 

                                   -25-

          (8)  other legal matters agreed upon between Sellers and Buyer; and
          (9)  no violation of registration provisions of the 1933 Act and 
               applicable state securities laws;

all in accordance with, and subject to the General Qualifications and other 
limitations and provisions contained in, the Legal Opinion Accord of the ABA 
Section of Business Law (1991).

     (e)  Injunctions.  No injunction shall have issued restricting or 
prohibiting the transactions contemplated by this Agreement.

     (f)  Clayton Act Matters.  The waiting period required by Section 7A of 
the Clayton Act shall have expired or been terminated.

     (g)  Environmental Matters.  The results of any inspections, soil test 
boring, soil tests, drainage tests, surveys, topographical analyses, 
engineering studies or other investigations performed or obtained by Buyer 
shall not have disclosed evidence of Hazardous Materials in, on or adjacent to 
any of the real properties owned or occupied by any member of the LSPI Group, 
other than those disclosed in any environmental studies or other information 
listed on Schedule 10(g) which would materially and adversely affect the 
operations of the LSPI Group taken as a whole.  Buyer shall not have 
received any evidence that there are existing violations of any Environmental 
Law, other than those described in Schedule 10(g), or that any requisite 
environmental license or permit or any occupance, use or building permits or 
other approvals from applicable governmental authorities are currently required 
for the continued operation of the facilities owned by the LSPI Group which 
have not been obtained or are not in effect.  In order to enable Buyer to 
conduct a due diligence investigation, Sellers and LSPI, and any other entity 
within the LSPI Group or SRFI Group with relevant information on the 
environmental status of the operating facilities of LSPI, shall provide Buyer 
with access to the environmental files, licenses, permits, permit applications, 
consultant reports, notices from local, state and federal governmental 
entities, environmental audit and inspection reports, insurance files, and 
other information necessary for Buyer to assess the environmental status of the 
operating facilities of LSPI as well as permit or obtain permission for Buyer 
to conduct soil and groundwater testing on or beneath the real properties owned 
or occupied by any member of the LSPI Group.

     (h)  LSPI Restrictions.  Each Seller shall have waived or abandoned its 
right of first refusal with respect to the transfer of the other's interest in 
its respective Joint Venturer pursuant to this Agreement.

     (i)  Financing.  Buyer shall have used its best efforts to maintain an 
aggregate of at least $250 million available under Buyer's committed and 
uncommitted lines of credit until the Closing Date, and such lenders shall not 
have cancelled or revoked such lines of credit prior to the Closing Date.

                                   -26-

     (j)  FIRPTA Certificate.  Sellers shall have furnished Buyer with a 
certificate of non-foreign status signed by the appropriate party and 
sufficient in form and substance to relieve Buyer of all withholding 
obligations under Section 1445 of the Code.  If Sellers cannot furnish such a 
certificate or Buyer is not entitled to rely upon such certificate under the 
provisions of Section 1445 of the Code and the regulations thereunder, Sellers 
shall take and/or permit Buyer to take any and all steps necessary to allow 
Buyer to satisfy the requirements of Section 1445 of the Code.

     (k)  Purchase of SRFI and Niagara Paper.  On or prior to the Closing 
Date, Buyer shall have purchased all of the assets of LSPI Fiber Co., a joint 
venture organized under the general partnership laws of the state of Minnesota 
and all of the issued and outstanding capital stock of Superior Recycled Fiber 
Corporation, a Minnesota corporation, and all of the issued and outstanding 
capital stock of Niagara of Wisconsin Paper Corporation, a Wisconsin 
corporation.

     (l)  Real Estate Consents.  Sellers shall deliver to Buyer any consents 
or approvals of any parties required pursuant to (i) the terms of any contract, 
agreement, option or undertaking affecting the Owned Real Estate; and (ii) the 
terms of the Real Estate Leases and estoppel certificates in form and substance 
reasonably acceptable to Buyer from all lessors under the Real Estate Leases.

     (m)  Title Insurance and Surveys.

          (i)  Buyer shall have obtained an ALTA Owners Policy of Title 
     Insurance Form B Owner's Form (the "Title Policy") for each parcel of 
     Owned Real Estate, except the Buffer Real Estate, issued by a nationally 
     recognized title company reasonably acceptable to Buyer (the "Title 
     Company").  The Title Policy shall be in the amount of the purchase price 
     allocated to the Owned Real Estate by Buyer, showing fee simple title to 
     the Real Estate in a member of the LSPI Group (or if the member of the 
     LSPI Group is a contract purchaser, the seller designated under the 
     applicable sales contract), subject only to current real estate taxes not 
     yet due and payable as of the Closing Date, liens and encumbrances 
     reflected on Schedule 10(m) hereto, and such other covenants, conditions, 
     easements and exceptions to title as Buyer may approve in writing 
     (collectively, the "Permitted Exceptions").  With reasonable promptness, 
     after the date of this Agreement, Buyer shall order commitments (the 
     "Commitments") for the Title Policy.  Copies of the Commitments shall be 
     promptly delivered to Sellers.  The Commitments and the Title Policy to be 
     issued by the Title Company shall have all Standard and General Exceptions 
     deleted so as to afford full "extended form coverage" and shall contain an 
     ALTA Zoning Endorsement 3.1, contiguity, non-imputation, and such other 
     endorsements as may be reasonably requested by Buyer.  At Closing, Sellers 
     shall deliver to Buyer a seller's affidavit or similar instruments as the 
     Title Company may require.  Buyer shall be responsible for the cost of all 
     title insurance charges, premiums and endorsements, title abstracts and 
     attorneys' opinions, including all search, continuation 

                                   -27-

     and later-date fees.  To the extent that any parcel of Owned Real Estate 
     is registered Torrens title, Sellers shall deliver the owner's duplicate 
     certificates of titles.

         (ii)  Buyer shall have obtained an as-built plat of survey of each 
     parcel of the Owned Real Estate (the "Surveys"), prepared by a registered 
     land surveyor or engineer, licensed in the respective states in which the 
     Owned Real Estate is located, dated on or after the date hereof, certified 
     to Buyer, the Title Company and such other entities as Buyer may designate 
     and conforming to current ALTA Minimum Detail Requirements for Land Title 
     Surveys, sufficient to cause the Title Company to delete the standard 
     printed survey exception and to issue the Title Policy free from any 
     survey objections or exceptions whatsoever.  Buyer shall pay the entire 
     cost of obtaining the Surveys.  Any Survey may be a recertification of a 
     prior survey, provided that it meets the above-described criteria.  Each 
     Survey shall show all conditions as then existing, including the location 
     of all pipes, wires and conduits serving the Owned Real Estate and their 
     connections to public ways, parking areas denominated as such, loading 
     docks and other improvements, the access to and from the improvements on 
     the Owned Real Estate, and a flood plain certification indicating no flood 
     zone classification or area which would materially interfere with the 
     normal operations of LSPI.  With reasonable promptness after the date of 
     this Agreement, Buyer shall order the Surveys.  Copies of the Surveys 
     shall be promptly delivered to Sellers.

        (iii)  If (i) any Commitment or owner's duplicate certificate of title 
     discloses a title exception, other than a Permitted Exception, that 
     represents a defect affecting the marketability of the title to any parcel 
     of Owned Real Estate (an "Unpermitted Exception") or (ii) any Survey 
     discloses that improvements located on the surveyed land encroach onto 
     adjoining land or onto any easements, building lines or set-back 
     requirements, or encroachments by improvements from adjoining land onto 
     the surveyed land, or onto any easements for the benefit of the surveyed 
     land or overlap or reflects that any utility service to the improvements 
     or access thereto does not lie wholly within the Owned Real Estate or an 
     unencumbered easement for the benefit of the Owned Real Estate or reflects 
     any other matter, any of which materially and adversely affects the use or 
     improvements of such parcel of Owned Real Estate, or any other matter 
     which renders title to any Owned Real Estate unmarketable  (a "Survey 
     Defect"), then, in any such event, Sellers shall have thirty (30) days 
     from the date of delivery thereof to have the Unpermitted Exception 
     removed from such Commitment and owner's certificate of title, if 
     applicable, or the Survey Defect corrected or insured over by an 
     appropriate title insurance endorsement, all at Sellers' cost and in a 
     manner reasonably satisfactory to Buyer, and in any such event the Closing 
     shall be extended, if necessary, to the date which is five (5) business 
     days after the expiration of such 30-day period.  If Sellers fail to 

                                   -28-

     have any Unpermitted Exception removed or any Survey Defect corrected or 
     otherwise insured over to the reasonable satisfaction of Buyer within the 
     time specified therefor, Buyer, at its sole option, upon not less than 
     three (3) days' prior written notice to Sellers, may terminate this 
     Agreement and all of Buyer's obligations hereunder.

     (n)  Provision of Documentation.  Sellers shall provide, to Buyer's 
reasonable satisfaction, copies of all documentation set forth on Schedule 7(q) 
but not delivered prior to the date hereof.

     (o)  Other Matters.  All corporate and other proceedings and actions 
taken in connection with the transactions contemplated hereby and all 
certificates, opinions, agreements, instruments and documents mentioned herein 
or incident to any such transaction shall be delivered to Buyer and be 
reasonably satisfactory in form and substance to Buyer and its counsel.

     11.  Conditions Precedent to Obligations of Sellers.  The obligations of 
Sellers hereunder (unless expressly waived by Sellers) are subject to 
fulfillment by Buyer, prior to or at Closing, as the case may be, of each of 
the following conditions:

     (a)  No Errors; Performance of Obligations.  The representations and 
warranties of Buyer herein shall be true and correct as of the Closing Date.  
Buyer shall have performed in all material respects all of the obligations to 
be performed by it hereunder in the time and manner herein stated.

     (b)  Officer's Certificate.  Buyer shall have delivered to Sellers a 
certificate, dated as of the Closing Date, executed by an officer of Buyer, and 
in form and substance satisfactory to Sellers, certifying that the covenants 
and conditions specified in this Agreement to be met by Buyer have been 
performed or fulfilled and that the representations and warranties herein made 
by Buyer are true and correct as of such date.

     (c)  Certified Copy of Resolutions.  Buyer shall have delivered to 
Sellers a certified copy of resolutions adopted by the Board of Directors of 
Buyer authorizing the execution and delivery of this Agreement and the 
consummation of the transactions contemplated hereby.

     (d)  Opinion of Buyer's Counsel.  Buyer shall have delivered to Sellers 
the opinion of its counsel, dated as of the Closing Date, in form and substance 
satisfactory to Sellers and their counsel, giving the following clean legal 
opinions:

          (1)  valid organization of Buyer;
          (2)  corporate power and authority of Buyer to enter into the 
               Agreement;
          (3)  No Breach or Default Opinion;
          (4)  No Violation Opinion;
          (5)  Legal Proceedings Opinion;

                                   -29-

          (6)  Remedies Opinion with respect to this Agreement; and
          (7)  other legal matters agreed upon between Sellers and Buyer;

all in accordance with, and subject to the General Qualifications and other 
limitations and provisions contained in, the Legal Opinion Accord of the ABA 
Section of Business Law (1991).

     (e)  Injunctions.  No injunctions shall have issued restricting or 
prohibiting the transactions contemplated by this Agreement.

     (f)  Clayton Act Matters.  The waiting period required by Section 7A of 
the Clayton Act shall have expired or been terminated.

     (g)  Financing.  Buyer shall have used its best efforts to maintain an 
aggregate of at least $250 million available under Buyer's committed and 
uncommitted lines of credit until the Closing Date and such lenders shall not 
have cancelled or revoked such lines of credit prior to the Closing Date.

     (h)  Sale of SRFI and Niagara Paper.  On or prior to the Closing Date, 
Buyer shall have purchased all of the assets of LSPI Fiber Co., a joint venture 
organized under the general partnership laws of the State of Minnesota, and all 
of the issued and outstanding capital stock of Superior Recycled Fiber 
Corporation, a Minnesota corporation, and all of the issued and outstanding 
capital stock of Niagara of Wisconsin Paper Corporation, a Wisconsin 
corporation.

     (i)  Other Matters.  All corporate and other proceedings and actions 
taken in connection with the transactions contemplated hereby and all 
certificates, opinions, agreements, instruments and documents mentioned herein 
or incident to any such transaction shall be delivered to Sellers and be 
reasonably satisfactory in form and substance to Sellers and their counsel.

     12.  Broker.  Pentair represents and warrants that CS First Boston was 
retained by it to represent it in this transaction.  Minnesota Power represents 
and warrants that PaineWebber Incorporated was retained by it to represent it 
in this transaction.  Buyer represents and warrants that Dillon, Read & Co. 
Inc. has been retained by Buyer to represent it.  Each Seller shall be 
responsible for payment of all fees and expenses of its respective investment 
banker and Buyer shall be responsible for payment of all fees and expenses of 
Dillon, Read & Co. Inc.  Should any claims for commissions be made by any other 
person claiming an interest in this Agreement, or in the underlying 
transactions, by reason of any agreement, understanding or other arrangement 
with Buyer or with either Seller, or their respective agents, servants, 
employees, or other representatives, then the party through, or on account of, 
whom such claims are made shall indemnify and hold harmless the other parties 
from any and all liabilities and expenses in connection therewith in accordance 
with the provisions of Section 15 below.  The foregoing provisions of this 
Section 12 shall survive not only the Closing hereunder, but also any 
termination or cancellation of this Agreement.

