<PAGE> 1
THIS DOCUMENT IS A COPY OF THE SCHEDULE 14A AND RELATED PROXY MATERIAL FILED
ON 10/31/94 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant X
---
Filed by a party other than the registrant
---
Check the appropriate box:
Preliminary proxy statement
- ---
X Definitive proxy statement
- ---
Definitive additional materials
- ---
Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
- ---
WISCONSIN ELECTRIC POWER COMPANY
(Name of Registrant as Specified in Its Charter)
Wisconsin Electric Power Company
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
$125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
- ---
$500 per each party to the controversy pursuant to
- --- Exchange Act Rule 14a-6(i)(3).
X Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
- ---
CALCULATION OF FILING FEE
Title of each class of securities to which transaction applies:
Common Stock, $1.00 par value
-------------------------------------------------------------------------
Aggregate number of securities to which transaction applies: (1)
1,725,000
-------------------------------------------------------------------------
Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11: (2)
$74.40
-------------------------------------------------------------------------
Proposed maximum aggregate value of transaction: (2)
$128,340,000
-------------------------------------------------------------------------
Amount of filing fee:
$25,668.00
-------------------------------------------------------------------------
<PAGE> 2
(1) The number of issued and outstanding shares of Wisconsin Natural Gas
Company ("WN") common stock to be cancelled in connection with the
merger of WN with and into Registrant.
(2) Estimated pursuant to Rules 0-11(c)(1) and 0-11(a)(4) under the
Securities Exchange Act of 1934 solely for the purpose of calculating
the filing fee, based on the $74.40 book value per share of WN common
stock on August 31, 1994
X
___ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
$25,668.00
-----------------------------------------------------------
(2) Form, schedule or registration statement no.:
Schedule 14A (Preliminary)
-----------------------------------------------------------
(3) Filing party:
Wisconsin Electric Power Company
-----------------------------------------------------------
(4) Date filed:
October 11, 1994
-----------------------------------------------------------
<PAGE> 3
Wisconsin Electric Power Company Richard A. Abdoo
231 West Michigan Chairman of the Board &
P.O. Box 2046 Chief Executive Officer
Milwaukee, WI 53201
October 31, 1994
Dear Wisconsin Electric Stockholder:
The utility industry is rapidly changing and is becoming more competitive. To
succeed in this newly competitive environment, Wisconsin Electric must change
the way it does business. The company has examined and redesigned many of its
operations and implemented several cost-saving changes in an effort to become
the low-cost energy provider in the upper midwest. The Board of Directors
fully supports these efforts and presents for your approval several items
which will give the company additional flexibility needed to succeed in this
competitive environment. These items will be considered at a special meeting
of stockholders at 9:00 a.m. on Thursday, December 15, 1994 in the auditorium
of the Public Service Building, 231 West Michigan Street, Milwaukee,
Wisconsin.
The principal purpose of the meeting is to seek your approval for the merger
of Wisconsin Natural Gas Company into Wisconsin Electric. Merging these
subsidiaries of Wisconsin Energy Corporation will result in lower operating
costs and significant improvements in customer service by providing a "one-
stop shop" for customers' energy needs. There will be no change in your
stockholdings as a result of the merger. YOUR BOARD OF DIRECTORS BELIEVES
THAT THE MERGER IS IN THE BEST INTERESTS OF WISCONSIN ELECTRIC AS IT WILL
STRENGTHEN THE COMPETITIVE POSITION OF YOUR COMPANY AND THUS RECOMMENDS A VOTE
"FOR" THE MERGER. The Plan and Agreement of Merger, which sets forth the
terms of the merger, is attached as Appendix A and is more fully described in
the accompanying proxy statement.
Also for consideration at the meeting are certain amendments to the company's
articles of incorporation. These are presented in Appendix B and are more
fully described in the accompanying notice of meeting and proxy statement.
One of these amendments pertains to the removal of special voting rights of
the preferred stockholders relating to (i) the issuance of certain unsecured
indebtedness and (ii) the consummation of certain mergers or consolidations.
Eliminating the restriction on issuance of certain unsecured debt will provide
management with the necessary flexibility to obtain the best terms available
in the debt market at the time of a financing and thus will provide greater
long-term benefit to stockholders. Eliminating the provision regarding the
consummation of mergers will not affect the preferred stockholders' special
voting rights on the proposed Wisconsin Electric/Wisconsin Natural merger nor
would it eliminate special voting rights afforded under Wisconsin law in those
circumstances where preferred stockholders might otherwise be prejudiced by a
merger. It would, in the future, enhance the ability of the company to
consummate a merger which the Board of Directors deems to be in the best
interests of Wisconsin Electric and its stockholders. Upon approval of this
amendment, preferred
<PAGE> 4
stockholders would continue to have special voting rights in the event of a
dividend default and for certain changes in authorized shares or issuances of
the preferred stocks, and general voting rights on matters submitted to a vote
at a stockholders meeting.
Other amendments are being proposed at this time to conform the articles to
the current Wisconsin Business Corporation Law, to remove certain items that
are no longer applicable, and to simplify and modernize certain provisions.
THE AMENDMENTS TO THE ARTICLES PROPOSED FOR YOUR APPROVAL WILL PROVIDE THE
COMPANY WITH ADDITIONAL FLEXIBILITY TO SUCCEED IN THE NEW COMPETITIVE
ENVIRONMENT. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THESE
AMENDMENTS.
TO ENSURE YOUR SHARES WILL BE REPRESENTED, WHETHER OR NOT YOU PLAN TO ATTEND,
I URGE YOU TO COMPLETE AND MAIL YOUR PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. VOTING BY MAIL IS QUICK AND EASY. EVERYTHING YOU NEED IS ENCLOSED.
Your early response would be appreciated and will save the company additional
solicitation expense. If you need assistance, please contact our proxy
solicitors, D.F. King & Co., Inc. at 1-800-669-5550 or call our Stockholder
Information Number at 1-800-558-9663.
I am excited about the future direction of your company and believe that these
changes will assist the company in becoming the low-cost energy provider in
the upper midwest. I hope you share my enthusiasm and will vote "FOR" each of
the proposals presented.
Sincerely,
Richard A. Abdoo
Chairman of the Board
and Chief Executive Officer
<PAGE> 5
___________________________________
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 15, 1994
___________________________________
October 31, 1994
To the Stockholders of Wisconsin Electric Power Company:
A special meeting of stockholders of Wisconsin Electric Power Company ("WE")
will be held in the auditorium of the Public Service Building, 231 West
Michigan Street, Milwaukee, Wisconsin, on Thursday, December 15, 1994, at 9:00
a.m., Central Time (the "Special Meeting"), to consider and vote upon:
1.The approval of the Plan and Agreement of Merger, dated June 30, 1994, by
and between WE and Wisconsin Natural Gas Company ("WN"), providing for the
merger of WN with and into WE (the "Merger");
2.The approval of an amendment to WE's Restated Articles of Incorporation, as
amended (the "Restated Articles"), to remove the specific reference to
electric and steam operations in the description of WE's purpose;
3.The approval of an amendment to the Restated Articles to remove the special
voting rights of the Six Per Cent. Preferred Stock, $100 par value per share
(the "6% Preferred Stock"), the Serial Preferred Stock, $100 par value per
share (the "$100 Par Value Serial Preferred Stock") and the Serial Preferred
Stock, $25 par value per share, in connection with WE's issuance of certain
unsecured indebtedness or consummation of certain mergers or consolidations;
4.The approval of an amendment to the Restated Articles to remove designations
of certain series of $100 Par Value Serial Preferred Stock which are no longer
outstanding;
5.The approval of an amendment to the Restated Articles to conform provisions
relating to managing the business and affairs of WE during an emergency with
appropriate sections of the revised Wisconsin Business Corporation Law (the
"WBCL");
6.The approval of an amendment to the Restated Articles to conform the
statutory references in the provision setting forth the majority vote
requirement for certain extraordinary transactions with the appropriate
sections of the WBCL, thereby clarifying the applicability of such vote
requirement to a statutory share exchange; and
7.Such other matters as may properly come before the Special Meeting or any
adjournments or postponements thereof;
all as described and set forth in the accompanying Proxy Statement.
Holders of record of WE Common Stock, 6% Preferred Stock and $100 Par Value
Serial Preferred Stock, 3.60% Series, at the close of business on October 26,
1994 are entitled to notice of and to vote at the Special Meeting.
Stockholders and beneficial stockholders are entitled to assert dissenters'
rights as to the Merger under Sections 180.1301 to 180.1331 of the WBCL. A
copy of those Sections is attached as Appendix C to the accompanying Proxy
Statement.
By Order of the Board of Directors
Ann Marie Brady
Secretary
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER OR
NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE SIGN, DATE AND PROMPTLY
RETURN THE ACCOMPANYING PROXY USING THE ENCLOSED SELF-ADDRESSED ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF FOR ANY REASON
YOU SHOULD DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS
VOTED AT THE SPECIAL MEETING.
<PAGE> 6
[LOGO]
WISCONSIN ELECTRIC POWER COMPANY
231 West Michigan Street
P.O. Box 2046
Milwaukee, Wisconsin 53201
------------------------------
PROXY STATEMENT
This Proxy Statement is being furnished to the stockholders of Wisconsin
Electric Power Company, a Wisconsin corporation ("WE"), in connection with the
solicitation of proxies by the WE Board of Directors (the "WE Board") for use
at the special meeting of WE stockholders (the "Special Meeting") to be held
on December 15, 1994, and at any adjournments or postponements thereof. This
Proxy Statement is first being mailed to stockholders of WE on or about
October 31, 1994.
At the Special Meeting, stockholders of WE will vote upon a proposal to
approve the Plan and Agreement of Merger, dated June 30, 1994 (the "Merger
Agreement"), by and between WE and its affiliate, Wisconsin Natural Gas
Company, a Wisconsin corporation ("WN"), pursuant to which WN would be merged
with and into WE (the "Merger").
Stockholders of WE will also vote at the Special Meeting upon proposals to
amend certain provisions of WE's Restated Articles of Incorporation, as
amended (the "Restated Articles"), which would remove the specific reference
to electric and steam operations in the description of WE's purpose; remove
the special voting rights of the Six Per Cent. Preferred Stock, $100 par value
per share (the "6% Preferred Stock"), Serial Preferred Stock, $100 par value
per share (the "$100 Par Value Serial Preferred Stock") and the Serial
Preferred Stock, $25 par value per share (the "$25 Par Value Serial Preferred
Stock") (collectively, the "Preferred Stocks"), in connection with WE's
issuance of certain unsecured indebtedness or consummation of certain mergers
or consolidations; remove designations of certain series of $100 Par Value
Serial Preferred Stock which are no longer outstanding; conform provisions
relating to managing the business and affairs of WE during an emergency with
appropriate sections of the revised Wisconsin Business Corporation Law (the
"WBCL"); and conform the statutory references in the provision setting forth
the majority vote requirement for certain extraordinary transactions with the
appropriate sections of the WBCL, thereby clarifying the applicability of such
vote requirement to a statutory share exchange.
------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THE DELIVERY OF THIS
PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF WE OR WN OR IN THE INFORMATION SET
FORTH HEREIN SINCE THE DATE OF THIS PROXY STATEMENT.
------------------------------
The date of this Proxy Statement is October 31, 1994.
<PAGE> 7
TABLE OF CONTENTS
Page
----
Summary ................................................................. 3
The Parties to the Merger ............................................ 3
The Special Meeting .................................................. 3
The Merger ........................................................... 4
Amendments to Restated Articles ...................................... 6
Selected Historical and Pro Forma Financial Data ..................... 6
Market Price Data .................................................... 8
Recent Developments .................................................. 8
The Special Meeting ..................................................... 9
Place, Time and Date ................................................. 9
Purpose .............................................................. 9
Record Date; Shares Entitled to Vote ................................. 9
Votes Required ....................................................... 9
Proxies .............................................................. 10
Dissenters' Rights ................................................... 11
The Merger .............................................................. 12
General .............................................................. 12
Reasons for the Merger; Recommendation of the WE Board ............... 13
Management and Operations of WE After the Merger ..................... 13
Conditions to Consummation of the Merger ............................. 14
Termination .......................................................... 14
Regulatory Requirements .............................................. 14
Certain Federal Income Tax Consequences .............................. 15
Accounting Treatment ................................................. 15
Amendments to Restated Articles ......................................... 15
General .............................................................. 15
Removal of Specific Reference to Electric and Steam Operations ....... 16
Removal of Certain Special Voting Rights of the Preferred Stocks ..... 16
Removal of Certain Series Designations ............................... 18
Conforming Emergency Provisions with the WBCL ........................ 18
Conforming Statutory References in Provision Governing Vote Required
for Certain Extraordinary Transactions with the WBCL ............... 19
Amendment to be Effected by the WE Board ............................. 19
WE Stock Ownership ...................................................... 20
Independent Accountants ................................................. 20
Other Matters ........................................................... 21
Incorporation of Certain Documents by Reference ......................... 21
APPENDIX A -- Plan and Agreement of Merger .............................. A-1
APPENDIX B -- Proposed Restated Articles of Incorporation of WE ......... B-1
APPENDIX C -- Subchapter XIII of the WBCL--Dissenters' Rights ........... C-1
APPENDIX D -- Pro Forma Combined Condensed Financial Statements of WE ... D-1
APPENDIX E -- Description of WE Preferred Stocks ........................ E-1
2
<PAGE> 8
SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED BY REFERENCE TO, AND SHOULD BE
READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN
THIS PROXY STATEMENT, INCLUDING THE APPENDICES AND THE DOCUMENTS INCORPORATED
HEREIN BY REFERENCE. UNLESS OTHERWISE INDICATED, IN ACCORDANCE WITH THE
POOLING OF INTERESTS METHOD OF ACCOUNTING, ALL FINANCIAL AND OTHER DATA IN
THIS PROXY STATEMENT HAVE BEEN RESTATED TO GIVE RETROACTIVE EFFECT TO THE
MERGER OF WISCONSIN SOUTHERN GAS COMPANY, INC. ("WS") WITH AND INTO WN
EFFECTIVE JANUARY 1, 1994. CERTAIN CAPITALIZED TERMS USED AND NOT OTHERWISE
DEFINED IN THIS SUMMARY HAVE THE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS
PROXY STATEMENT.
The Parties to the Merger
Wisconsin Electric Power Company
WE, a subsidiary of Wisconsin Energy Corporation ("WEC"), is an electric
utility which generates, transmits, distributes and sells electric energy in a
territory of approximately 12,000 square miles with a population estimated at
over 2,000,000 in southeastern (including the Milwaukee area), east central
and northern Wisconsin and in the Upper Peninsula of Michigan. WE also
distributes and sells steam to space heating and processing customers in
downtown and near southside Milwaukee, Wisconsin. At December 31, 1993, WE
had approximately 932,000 electric customers and 450 steam customers. WE's
principal executive offices are located at 231 West Michigan Street, P.O. Box
2046, Milwaukee, Wisconsin 53201 (telephone number: (414) 221-2590).
Wisconsin Natural Gas Company
WN, a wholly-owned subsidiary of WEC, is a gas utility which purchases,
stores, distributes and sells natural gas to retail customers and transports
customer-owned gas in its three distinct service areas in Wisconsin: west and
south of Milwaukee; the Appleton area and the Prairie du Chien area. The gas
service territory has an estimated population of over 1,000,000 and is largely
within the electric service area of WE. At December 31, 1993, WN had
approximately 336,000 customers. WN's principal executive offices are located
at 231 West Michigan Street, P.O. Box 2046, Milwaukee, Wisconsin 53201
(telephone number: (414) 221-2590).
The Special Meeting
Place, Time and Date; Purpose
The Special Meeting of WE stockholders will be held in the auditorium of the
Public Service Building, 231 West Michigan Street, Milwaukee, Wisconsin, at
9:00 a.m., Central Time, on Thursday, December 15, 1994. The purpose of the
Special Meeting is to consider and vote upon approval of the Merger Agreement
and the proposed amendments to the Restated Articles, attached hereto as
Appendix A and Appendix B, respectively. See "The Special Meeting--Place,
Time and Date" and "--Purpose."
Record Date; Shares Entitled to Vote
The WE Board has fixed the close of business on October 26, 1994 as the record
date (the "Record Date") for determination of the stockholders entitled to
notice of and to vote at the Special Meeting. Only holders of record of
shares of WE Common Stock, $10.00 par value per share (the "WE Common Stock"),
6% Preferred Stock and $100 Par Value Serial Preferred Stock, 3.60% Series
(the "3.60% Preferred Stock") on the Record Date will be entitled to notice of
and to vote at the Special Meeting. Each share of WE Common Stock, 6%
Preferred Stock and 3.60% Preferred Stock is entitled to one vote on each
matter submitted to a vote. At the Record Date, there were 33,289,327 shares
of WE Common Stock, 44,508 shares of 6% Preferred Stock and 260,000 shares of
3.60% Preferred Stock outstanding; no other voting securities were
outstanding. All of the outstanding WE Common Stock, representing in excess
of 99% of the total voting power of WE's outstanding voting securities, is
owned beneficially by WEC. See "The Special Meeting--Record Date; Shares
Entitled to Vote."
3
<PAGE> 9
Votes Required
With respect to the Merger, the affirmative vote of (i) a majority of the
votes entitled to be cast at the Special Meeting by the holders of shares of
the 6% Preferred Stock and 3.60% Preferred Stock present or represented by
proxy at the Special Meeting, voting together as one voting group, and (ii) a
majority of all the votes entitled to be cast at the Special Meeting by the
holders of the outstanding shares of WE Common Stock, 6% Preferred Stock and
3.60% Preferred Stock, voting together as one voting group, is required for
approval of the Merger Agreement. The affirmative vote of (i) two-thirds of
all the votes entitled to be cast at the Special Meeting by the holders of the
outstanding shares of 6% Preferred Stock and 3.60% Preferred Stock (voting as
separate voting groups), and (ii) a majority of all the votes entitled to be
cast at the Special Meeting by the holders of the outstanding shares of WE
Common Stock, 6% Preferred Stock and 3.60% Preferred Stock, voting together as
one voting group, is required for approval of the amendment to the Restated
Articles removing the special voting rights of the Preferred Stocks in
connection with WE's issuance of certain unsecured indebtedness or
consummation of certain mergers or consolidations. The affirmative vote of
(i) a majority of all the votes entitled to be cast at the Special Meeting by
the holders of the outstanding shares of WE Common Stock, 6% Preferred Stock
and 3.60% Preferred Stock (voting as separate voting groups), and (ii) a
majority of all the votes entitled to be cast at the Special Meeting by the
holders of the outstanding shares of WE Common Stock, 6% Preferred Stock and
3.60% Preferred Stock, voting together as one voting group, is required for
approval of the amendment to the Restated Articles conforming the statutory
references in the provision setting forth the majority vote requirement for
certain extraordinary transactions with the appropriate sections of the WBCL.
The affirmative vote of a majority of all the votes entitled to be cast at the
Special Meeting by the holders of the outstanding shares of WE Common Stock,
6% Preferred Stock and 3.60% Preferred Stock, voting together as one voting
group, is required for approval of the amendments to the Restated Articles
removing the specific reference to electric and steam operations in the
description of WE's purpose; removing designations of certain series of $100
Par Value Serial Preferred Stock which are no longer outstanding; and
conforming provisions relating to managing the business and affairs of WE
during an emergency with appropriate sections of the WBCL. THE WEC BOARD OF
DIRECTORS (THE "WEC BOARD") HAS INDICATED ITS INTENTION TO VOTE ALL THE
OUTSTANDING SHARES OF WE COMMON STOCK FOR APPROVAL OF THE MERGER AGREEMENT AND
EACH PROPOSED AMENDMENT TO THE RESTATED ARTICLES. See "The Special
Meeting--Votes Required."
Dissenters' Rights
Under the WBCL, holders of record and beneficial owners of the 6% Preferred
Stock and the 3.60% Preferred Stock are entitled to dissenters' rights to
object to the Merger and demand payment of the "fair value" of their shares in
cash. Such persons do not have dissenters' rights under the WBCL with respect
to the proposed amendments to the Restated Articles. The dissenters' rights
provisions under the WBCL require strict compliance. ANY STOCKHOLDER WHO
WISHES TO OBJECT TO THE MERGER AND DEMAND PAYMENT FOR SUCH STOCKHOLDER'S
SHARES SHOULD CONSULT HIS OR HER OWN ATTORNEY OR ADVISOR. If a stockholder
fails to perfect dissenters' rights by not strictly complying with the
applicable statutory requirements, such stockholder will be bound by the terms
of the Merger Agreement. See "The Special Meeting--Dissenters' Rights" and
the statutory provisions set forth in Appendix C to this Proxy Statement.
The Merger
General
At the Effective Time of Merger, which is currently anticipated to be on
December 31, 1995 at 12:00 midnight, Central Time, WN will merge with and into
WE. No new shares of WE Common Stock will be issued in connection with the
Merger. Each share of WE Common Stock, 6% Preferred Stock and 3.60% Preferred
Stock which is issued and outstanding immediately prior to the Effective Time
of Merger will remain an identical issued and outstanding share of such
respective stock of WE, as the surviving corporation, immediately after the
Effective Time of Merger. Each share of WN Common Stock, $1.00 par value per
share (the "WN Common Stock"), which is issued and outstanding and held by WEC
prior to the Effective Time of Merger will be deemed cancelled at the
Effective Time of Merger. As a result of the Merger, the independent
corporate existence of WN will terminate and WE, as the surviving corporation
in the Merger, will succeed to all of the assets and liabilities of WN. See
"The Merger--General."
4
<PAGE> 10
Recommendation of the WE Board
THE WE BOARD HAS APPROVED THE MERGER AGREEMENT AS ADVISABLE AND IN THE BEST
INTERESTS OF WE AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE FOR THE APPROVAL OF
THE MERGER AGREEMENT. ---
For a discussion of the circumstances surrounding the Merger and the factors
considered by the WE Board in making its recommendation, see "The
Merger--Reasons for the Merger; Recommendation of the WE Board." Approval of
the Merger Agreement by the WE stockholders is a condition to consummation of
the Merger. See "The Merger--Conditions to Consummation of the Merger."
Management and Operations of WE After the Merger
After the Effective Time of Merger, WE, as the surviving corporation in the
Merger, will continue to be a public utility subsidiary of WEC. The duly
qualified and acting directors and officers of WE immediately prior to the
Effective Time of Merger will be the directors and officers of WE immediately
after the Effective Time of Merger. See "The Merger--Management and
Operations of WE After the Merger."
Conditions to Consummation of the Merger
The respective obligations of WE and WN to consummate the Merger are subject
to the fulfillment or waiver of certain conditions specified in the Merger
Agreement, including among others, the approval of the Merger Agreement by the
requisite vote of stockholders of WE and the securing of all requisite
approvals of the Public Service Commission of Wisconsin (the "PSCW"), the
Michigan Public Service Commission (the "MPSC") and such other regulatory
authorities as deemed necessary. See "The Merger--Conditions to Consummation
of the Merger."
Regulatory Requirements
Consummation of the Merger is subject to (i) approval of the Merger by the
PSCW based upon its determination that the Merger is consistent with the
public interest and (ii) approval of WE's assumption of WN's long-term
liabilities in connection with the Merger by the MPSC based upon its finding
that: such assumption is necessary for a lawful corporate purpose of WE; the
use of the capital or property to be acquired to be secured by the liabilities
so assumed is reasonably required for such lawful purpose; and the issue and
amount of liabilities so assumed are essential for the successful carrying out
of such lawful purpose. WE and WN filed a joint application to obtain the
PSCW's consent to the Merger on October 12, 1994 and are awaiting PSCW
approval. WE filed an application to obtain the MPSC's consent to the
liabilities assumption on October 12, 1994 and is awaiting MPSC approval. WE
and WN believe that they will receive the requisite regulatory approvals for
the Merger, but there can be no assurance as to the receipt of such approvals
or, if received, as to the timing of such approvals or as to the ability to
obtain such approvals on terms satisfactory to WE and WN. See "The
Merger--Conditions to Consummation of the Merger" and "--Regulatory
Requirements."
Certain Federal Income Tax Consequences
WE has received an opinion, dated October 31, 1994, of Quarles & Brady,
counsel to WE, WN and WEC, to the effect that, as of such date, the Merger
would be treated for federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and that WE and WN would each be a party to that reorganization
within the meaning of Section 368(b) of the Code. It is anticipated that
Quarles & Brady will issue a similar opinion immediately prior to the
Effective Time of Merger. For federal income tax purposes, qualifying as a
reorganization means: (i) no gain or loss will be recognized by WE, WN or
WEC as a result of the Merger; (ii) no gain or loss will be recognized upon
consummation of the Merger by the holders of WE Common Stock, 6% Preferred
Stock or 3.60% Preferred Stock who do not perfect their right to dissent from
the Merger; and (iii) where cash is received by a holder of the 6% Preferred
Stock or 3.60% Preferred Stock who perfects his or her dissenter's rights as
to the Merger, the cash will be treated as having been received by such holder
as a distribution in redemption of such respective stock, subject to the
provisions and limitations of Section 302 of the Code. ALL HOLDERS OF THE 6%
PREFERRED STOCK AND THE 3.60% PREFERRED STOCK ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER,
INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS. See "The Merger--Certain Federal Income Tax Consequences."
5
<PAGE> 11
Accounting Treatment
The Merger will be accounted for by the consolidation of the accounts of WE
and WN. See "The Merger--Accounting Treatment."
Amendments to Restated Articles
Stockholders of WE are being asked to consider and approve several amendments
to the Restated Articles which would (i) remove the specific reference to
electric and steam operations in the description of WE's purpose; (ii) remove
the special voting rights of the Preferred Stocks in connection with WE's
issuance of certain unsecured indebtedness or consummation of certain mergers
or consolidations; (iii) remove designations of certain series of $100 Par
Value Serial Preferred Stock which are no longer outstanding; (iv) conform
provisions relating to managing the business and affairs of WE during an
emergency with appropriate sections of the WBCL; and (v) conform the statutory
references in the provision setting forth the majority vote requirement for
certain extraordinary transactions with the appropriate sections of the WBCL,
thereby clarifying the applicability of such vote requirement to a statutory
share exchange. See "Amendments to Restated Articles."
THE WE BOARD HAS APPROVED THE PROPOSED AMENDMENTS TO THE RESTATED ARTICLES AS
ADVISABLE AND IN THE BEST INTERESTS OF WE AND ITS STOCKHOLDERS AND RECOMMENDS
A VOTE FOR THE APPROVAL OF EACH SUCH AMENDMENT.
---
Selected Historical and Pro Forma Financial Data
The following tables set forth (i) selected historical financial data for WE
and WN for the periods and as of the dates indicated; and (ii) unaudited pro
forma combined condensed selected financial data for the periods and as of the
dates indicated, giving effect to the Merger by the consolidation of the
accounts of WE and WN. The WE and WN historical financial data should be read
in conjunction with the financial statements and notes thereto contained in
the WE and WN documents incorporated by reference herein. See "Incorporation
of Certain Documents by Reference." The pro forma combined condensed
financial data should be read in conjunction with the pro forma combined
condensed financial statements appearing in Appendix D to this Proxy
Statement.
Wisconsin Electric Power Company
The selected historical financial data of WE for each of the five fiscal years
in the period ended December 31, 1993 and for the twelve month period ended
June 30, 1994 set forth below have been derived from the financial statements
of WE. The WE financial statements for each of the five fiscal years in the
period ended December 31, 1993 have been audited by Price Waterhouse LLP,
independent accountants. The financial statements for the twelve month period
ended June 30, 1994 are unaudited. In the opinion of WE management, such
unaudited data include all adjustments, consisting only of normal recurring
accruals, necessary for fair presentation.
<TABLE>
<CAPTION>
At or For At or For
Twelve Months Year Ended December 31,
Ended --------------------------------------------------------------
June 30, 1994 1993 1992 1991 1990 1989
------------- ---------- ---------- ---------- ---------- ----------
(Unaudited)
(In thousands)(a)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $1,402,807 $1,361,934 $1,311,816 $1,305,795 $1,220,171 $1,257,993
Earnings available for
common stockholder 152,861(b) 173,548 155,826 175,641 179,990 184,354
Total assets 3,753,355 3,693,556 3,285,845 3,052,133 2,972,903 2,967,006
Long-term debt and
preferred stock
--redemption required 1,190,102 1,193,994 1,195,210 1,110,572 1,002,852 1,016,197
Common stock equity 1,414,081 1,399,686 1,294,099 1,203,220 1,180,324 1,190,355
</TABLE>
6
<PAGE> 12
____________________
(a) Earnings, dividends and book value per share of WE Common Stock are not
provided as all such stock is held by WEC.
(b) In the first quarter of 1994, WE recorded a $63.5 million before tax
charge ($39 million net of tax) related to its revitalization program.
The charge reflects primarily the costs of voluntary severance and early
retirement packages which are being used to reduce employee staffing
levels.
Wisconsin Natural Gas Company
The selected historical financial data of WN for each of the five fiscal years
in the period ended December 31, 1993 and for the twelve month period ended
June 30, 1994 set forth below have been derived from the financial statements
of WN (restated to reflect the WS merger effective January 1, 1994). The WN
financial statements for each of the five fiscal years in the period ended
December 31, 1993 have been audited by Price Waterhouse LLP, independent
accountants. The financial statements for the twelve month period ended June
30, 1994 are unaudited. Because all of the data presented below reflects the
combined operations and financial position of WN and WS, it is unaudited. In
the opinion of WN management, such unaudited data include all adjustments,
consisting only of normal recurring accruals, necessary for fair presentation.
<TABLE>
<CAPTION>
At or For At or For
Twelve Months Year Ended December 31,
Ended --------------------------------------------------------------
June 30, 1994 1993 1992 1991 1990 1989
------------- ---------- ---------- ---------- ---------- ----------
(Unaudited)
(In thousands)(a)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $353,380 $331,301 $283,699 $273,804 $259,672 $273,975
Earnings available for
common stockholder 12,563(b) 14,155 14,209 12,913 10,830 13,785
Total assets 345,036 385,460 338,021 313,959 303,612 312,759
Long-term debt 68,155 80,482 84,802 60,445 64,055 64,763
Common stock equity 134,205 127,813 113,294 108,581 98,094 96,687
</TABLE>
_____________________
(a) Earnings, dividends and book value per share of WN Common Stock are not
provided as all such stock is held by WEC.
(b) In the first quarter of 1994, WN recorded a $10.4 million before tax
charge
($6 million net of tax) related to its revitalization program. The charge
reflects primarily the costs of voluntary severance and early retirement
packages which are being used to reduce employee staffing levels.
Pro Forma Combined Condensed Data
The selected pro forma combined condensed financial data for each of the three
fiscal years in the period ended December 31, 1993 and for the twelve month
period ended June 30, 1994 set forth below have been derived from the
financial statements of WE and WN (restated to reflect the WS merger). The
selected pro forma combined condensed financial data is unaudited. Such data
is intended for informational purposes only and is not necessarily indicative
of the future results of operations or the future financial position of the
combined entity or of the results of operations and financial position of the
combined entity that would have actually occurred had the Merger been in
effect as of the dates or for the periods presented.