                                   -30-

     13.  Employees.  (a)  Sellers and LSPI agree to use all reasonable 
efforts to keep the present employees of LSPI, during the period between the 
execution hereof and the Closing Date.  Buyer agrees that in the event that 
employee health and retirement benefit programs currently provided to employees 
of LSPI are changed or substituted for, all prior years of service of such 
employees with LSPI or with other affiliates of Sellers will be recognized for 
all purposes.  Buyer and LSPI shall indemnify and hold Sellers harmless against 
any severance or termination pay obligations based upon prior policies of 
Sellers or LSPI or arising from the transactions contemplated hereby.

     (b)  Sellers have announced to selected employees of LSPI transition 
incentives heretofore disclosed to Buyer, to encourage their continued 
employment and achievement of performance targets for LSPI prior to Closing.  
The costs and administration of all such transition incentives shall be the 
sole responsibility of LSPI which shall pay such transition incentives promptly 
after Closing, in accordance with the terms thereof.

     14.  Confidential Information.  (a)  Buyer acknowledges that pursuant to 
its right to inspect Sellers and LSPI's records and facilities under Section 9, 
Buyer shall become privy to Confidential Information.  Buyer agrees that in the 
event the transaction contemplated by this Agreement is not completed, all 
Confidential Information disclosed to Buyer shall remain confidential, shall 
not be used for the benefit of Buyer or any of Buyer's affiliates or disclosed 
to any person or entity, and all recorded evidence thereof shall be delivered 
to Sellers together with an officer's certificate to the effect that no copies 
thereof or any extracts, derivatives or compilations thereof remain in 
possession of Buyer, its employees, affiliates, agents, counsel or auditors.  
The confidentiality and nonuse provisions hereof shall survive any termination 
of this Agreement until August 26, 1997 with respect to Pentair and January 9, 
1998 with respect to Minnesota Power.  Buyer acknowledges that it has entered 
into a confidentiality letter dated August 26, 1994 between itself and CS First 
Boston on behalf of Pentair, and a confidentiality letter dated January 9, 1995 
between itself and PaineWebber on behalf of Minnesota Power, and agrees that 
such confidentiality letters shall continue in full force and effect  for the 
duration of their respective terms in addition to the provisions of this 
Section 14.

     (b)  Sellers agree that in the event the transaction contemplated by this 
Agreement is completed, all confidential and proprietary information related to 
the LSPI Group shall remain confidential, shall not be used for the benefit of 
Sellers or any of Sellers' affiliates or disclosed to any person or entity.  
The confidentiality and nonuse obligations of Sellers hereunder shall be on the 
same terms and conditions as the confidentiality letters set forth in Section 
14(a) and shall survive any termination of this Agreement until August 26, 1997 
with respect to Pentair and January 9, 1998 with respect to Minnesota Power.

     15.  Indemnification.  (a)  Without limiting any remedy Buyer may have 
hereunder, Sellers hereby agree to indemnify, defend and hold Buyer harmless 
from and against and in respect of any and all liabilities, losses, damages, 
claims, costs and expenses, including reasonable attorneys fees, suffered or 
incurred by Buyer, Pentair 

                                   -31-

Duluth, Minnesota Paper or LSPI, when so suffered or incurred, by reason of or 
relating to:

          (i)  any representation or warranty of Sellers contained in this 
     Agreement being breached or untrue;

         (ii)  any covenant or agreement of Sellers contained in this 
     Agreement being breached or not fulfilled in any material respect, and not 
     waived; 

        (iii)  the assertion against Buyer of any other liability of either 
     Seller not assumed by Buyer hereunder; or

         (iv)  the assertion against Buyer or the LSPI Group of any liability 
     of the LSPI Group assumed by Sellers;

provided, however, that any claim arising out of any breach of warranty or 
otherwise relating to (x) environmental conditions, permits or liabilities or 
obligations with respect to Hazardous Materials shall be dealt with solely in 
accordance with Section 18 hereof and (y) taxes shall be dealt with solely in 
accordance with Section 23 hereof. 

     (b)  Without limiting any remedy Sellers may have hereunder, Buyer hereby 
agrees to indemnify, defend, and hold Sellers harmless from and against and in 
respect of any and all liabilities, losses, damages, claims, costs and 
expenses, including reasonable attorneys fees, by reason of or relating to:

          (i)  any representation or warranty by Buyer contained in this 
     Agreement being breached or untrue;

         (ii)  any covenant or agreement of Buyer contained in this Agreement 
     being breached or not fulfilled in a material respect, and not waived; or

        (iii)  the failure of Buyer to pay, discharge, or perform any 
     guaranty, obligation or liability assumed by Buyer hereunder (including 
     without limitation the Guaranteed Obligations).

     (c)  Notice of any claim of indemnification under this Agreement (other 
than for claims pursuant to Sections 16, 18 and 23) shall be effective only if 
such notice shall have been given in writing to the Indemnitor (as hereinafter 
defined) on or prior to December 31, 1997.  Notice of claims by Sellers against 
Buyer regarding Guaranteed Obligations shall be effective only if given in 
writing on or prior to the date six months following the date on which the 
liability of Sellers is discharged with respect to the last outstanding 
Guaranteed Obligation.

     (d)  The first $1,500,000 in the aggregate of claims made by Buyer or by 
Sellers as a group (except claims against Sellers under Sections 19 or 23 or 
under 

                                   -32-

subparagraphs 15(a)(iii) and (iv) above, claims against Buyer under Section 19 
or under subparagraphs 15(b)(iii) above or claims against either Buyer or 
Sellers under Sections 12, 13, 14, or 16 hereof) pursuant to this Section shall 
be borne by that party and shall not be indemnifiable.  The minimum amount of 
each such claim shall be not less than $50,000 in the aggregate.

     (e)  In the event that indemnification is sought with respect to any 
obligation of Buyer and Sellers under this Agreement, the party seeking 
indemnification (the "Indemnitee") shall give the party from whom 
indemnification is sought (the "Indemnitor") notice of any claim of the 
commencement of any action or proceeding promptly after the Indemnitee receives 
notice thereof, and shall permit the Indemnitor to assume the defense of any 
such claim or litigation resulting from such claim.

     If the Indemnitor assumes the defense of any such claim or litigation 
resulting therefrom, the obligations of Indemnitor as to such claim shall be 
limited to taking all steps necessary in the defense or settlement of such 
claim or litigation resulting therefrom and to holding the Indemnitee harmless 
from and against any and all losses, damages and liabilities caused by or 
arising out of any settlement approved by the Indemnitor or any judgment in 
connection with such claim or litigation resulting therefrom.

     The Indemnitee may participate, at its expense, in the defense of any such 
claim or litigation, provided that the Indemnitor shall direct and control the 
defense of such claim or litigation.

     Except with the written consent of the Indemnitee, the Indemnitor shall 
not, in the defense of such claim or any litigation resulting therefrom, 
consent to entry of any judgment or enter into any settlement which does not 
include as an unconditional term thereof, the giving by the claimant or the 
plaintiff to the Indemnitee of a release from all liability with respect to the 
claim or litigation.

     If the Indemnitor shall not assume the defense of any such claim or 
litigation resulting therefrom, the Indemnitee may defend against such claim or 
litigation in such manner as it may deem appropriate and, unless the Indemnitor 
shall deposit with the Indemnitee a sum equivalent to the total amount demanded 
in such claim or litigation, or shall deliver to Indemnitee a surety bond for 
such amount in form and substance reasonably satisfactory to Indemnitee, 
Indemnitee may settle such claim or litigation on such terms as it may 
reasonably deem appropriate, and the Indemnitor shall promptly reimburse  
Indemnitee for the amount of all costs and expenses, legal or otherwise, 
reasonably incurred by the Indemnitee in connection with the defense against or 
settlement of such claims or litigation.  If no settlement of such claim or 
litigation is made, the Indemnitor shall promptly reimburse the Indemnitee for 
the amount of any final judgment rendered with respect to such claim or in such 
litigation and for all reasonable costs and expenses, legal or otherwise, 
incurred by the Indemnitee in the defense against such claim or litigation, but 
only to the extent that such amounts are actually paid.

                                   -33-

     16.  Guaranteed Obligations.  In the event that Sellers' release from the 
Guaranteed Obligations is not obtained, Sellers and Buyer agree that they will 
continue to use their best efforts to obtain the complete release of Sellers 
from the Guaranteed Obligations.  Buyer shall indemnify Sellers against any and 
all demands, payments, expenses and costs incurred by Sellers in connection 
with such Guaranteed Obligations in accordance with Section 15 hereof for so 
long as Sellers have any potential liability under any such Guaranteed 
Obligations.  Buyer and Sellers agree that the provisions of this Section 16 
shall continue in full force and effect until the complete discharge of Sellers 
under such Guaranteed Obligations.

     Until Sellers are released from all of the Guaranteed Obligations, Sellers 
agree to comply with any and all of their non-monetary obligations and 
covenants under the LSPI Leases.  In the event of any breach by Sellers of such 
obligations and covenants, Sellers shall indemnify Buyer against any and all 
demands, payments, expenses and costs incurred by Buyer or any member of the 
LSPI Group in excess of those which would have been incurred by any member of 
the LSPI Group in the course of performance of the Guaranteed Obligations but 
for any breach by Sellers, in connection with the foregoing sentence in 
accordance with Section 15 hereof for so long as Sellers have any obligations 
under such Guaranteed Obligations.  Buyer and Sellers agree that the provisions 
of this Section 16 shall continue in full force and effect until the complete 
discharge of Sellers under such Guaranteed Obligations.

     In addition, with respect to the Keepwell Obligations of Sellers, until 
complete discharge of Sellers thereunder, on the earlier to occur of (x) the 
second anniversary of the Midterm Purchase Date or (y) the Change of Control 
Date, and on each succeeding anniversary date thereof,

          (a)  Buyer shall post with Sellers irrevocable Letters of Credit for 
     the benefit of the members of the LSPI Group having a face value equal to 
     the nominal maximum amount of such Keepwell Obligations, which Letters of 
     Credit shall

               (i)  be in substantially the form set forth in Schedule 16 
          hereto,

              (ii)  be issued by a national banking institution with a rating 
          by Standard & Poor's of A or better or otherwise acceptable to 
          Sellers in their sole discretion,

             (iii)  be immediately payable to the respective Indenture 
          Trustees under the Trust Indentures entered into in connection with 
          the LSPI Lease, upon written notice to the issuing bank by the 
          respective Sellers of any demand, notice or claim for payment or 
          performance made upon such Seller under its Keepwell Obligations, 
          and

                                   -34-

             (iv)   shall be renewed (not less than thirty (30) days prior to 
          the expiration of any previous Letters of Credit) by substitute 
          Letters of Credit satisfying the conditions hereof.

          Buyer shall use its best efforts to procure such Letters of Credit 
     for as long as its obligations under this subparagraph 16(a) continue.  

          (b)  If Buyer is unable to post such Letters of Credit, for so long 
     as such Letters of Credit have not been provided, Buyer shall pay to 
     Sellers an annual guaranty fee equal to 2.0% of the then current nominal 
     remaining maximum amount of such Keepwell Obligations, not as penalty but 
     as compensation for Sellers' continuing guaranty thereof for the benefit 
     of Buyer.

          (c)  Following the Closing Date, Buyer agrees that it shall not 
     pledge, sell, transfer, assign or otherwise dispose of all or any part of 
     the LSPI Group Stock or all or substantially all of the assets of LSPI 
     without the written consent of Sellers, which consent may be granted or 
     withheld in its sole discretion.  At any time, Buyer may merge with to 
     into, or consolidate with, any other corporation or sell any members of 
     the LSPI Group or the assets thereof, provided that:

               (i)  Buyer remains absolutely and unconditionally obligated 
          under this Agreement including specifically, but without limitation, 
          Section 15 and 16 hereof; and

              (ii)  prior to such transaction there shall have been delivered 
          to Sellers an opinion of Buyer's counsel reasonably satisfactory to 
          Sellers stating in effect that Buyer's obligations under Section 15 
          and 16 of this Agreement are legal, valid and binding obligations of 
          Buyer enforceable in accordance with their terms against Buyer, 
          subject to customary qualifications as to enforceability.

     17.  Expenses.  Sellers and Buyer shall each be responsible for 
all of their own expenses incurred in connection with the transactions 
contemplated hereby.  Sellers shall be responsible for the accounting and 
auditing fees and expenses related to the preparation of the Statement of Net 
Book Value.  Sellers shall cooperate and cause their respective accountants and 
the accountants for LSPI to cooperate and assist Buyer and its accountants 
(including consenting to the use of the LSPI Group Financial Statements with 
respect to any filings by Buyer with the Securities and Exchange Commission in 
connection with the transactions contemplated hereby.  Sellers shall be 
responsible for any and all fees and expenses of Sellers' and LSPI's 
accountants with respect to the foregoing.  Buyer will pay the incremental 
costs and expenses of auditing the LSPI financial statements or other 
information required by Buyer, other than the statement of Net Book Value as of 
the Closing Date.  Buyer will pay the cost of the Commitments, Title Policies 
and Surveys set forth in Section 10(n).

                                   -35-

     18.  Environmental Matters.

     (a)  Warranty.  Sellers warrant that, other than as disclosed to Buyer 
pursuant to Schedule 10(g) attached:

          (i)  Compliance with Environmental Laws.  The business and 
     operations of each member of the LSPI Group comply in all material 
     respects with all applicable Environmental Laws, except to the extent that 
     such noncompliance could not be reasonably expected to have a material 
     adverse effect on the business, operations, properties, assets or 
     condition (financial or otherwise) of the LSPI Group.

         (ii)  Notice/Receipt of Notice.  No member of the LSPI Group has 
     given, or is required to give, nor has any member received, any written 
     notice, letter, citation, or order, or any written warning, complaint, 
     inquiry, claim or demand (or if verbal, to the extent the warning, 
     complaint, inquiry, claim or demand is recorded in a written log) that: 
     (i) any member of the LSPI Group has violated, or is about to violate, any 
     Environmental Law; (ii) there has been a release, or there is a threat of 
     release, of a non-de minimis quantity of Hazardous Material from any of 
     the LSPI Group's property, facilities, equipment or vehicles or previously 
     owned or leased properties; (iii) any member of the LSPI Group may be or 
     is liable, in whole or in part, for material costs of cleaning up, 
     remediating, restoring or responding to a release of Hazardous Material; 
     (iv) any of the LSPI Group's property or assets or previously owned or 
     leased properties or assets are subject to a lien in favor of any 
     governmental entity for any liability, costs or damages, under any 
     Environmental Law; and (v) any member of the LSPI Group may be or is 
     liable in whole or in part, for natural resource damages; provided, that 
     for purposes of liability for natural resource damages such notice, 
     letter, citation, order, inquiry, claim or demand was made by a 
     governmental agency.

        (iii)  Property on Environmental Cleanup Lists.  No property now or 
     previously owned or leased by the LSPI Group is listed (or with respect to 
     Owned Real Estate proposed for listing) on the National Priorities List 
     pursuant to Comprehensive Environmental Response, Compensation and 
     Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.) 
     ("CERCLA"), on the CERCLIS or on any similar state list of sites 
     requiring investigation or clean-up.

         (iv)  Intentionally left blank.  

          (v)  Past Disposal -- On site.  Neither any member of the LSPI Group 
     nor to the best knowledge of Sellers any previous owner or other person, 
     has ever caused or permitted any material release or disposal of any 
     Hazardous Material on, under or at any of the facilities or properties of 
     the LSPI Group or any part thereof, and none of such facilities or 
     properties, nor any part thereof have ever been used (whether by the LSPI 
     Group or to Sellers' best knowledge by any 

                                   -36-

     other person) as a permanent storage facility or disposal site for any 
     Hazardous Material.

         (vi)  Underground Storage Tanks.  There are no underground storage 
     tanks, including any associated piping, active or abandoned, including 
     petroleum storage tanks, on or under any property now or previously owned 
     or leased by the LSPI Group that, singly or in the aggregate, have, or may 
     reasonably be expected to have, a material adverse effect on the financial 
     condition, operations, assets, business, or properties of the LSPI Group.

        (vii)  Off-Site Disposal.  No member of the LSPI Group has directly 
     transported or directly arranged for the transportation of any Hazardous 
     Material to any location which is listed, proposed for listing or, to the 
     best knowledge of Sellers, which if known to the state or federal 
     government would warrant listing on the National Priorities List pursuant 
     to CERCLA, on the CERCLIS or on any similar state list or which is or 
     reasonably could be the subject of federal, state or local enforcement 
     actions or other investigations which may reasonably be expected to lead 
     to material claims for any remedial work, damage to natural resources or 
     personal injury, including claims under CERCLA.

       (viii)  PCBs/Asbestos.  There are no PCB's or friable asbestos present 
     at any property now or previously owned or leased by the LSPI Group that, 
     singly or in the aggregate, have, or may reasonably be expected to have, a 
     material adverse effect on the financial condition, operations, assets, 
     business or properties of the LSPI Group.

         (ix)  Pollution Control Equipment.  All pollution control equipment, 
     including any monitoring devices or related equipment, is in proper 
     operating condition, has been properly maintained, and, in the case of 
     major ("end-of-pipe") wastewater treatment and air pollution control 
     facilities, has been designed to maintain compliance with applicable 
     Environmental Laws based upon the current production rates and operating 
     policies of LSPI in effect since January 1, 1995.  All material actions 
     necessary to maintain in force any original, as delivered, manufacturer 
     warranties have been taken with respect to all major components of 
     wastewater and air pollution control facilities.

          (x)  Other Environmental Conditions Off-Site.  To Sellers' best 
     knowledge there are no sites or locations not currently owned or leased by 
     the LSPI Group where Hazardous Materials were disposed of which with the 
     passage of time, or the giving of notice or both could reasonably be 
     expected to give rise to any material liability under any Environmental 
     Law, to any member of the LSPI Group.

     (b)  Indemnity.  Subject to the provisions of Section 18(c) below and the 
limitations on indemnification set forth in Section 15(d) above, Sellers shall 
indemnify and hold Buyer and the members of the LSPI Group harmless from and 
against any and all losses, liabilities, damages, injuries, penalties, fines, 
costs, expenses and claims of any 

                                   -37-

and every kind whatsoever (including reasonable attorneys' and consultants' 
fees and expenses), paid, incurred or suffered by Buyer as a result of any 
breach of warranties set forth in Section 18(a).  With respect to any liability 
for disposal or arranging for disposal of Hazardous Materials at sites or 
locations not currently owned or leased by the LSPI Group, this indemnity shall 
apply notwithstanding the fact that Buyer may have received or obtained 
information before the Closing Date, other than that information disclosed on 
Schedule 10(g) indicating or otherwise showing that a claim exists or may exist 
under this indemnity, including, but not limited to, any information relating 
to a breach of the warranties set forth in Section 18(a) above.

     (c)  Special Provisions.  The following provisions shall apply in the 
event of any breach of warranty under this Section 18.  

          (i)  Notice.  Buyer shall promptly, and in no event later than 90 
     days from the date Buyer has knowledge, notify Sellers in writing of any 
     claim, demand or action, situation or event covered by the warranty and 
     indemnification provisions of Section 18.  With respect to any work or 
     activities undertaken by Buyer which is subject to this indemnity, Buyer 
     shall provide Sellers in a timely manner, written documentation prepared 
     in the normal course of business describing the work or activities.

         (ii)  Disclosure of On-Site Environmental Matters.  Buyer agrees that 
     environmental matters associated with the Real Estate which are contained 
     in the environmental reports and documents listed on Schedule 10(g), as 
     well as any information obtained by Buyer during its due diligence 
     activities conducted on the Real Estate between the signing of this 
     Agreement and the Closing Date, shall be considered disclosed to Buyer.

        (iii)  Election of Control Off-Site Work.  At Sellers' option, to the 
     extent Sellers are obligated to indemnify Buyer under this Section for the 
     costs of investigating, remediating, restoring or cleaning-up any site 
     where Hazardous Materials were disposed and the site is located on 
     property not currently owned, leased or otherwise used by the LSPI Group 
     (nor reasonably anticipated to be used by the LSPI Group), Sellers may 
     elect to take control of the investigation, remediation, restoration 
     and/or clean-up ("Environmental Cleanup").  If they elect to do so, 
     Sellers shall so notify Buyer and Sellers thereafter shall be solely 
     responsible (as between the parties hereto) for managing and paying for 
     such Environmental Cleanup (to the extent it is obligated to indemnify 
     Buyer) including any fines, penalties or third-party actions associated 
     with the Environmental Cleanup.

         (iv)  Buyer's Control of Work.  Other than in connection with off-
     site Environmental Cleanups, Buyer and/or the LSPI Group shall manage and 
     conduct any Environmental Cleanup work and shall manage and control the 
     repair and replacement of any pollution control equipment.  All such work 
     shall be done in a commercially reasonable, cost-effective manner using 
     good faith 

                                   -38-

     business judgment and without regard to the availability of 
     indemnification hereunder.

          (v)  Pollution Control Equipment.  In situations where the 
     installation of pollution control equipment is required in order to obtain 
     compliance with the Environmental Laws, Sellers' liability under this 
     Section shall include both capital and reasonable operation and 
     maintenance costs (calculated on a reasonable present value basis).

         (vi)  Interference with Operations.  In situations where the 
     Environmental Cleanup or the installation, repair or replacement of the 
     pollution control equipment will materially interfere with the conduct of 
     the operations of the LSPI Group, Sellers shall be responsible for the 
     reasonable costs, expenses or losses associated with or attributable to 
     any material business interruption losses, provided that Buyer shall do 
     the work or activities in a manner that is least disruptive of the LSPI 
     Group's ongoing operations.

     (d)  Exclusive Remedy.  This Section provides to Buyer, the respective 
LSPI Group members and anyone claiming under or through them the exclusive 
remedy against Sellers with respect to any matter covered by this Section 18, 
and such exclusive remedy shall lapse and be of no further force or effect on 
and after the fifth anniversary of the Closing Date.

     (e)  Inspection of Books and Records.  In the event of any claim made by 
Buyer for indemnification under this Section 18, Sellers shall be entitled to 
access, at times reasonably convenient to Buyer and the members of the LSPI 
Group, to such books, records and data related to such claim for 
indemnification hereunder, as Sellers deem necessary to verify the basis or 
amount of such claim.

     19.  Termination of Agreement.  This Agreement may be terminated upon ten 
(10) business days prior written notice at any time prior to Closing without 
liability of any party to the other:

     (a)  by mutual consent of Sellers and Buyer;

     (b)  by Buyer, if notice of a material adverse development with respect 
to the financial condition, results of operations or prospects of the LSPI 
Group has been given, in accordance with Section 9(f) hereof;

     (c)  by Buyer, if Closing has not occurred on or before September 30, 
1995 as a result of the nonfulfillment of any of the conditions to Buyer's 
obligation to perform contained in Section 10 of this Agreement;

     (d)  by Sellers, if notice of a material adverse development with respect 
to the financial condition, results of operations or prospects of Buyer has 
been given, in accordance with Section 9(f) hereof;

                                   -39-

     (e)  by Sellers, if Closing has not occurred on or before September 30, 
1995 as a result of the nonfulfillment of any of the conditions to Sellers' 
obligation to perform contained in Section 11 of this Agreement; and

     (f)  by any party, if the Closing has not occurred by October 31, 1995.

Termination of this Agreement shall not affect in any way the continuing 
obligations of the parties hereto pursuant to Section 12 relating to brokers 
and Section 14 hereof relating to the treatment of confidential information.

     20.  Announcements.  Buyer and Sellers shall cooperate in the preparation 
of any announcements regarding the transactions contemplated by this 
Agreement.  Except as required by law, no party shall issue any announcement 
regarding the transactions contemplated hereby without the prior consent of the 
other parties, which consents shall not be unreasonably withheld.  The 
covenants set forth in this Section shall be enforceable in law or at equity
by either party.

     21.  Records.  After the Closing Date, Buyer shall retain the books, 
records or other data of each member of the LSPI Group existing at the Closing 
Date for a period of ten (10) years.  During the retention period specified 
above, Sellers shall be entitled to access, at times reasonably convenient to 
Buyer, to such books, records and data in connection with the preparation or 
handling of Sellers' tax returns, financial reports, tax audits, W-2 forms, 
litigation matters or any other reasonable need of either Seller.  If the LSPI 
Group or Buyer wish to dispose of such material (whether during or following 
the 10-year period), it shall give Sellers prior notice and the opportunity to 
remove such material at the expense of the Seller(s) requesting the same.

     22.  Assistance after Closing.  Buyer shall furnish, at no cost to 
Sellers, such assistance to Sellers in the preparation of their respective 
fiscal 1994 and 1995 financial and tax reports as Sellers may reasonably 
request.  All such assistance shall be on a confidential basis and Sellers 
agree to comply with the confidentiality and limitation on use provisions of 
Section 14 hereof with respect to such confidential information.

     (a)  Retained Liabilities.  Buyer shall also provide Sellers with 
reasonable assistance, including without limitation furnishing of documents and 
making available to Sellers potential witnesses within its control or that of 
any member of the LSPI Group and the assistance of their respective engineers 
or experts, in the defense of any claim, lawsuit or tax examination arising out 
of the operations of LSPI prior to the Closing Date for which Sellers retain 
liability under this Agreement.  Sellers shall reimburse Buyer or such member 
of the LSPI Group for its out of pocket expenses incurred in providing such 
assistance.

     (b)  Allocation of Pulp.  Pentair and Buyer shall take all necessary 
action to transfer all contracts for purchase of kraft pulp currently in the 
name of Pentair and allocated to LSPI into the name of LSPI or Buyer, as Buyer 
may direct.  Until such contracts are transferred or terminated, Pentair shall 
continue to perform such contracts and direct delivery of pulp thereunder to 
LSPI in the same manner as currently 

                                   -40-

performed, and LSPI shall pay for such kraft pulp delivered to the seller 
thereof, or if Pentair has paid therefor, promptly to Pentair upon delivery.

     23.  Tax Matters; Payment of Taxes.

     (a)  Tax Returns.  Sellers shall prepare or cause to be prepared and 
shall timely file all Returns (including any amendments thereto) relating to 
any Taxes of the members of the LSPI Group with respect to any tax period 
ending on or before the Closing.  Sellers shall pay or cause to be paid all 
Taxes of the members of the LSPI Group with respect to any period ending on or 
before the Closing as determined in accordance with Sections 23(b) and 23(c) 
hereof.