7
<PAGE> 13
<TABLE>
<CAPTION>
At or For At or For
Twelve Months Year Ended December 31,
Ended ------------------------------------
June 30, 1994 1993 1992 1991
------------- ---------- ---------- ----------
(Unaudited)
(In thousands)(a)
<S> <C> <C> <C> <C>
Operating revenues $1,756,187 $1,693,235 $1,595,515 $1,579,599
Earnings available for
common stockholder 165,424(b) 187,703 170,035 188,554
Total assets 4,098,391 4,079,016 3,623,866 3,366,092
Long-term debt and
preferred stock
--redemption required 1,258,257 1,274,476 1,280,012 1,171,017
Common stock equity 1,548,286 1,527,499 1,407,393 1,311,801
</TABLE>
____________________
(a) Earnings, dividends and book value per share of WE Common Stock on a pro
forma basis are not provided as all such stock is held by WEC.
(b) Reflects $73.9 million before tax charge ($45 million net of tax) recorded
in the first quarter of 1994 related to WE and WN's revitalization
programs. The charge reflects primarily the costs of voluntary severance
and early retirement packages which are being used to reduce employee
staffing levels at WE and WN.
Market Price Data
All of the WE and WN Common Stock is held by WEC. The 6% Preferred Stock and
the 3.60% Preferred Stock are traded over-the-counter but are not quoted on
the National Association of Securities Dealers Automated Quotations System.
On January 21, 1994, the trading date immediately preceding public
announcement of the Merger, the bid and asked prices per share of the 6%
Preferred Stock were $85.75 and $86.75, respectively; such prices for the
3.60% Preferred Stock were $51.375 and $52.50, respectively.
On October 24, 1994, the most recent date for which it was practicable to
obtain market price data prior to the printing of this Proxy Statement, the
bid and asked prices per share of the 6% Preferred Stock were $72.75 and
$73.75, respectively; such prices for the 3.60% Preferred Stock were $43.50
and $44.50, respectively. At that date, there were approximately 400 holders
of record of the 6% Preferred Stock and approximately 2,700 holders of record
of the 3.60% Preferred Stock.
Recent Developments
On September 8, 1994, the PSCW issued a notice that it will conduct an
investigation into the state of the electric utility industry in Wisconsin,
particularly its institutional structure and regulatory regime, in order to
evaluate what changes would be beneficial for Wisconsin. The notice states
that this investigation may result in profound and fundamental changes to the
nature and regulation of the electric utility industry in Wisconsin. It is
the PSCW's stated intention that this proceeding will establish criteria and
direction for utilities to incorporate into any proposals involving structural
or regulatory change they may put forward. The PSCW also intends that the
proceeding reflect input from all those having a stake in Wisconsin's electric
utility industry, including large and small retail customers; wholesale
customers; utility management; utility security holders; independent power
producers; purveyors of demand-side options and renewable resources;
representatives of the environmental, financial, academic, labor, small
business and governmental communities; and elected representatives. The PSCW
has invited interested persons to submit comments as to appropriate objectives
for regulation of the electric utility industry and the utility structures and
regulatory approaches likely to provide the best balance of such objectives.
An initial question and answer session on these submissions has been scheduled
for November 28, 1994.
8
<PAGE> 14
THE SPECIAL MEETING
Place, Time and Date
The Special Meeting of WE stockholders will be held in the auditorium of the
Public Service Building, 231 West Michigan Street, Milwaukee, Wisconsin, at
9:00 a.m., Central Time, on Thursday, December 15, 1994. This Proxy Statement
is being sent to holders of the 6% Preferred Stock and the 3.60% Preferred
Stock and accompanies a form of proxy which is being solicited by the WE Board
for use at the Special Meeting and any adjournment or postponement thereof.
Purpose
The purpose of the Special Meeting is to consider and vote upon the approval
of (i) the Merger Agreement, providing for the merger of WN with and into WE;
(ii) an amendment to the Restated Articles to remove the specific reference to
electric and steam operations in the description of WE's purpose; (iii) an
amendment to the Restated Articles to remove the special voting rights of the
Preferred Stocks in connection with WE's issuance of certain unsecured
indebtedness or consummation of certain mergers or consolidations; (iv) an
amendment to the Restated Articles to remove designations of certain series of
$100 Par Value Serial Preferred Stock which are no longer outstanding; (v) an
amendment to the Restated Articles to conform provisions relating to managing
the business and affairs of WE during an emergency with appropriate sections
of the WBCL; and (vi) an amendment to the Restated Articles to conform the
statutory references in the provision setting forth the majority vote
requirement for certain extraordinary transactions with the appropriate
sections of the WBCL, thereby clarifying the applicability of such vote
requirement to a statutory share exchange. Stockholders may consider and vote
upon such other matters, if any, as may properly come before the Special
Meeting. Only business within the purpose described in the Notice of Special
Meeting may be conducted at the Special Meeting. See "Other Matters."
Record Date; Shares Entitled to Vote
The WE Board has fixed the close of business on October 26, 1994 as the Record
Date for determination of the stockholders entitled to notice of and to vote
at the Special Meeting. Only holders of record of shares of WE Common Stock,
6% Preferred Stock and 3.60% Preferred Stock, the only classes of voting stock
of WE outstanding, on the Record Date will be entitled to notice of and to
vote at the Special Meeting. Each share of WE Common Stock, 6% Preferred
Stock and 3.60% Preferred Stock is entitled to one vote on each matter
submitted to a vote. At the Record Date, there were 33,289,327 shares of WE
Common Stock, 44,508 shares of 6% Preferred Stock and 260,000 shares of 3.60%
Preferred Stock outstanding. All of the outstanding WE Common Stock,
representing in excess of 99% of the total voting power of WE's outstanding
voting securities, is owned beneficially by WEC. A list of stockholders of
record entitled to vote at the Special Meeting will be available for
inspection by stockholders at WE's principal office prior to and at the
Special Meeting.
Votes Required
Under the WBCL, shares entitled to vote as a separate voting group may take
action on a matter at the Special Meeting only if a quorum of those shares,
represented in person or by proxy, exists with respect to that matter. A
majority of the votes entitled to be cast on a matter by each voting group
entitled to vote will constitute a quorum of stockholders at the Special
Meeting. Abstentions and broker non-votes (i.e., proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owners or other persons entitled to vote shares as to a matter with
respect to
which the brokers or nominees do not have discretionary power to vote) will be
considered present for the purpose of establishing a quorum.
With respect to the Merger, the affirmative vote of (i) a majority of the
votes entitled to be cast at the Special Meeting by the holders of shares of
the 6% Preferred Stock and 3.60% Preferred Stock present or represented by
proxy at the Special Meeting, voting together as one voting group, and (ii) a
majority of all the votes entitled to be cast at the Special Meeting by the
holders of the outstanding shares of WE Common Stock, 6% Preferred Stock and
3.60% Preferred Stock, voting together as one voting group, is required for
approval of the Merger Agreement. The affirmative vote of (i) two-thirds of
all the votes entitled to be cast at the Special Meeting by
9
<PAGE> 15
the holders of the outstanding shares of 6% Preferred Stock and 3.60%
Preferred Stock (voting as separate voting groups), and (ii) a majority of all
the votes entitled to be cast at the Special Meeting by the holders of the
outstanding shares of WE Common Stock, 6% Preferred Stock and 3.60% Preferred
Stock, voting together as one voting group, is required for approval of the
amendment to the Restated Articles removing the special voting rights of the
Preferred Stocks in connection with WE's issuance of certain unsecured
indebtedness or consummation of certain mergers or consolidations. The
affirmative vote of (i) a majority of all the votes entitled to be cast at the
Special Meeting by the holders of the outstanding shares of WE Common Stock,
6% Preferred Stock and 3.60% Preferred Stock (voting as separate voting
groups), and (ii) a majority of all the votes entitled to be cast at the
Special Meeting by the holders of the outstanding shares of WE Common Stock,
6% Preferred Stock and 3.60% Preferred Stock, voting together as one voting
group, is required for approval of the amendment to the Restated Articles
conforming the statutory references in the provision setting forth the
majority vote requirement for certain extraordinary transactions with the
appropriate sections of the WBCL. The affirmative vote of a majority of all
the votes entitled to be cast at the Special Meeting by the holders of the
outstanding shares of WE Common Stock, 6% Preferred Stock and 3.60% Preferred
Stock, voting together as one voting group, is required for approval of the
amendments to the Restated Articles removing the specific reference to
electric and steam operations in the description of WE's purpose; removing
designations of certain series of $100 Par Value Serial Preferred Stock which
are no longer outstanding; and conforming provisions relating to managing the
business and affairs of WE during an emergency with appropriate sections of
the WBCL.
As to each such proposal before stockholders at the Special Meeting,
abstentions will have the same effect as votes cast against approval of the
proposal. Broker non-votes will also have the same effect as votes cast
against approval of each proposal except that broker non-votes will not be
counted as votes entitled to be cast at the Special Meeting by the holders of
shares of the 6% Preferred Stock and 3.60% Preferred Stock present or
represented by proxy, voting together as one class, in determining whether
holders of a majority of such votes have voted to approve the Merger
Agreement.
THE WEC BOARD HAS INDICATED ITS INTENTION TO VOTE ALL THE OUTSTANDING SHARES
OF WE COMMON STOCK FOR APPROVAL OF THE MERGER AGREEMENT AND EACH PROPOSED
AMENDMENT TO THE RESTATED ARTICLES. Such votes by WEC would assure approval
of all of the proposals to be considered at the Special Meeting except
approval of: (i) the Merger Agreement; (ii) the amendment to the Restated
Articles removing the special voting rights of the Preferred Stocks in
connection with WE's issuance of certain unsecured indebtedness or
consummation of certain mergers or consolidations; and (iii) the amendment to
the Restated Articles conforming the statutory references in the provision
setting forth the majority vote requirement for certain extraordinary
transactions with the appropriate sections of the WBCL. WEC has also
indicated its intention to consent to the Merger as the sole stockholder of
WN.
Proxies
Holders of the 6% Preferred Stock and the 3.60% Preferred Stock may vote
either in person or by properly executed proxy. By completing and returning
the form of proxy, the stockholder authorizes the named proxies, Richard A.
Abdoo, John W. Boston and Ann Marie Brady, to vote all the stockholder's
shares on such stockholder's behalf. All properly executed proxies returned
will be voted as the stockholders direct. If no direction is given, the
proxies will be voted FOR approval of the Merger Agreement and FOR approval of
each of the proposed amendments to the Restated Articles.
Any proxy given pursuant to this solicitation or otherwise may be revoked by
the person giving it by voting in person at the Special Meeting, by written
notice to WE's Secretary or by delivery of a later-dated proxy, in each case
prior to the closing of the polls for voting at the Special Meeting.
Attendance at the Special Meeting will not in itself constitute revocation of
a proxy.
WE will bear the cost of the solicitation of proxies. Proxies may be
solicited by certain officers and employees of WE by mail, by telephone or
other communications, or personally without compensation apart from their
normal salaries, except that several WE employees will be specially engaged to
make proxy solicitations for which they will be paid an aggregate fee
anticipated not to exceed $7,000. WE has retained D.F. King & Co., Inc. to
assist in the solicitation of proxies from stockholders, including brokers'
accounts, at a fee anticipated not to
10
<PAGE> 16
exceed $7,500, plus reasonable out-of-pocket expenses. Salomon Brothers Inc
has rendered financial advisory services for WE with respect to the proposed
amendments to the Restated Articles for which it will be paid a fee, and may
also solicit proxies from select stockholders at a fee anticipated not to
exceed $10,000, plus reasonable out-of-pocket expenses.
If any other matters are properly presented at the Special Meeting for
consideration, including, among other things, consideration of a motion to
adjourn the Special Meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons
named in the proxy and acting thereunder will have discretion to vote on such
matters in accordance with their best judgment. As of the date hereof, the WE
Board knows of no such other matters.
Dissenters' Rights
THE FOLLOWING DISCUSSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTIONS
180.1301 THROUGH 180.1331 OF THE WBCL ("SUBCHAPTER XIII"), WHICH IS ATTACHED
HERETO AS APPENDIX C AND IS INCORPORATED HEREIN BY REFERENCE.
Holders of record and beneficial owners of the 6% Preferred Stock and the
3.60% Preferred Stock are entitled to dissenters' rights with respect to the
Merger under Subchapter XIII. Pursuant to Section 180.1302 of the WBCL, any
holder of the 6% Preferred Stock or the 3.60% Preferred Stock, or any
beneficial owner of shares of such stock held by a nominee as the stockholder
of record, has the right to object to the Merger and demand payment of the
"fair value" of his or her shares in cash. Any such WE stockholder or
beneficial stockholder electing to do so must file with WE, before the Merger
vote is taken, a written notice of intent to demand payment that complies with
Section 180.0141 of the WBCL. A vote against approval of the Merger
Agreement, in person or by proxy, will not in and of itself constitute a
notice of objection satisfying Section 180.0141. Furthermore, such WE
stockholder or beneficial stockholder may not vote his or her shares in favor
of the Merger Agreement. Because an executed proxy on which no voting
direction is made will be voted FOR approval of the Merger Agreement, a
dissenting stockholder who wishes to have his or her shares represented by a
proxy at the Special Meeting but preserve his or her dissenters' rights must
mark such proxy either to vote against the Merger Agreement or to abstain from
voting thereon, in addition to complying with the other requirements as
described herein.
Any such WE stockholder may assert dissenters' rights as to fewer than all
shares registered in his or her name only if the stockholder dissents with
respect to all shares beneficially owned by any one person and notifies WE in
writing of the name and address of each person on whose behalf he or she
asserts dissenters' rights. In order to assert dissenters' rights, a
beneficial stockholder must submit to WE the stockholder's written consent to
the dissent not later than the time that the beneficial stockholder asserts
dissenters' rights, which consent should be with respect to all shares of
which he or she is the beneficial stockholder.
If the Merger Agreement is approved by the requisite vote at the Special
Meeting, WE will send within 10 days after such approval to any dissenting
stockholder who has preserved his or her dissenters' rights by filing such
intent to demand payment and refraining from voting his or her shares in favor
of the Merger Agreement, a dissenters' notice including or having attached a
form for demanding payment that requires the stockholder or beneficial
stockholder asserting dissenters' rights to certify whether he or she acquired
beneficial ownership of the shares before the first announcement to the news
media or to stockholders of the terms of the Merger, a statement indicating
where the stockholder or beneficial stockholder must send the payment demand
and where and when certificates for the shares of 6% Preferred Stock or 3.60%
Preferred Stock must be deposited, a date by which WE must receive the payment
demand and a copy of Subchapter XIII. Persons receiving a dissenters' notice
must demand payment in writing within the requisite time and certify whether
they acquired beneficial ownership of the shares before the date specified in
the dissenters' notice. The dissenter's certificates for shares of such stock
must also be deposited in accordance with the terms of the notice.
As soon as the Merger is consummated or upon receipt of a payment demand,
whichever is later, WE will pay each stockholder who has perfected his or her
dissenters' rights the amount that WE estimates to be the fair value of his or
her shares plus accrued interest. The payment shall be accompanied by WE's
latest available audited financial statements, a statement of WE's estimate of
the fair value of the shares, an explanation of the
11
<PAGE> 17
calculation of interest, a statement of the dissenter's right to demand
payment if the dissenter is dissatisfied with WE's payment and a copy of
Subchapter XIII.
WE may elect to withhold payment from a dissenter who was not the beneficial
owner of shares before the date specified in the dissenters' notice. To the
extent WE elects to withhold such payment after consummating the Merger, WE
shall estimate the fair value of the shares plus accrued interest and shall
pay that amount to each dissenter who agrees to accept it in full satisfaction
of his or her demand. WE shall send with its offer of payment a statement of
its estimate of the fair value of the shares, an explanation of how interest
was calculated and a statement of the dissenter's right to demand payment if
he or she is dissatisfied with the offer.
A dissenter, within 30 days after WE has made or offered payment for his or
her shares, shall notify WE in writing in accordance with Section 180.0141 of
the WBCL if he or she is dissatisfied with the payment or offer. The notice
shall state the dissenter's estimate of the fair value of his or her shares
and the amount of interest due and demand payment of that estimate less the
payment already received from WE, or for dissenters whose payments have been
withheld, reject the offer of payment and demand payment of the fair value of
his or her shares and interest due if certain conditions are satisfied.
If a dissenter's demand for payment remains unsettled, WE may bring a special
proceeding within 60 days after receiving the payment demand and petition a
court to determine the fair value of WE shares and accrued interest. If this
special proceeding is not brought within the 60-day period, WE must pay each
dissenter whose demand remains unsettled the amount demanded.
For purposes of Subchapter XIII, the "fair value" of WE's shares is determined
immediately before the consummation of the Merger, excluding any appreciation
or depreciation in anticipation of the Merger unless such exclusion would be
inequitable.
Since the foregoing description is not a complete summary of the provisions of
Subchapter XIII, any stockholder who may be considering exercising his or her
rights as a dissenter is urged to refer to the full text of such Subchapter in
Appendix C. The provisions of Subchapter XIII require strict compliance. ANY
STOCKHOLDER WHO WISHES TO OBJECT TO THE MERGER AND DEMAND PAYMENT FOR HIS OR
HER SHARES SHOULD CONSULT HIS OR HER OWN ATTORNEY OR ADVISOR. If a
stockholder fails to perfect dissenters' rights by not strictly complying with
the applicable statutory requirements, such stockholder will be bound by the
terms of the Merger Agreement.
Holders and beneficial owners of the 6% Preferred Stock and 3.60% Preferred
Stock do not have dissenters' rights under the WBCL with respect to the
proposed amendments to the Restated Articles.
THE MERGER
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT WITH RESPECT TO THE MERGER
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE TEXT OF THE MERGER AGREEMENT,
WHICH IS ATTACHED HERETO AS APPENDIX A AND IS INCORPORATED HEREIN BY
REFERENCE.
General
The Merger Agreement provides for the merger of WN with and into WE. WE will
be the surviving corporation in the Merger. The Merger will be effective at
the date and time specified in the Articles of Merger filed with the Secretary
of State of Wisconsin (the "Effective Time of Merger"). It is currently
anticipated that, subject to the receipt of all requisite regulatory approvals
and other factors, the Effective Time of Merger will be on December 31, 1995
at 12:00 midnight, Central Time. The Merger Agreement is being presented for
a vote by WE stockholders at this time so as to permit the holders of 6%
Preferred Stock and 3.60% Preferred Stock to exercise the special voting
rights on the Merger that are provided for in the Restated Articles; such
special voting rights would be removed for future merger transactions by an
amendment to the Restated Articles proposed for approval at the Special
Meeting. See "Amendments to Restated Articles--Removal of Certain Special
Voting Rights of the Preferred Stocks."
Upon the terms and subject to the conditions set forth in the Merger
Agreement, each share of WE Common Stock, 6% Preferred Stock and 3.60%
Preferred Stock which is issued and outstanding immediately prior to the
12
<PAGE> 18
Effective Time of Merger will, without any action on the part of the holders
thereof, remain an identical issued and outstanding share of such respective
stock of WE, as the surviving corporation, immediately after the Effective
Time of Merger. No new shares of WE Common Stock will be issued in connection
with the Merger. Each share of WN Common Stock which is issued and
outstanding and held by WEC prior to the Effective Time of Merger will be
deemed cancelled at the Effective Time of Merger.
As a result of the Merger, the independent corporate existence of WN will
terminate and WE, as the surviving corporation in the Merger, will succeed to
all of the assets and liabilities of WN.
Reasons for the Merger; Recommendation of the WE Board
For years, WEC has given consideration from time to time as to whether it
would be desirable to merge WN into WE. For example, as early as December 1,
1980, WE executed a supplemental indenture for certain first mortgage bonds
which, among other things, contingently amended WE's Mortgage and Deed of
Trust dated October 28, 1938 (the "WE Indenture") to permit WE to include gas
properties in the calculation of certain leverage tests, satisfaction of which
is necessary to effect certain acquisitions and mergers. However, although
considered, the merger of WN into WE was never implemented.
More recently, the increasingly competitive pressures in the markets for both
electricity and natural gas required WEC, WE and WN to more closely evaluate
the benefits of a merger of WN into WE. In January, 1994, management of WEC
concluded that the Merger was necessary to better position the surviving
company for future growth and success in an intense competitive environment.
The Merger was determined to be advisable by the Board of Directors of WN (the
"WN Board") at a meeting held on January 24, 1994. The Boards of Directors of
WE and WEC determined the Merger to be advisable at meetings held on January
26, 1994. At such meetings, officers of each company were authorized to take
all necessary actions to implement the Merger. In accordance with such
authorizations, officers of WE and WN executed the Merger Agreement on June
30, 1994. The Boards of Directors of WE, WN and WEC approved the Merger
Agreement at meetings held on October 26, 1994, October 24, 1994 and October
26, 1994, respectively.
The WE and WN Boards believe that the terms and conditions of the Merger are
fair to, and in the best interests of, WE, WN and all of their respective
stockholders. In particular, the WE and WN Boards believe that the Merger
will generate additional savings to customers through the ability to more
fully integrate operations, thereby resulting in lower operating costs than
would otherwise be attainable if the separate existence of the companies
continued; allow for significant improvements in customer service by
facilitating the transition to a "one-stop shop" for customers' energy needs;
and strengthen the competitive position of WE in all energy markets served.
WE believes significant efficiencies can be achieved by combining the electric
and gas system operations because of the overlap of the WE and WN service
areas. Operating efficiencies will result from optimizing employment levels
and eliminating duplicate functions. WE estimates that it may take up to
three years after the Effective Time of Merger to fully integrate all
operations before the maximum level of operating cost savings can be realized.
The Merger will also enable the combined company to further improve customer
service as it will be able to offer customers an array of energy alternatives
to meet their needs. Furthermore, the flexibility provided by the Merger is
expected to give WE a significant advantage in meeting the challenges and
uncertainties of the new market conditions.
THE WE BOARD HAS APPROVED THE MERGER AGREEMENT AS ADVISABLE AND IN THE BEST
INTERESTS OF WE AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE FOR THE APPROVAL OF
THE MERGER AGREEMENT. ---
Management and Operations of WE After the Merger
After the Effective Time of Merger, WE, as the surviving corporation in the
Merger, will continue to be a public utility subsidiary of WEC and fully
subject to regulation to the extent it and WN are now regulated by the PSCW,
MPSC and other applicable regulatory agencies. WE's service territory after
consummation of the Merger will include its current electric and steam service
territory and WN's gas service territory immediately
13
<PAGE> 19
prior to the Merger. The duly qualified and acting directors and officers of
WE immediately prior to the Effective Time of Merger will be the directors and
officers of WE immediately after the Effective Time of Merger. WE's Restated
Articles and Bylaws (the "Bylaws") as in effect immediately prior to the
Effective Time of Merger shall be WE's Restated Articles and Bylaws
immediately after the Effective Time of Merger.
Conditions to Consummation of the Merger
The respective obligations of WE and WN to consummate the Merger are subject
to the fulfillment or waiver of certain conditions specified in the Merger
Agreement, including among others: (i) the approval of the Merger Agreement
by the requisite vote of stockholders of WE and the consent of WEC as the sole
stockholder of WN; (ii) the securing of all requisite approvals of the PSCW,
the MPSC and such other regulatory authorities as deemed necessary; and (iii)
the taking of all actions necessary under the WE Indenture, the WN Mortgage
and Deed of Trust dated June 1, 1950 and the WN Debt Securities Indenture
dated September 1, 1992 to consummate the Merger. See "--Regulatory
Requirements" below.
Termination
The Merger Agreement may be terminated, whether before or after approval
thereof by the WE stockholders, and the Merger abandoned at any time prior to
the Effective Time of Merger by the mutual written consent of WE and WN. In
the event the Merger Agreement is terminated, WE and WN will pay their own
costs and expenses incurred in connection with the Merger Agreement, and no
such party (or any of its directors, officers or stockholders) will be liable
to the other party for any costs, expenses, damages or loss.
Regulatory Requirements
Set forth below is a summary of the regulatory approvals that WE and WN are
required to obtain in connection with the Merger.
PUBLIC SERVICE COMMISSION OF WISCONSIN. WE and WN are subject, as public
utility companies, to the jurisdiction of the PSCW with respect to, among
other things, rates, standards of service, issuance of securities,
construction of new facilities, transactions with affiliates, levels of short-
term debt obligations, billing practices and various other matters. Under
Wisconsin law, the Merger requires the consent and approval of the PSCW, based
on its determination that the Merger is consistent with the public interest.
WE and WN filed a joint application to obtain the PSCW's consent to the Merger
on October 12, 1994. In the joint application, WE and WN have requested the
PSCW to approve the Merger as in the public interest, and have sought all
other requisite PSCW approvals with respect to financial, accounting and rate
matters, including, but not limited to: (i) the accounting transactions
necessary to reflect the Merger; (ii) WE's adoption of WN's tariff schedules,
including the rates, charges, rules and regulations of WN governing the
rendering of gas services; (iii) the application to WE of PSCW orders
establishing accounting, depreciation and other practices applicable to WN;
and (iv) any other actions relating to the Merger as the PSCW shall reasonably
and lawfully determine to be within its statutory jurisdiction. WE and WN are
awaiting PSCW approval of the joint application.
MICHIGAN PUBLIC SERVICE COMMISSION. WE is subject to the regulation of the
MPSC as to various matters associated with retail electric service in
Michigan, including standards of service, issuance of securities, billing
practices and various other matters. Under Michigan law, WE's assumption of
WN's long-term liabilities in connection with the Merger requires the approval
of the MPSC, based upon its finding that: such assumption is necessary for a
lawful corporate purpose of WE; the use of the capital or property to be
acquired to be secured by the liabilities so assumed is reasonably required
for such lawful purpose; and the issue and amount of liabilities so assumed
are essential for the successful carrying out of such lawful purpose. WE
filed an application to obtain the MPSC's consent to its assumption of WN's
liabilities in connection with the Merger on October 12, 1994. In the
application, WE has requested the MPSC to approve the assumption of
liabilities as in the public interest and has sought all other requisite
approvals in connection with the Merger. WE is awaiting MPSC approval of the
application.
While WE and WN believe that they will receive the requisite regulatory
approvals for the Merger, there can be no assurance as to the receipt of such
approvals or, if received, as to the timing of such approvals or as to the
ability to obtain such approvals on satisfactory terms.
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Certain Federal Income Tax Consequences
WE has received an opinion, dated October 31, 1994, of Quarles & Brady,
counsel to WE, WN and WEC, to the effect that, as of such date, the Merger
would be treated for federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code, and that WE and WN would each be a
party to that reorganization within the meaning of Section 368(b) of the Code.
The opinion is based on certain assumptions and representations by the
managements of WE, WN and WEC. It is anticipated that Quarles & Brady will
issue a similar opinion, based on certain assumptions and representations,
immediately prior to the Effective Time of Merger. A ruling from the Internal
Revenue Service concerning the Merger's qualification as a reorganization for
federal income tax purposes will not be requested.
The following summarizes certain federal income tax consequences of the Merger
based on the provisions of the Code, the applicable regulations thereunder,
judicial authority and current administrative rulings and practice as of the
date hereof, all of which are subject to change, possibly with retroactive
effect: (i) no gain or loss will be recognized by WE, WN or WEC as a result
of the Merger; (ii) no gain or loss will be recognized upon consummation of
the Merger by the holders of WE Common Stock, 6% Preferred Stock or 3.60%
Preferred Stock who do not perfect their right to dissent from the Merger; and
(iii) where cash is received by a holder of the 6% Preferred Stock or 3.60%
Preferred Stock who perfects his or her dissenter's rights as to the Merger,
the cash will be treated as having been received by such holder as a
distribution in redemption of such respective stock, subject to the provisions
and limitations of Section 302 of the Code. See "The Special Meeting--
Dissenters' Rights."
THE FOREGOING CONSTITUTES ONLY A GENERAL DESCRIPTION OF CERTAIN FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER WITHOUT REGARD TO THE PARTICULAR FACTS AND
CIRCUMSTANCES OF EACH HOLDER OF THE 6% PREFERRED STOCK AND 3.60% PREFERRED
STOCK. ALL SUCH STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
Accounting Treatment
The Merger will be accounted for by the consolidation of the accounts of WE
and WN. This accounting treatment for the combination of assets and
liabilities is similar to that which would result from a pooling of interests
in that the assets and liabilities would be combined at historical book
values. Income of WE as the surviving corporation will include income of WN
for the entire fiscal year in which the Merger occurs. The reported income of
the separate entities for the prior periods will be combined and restated as
income of WE.
AMENDMENTS TO RESTATED ARTICLES
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT WITH RESPECT TO THE PROPOSED
AMENDMENTS TO THE RESTATED ARTICLES IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE TEXT OF SUCH AMENDMENTS, WHICH ARE ATTACHED HERETO AS APPENDIX B AND
ARE INCORPORATED HEREIN BY REFERENCE.
General
Stockholders of WE are being asked to consider and approve several amendments
to the Restated Articles which would: (i) remove the specific reference to
electric and steam operations in the description of WE's purpose; (ii) remove
the special voting rights of the Preferred Stocks in connection with WE's
issuance of certain unsecured indebtedness or consummation of certain mergers
or consolidations; (iii) remove designations of certain series of $100 Par
Value Serial Preferred Stock which are no longer outstanding; (iv) conform
provisions relating to managing the business and affairs of WE during an
emergency with appropriate sections of the WBCL; and (v) conform the statutory
references in the provisions setting forth the majority vote requirement for
certain extraordinary transactions with the appropriate sections of the WBCL,
thereby clarifying the applicability of such vote requirement to a statutory
share exchange. Appendix B contains the proposed amendments to the Restated
Articles to be voted upon by stockholders at the Special Meeting. Appendix B
also
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<PAGE> 21
sets forth an amendment to the Restated Articles which the WE Board, pursuant
to provisions in the WBCL, intends to effect without stockholder action after
the Special Meeting. The WE Board also intends to restate the Restated
Articles to reflect such amendments approved at the Special Meeting and all
amendments previously adopted by stockholders and the WE Board since the last
restatement. See "--Amendment to be Effected by the WE Board" below.
Amendments to the Restated Articles approved by stockholders or the WE Board
and the anticipated restatement of the Restated Articles reflecting all
amendments will each be effective on the dates of receipt for filing by the
Wisconsin Secretary of State. For a brief summary of certain of the existing
rights and preferences of the Preferred Stocks, see Appendix E hereof.
Removal of Specific Reference to Electric and Steam Operations
Article II. of the Restated Articles currently provides that WE is "organized
for the purpose of engaging in any lawful activity within the purposes for
which corporations may be organized under the Wisconsin Business Corporation
Law, including but not limited to the purchase, production, transmission and
delivery of electric power and steam." Upon consummation of the Merger, in
addition to continuing to be engaged in its historical electric utility
operations, WE will thenceforth also be engaged in the historical gas utility
operations of WN, including the purchase, storage, distribution and sale of
natural gas to retail customers and the transportation of customer-owned gas.
Consequently, the WE Board recommends that stockholders approve the removal of
the last clause of the purpose provision which refers, by way of illustrating
a lawful purpose, only to the purchase, production, transmission and delivery
of electric power and steam.
Removing the reference to electric and steam operations in such Article would
not alter the purpose for which WE is organized or reduce or augment its
powers. WE would continue to be authorized to engage in any lawful activity
within the purposes for which corporations may be organized under the WBCL,
including both electric and gas utility operations. Deleting such reference
would simply avoid an incomplete description in the Restated Articles of WE's
operations after consummation of the Merger.
THE WE BOARD HAS APPROVED THE PROPOSED AMENDMENT TO THE RESTATED ARTICLES TO
REMOVE THE SPECIFIC REFERENCE TO ELECTRIC AND STEAM OPERATIONS IN THE
DESCRIPTION OF WE'S PURPOSE AS ADVISABLE AND IN THE BEST INTERESTS OF WE AND
ITS STOCKHOLDERS AND RECOMMENDS A VOTE FOR THE APPROVAL OF SUCH AMENDMENT.