     (b)  Apportionment of Income.  Sellers will include the income of the 
LSPI Group (including any deferred income and any excess loss accounts pursuant 
to relevant rules and regulations of the Internal Revenue Service) on Sellers' 
federal and state income tax Returns for all periods through the Closing Date 
and shall pay any federal and state income taxes attributable to such income.  
The LSPI Group will furnish all tax information requested by Sellers to it for 
inclusion in Sellers' income tax Returns for the period which includes the 
Closing Date in accordance with Sellers' past custom and practice.  The income 
of the LSPI Group will be apportioned to the period up to and including the 
Closing Date and the period after the Closing Date by closing the books of the 
LSPI Group as of the end of the Closing Date.

     (c)  Allocation of Taxes.  For purposes of this Agreement, in the case of 
any Taxes that are imposed on a periodic basis and are payable for a period 
that begins before the Closing Date and ends after the Closing Date, Sellers 
shall reimburse Buyer for the portion of such Taxes payable for the period 
ending on the Closing Date to the extent such Taxes are not reflected on the 
Statement of Net Book Value as of the Closing Date.  For this purpose, the 
portion of such Tax payable for the period ending on the Closing Date shall in 
the case of any Taxes other than Taxes based upon or related to income or sales 
or use taxes, be deemed to be the amount of such Taxes for the entire period 
multiplied by a fraction, the numerator of which is the number of days in the 
period ending on the Closing Date, and the denominator of which is the number 
of days in the entire period.  The preceding sentence shall be applied with 
respect to Taxes relating to capital (including net worth or long-term debt) or 
intangibles by reference to the level of such items on the Closing Date to the 
extent such Taxes are not reflected on the Statement of Net Book Value as of 
the Closing Date.

     (d)  Indemnity.  Notwithstanding anything to the contrary in this 
Agreement whether expressed or implied, Sellers shall indemnify and hold 
harmless Buyer, and each member of the LSPI Group against:

     (1)  all Taxes imposed on any member of the LSPI Group with respect to 
          any period ending on or before the Closing;

     (2)  all Taxes imposed on Buyer or on any member of the LSPI Group with 
          respect to any period which begins before the Closing Date 

                                   -41-

          and ends after the Closing Date to the extent allocated to the 
          portion of such period ending on the Closing Date, determined in 
          accordance with Section 23 hereof;

     (3)  all Taxes imposed on Buyer or on any member of the LSPI Group with 
          respect to income earned by any member of the LSPI Group for the 
          period beginning January 1, 1995 and ending on the Closing Date, 
          determined in accordance with Section 23(b) hereof;

     (4)  all Taxes imposed on any member of the LSPI Group as a result of the 
          Section 338(h)(10) Elections contemplated by Section 24 hereof;

     (5)  all Taxes imposed on any member of an affiliated, consolidated, 
          combined or unitary group which includes or has included any member 
          of the LSPI Group with respect to any taxable period that ends on or 
          prior to the Closing;

     (6)  all liability resulting from or attributable to a breach of the 
          representations, warranties and covenants contained in Section 7(t) 
          and this Section 23; and

     (7)  any claim under Treas. Reg. Section 1.1502-6 by the Internal Revenue 
          Service against any member of the LSPI Group which was a member of 
          Sellers' respective consolidated groups prior to the Closing Date 
          with respect to any federal income tax liability of any Sellers for 
          any period ending on or prior to December 31, 1995.

     (e)  Post-Closing Elections.  Sellers will (or will cause members of the 
LSPI Group, as the case may be to) make or join, as necessary, with Buyer in 
making any election relating to income taxes, including, but not limited to, 
elections under Section 732(d) and Section 754 of the Code, for the year in 
which the Closing Date occurs.  Prior to Closing, Buyer shall retain an 
appraiser to appraise the assets of the LSPI Group.  Sellers and the members of 
the LSPI Group and their respective employees shall cooperate fully with Buyer 
and its appraiser in connection with the appraisal.  The cost of the appraisal 
shall be borne by Buyer.

     (f)  Control of Contest.  Sellers shall have the right, at their own 
expense, to control any audit or determination by any taxing authority, 
initiate any claim for refund or amended Return and contest, resolve and defend 
against any assessment, notice of deficiency or other adjustment or proposed 
adjustment of Taxes for any taxable period for which any Sellers (or any of its 
affiliates) is charged with responsibility for filing a Return under this 
Agreement.  Each party will allow the other and its counsel (at its or their 
own expense) to be represented during any audits of income tax Returns to the 
extent that disputed items therein relate to the LSPI Group.  Buyer shall, or 
shall cause its affiliates to, undertake or authorize actions in their capacity 
as tax matters partner of LSPI as requested by Sellers with respect to this 
Section 23(f).

                                   -42-

     (g)  General.  Each of Buyer and Sellers shall provide the other, and 
Buyer shall following the Closing cause each member of the LSPI Group to 
provide to Sellers, with the right, at reasonable times and upon reasonable 
notice, to have access to personnel, and to copy and use, any records or 
information that may be relevant in connection with the preparation of any 
Returns, any audit or other examination by any taxing authority or any 
litigation relating to liability for Taxes.  Information required in the filing 
of any Return shall be provided to the other party not less than thirty (30) 
days before such Return is due.  Sellers will allow the Buyer an opportunity to 
review and comment upon any Returns under Subsection 23(a) (including any 
amended returns) to the extent that they relate to any member of the LSPI 
Group.  Sellers will take no position on such Returns that relate to any member 
of the LSPI Group that would adversely affect any member of the LSPI Group 
after the Closing.  Sellers and Buyer shall retain all records relating to 
Taxes for as long as the statute of limitations with respect thereto shall 
remain open.

     (h)  Sales and Transfer Taxes.  All sales and transfer Taxes (including 
all stock transfer taxes, if any) incurred in connection with the transactions 
contemplated hereby will be borne by the statutorily responsible party.  If 
required by applicable law, Buyer or Sellers, as the case may be, will join in 
the preparation and execution of any Returns or other documentation related to 
the payment of any sales or transfer Taxes.

     (i)  Tax Effective Time.  For purposes of Taxes, the Closing shall be 
deemed to have occurred, and shall be effective, as of the close of business on 
the Closing.

     (j)  Survival.  All of the representations, warranties, covenants and 
indemnities contained in this Agreement which relate to Taxes shall survive the 
Closing (even if the Indemnified Party knew or had reason to know of any 
misrepresentation or breach of warranty or covenant at the time of the Closing) 
and continue in full force and effect until the expiration of the applicable 
statute of limitations (including any extensions thereof).

     (k)  LSPI Leases Tax Rate Change Indemnity.  In the event of an 
adjustment of rents under the LSPI Leases, as a result of a Change in Tax Law 
which becomes effective after the date hereof and on or prior to the date (the 
"Midterm Purchase Date") on which LSPI may make the Midterm Purchase in 
accordance with Section 13(b) of the Facility Leases (whether or not such 
Midterm Purchase is made),

          (i)  if such adjustment occurs as a result of an increase in 
     corporate tax rates, Sellers shall indemnify and hold harmless Buyer and 
     each member of the LSPI Group (without duplication) against

               (A)  any increase in Basic Rent, payable to any Lessor not 
          affiliated with Buyer, over the amount of Basic Rent payable as of 
          the Closing Date under each of the LSPI Leases, for the period from 
          the effective date of such increase to the Midterm Purchase Date; 
          and

                                   -43-

               (B)    if and only if LSPI exercises its option to purchase the 
          Undivided Interests on the Midterm Purchase Date pursuant to Section 
          13(b) under the LSPI Leases, any increase in the Agreed Fair Market 
          Value, paid to any Lessor not affiliated with Buyer, over the Agreed 
          Fair Market Value payable as of the Closing Date under each of the 
          LSPI Leases;

          in each event payable at the time such increased amount is paid by 
          such member of the LSPI Group;

         (ii)  if such adjustment occurs as a result of a decrease in 
     corporate tax rates, Buyer shall pay to Sellers

               (A)  any decrease in Basic Rent, payable to any Lessor not 
          affiliated with Buyer, over the amount of Basic Rent payable as of 
          the Closing Date under each of the LSPI Leases, for the period from 
          the effective date of such decrease to the Midterm Purchase Date; 
          and

               (B)  if and only if LSPI exercises its option to purchase the 
          Undivided Interests on the Midterm Purchase Date pursuant to Section 
          13(b) under the LSPI Leases, any decrease in the Agreed Fair Market 
          Value, paid to any Lessor not affiliated with Buyer, over the Agreed 
          Fair Market Value payable as of the Closing Date under each of the 
          LSPI Leases;

          in each event payable at the time such decreased amount is paid by 
          such member of the LSPI Group;

     Attached hereto as Schedule 23 is a schedule of Basic Rent, Agreed Fair 
     Market Values and other pricing items for the LSPI Leases, in effect as of 
     the Closing Date.  Capitalized terms used in this Section 23(k) but not 
     defined in this Agreement shall have the meanings ascribed to them in the 
     LSPI Leases.

     (l)  Refund of Tax Indemnity Payment.  In accordance with the Tax 
Indemnity Agreement with NYNEX Credit Corporation ("NYNEX") under the LSPI 
Leases, LSPI advanced funds to NYNEX in connection with its tax audit as 
affected by a tax audit relating to LSPI's tax years 1985-87.  LSPI has 
transferred to the Sellers as of December 31, 1994 a receivable from NYNEX with 
respect to any refund of such advance.  If and to the extent LSPI is repaid by 
NYNEX for such advance, Buyer agrees to cause LSPI to pay such refunded amounts 
one-half to each Seller promptly upon receipt.  Notwithstanding the foregoing, 
Sellers shall indemnify and hold harmless Buyer and each member of the LSPI 
Group from and against any and all demands, payments, expenses and costs 
incurred by Buyer or any member of the LSPI Group under the Tax 

                                   -44-

Indemnity Agreements with respect to any actions taken by Sellers or any 
members of the LSPI Group or events occurring prior to the Closing Date.

     (m)  Tax Agreements.  Minnesota Power and Buyer agree that, upon Closing, 
the Tax Agreement dated October 5, 1993 and the State Tax Agreement dated 
October 5, 1993, both between Minnesota Power and its subsidiaries, including 
Minnesota Paper, shall terminate as to Minnesota Paper, and, that 
notwithstanding Section 7 of each such agreement, following termination of each 
agreement, Minnesota Paper and Buyer shall not be bound by the terms of the 
agreements and not be entitled to receive or obligated to make payments under 
the agreements attributable to any period during which Minnesota Paper was a 
party to each agreement.

     24.  Section 338(h)(10) Election.  Each Seller agrees to jointly file 
with Buyer the election (the "Election") provided for by Section 338(h)(10) of 
the Code and the corresponding election under applicable state or local tax law 
with respect to the sale and purchase of capital stock of each of the Joint 
Venturers, as the case may be.  In connection with the Election:

     (a)  Buyer and Sellers shall each provide to the other all necessary 
information, including information as to tax basis, to permit the Election to 
be made and its consequences to be accurately reflected for all relevant 
accounting and tax reporting purposes, and to take all other actions necessary 
to enable Buyer and Sellers to make the Election.

     (b)  Buyer shall retain at Buyer's cost an appraiser to prepare a report 
(a "Report") appraising the value of the assets of the Joint Venturers to 
determine the proper allocations (the "Allocations") of the "adjusted grossed-
up basis" (within the meaning of Treasury Regulation Section 1.338(b)-(1) and 
the modified adjusted deemed selling price ("MADSP") (within the meaning of 
Treasury Regulation Section 1.338(h)(10)-1) among the assets of the Joint 
Venturers in accordance with Section 338(b)(5) and (h)(10) of the Code and 
Treasury Regulations thereunder.

     The Report shall be finalized no later than 120 days after the Closing 
Date.  At least thirty (30) days before such Report is finalized, Buyer shall 
provide Sellers a copy of the appraiser's preliminary report or indication of 
the Allocations.  After receipt of such preliminary report or indication, 
Sellers shall give to Buyer in writing any objections or questions which 
Sellers may have to such preliminary report or indication, and the parties 
shall thereafter use their best efforts to resolve such objections or questions 
so that the Report is finalized no later than 120 days after the Closing Date 
and the Election is timely made.

     (c)  Buyer and Sellers shall jointly prepare a Form 8023-A, together with 
all required attachments, and the corresponding forms required or appropriate 
under state tax laws (collectively, an "Election Form") in a manner consistent 
with the Allocation.

     (d)  As promptly as practicable after the Closing Date, Buyer and Sellers 
shall take all action and file all documents to effect and preserve a timely 
Election.

                                   -45-

     (e)  Each Seller shall allocate the MADSP resulting from the Election in 
a manner consistent with the Allocations and shall not take any position 
inconsistent with the Election or the Allocations in connection with any 
Return; provided, however, that each Seller may take into account its 
transaction costs when calculating such MADSP.

     (f)  Buyer shall allocate the "adjusted grossed-up basis" of the capital 
stock of the Joint Venturers among the assets of the Joint Venturers in a 
manner consistent with the Allocations and shall not take any position 
inconsistent with the Election or the Allocations in any Return or otherwise; 
provided, however, that Buyer may add its transaction costs to the "adjusted 
grossed-up basis" of the capital stock of the Joint Venturers for purposes of 
allocating among the assets of the Joint Venturers.