---
Removal of Certain Special Voting Rights of the Preferred Stocks
In addition to the general voting rights of the Preferred Stocks to vote on
each matter submitted to a vote at a meeting of stockholders (except as
otherwise provided in the Restated Articles), the Preferred Stocks are
entitled to special voting rights on certain matters, including in connection
with WE's issuance of certain unsecured indebtedness or consummation of
certain mergers or consolidations. See "Description of WE Preferred Stocks"
in Appendix E hereto. Specifically, Article III.C.(7) of the Restated
Articles provides that so long as any of the Preferred Stocks are outstanding,
WE may not, without the consent of the holders of a majority of the total
number of shares of such stock, voting together as one voting group, present
or represented by proxy at a meeting duly called for the purpose: (i) issue or
assume any unsecured indebtedness (except for refunding outstanding unsecured
securities or redeeming or retiring shares of the $100 Par Value Serial
Preferred Stock or $25 Par Value Serial Preferred Stock) unless, immediately
after such issuance or assumption, the total principal amount of all
outstanding unsecured indebtedness (including unsecured securities then to be
issued or assumed) would not exceed 25% of the total principal amount of all
secured indebtedness, issued or assumed by WE, then to be outstanding, plus
capital and surplus of WE; or (ii) merge or consolidate (but not including a
purchase or acquisition by WE of the franchises or assets of another
corporation) with or into any other corporation unless such transaction, or
any related issuance or assumption of securities, has been ordered, approved
or permitted by the Securities and Exchange Commission under the provisions of
the Public Utility Holding Company Act of 1935 or by another federal
regulatory authority having jurisdiction. Article III.C.(7) also requires, in
the first instance, a majority of the outstanding shares of the Preferred
Stocks, without regard to class or series, to constitute a quorum but permits
a quorum of one-third of such shares if the majority quorum requirement is not
attained at a stockholders meeting called to consider the issuance or
transaction or at any adjournment thereof within thirty days from the date of
such meeting as originally called.
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<PAGE> 22
The WE Board recommends stockholder approval of an amendment to the Restated
Articles which would remove Article III.C.(7) and renumber the remaining
subsections of Article III.C. To date, WE's long-term debt financing
generally has been accomplished through the issuance of first mortgage bonds
(secured debt financing) pursuant to the WE Indenture. All of the debt
obligations issued by WE pursuant to the WE Indenture are secured by a first
priority lien on substantially all of the properties owned by WE. In light of
the increasingly competitive pressures in the energy markets, the WE Board
believes it is essential to have maximum flexibility with respect to future
financing. The elimination of the required vote with respect to certain
issuances or assumptions of unsecured debt would provide WE with the ability
to obtain the best terms available in the debt market for the long-term
benefit of all stockholders, including the holders of the Preferred Stocks.
Even though removal of the required vote would allow WE to issue a greater
amount of unsecured debt, WE does not have any present intention of issuing an
aggregate amount of debt greater than it otherwise would issue (whether
secured or unsecured) by virtue of the elimination of such requirement. In
addition, the issuance of any securities by WE (other than certain notes or
drafts maturing in one year or less) is subject to prior approval by the PSCW,
regardless of the existence of any restriction in the Restated Articles.
Consequently, the holders of any of the Preferred Stocks would not be
adversely impacted by removal of the provision, and it is possible that the
position of such stockholders would be improved, to the extent that the cost
to WE of issuing unsecured indebtedness at any particular time is less than
the cost of issuing other forms of debt.
The WE Board also believes that Article III.C.(7) places an unnecessary
restraint on WE's ability to effect business combination transactions which
are in the best interests of WE and its stockholders. The Restated Articles
generally provide holders of the Preferred Stocks with the right to vote with
the WE Common Stock on each matter submitted to a vote at a meeting of
stockholders. Under the WBCL, most mergers and all statutory share exchanges
of a corporation whose shares will be acquired in the exchange (there no
longer being any reference to consolidations in the WBCL) must be submitted to
a vote of stockholders. See "--Conforming Statutory References in Provision
Governing Vote Required for Certain Extraordinary Transactions with the WBCL"
below. Furthermore, the WBCL provides for separate voting by classes or
series if, in the case of a merger, the plan of merger contains a provision
that would, among other things, change in a manner prejudicial to the holders
of the outstanding shares of the class or series, the designations, rights,
preferences or limitations of all or part of the shares of the class or series
or if, in the case of a statutory share exchange, the class or series is
included in the exchange. Consequently, regardless of the existence of any
vote requirement in the Restated Articles, the WBCL would afford holders of
the Preferred Stocks special voting rights in those circumstances where they
might otherwise be prejudiced by a merger or statutory share exchange.
If the proposed amendment were approved, in those situations where a merger or
statutory share exchange did not require a class or series vote under the
WBCL, then such holders would vote with the WE Common Stock as one voting
group. In such circumstance, by virtue of WEC's ownership of all of the
outstanding WE Common Stock, representing in excess of 99% of the total voting
power of the outstanding voting securities of WE, the holders of the Preferred
Stocks may not be able to block any such transaction.
Approval of the proposed amendment will not affect the special voting rights
of the holders of 6% Preferred Stock and 3.60% Preferred Stock on the Merger.
Upon approval of the proposed amendment, holders of the Preferred Stocks would
continue to have special voting rights in the event of dividend defaults,
certain changes in authorized shares or certain issuances of the Preferred
Stocks (unless certain net income and capital coverage tests were satisfied),
and general voting rights on matters submitted to a vote at a stockholders
meeting. Furthermore, the proposed amendment will not affect the dividend
rights, priority or other terms of the Preferred Stocks as set forth in
Appendix B and summarized in Appendix E.
THE WE BOARD HAS APPROVED THE PROPOSED AMENDMENT TO THE RESTATED ARTICLES TO
REMOVE THE SPECIAL VOTING RIGHTS OF THE PREFERRED STOCKS IN CONNECTION WITH
WE'S ISSUANCE OF CERTAIN UNSECURED INDEBTEDNESS OR CONSUMMATION OF CERTAIN
MERGERS OR CONSOLIDATIONS AS ADVISABLE AND IN THE BEST INTERESTS OF WE AND ITS
STOCKHOLDERS AND RECOMMENDS A VOTE FOR THE APPROVAL OF SUCH AMENDMENT.
---
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Removal of Certain Series Designations
Pursuant to the Restated Articles, shares of the $100 Par Value Serial
Preferred Stock and the $25 Par Value Serial Preferred Stock are issuable in
one or more series. Article III.D. of the Restated Articles sets forth the
variable terms of certain series of $100 Par Value Serial Preferred Stock.
All of the shares of four of such series (the 8.90% Series, 7.75% Series,
8.80% Series and 6.75% Series) have been previously redeemed or purchased in
the open market by WE. In accordance with the WBCL, the WE Board has
cancelled all of the reacquired shares of the four series. No such shares are
currently outstanding.
The proposed amendment would delete from the Restated Articles obsolete series
designations (and references thereto) which have no present relevance, as well
as renumber the remaining subsection of Article III.D. By approving the
proposed amendment, stockholders would also restore all of the authorized
shares of such four series, except for 73,500 shares of the 6.75% Series which
were redeemed pursuant to sinking fund requirements and may not be reissued
under Article III.C.(5) of the Restated Articles, to the status of authorized
but unissued shares of the $100 Par Value Serial Preferred Stock. Such
restored shares could be reissued in new series by the WE Board in the future
without stockholder action as provided for in the Restated Articles. In order
to reflect the Restated Articles' prohibition on the reissuance of the 73,500
shares, the authorized number of shares of the $100 Par Value Serial Preferred
Stock and the aggregate number of authorized shares of WE set forth in Article
III.A. of the Restated Articles will each be reduced as a result of this
proposed amendment by 73,500 shares.
THE WE BOARD HAS APPROVED THE PROPOSED AMENDMENT TO THE RESTATED ARTICLES TO
REMOVE DESIGNATIONS OF CERTAIN SERIES OF THE $100 PAR VALUE SERIAL PREFERRED
STOCK WHICH ARE NO LONGER OUTSTANDING AS ADVISABLE AND IN THE BEST INTERESTS
OF WE AND ITS STOCKHOLDERS AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL
OF SUCH AMENDMENT. ---
Conforming Emergency Provisions with the WBCL
The WE Board proposes to amend Article V. of the Restated Articles, which sets
forth certain powers of directors and officers and procedures to be followed
during an emergency. Prior to 1991, the WBCL did not specifically address
emergency powers or procedures. In conjunction with a significant revision to
the WBCL in 1991, two new statutory provisions governing emergencies became
effective. One of those provisions defines the term "emergency" to mean a
catastrophic event that prevents a quorum of a corporation's directors from
being readily assembled. The proposed amendment would use this definition of
"emergency" in lieu of the provision presently contained in the Restated
Articles which defines "emergency" to mean a condition resulting from various
listed causes which makes it impossible to assemble a quorum of the entire WE
Board or which renders two or more of the principal officers of WE unable to
perform their duties. While the effect of this proposed change might
theoretically limit the situations in which an emergency could be declared,
the WE Board believes that by incorporating into the Restated Articles the
definition of "emergency" found in the WBCL, greater certainty as to the
legality of the use of special powers and procedures in such a situation can
be obtained. Because the proposed amended definition of "emergency" is only
relevant if a catastrophic event prevents assembling a quorum of WE's
directors, the proposed amendment would delete a paragraph (and other
references) applicable to two or more principal officers of WE being unable to
perform their duties.
The proposed amendment would also replace the statutory reference to a former
WBCL provision regarding the management of the affairs of the corporation by
the board of directors with references to, in particular, the two new
statutory sections of the WBCL which specifically address emergency situations
and conform certain terminology to that presently contained in the WBCL. Such
statutes permit a corporation to make all provisions necessary for its
management during an emergency and set forth certain emergency powers and
procedures applicable to a board of directors. WE directors faced with an
emergency could take any action allowed by Article V. to the maximum extent
permitted by the WBCL generally, and such statutes in particular, thus
providing the WE Board with necessary flexibility in an emergency situation.
The proposed amendment would not alter Article V.'s inapplicability upon the
accrual or continuance of the special voting right of the Preferred Stocks
under the Restated Articles to elect a majority of the WE Board in the event
of dividend defaults. See Appendix E, "Description of WE Preferred Stocks--
Voting Rights."
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THE WE BOARD HAS APPROVED THE PROPOSED AMENDMENT TO THE RESTATED ARTICLES TO
CONFORM THE EMERGENCY PROVISIONS WITH THE WBCL AS ADVISABLE AND IN THE BEST
INTERESTS OF WE AND ITS STOCKHOLDERS AND RECOMMENDS ITS STOCKHOLDERS VOTE FOR
APPROVAL OF SUCH AMENDMENT. ---
Conforming Statutory References in Provision Governing Vote Required for
Certain Extraordinary Transactions with the WBCL
The WE Board is also recommending for stockholder approval a proposed
amendment which would conform certain statutory references with respect to the
majority vote requirement for certain extraordinary transactions contained in
Article VI. with the current statutory provisions of the WBCL. In 1977
stockholders approved amendments to Article VI. reducing from two-thirds to a
majority the affirmative vote requirement in connection with certain mergers,
consolidations, dispositions of all or substantially all of the properties of
WE and dissolution. The proposed amendment would specifically refer to the
new statutory sections of the WBCL, effective in 1991, which set forth the
majority vote requirement for certain mergers, dispositions of all or
substantially all of a corporation's properties and dissolution (there no
longer being any reference to consolidations in the WBCL). The amendment
would make no change to the majority vote requirement itself for such
transactions or for amendments to the Restated Articles as presently set forth
in Article VI.
Effective January 1, 1991, a new type of business combination, a statutory
share exchange, became part of the WBCL. Under a statutory share exchange, a
corporation may acquire all of the outstanding shares of one or more classes
or series of another corporation if the board of directors of each
corporation, and the stockholders of the corporation whose shares will be
acquired in the share exchange, approve the plan of share exchange. If such
approvals are obtained, a statutory share exchange is compulsory as to every
holder of a class or series of shares to be acquired in the exchange, subject
to the availability of dissenters' rights under certain circumstances. Like
the affirmative vote requirement for the other extraordinary transactions
mentioned above, the ordinary vote of stockholders required by the WBCL to
approve a plan of share exchange is a majority of all votes entitled to be
cast on the plan by each voting group entitled to vote thereon. However,
because WE was organized before January 1, 1973, a two-thirds affirmative vote
requirement could apply under the WBCL unless the majority vote requirement is
affirmatively elected. Since stockholders previously approved reducing the
affirmative vote requirement for certain other extraordinary transactions from
two-thirds to a majority (under a similar WBCL election provision) at a time
when a statutory share exchange did not exist under the WBCL, there is
ambiguity in the Restated Articles as to whether the majority or two-thirds
vote requirement would apply to a statutory share exchange. The proposed
amendment would clarify by reference to the vote requirement provision of the
WBCL governing statutory share exchanges that the stockholder vote required
for such a statutory share exchange is the same vote required for other
similar extraordinary transactions entered into by WE, a majority of all votes
entitled to be cast by a voting group. The WE Board believes that its ability
to effect a statutory share exchange should be no more restricted than any
other comparable extraordinary transaction and that the stockholders of WE
should have the same power in such instances as stockholders of a newly
organized Wisconsin corporation, subject to the rights specifically set forth
in the Restated Articles.
THE WE BOARD HAS APPROVED THE PROPOSED AMENDMENT TO THE RESTATED ARTICLES TO
CONFORM STATUTORY REFERENCES IN THE PROVISION GOVERNING THE VOTE REQUIRED FOR
CERTAIN EXTRAORDINARY TRANSACTIONS WITH THE WBCL AS ADVISABLE AND IN THE BEST
INTERESTS OF WE AND ITS STOCKHOLDERS AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF SUCH AMENDMENT. ---
Amendment to be Effected by the WE Board
After the Special Meeting, the WE Board expects to effect an amendment to the
Restated Articles, without a stockholder vote as permitted by the WBCL, that
would change the name of its registered agent. Such amendment is set forth in
Appendix B hereto. After filing the amendments to the Restated Articles
approved by stockholders at the Special Meeting, the WE Board intends, without
stockholder action, to restate the Restated Articles to reflect such
amendments and all amendments previously adopted by stockholders and the WE
Board since the last restatement in 1977. If all the amendments to the
Restated Articles proposed for approval by stockholders at the Special Meeting
are approved, and the amendment to the Restated Articles
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<PAGE> 25
discussed above to be effected by the WE Board is effected, the Restated
Articles of Incorporation contained in Appendix B would constitute WE's new
Restated Articles of Incorporation after restatement by the WE Board and
filing with the Wisconsin Secretary of State.
WE STOCK OWNERSHIP
At September 1, 1994, WE directors and executive officers as a group (15
persons) do not own any WE or WN stock but beneficially own 68,936 shares of
Common Stock of WEC, $.01 par value per share (the "WEC Common Stock"), which
constitute less than 1% of the total WEC Common Stock outstanding. The
following table lists, as of September 1, 1994, the beneficial ownership of
WEC Common Stock of each current director, and of the Chief Executive Officer
and the four other most highly compensated executive officers of WE at the end
of the last completed fiscal year. Included are shares owned by each
individual's spouse, minor children or any other relative sharing the same
residence, as well as shares held in a fiduciary capacity or held in WEC's
Stock Plus Investment Plan and WE's Management Employee Savings Plan.
Number Number
Name of Shares Name of Shares
- ---- --------- ---- ---------
R.A. Abdoo 13,478 J.L. Murray 3,000
J.F. Bergstrom 3,000 D.K. Porter 8,499
J.W. Boston 4,567 M.W. Reid 3,273
R.A. Cornog 1,000 J.G. Remmel. 6,199
R.H. Gorske 14,600 (a) F.P. Stratton, Jr. 5,300
R.R. Grigg, Jr. 2,346 (b) J.G. Udell 6,395 (c)
G.B. Johnson 2,140
____________________
(a) Mr. Gorske retired as a director and executive officer of WE effective
July 1, 1994.
(b) Mr. Grigg was elected as an executive officer of WE effective June 1,
1994 and a director of WE effective July 1, 1994.
(c) Dr. Udell disclaims beneficial ownership of 2,899 of such shares.
Each person has sole voting and investment power as to all shares listed for
such person except the following persons have shared voting and/or investment
power as to the indicated number of shares so listed: Mr. Boston (2,992), Mr.
Grigg (290), Mr. Gorske (356), Mr. Stratton (3,300), Dr. Udell (2,899) and all
current directors and executive officers as a group (12,319).
The above beneficial ownership data is based on information furnished by the
specified persons and is determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934 (the "Exchange Act"), as required for purposes
of this Proxy Statement. It is not necessarily to be construed as an
admission of beneficial ownership for other purposes.
No person is known to WE to be the beneficial owner of more than five percent
of any class of its Preferred Stocks at the Record Date. All of the
outstanding WE Common Stock is beneficially owned by WEC.
INDEPENDENT ACCOUNTANTS
Representatives of Price Waterhouse LLP, WE's independent accountants, are
expected to attend the Special Meeting to make any statement they may consider
appropriate and to respond to questions that may be directed to them.
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OTHER MATTERS
The WE Board is not aware of any other matters which may properly come before
the Special Meeting other than as set forth in the Notice of such Special
Meeting as attached to this Proxy Statement. The WBCL provides that only
business within the purposes described in the Notice of Special Meeting may be
conducted at the Special Meeting. The Bylaws set forth the requirements that
must be followed should a stockholder wish to propose any floor proposal at
the Special Meeting. The Bylaws state, among other things, that notice and
certain other documentation must be provided to WE a reasonable period of time
before the Special Meeting. If any other matters properly come before the
Special Meeting, or any adjournment or postponement thereof, it is the
intention of the persons named in the proxy to vote such proxies in accordance
with their best judgment on such matters.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN EXHIBITS
TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE INTO
THE TEXT OF SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO EACH PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROXY STATEMENT IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST TO WE'S AND WN'S SECRETARY, MS. ANN
MARIE BRADY, 231 W. MICHIGAN STREET, P.O. BOX 2046, MILWAUKEE, WISCONSIN 53201
(TELEPHONE: 1-800-881-5882). WE AND WN WILL RESPOND TO ANY SUCH REQUEST BY
FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN ONE BUSINESS DAY OF
RECEIPT OF SUCH REQUEST.
The following documents filed by WE with the SEC pursuant to the Exchange Act
(File No. 1-1245) are incorporated in this Proxy Statement by reference:
1. WE's Annual Report on Form 10-K for the year ended December 31,
1993.
2. WE's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1994 and June 30, 1994.
3. WE's Current Report on Form 8-K dated January 24, 1994.
The following documents filed by WN with the SEC pursuant to the Exchange Act
(File No. 2-2066) are incorporated in this Proxy Statement by reference:
1. WN's Annual Report on Form 10-K for the year ended December 31,
1993.
2. WN's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1994 and June 30, 1994.
3. WN's Current Reports on Form 8-K dated January 1, 1994 and
January 24, 1994.
All documents filed by WE and WN pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the date on which
the Special Meeting is held shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of filing of such documents.
The information relating to WE and WN contained in this Proxy Statement does
not purport to be comprehensive and should be read together with the
information in the documents incorporated by reference herein.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
21
<PAGE> 27
APPENDIX A
CONFORMED COPY
PLAN AND AGREEMENT OF MERGER
PLAN AND AGREEMENT OF MERGER ("Agreement") dated this 30th day of June,
1994, by and between WISCONSIN ELECTRIC POWER COMPANY ("WEPCO" or "Surviving
Corporation"), a Wisconsin corporation, and WISCONSIN NATURAL GAS COMPANY
("WN"), a Wisconsin corporation.
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of WEPCO and WN deem it
advisable for the general welfare and advantage of WEPCO and WN and their
stockholders and customers that WN merge with and into WEPCO pursuant to this
Agreement and the applicable laws of the State of Wisconsin; and
WHEREAS, WN is a corporation duly organized, validly existing and in
active status under the laws of the State of Wisconsin and has, as of the date
of this Agreement, authorized capital, outstanding first mortgage bonds and
outstanding debentures consisting of (i) 38,000,000 shares of common stock,
$1.00 par value per share (the "WN Common Stock"), of which 1,725,000 shares
are issued and outstanding, and all of which are owned by WISCONSIN ENERGY
CORPORATION ("WEC"), a corporation organized under the laws of the State of
Wisconsin; (ii) 120,000 shares of Serial Preferred Stock, $100.00 par value
per share, none of which is issued or outstanding; (iii) $23,000,000 in
aggregate principal amount of First Mortgage Bonds (the "First Mortgage
Bonds") issued pursuant to the Mortgage and Deed of Trust dated June 1, 1950,
as supplemented and amended; and (iv) $59,290,000 in aggregate principal
amount of unsecured Debentures issued pursuant to the Debt Securities
Indenture dated as of September 1, 1992, as supplemented; and
WHEREAS, WEPCO is a corporation duly organized, validly existing and in
active status under the laws of the State of Wisconsin and has authorized
capital stock consisting of 72,405,000 shares divided into four classes: (a)
65,000,000 shares of common stock, $10.00 par value per share (the "WEPCO
Common Stock"), of which 33,289,327 shares are presently issued and
outstanding, and all of which are owned by WEC; (b) 45,000 shares of 6%
preferred stock, $100.00 par value per share, of which 44,508 shares are
issued and outstanding ("6% Preferred"); (c) 2,360,000 shares of serial
preferred stock, $100.00 par value per share, of which 260,000 of the 3.60%
Series ("3.60% Preferred") are issued and outstanding; and (d) 5,000,000
shares of serial preferred stock, $25.00 par value per share, none of which
are issued and outstanding. The 6% Preferred and 3.60% Preferred
(collectively the "Preferred Stock") are owned by approximately 3,200
shareholders; and
WHEREAS, WEPCO is a public utility doing business in Michigan and
Wisconsin and WN is a public utility doing business in Wisconsin; and
WHEREAS, WN provides natural gas utility service in a service territory a
large portion of which is located within the service territory of WEPCO; and
WHEREAS, the objective of the merger of WN into WEPCO is to consolidate
the operations and facilities of both corporations into a single integrated
entity and thereby provide service on a more efficient and economical basis
and thereby reduce costs and improve customer service.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained, WN and WEPCO agree that WN shall be merged with and into
WEPCO and WEPCO shall be the Surviving Corporation in accordance with the
applicable laws of the State of Wisconsin and that the terms and conditions of
the merger and the mode of carrying it into effect are and shall be as
hereinafter set forth.
Section 1. Time of Effectiveness.
---------- ----------------------
The merger provided for in this Agreement shall become effective at such
time and date ("Effective Date") specified in the Articles of Merger referred
to in subparagraph (c) of this Section, subject to the completion of the
following:
(a) This Agreement shall have been approved by WEC as the sole common
stockholder of WN and WEPCO pursuant to the Wisconsin Business Corporation
Law.
(b) This Agreement shall be submitted for the consent of the preferred
stockholders of WEPCO pursuant to the Restated Articles of Incorporation and
the applicable laws of the State of Wisconsin, and such consent be obtained,
if required.
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<PAGE> 28
(c) Articles of Merger shall have been duly executed, acknowledged and
filed on behalf of WEPCO and WN with the Secretary of State of the State of
Wisconsin as required by Section 180.1105 of the Wisconsin Business
Corporation Law.
(d) (i) The Michigan Public Service Commission, the Public Service
Commission of Wisconsin and the Federal Energy Regulatory Commission, to the
extent necessary, shall have issued orders, satisfactory to WEPCO and WN,
approving this Agreement and the transactions contemplated hereby; (ii) the
Securities and Exchange Commission and the Internal Revenue Service, to the
extent necessary, shall have respectively issued a favorable no action letter
and revenue ruling, satisfactory to WEPCO and WN, with respect to the
transactions contemplated hereby; and (iii) WEPCO and WN shall have obtained
such other regulatory approvals and authorizations as the officers of WEPCO
and WN may deem necessary or desirable in connection with the merger.
(e) All actions required under the Mortgages and Deeds of Trust of WEPCO
and WN and the Debt Securities Indenture of WN, if any, to effectuate the
merger shall have been completed or are completed contemporaneously with the
Effective Date of the merger.
Section 2. Name.
---------- -----
Upon the Effective Date, the name of the Surviving Corporation shall
remain "WISCONSIN ELECTRIC POWER COMPANY."
Section 3. Articles of Incorporation and Bylaws.
---------- --------------------------------------
The Restated Articles of Incorporation of WEPCO as in effect immediately
prior to the Effective Date and the Bylaws of WEPCO as in effect immediately
prior to the Effective Date shall be the Articles of Incorporation and Bylaws
of the Surviving Corporation from and after the Effective Date, subject to the
right of the Surviving Corporation to amend its Restated Articles of
Incorporation and Bylaws in accordance with the laws of the State of
Wisconsin.
Section 4. Manner of Canceling Shares; Capitalization.
---------- -------------------------------------------
The mode of carrying the merger into effect and the manner and basis of
canceling the shares of WN upon the Effective Date, are as follows:
(a) All of the shares of WN Common Stock which are issued and
outstanding and held by WEC prior to the Effective Date shall, by virtue of
the merger and without any action by WEC, be deemed canceled at the Effective
Date of the merger.
(b) No new shares of WEPCO Common Stock will be issued in connection
with the merger and each share of WEPCO Common Stock which is issued and
outstanding immediately prior to the Effective Date of the merger shall, by
virtue of the merger and without any action on the part of the holders
thereof, remain an identical issued and outstanding share of Common Stock of
the Surviving Corporation.
(c) Each share of WEPCO Preferred Stock which is issued and outstanding
immediately prior to the Effective Date of the merger shall, by virtue of the
merger and without any action on the part of the holders thereof, remain an
identical issued and outstanding share of Preferred Stock of the Surviving
Corporation.
Section 5. Board of Directors and Officers.
---------- --------------------------------
From and after the Effective Date the members of the Board of Directors
of WEPCO shall be the Board of Directors of the Surviving Corporation until
the election and qualification of their respective successors. The elected
officers of WEPCO, who shall continue in office at the pleasure of the Board
of Directors of the Surviving Corporation, shall be the elected officers of
the Surviving Corporation from and after the Effective Date, until the
election and qualification of their respective successors.
Section 6. Effect of the Merger.
---------- ---------------------
Upon the Effective Date, WN shall be merged with and into WEPCO and the
separate corporate existence of WN shall cease pursuant to Section 180.1106(a)
of the Wisconsin Business Corporation Law. All rights, privileges, powers,
immunities and franchises, all property, real, personal or mixed, whether
tangible and
A-2
<PAGE> 29
intangible, of every kind and description, every other interest or asset, and,
all obligations and liabilities of WN shall be taken by and deemed to be
transferred to and vested in WEPCO, without further act or deed.
Section 7. Action by WEPCO and WN.
---------- -----------------------
If this Agreement shall have been adopted and approved by WEPCO and WN
and executed and acknowledged in accordance with the applicable laws of the
State of Wisconsin, then, provided all other conditions herein contained shall
have been fulfilled at such date, Articles of Merger shall be filed in
accordance with the laws of the State of Wisconsin as contemplated in
Section 1 hereof. WEPCO and WN shall do all such other acts and things as
shall be necessary or desirable in order to effectuate the merger and their
respective officers are authorized to make such applications for regulatory
authorizations as they deem necessary or desirable and to execute and deliver
such other instruments and to take any and all other action necessary or
desirable in order to effect the transfer to and assumption by WEPCO of the
assets and liabilities of WN under Section 6 hereof and to otherwise perfect
the merger and carry out the intent of this Agreement.
Section 8. Termination of Agreement.
---------- -------------------------
Notwithstanding stockholder approval hereof, this Agreement may be
terminated and the merger abandoned at any time prior to the Effective Date by
the mutual written consent of WEPCO and WN. In the event of a termination of
this Agreement pursuant to this Section 8, this Agreement shall become null
and void and each party shall pay its own costs and expenses incurred by and
in connection with this Agreement, and no party (or any of its directors,
officers and stockholders) shall be liable to any other party for any costs,
expenses, damages or loss.
Section 9. General.
---------- --------
(a) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(b) The Section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(c) This Agreement shall not be assignable by any party hereto and shall
be binding upon the parties and their respective successors.
(d) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Wisconsin.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the date and year first above written.
WISCONSIN ELECTRIC POWER COMPANY
(CORPORATE SEAL) By /s/ JOHN W. BOSTON
---------------------
Its President
---------------------
ATTEST:
By /s/ ANN MARIE BRADY
--------------------
Its Secretary
--------------------
WISCONSIN NATURAL GAS COMPANY
(CORPORATE SEAL) By /s/ JOHN W. BOSTON
---------------------
Its President
---------------------
ATTEST:
By /s/ ANN MARIE BRADY
----------------------
Its Secretary
----------------------
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<PAGE> 30
ACKNOWLEDGMENTS
---------------
STATE OF WISCONSIN )
) ss.
COUNTY OF MILWAUKEE )
I, James D. Zakrajsheck, a Notary Public in and for said County and State
aforesaid, do hereby certify that John W. Boston and Ann Marie Brady,
personally known to me to be the same persons whose names are subscribed to
the foregoing instrument, appeared before me this day in person and severally
acknowledged that as such President and Secretary of Wisconsin Electric Power
Company, respectively, they executed and delivered the said instrument as
President and Secretary of said corporation, and caused the corporate seal of
said corporation to be affixed thereto, as their free act and deed, and the
free act and deed of said corporation, and that the facts stated therein are
true.
Given under my hand and seal of office this 30th day of June, 1994.
/s/ JAMES D. ZAKRAJSHECK
--------------------------------
Notary Public
My Commission is permanent.
ACKNOWLEDGMENTS
---------------
STATE OF WISCONSIN )
) ss.
COUNTY OF MILWAUKEE )
I, James D. Zakrajsheck, a Notary Public in and for said County and State
aforesaid, do hereby certify that John W. Boston and Ann Marie Brady,
personally known to me to be the same persons whose names are subscribed to
the foregoing instrument, appeared before me this day in person and severally
acknowledged that as such President and Secretary of Wisconsin Natural Gas
Company, respectively, they executed and delivered the said instrument as
President and Secretary of said corporation, and caused the corporate seal of
said corporation to be affixed thereto, as their free act and deed, and the
free act and deed of said corporation, and that the facts stated therein are
true.
Given under my hand and seal of office this 30th day of June, 1994.
/s/ JAMES D. ZAKRAJSHECK
--------------------------------
Notary Public
My Commission is permanent.
A-4
<PAGE> 31
APPENDIX B
PROPOSED RESTATED ARTICLES OF INCORPORATION OF
WISCONSIN ELECTRIC POWER COMPANY
The following Restated Articles of Incorporation reflect all amendments to the
existing Restated Articles proposed for approval by stockholders at the
Special Meeting as well as an amendment which is anticipated to be effected by
the WE Board without stockholder action, as permitted by the WBCL. The WE
Board also intends to restate the Restated Articles to reflect all amendments
adopted by stockholders or the WE Board (without stockholder action) since the
last restatement in 1977. If all the amendments to the Restated Articles
proposed for approval by stockholders at the Special Meeting are approved, and
the amendment to the Restated Articles intended to be effected by the WE Board
is effected, the Restated Articles of Incorporation below would constitute
WE's new Restated Articles of Incorporation after restatement by the WE Board
and filing with the Wisconsin Secretary of State. See "Amendments to Restated
Articles" in the Proxy Statement.
(Material to be deleted from the existing Restated Articles is shown as struck
through, and material to be added is shown double underlined. The footnotes
will not be part of the new Restated Articles of Incorporation.)
[Note: EDGAR format shows deletions in brackets and material to be added in
capital letters.]
RESTATED ARTICLES OF INCORPORATION
OF
WISCONSIN ELECTRIC POWER COMPANY
These Restated Articles of Incorporation of Wisconsin Electric Power Company,
a corporation incorporated under Chapter 180 of the Wisconsin Statutes, the
Wisconsin Business Corporation Law, supersede and take the place of the
existing Restated Articles of Incorporation and all prior amendments thereto.
ARTICLE I. NAME
The name of such corporation is WISCONSIN ELECTRIC POWER COMPANY.
ARTICLE II. PURPOSE
The corporation is organized for the purpose of engaging in any lawful
activity within the purposes for which corporations may be organized under the
Wisconsin Business Corporation Law[, including but not limited to the
purchase, production, transmission and delivery of electric power and steam].
(see footnote (1))
ARTICLE III. DESCRIPTION OF CAPITAL STOCK
A. Authorized Number and Classes of Shares
The aggregate number of shares which the corporation shall have authority
to issue is Seventy-two Million [Four] THREE Hundred [Five] THIRTY-ONE
Thousand FIVE HUNDRED [(72,405,000)] (72,331,500) (see footnote (2))
shares, divided into four classes consisting of:
- --------------------
(1) This change removes the specific reference to electric and steam
operations.
(2) All of the changes to Article III.A. reflect the removal of certain
obsolete series of the $100 Par Value Serial Preferred Stock and the
resulting restoration of all such shares, except 73,500 shares acquired
by WE pursuant to sinking fund requirements, to the status of authorized
but unissued shares of $100 Par Value Serial Preferred Stock.
B-1
<PAGE> 32
(1) Sixty-five Million (65,000,000) shares of Common Stock of the par
value of Ten Dollars ($10) per share (hereinafter called the "Common
Stock");
(2) Forty-five Thousand (45,000) shares of Six Per Cent. Preferred Stock
of the par value of One Hundred Dollars ($100) per share (hereinafter
called the "6% Preferred Stock");
(3) Two Million [Three] TWO Hundred [Sixty] EIGHTY-SIX Thousand FIVE
HUNDRED [(2,360,000)] (2,286,500) shares of Serial Preferred Stock of
the par value of One Hundred Dollars ($100) per share (hereinafter
called the "$100 Par Value Serial Preferred Stock"); and
(4) Five Million (5,000,000) shares of Serial Preferred Stock of the par
value of Twenty-five Dollars ($25) per share (hereinafter called the
"$25 Par Value Serial Preferred Stock").
The 6% Preferred Stock, the $100 Par Value Serial Preferred Stock and the
$25 Par Value Serial Preferred Stock are together hereinafter called the
"Preferred Stocks".
B. Common Stock Provisions
(1) Dividends
Subject to the rights of the holders of the Preferred Stocks as
fixed in or pursuant to this Article III., such dividends (payable
in cash, stock or otherwise) as may be determined by the Board of
Directors may be declared and paid on the Common Stock from time to
time from any funds, property or shares legally available therefor.
(2) Voting Rights
Each outstanding share of Common Stock shall be entitled to one vote
on each matter submitted to a vote at a meeting of stockholders
except as otherwise provided in these Articles.
(3) Preemptive Rights
No holder of the Common Stock shall be entitled as such, as a matter
of right, to subscribe for or purchase or receive any part of any
new or additional issue of stock, or securities convertible into
stock, of any class whatever, whether now or hereafter authorized,
and whether issued for cash, property or services, by way of
dividend, or in exchange for the stock of another corporation.
C. Preferences and Provisions Pertaining to the Preferred Stocks
(1) Dividends
(a) 6% Preferred Stock
The holders of the 6% Preferred Stock shall be entitled to
receive cumulative cash dividends thereon, when and as declared
by the Board of Directors, out of the unreserved and
unrestricted earned surplus of the corporation, or if there is
no such earned surplus, out of the net capital surplus of the
corporation, provided at the time of payment the corporation is
not insolvent or would not be rendered insolvent thereby, at
the rate of six per centum per annum and no more, payable
quarterly on the last days of January, April, July and October
in each year. Such dividends on the 6% Preferred Stock shall
be cumulative from and after January 31, 1921, so that if
thereafter dividends at the rate of six per centum per annum
for any past quarterly dividend period shall not have been paid
on the 6% Preferred Stock, or set apart therefor, and the
dividend, at said rate, for the then current quarterly dividend
period, shall not have been declared and funds set apart
therefor, the deficiency shall be fully paid or funds for the
payment thereof set apart, but without interest, before any
dividends shall be paid or set apart for the Common Stock.
B-2
<PAGE> 33
(b) $100 Par Value Serial Preferred Stock
The holders of the $100 Par Value Serial Preferred Stock shall
be entitled to receive cumulative cash dividends thereon, when
and as declared by the Board of Directors, out of the
unreserved and unrestricted earned surplus of the corporation,
or if there is no such earned surplus, out of the net capital
surplus of the corporation, provided at the time of payment the
corporation is not insolvent or would not be rendered insolvent
thereby, payable quarterly on the first days of March, June,
September and December in each year, at such fixed rate of
dividend with respect to any series of the $100 Par Value
Serial Preferred Stock as may be determined and fixed by the
Board of Directors at the time of original issuance of such
series. Such dividends on the $100 Par Value Serial Preferred
Stock shall be cumulative from the first day of the quarterly
dividend period in which such stock is issued, except that as
to any shares of the $100 Par Value Serial Preferred Stock
originally issued subsequent to June 1, 1974, dividends shall
be cumulative from the date upon which such shares shall have
been originally issued, provided, however, that if the date of
first original issue is within 30 days preceding a regular
quarterly dividend payment date the accumulated dividend
otherwise payable on such regular dividend payment date shall
be payable only at the time of payment of the dividend for the
next quarterly period. Deferral for one calendar quarter of
the payment of the initial dividend under the circumstances
provided for above shall not be deemed to be a default in the
payment of the dividends for any purpose. If thereafter such
fixed dividend for any past quarterly dividend period shall not
have been paid on the $100 Par Value Serial Preferred Stock, or
set apart therefor, and the dividends, at such fixed rate or
rates, for the then current quarterly dividend period, shall
not have been declared and funds set apart therefor, the
deficiency shall be fully paid or funds for the payment thereof
set apart, but without interest, before any dividends shall be
paid or set apart for the Common Stock. The holders of the
$100 Par Value Serial Preferred Stock shall not be entitled to
receive any dividends thereon other than the dividends referred
to in this subdivision (b).
If all prior sinking fund requirements, if any, on any series
of the $100 Par Value Serial Preferred Stock shall not have
been complied with, the deficiency shall be fully paid or funds
for the payment thereof set apart, but without interest, before
any dividends shall be paid or set apart for the Common Stock.
(c) $25 Par Value Serial Preferred Stock
The holders of the $25 Par Value Serial Preferred Stock shall
be entitled to receive cumulative cash dividends thereon, when
and as declared by the Board of Directors, out of the
unreserved and unrestricted earned surplus of the corporation,
or if there is no such earned surplus, out of the net capital
surplus of the corporation, provided at the time of payment the
corporation is not insolvent or would not be rendered insolvent
thereby, payable quarterly on the first days of March, June,
September and December in each year, at such fixed rate of
dividend with respect to any series of the $25 Par Value Serial
Preferred Stock as may be determined and fixed by the Board of
Directors at the time of original issuance of such series.
Such dividends on the $25 Par Value Serial Preferred Stock
shall be cumulative from the date upon which such shares shall
have been originally issued, provided, however, that if the
date of first original issue is within 30 days preceding a
regular quarterly dividend payment date the accumulated
dividend otherwise payable on such regular dividend payment
date shall be payable only at the time of payment of the
dividend for the next quarterly period. Deferral for one
calendar quarter of the payment of the initial dividend under
the circumstances provided for above shall not be deemed to be
a default in the payment of the dividends for any purpose. If
thereafter such fixed dividend for any past quarterly dividend
period shall not have been paid on the $25 Par Value Serial
Preferred Stock, or set apart therefor, and the dividends, at
such fixed rate or rates, for the then current quarterly
dividend period, shall not have been declared and funds set
apart therefor, the deficiency shall be fully paid or funds for
the
B-3
<PAGE> 34
payment thereof set apart, but without interest, before any
dividends shall be paid or set apart for the Common Stock. The
holders of the $25 Par Value Serial Preferred Stock shall not
be entitled to receive any dividends thereon other than the
dividends referred to in this subdivision (c).
If all prior sinking fund requirements, if any, on any series
of $25 Par Value Serial Preferred Stock shall not have been
complied with, the deficiency shall be fully paid or funds for
the payment thereof set apart, but without interest, before any
dividends shall be paid or set apart for the Common Stock.
(d) No Preference of Any Class of the Preferred Stocks Over Any
Other Class Thereof
With respect to dividends, the Preferred Stocks shall rank
ratably, according to their respective dividend rights as
defined in this Article III., without preference of any one
class of the Preferred Stocks over any other class thereof, and
without preference of any series of any such class over any
other series of such class.
(2) Division of $100 Par Value Serial Preferred Stock and $25 Par Value
Serial Preferred Stock into Series
(a) $100 Par Value Serial Preferred Stock
The Board of Directors of such corporation shall have power to
divide from time to time the $100 Par Value Serial Preferred
Stock into series, to provide from time to time for the issue
of the $100 Par Value Serial Preferred Stock in such series,
and to fix and determine the following relative rights and
preferences of the shares of any series so established
hereinafter:
(i) The rate of dividend applicable to shares of such series;
(ii) The price at and the terms and conditions on which shares
of such series may be redeemed;
(iii) The amount payable upon shares of such series in event of
voluntary or involuntary liquidation of the corporation;
(iv) Sinking fund provisions for the redemption or purchase of
shares of such series;
(v) The terms and conditions on which shares may be converted,
if the shares of such series are issued with the privilege
of conversion.
(b) $25 Par Value Serial Preferred Stock
The Board of Directors of such corporation shall have power to
divide from time to time the $25 Par Value Serial Preferred Stock
into series, to provide from time to time for the issue of the $25
Par Value Serial Preferred Stock in such series, and to fix and
determine the following relative rights and preferences of the
shares of any series so established hereinafter:
(i) The rate of dividend applicable to shares of such series;
(ii) The price at and the terms and conditions on which shares of
such series may be redeemed;
(iii) The amount payable upon shares of such series in event of
voluntary or involuntary liquidation of the corporation;
B-4
<PAGE> 35
(iv) Sinking fund provisions for the redemption or purchase of
shares of such series;
(v) The terms and conditions on which shares may be converted, if
the shares of such series are issued with the privilege of
conversion.
(3) Liquidation, Dissolution or Winding Up
In the event of any liquidation or winding up of the corporation,
whether voluntary or involuntary, the assets and funds of the
corporation shall be distributed subject to the following
conditions:
(a) Out of the corporate assets, the holders of the Preferred
Stocks shall be entitled to be paid the full liquidation value
thereof, before any of such assets shall be paid or distributed
to the holders of the Common Stock. After the making of such
payments to the holders of the Preferred Stocks, the remainder
of such corporate assets shall be divided and paid to the
holders of the Common Stock according to their respective
shares. In the event that such assets are not sufficient to
provide for the payment in full of the liquidation value of the
Preferred Stocks, as aforesaid, such assets shall be divided
among and paid ratably to such holders of the Preferred Stocks,
according to their respective shares. "Liquidation value" with
respect to each share of 6% Preferred Stock shall mean the par
value thereof, namely One Hundred Dollars ($100) per share.
"Liquidation value" with respect to each share of $100 Par
Value Serial Preferred Stock, 3.60% Series,[8.90% Series, and
7.75% Series,] shall be the [respective values] VALUE (see
footnote (3)) indicated in Section D. of this Article III. and
with respect to each share of any other series of $100 Par
Value Serial Preferred Stock or of any series of $25 Par Value
Serial Preferred Stock shall mean in the event of a voluntary
liquidation or winding up of the corporation the amount fixed
by the Board of Directors for the particular series to be
payable upon such shares in the event of voluntary liquidation
and in the event of an involuntary liquidation of the
corporation the amount so fixed in the event of an involuntary
liquidation.
(b) Out of the unreserved and unrestricted earned surplus of the
corporation, or if there is no such earned surplus, out of the
net capital surplus of the corporation, provided at the time of
payment the corporation is not insolvent or would not be
rendered insolvent thereby, the holders of the Preferred Stocks
shall be entitled to be paid the amount of all unpaid
accumulated or accrued dividends thereon, before any of such
surplus or net capital surplus shall be paid or distributed to
the holders of the Common Stock. After the making of such
payments to the holders of the Preferred Stocks, the remainder
of such surplus or net capital surplus shall be divided among
and paid to the holders of the Common Stock according to their
respective shares. In the event that such surplus or net
capital surplus is not sufficient to provide for the payment in
full to the holders of the Preferred Stocks of the amounts
above provided for in this subdivision (b) of paragraph (3),
such surplus or net capital surplus shall be divided among and
paid ratably to such holders of the Preferred Stocks in
accordance with their respective interests as in this
subdivision (b) defined.
(c) All of the payments to the holders of the Preferred Stocks in
this paragraph (3) provided for, shall be made ratably to such
holders in accordance with their respective interests as in
this paragraph (3) defined, without preference of any one class
of the Preferred Stocks over any other class thereof, and
without preference of any series of any such class over any
other series of such class.
- --------------------
(3) These changes reflect the removal of certain obsolete series of the $100
Par Value Serial Preferred Stock.
B-5
<PAGE> 36
(4) Preemptive Rights
No holder of any of the Preferred Stocks shall be entitled as
such, as a matter of right, to subscribe for or purchase or
receive any part of any new or additional issue of stock, or
securities convertible into stock, of any class whatever,
whether now or hereafter authorized and whether issued for
cash, property or services, by way of dividend, or in exchange
for the stock of another corporation.
(5) Redemption Procedure
The corporation may redeem the whole or any part of the $100
Par Value Serial Preferred Stock or of the $25 Par Value Serial
Preferred Stock, or both, at any time outstanding, or the whole
or any part of any series thereof, from time to time upon the
conditions fixed by the Board of Directors for the particular
series by paying in cash the redemption price or prices so
fixed for such series by the Board of Directors, which may
consist of a redemption price or scale of redemption prices
applicable only to redemption for a sinking fund (which term as
used herein shall include any fund or requirement for the
periodic purchase, redemption or retirement of shares) and a
different redemption price or scale of redemption prices
applicable to any other redemption, together with a sum in the
case of each share of each series so to be redeemed, computed
at the annual dividend rate for the series of which the
particular share is a part from the date from which dividends
on such share became cumulative to the date fixed for such
redemption, less the aggregate of the dividends theretofore or
on such redemption date paid thereon. Notice of every such
redemption shall be given by publication at least once in each
of two calendar weeks in a daily newspaper printed in the
English language and published and of general circulation in
the City of Milwaukee, Wisconsin, the first publication to be
at least thirty days and not more than sixty days prior to the
date fixed for such redemption. At least thirty days' and not
more than sixty days' previous notice of every such redemption
shall also be mailed to the holders of record of the shares so
to be redeemed, at their respective addresses as the same shall
appear on the books of the corporation; but no failure to mail
such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for the redemption
of any such shares so to be redeemed. In case of the
redemption of a part only of any such series at the time
outstanding, the corporation shall select by lot or in such
other manner as the Board of Directors may determine, the
shares so to be redeemed. The Board of Directors shall have
full power and authority, subject to the limitations and
provisions herein contained, to prescribe the manner in which
and the terms and conditions upon which the $100 Par Value
Serial Preferred Stock and the $25 Par Value Serial Preferred
Stock shall be redeemed from time to time. If such notice of
redemption shall have been duly given by publication, and if on
or before the redemption date specified in such notice all
funds necessary for such redemption shall have been set aside
by the corporation, separate and apart from its other funds, in
trust for the account of the holders of the shares to be
redeemed, so as to be and continue to be available therefor,
then notwithstanding that any certificate for any such shares
so called for redemption shall not have been surrendered for
cancellation, the shares represented thereby shall no longer be
deemed outstanding, the right to receive dividends thereon
shall cease to accrue from and after the date of redemption so
fixed, and all rights with respect to such shares so called for
redemption shall forthwith on such redemption date cease and
terminate, except only the right of the holders thereof to
receive the amount payable upon redemption thereof, but without
interest; provided, however, that the corporation may, after
giving notice by publication of any such redemption as
hereinbefore provided or after giving to the bank or trust
company referred to below irrevocable authorization to give or
complete such notice by publication, and prior to the
redemption date specified in such notice, deposit in trust, for
the account of the holders of the shares to be redeemed, funds
necessary for such redemption with a bank or trust company in
good standing, organized under the laws of the United States of
America or of the State of Wisconsin, doing business in the
City of Milwaukee, having capital, surplus and undivided
profits aggregating at least $1,500,000, designated in such
notice of redemption, and thereupon all shares with respect to
which such deposit shall have been made shall no longer
be deemed to be outstanding, and all rights with respect to
such shares shall forthwith upon such deposit in trust cease
and terminate, except only the right of the holders
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<PAGE> 37
thereof to receive the amount payable upon the redemption
thereof, but without interest. Shares of the $100 Par Value
Serial Preferred Stock and shares of the $25 Par Value Serial
Preferred Stock (a) purchased or redeemed pursuant to any
obligation of the corporation to purchase or redeem shares for
a sinking fund, (b) redeemed pursuant to the provisions hereof
or purchased and for which credit shall have been taken against
any sinking fund obligation, and (c) surrendered pursuant to
any conversion right, shall not be reissued or otherwise
disposed of and shall be cancelled. Any other shares of such
classes redeemed or otherwise acquired by the corporation shall
continue to be part of the authorized capital stock of the
corporation and may thereafter, in the discretion of the Board
of Directors and to the extent permitted by law, be sold or
reissued from time to time, as part of the same or another
series of the same class subject to the terms and conditions
herein set forth.
(6) Voting Rights
(a) Ordinary Voting Rights
Each outstanding share of the 6% Preferred Stock and each
outstanding share of the $100 Par Value Serial Preferred
Stock shall be entitled to one vote, and each outstanding
share of the $25 Par Value Serial Preferred Stock shall be
entitled to one-quarter of a vote, on each matter
submitted to a vote at a meeting of stockholders except as
otherwise provided in these Articles. The references in
subdivision (b) of this paragraph (6), in paragraphs
(7)[,] AND (8) [and (9)] (see footnote (4)) of this
Section C. and in Article VI. to two-thirds, a majority or
one-third of specified shares shall mean two-thirds, a
majority or one-third, as the case may be, of the votes
entitled to be cast at a meeting by such specified shares,
based on one vote for each share of the 6% Preferred
Stock, one vote for each share of the $100 Par Value
Serial Preferred Stock, one-quarter vote for each share
of the $25 Par Value Serial Preferred Stock and one vote
for each share of Common Stock.
(b) Voting Rights in Event of Dividend Defaults
If and when dividends payable on any of the Preferred
Stocks of any class or series at the time outstanding are
in default in an amount equivalent to four full quarterly
dividends thereon, and until such default shall have been
remedied as hereinafter provided, the holders of the
Preferred Stocks, voting together as a class and without
regard to series, shall be entitled to elect the smallest
number of directors necessary to constitute a majority of
the full Board of Directors, and the Common stockholders,
voting separately as a class, shall be entitled to elect
the remaining directors of the corporation. Upon accrual
of such special right of the Preferred Stocks, a meeting
of the holders of the Preferred Stocks and the holders of
the Common Stock for the election of directors shall be
held upon notice promptly given as provided in the Bylaws
for a special meeting by the President or the Secretary of
the corporation. If within fifteen days after the accrual
of such special right of the Preferred Stocks the
President and the Secretary of the corporation shall fail
to call such meeting, then such meeting shall be held upon
notice, as provided in the Bylaws for a special meeting,
given by the holders of not less than 1,000 shares of the
Preferred Stocks, after filing with the corporation of
notice of their intention to do so. The terms of office
of all persons who may be directors of the corporation at
the time shall terminate upon the election of a majority
of the Board of Directors by the holders of the Preferred
Stocks, whether or not the Common stockholders shall at
the time of such termination have elected the remaining
directors of the corporation; thereafter during the
continuance of such special right of the Preferred Stocks
to elect a majority of the Board of Directors, the holders
of the Preferred Stocks, voting together as a class, shall
be entitled to elect a majority of the Board of Directors
and the holders
- --------------------
(4) These changes reflect the removal of the special voting rights of the
Preferred Stocks in connection with WE's issuance of certain unsecured
indebtedness or consummation of certain mergers or consolidations.
B-7
<PAGE> 38
of the Common Stock, voting separately as a class, shall
be entitled to elect the remaining directors of the
corporation; and all directors so elected, whether at such
special meeting or any adjournment thereof, or at any
subsequent annual meeting for the election of directors,
held during the continuance of such special right, shall
hold office until the next succeeding annual election and
until their respective successors, elected by the holders
of the Preferred Stocks, voting as a class, and the Common
stockholders, voting as a class, are elected and
qualified, unless their terms of office shall be sooner
terminated as hereinafter provided. However, if and when
all dividends then in default on the Preferred Stocks
shall thereafter be paid (and such dividends shall be
declared and paid out of any funds legally available
therefor as soon as reasonably practicable), the Preferred
Stocks shall thereupon be divested of such special right
herein provided for to elect a majority of the Board of
Directors, but subject always to the same provisions for
the vesting of such special right in such stock in the
case of any similar future default or defaults, and the
election of directors by the holders of the Preferred
Stocks and of the Common Stock, voting without regard to
class, shall take place at the next succeeding
annual meeting for the election of directors, or at any
adjournment thereof. The terms of office of all persons
who may be directors of the corporation at the time of
such divestment shall terminate upon the election of the
directors at such annual meeting or adjournment thereof.
At the first meeting for the election of directors after
any accrual of the special right of the holders of the
Preferred Stocks to elect a majority of the Board of
Directors as provided above, and at any subsequent annual
meeting for the election of directors held during the
continuance of such special rights, the presence in person
or by proxy of the holders of record of a majority
(defined as provided in subdivision (a) of paragraph (6)
of this Section C.) of the outstanding shares of Preferred
Stocks, without regard to class or series, shall be
necessary to constitute a quorum for the election of the
directors whom the holders of the Preferred Stocks are
entitled to elect, and the presence in person or by proxy
of the holders of record of a majority of the outstanding
shares of Common Stock shall be necessary to constitute a
quorum for the election of the directors whom the Common
stockholders are entitled to elect. If at any such
meeting there shall not be such a quorum of the holders
of the Preferred Stocks, the meeting shall be adjourned
from time to time without notice other than announcement
at the meeting until such quorum shall have been obtained;
provided that, if such quorum shall not have been obtained
within ninety days from the date of such meeting as
originally called (or, in the case of any annual meeting
held during the continuance of such special right, from
the date fixed for such annual meeting), the presence in
person or by proxy of the holders of record of one-third
(defined as provided in subdivision (a) of paragraph (6)
of this Section C.) of the outstanding shares of the
Preferred Stocks, without regard to class or series, shall
then be sufficient to constitute a quorum for the election
of the directors whom such stockholders are then entitled
to elect. The absence of a quorum of the holders of the
Preferred Stocks as a class or of the Common stockholders
as a class shall not, except as hereinafter provided for,
prevent or invalidate the election by the other class of
stockholders of the directors whom they are entitled to
elect, if the necessary quorum of stockholders of such
other class is present in person or represented by proxy
at any such meeting or any adjournment thereof. However,
at the first meeting for the election of directors after
any accrual of the special right of the holders of the
Preferred Stocks to elect a majority of the Board of
Directors, the absence of a quorum of the holders
of the Preferred Stocks shall prevent the election of
directors by the Common stockholders, until a quorum of
the holders of the Preferred Stocks shall be obtained.
B-8
<PAGE> 39
[(7) Special Voting Rights on Incurring Certain Unsecured
Indebtedness and on Merger or Consolidation
So long as any of the Preferred Stocks are outstanding, the
corporation shall not, without the consent (given by a vote at
a meeting duly called for the purpose in accordance with the
provisions of the Bylaws) of the holders of a majority (defined
as provided in subdivision (a) of paragraph (6) of this Section
C.) of the total number of shares of such stock, without regard
to class or series, present or represented by proxy at such
meeting, at which meeting a quorum as hereinafter provided
shall be present or represented by proxy:
(a) Unsecured Indebtedness
issue any unsecured notes, debentures or other securities
representing unsecured indebtedness, or assume any such
unsecured securities, for purposes other than the
refunding of outstanding unsecured securities theretofore
issued or assumed by the corporation or the redemption or
other retirement of outstanding shares of one or more
series of the $100 Par Value Serial Preferred Stock or the
$25 Par Value Serial Preferred Stock if, immediately after
such issue or assumption, the total principal amount of
all unsecured notes, debentures or other securities
representing unsecured indebtedness issued or assumed by
the corporation and then outstanding (including unsecured
securities then to be issued or assumed) would exceed
twenty-five per cent. of the aggregate of (i) the total
principal amount of all bonds or other securities
representing secured indebtedness issued or assumed by the
corporation and then to be outstanding, and (ii) the
capital and surplus of the corporation as then to
be stated on the books of account of the corporation; or
(b) Merger or Consolidation
merge or consolidate with or into any other corporation or
corporations, unless such merger or consolidation, or the
issuance and assumption of all securities to be issued or
assumed in connection with any such merger or
consolidation, shall have been ordered, approved or
permitted by the Securities and Exchange Commission under
the provisions of the Public Utility Holding Company Act
of 1935 or by any successor commission or regulatory
authority of the United States of America having
jurisdiction in the premises; provided that the provisions
of this subdivision (b) shall not apply to a purchase or
other acquisition by the corporation of the franchises or
assets of another corporation, or otherwise apply in any
manner which does not involve a merger or consolidation.
For the purpose of this paragraph (7), the presence in
person or by proxy of the holders of record of a majority
(defined as provided in subdivision (a) of paragraph (6)
of this Section C.) of the outstanding shares of the
Preferred Stocks, without regard to class or series, shall
be necessary to constitute a quorum; provided, that if
such quorum shall not have been obtained at such meeting
or at any adjournment thereof within thirty days from the
date of such meeting as originally called, the presence in
person or by proxy of the holders of record of one-third
(defined as provided in subdivision (a) of paragraph (6)
of this Section C.) of the outstanding shares of such
stock, without regard to class or series, shall then be
sufficient to constitute a quorum; and provided further
that in the absence of a quorum, such meeting or any
adjournment thereof may be adjourned from time to time by
the officer or officers of the corporation who shall have
called the meeting (but at intervals of not less than
seven days unless all stockholders present or represented
by proxy shall agree to a shorter interval) without notice
other than announcement at the meeting until a quorum as
above provided shall be obtained.] (see footnote (4))
B-9
<PAGE> 40
[(8)](7) (see footnote (4)) Voting Rights on Certain Changes in
Authorized Shares
(a) Increase in Authorized Amount of Any of the Preferred
Stocks
So long as any of the Preferred Stocks are outstanding,
the corporation shall not, without the consent (given by
vote at a meeting duly called for the purpose in
accordance with the provisions of the Bylaws) of the
holders of a majority (defined as provided in subdivision
(a) of paragraph (6) of this Section C.) of the total
number of shares of such stock then outstanding, without
regard to class or series, present or represented by proxy
at such meeting, increase the total authorized amount of
any class of the Preferred Stocks (other than as
authorized by this Article III.) or authorize any
other preferred stock ranking on a parity with the
Preferred Stocks as to assets or dividends (other than
through the reclassification of then authorized but
unissued shares of any class of the Preferred Stocks into
shares of any other class thereof).
(b) Authorization of Class of Stock Ranking Ahead of Preferred
Stocks and Amendments to Articles Prejudicial to Rights of
Preferred Stocks
So long as any of the Preferred Stocks are outstanding,
the corporation shall not (i) without the consent (given
by vote at a meeting duly called for the purpose in
accordance with the provisions of the Bylaws) of the
holders of at least two-thirds (defined as provided in
subdivision (a) of paragraph (6) of this Section C.) of
the total number of shares of the 6% Preferred Stock, of
the holders of at least two-thirds (as so defined) of the
total number of shares of the $100 Par Value Serial
Preferred Stock and of the holders of at least two-thirds
(as so defined) of the total number of shares of the $25
Par Value Serial Preferred Stock, without regard to
series, then outstanding, present or represented by proxy
at such meeting, authorize any class of stock which shall
be preferred as to assets or dividends over the Preferred
Stocks; or (ii) without the consent of the holders of at
least two-thirds (as so defined) of the total number of
shares of the 6% Preferred Stock then outstanding, given
as above provided in this subdivision (b), amend the
Articles of Incorporation to change the express terms and
provisions of the 6% Preferred Stock in any manner
substantially prejudicial to the holders thereof, or
without the consent of at least two-thirds (as so defined)
of the total number of shares of the $100 Par Value Serial
Preferred Stock then outstanding, given in like manner,
amend the Articles of Incorporation to change the express
terms and provisions of the $100 Par Value Serial
Preferred Stock in any manner substantially prejudicial to
the holders thereof, or without the consent of at least
two-thirds (as so defined) of the total number of shares
of the $25 Par Value Serial Preferred Stock then
outstanding, given in like manner, amend the Articles
of Incorporation to change the express terms and
provisions of the $25 Par Value Serial Preferred Stock in
any manner substantially prejudicial to the holders
thereof. Whenever any amendment referred to in the
foregoing clause (ii) affects the holders of shares of one
or more but not all the series of any class of the
Preferred Stocks at the time outstanding, such amendment
shall not be made without the consent of the holders of at
least two-thirds (as so defined) of the total number of
the then outstanding shares of such affected series (given
by vote at a meeting duly called for the purpose in
accordance with the provisions of the Bylaws).