     (g)  Sellers and Buyer acknowledge that for federal income tax purposes 
(and for state income tax purposes in those states whose income tax provisions 
follow the federal income tax treatment), the sale of the capital stock of the 
Joint Venturers from Sellers to Buyer will be treated as a sale of assets by 
each Joint Venturer to Buyer followed by a complete liquidation of each Joint 
Venturer with and into Sellers, and the parties agree to report the transaction 
in a manner consistent with this treatment and to take no positions 
inconsistent with this treatment.  The parties also agree that neither Buyer 
nor the Joint Venturers shall be liable for any Taxes resulting from the sale 
of the capital stock of Joint Venturers or the Election.

     25.  Limitations on Liability.

     (a)  Any amount of indemnity payable by Sellers under Sections 12, 14, 
15, 16, 18, 19 or 23 of, or relating to the transactions contemplated by, this 
Agreement, or arising in connection with the operations, properties or 
financial condition of members of the LSPI Group shall be paid by Sellers 
severally, and not jointly or jointly and severally, in accordance with the 
following principles:

          (i)  if the claim arises out of any misrepresentation or breach of 
     warranty made with respect to either Seller or its respective Joint 
     Venturer, the claim shall be the sole responsibility of such Seller;

         (ii)  if the claim arises out of any misrepresentation or breach of 
     warranty made with respect to LSPI, the claim shall be the responsibility 
     of both Sellers, who shall each pay one-half of any amount of indemnity 
     with respect thereto;

        (iii)  if the claim arises out of the breach of any covenant or 
     agreement by either Seller or its respective Joint Venturer, the claim 
     shall be the sole responsibility of such Seller;

         (iv)  if the claim arises out of the breach of any covenant or 
     agreement by LSPI, the claim shall be the responsibility of both Sellers, 
     who shall each pay one-half of any amount of indemnity with respect 
     thereto;

                                   -46-

          (v)  if the claim arises out of assertion by any third party of any 
     claim (including tax claims), liability or obligation against or with 
     respect to any member of the LSPI Group which is assumed, or indemnified 
     against, by either Seller, with respect to its respective Joint Venturer, 
     the claim shall be the sole responsibility of such Seller;

         (vi)  if the claim arises out of assertion by any third party of any 
     claim (including tax claims), liability or obligation against or with 
     respect to any member of the LSPI Group which is assumed, or indemnified 
     against, by both Sellers, with respect to LSPI, the claim shall be the 
     responsibility of both Sellers, who shall each pay one-half of any amount 
     of indemnity with respect thereto; and

        (vii)  if the claim arises from the termination of this Agreement, 
     compensation for which is provided in Section 19 hereof, Seller(s) in 
     breach shall be solely responsible for such claim.

     To the extent that any amount of indemnity is payable by Buyer to 
Seller(s), the foregoing principles shall apply to the determination of the 
Seller to whom such indemnity is payable, mutatis mutandis.

     (b)  No party is responsible for, and no party may recover from any other 
party, any amount of consequential (e. g., lost profits or the like) or 
punitive damages.  Notwithstanding the foregoing exclusion, to the extent any 
party hereto sustains any loss or incurs any expense compensable under this 
Agreement that contains or includes any measure of consequential or punitive 
damages awarded to a third party, then such indirect consequential and punitive 
damages may be recovered.

     (c)  Sellers and Buyer specifically agree that the total amount of 
indemnification payable by Sellers pursuant to Sections 15, 16, 18 and 23 
together shall not exceed the amount of the purchase price paid to each Seller 
in cash hereunder.

     26.  Amendment and Waiver.  This Agreement may not be amended or modified 
at any time or in any respect other than by an instrument in writing executed 
by Buyer and Sellers.

     27.  Notices.  Any notice or communication provided for in this Agreement 
shall be in writing and shall be deemed given when delivered personally, 
against receipt, or when deposited in the United States mail, registered or 
certified mail, return receipt requested to the following address:

     (a)  If to Pentair:

               Pentair, Inc.
               1500 County Road B2 West
               St. Paul, Minnesota  55113-3105
               Attention:  Ronald V. Kelly  

                                   -47-

               Facsimile:  (612) 639-5209

               with a copy to:

               Henson & Efron, P.A.
               1200 Title Insurance Building
               400 Second Avenue South
               Minneapolis, Minnesota  55401
               Attention:  Louis L. Ainsworth
               Facsimile:  (612) 339-6364

     (b)  If to Minnesota Power:

               Minnesota Power & Light Company
               30 West Superior Street
               Duluth , Minnesota 55802
               Attention:  David G. Gartzke
               Facsimile:  (218) 723-3960

               with a copy to: 

               Minnesota Power & Light Company
               30 West Superior Street
               Duluth , Minnesota 55802
               Attention:  Steven W. Tyacke
               Facsimile:  (218) 723-3955

     (c)  If to Buyer:

               Consolidated Papers, Inc.
               231 First Avenue North
               P. O. Box 8050
               Wisconsin Rapids, WI 54495-8050
               Attention:  Carl H. Wartman
               Facsimile:  (715) 422-3203

               with a copy to:

               McDermott, Will & Emery
               227 West Monroe Street
               Chicago, Illinois 60606-5096
               Attention:  Robert A. Schreck, Jr.
               Facsimile:  (312) 984-3669

Any party may change the above address for notice by written notice to the 
other parties in accordance with the provisions of this Section.

                                   -48-

     28.  Parties in Interest.  All of the terms and provisions of this 
Agreement shall be binding upon and inure to the benefit of and be enforceable 
by Sellers and Buyer, their respective successors and permitted assigns.  No 
party may assign this Agreement without the express written consent of the 
other parties, except that Buyer may assign this Agreement to an affiliate of 
Buyer provided that no such assignment shall relieve Buyer of its obligations 
hereunder or otherwise prejudice Sellers.  This Agreement shall not confer any 
rights or remedies upon any person other than Buyer and Sellers and their 
respective successors and permitted assigns.

     29.  Further Assurances.  Each party shall from time to time execute and 
deliver such further documents and do such further acts as the other parties 
may reasonably require for carrying out the purposes and intent of this 
Agreement.

     30.  No Waivers.  No failure of any party to this Agreement to pursue any 
remedy resulting from a breach of this Agreement shall be construed as a waiver 
of that breach or as a waiver of any subsequent or other breach.

     31.  Governing Law.  This Agreement shall be construed in accordance with 
and governed by the substantive laws of the state of Minnesota without giving 
effect to the choice of law provisions thereof.  This Agreement shall be 
subject to the exclusive jurisdiction of the courts of, and United States 
federal courts sitting in, the state of Minnesota, and all parties hereby 
irrevocably submit to the jurisdiction of such courts with respect to any claim 
arising out of this Agreement.

     32.  Severability.  Should any provision of this Agreement be or become 
invalid in whole or in part or be incapable of performance for whatever reason, 
then the validity of the remaining provisions of this Agreement shall not be 
affected thereby.  In such event, the parties hereby undertake to substitute 
for any such invalid provision or for any provision incapable of performance, a 
provision which corresponds to the spirit and purpose of such invalid or 
unperformable provision as far as permitted under applicable law, so as to 
realize to the fullest extent possible the economic purpose and effect of this 
Agreement.

     33.  Miscellaneous.  This Agreement constitutes the entire agreement 
between the parties and supersedes all prior representations, understandings or 
agreements between them, written or oral, respecting the within subject 
matter.  Headings are for convenience only and are not intended to alter any of 
the provisions of this Agreement.  Words importing the singular number include 
the plural and vice versa.  This Agreement may be signed in multiple copies, 
each of which shall be considered an original, but all of which shall together 
constitute one and the same instrument.


                         *           *           *

                                   -49-

     IN WITNESS WHEREOF, each party has caused this Agreement to be executed by 
its authorized officer as of the date first above written.


                                   PENTAIR, INC.



                                   By:       Winslow H. Buxton
                                         -----------------------------------
                                     Its:    CEO
                                         -----------------------------------



                                   MINNESOTA POWER & LIGHT
                                     COMPANY



                                   By:       Arend J. Sandbulte
                                         -----------------------------------
                                     Its:    Chairman and President
                                         -----------------------------------



                                   CONSOLIDATED PAPERS, INC.



                                   By:       Patrick F. Brennan
                                         -----------------------------------
                                     Its:    President & CEO
                                         -----------------------------------



                                   -50-


                                                            Exhibit 99(a)


                              ADESA Corporation

                  Index to Consolidated Financial Statements


                  Years ended December 31, 1994, 1993 and 1992


                                  Contents

Report of Independent Auditors .........................................F-1

Audited Consolidated Financial Statements

Consolidated Balance Sheets ............................................F-2
Consolidated Statements of Income ......................................F-4
Consolidated Statements of Shareholders' Equity.........................F-5
Consolidated Statements of Cash Flows ..................................F-6
Notes to Consolidated Financial Statements .............................F-8





                         Report of Independent Auditors


The Board of Directors and Shareholders
ADESA Corporation

We have audited the accompanying consolidated balance sheets of ADESA 
Corporation as of December 31, 1994 and 1993, and the related consolidated 
statements of income, shareholders' equity, and cash flows for each of the 
three years in the period ended December 31, 1994. These financial statements 
are the responsibility of the Company's management. Our responsibility is to 
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of 
material misstatement. An audit includes examining, on a test basis, evidence 
supporting the amounts and disclosures in the financial statements. An audit 
also includes assessing the accounting principles used and significant 
estimates made by management, as well as evaluating the overall financial 
statement presentation. We believe that our audits provide a reasonable basis 
for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the consolidated financial position of ADESA Corporation 
at December 31, 1994 and 1993, and the consolidated results of its operations 
and its cash flows for each of the three years in the period ended December 31, 
1994, in conformity with generally accepted accounting principles.



                                                  Ernst & Young LLP

February 9, 1995, except for
  Note 14, as to which the date
  is February 23, 1995