[(9)](8) (see footnote (4))Special Voting Rights on Issuance of the $100
Par Value Serial Preferred Stock or the $25 Par Value Serial
Preferred Stock
So long as any shares of the $100 Par Value Serial Preferred
Stock or the $25 Par Value Serial Preferred Stock are
outstanding, the consent of the holders of at least two-thirds
(defined as provided in sub division (a) of paragraph (6) of
this Section C.) of the total number of shares of Preferred
Stocks at the time outstanding voting together as a class and
without regard to series, given in person or by proxy, either in
writing or by vote at any meeting called for the purpose, shall
be necessary for effecting or validating the issue of any shares
of the $100 Par Value Serial
B-10
<PAGE> 41
Preferred Stock or the $25 Par Value Serial Preferred Stock or any
shares of stock, or of any security convertible into stock, of any
class ranking on a parity with either of such classes, unless
(a) the net income of the corporation (determined as hereinafter
provided) for any twelve consecutive calendar months within the
fifteen calendar months immediately preceding the month within
which the issuance of such additional shares is authorized by
the Board of Directors of the corporation shall have been in
the aggregate not less than one and one-half times the sum of
the interest requirements for one year on all of the
indebtedness of the corporation to be outstanding at the date
of such proposed issue and the full dividend requirements for
one year on all shares of the Preferred Stocks and all other
stock, if any, ranking prior to or on a parity with the $100
Par Value Serial Preferred Stock or the $25 Par Value Serial
Preferred Stock, to be outstanding at the date of such proposed
issue, including the shares then proposed to be issued but
excluding any such indebtedness and any such shares proposed to
be retired in connection with such proposed issue. "Net
income" for any period for the purpose of this paragraph
[(9)](8) (see footnote (4)) shall be computed by adding to the
net earnings of the corporation for said period, determined in
accordance with generally accepted accounting practices, as
adjusted by action of the Board of Directors of the corporation
as hereafter provided, the amount deducted for interest. In
determining such net income for any period, there shall be
deducted, in addition to other items of expense, the amount
charged to income for said period on the books of the
corporation for taxes and the provisions for depreciation
and depletion as recorded on such books or the minimum amount
required therefor under the provisions of any then existing
general indenture or mortgage or deed of trust of the
corporation, whichever is larger. In the determination of such
net income, the Board of Directors of the corporation may, in
the exercise of due discretion, make adjustments by way of
increase or decrease in such net income to give effect to
changes therein resulting from any acquisition of properties or
to any redemption, acquisition, purchase, sale or exchange of
securities by the corporation either prior to the issuance of
any shares of the Preferred Stocks or stock, or securities
convertible into stock, ranking on a parity therewith then to
be issued or in connection therewith; and
(b) the aggregate of the capital of the corporation applicable to
all stock of any class ranking junior to the Preferred Stocks,
plus the surplus of the corporation, shall be not less than the
aggregate amount payable upon involuntary liquidation,
dissolution or winding up of the affairs of the corporation to
the holders of all shares of the Preferred Stocks and of any
shares of stock of any class ranking on a parity therewith to
be outstanding immediately after such proposed issue, excluding
from such computation all indebtedness and stock to be retired
through such proposed issue.
No portion of the surplus of the corporation utilized to satisfy the
foregoing requirements shall be available for dividends (other than
dividends payable in stock of any class ranking junior to the
Preferred Stocks) or other distributions upon or in respect of
shares of stock of the corporation of any class ranking junior to
the Preferred Stocks or for the purchase of shares of such junior
stock until such number of additional shares of the $100 Par Value
Serial Preferred Stock or the $25 Par Value Serial Preferred Stock,
or of stock, or securities convertible into stock, ranking on a
parity with either of such classes, are retired or until and to the
extent that the capital applicable to such junior stock shall have
been increased.
D. Variable Terms of the Respective Series of the $100 Par Value Serial
Preferred Stock and the $25 Par Value Serial Preferred Stock
(1) Terms of 3.60% Series
The number of authorized shares of the $100 Par Value Serial
Preferred Stock, 3.60% Series, is Two Hundred Sixty Thousand
(260,000) shares. The cumulative cash dividend, accruing from
June 1, 1946, is at the rate of $3.60 per annum per share, payable
quarterly on the first days of
B-11
<PAGE> 42
March, June, September and December in each year. The shares of the
$100 Par Value Serial Preferred Stock, 3.60% Series, shall be
redeemable at One Hundred Four Dollars ($104) per share through
July 1, 1951, at One Hundred Three Dollars ($103) per share
thereafter and through July 1, 1956, at One Hundred Two Dollars
($102) per share thereafter through July 1, 1961 and thereafter at
One Hundred One Dollars ($101) per share plus, in each case, an
amount equal to accrued and unpaid dividends to the redemption date.
In the event of any voluntary liquidation, dissolution or winding
up, or involuntary liquidation of the corporation, the amount
payable upon shares of the $100 Par Value Serial Preferred Stock,
3.60% Series, shall be the par amount thereof, namely, One Hundred
Dollars ($100) per share.
[(2) Terms of 8.90% Series
The number of authorized shares of the $100 Par Value Serial
Preferred Stock, 8.90% Series, is Three Hundred Thirty-three
Thousand Three Hundred Twenty-five (333,325) shares. The cumulative
cash dividend, accruing from December 1, 1970, is at the rate of
$8.90 per annum per share, payable quarterly on the first days of
March, June, September and December in each year. The shares of the
$100 Par Value Serial Preferred Stock, 8.90% Series, shall be
redeemable, in whole or in part, at One Hundred Ten Dollars ($110)
per share through November 30, 1975, at One Hundred Seven Dollars
($107) per share thereafter and through November 30, 1980, at One
Hundred Four Dollars ($104) per share thereafter and through
November 30, 1985, and at One Hundred One Dollars ($101) per share
thereafter, plus, in each case, an amount equal to accrued and
unpaid dividends to the redemption date; provided, however, that
prior to December 1, 1975, no shares of the $100 Par Value Serial
Preferred Stock, 8.90% Series, may be redeemed, directly or
indirectly, from the proceeds of, or in anticipation of, the
issuance of any security ranking prior to or on a parity therewith
having an interest or dividend cost to the corporation of less than
9.01% per annum.
In the event of any voluntary liquidation, dissolution or winding up
of the corporation, the amount payable upon shares of the $100 Par
Value Serial Preferred Stock, 8.90% Series, shall be One Hundred Ten
Dollars ($110) per share if paid on or before November 30, 1975, One
Hundred Seven Dollars ($107) per share if paid thereafter and
through November 30, 1980, One Hundred Four Dollars ($104) per share
if paid thereafter and through November 30, 1985, and One Hundred
One Dollars ($101) per share thereafter, plus, in each case, an
amount equal to accrued and unpaid dividends to the date of
voluntary liquidation.
In the event of any involuntary liquidation of the corporation, the
amount payable upon shares of the $100 Par Value Serial Preferred
Stock, 8.90% Series, shall be the par amount thereof, namely, One
Hundred Dollars ($100) per share, plus an amount equal to accrued
and unpaid dividends to the date of involuntary liquidation.
(3) Terms of 7.75% Series
The number of authorized shares of the $100 Par Value Serial
Preferred Stock, 7.75% Series, is Two Hundred Twenty-five Thousand
Eight Hundred Ten (225,810) shares. The cumulative cash dividend,
accruing from September 1, 1971, is at the rate of $7.75 per annum
per share, payable quarterly on the first days of March, June,
September and December in each year. The shares of the $100 Par
Value Serial Preferred Stock, 7.75% Series, shall be redeemable, in
whole or in part at One Hundred Ten Dollars ($110) per share through
October 31, 1976, at One Hundred Seven Dollars ($107) per share
thereafter and through October 31, 1981, at One Hundred Four Dollars
($104) per share thereafter and through October 31, 1986, and at One
Hundred One Dollars ($101) per share thereafter, plus, in each case,
an amount equal to accrued and unpaid dividends to the redemption
date; provided, however, that prior to November 1, 1976, no shares
of the $100 Par Value Serial Preferred Stock, 7.75% Series, may be
redeemed directly or indirectly, from the proceeds of, or in
anticipation of, the issuance of any security ranking prior to or on
a parity therewith having an interest or dividend cost to the
corporation of less than 7.85% per annum.
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<PAGE> 43
In the event of any voluntary liquidation, dissolution or winding up
of the corporation, the amount payable upon shares of the $100 Par
Value Serial Preferred Stock, 7.75% Series, shall be One Hundred Ten
Dollars ($110) per share if paid on or before October 31, 1976, One
Hundred Seven Dollars ($107) per share if paid thereafter and
through October 31, 1981, One Hundred Four Dollars ($104) per share
if paid thereafter and through October 31, 1986, and One Hundred One
Dollars ($101) per share if paid thereafter, plus, in each case, an
amount equal to accrued and unpaid dividends to the date of
voluntary liquidation.
In the event of any involuntary liquidation of the corporation, the
amount payable upon shares of the $100 Par Value Serial Preferred
Stock, 7.75% Series, shall be the par amount thereof, namely, One
Hundred Dollars ($100) per share, plus an amount equal to accrued
and unpaid dividends to the date of involuntary liquidation.
(4) Terms of 8.80% Series
The number of authorized shares of the $100 Par Value Serial
Preferred Stock, 8.80% Series, is Two Hundred Ninety Thousand Eight
Hundred Sixty-five (290,865) shares.
Shares of the $100 Par Value Serial Preferred Stock, 8.80% Series,
shall bear cumulative cash dividends, accruing from the date on
which such shares are originally issued, at the rate of $8.80 per
annum per share, payable quarterly on the first days of March, June,
September and December.
The shares of the $100 Par Value Serial Preferred Stock, 8.80%
Series, shall be redeemable, in whole or in part at One Hundred
Eight Dollars and Eighty Cents ($108.80) per share through
December 31, 1983, at One Hundred Five Dollars and Eighty-seven
Cents ($105.87) per share thereafter and through December 31, 1988,
at One Hundred Two Dollars and Ninety-four Cents ($102.94) per share
thereafter and through December 31, 1993, and at One Hundred One
Dollars and No Cents ($101.00) per share thereafter, plus, in each
case, an amount equal to accrued and unpaid dividends to the
redemption date; provided, however, that prior to January 1, 1984,
no shares of the $100 Par Value Serial Preferred Stock, 8.80%
Series, may be redeemed directly or indirectly, from the proceeds
of, or in anticipation of, the issuance of any security ranking
prior to or on a parity therewith having an interest or dividend
cost to the corporation of less than 8.89% per annum.
In the event of any voluntary liquidation, dissolution or winding up
of the corporation, the amount payable upon shares of the $100 Par
Value Serial Preferred Stock, 8.80% Series, shall be One Hundred
Eight Dollars and Eighty Cents ($108.80) per share if paid on or
before December 31, 1983, One Hundred Five Dollars and Eighty-seven
Cents ($105.87) per share if paid thereafter and through
December 31, 1988, One Hundred Two Dollars and Ninety-four Cents
($102.94) per share if paid thereafter and through December 31, 1993
and One Hundred One Dollars and No Cents ($101.00) per share if paid
thereafter, plus, in each case, an amount equal to accrued and
unpaid dividends to the date of voluntary liquidation.
In the event of any involuntary liquidation of the corporation, the
amount payable upon shares of the $100 Par Value Serial Preferred
Stock, 8.80% Series, shall be the par amount thereof, namely, One
Hundred Dollars ($100) per share, plus an amount equal to accrued
and unpaid dividends to the date of involuntary liquidation.
(5) Terms of 6.75% Series
The number of authorized shares of the $100 Par Value Serial
Preferred Stock, 6.75% Series, is Seven Hundred Thousand (700,000)
shares.
The shares of the $100 Par Value Serial Preferred Stock, 6.75%
Series, shall bear cumulative cash dividends, accruing from the date
on which such shares are originally issued, at the rate of $6.75
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per annum per share, payable quarterly on the first days of March,
June, September and December in each year, beginning June 1, 1987.
The shares of the $100 Par Value Serial Preferred Stock, 6.75%
Series, shall be redeemable at the option of the corporation (other
than under the sinking fund referred to below), in whole or in part
at any time or from time to time, at the redemption price of $106.75
per share if redeemed prior to June 1, 1992, and at the following
redemption prices if redeemed during any of the twelve-month periods
indicated in the tabulation below:
If redeemed during the Redemption
twelve-month period ending Price
May 31 Per Share
-------------------------- ----------
1993 $104.50
1994 104.05
1995 103.60
1996 103.15
1997 102.70
1998 102.25
1999 101.80
2000 101.35
2001 100.90
2002 100.45
and at the redemption price of $100.00 per share if redeemed on or
after June 1, 2002, plus in each case an amount equal to accrued and
unpaid dividends to the redemption date; provided, however, that
prior to June 1, 1992, no shares of the $100 Par Value Serial
Preferred Stock, 6.75% Series, may be redeemed as part of a
refunding or anticipated refunding operation by the application of
borrowed funds or the proceeds of issue of any stock ranking prior
to or on a parity with the $100 Par Value Serial Preferred Stock,
6.75% Series, if such borrowed funds have an interest cost to the
corporation or if such stock has a dividend cost to the corporation
of less than 6.75% per annum, in each case calculated by the
corporation in accordance with generally accepted financial
practice.
As a sinking fund for the retirement of the $100 Par Value Serial
Preferred Stock, 6.75% Series, the corporation shall, so long as any
shares of such series are outstanding, redeem on June 1, 1993 and
each June 1 thereafter a minimum of 21,000 shares of the $100 Par
Value Serial Preferred Stock, 6.75% Series, or any lesser balance
then outstanding, in each case at the redemption price of $100 per
share, plus accrued and unpaid dividends to the redemption date;
provided, however, that any such redemption shall be made only to
the extent that at the time of such redemption (a) the corporation
is not and would not thereby be rendered insolvent and the net
assets of the corporation remaining after such redemption would be
not less than the aggregate preferential amount payable in the event
of voluntary liquidation to the holders of shares having
preferential rights to the assets of the corporation in the event of
liquidation and (b) such redemption is not prohibited by any
agreement restricting redemption in the event of dividend or sinking
fund deficiencies in respect of any shares of the corporation
ranking on a parity with the $100 Par Value Serial Preferred Stock,
6.75% Series, as to dividends or upon liquidation. To the extent any
such redemption is prevented by reason of any of the conditions set
forth in the proviso at the end of the preceding sentence, such
redemption shall be made as promptly as practicable when such
conditions are met.
The sinking fund requirement on any date may, however, be satisfied
in whole or in part by crediting against the number of shares
otherwise required to be redeemed under the sinking fund on that
date shares of the $100 Par Value Serial Preferred Stock, 6.75%
Series previously purchased, redeemed or otherwise acquired by the
corporation (other than under the sinking fund
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requirements set forth in the next preceding subparagraph) and not
theretofore credited in satisfaction of any sinking fund requirement
hereunder.
For purposes of the next preceding subparagraph, as well as the
second paragraph of Paragraph (1)(b) of Section C. of Article III.
of the Restated Articles of Incorporation, as amended, which sets
forth the consequences of failure to meet sinking fund requirements
for the $100 Par Value Serial Preferred Stock, 6.75% Series, the
sinking fund requirements for the $100 Par Value Serial Preferred
Stock, 6.75% Series, shall mean the requirements set forth in the
first sentence of the second next preceding subparagraph (after
giving effect to any credits under the first next preceding
paragraph) but without regard to the proviso at the end of such
sentence.
Under the sinking fund, the corporation shall have the option to
redeem on June 1, 1993 and each June 1 thereafter to and including
June 1, 2025 up to 31,500 additional shares of the $100 Par Value
Serial Preferred Stock, 6.75% Series, in each case at the redemption
price of $100 per share, plus accrued and unpaid dividends to the
redemption date. Such option shall be noncumulative, so that failure
to exercise it in any year, in whole or in part, shall not increase
the number of shares that can be redeemed under the sinking fund in
any subsequent year.
In the event of any voluntary liquidation or winding up of the
corporation, the amount payable upon shares of the $100 Par Value
Serial Preferred Stock, 6.75% Series, shall be, if paid prior to
June 1, 1992, $106.75 per share, if paid during any twelve-month
period referred to in the tabulation of redemption prices for
redemption other than under the sinking fund set forth above in this
resolution the amount per share set forth in such tabulation with
respect to such twelve-month period, or if paid on or after June 1,
2002, the par amount thereof, namely $100 per share, plus, in each
case, an amount equal to accrued and unpaid dividends to the date of
voluntary liquidation.
In the event of any involuntary liquidation of the corporation, the
amount payable upon shares of the $100 Par Value Serial Preferred
Stock, 6.75% Series, shall be the par amount thereof, namely $100
per share, plus an amount equal to accrued and unpaid dividends to
the date of involuntary liquidation.] (see footnote (3))
[(6)](2) (see footnote (3)) Terms of New $100 Par Value Serial Preferred
Stock or $25 Par Value Serial Preferred Stock Deemed An Addition to
This Section D.
Upon completion of any filing and recording of a resolution of the
Board of Directors adopted pursuant to Section C. (2), which may be
required in order that the same shall constitute an amendment to
these Articles of Incorporation, the terms of the new series as set
forth therein shall be deemed to become an appropriately numbered
additional paragraph to this Section D., and may be so certified by
any officer of this corporation or by any public official whose duty
it may be to certify copies of these Articles of Incorporation or
amendments thereto.
ARTICLE IV. NUMBER OF DIRECTORS
The Board of Directors shall consist of such number of Directors as shall be
fixed from time to time by or in the manner provided in the Bylaws.
ARTICLE V. EMERGENCY PROVISIONS
The business and affairs of the corporation shall be managed by its Board of
Directors, except as otherwise provided in this Article V. after the
occurrence and during the continuance of any "emergency" as hereinafter
defined. During any such emergency the provisions of this Article V. shall
apply to the maximum extent permitted by the Wisconsin Business Corporation
Law, [and particularly Section 180.30, Wisconsin Statutes of 1971 as in effect
on May 7, 1974 or as the same may have been thereafter or be hereafter
amended] PARTICULARLY
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SECTIONS 180.0207 AND 180.0303 THEREOF, OR ANY SUCCESSOR PROVISIONS, AS AT THE
TIME IN EFFECT. (see footnote(5)) The provisions of this Article V. shall
control during any such emergency, notwithstanding any contrary provisions of
the Articles of Incorporation or Bylaws of the corporation, except that this
Article V. shall not apply upon the accrual or continuance of the special
right of the Preferred Stocks pursuant to Article III. C. (6) (b) and nothing
herein shall in any way limit such special right.
[An] AS USED IN THIS ARTICLE V., AN "emergency" shall mean a [condition
resulting from any cause, including but not limited to acts of war, attack or
insurrection, or disasters caused by accident or the forces of nature, which
either makes it impossible to notify and assemble a quorum of the entire Board
of Directors for a meeting within the minimum notice period specified in the
Bylaws, or which renders two or more of the principal officers of the
corporation unable to perform their duties in such capacities, whether through
death, injury, illness, disappearance or inability to contact them.]
CATASTROPHIC EVENT THAT PREVENTS A QUORUM OF THE BOARD OF DIRECTORS FROM BEING
READILY ASSEMBLED.
During any such emergency which makes it impossible to assemble a quorum of
directors at a duly noticed and constituted meeting, the business and affairs
of the corporation shall be managed by an interim Board of Directors
consisting of so many of the incumbent directors, if any, as are known to be
alive and not incapacitated, and whom the corporation is able to contact by
normal means of communication, together with provisional directors selected as
hereinafter provided. The total number of directors on such interim Board of
Directors shall be the lesser of the number determined in or pursuant to the
Bylaws, or the number of eligible persons who are known to be alive, are not
incapacitated and can be readily contacted by the usual means of communica-
tion. The Board of Directors by resolution may from time to time designate a
list of provisional directors and the order of priority in which such persons
shall become interim directors in the event of emergency, which designation
shall continue in effect until such resolution has been subsequently amended
or rescinded or has by its terms ceased to have effect. Interim directors
need not be stockholders of the corporation. In addition to the exercise, on
a temporary basis, of all of the powers of the regular Board of Directors, the
interim Board of Directors shall have the authority to declare vacancies in
any positions of the regular Board of Directors in cases where any incumbent
director is incapacitated or missing or otherwise unable to be contacted
within a reasonable time, and to fill such vacancies, as well as any vacancy
resulting from the death of a director, by electing replacements to the
regular Board of Directors to serve until the next succeeding annual meeting
of stockholders.
[During any such emergency which renders two or more of the principal officers
of the corporation unable to perform their duties, the functions and duties of
the principal officers may be performed by such interim officers, selected as
hereinafter provided, as are known to be alive and not incapacitated, and whom
the corporation is able to contact by normal means of communication. The Board
of Directors by resolution may from time to time designate one or more
provisional successors to each principal office of the corporation and the
order of priority in which such persons shall succeed to such positions in the
event of emergency, which designation shall continue in effect until such
resolution has been subsequently amended or rescinded or has by its terms
ceased to have effect. Any interim officer shall have, and may exercise, all
of the duties and powers of the office to which he has succeeded on an interim
basis until the Board of Directors has determined by affirmative action that
the officer whom he succeeded is again able to perform his duties, or has
elected a regular successor to such office.]
When an emergency, as herein defined, has occurred, any director[, principal
officer] or provisional director [or officer] named in the aforementioned
[resolutions] RESOLUTION, is empowered on behalf of the corporation to declare
the provisions of this Article V. to be in effect, and to call a meeting of
either the regular or an interim Board of Directors on such notice, which may
be shorter than the notice provided in the Bylaws for special meetings of the
Board of Directors, as such person may determine to be advisable. In the case
of a meeting of the interim Board of Directors, reasonable efforts shall be
made to give such notice to all persons who are or may be eligible to serve as
interim directors. At the first meeting of any interim Board of Directors,
three or more interim directors may act, notwithstanding any other quorum
requirement provided by law, these Articles of Incorporation or the Bylaws of
the corporation, and notwithstanding any failure of other interim directors to
receive notice of the meeting. Prior to any initial meeting of the interim
Board of Directors three or more interim directors, and thereafter a majority
of the interim directors who are deemed to be serving as such, may take action
- --------------------
(5) All of the changes to Article V. reflect conforming the emergency
provisions to the WBCL.
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as the Board of Directors by telephone [poll] MEETING, written instrument or
other means which reasonably evidences the assent to the action of a majority
of such number of interim directors, in lieu of action at a meeting.
ARTICLE VI. AMENDMENTS TO THE ARTICLES
Any lawful amendment of these Articles of Incorporation may be made by the
affirmative vote of the holders of a majority (defined as provided in Article
III.C. (6) (a)) of shares outstanding and, if the shares of any one or more
classes or series shall be entitled under these Articles or otherwise by law
to vote thereon as a class, the affirmative vote of the holders of a majority
(as so defined) of such shares outstanding unless otherwise provided in these
Articles, at any meeting of stockholders at which such action may properly be
taken. The corporation has elected, pursuant to Section [180.25 (2)]
180.1706(1) of the Wisconsin Business Corporation Law, [as in effect on March
25, 1977,] that the majority vote requirements set forth in [that Section]
SECTIONS 180.1103(3), 180.1202(3), 180.1402(3) AND 180.1404(2) OF THE
WISCONSIN BUSINESS CORPORATION LAW shall be applicable to all of the subjects
covered by [the statutory provisions referred to in that Section] THOSE
SECTIONS, subject, however, to the voting requirements specifically set forth
in Article III. hereof. (see footnote (6))
ARTICLE VII. EFFECT OF HEADINGS
The descriptive headings in these Articles were formulated, used and inserted
herein for convenience only and shall not be deemed to affect the meaning or
construction of any of the provisions hereof.
ARTICLE VIII. REGISTERED OFFICE AND AGENT
[At the time of adoption of these Articles, the] THE address of the registered
office of the corporation is 231 West Michigan Street, Milwaukee, Wisconsin
53201 and the name of its registered agent at such address is [H. L. Warhanek]
ANN MARIE BRADY. (see footnote(7))
- --------------------
(6) All of the changes to Article VI. reflect conforming the statutory
references to the appropriate sections of the WBCL, thereby clarifying
the applicability of the majority vote requirement to a statutory share
exchange.
(7) All of the changes to Article VIII. are anticipated to be made by the WE
Board without stockholder action to reflect the appointment of a new
registered agent.
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APPENDIX C
SUBCHAPTER XIII OF
THE WISCONSIN BUSINESS CORPORATION LAW
DISSENTERS' RIGHTS
180.1301 DEFINITIONS. In ss. 180.1301 to 180.1331:
(1) "Beneficial shareholder" means a person who is a beneficial owner
of shares held by a nominee as the shareholder.
(1m) "Business combination" has the meaning given in s. 180.1130(3).
(2) "Corporation" means the issuer corporation or, if the corporate
action giving rise to dissenters' rights under s. 180.1302 is a merger or
share exchange that has been effectuated, the surviving domestic corporation
or foreign corporation of the merger or the acquiring domestic corporation or
foreign corporation of the share exchange.
(3) "Dissenter" means a shareholder or beneficial shareholder who is
entitled to dissent from corporate action under s. 180.1302 and who exercises
that right when and in the manner required by ss. 180.1320 to 180.1328.
(4) "Fair value", with respect to a dissenter's shares other than in
a business combination, means the value of the shares immediately before the
effectuation of the corporate action to which the dissenter objects, excluding
any appreciation or depreciation in anticipation of the corporate action
unless exclusion would be inequitable. "Fair value", with respect to a
dissenter's shares in a business combination, means market value, as defined
in s. 180.1130(9)(a) 1 to 4.
(5) "Interest" means interest from the effectuation date of the
corporate action until the date of payment, at the average rate currently paid
by the corporation on its principal bank loans or, if none, at a rate that is
fair and equitable under all of the circumstances.
(6) "Issuer corporation" means a domestic corporation that is the
issuer of the shares held by a dissenter before the corporate action.
180.1302 RIGHT TO DISSENT. (1) Except as provided in sub. (4) and
s. 180.1008(3), a shareholder or beneficial shareholder may dissent from, and
obtain payment of the fair value of his or her shares in the event of, any of
the following corporate actions:
(a) Consummation of a plan of merger to which the issuer corporation
is a party if any of the following applies:
1. Shareholder approval is required for the merger by s. 180.1103 or
by the articles of incorporation.
2. The issuer corporation is a subsidiary that is merged with its
parent under s. 180.1104.
(b) Consummation of a plan of share exchange if the issuer
corporation's shares will be acquired, and the shareholder or the shareholder
holding shares on behalf of the beneficial shareholder is entitled to vote on
the plan.
(c) Consummation of a sale or exchange of all, or substantially all,
of the property of the issuer corporation other than in the usual and regular
course of business, including a sale in dissolution, but not including any of
the following:
1. A sale pursuant to court order.
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2. A sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the shareholders
within one year after the date of sale.
(d) Except as provided in sub. (2), any other corporate action taken
pursuant to a shareholder vote to the extent that the articles of
incorporation, bylaws or a resolution of the board of directors provides that
the voting or nonvoting shareholder or beneficial shareholder may dissent and
obtain payment for his or her shares.
(2) Except as provided in sub. (4) and s. 180.1008(3), the articles
of incorporation may allow a shareholder or beneficial shareholder to dissent
from an amendment of the articles of incorporation and obtain payment of the
fair value of his or her shares if the amendment materially and adversely
affects rights in respect of a dissenter's shares because it does any of the
following:
(a) Alters or abolishes a preferential right of the shares.
(b) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares.
(c) Alters or abolishes a preemptive right of the holder of shares to
acquire shares or other securities.
(d) Excludes or limits the right of the shares to vote on any matter
or to cumulate votes, other than a limitation by dilution through issuance of
shares or other securities with similar voting rights.
(e) Reduces the number of shares owned by the shareholder or
beneficial shareholder to a fraction of a share if the fractional share so
created is to be acquired for cash under s. 180.0604.
(3) Notwithstanding sub. (1)(a) to (c), if the issuer corporation is
a statutory close corporation under ss. 180.1801 to 180.1837, a shareholder of
the statutory close corporation may dissent from a corporate action and obtain
payment of the fair value of his or her shares, to the extent permitted under
sub. (1)(d) or (2) or s. 180.1803, 180.1813(1)(d) or (2)(b), 180.1815(3) or
180.1829(1)(c).
(4) Except in a business combination or unless the articles of
incorporation provide otherwise, subs. (1) and (2) do not apply to the holders
of shares of any class or series if the shares of the class or series are
registered on a national securities exchange or quoted on the national
association of securities dealers, inc., automated quotations system on the
record date fixed to determine the shareholders entitled to notice of a
shareholders meeting at which shareholders are to vote on the proposed
corporate action.
(5) Except as provided in s. 180.1833, a shareholder or beneficial
shareholder entitled to dissent and obtain payment for his or her shares under
ss. 180.1301 to 180.1331 may not challenge the corporate action creating his
or her entitlement unless the action is unlawful or fraudulent with respect to
the shareholder, beneficial shareholder or issuer corporation.
180.1303 DISSENT BY SHAREHOLDERS AND BENEFICIAL SHAREHOLDERS. (1) A
shareholder may assert dissenters' rights as to fewer than all of the shares
registered in his or her name only if the shareholder dissents with respect to
all shares beneficially owned by any one person and notifies the corporation
in writing of the name and address of each person on whose behalf he or she
asserts dissenters' rights. The rights of a shareholder who under this
subsection asserts dissenters' rights as to fewer than all of the shares
registered in his or her name are determined as if the shares as to which he
or she dissents and his or her other shares were registered in the names of
different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to
shares held on his or her behalf only if the beneficial shareholder does all
of the following:
(a) Submits to the corporation the shareholder's written consent to
the dissent not later than the time that the beneficial shareholder asserts
dissenters' rights.
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(b) Submits the consent under par. (a) with respect to all shares of
which he or she is the beneficial shareholder.
180.1320 NOTICE OF DISSENTERS' RIGHTS. (1) If proposed corporate
action creating dissenters' rights under s. 180.1302 is submitted to a vote at
a shareholders' meeting, the meeting notice shall state that shareholders and
beneficial shareholders are or may be entitled to assert dissenters' rights
under ss. 180.1301 to 180.1331 and shall be accompanied by a copy of those
sections.
(2) If corporate action creating dissenters' rights under s. 180.1302
is authorized without a vote of shareholders, the corporation shall notify, in
writing and in accordance with s. 180.0141, all shareholders entitled to
assert dissenters' rights that the action was authorized and send them the
dissenters' notice described in s. 180.1322.
180.1321 NOTICE OF INTENT TO DEMAND PAYMENT. (1) If proposed corporate
action creating dissenters' rights under s. 180.1302 is submitted to a vote at
a shareholders' meeting, a shareholder or beneficial shareholder who wishes to
assert dissenters' rights shall do all of the following:
(a) Deliver to the issuer corporation before the vote is taken
written notice that complies with s. 180.0141 of the shareholder's or
beneficial shareholder's intent to demand payment for his or her shares if the
proposed action is effectuated.
(b) Not vote his or her shares in favor of the proposed action.
(2) A shareholder or beneficial shareholder who fails to satisfy sub.
(1) is not entitled to payment for his or her shares under ss. 180.1301 to
180.1331.
180.1322 DISSENTERS' NOTICE. (1) If proposed corporate action creating
dissenters' rights under s. 180.1302 is authorized at a shareholders' meeting,
the corporation shall deliver a written dissenters' notice to all shareholders
and beneficial shareholders who satisfied s. 180.1321.
(2) The dissenters' notice shall be sent no later than 10 days after
the corporate action is authorized at a shareholders' meeting or without a
vote of shareholders, whichever is applicable. The dissenters' notice shall
comply with s. 180.0141 [which is set forth below] and shall include or have
attached all of the following:
(a) A statement indicating where the shareholder or beneficial
shareholder must send the payment demand and where and when certificates for
certificated shares must be deposited.
(b) For holders of uncertificated shares, an explanation of the
extent to which transfer of the shares will be restricted after the payment
demand is received.
(c) A form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and that requires the shareholder or beneficial shareholder
asserting dissenters' rights to certify whether he or she acquired beneficial
ownership of the shares before that date.
(d) A date by which the corporation must receive the payment demand,
which may not be fewer than 30 days nor more than 60 days after the date on
which the dissenters' notice is delivered.
(e) A copy of ss. 180.1301 to 180.1331.
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180.1323 DUTY TO DEMAND PAYMENT. (1) A shareholder or beneficial
shareholder who is sent a dissenters' notice described in s. 180.1322, or a
beneficial shareholder whose shares are held by a nominee who is sent a
dissenters' notice described in s. 180.1322, must demand payment in writing
and certify whether he or she acquired beneficial ownership of the shares
before the date specified in the dissenters' notice under s. 180.1322(2)(c).
A shareholder or beneficial shareholder with certificated shares must also
deposit his or her certificates in accordance with the terms of the notice.
(2) A shareholder or beneficial shareholder with certificated shares
who demands payment and deposits his or her share certificates under sub. (1),
retains all other rights of a shareholder or beneficial shareholder until
these rights are canceled or modified by the effectuation of the corporate
action.
(3) A shareholder or beneficial shareholder with certificated or
uncertificated shares who does not demand payment by the date set in the
dissenters' notice, or a shareholder or beneficial shareholder with
certificated shares who does not deposit his or her share certificates where
required and by the date set in the dissenters' notice, is not entitled to
payment for his or her shares under ss. 180.1301 to 180.1331.
180.1324 RESTRICTIONS ON UNCERTIFICATED SHARES. (1) The issuer
corporation may restrict the transfer of uncertificated shares from the date
that the demand for payment for those shares is received until the corporate
action is effectuated or the restrictions released under s. 180.1326.
(2) The shareholder or beneficial shareholder who asserts dissenters'
rights as to uncertificated shares retains all of the rights of a shareholder
or beneficial shareholder, other than those restricted under sub. (1), until
these rights are canceled or modified by the effectuation of the corporate
action.
180.1325 PAYMENT. (1) Except as provided in s. 180.1327, as soon as
the corporate action is effectuated or upon receipt of a payment demand,
whichever is later, the corporation shall pay each shareholder or beneficial
shareholder who has complied with s. 180.1323 the amount that the corporation
estimates to be the fair value of his or her shares, plus accrued interest.
(2) The payment shall be accompanied by all of the following:
(a) The corporation's latest available financial statements, audited
and including footnote disclosure if available, but including not less than a
balance sheet as of the end of a fiscal year ending not more than 16 months
before the date of payment, an income statement for that year, a statement of
changes in shareholders' equity for that year and the latest available interim
financial statements, if any.
(b) A statement of the corporation's estimate of the fair value of
the shares.
(c) An explanation of how the interest was calculated.
(d) A statement of the dissenter's right to demand payment under
s. 180.1328 if the dissenter is dissatisfied with the payment.
(e) A copy of ss. 180.1301 to 180.1331.
180.1326 FAILURE TO TAKE ACTION. (1) If an issuer corporation does not
effectuate the corporate action within 60 days after the date set under
s. 180.1322 for demanding payment, the issuer corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the issuer corporation effectuates the corporate action, the
corporation shall deliver a new dissenters' notice under s. 180.1322 and
repeat the payment demand procedure.
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180.1327 AFTER-ACQUIRED SHARES. (1) A corporation may elect to
withhold payment required by s. 180.1325 from a dissenter unless the dissenter
was the beneficial owner of the shares before the date specified in the
dissenters' notice under s. 180.1322(2)(c) as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent that the corporation elects to withhold payment
under sub. (1) after effectuating the corporate action, it shall estimate the
fair value of the shares, plus accrued interest, and shall pay this amount to
each dissenter who agrees to accept it in full satisfaction of his or her
demand. The corporation shall send with its offer a statement of its estimate
of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under
s. 180.1328 if the dissenter is dissatisfied with the offer.
180.1328 PROCEDURE IF DISSENTER DISSATISFIED WITH PAYMENT OR OFFER. (1)
A dissenter may, in the manner provided in sub. (2), notify the corporation of
the dissenter's estimate of the fair value of his or her shares and amount of
interest due, and demand payment of his or her estimate, less any payment
received under s. 180.1325, or reject the offer under s. 180.1327 and demand
payment of the fair value of his or her shares and interest due, if any of the
following applies:
(a) The dissenter believes that the amount paid under s. 180.1325 or
offered under s. 180.1327 is less than the fair value of his or her shares or
that the interest due is incorrectly calculated.
(b) The corporation fails to make payment under s. 180.1325 within 60
days after the date set under s. 180.1322 for demanding payment.
(c) The issuer corporation, having failed to effectuate the corporate
action, does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days after the date
set under s. 180.1322 for demanding payment.
(2) A dissenter waives his or her right to demand payment under this
section unless the dissenter notifies the corporation of his or her demand
under sub. (1) in writing within 30 days after the corporation made or offered
payment for his or her shares. The notice shall comply with s. 180.0141.
180.1330 COURT ACTION. (1) If a demand for payment under s. 180.1328
remains unsettled, the corporation shall bring a special proceeding within 60
days after receiving the payment demand under s. 180.1328 and petition the
court to determine the fair value of the shares and accrued interest. If the
corporation does not bring the special proceeding within the 60-day period, it
shall pay each dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall bring the special proceeding in the circuit
court for the county where its principal office or, if none in this state, its
registered office is located. If the corporation is a foreign corporation
without a registered office in this state, it shall bring the special
proceeding in the county in this state in which was located the registered
office of the issuer corporation that merged with or whose shares were
acquired by the foreign corporation.
(3) The corporation shall make all dissenters, whether or not
residents of this state, whose demands remain unsettled parties to the special
proceeding. Each party to the special proceeding shall be served with a copy
of the petition as provided in s. 801.14.
(4) The jurisdiction of the court in which the special proceeding is
brought under sub. (2) is plenary and exclusive. The court may appoint one or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. An appraiser has the power described in the order
appointing him or her or in any amendment to the order. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
C-5
<PAGE> 53
(5) Each dissenter made a party to the special proceeding is entitled
to judgment for any of the following:
(a) The amount, if any, by which the court finds the fair value of
his or her shares, plus interest, exceeds the amount paid by the corporation.
(b) The fair value, plus accrued interest, of his or her shares
acquired on or after the date specified in the dissenter's notice under
s. 180.1322(2)(c), for which the corporation elected to withhold payment under
s. 180.1327.
180.1331 COURT COSTS AND COUNSEL FEES. (1)(a) Notwithstanding
ss. 814.01 to 814.04, the court in a special proceeding brought under
s. 180.1330 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court and
shall assess the costs against the corporation, except as provided in par.
(b).
(b) Notwithstanding ss. 814.01 and 814.04, the court may assess costs
against all or some of the dissenters, in amounts that the court finds to be
equitable, to the extent that the court finds the dissenters acted
arbitrarily, vexatiously or not in good faith in demanding payment under
s. 180.1328.
(2) The parties shall bear their own expenses of the proceeding,
except that, notwithstanding ss. 814.01 to 814.04, the court may also assess
the fees and expenses of counsel and experts for the respective parties, in
amounts that the court finds to be equitable, as follows:
(a) Against the corporation and in favor of any dissenter if the
court finds that the corporation did not substantially comply with
ss. 180.1320 to 180.1328.
(b) Against the corporation or against a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by this chapter.
(3) Notwithstanding ss. 814.01 to 814.04, if the court finds that the
services of counsel and experts for any dissenter were of substantial benefit
to other dissenters similarly situated, the court may award to these counsel
and experts reasonable fees to be paid out of the amounts awarded the
dissenters who were benefitted.
* * * * *
180.0141 NOTICE. (1) This section applies to notice that is required
under this chapter and that is made subject to this section by express
reference to this section.
(2)(a) A person shall give notice in writing, except as provided in par.
(b).
(b) A person may give oral notice if oral notice is permitted by the
articles of incorporation or bylaws and not otherwise prohibited by this
chapter.
(3) Except as provided in s. 180.0721(4) or unless otherwise provided
in the articles of incorporation or bylaws, notice may be communicated in
person, by telephone, telegraph, teletype, facsimile or other form of wire or
wireless communication, or by mail or private carrier, and, if these forms of
personal notice are impracticable, notice may be communicated by a newspaper
of general circulation in the area where published, or by radio, television or
other form of public broadcast communication.
C-6
<PAGE> 54
(4) Written notice to a domestic corporation or a foreign corporation
authorized to transact business in this state may be addressed to its
registered agent at its registered office or to the domestic corporation or
foreign corporation at its principal office. With respect to a foreign
corporation that has not yet filed an annual report under s. 180.1622, the
address of the foreign corporation's principal office may be determined from
its application for a certificate of authority.
(5)(a) Except as provided in par. (b) and ss. 180.0807(2) and
180.0843(1), written notice is effective at the earliest of the following:
1. When received.
2. Five days after its deposit in the U.S. mail, if mailed postpaid
and correctly addressed.
3. On the date shown on the return receipt, if sent by registered or
certified mail, return receipt requested, and the receipt is signed by or on
behalf of the addressee.
4. On the effective date specified in the articles of incorporation
or bylaws.
(b) Written notice by a domestic corporation or foreign corporation
to its shareholder is effective when mailed and may be addressed to the
shareholder's address shown in the domestic corporation's or foreign
corporation's current record of shareholders.
(c) Oral notice is effective when communicated.
C-7
<PAGE> 55
APPENDIX D
WISCONSIN ELECTRIC POWER COMPANY
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
On June 30, 1994, WE and WN entered into the Merger Agreement whereby WN is to
be merged with and into WE. No new shares of WE Common Stock will be issued,
and there will be no change to the outstanding stock of WE, in connection with
the Merger. Each outstanding share of WN Common Stock will be deemed
cancelled at the Effective Time of Merger. As a result of the Merger, the
independent corporate existence of WN will terminate and WE, as the surviving
corporation in the Merger, will succeed to all of the assets and liabilities
of WN. See "The Merger--General" in the Proxy Statement.
The unaudited pro forma combined condensed income statements for the twelve
months ended June 30, 1994 and for each of the three fiscal years in the
period ended December 31, 1993 combine the historical income statements of WE
and WN as if the Merger had been consummated at the beginning of each period
presented. The unaudited pro forma combined condensed balance sheet at June
30, 1994 combines the historical balance sheets of WE and WN as if the Merger
had been consummated on such date. The Merger will be accounted for by the
consolidation of the accounts of WE and WN, similar to the pooling of
interests method of accounting. See "The Merger--Accounting Treatment" in the
Proxy Statement.
The unaudited pro forma combined condensed financial statements included
herein are not necessarily indicative of the future results of operations or
the future financial position of the combined entity or the results of
operations and financial position of the combined entity that would have
actually occurred had the Merger been in effect as of the date or for the
periods presented. The unaudited pro forma combined condensed financial
statements should be read in conjunction with the historical financial
statements (and notes thereto) and management's discussion and analysis of
financial condition and results of operations of WE and WN contained in the
documents incorporated by reference herein.
D-1
<PAGE> 56
WISCONSIN ELECTRIC POWER COMPANY
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
(Unaudited)
Twelve Months Ended June 30, 1994
------------------------------------
Pro Forma
WE WN Combined
---------- ---------- ----------
(In thousands)
Operating Revenues $1,402,807 $ 353,380 $1,756,187
Operating Expenses
Fuel 278,805 -- 278,805
Purchased power 45,640 -- 45,640
Cost of gas sold -- 225,138 225,138
Other operation expenses 349,989 59,926 409,915
Maintenance 134,264 6,922 141,186
Revitalization 63,500 10,400 73,900
Depreciation 156,090 16,445 172,535
Taxes other than income taxes 71,088 6,162 77,250
Income taxes 79,444 7,718 87,162
---------- ---------- ----------
Total Operating Expenses 1,178,820 332,711 1,511,531
---------- ---------- ----------
Operating Income 223,987 20,669 244,656
Other Income and Deductions 26,332 272 26,604
Income Before Interest Charges 250,319 20,941 271,260
Interest Charges 95,225 8,378 103,603
---------- ---------- ----------
Net Income 155,094 12,563 167,657
Preferred Stock Dividend Requirement 2,233 -- 2,233
---------- ---------- ----------
Earnings Available for Common Stockholder $ 152,861 $ 12,563 $ 165,424
========== ========== ==========
D-2
<PAGE> 57
WISCONSIN ELECTRIC POWER COMPANY
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
(Unaudited)
Year Ended December 31, 1993
------------------------------------
Pro Forma
WE WN Combined
---------- ---------- ----------
(In thousands)
Operating Revenues $1,361,934 $ 331,301 $1,693,235
Operating Expenses
Fuel 263,385 -- 263,385
Purchased power 54,880 -- 54,880
Cost of gas sold -- 214,133 214,133
Other operation expenses 341,748 57,387 399,135
Maintenance 149,247 6,838 156,085
Depreciation 150,831 16,234 167,065
Taxes other than income taxes 68,969 5,684 74,653
Income taxes 90,037 8,426 98,463
---------- ---------- ----------
Total Operating Expenses 1,119,097 308,702 1,427,799
---------- ---------- ----------
Operating Income 242,837 22,599 265,436
Other Income and Deductions 28,913 201 29,114
Income Before Interest Charges 271,750 22,800 294,550
Interest Charges 93,825 8,645 102,470
---------- ---------- ----------
Net Income 177,925 14,155 192,080
Preferred Stock Dividend Requirement 4,377 -- 4,377
---------- ---------- ----------
Earnings Available for Common Stockholder $ 173,548 $ 14,155 $ 187,703
========== ========== ==========
D-3
<PAGE> 58
WISCONSIN ELECTRIC POWER COMPANY
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
(Unaudited)
Year Ended December 31, 1992
------------------------------------
Pro Forma
WE WN Combined
---------- ---------- ----------
(In thousands)
Operating Revenues $1,311,816 $ 283,699 $1,595,515
Operating Expenses
Fuel 266,716 -- 266,716
Purchased power 63,745 -- 63,745
Cost of gas sold -- 177,947 177,947
Other operation expenses 318,253 48,768 367,021
Maintenance 143,618 6,844 150,462
Depreciation 148,967 15,400 164,367
Taxes other than income taxes 68,380 5,334 73,714
Income taxes 82,141 7,697 89,838
---------- ---------- ----------
Total Operating Expenses 1,091,820 261,990 1,353,810
---------- ---------- ----------
Operating Income 219,996 21,709 241,705
Other Income and Deductions 25,350 375 25,725
Income Before Interest Charges 245,346 22,084 267,430
Interest Charges 83,604 7,875 91,479
---------- ---------- ----------
Net Income 161,742 14,209 175,951
Preferred Stock Dividend Requirement 5,916 -- 5,916
---------- ---------- ----------
Earnings Available for Common Stockholder $ 155,826 $ 14,209 $ 170,035
========== ========== ==========
D-4
<PAGE> 59
WISCONSIN ELECTRIC POWER COMPANY
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
(Unaudited)
Year Ended December 31, 1991
------------------------------------
Pro Forma
WE WN Combined
---------- ---------- ----------
(In thousands)
Operating Revenues $1,305,795 $ 273,804 $1,579,599
Operating Expenses
Fuel 291,271 -- 291,271
Purchased power 65,261 -- 65,261
Cost of gas sold -- 173,298 173,298
Other operation expenses 295,654 47,521 343,175
Maintenance 136,142 6,845 142,987
Depreciation 133,997 14,255 148,252
Taxes other than income taxes 57,916 4,746 62,662
Income taxes 92,510 6,823 99,333
---------- ---------- ----------
Total Operating Expenses 1,072,751 253,488 1,326,239
---------- ---------- ----------
Operating Income 233,044 20,316 253,360
Other Income and Deductions 27,429 593 28,022
Income Before Interest Charges 260,473 20,909 281,382
Interest Charges 78,904 7,996 86,900
---------- ---------- ----------
Net Income 181,569 12,913 194,482
Preferred Stock Dividend Requirement 5,928 -- 5,928
---------- ---------- ----------
Earnings Available for Common Stockholder $ 175,641 $ 12,913 $ 188,554
========== ========== ==========
D-5
<PAGE> 60
WISCONSIN ELECTRIC POWER COMPANY
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(Unaudited)
June 30, 1994
------------------------------------
Pro Forma
WE WN Combined
---------- ---------- ----------
(In thousands)
Assets
------
Utility Plant
Plant $4,231,966 $450,386 $4,682,352
Accumulated provision for
depreciation (1,862,743) (212,136) (2,074,879)
---------- ---------- ----------
Subtotal 2,369,223 238,250 2,607,473
Construction work in progress 192,192 1,306 193,498
Nuclear fuel - net 56,673 -- 56,673
---------- ---------- ----------
Net Utility Plant 2,618,088 239,556 2,857,644
Other Property and Investments 391,328 2,248 393,576
Current Assets
Cash and cash equivalents 15,306 6,839 22,145
Accounts receivable 88,421 27,416 115,837
Accrued utility revenues 91,808 7,529 99,337
Materials, supplies, fossil fuel
and natural gas stored 115,739 28,700 144,439
Prepayments and other assets 71,017 4,041 75,058
---------- ---------- ----------
Total Current Assets 382,291 74,525 456,816
Deferred Charges and Other Assets
Accumulated deferred income taxes 116,904 17,792 134,696
Other 244,744 10,915 255,659
---------- ---------- ----------
Total Deferred Charges
and Other Assets 361,648 28,707 390,355
---------- ---------- ----------
Total Assets $3,753,355 $345,036 $4,098,391
========== ========== ==========
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $ 502,566 $ 81,016 $ 583,582
Retained earnings 911,515 53,189 964,704
---------- ---------- ----------
Total Common Stock Equity 1,414,081 134,205 1,548,286
Preferred stock
- redemption not required 30,451 -- 30,451
Long-term debt 1,190,102 68,155 1,258,257
---------- ---------- ----------
Total Capitalization 2,634,634 202,360 2,836,994
Current Liabilities
Long-term debt due currently 18,915 13,570 32,485
Short-term debt 137,300 12,998 150,298
Accounts payable 57,604 20,849 78,453
Accrued liabilities 61,972 12,688 74,660
Other 20,019 16,516 36,535
---------- ---------- ----------
Total Current Liabilities 295,810 76,621 372,431
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 437,667 30,934 468,601
Other 385,244 35,121 420,365
---------- ---------- ----------
Total Deferred Credits
and Other Liabilities 822,911 66,055 888,966
---------- ---------- ----------
Total Capitalization and
Liabilities $3,753,355 $345,036 $4,098,391
========== ========== ==========
D-6
<PAGE> 61
APPENDIX E
DESCRIPTION OF WE PREFERRED STOCKS
Set forth below is a brief summary of certain terms of the WE's Preferred
Stocks in effect as of the date of this Proxy Statement. This summary is
qualified in its entirety by reference to the Restated Articles and the WBCL,
which provide a complete statement of relevant terms. For a description of
changes proposed to be made to certain terms of the Preferred Stocks pursuant
to the proposed amendments to the Restated Articles, see "Amendments to
Restated Articles" in the Proxy Statement.
WE's Preferred Stocks consist of 45,000 shares of Six Per Cent. Preferred
Stock, $100 par value per share, of which 44,508 shares are outstanding;
2,360,000 shares of Serial Preferred Stock, $100 par value per share, of which
260,000 shares are outstanding; and 5,000,000 shares of Serial Preferred
Stock, $25 par value per share, of which no shares are outstanding.
Shares of the $100 Par Value Serial Preferred Stock and the $25 Par Value
Serial Preferred Stock (together, the "Serial Preferred Stocks") are issuable
in one or more series from time to time in the discretion of the WE Board,
without further stockholder approval. Each series has such dividend rate,
redemption prices, voluntary and involuntary liquidation values, sinking fund
provisions and conversion rights, if any, as the WE Board may fix for the
series at the time of original issue. WE presently has outstanding one series
(the 3.60% Series) of its $100 Par Value Serial Preferred Stock.
DIVIDEND RIGHTS
The holders of the Serial Preferred Stocks are entitled to receive, when and
as declared by the WE Board out of funds legally available therefor, cash
dividends at the annual rate fixed by the WE Board for the series, and no
more, cumulative from the date upon which such shares shall have been
originally issued and payable quarterly on the first days of March, June,
September and December in each year. However, if the original issue date is
within thirty days preceding a regular quarterly dividend date, the
accumulated dividend otherwise payable on such regular quarterly dividend date
will be payable only at the time of payment of the dividend for the next
quarterly period.
The 6% Preferred Stock and Serial Preferred Stocks rank as to dividends
ratably, according to their respective dividend rights, without preference of
any class or series over any other. If, with respect to the 6% Preferred
Stock or any series of the Serial Preferred Stocks, the fixed dividend rate
for any past quarterly dividend period is not paid or set apart therefor, and
the dividend for the then current period is not declared and funds set apart
therefor, or if any sinking fund requirement on any series of the Serial
Preferred Stocks is not met, the deficiency is required to be paid or funds
set apart therefor before any dividends may be paid or set apart for the WE
Common Stock.
VOTING RIGHTS
Each outstanding share of 6% Preferred Stock, $100 Par Value Serial Preferred
Stock and WE Common Stock is entitled to one vote, and each outstanding share,
if any, of $25 Par Value Serial Preferred Stock is entitled to one-quarter
vote, on each matter submitted to a vote at a meeting of stockholders, except
as otherwise provided in the Restated Articles. The following references to a
majority or two-thirds of specified shares mean a majority or two-thirds,
respectively, of the votes entitled to be cast by such shares, based on one-
quarter vote per share for the $25 Par Value Serial Preferred Stock and one
vote per share for the other classes.
If and when dividends payable on the 6% Preferred Stock, or on any series of
the Serial Preferred Stocks, are in default in an amount equal to four full
quarterly dividends thereon, and until such default is remedied as provided in
the Restated Articles, the holders of the 6% Preferred Stock and the Serial
Preferred Stocks, voting together as one voting group, will be entitled under
the Restated Articles to elect a majority of the WE Board and the holders of
WE Common Stock, voting separately as a voting group, will be entitled to
elect the remaining directors. Under the Restated Articles, without the
consent of the holders of a majority of the 6% Preferred Stock and Serial
Preferred Stocks, voting together as one voting group, present or represented
by proxy at a meeting duly called for the purpose, WE may not (i) issue or
assume additional unsecured indebtedness (except
E-1
<PAGE> 62
for refunding unsecured securities or redeeming or retiring shares of the
Serial Preferred Stocks) unless, immediately after such issuance or
assumption, total outstanding unsecured indebtedness would not exceed 25% of
secured indebtedness plus capital and surplus of WE, or (ii) merge or
consolidate with or into any other corporation (with certain exceptions
involving specified regulatory approval); without the consent of the holders
of a majority of the outstanding 6% Preferred Stock and Serial Preferred
Stocks, voting together as one voting group, WE may not increase the total
authorized amount of 6% Preferred Stock, $100 Par Value Serial Preferred Stock
or $25 Par Value Serial Preferred Stock, or authorize any other preferred
stock ranking on a parity therewith as to assets or dividends (other than any
increase through certain reclassifications); and without the consent of the
holders of two-thirds of the outstanding 6% Preferred Stock and the Serial
Preferred Stocks, voting together as one voting group, WE may not issue any
Serial Preferred Stocks, or any shares of stock of any class ranking on a
parity with either of such classes, unless certain earnings and capital
coverage tests are met. Also, without the consents of the holders of two-
thirds of the outstanding 6% Preferred Stock, two-thirds of the outstanding
$100 Par Value Serial Preferred Stock and two-thirds of the outstanding $25
Par Value Serial Preferred Stock, voting as separate voting groups, present or
represented by proxy at a meeting duly called for the purpose, WE may not
authorize any class of stock preferred as to assets or dividends over those
classes. In addition, WE may not amend the Restated Articles to change the
express terms and provisions of the 6% Preferred Stock, $100 Par Value Serial
Preferred Stock or $25 Par Value Serial Preferred Stock, as the case may be,
in any manner substantially prejudicial to the holders of the class affected,
without the consent of the holders of two-thirds of the outstanding shares of
such class; and under the Restated Articles, similar amendments of the
Restated Articles so affecting one or more, but not all, series of a
particular class require a two-thirds vote of the series affected. The WBCL,
as now in effect, provides additional requirements for the favorable vote of a
class upon certain amendments of the Restated Articles affecting such class,
including, among other things, amendments increasing the authorized shares of
such class or any prior or substantially equal class.
LIQUIDATION RIGHTS
In the event of any liquidation of WE, whether voluntary or involuntary, the
holders of the 6% Preferred Stock and Serial Preferred Stocks will be entitled
to be paid the full amount of their respective liquidation values prior to the
payment of any amounts on any stock ranking junior thereto. All such payments
are to be made ratably to such holders in accordance with their respective
interests, without preference of any class or series over any other. The
liquidation value of the 6% Preferred Stock and the 3.60% Preferred Stock is
$100 per share, their respective par values.
REDEMPTION PROVISIONS
WE may redeem, at its option, the whole or any part of the Serial Preferred
Stocks or the whole or any part of any series thereof, from time to time, upon
the conditions, including payment of the applicable redemption price, fixed by
the WE Board at the time of original issue of the shares, and upon not less
than 30 days' nor more than 60 days' published notice in a newspaper in
Milwaukee, Wisconsin. Notice is also to be mailed to holders of record, but
failure to mail such notice will not affect redemption. Shares of the 3.60%
Preferred Stock are redeemable by WE at $101, plus an amount equal to accrued
but unpaid dividends to the redemption date.
Shares of the Serial Preferred Stocks which are redeemed or otherwise acquired
by WE (other than those purchased or redeemed for, or taken as a credit
against, any sinking fund obligation or surrendered pursuant to a conversion
right) continue to be part of the authorized capital of WE and may thereafter,
in the discretion of the WE Board, be reissued as part of the same or another
series of the same class.
MISCELLANEOUS
There are no restrictions in the Restated Articles on the repurchase or
redemption by WE of shares of any of its capital stock while there is any
arrearage in the payment of dividends or sinking fund installments on the 6%
Preferred Stock or the Serial Preferred Stocks. The holders of the 6%
Preferred Stock and the Serial Preferred Stocks are not entitled to any
preemptive or other subscription rights.
E-2
<PAGE> 63
WISCONSIN ELECTRIC POWER COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF STOCKHOLDERS
ON DECEMBER 15, 1994
The undersigned hereby appoints Richard A. Abdoo, John W. Boston and Ann
Marie Brady, and each of them, proxies, with full power of substitution, to
vote, as designated herein, all shares of stock which the undersigned is
entitled to vote at the Special Meeting of Stockholders of Wisconsin Electric
Power Company ("WE"), to be held in the auditorium of the Public Service
Building, 231 West Michigan Street, Milwaukee, Wisconsin, on Thursday,
December 15, 1994, at 9:00 a.m., Central Time, or at any adjournment thereof,
hereby revoking any proxy previously given.
1. Approval of the Plan and Agreement of Merger, dated June 30, 1994, by
and between WE and Wisconsin Natural Gas Company ("WN"), providing for the
merger of WN with and into WE;
2. Approval of the amendment to WE's Restated Articles of Incorporation,
as amended (the "Restated Articles"), to remove the specific reference to
electric and steam operations in the description of WE's purpose;
3. Approval of the amendment to the Restated Articles to remove the
special voting rights of the WE Preferred Stocks in connection with WE's
issuance of certain unsecured indebtedness or consummation of certain mergers
or consolidations;
4. Approval of the amendment to the Restated Articles to remove
designations of certain series of $100 Par Value Serial Preferred Stock which
are no longer outstanding;
5. Approval of the amendment to the Restated Articles to conform
provisions relating to managing the business and affairs of WE during an
emergency with the appropriate sections of the Wisconsin Business Corporation
Law ("WBCL");
6. Approval of the amendment to the Restated Articles to conform the
statutory references in the provision setting forth the majority vote
requirement for certain extraordinary transactions with the appropriate
sections of the WBCL; and
7. In their discretion, on such other matters as may properly come before
the Special Meeting or any adjournment thereof;
all as set out in the Notice and Proxy Statement relating to the Special
Meeting, receipt of which is hereby acknowledged.
SEE REVERSE SIDE. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS, JUST SIGN AND DATE ON THE REVERSE SIDE; YOU NEED
NOT MARK ANY VOTING BOXES.
SEE REVERSE
SIDE
<PAGE> 64
X Please mark your
- --- votes as in this
example.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS
1 THROUGH 6.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 THROUGH 6.
-------------------------------------------------------------------
1. Plan and Agreement of Merger
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
2. Amendment to remove electric and
steam reference
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
3. Amendment to remove certain special
Preferred Stocks voting rights
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
4. Amendment to remove certain
series designations
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
5. Amendment to conform emergency
provisions with the WBCL
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
6. Amendment to conform extraordinary
transactions vote requirement with WBCL
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
PLEASE CHECK BOX IF APPLICABLE
------------------------------
---- Yes, I will attend the Special Meeting of
---- Stockholders on Thursday, December 15, 1994.
Please sign exactly as name(s) appears hereon. Joint owners should each sign
personally. When signing as executor, administrator, corporation officer,
attorney, agent, trustee, guardian or in other representative capacity, please
state your full title as such.
----------------------------------------
SIGNATURE DATE
----------------------------------------
SIGNATURE DATE
(If Held Jointly)
<PAGE> 65
6% Preferred Stock
WISCONSIN ELECTRIC POWER COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF STOCKHOLDERS
ON DECEMBER 15, 1994
The undersigned hereby appoints Richard A. Abdoo, John W. Boston and Ann
Marie Brady, and each of them, proxies, with full power of substitution, to
vote, as designated herein, all shares of stock which the undersigned is
entitled to vote at the Special Meeting of Stockholders of Wisconsin Electric
Power Company ("WE"), to be held in the auditorium of the Public Service
Building, 231 West Michigan Street, Milwaukee, Wisconsin, on Thursday,
December 15, 1994, at 9:00 a.m., Central Time, or at any adjournment thereof,
hereby revoking any proxy previously given.
1. Approval of the Plan and Agreement of Merger, dated June 30, 1994, by
and between WE and Wisconsin Natural Gas Company ("WN"), providing for the
merger of WN with and into WE;
2. Approval of the amendment to WE's Restated Articles of Incorporation,
as amended (the "Restated Articles"), to remove the specific reference to
electric and steam operations in the description of WE's purpose;
3. Approval of the amendment to the Restated Articles to remove the
special voting rights of the WE Preferred Stocks in connection with WE's
issuance of certain unsecured indebtedness or consummation of certain mergers
or consolidations;
4. Approval of the amendment to the Restated Articles to remove
designations of certain series of $100 Par Value Serial Preferred Stock which
are no longer outstanding;
5. Approval of the amendment to the Restated Articles to conform
provisions relating to managing the business and affairs of WE during an
emergency with the appropriate sections of the Wisconsin Business Corporation
Law ("WBCL");
6. Approval of the amendment to the Restated Articles to conform the
statutory references in the provision setting forth the majority vote
requirement for certain extraordinary transactions with the appropriate
sections of the WBCL; and
7. In their discretion, on such other matters as may properly come before
the Special Meeting or any adjournment thereof;
all as set out in the Notice and Proxy Statement relating to the Special
Meeting, receipt of which is hereby acknowledged.
SEE REVERSE SIDE. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS, JUST SIGN AND DATE ON THE REVERSE SIDE; YOU NEED
NOT MARK ANY VOTING BOXES.
SEE REVERSE
SIDE
<PAGE> 66
X Please mark your
- --- votes as in this
example.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS
1 THROUGH 6.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 THROUGH 6.
-------------------------------------------------------------------
1. Plan and Agreement of Merger
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
2. Amendment to remove electric and
steam reference
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
3. Amendment to remove certain special
Preferred Stocks voting rights
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
4. Amendment to remove certain
series designations
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
5. Amendment to conform emergency
provisions with the WBCL
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
6. Amendment to conform extraordinary
transactions vote requirement with WBCL
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
PLEASE CHECK BOX IF APPLICABLE
------------------------------
---- Yes, I will attend the Special Meeting of
---- Stockholders on Thursday, December 15, 1994.
Please sign exactly as name(s) appears hereon. Joint owners should each sign
personally. When signing as executor, administrator, corporation officer,
attorney, agent, trustee, guardian or in other representative capacity, please
state your full title as such.