                                   F-1


                              ADESA Corporation

                         Consolidated Balance Sheets
December 31 1994 1993 ------------------------------- Assets Current assets: Cash and cash equivalents $ 10,203,992 $ 11,902,141 Trade receivables, less allowances of $1,054,872 in 1994 and $116,892 in 1993 48,790,083 22,330,319 Accounts receivable, related parties 405,984 563,188 Other current assets 4,231,166 1,836,355 ------------------------------- Total current assets 63,631,225 36,632,003 Property and equipment: Land 23,493,707 16,611,091 Buildings 23,427,232 16,816,888 Land improvements 17,689,729 14,447,682 Autos and trucks 5,674,504 3,786,942 Furniture, fixtures and equipment 5,651,839 4,031,341 Construction in progress 4,965,265 4,170,279 ------------------------------- 80,902,276 59,864,223 Less accumulated depreciation 9,788,055 6,964,099 ------------------------------- 71,114,221 52,900,124 Intangible assets: Goodwill 31,323,126 28,393,675 Customer lists 8,456,966 6,640,300 Other 9,264,954 8,271,369 ------------------------------- 49,045,046 43,305,344 Less accumulated amortization 10,473,533 7,632,931 ------------------------------- 38,571,513 35,672,413 Other assets 407,388 321,245 ------------------------------- Total assets $173,724,347 $125,525,785 ===============================
F-2
December 31 1994 1993 -------------------------------- Liabilities and shareholders' equity Current liabilities: Accounts payable $ 23,068,467 $ 13,713,033 Accrued expenses 3,679,331 1,829,084 Notes payable 20,647,135 377,700 Current portion of long-term debt 4,994,649 4,538,852 -------------------------------- Total current liabilities 52,389,582 20,458,669 Long-term debt, less current portion 34,276,936 32,371,481 Capital lease obligation 3,617,573 - Deferred income taxes 452,113 530,563 Minority interest in equity of subsidiaries 1,289,280 1,297,777 Shareholders' equity: Preferred stock, without par value: Authorized shares - 5,000,000 No shares issued and outstanding - - Common stock, without par value: Authorized shares - 40,000,000 Issued and outstanding shares - 11,102,166 in 1994 and 10,894,675 in 1993 66,162,853 62,967,603 Retained earnings 15,751,929 7,968,813 Cumulative translation adjustment (215,919) (69,121) -------------------------------- Total shareholders' equity 81,698,863 70,867,295 -------------------------------- Total liabilities and shareholders' equity $173,724,347 $125,525,785 ================================
See accompanying notes. F-3 ADESA Corporation Consolidated Statements of Income
Year ended December 31 1994 1993 1992 ---------------------------------------------- Operating revenues $94,129,173 $70,135,948 $45,689,640 Operating expenses: Direct 35,615,106 27,654,981 18,536,643 Selling, general and administrative: Operating 35,587,921 24,424,570 14,456,544 Related parties 180,000 295,000 355,600 Depreciation 3,450,476 2,770,256 2,451,564 Amortization 3,743,345 3,625,970 2,576,317 ---------------------------------------------- 78,576,848 58,770,777 38,376,668 ---------------------------------------------- Operating income 15,552,325 11,365,171 7,312,972 Other income (expense): Interest income 694,262 181,733 453,615 Interest expense (4,147,133) (2,576,810) (2,399,636) Other, net 1,347,012 756,843 428,738 ---------------------------------------------- (2,105,859) (1,638,234) (1,517,283) ---------------------------------------------- Income before income taxes and extraordinary item 13,446,466 9,726,937 5,795,689 Income taxes 5,663,350 3,915,657 1,737,000 ---------------------------------------------- Income before extraordinary item 7,783,116 5,811,280 4,058,689 Extraordinary item - loss from early extinguishment of debt - - 477,125 ----------- ----------- ----------- Net income $ 7,783,116 $ 5,811,280 $ 3,581,564 ============================================== Earnings per share: Income before extraordinary item $ .69 $ .60 $ 0.51 Extraordinary item - - 0.06 ---------------------------------------------- Net income $ .69 $ .60 $ 0.45 ==============================================
See accompanying notes. F-4 ADESA Corporation Consolidated Statements of Shareholders' Equity
Employee Common Stock Retained Accounts Shares Amount Earnings Receivable ----------------------------------------------------------- Balance at December 31, 1991 - $ 2,363,000 $ 211,623 $ - Retirement of common stock - (159,500) - - Dividends - - (539,268) - Conversion to C corporations - transfer of retained earnings at April 1, 1992 - 1,096,386 (1,096,386) - Share exchanges: ADE Companies 5,158,086 - - - Indianapolis Auto Auction, Inc. 1,766,914 13,646,276 - - Greater Buffalo Auto Auction, Inc. 92,983 1,070,000 - - Sale of common stock 2,094,500 21,172,186 - - Advances to employees - - - (199,865) Net income - - 3,581,564 - ------------------------------------------------------------- Balance at December 31, 1992 9,112,483 39,188,348 2,157,533 (199,865) Sale of common stock 1,650,000 21,107,193 - - Net income - - 5,811,280 - Collection of advances to employees - - - 199,865 Exchange of common stock for redeemable preferred stock 132,192 2,672,062 - - Foreign currency translation adjustment - - - - ------------------------------------------------------------- Balance at December 31, 1993 10,894,675 62,967,603 7,968,813 - Exercise of stock options 12,500 91,250 - - Share exchanges: Automotive Finance Corporation 145,036 2,404,000 - - R.A.D. Investments, Inc. 49,955 700,000 - - Net income - - 7,783,116 - Foreign currency translation adjustment - - - - ------------------------------------------------------------- Balance at December 31, 1994 11,102,166 $66,162,853 $15,751,929 $ - ============================================================= Cumulative Translation Adjustment Total ------------------------------------------ Balance at December 31, 1991 $ - $ 2,574,623 Retirement of common stock - (159,500) Dividends - (539,268) Conversion to C corporations - transfer of retained earnings at April 1, 1992 - - Share exchanges: ADE Companies - - Indianapolis Auto Auction, Inc. - 13,646,276 Greater Buffalo Auto Auction, Inc. - 1,070,000 Sale of common stock - 21,172,186 Advances to employees - (199,865) Net income - 3,581,564 ------------------------------------------ Balance at December 31, 1992 - 41,146,016 Sale of common stock - 21,107,193 Net income - 5,811,280 Collection of advances to employees - 199,865 Exchange of common stock for redeemable preferred stock - 2,672,062 Foreign currency translation adjustment (69,121) (69,121) ------------------------------------------ Balance at December 31, 1993 (69,121) 70,867,295 Exercise of stock options - 91,250 Share exchanges: Automotive Finance Corporation - 2,404,000 R.A.D. Investments, Inc. 4 - 700,000 Net income - 7,783,116 Foreign currency translation adjustment (146,798) (146,798) ------------------------------------------ Balance at December 31, 1994 $(215,919) $81,698,863 ==========================================
See accompanying notes. F-5 ADESA Corporation Consolidated Statements of Cash Flows
Year ended December 31 1994 1993 1992 ----------------------------------------- Operating activities Net income $ 7,783,116 $ 5,811,280 $3,581,564 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,450,476 2,770,256 2,451,564 Amortization 3,743,345 3,625,970 2,576,317 Deferred income taxes 6,550 320,404 210,282 Gain on disposal of property and equipment (888,019) (351,312) (59,194) Write-off of intangible assets - - 197,334 Changes in operating assets and liabilities: Trade receivables (17,179,102) (4,062,521) (3,408,038) Accounts receivable, related parties 157,204 15,430 121,635 Other current assets (2,403,308) (502,279) 510,555 Accounts payable and accrued expenses 9,167,137 (3,082,432) 8,551,018 ----------------------------------------- Net cash provided by operating activities 3,837,399 4,544,796 14,733,037 Investing activities Purchase acquisitions: Property and equipment (5,219,431) (6,874,479) (4,453,026) Intangibles and other net assets (3,407,711) (7,374,162) (11,546,974) Purchases of property and equipment (14,239,112) (3,766,660) (12,063,775) Proceeds from the sale of property and equipment 2,224,578 932,523 560,772 Notes receivable, related parties - - 2,329,554 Other investing activities (877,503) (722,139) (845,453) Employee accounts receivable - 199,865 (199,865) ----------------------------------------- Net cash used by investing activities (21,519,179) (17,605,052) (26,218,767)
F-6
Year ended December 31 1994 1993 1992 ------------------------------------------ Financing activities Net change in notes payable 13,576,224 (1,152,300) (6,092,501) Proceeds from long-term debt 14,213,870 8,995,137 41,500,000 Payments on long-term debt: Banks (11,852,619) (12,110,888) (25,771,293) Related parties - - (11,944,431) Proceeds from the sale of common stock - 21,107,193 21,172,186 Proceeds from the exercise of stock options 91,250 - - Retirement of common stock - - (159,500) Dividends paid - - (539,268) ------------------------------------------ Net cash provided by financing activities 16,028,725 16,839,142 18,165,193 Effect of exchange rate changes on cash (45,094) 13,448 - ------------------------------------------ Net (decrease) increase in cash (1,698,149) 3,792,334 6,679,463 Cash and cash equivalents at beginning of year 11,902,141 8,109,807 1,430,344 ------------------------------------------ Cash and cash equivalents at end of year $10,203,992 $11,902,141 $ 8,109,807 ==========================================
See accompanying notes. F-7 ADESA Corporation Notes to Consolidated Financial Statements December 31, 1994 1. Basis of Organization and Acquisitions ADESA Corporation (ADESA or the Company) owns and operates auto auctions through which used cars and other vehicles are sold to franchised automobiles dealers and licensed used car dealers. The Company also offers floorplan financing to the dealers as well as other miscellaneous services. ADESA was formed on April 22, 1992, through a share exchange agreement between ADESA, a group of companies under common ownership (the ADE Companies) and Indianapolis Auto Auction, Inc. (IAA). The combination was treated as a purchase transaction in which the ADE Companies, ADESA's predecessor, acquired IAA. Effective April 22, 1992, ADESA offered and sold 2,094,500 shares of common stock for $11.50 per share in an initial public offering. Concurrent with the offering, ADESA refinanced approximately $42 million of debt. On September 24, 1993, ADESA offered and sold 1,650,000 shares of common stock for $13.75 per share in a secondary public offering. IAA was acquired on April 22, 1992 through an exchange of 1,766,914 shares of ADESA common stock. The acquisition was recorded using the purchase method of accounting and the results of operations have been included in the consolidated financial statements since the date of acquisition. The purchase price of approximately $13,600,000 was allocated to the net assets acquired, including approximately $14,600,000 to goodwill, based upon the fair market value at the date of acquisition. The Company acquired Greater Buffalo Auto Auction, Inc. in 1992 through a share exchange. The Company subsequently constructed an auction facility and operations began on September 22, 1992. The acquisition was recorded using the purchase method of accounting and the results of operations have been included in the consolidated financial statements from the date of acquisition. The purchase price of $1,070,000 was allocated to the assets acquired based upon the fair market value at the date of acquisition. The Company acquired certain assets of Concord Auto Auction, Inc. and affiliated entities on November 5, 1992. The acquisition was recorded using the purchase method of accounting and the results of operations have been included in the consolidated financial statements from the date of acquisition. The purchase price of $16,000,000 was allocated to the assets acquired, including $7,627,000 to goodwill, based upon the fair market value at the time of the acquisition. F-8 ADESA Corporation Notes to Consolidated Financial Statements (continued) 1. Basis of Organization and Acquisitions (continued) The Company acquired certain assets of Knoxville Auto Auction, Inc. and Lenoir City Auto Auction on June 3, 1993. The acquisition was recorded using the purchase method of accounting and the results of operations have been included in the consolidated financial statements from the date of acquisition. The purchase price of $827,000 was allocated to the assets acquired based upon the estimated fair market value at the time of acquisition. ADESA (Montreal) Inc. (subsequently renamed ADESA Canada, Inc.) was formed by the Company to acquire certain assets of Montreal Auto Auction on August 17, 1993. The acquisition was recorded using the purchase method of accounting and the results of operations have been included in the consolidated financial statements from the date of the acquisition. The purchase price of $6,590,378 was allocated to the assets acquired, including $4,412,451 to goodwill, based upon the fair market value at the time of the acquisition. Ottawa Auto Dealers Exchange, Inc. and Greater Halifax Auto Exchange Incorporated were acquired on December 1, 1993 for $1,909,695 and an exchange of 13,266 shares of ADESA Canada, Inc. common stock totaling $2,358,406, which are convertible into common stock of ADESA based on a formula and contingent upon the occurrence of certain events as set forth in the purchase agreement. The acquisition was recorded using the purchase method of accounting and the results of operations have been included in the consolidated financial statements since the date of acquisition. The total purchase price of $4,268,101 was allocated to the net assets acquired, including $1,902,840 to goodwill, based upon the fair market value at the date of acquisition. On January 6, 1994, the Company acquired Automotive Finance Corporation (AFC), a finance company previously affiliated through common ownership, for 145,036 shares of ADESA common stock. The acquisition was recorded using the purchase method of accounting and the results of operations have been included in the consolidated financial statements since the date of acquisition. The purchase price was allocated to the net assets acquired, including $1,813,000 to goodwill, based upon the fair market value at the date of acquisition. On February 9, 1994, the Company acquired certain assets of Gulf Coast Auto Auction, Inc. in Bradenton, Florida and renamed the auction ADESA Sarasota/Bradenton. The acquisition was recorded using the purchase method of accounting and the results of operations have been included in the consolidated financial statements since the date of acquisition. The purchase price of $2,750,000 was allocated to the assets acquired based upon the fair market value at the date of acquisition. F-9 ADESA Corporation Notes to Consolidated Financial Statements (continued) 1. Basis of Organization and Acquisitions (continued) On February 28, 1994, the Company acquired certain assets of Northfield Auto Auction, Corp. in Cleveland, Ohio and renamed the auction ADESA Cleveland. The acquisition was accounted for using the purchase method of accounting and the results of operations have been included in the consolidated financial statements since the date of acquisition. The purchase price of $850,000 was allocated to the assets acquired based upon the fair market value at the date of acquisition. On August 22, 1994, the Company paid $1,150,000 in exchange for a 51% ownership interest in ADESA - South Florida, LLC, which operates an auction in Miami, Florida. The Company is also responsible for managing the operations of this joint venture. The results of operations as well as the minority interest in the joint venture have been recognized in the consolidated financial statements since the commencement of operations. After July 31, 1998 the Company may, at its sole option, purchase the remaining 49% interest at the greater of fair market value or a price defined in the joint venture agreement. On October 1, 1994, the Company acquired certain assets of R.A.D. Investments, Inc. which owned and operated an auction in Austin, Texas, in exchange for $1,900,000 and 49,955 shares of ADESA common stock. The acquisition was accounted for using the purchase method of accounting and the results of operations have been included in the consolidated financial statements since the date of acquisition. The total purchase price of $2,600,000 was allocated to the assets acquired based upon the fair market value at the date of acquisition. The following unaudited pro forma financial information presents the results of operations as though the acquisitions occurred at the beginning of the year immediately prior to the year in which the transactions occurred. Pro forma information does not purport to be indicative of the results that actually would have been achieved had the acquisitions occurred at the beginning of those years.
Year ended December 31 1994 1993 1992 ------- ------- ------- (in thousands, except per share data) Operating revenues $96,767 $81,104 $69,181 ======= ======= ======= Income before extraordinary item $ 7,584 $ 6,078 $ 5,999 ======= ======= ======= Net income $ 7,584 $ 6,078 $ 5,522 ======= ======= ======= Net income per share $ 0.67 $ 0.61 $ 0.51 ======= ======= =======
F-10 ADESA Corporation Notes to Consolidated Financial Statements (continued) 2. Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of all subsidiaries. All significant intercompany accounts and transactions have been eliminated. Cash Equivalents All highly liquid investments with maturities of three months or less when purchased are considered to be cash equivalents. Trade Receivables and Payables Trade receivables include the unremitted purchase price of automobiles sold at the auctions and fees to be collected from the buyers. Accounts payable include those amounts due sellers from the proceeds of the sale of their automobiles. Trade receivables also include floorplan receivables created by financing dealer purchases of automobiles at the Company's auctions in exchange for a security interest in those automobiles. Trade receivables also include amounts for services related to certain consigned automobiles in the Company's possession in accordance with contracts with several entities. These amounts are billed to the entities upon the eventual auction or other disposition of the related consigned automobiles. Due to the nature of the Company's business, substantially all trade accounts receivable are due from automobile dealers. The Company has possession of car titles collateralizing a significant portion of the trade receivables. The allowance for doubtful accounts is based on management's evaluation of the receivables portfolio under current conditions, the volume of the portfolio, overall portfolio quality, review of specific problems and such other factors which in management's judgment deserve recognition in estimating losses. F-11 ADESA Corporation Notes to Consolidated Financial Statements (continued) 2. Significant Accounting Policies Property and Equipment Property and equipment is stated on the basis of cost. Depreciation is computed using straight-line and accelerated methods over the estimated useful lives of the respective assets. Intangible Assets Intangible assets consist of noncompete agreements, customer lists and acquisition and mortgage costs which are amortized over periods of three to fifteen years, and goodwill which is amortized over periods ranging from fifteen to forty years. Revenues Revenues and the related costs are recognized when the services are performed. Revenues include only the Company's fees for such services. Interest on floorplan receivables is based on the current prime rate and is recognized based on the number of days the vehicle remains financed. Income Taxes Prior to April 1, 1992, the shareholders of certain of the ADE Companies had elected under Subchapter S of the Internal Revenue Code to include the income of the ADE Companies in their own income for income tax purposes. Accordingly, all significant ADE Companies were not subject to federal and state income taxes until that date. Foreign Currency Translation Results of operations for foreign subsidiaries are translated into U.S. dollars using the average exchange rates during the period. Assets and liabilities are translated into U.S. dollars using the exchange rate at the balance sheet date, except for intangibles and fixed assets, which are translated at historical rates. Resulting translation adjustments are recorded in the cumulative translation adjustment section of shareholders' equity. Extraordinary Item In connection with the initial public offering and debt refinancing, the Company realized a loss on the early extinguishment of debt. The loss, consisting of prepayment penalties and accelerated amortization of capitalized debt issuance costs and debt discount, aggregated $795,000 and has been reported net of the applicable income tax benefit of $318,000. F-12 ADESA Corporation Notes to Consolidated Financial Statements (continued) 2. Significant Accounting Policies (continued) Per Share Disclosures Earnings per share are based on the weighted average number of shares of common stock outstanding. The weighted average number of shares outstanding, including the effect of dilutive stock options, was 11,275,232, 9,672,584 and 7,892,740 shares for 1994, 1993, and 1992, respectively. Financial Instruments All financial instruments in the accompanying financial statements are stated at cost which approximates market value. 3. Allowance for Doubtful Accounts An analysis of the allowance for doubtful accounts is as follows:
Year ended December 1994 1993 1992 ---------- -------- ------- Balance at beginning of year $ 116,892 $ 73,360 $55,000 Provision for bad debts 1,085,039 168,114 78,391 Uncollectible accounts written off (147,059) (124,582) (60,031) ---------- -------- ------- Balance at end of year $1,054,872 $116,892 $73,360 ========== ======== =======
4. Related Party Transactions The Company enters into transactions in the ordinary course of business with entities wholly or partially owned by the principal shareholder. As a result, the Company had receivables from related parties of approximately $170,000 and $403,000 at December 31, 1994 and 1993, respectively. The Company also had receivables from employees approximating $236,000 and $160,000 at December 31, 1994 and 1993, respectively. The principal shareholder is a trustee of a qualified charitable organization that collects funds and distributes the funds to other charitable organizations. During 1994, 1993 and 1992, the Company made charitable contributions of $155,000, $25,000 and $283,600, respectively, to the related charitable organization. F-13 ADESA Corporation Notes to Consolidated Financial Statements (continued) 4. Related Party Transactions (continued) The Company leases its principal offices from an entity wholly-owned by the principal shareholder. The lease requires monthly payments of $12,000 and expires on December 31, 1995. The Company entered into agreements with an entity wholly-owned by the principal shareholder to lease certain equipment used in daily operations. The operating leases were month-to-month leases. The Company incurred expense of $352,300 for the leases during 1992. The assets were purchased by the Company during 1992 for their estimated fair value of $276,000. The Company advanced the principal shareholder approximately $3,406,000 for construction costs related to an auction facility used by the Company from May 1994 to December 1994. The facility was sold to an unrelated third party, and the loan was paid in full in December 1994. During 1994, the Company sold property to an entity affiliated through common ownership at a gain of approximately $640,000. The selling price was based upon the average of two independent appraisals of the property. The Company paid $80,000 and $126,000 to a former director for certain promotional activities in 1994 and 1993, respectively. The Company leases its Austin, Texas auction facility pursuant to an operating lease from the general manager of that facility. The lease is for a fifteen year term and requires monthly payments of $15,000, adjusted periodically at the end of five years based on certain inflation indices. The agreement also contains renewal options of up to twenty years and allows the Company to purchase property at its fair market value at the end of ten years. F-14 ADESA Corporation Notes to Consolidated Financial Statements (continued) 5. Credit Arrangements Long-term debt consisted of the following:
December 31 1994 1993 ---------------------------- Floating rate option notes $24,670,002 $29,050,998 Borrowings on ADESA Revolver, bearing interest at either the bank's prime plus 0% to .5% or LIBOR plus 1.5% to 2.25% contingent upon financial performance, maturing on May 31, 1996 13,900,000 - Mortgage note payable, with interest accruing at the bank's prime rate; monthly principal payments due through April, 2010 375,158 973,302 Senior subordinated note, repaid during 1994 - 5,000,000 Revolving line of credit, repaid during 1994 - 1,784,976 Other 326,425 101,061 --------------------------- 39,271,585 36,910,322 4,994,649 4,538,852 --------------------------- $34,276,936 $32,371,421 ===========================
Notes payable consisted of the following:
December 31 1994 1993 ---------------------------- Borrowings on Line of Credit, bearing interest at the bank's prime plus 0% to .5% contingent upon financial performance, maturing on May 31, 1995 $11,625,000 $ - Borrowings on AFC Revolver, bearing interest at either the bank's prime plus 0% to .5% or LIBOR plus 1.5% to 2.25% contingent upon financial performance, maturing on May 31, 1995 9,000,000 - Other 22,135 377,700 --------------------------- $20,647,135 $377,700 ===========================
F-15 ADESA Corporation Notes to Consolidated Financial Statements (continued) 5. Credit Arrangements (continued) The Company issued $35,000,000 of floating rate option notes (Notes) on April 22, 1992, which are collateralized by an irrevocable direct pay letter of credit (Letter of Credit). The proceeds were used to retire various other debt facilities. The Notes amortize over a seven-year period, with a final maturity on April 1, 1999 and the interest rate resets every seven days. The effective interest rate on the Notes at December 31, 1994 was 8.84%. The Company is required to make increasing monthly deposits of $388,000 up to $533,000 over the remaining life of the Notes into a sinking fund to provide for the periodic repayment of the Notes. The Letter of Credit, an $18 million working capital line of credit (Line of Credit), a $22 million ADESA Revolver and a $12 million AFC Revolver were issued pursuant to a credit agreement with a commercial bank. The Line of Credit requires a monthly paydown while borrowings under the AFC Revolver are limited to the lesser of $12 million or a percentage of eligible receivables, as defined in the credit agreement. As of December 31, 1994, $6,375,000 of the Line of Credit, $8.1 million of the ADESA Revolver and $2.4 million of the AFC Revolver were available for use by the Company. The weighted average borrowing rate on these short term borrowings was 7.93% and 6.75% at December 31, 1994 and 1993, respectively. The Letter of Credit, Line of Credit, ADESA Revolver and AFC Revolver are collateralized by substantially all of the Company's assets. At December 31, 1994, aggregate future principal payments on long-term debt are as follows: 1995 $ 4,994,649 1996 19,062,698 1997 5,688,465 1998 6,050,459 1999 3,222,491 Thereafter 252,823 ----------- $39,271,585 =========== Interest paid was approximately $3,898,000, $2,604,000 and $2,645,000 for 1994, 1993, and 1992, respectively. The Company has agreed to certain restrictions which, among other things, require minimum levels of current ratio, total indebtedness to earnings (as defined in the credit agreement) and tangible net worth. The credit agreements also place restrictions on issuing F-16 ADESA Corporation Notes to Consolidated Financial Statements (continued) 5. Credit Arrangements (continued) new debt, mergers and acquisitions, sales of all or substantially all of the Company's assets, purchases or retirements of the Company's capital stock, payment of dividends and capital expenditures. 6. Leasing Agreements In November 1994, the Company executed three operating lease arrangements for auction facilities located in North Carolina, Massachusetts and Tennessee with an unrelated third party. The term for each of the three leases is for five years (all commencing on August 1, 1995) with no renewal options. However, during April, 1999, the Company has the option to purchase the leased facilities at a collective price of $26,500,000. In the event the Company does not exercise its option to purchase, it is required to guarantee any deficiency in sales proceeds the lessor realizes in disposing of the leased properties should the selling price fall below $25,705,000. The Company receives any excess sales proceeds over the option price. The Company has guaranteed the payment of principal and interest on the lessor's indebtedness which consists of $25,705,000 mortgage notes payable, due August 1, 2000. Interest on the notes accrues at 9.82% per annum and is payable monthly beginning on January 1, 1995. The Company has also guaranteed the completion of construction which will take place at these properties during 1995. The Company executed a capital lease agreement on February 28, 1994 for land and a building with monthly payments of $19,167 due through February 28, 1998. A balloon payment of $3,900,000 is due upon expiration of the lease. Land and buildings at December 31, 1994 includes $2,957,652 and $1,361,658, respectively, in relation to this lease agreement. F-17 ADESA Corporation Notes to Consolidated Financial Statements (continued) 6. Leasing Agreements (continued) The Company leases other properties in addition to those listed above pursuant to operating lease agreements with terms expiring through March 1, 1999. Total future minimum lease payments as of December 31, 1994 for all operating and capital lease arrangements are as follows:
Operating Total Leases Capital Lease ----------- ----------- ------------- 1995 $ 2,289,438 $ 2,059,434 $ 230,004 1996 3,844,299 3,614,295 230,004 1997 3,799,917 3,569,913 230,004 1998 3,736,638 3,506,634 230,004 1999 7,010,639 3,072,305 3,938,334 Thereafter 2,646,760 2,646,760 - ----------- ----------- ---------- $23,327,691 $18,469,341 4,858,350 =========== =========== ========== Amounts representing interest 1,240,777 ---------- $3,617,573 ==========
Total rent expense was $1,240,000, $465,400 and $196,000 for 1994, 1993 and 1992, respectively. 7. Shareholders' Equity The Company has authorized 5,000,000 shares of preferred stock which remains unissued at December 31, 1994. The Board of Directors of the Company has not yet determined the preferences, qualifications, relative voting or other rights of the authorized shares of preferred stock. The Company had issued, through one of its subsidiaries, 2,166,667 shares of redeemable preferred stock. The Company redeemed all outstanding shares of the non-voting preferred stock on December 16, 1993 in exchange for 132,192 shares of common stock. The exchange was based on the market value of the common stock at the time of the exchange and the fair value of the preferred stock as determined by a third party appraisal. Prior to April 22, 1992, the ADE Companies consisted of separate corporations affiliated through common ownership and control. The capital structures of the entities were similar and not complex, and therefore were combined on the balance sheet. Due to the separate F-18 ADESA Corporation Notes to Consolidated Financial Statements (continued) 7. Shareholders' Equity (continued) capital structures, presentation of the number of shares of common stock authorized, issued and outstanding is deemed not meaningful. In connection with the conversion of the various S corporations to C corporations, retained earnings of S corporations as of April 1, 1992 were transferred to common stock. The Company has an incentive stock option plan for which 1,000,000 shares of common stock are reserved. In accordance with the plan, options are granted with exercise prices equivalent to the market price of the underlying common stock on the date of grant. The following table summarizes option activity pursuant to the plan:
Number of Exercise Shares Price ----------------------------- Options outstanding at December 31, 1992 263,000 $7.00 - $11.50 Granted 244,500 $9.50 - $15.63 Canceled (25,500) $7.00 - $13.25 ------- Options outstanding at December 31, 1993 482,000 $7.00 - $15.63 Granted 392,450 $13.25 - $14.25 Canceled (85,000) $7.00 - $15.63 Exercised (12,500) $7.00 - $9.50 ------- Options outstanding at December 31, 1994 776,950 $7.00 - $15.63 ======= Options exercisable at December 31, 1994 42,400 $7.00 - $12.75 =======
8. Income Taxes Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FASB Statement No. 109, "Accounting for Income Taxes." As permitted by the new rules, prior years financial statements have not been restated. The effect of the accounting change was not material to operating results or the financial position of the Company. F-19 ADESA Corporation Notes to Consolidated Financial Statements (continued) 8. Income Taxes (continued) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. These differences relate primarily to depreciation of property and equipment, amortization of certain intangible assets over longer periods for financial reporting purposes, and allowances for bad debts recognized for financial reporting purposes but not yet deductible for tax purposes. Significant components of the provision for income taxes attributable to continuing operations are as follows:
1994 1993 ---------- ---------- Current: Federal $3,553,821 $2,629,811 Foreign 951,873 258,955 State 1,151,106 706,487 ---------- ---------- 5,656,800 3,595,253 Deferred (credit): Federal 17,806 218,260 Foreign 104,676 40,288 State (115,932) 61,856 ---------- ---------- 6,550 320,404 ---------- ---------- $5,663,350 $3,915,657 ========== ==========
The reconciliation of the statutory federal income tax rate to the Company's effective tax rate is as follows:
1994 1993 ------ ------ Tax at U.S. statutory rates 34.0% 34.0% State income taxes, net of federal tax benefit 5.1 5.2 Amortization of nondeductible goodwill 2.8 2.4 Foreign tax rates 1.3 0.5 Other, net (1.1) (1.8) ----- ----- 42.1% 40.3% ===== =====
Undistributed earnings of the Company's foreign subsidiaries were approximately $1,908,000 at December 31, 1994. Those earnings are considered to be indefinitely reinvested, and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income tax (subject to an F-20 ADESA Corporation Notes to Consolidated Financial Statements (continued) 8. Income Taxes (continued) adjustment for foreign tax credits) and withholding taxes payable to Canada. Determination of the amount of unrecognized deferred U.S. income tax liability is not practical due to the complexities associated with its hypothetical calculations; however, unrecognized foreign tax credit carryforwards would be available to reduce some portion of the U.S. liability. Withholding taxes of approximately $190,800 would be payable upon remittance of all previously unremitted earnings at December 31, 1994. Cash paid for income taxes during 1994, 1993 and 1992 was approximately $4,558,000, $3,098,000 and $1,304,000, respectively. 9. Geographic and Business Segments The Company acquired its Canadian operations in late 1993 through its acquisitions of auctions in Montreal, Ottawa and Halifax. United States and Canadian operations were as follows:
1994 1993 ------------ ------------ Operating revenue from unaffiliated customers: United States $ 82,182,964 $ 67,527,284 Canada 11,946,209 2,608,664 ------------ ------------ Consolidated $ 94,129,173 $ 70,135,948 ============ ============ Income before income taxes: United States $ 10,936,679 $ 8,973,211 Canada 2,509,787 753,726 ------------ ------------ Consolidated $ 13,446,466 $ 9,726,937 ============ ============ Total assets: United States $154,302,073 $108,739,840 Canada 19,422,274 16,785,945 ------------ ------------ Consolidated $173,724,347 $125,525,785 ============ ============
Selected 1994 income data by business segment data is as follows:
Auction Financial Services Services Total ----------- ---------- ----------- Operating revenues $90,436,171 $3,693,002 $94,129,173 =========== ========== =========== Operating income $13,087,805 $2,464,520 $15,552,325 =========== ========== ===========
F-21 ADESA Corporation Notes to Consolidated Financial Statements (continued) 9. Geographic and Business Segments (continued) Total assets presented by business segment and inclusive of the Company's headquarters as of December 31, 1994 were as follows: Auction services $145,747,391 Financial services 17,950,221 Corporate headquarters 10,026,735 ------------ $173,724,347 ============ 10. Benefit Plan During 1994, the Company adopted a defined contribution 401(k) plan which covers substantially all employees. Participants are generally allowed to make nonforfeitable contributions, up to 15% of their annual salary. The Company currently matches 50% of the amounts contributed by each individual participant, up to 6% of the participant's compensation, up to a maximum of $1,000. Participants are not vested in the Company's contributions until after completion of five years of service, at which time they become fully vested. 11. Major Customers The Company derives a significant amount of revenue from three major customers. In 1994, revenues from the three customers accounted for 21%, 19% and 3% of total revenues. In 1993, revenues from the three customers accounted for 18%, 16% and 4% of total revenues. In 1992, revenues from the three customers accounted for 33%, 15% and 7% of total revenues. 12. Commitments and Contingencies The Company stores a significant number of automobiles owned by various entities and consigned to the Company to be auctioned. The Company is contingently liable for each consigned automobile until the eventual sale or other disposition. Insurance coverage is maintained on the consigned automobiles. At December 31, 1994, the Company had approximately 25,000 automobiles on consignment, no more than 7,000 of which were stored at any one location. These automobiles are consigned to the Company and are therefore not included in the consolidated balance sheets. F-22 ADESA Corporation Notes to Consolidated Financial Statements (continued) 12. Commitments and Contingencies In November 1994, the Company agreed to acquire certain real estate for a purchase price of $1 million (subject to rezoning and site plan approval) and committed to spend an additional $3.9 million for various site work. In connection with the real estate purchase, the Company is responsible for any potential future environmental cleanup costs which may arise with respect to this property, up to $1 million. The Company agreed to sell its auction facility located in Massachusetts for $8,250,000 during 1994. The sale is pending as of December 31, 1994 (subject to zoning approval) and will close upon the Company's new leased facility in that state (see Note 6) becoming ready for occupancy in May 1995. 13. Quarterly Results of Operations (Unaudited) Quarterly results of operations are summarized as follows (in thousands, except per share data):
Quarter Ended March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- 1994 - ---- Operating revenues $21,571 $23,539 $23,868 $25,151 Gross profit 13,263 14,983 14,986 15,282 Net income 1,974 2,472 1,970 1,367 Net income per share .18 .22 .18 .12 1993 - ---- Operating revenues $17,575 $17,771 $16,712 $18,078 Gross profit 11,145 10,883 10,109 10,344 Net income 1,789 1,555 1,194 1,273 Net income per share .20 .17 .13 .12
F-23 ADESA Corporation Notes to Consolidated Financial Statements (continued) 14. Subsequent Events On February 23, 1995 the Company announced that its Board of Directors had approved a definitive merger agreement with Minnesota Power & Light Company (MPL), a diversified electric company headquartered in Duluth, Minnesota. The agreement provides that, upon consummation of the merger, and upon purchase by MPL of additional newly issued shares of the Company's common stock, MPL will own 80% of the issued and outstanding capital stock of the Company and certain officers of the Company will own the remaining 20%. The merger is subject to shareholder approval by the Company's shareholders and the satisfaction of various other customary conditions. If approved, it is expected that the merger will be completed in the second quarter of 1995.