----------------------------------------
SIGNATURE DATE
----------------------------------------
SIGNATURE DATE
(If Held Jointly)
<PAGE> 67
3.60% Preferred Stock
WISCONSIN ELECTRIC POWER COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF STOCKHOLDERS
ON DECEMBER 15, 1994
The undersigned hereby appoints Richard A. Abdoo, John W. Boston and Ann
Marie Brady, and each of them, proxies, with full power of substitution, to
vote, as designated herein, all shares of stock which the undersigned is
entitled to vote at the Special Meeting of Stockholders of Wisconsin Electric
Power Company ("WE"), to be held in the auditorium of the Public Service
Building, 231 West Michigan Street, Milwaukee, Wisconsin, on Thursday,
December 15, 1994, at 9:00 a.m., Central Time, or at any adjournment thereof,
hereby revoking any proxy previously given.
1. Approval of the Plan and Agreement of Merger, dated June 30, 1994, by
and between WE and Wisconsin Natural Gas Company ("WN"), providing for the
merger of WN with and into WE;
2. Approval of the amendment to WE's Restated Articles of Incorporation,
as amended (the "Restated Articles"), to remove the specific reference to
electric and steam operations in the description of WE's purpose;
3. Approval of the amendment to the Restated Articles to remove the
special voting rights of the WE Preferred Stocks in connection with WE's
issuance of certain unsecured indebtedness or consummation of certain mergers
or consolidations;
4. Approval of the amendment to the Restated Articles to remove
designations of certain series of $100 Par Value Serial Preferred Stock which
are no longer outstanding;
5. Approval of the amendment to the Restated Articles to conform
provisions relating to managing the business and affairs of WE during an
emergency with the appropriate sections of the Wisconsin Business Corporation
Law ("WBCL");
6. Approval of the amendment to the Restated Articles to conform the
statutory references in the provision setting forth the majority vote
requirement for certain extraordinary transactions with the appropriate
sections of the WBCL; and
7. In their discretion, on such other matters as may properly come before
the Special Meeting or any adjournment thereof;
all as set out in the Notice and Proxy Statement relating to the Special
Meeting, receipt of which is hereby acknowledged.
SEE REVERSE SIDE. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS, JUST SIGN AND DATE ON THE REVERSE SIDE; YOU NEED
NOT MARK ANY VOTING BOXES.
SEE REVERSE
SIDE
<PAGE> 68
X Please mark your
- --- votes as in this
example.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS
1 THROUGH 6.
The Board of Directors recommends a vote FOR Proposals 1 through 6.
-------------------------------------------------------------------
1. Plan and Agreement of Merger
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
2. Amendment to remove electric and
steam reference
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
3. Amendment to remove certain special
Preferred Stocks voting rights
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
4. Amendment to remove certain
series designations
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
5. Amendment to conform emergency
provisions with the WBCL
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
6. Amendment to conform extraordinary
transactions vote requirement with WBCL
FOR AGAINST ABSTAIN
--- --- ---
--- --- ---
PLEASE CHECK BOX IF APPLICABLE
------------------------------
---- Yes, I will attend the Special Meeting of
---- Stockholders on Thursday, December 15, 1994.
Please sign exactly as name(s) appears hereon. Joint owners should each sign
personally. When signing as executor, administrator, corporation officer,
attorney, agent, trustee, guardian or in other representative capacity, please
state your full title as such.
----------------------------------------
SIGNATURE DATE
----------------------------------------
SIGNATURE DATE
(If Held Jointly)
<PAGE> 69
[LOGO]
Wisconsin Electric Power Company
231 W. Michigan, P.O. Box 2046
Milwaukee, WI 53201-2046
(414) 221-2345
November 16, 1994
Dear Wisconsin Electric Stockholder:
On October 31, 1994, proxy materials were mailed to you relating to Wisconsin
Electric's Special Meeting of Stockholders to be held on December 15, 1994.
The principal purpose of the meeting is to seek your approval of (i) the
merger of two subsidiaries of Wisconsin Energy Corporation, Wisconsin Natural
Gas Company into Wisconsin Electric and (ii) certain amendments to the
company's articles of incorporation. I AND THE WISCONSIN ELECTRIC BOARD OF
DIRECTORS STRONGLY BELIEVE THAT YOUR APPROVAL OF THESE MATTERS WILL HELP
STRENGTHEN WISCONSIN ELECTRIC'S COMPETITIVE POSITION AND WILL PROVIDE THE
COMPANY WITH ADDITIONAL FLEXIBILITY TO SUCCEED IN THE NEW COMPETITIVE
ENVIRONMENT IN WHICH WISCONSIN ELECTRIC OPERATES.
According to our latest records, we have not yet received your proxy card.
Regardless of the number of shares you own, it is important that they are
represented at the meeting. Voting by mail is quick and easy. If you haven't
previously mailed your proxy card, please take a moment to sign, date and mail
the enclosed duplicate proxy promptly in the enclosed return envelope.
I THANK YOU IN ADVANCE FOR YOUR COOPERATION AND CONTINUED SUPPORT. I HOPE YOU
SHARE MY ENTHUSIASM AND WILL VOTE "FOR" EACH OF THE PROPOSALS PRESENTED.
Sincerely,
Richard A. Abdoo
Chairman of the Board
and Chief Executive Officer
<PAGE> 70
[LOGO]
Wisconsin Electric Power Company
231 W. Michigan, P.O. Box 2046
Milwaukee, WI 53201-2046
(414) 221-2345
December __, 1994
Name
Address
City, State, ZIP
Dear _________________:
As you may know, Wisconsin Electric will hold a Special Meeting of
Stockholders on December 15, 1994.
I've tried to contact you by telephone to discuss the meeting agenda and any
questions you may have regarding the merger of Wisconsin Natural Gas Company
into Wisconsin Electric and the proposed amendments to the company's articles
of incorporation.
According to our latest records, we have not yet received your proxy card.
Regardless of the number of shares you own, it is important that they are
represented at the meeting. If you haven't yet completed and returned your
proxy card, please do so at your earliest convenience. Voting by mail is
quick and easy.
I would like to discuss this important vote with you. Please call me collect
at (414) 221-2788 or toll free at 1-800-881-5882 during normal business hours.
If evening hours are best for you, you may leave a message and indicate the
best time for me to return your call.
Sincerely,
Peter Sirko
Mgr. Stockholder Services
<PAGE> 71
Wisconsin Electric Power Company
1993 Financial Statements
and Footnotes
Page
Income Statement for the Years 1991, 1992 and 1993 1
Statement of Cash Flow for the Years 1991, 1992 and 1993 2
Balance Sheet as of December 31, 1992 and December 31, 1993 3
Capitalization Statement as of December 31, 1992 and December 31, 1993 5
Common Stock Equity Statement 6
Notes to Financial Statements 7
Report of Independent Accountants 18
fm\wp\edgar\wedefprx.O11
<PAGE> 72
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FROM WISCONSIN ELECTRIC POWER COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
WISCONSIN ELECTRIC POWER COMPANY
INCOME STATEMENT
Year Ended December 31
<CAPTION>
1993 1992 1991
---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Revenues
Electric $1,347,844 $1,298,723 $1,292,809
Steam 14,090 13,093 12,986
---------- ---------- ----------
Total Operating Revenues 1,361,934 1,311,816 1,305,795
Operating Expenses
Fuel (Note B) 263,385 266,716 291,271
Purchased power 54,880 63,745 65,261
Other operation expenses 341,748 318,253 295,654
Maintenance 149,247 143,618 136,142
Depreciation (Note E) 150,831 148,967 133,997
Taxes other than income taxes 68,969 68,380 57,916
Federal income tax (Note F) 68,239 61,235 73,854
State income tax (Note F) 13,887 14,783 16,889
Deferred income taxes - net (Note F) 12,034 10,083 6,148
Investment tax credit - net (Note F) (4,123) (3,960) (4,381)
---------- ---------- ----------
Total Operating Expenses 1,119,097 1,091,820 1,072,751
Operating Income 242,837 219,996 233,044
Other Income and Deductions
Interest income 13,351 13,624 15,688
Allowance for other funds used during
construction (Note G) 8,453 6,936 7,227
Miscellaneous - net 9,638 6,547 6,649
Federal income tax (Note F) (1,718) (1,127) (1,292)
State income tax (Note F) (811) (630) (843)
---------- ---------- ----------
Total Other Income and Deductions 28,913 25,350 27,429
Income Before Interest Charges 271,750 245,346 260,473
Interest Charges
Long-term debt 96,110 84,843 77,615
Other interest 2,450 2,414 4,849
Allowance for borrowed funds used
during construction (Note G) (4,735) (3,653) (3,560)
---------- ---------- ----------
Total Interest Charges 93,825 83,604 78,904
---------- ---------- ----------
Net Income 177,925 161,742 181,569
Preferred Stock Dividend Requirement 4,377 5,916 5,928
---------- ---------- ----------
Earnings Available for Common
Stockholder $ 173,548 $ 155,826 $ 175,641
========== ========== ==========
<FN>
Note: Earnings and dividends per share of common stock are not applicable because all of the
company's common stock is owned by Wisconsin Energy Corporation.
See Notes to Financial Statements.
</TABLE>
- 1 -
<PAGE> 73
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
STATEMENT OF CASH FLOWS
Year Ended December 31
<CAPTION>
1993 1992 1991
---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Activities
Net income $177,925 $161,742 $181,569
Reconciliation to cash
Depreciation 150,831 148,967 133,997
Nuclear fuel expense - amortization 21,366 20,818 22,139
Conservation expense - amortization 15,254 13,009 10,175
Debt premium, discount & expense -
amortization 12,813 4,483 2,857
Deferred income taxes - net 12,034 10,083 6,148
Investment tax credit - net (4,123) (3,960) (4,381)
Allowance for other funds used
during construction (8,453) (6,936) (7,227)
Change in Accounts receivable (16,981) 9,993 (6,308)
Inventories 15,181 (5,294) 11,670
Accounts payable 11,620 9,195 (6,790)
Other current assets 3,231 (10,073) (2,413)
Other current liabilities 15,453 (3,664) 3,452
Other (5,176) 8,272 (3,633)
-------- -------- --------
Cash Provided by Operating Activities 400,975 356,635 341,255
Investing Activities
Construction expenditures (310,513) (293,589) (215,446)
Allowance for borrowed funds used
during construction (4,735) (3,653) (3,560)
Nuclear fuel (20,016) (17,709) (19,728)
Nuclear decommissioning trust (11,371) (20,212) (19,358)
Conservation investments - net (35,252) (31,087) (19,986)
Change in construction funds held
by trustee 3,006 1,930 37,813
Other (1,926) (746) (15)
-------- --------- --------
Cash Used in Investing Activities (380,807) (365,066) (240,280)
Financing Activities
Sale of long-term debt 361,049 567,360 124,221
Retirement of long-term debt (328,771) (495,940) (27,552)
Change in short-term debt 44,179 34,820 (16,900)
Retirement of preferred stock (65,504) (2,035) -
Dividends on stock - common (65,000) (65,000) (167,745)
- preferred (4,729) (5,928) (5,928)
-------- --------- --------
Cash Provided by (Used in) Financing Activities (58,776) 33,277 (93,904)
Change in Cash and Cash Equivalents $(38,608) $ 24,846 $ 7,071
======== ========= ========
Supplemental information disclosures:
Cash Paid For
Interest (net of amount capitalized) $ 77,357 $ 82,193 $ 78,332
Income taxes 94,103 82,126 90,981
<FN>
See Notes to Financial Statements.
</TABLE>
- 2 -
<PAGE> 74
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
BALANCE SHEET
December 31
ASSETS
<CAPTION>
1993 1992
---- ----
(Thousands of Dollars)
<S> <C> <C>
Utility Plant
Electric $4,079,794 $3,821,490
Steam 39,113 33,177
---------- ----------
4,118,907 3,854,667
Accumulated provision for depreciation (1,784,110) (1,668,264)
---------- ----------
2,334,797 2,186,403
Construction work in progress 208,834 181,451
Nuclear fuel - net (Note B) 52,665 53,800
---------- ----------
Net Utility Plant 2,596,296 2,421,654
Other Property and Investments
Nuclear decommissioning trust fund (Note B) 214,421 203,050
Construction funds held by trustees 20,550 23,556
Conservation investments 136,995 117,964
Other 3,491 3,482
---------- ----------
Total Other Property and Investments 375,457 348,052
Current Assets
Cash and cash equivalents 13,421 52,029
Accounts receivable, net of allowance for
doubtful accounts - $7,201 and $6,842 91,849 74,868
Accrued utility revenues 89,306 92,328
Fossil fuel (at average cost) 57,955 70,122
Materials and supplies (at average cost) 69,357 72,371
Prepayments 47,939 47,117
Other assets 5,873 6,904
---------- ----------
Total Current Assets 375,700 415,739
Deferred Charges and Other Assets
Accumulated deferred income taxes (Note F) 97,788 61,396
Deferred regulatory assets (Note A) 191,969 -
Other 56,346 39,004
---------- ----------
Total Deferred Charges and Other Assets 346,103 100,400
---------- ----------
Total Assets $3,693,556 $3,285,845
========== ==========
<FN>
See Notes to Financial Statements.
- 3 -
<PAGE> 75
</TABLE>
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
BALANCE SHEET
December 31
CAPITALIZATION AND LIABILITIES
<CAPTION>
1993 1992
---- ----
(Thousands of Dollars)
<S> <C> <C>
Capitalization (See Capitalization Statement)
Common stock equity $1,399,686 $1,294,099
Preferred stock - redemption not required 30,451 30,451
Preferred stock - redemption required 5,250 67,900
Long-term debt (Note J) 1,188,744 1,127,310
---------- ----------
Total Capitalization 2,624,131 2,519,760
Current Liabilities
Long-term debt due currently (Note J) 19,254 19,633
Notes payable (Note K) 117,903 73,724
Accounts payable 81,630 70,010
Payroll and vacation accrued 26,058 26,018
Taxes accrued - income and other 14,422 11,706
Interest accrued 21,295 17,023
Other 13,238 4,813
---------- ----------
Total Current Liabilities 293,800 222,927
Deferred Credits and Other Liabilities
Accumulated deferred income taxes (Note F) 444,717 415,076
Accumulated deferred investment tax credits 91,495 96,233
Deferred regulatory liabilities (Note A) 167,403 -
Other 72,010 31,849
---------- ----------
Total Deferred Credits and Other
Liabilities 775,625 543,158
Commitments and Contingencies (Note N)
---------- ----------
Total Capitalization and Liabilities $3,693,556 $3,285,845
========== ==========
<FN>
See Notes to Financial Statements.
</TABLE>
- 4 -
<PAGE> 76
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
CAPITALIZATION STATEMENT
December 31
<CAPTION>
1993 1992
---- ----
(Thousands of Dollars)
<S> <C> <C>
Common Stock Equity (See Common Stock Equity Statement)
Common stock ($10 par value; authorized 65,000,000 shares;
outstanding - 33,289,327 shares) $ 332,893 $ 332,893
Other paid in capital 139,673 142,527
Retained earnings 927,120 818,679
---------- ----------
Total Common Stock Equity 1,399,686 1,294,099
Preferred Stock - Cumulative
Six Per Cent. Preferred Stock - $100 par value; authorized 45,000 shares;
outstanding - 44,508 shares 4,451 4,451
Serial preferred stock - $100 par value; authorized 2,360,000 shares;
outstanding -
3.60% Series - 260,000 shares 26,000 26,000
---------- ----------
Total Preferred Stock - Redemption Not Required (Note I) 30,451 30,451
6.75% Series - 52,500 shares and 679,000 shares 5,250 67,900
---------- ----------
Total Preferred Stock - Redemption Required (Note I) 5,250 67,900
Long-Term Debt
First mortgage bonds
Series Due
------ ---
4-1/2% 1996 30,000 -
5-7/8% 1996 - 27,726
5-7/8% 1997 130,000 130,000
5-1/8% 1998 60,000 -
6.10 % 1999-2008 25,000 25,000
6.25 % 1999-2008 1,000 1,000
6-1/2% 1999 40,000 40,000
6-5/8% 1999 51,000 51,000
6.45 % 2004 12,000 12,000
7-1/4% 2004 140,000 140,000
6.45 % 2006 4,000 4,000
6.50 % 2007-2009 10,000 10,000
9-3/4% 2015 46,350 46,350
7-1/8% 2016 100,000 -
8-1/2% 2016 - 100,000
6.85 % 2021 9,000 9,000
7-3/4% 2023 100,000 -
9.85 % 2023 - 100,000
7.05 % 2024 60,000 -
9-1/8% 2024 3,443 60,000
8-3/8% 2026 100,000 100,000
7.70 % 2027 200,000 200,000
---------- ---------
1,121,793 1,056,076
Note (unsecured)
Variable rate due 2016 67,000 67,000
Obligations under capital lease (Note B) 41,870 42,604
Unamortized discount - net (22,665) (18,737)
Long-term debt due currently (19,254) (19,633)
---------- ----------
Total Long-Term Debt (Note J) 1,188,744 1,127,310
---------- ----------
Total Capitalization $2,624,131 $2,519,760
========== ==========
<FN>
See Notes to Financial Statements.
</TABLE>
- 5 -
<PAGE> 77
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
COMMON STOCK EQUITY STATEMENT
<CAPTION>
Common Stock Common Stock Other Paid Retained
Shares $10 Par Value In Capital Earnings Total
------------ ------------- ---------- -------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1990 33,289,327 $332,893 $142,462 $704,969 $1,180,324
Net income 181,569 181,569
Cash dividends
Common stock (152,745) (152,745)
Preferred stock (5,928) (5,928)
----------- -------- -------- -------- ----------
Balance - December 31, 1991 33,289,327 332,893 142,462 727,865 1,203,220
Net income 161,742 161,742
Cash dividends
Common stock (65,000) (65,000)
Preferred stock (5,928) (5,928)
Other 65 65
----------- -------- -------- -------- ----------
Balance - December 31, 1992 33,289,327 332,893 142,527 818,679 1,294,099
Net income 177,925 177,925
Cash dividends
Common stock (65,000) (65,000)
Preferred stock (4,729) (4,729)
Purchase of Preferred Stock (2,854) (2,854)
Other 245 245
----------- -------- -------- -------- ----------
Balance - December 31, 1993 33,289,327 $332,893 $139,673 $927,120 $1,399,686
=========== ======== ======== ======== ==========
<FN>
See Notes to Financial Statements.
</TABLE>
- 6 -
<PAGE> 78
WISCONSIN ELECTRIC POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
A - Summary of Significant Accounting Policies
- ----------------------------------------------
General
- -------
The accounting records of the company are kept as prescribed by the Federal
Energy Regulatory Commission (FERC), modified for requirements of the Public
Service Commission of Wisconsin (PSCW).
Revenues
- --------
Utility revenues are recognized on the accrual basis and include estimated
amounts for service rendered but not billed.
Fuel
- ----
The cost of fuel is expensed in the period consumed.
Property
- --------
Property is recorded at cost. Additions to and significant replacements of
utility property are charged to utility plant at cost; minor items are charged
to maintenance expense. Cost includes material, labor and allowance for funds
used during construction (see Note G). The cost of depreciable utility
property, together with removal cost less salvage, is charged to accumulated
provision for depreciation when property is retired.
Deferred Regulatory Assets and Liabilities
- ------------------------------------------
Pursuant to Statement of Financial Accounting Standards No. 71, Accounting for
the Effects of Certain Types of Regulation, the company capitalizes as
deferred regulatory assets incurred costs which are expected to be recovered
in future utility rates. The company also records as deferred regulatory
liabilities the current recovery in utility rates of costs which are expected
to be paid in the future.
The significant portion of the company's deferred regulatory assets and
liabilities relate to the amounts recorded due to the adoption of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (FAS 109).
See Note F.
Statement of Cash Flows
- -----------------------
Cash and cash equivalents include marketable debt securities acquired three
months or less from maturity.
- 7 -
<PAGE> 79
Conservation Investments
- ------------------------
The company directs a variety of demand-side management programs to help
foster energy conservation by its customers. As authorized by the PSCW, the
company has capitalized certain conservation program costs. Utility rates
approved by the PSCW provide for a current return on these conservation
investments. Conservation investments are amortized to operating expense over
a ten-year period.
B - Nuclear Operations
- ----------------------
The company has a nuclear fuel leasing arrangement with Wisconsin Electric
Fuel Trust (Trust), which is treated as a capital lease. The nuclear fuel is
leased for a period of 60 months or until the removal of the fuel from the
reactor, if earlier. Lease payments include charges for the cost of fuel
burned, financing costs and a management fee. In the event the company or the
Trust terminates the lease, the Trust would recover its unamortized cost of
nuclear fuel from the company. Under the lease terms, the company is in
effect the ultimate guarantor of the Trust's commercial paper and line of
credit borrowings financing the investment in nuclear fuel.
Provided below is a summary of nuclear fuel investment at December 31 and
interest expense on the nuclear fuel lease:
1993 1992 1991
-------- -------- --------
(Thousands of Dollars)
Nuclear Fuel
Under capital lease $ 91,201 $ 92,807
Accumulated provision for amortization (54,207) (54,786)
In process/stock 15,671 15,779
------- -------
Total nuclear fuel $ 52,665 $ 53,800
Interest expense on nuclear fuel lease $ 1,697 $ 2,098 $ 3,174
The future minimum lease payments under the capital lease and the present
value of the net minimum lease payments as of December 31, 1993 are as
follows:
(Thousands of Dollars)
1994 $20,335
1995 12,992
1996 7,559
1997 2,881
1998 538
------
Total Minimum Lease Payments 44,305
Less: Interest (2,435)
------
Present Value of Net Minimum
Lease Payments $41,870
======
- 8 -
<PAGE> 80
B - Nuclear Operations - (Cont'd)
- ---------------------------------
The estimated cost of disposal of spent fuel based on a contract with the U.S.
Department of Energy (DOE) is included in nuclear fuel expense. The Energy
Policy Act of 1992 establishes a Uranium Enrichment Decontamination and
Decommissioning fund (fund) for the DOE's nuclear fuel enrichment facilities.
Deposits to the fund will be derived in part from special assessments to
utilities. The company has booked the remaining estimated liability of
$36,774,000, which will be assessed over fourteen years. Assessments are
included in nuclear fuel expense and reflected in utility rates.
Nuclear plant decommissioning is accrued as depreciation expense based on an
external sinking fund method. Total decommissioning is currently estimated at
$280 million in 1993 dollars and is subject to periodic review.
The Price-Anderson Act (Act) provides an aggregate limitation of $9.4 billion
on public liability claims arising out of a nuclear incident. The company has
$200 million of liability insurance from commercial sources. The Act also
establishes an industry-wide retrospective rating plan under which nuclear
reactor owners could be assessed up to $79 million per reactor (the company
owns two), but not more than $10 million in any one year for each reactor, in
the event of a nuclear incident.
An industry-wide insurance program, with an aggregate limit of $200 million,
has been established to cover radiation injury claims of nuclear workers first
employed after 1987. If claims in excess of the available funds develop, the
company could be assessed a maximum of approximately $3.2 million per reactor.
The company has property damage, decontamination and decommissioning insurance
totaling $2.2 billion for loss from damage at the Point Beach Nuclear Plant
with Nuclear Mutual Limited (NML), Nuclear Electric Insurance Limited (NEIL),
American Nuclear Insurers and Mutual Atomic Energy Liability Underwriters.
Under the NML and NEIL policies, the company has potential maximum
retrospective premium liability per loss of $7.0 million and $14.2 million,
respectively.
The company also maintains additional insurance with NEIL covering extra
expenses of obtaining replacement power during a prolonged accidental outage
(in excess of 21 weeks) at the Point Beach Nuclear Plant. This insurance
coverage provides weekly indemnities of $3.5 million per unit for outages
during the first year, declining to 67% of the amounts during the second and
third years. Under the policy, the company's maximum retrospective premium
liability is approximately $8.9 million.
It should not be assumed that, in the event of a major nuclear incident, any
insurance or statutory limitation of liability would protect the company from
material adverse impact.
C - Pension Plans
- -----------------
Effective in 1993, the PSCW adopted Statement of Financial Accounting
Standards No. 87, Employers' Accounting for Pensions (FAS 87), for ratemaking.
For 1992 and 1991, the PSCW recognized funded amounts for ratemaking and the
company charged the following amounts to expense as paid, $3,962,000 and
$3,739,000, respectively.
- 9 -
<PAGE> 81
C - Pension Plans - (Cont'd)
- ----------------------------
The company has several noncontributory pension plans covering all eligible
employees. Pension benefits are based on years of service and the employee's
compensation. The majority of the plans' assets are equity securities; other
assets include corporate and government bonds, guaranteed investment contracts
and real estate. The plans are funded to meet the requirements of the
Employee Retirement Income Security Act of 1974.
In the opinion of the company, current pension trust assets and amounts which
are expected to be paid to the trusts in the future will be adequate to meet
future pension payment obligations to current and future retirees.
Pension Cost calculated per FAS 87 1993 1992 1991
- ---------------------------------- --------- --------- ---------
(Thousands of Dollars)
Components of Net Periodic Pension Cost,
Year Ended December 31 -
Cost of pension benefits earned by
employees $ 9,185 $ 8,290 $ 7,523
Interest cost on projected benefit
obligation 31,650 28,874 27,394
Actual return on plan assets (37,846) (14,090) (88,243)
Net amortization and deferral 1,176 (30,216) 51,694
--------- --------- --------
Total pension cost (credit) calculated
under FAS 87 $ 4,165 $ (7,142) $ (1,632)
========= ========= ========
Actuarial Present Value of Accumulated
Benefit Obligation, at December 31 -
Vested benefits-employees' right to
receive benefit no longer contingent
upon continued employment $ 343,265 $ 304,769
Nonvested benefits-employees' right to
receive benefit contingent upon
continued employment 6,124 5,905
--------- ---------
Total obligation $ 349,389 $ 310,674
========= =========
Funded Status of Plans: Pension Assets and
Obligations at December 31 -
Pension assets at fair market value $ 483,391 $ 461,954
Projected benefit obligation
at present value (437,461) (379,587)
Unrecognized transition asset (25,497) (27,937)
Unrecognized prior service cost 143 14,980
Unrecognized net gain (954) (50,112)
--------- ---------
Projected status of plans $ 19,622 $ 19,298
========= =========
- 10 -
<PAGE> 82
C - Pension Plans - (Cont'd)
- ----------------------------
Rates used for calculations (%) -
Discount Rate-interest rate used to
adjust for the time value of money 7.5 8.0 8.0
Assumed rate of increase
in compensation levels 5.0 5.0 5.0
Expected long-term rate of return
on pension assets 9.0 9.0 9.0
D - Benefits Other Than Pensions
- --------------------------------
In January 1993, the company adopted prospectively Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions (FAS 106), and elected the 20 year option for
amortization of the previously unrecognized accumulated postretirement benefit
obligation. The PSCW has issued an order recognizing FAS 106 for ratemaking;
therefore, adoption has no material impact on net income. For years prior to
1993 the cost of these postretirement benefits was expensed when paid and was
$4,151,000 in 1992, and $4,365,000 in 1991.
The company sponsors defined benefit postretirement plans that cover both
salaried and nonsalaried employees who retire at age 55 or older with at least
10 years of credited service. The postretirement medical plan provides
coverage to retirees and their dependents. Retirees contribute to the medical
plan. The group life insurance benefit is based on employee compensation and
is reduced upon retirement.
Employees' Benefit Trusts (Trusts) are used to fund a major portion of
postretirement benefits. The funding policy for the Trusts is to maximize tax
deductibility. The majority of the Trusts' assets are mutual funds.
- 11 -
<PAGE> 83
D - Benefits Other Than Pensions - (Cont'd)
- -------------------------------------------
Postretirement Benefit Cost calculated per FAS 106 (Thousands of Dollars)
- --------------------------------------------------
Components of Net Periodic Postretirement Benefit Cost,
Year Ended December 31, 1993 -
Cost of postretirement benefits earned by employees $ 2,291
Interest cost on projected benefit obligation 8,404
Actual return on plan assets (2,096)
Net amortization and deferral 4,161
---------
Total postretirement benefit cost calculated $ 12,760
under FAS 106 =========
Funded Status of Plans: Postretirement Obligations
and Assets at December 31 -
Accumulated Postretirement Benefit Obligation at
December 31, 1993 -
Retirees $ (57,061)
Fully eligible active plan participants (13,434)
Other active plan participants (43,485)
---------
Total obligation (113,980)
Postretirement assets at fair market value 26,216
---------
Accumulated postretirement benefit obligation in
excess of plan assets (87,764)
Unrecognized transition obligation 77,943
Unrecognized net loss 4,981
--------
Accrued Postretirement Benefit Obligation $ (4,840)
========
Rates used for calculations (%) -
Discount Rate-interest rate used to adjust
for the time value of money 7.5
Assumed rate of increase in compensation levels 5.0
Expected long-term rate of return on
postretirement assets 9.0
Health care cost trend rate 14.0 declining to
5.0 in 2002
Changes in health care cost trend rates will affect the amounts reported. For
example, a 1% increase in rates would increase the accumulated postretirement
benefit obligation as of December 31, 1993 by $7,900,000 and the aggregate of
the service and interest cost components of net periodic postretirement
benefit cost for the year then ended by $900,000.
- 12 -
<PAGE> 84
D - Benefits Other Than Pensions - (Cont'd)
- -------------------------------------------
Statement of Financial Accounting Standards No. 112, Employers' Accounting for
Postemployment Benefits (FAS 112), was issued in 1992. This statement
establishes standards of financial accounting and reporting for the estimated
cost of benefits provided by an employer to former or inactive employees after
employment but before retirement. The company adopted FAS 112 prospectively
for 1994. It is anticipated that adoption will not have a material effect on
net income.
The company has announced a Voluntary Severance Package (VSP) and Early
Retirement Incentive Program (ERIP) effective January 1994 and March 1994,
respectively to eligible employees. The availability of these plans to
various bargaining units is based upon agreements made between the company and
the unions. These plans are available to most management employees but not
elected officers.
The VSP includes a severance payment, medical/dental insurance, outplacement
services, personal financial planning and tuition support. ERIP provides for
a monthly income supplement, medical benefits, and personal financial
planning. It is estimated that 11-23% of total employees will elect one of
these plans. The estimated cost associated with these plans is $27,000,000 -
$65,000,000.
E - Depreciation
- -----------------
Depreciation expense is accrued at straight line rates, certified by the PSCW,
which include estimates for salvage and removal costs.
Depreciation as a percent of average depreciable utility plant was 3.9% in
1993, 4.1% in 1992, and 4.0% in 1991.
Nuclear plant decommissioning is accrued as depreciation expense (see Note B).
- 13 -
<PAGE> 85
F - Income Taxes
- ----------------
Comprehensive interperiod income tax allocation is used for federal and state
temporary differences. The federal investment tax credit is accounted for on
the deferred basis and is reflected in income ratably over the life of the
related property.
Following is a summary of income tax expense and a reconciliation of total
income tax expense with the tax expected at the federal statutory rate.
1993 1992 1991
-------- -------- --------
(Thousands of Dollars)
Current tax expense $ 84,655 $ 77,775 $ 92,878
Investment tax credit-net (4,123) (3,960) (4,381)
Deferred tax expense 12,034 10,083 6,148
-------- -------- --------
Total tax expense $ 92,566 $ 83,898 $ 94,645
======== ======== ========
Income before income
taxes $270,491 $245,640 $276,214
======== ======== ========
Expected tax at federal
statutory rate $ 94,672 $ 83,518 $ 93,913
State income tax net of
federal tax reduction 10,808 12,242 13,820
Investment tax credit
restored (4,738) (4,071) (4,394)
Other (no item over
5% of expected tax) (8,176) (7,791) (8,694)
-------- -------- --------
Total tax expense $ 92,566 $ 83,898 $ 94,645
======== ======== ========
FAS 109 requires the recording of deferred assets and liabilities to recognize
the expected future tax consequences of events that have been reflected in the
company's financial statements or tax returns, the adjustment of deferred tax
balances to reflect tax rate changes and the recognition of previously
unrecorded deferred taxes. The company adopted FAS 109 prospectively in 1993.
Following is a summary of deferred income taxes as of December 31, 1993, after
FAS 109 adoption, and December 31, 1992, prior to adoption.
- 14 -
<PAGE> 86
F - Income Taxes - (Cont'd)
- ---------------------------
1993 1992
-------- --------
(Thousands of Dollars)
Deferred Income Tax Assets
Decommissioning trust $ 44,888 $ 48,740
Construction advances 30,777 9,371
Accrued vacation 6,692 -
Other 15,431 3,285
-------- --------
Total Deferred Income Tax Assets $ 97,788 $ 61,396
======== ========
Deferred Income Tax Liabilities
Plant related $383,796 $371,411
Conservation investments 51,882 43,665
Other 9,039 -
-------- --------
Total Deferred Income Tax Liabilities $444,717 $415,076
======== ========
The company also has recorded deferred regulatory assets and liabilities of
$155,881,000 and $167,403,000, respectively, as of December 31, 1993, which
represent the future expected impact of deferred taxes on utility revenues.
Adoption of FAS 109 had no material effect on net income.
G - Allowance for Funds Used During Construction (AFUDC)
- --------------------------------------------------------
AFUDC is included in utility plant accounts and represents the cost of
borrowed funds used during plant construction and a return on stockholders'
capital used for construction purposes. On the income statement the cost of
borrowed funds (before income taxes) is a reduction of interest expense and
the return on stockholders' capital is an item of noncash other income.
Utility rates approved by the PSCW provide for a current return on investment
for selected long-term projects included in construction work in progress
(CWIP). AFUDC was capitalized on the remaining CWIP at a rate of 10.83% in
1993, 11.10% in 1992, and 11.16% in 1991, as approved by the PSCW.
H - Transactions with Associated Companies
- ------------------------------------------
Managerial, financial, accounting, legal, data processing and other services
may be rendered between associated companies and are billed in accordance with
service agreements approved by the PSCW. The company also buys gas from
Wisconsin Natural (WN), another subsidiary of Wisconsin Energy Corporation,
for electric generation at rates approved by the PSCW.
- 15 -
<PAGE> 87
I - Preferred Stock
- -------------------
Serial Preferred Stock authorized but unissued is cumulative, $25 par value,
5,000,000 shares.
In the event of default in the payment of preferred dividends or in the
mandatory redemption requirements, no dividends or other distributions may be
paid on the company's common stock.
Redemption Not Required -
The 3.60% Series Preferred Stock is redeemable in whole or in part at the
option of the company at $101 per share plus any accrued dividends.
Redemption Required -
In 1993 the company called for redemption 626,500 shares of its 6.75% Series
Preferred Stock at a purchase price of $104.05 per share plus accrued
dividends to the redemption date. In 1992 the company purchased 21,000 shares
on the open market. The 6.75% Series Preferred Stock has a redemption
requirement of 21,000 shares at par value annually on each June 1 with a
noncumulative option to redeem up to 31,500 additional shares annually.
J - Long-Term Debt
- ------------------
The maturities through 1998 for the aggregate amount of long-term debt
outstanding (excluding obligations under capital lease, see Note B) at
December 31, 1993 are shown below.
1994 $ -
1995 -
1996 30,000,000
1997 130,000,000
1998 60,000,000
There are no sinking fund requirements for the years 1994 through 1998.
Substantially all utility plant is subject to the applicable mortgage.
Long-term debt premium or discount and expense of issuance are amortized by
the straight line method over the lives of the debt issues and included as
interest expense. Unamortized amounts pertaining to reacquired debt are
written off currently, when acquired for sinking fund purposes, or amortized
in accordance with PSCW orders, when acquired for early retirement.
- 16 -
<PAGE> 88
K - Notes Payable
- -----------------
Short-term notes payable consist of:
December 31
1993 1992
-------- --------
(Thousands of Dollars)
Banks $ 50,000 $ -
Commercial paper 67,903 73,724
-------- --------
$117,903 $ 73,724
======== ========
Unused lines of credit for short-term borrowing amounted to $101,600,000 at
December 31, 1993. In support of various informal lines of credit from banks,
the company has agreed to maintain unrestricted compensating balances or to
pay commitment fees; neither the compensating balances nor the commitment fees
are significant.
L - Fair Value of Financial Instruments
- ---------------------------------------
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments (FAS 107), requires, if practicable, disclosure
of the fair value of financial instruments, both assets and liabilities
recognized and not recognized in the balance sheet. The fair values provided
below represent the amounts at which the financial instruments could have been
exchanged between willing parties on December 31.
Fair value is estimated based upon the market value of the financial
instrument or upon instruments with similar characteristics. For most
financial instruments held by the company, book value approximates fair value.
The value of financial instruments recognized on the balance sheet, for which
book value does not approximate fair value, is as follows:
December 31
1993 1992
Book Fair Book Fair
Value Value Value Value
-------- -------- -------- --------
(Thousands of dollars)
Nuclear Decommissioning
Trust Fund $214,421 $231,991 $203,050 $213,049
First Mortgage Bonds 1,121,793 1,169,432 1,056,076 1,066,491
In 1993, the FASB issued Statement of Financial Accounting Standards No. 115
(FAS 115), Accounting for Certain Investments in Debt and Equity Securities.
This standard addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments
in debt securities. The company adopted FAS 115 prospectively in 1994. It is
anticipated that adoption will not have a material effect on net income.
- 17 -
<PAGE> 89
M - Information by Segments of Business
- ---------------------------------------
Year ended December 31 1993 1992 1991
- ---------------------- ---- ---- ----
(Thousands of Dollars)
Electric Operations
Operating revenues $1,347,844 $1,298,723 $1,292,809
Operating income before income taxes 329,727 299,902 323,075
Depreciation 149,646 147,859 132,912
Construction expenditures 305,467 292,031 212,408
Steam Operations
Operating revenues 14,090 13,093 12,986
Operating income before income taxes 3,147 2,235 2,479
Depreciation 1,185 1,108 1,085
Construction expenditures 4,940 1,530 2,803
Total
Operating revenues 1,361,934 1,311,816 1,305,795
Operating income before income taxes 332,874 302,137 325,554
Depreciation 150,831 148,967 133,997
Construction expenditures
(including nonutility) 310,513 293,589 215,446
At December 31
- --------------
Net Identifiable Assets
Electric $3,665,536 $3,262,031 $3,028,283
Steam 25,119 20,972 20,963
Nonutility 2,901 2,842 2,887
---------- ---------- ----------
Total Assets $3,693,556 $3,285,845 $3,052,133
========== ========== ==========
N - Commitments and Contingencies
- ---------------------------------
Plans for the construction and financing of future additions to utility plant
can be found elsewhere in this report in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in Item 7.
O - Subsequent Event
- --------------------
In January 1994, Wisconsin Energy Corporation, the parent company of Wisconsin
Electric, announced plans to merge its wholly-owned natural gas utility
subsidiary, Wisconsin Natural Gas Company, into Wisconsin Electric. The
merger, subject to requisite regulatory and other approvals, is anticipated to
be effective by year-end 1994.
- 18 -
<PAGE> 90
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
the Stockholders of Wisconsin Electric Power Company
In our opinion, the accompanying balance sheet and capitalization statement
and the related statements of income, of common stock equity and of cash flows
present fairly, in all material respects, the financial position of Wisconsin
Electric Power Company at December 31, 1993 and 1992, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting
principles. 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 of these
financial statements in accordance with generally accepted auditing standards
which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above. As
discussed in the Notes to Financial Statements, the Company changed its method
of accounting for income taxes and postretirement benefits effective
January 1, 1993. We concur with these changes in accounting.
/s/Price Waterhouse LLP
- -----------------------
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
January 26, 1994
- 19 -
<PAGE> 91
Wisconsin Natural Gas Company
1993 Financial Statements
and Footnotes
Page
Income Statement and Retained Earnings for the Years 1991, 1992 and 1993 1
Statement of Cash Flow for the Years 1991, 1992 and 1993 3
Balance Sheet as of December 31, 1992 and December 31, 1993 4
Common Stock Equity Statement 6
Notes to Financial Statements 7
Report of Independent Accountants 18
fm\wp\edgar\wedefprx.O11
<PAGE> 92
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FROM WISCONSIN NATURAL
GAS COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1993
WISCONSIN NATURAL GAS COMPANY
STATEMENT OF INCOME AND RETAINED EARNINGS
Year Ended December 31
1993 1992 1991
---- ---- ----
(Thousands of Dollars)
Operating Revenues $281,718 $239,991 $233,120
Operating Expenses
Cost of gas sold 183,759 151,548 148,386
Other operation expenses 45,611 38,385 37,402
Maintenance 5,934 6,018 6,055
Depreciation (Note D) 14,511 13,746 12,699
Taxes other than income taxes 4,783 4,480 3,924
Federal income tax (Note E) 5,324 5,929 4,640
State income tax (Note E) 1,393 1,548 1,217
Deferred income taxes - net (Note E) 1,062 (104) 985
Investment tax credit - net (Note E) (456) (462) (467)
-------- -------- --------
Total Operating Expenses 261,921 221,088 214,841
Operating Income 19,797 18,903 18,279
Other Income and Deductions
Interest income 336 525 491
Allowance for other funds used during
construction (Note F) 4 32 196
Miscellaneous - net (85) (52) (45)
Federal income tax (Note E) (88) (155) (147)
State income tax (Note E) (21) (39) (37)
-------- -------- --------
Total Other Income and Deductions 146 311 458
Income Before Interest Charges 19,943 19,214 18,737
Interest Charges
Long-term debt 6,090 4,958 5,009
Other interest 1,348 1,654 1,742
Allowance for borrowed funds used during
construction (Note F) (2) (18) (109)
-------- -------- --------
Total Interest Charges 7,436 6,594 6,642
-------- -------- --------
Net Income 12,507 12,620 12,095
Retained Earnings - Balance, January 1 41,214 37,081 33,473
-------- -------- --------
53,721 49,701 45,568
Cash Dividends Common Stock (8,487) (8,487) (8,487)
-------- -------- --------
Balance, December 31 $ 45,234 $ 41,214 $ 37,081
======== ======== ========
NOTE: Earnings and Dividends per share of common stock are not applicable
because all of the company's common stock is owned by Wisconsin Energy
Corporation.
See Notes to Financial Statements.
- 1 -
<PAGE> 93
WISCONSIN NATURAL GAS COMPANY
STATEMENT OF CASH FLOWS
Year Ended December 31
1993 1992 1991
---- ---- ----
(Thousands of Dollars)
Operating Activities
Net income $ 12,507 $ 12,620 $ 12,095
Reconciliation to cash
Depreciation 14,511 13,746 12,699
Deferred income taxes - net 1,062 (104) 985
Investment tax credit - net (456) (462) (467)
Allowance for other funds used
during construction (4) (32) (196)
Change in Accounts receivable (2,607) 1,636 (6,213)
Inventories (25,034) (3,061) (6,862)
Accounts payable (3,875) 5,059 (6,652)
Other current assets (2,695) (2,934) 3,829
Other current liabilities 3,347 (3,147) (584)
Other 576 781 (267)
------- ------- -------
Cash Provided by (Used in) Operating Activities (2,668) 24,102 8,367
Investing Activities
Construction expenditures (21,361) (22,578) (20,587)
Allowance for borrowed funds used
during construction (2) (18) (109)
Other 432 (428) (407)
------- ------- -------
Cash Used in Investing Activities (20,931) (23,024) (21,103)
Financing Activities
Sale of long-term debt - 69,032 -
Retirement of long-term debt (2,991) (53,674) -
Change in short-term debt 24,925 (4,840) 13,275
Stockholder contribution 10,000 - 7,000
Dividends on common stock (8,487) (8,487) (8,487)
------- ------- -------
Cash Provided by Financing Activities 23,447 2,031 11,788
Change in Cash and Cash Equivalents $ (152) $ 3,109 $ (948)
======= ======= =======
Supplemental information disclosures
Cash Paid for
Interest (net of amount capitalized) $ 6,684 $ 6,400 $ 6,722
Income taxes 5,800 9,519 6,800
See Notes to Financial Statements.
- 2 -
<PAGE> 94
WISCONSIN NATURAL GAS COMPANY
BALANCE SHEET
December 31
ASSETS
1993 1992
---- ----
(Thousands of Dollars)
Utility Plant $393,032 $372,956
Accumulated provision for depreciation (180,202) (165,920)
-------- --------
Net Utility Plant 212,830 207,036
Other Property and Investments 70 71
Current Assets
Cash and cash equivalents 6,318 6,470
Accounts receivable, net of allowance
for doubtful accounts - $999 and $919 23,251 20,644
Accrued utility revenues 34,961 32,407
Materials and supplies (at average cost) 2,641 2,546
Natural gas stored
(at first-in, first-out cost) 36,571 11,632
Prepayments and other assets 3,091 2,950
-------- --------
Total Current Assets 106,833 76,649
Deferred Charges and Other Assets
Accumulated deferred income taxes (Note E) 11,918 3,993
Deferred take-or-pay buyout 606 3,316
Deferred regulatory assets (Note A) 3,879 -
Other 1,843 2,587
-------- --------
Total Deferred Charges and Other Assets 18,246 9,896
-------- --------
Total Assets $337,979 $293,652
======== ========
See Notes to Financial Statements.
- 3 -
<PAGE> 95
WISCONSIN NATURAL GAS COMPANY
BALANCE SHEET
December 31
CAPITALIZATION AND LIABILITIES
1993 1992
---- ----
(Thousands of Dollars)
Capitalization (See Capitalization Statement)
Common stock equity $114,734 $100,714
Long-term debt (Note I) 71,192 74,059
-------- --------
Total Capitalization 185,926 174,773
Current Liabilities
Long-term debt due currently (Note I) 1,200 1,200
Notes payable (Note J) 68,508 43,583
Accounts payable 24,434 28,309
Payroll and vacation accrued 2,587 2,427
Taxes accrued - income and other 4,047 2,069
Interest accrued 1,458 1,516
Other 1,776 509
-------- -------
Total Current Liabilities 104,010 79,613
Deferred Credits and Other Liabilities
Accumulated deferred income taxes (Note E) 28,657 28,264
Accumulated deferred investment tax credits 6,667 7,123
Deferred take-or-pay buyout 606 3,316
Deferred regulatory liabilities (Note A) 11,530 -
Other 583 563
-------- -------
Total Deferred Credits and Other
Liabilities 48,043 39,266
Commitments and Contingencies (Note L)
-------- --------
Total Capitalization and Liabilities $337,979 $293,652
======== ========
See Notes to Financial Statements.
- 4 -
<PAGE> 96
WISCONSIN NATURAL GAS COMPANY
CAPITALIZATION STATEMENT
December 31
1993 1992
---- ----
(Thousands of Dollars)
Common Stock Equity
Common stock ($1 par value; authorized 38,000,000
shares; issued 1,725,000 shares) $ 1,725 $ 1,725
Other paid in capital 67,775 57,775
Retained earnings 45,234 41,214
-------- --------
Total Common Stock Equity 114,734 100,714
Long-Term Debt
First mortgage bonds
Series Due
------ ---
5-5/8% 1995 10,000 10,000
6-5/8% 1997 10,000 10,000
9-1/4% 2016 3,000 6,000
-------- --------
23,000 26,000
Debentures (unsecured)
6-1/8% Series due 1997 25,000 25,000
8-1/4% Series due 2022 25,000 25,000
Unamortized discount - net (608) (741)
Long-term debt due currently (1,200) (1,200)
-------- --------
Total Long-Term Debt 71,192 74,059
-------- --------
Total Capitalization $185,926 $174,773
======== ========
See Notes to Financial Statements.
- 5 -
<PAGE> 97
WISCONSIN NATURAL GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
A - Summary of Significant Accounting Policies
- ----------------------------------------------
General
- -------
The accounting records of the company are kept as prescribed by the Public
Service Commission of Wisconsin (PSCW).
Revenues
- --------
Utility revenues are recognized on the accrual basis and include estimated
amounts for service rendered but not billed.
Property
- --------
Property is recorded at cost. Additions to and significant replacements of
utility property are charged to utility plant at cost; minor items are charged
to maintenance expense. Cost includes material, labor and allowance for funds
used during construction (see Note F). The cost of depreciable utility
property, together with removal cost less salvage, is charged to accumulated
provision for depreciation when property is retired.
Deferred Regulatory Assets and Liabilities
- ------------------------------------------
Pursuant to Statement of Financial Accounting Standards No. 71, Accounting for
the Effects of Certain Types of Regulation, the company capitalizes as
deferred regulatory assets incurred costs which are expected to be recovered
in future utility rates. The company also records as deferred regulatory
liabilities the current recovery in utility rates of costs which are expected
to be paid in the future.
The significant portion of the company's deferred regulatory assets and
liabilities relate to the amounts recorded due to the adoption of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (FAS 109).
See Note E.
Statement of Cash Flows
- -----------------------
Cash and cash equivalents includes marketable debt securities acquired three
months or less from maturity.
B - Pension Plans
- -----------------
Effective in 1993, the PSCW adopted Statement of Financial Accounting
Standards No. 87, Employers' Accounting for Pensions (FAS 87), for ratemaking.
For 1992 and 1991, the PSCW recognized funded amounts for ratemaking and the
company charged the following amounts to expense as paid, $165,000 and
$555,000, respectively.
- 6 -
<PAGE> 98
B - Pension Plans - (Cont'd)
- ----------------------------
The company has several noncontributory pension plans covering all eligible
employees. Pension benefits are based on years of service and the employee's
compensation. The majority of the plans' assets are equity securities; other
assets include corporate and government bonds, guaranteed investment contracts
and real estate. The plans are funded to meet the requirements of the
Employee Retirement Income Security Act of 1974.
In the opinion of the company, current pension trust assets and amounts which
are expected to be paid to the trust in the future will be adequate to meet
future pension payment obligations to current and future retirees.
Pension Cost calculated per FAS 87 1993 1992 1991
- ---------------------------------- ------ ------ ------
(Thousands of Dollars)
Components of Net Periodic Pension Cost,
Year Ended December 31 -
Cost of pension benefits earned by
employees $ 1,207 $ 1,077 $ 967
Interest cost on projected benefit
obligation 3,633 3,264 3,085
Actual return on plan assets (4,292) (1,599) (9,878)
Net amortization and deferral 305 (3,318) 5,875
------- ------- ------
Total pension cost (credit) calculated
under FAS 87 $ 853 $ (576) $ 49
======= ======= ======
Actuarial Present Value of Accumulated
Benefit Obligation, at December 31 -
Vested benefits-employees' right to
receive benefit no longer contingent
upon continued employment $39,142 $34,112
Nonvested benefits-employees' right to
receive benefit contingent upon
continued employment 428 424
------- -------
Total obligation $39,570 $34,536
======= =======
Funded Status of Plans: Pension Assets and
Obligations at December 31 -
Pension assets at fair market value $55,224 $52,172
Projected benefit obligation
at present value (50,455) (43,112)
Unrecognized transition asset (1,511) (1,635)
Unrecognized prior service cost 1,908 1,854
Unrecognized net gain (2,802) (6,806)
------- ------
Projected status of plans $ 2,364 $ 2,473
======= ======
Rates used for calculations (%) -
Discount Rate-interest rate used to
adjust for the time value of money 7.5 8.0 8.0
Assumed rate of increase in
compensation levels 5.0 5.0 5.0
Expected long-term rate of return
on pension assets 9.0 9.0 9.0
- 7 -
<PAGE> 99
C - Benefits Other Than Pensions
- --------------------------------
In January 1993, the company adopted prospectively Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions (FAS 106), and elected the 20 year option for
amortization of the previously unrecognized accumulated postretirement benefit
obligation. The PSCW has issued an order recognizing FAS 106 for ratemaking;
therefore adoption has no material impact on net income. For years prior to
1993 the cost of these postretirement benefits was expensed when paid and was
$614,000 in 1992, and $527,000 in 1991.
The company sponsors defined benefit postretirement plans that cover both
salaried and nonsalaried employees who retire at age 55 or older with at least
10 years of credited service. The postretirement medical plan provides
coverage to retirees and their dependents. Retirees contribute to the medical
plan. The group life insurance benefit is based on employee compensation and
is reduced upon retirement.
Employees' Benefit Trusts (Trusts) are used to fund a major portion of
postretirement benefits. The funding policy for the Trusts is to maximize tax
deductibility. The majority of the Trusts' assets are mutual funds.
Postretirement Benefit Cost calculated per FAS 106 (Thousands of Dollars)
- --------------------------------------------------
Components of Net Periodic Postretirement Benefit Cost,
Year Ended December 31, 1993 -
Cost of postretirement benefits earned by employees $ 297
Interest cost on projected benefit obligation 1,024
Actual return on plan assets (221)
Net amortization and deferral 520
--------
Total postretirement benefit cost calculated $ 1,620
under FAS 106 ========
Funded Status of Plans: Postretirement Obligations
and Assets at December 31, 1993 -
Accumulated Postretirement Benefit Obligation at
December 31, 1993 -
Retirees $ (5,710)
Fully eligible active plan participants (2,221)
Other active plan participants (6,039)
--------
Total obligation (13,970)
Postretirement assets at fair market value 2,771
--------
Accumulated postretirement benefit obligation in
excess of plan assets (11,199)
Unrecognized transition obligation 9,787
Unrecognized net loss 336
--------
Accrued Postretirement Benefit Obligation $ (1,076)
========
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<PAGE> 100
C - Benefits Other Than Pensions - (Cont'd)
- -------------------------------------------
Rates used for calculations (%) -
Discount Rate-interest rate used to adjust
for the time value of money 7.5
Assumed rate of increase in compensation levels 5.0
Expected long-term rate of return on
postretirement assets 9.0
Health care cost trend rate 14.0 declining to
5.0 in 2002
Changes in health care cost trend rates will affect the amounts reported. For
example, a 1% increase in rates would increase the accumulated postretirement
benefit obligation as of December 31, 1993 by $1,000,000 and the aggregate of
the service and interest cost components of net periodic postretirement
benefit cost for the year then ended by $100,000.
Statement of Financial Accounting Standards No. 112, Employers' Accounting for
Postemployment Benefits (FAS 112), was issued in 1992. This statement
establishes standards of financial accounting and reporting for the estimated
cost of benefits provided by an employer to former or inactive employees after
employment but before retirement. The company adopted FAS 112 prospectively
for 1994. It is anticipate that adoption will not have a material effect on
net income.
The company has announced a Voluntary Severance Package (VSP) and Early
Retirement Incentive Program (ERIP) effective January 1994 and March 1994,
respectively to eligible employees. The availability of these plans to
various bargaining units is based upon agreements made between the company and
the unions. These plans are available to all management employees but not
elected officers.
The VSP includes a severance payment, medical/dental insurance, outplacement
services, personal financial planning and tuition support. ERIP provides for
a monthly income supplement, medical benefits, and personal financial
planning. It is estimated that 8%-20% of total employees will elect one of
these plans. The estimated cost associated with these plans is $3,000,000 -
$10,000,000.
D - Depreciation
- ----------------
Depreciation expense is accrued at straight line rates, certified by the PSCW,
which include estimates of salvage and removal costs.
Depreciation as a percent of average depreciable utility plant was 4.0% in
1993 and 1992 and 3.9% in 1991.
E - Income Taxes
- ----------------
Comprehensive interperiod income tax allocation is used for federal and state
temporary differences. The federal investment tax credit is accounted for on
the deferred basis and is reflected in income ratably over the life of the
related property.
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<PAGE> 101
E - Income Taxes - (Cont'd)
- ---------------------------
Following is a summary of income tax expense and a reconciliation of total
income tax expense with the tax expected at the federal statutory rate.
1993 1992 1991
------- ------- -------
(Thousands of Dollars)
Current tax expense $ 6,826 $ 7,671 $ 6,041
Investment tax credit-net (456) (462) (467)
Deferred tax expense 1,062 (104) 985
------- ------- -------
Total tax expense $ 7,432 $ 7,105 $ 6,559
======= ======= =======
Income before income taxes $19,939 $19,725 $18,654
======= ======= =======
Expected tax at federal
statutory rate $ 6,979 $ 6,706 $ 6,342
State income tax net of federal
tax reduction 1,106 1,107 1,036
Investment tax credit restored (456) (462) (467)
Deferred tax restored -
rate differential (234) (255) (255)
Other (no item over 5% of
expected tax) 37 9 (97)
------- ------- -------
Total tax expense $ 7,432 $ 7,105 $ 6,559
======= ======= =======
FAS 109 requires the recording of deferred assets and liabilities to recognize
the expected future tax consequences of events that have been reflected in the
company's financial statements or tax returns, the adjustment of deferred tax
balances to reflect tax rate changes and the recognition of previously
unrecorded deferred taxes. The company adopted FAS 109 prospectively in 1993.
Following is a summary of deferred income taxes as of December 31, 1993, after
FAS 109 adoption, and December 31, 1992, prior to adoption.
1993 1992
------- -------
(Thousands of Dollars)
Deferred Income Tax Assets
Construction advances $ 8,720 $ 3,993
Other 3,198 -
------- -------
Total Deferred Income Tax Assets $11,918 $ 3,993
======= =======
Deferred Income Tax Liabilities
Plant related $26,397 $28,264
Other 2,260 -
------- -------
Total Deferred Income Tax Liabilities $28,657 $28,264
======= =======
The company also has recorded deferred regulatory assets and liabilities of
$3,879,000 and $11,530,000, respectively, as of December 31, 1993, which
represent the future expected impact of deferred taxes on utility revenues.
Adoption of FAS 109 had no material effect on net income.
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<PAGE> 102
F - Allowance for Funds Used During Construction (AFUDC)
- --------------------------------------------------------
Through August 1993, AFUDC is capitalized in utility plant accounts and
represents the cost of borrowed funds used during construction and a rate of
return on stockholder's capital used for construction purposes. On the income
statement the cost of borrowed funds (before income taxes) is a reduction of
interest expense and the return on stockholder's capital is an item of noncash
other income. Beginning September 1993, all construction work in progress
(CWIP) is allowed to earn a current return.
AFUDC was capitalized at the following rates, as approved by the PSCW:
October 1992 - August 1993 Current return on investment for selected
projects included in CWIP; 10.97% for
remaining CWIP
September 1991 - September 1992 Current return on investment for selected
projects included in CWIP; 11.19% for
remaining CWIP
January 1991 - August 1991 11.37% for all projects
G - Transactions With Associated Companies
- ------------------------------------------
Managerial, financial, accounting, legal, data processing and other services
may be rendered between associated companies and are billed in accordance with
service agreements approved by the PSCW. The company also sells gas to
Wisconsin Electric Power Company (WE), another subsidiary of Wisconsin Energy
Corporation (WEC), for electric generation at rates approved by the PSCW. The
company received from WEC a stockholder contribution of $10,000,000 and
$7,000,000 in 1993 and 1991, respectively.
H - Preferred Stock
- -------------------
Serial Preferred Stock authorized but unissued is cumulative, $100 par value,
120,000 shares.
I - Long-Term Debt
- ------------------
The maturities and sinking fund requirements through 1998 for the aggregate
amount of long-term debt outstanding at December 31, 1993 are shown below.
1994 $ 1,200,000
1995 11,200,000
1996 600,000
1997 35,000,000
1998 -
Sinking fund requirements for the years 1994 through 1998, included in the
table above, are $3,000,000. Substantially all utility plant is subject to
the applicable mortgage.
Long-term debt premium or discount and expense of issuance are amortized by
the straight line method over the lives of the debt issues and included as
interest expense. Unamortized amounts pertaining to reacquired debt are
written off currently, when acquired for sinking fund purposes, or amortized
in accordance with PSCW orders, when acquired for early retirement.
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<PAGE> 103
J - Notes Payable
- -----------------
Short-term notes payable consist of:
December 31
1993 1992
------ ------
(Thousands of Dollars)
Banks $39,999 $ 4,999
Commercial paper 28,509 38,584
------- -------
$68,508 $43,583
======= =======
Unused lines of credit for short-term borrowings amounted to $35,509,000
at December 31, 1993. In support of various informal lines of credit from
banks, the company has agreed to pay commitment fees; these commitment fees
are not significant.
K - Fair Value of Financial Instruments
- ---------------------------------------
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments (FAS 107), requires, if practicable, disclosure
of the fair value of financial instruments, both assets and liabilities
recognized and not recognized in the balance sheet. The fair values provided
below represent the amounts at which the financial instruments could have been
exchanged between willing parties on December 31.
Fair value is estimated based upon the market value of the financial
instrument or upon instruments with similar characteristics. For most
financial instruments held by the company, book value approximates fair value.
The value of financial instruments recognized on the balance sheet, for which
book value does not approximate fair value, is as follows:
December 31
1993 1992
Book Fair Book Fair
Value Value Value Value
-------- -------- -------- --------
(Thousands of dollars)
Debentures $ 50,000 $ 54,469 $ 50,000 $ 50,219
In 1993, the FASB issued Statement of Financial Accounting Standards No. 115
(FAS 115), Accounting for Certain Investments in Debt and Equity Securities.
This standard addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments
in debt securities. The company adopted FAS 115 prospectively in 1994. It is
anticipated that adoption will not have a material effect on net income.
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<PAGE> 104
L - Commitments and Contingencies
- ---------------------------------
Discussion of take-or-pay costs and FERC Order 636 transition costs billed by
natural gas pipeline companies can be found elsewhere in this report in "Legal
Proceedings - Rate Matters" in Item 3.
M - Subsequent Events
- ---------------------
Effective January 1, 1994 Wisconsin Energy Corporation (WEC) acquired all of
the outstanding common stock of Wisconsin Southern Gas Company, Inc. (WSG)
through a statutory merger of WSG into WN in which all of WSG's common stock
was converted into common stock of WEC. WSG was a gas utility engaged in the
purchase, distribution, transportation and sale of natural gas primarily in a
section of southeastern Wisconsin which is contiguous to WN's service
territory. WSG was merged into WN using the pooling of interests method of
accounting. Accordingly, historical financial data in future reports will be
restated to include WSG. The following unaudited proforma data summarizes the
combined results of operations of the company and WSG as though the merger had
occurred at the beginning of 1991:
(Thousands of Dollars) 1993 1992 1991
---- ---- ----
Total operating revenues $331,301 $283,699 $273,804
Net income 14,155 14,209 12,913
In January 1994, WEC announced plans to merge WN into Wisconsin Electric Power
Company, a wholly-owned utility subsidiary of WEC. The merger, subject to
requisite regulatory and other approvals, is anticipated to be effective by
year-end 1994.
- 13 -
<PAGE> 105
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the
Stockholder of Wisconsin Natural Gas Company
In our opinion, the accompanying balance sheet and capitalization statement
and the related statements of income and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Wisconsin
Natural Gas Company at December 31, 1993 and 1992, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting
principles. 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 of these
financial statements in accordance with generally accepted auditing standards
which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above. As
discussed in the Notes to Financial Statements, the Company changed its method
of accounting for income taxes and postretirement benefits effective
January 1, 1993. We concur with these changes in accounting.
/s/Price Waterhouse LLP
- -----------------------
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
January 26, 1994
- 14 -