                                                            Exhibit 99(b)

                            ADESA Corporation

               Index to Consolidated Financial Statements

                  For the Quarter Ended March 31, 1995



Unaudited Consolidated Financial Statements


Condensed Consolidated Balance Sheets                            1

Condensed Consolidated Statement of Income Statements            2

Condensed Consolidated Statements of Cash Flows                  3

Notes to Condensed Consolidated Financial Statements             4



                            ADESA CORPORATION

                 CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 1995 December 31, 1994 ------------ ------------ (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $ 23,642,067 $ 10,203,992 $13,438,075 Trade receivables, net 62,606,171 48,790,083 $13,816,088 Other current assets 7,495,616 4,637,150 $ 2,858,466 ------------ ------------ Total current assets 93,743,854 63,631,225 Property and equipment, net 79,894,339 71,114,221 $ 8,780,118 Intangible assets, net 37,967,750 38,571,513 (603,763) Other assets 351,288 407,388 (56,100) ------------ ------------ Total assets $211,957,231 $173,724,347 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 61,222,070 $ 26,747,798 Notes payable 21,270,829 20,647,135 Current portion of long-term debt 4,882,102 4,994,649 ------------ ------------ Total current liabilities 87,375,001 52,389,582 Long-term liabilities 38,990,958 37,894,509 Deferred income taxes 488,213 452,113 Minority interest in equity of subsidiary 1,399,035 1,289,280 Shareholders' equity: Common stock 66,181,978 66,162,853 Retained earnings 17,748,610 15,751,929 Cumulative translation adjustment (226,564) (215,919) ------------ ------------ Total shareholders' equity 83,704,024 81,698,863 ------------ ------------ Total liabilities and shareholders' equity $211,957,231 $173,724,347 ============ ============ Note: The balance sheet at December 31, 1994 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted account principals for completed financial statements. See accompanying notes.
1 ADESA CORPORATION CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)
Three Months Ended March 31 1995 1994 ------------ ----------- Operating revenues $29,609,345 $21,571,324 Operating expenses: Direct 11,119,327 8,308,036 Selling, general and administrative: Operating 12,201,242 7,814,669 Depreciation 1,011,107 744,486 Amortization 749,458 935,314 ------------ ----------- Operating income 4,528,211 3,768,819 Other income (expense): Interest income 115,931 67,292 Interest expense (1,272,034) (676,654) Other, net (71,642) 71,965 ------------ ----------- (1,227,745) (537,397) ------------ ----------- Income before income taxes 3,300,466 3,231,422 Income taxes (1,303,780) (1,257,706) ------------ ----------- Net income $1,996,686 $1,973,716 ============ =========== Weighted average shares outstanding 11,397,557 11,243,628 ============ =========== Net income per share $0.18 $0.18 ============ ===========
See accompanying notes. 2 ADESA CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31 1995 1994 ----------- ----------- Operating activities: Net income $1,996,686 $1,973,716 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation 1,011,107 744,486 Amortization 749,458 935,314 Gain on disposal of assets (22,691) (17,471) Minority interest in subsidiary 109,754 33,267 Changes in operating asset and liabilities: Trade receivables (13,816,088) (19,135,445) Other current assets (2,858,466) (1,651,533) Accounts payable and accrued expenses 34,474,274 24,238,820 ----------- ----------- Net cash provided (used) by operating activities 21,644,034 7,121,154 Investing activities: Purchases of property, and equipment, net (9,780,374) (6,130,640) Other assets 659,863 (1,228,461) ----------- ----------- Net cash used by investing activities (9,120,511) (7,359,101) Financing activities: Proceeds from notes and long-term debt 2,998,697 8,561,193 Payments on notes and long-term debt (2,148,346) (5,357,840) Proceeds from the issuance of common stock 19,125 0 ----------- ----------- Net cash provided by financing activities 869,476 3,203,353 Effect of exchange rate changes on cash 45,076 (92,774) ----------- ----------- Net increase (decrease) in cash 13,438,075 2,872,632 Cash and cash equivalents at beginning of period 10,203,992 11,902,141 ----------- ----------- Cash and cash equivalents at end of period $23,642,067 $14,774,773 =========== ===========
See accompanying notes. 3 ADESA CORPORATION Notes to Condensed Consolidated Financial Statements - (Unaudited) 1. Basis of Presentation --------------------- The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company, all adjustments (consisting of only normal recurring accruals) considered necessary to present fairly the consolidated financial statements have been included. Quarterly results of operations are not necessarily indicative of annual results. These statements should be read in conjuction with the consolidated financial statements and footnotes thereto included in the Company's annual report for the year end December 31, 1994. 2. Business Segments ----------------- Selected first quarter 1995 income data by business segment is as follows:
Auction Financial Services Services Total ----------- ---------- ----------- Operating revenues $28,063,574 $1,545,771 $29,609,345 ----------- ---------- ----------- Operating income $ 3,544,071 $ 984,140 $ 4,528,211 ----------- ---------- -----------
Total assets presented by business segment and inclusive of the Company's headquarters as of March 31, 1995 were as follows: Auction services $177,759,511 Financial services 24,558,742 Corporate headquarters 9,638,979 ------------ $211,957,232 ------------ 3. Per-Share Data -------------- Earnings per share data are based on the weighted average number of shares outstanding during the applicable periods, including the effect of dilutive stock options. 4 4. Credit Arrangements ------------------- On April 26, 1995, the company's subsidiary Automotive Finance Corporation ("AFC") established a $40,000,000 revolving line of credit (AFC Revolver) at 200 basis points over LIBOR or 50 basis points over the bank's prime rate. Borrowing under the AFC Revolver are limited to the lessor of $40,000,000 or a percentage of eligible receivables, as defined in the credit agreement. The AFC Revolver is for a term of 364 days and will be used to finance floor plan receivables. Additional, ADESA provides no parental guarantee of capital. This line of credit was used to replace $12,000,000 revolving line of credit held prior thereto. 5. Pending Merger -------------- On February 23, 1995 the Company announced that its Board of Directors had approved a definitive agreement with Minnesota Power & Light company (MPL), a diversified electric utility company headquarted in Duluth, Minnesota. This agreement provides that, upon consummation of the merger and upon purchase by MPL of additional newly issued shares of the Company's common stock, MPL will own 80% of the issued and outstanding capital stock of the Company and certain officers of the Company will own the remaining 20%. The merger is subject to approval by the Company's shareholders and the satisfaction of various other customary conditions. If approved, it is expected that the merger will be completed in the second quarter of 1995. 6. Other Events ------------ Currently, individual auctions owned by the Company separately contract with the General Motors ("GM") for the auction of rental repurchase units under master contracts, which state various sales procedures, pursuant to which they conduct business with the Company. These contracts do not require GM to sell any minimum number of vehicles through the Company's auctions and may be terminated upon 30 days' notice. . ADESA currently has three United States auctions which sell rental repurchase units under such contracts with GM. In 1995 GM requested that auctions bid for the right to sell rental repurchase units which will have a term of three years commencing January 1, 1996. GM has informally announced its intentions to reduce the number auctions in the US it uses for such sales from 42 to 32. The Company was invited in February 1995 to take part in this process and on May 10, 1995 submitted a bid for all of the ADESA's United States auctions including a greenfield auction in Manville, New Jersey. There can be no assurance as to whether the Company will receive an increased or decreased number of contracts pursuant to this process but any change could be expected to impact revenues. During 1994 GM, including their respective captive finance subsidiaries which are not part of this process and auction off-lease and repossessed vehicles, accounted for more that 10% of the Company's revenues. GM has stated that it intends to award the contracts in the Summer or Fall of 1995. 5